Southeast Asia’s Low-Cost Airlines Seek Recovery as High Fuel Costs Hit Profits

Post by : Saif

Southeast Asia’s low-cost airlines are hoping conditions will improve later this year, but high fuel prices and weaker consumer spending continue to create major challenges for the industry.

Recent financial results from AirAsia, Scoot and Cebu Pacific show how sharply higher fuel costs have affected budget carriers.

AirAsia and Cebu Pacific reported net losses, while Scoot’s operating loss nearly doubled compared with the previous year.

Fuel Costs Put Pressure on Airlines

Fuel represents a significant portion of operating costs for budget airlines. Unlike full-service carriers, low-cost airlines have less flexibility to increase ticket prices because their customers are highly sensitive to fares.

Airlines attempted to recover higher fuel expenses through fare increases, but those adjustments were not enough to fully offset the increase in costs.

Currency weakness has added another problem. The Malaysian ringgit, Thai baht, Indonesian rupiah and Philippine peso have weakened against the US dollar, increasing the cost of fuel and aircraft leasing.

Read more: Vietjet to Restart Flights Using Chinese COMAC Planes After One-Month Break

Cebu Pacific Takes Major Fuel Hit

Philippine carrier Cebu Pacific reported one of the sharpest increases in fuel expenses.

Its fuel costs more than doubled from a year earlier during the second quarter. The impact was made worse by an approximately 8% decline in the Philippine peso against the US dollar.

The airline has hedged around 30% of its third-quarter fuel requirements at prices below $120 per barrel, providing some protection against further increases.

Company executives described the second quarter as one of the most difficult operating periods since the pandemic.

AirAsia Cuts Capacity

AirAsia is preparing for a challenging third quarter, which is traditionally a weaker period for regional travel.

The airline plans to reduce seat capacity by 20% to 25% year-on-year during the quarter. It also plans to return 25 older aircraft to lessors during 2026.

AirAsia is also suspending its Sydney-Kuala Lumpur route from October as part of a wider restructuring of its network.

The airline reported average jet fuel prices of around $183 per barrel during the second quarter and recorded a foreign exchange loss of approximately $82 million.

Carrier Expects Improvement in Fourth Quarter

Despite the difficult conditions, AirAsia expects its capacity to return to pre-conflict levels during the fourth quarter.

Forward bookings are reportedly tracking close to last year's levels, giving the airline some confidence that demand could strengthen later in the year.

However, industry analysts remain cautious about how quickly the recovery can take place.

Scoot Faces Rising Operating Costs

Singapore Airlines' budget carrier Scoot has continued adding capacity as passenger demand remains relatively strong.

However, its passenger unit costs increased 21.7% in the three months through June.

Scoot's operating loss reached S$32 million, compared with S$17 million a year earlier.

Despite higher ticket prices and fuel protection from its parent company, the airline was unable to fully recover the increase in fuel costs.

Its break-even passenger load factor reached 100%, while its actual load factor was 90.6%.

Household Budgets Could Affect Travel

Airline executives and analysts are also concerned about consumer spending.

Higher living costs and pressure on household budgets could reduce travel among Southeast Asia’s middle class, particularly during the important year-end holiday period.

Budget airlines depend heavily on price-sensitive travellers, making them particularly vulnerable if consumers begin cutting back on discretionary spending.

Fourth Quarter Offers Some Hope

Airlines are increasingly looking toward the fourth quarter for signs of improvement.

A decline in fuel prices would immediately reduce operating costs, but cheaper fuel could also encourage airlines to restore capacity and compete more aggressively on ticket prices.

That could limit the benefits of lower fuel expenses by putting downward pressure on fares.

Aircraft Supply Adds Another Risk

The recovery in narrowbody aircraft availability could also create additional competition on intra-Asian routes.

More aircraft entering service could increase available seats at a time when consumer demand remains uncertain.

Analysts warn that airlines could therefore face a difficult balance between restoring capacity and protecting profitability.

For Southeast Asia's budget carriers, the coming months will depend on fuel prices, currency movements, passenger demand and the ability to manage capacity.

While a fourth-quarter improvement remains possible, the industry continues to face significant pressure after the latest fuel shock.

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