US Low-Cost Airline Revenue on Top

NEW YORK—(BUSINESS WIRE)—This year, for the first time ever, U.S. low-cost airline unit revenue on domestic routes exceeded that of network carriers. Oliver Wyman’s annual Airline Economic Analysis report, released today at the Raymond James Global Transportation Conference, highlighted this and other important shifts taking place in the global airline market.

“However, this environment could also facilitate the emergence of a new group of lower fare airlines.”
While low cost carriers fly shorter routes, inherently generating higher unit revenue, this unprecedented spike in domestic revenue per available seat mile among U.S. low-cost carriers is still evidence of a major change.

“With both network and low-cost carriers focused on generating higher revenue, the result may be higher profitability in the short term,” said Oliver Wyman Partner Bob Hazel. “However, this environment could also facilitate the emergence of a new group of lower fare airlines.”

Other highlights from Oliver Wyman’s 2013 report include:

Asia strengthening its position as the world’s largest airline market, surpassing Europe and the U.S. Just a few years ago, the U.S. was still No. 1, Europe second, and Asia third. The shift in the airline market shows why manufacturers are focusing on Asia.

A narrowed cost gap between U.S. network airlines and low cost airlines during the past five years from 34 percent to less than 4 percent. Even so, ultra-low-cost airlines modelled after Europe’s Ryanair operate at costs that are a step below even traditional low-cost carriers and are a growing challenge to both network and low-cost carriers.

Increasing pressure from ultra-low-cost carriers. Some ultra-low-cost airlines unbundle their products to the maximum extent and charge low base fares and high ancillary fees. Added together, these low fares and high fees can equal the higher fares and lower ancillary fees at traditional airlines. Is this situation sustainable, or will traditional airlines find ways to regain their historic revenue premium?