Airport Experience® News - ACDBE & Small Business Issue 2024

AIRLINES

markets that had more strictures in place. Then, as the crisis waned and demand boomed, many airlines ramped up capacity to meet that demand. Now, analysts say, the industry is facing an over-capacity situation, especially among the ULCCs. “Certainly those ULCCs that are focused on the lowest ticket fare are facing the most pressure, simply because there’s a lot of excess capacity, but there’s also much higher costs,” Bilous says, noting that S&P does not rate the ULCCs. “Unless you’re able to increase your prices to cover those elevated costs, there’s going to be some pressure on your earnings and your cashflow generation - that’s a big reason why a lot of the ultra low-cost carriers are struggling.” Given the capacity overload, some ULCCs are attempting to pivot. Boyd Group International’s Michael Boyd, in his Touch & Go column, said the ULCC sector is “facing major cracks in its basic product foundations.”

Boyd said the country currently has more carriers than the traditional ULCC model can support. “These entities in general are looking for places to put airplanes,” Boyd wrote. “The traditional safe havens of Florida and Las Vegas are getting filled. The original game was simple: offer a compelling value proposition to get consumers to spend discretionary dollars for a high value low-cost leisure trip. Mostly this was dependent on generating net-new traffic, rather than go after major carriers’ passengers. Lower ULCC costs and lots of free discretionary spend were the foundations. The first is going away, and the second is getting drained by economic issues. Higher labor costs are front and center in those economic issues. In fact, Boyd wrote that “ the ‘U’ in ULCC is evaporating fast.” He said that those carriers “are now starting to try to nibble at the margins of major non-leisure markets.” How such moves

will impact the air travel system remains to be seen. In the wake of overcapacity, it’s almost inevitable that some players will seek to join forces in an effort to streamline operations. JetBlue in 2022 initiated a merger with Spirit Airlines , a ULCC, but the deal didn’t pass regulatory muster. In March, JetBlue announced the termination of the merger agreement. More recently, Alaska Airlines moved to take over Hawaiian Airlines . Shareholders have approved the deal but the federal government has not yet weighed in. “It could take some time for us to find out how that unfolds,” Bilous says, noting that it’s the only merger currently on the table. Swelbar suggests mergers may be on the backburner, and the current shakeout is of a different sort. “I don’t think this is about mergers per se,” he says. “I think this is about an industry that’s simply grown too big and it likely needs to pull back before it begins to grow again.”

AWARDS

NOMINATIONS FOR THE 2025 AX AWARDS WILL OPEN LATE SUMMER 2024 INTERESTED IN BEING PART OF THE PROCESS?

In summer 2024, the AX Team will again convene two Awards Advisory Committees - one comprised of airport representatives, another made up of concessionaire executives – in preparation for the 2025 AX Awards cycle. If you’d like to participate as a committee member*, please email Carol Ward at carol@airportxnews.com to signal your interest.

*Number of available slots limited. Placement not guaranteed.

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AX NEWS JULY/AUGUST 2024