Budget Airlines: Are You Trading Low Cost for Luxury? | kbnmart

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Low-cost airlines exploit ancillary sales offers to generate additional revenue.

Why is this important: The trend of upgrades to economy plus is sweeping the airline industry, potentially reducing the number of budget-friendly seats for travelers who don’t mind sitting in more cramped economy class seats.

News leadership: Spirit Airlines recently introduced a tiered fare model that includes four levels of service, ranging from the basic “Go” option to the “Go Big” option, which includes larger seats, in-flight snacks, priority boarding, and more. A few days ago, Southwest Airlines announced plans to introduce premium seating and abandon its popular open-seat model.

JPMorgan analysts expect JetBlue to introduce a domestic first-class service next year, possibly called Junior Mint, expanding beyond its current transcontinental and international first-class service, Mint.

Zoom: “JetBlue is currently sitting on the outside of the domestic first-class market, a market that Delta has successfully monetized by increasing domestic paid load factors from about 15% to more than 70% since 2009,” noted Jamie Baker, senior airline analyst at JPMorgan.

JetBlue did not respond to Axios’ request for comment.

The Big Picture: The changes come as major airlines — Delta, United and American — emphasize extra economy-class offerings amid rising fuel and labor costs and aircraft production challenges that are limiting growth. Budget carriers like Southwest are also under pressure from ultra-low-cost rivals like Frontier, Breeze and Avelo.

what are they saying: “We’re seeing a structural change for low-cost airlines,” says David Slotnick, chief airline business reporter at The Points Guy. “The idea is to be like a more luxurious bus, with better seats in the front, which allows them to make more money selling it.”

Between the lines: Southwest is under pressure from activist investor group Elliott Management, which is calling for major management and operational changes after the airline’s infamous collapse in 2022.

Spirit and JetBlue are both looking for new strategies after a federal judge blocked their merger on antitrust grounds earlier this year, and JetBlue is also undergoing major changes in its trajectory to navigate an uncertain future.

Reality check: Even traditional, low-cost carriers like Spirit have long offered premium upgrades, such as the “big front seat.” While budget-conscious travelers still have options, they’ll miss out on the perks enjoyed by those willing to pay extra.

Our thought bubble: While adding more amenities is beneficial, low-cost airlines must also focus on improving operations and on-time performance to effectively compete with major airlines.

Bottom line: Expect your next trip to include a lot of attempts to sell you additional services and features.