Competition in Southeast Asia's budget airlines is fierce! If you don't grow big, you'll be eliminated!
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Civil Aviation Resources Network, June 19, 2025: According to Reuters, despite rising cost pressures that have led to shrinking profit margins and even forced Qantas to close its Singapore subsidiary Jetstar Asia, Southeast Asia's major low-cost airlines are still expanding their capacity fiercely.
In the past two decades, Asia's low-cost airlines have sprung up like mushrooms, supported by growing disposable income and strong travel demand from Chinese tourists. In the coming decades, the growth rate of air travel demand in Asia is expected to lead the world. At the same time, airlines such as Vietnam's VietJet Air and Malaysia's AirAsia will continue to expand their already large aircraft orders in an attempt to grab market share.
But the profit margins of airlines in the region are lower than those in other regions - the International Air Transport Association (IATA) predicts this year that the net profit margin of airlines in the Asia-Pacific region is 1.9%, far below the global average of 3.7%.
After the epidemic, the capacity of Asian airlines has basically recovered, which has intensified market competition (especially for price-sensitive low-cost airline passengers) and caused fares to fall from recent highs. According to ForwardKeys, international fares in Asia will fall 12% in 2024 from 2023. AirAsia, the region's largest budget airline, saw average fares fall 9% in the first quarter as it increased capacity and passed on lower fuel costs to passengers.
To make matters worse for airlines, costs such as labor and airport fees continue to rise, while a shortage of new aircraft has also pushed up leasing and maintenance costs. The shift prompted Qantas to announce last week that its loss-making budget brand Jetstar Asia will cease operations at the end of July after two decades of operation. Jetstar Asia said its Singapore base had previously faced soaring costs, including double-digit increases in fuel, airport fees, ground handling and security costs.
The profit buffer is extremely thin, and any cost increase could endanger the survival of airlines with such a thin profit margin, said Sheldon Hee, vice president of IATA Asia Pacific, adding that operating costs in the region are rising.
A February white paper by aviation data company OAG said Asia Pacific has become the world's most competitive aviation market, with rapid capacity expansion pushing fares to levels that could hurt profitability.
The white paper said that balancing supply and demand with cost control has never been so critical in evaluating Asia-Pacific airlines.
Either grow big or get out
The concentration of international low-cost flights in Southeast Asia is unusually high. CAPA Aviation Center data shows that since the beginning of this year, low-cost airline seats account for about two-thirds of international routes in Southeast Asia, far exceeding the global proportion of one-third.
Analysts pointed out that Qantas' choice to transfer the Jetstar Asia fleet to the more cost-effective Australian and New Zealand markets is actually a timely stop loss.
Independent aviation analyst Brendan Sobie said that Southeast Asian low-cost airlines were already caught in fierce competition and difficult to make profits before the epidemic, and now there is an additional factor of rising costs.
Low-cost airlines offer low fares by keeping operating costs as low as possible. The huge single-model fleet achieves economies of scale.
Jetstar Asia has only 13 aircraft, which is far smaller than local competitors: Singapore Airlines' Scoot has 53, Air Asia has 225, VietJet Air (including its Thai subsidiary) has 117, and Cebu Pacific Airlines of the Philippines has 99.
The four airlines are still expanding their fleets: VietJet signed an order for up to 150 single-aisle Airbus aircraft at the Paris Air Show on Tuesday, saying this was just the beginning of its ambitious expansion plan. Just a few weeks ago, VietJet ordered 20 A330neo wide-body aircraft, and it has an unfinished order for 200 Boeing 737 MAX aircraft.
AirAsia (which currently has orders for at least 350 aircraft) CEO Tony Fernandes revealed on Wednesday that it is negotiating to purchase 50-70 additional long-range single-aisle aircraft and 100 regional aircraft to expand to more destinations.
"Ultimately, it's either big or out," asserted Subhas Menon, director general of the Association of Asia Pacific Airlines.