Spirit Airlines (
) makes no excuses for its cut-rate prices and no-frills business
Chief Executive Ben Baldanza is clearly proud of it.
"If Spirit were a retail store, we'd be the dollar store. If
we were a restaurant, we'd be McDonald's," he said in a recent
Ultra-low-fare air carrier Spirit Airlines targets
leisure travelers who might not even fly but for the bargain
prices it offers on base fares.
Its routes span from its base in Fort Lauderdale, Fla., to the
Caribbean and northern South America, the Northeast, Chicago,
Dallas/Fort Worth and as far west as Las Vegas and
Even when passengers pay for "unbundled" extras such as
overhead bin storage, assigned seats and ticket print-outs,
Spirit fares are the lowest in its markets.
Spirit's average fare including ancillary fees is $126, says
airline analyst Helane Becker of Cowen & Co. That compares to
$140 for the granddaddy of low-fare airlines,Southwest Airlines (
), and $181 forUnited Continental (
"Spirit's market is the bulk of the population that looks for
price first," said Becker. "They attract the backpack and
In the second quarter, Spirit said its average base fare per
passenger was $77.51. It boasted that the fare was down 4.4% from
the prior year's same period as the airline "liberated over 3
million passengers from high fares."
Average nonticket revenue from optional ancillary fees climbed
nearly 4% to $53.43.
Baldanza says Spirit targets all customers who are paying
their own way, whether they are families towing lots of kids,
students or others on tight budgets.
"We created an option in the market for the customer who wants
to pay less. They recognize that they won't get as many creature
comforts and that's a good trade-off for some groups of people,"
It's also a good trade-off for Spirit. Passenger volume in Q2
jumped 19.1% from the earlier year. Total revenue rose 17.6% to
$407.3 million, while earnings grew 29% to 63 cents a share.
"It's shown consistent earnings growth, which you can't say
for a lot of airlines," said analyst Bob McAdoo of Imperial
Analysts estimate that earnings will grow 54% this year over
last to $2.20 a share and another 19% in each of the next two
years, according to Thomson Reuters.
Spirit's stock, above 40 on Monday, has soared more than 237%
since the company went public in May 2011, five years after
Baldanza led the charge in turning the airline into an
Shares jumped 15% on Friday, and nearly 4% by early afternoon
Monday, after Spirit reported that September traffic rose 28.8%
vs. a year earlier on a capacity increase of 24.9%. Load factor
rose 2.5 points to 84.7%. The company also raised its earlier
estimate for the third quarter and now expects revenue per
available seat mile to rise 8% to 9% over a year earlier. It had
previously forecast mid-single-digit growth.
Baldanza, who previously worked for U.S. Airways, Grupo Taca
and other airlines, says Southwest Airlines isn't such the
low-fare carrier it used to be. "In the places where we both
operate, we tend to be the lowest-cost operator," he said.
Southwest has been reducing flights in Spirit's busy home
airport in Fort Lauderdale.
Whether a new low-cost rival emerges in the form of
Denver-based Frontier Airlines under new ownership remains to be
seen. Former Spirit Chairman William Franke, who resigned from
Spirit's board in August, recently led a private-equity group's
bid to buy struggling Frontier fromRepublic Airways (
). The deal, recently accepted, is valued at $145 million,
including assumed debt.
Room For Rivals?
However, Baldanza doesn't seem worried. "We've heard Frontier
has aspirations to look more like Spirit. We wish them luck on
that," he said. "Their costs today are significantly higher than
ours, so they will need to make a lot of changes. Even if they
are successful, there will be plenty of room for both of us to
Spirit planes -- 51 at last count -- are among the fullest in
the airline industry. In the busy August vacation month, seats
were more than 90% occupied. Between April and June, the load
factor was 85.4%.
"People continue to complain about Spirit but they continue to
show up," said analyst Hunter Keay of Wolfe Research.
Indeed, Spirit packs in more seats on its relatively new
single-aisle, narrow-body Airbus A320 planes than any other
carrier flying similar aircraft. Becker says it crams 186 seats
on the aircraft where other carriers have 150 to 160 seats.
Rather than cancel a flight, Spirit sometimes keeps passengers
waiting for hours if bad weather flares up or a mechanical issue
arises, observers say. That's because it can't usually put
passengers on another scheduled Spirit flight when there is
It typically flies only one or two times a day on routes,
sometimes late at night or early in the morning.
Weather or mechanical issues aside, planes rarely stay still.
"We use every hour of the clock," Baldanza said.
More than 99% of its flights are completed, Keay says. "Some
of them were late, but they got almost every single one of their
passengers to where they wanted to go -- at an extremely low
Spirit can charge a low price because it "keeps the model very
simple," Baldanza says. It uses one airline type, the Airbus,
making it easier to train pilots and mechanics.
"We schedule airplanes to make money on every route we fly. If
it's not we'll change the pricing, the amount of capacity or pull
the route," he said.
Last year Spirit moved out of Washington Reagan National
Airport for Baltimore Washington Airport, where airport rules
were not as constraining on flight schedules. The result:
Baltimore is more profitable than D.C.
Spirit intends to make its low-fare options available to more
consumers. In the second quarter, it added or announced new
service on 15 routes, including seven from Dallas/Forth Worth to
places such as Minneapolis, Philadelphia, L.A. and Cancun,
"We will be growing an average of 18% per year over the next
five years," Baldanza said, referring to the number of seats
offered for sale every year, or available seat miles in airline
With new aircraft lease orders in the pipeline, Baldanza says
the fleet will nearly triple by the end of 2021.
But don't count on flying Spirit to Europe or other far-flung
destinations just yet. Its narrow-body aircraft have a flying
range of around five hours, Baldanza says.
"We think of our marketplace from Canada to northern South
America and all points in between," he said.