Spirit Airlines Controversial Promotional Campaigns

By Brooks, Bradley W.; Cox, Steven M. et al. | Journal of Case Studies, November 2012 | Go to article overview

Spirit Airlines Controversial Promotional Campaigns


Brooks, Bradley W., Cox, Steven M., White, Zachary M., Journal of Case Studies


Introduction

Outrageous, over the line, controversial, offensive--all of these adjectives had been used to describe Spirit Airline's previous promotional campaigns. But public reactions to Spirit's June 2010 web promotion entitled, "Check Out the Oil on Our Beaches," were far more negative than those of Spirit's previous promotions. (See Appendix 1 for the promotion as it appeared on Spirit's webpage.) Many airline travelers thought Spirit had finally gone too far, labeling this promotion as tasteless and as a remarkably poor choice (Hawley, 2010). Facing a renewed firestorm of adverse publicity, Spirit's executives were forced to decide if they should change Spirit's promotional approach.

Spirit Airlines

History

Spirit Airlines began operations as Charter One in 1980 serving the Detroit, MI area. Spirit focused on packages to tourist destinations like Las Vegas and the Bahamas. It was not until 1992 that Charter One brought jet aircraft into its fleet and changed its name to Spirit Airlines.

During the next five years Spirit Airlines expanded service rapidly, adding destinations in Florida, California, New York, and South Carolina. Headquarters was also moved to Miramar, Florida (less than twenty miles north of Miami). By 2003, Spirit served Puerto Rico, Santo Domingo, and Mexico. Four years later the company included flights to several Caribbean locations including Jamaica, the US Virgin Islands, St. Maarten, Haiti, and the Cayman Islands. By 2010 Spirit was serving several Latin American countries including Peru, Chile, Panama, and Colombia. (See Appendix 2 for the Spirit Airlines route map.) However, in 2010, Spirit Airlines still represented less than 1% of the airline passenger traffic in the US (Hinton, 2010).

Philosophy

Spirit's pricing approach was to charge airfare rates that were well below industry averages. Spirit's corporate philosophy was to be the leading low cost carrier to the Caribbean. Spirit strived to provide low fares with friendly and reliable service. In 2007 Spirit decided to take low cost to the next level and become an ultra-low cost carrier (ULCC). The ULCC philosophy included very inexpensive airfares but extra fees for options including checked bags, carry-on bags that do not fit under the seat, snacks and beverages, and seat assignments. In addition, Spirit had a Fare Club, which required a $59 membership fee, but allowed the member the right to cheaper tickets and baggage fees.

Since employing this philosophy in 2007, Spirit had reduced overall ticket prices by 40%. In an SEC filing Spirit disclosed that, "We plan to continue to use low fares to stimulate demand, a strategy that generates additional non-ticket revenue opportunities, and in turn allows us to further lower base fares and stimulate demand even further," (SEC, 2010, p. 1).

Unlike the major US carriers, net income for Spirit Air had grown every year since 2007, the inception of ULCC pricing. Increasing fuel prices and the recession had not slowed Spirit's profitability. Figure 1 shows the increases in net income since beginning the ULCC program. had grown dramatically as a percentage of passenger revenue. Figure 2 shows that fare revenue per flight segment declined from 2007 to 2009, however, ancillary revenue per segment permitted total revenue to show a slight increase (2010 revenues are for Ql and Q2). A flight segment referred to one takeoff and one landing; therefore, any specific passenger might have required one or more flight segments to reach a specific destination.

[FIGURE 1 OMITTED]

[FIGURE 2 OMITTED]

Airline Industry

In 2009 the airline industry suffered from low passenger numbers and declining profits. As demonstrated in Table 1, except for Jet Blue and Sky West, all of the major domestic carriers showed a decrease in passengers for 2009.

The loss in passengers translated into a net loss for five of the largest airlines. …

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