Spirit’s Baldanza: “The basis for this new fee was founded in improved customer service”

Earlier this week, Spirit Airlines announced it would begin charging for carry-on luggage. That drew criticism from the Secretary of Transportation, who I interviewed on Wednesday. I wanted to give Ben Baldanza, Spirit’s chief executive, an opportunity to respond — and to explain the rationale behind charging for carry-on bags. Here’s our interview:

Why did you decide to start charging for carry-on luggage?

Last fall, we identified excessive carry-on baggage as the number-one controllable reason that our planes were being delayed at the gate. We challenged ourselves to eliminate these delays without raising customer prices or Spirit’s costs, and to make the boarding process quicker and easier for our customers.

What are the benefits to the consumer of paying for carry-on luggage?

Our answer to the challenge came in the form of a three part solution:

Number one, add a carry-on bag fee, and reduce the checked-bag fee, to neutralize the current incentive to avoid checked baggage. But by all means keep personal items free.

Number two, lower base fares by the amount of the carry-on fee or more, so that customers who continue to carry-on still pay no more for their travel in total.

Number three, offer first boarding to customers with carry-on bags, to help ensure that they will find ample overhead bin space right above their seat.

This also ensures that the last people on the plane won’t delay things by looking for space for their bag, since by definition that will not have a bag that doesn’t fit under the seat in front of them.

So these are the benefits to the consumer. No one pays more, some pay less, and those with carry-on bags get to board first.

But $45 for a bag? Isn’t that a little high?

It sure is, and that’s why no one has to pay it! Our carry-on fee is $20 or $30, depending on if you’re a member of our “$9 Fare Club.”

The $45 fee will only be charged to customers who fail to buy their bag online, at a kiosk, or at the ticket counter. If choose not to pay for the bag at any of these earlier points, they force us to handle the transaction at the gate. Because gate delays are what we are trying to eliminate, we’ve priced it to discourage this behavior.

Spirit also said it would begin offering one cent fares. I can’t think of anyone who wouldn’t want to book a penny fare. But as you pointed out in your announcement, other fees will apply. How do you plan to disclose those fees?

We offered “Penny Plus” fares and clarified that to mean “One Cent plus Fuel, Taxes, and Fees”. Several months ago, Spirit started allowing customers to see how much of their ticket price was covering the fuel costs for their seat, something no other airline does today.

But no one has to buy a ticket without knowing the required fuel, tax, and fee components, as at the time they make the purchase decision these are all fully disclosed. In fact, we don’t even break out the fuel portion today, though we plan to do so in the future.

For example, if your fuel charge is $30 and you buy a $0.01 fare, the total fare you would see is $30.01.

But at what point in the booking process will you disclose the extra fees?

Today, any fees that you must pay are disclosed as part of the initial price and no one is asked for payment without these fully outlined.

Optional services that we offer for a fee are offered after this point, but again all of these services are optional. Later this summer, our Web site will change to a “shopping cart” idea where everything you’re buying shows up before you ever spend one penny.

Did you ask anyone in the government, specifically at the Transportation Department, about your plans to begin charging for carry-on luggage? If so, what were you told?

We ensured that the way we disclose this fee followed the same rules that we use for other optional fees. Spirit has used an a la carte pricing structure since 2007, and this new fee is another example of this rather than a new structure. And, when we move to the shopping cart later this year it will clarify things even further.

I asked Transportation Secretary Ray LaHood about your plans earlier this week. He suggested that Spirit doesn’t care about its customers. How do you respond to that?

I respect the Secretary greatly. However we believe that the facts don’t support his assertion, and I’m sure that the statement was made out of a general exasperation about more fees.

I’ll admit that while the basis for this new fee was founded in improved customer service, it has not been communicated this way through the media. Spirit has spent millions of dollars upgrading our reservations platform, responding more quickly to feedback, buying new airplanes, and more, and as a result over 99 percent of our customers say they love Spirit and will fly us again.

You know, in some ways this is such an odd question for me. I spent many years in the legacy airline business thinking of ways to charge customers more for their ticket. At Spirit, we spend all of our time trying to make travel affordable for everyone and to put the pricing power in consumers’ hands. Fundamentally, what could me more customer friendly? Gouging you on your fare but then giving you a “free” cola doesn’t seem quite as nice to me.

What is the role of government in the airline industry, in your opinion?

All customers should be able to expect that the airline they fly is safe, and that the air traffic control system is efficient and minimizes safety risks and delays. Further, customers should expect that they know what they are buying at the time they buy it.

Lastly, the country is better off when customers have choices for their travel, and competition makes that happen. In my opinion, the government has a role to ensure that all of this happens and on a level playing field.

Do you think government should have a role in ensuring that airlines do not engage in unfair and deceptive practices? If so, can you give me of an example of what you believe constitutes an unfair and deceptive practice?

I think it is unfair to hide a relevant term for a sale before the customer commits their money. “Relevant” would be anything they must pay. I also think it can be deceptive to make people pay for things they don’t need and not make that clear to them.

For example, I think it is deceptive for Southwest to advertise “Bags Fly Free”. I challenge you to take a bag to any Southwest counter and ask them to send it to Chicago for you. Bags do not fly free — they fly with a paying passenger who paid for the bag as part of their ticket price.

And further, they make every passenger pay for that even if that customer does not check bags. If they didn’t, they would give a discount to those that don’t check, which is essentially what Spirit does.

What would you say to the passengers who say Spirit has crossed a line, and that they’ll take their business elsewhere?

I would just ask them to compare our “all in” price with anyone else and pick the value they felt was best for them. If an airport lounge is important to you, you won’t fly Spirit. If TVs are important to you, you won’t fly Spirit. If price is most important, more often than not we will be the best value going because you never have to pay for what you don’t use.

For what it’s worth, long ago people would have thought that restaurants would “cross a line” if they asked customers to clean their own table. Yet millions of customers do this every day at McDonalds and other fast food places. It somehow became acceptable, proving that what people
expect changes all the time.

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