'It is something Virgin Blue is running a ruler over and if we believe it has merit, we will take a business case to the board,' a spokesman for the airline said.

Tiger, a low-fare airline partly owned by Singapore Airlines (SIA), is planning to launch a new domestic Australian airline to compete with Virgin Blue and Qantas Airways' low-cost subsidiary Jetstar.

Tiger models itself on Irish no-frills carrier Ryanair, with a strategy of undercutting rival airlines with cheaper fares.

The Australian aviation market has traditionally been able to accommodate only two or three carriers. Qantas' biggest rival Ansett collapsed in 2001, paving the way for Virgin Blue to boost its share of the domestic market.

Virgin Blue chief executive Brett Godfrey was quoted in the Australian Financial Review newspaper as saying that the airline could launch the business within three months following board approval if it went ahead, and it would not need to order new planes.

The idea was still only a 'conceptual discussion' with no final decision made, he added.

Virgin Blue said in March that it would spend A$2.2 billion (S$2.75 billion) to buy six Boeing 777-300ER wide-bodied aircraft, with an option for six more.

SIA holds 49 per cent of Tiger, while Singapore investment company Temasek Holdings has 11 per cent.

Its remaining two shareholders are Indigo Partners, an investment firm founded by former America West chief Bill Franke, with 24 per cent, and Ryanair founder Tony Ryan with 16 per cent.

REUTERS