Spirit Airlines, Inc.
Oct 25, 2016

Spirit Airlines Reports Third Quarter 2016 Results

MIRAMAR, Fla., Oct. 25, 2016 (GLOBE NEWSWIRE) -- Spirit Airlines, Inc. (NASDAQ:SAVE) today reported third quarter 2016 financial results.

"During the third quarter 2016, we saw sequential improvement in total revenue directly related to our own revenue initiatives as well as a modest improvement in the industry pricing environment, and are encouraged by the constructive trends we are seeing," said Bob Fornaro, Spirit's President and Chief Executive Officer.  "On the operations front, we made good strides toward improving our operational performance and for the months of July, August, and September, we set new company records for on-time performance.  I applaud our team for the progress made to date towards achieving consistent reliability."

Revenue Performance
For the third quarter 2016, Spirit's total operating revenue was $621.3 million, an increase of 8.1 percent compared to the third quarter 2015, driven by a 12.6 percent increase in flight volume and 0.8 point increase in load factor, partially offset by a decrease in operating yields.

Total revenue per available seat mile (TRASM) for the third quarter 2016 decreased 7.0 percent compared to the same period last year, primarily driven by a decrease in passenger yield as a result of industry competitive pricing pressures. Although yields decreased year over year, throughout the third quarter 2016, the Company saw sequential improvement in the rate of decline.

On a per passenger flight segment ("PFS") basis, total revenue per PFS for the third quarter 2016 decreased 9.0 percent, or $10.84, year over year to $109.51, primarily driven by a 12.9 percent, or $8.62, decrease in ticket revenue per PFS related to industry competitive pricing pressures. Non-ticket revenue declined 4.2 percent, or $2.22, year over year on a per PFS basis to $51.17, primarily driven by a modest decline in bag revenue per PFS.

Cost Performance
Total GAAP operating expenses, including special items of $7.8 million4 primarily related to lease termination charges, increased 16.4 percent, or $68.5 million, year over year to $486.1 million driven by an increase in flight volume.  Adjusted operating expense for the third quarter 2016 increased 14.6 percent, or $61.0 million, to $478.3 million5 on a capacity increase of 16.2 percent year over year.

Aircraft fuel expense increased in the third quarter 2016 by 5.1 percent, or $5.9 million, compared to the same period last year, due to a 15.7 percent increase in fuel gallons consumed, partially offset by an 8.8 percent decrease in the average economic fuel cost per gallon6.

Spirit reported third quarter 2016 cost per available seat mile ("ASM") excluding special items and fuel ("Adjusted CASM ex-fuel")5 of 5.48 cents, an increase of 1.7 percent compared to the same period last year, primarily driven by higher salaries, wages, and benefits, and higher maintenance expense partially offset by lower aircraft rent per ASM.

"Our team continues to do a good job holding the line on core cost inflation.  In addition, operational reliability improvements during the quarter produced more cost savings than we anticipated, provided a better product for our customers, and a better environment for our team members: a true "win-win-win" scenario," said Ted Christie, Spirit's Chief Financial Officer.

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

Fleet
During the third quarter 2016, Spirit took delivery of 2 new A321ceo aircraft, ending the quarter with 89 aircraft in its fleet.  Also, during the quarter, Spirit purchased three A319 aircraft off lease and extended the leases for two other A319 aircraft.

Share Repurchase
During the third quarter 2016, Spirit returned $38 million to shareholders by repurchasing approximately 0.9 million shares.  Year to date Spirit has returned $100 million to shareholders by repurchasing approximately 2.3 million shares.

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)
Fort Lauderdale - Havana, Cuba (12/1/16)**
Newark - Myrtle Beach (3/9/17)
Akron-Canton - Myrtle Beach (4/27/17)*
Akron-Canton - Las Vegas (4/27/17)

*seasonal
**subject to foreign government approval

Conference Call/Webcast Detail
Spirit will conduct a conference call to discuss these results today, October 25, 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 400 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 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. 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 above and the other information in this release. If any of the above 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.
Condensed Statement of Operations
(unaudited, in thousands, except per share data)
 
 Three Months Ended   Nine Months Ended  
 September 30, Percent September 30, Percent
 2016 2015 Change 2016 2015 Change
Operating revenues:           
Passenger$331,004  $319,812  3.5  $900,031  $901,851  (0.2)
Non-ticket290,325  255,029  13.8  843,574  719,766  17.2 
Total operating revenues621,329  574,841  8.1  1,743,605  1,621,617  7.5 
            
Operating expenses:           
Aircraft fuel121,844  115,899  5.1  321,018  356,232  (9.9)
Salaries, wages and benefits120,190  95,081  26.4  349,530  281,175  24.3 
Aircraft rent49,367  53,525  (7.8) 151,433  159,440  (5.0)
Landing fees and other rents39,345  34,577  13.8  114,096  98,487  15.8 
Distribution25,565  23,074  10.8  73,190  65,920  11.0 
Maintenance, materials and repairs30,443  21,473  41.8  72,010  61,904  16.3 
Depreciation and amortization25,304  19,628  28.9  73,370  51,630  42.1 
Other operating66,277  54,151  22.4  197,833  156,071  26.8 
Loss on disposal of assets423  290  45.9  1,166  1,300  (10.3)
Special charges (credits)7,355  (76) nm 31,609  673  nm
Total operating expenses486,113  417,622  16.4  1,385,255  1,232,832  12.4 
            
Operating income135,216  157,219  (14.0) 358,350  388,785  (7.8)
            
Other (income) expense:           
Interest expense11,362  5,951  nm 29,588  13,182  nm
Capitalized interest(3,067) (3,030) 1.2  (9,163) (8,392) 9.2 
Interest income(1,222) (233) nm (4,235) (544) nm
Other expense180  166  8.4  407  282  44.3 
Total other (income) expense7,253  2,854  nm 16,597  4,528  nm
            
Income before income taxes127,963  154,365  (17.1) 341,753  384,257  (11.1)
Provision for income taxes46,581  57,251  (18.6) 125,367  141,437  (11.4)
Net income$81,382  $97,114  (16.2) $216,386  $242,820  (10.9)
Basic earnings per share$1.17  $1.35  (13.3) $3.06  $3.35  (8.7)
Diluted earnings per share$1.17  $1.35  (13.3) $3.05  $3.34  (8.7)
            
Weighted average shares, basic69,727  71,738  (2.8) 70,689  72,432  (2.4)
Weighted average shares, diluted69,808  71,884  (2.9) 70,832  72,680  (2.5)




 
SPIRIT AIRLINES, INC.
Condensed Statements of Comprehensive Income
(unaudited, in thousands)
 
 Three Months Ended Nine Months Ended
 September 30, September 30,
 2016 2015 2016 2015
Net income$81,382  $97,114  $216,386  $242,820 
Unrealized gain (loss) on interest rate derivative instruments, net of deferred taxes of $0, ($320), $0 and ($511)  (553)   (909)
Unrealized gain (loss) on investment securities, net of deferred taxes of $3, $0, $3 and $04    4   
Interest rate swap losses reclassified into earnings, net of taxes of $32, $15, $97 and $1556  25  170  25 
Other comprehensive income (loss)$60  $(528) $174  $(884)
Comprehensive income$81,442  $96,586  $216,560  $241,936 




 
SPIRIT AIRLINES, INC.
Condensed Balance Sheets
(unaudited, in thousands)
 
 September 30, December 31,
 2016 2015
Assets   
Current assets:   
Cash and cash equivalents$825,904  $803,632 
Investment securities100,083   
Accounts receivable, net35,892  28,266 
Aircraft maintenance deposits87,105  73,415 
Prepaid income taxes6,060  72,278 
Prepaid expenses and other current assets48,455  48,749 
Total current assets1,103,499  1,026,340 
    
Property and equipment:   
Flight equipment1,386,310  834,927 
Ground property and equipment109,451  74,814 
Less accumulated depreciation(105,653) (65,524)
 1,390,108  844,217 
Deposits on flight equipment purchase contracts272,690  286,837 
Long-term aircraft maintenance deposits198,426  206,485 
Deferred heavy maintenance, net79,878  89,127 
Other long-term assets85,024  77,539 
Total assets$3,129,625  $2,530,545 
    
Liabilities and shareholders' equity   
Current liabilities:   
Accounts payable$29,906  $17,043 
Air traffic liability238,793  216,831 
Current maturities of long-term debt84,443  49,637 
Other current liabilities217,779  182,729 
Total current liabilities570,921  466,240 
    
Long-term debt, less current maturities894,809  596,693 
Long-term deferred income taxes299,231  221,481 
Deferred gains and other long-term liabilities20,108  20,821 
Shareholders' equity:   
Common stock7  7 
Additional paid-in-capital549,375  544,277 
Treasury stock, at cost(218,572) (116,182)
Retained earnings1,015,140  798,754 
Accumulated other comprehensive loss(1,394) (1,546)
Total shareholders' equity1,344,556  1,225,310 
Total liabilities and shareholders' equity$3,129,625  $2,530,545 




 
SPIRIT AIRLINES, INC.SPIRIT AIRLINES, INC.
Condensed Statement of Cash Flows
(unaudited, in thousands)
 
 Nine Months Ended September 30,
 2016 2015
Operating activities:   
Net income216,386  242,820 
Adjustments to reconcile net income to net cash provided by operations:   
Unrealized losses on open derivative contracts, net  2,239 
Losses reclassified from other comprehensive income267   
Equity-based compensation5,503  6,999 
Allowance for doubtful accounts213  7 
Amortization of deferred gains and losses3,837  730 
Depreciation and amortization73,370  51,630 
Deferred income tax expense77,627  63,960 
Loss on disposal of assets1,166  1,300 
Lease termination cost31,609   
Changes in operating assets and liabilities:   
Accounts receivable(7,840) (10,374)
Aircraft maintenance deposits(38,299) (17,488)
Prepaid income taxes66,218   
Long-term deposits and other assets(43,252) (44,294)
Accounts payable(7,044) 2,340 
Air traffic liability21,684  56,960 
Other liabilities38,596  12,161 
Net cash provided by operating activities440,041  368,990 
Investing activities:   
Proceeds from sale of property and equipment50   
Capitalized interest(7,032) (2,707)
Pre-delivery deposits for flight equipment, net of refunds(109,260) (87,658)
Purchase of investment securities(100,076)  
Purchase of property and equipment(447,455) (451,799)
Net cash used in investing activities(663,773) (542,164)
Financing activities:   
Proceeds from issuance of long-term debt378,569  416,000 
Proceeds from stock options exercised92  32 
Payments on debt and capital lease obligations(29,663) (16,609)
Proceeds from sale and leaseback transactions  7,300 
Excess tax benefit (deficiency) from equity-based compensation(497) 8,818 
Repurchase of common stock(102,390) (112,162)
Debt issuance costs(107) (14,092)
Net cash provided by financing activities246,004  289,287 
Net increase in cash and cash equivalents22,272  116,113 
Cash and cash equivalents at beginning of period803,632  632,784 
Cash and cash equivalents at end of period$825,904  $748,897 
Supplemental disclosures   
Cash payments for:   
Interest, net of capitalized interest$26,025  $3,851 
Income taxes paid, net of refunds$(18,169) $95,135 



 
SPIRIT AIRLINES, INC.
Selected Operating Statistics (unaudited)
 
 Three Months Ended September 30,  
Operating Statistics2016 2015 Change
Available seat miles (ASMs) (thousands)6,507,204  5,597,997  16.2%
Revenue passenger miles (RPMs) (thousands)5,599,370  4,768,692  17.4%
Load factor (%)86.0  85.2  0.8pts
Passenger flight segments (thousands)5,674  4,776  18.8%
Block hours98,586  88,045  12.0%
Departures38,310  34,032  12.6%
Total operating revenue per ASM (TRASM) (cents)9.55  10.27  (7.0)%
Average yield (cents)11.10  12.05  (7.9)%
Average ticket revenue per passenger flight segment ($)58.34  66.96  (12.9)%
Average non-ticket revenue per passenger flight segment ($)51.17  53.39  (4.2)%
Total revenue per passenger flight segment ($)109.51  120.35  (9.0)%
CASM (cents)7.47  7.46  0.1%
Adjusted CASM (cents) (1)7.35  7.45  (1.3)%
Adjusted CASM ex-fuel (cents) (2)5.48  5.39  1.7%
Fuel gallons consumed (thousands)78,288  67,684  15.7%
Average economic fuel cost per gallon ($)1.56  1.71  (8.8)%
Aircraft at end of period89  76  17.1%
Average daily aircraft utilization (hours)12.3  12.8  (3.9)%
Average stage length (miles)968  983  (1.5)%


 Nine Months Ended September 30,  
Operating Statistics2016 2015 Change
Available seat miles (ASMs) (thousands)18,909,627  15,540,759  21.7%
Revenue passenger miles (RPMs) (thousands)16,219,093  13,267,314  22.2%
Load factor (%)85.8  85.4  0.4pts
Passenger flight segments (thousands)16,268  13,271  22.6%
Block hours290,529  248,941  16.7%
Departures111,495  95,240  17.1%
Total operating revenue per ASM (TRASM) (cents)9.22  10.43  (11.6)%
Average yield (cents)10.75  12.22  (12.0)%
Average ticket revenue per passenger flight segment ($)55.32  67.96  (18.6)%
Average non-ticket revenue per passenger flight segment ($)51.85  54.24  (4.4)%
Total revenue per passenger flight segment ($)107.17  122.20  (12.3)%
CASM (cents)7.33  7.93  (7.6)%
Adjusted CASM (cents) (1)7.15  7.93  (9.8)%
Adjusted CASM ex-fuel (cents) (2)5.45  5.63  (3.2)%
Fuel gallons consumed (thousands)225,851  187,541  20.4%
Average economic fuel cost per gallon ($)1.42  1.91  (25.7)%
Average daily aircraft utilization (hours)12.6  12.8  (1.6)%
Average stage length (miles)978  982  (0.4)%

(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
 September 30,
(in thousands)2016 2015
Operating special items include the following (1):   
Unrealized losses (gains) related to fuel derivative contracts$  $82 
Loss on disposal of assets423  290 
Special charges7,355  (76)
Total operating special items$7,778  $296 

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

 Three Months Ended
 September 30,
(in thousands, except CASM data in cents)2016 2015
Total operating expenses, as reported$486,113  $417,622 
Less operating special items (1)7,778  296 
Adjusted operating expenses, non-GAAP (2)478,335  417,326 
Less: Economic fuel expense121,844  115,817 
Adjusted operating expenses excluding fuel, non-GAAP (3)$356,491  $301,509 
    
Available seat miles6,507,204  5,597,997 
    
CASM (cents)7.47  7.46 
Adjusted CASM (cents) (2)7.35  7.45 
Adjusted CASM ex-fuel (cents) (3)5.48  5.39 

(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 third 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
 September 30,
(in thousands, except per share data) 2016   2015 
Net income, as reported$81,382  $97,114 
Add: Provision for income taxes46,581  57,251 
Income before income taxes, as reported127,963  154,365 
Pre-tax margin, GAAP20.6% 26.9%
Add operating special items (1)7,778  296 
Income before income taxes, non-GAAP (2)135,741  154,661 
Adjusted pre-tax margin, non-GAAP (2)21.8% 26.9%
Provision for income taxes (3)49,412  57,361 
Adjusted net income, non-GAAP (2)(3)$86,329  $97,300 
    
Weighted average shares, diluted69,808  71,884 
    
Adjusted net income per share, diluted (2)(3)$1.24  $1.35 

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

 Three Months Ended
 September 30,
(in thousands)2016 2015
Operating income, as reported$135,216  $157,219 
Operating margin, GAAP21.8% 27.3%
Add operating special items (1)7,778  296 
Adjusted operating income, non-GAAP (2)$142,994  $157,515 
Adjusted operating margin, non-GAAP (2)23.0% 27.4%

(1) See "Special Items" for more details.

(2) Excludes operating special items.

(3) Assumes the 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
 September 30,
(in thousands, except per gallon data)2016 2015
Fuel expense   
Aircraft fuel, as reported$121,844  $115,899 
Less:   
  Unrealized losses (gains) related to fuel derivative contracts  82 
Economic fuel expense, non-GAAP$121,844  $115,817 
    
Fuel gallons consumed78,288  67,684 
    
Economic fuel cost per gallon, non-GAAP$1.56  $1.71 

Calculation of Return on Invested Capital
(unaudited)

 Twelve Months Ended
(in thousands)September 30, 2016
Operating Income$478,687 
Add operating special items (1)31,091 
Adjustment for aircraft rent203,524 
Adjusted operating income (2)713,302 
Tax (36.8%) (3)262,495 
Adjusted operating income, after-tax450,807 
Invested Capital 
Total debt$979,252 
Book equity1,344,556 
Less: Unrestricted cash, cash equivalents & short-term investments925,987 
Add: Capitalized aircraft operating leases (7x Aircraft Rent)1,424,668 
Total invested capital2,822,489 
  
Return on invested capital (ROIC), pre-tax (2)25.3%
Return on invested capital (ROIC), after-tax (2)(3)16.0%

(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 the same marginal tax rate as is applicable to GAAP net income for the twelve months ended September 30, 2016.

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

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