Spirit Airlines Reports Third Quarter 2021 Results

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

Ended the third quarter 2021 with $1.9 billion of unrestricted cash, cash equivalents, short-term investment securities and liquidity available under the Company’s revolving credit facility

“I want to thank our Team Members for persevering and overcoming the challenges we have faced along the road to recovery in these last few months and for remaining focused on the road ahead nonetheless. Higher fuel prices, continued travel restrictions, and near-term staffing issues have all played their part in delaying our return to sustained profitability, but they have not changed the long-term outlook for Spirit.  Looking ahead, we continue to position Spirit for the post-pandemic environment – an environment in which Spirit will remain the low-cost leader among U.S. operators, with ample opportunities for continued growth and among the best margins in the business,” said President and Chief Executive Officer Ted Christie.

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 September 30, 2021 for additional disclosures regarding these measures.

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

The Company experienced significant operating challenges during the quarter driven in part by adverse weather conditions which, when combined with airport staffing shortages and crew dislocations, led to an unusually large number of flight delays and cancellations. Following these disruptions, and in light of continued airport staffing issues, Spirit elected to make tactical schedule reductions to help support its operational reliability, which resulted in lower-than-expected capacity growth for the quarter. Load factor for the third quarter 2021 was 77.6 percent on a 3.5 percent capacity increase versus third quarter 2019. Spirit’s DOT on-time performance² was 68.3 percent and its Completion Factor² was 93.5 percent.

Revenue Performance  

Total operating revenues for the third quarter 2021 were $922.6 million, a decrease of 7.0 percent versus third quarter 2019. Despite the operational challenges in the quarter and the continued negative impact on travel demand due to COVID-19, the Company experienced quarter-over-quarter improvements in total operating revenues and operating yields, increasing 7.4 percent and 8.0 percent, respectively from second quarter 2021.

For the third quarter 2021, total revenue per passenger flight segment (“Segment”) increased 0.7 percent compared to the same period in 2019 to $110.91. Fare revenue per Segment decreased 7.6 percent to $50.61 while Non-ticket revenue per Segment increased 8.9 percent to $60.30³. Spirit continues to deliver strong Non-ticket performance as a result of investments in enhanced product offerings and improved merchandising as well as the realized benefits from revenue management initiatives.

Cost Performance

For the third quarter 2021, total GAAP operating expenses, including $78.9 million of special items primarily related to the grant component of the funding received through the payroll support program (further discussed below), increased 4.8 percent compared to the third quarter 2019 to $908.6 million. Adjusted operating expenses for the third quarter 2021 increased 15.1 percent compared to the third quarter 2019 to $987.5 million⁴. Compared to the third quarter 2019, these changes were primarily driven by an increase in a) salaries, wages and benefits related to higher crew member headcount and contracted rate increases; b) other operating expenses driven by increased flight volume and additional costs incurred as a result of the irregular operations during the quarter; c) aircraft rent expense as a result of a greater number of aircraft financed under operating lease arrangements; and d) higher depreciation and amortization expense due to the depreciation of additional aircraft and the amortization of heavy maintenance events.

Excluding fuel, adjusted operating expenses came in lower than the Company’s expectations provided in mid-August primarily due to less flight volume than expected, lower other operating expenses resulting from a slower pace of hiring, and lower airport rents and landing fees, which have been improving at a more accelerated rate than anticipated.

“The resiliency and strength of our business model has allowed us to deliver financial performance that is among the best throughout the pandemic and gives us confidence in our ability to navigate the challenges ahead in what has proven to be a prolonged recovery period. Considering labor resource uncertainties, we are slowing the pace at which we are going to push the airline back to full fleet utilization and expect to produce 53 to 55 billion available seat miles in 2022”, said Chief Financial Officer Scott Haralson. “We are still targeting sub-6 cent adjusted cost per available seat mile ex-fuel (“Adjusted CASM ex-fuel”) once we get to full utilization. The timeline to achieve that target has stretched out to late 2022/early 2023 due to our slower pace of growth, and increased inflationary pressures – particularly labor and airport costs – will push the target closer to six than we originally expected. We are confident that we will still be among the best margin producers in the business, while remaining the low-cost leader, when the recovery has fully taken hold.”

Fleet

Spirit took delivery of four new A320neo aircraft during the third quarter 2021, three of which were financed through direct operating leases and one under a sale leaseback transaction. The Company ended the quarter with 168 aircraft in its fleet.

Liquidity and Capital Deployment

Spirit ended third quarter 2021 with unrestricted cash, cash equivalents, short-term investment securities and liquidity available under the Company’s revolving credit facility of $1.9 billion.

Total capital expenditures for the nine months ended September 30, 2021 were approximately $249 million, primarily related to pre-delivery deposits associated with future aircraft deliveries and the purchase of four aircraft and two engines off lease.

As previously disclosed, in April 2021, Spirit entered into an extension of the Payroll Support Program (the “PSP3”) under Title VII, Subtitle C of The American Rescue Plan of 2021, with the United States Department of the Treasury (“Treasury”), pursuant to which the Company received a total of $197.9 million 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, 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, which  was recognized in special credits in the Company’s condensed consolidated statement of operations during the second and third quarters 2021.

Tax Rate

On a GAAP basis, the Company’s effective tax rate for the third quarter of 2021 was 186.9 percent, materially higher than the Company’s historic average GAAP tax rate. The higher-than-usual GAAP tax rate was driven by a tax benefit resulting from a change in the expected 2021 annualized tax rate. The Company’s non-GAAP tax rate for the third quarter 2021 was 22.1 percent.