And we’re back with Spirit’s Chief Marketing Officer, Barry Biffle. Yesterday we dug in on the new routes out of Chicago and Vegas. Today, it’s time to talk fees. Many of you love to hate fees, but as long as they’re properly disclosed, then I see no problem at all with this kind of model. Here’s what Barry has to say. See a few of my comments at the end as well.
Cranky: Now what about Vegas? People have long thought of Southwest as the low fare airline, and you’re coming into Vegas-West markets where Southwest has long ruled the roost. But you think that Southwest’s fares have risen to the point where there’s room for a lower fare operator?
Barry: Well, we added LA last month. You’ve still got Delta, US Airways, American, and United. There are plenty of high cost guys. But we do have lower costs than Southwest. We also offer a different product. Southwest would actually go out and tell you that everything is free. They tell you bags are free, but what they really ought to say is that you’re subsidizing people who want to check bags. It’s like when you go out to dinner with friends and someone orders a really expensive bottle of wine. When you split the bill, you’re paying for it whether you drank the wine or not.
In 2006 our total revenue per passenger was $109. We actually had less than $5 in non-ticket revenue. In 2010, our average total prce including options was $112. It was only up $3 but our non-ticket revenue was $35. We don’t nickel and dime. What we’ve done is allowed people options. Most people are figuring out that we’re a much more consumer-friendly model. But we also cater to a different clientele. If you’re the guy who always orders that wine, you like the Southwest model.
Cranky: Let’s talk about one of the more controversial moves. You’ve started charging for people to bring carry-on bags.
Barry: We were averaging 17 gate-checked bags per departure at LaGuardia. The reason is because airlines lie to you, not Spirit, well, they don’t really lie but they’re allowing you two bags when there isn’t enough space above all the seats for everybody to jam a bag up there. If it’s a full flight, there’s a backup, nowhere to put the bag so its gets checked. It delays the flight and the customer gets mad. Will it be checked to my connection? Wait, I’ve got to get my medicine out. We don’t have those issues anymore. We’ve ended up with a better customer experience. Our total turn is down by 7 minutes because I’m not gate checking bags. Are we evil or are we actually the best option for consumers?
Cranky: Some people think that you’re being sneaky and trying to hide fees from them.
Barry: I want you to know what’s optional and what’s not and what’s included and what’s not. Part of the challenge is that there are so many requirements for disclosing this or that (not just in the airlines) and so people don’t pay attention. I don’t want to deceive anybody. I want people to feel good about the purchase that they bought. We just think the airline industry operated forever in a manner that didn’t give options. If you go way back, we assumed everyone wanted a meal.
At the end of the day, if you take a Haitian who lives in South Florida and they immigrated here 10 years ago and they’re living the American Dream and they want to go see their mother back in Haiti, who am I to say they need bags or they need a TV or they need food? We believe it’s our job to get them the cheapest possible way to go see their mother because otherwise they might not be able to afford it.
Cranky: But disclosure is a lot tougher for sales that aren’t through Spirit directly. And you do sell through third parties.
Barry: I think there’s frustration with the third parties. If they sell the ticket they should be obligated to tell our policies. How many times have you gone to Expedia and then you get to the hotel and there’s a $15 a day resort fee and it’s mandatory. Wait, so this is required of me and you didn’t tell me this? But they should have just said it.
There is an issue with people who haven’t flown us and bought us through a third party. The third party causes the most challenge. We like that distribution partner, but we’re not in all of them. We’re comfortable with the partners we have and we see value in it. We’re just trying to isolate the specific issue you mention. We’re not going to go to them with a big mandate, but at some point we’re going to have to figure out a way for them to disclose better and better present the options to the customer.
But the third party is a separate issue. When we changed our model in 2007 in a big way, there were people who had flown Spirit before who were not familiar with the new model. I’m not aware of a complaint we’ve ever got from Haiti, but routes that we had flown before, there was a higher propensity. There definitely was a conditioning of previous customers on previous routes. Last year was a good example. When we announced carry-on fees, we had these huge banners, maybe we went overboard. If I’m going to carry 700,000 people a month, if I get 99 percent, if 1 percent of people don’t know, that’s still a large number of people. I don’t know how we get every last person conditioned, but I’m committed to trying to get there.
Cranky: You talk about places like Haiti, but those are markets where people usually do bring a lot of bags when they go back to their families. There hasn’t been any backlash?
Barry: What we normally do to illustrate it to people is explain that your fares are going to drop so much that you can afford to go back and forth. Before you were paying $700 and you wanted to make that trip count, so you would take a gazillion things back with you. But now they don’t need to bring as much stuff. We see checked bags drop the longer we’ve been in a market.
And that was the end of the interview. I tend to agree with just about everything Spirit says, but there are a couple practices that I don’t like. First, Spirit charges an $8 passenger usage fee each way. This applies to everyone unless you buy at the ticket counter, so that’s how they get around it being considered optional. I’m fine with that, but I want a disclaimer that shows me that I can save $8 each way if I go to the airport. It’s not very clear.
The second issue is with opt-in versus opt-out. As Barry mentions, people do get overwhelmed with disclosures and end up missing things. So when, for example, travel insurance is already pre-checked for me and I have to opt out, that’s a little tricky in my mind. How many people fail to uncheck it even if they don’t want it? Of course, this will be going away with the recent DOT regulation change, so it won’t be an issue for much longer.
Other than, I like what Spirit does. I have no clue if they can make big city markets work, but hey, they think they can and the results have been promising in those cities with the trial balloons they’ve sent up so far.