Spirit Airlines, Inc. (Fort Lauderdale/Hollywood) today (July 24) reported second quarter 2015 financial results.

Adjusted net income for the second quarter 2015 increased 12.6 percent to $74.8 million ($1.03 per diluted share) compared to the second quarter 20141. GAAP net income for the second quarter 2015 increased 18.3 percent year over year to $76.7 million ($1.05 per diluted share).

Adjusted pre-tax margin for the second quarter 2015 was 21.3 percent1. On a GAAP basis, pre-tax margin for the second quarter 2015 was 21.8 percent.

Spirit ended the second quarter 2015 with unrestricted cash and cash equivalents of $769.3 million.

Spirit’s return on invested capital (before taxes and excluding special items) for the twelve months ended June 30, 2015 was 29.4 percent2.

“Our second quarter 2015 performance was negatively impacted by an unusual number of storms and I want to thank our team members and business partners for their hard work and dedication in serving our customers and helping us to restore our operations to normal,” said Ben Baldanza, Spirit’s Chief Executive Officer. “In addition to an unusual number of storms, we’ve recently seen a noticeable change in competitive pricing behavior. But, the fundamentals of our business haven’t changed: we continue to grow our network while maintaining high margins, delivering strong returns, and offering our customers low fares.”

During June, Spirit experienced consecutive storm systems in Dallas, Chicago, New York, and Detroit followed by Tropical Storm Bill that sat over Houston before moving north to Dallas. The timing and location of these storm systems produced a domino effect on the Company’s operation resulting in over 500 flight cancellations and numerous flight delays. Due to the sheer volume of flights affected, the Company was unable to flex up staffing levels enough to mitigate the impact of crews being displaced or being unable to work due to them reaching their contractual or regulatory work hour maximums. These challenges lengthened the span of the irregular operation and the time it took to restore the system to normal. With its high aircraft utilization, low daily flight frequency and point-to-point network, severe irregular operations typically create a unique set of challenges for the Company; however, the Company believes the unusual number and location of storms in June exacerbated the operational difficulty and made this event unlike others. The Company estimates the impact of the cancellations, delays, and other non-recurring expenses during the quarter negatively impacted operating income by $20 million ($5 million lower revenue, $15 million higher costs). Adjusting for these items, the Company estimates it would have reported adjusted net income of $87.5 million ($1.20 per diluted share).

Revenue Performance

For the second quarter 2015, Spirit’s total operating revenue was $553.4 million, an increase of 10.8 percent compared to the second quarter 2014, driven by an increase in flight volume, partially offset by a decrease in operating yields.

Total revenue per passenger flight segment (“PFS”) for the second quarter 2015 decreased 12.4 percent year over year to $122.59, primarily driven by a 19.4 percent decrease in ticket revenue per PFS. The decline in ticket revenue per PFS was driven by lower fare levels as a result of increased competitive pressures as well as a higher percentage of the Company’s markets being under development compared to the same period last year. Although slightly lower year over year on a per PFS basis, non-ticket revenue continues to provide a stable revenue stream that is increasingly important during periods of lower passenger yields. Non-ticket revenue per PFS only declined 1.7 percent year over year to $54.24. The decrease in non-ticket revenue per PFS was primarily attributable to lower bag revenue per PFS and the outsourcing of the Company’s onboard catering to a third-party provider under a revenue share agreement.

Total revenue per available seat mile (“RASM”) for the second quarter 2015 decreased 14.8 percent compared to the second quarter 2014 on a capacity increase of 30.1 percent. The RASM decrease was driven by lower fare levels as a result of increased competitive pressures as well as the ramp up growth in the Company’s new and mature markets.

Cost Performance

Total operating expenses for the second quarter 2015, excluding $2.9 million of credits related to special items, increased 10.4 percent to $434.0 million3. Including special items, total operating expenses increased 9.4 percent year over year to $431.1 million. Operating expenses benefited from economic fuel expense decreasing 14.8 percent, or $22.8 million, on a fuel volume increase of 27.8 percent.

Spirit reported second quarter 2015 cost per available seat mile (“ASM”) excluding special items and fuel (“Adjusted CASM ex-fuel”)3 of 5.80 cents, a decrease of 2.5 percent compared to the same period last year, driven primarily by lower aircraft rent per ASM, lower distribution expense per ASM, and lower labor expense per ASM. These benefits were partially offset by higher passenger re-accommodation expense per ASM. The decrease in aircraft rent per ASM was driven by a change in the mix of leased (rent recorded under aircraft rent) and purchased (depreciation recorded under depreciation and amortization) aircraft. Lower distribution expense per ASM was in part driven by lower credit card rates related to the modification and extension of Spirit’s credit card processor agreement in late 2014. Labor expense per ASM in the second quarter 2015 was lower compared to the same period last year primarily due to scale benefits from overall growth and from larger gauge aircraft, partially offset by higher health care costs. Passenger re-accommodation expense (recorded under other operating expense) per ASM was primarily higher year over year due to the impact from an unusual number of storm systems that disrupted the Company’s operations.

“Due to the financial impact of the unusual number of cancellations, delays, and other non-recurring items during the quarter, as well as higher healthcare costs, we have revised our full year 2015 Adjusted CASM ex-fuel range and now estimate it will be down 5 to 6 percent year over year,” said Ted Christie, Spirit’s Chief Financial Officer. “Despite these adjustments, I am encouraged about how the business is performing, which establishes a solid base for improved cost performance in 2016 and beyond.”

Share Repurchase

Spirit repurchased approximately 1 million shares during the second quarter, which equated to approximately $67.5 million of the total $100 million authorization.

Fleet

In the second quarter 2015, Spirit took delivery of 3 new A320 aircraft, ending the quarter with 73 aircraft in its fleet.

Fleet Plan:

Other Second Quarter 2015 Highlights

• Maintained its commitment to offer low fares to its valued customers; average ticket revenue per PFS for the second quarter 2015 was $68.35 with total revenue per PFS of $122.59.
• Launched service on 24 new nonstop routes in the second quarter 2015.
• Delivered our first SpaceFlex certified A320, which provides the cabin flexibility to add four additional Big Front Seats to this aircraft and our entire A320 fleet.
• Received FAA certification to add ten additional seats to the A321 aircraft scheduled for delivery this year and beyond.

Top Photo: Spirit Airlines.

Notes:

(1) Special items include unrealized gains or losses related to fuel derivative contracts, loss on disposal of assets, special charges (credits), and additional federal excise tax on a minority of fuel volume for the period beginning July 1, 2009 through December 31, 2013 recorded in the third quarter 2014.
(2) Excludes special items as described above.
(3) Assumes same marginal tax rate as is applicable to GAAP net income for the twelve months ended June 30, 2015.

Spirit Airlines aircraft slide show: 

Route Map:

Spirit Airlines (Fort Lauderdale/Hollywood) has issued a new advertising campaign (see the videos) that attacks other airlines for their high ticket prices through their “bundling” of services. The airline issued this statement and survey:

For decades, the major airlines have been playing a psychological trick on their passengers. They charge people very high airfares, and then tell them they are giving away different items and services for “free.” In reality those airlines are forcing all of their customers to pay for those items upfront with bundled, all-inclusive fares. Spirit Airlines (SAVE) wants air travelers to know they’ve been bundled by other airlines and is giving travelers a way to fight back.

Every product or service on an airline has a built-in cost: Agents handling bags and printing boarding passes, the cost of beverages, food, and magazines and stocking these items on planes, and the extra costs in fuel for the added weight of carry-on bags and in-flight entertainment systems, just to name a few. Many consumers don’t realize that airlines pass those costs on to their customers and, even if the product or service isn’t used, the airline still financially benefits.

“Bundling is a practice that, at best, is less-than-transparent,” said Spirit’s President and CEO Ben Baldanza. “When airlines tell their customers the item or service is free, it just isn’t true. We feel air travelers should only have to pay for what they want or need — not be forced to pay for everything an airline may offer. We did the math on all those unused items and it adds up to billions of customer dollars.”

At Spirit, customers pay for their seat and a personal item to get them from point A to point B. Spirit calls this their Bare Fare(R). If you want other options they are available, but Spirit puts you in charge by allowing you to pay only for what you want, not what you don’t. This is called Frill Control(R). This unbundled approach allows Spirit customers to pay the lowest total price for air travel. According to the Department of Transportation, Spirit’s fares are 40 percent less than other airlines, on average. Even after adding optional items Spirit’s total price is still 30 — 35 percent lower, making Spirit the smart choice for air travel.

To understand the impact of airline bundling, Spirit conducted a nationwide study of air travelers regarding their most recent flight. The survey reveals that many passengers skip the complimentary services that they paid for in a bundled price. For example, one in four (25%) passengers didn’t bring a “complimentary” carry-on bag, but likely had to pony up as much as $35 within their ticket price for that amenity. In some cases, customers lost that money because the overhead bin space was full, and they were forced to have their bag checked. With 586 million travelers on major airlines in 2014, Spirit estimates customers spent more than $5 billion on carry-on bags that they didn’t use.

It may seem small, but the costs for those “free” snacks add up too. Twenty percent of passengers skipped the complimentary snacks, but may have been charged up to $3.50 for each one. That’s approximately $410 million of unused snacks that airlines benefited from by charging their customers in the price of their ticket.

To help air travelers understand this long-held less-than-transparent practice, Spirit has introduced a vigilante lawyer team called “The Unbundlers” dedicated to getting air travelers their money back. The fictitious, but hilariously-truthful duo encourages travelers who have been bundled to directly calculate how much money they lost as a result of not checking a bag, passing on ‘free’ soda, or not using various other products and services. They can demand their money back by posting a message on Twitter to the offending airline. You can see The Unbundlers in action at http://www.Unbundlers.com

“It’s a fun way to point out a serious issue,” said Baldanza. “At Spirit we pride ourselves on being very upfront and honest about what you get — and what you don’t — when you purchase tickets on our airline. All airlines should be as transparent with their customers and should let them know exactly what they’re paying for.”

Other results of the survey, conducted by Toluna Research for Spirit Airlines:

25% of air travelers did not bring a carry-on
20% skipped the snack (peanuts, chips, etc.)
21% said no to coffee, tea, or soda
40% didn’t read the in-flight magazine
41% didn’t check-in with an agent
52% didn’t use WiFi (however other surveys suggest WiFi usage is below 10%)
It’s time to take a stand against being bundled.

Spirit Airlines aircraft slide show: 

Videos: Spirit Airlines.