When planning your next flight, it might seem like you have two choices: Spending a little extra cash for a full-service experience on a big name carrier like American, Air France, or Singapore Airlines, or saving some money by going with a low-cost, bare-bones carrier designed to simply transport you from point A to point B.
But these days, it really isn’t that simple. Between legacy airlines creating basic economy fares, traditional budget airlines with expanded seat choices and amenities, and new ultra-low-cost airlines that charge for just about anything you can imagine, things have gotten a lot more complicated.
In an effort to compete with the proliferation of low-cost airlines, some legacy carriers like American, United, and Delta have begun offering a deeply discounted “basic economy” fare class on their regular flights. These fare classes are designed to resemble the budget airline experience and generally don’t include things like free checked luggage, pre-assigned seats, priority boarding, upgrade eligibility, and other main cabin amenities.
Meant to attract a thriftier traveler, this recent integration significantly blurs the line between true budget airlines and legacy airlines. Further blurring the line are higher-end budget airlines that seem to have a foot in each camp, like JetBlue, which originally launched as a low-cost carrier but now features satellite TV, above-average legroom and complimentary snacks (and even business class on some routes), or Southwest, which has traditionally offered free carry-on bags and free changes or cancellations, two things most budget airlines charge hefty fees for.
On top of all that, new ultra-low-cost airlines have entered the market, charging customers for just about anything imaginable. All these details make deciding which type of airline to fly a trickier task than ever.
What this means for travelers is that the line between legacy and budget airlines is blurry, and you can’t always make assumptions about the level of service based on the airline’s label of “budget” or “full-service.” Here, we’ll we’ll talk about the differences between budget airlines and full-service/legacy carriers and what travelers need to know.
The rise of low-cost airlines can be traced back to The Airline Deregulation Act of 1978.
Up until then, the US government tightly controlled many aspects of commercial air travel including flight paths, schedules, ticket prices, and the creation of new airlines. This pre-deregulation period is sometimes referred to as the Golden Age of plane travel, a time when airlines competed against each other by touting their in-flight amenities (think: cocktail bars, lavish meals, white tablecloth-level service) as it was practically the only consumer selling point they could control.
After 1978, however, airlines were free to expand routes and flying times, decrease or increase fares, retrofit planes to carry more passengers, add new flight paths, consolidate to form larger conglomerates or establish subsidiaries with minimal oversight. For the most part, they could charge whatever they wanted to fly wherever they wanted, as long as they adhered to FAA standards and followed any remaining federal requirements. This completely changed the game, vastly upping competition between the original (AKA “legacy”) airlines, increasing consumer choice, and ushering in a brand new business model for air travel: the budget carrier.
Founded in 1967, Texas-based Southwest Airlines began running interstate commuter flights between Dallas and San Antonio and Dallas and Houston in 1971. But it wasn’t until deregulation took hold in 1979 that the small company truly emerged, expanding its highly efficient, no-frills operation to neighboring states and building a path to becoming the world’s largest low-cost airline.
Southwest set itself apart from the country’s many full-service legacy airlines by focusing, first and foremost, on maintaining the lowest fares. In order to keep costs low, they pulled back on amenities like fancy inflight meals, plush seats, first class service, reserved seat assignments and other perks once considered industry standards. A typical Southwest flight included minimal refreshments (maybe a soft drink and peanuts) and had no premium cabin option. They stuck to short routes that they could easily run multiple times per day and their entire fleet was made up of Boeing 737s so their crews only had to deal with one type of aircraft, all in the name of maximum efficiency.
Inspired by Southwest’s success and consistent profitability, the following decades saw deregulation sweep the globe and a whole host of new low-cost carriers modeled after the Texas-born pioneer rise up in its wake. Some, like Air Florida and PEOPLExpress never made it out of the 1980s, some were purchased and absorbed by legacy airlines and some, like Allegiant Air (est. 1997) and Frontier (est. 1994) along with Ireland’s Ryanair (est. 1984), Canada’s WestJet (est. 1996), Norway’s Norwegian Air (est. 1993) and Malaysia’s AirAsia (est. 1993), fly on today.
Today’s competitive landscape looks a little different than it did in 1979. After seeing Southwest’s dominance, legacy airlines wanted a piece of the action and many either launched their own low-cost subsidiaries or acquired already established low-cost carriers and turned them into subsidiaries.
These types of budget airlines tend to come and go a lot faster than stand-alone airlines because there’s much less risk involved—if they don’t catch on, the parent company usually survives without taking too much of a hit since the initial investment was relatively low.
Examples of subsidiary budget airlines include Qantas’ JetStar, Air Canada’s Air Canada Rouge, Iberia’s LEVEL, Lufthansa’s Eurowings, and Singapore Airlines’ Scoot and Tigerair, among others. While legacy airlines in the US also dabbled in low-cost subsidiaries (United’s TED, Delta’s Song), they were generally short-lived ventures.
These subsidiaries operate differently than stand-alone budget airlines like Southwest, JetBlue, Spirit, Ryanair, Norwegian, and other independent companies that exclusively adhere to the low-cost model. For the purposes of identifying budget airlines in modern air travel’s crowded and often confusing marketplace, we’re going to focus primarily on stand-alone budget carriers here.
As air travel has evolved, what it means to be a “budget” airline has shifted significantly. Originally, budget airlines were defined by things like a lack of a premium cabin or complimentary meals, but nowadays, even many of the legacy carriers don’t serve meals in economy. Budget airlines have also traditionally been associated with a lot of fees for things like seats and bags, but many legacy carriers now offer basic economy fares, which include fees for those things as well.
The label of budget airline, then, has become difficult to define. As mentioned above, Southwest is typically thought of as a budget airline, yet unlike most legacy carriers, it offers free checked bags and doesn’t charge change fees. It may technically be a “budget airline” but travelers the experience may be more pleasant than flying a “full-service” airline.
Despite the blurred lines and the danger of ascribing simplistic (and shifting) labels to budget and legacy carries, we can make some general statements about how the two differ when it comes to some crucial business practices—and what that means for travelers.
Unbundling, or the model in which a customer starts with a low base fare and then has the option to purchase “upgrades” like checked baggage and seat assignments from there, is the default way of booking a ticket with a budget airline.
For example, a roundtrip ticket on Spirit Airlines from Chicago to New York may be listed as $130.58, which includes a seat on the plane and one personal carry-on item. During the checkout process, you can buy an additional carry-on bag for $37, up to five checked bags for $32 each, a reserved seat for $14 to $43 depending on placement and category, airport agent check-in for $10, flexibility to change your ticket for $45, priority security lane access for $5 and priority boarding for $6.50. Spirit now also offers a “Thrills Combo,” which mirrors a standard bundled fare by including all the optional add-ons at the single discounted price ($65.49 in the case of the Chicago to New York roundtrip). Once onboard, all drinks and snacks are available for purchase only.
Legacy airlines have recently started moving towards unbundling for some fare classes, namely Basic Economy, but also main cabin in some cases. For budget airlines, however, it’s the industry standard.
Unlike legacy carriers and subsidiary budget airlines, no stand-alone budget airline is in an airline alliance like Skyteam, Oneworld, or Star Alliance. As a result, their network is much more limited, they rarely share loyalty program benefits with other airlines, and flyers are unable to book itineraries that involve transferring to other airlines.
For example, neither Norwegian nor Ryanair would sell you a single ticket that takes you from JFK to Oslo on Norwegian and then from Oslo to Hamburg on Ryanair. However, you could fly from JFK to Amsterdam on Delta then connect from Amsterdam to Glasgow on KLM all on the same ticket. Some OTAs like Kiwi.com specialize in offering tickets that feature a connection from one budget carrier to another, but they’re essentially pairing two separate consecutive itineraries as opposed to booking a single itinerary.
If you’re planning to transfer from a Norwegian flight to a Ryanair flight, you have to book two separate tickets, retrieve and re-check your bags, check in to your new flight and usually go back through security to make your connection. And if your first flight happens to be delayed or your second flight canceled, getting to your final destination becomes a whole lot more complicated.
Relatedly, most stand-alone budget airlines don't have interlining agreements (also known as interline booking or interline ticketing agreements). These agreements are basically partnerships forged between airlines to handle each other's passenger traffic. The simplest form of this is an airline alliance, but airlines will often interline with companies outside of their alliances in order to better navigate shared markets.
For example, Panama’s flagship carrier Copa, which falls under Star Alliance, has an interline agreement with Delta, a member of SkyTeam. Interline agreements can not only streamline complicated multi-leg routes into a single itinerary, they also allow passengers to check-in just once at the start of their trip, check their bags through to their final destination and get rebooked on another airline if irregular operations (i.e. delays, cancellations, reroutings) occur.
Without these partnerships, experiencing irregular operations can sabotage an entire itinerary. If you miss a direct morning flight to Frankfurt on a legacy carrier like United and they don’t have another one scheduled for that day, they might be able to get you a seat on an afternoon Lufthansa flight or shuttle you over to a larger airport nearby where United runs multiple transatlantic trips each day. They could even route you through another city like Zürich then connect you to Frankfurt via Swiss Air.
Partnerships can provide passengers with multiple solutions in case something goes awry, whereas stand-alone budget carriers are limited to their own fleet’s capabilities. A budget airline might only fly to Germany once or twice a week and schedules can vary depending on the season, so a missed flight can mean days of waiting around, rather than hours.
When it comes flight routes, budget airlines traditionally use a point-to-point model as opposed to the hub-and-spoke model employed by legacy carriers. Instead of routing the majority of their flights through a handful of central hub airports, budget airlines focus more on direct, small-demand flights between two cities, regardless of size. This system can also derail your itinerary if you encounter irregular operations.
Say you’re flying direct on United from Chicago to Paris and your flight gets canceled. If there aren’t any other direct flights out of Chicago, you can easily get re-booked through Newark or Dulles, two very busy United hubs. On the other hand, if you miss your flight from JFK to London on Norwegian, Norwegian has no way of getting you from New York to Boston to catch a later flight out of Logan because those points don’t connect. Your only option is to wait for the next flight out of JFK.
Budget airlines tend to have little or no premium cabin seating, though this isn’t always true. These days, some budget airlines will have options to upgrade to larger seats closer to the front of the plane or priority boarding access, but even then the perks are more along the lines of premium economy. Even if a budget airline describes a section as business class, it’s very rarely comparable to a legacy airline’s business class in terms of luxury, amenities and space, no matter how they’re choosing to market it.
Budget airlines generally price roundtrip flights as the sum of each direction's cost rather than coming up with an entirely different fare. If you search the price of a one-way ticket from New York to Oslo on Norwegian, and then search Norwegian’s price for a one-way from Oslo to New York, the sum of those two fares is going to be the exact same (or very similar) as the cost of a roundtrip Norwegian ticket from New York to Oslo.
If you were to repeat that search process using a legacy airline, you’d find that one-way flights to Europe tend to be very expensive, while a roundtrip tickets from the US to Europe is usually less than double the cost of a one-way trip. Sometimes the legacy carrier’s roundtrip ticket is even cheaper than the price of a single one-way ticket.
Why? Legacy airlines tend to practice price discrimination, targeting different types of flyers based on market research. They figure one-way travelers, typically business travelers, have different needs than those buying roundtrip tickets, like vacationers who might be more price sensitive. That approach requires a lot more specialization, customization, and complexity in terms of price algorithms, which is partly why budget airlines have tended to shied away from it (they’re also going after a different market: price-sensitive leisure travelers). It’s much faster and easier to simply price roundtrip tickets as the sum of two one-ways.
Historically, budget airlines have focused on short- and medium-haul routes. And while many have significantly expanded their reach in recent years, you still won’t find a budget airline flying direct between mainland US and Asia or North America and Africa. The bulk of their business remains short-haul regional travel or medium-haul (like North America to Europe) as those have proven to be the most profitable.
The main target audience for budget airlines is overwhelmingly everyday travelers on vacation and there are a few clear reasons behind this. The first is that budget carriers usually lack premium cabins specifically designed to cater to luxury and business travelers.
Budget airlines have significant change and cancellation fees, which doesn’t always bode well when traveling for work. And in an effort to pare down operating costs, budget airlines rarely enter into travel contracts with big corporations, unlike legacy carriers where business travel accounts for a massive percentage of their overall profits. For instance, Apple has an agreement with United to provide them with seats on flights between Shanghai and San Francisco at their discretion. Establishing, negotiating and maintaining this kind of contact, while extremely lucrative, is generally well beyond the scope of most low-cost airlines.
In an arena filled with so much high-end competition, how do budget airlines survive? How do they make money? These are some of the factors that play into their sustained profitability.
You might have noticed that budget airlines tend to fly into a region’s less-frequented airport, like Newburgh or Long Island instead of JFK, or Providence instead of Logan. This is a key cost-cutting measure because every airport, no matter the size, only has so many landing slots. At big, busy airports like JFK or LAX, the fight for a landing slot is much more competitive and the air space is more restricted. As a result, all the fees associated with landing planes there tend to be a lot more expensive.
Legacy carriers need access to these convenient hub airports to keep up with customer demand and the airports depend on legacy carriers to keep the cash flowing, leaving budget airlines little sway over price negotiation. On the flip side, smaller airports are generally located farther from the city center and attract much less traffic, conditions which give low-cost airlines a lot more negotiating power.
Budget airlines usually, though not always, stock a more modern lineup of planes. Unlike legacy airlines who have to constantly update, repurpose and reevaluate a half-century’s worth of outdated equipment, low-cost airlines start out with a clean slate. They’re able to purchase the latest models without having to weigh out the costs of repairing an older fleet instead or figure out what to do with unused gear. These newer planes are not only faster, more reliable and require less maintenance, they also tend to be much more fuel-efficient. Fuel efficiency is obviously a huge money saver, especially for medium- and long-haul flights. Similarly, budget airlines will generally utilize newer IT systems that don’t need as many updates or re-builds as the antiquated computer systems the legacy airlines have been retrofitting since the 1950s.
Budget airlines also tend to operate just one type of plane. Southwest, for instance, only flies Boeing 737s. The philosophy, in general, is that sticking to one model makes training a lot easier across the board, from flight attendants and pilots to grounds crew, maintenance and gate staff. It also streamlines equipment needs—you can have the same jet bridge settings, the same replacement parts, the same procedures no matter where you land. It can be restrictive in terms of routes and how far you can fly, but at the end of the day, it’s much more cost-effective than operating a more diverse fleet.
It’s no secret that budget airlines, as a general rule, prioritize headcount over comfort. When an airline buys a plane, it gets to customize the layout, seat type, and configuration however it sees fit, so the same 737 could hold 200 passengers or 350 depending on the airline’s preferences. By narrowing seat pitch, legroom, underseat storage, and aisle width, low-cost carriers are able to maximize the number of seats on each plane. This contributes greatly to overall profitability. Of course, for travelers, this can be mean a less comfortable ride.
In general, low-cost carriers save on labor by not employing unionized workers. Flight attendants and pilots at most legacy airlines are unionized and sometimes the unions extend to other sectors as well, which better protects the workers but leads to higher labor costs and more complicated contract negotiations. Some budget airlines also cut costs by contracting out a lot of their services. Sometimes low-cost carrier pilots aren't actually employees of whichever airline they're flying for, but instead are independent workers hired on a temporary or contract basis.
You’ve probably seen a price breakdown parsing out what your ticket actually costs when you book a flight online, listing the base fare at, say, $30, with $60 going to a fuel surcharge, $30 for a checked bag, $12 to choose your seat, $10 to the TSA security fee and other miscellaneous charges.
What you might not know is that in the US, all domestic airfare carries a 7.5% federal excise tax, which is a much higher rate than any of those other fees. So if a ticket costs $100 total, and the airline wants to keep most of that money, all they have to do is lower the base fare drastically and then heighten the cost of the fees. A budget airline might use unbundling to price that base fare at only $1, and then price the remaining $99 as ancillary fees to save on taxes. If your fare automatically includes some of those extras charged by a budget airline, a larger percentage of the total ticket cost goes to taxes instead of directly to the airline.
It’s safe to say that all low-cost airlines, be they stand-alone or subsidiary, domestic or international, are a direct descendent of Southwest’s groundbreaking 1970s business model. Some of them have modified their practices to mirror legacy airlines, installing upgraded seating options, incorporating some complimentary food and drink, or putting in seatback entertainment screens, but at every budget airline’s core, it’s all about implementing the same basic cost-cutting measures that continue to make Southwest one of the world’s most profitable airlines.
And of course, just because an airline is a budget airline, it doesn’t mean the travel experience will be of lower quality—and nor does it mean the fare will automatically be cheaper than the fare offered by a legacy carrier. As always, the key is knowing what you’ll get and evaluating the pros and cons so you can make the right decision for your trip.
Here’s a simplified chart of basic distinguishing factors between budget and legacy airlines.