|Discount airlines exist, but the few that remain must rely more on extra fees and sales of secondary services to survive.|
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.
For discount carriers to survive, they will likely need to find new and creative ways to broaden their supplemental businesses. "They will need to try to upsell other products like rental cars, hotels, vacations, cruises, credit cards, anything travel-related," Hobica says. And of course, Hobica says they will continue to lean on ancillary fees, much to the chagrin of many customers. Beyond that, the future of low-cost carriers could ultimately come down to advances in jet engine technology. If gas prices continue to go up without an affordable fuel-efficient jet, discount airlines may no longer be able to manage their costs. "What they really need," Seaney says, "is a magical jet engine that runs on oxygen." If only. >To submit a news tip, email: email@example.com. Follow TheStreet on Twitter and become a fan on Facebook.