Low-cost US airlines, whose cheap fares once sparked a price war that tipped a few larger rivals into bankruptcy, are still increasing their share of the market, but at a slower pace because of a lack of expansion opportunities.
The current tepid growth rates of low-cost carriers such as Southwest Airlines, AirTran Airways and JetBlue Airways stands in stark contrast to their performance several years ago.
Back then, those carriers did not hesitate to exploit any chance to start up service in the backyard of a major carrier that it would then undersell. But the industry -- low-cost carriers included -- has been shrinking since early 2008, and airline leaders say it remains bloated.
Furthermore, after years of cost-cutting and restructuring, so-called legacy airlines such as Delta Air Lines and American Airlines have blurred the line separating them from their low-cost counterparts.
"There are not really opportunities for low-cost carriers," said airline consultant Mike Boyd. "There aren't a lot of easy markets anymore."
Even the proposed merger of United Airlines with Continental Airlines will open few, if any, gaps for low-cost airlines to exploit, experts said.
United and Continental announced plans in May to combine to form the world's largest airline. While mergers typically result in overlap and subsequent capacity cuts, this is not the case with United/Continental.
A DIP IN MARKET SHARE
The US Transportation Department identifies low-cost airlines as "those that the industry recognizes as operating under a low-cost business model, with lower infrastructure and aircraft operating costs."
Carriers meeting that description saw their US market share based on domestic revenue passenger miles grow to 26.1 percent in 2007 from 15.7 percent in 2000, according to the department. But their share dipped to 25.7 percent in 2009.
When those carriers start service on a route served by a legacy carrier, fares often fall. That's good news for travelers, but not for the major airline and its profit margin.
Domestic air fares have been gaining this year -- up 15 percent to 20 percent in many cases from decade lows of a year ago, according to Farecompare.
WEAKENED BUT NOT DEFANGED
Experts are split on whether low-cost carriers can still deliver the same pummeling of the majors that helped push United, US Airways, Delta and its merger partner Northwest into bankruptcy in the last 10 years.
Early in the last decade, fare wars, combined with the 2001 terrorist attacks on the United States and the SARS contagious respiratory disease crippled major US airlines. Later, skyrocketing fuel prices and a recession that drained travel demand only added to their woes.
Major airlines coped by restructuring in and out of bankruptcy. They also cut capacity and began charging passengers for checking bags and other services that once were included in ticket prices.
These new sources of revenue eased the reliance of airlines on fares. But it is too soon to say that low-fare champions like Southwest Airlines are defanged.
"I don't think that they've necessarily lost the edge," said Ed Faberman, an aviation lawyer. "I think they're still providing some very good options and lowering fares in many markets."
Southwest has said it expects its 2010 capacity to be nearly flat from 2009.
AirTran, which says it sees 3 percent to 4 percent growth this year, at one time flew 20 planes a year.
"For a carrier our size, that was very, very big," chief executive Bob Fornaro said at an investor conference last month. "A lot of that came to a halt in 2008."
Now the company plans to be "a little bit more cautious on capacity and more disciplined," Fornaro said.
But even in the new era of capacity restraint, Southwest has managed to gain traction in major airlines' strongholds such as New York, Boston and Minneapolis, Farecompare. chief executive Rick Seaney said.
"I still think they have two or three years of being able to absorb some domestic growth," Seaney said. "Legacy airlines are certainly looking across the oceans and into international for revenue."