Back in the 60s, flying was both an experience and a privilege. Passengers dressed formally and were actually excited for their flights. Nowadays, flying is more of a hassle than it is enjoyable; we simply want to get from point A to point B, while spending as little money possible. However, increased costs and competitiveness have transformed airlines into revenue-generating machines. This is further compounded by the industry’s low 1% profit margins, which keep airlines from differentiating their services and establishing favorable customer price points.
The two most profitable U.S. airlines focus on domestic and regional flights. Spirit Airlines (its ticker rightfully named SAVE) was the first American airline to maximize its profits by minimizing consumer costs, and is therefore the most profitable airline in the U.S. marketplace.
Spirit’s business strategy is to be the cheapest commercial airline in all facets of travel. When you buy a seat on a Spirit flight, you are buying precisely that, the right to travel in said seat. Almost everything else, including beverages, boarding passes, and luggage storage, costs extra. However, this eliminates excess ticket costs, associated with larger airlines, for people who don’t use these services. With ticket prices far below industry average, Spirit Airlines often fills its planes to 90% capacity (the highest rate next to Allegiant Air). Since its flights are usually filled, Spirit earns 40% more per airplane compared to its competitors. For those who want to get to their destination as cheaply as possible, Spirit Airlines is the most affordable way to travel.
Much like Spirit, Allegiant Air (ALGT) follows a similar price model. It charges extra fees for almost everything, aside from the seat on the flight. However, Allegiant’s differentiating factor is its distinct market. Allegiant specializes in transporting passengers from 75 small American cities to 14 popular, warm weather climates (i.e. Orlando, Hawaii, and Las Vegas). Such specificity minimizes competition for Allegiant Air, as it competes over only 17 of its 203 routes. These convenient circumstances have resulted in 39 (out of 41) profitable quarters for the company.
One of the more popular airlines in the United States, Southwest (LUV), pioneered the concept of cost-cutting strategies by consolidating its fleet. Southwest only operates Boeing 737s, and need only train its staff to fly, clean, service, and maintain one type of aircraft. This allows Southwest to purchase spare parts at wholesale prices and inventory them accordingly. Also, if there is a mechanical issue with a plane prior to its flight, Southwest can easily replace the damaged aircraft with another 737. Such comparative advantages allow Southwest to fly relatively more planes per day, when compared to other large airlines.
However, not all airlines must cut costs to become popular consumer choices. Virgin America developed a strategy to market its flights as enjoyable experiences. Virgin America’s commercial fleet uniformly includes leather seats, in-seat televisions, Wi-Fi, and neon mood lighting (all in an attempt to make planes feel like nightclubs). Virgin also only hires charismatic stewards, so as to create friendly and welcoming environments.
Ultimately, if your goal is to cheaply get from point A to B, without major comforts, Spirit and Allegiant are your best bet. However, you’d better heavily hydrate two days before traveling so that you needn’t spend money on in-flight beverages otherwise included with Southwest and Virgin America.