Miami-based law firm, Podhurst Orseck, has filed a class-action lawsuit on behalf of Spirit Airlines passengers, seeking redress for deceptive fees charged by the ultra-low-cost carrier. In recent years, the lack of regulation and transparency has enabled airlines to generate significant revenue from extra fees. Spirit has been an innovator in the industry. The carrier is notorious for charging fees and was the first to charge passengers for carry-on baggage. So it comes as no surprise that the carrier now finds itself as the target for such a dispute.
What is the Passenger Usage Fee?
The cornerstone of the lawsuit is Spirit’s Passenger Usage Fee (PUF). The fee is $8.99 – $16.99 per customer, each way. In other words, when you purchase a round trip ticket, you will pay an additional $17.98 – $33.98 on top of your airfare.
The fee is listed as an optional booking-related fee on Spirit’s website. The lawsuit claims that this is deceptive and misleading as the majority of passengers pay the PUF. Technically, the fee is optional. In order to avoid the fee, passengers have to purchase at Spirit’s airport ticket counters. While passengers do have the option of choosing where they purchase their tickets, the policy does not realistically enable passengers to opt in or opt out of paying the fee.
To put the financial importance of the PUF into perspective, Spirit Airlines reported that revenue collected from its PUF generated a total of $142 million for the company from 2008 to 2011.
Is Spirit Really Profiting?
In 2006, Spirit’s average ticket revenue per passenger flight segment was $109.36. As of June 30, 2012, average ticket revenue per passenger flight segment has only grown 19% to $130.54. Non-ticket revenue per passenger flight segment, on the other hand, has grown 974% over the same time period. Non-ticket revenue is primarily composed of extra fees, such as baggage fees, PUFs, and seat selection fees.
In 2006, when non-ticket revenue only represented 4% of total revenue, Spirit incurred losses of $81 million. In 2011, when non-ticket revenue constituted 36% of total revenue, Spirit made $76 million in profits.
Non-ticket revenues (a.k.a. fees) have clearly been a driver in Spirit’s profitability. Spirit, along with many other airlines, has focused heavily on revenues from fees because they return higher profit margins. Ticket revenue is often generated through distribution channels, such as travel agents. As a result, it is subject to various levels of commissions and fees. Non-ticket revenue, however, is sold directly to the passenger from the carrier. Thus, Spirit and other carriers are able to avoid sharing proceeds with third parties and increase profits.
(For more details, see our infographic below.)
Is This the End of an Era?
U.S. airlines are only continuing to charge more fees and increase existing fees. Spirit is no exception. In 2009, the Department of Transportation fined Spirit $375,000 regarding the very same fee named in the class action lawsuit.
Earlier this year, when the Department of Transportation put a stop to airlines overbooking flights and bumping passengers without proper compensation, Spirit responded with a new fee – the Unintended Consequences of Department of Transportation Regulations (DOT) fee. The DOT fee is quite reminiscent of the PUF. It is listed on Spirit’s website as an optional booking-related fee. However, unlike the PUF, the DOT fee of $2 per customer each way seems unavoidable.