Why Spirit Airlines Will Never Be Great Again

Spirit Airlines
Sometimes you get what you pay for when you book a cheap flight.

Passengers on Spirit Airlines (SAVE) Flight 310 over the weekend had to wait nearly 20 hours to fly from Los Angeles to Florida, after an unruly passenger forced the crew to make an emergency stop in Texas.

A vision-impaired 86-year-old man, flying alone, began kicking and ranting in what appears to have been a moment of confusion. The pilot landed in Houston, an airport not served by Spirit. After customers were stranded for two hours on the tarmac and another 10 hours in the terminal, a new plane and crew were brought in to fly the passengers to their destination. (The original crew was already over the federally mandated maximum number of hours that they could be allowed to work.)

Why didn't the original crew either land in Dallas -- an airport serviced by Spirit -- or simply fly out to Dallas after the problematic passenger was detained?

When you specialize in fares as low as $9 and your ticker symbol just happens to be SAVE, cutting corners to save costs is just part of the game.

There's No Free Lunch

The secret to Spirit's low rates is a laundry list of fees that make even legacy carriers seem charitable. Passengers have to pay as much as $45 for a carry-on bag.

You read that right. Even the carry-on bags that most airlines allow for free sometimes may cost more than the actual fare. There are also fees for reservation bookings, assigned seats, and even soft drinks -- extra charges that you don't see at the airlines Southwest (LUV) loves to make mock for their ridiculous fees.

The result is that passenger reviews are generally negative for Spirit. Read any online account of the Flight 310 incident that allows for reader comments and the venom kicks in fast.

Spirits and Ghosts

You wouldn't know that anything is amiss at Spirit if all you were doing was kicking the tires of its financials.

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Operating revenue climbed nearly 30% higher in this year's first quarter, fueled by flight expansion and higher fares. The company makes no bones about letting investors know that its strategy is to "stimulate traffic by offering low base fares while increasing revenue from non-ticket sources."

You see it in the metrics. The average ticket revenue per passenger flight segment actually fell 7% to $76.65 over the past year, while the non-ticket revenue soared 21% to $51.68.

Investors may love to see that, but passengers will see things differently over time if more unruly Spirit passenger stories emerge.

Fasten Your Seat Belts, Investors

Spirit has a rock-solid balance sheet. The company closed out its March quarter with no debt and $421 million in unrestricted cash.

Older airlines -- weighed down with debt, costly employee contracts and pensions -- won't necessarily be able to compete with Spirit as it "liberates" new markets in its expansion path. It's ironic that just days before the Flight 310 fiasco, the company announced that it would start servicing Houston's George Bush Intercontinental Airport.

Flights there won't start for another two months, so perhaps the Flight 310 mishap was just a test landing.

Spirit went public at $12 last year, and it's one of the few IPOs from last year to be trading sharply higher today. Every quarter in its brief public tenure has generated better-than-expected profitability, and that will likely be the case when it reports again in two weeks.

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Why Spirit Airlines Will Never Be Great Again

The shortest path between two points may be a straight line, but rarely does that seem to apply to airline routes. You might not be surprised by a layover in Chicago if you're flying from Boston to Seattle, but rarely will you find so obvious a route, especially on discounted and last-minute tickets.

Flying from New York to Dallas? JetBlue (JBLU) will make you lay over in Boston. Taking a short hop across the Adriatic Sea from Dubrovnik, Croatia to Venice, Italy on Iberia? Expect to lay over in Barcelona, Spain. That's because most airlines have hubs that they operate many more flights through, which make them cheaper. For example, American Airlines (AAL) has its largest hub in Dallas-Fort Worth, while United Continental (UAL) now has its largest hub in Houston (United's top hub was Chicago O'Hare before the merger).

If the 2005 Wes Craven thriller Red Eye has led you to pass on booking overnight flights, you might be missing out on some bargains.

A round-trip flight on British Airways from New York City to London on an afternoon in early July can cost approximately $1,500. An evening flight (after 6 p.m., although it varies by airline), however, can cost less than $1,000. And it's not just the transatlantic route. Red-eye flights are traditionally less expensive, not as full, and offer shorter lines at check-in and through security. And after all, time is money.

Travel newsletters like Johnny Jet, websites like Airfare Watchdog, or airline-specific social media feeds often provide flash and last-minute deals. Some sites, like Kayak, will automatically prompt you to set up an alert for a particular destination once you've done a couple of searches with the same departure and destination locations.

While many blogs and websites theorize on the best time or day to buy an airfare, there is no magic formula. Only by regularly comparing fares against other dates and airlines will you know when to make your purchase.

A good indicator of how easy an airline is to fly is its policies on changes and cancellations. While the policies are as varied as the quality of the in-flight meals, the information is easier to quantify. The Bureau of Transportation Statistics publishes an annual list of fees generated by each airline. In 2011, Delta (DAL) charged a whopping $766 million in change and cancellation fees. Alaska Airlines (ALK) charged a mere $10 million (And lest you attribute the big difference to the relative sizes of the carriers, Delta only carried nine times as many passengers as Alaska Airlines.)

While the cost of flying may be increasing, airfare deals can always be had with a little patience, persistence, and research. Whether you're traveling alone, with colleagues, or with your family, you can save hundreds or even thousands of dollars on your flights this summer. Maybe even enough for another trip.

However, investors know that evaluating companies isn't just about healthy balance sheets and growing income statements. The model has to stand the test of time, and that's where Spirit -- and all of the ill will that will tarnish the brand in the coming months and years when it comes to its non-ticketing fees -- comes up short.

You can be cheap and still provide a great product. Southwest has been doing it for decades. JetBlue (JBLU) provides complimentary perks that passengers often associate with pricier carriers.

Sorry, Spirit. You just don't make the grade.

Longtime Motley Fool contributor Rick Munarriz does not own shares in any of the stocks in this article. Motley Fool newsletter services have recommended buying shares of Southwest.

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