Malaysia's low-cost pioneer AirAsia says it anticipates tough times ahead as fuel prices soar and the bird flu threat looms, despite having just posted a healthy 16 percent increase in quarterly profits.

Chief financial officer Raja Mohamad Azmi said that the outbreak of the deadly H5N1 strain of avian influenza in Malaysia and elsewhere in the region was one of several concerns for the carrier.

"We think due to the uncertainties, the second half will not be as good as the first half," he told AFP in a weekend interview.

AirAsia said on Friday that its profits rose to to RM53.4 million in the second quarter to December from RM44.4 million a year ago, due to higher loads and fares during the festive season.

Raja Azmi also expressed frustration over the slow pace of Malaysia's domestic aviation rationalisation plan and the failure to seal talks with airports operator Malaysia Airports Bhd over the terms to operate at Kuala Lumpur International Airport's new low-cost terminal.

"Talks on the rationalisation plan have been going on for almost a year now. We hope a decision can be made soon," he said.

Transport Minister Chan Kong Choy said last year that the government wanted AirAsia and national carrier Malaysia Airlines to cooperate.

Newspaper reports have said the proposal involves AirAsia taking on some of Malaysia Airlines' less profitable domestic routes but Chan declined to elaborate, saying the carriers were still thrashing out the plan.

Departure tax unresolved

Raja Azmi said that even though AirAsia was set to move into the new RM100 million hub by late March, talks over departure tax levels have yet to be finalised.

"It is a low-cost terminal so the tax must be lower at the new terminal. We want to conclude talks before we move in," he said.

Malaysia Airports, which operates 39 airports in the country, recently proposed raising the departure tax to RM65 from RM45 currently.

The construction of the terminal for low-cost airlines, which is designed to handle 10 million passengers annually, began last year and is to begin operations on March 23.

The government hopes the new facility will help turn the capital's airport into a regional aviation hub.

Raja Azmi said fares are expected to move lower in the next six months as AirAsia tries to encourage more people to fly.

"We anticipate a slowdown, so we will lower our fares," he said.

AirAsia, which launched as a budget carrier in December 2001 with just two aircraft, has become a significant player in the industry and been imitated by national carriers along with a host of new low-cost entrants.

It is now Southeast Asia's biggest low-cost carrier in terms of fleet size and derives much of its business within Malaysia. It also operates in Thailand, Indonesia, the Philippines and China.