LCC/ULCCs – The Disruptors of Commercial Aviation

Today, everyone loves to talk about disruptors.  Entrepreneurs strive to develop the latest technology or service that will disrupt an industry.  So, when considering an industry as massive and complicated as commercial aviation, who has successfully disrupted the market?  Before we explore who the civil aviation disruptors are, let’s first explain what a disruptor is.   Business Leader puts it this way, “To be a disruptor is to create a product, service, or way of doing things which displaces the existing market leaders and eventually replaces them at the helm of the sector. Disruptors are generally entrepreneurs, outsiders, and idealists rather than industry insiders or market specialists.”  A well-known example of a disruptor is Airbnb, who forever changed the vacation rental market by providing a service that made the act of securing a vacation rental faster, easier and more convenient.  As a result, the pre-existing industry leaders were forced to adapt to new model in order to keep pace.  With this in mind, who or what are the disruptors of commercial aviation? 

We don’t need a time machine to see future commercial aviation disruptors such as, unmanned flight, electric flight, air taxis and supersonic air travel.  However, while these future game changers are very exciting, we have years and in some cases decades before these works in progress become works in practice.  Then there are the game changers that are in practice but are so young that they have yet to permeate the market in a truly disruptive way.  A perfect example of this is 3-D printing.  3-D printing has changed the way people think about manufacturing.  Using this technology, aircraft parts and components can be manufactured faster, lighter, using less materials, and with greater precision.  All of this leads to a product that is stronger, more environmentally friendly, faster to repair and costs less to create.  And while, most aircraft manufacturers and suppliers are ramping up their use of 3-D printing, the full disruptive effect of the technology has yet to be felt in the industry as strict regulations and the (very appropriate) need for certification slows momentum. However, according to a Research and Markets’ report, the aviation and defense 3-D printing market is expected to grow from its current $1.5 billion to $5.9 billion worldwide by the year 2026.  This means that, in the very near future, the disruption of the aviation market by 3-D printing will be full steam ahead.      

So, for this month’s issue, we thought we’d focus on the disruptors who have changed the way we know commercial aviation today: Low Cost and Ultra Low Cost Carriers (LCC/ULCC).  Let’s begin by differentiating the two categories, LCCs (i.e., Southwest, Jet Blue, etc.) are defined largely by their low operating costs, direct routes and quick turnaround times, which can be translated to lower prices for the consumer, but are not necessarily the lowest price on the market.  ULCCs (i.e., Frontier, Air Asia, etc.) are defined by bottom barrel fares with fees attached to everything from baggage to boarding to beverage (i.e. any extra costs extra).   

For those who have only ever known an LCC/ULCC inclusive travel world, you may be wondering, exactly how did they disrupt the market?  The short answer is, by making what was an extremely exclusive industry inclusive.  For the long answer, let’s go back to 1949, when the San Diego based Pacific Southwest Airlines (PSA) brought their fleet of smiling aircraft to Southern California.  PSA offered intrastate routes only within California in order to avoid incurring additional federal regulatory charges from crossing state lines, a strategy that would prove to be incredibly successful.  Over the next 40 years, PSA increased its routes and fleet, eventually becoming the first and only intrastate airline to operate wide-body jets (they had two).  Known for affordable prices, frequent routes and affable service, Californians were drawn to PSA, which eventually became known as the unofficial airline for the state.  Their success caught the attention of Herb Keller who established Southwest Airlines in 1966. Keller replicated PSA’s business model in the state of Texas and began operating regular intrastate routes in 1971.  The Airline Deregulation Act of 1978 opened state boarders, enabling the two companies to expand without incurring additional regulatory costs, but only one emerged with its brand and profits intact.  While PSA eventually merged with US Air and took its last flight in 1988, Southwest Airlines went on to transform the commercial aviation industry.

Although Southwest Airlines was not the first LCC, they have by far been the most impactful.  Southwest shook up the industry by forgoing the typical hub and spoke model (where an airline has one or more hub cities through which flights are routed) in favor of a point-to-point system that transports passengers directly to their short or long-range destination without connecting through a hub, saving the airline time and money. The Southwest play book of operating single aircraft fleets (reduction in pilot training cost) in and out of lower cost secondary airports, with regular shorter routes and minimal food and beverage service enabled them to offer airfare that was affordable to all travelers.  The airline also became beloved by loyal customers for their free baggage policy, spacious seating, no change fee policy and companion passes.  As others scrambled to emulate Southwest’s business model, the industry took note of their success.  The air traveling demographic expanded beyond the high-income bracket to almost all income brackets, particularly with the emergence of ULCCs.  Soon legacy carriers would be cutting costs on economy class fares (along with seat size, leg room and free checked bags) in an effort to remain competitive.  Today, Southwest Airlines carries the most domestic passengers of any U.S. airline and, at the close of 2018 reported its 46th year of profitability.      

We touched on LCC/ULCCs in the August blog about summer travel trends.  In that issue, we discuss how LCC/ULCCs have increased summer air-traveler numbers by making air fare financially feasible to more people.  In addition to global and economic factors, seasonal travel forecasts have remained consistently robust because travelers have options.  If your preference is to pay more so you can sit in first class and sip your beverage of choice while eating a hot meal, then you have options.  If your preference is to pay as little as humanly possible for a no frills trip to your destination, you have options.  And, if your preference is somewhere in between, thanks to LCC/ULCCs (the ultimate commercial aviation disruptors), well…you have options.  Now make sure your device is on airplane mode, and enjoy your flight!