Low-Fare Airlines' Cost Advantage Is Eroding

It used to be that low-fare airlines like Southwest Airlines flew into low-cost airports and avoided some of the complications legacy carriers faced, like flight delays and more jet fuel burn, as they didn't need to serve heavy traffic markets that often had higher airport lease costs. Today, some of that competitive advantage is lessening, say airline experts. Costs for all airlines are going up fast, due to the high cost of jet fuel, and now such low-fare airlines as Southwest Airlines and JetBlue Airways must compete with such legacy carriers as US Airways and United, which are exiting bankruptcy in leaner condition. Even non-bankrupt majors like American and Contintental are doing much better at cutting their costs. Airline consultant Michael Boyd has told the media that the whole situation could be a big mess. Boyd believes excess capacity is hurting low-fare airlines much the way it hurt the major airlines in the past. JetBlue Airways, which no longer has fuel-hedging contracts to hold the cost of fuel down, is considering some deferrals of new aircraft to hold the line on capacity. While analysts say domestic airfares are up 10 percent or more since last year, fuel has risen much more. Airlines like Southwest are also now operating in higher cost airports than in the past. Still, most analysts say the low fare carriers are competing as well as expected.

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