As US airlines come off their most profitable year in history, what can we expect this year? Tom Bacon shares his thoughts

Let’s face facts: airlines cannot be expected to reduce fares simply because they are performing so well financially. However, there are some factors that can result in somewhat lower fares in some markets if fuel prices remain low. On the other hand, as airlines try to maintain or even increase their new levels of profitability, all airlines are likely to try to drive more total revenue, through ancillary product upgrades and merchandising. 

On that note, here’s what to watch out for in 2016:

1.  Less ‘discipline’ (lower fares)

Record profits in the US are partly due to ‘capacity discipline’, or limited capacity growth by the largest four carriers. Even as fuel prices declined, these carriers maintained their plans to grow capacity very slowly. However, in more normal interaction of supply and demand dynamics, I expect this discipline to falter somewhat in 2015:

• Record profits means adding a little more capacity is likely to be profitable. With new aircraft coming, it is easy for airlines to keep older aircraft a little longer to take advantage of the current situation, temporarily boosting total capacity.

• Historically, legacy airlines have attempted to maintain market share in markets launched by low-cost carriers.  As the low-cost airlines continue double-digit growth into some of the best legacy markets, legacy carriers will likely respond with some additional capacity – they will not back down in key markets in their hubs.

2.  ‘Bare bones’ fares (lower fares with fewer amenities)

Both American and United have announced they are working on ‘bare bones’ fares to compete more effectively against the ultra low cost carriers, like Spirit and Frontier. American’s and United’s lowest fares, currently include more amenities than these ULCC competitors (American offers free carry-on, more legroom, free beverages, free pre-reserved seats, and tickets change-able subject to a fee).  Currently, however, despite offering ‘more’, American is often matching ULCC fares to the penny to continue to attract its share of extremely price sensitive passengers. A ‘bare bones’ fare would allow American to match ULCC with fares potentially more comparable in amenities. Delta already offers ‘basic economy’ and has reported considerable success with this new low fare. American and United will both release their ‘bare bones’ fare in 2016 – and American, United, and Delta will likely experiment with this tactic in a variety of forms during the year.

3.  More ancillary (more total revenue)

Ancillary revenue continues to grow – and expect even more ancillary options to be offered in 2016. The big four (American, United, Delta, and Southwest) each lag the ‘ancillary champs’ (they report 10% or less of revenue from ancillary while Spirit reports 45%), so there is much upside potential, including charging for carry-on bags. And, there are still completely new ancillary opportunities, not yet offered by any carriers. ‘Freebird’, for example, is offering new guaranteed re-accommodation for passengers disrupted by late or cancelled flights. American and United both offer price-hold options but these are currently limited in both availability and duration.

4.  More premium services (more total revenue)

One specific initiative that has driven more ancillary revenue is premium services – including ‘premium economy’. Alaska, for example, recently announced its new ‘bigger seat” option. Also, airlines are now investing again in improved business class and first class products; jetBlue is reporting considerable success with its mint product. Even as the larger airlines find they must compete more aggressively against ULCC’s, they are trying to capitalise on more price insensitive market segments through a better product – only available for those willing to pay a premium.

5.  Personalisation/merchandising (more total revenue

Airlines continue to work on merchandising the various service options they now offer. This remains the largest opportunity for airlines in ancillary space – better communicating options and personalising offers. The purchase process has become even more complex with the plethora of ancillary fees – this is the opposite of what customers need as they try to make bookings on their mobile phones. And airlines have been slow to apply the science that is now available for e-tailers in creating a more effective online customer experience – expect some experimentation in 2016.  Finally, third party distributors – online travel agencies and traditional travel agencies – also see the upside potential in improved e-merchandising:  IATA’s New Distribution Capability (NDC), currently being tested by many carriers, can facilitate third party merchandising in 2016.

Of course, cost-related shocks (high fuel prices again, or higher labour costs) could set airlines back from their profitability trajectory but that would not change their interest in the revenue-related initiatives stated above. Whatever happens 2016 is again forecast to be a strong year for airlines but, as usual, industry forecasts are not always very reliable – there’s generally a surprise. In any case, however, expect further experimentation and innovation on the revenue side.

Tom Bacon is a 25-year airline veteran and industry consultant in revenue optimization and a regular columnist for EyeforTravel. Questions? Email Tom at or visit his website