Most air travelers would agree that Spirit Airlines (NYSE: SAVE) and Frontier Airlines are the worst airlines in the U.S. in terms of service quality. The two ultra-low-cost carriers offer rock-bottom fares, but as the saying goes, you get what you pay for.
However, executives at Spirit and Frontier are trying to change the public's negative perception of their companies. The recently released 2018 Airline Quality Rating report shows that they have made significant progress in improving their operations during the past year. In the long run, smoother operations at these ultra-low-cost carriers could be bad news for American Airlines (NASDAQ: AAL) and United Continental (NYSE: UAL).
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Poor reputations are well-deserved
The annual Airline Quality Rating study scores airlines based on four objective criteria related to customer service. These are: (1) on-time performance, (2) the rate of involuntary denied boardings (i.e., passengers getting "bumped" from flights), (3) the frequency with which checked bags are lost or delayed, and (4) the percentage of customers who file official complaints with the U.S. Department of Transportation.
Airlines' performances in these four categories are aggregated into a single score. Each score is a negative number, with results closer to zero representing better performance.
The objective metrics used in the annual Airline Quality Rating reports show that Spirit Airlines and Frontier Airlines have earned their poor reputations. In 2015, Spirit Airlines was last in the industry with a score of negative 3.18. Frontier Airlines' score was negative 2.60. No other carrier scored worse than negative 1.73.
In 2016, both ultra-low-cost carriers improved, with Frontier Airlines scoring negative 2.24 and Spirit Airlines vaulting ahead of it with a score of negative 2.01. However, the goalposts moved. The next-worst score was negative 1.36, meaning that Frontier and Spirit remained far behind all of their rivals.
Spirit and Frontier made further progress last year
The 2018 Airline Quality Rating report, which came out last week, showed that Spirit Airlines and Frontier Airlines remained at the back of the pack. However, both carriers improved their performances significantly. Spirit Airlines scored negative 1.66, while Frontier improved its score all the way to negative 1.23, putting it within striking distance of regional airline ExpressJet at negative 1.06 and American Airlines at negative 1.03.
A look at the individual metrics reveals that on-time performance improved at both Frontier and Spirit last year, bucking the trend for the rest of the industry. In terms of mishandled baggage, Spirit Airlines was actually the best in the business, while Frontier was near the middle of the pack.
The main reason both ultra-low-cost carriers still rank at the bottom overall is that they have a much higher rate of official complaints -- especially Spirit. This is largely due to the nature of their business models: Their extensive fees for "optional services" can irritate new customers who don't understand what is (and is not) included in the base fare. Spirit Airlines and Frontier Airlines also tend to bump passengers more frequently than other airlines.
The quality improvements at Frontier Airlines and Spirit Airlines were even more obvious toward the end of 2017. For example, both carriers scored better than American Airlines in the month of December.
Why it matters
Delta Air Lines is routinely near the top of the airline industry in terms of service. This has helped it attract customers without matching the lowest fare on every route. By contrast, United Continental and American Airlines have been slightly below average in recent years. As a result, they are increasingly relying on low fares to keep their planes full.
Indeed, in the past few years, American and United have started to aggressively match the prices of rivals like Frontier Airlines and Spirit Airlines. Executives at United have been particularly vocal in promoting this strategy. Last year, CFO Andrew Levy and President Scott Kirby both commented that nobody likes flying on Frontier or Spirit. The implication was that matching ultra-low-cost fares would undermine those carriers' whole reason for existence.
However, the recent quality improvements at Frontier Airlines and Spirit Airlines will make it that much harder to defeat these pesky rivals. To be fair, American Airlines and United Continental are also improving their quality scores, but Frontier and Spirit may be good enough for many travelers at this point. Meanwhile, price-matching has hurt profitability at both American and United just as much as it has hurt the ultra-low-cost carriers.
Spirit Airlines and Frontier Airlines are never going to provide a luxurious experience. But if they continue to get better at running on time and offering courteous service, it will be virtually impossible for rivals like American Airlines and United Continental to stop their growth.
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