Carrick McLellan, co-owner of Queenstown Paraflights, said he watched the two men as they paddled to Cecil Peak late on Monday morning.
They were found dead and floating on their backs wearing life jackets, about 50m apart near Hidden Island at 12.50am yesterday.
The pair, a 24-year-old English language student, of Paris, and a 21-year-old shop worker, had been living in Queenstown on working-holiday visas. Police declined to release their names last night as next-of-kin had not been contacted through the French Embassy.
The men were planning to climb the peak and Mr McLellan met them as they came ashore about 11.30am at the foot of the station, which is about 12km south of Queenstown on the western shore of the lake.
After they refused both options, Mr McLellan again stressed the dangers before giving them the Queenstown Paraflights' landline number, which they then stored in a cellphone.
No-one else was at Cecil Peak at the time and he thought he was probably the last person to see them alive.
At 9.53pm, Mr McLellan's business partner Chris Bradley received a call from one of the pair saying they were in trouble and taking on water in the open-topped double kayak.
"Chris said the call was garbled, noisy and windy - they said they were in the middle of the lake, they could only say they were in the middle - and were taking on water."
After calling Queenstown Lakes District Council harbourmaster Marty Black, Mr Bradley called the pair back but got no answer. A search and rescue operation was mounted at 10.05pm as darkness fell.
Mr McLellan said he and Mr Bradley did a "quick couple of lines" in the Paraflight boat where they thought the pair might be, but said their best chance of spotting the pair faded with the light.
He said the southerly wrapped around the Kelvin Heights golf course, which is on a peninsula at the head of the Frankton Arm, and blew up and around Queenstown Bay, creating a competing northeasterly headwind and "bounce around effect".
"It was pretty strange conditions and with one paddle between them, it would have been pretty hard to get back."
The pair would have been tired from a long day paddling and tramping on Cecil Peak and would have lasted a maximum of 20 minutes in the lake before hypothermia set in, he said.
The kayak was found floating on Lake Wakatipu yesterday morning, near Table Bay, by Cecil Peak farm manager Philip Rive.
Senior Sergeant John Fookes, of Queenstown, yesterday warned of the dangers of the district's frigid alpine lakes.
"Lake Wakatipu, and indeed all southern lakes, are particularly cold - it's 10 degrees out there and it doesn't take long to put you in a hypothermic state and, in very short order, your ability to look after yourself deteriorates, and sooner or later it can render you unconscious," he said.
