The Outlook for Low-Cost Airlines: Opportunities and Challenges

Low-cost airlines have been expanding commercial flight access as the world returns to travel, but these carriers are still contending with the challenges of the post-pandemic world.

In a panel on Day 2 of the U.S. Chamber of Commerce’s Global Aerospace Summit, Barry Biffle of Frontier Airlines and Maurice J. Gallagher, Jr. of Allegiant Air spoke about the current outlook for low-cost airlines. The panelists discussed the opportunities and challenges available to carriers in this market in the post-COVID world, including issues like pilot shortages, competition, and government regulations.

Lack of Personnel Is Greatly Impacting Airlines’ Efficiency

Before the pandemic, airlines were running efficiently without much of an issue. However, since 2020, “It's like we forgot how to run an airline,” Gallagher said. “[In] 2019, the industry was 99.7% completion factor [and] on time was 85% on average … Everybody knew what to do.”

Gallagher explained that the No. 1 issue airlines face is a lack of personnel in air traffic control.

“You have an incredible increase in demand on the leisure side … [but then] you pull up to the gate, and you have to wait 30 to 40 minutes for somebody to bring the airplane to the gate,” he said.

Additionally, there have been many issues with baggage being left behind due to not having sufficient people on staff.

“This industry is so asymmetric, if you have problems with small amounts of flights, you can't talk to real-time people,” Gallagher explained. “In our case, [if] we fly 500 flights a day and we were to cancel 10%, that's 7,500 people we've gotta get on the phone, rebook, and do all that stuff. The industry's not set up for that.”

“It's fixing itself … but everybody cut dramatic numbers of flights through the summer and into the fall,” he added.

Low-Cost Airlines Have a Cost Advantage and Will Likely Increase Shares in the Years Ahead

Biffle noted that the pandemic accelerated the many issues the airlines and travel industry have been facing. However, “If you look at the cost structures, including debt, our cost advantage is actually widening versus the big guys,” he said.

“ I think you'll see an accelerant over the next few years as, as we move through the post-pandemic,” Biffle continued. “It was something that was already going to happen. We're probably 10 to 15 years behind Europe, but [we] may get there in five to seven.”

According to Biffle, the low-cost group will increase its share in the years ahead. He mentioned two important factors that support this prediction: “One, their debt loads have gone up dramatically,” he said. “That's a significant cost advantage.”

Additionally, he noted that low-cost groups have an advantage regarding fuel costs.

“We’re over 100 miles per gallon per seat versus an industry that’s around 60 miles per gallon,” he said.

However, Gallagher took a different stance.

“I personally don’t see oil coming down on average below $100 per barrel any time soon,” he said. “There are too many headwinds with oil, [such as] the discovery with oil, the supply and demand, the Russian problems, [and] the ESG problems. Oil's going to be a high cost.”