Meet America's king of airline fees
NEW YORK (AP) — Spirit Airlines is the frat boy of the airline industry, known for provocative ads and a no-apologies attitude. But its CEO is more like the captain of a marching band.
As a kid, Ben Baldanza practiced his trombone and launched mice into the sky on model rockets. Today, the airline CEO enjoys historical mystery novels and collects board games.
A graduate of Syracuse University with a master's from Princeton University, Baldanza, 49, has spent his entire career working for airlines. But it is at the no-frills, fee-happy Spirit that he has made his mark. The airline carries less than 1 percent of overall U.S. airline traffic, yet it has significant name recognition thanks to playful advertising campaigns and a policy of charging extra for almost everything, including water. Spirit is the only airline to charge for carry-on bags.
The airline, based in Miramar, Fla., offers 150 daily flights to 49 destinations in the U.S., the Caribbean and Central and South America. It has 35 aircraft and plans to expand to 68 by the end of 2015.
Spirit was losing money until Baldanza took over as CEO in 2006 and transformed it into an "ultra-low cost carrier." The company's new mission: charge cheap base fares, pack more people into planes and add fees for everything else. Spirit has been profitable since, earning $190 million in the last four years, a period in which many airlines struggled to stay in business. In the first quarter, Spirit earned $7.8 million and analysts forecast it will earn $11 million in the second quarter.
The company's initial public offering on May 26 brought in $187.2 million, 40 percent less than its private-equity owners had initially hoped. However, analysts have since been upbeat about the airline. Gary Chase of Barclays Capital says he expects the company to generate "impressive margin and profitability" as it continues to grow, in part due to its high number of fees which are not subject to federal excise taxes.
It is those very fees that frustrate many customers. Baldanza is unapologetic.
"We believe this is the most consumer friendly model in the world because we're giving consumers the option to save money if they are willing to behave in a way that saves us money," he says.
Baldanza recently visited The Associated Press in New York. Below are excerpts of the interview, edited for clarity.
Q: Many Americans perceive flying as a painful experience. Why?
A: Because it is in many cases. (Laughter) There's a reality today that is just different than maybe 10 or 20 years ago. It can be annoying and take a long time to get through security. In many people's minds the industry has nickel and dimed customers and has added fees for a lot of things that used to be included in the base fare. We've helped lead that to some extent, although we like to think that we're a little different than the other guys because in every case we've added fees we've also correspondingly lowered our base fare.
Q: Does Spirit annoy people?
A: I think we do in some cases. But I actually think we annoy people who don't fly us more than we annoy people who fly us.
Q: Did you ever question charging these fees, saying the risk is too high?
A: In 2006, we decided we were going to run Spirit as an airline that competes on the basis of price and price alone. Making that decision made it easier for us to make other decisions about how to run the business that are probably very difficult for other airlines. You start asking yourselves why would I put fewer seats on the airplane than the airplane can hold?
Q: What led to that decision?
A: At some point you've got to get tired of losing money. (Laughter) No, really. That's it. I mean the business wasn't working. We grouped every airline into two buckets: airlines that make money all the time and airlines that make money in good times but give it all back in bad times. The airlines that made money all the time were extremely high premium airlines or extremely low-cost airlines. There was almost no one in the middle.
Q: Spirit recently went public but the 15.6 million shares were priced at the lower end of expectations. What happened?
A: The right price for anything is the price people will pay for it. There are a number of people who question why we would even try to IPO the airline in an environment of high fuel prices. Our view was we have a strong company, we've made money each of the last four years, we made money in the first quarter, we have a resiliency and sustainability that many airlines don't have.
Q: At what point does the price of oil make it impossible for Spirit to make money?
A: Our business model works at higher fuel prices. Would it work at any fuel price? Well, I can't say that. Because the density of our airplanes is so high, we need to raise our ticket prices less than the rest of the industry. Between New York and Florida, for example, both we and JetBlue fly the A320 airplane. They put 150 seats on the plane, we put 178. If oil prices go up such that it costs $100 more in fuel to fly, JetBlue's got to get that over 150 people, we've got to get it over 178.
Q: Do you see a merger or acquisition in Spirit's future?
A: It's taken a lot of effort to convert Spirit into a winning model. We don't see a lot of other winning models out there. So right now, we believe we have enormous growth potential to natively grow our airline.
Q: Do you think it would be great to run Delta or American and apply some of the lessons you've learned?
A: (Laughter) It's hard because those business models have a high cost structure that's a result of flying a mixed group of airplanes, having senior labor groups. They need the business traveler to make their business model work. At Spirit, in part because we're small, in part because we were willing to accept this, we don't do anything to attract business travelers.
Q: What kind of boss are you? Do you consider yourself a micro manager?
A: When I need to be, but I don't like to be. I like to have people who are smarter than me working for me. If I'm better at finance than my CFO then I don't really need him.
Q: How many hours a day do you work?
A: That's different than how many hours a day am I in my office, right? (Laughter) I feel like I'm at work 24 hours a day. Technology helps that, or enables that. I usually get to the office around 8 or 8:30. Some days I'll leave as early as 5, some days I'll leave at 7:30 or 8. I try to be home in the morning for my son and for dinner with my son and help put him to bed. Often what I'll do is get home, zone out from work for an hour and a half, have dinner with my son, read to him, play with him and then he goes to sleep and I go back to work.
Q: What do you do on a typical weekend?
A: On Saturdays we have a fairly actively scheduled day with our son. He plays violin and he plays hockey. Then on Sundays we just relax. We often go to the beach in the morning and have breakfast on the beach.
Q: What was the last movie you saw?
A: Waiting for Superman.
Q: Thumbs up? Thumbs down?
A: Big thumbs up. My wife and I had our only son eight weeks after our 20th wedding anniversary. He will turn five this August. Since he's been born we just haven't seen a lot of movies. So we saw Waiting for Superman sort of on a date night. My wife's a professional educator so we wanted to go see that movie.
Q: What would people be surprised to learn about you?
A: I'm more of a quiet and conservative kind of person. I don't mean that in a political sense. Our company has a bravado kind of attitude. People say companies model their leaders. But my personality isn't like the personality of Spirit. I tend to be just a much quieter person. To me, a real enjoyable day is going for a run, working out, playing with my son and spending time with my wife.
Q: What keeps you up at night?
A: Big fuel price shocks, another 9/11 kind of event that changes the way people think about travel. It's not that I obsess about those things but I live with the ongoing recognition that you could wake up one morning and the world is just really different. I worry about what's going to happen that I can't quite predict and will I be aware enough, active enough and flexible enough to be able to react quickly enough to deal with it.
Q: How'd you get into flying?
A: I'm the youngest of five kids, was born in 1961 and grew up in the 70s. The space program was just huge for kids at that point. I lived in Rome, N.Y., which had a very active Air Force base, Griffiths Air Force Base. I grew up in a house a mile and a half off the end of the runway. In the middle of the night you'd hear these booming sounds and see waves of B52s and tankers taking off. As a seven, eight, nine-year-old it's impossible not to get excited. I knew the name of every astronaut.
Q: So how did you get your start at American Airlines?
A: I interned at American Airlines in their finance department and was really excited by the airline, the set of problems I had to deal with. In the mid-1980s, American Airlines was a fantastic place to be. Bob Crandall, who ran American Airlines at that time, clearly figured out what deregulation was going to mean for the industry long before anybody else did.
Q: You have a pilot's license.
A: I have about 600 hours in private airplanes. In the summer between undergraduate and graduate school I got a private pilot's license. When I lived in El Salvador, I took about 50 hours of aerobatic training. But then we moved to Washington in 1999, when I went to work for US Airways. I haven't flown since and realistically don't think I'll fly again. Flying is just not a part-time hobby. It's an unsafe thing to do if you don't do it a lot.
Q: Window, aisle or middle seat?
A: When I travel for business I always want the aisle but if I'm traveling with my wife or with a friend I'm happy to take the window and let them take the aisle.
Q: Are you willing to spend $8 to choose?
A: (Pause) Yeah, absolutely. (Laughter)
Q: Spirit doesn't do much advertising but relies on controversial promotions. When former U.S. Rep. Anthony Weiner admitted to sending photos to women, you launched "The Weiner Sale: With Fares Too HARD to Resist." Bikini-clad pole-dancers recently drove around Los Angeles with a sign saying: "You can take me home for $9." Who comes up with these?
A: It's a joint effort. In general we come up with most of the ideas we're using in-house.
Q: Are you sitting around with a six pack of beer?
A: No. The media focuses on stories that people are interested in whether or not that's really news. Anthony Weiner dominated the news for a week while the country's going bankrupt. So why shouldn't we talk about Anthony Weiner?
Whether you say this is funny, really annoying or distasteful, if you forward it to 10 of your friends, then we won. We don't intentionally try to incite. We believe there's a line we shouldn't cross.
Q: So have you ever vetoed anything?
A: Oh, absolutely.
Q: What was it?
A: I can't say. Let me talk about Anthony Weiner. The day that scandal broke, there were these pictures, but the congressman was saying: My account was hacked. We talked about how this would be a really fun sale but said: No, we can't do that. This is a sitting congressman. Somebody is trying to subvert him. Once he admitted to the scandal then we said: OK, that's fair game. Now, a celebrity is different. When Tiger Woods had his problem we ran that sale really quickly. I think we ran his sale one mistress in.
Q: You've announced plans to charge passengers when an agent prints their boarding pass.
A: A large percentage of our customers buy their tickets online from us but a much, much smaller percentage check in online and we don't really understand why except that there's no particular reason for them to do it online. Now we're trying to give them a reason. It not only saves us money in terms of printer ink but, over time, it could mean less airport real estate.
Q: Are people aware of your fees?
A: I think we almost over-disclose on our website and the vast majority of tickets are bought on our website. It's almost to the point where I think we have a surgeon general warning on it that you shouldn't fly, you'll have lung cancer. (Laughter)
The biggest complaints we get about disclosure are from people who buy from sources other than our website. We give Orbitz and Travelocity all the information about our fees. Whether they choose to pass that information on is their choice. The government gets mad at us, yet they'll let the third parties sell our ticket and not disclose. That's unfair.
Q: You have almost 2,000 board games?
A: I have less now. At one point in my life I owned almost 4,000 and then went through a downsizing. It's probably about 1,500 now.
Q: What's your favorite?
A: There's a game called Die Macher which I think translates as sort of a power broker. It's an election game where you take the role of a political party and go through seven regional elections. Your performance in those elections is a function of how well you control the media. (Laughter)
Scott Mayerowitz can be reached at http://twitter.com/GlobeTrotScott