Spirit Airlines, Inc.
Jul 29, 2016

Spirit Airlines Reports Second Quarter 2016 Results

MIRAMAR, Fla., July 29, 2016 (GLOBE NEWSWIRE) -- Spirit Airlines, Inc. (NASDAQ:SAVE) today reported second quarter 2016 financial results.

"While in line with our expectations, our second quarter 2016 financial results were negatively impacted by continued pressure on yields.  Looking ahead, we see strong volumes for the peak summer leisure travel period but anticipate yield pressures will persist," said Bob Fornaro, Spirit's Chief Executive Officer.  "On the operations front, I'm pleased to report that the changes we're making to improve our on-time performance are beginning to take root.  For the second quarter 2016, we achieved our highest second quarter on-time performance in the last five years.  We still have a lot of work to do to achieve consistent reliability and improve our customer's overall experience, but I want to thank and congratulate the team for the progress made during the quarter."

Revenue Performance
For the second quarter 2016, Spirit's total operating revenue was $584.1 million, an increase of 5.5 percent compared to the second quarter 2015, driven by an increase in flight volume offset by a decrease in operating yields.

Total revenue per passenger flight segment ("PFS") for the second quarter 2016 decreased 15.0 percent, or $18.40, year over year to $104.19, primarily driven by a 22.6 percent, or $15.48, decrease in ticket revenue per PFS.  Non-ticket revenue declined 5.4 percent, or $2.92, year over year on a per flight segment basis to $51.32.  Although non-ticket revenue per passenger segment remains relatively stable, the Company has experienced modest pressure on take rates for certain ancillary items which it believes is correlated to low fare levels in its markets.   The Company has several new initiatives it plans to begin phasing in by year-end that should help mitigate these and other deflationary non-ticket pressures.

Cost Performance
Total GAAP operating expenses, including special items of $8.6 million4 primarily related to lease termination charges, increased 7.2 percent, or $31.2 million, year over year to $462.3 million.  Adjusted operating expense for the second quarter 2016 increased 4.5 percent, or $19.7 million, to $453.7 million5 on a capacity increase of 23.1 percent year over year.

Aircraft fuel expense decreased in the second quarter of 2016 by 11.5 percent, or $14.7 million, compared to the same period last year, due primarily to a 29.3 percent decrease in the average economic fuel cost per gallon6, partially offset by a 22.0 percent increase in fuel gallons consumed.

Spirit reported second quarter 2016 cost per available seat mile ("ASM") excluding special items and fuel ("Adjusted CASM ex-fuel")3 of 5.30 cents, a decrease of 8.6 percent compared to the same period last year.  The primary drivers of this improvement were lower aircraft rent per ASM this year, primarily driven by a change in the mix of leased and purchased aircraft, as well as higher expense in the second quarter last year related to an unusual number of flight cancellations and delays.  Additionally, the Company purchased one A319 aircraft formerly under a lease arrangement and negotiated four A319 aircraft lease extensions during the quarter, which contributed to lower aircraft rent per ASM.

"I am pleased to say that we remain on track to achieve adjusted CASM ex-fuel of about flat for the full year 2016," said Ted Christie, Spirit's Chief Financial Officer.  "Maintaining our ultra-low unit costs is core for Spirit, and our investments in operational improvement will yield benefits to the cost structure over the next year.  Consistent financial performance in a wide variety of macro environments is a true differentiator for the Spirit story, and one that will prove even more valuable as we head into the latter part of this decade."

Labor
During the second quarter, Spirit's flight attendants, represented by the Association of Flight Attendants - CWA ("AFA-CWA"), ratified an agreement for a five-year contract.  Also, during the second quarter, the Company's ramp service team members at Fort Lauderdale-Hollywood International Airport, represented by the International Associations of Machinists ("IAM"), also ratified an agreement for a five-year contract.

Fleet
During the second quarter 2016, Spirit took delivery of 4 new aircraft (1 A320ceo and 3 A321ceo aircraft), ending the quarter with 87 aircraft in its fleet.  Also, during the quarter, Spirit purchased one A319 off lease and extended leases on four additional A319 aircraft.

Share Repurchase
Under its current share repurchase authorization, Spirit repurchased approximately 1.2 million shares during the second quarter for $51.3 million.

Recent New Service Announcements
Boston - Orlando (10/7/16)
Philadelphia - Orlando (10/7/16)
Newark - Fort Lauderdale (10/30/16)
Newark - Orlando (10/30/16)
Kansas City - Orlando (11/10/16)
Akron-Canton - Fort Lauderdale (11/10/16)
Akron-Canton - Orlando (11/10/16)
Akron-Canton - Tampa* (11/10/16)
Akron-Canton - Fort Myers* (11/11/16)
Niagara Falls - Orlando (11/17/16)
Plattsburgh - Orlando (11/17/16
Baltimore - Fort Myers (11/10/16)
Baltimore - Tampa (11/10/16)
Newark - Myrtle Beach (3/9/17)
Akron-Canton - Myrtle Beach (4/27/17)*
Fort Lauderdale - Havana, Cuba (TBD)**

*seasonal
**Tentatively awarded by the Department of Transportation (DOT).  Final DOT determination is expected during the third quarter 2016.

Conference Call/Webcast Detail
Spirit will conduct a conference call to discuss these results today, July 29, 2016, 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 US airline, we operate more than 425 daily flights to 56 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 "Reconciliation of Adjusted Operating Income to GAAP Operating Income" table below for more details.
(3) See "Calculation for Return on Invested Capital" table below for more details.
(4) See "Special Items" table for more details.
(5) See "Reconciliation of Adjusted Operating Expense to GAAP Operating Expense" table below for more details.
(6) See "Reconciliation of Economic Fuel Expense to GAAP Fuel 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. Factors that could cause or contribute to such differences include, but are not limited to, those identified below. Furthermore, such forward-looking statements speak only as of the date of this report. 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. Additional 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. You should carefully consider the risks described below and the other information in this report. If any of the following risks materialize, our business could be materially harmed, and our financial condition and results of operations could be materially and adversely affected. 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 these and other 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.
Statement of Operations
(unaudited, in thousands, except per share data)
        
 Three Months Ended   Six Months Ended  
 June 30, Percent June 30, Percent
 2016 2015 Change 2016 2015 Change
Operating revenues:           
Passenger$296,401  $308,573  (3.9) $569,027  $582,039  (2.2)
Non-ticket287,732  244,848  17.5  553,249  464,737  19.0 
Total operating revenues584,133  553,421  5.5  1,122,276  1,046,776  7.2 
            
Operating expenses:           
Aircraft fuel113,192  127,907  (11.5) 199,174  240,333  (17.1)
Salaries, wages and benefits112,930  97,037  16.4  229,340  186,094  23.2 
Aircraft rent49,864  53,127  (6.1) 102,066  105,915  (3.6)
Landing fees and other rents39,944  33,364  19.7  74,751  63,910  17.0 
Distribution24,692  22,349  10.5  47,625  42,846  11.2 
Maintenance, materials and repairs20,627  21,271  (3.0) 41,567  40,431  2.8 
Depreciation and amortization24,957  17,139  45.6  48,066  32,002  50.2 
Other operating67,511  58,173  16.1  131,556  101,920  29.1 
Loss on disposal of assets529  415  27.5  743  1,010  (26.4)
Special charges8,052  324  nm  24,254  749  nm 
Total operating expenses462,298  431,106  7.2  899,142  815,210  10.3 
            
Operating income121,835  122,315  (0.4) 223,134  231,566  (3.6)
            
Other (income) expense:           
Interest expense10,166  4,419  nm  18,226  7,231  nm 
Capitalized interest(2,771) (2,829) (2.1) (6,096) (5,362) 13.7 
Interest income(1,447) (177) nm  (3,013) (311) nm 
Other expense157  44  256.8  227  116  95.7 
Total other (income) expense6,105  1,457  nm  9,344  1,674  nm 
            
Income before income taxes115,730  120,858  (4.2) 213,790  229,892  (7.0)
Provision for income taxes42,646  44,154  (3.4) 78,786  84,186  (6.4)
Net income$73,084  $76,704  (4.7) $135,004  $145,706  (7.3)
Basic earnings per share$1.03  $1.06  (2.8) $1.90  $2.00  (5.0)
Diluted earnings per share$1.03  $1.05  (1.9) $1.89  $1.99  (5.0)
            
Weighted average shares, basic70,770  72,518  (2.4) 71,173  72,784  (2.2)
Weighted average shares, diluted70,913  72,801  (2.6) 71,347  73,083  (2.4)


SPIRIT AIRLINES, INC.
Statements of Comprehensive Income
(unaudited, in thousands)
    
 Three Months Ended Six Months Ended
 June 30, June 30,
 2016 2015 2016 2015
Net income$73,084  $76,704  $135,004  $145,706 
Unrealized gain (loss) on interest rate derivative instruments,
net of deferred taxes of $0, $749, $0 and ($191)
  1,238    (356)
Interest rate swap losses reclassified into earnings88    178   
Other comprehensive income (loss)$88  $1,238  $178  $(356)
Comprehensive income$73,172  $77,942  $135,182  $145,350 


SPIRIT AIRLINES, INC.
Balance Sheets
(unaudited, in thousands)
    
 June 30, December 31,
 2016 2015
Assets   
Current assets:   
Cash and cash equivalents$1,014,080  $803,632 
Accounts receivable, net40,650  28,266 
Aircraft maintenance deposits77,590  73,415 
Prepaid income taxes2,835  72,278 
Prepaid expenses and other current assets48,624  48,749 
Total current assets1,183,779  1,026,340 
    
Property and equipment:   
Flight equipment1,225,219  827,282 
Ground and other equipment103,986  82,459 
Less accumulated depreciation(90,577) (65,524)
 1,238,628  844,217 
Deposits on flight equipment purchase contracts249,360  286,837 
Long-term aircraft maintenance deposits201,925  206,485 
Deferred heavy maintenance, net75,172  89,127 
Other long-term assets81,336  77,539 
Total assets$3,030,200  $2,530,545 
    
Liabilities and shareholders' equity   
Current liabilities:   
Accounts payable$27,728  $17,043 
Air traffic liability283,851  216,831 
Current maturities of long-term debt78,596  49,637 
Other current liabilities217,370  182,729 
Total current liabilities607,545  466,240 
    
Long-term debt, less current maturities836,418  596,693 
Long-term deferred income taxes267,379  221,481 
Deferred gains and other long-term liabilities19,541  20,821 
Shareholders' equity:   
Common stock7  7 
Additional paid-in-capital547,763  544,277 
Treasury stock, at cost(180,756) (116,182)
Retained earnings933,758  798,754 
Accumulated other comprehensive loss(1,455) (1,546)
Total shareholders' equity1,299,317  1,225,310 
Total liabilities and shareholders' equity$3,030,200  $2,530,545 


SPIRIT AIRLINES, INC.
Statement of Cash Flows
(unaudited, in thousands)
 
 Six Months Ended June 30,
 2016 2015
Operating activities:   
Net income135,004  145,706 
Adjustments to reconcile net income to net cash provided by operations:   
Unrealized losses on open derivative contracts, net  4,257 
Losses reclassified from other comprehensive income178   
Equity-based compensation3,905  4,743 
Allowance for doubtful accounts221  8 
Amortization of deferred gains and losses2,810  397 
Depreciation and amortization48,066  32,002 
Deferred income tax expense45,810  559 
Loss on disposal of assets743  1,010 
Lease termination cost24,254   
Changes in operating assets and liabilities:   
Accounts receivable(12,662) (8,137)
Aircraft maintenance deposits(29,721) (4,621)
Prepaid income taxes69,444   
Long-term deposits and other assets(22,055) (10,930)
Accounts payable3,024  7,856 
Air traffic liability66,531  90,056 
Other liabilities25,269  36,728 
Net cash provided by operating activities360,821  299,634 
Investing activities:   
Proceeds from sale of property and equipment50   
Pre-delivery deposits for flight equipment, net of refunds(60,772) (70,971)
Capitalized interest(4,554) (2,763)
Purchase of property and equipment(303,175) (308,163)
Net cash used in investing activities(368,451) (381,897)
Financing activities:   
Proceeds from issuance of long-term debt300,547  296,000 
Proceeds from stock options exercised92  23 
Payments on debt and capital lease obligations(19,665) (8,940)
Proceeds from sale and leaseback transactions  7,300 
Excess tax benefit (deficiency) from equity-based compensation(511) 8,504 
Repurchase of common stock(62,278) (79,415)
Debt issuance costs(107) (4,669)
Net cash provided by financing activities218,078  218,803 
Net increase in cash and cash equivalents210,448  136,540 
Cash and cash equivalents at beginning of period803,632  632,784 
Cash and cash equivalents at end of period$1,014,080  $769,324 
Supplemental disclosures   
Cash payments for:   
Interest, net of capitalized interest$21,804  $1,758 
Income taxes paid, net of refunds$(36,142) $54,198 


SPIRIT AIRLINES, INC.
Selected Operating Statistics (unaudited)
 
 Three Months Ended June 30,  
Operating Statistics2016 2015 Change
Available seat miles (ASMs) (thousands)6,419,419  5,213,299  23.1%
Revenue passenger miles (RPMs) (thousands)5,549,411  4,481,064  23.8%
Load factor (%)86.4  86.0  0.4pts
Passenger flight segments (thousands)5,606  4,514  24.2%
Block hours98,399  83,861  17.3%
Departures38,025  32,164  18.2%
Total operating revenue per ASM (TRASM) (cents)9.10  10.62  (14.3)%
Average yield (cents)10.53  12.35  (14.7)%
Average ticket revenue per passenger flight segment ($)52.87  68.35  (22.6)%
Average non-ticket revenue per passenger flight segment ($)51.32  54.24  (5.4)%
Total revenue per passenger flight segment ($)104.19  122.59  (15.0)%
CASM (cents)7.20  8.27  (12.9)%
Adjusted CASM (cents) (1)7.07  8.33  (15.1)%
Adjusted CASM ex-fuel (cents) (2)5.30  5.80  (8.6)%
Fuel gallons consumed (thousands)77,013  63,134  22.0%
Average economic fuel cost per gallon ($)1.47  2.08  (29.3)%
Aircraft at end of period87  73  19.2%
Average daily aircraft utilization (hours)12.7  12.9  (1.6)%
Average stage length (miles)971  974  (0.3)%


 Six Months Ended June 30,  
Operating Statistics2016 2015 Change
Available seat miles (ASMs) (thousands)12,402,423  9,942,762  24.7%
Revenue passenger miles (RPMs) (thousands)10,619,724  8,498,622  25.0%
Load factor (%)85.6  85.5  0.1pts
Passenger flight segments (thousands)10,594  8,494  24.7%
Block hours191,943  160,896  19.3%
Departures73,185  61,208  19.6%
Total operating revenue per ASM (TRASM) (cents)9.05  10.53  (14.1)%
Average yield (cents)10.57  12.32  (14.2)%
Average ticket revenue per passenger flight segment ($)53.71  68.52  (21.6)%
Average non-ticket revenue per passenger flight segment ($)52.22  54.71  (4.6)%
Total revenue per passenger flight segment ($)105.93  123.23  (14.0)%
CASM (cents)7.25  8.20  (11.6)%
Adjusted CASM (cents) (1)7.05  8.20  (14.0)%
Adjusted CASM ex-fuel (cents) (2)5.44  5.76  (5.6)%
Fuel gallons consumed (thousands)147,563  119,857  23.1%
Average economic fuel cost per gallon ($)1.35  2.02  (33.2)%
Average daily aircraft utilization (hours)12.8  12.8  %
Average stage length (miles)983  982  0.1%
         

(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
 June 30,
(in thousands)2016 2015
Operating special items include the following (1):   
Unrealized losses (gains) related to fuel derivative contracts$  $(3,669)
Loss on disposal of assets529  415 
Special charges8,052  324 
Total operating special items$8,581  $(2,930)


Reconciliation of Adjusted Operating Expense to GAAP Operating Expense
(unaudited) 
 Three Months Ended
 June 30,
(in thousands, except CASM data in cents)2016 2015
Total operating expenses, as reported$462,298  $431,106 
Less operating special items (1)8,581  (2,930)
Adjusted operating expenses, non-GAAP (2)453,717  434,036 
Less: Economic fuel expense113,192  131,576 
Adjusted operating expenses excluding fuel, non-GAAP (3)$340,525  $302,460 
    
Available seat miles6,419,419  5,213,299 
    
CASM (cents)7.20  8.27 
Adjusted CASM (cents) (2)7.07  8.33 
Adjusted CASM ex-fuel (cents) (3)5.30  5.80 
      

(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 the second quarter 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
(unaudited)  
  Three Months Ended
  June 30,
(in thousands, except per share data)  2016   2015 
Net income, as reported $73,084  $76,704 
Add: Provision for income taxes 42,646  44,154 
Income before income taxes, as reported 115,730  120,858 
Pre-tax margin, GAAP 19.8% 21.8%
Add operating special items (1) 8,581  (2,930)
Income before income taxes, non-GAAP (2) 124,311  117,928 
Adjusted pre-tax margin, non-GAAP (2) 21.3% 21.3%
Provision for income taxes (3) 45,808  43,084 
Adjusted net income, non-GAAP (2)(3) $78,503  $74,844 
     
Weighted average shares, diluted 70,913  72,801 
     
Adjusted net income per share, diluted (2)(3) $1.11  $1.03 


Reconciliation of Adjusted Operating Income to GAAP Operating Income
(unaudited) 
 Three Months Ended
 June 30,
(in thousands)2016 2015
Operating income, as reported$121,835  $122,315 
Operating margin, GAAP20.9% 22.1%
Add operating special items (1)8,581  (2,930)
Adjusted operating income, non-GAAP (2)$130,416  $119,385 
Adjusted operating margin, non-GAAP (2)22.3% 21.6%
      

(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 our business, because it most closely approximates the net cash outflow associated with purchasing fuel used for our 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 our 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 our 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
(unaudited) 
 Three Months Ended
 June 30,
(in thousands, except per gallon data)2016 2015
Fuel expense   
Aircraft fuel, as reported$113,192  $127,907 
Less:   
  Unrealized losses (gains) related to fuel derivative contracts  (3,669)
Economic fuel expense, non-GAAP$113,192  $131,576 
    
Fuel gallons consumed77,013  63,134 
    
Economic fuel cost per gallon, non-GAAP$1.47  $2.08 


Calculation of Return on Invested Capital 
(unaudited) 
 Twelve Months Ended
(in thousands)June 30, 2016
Operating Income$500,690 
Add operating special items (1)23,609 
Adjustment for aircraft rent207,682 
Adjusted operating income (2)731,981 
Tax (37.0%) (3)270,833 
Adjusted operating income, after-tax461,148 
Invested Capital 
Total debt$915,014 
Book equity1,299,317 
Less: Unrestricted cash1,014,080 
Add: Capitalized aircraft operating leases (7x Aircraft Rent)1,453,774 
Total invested capital2,654,025 
  
Return on invested capital (ROIC), pre-tax (2)27.6%
Return on invested capital (ROIC), after-tax (2)(3)17.4%
   

(1) Special items include unrealized gains or losses related to outstanding fuel derivative contracts, loss on disposal of assets, and special charges primarily related to lease termination costs.
(2) Excludes special items as described above.
(3) Assumes same marginal tax rate as is applicable to GAAP net income for the twelve months ended June 30, 2016. 

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

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