Malaysian discount carrier AirAsia on Sunday said it will buy another 40 Airbus aircraft and launch flights to China by March 2005 to maintain its position as Asia's leading budget airline.

"We will exercise the option to buy another 40 A320 jets. And if the price is good, we will (further) increase the number of Airbus jets," AirAsia chief executive Tony Fernandes told AFP .

His comments follow AirAsia's signing on Friday of a deal to buy 40 A320 jets valued at US$2.5 billion from Europe's Airbus, which beat out US aerospace giant Boeing for the contract.

The new aircraft would be introduced gradually into AirAsia's entire fleet, including its Indonesian and Thai subsidiaries, with the first due for delivery in January 2006.

The purchase is part of plans for regional expansion as the carrier looks to the Chinese market.

Fernandes said Chinese aviation authorities had given AirAsia preliminary approval to fly to China and expected to start flights by March.

The airline is in the midst of securing approvals to fly to key Chinese cities such as Xiamen, Chengdu, Guangzhou, Chongqing and Hainan from Bangkok through its subsidiary Thai AirAsia.

Fernandes said the first destination in mainland China would likely be Xiamen. AirAsia already flies to Macau.

Revenue boosting

Analysts said AirAsia's entry into China would boost its revenue given strong trade ties and the 2008 Olympic Games in Beijing.

Malaysia was China's seventh-largest export market last year, while the mainland was Malaysia's fourth biggest.

Azrul Azwar, senior economist with MIDF Bhd, told AFP the purchase of new jets would ensure AirAsia remained the dominant discount carrier in Asia compared with rival budget airlines operating in Singapore.

"They will have the muscle and capacity to be Asia's number one," he said.

AirAsia currently has 26 Boeing 737 aircraft which will be phased out.

Azrul said a bigger fleet would help the carrier, which started in 2001 with just two aircraft, to expand the number of routes and increase passenger volume.

"Their revenue is expected to increase," he said.

Niche routes

Azrul described the China routes as "niche routes" since premier carriers shy away.

"It will definitely contribute to earnings," he said.

Fernandes said Boeing could learn a lesson from European rival Airbus.

Boeing Commercial Airplanes' marketing vice president Randy Baseler had said the US manufacturer had not been able to clinch the AirAsia deal mainly because Airbus had undercut them.

"This is business. Boeing should study why they lost. You (Baseler) sit there and blame everybody," Fernandes said.

Fernandes said since Airbus gets more orders, it was able to increase production, reduce costs and build bigger market share.

Launched as a budget carrier in December 2001 with just two aircraft, AirAsia has defied the sceptics to become a significant player in the air industry and imitated by startled national carriers.

Fernandes however said he was not worried about competition from the new Singapore-based budget carriers.

"Look ValuAir started in May, they still have only two aircraft. Tiger Airways has only two also and Jetstar has one," he said.

The competitors

AirAsia's sharp takeoff has drawn the attention of national carriers in the region, with two having launched their own Singapore-based budget airlines in AirAsia's slipstream this year.

Australia's Qantas has a 49 percent stake in Jetstar Asia while Singapore Airlines backs Tiger Airways.

A third, ValuAir, was started by former a Singapore Airlines managing director, Lim Chin Beng.

Analyst Azrul said the Malaysian government should decide soon on whether it would transform the former Subang Airport into a regional low-cost hub, something which AirAsia is seeking.

"Subang is ideal as a low-cost carrier hub. We should decide soon since Singapore is trying to create a similar hub in the republic. We should not lose out," he said.