As most of the world has benefited from the low fare, ultra-low-cost carrier model, the U.S. remains a notable exception. In most mature short-haul markets around the world, ULCCs typically command 30% passenger market shares.  However, in the U.S. ULCC penetration has hovered around 5%, but that dramatically changed in 2020 growing to over 10%.

Why were ULCCs able to gain share during COVID?

Cost – As airlines minimized cash burn, they attempted to strip out “unnecessary costs”.  Legacy costs are deeply embedded in their business model however.  As an example, first class and premium economy not only add fleet configuration cost and reduce cabin density, but their reduction or elimination is a strategic long-term decision legacies seem reluctant to take.  ULCCs lower seat costs allowed them to operate more routes profitably than their higher priced competitors and thus gain share.

Recovery in visiting friends and family & Leisure markets:  The small periods of COVID demand recovery have largely been in peak leisure travel periods.  Given ULCC relative strengths in these markets and lower pricing they captured a disproportionate share.  Legacies slowly shifted capacity to these markets, but at higher costs and lower pricing, a game they cannot win.

Unpredictable demand and flexible scheduling – Legacy carriers’ revenue management and network planning tools rely on historic data and predictable trends.  This is in bold contrast to ULCCs who have a “try and test” mentality.  ULCCs test new markets with low pricing, few frequencies and either add additional capacity or quickly cancel and move on.  Their planning to execution can be measured in days versus legacy’s months.  Once again the legacies have been forced to play the ULCC game.

What’s next?

It’s anyone’s guess how or when corporate travel will get back to 2019 levels, but leisure has proven more resilient and likely to rebound.  The question for legacy carriers is: are they prepared to act more like ULCCs today and for the foreseeable future?  Are they willing to truly lean their cost structures, and can they adapt to new pricing and demand trends?  And the question for ULCCs is how aggressive they will grow their share as the legacies play catch-up?

How UNEX Can Help

For legacy carriers looking to cut costs or adapt their commercial practices to a COVID and post COVID demand environment UNEX has experience working with leading ULCCs and can help you adapt your business models and tools.  For ULCCs looking to capitalize on your comparative strengths and grow your share we can help you plan a prudent and profitable path.