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Education & Research Education & Research

Volume 23 Number 1 JAAER Fall 2013 Article 6

Fall 2013

Spirit Airlines: Achieving a Competitive Advantage Through Ultra-Spirit Airlines: Achieving a Competitive Advantage Through Ultra-

Low Costs Low Costs

James Elian

Gerald N. Cook cookb01@erau.edu

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Scholarly Commons Citation Scholarly Commons Citation Elian, J., & Cook, G. N. (2013). Spirit Airlines: Achieving a Competitive Advantage Through Ultra-Low Costs. Journal of Aviation/Aerospace Education & Research, 23(1). https://doi.org/10.15394/jaaer.2013.1602

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Spirit Airlines

SPIRIT AIRLINES: ACHIEVING A COMPETITIVE ADVANTAGE THROUGH ULTRA-LOW COSTS

James Elian and Gerald N. Cook

Abstract Large losses between 2004 and 2006 brought Spirit Arrlines to the verge of failure. With capital mfustons

from two pnvate equity groups and a new cost focus strategy patterned after Europe's Ryanarr, Spirit proclatmed itself

an ultra-low-cost carrier Spirit usually offers the lowest fare m its markets, but thts base fare buys a seat with

allowance for under-seat baggage only Everythmg else, mcluding a glass of water, ts extra. Ancillary fees account

for some 40% of total revenues. Although it has developed a customer base of pnce sensitive travelers, Sptnt ts also

among the mdustry leaders m complamts. Nonetheless, Spirit should dommate the pnce sensitive U.S. arr travel

market tn the short to medium term as it has achieved a sustamable competitive advantage based on Porter's cost focus

strategy.

Since deregulation ID 1978, the U.S. airline 1Ddustry bas struggled to achieve consistent profitability. No longer protected from competition on profitable routes, legacy earners faced 1Dcreased competition from each other and, more importantly, from new entrant airlines not burdened by ngtd contract work rules and btgh labor costs tnherited from the regulated 1Ddustry. The first decade of the twenty-first century was particularly difficult for the 1Ddustry as it was buffeted by successive world events 1Dcluding the terronst attacks of September 11, 200 I and subsequent recession, the severe acute resprratory syndrome (SARS) epidemic, the dramatic nse and 1Dcreased volatility of oil pnces, and, finally, the global recess10n begtnn1Dg ID 2008. By 2012, the collective toll resulted ID the bankruptcy of all surv1vmg pre-deregulation legacy earners. Thts led to airline consolidations and domestic capacity reduction resulting ID much needed 1Ddustry stability. While the low­cost earners (LCCs) have generally continued to expand ID the new millenmum, the domestic airline product offered by the full-servtce and LCCs has converged to the extent that many passengers view the domestic economy class seat as a commodity (Tarry, 2010). An 1Dteresting recent

JAAER, Fall2013

development ts the emergence of the so-called ultra-low­cost carrier (ULCC) bus1Dess model first developed ID Europe by Ryanair and more recently IDtroduced ID the U.S. by Spirit Airlines. The ULCC bus1Dess model stnves to obtatn a competitive advantage through a more aggressive implementation of Porter's cost focus strategy compared to

traditional LCCs. By choos1Dg to focus almost exclusively on mm1m1z1Dg costs, the ULCC bus1Dess model results ID a very focused target segment of those passengers who are concerned solely with obtatntng the lowest pnce for arr travel (Porter, 1998).

Tbts paper ts a case study of Spirit Airlines' aggressive implementation of Porter's cost focus strategy to

transform from a small, struggling low cost airline serv1Dg gambling and vacation destinations ID the eastern United States to a highly profitable and rapidly growmg ultra-low­cost earner with routes stretcbtng across the U.S. and south to the Canbbean and Central and South Amenca.

History Spirit Airlines traces its onglD to the Clipper

Trucktng Company established ID 1964. Twenty years later, with a new bus1Dess plan and name, Charter One, the

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company began offenng charter flights and tour packages to entertamment destinations, pnmarily from the Midwest to Atlantic City, New Jersey. By 1992, Charter One became Sprrit Arrlines with scheduled service promoting low fares, a strategy densively termed bottom feeding by some due to havmg typical attributes of multiple extra charges and poor customer service (Flint, 1999). Sprrit grew, pnmarily with expanded routes from the Midwest and Northeast to Flonda, but it struggled with low and mconsistent profits as it had not fully committed to one of Porter's three genenc competitive strategies: cost leaderslnp, differentiation, or focus (Porter, 1998). Due to Sprrit's lack ofa competitive advantage, it mcurred large losses from 2004 to 2006 that brought the arrline to the verge of failure; it was rescued with capital mfusions m 2004 and 2005 from the pnvate equity mvestment firm Oak.tree Capital Management. In 2006, Indigo Investment Group purchased controlling mterest m Sprrit, brought m new management and

unplemented a busmess plan focused solely on providing the lowest pnce targeting a very narrow segment of the air travel market. Sprrit thus proclauned itself as an ultra-low­cost earner (SprritArrlines, 201 la). Although first m North Amenca, Sprrit's busmess model was patterned closely on the highly successful European earner Ryanarr that had itself adopted the strategy after operating for many years on a traditional LCC model onginally developed by Southwest Arrlines. On June 1"1, 2011, an mitial public offenng (lPO) was completed takmg Sprrit Arrlines public (Sprrit Arrlines, 2012a). The IPO was mitially seen as a disappomtment by many analysts; Sprrit reduced the pnce and volume of the o:tfenng shortly before listing that resulted m a more than thrrty percent reduction m capital raised ("Sprrit Airlines IPO," 2011). Figirre 1 illustrates Sprrit's perilous losses begmnmg with the recession of2001 and continwng until the adoption of the ultra-low-cost strategy.

Spirit Airlines Net Income (In Thousands) $20,000

s

$20,00IJ I

·540,000 '

$60,00IJ I

SllO.OOD

I

·$100,000

Pnor to I ransition

1'195

Sl.«>84 1'196 ·54.818

1'197

SSlll

l'l'l'l

·$9,918

I ]000 I 7001 ~I JOO]

·Sb,b9~ I SZ,838 -519,4;[~

]QM 2ms 2006 I ·$9~.l34 S&U01 580.6~2 _ __I

Figure I. SprritArrlines Net Income from 1995 to 2006. Adapted from Department ofTransportation Statistics and SprritArrlines' IPO Prospectus (Sprrit Arrlines, 2011 b)

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A revtew of recent financial and operational data mdicates that the ultra-low-cost model has proven remarkably successful. In 2012, Spirit was the fastest growmg U.S. earner with revenue passenger miles mcreasmg30.6% while available seat miles mcreased 27.5% dnvmg its load factor to 84.8% (Hegeman, 2013). Moreover, Spirit enjoyed the second highest profitability of all U.S. major earners for 2012 falling Just behmd fellow mche earner Allegtant Atr.1

Strategy Spirit's ultra-low-cost strategy IS remarkably

sunple m concept and aggressively follows Porter's cost focus strategy for achlevmg a competitive advantage. As CEO Ben Baldanza often explams, "We're selling low pnces, and compete for customers on the bas1S of pnce and pnce alone. In the retail world, we would be the dollar store." (Satchell, 2013). Tins strategy reqwres a very low cost structure, and Spirit has been mnovative by unbundling many services which traditionally have been considered standard. The result of unbundling has been the ability to offer even lower base pnces, while also achlevmg ancillacy revenues that compnse 40% of Spirit's total revenues, the highest m the mdustcy (Spirit Airlines, 2012b). Spirit's base pnce is usually the lowest m the market, but entitles the passenger to only a seat on the flight; all else, mcluding a glass of water, is extra. Baldanza argues that these are options that a passenger may choose similar to the menu items at McDonalds and that passengers should not have to pay for servtces they do not need or value. Not all passengers are pleased, but the model is workmg leading USA Today to ask if Spirit ts the nation's only true low-cost airline? (Jones, 2012).

Target Market Spirit's target market ts narrowly focused on

leisure and vtsiting mends and relatives (VFR) passenger segments. Leisure is the pnmary domestic segment with VFR second. Internationally, these segments are reversed

1 Author's calculation based on operating and net margm on revenue.

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Spirit Airlines

with VFR first followed by leisure. The product is carefully tailored for these pnce-sensitive travelers who are willing to sacrifice product amenities for a lower pnce. Spirit is disciplined m mamtammg its focused market and unlike all other domestic earners except Allegtant Arr, does not actively target busmess and corporate travelers reasonmg that its low frequency, limited routes, reunbursement policy, and lack of airport and onboard amenities have very limited appeal to the busmess segment so pnzed by other earners (Spirit Airlines, 2012a).

Route Architecture The route map is thm but spans the contiguous

states and stretches south mto the Caribbean and Amencas. Spirit lists several airlines as competitors. Across its route system, the pnnciple competitor is Amencan Airlines with 60% market overlap, followed by Southwest Airlines, United Airlines, and Delta Arr Lmes domestically, and JetBlue Airways m the Caribbean and Latin Amencan markets (Spirit Airlines, 2012a). Spirit pndes itself on not bemg subject to the traditional meffic1enc1es of the hub and spoke model (Spirit Airlines, 2012a); however, an exammation of the route map (Figure 2) and timetable reveals a more complex reality. Ft. Lauderdale serves as a directional hub with mommg southbound flights from Northeastern and Midwest states connecting to many Caribbean, Central and South Amencan destinations. Flows are reversed m the aftemoon/evenmg. Random connections are also available m other cities such as Dallas/Ft. Worth, Chicago and Detroit, but some routes stand alone without support of connecting traffic. Frequencies are low, often only once daily and not timed for peak demand. Spirit also defies the archetypal low-cost model by servmg both highly congested major airports mcluding Chicago O'Hare, Los Angeles International, and New York LaGuardia, among others, as well as secondary and low density airports such as Latrobe Pennsylvama and Phoemx Mesa.

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Figure 2. Spirit Airlines Route Network (Spirit Airlines. 2013a).

Spirit bas recently been growmg its domestic route system after several years of developmg mtemational markets m the Canbbean, Central and South Amenca. Unlike many earners, Spirit JS unconcerned with market share when evaluating potential routes (Yeo, 2012). Nor does irugor earner competition appear to be an nnportant consideration as Spirit bas been mcreasmg destinations and departures from Dallas/Ft. Worth where Amencan Airlines bas been weakened by bankruptcy but Southwest Airlines JS

a strong competitor from its Dallas-Love home. For Spuit to consider a route for expansion there must be at least 200 passengers per day each way, the ability to reduce fares by at least 25% below existing levels, and the potential to earn an EBITDAR 2argm of24% to 26%. With these expansion

2 Eammgs before mterest, taxes, depreCJation, amortimion and rent.

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critena, Spirit enters markets where low pnce stimulates demand from new passengers m addition to captmmg some of the pnce-sensitive segment from mcumbent earners. Spirit mamtams that more than 400 potential routes meeting these critena have been identified (Ranson, 2012; Spirit Airlines, 2012b).

Fleet Spirit operates the Airbus A320 family of smgle­

aisle Jets. Most are the smaller A319 model, but the autine plans to gradually standardi7.C on the larger A320, mcluding the next generation A320neo (new engme option). Operating a smgle fleet type confers substantial cost effic1enc1es mcludingreduced trammg costs and accelerated leammg curve, flexibility as crewmembers are qualified on all aircraft models, and reduced parts mventory. As of the end of 2012, Spirit had 45 aircraft m its fleet, with a substantial aircraft order book allowmg for expansion to 113

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arrcraft by the end of2021 (Sprrit Arrlines, 2013b). Product and Fare Structure

Sprrit's ability to promote low fares IS based, ID part, on the ultimate unbundled pnc1Dg strategy. The base fare buys a seat with allowance for under-seat baggage only (Yeo, 2012). All other amenities IDcluding checked and overhead carry-on baggage can be purchased for additional fees. Indeed, Sprrit was the IDdustry leader ID chargmg for baggage. Table 1 shows a portion of the surpns1Dgly complex system of baggage fees. Ancillary fees, of which there are 74 different options, also vary with the time and location of purchase with the highest fees charged at the arrport Just before departure. Figure 3 proVIdes a breakdown of Sprrit's ancillary revenues. Amenities are limited and there are no passenger lounges or on-board entertamment; "pre-reclined" seats are becommg standard and legroom 1s mlDlmal. Passengers are expected to mostly handle therr own process1Dg. Customer seMce, when needed, 1s often rushed.

Sprrit mmmuzes customer service costs, but this has contributed to its very high rate of customer compla1Dts. For January, 2013, Sprrit amassed 7.2 complamts per 100,000 fliers filed with the Department of Transportation, better than Frontier with 7 .6 per 100,000 passengers, but some 22 times that of Southwest who garnered the best performance and more than 2.5 times that of the United Arrlines which held the next worst position.3 CEO Baldanza 1s largely 1Ddifferent pass1Dg off complamts as "an rrrelevant statistic" (Miller, 2012). Sprrit believes that passengers will repeatedly endure Spartan service ID return for a low fare. As one passenger stated ID a Yelp review, "I travel on Sprrit all the time. I know they suck! But, for a cheap ticket, I will endure anything" (Seaney, 2012).

3 Authors' calculation.

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Spirit A1rlines

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I 5600.ooo -I

5500.000 '

5400.000

-: $3(1),000 -

I $200,000 "

i ; $100.000 -

I $-

Ancillary Revenues per Year (In Thousands)

I 2010 2011 2012

.: Service Chaf'91!S fOr Challflt!Sand Cancellations

.:Advance Seat selection :

Figure 3. Spuit Airlines Ancillary Revenue. Adapted from Spuit Airlines' Form 10-K for the penod ending 12/31/12 (Spuit Airlines, 2013b).

Table 1 Spuit Airlines Ancillary Baggage Fees

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N.Eboklng Olline Oled<-ln

FeleMtion <Brter F\irdlase Airport O>unter/l<iosk F\irdlase

Qoup Eboklng >24 hours tn Adva1a! Qoup Eboklng <24 hours1n Adva1a!

Gte F\irdlase

(Spuit Airlines, 2013c)

1st 2nd 3rd-3:h Ony-OI ~

Oled<ed ~ Oled<ed ~ Oled<ed ~

$35 P> $40 $85 $40 $35 $45 $9)

$40 $35 $45 $9)

$00 $45 $55 $100 $35 P> $40 $85 $40 $35 $45 $9)

$100per~

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Distribution and Promotion Spuitmamtams three distinctdistnbutionchannels.

The website accounted for 64.2% of ticket sales m 2012. Thtrd parties, mcluding Global Distnbution Systems (GDS), traditional travel agents and online travel agents (OTA) produced 27 .2% of sales, with an outsourced call center representing the remammg at 8.6% of sales (Spuit Airlines, 2013b).

Although Sp1rit's embrace of traditional distribution mcreases its reach and sales, it 1sn 't without problems. It distributes through Amadeus, Galileo, Worldspan and Sabre GDSs, but the airline reserves its lowest fares for its Spuit.com website ("Spuit Airlines, after IPO," 2011). When customers use Spuit's website, its additional fees and policies are prommently displayed. OT As, however, show only the base fare leavmg passengers surpnsed and occasionally irate when discovermg what isn't mcluded m the base fare. Baldanza attributes 100 percent of passengercomplamtstosalesthroughOTAs(Snyder,2013). This 1s certamly an overstatement, but illustrates the limited ability of third party systems.

Spuit does not engage m general brand or product marketing and spent only 0.2% of revenues on marketing m

Table2 Spuit A1rlines 2012 CASM (in cents) versus competitors

s . •t •Pin Fuel

Salanes, wages and benefits

Aircraft rent

Landing fees and other rentals Mamtenance, matenals and repairs

Depreciation and amortization

Other o ..... ~ eXDCDses

TotalCASM

Total CASM excluding Fuel

4.16

1.93

1.27

0.60 0.44

0.13 1.56

10.09

5.93

Spirit A 1rlines

2011 pnmarily emphasmng low base fares. Pnnc1ple marketing tools mclude the $9 Fare Club, email distribution, and viral marketing products that send customers to the Spuit website (Spuit Airlines, 2012a).

Despite the lack of a substantial advertising budget, Spuit 1s well known for edgy, often off-color, advert1smg that has generated considerable free publicity, though often not positive. Notable are the "Hunt for Hoffa" campaign of 2006; MILF, Many Islands, Low Fares, m 2007; the "Eye of the Tiger'' sale of 2009; and the 2010 "Check Out The Oil On Our Beaches" promotion (Bhasm, 2011 ). Email 1s the common method of commumcation.

Cost Structure Any firm employmg a cost focus strategy must

mamtam unit costs lower than its competitors m its target segment (Porter, 1998). Spuit states its cost per available seat mile (CASM), a standard measure ofairline costs, was 10.09 cents m 2012 (Spuit Airlines, 2013b). This compares with 12.85 for Southwest, 11.49 at JetBlue, and 14.91 cents for Amencan A1rlines. Table 2 provides a more detailed CASM companson between the listed earners.

So th t u wes

4.78

3.69

0.28

0.81 0.88

0.66

1.75

12.85

8.07

A mencan

5.24

3.76

0.33

0.77 0.68

0.60

3.52

14.91

9.67

tBI 1e ue 4.50

2.60

0.33

0.69 0.84

0.65

1.88

11.49

6.99

(Spuit Airlines, 2013b) (Southwest Airlines, 2013) (Amencan Airlines, 2013) GetBlue, 2013)

Spuit achieves low unit costs from (a) high aircraft utilization, (b) high-density seating aircraft configuration, ( c) s1mple operations, ( d) mmimal hub-and-spoke meffic1enc1es, (e) a highly productive workforce, (t) opportunistic outsourcmg of operating functions, (g) operating a modern smgle fleet type of aircraft, (h) reduced sales and distribution costs, (i) efficient flight schedule with

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mm1mal ground times between flights, and G) a company­wtde busmess culture that IS keenly focused on dnvmg costs lower (Spuit Airlines, 2013b). In a presentation to potential mvestors, Spuit boasted that its daily aircraft utilization of 12.7 hours exceeds JetBlue's rate of 11.9 hours per day, and Southwest's 10.5 hours per day (Spuit, 2012b ). This mcreased aircraft utilization 1s partially

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aclneved through the operation of many ''red-eye" flights. The unbundled pncmg speeds ground tum-around times as lngh fees for carry-on baggage reduce the number of bags brought on-board which, m turn, enables passengers to qwckly stow therr items and take therr seats. As a result, the standard boarding times have been reduced by 5 to 10 mmutes (McCarbtey, 2010). By chargmg for all beverages, mcluding water, fewer beverages are consumed. Catermg time and expenses are reduced, as ts fuel consumption due to the reduced arrcraft operating weight.

Sprrit configures its cabms with the maximum seats allowed by the arrcraft certification. The new A320 arrcraft are configured at 178 seats. Tuts compares with JetBlue's 150 seats for the same Atrbus model g1vmg Sprrit a 16% cost advantage per available seat mile. Of course, h1gh­density seating 1s aclneved through reducmg passenger legroom decreasmg passenger comfort. Sprrit also enjoys substantially lower labor costs than its competitors. These

lower costs are partially due to higher employee productivity, but are also due to a relatively Junior workforce resulting from the recent expansion (Spirit Arrlines, 2013b).

Financial Success Since the mtroduct1on of the ultra-low-cost

earner busmess model m 2007, Sprrit has been consistently profitable. Followmg a small profit that year, profits mcreased impressively with net mcome of $33 million m 2008 and between $72 million and $108 million from 2009 to 2012 (Sprrit Airlines, 2013b). The stock market also reflected Sprrit's success as the stock pnce, wlnch closed mitially at $11.48 followmg the mit1al public offenng m May 2011, more than tnpled by September of2013. Figure 4 illustrates the dramatic turnaround m profits while Figures 5 compare Sprrit's net mcome per arrcraft with some of its competitors.

Spirit Airlines Net Income (In Thousands)

590,000

540,000

-s10,ooo

-$60,000

·Sllo.ooo I 700:1 JIXM 700!1 7006 7007 JOOR JOO'! }010 7011 Jot} }1111 I

}00} I Pnor to Transition $2,838 : $19,423. $626 $93,234 i $62,101 $80,652

Pm.I lrdfl\ilinn I Sl,362 $33,259 $83,693 $72,481 $76,448 $108.46

Figure 4. Sprrit Arrlines Net Income - Pnor/Post busmess model change. Adapted from Department of Transportation Statistics, Sprrit Arrlines' IPO Prospectus and Form 10-k from the period ending 12/31/12 (Sprrit Arrlines, 201 lb) (Sprrit Arrlines, 2013b).

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Spirit Airlines

Comparison - Net Income per Aircraft (In Thousands)

$3,000

$2,000 '

---------- ....... $1,000 I

......... __________ .:.:.·;,,;;.·---~·.i:.-:."'::'::::-: .. _ ... "•:.::.:::;.::.:~:.::.:~:.:~··

s-

Sl,000 I

$2,000 I

-$3.,000 200& 200/ 21108 2009 2010 201 t JOtl

···--· .. --------------------·· ------------------·----~--··---~irtt -$2,601 $38 $1.188 $1,98'1 Sl.265 $1.06& $2,410

- - - • Southwest $1,03/ $1,J48 $331 $184 $838 $7'>'> $&0/ ------ -··-··------·-· --------- -- -- -- ----------·- --- - ---·----------- ·-····-·--·----------

-- - Amem::an $188 $47<1 -$2,837 -$1,656 -s~n -s2.166 -s2,21<J

....... jctBluc -$'>9 $'l0 -$'>97 S4D'I $bll& $'>09 $/11

Figure 5. Sptrit Airlines Net Income by Aircraft- Comparison. Adapted from Sptrit Airlines' IPO Prospectus and from Sptrit, Southwest Airlines, Amencan Airlines, andJetBlue's Form 10-k.

Analys1S Cost Focus Competitive Advantage

Followmg its dec1S1on to pursue the ULCC busmess model, Spirit sharply narrowed its targeted passenger segments to the most pnce sensitive leisure and VFR passengers. The timmg of the strategic shift was fortuitous as the last decade has seen the distinction between economy class on full-service network earners and the LCCs blurred as both moved closer to the others product offenng. The Great Recession of 2008 drove many consumers m search of lower pnces. Busmess traffic declined, but VFRand leISure passengers continued to travel as airlines chased passengers with reduced fares. Many passengers now vtew an economy seat as a commodity with the choice of airlines based largely on pnce (Tarry, 2010).

Sptrit has achieved cost leadership m this narrow segment and the resulting financial performance has been impressive, especially given the hlstoncally dismal history of the U.S. airline mdustry. The busmess model of mamtammg very low costs, focusing exclusively on leISure and VFR passengers, and the unbundling of services IS

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umque to the U.S. and has earned Sptrit first mover competitive advantages, sunilar to those expenenced by Ryan.arr m Europe. The result 1s that Sptrit has been able to expand the overall market for arr transport and successfully obtamed a competitive advantage through the implementation of a cost focus strategy (Porter, 1998). Risks

Porter lists several nsks to companies pursumg focus strategies: (a) the ability for other companies to imitate the focus strategy, (b) the nsk of the target segment becommg structurally unattractive, ( c) the potential for broadly targeted competitors to overwhelm the narrow segment, or ( d) new entrants takmg a more narrow focus and subdivtding the chosen segment (Porter, 1998).

The nsk of imitation m the short term ts unlikely m the U.S. as all other earners, mcluding those still labeled LCCs, target busmess clientele who demand more services. Allegiant IS an exception, but competition between the two 1s limited and unlikely to escalate m the short-term as there are easier markets to enter than those which would result m competition between two pnce-focused earners. The U.S.

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market 1s mature and fully servtced and there 1s no apparent openmg for a new arrline. The nsk of a new entrant choosmg a more narrow cost focus strategy and sub­segmenting Sprrit's target market 1s also unlikely due to the already narrow focus on leisure and VFR passengers.

The nsk of Sprrit's target segment becommg structurally unattractive 1s unlikely. Boemg mdicates that North Amencan passenger traffic should grow at an annual rate of2. 7 percent over the next 20 years and that LCCs are currently leading capacity growth (Boemg, 2013). As the world economy slowly recovers and the average leisure traveler has more disposable mcome, some may abandon Sprrit's product for other earners offenng a higher quality product and at least some amenities mcluded m the base pnce; however, these passengers will likely be replaced with those who were previously unable to afford to travel by arr. The nsk of more broadly targeted competitors overwhelmmg the narrow segment IS also unlikely m the short term. Existing earners are heavily mvested m therr busmess models, which have also been profitable m recent years. While competitors may selectively challenge its pncmg on some routes, Sprrit's low frequency m most markets doesn't present a senous threat, at least m the short­term. Recent consolidation of U.S. earners with therr new emphasis on financial returns rather than market share also works m Sprrit's favor. Over the last several years, the maJor network earners and Southwest have restrained capacity and focused on higher yield passengers, largely abandonmg the extremely pace-sensitive passengers that Sprrit targets. Should the largest earners return to an emphasis on expanding domestic capacity and growmg market share, competition for low-yield passengers would mcrease reducmg Sprrit's current competitive advantage.

One area of potential weakness that may be exploited by a potential competitor is Sprrit's level of

servtce. The accepted wisdom m marketing holds that a firm must meet or exceed customer expectations to succeed m a competitive marketplace. But Sprrit fails to meet the expectations of many passengers. Complamts to the U.S. Department ofTransportationhave long been at multiples of other arrlines. A search of the web for complamts about Sprrit reveals that it has earned the enmity of a host of passengers. One website, SprritArrlinesFacts.com (n.d.), acknowledges that Sprrit has its fans that "have learned how to travel withm Sprrit Arrlines rules, and because of the perceived savmgs, they are happy to live with whatever mconvemences and mdignities they are exposed to," but warns that many others have expenenced rumed vacations and destroyed busmess plans. Whether Sprrit can seemmgly defy the established marketing wisdom m the long tenn remams an open question. Sustamability

Sprrit's financial performance smce completmg the transition to the ULCC busmess model has been well above the mdustry average. After a disappomting mitial public offenng, Sprrit's stock has more than tnpled with analysts generally bullish on its prospects (Turcan, 2013) (Jayson, 2013). Sprrit's target segment of passengers, focused pnmarily on pnce, 1s structurally attractive and expecting continued growth m the medium term. As the company matures employee wages will nse; however, expected growth rates should reduce some of the negative pressure as new employees JOID the company at the lower wage levels. Evaluating the known strategic nsks, Sprrit should not face a senous competitive challenge m most markets. As a result, Sprrit should dommate the pnce sensitive U.S. arr travel market m the short to medium term as it has achieved a sustamable competitive advantage based on Porter's cost focus strategy (Porter, 1998). +

James Elian is vice president of operations and a pilot for a North Amencan fractional ownership provider. Mr. Elian received

his Master ofBusmess Admmistration degree from the Umversity of Calgary and is a Master of Aeronautical Science candidate

at Embry-Riddle Aeronautical Umversity.

Gerald Cook IS an adjunct professor m the College ofBusmess at Embry-Riddle Aeronautical Umversity, Worldwide Campus

and former arrline operations manager and pilot. Dr. Cook received his Bachelor and Master of Science degrees from Purdue

Umversity and Doctor ofBusmess Admmtstration from Nova Southeastern Umversity.

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