Spirit Airlines loses $36.4 million in the third quarter

Spirit Airlines, Inc. reported its third quarter 2022 financial results.

Ended the third quarter 2022 with $1.3 billion of unrestricted cash, cash equivalents, short-term investment securities and liquidity available under the Company’s revolving credit facility.

As Reported

(unaudited)

Third Quarter 2022

Third Quarter 2021

Third  Quarter 2019

Total operating revenues

$1,343.2 million

$922.6 million

$992.0 million

Pre-tax income (loss)

$(48.9) million

$(17.0) million

$109.0 million

Pre-tax margin

(3.6) %

(1.8) %

11.0 %

Net income (loss)

$(36.4) million

$14.8 million

$83.5 million

Diluted earnings (loss) per share

$(0.33)

$0.14

$1.22

 

Adjusted 1

Third Quarter 2022

Third Quarter 2021

Third  Quarter 2019

Total operating revenues

$1,343.2 million

$922.6 million

$992.0 million

Adj. Pre-tax income (loss)

$(1.2) million

$(102.2) million

$122.4 million

Adj. Pre-tax margin

(0.1) %

(11.1) %

12.3 %

Adj. Net income (loss)

$3.6 million

$(79.6) million

$93.8 million

Adj. Net income (loss) per share, diluted

$0.03

$(0.73)

$1.37

“The business performed well against a set of negative headwinds during the third quarter 2022, including much higher fuel costs, Hurricane Ian, and Florida capacity constraints. Strong demand and sound revenue management coupled with excellent operational reliability and overall cost management helped mitigate the impacts of these headwinds. There is still much work to do to return to full utilization and normalized margins, but we remain confident we can reach both of those targets by mid-year 2023,” said Ted Christie, Spirit’s President and Chief Executive Officer. “Looking ahead to the fourth quarter 2022, leisure demand remains strong and we expect unit revenue in the fourth quarter to be up 15.0 percent to 16.5 percent on 24.5 percent more capacity, compared to the fourth quarter 2019.”

“For the third quarter 2022, our team achieved a record2 third quarter DOT on-time performance of 79.5 percent and did so despite operational impacts from Hurricane Ian. I want to thank and acknowledge our entire team for caring for our Guests and each other and for doing a great job mitigating the operational impacts from Hurricane Ian. Our heartfelt thoughts go out to all those in our home state still suffering from the devastating impacts of Hurricane Ian.”

The Company believes that providing analysis of financial and operational performance compared to third quarter 2019 is a more relevant measure of performance than comparing to third quarter 2021 due to the severe impacts from the COVID-19 pandemic on the Company’s financial results and operational performance for 2021.

Third Quarter 2022 Financial Results

For the third quarter 2022, Spirit reported a net loss of $36.4 million, or a net loss of $0.33 per diluted share. Excluding special items, adjusted net income for the third quarter 2022 was $3.6 million1, or an adjusted net income of $0.03 per diluted share1.

For the third quarter 2022, Spirit reported a pre-tax loss of $48.9 million and a pre-tax margin of negative 3.6 percent. Adjusted pre-tax loss for the third quarter was $1.2 million1 and adjusted pre-tax margin was negative 0.1 percent1.

The Company cancelled approximately 550 flights and 400 flights in September and October, respectively, related to Hurricane Ian. The Company estimates the decrease in operating income attributable to the direct impact from the hurricane was approximately $5 million in the third quarter and will be approximately $5 million in the fourth quarter 2022. In addition, the Company saw some softness in bookings to Florida destinations as well as to Myrtle Beach in early October immediately following the hurricane and estimates this will negatively impact fourth quarter 2022 revenue by an additional $3 million to $5 million.

Total operating revenues for the third quarter 2022 were $1.3 billion, an increase of 35.4 percent compared to the third quarter 2019 primarily due to increased flight volume and higher operating yields. Total revenue per ASM (“TRASM”) was 11.07 cents, up 19.3 percent compared to third quarter 2019 on 13.5 percent more capacity.

On a per passenger flight segment basis, compared to the same period in 2019, total revenue per passenger flight segment (“segment”) for the third quarter 2022 increased 22.2 percent to $134.59. Compared to the third quarter 2019, fare revenue per segment increased 23.2 percent to $67.52 and non-ticket revenue per segment increased 21.1 percent to $67.073.

Cost Performance

Total GAAP operating expenses for the third quarter 2022 increased 59.1 percent compared to the third quarter 2019 to $1,379.6 million. Adjusted operating expenses for the third quarter 2022 increased 56.0 percent compared to the third quarter 2019 to $1,331.8 million4. Compared to the third quarter 2019, these increases were primarily driven by increases in flight volume, additional aircraft, higher fuel prices and inflationary wage pressures.

Aircraft utilization in the third quarter 2022 was 10.6 hours, down 15.2 percent compared to the 12.5 hours in the same period of 2019. Continued constraint on flights to and from Florida and staffing challenges are the primary limitations on Spirit’s ability to optimize its network and operate its fleet at full utilization.

“The constraints limiting our ability to optimize our network continue to be a headwind to reaching full utilization; that said, our team is doing a great job running a reliable, on-time operation and minimizing the impacts of these constraints. Despite the large number of aircraft deliveries over the next few months, we remain confident we will continue to see gradual improvement in fleet utilization in the fourth quarter and throughout the first half of next year, reaching full utilization around mid-summer 2023,” said Scott Haralson, Spirit’s Chief Financial Officer.

Fleet

Spirit took delivery of four new A320neo aircraft during the third quarter 2022. The Company ended the quarter with 184 aircraft in its fleet, an increase of 35.3 percent since the end of third quarter 2019.

Liquidity and Capital Deployment

Spirit ended third quarter 2022 with unrestricted cash, cash equivalents, short-term investment securities and liquidity available under the Company’s revolving credit facility of $1.3 billion.

Total capital expenditures, including net pre-delivery purchase deposits, for the nine months ended September 30, 2022, were $190.4 million, primarily related to the purchase of spare parts, including three spare engines, two flight simulators, and expenditures related to the building of Spirit’s new facilities in Dania Beach, Florida.

Forward Looking Guidance

The fourth quarter and full year 2022 guidance items provided in this release 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.

Adjusted operating expenses and adjusted operating margin are non-GAAP financial measures, which are provided on a forward-looking basis. The Company does not provide a reconciliation of non-GAAP forward-looking measures on a forward-looking basis where the Company believes such reconciliation would imply a degree of precision and certainty that could be confusing to investors and is unable to reasonably predict certain items included in/excluded from the GAAP financial measures without unreasonable efforts. This is due to the inherent difficulty of forecasting the timing or amount of various items that have not yet occurred and are out of the Company’s control or cannot be reasonably predicted. For the same reasons, the Company is unable to address the probable significance of the unavailable information. Non-GAAP forward-looking measures provided without the most directly comparable GAAP financial measures may vary materially from the corresponding GAAP financial measures.

Fourth Quarter 2022E

Adjusted Operating expenses ($Millions)(1)

$1,365 to $1,375

Adjusted Operating margin (%)(1)

1% to 3%

Fuel cost per gallon ($)(2)

$3.55

Fuel gallons (Millions)

141.6

Total other (income) expense ($Millions)(3)

$22

Effective tax rate(1)

21 %

Diluted share count (Millions)(4)

108.9 or 111.3

Full Year 2022E

Total capital expenditures ($Millions)(5)

Pre-delivery deposits, net of refunds

$(10)

Aircraft and engine purchases

$30

Other capital expenditures

$240

 

1Q2022A

2Q2022A

3Q2022A

4Q2022E

Available Seat Miles % Change vs. 2019

19.2 %

9.9 %

13.5 %

24.5 %

(1)

Excludes special items which may include loss on disposal of assets, special charges and credits, and other items which are not estimable at this time.

(2)

Includes fuel taxes and into-plane fuel cost.

(3)

Includes interest expense, capitalized interest, Interest income, and other income and expense. Excludes any potential change in the mark to market adjustment related to the derivative portion of the 2026 Convertible Notes.

(4)

In periods where the amount of 2025 Convertible Notes (the “Notes”) outstanding remains unchanged from the third quarter 2022 and the Company is profitable, the Notes could have a dilutive impact of approximately 2.0 million on the weighted average diluted shares outstanding. If adjusted net income plus interest on the Notes, net of income tax, divided by the weighted average diluted shares including the 2.0 million shares is found to be anti-dilutive, the shares related to the Notes will not be included in the weighted average diluted share count. In addition, if the Company is profitable, the dilutive impact, if any, from outstanding equity awards and warrants will also impact the weighted average diluted shares outstanding. The Treasury Stock Method will be used to determine the dilutive impact. of any outstanding equity awards and warrants. For the full year 2022, the Company estimates its weighted average diluted share count will be 108.8 million.

(5)

Total capital expenditures assumes all new aircraft deliveries are either delivered under direct leases or financed through sale-leaseback transactions.

Third Quarter 2022 Highlights

  • Entered into a definitive merger agreement with JetBlue Airways Corporation (“JetBlue”) to create the most compelling national low-fare challenger to the dominant U.S. carriers (subject to regulatory approval)
  • Opened new Pilot and Flight Attendant crew bases in Atlanta, Georgia and Miami, Florida and announced it will be adding a new Pilot and Flight Attendant base in Houston, Texas
  • Opened an aircraft maintenance facility at George Bush Intercontinental Airport to help maintain and service its growing fleet
  • Announced it will be expanding its network by adding service to San Antonio, Texas in November 2022
  • Initiated service to Albuquerque, New Mexico, Reno, Nevada, and Boise, Idaho and resumed service to Managua, Nicaragua
  • As part of its continued commitment to support service members, the Spirit Airlines Charitable Foundation partnered with Honor Flight South Florida to fly 72 veterans in an all-inclusive trip to visit memorials and military landmarks in Washington, D.C. and donated over $150,000 to various other organizations making a meaningful social impact in the communities where we live and work, including supporting the Red Cross in the Hurricane Ian recovery efforts

Merger Agreement with JetBlue

On October 19, 2022, Spirit stockholders voted to approve the merger agreement between Spirit and JetBlue that was entered into on July 28, 2022. The completion of the transaction is subject to customary closing conditions, including receipt of required regulatory approvals. Spirit and JetBlue expect to conclude the regulatory process and close the transaction no later than the first half of 2024.

Top Copyright Photo: Spirit Airlines Airbus A320-271N WL N963NK (msn 11088) LAX (Michael B. Ing). Image: 959237.

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