The "new normal” is a phrase Spirit Airlines chief executive Bob Fornaro uses a lot these days, when talking about the competitive landscape in which the ultra-low-cost carrier operates.
Since being appointed to the airline’s top job in January 2016 in a move that surprised the industry, former AirTran chief Fornaro has focused on improving the airline’s revenue performance and operational reliability.
While the airline has made some progress, competitive pressure from other US airlines has not let up. Spirit is entering 2017 as legacy carriers American Airlines and United Airlines begin sales of basic economy fares, following in the footsteps of Delta Air Lines, which set the trend in 2015.
Fornaro says it is too early to estimate the impact of additional discount fare inventory on Spirit, but reiterates that the legacy airlines’ basic economy fares are not groundbreaking.
“It’s new, but it’s not new,” he tells FlightGlobal during an interview in New York. “They’ve been matching our prices for at least two years. The competition is not new; what they are trying to do is a more nuanced approach, trying to compete with us.”
Fornaro says the three legacy carriers’ basic economy fares likely have two purposes: match Spirit’s fares, and sell customers up to a higher fare. The fares come with restrictive conditions and do not allow for upgrades and changes. In the case of American and United, basic economy fare passengers are not allowed carry-on bags.
Spirit’s spokesman says the ultra-low-cost carrier’s fares actually offer more flexibility, allowing passengers to pay extra for carry-on bags and seat assignments.
Basic economy fares offered by the legacies have “created a haves-and-have-nots situation in the cabin”, he says. “Whereas for our customers, if they want an amenity they can get it.”
NETWORK AND REVENUE IMPROVEMENTS
Fornaro stepped into the role of chief at Spirit while the airline was in the throes of a fare-matching war with the three legacy carriers and Southwest Airlines. Spirit's previous chief executive Ben Baldanza had been criticised as being ineffective in turning the tide of the airline’s declining unit revenue, leading to his surprise departure.
The “crisis”, as Fornaro calls it, was a markedly different scenario from Spirit’s early days as an “irrelevant little airline” to which bigger carriers did not pay attention.
That was before Spirit grew and grew, launching discount fares for more traditional big city pairs on which major US carriers operate.
“The last legacy carrier emerged from bankruptcy and completed a merger in late 2013... Major airlines were flush with more cash than they knew what to do with,” Fornaro says of the change in competitive dynamics. “New LCCs like Spirit were annoyingly profitable.”
Expiry of the Wright Amendment in Dallas in 2014 allowed low-cost giant Southwest to significantly grow its network in its hometown, setting off a crisis which soon spread across the country, says Fornaro.
“This is the new normal, and a big difference from the earlier environment,” he told a Wings Club luncheon in New York on 23 February. “Previously, the new LCC fares went largely unmatched.”
More than a year into the job, Fornaro has trimmed Spirit’s focus on launching service on the big city pairs that compete head-to-head against the US majors. Instead, the carrier is adding mid-sized cities like Akron-Canton, Hartford and Pittsburgh.
“It’s possible there will be one more announcement later in the year,” Fornaro tells FlightGlobal when asked about the airline’s expansion into mid-sized cities. “For a number of years, most of our expansion was in larger markets. Today, it’s wherever we see the opportunity.”
Spirit is still on track to returning to positive unit revenue comparison from the second quarter, he says. It will be Spirit’s first such result after 11 consecutive quarters of unit-revenue decline.
SERVICE WITH A SMILE
During the years of strong Spirit growth pre-revenue crisis, the ultra-low-cost carrier made few attempts to endear itself to customers. The airline consistently fared poorly in consumer complaint rankings.
Compared with Baldanza’s unapologetic manner when defending the airline’s ultra-low-cost model, Fornaro is more measured.
“You can run a low-cost airline and maintain a high service-quality standard,” he says, pointing to his days at AirTran Airways, where he was president and chief executive before the carrier merged into Southwest.
Spirit still ranked last in the US Department of Transportation’s customer complaints ranking in 2016, but Fornaro says the airline had made progress. It logged 6.74 complaints per 100,000 enplanements during the year. The average was 1.52.
The airline says it was about 17 points behind the industry in the first quarter of 2016 when it came to customer complaints, but narrowed the gap to about three points in the third quarter.
“The last six months of the year were very strong,” says Fornaro. “You don’t make improvements on the first day... It’s a process, not a race.”
Key to reducing customer complaints is on-time performance and reliability, he reiterates. “When I became Spirit CEO, I was very impressed with the culture of innovation and cost discipline,” he says. “But I wasn’t that happy with the airline that we ran, especially on high travel days.”
The airline has since moved up the DOT’s on-time performance rankings, going from the bottom of the pile to seventh among 12 airlines in the fourth quarter of 2016, agency data shows.
Fornaro is all too aware that improving Spirit’s reputation among customers is crucial in helping the airline win and retain customers amid the “new normal” competitive environment.
“It’s not good enough to stand still,” he says. “We are in the early stages to improve our service. Our goal is find the right balance where we can continue to be the price leader and provide a high quality reliable product.”
Source: Cirium Dashboard