Southeast Asia’s budget airlines remain on a growth trajectory although the near-term outlook indicates that capacity expansion will slow down after penetration rate dropped in 2015—the first decline in 15 years, an aviation think tank said.
Center for Aviation (Capa) said in a report that the tempered outlook came as Southeast Asia’s 23 low cost carriers passed the 600-aircraft mark, after adding 70 planes last year. The total fleet had grown by 50 percent in the last three years alone, it said.
Budget airlines, led by Malaysia’s Air Asia Group, decided to cut regional capacity growth in 2015 due to challenging market conditions. Capa said that within Southeast Asia, capacity was up 9 percent in 2015.
Air Asia Bhd. ranks among the five largest Southeast Asian budget airlines, by fleet size. It is joined by Indonesia’s Lion Air and Wings Air, Cebu Pacific Air from the Philippines and Thai Air Asia.
Capa said seat capacity of full service carriers in the region grew by 14 percent last year, outpacing the growth seen by budget carriers since the industry was born a decade and a half ago.
“2016 will likely see a similar trend, with relatively slow LCC capacity growth within Southeast Asia,” Capa said.
It said faster growth would come from budget airline capacity between Southeast Asia ands other regions. Low cost carrier seat capacity here was up 14 percent in 2015, faster than the growth recorded by full service carriers, also because it was coming from a lower base.
“There are still opportunities for short haul LCC growth within Southeast Asia as the overall market continues to grow, boosted by economic growth and expansion of the region’s middle class population. Pioneer markets such as Burma (Myanmar) and Vietnam, particularly, have a lot of potential,” Capa said.
Capa expects capacity this year will grow faster for flights connecting Southeast Asia to other regions, like North Asia.
“There are still huge opportunities for growth in markets such as Southeast Asia-China, given the relatively low penetration rate and surging demand,” Capa said.
For 2016, the region’s low-cost carriers are expected to take delivery of another 70 to 80 planes, similar to the previous year. It added that these same airlines have about 1,100 planes on order, although a “large portion” of these will be used to replace the more than 600 aircraft currently in service.
“The long term outlook for Southeast Asia’s LCC sector remains bright as long as the airline groups continue to make adjustments, avoid aggressive expansion in saturated markets, and direct growth to markets where there are better opportunities,” Capa said.