MANILA, PHILIPPINES - PHILIPPINE Airlines, one of Asia's oldest carriers, will create a new budget airline, mainly to fly tourists to the smaller islands on the archipelago, officials said on Tuesday.

Philippine Airlines hopes to tap into rising tourism in the region, which should help offset record high fuel prices and concerns over growth in the sector following the collapse of Oasis Hong Kong Airlines.

PAL Express, a subsidiary of PAL Holdings, which is owned by one of the country's richest men, Lucio Tan, will launch on May 5 with flights between Manila and Caticlan, the nearest airport to island resort Boracay, with later plans to expand to Cebu, in the central Philippines, the officials said.

The new airline will acquire nine turbo-prop aircraft - three Bombardier Q300s and six Q400s - within a year at a cost of US$150 million (S$203 million), Philippine Airlines president Jaime Bautista told reporters.

The airline plans to borrow up to US$100 million from local lenders to fund the purchases, he added.

The Philippines' flagship carrier currently focuses on international routes and larger domestic destinations served by jet aircraft.

But many of the Philippines' top tourist destinations, including Boracay and the deserted tropical coves of northern Palawan are serviced by smaller airports accessible only by turbo-prop aircraft.

Last year was a record for Philippine tourism with over 3 million arrivals and the outlook is bright as increasingly wealthy tourists from nearby China seek warmer climes.

Mr Bautista said the new airline would carry about one million passengers per year when it was fully operational.

'At full operation, we project that profits will increase to around 300 million pesos (S$9.7 million) while revenues should be about one billion pesos,' he said. -- REUTERS