CBSN

Discount Airlines Check The Cost

This summer is shaping up to be the busiest travel season in four years. If you're planning to fly to your vacation destination, you can save money by booking a ticket on one of the growing number of discount airlines.

Kiplinger's Personal Finance magazine recently took a look at all of these discount airlines. And Vera Gibbons, a special correspondent for the magazine, offers the details Friday on The Early Show.

The biggest savings come when booking trips on short notice - good news for business travelers, says Gibbons. But perhaps the best news of all is that once a discounter enters a market, it pushes down prices on all airlines. For example, in early 2002, it cost an average of $337 to fly between Chicago and Oakland. A year later, once discounters moved in to these markets, the price dropped 50 percent to an average of $168 round-trip. The Department of Transportation (DOT) found similar price cuts in all markets that discount airlines entered.

There are several reasons why these discount airlines can charge less:

Point-to-Point Flights - Most discounters don't have hubs. Instead of scheduling flights through a certain city, they simply figure out the high-demand markets and schedule direct flights between these cities.

Lower Wages - Labor costs at the legacies are at least twice as high as the discounters.

Lower Overhead - According to the DOT, it costs discount airlines about 7.3 cents to fly each passenger one mile. It costs the larger airlines about 11.7 cents for the same service.

Fewer Types of Planes - This means less time is required to train crews, and typically allows for quicker turnaround. For example, Southwest is famous for getting its planes unloaded, cleaned and reloaded in just 25 minutes - the fastest in the industry. In other words, they have higher productivity than the legacies.

Newer Planes - These planes are more fuel efficient which results in a huge savings for the discounters. Each penny increase in jet fuel adds $180 million to annual operating costs.

Discount airlines do have a downside; none of them flies internationally. They go to Canada, the Caribbean and Mexico, but that's it. Also, few fly to many small cities such as Tyler, Texas, or Wichita, Kansas.

But, once you step on a discount airline, you won't be disappointed. Many of the airlines have TVs at every seat, which you can watch for free, while others offer live radio stations. More importantly, the discounters offer great service. A new annual study of quality in the airline industry - based on factors like customer complaints, flight delays, lost luggage and other elements - found that three of the top four best-performing airlines in 2003 were low-fare carriers.

  1. JetBlue
  2. Alaska
  3. Southwest
  4. America West

If you feel as though you hear about new discount airlines constantly, you're right. Two discounters joined the competition last year, and one called, Independence Air, began flying earlier this month. In 1991, low-cost airlines had about four percent of the market; last year, they had 25 percent. That number is expected to be 50 percent by 2015. The legacy airlines are bleeding billions of dollars a year, while the discounters are profitable, so we can expect continued growth in this sector.

Here is the lowdown on the 10 low-fare carriers.

The Leaders
Southwest Airlines:
This is the undisputed discount leader. The airline has been around a long time (since '71), flies to 58 cities, and has enjoyed the lowest complaint rate among all airlines for 13 years. Its most expensive flight is $299 one-way.

JetBlue: About half the size of Southwest, JetBlue has quickly acquired an almost cult-like following. This is the airline that first brought us in-air TV. Their best fares are found on coast-to-coast trips.

The Newcomers

Independence Air: This is the newest discount airline to hit the skies. It's different from the other discounters in that until recently, it operated under the name Atlantic Coast and was partnered with United and Delta. Now it's striking out on its own as a low-cost carrier. Also, unlike JetBlue and other newcomers, it plans to grow quickly. Initially, the airline will primarily service the East Coast. In addition to big cities such as Chicago and New York, Independence plans to target smaller cities such as Syracuse, N.Y.

Ted: Launched in February, Ted is the low-cost arm of United Airlines. It specializes in "leisure" destinations, such as Vegas and Phoenix.

Song: Delta's year-old spin-off connects the Northeast and Florida. The airline typically doesn't have the cheapest seats on these routes, and is cutting back flights by 25 percent in September.

More Discount Airlines
AirTran:
Eleven years old, this discounter reaches 45 cities; most are east of the Mississippi. Most flights go through its Atlanta hub.

America West: This airline transformed itself into a bargain carrier about two years ago when it began trimming its fares. It's still not the cheapest discounter in the skies, but you can find some good deals on coast-to-coast routes.

ATA: These guys have been around since the '70s. Most flights begin or end at Chicago's Midway airport. This is one of the discounters that flies to Mexico and the Caribbean.

Frontier: Fewer people are familiar with this airline, which is based in Denver. Its best fares are typically found on routes to Minneapolis, Kansas City and St. Louis.

Spirit: One of the smallest discounters, Spirit has good prices from cold cities such as Detroit, Chicago and New York to Florida, Cancun and Puerto Rico. Look for the airline to add service to the Caribbean and Latin America.

Discount airlines are here to stay. They continue to give the legacies a run for their money, and industry analysts predict the low-cost carriers may even push some of the big guys into bankruptcy. If nothing else, the major airlines are going to be forced to re-think how they operate, so they can stay competitive with the bargain carriers. The real winners in this war are consumers. As the discounters expand, they will bring lower prices to more and more markets.