Recently I discussed the European Market, and how low-cost carriers are butchering market-share for the established flag carriers, and what this might mean in for the future of the aviation industry in Europe. Today we’re going to be taking a look at the situation across the ocean and taking a look at what it’s like for low-cost airlines in the US, and how the three major “flag” carriers deal with it.
There are 6 registered low-cost carriers in the US and together they control 30% of the domestic market share. The biggest of these, Southwest Airlines, is the biggest low-cost carrier in the world and controls around 17.7% of the domestic market-share. However, even with a huge presence of low-costs, all three major airlines reported a profit in Q1 of 2019, with Delta reporting a pre-tax income of 832 million USD, American Airlines reporting a pre-tax income of 375 million USD and United Airlines reporting a pre-tax income of 292 million USD.
What does this mean? Well, fact is, low-costs in the US don’t do international travel outside of Canada and some Central American countries, which means a big part of the international market share is controlled by the flag carriers, giving them a set position in the market. On the other hand, the US has the biggest domestic market in the world, and with all different types of passengers, the big carriers have learnt how to function alongside the low-costs, but this wasn’t always like this.
The US also passed through the age of the rise of low-cost carriers and Delta, American and United attempted to dip into this market with, respectively, Song, Metro Jet and Ted. Each of these airlines are now defunct or absorbed. They failed to compete, because none of them met the one requirement for a stable low-cost carrier - operating at a huge scale. After the failure of these subsidiaries, their parent airlines went back to preforming full-service flights and adapted their fares and service to be able to co-exist with airlines like Southwest.
After that adaptation period, the US market had mostly stabilized and turned into what it is today. This doesn’t mean that competition doesn’t happen, and airlines don’t struggle from time to time, but when compared to the European Market, the US is years ahead, and we can use it to predict what might occur in Europe.
So, the fact is, that it is possible for both low-cost carriers and full-service carriers to co-exist, and with an ever growing market, there will always be space for airlines to grow and remain profitable, but this can only happen if a balance is discovered between offering low-cost flights and full-service flights.