Spirit Overview & 2016 Priorities

Transcription

1 March 2016

2 Disclaimer Statements in this release and certain oral statements made from time to time by representatives of the Company contain various forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, which represent the Company's expectations or beliefs concerning future events. The words expects, estimates, plans, anticipates, indicates, believes, forecast, guidance, outlook, may, will, should, seeks, targets and similar expressions are intended to identify forward-looking statements. Similarly, statements that describe the Company's objectives, plans or goals, or actions the Company may take in the future, are forward-looking statements. Forward-looking statements include, without limitation, statements regarding the Company's intentions and expectations regarding revenues, cost of operations, the delivery schedule of aircraft on order, and announced new service routes. All forwardlooking statements are based upon information available to the Company at the time the statement is made. The Company has no intent, nor undertakes any obligation, to publicly update or revise any forward-looking statement, whether as a result of new information, future events, or otherwise, except as required by law. Forward-looking statements are subject to a number of factors that could cause the Company's actual results to differ materially from the Company's expectations, including the competitive environment in the airline industry; the Company's ability to keep costs low; changes in fuel costs; the impact of worldwide economic conditions on customer travel behavior; the Company's ability to generate non-ticket revenues; and government regulation. Additional information concerning these and other factors is contained in the Company's Securities and Exchange Commission filings, including but not limited to the Company's Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, and Current Reports on Form 8-K. All forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by the cautionary statements set forth or referred to above. Forward-looking statements speak only as of the date of this presentation. You should not put undue reliance on any forward-looking statements. 2

3 Spirit Overview & 2016 Priorities

4 Spirit Low costs Growth opportunities Low fares High margins Underserved demand Our ultra-low cost structure coupled with a diverse, stable ancillary revenue model provides a platform to earn high margins, generate strong cash flows, and strengthen our balance sheet leading to more growth opportunities 4

5 Spirit s Business Model Works Strong track record of achieving high margins along with high growth in a variety of economic & operating environments (%) 24.0 Adjusted Operating Margin (1) Year-Over-Year % Capacity Growth: 15% 21% 22% 18% 30% Our long-term goal is to be a high growth carrier, earning mid-teens margins and delivering high returns 1 Excludes special items and unrealized mark-to-market gains and losses for all carriers shown. See Appendix for reconciliation detail for Spirit Adjusted Operating Margin. 5

6 2016 Priority One of our primary goals for 2016 is to improve our customer experience We are focused on: Delivering friendly service Improving our operational reliability and recoverability Reducing our complaint ratio through better operations, continued education efforts, and smoothing the edges We are committed to offering friendly, consistent, reliable service 6

7 80 Aircraft Serving Over 190 Non-Stop Markets Route selection based on optimizing operating margin and utilization 375+ daily flights to 56 destinations Diversified network Low frequency, primarily point-to-point 88% of the Top 25 U.S. Metros Demographic affinity between Ft. Lauderdale & Caribbean As of March 2016, includes routes announced but not yet started and seasonal routes. --- = seasonal 7 7

8 Robust Ancillary Revenue Stream

9 $ Per Passenger Flight Segment Non-ticket Provides Stable Revenue Stream ($) Non-ticket Ticket 90 $81 $79 $80 70 $75 $65 50 $45 $51 $54 $55 $

10 #1 in Non-ticket Spirit remains #1 in non-ticket revenue per passenger segment and we aren t done yet Future growth will come from: Increasing take rate through more customized pricing (i.e., revenue management) Offering more products / capturing a larger piece of the travel budget Enhancing loyalty spend by improving benefits and products The more we collect in non-ticket, the lower our Bare Fare can be 10

11 Base Fare + Optional Services = Lowest Total Price ($) Average Domestic Fare + Bag & Seat Options (1) LTM 9/30/ Mainline domestic data only for all carriers shown. Data derived from Form 41 for the twelve months ended September 30, 2015; includes domestic passenger revenue (includes seat revenue) plus domestic excess bag revenue divided by domestic revenue passenger enplanements. Data length of haul ( LOH ) adjusted to Spirit s domestic LOH for twelve months ended September 30, 2015, formula = other airline amount x (other airline LOH / Spirit LOH) American includes American and US Airways and Southwest includes Southwest and AirTran

12 Competitive Strengths

13 Lowest Cost Producer in Our Primary Markets Spirit s unit cost advantage is one of our most important assets as we grow ( ) Adjusted CASM (1) Full Year % Higher than Spirit % % % +44% Overlap With Spirit Network (2) 59% 17% 53% 33% 39% 1. Cost data based on public company reports for the twelve months ended December 31, Reflects mainline operations only. Stage length adjusted to Spirit s average stage length for twelve months ended December 31, 2015, formula = other airline CASM x (other airline stage length / Spirit stage length)^0.5. Stage length for American, JetBlue, and Southwest based on company reports for the twelve months ended December 31, 2015; Delta and United derived from Form 41 data for the twelve months ended September 30, Excludes special items and unrealized mark-to-market gains and losses for all carriers shown. See Appendix for reconciliation detail for Spirit Adjusted CASM. 2. Based on publicly available data as of February 1, 2016 for routes operated or scheduled to be operated in March 2016 (includes seasonal markets served in the period). Airports within same metropolitan areas considered single market. Spirit has a 20% overlap with Frontier which is not shown on slide as cost data for Frontier is not publicly available. 13

14 Costs Expected to Trend Lower Spirit s CASM Ex-Fuel is expected to be stable to declining through our growth cycle Scale Unit cost tailwinds are expected to come from: Capacity growth of 15% to 20% provides a near-term buffer Consistent, reliable operations Fuel Drives lower operational recovery costs Increased seat density, the addition of sharklets, and New Engine Option aircraft all help to drive increased fuel efficiency Salaries, wages, & benefits On a per ASM basis, juniority benefit helps mitigate inflationary cost pressures Aircraft rent Benefit from optimizing cost of ownership - buying aircraft vs. leasing equates to an estimated annualized pre-tax benefit of $1MM per aircraft (1) 1. Assumes ~4.15% interest with loan term of 12 years. Actual terms may differ

15 Cost Structure Allows Low Total Fares Spirit s total revenue per passenger is below the competition s breakeven cost ($) 350 LTM 3Q15 Stage Length Adj. Revenue Per Passenger (1) Breakeven Cost per Passenger Pre-tax Profit per Pax % Pre-tax Margin 25.0% % % 20.0% % % 15.0% % % 16.9% 10.0% % Spirit Southwest JetBlue Alaska American Delta United 0.0% 1. Based on public company reports for the twelve months ended September 30, 2015 American assumes pro forma results including US Airways for entire period. Reflects consolidated operations. Excludes special items and unrealized mark-to-market gains and losses for all carriers shown. 15

16 Mature & New Markets Performing Well Margin in new and mature markets demonstrates our successful deployment of assets and we are gaining momentum Fully Allocated Cost/Variable Cost Margin Performance Markets FY11 FY12 FY13 FY14 FY15 Core Mature (FAC) (1)(2) 13% 16% 19% 21% 26% Core New (FAC) (1)(3) 1% 8% 10% 10% 14% Utilization Mature (VAC) (2)(4) 33% 34% 32% 53% 64% Utilization New (VAC) (3)(4) 26% 20% 36% 32% 55% 1 Core flights are measured on a fully allocated cost basis. Core markets are flights operated during peak, daytime periods. 2 Mature markets include any markets that began service in the calendar year prior even if operated for less than twelve months. 3 New markets include any market that began service during each respective calendar year. 4 Utilization flights are measured on a variable allocated cost basis. A flight is considered a utilization flight if the majority of flight activity operates during off peak hours (red-eyes are the bulk of our utilization flights) or short haul flights that fit into gaps in the schedule. 16

17 Growth Opportunities

18 Spirit s addressable market has grown considerably Spirit s market opportunities far outnumber the anticipated number of new markets to be launched over the next five years # markets currently served (1) >190 # of planned new markets over next 5 years ~125 (# of planned new markets for 2016: ~20) # of markets we believe could earn a mid-teens or higher operating margin (2) > As of March Includes seasonal service and markets announced but not yet started. 2. Assumes our current cost structure

19 ULCCs Share of a Growing U.S. Domestic Market is Expected to Increase Significantly In terms of market size, the U.S. is comparable to Europe (1) and ULCCs sell about 20% of the avg. weekly seats sold in Europe (1). Total Domestic Market Share Big 4 (2) Mid-tier/Hybrids (2) ULCCs (3) 2015 Avg. Weekly Seats 15.7MM 2021E (5) Avg. Weekly Seats 17.5MM 86% 8% 5% 8% 81% 11% Big 4 : 13.4 MM Avg. Weekly Seats Big 4: 14.2MM Avg. Weekly Seats (assumes 6% growth 2021E vs. 2015) 1. Includes Ryanair (within Europe only), Wizz & EZJet as of last twelve months ended December 31, 2014; Europe includes all carriers serving markets within Europe; USA includes all carriers serving markets within the US. 2. Big 4 = American, Delta, Southwest & United Very large carriers with that are in a very mature phase of their growth cycle. 3. Mid-Tier/Hybrids = Alaska, JetBlue, & Virgin America Smaller carriers than the Big 4 trying to attract premium yields with their product offerings. 4. ULCCs = Allegiant, Frontier, & Spirit Carriers with Ultra-Low Cost structures designed to compete on the basis of price. 5. Assumes Spirit seat growth based on targeted capacity growth as of October 2015 and 5% growth in total avg. weekly seats for all other carriers. 19

20 % of Total Passengers Traffic Overlap with Traditional Carriers is Minimal Over 80% of Spirit s passengers buy tickets priced in the lowest fare band (%) 100 Passengers by Base Fare Band (1) 80 Avg. Base Fare $44 Big 4 (2) Spirit Avg. Base Fare $121 Avg. Base Fare $154 Avg. Base Fare $196 Avg. Base Fare $ % 20-40% 40-60% 60-80% % 1. US DOT OD1B for the twelve months ended June 30, Big 4 = American, Delta, United, and Southwest. 20

21 Spirit s Business Model Remains Resilient Our core strategy is intact and will continue Spirit is the low cost leader and our already industry leading 5.5 cent exfuel unit cost is trending flat to lower, while our competitors cost structures are trending higher Continued focus on using low costs to offer ultra-low fares. Customers fly Spirit because they know they can save money doing so New routes continue to spool quickly The Spirit Entry Effect is real - the number of additional travelers after we enter a market generally increases enough for us achieve an 85% or greater load factor without taking share from other carriers Focus is on returns; we actively adjust our network to maximize returns consistent with building a long-term franchise Our addressable market is growing - as our cost structure improves, more markets meet our margin threshold for growth 21

22 Model Drives Cash Flow and Improving Leverage (%) Cash % of TTM Revenue Adj. Net Debt/EBITDAR (1) Adj. Net Debt includes capitalized operating leases (7x multiple). EBITDAR excludes special items and unrealized mark-to-market gains and losses. See Appendix for Spirit reconciliation details to most comparable GAAP measure. 22

23 Key Investment Highlights

24 Key Investment Highlights Operating Margins Consistently Among the Best in the U.S. Industry Industry Leading Cost Structure with Stable Ancillary Revenue Stream Youngest Fleet of any Major U.S. Airline Profitable Growth Opportunities in Domestic & Foreign Markets Strong Balance Sheet: Low Leverage/High Liquidity 24

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26 Appendix

27 Reconciliations (cont d) (in thousands) Operating, Pre-tax, and Net Income reconciliation Net income as reported $ 76,448 $ 108,460 $ 176,918 $ 225,464 $ 317,220 Add: Provision (benefit) for income taxes 46,383 66, , , ,183 Income before income taxes, as reported $ 122,831 $ 174,584 $ 282,410 $ 352,994 $ 502,403 Pre-tax margin, GAAP 11.5% 13.2% 17.1% 18.3% 23.5% Add: Total other (income) expense 21,551 (594) (118) 2,269 6,719 Operating income, as reported 144, , , , ,122 Operating margin, GAAP 13.5% 13.2% 17.1% 18.4% 23.8% Add special items: Prior years' additional federal excise tax (1) ,278 - Unrealized (gains) and losses related to outstanding fuel derivatives (2) 3, ,881 (3,880) Special charges and credits 3,184 (8,450) Loss on disposal of assets ,008 1,604 Operating income, non-gaap (3) 151, , , , ,519 Operating margin, non-gaap (3) 14.1% 12.6% 17.1% 19.2% 23.7% Total operating revenue, as reported $ 1,071,187 $ 1,318,388 $ 1,654,385 $ 1,931,580 $ 2,141,463 See Description of Special Items at the end of the Appendix for more details. 27

28 Reconciliations (cont d) Twelve Months Ended (in thousands except CASM data in cents) December 31, 2015 Total operating expenses, as reported $ 1,632,341 Less special items: Prior years' additional federal excise tax (1) - Unrealized gains and losses arising from mark-to-market adjustments to outstanding fuel derivatives (2) 3,880 Special charges and credits (673) Loss on disposal of assets (1,604) Total operating expenses excluding special items $ 1,633,944 Less economic fuel expense 465,327 Total operating expenses excluding special items and fuel $ 1,168,617 Available seat miles (ASMs) 21,246,156 Cost per ASM (CASM) 7.68 Adjusted CASM (3) 7.69 Adjusted CASM Ex-fuel (3) 5.50 See Description of Special Items at the end of the Appendix for more details. 28

29 Reconciliation Adj. Net Debt/EBITDAR (in thousands) EBITDA Reconciliation: Net income, as reported $ 76,448 $ 108,460 $ 176,918 $ 225,464 $ 317,220 Add: Provision for income taxes 46,383 66, , , ,183 Income before income taxes, as reported 122, , , , ,403 Add: EBITDA Add: Year Ended December 31, Interest expense 24,781 1, ,747 20,382 Capitalized interest (2,890) (1,350) (214) (2,747) (11,553) Interest income (575) (925) (401) (336) (2,125) Depreciation and amortization 7,760 15,256 31,947 46,971 73, , , , , ,015 Other expense , Unrealized mark-to-market (gains) losses (2) 3, ,881 (3,880) Loss on disposal of assets ,008 1,604 Special charges (credits) (7) 3,184 (8,450) Operating special items (1) ,278 - Adjusted EBITDA 158, , , , ,427 Add: Aircraft rent 116, , , , ,531 Adjusted EBITDAR(3) $ 275,270 $ 325,370 $ 484,940 $ 614,273 $ 792,958 Average Net Debt $ (343,328) $ (416,816) $ (530,631) $ (559,660) $ (407,343) Capitalized Operating 7x multiple 815,395 1,005,004 1,188,159 1,370,789 1,480,717 Adj. Net Debt 472, , , ,129 1,073,374 Adj. Net Debt to EBITDAR

30 Description of Special Items (1) During the third quarter 2014, the Company became aware of an underpayment of Federal Excise Tax ( FET ) for fuel purchases during the period between July 1, 2009 and August 31, The commencement of the period in which the Company underpaid FET coincided with a change in its fuel service provider that took place in July In its calculation for economic fuel price for full year 2014, the Company excluded the prior years additional FET amount of $9.3 million as a special item but included the year-to-date 2014 additional FET amount of $2.1 million. (2) Unrealized mark-to-market gains and losses are comprised of non-cash adjustments to aircraft fuel expense. (3) Excludes special items. (4) Non-operating special charges relate to the settlement paid to the Pre-IPO Stockholders in excess of the liability the Company had previously estimated related to the Company's Tax Receivable Agreement. (5) Excludes special items and non-operating special charges. (6) Assumes same marginal tax rate as is applicable to GAAP net income for the respective period. (7) Special charges (credits) include: (i) for 2011, amounts relating to exit facility costs associated with moving our Detroit, Michigan maintenance operations to Fort Lauderdale, Florida and termination costs in connection with the IPO during the three months ended June 30, 2011 comprised of amounts paid to Indigo Partners, LLC to terminate its professional service agreement with Spirit and fees paid to three individual, unaffiliated holders of the Company's subordinated notes, and, (ii) for 2012, recognition of a gain on the sale of four carrier slots at Ronald Reagan National Airport and secondary offering costs related to the sale of 9.4 million shares by Oaktree Capital Management. 30