Spirit Airlines(SAVE) - 2024 Q4 - Annual Report

Financial Performance and Costs - The company was assessed $34.9 million in federal excise taxes related to optional passenger seat selection charges, which was later reduced to$27.5 million[185]. - Labor costs represented approximately 28.1%, 27.6%, and 22.1% of total operating costs for 2024, 2023, and 2022, respectively[196]. - Aircraft fuel expenses represented approximately 24.6% of the company's operating expenses for the year ended December 31, 2024[532]. - A hypothetical 10% increase in the average price per gallon of aircraft fuel would have increased into-plane aircraft fuel costs for 2024 by $147.9 million[532]. - The company has significant obligations for aircraft and spare engines ordered from manufacturers, which will require financing[208]. - As of December 31, 2024, the company had$1,465.2 million outstanding in fixed-rate debt related to 38 Airbus A320 aircraft and 29 Airbus A321 aircraft[534]. - The fair value of the fixed-rate debt related to the Airbus A320 and A321 aircraft was $1,413.2 million as of December 31, 2024[534]. - The company had$136.3 million outstanding in fixed-rate debt related to unsecured term loans, with a fair value of $130.4 million as of December 31, 2024[534]. - As of December 31, 2024, the company had$609.0 million outstanding in variable-rate debt, with a fair value of $609.0 million[535]. - A hypothetical increase of 100 basis points in average annual interest rates would have increased the annual interest expense on the company's variable-rate long-term debt by$31 thousand in 2024[535]. Labor Relations and Workforce - Approximately 84% of the company's workforce was represented by labor unions as of December 31, 2024[196]. - The company is currently negotiating with the Aircraft Mechanics Fraternal Association (AMFA) regarding a collective bargaining agreement[196]. - The company reached a new agreement with flight attendants in February 2023, which includes increased pay rates and enhanced benefits, ratified on April 13, 2023, and amendable in January 2026[200]. - The company is negotiating with PAFCA for a new two-year agreement, which was ratified on August 10, 2024, including increased pay rates[201]. - The company has experienced operational disruptions from labor-related actions in the past, impacting financial results[198]. Regulatory Environment - The company is subject to extensive regulation by the FAA, DOT, and TSA, which could increase operational costs[185]. - The company is subject to extensive regulations by the FAA, DOT, and TSA, which could increase operational costs and affect financial results[214]. - In May 2024, Congress passed the FAA Reauthorization Act of 2024, which includes provisions that could impact the company's operations and financial condition[217]. - The DOT proposed a rule requiring airlines to ensure at least one lavatory on new single-aisle aircraft with at least 125 passenger seats is accessible for passengers with disabilities[222]. - The DOT's final rule on enhancing transparency of airline ancillary services fees was published on April 30, 2024, but is currently stayed pending legal review[223]. - A proposed rule mandates airlines to seat children aged 13 and under adjacent to an accompanying adult at no additional cost, with civil penalties for non-compliance[224]. - The DOT issued a final rule on December 17, 2024, to improve access for individuals with disabilities, effective January 16, 2025, requiring airlines to assist passengers with wheelchairs and reimburse costs for mishandled devices[225]. - The U.S. government faces pressure for cost-cutting initiatives, which could delay funding for regulatory agencies affecting the aviation industry[229]. - Compliance with environmental regulations may increase operating costs, with potential future regulations affecting the aviation industry[266]. - The company is a participant in the CORSIA program, which could significantly increase operating costs starting from the mandatory phase in 2027[268]. Operational Challenges - The airline industry is sensitive to economic conditions, with adverse conditions potentially reducing spending on discretionary travel[186]. - The company faced significant operational disruptions due to adverse weather conditions, resulting in approximately 1,400 flight cancellations during 2017[191]. - Increased security measures and costs due to past terrorist attacks have negatively impacted the airline industry[188]. - Economic conditions, including inflation and labor shortages, could adversely affect air travel spending and operational costs[207]. - The airline's network strategy implementation is critical for profitability, facing challenges such as hiring personnel and securing equipment[236]. - The airline announced the discontinuation of service at Denver International Airport due to underperforming routes and engine availability issues, effective January 9, 2024[238]. - The company is dependent on key airports for operations, and any changes in airport regulations or capacity could materially affect its business[253]. - The company relies heavily on technology and automated systems, and any failure in these systems could adversely affect operations and financial results[240]. - The company relies heavily on third-party service providers for its reservation system, which is critical for issuing and tracking electronic tickets, and any operational failures could lead to significant revenue loss[241]. - The company has experienced past outages, including a notable 13-hour outage in August 2013, which impacted sales and customer service[241]. - Cybersecurity risks are increasing, and the company may incur higher costs to mitigate these risks, including deploying additional personnel and technologies[245]. - The company is subject to various risks from natural disasters, cyber-attacks, and software bugs that could disrupt operations and lead to data loss[243]. Market Position and Competition - The company lacks marketing alliances with other airlines, putting it at a competitive disadvantage compared to traditional network carriers[212]. - The company relies on third-party distribution channels for ticket sales, and any inability to manage costs or functionality could adversely impact its competitive position[258]. - The market price of the company's common stock has been volatile, which could adversely affect investor confidence and employee retention[304]. - Credit ratings have been downgraded to D by Fitch and S&P Global following the Chapter 11 filing, which could increase future debt financing costs[288]. - The existence of Convertible Notes may encourage short selling, potentially depressing the price of the company's common stock[300]. - The company may issue additional securities, which could result in substantial dilution to existing stockholders[296]. - The issuance of warrants to the Treasury under PSP programs could depress the trading price of common stock if exercised[298]. Strategic Initiatives - The company has changed its business strategy to realign with evolved customer needs, focusing on premium leisure while maintaining low costs[195]. - The company is currently utilizing AI to enhance services, but there are risks associated with its implementation, including potential inaccuracies and operational harm[242]. - The company’s strategy to enhance passenger experience through new travel options may not guarantee increased revenues due to changing customer preferences and economic conditions[252]. - Future business decisions, including ticket prices and routes, could adversely impact the Free Spirit Program and customer participation[279]. - The company intends to retain future earnings to finance business development and does not plan to pay cash dividends in the foreseeable future[319]. - The company plans to issue $840 million of Exit Secured Notes and enter into an Exit Revolving Credit Facility providing up to$300 million in financing[294]. - The covenants in the indenture governing the Secured Notes impose restrictions on the Free Spirit Program, including limitations on amending policies and selling pre-paid miles exceeding 25 million annually[281]. - The company is highly dependent on cash balances and operating cash flows to meet fixed obligations, with potential risks of default if cash flows are insufficient[294]. - The company has a significant amount of aircraft-related fixed obligations and may incur additional debt, which could impair liquidity and harm business operations[284]. - The company’s quarterly operating results are expected to fluctuate due to seasonality, weather, and competitive actions, making quarter-to-quarter comparisons less indicative of future performance[274]. Supply Chain and Equipment - The company relies on a limited number of suppliers for aircraft and engines, specifically Airbus A320-family aircraft powered by IAE and Pratt & Whitney engines[261]. - In late 2022, Airbus notified the company of delays in aircraft deliveries originally scheduled for 2023, pushing them into 2024 and beyond, which required a reduction in capacity expectations[261]. - The company has experienced reliability issues with the PW1100G engines since the second half of 2022, resulting in diminished service availability and extended turnaround times for maintenance[261]. - Pratt & Whitney announced in July 2023 that certain GTF engines will require accelerated inspections, with an estimated need for removal and inspection through at least 2026[261]. - The company has entered into an agreement with IAE for monthly credits as compensation for aircraft unavailable due to GTF engine issues, amounting to 150.6 million through December 31, 2024[261]. - The imposition of tariffs on imported commercial aircraft and parts could materially increase costs, affecting the airline's financial condition[233].