The Fee-Crazed Airline Travelers Love to Hate Keeps Piling Up Profits
By Brad Tuttle @bradrtuttleNov. 01, 2013
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Spirit Airlines mulls tying fees to flight demand Associated Press
Spirit Airlines sees nearly 98 percent increase in earnings Vegas Inc
After delays, Spirit Airlines again in the spotlight Miami Herald
Spirit Airlines gets dismal ratings from consumers. The piling on of fees and a recent string of delays has had many swearing off flying on the carrier for good. But the numbers indicate that budget-crunched travelers just can't quit Spirit Airlines.
Spirit Airlines isn't the first choice for many travelers. Over the summer, in a study of the best and worst airlines in America from Consumer Reports, Spirit Airlines ranked at the very bottom—not only in terms of air travel, but for all industries in recent history. "Spirit Airlines received one of the lowest overall scores for any company we've ever rated," the report stated.
More recently, Spirit Airlines has come under fire after, well, a fire caused engine failure on a mid-October flight from Dallas to Atlanta. Less than two weeks later, smoke filled the cockpit of a New Orleans-Dallas flight, causing pilots to make an emergency landing. After the first incident, hundreds of passengers had their travel plans delayed up to 12 hours, according to CNN, and dozens were forced to sleep at the airport in Fort Lauderdale while awaiting their departure. News reports quoted a multitude of cranky, stranded passengers swearing that they'd never fly with Spirit Airlines again.
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This all sounds like pretty bad news for Spirit. Nonetheless, the airline has to feel pretty good about itself lately. The just-released earnings report shows that Spirit's third-quarter profits are up an impressive 98% compared to the same period last year. In a statement released regarding the report, Spirit CEO Ben Baldanza said, "It is becoming clear that Spirit's customers understand that our ultra-low fares plus optional services offer them a total price that's tough to beat."
Mind you, those "ultra-low fares" are rising. The base cost of Spirit flights rose 15.3% compared to the third quarter of 2012, reaching an average of $83 per flight. Those charges known as "ancillary fees"—anything outside the base ticket, including fees for baggage, seat reservation, food, and more—were up 5.2%, hitting $52 per flight. In other words, the average Spirit passenger pays more than $100 in optional fees for round-trip travel.
Once all of these fees are added up, a "cheap" Spirit flight may not be that cheap. Nonetheless, the formula is proving to be enormously successful for Spirit. It's also proving to increasingly be setting the standard for the rest of the industry. The latest study from IdeaWorks estimates that ancillary revenues for airlines will reach $42.6 billion worldwide in 2013, up from $36.1 billion a year ago, and an 89% increase compared to 2010 ($22.6 billion).
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One reason why mechanical problems and delays are more troublesome for Spirit Airlines is that it is renowned for packing in as many passengers as possible on planes, and it's scheduling of departures is extra tight. As a result, when something goes wrong, it's unlikely another Spirit plane is ready to accommodate all the affected passengers. So while Spirit must be happy that it managed to boost its rate of filled seats to 89% in the third quarter (up from 86% in 2012), travelers have reason for concern. As a recent TIME feature story put it, airline passengers should get used to this scenario:
No empty seats, no room overhead, and stressed-out staff. And as there is little or no capacity growth in the forecast, the future of flying promises more cramp for more cash.
Despite the gripes about Spirit Airlines' fees, delays, and customer service, analysts generally believe that travelers aren't going to turn their backs on the carrier anytime soon. Here's how one analyst summed up the scenario, via the Miami Herald:
"When I hear people say, 'I'm never gonna fly Spirit again,' I roll my eyes," said Hunter Keay, senior airline analyst at Wolfe Research. "The vast majority of them will. They might not be happy about it, but they will."
They may hate the business model, but in light of fuller Spirit planes and higher Spirit profits, their actions do little to make Spirit second-guess its nickel-and-dime approach. In fact, Spirit's success only appears to bolster the idea that it's OK to aggravate customers, so long as the revenues keep shooting skyward.
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The Associated Press reported that a possible new revenue booster for Spirit would involve a variable fee scheme, in which passengers would pay more to check bags or reserve seats on peak travel days. Like many other aspects of Spirit's business model, this move would probably anger passengers and boost profits at the same time.