Hoping to reverse a drop in market share, flag carrier Thai Airways International Pcl (THAI.BK) is jetting into regional markets with a budget airline operated with Singapore’s Tiger Airways Holdings.

“The low cost market is growing very fast,” Thai Air President Piyasavasti Amranand told a news conference on Monday, confirming the alliance. “This is a chance to help fill the hole before we lose more opportunities to rivals.” 

 

But increasing numbers of Asian carriers have the same idea, making for a potentially crowded market. 

 

Japan’s All Nippon Airways (9202.T) plans to seek investment from overseas airlines and investment funds to help set up a low-cost carrier which it aims to launch as early as next year, the Nikkei business daily reported on Monday. 

 

The move is ANA’s response to growing competition from Chinese and Southeast Asian discount airlines that kicked off flying to Japan following an “open skies” aviation agreement to liberalise civil aviation markets. 

 

The new ANA discount carrier will offer flights at less than half the price of major carriers for international routes within six hours of Japan, the Nikkei said. That puts it in direct competition with some Southeast Asian budget carriers. 

 

The Thai-Singapore joint venture, to be called Thai Tiger Airways, will be 51% owned by Thai Airways and another Thai entity and 49% by Tiger, the two airlines said in an announcement to the Singapore exchange, confirming an earlier report by Reuters. 

 

The new carrier will be based in Bangkok and is expected to start operations in the first quarter of 2011. It will offer domestic services plus international flights within a five-hour radius from the Thai capital. 

 

That puts it in range for travel hot spots such as Bali in Indonesia and the southern Thai beach destinations, along with busy regional centres in Vietnam, Cambodia, Singapore, Malaysia and Hong Kong. 

 

Low-cost Asian travel has much more room to grow over the next five years, Tiger Chief Executive Tony Davis told reporters. 

 

“The competition in Asia is still very small compared to Europe and the U.S. The market will be six times bigger than Europe, but with very few local airlines. It’s far from saturated,” Davis said. 

 

At 0505 GMT, Thai Air shares were up nearly 3% at 35.50 baht, outperforming a 0.7% rise of the overall market. In Singapore, Tiger Air stock gainned 2.4%. 

 

Tiger, 49%-owned by Singapore Airlines (SIAL.SI) and part-owned by Singapore state investor Temasek (TEM.UL), is the second-largest budget carrier after Malaysia’s AirAsia. 

 

Davis said Tiger planned to adopt a business model based on its founding shareholder Ryanair (RYA.I), Europe’s biggest low-cost carrier. 

 

Thai Tiger Airways, which has registered capital of 200 million baht ($6.2 million), plans to acquire 10 new Airbus (EAD.PA) A320s in 2011 and 2012. 

 

Asian low-cost carriers have expanded rapidly over the past decade and account for about 14% of travel within Asia, according to estimates by European plane maker Airbus. 

 

Over the next five years, budget carriers from Malaysia’s AirAsia to Singapore’s Tiger will take delivery of over 500 planes, a capacity increase of 15% a year. 

 

That has helped to turn Asia into the largest market for the two big planemakers, Airbus and Boeing (BA.N), accounting for a third of outstanding orders. 

 

Thai Air, 51%-owned by the Thai government, has seen its market share in the region down to 33% from 42% in the regional market over the seven years because of fierce competition from regional rivals. 

 

Thai Air, which planned to raise its holding in budget affiliate Nok Air to 49% from 39%, said their combined share in domestic budget market was at 48% now, down from 82% seven years ago.