Sky's The Limit
The unlikely roots of Ned Homfeld's success story can be traced back further than any of his entrepreneurial ventures. Although the ultimate result has been a multimillion-dollar company, Homfeld has traveled a long road and faced the challenges of starting and outgrowing a number of businesses since he honed his survival skills in the competitive arena of sailboat racing as a teen. "The competition in sailing is much like the competition in many of the businesses I've been in," says Homfeld. "If there are 40 boats that are exactly the same--the same sails, the same hulls, the same weight--they ideally have the same speed. It's how you sail your boat that determines whether you win or lose a race."
As Homfeld studied to earn his degree in naval architecture, his goal had been to design America's Cup racing yachts. But a funny thing happened on the way to the Cup: A string of businesses, beginning with a trucking company he started while in college, kept Homfeld's beloved hobby just that.
At the end of that string is Spirit Airlines, which offers low-fare jet service to 14 popular leisure and business destinations, including Myrtle Beach, South Carolina; Atlantic City, New Jersey and several Florida locations. The Fort Lauderdale, Florida-based company grossed more than $135 million in sales last year and boasts the highest load factor (proportion of seats filled) in the industry. And the addition of five new MD-80s last year increased seating capacity by 20 percent; as a result, 1999 sales are projected at $230 million-plus.
But the flight to success wasn't a smooth one: Homfeld had to learn to roll with the punches--to go back to the drawing board quickly and pursue change wherever necessary. Perhaps the key to his achievements has been not being afraid to re-evaluate and then head in a different direction.
Prepare for Takeoff
The Detroit-based trucking service Homfeld founded while he was in college in 1969 delivered parts to auto plants in Detroit and Cleveland. His biggest client was Chrysler. "And as Chrysler went, so went we," says Homfeld. Unfortunately for his business, auto production slowed dramatically during the OPEC oil crisis of 1976. "Suddenly, there was very little need for our services. Within a week's time, our whole business was brought to its knees. There was no cushion, nothing gradual about it," he says. "I was just a 23-year-old guy, and I had no idea that could happen."
Instead of giving up, however, Homfeld converted his business into a factoring company. He began to purchase accounts receivable from commuter airlines, small airfreight forwarders and other trucking companies. Homfeld reasoned that if he was able to collect his own bills, why wouldn't he be able to expand to help other companies? Thus he set the stage for a life of entrepreneurial endeavors that has served him well. "We changed who we were to accommodate the times," Homfeld, 46, says. "My lesson from the OPEC crisis was never to put all my eggs in one basket."
In 1981, as Homfeld's profits soared, a company seeking financing to expand its air-charter operations approached him for help. He passed on providing financing--but liked the idea of an air-charter service and started his own operations, flying into Atlantic City using airplanes owned by other companies. He called his service Charter One.
Charter One provided public charter day trips from Chicago to Atlantic City, geared to the needs of the casino-bound. In 1986, Homfeld added trips from Boston to Atlantic City twice a month. By 1989, the company was operating that route daily.
In 1990, Charter One received its FAA certification as a scheduled service carrier and that same year, Homfeld made his first jet purchase: two Convair 580s. Making use of the customer base Charter One had established, Spirit Airlines was born in 1992. In 1993, Spirit initiated flights from Atlantic City and Detroit to Orlando, Tampa, Fort Lauderdale and Fort Myers, Florida. This year, service from Newark, New Jersey, to Orlando was introduced.
Spirit is not really a niche carrier, however. "We're a `niches' carrier," Homfeld says. "The object is to develop a multitude of niches. That way, if a bigger, deeper, stronger competitor comes into [a given market], they can only hurt that particular market. We have roughly half a dozen niches now, and we're steadily trying to develop more." Emphasis on steadily. Homfeld's one-step-at-a-time approach is the dominant factor in the success of a man whose business has rendered a profit in all but two quarters of the past decade.
As a company that's always looking for a vacuum to fill, the point isn't to be the biggest and baddest. "It's about making a profit," says Homfeld. "[We're] filling in the cracks where there's no service or where more service is needed. Our low prices encourage short vacations and multiple trips. Spirit's passengers [tend to] fly with great frequency."
Covering the Bases
Despite Spirit's early success, the ride wasn't always a smooth one. "In the period of time following the ValuJet accident in 1996, we got hammered [and lost customers]," says Homfeld.
With smaller carriers hurt by the fallout of the ValuJet disaster, Homfeld says the major airlines set out to exploit their weakness. "The homicidal tendencies of competing airlines drove us to a point where a considerable portion of our retained earnings evaporated in a very short time," he says. Airlines increased capacity in the routes they shared with Spirit, Homfeld says, and reduced their prices to beat Spirit's. "And they began giving extra frequent-flier miles to passengers flying on routes we were flying in order to move passengers off our flights and onto theirs. In some markets, they were very successful."
But Homfeld didn't waste a minute regaining his footing. "Small airlines are unique in that they can move quickly. [So] we dropped markets, changed markets and moved more aircraft into charters," he says. Spirit also dove into advertising that stressed brand rather than prices. To get passengers to identify on a personal level with the airline, Spirit's pilots, flight attendants and mechanics were featured in its TV commercials.
This was a change from the company's early strategy. Up until the 1996 air war, Spirit Airlines had purposely been moving slowly and staying in the shadows. "We kept a low profile so competitors wouldn't jump on us. If we were invisible to them, then we could exist without them attacking us too much," explains Homfeld. "Travel agents were [largely unfamiliar] with us. We were not available in [their reservations systems]. We didn't do press releases or have parties for travel agents or go to a lot of travel shows; we did most of our marketing by direct mail. And we were successful without doing all that. But once it became obvious that we were being aimed at, we changed our whole method. If we were going to be shot at anyway, we wanted to make sure as many people knew about us as possible."
One of Homfeld's changes was to seek more business from travel agents, who are now responsible for 40 percent of Spirit's bookings. "After all," Homfeld says, "it's like having an [automatic] referral in the marketplace. One travel agent can talk to 100 people in a week. I can't." And while larger airlines are cutting back agents' commission amounts--and alienating them in the process--Spirit Airlines is engaging their support with a focus on sales incentives, including a moderately priced golf vacation program that comes with a 10 percent commission.
Although Homfeld knows how to fight it out with his competitors, he places a premium on using the velvet-glove approach with his employees, whom he refers to as his "family"--sounding not unlike another airline entrepreneur who went from small start-up to huge success. "You have to be caring toward the people that work for you, and you have to be gentle," he says. "You have to realize that when people don't work out in a particular job position, some of the blame is your own, whether it's for not properly training, not properly managing or not properly directing management. You have to look at [the situation] through everybody else's eyes as well as your own. Loyalty should flow in both directions."
And Homfeld gives a lot of credit for his success to those loyal staffers. "I supply people's motivation and overall direction," he says, "but making it work--I've got 1,600 people in my family that do it far better than I could."
If there's such a thing as a natural entrepreneur, that phrase describes Ned Homfeld. The world, it seems, is truly his oyster--so many untapped markets and so little time. "The airline business changes day by day," he says. "You have to flex and bend. You have to respond."
And Homfeld is doing just that, with the intention of introducing flights to the Caribbean and Central America. "We're also interested in routes that go east to west so as to utilize time zones to our advantage," he says. And look for Spirit's Web site to offer online booking later this year.
Homfeld is counting on baby boomer economics to usher in another sizable market in the future. "Baby boomers are going to start retiring pretty soon," he says. "We anticipate having [even] more flights to Florida and other warm climates so their families can visit them."
As Spirit's determined founder keeps a watchful eye on an ever-evolving market, the sky is truly the limit. Homfeld turns again to the joys of sailboat racing: "Knowing the rules, playing the game right, knowing the wind, knowing the boat and how to make it turn faster and lose less speed than the next person--it's your knowledge of your machine that makes you win or lose."