Spirit Airlines pitches premium passenger push in product revamp

Come next month Spirit Airlines expects significant changes to its guest experience. Citing the feedback of existing customers and the broader market, CEO Ted Christie noted “it is clear that we need to introduce some changes to reflect the new dynamics in the industry and to make Spirit a more compelling option for the traveling public.”

Part of that will come from pricing and merchandising changes. But the carrier also recognizes that some passengers want to purchase products not on offer today, and they’re going to other airlines to get them. Spirit wants that business, and the associated higher yields, even as it focuses on keeping costs down.

To that end, it expects “material modifications” starting in June (some of which are already in testing), with more changes to follow.

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The announcement of a revised product comes against the backdrop of a $160 million adjusted net loss in Q1, including a 16% YoY drop in per-segment fare revenue. Much of that comes from increased competition in key markets, and demand weakness into the Caribbean and Latin America.

But Christie sees upside beyond the company’s typical plays of increasing cabin density and fleet utilization to drive cost efficiencies. A better passenger experience will play a key role:

We were a hyper-successful business in the 2010s. We also recognize that some of that could have been at the sacrifice of the experience that our guests were having on board the airplane. And we’ve made moves to improve that. We are a better operator today. Our on-time performance is more in-line with what we want to expect. But we also want to afford our guests the opportunity to buy products and services that currently Spirit doesn’t have available. And I think that’s a chance for us to really move up faster than people could appreciate.

Chief Commercial Officer Matt Klein echoed the sentiment, citing a “shocking difference between people that experience the product versus people that only hear what they hear in the news and the media” in terms of recommending Spirit to friends and family. Fixing that means “widening the funnel, and that funnel will allow us to then push up yields and then over time, flow through to other parts of loyalty. So, instead of just being transactional with our guests, which largely we have done in the past, we will begin to become more relationship driven with our guests.”

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Much like Christie, Klein talked to a shift in merchandising, with ancillary revenue continuing “to be a critical part” of the business. But he also sees “opportunities to maximize revenue that may involve shifts of revenue from the ancillary bucket into the ticket yield bucket.” A ticket bundle that includes the premium seat, bags, priority boarding, and even real fare flexibility could attract more business travelers, for example.

And that more premium customer is definitely part of Spirit’s target market. Christie called out a couple of the US legacy carriers (presumably United and Delta) as “reaching for as much premium as they can get their hands on” while others (AA?) are “just going down market.” Historically Spirit only really competed with the latter group. Going forward, Christie says Spirit will continue to focus on costs, but also “introduce some products that we think could really be competitive that can actually aid our unit revenue.”

This does not necessarily mean a change to the cabin layout. But things are going to change in the next few months, and an updated product will be part of the play.