Spirit Airlines this week announced plans to attack United on one of its core routes: Chicago O’Hare to Houston’s George Bush Intercontinental. Spirit will begin service on October 4.
On the surface this seems like a very bad idea. Directly attacking a strong established player is likely to spark a rather powerful defensive effort. The last thing United wants is a discount carrier on one of its core routes. United could easily put together a defense plan and make sure that Spirit fails to attract many customers on the route, loses real money and eventually folds.
But Spirit is being smart. The airline is flying just one flight a day on the route, leaving O’Hare at 8:15 in the evening and departing Houston the following morning at 6:15.
This makes United’s next move much more difficult. One flight isn’t a lot; United flies eleven flights every day on the route. And the new entrant isn’t likely to attract many of United’s important business travelers; Spirit is quickly developing a reputation for delivering the sort of terrible service executives avoid. Spirit is also charging next to nothing: flights in October are selling for just $71 round trip.
So will United defend? I suspect not; the downside appears to be limited and the cost of defending would be enormous.
Without a response from United, Spirit will attract price sensitive customers and fill up its planes. After a few months the airline will likely add a second flight, and then a third. By the time Spirit becomes a major concern for United it will be difficult to slow them down.
This is good strategy: thinking through your competitor’s situation and developing a plan to win. Spirit appears to understand United’s situation and is making some savvy moves.
Spirit is an airline to watch.
Exactly for the reasons that Tim outlines United would be poorly advised not to defend their core routes. The easiest way for United to keep Spirit out of its core business would be to put the slots of two of the eleven flights right before or after Spirit’s departures and rigorously match Spirit’s fares on those specific flights. Utilizing its loyalty program and additional services included in the fare (e.g. baggage, drinks etc.) and compensating the losses from the competing flights through a slight price increase on the remaining flights fully loaded with less price sensitive business travelers, United stands the chance to teach Spirit a lesson it will not forget soon. The question if a elephant can be as graceful as a bird is though a different one :-)! Good analysis, Tim!
Fascinating analysis Tim. I appreciate how you’ve broken this down and it helps me see the value of the new book you’re putting out. Sounds like a fairly brilliant strategy on the part of Spirit. I’m looking forward to your book and learning more about this type of strategic thinking.
Judo at it’s best. Good for Spirit…