Spirit Airlines is in the news for having made a tough decision. Deciding if it was the right call is based on how you do the math.
The case in brief: 76-year-old cancer patient and Vietnam vet Jerry Meekins buys a plane ticket to visit his daughter. Before the flight his doctor advises him that his cancer is terminal and that he’s not well enough to fly. Jerry requests a refund. Spirit says no.
The CEO, Ben Baldanza defended the decision to Fox News, reminding us that Jerry didn’t buy the offered flight insurance. Baldanza noted, "had we done that (refund the money), I think it really would've been cheating all the people who actually bought the insurance... and I think that's fundamentally unfair."
Whether you like the message or not, it’s a moment of leadership: a CEO publicly and personally backing his decision. It’s bold, but is it smart?
Baldanza clearly knows what he’s doing. The company’s stock has doubled since going public in May 2010 and first quarter profits are triple what they were last year, with a revenue mix weighted heavily toward ancillary services. The airline business does not produce many winners – it has lost $60 billion in operations since deregulating in 1978.
Yet despite the odds, Spirit is innovating the business model and growing profits. Why?
Because they are clear and committed.
All strong brands are strong on the inside, clear about where they are going and are committed to getting there. In his way, Baldanza is the ultimate brand champion. He’s totally clear. It’s not about getting better (Delta) or delighting you (JetBlue) or championing the customer (Southwest), it’s all about the money. When asked about a nuance in his business strategy, he replied in the Fox article, “our strategy is simpler than that. Our strategy is to make money.”
And he’s totally committed to it. He didn’t refund the money. He also called Spirit’s industry-leading customer complaint figure an “irrelevant statistic” and in 2007 accidentally responded directly to a passenger’s email complaint, writing, “let him tell the world how bad we are. He’s never flown before with us anyway and will be back when we save him a penny.”
Totally clear. Fully committed
Which brings us to the Meekins case. It’s obviously a wrenching human interest story. But was it a tough decision for Spirit to make? We don’t know for sure, but here’s where the brand value creation equation can help.
Brands create value when they compel customers to choose the brand over competitors, pay more for the privilege and tell their friends to do the same.
In this case, there are two value drivers. First is the clear and consistent promise of a price-fighting, get-what-you-pay-for airline. If Spirit monkeys with this promise, they risk eroding future revenue.
Secondly, there is the cost associated with this story – the Boycott Spirit Airlines Facebook page, the fact that you are reading this article. This is real money. Someone, probably more than one, will buy their next ticket from one of Spirit’s competitors because they don’t agree with Spirit’s value system.
In its decision, Spirit is calculating that the future value of clear and consistent brand promise is greater than the cost of the reputational damage from the current flap.
This story is not about a $197 refund. It’s about the calculus of long-term brand value. Spirit’s calculation concludes that the story will never get big enough to depress revenues in an amount greater than the value of maintaining a consistent promise. They are probably not wrong. Time will tell. But there is one thing we know for sure: don’t expect a refund.
Josh Feldmeth is the CEO of Interbrand New York.