January 2015 -...

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January 2015

Transcript of January 2015 -...

January 2015

Disclaimer

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Spirit is an Industry Innovator

• Differentiated business model in the U.S.

• Low total fares (Bare Fares™ + Frill Control™/options) drives demand

• Lowest cost producer in our markets

• Highest margin performance among our primary competitors

• Disciplined growth strategy has resulted in positive net margin for eight consecutive years, through volatile economic environments

• Strong credit position and cash balance to fund growth opportunities

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2011 2012 2013 2014 2015E

ROIC Pre-Tax Margin

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1 1

Pre

-tax R

etu

rn o

n I

nveste

d C

apital

Pre

-tax M

arg

in

Focused on High Shareholder Returns

(%) (%)

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1. Excludes special items; See Appendix for the reconciliation/calculation details.

2. Adjusted for estimated impact from Hurricane Sandy. See Appendix for reconciliation/calculation details.

3. Range implied by guidance given on February 10, 2015.

2015E3

67 Aircraft Serving Over 150 Non-Stop Markets

• Route selection based on optimizing operating margin

and utilization

• 325+ daily flights to 57 destinations

• Diversified network

• Low frequency, primarily point-to-point

• 84% of the Top 25 U.S. Metros

• Demographic affinity between Ft. Lauderdale &

Caribbean

As of January 2015, includes routes announced but not yet started and seasonal routes.

Non-stop service between Houston and Cancun, Los Cabos, Managua, San Jose, San Pedro Sula, San Salvador and Toluca/Mexico City is subject to government approval.

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SPIRIT INNOVATION:

Competing solely on the basis of price

• Treat all customers the same – no special treatment

• One class cabin – no additional training necessary

• One fleet type – crews can work any aircraft assigned

• No waivers & favors – lessens agent training time

• Target high asset utilization based on highest return potential

• No emotional attachment to any particular route

• Based on demand, serve markets less than daily or seasonally to meet return

objectives

• No value in market share

Every decision is driven by its impact to the bottom line

Core Principles – Keep It Simple

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Price Above All

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2

2

3

3

3

5

6

11

13

50

0 20 40 60

Complimentary in-flight snack and beverage

Frequent flier benefits

Business class availability

Extra legroom

Wi-fi

Luggage charges and other fees

Airports served (which area airport is selected)

Reputation of airline service

Schedule

Non-stop vs. connecting flight

Price

Source: Toluna MultiMind Omnibus Surveys; sample size: 1,474 air travelers; field date: June 26-27, 2014.

Survey question: What is the first thing you consider when looking to

purchase an airline ticket?

(%)

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105.42

148.65 151.10

163.82 163.96 167.04

75

100

125

150

175

Base Fare + Optional Services = Lowest Total Price

Average Domestic Fare + Bag & Seat Options(1)

LTM 2Q14

($)

1. Mainline domestic data only for all carriers shown. Data derived from Form 41 for the twelve months ended June 30, 2014; 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 June 30, 2014 (1006 miles), formula = other airline amount x (other airline LOH / Spirit LOH)-0.55. American includes American and US Airways and Southwest includes

Southwest and AirTran.

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CONFIDENTIAL

Spirit remains #1 in non-ticket revenue per passenger segment

… and we aren’t done yet

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#1 in Non-ticket

44.79

51.39 53.84

55.03

0.00

10.00

20.00

30.00

40.00

50.00

60.00

2011 2012 2013 2014

($) Non-Ticket/Ancillary Characteristics:

• Encourages demand stimulation

• Customers choose what they value

• Less seasonal

• Less subject to price wars

• <100% paid by customer

• Provides economic incentives to drive low cost behavior

• Example:

− Charge for bags − Customers bring fewer bags − Less infrastructure needed − Burn less fuel

Saves Spirit & Customers Money!

The more we collect in non-ticket, the lower our Bare Fare™ can be

Drive low costs through high productivity, while escaping

from many “traditional” airline product features

SPIRIT INNOVATION:

• Keep it simple – one class cabin, treat all customers the same, no waivers & favors

• High asset utilization • Maximize real estate on aircraft (seat density)

• High aircraft utilization (hrs/day)

• Cost effective use of facilities

• Optimize the variable component of our cost structure

• Flexible outsourcing at stations, especially when first entering a market

• Lease gates on an as needed basis - avoid initial long-term commitments

• Keep a low cost mindset • Continual pressure to eliminate and reduce costs or get someone else to pay for it

• Unit cost targets communicated company-wide

• Bonus program is directly linked to achieving unit cost targets

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11.9

10.8

9.0

10.0

11.0

12.0

13.0

Low Cost by Design

Spirit A320 – 19% more seats with

178 Seats Per Aircraft

JetBlue A320 - 150 Seats Per Aircraft

Average Daily Aircraft Utilization(1)

(Hours)

1. Based on the twelve months ended 12/31/13.

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Lowest Cost Producer in Our Primary Markets

8.00

10.00

12.00

14.00

16.00

18.00

20.00Adjusted CASM(1)

+92%

Higher than Spirit

+59%

+11%

+30%

+52%

1. Cost data based on public company reports for the twelve months ended December 31, 2014. Reflects mainline operations only. American assumes pro forma results including US Airways for entire period.

Stage length adjusted to Spirit’s average stage length for twelve months ended December 31, 2014 of 980 miles, formula = other airline CASM x (other airline stage length / Spirit stage length)^0.5. Stage

length for American, JetBlue, and Southwest from company reports for the twelve months ended December 31, 2014; Delta and United derived from Form 41 data for the twelve months ended September 30,

2014. 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 January 1, 2015 for routes as of 1Q15 (includes seasonal markets served in the period). Airports within same metropolitan areas considered single market.

Overlap With

Spirit Network (2) 47% 16% 51% 24% 40%

Spirit’s unit cost advantage is one of our most important assets as we grow

(¢)

Full year 2014

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Strong foundation to leverage growth opportunities

SPIRIT FUTURE

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100 600 1,100 1,600 2,100 2,600

RA

SM

(R

evenue p

er

Availa

ble

Seat

Mile

)

Miles

Many Untapped Markets Meet Threshold for Growth

Example

Market: A to B

Daily Passengers Each Way: 253

Distance (miles): 1,424

Current Avg. Fare(1): $227

Spirit Breakeven Fare(2) : $135

Over 500 Markets

Meet our Threshold for Growth

1. Based on USDOT DB1B LTM2Q14.

2. Assumes avg. fares for the twelve months ended 6/30/14 discounted at 25% and Spirit’s Adjusted CASM for the twelve months ended 6/30/14 adjusted for each respective

market stage length, formula = Spirit’s Adj. CASM x (Sprit’s avg. stage length of 986 miles / market stage length)^0.5. See Appendix for Spirit’s Adjusted CASM reconciliation.

(Cents)

Margin threshold for growth(2)

Example

Market: A to B

Daily Passengers Each Way: 610

Distance (miles): 507

Current Avg. Fare(1): $144

Spirit Breakeven Fare(2) : $85

Example

Market: A to B

Daily Passengers Each Way: 458

Distance (miles): 1,382

Current Avg. Fare(1): $215

Spirit Breakeven Fare(2) : $133

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Target large markets with high average fares

737

191

1,347

650

407

951

346

1,777

1,048

535

0

500

1,000

1,500

2,000

Pre Spirit Post Spirit

Spirit’s Low Fares Allow More People to Go More Places

Average Passengers per Day Each Way

1. Measurement period begins January 2007 through June 2014. System average measures only those markets Spirit has served for at least twelve months.

2. Sample markets do not necessarily reflect system average. Pre Spirit is the average for the four calendar quarters prior to

Spirit’s entry; Post Spirit is the average for the four calendar quarters following Spirit’s entry

On average, Spirit’s low fares grow the traffic base by about 37%(1)

Chicago

&

Orlando

Ft. Lauderdale

&

San Jose, CR

Las Vegas

&

Oakland

Los Angeles

&

Chicago

Dallas/Fort Worth

&

Detroit

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18.2%

10.7%

5.5%

15.9%

8.5%

9.5%

4.4%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

16.0%

18.0%

20.0%

-

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50

75

100

125

150

175

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225

250

275

300

325

350

375

Spirit Southwest JetBlue Alaska American Delta United

LTM 3Q14 Stage Length Adjusted Revenue Per Passenger(1)

Breakeven Cost per Passenger Pre Tax Profit per Pax % Pre-tax Margin

Chasing Spirit is a Money Losing Proposition Spirit’s total revenue per passenger is below the competition’s breakeven cost

1. Based on public company reports for the twelve months ended September 30, 2014 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.

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Well positioned to fund our growth

STRONG FINANCIAL POSITION

2011 2012 Markets 2013 2014

Core Mature (FAC)(1)(2)

Core New

(FAC)(1)(3)

Utilization Mature (VAC)(2)(4)

Utilization New (VAC)(3)(4)

13%

1%

33%

26%

16%

8%

34%

20%

19%

10%

32%

36%

21%

10%

53%

32%

Fully Allocated Cost/Variable Cost Margin Performance

Mature & New Markets Performing Well

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.

5 2014 is based on preliminary flight profitability analysis for the year ended 12/31/14.

New and mature markets continue to demonstrate our successful

deployment of assets and we are gaining momentum

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19.2

17.2

15.9

12.0 11.2

9.8

6.6

5.1

0.0

5.0

10.0

15.0

20.0

Adjusted Pre-Tax Margin(1)

Spirit’s Business Model Drives High Margins

Capacity Growth(2)

17.9 6.6 9.8 0.5 3.9 2.4 5.1 0.5

1. Based on public company reports for the twelve months ended December 31, 2014. American assumes pro forma results including US Airways for entire period. Excludes

special items and unrealized mark-to-market gains and losses for all carriers shown. See Appendix for Spirit reconciliation details to most comparable GAAP measure.

2. Capacity growth = % change in consolidated available seat miles for twelve months ended December 31, 2014 compared to twelve months ended December 31, 2013.

Carefully managed growth drives industry-leading margins

(%)

Full Year 2014

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Continuous improvement in these four key principles will allow us to

successfully execute our business model

Long-Term Strategy

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MANAGE PROFITABLE GROWTH

LOWER UNIT COSTS

CONSISTENTLY RELIABLE

VALUE PROPOSITION UNDERSTOOD BY OUR CUSTOMERS

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Appendix

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Steady Fleet Plan Provides for Measured Growth in

Keeping with our Goal of 15%-20% Capacity CAGR

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A319 A320 CEO A320 NEO A321 CEO A321 NEO Total

29 34 - 2 - 65

1Q15 - 5 - - - 5

2Q15 - 3 - - - 3

3Q15 - - - 3 - 3

4Q15 - - 1 3 - 4

29 42 1 8 - 80

1Q16 (1) - 1 3 - 3

2Q16 (2) 1 1 2 - 2

3Q16 - 1 2 2 - 5

4Q16 - 1 - 2 - 3

26 45 5 17 - 93

2017 (4) 7 - 8 - 11

2018 (5) 2 6 5 - 8

2019 (1) - 3 - 10 12

2020 (7) - 13 - - 6

2021 (4) - 18 - - 14

Total Aircraft Year-end 2021 5 54 45 30 10 144

Notes:

Includes aircraft on firm order as well as 5 leased A320neo aircraft.

2017 reflects scheduled deliveries of 8 A320ceo and 10 A321ceo aircraft, net of 1 A320ceo and 2 A321ceo lease expirations.

Aircraft Delivery Schedule (net of Scheduled Retirements) as of February 10, 2015

Total Aircraft Year-end 2014

Total Aircraft Year-end 2015

Total Aircraft Year-end 2016

Full Year 2014 Financial Highlights

FY14

Change vs.

FY13

Total operating revenue (MM) $1,932 16.8%

Economic fuel expense (MM)(1/2/3/4) $600 8.8%

Adjusted CASM ex-fuel (cents) 5.88 (0.5)%

Adjusted operating income (MM)(7) $371 31.1%

ASMs/Capacity (MM) 16,340 17.9%

Load Factor 86.7% 0.1 pts

Unrestricted Cash (MM) $633 19.3%

Cash as a % of LTM Revenue 32.8% 0.7 pts

Margin Performance FY2014

Pre-tax Margin(9) 19.2%

Pre-tax ROIC(9) 30.1%

See “Description of Special Items” at the end of the Appendix for more details.

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Reconciliation for Return on Invested Capital

See “Description of Special Items” at the end of the Appendix for more details.

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(in thousands)

Operating Income 144,382$ 173,990$ 282,292$ 355,263$

Add special items:

Prior years' additional federal excise tax (1) 9,278

Unrealized losses arising from mark-to-market adjustments

to outstanding fuel derivatives (2) 3,204 46 265 -

Premium expense recognized related to outstanding fuel option contracts (3) 4,876

Fuel option premium realized in the period (4) (995)

Special charges (credits) (5) 255 (8,450) 174 45

Loss on disposal of assets 3,184 956 525 3,008

Aircraft Rent 116,485 143,572 169,737 195,827

Adjusted Operating Income (6) 267,510$ 310,114$ 452,993$ 567,302$

Invested Capital

Total Debt -$ -$ -$ 146,248$

Mandatorily redeemable preferred stock - - - -

Book Equity 466,706 582,535 769,117 1,003,075

Less: Unrestricted Cash 343,328 416,816 530,631 632,784

Add: Capitalized Aircraft Operating Leases (7x Aircraft Rent) 815,395 1,005,004 1,188,159 1,370,789

Total Invested Capital 938,773$ 1,170,723$ 1,426,645$ 1,887,328$

Return on Invested Capital (ROIC), pre-tax 28.5% 26.5% 31.8% 30.1%

Estimated impact from Hurricane Sandy 24,000$

Adjusted operating income 334,114$

Estimated impact from Hurricane Sandy (9,096)$

Adjusted total invested capital 1,161,627$

Hurricane Sandy Adjusted ROIC, pre-tax 28.8%

December 31, 2014

Twelve Months Ended

December 31, 2011 December 31, 2012 December 31, 2013

Reconciliation for Adjusted CASM

See “Description of Special Items” at the end of the Appendix for more details.

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(in thousands except CASM data in cents)

Total operating expenses, as reported 1,576,317$

Less special items:

Prior years' additional federal excise tax (1) (9,278)

Unrealized gains and losses arising from mark-to-market adjustments

to outstanding fuel derivatives (2) -

Premium expense recognized related to outstanding fuel option contracts (3) (4,876)

Fuel option premium realized in the period (4) 995

Special charges and credits (5) (45)

Loss on disposal of assets (3,008)

Total operating expenses excluding special items 1,560,105$

Less economic fuel expense 599,750

Total operating expenses excluding special items and fuel 960,355$

Available seat miles (ASMs) 16,340,142

Cost per ASM (CASM) 9.65

Adjusted CASM (7) 9.55

Adjusted CASM Ex-fuel (7) 5.88

Twelve Months Ended

December 31, 2014

Reconciliation for Operating, Pre-Tax & Net Income

See “Description of Special Items” at the end of the Appendix for more details.

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(in thousands)

Operating, Pre-tax, and Net Income reconciliation

Net income as reported 225,464$

Add: Provision (benefit) for income taxes 127,530

Income before income taxes, as reported 352,994$

Pre-tax margin, GAAP 18.3%

Add: Total other (income) expense 2,269

Operating income, as reported 355,263

Operating margin, GAAP 18.4%

Add special items:

Prior years' additional federal excise tax (1) 9,278

Unrealized losses arising from mark-to-market adjustments

to outstanding fuel derivatives (2) -

Premium expense recognized related to outstanding fuel option contracts (3) 4,876

Fuel option premium realized in the period (4) (995)

Special charges and credits (5) 45

Loss on disposal of assets 3,008

Operating income, non-GAAP (7) 371,475

Operating margin, non-GAAP (7) 19.2%

Less: Total other (income) expense 2,269

Add: Non-operating special charges (8) 1,388

Pre-tax income, non-GAAP (9) 370,594

Pre-tax margin, non-GAAP (9) 19.2%

Provision for income taxes (10) 133,889

Net income, non-GAAP (9) 236,705

Total operating revenue, as reported 1,931,580$

Twelve Months Ended

December 31, 2014

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, 2014. 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 2009. 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 losses which are comprised of non-cash adjustments to aircraft fuel expense.

(3) Recognized premium expense related to outstanding fuel option contracts. The Company has not elected hedge accounting on any fuel derivative instruments

entered into during the respective period and, as a result, changes in the fair value of fuel derivative contracts are recorded in aircraft fuel expense.

(4) Fuel option premiums are added back to expense to correlate the cost of hedging with the period for which the hedges benefit.

(5) Special charges and credits include: (i) for 2010, amounts relating to the sale of previously expensed MD-80 parts, (ii) for 2010, 2011, amounts related to exit

facility costs associated with moving our Detroit, Michigan maintenance operations to Fort Lauderdale, Florida, (iii) for 2011, 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 services agreement with

us and fees paid to three individual, unaffiliated holders of our subordinated notes and legal, accounting and filing fees connected with the secondary offering

which was consummated on January 25, 2012, (iv) for 2012, recognition of a gain on the sale of four carrier slots at Ronald Reagan National Airport, and

offering costs related to the sale of 12.1 million shares of common stock by certain stockholders affiliated with Indigo Partners LLC.

(6) Excludes special items and includes aircraft rent.

(7) Excludes special items.

(8) 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.

(9) Excludes special items and non-operating special charges.

(10) Assumes same marginal tax rate as is applicable to GAAP net income for the twelve months ended December 31, 2014.

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