Can You Be "Low-Cost" When You Tack On High Fees?

Last Updated Jun 10, 2011 12:27 PM EDT

Spirit Airlines offers some of the lowest fares in the airline business. Its latest sale, for example, had ticket prices starting at just $9.

At the same time, the airline's fees are among the highest in the industry, as I explained yesterday.

Can Spirit -- or any other business, for that matter -- call itself "low-cost" and then tack on high fees?

Sure. But is that good service? Is it even a sustainable business model?

A Spirit executive who responded to yesterday's post insists the answer to both questions is: yes, absolutely.

"Our core customers like what we provide -- a low fares and the ability to add on extras if they want them but not force them into paying for options they don't want or need," says Barry Biffle, Spirit's chief marketing officer. "Unfortunately, many people can't get over their availability bias and thus don't like our model. These people generally don't understand our model."

Biffle explains Spirit's core customer is looking for low fares. By offering what's called an "unbundled" price, or a ticket that doesn't include the ability to check a bag, bring carry-on luggage, reserve a seat or order a drink, Spirit is just giving customers what they want.

And the industry, and snarky customer-service bloggers like me, should just respect that.

"Isn't it better that we have a free market where customers can choose?" he asked. "I would argue that it is better to have McDonalds and Ruth Chris rather than pundits telling everyone that chooses McDonalds that McDonalds is bad."

Clever marketing?
As someone who writes about both customer service and air travel, I agree with Biffle -- to a point. For a very small segment of air travelers, Spirit's model works, and it works well.

But Spirit model has succeeded, at least so far, because most air travelers check luggage, carry a bag, order a drink on the plane, and do any number of other things that cost extra. One you add all of those up, Spirit makes more than it would have if it bundled the price into an "all-inclusive" one.

In other words, the low cost/high fee problem isn't a business paradox; it's brilliant marketing.

It's also risky, especially when you're as aggressive with fees as Spirit. I receive plenty of complaints from readers about being nickeled-and-dimed by the airline. A good number of them are brushed off by an offshore call center.

The airline knows that could hurt its business eventually. In its Form S-1 filed with the Securities and Exchange Commission prior to its public stock offering, it said as much.
Our reputation and business could be materially adversely affected if we fail to meet customers' expectations with respect to customer service or if we are perceived by our customers to provide poor customer service.
About that survey question
I asked Biffle about the survey question that emerged yesterday, in which Spirit was considering a new fee for passengers who checked in at the airport. He told me the questions were written by Spirit personnel and reviewed by senior management.

"This is a data gathering process that helps shape our opinion of our customers views on this subject," he says. "We believe the questions are worded in a way that accurately and factually reflect the economics of our business."

Except for the last one, maybe, about raising the federal debt ceiling. He says the airline included it "for fun."

Taken to an extreme, the Spirit model would cut the price of an airline ticket to zero and then charge extra for fuel, crew expenses, insurance, airport fees, taxes, luggage, and executive salaries.

Is that "low cost"? From a certain perspective, definitely.

Do customers want it? If you asked them in a certain way ("Do you want to fly for free today") then of course they do.

Is it good customer service? I have my doubts. But ultimately, that's something the market will have to decide.

Christopher Elliott is a consumer advocate, syndicated columnist and curator of the On Your Side wiki. He also covers customer service for the Mint.com blog. You can follow Elliott on Twitter, Facebook or his personal blog, Elliott.org or email him directly.
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Photo: skinnylawyer/Flickr
  • Christopher Elliott

    Christopher Elliott is a consumer advocate and journalist. A columnist for National Geographic Traveler magazine and the Washington Post, Elliott also has a nationally syndicated column and blogs about customer service for the Mint.com. He is at work on a book about customer service issues.

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