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Airlines in the United States: Volume 2 - Discount Airlines
Mintel, Jan 2005, Pages: 95
While the airline industry overall has faced considerable challenges in the beginning of the 21st century, the discount airline segment appears poised for growth that will rapidly outpace that of the major airlines. In 2004, revenues for the discount airlines are expected to exceed $14.5 billion, up from $8.9 billion in 1999. This is a growth rate of nearly 63%, compared to the major airlines, which saw revenues drop 5.6% during the same time period. The economy, which has caused hardship for the major carriers, has proven to be an accelerator for the discount airlines, which benefit from cost-conscious travelers. The discount carriers also benefit from lower infrastructure costs. Their aircraft tend to be newer, and they use fewer types, thus reducing maintenance costs. In addition, employees tend to be younger with lower salaries, and the pension plans that are proving to be a large liability for the major carriers do not exist in the discount segment.
The discounts do face their own set of challenges, however, and one of those is over-capacity and steep competition. The field is crowded and getting more so, with seven primary discount airlines and many smaller carriers, including Ted and Song, the discount offshoots of United and Delta. Industry analysts feel that consolidation is inevitable, with too many seats and not enough travelers.
Discount airlines are defined as those airlines that focus their positioning on particularly low fares. Most are able to do so by eliminating at least some services. For example, some of these have gone without 'free' in-flight catering and other 'complimentary' services, replacing these with optional paid food and drink. Still, to stay competitive, other discount airlines have actually added some benefits. Their low fares keep them in the “discount airline” category.
The typical low-cost carrier business model is based on:
a single passenger class
a reduction in the number of airplane types (reducing training and servicing costs - often the Boeing 737)
a simple fare scheme (typically fares increase as the plane fills up, which rewards early reservations, known as 'yield management')
unreserved seating (which encourages passengers to board early)
direct, point-to-point flights with few/no transfers
flying to cheaper, less congested secondary airports
short flights and fast turnaround times (allowing maximum utilization of planes)
In Mintel’s report on discount airlines, every important market driver is explored, including trends in employment and business travel, domestic and international turf wars, and low prices vs. loyalty. Market size, trends, segmentation and distribution are all evaluated in depth, with a detailed outline of the supply structure covering every important discount brand. To isolate and better understand the group of Americans who tend to fly discount airlines, Mintel commissioned exclusive consumer research to explore specific consumer usage of and attitudes towards discount airlines.
For the purposes of this report, the term discount airlines includes the following carriers: Southwest, America West, ATA, JetBlue, AirTran, Frontier, Spirit, Ted, Alaska Air, Gulfstream International and Song.
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