Low Cost Strategies Of Spirit Airlines And Its Pricing Strategy

Southwest Airlines is a company that is known for its low ticket prices and profitability despite the highly risky industry in which it operates. This essay examines the cost behavior, cost volume profit (CVP), activity based costing (ABC), budgeting process, costing and decision making policies of the firm. The essay will discuss how the airline integrates these concepts in its daily operations.

Spirit Airlines business strategy is that they do not believe customers should have to pay for amenities unless they are absolutely going to utilize them and the services they chose shouldn’t subsidize other passengers. Spirit believes, they can offer a cheap flight with no amenities and each added amenity will be a cost. In the end, the lower fares will stimulate air travel by attracting customers who would have used on-ground

Flight Centre offers a very competitive price. The prices are usually are lower than its competitors when it comes to domestic and international flights. It provides the option of different prices ranges. These price ranges depend on the services that a customer requests. It provides economy class, business class, premium class, and first class price ranges. Due to its affordable prices and good services, it has grown to become a 13.5$ billion business comprising of more than 30 brands. It works had to keep up with the competition by providing best possible prices while ensuring customer loyalty (Flight Centre the Airfare Expert).

• Offer low fares and still maintain a high-quality distinguished product that offers friendly service and a comfortable and entertaining flight experience.

Jerome Simelane, the airline's Commercial GM, “By using what we have learned over the years about international airline best practice‚ we have also created a cost structure which allows us to offer competitive fares without cutting any corners on quality‚ safety and reliability."

This is done by developing services and products that are viewed to be unique by the customers, and thus the customers are willing to pay premium prices for them (Porter 1985). Airline using this strategy can place a high price for their services and products. The other advantage is that the customers are also willing to pay a high price based on the uniqueness of the product or service. They also tend to be more loyal since the purchasing decision is more related to the quality rather than on the price (Mazzeo

Over the years, company sustained low operation costs and tickets prices following well-developed strategy. Among other measures, it was able to keep prices low by flying only one airplane type, minimizing service and maintenance expenses, and convincing employees to cut gate turn-around times and make the airline more efficient (Fitzpatrick, 2005).

Firstly, Spirit’s lowest-cost distribution channel and lowest fares are on WWW.Spirit.com; predominantly, 78% of ticket sales came through this channel (Tnooz, 2011). Ordinarily, the advantages of this channel eliminate; markups and commissions to intermediaries, foster customer relationships, and prevents market leverage or play one airline off against another. Likewise, the channel offers the carrier with full control on ticket

The airline industry has always been a fiercely competitive sector. Since the invention of low-cost carriers, also known as no-frills or

In April 1992, American Airlines launched "Value Pricing" -- a radical simplification of the complex pricing structure that had evolved over more than a decade following deregulation of the U.S. domestic airline industry. American expected that the new pricing structure would benefit consumers and restore profitability to both American and the industry as a whole. The critical issue raised is: Would American's bold initiative work?

Most successful low-cost carriers try to offer a modicum of additional benefits, such as better on-time performance or more legroom. AirTran Airways has been very successful with its low-fare Business Class, while Frontier and JetBlue offer live in-flight television. US Airways offers a first class product, and a very extensive route network including international destinations.

The four cost components of the airline industry – fuel, landing fees, aircraft leasing and taxes - has made operating Lucky Air in a productive manner a constant challenge. Even though the company has a high competitive advantage being linked to Hainan Airlines, it still needed to upgrade its business strategy on a regular basis to ensure maintaining the lead they had over the other airlines. The company like all its counterparts face a myriad of restraints including heavily regulated governmental laws, limitation to price reduction, a low potential for rapid expansion due to government restrictions and heavy taxes.

The Airline Industry is in an interesting situation. Simply adding a low cost alternative is not enough in the industry. The Internet has made the power of buyers grow with the transparency of ticket prices. This is not something that will change any time soon. Because of this profitability is predominately reserved for low-cost yet distinctive carriers. No consumer wants to ride what they consider a “lesser” airline. Airlines need a way to distinguish themselves from one another while also acknowledging the increased power of buyers.

This is an opportunity for a United States based airlines like Spirit to bring in a proven product that is cost effective and complimented with good service to a globalized economy that suffers from lack of product.

The success of budget airlines forced traditional operators to lower their prices by adapting internet sales and yield management techniques. However they still struggle to compete with low prices offered by the LCCs. Further reductions in traditional airline ticket prices are expected.