Reference no: EM132157409

Founded in 1964 as Clipper Trucking Co., within two decades Spirit Airlines was chugging through the skies as a tiny commercial airline connecting passengers between Florida and the Midwest. Yet by the 2000s, Spirit was near failure—a common story in the commercial airline business—until seasoned aviation executive and merciless cost-cutter Bill Franke stepped in in 2006 to buy the airline and then did something remarkable. Franke had honed his chops cutting costs as CEO of America West Airlines in the 1990s and was an early investor in ultra-low cost Ryan Air.

Despite his detractors, Franke, along with his CEO, Ben Baldanza, put Spirit on a steadier (if frill-free) fl ight path, making it not only one of the few post-9/11 success stories, but also a trend-setter and model in a deeply challenged industry.

While larger carriers have suff ered billions of dollars in losses and bankruptcies, Spirit was fl ying high last year with $289 million in earnings, 40 percent more per plane than any other domestic airline. Th e company is currently valued at about $1.63 billion, the same as U.S. Airways Group Inc., which is about nine times larger in terms of traffi c. Despite its tiny size—Spirit carries just 1 percent of the nation’s fl iers on its 40-jet fl eet—only two U.S. airlines have fared better: Southwest (with 692 Boeing jets) and Alaska Air Group Inc. (with 122 aircraft). While many airlines continue to cancel services, lay off employees, and cut corners to maintain minimal profi tability, in 2011 Spirit’s revenue soared 37.1 percent over the previous year. Th e airline also fl ew 15.2 percent more seats and added multiple routes.

So how did Franke and Baldanza transform a company once facing bankruptcy into the most profitable airline in the United States? By doing everything that was once deemed impossible, yet has since—thanks to Spirit’s innovative example—become the industry standard. That means offering the cheapest tickets in the business and making everything—from water to boarding passes—a la carte. Spirit was the first U.S. airline to reintroduce a charge for checked luggage, which has since become commonplace. Spirit has found its niche—the traveler who is ultra-budget conscious and is interested in little more than getting from A to Z at the cheapest possible price. It’s that simple, and Spirit doesn’t pretend to embody anything else—not comfort, not convenience, not service. Spirit’s on-time performance is among the worst in the industry; its legroom is negligible at best, and (not surprisingly, considering its bare bones approach to travel), it has suff ered more than a few PR disasters in recent years. Th ese include irate, vocal customers like Jerry Meekins, a 76-year-old Vietnam vet with terminal cancer, who was denied a refund by Spirit after he was told by doctors that he had only months to live and couldn’t fl y (and so couldn’t use his ticket); and a 2010 pilot strike that saw the airline grounded for 10 days.

Yet Baldanza seems unphased: “We just want to have the lowest price. Th at drives almost every other decision in the company: how many seats to have in the airplane, what times of day to fl y, the kinds of cities we fl y to, and so on.” With Spirit’s enviable balance sheet, it’s likely that more airlines will get on board with the nickel-and-diming scheme.

It may be bad news for consumers, but it’s good news to airlines that are struggling to make a profi t in uncertain times. 

1. Spirit’s number one goals seems to be “the lowest-price airline ticket.” Is this a S.M.A.R.T Goal? Explain.

2. Will this strategic goal continue to be successful for Spirit? Why or Why Not?

3. If you were the CEO of Spirit, what goals would you add to ensure that the company prospers in the long run?