Asian budget airlines placed a record USD 42 billion in plane orders over the past week, signalling their high expectations for travel in the world's fastest growing market and also triggering worries some may not survive.
Many of the no-frills carries such as AirAsia and Singapore Airlines.
"It will be over-crowded and the weak will suffer or even fade away, but generally there's still enough intra-Asian travel to generate revenue for the incumbents," said Shukor Yusof, an equity analyst of Standard & Poor's.
Budget airlines including AirAsia and IndiGo placed orders for 454 Airbus aircraft, mostly the fuel-efficient model A320neo.
Global leaders such as Southwest Airlines Co in the United States and Ryanair Holdings Plc in Europe are however facing sluggish markets.
Worldwide passenger demand is expected to rise 4.4% over the next year with the Asia-Pacific region growing faster at 6.4%, according to the International Air Transport Association (IATA), which represents the majority of airlines operating in the USD 598 billion industry.
The Centre for Asia Pacific Aviation, an independent aviation market intelligence provider, said low-cost carriers accounted for 16% of the market in terms of seats within Asia Pacific last year ,up from 6% in 2005. Their market share is set to rise 2 percentage points annually to about 26% in 2015, it said.
There are worries that overcapacity could plague Asian carriers because of the rapid pace of their expansion combined with the resumption of orders in the past year by full-service airlines and aggressive Chinese carriers.
Boeing Co predicts the global air fleet will more than double to 39,530 in 2030 from 19,410 aircraft at the end of 2010.
Bankers and analysts said the recent plane orders, due to their size, are likely to be financed by internal funding, debt and equity, as well as sale-leaseback agreements.
"Airlines should have no problem getting financing and rates are very cheap right now," said Andrew Orchard, an aviation analysts for RBS.
While premium airlines such as Cathay Pacific and Singapore Airlines don't compete head-to-head with budget carriers, there remains an overlap in economy class where they do, said Kelvin Lau, an analyst at Daiwa Securities.
"It will have an impact on marginal carriers such as Malaysian Airline System Bhd, Thai Airways International Pcl and China Airlines Ltd," said Lau.
AirAsia group commands a 6% market share in intra-Asia routes (ex-domestic), higher than Malaysian Airlines' 4%, but lower than Singapore Airlines' 9%, Goldman Sachs said in a recent research report.
The rise of budget carriers in Asia has pushed some legacy airlines in the region to copy their successful models.
Budget airlines are inclined to use one kind of aircraft to minimise maintenance costs, order in large numbers for big discounts from manufacturers and do away with frills to offer lower fares that are estimated by analysts to be at least 30% lower than those at full-service or legacy carriers.
Singapore Airlines, the world's second-most valuable listed carrier, said in May that it would set up a new long-haul budget carrier unit to counter competition from fast-expanding budget airlines in Asia. It also controls about a third of budget carrier Tiger Airways Holding Ltd.
Competition is not news to the global airline industry, which is closely linked to the global economy and notoriously cyclical and vulnerable to fuel cost volatility.
The industry suffered losses in seven of the past 10 years and even in 2010, the best year in the last decade, net profit reached USD 18 billion, with a narrow margin of 3.2%, according to IATA.
There is also no shortage of failed cases in the low-cost segment.
In the United States, which pioneered the budget airline model in the 1970s, the number of low-cost airlines that ceased operations reached 32 as of November 2009, more than double the 14 in operation at that time, according to the International Civil Aviation Organisation.
About 38 budget airlines operate in Asia and are banking on increasing business and leisure travel thanks to strong economic growth in countries such as China and India.
Several have shut down including Oasis in Hong Kong, which filed for bankruptcy in 2008, Compass Airlines in Australia which ceased operations in 1991 and Impulse Airlines in Australia, which was owned by Qantas.
"Our initial thoughts are that the evolution in ASEAN (Association of Southeast Asian nations) could be similar to that seen in America and Europe," Jacinda Loh, Nomura analyst said in a research report last week.
"While more work needs to be done on the ASEAN space, this fairly large airline order is likely to prompt carriers in this ASEAN region to look around each other wondering who to say farewell to in 10 years time."