Spirit Airlines Strategic Analysis: Key Challenges and Recommendations

Introduction

Based on internal and external assessment, this paper provides strategic recommendations for Spirit Airlines, Inc. Flying to more than 50 destinations in the Americas with more than 100 aircraft in its fleet, Spirit Airlines is one of the largest ultra-low-cost carriers in the United States. The paper is organized as follows. First, the two major issues or challenges facing the company are identified. Next, strategic options for addressing those issues are considered, with the advantages and disadvantages of each option clearly highlighted. Based on the evaluation, recommendations for the two most viable options are presented. Finally, a brief plan for implementing the recommended options is provided.

Major Issues and Challenges

Though Spirit Airlines enjoys a significant cost advantage, it grapples with poor customer satisfaction. Indeed, the airline has been ranked as the worst airline in the United States in terms of pleasing customers. Customer complaints against the airline stem from a wide variety of issues, including lack of catering services and in-flight entertainment, hidden charges, flight delays, flight cancellations, lack of seat selection, and unfriendly policies such as strictly non-refundable tickets. Complaints also arise from limited legroom, poor handling of luggage, excessive luggage fees, and the bumping of passengers. While Spirit Airlines predominantly focuses on getting travelers to their destination at the lowest cost possible, the airline's evident inattention to customer satisfaction continues to be its major undoing in the rigorously competitive airline environment.

Spirit Airlines also faces intense competition, particularly from other low-cost carriers. The largest low-cost carrier in the United States is Southwest Airlines, which has a much larger fleet size and flies to more destinations than Spirit. This means Southwest Airlines commands a larger customer base as well as greater revenue and profit potential. Other major rivals include Allegiant Air, JetBlue, Frontier Airlines, and Sun Country Airlines. Southwest Airlines and other low-cost carriers have taken advantage of Spirit Airlines' inattention to customer satisfaction to gain a competitive edge in the market. Without improving customer satisfaction, Spirit Airlines risks losing market share to these competitors.

Strategic Options

One strategy Spirit Airlines can use to improve customer satisfaction is differentiation. Generally, a firm may pursue either a cost leadership strategy or a differentiation strategy. The former, as in the case of Spirit Airlines, involves providing products or services at a lower price than competitors (Srinivasan, 2014). A differentiation strategy, on the other hand, entails distinguishing one's offerings from the competition (Hill & Jones, 2012). While Spirit Airlines is inherently a low-cost airline, it can pursue differentiation simultaneously. Given the airline's poor performance on customer satisfaction, it is clear that differentiation has not been a priority. Firms that pursue both cost leadership and differentiation aim to capture the advantages of both strategies.

The airline can also adopt a customer-oriented strategy. Closely related to differentiation, a customer-oriented strategy is one in which a firm prioritizes the customer in everything it does (Johnson, Scholes & Whittington, 2010). In other words, every process is geared toward creating value for the customer. Spirit Airlines operates under the assumption that the only thing budget travelers want is a cheaper ticket. Although low-cost travelers primarily care about reaching their destination with the lowest airfare possible, they also value some degree of comfort and a fair flight experience. With flight delays, a no-refund policy, separate charges for luggage, and the absence of in-flight entertainment and catering services, Spirit Airlines is evidently not a customer-oriented airline. The airline can offer cheaper fares while simultaneously delivering a more pleasing flight experience.

One option for addressing the challenge of competition is market penetration. Market penetration is essentially about increasing market share (Hill & Jones, 2012) — that is, a firm expands its current offerings within its existing markets. Presently, Spirit Airlines commands a smaller share of the market compared to Southwest Airlines and other low-cost carriers. By appealing more effectively to customers within its target market, the airline could gain substantial competitive advantage. Market penetration can be achieved through techniques such as reducing prices, increasing promotional activity, expanding distribution, and improving product attributes. For Spirit Airlines, increasing promotional activity, opening more routes, and refining its offerings would be particularly useful.

The challenge of competition can also be addressed through market development. Market development involves expanding existing offerings into new markets (Hill & Jones, 2012). This can be achieved by targeting new customer segments and exploring new regions. Presently, Spirit Airlines flies to approximately 60 destinations in the United States and Latin America — a relatively limited network compared to rivals like Southwest Airlines. Adding more destinations to its portfolio would give the airline a larger customer base, thereby enhancing its revenue and profit potential.

References

Carpenter, M., & Sanders, W. (2009). Strategic management: A dynamic perspective, concepts and cases (2nd ed.). Upper Saddle River, NJ: Pearson Education.

Hill, C., & Jones, G. (2012). Essentials of strategic management (3rd ed.). Boston: Cengage Learning.

Johnson, G., Scholes, K., & Whittington, R. (2010). Exploring corporate strategy. London: Prentice Hall.

Srinivasan, R. (2014). Strategic management: The Indian context (5th ed.). New Delhi: PHI Learning.