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Updated May 11, 2012, 10:03 p.m. ET

A Stingy Spirit Lifts Airline's Profit

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By JACK NICAS

MIRAMAR, Fla.Spirit Airlines Inc. SAVE -0.97% has scrimped its way to become,
pound for pound, the most profitable airline in the U.S., helping reshape budget air
travel by charging for everything from boarding passes to drinking water.
In five years, Spirit has gone from the cusp of bankruptcy to leadership of ultra-low-cost
carriers, the airline industry's fastest-growing niche.
While full-service airlines chase big-spending business travelers, Spirit is profiting from
fliers who seek to reach their destinations as cheaply as possible. But unlike other U.S.
budget carriers, its cut-rate fares include little more than a seat, with nearly everything
else sold a la carte. The 40-jet airline counts the bus company Greyhound Lines Inc. as
a competitor.
"If a corporation is buying your ticket, you're not going to fly with us. We're OK with
that," said Spirit Chief Executive Ben Baldanza, who vacuums and takes out trash at
Spirit's low-slung headquarters in this Miami suburb. "More people eat at McDonald's
than at Morton's."
Other U.S. carriers have dispensed with the frills of flyingnotably budget pioneer
Southwest Airlines Co. LUV +0.62% But Mr. Baldanza takes the nickel-and-dime
approach to new extremes.
Fees to Fly
Spirit Airlines offers cheap tickets and sells
the frills of flying la carte. Drag the fees to
the pictures to guess how much some
items cost.

Want a boarding pass? That will be $5,

please. Thirsty? Water is $3, though Mr.
Baldanza said it was safe to drink from
the bathroom tap. A third option is to
order icethe only complimentary item in
the cabinand wait for it to melt.
In 2007, Spirit was the first U.S. airline in
decades to charge for all checked

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luggagea fee later copied by most other

major U.S. carriers. It was also the first to
charge for carry-ons in the overhead bin:

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Spirit Rewrites Airline Economic Model - WSJ.com

5/14/12 11:36 AM

$30 to $45 a pop, with plans announced

last week to push the fees to as high as

View Interactive

$100 later this year.

Flying Spirit Airlines

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Spirit brings in nearly a third of its revenue

for baggage and other services,
compared with the industry average of
6%. But its thrift comes at a price. It has
one of the industry's worst on-time
performances, the least legroom and

View Slideshow
Chip Litherland for The Wall Street Journal

A Spirit plane from Chicago was guided into a gate

in Fort Lauderdale, Fla.

More photos and interactive graphics

customers who swear off the airline after

one flight.
"I don't like them," said Lauren Piatek, a
Chicago hair stylist. She refused to
change her travel plans after her
boyfriend broke his leg because she didn't
want to pay Spirit's $230 fee to change

two reservations.

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"Yeah, it was a cheaper flight," she said, "but I

had to pay for bags, water, everything. You
might as well go on a normal airline."
Complaints aside, Spirit has found a market.
From 2008 through the first quarter of this year
while larger carriers have posted billions of
dollars in losses through bankruptciesSpirit
earned $289 million. Only two U.S. airlines have
earned more in the period: Southwest at $1
billion with nearly 700 planes, and Alaska Air
Group Inc. at $522 million with 165 planes.
Last year, Spirit earned 40% more per airplane
than any other U.S. airline, and at about $1.63
billion, Spirit has nearly the same market value
as US Airways Group Inc., LCC +1.94% which
carries nine times as much traffic.
In a recent note, Maxim Group airline analyst Ray Neidl wrote that Spirit "flies for one
reason only, to make money."
The ultra-low-cost modelpioneered in Europe by Irish carrier Ryanair Ltd.requires
airlines to strip all expendable costs. It means packing more seats onto planes, flying
more hours a day and keeping seat prices separate from all related goods and services.
Industry analysts say Spirit is the first in the U.S. to master the model, pioneering a
route to consistent profits for smaller carriers.

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The model isn't for everyone. Many major U.S. airlines focus on luring business
travelers and boosting market share, even when it means losing money on some routes.
After a decade of consolidation and cost-cutting, most major U.S. carriers are now
cruising along profitably.

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But Spirit's success pressures other small airlines that compete for budget travelers. Its
aggressive pay-for-service practices also may make it easier for the rest of the industry
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Last month, ultra-low-cost carrier

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Spirit Rewrites Airline Economic Model - WSJ.com

5/14/12 11:36 AM

Last month, ultra-low-cost carrier

Allegiant Travel Co. ALGT -0.13%
became the second U.S. airline to charge
for carry-on luggage. Frontier Airlines, a
loss-making unit of Republic Airways
Holdings Inc., RJET +0.59% is dabbling
with the ultra-low-cost model in the back
of its planes, where it is considering
packing in more seats and charging for
Enlarge Image
carry-ons. Frontier also recently replaced
its free cookies with animal crackers sold
for $1. "We think there's a lot to learn from" Spirit, Frontier CEO David Siegel said.

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Even Delta Air Lines Inc., DAL +0.97% the world's second-largest carrier by traffic,
recently introduced so-called basic economy fares on some routes in competition with
Spirit. These discounted seats can't be chosen, refunded or changed.
With flights averaging 85% to 90% full, Spirit and Allegiant fly the fullest planes in the
industry.
"We fly Spirit whenever we can. We just pack as little as humanly possible," said Kristin
Flood, a hair stylist with her belongings stuffed beneath the seat on a recent flightthe
only place bags fly free on Spirit.
Walking off the same flight, retired boilermaker Michael Mooney proudly flashed a $77
receipt for his round trip between Chicago and Fort Lauderdale. "There's no way they're
making money off me," he said.
Spirit's flight path isn't without risk. It faces higher airport expenses and more congestion
as it flies into larger markets. Spirit will also have to keep its union workforce happyit
endured flight-attendant picket lines in March and a rare pilot strike that grounded flights
for five days in 2010 in a dispute over hours and compensation.
Spirit is still smallcarrying just 1% of the nation's fliersand one public-relations
fiasco, such as a plane crash or lengthy labor strike, could damage its profitability and
growth, according to industry analysts.
There are also some famously unhappy
customers. This month, Jerry Meekins, a
76-year-old Vietnam veteran with terminal
cancer, started a campaign reported on
national TV to boycott Spirit after the
airline denied his request for a refund
when doctors told him he had only months to live and couldn't fly.
Enlarge Image

"It was time for someone to stand up to them because they're ripping us off and taking
our money," said Mr. Meekins, who led a group of fellow veterans picketing Spirit's
gates at Tampa International Airport.
Mr. Baldanza first refused to budge. "Nonrefundable's nonrefundable and that's it," he
said. In one week, 30,000 people joined a Facebook page to boycott Spirit.
Last week, Mr. Baldanza reversed course and apologized. He promised to personally
refund Mr. Meekins. Spirit also will donate $5,000 to a charity in his name. "I did not
demonstrate the respect or the compassion that I should have, given his medical
condition and his service to our country," he said in a statement.
Mr. Baldanza, 50, is better armed with jokes and a belly laugh. ("Want a water? That's
$3," he told a Journal reporter at his office.) Short enough to fit in an overhead bin for
one wacky Spirit promotion, Mr. Baldanza often lunches with a pair of colleagues to

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Spirit Rewrites Airline Economic Model - WSJ.com

5/14/12 11:36 AM

write the company's racy promos, which are emailed to customers. The company has
an ad budget of $2.5 million, about 1% of Southwest's.
The carrier recently caught flak for a sale on flights to Colombia that poked fun at the
U.S. Secret Service prostitution scandal there. ("More bang for your buck," the ad said.)
Spirit largely credits Southwest with paving the way to budget flying. In 1978, when
government deregulation gave airlines power to set fares, Southwest lured a new flock
of price-minded passengers. Most other airlines offered free meals and higher-priced
tickets; Southwest gave out peanuts and sodas.
Over the past decade, bigger carriers also have cut costs, eroding the price advantage
of budget carriers. Fares are now largely even across the industry, opening the door for
the ultra-low-cost ticket.
Spirit's strategy came out of desperation. Founded in 1964 as Clipper Trucking Co., it
moved to the skies two decades later and evolved into a tiny commercial airline. By the
middle of last decade, its business ferrying passengers between Florida and the
Midwest was near failure.
That's when Bill Franke, an aviation executive, pounced. An early investor in ultra-lowcost airline Ryanair, Mr. Franke cut costs as chief executive of America West Airlines in
the 1990s. Later, he started a private-equity firm to invest in discount carriers.
Searching for a U.S. airline to out-budget Southwest, Mr. Franke bought Spirit in 2006
and promoted Mr. Baldanza, an industry journeyman, to CEO.
Then the penny pinching began. Mr. Baldanza's team jettisoned in-flight magazines to
cut weight and save on fuel. They sold advertising on overhead bins, tray tables and
flight attendants' aprons. And they stocked food and drinks once a day, often leaving
late-night flights bare.
On Spirit's Airbus A320 aircraft, they removed the reclining mechanisms to fit 178 seats
as many as 40 seats more than its competitor's A320s.
On some routes, Spirit leaves just 30 minutes between landing and takeoff, allowing
planes to fly 12.7 hours a day15% more than Southwest, which revolutionized the
quick turnaround. Packing the day with so much flying requires some trips at
inconvenient times, and can lead to more tardy flights.
There is no receptionist at Spirit's one-story headquarters. Some lights lack bulbs. "We
buy pens when we have to," Mr. Baldanza said. "But if you go to a conference and they
give you a pen and a pad, absolutely bring that pen and pad back."
In 2010, Mr. Baldanza pushed for carry-on charges. Even Mr. Franke squirmed. "I had
friends at other airlines who bet me it was going to be a gigantic failure," said Mr.
Franke, Spirit's chairman. He won the bets.
Spirit went public a year ago, and its shares have nearly doubled, closing Friday up 26
cents to $22.61. It added 13 cities since 2011, including Dallas, Denver and San
Salvador. Spirit plans to increase its capacity by 25% this year and has airplane orders
to roughly triple its size by 2021.
On a dozen of its major routes, Spirit fares are on average 30% cheaper than
competitors, according to airfare consultant Harrell Associates.
From Atlanta to Dallas, Delta and AMR Corp.'s American Airlines sell one-way tickets
for $109; Spirit charges $51. Even with fees, Spirit is often cheaper. With carry-on
luggage and one checked bag, the American and Delta flights would be $134,
compared with a Spirit flight as low as $109.
But Mr. Baldanza warned it wasn't always the case: "If you're going to bring a lot of
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Spirit Rewrites Airline Economic Model - WSJ.com

5/14/12 11:36 AM

bags, fly Southwest."

The carry-on charges prompt passengers to pack less, he said, making the plane lighter
and saving on fuel. Charging for boarding passes prompts more fliers to print them at
home, eventually allowing the airline to employ fewer gate agents.
Spirit charges $100 for a pet, or a child flying alone. Customers pay a $17 "passengerusage fee" each way to book tickets online and another $10 to book by phone. On
board, a bag of nuts is $4 and a beer is $6.
Now, Mr. Baldanza said, he is thinking about charging for armrests and tray tables.
Write to Jack Nicas at jack.nicas@wsj.com
A version of this article appeared May 12, 2012, on page A1 in some U.S. editions of The Wall Street
Journal, with the headline: A Stingy Spirit Lifts Airline's Profit.

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