Targeting premium customers has proven profitable for Delta and United Airlines.
Delta and United have become the most profitable U.S. airlines by targeting premium customers while also winning back a significant share of travelers on a tight budget.
That is squeezing smaller low-fare carriers like Spirit Airlines, which filed for bankruptcy protection on Monday. Some travel-industry experts think Spirit’s troubles indicate that travelers on a budget will be left with fewer choices and higher prices.
Other discount airlines are on much better financial footing than Spirit, but they too are lagging far behind the full-service airlines when it comes to recovering from the COVID-19 pandemic. Most industry experts think Frontier Airlines and other so-called ultra-low-cost carriers will fill the vacuum if Spirit shrinks, and that there is still plenty of competition to prevent prices from spiking.
Spirit Airlines has lost more than $2.2 billion since the start of 2020. Frontier has not reported a full-year profit since 2019, although that slump might end this year. And Allegiant Air’s parent company is still profitable, but less so than before the pandemic.
Those kind of numbers—and of course, some promotion of his own airline—led United Airlines CEO Scott Kirby to declare recently that low-cost carriers were using “a fundamentally flawed business model” and customers hate flying on them.
Kirby’s touchdown dance might turn out to be premature, but many analysts are wary about the near-term prospects for budget airlines, which charge cheaper fares but more fees than the big airlines.
