Spirit Airlines Milestone Three Business Opportunities Case Study

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Introduction

Taking into consideration Spirit Airline’s current financial position and operational factors, a specific cost-cutting investment will be proposed in this paper. It is important to note, from the onset, that to remain relevant in an increasingly competitive business environment, entities must continuously embrace approaches that not only enhance their efficiency, but also reduce their costs. This is more so the case in the Airline business where competition for passengers continues to be tough – with entities adopting various strategies to win over the said passengers.

Discussion

An ultra-low-cost carrier, Spirit Airlines remains one of America’s most competitive commercial airlines. To guarantee its place on this front, the airline ought to further cut its costs. This would effectively cement the airline’s position as the cost leader in the industry. In the words of Beers (2018), “the major expenses that affect companies in the airline industry are labor and fuel costs.” In that regard, therefore, the ability of an airline to cut labor or fuel costs could have a significant impact on the bottom-line. Currently, the airline’s fleet consists of a total of 119 aircraft – entirely comprising of the Airbus A320 class/category. This specific aircraft family, manufactured by Airbus, has good fuel efficiency economics and has been a favorite of airline companies for a significant period of time, with the first of this type of aircraft having been launched in the 80s. In seeking to further enhance the fuel-efficiency of its A320 aircraft family, Airbus in 2015 introduced the A320neo. Billed as having one of the most fuel-efficient engines amongst its peers, the A320neo “delivers up to 15 percent reduction in fuel consumption” (Mansvelt, 2011, p. 111). The enhanced fuel efficiency was in this case made possible thanks to the move by airbus to incorporate the latest engine technologies in the design of the new addition to the A320 family. It is also important to note that the new aircraft features numerous other additions including, but not limited to, various cabin innovations. The aircraft’s credentials on the environmental front are also impressive, more specifically when it comes to reduced Co2 emissions.

Currently Spirit Airlines has a total of 5 Airbus A320neo models in service. The airline’s fleet also consist of 31 Airbus A319-100, 53 Airbus A320-200, and 30 Airbus A321-200. The fleet matrix of Spirit Airlines has been highlighted in the appendices section. Towards this end, therefore, at present, the A320neo model makes up 4% of the airline’s fleet. In this text, a proposal is being made for the airline to phase out and retire at least 50% of all the other non-A320neo aircrafts, and replace the phased aircrafts with the A320neo within the next 7 years. At the current fleet level, and if the same ratio of specific aircraft models being disposed were to be maintained, this will effectively call the placement of orders for approximately 60 new A320neo aircrafts and the retirement of approximately 15 Airbus A319-100, 26 Airbus A320-200, and 15 Airbus A321-200.

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It is, however, important to note that other aircraft disposal/acquisition combinations could be adopted – including, but not limited to, the retirement/disposal of existing aircrafts on the basis of engine age. In essence, this proposal is largely founded on the need to make Spirit Airlines a cost leader in the industry via the further reduction of one of its major expenses – i.e. fuel costs. As it has been pointed out elsewhere in this text, the A320neo would result in a fuel saving of approximately 15%. This is a significant cost saving that could be passed on to customers in terms of even lower prices.

The move to ensure that 50% of the Spirit Airlines fleet comprises of the A320neo aircraft has several critical benefits. To begin with, as it has been pointed out above, the key motivation for the proposal highlighted herein is the need to further reduce the airline’s operational costs. Historically, as Beers (2018) observes, the airline industry has been intensively competitive. Being an ultra-low-cost carrier, Spirit Airlines seeks to compete on the basis of cost. According to Michael Porter, a business could base its competitive advantage on several fronts: i.e. focus, differentiation, and cost leadership strategies (Eldring, 2017). It is also important to note that with regard to cost leadership, Spirit Airlines has several possible courses of action it could adopt. These are; reduce costs while at the same time selling its tickets at the same prices offered competitors (hence enhancing its bottom-line), undercut the competition by offering lower-priced tickets (in a move that could enhance its market share), or adopt a hybrid of the two approaches whereby the company both reduces its costs and charges lower prices than those of its closest competitor. In this text, the proposal is for the airline to adopt the hybrid approach. Ideally, this would increase the market share of the airline without necessarily negatively impacting the entity’s immediate profit level.

Next, the specific aircraft model proposed is seen as being friendlier to the environment than other models. It addition to having a significantly reduced noise footprint, A320neo also boasts of reduced CO2 emissions. In essence, “the lower fuel consumption results in lower CO2 emissions and gives the A320neo a significantly improved carbon footprint” (Lufthansa Group, 2018). There are several benefits that Spirit Airlines could reap by virtue of running a business that is deemed to be environmentally friendly. One of these is that….....

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