The 23-Minute Playbook for On-Prem Products

Every day NPR reports stories that keep you informed without fear or favor. That's the promise of a free press in a democracy. It's in the First Amendment. I'm Tom Bowman and I cover the Pentagon for NPR. Stand up for independent news coverage today by donating early for public media giving days coming up on May 1 and 2. Give now at donate.npr.org. This is Planet Money from NPR. About a month ago, Aaron Darling booked a ticket with spirit airlines for a work event in New York City. And if you've been following the news about spirit, you know that Aaron was not feeling great about that decision. I just started checking the flight status every two hours and I did that for like 72 hours straight. Because after filing for bankruptcy for a second time, spirit is having even more financial issues. Now it looked like it was about to go into liquidation and could maybe disappear forever. And I would even call them and be like, hey, is there something because I got a little worried that whoever was like in charge of updating the flight status. Maybe they were even like, you know, let go. When the day of his flight finally came, his departure was sort of a running joke with a staff at the airport. They were like, oh, you're flying with spirit. And I was like, kind of elected him and I'm like, I mean, I guess I'm one of the last. Aaron did make it to his destination, but spirit's fate is a little more up in the air. Hello and welcome to Planet Money. I'm an appeasley. Spirit used to be the king of ultra low-cost carriers. They're notorious for low fares and charging for basically everything else. And while maybe they weren't the most beloved airlines for a time, they were the fastest growing. Now the question is, can spirit make it through a week? Today on the show, what happened to spirit? First, the rise. We'll go back to 2014 when the budget airline was flying high. We'll talk with Ben CEO, Ben Baldanda, about his radical vision for cheap air travel and we'll take an uncomfortable trip of our own. Then the no-side. A legacy airline beat spirit at their own game and sent many budget airlines into a tail spin. Just last week, the federal government said it may step in to bail out the budget airline. I think we just buy it. We're beginning it virtually debt-free. They have some good aircraft, that good assets. And when the price is low, it goes down, we'll sell it for a profit. I'd love to be able to save those jobs. Back in 2014, Zoe Chase and Jacob Goldstein noticed spirit was the fastest growing airline in America and also one of the most hated. So they decided to book a ticket. Good morning, Zoe. Good morning, Jacob. We're at LaGuardia Airport in New York. It's very early in the morning. Yes, it is. We are going to fly on spirit airlines to Fort Lauderdale, Florida. And it costs us $68 to fly from here to Fort Lauderdale. $68.99. But? But. But. Where to begin. There are so many buts. Everywhere you turn, there are fees. 30 bucks to pick our seats. If you want water on the plane, it costs $3. And then you got the bag fees. Why do you allow one person to light? I mean, you can't have two. You can't just mess in your bag and the backpack. It's a price going to be $50. It's $50. To carry on it. What if I check it? $25. Spirit airlines is a subway car in the sky. There are ads on the overhead bins of never seen that before. And there are also more seats on the plane, which means they're closer together. There's less legroom. How are your knees? I mean, they definitely reach the seat in front of me. If you are perfectly sized for this situation. If the guy in front of me were to put his seat back, I'd be screwed. The good news is, on Spirit Airlines, you cannot put your seat back. Chris Patrizio across the aisle from us leans over and whispers into my ear. This sucks. Tell me. I had an ask them if they charged to go to the bathroom. They charged for coffee. This is the first time we've used Spirit. And it's going to be the last time we use Spirit. And lots of people feel this way about Spirit Airlines. Nothing was free. No water. Nothing. Peanuts. I've never flown an airline, even when you were up in the air for one hour, where you didn't get a cookie, a cracker, and a cup of ice water. It's a mess. They charge for everything. It's a total zoo in the terminal. And everybody's scrambling and no one's nice. But our plane is basically full of people. And across the country, Spirit is adding planes. They're adding new routes. In fact, Spirit is the fastest growing airline in America. Spirit Airlines is a billion dollar company. But you wouldn't actually know that when you look at its headquarters. It's this generic office park, right? You open the door from the sidewalk. And there's just a dingy little room. There's no receptionist. The only thing there is a chair, a little table, and a phone. You pick up the phone and you call whoever you're there to see. And we were there to see Ben Baldanza, the CEO of Spirit Airlines. And a lot of CEOs are boring interviews. They use a lot of jargon. They talk in a very bland way. Ben Baldanza is not like that. Well, if we were a retailer, we would, you know, some maybe some high service airlines in the world would think of themselves as a Nordstroms or something. And maybe I bet if you were going to talk to the guys at JetBlue, they'd say maybe we're a target or maybe even trying to become a little better than target. We're dollar general. That's right. We're not even Walmart. And we like being dollar general because we save people lots of money. You can see the dollar general thing in Baldanza's office. It's an ordinary office on the ground floor. He's wearing a short sleeve shirt. And there's some big windows, so he leaves the lights off to save money. I'll turn the lights out for you. Look, one bulb and those three goes on. That's the only thing that turns out when I turn the lights on in this office. One bulb in those three. There's no reason for me to waste that money. And to compare your company to the dollar store that's kind of an unusual comparison for a CEO to make, especially in the airline industry. Airlines have always tried to sell themselves to us as the nicest, the most comfortable, the most legroom, like this ad from United, for instance. More room in the economy class. More comfort. More of what you need. Ben Baldanza spent most of his career making that pitch. I spent over 20 years in what people think of as the traditional airline business. I worked for American, Northwest, Continental Airlines, US Airways, an airline down in Central America. And all those airlines were the same in the sense that their purpose in life was to try to attract a higher-fair customer. I would go to bed at night thinking, "How can I get you to pay more for your ticket?" Baldanza's outlook changed not long after he got hired by Spirit back in 2005. Spirit used to be just one more mediocre bargain airline in a crowd of mediocre bargain airlines. Spirit was competing on price, yeah, but they were also trying to do the other stuff. And it wasn't really working. In 2006, Ben Baldanza and Spirit Airlines made a decision. They were going to try to do in America what airlines like Ryan, Air, and Air Asia were doing in other parts of the world. They were going to build an airline that just competed on price. Rather than an airline that was going to compete for our customers on any other basis, and any sort of physical product or experience or, you know, zagget score or anything like that, right? It's going to be cheap. So once you made the decision, other decisions become a lot easier. So to keep our fares lower, we tried separately for checked bags and for large carry-on bags, and to print your boarding pass with a human being, and to eat or drink on board, and to pick your specific seed assignment. We fly our planes more hours per day. We put more seeds in every airplane. I mean, it's very easy to decide to put more seeds on the airplane when you want to have a low price. When you buy a ticket on most airlines, here's what you're paying for. A ride to wherever you're going, and a few other things, a bottle of water, a coke space in the overhead bin, if you want it, and you're paying for those things, whether you use them or not. When you buy a ticket on Spirit, all you're paying for is the ride. That's part of the reason that Spirit is so cheap. There's an airline out there, I'm sure you know their name, that spends a lot of money telling you that their bags are free. But their average tickets are 50 to 60 dollars higher than ours. It's expensive to carry bags. You hire people to load the bags. You pay for bag belts in the airports and the rental space to do that. Every once in a while, you lose a bag or you break a bag, so you have to have insurance to cover that. It is not free to carry bags, so you either charge the people who use it, or you charge everybody, whether they use it or don't. And we think it's fairer to charge customers for what they use, and not charge them for what they don't use. So basically the flight attendant coming down the aisle with the cart, with water and soda and coffee, that is not like Spirit Airlines serving me as a valued customer. That's just like a little 7/11 rolling down the aisle. That's exactly right. Spirit serving you as a valued customer is letting you fly to New York for 69 dollars. When everybody else is charging 150, or letting you get to Nick O'Rogue, or for 99 dollars, when everybody else is charging 250. That Spirit serving you as a valued customer. In addition, we'll let the 7/11 be available to you while you're in the airplane, and if you want to buy a grade and if you don't, that's okay too. I think Spirit is the first place where I've seen ads inside the airplane. I saw an ad on the overhead bin for Casino and an ad on some of the tray tables like right in your face. And then we have ads on our flight attendant aprons too. And isn't that great? Because people pay us to put that ad there and your fare can be lower. Baldens is case for Spirit Airlines makes sense. Pay for what you use, don't pay for what you don't use. And Spirit is really cheap. And lots of people just expect an airline to be a certain way. And when they get on Spirit and find out they're basically on a flying bus, they don't like it. In fact, Spirit Airlines came in dead last on a survey consumer reports published last year. Let me just start by reading. I'm sure you've read this, but I'm going to read from it. So this is a consumer reports a big survey from last year. Thousands of flyers. Consumer reports says bottom ranked Spirit Airlines received one of the lowest overall scores for any company we've ever rated. How does that square with the great story you just told me? Very elitist. And I will tell you why. That survey never asked customers about the price of their ticket. And since they don't ask about the price, it's absolute bunk. If you want to tell me that an airline that has more legroom and serves you more on board and has nicer lighting on the airplane is a better airline than ours, but forget to say they charge $400 and we charge $99. Why doesn't consumer reports put out a survey saying that a Mercedes S class is better than a Ford Focus? It's true. Why don't they put up that survey? The Mercedes S class is better than a Ford Focus. So why doesn't everybody buy Mercedes S classes? I got one more line on consumer reports. Also, the survey has a thing that's just called the reader score. This score is not check these boxes. It's just how do you feel about this airline? Do you feel good or do you feel bad? And Spirit is the worst on that one too. Here's the reality. If you go into the dollar store and you're expecting to buy a nice three-piece suit, you're going to be really disappointed. No one should come to Spirit and complain we don't have legroom. We're not a store that sells legroom. We don't want anybody to be surprised that we charge for water on board or that we charge for large carry-ons and things like that. We don't want to be anyone to be surprised at. But some people still are. And that's a failure of our company when they don't understand that reality. In our trip, we talked to a lot of people who did not understand that reality. They seemed surprised and angry and they said they were never going to fly Spirit again. And also, we talked to some people who were totally on board with Spirit's program. Yes, it sucks that the seats don't recline and you have to pay to use the overhead bin. But it's cheap. And I plan to head and I'm happy with this trade-off. So clearly, there are those two kinds of Spirit customers. But I wondered, is there a third kind? So is it possible that there are people who know what they're getting into, who fly Spirit but who sort of hate it like, "I want to get the deal," but like, "I hate getting, you know, nickel and dime, three bucks from water," like, "the conflicted Spirit flyer." How are there people who are like hate-flying Spirit? I think there are people who absolutely are like that. And I've met some. In fact, I was at a meeting a little while ago and the person leading the meeting looked around the table. There were about 10 people from the company that said, "Is there any of you flown Spirit?" And one guy said, "Yes, I fly them all the time." And she said, "What do you think of them?" He said, "I hate them." And she said, "Well, why do you fly them?" He said, "Well, they're so cheap." "But it's actually a problem, I'm just receiving." Back on her flight home, Barbara Dingus, our flight attendant says, "She sees the heat flyers all the time." They say, "They'll never fly Spirit again." But I guarantee you they'll be back. Why are our flights all full? Because those people come back. They're getting mad because they have to, you know, get their credit card out or whatever and think that they're going to get everything before they. Trust me, I know enough to know that people complain they get off. I remember faces. They come back on. Let's make this distinction between stated preferences and revealed preferences. State of preferences are what people say they want. And then revealed preferences are what people actually choose when they go out and buy something. In Spirit hits both of those things. When you ask people on a pole or whatever, what's most important to them when they pick an airline, they say, "Above all else, a low fare." That's a stated preference. And then more and more people are actually going out and buying tickets on Spirit Airlines. That's the revealed preference. And yet, and yet, so many people just hate it. Human desire is weird. Sometimes we don't want what we think we want or we do want it and then we kind of hate ourselves for wanting it. We pick the cheap option and then we feel kind of dirty about it. We say, "We'll never do it again." Even though we know deep down, we probably will. Ben Baldonza died in 2024. He is widely credited as leading Spirit during a period where the airline changed the whole industry, pressuring carriers to lower fares. So how did it all go so wrong for Spirit and other budget airlines? The story is so much more than high fuel prices. For the race, the revenge of legacy carriers and the new talk of a government bailout. Okay, welcome. Greg Rizalski, our resident newsletter writer. Emma, always a pleasure. So you've been talking to airline industry experts and you have some answers for us. I do. Emma, I hope your tray table is stowed in an upright and locked position and that your seatbelt is fastened because we're about to go on a journey. It's time for liftoff. Please take it off. Okay, so let's start with reviewing the trajectory of Spirit Airlines through a few headlines that we've seen in the past week or so. So I'm going to read a couple for you. Spirit Airlines looked like it was in the clear, but Rides and Fuel Costs are threatening its bankruptcy exit. Not the best headline. I want to be honest. Spirit floats government's stake to avoid possible liquidation. Spirit Airlines close to 500 million bailout from Trump administration. Oh, I'm perked up. I'm going to click it on that one. Spirit Airlines could be used to transport troops. Military cargo if Trump admin takes over bankrupt carrier. Didn't see that one. And then this clever Wall Street Journal editorial, a desperating airline bailout. Love a good pun in the headline. Yeah, if you want more puns, check out Greg's newsletter. Yeah, so this is all pretty incredible, right? I mean, the federal government is now basically flirting with the idea of getting into the airline business and maybe taking like an ownership stake in it. I mean, the Trump administration did do something similar with US Steel last year. And yeah, they could maybe sell the stake later and maybe make a profit and disqual all worked, but still like, this is not the typical way that like US capitalism works. And as of now, the bailout idea kind of stands like this. But has said it wants a bailout last week. President Trump suggested he might be open to it at the right price. More recently, the transportation secretary suggested he thinks that Congress would have to get involved. Okay, so bailout TBD. Yeah. So let's talk about how Spirit went from the fastest growing to near liquidation. You broke all this down in your newsletter and you make the point that it's not just Spirit that's struggling. It's a lot of budget airlines. That's right. You could call it the revenge of the legacy carriers. Yeah. So we're going to focus on these three factors for how big legacy carriers got their revenge. So first, they copy Spirit to steal the customers back. Then they sweeten their loyalty programs to keep the customers. And then third, the economy sort of does the rest of the work for them. Budget travelers get pushed out of the market. So let's start with factor one, this copycat strategy. Okay, so the legacy airlines to look at Spirit and other budget airlines and clearly they're eating their lunch. They're charging lower ticket prices up front and that seems to be working. So Delta, an American and United, they also start throwing creature comforts out the window for passengers not willing to pay for them. And this way they could also charge a lower up front ticket price and compete for budget travelers. They kind of take this to the next level, right, when they release this program called Basic Economy, which I book a lot. I'm a basic economy kind of guy. Okay. Do I love it? No. Do I, when I walk by the first class section, do I give a little side eye? Do you wish you'd made other decisions when you booked? In truth, no. My reveal preference, it's definitely cheaper fares. And there are a lot of people out there like me. Okay. So cheaper fares, less legroom, character building, more fees. And now these Spirit customers can basically get the same deals on legacy airlines. So that's factor one. Next is these loyalty programs. Yeah. And this is where it got particularly interesting for me because I spoke with this guy, his in economists, his name Severin Boranstein. He's an economist at the UC Berkeley hot school of business. And he told me that basically the big legacy carriers, they've been leveraging their market dominance like their market position. And they've been making it much harder for smaller budget airlines to compete. And they've done this by making their loyalty programs more enticing, more powerful. think like, you know, co-branded credit cards, corporate partnerships, enhanced frequent flyer programs. In many cases, it was not changing the total offering at all, but simply giving one customer priority over another. Now importantly, for loyalty programs to work, scale really matters. And that's something that the big legacy airlines have. They have scale. And when an airline flies everywhere you want to go, the rewards are more useful. The perks are easier to redeem and the status feels worth chasing. And this is a pretty big problem for Spirit and other budget airlines, right? Because they're smaller. It's hard for them to compete with these big loyalty programs. Exactly. And separate actually goes a step further and he makes this argument to actually these loyalty programs. They're a big problem for a healthy competitive market. Because it means airlines aren't just competing on the price or the experience of getting from point A to point B. Now you have all these like weird loyalty incentives for consumers to like ignore competitors. Loyalty programs play a huge role in allowing airlines like Delta and American and United to leverage their network size in ways that have nothing to do with actually offering higher quality service. So first the legacy carriers, lower fares, they create basic economy. Then they lock in customers with beefed up loyalty programs where size is an advantage. But Spirit lives on with its core customers, these budget travelers who don't fly enough to care about loyalty points. Yeah, they still had them at least until everything got much more expensive. But then the cost of everything just starts exploding. Like since the pandemic we're talking higher energy costs, higher material costs, higher labor costs, there's a pilot shortage. Like there's a whole bunch of issues in the industry. And my sources told me that the budget airlines have just had a much harder time absorbing these costs. I spoke with Henry Hart de Velt, he's a long time industry analyst. And he's like, yeah, the bread and butter of budget airlines is budget. Take a price. But when your costs go up, your fears have to go up. And if your costs go up too much, you're less able to offer the dirt cheap fares that your customers expect you to offer. Okay, so so far everything has been on the supply side, so the airlines themselves. But what about the demand side? Yeah, the demand side, the price sensitive consumers themselves. They've been struggling. I don't think this is a secret either. Like high inflation, higher interest rates, a cooling labor market, this longer on trend of growing inequality, all this has been reshaping American spending patterns. And it's been hurting businesses that cater to low and middle income Americans. For example, dollar general has struggled as their core consumer spend less. And something similar has been happening with spirit. Budget airlines historically appeal to customers with limited income. And in our research, we have seen travelers who earn up to $150,000. You're saying they've cut back on their lesser travel. They are traveling less often. They are in some cases for going air travel. Okay, so flying optional, obviously gas and groceries, not so much. So to sum it up, we've got legacy airlines competing on price with things like basic economy, super charge loyalty programs, and the disappearing customer base. That all brings us to today where we are now talking about a potential government rescue program for spirit airlines or maybe having another airline by them. Yeah, and this would be a pretty big reversal from a few years ago. When the Department of Justice under President Biden fought to block spirit from merging with JetBlue and then one in federal court, there's been some debate about that decision, especially now that spirit is facing trouble. Where there's less debate though, if spirit were to die, that would likely put less pressure on the big airlines. So yeah, spirit may be hated, but a world without it would probably be bad for a lot of passengers, even those who don't like flying with them. This episode began as a newsletter by Greg, and he writes a weekly, deep original essay about something going on in the economy. We're always going viral, you can check them out at npr.org/planetmoneynewsletter. We'll also have a link in the show notes. And if you want more airline history, we have another episode that tells the story of the original budget airline long before spirit. We'll have a link to that in the show notes as well. If you picked up a copy of the Planet Money book, thank you so much. If you haven't, send stores now, and we're so proud of it. It's called Planet Money, a guide to the economic forces that shape your life. And airport bookstores and it makes a great read out of a plan. This episode of Planet Money was produced by Emma Peasley and edited by Alex Goldmark. It was fact-checked by Vido Emanuel and engineered by Jimmy Keely. I'm Emma Peasley. And I'm Greg Rizalski. This is NPR. Thanks for listening. As always, we want to hear from you. You can email us at npr. Do you agree? Take two. You can email us at planet money at npr.org. You'll find us on Facebook from Spirit Airlines Flight 710 somewhere between Fort Lauderdale and New York. I'm Jacob Goldstein. And I'm Zoe Chase. Thanks for listening.