When Southwest Airlines started, it represented a new type of airline. As a Texas-only carrier, it was not subject to the same regulations that many of its competitors were.* Thus, as a more nimble company, it could operate more efficiently and charge less, making it the first “low cost carrier (LCC).” Over time, that model evolved further, with the creation of ultra-low cost carriers (ULCC), such as Spirit or Frontier. Unlike Southwest, which had few fees associated with its model, the ULCC made much of its money primarily from fees, selling you a cheap seat, but nothing else. Thus, we are left with three main categories of airlines: The network (legacy) carriers, LCCs and ULCCs.
Positioning for Success
Several weeks ago, I wrote about Sun Country changing from a LCC model to a ULCC model, which is sad, but may be better than its current, unsustainable model, which is to fly passengers into and out of Minneapolis. MSP simply isn’t a big enough geography to support as many full-service, or even LCC airlines, as it does.
But that left the opportunity open for competitors, and JetBlue decided to take advantage of the opening, announcing service from Minneapolis to Boston, which I assume will eventually be followed up by service to other cities. Sun Country wasn’t big enough to take on Delta’s monopoly at the airport, but JetBlue might be.
The bottom line is that the industry is becoming increasingly segmented. The network carriers have tried to be everything to all people by introducing products such as basic economy, but the ultimate outcome may simply be different airlines for different folks, and the only question is whether those folks are willing to pay a price difference. Otherwise, the trend is down, both in terms of costs and amenities.
*Beginner’s Hint: Prior to deregulation in 1978, interstate airlines were governed by the Civil Aeronautics Board (CAB), which regulated business decisions such as where an airline could fly new routes and how much it could charge for flights. Deregulation has led to significantly lower overall ticket prices.
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