Low-cost carrier AirAsia will take over the bulk of domestic routes from Malaysia Airlines under a rationalisation plan thrashed out after two years of negotiations, a report said today.

The New Straits Times said a cabinet committee decided yesterday that the national flag carrier will retain a handful of major domestic destinations while AirAsia will take over the rest, including many running at a loss.

"This is the best way for both to leverage on their strengths," an unnamed source told the government-linked daily, adding that the decision would be announced after the details were fine-tuned.

"MAS will then be able to focus on high-yielding international and domestic flights while AirAsia can further develop its no-frills, affordable flights (for) Malaysians."

The report said that Malaysia Airlines (MAS) will continue to operate flights to popular destinations such as Penang, Kuching, Kota Kinabalu and Langkawi.

Turn failure into success

AirAsia has been pushing for the carve-up of domestic routes, saying it can succeed where the national carrier has failed and wring profits from services to rural and small-town destinations.

The rationalisation is part of a sweeping three-year turnaround plan for Malaysia Airines which faces extensive cost-cutting in order to stem massive losses.

The plan also involves the axing of unprofitable international routes and the sale of assets, including possibly its Kuala Lumpur headquarters.

AirAsia chief executive Tony Fernandes has offered to take on as many as 800 Malaysia Airlines staff and between four and nine of its Boeing 737 aircraft under the rationalisation of domestic routes.