Article Series 3

The shift from the pandemic to the endemic phase of Covid-19 seems certain - if not imminent. Omicron is on a downward trend. Popular – and medical - opinion suggests we are now over the hump. Future virus waves, if any, are not presented as serious threats to our economic vitality nor to our daily routine. The end of mask mandates, a return of children to in-person school, the positive industry metrics being shared in news articles and Board reports – all signs that virus will play a less significant role in managing visitor activity moving forward.

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As we are opening back up as an economy, the spotlight will return to long haul travel. Dominating that conversation currently is the Frontier-Spirit airline merger. If approved by the proper government agencies the merger will create the fifth–largest airline in terms of seat capacity and the seventh largest in terms of revenue. In coming together, the two carriers will have created a ‘National Discount Airline,’ offering true competition to the Big Four – American, United, Delta, Southwest.

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Historical research on airline mergers suggests forthcoming price increases – ranging from 15% to over 50%. Because a merger removes competition, there is little incentive to keep fares low. While having fewer carriers would make the market less competitive – this is not the positioning Frontier-Spirit is likely to take.

The desire to compete against the Big Four is an important distinction. Frontier and Spirit are two like-minded carriers. The competition they create will be real – more real than had the merger been a larger legacy carrier scooping up one of the low-cost carriers and folding them into their full-service model.

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The proper way to think of the merger is that it is one big expansion of a discount pricing model. When combined the new airline could service more than 1,000 daily flights to more than 145 destinations – around 7% of the nation’s total capacity, compared to the Big Four’s capacity of 20% each. Aiding that competition is an increase in planes. By the end of 2026, the new airline expects to fly 493 planes, a 75% increase from the 283 planes currently. Discount travel to more markets may entice those on the sidelines – currently unable or unwilling to pay a premium.

The future of a national discount airline relies on an economic reality created by the Big Four: air travel is mostly unaffordable for many leisure travelers. While message boards and comment sections may poke fun at the service experience of a low-cost-carrier, they forget something important – for a growing segment of the population, low-cost-carriers are the only reasonable flight option.

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Another development comes from the lodging sector –where ‘limited-service’ is the popular term for ‘low-cost.’ Wyndham is developing an economy-tier extended-stay brand focused on blue-collar business travel segments, for example.

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Combining the airline and lodging examples we predict a future no-frills approach to tourism in a more defined way. Big time, first class, premium experiences will still exist, but the market is signaling room for another segment. If the travel industry was buoyed in the first stages of the pandemic by the high-end traveler, then the endemic stage of the pandemic is likely to see the importance of discount travel.

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Frontier-Spirit observers seeking viability of the no-frills segment need only to look at the recent arrival of Avelo, Breeze and Aha – three new budget carriers serving overlooked or smaller destinations and using alternative airports. They offer a la carte pricing, so passengers only pay for what they need.

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Aha! for example, flies 50-seat Embraer E145 planes three times weekly from Reno-Tahoe to secondary and tertiary west coast destinations. These lower-capacity planes are easier to fill. These examples from different sectors of the travel industry confirm that a low-frills approach is practical in the marketplace – and that discount travelers are going to be an important segment as 2022 unfolds.

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