Spirit Airlines’ CEO dreaming up new fee structures
By The Associated Press
Feb. 7, 2014, Fort Lauderdale, Fla. - Ben Baldanza, the CEO of Spirit Airlines, leans over his kitchen table, takes another look at the board and plots out his strategy.
By The Associated Press
He's not thinking about new routes, extra fees or how to pare back
service on his famously no-frills airline. He's indulging his true
passion: board games. At one point in his life he owned nearly 4,000.
Today he's whittled the collection down to 1,500 — still enough to fill
one of the four bedrooms in his house.
These aren't kids' games, I learned on a
recent Thursday night when I was Baldanza's guest, along with Ted
Christie, the airline's chief financial officer and DeAnne Gabel,
director of investor relations. They are elaborate affairs that take
enormous concentration, careful planning, cunning and ruthlessness. Luck
has very little to do with the outcome.
We play Power Grid, a game Baldanza, 52,
selected. Players build a network of cities, buy power plants and
purchase the oil, coal, garbage or uranium necessary to electrify the
cities. The more you power, the more money you get. The best players,
Baldanza notes, "connect the cities in the most efficient way."
The similarities to running an airline aren't lost on me.
Spirit carries only 1 per cent of U.S.
fliers, yet has significant name recognition thanks to provocative
advertising. Baldanza has increased the number of lines on Spirit's
route map by 73 since 2010, while doubling the size of Spirit's fleet.
He undercuts other airlines on base ticket prices, but turns a profit by
packing more passengers into planes and then charging them extra for
almost everything, except the cabin air. It's a strategy that
consistently produces one of the best profit margins in the industry.
Each player starts our game with $50, which Baldanza doled out before we arrived. I grab my stack.
"Do you mind if I count my money? It's not that I don't trust you…" Before I can finish, Gabel chimes in: "We all did too."
Passengers don't necessarily trust Spirit
either. They are attracted by low fares but then compelled to play a
game of dodging fees. Some drive to the airport to avoid paying up to
$16.99 extra each way to book online. Customer service is notoriously
lacking, something Baldanza attributes to keeping costs low so tickets
are affordable. Each boarding pass printed by an agent at the ticket
counter costs $10. A bottle of water, free on most airlines, costs $3.
Spirit has 24 different types of baggage fees, including ones for
placing a carry-on bag in the overhead bin.
So, it's not surprising that Baldanza sees revenue opportunity where others see controversy.
Would he allow in-flight cellphone conversations if the government lifts its prohibition?
"Sure," he says without hesitation. "If we can make money at it."
He notes that those fees would allow for
lower ticket prices. He knows — and doesn't care — that most Americans
oppose such calls.
"People are only annoyed for a while," Baldanza counters. "They were annoyed that (Spirit's) seats didn't recline."
I soon learn that Baldanza ran a
mini-training camp at lunch the prior day, teaching his executives how
to play Power Grid. They even discussed letting me win— but then decided
not to be that generous. I was at a major disadvantage.
"I feel like the guy who shows up at the airport not realizing that Spirit charges for carry-on bags," I mutter.
"You shouldn't have bought your ticket on Orbitz," Baldanza shoots back.
Transparency remains one of Spirit's
biggest challenges. Passengers booking through the airline's website
typically understand Spirit's business model. Those booking through
third-party sites often don't learn of the extra charges until they
arrive at the airport. For instance, passengers who fail to pay in
advance for large carry-on bags are dinged $100 at the gate.
Baldanza recognizes that Spirit needs to
be "a little friendlier, meaning that more and more of our customers
actually understand the model." He's making a big push this year to
better align expectations with reality.
As he buys up cities on the board game,
Baldanza's reasoning becomes clearer: If passengers see the fees as
potential enhancements rather than punitive charges, they might be
willing to buy more.
Earlier in the day, I
visited Spirit's headquarters — which incidentally sits next to a
collection agency in a Miramar, Fla. office park. While there, I spied a
framed copy of a profile I did of Baldanza three years ago with the
"Meet America's king of airline fees." The word "fees" is
covered up with a piece of paper saying "options." During a pause in the
game, I ask him about the change.
"We're not adding more fees anymore,"
Baldanza says. "We're selling people more things that they never would
have considered part of the base ticket."
That means hotels and car rentals for now and maybe scuba diving tours, Cirque du Soleil tickets or ski packages in the future.
Baldanza also plans to change the
structure of some existing fees, increasing or decreasing the price of
checking a bag or picking a seat based on demand.
"The idea that a bag is more expensive at Christmas than it is in September hasn't really been broached yet," Baldanza says.
Baldanza's ultimate dream — if the
government would let him — would be to create two components of a
ticket: the price of fuel and everything else. Passengers would pay more
or less, depending on the cost of fuel the day they fly.
"It just takes out a huge risk," he says.
"I don't know that we'll ever get there, but the idea of being able to
make fuel a true pass-through would be revolutionary for the industry."
We take a break from the game for dinner.
Baldanza has set out barbeque beef and chicken, corn muffins, potato
salad, baked beans and mac and cheese — the type of food fliers can only
Other airlines are trying to win over
passengers by adding individual TVs, power outlets, larger overhead bins
and Wi-Fi. The battle is even fiercer in the premium cabins of flights
between New York and Los Angeles and San Francisco. There, airlines are
adding lie-flat beds previously only seen on international routes.
Baldanza thinks it's all foolhardy.
"At the end, when
everybody has the lie-flat seats, all they did was raise their costs for
the same traffic base," he says. "The allure of a temporary share gain
ends up costing the industry."
This from a guy who sells ads for timeshares and casinos on overhead bins.
Baldanza refilled our iced tea and diet
sodas and noted nobody had touched the wine in a box I brought. It
seemed like the perfect gift for a CEO who sells wine in a can on
flights; though he apparently doesn't like the taste.
"It's too sweet," Baldanza says. But there is a market for it: "People who buy wine spritzers."
More than two hours into the game, I
start to get the hang of it. Unfortunately, Baldanza snags a few more
cities and wins. Nobody is surprised.
As I help him clean up, we discuss the
future of his airline. Spirit currently has 54 planes and plans to
expand to 143 within seven years. Latin America helped drive Spirit's
growth but Baldanza sees its importance decreasing.
"The domestic market has more fruit on the tree right now," he says.
For Baldanza, staying one step ahead of
his passengers is also a game. The airline is always trying to squeeze
extra cash out of fliers, but Baldanza knows passengers have their own
tricks to hold onto their cash. He's been watching passengers avoid
paying pet carrying fees by claiming under the Americans with
Disabilities Act that they are comfort animals.
"We're waiting for someone to claim
another human being as a comfort animal," Baldanza half jokes.
"Someone's going to do it at some point."