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A Note about Spirit Airlines’ Quarterly Financials

You can hate on Spirit Airlines all you want, but from a financial perspective they run a great airline. Their quarterly numbers came out today and I just quickly wanted to point out their ancillary revenue numbers:

– Their ancillary revenue per passenger (per flight segment) is $51.47 (up 18% over a year ago). Average fare is $81.06 (down slightly from last year). I’m not sure they’ll get to the point where their ancillary revenue per passenger is greater than their average fare (if only because they’re able to get an $80 average fare), but they’ll be close. Everyone can complain all they want about the ancillary fees, but Spirit’s ancillary fee revenue grows each year, they can keep their average fare where it is, and their planes are full (85% load factor). What’s this mean? Passengers STILL want low fares, even if it means paying ancillary fees.

I think passengers are drawn to the illusion that they have control over which fees they pay (well, it’s a bit of an illusion — they can certainly avoid paying all fees, but most people will give in and either check a bag, choose a seat, or buy something on board…or print out a boarding pass, or whatever they’re charging for at this point). But those average fares ARE low — Southwest’s average fare is $150 (almost double what Spirit is charging). So even if you combine the average fare and ancillary fees, you still end up paying less than the average Southwest customer. You can decide for yourself whether that $20 savings is worth it to you.

That model – lead with low fares, get ancillary revenue later, appears to be working, as they continue to churn out profits quarter-after-quarter (48 cents a share this quarter). Even in the misery of 2008 they were profitable. If you hate them, you’re free to complain all you want. But they’re not going anywhere (especially not with the pretty significant expansion they’re launching out of Dallas).

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  1. Carsten Varming

    So you get a low fare plus a few fees. A non-status pax on the majors would get a high fare plus a few fees…. I can see why people don’t care for the majors on point-to-point flying.

  2. Spirit is an interesting case study to follow. Even when I don’t fly them, I appreciate that they are pressuring AA on similar routes.

  3. I’m still pretty certain Spirit will eventually fail. DFW may, indeed, be the tipping point. As Gordon Bethune once said, “You can make a pizza so cheap that nobody will want to eat it.” That’s Spirit. Nobody wants to fly them twice. And, I’m pretty sure, a lot of their ancillary revenue is folks getting snookered. They either will plan better the next time (most folks, if they “tried,” could bring a backpack and avoid their bag fee) or they won’t come back. And DFW is a classic over-reaching. Do you really think routes like DFW-PHL will make money? That’s a business route. No business traveller (well, no business traveller who isn’t paying his own way) will fly them.

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