The Airlines are Fixing to Bankrupt Themselves Again

The airline stocks haven’t been doing shit this year, despite the price of jetfuel plummeting to lows.  Part of the reason is Americans hate the airlines, always have and always will. We select the cheapest fare and lament over waiting in the 3rd world styled airports, amidst insane delays and ridiculous cancellations. In a sense, our air travel industry is the very worst this great country has to offer, which is why we have ZERO loyalty to any brand.

“Given that 50 percent of our revenue is up for grabs in these markets and that these carriers have had so much success when they weren’t matched, we know that we have to match their fares,” Kirby said. More than a quarter of American’s domestic capacity overlaps with Spirit’s, he said.

The fare bargains are causing a bit of an existential crisis among some who had turned bullish on the consolidated industry. Does the world’s largest airline need to join a race to the bottom to lure the most price-sensitive customers? United and Delta aren’t matching the cheap fares to the same degree.

And were Spirit executives foolish to think they could expand their flying 30 percent in 2015 without sparking a fierce backlash from rivals, at a time when cheap fuel is helping bolster American even more than others in the industry? American doesn’t hedge its fuel needs, meaning it hasn’t paid above-market prices this year or last, unlike its three largest rivals. That financial benefit has soared into the millions.

Florida-based Spirit is now “our No. 2 competitor” at Dallas-Fort Worth International Airport, with 25 nonstop routes—more flights than Delta or United, Kirby said. “In those 25 routes in Dallas that Spirit flies, they have 20 percent market share, huge market share,” he said. In Chicago, where American has a hub, Spirit has 60 daily flights to 24 cities.

As a result of Spirit’s low fares, American plans a new, no-frills fare in 2016, much as Delta devised “Basic Economy” as a way to match Spirit in competitive nonstop markets. American declined to discuss specifics of the new economy fare.

More broadly, the bare-bones fare innovations at Delta and American are the latest permutation in legacy airlines’ decades-long effort to combat the rise of low-cost rivals. In the early 2000s, after the vaunted “Southwest effect” had begun lowering fares in major markets, legacy carriers turned to an “airline-within-an-airline” model, with a goal of flying a lower-cost airline alongside their mainline operations. In 2003, Delta started Song and United followed not long after with Ted. Both flew only briefly.