Israeli flag carrier El Al is to focus its new short-haul operation on European routes, as it plots to start the services by summer 2014.
El Al is intending the measure as a response to changes in market conditions, including the introduction of open-skies policies with the EU.
"We have to fight," said El Al president Elyezer Shkedy during the IATA annual general meeting in Cape Town.
He says the airline is assessing the number of seats with which it will reconfigure Boeing 737-800s in order to create a low-cost division.
The aircraft are currently fitted with 126 economy and 16 business-class seats.
Shkedy says the airline will use four aircraft initially, but that the destinations have yet to be determined. But he says the airline is concentrating on European routes.
The carrier plans to seek board approval to add more short-haul aircraft, on top of the first four, as the short-haul operation develops.
El Al is battling to stabilise its financial performance after losses for the first quarter deepened by 40% to more than $32 million.
Shkedy blames "stiff competition" and says the airline is aiming for a new labour agreement to help secure a capital injection from investment company FIMI.