Issue No. 704

Amid Moderation, a ULCC Sensation

The great moderation. That’s what economists called the period of almost three decades without a major U.S. recession, finally ending with the financial crisis of 2008.

But the opposite was true for U.S. airlines: three decades of almost nonstop crisis, finally ending with an extended period of relative bliss thanks to a series of dramatic structural reforms, most importantly five major mergers led by a Delta-Northwest tie-up just months before the collapse of Lehman Brothers. The airline sector’s great moderation thereafter saw nine straight years and counting of industry profits starting in 2010. The last major U.S. airline to report an annual operating loss? Virgin America in 2012. The last among surviving entities? American in 2011.

The current decade, however, will be remembered for more than just its moderation. With less fondness, established U.S. carriers like the Big Three, Southwest, Alaska and JetBlue will look back on a decade that included the rapid growth of a new business model, one whose three major practitioners have steadily gained influence with each passing year.

In 2010, ultra-low-cost carriers—at the time just Spirit and Allegiant—accounted for an ignorable 1% of all U.S. domestic flights, and just 2% of seats and ASMs, according to an Airline Weekly analysis of Diio Mi schedule data. By 2015, with Frontier now joining Spirit and Allegiant as ULCCs, their share of the domestic market had grown to 3% of all flights, 5% of all seats and 6% of all ASMs. The percentages in 2018? 5%, 7% and 8%. And this first quarter of 2019? 5%, 8%, and 9%. That’s right, ULCCs, still expanding aggressively, will before long account for an entire tenth of the domestic U.S. marketplace, not to mention the major impact of Spirit and Frontier on Caribbean markets.

Two weeks ago, the ULCCs—all three major ones—were busy announcing 30 new routes. Yeah, 30.

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