Few airlines arouse more anger, annoyance, and disbelief than Spirit.

The self-styled ultra-low-cost-carrier (ULCC) is undoubtedly very controversial, but that’s a key part of its appeal – for me, anyway.

A money-making machine
More to the point, it’s a money-making machine.  Despite its relatively small size, between 2011 and 2013 it earned a collective $661m in operating profit with an average operating average margin of 14.5%.  Clearly exceptional.

At the same time, it is pushing boundaries with crass and boisterous – but undoubtedly fun – adverts and more a la carte streams to make Michael O’Leary positively blush.  This is just as well: in 2013, its ancillaries represented 40% of its total revenue.  And on a per-passenger basis, it earned an industry-beating $54.

To compare, in 2013 ancillaries comprised just 22% of Ryanair’s total revenues and it earned $19 per passenger.  Clearly, Ryanair isn’t the big-bad-wolf that everyone thinks, at least by these metrics; in fact, it surely shows sizeable weakness.  (In reality, the difference is less as Ryanair unhelpfully doesn’t include bag fees in reporting ancillaries.  But still.)

LCC Purity Study - James Pearson

Not that pure
Recently, I conducted a study of 37 LCCs in 24 countries by 28 product and operational metrics.

Despite its ULCC tag, Spirit actually deviates in many ways from the “pure” LCC model, although this study found that that model is, as expected, entirely theoretical.

In fact, Spirit was 27 of 37 LCCs by overall compliance to the pure model, with 64.3%.  This is against 92.9% for Ryanair, 86.9% for Wizz Air, and 73.8% for AirAsia (Malaysia).  Southwest was just 56.0% compliant.

Spirit was nearly as non-compliant to operations (60.6%) as to product (66.7%).

However, Spirit was still more compliant overall than the average in North America (59.8%), but less compliant than the world average (68.2%). In particular, it was more strongly compliant to the operational side than average for North America (55.2%).

The entirely pure
It almost seems redundant to mention the “pure” LCC model nowadays.  Still, it is clearly mainly about low operating costs from high productivity and high efficiency; low revenue per passenger (but driving more revenue per sector) from a simplified product and value proposition tied up in a straightforward brand; and highly managed customer expectations, so a reduced ‘expectations gap’.  And lower overall complexity should increase manageability and agility.

Deviating from the “pure” LCC model – primarily because of hybridising, and more on this another time – will clearly add cost and complexity.  Of course, this should be offset by higher unit revenues, and if not why bother?  There will be no meaningful benefit.

Crucially, and less often mentioned, deviating will probably also heighten customer and consumer expectations.  And if these are inadequately managed, it could clearly have disastrous consequences for satisfaction, willingness to pay, and the likelihood of substituting airlines or modes.

Spirit: why less pure?
So in what ways does Spirit deviate from the “pure” LCC model?  There is a variety, including:

  • Distributing indirectly and using travel agencies/GDS/OTAs (an increasingly common attribute for LCCs nowadays)
  • Having an FFP
  • Having online connections
  • Mainly serving main/primary airports: serving many busy and/or slot-constrained facilities (e.g. BOS, LGA, ORD, ATL, DFW, DEN, PHX, LAX)
  • ‘Big front seat’ – effectively two cabins
  • Less-than-maximum seating density, so less output spread over fixed cost (e.g. the 319 has 145 seats v. 156 with easyJet, but the 320 is better with 178 v. 180 max)
  • Three types within the 320 family (they have 85 320s on order and 30 321s)
  • No 25-min turnarounds
  • Crew stay overnight
  • Not especially strong compared to many regarding employee productivity whether RPKs/full-time employee or passengers/FTE
  • Having assigned seating (albeit pay-for; a common attribute nowadays)

Of course, it is clear how these things increase cost and complexity, and how they often interact with one another.  But it is equally clear how many of them should directly or indirectly help to increase unit revenues.  That their turnarounds are usually 40 or so minutes should clearly help to increase punctuality, especially given online connections, its penchant for congested airports, and assigned seating.  But, at the same time, it’ll probably reduce productivity.

Interestingly, many of Spirit’s deviations are also done by other North American LCCs.  In fact, all analysed LCCs from this region have less-than-maximum seating density for the specific aircraft type and 80% of the LCCs there have two or more cabins; carry cargo; have an FFP; offer online connections; and distribute indirectly.

So, is there a minimum level of product acceptability within North America?  Could the US, specifically, have an LCC that is much more “pure”, and therefore simpler and more cost-effective, than Spirit?  If so, could it gain, say, a 10% cost advantage over it?  (Ill-fated SkyBus had many flaws so isn’t really a fair comparison or indicator of potential.)  As Southwest becomes more of a hybrid, the soft underbelly is increasingly tempting.

About the Guest Author:
James Pearson is a lecturer in air transport at Buckinghamshire New University, the largest provider of aviation-based undergraduate degrees in Europe. He is currently undertaking a PhD in the airline competitive responses of Asian network airlines within short-haul markets at Loughborough University.

 

How Pure is Spirit? – New Study Measures LCC Model Integrity

About The Author
- James Pearson is a lecturer in air transport at Buckinghamshire New University, the largest provider of aviation-based undergraduate degrees in Europe. He is currently undertaking a PhD in the airline competitive responses of Asian network airlines within short-haul markets at Loughborough University.
  • Mahen Abayasekera

    I read all your blogs James, excellently executed with full of relevant info….as you have stated LCC’s acquiring bits and pieces of full service eg., FFP….easyJet are promoting Nectar points to purchase tickets…!!

  • Ali Hammoud

    Hi James,

    thanks for this, your article makes for a great read! Little point of correction: the max seating capacity of the 319 is 145 seats. The only 156-seats 319s were made for and delivered to easyjet. The 11-seats increase is made possible by the addition of a second overwing exit (à la 320); standard 319s only have 1 overwing exit. So Spirit is in fact utilizing 100% of the possible capacity on their 319s.

    Cheers!

  • https://www.linkedin.com/pub/james-pearson/1a/831/96b James Pearson

    Hi Ali,

    Many thanks for your great reply. That 156 was an easyJet thing had escaped me, so I’m grateful for your correction.

    And it raises a few interesting questions. Could other operators have this configuration if they wished? I wonder the overall cost benefit per mile and seat given the extra weight (and all the usual results of this) yet 11 more seats? And I wonder the extra cost to purchase (excluding airline-specific discounts)?

    Cheers and safe flying,

    James.

    • Ali Hammoud

      Hi James,

      I am not sure if it is possible to buy new 156-seats 319s but ezy is releasing some to the leasing market. In Tanzania, fastjet flies one example along with 2 145-seats models. It does add complexity though so is probably not suitable for bigger operators.

      Cheers!