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Operational Challenges

Former CEO at Spirit Airlines

IP Interview
Published on May 23, 2020

Why is this interview interesting?

  • How taking out the middle seat and other preventative measures can impact the unit economics for airlines
Executive Bio

Ben Baldanza

Former CEO at Spirit Airlines

Ben has over 35 years of experience in the airline industry. From 2005 - 16 he was CEO of Spirit Airlines and is known for defining the ultra low cost carrier model after transforming the business to become the 7th largest airline in the US. Ben was previously SVP at both American Airlines and Continental Airlines and also led the restructuring of Avianca Holdings. He now consults with the largest US airlines and is an Adjunct Professor of Economics at George Mason University.

Interview Transcript

Do you think the post-covid operational changes are going to have a material impact on the unit economics?

I think what the industry will try to do is, relatively quickly, implement the ones that don’t. For example, asking customers to wear facial covering, doesn’t really change the boarding time or things. Even if the airline buys a bunch of masks, to give to people who need them, that’s still not big dollars, so I don’t think that’s a big thing. If the airline were forced to physically distance people on the plane, that would be incredibly penalizing to the economics and it would stall the recovery of the industry, certainly, because it would be hard to make money if you can only sit people six feet apart.

Other things that are about, maybe, testing. The question is whether or not customers would be willing, if necessary, to get to the airport an hour earlier than they used to, in order to have the tests taken or the temperature taken or something where they can present themselves as, I’m not presenting risk to my fellow passengers. I think the industry is going to bias their responses toward things that allow them to keep the planes moving, not really significantly hurt the boarding times or the deplaning. Not to keep the plane on the ground much longer, maybe another five minutes for more cleaning or a deeper cleaning, after each flight. But the industry can handle that sort of change, within its economics. If it was an hour longer after each flight, that would hurt the industry.

I really think they’re going to pick on those kind of things that won’t hurt the economics that much. Customers are going to have to decide, this is enough for me to be comfortable being on board.

It does seem like a really tough task. This is a health crisis now and you have to persuade the traveler. Plus, you have all the potential issues with the airports changing, requirements changing on and off the airplane. Also, you probably have to discount your price, to drive demand. It’s going to be a tough time for the airlines, for the next few years.

It absolutely is. There’s no question about that, at all. The question is, does it start to recover by late this year or does it take even longer? It’s hard to say that we’re not in the trough now. Bookings are, literally, 95% off the prior year. The question is, how long are we in the trough and when do we start to recover from the trough? Once that recovery starts, how long does it take to build back to some sense of what a new normal demand is?

It was interesting, just today, Warren Buffett announced that he had sold all his position, in all airlines. He said, I’m just uncertain as to how many people are going to want to fly again. Clearly, the industry is hoping that people will want to fly again, that businesses will need to fly again and people will still want to go Spain, if you live in the UK, for vacation and that, if you live in the US, you still want to go to the Caribbean or Hawaii. People want to travel across the oceans; they want to see the world. That’s an important human thing to do and movement is important for all of us, I think. I think there’s a sense that, over time, we will be a big travelling people again and we will be big travelling societies again. It may take years, however, to get back to that point where the risk is balanced.

I think that if a vaccine is developed – we don’t know if it will be developed; we don’t have a vaccine for the common cold – I think that will help because, again, people will think, I can get the vaccine for this. Or if I get this, maybe I will be uncomfortable for a week, but I’m not going to die. It’s the risk of this virus, right now, that we don’t know what it will do to us and what it will do if we get it and how to treat it. It’s all that uncertainty around this virus. We live with other viruses and other risks, all the time, but because we understand them, we understand the risk.

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