A fare war between four companies has flared up in Australia's busy Sydney-Brisbane-Melbourne triangle.

Virgin Blue's launch in August has brought both of Australia's low-cost start-ups - Virgin and Impulse Airlines - into a direct duel with each other and with incumbents Qantas and Ansett on some of the busiest routes in Australia.

Impulse, which launched jet services in June, has set the pace. It started with unrestricted Sydney-Melbourne fares 50% below standard economy prices and decided a month later to launch a A$66 ($38) one-way fare requiring Internet booking. It then started Sydney-Brisbane, which it knew would be Virgin's launch route, ahead of schedule and slashed its Internet fare to A$33, 80% below its standard price.

When Virgin Blue started flying on 31 August, it offered an introductory unrestricted Sydney-Brisbane fare of A$48, and chided Impulse for restrictions placed on its Internet rate. Virgin has since started Brisbane-Melbourne flights, announced plans for Brisbane-Adelaide in February, and is offering half of all seats at A$99.

The fares war is likely to continue well past the Olympic Games. Indeed, Qantas has lowered ticket prices on other domestic routes because of a drop in demand due to the Olympics.

Qantas estimates the fares war has stimulated domestic traffic by 8%; others claim it is more. On the city pairs affected, traffic stimulation seems to be higher. Peter Harbison, managing director of Asia-Pacific Aviation, says: "At $33, you are aiming at passengers who have never flown before and this is not Qantas' market."

Qantas and Ansett nonetheless are matching all competing fares. Impulse has complained to the Australian Consumer and Competition Commission (ACCC) that this is a predatory move if they are below the incumbents' costs.

ACCC has cleared Qantas of the first perdation complaint filed by Impulse. Qantas convinced the ACCC that it had business reasons for its 400% increase in capacity on the Newcastle-Melbourne route. Impulse dropped that route after Qantas announced its capacity boost.

Source: Airline Business