Spirit Airlines Reports Fourth Quarter and Full Year 2021 Results

Spirit Airlines, Inc. reported fourth quarter and full year 2021 financial results.

Ended the year 2021 with $1.7 billion of unrestricted cash, cash equivalents, short-term investment securities and liquidity available under the Company’s revolving credit facility.

“Our fourth quarter 2021 results came in better-than-expected, despite the negative impact from Omicron-related flight disruptions, primarily due to very strong demand over the peak December holiday period. I want to thank the entire Spirit team for their professionalism and commitment to providing excellent service to our Guests,” said Ted Christie, Spirit’s President and Chief Executive Officer.

“Looking ahead to the first quarter 2022, we have seen sequential improvement in bookings since mid-January and early trends indicate travel demand in the second half of the first quarter should be quite strong. Also, today we announced that Spirit and Frontier have signed a definitive merger agreement under which we plan to combine to bring more ultra-low fares to more travelers in more destinations across the United States, Latin America and the Caribbean. We are excited about this combination and believe it will have tremendous benefits for consumers, Team Members, and shareholders.”

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 Annual Report on Form 10-K for the period ending December 31, 2021 for additional disclosures regarding these measures.

The Company believes that providing analysis of financial and operational performance compared to fourth 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.

Fourth Quarter 2021 Results

Adjusted EBITDA for the fourth quarter 2021 was $14.9 million. The Company had an unusual number of operational disruptions and flight cancellations during the peak December 2021 holiday period, due to staffing shortages as a result of the rapid spread of the Omicron variant. The irregular operations during the peak December 2021 holiday period negatively impacted fourth quarter 2021 Adjusted EBITDA by approximately $30 million, primarily due to additional passenger re-accommodation expenses and higher labor expenses, partially offset by lower fuel expense and landing fees. Despite this impact, Adjusted EBITDA margin for the fourth quarter 2021 was 1.5 percent, better than the Company’s initial expectations of flat to negative 5 percent.

Capacity and Operations

Load factor for the fourth quarter 2021 was 79.8 percent on a 9.5 percent capacity increase versus fourth quarter 2019. Spirit’s fourth quarter 2021 DOT on-time performance² was 78.1 percent and its Completion Factor² was 97.7 percent.

The Company’s operations stabilized during the first week of January 2022 and for the full month of January 2022, the Company’s on-time performance² was 73.8% and Completion Factor² was 96.5%.

Revenue Performance

Total operating revenues for the fourth quarter 2021 came in better than expected at $987.6 million, an increase of 1.8 percent versus fourth quarter 2019. The irregular operations over the peak December 2021 holiday period negatively impacted total operating revenues by approximately $7 million.

On a per passenger flight segment basis, for the fourth quarter 2021 total revenue per passenger flight segment (“Segment”) increased 3.1 percent compared to the same period in 2019 to $114.15. Fare revenue per Segment increased 0.5 percent to $52.93 and Non-ticket revenue per Segment increased 5.5 percent to $61.22³. Investments in enhanced product offerings and improved merchandising as well as the realized benefits from revenue management initiatives continue to drive the improvement in Non-Ticket revenue performance.

Cost Performance

Compared to the fourth quarter 2019, total GAAP operating expenses for the fourth quarter 2021 increased 24.1 percent to $1,049.1 million. Adjusted operating expenses for the fourth quarter 2021 increased 24.7 percent compared to the fourth quarter 2019 to $1,047.6 million⁴. Compared to the fourth quarter 2019, in addition to costs driven by increased flight volume and a greater number of aircraft, these increases were primarily driven by passenger re-accommodation expense incurred as a result of the irregular operations over the peak December 2021 holiday period and rate increases related to fuel, labor, and airport rents.

For the fourth quarter 2021, the Company’s adjusted operating expenses came in better than expected as the net costs related to the December irregular operations were more than offset by lower average fuel rates, lower airport costs, and overall effective cost management.

“Our Adjusted EBITDA margin for the fourth quarter 2021 was 1.5 percent, 400 basis points better than the mid-point of our guide on higher revenue and lower costs,” said Scott Haralson, Spirit’s Chief Financial Officer. “Over the next year we will leverage opportunities to restore and optimize our network and we will continue to push the horizon on non-ticket production. We will also remain keenly focused on managing costs and finding efficiencies to offset inflationary cost headwinds we face.”

Fleet

Spirit took delivery of five new A320neo aircraft during the fourth quarter 2021. The Company ended the year with 173 aircraft in its fleet.

Liquidity and Capital Deployment

Spirit ended fourth quarter 2021 with unrestricted cash, cash equivalents, short-term investment securities and liquidity available under the Company’s revolving credit facility of $1.7 billion.

Total capital expenditures for the twelve months ended December 31, 2021 were $333.1 million, primarily related to pre-delivery deposits associated with future aircraft deliveries and the purchase of four aircraft and two engines off lease, and two spare engines purchased with cash. In addition, one of the three aircraft delivered under sale-leaseback transactions during the fourth quarter 2021 did not qualify to be accounted for as a sale-leaseback; therefore, it is being accounted for as an aircraft financed through fixed-rate long-term debt. The net purchase price of this aircraft was recorded within capital expenditures in the fourth quarter 2021.

Tax Rate

On a GAAP basis, the Company’s effective tax rate for the fourth quarter of 2021 was 5.1 percent, materially lower than the Company’s historic average GAAP tax rate. The lower-than-usual GAAP tax rate was driven by adjustments to tax benefits resulting from a change in the expected 2021 annualized tax rate. The Company’s non-GAAP tax rate for the fourth quarter 2021 was 23.2 percent.

Forward Looking Guidance

Given the merger transaction announced today, the Company is not providing guidance at this time.

Full Year 2021 Highlights

Our People

• In 2021, Spirit maintained its focus on building an engaged workforce, while navigating COVID-19’s impact on its Team Members and a tightening labor market. The Company grew its workforce to 10,287 Team Members to support its growing organization, had the honor to be named as one of FORTUNE’s Most Admired Companies, and received Glassdoor’s OpenCompany designation, which recognizes employers that proactively promote and embrace workplace transparency
• Spirit launched a comprehensive Diversity, Inclusion, Equity and Belonging strategy in 2021, to drive meaningful change within the organization and the communities it serves. This includes employee resource groups (ERGs) organized by Team Members in order to ensure they all have a voice in paving our path; providing education to increase awareness of systemic inequities and to reduce bias; and a new Supplier Diversity program around a network of minority-owned business partners and diverse suppliers

Recognitions and Accomplishments

• Spirit was one of only three U.S. airlines listed on FORTUNE’s 2021 list of World’s Most Admired® Companies
• Spirit was awarded Platinum status by the Airline Passenger Experience Association (APEX) Health Safety initiative powered by SimpliFlying for the airline’s efforts in ensuring the highest standards of cleanliness and sanitization. The rating was the highest of any low-fare carrier in the world, and the certification recognizes Spirit for going above and beyond the required and truly investing in health and safety for Guests and Team Members
• 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 received two prestigious awards for its Self-Bag Drop and Biometric technology: The Company was a Gold Stevie winner from the Transportation category of the American Business Awards® program, and was named Best Airport Innovation in the APEX/IFSA Awards
• For the fourth year in a row, Spirit has achieved the FAA’s highest award for Technical Training, the Diamond Award of Excellence. This award is only achieved if 100% of technicians receive the FAA’s Aircraft Maintenance Technician (“AMT”) Certificate of Training.

Supporting our Communities

• Spirit is committed to inspiring positive change in the communities it serves, supporting local nonprofit organizations throughout its network via in-kind donations and Team Member volunteerism
• Alongside the Company’s efforts, the Spirit Airlines Charitable Foundation invested over $500,000 in non-profit organizations that have meaningful social impact on the lives of children and families, service members and the environment

Environmental, Social, Governance

• Spirit issued its inaugural 2020 Sustainability Report, showcasing results of the airline’s longstanding commitment to meaningful advancements in environmental sustainability, Guest and community service, Team Member support, and governance. Despite the global impact of COVID-19, Spirit remained dedicated to integrating environmental, social, and governance (“ESG”) practices into its business. The report highlights Spirit’s plans for continued progress in broadening ESG initiatives and improving communities and society at large. The Company’s 2020 Sustainability report is available at ir.spirit.com

Guest Experience and Loyalty

• Spirit launched a new Free Spirit® loyalty program in 2021—which offers the fastest way to earn rewards and status—alongside the new Spirit Saver$ Club®. Spirit also unveiled a pair of new credit cards with benefits that make every aspect of the new Free Spirit fly faster and further. The new Free Spirit is built around points because rewards will be based on dollars spent instead of miles flown. Members can earn points on every booking, every bag and every Big Front Seat®—plus all kinds of purchases on the new Free Spirit credit cards
• Spirit continued its progress on Wi-Fi antennae installations with more than 100 aircraft completed in 2021. As of year-end, the Company was conducting initial Wi-Fi testing on a limited number of planes. Guests onboard these flights were able to access the Wi-Fi service at a reduced rate during this temporary trial period

Measures Taken to Preserve Cash and Enhance Liquidity

• The Company improved its liquidity and financial position through the public offering of $500.0 million in 1.00% convertible notes due 2026, the issuance of 10,594,073 shares of the Company’s voting common stock for which it received net proceeds of $370.8 million, the extinguishment of $146.8 million in principal amount of the Company’s 4.75% convertible notes due 2025 and the extinguishment of $340.0 million in principal amount of the Company’s 8.00% senior secured notes
• Additionally, the Company repaid all outstanding indebtedness under its Senior Secured Revolving Credit Facility (the “Revolver”) due March 2024. As of December 31, 2021, the Company had no outstanding indebtedness under its Revolver which has a total of $240 million in available capacity

Network Development

• Spirit substantially expanded its operations out of Cancun, Los Angeles, New York, Orlando, and San Juan
• Spirit enhanced its footprint in South Florida by adding Miami to its route map with service to 31 domestic and international destinations
• Spirit added eight new destinations to its route network including Louisville, Kentucky; Manchester, New Hampshire; Miami, Florida; Milwaukee, Wisconsin; Pensacola, Florida; Puerto Vallarta, Mexico; St. Louis, Missouri; and Tegucigalpa, Honduras