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What’s Ahead for Low-Cost Airlines?

Most savvy travelers—for very good reasons—are interested in the growth prospects of low-fare airlines. After all, air travel markets have repeatedly demonstrated the “Southwest Effect,” the name the industry gives to the fact that fares on all lines drop as soon as a low fare line enters the picture—and remain low. A reader recently asked me about the outlook for new lines:

“If and when the economy improves, will the existing low-fare lines continue to gain, and will we see a batch of new startup lines as well?”

The short answer is that even in these lousy times, several of the bigger low-fare lines are doing better than their giant competitors, and we probably will see a few new ones this year.”

Doing Pretty Well, Considering

Some low-fare lines are showing better profit-and-loss statements than the giant legacy lines, and I expect to see them gain in total market share this year. But I also see some changes coming:

  • Southwest, the 800-pound gorilla of the bunch, remains profitable and continues to add routes. However, it seems to be morphing a bit, from an all-out low-cost model to something of a hybrid, trying to attract more high-paying business travelers. I don’t expect it to add a separate business class, but you may see some extra-cost service options.
  • JetBlue, the number two low-fare line, is also adding new routes, although slowly. The most intriguing question about JetBlue going into 2010 is whether it will start to integrate ticketing, routes, frequent flyer programs, and such with part-owner Lufthansa. A link-up between those two lines would seem to be something of a mismatch, but stranger partnerships have been formed in the past. Don’t be surprised to see some through ticketing or code-sharing.
  • AirTran and Frontier, numbers three and four, are also pursuing additional routes. AirTran should continue to do what it’s doing. Frontier’s parent company Republic will presumably complete the dismantling of another subsidiary, one-time quality leader Midwest. I guess the airline equivalent of Gresham’s law prevails. Sad.
  • Allegiant, number five, will probably show more percentage growth in 2010 than any other domestic airline. Its unique formula of less-than-daily nonstop flights from secondary (and even tertiary) airports to major vacation centers, featuring complete air/hotel packages, seems to be a winner. So much so that I wouldn’t be surprised to see more copycats.

Although minuscule, Allegiant’s leading current copycat is Direct Air. It flies—with planes chartered from other lines—from a bunch of small airports in the Midwest and Northeast, such as Kalamazoo, Toledo, and Worcester, to Orlando, Ft Myers, Melbourne, or Myrtle Beach.

New Domestic Lines in the Wings?

Despite the lousy economy, starting a new airline continues to fascinate would-be entrepreneurs and laid-off pilots. I’m not sure which pundit is credited with the new “old saying” that the best way to make a small fortune in the airline business is to start with a large fortune, but it doesn’t seem to be a complete deterrent. I currently know of or have heard rumors about at least two lines that will try in 2010.

  • Quest Airlines has a website, but the upshot of the message is, “We plan to start an airline, but we have no idea where or when.” The plan is to use the now-familiar discovery of secondary airports in big metro areas, but so far neither origins nor destinations—domestic or international—are noted, let alone fares or service options. My guess: Don’t hold your breath until you get to fly Quest.
  • I’ve seen reports about folks who are working on a new startup that will fly from Los Angeles International to Hawaii. Bad idea. Five big lines now fly from LAX to Hawaii, and those legacy lines already offer rock-bottom fares—certainly to tour operators and usually to consumers. My unsolicited advice to these wannabes is to copy Allegiant: Fly to Honolulu or Maui a few times a week from secondary western cities where they’d have no direct competition. But what do I know?

Meanwhile, several long-touted proposals have finally given up the ghost. Most notable is Primaris, which was once a launch customer for the new Boeing 787. I’m glad Boeing found a few more substantial customers.

Will 2010 Do it for Low-Fare Transoceanic Flights?

Transatlantic and transpacific markets have been a graveyard for low-fare tries—remember Freddie Laker, Globespan, or Zoom Airlines? A few European package-tour lines, including Airberlin (formerly LTU), Condor, and Thomsonfly fly infrequently from their home bases to US winter destinations—most notably Orlando plus New York, Los Angeles, and San Francisco—and several Canadian package tour lines fly seasonally to Europe. But since the demise of Globespan and Zoom, no line has tried to fly a regular schedule from the U.S. to Europe. Similarly, Oasis, the short-lived low-fare line based in Hong Kong, didn’t fly long enough ever to make it to its planned first U.S. point. Still, the hope lingers.

According to plan, at least one low-fare line will start flying from the U.S. and Canada to Europe this summer. Iceland Express, an established regional low-fare line, plans to fly from both Newark and Winnipeg to Reykjavik, with connections to a dozen or so European cities. Right now, the line says fares will start at $275 each way from Newark to London, but nobody knows what the market will actually be by then. All tickets will be one-way, so whatever else, now that Aer Lingus no longer sells its lowest fares one-way, Iceland Express may be a last resort for travelers who need one-way tickets. However, it won’t be fun: The line will apparently use 737s in a very tight all-economy configuration at 31-inch pitch—a real cattle car.

Time warp. I can’t repress the urge for a brief digression. When I first started in this business, transatlantic airfares were rigidly controlled, and the only low-fare option was the then Loftleidir, later Icelandic, and now Icelandair. Flights went from a few U.S. gateways to Luxembourg (with nonstops from New York for a while), the only European country without a local airline to protect and thus no motive to regulate fares. Loftleidir/Icelandic became famous as the “backpackers’ airline,” and Luxembourg became an important gateway for budget-minded Americans and Canadians. Iceland Express apparently hopes to re-create this pattern.

At this point, I see no low-fare prospects across the Pacific. But you never know.

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