Less Money, More Go – Spirit Airlines’ successful Ultra Low Cost strategyPrint
Miramar, Florida based Spirit Airlines has been a trailblazer for ULCC (Ultra Low Cost Travel) in the US since it revamped its business model in 2006. The airline has grown steadily since this very low cost strategy was introduced and their President and CEO – Ben Baldanza – has been very satisfied with the airline’s progress to date. The airline currently uses a fleet of 72 A320 Family types (29 A319s, 41 A320s and two A321s) for maximum operational and pilot commonality. Ben Baldanza answers our questions on his airline’s strategy for growth and how Airbus has contributed to their success.
How did your Ultra Low Cost model come about?
When I joined the airline 10 years ago, it was clear that the company needed to do something different, because we weren’t financially successful. We decided that we were going to be a carrier that used price as a primary way we attract consumers. Rather than create a physical product or a network to a business consumer, we would offer the lowest fare from A to B, and most customers would want to fly with us as they like low fares.
You have certainly influenced the airline market in the US by unbundling and driving the growth in ancillary revenues. Do you see further growth opportunities with this model?
We can see enormous growth ahead. The US is quite a bit behind Europe in terms of true low cost carrier penetration. Collectively, close to 20% of all seats in Europe are flown by true low cost carriers. In the US we were the only ones doing it, apart from Allegiant – however, recently fellow Airbus operator Frontier have also moved their business model towards this market segment. Collectively Spirit has just 2.2% of the market, so there’s enormous potential. We have identified hundreds of routes that we don’t serve today that we could operate profitably.
Will other airlines in North America be able to replicate your model?
It takes fortitude to run an airline like Spirit. We tend to take positions that are seen as controversial or maybe even unpopular initially, until customers start to understand the low price value proposition that these create.
You operate an all Airbus fleet – can you tell us your reasons for choosing Airbus?
For our business model, the A320 Family is a terrific aircraft because it allows us to be very operationally efficient and have a high utilization model. It has good dispatch reliability, meaning that we fly close to 13 hours a day. It is also very fuel efficient.
What is Spirit’s strategic vision?
We like to sum it up in four words – “less money, more go”. You spend less money when you fly on Spirit, and that gives you the opportunity to do more things. Those four little words really drive us to think about how to make fares lower for our customers. How can we do things more efficiently, lower costs and present more options so people can travel more often? When people travel more it increases economic opportunities.
What role will the future A320neo play in this?
We’re very excited about the 55 NEO aircraft on order. We expect to be the first operator in the US, with our first delivery in late 2015. Fuel is our largest cost, and the fuel efficiency it promises will allow us potentially to charge lower fares because our costs will be lower. The added range will also give us more flight opportunities.
What are the greatest challenges and opportunities you face?
We’re the first airline operating this business model in North America, so one of our challenges has been getting customers to understand our differences. Some customers know Spirit, like us a lot and fly with us very often. Others find us because we have a lower fare, but when they come to the airport they may be surprised that they have to pay separately for their bag or that we don’t give them a meal on board, and get frustrated with that. So last summer we launched a campaign to better align customer expectations to our business model and we are very pleased with the feedback we have been receiving. Also, as a high growth carrier, managing that growth is really important. Growing too fast could stress the operation, yet growth is important to maintaining our low cost. We have to manage it well, and make sure that we don’t leave our customers behind in that process.
How can Airbus help you in achieving your strategic vision?
We’re very happy with the Airbus product and the way the company is moving. Putting Sharklets on the aircraft was a big help and moving to the NEO is too. In general, we appreciate the push toward more efficient operations. The more seats we can put in the aircraft the better, because for our model, that makes lower prices for everyone. So pushing density inside the cabins is important for us and pushing operational reliability is too. Airbus has been supporting us on all of these initiatives and we’d like to see that continue. You always want the new aircraft yesterday of course and not tomorrow, and you don’t want to wait for the next technology. But I think that good transparency, being open about the realities of deliveries and delivering on promises made is something every company needs to do. Airbus does a good job of this today and it needs to keep doing so, pushing these things even further if possible. We are very proud of our airline and we’re pretty successful. A big piece of that success is based on the A320 Family, that allows us to combine great customer service with very low fares.