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… Spirit Airlines

SpiritI just flew Spirit Airlines roundtrip from Managua to Ft. Lauderdale. I’ll spare you all my personal review of the airline, but the general public’s opinion is undeniable. They like the prices and hate the service. On the occasion of my return, it was late at night, there was a massive storm barreling across the country, and a Delta flight had earlier in the day skidded off the runway at La Guardia, shuttering the airport for hours. A lot of people were in air travel purgatory that night, and I overheard on more than one occasion “I am never taking Spirit again.”

Airlines, like most companies that offer services, not goods, have high fixed cost. They have to pay their staff and buy and fuel airplanes, whether they are full or not. And any time an airplane is not flying, it is unused capital. Spirit has done an excellent job managing this challenge. By positioning themselves in a South Florida hub, Ft. Lauderdale, they can easily access Central America, the Caribbean, and parts of Central America. Many airlines leave their regional planes at the gate overnight. But Spirit gets them to Ft. Lauderdale, and then sends them on return red-eyes to the Caribbean, Central America, and Colombia. By 6:00 AM planes-full of passengers arrive in Ft. Lauderdale, and either stay in South Florida, or continue on other Spirit flights to their final destinations, whether they be Chicago, New York, Dallas, or elsewhere. Spirit simultaneously tapped what was an under-served market and increased the utilization of their 65 airplanes strong fleet (as of the end of 2014).

Spirit Airlines Route Map

Spirit Airlines Route Map

The downside of this is that they have no buffer in their schedule. On the occasion on my flight from Managua, we were nearly an hour delayed. The plane had been getting more and more late throughout the day, having already made a few trips between Ft. Lauderdale and La Guardia before heading to Nicaragua. Then, as soon as we got to Ft. Lauderdale (late) the plane was scheduled to immediately head out to another domestic destination. It certainly departed late, starting off its next day of work on a bad note, and probably continuing late for the foreseeable future. This gives the airline absolutely no buffer in its schedule. Many airlines leave their regional jets idle overnight. So if an airplane scheduled to arrive at its final destination of the day at 10:00 PM doesn’t get there until 11:30 PM, that’s not a problem for its next departure, at 6:00 AM. However, Spirit does not have this luxury with its fleet.

The result: the worst on-time performance among American airlines. 67% of flights land on-time (within 15 minutes of their scheduled arrival time) in 2013. That’s dead last in the United States, Mexico, and Canada, according to Bloomberg.

Many people complain about how Spirit “nickles and dimes” its passengers. But truly, travelers who are honest about their baggage and pay ahead of time will find themselves paying less for flights than on other major carriers. The true cost comes in late arrivals. For someone with a tight itinerary, Spirit may not be the right choice.

Sources:

http://www.bloomberg.com/news/articles/2014-02-11/spirit-airlines-passengers-go-for-cheap-tickets-over-time

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… El Niño

El Niño has been gathering some attention in the United States and in Nicaragua, where I am currently living and serving as a US Peace Corps Volunteer. Basically, El Niño is when a wide band of surface water in the Pacific Ocean off northwestern South America heats up, altering weather patterns worldwide. I guess at this point I want to emphasize that whether or not this is a good or bad thing is completely subjective. It depends on your stake in the climate. For house insurers in coastal areas, it is definitely a good thing. For farmers in Nicaragua, not so much. However, from an economic point-of-view, the effects of El Niño, I believe, can be objectively discussed and predicted.

First of all, we’re not in El Niño yet. The National Oceanic and Atmospheric Association (NOAA) has to declare an El Niño based on observed conditions, and they haven’t been observed yet. However, many climatologists are predicting an El Niño to be declared later this year, and the effects of the oceanic temperatures are already being felt. Last week the federal Climate Prediction Center released a monthly report giving an El Niño event a two-in-three chance of developing.

If you live in a hurricane zone, you can breathe a sigh of relief. The weather patterns sparked by El Niño typically subdue hurricane forces in the Atlantic, leading to a below average hurricane season. The polar vortex probably won’t be back this winter. And California may have some wet months ahead to quench its drought (but with storms come mudslides in California). However, unless this El Niño is intense, which is looking increasingly unlikely, it probably will not bring enough rain to completely alleviate the drought conditions.

Two hurricanes! In Hawaii?

Two hurricanes! In Hawaii?

On the other hand, if you’re in the Pacific hurricane zone (Mexico and Central America – which means me, in Nicaragua) get your go-bag ready. El Niño can make for more and stronger Pacific storms. The Midwest also better dust the cobwebs out its storm cellars. There is a correlation between tornadic activity and El Niño.

Parched California

Parched California

So what does this all mean for economic activity in the latter part of this year and 2015?

Crop yields and livestock production will probably drop in 2015 as a result of the changes in weather patterns, which will drive up prices and put a minor dent in GDP. Adverse effects on crops in Southeast Asia could also drive up prices on foodstuffs like palm oil, which is already feeling the pinch from Ebola. However, more significantly, the warmer weather through the winter could be a boon for consumer spending (no one goes out and does stuff or buys stuff when it’s snowing, as we saw this last winter, but during mild winters GDP usually gets a healthy boost). Ironically, Japan is monitoring for the opposite effect. The coming seasons could be unseasonably mild and wet, dampening consumer spending.

Agricultural production is a relatively small portion of the US economic output, so the effects of El Niño could be quite muted in America (of course the wildcard is freak storms, severe droughts, or other unanticipated effects that have dynamic effects of the economy). However, in many countries around the world – in fact, in most countries around the world, agriculture is a much larger component of economic output. Nicaraguan farmers are already struggling with a slow rainy season, and hot weather in the mountains could be contributing to the spread of “coffee rust,” a disease that affects coffee plants and is spreading through Nicaragua and other parts of Central America. Since agriculture is such a large part of the Nicaraguan economy, the impacts of El Niño could be far more serious down here. Plus, American farmers have crop insurance at their disposal to insulate themselves from the effects of a poor harvest. Most Nicaraguan farmers have no such recourses and their personal well-being and that of their families’ could be seriously harmed by adverse El Niño effects.

Coffee rust

Coffee rust

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