Privately held Spirit Airlines planes $300 million initial public offering

Monday, September 20, 2010

Spirit Airlines plans IPO

Spirit Airlines aims to raise $300 million with an initial public offering. For travelers on the low-fare, high-fee airline, that’s enough to pay its $45 carry-on bag charge, 6.7 million times over.

Spirit is a tiny airline that has been in the news for a five-day pilot strike in June as well as for charging for carry-on bags, generally those that go in the overhead bin. While the carry-on fee got a lot of attention, it’s part of Spirit’s practice of charging relatively low fares but then piling on fees to book a ticket online ($16 round-trip) and to reserve a seat.

The airline has said that even with the fees, passengers pay about the same, or less, than they would for comparable flights on other carriers.

Spirit said half the money from the IPO would go to its current owners to repay debt and to exchange its private shares. The other half will be used for general corporate purposes.

Spirit is based in Miramar, Fla. Its route network emanates from Fort Lauderdale to points in the eastern U.S. and the Caribbean.

The company began as Clippert Trucking Co. in Michigan in 1964, according to its filing late Friday. It was renamed Spirit Airlines in 1992.

In July 2006 majority ownership shifted to Indigo Partners LLC, run by former America West airline Chairman and CEO Bill Franke.

According to the filing, Indigo also has stakes in five other airlines with Spirit’s “ultra-low cost” model: Avianova in Russia, Mandala Airlines in Indonesia, Tiger Airways in Singapore and Australia, Volaris in Mexico, and Wizz Air in Europe.

Spirit adopted its low-fares, high fees model in 2007. It shows in its financial results.

Revenue for the add-on fees jumped from $76.4 million in 2007 to $163.9 million last year. But overall revenue fell during the same period to $700 million, from $762.9 million in 2007.

Profits have jumped from $1.4 million in 2007 to $83.7 million last year.

The pilot strike hurt, though. Spirit said the five-day strike in June reduced profits for the first half of the year by $19 million. The strike is expected to reduce revenue in the current quarter, too.

Spirit said it plans to stick to its strategy of using low fares to attract customers who will then pay add-on fees.

“This unbundling and low base fare strategy is designed to support profitable growth,” the company wrote. “Unbundling” is what airlines call it when they charge extra for something traditionally included in the price of a ticket.

Airlines are a service business, and Spirit’s prospectus acknowledges the risks of its business model.

Spirit said it has had a “relatively high number” of complaints about customer service, reservations and ticketing, and baggage handling.

“In particular, we generally experience a higher volume of complaints when we make changes to our unbundling policies, such as charging for baggage,” the company wrote.

The share price, date, and ticker symbol for the shares have not been set yet.

The filing said CEO and President Ben Baldanza’s 2009 salary and bonus was $765,823.

will not be displayed