America’s airlines have had a good pandemic.
Early forecasts that they might not survive the drastic curtailment of air travel following lockdowns were wrong. Certainly, the impact was serious. But a year after air traffic suddenly and drastically plummeted, it’s a very different outlook.
Domestic air travel has recovered far faster than anyone dared to predict. It was up by 20 percent in March.
And behind this picture a new phase in the scrappy, rollercoaster history of air travel in America is taking off. Most significantly, more smaller cities are finding themselves back on airline route maps after decades in limbo.
One reason is that with flights to most long-haul vacation destinations abroad shut down, Americans are rediscovering attractions closer to home: national parks, ski resorts, and beaches as good as any in the world. But it’s also part of a deliberate shift in the reach of air travel across America, what could be the biggest change in our domestic airline infrastructure since the deregulation of the airlines in the late 1970s.
As intended, deregulation brought a significant drop in air fares, but it also led to the creation of that bane of so many journeys, the mega hub airports like Dallas-Fort Worth, Atlanta Hartsfield-Jackson, Washington Dulles, and Chicago O’Hare, where the most heavily trafficked routes intersect with the spokes—lesser routes feeding in from smaller cities.
The problem was that while this was more efficient for the airlines, it was often a lot less convenient for passengers. Where once there had been direct nonstop flights between cities, a lot of those flights were rerouted through hubs (instead of going directly from A to B, passengers found themselves going from A to Z and then to B), involving a change (or sometimes two changes) to a larger plane to their ultimate destination. A number of smaller cities found themselves without any flights at all.
At the same time airlines that once served smaller cities—Braniff, Eastern, Allegheny, Midwest Express, US Airways—were progressively swallowed into larger ones: 80 percent of domestic traffic is now controlled by just four airlines: American, Delta, Southwest, and United. They function as an oligopoly—not like an old-style illegal price-fixing cartel but as such powerful players that they can avoid forming a circular firing squad of ruinous competition and keep a remarkably similar level of ticket prices—and the grip of their hubs on routes.
That pattern is now being seriously challenged. The remaining 20 percent of the market is devolving into one split between full-service airlines like Alaska and JetBlue and ultra low cost carriers, ULCCs, including Spirit, Frontier, and Allegiant.
They are being joined by newer airlines and startups that are building routes linking smaller cities that have either been without direct flights or that were underserved, targeting what John Grant, of the airline data analysis firm OAG, identifies as “hub bypass leisure services”—a trend he says that is driving the future of post-COVID air travel in America.
(Grant found that while in the U.S. as many as 1.5 million people were flying per day in March, air travel in the U.K. had tanked, down by 41 per cent, as a result of increased lockdowns across Europe).
Another analyst, Craig Jenks, who heads the New York-based firm Airline/Aircraft Projects, sees something else happening: “It’s a whole new, mainly Allegiant-driven eco-system.”
Jenks points to Sun Country, recently re-launched under CEO Jude Bricker who was previously chief operating officer at Allegiant; Andrew Levy, who this week launched Burbank-based Avelo Airlines, who was a co-founder of Allegiant and its chief financial officer; and Lukas Johnson, chief commercial officer of the coming startup Breeze, who was previously a senior vice president at Allegiant.
Is there a secret sauce cooked up at Allegiant that these three have brought to their new jobs?
Jenks says: “At its simplest, keep costs very low, stimulate demand for neglected destinations, carry absolutely no connecting traffic, either within the airline or to any other airline, make a high percentage of sales directly through the airline’s website.”
Allegiant’s success was initially built on launching nonstop flights from lesser cities across the country to three key leisure markets: casinos, theme parks, and beaches.
The casinos are at Las Vegas, Nevada, Allegiant’s main base to which they operate scores of nonstops every day. Their second largest destination is Orlando, Florida, where they operate around 30 flights a day to Sanford, a former naval base that has far lower costs and is far less crowded than Orlando International and within easy reach of Disney World, Sea World, and Universal. For the beaches of the Florida Gulf coast they fly to Punta Gorda, near Fort Myers, one of the airports that lost all airline service after deregulation but, since 2008, has been re-connected to scores of cities thanks largely to Allegiant.
Sometimes one of those neglected airports can embrace the whole history of airlines in America. Take, for example, an airport that few travelers today will ever have heard of, Tri-Cities Airport at Pasco, on the border of Washington state and Oregon.
In 1926, when the first domestic airline networks emerged, the first flight between Pasco and Elko, Nevada, was made by Varney Airlines—a startup that was soon swallowed by United at a time when that airline was actually owned by Boeing. Pioneering these early routes was possible only because the airlines were partly funded by the Post Office as mail carriers. And flights like the one from Pasco to Elko, lumbering over mountain ranges like the Cascades and Rockies, were by far the most hazardous, with pilots having only crude navigation aids.
Since then the fortunes of Pasco’s airport have fluxed with those of the airline business, from boom to bust. In 2017, with the promise of another boom, the airport opened a new terminal and baggage handling system. It’s now served by Alaska, Delta, United, Allegiant—and from this month Avelo, with nonstops to Burbank.
Another cluster of destinations now getting nonstop flights is redolent of the Arcadian American West—the romantic version of the old West evoked, for example, in the paintings of Charles Marion Russell, but now appealing in winter for its ski resorts and, in summer, for spas, dude ranches, hiking trails, river fishing and, in non-COVID years, executive retreats. Sun Country’s network, for example, includes both Bozeman (population 46,000) and Kalispell (population 23,000) in Montana, and Jackson Hole (population 10,000) in Wyoming.
Breeze, launching later this year, does not emulate the Allegiant model. It seems to aim to be in a class of its own. That’s not surprising, since it’s the creation of David Neeleman, a veteran of airline startups whose big breakthrough was launching JetBlue.
It is true that Neeleman is also aiming at underserved smaller cities, but the airline’s style and quality will matter as much as its prices. When he set up JetBlue, Neeleman built the brand around the assets of one jet, the Airbus A320, and its cabin, which was wider and more airy than the rival Boeing 737 jets used by Southwest and other competitors. He put video screens in the seat backs to raise the game of in-flight entertainment.
This time Neeleman is betting on the newest Airbus jet, the A220, the world’s most advanced single-aisle jet. Breeze won’t actually begin flying with A220s. The first won’t be delivered until next year. Instead, he will use the Brazilian-made Embraer 195, with a more narrow cabin, but also a state-of-the-art small jet.
The A220 is the kind of jet that both airlines and passengers dream about. For passengers it has a significantly improved cabin climate and, in coach, roomy 3X2 seat rows. For airlines it is far more fuel efficient than current jets and is perfectly sized for the “long and thin” routes (longer distances, lighter passenger demand) that America’s new smaller intercity routes represent.
It’s a fair bet that Neeleman’s A220 cabins will include a mix of spacious business class seats and a premium coach section. There won’t be seatback videos. It’s more important now to have WiFi and let passengers use their own devices. Breeze will also avoid the sardine-can effect in coach that is making the ULCCs unpopular with a lot of passengers.
In fact, cramped seating and low standards of customer service are a frequent source of passenger complaints about these airlines.
Allegiant, for example, has a customer rating of 3 out of 10 on Skytrax, a global airline ratings service. That’s based on 1,373 passenger reviews. While it should be said that the ratings of this review system are over-weighted by people who have experienced flights from hell (satisfied passengers don’t usually bother to report) a review of scores of those complaints reveals a weakness that seems endemic to the ULCC business model.
On many of their routes these airlines don’t operate a regular daily schedule like a full-service airline. They cover their wide spread of cities with fewer airplanes by serving a lot of destinations only once or twice a week. Allegiant’s website is upfront about this: “We don’t fly to every city. And in most of those we don’t fly every day.”
As result, if a flight is canceled because of a technical or weather problem, passengers can often be left stranded.
“There are often no other planes within a thousand miles when one is needed,” William J. McGee, a veteran airline passenger advocate, told The Daily Beast. “There is no viable backup plan when things go bad.”
Passengers are left to fend for themselves in finding an alternative, and the costs of that wipe out any advantage the cheapness of the fare offers. And ULCCs don’t usually have the depth of staffing that guarantees anything resembling decent customer service.
McGee recalled that before deregulation there were mandatory arrangements between the airlines that if a flight was canceled and there were seats available to the same destination on another airline, passengers had to be offered those seats. At the moment, the big four won’t agree to do that with the ULCCs. Pete Buttigieg’s Department of Transportation is being urged by consumer advocates to apply those agreements to all airlines.
The supposed cheapness of ULCC fares can also be an illusion. Almost everything is an extra: checked bags, carry-on bags, food, and beverages. One essential tip when booking is to never go to payment without first knowing what the total is going to be.
“My advice for passengers,” said McGee, “is that not all trips are equal. If it’s an absolute must to depart and arrive on time, then flying a larger airline will buy some comfort. If it’s a looser schedule, then a low cost airline can save money, provided there’s a buffer of a day or so built into the itinerary.”
Significantly, Allegiant has a better record on routes where its flights are most frequent: at Las Vegas. It also operates one of the largest ULCC fleets: 93 jets, all Airbus.
Avelo, in contrast, is launching with just three jets—15-year-old Boeing 737s. Sun Country operates 31 737s of the same age. Breeze, while awaiting its A220s, will launch with 15 Embraers.
Innovation tends to happen in an industry when the price of entry suddenly drops. That’s happening here: there is a glut of relatively young jets available from leasing companies at prices about 15 percent less than a year ago. Sun Country is likely to snap up more 737s and Allegiant could pick up some of the 600 Airbus A320s that are presently parked. There is also a surfeit of pilots and cabin crew looking for work.
All this provides an advantage to the ULCCs because they don’t have the huge fixed costs of legacy airlines, like having to service pension funds, and compete for gates at hubs—and they can enter and exit routes more nimbly according to season and demand.
When the pandemic hit, airlines were at the top of the list for sweetheart government bailouts. That rightly caused some anger because the big four, enjoying a run of boom year profits, instead of building reserves for a rainy day, gorged themselves on stock buybacks—American Airlines alone now carries $50 billion in debt.
The airlines received $54 billion in grants to pay their employees and $25 billion in loans. But even with that help, the major carriers still needed huge infusions of cash—in the first quarter of this year analysts estimate that American was burning through $30 million a day. Southwest burned through between $10 million and $12 million a day—although that was down from an original estimate of $15 million.
American ended with a loss of nearly $1.3 billion in the first quarter, but Southwest broke back into profit after its first loss-making year, making $116 million.
And, of the big four, it is Southwest that is most alert to the challenge of the ULCCs. Unlike the others who have international routes, Southwest’s network is, apart from some Caribbean and Mexican destinations, all domestic and, because of the fall-off in business travel, it has a new focus on leisure and resort destinations. It’s certainly got the message about the appeal of nonstops. This summer, for example, it is offering a record 37 direct flights from Austin, Texas, including to Avelo’s base at Burbank and Breeze’s base at Salt Lake City. It is also flying to new small city destinations, like Myrtle Beach, South Carolina and Eugene, Oregon.
However, analyst Jenks points out that although Southwest is competing in the so-called hub bypass market, at least 30 percent of its flights are still routed through hubs, and many trips still require connections.
The craziness of the hub and spoke system is well illustrated by what happens if you want to fly from Oakland, California, to Eugene. On Delta that flight can involve two changes of airplane, at Los Angeles and Salt Lake City, and take nine hours and 15 minutes. Southwest’s nonstop, beginning in September, will take an hour and a half.
It’s obvious that once passengers are freed from the tyranny of the mega hubs they won’t want to fly that way ever again. Let’s hope this is a trend that nothing will stop.
