Transport Airlines

Spirit Airlines Looks to Allegiant For Ideas on Increasing Fee Revenue

@denschaal

Feb 19, 2014 3:00 pm

Skift Take

All things must pass, but Spirit Airlines looks fairly unstoppable for now. Travelers who know how to play the game can take advantage of Spirit’s low fares to get to their vacation destination, a little more rumpled perhaps, but carrying a heavier wallet or purse.

— Dennis Schaal

Win an All-Expenses Paid Trip to NYC to Tour the Future of Travel

Cristobal Herrera  / Sun Sentinel/MCT

Spirit Airlines CEO Ben Baldanza holds a plane model at his office in Miramar, Florida, Wednesday, June 26, 2013. Cristobal Herrera / Sun Sentinel/MCT


Spirit Airlines CEO Ben Baldanza envisions the day when ancillary revenue could account for half of the airline’s total revenue, and he’s looking to Allegiant Air for a little fee inspiration.

Spirit already charges fees for carry-on bags, checked bags, snacks, drinks, boarding passes printed at the airport and certain seat assignments, and fee revenue makes up more than 40% of total revenue. It’s in the “low 40s,” Baldanza said.

Baldanza, speaking during the company’s fourth quarter earnings call today, said the airline is “bullish” about growing ancillary revenue, and lauded Allegiant Air for selling more types of add-ons than Spirit, including show tickets and car rentals.

Allegiant and Spirit don’t actually compete much since Spirit is targeting big cities, and Allegiant prefers second-tier destinations.

Spirit is in the early days of offering hotels and vacation packages, and is looking to do even more, as Allegiant has done, Baldanza said.

But, wouldn’t more fees be a turn-off to passengers?

Baldanza argues that higher ancillary revenue means lower fares, and that stimulates demand among the airline’s highly price-sensitive passengers.

Some passengers on other airlines prefer amenities such as extra legroom, but “price tends to be the winner when it comes to the majority of the flying public,” Baldanza said. He has surveys to prove it, Baldanza says.

For the fourth quarter, Spirit saw its net income rise 120.4% to $43.2 million, and revenue climbed 27.9% to $419.9 million.

In these earnings calls, Baldanza often sounds like a cheerleader for the Spirit Airlines low-fare and high-fee business model.

He said he expects the airline to continue to grow 15% to 20% annually over the next few years.

“We feel very good about it,” Baldanza said, referring to that growth projection.

While other airlines see the pot of gold in opening more international routes, Baldanza feels Spirit’s best opportunity is domestically rather than adding more routes in the Caribbean and Latin America, for example,

The airline will focus “more domestically because that is where more of the opportunity is,” Baldanza said. He was referring primarily to the higher buying power among U.S. consumers compared with their counterparts in the Caribbean and Latin America.

Asked whether competitors’ expansion in Fort Lauderdale is impacting Spirit, Baldanza said this hasn’t affected Spirit’s growth there.

JetBlue, for one, expects to ramp up Fort Lauderdale to 100 flights per day, up from around 60 in the fourth quarter, and believes the city will be its fastest growing market in 2015 in terms of available seat miles.

This doesn’t seem to bother Baldanza, who said Spirit’s margins in Fort Lauderdale skew higher than its systemwide margins. Fort Lauderdale will be bigger for Spirit in 2014 than it was last year, he said.

And, despite all of the weather-related disruptions so far in 2014, Spirit feels that the overall airline environment is positive.

Said Baldanza: “We feel it is a very strong [revenue] environment right now continuing from last year.”

Tags: , ,

Follow @denschaal

Next Up

More on Skift

Skift Business Traveler: The Slow Death of International First Class
4 Hospitality Trends We’re Tracking At Skift This Week
SeaWorld Looks to Travel Agents to Help Reverse Attendance Woes
3 Ways to Guarantee Your Next Business Trip Won’t Be All Work and No Play