Spirit Airlines

Spirit earns USD50 million in successful bag policy

In Aug-2010, Spirit raised industry interest and Congressional hackles by announcing it was imposing a carry-on bag fee as part of an effort to speed boarding and deplaning. It remains the only airline to have such a fee and it is setting a new standard for fees in the US airline industry.

The airline, which generates about 30% of revenues from ancillaries, not only made the fee stick but earned USD50 million from the effort. In a hearing last spring, Louisiana Senator Mary Landrieu was so furious that she would not let CEO Ben Baldanza get a word in edgewise to counter her charges that his airline was a consumer rip off. Given the 25% increase in passengers after the fee was imposed, apparently passengers do not agree.

Spirit A320neo order allows carrier to replace costly A319 and expand further into South Ameirca

Spirit Airlines' memorandum of understanding to acquire 45 A320neos and 30 A320s will allow the low-cost carrier to replace its A319s, which the carrier is falling out of favour with due to their higher trip cost than the A320. The A320neo's improved range surpasses that of the A319, allowing Spirit to rationalise its fleet while also potentially using the A320neo's longer range to open new routes. The A320neo will also allow Spirit to serve markets with a full payload that its current A320s cannot serve, or which its A319s can but with a lower seat count.

While Spirit will look to grow its fleet with the order it announced at this week's Dubai air show, 28 of its current 35 aircraft have leases expiring between 2016 and 2018, when the A320neos will start to be delivered.

The new order, valued at USD6.7 billion at list prices, expands the airline’s current order, which still has 33 aircraft yet to be delivered, with delivery slated between 2016 and 2021. Airbus is offering the A320 with the GE Leap X engine as well as the Pratt & Whitney 1100G PurePower engine, but Spirit did not say which engine was destined for its aircraft.

US airlines’ ancillary revenues continue to grow, but at a slower pace for legacy carriers

The US Department of Transportation (DoT), through the Bureau of Transportation Statistics (BTS), has released second quarter data which provides some interesting numbers for consideration. Looking at the ancillary revenue collected by carriers, we find that the amounts collected continue to grow, but for most legacy airlines at a slower pace. The overall year-on-year total increased only 5%.

However, passengers flying Spirit had a quite different experience and despite its general “no fees” image, Southwest has increased its take from fees by 10% over the year.

Spirit posts 15% operating margin in 55% profit swing on fuel costs

Spirit Airlines experienced a 55.2% decline in profitability in the third quarter when it posted net income of USD27.7 million, despite a 41.8% increase in revenues to USD288.7 million. This revenue increase overwhelmed the 33.7% increase in operating expenses which came in at USD244.1 million. The airline beat consensus estimates for the quarter which expected a US274.9 million profit.

CEO Ben Baldanza pointed out that the company grew capacity by 10.4% in the quarter “while maintaining industry-leading margins on increased operating and net income by over 100%”. Traffic rose 15.6%, outpacing capacity increases. It was able to recapture most of the losses prompted by Hurricane Irene cancellations.

JetBlue Airlines posts modest USD39 million profit and grows capacity as competitors scale back

In what has become the theme for 2011, JetBlue reported falling profits on rising revenues with USD35 million in profits down from the USD59 million posted last year. It came in just shy of analyst expectations that projected earnings of USD36.9 million. The company generated record revenues, which jumped 16% to USD1.1 billion.

After the industry took losses in the first quarter, second and third quarter results showed promising trends with rising revenues, although they could not completely offset rising fuel. While most airlines are expected to post profits this year, including JetBlue, those profits will likely be down from 2010. Still, the trend is in a positive direction given the fact that a decade ago, before the restructuring of the industry, these companies would likely have been awash in red ink.

In conversation with Spirit Airlines CEO Ben Baldanza

Spirit Airlines has proven there is room in the mature US market for a new model and unusual network strategy.