Spirit Airlines has abandoned their business model focusing on the cheapest possible fares and making money on fees. They even offer a first class bundle now, “Go Big” that includes their ‘big front seat’ along a carry on, checked bag, priority boarding, and free wifi plus free snacks and drinks.
But they seem to have forgotten who they are. This isn’t a first class airline, it’s cheap transportation. They make travel affordable. They are a leisure airline for once a year flyers. That’s what gave them (and look-alike Frontier Airlines) the highest margins in the industry before the pandemic.
Since then their problems are:
People have looked to spend more on experiences. It’s unclear whether this will last through an economic downturn.People have wanted to travel to Europe, and Spirit doesn’t fly there.They now have higher costs. They pay for fuel and planes like everyone else does. Labor costs have risen.
Their problem isn’t that they charged too many fees.
Now, as a baseline, I was looking at first class prices from the New York area to Austin. Here’s what Delta, American and United are charging:
Spirit is selling their first class seat for more money than American Airlines wants for theirs. Spirit is selling a coach seat with a blocked middle next to it for more money than Delta wants for first class later that day.
I started looking at other Spirit routes and different dates. The next one I pulled up was Austin – Las Vegas, where they want more for a first class seat than American Airlines does – and about five times their own lowest fare.
They seem to have the idea of bundles confused. Consumer bundles succeed by offering more products at a lower price than all of them would cost separately.
Consumers get more than they otherwise wouldAnd spend more than they otherwise would
Think about your cable television or streaming service. Each new channel is very high margin. It costs almost nothing to add one more household to a given channel. All that revenue is gravy. So you bundle channels and get more total revenue.
Maybe someone values news stations at $10 and sports at $2 (or vice versa). If you sold each one for $9, your total revenue would be $9. They’d buy news and not sports. But if you sell a bundle for $11, you get $11 and they take both news and sports.
Bundles don’t make sense when the cost of the bundle is too high! If you sell the “news and sports bundle” for $20, you have no takers.
United Airlines CEO Scott Kirby suggests Spirit Airlines is doomed with a -30% margin. The airline seems to be making hail mary passes, thinking that they can charge more than competitors for their new first class? They don’t have ovens in their planes and aren’t including hot meals. They don’t have airport lounges. Their first class seats are pre-reclined. And their miles are worth arguably even less than Delta’s.
Spirit Airlines only even has these ‘first class’ seats on planes because they didn’t want to spend the money to rip them out when they first became an ultra-low cost airline.
Ultimately, Spirit Airlines isn’t going to be more successful by offering a less desirable product than American Airlines at a higher price.
The Spirit Airlines Big Front Seat used to be the best deal in travel at a modest upcharge. The idea that it’s worth more than double or even five times the base price is insane.
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