It has not been a good year to be a low-cost airline.
While the Spirit Airlines (SAVE) bankruptcy has dominated the news cycle (exacerbated by months of executive reassurances that things were "just fine"), other budget carriers have been displaying both obvious and subtle signs of their struggles.
Southwest Airlines (LUV) recently emerged from a long battle in which new investor Elliott Investment Management dropped its efforts to oust chief executive Bob Jordan in exchange for a dramatic management shake-up. At the same time, Frontier Airlines (FRON) just cut more than 40 unprofitable routes nationwide.
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The discount airline model has become fiercely competitive
Currently building out the Utah-based Breeze Airways (BREZ) since founding it in 2018, chief executive David Neeleman is also the founder of JetBlue Airways (JBLU) , WestJet in Canada and Azul Linhas Aereas (AZUL) in Brazil.
In an interview with TheStreet, Neeleman said that the ultra-low-cost carrier (ULCC) model dates back to the early 2000s when airlines such as Spirit and Frontier were experiencing rapid expansion.
Related: I just flew business class on Spirit — here is what it was like
"They thought that if they just got bigger and bigger airplanes [like the Airbus (EADSF) A320 that makes up the majority of Spirit's fleet] and packed more and more seats in with that lowest-they-can-charge price point, they could just fill up their airplanes and nobody could compete with them and they could just fly into any market they wanted," Neeleman told TheStreet. "Well, the big guys [mainstream airlines such as United (UAL) and Delta (DAL) ] said, 'two can play that game.' They then started to reserve 30 seats a plane for basic economy but with some little benefits like live television and having Wi-Fi onboard."
This, in turn, caused a situation in which low-cost carriers were not only competing for the same markets as mainstream carriers but also unable to offer the same level of service while maintaining the bottom-of-the-barrel prices travelers expect from a ULCC.
This has increasingly pushed low-cost airlines to introduce a new "business class" in which travelers can pay for priority boarding, a larger armchair-style seat and perks such as snacks and free Wi-Fi.
Spirit recently did this with a new "Go Big" fare, while JetBlue President Marty St. George has hinted that the Mint class the airline currently uses for certain transatlantic and cross-country flights could soon be expanded to a "Mini Mint" for domestic ones.
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'If I want to pay for a first-class seat, let me pay for a first-class seat': Neeleman
As ULCCs cannot offer a true business class in the same sense as a mainstream airline, it's primarily a way to market themselves to passengers looking for a nicer experience and charge a higher fare with less traveler outcry.
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"The million dollar question is 'will it be enough to make the ULCCs in particular profitable again?'" Neeleman said. "[...] It's interesting that Southwest kept advertising free additional bags and not giving a seat assignment and there were people saying 'but your fares are so high, I'm gonna fly with Spirit with my backpack and get a lower fare. Let me go with a no bag fare but if I want to pay for a first class seat, let me pay for a first class seat. Give me options."
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