2025-10-16
Why Asia’s Low-Cost Airlines Struggle To Make Money
Asia’s low-cost airline market is vast, fast-moving, and unforgiving. It carries more than a third of all passengers across the region, yet it remains one of the hardest aviation sectors in which to make a profit.
From India to Indonesia, the model that democratised flying has reached a turning point: The market is saturated, costs are rising, and competition is eroding margins faster than most airlines can adapt.
At its core, the low-cost model is simple. Keep aircraft flying as much as possible, standardise the fleet, sell seats cheaply, and earn extra from everything else.
At its core, the low-cost model is simple. Keep aircraft flying as much as possible, standardise the fleet, sell seats cheaply, and earn extra from everything else.
In Asia, that model collided with geography, regulation, and economics. It worked when demand was expanding faster than capacity. Now, as growth matures, the same formula has become far harder to sustain.
The first and most obvious pressure is cost. Fuel remains the single largest expense for any airline, and Asia’s low-cost carriers are acutely exposed. Many do not hedge fuel prices or hold large cash reserves, so every fluctuation in oil markets moves directly to the bottom line. Add to that the rising cost of maintenance, spare parts, and insurance — all of which have surged since 2022 — and the structural fragility becomes clear.
Labour adds another layer. The region’s pilot shortage, driven by post-pandemic retirements and surging demand in India and the Gulf, has pushed up wages across Asia. Training and retaining crews are now among the biggest challenges for budget airlines that once relied on a steady supply of low-cost labour.
Airport and air-navigation fees also weigh heavily. Many Asian airports charge the same rates to budget carriers as they do to full-service airlines, eroding one of the few advantages low-cost carriers used to enjoy. Congested terminals and limited gate availability reduce aircraft utilisation — the lifeblood of the model — and ground delays compound costs.
Even aircraft leasing has become a headwind. With interest rates higher and new aircraft deliveries delayed by engine shortages, lease rates have jumped. Smaller carriers, unable to secure long-term financing on favourable terms, face a squeeze from both sides: higher costs and flat yields.
The other defining feature of the Asian low-cost market is excess capacity. The region’s airlines, particularly in Southeast Asia and India, have spent the past decade ordering aircraft in numbers unmatched anywhere else. The logic was simple: future growth would fill them. And in aggregate, that has been true — but not evenly.
On many regional routes, supply now far exceeds demand. In markets like Malaysia, Thailand, and the Philippines, several carriers operate overlapping networks, all targeting the same price-sensitive travellers. The result is a permanent fare war. Average ticket prices remain below sustainable levels, with some airlines discounting heavily just to maintain load factors.
For consumers, that competition is good news. For airlines, it’s unsustainable. The economics of a low-cost carrier depend on volume, but volume at a loss does not build resilience. In some markets, even with high aircraft utilisation and strong ancillary sales, airlines are struggling to cover basic operating costs.
Then there is the structural environment. Unlike Europe, which liberalised its skies three decades ago, much of Asia remains fragmented by bilateral air service agreements and ownership restrictions. Airlines registered in one country cannot freely operate within or between others, and access to profitable routes often depends on political negotiations rather than market forces.
For a low-cost airline trying to expand regionally, these rules create enormous friction. A carrier in Malaysia that wants to fly between Thailand and Vietnam, or between India and Indonesia, faces a maze of approvals and restrictions. The alternative is to set up joint ventures — like AirAsia’s group of affiliates — but those require capital, complex governance, and exposure to multiple regulatory systems.
Protectionism adds further complexity. National carriers, some still state-owned or politically influential, receive preferential slot allocations or support in crisis periods. Low-cost carriers are treated as competitors rather than contributors to national connectivity. The result is uneven competition that favours incumbents and discourages cross-border consolidation.
Asia’s geography also limits the model’s efficiency. Many of the region’s key markets are archipelagos or separated by long stretches of ocean. Flights between Jakarta and Manila or Kuala Lumpur and Bangkok are relatively long sectors for single-aisle aircraft. Those longer stage lengths mean higher fuel burn per seat, fewer rotations per day, and reduced opportunities for quick turnarounds.
Compare that to Europe, where dense populations and shorter sectors let an aircraft complete up to seven or eight flights per day. In Asia, utilisation drops sharply once over-water and weather constraints are factored in. The efficiency gap between theory and reality is stark.
While demand has soared, infrastructure has not kept pace. Many secondary airports lack the facilities or runway length for efficient low-cost operations. Congestion at major hubs like Manila, Bangkok, and Delhi forces delays that ripple across schedules. Ground handling bottlenecks and air-traffic constraints make it hard to maintain the high-frequency, high-turnover rhythm that defines a low-cost carrier’s economics.
Even where new capacity is built, it often comes with higher charges or longer distances from city centres, undermining the low-fare proposition. For carriers built on quick turnarounds and low operating costs, that is a constant drag on efficiency.
Given those pressures, the fact that Asia’s low-cost carriers still account for more than a third of regional traffic is a sign of resilience. The survivors — IndiGo, AirAsia, Lion Air, VietJet — share common traits. They operate large, standardised fleets, maintain tight control over costs, and generate significant ancillary revenue.
IndiGo in particular demonstrates the advantage of scale. Its dominance in India gives it negotiating leverage with airports, lessors, and suppliers. AirAsia has turned its brand into a regional ecosystem, extending into logistics and digital services. VietJet has built a disciplined cost structure and tapped the region’s fast-growing tourism flows.
The broader question is whether the pure low-cost model can continue to work in Asia at all. As markets mature, passengers expect more: assigned seating, connectivity, loyalty benefits. Carriers respond by layering on optional services or premium seats. Yet every add-on brings complexity and cost, pushing the model closer to that of hybrid or “value” carriers.
Meanwhile, the next wave of aircraft technology — like the A321XLR — is blurring the distinction further. Airlines are using single-aisle aircraft for five- and six-hour sectors, connecting secondary cities directly to long-haul markets. That expands reach but raises costs. The economics of ultra-low-cost flying weaken with every additional hour in the air.
The outcome is predictable. The market will consolidate. Smaller players will fold or merge. Larger ones will evolve toward hybrid models that combine low-cost efficiency with selective service upgrades. The region’s fragmentation, once a barrier to entry, will become a filter — leaving only those with enough capital and scale to survive.
Asia’s low-cost market sits on a paradox: It is the world’s fastest-growing aviation region, but also one of its least profitable. Demand is enormous. Millions of first-time flyers enter the market every year. Yet competition, regulation, and cost inflation keep margins near zero.
For governments, the temptation will be to see low-cost carriers as expendable — interchangeable providers of cheap fares. In reality, they are central to connectivity, tourism, and economic inclusion. Policymakers who want to sustain growth will need to address the structural issues that make profitability elusive: modernise air-service agreements, accelerate airport expansion, and ensure fair access to slots and infrastructure.
The coming years will test the limits of Asia’s low-cost experiment. The model that made flying accessible to hundreds of millions is now running at the edge of viability. Those who survive will do so not through price wars, but through discipline, adaptability, and scale. In Asia’s skies, growth alone is no longer enough. Profit has become the rarest commodity of all.
The author is an aviation analyst. X handle: @AlexInAir.
The first and most obvious pressure is cost. Fuel remains the single largest expense for any airline, and Asia’s low-cost carriers are acutely exposed. Many do not hedge fuel prices or hold large cash reserves, so every fluctuation in oil markets moves directly to the bottom line. Add to that the rising cost of maintenance, spare parts, and insurance — all of which have surged since 2022 — and the structural fragility becomes clear.
Labour adds another layer. The region’s pilot shortage, driven by post-pandemic retirements and surging demand in India and the Gulf, has pushed up wages across Asia. Training and retaining crews are now among the biggest challenges for budget airlines that once relied on a steady supply of low-cost labour.
Airport and air-navigation fees also weigh heavily. Many Asian airports charge the same rates to budget carriers as they do to full-service airlines, eroding one of the few advantages low-cost carriers used to enjoy. Congested terminals and limited gate availability reduce aircraft utilisation — the lifeblood of the model — and ground delays compound costs.
Even aircraft leasing has become a headwind. With interest rates higher and new aircraft deliveries delayed by engine shortages, lease rates have jumped. Smaller carriers, unable to secure long-term financing on favourable terms, face a squeeze from both sides: higher costs and flat yields.
The other defining feature of the Asian low-cost market is excess capacity. The region’s airlines, particularly in Southeast Asia and India, have spent the past decade ordering aircraft in numbers unmatched anywhere else. The logic was simple: future growth would fill them. And in aggregate, that has been true — but not evenly.
On many regional routes, supply now far exceeds demand. In markets like Malaysia, Thailand, and the Philippines, several carriers operate overlapping networks, all targeting the same price-sensitive travellers. The result is a permanent fare war. Average ticket prices remain below sustainable levels, with some airlines discounting heavily just to maintain load factors.
For consumers, that competition is good news. For airlines, it’s unsustainable. The economics of a low-cost carrier depend on volume, but volume at a loss does not build resilience. In some markets, even with high aircraft utilisation and strong ancillary sales, airlines are struggling to cover basic operating costs.
Then there is the structural environment. Unlike Europe, which liberalised its skies three decades ago, much of Asia remains fragmented by bilateral air service agreements and ownership restrictions. Airlines registered in one country cannot freely operate within or between others, and access to profitable routes often depends on political negotiations rather than market forces.
For a low-cost airline trying to expand regionally, these rules create enormous friction. A carrier in Malaysia that wants to fly between Thailand and Vietnam, or between India and Indonesia, faces a maze of approvals and restrictions. The alternative is to set up joint ventures — like AirAsia’s group of affiliates — but those require capital, complex governance, and exposure to multiple regulatory systems.
Protectionism adds further complexity. National carriers, some still state-owned or politically influential, receive preferential slot allocations or support in crisis periods. Low-cost carriers are treated as competitors rather than contributors to national connectivity. The result is uneven competition that favours incumbents and discourages cross-border consolidation.
Asia’s geography also limits the model’s efficiency. Many of the region’s key markets are archipelagos or separated by long stretches of ocean. Flights between Jakarta and Manila or Kuala Lumpur and Bangkok are relatively long sectors for single-aisle aircraft. Those longer stage lengths mean higher fuel burn per seat, fewer rotations per day, and reduced opportunities for quick turnarounds.
Compare that to Europe, where dense populations and shorter sectors let an aircraft complete up to seven or eight flights per day. In Asia, utilisation drops sharply once over-water and weather constraints are factored in. The efficiency gap between theory and reality is stark.
While demand has soared, infrastructure has not kept pace. Many secondary airports lack the facilities or runway length for efficient low-cost operations. Congestion at major hubs like Manila, Bangkok, and Delhi forces delays that ripple across schedules. Ground handling bottlenecks and air-traffic constraints make it hard to maintain the high-frequency, high-turnover rhythm that defines a low-cost carrier’s economics.
Even where new capacity is built, it often comes with higher charges or longer distances from city centres, undermining the low-fare proposition. For carriers built on quick turnarounds and low operating costs, that is a constant drag on efficiency.
Given those pressures, the fact that Asia’s low-cost carriers still account for more than a third of regional traffic is a sign of resilience. The survivors — IndiGo, AirAsia, Lion Air, VietJet — share common traits. They operate large, standardised fleets, maintain tight control over costs, and generate significant ancillary revenue.
IndiGo in particular demonstrates the advantage of scale. Its dominance in India gives it negotiating leverage with airports, lessors, and suppliers. AirAsia has turned its brand into a regional ecosystem, extending into logistics and digital services. VietJet has built a disciplined cost structure and tapped the region’s fast-growing tourism flows.
The broader question is whether the pure low-cost model can continue to work in Asia at all. As markets mature, passengers expect more: assigned seating, connectivity, loyalty benefits. Carriers respond by layering on optional services or premium seats. Yet every add-on brings complexity and cost, pushing the model closer to that of hybrid or “value” carriers.
Meanwhile, the next wave of aircraft technology — like the A321XLR — is blurring the distinction further. Airlines are using single-aisle aircraft for five- and six-hour sectors, connecting secondary cities directly to long-haul markets. That expands reach but raises costs. The economics of ultra-low-cost flying weaken with every additional hour in the air.
The outcome is predictable. The market will consolidate. Smaller players will fold or merge. Larger ones will evolve toward hybrid models that combine low-cost efficiency with selective service upgrades. The region’s fragmentation, once a barrier to entry, will become a filter — leaving only those with enough capital and scale to survive.
Asia’s low-cost market sits on a paradox: It is the world’s fastest-growing aviation region, but also one of its least profitable. Demand is enormous. Millions of first-time flyers enter the market every year. Yet competition, regulation, and cost inflation keep margins near zero.
For governments, the temptation will be to see low-cost carriers as expendable — interchangeable providers of cheap fares. In reality, they are central to connectivity, tourism, and economic inclusion. Policymakers who want to sustain growth will need to address the structural issues that make profitability elusive: modernise air-service agreements, accelerate airport expansion, and ensure fair access to slots and infrastructure.
The coming years will test the limits of Asia’s low-cost experiment. The model that made flying accessible to hundreds of millions is now running at the edge of viability. Those who survive will do so not through price wars, but through discipline, adaptability, and scale. In Asia’s skies, growth alone is no longer enough. Profit has become the rarest commodity of all.
The author is an aviation analyst. X handle: @AlexInAir.
Source: GULF TIMES