AirAsia's (KLSE:5099) announcement of a long-haul expansion strategy at a time when its short-haul operation is undergoing rapid growth requiring significant investment is an "inspired" strategy, says the Sydney-based Centre for Asia Pacific Aviation (CAPA).

While saying that AirAsia is probably not extending itself too far financially, it could simply be making itself so attractive to potential investors in this phase of market development so that it will drive up its potential value for investors.

CAPA's Executive Chairman Peter Harbison said the Asian market is a fertile breeding ground for investor opportunities, with equal doses of liberalisation and new travellers opening up massive traffic expansion opportunities.

"AirAsia has the attractions of a large and expanding market share, the lowest airline costs in the world, a brand name to die for - and unquestionable recent profitability," he said.

For the year ended June 30, 2006, AirAsia reported a group pre tax profit of RM115.5 million (US$33 million) from RM125.4 million in 2005. For the first quarter ended Sept 30, 2006, AirAsia reported a pre tax profit of RM11.6 million, up 32 per cent from the same period of 2005.

AirAsia now operates 46 Boeing and Airbus aircraft. It has signed a purchase order for 130 Airbus A320 aircraft for delivery between 2005 and 2012.

CAPA said there is a likelihood that strategists in several investment groups would be looking at how a deal involving AirAsia could be structured.

"If there's one thing that the TPG/Macquarie/Allco bid for Qantas has done, it is to make it clear that airlines in this region are in play for the equity investors," Harbison said.

"So there is at least one more shoe to drop. Who will be making the investment in the second Malaysian flag carrier? And how long will it be before further "strategic" moves are made on AirAsia itself?" he asked.

AirAsia, which has made a name for itself in low-cost no-frills flights in South East Asia over the last five years, has been offered to take up a 20 per cent stake in Fly Asian Xpress (FAX).

FAX is to operate long haul flights to Europe, China, India and Australia under its long haul branding, AirAsia X, in the second half of this year.

FAX is 50 per cent owned by AirAsia's CEO, Tony Fernandes, Kamarudin Meranun, AirAsia's deputy CEO (30 per cent) and Raja Mohd Azmi, CEO of FAX (20 per cent).