My Spirited Debate with Ben Baldanza, Former CEO of America’s Most Hated Airline
- February 05, 2016
- CBR - Economics
With the surprise announcement, last week, that Ben Baldanza was departing Spirit Airlines, I found myself bidding good-bye to my favorite CEO, or at least the only one I know personally. When I became fascinated by Spirit in much in the same way one becomes fascinated by the growth on a colleague’s eyelid—horrified but nonetheless intrigued—I found myself constantly returning to Ben, the indefatigable defender of the carrier’s rebarbative business practices.
He’s largely unflappable, too. I learned this when Ben visited Chicago Booth in the spring. I had written an essay for The New Republic that took the company to task for treating its passengers, in the words of one industry watchdog, like “meat in a seat.” I was tough on Spirit—not unfair, I’d like to believe, but tough undoubtedly—so I was a little surprised when Ben emailed me hours after the essay was published on The New Republic’s website to ask if I might be keen to debate my arguments in a public forum at Booth. Given that I had flown Spirit over a dozen times in the fall, keen did not begin to describe my interest in debating the company’s efforts to become the nation’s leading “Ultra Low Cost Carrier,” or ULCC, which is coincidentally the same sound one makes after flying Spirit.
A date was set in early June for a “Spirited Debate,” with Ben suggesting that it be moderated by Chicago Tribune columnist Eric Zorn, who had written a column titled, “True Confession: I Do Not Hate Spirit Airlines.” (For the carrier, this apparently qualifies as glowing press coverage.) Ben and members of his executive team traveled up from the company’s headquarters in Fort Lauderdale, and the event was held on the top floor of the Gleacher Center at Booth’s downtown campus.
The debate ran for just over an hour, and you can see it in its entirety here on YouTube, where it has been viewed over 12,000 times. I was given the chance to make the opening statement, and I will confess that I came out swinging. I contended that, in its efforts to cut costs and squeeze as much money as possible from its passengers, Spirit has consistently favored policies that are “eccentric, opaque, or simply indecipherable” leading to practices that are “shabby, shady and occasionally scandalous.” That’s bad enough, but since the carrier has proven immensely profitable, it has become a “center of moral gravity” in the airlines industry, most notably in respect to what passes as acceptable treatment of customers. If the two poles of customer service under capitalism have always been caveat emptor (or buyer beware) and the customer is always right, I suggested that an essential part of Spirit’s legacy under Baldanza, who has led the carrier for a decade, has been to mainstream practices consistent with the warrant of caveat emptor.
Now, I feel obliged to note that I said all of this in front of an audience of 150 people with Ben sitting five feet away from me. It is surely a tribute to his professional composure that he didn’t say I’ll show you caveat emptor! and charge across the dais—I don’t know that I would have been so restrained—but it also reflects the depths of his belief in Spirit’s business model, which he holds to be both innovative and broadly misunderstood, especially by the likes of a Pecksniffian business ethics professor with far too much time on his hands.
Over the past decade, Spirit has become famous, and famously profitable, for testing the logical extension of a trend that has characterized the airline industry for sometime now, namely, breaking up the economy air travel experience into constituent parts and charging customers for each of them individually. The most familiar example involves the inflight meal. Thirty years ago, when you flew just about anywhere domestically, you could expect to be served a meal. Today, even on a transcontinental flight, a meal is not afforded you. You may be able to buy one, but you cannot expect that one will be given to you. An inflight meal is no longer part of what it means to buy a plane ticket.
A meal is certainly not part of buying a ticket on Spirit Airlines, but neither is a complimentary drink, a carry-on, or even a choice of seat. Baldanza has long maintained that this “no frills” approach to airline travel ultimately redounds to the benefit of customers who can pick and choose what they want to pay for. The contention is hardly ridiculous. On the contrary, I think the a la carte approach to air travel is ultimately a great advantage to the bargain-hunting traveler, especially over the long run. My beef is less with the principle of such service than how it’s practiced by Spirit.
Let me provide three ways that Spirit leaves passengers feeling penny-wise and pound-foolish.
- Taking advantage of customary expectation: If you went out to a spaghetti dinner, and the waiter tried to bill you $35 for the knife and fork, you’d be pretty put out, especially if the dinner was prepaid and non-refundable. Spirit presents a similar dilemma to passengers who too often realize what they’ve actually purchased long after they can’t get a refund on their ticket. This leads to familiar episodes like the one I witnessed before my last flight on Spirit, when a young girl called her parents sobbing after she discovered that the carry-on she assumed was part of her discount ticket was actually going to cost her $100. Such incidents are not entirely unavoidable, for Spirit is trying to change the meaning of air travel and the expectations we attach to it, but doing so in such a headlong and pitiless fashion creates situations where many people feel the victims of a bait-and-switch.
- Taking advantage of confusion: In many cases, Spirit’s policies are very hard to decipher, even for people who are willing to spend a lot of time trying to understand them. My favorite example is the $10 charge for printing your plane ticket, a necessity because Spirit doesn’t offer e-tickets. When I first encountered this policy, it seemed incredible to me (how could this possibly be legal?) and outrageous as well (how many budget travelers have access to a printer at home?). I raised this point during my debate with Ben, and he later admitted that, actually, you can print your ticket at a Spirit kiosk for free. It is only if you walk the additional 10-feet to the counter that they will charge you $10 for the service. Notwithstanding all the times I had flown on Spirit, this was a revelation to me, primarily because the company’s website doesn’t disclose the option. When you purchase your ticket, you are provided a binary choice: print the ticket at home or pay $10 dollars to print it at the airport counter. The third option, and the one that would be most convenient for passengers, is omitted, and the reason for this seems fairly obvious: Spirit wants to collect another $10 from your confusion.
- Taking advantage of necessity: Spirit has a tendency of taking a reasonable idea for cutting costs or generating profit and implementing the most gratuitous expression of it. For example, it is one thing for an airlines to charge a passenger for a carry-on bag, but it is another thing to install a five-tiered pricing system such that, if you make the mistake of getting all the way to the gate without paying the fee, it could end up costing you nearly three times the price of a one-way ticket. Similarly, it is one thing for a carrier to cut down on leg room to add an additional row or two, but it another thing to configure your Airbus 320s to accommodates 28 more passengers than carriers, like JetBlue, who use the same plane.
How does Spirit get away with such offenses? If you consider the fact that the vast majority of Americans fly no more than two times a year, a carrier can push the envelop in its treatment of passengers knowing that, at the end of the day, once you’ve gotten the kids through security and purchased your tickets to Disney World, it will almost certainly be more expensive, financially and emotionally, to rebook your flight than to pay the unexpected fees and put up with the nonsense.
That may be so, but it also helps to explain why Spirit is consistently ranked one of the most hated companies in America. Ben’s argument has always been that the people who complain about Spirit are either looking to get something for nothing or simply don’t bother to pay attention to the company’s policies. Whatever one makes of this contention, the more important question is how much Spirit’s business model depends on people making what amount to expensive mistakes. Given that non-ticket revenue as a share of Spirit’s overall sales has topped 40 percent in recent years—by comparison, it was 15 percent for United in 2014—my hunch is a fair bit.
Spirit has benefitted enormously from ill-informed customers who are ultimately willing to pony up for what they think they have already paid for. As travelers wise up, and other carriers take up the la carte model without the gratuitous gamesmanship, will Spirit remain so immensely profitable? That is the challenge for Spirit’s new CEO, Robert L. Fornaro, the former head of AirTran.
As for Ben Baldanza, he leaves behind one of the most remarkable experiments in the annals of customer service and modern air travel. He also becomes a living exception to the first rule of Spirit: No freebies. As part of his separation agreement, he and his family will receive lifetime passes.
John Paul Rollert is adjunct assistant professor of behavioral science at Chicago Booth.
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