This morning Spirit Airlines held their 4th quarter 2016 conference call, here is a summary of what was discussed. Interesting to note the roll out of dynamic pricing of ancillary products (i.e. baggage, seat assignments, etc.) and expected nearly 20% increase in capacity for 2017.
Summary of 2016 Year End Results:
- Improved Dept. of Transportation on-time performance by over 5% vs. 2015 – nearly all came from the last 7 months of 2016
- Reduced complaints with Dept. of Transportation by over 60% to under 4 per 100,000
- For the full-year, an operating margin of 20.9% and net income of $291 million
- Expanded to Seattle, Akron-Canton, Newark and Havana, Cuba.
- One of biggest capacity initiatives was Orlando – went from two gates to five gates – already begun to see benefits.
Summary of 4th Quarter Results:
- Total revenue for the quarter increased 11.3% to $578.4 million on a capacity increase of 15.4%.
- Total revenue per available seat mile for the fourth quarter 2016 decreased 3.6% year-over-year – in line with initial projections for the quarter.
- Early December was weaker than initially expected but the holiday period was stronger than expected
- Total revenue per passenger segment for the fourth quarter 2016 declined approximately $3.67 year-over-year to $108.11 driven by modest declines in both ticket and non-ticket revenue per segment.
- Took delivery of five new leased A320neos and purchased one new A321ceo aircraft ending the year with 95 total aircraft.
Plans for 2017:
- Beginning service to Hartford in late April, brings number of airports served to 60.
- Announced 17 new routes to launch in 2017 – plan to announce more 10-15 new routes this year.
- New markets are wider than the legacy hub selections of year’s past now that legacy carriers are beginning to match Spirit’s pricing.
- The number of markets meeting Spirit’s threshold for growth continues to far exceed what they can capture within the next five years.
- Identified and prioritized target markets for the next five years, but will remain flexible and opportunistic as the competitive environment changes.
- Focused on driving revenue improvement through additional product and pricing innovation – recently reorganized pricing, revenue management and marketing departments.
- Moving towards dynamic pricing of ancillary products.
- A321s represent 11 of 2017 deliveries.
- Scheduled capacity is expected to be up about 18.5% for the full year 2017.
- Additional costs for airframe and engine maintenance in 2017.
Improvements to Customer Service:
- Continue to improve operational reliability.
- Invest in soft skills training for many of our customer facing team members.
- Balancing fleet utilization and re-accommodation expenses.
- Moving from fixing problems after the flight to improving the conditions of the flight.
Dynamic Pricing of Ancillary Products – Seat Assignments, Baggage Fees, etc.:
- Moving forward with the testing and learning phase of our new dynamic pricing capabilities for certain services.
- Testing and learning will continue for several more months in a select set of markets before roll out to other markets.
- Making adjustments to their website over 2017.
New products and services:
- Paid expedited security lanes in 12 airports, available to 55% of passengers – pleased with early results
- Launched TSA Precheck in January.
New Pilot’s Contract:
- Have been in mediation since last summer – pilots requested mediation and Spirit corporate opted to join them.
- Mediation naturally slows down the process.
- Completed about 20 of 31 sections – have not completed the difficult ones, mostly around money.
- Pilots expected to get a substantial increase, but Spirit would like similar or equal work rules.
- Current contract is relatively unproductive, negotiated over 10 years ago when Spirit was a much different airline.
- Difficult to scale an airline like Spirit to an agreement that was signed many years ago.
So with that said, it will be interesting to see how Delta, United, and American’s Basic Economy fares will impact Spirit in 2017.
Do you think the legacy carrier’s Basic Economy will impact Spirit’s business model?