Southeast Asia's budget airlines eye recovery but fuel scars linger
HONG KONG - Southeast Asia's budget carriers are hoping the worst of ‌the Middle East-driven fuel shock is behind them but face a difficult second half as margins remain under pressure and strained household budgets threaten demand, airline executives and analysts said.
Southeast Asia's budget airlines are optimistic that the worst of the fuel shock stemming from Middle Eastern factors is behind them, but face a challenging second half as margins remain under pressure and strained consumer budgets threaten demand, according to airline executives and analysts. AirAsia, Scoot, and Cebu Pacific - the budget carriers from Malaysia, Singapore, and the Philippines respectively - all reported net losses or significantly increased operating losses in their latest quarterly results, indicating that raising fares to offset higher fuel costs has been insufficient.
Fuel prices account for a larger portion of expenses for budget airlines compared to full-service carriers, but cost-sensitive travelers limit the airlines' ability to raise fares without reducing demand. The weakening of major currencies against the US dollar has also increased fuel and aircraft leasing costs. Cebu Pacific's CEO Mike Szucs noted that the second quarter was their most challenging post-pandemic, with fuel expenses more than doubling from the previous year due to an 8% weakening of the Philippine peso.
Full-service airlines have been buffered by strong demand for premium services from post-pandemic recovery, but budget carriers have struggled due to their basic product offerings and smaller loyalty programs. AirAsia plans to cut seat capacity by 20-25% in the third quarter, retire 25 older aircraft by 2026, and suspend its Sydney-Kuala Lumpur route starting October as part of a capacity recalibration.
The airline also anticipates a weak third quarter and expects to return to pre-pandemic capacity levels in the fourth quarter. Scoot, while adding capacity as demand remains strong, has seen its passenger unit costs rise 21.7% due to higher fuel prices, pushing its operating loss to S$32 million. Scoot's CEO Calvin Chan stated that fare adjustments haven't fully offset higher fuel costs.
Analysts caution that strained household budgets could dampen travel by Southeast Asia's middle class during the remainder of the year and the crucial peak season, casting doubt on the short-term outlook.
Written by urgent.news from Bangkok Post Business's reporting — not their text. Machine-written — may contain errors; check the original before relying on it.
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