It has come to this for airlines: To succeed carriers should consider following Spirit Airlines' lead and compete on price alone, charge fees for overhead bin space and other amenties, avoid weak-kneed customer service, communicate effectively and let passengers take it or leave it.
That's the view of Jay Sorensen of IdeaWorks in a new report, sponsored by Amadeus, and entitled Spirit Succeeds with the World's Only Fee for Carry-on Bags.
And, the theme of the report is that revenue-hungry airlines should ponder Spirit as a model, for investors' sake.
Despite "an almost endless supply of often vicious and angry commentary about the airline" online, passengers have embraced Spirit Airlines' ancillary revenue policies and the airline is thriving, Sorensen argues.
And, they are endorsing Spirit Airlines with their flight purchases, if not their hearts, Sorensen contends.
"From a revenue perspective, IdeaWorks estimates the carry-on bag fees deliver approximately $13 million per quarter or more than $50 million in new revenue annually," IdeaWorks says, adding that about 20% of Spirit's passengers opt for the overhead-bin fee.
Sorensen ties much of the airline's success to its imposition of overhead bin fees for carry-on bags on August 1, 2010, and other like-minded policies (such as no hot food on international flights) -- despite the fact that the carry-on bag fee policy triggered Congressional criticism and widespread ire online and in the press.
The airline recently has gone a step further and raised some of the domestic flight carry-on bag fees, which now stand at $30 at the time of booking, $35 during online check-in, $40 at the airport and $45 at the gate.
Bags that can fit under the seat are free.
And, checked bag fees for domestic flights range from $28 at the time of booking to $45 at the gate.
Fees for international flights are higher, but members of Spirit's $9 fare club get discounts.
"The airline flew 24.5 percent more passengers in the 12-month period following introduction of the carry-on fee than in the one-year period when carry-ons were free of charge," Sorensen writes.
"And all these passengers are generating spectacular financial results: profit margins in excess of 11 percent trample the puny or negative results posted by American, Delta, JetBlue, US Airways, United, and even Southwest. Spirit’s brand of unbundled service has obviously struck a chord with American consumers."
Spirit's previous policy -- ie. letting passengers load up the overhead bins for free -- was inefficient for airport and onboard operations, Sorensen argues, as gate agents and aircraft crews were checking about 17 bags per flight after passengers had discovered bin space was already full.
And, that led to much inefficiency at the airport and onboard the planes -- a situation much-improved since the advent of the carry-on bag-fee policy.
Through a variety of fee policies, Spirit's ancillary revenue per passenger has soared from $4.80 in 2006 to $43 in the second quarter of 2011, according to the airline.
Sorensen writes:
"When price becomes the product, the marketing strategy is made crystal clear. It requires the airline to strip all unnecessary costs and sell a basic airline seat at the lowest fare. Travelers quickly learn to adapt to Spirit’s methods - - or simply don’t return.
"Strict adherence to the business model prevents the airline from chasing every customer. Business travelers not seeking the perks provided by other airlines are enticed by Spirit’s low fares. The carrier boasts a core following of customers that find Spirit’s minimalist approach and Fort Lauderdale hub very appealing."
Sorensen admits passengers may not like the new fees, but the airline is transparent about the policy and pushes travelers to make a decision about bags as early in the process as possible. Sorensen writes:
"Email confirmations sent to customers indicate checked and carry-on baggage status and solicit the customer to prepay. Consumers might not like the fees, but the abundance of advance notice effectively prevents any claim of “bait and switch” tactics. The carry-on fee does become progressively more costly if the traveler equivocates.
"During booking the carry-on bag fee is $30 or $35 if paid during online check-in. Waiting until the day of departure becomes more costly with a $40 fee at the counter and $45 at the gate. Payment at the gate is limited to credit cards with no cash accepted."
Spirit's experiment has proven to be a success and despite the torrent of criticism, investors love it, Sorensen argues.
Other airlines -- yes, those with the aforementioned "puny or negative" bottom lines -- should consider imposing their own carry-on bag fees, Sorensen suggests, although he notes they should weigh all the factors and proceed with caution.
But Spirit is redefining the meaning of a what constitutes a "good airline," Sorensen says.
"Some may believe [being a good airline is] ... represented by a more forgiving approach to fees and a gentler style of customer service," Sorensen writes. "This blandly describes the majority of airlines in the world . . . and unfortunately, it’s a model that fails to deliver consistent profits for investors. By definition, this describes a certain path to failure. Let’s next consider Spirit as a definition of a good airline."
Sorensen neglects to mention that the US Department of Transportation fined this "definition of a good airline" $50,000 last month for misleading advertising.
There's apparently only one group of stakeholders -- investors -- which count, in Sorensen's view.
And, with airfares rising and carriers cutting capacity and merging, how much freedom do consumers really have when making their flight choices?
Take it or leave it in the increasingly consolidated world of US aviation often comes down to a choice of take it -- or stay home.