Spirit Airlines is losing control: It is charging more for First Class than Delta and American – without the discounts!
Spirit Airlines has abandoned their business model of offering the lowest possible fares and making money from fees. They now even offer a first class package called “Go Big” which includes their “big front seat” as well as carry-on luggage, checked luggage, priority boarding and free WiFi, as well as free snacks and drinks.
But they seem to have forgotten who they are. This is not a first-class airline, this is a low-cost airline. They make travel affordable. They are a leisure airline for one-time flyers. This gave them (and the similar company Frontier Airlines) the highest margins in the industry before the pandemic.
Since then they have had the following problems:
- People want to spend more on experiences. It is unclear whether this attitude will continue during an economic downturn.
- People wanted to travel to Europe, but Spirit doesn’t fly there.
- They have higher costs now. They pay for fuel and planes like everyone else. Labor costs have gone up.
Their problem is not that they charged too much.
As a basis, I looked at the first class prices from the New York area to Austin. Here are the prices from Delta, American and United:
Spirit sells its first class seat for more money than American Airlines charges for it. Spirit sells an economy class seat with a blocked center next to it for more money than Delta charges for first class later the same day.
I started looking at other Spirit routes and other dates. The closest I found was Austin – Las Vegas, where they charge more for a first class seat than American Airlines – and about five times their own lowest fare.
You seem to be confusing the concept of bundles. Consumer bundles are successful because they offer more products at a lower price than each product would cost individually.
- Consumers get more than they would otherwise get
- And spend more than they otherwise would
Think about your cable TV or your streaming service. Each new channel brings a very high profit margin. It costs almost nothing to add another household to a particular channel. All the revenue is just incidental. So you bundle channels together and get more revenue overall.
Maybe someone values news channels at $10 and sports channels at $2 (or vice versa). If you sold each channel for $9, your total revenue would be $9. The recipient would buy news, not sports. However, if you sell a package for $11, you get $11 and the recipient takes both news and sports.
Packages don’t make sense if the cost is too high! If you sell the “news and sports package” for $20, there will be no takers.
Scott Kirby, CEO of United Airlines, says Spirit Airlines is doomed to fail with a -30% margin. The airline seems to be taking a chance and believes it can charge more for its new first class than the competition. They don’t have ovens on their planes and they don’t offer hot meals. They don’t have airport lounges. Their first class seats are pre-assigned. And their miles are arguably worth even less than Delta’s.
Spirit Airlines only has these “First Class” seats on its planes because when it was founded as an ultra-low-cost airline, it did not want to spend any money on eliminating them.
Ultimately, Spirit Airlines will not be more successful by offering a less attractive product than American Airlines at a higher price.
Spirit Airlines’ Big Front Seat used to be the best travel deal for a modest premium, so the idea that it’s worth more than double or even five times the base fare is crazy.
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