Q2 2021 Spirit Airlines Inc Earnings Call
Throughout the course of the crisis, we have banded together and come up with innovative solutions to secure our future save jobs and take care of our guests. This summer has proven to be operationally challenging and very busy with full aircraft and airports.
And we internally grateful for all the hard work as we move ahead through the recovery.
Turning to our second quarter financial results solid operational and network execution together with an improved demand backdrop contributed to our reporting among the best financial results in the industry.
While we recorded a net loss of $36.3 million for the second quarter and June we recorded our first month of profitability since the onset.
Onset of the pandemic based.
Based on current booking trends, we anticipate we will be profitable and both the third and fourth quarters of 2021.
Operationally the team delivered strong results despite numerous weather systems across our network and elevated congestion at airports due to the volume of industry capacity or <unk>.
<unk> performance for the quarter was 78, 3% and our completion factor was 99, 3%. The spirit team is doing an excellent job managing through the recovery. We are once again growing our network and playing to the strengths of our business model. The team continues to innovate and grow non ticket revenue and they are doing a great job managing.
<unk> costs.
And as we ramp to full utilization, we will see further efficiency gains there.
And there is still much to be done to attain sustained profitability and deliver high returns to our shareholders, but the stage is set and we like how we're positioned.
With that I'll turn it over to Matt and Scott to discuss more details of.
Our quarterly performance.
Thanks, Ted second second quarter turned out even better than we anticipated flights are full and airports are very busy I want to thank the entire spirit team for taking excellent care of our guests and each other during this busy travel season.
And discussing results today.
I'll be comparing results to the second quarter 2019, but I'll also explain second quarter revenue trends on a sequential first to second quarter basis as doing so helps to illustrate the trajectory of our improvement.
Turning now to our second quarter revenue results.
Day total operating revenue was down 15% compared to the second quarter 2019 on 5% less capacity.
This result was much better than our initial expectations and demand trends and our domestic and international markets saw a significant improvement as the second quarter progressed such that.
From 2021 operating yields were nearly flat compared to June 2019 on similar capacity.
Compared to the first quarter 2021 improvement and operating yields as well as higher load factors helped drive and 86, 3% sequential improvement and total revenues.
Junior to a much smaller 28% sequential capacity increase.
So on a per segment basis compared to the same period and 2019 total revenue per passenger segment declined 9.4%. The passenger revenue per segment component did declined 23, 5% what we.
And we saw very strong non ticket revenue per segment performance. Our non ticket revenue per segment increased $2.85 compared to the same quarter in 2019, a 5.1% increase.
This non ticket result is a record for spirit and we expect we expect.
Spect to break that record again this quarter.
We said we'd continue the upward March on non ticket performance, we're doing that through enhanced product offerings improved customer facing merchandizing and realized benefits from our revenue management initiatives the.
And the investments in these areas are.
We are moving even closer to $60 of non ticket revenue per segment on a quarterly basis and I couldnt be prouder of the teams working across the entire company to achieve this result, the revenue management and E. Commerce teams continue to lead these efforts, but our fantastic Airport services.
<unk> deserves a lot of credit as well. Thank you to each and every 1 of you for driving this incredible result, while we're still battling through the pandemic.
Turning to the passenger ticket side of the equation load factors have largely recovered and the yields we've seen around peak travel had been impressive and have largely.
Caught up to 2019.
The opportunity to push up yields during off peak periods will likely continue to be a challenge and our focus for a little while however, as the recovery and leisure as well as business travel progresses, we expect to further close the gap to 2019 passenger revenue per segment.
Additionally, while the improving demand trends certainly helps our network and deployment of assets is the largest driver of our revenue performance. We have a strong track record of picking markets that allow us to profitably offer low fares and stimulate demand and provide high value to our guests. This has been and continues.
Continues to be the recipe of our success.
We remained very well positioned to capture market demand and addition to reinstating nearly the entirety of our route network to pre pandemic levels, we've been very busy adding new cities to our schedule over the past few months, we commenced service from our new cities of.
Louisville, Kentucky, and Milwaukee, Wisconsin, Pensacola, Florida, <unk>, and Mexico and St. Louis Missouri.
We added 28, new routes and the second quarter and reinstated 11 routes, which had been previously suspended some examples of our new routes include service from Laguardia Airport to Los Angeles Nashville, and.
San Juan We also started new international service from Los Angeles to Los Cabos and.
And some other examples feature new leisure routes from origination and cities like Kansas City and Columbus.
Also during the second quarter Spirit announced new service to Manchester, New Hampshire, and Miami, Florida, which will both begin.
Patients in October.
And just yesterday, the president of Honduras joined Us and announcing service to the new airport and to Goose, the golfer, which will start operations just before Thanksgiving later this year.
While in general we are pleased to be growing again, we are being very deliberate with our route.
And to ensure that we continue to build a sustainable network for the long term.
For the third quarter, we estimate capacity will be up 10, 6% versus the third quarter 2019, and for fourth quarter, we estimate capacity to be up about 23% versus fourth quarter 2019.
Moving.
Deployment and the third quarter revenue outlook July yields and load factors have been strong our booking trends indicate August through early September will also be strong.
The post labor day period, typically books closer and therefore, our visibility is somewhat limited which is normal for this time of year, but at this point.
Point, we arent seeing anything to suggest the seasonality trade and September will be different from normal.
The revenue range implied by our EBITDA guide is $1.83 to $1.1 billion or up 3.5% to 11% compared to third quarter 2019 on 10, 6%.
More capacity.
And now here's Scott.
Thanks, Matt also want to thank our team members for their continued commitment and dedication and my travels around the system I see the hard work and I hear the team spirit and their voices and it makes me proud to be part of the team.
Now turning to our second quarter 2021 and financial performance.
Due to our strategic deployment of assets and improving demand environment and our strong operational performance. We were 1 of only a few airlines to produce positive adjusted EBITDA for the entire second quarter.
EBITDA margin for the second quarter was a positive 7.2%.
This result was much better than our initial.
You'll expectation due to both better revenue and lower costs.
Operating costs increased 2.6% compared to the second quarter 2019.
Our cost performance was better than expected primarily due to strong operational performance airport use fees, increasing at a slightly slower rate than expected and.
And some timing of events that shifted into Q3 as well as good overall cost management.
Moving onto the balance sheet during the quarter, we leveraged the favorable market dynamics to enter into a series of liability management transactions.
To summarize these transactions, we completed a direct placement of $10.6 million.
And shares the holders of our 475% convertible notes and used the proceeds to redeem $340 million of our 8% senior secured notes.
We also issued $500 million of 1% convertible senior notes using the net proceeds to repurchase 84% of our outstanding.
1.7 and 5% convertible notes.
After accounting for the premiums paid and payment of accrued interest the net.
The result was that we were able to reduce interest expense by about $30 million per year and reduce our overall debt balance by about $32 million, while not materially impacting the run rate of net diluted shares nor our liquidity.
And <unk>.
Details of these transactions can be found in our earnings release and 10-Q filing that were both published yesterday and are available on our website.
In addition to these transactions we also repaid all of the outstanding indebtedness under our senior secured revolving credit facility.
We ended the second.
Position with $2.2 billion and liquidity, which includes unrestricted cash and short term investments and the $240 million.
Million of available capacity under our revolving credit facility.
Turning now to our fleet and fleet utilization during the second quarter, we took delivery of 5 new <unk> hundred 20.
<unk> Neo aircraft and ended the quarter with 164 aircrafts and our fleet.
By the end of the second quarter 23 of our 31, <unk> hundred 19, and we're back and service.
Our average daily utilization for the quarter was $9.9 hours or 23% lower than the second quarter of 2019.
As I've noted previously we expect to ramp to full fleet utilization by mid 2022.
During the quarter, we completed the purchase of 2 additional <unk> hundred 19 as off lease.
Our revised capital expenditure estimate for 2021 is now $290 million.
During the quarter we.
We also launched an RFP for additional aircraft required and the 2022 to 2024 timeframe.
As we discussed previously these aircrafts were expected additions to our order book with Airbus.
To recap the forward looking guidance, we provided in our earnings release, we estimate our EBITDA margin for the third.
It will range between positive 10% to 15%.
This assumes total operating expenses of about $1 billion. We're also assuming a fuel price per gallon of $2.14 and.
And DNA of about $75 million.
As noted previously for the first half of 2022, while we still.
Third quarter utilization headwinds, our CASM ex fuel will likely be and the low sixes and by mid year, we expect to reach sub 6 territory.
In closing the ramp up of our operation and our unit cost progression is happening on target, if not even a little bit better than expected.
We don't believe anything about.
And the pandemic changes and our long term opportunities and we expect a full recovery and travel demand and look forward to grow and the airline again.
With that I'll hand, it back to Ted Thanks, Scott.
There has been an increase and news reports regarding jurisdictions re instituting indoor face covering policies, it's too soon to say.
Have if any impact this will have on bookings.
And all along we've assumed the recovery would be choppy, but regardless of whatever ups and downs occur related to the pandemic. It doesn't change our long term view low cost and high quality and allowed spirit to deliver industry, leading margin margins since our IPO nothing.
We have experienced are learned during the course of the pandemic has changed the historical fact, and we also feel confident that as we exit the pandemic, we will leverage those same strengths to deliver pre pandemic margins and 2023 and beyond.
With that back to Deanne.
Thank you Ken we are now ready to take questions from the analysts we ask.
Well and limit yourself to 1 question with 1 related follow up.
James we are ready to begin.
Very good. Thank you we can begin our Q&A session. If you have a question. Please press star 1 on your phone.
We wish to be removed from the question queue. You May press the pound sign of the hash key.
And if you are using and speaker phone and you may need to pick up.
Handset first before pressing the numbers. So once again, if you ask a question press Star 1 and our first question comes from Helane Becker.
Oh, thanks, very much operator.
Probably a question.
For Scott.
Thinking about acquiring aircraft and thank you mentioned for the next.
Ask that Alere is 2022 and 2024 deliveries.
How are you thinking about aircraft cost because.
We're hearing from other airlines that they are out looking for aircraft too and Allegiant said yesterday, they were able to secure some aircraft down 30% versus pre pandemic levels and I'm wondering if all.
Couple of man from various.
Various airlines is not going to cause pricing to move up so how are you thinking about that.
Yes, it's a good question Helane.
And 2 by the way.
We were out and in the market and really pre pandemic thinking about this and.
And the rates that we're seeing today.
This still the previous call to were really at or below pre pandemic levels for that time period.
And to say, what's going to happen too.
And the rates lease rates or cost of aircrafts sort of post this near term window.
But what we're seeing and the sort of 22 to 2004 timeframe.
Our lease rates that are that are pretty attractive hard to say for the used aircraft because we are and the market primarily.
Primarily for new kit.
But the lease rates are and a pretty good spot today.
That's very helpful. Thank you and then just from my follow up I think Miami is 1 of your new market.
We mentioned I'm just kind of wondering maybe Matt. This is for you or how youre thinking about Miami, It's an expensive airport from which to operate on a cost per passenger basis.
And.
Now how are you thinking about that and balancing your low fares with those high costs.
Sure thing Helane.
And good morning, as well so our decision to enter and Miami was 1 that took a number of years for us to be able to get to that point, where we could feel comfortable entering Miami and that is because of the airport. There did change their cost structure along with their lease rates just in general.
And without getting into too many technical details the structure there changed a lot.
Which made it attractive for us to finally enter Miami, we feel like as a leisure Airlines Miami is 1 of the largest leisure destinations and the country and was just a matter of time before we were able to get in there and the cost structure to your point about low fares and our cost.
Sure. They are now allows us to go in there with our low fares and be very profitable.
And that's very helpful. Then thank you very much and have a great day wonderful. Thanks.
Our next question from Brandon of Glinski.
Hey, good morning, and thanks for taking my question.
Matt I think if we go back to your implied revenue guidance for the quarter.
At the top end of it that would imply getting back to where you were in 2019 from a yield or passenger revenue per segment level, but maybe you can speak to that a little bit more.
Yes, sure thing, Brian and so that's right at the top end of the.
Struck out is implied to basically have revenue production at ASM growth. So our continued move up on non ticket has been.
I would say something that we knew we would be able to achieve but the investments have been paying off a little bit faster than we had actually even anticipated ourselves.
And 1 of those things we've talked about over the last few years really but even during the pandemic. We continue to invest and what we knew would be important for us coming out of the pandemic and a lot of that was and what we offer our guests and how we offer it and not just what how that seems to be paying off well and the revenue management.
And and pricing of those products has been working to 1 of the and we had it in the prepared remarks as well as once we get past Labor day. The high end of the guide would be would be anticipating that there would be a continued move up and that we start to see.
Some of.
Of the anticipated demand that comes back from say small or medium sized businesses as well.
And as evidenced by that we have moved every year, we move our capacity around from summer into the post labor day period and.
And for them and give you an example, when schools and some places start.
To go back to school, So say for example, and Texas will move some capacity out of Texas and mid August and moving to the northeast because school goes back after labor day generally so that's sort of.
And the summer move we do with our capacity then you get past Labor day, and this year, we moved even more capacity into Las.
Vegas after labor day in fact, I think we're up around 8 or 9 departures per day. Once you go from August to September now, we did that and anticipation of conference season, starting to build back up and Las Vegas, So not just and extended leisure period, but also the anticipation of some of that building back.
That's where we can see maybe some ability to hit the upside of the guide is of that kind of traffic with the yields we would anticipate on that follows through so hope that helps give some color on that.
Yes Super helpful. Matt and then I guess for Ted or Scott I think there's been a perception at least.
Because we've been talking about CASM and.
2022 that could be higher than where you were previously pre pandemic and.
Lot of investors have asked like spirit lost its way on cost focus, but it seems like Scott I think you said sub 6 from the back half of next year or maybe I heard that wrong, but can you talk to some of the.
And the focus on cost or the cost and this gives you guys are looking at.
Yes, Thanks Brendan.
Yes.
First of all certainly not the case spirit of all people cares about unit cost.
Our biggest strategic asset.
And that's our 100% continued focus.
But to think about.
And half of the situation.
There are inflationary costs that are happening and the industry, we're not immune to that.
So we're seeing inflationary cost on labor and we've talked about airport cost before.
All of those things are happening, we're likely going to lean into leasing aircraft, a little more and that's going to put pressure on unit costs.
But all of those things still take and we're going to be you know what you.
And the prepared remarks sub 6 by mid 2022, how far below 6 we go depends on a number of things for example, like financing aircraft.
Where we fly those assets.
But in general we're.
B.
And and the high fives, probably.
And then we'll see where it goes from there we've talked about the things that drive unit cost being what you fly how you finance it and where you fly those assets. So, we'll we'll make financing decisions and fleet decisions over the coming years will make network decisions and those.
Index, where unit cost over time.
But the hope is that we can we can get to.
A fairly sizable number below 6 and and continue to maintain.
Sort of that sort of high fives cash.
And for a period of time, but the decisions that we'll make and.
And the short term, we will dictate where that ends up.
Thank you.
Our next question from Jamie Baker.
At JP, Morgan, Hi, and good morning, everybody.
And so you're excited being profitable and the fourth quarter that's helpful.
And I realize you're probably not going to provide a ton of granularity, but relative to the third quarter.
What really changes as you're moving into the fourth quarter I mean are you expecting.
Costs to meaningfully come down or sequential revenue to meaningfully accelerate and I ask.
And it's pretty rare for you to generate more revenue and the fourth quarter than the third but I mean, we're obviously and Ah.
And a pretty robust recovery at the moment.
Hey, Jamie it's Ted I think it's both.
To start the guys can jump in and get a little clarity, but as the airline has and will continue.
To ramp utilization and Scott mentioned in his remarks today.
Utilization and the second quarter was almost 3 hours less than we normally fly so with that.
With that utilization level were still producing los.
Below 6 and a half cent CASM ex.
Max and we're talking about a 25 ish percent utilization penalty. So as the airlines starts to move the utilization and the rate and the right direction and unit costs are going to come down.
So I think thats, a tailwind heading into the fourth quarter. We also are getting bigger. So total revenue will go up seasonally the fourth quarter is not.
It is profitable and generally speaking is.
As the third but we are anticipating a continued recovery.
As well.
And evidenced by the EBITDA margin guide that we provided right now our expectations for profitability into the third quarter are.
Around the margin you know once we get to the bottom line. So.
Small numbers, but we're certainly moving into the right direction and very encouraged by unit cost trajectory and demand recovery.
And I think that that's what's going to move Q4.
Sequentially and the right direction setting us up that by the time, we hit the peak of 2022 were much more in a traditional run rate.
Got it.
And that's actually really helpful. Just as a follow up could you quantify.
And what sort of a revenue or RASM drag and the new markets you mentioned move for.
There are cities and new market activity.
And what pressure that's putting on the third quarter revenue guide I mean could you.
Dave its a third quarter revenue range any way to express that.
And you sort of a same store sales ramp and something like that.
Yes sure.
I think we'll probably answered a little less detailed and you may actually want but I can tell you. This that historically new cities New service does usually take around a 10% or so.
RASM penalty as we ramp up but that has so many caveat.
Obviously, and it which is the time of year, we're launching it.
How big is the launch and I think we talked about that a little bit a couple of years ago. We had introduced a lot of new cities.
So we don't anticipate that to be.
Significantly different.
1 Rob wood on that is.
Is that we do and we do think because say for example, and Miami.
Starting off in October with I think about 1 game of service and then by the time and get to Thanksgiving it'll be up too.
Nearly nearly 30 departures per day, which is a relatively large launch for us. However.
It's ramping up right before Thanksgiving and and then into Christmas. So we were not were not anticipating there to be the normal drag and say in the fourth quarter that you might have on <unk> New service and then we'll just sort of see what happens after new year's because January as you know can always.
Always be a bit of a wildcard for the industry.
Okay very disclosed.
Answers to both of my questions I appreciate it gentlemen take care.
Thanks.
Our next question from Duane <unk>.
Okay.
Hey, Thanks, good morning.
So I'll follow up maybe maybe to brandon's question.
<unk>.
Can you just help us mark to market on.
What you said on timing about getting ex fuel unit cost below.
2019, and it feels like you.
Ratchet it up capacity at least once maybe a couple of times.
Now it sounds like you're looking for.
Incremental fleet to add so.
And what have you said in the past on timing on.
When your non fuel unit costs would be below 2019, how does that how does that compare to where you stand now and and how do we contextualize you know maybe a couple of upward revisions to your capacity outlook.
Okay. Thanks, Duane couple of points, there so on and on unit costs.
We have said that we will be sub 6 which in 2019 were and a 555 ish CASM.
Even heading into 2020, we said CASM ex will be up probably 1 to 2 points. So.
So we were already experiencing inflationary components and haven't talked about getting to 2019 CASM ex.
During the Covid or post Covid period, so to clarify we have said sub 6 CASM.
Probably hitting that number and mid 2022.
And so that's the clarification on.
The unit cost guidance as for capacity.
And our capacity moves haven't really changed or at least our go forward thoughts around growth. It's been mid teens capacity in fact, the COVID-19 crisis set us back a little bit and on a percentage basis.
2022, where we would be larger absolute.
<unk> had it not been for the Covid crisis.
But we are going to return to our <unk>.
Stated previously a mid teens growth rate.
We'll continue that for a period of times and I don't think things have changed around how do we think about growth.
I think it's really more around the math may be in.
In 2021 or 2022.
Get back to full utilization.
The growth metric itself on a percentage basis will be a little awkward.
But but how we think about growth hasn't changed.
Okay, and then maybe 1 for Tad.
The commentary and I appreciate there's a there's a lot we don't know at this point and time and.
And as we don't want to set a high bar, but given that you're entirely leisure focused and given that you don't fly to Europe or Asia or any of those places like why would it take until 2023 to restore your margins.
And.
Hey, Duane how are yet so.
You certainly shouldn't utilization being a drag and until we can get the airline back to full.
Full use it will it will be a margin drag and as Scott indicated and thats, probably not going to happen until we get to the middle part of next year. So at least for the first half of next year, we're going to have a little bit of.
Pressure.
Pressure with regard to utilization and where.
Also anticipating still recovery, while we you're right, we don't carry trans Atlantic and Trans Pacific traffic and we don't carry large corporate traffic probably.
And in all likelihood at least some on our airplanes, but but it is all demand.
All of that stuff is demand and the marketplace.
We met and so.
It can as it returns the overall marketplace does get healthier.
And that is part of the expected recovery.
Which we anticipate happening over the course of the next.
Year and change so I think I think that thats another component as to why we anticipate.
<unk> is taking really up until 2023, when we're starting to see things more normalized I've already said and an earlier question you know by the time, we hit the summer of next year, we're sort of running again.
And I think you can kind of think about that as the start of it.
For us at least I can't speak for other airlines, but that's the way we're thinking about it it really is about.
<unk> utilization and getting overall demand back to where it was.
Okay. Appreciate the thoughts thank you.
Yes.
Next question from Hunter Keay.
From Wolfe Research Hi, everybody.
And so.
What.
Does the outlook for gaining some slots at Newark, and late of the Appeals Court victory.
Ted can you know compel the FAA or the port to make room for you.
No.
We let's start with what we are actively.
<unk> engaged and a number of efforts to get larger and New York.
I think that's been well publicized at this point, which I will come on and on further.
But and today with regard to the waiver that's in place there is an incremental flying and we can do and <unk>.
Which we are doing some of.
And we recently relocated.
Some of our.
Service to the Marine Air terminal and and doing so we've created at least physical space.
For us to get larger to the extent that there is availability.
But beyond that I.
I don't have visibility about how.
How slots would be managed.
At that airport.
Okay.
Alright.
And then I'd like to ask you question about M&A I know youre going to say Youll do what's best for shareholders and that's the right answer of course, but.
And what sort of operational considerations would you consider.
And when contemplating M&A, you know not not just like integration and and the cost of integration, but also you know culturally anything really to you know I T.
There anything that would be sort of too difficult or a non starter.
As you contemplate maybe engaging and it and.
And 1 form or another if you decided to go down that path.
Thanks.
I think those are all inputs.
Hunter you nailed it on the head. There is there is we will do what we believe is and the best interest of our constituents, which include our shareholders and our team members and our guests.
And.
And M&A can have tremendous benefits to.
<unk> it.
In the form of synergies, but can also create complexity and <unk>.
<unk> with regard to technology and.
Integration risk and operational risk.
All of those things are considerations and if you look back over the history of how airlines M&A is gone.
Post deregulation I think there have been some hits and misses and so.
I think we take that all into consideration as we evaluate where would evaluate opportunities for spirit.
Right now our focus is on rebuilding the airline and getting ourselves back to where we believe we need to be.
We're in a leadership position today, and our space and we want it.
Yes.
Yeah.
Alright, thank you.
Yes.
Our next question from Mike Lindenberg.
Hey, good morning, everyone.
2 questions here.
Net.
As you've mentioned look.
Maintaining and getting the network back to 2019 levels, but I think 1 of the sort of interesting sort of back story here is that if I were to look at the diversification the diversification of your network.
It does feel like that you've used the pandemic as an opportunity to really add a lot more points whether.
Youre bulks or even in some cases calm focus cities like Miami do you have anything that can give us a sense of maybe how it. The diversification has increased say we go into 2018.2019. Your top 10 markets represented 50% of your revenues and maybe now it's 25%.
Percent because it does feel like you've you've really made some efforts there.
And and it's going to really I think help you on the backside here, so any any sort of data points or anything that you could provide that highlight that that shift or evolution would be great.
Sure thing, Mike and Sue.
And as we as.
<unk> 2019, and headed towards 2020, we did talk a lot about making sure that we were building upon our strengths and that includes leisure leisure cities leisure markets leisure destination. So the pandemic got and got a little bit and.
And the way of the execution of that plan.
And so we really werent able to show it off.
And we wanted to but.
We probably took that plan and then took it a little bit to another level. Once we got inside the pandemic and some of that is based on where we saw demand materializing and.
And quite frankly, it thanks a lot.
And we probably think and the same thing.
And our low costs allow us to drive and affairs necessary to still be profitable long term.
And leisure routes and so I think 1 thing is we were already planning on doing that and then within the pandemic, we were able to find opportunities.
To really juice that up even more now there is another side to that as well, which is our Latin America and Caribbean network.
Pre pandemic, we were running around 15% of our capacity was in Latin America, and the Caribbean and really it was only a few short years ago that number was 10.
10% of our capacity and.
And then north of 15% and then within during the pandemic.
And we've got that number up to nearly 20% now.
Yes, we will see what happens after after we get back to a more normalized demand environment for the entire industry, if that number stays up at 20%, but we're pretty happy.
With the results, we announced a new city, just yesterday, and Honduras second city, and Honduras that will be serving so we're always looking for those opportunities to diversify the network and find find that VFR traffic as well, which is very profitable for us.
Very good and then just sort of a second here and kind of ties into Jamie.
Cash and about fourth quarter profitability versus third and why and and in fact, you are you are going to be a much bigger airlines and the fourth quarter versus third.
But also just what are you seeing on the bookings side.
Early book Thanksgiving Christmas.
I realize that.
It had been.
Difficult to go that far out, but we have heard that the booking curve has elongated and presumably you are benefiting from a much longer well I should say a longer booking curve than maybe what you saw 6 months ago any early read on what you can tell us about sort of the November December timeframe from a book perspective. Thank you.
Sure Mike So.
Amy is quite it's pretty far out right now for those time periods nor.
Normally we are always pressure testing yields for for holiday peak periods, just to see whats the market looking at and what's what's the clearing price because there is different.
This can be this can be a.
A long answer I'll try to keep it short theres different booking curves within different travel periods. Some people like to book really far out from their from their holiday trips and and others book well closer in.
I think youre talking about sort of the far out bookers is kind of what you're kind of talking about right now and I would say that have continued and yes. That's it.
Continuing.
So, yes move and what we would normally see.
There's nothing abnormal happening out there that has us concerned that there won't be strengths around Thanksgiving or Christmas.
Bulk of the booking curve for those holidays comes and after labor day.
So we'll have a lot more commentary on that on our call in October.
But as it right now we're not seeing anything that suggests theres going to be an issue at all out and Thanksgiving and Christmas.
Great. Thanks.
Hello.
Next question from Stephen Trent.
Hi, good morning, everybody and thanks for taking my question.
Just really a quick 1 from me.
And when you're thinking about.
Your pilots staff.
How comfortable are you.
With that labor situation and heading into the year.
In terms of your tenure crew and.
And the fleet.
And the pace at which maybe.
Furloughed pilots are.
Currently doing their flight simulator training just wanted to get your high level view on how Thats looking and thank you.
Sure Steven.
First to clarify we did not furlough any of our crews so.
At the moment, we don't have any of that issue. Obviously some of them did take leaves them and we've been working to bring them back.
And are now in that position. So so we're actively hiring as we grow.
And and have been doing so really since February of this year, 1 of the first airlines to be back and the.
And so.
And the reasons that spirit has an attractive landing place for for pilots remains true today.
We do have.
Rather rapid move to captain here because of our growth rate.
And anecdotally reading and listening to what our pilots have to say.
They enjoy the network they enjoy the their ability to balance their lives with the way that our network flows and so that creates actually quite a bit of traction and the recommendations coming from our pilots to other pilots is very positive such that the combination of all of those things mean, we're.
A market subscribe today.
We have more applicants and we have jobs.
Which puts us and a favorable position.
Non ignoring the fact that over the next few years, there is going to be a looming pilot issue based on what everyone's, saying and the marketplace with retirements and active hiring.
And we're opening at all airlines, but I would put us in a and a pretty favorable spot there.
And as crack start to show.
Around pilot availability youre, not going to see it and spirit first it's clearly going to be at regional airlines and less attractive low cost carriers.
And.
Happening, we consider ourselves would be and a pretty pretty good position there.
Okay, Super and and as Mike a quick follow up.
Given what we've seen and the news with some of the other nonsense and unfortunately flight attendants have to put up with route passengers and play into and what have you.
And has.
So any of that at all kind of.
Crept into the conversation.
You are having with your flight attendants and and forgive me by the way 4 string up.
Lisa and furlough versus leases.
No.
Yes is it coming up absolutely and.
And Youre right there is.
Has a lot of publicized reports an unruly passengers onboard aircraft across the U S space.
And across all brands.
And it is still the vast vast vast minority.
Activity.
And as the.
<unk> has begun to open up more.
And restrictions have been lifted over the last 6 or 12 months people are growing more.
Comfortable with the way travel was operating.
And.
The federal authorities have stepped up there they are in.
Enforcement of regulations onboard aircraft all of those things have actually taken some of the.
The wind out of that sale and reduce the steam on the airplane it still happens and our flight attendants are concerned with that and clearly all flight attendants and all crew members across all airlines are concerned with them and have elevated the issue.
But we're we're addressing that.
With the way that we.
Passengers onboard our aircraft that they behave that we actively banned people.
Who misbehave onboard our aircraft, we're backing up our crews making sure that they are aware of what we're doing with active communication.
And with messaging on board the airplane.
And I think thats.
Having some desired effect. So the optimist view here is that as as things start to move more towards normalcy behavior will move in that direction as well.
Okay I really appreciate the color thanks, everybody.
Yes.
Our next question is from sovereign.
And <unk> sites.
Hey, good morning, everyone and Matt at this might be tied to your response to Brandon.
Q3 years ago, I think in the face of higher steel.
And it more of kind of day of week pruning during the shoulder months and if we compare 2019 I think there's more Tuesday Wednesday flying and September this year it is that.
That shift in philosophy here, given that youre expecting and a normal seasonality in September.
Yes, thanks, Ravi so on a I think on a mixed basis, we do have a little bit more Tuesday Wednesday as a percentage of overall flying we are still doing pull downs.
On Tuesdays and Wednesdays and I think there's some Saturday.
Pull down going on.
There as well.
That's actually I think a little bit more of a reflection that a couple of years ago. We felt like we might have pulled a little bit too much on the off peaks is really what it was it's not really anything.
Anything more than that.
Yes.
Got it and then just if I.
And follow up to mikes.
Restaurants, and Mike and the international market just wondering if there's a.
A change mix change in terms of leisure and VFR type markets and and also just how are the those 2 from type of.
And profiles and performing recently.
Right. So I think I think overall.
We probably are leaning a little bit more towards leisure.
Some cities like King tuned got got a decent amount of service added to them as well.
Porter.
<unk> has more service and Thats always theres, a lot of VFR and Theres a lot of leisure and there. So that we put Puerto Rico definitely runs runs both ways for us very very well.
For example, we added yesterday, which will start service later, this year and to goose, the Gaba and Honduras.
<unk> largely VFR.
So we're constantly just sort of looking for where we think we can drive more VFR traffic because we are uniquely positioned to be able to do that better than anyone else.
But we're also going to be very very focused on leisure destinations.
<unk> and <unk> and when they come back I can give you. Another example, like Jamaica Jimmy.
<unk> had.
And just jurisdictional.
Requirements that were different than other leisure destinations and as those as those got relax. We saw sales for example, Montego Bay come.
Come back pretty strong and and we will see the same thing and put the court.
So it's I.
I don't think at any given time, we're saying to ourselves hey, let's push up VFR and more than leisure or vice versa.
We think we do great and both our cost structure allows us to do well and both so we're just looking for the next best opportunity.
And to continue to add to that network.
That's helpful. Thank you.
Youre welcome.
Next question from Chris stuff and a lot of illness.
Good morning, everyone. Thanks for taking my question, So just going back to the earlier question around what.
Sales like sort of late return if you will to pre pandemic margins would be 2023 targets. So I just wanted to understand here how much of this is you know what you can and cannot control and push if you will so.
If demand comes back stronger than expected bearing risk subsides non ticket.
<unk> continues to perform well and fuel goes the right way is there an opportunity to excel accelerate excuse me that margin trajectory.
While the margin thanks, Chris.
<unk>.
Demand recovers faster than we're expecting today that.
The contributing factor and 100%.
And and.
And probably in reality outstrips any kind of like benefit we could get about running the airline faster to its peak so and so a good move and demand would have a positive.
View on that we are.
It would be and our kind of our case out there is what we're anticipating and hopefully were right or it's better than that.
The on the flip side of that are on the second side of the ledger as it relates to cost and I can just kind of alluded to it and we're moving the engine pretty quick right now.
Not only did we have to retrain.
We have get everyone back.
Back current for anyone who had taken leaves over the course of the pandemic, but during the pandemic, we took delivery of airplanes and.
And we're continuing to take delivery of airplanes over the next 5 years and so we have to hire and train all those crews we have to.
And our elect all the routes we want to fly to we have to negotiate with the airports we have to get our station contract vendors in place we have to do all of the logistics associated with making that happen and.
And.
And so the team is working.
Very.
Very hard and I'm, making that happen as quickly as they can so I don't know that theres a lot of flexibility.
<unk> ability for us from a utilization perspective around the edges, probably so but I think our target of hitting where we want to be by the kind of late spring early summer of next year feels right to us right now.
Okay. Thank you and then my follow up ask do you think in your prepared.
Comments you mentioned.
Some challenges I'm pushing yields.
So some of the off our market. So just could you comment on the fare dynamic generally speaking.
What you are seeing to some of your peers and if there's any.
Notable areas of strength or weakness thank you.
Yes, Chris this is Matt so.
The what we call the flow.
Or level sort of the lowest price points, you see and markets. The floors and this is a very encouraging sign the floors are higher now than they were.
Even before the summer started.
Let's say late spring into summer. So those floor level is the lowest levels and the market are higher and that's a general.
Flow across the board.
So thats very encouraging.
Development.
And.
I would say what's also encouraging now while yes. It is definitely going to be true that we're going to have will.
And what we anticipate I should say to be some challenges on say off peak days a week.
That's something that we fully expect when demand is fully back as well and we expect all of that to sort of work itself out and as Ted just alluded to we're thinking that will take into us a spring summer of next year for demand to be fully back.
Until then Theres just going to be a question as to what happens I think from.
It'll stay for all industry ecosystem in terms of corporate travel and how much corporate travel is out there and we don't necessarily take a lot of corporate travel, but we do get a lot of business decent amount of business travel from say small and medium sized businesses do do like saving money and fly on us to get their high value.
And when they fly I wouldn't necessarily say that we're seeing any pockets of significant concern or weakness right. Now I think it's just across the board the low end of the fare structure is higher.
What we don't know is when once we get through the summer and past the labor day period will.
We see some of that come down a little bit per say 6 or 8 weeks until we get to Thanksgiving and and really thats no different than any other year I think as we know the base is still a little bit lower than we would like it to be.
But.
We don't anticipate there to be any kind of abnormal seasonality trades.
Trade.
That would occur say versus prior years, just take 2020 out for example, and go back a few years. It happens every year, we would anticipate that to be normal and then we will see yields stretch back up.
And the off peak once we get into Thanksgiving Christmas and then into next year.
Okay. Thank you for the time.
Our next question from Conor Cunningham.
Hey, everyone. Thanks for the time.
You've made a lot of new route announcements.
And I'm, just trying to get a sense for how you're thinking about planning 2022 and 2023.
And it just seems you're going to have.
And with growth resuming it seems like you're going to have and elevated.
New market as a percentage of total so I'm just curious how youre.
And thinking about balancing that in 2022, and 2023, specifically I know youre, not nothing's announced that but just how youre thinking about planning for that going forward.
Share counts so as you can anticipate our imagine theres some details I am not going to share to answer that question, but I can tell.
And you that we expect.
Certainly in 2022.
And that around 20 per se, maybe 20% to 30% at the most of our growth will be sort of in new cities.
And that we're not and today so.
If we're going to be growing say mid teens capacity, we expect.
Expect.
Say, 20% of that growth to be to be and new cities or new routes connecting dots. So it's not it's not something where we think we are going to be overstretching. The network into so much more growth that we that we won't be able to manage and on the RASM side.
Okay and then.
And then on Miami I know, it's a compliment to Fort Lauderdale, and right now, but what are you looking to expand past 30 departures or I mean, you clearly know the market really well you know are you just concerned that Miami may cannibalize.
Fort Lauderdale, and put on some level.
Thanks Scott.
So no we're not anticipating Miami is going to be cannibalizing Fort Lauderdale, we we want to grow and continue to grow our south Florida presence the cost structure change at the airport really gave us the opportunity to go in there and you can see by the launch the size of the launch over the course.
From a month's how excited we are about about being able to day will serve Miami and <unk>.
Well in terms of the future and we'll just kind of see how things play out.
And we need to absorb and what we're adding and if things go. According to plan and that will open us up to be able to do some more over time.
There are a couple, but we're gonna be deliberate and we're gonna be pragmatic and our approach and.
And.
And I anticipate we'll be moving some some things around as time goes on and then seasonality will come into play and and then we'll see maybe seasonally you would see more or less depending on what's happening, but we expect a good launch.
We're excited for it and we expect to be able to grow that over time.
Okay I appreciate the thoughts thank you.
Next question from Catherine O'brien.
Hey, good morning, everyone.
So with non ticket.
Jamie and record levels and and another record and expected for next quarter can you just.
Matt can you help us frame, what part of that growth participant pandemic levels is driven by either new products or merchandising capabilities, just trying to understand maybe like what part of that relative performance versus fares, maybe those items being a little bit and elastic.
And what is new that wasn't there and 19.
Sure I'd say, so I don't see the $2.85.
Improvement that we saw versus.
Versus a couple of years ago.
And that rate well over half of that is is what were basically.
Basically just better at doing today than we were a couple of years ago.
And that's very encouraging because.
As the quarter went on and things got better and better as we went through the quarter and Thats why we have confidence in setting another record this quarter. So its continuation.
And of being able to just revenue manage the products and <unk>.
Wei and.
And in terms of new products, we have we have enhanced our bundled services offerings. So we now have another version of that.
Been very popular with our guests to add on to add onto their trips. So that's something.
<unk>.
And.
And then as time goes on we relaunched our loyalty program earlier. This year, we're seeing pretty good traction with that moving along relatively right on top of what we thought the and what we thought we would see this year as it ramps up and as we come and as we come out of the pandemic.
And that's the timing of when we come out of the pandemic is always sort of a subjective answer but as we come out of it. We do anticipate we will see continued improvement and growth of adoption of our new credit card.
Program in conjunction with the loyalty program improvements overall.
Got it.
And maybe just based on what your operation could handle smoothly and and also your outlook on staffing and could you just help us think through the upper bounds of fleet growth for next year of course, depending on demand and maybe very high level, what that Max level of incremental aircraft could apply for capacity. Thanks. So much.
Yeah, Hey, Catherine So we put out a fleet plan on the website, so you'll be able to see what we're looking at for 2022.
And probably going to be around 24 aircrafts or is what we're looking at today.
And that will target is for mid teens growth for 'twenty 2.
On a sort of aircrafts neutral.
And Murray really sort of the lower utilization and 21 neutral sort of mid teens growth rate on an aircraft basis its about that mid teens.
So that's what we're targeting and like I said before it's probably going to continue and the near terms of 'twenty 3 'twenty, 4 thinking and mid teens growth too so.
Youll see that click along.
Does that does the 24 aircraft from the fleet plan does that.
The incremental aircraft for looking at Rfps out on.
It does yes, so we have and order book with Airbus, That's around 17 or so directly from Airbus.
And that'll be an incremental 7% less or direct operating leases.
We'll most likely.
Our next question from Dan Mckenzie.
Oh, Hey, good morning. Thanks couple of questions here first is on growth versus the sustainability of the sub 6 CASM ex fuel that you're targeting next year and I guess the question.
And is as you know.
Can you potentially leverage scale over the coming 1 to 2 years and a way that you can.
Couldn't in 2019 and should we be thinking about the sub 6 sub 6.6 pardon me target as the cost paradigm over the coming cycle here.
Well I'll.
Hart, Scott, So and then others can chime in.
But I think we're targeting the mid teens growth rate is around a few things obviously the opportunity set we think is vast and.
And and that's 1 of the drivers of our desire to grow but the component around mid teens.
I'll start and as much logistics as it is anything.
And so I think it would be very difficult for us to grow at a much faster rate.
Just given the supply chain issues.
And the amount of throughput, we would need from crew real estate.
And all the other components.
And getting the.
Teams even.
And to grow much faster, but but but growth is dilutive. So if we were and grow faster than would have a dilutive effect on CASM, but I think it's a multi pronged approach around how we think about growth.
So I think we feel like mid teens is probably the right number for us at this point.
Hum.
The year and then if you could remind us what are the return metrics, you're holding that growth to and over what timeframe and.
And then I guess related to this if when you had competitive responses historically, how long does it typically take for those responses to unwind.
Yes I'll.
I'll start and Mantech and chime in but are sort of marching mantra has been mid teens growth and mid teens margins.
And and nothing's really changed that.
Yeah, and I guess.
As far as the competition question.
Sure.
<unk>.
I can wax.
Topical here for a second we there has been a lot that that we've been told over the years about what happens with our airlines.
Strong corporate travel is bad for our strong corporate travel is good for us.
Fuel is bad for us high fuel is good for us.
Sure.
And.
And all of those instances and in my 9 years here. We've experienced every single 1 of those environments, we've delivered mid teens margins or better with growth.
And so it is our expectation that we will navigate through whatever the competitive environment will look like we will navigate through whatever the.
Fuel environment will look like.
We will deliver sub 6 cap sub 6 CASM ex and we're going to do it with mid teens growth and we're very excited about our prospects of doing so and delivering the returns that we expect for our shareholders.
Very good thanks, so much you guys.
And James until they have we have 1 more.
More person and the key and we can go ahead and finish with our last question. Please.
Very good question in terms of minority.
Great. Thanks, and good morning, Thanks for squeezing me in.
Ted maybe just just on the 2023 margin target whats the assumption for CASM ex like what it'll.
It will be then to get there and then what's the assumption around kind of what you can get non ticket to by that point. Thank.
Thank you.
Yes. So the group is not going to be happy with me, if I start throw and targets out there in 2023, but let's just recap we expect that will be below <unk> by the time, we hit our run rate and in mid 2022.
And the objective around here is to get our unit cost and our efficiency as best as we can so both of those things and I would expect that to carry into 2023 by the way.
And non ticket, we just set a record this quarter and I remember starting hear people, saying can you get to 60 Bucks.
Box, where we're basically right on top of it now.
And.
And we're going to continue to kind of put.
Targets out there that we're hopeful that we can attain.
<unk> instituted real technology and process here and Thats improving.
Our ability to manage the products.
And as Matt just alluded to and in a prior answer we also haven't really added all of the products. So we intend to add mostly because of COVID-19.
We have been delayed a little bit.
Our loyalty program was delayed from where we originally wanted it to be deployed our ability to sell packaged vacation products is not where.
Where we want it to be today.
And.
And those things combined with the the.
The continued momentum we're seeing I think is a a non.
Non ticket tailwind across the board. So we anticipate non ticket to continuing to move up.
So I think those are 2 very positive stories heading into 2023.
From a margin perspective, how the demand environment shakes out over that period of time, it's still a matter of debate.
We anticipate it will be obviously fully recovered by that point.
May be wrong.
1 way or the other but we as I just said earlier, we've navigated through those those periods and done quite well.
Okay, and then Scott is the trajectory kind of into 2023 as CASM ex down growing mid teens or I think there was some uncertainty around that kind of pre COVID-19 what are your thoughts.
At this point.
Yeah, Hey, Joe So we Havent, we havent guided obviously to 2023.
Yet but.
Ted mentioned and I've talked about before and.
Reaching sub 6 by 2023, and then the decisions we make around.
What aircraft, we take it 320, <unk> hundred 20 ones may 19th.
How we get rid of the aged fleet tell refinance and those kinds of decisions will draw.
Large part of where CASM is up and we're not ready to deploy.
Before we make that call yet.
So what our plan is our goal is to.
To manage costs through a flattish sort of view.
And that May take a few puts and takes here and there.
But that's the idea we will see how we're able to do that over time and how long that will last but.
And this sort of 6 ship 6 ish CASM plus or minus is probably what it is going to look like.
And if we can drive some some efficiencies and it will be a little bit below and if we have some inflationary component.
And I've a lot of items that might be a little higher but thats, probably what our run rate CASM as per the sort of medium term.
Great. Thank you guys.
Thanks to everyone joining us today, we will catch you next time.
Thank you ladies and gentlemen. This concludes today's conference. Thank you for participating you may now disconnect.
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