Starry-eyed budget carriers in Southeast Asia stare at overcapacity

Sun Feb 9, 2014 6:22am EST
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By Anshuman Daga

SINGAPORE (Reuters) - Low-cost carriers are flying high in Southeast Asia on the back of sharp growth in air travel, but as hundreds of new jets swarm into the region concerns are rising about its ability to absorb the record numbers of planes on order.

Southeast Asian carriers have been devouring as many new airplanes as planemakers can sell, gambling that low fares and rising disposable incomes will drive the region's 600 million-strong population to keep flying to new destinations.

An aircraft buying binge fuelled by cheap interest rates and backed by Western export credits shows few signs of halting, with Vietnam's VietJetAir and Thailand's Nok Air (NOK.BK: Quote) both expected to place orders at the Singapore Airshow this week.

But after years of explosive growth, the region's budget carriers are now facing fears of overcapacity as deliveries accelerate, airlines expand into each other's markets and currency weakness threatens to puncture economic growth.

"This is the only region in the world where airlines have more orders than current fleet and there's more to come," said Brendan Sobie, chief analyst at industry consultancy CAPA.

Airlines in Southeast Asia are estimated to have a fleet of 1,800 by the end of this year, he said, while their order book is set to surpass the 2,000 mark. Asia-Pacific planes on order make up 36 percent of the world total and the figure is rising, says Airbus.

Already last year, available capacity grew faster than passenger demand in countries such as Malaysia, the Philippines and Singapore, putting pressure on yields or the average revenue per passenger for every kilometre flown.

That could extend further in 2014 as carriers in Southeast Asia take delivery of about 230 aircraft worth over $20 billion this year, at a rate close to one new jet every working day.   Continued...

People walk past a Singapore Airshow poster at the exhibition venue in Singapore February 7, 2014. REUTERS/Edgar Su