• Southeast Asia's budget airlines are expanding despite rising costs and competition challenges.
• Qantas Airways is shutting down Jetstar Asia due to profitability issues.
• The International Air Transport Association forecasts a low profitability margin for Asian airlines.
• AirAsia and VietJet are planning significant aircraft purchases in response to growing travel demand.
• Average airfares in Asia dropped significantly, putting pressure on profit margins.

Southeast Asia's biggest budget airlines are engaged in a fierce capacity expansion race, pursuing growth despite financial pressures that have led Qantas Airways to announce the shutdown of its Singapore-based subsidiary, Jetstar Asia. This trend has emerged as disposable incomes rise and demand for travel from Chinese tourists strengthens. Airlines like Vietnam's VietJet and Malaysia's AirAsia are responding by increasing fleet sizes to gain market share, crucial in a rapidly growing sector, according to Reuters, The Jakarta Post, and South China Morning Post.

However, the **International Air Transport Association (IATA)** projects that Asia-Pacific airlines will generate a net profit margin of only **1.9%**, significantly lower than the global average of **3.7%**. The regional airline market has seen restored capacity post-pandemic, which has intensified competition for budget travelers, leading to a considerable drop in airfares. AirAsia reported a **9% decline** in average airfares in Q1 as it expanded capacity and passed on savings from reduced fuel prices, and the overall international airfares in Asia decreased by **12%** from 2023 to 2024, according to Reuters, The Jakarta Post, and South China Morning Post.

The profitability challenges are compounded by rising expenses, including labor and airport charges, alongside a shortage of new aircraft, inflating leasing and maintenance costs. Jetstar Asia has attributed its exit to "really high cost increases" at its Singapore operations and the "thin buffer" available for profit amid decreasing margins. IATA Asia-Pacific Vice President Sheldon Hee emphasized that any increase in costs could jeopardize an airline's sustainability under these conditions, as stated in reports from Reuters, The Jakarta Post, and South China Morning Post.

Despite these challenges, Southeast Asia remains a comparatively high-demand market for budget flights, with budget carriers occupying around **two-thirds** of international seats within the region this year, according to CAPA Centre for Aviation data. This concentration is notably higher than the global average of about **one-third** of international seats. Both VietJet and AirAsia are aggressively expanding their fleets; VietJet recently announced plans to purchase up to **150 single-aisle Airbus** planes, following previous orders, while AirAsia aims to acquire another **350 planes** to extend its reach, highlighting the sentiment expressed by Subhas Menon of the Association of Asia Pacific Airlines, who stated, "At the end of the day, it is go big or go home," according to Reuters, The Jakarta Post, and South China Morning Post.