National carrier Air New Zealand said on Tuesday it was aiming to cut costs on its short-haul international flights by 10 percent to make up for a 25 percent decline in yields.

The airline, which two years ago brought in 'low-frills' services on its Australian routes, said it needed to cut costs to combat tough competition on trans-Tasman routes.

Air NZ's main rival on the key trans-Tasman routes is Australia's Qantas, but recent entrants include discount Australian carrier Virgin Blue and Emirates.

Air NZ has proposed putting its entire Airbus A320 fleet into one operating group to service its own routes and those of its budget subsidiary, Freedom Air.

Other proposals include making greater use of the planes, renegotiating supplier contracts, cutting overheads and boosting internet bookings. Air NZ would talk to unions and staff, but did not expect job losses from the plan.

"By leveraging the relative strengths of the Air New Zealand and Freedom Air business models the Air New Zealand Group would aim to lower its short-haul costs by approximately 10 percent on a cost-per-seat basis," said Air NZ Group General Manager Airlines, Rob Fyfe, adding the proposed new strategy was independent of any possible cooperation with Qantas.

The two carriers have spoken of possible cooperation, but made no public statement about any progress, after a proposed alliance was rejected last September by competition regulators.

Air NZ and Freedom Air would retain their separate identities and separate levels of customer service, Fyfe said.

The Auckland-based airline, saved by the New Zealand government from collapsing under a mountain of debt in 2002, has already cut costs, fares and frills on its domestic and short-haul international flights.

Air NZ is spending more than NZD$1.35 billion (USD$951.6 million) on 10 Boeing aircraft, including a pair of new 787s, and NZD$350 million (USD$246.6 million) on 15 Bombardier Dash Q300 planes, to further cut costs and boost capacity.