Jetstar Asia’s exit spotlights Asia’s budget airline squeeze
Analysts warn a perfect storm of rising costs, competition and economic volatility is forcing low-cost carriers to rethink their strategies
The Singapore-based subsidiary of Qantas was the latest casualty in a sector already squeezed by high fuel prices and supply chain bottlenecks. Its exit leaves the Singapore Airlines Group as the only airline group based in the city state operating carriers out of Singapore.
“I expect all airlines to reconfigure their fare offerings in the coming months and years. The more unstable the world economy becomes, the worse it will be for airlines,” said Shukor Yusof, founder of Singapore-based Endau Analytics, an aviation industry consultancy and research firm.
Budget airlines operate on relatively low profit margins, often in the range of 1 per cent to 2 per cent, compared with the broader airline industry, which may average around 3 per cent to 4 per cent. While they aim for high passenger volume and cost efficiencies to offset this, they remain vulnerable to economic fluctuations and intense competition, according to aviation analysts.
“Budget airlines find it harder to keep costs down today because the price of money has gone up. Expenses are typically denominated in US dollars but many regional low-cost carriers earn in local currencies, which have weakened versus the greenback,” Yusof said.
“In places such as Hong Kong and Singapore, the high cost of doing business is another factor.”