By David Field in Miramar Photos by Harvey Bilt
Ben Baldanza has created a template for his bullish new Spirit Airlines that incorporates new aircraft, a new identity and a new plan for low fares and warm routes
If enthusiasm alone were enough to make a plan succeed, Ben Baldanza would have it in the bag. But more than enthusiasm will be needed for the assignment the 44-year-old airline veteran has taken on as president and chief operating officer at Spirit Airlines. His goal is to breathe new life into this small, 16-year-old carrier that has never won a clear following except among the most price-conscious, has been a chronic target of flyer complaints and has changed hands three times in the past decade.
Yet Baldanza – a key executive in the rise of El Salvador’s Grupo TACA to respectability, and a principal architect in US Airways’ most ambitious, most creative growth strategies before its 2005 combination with America West – has a detailed three-part plan to make Spirit relevant, profitable and preferred.
He puts it simply: “Hot new destinations, all-new planes and a new team.” The airline, he says, “was in the past not always a competitor whose decisions were easy to understand. Now, with a focused strategy, we are giving people a reason to choose Spirit, to make the airline relevant. The traffic is there. If we can offer people something more than just a low price, they will catch the spirit.”
As low-cost carriers increasingly converge with the traditional legacy model and look for new territory, his plan will be studied, win, lose or draw. And listening to Baldanza’s optimism in his modest office in a suburban office park, it is hard not to believe he can win.
Spirit’s growth since he came on board in early 2005 is impressive: a quarter of its routes are now to points outside the USA and it has almost 4% of US-Caribbean capacity, making it the fifth-largest carrier in the region. Spirit has been able to make Fort Lauderdale a true connecting and interchange point. Since January 2005 it has grown to 22 routes from the city with eight new Caribbean destinations since then.
The network effect is working, as Spirit grows from 50 city-pair markets a year ago to about 170 with the same capacity. The carrier will be a blended airline: a few random routes, but it will not be a point-to-point, low-fares carrier, he says. Through its Fort Lauderdale hub, it will serve 65% of the Caribbean by weighted traffic in the region (rather than 65% of the number of destinations).
For US leisure travellers, fearful of overseas security issues and the dollar’s limited buying power in traditional European holiday destinations, the Caribbean is truly a hot and sexy region. And through Fort Lauderdale, Spirit will reach some of the most rapidly growing Latino ethnic communities in the nation.
The airline’s transition from its costly fuel-thirsty Boeing MD-80s to an all-new Airbus fleet – a transition spurred by a $100 million infusion of private capital midway through 2005 that made Spirit the nation’s largest privately held airline – is key to its future.
It is also a costly process that puts Spirit in the vulnerable position of running two fleets at the same time it is transforming its image, brand and strategy. For 2005’s first nine months it lost about $34 million and will have a deficit for the full year. Baldanza does not want to predict when it will make money.
His strategy, to take the low-cost, low-fare template and apply it in the virgin territory of the Caribbean, is intuitively attractive, but is inherently a highly risky one, by his own admission and by the estimation of those who know the market. The service differentiations that make Baldanza glow with pride – a business section with an added 6in (150mm) of pitch; leather seats and moveable headrests in the economy cabin; cashless on-board sales; extra-large overhead bins for cabin baggage; and a brand new loyalty programme that promises some seats on every flight – may be new to an airline that was admittedly a laggard on the basic product, but do they move the airline ahead of others or merely make it a near equal in a crowded field?
The power of American Airlines in the region, where it has traditionally controlled as much as half the traffic, is vast enough that a company executive once quipped that the Caribbean was “an American lake”. Its marketing power and reach allow it to set a de facto floor on fares. And the area is experiencing new competitive inroads from Delta Air Lines, which aims to be the second-largest carrier. Delta would have to displace Continental Airlines, which because of its Houston hub is naturally placed to blanket much of the region.
Other US-based low-cost carriers see the Caribbean as fertile territory, with JetBlue, Frontier, AirTran and others gradually beginning to push into the islands, beaches and to Mexico. Bob Mann, a Port Washington, New York-based airline consultant, says: “If the Caribbean isn’t already saturated, it will be. It will increasingly be a crowded market.”
Baldanza, however, knows international aviation, and he certainly knows the Caribbean and Latin markets. Early in his career he worked at American when the Texas-based giant was buying the Latin American routes of Eastern Airlines, and he worked on Continental’s route expansion to South America and Europe.
For three years, from April 1997 to September 1999, he lived in El Salvador while serving as managing director and chief operating officer of Group TACA, the largest air carrier in Central America.
TACA relied on ethnic travel, also dubbed “VFR” for “visiting friends and relatives”, but Baldanza helped spread its traffic base to more US-originating leisure traffic and, equally significantly, business traffic. He oversaw the introduction of TACA’s “Clase Ejecutiva” business-class service. TACA was great preparation for Spirit, he says: “They were about the size: big enough to matter and manageable enough to get my arms around.” The greatest lesson he learned there was “the need to be relevant, which is the biggest challenge at Spirit, to be relevant to the consumer and to the employees”.
If the Caribbean low-cost carrier theory makes enormous sense, Baldanza has only a limited time to make it work. The airline is losing cash, its money-saving fuel hedges will run out and by all reports the Spirit employees are showing signs of impatience. Spirit’s traffic figures look anaemic: 9% less traffic in February year-on-year on 8% less capacity and its load factor fell marginally as well, by 1.2%, although a quarter of its cities were new in the preceding three months.
That speaks to Baldanza’s branding issue: if Spirit is the new player in so many new markets, that is a challenge. After all, it was a little-loved brand in its long-time markets and is a relative unknown in its new marketplace. Baldanza is candid about the airline’s lack of buzz in past years: he concedes it was neither well known nor especially well liked.
“In a sense, it helps that we were so little known, because now we can build a new brand without a negative legacy from the old brand,” he says.
All that will change, not just with the new fleet and routes, but with people. Spirit’s Vicki Moreland, a seasoned airline veteran and Spirit’s planning vice-president, says one of her major goals is “getting everyone at Spirit on board” and that the changes so far have energised the employees. Moreland, who can be compared with Southwest’s Colleen Barrett as the airline’s institutional memory and chief motivator, says encouraging people will be a lot easier when the new fleet allows them to offer a product they can be proud of.
But she has no easy task in getting all of Spirit’s 2,400 workers on board. Its 400-member Air Line Pilots Association (ALPA) chapter voted a motion of no confidence in management last August as “an expression of our total exasperation and frustration” with management. And Vince Heist, the ALPA chairman at Spirit, added that management has forced pilots to fly more hours than their contract specifies. The pilot group gave concessions two-and-a-half years earlier and began negotiations a year ago on a new contract, but sees management as “the primary obstacle” to co-operation and better service.
The situation is little better with Spirit’s 400 cabin crew. Its Association of Flight Attendants chapter held a “sit in” at company offices in January to protest, but says it received only “lip service” from Baldanza when he met union leaders. Like the pilots, the flight attendants’ chief complaint is about quality of life and morale issues stemming from scheduling difficulties, says Detroit-based flight attendant Deborah Crowley, a union officer.
While neither union could legally strike and neither has made a strike threat, a dispute over work hours and rostering clearly has the dire possibility of staff shortages and ensuing service interruptions. Still, Baldanza feels he has “a constructive relationship” with labour and that the new fleet’s greater reliability will overcome many of the scheduling disputes.
So, the fleet is on the way and Baldanza is upbeat about the relationship with International Lease Finance, the leasing giant from where the fleet is coming. As for Spirit’s new backer Oaktree Capital he believes: “They are smart enough to know their investment will not be turned around overnight.”
But private investors such as Oaktree, like public shareholders, can get impatient, as consultant Stuart Klaskin of KKC Aviation in Coral Gables, Florida, says: “Oaktree, like many investors, may like the idea of being in the airline business more than they like the reality of being in the airline business.” Adding that this reality includes contentious labour unions, Klaskin says: “I’m not sure all employee groups are fully aware of or are in full agreement with management plans.”
A veteran of south Florida aviation and airlines planning, Klaskin had been a consultant to Spirit and still works for its founder, Ned Holmfeld, who no longer has an active role in the company, although he retains “a very small stake” in it. Klaskin sums up: “Certainly, Spirit has a more coherent strategy than US Airways had at Fort Lauderdale, but they face serious challenges: as they try to grow very rapidly, they do not have all their new planes, so they also face the need to serve their core domestic markets.”
He points to Spirit’s limited presence in new markets such as San Francisco, Atlanta and Dallas/Fort Worth. But these are all part of what Baldanza insists is Spirit’s choice “between breadth and scope” and his plan for “rational aircraft utilisation versus irrational utilisation at below-variable cost revenue potential”.
A look at route maps from 2002 and this year show the difference: then the carrier flew midwesterners to Florida, mostly from or through Detroit. Now, it flies almost everywhere the Sun shines, south, east and even west of Orlando. Spirit’s Fort Lauderdale hub may be intended as a transfer point as much as a destination: the airport is a rapidly growing low-cost magnet. Both JetBlue and Southwest Airlines have made the airport a major point and JetBlue has invested heavily there, with its training facility adjacent to the airport.
Fort Lauderdale airport itself is a looming problem – the fastest growing in the nation, the airport is also one of the most delay-plagued. In the winter of 2005, Fort Lauderdale had nearly as many delays as Chicago O’Hare and Atlanta Hartsfield combined.
Even though a late-2005 FAA redesign of the airspace between south Florida and the north east cut delays, the airport will have to grow, despite entrenched local opposition.
“Eventually, a second runway needs to be developed,” Baldanza says. The airport recently opened a terminal and renovated another one, but he says: “The airport has only six international gates, and at this point it is difficult for us to add any new destinations at the same departure times as our existing flights.”
Baldanza is quick to praise the airport’s management team and says he would not even think of moving, certainly not to trouble-prone Miami or to smaller rival West Palm Beach. He says most growth is in Broward County, in which Fort Lauderdale is located.
Baldanza likes the areas around Fort Lauderdale as much as he likes the airport: Broward County has a rapidly growing Hispanic population that draws from nearby Latin nations. Almost 20% of the county’s Hispanics are Puerto Rican in origin, with more than 5% drawn from Mexico or the Central American nations.
Large Dominican, Peruvian and Venezuelan communities are also flourishing in the county, which is north of Dade – the home of Miami – a county that is less diverse in terms of its Hispanic country origin. He notes that traffic between Fort Lauderdale and Santo Domingo in the Dominican Republic grew 300% and fares fell by 9% within months of its November 2004 start-up between the two points.
Spirit faces challenges, Baldanza is the first to admit, but some travellers have already started to see a difference. Tom Parsons, a Dallas-based writer on airfares and service, praises the new Spirit, and flyer websites and blogs are at least as positive as they are neutral.
Caribbean tourism groups, eager for an alternative to a troubled legacy carrier or a shaky local airline, have embraced Spirit, and the airline’s strong relationships with travel agents, in contrast to the lukewarm stance of legacy players toward these intermediaries, all give it an edge. If Baldanza’s all-Airbus Spirit secures its beachheads before other rivals follow his strategy, his game plan has a real chance of succeeding.
Beneath Ben Baldanza’s buoyant optimism and infectious enthusiasm are keen calculations that lay out his next few steps, as if he is advancing through a cheerfully crafted plan.
In fact, that is exactly the case with Baldanza, an ardent gamer, a player of advanced strategic board games. One of his favoured business strategy games harks back to the days of railroad-empire builders, and when Baldanza was at US Airways, he taught evening classes called “Beyond Monopoly” through local adult education programmes. He says: “They make you think strategically and critically.”
He earned a master’s degree in transportation and economics from Princeton University in New Jersey after earning a degree in economics and policy studies from Syracuse University, not far from his birthplace in Rome, an upstate New York town. One of his first jobs was working for Amtrak, the federally sponsored passenger railway system. Baldanza went to Spirit in January 2005, and since then has brought a number of former colleagues on board. Among them are Barry Biffle, Spirit’s chief marketing officer and, with Baldanza, a designer of the brief US Airways Caribbean experiment, and John Prestifilippo, Spirit’s senior vice-president for technical operations, who, Baldanza “is proud to say”, turned down a post at the newly merged US Airways to join Spirit.
Baldanza is married and as well as playing advanced board games, he and his wife enjoy overseas travel.
Source: Airline Business