Why Are Southeast Asia Airlines Struggling Despite Surging Air Travel? | Insight

Key Concepts

• Revenge Travel: Surge in travel demand post-COVID-19.
• LCC (Low-Cost Carrier): Airlines offering lower fares with fewer amenities.
• RPK (Revenue Passenger Kilometers): Measures air passenger traffic.
• Supply Chain Issues: Delays and shortages in aircraft parts and deliveries.
• OEM (Original Equipment Manufacturer): Companies that manufacture products or components that are used by another company to produce a finished product.
• Flag Carrier: An airline that is owned or heavily subsidized by a national government.
• Sovereign Wealth Fund: A state-owned investment fund composed of money generated from government surpluses.
• COMAC (Commercial Aircraft Corporation of China): Chinese aircraft manufacturer.
• FAA (Federal Aviation Administration): The primary aviation regulatory body in the United States.
• EASA (European Union Aviation Safety Agency): The primary aviation regulatory body in the European Union.
• Touch and Go: A maneuver where an aircraft lands and immediately takes off again.
• Go-Around: An aborted landing.

Aviation Industry Challenges in Asia

• Jetstar Asia Closure: In July 2025, Jetstar Asia ceased operations in Singapore due to financial losses, despite high demand for air travel.
• Booming Air Travel vs. Airline Struggles: While air travel is surging in Asia, many airlines, both LCCs and full-service carriers, are facing difficulties.
• Low Profit Margins: Asia Pacific airlines had a net profit of only 1.9% in 2024, indicating a highly competitive market.
• Supply Chain Issues: Post-pandemic lag in the supply chain causes long wait times for replacement parts and new planes. As of July 2025, 209 out of 583 commercial planes in Indonesia were grounded due to maintenance awaiting spare parts.
• Aircraft Delivery Backlog: IATA estimates a 14-year waiting time for aircraft deliveries. Airbus has a backlog of around 8,700 aircraft, while Boeing has around 5,950.
• Aging Fleets: Without new planes, Asian fleets are aging, leading to higher maintenance costs and reduced efficiency.
• Geopolitical Issues: Conflicts like the war in Ukraine and tensions in the Middle East increase costs due to rerouting and higher fuel prices.

Flag Carrier Struggles and Turnarounds

• Garuda Indonesia's Troubles: Indonesia's flag carrier, Garuda, lost 1.2 trillion rupiah (US$76.3 million) in Q1 2025. In 2024, nearly 16% of Garuda's revenue was spent on maintenance and repairs, the highest ratio among flag carriers globally.
• Government Intervention: The Indonesian government transferred its 65% stake in Garuda to sovereign wealth fund Danantara, which extended a US$405 million loan.
• Malaysia Airlines' Nationalization and Rebrand: After the MH370 and MH17 tragedies, Malaysia Airlines was nationalized in 2014. Khazanah injected over US$700 million into the airline.
• Focus on Premium Travelers: Malaysia Airlines shifted its focus to premium travelers and restructured its balance sheets, removing about $15 billion of liabilities.
• Thai Airways' Restructuring: Thai Airways underwent bankruptcy-protected restructuring in 2020, with the government reducing its stake below 50%. The airline was relisted on the Thai Stock Exchange in August 2025.

Low-Cost Carrier Challenges and Competition

• Precarious LCC Sector: Jetstar Asia's exit highlights the challenges in the low-cost carrier sector.
• Rising Costs: Inflation and increased cost of money make it difficult for LCCs to offer low ticket prices.
• Competition from Chinese Carriers: Southeast Asia's LCCs face stiffer competition from expanding Chinese counterparts.
• TransNusa and COMAC: TransNusa is the first airline outside China to operate COMAC aircraft, using the C909 jet on domestic and international routes.

COMAC's Role in the Aviation Industry

• Challenging Airbus and Boeing: COMAC aims to reduce China's dependency on Western manufacturers.
• Certification Hurdles: COMAC jets are yet to be certified by the FAA and EASA, limiting their use in certain markets.
• TransNusa's Adoption: TransNusa utilizes COMAC jets within Indonesia, where FAA and EASA certification is not required.

Boeing and Airbus Dominance

• Key Market: Asia Pacific: Asia Pacific is a major source of growth for Boeing, expected to account for 30% to 40% of all commercial aviation in 20 years. Southeast Asia is on track to be the fourth-largest aviation market in the world.

Impact of Tariffs and Trade Deals

• Global Supply Chains: Aircraft manufacturing relies on global supply chains, with parts sourced from various markets.
• Tariff Impact: Tariffs undermine free trade and disrupt supply chains, increasing supplier costs.
• Indonesia-US Trade Deal: Indonesia and the US reached a trade deal in July 2025, with Indonesia buying billions of dollars of American products, including 50 Boeing planes, in return for lower tariffs.

Future Outlook

• Continued Growth: Air travel in Asia Pacific is expected to continue its upward momentum.
• Fleet Refreshment: Malaysia Airlines aims to refresh its fleet with new generation Boeing 737 aircraft and Airbus A330neo jets.
• Increased Travel Costs: Travel has become more expensive due to increased demand and limited capacity.
• Instability and Geopolitical Risks: Global instability and geopolitical upheavals pose risks to discretionary travel.

Conclusion

Asia's aviation industry is experiencing a complex landscape of booming demand juxtaposed with significant challenges. While passenger numbers are rising, airlines face pressures from low profit margins, supply chain disruptions, geopolitical tensions, and intense competition. Flag carriers are undergoing restructuring and seeking government support, while low-cost carriers grapple with rising costs and new market entrants. The emergence of COMAC as a potential competitor to Boeing and Airbus adds another layer of complexity. The industry's future hinges on resolving supply chain issues, managing costs effectively, and navigating geopolitical uncertainties.