Japan Airlines Corp. is considering establishing a low-cost carrier for domestic flights with an Australian budget airline, Jetstar Airways Pty Ltd., sources close to the matter said Monday.

Struggling JAL apparently aims to rely on the Australian firm's know-how to challenge All Nippon Airways Co.'s move to launch a low-fare airline based at Kansai international airport in the second half of the 2011 business year, the sources said.

There remains caution within JAL, however, about assuming the fresh risk of launching a new service at a time when its performance faces being hit by the decline in passengers following the March 11 mega earthquake, according to the sources.

Jetstar, which offers a low-cost service between Japan and Australia, is said to be willing to operate domestic flights in Japan. However, it would have to restrict its foreign ownership to less than one-third in establishing a low-cost domestic carrier.