LCC models in Southeast Asia evolve as growth slows, though outlook remains bright

Southeast Asia's LCC sector is entering a new phase, after experiencing explosive growth over the last decade. The rate of capacity growth in the short haul segment has slowed, leading to small declines in the LCC penetration rate within the region. Profitability has also remained a concern, with over half the region's LCCs unprofitable during 2015, despite extremely favourable conditions in most markets.

However, growth is accelerating in the less penetrated medium haul segment. Partnership activity is increasing as LCCs seek new growth opportunities outside the point-to-point model, notably culminating in the world's second, but most extensive, LCC alliance - the Value Alliance, with membership across the region and a joint sales platform.

Partnerships are particularly important for LCCs outside the AirAsia and Lion groups. AirAsia and Lion each account for 30% Southeast Asia's LCC market and have a massive order book, with commitments for nearly 900 aircraft.