Spirit Airlines(SAVE) - 2022 Q2 - Quarterly Report

Part I. Financial Information Item 1. Condensed Consolidated Financial Statements (unaudited) This section presents Spirit Airlines' unaudited condensed consolidated financial statements, including operations, balance sheets, cash flows, and equity, with notes on the JetBlue merger and key accounting policies Condensed Consolidated Statements of Operations Condensed Consolidated Statements of Operations (in thousands) | Metric | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :--- | :--- | :--- | :--- | :--- | | Total operating revenues | $1,366,643 | $859,309 | $2,333,958 | $1,320,588 | | Total operating expenses | $1,411,973 | $766,098 | $2,590,756 | $1,329,907 | | Operating income (loss) | ($45,330) | $93,211 | ($256,798) | ($9,319) | | Net loss | ($52,406) | ($287,863) | ($247,109) | ($400,184) | | Diluted loss per share | ($0.48) | ($2.73) | ($2.27) | ($3.94) | - Operating revenues for Q2 2022 increased significantly to $1.37 billion from $859.3 million in Q2 2021, but a sharp rise in operating expenses, particularly aircraft fuel, led to an operating loss of $45.3 million compared to an operating income of $93.2 million in the prior-year period[9] Condensed Consolidated Balance Sheets Condensed Consolidated Balance Sheet Highlights (in thousands) | Metric | June 30, 2022 | December 31, 2021 | | :--- | :--- | :--- | | Total Assets | $8,715,023 | $8,540,025 | | Cash and cash equivalents | $1,197,065 | $1,333,507 | | Total current assets | $1,761,854 | $1,842,491 | | Total liabilities | $6,841,808 | $6,426,000 (Calculated) | | Total shareholders' equity | $1,873,215 | $2,114,035 | - Total assets increased slightly to $8.72 billion as of June 30, 2022, from $8.54 billion at year-end 2021, while total shareholders' equity decreased to $1.87 billion from $2.11 billion over the same period, primarily due to the net loss incurred[14] Condensed Consolidated Statements of Cash Flows Condensed Consolidated Statements of Cash Flows (in thousands) | Metric | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :--- | :--- | :--- | | Net cash provided by operating activities | $86,767 | $484,116 | | Net cash used in investing activities | ($123,058) | ($179,023) | | Net cash used by financing activities | ($100,151) | ($240,307) | | Net decrease in cash, cash equivalents, and restricted cash | ($136,442) | $64,786 | - For the first six months of 2022, net cash provided by operating activities was $86.8 million, a significant decrease from $484.1 million in the same period of 2021, with the company using cash in both investing ($123.1 million) and financing ($100.2 million) activities, resulting in a net decrease in cash of $136.4 million[17][18] Notes to Condensed Consolidated Financial Statements These notes detail accounting policies, significant events like the JetBlue merger, revenue disaggregation, lease agreements, debt obligations, and fair value measurements - On July 27, 2022, Spirit terminated its merger agreement with Frontier and paid Frontier $25.0 million for expenses[29] - On July 28, 2022, Spirit entered into a new merger agreement with JetBlue for $33.50 per share in cash, subject to certain prepayments, with JetBlue reimbursing Spirit for the $25.0 million paid to Frontier[30][31] - The JetBlue merger agreement includes potential termination fees: Spirit would pay JetBlue $94.2 million under certain circumstances, while JetBlue would pay Spirit $70.0 million and Spirit stockholders up to $400.0 million (less prepayments) if the deal fails to obtain antitrust clearance[35] Disaggregated Operating Revenues (in thousands) | Revenue Type | Three Months Ended June 30, 2022 | Six Months Ended June 30, 2022 | | :--- | :--- | :--- | | Fare | $703,778 | $1,122,196 | | Non-fare | $644,093 | $1,175,419 | | Total passenger revenues | $1,347,871 | $2,297,615 | Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses financial performance, including the JetBlue merger, Q2 2022 revenue growth, increased fuel costs, and liquidity, alongside operational challenges and fleet plans - The company's business model focuses on value-conscious travelers, offering unbundled base fares and generating significant non-ticket revenue from ancillary services like baggage and seat assignments[122][123] Q2 2022 vs Q2 2021 Operating Statistics | Metric | Q2 2022 | Q2 2021 | Percent Change | | :--- | :--- | :--- | :--- | | Available seat miles (ASMs) (thousands) | 11,846,547 | 10,226,746 | 15.8% | | Load factor (%) | 86.0% | 84.4% | 1.6 pts | | TRASM (cents) | 11.54 | 8.40 | 37.4% | | CASM (cents) | 11.92 | 7.49 | 59.1% | | Adjusted CASM ex-fuel (cents) | 6.96 | 6.52 | 6.7% | | Average economic fuel cost per gallon ($) | 4.30 | 1.95 | 120.5% | - For Q2 2022, the company reported a negative operating margin of 3.3%, a decrease of 14.1 percentage points from the prior year, and a net loss of $52.4 million[136] - As of June 30, 2022, the company had $1.54 billion of liquidity, comprising unrestricted cash, short-term investments, and available funds under its revolving credit facility[182] Comparison of three months ended June 30, 2022 to three months ended June 30, 2021 - Operating revenues increased by $507.3 million (59.0%) to $1.37 billion in Q2 2022, driven by a 34.8% increase in average yield and an 18.0% increase in traffic due to strong travel demand[141] - Operating expenses rose by $645.9 million (84.3%), primarily due to a $343.8 million (160.0%) increase in aircraft fuel expense, with the average economic fuel cost per gallon surging 120.5% to $4.30[143][144] - Salaries, wages, and benefits increased by $51.4 million (20.0%) due to higher salaries, crew overtime, and a 15.8% increase in pilot and flight attendant workforce[149] - Other operating expenses increased by $70.7 million (62.0%), driven by higher ground handling costs, travel expenses, and significant passenger reaccommodation costs from flight delays and cancellations caused by weather and ATC issues[157][158] Comparison of six months ended June 30, 2022 to six months ended June 30, 2021 - For the first half of 2022, operating revenues increased by $1.01 billion (76.7%) to $2.33 billion, driven by a 33.8% increase in traffic and a 32.1% rise in average yield[163] - Operating expenses for the six-month period increased by $1.26 billion (94.8%), largely due to a $569.5 million (159.2%) increase in aircraft fuel expense[165] - Adjusted CASM ex-fuel for the six months ended June 30, 2022, decreased slightly to 6.82 cents from 6.93 cents in the prior year period, as the 29.5% increase in ASMs helped spread fixed costs over a larger base[167] Liquidity and Capital Resources - As of June 30, 2022, total liquidity was $1.54 billion, consisting of unrestricted cash, short-term investments, and availability under a revolving credit facility[182] - During the first six months of 2022, the company took delivery of seven aircraft via sale-leaseback transactions and purchased two spare engines with cash[185] - The company has firm orders for 113 A320 family aircraft with deliveries through 2027 and has secured financing for deliveries through 2024[191] Future Contractual Obligations (in millions) | Obligation Type | Remainder of 2022 | 2023 - 2024 | 2025 - 2026 | 2027 and beyond | Total | | :--- | :--- | :--- | :--- | :--- | :--- | | Long-term debt | $96 | $559 | $1,455 | $1,029 | $3,139 | | Lease obligations | $145 | $557 | $481 | $2,047 | $3,230 | | Flight equipment purchase | $507 | $1,907 | $2,411 | $873 | $5,698 | | Total | $853 | $3,278 | $4,518 | $4,072 | $12,721 | Item 3. Quantitative and Qualitative Disclosures About Market Risk The company's primary market risks are aircraft fuel prices and interest rates, with fuel representing 35.8% of operating expenses and a 10% price increase potentially raising annual fuel expense by $148 million - The company's main market risks are aircraft fuel prices and interest rates[236] - Aircraft fuel accounted for approximately 35.8% of operating expenses in the first half of 2022, and a hypothetical 10% increase in the average fuel price would have increased annual into-plane fuel expense by about $148 million[237] - As of June 30, 2022, the company held no jet fuel derivatives and had no outstanding variable-rate long-term debt[237][240] Item 4. Controls and Procedures Management concluded that disclosure controls and procedures were effective as of June 30, 2022, with no material changes in internal control over financial reporting - Based on an evaluation as of June 30, 2022, the CEO and CFO concluded that the company's disclosure controls and procedures were effective at the reasonable assurance level[244] - There were no material changes in the company's internal control over financial reporting during the quarter ended June 30, 2022[245] Part II. Other Information Item 1. Legal Proceedings The company faces commercial litigation and regulatory proceedings, including an IRS assessment of $27.5 million for federal excise taxes on seat selection charges - Following an IRS audit, the company was assessed $27.5 million for federal excise taxes on seat selection charges for the period of Q2 2018 to Q4 2020, which the company believes is without merit and plans to challenge[247] Item 1A. Risk Factors New risk factors include potential business disruption and stock price impact from the JetBlue merger, regulatory approval uncertainty, and increased labor costs from union negotiations - The pending merger with JetBlue introduces risks of business disruption, as parties may delay decisions or seek alternative relationships[250][252] - Failure to complete the merger could negatively impact the stock price, and the company may be required to pay JetBlue a breakup fee of $94.2 million under certain circumstances[255][259] - Obtaining governmental approvals for the merger is a key risk, as regulators may impose conditions, delay, or prevent the transaction[260] - Increased labor costs and potential disputes are significant risks, with 79% of the workforce unionized as of June 30, 2022, and negotiations with the flight attendants' union ongoing while aircraft maintenance technicians are holding a union election[264][267][271] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds During Q2 2022, the company repurchased 276 shares of common stock at an average price of $19.76 per share from employees for tax withholding purposes Issuer Purchases of Equity Securities (Q2 2022) | Period | Total Number of Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | April 1-30, 2022 | 69 | $26.06 | | May 1-31, 2022 | 176 | $16.94 | | June 1-30, 2022 | 31 | $21.74 | | Total | 276 | $19.76 | - All stock repurchases during the quarter were from employees to satisfy tax withholding requirements on vested restricted stock[275] Item 3. Defaults Upon Senior Securities The company reported no defaults on senior securities during the reporting period - None[278] Item 4. Mine Safety Disclosures This item is not applicable to the company's operations - Not applicable[278] Item 5. Other Information The company reported no other information for this item - None[278] Item 6. Exhibits This section lists exhibits filed with the Form 10-Q, including merger agreement amendments and CEO/CFO certifications - Exhibits include amendments to the Frontier merger agreement and required CEO/CFO certifications[279]