How gloomy is the future for cheap airlines?
For decades, budget carriers successfully offered travelers, cheap flights. But that filthy business model is now eroding as the costs rise and passengers opt for more comfortable seats and spacious upgrades.
It seems that it seems that it cannot even merge his downward play.
Earlier this week, Spirit Airlines (SAVEQ) re -rejected an acquisition proposal from Frontier (ULCC), with a value of $ 2.16 billion. The offer was comparable to one border that was presented earlier this month. Spirit prevented, but the offer was rejected.
The first takeover bid from Frontier in 2022, for $ 2.9 billion in cash and shares, was thwarted by an range of $ 3.8 billion from rival Jetblue (JBLU). Spirit submitted a bankruptcy in November after a federal court chose the side of the Ministry of Justice to block his bond with Jetblue.
The cheap carrier model works by offering cheaper seats than traditional airlines to domestic and near-US destinations, while items such as checked in bags, sitting choice and snacks or drinks. The airlines will often use secondary airports with lower landing costs, such as Long Beach Airport in Los Angeles instead of Lax.
But between increased competition from traditional carriers in domestic routes and rising labor and maintenance costs, the cheap model is slowly unraveled.
Southwest (LUV), for example, announced, in the midst of activist investor pressure, that it would end its decades -long practice of open seats as part of a new strategy to grow income. In the meantime, in January, Frontier also announced that the end of 2025 would offer chairup grades and first -class seats.
“That ultra-cost model has disappeared because they do not have ultra-lower costs,” aviation adviser Mike Boyd, president of Boyd Group International, told Yahoo Finance.
“The model,” he added, “has evaporated.”
The prospects for industry are not encouraging for investors. Jetblue Stock recently tumbled after the Outlook of the airline of the airline disappointed Wall Street. Jetblue mentioned higher costs and lower than expected income in the results of the fourth quarter.
And at the end of last month, Southwest CEO Bob Jordan said that the airline “experienced the inflation of the above standard unit costs, in particular in market-driven wage rates, airport costs and health care.” Jordan referred to a $ 500 million cost reduction objective for 2027 on the investor day of the company last quarter and said: “We will be ruthless in the pursuit of cost decrease.”
The cost problems are reflected in the equity prices: the Ultra-Lage-Kostable carriers have for the most part the wider aviation market.
