Are Budget Airlines Facing Extinction?

Frontier has had a pretty rough operation over the years, often ranking low for on-time performance, cancellations, and bumping. Frontier has said that it has made strides in improving its operation and reducing the number of canceled flights.

Frontier offered to buy Spirit in 2022 to combine complementary route networks and aggressively challenge Delta, United, American, and Southwest. JetBlue outbid Frontier for Spirit, but a federal judge killed the JetBlue-Spirit merger citing antitrust concerns. Spirit filed for multiple bankruptcies and shut down for good earlier this year after the merger failed.

Inflation and higher jet fuel costs have made it harder for Frontier to operate at the low prices customers expect. The appetite for budget travel has waned as more consumers want a better traveling experience, even if it means paying more.

Major airlines developed basic economy fares to offer comparably cheap, barebones service while retaining the reliability and routes of a big airline. Delta pioneered a premiumization strategy 15 years ago, betting that customers want a reliable, nice experience and are willing to pay for it. Major airlines use co-branded credit cards and loyalty programs to keep customers loyal regardless of price, making it harder for Frontier to compete.

Frontier now offers bundle options including tickets, bags, and seat selection, and will soon offer first class and Wi-Fi.

Customers are seeking more premium products, and Frontier is adapting to that environment while still offering low fares. Frontier is adding premium products to improve its overall revenue base and believes it has the right balance coming over the next year.

Southwest is pivoting its business model to embrace premium demand after missing out on revenue due to its simple, uniform seating. The industry is reshaping to serve affluent customers who continue spending on travel even when the economy wobbles.

There probably is room for at least one big budget airline, and with Spirit gone, it seems like that will be Frontier.