Budget carrier AirAsia will introduce a fuel surcharge on its flights for the first time from July 14 as part of efforts to combat spiraling fuel costs.

"Fuel is the single largest cost component for the company; the fuel surcharge will allow the company to alleviate the escalating fuel costs," the carrier said in an announcement to the stock exchange.

AirAsia said the surcharge would be RM5 per sector for flights within peninsular Malaysia, RM10 per sector for flights to East Malaysia and RM25 per sector to Thailand, Indonesia, Macau and the Philippines.

"The fuel surcharge is expected to contribute positively to AirAsia's consolidated earnings for the financial year 2006 ending 30 June 2006," it said.

The government first approved the fuel surcharge in May, but AirAsia has been holding off on introducing the fee in anticipation of government plans to rationalise domestic air routes.

"There is an urgent need for the government to resolve the calls for domestic air services rationalisation," AirAsia's chief executive officer Tony Fernandes was quoted as saying by the official Bernama news agency.

"The move would mutually benefit both (Malaysia Airlines) and AirAsia as a consolidation can help airlines curb high operational costs due to spikes in fuel prices," added Fernandes, who recently said both airlines were in negotiations over domestic routes.

MAS to charge beginning July 15

AirAsia's announcement follows a similar move by Malaysia Airlines, which last week said it will raise its fuel surcharge for international travel from July 15.

Fernandes said AirAsia would monitor the situation and "consider reducing or scrapping the fee if fuel prices returned to normalised levels".

AirAsia, which launched as a budget carrier in December 2001 with just two aircraft, has become a significant player in the industry and has been imitated by national carriers along with a host of new low-cost entrants.

AirAsia is now Southeast Asia's biggest low-cost carrier in terms of fleet size and derives much of its business from within Malaysia. It also operates in Thailand, Indonesia, the Philippines and China.