Transport Minister Chan Kong Choy today called on Malaysia Airlines to cooperate with with no-frills rival AirAsia, instead of pursuing its own plan to set up a budget operation.

"I think there is room in the industry for cooperation. They don't have to cut each other's throat," Chan Kong Choy told reporters when asked to comment on Malaysia Airlines' move to explore a joint venture with other regional airlines to set up a low cost carrier.

Chan stressed that "national interest must come first" and said he would call a meeting soon with both the airlines to iron out the problem.

On plans for a low-cost terminal, Chan said the government has still not decided whether to 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.

Details are being finalised and would be implemented before the end of the year, he added.

Intense competition

Malaysia Airlines last week said it could launch a low cost carrier within six months if the conditions were right but added it would not rush into the budget sector as its current operation was still competitive.

But AirAsia, regarded as Southeast Asia's version of European budget airline Ryanair, said the domestic market may not be big enough for another low-fare carrier and called for cooperation with Malaysia Airlines on helping turn the country into a regional no-frills aviation hub.

AirAsia, which pioneered no-frills travel in the region, began by servicing just the Malaysian market in 2001 and has rapidly expanded with routes to Indonesia, Thailand, Brunei, Singapore and Macau.

Competition intensified in recent months amid reports that AirAsia was keen to take over the flag carrier's domestic routes and that Subang would be picked as the low-cost terminal. Malaysia Airlines prefers KLIA, citing better facilities.

Malaysia's proposed low-cost terminal is expected to challenge the dominance of Singapore's Changi Airport.

But Singapore made a head start when it announced last month it would build Asia's first dedicated low-cost airline terminal, which would be ready by early 2006, to cash in on the region's booming no-frills aviation industry.