Low-cost carriers don't always mean cheapest fares
Legacy airlines match or undercut prices to stay competitive, keep market share. Ovation's senior vice president, Isabel Torres, interviewed.
Tim Winship has always wanted to fly JetBlue Airways, but every time the travel loyalty program expert has compared the low-cost carrier's fares to those offered by other airlines, JetBlue's prices have been higher. .
“I looked first at JetBlue's rates, hoping it would be price-competitive,” said Winship, who publishes FrequentFlier.com. “But its prices were significantly higher than what I found on other airlines.”
Winship ended up flying American Airlines instead on trips from Los Angeles to New York and Boston, purchasing nonrefundable fares with advance purchase requirements that were at least $50 cheaper roundtrip than what JetBlue offered, he said. United also had lower rates than JetBlue to New York, as did Delta to Boston.
Despite their name and reputation, so-called low-cost airlines do not always offer the cheapest fares.
Low-cost carriers, including Frontier, JetBlue and Southwest — which last month announced it was acquiring rival AirTran for $1.42 billion — carry 30 percent of domestic passengers today, said Peter Belobaba, manager of the Global Airline Industry Program at the Massachusetts Institute of Technology.
Airlines such as American, Delta and United — which recently combined with Continental — have responded to low-cost carriers moving into their territory by matching fares to protect market share and “to prevent them from growing any larger,” Belobaba said.
A spike in jet fuel prices between 2006 and 2008, he added, forced legacy and even low-cost carriers to raise fares and, in some cases, put in more restrictions.
At the same time, low-cost airlines have been adopting increasingly sophisticated yield management and reservations systems to manage their fare inventory, according to Michael Derchin, airline analyst of CRT Capital Group in Stamford, Conn. Among these are JetBlue, which recently began using Sabre, and Southwest, which has announced plans to upgrade its reservations system.
Low-cost airlines currently offer five to seven fares on one domestic flight, compared to some 30 fares with varying restrictions offered on a legacy airline's domestic flight, said Ike Anand, Expedia's director of airline strategy. When setting rates, legacy airlines must also factor in whether passengers will connect to other domestic or international flights, which tends to make some fares higher.
“The perception that low-cost airlines have the lowest fares is no longer correct. Everyone who competes has the same fares,” he said.
Carriers today “are often competing more on their service reputation rather than price,” said George Hobica, founder of Airfarewatchdog.com, a website that tracks fares. “People like JetBlue’s newer planes, extra leg-room, television, friendly service and new terminal at JFK, and are willing to pay more for that,” he said.
If price is your only consideration, airfare experts suggest comparison shopping among the website of the airline you’re considering, on online travel agencies like Expedia, Travelocity and Orbitz and Vayama.com, which specializes in international air travel, and on “meta-search” sites like Kayak.com, Mobissimo.com, Fly.com and Bing Travel. These will search fares being sold online and show you the cheapest ones available.
If you’re considering flying on Southwest, bear in mind that it does not cooperate with any on-line travel agency or meta-search engines, and only sells fares through its own site and off-line agencies.
“Southwest wants to drive customers to its own site, which generates 80 percent of its ticket sales. This makes it more difficult to compare Southwest’s fares with those of other airlines. It’s great camouflage when Southwest’s fares aren’t the cheapest,” said Henry Harteveldt, San Francisco-based travel analyst for Forrester Research.
Factor in fees
There are many other factors that should be considered before making a fare purchase.
First, make sure you fully understand what the total cost of your flying will be: Even if Southwest’s fare is higher than its competitors’, Southwest doesn’t charge to check up to two bags. And if you study deeply discounted fares offered by Spirit Airlines through its $9 Fare Club, you will see the penny fare the airline promotes doesn’t include taxes and other mandatory air travel fees, or fees Spirit charges for baggage-checking and reserving seats.
When choosing fares, business travelers often have a different set of considerations than leisure travelers. Isabel Torres, senior vice president of Ovation Corporate Travel in New York, said her company might steer clear of low-cost carriers like Southwest that don’t offer reserved seat assignments. She said they also would probably avoid booking rock-bottom, nonrefundable fares sold by any airline if there were a chance their travel plans might change.
Business travelers’ fare choices are often “guided by their companies’ travel polices,” Harteveldt said. If they are frequent fliers, he said, they might find legacy carriers’ loyalty programs more attractive than those of low-cost carriers. Legacy carriers’ participation in global airline alliances creates more opportunities to earn and redeem points than low-cost airlines’ programs.
Other services business travelers might prefer — like dedicated check-in and security lines at airports and airport lounges — generally are available only on legacy airlines, said Darin Lee, a Cambridge, Mass.-based principal of LECG, a consulting firm.
If you can shop around long in advance of your departure — something more likely to be the case for leisure than business travelers — experts advise being flexible. Low-fare availability can be influenced by the time of day you choose to fly and the airport you choose to fly from. Thus, flights that leave during non-peak travel hours are often cheaper, as are those that leave from secondary airports, like Midway in downtown Chicago. Also consider taking one airline on your outbound trip and another on your return trip, pricing that is available on sites like Expedia.com and that can sometimes be cheaper.
However low fares might be today, jet fuel prices are always a wild card. “A spike in jet fuel prices will put pressure on airlines to raise their fares to cover their costs,” warned Dan Kasper, managing director at LECG.
In other words, where fuel prices go, fares will follow.
Story originally published on MSNBC.com by Jane L. Levere