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Spirit has been an extremely consistent company since former CEO Ben Baldanza piloted it into being an ultra low cost carrier last decade. But with Ben leaving and former AirTran CEO Bob Fornaro stepping into the role, I (and many others) wondered what that would mean for the company. During the airline’s fourth quarter earnings call, Bob gave us a good look at where the airline is going. It sounds like Spirit wants to be more predictable operationally and “less predictable” from a route selection perspective.
If you’d like to follow along, here’s the Seeking Alpha transcript from Spirit’s earnings call.
It didn’t take long for Bob to starting getting to the point.
I know many of you are anxious to hear my vision for Spirit and changes that maybe forthcoming. I do not feel I need to make sweeping changes, but I do have a few ideas and how we can further improve. One of the primary areas we are focused on is improving the overall customer experience and we have made this a top priority for 2016.
When I hear “improving the overall customer experience,” I generally throw up in my mouth a little bit. More often than not, that’s lip service and doesn’t actually mean improving any customer experience. That’s especially true with ultra low cost carriers. But fortunately he went on to explain in greater detail.
This includes improving our on-time performance and maintaining a high completion factor as well as improving our customer service metrics.
Ok, now we’re talking. The operation is Spirit’s Achilles heel. The airline just doesn’t run a reliably on-time airline. While in most months it does keep completion factor on the high side, which is good, the chronic delays are still hugely problematic for a lot of existing and potential customers. I know at Cranky Concierge, we’ve pushed people away from Spirit when we knew there were any time constraints. It’s good to see this getting attention. More importantly, it’s good to see it being seriously acknowledged as a problem.
Sure Spirit admitted it had a bad June last year, but overall it stuck by its general sub-par operation. Why? Well, the argument was that delays don’t matter that much as long as flights don’t cancel. That is true, canceling is worse. But that doesn’t mean it’s ok to have such awful delay stats. Spirit doesn’t need to be at the top of the industry. That can get expensive. But it should be at least in the middle of the pack.
But I want specifics. It’s easy to say you want to improve your operation; it’s harder to actually do it. That often means raising costs and Spirit is not an airline that likes to do that.
As discussed last quarter, we are slightly reducing our utilization in the peak period in 2016 towards the goal of improving our operations and we have made a number of adjustments to our staffing and operating system since June that have already helped us with a number of events including the most recent storms on the east coast.
Alright, this is good. Reducing utilization will help. I’m not convinced it will solve all the problems though. The way Spirit routes its airplanes across the country is just asking for delays. So unless scheduling practices change as well, I’ll be skeptical until I see real improvement.
What else is the airline doing? It’s slowing down from completely insane growth to just mildly insane growth.
We do not expect to repeat a 30% growth rate in the future, but we are very comfortable with the growth rate in the range of 15% to 20%.
But there’s another interesting piece here about market selection.
…over the last couple of years, we focused on mostly big markets to other big markets which really put us in legacy carrier hubs…. And I think over time, we will be just as interested in looking at mid-size markets and small markets….
Hmm, flying smaller markets will also help with operational performance, but I get the feeling this is more of an AirTran-ification of Spirit. AirTran loved going into some of these smaller markets from bigger cities. (These are all the markets that Southwest dropped when it bought the airline.) So it’s not a surprise that the former CEO of AirTran would like some of the markets he had been in before.
But there’s an issue there. Allegiant has really stepped in to a lot of those, and it’s ramped up in mid-size markets as well. So there’s more competition from lower-cost airlines than there was when AirTran was in there. Does that mean I think this is a bad idea? No, not really. I think there’s plenty of opportunity all around.
But you know who really likes this plan? Legacy airlines. After all, this will mean less of a focus on their bread-and-butter markets and more of a focus on smaller markets. They shouldn’t get too excited, however.
So, again as the fleet size – the airplane size gets bigger, and we are not a carrier that’s really focused on tariff, it naturally keeps us in this one flight a day environment, but if we dial that back, and start focusing on other markets, perhaps shorter haul markets, you may see a corresponding increase in frequencies. But again, as bigger gauge takes us away from that.
Like most airlines, Spirit learned that bigger airplanes help reduce unit costs by spreading out the costs over more bodies. But that also means many of these markets can only support one flight a day. Spirit says it may have to hold on to some more A319s so it can serve smaller markets and increase frequency. That’s good news for people who like more options, but it also means a hit to unit costs. Of course, A319s aren’t the most desirable airplanes these days, so if Spirit can get them for cheap, then that could change the math.
More importantly, an increase in frequency does catch the attention the legacy carriers much more quickly. Yet not long after talking about increasing frequency, Bob talks about decreasing it.
We are capable of flying less than daily operations and we have the ability to set those up.
In other words, Spirit wants to be that crazy ex-girlfriend of yours – completely unpredictable. It wants to continue to serve leisure customers, but it also sees value in small business travelers who aren’t on expense accounts. If it really wants to have broad appeal like that, it needs to fix its operation and it probably does need to broaden its view of potential routes. That sounds like what Bob is planning.
In general, this seems like a good plan. But it’s easy to make good plans. It’s hard to execute them. Bob certainly has the background for this, so hopefully he can pull it all off.
[ Original photo via Shutterstock]
