SYDNEY'S loss will be Melbourne's gain with Malaysian budget carrier AirAsia X about to expand its popular Tullamarine-Kuala Lumpur service.
The decision to take the Victorian service to two flights a day comes after Malaysian authorities banned the airline from launching new services to Sydney and Seoul because of a row over unpaid airport fees with the carrier's regional affiliate, AirAsia.
AirAsia X and AirAsia have common shareholders but operate as entirely separate businesses.
AirAsia X had planned to expand into Sydney by July after a year-long battle with the Malaysian Government for the rights to operate a service.
Yesterday, AirAsia X chief Azran Osman-Rani said the setback meant that planes would be redeployed with extra flights from Melbourne and Perth.
Neither the airline nor Melbourne Airport has set a launch date for the new upgraded flight schedule.
On the Sydney question, Mr Azran said: "At this stage we can't anticipate when approvals for Sydney might be granted."
AirAsia X operates seven to 12 flights a week from Melbourne depending on the different stages of the tourist season.
The airline this week set out to capture traffic from struggling long-haul rivals Qantas and Singapore Airlines, offering travellers a Melbourne-London return in a flatbed sleeper seat for $4000 -- less than half what the major carriers charge.
In other airline moves yesterday, four overseas carriers were negotiating separate mergers.
US Airways Group and United Airlines were continuing talks aimed at creating America's second-biggest carrier.
Across the Atlantic, British Airways and Spain's Iberia Airlines were reported to have moved closer to completing a $US7.5 billion merger after signing what was said to have been "definitive agreement".
But it learned this week that traffic rights would be withheld until AirAsia settled an outstanding 65 million ringgit ($A22.45 million) debt for airport services with Malaysia Airports Holdings.
by Geoff Easdown