Will LCC Changes Be Enough to Compete?

Low-cost U.S. carriers have had a harder time recovering from the pandemic than their legacy cousins, at least according to their earnings histories. Some even are making moves to offer premium services and cabins that are narrowing the gap between what their traditional value propositions have been versus the big three—American Airlines, Delta Air Lines and United Airlines. Examples include Southwest Airlines moving to seat assignments, extra legroom and red-eye flying, as well as JetBlue expanding its premium Mint product and introducing lounges.

Will these and other offerings have an impact on corporate travel share? The jury is still out, since some of these strategies have yet to occur, but one thing is certain: Travel patterns have changed since the pandemic, which affects LCC performance.

"The pre-pandemic travel patterns where discount airlines could just put a bunch of capacity into peak-hour travel and have very high aircraft utilization? That's almost impossible to do today," said Citi Americas airlines and Latin transports research analyst and managing director Stephen Trent. "We don't have the equipment, and … we don't have the air traffic control capability capacity either. So, if you are a discount carrier, what we're seeing these days is they're busy trying to adjust their business model and at least adding some premium cabin relative to the network carriers that already have plenty of premium cabin."  

Financial Trends

Before breaking out their play for premium, it's key to look at the finances of some of these carriers. 

Though not known to attract many business travelers or even be included in managed corporate travel programs, ultra-low-cost carrier Spirit Airlines filed for chapter 11 in November 2024 and is planning to exit bankruptcy by the end of the first quarter. Fellow ULCC Frontier Airlines, which is in some travel programs, twice has unsuccessfully attempted to acquire Spirit, in 2022, and again earlier this year, in order to better compete with the "big four" when you add Southwest Airlines into the mix. Frontier ran in the red until last year's $85 million net profit.

Then there's JetBlue. It also tried to acquire Spirit in 2022 even though it has reported annual net losses from 2020 on, most recently losing $795 million in 2024. The two carriers abandoned that planned $3.8 billion merger after a judge in early 2024 ruled against the acquisition in a lawsuit brought by the U.S. Department of Justice.

As for Southwest—which ranked second in BTN's 2024 Airline Survey and Report and was the only carrier to improve its score year over year for two years in a row—it has reported an annual net income for the past four years, but the carrier's most recent profit of $465 million in 2024 on record revenue of $27.5 billion is a fraction of the $2.3 billion it made in 2019. 

How do those 2024 performances compare with the big three? 

American had record revenue of $54.2 billion, up 2.7 percent year over year, with net income of $846 million. It had made $1.69 billion in 2019. Delta also had record 2024 revenue, at $61.6 billion, up 6.2 percent from 2023, with net income of $3.46 billion, though this was down from the $4.77 billion reported in 2019. United reported 2024 revenue of $57.1 billion and net income of $3.15 billion, an increase of 20.3 percent year over year and up from the $3 billion reported in 2019.

The three legacy carriers also all offer a basic economy section to directly compete with the bargain carriers, even though most corporations keep those seats turned off in their online booking tools. Though each doesn't always report on that segment of sales, United chief commercial officer Andrew Nocella in January during a Q4 2024 earnings call noted that during the quarter, the number of basic economy passengers increased 21 percent year over year and now represents 15 percent of domestic passengers, up 2 percentage points compared with 2023.

"The network carriers have been able to use basic economy like a dagger," Trent said. "If they compete against Southwest or JetBlue or [whomever] on a particular route, they can just offer a couple of seats at the back of the plane, non-refundable tickets at a very low fare relative to what the discount airlines are, [or] similar to what the discount airlines are going to offer. That creates stickiness for their demand, and it gives them some protection from discounting line capacity on similar routes. 

“They can arguably price their basic economy seats well below where they price everything else because first class, business class, economy plus, domestic main cabin, etc., that stuff has already paid for the trip. … [It] deters your discount airline competitor and is probably no skin off your back."

Unrest at Southwest

In addition to lower profits, Southwest has an activist investor on its hands. After disclosing it had a $1.9 billion stake in the carrier, Elliott Investment Management pressed Southwest to make executive and operational changes, including ousting president and CEO Bob Jordan. After several contentious months and possibly to avoid a proxy battle, the carrier and Elliott came to an agreement in October 2024: Southwest replaced six board members and accelerated former CEO Gary Kelly's departure from the board. Jordan got to keep his job—for now.

On Feb. 17, however, the Dallas-based carrier announced a 15 percent reduction in its corporate workforce, or about 1,750 employees—the first time the carrier has had to take such measures in its 53-year history. That figure includes 11 senior executives, not counting EVP and chief transformation officer Ryan Green, who was overseeing the Southwest's cabin reconfiguration and other changes. He subsequently announced his departure after a 23-year history with the airline.

"It was a very sad day to read the announcement," said a travel buyer who has Southwest in their program and who asked to remain anonymous. "They've never had layoffs in 53 years. They kind of thrive on that … which is taking care of their employees. 

“With some of the leadership changes they've made and this [new] direction and the investor coming in and wanting to have more say in their board, I think their culture is changing. … My biggest concern is that they're going to lose their secret sauce to success in making all these changes. They're going to be like everybody else, and it's not going to work for them. I hope they don't lose all of that as we go forward."

This buyer added that their account team has not been directly affected by the layoffs. 

KesselRun VP of program management Krissy Herman, however, said that two of their reps reached out to say KesselRun would receive notification from those reps' VP, but that they remained their reps for now. 

Immediately following, Herman said, was a form letter saying, in effect, that Southwest remains "committed to your success and the success of Southwest Business. If your contact has been affected, we'll be back soon with a new point of contact for you. Nothing is more important to us than ensuring you have the right support from Southwest Airlines." Herman has yet to hear from KesselRun's five or six other reps.

"So, the cuts are definitely affecting the corporate group," she said.

In Pursuit of Premium and Other Changes

Traditionally, LCCs and ULCCs were known for their single economy cabins and no-frills, a la carte offers while making money on ancillary fees for everything from bags to getting a seat assignment to meals. JetBlue last year even began "surge pricing" for checked bags during peak travel times. 

Often, the final ticket price on one of these carriers could meet or exceed that of a ticket from a legacy carrier that would offer some of those ancillaries in its base price. The exception has been Southwest, which does not charge for the first two checked bags, nor for seats, changes, cancellations or a phone reservation. Its additional charges include fees for more than two bags, EarlyBird check-in ($15-$99 each way) and upgraded boarding ($30-$149 per segment). 

With travel demand projected to remain strong, especially for premium cabins and seats, some of the low-cost carriers have begun to change their operating models. 

Frontier last May eliminated change fees on most tickets, organized its seats into four options—basic, economy, premium and business—and some of these categories now include certain ancillary options that used to be charged separately. In December, the carrier announced that in 2025 it was to add a first class and offer new loyalty benefits.

JetBlue introduced its initial business-class Mint product more than a decade ago, and in 2021 developed a newly upgraded premium Mint product with more private suites and new studios for its transatlantic service that was to launch that year. The carrier in 2024 began to expand this premium Mint offering to domestic routes, one Canadian route, and a few Caribbean destinations, including Puerto Rico. JetBlue also is rebranding its Even More Space extra-legroom seat as a bundle that includes new benefits and amenities. In addition, the carrier announced it would introduce airport lounges beginning in late 2025 and first-class seating in 2026, and it announced its first-ever premium credit card.

Southwest famously does not have assigned seats, and all the ones on its planes are the same. That will change beginning in 2026 when it plans to begin offering assigned seats and a cabin in the front of the plane featuring seats with additional legroom. The carrier also announced its first international partner—Icelandair—and said it has plans to introduce another later this year.

All these changes narrow the gap between the network carriers' offerings and those from low-cost competitors. But legacy airlines do not seem to be concerned. For one, American, Delta and United have the capability to offer significantly more premium seats on their flights, and they are doing just that, with cabins reconfigured or new aircraft including more and more such seats. Further, premium revenue growth is outpacing main cabin for some, they've been at the game longer, and low-cost carriers, with all their extras being added, may not be as low-cost as in the past.

"What will happen is, if [low-cost carriers] do choose to continue to upgrade their products, it is going to force them to also upgrade their price points, which will help our Main Cabin revenues as well," Delta CEO Ed Bastian said during a July 2024 earnings call, adding that "premium is more than just putting more room in seats. It's the overall experience. … Premium is also based on a foundation of overall reliability and service, first and foremost, and that's what we have focused on and specialized and done better over the last 15 years and then the airline, we continue to get better."

United's Nocella in January made a similar point. "You can't snap your fingers and make those generational investments overnight," he said when asked by an analyst about more competition in the premium space by discount carriers. "I'm a bit surprised by the amount of change, but the effectiveness of that change remains to be seen. The effectiveness of what we've been putting in place for years now has been proven. … I don't expect that we are going to see airlines compete at the level of United in terms of this broad range of products and experiences anytime soon."

A Play for Corporate

Does a play for premium among low-cost carriers equate to a play for more corporate sales? For some, the answer is a resounding yes.

In addition to the changes noted above, Frontier last February announced a new fare bundle targeted at business travelers and available through the global distribution systems that includes a premium seat assignment, complimentary carry-on bag, priority boarding and other perks.

That move surprises KesselRun's Herman since Frontier left Sabre last year, she said. "Such a significant portion of volume goes through Sabre, especially in the U.S." Still, she added that across KesselRun's entire client base, Frontier represents "less than a couple hundred flights a year."

Southwest over the past several years has done much to expand its appeal to corporate customers, from introducing Southwest Business to adding fares to the GDSs. Adding seat assignments and a cabin with extra legroom seems to appeal to that same base.

"This announcement about reserved seats, special seating, is certainly their next play at trying to entice corporate travelers," Herman said. "It'll be really interesting to see how it prices. It sounds like from recent conversations I've had that they're still trying to work out the nuance of that pricing. From what I've heard, loyalty status with Southwest sounds like it will be very important as it relates to some of the seating."

"It's positive for the business community, especially people who travel a lot," said the anonymous buyer. "The assigned seating will help, but they have to use it in the right way. They have to compete the same way with their loyalty programs, with their upgrades, with seat assignments that all the other airlines do to get that business. … You have to make sure it's accurately fared in the booking tools. Because if you're classified as premium economy and premium economy isn't allowed [in the travel policy], … you have to make sure that you're competing apples to apples with American, Delta and United for the same type of fare class, even if you're calling it something different. They have to be very, very careful how it's being represented in the booking tools and how they are managing it on the backend with upgrades and loyalty. You can't just put it in and then hope it works."

Southwest adding international partners also could be appealing to business travelers. Icelandair "is a leisure play," Herman said. "But what interests me is this second international partnership that is yet to be announced and what that might mean."

JetBlue, on the other hand, has been incredibly vocal about focusing its recent changes on being the best leisure airline in the Northeast. It has cut several routes in the past year that seemed to have business appeal, and is about to end flights between Boston and New York's LaGuardia Airport. It also downplays the corporate business that it does receive, even though that segment "set records" in the fourth quarter of 2024 according to a recent earnings call.

JetBlue also has not changed its relationship with the anonymous travel buyer, who has the carrier in their program. "We've had some frank conversations about their leisure focus, but for me, we're a big customer to them, and we still get a lot of attention. I still have my same account manager. They are still very focused on us and growing their business with us, and the route changes haven't really impacted us too much."

Further, "bringing Mint to domestic or Mint Light, whatever they're referring to it as, this is absolutely a play to attract business customers," Herman said. "Developing lounges, I think that's really business-focused and those things, even if it's not intentionally trying to draw business travelers, there's a greater likelihood that business travelers will be more drawn to that product because of that premium-ization of their offerings."