Virgin Australia chief John Borghetti on Wednesday lashed out at "offensive" allegations made by Qantas in an escalating row over foreign ownership, with reports that lawyers had been called in.
It follows Qantas chief Alan Joyce this week blasting what he called a "virtual takeover" of Virgin Australia by foreign airlines, claiming they were working to destabilise the national carrier.
On Tuesday, Qantas launched an online campaign against a capital raising by Virgin that could leave 72 percent of the carrier in the hands of Singapore Airlines, Air New Zealand and Abu Dhabi-based Etihad.
Joyce, who was in Canberra Wednesday to lobby politicians, said it would result in an "unfair playing field".
He claimed the foreign backing allowed Virgin to run at a loss by setting uncompetitively low prices to win customers from Qantas, an allegation Borghetti denied.
"To say that Virgin Australia is driven by a strategy of uncompetitively low prices and irrational behaviour is offensive and absurd," he told the company's annual general meeting in Brisbane.
"The airline is run rationally with good management and a view to creating a long-term sustainable and profitable business."
He added: "We have embraced change and competition and adapted our business to it."
Borghetti is so furious that he is seeking legal advice on whether there are grounds to sue Joyce for defamation, Fairfax Media reported, although the airline could not immediately confirm this.
Singapore Airlines, Air New Zealand and Etihad already own 63 percent of Qantas' main domestic rival.
Joyce wrote to Prime Minister Tony Abbott and all state governments this week demanding they "fully examine the motives behind the virtual takeover of Virgin Australia by foreign airlines, and to prevent destabilising of the domestic aviation industry, local tourism and jobs".
Qantas said the situation was compounded by the disadvantage it experienced from the restrictions imposed by the Qantas Sale Act when it was privatised in 1995, which limits foreign ownership in the national carrier to 49 percent.