South-east Asia's budget airlines eye recovery but fuel scars linger

KUALA LUMPUR, 24 AUGUST 2026 —

South-East Asia’s Budget Airlines Struggle as Fuel Costs Weigh on Recovery

The latest quarterly results from regional carriers—Malaysia’s AirAsia, Singapore Airlines’ budget arm Scoot, and the Philippines’ Cebu Pacific—reveal that efforts to pass on fuel expenses through higher ticket prices have fallen short. AirAsia and Cebu Pacific reported net losses, while Scoot’s operating loss nearly doubled, underscoring the persistent strain on low-cost carriers that rely heavily on fuel purchases.

Fuel now accounts for a larger share of expenses for budget airlines compared to full-service carriers, yet their price-sensitive passengers limit their ability to raise fares without risking demand. Currency depreciation has compounded the pressure, with the Malaysian ringgit, Thai baht, Indonesian rupiah, and Philippine peso weakening against the US dollar. This has inflated fuel and aircraft leasing costs, typically denominated in dollars.

“The second quarter was the most challenging operating environment Cebu Pacific has faced post-pandemic,” said CEO Mike Szucs during an August earnings call. The airline’s fuel expenses more than doubled year-on-year, with the impact worsened by an 8% drop in the Philippine peso. To mitigate risks, Cebu Pacific has hedged about 30% of its third-quarter fuel needs at below $120 per barrel.

Full-service airlines, by contrast, have fared better thanks to strong demand from premium passengers, according to Nathan Gee, head of Asia-Pacific transportation research at Bank of America Global Research. Budget carriers, with their simpler offerings and smaller loyalty programmes, have had less pricing power.

AirAsia is preparing for a weak third quarter, traditionally the slowest for regional travel. The airline plans to cut seat capacity by 20% to 25% year-on-year in the quarter, return 25 older aircraft to lessors by 2026, and suspend its Sydney to Kuala Lumpur route from October as part of a broader network adjustment.

CEO Bo Lingam noted that average jet fuel prices hit $183 per barrel in the second quarter, prompting a “deliberate, tactical approach” to protect margins. AirAsia also reported a net foreign exchange loss of about $82 million.

Despite the cuts, Lingam expects capacity to return to pre-war levels by the fourth quarter, with forward bookings aligning with 2025 projections.

Scoot, meanwhile, has continued expanding capacity as demand remains resilient. However, its passenger unit costs surged 21.7% in the three months to June, pushing its operating loss to S$32 million ($25.2 million) from S$17 million a year earlier—despite higher fares and coverage under parent SIA’s fuel-hedging programme.

The cost spike lifted Scoot’s break-even load factor to 100%, meaning it would need to fill every seat just to cover operating expenses, compared to an actual load factor of 90.6%.

“Our fare adjustments have not fully offset higher fuel prices, and the Middle East conflict continues to cloud the outlook,” said Scoot’s chief commercial officer Calvin Chan.

Analysts warn that while lower fuel prices could ease immediate pressures, they may also encourage airlines to restore capacity and compete more aggressively on fares. Intra-Asian routes are particularly vulnerable, as narrowbody aircraft supply recovers faster than widebody jets, potentially leading to overcapacity against weak demand.

Independent aviation analyst Brendan Sobie cautioned that strained household budgets could further dampen travel by South-East Asia’s middle class in late 2025 and the crucial peak season.

“The short-term outlook is rather bleak,” Sobie said. “While there is hope of improvement in the fourth quarter, it is too early to gauge.”

The regional aviation sector’s struggles highlight the delicate balance between cost recovery and demand preservation. For budget airlines, the path to profitability remains uncertain as they navigate fuel volatility, currency risks, and cautious consumer spending.

Related: AirAsia · Kuala Lumpur