An ASEAN Revival? This looks like the beginning of the end for Southeast Asia’s overcapacity problem

It happened in the United States. Can it happen in the ASEAN region?

Five of the six worst performing airlines in the world so far this year (by operating margin), including the national carriers of Indonesia, Malaysia and Thailand, are ASEAN airlines. Never mind that southeast Asia is in so many ways a utopia for airlines thanks to its appeal to tourists, its low labor costs, its many migrant workers, its favorable weather, its economic dynamism, its many islands unconnected by roads, its favorable geography, its large and youthful populations yearning to fly and so on. But too much of a good thing can be a bad thing, if everyone tries to crowd in and feast at the same banquet.

Make no mistake: this banquet is crowded, not unlike the crowded state of the U.S. airline industry in the mid-2000s. Scheduled seats for all of this year, 2014, are up an unbelievable 57% since 2010 (according to an Airline Weekly analysis using Diio), the year when the region’s airlines earned their strongest profits ever. Not even capacity in China has increased that much in the past four years. Back in 2010, East Asian economies were growing faster, cargo markets were more robust, oil prices were lower and—yes—competitive supply conditions were far more benign than they are today.

Since then, incumbent legacy airlines have expanded with hyper-aggression, some inducting oversized A380s and launching low-fare affiliates like Scoot (Singapore Airlines), Citilink (Garuda), Thai Smile (Thai Airways), Jetstar Pacific (Vietnam Airlines) and PAL Express (Philippine Airlines). ASEAN LCCs have themselves grown even faster, receiving huge numbers of new planes and starting new joint ventures like those emanating from AirAsia, Lion Air and Tigerair. New and independent LCCs like VietJet joined the crowd too. And don’t forget about foreign carriers from outside the region—Spring Airlines, Air Busan, Norwegian and SpiceJet are just a few of the LCCs coming from abroad.

Contrast that with the U.S. market, where seats—far from being up 57% in the past four years—are up just 2%. In fact, the number of scheduled flights from U.S. airports, as distinguished from scheduled seats, is down 5%. No fact is more telling about why America’s airlines are today the world’s most profitable, after years wallowing as the least profitable. And no such fact makes the ASEAN region’s struggling airlines think: can the same turnaround happen here?

Some signs, unfortunately, point in the opposite…

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