Spirit Airlines CCO Matt Klein sits down with ATW Editor-in-Chief Karen Walker to discuss how Spirit is changing its offering, scrapping change fees and its strategy moving forward.
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Rush Transcript
Karen Walker:
Hello everyone and thank you for joining us for Window Seat, our Aviation Week Air Transport podcast. I'm ATW and Aviation Week Network Air Transport Editor-in-Chief, Karen Walker, and I am absolutely delighted to welcome you on board. Great day today. I am extremely happy to be joined by Matt Klein, the executive vice president and chief commercial officer at Spirit Airlines. Matt, welcome. Great to see you again.
Matt Klein:
Hi, Karen. Thanks for having me.
Karen Walker:
Matt is, as I said, the executive vice president and CCO at Spirit Airlines. He joined Spirit in 2016 following several executive posts in the travel and airline industry. Spirit, of course, is headquartered in Florida, and it's an important ultra low-cost carrier [ULCC] that operates across the United States and into Mexico, Latin America, and the Caribbean. Spirit is famous for its young, all-Airbus, narrowbody fleet in bright yellow livery, its low fares, and its simplified structure in which passengers can buy just what they want to get from A to B.
It's been an interesting year, Matt, for US airlines in general, because—interesting usually doesn't mean it's that good in the airline industry—but the demand for air travel has continued to be very strong with very high load factors. However, yields are under pressure, and Spirit is no different in that. But as a low-cost carrier, you are responding to this fiercely competitive market in a number of ways, and one of those is with your new guest experience offering. So I really want to focus on that. Could you start, Matt, by just giving us the top line, what are these products and what's the timeline on rollout, please?
Matt Klein:
Yeah, sure, Karen. So we started this transformation back in the late spring, early summer period this year. Before we even get to some of the new products that we're offering now, we started with the elimination of change and cancel fees, and that started again late spring, early summer. And then we also moved forward with increasing the weight of checked-in bags up to 50 pounds, which is an industry standard. We had been at 40 pounds for a long time, and we moved up to 50 pounds. And we also did something with our reservation travel credits, extending them to be a year of use before they would expire, which again was an extension and expansion of where we had been previously. And all of this was in response to what our customers want, and really then leads into your question about new travel options that we've introduced.
It's all, again, about what we're seeing, what customers want. We spend a lot of time doing a lot of market research. We also worked with a couple of third parties to make sure that we're thinking things through correctly. We looked through our entire brand as well and really thought through what are customers wanting today? Can we offer it? How will we offer it? But still staying true to our roots as a low-cost airline as well, which is incredibly important in the grand scheme of things for us. So what we then introduced throughout the summer really is thinking through how we segment our possible customers out there and what we do on the aircraft as well. So everyone's very familiar, I'm sure, with our Big Front Seat product that's out there.
It's a great two-by-two domestic product out there. We turned it into more of an overall product, a more all-encompassing product, where you're still getting that great seat, and we're calling that Go Big. A play on the Big Front Seat, branding that's been out there for a long time, but Go Big now includes that seat that's always been there. Plus now if you want to buy the Go Big product, you're getting a checked bag and a carry-on bag, and you're getting included Wi-Fi in your transaction and you get priority boarding, and you also get snacks and drinks, which is something new for us, as well. We always had them available for purchase; now they're going to be included in that product when you purchase it. And the drinks include alcoholic beverages as well, which we heard from a lot of people that that's important. So it's on there now as well.
Then on top of that, we then also thought through, well, not everybody wants that experience, but what's an experience we can still deliver that would be new, but also looking more towards premium leisure offerings? So the Go Big product definitely is a premium leisure offering; it also caters to small and medium business travelers if they want that. It's a great product. The Go Comfy product, as we call it, is really, for all of your listeners that are familiar with European business class, it's very similar to that in terms of it's the regular seat that we have today, but the middle seat is blocked so there's guaranteed no one sitting next to you. So you have a window or an aisle seat, and you can almost think of it as an extra elbow room kind of product. But it also comes with a checked bag and a carry-on bag, and also snacks and drinks—non-alcoholic drinks on that product—but still there. And you also, along with that, get priority boarding as well.
So really trying to cater to a premium leisure offering that we've seen throughout the industry, and it's really taking hold at other airlines as well. So it's really a way for us to be able to compete better with other airlines that have not the same product but something similar. A lot of other airlines have extended leg room products, we decided to do this elbow room product, so to speak. And then on top of that, then I would say lastly we have what we're calling the Go Savvy bundle, which is really just a regular product that we've been selling for a long time. But it includes a standard seat, so you get to pick what seat you want when you buy your Go Savvy product, plus you get a choice of either a carry-on bag or a checked bag. So you can choose whichever bag works best for you. You get your seat and that's great.
And then lastly, we have what we're calling Go, and Go is exactly what we have, really what Spirit has had for 15 years, which is a fully unbundled product. The fully unbundled experience is still there for all of our guests if they want that experience, we still offer that. But the best thing that we're offering that no other airline really offers, except for one, is going to be the ability to have no change fee, no cancel fee, for all of our guests, all of our customers get that. It's not just based on what you purchased or what you're trying to upgrade into, all of our guests are going to have those features in their transaction. And it's great. We thought this would happen; it is happening. We're seeing a lot of interaction now and engagement with our guests on making changes closer to departure, so we're able to satisfy what they want.
And really a lot of this transformation, like I was saying earlier, about research and thinking through what the traveling public, here in the US especially, is asking for involves a more frictionless transaction, trying to be as seamless as possible. So if you need to make a change, let's go ahead and make that change. And the returns on this have been really good for us so far. We're seeing very high engagement, like I said, on changes, and we're seeing a lot of people create reservation credits where before the charge to be able to make those changes or cancel your reservation was generating revenue for us, but it was really turning off a lot of our customers, and we had to make some changes here. And we have, and we've been very, very pleased with the results so far.
Karen Walker:
This is fascinating. I'd like to pick up a little bit more on that, the no change fees especially, because I think that's an ideal product for its time right now. So let's talk about that in a little bit, but perhaps with the exception of Go, these other new products that you're talking about, it sounds to me like they don't involve cabin refits or major physical changes; it's how you are presenting different offerings to the customer. And what it seems to me—I'm interested in the strategy behind all of this, because Spirit is absolutely famous—I would say you're the pioneer of ultra low-cost carriers, certainly in the States—but I think you've set that template for a lot of airlines worldwide, too.
And of course, what Spirit brought to the game was unbundling, just stripping everything down to the bare. You pay this and it'll get you there, and then you can buy everything else, including a bottle of water. Very, very unusual in its day, as you know, lots of people are doing that. So what's the strategy here with some of these new products? It seems it's going the opposite direction, where you're now offering bundled packages. What's the strategy?
Matt Klein:
Yeah, sure. So that's a great question, Karen, and we're getting that question a lot. Really what we found is pre-COVID, there was starting to be some changes with the way that customers were interacting with airlines, and this idea of a more premium experience was starting to be visible. Again, I'm talking largely here domestic US business for the most part here in this conversation. And we started to see a little bit of that. We started to make some changes back then. We didn't talk about it a lot, but we installed Wi-Fi on all of our aircraft. So we've been moving, we were starting to move in a direction and then COVID hit. And then coming out of COVID, this idea of more premium leisure offerings and having a more premium experience in general really seemed to be taking hold. And it was something that really we weren't necessarily offering in the way that customers wanted it.
So yes, we always had our big front seat and of course we have our exit rows for extended leg room, but all of the other pieces that were coming around the experience are great. Again, it's great for anyone that wants that product. It's still there. The fully unbundled experience is still there. We did a lot of work to try to figure out how can we do this without raising our absolute costs? Yes, by blocking some middle seats, we are taking some seats off the aircraft that are not available for sale. So from a unit cost perspective, yes, you're going to see a little bit of unit cost inflation just because we have a few less seats on the airplane, but the absolute costs really haven't changed. Yes, there's a little bit of providing some snacks to a portion of the aircraft. So I'm not saying there isn't any, but these are very nominal increases in expense.
And part of the reason why we felt like this was an appropriate time to do this is these blocked middle seats coming off the aircraft, they're not really, as you mentioned, they're not really coming off the aircraft, we're actually going to be putting some trays on those middle seats. So actually some workable functional space for the people that are in the Go Comfy product, they'll now have even more workspace available for them. If they want it, it's going to be there. And really our ability to be able to package and offer this up to our guests is something that we've seen that they want. We were getting a lot of feedback, even for people that really enjoyed the Spirit experience, some of them still wanted an even greater experience, which was great. So that gave us a little bit of market research, but what we really wanted to do is be able to really go out to people who don't fly Spirit.
How can we expand the funnel? How do we compete for customers that we're really not competing for—I'll say today, meaning in the past—but in the past we weren't competing for those customers. The difference in net promoter score between people who fly Spirit and people who don't fly Spirit, it is a stark contrast. And it was something that we knew we had to go address, we had to go change, and part of that was starting with policies. A next piece of that was thinking through how we offer products to our customers. And one thing I didn't mention earlier, but it's also important here, is the overall guest experience.
So what we also now, in 23 of our airports—our largest 23 and it'll expand to more—we now have dedicated check-in lanes. If you buy the Go Big product or if you are a gold member of our loyalty program, or if you are a Free Spirit credit card holder, you'll also have access to a dedicated check-in experience now at the ticket counters, as well. That's important. And we heard it loud and clear, and again, not a lot of expense on that at all, but just something that we were able to do and reconfigure some of our lobbies to take advantage of that.
So that's the rationale, and so far it's been received really well. We're actually quite happy with everything. Again, it's trying to get more ridership, so to speak, more expanding the funnel, like I said earlier, and trying to get more people to try the Spirit experience. Because once you do, you realize it's good. And a lot of times people say, and this is a big difference, where we're trying to go from, oh, this surprise that its good into its good, and it should become expected. And that's how we feel like we really need to get to the next step.
Karen Walker:
So what you're really talking about here is that the idea is to yes, of course, make your current customers, your loyal customers, even happier. They're loyal, therefore they like Spirit, but there's different options for them. But it's also about getting in new customers who would say to themselves, "Yeah, I've heard about their great fares and reliability and all the rest of it, but I don't like the idea of not having this, not having that." And this is a way of appealing to that market to grow the market for yourselves, yes?
Matt Klein:
That's exactly correct. And we also know that it doesn't happen overnight, so we have to execute well, we have to deliver. And we're in a little bit of an off-peak period right now, so I don't want to say that the last month is indicative of the entire year, but our operation is running very, very well. September on-time performance and completion factor, other than some weather that was out there for some named storms, was fantastic. And that's why we're seeing it also in our NPS scores. I mentioned about the difference between people who fly Spirit and people who don't fly Spirit, how there's that difference in NPS score, and we need more people to try Spirit to understand how good we really are. But what's also great is our absolute NPS scores of people who do fly on us are at all-time highs.
So this has worked, and this is exactly what we were trying to do. And our workforce, our flight attendants and our people at the airports, are fully engaged, and they're providing great service and it's a great experience. We're seeing it, and it's fantastic. We have scores now that are even higher than when no one was flying during COVID and every flight was on time, and those were all-time scores for every airline. We've now surpassed that as we come out of the summer into the fall. So we're looking forward to seeing that continue on, as well.
Karen Walker:
So it's an incentive to attract some new customers. I can certainly see that. I mentioned about this idea of what you were saying about the no change fees and things like that, being it seems to me like a product of its time. Because that seems to me something else that's really changed post-pandemic, is that people, they want more certainty because it's an uncertain world is probably one way of putting it. And they want to know that, "Hey, if my plans don't work out, the one thing I don't have to worry about is the flights. I can still organize that." How difficult though is that to manage for you as an airline, where people know that they can change so you are not quite sure if your plane's going to be overfull, for example?
Matt Klein:
Right. So what's interesting, and then again, this has been going on for a long time, and I think it accelerated throughout COVID and then coming out of COVID, was this idea of if you look to other industries or other providers of free returns, if you buy something online, you can return it for free. It's this idea of just more certainty, of having confidence that I want to interact with that business, whatever that business is. And that's the thing, Amazon Prime is a perfect example. People pay to be part of that service, and then they know they can buy whatever they want, it gets delivered when they want to, and they can return if they want to, whenever they want. And that's exactly what this whole idea of change, cancel fee elimination, is really a follow-on I think of society and really what customers want.
Now, we weren't sure exactly how this would play out from a demand perspective and how our revenue management team would see these modifications come through, how close to departure would they come through? I would tell you that the revenue management team is thrilled by all of this, because we had a high no-show factor, which was really hard to forecast. This has actually made it even easier for us to forecast our show factors or the reverse of that, the no-show factor, because we want people to feel comfortable doing this. And it actually makes it easier for our revenue management team, especially in that really high yield, last four, five, six days before departure, we now have more seats to sell, which is great. And that was the hope, and that is what's actually happening. So it's actually worked out really well, not just for our guests, but also for Spirit.
Karen Walker:
So it's actually giving you a bit more certainty, a bit more clarity, because that's again, another thing we've seen post-COVID, that people are making last-minute decisions about whether to fly, which has changed things, too. But again, this has allowed to get you to give yourself a bit more clarity on this.
I have just one final question for you, Matt, which is, as I said at the start of this, it's been an interesting year for the airlines, in the US especially; we're seeing lots of changes. And what's fascinating is that we're seeing some of the majors doing more and more what I would call low-cost offerings, type of offerings. And then you've got the ultra-low cost doing some of the things like you are just doing here. And then you've got Southwest Airlines has announced that it will be making very major changes, things that it's never done before, like pre-assigned seating. Does this all become one big blur where nobody stands out, everybody's essentially met in the middle somewhere and they're all doing the same. How does Spirit differentiate itself?
Matt Klein:
Yeah, that's a great question, Karen. If I may, let me go back in time a little bit. So the legacy carriers here in the United States introduced basic economy largely six, seven, eight years ago. And they really, I'll just say it, they stumbled out of the gate trying to figure out how to use basic economy. As we came out of COVID and all kinds of things happened, and we don't need to litigate and get into what happened and why it happened, it just did happen. And coming out of COVID, what we saw were the legacy carriers, amongst others here in the United States, really figured out how to use basic economy really well. And they were competing for leisure customers that used to be what Spirit and airlines like Spirit, we were competing for those customers, and the legacy carriers had a lot more corporate travelers on board, so they didn't have seats.
Now, then they're coming out of COVID, they had seats. So really we were sitting around playing in the same game while our competitors were playing a different game. And that goes into part of the business logic behind what we've decided to offer now is now we're playing in someone else's game as well. I'm not suggesting at all that we're going to beat a legacy carrier at their own game, and that's not what we're trying to do. We're just trying to become more attractive and attract more customers to us that want that product. And if we don't have a product to offer them, then I don't blame them for wanting to travel another airline. Now we have product, and I would tell you that one of the ways that we'll be able to really differentiate ourselves moving forward is the combination of our low-cost structure with our premium offerings.
No one else has this in the US, no one has what we're offering from a premium product perspective with the cost structure. That allows us to still be incredibly affordable. And that will always be important. We run very high utilization and that allows us to keep our costs lower, and that will continue to be a differentiator for us moving forward. And I'm excited to be able to compete on different products that we've never competed on before, and be able to distribute and display our products in ways that we've never done before. And it really is about expanding the audience and expanding the funnel. And we've gone through now, and like I said earlier about brand transformation, we've also now started to do more advertising, which we've really never told our story publicly. Everyone knows our story from what they've heard from others, and this was the first time we've really stepped forward and said, "We're going to tell our story. You're going to see us in major metropolitan markets around the country telling our story through brand advertising."
And it's great actually, and the engagement we've seen so far on digital has been really good. And now we're going to start to see more video and out-of-home, and connected TV and other kinds of advertising out there, to really get the word out and start to change that story. So that's the way that we're going to differentiate ourselves. We're going to have a personality, we're going to still have really low costs, and we're going to have great affordable travel options for our customers, for our guests.
Karen Walker:
So, an even more bullish Spirit, it sounds like, Matt. I hope very much that maybe six months down the road you'd come back onto this program, because it would be fascinating to hear. I know you've got great feedback already, but it would be really good to just see how all of this is going along in a few months’ time. So I very much hope you'll do that for us.
Matt Klein:
That sounds great. At that time, we'd be able to recap some of the revenue movement as well and be able to talk more fully about what we've seen and experienced.
Karen Walker:
Look forward to it. Thank you again so much for your time today, I really appreciate it. And thank you also to our producers, Guy Ferneyhough and Cory Hitt, and of course a huge thank you to our listeners for following Window Seat. Make sure you don't miss us each week by subscribing to the Window Seat podcast on Apple Podcasts or wherever you like to listen. This is Karen Walker, disembarking from Window Seat.
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