UPDATE 2-Tiger Air, Thai Air join Asia's growing budget market

* New budget carrier to begin ops in Q1/2011

* Japan's ANA seeking investment for discount carrier

* Thai Tiger Air to acquire 10 new Airbus plans in 2011-12

* Shares of Thai Air, Tiger up more than 4 pct (Adds comment from analysts, market reaction, details)

By Arada Kultawanich

BANGKOK, Aug 2 (Reuters) - Hoping to reverse a drop in market share, flag carrier Thai Airways International Pcl THAI.BK is jetting into regional markets with a budget airline operated with Singapore's Tiger Airways Holdings Ltd (TAHL.SI).

The arrival of "Thai Tiger Airways" poses a challenge for Malaysia's AirAsia (AIRA.KL), Asia's biggest budget carrier by fleet size, and highlights changes to an industry benefitting from swelling middle classes, fast economic growth and the liberalisation of Southeast Asian air policies.

"The market is definitely not too crowded," said Peter Harbison, managing director at the Sydney-based Centre for Asia Pacific Aviation, citing industry data showing the Asian discount airline market growing by as much as 8 percent annually.

Globally, low-cost carriers have 24 percent of the airline market, but in Asia their market share is half that, suggesting more room to grow, according to data compiled by the International Air Transport Association, a global industry body.

"The low cost market is growing very fast," Thai Air President Piyasavasti Amranand told a news conference on Monday, confirming the alliance. "This is a chance to help fill the hole before we lose more opportunities to rivals."

Increasing numbers of Asian carriers have the same idea.

Japan's All Nippon Airways (9202.T) plans to seek investment from overseas airlines and investment funds to help set up a low-cost carrier to launch as early as next year, the Nikkei business daily reported on Monday.

The move is ANA's response to growing competition from Chinese and Southeast Asian discount airlines that kicked off flying to Japan following an "open skies" aviation agreement to liberalise civil aviation markets.

The Thai-Singapore joint venture will be 51 percent owned by Thai Airways and another Thai entity, and 49 percent by Tiger, the two airlines said in a joint announcement.

SOUTHEAST ASIA'S "OPEN SKIES"

Thai Tiger is scheduled to start operations from a base in Bangkok, Southeast Asia's busiest airport, in the first quarter of 2011, offering flights within a five-hour radius of Bangkok.

That puts it in range for tourist hot spots such as Bali in Indonesia and the southern Thai beach destinations, along with airports in Vietnam, Cambodia, Singapore, Malaysia and Hong Kong.

It hopes to benefit from an agreement signed by Southeast Asian nations in 2008 to remove restrictions on air passenger and freight services by 2015 under an "open skies" deal which Southeast Asia aims to extend to airports across China.

"Demand in the region is increasing significantly. If the airlines don't grab this opportunity, their rivals will," said Kavee Chukitkasem, head of research at stockbroker Kasikorn Securities in Bangkok.

AirAsia flies to 20 countries. Jetstar, a low-cost unit of Australian flag carrier Qantas Airways Ltd (QAN.AX), operates in 17 countries.

"The competition in Asia is still very small compared to Europe and the U.S.," Tiger Chief Executive Tony Davis told reporters. "It's far from saturated."

Thai Air shares rose 4.4 percent on the news, outperforming a 0.8 percent gain in the overall market. Tiger Air's stock rose 5.4 percent to its highest since publicly listing in January.

Thai Tiger Airways, with registered capital of 200 million baht ($6.2 million), plans to acquire 10 new Airbus (EAD.PA) A320s in 2011 and 2012.

Tiger, 49 percent-owned by state-controlled Singapore Airlines (SIAL.SI) and part-owned by Singapore state investor Temasek [TEM.UL], is Asia's second-largest budget carrier.

Thai Air, 51 percent-owned by the Thai government, has seen its regional market share fall to 33 percent from 42 percent over the past seven years. It also plans to raise its holding in its budget affiliate Nok Air to 49 percent from 39 percent. ($1=32.21 Baht) (Additional reporting by Raju Gopalakrishnan and Khettiya Jittapong. Editing by Jason Szep)