Attached files
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| 8-K - 8-K - Spirit Airlines, Inc. | form8k30618.htm |
March 6, 2018
2
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, and Section 21E of the Securities Exchange Act of 1934, as
amended, which represent the Company's expectations or beliefs concerning future events. The words “expects,” “estimates,” “plans,”
“anticipates,” “indicates,” “believes,” “forecast,” “guidance,” “outlook,” “may,” “will,” “should,” “seeks,” “targets” and similar expressions are
intended to identify forward-looking statements. Similarly, statements that describe the Company's objectives, plans or goals, or actions the
Company may take in the future, are forward-looking statements. Forward-looking statements include, without limitation, statements regarding
the Company's intentions and expectations regarding revenues, cost of operations, the delivery schedule of aircraft on order, and announced new
service routes. All forward-looking statements are based upon information available to the Company at the time the statement is made. The
Company has no intent, nor undertakes any obligation, to publicly update or revise any forward-looking statement, whether as a result of new
information, future events, or otherwise, except as required by law. Forward-looking statements are subject to a number of factors that could
cause the Company's actual results to differ materially from the Company's expectations, including the competitive environment in the airline
industry; the Company's ability to keep costs low; changes in fuel costs; the impact of worldwide economic conditions on customer travel behavior;
the Company's ability to generate non-ticket revenues; and government regulation. 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.
All forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by the cautionary
statements set forth or referred to above. Forward-looking statements speak only as of the date of this presentation. You should not put undue
reliance on any forward-looking statements.
Disclaimer
Bob Fornaro
Chief Executive Officer
4
• Further improve our overall Guest experience
• Strengthen our footprint for the future
• Drive ancillary revenue
• Maintain our relative cost advantage
• Deliver earnings growth
Our 2018 Priorities
Welcome Aboard!
5 Further Improving our Guest Experience – on the ground & in the air
Streamlined Booking Process
Self Bag Tagging
Easy Purchase Options for Extras
Electronic Boarding Pass
Friendly Infight Experience
6
65%
70%
75%
80%
85%
90%
95%
2015 2016 2017 Oct-17 Nov-17 Dec-17 Jan-18 Feb-18
94%
96%
98%
100%
2015 2016 2017 Oct-17 Nov-17 Dec-17 Jan-18 Feb-18
(3)
Improving Operational Performance
• Labor disruptions and hurricane impacts
were felt from May to September 2017 on
A:14, Completion Factor, and Complaints
• Excluding the summer, the operational
improvements in 2017 were pronounced
1. Arrivals within 14 minutes of scheduled arrival time as reported by the Department of Transportation.
2. Percentage of scheduled flights completed.
3. Labor and weather disruption adjusted.
Completion Factor(2) D.O.T. On-Time %(1)
2018 Goal
7 Serving Over 235 Non-Stop Markets
• 500+ daily flights, 65 destinations
• Diversified network
• Primarily low frequency, point-to-point
• Serve most of the Top 25 U.S. metros, many
small/mid-size U.S. markets and 27
international destinations
• Demographic affinity between Ft. Lauderdale
& Caribbean/Latin America
ST. CROIX
8 Being Nimble is in our DNA
• Dramatically grown large leisure markets such
as Las Vegas & Orlando
• Diversified the network by adding more
small/mid-size cities
• Grown our international footprint
• Added more seasonal differentiation to the
network
• Invested in improving operational reliability
• Improved our reputation
In response to changes in the competitive environment beginning in 2015, Spirit has
focused on diversifying its network and improving its brand reputation
.
Winter Seasonal
• Winter seasonal only • Increased frequency in
winter
Summer seasonal
• Summer seasonal only • Increased frequency in
summer
Lima
9
• New routes added March-December
2017 • Routes added/planned to begin in 2018
Guayaquil
Recent Growth Focused on Mid-to-Long Haul Domestic Markets
10 3 Types of Core Spirit Markets
International
Chicago
Detroit
Dallas
Houston
Baltimore
Los Angeles
Atlanta
NY Metro
Orlando
Ft. Lauderdale
Las Vegas
New Orleans
Myrtle Beach
Unique niche developed in
Visiting Friends & Relative
(VFR) Markets
Large int’l leisure markets
Big Origination Cities Large Leisure Destinations International
Building a network to designed to serve low fare leisure passengers
11 Continuing to Broaden and Diversify our Network
0
50
100
150
200
250
300
350
400
Top 25 - Top 25 Top 25 - SMID SMID - SMID Int'l VFR Int'l Leisure
Add'l markets currently
meeting our threshold for
growth
Routes served as of December
2017
Top 25 = Top 25 U.S. metro area per most recent U.S. census; SMID = small/mid-size metros.
Ro
ut
es
• Growth will tend towards large
urban centers, mid-size cities, and
select international markets
• 2018 year-over-year capacity
growth is estimated at 23%
• New destinations include
• Columbus, OH
• Richmond, VA
• Guayaquil, Ecuador
• Cap Haitien, Haiti
• Over 90% of our new routes in
2018 connect existing destinations
• Between 2019 and 2021, we’re
planning on low to mid-teens
capacity growth
Ted Christie
President & Chief Financial Officer
13 Initiatives to Drive Revenue
Ancillary Production
• Enhanced customer data analysis with ongoing multi-
variate testing
• Dynamic pricing of seats, bags, and bundled offerings
• E-commerce initiatives
Base Fare Initiatives
• 360º strategic review of competitive dynamics of all
markets
• Adding new processes to enhance strategic planning and
revenue management strategies
• New programs resulting in growth of our active email
database
$55.03
$54.24
$51.87
$53.00
$40
$45
$50
$55
$60
2014 2015 2016 2017 2018E
Non-Ticket on Path to Recovery
$55+
Non-ticket revenue per passenger segment
14
15%
27%
62% 65%
90%
40%
56%
98%
107%
128%
0%
20%
40%
60%
80%
100%
120%
140% FY2012 FY2017
Spirit’s Relative Cost Advantage has Grown
Spirit’s Relative Cost Advantage Has Grown
S-L Adjusted CASM – Ex Fuel % Higher than Spirit
1. Cost data based on public company reports for the twelve months ended 12/31/17 and 12/31/12. Reflects mainline operations only. Stage length adjusted to 1000 miles. formula = CASM x (airline stage length / 1000)^0.5. Stage
length for American, JetBlue, and Southwest derived from company reports; Delta and United derived from Form 41 data. Excludes special items and unrealized mark-to-market gains and losses for all carriers. .
• Spirit’s unit cost advantage is our most
important asset
• We believe that our relative cost advantage
will increase over the next five years
• Spirit’s opportunities to further improve its
cost structure include
• Cost benefits as we further improve our
operational reliability
• Opportunities to increase utilization
• “Juniority” benefit - adding new flight crew
members mitigates inflationary unit cost
pressures of an aging workforce
• Increased scale benefits as we grow
• Commitment to a low cost mindset
15
• High asset utilization
• Maximize real estate on aircraft (high seat density)
• High aircraft utilization (hrs./day)
• Cost effective use of facilities (flights per gate/day, efficient
use of other airport space)
• Keeping it simple
• No premium class of service
• No specialty clubs
• No special services/amenities that drive costs without an
associated revenue benefit
• Optimize the variable component of our cost structure
• Flexible outsourcing at stations
• Lease gates on an as- needed basis - avoid initial long-term
commitments
Built for Low Cost
4.9
(1.5)
(0.5)
(6.5)
(0.9)
1.1
(8.0)
(6.0)
(4.0)
(2.0)
0.0
2.0
4.0
6.0
2012 2013 2014 2015 2016 2017
Adj. Cost per Available Seat Mile Ex-Fuel
Year-over-Year % Change
(%)
1. See Appendix for reconciliation detail of Spirit’s Adjusted CASM ex-fuel.
Growth contributes, but our primary cost advantages come from being built for low cost
16
• New Pilot Contract gives us tools to run a better airline
• Flexibility
• Recoverability
• Better operations = lower costs
• Including the Pilot Contract and associated increases in
productivity and efficiencies, Spirit estimates its 2018
CASM Ex-fuel1 will be flat to down 1%
• We are confident we can achieve flattish CASM ex-fuel in
2019 as well
5 Year Pilot Contract
1. Excludes special items. Special items include $75 million of one-time ratification incentives.
5.00
5.10
5.20
5.30
5.40
5.50
5.60
20
17
O
pe
ra
ti
on
al
D
is
ru
pt
io
ns
A
ir
cr
af
t
Re
nt
St
ag
e
SW
B
D
&
A
O
th
er
, N
et
20
18
E
2018E CASM Ex-Fuel
Flat to Down 1%
Year-over-Year
17 Consistent Delivery of High Margins
17.1
19.2
23.7
20.9
15.2
0
5
10
15
20
25
2013 2014 2015 2016 2017
(%) SAVE Operating Margin(1)
1. Excludes special items and unrealized mark-to-market gains for all periods. See Appendix for reconciliation detail to most comparable GAAP measure.
2. Excludes impact of pilot related disruptions
3. The Company estimates labor disruptions and Hurricanes Harvey, Irma & Maria , negatively impacted results by approximately $80 million (approximately $65 million of revenue loss and $15 million of
additional operating costs, primarily related to higher passenger re-accommodation expense, partially offset by lower fuel expense). The Company estimates that without this impact, its adjusted operating
margin for the twelve months ended 12/31/17 would have been 17.8%.
0
3
6
9
12
15
18
LUV SAVE JBLU DAL AAL UAL
(%) 2017 Operating Margin(1)
(2)
17.8(3)
As we grow, we are targeting markets with mid-teens or higher operating margins
18 Diversified Fleet Size is an Advantage
Having a mixture of A319s, A320s, and A321s enhances our ability to optimize aircraft
size for market selection
• Smaller or developing markets
• Ideally sized for daily or less than
daily frequency to small-midsize
markets
A319 (145) Seats
• Mature medium to large markets
A320 (182) Seats
• Large, high volume markets
• Excellent for markets constrained by slot
or gate limitations
A321 (228) Seats
Spirit’s Fleet Year-End 2018E
• A319 31 aircraft
• A320 61 aircraft
• A321 30 aircraft
Total: 122 aircraft
19 Current Fleet Order Sub-Optimal Given Remaining Opportunities
15
30
45
60
YE18E YE19E YE20E YE21E
(MM) Cumulative Capacity (ASMs) 2018 to 2021E
Current Fleet Order Target
1. Current fleet = total capacity based on the current number of aircraft scheduled for delivery, net of retirements.
• Our current 2019E aircraft deliveries
equate to less than 10% capacity growth in
2019
• Exploring opportunities that would allow
us to grow 2019 capacity between 13% to
15%
• Over the next several years, we are
targeting a low to mid-teens growth rate
20 Key Investment Highlights
Operating
Margin
Consistently among the best in the U.S. industry
Industry leading with stable ancillary revenue stream
Youngest of any major U.S. airline
Strong cash balance and sustainable leverage
Profitable, diverse opportunities in both domestic and foreign markets
Fleet
Growth
Opportunities
Balance
Sheet
Cost
Structure
Appendix
23 Guidance Summary
Metric 2018E(1)
Capacity (ASMs) year-over-year % change 23%
CASM ex-fuel year-over-year % change Flat to Down 1%
Capex (aircraft) (2) $354MM
Pre-delivery deposits $167MM
Capex (other) (3) $128MM
• Flight equipment purchase obligations for 2019 and 2020 are estimated to be $775 million
and $821 million, respectively (includes aircraft, spare engines, and net pre-delivery
deposits).
(1) 2017 estimates are based on guidance as of 003/01/18. 2018 and 2019 flight equipment purchase obligations are as of 12/31/17.
(2) Includes amounts related to 10 delivered or scheduled to be delivered in 2018, net of $130 million funded as pre-delivery deposits for these aircraft.
(3) Includes the purchase of nine spare engines.
24 Aircraft Delivery Schedule
A319 A320 CEO A320 NEO A321 CEO Total
31 51 5 25 112
1Q18 - 1 - 5 6
2Q18 - 1 - - 1
3Q18 - 2 - - 2
4Q18 - 1 - - 1
31 56 5 30 122
1Q19 - 2 - - 2
2Q19 - 4 - - 4
3Q19 - - 3 - 3
4Q19 - - 6 - 6
31 62 14 30 137
2020 (5) - 16 - 11
2021 (5) - 18 - 13
Total Aircraft Year-end 2021 21 62 48 30 161
Total Aircraft Year-end 2017
Total Aircraft Year-end 2018
Total Aircraft Year-end 2019
Aircraft Delivery Schedule (net of Scheduled Retirements) as of February 06, 2018
25 Reconciliation: Operating Income
See “Description of Special Items” at the end of the Appendix for more details.
* The Company estimates the pilot work action in May 2017, including the related overhang, and Hurricanes Harvey, Irma & Maria negatively impacted results b y approximately $80 million (approximately $65
million of revenue loss and $15 million of additional net operating costs, primarily related to higher passenger re-accommodation expense). The Company estimates that without this impact, its adjusted
operating margin for the twelve months ended 12/31/17 would have been 17.8%.
12/31/11 12/31/12 12/31/13 12/31/14 12/31/15 12/31/16 12/31/2017
(in thousands)
(in thousands, except per ASM and per aircraft data)
Operating, Pre-tax, and Net Income reconciliation
Net income as reported 76,448$ 108,460$ 176,918$ 225,464$ 317,220$ 264,879$ 420,606$
Add: Provision (benefit) for income taxes 46,383 66,124 105,492 127,530 185,183 154,581 (66,954)
Income before income taxes, as reported 122,831$ 174,584$ 282,410$ 352,994$ 502,403$ 419,460$ 353,652$
Pre-tax margin, GAAP 11.5% 13.2% 17.1% 18.3% 23.5% 18.1% 13.4%
Add: Total other (income) expense 21,551 (594) (118) 2,269 6,719 24,201 35,139
Operating Income reconciliation
Operating income, as reported 144,382$ 173,990$ 282,292$ 355,263$ 509,122$ 443,661$ 388,791$
Operating margin, GAAP 13.5% 13.2% 17.1% 18.4% 23.8% 19.1% 14.7%
Add special items (1): 6,643 (7,448) 964 16,212 (1,603) 41,376 12,711
Operating income, non-GAAP (2) 151,025 166,542 283,256 371,475 507,519 485,037 401,502
Operating margin, non-GAAP (2) 14.1% 12.6% 17.1% 19.2% 23.7% 20.9% 15.2%
Total operating revenue, as reported 1,071,187$ 1,318,388$ 1,654,385$ 1,931,580$ 2,141,463$ 2,321,956$ 2,647,666$
Net adjustment for pilot work action and Hurricanes Harvey, Irma and Maria:* 80,000
Adjusted operating income adjusted for pilot work action and Hurricanes Harvey, Irma and Maria:* 481,502
Revenue adjustment for pilot work action and Hurricanes Harvey, Irma and Maria* 65,000
Revenue adjusted for pilot work action and Hurricanes Harvey, Irma and Maria:* 2,712,666$
Adjusted operating margin adjusted for pilot work action and Hurricanes Harvey, Irma and Maria:* 17.8%
Twelve Months Ended
26 Reconciliation: CASM
See “Description of Special Items” for more details.
(in thousands except CASM data in cents)
Total operating expenses, as reported 2,258,875$
Less special items (1): 12,711
Total operating expenses excluding special items 2,246,164$
Less economic fuel expense 615,581
Total operating expenses excluding special items and fuel 1,630,583$
Available seat miles (ASMs) 29,592,819
Cost per ASM (CASM) 7.63
Adjusted CASM (2) 7.59
Adjusted CASM Ex-fuel (2) 5.51
Twelve Months Ended
December 31, 2017
27 Reconciliation: CASM Ex-Fuel
See “Description of Special Items” for more details.
2011 2012 2013 2014 2015 2016 2017
(in thousands except CASM data in cents)
Total operating expenses, as reported 926,804$ 1,144,398$ 1,372,093$ 1,576,317$ 1,632,341$ 1,878,295$ 2,258,875$
Special items (1) (7,494) 699 3,053 2,277 41,376 12,711
Total operating expenses excluding special items 923,365$ 1,151,892$ 1,371,394$ 1,573,264$ 1,630,064$ 1,836,919$ 2,246,164$
Aircraft fuel, as reported (1) 388,046 471,763 551,746 612,909 461,447 447,553 615,581
Total operating expenses excluding special items
and fuel 535,319$ 680,129$ 819,648$ 960,355$ 1,168,617$ 1,389,366$ 1,630,583$
Available seat miles (ASMs) 9,352,553 11,344,731 13,861,393 16,340,142 21,246,156 25,494,645 29,592,819
Cost per ASM (CASM) - GAAP 9.91 10.09 9.90 9.65 7.68 7.37 7.63
CASM excluding special items & aircraft fuel 5.72 6.00 5.91 5.88 5.50 5.45 5.51
Strike-Adjusted CASM excluding fuel and special items
Year-over-year %change 4.9% -1.5% -0.5% -6.5% -0.9% 1.1%
Year Ended December 31,
28
(1) Special items include loss on disposal of assets, special charges, unrealized losses (gains) arising from mark-to-market
adjustments to outstanding fuel derivatives, and other items. Special charges (credits) include: (i) for 2011, amounts
relating to exit facility costs associated with moving our Detroit, Michigan maintenance operations to Fort. Lauderdale,
Florida and termination costs in connection with the IPO during the three months ended June30, 2011 comprised of
amounts paid to Indigo Partners, LLC to terminate its professional service agreement with Spirit and fess paid to three
individual, unaffiliated holders of the Company’s subordinated notes, and (ii) for 2012, recognition of a gain on the sale
of four carrier slots at Ronald Reagan National Airport and secondary offering costs related to the sale of 9.4 million
shares by Oaktree Capital Management, and , (iii) 2016 and 2017, amounts primarily related to lease termination costs.
Other items include (i) for 2014, additional Federal Exercise Tax of $9.3 million related to fuel purchased in prior years,
and (ii) 2017, supplemental rent adjustment for liability accrued in prior years related to certain maintenance reserves
and return conditions that are no longer probable.
(2) Excludes special items.
Description of Special Items