The prospect of a link-up between AirAsia and Australia's Virgin Blue appears to be gathering momentum, with the world's lowest-cost operator flagging the launch of a joint venture with Virgin Blue to establish an "ultra-low-cost" carrier in Australia.

Virgin Blue has been searching for ways to counter low-cost entrants Jetstar Airways and Tiger Airways as it focuses more on the corporate market. Speaking to News Ltd. in Australia, Toll Holdings, which owns 62% of Virgin Blue, said it has received expressions of interest for its majority stake.

"In the last three months the Virgin Blue board has initiated a detailed review to maximize shareholder value," Toll MD Paul Little told News. "It is clear that the level of liquidity in the listed stock is not supportive of shareholder value. A number of expressions of interest have been received designed to unlock value and these are currently being assessed."

Virgin Blue's shares have slumped from a high of AU$2.44 (US$2.24) in early 2007 to close at AU$1.25 on Feb. 22. The airline reported an 8.8% profit drop in the fiscal semester ended Dec. 31 to AU$113.3 million.

AirAsia X CEO Azran Osman-Rani told media that while AirAsia is keen on the JV, "a lot of that hinges on what happens with Toll Holdings and who is going to take control of Virgin Blue." AirAsia will enter into the JV only if Toll sells down its 62.7% stake and Virgin Group chief Richard Branson, who holds 16% of AirAsia X and 25.5% of Virgin Blue, regains management control of the carrier he launched in 2000.

Both Branson and AirAsia founder Tony Fernandes will be in Australia next month for talks. Toll has been considering reducing its stake for some time, with various suitors including Singapore Airlines touted.