Saturday, February 13, 2016

Spirit Airlines New Boss Vows to Repair Image: CEO to address complaints about punctuality and ward off competitive threats

The Wall Street Journal
By Susan Carey
Feb. 12, 2016 6:31 p.m. ET

Spirit Airlines Inc. ’s new chief executive is planning a midcourse correction at the nation’s leading ultralow-cost carrier to address rising customer complaints about its punctuality and ward off new competitive threats.

In his first interview as CEO, ​ Bob Fornaro, a 35-year airline veteran, said he plans to slow the Miramar, Fla.-based airline’s supercharged growth to make its operations more reliable—and in the process, he hopes, mend its customer relationships.

Spirit, which offers extremely low base fares and piles on extra charges for everything from seat assignments to drinking water, has grown rapidly and helped reshape the U.S. airline industry. But it also has received pointed criticism from customers about its fees and poor on-time record. “Maybe we created a persona that dismissed the customer,” he said.

The 63-year-old in many ways is a departure from his predecessor, Ben Baldanza, who was Spirit’s CEO from 2006 until stepping down on Jan. 5 with little public explanation. Mr. Baldanza, age 54, was the zany public face of Spirit, known for humorous videos and mocking customers who complained about fees. He once climbed into an overhead bin for a website video to explain to customers its policy for charging for overhead-bin space.

The new CEO doesn’t expect to get caught up in such hijinks. “I thought it was great that Ben went into the bin,” he said. “I don’t need to climb in the bin. It doesn’t necessarily matter what the CEO does. We want to sell tickets.”

As for those complaints about fees, Mr. Fornaro said the company would be more transparent about its pricing in the future. “We can save passengers money and there are a lot of positive attributes that go along with that,” he said. “We have new planes. Our airplanes sparkle.”

Both men said this week that Mr. Baldanza’s departure occurred because the board decided it was time for a leadership change. Mr. Baldanza said he had moved his family to the Washington, D.C., area last year so his fourth-grade son could attend school there, and had been commuting to Spirit’s headquarters.

“The commute wasn’t working and I couldn’t do what I needed to do,” he said in an interview. “There was frustration on the board that the company wasn’t moving faster” on improving its reputation and operational metrics, he said, calling the parting “amicable.”

Mr. Fornaro, a Spirit director since 2014, said the board felt Spirit needed “a different level of commitment, a different personality and attention to detail that perhaps we weren’t getting. We had a mission in mind, to prepare the company for the next decade.”

Spirit’s earnings have more than quadrupled since its 2011 initial public offering, to $317 million last year, while revenue has doubled to $2.14 billion. It has spawned at least one U.S. imitator, Indigo Partners LLC’s Frontier Airlines, and pressured big legacy carriers to cut their fares on some routes and to adopt more fees.

But Spirit has hit a rough patch. Aggressive price-matching by big rivals last year dented its unit revenue—a much-watched measure of how much it takes in for each passenger flown a mile. The 30% annual growth rate of Spirit’s capacity strained its ability to get its planes to their destinations on time, or at all, leading to abysmal punctuality. Spirit ranked third in flier complaints to the Transportation Department in November, despite being only the seventh-largest U.S. carrier by traffic.

Robert Boyer, a retired executive for a Caterpillar Inc. dealer, said his wife is now afraid to fly Spirit after their experience this month. He took her to the airport in Fort Myers, Fla., for a Spirit flight back to Latrobe, Pa., near their home, that was repeatedly delayed but which Spirit staffers at the airport assured him wouldn’t be canceled, he said. They checked his wife’s bag, for a fee, and he left the airport at 11 p.m., thinking she would board within the hour. Around 1 a.m., Spirit said the flight was canceled, forcing him to make the 140-mile round-trip back to the airport to fetch his wife.

“I understand that flights can be canceled,” Mr. Boyer said in an interview. “But these people just jerked us and the other passengers around the corner.”

“Our goal is to hear fewer of those stories,” Mr. Fornaro said of Mr. Boyer’s experience. “Those [complaints] are the ones that really matter. The customer is relying on us.”

Spirit’s stock, trading at $82 a share about a year ago, sagged to $33 a share last November. It jumped to $41.50 on news of the management change and traded up 4.2% on Friday to $44.43.

Spirit “is a company that has exceptional profit margins, with a couple of things that need to improve,” said Mr. Fornaro, who ran discount carrier AirTran Airways for more than a decade until it was acquired by Southwest Airlines Co. in 2011.

To improve operations, he intends to reduce the number of daily hours Spirit’s planes fly in peak periods, make more spare aircraft available, increase staffing levels and ensure that its operational planning is in sync with the fleet plan instead of coming afterward. From 79 planes now, Spirit’s fleet is on track to increase to 145 in five years.

He also wants to dial down Spirit’s growth. “We don’t want to be growing 30%” a year, he said. “It’s too high.” He said between 15% and 20% annual growth—where he expects they’ll be at the end of the year—is more appropriate.

Other discounters have had to hit the brakes. JetBlue Airways Corp. slowed its expansion in 2007 after it sank into losses.

Virgin America Inc. did the same in 2013 and turned its first annual profit that year after six years of red ink.

Mr. Fornaro also wants to expand to smaller routes that aren’t as competitive. While Spirit has in recent years added many flights between big cities that have performed well, “there is a broader number of routes to be considered,” Mr. Fornaro said. “Many are already on the consideration list.” But he isn’t saying where or when. “I want to be less predictable and more nimble.” 

Original article can be found here:

No comments:

Post a Comment