Spirit’s Move to Phoenix Sky Harbor Shows Competition is Alive and Well

IWA - Phoenix/Mesa, PHX - Phoenix, Spirit

I hope you enjoyed the guest posts last week. Our baby is happy and healthy, so it’s time for me to get back to work. Today, I want to talk about the news last week that Spirit would move all service from Phoenix-Mesa Gateway airport to the main Phoenix Sky Harbor airport. While this particular move may not interest people without ties to the Valley of the Sun, it should. It shows that competition is alive and well when there’s an opportunity.

For those not familiar with the dynamics of the region, there has long been one main commercial airport to serve the area and that’s Sky Harbor.

Phoenix Airports

Sky Harbor, besides having an awesome name, also has an awesome location. It’s just east of downtown Phoenix, west of Tempe, and close by freeway to pretty much everywhere in the area. But as we all know, the Valley, as its called, has grown by leaps and bounds over the last couple decades. As people moved further out from the center, Sky Harbor became less convenient for those on the fringes.

In 1993, Williams Air Force Base was shut down. Its location way on the southeast side of Mesa seemed pretty far out there at the time, but there has been a ton of growth that way. The decision was made to turn Williams into a commercial airport, and the name was eventually changed to Phoenix-Mesa Gateway. The most natural fit was Allegiant, and Allegiant did in fact come to the airport in 2007, establishing a base there that has done well for the airline. After a few years of watching Allegiant’s service, Spirit announced it would start flying from Phoenix-Mesa Gateway to Vegas on February 9, 2012 with Dallas/Ft Worth and Ft Lauderdale following shortly after.

Spirit was a less obvious fit since it had really decided to focus more on providing very low fare service from primary airports than from secondary ones, but the airport was hungry for service and the costs to operate were incredibly low. Spirit came in but didn’t really sit still, shifting its service a lot over the last couple of years. Now it has finally decided to give up and move to Phoenix Sky Harbor where it will maintain one daily flight to Chicago/O’Hare, one to Denver, and one to Dallas/Ft Worth.

Why would Spirit make a move like this? It’s always a question of economics. Where can Spirit draw in the most profit by maximizing revenue and minimizing costs? Historically, low cost carriers have gravitated toward secondary airports because they’re cheaper. The assumption was always that low fares would get people to drive to a less convenient airport. Southwest did this and still does, but it has made a big move into major airports as well. Why? Because it’s where the higher-paying travelers are.

That doesn’t mean there is no use for alternate airports. They are still lower cost but some don’t provide nearly the same cost advantage as others. Sky Harbor hovers around the $5 to $6 per enplaned passenger range but it will climb up toward $8 thanks to all the money they’re spending right now on things like inter-terminal trains. But $8 is still very low when it comes to big city airports where a single digit number is a rarity. (You aren’t going to see Spirit moving its Ft Lauderdale operation to the extremely expensive Miami Airport anytime soon.0

So let’s look at the Phoenix area. Even if Mesa’s operating costs were nothing (and I imagine that’s not far off), could Spirit go over to Sky Harbor and make $8 more per ticket than it could in Mesa? If so, the move makes sense.

One of the reasons not to make this move is for competitive reasons. There are a ton of airlines flying from Phoenix to Denver, Chicago, and Dallas multiple times a day. While Phoenix-Mesa isn’t convenient for nearly as many people as Sky Harbor is, there are still those who prefer it and Spirit had those passengers locked up. By moving to Sky Harbor, it just ends up competing with the other guys. Why would you do that if you were an airline?

The good news for Spirit is that fares in those markets have climbed significantly over the last four years. Take a look at this chart which shows the change in one way fare for travelers going nonstop between these airports.

Fare Growth in New Spirit Markets at Sky Harbor

When fares climb like that, it creates a fare canopy that makes it much more attractive for low cost carriers to consider stepping in underneath. I can only assume that Spirit looked at the market, saw relatively high fares compared to what it would charge, and figured it could step in and fill its planes with much lower fares quite profitably. And it figured it could make more money doing it at Sky Harbor than it can in Mesa because fares will be higher.

So why should people outside the Valley care about this? Well, it’s proof once again that if airlines push fares high enough, there are other airlines waiting in the wings to take advantage. Why haven’t we seen a lot of startups lately? It’s because fuel prices have been so high that there just aren’t as many opportunities (and there are fewer dumb people who like throwing money away). But if fares get too high, then opportunity will arise once again. And when a real opportunity presents itself, someone will take advantage.

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26 comments on “Spirit’s Move to Phoenix Sky Harbor Shows Competition is Alive and Well

  1. Should be interesting to see how they do down the road. With only one flight to each of three cities, they are not going to compete on number of flight offered, so ticket price will be it.

    They could fit not only the leisure traveler in the PHX area but also the small business traveler. People always think of big companies traveling for business paying high fare tickets, but there is a lot of small companies with almost no travel budget who can take advantage of Spirit at PHX. A taxi ride to a meeting location and/or hotel would be cheaper then from AZA for example helping the smaller business owner cut costs.

    AZA by locals could only be thought of as a leisure cut rate airline airport used by airlines selling cheap package vacation travel and not as a serious option to travelers like one may think of airlines using PHX.

  2. That’s one way to look at it, I suppose. Or you could look at it as misplaced priorities at Sky Harbor. If it wants to be a great big collection of budget airlines, Sky Harbor is on the right track. It it wants to offer the services of one of the nation’s 10 largest metro areas … not so much.

    1. Wandering Justin – How is it a misplaced priority? Should Sky Harbor try to turn away budget airlines? No way. It should try to provide service to any airline that’s interested in flying there.

      1. Brent, if you lived in Phoenix and had to catch a flight to LAX/JFK/ORD whenever you traveled abroad, my guess is that you’d be unimpressed by service from Spirit Airlines, too. It defies logic that a city grows its population while losing intercontinental flights and airlines. And, well, Sky Harbor hasn’t exactly shown that it has a plan to bring Phoenix something it doesn’t already have. So don’t turn them away, but do more to bring in the bigger players.

        1. Wandering Justin – I don’t see how the two are related. You can make your airport attractive to both network carriers and low cost carriers. They all want low costs, easy gate availability, short taxi times, and of course, high local demand (which is outside the realm of the airport itself).

          Spirit is adding value for a segment of the population. Meanwhile, Sky Harbor has successfully become the only airport in the US to support a Southwest focus city and a legacy airline hub. (Atlanta will be the second, but that’s a work in progress for Southwest.)

          You should feel pretty lucky to have what you have there, and I would think you’d want to welcome anything new you can get. Would it be nice to have more intercontinental service? Sure. And I bet you get it with the US Airways/American merger. But I don’t think that the reason you don’t have that today is because of Sky Harbor. The reason is that the demand hasn’t been there.

        2. Wandering Justin, I’ve lived in Phoenix almost forty years and the only intercontinental flight I remember Phoenix losing was Lufthansa’s service to Frankfurt. And if I remember correctly, that was before America West and US Airways merged. British Airways has been successfully flying from London to Phoenix for years. that should only be enhanced by the American US Airways merger.

          Phoenix is too close to Los Angeles to be a major international gateway to Asia, but it is, and has been, a good north / south gateway to Canada, Mexico and Central America, a point often overlooked by those who think Phoenix will become nothing more than a spoke in the new American.

          1. Cranky (so I don’t call you the wrong name twice!), it’s a question of allocation of resources. If you have unlimited resources, you can pursue both. If you don’t, you pick and choose. Sky Harbor’s results speak for themselves. I don’t buy the statement that Phoenix should be lucky for what it has – not when far smaller cities have far broader service. I have a hard time wrapping my head around lack of demand given the population. And how do you track it? Anyway, my overriding thought is that Sky Harbor has not done well with using strengths like good flying weather, low enplanement fees and a big population more effectively. I don’t think there’s any chance of snagging a U.S.-based airline, but I wonder what Sky Harbor could do if it threw itself into grabbing some flights from airlines abroad that want to expand to new cities (as IcelandAir, Air New Zealand and Norwegian Air Shuttle have). IcelandAir would be awesome since it goes to so many European cities after a stop in Keflavik.

            And DesertGhost, that’s the flight. For awhile, BA also cut its service back and only recently re-started daily service. It might be a small loss, but it’s still a loss. You mention proximity to LA – you could say that about a lot of airports, though. And seriously, who wouldn’t love to grab international flights from Phoenix and not have to deal with customs in LA? I have no clue how the new American will shake out in Phoenix – though I know it’s been a lot harder to get to Costa Rica and Belize in the last few years.

          2. Wandering Justin – Regarding the lack of demand, the airlines can track all of those things. There are historical models looking at the number of travelers flying between city pairs on existing airlines.

            I actually thought Phoenix-Frankfurt might have made a comeback when America West bought US Airways and entered Star Alliance, but Lufthansa clearly didn’t see the opportunity. I can’t imagine that has anything to do with a lack of airport effort. The airline simply doesn’t see the opportunity. What could the airport do to change their minds?

            Yes, there is a big population in the Phoenix area, but that doesn’t mean they’re all traveling. Even if they were, Phoenix is also hurt by its geographic location. I can’t imagine that Icelandair can run a 757 to Phoenix with the flight being over 4,100 miles. Otherwise, that might be something it would consider. East coast cities are much closer to Europe meaning it’s a less costly flight that takes less aircraft time. Phoenix is close to nothing.

            Air New Zealand? No way. Norwegian Air Shuttle? It has far more cities to try (and probably fail at) before it gets to Phoenix.

            With US Airways entering oneworld as it merges with American, I see opportunity for Phoenix. I see JAL coming from Tokyo as the best possibility at this point. But I don’t think that what the airport does is going to make a huge difference on that.

            Do I wish they hadn’t wasted millions on that airport train? Yeah. But that isn’t impacting long haul international flight decisions. That’s the kind of thing that would keep the ultra low cost guys away, like Spirit. Apparently it’s not an issue for them.

        3. Wandering Justin, you make reference in another subthread to PHX’s cachement area being among the top 10 population-wise in the country, but about other cities in that list? One would be San Antonio, which has barely been able to sustain nonstop service to Mexico over the past 20 years, and certainly holds no ambition of truly transcontinental flights anytime soon. Local population isn’t the end all and be all of these sorts of decisions–look at what Chicago had for international flights during the early ’80’s, for instance.

          What PHX flight other than BA’s London service meets the definition of “transcontinental”? If you stretch the definition to include HNL, I guess you could include HA’s flights, which depend on a strong local market to HNL, and HP/US’s, which depended on PHX as a hub (and didn’t they for a time code share with HA?).

          1. “Local population isn?t the end all and be all of these sorts of decisions” Very true, but it’s a strong indicator. You’d also have to look at whether intercontinental (not transcontinental) flights would draw flyers from around the region. That’s where I see potential in Phoenix – a way to fly through somewhere there isn’t prone to weather delays, has low fees and isn’t too messy in customs. To take your statement further, look at the cities that are far behind Phoenix and San Antonio in population, yet somehow support a broader array of flights. I admit there are a lot of factors in play – industry, educational centers, culture, to name a few. It still perplexes me that a growing metro area of transplants from other metro areas lags so far behind.

            What do we gain by stretching the definition?

          2. Justin, my apologies on transcontinental versus intercontinental — total brain fart on my part.

            On local population, I think we might actually be in violent agreement. A citiy’s MSA is probably a better measure than city population itself (useful to point out to anyone who notes that Houston dwarfs Ft Worth and Dallas, but ignores its MSA is about the size of the Metroplex) but even then, airports in one MSA can poach from a neighboring one – look at ORD poaching international passengers from MKE and PHX, for that matter, poaching all sorts of passengers from TUS. Nobody in San Jose (except perhaps the city council) is going to seriously advance the theory that they should have 15% more intercontinental flights than SFO based on their cities’ relative populations.

            Other factors you mention are certainly important; no one is going to start service to MIA based on airport operating costs; no one is going to start service to DCA based on availability of slots; PHX doesn’t have those limitations. In my view though, PHX isn’t competing with airports with those limitations, especially when talking about intercontinental flights, it’s competing against other interior mid-major markets, where its relative advantages are less apparent. I’d wager that Icelandair’s service to DEN is more about its success in MSP and its ability to grow that market (and already having an aircraft type that could operate the DEN segment) than anything DIA threw its way.

    2. Wandering Justin – Gateway is a long way from where I live in Sun City. I hope Sky Harbor keeps providing service to any airline that wants to operate from there.

  3. There are not a ton of airlines that fly direct PHX-DFW. There are two, USAir and AA, which will soon become one. I hope some other airlines see that this as an opportunity since there will most likely be a reduction in flights once the merger is complete.

  4. @Wandering Justin
    Yes….I think SMSA (standard metro statistical area) would be a better measure of population…..for instance Atlanta metro is number 9 smsa with 5.4 million residents and Phoenix is number 13 with 4.3 million….so even though ATL is a major fortress hub and has a ton of connecting traffic it has a large population base to draw travelers from also.

  5. @Cranky
    “I can?t imagine that Icelandair can run a 757 to Phoenix with the flight being over 4,100 miles.”
    Yet the IcelandAir 757 gets to Denver just fine. FlightDistance.com shows KEF-PHX as a 3,700nm flight, and a 757-200’s max range is 4,100nm. The problem there is the airline is phasing the 757 out, and the replacement will be one of the only other narrow-body families out there.

    Yeah, I realize Air New Zealand and NAS are a long shot … but the 787 does exist for long, skinny routes, does it not? You ask what an airport could do … Phoenix tried this … it obviously needs something else.

    And JAL would be very nice. If Sky Harbor makes that happen, that will be big news.

    “Do I wish they hadn?t wasted millions on that airport train?”

    Really? Local travelers would disagree. The only downside to it is that it doesn’t yet hit every terminal. (and they should’ve had it 15 years ago).

    1. Wandering Justin – I believe 4,100nm is the published max range with winglets, but that doesn’t take into account actual real-life operating conditions. Phoenix is a hot airport so it will have reduced range for departures. And while I doubt ETOPS is technically required for that route, there will certainly be a need for higher levels of fuel reserves at the very least which will further reduce range.

      The 787 does exist for long, thin routes, but Phoenix won’t be on the top of the list (except, I’d think, for JAL or other oneworld partners depending upon what American does there). Those airport incentives make it look like the airport is doing something, but it’s not going to mean much to the airline. Airlines pick their destinations based on demand and costs. Incentives can help but it’s not going to make or break a flight.

      As for that airport train, I can guarantee you that no airline cares about it and would never consider whether to operate at Sky Harbor based on whether there’s a train or not. So in the airline’s eyes, it just raises operating costs. You may like it, but it’s not going to help you get more service.

  6. Almost every major city have two major airports. We need to keep Mesa gateway active and thriving as it has become a huge relief for business travelers and vacationers. It was very disappointing to hear Spirit made their decision to use Sky Harbor. There is way to much congestion already in PHX.

    Southwest and American we hope you listening!

    1. Written by GWP on August 8, 2013.Reply

      Almost every major city have two major airports. We need to keep Mesa gateway active and thriving as it has become a huge relief for business travelers and vacationers. It was very disappointing to hear Spirit made their decision to use Sky Harbor. There is way to much congestion already in PHX.

      Southwest and American we hope you’re listening!

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