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The Most Hated U.S. Airline Is Also the Most Profitable

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Old Apr 12, 2014, 2:37 PM
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The Most Hated U.S. Airline Is Also the Most Profitable

By Justin Bachman 22 hours ago


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Spirit Airlines inspires a special kind of wrath among the American traveling public: It’s the industry leader in customer complaints by a wide margin. Over the last five years, Spirit’s rate of complaints to the Department of Transportation was three times higher than other U.S. airlines, according to a report (PDF) released today by the U.S. Public Interest Research Group Education Fund.

This is not the first time Spirit has been dinged for customer dissatisfaction. Last year it was the lowest-scoring carrier in a Consumer Reports survey of 16,000 readers. “Poor service, poor communication, poor quality,” a commenter at airline-rating firm Skytrax wrote this week. “You couldn’t even make up how bad they are.” The loathing has also inspired a dedicated Twitter feed: @hatespiritair.

Its customers will probably find this annoying, too: In spite of the rancor it inspires, Spirit has become the most profitable U.S. airline in terms of its operating margin and return on invested capital. Spirit’s 16.2 percent margin is highest among U.S. public airlines, as is its 26 percent return on capital, according to data compiled by Bloomberg. Allegiant Travel, the nation’s other ultralow-cost airline, has the second-best operating margin—12.7 percent—followed by Alaska Airlines and Delta Air Lines. Spirit shares have gained 439 percent since its mid-2011 public offering at $12.

“Customer complaints generally have a loose but inverse negative correlation to return on invested capital,” Wolfe Research analyst Hunter Keay says, noting that well-liked JetBlue Airways, Virgin America, and Southwest Airlines lag financially. “The commitment to make the customer happy costs money.” Keay says the low-cost model rightly treats airfare as a utility. “There really does not need to be a service component attached to consuming airfare.”

To that end, Spirit, along with other ultralow-cost carriers, has done all it can to drive ticket prices as close to zero as possible. The point is to attract new customers with low fares, then squeeze them into a spartan, cramped cabin and charge them for any and all amenities: water, carry-on bags, seat assignments, and the like. Spirit’s planes pack far more seats in the cabin than do other airlines, 178 on an Airbus A320—that’s 28 more than on the same plane at United Airlines or JetBlue. And Spirit’s seats don’t recline.

On the flip side of this financial success, Spirit is still growing rapidly. It plans to almost triple its 54-jet fleet by 2021. A cheap fare may be able to lure first-time customers, but it cannot necessarily keep them. Over time, if travelers increasingly dislike the experience, it’s possible that Spirit’s financial performance could stall. On the other hand, airfares are rising across the board (consolidation will do that), and plenty of people may decide that saving $100 or more is worth a little temporary indignity.

“Many of the DOT complaints about Spirit are driven by our customers not fully understanding that we offer unbundled fares that let them control how much they spend,” spokeswoman DeAnne Gabel wrote in an e-mail on Thursday. The airline has declared 2014 its “Year of the Customer.” The goal, she says, is “to reduce complaints by helping customers learn about how to fly Spirit to go where they want and keep more money in their pocket.” Spirit isn’t an airline for everyone, but so far it hasn’t had to be.
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