Malaysian budget carrier AirAsia will double its A320 fleet size to 200 jets amid growing passenger demand and route expansion in Southeast Asia, an industry source said today.

Three individual shareholders from AirAsia and Fly Asian Xpress (FAX) will form an alliance to start the long-haul service to London and China as early as July using three aircraft - a combination of Airbus A330s and Boeing 777-300s.

An announcement to double AirAsia's fleet would be made in the weeks ahead while on Friday AirAsia and FAX would hold a press conference at 0230 GMT regarding its long-haul ambitions, the source said.

"Certaintly, there is a need for another 100 A320 aircraft. AirAsia will be putting in its orders to meet growing demand.

"It is estimated to cost billions of dollars. Deliveries may start in 2012 or earlier once the original 100 aircraft are delivered," the source, familiar with the plans, told AFP on condition of anonymity.

Reports have valued the deal at 6.7 billion US dollars based list prices.

AirAsia now has a fleet of 50 aircraft - 15 A320s and 35 Boeing 737-300s and has opted for Airbus in order to reduce costs with a fleet of just one single type of jet.

It currently has orders for 100 A320s.

Government approval

Meanwhile, Transport Minister Chan Kong Choy said the government has given approval to FAX to provide long-haul budget services.

"The government has given rights to FAX to provide long-haul budget service to Asia, Australia and Europe," he said in a brief statement.

Chan said the new service would help to promote Malaysia as an aviation hub for low-cost air travel in this region.

"The long-haul budget service will help boost Malaysia's tourism industry," he added.

Raymond Yap, analyst with CIMB Research said AirAsia should remain on its short-haul routes since the cost advantages of low-cost airline model fade away in long-haul operations.

"The issue is whether revenue will be sufficient to offset the costs of running the flights. Quick turnarounds are not possible. The increased complexity of operations will invariably increase unit cost," he said in a report.

"Regulatory issues will also have to be dealt with. Oasis Hong Kong Airlines faced difficulties in obtaining approvals to fly over Russian airspace," he added. It recently launched HK-London low cost flights.

AirAsia boss Tony Fernandes has a 50 percent stake in FAX which operates rural air services in Sabah and Sarawak on Borneo island.

The other two shareholders in FAX are AirAsia deputy chief executive Kamarudin Meranum, who owns 30 percent, and Raja Mohamad Azmi with 20 percent.

Timing is right

The industry source said the long-haul service will be provided by a new carrier initially owned by Fernandes, Kamarudin and Azmi, adding that it had secured the routes to London and China.

AirAsia has conducted a study to launch the long-haul and found it to be viable and will offer premium and economy class with a maximum of up to 400 passengers on each flight, the source said.

"The timing is right. AirAsia's network in Southeast Asia is well established," he said.

Fernandes, AirAsia's chief executive officer, earlier said that there was huge potential for a budget long-haul air service.

The industry source said talks with other players to participate in the budget long-haul service have been on-going.

"The point is we have been always talking," he said.

Cheap flight to London

The Star newspaper reported this week that AirAsia is planning to team up with Richard Branson's Virgin Group and EasyJet to launch "the world's first low-cost global network".

A source familiar with the discussions told the Star that fares on the long-haul network for destinations in China could be as low as RM100.

Fares to Britain will be between RM300 and RM2,500, about half the price of the normal ticket on a regular airline.

National carrier Malaysia Airlines currently operates 18 times weekly to London and charges up to RM5,000 for economy class and RM18,000 for business class.

AirAsia was launched as a budget carrier in December 2001 with just two aircraft.

It now offers more than 100 domestic and international flights to Malaysia, Thailand, Indonesia, Singapore, Cambodia, Vietnam and the Philippines.