A new airline is being set up through a joint venture between Etihad Airways and Air Arabia.
The new carrier will operate out of Abu Dhabi International Airport and will be dubbed “Air Arabia Abu Dhabi”.
Tony Douglas, group chief executive of Etihad Aviation Group, said: “This exciting partnership supports our transformation programme and will offer our guests a new option for low-cost travel to and from Abu Dhabi, supplementing our own services.
"We look forward to the launch of the new airline in due course."
The proposal is part of Etihad's plan to turn around its company fortunes and is a proponent of its 2017 turnaround plans to become profitable again by 2023.
The new airline is looking to meet demand from low-income workers who wish to travel to India, Pakistan and the Philippines, while it could also help to feed traffic to onward destinations served by Etihad’s current long-haul flights.