Airlines are interesting in that their market is fairly limited – not everybody can afford to travel, and many people need to do so only rarely. Low-cost carriers widened the market somewhat when they entered the scene, with Southwest in particular driving down prices and increasing the frequency of flights (known as the Southwest Effect). Fewer frills and direct routes helped boost the ‘budget airlines’ into the black, at least for a while.

Southwest, however, has turned an art into a science. One type of aircraft in the fleet – Boeing 737s. No assigned seats, just boarding groups – a tactic which actually speeds up the process. Fuel hedging means they’re currently paying 50% of market oil prices. Amazing employee morale, which translates into an enjoyable flight for customers. All of this combines to create a remarkably profitable airline, although recent fuel prices will probably prove to be a major challenge.

So, of course, there are copycats. JetBlue was started on the Southwest model, as were a number of successful foreign airlines. The market keeps filling up, however, and there is clearly a limit for low-cost airlines in any one region. JetBlue had an amazing first few years, but it’s catching up to them and they’ve had a gigantic loss this last quarter. They’re expanding their service to markets that already have too many flights. Richard Branson is working exceptionally hard to bring Virgin America into existence despite the market’s saturation. Do we need yet another low-cost airline? Probably not – but Branson is an inexplicable genius at making things work, and so it might even do well. Still, Independence Air had incredible service and low prices, and they’ve been dissolved, snapped up, and reorganized as Compass, Northwest’s new wholly-owned regional subsidiary.

Many of the major legacy airlines are collapsing, and it’s often said that the low-cost carriers can fill the holes. With rising fuel prices and saturated markets, though, it’s difficult to see that happening. Low-cost airlines only truly excel in carefully picked city pairs – just look at Southwest and easyJet. Hopefully in the coming years, the new ‘large’ regional jets (Embraer’s E Jets and the Sukhoi RRJ) will turn existing markets into newly profitable destinations. A new generation of regionals feeding more streamlined low-cost and legacy airlines could be the answer to the current mess.