QANTAS should base its planned full service Asian airline in Malaysia rather than in Singapore if it is serious about gaining a foothold in the region, said AirAsia group CEO, Tony Fernandes.

Fernandes, who is in discussions with the Australian flag carrier and Malaysia Airlines about a three-way alliance (TTG Asia e-Daily, December 2), said basing the new airline in Kuala Lumpur would be the smarter option.

"Singapore is the better business hub for sure, but the majority of Singapore traffic is transit traffic – just like Dubai," he was quoted by The Australian Financial Review as saying.

"Whether you connect in Kuala Lumpur or Singapore, the key is connectivity," he added.

According to Fernandes, Qantas would enjoy lower overheads if it picked Kuala Lumpur as its Asian hub. "The main thing is cost savings, and avoiding wasteful competition," he said.

Meanwhile, Fernandes refused to divulge how alliance discussions with Qantas were progressing, although he did reveal that no full mergers were being considered.

"Mergers are generally driven by a shrinking market, high cost base, or a lack of ideas about how to grow. In Asia, there is less need for that," he explained.