South-east Asia’s budget airlines eye recovery but fuel scars linger

Southeast Asia's budget airlines are optimistic the fuel crisis stemming from Middle East tensions is subsiding, but they face challenges in the second half of the year. AirAsia, Scoot, and Cebu Pacific's latest quarterly results revealed losses, despite attempts to offset soaring fuel costs with higher fares. AirAsia and Cebu Pacific posted net losses, while Scoot's operating loss nearly doubled.

Currency devaluations, particularly against the US dollar, heightened fuel and aircraft leasing costs. Cebu Pacific CEO Mike Szucs described Q2 as the toughest post-pandemic period, with fuel expenses more than doubling since the previous year. Cebu Pacific has hedged 30% of its third-quarter fuel needs to mitigate near-term risk.

Full-service airlines are comparatively better off due to robust post-pandemic demand from premium passengers. AirAsia anticipates a weak third quarter, cutting seat capacity by 20-25% year-on-year, returning 25 older aircraft to lessors in 2026, and suspending its Sydney-Kuala Lumpur route. The airline aims to restore capacity in the fourth quarter, with bookings aligning with last year's levels.

Scoot, meanwhile, has increased capacity amid strong demand but saw passenger unit costs rise 21.7% and its operating loss widen to S$32 million. Scoot's break-even load factor hit 100%, requiring filled seats to cover costs. Analysts warn that strained household budgets could deter travel by Southeast Asia's middle class during the rest of the year, especially during the crucial peak season.