Southeast Asia’s largest low-cost carriers are pressing ahead with aggressive fleet expansion strategies, despite mounting cost pressures and increasingly fierce competition that have already prompted some players to retreat. The latest casualty is Jetstar Asia, Qantas Airways’ Singapore-based subsidiary, which will cease operations by the end of July after nearly two decades, citing unsustainable cost increases.
The budget airline model has proliferated across Asia over the past twenty years, underpinned by rising disposable incomes and robust travel demand, particularly from Chinese tourists. Industry forecasts anticipate that air travel demand in Asia will outpace all other regions in the coming decades, further encouraging carriers such as Malaysia’s AirAsia and Vietnam’s VietJet Aviation to expand their already substantial aircraft orderbooks.
However, profitability remains a challenge. According to the International Air Transport Association (IATA), Asia-Pacific carriers are forecast to post a net profit margin of just 1.9 per cent in 2024, well below the global average of 3.7 per cent. The region’s rapid post-pandemic capacity recovery has intensified fare competition, especially among price-sensitive leisure travellers.
ForwardKeys data shows that international airfares across Asia fell 12.0 per cent year-on-year in 2024. AirAsia, Southeast Asia’s largest low-cost carrier, reported a 9.0 per cent drop in average fares in the first quarter, attributing the decline to increased capacity and the pass-through of savings from lower fuel costs.
Yet cost headwinds are escalating. Labour, airport fees, and ground services have all become more expensive, while a global aircraft shortage has driven up leasing and maintenance expenses. Jetstar Asia cited double-digit increases in fuel, airport charges, and security fees at its Singapore hub as key factors behind its decision to exit the market.
“The buffer is extremely thin, and with margins this low, any cost increase can affect an airline’s viability,” said Sheldon Hee, Vice-President for Asia-Pacific at IATA. Aviation intelligence provider OAG noted in a recent white paper that Asia-Pacific remains the most competitive global aviation market, where excess capacity has pushed fares to levels that threaten profitability. The report emphasised that aligning supply with demand, and managing cost-revenue dynamics, is now more critical than ever.
Two-thirds of international seat capacity within Southeast Asia is now operated by budget carriers—double the global average—according to the CAPA – Centre for Aviation. Analysts suggest Qantas opted to redeploy Jetstar Asia’s fleet to more efficient markets in Australia and New Zealand, rather than continue absorbing losses in a saturated environment.
Southeast Asia’s low-cost airline sector was already grappling with profitability pressures before the pandemic, a situation now compounded by structural cost increases. Smaller operators face particular difficulties. Jetstar Asia, with a fleet of 13 aircraft, lagged behind its regional competitors in scale. As of 31 March, Scoot (Singapore Airlines’ budget arm) operated 53 aircraft, AirAsia 225, VietJet 117 including its Thai unit, and Cebu Pacific 99. Each of these airlines has committed to further fleet expansion.
VietJet, in a significant move announced this week at the Paris Airshow, signed a provisional agreement to acquire up to 150 additional Airbus narrow-body aircraft. This follows a recent order of 20 Airbus A330neo wide-bodies and builds on its existing commitment to purchase 200 Boeing 737 MAX jets.
Meanwhile, AirAsia is pursuing additional fleet growth, with ongoing negotiations to acquire 50 to 70 long-range single-aisle aircraft and 100 regional jets. Chief Executive Tony Fernandes confirmed the group’s intention to use these jets to reach new destinations.
“At the end of the day, it is go big or go home,” remarked Subhas Menon, Director-General of the Association of Asia Pacific Airlines, underscoring the prevailing mindset in an increasingly high-stakes environment.
-Reuters
