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Ms Ardern also said most of New Zealand could return to Covid-19 Alert Level 1 as early as next week if conditions allow.
"While we will retain the status quo [Level 2] for now, Cabinet has agreed in principle that at 11.59pm on Monday September 21, the rest of New Zealand (apart from Auckland) will move to Alert Level 1.
"This is contingent on cases tracking as they are, and maintaining the containment we have seen."
Any shift to Level 1 will be confirmed next Monday when Cabinet meets again.
Queenstown Chamber of Commerce chief executive Craig Douglas was thrilled with yesterday’s announcement because "we need everything we can get".
He hoped Level 1 might soon be a reality for the resort.
"We’ve got something positive out of [yesterday’s] announcement that’s effective immediately and that will help, but we’re still suffering from the other restrictions that are in place."
The easing of physical distancing rules on planes, which Queenstown Lakes Mayor Jim Boult called for last week, resulted in immediate changes by airlines.
Air New Zealand released more than 180,000 seats across the network — 160,000 of those priced at $50 — while Jetstar announced it would be back in the sky from Thursday.
The airline grounded its New Zealand fleet last month due to requirements for social distancing on flights.
From Thursday it would resume up to 75 flights on six domestic routes, which equated to about 60% of its pre-Covid-19 schedule, it said.
That included up to 21 return weekly flights to Queenstown from Auckland, and up to seven a week from Wellington.
Airlines, buses and trains no longer need to maintain any seating restrictions or passenger capacity limits at Level 2, but mask wearing by passengers and drivers remains compulsory.
Mr Boult said he had contacted the Prime Minister to express his gratitude for the change.
"It will give our region a significant boost at a time when we appreciate all the help we can get.”.
Ms Ardern made her announcement in Dunedin yesterday afternoon, having attended Cabinet by Zoom from the city in the morning.
She said the Government had to strike a balance between the surge of community transmission cases of Covid-19 in Auckland, the recently reinstated ability for Aucklanders to travel outside their region, the needs of tourism operators and the health of all New Zealanders.
"That is the reason why we have had to maintain a few safety precautions, and that is what Alert Level 2 offers," Ms Ardern said.
"If we had a scenario, for instance, where a case was seeded elsewhere and we were in a Level 1 environment then that could create super-spreader events and could result in parts of the South Island being up at Level 3."
New Zealand recorded just one case of Covid-19 yesterday, a child who had been in isolation for two weeks.
Ms Ardern said key factors in next week’s Level 1 decision would be no cases of community transmission being found outside Auckland, and the outbreak in Auckland remaining generally confined to people already in isolation.
Surveillance testing in the South, including Queenstown, continued to detect no cases of Covid-19 and it was important that testing continued, Ms Ardern said.