Virgin Atlantic is to begin a short-haul service between London Heathrow and Manchester from next March.
The airline says its first foray into the UK domestic market will provide competition for British Airways.
It will also provide a regional link for passengers using its long-haul services from Heathrow, it says.
Virgin denied the move was a response to Virgin Rail being told it was losing the West Coast Mainline franchise that covers London to Manchester.
The franchise, held by Virgin since 1997, will be taken on by FirstGroup later this year, the government announced last week.
Virgin Atlantic chief executive Steve Ridgway told the BBC the move was about increasing choice for UK passengers.
"Since BMI was swallowed by BA, competition in domestic routes has disappeared," he said.
BA-owner International Airlines Group bought BMI earlier this year.
By offering access to the international hub Heathrow, the new route was about "keeping Manchester and the North connected with the rest of the world," he added.
The airline says it will operate three daily flights to Manchester using Airbus A319 aircraft from 31 March 2013. Initially, Mr Ridgway said these aircraft would be leased.
Virgin says 650,000 people fly every year from Manchester to London and then connect on to another long-haul flight, and it wants a share of that market.
Mr Ridgway said that Virgin would also be applying for 12 other slots that were being given up by BA following its takeover of BMI, including routes to Aberdeen and Edinburgh.
"Hopefully by next spring we'll be able to start a range of short-haul services to those key markets," he said.
Manchester Airports Group said Virgin was already a strong carrier at the airport with long-haul routes to Barbados, Orlando and Las Vegas.
"We aim to support our airlines as they look to grow and we hope the success of Virgin's domestic services will lead to further expansion at Manchester," said Ken O'Toole, chief commercial officer at Manchester Airports Group (MAG).
Virgin Atlantic was founded by Sir Richard Branson, and is 49% owned by Singapore Airlines.
Earlier this month it reported an annual loss because of higher fuel prices.
The carrier made a loss of £80m in the 12 months to the end of February, compared with a profit of £18.5m a year earlier.
BA said in a statement that it was "confident that our excellent customer service and great value fares will continue to set the standard in UK short-haul aviation".