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Spirit’s Battle With Its Pilots Has Been Expensive

For a ULCC, keeping operational costs low is absolutely critical, so it’s no shock that Spirit didn’t react well when its pilots asked for major pay increases. And it is certainly possible that the new government mediation board will side more with management in the kind of pay increases that the pilots can expect. But for Spirit’s management, it may have won a pyrrhic victory, as the costs of the battle were immense. According to Spirit’s Edward Christie, the pilot war caused Spirit’s CASM to rise 10% YOY instead of the planned 2-3%. It would have been 2% without the pilot related expense and cancellation. In all 850 flights were canceled and $25 million in revenue was lost. Christie elaborates

“Had we not incurred the expenses and lost the ASMs associated with the pilot-related cancellations, we estimate adjusted CASM ex-fuel would have been up approximately 2% year-over-year, which would have been far better than our initial guidance for the quarter.

I know everyone is curious about when we will reach a new contract with our pilots. Reaching an agreement on a competitive economic package that allows us to improve our operational reliability is our priority. We are diligently working with our pilots and the National Mediation Board towards that goal. And we will have no further comments as the pace or status of those negotiations.

We continue to move forward with initiatives to improve our operational performance. Matt mentioned our focus to leverage technology to make it easier for customers to do business with us. We are also focused on improving our service levels when things don’t go as planned.

In the past, when trips were disrupted, the customer might miss their next best Spirit flight option because they are waiting in line to see an agent to get rebooked. During the second quarter, we implemented a system that notifies customers when their trip is canceled and automatically suggests the next best Spirit flight option, thus minimizing the inconvenience of getting rebooked. Our goal, of course, is to minimize operational disruptions. When that doesn’t happen, this program is very beneficial in helping us quickly and efficiently find another solution for our customers.”

United’s Hubs Are Now The Eye Of The Hurricane

On earlier calls, Spirit’s CEO (first Ben Baldanza, now Robert Fornaro) has often spoken candidly about the markets that are seeing the most pricing pressure. Historically, those markets were usually hubs for American Airlines, but now according to Fornaro, the most affected markets are United hubs.

“I think it’s mostly the primary markets, at least that involves us are Chicago, and then to a lesser degree Houston and Newark. Certainly, there’s tremendous discounting going on in Denver as well, but we’re not a major participant there. And I’d say very little of the – I’d say increased competition has anything to do with basic economy. In fact, I think I’d say it’s actually rare, in many cases, we’re seeing carriers with a higher cost than us actually charging prices below us.”