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Cheap-fare Spirit Airlines not above putting passengers to work

Asking passengers to pick up around their seats is just one way Spirit Airlines tries to cut costs. But it doesn't skimp on fees.

August 04, 2013|By Hugo Martín
  • Spirit Airlines CEO Ben Baldanza keeps only some of the light tubes in his office in Miramar, Fla., screwed into the fixtures to cut electricity costs, and he vacuums the office to lower janitorial expenses.
Spirit Airlines CEO Ben Baldanza keeps only some of the light tubes in his… (Cristobal Herrera, Sun…)

MIRAMAR, Fla. — At the headquarters for low-cost Spirit Airlines Inc., the word "cheap" is not an insult. It's a business philosophy championed by the airline's chief executive, Ben Baldanza.

He demonstrates his frugal ways by switching on the lights to his office. Only a third of the light tubes are screwed into the fixtures to save on electricity.

Baldanza then pulls a vacuum out of his office closet, which he uses to help save on janitorial costs.

"We don't over-spend on that kind of stuff," the 51-year-old executive said with a chuckle. "It's not part of our culture."

Meet the top penny pincher at the nation's cheapest airline.

His tightfisted mind-set runs throughout the airline, right down to cramming in more seats per plane than most other carriers and charging passengers $3 for water and $10 to print out boarding passes. The airline even dumped its toll-free phone number to save a few bucks.

Spirit was the first U.S. airline to introduce a fee for carry-on bags and one of the first to install seats that don't adjust.

But don't expect an apology from Baldanza if your airline seat was cramped.

"Don't buy our low fare and complain that we don't have legroom," he said.

Such cost-cutting moves have made Spirit one of the nation's fastest-growing carriers, and with one of the highest profit margins in the industry. But the tight seats and extensive menu of passenger fees are a big reason, according to critics, that Spirit rated dead last among airlines in customer satisfaction.

"I had no idea that when booking I should have paid for a carry-on bag," said Chris Ellis, an Occidental College student whose recent Spirit flight from Houston to Los Angeles was delayed for two hours. "Nor did I realize before I got on my flight that I would be expected to pay $3 for water. It was just ridiculous."

At Spirit headquarters, Baldanza boldly defends the business model, saying one-third to one-half of his customers could not afford to fly without Spirit's cheap fares.

"As long as they keep fares low, there is room for a Greyhound-type airline in the industry," said Ray Neidl, an airline analyst for Nexa Capital, a New York investment banking firm.

The carrier's business plan has been so successful that it is now poised to spread its unique brand of ultra-cheap service across the country.

In the first half of 2013, the airline reported a 25% increase in total passenger miles traveled. Spirit now has a fleet of 50 planes but has put in enough orders for new jets to expand the airline by about 15% to 20% a year for the next eight years.

The airline has also kept its investors happy by pushing its profit margin to 8.5% in the most recent three-month period, while other major airlines are reporting less than half that rate, according to financial reports.

Most major carriers target business travelers, who are quick to charge a first-class or business-class seat to their company's travel account. Spirit, instead, aims for leisure travelers who save all year for a family vacation and don't care about comfy seats and onboard entertainment systems.

"Our competition is Amazon.com and Best Buy and other places you will spend your discretionary funds," Baldanza said.

Spirit can keep fares ultra low, the CEO said, by putting a price tag on everything else on the plane, including snacks, drinks, pillows and blankets. Spirit flight attendants even make an on-board pitch to sign passengers up for Spirit MasterCards. Crew members earn bonuses for the food, drinks and other extras they sell on the plane.

"We manage the onboard like it's a little store," he said.

Cheap at work doesn't mean Baldanza is cheap at home. He admires the business model of McDonald's Corp. but says he doesn't eat at the fast-food mega-franchise. Baldanza prefers a sit-down restaurant with made-to-order food.

But he's not a spendthrift. He notes that he drives a BMW 3 series, not the full-size luxury 7 series.

He doesn't have to skimp at home. In 2012, Baldanza earned a base salary of $470,000, plus stock and other bonuses that brought his total earnings to nearly $3 million, according to federal filings. It's a salary that surpasses the pay for CEOs of some other airlines, such as JetBlue Airways Corp., but remains below what executives at much larger airlines earn.

Spirit started as a Detroit trucking company that was converted to a charter airline in 1983, flying vacationers to Las Vegas, Atlantic City and the Bahamas.

The carrier latched on to its ultra-low-fare business model in 2006 when investors from Oak Tree Capital and the Indigo Partners suggested that Spirit follow the examples of low-cost foreign carriers like such as Ryanair Ltd. of Ireland, Tiger Airways Holdings Ltd. of Singapore and Volaris of Mexico.

After years of working in executive positions with American, Northwest, US Airways and Continental airlines, Baldanza joined Spirit in 2005 and became a true believer in the super-low-cost business model.

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