When Icelandic startup Play Airlines suddenly ceased operations last week, canceling all flights, the news felt almost anticlimactic. The Reykjavik-based airline launched in 2021 with a flashy red logo and high hopes, but declining revenue had already ended its transatlantic service to the US East Coast. Service at Baltimore/Washington Airport, the gateway to the rest of the United States, was scheduled to end on October 24th.
Play’s closure comes amid turmoil for some U.S.-based low-cost airlines. Most notably, Spirit fell into bankruptcy for the second time in less than a year in August. Lesser-known LLCs are also struggling, including Silver Airways, a regional airline that flies from Florida to the Caribbean. It was abolished in June.
This topic has sparked debate in the industry. United Airlines CEO Scott Kirby recently said at an airline conference that the airline’s budget model was doomed, describing the division as a “sinking ship” to multiple news outlets.
But does Play’s recent closure provide another example of how the low-cost airline’s business model – its formula of offering low fares and a no-frills experience – may also be in jeopardy?
Craig Jenks, president of the New York consulting firm Airline/Aircraft Projects, cautioned against reading too much into the play’s demise.
“The challenges faced by Play and its predecessors are mostly specific to Iceland,” he said, pointing to the small island nation of 400,000 people and its limited domestic market.
Play had positioned itself as the successor to Icelandic airline Wow, which also closed, and vowed to avoid the mistakes of its predecessor. The airline has a strong network serving Western Europe as well as transatlantic routes, and gave a bullish outlook earlier this year. But that wasn’t enough to keep Play alive. After all, with this kind of model, airlines can only succeed if they have high connecting flight traffic.
“Wow & Play believed it could compete with Icelandair in the North American to Europe transit market,” Jenks said. “Where Wow tried with unfeasibly low fares, Play tried by serving niche airports,” such as Stewart Newberg Airport, about 110 miles north of New York City. In the end, the country’s longtime flagship airline, Icelandair, emerged as the lone winner.
Survive a volatile market
One of the major challenges facing low-cost carriers is that the benefits of low fares are significantly eroded by the availability of basic economy fares offered by traditional carriers such as Delta and United Airlines.
Internationally, the outlook is mixed. While some established low-cost carriers like Ryanair and EasyJet are still doing well, Play warns. Like other defunct low-cost airlines, it was initially embraced by value-conscious travelers to Europe.
Other examples include Scandinavia-based airline Primera, which went bankrupt a few years ago, and Norwegian Air Shuttle, which did well for a while before suspending all transatlantic routes in 2021. North Atlantic Airlines, another low-cost European airline, then swooped in to pick up the debris.
“Low-cost airlines are doing well in Europe,” Jenks said. “The company doesn’t face the typical problems[carriers]face in the U.S., such as intense competition from major carriers.”
It’s also worth remembering that the death of low-cost airlines has been declared before. After the industry was deregulated in 1978, a wave of rough-and-tumble low-cost airlines took on traditional airlines and managed to remain competitive at much lower costs than their much larger rivals. But that was for a while. Within a few years, most of the companies disappeared. They just didn’t have the capital to withstand the boom and bust cycles that plague the industry every decade.
But these notoriously volatile market conditions haven’t discouraged some entrepreneurs. JetBlue founder David Neeleman founded Breeze Airways more than four years ago, but the Utah-based airline just launched its first international flight.
Meanwhile, Frontier is among the low-cost carriers that have introduced premium-class seats that are wider and more comfortable than regular seats in response to increased passenger demand for more premium service post-pandemic.
“Tastes in this country have changed,” Barry Biffle, head of Frontier, said at a recent industry gathering.
In other words, the low-cost carriers that survive may end up resembling more expensive carriers.
