Southeast Asia’s Largest Low-Cost Airlines Bet on Travel Demand and Expand, Despite Eroding Profits

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Over the next few decades, demand for air travel in Southeast Asia will grow faster than in other countries. AirAsia and VietJet Aviation will add more aircraft to increase their market share.

Southeast Asia’s largest low-cost airlines are attempting to expand their capacity despite rising cost pressures that are eroding profitability and prompting Qantas Airways to shutter its Singapore-based subsidiary, Jetstar Asia.

Over the past 20 years, low-cost airlines have expanded rapidly throughout Asia, driven by rising disposable income and strong travel demand from Chinese tourists.

Over the next few decades, demand for air travel in Asia will grow faster than in other countries. Airlines like Malaysia-based AirAsia and Vietnam’s VietJet Aviation will add more aircraft to their large order books to increase their market share.

However, profit markets are thinner than in other regions. The International Air Transport Association (IATA), an airline industry association, predicts that this year, Asia-Pacific airlines will make a net profit margin of 1.9% compared to the global average of 3.7%.

Since the pandemic, airlines in Asia have restored their capacity, which has increased its competition, particularly for price-conscious budget travellers, and lowered airfares from their recent highs.

ForwardKeys data, which prepares a comprehensive air travel database in the industry, shows that international airfares in Asia decreased by 12% in 2024 compared to 2023.  

AirAsia, the largest Malaysian low-cost airways, claimed a 9% drop in average airfares in the first quarter as it increased capacity and made savings from lower fuel costs.

Adding to the challenges faced by airlines costs such as labor and airport taxes, are increasing, and the lack of new aircraft is driving up lease and maintenance charges.

Due to this changing environment, Australia’s Qantas stated last week that, after 20 years of operation, its low-cost intra-Asia subsidiary Jetstar Asia will close by the end of July due to extensive losses.

Jetstar Asia reported double-digit cost increases at its Singapore base due to high fuel prices, airport fees, ground handling, and security charges.

IATA Asia-Pacific Vice President Sheldon Hee states that operating costs are increasing, and any thin buffer can impact airplane viability with low profit margins.

According to aviation data firm Official Airline Guide (OAG), Asia-Pacific is the most competitive aviation market in the world, with airfares declining due to rapid capacity expansion at the expense of profits.

The data reports that aircraft never seriously considered balancing supply and demand as well as costs and revenue.

Southeast Asia has an exceptionally high concentration of low-cost international flights. CAPA Centre for Aviation data shows that budget airlines have accounted for around two-thirds of international flight tickets in Southeast Asia, compared to roughly one-third of international seats worldwide.

Analysts argue that rather than losing money, Qantas can transfer Jetstar Asia’s planes to more economical operations in Australia and New Zealand.

According to independent aviation researcher Brendan Sobie, located in Asia, even before the pandemic, the intense competition made it taxing for budget airlines in Southeast Asia to get customers. But it was even more demanding with added expenses.

Low-cost airlines aim to keep their operational expenses as minimal as possible to deliver affordable rates.

With just 13 aircraft, Jetstar Asia was significantly smaller than its regional competitors. As of March 31, VietJet, with its Thai subsidiary, had 117 aircraft, AirAsia had 225, and Singapore Airlines’ low-cost subsidiary had 53. Cebu Pacific, a low-cost carrier in the Philippines, has 99.

This year and in the future, all four are expanding their aircraft with additional airliners.

At the Paris Air show on Tuesday, VietJet signed an agreement to purchase up to 150 more single-aisle Airbus aircraft, which the airline said was only the first step in its ambitious expansion plans.

The agreement follows weeks after it placed an order for 20 A330neo wide-body aircraft and an unfulfilled contract for 200 Boeing 737 MAX aircraft.

Tony Fernandes, the CEO of AirAsia, announced on Wednesday that the airline, which currently has an order book of at least 350 aircraft, is in negotiations to purchase 50 to 70 long-range single-aisle jetliners and 100 regional jets, which will help it to fly to new destinations.