Spirit Airlines executed its initial public offering yesterday, but unlike the vast majority of airlines, it has few worries about its distribution costs.
When it unveiled its IPO intentions in September 2010, the airline revealed that its "distribution costs are more than 100% fully covered by our distribution fees."
The low cost carrier takes an unusual approach to distribution.
First, the vast majority of its ticket sales -- 78% in the first half of 2010 -- took place on Spirit.com, its lowest-cost distribution channel.
Travel agents accounted for about 13% of the airline's sales and they get zero percent standard commission.
And, 9% of tickets were sold through the airline's outsourced call center.
Spirit distributes through global distribution systems Amadeus, Galileo, Worldspan and Sabre, but the airline doesn't have full-content agreements with any of them and so can offer lower fares on Spirit.com, the airline says.
"Such an arrangement allows us to sell higher fares through GDSs, thereby covering the cost of these arrangements," Spirit says. "Similarly, we have to date released our fares to OTAs (online travel agencies) only if we are permitted to withhold our lowest fares from this distribution channel."
So, Spirit tickets on Travelocity and Orbitz, for example, are sold "at prices higher than on our direct website to cover their incremental costs of distribution," Spirit says.
Spirit adds: For all channels, other than Spirit.com, "we use incrementally higher fares and user fees with the objective of causing the users of those channels to bear the additional costs."
The picture Spirit paints of being able to distribute through the GDSs and OTAs without providing full-content is one that the distributors don't let major carriers get away with.
Meanwhile, Spirit is expected to raise $171 million from the IPO, which got off to a rocky start.
Investors are worried about the viability of the airline industry in generally and never-ending fuel-cost pressures added to concerns.
The $12 pricing per share was well below the hoped for $14 to $16 the airline spoke about earlier in May.
Trading under the stock symbol SAVE on Nasdaq, the stock was going for around $11.55 Friday morning.