The Sunshine Economy: Spirit Airlines Evolves
Spirit Airlines is a major economic force in South Florida: it is the second largest carrier at Fort Lauderdale-Hollywood International Airport; it is a top five employer in Broward County with more than 3,000 regional employees; and it is one of the largest South Florida companies with more than $2.5 billion in annual revenue.
But you wouldn’t know this by its headquarters in Miramar. It’s tucked away in a light industrial neighborhood of low-slung office buildings. There is no grand sign proclaiming Spirit Airlines, just a simple entrance with the Spirit logo above the double doors leading to a small reception and security check-in area.
Spirit built its business by competing on price. It breaks down ticket prices and charges extra for all kinds of things traditional airlines include -- like printing boarding passes and on-board snacks. The strategy has helped Spirit to have one of the highest profit margins among U.S. airlines.
But it consistently ranked among the worst for customer satisfaction. Three years ago, Spirit had the second highest rate of customer complaints, according to data from the U.S. Department of Transportation. And barely half of Spirit Airline flights took off on time, making it among the worst on time performances of U.S. airlines.
The company has since made big changes from its in-your-face, take-it-or-leave-it attitude toward its business model. In February of this year, it had the highest rate of customer complaints, but the proportion of complaints was more than cut in half. And more than eight out of 10 Spirit flights took off on time -- making it one of the most reliable airlines. It's performance was better than American, Southwest and Jetblue, the three biggest carriers in and out of South Florida’s airports.
This month, Spirit President Ted Christie publicly signed a pledge to do better by the company's customers.
WLRN spoke with Christie and Chief Operating Officer John Bendoraitis about the evolution of Spirit and its airline business.
WLRN: The previous tact that Spirit had taken for several years was to thumb its nose at the competition and compete on price, not necessarily on service.
Bendoraitis: That probably was the perception, for sure. I don't think that we didn't care about the guests. We just didn't put enough effort toward it.
Were you seeing the economics of that previous attitude toward customer service begin to creep into the business?
Christie: What we saw is the airline expanding its reach. It was a chance for us to continue to move the messaging along that we're focused more and more on satisfaction and value.
Here's ultra-low cost carrier very plainly stating customer service matters. How big of an evolution was this?
Christie: We've never not been focused on that.
Some of the customers would argue with you.
Christie: I hear the point. While you're developing the business as we were in the earlier part of last decade, you're figuring out the business. We grew rapidly over that period of time and I think we've learned quite a bit from that. That's the focus -- can we make this product really valuable to the people buying tickets?
You've talked about improvements in booking and the check-in process. What does that mean?
Christie: We're going to make that whole process as seamless as possible. What we know about the people that we fly every day is they generally skew more favorable toward less interaction and more technology
Does it mean fewer human interactions at the airport at the gate?
Christie: It could.
You also talk about improvements with the inflight experience -- [such as] training for flight attendants. It may come as a surprise there wasn't training prior to this initiative.
Bendoraitis: We've had training in place forever here at Spirit. But our training was really focused on the technical aspects of the job and certainly the safety aspect of the flight attendant job. Where we were lacking, frankly, is on the soft side of the business -- on some customer service skills.
Christie: We had to reinvent the airline business a little bit early on in the company's model. Now what we're doing is taking that opportunity and moving it forward.
How does that evolution continue on the main product -- low airfares -- on which Spirit has built its business?
Christie: That's going to remain who we are. A key component is low fares driven with low costs.
Bendoraitis: We know we provide a valuable good to those people who otherwise couldn't afford to travel. I think the public perception of that wasn't necessarily lining up with what we knew we could deliver.
Christie: Part of this maturation and evolution is we want to make sure that we're aligning the product delivery with the products reputation. At that time there was some value in getting our name out there because we were young and small and we attempted to outpunch our weight class.
Are we at a spot that Spirit is running out of seat pitch and seat sizes to narrow?
Christie: I think you're starting to reach the engineering limitations. I don't know that there's a lot more room to squeeze more and more seating in the airplane.
How is Spirit dealing with $70 a barrel oil?
Christie: It's an added challenge to an already challenging business. Spirit will continue to adapt. Our competitors will continue to adapt. We do that in a variety of ways with pricing techniques, with capacity deployment and fuel conservation initiatives. We're already seeing the initial phases of changes as a result of $70 dollars a barrel.
In April you announced a $3 fare increase. Do you expect that to be the limit of the fare increases in the summer and early fall?
Christie: As you head into the summer period airlines are going to try to drive revenue where they believe they can. When you have a lot of demand, that helps quite a bit. Our competitors have done some of those similar moves. I think you may see more of that as you head into the peak.
More than 50 percent of your passenger revenue is made up of money that passengers spend on things other than their seat. Are you in a limit of those things?
Christie: We do believe there is room to grow. I think our ability to more optimally price each individual product based on the demand for that product is going to help us quite a bit.
The new pilots deal cost Spirit $81 million in the first quarter for a ratification bonus. It also brings pay hikes and more company contributions to the retirement programs of pilots. What's the impact on the cost structure?
Bendoraitis: It was an expensive deal from a company perspective. This was a move toward trying to be competitive with the other contracts that are out there.
Christie: It was an expensive deal for Spirit, but I think it brings our pilots more in line with the industry and allows us to run an airline that we know we can execute well over the next five-plus years.
Ted, as you prepare to become CEO in 2019, how will Spirit change?
Christie: We will continue to focus on building a business model that people like -- that mix between choice and fare is important.