Spirit Airlines Ch.11
#481
Gets Weekends Off
Joined APC: Jul 2017
Posts: 257
Exactly. So when you are able to sell the same style tickets at the same cost, and able to offset that with premium products, that’s not NK or F9 or anyone competing with the big 3. That’s the big 3 deciding to beat them at their own game. In other words, smart business.
Because any business model that decides just to eliminate certain segments of the market is ceding market share for no reason.
Because any business model that decides just to eliminate certain segments of the market is ceding market share for no reason.
#482
Line Holder
Joined APC: Nov 2022
Posts: 52
Ok. But you were claiming that NK isn’t competing with the big 3 when they clearly are. Big 3 are just able to now squash them with scale they achieved through M&A. It’s not smart business it’s just the inevitable results of an oligopoly. If they are allowed to run the ULCC’s out of business the basic economy product will disappear overnight.
https://archive.ph/YIKqf It's an older article but still remains relevant.
#483
Gets Weekends Off
Joined APC: Jul 2017
Posts: 257
It's absolutely smart buisness, with backing by their market power. The legacies introduced basic economy roughly 7-8 years ago in response to the ULCCs, since then the ULCCs fell a sleep at the wheel and are now scrambling to compete with premium products. If anything basic economy at the legacies has driven up the prices of their own premium products, while allowing them to getting billions in ancilliary revenue from the "cheap seats".
https://archive.ph/YIKqf It's an older article but still remains relevant.
https://archive.ph/YIKqf It's an older article but still remains relevant.
#484
Almost there
Joined APC: Apr 2021
Posts: 1,320
Right. But my original point is that the legacies were forced to compete with NK. They just ultimately won due to scale and a nice little assist from the DOJ. Ultimately I think we’re mostly in agreement here. The ULCC’s were too slow to recognize the threat and pivot to premium products. Part of that was the assumption that they would be allowed to merge and scale but clearly that ended up not being the case. They will need to pivot to offering more premium products AND they will need to be allowed to scale through M&A or they won’t survive.
#485
Line Holder
Joined APC: Nov 2022
Posts: 52
Right. But my original point is that the legacies were forced to compete with NK. They just ultimately won due to scale and a nice little assist from the DOJ. Ultimately I think we’re mostly in agreement here. The ULCC’s were too slow to recognize the threat and pivot to premium products. Part of that was the assumption that they would be allowed to merge and scale but clearly that ended up not being the case. They will need to pivot to offering more premium products AND they will need to be allowed to scale through M&A or they won’t survive.
I agree with that, I do think the legacies basic economy was a smart move that ended up being sucessful product that makes them a ton of money. Did the DOJs decision help them? absolutely. Is basic economy on united that much better than a ride on Spirit? Personally a seat in the back is a seat in the back to me, but the general flying public has voted with their dollar and would much rather fly on the legacies. And to your point, the scale of the legacies allows them to charge just about the same price as the ULCCs. At this point I think it might be too late for the ULCCs like Spirit. I think the Allegiant's, Avelo's and Breeze's of the aviation world who purposely stay of the legacies way are feasible way to stay afloat without being absolutely crushed by the legacies.
#486
Gets Weekends Off
Joined APC: Sep 2020
Posts: 354
Technically the ULCCs have not had a test on that ability to merge yet. I agree with all of your points. While I feel the ULCCs may survive in their current form I doubt they can thrive unless we see some mergers. That might help to increase the ULCC leverage and mitigate the pitfalls of our smaller fleets and schedules.
This panacea of "if we just merge and become larger" won't do anything except hasten the demise of those companies. They do not have excessive overhead and Spirit's debt load is far to great to take on for the revenue of any existing ULCC to be able to service it and at the same time service their own debt.
When JB was buying Spirit we kept hearing (from pilots) "Spirit's deliveries are worth Billions" when in fact, that isn't true. Those airplanes still have to be financed and there is no arbitrage method to sell your future orders. If so, they would have been sold to another airline and not be be deferred to 2029 and beyond.
ULCCs need to pivot and they don't have a lot of time left to do it. The question is will Southwest's foray into premium seating make it even harder for ULCCs to even be competitive with a premium product considering that ULCCs costs are actually not that "ultra low" compared to pre-pandemic costs.
It seems that ULCCs are waiting for the environment to change to suit their model instead of trying to change the model. I do not believe "waiting for something to happen" has ever saved a company.
#487
I do not believe that merging ULCCs is going to solve any inherent problems in the business model. If scaling was going to make things better then Spirit, Jetblue and Frontier would not be deferring aircraft deliveries for 5+ years. Instead they would be trying to grow. If the business model is fundamentally flawed for how the consumers utilize air travel then merging airlines isn't the solution. American and Southwest have far more scale than merging the ULCCs would have and they are barely profitable right now. It would just create a bigger mess than it is.
This panacea of "if we just merge and become larger" won't do anything except hasten the demise of those companies. They do not have excessive overhead and Spirit's debt load is far to great to take on for the revenue of any existing ULCC to be able to service it and at the same time service their own debt.
When JB was buying Spirit we kept hearing (from pilots) "Spirit's deliveries are worth Billions" when in fact, that isn't true. Those airplanes still have to be financed and there is no arbitrage method to sell your future orders. If so, they would have been sold to another airline and not be be deferred to 2029 and beyond.
ULCCs need to pivot and they don't have a lot of time left to do it. The question is will Southwest's foray into premium seating make it even harder for ULCCs to even be competitive with a premium product considering that ULCCs costs are actually not that "ultra low" compared to pre-pandemic costs.
It seems that ULCCs are waiting for the environment to change to suit their model instead of trying to change the model. I do not believe "waiting for something to happen" has ever saved a company.
This panacea of "if we just merge and become larger" won't do anything except hasten the demise of those companies. They do not have excessive overhead and Spirit's debt load is far to great to take on for the revenue of any existing ULCC to be able to service it and at the same time service their own debt.
When JB was buying Spirit we kept hearing (from pilots) "Spirit's deliveries are worth Billions" when in fact, that isn't true. Those airplanes still have to be financed and there is no arbitrage method to sell your future orders. If so, they would have been sold to another airline and not be be deferred to 2029 and beyond.
ULCCs need to pivot and they don't have a lot of time left to do it. The question is will Southwest's foray into premium seating make it even harder for ULCCs to even be competitive with a premium product considering that ULCCs costs are actually not that "ultra low" compared to pre-pandemic costs.
It seems that ULCCs are waiting for the environment to change to suit their model instead of trying to change the model. I do not believe "waiting for something to happen" has ever saved a company.
The counter on that would be what is a passenger willing to pay for a fare? I'm not a MBA nor try to act like it, but I think with the scale and cost synergies/effeciency's it would totally work...
#488
Gets Weekends Off
Joined APC: Dec 2022
Posts: 890
The legacy hub monopolies drive their credit card revenue and loyalty. Those hub terminals are also often built by those airlines so I have to assume the airline is getting some or all of the concession revenue in the terminals. You don’t need to sell a coke for $3 when you sell $20 sandwiches in the terminal. Notice all if the eateries in these maga hubs are trending more high end and eliminating the lower cost options. I assume the airlines have a hand in that.
The LCC have none of these revenue streams and never will without a series of mega mergers
The LCC have none of these revenue streams and never will without a series of mega mergers
#489
Gets Weekends Off
Joined APC: Sep 2020
Posts: 354
The legacy hub monopolies drive their credit card revenue and loyalty. Those hub terminals are also often built by those airlines so I have to assume the airline is getting some or all of the concession revenue in the terminals. You don’t need to sell a coke for $3 when you sell $20 sandwiches in the terminal. Notice all if the eateries in these maga hubs are trending more high end and eliminating the lower cost options. I assume the airlines have a hand in that.
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