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.