Air New Zealand says it is slashing fares by up to 50% on some of its domestic routes from Novemember 1.
The airline will cut ticket prices on domestic fares by 20%, and by an average 28% on the main routes.
The new prices will take effect when the company starts a new cut-price service, Air New Zealand Express in October.
This will also see the removal of business class, while full meals and drinks will be replaced by a snack service.
Air New Zealand chief executive Ralph Norris says the airline will introduce three new fare categories, with the lowest fares available only by booking online.
The company is also upgrading its Koru Club lounge in Auckland, to offer better seating arrangementfor business travellers.
The airline is keeping its air points reward programme, but says it will be refreshed" to include more points-earning opportunities in the new express service.
It plans to announce a new range of airpoints programme initiatives in a few weeks.
Norris meanwhile likened the new fare structure to the cost of rail and car travel.
"Our promise is that twice as many fares will be sold at the lowest prices - our objective is to make people fly," Norris said.
Increasing the seat capacity of its 737-300 jets, introducing a "no frills" in-flight service, renegotiating aircraft leases, elimanting travel agents' base commissions and an expected increase in interest from passengers has made the fares possible, Norris said.
The Travel Agents' Association is expected to make its opinion known on Air NZ's moves early Wednesday afternoon. Spokespeople from the larger travel agencies were not commenting until the association had released its statement.
Air NZ says will be three categories of fares - smart savers, flexi savers and fully flexi. In all cases the lowest fare in each category will only be available through online booking.
Travellers will still be able to go through travel agents, but will pay for the service.
While the biggest savings will be made on the main trunk routes, Norris says the provincial regions will benefit from fare reductions up to 20% and on average 10%. He said current frequencies and capacity to the regions would be maintained.
Sample "lowest" fares on the main trunk routes, excluding levies and surcharges, include:
Akl - Wgtn (all one way) - $59 (smart saver), $119 (flexi) and $199 (fully flexi).
If travellers can secure the one level fare for their return journey, that means $118, $238 and $398.
Air NZ compares that to the old Akl - Wgtn return fares of $199 (lowest), $377 (mid) and $776 (standard economy).
A quick check of the Qantas web site for airfares between Auckland and Wellington departing August 1 and returning August 2 shows the base fare at $158.20 plus charges, levies and taxes of $39.37, giving a total fare of $197.57 return for booking only one day out.
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