January 19, 2015 / 2:08 PM / 5 years ago

UPDATE 1-Indigo's Franke sees U.S. budget airline consolidation

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DUBLIN, Jan 19 (Reuters) - One of the most influential investors in low-cost airlines, Bill Franke, on Monday raised the prospect of consolidation among U.S. budget carriers, echoing a shake-out among traditional network airlines.

“If you want to see how the international aviation landscape is going to evolve, just look to the United States, where consolidation has left just four major legacy carriers to compete with the low-cost airlines that serve the rest of the market,” said Franke, managing partner of Phoenix-based private equity firm Indigo Partners.

“As an aside, don’t we all wonder just how long it will take before the three to five lower-cost airlines in the States will consolidate?” he added in a speech at the Airline Economics conference in Dublin.

Franke made his name as a champion of unbundled or “a la carte” fares in ultra-low-cost airlines, where passengers are offered cheap base prices plus a battery of extra charges.

The former chairman of America West founded Indigo Partners, which controls Hungary’s Wizzair and part of Mexico’s Volaris and recently acquired Frontier Airlines. It has exited Spirit Airlines and Tiger Airways.

Franke challenged the low-cost credentials of industry pioneer Southwest Airlines, saying it had struggled to curb costs as it competes for the same passengers as American Airlines, Delta Air Lines and United Continental Holdings.

A second group of “lower-cost carriers” such as Virgin America and JetBlue has been pushed towards the legacy airline type of operations to attract passengers, he said.

“As we see it, that leaves the market under-served by the Ultra-Low Cost model, which explains why we are in the business of moving Frontier in that direction.”

That part of the market is currently dominated in the United States by Spirit Airlines and Allegiant.

Franke said the same ultra-lean airline product would work for emerging markets where a growing middle class is taking to the skies but without the income to afford full-fare tickets.

But he was lukewarm about an increasing number of airlines dabbling in low-cost travel over long distances.

“From where we stand, the future rests with low-cost short-haul carriers or a measured product with a lower fare for the longer haul,” Franke said. (Reporting by Tim Hepher and Victoria Bryan; Editing by James Regan and Mark Potter)

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