Etihad, based in Abu Dhabi, and the pan-European TUI Group are soon to announce the name of a new low-cost carrier.

Etihad Aviation Group, the holding company for the Abu Dhabi carrier, said: "The leisure airline group will be supported by the expertise of Etihad Aviation Group, the fastest-growing aviation group in the world, and utilise TUI’s state-of-the-art distribution capacity."

The working title for the project is “Blue Sky” — which was also the name used by British Airways while it was developing its low-cost offshoot, Go.

With 60 aircraft, it will be one of the largest budget airlines in Europe, alongside Ryanair, easyJet, Vueling, Norwegian and Wizz Air.

Around half the aircraft will be Boeing 737s from the TUI fleet. It will also use 737s belonging to Air Berlin, the loss-making carrier part-owned by Etihad. In addition, it will deploy Airbus A320 jets belonging to FlyNiki, founded by the Austrian racing driver Niki Lauda, which is itself a subsidiary of Air Berlin. FlyNiki is based in Vienna, which is expected to be the home base for the new airline.

The two firms said they aim “to create a strong European leisure airline group, focused on point-to-point flying to connect key tourist markets”. It will be based at airports in Austria, Germany and Switzerland, but will serve “a broad network of destinations” which are likely to include some UK airports.

The airline consultant John Strickland described the venture as “A bit late into the low-cost space but if they stick to the German home market where the TUI brand has strength for consumers they can probably survive.

“Branching beyond known territory would be more risky given the amount of capacity around, especially from Ryanair.”

Ryanair’s chief executive dismissed the prospects of the new venture. Michael O’Leary told The Independent: “This is about the fifth restructuring we have seen of the German low-cost market.”