Spirit’s aggressive near-term growth strategy will emphasize connecting existing markets with new nonstop service rather than adding new “dots” to its route map, the carrier’s top executive confirms.
“We likely will still add a few [new cities] every year as we move forward,” CEO Ben Baldanza told analysts on a Feb. 19 earnings call, “but more of the growth is going to come from connecting places that we already serve.”
Unlike most U.S. carriers, Spirit is in high-growth mode, notionally targeting annual available seat mile (ASM) increases of 15%-20%. In 2013, the carrier boosted capacity 22% and launched 25 new routes.
Aircraft delivery schedules will play tricks with the carrier’s annualized growth numbers in 2014 and 2015. This year’s ASM growth is pegged at about 17%, while next year it will jump 29%. The disparity is because seven of its 11 2014 deliveries—all 178-seat—don’t come until the fourth quarter.
“The 29% in 2015 versus the under 20% this year is really just a function of aircraft delivery timing,” Baldanza confirms. “Most of the ASM production for [the fourth-quarter deliveries] is going to be in next year, even though the planes come this year.
“So when you think about it over that two-year time frame,” he continues, “we’re sticking to the 15% to 20% growth rate per year that we’ve been talking about for a while.”
The deliveries will increase Spirit’s fleet to 65 aircraft, with 14 more scheduled for delivery in 2015.
Spirit will use the new lift to cost-effectively expand its service, leveraging its existing airport infrastructure. Because Spirit’s schedules focus on low-frequency service, opening new stations can mean higher unit costs until service is added from multiple cities. Focusing on existing cities helps alleviate this cost challenge.
“When we select a new market, we do so because we believe that market will develop into a market that has the opportunity to optimize gate utilization,” explains CFO Ted Christie. “That might be eight to 10...flights per day on a gate. When we launch the market, it may not have that many in the beginning.”
Baldanza cited station-specific unit costs as one reason Spirit pulled out of(DCA) in 2012 after a nine-year run. The carrier had three daily departures, but couldn’t secure additional slots.
“It was hard for us to reach our target margins in DCA without the ability to grow it to a critical mass that would fill out a gate,” Baldanza notes.
Spirit moved those flights up the road to Baltimore/Washington International Thurgood Marshall International Airport, where it operates about 35 weekly departures depending on the season, and has more service starting last this year.
Spirit serves about 55 cities, including seasonal destinations. While the carrier is offering few details on where new capacity will turn up, executives see more opportunity in the domestic market than the Caribbean, where the bulk of its international flying occurs.
“There are a lot more people and there’s a lot more money in the U.S. than in the Caribbean,” Baldanza says. “That’s just the reality of it, and so when you look at the size of the markets and the opportunity to fly, there’s just more of those opportunities in the domestic U.S.”
Baldanza says the primary driver in Spirit’s route expansion will continue to be making money—or in some cases, more money.
“We’ve canceled things that make money, because we can make more money doing something else,” Baldanza says. “We don’t wait for [a route] to start losing money. That’s way too late.”