The U.S. doesn’t have the kinds of true budget airlines seen in Europe, but for years, flights on Spirit, Frontier, Southwest and other low-cost airlines have been a godsend for people who need to fly on a budget. More recently, though, tickets from those budget carriers have been getting more expensive, and previously profitable airlines are now struggling. So what changed? Thankfully, we have our friends over at Wendover Productions to help explain things.
To understand how we got here, we first have to go back eight years to a time when low-cost carriers were making money hand over fist. Their tickets may have cost less than America, Delta and United, but the airlines were still very profitable. Southwest and JetBlue were bringing in 20-percent operating profit margins, while Spirit and Allegiant were even more profitable. For comparison, Delta was making 19.6 percent, while United had a 13.6 percent profit margin. Fast forward to today, and those low-cost airlines are losing money, while legacy carriers are still in the black.
So what happened? Well, obviously, the pandemic was a big factor, but it affected every airline in the U.S., and passenger volume has already recovered. What we’re seeing is that the budget airlines recovered and then began failing again, while the legacy airlines recovered and then continued to improve. Part of this can be explained by the fact that while leisure travel is firing on all cylinders, business travel hasn’t returned in quite the same way. Still, that’s likely not the biggest issue.
If you look at Spirit’s cost per available seat per mile, it hovered around eight cents for years, but in 2021, it started climbing, and by 2022, it had hit 11.6 cents, a jump of about 45 percent. And if you guessed fuel prices are probably behind that, congratulations on guessing correctly. Still, it’s a lot more complicated than simply finding a single smoking gun. Other factors are at play, as well. Notably, climate change is making severe turbulence and bad storms both worse and more frequent. Weather contributes to increased delays and limits the number of hours airlines can fly their planes on any given day.
You also can’t forget the air traffic controller shortage, engine issues and the Department of Transportation enforcing stricter rules. All of these factors make it more expensive to operate an airline, which has consequently driven up the price of passenger tickets. It’s a complicated problem, but what are those low-cost carriers going to do to deal with it? Watch the video below to find out.
