[SINGAPORE] Even as Jetstar Asia braces for its final day of operations on Jul 31, the skies surrounding Changi Airport are set to remain busy.
Come that day, 31 planes will take off from the runways of Changi Airport, traversing a sliver of the Java Sea before landing in Jakarta, Indonesia, just under two hours later. Twelve of those flights on this popular route will be operated by budget carriers, checks by The Business Times found.
But amid an increasingly challenging landscape fraught with rising competition and costs, the future for these low-cost airlines – which make up about one-fifth of the carriers operating in Changi Airport – could well be in jeopardy.
In June, Jetstar Asia announced its departure from Singapore for good on Jul 31, after about two decades based in the city-state.
Among the reasons cited for its closure was intense competition.
Besides Jetstar Asia, budget carriers operating in Changi Airport include West Air and Guangxi Beibu Gulf Airline from China, Peach Aviation and Air Japan – both of which are units of Japan’s All Nippon Airways – as well as South Korea’s T’way Air and Japan Airlines’ offshoot Zipair.
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Also flagged as a reason for Jetstar Asia’s closure were rising costs, with some jumping by as much as 200 per cent.
Still, prices had to be kept low for it to compete with others in the segment. To illustrate, a one-way flight by Jetstar Asia on the Singapore-Jakarta route could cost as little as S$23.80 in base fare – a fair bit less than the typical fare for a taxi ride from Jurong to Pasir Ris.
With Changi Airport’s S$65.20 passenger fee and levies included, that no-frills flight with 7kg of baggage allowance would total S$89. As at December 2024, tickets with prices below S$100 made up around two-thirds of those offered by Jetstar Asia.
Other airlines serving the budget-conscious market in Singapore also price their base fares competitively. Garuda Indonesia’s Citilink, for instance, charges a base fare of just $33 for the Singapore-Jakarta route.
(Shrinking) pie in the sky
Jetstar Asia’s exit shines a spotlight on the viability of budget carriers in Changi Airport.
Describing the move as “a significant development”, Joanna Lu, head of Asia at aviation analytics company Cirium Ascend Consultancy, notes that the airline industry faces more challenging operating conditions post-pandemic.
Costs – from labour to ground handling, as well as those stemming from broader inflationary pressures – have all increased.
Meanwhile, constraints in the global aircraft supply chain are limiting fleet availability, making it harder for budget carriers to maximise aircraft utilisation – a key pillar of their cost-efficiency model, Lu says.
And competition is intensifying.
Full-service carriers are increasingly defending short-haul leisure and Visiting Friends and Relatives (VFR) markets with competitive pricing.
This, in turn, is narrowing the difference between their fares and those charged by budget carriers.
Lu notes that the limitations of the budget carrier model become more visible in high-cost or highly competitive environments like Changi Airport.
Unlike some secondary airports, where budget carriers can operate with minimal overhead, she points out that Changi Airport is a premium hub with high service standards and associated infrastructure costs that may not align with the ultra-low-cost operating model.
Farouk Kamal, deputy chief executive of AirAsia Aviation Group, said at a recent panel discussion that budget travellers have found Singapore becoming expensive, with airport fees and charges sometimes higher than the base fare itself.
This will pose a challenge for budget carriers operating routes in and out of costlier hubs such as Singapore. “This is something the industry as a whole has to tackle.”
Jetstar Asia’s closure certainly thus highlights the rising pressure on airlines to critically evaluate market performance and redeploy limited resources to higher-yielding opportunities.
Still, this does not necessarily signal a wave of budget carrier exits from Changi Airport, Lu says.
“Each carrier faces a different set of circumstances, including ownership structure, network strategy, and cost resilience.”
She warns, however, that if budget carriers find themselves unable to maintain profitability in Singapore’s competitive landscape, further rationalisation or capacity shifts are possible.
Altitude adjustment
In a constrained supply environment, airlines are increasingly prioritising markets where they can achieve better margins and scale.
Mohshin Aziz, equity analyst at BIMB Securities, has already observed some budget carriers reduce their frequencies or drop some routes from Singapore, probably due to costs. Prior to his current post, Mohshin was a director of a fund that invests in aviation businesses.
Professor Rico Merkert, an international transport academic from the University of Sydney, thinks that Jetstar Asia’s exit from Singapore is more of a strategic decision made by its parent company Qantas Group to bolster its Australian operations with assets from the low-cost arm.
The academic also notes that demand is still very high, and that jet fuel costs – which represent about 30 per cent of budget carriers’ operating costs – are currently “extremely” low.
“I would say most of them will generate a small profit this year.”
The exit of Jetstar Asia, which has about 4 per cent seat capacity at Changi Airport, means that yields will likely go up a little further, Prof Merkert adds. This translates to slightly improved profit margins for the remaining operators.
Cirium’s Lu says that, for now, most budget carriers with strong group backing or a well-aligned network continue to see strategic value in maintaining operations at Changi Airport.
Peach Aviation is one such airline.
The Osaka-headquartered budget carrier launched direct flights between Singapore and the Japanese city in December 2024, becoming the only Japanese airline plying the route.
Changi Airport’s strategic location and strong connectivity were compelling factors behind the move, says the carrier, which was founded in 2011.
“While we are mindful of overall cost structures, we also recognise Changi’s strengths in connectivity, infrastructure, and customer service, which provide value to both airlines and travellers.”
To ensure the long-term sustainability of its operations, Peach Aviation says it is also in continual constructive dialogue with its partners, including Changi Airport.
“At this time, we remain committed to serving Singapore through Changi Airport,” says a spokesperson for the airline.
“It is an important international hub and aligns with our network strategy in Asia. We will continue to assess opportunities to expand our presence in the region based on demand and operational feasibility.”
Whither the budget carrier?
The budget travel segment forms an integral part of Singapore’s aviation market, says BIMB Securities’ Mohshin.
This, he notes, is underpinned by a strong travel culture across Asean, where short-haul, high-frequency flights align well with regional demand dynamics.
“I would say there will always be a space for budget carriers (at Changi Airport),” he adds.
But as their slice of the air travel pie shrinks, what will it take for budget carriers to survive here?
For Cirium’s Lu, success now boils down to whether these players can achieve greater scale, sharper network focus, and stronger ancillary revenue performance.
“The margin for error is narrower than before, and only those that can adapt quickly to this new cost and competitive reality are likely to sustain profitability in this environment,” she points out.
Lu adds that carriers need to maintain low unit costs, optimise aircraft utilisation, ensure high seat density and offer routes with consistent demand.
AirAsia, for example, uses a multi-hub format, unlike Jetstar Asia, which is based in Singapore. “It’s a question of optimising our routes, and managing capacity,” said Kamal at the panel.
As for what would break a budget carrier, Lu points to insufficient scale, network disconnect from key leisure or VFR markets, and weak brand recognition.
“Ancillary revenue is a critical component of budget carriers’ profitability, including baggage, seat selection, meals, and more,” she says.
“But the level of uptake depends primarily on how well the product is tailored to the market and how effectively it’s marketed to the passenger.”
Looking ahead, Lu sees consolidation among budget carriers operating at Changi Airport as possible over time.
This is particularly as airlines reassess their portfolios in response to persistent cost pressures, intense competition, and uneven demand recovery across markets.
However, she flags structural and regulatory complexities in South-east Asia as limiting factors for large-scale consolidation in the near term.
Prof Merkert, too, believes that consolidation among budget carriers is likely to happen.
“Because Singapore Airlines, Scoot and AirAsia are strong enough to weather the coming storm,” he says.
But most budget carriers might not make it, in the event of a global recession that would lead to “declining disposable incomes and hence softer demand for air travel”.
He adds that a spike in fuel prices or a safety incident that is detrimental to the brand could well be enough to push a weaker carrier over the line, given how competitive this market is.
