KLM has cut fares on all its 66 European routes out of Amsterdam by as much as 40%.
The airline has also announced major cuts on business fares and made tickets more flexible.
Fares aimed at the business travellers include same day return fares and select fares.
A spokesman said: “Business travellers can now enjoy a wider choice. A same-day round trip is now available in Economy Class and at a much more attractive price. Previously it was only available in busines class which is now called Europe Select.”
The new prices, which came into effect on January 1, will apply for the whole year, KLM said.
The move by air France KLM to make KLM in effect its European low cost arm is in response, it said, to “increasing competition in the European air travel market and a drop in average air fares.”
A spokesman for the Dutch carrier said: “These price reductions, the largest in the history of KLM, go hand in hand with a more transparent pricing structure and more attractive conditions. The quality of the service on board and on board and on the ground will remain the same.”
The new fares, available only on flights out of Amsterdam, include: an economy return to London Heathrow for from 69 instead of 109, to Stockholm for from 139 (188), to Vienna for from 149 (287) and to Madrid for from 109 (185).
Same day returnbds to London Heathrow, Paris, Frankfurt and Rome are, respectively: 275, 418, 435 and 885.
But prices exclude airport and fuel taxes and surcharges. These extra charges include booking fees which range from 10 for online bookings, to 25 for a phone booking and 45 for a booking made in a KLM office. Airport taxes at Schiphol also amount to 25.11
This is not KLM's first sortie into the cut price market. In 1999 it launched a low cost airline called Buzz which was based at Stansted Airport in the UK and flew to 24 destinations in France, Germany, the UK and the Netherlands.
Amid the downturn in flying after 9/11, KLM sold Buzz to low cost rival Ryanair for 23.9m in 2003. Ryanair subsequently cancelled many of Buzz's routes, mainly to France.