Spirit Airlines

Executive Summary

Spirit Airlines is an American company that focuses on providing low-cost air transportation to consumers in North America and all over the South American continents. Its core competitors include American, Southwest, JetBlue, United, and Delta among others. The company is at 8th position in the market shareholding about 2.6%. Recently, the company has faced some customer criticism due to its poor services. Some of the consumers have complained about its bad publicity, but this event was not widely covered in media because of the risk of losing customer’s trust and loyalty.

This report focuses on the performance of Spirit Airlines at present. It will concentrate on the customer relationship and on bad publicity the corporation has encountered. Therefore, it will indicate the consumer’s feelings about the performance, and how this situation could be improved. Finally, it will draw some recommendations on the alternative solutions that could be applied, and the process of doing it.

Situation Analysis

Company Overview

Spirit Airlines, Inc. is an American ultra-low-cost carrier (ULCC) that has over 385 daily flights to various destinations across the United States and the Caribbean. The company is headquartered in Miramar, Florida in the United States. It also makes flights to the South American continent where it flies to about 80 destinations. Among the company’s fleet, there are about 93 single-aisle aircraft from Airbus, which comprises of A321s, A320s, and A319s. It has also made an order for 76 new aircraft to be delivered by 2019. The corporation sells most of its tickets online on its website. Nevertheless, some other approaches used in sales and marketing include outsourced call centers, as well as third-party travel agents. Some of the core products and services offered by Spirit Airline Inc. include discounted airport parking, cruises, vacation packages, hotels, car, and travel insurance. The company has had uncharted the growth over the last few years despite the global economic depression of 2008. For example, in the year 2015, it recorded an increase of 11% in revenues compared to the 2014 amount.

Business Strategy

Spirit Airlines has invested greatly in the expansion of city destinations across the American continents as a plan for maintaining its remarkable growth trajectory. The company’s core challenge at the moment is cost control, which aims at ensuring only the most needed expenses incurred. That is expected to assist the corporation in maintaining its profits despites its low-fares tariffs. Besides that, the company has also chosen to apply an unbundling strategy with the objective of stimulating revenues and passenger demand (Spirit.com). The approach allows the commuters to make a separate payment for products and services that they would like to use. Hence, making charges for such services while the passenger is on board has created an opportunity for Spirit Airlines to offset the low ticket prices, while at the same time it maintains its inexpensive market presence.

Mission, Visio, Tagline, and Values

Mission

Spirit Airlines’ mission is a provision of an ultra-low-cost carrier that allows its passengers to save more by paying only for required services. Thus, the company undertakes to offer comfortable air travel at inexpensive tickets. The statement talks of the low-cost services given by the corporation, but fails to explicitly recognize its customers. Nevertheless, it has revealed a process through which one could become a customer of Spirit Airlines. Besides that, it does not list any specified market as the company’s major destination is to leave the market choice open (Tuttle). Finally, the mission is a self–concept for the firm, which is based on the use of unbundled pricing model.

Vision

According to Ben Baldanza, the former chief executive of Spirit Airlines, the company’s dream is to ensure lower-middle class representatives who cannot afford the existing high prices to have an option of cheaper flights. Again, the company also aims at becoming the most price-efficient air carrier globally (Etzell, Osmanski, Pie, and Weir).

Tagline

The corporation’s slogan is “Less Money, More Go.” (United States Securities Exchange Commission) The motto is in some ways a marketing strategy that provides potential air passengers of Spirit Airline to have cheap and reliable flights that would allow them to travel more by air.

Values

The company core principles include caring for its customers and employees, enhanced performance, friendly approach to passengers, collaborations with other air transport stakeholders (United States Securities Exchange Commission).

Corporate Citizenship

By providing a low-cost air travel, the company has given an opportunity for those who could not afford traveling by air before. That eliminates the price discrimination that has existed for so long in the industry. Besides, the company has also committed to participating in other social activities that will largely contribute to serving the community where it operates. The core areas of focus where the corporation has shown much interest in assisting include those in medical and health fields, military, as well as education. Spirit airline eagerly makes donations to different funds, provides facilities and equipment to hospitals, as well as gives scholarships to students besides offering an internship for those undertaking air transport-related courses. On the other hand, in the case of military, the airline has provided a notable support in terms of transportation as well as training of the soldiers. Moreover, there is an existing procedure outlined on the corporation’s website through which the individuals who need any assistance would apply for support. By the way, those who qualify gets communication from the airlines support team.

Stakeholders

The core participants in the operations of Spirit Airlines include the management, equity owners, staff, government, customers, creditors, regulatory agencies, aircraft suppliers, and airport departments. The management ensures that the firm’s operations run smoothly and acts as the link between the external and internal stakeholders. The sole responsibility of managing day-to-day activities of the company lies with them. On the other hand, the equity owners are the capital investors in the corporation. As such, they want to see the value for the money they invest; therefore, they monitor closely the operations of the business to ensure not losing their wealth. On its part, the government takes an observation and monitoring of all air travels through its agencies. That is meant to ensure the safety of the passengers and workers, as well as public in general. Again, it provides the operational certificates and dispute resolution mechanisms to the airline.

The staffers on their part are the implementers of the set goals of the company, and thus their role is quite significant to the organization. Moreover, firm’s employees keep a very productive communication with the customers. As such, they need to portray a distinguished character and ethics, besides remaining friendly to the customers. Passengers on their part are an important part of company operations. Considering that they are the core stakeholders of any air travel business, Spirit Airlines works at maintaining their happiness and friendly relationship at all times. The other important players in the industry are the suppliers of the aircraft. In this case, the major airplane dealer contacted by the company for its supplies is Airbus. Also, there are the creditors, specifically the banks, which have offered some financial support to the firm as it expands its fleet and services (Etzell, Osmanski, Pie, and Weir). Finally, the firm establishes reliable relationships with the governments and airport managements of the countries where it has performed its operations through strict observation of the set guidelines and regulations.

Financial Performance and Situation

Revenue and Net Profits

Over the last three years, namely starting from 2013 to 2015, the company’s revenues have risen tremendously from $1,654 million to $1,932 million, and finally to $2,141 million respectively. That was a clear indicator of the firm’s increasing ticket sales among the customers. Besides, the rise also led to the of net income growth from $177 to $225, and then to $317 in millions for the years 2013, 2014, and 2015 in that order (United States Securities Exchange Commission). Besides, the earnings per share over the same period have also increased over the recent years. For example, the earnings per share for the years 2013, 2014, and 2015 were $2.44, $3.10, and $4.39 respectively, which was an indication of an upsurge in shareholders’ wealth. Again, over the same period, the value of the company’s assets has also risen by 58.12% over the above-mentioned period of years. Furthermore, the wealth of equity holders also increased in 2015 by 59.31% from what had been recorded two years ago in 2013 (United States Securities Exchange Commission).

Initial Public Offer (IPO)

After the 2011 completion of the IPO, Spirit Airlines have seen the increase in profits for the following years to 2015. The IPO had raised huge amount of cash which was partly used for debt settlement, leaving the company with proceeds of about $150 million (United States Securities Exchange Commission).

Ratio Analysis

Current Ratio

The company’s current ratio was 1.932, 1.973, and 2.201 for the years 2013, 2014 and 2015 respectively. In other words, this measure indicates the company’s ability to settle its short term debts using the current assets. Therefore, the higher it is, the better performance business demonstrates as it shows a good ability to pay. In that case, it has become clear that Spirit Airline’s current ratio has been performing well indicating the company capacity to apply to its short term assets in order to acquire short-term loans. As such, it has utilized its current assets to the fullest in soliciting for funds necessary for its operations.

Quick Ratio

Another key ratio is a quick ratio which was recorded at 2.20%, 1.97%, and 1.93% for the years 2013, 2014, and 2015 respectively. The ratio is a liquidity ratio that indicates the potential of the firm in converting its short-term assets to cash. By its very nature, the measure has been rising in between the three years proving the company’s liquidity in settling current liabilities.

Profitability Ratios

Additionally, profit margin and other profitability ratios have indicated a continued growth of profits in the corporation’s activities over the three years stated above. For example, the profit margin for the business over the three years was 15%, 12%, and 11% for 2015, 2014, and 2013 correspondingly. That was a clear indication that the profits of corporation were on the rise which could be interpreted as a sign of high performance in terms of revenue made. Besides, the gross profit also recorded a similar improvement moving from 48% to 49%, and then to 59% for the periods 2013, 2014, and 2015 respectively.

Spirit Airlines Market Share and Competitors Discussion

As of January 2016, Spirit Airlines was at 8th position among the airlines operating in domestic market in the United States. Further, it accounted for a total local market share of 2.6%. Some of the core major competitors in the market include Southwest Airline which accounts for 18.2%. The others, namely Delta, JetBlue, Alaska, US Airways, SkyWest, and Frontier, accounting for 17%, 16.6%, 14.7%, 5.3%, 4.5%, 3.3%, 2.4%, and 1.9% respectively (Elian and Cook). Analyzing these corporations, it becomes quite clear that the firm plays on the middle level and will require injecting a lot of capital to increase its fleet and destinations in order to become more competitive.

However, the comparison of Spirit Airlines performance with the competitors proves the company does far much better than the others in terms of business operations. For example, the revenue growth of the company for the year 2016 was at 8.09% which was higher compared to the negative figure of -1.27% posted by its competitors. Again, the profitability measure indicated a net margin of 13.10% and total costs of 86.90% for Spirit Airlines. On the contrary, the combined competitors registered a net profit margin of 7.39%, which was much lower, while the operational costs were quite high standing at 92.61%. Besides that, although the net income growth was negative at -16.20% for Spirit Airlines, it was still better compared to that of the rivals which were noted to have been at -68.30%.

SWOT Analysis

Strength

Spirit Airlines have several strengths in its business operations. At first, there are some barriers to the market entry for the air transport business. As such, only a limited number of competitors would afford to come in and challenge their business growth. Secondly, the company has been ranked at the top of all players in the industry in America in terms of operating profits it generates. It means that most of the operations of the company are profitable, and hence could maintain themselves. Thirdly, the company has expanded the market outside the American borders, thus giving it an opportunity to shield itself from the economic, social, and political crisis that could hit one country. Fourthly, the company has experienced staff, as well as business units, hence making its operations highly competitive. Fifthly, it is also popular among the low-income earners, thus guaranteeing of its loyal customers (United States Securities Exchange Commission). Besides, due to its low-cost flights and highly comfortable services, it attracts the passengers from different economic classes, so making it affordable to all the customers(Martin). Sixth, its unbundled pricing model has allowed it to become popular among potential customers, and to have a positive future.

Weaknesses

Despite the above strengths, there are also core weaknesses of the Spirit Airlines operations. First, the company’s business units are quite small. As such, they limit its operations, and thus generate little profits compared to businesses with larger units. Secondly, its low-cost services discourages the upper middle class citizens to chose the other options, especially when they are available and affordable (Arnoult). Thirdly, it has low profits in comparison to other major players in both American continents, especially those that fly to Europe, Asia, and Africa. Fourthly, the company competes with well-establish, well-resourced firms that have a skilled and well-remunerated staff (United States Securities Exchange Commission). Thus, it is unable to challenge the dominance of these competitors particularly among the customers in the upper-middle-class of the society.

Opportunities

Spirit Airlines has a number of opportunities that have presented themselves and would ensure the company’s future performance is well-secured. First, global air travel demand has been increasing over time, especially among the middle-class economic group of citizens. This will lead to more ticket sales, and hence to increased revenues for the firm. Secondly, the American government has continued to enhance the relationship with the Caribbean as well as Latin American countries which could become a potential catch for the company (Etzell, T., Osmanski, L., Pie, M., and Weir, R.). At the moment, the company already enjoys the loyalty amongst the customers of the countries it flies to in these regions. As such, such nations as Cuba would increase its market to unprecedented levels. Besides, it also has an opportunity of expanding to the Canadian market which shows great prospects of economic growth. Thirdly, the rising revenues and profits attract many potential investors, hence increasing the chances of venture capital that would result to an expansion of its fleet (Martin). Fourthly, the American economy as well as that of most destinations where the airline flies have shown a tremendous recovery from the 2008 economic meltdown, hence indicating a potential growth of income within households which would mean more people would afford air tickets.

Threats

Spirit Airlines experiences some threats to its possible growth in the future due to several factors. Firstly, the increasing taxes on both the individual and corporate income will have a negative impact on company’s performance. For example, when people pay more taxes on their income, they tend to have little in their pocket, and would thus not buy air tickets more often for their traveling. Moreover, more taxes for corporations would reduce their profits, hence decreasing the required funds for expansion purposes.

Secondly, the banks and other lending institutions keep on increasing interest rates on the loans given. That automatically makes it very expensive for business corporations such as Spirit Airlines to solicit for more funds from these organizations so as to support with their expansion plans. Thirdly, there have been some fluctuations in the global oil markets which have impacted heavily on the jet fuel. That has made it quite difficult for Spirit Airlines to maintain the cost stagnant, hence rising at the same time. Considering the crisis in the Middle East, the problem is expected to persist.

Fourth, there have been numerous complains on the ethical nature of business activities by Spirit Airlines. These complaints and strict government regulations have created temporary and sometimes permanent barriers to the expansion of the business. Fifth, a low-pricing model has limited the company’s ability to channel enough resources to compete with other established firms. Again, that has also weakened the financial muscle of the corporation, which in turn lowers its growth rate. Sixth, the company still struggles to upgrade its technology to meet that operating with some of its competitors (Tuttle). Finally, despite the many attempts to reduce its costs, the expenses by air transport still remain high and would discourage people from taking the option, particularly when compared to railway transportation.

Internal Factors Influencing Performance

The internal factors that influence the internal operations of Spirit Airlines include the relationships between employees and managers as well as among themselves. Again, the input of the board of governors will also have a notable impact on the operational planning of the firm particularly in the planning aspect of the investments likely to be undertaken. Another core internal factor influencing the operations of the firm would relate the communication structure within the organization, as well as the applied technology.

External Factors Influencing Performance

As an organization that operates globally, Spirit Airlines faces the challenges of currency exchange rates. Fluctuations on currency exchanges will contribute to the variation of the ticket pricing as well as other financial operations, hence influencing the company’s budget (Miller). Another factor having had an impact on the performance of the airline was the national economic performance of the United States. As the national GDP growth rose, the revenue growth prospects of Spirit Airlines also indicated increased potential to perform better. Besides, the technological changes have taken a center stage in the recent past for the industry. That demands increased investment activities to ensure that firm’s software as well as hardware systems remains updated. Moreover, sometimes the firm has been involved in court battles such as in the case where the company was sued for continuing to provide alcohol to a client who had attacked other passengers. Besides, there is also the possibility of climatic and weather conditions such as hail storm and tornadoes which limits the flying schedule of the airlines.

Problem Identification

Brief Discussion

Spirit Airlines faces several core challenges that would likely hinder its development today as well as in the future. One of the hardest problems for the company is the rising number of discontented customers. As the backbone of the airline’s operations, the disgruntled passengers could chose not to fly with the company in their subsequent trips. Most of the complaints recorded against the carrier by the passengers related to flights problems. Others included those in ticketing, baggage grievances, boarding issues, and reservation disputes. Besides, it has also experienced the instances of flight lateness, hence delaying the travel by its clients. As such, most people have interpreted this to mean existence of poor customer relationship on the part of the corporation’s management.

Furthermore, the firm has as well faced internal problems with the pilots threatening to take industrial action due to the low remuneration and poor working conditions. That has also contributed to the high rate of delays, and flight cancellation, hence disadvantaging the passengers who had already booked their tickets with the airline. Again, the company has been affected by financial challenges especially when it comes to soliciting finances in an aim to expand its business operations. Also, at times, it has been faced with legal challenges that have dragged its name through the media, giving it a negative public image.

Brief Discussion

Despite the fact that the company had developed an attractive plan to capture most of the passengers coming from lower-middle-income households, it has failed in its customer care policy. Over the years, there have arisen numerous complaints about the mishandling, lateness, and poor communication that Spirit Airlines has depicted towards the firm.

Major Problem Identified

Poor customer services. Nature of the Problem

In fact, some members of the public, as well as analyst, have indicated that the lukewarm approach by the corporation in correcting these mistakes could have resulted from the low-cost for its tickets. As such, it becomes evident that the company pays little attention to clients’ grievances since they may not be paying too much for the services. When this perception persists, it discourages potential passengers from enrolling the services of the airline. On the other hand, the company’s staff has been considered to be uncaring and unfriendly to the observations and interests of their clients. That could have precipitated from the low remuneration and minimal benefits they get for the services they offer to the airline.

Impact of the Problem on the Company

Poor customer care services have proved to be detrimental to the growth of the company’s market share and by extension revenues. Spirit Airline customers feel mistreated by the company, hence giving them the sense of wanting to change for something better. Although the company has had a low-cost policy for attracting the customers, after sometime most of them have opted to move to other airlines in search of better and up to standard services. Besides, the continued talk of poor services rendered by the organization creates a wrong impression to the public, and would in some ways discourage them from seeking the services of the airline any time they want to travel by air. Again, sometimes the poor services offered could lead to litigation, for example when a client loses their luggage or is destroyed. Also such legal battles could arise from lateness and cancellations which creates some inconveniences for the customers. As such, if forced to settle by a court of law or tribunal, then that would become an unplanned expense on the part of the airline. Therefore, it could potentially lose money due to the challenges posed by the problem.

Problem Statement

The poor customer services by Spirit Airlines have resulted to the increased loss of potential passengers for the company due to poor publicity.

Identification of Alternative Solutions

In addressing the challenge of poor services, several approaches could be adopted by the company. First, to avoid unwarranted delays, Spirit Airlines could enter into partnership with other major players to help in processing as well as transportation of customers. At times, the airline could have a low number of passengers, hence necessitating the need of introducing connecting flights in conjunction with other firms. Secondly, the company needs to offer better training to its staff members on the best ways of handling customers’ needs as well as their grievances. Proper care for the client makes them feel appreciated, and would thus make them loyal to the firm. An apology is considered by most people as an assurance that the mistake would not happen again. As such, it increases the confidence among the members of the public, and reassures them that airline considers their clients as the first priority.

Besides that, the company could as well look for some extra techniques that would generate more funds for it to remunerate its staff properly. In most instances, poor services by employees occur due to the feeling that they have been abandoned and their interests are no longer considered. As such, they tend to relax, and offering their services in a lukewarm manner, hence poor customer care. Therefore, it becomes critical that such individuals get a proper remuneration to motivate them work hard, and deliver up to standard services to the clients of the firm. Moreover, due to the bad publicity, Spirit Airlines could undertake a vigorous advertisement campaign to market the company’s products and vision to the public. That could as well serve to eliminate the negative publicity that has existed in the eyes of the public giving the company a new outlook. More so, recently, the company has become ranked by the media to attract the top most complaints by the customers amongst all the airlines in the United States. One way of countering this would be through marketing and advertisement, as well as rebranding.

Fishbone Diagram

The chart is a cause and effect diagram that seeks to establish how each of the undertaking will lead to the required outcome of a process. In this case, the aim is to identify how various causes such as lateness, poor communication, delays, luggage loss and damage, among other factors have contributed to disgruntle Spirit Airlines customers.

Evaluation of Alternative Solution

Objective Discussion

The analysis process of the alternative decision will be based on various techniques including a weighted decision matrix, a list of pros and cons, fishbone diagram, and feasibility analysis.

Feasibility Analysis

The project will entail an analysis of employee training to ensure better services to the airlines clients. The project is implementable as it requires engaging the staff in training sessions for a given period of time to help them acquire the necessary customer care techniques. However, the challenge is to get enough finances to ensure the program runs to the fullest without any interferences. The company should outsource the services of customer care trainers from other bodies, and the program should run for a period of about one to two weeks. It is also significant to note that staff who engages regularly with the clients should have the first priority in the training process. That will ensure much resources are not wasted on training senior managers first, while the rate of their interaction with the customer is negligible. Therefore, those employees who spend much of their time with the clients should be accorded training first. Besides that, it could involve five areas of interest which includes technical, operational, economic, legal, and scheduling.

Technical feasibility

The training will equip the employees with the right skills to engage the clients as well as address their grievances with the necessary speed.

Economic Feasibility

After the training, the staff will improve their speed; hence will be able to handle as many customers as possible. That will enable them increase the number of customers served and by extension the sale of the corporation’s ticket hence raising revenue.

Legal feasibility

The training of the staff will comply with the guidelines provided by the government, as well as other regulatory agencies.

Operational Feasibility

After the completion of the training program, it is expected that most employees will be in a position to offer the best services and in a timely way. As such, it will eliminate delays and other common mistakes.

Schedule Feasibility

The program is expected to run for a period of in-between for one to two weeks. Thus, after that period, some of the positive impact made should be recognized in few days of operations.

Pros and Cons as a Method of Evaluation

Favorable

Some of the positive outcome for engaging in a training program would include:

a. Enhancement of employee skills and abilities;

b. Improved customer relationship amongst the staffers;

c. Motivated workers;

d. Time-saving;

e. Resource utilization.

Unfavorable

The negative impact of the program would include:

a. Money resource consumption;

b. Time taken off the employee duties to train them.

Ethical Screening

Alignment the Solution to Company Values

By enforcing the training program, the company would have committed to fulfilling some of its values. For example, Spirit Airlines aims at enhancing good relationships between workers and clients. The training program equips the staff with the skills necessary to ensure that they make productive and friendly relationships with the customers. Secondly, another core value of the organization is enhancing the relationship between various stakeholders. In that case, the training of the staff members will also allow them to engage with the managers in a cordial manner. Besides, since most of the airline operations will involve the members of staff from other corporations, it would become easier for the employees of Spirit Airlines to make a positive integration with them, hence improving the image of the company. Finally, the aim of Spirit Airlines is to ensure that the company gets to generate enough revenues to run operations and profits for the equity holders. As such, the program engages employees to provide up to standard and quality services that will attract customers to Spirit Airlines services, thus ensuring enough revenue generation.

Ethical Issues Discussion

Employee training enhances their ethical standards on several fronts including their behavior while within an organization, as well as a relationship with other participants. The teaching program increases the staffs’ skills in responding to customers’ needs. As such, it limits them against using what could get interpreted as a rude language. Besides, they are also trained to adhere to set professional guidelines for the industry as well as the regulations adopted by Spirit Airlines which every personnel is expected to follow. During the process, the workers get to know what may be regarded as unethical on the basis of the firm’s guidelines. Besides, it has become an ethical requirement that firms should provide high quality and up to standard services for their clients. Therefore, the training fulfills a core objective of Spirit Airlines.

Impact of the Training Program on Key Stakeholders

Staffers

The first people to be impacted by the project will be the employees. Since the program is designed for them, it will assist in enhancing their skills on interpersonal relationships, as well as client handling.

Customers

The outcome of the training project will be reflected in the change in attitude of this group. After the project, the expectations are such that the clients will develop a positive image of the company due to enhanced services that are rendered to them.

Management

As the worker ability increases, the chances of getting into conflict with the management will reduce. Besides, the program will also ensure the managers will no longer worry about client litigation over the misbehavior or lack of concern by employees. Again, the do not worry much about the image of the company.

Equity Holders

This group of people will have the economic benefit. As employee productivity increases, there is a likelihood of growth in revenue and profits, which could precipitate rising stockholders’ wealth.

Regulators

The training of employees within the company will reduce the worries and fears of breaking the law. As such, the training ensures that the workers are properly guided on how to adhere to regulations.

Solution Implementation & Success Measurement

a. Implementation

i. Key Steps Involved in Implementation

The implementation process followed seven steps

Step 1: Identifying goals

It involved communicating with all the concerned stakeholders to identify the objectives of the project.

Step 2: Acquiring training resources

This was significant in realizing what materials and resources were required to conduct the exercise.

Step 3: Creating the schedule

It is critical as it identifies the time is taken and the task associated with any given time.

Step 4: Finding a trainer

It involves recruiting experienced individuals who can guide the employees on the significance of customer care.

Step 5: Communicating effectively to participants

This ensures that all the stakeholders are informed about the process and their role in seeing its success.

Step 6: Tracking Progress

The aim is to ensure everything is on track as per the schedule.

Step 7: Taking feedback

The importance of this was to self-evaluate and ensure that objectives are achieved.

ii. Significant Resources Required

The implementation process will require core resources such as money resources to pay the trainers. Again, it will also need some publicized materials on employee ethical behavior and relationship with customers.