Budget airlines have changed the seating arrangement in a bid to boost their performance.
The pivot is being made as legacy carriers aggressively reduce fares and low-fare airlines face rising costs of operations due to the significant increases in pay for cabin crew, pilots, and other staff.
Barron’s reported that the airline industry may have no other option but to make this change. This could prove difficult, according to the report.
Seating options that appeal to a diverse demographic
In an effort to reach a wider audience, budget airlines have launched what they call premium services.
Barron’s says that the “premium experience” is a modest upgrade.
Southwest Airlines, for example, announced that it would introduce extra-wide rows of seats in the future, marking an important departure from their longstanding policy of open seating.
This shift was highlighted by the airline during their investor day held last month. The company committed to adopting a different approach following more than 50 years of seating arrangement.
Southwest Airlines is not the only airline that has taken this step. Airlines such as Frontier Group and Spirit Airlines also explore options to allow passengers to pay extra for space and amenities.
Stock market turbulence and shifting strategies
Stock shortages have heightened the urgency of budget airlines in rearranging their seating.
The shareholders are waiting for the results of these changes.
Southwest recently posted minimal profits and the stock of its company is now rated Hold by many analysts after a confrontation with Elliott Investment Management, a hedge fund that has been promoting activist causes.
In order to improve its operations, the airline has frozen hiring and cut routes that are not profitable.
Frontier’s stock price has risen 79% in the last three months, thanks to its strong financial forecast.
Frontier is rated as Hold by most analysts, similar to Southwest. This suggests caution from investors.
Spirit Airlines, on the other hand, is in a very bad situation. Its stock has dropped by 85% this year.
The Sell rating is recommended by eight of eleven analysts. According to reports, the airline has been exploring bankruptcy as well as extending deadlines for debt refinancing.
Spirit CEO Ted Christie expressed his optimism regarding the company’s future, saying, “We are engaged in productive discussions with advisors of bondholders about the debt maturity dates that will be coming up.”
The concept of premium may be underwhelming to some critics
Airlines are adopting a new trend this year called segmentation. It is designed to help fill up excess seats without having to sacrifice profits.
This approach is used by established airlines such as Delta Air Lines or United Airlines. They offer low base prices while offering a wide range of options à la carte, including additional legroom and seat selection.
Southwest Airlines, Frontier and Spirit, as well as other budget airlines, are following the trend, hoping to boost revenue per passenger, without going too far away from their roots.
Morningstar analyst Nicolas Owens said in a news report that airlines had to become more innovative about segmenting their customer base. The more options they offer, the greater the variety of ways they are able to make money.
The new strategy is designed to attract a wider range of passengers, even though the upgrade options are not as luxurious as those provided by conventional airlines.
The concept of premium may not be appealing to critics. Southwest Airlines’ enhancements are basic. The airline retrofits existing aircraft to provide more legroom, assigned seats and other amenities.
The airline implemented these changes after market research revealed that customers wanted upgrade options.
Frontier’s UpFront Plus is a more robust plan. The new ticket levels allow those who spend more money to have two bags up to 50 pounds checked in, as well as avoid cancellation fees or changes made at the last minute. They can also secure a seat next them.
Frontier offers different pricing depending on route. For example, the “business bundle” costs $69 from Cincinnati to Orlando or $99 from Los Angeles Denver.
Frontier Chief Commercial Officer Bobby Schroeter said, “We have identified a change in expectations from our customers. Many of them will pay a little more for comfort and convenience.”
It’s really in line with the broader industry trend. “Travelers just want to have a little more flexibility.”
Attracting higher-end travelers is a challenge
Analysts believe that despite these efforts the pivot to premium services may face significant challenges.
Citi analyst Stephen Trent highlighted that it is difficult to attract new passengers willing to spend more on what he calls “business-lite’ offerings from a budget carrier.
He asked, “Who will be the pilots of this flight? Where is going to come in an additional passenger?”
Is anyone willing to give up their American Airlines Business Class seat for a regular flight? “I really doubt it.”
Southwest, Frontier and Spirit executives remain confident, using market research as a basis for their new seating strategy.
The airlines’ stock value could rise if their predictions prove to be correct.
If they make a mistake in judging the market they may alienate their customers or put their business model at risk.
Will it lift stock? This list may change as new information becomes available.
