AirAsia faces challenges throughout Southeast Asia as competition continues to intensify

AirAsia's remarkable track record of success over its first 12 years has come at a price -­ more competition as others look to duplicate the group's formula. While AirAsia still reaps the benefits of first mover advantage in several of its markets and continues to outperform nearly all of its peers, competition is intensifying.

The Malaysian market, the group's original and by far its most profitable market, has been shaken up this year as rival low-cost carrier group Lion has launched Malindo Air and as rival Malaysia Airlines (MAS) has exited a restructuring phase by pursuing aggressive expansion aimed primarily at fighting off Malindo. While AirAsia's Malaysian short-haul operation continues to report industry-leading operating profit margins of about 20%, its yields have dropped in recent months and the carrier's profitability could eventually be impacted.

AirAsia's short-haul operation in Thailand also reported a drop in yields for 2Q2013. Like its Malaysian sister carrier, Thai AirAsia was still able to improve operating profits. But with new competition around the corner as two new LCCs plan to launch in Thailand, market conditions will only become tougher.