Malaysia's budget airline operators plan to launch cheap flights on lucrative routes to London, an industry source said Sunday.

"The government and the carriers concerned are expected to make an official announcement soon after the New Year," the source familiar with the ambitious programme told AFP .

The New Straits Times newspaper said that profit-making budget carrier AirAsia and Fly Asian Xpress (FAX) will form an alliance to start the service as early as July next year.

FAX, which is closely linked to AirAsia with common shareholders, operates rural air services in Sabah and Sarawak on Borneo island.

Both AirAsia and FAX officials declined to comment when contacted.

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

"It is just a matter of time before someone comes up with a good model for a low-cost carrier and I hope the innovation would come from Malaysia," he was quoted as saying by the newspaper on Saturday.

The industry source said that local low-cost carriers were expected to form "strategic alliances" with European budget carriers, including Britain's easyJet, to provide European flight connections.

The newspaper said that local airline officials were looking to lease or buy Boeing 777s or Airbus 330s for the Kuala Lumpur to London route, but did not elaborate.

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.