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Is Spirit a threat for UA? It looks likely - UA's unit costs are 89% higher (?)

Is Spirit a threat for UA? It looks likely - UA's unit costs are 89% higher (?)

Old Apr 28, 14, 6:35 pm
  #1  
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Southwest and United may also be the biggest losers longer term. In general, Southwest is more leisure-oriented than the legacy carriers, and so its customers tend to be more price sensitive. Whereas corporate travelers who don't pay for their own tickets are unlikely to fly on Spirit no matter how much cheaper it may be, leisure travelers might be more inclined to save money by flying Spirit.

Meanwhile, United is the most exposed of the legacy carriers, simply because it has the highest cost structure. In fact, Spirit has claimed that United's unit costs are 89% higher than its own! With such a big cost gap, Spirit has a good incentive to expand to more routes in competition with United, since it can earn good margins even with dramatically lower prices.
Full article: http://www.fool.com/investing/genera...it-airlin.aspx

If this article is correct (I have doubts) UA and WN better watch out. Unlike Allegiant who flies into small markets a few times a week with little competition, Spirit is going head to head with the majors.

Spirit has claimed that United's unit costs are 89% higher than its own
If this is a fact (I doubt it) UA and all the major carriers are in trouble on the domestic side. I know Spirit is small now, but if it continues making record profits - watch out. This airline is a TRUE LCC - WN no longer is with the fares they currently are offering on many trips I've looked up.

On top of Spirit being a true LCC, Frontier is also lowering ticket prices. This directly effects UA more than any other carrier, as Frontier's hub is in DEN. When Ma & Pa Kettle book a flight they do so based on price, not FF programs.

http://finance.yahoo.com/news/fronti...143908214.html

Another airline is promising to change the way we fly by offering cheap base fares but then adding on a bevy of additional fees. Passengers flying Frontier Airlines will now have to pay extra to place carry-on bags in the overhead bin or for advance seat assignments.

The move comes as the Denver-based airline tries to transform itself into a fee-dependent airline, similar to Spirit Airlines or Allegiant Air ó the only other U.S. carriers to charge such fees. Frontier already charges $1.99 for soda and bottled water on its flights, a fee it added on July 1.

Frontier says that in exchange for these new fees, it is lowering its base fare by an average of 12 percent. The new charges apply to tickets purchased on or after Monday.

Last edited by FlyinHawaiian; Apr 28, 14 at 7:35 pm Reason: merge
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Old Apr 28, 14, 7:27 pm
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I can believe United's non-fuel unit costs are double that of Spirit's.

But fuel is the great equalizer since it's much closer to the same for everyone, bringing the gap in total unit costs down.
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Old Apr 28, 14, 7:42 pm
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Originally Posted by kettle1 View Post
.... If this article is correct (I have doubts)
.....
If this is a fact (I doubt it) ...
Given your concerns, why have you posted this?
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Old Apr 28, 14, 8:09 pm
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Originally Posted by WineCountryUA View Post
Given your concerns, why have you posted this?
Because if the article is correct, UA better watch out. Spirit and Frontier are owned by the same holding company and they are directly hitting UA's turf.

This is not good news for UA.

Acquisition by Indigo Partners

In October 2013, Republic Airways Holdings entered into an agreement with private equity firm Indigo Partners to sell Frontier Airlines for approximately $145 million. According to Indigo, the transaction would further Frontierís evolution into an ultra-low-cost carrier. In December 2013, Indigo Partners LLC, through an affiliate, completed the purchase of the Frontier Airline from Republic Airways Holdings. The airline's headquarters will remain in Denver.
Indigo Partners is a private equity firm established by Bill Franke in 2002 that pursues acquisitions and strategic investments in the air transportation and related industries. Headquartered in Phoenix, Arizona, with an office in Singapore, Indigo Partners has shown a preference for investing in low-cost carriers around the world. Low-cost carriers in which Indigo Partners has made investments in include Wizz Air, Avianova, Tiger Airways, Spirit Airlines and Mandala Airlines.
Allegiant is not on an attack. Spirit and Frontier are. And Indigo Partners have deep pockets. Does UA today?
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Old Apr 28, 14, 8:10 pm
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Originally Posted by mduell
But fuel is the great equalizer since it's much closer to the same for everyone, bringing the gap in total unit costs down.
Time is also an equalizer. History has shown that LCC costs always increase while legacies find ways to reduce theirs.

Regardless, the target markets for UAL and Spirit are so vastly different, it's like talking about how a dollar store will challenge Macys.

Originally Posted by WineCountryUA View Post
Given your concerns, why have you posted this?
The repeated pattern of posting links to blog entries written by Adam Levine-Weinberg is also interesting.
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Old Apr 28, 14, 8:47 pm
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Originally Posted by fly18725 View Post
Time is also an equalizer. History has shown that LCC costs always increase while legacies find ways to reduce theirs.

Regardless, the target markets for UAL and Spirit are so vastly different, it's like talking about how a dollar store will challenge Macys.
This may have been true in the past with great (OK good) FF programs, times have changed. Spirit has claimed that United's unit costs are 89% higher than its own. If true watch out on the domestic side.

As far as a dollar store VS Macys = UA is the new Sears (in the middle). Ad slogans "Solid as Sears" or "The Friendly Skies".

Best move I made several years ago was buying ALGT, Spirit and DL shares. AA is also working very well.

Spirit/Frontier could become a huge airline. Times change. I'm just saying you read it hear first. Mark your calendar. 4/28/2014.

I do not fly ALGT, Spirit or Frontier. I fly in FC on the best carriers in the World. I just have been lucky with these airlines (investing).
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Old Apr 28, 14, 8:54 pm
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The airline business is ever changing. Adapt or end up like Pan Am.
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Old Apr 28, 14, 9:00 pm
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Originally Posted by kettle1 View Post
This may have been true in the past with great (OK good) FF programs, times have changed. Spirit has claimed that United's unit costs are 89% higher than its own. If true watch out on the domestic side.

As far as a dollar store VS Macys = UA is the new Sears (in the middle). Ad slogans "Solid as Sears" or "The Friendly Skies".

Best move I made several years ago was buying ALGT, Spirit and DL shares. AA is also working very well.

Spirit/Frontier could become a huge airline. Times change. I'm just saying you read it hear first. Mark your calendar. 4/28/2014.

I do not fly ALGT, Spirit or Frontier. I fly in FC on the best carriers in the World. I just have been lucky with these airlines (investing).
I don't think FF programs has anything to do with an airlines cost structure, but I agree that ULCCs will grow. The question is will the traffic come at the expense of legacy carriers, or from the traditional LCCs like Southwest and JetBlue?

I can't disagree with the wisdom in buying ALGT, SAVE and DAL - all have had great performance and I can't argue with the success of their business plans. Then again, what do most of your comments have to do with UAL?
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Old Apr 28, 14, 9:15 pm
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Originally Posted by fly18725 View Post
Then again, what do most of your comments have to do with UAL?
This article as posted on thread #1.
http://www.fool.com/investing/genera...it-airlin.aspx

Between Frontier (in DEN) and Spirit, if this article is correct UA is looking at stiff competition for Y seats at low prices.
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Old Apr 28, 14, 10:09 pm
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Originally Posted by kettle1 View Post
This article as posted on thread #1.
http://www.fool.com/investing/genera...it-airlin.aspx

Between Frontier (in DEN) and Spirit, if this article is correct UA is looking at stiff competition for Y seats at low prices.
I understand they're in the same industry, serve some of the same airports, and have (very) different cost structures. Without a greater discussion of the divergent business models, the restatement of facts doesn't seem to connect the topic to UAL in a thoughtful way. Since you found the information relevant enough to start a new thread, I'd be curious to really understand why you think Spirit's cost structure is relevant to UAL customers?
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Old Apr 28, 14, 10:13 pm
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Originally Posted by fly18725 View Post
The repeated pattern of posting links to blog entries written by Adam Levine-Weinberg is also interesting.
I find it pretty interesting material, too. Thank you to those members that take time to post this interesting material. It's not always content I would run across on my own.
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Old Apr 28, 14, 11:25 pm
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Spirit is certainly a "threat" to take away United's last place ranking in customer service. I know Jeff and the BOD won't let that happen though...keep it up, boys!
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Old Apr 29, 14, 10:02 am
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Originally Posted by kettle1 View Post
Because if the article is correct, UA better watch out. Spirit and Frontier are owned by the same holding company and they are directly hitting UA's turf.

This is not good news for UA.
I don't believe this is correct. Indigo divested their holdings in Spirit to acquire Frontier. One could easily see a merger in the future with compatible fleets, price and cost structures, but the current ownership is distinctly different.
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Old Apr 29, 14, 10:19 am
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While I'm not a fan of UA over the last few years, it is still a nicer airline to fly than Spirit. I just flew Frontier for the first time last weekend and it was pleasant for TTN-MDW. But, unfortunately, it looks like Frontier will be turning into Spirit 2.0. Canceled flights, being stranded, horrendous pitch, out of control rude customers--while I know people say it all the time--I won't fly Spirit ever again. There actually have been times where Spirit had good fares to Florida, but I chose not to go on a trip.

I hope Spirit doesn't bring every carrier down to their level.
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Old Apr 29, 14, 10:25 am
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UA and Spirit are as different as night and day. Well, except for take offs and landings, maybe.

UA has been around the block a few times. They will be fine.

Look at American and WN for years. The markets over time are not mutually exclusive.

The airlines are doing what they have to do to keep their costs down operationally and have evolved many times over.

IF only they would not think their marketing (big net) is their precious secret to success.
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