Spirit Airlines, Inc. Business Information, Profile, and History

Company Perspectives:

Our mission is: to provide a safe, customer oriented, market responsive air transportation product; to provide the highest level of customer service offering prompt, efficient and friendly service; to provide the best valued products for the most competitive prices; to be an easy company to do business with; to respect our fellow employees and acknowledge the power of teamwork; to be a company in which our staff experiences a friendly environment and enjoys being a part of Spirit's family. A place where work can be fun; to consistently strive to improve what we do and how we do it.

History of Spirit Airlines, Inc.

Travel Agent magazine calls Spirit Airlines, Inc. 'the most successful small carrier you've never heard of.' The carrier's raison d'etre is ferrying northerners to hot vacation spots for less. It attracts travelers with low, low fares and is known for filling planes better than anyone else--load factors typically average more than 80 percent. In 1998, more than two and a half million people flew Spirit, one of the few budget start-ups to see a second decade. Its 20 aircraft fly to 14 cities with 50 flights a day.

High-Rolling Origins

Commercial aviation is inherently risky, so it is appropriate that the venture that lead to the birth of Spirit Airlines involved rolling the dice. Ned Homfeld had once considered designing racing yachts for a living. Instead, he started Ground Air Transfer, a surface transportation company specializing in delivering critical parts for automotive manufacturers. In 1983, he was asked to help finance a tour operator that he renamed Charter One. It hired turboprop aircraft for gambling trips from Chicago to Atlantic City, which it soon began serving from Boston, Detroit, and Providence.

Flights to Florida became the next focus as gambling became more commonplace in other states. The Bahamas became a destination in 1984, first served from Boston and then from Chicago and Detroit as well. San Juan and Las Vegas were added in a couple of years.

To better control its destiny, Charter One began leasing two planes of its own in 1990, Convair 580 turboprops. The demise of the original Midway Airlines brought down the prices for used aircraft. The company bought four DC-9 aircraft, allowing it to launch twice-daily service between Detroit and Atlantic City as Spirit Airlines.

Spirit's background as tour operator gave it a predisposition to filling as many seats as possible. It employed 120 at the time and carried 150,000 passengers. By 1993, annual revenues were almost $21 million. The carrier flew more than 275,000 people that year. Phenomenal growth continued the next year; sales were $56 million with 683,000 passengers.

The early 1990s were a period of consolidation among airlines. A global recession and the repercussions of the Persian Gulf War made it nearly impossible for even established carriers to post a profit. Making things easier for the new start-ups were readily available aircraft and personnel that had been employed by Pan Am, Eastern, or Midway before their demise. Spirit also was able to obtain cheaper, nonunion labor.

Major airlines could still make it very difficult for low-cost airlines to get a toehold in their hubs. In 1994, Spirit attempted to buy two gates at Detroit Metropolitan Wayne County Airport from US Airways for $950,000. But they were sold to Northwest Airlines, which resold them to Trans World Airlines, according to the Wall Street Journal. Spirit was able to buy a hangar at Detroit Metropolitan Wayne County Airport from Delta Airlines in 1995, which it used to perform its own maintenance. Northwest Airlines also had been eyeing the hangar.

Spirit's low-cost strategy axed some traditional amenities, such as frequent flyer miles and in-flight meals. Tickets were also nonrefundable. Spirit introduced 'Freedom Fare' service from Detroit to New England beginning in December 1995. The first once-daily flights, to Philadelphia, featured fares as low as $49 one way. The next February, Boston was added, beginning at $69 one way. A month later, Spirit announced service to Myrtle Beach, South Carolina, which boasted plenty of golf courses--one of Spirit's prerequisites for leisure destinations.

Spirit's Annus Terribilis: 1996

In the spring of 1996, Comair Holdings Inc. announced plans to buy Spirit Airlines for $20 million. It had considered investing in Spirit since 1994. The deal, however, never materialized. By this time, Spirit was flying ten DC-9s, five of which it owned. It had 500 employees, a fifth of them seasonal. Revenues were about $60 million per year, with profits of $3 to $4 million. Comair, regional carrier for Delta Airlines, was looking for opportunities among start-ups with low-cost labor, while Spirit sought a 'big brother' to help it along amidst increased competition.

Comair backed out of the deal, ostensibly because of another start-up's accident in the Everglades. The May 1996 ValuJet crash stigmatized virtually all budget carriers in the United States. Spirit sent out thousands of postcards assuring its customers of the safety of its planes. A 'Catch the Spirit' media campaign was launched at the end of 1996, pitching Spirit's perfect safety record to family travelers. The $2 million promotion used radio and TV advertising and billboards and involved painting the company's jets with a new logo.

Spirit had sales of $63 million in 1996, when it carried more than 750,000 passengers and had about 700 employees. These were respectable results, as the price of jet fuel rose 25 percent, necessitating an increase in fares. Overall sales fell only moderately in the winter of 1996--97, and many other start-ups failed. Still, Spirit posted its only annual loss in 1996.

Spirit was driven out of the Detroit-Philadelphia market by Northwest, which matched its fares and added more seats after the ValuJet crash. A couple of months after Spirit abandoned the route, Northwest raised fares to their previous levels, giving rise to charges of predatory pricing that the Justice Department and Department of Transportation took very seriously, spurring talk of possible 'reregulation' in the industry. (Reno Air levied similar charges against Northwest's tactics on its Detroit-Reno route.)

Spirit's planes soon filled up again. The airline began flying some of Sun Jet Inc.'s routes out of New Jersey after the Florida charter carrier declared bankruptcy in June 1997. Reservations and marketing company World Technology Systems had been using both Sun Jet and Spirit to fly its tours, the latter in partnership with charter operator Myrtle Beach Jet Express, based in Atlanta.

Spirit's partnership with Jet Express was dissolved amid name calling and finger pointing in August 1997. A Jet Express spokesman pointed to Spirit's poor performance, and Homfeld called attention to the questionable finances of its rival, which owed the city of Myrtle Beach $770,000. When Jet Express pulled out of the market two years later, Sun News business writer David Wren claimed Spirit was to blame for its demise as it had copied its service and marketing plan. He noted that in 1995, before Jet Express started, 'Myrtle Beach International was a sleepy airport with little air service--especially low cost air service&mdashø speak of.'

Homfeld moved to Miami in November 1997. That city and four others in Florida (as well as Atlantic City, New Jersey) were soon wooing Spirit Airlines, then looking for a new place to locate its headquarters, reservations center, and maintenance base. Spirit was planning to relocate its administrative staff of 50 by the summer's end and had plans to create another 500 jobs within three years.

Spirit began to replace its DC-9s with larger MD-80s in the fall of 1997 as it vied for a slot at New York City's La Guardia International Airport. A few months later, Spirit Airlines Vice-Chairman Mark Kahan testified before the U.S. Senate Subcommittee on Transportation regarding the Northwest anticompetitiveness matter.

As an impending pilots' strike at Northwest Airlines loomed nearer in late summer 1998, Spirit stepped up service in the areas where it had competed against its giant rival. As its reservation calls peaked, Spirit rerouted two of its DC-9s and acquired an MD-80 from another airline to increase capacity.

Spirit Airlines had $131 million in revenues in 1998 and expected $235 million the next year. Profits were $6.7 million. Spirit's fleet had grown to 20 aircraft. Although it had increased its seating capacity by 50 percent, it posted the industry's highest load factor for the year, 76.4 percent. It carried 1.4 million passengers that year, a nearly 80 percent increase over 1997, and had 1,000 employees. Spirit had more than tripled its advertising budget to $7 million in 1998.

Detroit Metropolitan Wayne County Airport, which had embarked upon a $1.8 billion expansion project, announced plans to build six temporary gates in February 1999. Two were to be assigned to Spirit and the other four to Southwest Airlines, which had also had to borrow gates. Spirit was spending $1.3 million a year at $250 to $400 a turn to rent spare gates from other carriers, according to the Wall Street Journal. Lack of gates had contributed to Spirit's spotty service record, as sometimes passengers would be kept on the tarmac for up to an hour while a plane bargained for a place to park. Spirit operated more than two dozen flights a day out of Detroit.

A New Home in 1999

The company relocated its headquarters to the Fort Lauderdale area after months of being courted by various cities. Fort Lauderdale was already home to Spirit's tour company. Miami

1983:Ned Homfeld becomes involved with Charter One, ferrying gamblers to Atlantic City.

1990:Company begins leasing its own planes.

1992:Scheduled service begins under the name Spirit Airlines.

1996:ValuJet crash and Northwest Airlines pricing conspire to produce Spirit's only money-losing year.

1999:Headquarters moved from Michigan to Florida.

soon was ruled out, as it was crowded and not even one of Spirit's destinations. State tax incentives worth up to $1.65 million had been offered the carrier in an attempt to land it at Southwest Florida International Airport in Lee County. In March 1999, however, Spirit chose Miramar, near Fort Lauderdale in Broward County. This would ultimately bring 500 high-paying jobs (with an average annual salary of $35,000) to the area. In April, 25 administrative employees were the first to relocate to a temporary home at Fort Lauderdale-Hollywood International Airport. They were scheduled to be followed by flight training, finance, and accounting personnel in November upon completion of the company's office building. An additional reservations facility also was planned for the area. The total state/county incentive package was worth $2 million in cash and tax cuts.

At the same time, Horry County, South Carolina was trying to convince Spirit to build a heavy maintenance facility at its Myrtle Beach International Airport, which also would bring hundreds of jobs. Spirit accounted for a quarter of the airport's traffic. Interestingly, Spirit's employment at Detroit was expected to increase following the relocation of its headquarters. Spirit became a signatory carrier there, giving it more of a voice regarding airport expansion projects and assuring it of gate space until 2008. It still had to wait months before completion of its two temporary gates, however.

With the opening of casinos in Michigan, Spirit suspended service between Detroit and Atlantic City. Having successfully expanded into New York, it added Los Angeles in June 1999, viewing it as a leisure market. The red-eye flight allowed Spirit to increase utilization without adding aircraft, Homfeld told Air Transport World. Spirit's new headquarters opened in November 1999, and the carrier expected to post $235 million in revenues for the year.

Principal Subsidiaries: Spirit Tours.

Principal Competitors: Northwest Airlines; US Airways.