|
|
ITEM 1.
|
UNAUDITED CONDENSED FINANCIAL STATEMENTS
|
Spirit Airlines, Inc.
Condensed Statements of Operations
(unaudited, in thousands, except per share amounts)
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
2019
|
|
2018
|
Operating revenues:
|
|
|
|
Passenger
|
$
|
838,065
|
|
|
$
|
689,141
|
|
Other
|
17,731
|
|
|
14,997
|
|
Total operating revenues
|
855,796
|
|
|
704,138
|
|
|
|
|
|
Operating expenses:
|
|
|
|
Aircraft fuel
|
229,636
|
|
|
204,646
|
|
Salaries, wages and benefits
|
203,901
|
|
|
155,096
|
|
Landing fees and other rents
|
59,649
|
|
|
49,630
|
|
Aircraft rent
|
45,782
|
|
|
50,191
|
|
Depreciation and amortization
|
50,726
|
|
|
39,373
|
|
Distribution
|
35,719
|
|
|
30,631
|
|
Maintenance, materials and repairs
|
31,604
|
|
|
29,710
|
|
Special charges
|
—
|
|
|
89,168
|
|
Loss on disposal of assets
|
1,913
|
|
|
848
|
|
Other operating
|
109,062
|
|
|
93,642
|
|
Total operating expenses
|
767,992
|
|
|
742,935
|
|
|
|
|
|
Operating income (loss)
|
87,804
|
|
|
(38,797
|
)
|
|
|
|
|
Other (income) expense:
|
|
|
|
Interest expense
|
24,971
|
|
|
17,849
|
|
Capitalized interest
|
(2,557
|
)
|
|
(2,252
|
)
|
Interest income
|
(6,924
|
)
|
|
(4,066
|
)
|
Other expense
|
233
|
|
|
133
|
|
Special charges, non-operating
|
—
|
|
|
9,201
|
|
Total other (income) expense
|
15,723
|
|
|
20,865
|
|
|
|
|
|
Income (loss) before income taxes
|
72,081
|
|
|
(59,662
|
)
|
Provision (benefit) for income taxes
|
16,005
|
|
|
(14,740
|
)
|
|
|
|
|
Net income (loss)
|
$
|
56,076
|
|
|
$
|
(44,922
|
)
|
Basic earnings (loss) per share
|
$
|
0.82
|
|
|
$
|
(0.66
|
)
|
Diluted earnings (loss) per share
|
$
|
0.82
|
|
|
$
|
(0.66
|
)
|
The accompanying Notes are an integral part of these Condensed Financial Statements.
Spirit Airlines, Inc.
Condensed Statements of Comprehensive Income (Loss)
(unaudited, in thousands)
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
2019
|
|
2018
|
Net income (loss)
|
$
|
56,076
|
|
|
$
|
(44,922
|
)
|
Unrealized gain (loss) on short-term investment securities, net of deferred taxes of $39 and ($8)
|
130
|
|
|
(23
|
)
|
Interest rate derivative loss reclassified into earnings, net of taxes of $27 and $21
|
47
|
|
|
58
|
|
Other comprehensive income
|
$
|
177
|
|
|
$
|
35
|
|
Comprehensive income (loss)
|
$
|
56,253
|
|
|
$
|
(44,887
|
)
|
The accompanying Notes are an integral part of these Condensed Financial Statements.
Spirit Airlines, Inc.
Condensed Balance Sheets
(unaudited, in thousands)
|
|
|
|
|
|
|
|
|
|
March 31, 2019
|
|
December 31, 2018
|
Assets
|
|
|
|
Current assets:
|
|
|
|
Cash and cash equivalents
|
$
|
1,122,139
|
|
|
$
|
1,004,733
|
|
Short-term investment securities
|
103,491
|
|
|
102,789
|
|
Accounts receivable, net
|
70,946
|
|
|
47,660
|
|
Aircraft maintenance deposits, net
|
129,838
|
|
|
106,901
|
|
Prepaid expenses and other current assets
|
90,346
|
|
|
83,383
|
|
Total current assets
|
1,516,760
|
|
|
1,345,466
|
|
|
|
|
|
Property and equipment:
|
|
|
|
Flight equipment
|
3,322,618
|
|
|
3,257,215
|
|
Ground property and equipment
|
201,579
|
|
|
191,661
|
|
Less accumulated depreciation
|
(369,405
|
)
|
|
(332,864
|
)
|
|
3,154,792
|
|
|
3,116,012
|
|
Operating lease right-of-use assets
|
1,046,262
|
|
|
—
|
|
Pre-delivery deposits on flight equipment
|
264,419
|
|
|
236,775
|
|
Long-term aircraft maintenance deposits
|
118,359
|
|
|
138,738
|
|
Deferred heavy maintenance, net
|
280,118
|
|
|
249,010
|
|
Other long-term assets
|
43,229
|
|
|
79,456
|
|
Total assets
|
$
|
6,423,939
|
|
|
$
|
5,165,457
|
|
|
|
|
|
Liabilities and shareholders’ equity
|
|
|
|
Current liabilities:
|
|
|
|
Accounts payable
|
$
|
26,713
|
|
|
$
|
39,320
|
|
Air traffic liability
|
403,001
|
|
|
291,981
|
|
Current maturities of long-term debt and finance leases
|
173,413
|
|
|
163,557
|
|
Current maturities of operating leases
|
128,138
|
|
|
—
|
|
Other current liabilities
|
395,404
|
|
|
339,677
|
|
Total current liabilities
|
1,126,669
|
|
|
834,535
|
|
|
|
|
|
Long-term debt and finance leases, less current maturities
|
2,039,619
|
|
|
2,024,774
|
|
Operating leases, less current maturities
|
895,056
|
|
|
—
|
|
Deferred income taxes
|
366,854
|
|
|
355,141
|
|
Deferred gains and other long-term liabilities
|
18,085
|
|
|
22,503
|
|
Shareholders’ equity:
|
|
|
|
Common stock
|
7
|
|
|
7
|
|
Additional paid-in-capital
|
374,896
|
|
|
371,225
|
|
Treasury stock, at cost
|
(72,239
|
)
|
|
(67,016
|
)
|
Retained earnings
|
1,676,008
|
|
|
1,625,481
|
|
Accumulated other comprehensive income (loss)
|
(1,016
|
)
|
|
(1,193
|
)
|
Total shareholders’ equity
|
1,977,656
|
|
|
1,928,504
|
|
Total liabilities and shareholders’ equity
|
$
|
6,423,939
|
|
|
$
|
5,165,457
|
|
The accompanying Notes are an integral part of these Condensed Financial Statements.
Spirit Airlines, Inc.
Condensed Statements of Cash Flows
(unaudited, in thousands)
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
2019
|
|
2018
|
Operating activities:
|
|
|
|
Net income
(loss)
|
$
|
56,076
|
|
|
$
|
(44,922
|
)
|
Adjustments to reconcile net income to net cash provided by operations:
|
|
|
|
Losses reclassified from other comprehensive income
|
74
|
|
|
79
|
|
Share-based compensation
|
3,671
|
|
|
3,075
|
|
Amortization of deferred gains and losses and debt issuance costs
|
2,289
|
|
|
1,624
|
|
Depreciation and amortization
|
50,726
|
|
|
39,373
|
|
Deferred income tax expense (benefit)
|
11,647
|
|
|
(20,266
|
)
|
Loss on disposal of assets
|
1,913
|
|
|
848
|
|
Special charges, non-operating
|
—
|
|
|
9,201
|
|
|
|
|
|
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
Accounts receivable
|
(23,285
|
)
|
|
(2,983
|
)
|
Aircraft maintenance deposits, net
|
(2,559
|
)
|
|
14,844
|
|
Long-term deposits and other assets
|
20,735
|
|
|
3,512
|
|
Deferred heavy maintenance, net
|
(44,161
|
)
|
|
(50,712
|
)
|
Accounts payable
|
(13,543
|
)
|
|
6,227
|
|
Air traffic liability
|
111,020
|
|
|
93,483
|
|
Other liabilities
|
30,712
|
|
|
117,779
|
|
Other
|
(164
|
)
|
|
(27
|
)
|
Net cash provided by operating activities
|
205,151
|
|
|
171,135
|
|
Investing activities:
|
|
|
|
Purchase of available-for-sale investment securities
|
(26,476
|
)
|
|
(30,853
|
)
|
Proceeds from the maturity of available-for-sale investment securities
|
26,085
|
|
|
30,504
|
|
Pre-delivery deposits on flight equipment, net of refunds
|
(37,913
|
)
|
|
(41,580
|
)
|
Capitalized interest
|
(2,276
|
)
|
|
(1,500
|
)
|
Assets under construction for others
|
(262
|
)
|
|
—
|
|
Purchase of property and equipment
|
(63,109
|
)
|
|
(237,221
|
)
|
Net cash used in investing activities
|
(103,951
|
)
|
|
(280,650
|
)
|
Financing activities:
|
|
|
|
Proceeds from issuance of long-term debt
|
59,706
|
|
|
227,128
|
|
Proceeds from stock options exercised
|
—
|
|
|
2
|
|
Payments on debt obligations
|
(37,901
|
)
|
|
(18,650
|
)
|
Payments on finance lease obligations
|
(239
|
)
|
|
(197
|
)
|
Reimbursement for assets under construction for others
|
262
|
|
|
—
|
|
Repurchase of common stock
|
(5,223
|
)
|
|
(959
|
)
|
Debt issuance costs
|
(399
|
)
|
|
(201
|
)
|
Net cash provided by financing activities
|
16,206
|
|
|
207,123
|
|
Net increase in cash and cash equivalents
|
117,406
|
|
|
97,608
|
|
Cash and cash equivalents at beginning of period
|
1,004,733
|
|
|
800,849
|
|
Cash and cash equivalents at end of period
|
$
|
1,122,139
|
|
|
$
|
898,457
|
|
Supplemental disclosures
|
|
|
|
Cash payments for:
|
|
|
|
Interest, net of capitalized interest
|
$
|
19,167
|
|
|
$
|
8,569
|
|
Income taxes paid, net of refunds
|
$
|
816
|
|
|
$
|
679
|
|
Cash paid for amounts included in the measurement of lease liabilities:
|
|
|
|
Operating cash flows for operating leases
|
$
|
47,577
|
|
|
$
|
—
|
|
Operating cash flows for finance leases
|
$
|
210
|
|
|
$
|
—
|
|
Financing cash flows for finance leases
|
$
|
29
|
|
|
$
|
—
|
|
Non-cash transactions:
|
|
|
|
Capital expenditures funded by finance lease borrowings
|
$
|
1,492
|
|
|
$
|
237,042
|
|
Capital expenditures funded by operating lease borrowings
|
$
|
128,191
|
|
|
$
|
—
|
|
The accompanying Notes are an integral part of these Condensed Financial Statements.
Spirit Airlines, Inc.
Condensed Statements of Shareholders’ Equity
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2018
|
|
Common Stock
|
|
Additional Paid-In-Capital
|
|
Treasury Stock
|
|
Retained Earnings
|
|
Accumulated Other Comprehensive Income (Loss)
|
|
Total
|
Balance at December 31, 2017
|
$
|
7
|
|
|
$
|
360,153
|
|
|
$
|
(65,854
|
)
|
|
$
|
1,469,732
|
|
|
$
|
(1,464
|
)
|
|
$
|
1,762,574
|
|
Share-based compensation
|
—
|
|
|
3,075
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
3,075
|
|
Repurchase of common stock
|
—
|
|
|
—
|
|
|
(959
|
)
|
|
—
|
|
|
—
|
|
|
(959
|
)
|
Proceeds from options exercised
|
—
|
|
|
2
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2
|
|
Changes in comprehensive income
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
35
|
|
|
35
|
|
Net income (loss)
|
—
|
|
|
—
|
|
|
—
|
|
|
(44,922
|
)
|
|
—
|
|
|
(44,922
|
)
|
Balance at March 31, 2018
|
$
|
7
|
|
|
$
|
363,230
|
|
|
$
|
(66,813
|
)
|
|
$
|
1,424,810
|
|
|
$
|
(1,429
|
)
|
|
$
|
1,719,805
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2019
|
|
Common Stock
|
|
Additional Paid-In-Capital
|
|
Treasury Stock
|
|
Retained Earnings
|
|
Accumulated Other Comprehensive Income (Loss)
|
|
Total
|
Balance at December 31, 2018
|
$
|
7
|
|
|
$
|
371,225
|
|
|
$
|
(67,016
|
)
|
|
$
|
1,625,481
|
|
|
$
|
(1,193
|
)
|
|
$
|
1,928,504
|
|
Effect of ASU No. 2016-02 implementation (refer to Note 2)
|
—
|
|
|
—
|
|
|
—
|
|
|
(5,549
|
)
|
|
—
|
|
|
(5,549
|
)
|
Share-based compensation
|
—
|
|
|
3,671
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
3,671
|
|
Repurchase of common stock
|
—
|
|
|
—
|
|
|
(5,223
|
)
|
|
—
|
|
|
—
|
|
|
(5,223
|
)
|
Proceeds from options exercised
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Changes in comprehensive income
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
177
|
|
|
177
|
|
Net income
|
—
|
|
|
—
|
|
|
—
|
|
|
56,076
|
|
|
—
|
|
|
56,076
|
|
Balance at March 31, 2019
|
$
|
7
|
|
|
$
|
374,896
|
|
|
$
|
(72,239
|
)
|
|
$
|
1,676,008
|
|
|
$
|
(1,016
|
)
|
|
$
|
1,977,656
|
|
The accompanying Notes are an integral part of these Condensed Financial Statements.
Notes to Condensed Financial Statements
(unaudited)
The accompanying unaudited condensed financial statements include the accounts of Spirit Airlines, Inc. ("the Company"). These unaudited condensed financial statements reflect all normal recurring adjustments which management believes are necessary to fairly present the financial position, results of operations and cash flows of the Company for the respective periods presented. Certain information and footnote disclosures normally included in the annual financial statements prepared in accordance with U.S. generally accepted accounting principles ("GAAP") have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission for Form 10-Q. These unaudited interim condensed financial statements should be read in conjunction with the audited financial statements of the Company and notes thereto included in the Company's Annual Report on Form 10-K for the year ended
December 31, 2018
filed with the Securities and Exchange Commission on February 13, 2019.
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect both the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results may differ from these estimates.
The interim results reflected in the unaudited condensed financial statements are not necessarily indicative of the results that may be expected for other interim periods or for the full year. The air transportation business is subject to significant seasonal fluctuations as demand is generally greater in the second and third quarters of each year. The air transportation business is also volatile and highly affected by economic cycles and trends.
|
|
2.
|
Recent Accounting Developments
|
Recently Adopted Accounting Pronouncements
Leases
The Company adopted ASU No. 2016-02, "Leases (Topic 842)," effective January 1, 2019. The Company adopted Topic 842 utilizing the modified retrospective adoption method with an effective date of January 1, 2019 and elected the package of transition practical expedients for expired or existing contracts, which does not require reassessment of: (1) whether any of the Company's contracts are or contain leases, (2) lease classification and (3) initial direct costs. Therefore, the condensed financial statements for 2019 are presented under the new standard, while the comparative periods presented are not adjusted and continue to be reported in accordance with the Company's historical accounting policy. This standard requires all lessees to recognize a right-of-use asset and a lease liability, initially measured at the present value of the lease payments, for all leases with a term greater than 12 months. The adoption of the new lease standard had a significant impact on the Company's condensed balance sheets due to the recognition of
$1.0 billion
of right-of-use assets for operating leases,
$128.1 million
of current maturities of operating leases and
$895.1 million
of operating leases, less current maturities. In addition, the Company recognized a
$5.5 million
cumulative effect adjustment, net of tax, to retained earnings. This adjustment was driven by the recognition of unamortized deferred gains and losses related to aircraft sale-leaseback transactions entered into in prior periods. Prior to the adoption of Topic 842, gains and losses on sale-leaseback transactions were generally deferred and recognized in income over the lease term. The accounting for finance leases is substantially unchanged. The adoption of Topic 842 did not have a significant impact on the Company's lease classification or a material impact on its statements of operations and liquidity. Additionally, adoption of Topic 842 did not have a material impact on the Company’s debt-covenant compliance under its current agreements. Refer to Note 9, Leases for information regarding the Company's adoption of Topic 842 and the Company's undiscounted future lease payments and the timing of those payments.
Recently Issued Accounting Pronouncements Not Yet Adopted
Cloud Computing Arrangements
In August 2018, the FASB issued ASU No. 2018-15, "Intangibles - Goodwill and Other - Internal-Use Software". This new standard requires a customer in a cloud computing arrangement that is a service contract to follow the internal-use software guidance in Accounting Standards Codification ("ASC") 350-40, "Accounting for Internal-Use Software", to determine which implementation costs to capitalize as assets and amortize over the term of the hosting arrangement or expense as incurred. This new standard is effective for public business entities in fiscal years beginning after December 15, 2019. Early
adoption is permitted, including during an interim period. Entities have the option to apply this standard prospectively to all implementation costs incurred after the date of adoption or retrospectively. The Company is evaluating this new standard, but does not expect it to have a significant impact on its financial statement presentation or results.
Accounting for Credit Losses
In June 2016, the FASB issued ASU No. 2016-13, "Financial Instruments - Credit Losses." The standard requires the use of an "expected loss" model on certain types of financial instruments. The standard also amends the impairment model for available-for-sale securities and requires estimated credit losses to be recorded as allowances rather than as reductions to the amortized cost of the securities. This standard is effective for the Company for fiscal years, and interim periods within those years, beginning January 1, 2020, with early adoption permitted. The Company is evaluating the new guidance, but does not expect it to have a material impact on its financial statements.
Operating revenues is comprised of passenger revenues, which includes fare and non-fare revenues, and other revenues. The following table shows disaggregated operating revenues for the first quarter of 2019 and 2018.
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
2019
|
|
2018
|
|
(in thousands)
|
Operating revenues:
|
|
|
|
Fare
|
$
|
416,345
|
|
|
$
|
342,695
|
|
Non-fare
|
421,720
|
|
|
346,446
|
|
Total passenger revenues
|
838,065
|
|
|
689,141
|
|
Other
|
17,731
|
|
|
14,997
|
|
Total operating revenues
|
$
|
855,796
|
|
|
$
|
704,138
|
|
The Company is managed as a single business unit that provides air transportation for passengers. Operating revenues by geographic region as defined by the Department of Transportation (DOT) area are summarized below:
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
2019
|
|
2018
|
|
(in thousands)
|
DOT—Domestic
|
$
|
753,100
|
|
|
$
|
647,807
|
|
DOT—Latin America
|
102,696
|
|
|
56,331
|
|
Total
|
$
|
855,796
|
|
|
$
|
704,138
|
|
The Company defers the amount for award travel obligation as part of loyalty deferred revenue within air traffic liability (ATL) on the Company's condensed balance sheets and recognizes loyalty travel awards in passenger revenue as the mileage credits are used for travel. As of
March 31, 2019
and
December 31, 2018
, the Company had ATL balances of
$403.0 million
and
$292.0 million
, respectively. The remaining ATL balance as of
March 31, 2019
is expected to be recognized during the remainder of 2019.
Special Charges, Operating
During the
three
months ended
March 31, 2019
, the Company had no special charges, operating in the statement of operations.
During the first quarter of 2018, the Company negotiated and amended the collective bargaining agreement with the Air Line Pilots Association, International ("ALPA"), under the guidance of the National Mediation Board ("NMB"). In connection with the amended agreement, the Company recorded a one-time ratification incentive of
$80.7 million
, including payroll taxes, and an
$8.5 million
adjustment related to other contractual provisions. These amounts totaling
$89.2 million
were recorded in special charges within operating expenses in the condensed statement of operations for the
three
months ended
March 31, 2018
.
Special Charges, Non-Operating
During the
three
months ended
March 31, 2019
, the Company had no special charges, non-operating within other (income) expense in the statement of operations.
During the
three
months ended
March 31, 2018
, the Company recorded
$9.2 million
in special charges, non-operating within other (income) expense in the statement of operations. On March 28, 2018, the Company entered into an aircraft purchase agreement for the purchase of
14
A319 aircraft previously operated under operating leases by the Company. The aggregate gross purchase price for the
14
aircraft was
$285.0 million
, and the price for each aircraft at the time of the sale was comprised of a cash payment net of the amount of maintenance reserves and security deposits for such aircraft held by the applicable lessor pursuant to the lease for such aircraft. The contract was deemed a lease modification which resulted in a change of classification from operating leases to finance leases for the
14
aircraft. During the first quarter of 2018, the finance lease assets were recorded at the lower of cost or fair value of the aircraft within flight equipment on the condensed balance sheets. During the second quarter of 2018, the purchase of the
14
aircraft was completed and the obligation was accreted up to the net cash payment price with interest charges recognized in special charges, non-operating in the statement of operations. The Company determined the valuation of the aircraft based on third-party appraisals considering the condition of the aircraft (a Level 3 measurement).
|
|
5.
|
Earnings (Loss) per Share
|
The following table sets forth the computation of basic and diluted earnings (loss) per common share:
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
2019
|
|
2018
|
|
(in thousands, except per share amounts)
|
Numerator
|
|
|
|
Net income (loss)
|
$
|
56,076
|
|
|
$
|
(44,922
|
)
|
Denominator
|
|
|
|
Weighted-average shares outstanding, basic
|
68,380
|
|
|
68,222
|
|
Effect of dilutive stock awards
|
136
|
|
|
—
|
|
Adjusted weighted-average shares outstanding, diluted
|
68,516
|
|
|
68,222
|
|
Earnings (loss) per share
|
|
|
|
Basic earnings (loss) per common share
|
$
|
0.82
|
|
|
$
|
(0.66
|
)
|
Diluted earnings (loss) per common share
|
$
|
0.82
|
|
|
$
|
(0.66
|
)
|
|
|
|
|
Anti-dilutive weighted-average shares
|
159
|
|
|
324
|
|
|
|
6.
|
Short-term Investment Securities
|
The Company's short-term investment securities are classified as available-for-sale and generally consist of U.S. Treasury and U.S. government agency securities with contractual maturities of 12 months or less. These securities are stated at fair value within current assets on the Company's condensed balance sheets. Realized gains and losses on sales of investments, if any, are reflected in non-operating income (expense) in the condensed statements of operations.
As of
March 31, 2019
and
December 31, 2018
, the Company had
$103.5 million
and
$102.8 million
in short-term available-for-sale investment securities, respectively. During the
three
months ended
March 31, 2019
, these investments earned interest income at a weighted-average fixed rate of approximately
2.5%
. For the
three
months ended
March 31, 2019
, an unrealized gain of
$130 thousand
, net of deferred taxes of
$39 thousand
, was recorded within accumulated other comprehensive income ("AOCI") related to these investment securities. For the
three
months ended
March 31, 2018
, an unrealized loss of
$23 thousand
, net of deferred taxes of
$8 thousand
, was recorded within AOCI related to these investment securities. The Company has not recognized any realized gains or losses related to these securities as the Company has not transacted any sale of these securities. As of
March 31, 2019
and
December 31, 2018
,
$56 thousand
and
$74 thousand
, net of tax, respectively, remained in AOCI, related to these instruments.
Other current liabilities as of
March 31, 2019
and
December 31, 2018
consist of the following:
|
|
|
|
|
|
|
|
|
|
March 31, 2019
|
|
December 31, 2018
|
|
(in thousands)
|
Federal excise and other passenger taxes and fees payable
|
$
|
90,504
|
|
|
$
|
60,604
|
|
Salaries and wages
|
79,359
|
|
|
82,900
|
|
Airport obligations
|
65,291
|
|
|
52,029
|
|
Aircraft maintenance
|
65,126
|
|
|
59,805
|
|
Fuel
|
28,378
|
|
|
25,368
|
|
Aircraft and facility lease obligations
|
20,630
|
|
|
15,149
|
|
Interest payable
|
19,344
|
|
|
18,086
|
|
Other
|
26,772
|
|
|
25,736
|
|
Other current liabilities
|
$
|
395,404
|
|
|
$
|
339,677
|
|
|
|
8.
|
Financial Instruments and Risk Management
|
As part of the Company’s risk management program, the Company from time to time uses a variety of financial instruments to reduce its exposure to fluctuations in the price of jet fuel and interest rates. The Company does not hold or issue derivative financial instruments for trading purposes.
The Company may be exposed to credit losses in the event of nonperformance by counterparties to these financial instruments. The Company periodically reviews and seeks to mitigate exposure to the financial deterioration and nonperformance of any counterparty by monitoring the absolute exposure levels, each counterparty's credit ratings and the historical performance of the counterparties relating to hedge transactions. The credit exposure related to these financial instruments is limited to the fair value of contracts in a net receivable position at the reporting date. The Company also maintains security agreements that require the Company to post collateral if the value of selected instruments falls below specified mark-to-market thresholds. The Company records financial derivative instruments at fair value, which includes an evaluation of each counterparty's credit risk. As of
March 31, 2019
, the Company did not hold any derivatives with requirements to post collateral.
Fuel Derivative Instruments
From time to time, the Company may enter into fuel derivative contracts in order to mitigate the risk of future volatility in fuel prices. The Company's fuel derivative contracts, if any, generally consist of United States Gulf Coast jet fuel swaps ("jet fuel swaps") and United States Gulf Coast jet fuel options ("jet fuel options"). Both jet fuel swaps and jet fuel options are used at times to protect the refining price risk between the price of crude oil and the price of refined jet fuel, and to manage the risk of increasing fuel prices. Fair value of the instruments is determined using standard option valuation models.
The Company accounts for any fuel derivative contracts at fair value and recognizes them in the balance sheet in prepaid expenses and other current assets or other current liabilities. The Company did not enter into any fuel derivative instruments during the
three
months ended
March 31, 2019
and
2018
and did not have any outstanding fuel derivatives as of
March 31, 2019
and
December 31, 2018
. Historically, the Company has not elected hedge accounting on any fuel derivative instruments entered into and, as a result, changes in the fair value of fuel derivative contracts, if any, were recorded in aircraft fuel expense.
Interest Rate Swaps
From time to time, the Company may enter into interest rate swaps to fix the benchmark interest rate component of interest payments or for other reasons. These instruments limit the Company's exposure to changes in the benchmark interest rate in the period from the trade date through the date of maturity. Interest rate swaps may be designated as cash flow hedges. The Company generally accounts for interest rate swaps at fair value and recognizes them in the balance sheet in prepaid expenses and other current assets or other current liabilities with changes in fair value recorded within AOCI. As of
March 31, 2019
and
December 31, 2018
, the Company did not have any outstanding interest rate swaps.
Realized gains and losses from cash flow hedges are recorded in the statement of cash flows as a component of cash flows from operating activities. Subsequent to the issuance of each debt instrument, amounts remaining in AOCI are amortized over the life of the fixed-rate debt instrument. During the
three
months ended
March 31, 2019
and
2018
, there were no unrealized gains or losses recorded within AOCI related to these instruments as they settled in 2015. For the
three
months ended
March 31, 2019
, the Company reclassified interest rate swap losses of
$47 thousand
, net of tax of
$27 thousand
, into earnings. For the
three
months ended
March 31, 2018
, the Company reclassified interest rate swap losses of
$58 thousand
, net of tax of
$21 thousand
, into earnings. As of
March 31, 2019
and
December 31, 2018
,
$1.1 million
and
$1.1 million
, net of tax, respectively, remained in AOCI, related to these instruments.
The Company leases aircraft, engines, airport terminal, maintenance and training facilities, aircraft hangars, commercial real estate, and office and computer equipment, among other items. Certain of these leases include provisions for variable lease payments which are based on several factors, including, but not limited to, relative leased square footage, enplaned passengers, and airports’ annual operating budgets. Due to the variable nature of the rates, these leases are not recorded on the Company's balance sheet as a right-of-use asset and lease liability. Lease terms are generally
8 years
to
18 years
for aircraft and up to
30 years
for other leased equipment and property.
The Company adopted Topic 842 utilizing the modified retrospective adoption method with an effective date of January 1, 2019. The Company made the election to not apply the recognition requirements in Topic 842 to short-term leases (i.e., leases of twelve months or less). Instead, a lessee may recognize the lease payments in profit or loss on a straight-line basis over the lease term. The Company elected this accounting policy for all classes of underlying assets. In addition, in accordance with Topic 842, variable lease payments in the period in which the obligation for those payments is incurred are not included in the recognition of a lease liability or right-of-use asset.
Right-of-use assets represent the Company's right to use an underlying asset for the lease term and lease liabilities represent the Company's obligation to make lease payments arising from the lease. Right-of-use assets and liabilities are recognized at the lease commencement date based on the estimated present value of lease payments over the lease term. When available, the Company uses the rate implicit in the lease to discount lease payments to present value. However, the Company's leases generally do not provide a readily determinable implicit rate. Therefore, the Company estimates the incremental borrowing rate to discount lease payments based on information available at lease commencement. The Company uses publicly available data for instruments with similar characteristics when calculating its incremental borrowing rates. The Company has options to extend certain of its operating leases for an additional period of time and options to early terminate several of its operating leases. The lease term consists of the noncancellable period of the lease and the periods covered by options to extend or terminate the lease when it is reasonably certain that the Company will exercise such options. The Company's lease agreements do not contain any residual value guarantees. The Company has elected to not separate non-lease components from the associated lease component for all underlying classes of assets with lease and non-lease components.
As of
March 31, 2019
, the Company had
50
aircraft financed under operating leases, with lease term expirations between
2021
and
2031
. In addition, as of
March 31, 2019
, the Company had
11
spare engines financed under operating leases with lease term expiration dates ranging from
2019
to
2027
.
One
of the Company's leased aircraft has variable rent payments, which fluctuate based on changes in London Interbank Offered Rate ("LIBOR"). The Company entered into sale leaseback transactions with third-party aircraft lessors for some of these aircraft and engine leases. Upon adoption of Topic 842, the Company recognized a
$5.5 million
cumulative effect adjustment, net of tax, to retained earnings driven by the recognition of unamortized deferred gains and losses related to aircraft sale-leaseback transactions entered into in prior periods. Prior to the
adoption of Topic 842, gains and losses on sale-leaseback transactions were generally deferred and recognized in income over the lease term. Under Topic 842, gains and losses on sale-leaseback transactions, subject to adjustment for off-market terms, are recognized immediately.
Some of the Company’s aircraft and engine master lease agreements provide that the Company pays maintenance reserves to aircraft lessors to be held as collateral in advance of the Company’s required performance of major maintenance activities. A majority of these maintenance reserve payments are calculated based on a utilization measure, such as flight hours or cycles, while some maintenance reserve payments are fixed, time-based contractual amounts. Maintenance reserve payments that are probable of being recovered when the Company performs qualifying maintenance are recorded in aircraft maintenance deposits on the Company's condensed balance sheet. Fixed maintenance reserve payments that are not probable of being recovered are considered lease payments and are included in the right-of-use asset and lease liability. Maintenance reserve payments that are based on a utilization measure and are not probable of being recovered are considered variable lease payment that are recognized when they are probable of being incurred and are not included in the right-of-use asset and lease liability.
Fixed maintenance reserve payments for the Company's aircraft and related flight equipment, including estimated amounts for contractual price escalations, are expected to be
$4.3 million
for the remainder of
2019
,
$5.6 million
in
2020
,
$5.7 million
in
2021
,
$4.9 million
in
2022
,
$4.1 million
in
2023
, and
$8.8 million
in
2024 and beyond
. Some of the master lease agreements do not require that the Company pay maintenance reserves so long as the Company's cash balance does not fall below a certain level. As of
March 31, 2019
, the Company is in full compliance with those requirements and does not anticipate having to pay reserves related to these master leases in the future.
Under the terms of the lease agreements, the Company will continue to operate and maintain the aircraft. Payments under the majority of the lease agreements are fixed for the term of the lease. The lease agreements contain standard termination events, including termination upon a breach of the Company's obligations to make rental payments and upon any other material breach of the Company's obligations under the leases, and standard maintenance and return condition provisions. These return provisions are evaluated at inception of the lease and throughout the lease terms and are accounted for as either fixed or variable lease payments (depending on the nature of the lease return condition) when it is probable that such amounts will be incurred. When determining probability and estimated cost of lease return obligations, there are various other factors that need to be considered such as the contractual terms of the lease, the ability to swap engines or other aircraft components, current condition of the aircraft, the age of the aircraft at lease expiration, utilization of engines and other components, the extent of repairs needed at return, return locations, current configuration of the aircraft and cost of repairs and materials at the time of return. As a result of the different factors listed above, management assesses the need to accrue lease return costs throughout the lease as facts and circumstances warrant an assessment. The Company expects lease return costs and unrecoverable maintenance deposits will increase as individual aircraft lease agreements approach their respective termination dates and the Company begins to accrue the estimated cost of return conditions for the corresponding aircraft. Upon a termination of the lease due to a breach by the Company, the Company would be liable for standard contractual damages, possibly including damages suffered by the lessor in connection with remarketing the aircraft or while the aircraft is not leased to another party.
Aircraft rent expense consists of monthly lease rents for aircraft and spare engines under the terms of the Company's aircraft and spare engine lease agreements recognized on a straight-line basis. Aircraft rent expense also includes maintenance reserves paid to aircraft lessors in advance of the performance of major maintenance activities that are not probable of being reimbursed and probable lease return condition obligations.
The following table provides details of the Company's future minimum lease payments under finance lease liabilities and operating lease liabilities recorded on the Company's condensed balance sheets as of
March 31, 2019
. The table does not include commitments that are contingent on events or other factors that are currently uncertain or unknown.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Finance Leases
|
|
Operating Leases
|
|
|
|
|
|
Aircraft and Spare Engine Leases
|
|
Property Facility Leases
|
|
Other
|
|
Total
Operating and Finance Lease Obligations
|
|
(in thousands)
|
remainder of 2019
|
|
$
|
894
|
|
|
$
|
142,701
|
|
|
$
|
2,088
|
|
|
$
|
434
|
|
|
$
|
146,117
|
|
2020
|
|
780
|
|
|
185,414
|
|
|
2,394
|
|
|
517
|
|
|
189,105
|
|
2021
|
|
606
|
|
|
183,572
|
|
|
1,903
|
|
|
—
|
|
|
186,081
|
|
2022
|
|
578
|
|
|
175,571
|
|
|
1,562
|
|
|
—
|
|
|
177,711
|
|
2023
|
|
202
|
|
|
151,177
|
|
|
1,055
|
|
|
—
|
|
|
152,434
|
|
2024 and thereafter
|
|
—
|
|
|
477,187
|
|
|
4,749
|
|
|
—
|
|
|
481,936
|
|
Total minimum lease payments
|
|
$
|
3,060
|
|
|
$
|
1,315,622
|
|
|
$
|
13,751
|
|
|
$
|
951
|
|
|
$
|
1,333,384
|
|
Less amount representing interest
|
|
310
|
|
|
303,429
|
|
|
3,658
|
|
|
43
|
|
|
307,440
|
|
Present value of minimum lease payments
|
|
$
|
2,750
|
|
|
$
|
1,012,193
|
|
|
$
|
10,093
|
|
|
$
|
908
|
|
|
$
|
1,025,944
|
|
Less current portion
|
|
1,053
|
|
|
125,429
|
|
|
2,165
|
|
|
544
|
|
|
129,191
|
|
Long-term portion
|
|
$
|
1,697
|
|
|
$
|
886,764
|
|
|
$
|
7,928
|
|
|
$
|
364
|
|
|
$
|
896,753
|
|
Commitments related to the Company's noncancellable short-term operating leases not recorded on the Company's condensed balance sheets are expected to be
$0.2 million
for the remainder of
2019
and
$0.0 million
in
2020 and beyond
.
The majority of the Company's finance lease obligations relate to leased computer and office equipment. Payments under the Company's finance lease agreements are fixed for terms ranging from
3
to
5 years
. Accounting for finance leases is substantially unchanged under Topic 842. Finance lease assets are recorded within property and equipment and the related liabilities are recorded within current maturities of long-term debt and finance leases and long-term debt and finance leases, less current maturities in the Company's condensed balance sheets.
The table below presents information for lease costs related to the Company's finance and operating leases:
|
|
|
|
|
|
Three Months Ended March 31, 2019
|
|
(in thousands)
|
Finance lease cost
|
|
Amortization of leased assets
|
$
|
210
|
|
Interest of lease liabilities
|
29
|
|
Operating lease cost
|
|
Operating lease cost (1)
|
49,715
|
|
Short-term lease cost (1)
|
3,449
|
|
Variable lease cost (1)
|
28,117
|
|
Total lease cost
|
$
|
81,520
|
|
(1) Expenses are classified within aircraft rent and landing fees and other rents on the Company's condensed statement of operations.
The table below presents lease-related terms and discount rates as of
March 31, 2019
:
|
|
|
|
|
March 31, 2019
|
Weighted-average remaining lease term
|
|
Operating leases
|
8.0 years
|
|
Finance leases
|
3.5 years
|
|
Weighted-average discount rate
|
|
Operating leases
|
6.72
|
%
|
Finance leases
|
6.12
|
%
|
|
|
10.
|
Commitments and Contingencies
|
Aircraft-Related Commitments and Financing Arrangements
The Company’s contractual purchase commitments consist primarily of aircraft and engine acquisitions through manufacturers. As of
March 31, 2019
, the Company's aircraft orders consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
Airbus
|
|
Third-Party Lessor
|
|
|
|
|
A320ceo
|
|
A320neo
|
|
A320neo
|
|
Total
|
remainder of 2019
|
|
1
|
|
8
|
|
1
|
|
10
|
2020
|
|
|
|
17
|
|
|
|
17
|
2021
|
|
|
|
18
|
|
|
|
18
|
|
|
1
|
|
43
|
|
1
|
|
45
|
As of
March 31, 2019
, the Company has no contractual aircraft purchase commitments beyond 2021. The Company also has
two
spare engine orders for V2500 SelectTwo engines with International Aero Engines ("IAE") and
seven
spare engine orders for PurePower PW1100G-JM engines with Pratt & Whitney. Spare engines are scheduled for delivery from
2019
through
2023
. Purchase commitments for these aircraft and engines, including estimated amounts for contractual price escalations and pre-delivery payments, are expected to be
$466.6 million
for the remainder of
2019
,
$865.7 million
in
2020
,
$775.7 million
in
2021
,
$17.6 million
in
2022
,
$8.3 million
in
2023
, and
$0.0 million
in
2024 and beyond
. As of
March 31, 2019
, the Company had secured debt financing commitments of
$35.0 million
for
1
aircraft, being delivered in May 2019. In addition, the Company has secured financing for
one
aircraft leased directly from a third-party lessor, which was delivered in April 2019. Aircraft rent commitments for this
1
leased aircraft are approximately
$3.0 million
for the remainder of
2019
,
$4.1 million
in
2020
,
$4.1 million
in
2021
,
$4.1 million
in
2022
,
$4.1 million
in
2023
, and
$29.4 million
in
2024 and beyond
. As of
March 31, 2019
, the Company does not have financing commitments in place for the remaining
43
Airbus aircraft on firm order, which are scheduled for delivery in the remainder of
2019
through
2021
.
Interest commitments related to the secured debt financing of
61
delivered aircraft as of
March 31, 2019
are
$64.9 million
for the remainder of
2019
,
$77.4 million
in
2020
,
$70.3 million
in
2021
,
$63.4 million
in
2022
,
$53.2 million
in
2023
, and
$154.2 million
in
2024 and beyond
. For principal commitments related to these financed aircraft, refer to Note 12, Debt and Other Obligations. As of
March 31, 2019
, principal and interest commitments related to the Company's future secured debt financing of
1
undelivered aircraft under bank debt are
$2.2 million
for the remainder of
2019
,
$4.7 million
in
2020
,
$4.7 million
in
2021
,
$3.5 million
in
2022
,
$3.6 million
in
2023
, and
$26.2 million
in
2024 and beyond
.
The Company is contractually obligated to pay the following minimum guaranteed payments for its reservation system and other miscellaneous subscriptions and services as of
March 31, 2019
:
$9.3 million
for the remainder of
2019
,
$14.4 million
in
2020
,
$11.3 million
in
2021
,
$11.2 million
in
2022
,
$11.3 million
in
2023
, and
$56.0 million
thereafter
. During the first quarter of 2018, the Company entered into a contract renewal with its reservation system provider which expires in 2028.
Litigation
The Company is subject to commercial litigation claims and to administrative and regulatory proceedings and reviews that may be asserted or maintained from time to time. The Company believes the ultimate outcome of such lawsuits, proceedings and reviews will not, individually or in the aggregate, have a material adverse effect on its financial position, liquidity or results of operations.
Credit Card Processing Arrangements
The Company has agreements with organizations that process credit card transactions arising from the purchase of air travel, baggage charges, and other ancillary services by customers. As is standard in the airline industry, the Company's contractual arrangements with credit card processors permit them, under certain circumstances, to retain a holdback or other collateral, which the Company records as restricted cash, when future air travel and other future services are purchased via credit card transactions. The required holdback is the percentage of the Company's overall credit card sales that its credit card processors hold to cover refunds to customers if the Company fails to fulfill its flight obligations.
The Company's credit card processors do not require the Company to maintain cash collateral provided that the Company satisfies certain liquidity and other financial covenants. Failure to meet these covenants would provide the processors the right to place a holdback resulting in a commensurate reduction of unrestricted cash. As of
March 31, 2019
and
December 31, 2018
, the Company was in compliance with such liquidity and other financial covenants in its credit card processing agreements and the processors were holding back
no
remittances.
The maximum potential exposure to cash holdbacks by the Company's credit card processors, based upon advance ticket sales and $9 Fare Club memberships as of
March 31, 2019
and
December 31, 2018
, was
$455.5 million
and
$321.0 million
, respectively.
Employees
The Company has
5
union-represented employee groups that together represented approximately
79%
of all employees at
March 31, 2019
. The table below sets forth the Company's employee groups and status of the collective bargaining agreements as of
March 31, 2019
.
|
|
|
|
|
|
|
|
Employee Groups
|
|
Representative
|
|
Amendable Date
|
|
Percentage of Workforce
|
Pilots
|
|
Air Line Pilots Association, International ("ALPA")
|
|
February 2023
|
|
26%
|
Flight Attendants
|
|
Association of Flight Attendants ("AFA-CWA")
|
|
May 2021
|
|
45%
|
Dispatchers
|
|
Professional Airline Flight Control Association ("PAFCA")
|
|
October 2023
|
|
1%
|
Ramp Service Agents
|
|
International Association of Machinists and Aerospace Workers ("IAMAW")
|
|
June 2020
|
|
4%
|
Passenger Service Agents
|
|
Transport Workers Union of America ("TWU")
|
|
NA
|
|
3%
|
In
August 2015
, the Company's collective bargaining agreement with its pilots, represented by ALPA, became amendable. In February 2018, the pilot group voted to approve a new
five
-year agreement with the Company. In connection with the new agreement, the Company recorded a one-time ratification incentive of
$80.7 million
, including payroll taxes, and an
$8.5 million
adjustment related to other contractual provisions. These amounts totaling
$89.2 million
were recorded in special charges within operating expenses in the condensed statement of operations for the
three
months ended
March 31, 2018
. For additional information, refer to Note 4, Special Charges.
In June 2018, the NMB notified the Company that the TWU filed an application seeking a representation election for the Company's passenger service agents. The NMB determined that a representation election would be held and the voting period for the election took place through September 4, 2018. The Company’s passenger service agents voted to be represented by the TWU, but the representation applies only to the Company’s Fort Lauderdale station where the Company has direct employees in the passenger service classification. The Company and the TWU began meeting in late October 2018 to negotiate an initial collective bargaining agreement. As of
March 31, 2019
, the Company continued to negotiate with the TWU.
The Company is self-insured for health care claims, up to a stop loss amount for eligible participating employees and qualified dependent medical claims, subject to deductibles and limitations. The Company’s liabilities for claims incurred but not reported are determined based on an estimate of the ultimate aggregate liability for claims incurred. The estimate is
calculated from actual claim rates and adjusted periodically as necessary. The Company has accrued
$5.1 million
and
$4.4 million
in health care claims as of
March 31, 2019
and
December 31, 2018
, respectively.
|
|
11.
|
Fair Value Measurements
|
Under ASC 820, "Fair Value Measurements and Disclosures", disclosures relating to how fair value is determined for assets and liabilities are required, and a hierarchy for which these assets and liabilities must be grouped is established, based on significant levels of inputs, as follows:
Level 1
—Quoted prices in active markets for identical assets or liabilities.
Level 2
—Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
Level 3
—Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.
Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The Company utilizes several valuation techniques in order to assess the fair value of the Company’s financial assets and liabilities.
Fuel Derivative Instruments
From time to time, the Company may enter into fuel derivative contracts in order to mitigate the risk of future volatility in fuel prices. The Company’s fuel derivative contracts generally consist of jet fuel swaps and jet fuel options. These instruments are valued using energy and commodity market data, which is derived by combining raw inputs with quantitative models and processes to generate forward curves and volatilities.
The Company utilizes the market approach to measure fair value for its fuel derivative instruments, if any. The market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities.
The Company has not historically elected hedge accounting on its fuel derivative instruments, if any. As a result, the Company would record the fair value adjustment of any fuel derivatives in the accompanying statement of operations within aircraft fuel and on the balance sheet within prepaid expenses and other current assets or other current liabilities, depending on whether the net fair value of the derivatives is in an asset or liability position as of the respective date. Fair values of any fuel derivative instruments are determined using standard option valuation models. The Company also considers counterparty risk and its own credit risk in its determination of all estimated fair values. The Company offsets fair value amounts recognized for any derivative instruments executed with the same counterparty under a master netting arrangement. The Company determines fair value of any jet fuel options utilizing an option pricing model based on inputs that are either readily available in public markets or can be derived from information available in publicly quoted markets. The Company has consistently applied these valuation techniques in all periods presented and believes it has obtained the most accurate information available for the types of derivative contracts it may hold.
The fair value of the Company's jet fuel swaps, if any, are determined based on inputs that are readily available in public markets or can be derived from information available in publicly quoted markets; therefore, the Company categorizes these instruments as Level 2. Due to the fact that certain inputs utilized to determine the fair value of jet fuel options are unobservable (principally implied volatility), the Company categorizes these derivatives as Level 3. Implied volatility of a jet fuel option is the volatility of the price of the underlying commodity that is implied by the market price of the option based on an option pricing model. Thus, it is the volatility that when used in a particular pricing model yields a theoretical value for the option equal to the current market price of that option. Implied volatility, a forward-looking measure, differs from historical volatility because the latter is calculated from known past returns. At each balance sheet date, the Company substantiates and adjusts unobservable inputs. The Company routinely assesses the valuation model's sensitivity to changes in implied volatility. As of
March 31, 2019
and
December 31, 2018
, the Company had no outstanding jet fuel derivatives.
Long-Term Debt
The estimated fair value of the Company's term loan debt agreements has been determined to be Level 3 as certain inputs used to determine the fair value of these agreements are unobservable. The Company utilizes a discounted cash flow method to estimate the fair value of the Level 3 long-term debt. The estimated fair value of the Company's publicly and non-publicly held EETC debt agreements has been determined to be Level 2 as the Company utilizes quoted market prices in markets with low trading volumes to estimate the fair value of its Level 2 long-term debt.
The carrying amounts and estimated fair values of the Company's long-term debt at
March 31, 2019
and
December 31, 2018
were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2019
|
|
December 31, 2018
|
|
Fair Value Level Hierarchy
|
|
Carrying Value
|
|
Estimated Fair Value
|
|
Carrying Value
|
|
Estimated Fair Value
|
|
|
(in millions)
|
|
|
Fixed-rate senior term loans
|
$
|
373.2
|
|
|
$
|
384.0
|
|
|
$
|
382.4
|
|
|
$
|
373.6
|
|
|
Level 3
|
Fixed-rate junior term loans
|
29.0
|
|
|
29.5
|
|
|
31.1
|
|
|
31.1
|
|
|
Level 3
|
Fixed-rate term loans
|
649.5
|
|
|
665.6
|
|
|
625.1
|
|
|
600.1
|
|
|
Level 3
|
2015-1 EETC Class A
|
378.6
|
|
|
386.2
|
|
|
378.6
|
|
|
374.8
|
|
|
Level 2
|
2015-1 EETC Class B
|
80.0
|
|
|
80.8
|
|
|
80.0
|
|
|
78.1
|
|
|
Level 2
|
2015-1 EETC Class C
|
109.5
|
|
|
110.3
|
|
|
109.5
|
|
|
107.9
|
|
|
Level 2
|
2017-1 EETC Class AA
|
235.4
|
|
|
231.3
|
|
|
242.5
|
|
|
228.8
|
|
|
Level 2
|
2017-1 EETC Class A
|
78.5
|
|
|
76.3
|
|
|
80.8
|
|
|
76.6
|
|
|
Level 2
|
2017-1 EETC Class B
|
77.2
|
|
|
75.8
|
|
|
83.7
|
|
|
79.1
|
|
|
Level 2
|
2017-1 EETC Class C
|
85.5
|
|
|
86.3
|
|
|
85.5
|
|
|
84.2
|
|
|
Level 2
|
Revolving credit facility
|
160.0
|
|
|
160.0
|
|
|
135.3
|
|
|
135.3
|
|
|
Level 3
|
Total long-term debt
|
$
|
2,256.4
|
|
|
$
|
2,286.1
|
|
|
$
|
2,234.5
|
|
|
$
|
2,169.6
|
|
|
|
Cash and Cash Equivalents
Cash and cash equivalents at
March 31, 2019
and
December 31, 2018
are comprised of liquid money market funds and cash, and are categorized as Level 1 instruments. The Company maintains cash with various high-quality financial institutions.
Short-term Investment Securities
Short-term investment securities at
March 31, 2019
and
December 31, 2018
are classified as available-for-sale and generally consist of U.S. Treasury and U.S. government agency securities with contractual maturities of 12 months or less. The Company's short-term investment securities are categorized as Level 1 instruments, as the Company uses quoted market prices in active markets when determining the fair value of these securities. For additional information, refer to Note 6, Short-term Investment Securities.
Assets and liabilities measured at gross fair value on a recurring basis are summarized below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements as of March 31, 2019
|
|
Total
|
|
Level
1
|
|
Level
2
|
|
Level
3
|
|
(in millions)
|
Cash and cash equivalents
|
$
|
1,122.1
|
|
|
$
|
1,122.1
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Short-term investment securities
|
103.5
|
|
|
103.5
|
|
|
—
|
|
|
—
|
|
Total assets
|
$
|
1,225.6
|
|
|
$
|
1,225.6
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements as of December 31, 2018
|
|
Total
|
|
Level
1
|
|
Level
2
|
|
Level
3
|
|
(in millions)
|
Cash and cash equivalents
|
$
|
1,004.7
|
|
|
$
|
1,004.7
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Short-term investment securities
|
102.8
|
|
|
102.8
|
|
|
—
|
|
|
—
|
|
Total assets
|
$
|
1,107.5
|
|
|
$
|
1,107.5
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
The Company had no transfers of assets or liabilities between any of the above levels during the periods ended
March 31, 2019
and
December 31, 2018
.
The Company's Valuation Group, which reports to the Chief Financial Officer, is made up of individuals from the Company's Treasury and Corporate Accounting departments. The Valuation Group is responsible for the execution of the Company's valuation policies and procedures. The Valuation Group compares the results of the Company's internally developed valuation methods with counterparty reports at each balance sheet date, assesses the Company's valuation methods for accurateness and identifies any needs for modification.
|
|
12.
|
Debt and Other Obligations
|
As of
March 31, 2019
, the Company had outstanding non-public and public debt instruments. During the
three
months ended
March 31, 2019
, the Company issued additional debt through a fixed-rate term facility and a previously existing revolving credit facility described below.
Fixed-rate term loans
During 2018, the Company entered into a facility agreement, which as of
March 31, 2019
, provided
$35.0 million
for an Airbus A320 aircraft delivered during the first quarter of 2019. The loan extended under the facility agreement is secured by a first-priority security interest on the individual aircraft. This loan has a term life of
12
years and amortizes on a mortgage-style basis, which requires quarterly principal and interest payments.
Revolving credit facility
During the fourth quarter of 2018, the Company entered into a revolving credit facility for up to
$160 million
secured by the collateral assignment of certain of the Company's rights under the purchase agreement with Airbus, related to
43
Airbus A320neo aircraft scheduled to be delivered between August 2019 and December 2021. The final maturity of the facility is December 30, 2020. As of
March 31, 2019
, the Company had drawn
$160.0 million
on the facility which is included in long-term debt and finance leases, less current maturities on the Company's condensed balance sheets. The revolving credit facility bears variable interest based on LIBOR.
Long-term debt is comprised of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
Three Months Ended March 31,
|
|
March 31, 2019
|
|
December 31, 2018
|
|
2019
|
|
2018
|
|
|
(in millions)
|
|
(weighted-average interest rates)
|
Fixed-rate senior term loans due through 2027
|
|
$
|
373.2
|
|
|
$
|
382.4
|
|
|
4.10
|
%
|
|
4.10
|
%
|
Fixed-rate junior term loans due through 2022
|
|
29.0
|
|
|
31.1
|
|
|
6.90
|
%
|
|
6.90
|
%
|
Fixed-rate loans due through 2031
|
|
649.5
|
|
|
625.1
|
|
|
3.67
|
%
|
|
3.83
|
%
|
Fixed-rate class A 2015-1 EETC due through 2028
|
|
378.6
|
|
|
378.6
|
|
|
4.10
|
%
|
|
4.10
|
%
|
Fixed-rate class B 2015-1 EETC due through 2024
|
|
80.0
|
|
|
80.0
|
|
|
4.45
|
%
|
|
4.45
|
%
|
Fixed-rate class C 2015-1 EETC due through 2023
|
|
109.5
|
|
|
109.5
|
|
|
4.93
|
%
|
|
N/A
|
|
Fixed-rate class AA 2017-1 EETC due through 2030
|
|
235.4
|
|
|
242.5
|
|
|
3.38
|
%
|
|
3.38
|
%
|
Fixed-rate class A 2017-1 EETC due through 2030
|
|
78.5
|
|
|
80.8
|
|
|
3.65
|
%
|
|
3.65
|
%
|
Fixed-rate class B 2017-1 EETC due through 2026
|
|
77.2
|
|
|
83.7
|
|
|
3.80
|
%
|
|
3.80
|
%
|
Fixed-rate class C 2017-1 EETC due through 2023
|
|
85.5
|
|
|
85.5
|
|
|
5.11
|
%
|
|
N/A
|
|
Revolving credit facility due in 2020
|
|
160.0
|
|
|
135.3
|
|
|
3.88
|
%
|
|
N/A
|
|
Long-term debt
|
|
2,256.4
|
|
|
2,234.5
|
|
|
|
|
|
Less current maturities
|
|
172.3
|
|
|
162.8
|
|
|
|
|
|
Less unamortized discounts, net
|
|
46.0
|
|
|
47.7
|
|
|
|
|
|
Total
|
|
$
|
2,038.1
|
|
|
$
|
2,024.0
|
|
|
|
|
|
The Company's debt financings are collateralized by first priority security interest in the individual aircraft being financed with the exception of the Company's revolving credit facility secured by the Company's rights under the purchase agreement with Airbus related to certain A320neo aircraft. During the
three
months ended
March 31, 2019
and
March 31, 2018
, the Company made scheduled principal payments of
$37.9 million
and
$18.7 million
on its outstanding debt obligations, respectively.
At
March 31, 2019
, long-term debt principal payments for the next five years and thereafter are as follows:
|
|
|
|
|
|
|
|
March 31, 2019
|
|
|
(in millions)
|
remainder of 2019
|
|
$
|
135.8
|
|
2020
|
|
212.8
|
|
2021
|
|
283.3
|
|
2022
|
|
161.9
|
|
2023
|
|
300.5
|
|
2024 and beyond
|
|
1,162.1
|
|
Total debt principal payments
|
|
$
|
2,256.4
|
|
Interest Expense
Interest expense related to long-term debt and finance leases consists of the following:
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
2019
|
|
2018
|
|
(in thousands)
|
Fixed-rate senior term loans
|
$
|
3,945
|
|
|
$
|
4,317
|
|
Fixed-rate junior term loans
|
523
|
|
|
667
|
|
Fixed-rate term loans
|
6,202
|
|
|
4,911
|
|
Class A 2015-1 EETC
|
3,838
|
|
|
4,142
|
|
Class B 2015-1 EETC
|
880
|
|
|
1,012
|
|
Class C 2015-1 EETC
|
1,335
|
|
|
—
|
|
Class AA 2017-1 EETC
|
1,989
|
|
|
682
|
|
Class A 2017-1 EETC
|
717
|
|
|
246
|
|
Class B 2017-1 EETC
|
754
|
|
|
283
|
|
Class C 2017-1 EETC
|
1,080
|
|
|
—
|
|
Revolving credit facility
|
1,413
|
|
|
—
|
|
Amortization of deferred financing costs
|
2,192
|
|
|
1,491
|
|
Commitment and other fees
|
74
|
|
|
77
|
|
Finance leases
|
29
|
|
|
21
|
|
Total
|
$
|
24,971
|
|
|
$
|
17,849
|
|
|
|
ITEM 2.
|
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|
Forward-Looking Statements
This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the "Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), which are subject to the “safe harbor” created by those sections. Forward-looking statements are based on our management’s beliefs and assumptions and on information currently available to our management. All statements other than statements of historical factors are “forward-looking statements” for purposes of these provisions. In some cases, you can identify forward-looking statements by terms such as “may,” “will,” “should,” “could,” “would,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “project,” “predict,” “potential,” and similar expressions intended to identify forward-looking statements. Such forward-looking statements are subject to risks, uncertainties and other important factors that could cause actual results and the timing of certain events to differ materially from future results expressed or implied by such forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those identified below, and those discussed in the section titled “Risk Factors” in this report and in Item 1A "Risk Factors" in our Annual Report on Form 10-K for the year ended
December 31, 2018
and subsequent Quarterly Reports on Form 10-Q. Furthermore, such forward-looking statements speak only as of the date of this report. Except as required by law, we undertake no obligation to update any forward-looking statements to reflect events or circumstances after the date of such statements.
Overview
Spirit Airlines, headquartered in Miramar, Florida, offers affordable travel to value-conscious customers. Our all-Airbus fleet is one of the youngest and most fuel efficient in the United States. We currently operate more than 600 daily flights to 75 destinations in 16 countries including the United States and throughout Latin America and the Caribbean. Our stock trades under the symbol "SAVE" on the New York Stock Exchange ("NYSE").
We focus on value-conscious travelers who pay for their own travel, and our business model is designed to deliver what our guests want: low fares and a great experience. We compete based on total price. We allow our guests to see all available options and their respective prices prior to purchasing a ticket, and this full transparency illustrates that our total price, including options selected, is lower on average than other airlines. By offering guests unbundled base fares, we give them the power to save by paying only for the Á La Smarte
TM
options they choose, such as checked and carry-on bags and advance seat assignments. We record revenue related to these options as non-fare passenger revenue, which is recorded within passenger revenues in our statement of operations.
We use low fares to address underserved markets, which helps us to increase passenger volume, load factors and non-ticket revenue on the flights we operate. We also have high-density seating configurations on our aircraft and a simplified onboard product designed to lower costs. High passenger volumes and load factors help us sell more ancillary products and services, which in turn allows us to reduce our fares even further.
We are committed to delivering the best value in the sky while providing an exceptional guest experience. Our new mobile-friendly website makes booking easier. Our new mobile application allows check-in while on the go, and our airport kiosks and self bag-tagging help our guests move through the airport more quickly.
Comparative Operating Statistics:
The following tables set forth our operating statistics for the
three
-month period ended
March 31, 2019
and
2018
:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
Percent Change
|
|
2019
|
|
2018
|
|
Operating Statistics (unaudited) (A):
|
|
|
|
|
|
Average aircraft
|
130.8
|
|
|
114.1
|
|
|
14.6
|
%
|
Aircraft at end of period
|
133
|
|
|
118
|
|
|
12.7
|
%
|
Average daily aircraft utilization (hours)
|
12.2
|
|
|
12.0
|
|
|
1.7
|
%
|
Average stage length (miles)
|
1,029
|
|
|
1,025
|
|
|
0.4
|
%
|
Block hours
|
143,429
|
|
|
122,954
|
|
|
16.7
|
%
|
Departures
|
52,175
|
|
|
44,982
|
|
|
16.0
|
%
|
Passenger flight segments (PFSs) (thousands)
|
7,820
|
|
|
6,537
|
|
|
19.6
|
%
|
Revenue passenger miles (RPMs) (thousands)
|
8,133,030
|
|
|
6,813,519
|
|
|
19.4
|
%
|
Available seat miles (ASMs) (thousands)
|
9,829,044
|
|
|
8,408,764
|
|
|
16.9
|
%
|
Load factor (%)
|
82.7
|
%
|
|
81.0
|
%
|
|
1.7 pts
|
|
Fare revenue per passenger flight segment ($)
|
53.24
|
|
|
52.42
|
|
|
1.6
|
%
|
Non-ticket revenue per passenger flight segment ($)
|
56.20
|
|
|
55.29
|
|
|
1.6
|
%
|
Total revenue per passenger flight segment ($)
|
109.44
|
|
|
107.71
|
|
|
1.6
|
%
|
Average yield (cents)
|
10.52
|
|
|
10.33
|
|
|
1.8
|
%
|
TRASM (cents)
|
8.71
|
|
|
8.37
|
|
|
4.1
|
%
|
CASM (cents)
|
7.81
|
|
|
8.84
|
|
|
(11.7
|
)%
|
Adjusted CASM (cents)
|
7.79
|
|
|
7.76
|
|
|
0.4
|
%
|
Adjusted CASM ex-fuel (cents)
|
5.46
|
|
|
5.33
|
|
|
2.4
|
%
|
Fuel gallons consumed (thousands)
|
109,828
|
|
|
95,003
|
|
|
15.6
|
%
|
Average economic fuel cost per gallon ($)
|
2.09
|
|
|
2.15
|
|
|
(2.8
|
)%
|
(A) See "Glossary of Airline Terms" elsewhere in this quarterly report for definitions used in this table.
Executive Summary
For the
first
quarter of
2019
, we achieved a
10.3%
operating margin, an
increase
of
15.8
percentage points compared to the prior year period. We generated pre-tax income of
$72.1 million
and net income of
$56.1 million
on operating revenues of
$855.8 million
. For the
first
quarter of
2018
, we incurred a pre-tax loss of
$59.7 million
and a net loss of
$44.9 million
on operating revenues of
$704.1 million
.
Our adjusted CASM ex-fuel for the
first
quarter of
2019
was
5.46 cent
s, a
2.4%
increase
year over year. The
increase
on a per-ASM basis was primarily due to an increase in salaries, wages, and benefits expense partially offset by a decrease in aircraft rent expense.
As of
March 31, 2019
, we had
133
Airbus A320-family aircraft in our fleet comprised of
31
A319s,
61
A320s,
30
A321s, and
11
A320neos. With the scheduled delivery of
10
aircraft during the remainder of
2019
, we expect to end
2019
with
143
aircraft in our fleet.
Since the delivery of our initial five A320neo aircraft in the fourth quarter of 2016, we have experienced introductory issues with the new-generation PW1100G-JM engines, which has resulted in diminished service availability of such aircraft. We continuously work with Pratt & Whitney to secure support and relief in connection with possible engine related operation disruptions.
Comparison of three months ended
March 31, 2019
to three months ended
March 31, 2018
Operating Revenues
Operating revenues
increase
d
$151.7 million
, or
21.5%
, to
$855.8 million
for the
first
quarter of
2019
, as compared to the
first
quarter of
2018
, primarily due to an
increase
in traffic of
19.4%
, an
increase
in passenger yields of
1.8%
and a load factor
increase
of 170 basis points.
Total revenue per available seat mile ("TRASM") for the
first
quarter of
2019
was
8.71 cent
s, an
increase
of
4.1%
, as compared to the
first
quarter of
2018
. This
increase
was due to higher passenger yields and higher load factor, year over year. The increase in average yield was driven by our revenue management initiatives and a strong demand environment.
Total revenue per passenger flight segment
increase
d
1.6%
, year over year. Fare revenue per passenger flight segment
increase
d
1.6%
and non-ticket revenue per passenger flight segment
increase
d
1.6%
. The
increase
in fare revenue per passenger flight segment was driven by a
1.8%
increase
in average yield, period over period. The
increase
in non-ticket revenue per passenger flight segment was primarily attributable to higher bag revenue, passenger usage fee, and seat revenue per flight segment, as compared to the prior year.
Operating Expenses
Operating expenses
increase
d
$25.1 million
, or
3.4%
, to
$768.0 million
for the
first
quarter of
2019
compared to
$742.9 million
for the
first
quarter of
2018
, primarily due to an increase in operations as reflected by a
16.9%
capacity growth and a
19.4%
increase
in traffic that drove an increase in operating expenses. This increase was partially offset by a
decrease
of
$89.2 million
in special charges year over year.
Aircraft fuel expense includes into-plane fuel expense (defined below) and realized and unrealized gains and losses associated with our fuel derivative contracts, if any. Into-plane fuel expense is defined as the price that we generally pay at the airport, including taxes and fees. Into-plane fuel prices are affected by the global oil market, refining costs, taxes and fees, which can vary by region in the United States and other countries where we operate. Into-plane fuel expense approximates cash paid to the supplier and does not reflect the effect of any fuel derivatives. From time to time, we may enter into fuel derivative contracts to protect the refining price risk between the price of crude oil and the price of refined jet fuel. We had no activity related to fuel derivative instruments during the
three months ended
March 31, 2019
and
2018
. Historically, management has chosen not to elect hedge accounting on any fuel derivative instruments and, as a result, changes in the fair value of fuel derivative contracts have been recorded each period in aircraft fuel expense.
Aircraft fuel expense
increase
d by
$25.0 million
, or
12.2%
, from
$204.6 million
in the
first
quarter of
2018
to
$229.6 million
in the
first
quarter of
2019
. This higher fuel expense, year over year, was due to a
15.6%
increase
in fuel gallons consumed, slightly offset by a
2.8%
decrease
in average economic fuel cost per gallon.
The elements of the changes in aircraft fuel expense are illustrated in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
|
2019
|
|
2018
|
|
|
(in thousands, except per gallon amounts)
|
|
Percent Change
|
Fuel gallons consumed
|
109,828
|
|
|
95,003
|
|
|
15.6
|
%
|
Into-plane fuel cost per gallon
|
$
|
2.09
|
|
|
$
|
2.15
|
|
|
(2.8
|
)%
|
Into-plane fuel expense
|
$
|
229,636
|
|
|
$
|
204,646
|
|
|
12.2
|
%
|
Realized losses (gains) related to fuel derivative contracts, net
|
—
|
|
|
—
|
|
|
NM
|
|
Unrealized losses (gains) related to fuel derivative contracts, net
|
—
|
|
|
—
|
|
|
NM
|
|
Aircraft fuel expense (per statements of operations)
|
$
|
229,636
|
|
|
$
|
204,646
|
|
|
12.2
|
%
|
Gulf Coast Jet indexed fuel is the basis for a substantial majority of our fuel consumption and is impacted by both the price of crude oil as well as increases or decreases in refining margins associated with the conversion of crude oil to jet fuel. The into-plane fuel cost per gallon
decrease
of
2.8%
was primarily a result of a
decrease
in jet fuel prices.
We track economic fuel expense, which we believe is the best measure of the effect fuel prices are currently having on our business, because it most closely approximates the net cash outflow associated with purchasing fuel used for our operations during the period. We define economic fuel expense as into-plane fuel expense and realized gains or losses on fuel derivative contracts. The key difference between aircraft fuel expense as recorded in our statement of operations and economic fuel expense is unrealized mark-to-market changes in the value of aircraft fuel derivatives outstanding. Many industry analysts evaluate airline results using economic fuel expense and it is used in our internal management reporting.
The elements of the changes in economic fuel expense are illustrated in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
|
2019
|
|
2018
|
|
|
(in thousands, except per gallon amounts)
|
|
Percent Change
|
Into-plane fuel expense
|
$
|
229,636
|
|
|
$
|
204,646
|
|
|
12.2
|
%
|
Realized losses (gains) related to fuel derivative contracts, net
|
—
|
|
|
—
|
|
|
NM
|
|
Economic fuel expense
|
$
|
229,636
|
|
|
$
|
204,646
|
|
|
12.2
|
%
|
Fuel gallons consumed
|
109,828
|
|
|
95,003
|
|
|
15.6
|
%
|
Economic fuel cost per gallon
|
$
|
2.09
|
|
|
$
|
2.15
|
|
|
(2.8
|
)%
|
During the
three months ended
March 31, 2019
and
2018
, we had no activity related to fuel derivatives and thus had no realized or unrealized losses (gains) related to fuel derivative contracts.
We measure our operating cost performance on a per-ASM basis, since one ASM is the unit of production of an airline’s capacity. The following table presents our cost per-ASM, or unit cost, for the three months ended
March 31, 2019
and
2018
, followed by explanations of the material changes on a dollar basis and/or unit cost basis:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
Dollar Change
|
|
Percent Change
|
|
Cost per ASM
|
|
Per-ASM Change
|
|
Percent Change
|
|
|
|
Three Months Ended March 31,
|
|
|
2019
|
|
2018
|
|
|
2019
|
|
2018
|
|
|
(in thousands)
|
|
|
|
(in cents)
|
|
|
Aircraft fuel
|
$
|
229,636
|
|
|
$
|
204,646
|
|
|
$
|
24,990
|
|
|
12.2
|
%
|
|
2.34
|
|
|
2.43
|
|
|
(0.09
|
)
|
|
(3.7
|
)%
|
Salaries, wages, and benefits
|
203,901
|
|
|
155,096
|
|
|
48,805
|
|
|
31.5
|
%
|
|
2.07
|
|
|
1.84
|
|
|
0.23
|
|
|
12.5
|
%
|
Landing fees and other rents
|
59,649
|
|
|
49,630
|
|
|
10,019
|
|
|
20.2
|
%
|
|
0.61
|
|
|
0.59
|
|
|
0.02
|
|
|
3.4
|
%
|
Aircraft rent
|
45,782
|
|
|
50,191
|
|
|
(4,409
|
)
|
|
(8.8
|
)%
|
|
0.47
|
|
|
0.60
|
|
|
(0.13
|
)
|
|
(21.7
|
)%
|
Depreciation and amortization
|
50,726
|
|
|
39,373
|
|
|
11,353
|
|
|
28.8
|
%
|
|
0.52
|
|
|
0.47
|
|
|
0.05
|
|
|
10.6
|
%
|
Distribution
|
35,719
|
|
|
30,631
|
|
|
5,088
|
|
|
16.6
|
%
|
|
0.36
|
|
|
0.36
|
|
|
—
|
|
|
—
|
%
|
Maintenance, materials and repairs
|
31,604
|
|
|
29,710
|
|
|
1,894
|
|
|
6.4
|
%
|
|
0.32
|
|
|
0.35
|
|
|
(0.03
|
)
|
|
(8.6
|
)%
|
Special charges
|
—
|
|
|
89,168
|
|
|
(89,168
|
)
|
|
NM
|
|
|
—
|
|
|
1.06
|
|
|
(1.06
|
)
|
|
NM
|
|
Loss on disposal of assets
|
1,913
|
|
|
848
|
|
|
1,065
|
|
|
NM
|
|
|
0.02
|
|
|
0.01
|
|
|
0.01
|
|
|
NM
|
|
Other operating
|
109,062
|
|
|
93,642
|
|
|
15,420
|
|
|
16.5
|
%
|
|
1.11
|
|
|
1.11
|
|
|
—
|
|
|
—
|
%
|
Total operating expenses
|
$
|
767,992
|
|
|
$
|
742,935
|
|
|
$
|
25,057
|
|
|
3.4
|
%
|
|
7.81
|
|
|
8.84
|
|
|
(1.03
|
)
|
|
(11.7
|
)%
|
Adjusted CASM (1)
|
|
|
|
|
|
|
|
|
7.79
|
|
|
7.76
|
|
|
0.03
|
|
|
0.4
|
%
|
Adjusted CASM ex-fuel (2)
|
|
|
|
|
|
|
|
|
5.46
|
|
|
5.33
|
|
|
0.13
|
|
|
2.4
|
%
|
|
|
(1)
|
Reconciliation of CASM to Adjusted CASM:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
2019
|
|
2018
|
|
(in millions)
|
|
Per ASM
|
|
(in millions)
|
|
Per ASM
|
CASM (cents)
|
|
|
7.81
|
|
|
|
|
8.84
|
|
Unrealized losses (gains) related to fuel derivative contracts, net
|
$
|
—
|
|
|
—
|
|
|
$
|
—
|
|
|
—
|
|
Loss on disposal of assets
|
1.9
|
|
|
0.02
|
|
|
0.8
|
|
|
0.01
|
|
Special charges
|
—
|
|
|
—
|
|
|
89.2
|
|
|
1.06
|
|
Adjusted CASM (cents)
|
|
|
7.79
|
|
|
|
|
7.76
|
|
|
|
(2)
|
Excludes aircraft fuel expense, loss on disposal of assets and special charges.
|
Our adjusted CASM ex-fuel for the
first
quarter of
2019
was
up
2.4%
as compared to the
first
quarter of
2018
. The
increase
on a per-ASM basis was primarily due to an increase in salaries, wages, and benefits expense partially offset by a decrease in aircraft rent expense.
Labor costs for the
first
quarter of
2019
increase
d
$48.8 million
, or
31.5%
, as compared to the
first
quarter of
2018
. The increase was primarily driven by an
12.1%
increase
in our pilot and flight attendant workforce resulting from an increase to our aircraft fleet of
15
additional aircraft, since the
first
quarter of
2018
. On a per-ASM basis, labor costs increased due to the rate increase our pilots received in connection with the new collective bargaining agreement that became effective on March 1, 2018.
Landing fees and other rents for the
first
quarter of
2019
increase
d
$10.0 million
, or
20.2%
, as compared to the
first
quarter of
2018
, primarily due to a
16.0%
increase
in departures. In addition, landing fees and other rents increased due to an increase in facility rent resulting from the addition of new stations and expansion of existing stations as well as rate increases at some of our existing stations. Landing fees and other rents also increased as a result of an increase in our station baggage rent primarily driven by an increase of
19.6%
in passenger flight segments. On a per-ASM basis, landing fees and other rents slightly increased, period over period, due to higher station baggage rent and a higher average rate per landing based on the location and volume of where we operated, as compared to the prior year period.
Aircraft rent expense for the
first
quarter of
2019
decrease
d by
$4.4 million
, or
8.8%
, as compared to the
first
quarter of
2018
. This
decrease
in aircraft rent expense was primarily driven by the purchase of 14 A319 aircraft off lease completed during the second quarter of 2018. For additional information, refer to Note 4, Special Charges. On a per-ASM basis, aircraft
rent expense
decrease
d primarily due to a change in the composition of our aircraft fleet between leased aircraft (for which rent expense is recorded under aircraft rent) and purchased aircraft (for which depreciation expense is recorded under depreciation and amortization). Since the prior year period, we have purchased 14 A319 aircraft off lease and have taken delivery of
15
new purchased aircraft, which increased capacity but had no effect on aircraft rent expense, as these assets were purchased and are being depreciated over their useful life.
Depreciation and amortization for the
first
quarter of
2019
increase
d by
$11.4 million
, or
28.8%
, as compared to the prior year period. The increase on both a dollar and per-ASM basis was primarily due to increased depreciation expense resulting from the purchase of
15
new aircraft and the purchase of
14
previously leased aircraft made since the
first
quarter of
2018
.
We account for heavy maintenance under the deferral method. Under the deferral method, the cost of heavy maintenance is capitalized and amortized as a component of depreciation and amortization expense in the statement of operations until the earlier of the next heavy maintenance event or end of the lease term. The amortization of heavy maintenance costs was
$13.1 million
and $11.7 million for the
first
quarters of
2019
and
2018
, respectively. As our fleet continues to grow and age, we expect that the amount of deferred heavy maintenance events will increase and will result in an increase in the amortization of those costs. If heavy maintenance events were amortized within maintenance, materials and repairs expense in the statement of operations, our maintenance, materials and repairs expense would have been
$44.7 million
and $41.4 million for the
first
quarter of
2019
and
2018
, respectively.
Distribution costs
increase
d by
$5.1 million
, or
16.6%
, in the
first
quarter of
2019
as compared to the
first
quarter of
2018
. The
increase
on a dollar basis was primarily due to increased sales volume. On a per-ASM basis, distribution costs remained stable year over year.
Maintenance, materials and repairs expense for the
first
quarter of
2019
increase
d by
$1.9 million
, or
6.4%
, as compared to the
first
quarter of
2018
. The
increase
in maintenance costs on a dollar basis was due to routine and ongoing maintenance on a growing fleet. On a per-ASM basis, maintenance costs decreased primarily due to fewer aircraft paint events, as compared to the prior year period. We expect maintenance expense to increase as our fleet continues to grow and age, resulting in the need for additional or more frequent repairs over time.
We had no special charges for the
first
quarter of
2019
. Special charges for the
first
quarter of
2018
consisted of
$89.2 million
recorded in connection with the pilot agreement approved in February 2018. The total amount includes a one-time
$80.7 million
ratification incentive, including payroll taxes, and an
$8.5 million
adjustment related to other contractual provisions. For further discussion, refer to Note 4. Special Charges.
Other operating expense for the
first
quarter of
2019
increase
d by
$15.4 million
, or
16.5%
, as compared to the
first
quarter of
2018
primarily due to an increase in overall operations. As compared to the prior year period, we increased departures by
16.0%
and had
19.6%
more passenger flight segments, which drove increases in variable operating expenses. On a per-ASM basis, other operating expense remained stable year over year.
Other (Income) Expense
Our interest expense and corresponding capitalized interest for the
three months ended
March 31, 2019
and
2018
primarily represents interest related to the financing of purchased aircraft. As of
March 31, 2019
and
2018
, we had
61
and 52 aircraft financed through secured long-term debt arrangements, respectively. Please see "Notes to Condensed Financial Statements—12. Debt and Other Obligations" for further discussion.
Our interest income for the
three months ended
March 31, 2019
represents interest income earned on cash, cash equivalents and short-term investments. Interest income for the
three months ended
March 31, 2018
primarily represents interest income earned on cash, cash equivalents, short-term investments and funds required to be held in escrow in accordance with the terms of our EETC.
Income Taxes
Our effective tax rate for the
first
quarter of
2019
was
22.2%
compared to
24.7%
for the
first
quarter of
2018
. The decrease in tax rate is attributed to an increase in discrete tax benefits related to equity compensation. While we expect our tax rate to be fairly consistent in the near term, it will tend to vary depending on recurring items such as the amount of income we earn in each state and the state tax rate applicable to such income. Discrete items particular to a given year may also affect our effective tax rates.
Liquidity and Capital Resources
Our primary sources of liquidity are cash on hand, cash provided by operations and capital from debt financing. Primary uses of liquidity are for working capital needs, capital expenditures, aircraft and engine pre-delivery deposit payments ("PDPs"), debt obligations and maintenance reserves. Our total cash at
March 31, 2019
was
$1,122.1 million
, an increase of
$117.4 million
from
December 31, 2018
. In addition to cash and cash equivalents, as of
March 31, 2019
, we had
$103.5 million
in short-term investment securities.
Currently, one of our largest capital expenditure needs is funding the acquisition costs of our aircraft. Aircraft may be acquired through debt financing, cash purchases, direct leases or sale leaseback transactions. During the
three
months ended
March 31, 2019
, we purchased
1
aircraft through debt financing transactions and made
$59.3 million
in debt payments (principal, interest and fees) on our outstanding debt obligations. The debt entered into in the current year matures in 2031. In addition, during the
three
months ended
March 31, 2019
, we purchased
one
engine which was previously financed under an operating lease agreement, for
$9.8 million
, comprised of a cash payment of
$7.2 million
, and the non-cash application of maintenance and security deposits held by the previous lessor of
$2.6 million
. Upon purchase off lease, the asset previously recorded in our operating lease right-of-use asset (in accordance with the adoption of Topic 842) was recorded within flight equipment on our condensed balance sheets. For additional information regarding our adoption of Topic 842, refer to "Notes to Condensed Financial Statements - 9. Leases."
Under our agreement with Airbus for aircraft, and International Aero Engines AG ("IAE") and Pratt & Whitney for engines, we are required to pay PDPs relating to future deliveries at various times prior to each delivery date. During the
three
months ended
March 31, 2019
, we paid
$37.9 million
in PDPs, net of refunds, and
$2.3 million
of capitalized interest for future deliveries of aircraft and spare engines. As of
March 31, 2019
, we had
$264.4 million
of pre-delivery deposits on flight equipment, including capitalized interest, on our condensed balance sheet.
During the fourth quarter of 2018, we entered into a revolving credit facility for up to
$160 million
secured by the collateral assignment of certain of our rights under our purchase agreement with Airbus, related to
43
Airbus A320neo aircraft scheduled to be delivered between August 2019 and December 2021. The final maturity of the facility is December 30, 2020. As of
March 31, 2019
, we had drawn
$160.0 million
on the facility.
As of
March 31, 2019
, we had secured debt financing for
one
aircraft, to be delivered in May 2019. In addition, we had secured financing for
one
aircraft to be leased directly from a third-party lessor, which was delivered in April 2019. As of
March 31, 2019
, we do not have financing commitments in place for the remaining
43
Airbus firm aircraft orders, scheduled for delivery between the remainder of
2019
through
2021
. Future aircraft deliveries may be paid in cash, leased or otherwise financed based on market conditions, our prevailing level of liquidity, and capital market availability.
In addition to funding the acquisition of our future fleet, we are required to make maintenance reserve payments for some of the leased aircraft in our current fleet. Maintenance reserves are paid to aircraft lessors and are held as collateral in advance of our performance of major maintenance activities. During the
three
months ended
March 31, 2019
, we recorded an increase of
$2.6 million
in maintenance reserves, net of reimbursements, and as of
March 31, 2019
, we had
$248.2 million
(
$129.8 million
in aircraft maintenance deposits and
$118.4 million
in long-term aircraft maintenance deposits) on our condensed balance sheet.
Net Cash Flows Provided By Operating Activities.
Operating activities in the
three
months ended
March 31, 2019
provided
$205.2 million
in cash compared to
$171.1 million
provided
in the
three
months ended
March 31, 2018
. The increase is primarily due to special charges within operating income recorded in the
three
months ended
March 31, 2018
associated with the amended pilot agreement that became effective on March 1, 2018. For additional information, refer to "Notes to Condensed Financial Statements - 4. Special Charges." In addition, we had an increase in deferred income tax expense. These increases were partially offset by a decrease in other liabilities.
Net Cash Flows Used In Investing Activities.
In the
three
months ended
March 31, 2019
, investing activities
used
$104.0 million
, compared to
$280.7 million
used
in the prior year period. The decrease was mainly driven by fewer purchases of property and equipment, year over year.
Net Cash Flows Provided By Financing Activities.
During the
three
months ended
March 31, 2019
, financing activities
provided
$16.2 million
in cash compared to
$207.1 million
provided in the
three
months ended
March 31, 2018
. We received
$59.7 million
in connection with the revolving credit facility and the debt financing related to
one
aircraft delivered during the
three
months ended
March 31, 2019
. We paid
$37.9 million
in debt principal obligations related to the financing of our aircraft. In addition, we paid
$5.2 million
to repurchase common stock necessary to satisfy tax withholding requirements from employees who received restricted stock and performance share units.
Commitments and Contractual Obligations
Our contractual purchase commitments consist primarily of aircraft and engine acquisitions through manufacturers. As of
March 31, 2019
, our firm aircraft orders consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
Airbus
|
|
Third-Party Lessor
|
|
|
|
|
A320ceo
|
|
A320neo
|
|
A320neo
|
|
Total
|
remainder of 2019
|
|
1
|
|
8
|
|
1
|
|
10
|
2020
|
|
|
|
17
|
|
|
|
17
|
2021
|
|
|
|
18
|
|
|
|
18
|
|
|
1
|
|
43
|
|
1
|
|
45
|
As of
March 31, 2019
, we have no contractual aircraft purchase commitments beyond 2021.We also have
two
spare engine orders for V2500 SelectTwo engines with IAE and
seven
spare engine orders for PurePower PW 1100G-JM engines with Pratt & Whitney. Spare engines are scheduled for delivery from
2019
through
2023
. Committed expenditures for these aircraft and spare engines, including estimated amounts for contractual price escalations and aircraft PDPs, are expected to be
$466.6 million
for the
2019
,
$865.7 million
in
2020
,
$775.7 million
in
2021
,
$17.6 million
in
2022
,
$8.3 million
in
2023
and
$0.0 million
in
2024 and beyond
.
We have significant obligations for aircraft and spare engines as
50
of our
133
aircraft and
11
of our
20
spare engines are financed under operating leases. These leases expire between 2019 and 2031. During the first quarter of 2019, we adopted Topic 842 using the modified retrospective approach with an effective date of January 1, 2019. As such, prior year financial statements were not recast under the new lease standard. With the new lease standard, operating leases with terms greater than 12 months are included within operating lease right-of-use assets with the corresponding liabilities included within current maturities of operating leases and operating leases, less current maturities on our condensed balance sheets. Leases with a term of 12 months or less are not recorded on our condensed balance sheets. Accounting for finance leases is substantially unchanged under Topic 842. Please see "Notes to Condensed Financial Statements—9. Leases" for further discussion on the adoption of Topic 842.
Aircraft rent payments were
$47.5 million
and
$70.1 million
for the three months ended
March 31, 2019
and
2018
, respectively. Our aircraft lease payments for
49
of our aircraft are fixed-rate obligations.
One
of our leases provide for variable rent payments, which fluctuate based on changes in LIBOR.
We have contractual obligations and commitments primarily with regard to future purchases of aircraft and engines, payments of debt, and lease arrangements. The following table discloses aggregate information about our contractual obligations as of
March 31, 2019
and the periods in which payments are due (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Remainder of 2019
|
|
2020 - 2021
|
|
2022 - 2023
|
|
2024 and beyond
|
|
Total
|
Long-term debt (1)
|
|
$
|
136
|
|
|
$
|
496
|
|
|
$
|
462
|
|
|
$
|
1,162
|
|
|
$
|
2,256
|
|
Interest commitments (2)
|
|
65
|
|
|
148
|
|
|
117
|
|
|
154
|
|
|
484
|
|
Finance and operating lease obligations
|
|
146
|
|
|
375
|
|
|
330
|
|
|
482
|
|
|
1,333
|
|
Flight equipment purchase obligations
|
|
467
|
|
|
1,641
|
|
|
26
|
|
|
—
|
|
|
2,134
|
|
Other (3)
|
|
9
|
|
|
26
|
|
|
23
|
|
|
56
|
|
|
114
|
|
Total future payments on contractual obligations
|
|
$
|
823
|
|
|
$
|
2,686
|
|
|
$
|
958
|
|
|
$
|
1,854
|
|
|
$
|
6,321
|
|
(1) Includes principal only associated with senior and junior term loans, fixed-rate loans, Class A, Class B, and Class C Series 2015-1 EETCs, Class AA, Class A, Class B, and Class C Series 2017-1 EETCs, and our revolving credit facility. Refer to "Notes to the Financial Statements - 12. Debt and Other Obligations."
(2) Related to senior and junior term loans, fixed-rate loans, and Class A, Class B, and Class C Series 2015-1 EETCs, and Class AA, Class A, Class B, and Class C Series 2017-1 EETCs. Includes interest accrued as of
March 31, 2019
related to our variable-rate revolving credit facility.
(3) Primarily related to our reservation system and other miscellaneous subscriptions and services. Refer to "Notes to the Financial Statements - 10. Commitments and Contingencies."
Some of our master lease agreements provide that we pay maintenance reserves to aircraft lessors to be held as collateral in advance of our required performance of major maintenance activities. Some maintenance reserve payments are fixed contractual amounts, while others are based on utilization. In addition to the contractual obligations disclosed in the table above, we have fixed maintenance reserve payments for these aircraft and related flight equipment, including estimated amounts for contractual price escalations, which are
$4.3 million
for the remainder of
2019
,
$5.6 million
in
2020
,
$5.7 million
in
2021
,
$4.9 million
in
2022
,
$4.1 million
in
2023
, and
$8.8 million
in
2024 and beyond
. Our lease agreements generally provide that maintenance reserves are reimbursable to us upon completion of the maintenance event. Some of our master lease agreements do not require that we pay maintenance reserves so long as our cash balance does not fall below a certain level. As of
March 31, 2019
, we are in full compliance with those requirements and do not anticipate having to pay reserves related to these master leases in the future.
As of
March 31, 2019
, principal and interest commitments related to our future secured debt financing for
1
undelivered aircraft to be financed under bank debt are approximately
$2.2 million
for the remainder of
2019
,
$4.7 million
in
2020
,
$4.7 million
in
2021
,
$3.5 million
in
2022
,
$3.6 million
in
2023
, and
$26.2 million
in
2024 and beyond
. In addition, aircraft rent commitments for
1
leased aircraft delivered in April 2019 are approximately
$3.0 million
for the remainder of
2019
,
$4.1 million
in
2020
,
$4.1 million
in
2021
,
$4.1 million
in
2022
,
$4.1 million
in
2023
, and
$29.4 million
in
2024 and beyond
.
Off-Balance Sheet Arrangements
As of
March 31, 2019
, we had lines of credit related to corporate credit cards of
$33.6 million
from which we had drawn
$1.4 million
.
As of
March 31, 2019
, we had lines of credit with counterparties for both physical fuel delivery and derivatives in the amount of
$41.5 million
. As of
March 31, 2019
, we had drawn
$26.1 million
on these lines of credit for physical fuel delivery. We are required to post collateral for any excess above the lines of credit if the derivatives are in a net liability position and make periodic payments in order to maintain an adequate undrawn portion for physical fuel delivery. As of
March 31, 2019
, we did not hold any derivatives.
As of
March 31, 2019
, we have
$10.8 million
in uncollateralized surety bonds and a
$35.0 million
unsecured standby letter of credit facility, representing an off balance-sheet commitment, of which
$20.0 million
had been drawn upon for issued letters of credit.
GLOSSARY OF AIRLINE TERMS
Set forth below is a glossary of industry terms:
“Adjusted CASM” means operating expenses, excluding unrealized gains or losses related to fuel derivative contracts, out of period fuel federal excise tax, loss on disposal of assets, special charges and supplemental rent adjustment for liabilities accrued in prior years that are no longer probable, divided by ASMs.
“Adjusted CASM ex-fuel” means operating expenses excluding aircraft fuel expense, loss on disposal of assets, special charges and supplemental rent adjustment for liabilities accrued in prior years that are no longer probable, divided by ASMs.
“AFA-CWA” means the Association of Flight Attendants-CWA.
“Air traffic liability” or “ATL” means the value of tickets sold in advance of travel.
“ALPA” means the Air Line Pilots Association, International.
“ASIF” means an Aviation Security Infrastructure Fee assessed by the TSA on each airline.
“Available seat miles” or “ASMs” means the number of seats available for passengers multiplied by the number of miles the seats are flown, also referred to as "capacity."
“Average aircraft” means the average number of aircraft in our fleet as calculated on a daily basis.
“Average daily aircraft utilization” means block hours divided by number of days in the period divided by average aircraft.
“Average economic fuel cost per gallon” means total aircraft fuel expense, excluding unrealized gains or losses related to fuel derivative contracts and out of period fuel federal excise tax, divided by the total number of fuel gallons consumed.
“Average stage length” represents the average number of miles flown per flight.
“Average yield” means average operating revenue earned per RPM, calculated as total revenue divided by RPMs, also referred to as "passenger yield."
“Block hours” means the number of hours during which the aircraft is in revenue service, measured from the time of gate departure before take-off until the time of gate arrival at the destination.
“CASM” or “unit costs” means operating expenses divided by ASMs.
“CBA” means a collective bargaining agreement.
“CBP” means United States Customs and Border Protection.
“DOT” means the United States Department of Transportation.
“EPA” means the United States Environmental Protection Agency.
"EETC" means enhanced equipment trust certificate.
“FAA” means the United States Federal Aviation Administration.
“Fare revenue per passenger flight segment” means total fare passenger revenue divided by passenger flight segments.
“FCC” means the United States Federal Communications Commission.
"FLL Airport" means the Fort Lauderdale Hollywood International Airport.
“GDS” means Global Distribution System (e.g., Amadeus, Galileo, Sabre and Worldspan).
"IAMAW" means the International Association of Machinists and Aerospace Workers.
“Into-plane fuel cost per gallon” means into-plane fuel expense divided by number of fuel gallons consumed.
“Into-plane fuel expense” represents the cost of jet fuel and certain other charges such as fuel taxes and oil.
“Load factor” means the percentage of aircraft seats actually occupied on a flight (RPMs divided by ASMs).
"Non-ticket revenue" means the sum of non-fare passenger revenues and other revenues.
“Non-ticket revenue per passenger flight segment” means total non-fare passenger revenue and other revenue divided by passenger flight segments.
“NMB” means the National Mediation Board.
“OTA” means Online Travel Agent (e.g., Orbitz and Travelocity).
“Passenger flight segments” means the total number of passengers flown on all flight segments.
“PDP” means pre-delivery deposit payment.
"PAFCA" means the Professional Airline Flight Control Association.
“Revenue passenger mile” or “RPM” means one revenue passenger transported one mile. RPMs equals revenue passengers multiplied by miles flown, also referred to as “traffic.”
“RLA” means the United States Railway Labor Act.
"Total operating revenue per-ASM," "TRASM" or "unit revenue" means operating revenue divided by ASMs.
“TWU” means the Transport Workers Union of America.
“TSA” means the United States Transportation Security Administration.
“ULCC” means “ultra low-cost carrier.”