Tiger Airways Holdings, the budget carrier part-owned by Singapore Airlines, will ally with Thai Airways International Pcl to form a new low-fare carrier amid rising demand for leisure travel in Asia.

Thai Tiger Airways Pte is due to start operations in the first quarter of next year, pending regulatory approvals, Tiger Air said in a stock exchange statement today. Thai Air, Southeast Asia’s third most-valuable airline, and another local company will own a combined 51% of the venture, with the remainder held by Singapore-based Tiger Air.

The new company plans to offer domestic and international flights within five hours from its base in Bangkok, according to the statement. AirAsia Bhd., Southeast Asia’s largest discount carrier, and at least a dozen others have started in the past decade to challenge full-service airlines on short-haul routes in the region.

“Bangkok is the key gateway to the whole of Southeast Asia,” Tiger Air Chief Executive Officer Tony Davis said in the statement. “Thai Tiger will be well-positioned to also serve destinations in North Asia and the Indian sub- continent.”

Tiger Air shares rose as much as 2% to $2.09, the highest since its January debut.

The agreement will give Tiger Air, which already has operations in Singapore and Australia, a base to expand into North Asia after failing to set up a budget carrier in South Korea in 2008. The new airline will also enable the carrier to compete for business from Bangkok, where AirAsia already operates through an affiliate.

For Thai Air, the new airline will help boost passenger traffic after demand dwindled following the political turmoil in the country. The venture will also allow the Bangkok-based flag carrier to capture international budget travelers, complimenting business at its Nok Airlines Co. associate.

The move will provide “revenue opportunities” for the Bangkok-based company, Thai Air President Piyasvasti Amranand said in the same statement.