UPDATE 1-Thai Airways board approves new regional airline

* Expected to start in early 2012

* Won't overlap with new budget airline, which is delayed (Adds quotes, details)

By Manunphattr Dhanananphorn

BANGKOK, May 20 (Reuters) - The board of Thai Airways International Pcl on Friday approved in principle a plan to set up a new regional airline to tap strong demand for air traffic in Asia and win back market share in the face of growing competition in the region.

The new mid-tier airline, provisionally called Thai Wing, is expected to start operations within the region and on some domestic routes in March or April 2012, Chairman Ampon Kittiampon told a news conference.

"We will try to match all the routes that our rivals fly to," Ampon said, adding it would hold a competition to choose the official name of the new airline.

The wholly owned mid-tier carrier will operate with seven planes -- five leased Boeing 737s and two other leased aircraft -- in the first year and aims to have a fleet of 11 within three years, Ampon said.

Its schedule will cover journeys with an average flight time of 2.5 to 3.0 hours, he said.

"We should make a profit in the first year of operation because we will lease all the planes," Ampon said. He expected the new airline's cabin factor -- the percentage of seats sold -- to be 70-80 percent.

Thai Airways' cabin factor in the first four months of this year was expected to have been 75 percent, he said.

The mid-tier carrier is part of Thai Airways' expansion plan, an effort to turn itself round after years of losing market share in a region where swelling middle classes, fast economic growth and liberalised air policies provide opportunities for higher earnings.

Thai Air, with a market value of $2.7 billion, is 51 percent owned by the Finance Ministry and competes with bigger rivals like Singapore Airlines and Cathay Pacific Airways .

In 2010, Thai Airways formed an alliance with Singapore's Tiger Airways Holdings Ltd to form a budget carrier Thai Tiger Airways, but Ampon said the launch would be delayed for another two or three months from May.

Director Surachai Tansitpong said the new mid-tier airline was not a budget carrier and its operations should not overlap with those of Thai Tiger, which were originally supposed to have started in late March.

The airline has said the delay was due to the process of securing approval for a 98.9 million baht ($3.3 million) investment from the Transport Ministry and the National Economic and Social Development Board.

Thai Tiger is 51 percent owned by Thai Airways and 49 percent by Tiger.

At 0803 GMT, Thai Airways shares were down 0.7 percent, in line with a 0.4 percent fall in the broader index . ($1 = 30.24 Baht) (Writing by Khettiya Jittapong; Editing by Alan Raybould)