No-frills Spirit tinkers peak travel-day fee expansion
If you're flying to visit family during the holidays on Spirit Airlines, you may have to pay more as the no-frills carrier considers expanding its surcharges for busy travel periods.
Spirit has staked its success on stripping ticket costs to the bare minimum and then adding charges for everything extra, from soft drinks to carry-on bags to printing a boarding pass.
After raising the fees on checked luggage during the U.S. summer vacation season, Spirit is now also studying increasing the cost for an advance seat assignment during peak travel, Chief Executive Officer Ben Baldanza said.
Travelers already pay an average of $15 to choose their own seat ahead of time, Baldanza said in an interview at Bloomberg's headquarters in New York. If the new plan is adopted, the cost would go up slightly during the most in-demand periods, with higher fees for longer flights.
“Customers like being in control,” said Baldanza, who dismissed suggestions that fliers would balk at a charge reinforcing Spirit's reputation for nickel-and-diming. “They will say that; you've got to look at what people say and what they do.”
Spirit Airlines Inc. has one of the U.S. industry's highest profit margins. The Miramar, Florida-based carrier projects a fourth-quarter operating margin of 18.5 percent to 19.5 percent, compared with the 10 percent to 12 percent forecast by full- service rival Delta Air Lines Inc.
2015 Capacity
The ultra-low-cost carrier plans to increase capacity by 30 percent in 2015 as it takes delivery of 15 Airbus Group NV jets. Spirit attributes some of its growth to its a la carte charges. Those fees helped boost ancillary revenue to $54 per passenger last year from $5 in 2006, Baldanza said on Nov. 7.
If Spirit's bevy of fees hasn't already driven off customers, new surcharges for peak periods aren't likely to either, said Samuel Engel, an airline consultant with ICF International in Cambridge, Massachusetts. Spirit customers have learned to buy its base fare and manage its add-on charges.
“One of the things that Spirit has done so well is maintain their focus on their customer proposition and what their core focus is,” Engel said. “They have not tried to be all things to all people.”
Investors have embraced Spirit's approach.
Spirit has soared more than sixfold since its initial public offering in May 2011, and its $77.31 closing price on Nov. 7 gave it a market value of $5.6 billion. This year's 70 percent advance is the fourth-most among 11 carriers in the Bloomberg U.S. Airlines Index.
Ancillary revenue hasn't yet peaked and there is more opportunity in varying the price of options according to demand, as well as in modifying pricing for food and beverages, Baldanza said. For example, Spirit could offer discounts to customers who buy three beers instead of one. While that might reduce each beer's profit margin, it would boost the airline's volume, said Paul Berry, a spokesman.
Other sources of revenue come from commissions Spirit gets from pitching hotel and rental car packages on its website. Spirit is considering adding a deal with a parking provider, Baldanza said.
To contact the reporter on this story: Michael Sasso in Atlanta at msasso9bloomberg.net To contact the editors responsible for this story: Ed Dufner at edufnerbloomberg.net Molly Schuetz, John Lear