Rival airline Impulse launched a fierce fare war weeks before Virgin's launch

The airline is beginning with just one route - the busy Brisbane to Sydney sector with four return flights a day- but plans to expand the network rapidly in the coming months.

A Brisbane-Melbourne service is due to begin on 7 September and the airline says it will open routes servicing regional cities as well as the major state capitals.

It also plans to enter the cut-throat Melbourne-Sydney market, one of the world's five busiest air routes.

Much of the new airline's business will be conducted online, but the airline says its offers will be open to more than "just the fortunate internet-savvy few".

Fare war

Virgin Blue enters the increasingly crowded Australian domestic market in the midst of a price war which it helped create with established competitors Qantas, and Ansett, as well as new arrival Impulse Airlines, slashing their prices.

Many of the new airline's passenger bookings will be made online

On the Sydney-Brisbane route for example, where fares have traditionally been as high as A$390 ($225) one way, Virgin Blue is offering a launch fare of $48 ($27) during its first month of operations and says it has already taken 15,000 bookings.

The new airline has been modelled on Virgin Air, the group's successful European airline which uses Brussels as its network hub.

It uses new 737 aircraft which it says will enable it to run an efficient maintenance operation keeping prices down.

The airline says it expects its low-cost service will stimulate far more Australians to travel by air than can currently afford to and rejects suggestions that it will take much business away from the once solid duopoly of Qantas and Ansett.

'Rag to a bull'

Nonetheless, bosses admit that the prospect of taking on Qantas, whose major stakeholder, British Airways, has been a traditional Virgin rival, was a major spur to Mr Branson's launch on the Australian scene.

Branson is keen to take on a market in which BA has a major stake

"It was a red rag to a bull," Virgin Blue Chief Executive Brett Godfrey told reporters.

He said the Virgin boss's $23m investment was considered "seed capital" for the airline project and predicted that "we are likely to lose most of that over the next three to four years."

"But this is Richard's favourite project at the moment and he is very committed to it," he added.

Australia's domestic air network was deregulated in 1990 with the first new airline, Compass, emerging in 1991.

Compass collapsed however after a fierce price war forced it to suspend operations owing more than $118m.