The fledgling domestic airline Virgin Blue would fly the nation's busiest route, Melbourne to Sydney, from July 15, the airline said yesterday.
There would be five flights each way daily, breaking the Qantas and Ansett duopoly.
Virgin Blue said it would match $66 one-way fares between Melbourne and Sydney already offered by Qantas and Ansett.
Virgin Blue would also offer a flexible return fare for $189.
The $66 fares were available by booking online, the airlines said, with Virgin's fare also available through phone booking, with a $5 service fee.
None of the airlines would say how many seats were available at $66, each saying it was "commercially sensitive" information.
Qantas spokesman Michael Sharp said Qantas knew about Virgin Blue's move on the southern leg because take-off and landing slots previously used by Impulse Airlines were transferred to Virgin Blue as part of the Impulse sale to Qantas.
The announcement of Virgin Blue's expansion to include Melbourne-to-Sydney was made as it released financial results for its first seven months of operation to March 31.
These showed the airline lost $11 million countrywide, although it claimed it made a $500,000 trading profit, excluding abnormal items, for the period. The loss was attributed to start-up costs.
Virgin Blue chief executive Brett Godfrey described the result as "exceptional".
"We are delighted, given we are in start-up phase and facing intense competitive pressures, a failing currency and Gulf War-level aviation fuel prices," he said.
The announcement will do nothing to smooth relationships between Virgin Blue, owned by the British entrepreneur Richard Branson, and rival Qantas over cut-throat pricing.