Journal of Aviation/Aerospace Education & Research

Volume 23 Number 1 JAAER Fall 2013 Article 6

Fall 2013

Spirit Airlines: Achieving a Competitive Advantage Through Ultra- Low Costs

James Elian

Gerald N. Cook [email protected]

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Scholarly Commons Citation Elian, J., & Cook, G. N. (2013). Spirit Airlines: Achieving a Competitive Advantage Through Ultra-Low Costs. Journal of Aviation/Aerospace Education & Research, 23(1). https://doi.org/10.15394/ jaaer.2013.1602

This Article is brought to you for free and open access by the Journals at Scholarly Commons. It has been accepted for inclusion in Journal of Aviation/Aerospace Education & Research by an authorized administrator of Scholarly Commons. For more information, please contact [email protected]. Elian and Cook: Spirit Airlines: Achieving a Competitive Advantage Through Ultra-

Spirit Airlines

SPIRIT AIRLINES: ACHIEVING A COMPETITIVE ADVANTAGE THROUGH ULTRA-LOW COSTS

James Elian and Gerald N. Cook

Abstract Large losses between 2004 and 2006 brought Spirit Arrlines to the verge of failure. With capital mfustons from two pnvate equity groups and a new cost focus strategy patterned after Europe's Ryanarr, Spirit proclatmed itself an ultra-low-cost carrier Spirit usually offers the lowest fare m its markets, but thts base fare buys a seat with allowance for under-seat baggage only Everythmg else, mcluding a glass of water, ts extra. Ancillary fees account for some 40% of total revenues. Although it has developed a customer base of pnce sensitive travelers, Sptnt ts also among the mdustry leaders m complamts. Nonetheless, Spirit should dommate the pnce sensitive U.S. arr travel market tn the short to medium term as it has achieved a sustamable competitive advantage based on Porter's cost focus strategy.

Since deregulation ID 1978, the U.S. airline development ts the emergence of the so-called ultra-low­ 1Ddustry bas struggled to achieve consistent profitability. No cost carrier (ULCC) bus1Dess model first developed ID longer protected from competition on profitable routes, Europe by Ryanair and more recently IDtroduced ID the U.S. legacy earners faced 1Dcreased competition from each other by Spirit Airlines. The ULCC bus1Dess model stnves to and, more importantly, from new entrant airlines not obtatn a competitive advantage through a more aggressive burdened by ngtd contract work rules and btgh labor costs implementation of Porter's cost focus strategy compared to tnherited from the regulated 1Ddustry. The first decade ofthe traditional LCCs. By choos1Dg to focus almost exclusively twenty-first century was particularly difficult for the on mm1m1z1Dg costs, the ULCC bus1Dess model results ID a 1Ddustry as it was buffeted by successive world events very focused target segment of those passengers who are 1Dcluding the terronst attacks of September 11, 200 I and concerned solely with obtatntng the lowest pnce for arr subsequent recession, the severe acute resprratory syndrome travel (Porter, 1998). (SARS) epidemic, the dramatic nse and 1Dcreased volatility Tbts paper ts a case study of Spirit Airlines' of oil pnces, and, finally, the global recess10n begtnn1Dg ID aggressive implementation ofPorter's cost focus strategy to 2008. By 2012, the collective toll resulted ID the bankruptcy transform from a small, struggling low cost airline serv1Dg of all surv1vmg pre-deregulation legacy earners. Thts led to gambling and vacation destinations ID the eastern United airline consolidations and domestic capacity reduction States to a highly profitable and rapidly growmg ultra-low­ resulting ID much needed 1Ddustry stability. While the low­ cost earner with routes stretcbtng across the U.S. and south cost earners (LCCs) have generally continued to expand ID to the Canbbean and Central and South Amenca. the new millenmum, the domestic airline product offered by History the full-servtce and LCCs has converged to the extent that Spirit Airlines traces its onglD to the Clipper many passengers view the domestic economy class seat as Trucktng Company established ID 1964. Twenty years later, a commodity (Tarry, 2010). An 1Dteresting recent with a new bus1Dess plan and name, Charter One, the

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Spirit Airlines

company began offenng charter flights and tour packages to unplemented a busmess plan focused solely on providing entertamment destinations, pnmarily from the Midwest to the lowest pnce targeting a very narrow segment of the air Atlantic City, New Jersey. By 1992, Charter One became travel market. Sprrit thus proclauned itself as an ultra-low­ Sprrit Arrlines with scheduled service promoting low fares, cost earner (SprritArrlines, 201 la). Although first m North a strategy densively termed bottom feeding by some due to Amenca, Sprrit's busmess model was patterned closely on havmg typical attributes of multiple extra charges and poor the highly successful European earner Ryanarr that had customer service (Flint, 1999). Sprrit grew, pnmarily with itself adopted the strategy after operating for many years on expanded routes from the Midwest and Northeast to Flonda, a traditional LCC model onginally developed by Southwest but it struggled with low and mconsistent profits as it had Arrlines. On June 1"1, 2011, an mitial public offenng (lPO) not fully committed to one of Porter's three genenc was completed takmg Sprrit Arrlines public (Sprrit Arrlines, competitive strategies: cost leaderslnp, differentiation, or 2012a). The IPO was mitially seen as a disappomtment by focus (Porter, 1998). Due to Sprrit's lack ofa competitive many analysts; Sprrit reduced the pnce and volume of the advantage, it mcurred large losses from 2004 to 2006 that o:tfenng shortly before listing that resulted m a more than brought the arrline to the verge of failure; it was rescued thrrty percent reduction m capital raised ("Sprrit Airlines with capital mfusions m 2004 and 2005 from the pnvate IPO," 2011). Figirre 1 illustrates Sprrit's perilous losses equity mvestment firm Oak.tree Capital Management. In begmnmg with the recession of2001 and continwng until 2006, Indigo Investment Group purchased controlling the adoption of the ultra-low-cost strategy. mterest m Sprrit, brought m new management and

Spirit Airlines Net Income (In Thousands)

$20,000

s

$20,00IJ I

·540,000 '

$60,00IJ I

SllO.OOD I I ·$100,000 1'195 1'196 1'197 l'l'l'l ]000 I 7001 ~I JOO] ]QM 2ms 2006 I Pnor to I ransition Sl.«>84 ·54.818 SSlll ·$9,918 ·Sb,b9~ I SZ,838 -519,4;[~ ·$9~.l34 S&U01 580.6~2 ___I

Figure I. SprritArrlines Net Income from 1995 to 2006. Adapted from Department ofTransportation Statistics and SprritArrlines' IPO Prospectus (Sprrit Arrlines, 2011 b)

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Spirit Airlines

A revtew of recent financial and operational data mdicates with VFR first followed by leisure. The product is that the ultra-low-cost model has proven remarkably carefully tailored for these pnce-sensitive travelers who successful. In 2012, Spirit was the fastest growmg U.S. are willing to sacrifice product amenities for a lower earner with revenue passenger miles mcreasmg30.6% while pnce. Spirit is disciplined m mamtammg its focused available seat miles mcreased 27.5% dnvmg its load factor market and unlike all other domestic earners except to 84.8% (Hegeman, 2013). Moreover, Spirit enjoyed the Allegtant Arr, does not actively target busmess and second highest profitability of all U.S. major earners for corporate travelers reasonmg that its low frequency, 2012 falling Just behmd fellow mche earner Allegtant Atr.1 limited routes, reunbursement policy, and lack of airport Strategy and onboard amenities have very limited appeal to the Spirit's ultra-low-cost strategy IS remarkably busmess segment so pnzed by other earners (Spirit sunple m concept and aggressively follows Porter's cost Airlines, 2012a). focus strategy for achlevmg a competitive advantage. As Route Architecture CEO Ben Baldanza often explams, "We're selling low The route map is thm but spans the contiguous pnces, and compete for customers on the bas1S of pnce states and stretches south mto the Caribbean and and pnce alone. In the retail world, we would be the Amencas. Spirit lists several airlines as competitors. dollar store." (Satchell, 2013). Tins strategy reqwres a Across its route system, the pnnciple competitor is very low cost structure, and Spirit has been mnovative by Amencan Airlines with 60% market overlap, followed by unbundling many services which traditionally have been Southwest Airlines, United Airlines, and Delta Arr Lmes considered standard. The result of unbundling has been domestically, and JetBlue Airways m the Caribbean and the ability to offer even lower base pnces, while also Latin Amencan markets (Spirit Airlines, 2012a). Spirit achlevmg ancillacy revenues that compnse 40% of Spirit's pndes itself on not bemg subject to the traditional total revenues, the highest m the mdustcy (Spirit Airlines, meffic1enc1es of the hub and spoke model (Spirit Airlines, 2012b). Spirit's base pnce is usually the lowest m the 2012a); however, an exammation of the route map (Figure market, but entitles the passenger to only a seat on the 2) and timetable reveals a more complex reality. Ft. flight; all else, mcluding a glass of water, is extra. Lauderdale serves as a directional hub with mommg Baldanza argues that these are options that a passenger southbound flights from Northeastern and Midwest states may choose similar to the menu items at McDonalds and connecting to many Caribbean, Central and South that passengers should not have to pay for servtces they Amencan destinations. Flows are reversed m the do not need or value. Not all passengers are pleased, but aftemoon/evenmg. Random connections are also available the model is workmg leading USA Today to ask if Spirit m other cities such as Dallas/Ft. Worth, Chicago and ts the nation's only true low-cost airline? (Jones, 2012). Detroit, but some routes stand alone without support of Target Market connecting traffic. Frequencies are low, often only once Spirit's target market ts narrowly focused on daily and not timed for peak demand. Spirit also defies the leisure and vtsiting mends and relatives (VFR) passenger archetypal low-cost model by servmg both highly segments. Leisure is the pnmary domestic segment with congested major airports mcluding Chicago O'Hare, Los VFR second. Internationally, these segments are reversed Angeles International, and New York LaGuardia, among others, as well as secondary and low density airports such as Latrobe Pennsylvama and Phoemx Mesa.

1 Author's calculation based on operating and net margm on revenue.

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Spirit Aulines

Figure 2. Spirit Airlines Route Network (Spirit Airlines. 2013a).

Spirit bas recently been growmg its domestic route critena, Spirit enters markets where low pnce stimulates system after several years of developmg mtemational demand from new passengers m addition to captmmg some markets m the Canbbean, Central and South Amenca. of the pnce-sensitive segment from mcumbent earners. Unlike many earners, Spirit JS unconcerned with market Spirit mamtams that more than 400 potential routes meeting share when evaluating potential routes (Yeo, 2012). Nor these critena have been identified (Ranson, 2012; Spirit does irugor earner competition appear to be an nnportant Airlines, 2012b). consideration as Spirit bas been mcreasmg destinations and Fleet departures from Dallas/Ft. Worth where Amencan Airlines Spirit operates the Airbus A320 family of smgle­ bas been weakened by bankruptcy but Southwest Airlines JS aisle Jets. Most are the smaller A319 model, but the autine a strong competitor from its Dallas-Love home. For Spuit plans to gradually standardi7.C on the larger A320, mcluding to consider a route for expansion there must be at least 200 the next generation A320neo (new engme option). passengers per day each way, the ability to reduce fares by Operating a smgle fleet type confers substantial cost at least 25% below existing levels, and the potential to earn effic1enc1es mcludingreduced trammg costs and accelerated an EBITDAR 2argm of24% to 26%. With these expansion leammg curve, flexibility as crewmembers are qualified on all aircraft models, and reduced parts mventory. As of the end of 2012, Spirit had 45 aircraft m its fleet, with a 2 Eammgs before mterest, taxes, depreCJation, amortimion and rent. substantial aircraft order book allowmg for expansion to 113

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Spirit A1rlines

arrcraft by the end of2021 (Sprrit Arrlines, 2013b). Product and Fare Structure Sprrit's ability to promote low fares IS based, ID part, on the ultimate unbundled pnc1Dg strategy. The base fare buys a seat with allowance for under-seat baggage only (Yeo, 2012). All other amenities IDcluding checked and overhead carry-on baggage can be purchased for additional fees. Indeed, Sprrit was the IDdustry leader ID chargmg for baggage. Table 1 shows a portion of the surpns1Dgly complex system of baggage fees. Ancillary fees, of which there are 74 different options, also vary with the time and location of purchase with the highest fees charged at the arrport Just before departure. Figure 3 proVIdes a breakdown of Sprrit's ancillary revenues. Amenities are limited and there are no passenger lounges or on-board entertamment; "pre-reclined" seats are becommg standard and legroom 1s mlDlmal. Passengers are expected to mostly handle therr own process1Dg. Customer seMce, when needed, 1s often rushed. Sprrit mmmuzes customer service costs, but this has contributed to its very high rate ofcustomer compla1Dts. For January, 2013, Sprrit amassed 7.2 complamts per 100,000 fliers filed with the Department of Transportation, better than Frontier with 7 .6 per 100,000 passengers, but some 22 times that of Southwest who garnered the best performance and more than 2.5 times that of the United Arrlines which held the next worst position.3 CEO Baldanza 1s largely 1Ddifferent pass1Dg offcomplamts as "an rrrelevant statistic" (Miller, 2012). Sprrit believes that passengers will repeatedly endure Spartan service ID return for a low fare. As one passenger stated ID a Yelp review, "I travel on Sprrit all the time. I know they suck! But, for a cheap ticket, I will endure anything" (Seaney, 2012).

3 Authors' calculation.

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Spirit Airlines

Ancillary Revenues per Year (In Thousands) I 5600.ooo - I 5500.000 '

.: Service Chaf'91!S fOr 5400.000 - Challflt!Sand Cancellations : $3(1),000 - .:Advance Seat selection :

I $200,000 " i ; $100.000 - I $- I2010 2011 2012

Figure 3. Spuit Airlines Ancillary Revenue. Adapted from Spuit Airlines' Form 10-K for the penod ending 12/31/12 (Spuit Airlines, 2013b).

Table 1 Spuit Airlines Ancillary Baggage Fees

1st 2nd 3rd-3:h Ony-OI ~ Oled $40 $85 Olline Oled<-ln $40 $35 $45 $9) FeleMtion unter/l24 hours tn Adva1a! $35 P> $40 $85 Qoup Eboklng <24 hours1n Adva1a! $40 $35 $45 $9) Gte F\irdlase $100per~

(Spuit Airlines, 2013c)

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Spirit A 1rlines

Distribution and Promotion 2011 pnmarily emphasmng low base fares. Pnnc1ple Spuitmamtams three distinctdistnbutionchannels. marketing tools mclude the $9 Fare Club, email distribution, The website accounted for 64.2% of ticket sales m 2012. and viral marketing products that send customers to the Thtrd parties, mcluding Global Distnbution Systems (GDS), Spuit website (Spuit Airlines, 2012a). traditional travel agents and online travel agents (OTA) Despite the lack ofa substantial advertising budget, produced 27.2% of sales, with an outsourced call center Spuit 1s well known for edgy, often off-color, advert1smg representing the remammg at 8.6% of sales (Spuit Airlines, that has generated considerable free publicity, though often 2013b). not positive. Notable are the "Hunt for Hoffa" campaign of Although Sp1rit's embrace of traditional 2006; MILF, Many Islands, Low Fares, m 2007; the "Eye of distribution mcreases its reach and sales, it 1sn 't without the Tiger'' sale of 2009; and the 2010 "Check Out The Oil problems. It distributes through Amadeus, Galileo, On Our Beaches" promotion (Bhasm, 2011 ). Email 1s the Worldspan and Sabre GDSs, but the airline reserves its common method of commumcation. lowest fares for its Spuit.com website ("Spuit Airlines, after Cost Structure IPO," 2011). When customers use Spuit's website, its Any firm employmg a cost focus strategy must additional fees and policies are prommently displayed. mamtam unit costs lower than its competitors m its target OTAs, however, show only the base fare leavmg passengers segment (Porter, 1998). Spuit states its cost per available surpnsed and occasionally irate when discovermg what isn't seat mile (CASM), a standard measure ofairline costs, mcluded m the base fare. Baldanza attributes 100 percent of was 10.09 cents m 2012 (Spuit Airlines, 2013b). This passengercomplamtstosalesthroughOTAs(Snyder,2013). compares with 12.85 for Southwest, 11.49 at JetBlue, and This 1s certamly an overstatement, but illustrates the limited 14.91 cents for Amencan A1rlines. Table 2 provides a ability of third party systems. more detailed CASM companson between the listed Spuit does not engage m general brand or product earners. marketing and spent only 0.2% ofrevenues on marketing m

Table2 Spuit A1rlines 2012 CASM (in cents) versus competitors

s•Pin . •t Sou th wes t A mencan 1etBI ue Fuel 4.16 4.78 5.24 4.50 Salanes, wages and benefits 1.93 3.69 3.76 2.60 Aircraft rent 1.27 0.28 0.33 0.33 Landing fees and other rentals 0.60 0.81 0.77 0.69 Mamtenance, matenals and repairs 0.44 0.88 0.68 0.84 Depreciation and amortization 0.13 0.66 0.60 0.65 Other o ..... ~ eXDCDses 1.56 1.75 3.52 1.88 TotalCASM 10.09 12.85 14.91 11.49 Total CASM excluding Fuel 5.93 8.07 9.67 6.99

(Spuit Airlines, 2013b) (Southwest Airlines, 2013) (Amencan Airlines, 2013) GetBlue, 2013)

Spuit achieves low unit costs from (a) high aircraft mm1mal ground times between flights, and G) a company­ utilization, (b) high-density seating aircraft configuration, wtde busmess culture that IS keenly focused on dnvmg costs ( c) s1mple operations, ( d) mmimal hub-and-spoke lower (Spuit Airlines, 2013b). meffic1enc1es, (e) a highly productive workforce, (t) In a presentation to potential mvestors, Spuit boasted that its opportunistic outsourcmg of operating functions, (g) daily aircraft utilization of 12.7 hours exceeds JetBlue's rate operating a modern smgle fleet type of aircraft, (h) reduced of 11.9 hours per day, and Southwest's 10.5 hours per day sales and distribution costs, (i) efficient flight schedule with (Spuit, 2012b). This mcreased aircraft utilization 1s partially

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Spirit Aulines

aclneved through the operation of many ''red-eye" flights. lower costs are partially due to higher employee The unbundled pncmg speeds ground tum-around times as productivity, but are also due to a relatively Junior lngh fees for carry-on baggage reduce the number of bags workforce resulting from the recent expansion (Spirit brought on-board which, m turn, enables passengers to Arrlines, 2013b). qwckly stow therr items and take therr seats. As a result, the Financial Success standard boarding times have been reduced by 5 to 10 Since the mtroduct1on of the ultra-low-cost mmutes (McCarbtey, 2010). By chargmg for all beverages, earner busmess model m 2007, Sprrit has been mcluding water, fewer beverages are consumed. Catermg consistently profitable. Followmg a small profit that year, time and expenses are reduced, as ts fuel consumption due profits mcreased impressively with net mcome of $33 to the reduced arrcraft operating weight. million m 2008 and between $72 million and $108 million Sprrit configures its cabms with the maximum seats from 2009 to 2012 (Sprrit Airlines, 2013b). The stock allowed by the arrcraft certification. The new A320 arrcraft market also reflected Sprrit's success as the stock pnce, are configured at 178 seats. Tuts compares with JetBlue's wlnch closed mitially at $11.48 followmg the mit1al 150 seats for the same Atrbus model g1vmg Sprrit a 16% public offenng m May 2011, more than tnpled by cost advantage per available seat mile. Of course, h1gh­ September of2013. Figure 4 illustrates the dramatic density seating 1s aclneved through reducmg passenger turnaround m profits while Figures 5 compare Sprrit's net legroom decreasmg passenger comfort. Sprrit also enjoys mcome per arrcraft with some of its competitors. substantially lower labor costs than its competitors. These

Spirit Airlines Net Income (In Thousands)

590,000

540,000

-s10,ooo

-$60,000

·Sllo.ooo }1111 I }00} 700:1 JIXM 700!1 7006 7007 JOOR JOO'! }010 7011 Jot} I I Pnor to Transition $2,838 : $19,423. $626 $93,234 i $62,101 $80,652 Pm.I lrdfl\ilinn I Sl,362 $33,259 $83,693 $72,481 $76,448 $108.46

Figure 4. Sprrit Arrlines Net Income - Pnor/Post busmess model change. Adapted from Department of Transportation Statistics, Sprrit Arrlines' IPO Prospectus and Form 10-k from the period ending 12/31/12 (Sprrit Arrlines, 201 lb) (Sprrit Arrlines, 2013b).

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Spirit Airlines

Comparison - Net Income per Aircraft (In Thousands) $3,000

$2,000 '

$1,000 I ------...... ______.:.:.·;,,;;.·---~·.i:.-:."'::'::::-: .. _ ... "•:.::.:::;.::.:~:.::.:~:.:~·· s-

Sl,000 I

$2,000 I

-$3.,000 200& 200/ 21108 2009 2010 201 t JOtl ···--·.. ------·· ------·----~--··- --~irtt -$2,601 $38 $1.188 $1,98'1 Sl.265 $1.06& $2,410 - - - • Southwest $1,03/ $1,J48 $331 $184 $838 $7'>'> $&0/ ------··-··------·-· ------·------·------·-····-·--·------Amem::an $188 $47<1 -$2,837 -$1,656 -s~n -s2.166 -s2,219 $'l0 -$'>97 S4D'I $bll& $'>09 $/11

Figure 5. Sptrit Airlines Net Income by Aircraft- Comparison. Adapted from Sptrit Airlines' IPO Prospectus and from Sptrit, Southwest Airlines, Amencan Airlines, andJetBlue's Form 10-k.

Analys1S umque to the U.S. and has earned Sptrit first mover Cost Focus Competitive Advantage competitive advantages, sunilar to those expenenced by Followmg its dec1S1on to pursue the ULCC Ryan.arr m Europe. The result 1s that Sptrit has been able to busmess model, Spirit sharply narrowed its targeted expand the overall market for arr transport and successfully passenger segments to the most pnce sensitive leisure and obtamed a competitive advantage through the VFR passengers. The timmg of the strategic shift was implementation of a cost focus strategy (Porter, 1998). fortuitous as the last decade has seen the distinction between Risks economy class on full-service network earners and the Porter lists several nsks to companies pursumg LCCs blurred as both moved closer to the others product focus strategies: (a) the ability for other companies to offenng. The Great Recession of 2008 drove many imitate the focus strategy, (b) the nsk of the target segment consumers m search of lower pnces. Busmess traffic becommg structurally unattractive, ( c) the potential for declined, but VFRand leISure passengers continued to travel broadly targeted competitors to overwhelm the narrow as airlines chased passengers with reduced fares. Many segment, or ( d) new entrants takmg a more narrow focus and passengers now vtew an economy seat as a commodity with subdivtding the chosen segment (Porter, 1998). the choice of airlines based largely on pnce (Tarry, 2010). The nsk of imitation m the short term ts unlikely m Sptrit has achieved cost leadership m this narrow the U.S. as all other earners, mcluding those still labeled segment and the resulting financial performance has been LCCs, target busmess clientele who demand more services. impressive, especially given the hlstoncally dismal history Allegiant IS an exception, but competition between the two of the U.S. airline mdustry. The busmess model of 1s limited and unlikely to escalate m the short-term as there mamtammg very low costs, focusing exclusively on leISure are easier markets to enter than those which would result m and VFR passengers, and the unbundling of services IS competition between two pnce-focused earners. The U.S.

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Spirit Airlines

market 1s mature and fully servtced and there 1s no apparent servtce. The accepted wisdom m marketing holds that a firm openmg for a new arrline. The nsk of a new entrant must meet or exceed customer expectations to succeed m a choosmg a more narrow cost focus strategy and sub­ competitive marketplace. But Sprrit fails to meet the segmenting Sprrit's target market 1s also unlikely due to the expectations of many passengers. Complamts to the U.S. already narrow focus on leisure and VFR passengers. Department ofTransportationhave long been at multiples of The nsk of Sprrit's target segment becommg other arrlines. A search of the web for complamts about structurally unattractive 1s unlikely. Boemg mdicates that Sprrit reveals that it has earned the enmity of a host of North Amencan passenger traffic should grow at an annual passengers. One website, SprritArrlinesFacts.com (n.d.), rate of2.7 percent over the next 20 years and that LCCs are acknowledges that Sprrit has its fans that "have learned how currently leading capacity growth (Boemg, 2013). As the to travel withm Sprrit Arrlines rules, and because of the world economy slowly recovers and the average leisure perceived savmgs, they are happy to live with whatever traveler has more disposable mcome, some may abandon mconvemences and mdignities they are exposed to," but Sprrit's product for other earners offenng a higher quality warns that many others have expenenced rumed vacations product and at least some amenities mcluded m the base and destroyed busmess plans. Whether Sprrit can seemmgly pnce; however, these passengers will likely be replaced with defy the established marketing wisdom m the long tenn those who were previously unable to afford to travel by arr. remams an open question. The nsk of more broadly targeted competitors Sustamability overwhelmmg the narrow segment IS also unlikely m the Sprrit's financial performance smce completmg the short term. Existing earners are heavily mvested m therr transition to the ULCC busmess model has been well above busmess models, which have also been profitable m recent the mdustry average. After a disappomting mitial public years. While competitors may selectively challenge its offenng, Sprrit's stock has more than tnpled with analysts pncmg on some routes, Sprrit's low frequency m most generally bullish on its prospects (Turcan, 2013) (Jayson, markets doesn't present a senous threat, at least m the short­ 2013). Sprrit's target segment of passengers, focused term. Recent consolidation of U.S. earners with therr new pnmarily on pnce, 1s structurally attractive and expecting emphasis on financial returns rather than market share also continued growth m the medium term. As the company works m Sprrit's favor. Over the last several years, the matures employee wages will nse; however, expected maJor network earners and Southwest have restrained growth rates should reduce some ofthe negative pressure as capacity and focused on higher yield passengers, largely new employees JOID the company at the lower wage levels. abandonmg the extremely pace-sensitive passengers that Evaluating the known strategic nsks, Sprrit should not face Sprrit targets. Should the largest earners return to an a senous competitive challenge m most markets. As a result, emphasis on expanding domestic capacity and growmg Sprrit should dommate the pnce sensitive U.S. arr travel market share, competition for low-yield passengers would market m the short to medium term as it has achieved a mcrease reducmg Sprrit's current competitive advantage. sustamable competitive advantage based on Porter's cost One area of potential weakness that may be focus strategy (Porter, 1998). + exploited by a potential competitor is Sprrit's level of

James Elian is vice president of operations and a pilot for a North Amencan fractional ownership provider. Mr. Elian received his Master ofBusmess Admmistration degree from the Umversity of Calgary and is a Master of Aeronautical Science candidate at Embry-Riddle Aeronautical Umversity.

Gerald Cook IS an adjunct professor m the College ofBusmess at Embry-Riddle Aeronautical Umversity, Worldwide Campus and former arrline operations manager and pilot. Dr. Cook received his Bachelor and Master of Science degrees from Purdue Umversity and Doctor ofBusmess Admmtstration from Nova Southeastern Umversity.

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Spirit Airlines

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Bhasm, K. (2011 ). The ballsy history of extremely crude ads for Sprrit Arrlines. Business Insider Retneved from: http://www.busmessms1der.com/sprrit-arrlines-ads-2011-6?op=l

Boemg. (2013). Current market outlook 2013-2032. Retneved from: http://www.boemg.com/assets/pdf/commerc1al/cmo/pdf/Boemg_Current_Market_Outlook_2013.pdf

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Spirit Airlines

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