Why low-cost airline models are “evaporating”
How bleak is the future for low-cost airlines?
For decades, budget airlines have offered travelers cheap flights without decoration. But its crude business model is eroding as costs skyrocket and passengers choose more comfortable seats and spacious upgrades.
It seems that business can’t even fuse itself out of tail spin.
Earlier this week, the Spirit Airlines (saveq) Again rejected the acquisition offer from Frontier (ULCC), worth $2.16 billion. The offer resembles the frontier announced earlier this month. Spirit rebutted, but the offer was rejected.
The $2.9 billion cash and equity frontier’s first purchase bid for 2022 was unsuccessful due to a $3.8 billion offer from rival JetBlue (jblu). Spirit filed for bankruptcy in November after a federal judge sided with the Justice Department to block partnership with JetBlue.
The low-cost carrier model features by providing domestic and nearby destinations with cheaper seats than traditional airlines, while charging for checked bags, seat selections, and items such as snacks and drinks. I will. Airlines often use secondary airports with low landing fees, such as Long Beach Airport in Los Angeles, instead of LAX.
However, between increasing competition with traditional airlines on domestic routes and rising labor and maintenance costs, the low-cost model has gradually been unraveled.
For example, amidst pressure from activist investors last year, Southwest (Luv)) announcement It will end decades of open seat practices as part of a new strategy to increase revenue. Meanwhile, in January, frontiers It has been announced that it will be available Seat upgrades and top-class seats by the second half of 2025.
Mike Boyd, an aviation consultant who is president of Boyd Group International, told Yahoo Finance.
“Model,” he added, “evaporating.”
The industry outlook is not encouraging investors. Jet Blue Stock I recently fell Wall Street was disappointed after the airline’s 2025 outlook. JetBlue cited higher costs and revenues that were more than expected in its fourth quarter results.
And later last month, Southwest CEO Bob Jordan said airlines “usually experience normal unit cost inflation, particularly market-driven wage rates, airport costs, and healthcare.” . “We’ll be less keen on pursuing cost takeout,” Jordan said, referring to the $500 million cost reduction target for 2027, announced last quarter of its investors’ day. I did.
Cost issues are reflected in stock prices. Ultra-low-cost airlines have mostly reduced performance in the broader airline market.
