Airport Experience® News - Pre-Conference Issue 2025

AIRLINES

razorblades, printers or smartphones – where the sale of a gateway product is followed by the bulk of the profitability coming from ancillary revenues,” Shanker says. Jarrett Bilous, airlines managing director at S&P Global Ratings , says three key factors are driving legacy carrier success: premium services, loyalty programs, and international routes. “They [legacy carriers] were early movers in those businesses… they’ve invested in those businesses, or segments of their business, for several years now,” says Bilous. “It’s starting to present itself in higher margins; Meaningfully higher margins, relative to the smaller, more regional players.” Cost Pressures While some airlines have been able to ratchet up profitability through ancillary revenues, the industry overall is struggling to hold strong against rising labor and other operational costs. Ultra-low-cost carriers are seeing the biggest brunt of it, analysts say. Three major ULCCs – Allegiant Airlines, Frontier Airlines and Spirit Airlines – have yet to complete pilot contracts matching raises gained at larger airlines, according to Swelbar. Sun Country Airlines will be the first to negotiate a new contract in the post pandemic wage environment, potentially setting new benchmarks for the sector, Swelbar says. “This sector of airlines will continue to struggle in 2025 and further reductions in service should be expected,” Swelbar says. Although labor is often the biggest operating expense, the pressure extends beyond pilot contracts. Maintenance costs have increased due to limited capacity for skilled mechanic labor, Bilous notes. “There’s been cost inflation overall for all carriers,” Bilous says. “Maintenance costs have increased simply because of limited supply, or capacity of skilled labor, causing some of the engine issues that have faced certain providers to require much longer time before bringing aircraft back in service.” Despite the challenges, low cost and ultra-low cost airlines – including some newer players – continue to seek fertile ground for expansion. The growth of new carriers at smaller airports can bring both

opportunities and operational challenges, according to Henry Harteveldt, president and travel industry analyst and advisor for Atmosphere Research Group , who points to Tweed-New Haven Airport (HVN) where Avelo Airlines has made a primary base and Breeze Airways recently entered the market. With the increased load, Harteveldt says the airport has been working overtime to keep up with check-ins, security, and loading/unloading. Airport amenities play an increasingly important role in airline planning decisions, he adds. “As their planners, or customer service people are exploring the airport, they’re looking at things like what restaurants or quick service restaurants are available, bars, retail, lounges,” Harteveldt said. “This is a reason why airports have been investing.” Spirit’s Challenges Spirit Airlines filed for bankruptcy protection on November 18, 2024, citing ongoing losses, heavy debt levels and failed merger attempts. The once darling of the ULCC world couldn’t sustain its leadership role in the highly competitive segment. “A ‘Monday morning quarterback’ could now point to the fact that Spirit grew too big too fast,” Swelbar said. “It chose to compete with the big airlines in the big markets, believing that its low costs would win the day.” Harteveldt points to the challenges of the business model and notes that the bankruptcy comes as Spirit plans to retire part of its fleet in the coming year. “While I understand why, one thing that concerns me is many of these budget airlines are so dependent on massive scale,” Harteveldt says. “They have a lot of 200 or 200 plus passenger A321s, either in their fleets or on order... That means, in some cases, these airlines have to chase the market, meaning they may have to discount more than they would like.” Spirit has recently tried to pivot with a change in its airfare structuring, Harteveldt says. “They introduced several inclusive fares, fares that included either a checked bag, or the seat assignment, or extra legroom, in an attempt to not only attract customers away from other carriers, but give their own customers options to trade up while still providing value,” he says.

Above: Henry Harteveldt, president of Atmosphere Research Group, says its concerning the extent to which ULCCs are dependent on massive scale for their survival.

“While I understand why, one thing that concerns me is many of these budget airlines are so dependent on massive scale, They have a lot of 200 or 200 plus passenger A321s, either in their fleets or on order.” — Henry Harteveldt, president and travel industry analyst and advisor for Atmosphere Research Group

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AX NEWS FEBRUARY 2025