AirAsia Group has approached the Sri Lankan government over a proposed new budget carrier - AirAsia Sri Lanka (Colombo Int'l) - in which the island's state would hold a majority 51% stake.

According to Sri Lanka's Sunday Times newspaper, the Malaysian budget carrier group made an hour-long presentation to the Cabinet Committee on Economic Management (CCEM) last week. Among the team was Dilhan Haradasa, AirAsia’s Group Head of Network and Regulatory Affairs.

According to a source who attended the event, AirAsia would fund the entire venture, which could see five aircraft based in Sri Lanka in Year One, growing to twenty-five by Year Five. Aside from Colombo Int'l, aircraft would also be based in Jaffna and Hambantota.

"They said they will bring in tourists to meet the Government’s five million target and they showed glowing statistics of other places they operate in," the source said. "Each tourist they flew in now had a daily spend of USD160. They promised to raise it to USD200 in two years.”

AirAsia Sri Lanka would operate using a Sri Lankan Air Services Licence (ASL) and Air Operator’s Certificate (AOC) thus giving it access to the bilateral traffic rights national carrier SriLankan Airlines (UL, Colombo Int'l) has not utilized.

“We have negotiated these pretty well and have unlimited rights to India, Malé, Kuala Lumpur Int'l, Singapore Changi, and Bangkok,” an aviation industry official said.

However, despite tremendous potential benefits to the country's tourism sector as well as local populace, cabinet members expressed concern about the direct impact the LCC's competition would have on the ailing national airline, SriLankan Airlines (UL, Colombo Int'l). Colombo has laboured to resolve the airline's financial woes amid failed plans to secure a willing strategic partner.

As such, Public Enterprise Development Minister Kabir Hashim, under whose purview SriLankan Airlines falls, said that given these concerns, the AirAsia SriLanka proposal would have to be evaluated in tandem with SriLankan Airlines.

Government's last venture into the budget carrier market was through the disastrous Mihin Lanka (MJ, Colombo Int'l) venture. As previously reported, the state has now had to absorb the defunct LCC's debt overhang, estimated at over LKR6.14 billion rupees (USD40 million), and is even considering selling its AOC to generate additional revenue.