No-frills AirAsia plans a major fleet expansion after a profitable first year in which it flew 1.1 million passengers, but said it would go regional only next year.

The small carrier, which currently flies within Malaysia, aims to increase its fleet from six to 14 or 15 and more than double its passenger load to 2.6-2.7 million this year.

It also plans to establish its own tour and travel company offering bargain packages, AirAsia chief executive Tony Fernandez told a news conference to mark the carrier's first anniversary.

With only three percent of Malaysians flying short-haul, Fernandez said the airline would focus on growing the domestic market before expanding regionally by the first quarter of 2004.

"We are still crawling. We want to grow the domestic market first, perfect our model, then we will go regional. Last year we flew 1.1 million passengers. Hopefully we'll carry 2.6-2.7 million this year," he said.

Looking for cheaper airports

In the initial phase, AirAsia is eyeing flights to Thailand, Indonesia, Philippines and China but Fernandez said it was studying ways to keep costs low by selecting small cheaper airports.

"It's not about getting to these destinations quickly. It's about being there in 15 years' time. We will grow profitably, we will grow sensibly and move within the infrastructure that we have," he said.

AirAsia is studying options to buy its own aircraft to expand its fleet of six Boeing 737-300 aircraft which are all leased, he said. It has been wooed by Airbus but remains loyal to Boeing, he added.

AirAsia logged a net income of RM12.03 million in the 13 months to December since Tune Air Sdn Bhd took over and turned it into a no-frills carrier a year ago.

The carrier said it had repaid outstanding debts totalling RM40 million after the takeover and posted a net income of RM11.8 million in the six months to December alone.

It has a 453-strong workforce and recorded an average passenger load factor of 70 percent last year.

Tune Air bought a 99.25 percent stake in AirAsia from DRB-Hicom in December 2001, with the remaining 0.75 percent held by Mofaz Air.

Cost is the enemy

On plans by Thailand and Singapore to jointly set up a budget airline operating from the northern Thai city of Chiang Mai, Fernandez said AirAsia was not worried about competition but about containing cost.

"Low-cost (airline) is like dot.com right now. It's a sexy thing. Our enemy is not competition, our enemy is cost. As long as we have our feet firmly on the ground and we don't get carried away, we will persevere."

Fernandez said AirAsia's success had not come at the expense of flag carrier Malaysia Airlines, which had in August launched a price war to counter AirAsia's cheap domestic fares.

He said the rivalry had ceased after mediation by the transport ministry and the flag carrier now realised AirAsia could play a complementary role.

"We are still in a courting stage, getting to know each other. They are now seeing us not as a devil reincarnation but that we are actually okay," he said.

"But whether they will jump into bed with us, maybe not yet. It takes time."

On earlier plans to divest a 30 percent stake in AirAsia to foreign investors, Fernandez said negotiations were ongoing.

"A lot of people are looking at us now. This time last year, we could not even get a door open to a bank. Six months later we got a cup of coffee. Things have changed. We are looking at our options." AFP