OPS 574 Case Study: Spirit Airlines: Reducing the Cost of “No-Frills”

 

Slide 1

Title: Spirit Airlines Case Study: Reducing the Cost of “No-Frills”

 

Slide 2

Title: Objectives

Identify bottlenecks

Develop strategies for process improvement

 

Slide 3

Title: Challenge

 

This case study will enable you to:

· Assess and evaluate Spirit Airlines’ operations based on performance data and customer reviews.

· Practice collaboration skills to develop strategies for process improvement to keep costs low and improve customer satisfaction.

Slide 4

Title: Measuring an Airline’s Performance

 

Within the airline industry, there are several key metrics that are evaluated to assess performance.

 

Revenue Passenger Mile (RPM): Measures the total miles traveled by all passengers

 

Available/Average Seat Miles (ASM): Measures the total miles that could have been sold from available (empty) seats on planes.

 

Passenger Mile Yield (PMY): The average price collected per mile traveled.

 

Load Factor: The number of seats sold divided by the total number of seats.

 

Passenger Revenue Per Seat Mile (PRASM) or Unit Revenue: Passenger revenue divided by Available Seat Miles.

 

Cost per Available Seat Mile: Shows how much revenue is being lost from empty seats. It is the operating cost divided by Available Seat Miles.

 

Download What is Diversity of Thought?

Download link: https://drive.google.com/open?id=1viWJbKGvyzbgsWRGtg2gO28aiZsz8Up_

 

Slide 5

Title: Spirit’s Net Promoter Score

 

A Net Promoter Score (NPS) is a number between -100 and 100 that measures customer satisfaction and willingness to recommend the business to others. Negative numbers means that the business has more detractors than promoters. Detractors are customers who had a bad experience with a company and share their experience and opinion with others, thus diminishing the brand. The NPS correlates with repeat business and revenues.

 

The NPS in 2020 for Spirit is -4. This is below the average airline industry score of 0. This means that Spirit will lose market share against its competitors.

 

Slide 6

Title: Spirit’s Increasing Costs and Customer Complaints

 

A quick Google search of “Spirit Airline customer reviews” reveals many public complaints about the airline’s operations.

 

Consumer Reports even ranks it as “the worst airline in America.” SkyTrax reviews by verified customers rate Spirit Airlines 3/10.

 

One common complaint is misleading pricing by Spirit. As a “no-frills” airline, they charge for many items that other airlines include in their price, such as carry-on bags, printing a boarding pass, or non-alcoholic beverages, like soft drinks or water, while in the air. Additional purchase items, such as seat selection and checked bags, which most airlines charge for, are actually priced higher than the same charges on competitor airlines. Once all items are purchased, the total price of flying on Spirit is often higher than that of competitors.

 

Flight delays on Spirit are also quite common. The delays are often exacerbated when upset customers have altercations with ground and air staff, often requiring law enforcement involvement. Labor issues with pilots, flight attendants, and ground maintenance have also led to work stoppages, cancelled flights, and physical altercations. In 2017, Spirit Airlines had to cancel hundreds of flights due to pilots turning down assignments. As a result, Spirit sometimes had to pay pilots a 200% premium over their regular pay.

 

To maximize space and place more passengers on an aircraft, the seats have minimal padding and do not recline. Fuel expenses have increased more than 15% in 2019. Other operational expenses have increased by 3.4% in 2019, due primarily to pay raises given to pilots. Spirit’s liquidity is $1.2 billion in cash. While total revenues were up in 2019, profits were lower, due to these increased costs.

 

Slide 7

Title: Overview of Spirit’s Operations and Competitive Advantage

 

Spirit’s leadership wants to explore options to streamline operations to reduce operating costs, improve employee relations, and increase customer satisfaction.

 

What could Spirit Airlines have done to prevent employee dissatisfaction and labor disputes? Were the pilots justified in their actions? Do you think the pilot union and subsequent work slowdown negatively impacted the airline? What collaborative strategies could both sides have employed to prevent a breakdown in operations?

 

How can Spirit integrate the customer voice? Are there collaborative opportunities here? Focus groups, social media analysis, and feedback forms are some tools the airline can use to collect customer input. Is satisfaction solely tied to operations improvements? Considering the airline presents itself as a “no-frills” option, are customers justified in their criticism of the airline?

 

Slide 8

Title: Evaluation of Alternatives

 

Perform some research on the Internet about Spirit’s operations and competitive advantage. What are some areas in which operational bottlenecks occur?

 

Answer field

 

Slide 9

Title: Evaluation of Alternatives

 

Feedback

 

Flight delays and flight cancellations create significant bottlenecks. While weather conditions or incidents at an airport outside of Spirit’s control can cause flight delays or cancellations, there should be strategies in place for contingencies and mitigation of these events. Decreasing bottlenecks should result in higher NPS, greater customer satisfaction and retention, and increased revenues.

 

Slide 10

Title: Alternative View

 

What types of resources would Spirit need to deploy to mitigate delays and reduce cancellations due to weather, flight crew absences or “time out,” or mechanical issues?

 

Answer field

 

Slide 11

Title: Alternative View

 

Feedback

 

Spirit would need to increase the number and availability of ground crew, air crew, maintenance crew and equipment, and backup aircraft at each location.

 

Slide 12

Title: Alternative View

 

Delays and cancellations can result from a variety of circumstances. Weather is the cause only 38% of the time.

 

Is it really possible or good business sense to have backup ground crew, air crew, maintenance equipment, and backup aircraft at every one of the 17 destinations served by Spirit in 16 countries each day?

 

What are some lower-cost alternatives?

 

Answer field

 

Slide 13

Title: Alternative View

 

Feedback

 

Spirit could have backup personnel and aircraft at strategic hub locations. Technology could be used to better predict scheduling bottlenecks at airports served. Block times for flights could be evaluated to determine optimal times to stay on-time. Flights could be re-routed. Passengers could be placed on other airlines. Slack could be built into schedules to allow for contingencies.

 

Slide 14

Title: Process Improvement

 

To reduce bottlenecks, improve on-time performance, and increase customer satisfaction, Spirit should begin by looking at its operational performance data for departures, arrivals, and cancellations. Causes for delays and cancellation should be identified. Patterns should be correlated as well, such as more frequent delays or cancellations during certain times of the year or at certain airports.

 

The master flight schedule can then be modified to optimize time and resources. Routing of flights and pairing of flights on crew schedules can also be reviewed and modified to reduce risks of delays or cancellations.

 

For more details on how airlines handle these types of operational issues, see the report, “Improving airline operational performance through schedule perturbation” (external link: http://www.pitt.edu/~schaefer/papers/ImproveAirOpsSchedPert.pdf ).

 

 

Slide 15

Title: Final Submission

 

Return to your course in Blackboard where you will prepare a reflection post. Include responses to the questions below.

 

Is process improvement alone a sufficient response to Spirit’s declining profits? What other changes should Spirit make? What measurable outcomes should Spirit seek? Why?

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