BANGKOK -- Thai AirAsia, a local affiliate of Malaysian budget airline AirAsia, has withdrawn from discussions to buy smaller rival Nok Air, reversing course just a week after announcing the talks.
Santhat Sanguandikul, AirAsia's chief financial officer, said Wednesday "the company shall not proceed further on this matter."
The announcement follows a warning from Thailand's competition authority that the proposed acquisition risked breaking antitrust law.
The deal would have widened the lead of Malaysian entrepreneur Tony Fernandes in Thailand's budget air travel market, giving AirAsia a 50% share.
Nok Air's CEO was not available for comment.
Thai AirAsia on Feb. 25 notified the Stock Exchange of Thailand that the company was in talks to buy Nok Air shares from the Jurangkool family, which owns a combined 55.13% of the smaller airline.
Any merger or acquisition that gives a company a 50% market share could be interpreted as market domination or monopoly, which are prohibited under Thai antitrust law.
"We have warned the two companies to consider carefully whether they were breaking the law," said Santhichai Sratawanpat, a member of the Office of Trade Competition Commission board, adding that the commission was monitoring the proposed deal closely.
AirAsia's data indicates the company holds a roughly 30% share in Thailand, against Nok Air's share of about 20%.
Nok Air was founded in 2004 by Thai Airways and has become the country's second-largest low-cost carrier. Thai Airways has cut its ownership in the company to 21.8% from 49% over the years.
"I think AirAsia could hold back and seek a new strategy to strengthen the company's position," said one analyst at Asia Plus Securities.
"Maybe AirAsia would seek to buy another low-cost airline that holds a smaller market share compared to Nok Air, in order to avoid breaking the law," said another analyst, who requested anonymity.
Other low-cost airlines operating in Thailand include Thai Lion Air, with a 19% market share, and Bangkok Airways with 11%. The remaining players' shares add up to 20%.