The development comes as Japanese carriers prepare for an escalation in competition after Haneda Airport near downtown Tokyo is expanded.

'We are seriously examining the market and the likelihood of low cost carriers flying into Haneda after it gets its fourth runway in October 2010, and how we will take them on if they do,' said ANA spokesman Rob Henderson.

'Setting up an airline from scratch is an option, as is acquiring a new one, or possibly setting up a joint-venture. We are seriously looking at the options now,' he added.

ANA chief executive officer Mineo Yamamoto revealed last year that the company was considering creating a budget carrier.

It could have a low-cost airline as soon as by March 2009, Henderson said, confirming earlier remarks by Yamamoto in an interview with the Nikkei daily.

The airline, which has been enjoying record profits recently, launched a study group in Tokyo this year on its Asian strategy. The study group will relocate its base to Hong Kong next month to expand its analysis of regional carriers.

If ANA decides to go ahead with a regional low cost carrier it might be based outside of Japan, the spokesman said.

Southeast Asia's no-frills sector has boomed since Malaysia-based AirAsia began offering cheap flights in 2001, spawning a host of imitators.

ANA already runs subsidiaries with niche markets, including a local low-cost carrier, Air Next, which it set up in 2004.

Its larger rival Japan Airlines last year started to code-share with Australian budget carrier Jetstar, which flies between Sydney and Kansai International near Osaka.

Japan's government has championed an 'open skies' initiative to bring in more Asian visitors, letting Kansai and Centrair airport near the central city of Nagoya take in more flights.

As well as the new Haneda runway, Japan's main international airport at Narita, a one-hour train ride from the centre of the capital, is also being expanded to accommodate more flights. -- AFP