Prime Minister John Key will this week announce a significant breakthrough in his drive to turn international trans-Tasman flights into domestic ones, a move expected to cut airfares and reduce travel times.

Key, who leaves for Australia on Tuesday night, will unveil details of the new open border air travel regime with Australian Prime Minister Kevin Rudd on Thursday.

It would be a significant political victory for Key, delivering a better deal for Kiwi travellers and a multimillion-dollar annual injection into the New Zealand economy with more visitors coming here from Australia.

The deal is expected to slash airfares at least 20 percent and reduce travel times. Airport charges such as departure tax are expected to be abolished and processing times for passengers will be faster with the introduction of one-stop security clearance points.

It will also allow more "domestic" airports in New Zealand to start trans-Tasman services. Air New Zealand has already announced that it will start flying from Rotorua to Sydney by the end of the year.

Although Thursday's announcement will be a significant step forward, it is understood some obstacles still need to be overcome and could delay the plan until next year.

Key had hoped the new arrangements would be in place by Christmas, but some quarantine, immigration, duty-free shopping and security issues are still being finalised.

The one-stop clearance point, possibly manned by customs and immigration officials from both countries, are likely to be located at the departure airport. It is understood that passports will stay.

For Kiwis travelling to Australia, the new deal would make for, in Key's words, a "painless experience". So far this year 497,000 Kiwis have travelled to Australia, a 2 percent drop on the same time last year.

With more than a million Australians visiting New Zealand each year, Key, who is also tourism minister, believes easier, faster and cheaper air travel between the two countries will mean even more tourists and a significant boost to the tourism industry and the economy.

Bruce Buchanan, the boss of Qantas' budget airline Jetstar, told the Sunday Star-Times in March, when the plan was mooted by Key, that reclassifying trans-Tasman flights as domestic routes could knock 30 percent off fares. Tourism Australia believes a 20 percent fare reduction is more likely.

The New Zealand Ministry of Tourism expects 1.2 million Australians to visit New Zealand in 2015, a 3 percent increase on today's figures. With each Aussie tourist spending an average $2750 while on holiday in New Zealand, the economic benefits of Key's open border policy are substantial. Tourism's contribution to the national economy is worth more than $14 billion, or 9 percent of New Zealand's gross domestic product.

Key's office would not comment on Thursday's announcement. A spokesman for Rudd, however, said considerable progress had been made since March.

In March, Prime Minister Rudd and Prime Minister Key agreed to reduce remaining barriers at the borders to ensure people and goods can move more easily between Australia and New Zealand. Since then, officials have been taking this work forward.

"The two prime ministers will discuss this and other matters when they meet this week. Public events will be announced as they are finalised."

Open border air travel is not unprecedented. A similar model has been operating between the US and Canada for about six years, where customs and security clearances at the end of the journey were abolished.