THAT’S the SPIRIT

July 17, 2011 at 12:00a.m.

Airline stands by its ‘ultra low fares,’ no matter the cost

McClatchy Newspapers

MIAMI

Standing before a luggage scale at Fort Lauderdale-Hollywood International Airport, Rita Coskey was not happy with Spirit Airlines.

As she struggled to lighten her overweight suitcase — and avoid total baggage fees of $63 — the 25-year-old New Yorker renewed her vow to avoid the low-fare, fee- intensive airline for future travel.

“I remember saying the same thing: I’ll never fly them again,” Coskey said. “When I saw it was cheap, I forgot all that.”

It’s not that CEO Ben Baldanza doesn’t care about such complaints. But, he wonders, what do customers like Coskey expect?

“No one gets surprised when you go into McDonald’s and don’t see filet mignon on the menu,” he said.

Spirit Airlines Inc. is unapologetically not filet mignon. The company prides itself on keeping costs low, offering the cheapest fares around and charging high fees for extras as basic as carry-on luggage and agent-printed boarding passes.

That low-cost ethos trickles all the way up to the company’s humble headquarters in Miramar, Fla., where there is no receptionist, employees take out their own trash and the overhead lights operate on a minimum number of light bulbs when they’re even used.

“We try to not spend money on things that our customers don’t really care about,” Baldanza said. “Our customers don’t care how nice my office is or how palatial our headquarters are.”

While alienating some fliers, the no-amenity strategy has kept the company profitable since 2007. Spirit saw a net income of $7.9 million for the three months that ended March 31 — a stretch when the country’s five-biggest airlines reported a loss of more than $1 billion combined.

Despite a weaker-than-expected initial offering of public stock in late May, the company that uses SAVE as its stock symbol is earning admiration from Wall Street.

“SAVE is the newest business model in town with absolutely no frills, small enough to grow capacity by 17 percent per year through 2015, and even lower unit costs than [JetBlue] and [Southwest], which should enable SAVE to profitably stimulate demand in new/existing markets through discounting tickets a third below competitors,” wrote Citigroup analyst Will Randow in a July 5 investment advice note.

Spirit’s business model may be relatively new, but the firm itself dates back nearly five decades, when it was founded as Clippert Trucking Company. Over the years, it became a charter tour operator, air charter and eventually a scheduled passenger airline called Spirit.

Since 2006, nonticket revenue per passenger flight segment has mushroomed 600 percent. That revenue includes Spirit’s credit card, annual subscription to a club that allows access to the lowest rates and sales of advertising aboard planes.

And yes, fees, where Spirit is the industry leader. It was one of the first U.S. carriers to charge for checked bags in 2007 — a practice that even many legacy carriers have since adopted. And in 2010, Spirit pioneered charges for carry-on bags too big to fit under the seat.

Last year, the airline ranked first among 20 carriers in fees as a percent of total operating revenue. According to government statistics, Spirit charged more than $104 million in bag and reservation change fees in 2010, accounting for 13.4 percent of its total operating revenue of nearly $780 million. All told, U.S. airlines last year collected almost $5.7 billion from those two categories of fees.

Recently, Spirit announced that boarding passes printed at the airport by an agent would cost $5 starting Nov. 1.

But the airline emphasized that printing at home and at kiosks for the next year would be free, and base fares would be reduced by $5.

The fee-heavy strategy and other service practices related to Spirit’s tight cost structure have prompted rants on social media and user review sites such as Yelp.

Complaints about long airport waits, delayed flights, poor service, cramped seats and fees for items as basic as water on a plane are common.

Countered Baldanza: “You’re going to think I’m a jerk when I say the next thing, but if you have some sort of medical condition that requires you take a certain pill at 2 in the afternoon and you’re going to be on the plane at 2 in the afternoon, I think it’s going to be OK to expect that people are going to be responsible enough to make sure that they can take that pill.”

In other words, pay the $3 for a bottle of water on board, or bring your own — though you’ll need to buy that after you pass through security.

Not all of its practices have passed government inspection, however.

Spirit was ordered by the Department of Transportation to pay a $375,000 fine in 2009 for its procedures for bumping passengers from oversold flights and its handling of lost or damaged baggage, though the company only had to pay $215,000.

The airline is now challenging some new DOT consumer protection rules.

“They don’t want to be loved,” said George Hobica, founder of travel site Airfarewatchdog.com. But, he said: “Nobody beats them pricewise — even with the fees.”