The Virgin Blue Group which operates Virgin Blue and V Australia is seeking larger aircraft and new partners as part of a series of moves that could make competitor Qantas Airways a bit nervous. Consider the first volley launched in an Australian airline battle that's certainly worth watching.

Virgin Blue Holdings, parent of Virgin Blue and V Australia, has signed an agreement with Etihad Airways that will allow V Australia to launch direct services to Abu Dhabi in 2011. According to a press release by the parent company:

The two airlines will offer a joint network of more than 100 destinations from October 1, 2010. Etihad and V Australia will offer 27 weekly services between Abu Dhabi and Australia – including double-daily services between Abu Dhabi and Sydney, daily Melbourne-Abu Dhabi flights and six frequencies per week between Abu Dhabi and Brisbane.

V Australia will operate three Sydney-Abu Dhabi services per week from February 2011 and three Brisbane-Abu Dhabi services per week by February 2012, using its new fleet of three-class Boeing 777-300ER and becoming the first Australian carrier to operate to the Middle East since 1991.

From October, Virgin Blue Group customers can access Etihad's network of 65 destinations across North America, Europe, Asia, the Middle East and the Subcontinent. All Virgin Blue services will be available to Etihad customers, opening up 45 destinations in Australia, New Zealand and the Pacific Islands, and to Asia, South Africa and Los Angeles.

The agreement integrates the Etihad Guest and Velocity frequent flyer programs, allowing members to earn status/tier points and frequent flyer points immediately along with reciprocal service benefits and lounge access for top tier members of both programs. The ability for members to burn miles on both carriers' services comes into effect from October 1.

The news of the partnership coincides with Virgin Blue's plan to soon offer wide-body domestic service using Airbus A330 aircraft. The airline is looking to attract a broader range of flyers, including the lucrative business traveler, by upgrading its on-board services and even offering a business class on select domestic and international short-haul flights.

Can an airline be all things to all people? You can't accuse them of not trying. Qantas created a low-cost subsidiary, Jetstar, to compete with Virgin Blue, particularly in the domestic market. Now with upgrades to Virgin Blue's offerings, as well as the Etihad partnership which expands the reach of Virgin Blue and V Australia flyers, Australia could be the place to watch as the lines are blurred between the full service and low-cost boundaries.