Introduction The airline industry is very competitive, amongst them lies Spirit Airlines. They were born in 1964, originally as a trucking company named Clippert Trucking Company, which was a corporation based in Michigan. They actually didn’t begin their air operations until 1990, which is when it was renamed to Spirit Airlines Inc. Later in 1999, Spirit moved their headquarters to the orange state - Florida. Spirit Airlines provides competition by promoting low fares and making it very affordable to travel. Spirit offers around 300 flights to 56 destinations all over the Americas (“TDAmeritrade” 2015). Their business model permits them to compete mainly by offering customers their “Bare Fares” (“Spirit Airlines Annual Report” 2015), which are costs that offer …show more content…
untraditional bundled components. Part of their cost structure is giving the customer the ability to save by only paying the selections they want such as, luggage, enhanced seats and beverages. Another strategic move Spirit Airlines has made to reduce costs is choosing to fly only one airbus, which is A320 family. By doing so they save when it comes to operations, and the cost of training on numerous aircrafts types, and other costs associated with maintenance, repair and parts for the airbus, which in turn gives them a competitive advantage in relation to other airline competitors.
This also allows for the flight crew to be completely substitutable. The results of their low cost structure and allowing their customers to choose what they want, they remain a highly profitable company. Mission and Goals Spirit Airlines prides themselves with being one of the low cost airlines in America and is also home to the Bare Fare (“Spirit Airlines” 2015). The way they implement this mission is by allowing the customers to pay for what they want as opposed to having “hidden fees” in their final prices as their competitors do. Included in those costs are your standard features, which are “reliable, on-time service, clean, fuel efficient airplanes, deluxe leather seating, and one personal item that fits under the seat (“Spirit Airlines” 2015).” Spirit does offer optional amenities and products, such as, wider seats with extra leg room, “carry-on and checked baggage, assigned seats, travel insurance, refreshments and snacks sold onboard, and hotels, cars, vacation packages and cruises”
(“Spirit Airlines” 2015). Spirit’s mission is to have an “ultra-low-cost carrier, or ULCC, business model that allows us to compete principally through offering low base fares and charging separately for select optional services (“Spirit Airlines” 2015).” They believe in the unbundling strategy, which is bare prices and paying only for the options you want. In 2013 40% of Spirit’s total revenue was derived from non-ticketed sales. Their vision is to continue to be an ULCC airline and that as new markets or new services are added they are priced competitively and lower than the market to attract current and new customers. According to Ben Baldanza, Spirit’s CEO, the vision is to “make sure the customer who can’t afford to pay current airline prices has an option travel” (Jones, 2012). The pricing strategy that Spirit Airlines has in place is for those price-sensitive travelers. Baldanza says, “If we were in the retail world, we would be a dollar store (Maxon, 2013).” This attracts existing domestic markets who’s needs aren’t being met by other low cost carriers an ultra-low cost carrier. Since Spirit Airlines pays a low cost for their operations they are able to lower their base- fares and in turn it allows to increase the non-ticket fares revenue chances. This non-ticketed strategy is the core to Spirit’s profitability model. Spirit Airlines is a market focused firm rather than a product focused. They focus on the price sensitive travelers rather and making sure they have an option to travel, yet still giving them an option for additional services and amenities. By flying only one aircraft and expanding the amount of seats they have they are able to accommodate more passengers, which is a way of meeting market demand as a whole. Baldanza compared itself to McDonald’s and Walmart because like them Spirit’s goal isn’t to dominate the airline industry, but instead to serve the niche well. The Airline also has a goal of reaching a total fare that is 25% lower than the current average ticket rate. Current Firm Performance To analyze firm performance we are going to focus in on four key areas: financial position, profitability, market performance, and organizational health. To identify financial position for a public company we are going to use the total debt/equity metric. When comparing to Spirit Airlines amongst its competitors they fall short in this area. With a total debt/equity equaling 30.39 which is more than double below the average of 91.53 for the industry, so we can give them a poor grade in this area. From a profitability standpoint we will focus on net profit margin ROE, and relative return on assets. Spirit Airline’s net profit margin is currently at 13.6% only falling second to Southwest Airlines, which was at 11.90%. Although it wasn’t at the highest it did fare quite well falling in the average for this category (“Spirit Yahoo” 2015). They were also amongst the top 5 regional airlines with an ROE of 27.44% (“Spirit Yahoo” 2015), with were in the top tier in relative return on assets with 15.94% beating out Allegiant Holdings, 10.72% and Jet Blue Airways, 5.72%. Profitability is a strength of Spirit Airlines and therefore have been given a grade of very good. Then we look at their market performance where we focus on long term growth and market share performance. Unfortunately, they fall short in this area with a long –term growth percentage of 18.05% versus Allegiant 23%, Virgin 24%, Southwest 26% (“Spirit Yahoo” 2015). They also fall towards the bottom in market share percentage with a small 2.1% resulting in a poor grade for this category. Lastly, we look at organizational health. Employees have ranked Spirit Airlines at 3.2 out of 5, which puts them at a good grade in this area (“Working at Spirit” 2015). Overall Performance The two main components we will use to provide the overall performance rating will be operating performance and organizational health. These two components are critical to any firm and is an excellent way to determine where they stand today. After analyzing all the data we find that the financial performance of Alaska Airlines is poor and the profitability is very good. When combining these components we can conclude that the financial performance of Spirit Airlines is average. Market performance is poor as well, and when combined with financial performance we end up with an operating performance rating of below average. The organizational health of the firm is in good shape and when combined with the operating performance rating we find that Spirit Airlines is in a content state: Organizational Health Content Organization (Spirit Airlines) Desired State Crisis Troubled Organization Operating Performance Looking ahead 5 years we can foresee good things from Spirit Airlines. They are committed to their employees, fuel efficiency, and growth which gives them the opportunity to become a better organization resulting is a more desirable state. References: Jones, C. (2012, October 18). Is Spirit the nation's true low-cost airline? Retrieved September 27, 2015 from http://www.usatoday.com/story/travel/flights/2012/10/17/spirit-low-cost-airline/1640095/ Maxon, T. (2013, May 22). Spirit Airlines CEO: We have the lowest prices, and that’s what customers care about. Retrieved September 28, 2015 from http://aviationblog.dallasnews.com/2013/05/spirit-airlines-ceo-we-have-the-lowest-prices-and-thats-what-customers-care-about.html/ Spirit Airlines, Inc. - Annual Report. (2014, February 20). Retrieved September 27, 2015 from http://ir.spirit.com/secfiling.cfm?filingID=1498710-14-19 Spirit Airlines: Strategic Management Case Study. (n.d.). Retrieved September 27, 2015 from http://www.slideshare.net/MarissaPi/spirit-airlines-a-strategic-management-case-study Spirit Yahoo Finance. (n.d.) Retrieved September 28, 2015 from http://finance.yahoo.com/q?s=SAVE&fr=uh3_finance_web&uhb=uhb2 TDAmeritrade – Spirit Airlines (n.d.) Retrieved September 28, 2015 from https://research.tdameritrade.com/grid/public/research/stocks/fundamentals?symbol=SAVE Working at Spirit Airlines. (n.d.). Retrieved September 27, 2015 from http://www.glassdoor.com/Overview/Working-at-Spirit-Airlines-EI_IE13683.11,26.htm
The following value chain, which focuses on Spirit Airlines, is representative of most of the firms in the Ultra Low-Cost Airline industry. Spirit is the industry leader in many areas such as operational efficiencies/cost structure, aircraft fleet management, brand/network and growth. The firm, however, trails industry foes in areas such as customer service and operational reliability and recoverability. While most in this segment pursue the cost-leader competitive strategy, Spirit has demonstrated the most effective model to date – whether the model is the most sustainable remains to be seen.
of price versus service in the airline industry as a whole, as well as, the
Spirit addresses “price” by attempting to get the lowest possible fair for their potential customers. They have instituted their “unbundling” strategy that essentially removes all the conveniences that other airlines afford. Fees for checked bags, fees for flight changes, and no complementary in-flight beverages are just a few of the cost-trimming techniques employed. This strategy allows Spirit to come up with impossibly low fares. It also conforms to customers who just want to get from point A to point B without paying extra for services they don’t use. This strategy, coupled with an in-your-face “promotion” ploy, has made Spirit Airlines “the most profitable airline in the U.S.” (Nicas, 2012).
Southwest Airlines strategy of focusing on short haul passenger and providing rates as low as one third of their competitors, they have seen tremendous growth in the last decade. Market share for top city pairs on Southwest's schedule has reached 80% to 85%. Maintaining the largest fleet of 737's in the world and utilizing point-to-point versus the hub-and-spoke method of connection philosophy allowed Southwest to provide their service to more people at a lower cost. By putting the employee first, Southwest has found the key to success in the airline business. A happy worker is a more productive one as well as a better service provider. Southwest will continue to reserve their growth in the future by entering select markets only after careful market research.
Having a low cost of operations is one of the contributing factors to Southwest Airlines’ financial success. Such low cost model of the corporation is brought about by an effective strategy. Southwest uses only one type of aircraft – the fuel-efficient Boeing 737. This tactic keeps training and maintenance costs down. Moreover, the no-frills approach to customer service contributed to the low cost of operations for Southwest.
JetBlue's mission is "to bring humanity back to air travel". Its low-cost strategy is second-to-none, not even to Southwest. Utilizing Southwest as a model and benchmark early in Neeleman's career in the industry, he's managed to copy the Southwest model and expand upon it with his ability to find more innovative ways to cut costs along the organization's value-chain, while utilizing technology to increase productivity and further add to operational efficiencies. JetBlue's value chain demonstrates its ability to successfully compete in several key areas relative to the bases of competition within the industry and creates processes that focus on reducing costs, for the specific purpose of continuously creating value for its customers, i.e. fare pricing, customer service, routes served, flight schedules, types of aircraft, safety record and reputation, in-flight entertainment systems and frequent flyer programs.
When a business aims to be as successful as possible in selling its products and services, it must examine in detail whether or not the products will be attractive and necessary; if the price is optimal; if the product is being distributed in the best locations; and finally, how interest and awareness can be created for the products. In order for a business to target all of these elements to the right people at the right time, it must employ the right type of marketing mix: Product, Price, Place and Promotion. In a dysfunctional time for the airline industry, most airlines, especially major carriers, are adapting the concept of "doing less with more." One low-cost carrier, JetBlue, is changing the domestic aviation landscape in this regard and is defying the odds. Here is a company that has examined each marketing mix elements carefully, has adapted them to its customer’s needs, and is succeeding because of this approach.
For years, Southwest Airlines has been experiencing stable costs, low fares and traffic stimulation. However, the latest changes in the marketplace (See Exhibit 1: SWOT Analysis), including the higher energy costs and the entrance of new low fare/cost carriers are threatening the future of the airline. As a result, LUV needs to decide whether or not to acquire the slots and gates from the bankrupt ATA Airlines at LaGuardia (LGA) terminal in New York City (NYC) in order to expand its capabilities.
This concept was challenged by Southwest Airlines by marketing itself as a cost leader. Their entire growth curve in the industry has been attributed to its cost effective strategies which has made it more efficient and successful than traditional airlines.
Product Strategy of the British Airways 1.1 Introduction to product strategy Product is the most important component in an organization. Without a product there is no place, no price, no promotion, and no business. Product is anything that can be offered to a market to satisfy a want or a need. It is the core ingredient of the marketing mix and is everything favorable and unfavorable, tangible and intangible received in the exchange of an idea, service or good (Kotler 11th edition, 2003). British Airways is a business offering service products, flights across destinations, in the transportation industry.
The mission of Southwest Airlines is a dedication to the highest quality of service delivered with warmth, friendliness, individual pride, and company spirit (Mission…, 2007). The company also provides opportunities for learning and personal growth to each employee. Creativity and innovation is very important and highly encouraged, for the purposes of improving effectiveness. Employees are to be provided the same concern, respect, and caring attitude within the organization that the employees are expected to share with the customer. Southwest Airlines was initially created to be a low-cost alternative to high price of intra-Texas air carriers (Freiberg, 1996). Southwest’s fares were originally supposed to compete with car and bus transportation. It was a little airline, and it would withstand the test of time. As a discount, no-frills airline, it would provide stiff competition for larger airlines. Their strategy was to operate at low cost, offering no food, no movies, no first class, and no reserved seats. They created their own market and provided increased turnaround times at the gate, by avoiding hub-and-spoke airports and opting for short-haul, direct flights. Through this market approach, Southwest has a majority of market share in the markets they serve.
When an airline does not have a sustainable competitive advantage, it does not have any properties of differences from there competitor and turns to a dangerous price war. The sustainable ...
...ry long and successful history in the airlines industry, which makes it one of the leading airlines in the world. Also, it provides the most comfortable flights and services to its costumers and employees, which makes it unique.
Within the airline industry currently the airlines can be divided into low cost airlines and full service airlines. The low cost airlines targets customers that are seeking no frills connectivity between cities at low ticket prices. The full service airlines provide several add-ons like free meals, on plane entertainment, and communication facilities. The target market for full service airlines are customers who are willing to spend extra for the services that the airlines provides.
Without a successful business strategy put in place the company would fail and be unable to compete with competitors. There would be on way of knowing what resources are required. No planning for the future of the business. If there are no targets set out to achieve there would be no way of measuring how successful the company has been.