United’s CEO said Frontier is “going out of business.” This comment caused a lot of industry chatter. After all, the model espoused by ULCCs has worked very well. Ryanair is doing a roaring business in Europe. Why can’t that work in the USA?
Using US DoT data, we see the following.
The ULCC segment consists of Allegiant, Frontier, and Spirit. The chart shows that this segment attracted a chunk of the national traffic, peaking at 13% in 2020. This, no doubt, was a pandemic impact. However, note that this segment has moved from around ~9% to 11%. That means even as traffic returned, ULCCs managed to hold on to some of the traffic they attracted after the pandemic.
The following chart illustrates how the market as a whole bounced back from the pandemic—really, the V-recovery everyone wanted.
The US has a mature air travel market, and its geography requires air travel. This means that the market would bounce back no matter what—the question was how fast. It turns out that US air travel demand may be rather inelastic.
Slicing this traffic into the three ULCCs, we get the following.
That 11% market share amounts to a large number of people. So, the segment attracts a significant chunk of the national traffic, and that traffic share has grown. The lowest-priced seats are always going to attract traffic.
Digging deeper and selecting the top 25 US cities, ULCC traffic share is even higher. You might not expect the bigger airlines to allow ULCCs such a foothold. But here we are.
The ULCCs saw their share rise to 19% in 2020 and then settle back to 17%, which seems pretty good. Allegiant is not in the top 25 markets, so the traffic shown is Frontier and Spirit.
United Airlines’ focal market points: The 189 million passengers account for 23% of the 2023 national total.
Even in these markets, excluding San Francisco, the ULCC segment has a respectable showing. How about looking at the market from another data source and perspective?
From this table, we can add Avelo to the ULCC segment. The ULCC market share sums to 13.4%. ULCCs fly shorter legs with considerably lower fares.
Three more charts will be used to lay out the data and develop a response and view on Scott Krby’s assessment.
Flying costs—ULCCs have high flying costs per block minute. In 2023, ULCCs averaged $80.35, compared to $79.61 for Network carriers. LCCs were at $75.23.
Fuel costs– In 2023, ULCCs averaged $16.59, LCCs averaged $16.23, and Network carriers averaged $17.47.
Flying ops per seat hour– In 2023, ULCCs averaged $30.49, LCCs averaged $29.13, and Network carriers averaged $30.76.
Summary
- ULCCs show market resilience with a good market share
- ULCC operating costs don’t provide sufficient margin to hold off LCCs and network competition
- Passengers are better off buying up slightly and moving to LCCs
Scott Kirby’s assessment is probably correct. However, United Airlines won’t be the first beneficiary of passengers “buying up.” JetBlue, Alaska, and possibly Breeze will get the first bite at those travel dollars.
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