In SE Asia Mainline Carriers Grew 4.9% While LCCs Shrank: What Does the Split Mean for Short-haul?

Southeast Asia’s airlines are back to 2025 capacity levels, but the headline hides a split: mainline carriers grew 4.9% while LCCs shrank 1.3%. The filed schedules will show where it goes next.

Recovery from the escalation of geopolitical disruption in the Middle East earlier this year has been slower in Southeast Asia than in most regions. The impact has not been uniform, with the scale and shape of capacity changes varying significantly by market, route type and airline business model.

Analysis of capacity data for 2026 versus 2025 reveals a clear pattern: short-haul markets and low-cost carriers (LCCs) have absorbed the greatest pressure, while mainline carriers have been better positioned to maintain and rebuild capacity.

In September 2026, total capacity for the region was 48 million seats, comprising 55% international and 45% domestic capacity. Mainline carriers accounted for 56% of the market, with LCCs representing the remaining 44%.

The capacity shock came in stages

The initial impact of the Gulf crisis was reflected in international capacity. From March, airlines began adjusting networks in response to airspace closures and changing demand for travel to, from and over the Middle East.

The more significant capacity reduction came later.. Global jet fuel prices had already spiked above $200 per barrel by mid-April, but the full impact was delayed as airlines moved through existing commercial fuel contracts. As those expired, carriers increasingly felt the effect of higher prices. According to Reuters, the average jet fuel costs for unhedged carriers in the region reached $183 per barrel in the second quarter. Domestic capacity fell by 7.3% in May.

However, by August, total capacity had returned to 2025 levels, at around 40m seats, with modest growth expected as the region moves into the winter season.

The real story in short-haul

Looking at capacity changes by destination region shows that the disruption has been concentrated in short-haul markets.

Capacity to the Middle East was initially affected but is gradually rebuilding towards 2025 levels and accounts for around 8-9% of the total market. Long-haul markets to destinations such as Europe have remained comparatively stable.

The largest changes have occurred in domestic and regional short-haul markets. Domestic capacity fell by 1.6 million seats in May before beginning a gradual recovery from August. Capacity within Southeast Asia and the rest of Asia Pacific also declined in May and June by 250-300 thousand seats per month, with growth only expected to resume as the traditionally busier winter season approaches.

LCCs are carrying most pressure

Changes in capacity for mainline and LCCs highlight that LCCs are the main contributors to capacity reductions. For the full year 2026, LCC capacity is 1.3% below 2025 levels, while mainline carriers grew capacity by 4.9%.

There are several reasons for this divergence:

• LCCs are particularly exposed to fuel prices, as they hedge fuel far less aggressively than mainline carriers, leaving them fully exposed to spot prices.
• Fuel also represents a larger proportion of LCC operating costs, while their price-sensitive customer base limits how far they can increase fares without putting pressure on demand.
• Currency movements have ​added another layer of pressure. The Malaysian ringgit, Thai baht, Indonesian rupiah and Philippine peso have all weakened against the US dollar, increasing ⁠local currency cost of fuel and aircraft leases, which are typically priced in dollars.

The result has been cost-driven retrenchment, particularly on short, price-sensitive routes within SE Asia and the wider Asia Pacific region. LCCs in Vietnam, Malaysia and Singapore reduced capacity by 7.8%, 5.8% and 2.1% respectively.

In which countries is pressure greatest?

The headline regional numbers mask significant differences between individual markets and airlines. Some of the largest Southeast Asian LCCs have made substantial YoY capacity reductions.

• Lion Air has reduced domestic capacity by 15.2%
• AirAsia reduced domestic capacity by 9.1% and international capacity by 1.1%.
• Thai AirAsia has reduced domestic capacity by 6.2%
• Vietjet has cut international capacity by 14.4% and domestic capacity by 2.4%.

Some countries are hit harder than others because they depend more on the carriers making cuts. Thailand and Malaysia rely heavily on the AirAsia group, which is cutting routes that aren’t paying their way and handing back 25 older aircraft to leasing companies to cut costs.

Indonesia is a mixed picture

Whilst Lion Air is reducing capacity, Citilink is expanding fast, increasing by 30.7% year on year. It is structurally different from many other LCCs in the region. Citilink’s fleet grew from 25 to 43 aircraft by June 2026 funded by a capital injection from Danantara, Indonesia's state investment fund, as part of a Garuda Group recapitalisation. The carrier is also recovering from an unusually low base: only 31 aircraft were actually flying in late 2025 due to deferred maintenance and engine availability problems. Citilink has also been absorbing routes transferred directly from parent Garuda as part of group-wide network rationalisation. The Indonesian market therefore demonstrates that balance sheet strength and group structure can materially influence an LCC’s ability to maintain or expand capacity during a cost shock.

The Philippines has a more resilient structure

The resilience of domestic trunk routes in the Philippines creates a different dynamic. Cebu Pacific’s domestic operation is heavily anchored around "trunk routes" such as Manila and Cebu to Boracay, Davao, and Iloilo. These routes serve essential travel, business, and Filipinos visiting friends and family, making them less sensitive to economic downturns than some leisure-focused markets. This provides a degree of protection even when the broader LCC environment is under pressure.

Vietnam remains in an expansion phase

A combination of economic growth, rising domestic mobility, strong inbound tourism, expanding e-Visa and visa-free arrangements, and airport infrastructure development have supported network expansion. Mainline carrier Vietnam Airlines has grown international capacity by 13.5% and domestic capacity by 3.8%. However, the country has not been immune to the constraints on LCCs and Vietjet has reduced international capacity by 14.4% and domestic capacity by 2.4%. The contrast within Vietnam is particularly revealing: a market can continue to expand overall while its LCC sector simultaneously retrenches.

 Demand is strong but the LCC cost problem remains

Singapore’s long-haul LCC Scoot illustrates the challenge particularly clearly. The airline has continued to add capacity as demand remains strong. However, its passenger ​unit costs rose 21.7% in the three ​months to June, pushing its operating ⁠loss to S$32 million ($25.2 million) from S$17 million a year earlier, despite higher fares and coverage under parent Singapore Airlines' fuel-hedging programme, according to Reuters.

Capacity growth and healthy demand do not necessarily translate into stronger profitability when the underlying cost base is rising rapidly.

The outlook

Even before the fuel crisis, Southeast Asia’s LCCs were fragile, with aircraft shortages, maintenance issues and operating margins too thin to absorb another major increase in costs. The current environment is therefore producing a divergence in strategy. Mainline carriers are rebuilding on high-yield long-haul and dense trunk routes. LCCsare still prioritising yield and liquidity over growth while fuel prices remain high.

The key uncertainty is what happens next. If geopolitical disruption keeps fuel prices elevated, filed schedules may change through winter, with capacity reductions possible within Southeast Asia and on short-haul across the wider Asia Pacific region. The resilience of individual LCCs is likely to depend increasingly on their financial structure as well as on underlying demand.

Standalone carriers such as AirAsia, Lion Air, and Cebu Pacific have greater direct exposure to fuel costs and limited access to a parent balance sheet, while Citilink and Scoot are afforded some protection as they sit within larger groups, (state-backed Garuda and Singapore Airlines respectively), giving them greater capacity to absorb short-term losses and protect strategic network positions.

For the rest of 2026, the key question is therefore not simply whether Southeast Asian capacity grows or reduces. It is which airlines can afford to keep flying, which routes can support higher costs, and how much of the region’s short-haul network can remain economically viable in a persistently uncertain fuel environment.