The Malaysian-based airline's decision to turn up the heat came as it sold out its four times weekly services between the Gold Coast and KL until early next month.

AirAsia X general manager Australia Darren Wright said the low fares were a sign of the kind of competition the carrier would offer when it moved into Jetstar's home base of Victoria, probably towards the end of next year.

The Malaysian carrier is in talks with Lindsay Fox's Avalon Airport, competitor Melbourne Airport and Victorian tourism authorities about servicing the state as it receives new aircraft.

"We've got our options open and in saying that, Melbourne Airport is coming back to us with offers over offers for us to fly in there rather than Avalon," Mr Wright said.

The low $166 fares, for travel between May and October, can be combined with low fares on sister carrier AirAsia's network.

These include one way inclusive fares of $15 from Kuala Lumpur to Langkawi/Penang, to Phnom Penh for $74, to Bangkok/Phuket for $43 and to Kuching/Kota Kinabalu for $31.

Mr Wright said the airline still made "a little bit of money" out of the super-cheap fares, partly because it was flying out of a secondary airport.

"If you were flying out of Sydney there would be no way you could afford to put a $166 fare in the market," he said.

"That's the whole reason for secondary airports: it makes us such a competitive airline and its part of the overall strategy."

The strength of the low-cost leisure market was further underscored yesterday with news that Sydney Airport's T2 Terminal set a record in October when, for the first time, it processed more than a million passengers in a month.

T2, the former Ansett terminal that became home to Jetstar, Virgin Blue, Rex, Qantaslink and Aeropelican, is now the busiest of the airport's three terminals. It recently received a $20million upgrade.

Sydney Airport chief executive Russell Balding said the milestone would be encouraging news for the Australian tourism industry.