KUALA LUMPUR, MALAYSIA - AirAsia, the region's biggest budget airline, can remain profitable even if world oil prices hit US$200 a barrel, CEO Tony Fernandes said yesterday, allaying concerns that it may be hit by rising fuel costs.

AirAsia has no plans now to raise fares or fuel surcharge, but it will stick with plans to grow its regional route network, expand on-flight sales to boost income and seek lower charges from airports, he said.

'We are comfortable even with oil at US$200 (a barrel). There is a silver lining. We have taken a very different approach in that we will market ourselves out of this problem,' Mr Fernandes told reporters on the sidelines of a two-day global economic forum here.

'We think that just putting your head in the sand and crying about oil and cutting routes is not the solution,' he added.

After surviving the 2003 Sars epidemic, which he described as 'a lot worse' than the current oil crisis, Mr Fernandes said AirAsia can benefit from a consolidation in the airline industry.

'The silver lining is that everyone is going to be in a lot of pain. There will be more rational competition . . . there will be fewer people wanting to open a budget airline now,' he said.

He acknowledged, however, that AirAsia may have to revise fares if oil prices breach US$200 a barrel. Airlines have been struggling to contain costs this year as oil prices stay above US$130 a barrel.

Scores of start-up carriers have gone out of business and several major carriers have raised fuel surcharges, cut capacity and deferred plane orders or shed jobs. Mr Fernandes said AirAsia will launch four more new routes over the next two months.

To ease the fuel price burden, he said the company will expand its food menu and sell more in-flight products and services to its 22 million annual passengers.

'You can use your mobile phones on the plane soon, send SMS,' he said. 'We are going to sell more things, more duty- free (products). We will sell washing machines if we have to. There are many things we haven't done. In a crisis like this, you become more innovative,' Mr Fernandes said.

AirAsia will also benefit once the lucrative Kuala Lumpur-Singapore route - the fourth-busiest route in the region - is fully liberalised next January, he said. The carrier now has only limited flights on the route, which is dominated by national carriers Malaysia Airlines (MAS) and Singapore Airlines. AirAsia reported an 86 per cent jump in its January-March net profit from a year ago to RM162 million (S$68.2 million), buoyed by higher passenger demand and large foreign exchange gains.

It said it has hedged part of its fuel requirement for April-June, which will lead to US$10 million in cost savings for the quarter. But Mr Fernandes ruled out plans to further hedge the company's fuel requirement.

'Only a lunatic will hedge fuel - it's too volatile. We will just have to ride it until there is some stability,' he said. 'You have to build a business that is sustainable at whatever price and the only way . . . is to have topline growth and good growth.'

AirAsia also said yesterday that surging fuel prices would force carriers worldwide to merge or face bankruptcy.

Mr Fernandes insisted that he would continue with an ambitious expansion plan despite the industry turmoil, which he said had sent 27 carriers out of business in the past four months.

'We are seeing a consolidation in the aviation industry. Some will merge while others will go bankrupt. A lot of people are not going to survive this (fuel hike) including Asian budget carriers,' he told reporters.

He said AirAsia had been approached by other airlines about tie-ups and operating deals, but did not elaborate.

Mr Fernandes insisted the carrier would stick to its plan to expand routes, increase flight frequency and accelerate the delivery of the remainder of its 175 new Airbus A320 aircraft.

'There are two ways to deal with the oil prices. You can put your head in the sand and kill yourself. But we believe we need to go out and market,' he said. 'I'm not going to give up now because of high oil prices - we have 6,000 staff.'

Mr Fernandes said AirAsia will mount additional flights to Hong Kong and Guangzhou and open new routes to Ujang Padang and Balik Papan in Indonesia. -- AFP