DBEA55AED16C0C92252A6554BC1553B2 Clicky DBEA55AED16C0C92252A6554BC1553B2 Clicky
June 13, 2024
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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.

DoT T-100; AirInsight

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.

DoT T-100; AirInsight

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.

DoT T-100; AirInsight

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.

DoT T-100; AirInsight

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.

DoT T-100; AirInsight

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?

DoT DB1B; AirInsight

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.

DoT 5.2; AirInsight

Fuel costs– In 2023, ULCCs averaged $16.59, LCCs averaged $16.23, and Network carriers averaged $17.47.

DoT 5.2; AirInsight

Flying ops per seat hour– In 2023, ULCCs averaged $30.49, LCCs averaged $29.13, and Network carriers averaged $30.76.

DoT 5.2; AirInsight

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.

author avatar
Addison Schonland
Co-Founder AirInsight. My previous life includes stints at Shell South Africa, CIC Research, and PA Consulting. Got bitten by the aviation bug and ended up an Avgeek. Then the data bug got me, making me a curious Avgeek seeking data-driven logic. Also, I appreciate conversations with smart people from whom I learn so much. Summary: I am very fortunate to work with and converse with great people.

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