This article first appeared in The Edge Malaysia Weekly on November 17, 2025 - November 23, 2025

RISING travel-related taxes worldwide are putting pressure on airlines’ growth, squeezing already thin margins and threatening service viability, according to the International Air Transport Association (IATA).

Sheldon Hee, the airline grouping’s regional vice-president for Asia-Pacific, says the industry is grappling with increasing regulatory burdens, particularly from what he describes as “overtaxation”.

Speaking to Malaysian media at a recent briefing, he notes: “There are countries considering new tourism taxes and in some cases, these levies can be quite substantial. Airports have also raised aeronautical charges. On their own, these fees might appear reasonable, but together they pose a much larger challenge.”

Hee, 50, took up the post in Singapore on June 1 after spending 27 years with Singapore Airlines Ltd (SIA). IATA represents 365 airlines globally, including 57 in Asia-Pacific such as Malaysia Airlines, Batik Air Malaysia, SIA and Scoot.

The financial pressures are stark. IATA estimates that global airlines will earn an average net profit of US$7.20 (RM29.74)per passenger this year, while carriers in Asia-Pacific will make only US$2.60 per passenger, underscoring the region’s razor-thin margins.

The 2025 forecast of US$7.20 per passenger is an increase from US$6.80 in 2024, but a slight drop from the US$8.40 high in 2023. As for Asia-Pacific, the average net profit per passenger was US$2.30 in 2024 and US$2.80 in 2023.

“It’s a margin that makes it very difficult for airlines to absorb any kind of cost increases. At the same time, passing on any new tax or increase in charges could weigh on demand,” observes Hee, who attributes the thin margins to both intense competition and the lack of significant consolidation in the Asia-Pacific market. 

“Airlines in the US and Europe have benefited from consolidation, which we haven’t really seen in Asia-Pacific. Governments should examine whether the industry is being disproportionately taxed or regulated and explore ways to streamline policies.”

Governments across Asia-Pacific are raising travel-related levies to upgrade infrastructure and manage overtourism. Since June 2024, Malaysia has increased its departure passenger service charge (PSC) to RM73 at Kuala Lumpur International Airport’s Terminal 1 (KLIA T1) and RM50 at KLIA T2 and other airports. A transfer PSC of RM7 now applies to domestic passengers transiting through most airports — except at Senai International Airport, where the charge is RM10 — while international travellers pay RM42 at KLIA T1 and RM29 at KLIA T2 and other airports. These rates remain in effect until Dec 31, 2026, after which further revisions are expected.

In Japan, Kyoto plans a 900% hike in its accommodation tax from March 2026, while the national government is considering raising its international tourist tax from ¥1,000 (RM27) to as much as ¥5,000.

Singapore will introduce a green fuel levy ranging from S$1 (RM3.20) to S$41.60 per passenger in October 2026. And Thailand will begin charging foreign air arrivals a THB300 (RM38) tourism entry fee in mid-2026.

Shukor Yusof, founder of aviation consultancy Endau Analytics, concurs that increased taxes are detrimental to the bottom line of airlines, which are already struggling with rising costs and thin margins.

“The impact, however, varies between carriers. SIA is cash-rich and financially sound, so it can absorb higher taxes or airport charges relatively well. But for carriers in countries like Malaysia and Thailand, the added costs will likely be passed on to passengers — and airfares are already persistently high,” he tells The Edge.

Shukor notes that the timing of any proposed tax increase is important,  especially with Visit Malaysia 2026 approaching. “Potentially higher taxes may discourage travel next year. When families travel, the costs add up quickly,” he points out.

Low-cost carriers (LCCs) are expected to feel the pinch the most. “If you pile on more taxes, travel will no longer be low-cost,” he observes.

Sobie Aviation independent analyst and consultant Brendan Sobie says overtaxation in Asia-Pacific is a major concern that could impact not only airline profitability but also growth.

“Passengers in many Asian countries, including Malaysia, are generally price-sensitive. They look at the total fare, including taxes, and in some cases, what passengers are prepared to pay is not much more than the taxes themselves. That means airlines may be unable to set a base fare that attracts these passengers while still covering their costs, particularly since they face much higher expenses post-Covid-19.

“Something may have to give if taxes continue to rise — all those rosy traffic growth forecasts for Asia, airline profitability, or both,” he warns.

IATA’s Hee cautions that governments must carefully weigh the broader economic impact of such taxes. “Aviation has a powerful multiplier effect on national economies. In Malaysia, it contributes about US$14.4 billion directly through airlines and indirectly through tourism, maintenance, repair and overhaul, and related businesses.

“Policies that undermine airlines’ ability to grow their networks’ profitably could have knock-on effects on a country’s broader economic growth.”

Hee warns that airlines are likely to pass on higher costs to consumers, driving ticket prices upwards. Still, he notes that carriers have become remarkably efficient over the years.

“If you look at the average level of airfares over the decades, unit costs have trended downwards, even after adjusting for inflation. But margins remain tight. Airlines try to stay as competitive as possible despite cost pressures,” he says.

IATA data for September 2025 show that Asia-Pacific passenger demand rose 7.4% year on year, with capacity up 6.1% and load factors at 83.3%. For the first nine months of the year, regional passenger traffic — measured in revenue passenger kilometres — exceeded 2019 levels.

“Globally, traffic has surpassed pre-Covid-19 levels. Asia-Pacific was slower to recover, but we have now crossed that line,” Hee says,  adding that cargo demand has also held up better than expected, despite shifting trade routes resulting from US tariffs. IATA will announce updates to its 2025 airline industry financial outlook, as well as its 2026 outlook, on Dec 9.

Asked whether the region has moved past the “revenge travel” phase, Hee is cautious. “We’re still seeing robust growth. Whether that’s revenge travel or the new normal, I can’t say. But demand is resilient, and the growth potential remains strong.”

Still, he describes the industry’s current position as fragile. “We have finally moved beyond Covid-19, traffic is higher than before, but profitability is still uncomfortable.

“This is a delicate moment. Policymakers should be conscious that aviation remains in a vulnerable position and needs thoughtful support.”

Sobie believes there is a new norm post-Covid-19, with different travel patterns emerging. “Revenge travel was more a term for the initial post-Covid-19 period in 2022 and 2023.”

His outlook for 2026 is mixed. “Demand remains relatively strong, but there are a lot of geopolitical uncertainties and competition is intensifying, particularly in the regional or short-haul segment. The big network carriers with strong long-haul networks and premium businesses should continue to do fairly well, but the pressure on regional carriers and LCCs will continue to intensify,” he cautions.

In Sobie’s view, rising costs, lingering supply chain issues, manpower constraints and geopolitical uncertainty are among the challenges that airlines face.

Endau’s Shukor expects demand to hold up through the first quarter of 2026, supported by forward bookings, but warns of headwinds beyond that period.

“Beyond 1Q2026, things could get rough. Energy prices may rise amid geopolitical tensions and sanctions on Russian oil. Oil prices have been relatively low over the past six months, helping airlines perform well, but that tailwind may not last.”

He also flags growing concerns over the global economy. “More companies are shedding workers, and the job market remains uncertain across China, Indonesia, Singapore and Malaysia. Graduates are struggling to find employment.

“With discretionary travel making up much of demand in Southeast Asia, a shrinking middle class in markets like China and India could hurt traffic. Carriers such as AirAsia, Lion Air, Batik Air and airlines in Vietnam and Thailand that rely heavily on leisure travel may be impacted.”

The global aviation industry continues to grapple with lingering supply chain disruptions, a challenge that’s expected to cost airlines US$11 billion in 2025, according to IATA.

Hee says delays stem from shortages of aircraft parts, delivery delays and limited maintenance capacity, among others.

“That is creating a bit of a challenge in terms of growth. That said, growth is still happening, albeit slower than what we could have achieved, but the Asia-Pacific region continues to expand.”

He predicts the disruptions will persist for several years. According to an IATA report, the backlog of global aircraft deliveries hit a record high of 17,000 aircraft at the end of 2024, which could take until at least 2030 to clear.

Hee notes that Asia-Pacific remains aviation’s long-term growth engine. “We have often said this is the region that will drive the industry’s expansion over the next 20 to 30 years. We expect aviation growth here to be roughly twice the pace of other regions, and Malaysia sits right in the middle of that.”

He acknowledges that outbound travel from China has evolved since the pandemic. “The recovery of Chinese travel to some parts of the world has improved, but the patterns have changed.

“We’re seeing steady growth in most regions, including Southeast Asia, though there has also been a noticeable shift towards domestic travel within China.”

Overregulation is another major concern for Asia-Pacific carriers. “Excessive rules can burden airlines with compliance, reporting, and administrative costs — often without improving outcomes,” Hee points out.

Delays and cancellations, for instance, are not always the airline’s fault.

“Is it solely the airline’s responsibility? Not always. Delays and cancellations can also stem from factors beyond our control such as air traffic management, weather or even airport facility issues,” he says.

“In some jurisdictions, consumer protection regulations have focused almost entirely on airlines. But when other players in the ecosystem aren’t held accountable, you end up penalising one party without addressing the root cause.”

For the aviation sector to sustain growth, Hee says capacity must expand not only in the skies but also on the ground. “Growth requires capacity, not just for airlines, but also in terms of airspace and airport infrastructure.”

But he cautions that such investments must be grounded in demand. “It is important that expansion aligns with actual traffic projections. Overbuilding creates inefficiencies and unnecessary costs.”

Hee would like to see closer cooperation among governments, airports and airlines. “Investment decisions should be based on robust traffic demand forecasts so that growth remains balanced and timely.”

He adds that long-term planning is essential. “We support master planning at both the airport and national levels to ensure capacity growth is strategic and sustainable.” 

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