Bad Customer Experience is a Headwind for Spirit Airlines

Shares of low-cost carrier Spirit Airlines (SAVE) are down close to 20% this year. Spirit thrives on being a low-cost carrier and generates a massive portion of its revenue from add-on sales. The company provides the cheapest ticket in the airline industry, however the company ranks lowest in customer satisfaction. Spirit Airlines ranked last in the latest travel report from the American Customer Satisfaction Index (ACSI).

According to a Spirit Airlines’ report, ticket price is the first thing that passengers consider when buying an airline ticket.

However, despite offering the cheapest tickets, Spirit Airlines has struggled with its expansion plans.

This clearly indicates that price is not the only thing that travelers consider before buying a ticket as customer satisfaction is also very important. JetBlue tops the American Customer Satisfaction Index and despite offering costlier tickets than Spirit, the company’s traffic is growing at a rapid pace.

In an investor update filed on July 13th, Spirit said June results were hurt by flight cancellations caused by adverse weather. The company had to cancel over 500 flights that negatively affected quarterly revenues by $5 million and also added roughly $15 million to Spirit’s expenses. Spirit was the only airline that had to cancel so many flights because of severe weather as other airlines were functioning smoothly.

Moreover, if you go through the customer reviews, you will find that delaying flights are a common occurrence, and the staff is also rude. Large scale delays and cancellations clearly indicate that Spirit Airlines is under equipped. Thus, it is not surprising that Spirit has established itself as one of the most hated airlines of America.

Price is not the only factor

Judging by the customer reviews, Spirit Airlines is similar in many ways to Air India, which is India’s worst airline. Air India offers cheaper tickets, but flight cancellation and delays are a common occurrence. It is for this reason, customers tend to avoid flying with Air India and tend to pay a little extra to travel with airlines with better customer service, and I can see the same happening with Spirit.

India’s per capita income is under $1,500 while America’s per capita income is close to $50,000. Clearly, people in India have considerably less disposable income and are still willing to pay extra so as to travel with an airline with better customer service. So, I think more people in America will be willing to switch from Spirit to airlines like JetBlue and Southwest that are customer-friendly and offer way better amenities.

Conclusion

Given the customer complaints, I don’t think everyone will be willing to fly with Spirit Airlines. I don’t think price is the only factor that people consider before buying a ticket, which is why I think Spirit Airlines will suffer because of its bad brand image. I will only consider Spirit Airlines a safe investment when the company makes effort to improve customer experience. Till then, I think investors should stay on the sidelines.

Published on Oct 7, 2015
By Harsh Singh Chauhan

Copyrighted 2016. Content published with author's permission.

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