Air New Zealand's ticket price cuts will mean average savings of 20 per cent on domestic fares.
The airline's single-class domestic Express service, which starts in November, will serve only a snack, tea, coffee and water.
Express will replace business and economy class flights in an effort to boost Air NZ's sales and return it to profit.
Managing director Ralph Norris said yesterday that fares on the main trunk route would drop by about 28 per cent and by an average of 20 per cent over the whole domestic network.
The provinces would have fare reductions of up to 20 per cent and on average about 10 per cent. The cheapest flights would drop by 50 per cent.
Mr Norris said the new fares would make flying the most "realistically priced" transport option within New Zealand.
"Today's announcement on fares represents the most significant fare reduction programme yet undertaken by Air New Zealand across its domestic services," he said.
"Our promise is that twice as many fares will be sold at the lowest prices - our objective is to encourage people to fly."
Air NZ, which reported a loss of $1.43 billion last year after the collapse of Ansett, is encouraging bookings through the internet.
The airline has restructured its domestic and short-haul services in a bid to head off competition from Qantas, which recently announced it would increase its transtasman flights.
Mr Norris said Air NZ would retain its airpoints reward programme, but there would be changes.
But airpoints would not be given for the cheapest Smart Saver fares.
In the three categories of fares - Smart Savers, Flexi Savers and Fully Flexi - the lowest fares would be available only on the internet.
Bookings could still be made through travel agents and the Air NZ call centre, but service charges would apply.
The new fares will be available from November 1, and bookings can be made immediately.
The cheapest Smart Saver fare between Auckland and Wellington will be $59, between Auckland and Christchurch it will be $69, and between Wellington and Christchurch it will be $39, all one-way.
Those prices exclude levies and surcharges.
The lowest Fully Flexi fares - the priciest option - will be $199 between Auckland and Wellington; $249 between Auckland and Christchurch; and $149 between Wellington and Christchurch, again all one way.
The most significant savings will be on main trunk domestic routes operated by Air NZ's Boeing 737-300 fleet, because capacity can be increased using the same aircraft and costs can be lowered by reducing the level of in-flight service.
The 737-300 aircraft will be fitted with 136 seats, compared with the 122 at present, after business class seats are removed.
The cheapest return Air NZ flight now between Auckland and Wellington is $199.
A return trip can cost up to $776.
The lowest return fare on that route is the $197 both Freedom and Qantas offer, but only through the internet.
Mr Norris said present frequencies and capacity would be maintained across the domestic network.
Air NZ says its budget flyer, Freedom Air, will concentrate on transtasman flights.
Travel agents are unhappy with Air NZ's push for online bookings and cutting commissions.