Allegiant Air president Andrew Levy announced he expects the carrier to “move in the direction” of charging passengers to stow carry-on bags in its overhead bins stating “the idea has a lot of merit” (USA Today, 10-Mar-2011). Currently Spirit Airlines is the only other US carrier to charge for this. Mr Levy reportedly stated carrying luggage on board “typically ends up delaying services and inconveniencing a lot of our customers”.
Allegiant to consider charging for carry-on baggage
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Spirit Airlines: touting solid financial position, but investors stay laser-focused on unit revenue
During the past year investor attention has pivoted away from Spirit’s steady balance sheet and strong cost base to the company’s deteriorating unit revenue – a scenario most US airlines find themselves dealing with as a result of lower fuel costs driving up capacity and eroding pricing traction.
Growing cash balances and sustaining favourable leverage remain crucial elements of Spirit’s business strategy. Keeping a stable cash position allows the airline to fund its higher than average growth, which continues to deliver strong margins according to Spirit's argument.
Its industry-leading cost performance is key to Spirit’s ability to sustain solid margins even as the US revenue environment remains weak. Although it faces some cost inflation in 2016, the airline remains focused on sustaining one of the best cost performances in the US airline business.
US airlines Part 2: LCCs and ULCCs face the same cost overhang as their larger rivals
US low cost carriers and ULCCs observed many of the same trends in the country’s marketplace at the end of 2016 as their large global network rivals – namely, that weak pricing trends in the domestic market were improving. Each airline has its own nuanced view of that general operating environment, but they feel encouraged by what they hope is an inflection point in pricing that will lay the groundwork for a return to positive unit revenue.
Those lower cost and ultra-low cost airlines also face similar challenges to their larger counterparts – cost pressure from new labour contracts and rising oil prices. And like their larger rivals, most of the lower cost US airlines are plotting lower capacity growth in 2017 as a means to improve their respective revenue performances.
For now, pricing improvement that began in late 3Q2016 and a bump in demand after the US presidential election are sustaining the cautious optimism expressed by US airlines as 2017 gets under way. But no US airline is ready to declare that pricing traction in the country’s domestic market is on a sustained upswing.
This is Part 2 of two reports examining the outlook for US airlines in 2017.