When Jude Bricker was brought in as the new CEO of Sun Country, I assumed a move toward his roots at ultra low cost carrier (ULCC) Allegiant was in the cards. A recent memo he sent internally at the airline indicates that is indeed what’s happening. The timing, however, is interesting as many are starting to publicly question whether the ULCC model is going to be sustainable in the long term in the US market for anyone.
Jude’s plan appears to be this:
- Reduce costs
- Increase ancillary revenues
- Diversify beyond its home airport (Minneapolis/St Paul)
- Maintain that Minnesota friendliness
- Reduce costs
Did I mention the airline will need to reduce costs? It’s going to do this through the usual methods. It’ll add seats to airplanes to bring unit costs down. You’ll also see a buyout for senior employees (not pilots, which are desperately needed) to help bring labor costs lower. And of course, you know there will be a top to bottom review of everything to find ways to wring costs out.
Does this sound like Frontier to you? The structure sounds exactly like Frontier to me. Just substitute Minneapolis for Denver and you’ve got the same thing, just on a smaller scale. (No, we don’t know what the route structure is going to look like, but at least the basic transformation plan sounds the same.)
Is that good? Well, certainly Frontier did not have a sustainable model before the change, and it’s making money now. But for Frontier, the switch has been rocky. There have been notable operational and customer service failures that become even more noticeable when compared to the service previously provided by the airline. Having that point of comparison makes for an uphill battle for any airline at the start. Sun Country will face that same challenge at home, but the challenges appear even larger now than before.
What’s been most interesting lately is that the ULCCs aren’t spinning gold in quite the same way they did before. Spirit’s stock took a hit after talk of pricing pressure came out in the last earnings call. Meanwhile, increased competition has led to a delayed initial public offering for Frontier. The current state of affairs has some questioning whether the ULCC model has a future at all in the US.
Let’s not kid ourselves. These airlines are still making good money. That being said, the big carriers are getting much more aggressive. They aren’t going to sit around and let ULCCs have an inch anymore. US Airways knew this and fought Spirit tooth-and-nail. Now those former US Airways leaders are running two of the three remaining big network carriers in the US and the strategy remains the same.
More importantly, they’ve armed themselves with new weapons in the fight against carriers with a lower cost base. They’ve upgauged to bigger airplanes and put more seats in coach to help bring unit costs down. At the same time they’ve launched Basic Economy and begun selling even more ancillary services to find a way to be able to offer those low fares to match ULCCs without hemorrhaging.
It’s a delicate dance. Those airplanes still need to be full of higher fare travelers up front, and so far, the big three appear to have found a good balance. This can (and undoubtedly will) change in the future, but it seems that right now, the network carriers have won a battle in this long-standing war.
So what can the ULCCs do? And how can Sun Country succeed? Spirit will tell you that having low costs matters the most. That is a huge piece of it, but it may no longer be enough considering the competitive threat from the big guys. ULCCs need to actually do right by the customer. That means it’s now hugely important to run a good operation. Ryanair figured this out long ago. Just look at the first 7 months of this year. Ryanair’s worst month was an 83 percent on-time percentage with four of the months over 90 percent.
You would think the basic idea of running a good operation would be a given, but the ULCCs in the US still aren’t there after all these years. Meanwhile, Ryanair has learned even that’s not enough in Europe. It now believes improving customer service matters as well. The airline has spent a lot of time over the last few years playing in that sandbox. US ULCCs are still playing catch-up. So what about Sun Country?
Sun Country already has a reputation for good customer service, but it has a model that’s not going to work in the long run. Now it has to figure out how it can transition its model without ruining that solid reputation. A note to Sun Country: it’s probably best not to follow Frontier’s lead. Sure, that airline wanted to do the same thing, but reality hasn’t worked out that way with several very public missteps along the way.
Sun Country’s owner at least paid lip service to this reality.
“We don’t want to nickel and dime customers. We want to stabilize it for long-term growth by finding the right rhythm between our pricing and customer service,” he said. “Jude very much recognizes the value that exists at Sun Country and we aren’t going to change that.”
As the old saying goes, talk is cheap. In the past, that didn’t matter as much since bigger airlines either weren’t able to properly compete or simply didn’t bother trying. But those days are over, and a successful ULCC is going to have to really focus on operational and customer service excellence. Even that’s no guarantee of success in this hyper-competitive world. But it’s at least a roadmap that may have a fighting chance.
If that’s Sun Country’s plan, then more power to the airline. Maybe someone can pull this off.