As an Australian paasport holder/citizen, your friend is entitled to live and work in NZ as long as he/she wishes.
Air NZ have obviously decided to only accept applicants who currently reside in NZ at this stage. If your friend wants to relocate to NZ prior to applying, then their application would be considered.
They could "possibly" use someones contact address if they know someone, but now there s a record of their application, they would probably be best to wait 6 - 12 months to re-apply.
Accepting applicants from residents of the country which the position is based is common place and legal, both in NZ and Australia.
Hope that answers your question.