Aer Lingus owner IAG is expanding its new airline Level into short-haul routes, setting up an Austrian division which will provide low-cost flights between Vienna and destinations in Europe.
Most budget airlines are focused on short-haul routes.
But Level was established last year to offer low-cost long-haul flights, joining a handful of other airlines in this market, including Norwegian.
But IAG said today that Level would expand into the short-haul market where it will compete with Europe's biggest low-cost carrier Ryanair.
Austria has become the new front line in the battle between low-cost carriers after the collapse last year of Austrian airline Niki, part of bankrupt Air Berlin.
That freed up space in the Austrian capital Vienna and has allowed budget airlines EasyJet, Lufthansa's low-cost arm Eurowings and Wizz Air to launch or add services in recent months.
The expansion of Level comes at a time when IAG's interest in low-cost is rising.
The group has twice approached low-cost carrier Norwegian, the third biggest in Europe, about a takeover deal but Norwegian has rejected this.
Laudamotion, the airline created out of the Niki assets and now backed by Ryanair, is also expanding and is selling tickets at low prices to win market share.
IAG had itself been interested in buying the Niki assets but lost out to its founder Niki Lauda, the former motor racing champion, who later struck a deal with Ryanair.
IAG, which also owns British Airways, Iberia and low-cost carrier Vueling, had said in February that it was looking to expand in Austria.
It said today its new Austrian subsidiary would provide Austrian customers with more choice.
"These flights will be branded as LEVEL to build upon the huge success of our new long-haul low-cost operation," CEO Willie Walsh said.
Level will base four Airbus A321 planes in Vienna. IAG's Vueling also flies on routes such as Vienna-Palma, Majorca, and Vienna-Paris.
Flights are due to start on July 17 between Vienna and Palma and Vienna to London Gatwick, before new routes to other destinations such as Barcelona, Malaga and Paris start over the following month.