Spirit Airlines loses $112.3 million in the first quarter

Delivered on November 9, 2019

Spirit Airlines, Inc. today reported first quarter 2021 financial results.

The company ended the first 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

First Quarter 2021

As Reported                           Adjusted

First Quarter 2020

As Reported                  Adjusted

(GAAP)                             (non-GAAP)1

          (GAAP)                      (non-GAAP)1

Total Operating Revenues

$461.3 million                      $461.3 million

       $771.1 million                 $771.1 million

EBITDA

$(28.2) million                    $(199.7) million

$8.0 million                   $8.0 million

EBITDA Margin

   (6.1)%                              (43.3)%

1.0%                            1.0%

Pre-tax Income (Loss)

$(138.2) million                   $(307.9) million

       $(74.6) million               $(74.6) million

Net Income (Loss)

$(112.3) million                   $(242.5) million

        $(27.8) million               $(58.9) million

Diluted Earnings (Loss) Per Share

   $(1.15)                             $(2.48)

$(0.41)                         $(0.86)

“We were very pleased to see how well both our domestic and international network performed as demand strengthened in the last few weeks of the quarter. This strength, along with improvement in forward bookings, drove positive cash from operations for the full first quarter 2021 even when excluding the payroll support program funds received. Assuming these trends continue, we believe we can achieve a positive Adjusted EBITDA margin for the full year 2021,” said Ted Christie, Spirit’s President and Chief Executive Officer. “While acknowledging that the recovery is still in progress and may not be linear, we continue to believe we will be among the first U.S. carriers to reach sustained profitability.”

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, in order to protect the long-term sustainability and growth of the Company. 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 March 31, 2021 for additional disclosures regarding these measures.

Capacity and Operations
Load factor for the first quarter 2021 was 72.1 percent on a year-over-year capacity decrease of 26.9 percent. During the first quarter 2021, the U.S. government implemented negative COVID-19 testing requirements for all inbound international travelers entering the United States. About 12 percent of Spirit’s first quarter 2021 capacity was negatively impacted by this new regulation.

Spirit continued to deliver strong operational results during the first quarter 2021. As measured by the DOT, first quarter 2021 Completion Factor2 was 98.6 percent and on-time performance2 was 85.3 percent.

Revenue Performance
Total operating revenues for the first quarter 2021 were $461.3 million, a decrease of 40.2 percent year over year as a result of continued negative impacts to demand for air travel due to the COVID-19 pandemic. Early in the first quarter 2021, the Company experienced another setback in demand as the new international testing requirements were implemented and some states increased jurisdictional restrictions following spikes in COVID-19 case counts. However, in March 2021, as the vaccine rollout gained traction and jurisdictional restrictions eased, domestic and international demand rebounded strongly.

For the first quarter 2021, total revenue per passenger flight segment (“Segment”) decreased 16.4 percent year over year to $84.27. Fare revenue per Segment decreased 24.2 percent to $31.84 while non-ticket revenue per Segment decreased 10.8 percent to $52.433. As has been the case since the start of the COVID-19 pandemic, non-ticket revenue per segment for the first quarter 2021 was impacted by the suspension or reduction of certain booking-related fees; however, as the quarter progressed and domestic and international demand strengthened, average non-ticket revenue per segment improved to above $55.00 for most of March 2021.

Cost Performance
For the first quarter 2021, total GAAP operating expenses decreased 32.0 percent year over year to $563.8 million, primarily due to the grant component of the funding received through the payroll support program (further discussed below). Adjusted operating expenses for the first quarter 2021 decreased 11.5 percent year over year to $733.5 million4. The decrease in adjusted operating expenses was primarily driven by reductions in various flight-volume related expenses compared to the first quarter last year, such as fuel, ground handling and distribution. These decreases were partially offset by higher aircraft rent and higher depreciation and amortization. Additionally, despite the significant decrease in flight operations compared to the first quarter last year, some variable expenses increased. Salaries, wages and benefits increased marginally due to increased costs related to Team Member benefits, primarily driven by a higher volume of health insurance claims, and landing fees and other rents also increased year over year due to rate increases at various airports Spirit serves and decreases in signatory adjustment credits.

“Our first quarter 2021 Adjusted EBITDA margin of negative 43.3 percent was better than we initially expected due to both revenue and non-fuel operating expense coming in at the better end of our range. Since the beginning of March 2021, demand trends have been progressively improving. Assuming these trends continue, we estimate our second quarter 2021 Adjusted EBITDA margin will be between negative 5 percent to breakeven, assuming a fuel price per gallon of $1.95,” said Scott Haralson, Spirit’s Chief Financial Officer. “With our industry-leading low cost structure, we remain confident that the strength of our business model will allow us to fully capitalize on the growth potential ahead of us and drive sustainable, long-term value for our shareholders.”

Fleet
Spirit took delivery of two new A320neo aircraft during the first quarter 2021, financed through direct operating leases, and purchased two A319ceo aircraft off lease. The Company ended the quarter with 159 aircraft in its fleet.

Liquidity and Capital Deployment
Spirit ended first 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 first quarter 2021 were approximately $92 million, primarily related to pre-delivery deposits associated with future aircraft deliveries and the purchase of two A319 aircraft off lease.

On March 12, 2021, the Company entered into the First Amendment to Credit and Guaranty Agreement (the “First Amendment”), amending its existing Senior Secured Revolving Credit Facility. The First Amendment increases the existing lending commitments by $60 million, for total lending commitments of $240 million, and extends the maturity date from March 30, 2022 to March 30, 2024. The additional $60 million remained undrawn as of March 31, 2021.

On December 27, 2020, the Consolidated Appropriations Act, 2021 was signed into law. This new legislation extended the payroll support program of the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”) through March 31, 2021 (“PSP2”). On January 15, 2021, the Company entered into an agreement with the United States Department of the Treasury (“Treasury”) in connection with the PSP2 funding. During the first quarter of 2021, the Company received a total of $184.5 million through the PSP2, used exclusively to pay for salaries, wages and benefits for the Company’s Team Members through March 31, 2021. Of that amount, a total of $25.3 million is in the form of a low-interest, 10-year loan. Also, in connection with its participation in the PSP2, the Company issued warrants to the Treasury to purchase up to 103,761 shares of the Company’s common stock at a strike price of $24.42 per share (the closing price of the shares of the Company’s common stock on December 24, 2020). The remaining amount of $156.5 million, net of related costs, is in the form of a grant and was recognized within special credits on the Company’s condensed consolidated statements of operations during the first quarter 2021.

The American Rescue Plan Act of 2021 (“ARP”) was enacted on March 11, 2021, authorizing Treasury to provide additional assistance to passenger air carriers that received financial assistance under PSP2 (“PSP3”). Under the ARP, Treasury will provide up to $14 billion to fund the PSP3 for employees of passenger air carriers. In April 2021, the Company was notified that, subject to final execution of an agreement with Treasury, it will receive approximately $197.9 million under the PSP3 and an additional $27.7 million under the PSP2. The PSP3 extends certain restrictions imposed on participating airlines, including the restriction to refrain from conducting involuntary furloughs or reducing pay rates and benefits until September 30, 2021.

Diluted Share Count
The Company elected to early adopt ASU No. 2020-06, “Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity” effective January 1, 2021. Per ASU No. 2020-06, if the Company records a net profit, it will use the “If-Converted Method” for its convertible debt. The dilutive impact from the convertible debt under the “If-Converted Method” based on the convertible debt outstanding as of March 31, 2021 would have been 13.7 million shares had the Company recorded a net profit. The Company anticipates it will continue to use the Treasury Stock Method for the dilutive impact related to outstanding warrants.

Top Copyright Photo: Spirit Airlines Airbus A320-271N WL N918NK (msn 9259) FLL (Ken Petersen). Image: 948841.

Spirit Airlines aircraft slide show: