Air France-KLM is considering setting up a "low-cost" domestic carrier to meet intense competition in the French market from budget rivals, company sources said on Thursday.

The new airline, dubbed 'Air France Express,' could be established next year with bases in the southern cities of Marseille, Nice and Toulouse if agreement can be reached with unions, the sources said.

Air France-KLM which already operates a low cost unit, Transavia, declined to comment.

"Studies are underway to find some way to fight off the 'low-cost' airlines. Among ideas being considered, is setting up a new entity within Air France-KLM," one of the sources said, asking not to be named.

"The idea would be to base some pilots in Marseille, Nice and Toulouse and to do like easyJet -- avoid having aircraft overnighting away from their operating base," the source added.

easyJet and other low cost carriers such Ryanair operate from many bases rather than just one or two, as in the case of Air France-KLM, setting up more efficient regional hubs which help keep down costs.

The source said Air France-KLM aimed to achieve similar cost savings and allow greater flexibility by moving some services outside of its main hub at Roissy-Charles de Gaulle in Paris.

Pilots would work the same number of days but would be in the air for more of their working day, getting paid more but not quite as much more as would be saved in costs, the source added.