Qantas knew that the effect of adding substantial capacity between Adelaide and Brisbane and offering fares at or below those of Virgin Blue would be that all competitors on the route would operate at a loss

Australian Competition and Consumer Commission

The airline faces legal action from the competition watchdog over its alleged attempts to block Virgin Blue's access to the market.

Qantas slashed fares and boosted seat numbers following Virgin Blue's market entry, the Australian Competition and Consumer Commission said, in order to "eliminate or substantially damage Virgin Blue".

But Qantas has rebutted the accusations, saying it did not do anything wrong.

Fine threat

Qantas almost doubled the number of seats on flights between Brisbane and Adelaide after Virgin Blue begun offering flights on the same route in December 2000, and it also cut its fares.

"Qantas knew that the effect of adding substantial capacity between Adelaide and Brisbane and offering fares at or below those of Virgin Blue would be that all competitors on the route would operate at a loss," the watchdog said.

The competitive response by Qantas has clearly been supported by and benefited consumers as it has resulted in more services, greater choice and cheaper fares

Geoff Dixon chief executive Qantas

"Qantas had the financial resources and strength to sustain the losses on the route longer than its competitor," it said.

The airline faces a 10m Australian dollars fine if the charges are proven.

In addition, the watchdog is seeking an injunction to prevent Qantas from abusing its market power.

Angry rebuttal

Qantas has denied any wrongdoing.

"The competitive response by Qantas has clearly been supported by and benefited consumers as it has resulted in more services, greater choice and cheaper fares," said chief executive Geoff Dixon.

Preliminary legal hearings will begin on 11 June.