The ULCCs are coming! A future force in the Americas 

27 March, 2018

Unlike Asia and Europe, US, Canada and Latin American Low Cost Carrier (LCC) activity has been relatively muted in recent years. Although it was the home of the breed, the US has slipped well behind as airline bankruptcies and consolidation allowed the US majors to reduce costs significantly and to dominate the market more actively. Technically, the US has a high level of LCC activity, but much of that consists of Southwest Airlines’ presence; the once market leader of LCCs now occupies a cost base very similar to its major full service rivals.

Aside from Mexico, (where two thirds of domestic seats and a quarter of international are on LCCs), and Brazil (almost 60% of domestic operations), Latin America overall has relatively low LCC penetration. That is all now about to change across the region. Canada has new LCC entrants and both major airlines have established lower cost subsidiaries.

To the south, countries like Chile, Colombia and even Argentina are now experiencing a tidal shift as Ultra Low Cost Carrier (ULCC) groups spread across borders. But in many areas of Latin America particularly, despite the elements already being in place for effective market stimulation, a lack of adequate airport infrastructure and prohibitively high costs constitute barriers to entry faced by LCCs.

The reappearance of ULCCs in the US has sufficiently worried the majors to provoke them to adopt various price matching competitive strategies. And ultra-low cost groups like Indigo Partners/Frontier/Spirit are challenging the status quo, as is JetBlue in a hybridised fashion. With many medium sized airports anxious for a return of services, opportunities abound. For the time being the LCCs and ULCCs are attacking the lower hanging fruit, but there are many opportunities that are not being fully exploited at present.

But many questions remain...

  • How fertile is the ground for expansion of ULCCs in the Americas and what are the constraints?
  • What key lessons can US majors learn from legacy carriers in other markets who have launched LCC brands? Can the same principles be applied in the Americas?
  • There are opportunities in all markets both for hybridised LCCs and ultra low cost operations; which is the better place to be?
  • How viable is the future for long haul low cost operations as new aircraft types and new airlines challenge the status quo?
  • Is Latin America too expensive and too regulated to support the growth of LCCs? What needs to be done to stimulate the market?

This will be one of the topic areas discussed at the forthcoming CAPA- Centre for Aviation Americas Aviation Summit that takes place in Houston, USA between April 16-17, 2018.

Understanding aviation markets is CAPA’s great strength and passion and this year's agenda includes a variety of topics sure to generate interest. The ULCCs are coming! A future force in the Americas will be the opening panel session on the morning of 17-Apr-2018 concluding Session Three, entitled 'North America'.

The high-level Americas Aviation Summit is a forum for debate and discussion of strategic issues facing the region’s aviation industry and it is attracting airline and travel industry CEOs from across the Americas region, Asia, Europe and the Middle East.

It is a key time in the United States as it approaches the next generation of aviation. As consumer demands change rapidly, as infrastructure needs remain unsatisfied, and as longstanding policies are under attack, the US airlines are unprecedentedly profitable. There is much that needs to be fixed if they are not to be marooned in the present, domestically and internationally.

FIND OUT MORE... visit the CAPA Americas Aviation Summit homepage to find out more about this not-to-be-missed opportunity to discuss relevant issues impacting the US aviation sector and learn meaningful insights from your industry peers.