Twenty years ago, when you boarded a long-haul flight, there were 20 or 30 people in the front that were going to be very comfortable and 250 people in the back who were guaranteed some level of discomfort ranging from bearable to abject misery. And airlines didn't make much money in the process. Most of the premium seats were loss-leaders for the airlines, with approximately 15% of the seat occupants actually paying full fares. Now, most airlines are seeing substantially more passengers opt to pay for business class seats, and that trend isn't limited to ultra-premium travel options, and profitability among the early adopters of this strategy has grown tremendously since the pandemic.
What changed?
Ultra low-cost carriers (ULCCs) burst on the scene and demonstrated that there was a lot of demand for bare-bones, no-frills air travel. Unfortunately for ULCCs, such as Spirit Airlines, mainline carriers like Delta and United have demonstrated that building an airline around one fare class is risky because it can be made obsolete and non-competitive by more comprehensive merchandising strategies like those being pursued now by full-service carriers.
Delta and United have taken merchandising to a whole new level in air travel and now offer travel options to suit nearly every passenger's needs with basic economy, economy, main cabin, premium economy, business class, and first class fares offered on many flights, allowing customers to precisely select the level of amenities and comfort they want.
Spirit filed for Chapter 11 Bankruptcy protection last week and, based on the results we are seeing in the market, I suspect other budget carriers will either change their business strategy or join the long list of companies that failed to adapt to industry trends and now no longer exist.
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