In a message to staff, chief executive Greg Foran said international travel made up two-thirds of the company's revenue and that was gone now for the forseeable future.
The airline is now expecting to earn less than $500m year. Before Covid-19, Air New Zealand had annual revenue of around $5.8 billion and a profit of $374m.
Foran said the only way the financial situation would improve was if New Zealanders embrace domestic travel after the lockdown was over.
Neither the government's $900 million loan nor the wage subsidy scheme was enough to stave off cutting almost 13,000 jobs by at least a third, he said
Foran was predicting it would take years for the airline to get back to its former size.
"It is clear that the Air New Zealand which emerges from Covid-19 will be a much smaller and largely domestic airline with limited international services to keep supply lines open for the foreseeable future," Foran said.
"The reality is that given we are expecting to be at least 30 percent smaller than we are today we will need to reduce the size of the workforce by up to 3500 roles."
Foran said Air New Zealand has already begun talks with its unions as well as staff about the possibility of taking voluntary redundancies. He said some staff have offered to take leave without pay, reduce their hours or explore voluntary redundancy.