Spirit Airlines(SAVE) - 2021 Q2 - Quarterly Report

Part I. Financial Information Financial Statements This section presents Spirit Airlines' unaudited condensed consolidated financial statements for the three and six months ended June 30, 2021, along with detailed notes on accounting policies and the impact of the COVID-19 pandemic Condensed Consolidated Statements of Operations Condensed Consolidated Statements of Operations (in millions) | Metric | Three Months Ended June 30, 2021 | Three Months Ended June 30, 2020 | Six Months Ended June 30, 2021 | Six Months Ended June 30, 2020 | | :--- | :--- | :--- | :--- | :--- | | Total operating revenues | $859.3 | $138.5 | $1,320.6 | $909.6 | | Total operating expenses | $766.1 | $328.9 | $1,329.9 | $1,158.0 | | Operating income (loss) | $93.2 | $(190.4) | $(9.3) | $(248.4) | | Loss on extinguishment of debt | $331.6 | $— | $331.6 | $— | | Net loss | $(287.9) | $(144.4) | $(400.2) | $(172.3) | | Diluted loss per share | $(2.73) | $(1.81) | $(3.94) | $(2.33) | - Operating revenues for Q2 2021 recovered significantly to $859.3 million from $138.5 million in Q2 2020, however, a substantial loss on extinguishment of debt of $331.6 million led to a net loss of $287.9 million for the quarter[8] Condensed Consolidated Balance Sheets Condensed Consolidated Balance Sheets (in millions) | Metric | June 30, 2021 | December 31, 2020 | | :--- | :--- | :--- | | Cash and cash equivalents | $1,863.7 | $1,789.7 | | Total current assets | $2,388.4 | $2,356.0 | | Total assets | $8,671.5 | $8,398.8 | | Air traffic liability | $608.1 | $402.0 | | Total current liabilities | $1,601.2 | $1,342.0 | | Long-term debt and finance leases, less current maturities | $3,015.0 | $3,066.6 | | Total shareholders' equity | $2,180.8 | $2,249.7 | - Air traffic liability, a key indicator of future travel demand, increased by 51% to $608.1 million as of June 30, 2021, from $402.0 million at year-end 2020, reflecting a strong recovery in bookings[13][51] Condensed Consolidated Statements of Cash Flows Condensed Consolidated Statements of Cash Flows (in millions) | Metric | Six Months Ended June 30, 2021 | Six Months Ended June 30, 2020 | | :--- | :--- | :--- | | Net cash provided (used) by operating activities | $484.1 | $(47.0) | | Net cash used in investing activities | $(179.0) | $(457.4) | | Net cash provided (used) by financing activities | $(240.3) | $682.8 | - For the first six months of 2021, net cash from operating activities was a positive $484.1 million, a significant improvement from a use of $47.0 million in the same period of 2020, driven by a large increase in air traffic liability[16] - Financing activities in H1 2021 involved significant transactions, including proceeds from issuing long-term debt ($563.0 million) and common stock ($375.7 million), offset by substantial debt repayments ($857.6 million) and payments for early debt extinguishment ($317.9 million)[17] Notes to Condensed Consolidated Financial Statements These notes provide detailed explanations of the company's accounting policies, the financial impact of the COVID-19 pandemic, government aid, and significant debt and equity transactions - The company adopted ASU No. 2020-06, "Accounting for Convertible Instruments and Contracts in an Entity's Own Equity," effective January 1, 2021, which simplified accounting for convertible instruments and resulted in a cumulative effect adjustment to retained earnings and a reclassification from additional paid-in-capital to long-term debt[44][45][46] Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) Management discusses the financial condition and results of operations, highlighting the significant recovery in air travel demand, the impact of COVID-19 and government aid, and details on liquidity, capital resources, and contractual commitments Comparative Operating Statistics Comparative Operating Statistics | Operating Metric | Three Months Ended June 30, 2021 | Three Months Ended June 30, 2020 | % Change | | :--- | :--- | :--- | :--- | | Available seat miles (ASMs) (thousands) | 10,226,746 | 1,809,874 | 465.1% | | Load factor (%) | 84.4% | 49.4% | 35 pts | | TRASM (cents) | 8.40 | 7.65 | 9.8% | | Adjusted CASM ex-fuel (cents) | 6.40 | 25.47 | (74.9)% | - Operational performance in Q2 2021 showed a dramatic recovery from the depths of the pandemic in Q2 2020, with capacity (ASMs) increasing by 465.1% and load factor improving by 35 percentage points to 84.4%, nearing pre-pandemic levels[145][149] COVID-19 Impact and Government Support - The company received significant financial assistance through government programs, including $212.1 million from the Payroll Support Program 2 (PSP2) and $197.9 million from PSP3 during H1 2021, which included both grants and low-interest loans[156][160] - The company also utilized the CARES Act Employee Retention credit, recording credits of $16.3 million and $37.5 million for the three and six months ended June 30, 2021, respectively[159] Comparison of Results of Operations This section analyzes changes in operating revenues and expenses for the three and six months ended June 30, 2021, explaining drivers behind revenue recovery and cost fluctuations due to increased operational capacity - For Q2 2021, operating revenues increased 520.3% to $859.3 million, driven by an 865.0% increase in traffic (RPMs) as air travel demand recovered, while total revenue per passenger flight segment decreased 33.4% due to a 35.7% decrease in average yield[170][171] - Q2 2021 operating expenses increased 132.9% to $766.1 million, primarily due to a 465.1% increase in capacity, with aircraft fuel expense rising 979.0% due to a 480.1% increase in consumption and an 85.7% increase in average fuel cost per gallon[172][175] - Adjusted CASM ex-fuel for Q2 2021 decreased significantly by 74.9% to 6.40 cents from 25.47 cents in Q2 2020, primarily due to fixed costs being spread over a much larger base of ASMs[178] Liquidity and Capital Resources Management details the company's strong liquidity position, sources and uses of cash, and major capital allocation activities, including significant financing and future contractual obligations - As of June 30, 2021, the company had total liquidity of $2,210.1 million, consisting of unrestricted cash, short-term investments, and availability under its revolving credit facility[216] - In H1 2021, the company enhanced its financial position through a $500.0 million offering of 1.00% convertible notes due 2026 and the issuance of 10.6 million shares of common stock for net proceeds of $370.8 million[219] - The company has firm orders for 124 A320 family aircraft with deliveries expected through 2027, with committed expenditures for aircraft and spare engines estimated at $249.2 million for the remainder of 2021 and $884.7 million for 2022[230][231] Contractual Obligations (in millions) | Contractual Obligation | Remainder of 2021 | 2022 - 2023 | 2024 - 2025 | 2026 and beyond | Total | | :--- | :--- | :--- | :--- | :--- | :--- | | Long-term debt | $99 | $528 | $946 | $1,713 | $3,286 | | Interest and fee commitments | $73 | $230 | $186 | $116 | $605 | | Finance and operating lease obligations | $122 | $457 | $377 | $1,392 | $2,348 | | Flight equipment purchase obligations | $249 | $1,793 | $2,047 | $2,248 | $6,337 | | Total | $562 | $3,050 | $3,589 | $5,505 | $12,706 | Quantitative and Qualitative Disclosures About Market Risk This section outlines the company's exposure to market risks, primarily from fluctuations in aircraft fuel prices and interest rates, and its strategies for managing these risks - Aircraft fuel is a significant market risk, representing 26.9% of operating expenses in H1 2021, where a hypothetical 10% increase in the average price per gallon of aircraft fuel would have increased annual fuel expense by approximately $56 million[274] - As of June 30, 2021, the company had a substantial amount of fixed-rate debt, including $2.1 billion related to aircraft financing, $510.0 million in senior secured notes, and $528.2 million in convertible debt, mitigating exposure to rising interest rates[276] Controls and Procedures Management concluded that the company's disclosure controls and procedures were effective as of June 30, 2021, with no material changes in internal control over financial reporting during the quarter - The Chief Executive Officer and Chief Financial Officer concluded that the company's disclosure controls and procedures were effective as of June 30, 2021[280] - No changes in internal control over financial reporting occurred during the quarter ended June 30, 2021, that have materially affected, or are reasonably likely to materially affect, internal controls[281] Part II. Other Information Legal Proceedings The company is subject to various legal and regulatory proceedings but does not expect a material adverse effect on its financial position or results - The company does not expect any current legal proceedings to have no material adverse effect on its financial condition or results[283] Risk Factors No material changes to the risk factors previously disclosed in the company's Annual Report on Form 10-K were reported for the quarter - No material changes to risk factors were reported for the quarter[285] Unregistered Sales of Equity Securities and Use of Proceeds This section details the company's common stock repurchases during Q2 2021, primarily from employees to satisfy tax withholding requirements on vested equity awards Common Stock Repurchases | Period | Total Number of Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | April 1-30, 2021 | 138 | $37.47 | | May 1-31, 2021 | 388 | $33.17 | | June 1-30, 2021 | 87 | $33.54 | | Total | 613 | $34.19 | - All stock repurchases during the quarter were from employees to cover tax withholding obligations related to vested equity awards and were not part of a publicly announced buyback program[286] Exhibits This section lists the exhibits filed with the Form 10-Q, including warrant agreements, the Payroll Support Program Agreement, and officer certifications