This Day On The Street
Continue to site right-arrow
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
TheStreet Open House

Where Have All the Low-Cost Airlines Gone?

Stocks in this article: LCC UAL DAL

NEW YORK ( MainStreet) -- After American Airlines (AMR) filed for bankruptcy in November, Southwest (LUV) CEO Gary Kelly wrote a letter to his employees emphasizing what he believed to be the biggest make-or-break factor for airlines: cost.

"All the majors from 1989 have gone bankrupt. Pan Am. Eastern. Braniff. Continental. America West. TWA. US Air (LCC). United (UAL). Delta (DAL). Northwest. And now, American," he wrote at the time. "Why? Not because of customer service, but because of high costs. Great customer service cannot overcome high costs. That is the imperative I wrote about a decade ago: low costs."

Discount airlines exist, but the few that remain must rely more on extra fees and sales of secondary services to survive.

As Kelly sees it, the only way forward for the remaining airlines in the U.S. is to become more efficient and bring down operating costs. In effect, large nationwide carriers such as American, Delta and United -- the so-called legacy carriers -- must begin operating more like low-cost airlines. Or as Kelly put it, "The old legacy airlines are dead and buried."

Traditionally, there has been a firm distinction between legacy carriers, which airline analyst Rick Seaney refers to as airlines with operating costs of roughly 11 to 13 cents per mile, and low-cost airlines that have costs of about 8 to 9.5 cents per mile. These low-cost carriers were usually bootstrap operations that relied on cheap labor, inexpensive jet leases and no-frills flight experiences to keep costs down and offer insanely low prices to travelers. Now the legacy carriers are relying on some of these strategies just to survive.

>>6 Money Mistakes Couples Make

"They are all becoming low-cost airlines," says Seaney, who co-founded FareCompare, a Web site that tracks airfares. "Airlines are dumping their business-class seats for economy seats, and if you want luxuries, you'll have to pay extra for them as a separate fee."

Of course, if you told travelers that major airlines such as Delta and United were now considered "low cost," many would probably laugh. For most consumers -- at least those who have been flying for more than the past decade -- the true low-cost carriers were those that flew a limited number of routes for a cost that often seemed closer to bus fare than airfare. These included carriers such as Independence Air, Skybus, People Express, New York Air and USA 3000 Airlines, to name a few. They tended to be small start-ups with short life spans -- Independence Air and Skybus barely lasted two years -- and the majority have since gone out of business or, in the case of USA 3000, are about to.

1 of 3

Check Out Our Best Services for Investors

Action Alerts PLUS

Jim Cramer and Stephanie Link reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

Jim Cramer's protégé, David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
Try it NOW
Try it NOW
Try it NOW

Check Out Our Best Services for Investors

Dividend Stock Advisor

Jim Cramer's protégé, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Options Profits

Our options trading pros provide over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • Actionable options commentary and news
  • Real-time trading community
Try it NOW
Try it NOW
Try it NOW
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!

Markets

DOW 17,416.85 +225.48 1.31%
S&P 500 2,021.25 +19.09 0.95%
NASDAQ 4,683.4070 +45.4130 0.98%

Partners Compare Online Brokers

Free Reports

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs