Shares in AirAsia Bhd fell as much as 5 percent in early trading today, following the launch of the Malaysia-based rival budget airline, Malindo Airways.

Malindo, will start flying in May next year between Malaysia and Indonesia. Lion Air has a 49 percent stake in the airline, a joint venture with Malaysia’s privately held National Aerospace & Defence Industries Sdn Bhd, which holds the majority 51 percent.

“The immediate impact to AirAsia will be the contraction of its profit margin due to a potential price war,” said Kenanga Research in a note today.

It added that AirAsia is likely to be able to make up for any price cuts through other income streams and the wide connectivity within the AirAsia Group.

“We are neutral on this news as we do not see Malindo as a threat for AirAsia in the near term,” it added.

AirAsia chief executive Tony Fernandes downplayed the  potential competition from Malindo Airways in local news reports.

At 0928am, AirAsia was down 4.7 percent at RM3.04, after touching a low of RM3.03, while the benchmark composite index was down 0.12 percent at 1612.73.

- Reuters