Spirit Airlines' CEO Shares His Company's Financial Flight Plan
Tuesday, June 10, 2008PAUL KANGAS: Spirit Airlines today became the latest carrier to tack on additional baggage charges to cope with rising fuel prices. The privately-held airline, headquartered in Fort Lauderdale, warned workers last week it may be forced to close hubs in New York and Puerto Rico if oil prices move higher. Jeff Yastine looks at how Spirit is coping with the volatile energy markets.
JEFF YASTINE, NIGHTLY BUSINESS REPORT CORRESPONDENT: The 27-year-old carrier maintains a busy daily schedule: 185 flights to 36 cities in the U.S. and the Caribbean. But the cost of filling its planes with fuel, once 20 percent of the company's operating budget, is now 50 percent of that budget. That has the carrier searching for other ways to shave costs -- adding more seats to its fleet of Airbus a-319s; charging for heavier luggage, carrying less water on its planes; even switching to lighter-weight beverage carts. At the company's headquarters, they have even removed some of the light bulbs to cut utility costs. But Spirit's CEO Ben Baldanza, says the company will have to make other hard choices later this year, perhaps closing two of its three hubs.
BEN BALDANZA, CEO, SPIRIT AIRLINES: It's really important at Spirit that we plan for higher fuel prices and not just expect that oil prices will somehow come down. So we've looked at our network. We've looked at traffic demand through different times of year. We've looked at markets that we fly that will support higher pricing to cover the fuel costs and those that won't and we've made the decision that, if fuel prices rise to the $150, $160 level, then we're going to have to cut back a little bit. And if we do that, we need to be sure that we're prepared in terms of being able to relieve ourselves of the infrastructure costs that go along with that flying.
YASTINE: Is there a point at which you cannot continue to cut back on services or close more hubs and you start really looking at your key, core operations.
BALDANZA: We believe that Spirit is kind of uniquely well positioned in this environment, for a couple of reasons. We have the youngest fleet of airplanes in the Americas and having new airplanes makes us a more efficient users of fuel. We're also a very aggressive hedger of fuel. So, a good piece of our volume over the next 12 months is kind of protected from a big spike through a hedging program. We also have our non-fuel costs have gotten down to extremely low and we have initiatives to push them even lower. So if you think about half the cost of your airline trip is going to be fuel and the other half is going to be everything else, we keep our everything else really low and are making it even lower, which will allows us to keep low fares out there to the consumer base and that's really important for us.
YASTINE: Talk a little about what kind of demand for your flights you're seeing these days. Given the economy, given where fuel prices are, are you continuing to run planes reasonably full?
BALDANZA: We're not blind to the economic realities facing the country right now and facing individual consumers, but I'm happy to say that demand for our product is continuing to look quite strong. We had a very good first quarter. We're having a strong second quarter and as we look out into the third quarter and look at the summer travel demand, it's looking quite well for us.
YASTINE: When you have an airline that's continuing to add flights, as Spirit has in recent months, yet at the same time you continue to have these fares which are very low, how do you avoid not having the same sort of cash squeeze that's doomed so many large and small airlines over the past couple of decades?
BALDANZA: Cash is probably the most important thing every airline CEO and CFO are looking out right now. If you have $10 in cash and you burn a $1 a day, you have 10 days to live, right? But whatever your cash is, if you're actually generating cash out of your operations, then the amount you have at the beginning isn't quite so critical. And at Spirit, we're happy to say that the core operation of the airline is still generating cash. We're not using cash and that's really important that we keep it that way.
YASTINE: Ben Baldanza, CEO of Spirit Airlines, thanks.
BALDANZA: Thank you very much Jeff.
