SYDNEY – There are signs of an upcoming bloodbath in Australia and New Zealand as airlines shed excess baggage in a bid to be ready for the expected fierce battle for market share.

Qantas is pulling out of New Zealand and handing over routes to its low-cost subsidiary Jetstar which offered special $1 airfares to celebrate the launch.

The one-dollar tickets were snapped up within a two-hour sales window.

Jetstar will begin flying domestically from June 10 between Auckland, Wellington, Christchurch and Queenstown, using 177-seat Airbus A320.

The arrival of Jetstar on New Zealand domestic routes brings the number of carriers to four - alongside Pacific Blue, Air New Zealand and Qantas.

Qantas chief Alan Joyce said, "Particularly in the current environment, we need to be flexible to ensure we remain competitive.

"This means applying our two brand strategy and utilising the right airline, with the right cost base and product, for the right market, to offer competitive, sustainable services."

Virgin Blue announced on Tuesday it would remove eight per cent of capacity - or up to five aircraft - from its domestic fleet in May just hours after Qantas said it would significantly alter its flight schedule.

Australian Tourism Export Council managing director Matt Hingerty said,"Anybody who says they know when this is going to end or what the full impact on the industry will be is lying.”

Virgin's plans will affect up to 400 staff, who the airline said could be offered job-sharing options or moved to international start-up V Australia before sackings were considered.

Qantas's international changes will cut capacity to China and alter India's schedule.