Ben Baldanza’s strategy produces one of the best profit margins in the industry
By Scott Mayerowitz
AP Airlines Writer
FORT LAUDERDALE, Fla. (AP) — Ben Baldanza, the CEO of Spirit Airlines, leans over his kitchen table, takes another look at the board and plots out his strategy.
He’s not thinking about new routes, extra fees or how to pare back service on his famously no-frills airline. He’s indulging his true passion: board games. At one point in his life he owned nearly 4,000. Today he’s whittled the collection down to 1,500 — still enough to fill one of the four bedrooms in his house.
These aren’t kids’ games, I learned on a recent Thursday night when I was Baldanza’s guest, along with Ted Christie, the airline’s chief financial officer and DeAnne Gabel, director of investor relations. They are elaborate affairs that take enormous concentration, careful planning, cunning and ruthlessness. Luck has very little to do with the outcome.
We play Power Grid, a game Baldanza, 52, selected. Players build a network of cities, buy power plants and purchase the oil, coal, garbage or uranium necessary to electrify the cities. The more you power, the more money you get. The best players, Baldanza notes, “connect the cities in the most efficient way.”
The similarities to running an airline aren’t lost on me.
Spirit carries only 1 percent of U.S. fliers, yet has significant name recognition thanks to provocative advertising. Baldanza has increased the number of lines on Spirit’s route map by 73 since 2010, while doubling the size of Spirit’s fleet. He undercuts other airlines on base ticket prices, but turns a profit by packing more passengers into planes and then charging them extra for almost everything, except the cabin air. It’s a strategy that consistently produces one of the best profit margins in the industry.
Each player starts our game with $50, which Baldanza doled out before we arrived. I grab my stack.
“Do you mind if I count my money? It’s not that I don’t trust you...” Before I can finish, Gabel chimes in: “We all did too.”
Passengers don’t necessarily trust Spirit either. They are attracted by low fares but then compelled to play a game of dodging fees. Some drive to the airport to avoid paying up to $16.99 extra each way to book online. Customer service is notoriously lacking, something Baldanza attributes to keeping costs low so tickets are affordable. Each boarding pass printed by an agent at the ticket counter costs $10. A bottle of water, free on most airlines, costs $3. Spirit has 24 different types of baggage fees, including ones for placing a carry-on bag in the overhead bin.
So, it’s not surprising that Baldanza sees revenue opportunity where others see controversy.
Would he allow in-flight cellphone conversations if the government lifts its prohibition?
“Sure,” he says without hesitation. “If we can make money at it.”
He notes that those fees would allow for lower ticket prices. He knows — and doesn’t care — that most Americans oppose such calls.
“People are only annoyed for a while,” Baldanza counters. “They were annoyed that (Spirit’s) seats didn’t recline.”
I soon learn that Baldanza ran a mini-training camp at lunch the prior day, teaching his executives how to play Power Grid. They even discussed letting me win— but then decided not to be that generous. I was at a major disadvantage.
“I feel like the guy who shows up at the airport not realizing that Spirit charges for carry-on bags,” I mutter.
“You shouldn’t have bought your ticket on Orbitz,” Baldanza shoots back.
Transparency remains one of Spirit’s biggest challenges. Passengers booking through the airline’s website typically understand Spirit’s business model. Those booking through third-party sites often don’t learn of the extra charges until they arrive at the airport. For instance, passengers who fail to pay in advance for large carry-on bags are dinged $100 at the gate.
Baldanza recognizes that Spirit needs to be “a little friendlier, meaning that more and more of our customers actually understand the model.” He’s making a big push this year to better align expectations with reality.
As he buys up cities on the board game, Baldanza’s reasoning becomes clearer: If passengers see the fees as potential enhancements rather than punitive charges, they might be willing to buy more.
Earlier in the day, I visited Spirit’s headquarters — which incidentally sits next to a collection agency in a Miramar, Fla. office park. While there, I spied a framed copy of a profile I did of Baldanza three years ago with the headline: “Meet America’s king of airline fees.” The word “fees” is covered up with “options.” During a pause in the game, I ask him about the change.
“We’re not adding more fees anymore,” Baldanza says. “We’re selling people more things that they never would have considered part of the base ticket.”
That means hotels and car rentals for now and maybe scuba diving tours, Cirque du Soleil tickets or ski packages in the future.
Baldanza also plans to change the structure of some existing fees, increasing or decreasing the price of checking a bag or picking a seat based on demand.
“The idea that a bag is more expensive at Christmas than it is in September hasn’t really been broached yet,” Baldanza says.
Baldanza’s ultimate dream — if the government would let him — would be to create two components of a ticket: the price of fuel and everything else. Passengers would pay more or less, depending on the cost of fuel the day they fly.
“It just takes out a huge risk,” he says. “I don’t know that we’ll ever get there, but the idea of being able to make fuel a true pass-through would be revolutionary for the industry.”
We take a break from the game for dinner. Baldanza has set out barbeque beef and chicken, corn muffins, potato salad, baked beans and mac and cheese — the type of food fliers can only dream of.
Other airlines are trying to win over passengers by adding individual TVs, power outlets, larger overhead bins and Wi-Fi. The battle is even fiercer in the premium cabins of flights between New York and Los Angeles and San Francisco. There, airlines are adding lie-flat beds previously only seen on international routes.
Baldanza thinks it’s all foolhardy.
“At the end, when everybody has the lie-flat seats, all they did was raise their costs for the same traffic base,” he says. “The allure of a temporary share gain ends up costing the industry.”
This from a guy who sells ads for timeshares and casinos on overhead bins.
More than two hours into the game, I start to get the hang of it. Unfortunately, Baldanza snags a few more cities and wins. Nobody is surprised.
As I help him clean up, we discuss the future of his airline. Spirit currently has 54 planes and plans to expand to 143 within seven years. Latin America helped drive Spirit’s growth but Baldanza sees its importance decreasing.
“The domestic market has more fruit on the tree right now,” he says.
