IAG, which also controls Irish airline Aer Lingus and Spanish carriers Iberia and Vueling, will launch a new low-cost subsidiary, branded as Level, with flights from Vienna starting on July 17.
Level was launched as a long-haul airline brand a year ago, initially operating from Barcelona to US and South American destinations before opening a second European base at Paris Orly.
Vienna airport has also attracted expansion from other services including easyJet, eastern European carrier Wizz Air, and Lufthansa’s low-cost arm Eurowings.
Austria has become a battleground for low-cost airlines, with Ryanair recently taking a stake in LaudaMotion, the latest aviation venture of former Formula One motor racing champion Niki Lauda.
Lauda launched it after beating off competition from IAG to buy assets from the collapsed Air Berlin.
IAG’s new subsidiary will base four Airbus A321 aircraft in Vienna, from where it will fly to 14 European destinations including Palma de Majorca and London Gatwick.
Its fares start at 24.99 euros.
IAG chief executive, Willie Walsh, said: “We are launching this new short-haul subsidiary to provide Austrian consumers with more flight choices across Europe.
“These flights will be branded as Level to build upon the huge success of our new long-haul low-cost operation. “We will serve the Austrian market with low-cost, reliable flights and will initially create around 200 new jobs at our Vienna base.”
IAG recently bought a near-5 per cent stake in Norwegian Air Shuttle and has had two conditional takeover approaches rejected by the low-cost carrier.
Walsh indicated IAG would not make a hostile approach, nor would it get involved in a bidding war.
Lufthansa has since emerged as a potential buyer of Norwegian.
IAG shares fell 9p to 660½p.