Q1 2021 Spirit Airlines Inc Earnings Call
[music].
Welcome to the first quarter 2021 conference call. My name is James and I'll 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. During the Q&A session. If you have a question. Please press star one on your phone.
I'd now like to turn the call over to Dee and cable senior director of Investor Relations Day, and you may begin.
Thank you James and well.
And everyone to Spirit Airlines first quarter earnings call. This call is being recorded and simultaneously webcast.
Play on this call will be archived on our website for 60 days and presenting on today's call are Ted Christie Spirit's, Chief Executive Officer, Matt Klein, Our Chief commercial Officer, and Scott Haralson, Our Chief Financial Officer, all for joining us on the call today and our other members of our senior leadership team.
Following our prepared remarks, there will be a question and answer session for sell side analysts.
Today's discussion contains forward looking statements that are based on the company's current expectations and are not a guarantee and future performance there could be significant risks and uncertainties that cause actual results to differ materially from those reflected by the forward looking statements, including the risk factors discussed in our reports on file with the SEC.
We undertake no duty to update any forward looking statements.
And comparing our results today and he will be adjusting all periods to exclude special items.
Please refer to our first quarter 2021 and earnings release, which is available on our website for the reconciliation of our non-GAAP measures.
Ted I now turn the call over to you.
Thanks Deanne.
Morning, everyone. Thanks for joining us I've had the pleasure of visiting several of our stations recently and once again and I am proud to see the well orchestrated coordination between team members together with the rest of the spirit team. We once again delivered strong operational results for the first quarter completion factor was 98, 6% and our on time performance.
It was 85, 3% and excellent result, all around.
As we enter the next phase of recovery. Thanks to the contributions of all our team members, we are well positioned to capture the many opportunities that lie ahead of us.
The first quarter started slowly but as demand dramatically improved during the last few weeks of March we were very pleased with how the domestic network performed and how the international network results progressed driving positive cash from operations for the full first quarter 2021, even when excluding the payroll support funds.
C.
Our Florida routes saw particular strength during this period as the typically strong spring break period was further supplemented by pent up demand for leisure travel.
Assuming the current trends continue we believe we can achieve a positive adjusted EBITDA margin for the full year 2021.
Leisure travel demand recovery has taken root there may still be some bumps ahead, but as vaccines are more widely available case counts abate and travel restrictions ease and spirit is stronger than ever and well prepared to bring our low fares to more places and offer more guests the opportunity to travel.
With that I'll turn it over to Matt and Scott to discuss more details of our quarterly performance. Thanks, Ted I Echo Ted Thanks to the team for doing a great job.
Even as loads increase and airports get busier, our guest satisfaction scores remained higher than ever we are committed to excellent service, while providing the best value and the sky and maintaining our industry, leading low cost structure.
Earlier this month, we named Lonnie and Rittenhouse as our vice President of guest experience and brand furthering our commitment and focus to improve our guest experience on the ground and and the air.
Lonnie has served as our vice president of Inflight experience since December 2015, and has been a key contributor to our improving guest satisfaction metrics since joining spirit. We are delighted to have lani and take on this new role.
Turning to our first quarter results demand in January and February suffered as many jurisdictions, we're faced with another wave of the pandemic.
In addition, about 12% of our network was negatively impacted by the new testing requirements for inbound U S. Itineraries. However March for our better performance across the network and the second half of March came in much stronger than we had initially anticipated.
Load factor for the first quarter averaged 72, 1%, but the last two weeks of March averaged well over 80% with many days flirting with 90%.
Total operating revenue and the first quarter declined 42% year over year on a capacity decline of 26, 9% year over year on.
Although the sequential change from peak December to off peak January and February was greater than usual this year as COVID-19 case counts had spiked again.
We were encouraged by the steady improvement and operating yields and tried some throughout the quarter, even as we continue to add back more capacity.
For the March quarter fare revenue per segment remains significantly depressed down 24, 2% year over year.
Non ticket revenue per segment continued to show relative strength decreasing only 10, 8% year over year.
As has been the case since the start of the pandemic non ticket revenue per segment for the first quarter was impacted by the suspension or reduction of certain booking related fees.
However, as the quarter progressed, and domestic and international demand strengthened non ticket revenue per segment began to improve significantly as well and Furthermore, non ticket rate for April has rebounded strongly and we can see a path to a second quarter non ticket rate that is all the way back to <unk>.
That compared to the second quarter of 2019.
Moving ahead to the second quarter outlook International demand has stabilized and both our leisure and VFR international markets are doing relatively well.
Florida remains strong and as restrictive as restrictions ease and other domestic jurisdictions, we are seeing balanced strength across the network with search and booking trends for the summer and looking very solid.
Regarding future capacity, given the extreme pull down and operations for 2020, we believe it is helpful to compare 2021 estimates to 2019.
Compared to the same periods in 2019, we anticipate capacity and the second quarter will be down about five 5% with April down, 11% may down, 3% and June down 2%.
For the full year 2021, we estimate capacity will be about flat on a year over two year basis.
Given some of the skewed comparisons I want to clarify our capacity plans for the next several years our base plan assumes capacity for the full year 2022 will be up about 30% compared to 2021.
In 2023, the year over year growth rates should normalize back to our typical 14% to 17% compounded annual growth rate.
Scott will add a bit of color surrounding our ASM targets and aircraft delivery stream updates and his prepared remarks.
In closing I'd like to add that the revenue recovery has been bumpy as we had anticipated. However, the momentum we're seeing is strong and continues to prove out our low cost business model is alive and thriving.
And our progress on non ticket production is 100% back on track and peak travel periods are finally, starting to see some yield firming.
Our network opportunities continue to grow the early numbers on our new cities starting in May and June are encouraging and we're looking forward to full airplanes and continued revenue improvements. This summer throughout the rest of 2021 and into 2020 two and beyond.
And now here's Scott.
Thanks, Matt It certainly feels good and I'll start talking about a return of demand and as eventual return to profitability.
Our team has rallied throughout the crisis and then.
Handled the adversity and such a professional ladder, although they are excited to see where things are headed.
Now turning to our first quarter of 2021 financial performance, our adjusted net loss was $243 million.
Or a loss of $2 48 per share.
Our EBITDA margin for the first quarter was negative 43, 3%, which was better than our initial guide of negative <unk> 45 to negative 55%.
Both revenue and non fuel operating expenses came in at the better and have our implied guide for.
For stronger demand environment and the back half of March improved margins for the first quarter and provided and ice platform to think about a return to positive EBITDA at some point and the second quarter.
Now for the balance sheet, while we obviously had a number of ins and outs. We started the first quarter with $1 9 billion and liquidity and we also ended the quarter with $1 9 billion and liquidity, which includes unrestricted cash short term investments and the undrawn amount available under our revolving credit facility.
During March we finalized an amendment to our revolving credit facility extending the due date for March 2022 for March 2024, and increasing our Lindsay commitment by $60 million, bringing the total lending commitments for $240 million the additional $60 million remains undrawn.
We also received a total of $184 5 million during the quarter related to PSP too.
We have been notified by treasury debt will be receiving approximately $28 million of additional funds under PSP do that will be received and the second quarter.
In addition, under PSP three we now expect to receive and bottle or $198 million during the second quarter as well. This will bring our total received under the payroll support program to just over $750 million.
Regarding our fleet during the first quarter, we took delivery of two direct leased <unk> hundred 20, Neo aircrafts. We ended the first quarter with 159 aircraft and our feet.
By the end of the first quarter, we had 12 of our 31 <unk> hundred 19 is back into service and we expect to have about 20 and service by the end of the second quarter.
During the quarter, we completed the purchase of 2019 as off lease.
This was a quick developing transaction and was not contemplated in our previous Capex guidance.
We have also elected to Reaccelerate our fleet replacement program with these changes our new total capital expenditure estimate for 2021 is now between $220 million to $250 million.
When we placed our fleet order in late 2019, we knew the order would not fill our entire capacity need particularly in the early years. Since then we have been able to move a few deliveries around the plug some of the holes and our deliveries right.
During the first quarter, we accelerated six deliveries from 2025 and 2026 into 2023.
There is a modest increase and PDP for 2021, driven by the acceleration.
We will also be looking to secure a few additional 2022 and 2023 deliveries most likely from lessor capacity.
And our targeted 14% to 17% capacity growth target.
Now for our forward looking guidance, we estimate our EBITDA margin for the second quarter will range between negative 5% to breakeven.
This assumes total operating expenses will be between 885 and $895 million.
Assuming if fuel price per gallon of $1 95.
Assuming DNA of about $74 million the implied revenue range based on this guidance $782 million to $811 million.
And while the booking trends have been encouraging it is still difficult to predict with precision where demand unit revenues and profitability will end up.
But given all of that it is likely debt, we will get to positive EBITDA territory by mid to late Q2 and.
And positive EPS at some point this summer.
For the full year, we will likely be negative on a net margin basis, but we do expect to be positive on EBITDA margin for the full year. Despite the rough start early in the year.
As we look out further into the future our base case for us for capacity for 2022 will be between 54 to 56 billion of assets and 2023 will be between 62% to 65 billion of assets.
On our last call I talked about our CASM ex estimates for the airlines will be below <unk>. Once we get the airlines back to full utilization around the middle of 2022 to.
To reiterate this CASM X level is based on these levels of capacity.
And as I mentioned on the last call as well how far below <unk>, we get will depend on a few decisions we will make over the next 12 months to 24 months.
From a profitability standpoint, we expect we will be at or above our 2019 operating margin in 2023.
In closing we are pleased pleased to see the first quarter close on a stronger note and we had anticipated we remain committed to our goal to get the airline and ready for full production by the summer of next year, our focus on the near term. Mr. Bring are parked aircraft back into service and get our crew levels ready to run the full airlines both while maintaining.
And our reliable operations and we're right on track to do just that with that I'll hand, it back to debt.
Thanks, Scott since February we've been busy on the hiring front and I'm excited to welcome all our new team members and to progress on our efforts to restore the airlines to full utilization.
While we acknowledge that the recovery is still in progress and may not be linear.
We are very encouraged by the improvements we are seeing and the demand environment throughout our network.
In addition, our guest satisfaction is high and operations are running smoothly and our team remains focused on driving efficiencies throughout the business.
And by and all of that with an extremely dedicated and motivated spirit team and we are well positioned for the future, which gives me confidence that we will be among the first U S carriers to reach sustained profitability with.
With that back to Dan.
Thank you Ted James we are now ready to take questions from the analysts we ask that you limit yourself to one question with one related follow up.
Thank you we can now begin the question and answer session. If you have a question. Please press star one on your phone.
We wish to be removed from the question you May press the pound sign on the hash key and if youre using a speakerphone you may need to pick up the handset first before pressing and numbers.
Once again, if you have a question. Please press star one on your phone.
And our first question is from Mike Lindenberg.
Oh, Hey, good morning, everyone.
Scott I just its one accounting question I know, you've sort of given EBITDA targets and I think.
You mentioned that by 2023 I. Thank you for that.
The plan is for EBIT to be at or above 2019 did I hear that right that it was EBIT.
<unk> operating margin.
So just a question on when do you think about I know that there was an accounting change and I think the last year or two with respect to how.
James on types of sale leasebacks are accounted for you.
And you do you run that through operating expense or do you run that through non op.
Im assuming youre talking about the accounting for leases.
Yes, Thats still run through operating expenses through aircraft rent.
Yes, Hello, Phil.
And so when you take a gain on a sale leaseback you can just run it through against the rental.
Oh, you are talking sorry, youre talking about the gain on the sales side, yes, yes, sorry, yes, so I know on the path I think it was amortized against.
You take that gain and you would amortize it against that aircraft right now it's moved to operating expense or other operating expense that flows through the rent line.
Okay, Okay, Great and then just.
I was sort of related okay. So then.
Debt you answering my questions. That's all I needed to know thank you.
Thanks.
Our next question from Savi <unk>.
Hey, good morning, everyone.
Matt just.
And I'm kind of understand this a little bit more from your competitors have talked about leisure fares from 2019 levels. This summer.
And a leisure fares remain kind of flat with 2019 for the rest of the day or does that mean yields to be flat at spirit are it does kind of the lack of corporate demand kind of create some.
Fare bucket mix.
That day.
Well there.
Thanks Savi.
And I'm not sure Inc.
3rd% understand your question.
And I understand the first part about it of leisure fares.
And what some of our competitors are talking about the summer and we do anticipate to see some strength.
And this summer from a from a yield perspective.
But I'm not sure I, followed completely about how corporate comes into play.
And that's what I'm I guess I'm wondering is if there is corporate demand and that's not really there does that really impact year on yield because you don't really fly corporate or does it have an impact because maybe the fare buckets are a little bit different because you have more of.
P<expletive>enger and going after leisure.
Okay, great. Thanks, Tom and I understand your question and better yes. So so overall as we've talked about and I know I know you know this is just about supply and demand. So at the end of at the end of the day, we will have to see exactly how the how the capacity matches up it's definitely going to be different by region.
Out there we're seeing strength now.
We do participate but usually it's more like the fall fourth quarter first quarter when Theres more convention traffic out there we do carry some of that traffic as.
And as people do tend to book a little bit further out on that and they're looking for for the best rates. They can find but generally speaking and we're not in and that corporate world.
If your question is related to less corporate traffic means less demand for some of my competitors.
And then we'll just have to see how that capacity flows through the network. Overall, what we are encouraged by is our ability to see and peak periods that some amount of yield management, we're able to deploy which is a nice break from where we were as recently as say six weeks ago. So that's what's the most encouraging to us now.
And we're able to deploy more yield management.
And not seeing a falloff.
And bookings at the same time, which is exactly what we would hope to be seen.
For the summer and we're starting to see that occur as early as June and into July.
Thank you for that and just maybe a clarification can you just you mentioned the peak off peak dropoff and in January February and with little bit bigger.
Is how RP basket is kind of performing now because I'm guessing youre seeing from optics and <unk> as well as is that similar to kind of prior or is there a bigger Varian Inc.
And it's definitely stronger now so the trough in January and February was exaggerated for sure look for.
For example May is typically mid to know came on and Thats a shoulder months.
And we're not seeing anywhere near the kind of demand falloff that we saw on January and February we expect to have a relatively relatively strong load factors throughout the entire second quarter. The yields arent as strong and may as they would have as they were say over spring break and Easter, but that's totally expected and that's what you'd expect.
So from a revenue management perspective, it's nice to see some semblance of seasonality also creeping back into the revenue management World and.
And Thats, just because you can plan better and you can make better risk decisions. When you have an idea that seasonality is starting to trend back to normal.
That's helpful. Thank you.
Certainly.
And our next question is from Duane funding worth.
Okay.
Hey, thanks.
And just just with respect to Spooling back up as you recall crews and employees is everyone showing up that you expect to show up.
Are you, having any trouble finding folks are there any friction points and spooling back up that you could point to.
Thanks, Duane the good news is no we've been able to to get people back through the.
The training machine I guess as well as do new hiring.
As is the case countrywide.
In lower wage type categories. There is.
A pinch for I think for for overall people, so you're finding that more and airports and places like that where.
And where where theres a lot of demand for for those types of.
And those types of jobs I'm talking about macro.
But.
And we found that debt.
On that our ability to attract pilots flight attendants technicians all of that stuff has been very favorable actually.
Okay, Great and then just with respect to the kind of more specific or more explicit our longer term growth plans.
Is is this new or is this sort of as the as the plan was contemplated and I guess.
From the perspective, not that you've given us sort of full year cost guidance, but is there cost pressures, we should be thinking about as you look to execute this growth plan and into 'twenty, two and 'twenty three and thanks for taking the questions.
Sure let me cover the <unk>.
Forward looking growth stuff and Scott can comment on how he views costs, Although you mentioned somewhat and the prepared remarks, but I think given the ins and outs of the drawdown and the airline the weird year over year comparisons. The two year comparisons we wanted to just make sure we're clear on on <unk>.
What our growth expectations, where going forward. The answer your question. It is not new we've been consistently saying that we intend to resume our growth trajectory of the mid teens, which this is consistent with by the way the numbers, we talked about and our and our script. So just want to make sure that we had full understanding of how that plays out from a growth perspective.
Scott you want to provide any additional color on what that means for cost, yes, I think the point of what we were trying to do was to give some detail around it because I know some of the.
The numbers, we had put out around our fleet and the order book.
And it's kind of filling and the gas and some of the changes that we've had to the fleet have been a little confusing. So we wanted to just go ahead and put that out there and to reiterate the fact that the capacity that we were talking about here was already contemplated when we talked about our CASM ex.
Sub six and numbers. So this has been and the work it's more clarification and anything new.
We just heard that there have been some discomfort around and not understanding what were on our numbers are going to look like from a capacity perspective. So it's just clarification got it and then maybe just one follow up there.
If you think about the level of Opex, that's running through today.
What are you sized for today and other words are you sized for 10%, 20% bigger than 2019 today or.
Are you going to sort of staff up to hit.
Early 'twenty two.
On growth expectations and thanks for thanks for these detailed answers yes.
Hey, Duane that's a great question, it's a little bit of both.
Right now.
We have 319th that we're bringing out of.
Bringing out of the desert and.
And so we're flying and probably about on an equivalent number of aircraft as we did in 2019, probably around 100 and 140 ish aircrafts.
And so we have a crew level that is pretty similar.
And but we're going to have to hire a large number of approved between now and the end of the year because the fleet will grow from and operated fleet from $140 to the end of the year, we'll have 173 ish aircrafts. So that's a pretty quick.
Additional aircraft plus bringing aircraft back on the service so that that's sort of infrastructure component is what we're talking about when we mentioned on the last call on.
A about a $30 million number of additional expense, which is going to be maintenance and getting crew.
On slide 10 is and pilots and some mechanics and back into the fold. So that we can handle the aircraft level by the end of the year.
Okay. Thank you.
Okay.
Our next question is from Jimmy Baker.
Hey, good morning, everybody.
At the end of 2019, I don't know how granular you're profit plan for 2022 was.
And I <expletive>ume you at least had something penciled in.
Is your current 2022 forecasts suggest higher lower or the same pre tax income and.
What you were thinking pre COVID-19.
I'll give it a world Jamie it's Ted I think the answer is lower because we're still in the midst of a recovery and we still anticipate that the the airlines will reach as Scott said full utilization until the call. It the second quarter somewhere in there, but really the later part of that so.
There is a drag on on fixed expense because of that so you've got the mix of a recovering revenue story and and the airlines getting back to the size I think those are both probably net net negatives to what the story would've been and 19 versus what we see today in 2022 and yes. Good morning.
And would totally agree with that Jamie and I think another way that we're sort of looking at it as taking 19 and really pegging a future date debt, we expect to get to a run rate, which are sort of run rate period is probably 2023 adjusted.
And a lot of water and 'twenty, two so really sort of book in book, ending and sort of 19% and 23, and then beyond 'twenty three as you're back to sort of status quo.
And that period between now and probably 20 Three's murky.
Net range of outcomes.
Got it that's helpful and second I was recently reviewing your schedule and obviously there have been a fair amount of sort of new market gyrations and changes in the last year, but overall I would characterize spirit is an airline that once it decides to enter a new <unk>.
Market, most likely sticks, which said market for a measurable period of time.
Is that a fair representation.
And if so why is that your decision and is there a downside the churning markets more quickly the way back and some other low cost airlines do.
Hey, Jamie it's Matt.
Good day.
Yes.
We believe the answer your question is yes, there is a downside attorney markets.
Like that now, but let me clarify that yes, we once we announce for going into a city, we spend a great deal of time, making those.
The terminations and calls and it's been a lot of time researching the city and making sure. It fits our long term network plan and growth strategy. Once we're in the city.
We will then see not every market always works right out of the gate for us. So if we didn't go into interest city announce five six new routes.
One of them isn't performing we're not going to be stubborn about it and then just sit there with it we will then redeploy capacity and find what the right routes are for us in that city.
But generally speaking we're of the opinion that you make the call you go into the city and there is a long term intention to be there got it okay very interesting. Thanks, everybody appreciate it take care.
Our next question from Hunter Keay.
Good morning, everybody.
On the EBIT margin on 23, and that's a big number and I'm, <expletive>uming you're talking about that and reference to the 13, 5% margin you did and 19. So the question is is <unk> above $9 two as CASM ex below five five cents or is it fuel.
Yes.
Hey, this is Scott.
Ill answer part of it.
But yes, that's right, it's around 13 and a half as the baseline for 2019.
I think theres, a couple of points and there one is that.
We've talked about our CASM ex number being sub six and.
And so that would imply some trials from appreciation and when we can.
Think thats, there and Matt can talk about some of the details around that.
But it's also a lower fuel number and then in 2019 <expletive>umptions as well.
And I'll add the fuel number is a mix of potentially the forward curve, but also more importantly burn.
Right that's.
Alright, okay.
Thank you and then.
Matt why don't you changed the name of the $9 fare club and Thomas did you have an opinion on that decision.
Yeah.
Thanks on it.
$9 fare club has had definitely had brand recognition and.
And <unk>.
<unk> recognition however, the spirit to Neighbor's club, we feel as we revamped the overall loyalty program and how all of the programs where together we felt it was more encomp<expletive>ing of the overall sort.
Brand value that we give to people and it's not just about the savers club isn't just about getting a fair it's about saving overall and how the neighbor's club has big benefits to ancillary revenue sales as well for the guests and that translates into revenue for us and since he's not going.
Say anything I will just say Thomas always has an opinion on these kind of things since you know him.
Yes, well I mean, the question was really about.
DLT rulemaking of course and.
And it's really an embedded question about sort of your expectation on them.
And the unfair and just have to practices and how this.
Randy might fold in but we can save that for another time, unless you want to chime in on and Thomas.
[laughter].
That's and now alright.
Thanks.
Thank you.
And next question from Helane Becker.
And.
And thanks, very much operator, and hi, everybody. Thank you very much for your time, just two questions here and you take in more leased aircraft.
Are you having to also do maintenance reserves for <unk> at this point.
And I'm careful with your balance sheet and your track record that you don't have to do.
And don't have to account for those.
And this is Scott Yeah, we have not had any leases with maintenance reserves since 2013, 2000, Fourteens and so no maintenance reserves for us.
Okay and then.
The ones on balance sheet can you.
Recapture that cash.
We generally do that and a couple of ways.
Obviously the reserves are meant to be recouped. Once you do the maintenance so thats generally how that cash comes back to us but.
But we have also through the years renegotiated.
Renegotiated and extended some of the leases and in that we will typically have a discussion around what to do with maintenance reserves and a lot.
The majority of those will generally give those back with an extension.
Gotcha, Okay. Thanks very much.
Our next question from Catherine O'brien.
Good morning, everyone and thanks for the time.
And what the strength, you've seen and non ticket per p<expletive>enger throughout the pandemic.
And so just given the higher proportion of total fare than they have historically.
You expect to see this trend continue on with maybe some of the positive commentary and we've gotten over the first part earnings season.
And from some of your competitors on yields and the summer is that more likelihood and normalize back towards 50 50.
We have seen historically.
Any thoughts there would be helpful.
Yeah sure Catharine it's Matt.
And thanks for the question so.
We do expect we will see yield firming on on the fare that will take some time to get to get all the way back between now and then and it is hard to predict exactly when Zen is going to be when the ticket yields or all the way back there is a lot that goes into.
And to that the supply demand environment being of course, the largest factor there. So for a period of time, we will anticipate that non ticket production will be stronger than the ticket yield, but that's not necessarily the <unk>.
And the long term desire and we would expect things to come back to 50 50.
And a more normal environment and really we've always said that we feel like theres more room on that ticket yield to improve as well and non ticket will continue to go up.
And we're back on track there and we anticipate we will start to resume our March upwards on non ticket overtime and a very methodical pragmatic way.
The ticket yields will catch up and one of the things and how that can have a dish network deployment and how we think about the network and on.
Unfortunately the.
The pandemic caused lots of issues across the entire world and especially for our industry. One of the things that we talked about pre pandemic was how we were going to think about our network moving forward and capitalize on our strengths and continue to build on our strengths and think about that a little bit differently than we had in the past. So we didn't get to deploy that plan.
And that is our anticipation moving forward, which is why we're continuing to think strongly about Latin America, and the Caribbean and how we think about our strengths and Florida, Las Vegas, California, New York, where leisure travelers wants to go and as we build upon that strength, we would anticipate the upward.
<unk> for ticket yields to not just come all the way back to 50 50 with non ticket, but eventually get back higher than 50 50 over time that might take a couple of years from where we are today, but we do anticipate we can get there through network deployment.
Okay very interesting, thanks, and maybe just a follow up.
Related to the network and capacity decisions and what was legacy carriers, just allocating more capacity and non traditional leisure routes for them and we really for the short term here and some new low cost service entering the market how does that impact your overall just what.
And what level of capacity, you're adding back and maybe some of your routes decisions.
Does that factor in.
And if it does how thanks, so much for the time.
Yes sure. So to answer your question is yes of course, we're taking a look at what's going on out and the network overall, where we think we're there we think theres good ideas.
We're not we don't have a monopoly on good ideas. Other airlines can clearly do analysis and thinking about what they think are good ideas.
Well.
It doesn't bother us.
And we know where we think we can grow I think the new cities that we're adding we're making it.
We're making it clear I think that we believe are strong to Florida, Las Vegas, California, all the leisure destinations that are out there and thats, where youre going to see us grow and.
We will continue to add new new dots on the map that we think connect well to those to those places we did have a little bit of a hiccup.
And our international networks solely because of the international inbound testing requirement. So we redeployed some capacity in.
And the latter part of the first quarter and into the second quarter. In fact, we took our Latin America and Caribbean capacity down from around say, 19% and 20% like it was in the fall we brought that down to around 15 and 16%.
In March April timeframe by June we're back to that same mix of ASM, and Latin America, and the Caribbean backup to the 19% 20% level. So we will move the network around where we think its best and how we think about deployment of capacity and yes. The whole industry is one big ecosystem and away, but we know that when we go into March.
We grow them and Thats, the most important thing for us and our business model.
Understood. Thanks, Pat.
Absolutely.
And our next question from Joseph de Nardi.
Thanks, Good morning.
Scott just on the I think you said sub six CASM ex in 2022 is that for the full year and then what's the trend for CASM ex kind of after that if youre growing 15% is the expectation that CASM ex is down every year after that and I think pre COVID-19, there was a little bit of pressure.
On that so maybe just an updated view there.
Yeah, Hey, Joe.
I think the sub six we said was going to be on products. After we get to full utilization, which we said would happen probably around.
The middle of 2022, so the sub six CASM.
And we'll have at some point after that once we get to full utilization.
And that's really sort of a.
A marker for a full year number.
So, we'll probably be in that range as we get there and the third quarter, but.
And it's really meant for our full year barometer of now obviously after that we're going to continue to have the inflationary components that are normal for our business. We saw that pre COVID-19 those are not going away.
We saw him and wages, we saw it at airports and amortization for us. So those are not going away.
But we're going to do what we can to manage those but those are still going to be headwinds. So I would expect the same sort of trend and that we were looking at pre COVID-19, there's still be there.
It's difficult to say, what it will be and <unk>.
Three year, 'twenty for but but I think thats a good proxy.
Okay. That's helpful and then Matt I'm wondering if you could just talk a little bit about demand stimulation as you see it just in the context of there's probably limitless demand to go down to Florida. If the fare is low enough can you talk about how sensitive that is like if your average fare has 50 Bucks. The market is acts of 50 becomes 45, how much does <unk> go up.
And hopefully you get the point just interested in your perspective there.
Yes, Youre, describing cl<expletive>ic elasticity right, Joe so and and.
Yeah for sure so.
Every market is going to be a little bit different so I don't have a <unk>.
Really a good rule of thumb to give you.
Because the size of the market or the size of the city coming down to Florida or going anywhere for that matter will matter and that calculation, but what we do know is that we can stimulate demand and drive load factor, we talked about and the prepared remarks and load factors that we saw and we're going.
We're going to see strength and loads throughout the second quarter and the summer. It wouldn't surprise me, if we're at or near the top of load factor for the industry for.
For the foreseeable future.
And thats from us being able to do that with our cost structure and the non ticket revenue production and while it took a dip.
And the first quarter, which was really hammered and January and February and there's a couple of different reasons for that but the fall off and some of the issues, we had with international traffic and I had an impact and is that is that regains its strength and comes back we start to see see that production come back and and when we go into new routes for that.
We do think about non ticket versus ticket and so this does come into account and how we think about where we go where can we stimulate travel with a low fare, but where do we anticipate the attachment rate for products to be on top of that that's all part of all part of how we think about it.
Okay. That's helpful. If I could just sneak one more and Matt why don't you fly to Hawaii, and where does that rank on kind of the priority list next few years. Thank you.
Yes, I can.
Yes.
And Thats looking at my hand, it over to Ted.
So and.
Initially.
Let's start with what we know lower 48, Latin America Caribbean.
As far south as our equipment can go and that's the focus of the airlines there is a m<expletive>ive opportunity and that window or that geography, and thats why we are focused there.
Until the.
The introduction of the Neo Hawaii was physically off limits for spirit.
Because we couldnt get there.
The airplane now can can reach it.
But it's as I said earlier it becomes.
Prioritization discussion and right now there is so much opportunity, where we live and we know the markets well, it's better for us to stay focused there.
Thank you.
Our next question is from Andrew the Dora.
Hi, good morning, everyone.
First question for Matt I guess, we're hearing over the course of hurting the past week or so a lot of airlines, adding capacity into into the peak periods and.
And there are more airlines now going after leisure than before.
How are you thinking about your revenue management or are you changing any any tactics here in light of all of this if at all.
Yes, Thanks, Andrew So yes. There is there is more capacity coming back and we expected this capacity to come back.
And what's been nice at least for US is we've been able to deploy more constraint on our revenue management strategies.
And the peak periods that are that are upcoming and we're very comfortable with the pace of demand.
That is transacting relative to the to the constraint that we put in place.
It's still I wouldn't call it.
As strong as we would have hoped to see say for the close and period of late April into May.
<unk> been relatively good compared to where we were a couple of months ago.
But the they're definitely on his shoulder right now as we head into the summer what's been nice is as we said as I just said Youll management has been able to hold.
And in some cases.
Pretty decent fare levels, our normal yield management strategy.
Is is to pressure test yields and see what we can get relative to the bookings that come in.
And then as we've talked about before is generally I don't care, where on the booking curve, we get the demand. We just know what we think we can go get from an average fare perspective. So that's been holding that we'll see as we get in and closer to the summer what the closer and closer and demand it looks like our anticipation.
Right now is that it will be relatively strong.
And that will be able to hold our yield management strategies, especially when we talk about the weekends of the peak periods Tuesdays and Wednesdays are usually the days, where we can drive extra demand. If we have to at lower levels generally that traffic. It doesn't always just go seven days a week, though so it might go on and off peak day, one <unk>.
<unk> peak day, and another direction and Thats, how we kind of mixed the yields together for the best outcome.
Got it makes sense and then just Bob I had a follow up to <unk> margin question earlier, I guess, what gives you the confidence and that PRASM appreciation over and over the next few years.
<unk> talked about especially when you are growing say almost 50% between between now and then I just don't there isn't just a whole lot of precedent for that type of RASM growth and the model. So just curious your thoughts there right. So I think its two things one is.
It's where we're deploying within the network and how we think about development of <unk>.
On on new routes versus capitalizing on the strength that we know exist. So I think that's one piece of it is network deployment and the second piece of it is our non ticket.
Strength and the way, we expect non ticket too.
Very methodically just kind of March up slowly, but surely over time and hold where we are and then keep moving up from there.
We've been able to get we anticipate.
We will be able to get back to flat and the second quarter. This year versus 2019, we can see a path to get there and that is while we're in the pandemic. So a lot of the a lot of the strategies and new technologies that we've been able to put in place. We think will set us up well as we come out of the pandemic as well and that's on <unk>.
Top of just re launching our new loyalty program and the Savers club rebranding. So theres a lot of different pieces that feed non ticket that give us confidence and that statement.
Got it thank you.
Certainly.
Our next question is from Brandon on Glenn's. Please.
Hey, good morning, everyone and thanks for taking my question.
And I appreciate the outlook from the team here and definitely a strong one and 2023.
We have a couple more public comps now on the group and if we look at valuation.
Pierre that investors are a little bit skeptical on your ability to execute against that plan and I guess, that's somewhat warranted because we did have some progress Houston issues pre pandemic. So what can you give the investor base confidence and the outlook can be achieved and that.
And as have been learned from the past.
Thanks Brandon.
Yes, there are a couple of more comps and our space I don't know that we have enough information to say for sure that there is a premium devaluation, because we haven't seen any numbers.
And there is a market cap discussion, which could be related to a variety of things, which could be balance sheet could be forward looking estimates could be a bunch of stuff.
But to get to the heart of your question is what are we doing to ensure that we are delivering confidence I think we have 10 years of track record here.
As a public company.
I think our I think we've shown that we while you mentioned for example, we had we have had.
Operational.
Struggles maybe in 2019, I think we've proven to ourselves and.
And to the market broadly.
And that those things are behind us.
I think we were starting to enter into a phase of really a renewed growth opportunity pre COVID-19.
I was feeling like and I think we were hearing back that our network deployment decisions and the way we were going was very much in line with that so the best answer to all of this is execution.
Delivering upon the promise.
Hitting the numbers.
And I think our at least our history to date has gives us credibility and I think we're going to build on that.
And.
We'll worry about the comparisons later because.
We're focused on being the best airline and the business and I think we're on our way.
I appreciate that response, thank you.
Our next question is from Christopher <unk>.
Good morning, Thanks for taking my question so.
It's going to be.
The topic of yields here and a different way if you could comment on what youre seeing on fares now and its business and long haul international stays longer on pause for Europe.
Competitors.
How if you could give some color on how you're thinking about managing yields.
And that means.
More opportune and opportunistic on close in yields and.
And second question.
With the recovery and ASM here.
Any color on the cadence of costs for CASM ex and just remind us what percent of the mix of fixed versus variable cost and if theres a benchmark.
Asm's recover whether thats marginal cost per mile or something else that we can look at here.
Get a sense of how productive <expletive>ets and costs are being deployed here. Thanks.
Hey, Chris This is Scott and I'll start and the Mec and filler and the first part of your question and I'll talk about cost.
So for this year I mean, we've talked about two two points. One we ended Q1 and about seven four.
From a.
CASM ex perspective, we've talked about sub six.
Towards the back into 'twenty two.
And so we will probably see.
Probably somewhat linear progression between first quarter and the sub six number so.
We're looking at second quarter, probably and the high sixes will in the year, probably and the low sixes.
And that will trend towards sub six number and 'twenty two so I think thats, probably the best way to look at it and we will.
Talked a little bit about what that means for for beyond that.
And from a fixed variable and variable perspective, as we've mentioned before the best barometer of probably 50, 50, but obviously that moves and we're going to get into technical components for that fixed variable component moves the closer you get to departure.
But if you're generally thinking about it and our medium term level, it's around 50 50.
Okay. Okay.
And for the your yield management question, and Chris I'll try to restate to make sure I'm getting it right here, but if corporate demand and or long haul international it takes a little longer to recover.
And then what does that mean in terms of spirit being able to deploy proper yield management and how we think of yields.
And.
And there's a couple of different ways to think about that in the and the Grand scheme of things and the Big picture, we want the economy to be all the way back and Roaring back which it will.
We want that too so it's just a great overall for for every for everyone involved when that occurs and so we are not rooting against these kinds of things at all we want the economy to rebound in terms of if it takes a little bit longer to recover we may see that and we talk about that.
And we're anticipating as we get past the summer into the early parts of fall that's a question Mark.
And it's not anything that I'm actually really worried about as well. So if we see a little bit of a lull in.
In September or October maybe not dissimilar to just a normal shoulder period, that's fine because once we get back for Thanksgiving and Christmas and beyond we'll be back into the heart of leisure peak season, and we know we will perform extremely well and then as we head into 2022 everything will everything will move along.
On fine. So if there is another six or eight week lull post summer, it's not anything we're worried about and in fact, we're already thinking about that and thinking about how we how we deploy yield management strategies in the event that occurs it's nice to be the low cost provider, we have the ability to stimulate travel and work.
And use elasticity to our benefit and get just get more people on the aircraft and make it through till we get to the holiday periods and so thats the way that we're thinking about it right now.
Thank you.
Sure thing.
James are there any more questions.
No no more questions often thank you everyone for joining us today, and we will catch you next quarter.
Okay.
Thank you ladies and gentlemen. This concludes today's conference. Thank you for participating you may now disconnect.