Spirit Airline is the airline that passengers love to hate, but continue to fly. But why? This week, Peter sat down with Spirit CEO Ben Baldanza, who explained why the airline’s low-cost, no-frills business model is taking off. We’ve got the full 6,000 word, 10-page transcription of the conversation. But, here are the highlights.
Was Spirit Airlines Inspired by Ryanair?:
When I came to Spirit in 2005, we said, “Let’s look at the airlines that make money all the time and those that don’t.” And there were two buckets. One was Southwest, Ryanair, Emirates Air, Singapore Airlines– all really were extreme in what they did. We looked at Southwest and Ryanair and Air Asia’s and we said, “So let’s be an airline that can make money in good times and in bad times, high-fuel prices, low-fuel prices– economic recession or economic boom.” And so we’re going to build our airline to look like Ryan in Europe.
How the Spirit Model is More Durable:
Since 2007, since we’ve turned the airline to that kind of airline, we’ve made money. When oil went to $147 in 2008, we still made money. In 2008, our CFO at the time used to joke that we outperformed the industry by $10.1 billion. Because the industry lost $10 billion and we made $0.01.The reality is through high fuel prices, through economic recession, through even some internal issues (the pilot strike in 2010 when didn’t run the airline for five days) we’ve made money in every year since then because we built a sustainable– resilient business model that a big chunk of customers really like.
Why Spirit is the Airline for the 99 Percent & What Other Airlines Are Doing Wrong:
[To market price] may work for some [airlines]. But it’s not what we are. And when you market to the experience, you’re fighting for a small segment of the traveling public. Our view is let’s build an airline for the 99 percent, not for the 1 percent. And that’s what Spirit is.
Think about marketing of an airline in the last 30 years…It’s rich Corinthian leather, a wine list. Onboard food, everything short of a flight attendant singing Broadway show tunes on board. At Spirit, we say it’s the lowest price. We don’t market the product as being on-time, friendly, safe, things like that. We market price. But, you know, our planes are new. Our flight attendants– are great. They provide great service. We fly generally on time. Every year, a large number of our customers pay less than $10 for their ticket.
If Spirit Airlines Were a Restaurant (Think McDonald’s):
As a restaurant we’re probably McDonald’s. You don’t go into McDonald’s and act surprised when you don’t see filet mignon on the menu at McDonald’s, right? You go in and you know what you’re getting–a clean restaurant, good service, a fair price.
You’ve got it all over the map. But consumers do better when they have choices at multiple price points. [Peter], you’re wearing a very nice watch, right? You can go by a $29 Timex. You can spend tens of thousand dollars on a watch if you want. And at Spirit, we create a choice that without us, wouldn’t be there. A number of our customers we think– or we should say we know, wouldn’t even be able to afford their travel if we didn’t fly in the market.
Why Airlines that Don’t “Charge” for Bags Are Lying:
Fundamentally, we think [claiming free bags is] a lie. Because bags cost money to manage through the system. People put the bags on the airplanes. So the bags aren’t free at Southwest. They’re just included in the price of your ticket. But truth in advertising would be, “Two b– the price of carrying two bags is included in the price of your ticket, whether you carry the bags or not.”
Southwest has been a terrific, terrific airline. And they still are a terrific airline. But they’re not the Southwest that they were in the ’80s and ’90s. They have higher costs. They have higher fares. At one point Southwest used to promote the fact that their highest fare was $299.
Why Spirit Airlines is like a Factory:
Most of the industry flies around– nine to ten hours per day with their airplanes. We fly about 13 hours per day with our airplanes. So an extra three to four hours per day. And again, you already have the airplane.
That’s like keeping your restaurant open a few extra hours. You’re not paying for infrastructure anymore.
When you use you utilize a factory more, you get more productive. And that’s what our airline is. We’re a factory of airplanes flying places, generating seats, going places. And when you think of it in that mindset, why would you close the factory just because it’s dark outside? You operate the factory when you can offer a lower price, people will come out for that low price. You can fly from Montreal to South Florida in the daytime on an expensive airline option. Or you can leave at 1:30 in the morning, drive 45 miles south of Plattsburgh, and for cheap.
How Spirit Airlines Picks its Routes:
Here’s how we pick where we fly. We pick a market where there’s already people flying from– from their A-to-B, but where they’re payin’ too much money, we think. Or where they’re paying more money than we need to make a good margin for our investors. So we say, “We’ll serve that market. We’ll lower lower the price. And we’ll put in enough capacity to carry the growth.” We don’t want to take any of the traffic off any other airline. We just want to grow our own business and run with it
For example. We started flying from Dallas to Chicago a couple years ago. 1,000 people a day were flying that route, paying an average of over $200 a day. We could break even at that route at well under $100. We could make a good return for our shareholder charging just a little over $100. So we went into that market and we lowered the prices. The market grew to 1,400 people. So now there’s 400 people more flying, we fly two flights a day with 150-seat planes.
Our view was, there’s leisure traffic in every big market. Sometimes there are prices that allow them to fly and sometimes there’s not. And Dallas to Chicago, they were all priced out.
Is Spirit the Thorn in the Side of Other US Airlines?:
I’m sure other airlines don’t like our prices in the marketplace. But I don’t know bothered by us as much as they’re bothered by some other airlines. We’re clearly not an airline trying to capture that high-fare-paying corporate business customer, which is what most other airlines see as their– as their golden calf. No business class, no first class. We do have a frequent flyer program. But if you don’t use our credit card, it’s probably not worth that much to you.
How Spirit Manages Growth?
That’s a great question and it’s something we spend a lot of time at Spirit thinking about, actually. We’re growing at 15 percent to 20 percent a year right now. Now, that’s from a small base. But it’s still huge. And we’ve been doing that for the last couple years.
We’ve converted to the newer Airbus-8320 fleet. And now we have 49 planes. We had 32 that were flying about nine hours a day, too. And so now we have 49 flying 13 hours a day. Now we’re close to $1.3 billion in revenue when we were at half a billion when I started.
The way we have to keep moving is to keep our costs low. And the way we keep our costs low is just keeping the airline really simple. We have a real simple process. We treat every customer the same.
Where Spirit Travels that You Might Not Realize:
We serve four cities in the country of Colombia–Cartagena, Armenilla, Medellin, and Bogotá, Colombia. We fly to Lima, Peru. We fly to a bunch of islands in the Caribbean. We fly to San Pedro Sula in Honduras. We fly to multiple points on the Dominican Republic and– and the island of Puerto Rico. We go to St. Thomas. We go to St. Maarten. We go to Aruba. We go to a lotta fun places internationally. Domestically we go to Plattsburg, New York. I don’t know if people know we go there. We go to Niagara Falls, New York. We fly to Las Vegas. We fly to the Bay Area. We fly to L.A.
By PeterGreenberg for CBS News