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Spirit Airlines was on the move last year, adding seven new cities, including Austin, Indianapolis, Nashville, Raleigh-Durham, Charlotte, and Sacramento, part of a push to diversify where the airline flies. But adding so many new markets is rarely good for business — it takes a while to win new customers — so Spirit will pull back on new cities this year in an attempt to boost profits, executives said Thursday.
Spirit in 2020 will expand mostly through what the industry calls “connecting the dots,” or adding routes between existing markets. It’ll also add frequencies on strongly performing city pairs, mainly “to large underserved leisure markets,” like Florida, CEO Ted Christie said Thursday on the airline’s fourth-quarter earnings call. Both approaches generally produce higher short-term margins than entering completely new airports.
“As we move through this year, we’re going to have less new cities,” Chief Commercial Officer Matt Klein said. “We’re also in the midst of making sure that our growth this year is more focused on where we’re strong.”
It’s a sign, executives said, the network is moving toward maturity, with Spirit’s route map staying relatively steady from year to year. That’s long been the case at American Airlines, United Airlines, and Delta Air Lines — the major carriers don’t change their domestic route maps much from year to year — but less so at Spirit, a younger and faster-growing airline.
“The maturing of the network is a big deal,” Klein said. “We’ve made a lot of changes to set ourselves up for the future last year.”
All of Spirit’s new markets may have been a slight drag on fourth-quarter earnings, with the airline reporting net income of $81.2 million, down about $10 million, year-over-year. The company’s operating margin fell from 15.8 percent to 12.9 percent.
Spirit’s push into new cities last year was partly driven by opportunity, with a few airports finally finding space for the carrier. Many U.S. airports are gate-constrained, and it can be challenging for an upstart like Spirit to find room.
So when Charlotte, an American Airlines hub, opened nine new gates in 2018, Spirit decided it wanted in.
“If we didn’t make the move then, then we likely would have been locked out for a little while in some of those airports,” Klein said. “When we see opportunities to add new cities that we think are strategic to our network and will add to profitability, then we will do that.”
Spirit this year will continue to grow the airline, planning a 17–19 percent capacity increase for the year. But nearly two-thirds of it will come on new frequencies in existing markets, with only about 15 percent coming in completely new cities.
That means the airline will have far fewer routes this year under development. They said they consider about 5 percent of their seats for sale to be in immature markets in the first quarter, versus 8 percent a year ago. In the second quarter, the percentage will decrease from about 11 percent to 6 percent, year-over-year, they said.
“That’s what gives us a lot of confidence about what we’re talking about from a unit revenue perspective throughout the year,” Klein said.
Routes will come and go in 2020 — they always do at every airline — but Klein said he’s confident the airline’s “hit rate” is in the right place. Over roughly the past year, he said, Spirit has canceled 15 routes while adding 68.
“That’s a pretty good add-to-remove ratio for us,” he said.