Why Regular Airlines Are Going the Discount Route

Bumpy Ride

Even though there’s a strong case for the discount airline business model, it has been a bumpy ride for these players since the pandemic, not least because major airlines seem to be coming for their market share.

For Frontier (ULCC) and Spirit (SAVE), for example, declining sales have been reflected in their share price. Changes in travel habits and persistent labor shortages are hampering business. Add to this the fact that major airlines have started offering their own steeply discounted tickets, leading some to wonder whether there’s a place for budget airlines in the sky anymore.

Decade-Long Dogfight

Competition between major airlines and their budget-friendly counterparts has been brewing for a while. Oil prices tanked in the mid-2010s, which allowed bigger air carriers to cut ticket prices and begin exploring ways to expand their customer base beyond high-income business travelers.

It has only intensified since. Post-pandemic, travelers preferred the international trips typically offered by major airlines to domestic destinations offered by budget carriers. Given unexpectedly low demand, budget airlines had to cut prices further to fill seats, even with fewer flights than usual thanks to a shortage of pilots and air traffic controllers.

Meanwhile, budget offerings from the likes of Delta (DAL), American (AAL), and United (UAL) have only become more popular. These basic tickets come with drawbacks, such as restricted seat choices and luggage options, and less or no flexibility to rebook. But with similar prices to budget alternatives, factors like brand reputation, in-flight experience, and loyalty programs have given major airlines the edge again.

Competition tends to be a good thing for consumers. After all, discount airlines are looking to cut costs to win customers back, which is good news for inflation-strapped U.S. travelers.

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