Spirit Airlines (NYSE:SAVE) embraces a business strategy that makes it the ultimate love-it or hate-it airline. Fans love its low fares and see Spirit as democratizing air travel, while critics complain of minimal legroom and excessive fees.
So is Spirit Airlines the socially responsible airline of today or a carrier that's found a way to make cramped flyers pay high fees?
What is Spirit Airlines?
Discount airlines have been around for decades, but Spirit brands itself as a member of the growing ultra-discount airline market. As you may have guessed, ultra-discount airlines separate themselves from traditional and discount airlines through lower fares and fewer features.
For example, a Spirit Airlines ticket doesn't include onboard snacks, a printed boarding pass, or a carry-on bag. The airline's seats also offer some of the lowest pitch of any U.S.-based airline.
But at least you won't have to worry that someone will drop a seat into your lap, because Spirit Airlines' seats don't recline -- a point the airline brought attention to in a September sale with the tagline "Don't Recline (This Deal)."
Unlike other discount and ultra-discount carriers such as Southwest Airlines (NYSE:LUV) and Ryanair Holdings (NASDAQ:RYAAY), Spirit Airlines has chosen an all-Airbus fleet currently consisting of the Airbus A319, A320, and A321. Although the airline had only 54 aircraft in its fleet at the end of 2013, it expects to nearly triple the number by 2021. Clearly, Spirit is setting its growth ambitions high based on its fleet growth target.
The market vs. comfort
I think it's reasonable to expect that virtually all passengers would prefer to have the features of a full-service airline over the no-frills experience Spirit Airlines offers, if price weren't a factor.
But price is a factor, and according to a YouGov survey noted in the Los Angeles Times, about 97% of airline passengers said price was very important or somewhat important. As an ultra-discount carrier, Spirit Airlines was built to capitalize on the demand for cheap tickets and has been doing so quite well, increasing revenue roughly 50% since 2011.
This is where market demand and passenger comfort disagree. While there are plenty of passengers looking to save money on airfare, many others, including some who fly Spirit anyway, see the airline's flights as unpleasant and lacking in basic passenger comfort.
There's another factor at work here. With fares so low, Spirit Airlines is not just competing with other airlines; it's also competing with bus travel, driving, and not traveling at all. Not everybody can afford a ticket on a full-service airline, but Spirit's cost structure and pricing strategy make travel for these people possible when it wasn't before.
Few things annoy people more than fees, whether they're airline fees, bank fees, or credit card fees. But Spirit Airlines relies on fees to generate high-margin ancillary revenue to balance out its low fares.
Most of the fees are fairly straightforward and avoidable, albeit unpleasant to pay. Fees for things such as carry-on bags ($26 to $100, depending on when paid), snacks and drinks ($1 to $15), and printed boarding passes ($10) are listed on the airline's website and are part of Spirit's a la carte pricing strategy, where people pay for what they use.
However, two other fees are less avoidable. The "Passenger Usage Fee" runs $8.99 to $17.99 each way for flights where it's applied. The only surefire way Spirit offers to get around this fee is to book at one of the airline's airport locations. Because of the difficulty in avoiding this fee, the lack of extra benefits provided to the flyer, and allegations that Spirit led flyers to believe it was a government-imposed charge, this fee has been the subject of a class action lawsuit and a source of ire for Spirit Airlines flyers on the Internet.
Another fee, called the "Unintended Consequences of DOT Regulations Fee," routinely runs flyers another $2.00. Spirit put the fee in place after the Department of Transportation required airlines to allow passengers to make changes to their flight within 24 hours of booking. It would certainly be interesting to hear whether this DOT rule is actually costing Spirit $2.00 per ticket and Spirit is just passing along the cost, or whether the airline is using government regulation as an excuse to tack on a disproportionate fee.
Although airline passengers may not like knee-pinching seats, they can at least take some comfort in knowing they're a little greener than other travelers. The increased fuel usage from putting a few passengers onboard doesn't dramatically change the aircraft's total fuel usage, but it does reduce the fuel burn per passenger. With Spirit Airlines packing aircraft tight with passengers, they're helping to reduce per-passenger fuel usage.
Love it or hate it
Spirit Airlines is possibly the most polarizing airline in the industry today. Cheap fares attract bargain hunters and those who couldn't otherwise fly, while some flyers only notice having their knees crunched or its fee strategy.
But love it or hate it, Spirit Airlines is sticking around and growing, leaving it up to individuals to make up their mind on this ultra-discount airline.
Alexander MacLennan and The Motley Fool have no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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