Jetstar Asia Airways, commonly known as Jetstar Asia, was a Singaporean-based low-cost airline that took to the skies on December 13, 2004.
Despite its efforts to offer affordable fares and its contribution to the Asian aviation landscape, Jetstar Asia faced a “challenged history,” as described by the Jetstar Group’s chief executive. The airline struggled with rising supplier costs, escalating airport fees, and intensified competition in the region, which significantly impacted its profitability. After operating for twenty years, Jetstar Asia recently announced that it will cease all operations from July 31, 2025, as part of a “strategic restructure” by the Qantas Group. This decision, impacting over 500 employees and 16 intra-Asia routes, marks the end of Jetstar Asia’s presence in the Asian market, with its aircraft to be redeployed to support the Qantas Group’s operations in Australia and New Zealand.
With the bombshell dropped, investors might be wondering whether the budget airline business model is broken.
So, is that really the case?
A tale of AirAsia (Capital A), SIA and Qantas
We can take a fundamental and analytical approach to this. Since Jetstar is part of the Qantas Airways Ltd (ASX: QAN) which is listed on the ASX, its competitor includes the likes of Singapore Airlines Ltd (SGX: C6L) and Capital A Berhad (KLSE: CAPITALA), previously known as AirAsia Group.
Topline wise, all 3 airlines reported similar trends. All 3 suffered contraction in revenue during the pandemic induced periods, but then experienced rebound in revenue growth when “revenge travel” kicked in.
Quantum wise, Capital A’s AirAsia aviation business chalked in the highest growth rate, with SIA second and Qantas coming in third. Since all 3 companies report their financials in different currencies, I thought it was more representative to show their operating metrics on a more comparable aspect, neglecting the forex conversion effect.
And when we look at the total passengers carried comparing Capital A, Scoot of SIA and Jetstart Asia in 2024, the discrepancies start to show up.
Those who frequent Changi airports, would know that Terminal 4 is always packed with AirAsia’s signature red Airbuses. While Scoot operates out of other terminals, just from observation, one can tell that there are more AirAsia planes at any time versus Scoot and Jetstar.
But from reported data, we now know how many passengers fly with each low cost carrier. AirAsia flew 63.2 million passengers alone in 2024. Scoot is around 5 times smaller with 12.7 million while Jetstar Asia managed 2 million passengers.
AirAsia had a knack of growing the budget airline model during a time where flying was still expensive. As the successful first mover of the budget airlines model, they made flying more affordable – hence the tagline “Everyone Can Fly”. It has a significant impact on AirAsia’s profitability, and thanks to the massive economies of scale, AirAsia made it possible to provide affordable flights while maintaining decent profitability. However, the COVID-19 pandemic broke the company’s financials, putting it in PN17 – a designation by Bursa Malaysia for financially distressed companies.
Looking at load factor, all three airlines have a load factor of above 85%. Scoot came in marginally higher at 91.2%, with AirAsia close behind. Jetstar might be a fraction of a whisks away at 85.9%, but multiply that by the number of flights and planes and this lower load factor, coupled with the lower total passengers carried might be the reason Jetstar has been racking up losses all these years.
Looking at another key aviation operating metrics – the Available Seats Kilometres, this measures the airlines’ carrying capacity and help carriers evaluate capacity and efficiency. This metric can be used to optimise fleet utilisation and make better decisions about capacity planning. For example, an airline might use ASK data to determine whether to add new routes, increase frequencies on existing routes, or adjust fleet composition to better match market demand.
The downside of this metrics, is that it either pushes airlines to rapidly expand its fleet if it’s a market leader, or it will make smaller airlines more pessimistic. From the chart above, it is obvious that the ASK of AirAsia is so much larger than Scoot and Jetstar Asia, even when the latter two are combined. AirAsia seems to have mastered the art of growing in a red ocean business where competition is aplenty and margins are razor sharp thin.
The budget airline business sets a reminder that this segment tends to be low price or no loyalty – the cheapest always take it all. And with that, it isn’t hard to fathom why Jetstar Asia is the first one to bite the dust.
The virtuous cycle of better operating metrics translating to consumer noticeable preferences
You might then ask, how does all of the technical and operating metrics translate to consumer noticeable preferences?
A quick snapshot on Skyscanner tells it all.
A quick flight search between Singapore and Kuala Lumpur shows outright that there are many more AirAsia flights available. AirAsia routes also dominates the cheapest section as well.
With more planned flights, AirAsia is able to leverage its frequency to carry more passengers and work its assets harder.
To top it off, with better quality ancillary sales and services – through online sales of food, beverages and other items online (any Pak Nasser Nasi Lemak fans?), it is no surprise that we see AirAsia bullying its competition.
Maybe the atas Singaporeans might opt for Scoot to collect Krisflyer miles. But my money will be on the rest of ASEAN travellers, who are more conscious of flight ticket prices and quality of in-flight food and beverages.
Is the budget airline business model broken?
I don’t think that that is the case.
But it has definitely broken Jetstar Asia. Will it break the other low-cost airlines operating within ASEAN? I doubt so too as well as of now.
While AirAsia dominates the low cost airline segment and has it as its most dominant business vertical, other airlines like Scoot under SIA and Batik Air under Lion Air have their niche and strengths that don’t go head to head with AirAsia.
While Jetstar Asia might not be the bread and butter of Qantas, being just profitable in 6 fiscal years out of its 20 years of existence means that the writings was already on the wall for the company.
With competition getting stiffer than ever, and with no unique offering, not even from the best price point, it is easy to see why this airline is the first to exit from the growing yet competitive ASEAN market.
That said, I still don’t fancy airlines as an investment for the long term – the ever changing dynamics, on top of little to no brand loyalty and the ever uncertain oil prices,
The loyal SIA passengers might think it’s a win-win to continue flying with Singapore’s national carrier and go long on the company’s shares to earn an investment return. While the notion holds ground, there really is an invisible ceiling to how much bigger SIA can grow.
There are just too many moving parts to my liking to picking a great investment from airline companies. Perhaps that is why Mr Buffett never returned to airline stocks – even after COVID-19 became a thing of the past.
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