The Low-Cost Carriers

Led by Southwest Airlines, a class of new entrant discount airline began entering the industry shortly

First bag Second bag Additional bags Airline (airport/online) (airport/online) (each) Overweight bags Oversized bags Air Tran $15 $25 3+: $50 51-70 lbs: $49 71-100 lbs: $79 $49-$79 Alaska3 $20 $20 3: $20 4+:$50 51-100 lbs: $50 $50-$75 Allegiant $35/$15-$30 $35/$25-$35 $35/$50 51-74 lbs: $50 75+ lbs: $100 $35 American $25 $35 3-5: $100 6+: $200 51-70 lbs: $50 71-100 lbs: $100 $150 Continental $25/$23 $35/$32 3+: $100 51-70 lbs: $50 $100 Delta $25/$23 $35/$32 3: $125 4-10 $200 51-70 lbs: $90 71-100 lbs: $175 $175-$300 Frontier $20 $30 3+: $50 51+ lbs: $75 $75 Hawaiian $25/$23 $35/$32 3-6: $125 51-70 lbs: $50 $100 inter-island: $10 $17 inter-island $17 7+: $200 inter-island: $25 inter-island: $25 inter-island: $25 Jet Blue $0 $30 3: $75 51-70 lbs: $50 71-100 lbs: $100 $75 Midwest $20 $30 3+: $50 51-100 lbs: $75 $75 Southwest $0 $0 3-9: $50 10+: $110 51-100 lbs: $50 $50 Spirit6 $25/$19 $25 3-5: $100 $51-70 lbs: $50 71-99 lbs: $100 $100-$150 Sun Country $25/$20 $35/$30 $75 51-100 lbs: $75 $75 United" $25 $35 3+: $100 51-100 lbs: $100 $100 USA3000 $25/$15 $25 $25 51-70 lbs: $25 $25-$50 US Airways $25/$23 $35/$32 $3-9: $100 51-70 lbs: $50 71-100 lbs: $100 $100 Virgin America $25 $25 3-10: $25 1st <70 lbs: free $50 51-70 lbs: $50 71-100 lbs: $100

Source: GAO review of airline Web Sites and interviews with airline officials.

aAlaska Airlines does not charge for the first 3 checked bags for trips wholly within the state of Alaska.

bSpirit revised its checked baggage fee for travel on or after August 1, 2010 to $25 for each of the first two bags, and $85 for each of the 3rd, 4th and 5th bags.

‘United also offers a $249 annual fee to check one or two bags per flight without charge.

TABLE 35-3 Domestic Checked Baggage Fees of 17 U. S. Airlines as of July 1, 2010

Airline	Ticket change or cancella­tion (domes­tic ticket)	Booking phone/ in person	Unaccompa­nied minor	Pet in cabin	Seat selection	Inflight food and beverage	Blanket and pillow
Air Tran	$75	$15/$0	$39 direct/ non-stop $59 connecting	$69	$6 advance $20 exit row	F: NA B: $6	NA
Alaska	$100	$15/$15	$25 direct/ non-stop	$100	NA	F: $3.50-$7	NA
	($75 online)		$50 connecting			B: $6
Allegiant	$50 per segment	$15+$14.99 per segment/ $0	NA	NA	$4.99- $24.99 var­ies by flight length and seat.	F: $2-$5 B: $2-$7a	NA
American	$150	$20/$20- $30	$100	$100	NA	F: $3-$10 B: $6-$7	$8
Continental	$150	$20/$20	$100	$125	NA	F: $0 B: $6	NA
Delta	$150	$20/$35	$100	$125	NA	F: $2-$8 B: $5-$7	NA
Frontier	$50-$100	$0/$0	$50 direct/ non-stop $100 connecting	$75	$15-$25	F: $3-$7 B:$2-$5a	NA
Hawaiian	$100-150 inter-island: $25-$30	$25/$35 inter-island: $15/$35	$100 inter-island: $35	$175	NA	F: $5.50-$10 B: $6.50-$14	NA
Jet Blue	$100	$15	$75	$100	$10 extra legroom	F: $0 B: $6	$7
Midwest	$100	$0/$0	$50 direct/ non-stop $100 connecting	$75	NA	F: $3-$7 B: $2-$5a	NA
Southwest	$0	$0/$0	$50	$75	$10 priority boarding	F: $0 B: $3-$5	NA
Spirit	$110 ($100 online)	$5/$0 ($5 each way online)	$100	$100	Varies based on location.	F: $2-$5 B:$2-$6a	NA
Sun Country	$75	$15/$0	$75/ segment	$100	$8	F: $3-$6 B: $5	$5

TABLE 35-4 Partial List of Add-on Fees Charged by 17 Carriers

Airline	Ticket change or cancella­tion (domes­tic ticket)	Booking phone/ in person	Unaccompa­nied minor	Pet in cabin	Seat selection	Inflight food and beverage	Blanket and pillow
United	$150	$25/$30	$99	$125	$9/$109	F: $3-$9 B: $6	NA
USA3000	$75	$0/$0	$50	$75	$9-$25	n/a	NA
US Airways	$150	$25-$35	$100 (non­stop flights only)	$100	$5+ Varies by location.	F: $3-$7 B: $7-$8	$7
Virgin America	$100 ($75 online)	$15/$10	$75	$100	NA	F, B: $2-$10	$12

Source: GAO analysis 3Fee for some nonalcoholic beverages. TABLE 35-4 Continued

after 1978. Their distinguishing characteristic has been to provide a no frills, basic transportation service at the cheapest fare possible. They have sought to do this by concentrated efforts to reduce their operating and marketing costs by various means and practices uncommon in the traditional airline business. Primary among these airlines cur­rently are Southwest, JetBlue, AirTran (prior to merger with Southwest), Spirit, Frontier, Allegiant Air, Sun Country Airlines, and Virgin America.

Contrary to most airlines and to emerging trends, Southwest does not charge for baggage. It is also contrarian by the fact that it has never furloughed any employees and has never asked its labor workforce for wage concessions. It has, therefore, a high wage structure compared to other airlines. It has been able to maintain consistent profitability through the utilization of the various efficiencies discussed above. As the unit cost gap between the new legacy carriers and Southwest and the other LCCs narrows, it will be interesting to see how Southwest, in particular, is able to con­tinue its labor practices into the future competition.

The evolution of Southwest is further marked by its purchase of AirTran in 2011. AirTran has service to Mexico and the Caribbean, so part of the process of combining operations and expanding their route systems will involve

Southwest becoming an international carrier. This is far removed from the original discount carrier concept that Southwest pioneered and then carefully honed. In the process Southwest is becoming increasingly larger; as of 2102 it operated scheduled service to destinations in 42 states. Its size, number of enplanements (it carries more passengers than any domestic airline), and increased number of destinations, has caused it to change from a primarily point-to-point airline to one that must facilitate connections.

It now practices the “rolling hub” concept, which schedules a majority of flights into cer­tain designated airports for connection purposes, but it avoids arrival “banks” of aircraft at the same time to lessen congestion, rather schedul­ing arrivals over longer periods of time. With Phoenix having 181 daily departures, you might say that this is Southwest’s largest rolling hub, but it also has extensive departures from Las Vegas, Baltimore-Washington, Houston, Chi­cago-Midway, and many others. The AirTran merger will carry it into Atlanta in a big way.

Southwest pioneered the Internet reservation system in the 1990s and in the process personalized its service, made it transparent and readily accessi­ble, and saved a lot of money. Now, with its excur­sions into international passenger service (which is more lucrative than domestic service), it has partnered with a European global distribution firm known as Amadeus, which is seen as a major move toward transforming itself from a low-cost domes­tic carrier into a large airline in the global airline industry, probably expanding into South America.

The other primarily notable LCC is Jet­Blue Airways which, while still classified as a low-cost carrier, differs significantly from the Southwest model. JetBlue, for instance, began operations in 2000 at John F. Kennedy Interna­tional airport, a busy international hub centered in the most congested area of the country. It had to have slots to operate (which it got from the FAA) and it flew into other large airports, originally serving the east coast of the United States and then spreading across the country and internationally to Puerto Rico and 11 countries in the Caribbean and Latin America. While offering services at a discounted price, it differentiated itself by offering amenities like leather seats and DirecTV at every seat, and a personalized cus­tomer experience that has resulted in high satis­faction and a loyal customer base.

JetBlue sells only electronic tickets, primarily through its website. So far its workforce is entirely nonunion, so it has flexible work rules and effec­tively uses part-time employees. Its relatively new fleet consists entirely of two types of airplanes, the Airbus 320 and the Embraer 190. JetBlue car­ries high debt due to new aircraft acquisition, on a debt-to-value ratio between 65 and 75 percent, compared to Southwest’s 20-40 percent.

The company has a marketing program that is innovative yet inexpensive, using social media such as Facebook and YouTube at very little cost.