Spirit Airlines Reports Fourth Quarter and Full Year 2016 Results

Company Release - 2/7/2017 6:30 AM ET

MIRAMAR, Fla., Feb. 07, 2017 (GLOBE NEWSWIRE) -- Spirit Airlines, Inc. (NASDAQ:SAVE) today reported fourth quarter and full year 2016 financial results.

  • GAAP net income for the fourth quarter 2016 was $48.5 million ($0.70 per diluted share), or $53.9 million ($0.77 per diluted share)1, excluding special items.

  • GAAP net income for the full year 2016 was $264.9 million ($3.76 per diluted share), or $291.0 million ($4.13 per diluted share)1, excluding special items.

  • Spirit ended 2016 with unrestricted cash, cash equivalents, and short-term investments of $801.1 million.

  • Spirit's return on invested capital (before taxes and excluding special items) for the twelve months ended December 31, 2016 was 23.0 percent2.

“Throughout 2016, we made solid progress towards our goal of consistent reliability.  We improved our on-time performance3 by 5.2 percentage points and we made great progress in lowering the number of complaints reported to the Department of Transportation.  We started the year with a complaint ratio of over 11 per 100,000 customers and by year-end we were under 4 per 100,000 customers.  We also maintained our focus on controlling costs, which together with our own revenue initiatives, and an improved industry pricing environment, helped us to achieve a full year 2016 operating margin of 19.1 percent, or 20.9 percent4, excluding special items,” said Bob Fornaro, Spirit’s President and Chief Executive Officer.  “I thank the entire Spirit team for their efforts and dedication to improve our operations and for delivering solid financial results."

Revenue Performance
For the fourth quarter 2016, Spirit's total operating revenue was $578.4 million, an increase of 11.3 percent compared to the fourth quarter 2015, driven by a 12.9 percent increase in flight volume.

Total revenue per available seat mile (TRASM) for the fourth quarter 2016 decreased 3.6 percent compared to the same period last year, driven by a 1.9 percent decrease in operating yields and a 1.5 point decrease in load factor.

On a per passenger flight segment ("PFS") basis, total revenue for the fourth quarter 2016 decreased 3.3 percent year over year to $108.11, driven by modest declines in both ticket and non-ticket revenue per PFS.

Cost Performance
For the fourth quarter 2016, total GAAP operating expense, including special items of $8.6 million5 primarily related to lease termination charges, increased 23.4 percent, or $93.5 million, year over year to $493.0 million.  Adjusted operating expense for the fourth quarter 2016 increased 20.7 percent, or $83.2 million to $484.4 million6.  The increase in both GAAP and adjusted operating expense was primarily driven by an increase in flight volume.

Aircraft fuel expense increased in the fourth quarter 2016 by 20.3 percent, or $21.3 million, compared to the same period last year, primarily due to a 14.0 percent increase in fuel gallons consumed.

Spirit reported fourth quarter 2016 cost per available seat mile, excluding special items and fuel (“Adjusted CASM ex-fuel”), of 5.44 cents6, an increase of 5.6 percent compared to the same period last year, driven primarily by higher other operating expenses and salaries, wages, and benefits per ASM, partially offset by lower aircraft rent per ASM.

"For the full year 2016, our adjusted CASM ex-fuel decreased 0.9 percent6 year over year.  I applaud our team members for their continued efforts to improve our cost structure," said Ted Christie, Spirit's Executive Vice President and Chief Financial Officer.  "Our low cost structure is the backbone of our competitive advantage and we remain dedicated to maintaining our cost discipline."

Spirit and its pilots, represented by the Airline Pilots Association, remain in open contract negotiations under the supervision of the National Mediation Board.

Spirit took delivery of five new A320neo and one new A321ceo aircraft during the fourth quarter 2016.

Full Year 2016 Highlights

  • Added Seattle, Washington; Akron-Canton, Ohio; Newark, New Jersey; and Havana, Cuba to its list of destinations.
  • Added 16 (3 A320ceos, 5 A320neos, and 8 A321ceos) new Airbus aircraft to its fleet, ending the year with 95 aircraft.  As of year-end 2016, Spirit's Fit Fleet™ averaged 5.2 years, the youngest fleet of any major U.S. airline.
  • Returned approximately $100 million to shareholders by repurchasing approximately 2.3 million shares.
  • Ratified agreements with its flight attendants, represented by the Association of Flight Attendants - CWA, and with its ramp service team members at Fort Lauderdale Hollywood International Airport, represented by the International Association of Machinists and Aerospace Workers.
  • Created over 850 new jobs, bringing our total number of team members to over 5,800.

Conference Call/Webcast Detail
Spirit will conduct a conference call to discuss these results today, February 7, 2017, at 9:00 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 (NASDAQ:SAVE) is committed to offering the lowest total price to the places we fly, on average much lower than other airlines. Our customers start with an unbundled, stripped-down Bare Fare™ and get Frill Control™ which allows them to pay only for the options they choose - like bags, seat assignments and refreshments - the things other airlines bake right into their ticket prices. We help people save money and travel more often, create new jobs and stimulate business growth in the communities we serve. With our Fit Fleet™, the youngest fleet of any major U.S. airline, we operate more than 420 daily flights to 59 destinations in the U.S., Latin America and the Caribbean. Come save with us at www.spirit.com

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 to GAAP Net Income" table below for more details.
(2)  See "Calculation for Return on Invested Capital" table below for more details.
(3)  As defined by the Department of Transportation.
(4) See "Reconciliation of Adjusted Operating Income to GAAP Operating Income" table below for more details.
(5)  See "Special Items" table for more details.
(6)  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.

Statement of Operations
(unaudited, in thousands, except per share data)
 Three Months Ended   Year Ended  
 December 31, Percent December 31, Percent
 2016 2015 Change 2016 2015 Change
Operating revenues:           
Passenger$300,590  $267,487  12.4  $1,200,621  $1,169,338  2.7 
Non-ticket277,761  252,359  10.1  1,121,335  972,125  15.3 
Total operating revenues578,351  519,846  11.3  2,321,956  2,141,463  8.4 
Operating expenses:           
Salaries, wages and benefits122,941  97,035  26.7  472,471  377,508  25.2 
Aircraft fuel126,535  105,215  20.3  447,553  461,447  (3.0)
Aircraft rent50,242  52,091  (3.5) 201,675  211,531  (4.7)
Landing fees and other rents37,583  32,590  15.3  151,679  131,077  15.7 
Depreciation and amortization27,766  22,278  24.6  101,136  73,908  36.8 
Maintenance, materials and repairs26,577  18,544  43.3  98,587  80,448  22.5 
Distribution23,437  20,656  13.5  96,627  86,576  11.6 
Special charges5,580    nm  37,189  673  nm 
Loss on disposal of assets3,021  304  nm  4,187  1,604  nm 
Other operating69,358  50,796  36.5  267,191  207,569  28.7 
Total operating expenses493,040  399,509  23.4  1,878,295  1,632,341  15.1 
Operating income85,311  120,337  (29.1) 443,661  509,122  (12.9)
Other (income) expense:             
Interest expense12,066  7,200  67.6  41,654  20,382  nm 
Capitalized interest(3,542) (3,161) 12.1  (12,705) (11,553) 10.0 
Interest income(1,041) (1,581) (34.2) (5,276) (2,125) nm 
Other expense121  (267) nm  528  15  nm 
Total other (income) expense7,604  2,191  nm  24,201  6,719  nm 
Income before income taxes77,707  118,146  (34.2) 419,460  502,403  (16.5)
Provision for income taxes29,214  43,746  (33.2) 154,581  185,183  (16.5)
Net income$48,493  $74,400  (34.8) $264,879  $317,220  (16.5)
Basic earnings per share$0.70  $1.04  (32.7) $3.77  $4.39  (14.1)
Diluted earnings per share$0.70  $1.04  (32.7) $3.76  $4.38  (14.2)
Weighted average shares, basic69,325  71,543  (3.1) 70,344  72,208  (2.6)
Weighted average shares, diluted69,551  71,672  (3.0) 70,508  72,426  (2.6)

Note: Certain prior period amounts have been reclassified to conform to the current presentation.

Statements of Comprehensive Income
(unaudited, in thousands)
 Three Months Ended Year Ended
 December 31, December 31,
 2016 2015 2016 2015
Net income$48,493  $74,400  $264,879  $317,220 
Unrealized gain (loss) on interest rate derivative instruments, net of deferred taxes of $0, $0, $0 and ($550)      (910)
Unrealized gain (loss) on short-term investment securities, net of deferred taxes of ($16), $0, ($13) and $0(27)   (23)  
Interest rate derivative losses reclassified into earnings, net of taxes of $33, $34, $130 and $5055  58  224  82 
Other comprehensive income (loss)$28  $58  $201  $(828)
Comprehensive income$48,521  $74,458  $265,080  $316,392 

Balance Sheets
(unaudited, in thousands)
 December 31, December 31,
 2016 2015
Current assets:   
Cash and cash equivalents$700,900  $803,632 
Short-term investment securities100,155   
Accounts receivable, net41,136  28,266 
Aircraft maintenance deposits87,035  73,415 
Prepaid income taxes  72,278 
Prepaid expenses and other current assets46,619  48,749 
Total current assets975,845  1,026,340 
Property and equipment:   
Flight equipment1,461,525  834,927 
Ground property and equipment126,206  74,814 
Less accumulated depreciation(122,509) (65,524)
 1,465,222  844,217 
Deposits on flight equipment purchase contracts325,688  286,837 
Long-term aircraft maintenance deposits199,415  206,485 
Deferred heavy maintenance, net75,534  89,127 
Other long-term assets110,223  77,539 
Total assets$3,151,927  $2,530,545 
Liabilities and shareholders’ equity   
Current liabilities:   
Accounts payable15,193  17,043 
Air traffic liability206,392  216,831 
Current maturities of long-term debt84,354  49,637 
Other current liabilities226,011  182,729 
Total current liabilities531,950  466,240 
Long-term debt, less current maturities897,359  596,693 
Long-term deferred income taxes308,143  221,481 
Deferred gains and other long-term liabilities19,868  20,821 
Shareholders’ equity:   
Common stock7  7 
Additional paid-in-capital551,004  544,277 
Treasury stock, at cost(218,692) (116,182)
Retained earnings1,063,633  798,754 
Accumulated other comprehensive loss(1,345) (1,546)
Total shareholders’ equity1,394,607  1,225,310 
Total liabilities and shareholders’ equity$3,151,927  $2,530,545 

Statement of Cash Flows
(unaudited, in thousands)
 Year Ended December 31,
 2016 2015
Operating activities:   
Net income$264,879  $317,220 
Adjustments to reconcile net income to net cash provided by operations:   
Unrealized losses on open derivative contracts, net  2,202 
Losses reclassified from other comprehensive income354  132 
Equity-based compensation7,105  9,222 
Allowance for doubtful accounts (recoveries)80  12 
Amortization of deferred gains and losses and debt issuance costs5,732  1,165 
Depreciation and amortization101,136  73,908 
Deferred income tax expense86,545  155,614 
Loss on disposal of assets4,187  1,604 
Lease termination costs37,189   
Changes in operating assets and liabilities:   
Accounts receivable(12,951) (5,592)
Aircraft maintenance deposits(45,869) (32,101)
Long-term deposits and other assets(75,780) (103,613)
Prepaid income taxes72,278   
Accounts payable(6,823) 2,706 
Air traffic liability(11,582) 36,387 
Other liabilities46,992  14,119 
Net cash provided by operating activities473,678  472,985 
Investing activities:   
Purchase of short-term investment securities(103,258)  
Proceeds from the maturity of short-term investment securities2,842   
Proceeds from sale of property and equipment50   
Pre-delivery deposits for flight equipment, net of refunds(173,947) (142,323)
Capitalized interest(10,834) (10,159)
Purchase of property and equipment(541,122) (548,800)
Net cash used in investing activities(826,269) (701,282)
Financing activities:   
Proceeds from issuance of long-term debt417,275  536,780 
Proceeds from stock options exercised92  32 
Payments on debt and capital lease obligations(64,421) (26,364)
Proceeds from sale leaseback transactions  7,300 
Excess tax (deficiency) benefit from equity-based compensation(470) 8,850 
Repurchase of common stock(102,510) (112,261)
Debt issuance costs(107) (15,192)
Net cash provided by financing activities249,859  399,145 
Net (decrease) increase in cash and cash equivalents(102,732) 170,848 
Cash and cash equivalents at beginning of period803,632  632,784 
Cash and cash equivalents at end of period$700,900  $803,632 
Supplemental disclosures   
Cash payments for:   
Interest, net of capitalized interest$39,963  $7,061 
Income taxes paid, net of refunds$(5,579) $95,933 
Non-cash transactions:   
Capital expenditures funded by capital lease borrowings$(31) $ 

Selected Operating Statistics (unaudited)
 Three Months Ended December 31,  
Operating Statistics2016 2015 Change
Available seat miles (ASMs) (thousands)6,585,018  5,705,398  15.4%
Revenue passenger miles (RPMs) (thousands)5,362,518  4,727,996  13.4%
Load factor (%)81.4  82.9  (1.5) pts
Passenger flight segments (thousands)5,350  4,651  15.0%
Block hours99,385  89,016  11.6%
Departures38,019  33,662  12.9%
Total operating revenue per ASM (TRASM) (cents)8.78  9.11  (3.6)%
Average yield (cents)10.79  11.00  (1.9)%
Average ticket revenue per passenger flight segment ($)56.19  57.52  (2.3)%
Average non-ticket revenue per passenger flight segment ($)51.92  54.26  (4.3)%
Total revenue per passenger flight segment ($)108.11  111.78  (3.3)%
CASM (cents)7.49  7.00  7.0%
Adjusted CASM (cents) (1)7.36  7.03  4.7%
Adjusted CASM ex-fuel (cents) (2)5.44  5.15  5.6%
Fuel gallons consumed (thousands)76,930  67,467  14.0%
Average economic fuel cost per gallon ($)1.64  1.59  3.1%
Aircraft at end of period95  79  20.3%
Average daily aircraft utilization (hours)11.7  12.5  (6.4)%
Average stage length (miles)981  1,000  (1.9)%

 Year Ended December 31,  
Operating Statistics2016 2015 Change
Available seat miles (ASMs) (thousands)25,494,645  21,246,156  20.0%
Revenue passenger miles (RPMs) (thousands)21,581,611  17,995,311  19.9%
Load factor (%)84.7  84.7   
Passenger flight segments (thousands)21,618  17,921  20.6%
Block hours389,914  337,956  15.4%
Departures149,514  128,902  16.0%
Total operating revenue per ASM (TRASM) (cents)9.11  10.08  (9.6)%
Average yield (cents)10.76  11.90  (9.6)%
Average ticket revenue per passenger flight segment ($)55.54  65.25  (14.9)%
Average non-ticket revenue per passenger flight segment ($)51.87  54.24  (4.4)%
Total revenue per passenger flight segment ($)107.41  119.49  (10.1)%
CASM (cents)7.37  7.68  (4.0)%
Adjusted CASM (cents) (1)7.21  7.69  (6.2)%
Adjusted CASM ex-fuel (cents) (2)5.45  5.50  (0.9)%
Fuel gallons consumed (thousands)302,781  255,008  18.7%
Average economic fuel cost per gallon ($)1.48  1.82  (18.7)%
Average daily aircraft utilization (hours)12.4  12.7  (2.4)%
Average stage length (miles)979  987  (0.8)%
  1. Excludes special items.
  2. Excludes economic fuel expense and 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.

Special Items    
 Three Months Ended
 Year Ended
 December 31,
 December 31,
(in thousands)2016 2015 2016 2015
Operating special items include the following (1):       
Unrealized losses (gains) related to fuel derivative contracts (1,988)  (3,880)
Loss on disposal of assets3,021 304  4,187 1,604 
Special charges5,580   37,189 673 
Total operating special items$8,601 $(1,684) $41,376 $(1,603)

Reconciliation of Adjusted Operating Expense to GAAP Operating Expense
  Three Months Ended
 Year Ended
  December 31, December 31,
(in thousands, except CASM data in cents) 2016 2015
Total operating expenses, as reported $493,040  $399,509  $1,878,295  $1,632,341 
Less operating special items (1) 8,601    (1,684)  41,376   (1,603)
Adjusted operating expenses, non-GAAP (2) 484,439   401,193   1,836,919   1,633,944 
Less: Economic fuel expense 126,535   107,203   447,553   465,327 
Adjusted operating expenses excluding fuel, non-GAAP (3) 357,904  293,990  $1,389,366  $1,168,617 
Available seat miles  6,585,018   5,705,398   25,494,645   21,246,156 
CASM (cents) 7.49   7.00   7.37   7.68 
Adjusted CASM (cents) (2) 7.36   7.03   7.21   7.69 
Adjusted CASM ex-fuel (cents) (3) 5.44   5.15   5.45   5.50 
  1. Special items include unrealized gains and losses related to outstanding fuel derivative contracts, loss on disposal of assets, and special charges.  Special charges for 2016 are primarily related to lease termination costs.
  2. Excludes operating special items.
  3. Excludes operating special items and economic fuel expense as described in the "Reconciliation of Economic Fuel Expense to GAAP Fuel Expense" table below.
Reconciliation of Adjusted Net Income to GAAP Net Income
 Three Months Ended
 Year Ended
 December 31,
 December 31,
(in thousands, except per share data)2016
Net income, as reported$48,493  $74,400  $264,879  $317,220 
Add: Provision for income taxes 29,214   43,746   154,581   185,183 
Income before income taxes, as reported 77,707   118,146   419,460   502,403 
Pre-tax margin, GAAP 13.4%  22.7%  18.1
%  23.5%
Add operating special items (1) 8,601   (1,684)  41,376   (1,603)
Income before income taxes, non-GAAP (2) 86,308   116,462   460,836   500,800 
Adjusted pre-tax margin, non-GAAP (2) 14.9%  22.4%  19.8
%  23.4%
Provision for income taxes (3) 32,448   43,122   169,829   184,592 
Adjusted net income, non-GAAP (2)(3)$53,860  $73,340  $291,007  $316,208 
Weighted average shares, diluted 69,551   71,672   70,508   72,426 
Adjusted net income per share, diluted (2)(3) $0.77   $1.02   $4.13

Reconciliation of Adjusted Operating Income to GAAP Operating Income
 Three Months Ended
 Year Ended
 December 31,
 December 31,
(in thousands)2016
Operating income, as reported$85,311  $120,337  $443,661  $509,122 
Operating margin, GAAP 14.8%  23.1%  19.1%  23.8%
Add operating special items (1) 8,601   (1,684)  41,376   (1,603)
Operating income, non-GAAP (2)$93,912  $118,653  $485,037  $507,519 
Operating margin (2) 16.2%  22.8%  20.9%  23.7%
  1. See "Special Items" for more details.
  2. Excludes operating special items.
  3. Assumes same marginal tax rate as is applicable to GAAP net income. 

The Company believes economic fuel expense is the best measure of the effect fuel prices are currently having on its business, because it most closely approximates the net cash outflow associated with purchasing fuel used for its operations during the period. Economic fuel expense is defined as into-plane fuel expense, realized gains or losses on derivative contracts, plus the economic premium expense related to fuel option contracts in the period the option is benefiting. The key difference between aircraft fuel expense as recorded in its statement of operations and economic fuel expense is unrealized mark-to-market changes in the value of aircraft fuel derivatives outstanding and the timing of premium gain or loss recognition on its outstanding fuel option contracts. Many industry analysts evaluate airline results using economic fuel expense, and it is used in our internal management reporting.

Reconciliation of Economic Fuel Expense to GAAP Fuel Expense 
  Three Months Ended
 Year Ended
  December 31,
 December 31,
(in thousands, except per gallon data) 2016 2015
Fuel expense               
Aircraft fuel, as reported $126,535 $105,215  $447,553 $461,447  
Unrealized losses (gains) related to fuel derivative contracts    (1,988)    (3,880) 
Economic fuel expense, non-GAAP $126,535 $107,203  $447,553 $465,327  
Fuel gallons consumed  76,930  67,467   302,781  255,008  
Economic fuel cost per gallon, non-GAAP $1.64 $1.59  $1.48 $1.82  

Calculation of Return on Invested Capital
 Twelve Months Ended
(in thousands)December 31, 2016
Operating income$443,661 
Add operating special items (1) 41,376 
Adjustment for aircraft rent 201,675 
Adjusted operating income (2) 686,712 
Tax (36.9%) (3) 253,397 
Adjusted operating income, after-tax 433,315 
Invested capital   
Total debt$981,713 
Book equity 1,394,607 
Less: Unrestricted cash, cash equivalents & short-term investments 801,055 
Add: Capitalized aircraft operating leases (7x Aircraft Rent) 1,411,725 
Total invested capital 2,986,990 
Return on invested capital (ROIC), pre-tax (2) 23.0%
Return on invested capital (ROIC), after-tax (2)(3) 14.5%
  1. See "Special Items" for more details.
  2. Excludes special items.
  3. Assumes same marginal tax rate as is applicable to GAAP net income for the twelve months ended December 31, 2016. 


Investor Relations Contact:
DeAnne GabelInvestorRelations@Spirit.com
(954) 447-7920

Media Contact:
Paul BerryPaul.Berry@Spirit.com
(954) 628-4827

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Source: Spirit Airlines, Inc.