JetBlue to launch services from Washington National Airport
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Spirit Airlines feels sting of Southwest’s discounting. First signs emerge of changing network mix
Efforts by Spirit Airlines to create some pricing traction in the US domestic market during the early high travel season during 2Q2016 have been foiled, largely by Southwest Airlines. The result was continued weakening of yields for the airline, a metric that has been a mainstay for Spirit during the last couple of years. The airline’s double-digit yield decline slightly worsened from 1Q2016 to 2Q2016.
Spirit is forecasting some improvement in the US revenue environment in 3Q2016 as the airline starts to lap the onset of pricing dilution in the US market that started in mid-2015, and as its own capacity slows in comparison with 2Q2016.
The airline is also making network moves in late 2016 to reflect its new strategy of adding mid-size markets that are less competitive. Spirit is making a push from a new market – Akron-Canton – and is also expanding from Orlando. At the same time, Spirit is exiting markets featuring a mix of low and high levels of competition as it works to change the structure of its network, now that larger airlines are more wilful in matching the ULCC’s fares.
ULCCs, hybrid airlines in the Americas. True LCCs start to look like a vanishing species
During the mid-2000s the term hybrid business model entered the North American aviation business vernacular as low cost airlines became more sophisticated, adding elements to their strategy outside the boundaries of the traditional low cost blueprint pioneered by Southwest Airlines. Fast forward to 2016, and the term hybrid is becoming outdated, as low cost airlines in North America have adopted many of the same product attributes as full service airlines, and as those airlines have blended in many low cost elements.
North American airlines can now be categorised into four business models – full service airlines; low cost, high value airlines; ultra-low cost airlines; and Southwest, which still aspires to the low cost paradigm but does not offer the product attributes of more upscale low cost airlines. jetBlue has pushed the boundaries of low cost product evolution with its successful Mint experiment, featuring a fully lie-flat business seat, but no other North American low cost airline has (yet) decided to follow suit. Canada's low cost model, WestJet, has hybridised, adding a regional fleet in Westjet Encore, expanding its competitive bandwidth against its main domestic opponent and going long haul on the Atlantic.
In the less mature Latin American aviation market, the low cost airline model is still evolutionary, with the exception of Mexico where three low cost airlines and one full service airline are competing to lure passengers from bus travel. Brazil and Colombia also have low cost airline representation, but the spread of the business model is generally slower in South America, partially due to challenges from the cumbersome regulations that the start-up companies face in bringing their visions to fruition.