U.S. budget airlines aggressive and growing fast

Sun Country expects to grow capacity 30% this year.
Sun Country expects to grow capacity 30% this year.

Despite some mixed financial results of late, the U.S. ultralow-cost carriers (ULCCs) are pushing forward with rapid growth so far in 2019. 

A recent analysis by Hopper, an app-only booking platform that also specializes in price predictions, suggests U.S. ULCCs will fly 16.5% more domestic capacity this May than in the same month a year ago. That stands in contrast to combined domestic growth of 6% by the major U.S. carriers United, Delta, American and Southwest. 

Further, the U.S. ULCCs all have substantial growth plans. Spirit, for example, expects to offer 15% more capacity this year than last, while Allegiant estimates capacity growth of 7% to 9%. 

Frontier, as a private company, does not issue formal market guidance like the publicly owned airlines do, and it did not respond to inquiries for this report. But according to Diio Mi airline scheduling data analyzed by aviation industry analyst Seth Kaplan, the carrier plans to offer 19% more capacity year-over-year in the busy third quarter.

Meanwhile, in South America

U.S. ultralow-cost carriers aren't the only ones in growth mode. Read More

Privately owned Sun Country, which morphed into a hybrid of a ULCC and a more conventional discount carrier in 2017, expects to grow capacity 30% this year, spokeswoman Kirsten Wenker wrote in an email.

Those figures stand in sharp contrast to what has been happening in the transatlantic ULCC sector, which has seen the collapse of Wow Air and Primera Air since the fall, as well as belt-tightening by Norwegian Air amid financial difficulties.

The growth figures also defy the bold July 2017 remarks of United president Scott Kirby, who responded to a Frontier announcement that it would fortify its Denver base with 21 new routes by calling the move "the first public validation that one of the ULCCs is throwing in the towel on the point-to-point business model and is shifting to a connecting model."

Kirby, though, isn't the only person to question how many more profitable routes the ULCCs might be able to find. 

Jason Rabinowitz, data research manager for Routehappy by ATPCO, said, "I feel like a lot of the smaller markets have been saturated already." He went on to observe that ULCCs mostly focus on carrying leisure travelers to vacation destinations, wondering, "How many flights a day can you run from small cities in North Dakota to Las Vegas?"

Overall, the U.S. ULCCs have performed well financially in recent years. However, data released by the Bureau of Transportation Statistics last week showed signs of struggles for Sun Country and especially Frontier. The much larger of the two, Frontier lost $42 million in the fourth quarter, its first loss since before current owner Indigo Partners began transforming the carrier into a ULCC in 2013. Sun Country lost $9.4 million during the fourth quarter, according to a Kaplan analysis. 

Despite the late-year losses, Sun Country showed full-year net income of $13 million in 2018, while Frontier's net income for 2018 was $82.5 million.

The two other domestic ULCCs have enjoyed more consistent results of late. 

Allegiant reported an outstanding 22% operating margin in the first quarter of this year following a robust 17% margin for the whole of 2018. Spirit's operating margins in the first quarter and during all of 2018 were just above 10%, which was in line with U.S. airline industry average. 

Hopper chief data scientist Patrick Surry said that the consolidation of the major U.S. airlines over the past 15 years has made it easier for the major carriers to informally coordinate on prices. That, in turn, aids ULCCs in their constant quest for routes on which they can offer flights at lower price points and with different levels of service than are offered by more established rivals.

Rabinowitz also noted that the ULCCs are nimbler than their legacy rivals when it comes to entering and exiting new routes. As an example, he pointed to Frontier's experience at Long Island MacArthur Airport in Ronkonkoma, N.Y., from where it has frequently added and dropped routes since entering that market in 2017.

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