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Spirit Airlines Reports Third Quarter 2018 Results

Oct 24, 2018

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.comAt 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  
Other 16,374     18,155     (9.8 )   46,792     55,130     (15.1 )
Total operating revenues 904,330     687,227     31.6     2,460,239     1,977,369     24.4  
                                           
Operating expenses:                                          
Aircraft fuel 258,818     158,300     63.5     709,644     440,376     61.1  
Salaries, wages and benefits 185,043     134,114     38.0     527,895     391,144     35.0  
Aircraft rent 42,682     53,396     (20.1 )   134,618     163,032     (17.4 )
Landing fees and other rents 54,542     48,498     12.5     162,774     134,538     21.0  
Depreciation and amortization 43,773     36,840     18.8     128,764     103,680     24.2  
Maintenance, materials and repairs 37,778     26,176     44.3     99,141     81,473     21.7  
Distribution 37,868     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 assets 1,069     516     nm     6,561     3,114     nm  
Other operating 98,318     87,965     11.8     283,841     268,553     5.7  
Total operating expenses 759,205     583,353     30.1     2,245,390     1,683,841     33.3  
                                           
Operating income 145,125     103,874     39.7     214,849     293,528     (26.8 )
                                           
Other (income) expense:                                          
Interest expense 21,925     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 expense 302     114     nm     623     221     nm  
Special charges, non-operating 1,744         nm     90,357         nm  
Total other (income) expense 16,538     9,324     77.4     130,775     25,587     411.1  
                                           
                                           
Income before income taxes 128,587     94,550     36.0     84,074     267,941     (68.6 )
Provision for income taxes 31,107     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, basic 68,254     69,370     (1.6 )   68,243     69,363     (1.6 )
Weighted average shares, diluted 68,503     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 $92 52     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 Statistics 2018   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   2.0 pts
Passenger flight segments (thousands) 7,856   6,307   24.6 %
Block hours 136,723   112,701   21.3 %
Departures 50,386   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 period 121   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 Statistics 2018   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 hours 396,034   326,033   21.5 %
Departures 144,772   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-fare 411,296     313,479     1,154,543     896,168  
Total passenger revenues 887,956     669,072     2,413,447     1,922,239  
Other revenues 16,374     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 segments 7,856     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 assets 1,069     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 items 383     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 expense 258,818     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 miles 9,579,448     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 rent 181,523  
Adjusted operating income, non-GAAP 579,854  
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 equity 1,833,782  
Less: Unrestricted cash, cash equivalents & short-term investments 875,911  
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-GAAP 14.0 %
Return on invested capital (ROIC), after-tax, non-GAAP 10.7 %
       
(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.