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Spirit Sets the Pace for Ancillary Revenue

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Spirit Sets the Pace for Ancillary Revenue

Spirit Sets the Pace for Ancillary Revenue
November 04
14:35 2016

MIAMI — For the fifth year straight, Spirit Airlines led the industry with 43.4 percent of its overall revenue attributed to ancillary revenue. But company officials say that they aren’t necessarily setting their sights on pushing that number higher.

“The percentage could go higher if we wanted it to, but that isn’t our model,” said Paul Berry, Director of Communications Advertising and Brand for the Florida-based ultra-low-cost carrier. “At Spirit, as ancillary revenue goes up rates go down. That current percentage range is a sweet spot that allows us to get revenue from both fares and ancillaries.”

The findings were included in a recent report by IdeaWorksCompany sponsored by CarTrawler and written by Jay Sorensen. The report reviewed financial data from 135 airlines, 67 of which had revenue related to ancillary products.

Berry offered another advantage on the fare structure and ancillary revenue.  “It also gives consumers a lower fare and the control to purchase the items they want and not be forced to buy items they don’t want or need in an all inclusive fare. Other airlines treat their ancillaries much differently.”

In FY2015, Spirit reported $928 million in ancillary revenue, which accounts for 43.4% of the carrier’s overall revenue.  That translates to roughly $52 per passenger. The carrier flew nearly 18 million passengers. The closest competitor was Allegiant Air, which reported 37.6 percent in ancillary revenue, according to IdeaWorks.

Non-ticket revenue include charges for baggage, passenger usage fees, bookings through certain distribution channels, advance seat select, itinerary changes as well as hotel and rental car packages.

“The array of choices provided by à la carte methods allows these consumers to click and pay a premium for more comfort and convenience,” Sorensen wrote in his report. “Ancillary revenue represents the safety net which determines whether low fares can coexist with airline profitability.”

In the past, Spirit’s on-time performance lagged behind other competitors, but Berry pointed out that things are improving.

“In September [2016] we were right in the middle of the pack with 85.2 percent and a 3Q average of 77 percent,” he explained of the carrier’s on time performance.  In 2015, the 3Q on time arrival rate was 69.6 percent, according to the US DOT. “So yes, there are efforts that are being implemented. We believe you will see year over year improvement for each month, if weather patterns are similar or better, throughout the year.”

However, Spirit is not aiming to be number one in on time performance, Berry said. “That is very costly and those costs are passed on to consumers. Being in the middle of the pack allows us to be more consistent with on time performance and not forcing our customers to pay extremely high fares.”

Spirit goes head to head in a number of markets with legacy carriers, who because of lower fuel prices have been able to be more flexible on fares.

“There fares may be temporarily lower than their normal fares, but we’re still lower,” Berry said. “That’s because our operation costs are much lower than mainline carriers, so it’s easy to maintain low fares. Since our fares and total price is still lower than the other airlines, it’s easy to retain customers, because low fares are the number one item that consumers say they are looking for when purchasing air travel.”

Author of the report Sorensen believes that the low fare carriers have helped rein in airfares, especially in markets traditionally dominated by the legacy carriers that are forced to complete on price.

“If you strip out Allegiant, Frontier and Spirit, I can guarantee United, American and Delta fares would rise,” Sorensen said. “Quite frankly I’m sick and tired of customers complaining about evil [low cost] airlines like Spirit or Ryanair.”

What’s on the horizon for Spirit? Berry replied, “We don’t talk about initiatives until we’re ready to implement. Stay tuned.”

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Sandra Arnoult

Sandra Arnoult

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