A low-cost brand like Spirit Airlines may be better placed to deal with the challenges of COVID-19 than higher-priced rivals, according to Ted Christie, the company’s chief executive.
“We’re seeing competition with low fares close in for leisure traffic,” Christie explained during J.P. Morgan’s recent Industrials conference. (For more, read WARC's in-depth report: Will low-cost brands be more resilient against COVID-19? The case from Spirit Airlines.)
This shift is one that “largely stems from a fall in demand in both domestic corporate travel” due to Coronavirus, prompting almost every airline to cut prices to compete for any remaining custom.
Foremost among the strengths boasted by Spirit – which bills itself as an “ultra-low-cost carrier” – is that the organisation’s model is built to deliver bottom-line performance at low pricepoints, said Christie.
“Anyone can sell low fares. The issue is who can sell low fares at a profitable level. And, in tougher economic times, low fares are what’s available,” he added.
Spirit’s confidence in its own model results in large part from the fact it that it is always geared to operate at low cost – which is essential in the current climate.
With business travel “drying up”, the “higher-cost carriers will compete for leisure travel at lower fares in order to fill the marginal seat,” Christie asserted.
And that is more problematic for the premium airlines, as they often rely on higher-priced business travel to offset the lower cost of consumer travel.
With long-haul flights and business travel in sharp decline, it “becomes more difficult to subsidize low-fare competition without higher fares,” Christie said. “And I think that’s going to create an opportunity for Spirit over the longer term.”
Spirit’s model also offers strong margins, Christie argued. “Our margins have historically always been above the average in the business, which is true today,” he said.
“We start with a higher-margin business, which naturally acts as a shock absorber in more recessionary-type environments.”
Sourced from WARC