Death of the Low Cost Airline? Baloney!

April 9, 2008 — -- Doom and gloom, doom and gloom. That's all I've been hearing from the airline pundits in the past week, and I'm tired of it.

To be fair, though, the airline industry has given the pundits a lot to gnash their teeth over in the past week; the Airline Quality Rating study, for example. It highlighted dismal performances by most airlines, in areas that tend to concern consumers the most: on time performance, baggage handling, denied boarding, and customer service. In fact, the study authors say, this past year was the airlines' worst ever.

Then there were all those airlines going bust: Aloha, ATA, Skybus and Skyway (and, lest we forget, a little charter called Champion announced it's going out of business in May).

Sounds pretty bad, doesn't it? In fact, some pundits are now proclaiming, "the death of low-cost airlines."

I say, baloney.

First, let's take a look at those going-out-of-business airlines, shall we? We'll start with Aloha; its representatives blamed their woes, mainly it seems, on the "illegal actions of a competitor." While no names were named, it must be pointed out that Aloha — and Hawaiian Airlines — were in a brutal island airfare war with Go Airlines that saw one-way inter-island seats listed for as low as $1. Could it be consumers expecting $1 airfares and $100 a barrel fuel prices didn't mix very well?

Then we have Skybus: it, too, offered incredible deals; I guess you could say, in the long run, these were "impossible deals" at $10 one-way.

ATA said a big issue in its shutdown was the loss of a "key" military contract. Hmm. We're in the midst of a war, and there apparently aren't enough big military contracts to go around. Go figure.

Finally, we come to the little Milwaukee-based commuter, Skyway; yes, I am sorry for my cheese-head friends (and I do use the term with great affection). I will, however, leave it to them to rank this event compared with Brett Favre's retirement.

Here's a final thought: is it possible that, instead of blaming these shutdowns on "the death of low cost airlines," we might better look to these individual airline companies and focus on their business models, or their ability to adapt to change, or even their sheer bad luck? Is it possible these problems had something to do with the demise of these airlines?

Okay, now let's go back about four years; the legacy carriers were flying with planes about one-third empty. How did they compete with the low-cost carriers? By matching prices on routes that overlapped. Fuel was relatively cheap, so this could be done with little pain. The hard part for legacy airlines was raising airline ticket prices, because the "pesky" low-cost airlines wouldn't cooperate on system-wide airfare hikes.

Now, fast forward to today. Even before fuel prices began their upward ascent, legacy airlines learned to reduce capacity; they put fewer seats in the skies, and most of those seats were filled (up to 90 percent of them last summer) on smaller, more fuel-efficient aircraft. Here's where I should note that the price of fuel has doubled since early last year; but the price of seats has not doubled.

So how'd they stay alive? The airlines simply exchanged "higher prices" for customer service. You do your own online check-in; you pay for blankets and bags (extra ones, anyway); you don't get a meal and you don't get much of anything in terms of customer service. And that's the reason why this week's Airline Quality Rating study showed so much dissatisfaction.

But for those pundits who say, aha, this spells the end of the "low-cost airlines," let me repeat my elegant rejoinder: baloney.

I say that, because let's take another look at that study: notice that the top five "best" airlines in the study include just one legacy carrier. Number one was AirTran, followed by JetBlue, Southwest, Northwest and Frontier.

Now, a closer look at one of those low-cost airlines: there are still a lot of people out there who don't realize that the biggest domestic airline in the U.S. today is — no, not American Airlines, not by a long shot — it's Southwest. In fact, Southwest is arguably the biggest airline in the world in terms of the number of passengers boarded (and it never leaves its own country's borders).

Here's something else to consider: the operating costs of legacy carriers can be as much as double the cost of operating the so-called cheap airlines; you tell me who has a better chance of survival in today's climate.

Of course, the legacy carriers haven't lasted as long as they have by making a "lot" of foolish business decisions, and their recent actions show they're not about to start now; notice how Delta is throwing more and more of their planes into the greener pastures of overseas routes. They've cut service to a number of U.S. locations, in favor of the bigger prices (and bigger fuel surcharges) they can command for transoceanic routes and elsewhere. No doubt these "dying" low cost airlines are eyeing some of the routes being tossed overboard by legacy airlines.

That doesn't mean the legacy airlines have completely given up on the U.S. market, of course; they are still in there pitching, and trying to take advantage of every modern method they can. Even white shirt, red tie, blue-suited American Airlines, for instance, seems to be trying to win over the "youth market" with its recent foray into Facebook. The grand old airline seems to be trying a makeover of sorts, with its "Travel Bag" application on the once "hip" Facebook Web site (which now features more and more folks my age). I'll be interested to see how successful they are.

So, here's where we are: some are saying the low-cost airlines are dying, and I keep repeating my mantra, "baloney." "Okay, Rick," some of you are asking, "then what has happened?"

Simple. The airline industry just had a very bad week.

This work is the opinion of the columnist and in no way reflects the opinion of ABC News.

Rick Seaney is one of the country's leading experts on airfare, giving interviews and analysis to news organizations, including ABC News, The New York Times, The Wall Street Journal, Reuters, The Associated Press and Bloomberg. His Web site FareCompare.com offers consumers free, new generation, software combined with expert insider tips to find the best airline ticket deal.