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Spirit Airlines Banks on Few Frills, and More Fees

No one has tried that — at least not yet — but one small airline has led the way in the United States when it comes to passenger fees: Spirit Airlines, the no-frills carrier that prides itself for offering the lowest fares, then charging passengers for everything else.

Need an agent to print out a boarding pass at the airport? That’s $10. Want some water? That’s $3. Rolling a bag on board? The tag costs $35 from home and $50 at the airport. In all, there are about 70 fees enumerated in dizzying detail on Spirit’s Web site for customers to navigate.

To the millions of travelers flying on vacation this summer, the fees can be infuriating, but Spirit makes no apologies. In an age of consolidation in the airline industry, Spirit, with about 1 percent of the nation’s passenger traffic, has managed to succeed by going it alone, scraping for every dollar and scrimping on every cost.

“Spirit does everything it can to make or save a buck,” said Henry Harteveldt, a travel analyst with Hudson Crossing. “To its credit, Spirit doesn’t promise passengers that they’ll be coddled. Its customer service standards are terrible, and the airline’s actions have shown it doesn’t care about being liked or respected.”

The driving force behind that strategy is Spirit’s chief executive, Ben Baldanza, 51, an industry veteran who arrived at Spirit eight years ago with no experience at a no-frills airline. Along with an obsessive attention to keeping costs low, Mr. Baldanza argues that the cornucopia of fees allows the airline to keep its fares lower than rivals. The airline, known for its tasteless ads (during the presidential election, one ad talked of Spirit having “binders full of sales. Women will love them!”) is modeled after Ryanair, which charges low fares for flights throughout Europe with a minimalist approach to customer service.

“I cringe a little when people say I don’t care about customers,” said Mr. Baldanza, who brims with missionary zeal. “We care about the thing that customers tell us they care the most about, and that’s offering the lowest possible fares. The customers who fly Spirit absolutely understand the trade-off.”

On a recent day at La Guardia Airport, passengers seemed to be taking the fees in stride. Two students forgot about the fee that Spirit charges for carry-on bags. That did little to reduce their enthusiasm to fly to Las Vegas despite the early loss. Kevin Reed, a photographer flying to Myrtle Beach, S.C., paid an extra $10 on top of a $35 checked-bag fee because he failed to do so when he bought his ticket.

“They got me there,” he said, shrugging. “But I’m still saving $400 over flying with Delta.”

Not every customer has the same reaction, though. Spirit is routinely rated as the nation’s worst airline because some travelers deem the fees unfair. The Transportation Department receives far more complaints about Spirit than other carriers, with 6 to 8 complaints per 100,000 passengers compared with the industry average of 1.4. And Spirit’s on-time record is similarly abysmal, at 68.8 percent compared with 80 percent for the industry average. The best airlines are in the mid-90s.

Critics point out that the inflation of air travel fees makes it increasingly difficult to compare the cost of travel between airlines.

“The fee-for-everything technique allows airfares to be advertised as much lower than the overall cost,” said Paul Hudson, the president of FlyersRights.org, a consumer group.

Mr. Baldanza acknowledged that the process can be tricky. “You can’t sleepwalk through the process,” he said.

But the model has allowed Spirit to offer cheap tickets. Since 2008, Spirit’s airfare has dropped by 20 percent, averaging $75 in 2012 compared with $94 in 2008. The difference often jumps out at a customer searching for flights. On Friday, Spirit was offering a nonstop flight from Oakland, Calif., to Portland, Ore., in mid-July for $156; the same trip was $296 on Delta.

Because of its growing list of fees, however, nonticket revenues grew to $51.39 in 2012, from $18.61 in 2008. As a result, while fares fell, Spirit’s total revenue per passenger grew by 12 percent from 2008 to 2012, reaching $126.50. Fees now account for 41 percent of Spirit’s revenues, an industry record.

Article source: http://www.nytimes.com/2013/06/01/business/spirit-airlines-banks-on-few-frills-and-more-fees.html?partner=rss&emc=rss

Wealth Matters: Latin America, the Land of Opportunity and Caution

What happened? Can it be that Latin America is now a solid investment, as the middle class in many of the countries increasingly becomes a driving force? Or is the region’s cycle of booms and busts set to repeat itself?

Anyone who invested broadly in the region’s main stock indexes has had a bad year. Brazil’s index is down 16 percent, Mexico’s is down 5 percent and Chile’s is down about 16 percent. These numbers are worse for international investors because all three countries’ currencies have fallen against the dollar.

Not surprisingly, investors have been pulling their money out. As of Dec. 2 they had taken $9.8 billion out of Latin America, according to fund flow data compiled by Morgan Stanley research. (Emerging markets in general have not fared well this year, with investors taking out $36.6 billion.)

But, at the same time, companies as diverse as Siemens, General Electric, Nissan and Halliburton have increased their operations in Brazil.

China is Brazil’s major trading partner, which would seem to augur well. But it is selling commodities like iron ore, which could suffer if China’s growth continued to slow.

Yet Brazil also has a growing consumer sector. Sergio Cabral, the governor of the state of Rio de Janeiro, told me that almost 40 million people in Brazil had entered the middle class in the last five years. (Gerardo Zamorano, a director at Brandes Investment Partners, put that number at 25 million to 30 million, which is still a striking number given that Brazil had almost no middle class when I was there.) And Governor Cabral said that demand for all types of consumer goods was far outstripping supply in his state.

“Prices are crazy,” he said on a visit to New York this week. “We need more hotels. We have a suite problem — we have demand but we need more supply.”

That is a good thing as long as inflation does not increase and erode the buying power of the new middle class. Inflation has historically been a huge problem in Brazil, running to triple digits in the 1980s and 1990s. Official estimates now put it at a comparatively low 6.5 percent.

What’s an investor to do, with so many contradictory measures? Here are some thoughts.

THE CHANGE Ten years ago this week, Jim O’Neill, chairman of Goldman Sachs Asset Management, coined the term BRIC, elevating the profile of four countries — Brazil, Russia, India and China — that he thought were poised to become “growth economies.” He argued at the time that these countries contributed 8 percent of global gross domestic product and that in 10 years, their economies would account for about 14 percent. They’re now at 18 to 19 percent.

Mr. O’Neill said this week that he was surprised at how well Brazil had done, overtaking Italy to become the seventh-largest economy in the world.

“I found it really easy to be bullish about Brazil over the past decade,” he said. “I describe myself now as being a little bit more reserved. The biggest risk is if inflation were to get out of hand. There is no way you’re going to get the continued increases among the middle class if that happens.”

By Brazilian standards, he noted, inflation is low. Even if some analysts think it is above the 6.5 percent target rate, the central bank cut interest rates on Wednesday for the third time this year, a sign it is not concerned about inflation.

Francisco Alzuru, managing director of emerging market research at Hansberger Global Investors, said countries like Brazil and Mexico had reduced their debt-to-G.D.P. ratios significantly in the last decade, to levels better than in the developed world. And both countries, he said, had learned hard lessons from the crises of the 1990s that drove down the value of their currencies and pushed up the cost of borrowing.

Article source: http://feeds.nytimes.com/click.phdo?i=c4a8a65db012598d2a4c49eff5025021

Spirit Airlines Banks on Few Frills, and More Fees

Wealth Matters: Latin America, the Land of Opportunity and Caution

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