Q4 2019 Earnings Call

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Good morning, and welcome to the fourth quarter, 2019th and full year 2019 Conference. My name is branded and I'll be your operator for today.

At this time all participants are in listen only mode. Later, we will conduct a question and answer session during which you can know star one if you have to question.

I will now turn it over to D.N. cables senior director of Investor Relations Indian you may begin.

Okay, and welcome everyone to third and fourth quarter earnings call.

It is being recorded.

Simultaneously webcast a replay of this call will be archived on our website for 60 days presenting on today's call Ted Christie <unk>, Chief Executive Officer, not mine, our Chief commercial Officer, and Scott Harrelson, Our Chief Financial Officer, We will have a QNX session for sell side analysts following our prepared remarks.

Also joining us on them in today or other members of.

Senior leadership team.

Today's discussion contains forward looking statements that represent the company's current expectations or beliefs concerning future events and financial performance.

Forward looking statements are based on management's current expectations and I'm not a guarantee of future performance or results.

There could be significant with uncertainties that could cause actual.

Actual results to differ materially from those reflected in the forward looking statements, including the risk factors discussed in our annual report on form 10-K, and quarterly reports on form 10-Q, we undertake no duty to update any forward looking statements.

In comparing with US today, we will be adjusting alkermes excludes special items, please refer to our fourth quarter.

For 2019 earnings release, which is available on our website for the reconciliation of our non-GAAP measures and with that here's Ted. Thanks, Dan. Good morning, everyone. Thanks for joining us today I want to congratulate our entire team for the strong operational performance in the fourth quarter, we adjusted to the challenges we faced in the summer and from the fourth quarter delivered on time performance of 84.2%.

Sent and a completion factor of 99.4% and operational performance of placements over the top of all operators the United States.

Improving operational reliability in the investments, we're making to provide our guests the best value in the sky or being noticed by our guest and our earning US International acclaim recently spirit received global recognition as a low cost.

Airline of the year at the capital World Aviation Summit. In addition, we celebrated being honored as air transport worlds value airline of the year and being ranked as the countries. Most on time low cost airline by flight global.

I'm very proud of the spirit team for earning these accolades they earn them by improving our operational reliability and by becoming a best in.

In class value airline this took hardware commitment and dedication and I think them all for their efforts.

In addition to driving improved guest satisfaction running a good airline is essential to our financial results and I'm pleased to say, we exceeded our fourth quarter expectations for both key RASM and CASM ex fuel and delivered a fourth.

Our adjusted earnings per share of $1.24 and an operating margin of 13.4%.

As we strive for continuous improvement some of our pursuits will prove more successful than others that said we are committed to continue moving forward and I'm very proud of how our team redirected and recovered from the summer.

Total issues and finished 2019 and a strong position setting us up well as we head into 2020.

Here's mountain Scott to discuss our results for the fourth quarter 2019, and our forward outlook in more detail.

Thanks, Ed for the fourth quarter 2019 total revenue.

Increased 12.4%, which includes approximately $7.2 million of out of period passenger revenue.

Total revenue per available seat mile decreased 3.6% year over year.

Without the $7.2 million TRASM would've been down 4.3% on 16.6% capacity growth.

About half of the $7.2 million is attributable to 2017 in 2018 with the remainder spread over the first second and third quarters of 2019.

On a per passenger segment basis non ticket revenue for the fourth quarter was $58.03 up 2.3% year over year.

Our dynamic pricing is initiatives continue to do very well and we are pleased with the continued build we are seeing in our bundled services offering.

We continue to estimate that are non ticket revenue per passenger segment will increased 3% in 2020, our revised packaging product gives us access to broader inventory and better.

Pricing options.

While we expected will take 12 to 18 months to school to full maturity, we should see some improvement in contributions from packaging as we move through the high demand periods. This year.

And our new website provides an improved user experience for booking and early results suggest this is driving increased ancillary.

Conversions.

Additionally, our improved web data layer is providing greater insights into guest behavior that will allow us to present, even more relevant products and services in the future.

Turning to network earlier this month, we announced two more destinations in Colombia borrowing Qia Google.

Loan.

He is considered home to many in Florida and is also a growing leisure destination.

And while we were always excited to add new growth to new cities much of our growth. This year will come from connecting existing cities in our network as well as selectively adding capacity on existing routes.

In addition to our E Commerce and network initiatives, we're continuing our focus to improve our guest experience.

As part of our multi year invest in the guest initiative. We have recently unveiled an automated an expedited self backdrop station at Laguardia airport, reducing the processing time for guests to get to their gate.

The guest response.

Fonts has been very positive and we look forward to rolling out self backdrop machines in other spirit stations.

Looking ahead for the first quarter 2020, we expect capacity to increase about 15% year over year.

We are still making some schedule changes to the latter half of the year, but maintain our estimate for full year.

Turning capacity to be up 17% to 19%.

As a reminder, about 100 basis points of our 2020 year over year growth is attributable to depress completion factors in the second and third quarters of 2019.

Now turning to our revenue outlook domestic traffic trends at our.

Price levels remained strong.

Last quarter, we mentioned that we had re times several of our Orlando International markets. We're very pleased with how the Retime roots are performing and their rate of school.

In the aggregate our portfolio of Latin America, and Caribbean roots continues to do very well.

However, we are seeing.

In some softness in the Dominican Republic and have made several capacity cuts to that area.

We are still seeing looser inventory controls for leisure fares in the domestic network than we saw last year at this time, which is impacting yields but demand at our fare levels remains good.

Peak periods have continued to perform well.

Now and as of right now the off peaks are largely a volume play.

In closing from an inventory perspective, the backdrop remains similar to what we've been experiencing since may of 2019.

We continue to leverage our cost structure and will pivot our revenue management strategy and capacity deployment for each.

Individual region or route as we think best for business.

And with that I'll turn it over to Scott.

Thanks, Matt and thanks to everyone joining us today.

Our fourth quarter 2019, CASM ex fuel was 5.67 cents, an increase of 3.3% year over year strong operational performance and overall good.

Its performance helped us achieve these better than expected results.

The primary drivers of the year over year increase on a per ASM basis include heavy maintenance amortization maintenance materials and repairs and other operating expenses, including some pressure from higher ground handling rates.

During the fourth quarter, we took delivery of nine athree.

Any aircraft, bringing our 2019 year in total fleet count to 145 of which 27, our unencumbered, giving us increased fleet flexibility.

We ended 2019 with $1.1 billion of unrestricted cash and short term investments and $341 million of adjusted.

Free cash flow.

Looking ahead to our cost outlook for 2020, we continue to estimate that our full year CASM ex fuel will be up 1% to 2% year over year.

For the first quarter, we estimate CASM ex fuel will be up 3.5% to 4.5% year over year.

The first quarter should be the apex of our.

Quarterly percentage change in 2020.

Better year over year operational performance will help produce better cost performance in the second and third quarters.

As noted in our fleet plan several of our 2020 and 2021 aircraft deliveries have been delayed by several months due to production issues at Airbus Terra.

Related delays and additional engine supply issues with Bretton Whitney.

Our previous 2020 capacity and cost guidance incorporated estimates for the impact of these delays also the most recent delay updates are primarily impacting our 2020 capacity plans and we will be work working to remedy.

These delays as we progress through the year.

We remain keenly focused on improving our industry, leading low cost structure, but it is even more important that week increase our relative cost advantage. As this gives us the foundation to profitably grow and stimulate markets.

Even though we had an unusually high CASM ex fuel pressure and 20.

19, we managed to maintain our relative cost advantage to our primary competitors.

Many of the cost pressures we faced in 2020 are also being felt by other us Airlines and we're confident that we can maintain or grow our relative cost advantage again in 2020.

Additionally, we are seeing real fuel.

Currency gains with our New York aircraft on average the fuel burn per block hour of our Athree hundred Twentyneos is 16% better than that of our Athree 20 Ceos.

By November 2019, we had enough critical mass to sub fleet, the Athree hundred Twentyneo fleet.

We will now fly the neos on our longer haul routes and maximize the fuel.

Engage benefit of the larger more fuel efficient aircraft, we already have one of the youngest most fuel efficient fleets in the U.S and as we add even more neos to the fleet and schedule them to fly the routes. They were meant to perform the additional fuel efficiency gains will help offset some CASM ex fuel pressure.

Regarding profitability.

We are expecting pre tax margin for the first quarter 2020 will be in the 6.5% to 7.5% range.

With an implied t. RASM range of down 1.5% to 3% year over year.

For the full year 2020, we estimate we will earn a pre tax margin of about 12%.

Or about flat year over year, which assumes a fuel price per gallon of $2.05.

We recognize that after the recent drop in fuel prices. This is above where the current curve sits with the recent changes make it difficult to estimate how the full year will play out.

If fuel remains at current levels or lower for longer we will adjust.

Just our longer term views and update you as the year progresses.

Now before I close I have a few housekeeping items regarding changes in our guidance practices.

We will continue to provide a CASM ex fuel range for the current quarter and full year.

In addition, we will be providing current quarter and full year pre tax margin estimates.

Investors have been asking us to provide longer term guidance and adding a full year pre tax margin is a step in this direction.

We believe pre tax margin best represents our financial performance as it normalizes for our fleet financing decisions.

Based on feedback from many investors and analyst, we're planning to drop our scheduled pre earnings updates.

As well.

Barring any unusual circumstances, we plan to give our guidance in conjunction with our earnings releases and we'll update you on that performance when we report actual results.

And with that speculative.

Thanks, Scott throughout the earning season, we heard about a litany of issues the airline industry is facing.

Manufacturing delays of both Boeing and Airbus changes and competitive behavior tariffs on aircraft and most recently concerns about the corona virus and its potential impacts.

All this in the ever present concern of near term oil spikes.

As a manager of an airline we expect to have curve balls thrown at us sometimes from all sides.

You can't always predict the curve balls that you can set yourself up to react and pivot quickly when unforeseen things happen.

Over the last few years spirit has added processes and talent to be able to do just that we've also learned from our past experiences.

First and foremost we must run a safe operation and provide the resources to offer reliable service to our.

I guess.

Beginning beginning in the fall of 2019, we work to create some flexibility and Recoverability and our scheduled flight lines and work our way back to accrue reserve ratio that our analysis suggests will produce a better outcome when balancing efficiency, a 14 and completion factor.

From a network perspective last.

Last year, we were focused on capturing opportunities to expand our footprint of destinations. This year, we have pivoted towards connecting existing dots and adding a few more frequencies to large underserved leisure markets.

As for revenue as Matt indicated his team is preparing to align our revenue management strategies as necessary to achieve the best outcome from.

Market performance.