Category: Strategy

First things first – there are three main categories of airlines that we’ll be discussing – legacy airlines, low-cost airlines, and ultra-low-cost airlines. Knowing about these three basic categories will give you some idea of what to expect in terms of add-ons you may be asked to pay for during your travels. The key to understanding the differences (at least in the United States), is a short history lesson. Prior to 1978, airline and airport operations were heavily regulated by the federal government – specifically the fares, routes, gates, and schedules were all determined by the Civil Aviation Board. Over the next 39 years, competition (in combination with technological advances) brought the average ticket price down significantly and led to the airline industry as it exists today. Here are a few important things that happened:

1. Consolidation. More than 100 airlines (including some of the major ones like TWA, Pan Am, Northwest, US Airways, and Continental) were either liquidated, consolidated, or merged. This has left us with 3 major ‘legacy’ airlines in the United States that have roots in airlines that existed prior to 1978 – American Airlines, Delta Airlines, and United Airlines. Similar ‘legacy’ airlines exist throughout the world – Lufthansa, British Airways, Qantas, China Southern, Air India, Cathay Pacific, LATAM, EgyptAir, etc. These legacy airlines are considered ‘full service’ today, although you still have to pay for checked bags on most of them.
2. Low cost airlines became a thing. We’ve even seen the rise of ultra-low-cost airlines as well. Low cost airlines include U.S. airlines like Southwest and Jetblue. Ultra-low-cost airlines include US airlines like Spirit and Allegiant. These airlines created a business model where they only fly routes between major cities, and usually only fly one type of plane (in most cases a single aisle mid-size jet like the Boeing 737 or Airbus A321), which significantly reduces maintenance and training costs as they only need so many sets of one type of spare parts and employees only need to be trained on one type of aircraft.
3. Moving away from the hub and spoke system. The hub and spoke system refers to the practice of funneling regional flights (co-branded but operated by regional airlines a-la American Eagle or United Express) into a main airport hub (e.g., Atlanta, Chicago, Los Angeles, New York), then taking a flight between major hubs, and then getting on another regional flight to your final destination. An example of this would be Buffalo to New York, New York to Los Angeles, and Los Angeles to Sacramento. Low cost and ultra-low-cost airlines have foregone this model and mostly offer point to point flights.

So what does all this mean for you? As airlines have consolidated over the last 10 years, there have been some significant changes that affect the way you fly. The first and probably most visible change is something that came about as a result of 1) surging fuel prices and 2) a major economic recession. In 2008, oil was around $150/barrel and the economy was tanking. American Airlines was the first legacy airline in the U.S. to announce fees for checked bags, and the rest of the industry followed suit. Strangely enough, the only major airline in the U.S. that does not charge for checked bags is Southwest, a low cost carrier. It is important to note that since then, fuel prices have gone down significantly, but the airlines had learned that consumers would bear the cost of checked bags and never looked back. This is something that likely would not have been possible in a market with a greater number of players.

Other than the bag fees, legacy airlines generally still offer the usual amenities like snacks, beverages, and sometimes entertainment systems – although those are often being shifted to BYO entertainment systems (where you can connect to in-flight wifi and stream entertainment options to your own device) on most flights except those on transcontinental routes. These days, the services offered by legacy airlines and low-cost airlines is increasingly similar – legacy airlines have continued to pare down what is included in the cost of a ticket, now even offering an extra low-cost ticket on some flights that doesn’t even include a carry on bag (which is inching toward ultra-low-cost status). The only major difference that still remains between legacy airlines and low-cost airlines is the available routes, as low-cost airlines do not usually make it into smaller airports.

Ultra-low-cost airlines are different than legacy and low-cost airlines in that essentially your ticket price only includes getting your butt in a seat. Basically everything else is an add on that you can choose to pay for or not choose to pay for. Drinks, carry on bags, food, entertainment, checked bags – each of these items will cost you an additional fee. A lot of travelers I know are beginning to appreciate this business model, as you are well aware up-front that anything beyond your seat is going to cost you extra. While ultra-low-cost airlines traditionally were smaller than legacy airlines and low-cost airlines and limited to certain regions, there are now quite a few international airlines like WOW airlines focusing on this segment. When you are looking at purchasing flights – be sure to do your homework on what type of airline you want to fly and what extra fees you are or are not willing to pay – answering these questions can help keep your trip enjoyable and on-budget.

The bottom line

When you are booking your flights, it isn’t always obvious what is included in the price of your fare. Be sure to read all of the fine print, regardless of whether you’re booking on a legacy, low-cost, or ultra-low-cost airline. As you’re planning your travels, be honest with yourself about how many and what type of bags you’ll need to bring. Traveling with kids? You may need an extra bag or two and want those free snacks and drinks. Solo traveler that doesn’t mind packing light? You may be able to take advantage of the a-la-carte style of ultra-low-cost carriers. Either way, be sure to do the math before you book; the cheapest fare doesn’t always result in the lowest cost of travel.

Learn more

One great way to avoid charges like bag fees is to get a co-branded credit card – read more about this in my page about frequent flier miles. If you want to know more about booking flights, head over to my flights page for booking tips and links to my favorite flight booking sites.