(AFP) - International airfares out of Malaysia could fall by as much as half after 25 airlines operating here suspended a programme to regulate prices, travel agents said today.

Agents in Kuala Lumpur said they received a fax dated today from the Market Development Program (MDP) committee, chaired by flag carrier Malaysia Airlines, informing them of its decision last week.

"In view of the consequential effect of the global economic slowdown and the Sept 11 US tragedy on the air travel industry, the MDP Malaysia committee at its meeting held on Nov 7 has agreed to suspend the market development programme in Malaysia with effect from Nov 12, 2001 until further notice," according to the fax.

A source at Malaysia Airlines confirmed the move, saying it was a short-term measure to bolster the travel trade.

"The regulatory ceiling agreed upon has now been removed for the market to decide what is the best for each airline," the source said, adding that the flag carrier was still revising its fares.

All carriers flying to Malaysia, except Singapore Airlines, are signatories of the MDP which was enforced in 1983 to streamline ticket prices and boost yield.

Domestic services in Malaysia, Singapore and Brunei are not covered by the pact.

Price war fears

Travel agents however fear the move could spark a price war and hit plans to make the Kuala Lumpur International Airport (KLIA) a regional aviation hub if airlines find it no longer viable to fly here.

Lim Chee Leong, senior manager at Sam Fo Holidays, said the move could see airfares to some destinations such as Los Angeles and San Franciso cut by as much as 50 percent.

"This is good news for consumers. Airfares could go down from anywhere between 25 and 50 percent," Lim said.

"It is hard to tell how it will affect the market. The industry is still digesting the news but it is going to be very hectic for agents like us because we now have to compete with everybody."

A ticketing agent said the move dealt a further blow to her small travel firm in Kuala Lumpur, already under pressure from low yield and the weak ringgit, pegged at 3.80 to the dollar since 1998.

"It's a free market now but cutting prices will not solve anybody's problem. It could hit business at KLIA and some agents will go bust in trying to undercut each other," she said.

She said her firm would still quote current airfares until the airlines issue a new price list.

"We will not budge until the airlines budge. We will still follow old prices because our profit margin of around five percent is already too low now," she added.

She said she heard loss-making Malaysia Airlines has been pushing for reduction in airfares to certain destinations but other carriers were not keen due to low yield.

"Malaysia Airlines is the policing force so they cannot arbitrarily cut prices. The only thing is to suspend the MDP," she said.

"But this is just likely to be a trial period in a bad market. When passenger volume picks up, MAS can reactive the programme again."

Analysts said it was doubtful if the move would significantly boost business for the national carrier, which had announced it would axe 12 international routes and increase flights in Asia.

The airline, which was renationalised by the government in February, has debts totalling more than RM10 billion.