2. Internal Analysis – Spirit Airlines
As one of the first airlines to prove and sustain the ultra-low-cost (ULCC) business model, Spirit has taken the proven LCC model and expanded it to disrupt the competitive environment of the airline industry. Simply put, Spirit’s value chain focuses on three major areas to drive growth and protect profit margins. First, their unbundled bare fare pricing model allows customers to engage in what Spirit calls “Frill-Control” as they have the freedom to add only the options they want. The pricing model promotes transparency which acts as an underrated advantage against other airlines that charge for all the same features but hide them in their all-inclusive fares. Second, Spirit maintains the leanest operating cost structure in the industry which allows them to keep base fares low and profit margins high. This low
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When a smaller airline infringes on a major airline’s turf in a major market, attempting to undercut them on price, the FSC often retaliates by lowering price whilst maintaining their premium offerings and perks. This creates downward pressure on average fares in that region, which is good for the consumer and leads to an increase in overall travel volume on those routes (See Figure 4 below) . Spirit is no stranger to this part of the market, and recently found itself in a pricing war in the Dallas-Fort Worth market (American Airline’s largest hub). Spirit attempted to move in and undercut American Airlines, to which American responded by slashing their prices in what Spirit’s management called a “chainsaw approach.” Moreover, not only did American retaliate in Dallas-Fort Worth, they also cut prices in all routes where Spirit overlapped, particularly in Chicago O’Hare Airport, American's third-largest