BUDGET carrier AirAsia urged the government yesterday to rein in unfair competition by rival Malaysia Airlines, but said it still expects to remain profitable this year despite rising jet fuel prices and keen competition.

Chief Executive Tony Fernandes warned AirAsia, Southeast Asia's largest no-frills airline by fleet size, may suffer in the long run if it isn't allow to compete on a level playing field.

Malaysia Airlines recently launched a zero-fare campaign to sell surplus seats on domestic and regional flights to boost its income. This competes directly with AirAsia, which has accused Malaysia Airlines of unfairly cutting into its low-cost business.

Fernandes urged the government to remove subsidies on loss-making domestic routes for the flag carrier and allow AirAsia to mount more flights from Malaysia to Singapore.

He also said Malaysia Airline's budget arm, Firefly, should not be allowed to operate out of Subang airport, which is 25 kilometers from the capital, Kuala Lumpur.

AirAsia operates out of the low-cost terminal near Malaysia's main international airport, about 70 kilometers from Kuala Lumpur.

"We have absolutely no problem with (Malaysia Airline's) zero fares. What we are saying is that please allow competition to be fair," Fernandes told reporters. "We are going to defend our low-cost market very aggressively but we want a level playing field," he said. AirAsia wants to be "treated the same" as Malaysia Airlines, he said.

AirAsia was allowed to mount two daily flights between Kuala Lumpur and Singapore from February, ahead of full liberalization of air travel between the two nations from January 2009.

It has, however, lobbied to operate 20 flights a day on the lucrative route, the fourth-busiest in Asia and currently controlled by Singapore Airline and Malaysia Airlines.

Malaysia Airlines has denied it was competing with AirAsia, saying it offered free tickets to fill up its planes and recoup some costs as passengers will pay the fuel tax.

The two million free tickets on domestic and regional flights in the second half of the year are 30 percent of surplus capacity, Malaysia Airlines said.