Listen in as Ben Baldanza talks about his long airline career that started at American Airlines and included transforming Spirit Airlines into an ultra-low cost carrier.

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Rush Transcript

 

Karen Walker:

Hello, everyone, and thank you for joining us for Window Seat, our Aviation Week Air Transport Podcast. I'm Air Transport World at Aviation Week Network, Air Transport editor-in-chief, Karen Walker. Welcome on board.

This week I'm joined by a guest with a fascinating story in commercial aviation, and about whom, I also have a special new announcement.

So, a very warm welcome to Ben Baldanza, a former president and CEO at US low-cost carrier, Spirit Airlines, and the announcement is that Ben is the 2023 recipient of the Joseph S. Murphy Award for service to industry, an award that's named after the ATW founder and first editor and publisher, and which has been given to some pretty big names in the industry. And I can just say that Ben is highly deserving of this recognition.

So, Ben, thank you for joining me today and congratulations on this very well deserved recognition.

Ben Baldanza:

Karen, it's wonderful to be with you, and I can't tell you how honored and humbled I am to receive this wonderful distinction.

Karen Walker:

It is, like I say, very well deserved, and it's absolutely lovely to be chatting to you today.

So, Ben, you are most often connected with the transformation that you led at Spirit Airlines, and of course, the introduction of the ancillary fee model that today is pretty much standard practice industry-wide worldwide. We'll talk about that in a little bit more detail in a minute, but your aviation career spans multiple airlines including American Northwest, Continental, TACA, US Airways, even cargo carrier UPS, its staggering resume.

So, if I may, I'd like to start to just hear a little bit from you about when you first joined an airline, which was American in 1986, how did you get into that? And as it turns out, you were working with some executives there that ended up being CEOs and pretty big names in themselves. What was that like?

Ben Baldanza:

Well, thank you, Karen. Yes, I worked as an intern at American Airlines in the summer of the two-year master's program I took at Princeton University where I got an MPA, a Master's of Public Administration. And then, I went back to work full-time in the summer of 1986. And interestingly, even though I got an MPA, I was interested in working in an airline because as you know, the industry was deregulated in 1978. And so, it was just starting to deal with the effects of that deregulation. And Bob Crandall, who was leading American at the time, seemed to have the best understanding of what it would take to do in that environment.

I was very fortunate to join the finance department at American, which was a department that Bob and his team relied on to make all important decisions in the company around fleet decisions, route decisions, labor contracts, things like that. So, whatever American made a big decision, they expected the finance team to put a model together, understand the financial implications.

So, it was a terrific place to work as a first job out of college where I got to work on really important things like the purchase of Eastern Airlines, Latin American authorities that became American’s, Miami hub, regional fleet deals. The group I worked in also managed the company's flight profitability system. So, I got to learn early in my career how airlines measure the profit loss of every individual flight.

I was also really fortunate to sit next to some of the brightest people in the industry. Some of my bosses at that time included people like Jeff Katz who ran Swissair, Gerard Arpey, who later became the CEO at American. Some of the peers sitting in the cubes that I was sitting in were people like Doug Parker and David Cush and Tom Horton and Bernie Hahn, and it was just an amazing group that played hard and worked hard.

We'd spend long hours in the office, but after work, we'd go out and eat together and on the weekend travel together. And it was just a terrific environment for a kid out of college who really wanted to learn and work hard. And American just gave me incredibly great opportunities.

If I could add one more thing, Karen, in 1988, Delta ran the first ever triple miles program, and that program caused Bob Crandall in his way to say, "What are these programs really costing us," right? And so, the finance department and ultimately me got charged with really understanding what the economics of what was then the newer advantage program were. And that work got me involved with the yield management group and American because obviously, some of the costs of a reward program are what it costs the airline to redeem awards like upgrades and free tickets. And it was that relationship that ultimately resulted in me moving from a finance role into a revenue management role.

Karen Walker:

Wow. What an experience. I mean, talk about starting at the top. That's incredible. And those names, those names that you've just listed, I mean, that's just an incredible experience and certainly, Bob Crandall, of course, we all know hugely influential person at that time continues to be passionate about the industry. Having said that, of course, the 1990s and early two thousands in the US airline industry was a pretty tumultuous period, and you continued to work your way through, as you say, through a lot of airlines. There were a lot of ups, downs, failures, mergers, all sorts of things that were going on. Chapter 11 seemed to pop up all the time. What did you learn? What was your experience in learning through all of that?

Ben Baldanza:

Well, Karen, I was fortunate to be able to take increasingly bigger roles, largely within both finance and what I'll call technical marketing functions like pricing, scheduling, things like that. In that process, what I learned is that there's very little stability in this industry. Things change all the time that there's big advantage in scale. The bigger you are, the better you can manage your revenues. Planes are cheaper if you buy them by the hundred than if you buy them by the dozen, right? And all kinds of things.

I also learned how important it is to understand detail and how detail of everything is really critical to understand what's really happening with the business, why are things really moving this way.

I also got to see examples of really good and maybe not so good leadership, and you learn from both. And you learn from seeing how people handle difficult situations in a company, some within ways that really galvanize the group together and some that don't do as good a job of that, and you learn from all of that.

In the middle of my career, after Continental Airlines, I spent three years at TACA. And the reason I want to point out that role is if I had not worked at TACA, I never would've accepted the job at Spirit. It's TACA that taught me how much fun you could have at a smaller airline, and all my experience had been at larger airlines. It's TACA that also gave me the operational experience of running the operation and transitioning a fleet in TACA's case from older 737 to the A320 family.

And so, later in my career when I was presented with the Spirit opportunity, they were going through a fleet transition. They were about the size TACA was, and I could, in my mind, picture what I might have to do to be successful there. Otherwise, I think I would have taken that call and say, "No. That's not really me." So, TACA was great. Plus, I got to work with Federico Bloch who was one of the brightest, most energetic people in this industry, and we lost him way too soon.

And then, I ultimately left TACA to go to US Airways, and that was my first bankruptcy experience. And while I can't say it's great to be part of a bankrupt company, I can say that you learn a lot when you're in the bankrupt company. It was also at US Airways where I was when 9/11 happened, and we all know the effect that had on the world and particularly the airline industry. And in US Airways case, we were the biggest airline at Reagan National Airport, and that airport was closed for 30 days. And until about day 22 or 25, it wasn't clear, it was ever going to reopen. So, there were lots of issues that affected the industry from there, and US areas was in some ways a unique vantage point to see all that.

Karen Walker:

Wow. Again, just incredible amount of experience there. And the very interesting thing that you mentioned there about TACA and how that changed the direction of where you went.

Ben, let's talk a little bit about the Spirit, when you did get to Spirit. As you say, you did a transformation there. You really sharpened that airline's business model to the ultra low-cost carrier model that really was the new thing here. Strong focus on cost, discipline, and highly competitive fares that of course made almost everything optional for an extra fee. You called it bare fares and had quite a lot of fun marketing and promoting that. It was pretty revolutionary at the time to charge for things like bags, seat selection, even water. Can you describe for me the thinking as you implemented that model, which you, I think called unbundling?

Ben Baldanza:

Yes. Well, when I joined Spirit, in the prior 12 months, the company had lost $70 million on a revenue base of about $450 million. That's hard to do actually. And so-

Karen Walker:

Only in the airline industry.

Ben Baldanza:

That's right. So, it was clear we couldn't keep doing what the company was doing. And what the company was doing at the time was I might call a poor version of what JetBlue was trying to do. They had a two class product. They wanted to sell low fares but thought that they could compete with the big guys. And it was clear to me at the time that Spirit with 32 airplanes and limited access to a city like New York was just 11 flights a day in and out, couldn't compete with the big guys in the same way. We didn't have the scope. We didn't have the balance sheet. We didn't have the customer reputation or anything. So, we realized we would have to do something different.

So, we did a simple analysis, and when I say we, I had a really good team with me at Spirit that helped with this. And we tried to look at every airline in the world that we could get reported financials, and we graphed them on a scale from bare bones, low cost to super premium. And we noted the number of years in which those carriers were profitable in which they lost money. And an interesting thing came out from that, Karen. We saw that the only carriers that had a really consistent profitable return were carriers at the extremes of that. Those who were super premium, like a Singapore maybe, or those who were super low-cost like Southwest was in the '80s or Ryanair or an airline like that. And we said, "Well, if we want to be profitable, we have to be at one of those extremes and there's no way we're going to become Singapore or Emirates," right? So, we said, "We'll look to Ryanair and make that our model."

And a year after I joined Bill Franke who runs Indigo Partners invested in Spirit, and they brought to us a new set of benchmarks of what low cost really mean. And with their support, we are able to put a great transformation in, that as you said, focused on very low cost of production and an unbundled fare structure that would allow customers to buy at the cheapest rate. And we figured if we could have the lowest fare and be friendly and be reliable and be clean, then, that would be good enough to attract a certain segment of the population. And we realized we weren't going to attract corporate business travelers, which in my whole career, I had spent a lot of time thinking about how do I attract these people? But I have to tell you, it was incredibly liberating to say, "I can think about an operation that drives high aircraft utilization, and I don't have to think about the specific time channels the airplanes are doing," or "I can treat all of my customers the same and keep the training really simple, and the IT really simple."

So, that idea of that transformation that was greatly helped by the investment from Indigo Partners allowed us to make the changes that we made between 2006 and when we became a public company in 2011. And in that time, we made a lot of people angry at us. I'm thinking we probably replaced 100% of Spirit's customers, meaning the people who used to fly us didn't anymore, but we had new people who liked the new fares and understood the unbundling.

The media hated us. They hated the fees.

When American in 2008 matched our check bag fee, everybody thought the world was going to hell at that time, right? And we weren't at that time thinking about whether what we were doing was good for the industry as a whole. We were thinking what's good for our little company. And we said, "We're going to build a business that can be profitable on really low fares." And that transformation worked. And once we went public, I can tell you, Karen, I spent about the next two years of my life as CEO, a big chunk of that time talking to investors and new potential investors. And the one question I got asked more than any was, "How can you be so profitable when everyone hates your airline?"

Karen Walker:

I love it. I was actually going to ask you about that. First of all, I am just going to say, you mentioned another huge industry name there, Bill Franke of Indigo. Another very, very smart and very influential person who of course has really taken that ultra low-cost carrier model to all places now around the world.

But yes, you're right. You've got huge amount of pushback. The media hated you, Congress hated you, your customers for a while there hated you until you found the ones that did. You always strongly defended that ancillary policy. You almost always did it with a smile. I think the interesting thing was that you were very transparent and honest about what you were doing, but did you ever get weary of being the industry bad guy?

Ben Baldanza:

Well, I didn't think of myself being the industry bad guy. We would hear from our own customers, and while some of them would complain about seats that didn't recline or having to pay a bag fee or pay for a bottle of water on board, I also got notes from grandmothers who said, "Thank you so much. I can now visit my grandkids two or three times a year. I couldn't afford that before." And we would get a lot of feedback from customers who thanked us for creating new opportunity.

When we started flying from Fort Lauderdale to Port-au-Prince Haiti, at that point, the affairs on American Airlines, which was the only airline serving that route, were about $700 round trip. At that point, the Haitian average earnings was about $700 per year. We started flying for $79 plus bags, plus seats, plus everything, and about a year, we earned a big piece of that market. And every Haitian that I met in South Florida would just thank us and say, "Thank you so much. I can go visit my family. They can come visit me. It now makes it possible."

So, even though the media wasn't covering that story, I was hearing that story as much, and I built a lot of conviction that what we were doing wasn't right for the whole world but was right for a customer base who really needed a low fare to make their travel possible. And that's what really got me going. And I had a team who totally was into that, and we would jokingly say, "When we left the office every night, let's figure out how to make the fares even lower tomorrow." And it was a game in a sense, but it was really fun, and we could see the results in our financials as well and see how profitable that approach was.

Karen Walker:

Yeah. You've touched on another really excellent point. That ultra low-cost model that has gone all around the world has done the same thing again and again that people can fly for the first time. They can get to where they want to safely and in a reasonable amount of time, and they can afford to do it. So, you are absolutely right. You've created a market and enabled more people to fly than ever before.

Can we just look at where things are today? I'd just like to spend a little bit of time hearing some of your views. I know you stay connected very much to the industry, and you can tell us, I know that you're on some boards and things, but let's start with just... I'd love to hear your perspective on what the industry most needs to learn from the COVID pandemic.

Ben Baldanza:

That's a great question. And I have to say I'm so glad that I wasn't an airline CEO through COVID because even though I saw many things as CEO, that was something the industry didn't expect. And when all of a sudden 90% of industry revenues go away, it just changes priorities of everything.

So, I think here's what we've learned. We've learned a couple of things. One is that the idea of safety, which has always been really important to airline now is more of a capital S on safety, because it means not just operational safety, but biological safety as well. To feel comfortable in the airline ecosystem, you have to believe that you can be safe, that you're not going to get some terrible disease. So we have to think about that and the way we treat people, configure our planes, things like that.

The second thing is we've seen a change in the fine public, and we've seen a change in even the way people work, whether they go into the office as they used to, or maybe they go in a couple days a week and stay at home. There's this new term that's come out, blended travel or bleisure travel. My view of that is that's not really new, but it's being better understood. And one reason that's not so great a term bleisure, is it's not really a business trip that adds on leisure days. It's really doing business while you're on a leisure trip, which is now possible because more people can work remotely, and you can extend the time you're on vacation because you can still stay connected to the office. So, that I think has big implications for the industry care and around what loyalty means in that environment, and what that has to happen to loyalty program, what ultimately the right configurations are among business class, premium and economy, and even networks in terms of what's the allocation of ASM production to different kinds of city.

So, I think the industry is still learning from COVID actually, but what we've also learned is the demographic who flies can change, and we have to react to that. So, I think you see a number of things the industry's doing. And ultimately, the industry will be stronger because of COVID even though it was such a disruption to the industry.

Karen Walker:

Yes, it's interesting. Every time I'm talking to CEOs around the world these days, I hear that phrase come out again and again. We're actually stronger now. And a lot of lessons learned about agility, flexibility, and of course, the importance of strong financial base. If you've got that, it's going to help a lot more, so yes.

Can you tell me a little bit, Ben, about what you're doing now? I know that you're passionate about this industry. How do you keep connected with that? I know that there's other passions that you have quite fascinating. I'd love you to just tell us a little bit about those, please.

Ben Baldanza:

Sure. Well, on the industry side, I'm very happy to be serving on the board of directors for JetBlue. JetBlue is a fascinating company that in their own way disrupted the industry in a different way than Spirit did. And so, I enjoy that position a lot.

I also co-host a weekly podcast called Airlines Confidential, and we interview people from around the industry, and we talk about the industry on a weekly basis. My co-host is Scott McCartney who wrote the Middle Seat column of the Wall Street Journal for many years. And what's great about that is the airline industry just provides endless content. I've learned a little about the podcast industry, and one fact I've learned is most podcasts only last between 15 and 25 episodes because people run out of content. They have an idea, and then, they say everything they know about that and they're done. We'll never be in that position in the airline industry because there are always things to take about that.

I also surround the board of an airline in India GoAir, and that's fascinating to learn how it's similar to a US environment, but also very different than a US environment. And what that means to be successful with a different set of regulations, a different competitive environment, and a different underlying economy.

I also do some things outside the industry where I'm the chairman of Six Flags, the theme park company. And at JetBlue, if you're on the board and you want to serve on another board, you have to make sure that the JetBlue sees that is no conflicts. So, even though I was comfortable, they wouldn't see that with Six Flag when I talked about it, they said, "Of course, we hope you enjoy that part." I said, "Are you sure? Because both companies have lots of roller coasters," and we laughed about that.

Karen Walker:

I love it. I love hearing you say what you said about podcast because that gives me great faith in Window Seat that's why. You're absolutely right. This industry is never short of things to talk about, that's for sure.

Ben, this has been absolutely fantastic, and so enjoyable chatting with you. I'm going to be seeing you very soon to present that trophy. But in the meantime, thank you so much for your time and for sharing this amazing story about this wonderful but often crazy, crazy industry.

Again, congratulations on being the Joseph S. Murphy Award recipient, and your service to industry is truly remarkable. And thank you also to our producer Michael Johnson, and to our listeners of course.

Make sure you don't miss us each week by subscribing to the Window Seat Podcast on Apple Podcasts or wherever you listen.

Until next week, this is Karen Walker disembarking from Window Seat.