The hydraulic retarder, which is an auxiliary brake device for enhancing traffic safety, has been widely used in kinds of heavy commercial vehicles. When the vehicle equipped with the retarder is traveling in non-braking state, the transmission loss would be caused because of the stirring air between working wheels of the rotor and the stator no matter if the retarder connects in parallel or in series with the transmission . This paper introduces an elaborate hydraulic retarder air-friction reduction system (AFRS) which consists of a vacuum generating module and pneumatic control module. AFRS works to reduce the air friction by decreasing the gas density between working wheels when the retarder is in non-braking state. The pneumatic control model of hydraulic retarder is built first. Then various driving conditions are considered to verify the performance of the AFRS. The stability of the AFRS is analyzed based on the complete driveline model. And the vacuum power of AFRS and the air-friction of retarder are analyzed comprehensively. On the basic of the whole vehicle driving cycle, the fuel economy of the vehicle equipped with AFRS is studied. The result indicates that the performance and stability of the AFRS could meet the system requirement in different driving condition. Comparing with traditional hydraulic retarder, the transmission loss could be reduced by 60% and the fuel consumption decreases by 5%.