What to Expect From a Low-Fare Airline: Definitions

The definition of a low-fare line is getting more and more fuzzy since all the lines, including the legacies, now offer at least some seats at competitively low fares. Among the key features that distinguish low-fare lines:

• Relatively low unrestricted walk-up fares
• Permanent fare reductions from previous fare levels whenever they enter a new market
• Costs low enough to make a profit at today’s competitive low fares

Initially, the low-fare distinction was simple: fewer frills than the legacy lines. But with many legacy lines now cutting costs, and some low-cost airlines stepping up to the plate in terms of in-flight services, frequent flyer programs, and routes; low-cost carriers are becoming an evermore viable option for business and other travelers.

So, who still needs legacy lines?

Travelers on routes not served by low-fare lines—and especially routes that require connections to and from medium and small communities—will continue to depend on the network ubiquity that legacy lines provide. Otherwise, travelers can select between legacy and low-fare lines on the traditional basis of fare, schedule, product quality, service (if any), and frequent flyer considerations.

It’s worth noting, however, that network ubiquity has no inherent value to consumers. Absent additional external factors, travelers would view each trip as a separate purchase and select the carrier with the best combination of fare, schedule, and service for each trip.

Network ubiquity has value to travelers only when it is combined with incentives for travelers to concentrate their flying with a single carrier or alliance. Incentives include: frequent flyer programs, company-wide deals, and extras such as upgrades and lounge membership. But increasingly, the value of those incentives seems to be eroding. Low-cost carriers are widening scope and adding their own incentives, plus (in some cases) they offer a superior product for the price. Legacies are fostering the erosion of their own network value by making it harder, rather than easier, for travelers to use frequent flyer benefits.

The future of low-fare lines

Some legacy lines are trying to jump on the bandwagon by adding low-fare lines to their stables: Delta runs the low-cost airline Song, with service primarily centered on the Northeast, Southeast, and Caribbean. United operates Ted, a low-cost carrier within United’s network. Coming this year is Virgin Atlantic’s Virgin America, which will make San Francisco its operational headquarters.

Low-fare airlines are eyeing the international market as well. Alaska Airlines already serves Canada and Mexico, JetBlue flies to the Caribbean, and ATA serves Mexico. Song flies to Caribbean destinations. Ted flies to Mexico. Several startup lines are eyeing London, Paris, and Frankfurt as possible destinations from the U.S.

Abroad, low-fare airlines such as Ryan Air and Easy Jet in Europe, and Tiger Air in Asia make getting between regions and countries easier, faster, and cheaper than ever before. China has just approved the creation of private low-cost airlines to serve the mainland, Hong Kong, and Macao.

Types of service

The low-fare lines structure their routes around two models: the streamlined but limited point-to-point model, and the traditional hub and spoke model.

Point-to-point lines

Point-to-point lines concentrate on traffic going nonstop from one city to another. They operate with much lower labor costs and better aircraft utilization than the legacy lines, and they generally charge far lower fares—especially business fares.

Point-to-point airlines can’t always substitute for a legacy line. While you can sometimes make connections on those lines, they don’t schedule flights to facilitate connections—and they can’t get you conveniently from almost anywhere to almost anywhere else. Moreover, though they have frequent flyer programs, most offer flights only on their own systems (no alliances) so you can’t use them for free trips to many exotic destinations. And these one-class lines offer no upgrades.

Hub and spoke network lines

A majority of the world’s large airlines operate hub and spoke network route systems that feed traffic from many spoke cities, including some small ones, to one of several hubs, where that traffic can change planes and head out to continue on to any other spoke city. Through this system, the airlines can get you from just about any city in the U.S. to just about any other in one connection, or, at worst (if you’re flying from one small city to another small city) two connections. On busy long-haul routes, they also operate nonstops that overfly their hubs.

Although by industry conventional wisdom “low-fare network airline” is an oxymoron, a few lines seem to be making that concept work.

Stay tuned for Low fare 101, Part Two, coming next month! And, read this and other travel tips geared towards business travelers at Smarter Travel’s MyBusinessTravel.com, run by Ed Perkins.