WELLINGTON, NEW ZEALAND - National carrier Air New Zealand said yesterday it will lift domestic fares by an average 3 per cent due to record high fuel prices.

Air NZ last lifted domestic fares by 3 per cent in March but said another rise was necessary because it could not absorb the surging cost of fuel.

Singapore jet fuel has risen over 10 per cent to US$144 per barrel since mid-March, reflecting the rise in global oil prices.

The announcement comes a week after the company lowered its full-year operating profit forecast by up to 25 per cent because of higher oil prices.

Shares in Air NZ, 77 per cent owned by the New Zealand government, last traded up 2.5 per cent at NZ$1.24 after trading between NZ$1.13 and NZ$3.13 over the past 12 months.

In January, the airline cut domestic fares by up to 30 per cent to increase passenger numbers. It has also introduced bigger planes that are cheaper to operate.

Air NZ is facing increased competition in the domestic market, which it dominates, from Australian carriers Qantas Airways and Virgin Blue.

It has said its fuel bill was 80 per cent hedged for the rest of the financial year but even with hedging and higher fares it could not insulate itself against the widening gap between crude oil and jet fuel. -- Reuters