I'm pretty sure part of the "undercut" is having the capability to get/add aircraft. PSA doesn't have a profit margin, and is carried as a direct expense on the LCC books. However, for PSA to add aircraft and people, it takes money and the financial strength to shoulder the risk. There are no contractual minimums. When things slow down (08-09) the AWAC, RAH, etc are drawn to down to the mins and the w/o's are there is the cuts have to go deeper. The w/o's furloughed and went to under utilizing the aircraft and people. When things ramp-up they can respond by increasing the utilization while maintaining a higher margin. At some point, they have to give flying back to the other Express carriers because the w/o's are maxed out. To give the w/o's more flying means that LCC is on the hook for more training and labor costs, whereas they can tell the others, "Here are 1000 more block hours" and all they have to do is pay the bill. They don't have to worry about the cost until the flights are completed.

Think of the w/o's as shock absorbers -- they are the flexible option when the flying is increasing and or decreasing.