Spirit Airlines Reports Third Quarter 2018 Results

Company Release - 10/24/2018 4:10 PM ET

MIRAMAR, Fla., Oct. 24, 2018 (GLOBE NEWSWIRE) -- Spirit Airlines, Inc. (NYSE: SAVE) today reported third quarter 2018 financial results.

  • GAAP net income for the third quarter 2018 was $97.5 million ($1.42 per diluted share), or $100.5 million ($1.47 per diluted share)1 excluding special items.
     
  • GAAP operating margin for the third quarter 2018 was 16.0 percent, or 16.1 percent excluding special items1.
     
  • Spirit ended the third quarter 2018 with unrestricted cash, cash equivalents, and short-term investments of $875.9 million.

“As our third quarter results show, we are beginning to realize the benefits of the investments we’ve made to improve our business.  Our passenger revenue initiatives are allowing us to better optimize yields throughout the booking curve, our ancillary revenue initiatives continue to drive improved results, and we are consistently delivering operational reliability.  In fact, year-to-date, we are among the top airlines for on-time performance as measured by the D.O.T.,” said Robert Fornaro, Spirit’s Chief Executive Officer.  “In addition, over the last three years we have diversified our network, increased density in several key markets to allow for increased connectivity, and culled many of our underperforming routes.  We are just beginning to reap the benefit of all these changes and are excited about the potential to leverage them further.”

“Consistently delivering operational reliability is just the beginning in our quest to improve the overall guest experience.  We’ve invested in Spirit Signature Service training for our flight attendants, airport personnel, and other team members, we’ve made enhancements at our airports to lessen queue times, we’ve broadened and diversified our network, and we are adding guest amenities such as the option for inflight Wi-Fi.  These, and more, are part of our Invest in the Guest pledge.  Improving our Guests’ experience, together with our initiatives to drive revenue and our continued determination to maintain our industry-leading low-cost structure, positions us well to deliver strong returns for our shareholders," said Ted Christie, Spirit's President.

Revenue Performance
For the third quarter 2018, Spirit's total operating revenue was $904.3 million, an increase of 31.6 percent compared to the third quarter 2017, driven by a 24.6 percent increase in passenger segments and a 3.0 percent increase in operating yields.

Total operating revenue per available seat mile ("TRASM") for the third quarter 2018 increased 5.5 percent compared to the same period last year.  During the third quarter 2018, the Company's results benefited from its strategic network re-orientation, improved yield management processes, non-ticket revenue initiatives, and a strong operating environment.

On a per passenger flight segment basis, total revenue for the third quarter 2018 increased 5.6 percent year over year to $115.11 with fare revenue per passenger flight segment increasing 7.6 percent to $60.67 and non-ticket revenue per passenger flight segment increasing 3.5 percent to $54.442.

Cost Performance
For the third quarter 2018, total GAAP operating expenses, increased 30.1 percent year over year to $759.2 million.  Adjusted operating expenses for the third quarter 2018 increased 32.0 percent year over year to $758.8 million3.  These changes were primarily driven by increases in flight volume, fuel rates, and salaries, wages and benefits.

Aircraft fuel expense increased in the third quarter 2018 by 63.5 percent year over year, largely due to a 34.9 percent increase in the cost of fuel per gallon.  Economic fuel cost per gallon in the third quarter 2018 was $2.36 compared to $1.75 for the same period last year.

Spirit reported third quarter 2018 cost per available seat mile ("ASM"), excluding special items and fuel (“Adjusted CASM ex-fuel”), of 5.22 cents3, a decrease of 3.7 percent compared to the same period last year, primarily driven by lower aircraft rent per ASM and better operational performance, partially offset by higher salaries, wages and benefits per ASM.

“Network optimization and improved yield management combined with the team's continued focus to drive ex-fuel costs down, produced an operating margin excluding special items for the third quarter 2018 of 16.1 percent, about flat year over year, despite a significant increase in the cost of fuel and higher pilot rates in connection with our new pilot agreement approved in the first quarter 2018,” said Ted Christie, Spirit's President.

Fleet
Spirit took delivery of two new A320ceo aircraft during the third quarter 2018, ending the quarter with 121 aircraft in its fleet.

New Routes
Asheville - Tampa (09/06/2018)
Houston - San Salvador, El Salvador (09/06/2018)
Newark - Atlanta (09/06/2018)
Greensboro - Tampa (09/06/2018)
Greensboro - Fort Lauderdale (09/06/2018)
Asheville - Fort Lauderdale (09/07/2018)
Asheville - Orlando (09/07/2018)
Houston - Guatemala City, Guatemala (09/07/2018)
Greensboro - Orlando (09/07/2018)

Conference Call/Webcast Detail
Spirit will conduct a conference call to discuss these results tomorrow, October 25, 2018, at 9:30 a.m. ET.  A live audio webcast of the conference call will be available to the public on a listen-only basis at http://ir.spirit.com.  An archive of the webcast will be available under Webcasts & Presentations for 60 days.

About Spirit Airlines:
Spirit Airlines (NYSE: SAVE) is committed to delivering the best value in the sky while providing an exceptional Guest experience.  We are the leader in providing customizable travel options starting with an unbundled fare.  This allows every Guest to pay only for the options they choose - like bags, seat assignments, and refreshments - something we call Á La Smarte.  We make it possible for our Guests to venture further, travel more often, and discover more than ever before.  Our Fit Fleet® is one of the youngest and most fuel-efficient in the U.S.  We operate more than 500 daily flights to 69 destinations in the U.S., Latin America, and the Caribbean, and are dedicated to giving back and improving the communities we serve.  Come save with us at www.spirit.com.  At Spirit Airlines, we go.  We go for you.

Investors are encouraged to read the Company's periodic and current reports filed with or furnished to the Securities and Exchange Commission, including its Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, and Current Reports on Form 8-K, for additional information regarding the Company.

End Notes
(1) See "Reconciliation of Adjusted Net Income, Adjusted Pre-tax Income, and Adjusted Operating Income to GAAP Net Income" table below for more details.
(2)  See "Calculation of Total Non-ticket Revenue per Passenger Segment" table below for more details.
(3) See "Reconciliation of Adjusted Operating Expense to GAAP Operating Expense" table below for more details.

Forward-Looking Statements
Statements in this release and certain oral statements made from time to time by representatives of the Company contain various forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the Securities Act), and Section 21E of the Securities Exchange Act of 1934, as amended (the Exchange Act), which are subject to the “safe harbor” created by those sections. Forward-looking statements are based on our management’s beliefs and assumptions and on information currently available to our management. All statements other than statements of historical facts are “forward-looking statements” for purposes of these provisions. In some cases, you can identify forward-looking statements by terms such as “may,” “will,” “should,” “could,” “would,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “project,” “predict,” “potential,” and similar expressions intended to identify forward-looking statements. Such forward-looking statements are subject to risks, uncertainties and other important factors that could cause actual results and the timing of certain events to differ materially from future results expressed or implied by such forward-looking statements. Furthermore, such forward-looking statements speak only as of the date of this release. Except as required by law, we undertake no obligation to update any forward-looking statements to reflect events or circumstances after the date of such statements. Risks or uncertainties (i) that are not currently known to us, (ii) that we currently deem to be immaterial, or (iii) that could apply to any company, could also materially adversely affect our business, financial condition, or future results. References in this report to “Spirit,” “we,” “us,” “our,” or the “Company” shall mean Spirit Airlines, Inc., unless the context indicates otherwise.  Additional information concerning certain factors is contained in the Company's Securities and Exchange Commission filings, including but not limited to the Company's Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, and Current Reports on Form 8-K.

SPIRIT AIRLINES, INC. 
Condensed Statement of Operations 
(unaudited, in thousands, except per share data) 
                      
 Three Months Ended   Nine Months Ended  
 September 30, Percent September 30, Percent
 2018 2017 Change 2018 2017 Change
Operating revenues:           
Passenger$887,956  $669,072  32.7  $2,413,447  $1,922,239  25.6 
Other16,374  18,155  (9.8) 46,792  55,130  (15.1)
Total operating revenues904,330  687,227  31.6  2,460,239  1,977,369  24.4 
                      
Operating expenses:                     
Aircraft fuel258,818  158,300  63.5  709,644  440,376  61.1 
Salaries, wages and benefits185,043  134,114  38.0  527,895  391,144  35.0 
Aircraft rent42,682  53,396  (20.1) 134,618  163,032  (17.4)
Landing fees and other rents54,542  48,498  12.5  162,774  134,538  21.0 
Depreciation and amortization43,773  36,840  18.8  128,764  103,680  24.2 
Maintenance, materials and repairs37,778  26,176  44.3  99,141  81,473  21.7 
Distribution37,868  29,695  27.5  103,496  85,302  21.3 
Special charges (credits)(686) 7,853  nm  88,656  12,629  nm 
Loss on disposal of assets1,069  516  nm  6,561  3,114  nm 
Other operating98,318  87,965  11.8  283,841  268,553  5.7 
Total operating expenses759,205  583,353  30.1  2,245,390  1,683,841  33.3 
                      
Operating income145,125  103,874  39.7  214,849  293,528  (26.8)
                      
Other (income) expense:                     
Interest expense21,925  15,018  46.0  60,272  41,237  46.2 
Capitalized interest(2,657) (3,203) (17.0) (7,205) (10,125) (28.8)
Interest income(4,776) (2,605) 83.3  (13,272) (5,746) 131.0 
Other expense302  114  nm  623  221  nm 
Special charges, non-operating1,744    nm  90,357    nm 
Total other (income) expense16,538  9,324  77.4  130,775  25,587  411.1 
                      
                      
Income before income taxes128,587  94,550  36.0  84,074  267,941  (68.6)
Provision for income taxes31,107  34,506  (9.9) 20,262  99,395  (79.6)
                      
Net income$97,480  $60,044  62.3  $63,812  $168,546  (62.1)
Basic earnings per share$1.43  $0.87  64.4  $0.94  $2.43  (61.3)
Diluted earnings per share$1.42  $0.86  65.1  $0.93  $2.42  (61.6)
                      
Weighted average shares, basic68,254  69,370  (1.6) 68,243  69,363  (1.6)
Weighted average shares, diluted68,503  69,458  (1.4) 68,346  69,537  (1.7)
                      


SPIRIT AIRLINES, INC. 
Condensed Statements of Comprehensive Income 
(unaudited, in thousands) 
                
 Three Months Ended Nine Months Ended
 September 30, September 30,
 2018 2017 2018 2017
Net income$97,480  $60,044  $63,812  $168,546 
Unrealized gain (loss) on short-term investment securities, net of deferred taxes of $(5), $7, $21 and ($6)(7) 13  70  (11)
Interest rate derivative loss reclassified into earnings, net of taxes of $27, $31, $66 and $9252  53  172  160 
Other comprehensive income$45  $66  $242  $149 
Comprehensive income$97,525  $60,110  $64,054  $168,695 
                


SPIRIT AIRLINES, INC.
Selected Operating Statistics (unaudited)
 
 Three Months Ended September 30,   
Operating Statistics2018 2017 Change 
Available seat miles (ASMs) (thousands)9,579,448 7,681,312 24.7%
Revenue passenger miles (RPMs) (thousands)8,241,771 6,452,529 27.7%
Load factor (%)86.0 84.0 2.0pts
Passenger flight segments (thousands)7,856 6,307 24.6%
Block hours136,723 112,701 21.3%
Departures50,386 42,599 18.3%
Total operating revenue per ASM (TRASM) (cents)9.44 8.95 5.5%
Average yield (cents)10.97 10.65 3.0%
Fare revenue per passenger flight segment ($)60.67 56.38 7.6%
Non-ticket revenue per passenger flight segment ($)54.44 52.58 3.5%
Total revenue per passenger flight segment ($)115.11 108.96 5.6%
CASM (cents)7.93 7.59 4.5%
Adjusted CASM (cents) (1)7.92 7.49 5.7%
Adjusted CASM ex-fuel (cents) (2)5.22 5.42 (3.7)%
Fuel gallons consumed (thousands)109,515 90,274 21.3%
Average economic fuel cost per gallon ($)2.36 1.75 34.9%
Aircraft at end of period121 107 13.1%
Average daily aircraft utilization (hours)12.4 11.6 6.9%
Average stage length (miles)1,033 1,006 2.7%
       
       
 Nine Months Ended September 30,   
Operating Statistics2018 2017 Change 
Available seat miles (ASMs) (thousands)27,504,053 21,851,789 25.9%
Revenue passenger miles (RPMs) (thousands)23,016,417 18,285,588 25.9%
Load factor (%)83.7 83.7 pts
Passenger flight segments (thousands)21,947 18,083 21.4%
Block hours396,034 326,033 21.5%
Departures144,772 123,492 17.2%
Total operating revenue per ASM (TRASM) (cents)8.95 9.05 (1.1)%
Average yield (cents)10.69 10.81 (1.1)%
Fare revenue per passenger flight segment ($)57.36 56.74 1.1%
Non-ticket revenue per passenger flight segment ($)54.74 52.61 4.0%
Total revenue per passenger flight segment ($)112.10 109.35 2.5%
CASM (cents)8.16 7.71 5.8%
Adjusted CASM (cents) (1)7.82 7.63 2.5%
Adjusted CASM ex-fuel (cents) (2)5.24 5.62 (6.8)%
Fuel gallons consumed (thousands)310,661 254,871 21.9%
Average economic fuel cost per gallon ($)2.28 1.73 31.8%
Average daily aircraft utilization (hours)12.3 11.7 5.1%
Average stage length (miles)1,037 991 4.6%
       
(1)  Excludes operating special items.
(2)  Excludes economic fuel expense and operating special items.

The Company is providing a reconciliation of GAAP financial information to non-GAAP financial information as it believes that non-GAAP financial measures provide management and investors the ability to measure the performance of the Company on a consistent basis.  These non-GAAP financial measures have limitations as analytical tools.  Because of these limitations, determinations of the Company's operating performance excluding unrealized gains and losses or special items should not be considered in isolation or as a substitute for performance measures calculated in accordance with GAAP.

Calculation of Total Non-Ticket Revenue per Passenger Segment              
(unaudited)               
                
 Three Months Ended September 30, Nine Months Ended September 30,
(in thousands, except per segment data)2018 2017 2018 2017
Operating revenues       
Fare$476,660  $355,593  $1,258,904  $1,026,071 
Non-fare411,296  313,479  1,154,543  896,168 
Total passenger revenues887,956  669,072  2,413,447  1,922,239 
Other revenues16,374  18,155  46,792  55,130 
Total operating revenues$904,330  $687,227  $2,460,239  $1,977,369 
        
Non-ticket revenues (1)$427,670  $331,634  $1,201,335  $951,298 
        
Passenger segments7,856  6,307  21,947  18,083 
        
Non-ticket revenue per passenger segment ($)$54.44  $52.58  $54.74  $52.61 
                
(1)  Non-ticket revenues equals the sum of non-fare passenger revenues and other revenues.  

 

Special Items               
(unaudited)               
                
 Three Months Ended Nine Months Ended
 September 30, September 30,
(in thousands)2018 2017 2018 2017
Operating special items include the following:       
Loss on disposal of assets1,069  516  6,561  3,114 
Operating special charges (credits) (1)(686) 7,853  88,656  12,629 
Total operating special items$383  $8,369  $95,217  $15,743 
Non-operating special items include the following:       
Non-operating special charges (2)1,744    90,357  $ 
Total non-operating special items$1,744  $  $90,357  $ 
        
Total special items$2,127  $8,369  $185,574  $15,743 
                
                
(1)  Operating special charges for 2018 include amounts primarily due to a one-time ratification incentive recognized in connection with a new pilot agreement approved in the first quarter 2018. Operating special charges for 2017 are related to engine and aircraft lease termination costs. 
(2)  Non-operating special charges in 2018 are related to the purchase of 14 A319 aircraft, previously operated by the Company under operating leases.  Upon execution of the purchase agreement, the lease agreements associated with these aircraft were classified as capital leases on the balance sheet at lower of cost or fair value.  The difference between the resulting capital lease obligation and the purchase price was accreted as interest expense in special charges, non-operating in the statement of operations, through the closing of each individual purchase.  All the transactions were completed prior to June 30, 2018.

 

Reconciliation of Adjusted Operating Expense to GAAP Operating Expense              
(unaudited)               
 Three Months Ended Nine Months Ended
 September 30, September 30,
(in thousands, except CASM data in cents)2018 2017 2018 2017
Total operating expenses, as reported$759,205  $583,353  $2,245,390  $1,683,841 
Less operating special items383  8,369  95,217  15,743 
Adjusted operating expenses, non-GAAP (1)758,822  574,984  2,150,173  1,668,098 
Less: Economic fuel expense258,818  158,300  709,644  440,376 
Adjusted operating expenses excluding fuel, non-GAAP (2)$500,004  $416,684  $1,440,529  $1,227,722 
        
Available seat miles9,579,448  7,681,312  27,504,053  21,851,789 
        
CASM (cents)7.93  7.59  8.16  7.71 
Adjusted CASM (cents) (1)7.92  7.49  7.82  7.63 
Adjusted CASM ex-fuel (cents) (2)5.22  5.42  5.24  5.62 
                
(1)  Excludes operating special items.               
(2)  Excludes operating special items and economic fuel expense.               

 

Reconciliation of Adjusted Net Income, Adjusted Pre-Tax Income, and Adjusted Operating Income to GAAP Net Income           
(unaudited)           
 Three Months Ended
 Nine Months Ended
 September 30,
 September 30,
(in thousands, except per share data) 2018   2017   2018   2017 
Net income, as reported$97,480  $60,044  $63,812  $168,546 
Add: Provision (benefit) for income taxes 31,107   34,506   20,262   99,395 
Income (loss) before income taxes, as reported 128,587   94,550   84,074   267,941 
Pre-tax margin 14.2%  13.8%  3.4%  13.6%
Add special items (1)$2,127  $8,369  $185,574  $15,743 
Adjusted income before income taxes, non-GAAP (2) 130,714   102,919   269,648   283,684 
Adjusted pre-tax margin, non-GAAP (2) 14.5%  15.0%  11.0%  14.3%
Add:  Total other (income) expense (3) 14,794   9,324   40,418   25,587 
Adjusted operating income, non-GAAP (4) 145,508   112,243   310,066   309,271 
Adjusted operating margin, non-GAAP (4) 16.1%  16.3%  12.6%  15.6%
                
Provision for income taxes 30,169   37,560   63,426  $105,256 
Adjusted net income, non-GAAP (2)$100,545  $65,359  $206,222  $178,428 
                
Weighted average shares, diluted 68,503   69,458   68,346   69,537 
                
Adjusted net income per share, diluted (2)$1.47   $0.94   $3.02   $2.57  
                
Total operating revenues$904,330  $687,227  $2,460,239  $1,977,369 
                
(1)  See "Special Items" for more details. 
(2)  Excludes operating and non-operating special items. 
(3)  Excludes non-operating special items. 
(4)  Excludes operating special items. 

The Company tracks a non-GAAP calculation of Return on Invested Capital ("ROIC"), as a way of measuring our efficiency in delivering returns and in allocating capital.  We calculate ROIC as Adjusted Operating Income (non-GAAP), divided by Total Invested Capital (non-GAAP), on a pre-tax and after-tax basis, expressed as a percentage.

Because a substantial portion of our aircraft fleet is held under operating leases, which do not appear on the balance sheet, a GAAP-based calculation of our total capital deployed may be considered understated (which would have the effect of overstating ROIC, if calculated solely using GAAP line items).  Accordingly, we adjust our total capital, the denominator of the ROIC measurement, by capitalizing operating leases at a multiple of seven times our aircraft rent expense, a measure used commonly in the airline industry and by analysts.

To calculate Adjusted Operating Income (non-GAAP), we add back aircraft rent to GAAP operating income, consistent with the adjustment to total capital discussed above.  In order to remove the effects of non-recurring gains and losses that may affect GAAP operating income, we also exclude special items from Adjusted Operating Income (non-GAAP). We present Adjusted Operating Income (non-GAAP) on a pre-tax basis and present Adjusted Operating Income (non-GAAP) on an after-tax basis, using our year-to-date 2018 non-GAAP effective tax rate.

Calculation of Return on Invested Capital, non-GAAP  
 (unaudited)   
 Twelve Months Ended
(in thousands)September 30, 2018
Operating income, as reported$306,146 
Add operating special items (1)92,185 
Adjustment for aircraft rent181,523 
Adjusted operating income, non-GAAP579,854 
Tax rate, non-GAAP (23.52%) (2)136,382 
Adjusted operating income, after-tax, non-GAAP$443,472 
Invested capital: 
Adjusted total debt$1,921,766 
Book equity1,833,782 
Less: Unrestricted cash, cash equivalents & short-term investments875,911 
Add: Capitalized aircraft operating leases (7x Aircraft Rent)1,270,661 
Total invested capital, non-GAAP$4,150,298 
  
Return on invested capital (ROIC), pre-tax, non-GAAP14.0%
Return on invested capital (ROIC), after-tax, non-GAAP10.7%
    
(1)  See "Special Items" for more details.   
(2)  Due to the significant impact the Tax Cuts and Jobs Act legislation enacted in December 2017 had on corporate tax rate, the Company uses the YTD 2018 Non-GAAP tax rate to calculate ROIC, after-tax.

Investor Relations Contact: 
DeAnne Gabel 
InvestorRelations@spirit.com   
(954) 447-7920

Media Contact:
Stephen Schuler
Stephen.Schuler@spirit.com 
(954) 364-0231

Spirit.png

Source: Spirit Airlines, Inc.