Malaysian AirAsia seeks fair competition

Chief Executive Tony Fernandes warned AirAsia, Southeast Asia's largest no-frills airline in fleet size, may suffer in the long run if it isn't allow to compete on a level playing field.

Malaysia Airlines recently launched a zero-fare campaign to sell surplus seats on domestic and regional flights to boost its income. This put it in direct competition with AirAsia, which has accused Malaysia Airlines of unfairly cutting into its low-cost business.

Fernandes urged the government to remove subsidies on loss-making domestic routes for the flag carrier and allow AirAsia to mount more flights from Malaysia to Singapore.

He also said Malaysia Airline's budget arm, Firefly, should not be allowed to operate out of Subang airport, which is 15 miles from the country's biggest city, Kuala Lumpur.

AirAsia operates out of the low-cost terminal near Malaysia's main international airport, about 50 miles from Kuala Lumpur.

"We have absolutely no problem with (Malaysia Airline's) zero fares. What we are saying is that please allow competition to be fair," Fernandes told reporters.

"We are going to defend our low-cost market very aggressively but we want a level playing field," he said. AirAsia wants to be "treated the same" as Malaysia Airlines, he said.

AirAsia was allowed to mount two daily flights between Kuala Lumpur and Singapore from February, ahead of full liberalization of air travel between the two countries from January 2009.

It has, however, lobbied to operate 20 flights a day on the lucrative route, the fourth-busiest in Asia and currently controlled by Singapore Airline and Malaysia Airlines.

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.

The route represents AirAsia X's third destination in its first year of operation after the Gold Coast in Australia and Hangzhou in China.

Fernandes said AirAsia will offer 5,000 free tickets for the new route for bookings made on 16-17 May for travel between 2 November and 30 April.

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