Issue No. 714

The New Low-Cost Competition

From 2000 to 2008, it was a fragmented mess.

From 2008 onward, it consolidated.

Is the U.S. airline industry on the verge of disruptive fragmentation once again?

Last week brought news of another new U.S. airline startup, first reported by NPR’s Hear & Now. The startup is the brainchild of Andrew Levy, United Airlines’ former CFO, who before that co-founded and ran Allegiant. This follows news of David Neeleman’s return to the U.S., with a startup targeting secondary airports with newly-ordered A220s. And just as two new high-profile startups beckon, Southwest is beginning to fragment the Hawaii leisure market from the U.S. West Coast, while JetBlue prepares to fragment the transatlantic business market from the U.S. East Coast. All of this, don’t forget, as the country’s Big Three ultra-low-cost carriers—Spirit, Frontier and Allegiant—gain more and more clout with year after year of rapid expansion.

Levy’s new airline too, will be an ultra-low-cost carrier. Last summer, he purchased a small charter airline called XTRA Airways, which already has an FAA operating license and a team of operations and safety executives in place. That means the new business model can be ready to launch as early as the fourth quarter of this year, according to an investor solicitation document seen by Skift Airline Weekly.

What exactly is the new business model? It will indeed be ultra-low cost, a term that’s come to imply densely-configured airplanes, quick aircraft turn times, intense aircraft and airport gate utilization, high labor productivity, heavy outsourcing, few onboard amenities, low base fares, and heavy reliance on ancillary revenues. Levy’s new airline, more distinctly, will target all categories of travelers, which implies not just leisure and family-visit travelers but also those journeying for business. It cites successful ULCCs in Europe that have targeted multiple customer segments, an apparent reference to Ryanair and easyJet, both of which carry a lot of shorthaul business fliers.

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