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The Virgin Blue Group has launched a three-class international airline, V Australia, with a daily direct route between Sydney and Los Angeles, undercutting many of Qantas' fares on the route by more than half.
Virgin's decision follows the Open Skies agreement, reached between the US and Australia last month, which allows Australian and US-owned airlines to fly an unlimited number of flights between the two countries.
Prime Minister Kevin Rudd is expected to sign the Open Skies agreement in the Washington tomorrow with the US Transport Secretary Mary Peters.
V Australia, the international airline of Virgin Blue Holdings Ltd, will become the second airline after Qantas Airways Ltd to fly the route directly.
Air NZ flies Sydney to Los Angeles via New Zealand.
The increase in competition is expected to lead to lower air fares across the Pacific.
"The trans-Pacific route is in dire need of competition and a good shake up and that's a challenge we are always keen to take on," Virgin Blue founder Sir Richard Branson said in Sydney today.
"There is going to be very fierce competition, as there is with Virgin Blue and Qantas in Australia, and fares will definitely drop quite dramatically across this route."
V Australia started its initial sales for the route today and is offering the first 1,000 international economy seats between Sydney and Los Angeles for A$999 ($1164) return.
The regular fares will start from A$1,899, ($2213) which is 16 per cent cheaper than the current lowest published fare on the route, V Australia said.
After the successful US deal, Canberra is pressing Brussels to negotiate an open skies agreement for more competitive aviation links between the Europe Union and Australia.
"Later this year we're also hopeful of pursuing the federal government's agenda when it comes to aviation, which is about freeing up our skies globally, not just with the US but with Europe and our neighbours," Federal Transport Minister Anthony Albanese said today at the V Australia launch.
Sydney is to be home to V Australia, which aims to have daily flights between the US and Australia by December.
Virgin said it would spend at least A$44 ($51.27) million on establishing the operation, with V Australia to have 1,000 staff based in Sydney.
The flights between the US and Sydney are expected to bring more than 50,000 visitors to New South Wales this year.
Sir Richard Branson said V Australia would improve earnings for the Virgin Blue Holdings over the long term but would have "a big knock" on the balance sheet in the short term.
"Virgin has a lot of investments in a lot of different areas here in Australia and all these things are going to cost a lot of money in the short term.
"But in the long term obviously we hope that it will improve earnings."
Sir Richard Branson said he had no plan to acquire a greater stake in Virgin Blue back from Toll Holdings Ltd, which holds a 62 per cent stake of the airline.
Sir Richard Branson's Virgin Group owns 25 per cent of the airline.
"We have no plans to prize anything away from Toll, we have a great working relationship with them.
The new Sydney-Los Angeles route will begin on December 15.
At 1332 AEDT Virgin Blue was down two cents, or 1.6 per cent, to A$1.23, while Qantas was down three cents, or 0.76 per cent, to A$3.93.
- AAP
