The government today said it plans to build a low-fare air terminal to make the country a regional low-cost hub and to support budget carrier AirAsia, which has just tied-up with Lufthansa Cargo as part of its rapid expansion.

Transport Minister Chan Kong Choy said the government was studying a proposal to either build a low-fare terminal at the high-tech Kuala Lumpur International Airport (KLIA) or transform the old unused terminal in Subang into a low-cost hub.

"We will make a decision soon. It is the government's wish and determination to make Malaysia a low-fare, no-frills hub in this region. We will give all kind of facilities to low-cost carriers to fly into the country," Chan told a news conference.

Landing fees at the new terminal are expected to be lower than current rates to ensure it is competitive, he added, without giving further details.

Malaysia's proposed low-cost terminal could challenge the dominance of Changi Airport in Singapore, where three new low-cost carriers are expected to set up base, industry analysts said.

Chan made the announcement after witnessing the signing of a three-year cargo management contract between AirAsia and Cargo Counts GmbH., set up in September 2003 as a subsidiary of Lufthansa Cargo.

Chan said the alliance marked a further development in line with the government's aim to make Malaysia a key aviation hub in the region.

Growing market

Cargo Counts managing director George Midunsky said the pact, which will take effect in September, marked the company's first entry into Asia's growing air freight market through KLIA and AirAsia's southern hub at Senai airport in Johor state bordering Singapore.

He said it would not affect Lufthansa Cargo's regional operations in Singapore as there were no plans to divert cargo from the city-state to Senai Airport, which is being developed by a local tycoon to rival Changi.

AirAsia's chief executive Tony Fernandes said the expansion into the cargo business was to maximise aircraft utilisation and augment the group's income to keep fares low despite rising fuel costs.

"We will remain focused on our core business. This is just another strategy to help us further reduce costs so that we can further reduce fares ... we are not looking at massive market share because this is just a supplementary business," he said.

Anxillary services now contribute some five percent to AirAsia's revenue and are expected to grow substantially, he said, noting European budget carrier Ryanair derived 18 percent of its income from such services.

Fernandes hailed the government's decision to set up a low-cost terminal, saying AirAsia would prefer it to be based at Subang, which was replaced by KLIA, because it would be more economical.

Headstart advantage

AirAsia's chief operating offier Raja Mohamad Azmi said the company was not worried about competition from other low-cost carriers once the new terminal was up.

"We believe we have the headstart advantage. As long as we keep our costs low, we feel we can compete with anybody," he said.

AirAsia, which will launch flights to Macau this month, hopes to expand to China this year, Raja Azmi said, adding that it expected to fly some five million passengers in the region this year.

The airline, launched in 2001, also flies to Indonesia, Thailand, Brunei and Singapore. It plans to grow its fleet from 17 aircraft currently to 36 by June next year, with funds raised from its initial public offering slated for September, officials said. - AFP