Low-cost and ultra-low-cost airlines are experiencing significant upheaval as their business model comes under unprecedented pressure from rising operational costs and aggressive competition from traditional carriers.
The fundamental question facing the industry is whether ultra-cheap flights are approaching their end, with 2025 considered a pivotal year for determining market dynamics and identifying which players will suffer the strongest impact.
Market leaders maintain strength
Market analysts expect the strongest low-cost carriers like Ryanair and easyJet to remain resilient, whilst smaller players battle more intensely for market share.
Ryanair leads European aviation with 182 million passengers last year, followed by Lufthansa (123 million), IAG (115 million), Air France-KLM (96 million), Turkish Airlines (83 million), easyJet (82 million), and Wizz Air (60 million), according to AirAdvisor.
Smaller regional operators with limited route coverage and lower passenger numbers are expected to face continued challenges across both low-cost (LCC) and ultra-low-cost (ULCC) categories, McKinsey analysis shows.
Industry crisis indicators
Recent developments highlight the sector’s difficulties. Historic American carrier Southwest Airlines has begun abandoning its nearly 50-year practice of random seating in favour of premium seat packages with higher charges.
Spirit Airlines exited creditor protection in March after four months, re-entering an intensely competitive landscape. The carrier, known for its bright yellow aircraft, warned mid-month it might not survive a year without additional funding, with credit card processing companies demanding greater guarantees.
European challenges are emerging at lower intensity. Hungary’s Wizz Air withdrew from Gulf markets, Iceland’s Play Airlines abandoned transatlantic routes for European tourist destinations, Norway’s Norse Atlantic Airways shifted to aircraft leasing rather than passenger operations, and India’s IndiGo expanded into long-haul international flights with premium cabin offerings.
Three key pressure points
McKinsey identified three primary factors behind low-cost carrier struggles: increased labour costs, widening spending gaps between high and low-income travellers, and coordinated efforts by traditional carriers to compete aggressively on routes typically served by budget airlines.
Post-pandemic pilot shortages and staffing gaps increased labour costs for all airlines. For traditional carriers with generally higher wage scales, increases were more contained as percentages of total existing costs.
For (U)LCC operators, labour costs as operational expense percentages rose at much faster rates, dramatically reducing cost differentials between budget and traditional carriers.
Consumer spending polarisation
Post-pandemic consumer spending, particularly in the US, increasingly depends on households earning over $250,000 annually – the top 10% of incomes.
These households have increased spending above inflation levels and prefer traditional carrier travel with premium-economy or business class seats, airport lounges, and high-quality services.
Meanwhile, inflation has reduced spending budgets for lower-income households. When these families spend less on travel, (U)LCC carriers feel the impact more acutely than traditional airlines.
Traditional carriers’ strategic response
Legacy airlines have entered (U)LCC territory by launching “basic economy” ticket versions. United Airlines announced that over 15% of ticket sales fall into this category, directly targeting (U)LCC customers using pricing categories and fare rules mimicking budget offerings.
Traditional carriers have gained market share by offering more affordable prices combined with premium brand experiences, extensive destination coverage, frequent services, and strong reward programmes.
This strategy attracts budget-conscious travellers whilst enabling higher-margin ticket sales and ancillary services.
Model under threat
United Airlines CEO Scott Kirby declared in May 2025: “The low-cost model is dead. It’s a crappy model. I’m sorry to say that”. He argued whilst this approach “may have worked for some airlines in the past, their problem is they’ve grown large enough that they need repeat customers. But they don’t get them”.
Delta Air Lines’ Ed Bastian used diplomatic language: “Airlines that cannot balance expenses will not have the opportunity to continue operating their current business models”.
The low-cost model operates by offering cheaper seats than traditional carriers on nearby destinations, whilst continuously charging extra for baggage, seat selection, and refreshments.
Budget carriers often use secondary airports with lower landing fees, but between increased competition from traditional carriers on domestic routes and rising labour and maintenance costs, the model faces unprecedented challenges.
(information from in.gr)