Alternatives to the legacy airlines, low-cost air carries (LCCs), have long been a viable alternative for vacationers looking for a deal, but with today’s soaring ticket prices and general lack of in-flight amenities, they are fast becoming the preferred choice for a wider and more diverse segment of the traveling public.
Also boosting the popularity of LCCs is the fact that many legacy airlines, as a way to regain profitability, have significantly reduced their capacity on domestic routes, thus making air travel more cramped and less convenient than it was in the past.
LCCs, which include airlines such as Southwest Airlines, Frontier Airlines, JetBlue Airways, AirTran Airways, and Virgin America, seem to be taking the market by storm for more reasons than just their inherent attractive fares.
“The popularity of the low-fare air carrier is hard to argue with,” says Abby Lunardini, director of corporate communications for Virgin America, which started service in August with San Francisco International Airport as its base. “The market for the low-cost carrier has grown exponentially. There are more travelers on low-fare carriers, period.”
With the upsurge of start-up carriers, are more business travelers willing to sacrifice the loyalty programs associated with legacy carriers for an option easier on the purse strings?
“There has been an education process with the low-cost carriers,” says Chad Meyerson, manager of group and meeting sales for JetBlue Airways. “In the past, business travelers have been tied to their loyalty programs and negotiated with the legacy carriers. But now the fares they negotiated with those carriers have ended up being higher than a price with the low-cost carriers.”
Beyond their attractive fares comes the undeniable draw of the surprising array of amenities offered by some LCCs. Once thought of as a cheap and low-quality alternative to the larger, more established carriers, the old adage of “getting what you pay for” may no longer be applicable.
“There was a perception for a long time that low cost meant low frills,” Meyerson says. “And that is not the case. A lot of times low-cost carriers are providing a superior product at a better fare.”
The Perks
While many legacy carriers have cut back on in-flight amenities, many LCCs seem to have ramped up their offerings.
Here are a few examples:
- San Francisco-based Virgin America leads the pack in in-flight entertainment, offering 25 movies to 3,000 available MP3s.
- Dallas-based Southwest Airlines serves food on flights, often in the form of peanuts and a boxed package of snacks.
- Frontier Airlines, a Denver-based carrier, offers in-flight DIRECTV.
- JetBlue Airways, a popular New York-based LCC, touts its expansive leg room, in-flight television and radio capabilities and snacks.
In addition to their amenities, many LCCs travel directly from one point to another, a valuable feature for time-strapped business travelers.
Yet, even with all of their positives, are LCCs really capturing the business travel market?
“That is difficult to determine,” says David Beckerman, Washington, D.C.-based director of analytical solutions for OAG/BACK Analytical Solutions, an aviation and strategic consulting firm. “Most observers agree that low-cost carriers are getting a decent share of the business traveling public because at this juncture, the low-cost carriers are offering a product comparable to the legacy carriers. In this environment, low-cost carriers don’t look that much different than legacy carriers, and the business traveler often likes what he or she sees.”
Jody Hoffer Gittell, Ph.D., associate professor and MBA Program Director at Brandeis University and faculty member of the MIT Global Airline Industry Program, says LCCs have, in general, become a force to reckon with.
“They continue to take away market share from the legacy carriers,” she says.
Fly-Friendly Meetings
LCCs are also making some strides to capture more business associated with meetings by setting up programs and services dedicated to groups.
In April, JetBlue Airways responded to the need for a meetings division by creating CompanyBlue Meetings, a group-friendly program that allows one free ticket per every 40 booked as long as the travelers are converging on the same location, regardless of where they originate from.
“We thought the market was ripe for our attention,” Meyerson says.
Frontier Airlines has a dedicated group sales desk that recognizes 10 or more people as a group and offers discounted rates.
AirTran Airways is another LCC that caters to group bookings. The carrier offers its A2B Corporate Travel Program to planners booking 10 frequent travelers or more with discounts, free upgrades and the ability to change destinations or passenger names without an additional fee.
Another popular LCC, Southwest Airlines, offers it own corporate booking tool on www.swabiz.com complete with travel management assistance.
According to JetBlue’s Meyerson, not only are LCCs becoming more meetings-friendly, but he maintains that some of the legacy carriers have headed in the opposite direction.
“Some airlines used to have a division specifically dedicated to meetings,” he says. “Many of the carriers in the past two or three years have completely cut that program and there is no more dedicated desk for it.”
Limited Capacity
While many people directly attribute the difficulties facing the airline industry, especially the legacy carriers, to the attacks of 9/11, Robert W. Mann, president of R.W. Mann & Company, a Port Washington, N.Y.-based airline industry and consulting firm, disagrees.
“Network carriers have been restructuring since well before 9/11,” he says. “They had already seen a decline in the middle of 2000. When the Internet bubble collapsed, money was lost. When things didn’t go on [positively] forever, things rapidly devolved.”
That devolution included the strict enforcement of constricting airport security rules, a flurry of airline bankruptcies and consolidations, and the veritable rollercoaster of ticket prices, enough to make travelers’ heads spin.
Yet, that was then. What is happening now?
“The airline industry has returned to profitability,” Beckerman says, adding that the industry’s biggest current challenge is the price of fuel.
He says that what many legacy airlines have done to regain profitability is to cut capacity, in ways that include scaling down the number of routes, cutting down the number of flights offered on routes and using smaller aircraft. The end result means fewer seats and the ability to charge more per seat.
“[The airline industry has been able to eek out] very thin profit margins and has done so mainly by cutting capacity to the point where it doesn’t have to offer incredibly low fares,” Beckerman says.
Prior to 2003, Beckerman says airlines operated at load factors (i.e., number of people on a plane) topping 70 percent, leaving 30 percent of a plane with vacant seats.
That mode of operation “has always been a problem for carriers because they want to fill as many seats as possible,” he says, noting that airlines started cutting capacities in 2005.
“If they had seven flights a day, they would go down to five,” he says. “In some cases they could keep the same number of flights, but reduce the number of seats based on the type of flights. They also altered the type of aircrafts—from wide body to narrow body to regional jets.”
These changes have meant that legacy carriers have been rethinking their business plans. Now, instead of flying a major airline from point to point, travelers have been forced to take regional aircraft and connect through hubs, often resulting in an increase in delayed flights and bumped passengers.
Seen by carriers as a revenue booster, seat and flight reductions have left many travelers out of luck.
“They are trading out for their smallest equipment to regional partner aircrafts—replacing 150 seats with a 50-seat aircraft,” Mann says. “Anyone else either doesn’t travel or finds another way to travel. They don’t really want to carry anyone point to point domestically. They want to go to the hub.”
Going through a hub is also a benefit for legacy carriers because as of late they have been increasingly focusing on international routes, instead of domestic point-to-point trips, a business model that has proven profitable.
“The network guys [legacy carriers] are still struggling with what to do with their domestic [point-to-point] networks,” Mann says.
Beckerman agrees.
“Delta and US Airways have really increased their international service,” he says. “[We saw this] beginning in 2006 and even in 2007 you have seen the international additions.”
Bumpy Ride
One of the most frustrating experiences a time-crunched air traveler can endure is getting bumped from their flight.
Unfortunately, with airlines that favor connecting through hubs in regional or small-sized aircrafts instead of offering point-to-point routes, late flights and overbooking bumping issues are annoyances that may not be going away anytime soon.
In fact, Beckerman says according to the U.S. Data Air Travel Consumer Report, there has been a 13.2 percent increase in involuntary denied bookings (bumped passengers) since last year.
“A meeting planner probably has found themselves more frustrated in the past two years or so because there is a lower flight availability overall,” he says.
And with the limited flight availability and legacy carriers focusing their efforts overseas, it is no wonder prices are going up even more.
“[The legacy carriers] are less likely to offer deeply discounted fares [because of capacity reductions], so the average fare has gone up,” Beckerman says. “All of the airlines have to offer some sale fares on their international flights, but these sale fares are not incredibly low.”
