April 23, 2008
To All Fellow Employees,
For obvious reasons many of you are concerned about the state of our industry and what it means for our future. Over the past few weeks airline bankruptcies, mergers and shutdowns have become recurring top stories of the day for every major news outlet. This is because from a financial and economic perspective, the U.S. airline industry is performing worse today than it did after 9/11. The principal drivers behind this economic attack - soaring fuel prices, recession fears and a tightening credit market - have combined to create the perfect storm for airlines, with a deeper and longer impact than 9/11.
It's likely to get worse before it gets better, too. Today, fuel was quoted at over $120 per barrel, the highest price in history even when adjusted for inflation. The carriers that aren't shutting down are cutting back on flying, deferring or cancelling aircraft orders, and laying off staff or freezing wages. So how do we fit into all of this? The bottom line is this: we are better positioned than most to fly through this storm, and we know what we need to do to stay ahead of the curve in such a volatile situation. We have more to do, there's no doubt about that, but by working together we can get to where we're headed even faster.
Looking back to late 2006, we understood the risks of fuel prices rising to above $100 per barrel. We also knew there were recession risks around the corner as a result of the housing bubble. Although controversial at the time, we announced our vision of becoming the first Ultra Low Cost Carrier (ULCC) for the Americas. We couldn't have predicted just how successful our strategy shift would become, yet had we not deployed our new strategy we too would have joined the recent headlines.
Instead, by focusing on low cost service to the Caribbean and Latin America, we have become the largest carrier in Fort Lauderdale and we'll serve over 40 destinations non-stop from our primary gateway by year end. We successfully unbundled our product, allowing customers to choose only the products and services they want, which helps keep fares low. We increased utilization of all assets and improved productivity in all areas across our company. By positioning ourselves to have the lowest costs, we created the ability to sell ultra low fares. This led to unprecedented traffic stimulation in our primary region, the principal driver behind our ability to double the size of the airline over the past two years. While our consumption of fuel has dropped over 30 percent when comparing the Airbus to the MD-80 fuel burn on an average trip, we further protected our business against rising fuel prices by instituting an aggressive fuel hedging program that has protected our exposure to volatile changes in oil prices and thankfully a substantial percentage of our estimated fuel consumption over the next 18 months is hedged at workable levels. Our ex-fuel CASM is already among the lowest in the industry at five cents and we are on our way to achieving 4.5 cents, which is now the global standard for new breed ULCCs like ourselves. Everyone has worked incredibly hard through this process and I thank you all for your efforts.
We can stay ahead of the curve and continue to grow if we accept that our world is changed for the foreseeable future and that we are facing a long, protracted environment of record high fuel prices and recessionary macro economic conditions. We can be thankful that we've made so much progress over the last two years, but we must now move even faster in the direction we are headed. Over the coming weeks and months, you should all expect to be a part of our efforts to ensure that we further separate ourselves from the pack. The commitment of every one of us to these initiatives is critical for us to be able to weather the current storm and emerge even stronger.
We will remain focused in four areas:
1. Further lower costs through greater utilization, productivity and efficiency, and through using fuel as efficiently as possible
2. Produce higher revenue through value added non-ticket products rather than gouging customers with high fares
3. Be flexible with growth options to adapt as opportunities arise in this fast changing, dynamic environment
4. Continue to deliver solid operational performance and customer service.
We will win by staying true to our ultra low cost vision. Having low costs lets us offer low prices that keep people flying even when they've cut back on other spending. And low costs ensure that no other airline can swoop in to take our jobs and our future.
I'm grateful to all of you for helping build the Spirit that we can be truly proud of today. I look forward to continuing to work with all of you to seize the opportunities that this environment creates.
Regards,
Ben Baldanza
CEO & President
Spirit Airlines
To All Fellow Employees,
For obvious reasons many of you are concerned about the state of our industry and what it means for our future. Over the past few weeks airline bankruptcies, mergers and shutdowns have become recurring top stories of the day for every major news outlet. This is because from a financial and economic perspective, the U.S. airline industry is performing worse today than it did after 9/11. The principal drivers behind this economic attack - soaring fuel prices, recession fears and a tightening credit market - have combined to create the perfect storm for airlines, with a deeper and longer impact than 9/11.
It's likely to get worse before it gets better, too. Today, fuel was quoted at over $120 per barrel, the highest price in history even when adjusted for inflation. The carriers that aren't shutting down are cutting back on flying, deferring or cancelling aircraft orders, and laying off staff or freezing wages. So how do we fit into all of this? The bottom line is this: we are better positioned than most to fly through this storm, and we know what we need to do to stay ahead of the curve in such a volatile situation. We have more to do, there's no doubt about that, but by working together we can get to where we're headed even faster.
Looking back to late 2006, we understood the risks of fuel prices rising to above $100 per barrel. We also knew there were recession risks around the corner as a result of the housing bubble. Although controversial at the time, we announced our vision of becoming the first Ultra Low Cost Carrier (ULCC) for the Americas. We couldn't have predicted just how successful our strategy shift would become, yet had we not deployed our new strategy we too would have joined the recent headlines.
Instead, by focusing on low cost service to the Caribbean and Latin America, we have become the largest carrier in Fort Lauderdale and we'll serve over 40 destinations non-stop from our primary gateway by year end. We successfully unbundled our product, allowing customers to choose only the products and services they want, which helps keep fares low. We increased utilization of all assets and improved productivity in all areas across our company. By positioning ourselves to have the lowest costs, we created the ability to sell ultra low fares. This led to unprecedented traffic stimulation in our primary region, the principal driver behind our ability to double the size of the airline over the past two years. While our consumption of fuel has dropped over 30 percent when comparing the Airbus to the MD-80 fuel burn on an average trip, we further protected our business against rising fuel prices by instituting an aggressive fuel hedging program that has protected our exposure to volatile changes in oil prices and thankfully a substantial percentage of our estimated fuel consumption over the next 18 months is hedged at workable levels. Our ex-fuel CASM is already among the lowest in the industry at five cents and we are on our way to achieving 4.5 cents, which is now the global standard for new breed ULCCs like ourselves. Everyone has worked incredibly hard through this process and I thank you all for your efforts.
We can stay ahead of the curve and continue to grow if we accept that our world is changed for the foreseeable future and that we are facing a long, protracted environment of record high fuel prices and recessionary macro economic conditions. We can be thankful that we've made so much progress over the last two years, but we must now move even faster in the direction we are headed. Over the coming weeks and months, you should all expect to be a part of our efforts to ensure that we further separate ourselves from the pack. The commitment of every one of us to these initiatives is critical for us to be able to weather the current storm and emerge even stronger.
We will remain focused in four areas:
1. Further lower costs through greater utilization, productivity and efficiency, and through using fuel as efficiently as possible
2. Produce higher revenue through value added non-ticket products rather than gouging customers with high fares
3. Be flexible with growth options to adapt as opportunities arise in this fast changing, dynamic environment
4. Continue to deliver solid operational performance and customer service.
We will win by staying true to our ultra low cost vision. Having low costs lets us offer low prices that keep people flying even when they've cut back on other spending. And low costs ensure that no other airline can swoop in to take our jobs and our future.
I'm grateful to all of you for helping build the Spirit that we can be truly proud of today. I look forward to continuing to work with all of you to seize the opportunities that this environment creates.
Regards,
Ben Baldanza
CEO & President
Spirit Airlines
