The start-up airline hoping to fly the transtasman route to Invercargill has pulled out of the proposal, citing concerns over filling planes from Australia.
The move has prompted Invercargill Mayor Tim Shadbolt, a proponent of the city's multimillion-dollar runway extension, to call for southern airports to work together.
Last year, the Otago Daily Times revealed Pacific Wings, a start-up airline based in Australia, was considering flying from Invercargill to Brisbane/Sydney several times a week.
Following Pacific Wings' withdrawal, Mr Shadbolt said Invercargill Airport, along with Dunedin and Queenstown international airports, should work more closely to promote the region.
"We are all in the same boat. We should see the whole region as a whole destination."
"We could work better rather than competing with each other," he said.
Dunedin International Airport chief executive John McCall said while the southern airports were competing they did work together on an industry level.
"In the region, people have a choice to drive to one of three airports. Invercargill is disadvantaged by having only domestic traffic and only one carrier, but there are certainly synergies between the airports."
Queenstown Airport chief executive Steve Sanderson said while Invercargill Airport traditionally took diverted aircraft from Queenstown, improving technology meant this was becoming less common.
Norman Elder, in his capacity as chairman of the council-owned Invercargill City Holdings, said the news of Pacific Wings pulling out of the route was "disappointing".
Pacific Wings had informed the company before Christmas that passenger numbers from Australian ports to Invercargill did not stack up, particularly in the present economic climate.
Cr Elder said the company had spent little on the proposal, but was still in talks with other airlines, including Pacific Blue and Air New Zealand, about flying the Invercargill transtasman route.
"The important thing is we are still on the radar."
Invercargill Airport chief executive Barry Bouton declined to comment.
hamish.mcneilly@odt.co.nz