By DAVID KOENIG, AP Airlines Editor
DALLAS (AP) — Delta And United have become the most profitable American airlines by targeting premium customers while winning back a significant share of travelers on a tight budget.
This puts pressure on smaller low-cost carriers like Spirit Airlineswhich filed for bankruptcy protection Monday. Some travel industry experts believe Spirit's problems indicate that budget travelers will find themselves with fewer choices and higher prices.
Other budget airlines are in much better financial shape than Spirit, but they too are far behind full-service airlines when it comes to recovering from the crisis. the COVID-19 pandemic. Most industry experts believe Border Airlines and other so-called ultra-low-cost carriers will fill the void if the Spirit shrinksand that there is still strong competition to keep prices from rising.
Spirit Airlines has lost more than $2.2 billion since the start of 2020. Frontier hasn't posted a full-year profit since 2019, although that decline could end this year. And Parent company of Allegiant Air is still profitable, but less than before the pandemic.
Those kinds of numbers – and of course, some promotion of his own airline – have led Scott Kirby, CEO of United Airlines recently said that low-cost carriers were using “a fundamentally flawed business model” and that customers hated flying with them.
Kirby's landing may prove premature, but many analysts are wary of the near-term prospects of low-cost airlines, which charge cheaper fares but higher fees than major airlines.
What's hurting for low-cost airlines?
Low-cost airlines have grown over the past two decades by undercutting the ticket prices of major carriers, largely through lower costs, including hiring younger, lower-paid workers than their counterparts. counterparts from Delta Air Lines, United and American airlines. However, wages have risen across the sector over the past two years, reducing this cost advantage.
At the same time, major airlines have rolled out and refined their no-frills “basic economy” tickets to directly compete with Spirit, Frontier and other low-cost airlines for the most price-sensitive travelers.
Low-cost airlines have also become less efficient in using planes and people. As their growth slowed, they found themselves with more of both than they needed. In 2019, Spirit planes were in the air an average of 12.3 hours per day. This summer, planes spent an average of two hours more each day on the ground, where they didn't make money.
Spirit's costs per mile jumped 32% between 2019 and 2023.
Another problem is that airlines have added too many flights. Low-cost airlines and Southwest Airlines were among the worst offenders, but full-service airlines took over. To offset the decline in business travel, major carriers have increased flights on domestic leisure routes. The result: too many seats on flights to popular tourist destinations such as Florida and Las Vegas, which has driven down prices, especially for economy class tickets.
Tom Fitzgerald, airline analyst at TD Cowen, said that after doing a good job tweaking their core economy offerings, the biggest airlines are now enjoying a boom on the premium travel side.
“After COVID, people have apparently been willing to pay a lot more to have a better experience” when it comes to flights and lodging, he said, “and traditional carriers are much better positioned to respond.” to this request. They have premium economy, they have first class.
Looking for 'something a little better' in the air
Budget airlines are responding by following the old adage that if you can't beat 'em, join 'em. This means taking premium measures, given the rapid growth in household wealth among high-income earners.
Border Airlines organized your prices in four batches in May, with buyers of more expensive tickets getting extras such as priority boarding, more legroom and checked bags. The airline has waived ticket change or cancellation fees except for the cheapest package.
The spirit followed in August with similar changes, blocking middle seats and charging passengers more for the comfort of aisle and window seats.
JetBlue Airwayswhich began flying more than 20 years ago as a low-cost but amenity-packed carrier, is recovering from years of steady losses. Under new CEO Joanna Geraghty, the first woman to lead a major U.S. airline, JetBlue is cutting unprofitable routes, strengthening its core markets, including the Northeast and Florida, and delaying deliveries of new airliners. worth $3 billion.
Maybe the biggest change is coming at Southwest Airlines. Starting next year, Southwest will lose half a century tradition of “open seats” — passengers choose their own seat after boarding the plane. Executives say an in-depth survey showed that 80 percent of customers preferred an assigned seat, and that's especially true for coveted business travelers.
Coming out of the pandemic, “there is a clear preference for higher premiums,” said Southwest CEO Robert Jordan. “Premium is sort of self-defined – whether it's extra legroom, first class to Europe, whatever – but there is an increase in desire for premium, something a little better.”
Jordan said it's unclear why demand for premium products and experiences has grown so quickly, but wealth figures offer an explanation.
The richest fifth of U.S. households by income have added $35 trillion in wealth since 2019 and hold nearly nine times the wealth of the middle fifth, the study found. Federal Reserve. This gives wealthier households plenty of money to spend on high-end travel.
More crowded planes could also push passengers to spend more to escape the middle seat at the back of the plane.
Whatever the reasons, Delta executives say they expect premium ticket sales to surpass the airline's revenue from main cabin tickets by 2027.
An American problem?
In other parts of the world, low-cost airlines are doing very well. They bounced back after the pandemic, just like their more intellectual competitors.
Some industry experts say low-cost airlines in Asia and Europe have historically attracted a more diverse mix of passengers, while in the United States, affluent and middle-class travelers look down on low-cost airlines.
Jamie Baker, an analyst at JPMorgan, says he has many college friends who work in London and fly Irish airline Ryanair all the time, but he hardly knows anyone who has ever flown on a Spirit or Frontier plane.
“There is no stigma for anyone flying Ryanair or easyJet in Europe. In the meantime, this isn't about picking on Spirit or kicking it when it's down, but it's sort of a booty call for the airline,” Baker told an audience of pilots from other airlines, who burst into laughter.
Eyeing the competition
Ed Bastian, CEO of Delta is less dismissive of “low-end carriers” in the United States than United's Kirby.
“I don’t see this segment ever disappearing,” Bastian said this week, after Spirit filed for bankruptcy. “I think there’s a market for it.”
At the same time, he said the upscale moves of ultra-low-cost carriers had no effect on his airline. Delta targets high-end travelers, but also introduced basic economy fares a decade ago when discounters emerged as a growing threat to poach some Delta customers.
“Calling yourself a premium carrier and actually being a premium carrier are two completely different things,” Bastian said. “It’s not the size of the seat or the space you have; it’s the overall experience.
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