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Spirit Airlines, Inc. (SAVE)

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Industry: Transportation
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Spirit Airlines Incorporated (SAVE)

Q3 2012 Earnings Call

October 31, 2012 11:00 am ET

Executives

Misty Pinson – Communications Director & Head-Media Relations

B. Ben Baldanza – President and Chief Executive Officer

Edward M. Christie – Senior Vice President and Chief Financial Officer

Barry L. Biffle – Executive Vice President and Chief Marketing Officer

Tony Lefebvre – Senior Vice President and Chief Operating Officer

Analysts

James D. Parker – Raymond James & Associates

Duane Pfennigwerth – Evercore Partners

John D. Godyn – Morgan Stanley & Co. LLC

Hunter K. Keay – Wolfe Trahan & Co.

Isaac B. El Husseini – Barclays Capital, Inc.

Helane R. Becker – Dahlman Rose & Co. LLC

Bob McAdoo – Imperial Capital LLC

Robert Pickels – Manning & Napier Advisors LLC

Steve O’Hara – Sidoti & Co. LLC

Michael J. Linenberg – Deutsche Bank Securities, Inc.

Presentation

Operator

Welcome to the Third Quarter 2012 Earnings Conference Call. My name is Sandra and I will be your operator for today’s call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session.

I will now turn the call over to Ms. Misty Pinson, Director of Corporate Communications. Ms. Pinson, you may begin.

Misty Pinson

Thank you, Sandra, and thanks to you all for joining us this morning and welcome to Spirit Airlines third quarter 2012 earnings conference call. Presenting today will be Ben Baldanza, Spirit’s President and Chief Executive Officer; and Ted Christie, our Chief Financial Officer. Also joining us are Chief Marketing Officer, Barry Biffle; Chief Operating Officer, Tony Lefebvre; General Counsel, Thomas Canfield; and Senior VP of Human Resources, Jim Lynde.

Our remarks during this conference call will contain forward-looking statements, which represent the company’s current expectations or beliefs concerning future events and financial performance. Forward-looking statements are not a guarantee of future performance or results. Forward-looking statements with respect to future events are based on information available at the time those statements are made and/or management’s belief as of today, October 31, 2012 and are subject to significant risks and uncertainties that could cause actual results or performance to differ materially from those reflected in the forward-looking statements, including the information under the caption Risk Factors included in our 10-K for year ending December 31, 2011. We undertake no duty to update any forward-looking statements.

In our remarks today, we will be comparing third quarter 2012 to third quarter 2011 results adjusting all periods to exclude unrealized hedge gains and losses and special items. Please refer to our third quarter 2012 earnings press release for further details regarding our assumptions for the reconciliation to the most directly comparable GAAP measure for non-GAAP measures discussed.

And now I’ll turn the call over to Ben Baldanza, Spirit’s President and Chief Executive Officer.

B. Ben Baldanza

Thank you, Misty, and thanks to everyone joining us for the call today. Before I begin, I’d just like to say that our hearts go out to everyone who has been affected by Hurricane Sandy and the terrible damage that storm has created. All of the airports that Spirit serves with the exception of LaGuardia are operational as of this morning, and so once LaGuardia eventually opens, we will get our operations totally back to normal hopefully soon.

Earlier today, we’ve reported a third quarter profit of $25.2 million. We grew our top line revenue 18.6% year-over-year while lowering our base fare per segment to just $71.85. During the quarter, we grew our passenger segments 23.2%, keeping pace with our seat growth demonstrating once again the simulative effect of being the low fare leader in the markets we serve.

Total RASM for the third quarter 2012 was down 3.4% year-over-year against a very strong third quarter last year. As we mentioned in the third quarter last year, Spirit elected to pass along to our customers the benefit associated with the Federal Excise Tax holiday, which created significant incremental demand. This allowed us to discount less last year in what is seasonally a weaker period. But for this unusual item, we estimate our third quarter 2012 RASM would have been up slightly year-over-year.

Our ticket revenue per passenger segment for the third quarter 2012 decreased 12.1% to $71.85 due in part to the FET benefits from last year as well as our continued strategy to offer low base fares while increasing revenue from optional non-ticket revenue sources.

Our ancillary revenue per passenger segment in the third quarter was $49.80, up 11.5% year-over-year, primarily due to per-segment increases in passenger convenience fees. As compared to the second quarter 2012, ancillary per passenger decreased slightly, driven by the revenue benefits from our previous credit card partner steadily decreasing, as we lapped the period in which we ended that partnership.

In addition, we continue to collect less change fee revenue as a result of the DOT 24-hour hold rule implemented in January of this year. As a reminder, we account for our $2 Department of Transportation Unintended Consequences Fee, which helps offset the negative impact from the DOT rule changes as passenger revenue rather than as non-ticket revenue.

Our total revenue per passenger segment for the third quarter was $121.65. I believe that in most cases, our total fares are less than the traveler’s next best option at the time of purchase. This is by design as our goal is to just stimulate new demand by offering low base fares that appeal to a segment of the population that has been priced out of the market. Our ancillary revenue model allows us to do this by letting customers pay only for the extras they value rather than having all customers subsidize the cost of providing extra products and services. We believe a large part of our success with this model is tied to our goal of being the transparency leader.

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