United Airlines may be about to toss its hat into the ring when it comes to competing with budget carriers. The legacy carrier is making some changes that will place it in the position to compete with the ultra-low ticket prices offered by popular budget carriers. That means that the airline world could look significantly different by the end of 2018.
How United Plans to Offer Lower Fares
How does United plan to lower fares down to the level of budget carriers? A big part of United's plan for entering a price war with other carriers revolves around increasing capacity. The airline will be able to offer lower rates and more tickets by increasing the amount of seats on its flights. It has already been announced that seat capacity on United flights is expected to increase by between 4 percent and 6 percent in 2018. In addition, the airline has long-term plans in place to continue to increase seat capacity at the same rate for both 2019 and 2020.
Why United Is Taking a Big Risk
United announced its plans to compete with low-cost carriers just as the airline is finishing a successful year. United reported a net profit of $580 million for the fourth quarter of 2017. That's up quite a bit from the $397 million the airline earned during the same period the year before. However, worries regarding the airline's profit margins have been creeping up.
Factors such as high labor costs, increasing fuel costs and the growing popularity of budget carriers are all behind United's decision to take a long-term strategy for growth that includes dipping into the budget-carrier realm. United's decision is already creating some waves. The airline saw the price of its shares dip significantly after it announced new plans to move toward budget tickets. In fact, shares of the airline fell by 6 percent in the aftermath of the announcement.
Is a Price War Coming?
Travelers may have mixed feelings regarding United's decision to begin competing directly with budget carriers. The decision comes as good news to people who shop for airfare based solely on fares. Those travelers can now look forward to booking ultra-cheap tickets with a legacy carrier that operates throughout the country and provides all of the perks that go along with traveling with one of the major players in the airline industry. However, elite customers of United may be concerned about being stuck with seats on crowded planes once capacity is increased.
It is likely that United will ignite a price war when it begins unveiling low-cost fares and extra capacity on its flights. In addition to competing with the popular budget carriers around the country, United will also continue to keep other legacy carriers on their toes.
Of course, the way this will all play out ultimately depends on United's ability to successfully straddle the worlds of legacy airlines and budget carriers. All eyes will be on the airline to see if it can lower fares without decreasing the service and clout that loyal customers have gotten used to.