Spirit Airlines CEO: New regulations hurts consumer

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Spirit Airlines CEO: New regulations hurts consumer

Ben Baldanza on new fees, government rules

This is a rush transcript from "Your World," February 1, 2012. This copy may not be in its final form and may be updated.

NEIL CAVUTO, HOST OF “YOUR WORLD”: Well, you’re not imagining it. These airline fees are increasing everywhere, baggage, cancellation, fuel. They sometimes cost more than the actual ticket.

So when the federal government recently installed new regulations to help airline passengers, the government say, guess what it created? A new fee.

Spirit Airlines has created a Department of Transportation of Unintended Consequences Fee.

CEO Ben Baldanza said the government forced his hand. He’s here to join me now.

What is the unexpected expense?

BEN BALDANZA, CEO, SPIRIT AIRLINES: Well, the unexpected expense of the 24-hour hold rule, which we recognize many customers will like, is the fact that when a seat is taken out of inventory while someone is deciding whether or not they are going do pay for it, it stops that seat being able to be sold to someone would might be willing to pay for it.

And the result of that is that the industry is going to carry a few less people, but will have the same costs, so, those costs will be spread over fewer people, so fares will go up as a result.

CAVUTO: So you have to lock that seat in, the government is telling you. Why do you have to lock it in?

BALDANZA: Well, let me give you an example, Neil.

If you go to the grocery store and you pick up a gallon of milk, but you can tell the grocery store, I will tell you a day from now whether I really want did buy this or not, then you bring it back the next day and say I don’t really need this gallon of milk, but now the milk is spoiled and they cannot resell it. That is exactly what is happening to our industry because of this regulation.

CAVUTO: Well, isn’t the government doing this because a lot of seats come and go with abandon and you guys overbook?

BALDANZA: Well, we run -- at Spirit, we run about an 87 percent load factor. And we have...

(CROSSTALK)

CAVUTO: You actually shove them in the luggage.

(LAUGHTER)

BALDANZA: Well, only me.

CAVUTO: And charge them extra.

BALDANZA: But we run a high load factor and have very few over bookings because again when people commit to a seat, we know it is sold.

(CROSSTALK)

CAVUTO: Well, you might be different. I think you are different in that respect, because you do police this stuff. I have to tell you, a lot of airlines don’t. There are some flights you get to and, all of a sudden, I am sorry, sir, you’re...

(CROSSTALK)

BALDANZA: Of course that happens.

CAVUTO: What is the solution?

BALDANZA: When the product spoils, when the airport door closes, that seat cannot ever be sold again.

When you have that kind of inventory -- if this were a product you could put back on the shelf and someone has 24 hours to decide, and then put back on the shelf and can resell it for the same price, that is not a big deal. But that is not what an airline seat is.

(CROSSTALK)

CAVUTO: But you are not against just the listing of all the fees that the government -- sort of a like menu, what they’re doing with menus, the calorie count and all that? You are not against that?

BALDANZA: No. In fact, we think customers should know exactly what they are pay in fees.

The other thing we are talking about this week or Spirit has been doing this week is this full fare advertising rule, and the full fare advertising rule, which requires that taxes and -- taxes go into the advertised fare.

You mentioned in your lead-in that there are all these fees and sometimes they are more than the ticket. You know, the other thing that is often more than the ticket are the taxes you pay on it. In fact, sometimes...

(CROSSTALK)

CAVUTO: But you would have to spell that out in the ad.

BALDANZA: That’s right. But sometimes 20, 50, or even 80 percent of the ticket price that you pay is government taxes.

CAVUTO: So, all of a sudden, that $49 trip to Fort Lauderdale is more like $89?

BALDANZA: Yes.

(CROSSTALK)

CAVUTO: You have to advertise $89.

BALDANZA: But we have to advertise $89. But shouldn’t the customer know that 80 percent of the ticket price or 50 percent of the ticket price...

CAVUTO: Well, why don’t you say that in your ad? This other $40 is the thieving government?

BALDANZA: Well, we can do that, but on a Web site and everywhere they see the price, it just becomes practically very difficult.

CAVUTO: But everyone would have to do it together then. You all have to play by the same rules.

BALDANZA: Not only do we all have to play by the same rules, but why doesn’t everything play by the same rules? Why do the airlines do this, but not the hotel or not the taxi or not the restaurant we might go to, to dinner tonight or any of that?

CAVUTO: That is fine. That is a good example. You raise it well. Ben, thank you very much. Good seeing you again.

BALDANZA: Always great to see you, Neil.

CAVUTO: He’s one of the few airline CEOs who just talks to people. All right.

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