Spirit Airlines is stingy and proud of it. It's the most profitable U.S. airline and flying ever-larger numbers of passengers as it seeks to raise its market share from 1% to 3%. But it is achieving that success by slashing costs and hiking fees. Can the company thrive by making customers miserable -- and should Foolish investors fly along for the ride?

Industry leader
Spirit has soared toward the top of the airline industry by focusing on how to maximize revenues (charging for everything possible, including boarding passes) while minimizing expenditures (don't expect an in-flight magazine ).

When reviewing the indicators below, such as the sales growth rate, remember that Spirit is a small carrier with only 40 planes. Despite that, it's achieved industry-leading profits and strong sales growth while maintaining zero debt.

Metric

Spirit Airlines

Delta Airlines (DAL 0.31%)

United-Continental (UAL 0.50%)

Southwest Airlines (LUV)

US Airways (LUV)

Industry Average

Profit Margin

8.93%

3.92%

(0.64%)

2.90%

4.50%

0.02%

Debt-to-Equity Ratio

0.00

 

6.70

0.46

6.02

9.21

Sales Growth Rate

18.57%

1.09%

(2.58%)

(00.5%)

2.82%

6.42%

SOURCE: MOTLEY FOOL CAPS, Finviz

Success breeds contempt
While the numbers tell one story about Spirit, many former passengers tell another. Comfort is not a priority; the company fits in the most possible seats allowed on a plane by the Federal Aviation Administration, and charges passengers for everything from checked bags -- it was the first airline to do so -- to a glass of water.  

Along with profits, that frugality creates contempt: There is no shortage of haters for Spirit. A Google search of "I hate Spirit Airlines" brings back about 410,000 results. The website Amplicate.com, which measures public opinion, gives it a 92% negative ranking . While that in itself is impressive, the passion of the commentators is even more so. For instance, "DavidHatesSpirit" writes that "... in my company of over five thousand frequent travelers, I intend to tell everyone to avoid [Spirit] like the plague." 

However, that doesn't trouble CEO Ben Baldanza. He argues that Spirit's business model results in fares about 30% lower than the industry average, observing that, "We have no demand problem when we have the lowest price."

Sheer genius in the execution
There is brilliance in the way that Spirit operates. Its planes are the fullest  in the industry by percentage of seats booked. The higher revenue from those fuller flights has helped it to meet or top analysts' earnings expectations for every quarter since its IPO in May 2011.

The company thinks first, then spends only when necessary. The way it advertises and promotes the business is a perfect example. Rather than pay exorbitantly for television commercials and magazine ads, Baldanza points out that Spirit focuses on low-cost advertising that encourages word-of-mouth exposure from email blasts and other penny-pinching efforts. Its $2.5 million annual ad budget equals roughly 1% of what Southwest spends on advertising. As Baldanza remarked  :"It allows us to spend less money as a percent of revenue on marketing than any other airline by a long shot ... yet we have huge name recognition ... people know we're a low-fare carrier. "

Full disclosure
I've never flown Spirit Airlines. Its business model and comments from disgruntled passengers make it sound like a Florida-to-California flight would be a miserable experience. However, according to the U.S. Bureau of Transportation, the average pleasure trip in the U.S. is just 114 miles, while the average business trip is only 123 miles . It is much easier to endure a one- or two-hour flight than a cross-country one. That's likely why Spirit Airlines counts Greyhound buses as a competitor. Offering cheap fares for shorter, no-frills flights gives it a large base to increase its market share, with relatively little competition in pricing from other airlines.

Still, for all the comments about Spirit driving away passengers, the other airlines are copying its model. Delta recently introduced "basic economy fares" on some routes. Frontier now sells animal crackers for $1 rather than giving away cookies.  Others, such as Southwest, have taken such steps as selling early boarding cards to increase fee income .

"Dollar Store in the Sky"
Spirit passengers get what they pay for. As Baldanza has said, "Don't go to McDonald's and get upset there's no filet mignon." Described as the "Dollar Store in the Sky," Spirit is rewriting the rules of the industry, just as deep discount stores have for the retail sector.

The airline went public at $12 last year, and is now trading about 50% higher. Its profitability has topped expectations. If it triples its market share as Baldanza is hoping -- and the burgeoning passenger growth along with new routes certainly indicate that's possible -- without borrowing money, and if it continues to increase its operating margin and net price, Spirit's shares should ascend even higher over the long term.