Group CEO, Tony Fernandes, first announced the deal in July, saying at the time that it was a “fantastic opportunity” for AirAsia to accelerate its growth plans in Indonesia.

But today, Fernandes said the takeover held “too many risks” for shareholders and could harm AirAsia’s bottom line.

He said: “We always knew it was not going to be an easy transaction. It has been a very good experience and we come out of it feeling more confident of what we need to do to grow the market in Indonesia.

“The company’s decision was based on a thorough evaluation by many parties into Batavia Air.

“In our minds, the timing was perhaps not appropriate as it would have induced too many risks and would ultimately be earnings dilutive to our shareholders.”

Sukirno Sukarna, commercial director for Batavia, earlier told Associated Press in Jakarta that the deal was called off as the two parties failed to reach an agreement.

Batavia Air’s managing director, Ibu Alice Tansari, added: “Ultimately what matters is for both airlines to continue to provide the best service and choices for the Indonesian traveller and our collaboration agreement will help to support that.”

The two airlines will still cooperate on ground handling and inventory systems and said they would also jointly set up an aviation training centre to address an expected pilot shortage in Indonesia.

Fernandes announced a new venture, AirAsia Asean, which will be based in Jakarta, in June.

He remained as Group CEO but moved to the new base to head up the AirAsia Asean operation, while Aireen Omar was named CEO of AirAsia in Malaysia.

AirAsia said the move was designed to tap into an “underserved market” of three billion people spread across the ASEAN nations, North East Asia and South Asia.

AirAsia Indonesia said it would now accelerate its expansion, from 2013, aiming to triple the fleet size in the next five years.