he lexicon in the world of passenger air transportation is catching up with reality. As Raymond James & Associates analysts James Parker and Samantha Panella point out in their recent Growth Airline Outlook, what used to be referred to as low-fare, no-frills airlines have lots of frills.

For instance, JetBlue, AirTran, Frontier and Atlantic Coast all are in various stages of incorporating on-the-air programming (LiveTV and/or XM Satellite Radio) in the air.

While I would have lobbied for this group of carriers to be renamed collectively as "the cheap frills," the financial community has instead opted for the more dignified acronym of LCC, or low-cost carrier.

Southwest remains truly no-frills, but the analysts think that competitive pressures will change that before too long. Does that mean that low-fare, no-frills airlines will soon be a thing of the past? Not at all, say Parker and Panella. Since 9/11, fares have fallen so dramatically that legacy carriers can today accurately be described as low-fare, no-frills carriers.

Analysts are as bullish on LCCs as they are pessimistic about legacy carriers. The James analysts scoffed at United's launch of Ted: Why do this when United's entire domestic system is already low fare? Their most interesting scenario for the legacies is, in their own words, "far-fetched" but intriguing: They speculate that legacy players may evolve into primarily international airlines, dependent upon feed from the LCCs.

At a meeting of the Association of Travel Marketing Executives last week, Ray Neidl, an airline analyst for Blaylock & Partners, gave credit to American for gaining labor concessions and worried aloud that soaring costs for jet fuel are occurring at a terrible time.

But he also suggested that the legacies are acting against their own interests. Why, he wondered, are they in such a hurry to increase capacity by returning planes to service every time they see loads inch up? In an era of abundant supply, why add supply in direct proportion to incremental growth in demand? That only keeps costs high and yields low.

To add to the atmosphere of pessimism about the legacies, another aviation analyst, Bob Mann of R.W. Mann and Co., noted that there have been three down cycles in the airline industry since deregulation, and that each one has been worse than the last for the legacy carriers.

Neidl offered a ray of hope for the legacies in the example of America West, which appears to have transformed itself from an unsuccessful, legacy-type carrier into a promising LCC. But he points out that, in some ways, America West was actually a low-fare carrier that had adopted some of the bad habits of legacy carriers. By simplifying fare offerings and being experimental in its marketing, the airline is turning itself around.

America West's scale may have been an important factor in helping it do what larger carriers cannot. In 2002, Maurice Flanagan, group managing director of Emirates -- which predicts it will be among the five most profitable international airlines in the world in 2004 -- told Travel Weekly that "small, efficient airlines are more efficient than big, efficient airlines. After a certain point, unit costs go up."

This suggests an interesting paradox: Airlines that don't grow aggressively tend to go out of business, while at the same time there may be a point at which growth weakens, rather than strengthens, an airline.

If it's true, it may help explain why, since the day the Wright Brothers took flight 100 years ago, the aggregate profit of commercial aviation is ... zero.

The analysts are all in agreement that, for the foreseeable future, the skies belong to the LCCs. What is unknown is whether, as they grow, they will be able to maintain their low-cost advantage and their service and amenities cache. Once they cross Flanagan's threshold and see increases in unit costs, cost-cutting becomes the name of the game and before you can say, "Where's my hot meal?" -- the frill is gone.

And a new generation will inherit the skies.


From Our Partners

2021 Family Expo
Family Travel Expo
Register Now
Air Astana 1366
Air Astana
Read More
2021 Caesars Webinar
Watch Now

JDS Travel News JDS Viewpoints JDS Africa/MI