If Everyone Hates Spirit Airlines, How Is It Making So Much Money?
The post 9/11 years were a tough stretch for the airline industry in general, with multiple carriers declaring bankruptcy. Spirit was a small, privately held regional carrier that had no obvious means of competing with bigger, mainstream rivals from American to Southwest. When Ben Baldanza, who had spent a couple of decades working for various big carriers, joined Spirit in 2005, it had lost $80 million in the previous 12 months. The following year, Indigo Partners, a private equity firm with an air transportation focus, became an investor in Spirit and elevated Baldanza to the chief executive role to oversee a transition to a new model borrowing from ultra-low-cost airlines elsewhere, notably Ireland’s Ryanair, Hungary’s Wizz Air, and Malaysia’s AirAsia.
The process was called “unbundling.” Instead of thinking of a flight as a means of getting from point A to point B plus a certain set of extras and amenities (like Cokes and snacks, maybe an in-flight movie) built into the ticket price, an unbundled fare promised nothing more than the get-you-from-A-to-B part. Everything else would cost extra: using the overhead bin, guaranteeing your group’s seats were together, printing your ticket at the airport instead of at home — even water cost $3. Baldanza positions this as a more equitable approach: “You don’t have to pay for things you don’t use.” A third of Spirit customers never checked a bag, he says, so why should they have to subsidize that infrastructure?
“They were ahead of the curve on that in the United States,” says ICF’s Engel. “The low-cost carriers in the U.S. had long ceased to be truly low cost, and the leading flights in efficient operation had moved to Europe and Asia. … That left a hole in the market. It left an opportunity.”
The intense focus on lowering the ticket price also meant eliminating some “extras” altogether — like reclining seats, which can malfunction and drive up maintenance costs. The seats in general were notoriously thin and packed together. “If we were flying a plane with, like, 138 seats,” Baldanza recalls, “but the FAA says you can put 145 seats on it, then we said, ‘Why wouldn’t we put 145 in?’” The airline ran more flights per day and left fewer planes idle. In short, if Spirit could be the lowest total-price option by a notable margin — meaning ticket plus any extras you buy — it may not attract every flyer, but it could attract enough to succeed.
But it wasn’t just a lack of “creature comforts,” as Baldanza put it, that set Spirit apart from less ruthless discounters. Years before Spirit’s rise, Southwest Airlines branded itself as a budget option — but made a distinct effort to position itself as the consumer’s ally. Substituting free meals with a mere snack was converted to the clever “fly for peanuts” campaign that underscored how the carrier’s budget-conscious ways saved you money, and did so with love (to reiteration that affection, its chosen stock ticker symbol: LUV). Still, the company made an effort to keep its service up to standard, and marketing its cost-cutting in a lighthearted way played into a carefully cultivated irreverent brand: Making the flight cheaper somehow seemed like a fun group experience. Spirit never seemed fun — just cheap. “The carrier was not really focused on the passenger experience,” as Unnikrishnan puts it.
“Not only did we not go out of business, we ran some of the highest margins in the business for 10 years.”
And, really, it was kind of half-assed. One consumer group study covering the years 2009 to 2013 found Spirit was the most complained about American carrier, “generating approximately three times more complaints per passenger than any other airline.” Consumer Reports slammed it, too. This was the era when the carrier’s awful brand became a pop-culture trope, complete with an Onion headline: “FAA Report: Spirit Airlines Is The Fucking Worst.”
Part of this was flyers feeling blindsided by the airline’s fees-for-everything approach. But another part was the carrier’s consistently awful on-time performance and a reputation for indifferent service in general. Baldanza, as it happens, had accidentally contributed to that reputation. In the summer of 2007, an emailed complaint from a first-time Spirit flyer described extensive flight delays and rude service and a “completely and utterly dissatisfying” customer experience. “We owe him nothing as far as I’m concerned,” Baldanza emailed. “Let him tell the world how bad we are. He’s never flown us before anyway and will be back when we save him a penny.” He thought he was addressing a Spirit staffer but, in fact, had replied to all, including the disgruntled consumer — who did indeed “tell the world” as the incident was widely reported.
It was an embarrassing moment, but it hardly drove Spirit out of business. Because the thing is, Baldanza wasn’t wrong. Customers looking to save kept coming and kept saving. “Not only did we not go out of business,” he chuckles now, “we ran some of the highest margins in the business for 10 years.”
Looking back, he concedes that perhaps the Spirit brand was a little more brazen than it needed to be. But he’s not exactly apologetic: Sure, there were lots of complaints, but Spirit consistently delivered on its low-cost promise, and that’s why customers kept coming. “Businesses that look at what people say,” he argues, “don’t do as well as businesses that look at what people actually do.”
from Hacker News https://ift.tt/38rXtWQ