When Frontier Airlines announced yesterday that it would unbundle its pricing, lowering fares and charging extra for everything else, news spread that Frontier had finally caved in and chosen the Ultra Low-Cost Model of Spirit Airways.
Like that’s a bad thing.
Many have bemoaned this decision by Frontier, and I’m confident that even more moaning articles will be written today. This is not one of them. This is a tell-it-like-it-is, like-it-or-lump-it, facts-based look at why these things are happening to you, dear value-focused flyer.
Here are three quick facts you might not have considered which explain why more airlines are likely to follow in the Spirit of the new Frontier.
1) You’re paying for these things one way or another.
Airlines who “charge for everything” refer to this approach as “unbundled” services because they are literally breaking up the various cost factors of carriage and presenting these as “menu options.”
Sure. It’s confusing to think you can travel for $9.00 only to find those $9.00 represent the lowest menu item on your ticket which has wound up costing you well over a hundred dollars; once you picked up on all the “extras,” like bringing luggage, picking a seat you like, drinking water, etc. etc..
Well, CAVEAT freaking EMPTOR.
Did you really think a plane can fly you and your kith and kin and kit from point A to point B across the country for the cost of a Happy Meal?
The fact is that even the big players only make between $1-$5 per passenger seat; once all the costs like buying, equipping and maintaining their aircraft, staffing, carrying your bags, and offering you a beverage and snack are taken off the price they charge for the full-fare ticket.
When you compare that to $9.00, these “unbundled” Ultra-Low Cost Carriers are effectively pre-planning a higher profit margin for themselves, and attracting you by publishing that; thereby securing their own financial stability. The published “fare” should really be labelled as a published “profit margin,” but that doesn’t work very well for the marketing department.
What’s more, by breaking up the other costs, like bags and seat selection and early boarding, those same Ultra-Low Cost Carriers allow themselves extra room to factor-in a profit.
It takes a lot of shopping around and mathematics to figure out whether a ticket on a particular route will actually be cheaper on the traditional carrier than on the Ultra-Low Cost Carrier, and airlines who follow the latter model are betting you don’t feel like doing the maths.
Those who do the maths will find that the fares are about equal between the traditional carrier and the Ultra Low-Cost Carrier, after all the items are “rebundled.” Occasionally, factors like schedule and convenience and a slightly better travel experience will skew the choice in favour of what appears to be a traditional carrier’s higher fare; which after all the maths will turn out to be only slightly higher.
Sometimes, though, it really is cheaper to fly with that Ultra Low-Cost, and if you’re willing to put up with the bare-bones inflight service and save your money to spend at your destination (at a nicer hotel, or on an extra tour, or on a shopping frenzy) then it’s a good option.
2) Do you want to be able to fly, or not?
By and large, after Deregulation in the 80s, airlines have been on their own to make it or fail. Many have chosen the latter.
Well, not so much chosen as wound up with. Passengers decided for them, when they began flocking to cheaper fare options, pressuring the larger players to lower their fares.
Up to now, this has been a good dynamic for the population at large. It has led to an unprecedented democratisation of air travel, which permits those who (in previous generations) could never have dreamt of getting on a plane, to take the availability of that service for granted.
That democratisation is a good thing. Long may it continue.
Except it might not continue for very long. The rising costs of fuel are primarily responsible for this, though not the sole factor.
To lessen the burden of these costs, airlines have bought a bunch of new aircraft. For now, these aircraft have cost the airlines very little, mainly because they have yet to actually pay for them. For the most part, they’re financed. Airlines are betting that tomorrow will be a better day and they’ll be able to foot the bill for those new aircraft based on what they charge. That means that airlines will continue to find new ways of charging more. Otherwise, they’ll go broke.
Let me emphasise that airlines make profit margins as low as 1%. There isn’t a lot of wiggle room for the big players.
With consolidation, comes more efficient cost structures but also limited competition. With limited competition, comes higher fares.
The only factor keeping these higher fares from spinning out of control is that Ultra Low-Cost Carriers keep market demand for cheap fares growing.
Those carriers are not facing 1% profit margins. They are making money for themselves and their investors. It’s not all coming out of their fares, a lot has to do with how they manage their costs, but their unique tier pricing strategy helps. A lot.
3. Ultra Low-Cost is just a Marketing Strategy.
It’s worth repeating: Let the buyer beware.
There is really no such thing as an “Ultra Low-Cost Airline.”
Running an airline costs a lot of money. A lot. Of. Money.
There are Low-Cost Airlines, relative to their operating cost models, based on unique aircraft configurations which reduce their overall burden and make it possible for them to provide service for less.
Case in point: Southwest, who pretty much came up with the idea.
By structuring their business carefully, picking one type of aircraft to fly, flying routes no one else wanted to give effective service to, paying less to their employees, they made it possible to sell fares at a really low price to passengers while remaining profitable and carved out a successful niche market.
The term Low-Cost, therefore, really applies to how the airline operates more than what they charge their passengers. (See point 1.) Once you do all the maths, on many routes, Low-Cost Carriers are on par, or very near, traditional carriers on a like-to-like comparison of total fare charges.
Once consumers have associated Ryanair, easyJet, Vueling, Spirit, Southwest, others, and now possibly Frontier with cheap they will flock to them over and over again. Sometimes doing the maths, sometimes not.
They will complain. They will rage against the machine. They will mourn the loss of better days aviation was a much better industry.
Like most things we look at in the rear-view mirror, the objects are not as large as they appear.
That’s a whole other post, but let’s say, for now, that consumers’ false memory of a non-existent “better” travel experience is not enough for airlines to change their business strategy.
This is the dark side of the equation. Many workers at McDonalds, many bus drivers, many garbage collectors, make more than pilots on regional and Low-Cost Carriers. Some of these pilots are expected to live on around $21,000/year.
Low-Cost and Regional Carriers are often slammed for creating this situation, but it’s not their fault. Neither is it the fault of the larger airlines who are headed in this direction.
It’s the fault of the consumer. They get what you pay for.
It’s also the fault of the governments who do not enforce a living wage in many sectors of employment.
It’s society’s fault. It’s capitalism. It’s all of those things.
Depending on your philosophy of life, it’s a bad thing or a good thing, or something you don’t pay much notice to. But it is.
Airlines are businesses.
As businesses, airlines want to endure and they want to make a profit–more than 1%.
Airlines are not a public service. They haven’t been since de-regulation.
If you want to hire a medium and complain to Ronald Reagan about his decision to remove subsidies, go ahead. If you want to find Frank Lorenzo and tell him he was wrong to break the backs of labor unions at Continental and Eastern and others (even at Frontier); thereby setting industry wages on a downward spiral at the precipitous speed of a double engine plane with both engines down? Go for it.
Depending on your view of capitalism, Reagan and Lorenzo, and the other players around the world who privatised airlines, are heroes or villains.
It doesn’t matter now. The people have spoken. They want cheaper fares. At any cost.
Therefore Spirit. Therefore Frontier. Therefore embrace reality.
More “Ultra” Low-Costs will appear on the landscape. Few actual new airlines; mostly established airlines unbundling services for those who prefer to buy their tickets that way. This is not a US phenomenon, it is a global phenomenon.
KLM prides themselves on being one of the world’s first commercial airlines. By all measure of things, they are the most traditional of traditional carriers. Yet, on their Economy Ticket strategy they’ve gone “unbundled.” They have to, in order to compete with the likes of Ryanair and easyJet and Norwegian. This strategy of theirs doesn’t get a terrible amount of press, but it is a clear indication that traditional carriers are re-thinking their pricing models.
So who’s taking us for a ride? Which is the fairer fare approach?
Good questions. I have no answers.
I only know it pays to shop around. My momma told me.
What about you? What airline do you fly with most often? Do you feel unbundled fare pricing is fair pricing?