Spirit Airlines discloses real consequences of poor customer service

If you ever want the truth about anything, the smartest thing you can do is follow the money. Cash doesn’t lie, regardless of the people who are wielding it. So, if you don’t think airlines have any real risk because of poor customer service – that everyone just expects and lives with the worst – it pays to check out the recent Spirit Airlines financial filing.

Spirit is looking to go public with the hopes of raising $300 million. To do so, of course, it had to file all kinds of paperwork with the SEC, including a Form S-1, which includes, among other things, the risks the company faces. Think of it as a warning label for potential investors.

Based on the document, covered over on Elliott.org, service is enough of a risk that Spirit feels warrants mentioning:

Negative publicity regarding our customer service could have a material adverse effect on our business.

In the past we have experienced a relatively high number of customer complaints related to, among other things, our customer service, reservations and ticketing systems and baggage handling.

This isn’t just theory, here. Spirit is disclosing what it has actually experienced. It’s a touch of North Korean-style self-criticism that’s eye-opening for potential investors. It’s also a case of brutal honesty. Spirit is saying that it has had lots of complaints across virtually the entire company.

In particular, we generally experience a higher volume of complaints when we make changes to our unbundling policies, such as charging for baggage.

Okay, no shocks here.

In addition, in 2009, we entered into a consent order with the DOT in which we were assessed a civil penalty of $375,000, of which we are required to pay only $215,000 provided there are no further similar violations for one year after the date of the consent order, for our procedures for bumping passengers from oversold flights and our handling of lost or damaged baggage.

Not only does Spirit suggest that that there is a risk to future customer revenues, the airline also indicates that there are regulatory expenses associated with poor customer service.

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.

Translation for investors = our service levels could cost you your money.

Spirit is in a tough spot, because it’s looking to enter the pubic capital markets – it isn’t there already, like the major characters. And, as they say, the first time can be uncomfortable and awkward.

Airline recession will continue into 2010, good news for passengers

The airline industry must be excited to see 2009 coming to a close. It was a year of route cuts, perk cuts and abuse from passengers over all kinds of sacrifices in the cabin … and a genuine commitment to fees for extra bags. The global financial crisis triggered in September 2008 hit the travel industry with extra severity, forcing airlines, famous for not being able to generate easy profits anyway, to scramble to keep their heads above water. But, at least there’s next year … not really.

While nobody with even shred of sense expected 2010 to be the year the airline industry went wheels up, the latest prediction from the International Air Transport Association is pretty grim. IATA expects the sector to lose $5.6 billion next year, thanks to higher fuel costs and revenue declines because of lower fares. This is worse than the $3.8 billion it originally forecasted. The number of passengers filling seats, IATA believes, will increase, but it won’t be enough to make a difference.

There’s good news in here. Continued brutal competition will keep fares low, so if you missed your chance to take that dream trip this year, you’ll have another bite at the apple in 2010. For the airlines … well, there isn’t any good news. But, is there ever?

[Photo by emrank | counting days | via Flickr]

Virgin America: Financials prove service makes a difference

We’ve all gotten used to bailing out airlines that can’t figure out how to take care of their paying customers, operate profitably or otherwise get their respective acts together. And, there really isn’t much hope of this situation changing. To be an airline, in general, is to be dysfunctional … until you look at the new entrant, Virgin America. The privately held carrier announced on Friday that its revenue surged 38.3 percent from the third quarter of 2008 to the third quarter of 2009.

The airline has amassed a collection of awards to back up its commitment to customer service, including “Best Domestic Airline” in Travel + Leisure‘s 2009 World’s Best Awards and “Best Business/First Class” among domestic airlines in Condé Nast Traveler‘s 2009 Business Travel Poll. And, the fact that the 1,500-person company is adding jobs in this market — beating both the recession and its worsened form in the travel business — suggests that it is possible for an airline to not just survive but actually succeed.

David Cush, Virgin America’s President and CEO, says, “Despite an uncertain economic climate since our 2007 launch, we’re pleased to report steady and strong financial performance and our first quarterly operating profit.” He adds, “At a time when flyers are more discerning than ever, it is clear that our low fares, award-winning guest service and innovative amenities continue to convert a growing network of loyal travelers. We look forward to bringing our unique value proposition to more travelers as we grow in 2010 and beyond. ”


But, enough of the soft stuff — let’s turn to the numbers. That’s where you’ll find the truth in these matters. Cost containment and operational efficiency helped Virgin America post a record load factor of 86.6 percent, an increase of 5.2 percentage points year-over-year. Costs per available seat mile were pushed down 33.9 percent (24.4 percent ex-fuel), and operating income swung from a $54 million loss in the third quarter of 2008 to a $5.1 million gain this year. Along the way, Virgin America realized a mishandled baggage rate of 1.18 per thousand — three times better than the industry average. And, it attained an on-time rate of 87.2 percent.

Sorry to go “quant” and dwell on the numbers a bit, but they speak to a common theme here at Gadling: whether the airlines are doomed to fail … and be propped up by the government taxpayers and fail again … and so on. Virgin America’s proved that an airline can amass 1.1 million loyalty program members and fly 5.8 million passengers in just over two years and still find a way to get into the black. There is probably market share gain in this airline’s future, but it is making a big mistake: by not screwing up, it’s taking a pass on all the free money the feds are more than willing to give to an industry that refuses to help itself.

South by Southeast: How to budget for long-term travel

Welcome back to Gadling’s new series about Southeast Asia, South by Southeast. Starting in October, I’ll be spending the next four months traveling through this much-discussed destination. But as exciting as it is to travel for several months, you can’t just get up and leave overnight. Medical arrangements must be made, backpacks selected and most importantly, you’ll need to do some budgeting.

Perhaps the most daunting obstacle for anyone considering this type of long-term trip is deciding how much money to bring. It’s not an easy question to answer – search around online and you’re likely to find all kinds of responses, ranging from the extravagant to the frugal. So how does one create a budget for long-term travel? And how in the world do you save up the money to make it work? Let’s take a closer look at how to do it, in five steps.

1: Decide Where You’re Going
The most important factor in your budget is the decision of where to go. Although you don’t have to pick a destination when you’re planning a trip, it helps to choose regions you want to visit and consider general costs. As a rule of thumb, travel in North America and Western Europe is most expensive, whereas South America, Southeast Asia or Africa are far cheaper. For my trip to Southeast Asia, I took the region’s cheaper cost of living into account, deciding I could afford to stay longer and stretch my dollars farther.

It’s also worth considering how much you plan to move around. Will you be visiting multiple regions of the world? Or will your trip cover just a few neighboring countries? If you only have a week to see all of Southeast Asia, the flights are going to get expensive quick. But if you’re able to take your time, you might be able to save lots of money on cheaper bus, boat and train rides.

2: Get Some Inspiration
Lots of numbers get thrown out when it comes to travel budgets. According to general wisdom, $20-30 per day is enough for Southeast Asia. This includes a basic, clean guesthouse, three meals and a few activities. If you want high-end hotels, it can cost much more. Regardless of how you travel, wouldn’t it be great to have real-world examples? Thankfully, there’s plenty of resources online to help answer this question.

For general budget queries, head to the message boards at Bootsnall or Lonely Planet, where questions such as “How long will my money last in XXX?” and “Is $XXXX enough for XX months?” are frequent topics for debate. Even more helpful are the budgets of long-term traveler Megan and backpacker David, who posted detailed spreadsheets of their expenses online. With these figures it’s much easier to know what’s realistic and what’s not.

3. Don’t Forget the Extras
The general assumption of long-term travel is you’re on a tight budget. But keep in mind there’s a difference between “tight” and “idiotic.” For every expense you planned in your head, consider there are 10 others you haven’t. There are visa fees to enter some countries, immunizations, and of course, the occasional splurge on a nice hotel. Consider these “other” costs as part of initial budget. You’ll thank yourself later when you have the money to cover them.

Although it’s been suggested $20-30 per day is enough for my trip to Southeast Asia ($900/month), I’ve left myself a bit more to handle unexpected incidentals. That’s not to mention several hundred dollars I spent pre-trip on immunizations and anti-malarial drugs. Take these costs into account.

4. Get Creative About Earning
By now you’ve figured out where you want to go and settled on an estimated budget. Hopefully you’ve also left padding for those extra expenses. But a good question remains – how on earth do you earn this money? You do have a life after all, and putting it on hold to plan a long-term trip doesn’t mean you have to become a hermit. Instead, you need to get creative about ways to save up. Here’s a few ideas:

  • Bring lunch to work. Those meals out add up quick.
  • Coffee drinker? Brew it at home.
  • Have a mortgage to pay? Can you rent your home while you’re gone?
  • Sell stuff you don’t need. It’s amazing what people bought from me on Craigslist.
  • If you have a car, could you sell it and take mass transit instead? Or a bike?
  • Have friends over to your house instead of going out to eat or to the bar.
  • Take on a second job. There’s plenty of freelancing and web-based jobs like blogging you can do from home.

The key is to find a combination that works for you. Not everyone can give up their car, or stop paying their mortgage. Perhaps you even have children to care for. Whatever your circumstances, patience and commitment to a plan make all the difference. If you want to travel bad enough, you can find a way to make it work.

5. Remember You’re Coming Back (eventually)
It’s a great feeling to be able to spend the money you’ve been saving during your travels. But don’t forget that at some point, even if you extend your trip, you’ll probably want to come home. Remember not to spend your travel fund down to the very last dime – you might need a few bucks when you get back to rent an apartment and cover basic expenses during the transition.

Gadling writer Jeremy Kressmann is spending the next few months in Southeast Asia. You can read other posts on his adventures “South by Southeast” HERE.

US Helicopter suspends 8-minute service from airports to NYC

New York jet-setters short on time got some bad news last week. US Helicopter, which previously offered 8-minute helicopter flights from two local airports to Manhattan, announced on Friday that it is suspending service.

The chopper company offered flights for $159 each way from JFK and Newark airports to the Wall Street or Midtown West heli-pads in New York City, but has ceased operations due to insufficient funds. The young company (it’s been around for about 3.5 years) has been no stranger to financial troubles. According to Jaunted, they often ran $99 specials to drum up business. Apparently, people just aren’t willing to splurge on private helicopter rides, which cost about four times the price of a cab, during a financial crises. Go figure.

But there’s still hope for the impatient or super-rich. The company says it’s just on hiatus while it gets its “act together” and that it will be back, bigger and better, by November.