Low-Cost Carriers Bundle Up to Tap the Full-Service Market
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APEX Insight: Budget carriers are beginning to broaden their reach with packages that deliver a full-service experience, and flag carriers have long tried to match the success of their low-cost competitors with the introduction of lower-than-economy fares. When will their efforts converge?
Legacy carriers have been unbundling perks to match the bare-bones model of their low-cost competitors for some time now. But what are budget carriers doing to mind the gap between themselves and their full-service competitors?
Shedding the Weight
Delta Air Lines was among the first to offer a category below economy with the launch of its Basic Economy product in 2012. The offering aimed to compete with regional low-cost carriers (LCCs) like Frontier Airlines and Spirit Airlines, and the strategy has paid off. American Airlines is following suit with its own comparable fares: “Given that 50 percent of our revenue is up for grabs in these markets, and [low-cost] carriers have had so much success when they weren’t matched, we know that we have to match their fares,” said the airline’s President Scott Kirby last year. And, according to Jim Compton, United Airlines’ chief revenue officer, the third of the “big three” American carriers isn’t far behind with plans to implement LCC-like fares by the end of 2016.
American carriers aren’t the only ones to embrace the roll back. Most recently, India-based Jet Airways introduced a Fare Choices pay structure with eight categories that conjure the pay-as-you-go model of budget airlines, and flag carrier British Airways launched a Basic Fare that functions much like that of local LCC opponents Ryanair and easyJet.
Traveling in Packs
As full-service carriers try scaling back to match discount rivals, low-cost carriers are building on their fare structures to mine the market of passengers who prefer a more robust service. “Unbundling” may seem to be the new norm, but “bundling up,” is also gaining traction among LCCs that realize a more nuanced fare structure is in order to attract a wider sampling of prospective customers.
“There are a lot of people that love the unbundled model, but there are still a lot of people that don’t understand it.” €”Barry Biffle, Frontier Airlines
“There are a lot of people that love the unbundled model, but there are still a lot of people that don’t understand it,” Frontier Airlines president Barry Biffle told USA Today last year. “Instead of trying to tell everybody, ‘This is good for you, you’re saving money and the fare is cheaper than before,’ the new package gives us the option of bringing back the works.” Fittingly called “The Works,” the fare includes a series of the airline’s most popular add-ons – an extra carry-on bag, choice of best available seat, no fees for changes, priority boarding and a full refund for cancellations of up to 24 hours prior to departure – at 60 percent off the à la carte prices, a stark difference from what other airlines, which Frontier claims, “charge a paw and a tail for all these frills.”
King of low-cost carriers Ryanair earlier this summer unveiled Leisure Plus, a bundle fare designed to accommodate leisure and business travelers, instead of the loyal budget travelers on which the carrier built its name. Another European budget carrier, Wizz Air, last summer began offering Plus Fare, a discounted package that includes the flight and several ancillary services. György Abrán, chief commercial officer of Wizz Air, said: “We have seen a demand for additional services from our customers, and we are happy to provide them with this all-in-one discounted package.”
Branching Out, But in the Same Direction
Budget carriers are differentiating their pay structures, but insisting that their ethos of transparency remains intact. HK Express has gone the extra mile by releasing a video campaign that illustrates how unreasonable it would be for a stranger to enjoy something paid for by someone else. The video shoes a woman sneaking up on strangers to take a lick from their recently purchased ice cream cones – what the LCC claims is analogous to the logic behind the hidden fees of full-service airlines. “At first glance, full-service airlines appear to offer their passengers a better flying experience with extra meals and blankets and other perks. But all these extra frills are built into the cost of every air ticket. So even if you don’t want them, you still have to pay for other people to enjoy them,” said Charles Johnson, GM of Marketing and Public Relations at HK Express. The carrier last month launched a new Fun+ fare product – including 25 kg in baggage allowance and seat selection – that is a step up from the HK’s standard fare, but not as costly as its premium Flex fare with all the fix-ins.
“At first glance, full-service airlines appear to offer their passengers a better flying experience with extra meals and blankets and other perks.” €” Charles Johnson, HK Express
The industry may be abuzz with bundles, but several LCCs are reluctant to waver from their message. Canadian ultra-low-cost carrier NewLeaf, which took its inaugural flight less than a month ago, is one airline that is sticking to the tried-and-tested LCC formula: “We keep it simple. Our costs are completely unbundled – there are no free snacks and no free drinks. Your fare gets you the two essentials: a seat and a seatbelt. The rest is up to you,” reads the carrier’s website.