Low Fare Carriers

You know it’s a really slow airline news day when the USA Today blog talks about Continental’s codeshare with Maersk Air on flights between Gatwick and Billund, Denmark. Yes, that’s a slow day.

Given that, I’m going to take a minute or so to share what I find fascinating about the current state of the airline industry: Old-school mainline carriers rely on business travelers to pay high fares to offset the low fares paid by many coach passengers. In addition, as mainline carriers always point out, they say they command a fare premium over low fare carriers. This was once true: frequent flyer programs were such a draw, that a traveler would gladly pay a couple of extra bucks to get their miles. Even better than the miles was elite status, which, in turn, brought upgrades.

Now, with codeshares. shrinking first class cabins and regional jets, those first class upgrades are fewer and farther between. And suddenly there are fewer benefits to flying that mainline carrier. In fact, the low cost guys are giving you seatback TV, lots of legroom, cheerful employees whose jobs are not threatened, and no Saturday night stay restrictions. Suddenly that infrequent upgrade doesn’t seem so important anymore. Even when AA added more room in coach, it still didn’t offer the amenities or fares provided by, say, Frontier.

And if first class doesn’t matter so much, why choose an airline that you know is trying to squeeze you for every penny for change fees and walkup fares in markets with no competition when AirTran offers none of that? AirTran even offers a reasonably priced business class. Suddenly, what’s the point of flying the old guys?

As I read somewhere yesterday, perhaps the hub-and-spoke carriers do a great job shuttle people from midsized city to midsized city through a hub. Perhaps. But with JetBlue ordering 100-seat Embraer regional jets (though they’re not really regional jets) that will change very soon.

Yes, the mainline carriers offer international service. But as I pointed out yesterday, there is little comparison flying a 25 year old Northwest DC-10 to Europe with zero amenities with a brand new Virgin A340.

When the lowfare carriers integrate 100 seat jets and start codesharing with international airlines, look out. There’s no reason why AirTran couldn’t connect with international carriers flying out of Atlanta (save for the current Alliance situation…something that could certainly be worked out). Once international codeshare kicks in, the network carriers will have little to offer. Indeed, they’re pretty close to that now: an undifferentiated product, priced higher than the competition, with costs that cannot sustain for the long-term.

A radical overhaul, as America West has undertaken, and as US Airways is attempting, is the only solution (well, the other solution is to go super-low-cost, like Ryanair, and offer 25% of your seats for free. But that won’t happen in the US any time soon. Americans incorrectly assume free seats equal low safety). Sure, people will pay for reasonably priced first class on long-haul domestic routes. But that’s about it. The most encouraging experiment in domestic service came from Delta, which was testing all-coach, huge legroom service between Atlanta and Kansas City and Houston. Throw in a laptop plug, and isn’t that what business travelers really want? A little room to stretch out and work?

In any case, just a few thoughts on a slow news day…

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