In the world of ultra-low-cost carriers, few companies do things as cheaply as American-based Spirit Airlines. But that doesn’t stop others from trying. For example, American Airlines recently pledged to more aggressively compete with carriers such as Spirit in order to be more attractive to infrequent flyers. The question is, can traditional carriers like American really compete? Apparently so. The most recent performance report from Spirit suggests it is facing very stiff competition from its more traditional competitors.
Despite Spirit beating expectations in the third quarter, CEO Ben Baldanza and CFO Ted Christie used the occasion of their third quarter earnings call to talk about challenges the company is facing. Among those challenges are pricing pressures being faced at some of the airline’s best producing airports. Dallas is but one example. Traditional carriers have added capacity at Dallas, which has led to greater competition for passengers.
The challenges being faced by Spirit have led to lower stock prices and concerned investors. Spirit has lost about half its value in recent months. According to Baldanza and Christie, the company has no plans to issue overly optimistic estimates for 2016 and beyond; they say that pricing is too unstable at this point to accurately predict revenue or profit. However, Baldanza has pledged to continue making adjustments to ensure Spirit remains competitive.
Long-Term Strategies for Long-Term Growth
Baldanza believes the future of Spirit lies in implementing long-term strategies for long-term growth. He insists that every company in the airline industry undergoes short-term challenges that may affect stock price and the bottom line. He believes Spirit can overcome its current challenges and go on to become the carrier the executives want it to be.
In the company’s prepared third-quarter statement, Christie wrote, “our team did a great job managing costs during the quarter and we remain on target to deliver a full year 2015 Adjusted CASM ex-fuel decrease of approximately 6 percent year over year.” He went on to explain that, despite certain pressures related to equipment maintenance and leasing, Spirit was on track to reach cost-containment goals throughout its current growth cycle.
Spirit executives are hoping for growth between 15 and 20% in 2016, an ambitious goal for a carrier that consistently tops consumer complaint lists. The company saw its total per passenger flight revenue fall 13.1% year-on-year in the third quarter; ticket revenue alone fell 20.8% during the same period. The company also lost 1.2% in non-ticket and fee revenue.
Whether or not Spirit survives depends partly on the competition served up by more traditional carriers and partly on the company’s ability to provide more satisfactory service to their customers. Spirit has survived in an environment where most ultra-low-cost carriers fail within a short amount of time, and they expect to be around for years to come. Only time will tell if they actually pull it off.