According to the Wall Street Journal,
Delta was the best US airline of 2022 among major carriers. JetBlue – the worst. For some,
it may not come as a surprise. JetBlue is a low-cost carrier, after all,
and such airlines are notorious for frequent delays, long waiting times at the runway,
mishandled baggage, and so on. That’s what we’ve come to expect from flying on a budget.
Except… Other low cost airlines have ranked pretty high on the list. Southwest
actually had fewer complaints and long tarmac delays than Delta and Alaska.
And Allegiant lost the least baggage. A recent survey that asked 8,000 passengers
to rate popular European airlines revealed that people preferred budget Jet2, easyJet,
and Vueling to Lufthansa and British Airways. They cite fewer cancelations and comfort
comparable to high-cost airlines. How do some budget carriers manage to
be so efficient and even more comfortable for a lower price? The distinctions between budget and
full-service carriers are much more complicated and strategic than travelers tend to think.
Let’s talk about the complex differences between full-service
and low-cost airlines.
The first flight by a low-cost carrier operated from San Diego to San Francisco and it cost only
$15. That was in 1949. Pacific Southwest Airlines was founded by flight instructor
Kenny Friedkin for the purpose of offering low fares and quality service. PSA took reservations
from a repurposed World War II latrine and had a “fleet” of one Douglas DC-3. Yet their rapid
growth and innovation up until the merger with USAir in 1987 made PSA one of the most
successful regional airlines in the US. PSA was famous for its humorous and friendly
service. At one time, their fleet was decorated with a smile and their slogan
was “The World’s Friendliest Airline.” Flight attendants wore brightly colored uniforms and
were encouraged to joke with passengers, which resulted in loyal following that was
even known to bring treats to the crew. And although there was no more PSA in the 80s,
their many innovative ideas were an inspiration to a different carrier – Southwest Airlines.
Today, Southwest
Airlines is the largest low-cost carrier in the world and the largest domestic carrier in the
US. From their inception back in the 60s, they applied strategies that worked for PSA.
In the beginning, they were staying within the borders of the state of Texas,
which allowed them to avoid[c] price controls and market regulations,
which in turn helped them cut the industry standard fare of $26 between Dallas and San
Antonio in half. But this was just one of the ways they managed to cut costs.
Southwest also introduced an all-economy layout. Getting rid of the first-class cabin allowed them
to have more seats. They also lowered costs by not serving meals and utilizing only one type of
aircraft for cheaper maintenance and training costs. But most importantly, they focused on
smaller airports rather than major hubs, which was not only cheaper, but also more productive.
Thanks to not providing a seat assignment, Southwest could ensure that passengers would
arrive on time to get the best seats. Besides that, smaller runways and less
congested airports allowed them to turn the aircraft around in just 15 minutes. As a result,
they could do more flights daily. Low prices and packed schedules made Southwest
a strong competitor to full-service carriers and even to ground transportation options.
And it solidified the way modern low-cost carriers operate.
Just like PSA led to Southwest’s success, Southwest’s model inspired the first European
low-cost carriers – easyJet was founded in 1995 and the same year Ryanair changed its model to
low cost. In Europe, airlines of member states could freely operate within the European Union,
which allowed them to expand quickly. Other budget airlines like JetBlue emerged in
the US following Southwest's model. So, how does it work today?
Traditional or legacy airlines are called full-service carriers or FSCs. They include
such large and well-known companies as United Airlines, British Airways, Qantas, Lufthansa,
Singapore Airlines, and many more. Typically, they offer high-cost flight fares with high quality
of service. You can expect in-flight meals, beverages, and entertainment all to be free,
and contributors to the price. Contrasted to full-service carriers,
low-cost carriers (LCCs) aim to reduce all operational costs resulting in lower priced
tickets. Their main purpose is to deliver passengers from point A to point B with
minimum frills. How LCCs achieve the reduction in price is what differentiates them from legacy
airlines. So let’s talk about it.
One way LCCs changed commercial aviation is by popularizing the point-to-point transit
model.
For many decades, the aviation industry used the traffic model called hub and spoke,
introduced by Delta back in 1955. Think of a single airport hub that connects different
destinations as “spokes” resembling a bicycle wheel. For example, Kansas City and Indianapolis
don't have a direct connection, but Chicago O’Hare is a big hub and has connections with
both these destinations. So you’d have to fly from Kansas City to Chicago O’Hare and
from there to Indianapolis and the connection is seamless thanks to interlining agreements.
This model saves airlines money as they don’t have to run those unpopular routes,
but it’s inconvenient to passengers who’d rather fly direct than wasting hours having to wait for
a connecting flight. Besides, running a hub efficiently is very hard. Basically,
a bottleneck and delays in one hub will result in delays throughout the network. Still,
many legacy airlines adhere to the hub-and-spoke model, many being tied to their hub airports.
Low-cost carriers, on the other hand, prefer the point-to-point model, which basically opens
up direct and shorter routes that used to be unavailable. Due to lower operational costs,
LCCs can operate those less popular short- or mid-haul routes and still
profit from them. And passengers love it as it considerably reduces travel time.
Unfortunately, when there are connections in the point-to-point model, they are not as convenient
since many LCCs don’t support interlining. This means that in many cases, passengers must book
each flight leg separately and recheck baggage for each transfer manually, even if both flights
are operated by the same airline. Still, the point-to-point model has become
so popular that even some full-service carriers operate high-density routes outside of their hubs,
for example during high travel season in specific regions.
Another way LCCs manage to save costs is by
utilizing secondary airports.
Secondary airports complement the main airport and are typically located a greater distance
from the city. Such airports as Milan Orio al Serio or London Stansted are smaller,
have fewer facilities and lower traffic, and cost less to operate in, which makes them perfect for
budget airlines. Not only are the slot spaces cheaper, but less congested spaces allow LCCs to
optimize turnaround and process more passengers in less time. This means that they can compete
with traditional airlines by providing virtually the same routes for a much smaller price.
The aircraft configurations also play a pivotal role.
LCCs often use just one type of aircraft to save money on maintenance and training.
Southwest and Ryanair operate the Boeing 737, while easyJet, Wizz Air,
and Spirit work only with the Airbus A320 family. Mechanics, pilots, and flight attendants require
training on only one type of plane and there’s no need to stock parts and update
work requirements for many different types. Other than that, LCC fleets tend to consist of
newer, cost- and fuel-efficient aircraft that are also cheaper to operate and maintain.
There’s also often just one service class without division into economy, business,
or first, and in some cases, the seat space itself can be smaller to squeeze more passengers in. For
example, Allegiant and Spirit have only 28 inches of legroom, while most full-service
carriers offer over 31 inches. Still, this is in no way a rule, as Southwest and JetBlue
have generous 32 inches. The distinction also lies in how both types
approach loyalty programs.
Traditional airlines have been using loyalty or frequent flier programs to incentivize passengers
with better prices and special perks. The more customers spend, the better their bonuses that
include class upgrades, free tickets, fast-track service, access to airport lounges, and many more.
Today’s loyalty programs are big, complex systems, in which points are collected not only by flying,
but also by using certain hotels, or, more frequently, a branded credit or debit card.
Airlines generate a lot of profit from frequent flier members,
especially from business and first-class travelers, and, according to a recent report,
some loyalty programs are worth even more than the airline itself!
Although some budget carriers like Southwest also reap the benefits of loyalty programs,
many are not issuing those coveted points and instead utilize the subscription model. As LCCs
work hard to save money, giving out free tickets is not exactly in furtherance of their goal.
Another way legacy and budget airlines differ is by their
distribution methods and ticketing.
In their decades of existence, legacy carriers built a large connectivity network. Since the
early days of IATA, the industry has created procedures and systems that allowed third
parties to sell products on behalf of airlines. This way, a travel agent can enter a global
distribution system like Amadeus or Sabre, and easily find and book flights for the
passenger. To learn more about the role of GDSs in travel, head over to our video about them.
Airline alliances, in turn, allowed carriers to integrate with one another, coordinate schedules,
and process complex multi-leg itineraries almost seamlessly. This connectivity, of course,
comes with a price. Not only do GDSs and other intermediaries take their share of revenue,
but maintaining these complex systems is inherently costly as well.
Which is why many low-cost carriers go a different route and rely on direct distribution. They often
sell flights only on their own websites to avoid costly fees. This also means
that they often don’t do ticketing. Ticketing is the final step of booking a
flight. It’s basically a confirmation that the flight is paid for, a purchase receipt.
Issuing tickets is a highly regulated field. Many full-service carriers distribute their
flights via global distribution systems and if a third party like a travel agency wants to do
an airline’s ticketing, they must be certified by such organizations as IATA or ARC in the US.
Low-cost carriers don't do ticketing at all or only a light version of it. This means that,
for example, changes, cancelations, and ancillary booking can be done only directly,
through an airline and not on an intermediary website.
Speaking of ancillaries, this is one of the differences that passengers notice the most. Let’s
finally talk about unbundling.
In 2005, a big change came to the low-cost world. In one controversial move,
Spirit unbundled its fares. Now, you could fly cheaper than ever,
but if you needed any of the perks that used to be included, you had to pay. Meals, drinks,
in-flight entertainment, checked bags – all ancillaries now had a price.
It was a bold decision but it ended up being massively successful. So successful that other
low-cost carriers adopted the same no frills approach to attract budget passengers.
Apart from meals, in-flight WiFi, and checked bags, LCC passengers usually must pay extra
for a preferred seat. Also, such carriers as Wizz Air, AirAsia, and Ryanair charge
a fee for those passengers that check in at an airport counter rather than online.
While not forcing their customers to pay for any unnecessary services,
budget airlines actually bank on those ancillary sales. Up to 50 percent of LCC revenues
come from ancillaries. This led many full-service carriers to adopt some unbundling practices to
attract price sensitive customers. British Airways, Delta, KLM, Air France,
and Lufthansa all adopted hand baggage only fares. This is the economy or basic
fare option that lets you carry on one bag and all checked bags come at an extra price. This
allows full-service carriers to capture some of the budget traffic and compete with LCCs.
At the same time, some low-cost airlines now have bundled fares as well. Ryanair
has four fare types, apart from its “bare minimum” one. Each fare has its own bundle
of perks included in the price, such as reserved seats, free airport check-in,
and checked bags. JetBlue has five bundles as well with a whole lot of benefits.
This exchange of retailing strategies between LCCs and FSCs may seem like the line between
both is blurred and the two models may one day be fully merged. But is this actually
possible?
Currently, LCCs have shifted their strict product and pricing strategies to those that
were characteristic to FSCs. Many of them operate in busier airports, list their flights on GDSs,
and have bundled offers. JetBlue doesn’t use the same aircraft type anymore after adopting Embraer
E190 to accompany its Airbus A320 family. The more budget airlines that emerge, the more they
need to compete with each other, raising their service quality and introducing innovations.
That’s why some airlines have grown to be sort of hybrid. Southwest, JetBlue, and Norwegian
Airlines have expanded their reach and practices enough to no longer be considered pure LCCs.
As for classical FSCs, they have a harder time adopting budget practices due to how rooted
their processes are into the network of hubs, connections, personnel, and operations. That’s
why legacy airlines try to capture the market with low-cost subsidiaries, such as Lufthansa’s
Eurowings or Air France’s Hop! that were created to compete with LCCs for regional traffic.
Both models work towards targeting a broader customer base and it’s starting to overlap.
Yet it doesn’t mean that there will ever be complete transformation. Customers of
traditional airlines expect a certain quality of service and an exceptional flying experience
is nonnegotiable for them. Join us as we observe how the travel
industry will be changing. Subscribe and we’ll see you in the next video.