In what appears a major blow for discount air travel, Qantas has announced that it has struck a deal with its smaller domestic rival Impulse Airlines that will see the new player withdraw its brand from the market.

It appears Impulse will continue to operate but under the Qantas brand, only servicing 'leisure' destinations rather than the major capital city routes on which Impulse and Virgin Blue have forced most of the fare discounting of the last nine months.

In a joint press conference executives from both airlines said increasingly competitive market conditions in Australia had given rise to the deal. Impulse recently downgraded its profit forcast to zero for this financial year citing the pressures of competing in the domestic airline market against the likes of Qantas and Ansett.

It has long been predicted that at the domestic market conditions that have seen four domestic airlines competing since September last year were unsustainable and that one of the airlines would not survive. It now appears that there will now be only three airlines competing - Qantas, Ansett and Virgin Blue - with Impulse disappearing as an independent player.

However, the move may strengthen the hand of Virgin Blue which may now be able to compete more effectively against its big two rivals ensuring that discounting continues.

Qantas has also confirmed it will launch its own domestic service in the New Zealand in the wake of the collapse of Qantas NZ.