Can Small Cities be Spirit's Savior? Carrier Eyes Underserved Markets in New Deal
Spirit Airlines, still navigating its post-bankruptcy recovery, is betting on 'historically underserved regions' to help fuel its comeback.
The ultra low-cost carrier has announced a strategic partnership with regional operator Contour Airlines. It aims to link Essential Air Service (EAS) markets in the United States with major leisure destinations.
The deal gives Spirit access to small cities without the overhead of traditional regional operations. Depending on its scale, it could mark a smart step towards profitable network growth after a challenging few months.
According to the companies, the agreement 'will increase connectivity to the national air transportation system and bring affordable travel options to underserved communities across the country.'
Contour is best known as one of the largest operators within the U.S. Department of Transportation's EAS program. It currently serves 22 EAS airports across the continental United States, focusing on the Southeast and Midwest.
To help balance the books, Contour will provide ground-handling services to Spirit at its existing EAS airports. For Spirit, this avoids the cost of contracting its own independent ground handling agents at off-beat locations which may only be served several times a week. Contour also said it will 'leverage its deep community relationships' to cross-market the new Spirit flights.
Low-Cost Model; Low-Cost Entry
'Our new partnership with Contour gives us an exciting opportunity to grow our network and explore low-cost entry into new markets that currently have limited service," said John Kirby, VP of Network Planning at Spirit.
The Florida-based budget carrier has not disclosed which new airports it plans to serve. In a joint statement with Contour on Monday it said it will 'introduce service to major leisure destinations from a number of Contour's EAS markets.' The companies added that the partnership will 'significantly expand the utilization and reach of the airports served.'
Initial routes are expected to be announced this summer ahead of the all-important winter leisure travel season.
While it remains to be seen which airports are served, the deal could mirror the successful strategy of Allegiant Air. The Las Vegas-based operator's business model connects smaller cities – usually with little or no direct competition – with major leisure destinations.
"EAS communities no longer need to choose between national connectivity and low fares,' added Contour president, Ben Munson. 'The combination of service from our two airlines is the best formula to grow passenger traffic in these underserved airports.'
Contour confirmed that its EAS contract work will continue. This typically sees the carrier fly from underserved markets to major connecting hubs of its partners. These include Alaska Airlines, American Airlines, and United.
Spirit Eyes Sustainable Growth
The development follows a turbulent year for Spirit Airlines. The carrier filed for Chapter 11 bankruptcy in November, just months after its proposed merger with JetBlue was struck down in court.
Ultra-low-cost rival Frontier previously made an offer to acquire Spirit. However, this was rejected by Spirit's shareholders after JetBlue made an all-cash offer valued at $3.8 billion, which included a higher break-up fee.
In January, Frontier management made a renewed bid for Spirit. Writing at the time, Frontier chairman Bill Franke described the proposal as 'a compelling opportunity that will result in more value than Spirit's standalone plan.'
This additional approach was promptly knocked back by Spirit, which said it wanted to stick to its plan as a standalone carrier.
In March, Spirit Aviation Holdings Inc., the parent company of Spirit Airlines LLC, emerged from its financial restructuring.
Last month, former Sun Country Airlines president and CFO Dave Davis was appointed as Spirit's new CEO.
Spirit has struggled to turn a profit in recent years for a variety of reasons, including Pratt & Whitney engine issues and sustained demand for premium and international travel.
The Allegiant Travel Company, the parent firm of Allegiant Air, is due to report its first-quarter earnings later on Tuesday.
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What am I looking at? The performance of airline sector stocks within the ST200. The index includes companies publicly traded across global markets including network carriers, low-cost carriers, and other related companies.
The Skift Travel 200 (ST200) combines the financial performance of nearly 200 travel companies worth more than a trillion dollars into a single number. See more airlines sector financial performance.
Read the full methodology behind the Skift Travel 200.
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