Even as a wave of mergers has cut the number of major carriers to four and significantly reduced competition, lower-cost airlines continue to play a role in moderating ticket costs

By MICAH MAIDENBERG of the NY Times. Excerpts:

"Even as a wave of mergers has cut the number of major carriers to four and significantly reduced competition, lower-cost airlines continue to play a role in moderating ticket costs.

While such airlines offer a no-frills passenger experience and charge plenty of fees for such luxuries as additional bags or extra legroom, they are able to stimulate new demand from occasional fliers with relatively cheap prices and even take passengers from the major carriers.

This dynamic is not new: In 1993, researchers at the Department of Transportation called the same trend the “Southwest effect,” named for Southwest Airlines, which grew rapidly thanks to basic, low-cost flights. A recent study by a University of Virginia professor and a consultant at the Campbell-Hill Aviation Group calculated that average one-way fares are $45 lower when Southwest serves a market with nonstop flights. Researchers have shown other low-cost carriers also push down fares."

"Carriers like United and American do not compete with carriers like Frontier and Spirit on every type of passenger. Lucrative corporate accounts are owned by the big carriers, and business travelers avoid the cheaper airlines, often choosing to pay premium prices at the last moment to get seats on the flights that best fit their schedules.

But the low-cost carriers nonetheless force the big airlines to figure out a way to draw the most price-sensitive fliers in any given market — those who scour the internet for the cheapest tickets possible. Those customers make up a significant portion of travelers, meaning the major carrier cannot just ignore them."

"Delta, American and United Airlines have all rolled out “basic economy” fares. Such tickets are priced competitively against Spirit and Frontier, but do not offer the amenities that most consumers have come to expect on a flight, like receiving a seat assignment ahead of a flight or obtaining a refund for a ticket.

Of all the major carriers, United is fighting on price the most aggressively.

Scott Kirby, who was appointed as United’s president a year ago, has shifted the carrier’s strategy toward the low-cost airlines, mirroring one he helped to drive when he served as a top executive at American.

Pushing back against Wall Street’s wishes to limit capacity growth, United is adding seats in a number of its major markets across the country. It has, for example, swapped out smaller jets for larger planes to increase the number of seats it has available to sell, and matched fares offered by low-cost carriers."

"The current skirmishes do not amount to a broad-based fare war. Many routes in the United States are dominated by a single carrier, insulating them from price competition.

The cost of a round-trip domestic ticket averaged more than $490 in the first half of the year, up slightly compared with 2016, according to Airlines Reporting Corporation, a company that settles flight transactions between a number of carriers and booking services like Expedia.

The jostling, however, has left airline investors skittish. As the publicly traded airlines in July reported earnings for the second quarter, shareholders sold off their shares, worried about the fight over fares and capacity increases.

But anxiety among investors is good news for fliers. Travelers on routes that are competitive will probably be able to snap up good deals."