Spirit Airlines - First Flight - A320

MIAMI — Robert Fornaro has more 35 years of experience in the airline business. He began his career as director of future schedule planning for TWA. He also served as senior vice president – marketing and planning at Braniff, senior vice president – marketing planning at Northwest Airlines and senior vice president – planning for US Airways.


Fornaro joined AirTran Airways in March 1999 as president and CFO, was named COO and then elected to the board of directors in 2001. He became CEO on Nov. 1, 2007, staying until Southwest Airlines closed on its purchase of AirTran in May 2011. He joined the board of directors at Spirit Airlines in 2014 and was named president and CEO in January 2016.

He spoke to Airways about changing Spirit Airlines’ reputation, the airline’s fleet and network plans, the battle over Basic Economy and maintaining its ultra low-cost structure.

Airways: What was so appealing about the CEO job at Spirit Airlines?

Robert Fornaro: It’s three things. We happen to be in the airline business, but this is a people business. The work we do, we’re kind of a blue-collar industry. We serve customers on a very basic thing, getting them between two points. If you want to do that, you want to do it right.

You should be on time, you should be friendly and you should be professional. That had not been our focus and it had to be. The company was ready to do it and for me, personally, I didn’t know any other way. I think it’s good for business reasons, but it’s also personal pride. No one wants to be at the bottom of the pack.

Another piece is the competition. The industry has gone through some cycles. If you go back to the previous decade, many of the carriers who are now viewed successful today were in Chapter 11, but they clawed their way out. Spirit also struggled and then changed what it did and became very successful.

During the period of 2012 through 2014 [the industry] was less competitive and there was a lot less capacity. Most companies had an inward focus, trying to improve themselves. But eventually, there became more of a competitive focus. We weren’t ready for that. We were used to our competitors not focusing on us. When the world changed, we weren’t quite ready for the new environment and so we had to get ourselves ready to compete in a different environment.

The third one and just as important is building the team that can allow us to thrive through the next decade and scale. We get better as we get bigger. We try not to do much more than that. We want to focus on the big things.

What are you doing to help improve the airline’s reputation while not moving away from its ultra-low cost carrier format?

I was president and eventually CEO of AirTran for 12 years. When I joined AirTran in 1999, we were formerly known as ValuJet. ValuJet had a tough image and we were also the lowest-cost carrier at the time. But a handful of years later, no one ever remembered it. So I know [changing] the reputation can be done.

The airlines’ structures today are different from what they were 10 or 20 years ago. There was a lot of turf building in big cities. JetBlue’s got JFK. Delta’s got Atlanta. But you can’t build an airline in the traditional way anymore because a lot of the turf is taken. So Spirit has got to evolve in a different way.

We’ll end up big in certain places, but we’re going to be represented in a whole array of cities. There’s not unlimited access anymore. Also, today’s airlines are very healthy. So for us, we need to be focused on price. We have really a broad mission. It’s to serve leisure and price-sensitive business customers rather than try to own Phoenix or Atlanta.

Just because today’s airlines did it in a certain way, it does not make it the right way for us. We don’t want to take the path that many of today’s airlines took to get to where they are. It’s not all that pretty by the way. For us, we have to really understand our niche and to embrace it. If we bundled everything up, I suspect we could be still a successful airline, but we would not bring as much value if we conformed. We can accomplish more our way.

I didn’t create the business model, but I see the merits of it and I think we can be more effective staying true to it. But we can do it better. We can be professional. We can be accountable. We can be friendly. We know at the end of the day that we have the best value of any carrier. There may be a time when somebody matches us or even beats us, but day in and day out, 95 percent of the time, we create huge value. You see it when you look at the prices where we’re not versus where we are.

I’m comfortable with the model. I was a board member before becoming CEO. I like what we did, but I thought we could do it better. Our guys did a very good job blazing the trail in terms of creating it, but my mission is to make it better. We want to be known for the right things.

Complaints about the airline to DOT have dropped by 64 percent. What do you think drove that drop?

Our effort to take this seriously. But probably the biggest thing is responsibility, owning up for things that we might have done rather than making our problem the customer’s problem. If we don’t deliver, we should make it right. If part of our business model is to charge for an overhead bag and we get a complaint, we’re not going to fix that one. That’s our business model so we’re not going to apologize for it.

But if we have a non-weather cancellation and we don’t come through and get the customer where they need to go, that’s on us. What we’re doing is making ourselves accountable. We’re going to make the problem right. You don’t attack a thousand problems, you try and focus on the larger ones. The largest number of complaints are tied to reliability or cancellations, so making fundamental improvements there is a big step. The right way for Spirit is to dramatically improve the service and maintain our low-cost structure. If it takes us a year or longer to get there, I’m fine with it.

You’ve also spoken about creating a better passenger experience on Spirit. What are some of the things you think has happened to do that?

In terms of unbundling the product, as far as I’m concerned, those are actually assets for Spirit because it allows us to grow. It allows us to stimulate the market. In terms of the product, actually, we have a very slight difference in density in certain cases. We have the big front seats. I think that product can be an asset. We’re not going to do an economy plus, where we have a third section in our airplanes.

I don’t see a scenario where we’re going to serve meals and things like that. The company’s philosophy, at least domestically, is that the lion’s share of the people wants to have a safe, reliable and uneventful flight. The goal is to spend your money when you get there rather than on the flight and I like that philosophy. We’re not trying to win at anybody else’s game. We’re going to do better at our game.

The U.S. domestic market is much different than any internal market in any other country. Ours was developed 30 years ago in a very traditional way, but it’s much different now. I grew up when air travel was different. Most people today don’t necessarily want a long-term relationship with an airline. They want reliable transportation. Leisure flying is by far the largest segment, while small business travel is a growing segment. That’s where the people are going and that’s where we’re setting up shop.

Spirit Airlines says it has one of the youngest fleets and you’ve been adding Airbus A319s. What is the timeline for that particular aircraft coming in and are you sticking with being an all Airbus fleet?

The current plan is to stick with what we have. It’s not that we won’t consider anything else, it’s just we’re fine with the fleet now. And we’ve had the youngest fleet in North America for a long time. We just weren’t telling people. I say new airplanes are an asset. At Spirit, you read blogs and news and know that you have a certain reputation. I watch customers get on the airplanes. You see them say ‘oh, it’s not what I thought.’

The Airbus fleet is great. Our last large order was six or seven years ago. Eventually, over the next one to two years, we’re going to place another order. We owe it to ourselves and our shareholders to make sure we understand all the other competitive products. We’re approaching our 100th airplane this month.

What’s the timeline for A320neo and A321neo deliveries? What are your plans for those aircraft?

We have five A320neos that we took at the end of 2016. They’re flying now. We don’t take any more of those airplanes until 2018. In terms of performance, the new engine has more performance and range. It does give us more range and more operational flexibility, but It’s still a relatively small fleet at this time. At least in 2017, it’s not having a big change in terms of what we do right now.

The 321neo has a pretty good range. Is there a chance that Spirit will do ultra-low-cost international flying along the lines of what Norwegian is doing?

I would never say never, but I do not see that happening in the next five years. There’s too much opportunity for us in the U.S. domestic market. Looking at the cities we serve in Latin America and the Caribbean, we haven’t done much in that area in the last couple years. Our next round of international expansion will probably be to the south where we have an existing footprint. In terms of trans-Atlantic [flights], it’s a ways off for us. It’s not on the horizon.

How do you view attempts by American, United, and Delta to mimic your unbundled product?

I like your word “attempts”. That’s basically what they are. Most carriers are different than us. The fact of the matter is they wouldn’t be doing this if we weren’t competing with them. It’s more of a message. They want to be aggressive, but they also know they can’t compete with us seat for seat because it’s too expensive for them. We can have a good rate of return on our pricing and not have a significant loss.

What they’re trying to do is create a more sustainable way to compete with us. Quite frankly, it’s what they call their coach product today with less. We can have a really long debate about what the quality of a middle seat at United is versus Spirit, but I’m not sure the difference is what they think it is.

It’s a competitive business. I never believed we’d see an extended period of time of no competition. That’s not the way I’ve seen the business evolve.

I view this as the normal ebb and flow of the industry. They have to try and protect their turf and we have to try and take it. This is how it plays out. We add service, we try to compete and they try and hang onto the customers. I’d say it’s pretty normal. There’s almost a lot more focus on us than they have on each other.

It can be the big three Middle East carriers or Norwegian in Hartford or Providence. It’s Spirit domestically. It’s been like that for a long time. I’m pro consumer and I happen to work for a company that actually needs the consumer because they pay our bills and salaries.

I want competition to Europe because when I fly there because I don’t want to get stuck with a monopoly. It’s too expensive. Their goal is to raise prices as high as they can and our goal is to do the opposite. Keep them as low as we can while making a strong return.

Oil prices have been ridiculously low for quite a long time. When the prices do rise again, how do you think it will affect legacy carriers going into the lower-tier markets where Spirit is now?

Spirit was doing well and ordering aircraft when oil was $100 a barrel. There was a sense, years ago, that the low-fare sector generally started with small, older airplanes, like ValuJet. Normally, they would start after periods of time where there were shocks to the system. ValuJet came after Eastern went away. Carriers were going through withdrawals and struggles and those created opportunities.

The marketplace is very different now. This is the strongest financial position the industry’s ever been in. Spirit is very profitable and has a very strong balance sheet and the lowest costs. We’re very tough to compete with. We have the newest fleet and it does insulate us more than anybody else.

If you think about impact of fuel, their ability to charge low prices is going to be dramatically impacted. We can go back and forth. Our airline was designed in the midst of the oil crisis and we fared very well. I think we’ve proven we can make money in any type of market. The reason is again, our core cost structure is the lowest.

Looking at the route network and the future of larger markets like Chicago O’Hare or DFW, will you stick with those or are you going to continue the shift to medium markets or strike a balance?

We don’t necessarily go out and decide I want to do big routes or small routes. I spent the first half of my career with the large carriers, so I have some pretty good experience in understanding markets. We’re going to be larger in Dallas this summer than last summer. We’re trying to get additional gates in Chicago O’Hare and Atlanta. We just went into Newark and I think that we still see opportunities in those markets.

Markets like Las Vegas and Orlando, the classic leisure ones, are very important to Spirit. Those are mid-sized markets. We have a handful of mega-cities and once you get away from that, it kind of drifts off. Most of our growth is in the Eastern half of the country.

Orlando is a mid-sized market but because of the size and the power of the destination, it travels like a large market. It’s the same thing with Las Vegas. That’s the way we think of cities, not necessarily around the population.

What are your top three priorities for the airline for this year going into 2018?

They really won’t change. Building a team for the future so that we have the talent to become a much larger airline and do it successfully. There’s also operation and reputation. It’s about the hard stuff of doing the operation better, but it’s also about the soft stuff, like the personal interface with our customers.

I didn’t know that when I started this job, I would be seeing basic economy by all of these carriers. Delta’s been doing it for a long time. What I did know was we were going to have to be a better competitor. We have to do a better job delivering our service, be smarter about how we manage our revenues and try to expand our ancillary opportunities as well.

There’s a lot of things that need to be done. We were so successful for a period of time doing what we were doing, we didn’t evolve. You always want to be a company that is always evolving rather than being shocked into it. We got a little catch up to do in making ourselves a stronger competitor. We always have low-price because that’s driven by our core structure in terms the way we pick routes, in terms the way we manage inventories and in terms of the way we stand up against all the attention. If you read the trade news, you’d think we’re the largest airline in the country. So those are the areas I’m focused on.