United Airlines CEO says low-cost model is dead and he may be right

United Airlines and JetBlue announced an agreement on May 29 to link loyalty programs. The broader understanding helps United return to New York one more time, while it mainly focuses on customer loyalty programs, cross-earning and sharing benefits. Speaking to WSJ, Scott Kirby, the CEO of United Airlines, called the low-cost model “dead”, adding that its aim was to “screw the customer”. Interestingly, JetBlue had started as a low-cost carrier (LCC), though it quickly added amenities like live inflight TV and subsequently a business class cabin.

Scott Kirby’s remarks may resonate closer home in India, with IndiGo’s CEO Pieter Elbers saying “We have left the station of a typical LCC, if there is such a thing” last year. IndiGo is the largest carrier in India by both fleet and market share.

As Indian LCCs scaled the heights of market share, passengers often complained of either no fare difference or very limited fare differential between LCCs and Full-Service Carriers (FSC) in India.

The change is visible

IndiGo, like many of its peers in India, started as a pure-play low-cost carrier. When Kingfisher Airlines and Jet Airways were struggling in the aftermath of the 2008 financial crisis, it went to town explaining the benefits of a single fleet type, its positive impact on costs and operations. The first change for IndiGo was adding a row of seats in the A320neo to make it 186 seats instead of the standard 180 it had with the A320ceo. In 2017, IndiGo added a new fleet type to its fleet with the induction of the ATR 72-600 turboprop aircraft. The LCC station was left in the true sense back then. Today, the IndiGo fleet comprises a multitude of aircraft configurations within its over 400 aircraft, apart from the damp-leased ones the airline operates.

Also Read: Mahakumbh propels IndiGo to best-ever profits, sets a new course on international

If various aircraft types was not enough, IndiGo added a Business class equivalent cabin, calling it IndiGoStretch, which started operations in November last year. The airline also launched a frequent-flyer programme.

Any LCCs left?

Go FIRST was possibly the last true LCC that operated in Indian skies, having a single fleet type. Akasa Air has taken that place eventually, though it has different configurations for planes and will continue to have a mix of MAX 8 and MAX 8-200 in its fleet. Akasa Air has not been able to grow as per its initial announcements after indicating planes in quick succession in its first year of operations.

Air India Express, which had a fleet of 26 B737s at the time of privatisation, is now more times its size but with a mix of A320ceo, A320neo, A321neo, B737NG and 737 MAX 8. SpiceJet, on the other hand, joined the multi-fleet bandwagon much earlier than IndiGo. However, its focus has been on sustenance amid multiple financial headwinds rather than growth.

Have FSCs changed as well?

India today has only one FSC in the form of Air India. As it shifts to a three-class configuration, akin to Vistara which merged with Air India, the economy class is competing with the LCCs with features like “pay for seat selection”, shorting up ancillary revenues and the difference being only in the meals being served complimentary on the FSC. While the LCCs moved up the pedestal, the FSCs climbed down in a double whammy for the customers.

This often points up to the question of how FSCs are different in India and the answer to that lies only in the cabins upfront with Premium Economy now offering the service levels and options which were common to Economy class two decades ago and Business class focusing on more and more frills, especially with modern seats. In essence, is Economy then a downgrade in an FSC? All indicators point to a resounding yes and this helps the traditional FSC compete with LCCs, with the bulk of the passengers comprising economy class.

Market share

Pre-pandemic, when there existed three FSCs in India — Jet Airways, TATA-SIA-owned Vistara and government-owned Air India — the LCCs led by IndiGo were pushing the envelope up with every month and the LCC concentration in the Indian domestic market was over 80 per cent at its peak. On the other side of the pandemic, there is no Vistara or Jet Airways and IndiGo with a 60 per cent-plus market share is a different airline than what it was while SpiceJet has shrunk.

Also Read: Mumbai and Navi Mumbai airports have a golden opportunity. But can they grab it?

The Indian market effectively is undergoing a transition like never before and while the first part of Scott Kirby’s statement may be right, the second part definitely does not fit well in Indian context. In fact, the Indian LCCs helped the average Indian consumer fly and more than doubled the market with each passing decade.

The rate of growth for Kingfisher Airlines, Jet Airways, Vistara or Air India was much slower than what the trioka of SpiceJet, IndiGo and Go Air achieved in its early years. If anything, the impact was felt on FSCs and not consumers.