Spirit Airlines Wants You to Pay More for Your Ticket on the Day of Departure if the Price of Fuel Rises

I love that Spirit Airlines exists. They serve a different market niche than I find myself in. Air Asia uses the slogan, “Now Everyone Can Fly!” and Spirit is very much in that same mold.

I don’t like their miles. I love their advertising. But at root I can appreciate that if their route network serves you and you can navigate their myriad fees, you can often fly cheaper than any other alternative.

And they do seem really transparent about their fees if you book on their website. It’s bookings through third party sites that can lead to confusion, where folks may not know what they’re getting into. That’s the key, and don’t book Spirit if you don’t want the product Spirit offers.

The AP’s Scott Mayerowitz spends time playing board games in the home of Spirit Airlines CEO Ben Baldanza. And it’s a fascinating read.

On Spirit’s fees:

Passengers don’t necessarily trust Spirit either. They are attracted by low fares but then compelled to play a game of dodging fees. Some drive to the airport to avoid paying up to $16.99 extra each way to book online. Customer service is notoriously lacking, something Baldanza attributes to keeping costs low so tickets are affordable. Each boarding pass printed by an agent at the ticket counter costs $10. A bottle of water, free on most airlines, costs $3. Spirit has 24 different types of baggage fees, including ones for placing a carry-on bag in the overhead bin.

On varying fees based on demand:

Baldanza also plans to change the structure of some existing fees, increasing or decreasing the price of checking a bag or picking a seat based on demand.

“The idea that a bag is more expensive at Christmas than it is in September hasn’t really been broached yet,” Baldanza says.

On inflight cell phone use:

Would he allow in-flight cellphone conversations if the government lifts its prohibition?

“Sure,” he says without hesitation. “If we can make money at it.”

He notes that those fees would allow for lower ticket prices. He knows — and doesn’t care — that most Americans oppose such calls.

“People are only annoyed for a while,” Baldanza counters. “They were annoyed that (Spirit’s) seats didn’t recline.”

Here’s where I don’t buy what Baldanza is selling, though, in terms of the future:

Baldanza’s ultimate dream — if the government would let him — would be to create two components of a ticket: the price of fuel and everything else. Passengers would pay more or less, depending on the cost of fuel the day they fly.

“It just takes out a huge risk,” he says. “I don’t know that we’ll ever get there, but the idea of being able to make fuel a true pass-through would be revolutionary for the industry.”

There’s no inherent reason why the customer should bear fuel risk rather than the airline, and though it mean seem there’s no inherent reason that the airline is the one to bear it either they have greater ability to bear those fluctuations than an individual consumer does, and they have a greater ability to mitigate risk as well.

In other words, it’s more efficient for the airline to bear the risk of fuel price fluctuations because it faces lower transaction costs in doing so. The airline can hedge fuel pricing. The consumer can’t in any ready way, at least now, though Spirit might find a way to sell their passengers fuel hedges. A Spirit Airlines ticket could itself become a complex derivative. One could even imagine Spirit tickets bringing down an investment bank.

Because I’m a 13 year old boy at heart, I love Spirit’s advertising even if it won’t ever actually get me in one of their planes.

Back in November they passed the ‘Affordable Fare Act’ (because their website works!). Though Spirit does often have low fares, there are definitely no subsidies (or cross-subsidies), only ancillary fees…

When the Anthony Weiner sexting story first broke two years ago, Spirit ran an Anthony Weiner sale. And a More Bang for Your Buck sale on flights to Cartagena when secret service agents were revealed to have frequented prostitutes there.

In 2010 they invited customers to check out the (suntan) oil on the beaches that they fly to… during the BP oil spill. (At the time I was just thankful they hadn’t advertised ‘a flood of low fares to New Orleans’ after Hurricane Katrina.)

Their most famous ad has to be their “MILF Sale” (Many Islands, Low Fares)… and in keeping with the ‘theme’ they ran a TV commercial, “Think that’s low? Spirit Airlines fares are even lower!”

With 90 day expiration I don’t even collect their miles. And redeeming seems like punishment. After Greyhound started a loyalty program in 2006, I coined the conundrum of having nothing good to offer “the Greyhound Road Rewards problem.” Spirit epitomizes this. They do not have redemption partners. The reward for traveling on Spirit is… more travel on Spirit.

Nonetheless, they have a fascinating model, and the Mayerowitz piece offers an interesting insight into the people propagating that model.


About Gary Leff

Gary Leff is one of the foremost experts in the field of miles, points, and frequent business travel - a topic he has covered since 2002. Co-founder of frequent flyer community InsideFlyer.com, emcee of the Freddie Awards, and named one of the "World's Top Travel Experts" by Conde' Nast Traveler (2010-Present) Gary has been a guest on most major news media, profiled in several top print publications, and published broadly on the topic of consumer loyalty. More About Gary »

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Comments

  1. Because I live in Ft. Lauderdale, where Spirit is based, I fly them occasionally. Their fares can’t be beat, and I have learned how to avoid their fees. Regarding their frequent-flyer program, I got a Spirit Mastercard ($59/year) and make sure to use it at least once a month. That way, my mileage account is kept active, even if I don’t fly them very often.

  2. We’re flying next Saturday in the “big seats” FLL-SJU. $57 ticket with $130 in fees – still cheaper than JetBlue in 1st row or any J class option. I’ll report back on this thread after the flight….

  3. A gas station chain could offer a fixed price each month, announced 30 days in advance, and use hedging to minimize the volatility risk. But as far as I know, no gas station so hedges; rather, each station changes its prices several times a week to reflect prevailing market conditions. Gas purchasers (i.e., car owners) thus bear quite a bit of the risk of gas price fluctuations, yet they survive.

    Why couldn’t the same model work with an airline? You buy a ticket for travel a month out. Who knows how crude oil prices will change in the intervening period? Either the airline bears the risk of price fluctuation (or the price of hedging against such risk) or the traveler does. If a person with a positive net worth flies a few times a year to visit friends & family, is plus-or-minus $50 of annual jet fuel price uncertainty really that big of a deal? For the less risk averse among us, probably not.

    But if Spirit can pass on the risk to consumers, it can simply go unhedged — which, of course, is the least costly option of all, right? If Spirit doesn’t have to worry about balance sheet fluctuations depending on the spot price of oil, its investors should enjoy a more predictable earning stream than the airline could otherwise offer. Instead of selling pure hedging products to travelers, Spirit could offer “catastrophic insurance” for massive upswings in the price of jet fuel (say, 100 percent or more between the time of booking and the flight date). Lots of neat possibilities to consider before dismissing Spirit’s idea, it seems to me.

  4. Lovely. So they want to take your NONREFUNDABLE money and then stick you with the risk of fuel price changes, risk that a laergfe corporation (but not the individual) can effectively hedge in the futures markets.

    Thank goodness for regulators that didn’t allow for this corporativist abuse and keep the markets free!

    BTW, Spirit cross-subsidises in a HUGE way: it charges the same fare to the 100 lbs petite lady as it does to the 250 lbs overweight hulk. Small coss-subsidies are a (good) feature of every day’s life, and keeps informational costs low; only pushers of horrendously high fees that have no bearing with actual costs could make otherwise rational bloggers believe in such fiction.

  5. @Ryan: gas stations don’t force you to buy in advance in a NONREFUNDABLE way for your gas. And gas is only 40-45% of an airline’s cost.

  6. What, a fuel surcharge actually pegged to the price of fuel?

    It would involve a bit of an administrative headache and Spirit is in a far better position to hedge this risk than its customers.

    But I do not at all mind the thought of someone identifying what a “fuel surcharge” ISN’T.

  7. I think this CEO blabs incessantly strictly for promotion.
    No such thing as bad publicity? Maybe, but Spirit is not on my preferred list of carriers….thankfully.

  8. I thought about flying Spirit for an upcoming flight, they were $200 cheaper than the competition – then I realized all the fare red tape and decided against it.

  9. Huge problem is Spirit flights are often cancelled. (Co-incidentally when flights are not very full). Someone needs to publish the on-time and cancellation % of Spirit. And of course no other airline will try to accomodate Spirit strandeds.

    How does Spirit compare with Ryan Air and EasyJet? EasyJet has been said to be surprisingly decent. Ryan and Spirit, not so much.

  10. also- Spirit has a fantastic route system, especially to South America and the Carribean. It’s amazing no other airline has yet tried to buy them.

    They have just bought Frontier though and a merger would make Frontier/Spirit a major player.

  11. Msp-ord $25 rt. I have done a few weekend and day trips to Chicago. In the past year. How cAn you beat that ?

  12. If you get an opportunity to watch the British comedy, “Come Fly With Me”, Spirit airlines comes to mind. While some may like this ULC carrier, I would rather drive then figure out how Spirit wants to separate me from my money. Frontier is getting the same way. Safe travels everyone.

  13. Its amazing how some are ready to give up consumer protection because they don’t use/require it. When I look at business models like this, I ask if my MOTHER would understand what she was buying when she bought it. The simple answer is no. Everything is not spelled out, and there are fees EVERYWHERE. The aim here is to confuse the customer, sell low, and actually charge alot. This is just like payroll loans in my book, and should be regulated to make sure the AVERAGE customer is protected from the professional snake oil salesman.

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