Air New Zealand and Qantas have announced a code sharing arrangement on 115 domestic routes in Australia and New Zealand.

Photo: RNZ

The airlines said the deal could see some passengers save up to two hours on their journey time.

"We are confident that our respective customers will enjoy the reciprocal benefits on both sides of the Tasman," Air NZ chief executive Christopher Luxon said.

The two airlines would continue to compete very strongly across all markets, he said.

The deal means Air New Zealand passengers will use Qantas for onward domestic travel in Australia, and vice versa in New Zealand on routes that JetStar doesn't fly or have a connecting service.

It covers up to 30 routes in New Zealand, including ones possibly covered by Qantas's budget Jetstar operation, and 85 in Australia.

"A codeshare deal on our domestic networks makes sense for customers because it leverages the strengths we each have in our home markets," Qantas chief executive Alan Joyce said.

Passengers could also use the combined 36 airport lounges on both sides of the Tasman.

It will be the third attempt by the airlines to work more closely together.

Whether regulators would take an interest in the deal was unclear, unlike previous attempts that ended in failure due to concern about reduced competition on trans-Tasman flights.

In 2002, Qantas Airways and Air New Zealand tried a wide-ranging strategic alliance, including Qantas taking a 22.5 percent cornerstone shareholding in Air New Zealand for $550 million.

That alliance was knocked back by regulators on both sides of the Tasman, who called it anti-competitive and not in the public interest.

In 2006, the two airlines attempted a code-sharing arrangement on trans-Tasman flights.

They eventually abandoned the proposed tie-up, again due to concerns from regulators.

In April, Air NZ announced its codesharing arrangement with Virgin Australia would end in October.

The new deal between Air NZ and Qantas will start from 28 October.

Both airlines say there are other potential areas of cooperation, including ground handling, freight and biofuel.