Airline demand seems to finally be weakening a bit, but not necessarily in the way you’d expect. I wanted to talk about that in a bit more detail, including the implications of this for the industry.
Continue reading: Air Travel Demand Is Finally Softening, But In A Weird Way
Share your questions, experiences, and thoughts below.
I think it could be that LCC-utilizing travelers are the most sensitive to economic conditions. I wouldn't be surprised to hear that budget-conscious people aren't necessarily thinking about travel at the moment with the state of many peoples' bank accounts especially with student loans kicking back in soon and inflation being what it is.
People don’t boon on ULCC due to the their pricing. Out of competitive markets such as New York or Boston, the base fare between of say Spirit is often times much higher than JetBlue or American.
You don’t have to be a genius not to book with Spirit. They have a poor reputation plus high prices equals a bad business model
While people of all facets of society may fly F9 or NK, their target market is the budget conscious traveler that usually could not afford a vacation except for the deals offered by F9/NK.
With the steep rise in the cost of basic necessities over the past year, my guess is many budget travelers have little to no disposal income.
good article, Ben.
Yes, LCCs and ULCCs are struggling due both to a growing desire for a more premium experience, even domestically, which those groups of airlines cannot satisfy, and because of higher costs - including labor costs which simply are much less easy to pass along in a discount-focused environment.
The international travel boom will come to an end; United, which led the charge in returning capacity post-pandemic, only had a significant profit advantage for one quarter - the 3rd quarter of 2022. By the 4th quarter of 2022, AAL and DAL had brought their margins up to UAL's levels and UAL in the most recent quarter trailed AAL and DAL in profits.
Fuel is a major concern, esp. for airlines with older fleets including UAL's continued heavy use of large numbers of 777s, the least fuel efficient on a per seat basis. Fuel is up $3/bbl already today, the crack spread is widening, and United has long paid more for fuel than any of the other airlines in the big 4.
the heyday of travel post-pandemic will weaken as costs bite more into consumer pocketbooks.
Many people in this country are seriously struggling to make ends meet. These folks are the ULCC's main customer base, and many probably aren't traveling right now or in the near future.
Not to mention, check how expensive the add-ons have gotten on some of these ULCC flights. I was able to fly my parents in a PE seat on AA's 788 for cheaper than them flying Frontier and needing to pay for a bag and seat.
Could it be that:
(a) The rich are getting richer, and;
(b) The poor are getting poorer
What's weird alongside that is that there appears to be very limited softening of lower end hotel pricing. They're all still very overpriced. Starting to see some more hotel promos, but not a lot of changes in price.
As others have mentioned, price sensitive travelers are going to be hit harder by the overall increase in the prices of other goods, as well as the overall increases in other aspects of travel, such as the cost of hotels etc. Further the anti-competitive status of many hub airports makes it very difficult for new entrants to break in. I do believe there would be interest and consumers ready for Avelo/Breeze in MSP considering the ridiculous prices Delta charges, but it would be exceptionally difficult for them to break in.
People budget an entire trip, not just airfare. I didn't take my typical labor day trip because hotel prices are still insane. That's 4 airline tickets I didn't buy even though flight prices were reasonable.
Rev mgt at hotels seems to be managed differently vs pre covid, even as labor issues have been ameliorated (through service cuts or more hiring mostly) such though many hotels are not discounting until last minute. For any travel even close to off peak, make sure to garden your cancellable/changeable bookings. Have seen this over and over this year across continents.
You're not getting the composition right.
Long-haul demand for O&D with the US at one end is still at its very peak. Also, long-haul supply is much more constrained due to lack of widebody aircraft (excessive fleet retirements during C19).
Short haul is a different story. Confidence to travel came back a lot sooner, particularly in the US. With high prices by suppliers and softening demand, the picture is much bleaker than for long-haul markets.
I buy FC seats. I don't rely on upgrades, waiting and hoping for a more comfortable flight. I pay for the seat and bank the mileage. I am well aware that I am lucky to do so, but I certainly do not apologize for making it harder for your upgrade, regardless of how entitled you think you are.
You’re absolutely right about this. Some of it is greed/market power but a big piece also is that many hotels are still underwater on their loans from the pandemic. The property market for hotels is very soft and financing is difficult to get. So they are trying to pad their reserves and make up of lost time.
There’s also a common assumption—fair or not—among hotel owners that they “trained” customers to expect lower prices during the 2009 recession. They think they are thinking long term by pushing rate at the expense of occupancy. Frankly, I think this ignores the fundamental reality that there is an oversupply in many markets and the business is very competitive. Eventually some people may realize that a “profitable” hotel at 60% occupancy may be more efficiently used as an apartment or senior center.
Also, this very situation happened to me… found a great deal on a trip to Vermont but the hotels were $450+ per night. Sheesh.
Um Ben… the answer is extremely obvious? There is a cost of living crisis and overall wage stagnation. It should not be surprising that those sensitive to price are pulling back on their travel while those with wealth or high incomes continue to do travel in premium seats and/or legacy carriers.
Yeah. Even if the flight may be cheap if the price of eating out, hotels, excursions and more are not, the flight could be $10 and it would be irrelevant.
Yeah seriously. Does Ben have no idea? People are struggling to pay rent. To pay for groceries. And he doesn’t understand why travel on the low-end is declining??? A massive “let them eat cake” moment from Ben. I’m shocked.
@ Ken -- I'm well aware of economic trends, but I don't think it's fair to fully attribute what we're seeing so that. It's not like everyone who flies American, Delta, or United is "rich," and everyone who flies ultra low cost carriers is "poor."
People often fly ultra low cost carriers because they operate nonstop in point-to-point markets. Conversely, legacy carriers often have very cheap fares as well, to compete with ultra low cost carriers.
My point is, I find it strange that the legacy carriers aren't feeling some sort of a major squeeze domestically as demand has generally just decreased. After all, they've added a ton of capacity, and face the same macro economic issues that ultra low cost carriers do.
@ Ben
This is purely anecdotal but I'm noticing people who NEED to get somewhere often think of legacy carriers, people who would like to get somewhere often take the time to look for more budget-friendly options. Again, purely anecdotal
I’m guessing lower income consumers (who typically book Spirit and Frontier) are cutting back on travel expenses due to rising interest rates and debt.
Gees Ken, rein it in. It's a perfectly reasonable question to ask about how demand is affecting different ends of the industry.
I would say the majority of people don't care what the CDC has to say about Covid.
Some of us book with legacy companies in the hope that they won’t go bust! There will be plenty in the years in front of us.
I know for me I stopped flying ULCC because they would cancel flights after I already booked them and every time I flew them the experience was horrible. I'll pay more for the reliability and comfort of a legacy carrier. Flew multiple segments this past week on American on a Tuesday and all of the flights were full.
With the dollar strong and nearly at par with the Euro, I see demand to Europe only increasing. I've heard from so many people that they went to Europe, because their costs on the ground (hotels, dining, tours, etc) was so much cheaper than doing the same in the US.
We are about to enter a recession, excess pandemic savings are gone. It's over.
Maybe the people have figured out that ultra-low cost carriers aren't really ultra-low cost? When you add in all the upcharges the savings isn't nearly what you'd expect (considering the hassle you have to put up with).
I flew Allegiant on one trip and I'd never fly an ultra-low cost carrier after doing this.
IDK about the recession, but increased fuel prices, recent inflation (which is being tamped down in the US but is more dramatic outside the US), and a less certain job market complicated how people feel about this.
I did cancel a trip last year because the airlines didn't respond to the increased demand properly ... on the day I was supposed to fly there was one of those meltdowns that more than a few airlines experienced.
Yup. Nothing like having a canceled flight on an ULCC and then hearing "Our next flight to your destination is two days away" (and, of course, they don't have agreements with other airlines, so you're basically stuck unless you want to pay for a full-freight seat elsewhere).
Late flight on Allegiant out of Nashville? The counter rep tossed a case of diet Coke onto a nearby table ... no cups, no ice (the case was stored in the podium, so not refrigerated). Understandably, nobody jumped at this.
Especially overpriced considering that the major chains have intentionally ratcheted back on service ...
I am not surprised by the stats you provide regarding weakness for "ultra-low cost" carriers. I agree with Hanare. I have compared UA with deconstructed models such as Spirit and assuming you are a normal traveler, IE: you wish to take a bag, a carry on, drink a diet coke and sit in a seat that is not pure misery, a UA P or Z fare is competitive or cheaper most of the time.
Anecdotally, I can say that the legacy carriers have started to compete with LCCs in markets that they did not participate in years ago. As a West Coast based flyer, look at the growth of Alaska along with the big three and the retrenchment of Southwest in certain markets. Five years ago, to access markets like GEG, FCA, MSO, BZN, RDM, it was Allegiant (from OAK) or a connection. Now UA and AS fly those markets non-stop from SFO and from LAX you have AA and DL in the fray too. Sure, there will always be routes with endless demand for LCCs to pickup spillover demand, aka LAX - LAS. But it seems that legacies want to compete where they did not before. We'll see how long it lasts and if the demand does too.
Nah, Ken has a point. And this isn’t directed at Ben. The Miami elite (aka majority in many neighborhoods) don’t feel these inflation pressures. They don’t even notice that groceries at Publix have tripled in price because they’re too busy Uber eating from the restaurant directly below their condo.
1) The current high credit and inflationary market is hitting the lower wage earners more than high income folks. Thus the lower demand for ULCC flights. 2) White collar/work from home (WFH) folks can now travel for leisure midweek where fares are on legacy carriers are competitive with ULCCs, especially when considering the need for flexibility, carry on luggage, and other services.
Spirit had been losing money for over a year. Nothing to do with the demand. Also, we are currently transitioning to low season. Flights are still historically full compared to other low seasons.
Yes, and you don’t have to travel with more people like my housekeeper’s family, who thought flying was like riding the bus so they took an Uber to LAS 40 minutes prior to their flight
I think it's probably because people are tired of being nickel and dimed to death by those low cost carriers and just want to buy a ticket that includes their seat, and a bag of peanuts.
The DOT's Air Travel Consumer Report that includes data for the month of June 2023.
The ultra low cost carriers are at the bottom of the industry for most of the metrics which the DOT measures including on-time.
JetBlue is right along w/ them as they usually are.
The real surprise is how far United fell in the month of June with metrics just above B6 and the ultra low cost carriers.
People don't want to fly carriers that don't deliver the basics of air transportation.
The ultra low cost carriers attract passengers that are willing to trade very low fares for very poor quality service. It's not a surprise that level of revenue is not sustainable.
Yes! Hotels are crazy expensive now so the fast 3 day trips have become expensive! Also with such terrible on time performance of LCC it's a risk to use them and spoils the fun of a trip
There's a pretty obvious explanation beyond plain economics when it comes to (U)LCCs v. Legacy: camera phones.
People see who's flying Spirit and decide that's a step too far.
Low cost carriers are a hassle and by the time it is all added up, not that low and not worth the effort.
Maybe it is a concern on the LCC’s part that they can’t pass on increases in fuel prices and labor cost without very negatively impacting demand.
Customers of mainland carriers may be less price sensitive, hence it may be less of an issue for them.
My niece has almost completely stopped traveling because she has long COVID. Whether anyone "cares" about an illness or about falling ill with it doesn't change the fact that more people with COVID = lower demand for travel.
Flyings are always full nowadays, as airlines are very good at lowering prices to fill as close as possible to every single seat.
A flight where every seat is sold below cost loses money, yet it's full.
One thing I learned from COVID is that life's too short not to be well lived. No more ULCC for me; I'd rather take one less trip a year but have the other ones count.
At least in Europe my feeling is that LLC have gotten so expensive to a point that a legacy carrier is only marginally more expensive. Especially if you factor in how much the LLCs charge extra for a basic carry on.
Flight from BER to CDG in July was only 20€ more on Air France than on Easyjet. In a case like that it's a nobrainer for me to choose the legacy carrier...
Have only been on one ULCC flight (Spirit) and it was my last!
Have better change of arriving with a legacy carrier or LCC (JetBLue or SW). The LCC have frequency which will trump any perceived savings on ULCC. As an example, just did MSY to LGA early morning midweek on B6. Should that flight have been cancelled for any reason, there was a subsequent flight two hours later from MSY to JFK....close enough as a plan "B" flight.
As mentioned in this string, a ULCC would have told you "some time later in the week might be available". Then try getting a refund when the airline has closed or does not have a phone center (Frontier & Breeze).
I'll "pay the two dollars" for piece of mind when I have several family members in tow.
Don't forget, payments on student loans renews in the next few weeks. It like carrying a second mortgage.
Only those on business trips will buy tickets.
What's happening? People (more so with families) on the lower to mid end of the economic scale are getting squeezed, particularly with higher travel expenses just not airfare. In the interim, people like me with a high in demand job barely notice inflation and when offered either a reasonable first class fare or upgrade offer (even as an AA EXP that could get the upgrade for free) I'm taking it to get the hell out of coach. I only expect this trend to accelerate.
Information bias on your end. Lots of people care & react. It may not plummet but can certainly be market impactful
I would be eager to see how LCCs in Europe and Asia are faring as well vs. their full-service counterparts.
Inflation has been global, and while it's showing signs of abating, consumer prices are NOT going to be coming down any time soon, if ever, which makes one curious about whether or not low-cost (or should I say "low-cost?") air travel demand is softening globally as well.
The lack of awareness of a person saying, without a hint of irony, bagging on their housekeep about not knowing the rules of flying.
I find it interesting that people keep claiming the reason why ULCC's are collapsing is because of additional fee's when, last time I checked, basic economy flights on every carrier have many if not the same sort of fee's and upcharges that ULCC's do. I do think there is less gap in pricing between ULCC's and the legacy carriers that has had an impact on consumer preference, but the idea that there is some sort of fee free zone anywhere in flying with the exception of Southwest is absurd.
I think maybe the demand that LCCs have been taking are affected by their capacity. I'd assume most LCCs have newer aircraft, those affected by the Pratt & Whitney engine problems. Extended grounding meant less capacity, which translates to lesser pax carried
I’m one of those senior travelers seeking high grade seating and service. We traveled heavily during COVID-19 and have only bought premium ticket seats, mostly First Class/business.
Legacy carriers need to expand the First, Business and economy plus areas (especially the last) on all flights over three hours, they will sell them, trust me. So you points and mikes system gamers have killed off the loyalty programs - realize that.
We are wanting to enjoy our travel, I’m not flying to Europe in coach
Demand for long haul is so strong for sure . I was in London Heathrow came early for my flight in order to get on an earlier American Airlines flight To charllote I was shocked to hear every American flights leaving to CLT was full . All 777 3 services a day ..I checked with American Agent he said it gonna be the same for the next 2 weeks . So much
I think it depends on where people are going and perhaps many finally woke up to realize that the so-called low cost carriers really are not that low cost
As much as I travel on ULCCs, I am beginning to understand their position in the industry and their relationship with customers. I sense much frustrations with ULCCs by the traveling public, not necessarily the amenity costs, but other emerging factors.
Uncomfortable seats with minimal pitch, basic drink costs including water, extensive delays and cancellations, unprofessional cabin crews, inflight passenger turmoil, weather delays and secondary gates compared to legacy gates at airports seem to be at the top of the lists. On the other hand, some ULCCs have better snack service (even though costs), more flight choices, and new equipment are at the top of preferred comments for ULCCs.
Little do their customers realize that the new legacy carriers' new equipment such as A321neos and Max 8/9s have the same uncomfortable, small seats with little pitch and tiny bathrooms.
Bottom line it's a changing world, and many customers are just frustrated that air travel just is not what it used to be....