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May
2017 15

How Budget Airlines May Impact Regional Airports

Leisure travel airline customers can travel to places around the world at rates cheaper than ever before. This is due to increased transparency of fares on sites like Kayak, Expedia, Google Flights and a myriad of other sites that help customers sift through the airline options to satiate their unrelenting quest for the cheapest fare. Customers may prefer one airline experience over another but ultimately, a customer’s price sensitivity trumps all other factors of consideration when choosing to purchase a ticket. This is because flights are not a good that a customer can use over and over, but a temporary means of transportation from point A to point B for passengers. For this reason, customers aren’t concerned with having the “best” quality product. If the flight is uncomfortable, but cheap, a customer is willing to put up with it since flights are relatively short trips.

 Ticket purchasing websites that find the cheapest flights coupled with a customer’s strong desire to find the cheapest ticket available to them, have given rise to a price war among airlines and caused the industry leading airlines to increasingly adopt price commoditization and the budget airline business model. Budget airlines are great at providing low cost fares for their customers for a few reasons: First, these airline companies are newer and their planes are typically newer. Though newer planes are initially more expensive, they are also incredibly energy efficient – more so than the airplanes that legacy airlines provide.

Second, budget airlines give their customers the “bare minimum” customer service experience. These airlines are determined to make their fares the cheapest for travel customers and they do this by decreasing the amount of service personnel working and decreasing the quality of training these customer service employees receive.

Third, budget airlines are adept at commoditizing every aspect of the flight experience. Everything that a traditional airline offers is provided at an optional “add on” fee. Checked bags, carry-on bags, snacks, seat selection – all of these are provided at an extra surcharge to customers. In fact, this “add on” service model is becoming more common in all airline providers – not just the budget airlines. Legacy airlines like American Airlines, United, and Delta used to not charge for a checked bag on domestic flights. Now this is a commonality across most airlines in the industry. Recently, American Airlines and United created a Basic Economy class which does not provide any free checked-bag or carry-on bag with the ticket. This commoditization of the travel experience has helped airlines diversify their revenues while providing customers a tailored (if not more frustrating) airline experience.

Finally, budget airlines frequently fly to regional airports near a city rather than the hub airport in that environment. This is more common in Europe but will increase in popularity in the United States – especially for international trips. This is because airport usage fees at major city airports are high, and increase ticket prices by a substantial amount. Additionally, increased flying demand has begun to put major US airports at capacity, causing even higher usage rates or lack of access for budget airlines. The alternative for budget airlines to fly to regional airports near big cities rather than their larger and more popular airport counterpart.[1] Regional airports just outside a metropolitan city charge lower airport usage fees and budget airlines take advantage of this price reduction to provide lower cost travel for their customers.  For example, a traditional airline may offer a flight from Dallas to DC via the DFW International Airport to Dulles International Airport. A budget airline may offer a similar flight from DAL love field to the Baltimore/Washington Thurgood Marshall Airport at a 20% cheaper fare. Examples like these will likely increase and international flights to similar regional airports will also continue to increase.[2]

If this trend continues and use of regional airports continues to grow, at least 15 airports will potentially benefit from the rise of budget airline and the increase in leisure travel[3], and customers will continue to see lower and lower fares. As regional airports grow, there will be more economic growth towards that area. Greater use of the regional airports will create new growth to accommodate these new travelers’ en route to their destination. More food services will pop up in the regional airport and the surrounding area; transportation companies (buses, taxis, etc.) will expand their operations to and from this location—further creating a need for more gas stations, parking lots, etc. Likely, it will increase property values around this airport as well. A variety of services will rise to accommodate these travelers and the city’s tourist density will shift towards that regional airport and the surrounding community. Overall, the expanded use of regional airports will benefit the nearby communities.

By Alex Byron



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