Budget Airlines Are Dying. Legacy Carriers Aren't Far Behind

Struggling to maintain relevancy with post-pandemic travelers, America’s biggest budget airlines are faltering. Spirit Airlines is flirting with bankruptcy after two failed mergers, and both JetBlue and Southwest are stuck in an identity crisis as they alter their fundamental strategies to squeeze more profit per passenger.

This is a far cry from just a decade ago, when these same airlines were hailed as the most innovative companies in their industry.

U.S. air carriers are separated into three classes: full-service or “legacy” carriers (American, Delta, and United); low-cost carriers (JetBlue and Southwest); and ultra-low-cost carriers (Frontier and Spirit). Together, low- and ultra-low-cost carriers are commonly referred to as “budget” airlines.

Budget airlines became popular with travelers by offering far lower seat prices than their legacy counterparts. Much of the savings came from “unbundled” fares. Unbundled fares offer travelers the bare minimum in their ticket — essentially, a seat and a seatbelt. Extra services can be purchased separately, such as carry-on luggage, ticket printing at the check-in counter, or even water while onboard. The introduction of this was a departure from the service model that legacy airlines offered, which typically included perks in the price of the ticket.

At times, these barebones tickets infuriated travelers who didn’t expect additional fees at the airport and onboard the flight.

In several videos that went viral on TikTok, Frontier Airlines passengers were told that they would need to pay $99 for their oversize carry-on, even though in some instances the bags fit into the airline’s bag checker. Frontier later admitted that they offer a commission to employees on oversize carry-on fees.

Despite this, budget airlines enjoyed a long period of high profitability, with Spirit once ranking as the most profitable airline in the U.S. Coming out of the COVID-19 pandemic, however, the industry has flipped. Now offering “basic economy” fares, legacy carriers directly compete on price and service level with their budget rivals. By taking money off the table, legacy carriers are winning over price-conscious travelers with their extensive networks and more convenient schedules.

To United Airlines CEO Scott Kirby, the downward spiral of budget carriers is a wholesale rejection of the no-frills, nickel-and-dime model from travelers.

In an interview with The Air Show podcast, Kirby said of budget airlines, “It’s a fundamentally flawed business model. The customers hate it.”

Although Kirby expresses optimism that United’s better service will win over travelers, customer sentiment is souring on the airline industry as a whole.

Customer satisfaction scores in J.D. Power’s 2024 North America Airline Satisfaction Study were abysmal. For economy class, the three legacy carriers scored an average customer satisfaction rating of 615 on an 1,000 point scale. That’s only 23 points better than budget carriers with their average score of 592. Customers in premium economy were barely more satisfied, giving legacy carriers an average score of 680.

Separately, the Department of Transportation’s Office of Aviation Consumer Protection (OACP) received an estimated 61,233 complaints against U.S. airlines in 2023, breaking the previous record of 47,591 in 2022. Complaints tracked by the OACP include flight delays and cancellations, mishandled baggage, oversales/bumping, and discrimination.

Also among the top complaints across all airlines is seat size. When the Federal Aviation Administration (FAA) recently asked for public feedback on aircraft seats, it received a deluge of 26,000 comments. In a Forbes summary of the comments, they reported, “3,708 comments mention the word “uncomfortable,” topping “cramped” (1,842), “tight” (1,203), “crammed” (1,100), “squeezed” (1,100) and “squished” (260). Folks described flying as “miserable” (381), “terrible” (217) “horrible” (206) and “awful” (104). The word “torture” appears in 193 comments.”

The airline industry believes that customer satisfaction can be ignored as long as seats continue to be filled and profits are at an acceptable level. In a way, they’re right — airlines have a stranglehold on domestic travel, with some carriers even monopolizing local markets. Travelers have few alternatives to flying.

Despite worsening products and plummeting service quality, travelers today are actually willing to pay more for premium offerings. Data-driven predictions from Booking.com found that 59% of American travelers are likely to pay for flight or train upgrades. This tracks with the spending habits of Millennials and Gen Z — even as they tighten their spending on material goods, spending on travel remains a top priority for the two generations. 89% of Millennials and 87% of Gen Z say travel is a financial priority. These “affordable luxuries” in travel are one of the places young adults are willing to splurge.

Millennials and Gen Z also want unique experiences while traveling. Yet airlines are at odds with this new realignment in expectations. Airlines have commoditized their offerings, shedding the differentiators that made travelers choose them in the first place. Ian Bogost, a contributing writer for The Atlantic, wrote in July of this year, “Now almost every carrier flies white planes with gray or blue seats. On board, the seat pitch is similarly narrow on every airline; the entertainment offerings, now streamed to your phone, are mostly the same; and the meal service is identical (which is to say, there isn’t any).”

Aside from failing to differentiate their products on factors that are in their control, travelers have also developed unique needs in the post-pandemic world that airlines are poorly positioned to meet. Remote and hybrid workers, which are on the rise, often extend their vacations and bring their work with them while they travel. These “laptop luggers” are poorly served by airlines. Not only does using a laptop on the tray table risk it being crushed, cramped seats make it difficult to type and airline policies make it impossible to videoconference or call while in the air (nor should they, as it can’t be done without disrupting other passengers).

The airline industry is poised to face a reckoning. The pitiful domestic travel experience has opened airlines up to competition from travel operators that can offer a better experience at a comparable cost. Airlines will continue to dominate on international routes out of necessity for travelers, but they won’t be able to keep their iron grip on the domestic market if alternative operators can launch innovative services that better serve the needs of today’s travelers.