A decision by air traffic control provider Airways NZ to increase its prices has put the state-owned company on a collision course with airlines, who say it is being monopolistic and endangering tourism.

Airways has announced it will increase the levies it charges airlines by 15.7 per cent over the next three years, starting in July.

Airlines have said the increases will need to be passed on to customers through higher fares.

The country's only air navigation services provider initially proposed a 23 per cent hike but reduced the level after airlines raised strong objections during a consultation phase.

In submissions made on the proposed 23 per cent price rise, Qantas said Airways should be able to lower its charges by helping airlines to increase capacity - in turn increasing Airways' revenues.

But the Australian airline said the New Zealand situation was the reverse, with Airways' infrastructure investment largely being funded by volatile price increases enforced on airlines which would lead to higher fares and fewer flights.

In its submission Air New Zealand said Airways "did not appear to be managing its costs or setting itself cost efficiency targets, instead simply passing on any cost increases without regard for its customers' circumstances".

The national carrier, which is also partly government-owned, objected to Airways' reference to increasing pressure from its government shareholder for a bigger commercial return.

Air New Zealand said it was aware the state had asked for commercial returns from its companies, but believed it had not expressed concern that Airways was not returning enough.

Yesterday, the airline said even at 15.7 per cent the increased levies would cost it an additional $8.3m annually. Together with increases to airport landing fees and in Aviation Security Service fees, the new costs add up to almost $25m per year which Air New Zealand said it had "no choice" but to pass on through higher airfares.

Airways chief financial officer Mark Loveard said the company had engaged in comprehensive consultation, and had revised its weighted average cost of capital - a key determinant of commercial return targets - from 8.49 per cent to 7.8 per cent in response.

Loveard said he had also reassessed the predicted level of flight volumes upwards in each of the next three years.

He said Airways had always been required to deliver a return to the Government and this had not changed, apart from a general request from the Government to improve performance.

Fairfax NZ

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Fee hike: Passengers may have to pay extra for flights, Air NZ warns.

Picture: Fairfax NZ