As you saw by now, Spirit Airlines ceased operations over the weekend. Despite what you might think about why it went out of business, in my opinion, the real reason isn’t what the news or the company is saying.
The news said it went out of business because it couldn’t afford the fuel costs due to the war. Now, gas prices certainly didn’t help and were part of the final straw, but that’s not anywhere near the catalyst for this.
Why Spirit really went out of business
So then why is it no more, and what does this have anything to do with selling more real estate?
Spirit started in Detroit, adding a new low-cost option to the existing few options available (Delta and American). When I was old enough to buy my own flights, I would often choose Spirit during my late teens and early 20s.
During the 2000s, Spirit introduced the “bare fare,” in which you get what you pay for. If you didn’t pay for a carry-on, you don’t get one. Want a sip of water? That’ll be $5. Need your boarding pass printed (back before there were apps)? That’ll be $7. You get the idea. It was a bus in the sky, and Spirit was proud of it.
It developed a customer base that appreciated the model because they didn’t feel like they were paying for things they weren’t going to use anyway. This very customer base is what kept the airline profitable for much of its 34-year run.
The big shift
In the late 2010s, Spirit decided to break its model, and it insisted on being more like other airlines. It stopped charging for carry-ons, water and refreshments were included. It introduced a first class “big front seat,” and it stopped poking fun at itself. (I very much remember being on flights where the flight attendant would say, “And if you want good service here, yeah, you gotta pay extra for that, too.”)
It’s what Spirit was and what everyone expected, until it wasn’t.
The new CEO during that time said the company was going to change its reputation and be more like the other guys. Spirit was going to raise fares a bit and start doing things differently to compete with Delta Air Lines, American Airlines and the Uniteds of the world.
And that very move is the moment you can see the start of the downfall of Spirit Airlines. It upgraded planes, added Wi-Fi, added a comfort section, trained staff to have better “Spirit,” built the most advanced HQ in Dania Beach, Florida, (right by the FLL airport) and really started acting like the other guys.
Now, on paper, you’d think those are all good things, right? Of course, and you better believe that, as a frequent flyer, I started flying Spirit more often myself. Every time, I was pleasantly surprised by how nice my experience was, and I would actually check routes and costs every time I booked a flight.
The disconnect
So then why didn’t it work for them? How is it possible that you could make major improvements like that and go backward?
Spirit abandoned the customer base that got it to the highest levels of profitability.
Customers used to the “no frills” Spirit started recognizing that, for a few bucks more, they could be on Delta or United, and they didn’t want to go backward after experiencing what a higher level of service was like. It was almost embarrassing to go back to Spirit for some, and once the fares and models were so similar to those of the others, Spirit was no longer a no-brainer.
That’s when you can see their market share and market value declining while the others were thriving. And, after a tough time coming out of COVID and high expenses for newly leased planes, a new headquarters and rising costs to operate anything today, it only took one jump in fuel prices to bankrupt the entire empire.
The lesson for real estate
So, for us in real estate, what does this mean, and what can we learn from it?
Find a niche, and go all in on it, and once you feel like you’ve done all you can, double down some more. Don’t try to be everything to everyone, and without question, know what you’re for.
Identify a segment of the market that you’d like to own, and tailor your offerings to that segment. That could be anything — first-time buyers, downsizing sellers, luxury clientele, etc.
People ask me all the time, “So then what’s your niche, Jeff?” And my answer is always the same. I live in a blue-collar town, and most of the people there are blue-collar, so I decided early in my career to go all in on the largest demographic in my market.
Now, that doesn’t mean I don’t work in other sectors like luxury or commercial, but I took a real strong stand that we can’t specialize in everything; otherwise, you’ll experience what Spirit experienced — the same goes for brokerages and team owners.
So pick a sector, go all in, and own it all the way. And just when you think it’s time to get cute, go own it some more.
Jeff Glover is the founder of Live Unreal Companies, the parent company of several real estate-related businesses.