The Plane Truth: Legacy Airlines' Declining Market Share

When American Airlines filed for bankruptcy last November, it was the last of the "legacy" carriers to do so. United, Continental, USAirways and Delta had previously filed their respective bankruptcy petitions and reorganized many years before American. Many of these legacy carriers have announced capacity cuts of up to 5%, citing weak conditions. However, domestic low cost carriers have happily and quietly beefed up their presence in key airports, adding new flights, routes and frequency. By definition, "low cost" airlines are those carriers that are non-unionized, do not support large infrastructures, and are free of legacy obligations such as unfavorable leases, labor contracts and expensive pension plans. Low-cost carriers such as Southwest, JetBlue, Virgin America, Spirit and Frontier operate more efficiently, have lower costs, and can make profit on routes and fares the legacy carriers cannot match. Low-cost carriers have made modest headway into the international routes as some of their advantages stop at the U.S. borders. But some have successfully forayed into closer international destinations such as Mexico, Canada and the Caribbean. Legacy airlines are not going away however. They still muster power by virtue of their mileage programs, joint-ventures and alliances, and will continue to maintain significant pricing power. The challenge for those airlines is to maintain the pricing equilibrium that will keep low-cost carriers at bay while trying making profit. 2012 could be an interesting year as we see more airline consolidation on the horizon. www.premieretravel.com