The cabinet has backed a plan to allow Malaysia Airlines to offer discounts on domestic routes, despite strong opposition from budget carrier AirAsia, a senior minister said today.

Transport Minister Chan Kong Choy said that allowing loss-making MAS to scrap its floor price did not violate the carrier's rationalisation programme, under which it will retain only a few local routes.

"The cabinet looked into the matter again and decided that in the interests of the people and the aviation industry, it would be better to do away with the floor price," Chan said in a Bernama news agency report.

Chan said the outcome had been conveyed to both airlines.

"The decision stays. Those with other views are free to forward them to the government," he added.

AirAsia on Monday said allowing from Malaysia Airlines to offer discounts on domestic flights was unfair and a "total deviation" from an agreed plan to share those services.

"We feel it is unfair. We feel we should be given an opportunity from the government to state our (position)," AirAsia group deputy chief executive, Kamarudin Meranum said.

Price war

MAS announced on Sunday the government had given it the nod to offer discounted fares on its domestic routes to better compete with AirAsia, a move expected to spark a price war and benefit consumers.

Under a new aviation policy which takes effect on Aug 1, AirAsia is to take over 99 of MAS' domestic routes, many of which are currently losing money.

The policy originally set a minimum fare or floor price for the national carrier's domestic routes but the announcement from MAS was an apparent government reversal of that decision.

MAS has said it will now operate 22 domestic trunk services with three new routes to Borneo island as part of its restructuring.