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Blurring Lines Between Full-Service And Low-Cost Carriers

Posted January 15, 2018


Delta, American and United are selling basic no-frills seats. Budget airlines are moving into major hubs and selling add-on services. What’s happening with the airline industry?

In “2017 Commercial Aviation Trends” Jonathan Ketzel and Bryan Terry report, “The once clear-cut competitive landscape in the commercial airline industry continues to evolve. Low-cost carriers (LCCs) and ultra-low-cost carriers (ULCCs) are still gaining market share from the dominant full-service carriers (FSCs). But the differences between the models are shrinking.”

The big three US legacy carriers each launched unbundled economy fares over the past year in order to retain customers swayed by the super low fares of Frontier Airlines, Spirit Airlines, WOW Air and Norwegian Air. Lowering fares and removing frills is a lower risk way to compete than introducing sub-brand airlines. (Remember Ted and Song?)

During a recent earnings call, Delta’s Basic Economy fare category was described by Glen Hauenstein, Delta’s president as “more of a defensive product than it is an offensive product.” He added, “The success of that product in our minds is not how many people buy it, but how many people don’t buy it and choose another product.”

In test markets, American Airlines found nearly 50% of customers “trade up from the lowest basic fare to the more expensive economy counterpart, while United said 60 percent to 70 percent of its buyers choose standard economy over basic.”

Those who follow the aviation industry stress the new basic economy fare category isn’t really “new.” The regular full-service price became basic economy (without perks) and the standard fares increased. Jeff Klee, founder and CEO of, said the fare categories and their corresponding services make it “much more of a challenge to shop for air fares and it'll be important to make sure you're comparing apples to apples."

Where to next?

LCCs hold almost 30 percent of the domestic US market. Southwest ranked first with a market share of 19.1% (and more than $2.2 billion in net profits) in 2016, followed by Delta and American Airlines, which makes it unlikely that the FSCs and the LCCs/ULCCs will stay out of each other’s lane. To increase market share both need to gain some of what the other has.

And the story is similar globally. According to the International Air Transport Association, LCCs now have a 26% share of the global market. In 2015, Ryanair sold nearly 7% more seats than International Airlines Group, the holding company for Aer Lingus, British Airways, Iberia and Vueling.  And Norwegian Air is adding trans-Atlantic flights from Chicago, Denver, and Austin.

Last summer Michael Boyd, president of Boyd Group International, argued that FSCs will need to do more than add a fare category “that for a $20 saving relegates passengers to the back of the line.” He suggests the major carriers need “to maximize their inherent market advantages, which span from network feed, to higher flight frequencies that give passengers less vulnerability to getting stranded for days at foreign airports, and even leveraging what’s left of frequent flyer programs.”

Industry watchers suggest this recent shift in the industry isn’t driven by the airlines, but by consumers who want the cheapest option and will sacrifice the frills. As posted: Through the rise of low-cost carriers we have seen that most consumers will consider price over all else.


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