For a guy who takes out his own trash and works in an office with just one or two light bulbs, Ben Baldanza is a happy guy. He's enthusiastic, energetic, and above all spirited, which is appropriate for the chief executive of Spirit Airlines.
The question is, is he justified? After all, the South Florida-based carrier is at best thinly profitable, faces a fairly negative public image, is cutting routes and may soon lay off quite a few of its workers. But Baldanza insists that Spirit is in better shape than many and is set for survival.
Baldanza says that Spirit has asked all of its employees to undertake steps such as doing their own trash collections, and has also taken out light bulbs and the like. It's even looking for sponsors for its employee business cards, seeking to have a supplier such as Airbus imprint its logo on the card and then pay for the printing. "When we go to a supplier and ask for a price cut, steps like these show that we're serious about keeping our costs under control."
He insists that the privately held carrier, which is based in Miramar, near Fort Lauderdale in southern Florida, was in fact profitable last year, despite reports based on US Department of Transportation filings that it had lost about $3.8 million. "We had to file with the DoT before we had audited our reports, and there was a difference. We pretty much broke even but we are cash positive," he says.
Baldanza believes that 2008 revenues should rise to $800 million from about $762 million in 2007. It has some fuel hedges in place through 2009, and has hedges in the 50%-60% range for the current quarter of operation. During the hurricane season, that rises to 70% hedged. The carrier's cost per available seat mile, excluding fuel, by year-end should be five cents on average stage lengths of 900 miles. The carrier's system load factor is 84% on average.
Baldanza says that Spirit is committed to cost-cutting in larger ways as well. He receives a daily report on APU (Auxiliary Power Unit) usage to see how much fuel each aircraft burns as it idles, heading towards or away from airport gates, and also studies daily fuel burn reports. Improved taxi-out procedures and taking equipment such as full galleys off the aicraft have saved a significant amount of fuel per flight since January.
Some of the fuel savings suggestions came from Spirit pilots, who are members of a small but vocal Air Line Pilots Association chapter. The union and Spirit's flight attendants have often criticised airline management, but Baldanza says that such criticisms go with the territory and insists that he has a good working relationship with pilot leaders.
Labour's loudest recent protests were spurred by reports in May that Spirit had filed a warning notification that it might be cutting significant numbers of aircraft - and with them crews and other staff. In early July Spirit informed employees it would indeed be returning five of its A319s. As a result Spirit's capacity will be flat this year, instead of growing 10% as initially projected. "We're not going to stick our heads in the sand and hope fuel goes down," Baldanza says.
Spirit now operates 35 A320 family aircraft and has another 30 on order but none of these are slated for delivery this year. Spirit plans to pull out of two markets - Islip on Long Island and and the Turks and Caicos Islands. As it further reviews its network, Baldanza says longer domestic routes are the most likely to go, and that Spirit would possibly end flights linking the east and west coasts.
Despite dropping service to the Turks and Caicos and downgrading some of its other international routes from year-round to seasonal, Baldanza says Spirit will adhere to its Latin strategy. Over the last few years Spirit has positioned itself as the first low-fares carrier operating between the US and Caribbean and Latin American destinations. In the Caribbean Spirit serves several islands, including Puerto Rico, Grand Cayman, Grand Bahama, Jamaica, Trinidad, Hispaniola (both Haiti and the Dominican Republic), St Thomas and St Marteen. It also serves Panama, Costa Rica, Nicaragua, Honduras and Guatemala in Central America and Lima, Peru, and Cartagena, Colombia, in South America. It plans to bring low-fares flights to Bogotá, Colombia, starting in late July. It is also now consdering adding flights to Manaus in Brazil.
Of Spirit's 44 (year-end 2008) destinations from Fort Lauderdale, 28 are to the Caribbean and Latin America. All are served from Fort Lauderdale airport, where Spirit is now the largest carrier.
Baldenza's strategy has been to lure South Florida's large expatriate population of Latin Americans on their trips home. One of Baldanza's recent innovations is the offer of the $9 Club, an online paid membership scheme that allows members to qualify for the lowest tier of fares. Baldanza says he sees Spirit as a platform for selling retail travel. Fees for seat selection (passengers can still get a seat without paying a fee, but they take what hasn't been already chosen), all checked bags, bottled water, pillows and blankets are just the beginning.
Airlines like to differentiate themselves by saying they are either a product airline or a price airline, says Baldanza. But at Spirit, the price is the product. Spirit, he says, willingly gives up "product centric" customers who would simply make demands that the airline can't or won't meet. Instead it pursues those who are not just price-conscious but who are price-centric. So competition from a carrier such as American Airlines, which eagerly seeks the product-centric flyer, is not a major factor, Baldanza claims.
Stuart Klaskin of South Florida airline consultants Klaskin Kushner & Co says: "I think they are somewhat better positioned than a lot of their LCC competitors and peers, due to the international nature of their route system. Essentially, in most of their non-domestic markets, they are the only LCC player and they have a big enough system now that they have some credibility - brand recognition, if you will - as the low-cost provider in the markets which they are in." Klaskin had been a consultant to Spirit under its previous management.
Source: Airline Business
