Southeast Asia's budget carriers are hoping the worst of the Middle East-driven fuel shock is behind them, but face a difficult second half as margins remain under pressure and strained household budgets threaten demand, airline executives and analysts said.The latest quarterly results from Malaysia's AirAsia, Singapore Airlines' budget arm Scoot and the Philippines' Cebu Pacific showed that efforts to recoup soaring fuel costs through higher fares fell short. AirAsia and Cebu Pacific reported net losses, while Scoot's operating loss nearly doubled.
The results exposed a squeeze at the heart of the low-cost model: Fuel makes up a larger share of expenses than at full-service airlines, but price-sensitive passengers leave carriers less scope to lift fares without weakening demand.
Currency declines added to the pressure as the Malaysian ringgit, Thai baht, Indonesian rupiah and Philippine peso weakened against the dollar, increasing fuel and aircraft leasing costs typically priced in the United States currency.
"The second quarter was the most challenging operating environment Cebu Pacific has faced post-pandemic," CEO Mike Szucs said on an earnings call this month.
The airline's fuel expense more than doubled from a year earlier, another executive said, with the impact magnified by an 8 percent weakening of the peso. Cebu Pacific has hedged about 30 percent of its third-quarter fuel needs at below $120 per barrel to secure near-term protection.
