Malaysian AirAsia seeks fair competition

Malaysia Airlines has denied it was competing with AirAsia, saying it offered free tickets to fill up its planes and recover some costs as passengers will still have to pay the fuel surcharge.

The two million free tickets offered on domestic and regional flights during the second half of the year represent about 30 percent of surplus capacity, Malaysia Airlines said.

Some analysts warned AirAsia is at the losing end over the price war as some passengers may shift to the national carrier for services such as free baggage handling and food.

They said AirAsia could also face a cash crunch due to high oil prices and the heightened competition. Malaysia Airlines, in comparison, is financially stronger after returning to the black in 2007 following two years of losses.

Fernandes said Malaysia Airlines' campaign hasn't yet hurt AirAsia's business but "these are early days."

"We don't have any cash problem now but my point is, there is a limit," he said. AirAsia may be hard hit if competition remains unfair, he said.

AirAsia, which recently dropped fuel surcharges by 5 ringgit ($1.6; euro1) in retaliation to Malaysia Airlines' fare campaign, has no plans to roll back the reduction despite rising oil prices, he said.

Fuel represents about half of AirAsia's cost.

"We will live with it (rising fuel price). We will just have to be more ingenuous, more creative," he said.

Fernandes was speaking after earlier announcing that the group's long haul budget carrier, AirAsia X, would launch flights from Kuala Lumpur to Perth from 2 November.