Why Spirit Airlines Named a New CEO

In what appears to be a surprise move, Spirit Airlines Inc. (NASDAQ: SAVE) on Tuesday announced that Robert L. Fornaro has been named the company’s president and CEO, effective immediately, replacing Ben Baldanza, who had served in the role since 2006. The announcement noted only that Baldanza had recently moved his family to the Washington, D.C., area. Spirit is headquartered in Miramar, Fla.

Spirit has had a tough year. The stock is down nearly 50% and the ultra-low-cost carrier has faced price challenges from larger carriers that lately have begun to push back against the low fares offered by Spirit and other ultra-low-cost airlines. Low fuel costs, among other things, have enabled larger carriers like United, Delta and American to compete on price.

Fornaro was formerly CEO of Air Trans, now part of Southwest, and was a member of Spirit’s board prior to his new appointment.

There are two possible contributing factors to the change. First, Spirit increased its seating capacity by 30% in 2015, perhaps anticipating growth in the longer term. But the increase also hit profitability. Spirit had the best profit margin of any airline early last year, but that lead has eroded as the company added capacity.
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The second thing that could have led to Baldanza’s replacement is that Spirit ranked dead last in a recent survey on customer satisfaction. The airline received low marks on all 10 factors rated by Consumers Union. In fact, the organization said that Spirit’s “overall satisfaction score is among the lowest for any service we’ve ever rated.” Under Baldanza, the airline took a firm stance that its customers did not care about frills and only wanted to fly from point A to point B at the lowest possible price.

Whatever the reason for the change, it had no impact on the share price Tuesday morning. Shares were inactive in premarket trading, after closing at $39.18 on Monday, in a 52-week range of $32.73 to $83.45.