Shares in budget carrier AirAsia rose sharply on their listing today, doing well against a weaker broader market as investors bought into the low-cost concept, dealers said.

The stock opened at RM1.25 ringgit and then rose to close today at RM1.40 ringgit, off a high of RM1.42 ringgit but still well up on its initial public offering (IPO) retail investor price of RM1.16 ringgit a share.

The performance was particular strong in a weaker overall market which closed the day 0.12 percent lower.

"Considering the broader market is in a correction phase, the gain so far is commendable," Azrul Azwar, senior economist with MIDF Bhd told AFP .

Azrul did not discount the possibility of profit-taking but said the stock should at least hold above the IPO price.

"I think it will hold above the retail price of RM1.16 but it may end below the day's high," he said.

AirAsia is the first budget carrier to be listed in Southeast Asia. Its institutional IPO tranche was priced at RM1.25 and the retail tranche at RM1.16, well below the indicative price of RM1.40, to raise some RM720 million.

Investors rewarded

At the time, some analysts expressed concern that the relatively low pricing might reflect investor caution at the business plan but the lower level also allowed for greater gains if there was sufficient demand.

AirAsia executive director Kamarudin Meranum told AFP that the company feels "great" with the gains.

"It is great. As promised, investors will be rewarded," he said, adding that the gains reflected investor support and trust in AirAsia.

Kamarudin said AirAsia would sign a deal to buy a 49 percent stake in defunct private airline PT AWAir in Indonesia this week and has allocated up to 10 million dollars to expand its operations there.

"We expect to invest up to 10 million dollars to expand the operations in Indonesia," he said, adding that there was strong potential in the country.

Asked what the airline's challenge would be now, he said: "We will now focus on our operations - to build up new routes and business."

Kamarudin downplayed the threat posed by Qantas-backed budget carrier Jetstar which will operate out of neighbouring Singapore, saying it was not a competitor to AirAsia.

"Our biggest competitor is our cost. We do not consider other budget carriers as competitors. Instead we are their competitors," he said.

Asia's newest budget carrier Jetstar Asia received its air operator's certificate from the Singapore government Friday, paving the way for the start of commercial flights next month.

Budget carriers Valuair and Tiger Airways began operations in Singapore this year.

New destinations

Kamarudin said the Singapore-based carriers were up against an established carrier in AirAsia and were operating out from a high cost territory.

Asked about a planned decision to purchase new aircraft, he said it should be finalized within two months.

"Our board of directors will meet soon. We hope to decide in the next one to two months."

Kamarudin said AirAsia plans to purchase 40 new planes from either Airbus or Boeing, with an option to purchase 40 more.

It currently operates a fleet of 24 Boeing 737 aircraft on some 322 flights a week from Kuala Lumpur International Airport to 14 domestic and eight international destinations.

Azrul said while the new Singapore-based budget carriers would not pose a threat to AirAsia in the immediate future, high fuel prices could hurt its potential earnings.

AirAsia has said it had hedged fuel at US$42 per barrel for the six months to December and at US$36.96 for the second half to June 2005.