Spirit Airlines Reports Second Quarter 2021 Results

Source: Spirit Airlines

Spirit Airlines, Inc.reported second quarter 2021 financial results.

Ended the second quarter 2021 with $2.2 billion of unrestricted cash, cash equivalents, short-term investment securities and liquidity available under the Company’s revolving credit facility

“I thank our Team Members for their outstanding efforts as we work toward bringing our level of operations up to full utilization. In June 2021, we recorded our first month with adjusted net earnings since the onset of the COVID-19 pandemic. Due to our strategic execution and improving demand backdrop, our second quarter 2021 financial results were among the best in the industry,” said Ted Christie, Spirit’s President and Chief Executive Officer. “We remain very well-positioned to stimulate markets and capture the significant market opportunities in the domestic U.S. and near-field international marketplace.”

COVID-19
Since its initial onset in early 2020, the impact of the COVID-19 pandemic has evolved and continues to be fluid. Therefore, the Company’s financial and operational outlook remains subject to change. The Company continues to monitor the impact of the pandemic on its operations and financial condition, and to adjust its mitigation and operational strategies accordingly. Spirit has implemented measures for the safety of its Guests and Team Members as well as to mitigate the impact of COVID-19 on its financial position and operations. Please see the Company’s Quarterly Report on Form 10-Q for the period ending June 30, 2021 for additional disclosures regarding these measures.

The Company believes that providing analysis of financial and operational performance compared to second quarter 2019 is a more relevant measure of performance due to the severe impacts from the COVID-19 pandemic on our financial results and operational performance for 2020.

Capacity and Operations
Load factor for the second quarter 2021 was 84.4 percent, down 0.6 percentage points compared to the second quarter 2019. Capacity for the second quarter 2021 was down 5.1 percent compared to the second quarter 2019.

During the second quarter 2021, numerous weather systems impacted the Company’s network. Despite the adverse weather conditions, Spirit maintained its strong operational reliability and achieved a DOT on-time performance² of 78.3 percent and a Completion Factor² of 99.3 percent.

Revenue Performance
Total operating revenues for the second quarter 2021 were $859.3 million, a decrease of 15.2 percent versus second quarter 2019. Although load factors for the second quarter 2021 were in line with pre- pandemic levels, total operating yields were down 10.0 percent compared to the second quarter 2019. However, demand trends in Spirit’s domestic and international markets saw marked improvement as the second quarter 2021 progressed such that June 2021 operating yields were about flat compared to June 2019. Compared to the first quarter 2021, improvement in operating yields helped to drive an 86.3 percent sequential improvement in total revenues relative to only a 28 percent increase in capacity.

For the second quarter 2021, total revenue per passenger flight segment (“Segment”) decreased 9.4 percent compared to the same period in 2019 to $102.48. Fare revenue per Segment decreased 23.5 percent compared to the second quarter 2019 to $44.09. The Company continues to drive improvements in non-ticket revenue per Segment. Non-ticket revenue per Segment increased $2.85 compared to the second quarter 2019 to $58.39³. Enhanced product offerings, improved merchandising and realized benefits from revenue management contributed to these results.

Cost Performance
For the second quarter 2021, total GAAP operating expenses decreased 9.8 percent compared to the second quarter 2019 to $766.1 million, primarily due to the grant component of the funding received through the payroll support program (further discussed below). Adjusted operating expenses for the second quarter 2021 increased 2.6 percent compared to the second quarter 2019 to $869.2 million⁴. Excluding fuel, adjusted operating expenses came in better than expected primarily due to a) strong operational performance resulting in better crew utilization and less passenger disruption expense; b) airport use fees increasing at a slightly slower rate than initially assumed as the industry returned capacity to the marketplace; and c) timing of events. Compared to the second quarter 2019, adjusted operating expenses excluding fuel increased 12.3 percent⁴, driven primarily by higher salaries, wages and benefits, higher depreciation and amortization, and higher landing fees and other rents. Compared to the second quarter 2019 the increase in salaries, wages and benefits was primarily driven by a 24 percent increase in the number of pilots, a 14 percent increase in the number of flight attendants, and inflationary rate pressures. Higher depreciation and amortization expense compared to the second quarter 2019 was driven by the purchase of additional aircraft and the amortization of heavy maintenance events. Additionally, the increase in landing fees and other rents was due to higher average rates, driven by inflationary pressures as well as increased market share at certain airports where other airlines have decreased flying due to the impact of COVID-19 on demand.

“I want to thank our team members for taking care of our Guests by running a great airline this quarter. As we have begun to ramp the airline for growth, our team has once again proven to be up to the challenge. With our strategic deployment of assets, an improving demand environment and our strong operational results, we were one of the few airlines to produce positive adjusted EBITDA in the second quarter. We continue to be emboldened by the value of the ultra-low-cost model, our valuable network, and our strong operational performance,” said Scott Haralson, Spirit’s Chief Financial Officer. “These pillars create a strong platform for us to continue to drive sustainable, long-term value for our shareholders.”

Fleet
Spirit took delivery of five new A320neo aircraft during the second quarter 2021, three of which were financed through direct operating leases, and two under sale lease back transactions. In addition, the Company purchased two A319ceo aircraft off lease. The Company ended the quarter with 164 aircraft in its fleet.

Liquidity and Capital Deployment
Spirit ended second quarter 2021 with unrestricted cash, cash equivalents, short-term investment securities and liquidity available under the Company’s revolving credit facility of $2.2 billion.

Total capital expenditures for the second quarter 2021 were approximately $168 million, primarily related to pre-delivery deposits associated with future aircraft deliveries and the purchase of two A319 aircraft off lease.

To improve its liquidity and financial position, during the second quarter 2021, the Company entered into a series of liability management transactions given the favorable market dynamics:

• The Company completed a registered direct placement of 10,594,073 shares of its common stock to holders of its 4.75% Convertible Senior Notes due 2025 (the “2025 Convertible Notes”) at a price of $35.05 per share for aggregate net proceeds of $370.8 million. Spirit used $368.7 million of the net proceeds from the offering to redeem $340.0 million aggregate principal amount of its $850.0 million of 8.00% Senior Secured Notes due 2025 (“8.00% Senior Secured Notes”), at a premium of $27.2 million plus accrued and unpaid interest of $1.5 million. As a result, $510.0 million in 8.00% Senior Secured Notes remain outstanding. In connection with this debt extinguishment, the Company recorded $36.4 million within loss on extinguishment of debt on its condensed consolidated statement of operations in second quarter 2021. This amount includes the $27.2 million in premiums paid to early extinguish the debt, $6.1 million for the write-off of related deferred financing costs and $3.1 million for the write-off of the related original issuance discount.
• The Company issued $500.0 million aggregate principal amount of 1.00% Convertible Senior Notes due 2026 (the “2026 Convertible Notes”) for aggregate net proceeds of $486.8 million. Net proceeds from this transaction were used to repurchase $146.8 million aggregate principal amount of the 2025 Convertible Notes, for a premium of $290.7 million plus accrued and unpaid interest of $3.2 million. As a result, $28.2 million aggregate principal amount of the 2025 Convertible Notes remain outstanding. In connection with this debt extinguishment, the Company recorded $295.2 million within loss of extinguishment of debt on its condensed consolidated statement of operations in second quarter 2021. This amount includes the $290.7 million in premiums paid to early extinguish the debt and $4.5 million for the write-off of related deferred financing costs.
• Additionally, the Company repaid all outstanding indebtedness under its Senior Secured Revolving Credit Facility (the “Revolver”) due March 2024. As of June 30, 2021, the Company had no outstanding indebtedness under its Revolver which has a total of $240 million in available capacity.

As previously disclosed, as part of the extension of the payroll support program (the “PSP3”) under Title VII, Subtitle C of The American Rescue Plan of 2021, on April 29, 2021, Spirit entered into a new payroll support program agreement with the United States Department of the Treasury (“Treasury”), pursuant to which the Company received a total of $197.9 million to be used exclusively to pay for salaries, wages and benefits for the Company’s Team Members through September 30, 2021. Of that amount, $29.4 million is in the form of a low-interest 10-year loan. In connection with the Company’s participation in the PSP3, on June 3, 2021, the Company issued a warrant to the U.S. Treasury to purchase up to 80,539 shares of the Company’s common stock, (the “Warrant”), in a private placement exempt from the registration requirements of the Securities Act of 1933, as amended. The Warrant may be exercised at an exercise price of $36.45 at any time prior to the fifth anniversary of its issuance. The remaining amount of $167.0 million, net of related costs, is in the form of a grant of which $80.6 million was recognized in special credits in the Company’s condensed consolidated statement of operations and $86.4 million remains within deferred salaries, wages and benefits in the Company’s consolidated condensed balance sheet as of June 30, 2021. Total warrants issued in connection with the PSP, PSP2 and PSP3 represent less than 1.0 percent of the outstanding shares of the Company’s common stock as of June 30, 2021. In addition, on April 29, 2021, the Company received an additional $27.7 million pursuant to the PSP2 program.

Tax Rate
On a GAAP basis, the Company’s effective tax rate for the second quarter 2021 was (5.3) percent, materially lower than the Company’s historic average GAAP tax rate. This lower-than-usual GAAP tax rate was primarily driven by an unfavorable permanent tax adjustment related to the repurchase of a portion of the Company’s 2025 Convertible Notes during the quarter. This unfavorable permanent tax adjustment, along with other special items, were excluded in calculating the Company’s non-GAAP tax rate of 18.9 percent.

Forward Looking Guidance
The third quarter and full year 2021 guidance items provided below are based on the Company’s current estimates, and are not a guarantee of future performance. There could be significant risks and uncertainties that could cause actual results to differ materially, including the risk factors discussed in the Company’s reports on file with the Securities and Exchange Commission. Spirit undertakes no duty to update any forward-looking statements or estimates.

Diluted Share Count:
For periods beyond second quarter 2021, if the Company is profitable and its average share price for the period is less than $49.07, the Company estimates its weighted average diluted shares outstanding will be 110.6 million, plus the dilutive impact, if any, from outstanding equity awards and warrants. The Treasury Stock Method will be used to determine the dilutive impact of any outstanding equity awards and warrants. The estimated 110.6 million includes the dilutive impact of approximately 2.2 million shares that may be issued in connection with the 2025 Convertible Notes outstanding.

If the Company is profitable and the average stock price for the period is greater than $49.07, the calculation to compute the dilutive impact, if any, from the 2026 Convertible Notes outstanding is as follows: ((average share price – strike price) x 10.2 million) divided by average share price. This amount would then be added to the estimated 110.6 million shares noted above plus the dilutive impact from any outstanding equity awards and warrants to determine the period’s average diluted share count.

Second Quarter 2021 Highlights

• In April 2021, Spirit began operating flights out of a second terminal at LaGuardia Airport and added new routes through LaGuardia Airport to San Juan, Nashville and Los Angeles
• Spirit added four destinations served from Kansas City. The new destinations nearly double the airline’s list of cities served from Kansas City. Spirit also added international service at Los Angeles with the additions of Los Cabos & Puerto Vallarta
• Spirit announced it is expanding its footprint in South Florida by adding Miami to its route map with service to 30 domestic and international destinations. This new service out of Miami International Airport will supplement Spirit’s existing service at Fort Lauderdale-Hollywood International Airport to support its rapid growth in response to the strong demand for travel to and from South Florida. In addition, the Company announced new service to Manchester, New Hampshire and launched operations in Louisville, Kentucky; Milwaukee, Wisconsin; Pensacola, Florida; and St. Louis, Missouri
• The American Red Cross of Broward County presented Spirit with the Corporate Partner of the Year Award. The organization gives the award to one corporate partner each year and chose to recognize Spirit’s partnership and contributions for 2020
• Spirit was recognized by Forbes as one of America’s best companies for diversity, equity and inclusion. Forbes’ fourth annual list of America’s Best Employers For Diversity ranks the 500 employers that boast the most diverse boards and executive ranks, as well as the most proactive diversity and inclusion initiatives
• Spirit was a Gold Stevie winner from the Transportation category for its Self-Bag Drop and Biometric technology