Malaysia's no-frills airline AirAsia expects to decide by year end whether it will fly to Thailand, considered a potentially lucrative market, as it first international destination, a top official said.

"It is something we are seriously considering. Thailand has the potential of becoming either a regional hub or our first foreign destination," Kamarudin Meranun, AirAsia's executive director told AFP Saturday.

"Flying to Thailand will add value to our business," he added.

Kamarudin was commenting on a report that Thailand was easing its aviation policies.

AirAsia has said that all destinations within Asia on routes under three-and a-half-hours were feasible.

Cost is vital

But the move depends whether AirAsia can replicate its Malaysian model in Thailand, which shares a common border with Malaysia in the north.

"Cost is vital for our success. We have to know the airport cost and whether Thai authorities would relax their charges," he said.

One official familiar with AirAsia's plans, said AirAsia is familiar with Thailand's decision to ease its aviation policy.

"AirAsia is studying the possibility. It is almost at a final stage. We could see AirAsia flying over Thai skies by the first quarter of 2004," the official said on condition of anonymity.

Asked why Thailand was considered a lucrative destination, Kamarudin said the 60 million population and its mountainous country made flying at economic rates attractive.

"There is a dire need for a low cost carrier in Thailand," he said.

At the moment, Thailand has no budget carrier operating in the country.

Thai Prime Minister Thaksin Shinawatra wants a budget carrier to be based in Chiang Mai as part of plans to develop the province as an aviation hub providing air links to neighbouring areas in China, Laos and Myanmar.

But last week Singapore Airlines said it has shelved a planned joint venture to set up a budget carrier in the northern Thai province, citing high fuel costs and a low traffic base.

Possible partner

The Bangkok Post reported Tuesday that Thai Airways International will hold a minority stake in a proposed low-cost carrier, which will be run under separate, independent management and could partner with AirAsia.

Thai Airways will hold a 25 to 49 percent stake in the new Bangkok-based carrier along with a "mix of partners" who will run the company as an independent entity, Thai Airways president Kanok Abhiradee said.

Kamarudin described the announcement as "positive news" for AirAsia.

AirAsia carried two million passengers within 18 months of operation and targets 3.2 million in 2003.

The airline, which began domestic flights in December 2001, has been described as a "vibrant and profitable low cost airline" after early criticism that it would fail within three months.

AirAsia is expanding fast. One new aircraft arrived Saturday and another is expected by end of the month to bring to a total nine aircraft. By mid-2004, they would have 18 carriers.

New destinations

The fleet expansion is needed to serve new destinations, including flights next week to southern Johor state, which neighbours Singapore, and Sarawak's oil rich town of Bintulu on Borneo island.

AirAsia's future direct flights from Labuan and Miri in Malaysia to Senai could also draw travellers from the sultanate of Brunei to Singapore.

The low cost carrier also plans to fly to neighbouring Indonesia and southern coastal states of India.

AirAsia chief executive Tony Fernandes has said it would not be rushed to go regional. - AFP