I know that a lot of people love to hate Spirit, but I’m not one of those people. That airline has made its model very clear. You’ll get a very low base fare but just about everything else will cost extra, including carry-on bags that don’t fit under your seat. If you don’t like it, you don’t have to fly on Spirit. But it’s a perfectly good model, and customers have responded. The airline is making money.
This past week, the airline announced some big moves. It will begin flying from Chicago/O’Hare to Boston, Dallas/Ft Worth, Detroit, New York/LaGuardia, and Orlando. You’ll also see flights from Vegas to Portland (OR), Oakland, and San Diego. These are big moves in big airports, and I was able to get Spirit’s Chief Marking Officer Barry Biffle on the phone to learn more about it. We ended up having a wide-ranging discussion, so it’s going to be broken into two parts. Today we’ll talk about the new markets. Tomorrow, look for talk about fees and why Spirit loves them so much.
Cranky: Where is all this capacity coming from for these new routes?
Barry: There are two more aircraft coming in at the end of this year and three more at the beginning of next year. There’s not a lot of frequency on these routes, so they don’t actually use a lot of aircraft. You can take San Diego to Las Vegas for example. It’s only an hour flight. We operate our airplanes 13 hours a day, so that’s a small amount of time for a roundtrip.
Cranky: Tell me more about this move. You’ve really focused on Caribbean and Latin America for awhile. Recently you’ve gone into small cities like Plattsburgh (NY) and Latrobe (PA). Now you’re doing big city routes.
Barry: The geography may be a little different, but it’s 100 percent consistent with the business model. What we look to do is provide something different in the marketplace; we are the price leader. We look for markets that have really high cost competitors, we look for really high fares, and we look for cities where we can we have an efficient operation. Then the question is: Will the market stimulate if we come in?
Cranky: But O’Hare is crowded and not the cheapest airport around, so can you have an efficient, low cost operation?
Barry: Specifically in Chicago, we’ve been there for a long time and we’ve been growing Chicago in just the last year and a half. We see the dynamics of the customer base in Chicago wanting more and more of what we offer. The fare environment has gotten really high. American and United have a great product and they’re serving the business customer needs very well but the reality is that $400 for a two-hour flight to Dallas is out of reach for leisure consumers and people visiting friends and relatives. So we saw a great opportunity there.
Las Vegas also meets those same criteria, and when you talk about the stimulation potential, Las Vegas is one of the greatest destinations on the planet. At the end of the day, it comes down to price. You have a lot of markets out there that are one- to two-hour flights that are over $100 on average. The only reason people go there is vacation or leisure, setting aside convention business. The price is gonna draw a lot of people in. Vegas is also important because the seasonal balancing opportunities are very good and it complements Ft Lauderdale. In Sept/Oct, which are decent convention months in Vegas, it’s hurricane season [in Florida]. Conversely, not a lot of people go to Vegas for Christmas.
Cranky: I understand the rationale for targeting these markets in general, but why O’Hare? If you are all about lowest costs and lowest fares, why not something like Gary or Rockford which is cheaper?
Barry: We’ve looked at Gary. We’ve looked at it a lot. It’s cheap. And we looked at Rockford. The best way to think about our airport selection is we will go where we believe we will have a cost advantage. We will not fly somewhere if we believe that the airport location is going to impede our cost structure. We fly to LaGuardia and we believe we’re the lowest cost operator there. We run 12 flights a day on one gate. We wouldn’t be in LaGuardia if I couldn’t find a way to be the lowest cost operator at the airport.
We’re already in O’Hare and by throwing out two gates of flying, we’re actually lowering our costs there. Our first choice is always going to be a secondary airport because of congestion and at the end of the day, the facility’s cheaper. But the reality is that there may not be a good secondary option. In Europe, it’s actually great, because there’s so much ground transportation. In the States, unfortunately, so many people have cars, but they don’t want to necessarily drive them that far.
Cranky: So you’re saying people don’t want to drive to Gary or Rockford for low fares?
Barry: Specifically with Chicago, my opinion is that if you’re going there for business, Midway is just as convenient to downtown or easier than O’Hare. In our case, we’re not targeting business traffic, so I don’t look at it that way. If you think about the geography where the population lives, specifically the suburban population, it’s north and west of downtown. So O’Hare is much more convenient than Midway. If you look at Gary, there’s just not that much population, and definitely not the affluent population on the south side, south and east of Chicago.
I actually think we’re still intrigued with Gary and I would actually argue that Gary serves a different geographic base. Rockford is a little bit different. You do kind of appeal to some of that west and northern suburbs and of course, I guess Allegiant has chosen that. Our view is that I’m already at O’Hare so we want to grow O’Hare to its potential before I consider another airport.
Tomorrow, we’ll talk fees. I can already hear you guys typing your comments, so I look forward to a “Spirit-ed” discussion. (Sorry for the pun, but I had to do it.)