In the latest episode of The Pricing Guys, hosts Avy and Michael take a deep dive into one of the most debated models in aviation: ultra-low-cost airlines. They explore whether “being the cheapest” is viable long term, how airlines use premium classes to subsidize low headline fares, and what happens when capacity exits and re-enters markets. Listen to more episodes of The Pricing Guys Podcast here.
Below is a breakdown of the ideas discussed, plus key takeaways for pricing and revenue leaders in any industry, especially those grappling with high fixed costs and competitive pressure in commoditized markets.
The Promise and Pitfalls of Ultra-Low Cost
The appeal of ultra-low-cost is obvious: headline fares so low they attract mass volume, pushing more seats and filling planes. But the model often hides complexity.
Cost discipline is everything. You can’t win on price alone unless your operational cost per passenger is extremely lean. Unbundling is essential, as many low-cost carriers rely on charging separately for luggage, seat selection, and meals to keep base fares low. Yet when every competitor cuts deeper, margins vanish and the race to the bottom begins.
Capacity swings only add to the challenge. Exiting routes may reduce losses, but re-entering them later can bring higher costs, weaker brand awareness, and unpredictable demand.
The Role of Premium Mix
Avy and Michael highlight how premium classes such as first or premium economy can subsidize headline-low fares. These segments attract travelers willing to pay more for comfort or flexibility, helping absorb the fixed costs of operations.
The most successful low-cost carriers often operate hybrid models. They keep operations lean but still offer premium upgrades or loyalty benefits that attract higher-yield passengers. The balance between filling premium seats and keeping low fares attractive is what separates sustainable operators from those burning cash.
What Happens When Capacity Returns
Airline markets are cyclical and volatile. Routes disappear and reappear as carriers chase profitability or respond to demand shifts. When capacity exits, surviving players enjoy short-term yield improvement due to reduced price pressure. But re-entry is costly, requiring renewed marketing, renegotiated costs, and price cuts to rebuild share.
This volatility makes long-term pricing strategy complex. It also reinforces why low-cost models can’t rely solely on cheap fares. Every decision—when to grow, pause, or return—must be guided by disciplined revenue management.
Why “Lowest Fare” Isn’t Enough
The cheapest ticket isn’t always the winning ticket. Avy and Michael emphasize that being the lowest-priced option only works when supported by cost efficiency and a clear value story. Customers might pay slightly more for reliability, better service, or a trusted brand.
Constant discounting erodes brand perception and teaches customers to delay purchases until the next sale. Long-term success comes from defining why your offering is worth its price, not from how low that price can go.
Key Takeaways for Pricing and Revenue Leaders
Cost control is non-negotiable. Low pricing only works when matched with an equally low cost base.
Premium mix matters. Higher-margin products can fund aggressive pricing elsewhere.
Avoid the price trap. Competing solely on price destroys margin and weakens positioning.
Plan for capacity cycles. Manage expansion and contraction strategically, not reactively.
Lead with value. Customers reward clarity and reliability over absolute cheapness.
Final Thoughts
Ultra-low-cost airline models push pricing discipline to the limit, showing both the potential and fragility of cost-driven strategy. As Avy and Michael point out, sustainable success depends on alignment across cost structure, product mix, and value proposition.
Whether you’re selling airline seats or software licenses, the same truth applies: you can’t win long-term by being the cheapest unless you know exactly why your customers choose you—and how your economics support it.
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The Bottom Line
Gen Z are not simply the most price-sensitive generation. They are the most value-aware. They spend differently, not necessarily less.
As Avy and Michael conclude, these shifts will reshape both consumer and business markets. For B2C brands, the change is already here. For B2B organizations, it is only a matter of time before today’s Gen Z consumers become tomorrow’s procurement leaders.
Understanding how they think about value now will determine who stays competitive later.
