This Day On The Street
Continue to site
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

Where Have All the Low-Cost Airlines Gone?

"History is littered with these low-cost airline start-ups," says George Hobica, an airline expert and founder of Airfarewatchdog.com. "They were more likely to fail than not even when money was loose, and money is tight now."

In their place, all we're left with are a couple of cheap airlines and the national carriers who borrow some of their tricks without the dirt-cheap prices.

How low-cost airlines are different today
The two most prominent low-cost carriers operating today in the U.S. are arguably Spirit (SAVE) and Allegiant Air, and the one major difference between them and the low-cost carriers of old: more fees.

"The only real low-cost carriers now are high-fee carriers," Hobica says, and for some, that may undermine their very image as low cost.

Spirit, in particular, has become notorious for relying on often outrageous extra charges to gin up revenues, whether it's a $30-to-$45 fee for carry-on luggage or an additional fee for not paying that fee far enough in advance. Previous low-cost airlines such as Skybus and People Express had fees of their own, but not to the same degree. The net effect is that by introducing as many fees as possible, they can still promise an ultra-low base fee that significantly undercuts the competition. (The same is true if you think about low-cost airlines abroad, most notably Ryanair.)

Fees aren't the only tactics these airlines have used to boost profits. According to Hobica, the discount airlines rely on secondary revenue sources such as selling tickets to hotels and rent-a-cars, something Spirit and Allegiant do. Even a few years ago, Skybus tried to pad its revenue by placing advertisements inside the plane, but clearly that wasn't enough.

At the same time, low-cost airlines have been forced to focus on more offbeat routes in hopes that large carriers don't cover much, if at all, and effectively "pick up the scraps," as Seaney puts it. Unfortunately, while these tricks may be enough to keep the existing discount airlines in business for now, the market for start-ups is tough and getting tougher.

Perhaps the biggest single reason we're not seeing more discount airlines pop up is the rising cost of gas.
2 of 3

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr 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

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

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
SYM TRADE IT LAST %CHG
AAPL $112.88 -4.70%
FB $95.19 1.10%
GOOG $636.12 0.78%
TSLA $262.75 1.10%
YHOO $37.42 2.00%

Markets

Chart of I:DJI
DOW 17,535.06 -15.63 -0.09%
S&P 500 2,093.32 -4.72 -0.22%
NASDAQ 5,105.5460 -9.8360 -0.19%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs