Spirit CEO Says Fees Should Rise at Peak Times, Calls JetBlue 'Icarian'
MIRAMAR ( TheStreet) -- Spirit
In a wide ranging interview after the carrier released third-quarter earnings on Wednesday, CEO Ben Baldanza discussed applying yield management to ancillary fees, Spirit's below average on-time performance and Spirit's dissimilarity from low-cost European carrier Ryanair. He also said that competitor JetBlue
Airlines have historically charged more for tickets at peak travel times, using complex yield management systems to determine appropriate fares based on historic data and pricing trends. So far, the systems have not been applied to ancillary revenue sources. Historically, major airlines look to innovators like Spirit to develop new revenue strategies.
On the earnings call and in the interview, Baldanza said Spirit is exploring the possibility of applying yield management to ancillary revenue streams. "We've tiptoed around the idea, but not to the level of dynamic that we do ticket pricing," he said. "We like the idea and are looking into ways (to implement it)." Spirit charges low fares for seats and derives most of its passenger revenue from fees for everything else, including carry-on bags and boarding passes acquired at the airport.
Spirit shares have risen 141% this year on the basis of rapid, profitable growth. The carrier said Wednesday it will boost capacity by 22% over the next 24 months, as 28 new Airbus jets are added by the end of 2015 to the existing fleet of 51 Airbus jets.
"We're in the midst of a robust growth cycle," Chief Financial Officer Ted Christie said on the earnings call.
Baldanza would not specify where future expansion might occur but said that "in general we want to be where lots of people live." He declined to say whether Spirit might benefit if divestitures are required in the proposed merger between American
At Fort Lauderdale-Hollywood International Airport, Spirit is the No. 2 carrier with 17.3% of the passenger traffic in the first seven months, according to airport statistics. No. 1 is JetBlue with 18.4% of traffic.
JetBlue said Tuesday that it will grow its fleet of Airbus A321 aircraft and will use them "to accelerate attractive growth opportunities at Fort Lauderdale."
Baldanza said he isn't worried about JetBlue. "We have a long record of serving Fort Lauderdale successfully," he said. "Our model works well in South Florida, with a lot of discretionary, price sensitive passengers." He said Spirit's profit strategy relies on three concepts: low fares, a basic product and capacity discipline, while JetBlue offers the opposite: a leisure-oriented product, higher fares than Spirit and limited capacity discipline because "they are not seasonality oriented, they are market-share oriented.