What Is A Low Cost Carrier, Really?

Nowadays when I refer to an airline as a low cost carrier, someone usually comments something along the lines of “I don’t know why you use that term, they don’t charge less than other airlines.” For example, I just wrote about WestJet being a low cost carrier, and some commented that, claiming that WestJet doesn’t have cheaper fares than Air Canada. That makes me realize there’s a lot of confusion surrounding how low cost carriers are defined, and that’s understandable, since there’s not really a logical definition anymore. Maybe it’s time to stop using the term.

For example, Southwest is considered to be the world’s largest low cost carrier, despite the fact that they pay their employees extremely well, don’t typically have lower fares than the competition, and don’t charge fees for everything, unlike their competitors. In many ways, this is exactly the opposite of the characteristics typically associated with low cost carriers.

flying-to-havana-10

Instead we’re seeing the legacy carriers, often referred to as “full service airlines” (hah!) charging for carry-on bags, food, seat assignments, early boarding, checked bags, etc.

I think it’s also important to differentiate low cost carriers from ultra low cost carriers. Ultra low cost carriers are those that actually charge fees for everything, have super low fares, pay their employees less, etc. Think of airlines like Spirit, EasyJet, AirAsia, etc.

Spirit-Airlines

According to Wikipedia, here’s the definition of a low cost carrier:

A low-cost carrier or low-cost airline is an airline that generally has lower fares and fewer comforts. To make up for revenue lost in decreased ticket prices, the airline may charge for extras like food, priority boarding, seat allocating, and baggage etc.

The term originated within the airline industry referring to airlines with a lower operating cost structure than their competitors. While the term is often applied to any carrier with low ticket prices and limited services, regardless of their operating models, low-cost carriers should not be confused with regional airlines that operate short flights without service, or with full-service airlines offering some reduced fares.

The important thing to remember is that historically the term low cost carrier has been based on the airlines’ operating costs rather than the services they offer. In other words, a low cost carrier isn’t one that necessarily has lower fares, but rather one that has lower operating costs.

But at this point I’m just not sure how to categorize airlines anymore. I think we can quite easily define ultra low cost carriers, but the line between “low cost carriers” and “full service airlines” is being blurred. Is the Southwest business model really low cost anymore, and is the British Airways and United business model really full service anymore?

What say you guys — do we need new terms for referring to airlines?

Comments

  1. I think it’s easier to refer to “full-service” airlines as “legacy” carriers as it more accurate describes the situation. I’m not sure what the right term for low-cost carriers is.

    My guess is that we’ll see a convergence where low-cost airlines continue to improve service (example– Ryanair’s new seats) and legacy carriers continue to reduce service. In the end the only difference might be airports served.

  2. Low-cost seems to be used variably for airlines with cheap fares OR airlines with full fares but low cost structure.

    I think that low-cost is not an accurate term for something like WestJet, where their fares are no less than all competitors and their expenses are no longer much lower either.

    I think a focus on fares should dictate what we call the airlines. As Ben points out, all airlines are cutting services and charging for extras. What differentiates airlines anymore aside from fares and flight frequencies?

  3. some LCCs, like WN, don’t even have seat assignment, but merely “boarding position assignment”. problem with this is that if for whatever reason, like nature calls, that caused you to missed your boarding position (even if you’ve paid extra cash for), then BAM – non-reclinable middle seat next to the lav.

  4. To be more clear and descriptive, we should probably call low cost carriers “better airlines” or “forward thinking airlines” and call full service carriers “worse airlines” or “stuck-in-the-past airlines” or “you’ve-abused-me-long-enough airlines.” That would help differentiate them with clearer terminology.

  5. Cool Millenials – jetBlue, Virgin America
    Millennials – Spirit
    Twenties and not sure what to make of life – Alaska, Hawaiian, Frontier, Allegiant
    Thirties and clearly regretting career choices – Southwest
    Forties but not yet senile – Delta
    Old and tired of y’all – United, American

  6. Another important distinction between “legacy” and “low cost/ultra low cost” carriers is the route structure and thus markets they serve. Nearly every medium-sized city and larger has service from a legacy carrier. This isn’t true of LCC/ULCCs. Southwest had more domestic enplanements than United last year, but United serves more US destinations. This mainly a result of having a point-to-point network (all LCC/ULCCs) vs hub-and-spoke (Legacy Carriers). Southwest doesn’t even sell all destination pairs.

  7. One distinction in my mind is route network and available equipment. The big three legacy carriers all have trans-oceanic flights available on widebody jets. Southwest has added some international destinations now, but they’re still on their 737s.

  8. I wish people would (including Southwest themselves) would stop calling them Low cost. Nothing about their business model is low aside from their comfort. Their prices are very rarely lower than Legacy carriers, their airplanes are considerably less comfortable than Legacy carriers, and dare I say it, I even find Spirit and Frontier more comfortable than Southwest. Not to mention that awful cattle call/boarding position-based boarding procedure. I wish people would stop supporting the Wal-Mart of airlines.

  9. Low cost carriers usually do not have extra services like airport lounges and they usually do not have alliance with other carriers. So, you will not see any low cost carrier part of Star Alliance, SkyTeam and One World. I like to travel via these “legacy” carriers since I can get more help in case there is any travel interruption.

  10. @Concerned Citizen

    I couldn’t disagree with you more. Southwest has the best customer experience- friendliest staff, no change/cancellation fees even with the cheapest fare, and two free checked bags for every passenger, mitigating the overhead bin chaos everywhere else. They will soon be the launch customer of the 737MAX, with cabin comfort improvements that thus far have only been seen on widebodies (787/A350).

    Southwest is considered an LCC because 1. Historically they offered lower fares, first to compete and later sustained by fuel hedging 2. Their operating costs were and remain lower, because of economies of scale with keeping an all-737 fleet.

  11. Why would anyone, other than perhaps a hedge fund manager, care what their cost structure might be? SW is a LCC if you book far in advance during a sale, but charges the same as a legacy carrier if you book last minute for a holiday period. Sadly even award tickets are now 3X the miles for holidays like Thanksgiving. You might as well fly AA Anytime. ;(

    I don’t think LCC exists anymore (other than SW during an off season fare sale). ULCC certainly does, think Norwegian, Spirit, Ryan, where it’s all no frills and upcharges for everything. Do you want to rent a seatbelt? 😉

    The downside of the ULCC carriers is often the airports served. We needed to book BRU-STO for this Summer, and saw that Ryan had very low cost flights. But then I discovered that the airports they used were an extra 2 hours on public transit on each side of the flight. So an extra 4 hours on buses and trams for the trip. It took just as long on B/A, but that meant sitting in a very nice Priority Pass lounge at LHR, instead of transferring buses. We used AVIOS to fly on B/A instead.

  12. @henry LAX

    I wish someone was paying me to comment! Any takers, ask lucky for my email, LOL.

  13. Were you short of articles today? This just seems like a pointless pile of uninteresting fluff.

  14. I agree with @AA.

    No FC, no lounges, no alliances. One can argue route network (I don’t disagree) but that’s rather subjective.

  15. I wished I lived in a market where Southwest actually resulted in lower fares. In NYC and ATL, their fares seem to exceed everyone else

  16. Whatever ya wanna call it, whopping great changes have happened already. I live in a city of just under one million. 85% of all flights in and out are on Southwest. Delta, United, American each fly two non-stop flights a day to their hubs (e.g. SLC, MSP & ATL for DL). Those flights typically leave circa 6AM and 9PM. There are some occasional appearing/vanishing contracts with small subsidiaries flying Embraer jets to other cities.
    Even the big 3 legacy airlines do not provide decent schedules or fares for overseas flights. I consistently check times and prices from major airports and buy a separate — usually Southwest — ticket.
    That’s all folks. Swanky lounges and welcome aboard cocktails are irrelevant issues most of the time.
    Oh, and JetBlue has one flight a day leaving JFK at 5pm, arriving midnight, leaving here 12:30am arriving JFK 5am. They even have a cooperative arrangement (codeshare?) with Egyptair which allows someone buying a business class ticket on MS to change at JFK and fly from there in JetBlue’s better-than-awful coach class.
    In short, added to all their other sins, legacy carriers have abandoned much of America. Love ’em or hate ’em, Southwest is out there providing service to a huge percentage of Americans. My experience is that they do it decently, if not any more comfortably or cheaply than anyone else.

  17. Wikipedia probably isn’t the ideal go to place for understanding things…….

  18. I see “Low Cost Carriers” much like I see “Limited Service Hotels”. For example, Marriott’s Residence Inn vs. a traditional full-service Marriott property.

    Usually, for the same or lesser price as the full-service Marriott, Residence Inn gives me: a full suite, free breakfast, free beer at night, and free WiFi, no extra fees.

    On the flip side, the Residence Inn will lack a bellhop, an on-site restaurant, a club lounge/level, linens aren’t as nice, and the Marriott Rewards points are minimal compared to staying at the full service location.

    Much like JetBlue, which offers free WiFi, unlimited non-alcoholic drinks & snacks, and has pleasant staff. BUT it lacks lounges and it’s rewards program isn’t terribly rewarding.

  19. Please keep in mind that many (non-sale) Southwest fares (and there are MANY sales) between specific city-pairs equal the legacy carriers’ fares because the latter were forced to match the lower fares of the former when it moved into the market. No doubt, fares tend to creep up for all carriers in such markets once Southwest gains a foothold (the Walmart business model) but, on the whole, consumers are generally the financial winners even then.

    In sum, show me one example of a city that begged Southwest not to expand to their market.

    Full disclosure, my mother-in-law and uncle-in-law work for Southwest, but I believe my analysis is fair. I fly (and pay for my tickets on) Southwest and legacy carrriers, and rarely is the extra legacy expense worth the so-called legacy benefits.

  20. You probably already know but here in Europe you cant beat Ryanair for low cost! I often travel from Spain to Poland and back for 40€. Ok you have to put up with being treated like cattle but if you know what to expect and can put up with it for a couple of hours then its super cheap. Going from Barcelona to Poland and back costs less than a train from Barcelona to Madrid and back, its crazy.

    Great article keep it up!

  21. Low-cost airlines aren’t necessarily low-fare airlines. I think there are a few characteristics to (ultra) low-cost airlines:
    * they operate mainly out of secondary airports or use secondary piers/terminals at primary airports
    * this enables them to lower their operating costs and apply for huge discounts on airport fees and taxes, claiming that opening a route creates jobs and boosts the local economy
    * many of them are point-to-point only (like EasyJet, Ryanair) instead of network carriers

    So my belief is that low cost refers to (efficient) operating costs of the airline, but not to the price the passenger pays for his ticket.

  22. @Lucky —> I feel your pain . . . nothing is what it used to be (or, “It was all so different before everything changed.”) The following is merely my own rambling thoughts . . .

    CATEGORY ONE (formerly known as “full service airlines”): This category would be composed of all the world’s flag carriers, plus — in the US — the so-called legacy carriers of American, Delta, United. Though it makes more sense logically to call this category “Flag Carriers,” it’s more widely understood (by Americans, at least) to refer to this category as “Legacy Carriers.”

    But what actually defines an American legacy carrier? Is it age? being around for a certain length of time? If so, how long? We all refer to AA, DL, and UA as being “legacy carriers,” but Alaska and Hawai’ian trace their origins back to 1932 and 1929, respectively — are they *also* “legacy carriers”?

    No one thinks of Southwest as a “legacy” carrier, but they celebrated the 50th anniversary of their founding this year (flight operations began in 1971, however). They aren’t “full-service” — no First Class, no food, no assigned seats — but unlike most others, they *still* don’t charge for bags or changes to one’s itinerary, etc., etc. And yet . . .

    Perhaps Category One is entitled neither “Legacy Carriers” nor “Flag Carriers,” but simply known as the “Majors” — that would include airlines such as Southwest, Virgin Atlantic

    CATEGORY THREE: Ultra-Low Cost Carriers (e.g.: AirAsia, EasyJet, Frontier, Norwegian, RyanAir, Spirit, WOW). Certainly there’s no argument here about what constitutes a ULCC. In short, “If they can charge you for it, they will.” Let’s not forget Spirit floated the idea of pay toilets at 30,000 feet!

    Clearly it’s that large nebulous “middle ground” that’s the problem. You can’t refer to all of them as “regional carriers,” because many have international routes. Perhaps Category One is entitled neither “Legacy Carriers” nor “Flag Carriers,” but simply known as the “Majors” — expanding the definition to include airlines such as Southwest, Virgin Atlantic, and EVA Air (which, to my surprise, is *not* Taiwan’s flag carrier). And then CATEGORY TWO *could* be regionals . . . and would include carriers like American Eagle, Delta Connection, United Express (all of which are, in part, operated by SkyWest, Republic, and a number of other regional carriers).

    That said, while I agree that wikipedia is not the ideal, nor the most accurate, source of information, it did have this to say about SkyWest: “Financially speaking and according to the Airlines for America definitions, SkyWest is a North American major airline. SkyWest however, operates on a regional airline level and is a member of the Regional Airline Association. SkyWest Airlines flies to 213 cities, in 44 states; six Canadian provinces and five cities in Mexico and the Bahamas.”

    Food for thought? Or just indigestion?

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