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Spirit Airlines Reports Third Quarter 2017 Results

Oct 26, 2017

MIRAMAR, Fla., Oct. 26, 2017 (GLOBE NEWSWIRE) -- Spirit Airlines, Inc. (NASDAQ:SAVE) today reported third quarter 2017 financial results.

  • GAAP net income for the third quarter 2017 was $60.2 million ($0.87 per diluted share), or $65.5 million ($0.94 per diluted share)1 excluding special items.
     
  • GAAP operating margin for the third quarter 2017 was 15.1 percent, or 16.4 percent excluding special items1.
     
  • Spirit ended the third quarter 2017 with unrestricted cash, cash equivalents, and short-term investments of $964.4 million.
     
  • Spirit's return on invested capital (non-GAAP, before taxes and excluding special items) for the twelve months ended September 30, 2017 was 18.1 percent2.

"Multiple hurricanes during the third quarter 2017 caused us to cancel over 1,650 flights.  In preparation for Irma, we relocated our Systems Operations Control Center and over 305 team members and their families to our backup facility in Detroit where we ran our operations for about a week.  I am very proud of how the Spirit team pulled together to assist our guests and employees in the regions affected by the storms while keeping the rest of the network running smoothly and still delivering solid financial results.  Excluding the impact of these storms, we estimate our third quarter on-time performance would have been 78.5 percent, a 2.2 percentage point improvement year over year," said Robert Fornaro, Spirit's President and Chief Executive Officer.  "It was a challenging quarter on many fronts and I want to thank our entire team for their dedication in going the extra mile to care for our guests and volunteering to assist with the relief efforts."

Spirit carried over 3,000 guests and more than 800 team members and their families to safety, many of whom were elderly or at risk.  We have transported over a 100,000 pounds of relief supplies in joint efforts with the American Red Cross, Airlink Operation, Puerto Rico Care Lift and many others, have pledged to match donations up to $150,000 to the American Red Cross, and are committed to assist with ongoing relief efforts throughout the Caribbean.

Revenue Performance
For the third quarter 2017, Spirit's total operating revenue was $687.2 million, an increase of 10.6 percent compared to the third quarter 2016, driven by an 11.2 percent increase in flight volume.  During the third quarter 2017, Spirit canceled over 1,650 flights related to Hurricanes Harvey, Irma, and Maria.  Spirit estimates these hurricanes, together with the revenue overhang from the pilot work action earlier in the year, negatively impacted third quarter 2017 revenue by approximately $40 million and operating income by approximately $39 million.

Total revenue per available seat mile (TRASM) for the third quarter 2017 decreased 6.3 percent compared to the same period last year, primarily driven by lower passenger yields as a result of aggressive competitive pricing action in many of our markets.

On a per passenger flight segment basis, total revenue for the third quarter 2017 decreased 0.5 percent year over year to $108.96 due to ticket revenue per passenger flight segment decreasing 3.2 percent to $56.48, partially offset by non-ticket revenue per passenger flight segment increasing 2.6 percent to $52.48.

Cost Performance
For the third quarter 2017, total GAAP operating expense, including special items of $8.4 million3, increased 20.0 percent, or $97.0 million, year over year to $583.1 million.  Adjusted operating expense for the third quarter 2017 increased 20.2 percent, or $96.4 million to $574.8 million4. The year-over-year increase in both GAAP and adjusted operating expense was primarily driven by an increase in flight volume, higher passenger re-accommodation expense (recorded within other operating expenses), and higher fuel rates.

Aircraft fuel expense increased in the third quarter 2017 by 29.9 percent, or $36.5 million, compared to the same period last year, due to a 12.2 percent increase in the cost of fuel per gallon and a 15.3 percent increase in fuel gallons consumed.

Spirit reported third quarter 2017 cost per available seat mile ("ASM"), excluding special items and fuel ("Adjusted CASM ex-fuel"), of 5.42 cents4, a decrease of 1.1 percent compared to the same period last year.   The decrease year over year was primarily driven by lower maintenance and salaries, wages, and benefits per ASM, partially offset by higher passenger re-accommodation expense and depreciation and amortization per ASM.

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

Fleet
Spirit took delivery of three new A321ceo aircraft and one new A320ceo aircraft and returned one leased A321ceo aircraft during the third quarter 2017, ending the quarter with 107 aircraft in its fleet.

Share Repurchase Authorization
On October 25, 2017, Spirit's Board of Directors authorized a repurchase program of up to $100 million in aggregate value of shares of Common Stock, par value $0.0001 per share, from time to time in open market or privately negotiated transactions. The authorization will expire on October 25, 2018. The timing and amount of any stock repurchases are subject to prevailing market conditions and other considerations.

Recent New Service Announcements
Boston - New Orleans (11/09/17)
Minneapolis-St. Paul - New Orleans (11/09/17)
Newark - New Orleans (11/09/17)
Tampa - New Orleans (11/09/17)
Newark - Las Vegas (11/09/17)
Chicago - West Palm Beach (11/09/17)*

* Seasonal Service Operates 11/9/17- 4/11/18

Conference Call/Webcast Detail
Spirit will conduct a conference call to discuss these results today, October 26, 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 480 daily flights to 60 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, Adjusted Pre-tax Income, and Adjusted Operating Income to GAAP Net Income" table below for more details.
(2)  See "Calculation for Return on Invested Capital, non-GAAP" table below for more details.
(3)  See "Special Items" table for more details.
(4)  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
  2017   2016   Change   2017   2016   Change
Operating revenues:                      
Passenger $ 356,207     $ 331,004     7.6     $ 1,027,891     $ 900,031     14.2  
Non-ticket 331,024     290,325     14.0     952,768     843,574     12.9  
Total operating revenues 687,231     621,329     10.6     1,980,659     1,743,605     13.6  
                       
Operating expenses:                      
Salaries, wages and benefits 134,114     120,190     11.6     391,144     349,530     11.9  
Aircraft fuel 158,300     121,844     29.9     440,376     321,018     37.2  
Aircraft rent 53,396     49,367     8.2     163,032     151,433     7.7  
Landing fees and other rents 48,498     39,345     23.3     134,538     114,096     17.9  
Depreciation and amortization 36,840     25,304     45.6     103,680     73,370     41.3  
Maintenance, materials and repairs 26,176     30,443     (14.0 )   81,473     72,010     13.1  
Distribution 29,469     25,565     15.3     85,875     73,190     17.3  
Special charges 7,853     7,355     nm      12,629     31,609     nm   
Loss on disposal of assets 516     423     nm      3,114     1,166     nm   
Other operating 87,965     66,277     32.7     268,553     197,833     35.7  
Total operating expenses 583,127     486,113     20.0     1,684,414     1,385,255     21.6  
                       
Operating income 104,104     135,216     (23.0 )   296,245     358,350     (17.3 )
                       
Other (income) expense:                      
Interest expense 15,018     11,362     32.2     41,237     29,588     39.4  
Capitalized interest (3,203 )   (3,067 )   4.4     (10,125 )   (9,163 )   10.5  
Interest income (2,605 )   (1,222 )   113.2     (5,746 )   (4,235 )   35.7  
Other expense 114     180     (36.7 )   221     407     (45.7 )
Total other (income) expense 9,324     7,253     28.6     25,587     16,597     54.2  
                       
Income before income taxes 94,780     127,963     (25.9 )   270,658     341,753     (20.8 )
Provision for income taxes 34,590     46,581     (25.7 )   100,390     125,367     (19.9 )
                       
Net income $ 60,190     $ 81,382     (26.0 )   $ 170,268     $ 216,386     (21.3 )
Basic earnings per share $ 0.87     $ 1.17     (25.6 )   $ 2.45     $ 3.06     (19.9 )
Diluted earnings per share $ 0.87     $ 1.17     (25.6 )   $ 2.45     $ 3.05     (19.7 )
                       
Weighted average shares, basic 69,370     69,727     (0.5 )   69,363     70,689     (1.9 )
Weighted average shares, diluted 69,458     69,808     (0.5 )   69,537     70,832     (1.8 )

 

SPIRIT AIRLINES, INC.
Condensed Statements of Comprehensive Income
(unaudited, in thousands)
   
  Three Months Ended   Nine Months Ended
  September 30,   September 30,
  2017   2016   2017   2016
Net income $ 60,190     $ 81,382     $ 170,268     $ 216,386  
Unrealized gain (loss) on short-term investment securities, net of deferred taxes of $7, $3, ($6) and $3 13     4     (11 )   4  
Interest rate derivative losses reclassified into earnings, net of taxes of $31, $32, $92 and $97 53     56     160     170  
Other comprehensive income (loss) $ 66     $ 60     $ 149     $ 174  
Comprehensive income $ 60,256     $ 81,442     $ 170,417     $ 216,560  
 

 

SPIRIT AIRLINES, INC.
Condensed Balance Sheets
(unaudited, in thousands)
  September 30,   December 31,
  2017   2016
Assets      
Current assets:      
Cash and cash equivalents $ 863,680     $ 700,900  
Short-term investment securities 100,732     100,155  
Accounts receivable, net 46,235     41,136  
Aircraft maintenance deposits, net 166,386     87,035  
Prepaid expenses and other current assets 67,707     46,619  
Total current assets 1,244,740     975,845  
       
Property and equipment:      
Flight equipment 2,017,888     1,461,525  
Ground property and equipment 148,324     126,206  
Less accumulated depreciation (183,065 )   (122,509 )
  1,983,147     1,465,222  
Deposits on flight equipment purchase contracts 304,732     325,688  
Long-term aircraft maintenance deposits 138,672     199,415  
Deferred heavy maintenance, net 87,566     75,534  
Other long-term assets 112,085     110,223  
Total assets $ 3,870,942     $ 3,151,927  
       
Liabilities and shareholders' equity      
Current liabilities:      
Accounts payable $ 30,961     $ 15,193  
Air traffic liability 276,933     206,392  
Current maturities of long-term debt 105,958     84,354  
Other current liabilities 249,132     226,011  
Total current liabilities 662,984     531,950  
       
Long-term debt, less current maturities 1,214,138     897,359  
Deferred income taxes 406,080     308,143  
Deferred gains and other long-term liabilities 17,204     19,868  
Shareholders' equity:      
Common stock 7     7  
Additional paid-in-capital 557,772     551,004  
Treasury stock, at cost (219,930 )   (218,692 )
Retained earnings 1,233,901     1,063,633  
Accumulated other comprehensive loss (1,214 )   (1,345 )
Total shareholders' equity 1,570,536     1,394,607  
Total liabilities and shareholders' equity $ 3,870,942     $ 3,151,927  
 

 

SPIRIT AIRLINES, INC.
Condensed Statement of Cash Flows
(unaudited, in thousands)
  Nine Months Ended September 30,
  2017   2016
Operating activities:      
Net income $ 170,268     $ 216,386  
Adjustments to reconcile net income to net cash provided by operations:      
Losses reclassified from other comprehensive income 252     267  
Equity-based compensation 6,723     5,503  
Allowance for doubtful accounts (recoveries) (53 )   213  
Amortization of deferred gains and losses and debt issuance costs 6,415     3,837  
Depreciation and amortization 103,680     73,370  
Deferred income tax expense 97,834     77,627  
Loss on disposal of assets 3,114     1,166  
Lease termination costs 12,629     31,609  
Changes in operating assets and liabilities:      
Accounts receivable (5,046 )   (7,840 )
Aircraft maintenance deposits, net (28,422 )   (38,299 )
Prepaid income taxes (160 )   66,218  
Long-term deposits and other assets (81,622 )   (43,252 )
Accounts payable 13,829     (7,044 )
Air traffic liability 70,540     21,963  
Other liabilities 16,152     38,317  
Other 339      
Net cash provided by operating activities 386,472     440,041  
Investing activities:      
Purchase of available-for-sale investment securities (96,851 )   (100,076 )
Proceeds from the maturity of available-for-sale investment securities 95,881      
Proceeds from sale of property and equipment     50  
Pre-delivery deposits for flight equipment, net of refunds (121,702 )   (109,260 )
Capitalized interest (8,054 )   (7,032 )
Purchase of property and equipment (428,061 )   (447,455 )
Net cash used in investing activities (558,787 )   (663,773 )
Financing activities:      
Proceeds from issuance of long-term debt 405,827     378,569  
Proceeds from stock options exercised 45     92  
Payments on debt and capital lease obligations (63,643 )   (29,663 )
Excess tax (deficiency) benefit from equity-based compensation     (497 )
Repurchase of common stock (1,238 )   (102,390 )
Debt issuance costs (5,896 )   (107 )
Net cash provided by financing activities 335,095     246,004  
Net (decrease) increase in cash and cash equivalents 162,780     22,272  
Cash and cash equivalents at beginning of period 700,900     803,632  
Cash and cash equivalents at end of period $ 863,680     $ 825,904  
Supplemental disclosures      
Cash payments for:      
Interest, net of capitalized interest $ 22,541     $ 26,025  
Income taxes paid, net of refunds $ 4,352     $ (18,169 )
Non-cash transactions:      
Capital expenditures funded by capital lease borrowings $ (1,370 )   $ (31 )
   

 

SPIRIT AIRLINES, INC.
Selected Operating Statistics (unaudited)
  Three Months Ended September 30,    
Operating Statistics 2017   2016   Change
Available seat miles (ASMs) (thousands) 7,681,312     6,507,204     18.0 %
Revenue passenger miles (RPMs) (thousands) 6,452,529     5,599,370     15.2 %
Load factor (%) 84.0     86.0     (2.0 ) pts
Passenger flight segments (thousands) 6,307     5,674     11.2 %
Block hours 112,701     98,586     14.3 %
Departures 42,599     38,310     11.2 %
Total operating revenue per ASM (TRASM) (cents) 8.95     9.55     (6.3 )%
Average yield (cents) 10.65     11.10     (4.1 )%
Average ticket revenue per passenger flight segment ($) 56.48     58.34     (3.2 )%
Average non-ticket revenue per passenger flight segment ($) 52.48     51.17     2.6 %
Total revenue per passenger flight segment ($) 108.96     109.51     (0.5 )%
CASM (cents) 7.59     7.47     1.6 %
Adjusted CASM (cents) (1) 7.48     7.35     1.8 %
Adjusted CASM ex-fuel (cents) (2) 5.42     5.48     (1.1 )%
Fuel gallons consumed (thousands) 90,274     78,288     15.3 %
Average economic fuel cost per gallon ($) 1.75     1.56     12.2 %
Aircraft at end of period 107     89     20.2 %
Average daily aircraft utilization (hours) 11.6     12.3     (5.7 )%
Average stage length (miles) 1,006     968     3.9 %
   
           
  Nine Months Ended September 30,    
Operating Statistics 2017   2016   Change
Available seat miles (ASMs) (thousands) 21,851,789     18,909,627     15.6 %
Revenue passenger miles (RPMs) (thousands) 18,285,588     16,219,093     12.7 %
Load factor (%) 83.7     85.8     (2.1 ) pts
Passenger flight segments (thousands) 18,083     16,268     11.2 %
Block hours 326,033     290,529     12.2 %
Departures 123,492     111,495     10.8 %
Total operating revenue per ASM (TRASM) (cents) 9.06     9.22     (1.7 )%
Average yield (cents) 10.83     10.75     0.7 %
Average ticket revenue per passenger flight segment ($) 56.84     55.32     2.7 %
Average non-ticket revenue per passenger flight segment ($) 52.69     51.85     1.6 %
Total revenue per passenger flight segment ($) 109.53     107.17     2.2 %
CASM (cents) 7.71     7.33     5.2 %
Adjusted CASM (cents) (1) 7.64     7.15     6.9 %
Adjusted CASM ex-fuel (cents) (2) 5.62     5.45     3.1 %
Fuel gallons consumed (thousands) 254,871     225,851     12.8 %
Average economic fuel cost per gallon ($) 1.73     1.42     21.8 %
Average daily aircraft utilization (hours) 11.7     12.6     (7.1 )%
Average stage length (miles) 991     978     1.3 %

(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
(unaudited)

 

  Three Months Ended
  September 30,
(in thousands) 2017   2016
Operating special items include the following (1):      
Loss on disposal of assets 516     423  
Special charges 7,853     7,355  
Total operating special items $ 8,369     $ 7,778  
               

 

 

Reconciliation of Adjusted Operating Expense to GAAP Operating Expense
(unaudited)

 

  Three Months Ended
  September 30,
(in thousands, except CASM data in cents) 2017   2016
Total operating expenses, as reported $ 583,127     $ 486,113  
Less operating special items (1) 8,369     7,778  
Adjusted operating expenses, non-GAAP (2) 574,758     478,335  
Less: Economic fuel expense 158,300     121,844  
Adjusted operating expenses excluding fuel, non-GAAP (3) $ 416,458     $ 356,491  
       
Available seat miles 7,681,312     6,507,204  
       
CASM (cents) 7.59     7.47  
Adjusted CASM (cents) (2) 7.48     7.35  
Adjusted CASM ex-fuel (cents) (3) 5.42     5.48  

(1)  Special items include loss on disposal of assets and special charges.  Special charges are primarily related to lease termination costs.
(2)  Excludes operating special items.
(3)  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
  September 30,
(in thousands, except per share data)   2017     2016
Net income, as reported $ 60,190     $ 81,382  
Add: Provision for income taxes   34,590       46,581  
Income before income taxes, as reported   94,780       127,963  
Pre-tax margin, GAAP   13.8 %     20.6 %
Add operating special items (1) $ 8,369     $ 7,778  
Adjusted income before income taxes, non-GAAP (2)   103,149       135,741  
Adjusted pre-tax margin, non-GAAP (2)   15.0 %     21.8 %
Add:  Total other (income) expense   9,324       7,253  
Adjusted operating income, non-GAAP(2)   112,473       142,994  
Adjusted operating margin, non-GAAP(2)   16.4 %     23.0 %
       
Provision for adjusted income taxes (3)   37,644       49,412  
Adjusted net income, non-GAAP (2)(3) $ 65,505     $ 86,329  
       
Weighted average shares, diluted   69,458       69,808  
       
Adjusted net income per share, diluted (2)(3) $   0.94     $   1.24  
       
Total operating revenues $ 687,231     $ 621,329  

(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 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 effective tax rate for the period.

Calculation of Return on Invested Capital, non-GAAP
(unaudited)

 

  Twelve Months Ended
(in thousands) September 30, 2017
Operating income $ 381,556  
Add operating special items (1) 24,344  
Adjustment for aircraft rent 213,274  
Adjusted operating income, non-GAAP 619,174  
Tax (37.2%) (2) 230,333  
Adjusted operating income, after-tax, non-GAAP $ 388,841  
Invested capital:  
Total debt $ 1,320,096  
Book equity 1,570,536  
Less: Unrestricted cash, cash equivalents & short-term investments 964,412  
Add: Capitalized aircraft operating leases (7x Aircraft Rent) 1,492,918  
Total invested capital, non-GAAP $ 3,419,138  
   
Return on invested capital (ROIC), pre-tax, non-GAAP 18.1 %
Return on invested capital (ROIC), after-tax, non-GAAP (2) 11.4 %

(1)  See "Special Items" for more details.
(2)  Assumes same marginal tax rate as is applicable to GAAP net income for the twelve months ended September 30, 2017. 

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

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