Q3 2022 Spirit Airlines Inc Earnings Call
First with the strength, we're seeing in demand trends as we head into the fourth quarter.
And now I'll hand, it over to Matt and Scott to share additional details about our third quarter performance as well as some color around our fourth quarter outlook.
Matt over to you.
Thanks, Ted I also want to thank the spirit team members for the resiliency in the face of challenging circumstances and for making spirit a great place to work.
Turning now to our third quarter 2022 revenue performance total revenue was $134 billion.
Up 35, 4% compared to the third quarter 2019.
Total RASM for the quarter was 11.0 <unk>.
Up 19, 3% versus 2019, and excellent result in any environment, but especially impressive in conjunction with our increased capacity footprint.
Demand was strong throughout the entire quarter to include holding up particularly well in September .
Although September load factor was two two points below that of September 2019, or 26% more capacity the percent change in total RASM was up nearly 20%.
We are not seeing any signs of leisure demand slowing down as one might assume given the overall economic environment.
On a per segment basis again compared to the third quarter 2019 total revenue per passenger increased 22% to over $134.
Passenger revenue per segment increased 23% to $67 52, and non ticket per segment increased 21% to $67 seven.
Our array of dynamically priced ancillary items allow our guests to customize their itinerary and flight experience that works best for their budget and we continue to see guests respond favorably to the options we provide them.
Looking ahead to the fourth quarter of 2022, we are anticipating strong revenue results, even with the continued constraints on Florida flight volume, which carries a RASM penalty for the quarter, especially during what is typically the beginning of Florida peak season.
This constraint also limits our connectivity options in Fort Lauderdale, which has effects on how we flow the rest of the network.
Rather than get too much into the weeds discussing network scheduling I'll summarize by saying that we believe having less variability in the number of flights day to day at any given airport better supports our operational reliability and is more likely to maximize earnings in this environment.
Our first our fourth quarter schedules were built with this in mind. This strategy may have a slight downward impact on load factor and total RASM, but we are comfortable is the right decision in this particular set of circumstances.
Taking all of this into account we estimate total RASM for the fourth quarter will be up between 15 to 16, 5% versus fourth quarter 2019 on a capacity increase of 24, 5%.
The implied revenue range based on these inputs is between $1 39, and $1 $41 billion.
As we look ahead to 2023, we plan to continue to take a pragmatic approach to how we deploy our assets.
Given the various infrastructure constraints on our network anticipated Airbus delivery delays and engine supply chain issues for planning purposes. We are now targeting 60% to $62 billion available seat miles for 2023 or up 23% to 27% compared to full year <unk>.
22.
And with that I will now turn it over to Scott.
Thanks, Matt <unk>.
During the quarter, we added three destinations to the network opened two new crew basis and carried a new spirit record of almost 10 million passengers and hired and trained over 800, New crew members and did it all while setting a new long time performance record for a third quarter, even though the hurricane are being through a large part of our network.
Like to acknowledge our entire team and congratulate them on a job well done.
Turning to our third quarter cost performance non fuel operating costs came in better than expected.
In addition to good cost management, the benefits of running a great operation drove better than expected results throughout the P&L on.
On the other hand fuel cost per gallon was $3 82.
About 15 cents higher than we had initially expected.
Having approximately $27 million of additional fuel expense.
Adjusted operating income for the quarter was $11 $3 million we.
We estimate the direct impact of Hurricane Ian on third quarter operating income was approximately $5 million and will be about $5 million in the fourth quarter as well.
In addition, we saw some softness in bookings to Florida destinations and to Myrtle Beach in early October immediately following the hurricane and estimate this will negatively impact fourth quarter 2022 revenue by another $3 million to $5 million.
Liquidity at the end of the third quarter was $1 3 billion.
Which includes unrestricted cash and cash equivalents short term investments and $240 million of available capacity under our revolving credit facility.
We took delivery of four <unk> hundred 20, Neo aircrafts during the third quarter ending the period with 184 aircrafts in our fleet.
All of these aircraft were delivered under sale leaseback transactions.
Year to date through September 30, we've made debt payments, including principal interest and fees of $232 million and have incurred capital expenditures, including net purchase deposits of $190 million.
For the full year 2022, we estimate our capital expenditures, including net purchase deposits will be approximately $260 million.
For 2023, we estimate gross capex will be about $350 million about $150 million of this is related to the building of our new headquarters facility in Dania Beach.
This estimate also includes $10 million of net PDP payments and five spare engines.
Aircraft utilization for the third quarter was $10 six hours down 15, 2% compared to the same period in 2019.
Looking ahead, we have 13 aircrafts scheduled for delivery during the fourth quarter.
Even with the large number of Q4 deliveries, we expect to see sequential quarter to quarter improvement in utilization.
As mentioned on prior calls we plan to gradually improve fleet utilization, reaching will return to full utilization around the middle of 2023.
We estimate our operating margin for the fourth quarter of 2020 to a range between 1% to 3%.
This assumes total operating expenses of $1 365 to $1 $3 75 billion.
And the fuel price per gallon assumption of $3 55.
One housekeeping item that I want to mention is to explain why we changed our guidance from pretax margin to operating margin.
There is one unique accounting item related to a change in the accounting for our 2026 convertibles.
Due to a change in how the notes or to be settled in the under the merger agreement. We are now required to bifurcate the equity component of the 2026 convertible notes.
The fair value of the derivative liability will be mark to market every quarter.
This quarter, the mark to market critical sizeable and resulted in a credit to interest expense of approximately $15 million.
It is difficult if not impossible to estimate the impact of the mark to market exercise each quarter. Therefore, we will guide to operating margin going forward.
We did provide an estimate for total non operating expense for the fourth quarter of 2000 $20 million to $22 million.
This does not include any potential change in the mark to market adjustment related to the derivative portion of the convertible notes.
With that I'll hand, it back to Tim.
Thanks, Scott I'll close with an update on our near term initiatives, one network reliability enhancements and growth. Despite the impact of hurricane in Florida operational constraints, we capped off one of our most reliable summers on record.
We have seen improvement in Florida operations since the spring when we are going to be very disciplined and pragmatic about building back to our normalized peak regarding network. We are the largest airline in Fort Lauderdale, and second largest in Las Vegas, and Orlando and have Opportunistically grown in Los Angeles in Newark, such that both of these are now in our top 10 Mark.
<unk>.
Second utilization and profitability are targeted to achieve normalized utilization by mid 2023 utilization in Q4 of this year is on track to show the progress, we expected, which reinforces our confidence in achieving this target.
Third record non ticket performance, while non ticket results continue to be the shining star of our revenue results and it's not an official target $70 per passenger segment is now within reach and the improvement in non ticket per segment does not appear to be dilutive to ticket revenue per segment.
And fourth costs ex fuel CASM is still high with labor cost the primary pressure across the business, but it will mitigate as utilization returns.
<unk> prices driving significant margin pressure today, but our burn will continue to improve as fleet mix favors larger neo aircrafts.
Spirit is a group of passionate aviation professionals, who wanted to deliver for our guests and stockholders. So our current financial results are disappointing. However, we believe it is prudent for us to build back the network more methodically, which will allow our team to digest the growth and learned from our experience 2023 will be a big year for all of us in.
I look forward to delivering on our objectives with that back to Deanne.
Thank you we are now ready to take questions from the analysts we ask that you limit yourself to one question with one related follow up.
Operator, we are ready to begin.
Thank you Ms Campbell, ladies and gentlemen at this time that you can do you have any question. Please press star one and just to remind if you find that your question has already been addressed and can remove yourself from the queue by pressing star. One again, we will take our first question. This morning from Michael Lindenberg at Deutsche Bank.
Oh, Hey, everybody.
Good morning, I guess two questions here.
Probably to matter.
When I look at your current schedule. It doesn't look like that you at least at this point have included the 16 runway timings that you.
Awarded by the Dod is that just subject to some sort of final sign off or is that something that shows up in 2023. When do you start doing those eight round trips.
Hey, Mike, It's Matt I'll take that I imagine.
Hey, good morning, So we have to.
Deployed the use of those of those peak times in Newark.
We were able to take advantage for a while of some of the waivers that were Newark due to some of the international slots not being used so we were already scheduling a lot of that flying.
What yes, what the award did was allow us to make that flying permanent and that allow us as we utilize our gates fully in Newark to add back in some of the off peak times to fully utilize those assets up there.
Okay that makes sense and as I recall, there's runway timings, where sort of peak time slots.
Thats good okay, so that makes sense.
Yes.
Second question.
When we think about next year.
Capex.
It's a big year for growth.
How many aircraft are you taking delivery of in 2023.
When we think about the <unk>.
Past dues.
Resorted for many of your aircraft sale leasebacks should we assume that most of those airplanes are going to be leased and have you locked down that financing or is that.
Still to be determined on at least a portion of the airplanes for next year. Thanks for taking my question.
Hey, Mike This is Scott yeah.
Jake can see you again.
We do take 33 aircraft next year.
Many of which are a direct order from our order book 16 or additional leases from lessors.
13 of those are <unk> hundred 21, neo that we take as well what we do.
Do have financing lined up for those were in the final innings.
Signing the documents on that but we do have committed financing for all of those so we're in a good spot there.
Great Great. Thank you and to your point to your point around the deliveries from Airbus.
It is all sale leaseback financing so there will be no no debt associated.
Okay very good thank you.
Okay.
Thank you we'll go next now to Duane <unk> Evercore.
Yes.
Hey, Thanks, good morning.
So you did such a good job in your initial defense, it's a little bit hard for us to forget about some of the risk factors that you that you flagged.
I just wanted to ask you about attrition.
And hiring since the merger announcement and trends there and what if anything that you've implemented.
To create change their order stemming the bleeding for lack of a better word.
Hey, Duane.
And.
I assume youre, referring specifically to our defense of our original merger agreement and where we sit today with exactly yeah.
Yes.
So.
Part of the primary restructuring of our agreement with Jetblue was to give us.
Comfort that we were putting ourselves in the best position regardless of the outcome. We are of course supportive of and optimistic that we will be granted authority to merge with them and create a real viable competitor to the big four which is which is the primary objective.
But we put in place structures vide economic or commitment otherwise that actually have reassured.
Deal of our team members that they will be part of the go forward business Jetblue has made verbal commitments as such as well. So when you are talking about the.
The kind of general and administrative folks.
There is there is quite a bit of effort there to reassure them that this is just a much bigger airline that will require all of their efforts and I think they've largely digested that and understand it and feel good about that when you look at the bigger part of the organization, which is all of our folks who operate the airline everyday our pilots or flight attendants, our technicians that people working at our airports R. R.
Our contracted service providers. The good news there is this is broadly.
An accretive transaction for them, they're going to be part of a much larger business.
They're going to have greater opportunities of new places to fly in new basins to live in.
<unk>.
Our opportunities for growth both both airlines are growth airlines and they have been told that story and they understand it.
Setting that aside so I don't think that thats incremental to any of the either attrition risks that we're seeing or any change in that regard if anything we view it as a positive because it is it is something that they can look forward to to be part of a bigger business. Nonetheless.
We are experiencing attrition I think we've talked about that for the better part of a year now and it's elevated it's still elevated it hasnt really moved off of.
The level, we've seen which is I guess in some respects good that we can forecast it but nonetheless, it's still too high.
That would be across all work groups.
And I think that that's a product of more of the labor market than it is anything else, but we we are looking at ways to address that I referred to in my prepared comments, specifically our pilots, but we have other things that we talk about at airports and with our technicians and with our flight attendants are well.
And we keep plugging away.
There is a bit it is definitely.
One of the limiting factors for us today.
As attrition on the backend and attracting and hiring in the front end, but we've addressed that with the school house and making ourselves a good landing spot for for our team members and we will continue to hammer away at it.
I appreciate that very direct answer and I don't want to put you on the spot, but could we put numbers to pilot so kind of where are we today.
And what do you need to hire to hit the growth plan or the capacity guidance that you've outlined there is this simply a function of getting folks that you've already hired through the schoolhouse or is this about net new hiring and thank you for taking the questions.
Sure. So it's both Duane.
<unk>.
Obviously, we have and I think we talked about this over the last few calls we have ramped up the size of our our flight operations schoolhouse and our in flight schoolhouse, both both our flight attendants and pilots considerably like we've more than doubled the size of that is reported in either case.
<unk> been successful at attracting new candidates and.
And moving them through that process, but that requires us to not only <unk>.
To address the the deficit and utilization that we have today, but remember we're flying about two hours per aircraft less and we want to fly today, but we're delivering new airplanes as well.
And as we attrit off the back end, we have to make up for that so it's quite a bit of effort.
The team has done a great job in a very abbreviated amount of time in building that that infrastructure to make that happen, which I'm very proud of them and being able to do it's a daily activity.
But I.
I would say that the numbers to think about.
And I think Scott even mentioned that in the quarter, we hired 800 people.
We're we're onboarding a significant number of new pilots everyday.
<unk> sizes are like I said more than double what they used to be.
And I'd say thats true for flight attendants, as well and that will remain the case.
For the foreseeable future as we bolt address attrition and hopefully it starts to wane and we chew into our utilization deficit and the additional airplanes.
Thanks for the thoughts.
Thank you we'll take our next question now from Chris <unk> at Susquehanna.
Good morning.
Ted I was wondering if you could give us some color on what youre seeing around peak versus non peak travel in seasonality and whether any of those trends are perhaps signaling what you think might be a.
A shift.
With respect to leisure travel do too.
Hybrid work, so meaning or sort of any anomalies showing up there that perhaps non peaks are less non peak if you will seasonality is.
Not behaving the way it normally would would you believe you could attribute to.
This hybrid work thank you.
Sure, Chris I am actually going to let Matt jump in and give some thoughts on that yes sure thing.
Yes, Chris so some of the some of the.
Some of the language, we've heard out out there in the industry in terms of how.
Passengers have shifted around by by day of week is something that we're seeing as well we've seen that's all through Covid.
And all of a sudden Thursday became the peak day of the week and Monday became a peak day of the week more so than Friday and Sunday.
We're seeing similar similar patterns with that as we as you moved.
Out of the summer into the fall with school back in session, it's not as if.
Not as pronounced as we've seen in prior years in terms of day of week shift, but we still see some of that.
Is good and it stretches and stretches the days of the week out and it lends it lends to more flying in general more trips are happening in general which is why when we talk about the <unk> model in general and the growth of travel there's more travel opportunities being opened up now than there ever has been before and we believe part of that.
As hybrid work allows for more trips shorter trips.
And more trips to fill in some of those off peak previously known as off peak days of the week now having said that we are still seeing.
Differences in yields and load factors on on off peak days of the week Tuesdays and Wednesdays for us are still Tuesdays and Wednesdays in terms of in terms of their demand relative to those because of the weak but overall they definitely are closer to the median as to where they were pre COVID-19.
I would also add that we all we are seeing.
Some shift not just by day of week, but also by time of year, where.
We're definitely seeing as I mentioned in my prepared remarks, even in September while load factor was down a little bit versus 2019 overall demand is strong and the yields what are especially impressive coming out of the summer into into the fall period. So I guess in summary, you can say, yes, we are seeing some.
Shifts we saw throughout Covid, it's still there not as pronounced as it was during COVID-19, but it's definitely still there and I'd say part of the best part is that we are seeing people move into off peak times of months, which over time will be very beneficial for overall, earning production.
Okay.
Follow up question. So Chad you spoke about in your prepared remarks about this.
Multi year headwind through the network as it relates to Florida, but at the same time you are targeting a full return to utilization by mid 2023. So if we put those together as well as perhaps some of the shifts here and travels into this hybrid phenomenon. If you will is low <unk> CASM ex.
Still the plan for next year. Thank you.
Sure. So let me make a couple of comments I'll, let Scott jump into as it relates specifically, how we're thinking about CASM. So yes.
Florida is a constraint we're still going to we're still going to get back to utilization. It's just from a revenue production.
Perspective, it's not going to be the optimal answer so we will fly to non Florida places, where we have opportunities, but Florida is a big earnings generator for us Fort Lauderdale is a big powerful.
Spot for Us where now the second largest airline in.
In Orlando and those are both a big piece of our network. So we would prefer to have more flying in Florida from a revenue perspective, but the utilization will come in other places, which are still good opportunities for us and that will drive.
By the Middle part of next year Middle to late part of summer utilization sort of more normalized.
But the pressures I referenced before still pressures on CASM ex so Scott what would you add on yes, I think thats right I mean, I think it's around we're going to fly the capacity, we can fly where we fly.
Dictated by some of the stuff happening in Florida, and what we'll have to reallocate the network.
From a cost perspective really all we've talked about 2023.
And Matt alluded to a slightly lower level of capacity.
And look we're still trying to figure out.
What fleet deliveries will look like we have insights really into the first half of 2023, and we're going to make some assumptions around how that carries forward. The rest of the year and we'll continue to work with our our partners on figuring out delivery dates but.
Right now, we're sitting at something slightly lower than what we thought about so we're probably going to see a little pressure on CASM X. We had talked about low sixes. So it's probably in the low to mid sixes given the.
The reduced the level of capacity, but.
But we'll refine that as we get through the planning process and get definitive dates on deliveries, but <unk>.
<unk> is going to be the biggest driver here as we think about 2023.
CASM.
Okay. Thank you.
Thank you we'll go next now to Conor Cunningham Elliott's research.
Yeah.
Everyone. Thank you for the time.
I was just wondering if you could just speak to the strategy on both the ancillary in base fares.
You alluded to this a little bit in the prepared remarks, but one of your competitors.
Nearly prioritizing ancillary over base and you guys are coming out of a much more balanced approach I'm just.
Sure.
Why you would go that way versus first pushing ancillary any thought.
It would be helpful. Thank you.
Sure Conor it's Matt.
Generally speaking.
I understand your question we are in the game of producing total RASM. So so the way that we see our network and the way that we see our long term production, we think a balanced approach.
Is the right way to go moving forward.
Not sure.
If we were to see a reduction in economic activity, what would happen to non ticket. So we know it's stickier.
That's proven to be sticky, but at some point you might get to a level, where you can't maintained a number that moves too high too fast relative to the more traditional method.
That's fair.
So that's the approach that we're taking right now we're trying to be very measured and pragmatic in our movements.
Definitely try to maximize both metrics. So it's not we're not trying to minimize one.
As it relates to the other.
I don't know if our competitors, we're thinking of it the same way or not but I know for US. We are actively trying to not trade between the two buckets, we're trying to make sure that we maximize both on the way up we think thats.
A better long term approach to driving revenue.
Okay.
And then on the 23 capacity adjustment that Youre, making.
Can you just flush out a little bit of the puts and takes.
If I confirmed from gauge new markets that frequency at that type of things what I'm trying to really understand is just like what a new normal is for utilization, we talk about normalized utilization all the time, but I just don't know.
If that number is the same that it was pre pandemic. So just any thoughts on the actual makeup of the capacity in 'twenty three I think that'd be helpful. Thank you again.
I guess I can offer this Ted I offer a couple of comments and Matt if you want to jump in as well, but at the highest level.
Fleet utilization prior to the pandemic here at spirit was in the low 12 hours range somewhere.
<unk> 12 in a quarter or maybe plus or minus a little bit more than that depending on how we felt about the season today were $10. Six so we're we're well underneath that I think getting back to a 12 plus number is the objective.
And that's still the objective.
We updated or gave a view on ASM production next year at $60 to $62 billion, which was less than where we were before and alluded to a few inputs, but direct putting it directly we are seeing supply chain related issues.
On aircraft deliveries.
In supply chain related issues on engine manufacturing and engine overhaul, which is forcing us to take aircraft out of service. So we're losing active airplanes, which is which is the primary driver of the reduction in ASM, which is.
Not the best answer to be honest.
But nonetheless that those are the facts.
We'll continue to optimize around that as best we can we have airplanes that that can that can work a little harder we have some that we are evaluating eventually retiring and we got to make decisions on that so there is still.
Refinements coming but that's probably the primary reason that we're seeing ASM kind of like come down a little bit in the year the mix applying I would turn it over to Matt <unk> view on on that.
Geographically.
We are we are still a little bit constrained as we talked about in Florida, and we learned a lot as we move through the winter here in spring.
For for Florida, and how to sort of industry traffic, including General aviation plays a role in it.
Through the air traffic control system.
We'll learn a lot we'll continue to learn more.
What we will what we will do is when you'll see us doing what were doing in the fourth quarter now as well as just continued to run a little bit more during the off peaks in order to generate as many <unk> as we can.
As we said in the prepared remarks running more in off peaks may have an impact on say on some metrics like RASM, but we believe at the end of the day in the environment. We're in today, it's better to have the most efficient crew network, we possibly can and to have the most efficient crew network. We can then it requires us to do some things like run a little bit more off peaks.
But that ultimately drives earnings because we're generating more capacity and we're not having an issue filling that capacity with good yields at this time.
I appreciate the details thank you.
Okay.
Thank you we'll go next to Scott Group Wolfe Research.
Okay.
Hey, Thanks, Good morning, I, just wanted to talk about utilization near term. So it's been sort of trending slightly lower throughout 'twenty.
<unk> two it sounds like you think it gets better in Q4.
I guess, what's the target for utilization in Q4 within the guidance and then what's the driver of that inflection higher in Q4.
Hey, Scott.
I'll, let our Scott jump into but.
Yes utilization to trend down we were very vocal about the fact that we had to pull flying from the third quarter because of Florida, ATC constraints and that that was a direct impact to utilization that was not the answer we wanted.
But that's where we landed you are correct, though that as we turned the corner heading into the fourth quarter, we are going to see an uptick in utilization, it's not dramatic so if we'd landed about 10 and a half hours.
In the in the third quarter will be more like 10, and three quarters hours, but.
But that's right on the line.
Our expected return to normalization as we move between now and the middle part of next year.
So feeling good that that's that's exactly where we want to be Scott.
That's exactly right look I mean, we took.
Or will take a large number of aircraft in Q4, which will you can say mathematically pressure that number.
In the quarter, but the plan has always been to methodically move utilization from here.
Until the middle of 2023.
And we're doing that we feel we feel good about where capacity and utilization for Q4, where it looks for Q1 and Q2 and Q3 of next year.
And so I think that's what we're doing is we're balancing the hiring operational reliability and the economic production of the business. So.
It's happening along the plan that we had always sort of thought we knew this was not going to be a snap your fingers over the knight fixed and we've said that for probably a year now that it's going to take some time, obviously the attrition that happened in the CRU network.
Has slowed that down a bit but we're still targeting the middle of next year. So I think I think we're still moving in that direction.
Okay. That's helpful. And then just wanted to follow up on the CASM commentary for next year. So one of the other airlines that you talked about first half next year flat to up.
First half 'twenty three 'twenty, two and then down year over year second half versus $23 22, Directionally is that how you'd be thinking about CASM for you guys as well, it's still up in first half and then down in second half.
Well, we havent.
We haven't talked about any quarter or so to 2023 distribution of how CASM looks but.
But CASM will be down year over year, because we get production back in the business we will see.
An annual reduction in unit costs.
We do see sometimes the first quarter will be slightly higher just due to a handful of timing.
Components, but but in the year, we do expect CASM to be to be down as we get utilization back in the airline, but we haven't we haven't given any detail to the quarterly breakdown.
Okay. Thank you guys appreciate it.
Yes.
Thank you we'll go next to Jamie Baker of Jpmorgan.
Hey, good morning, everybody most of my questions have been addressed.
Try to ask something from left field.
<unk> pilots the deal you struck back in 2018 had a preferential bidding system I know that transitioning to PBS time consuming theres some calibration along the way.
Just curious if the current results current financials.
Fully reflect that benefit and assuming that it does.
Does the benefits square with what your expectations were back in the day.
Yeah.
Hey, Jamie it's Ted Thanks for the left field question.
Yes.
We did put PBS in as part of our 2018 contract. It took us about a year to get that implemented so we got about a year of <unk>.
Pre COVID-19 experience with it and I would say that it behaved exactly as the way both parties.
Agreed so both the union and ourselves so that we did get the benefit and and they got what they needed out of it.
Of course, Covid has disrupted all of that so I wouldn't say anything is included in the way production works today, but yes, it's working the way we anticipated.
Which is a good sign okay. Good and then a more conventional follow up the aforementioned shifts in travel patterns that you and everybody is.
One's discussing these days, how does that flow through to scheduling of maintenance I would've thought it would've been.
Trickier, if you have a more consistent schedule I would think peaks and valleys would make.
Maintenance easier but that.
That's not the case.
That frontier side, so I'm just kind of curious about how you are flying the airline any differently as a result of these travel patterns.
At the highest level operators want consistency.
One they want level stuff right an airline.
Commercial people push you into.
Peaks and valleys, because they want to maximize revenue and that tug that push pull is what's going on at any business today.
So what you what you address you said you would have thought that that peaks and valleys of big maintenance easier. What it does is it pushes all the maintenance into the valley right. So you may think that that was like optimized but I don't think the maintenance people would tell you they want to do that.
They want a plan and they want something thats, because they can staff easier to it they can order easier to where they can hangar easier to it. It's just the logistics of it ended up being a lot smoother. So again the push pull is still there today. It's just that we have taken learnings away from the way we operated in.
In the summer of last year, and one of the things that we're doing is smoothing the schedule out because it does make it easier on the airports it makes easier on tech ops and it makes it easier on staffing.
Okay perfect answer thanks for squeezing me in.
Okay.
And we'll go next now to <unk> <unk> of Cowen.
Hi, this is quit on for Helane.
Last call you talked about having 30% more pilots than pre pandemic.
I know part of that is due to aircraft deliveries part of it is positioning for higher attrition.
But as you've seen airport infrastructure improve the Florida market.
Are you confident enough in your own operational performance that you'd be willing to scale back the excess reserve levels of pilots.
Our managing as you add back capacity.
Let me kick off and then.
Scott you can feel free to update as we have but youre right.
What's been happening over the course of our recovery here as we build back is that we've been adding in.
Infrastructure Thats pilots flight attendants airplanes.
Staffing broadly speaking ahead of the actual ASM production. In addition to the fact that you have the larger school houses across the business, which really has the the.
<unk> people and expense in it that are not producing anything.
Those are just bigger cost drags today than they were before.
So they are ahead of where overall growth in ASM production. It would normally be so yes that gives us confidence that we will hit our ASM targets, but it is one of the things that makes CASM look higher than it should be.
What are you going to yes, so the only thing I would add there.
Obviously, when there is volatility in and the staffing components of the airline Coca Cola. The crew, we have higher attrition, we have bigger numbers that we have to hit.
Moving utilization growing fleet all of those things.
That has given us.
A bit of caution to make sure we have enough.
Ill call it slack in the system to feel comfortable in predicting where the numbers need to be and actually hitting them. So as volatility in the ranks reduces we will feel more comfortable reducing some of the slack and over time that sort of means returning back to traditional reserve levels and we're doing things.
So the network that make it slightly easier to operate and so as we put all of those puzzle pieces back together, it's growing the airline and also gaining efficiency as we do it. So all of these things will sort of combined over time, but yes, I think once we get levels that we can predict when we get comfortable in how they operate then there will be ready to <unk>.
Move some of the slack and that includes reserves.
Got it that makes sense. Thank you.
Second question, so load factors took a bit of a hit in <unk> yields remained strong though I'm just wondering in September month, where are you getting any sort of pushback on the stairs or seeing any sort of ceiling there.
Hey, Colin this is Matt.
Actually what we started to see happen.
About September was some efforts.
Because we had mentioned about our off peak day of week and some of the increases we've got an off peak days of the week. What we found is that the traffic ended up being relatively sticky compared to the fares what I mean by that is trying to drive a little bit more load factor on those off peak days of week wasn't necessarily.
Generating the revenue outcome that we thought was maximizing for the company. So we actually.
<unk> found that the fare levels themselves.
We're at the right price points.
Maximize try them, reducing the fair did not drive higher tries them, which is why we went back to the.
Sort of our going rate so to speak there were still off peak they were still September but they weren't as low as they've been in prior years and that actually drove the best revenue outcome for us and on top of that if I can drive higher <unk> with a little bit less activity at the airport that's better for everybody involved so that's actually worked out.
Pretty well for us that we learned last month.
Got it that's very helpful. Thank you for your time.
Sure.
And we'll go next to Stephen Trent Citi.
Good morning, everybody and thanks very much for squeezing me in.
Just a quick one for you I appreciate the comments on the Florida capacity constrained.
When do you think about the growth opportunities in some of the other markets any high level views.
On how youre seeing maybe a west bound flow or Mexico Cross border.
Caribbean based on sort of any high level views on.
Growth opportunities Youre seeing in other markets. Thank you.
Sure Stephen it's Matt.
I would tell you that I think we mentioned this on the last call we were seeing a little bit of a of a slowdown in traffic to some of our international VFR markets. We saw a little bit of that in Central America, a little bit in South America. The good news is while we did see some of that slowing down earlier this year.
Year. It came back it's almost all the way back to where it was.
Before and this is speculation we don't know if it was because of just economic slowdown was was at the end of Covid activity was at inflation was a currency related issues, we're not entirely sure.
Take your pick it might've been all of them.
But the good news is that we are seeing that bounce back as well, so where we did see some slowdown geographically in our international VFR, that's come back to where we would like where we would like to see that and what we've been able to do is continue to grow a little bit more out on the west coast and in the middle of the country. So Los Angeles.
It has been it's been a spot that we've been seeing great great profitable growth in Las Vegas continues to grow.
For us as well so while while we are seeing the constraints on our Florida network, we are able to reallocate that to other parts of the country.
And we're comfortable with the unit revenue production there it will serve us well in the future because we are establishing more.
More predictability in our future network now and some of the growth opportunities that we saw for the future. So we're doing those growth opportunities now.
As we and the industry feel more comfortable with throughput into Florida, and I'd say the industry I'm talking about air traffic control throughput will be able to then grow back into Florida.
Which is which is a major strength for us today. So it's worked out all right.
We are taking somewhat of a RASM penalty because of the network construction right now but for the long term it should work out quite fine as we ramp back up into our strengths.
Really appreciate that Matt and nice to be on guidance you guys. Thank you.
Thanks, David.
Thank you the next Nazi Savi Smith at Raymond James.
Hi, good morning.
With that.
Peak <unk>.
Christine.
Is there a change in kind of adds.
Player revenue.
The way people are purchasing ancillary revenue items.
Along with that what's driving some of the ancillary revenue growth currently and into next year, where do you see as kind of being the big drivers.
Sure Savi, it's Matt again, I'll take that one.
In terms of the timing as to when our guests are adding ancillary fees onto their itineraries.
Not seeing a real difference.
In advanced purchase of those ancillary.
I would tell you and we don't talk about this very often but I do think it's important.
For spirit and our business model is the use of new technology that is referred to as MDC, which is a new distribution capability technology.
That is in conjunction with IATA, it's been out for a long time, it's continues to improve and we have really adopted that.
Across the board for our call it our third party distribution and what that allows us to do is is basically treat third party pricing and display.
What we provide to those parties is going to be very similar if not the same as to what they see.
<unk> dot com and at our App and what that means is it allows us as we dynamically price more and more of our ancillary as we're able to push that pricing out to those third parties and those third parties are displaying and selling those products for us that's a change from pre COVID-19 to today and that's a big deal.
As we continue to move forward that gives more more access to the optional services that our guests like and what they want to add to their itineraries. So it just gives us another channel to have more reach and I think that's important. So I don't think that's exactly the question you were asking but I think thats the color.
That's important to understand is where we're collecting our ancillary squamous change not necessarily when we collect them.
Yes.
Yes.
And in terms of drivers for next year.
Sure in terms of drivers for next year, while we're continuing to build out our bundled services offerings.
Those are continuing to get more fine tuned.
Some of our growth in our non ticket rate that we've seen throughout this year has been due to those those offerings.
In conjunction with all of that we're still seeing nice growth there.
The trajectory is now really moving more vertically for us which is great in terms of our co brand credit card partnership that we have out there we relaunched the program about 18 19 months ago now continues to grow.
One of our largest distribution channels is when we offer offer the card.
On our flights themselves.
And our flight attendant group are in flight group has been fantastic with that we were pre Covid, we had a little bit of a lull during COVID-19 for what I think it will be obvious reasons and now coming out of Covid and we've seen great adoption once again and it's been a great partnership throughout the entire company. So I think that is another option for us to keep to keep grow.
And as we get into next year as well.
Okay. That's helpful and if I might just real quickly on the <unk>.
Margin side.
Is it what.
Really going to get you back to historical margins is it.
Just getting back to utilization sufficient or do you need to be able to start kind of growing in Florida again.
What are some of the key triggers.
<unk> margin.
Yeah Savi, it's Ted Thanks for asking the question I was going to have for that clarity on an earlier question I kind of get.
Timed out, but I think it's a it's a valid point because we've been talking a lot about.
What Florida means where we are with utilization why is our our margin where it is.
And I think if you.
We've done some math on this if we were at peak utilization today, you can probably add about four points of the margin.
And if we were flying Florida, the way, we wanted to fly, Florida and network.
The way, we wanted to fly network would probably be another three to four points.
So in today's fuel environment with utilization the way, we want it to be would be a double digit kind of op margin business not again, not where we want it to be long term, but closer.
And I think that that's those are the building blocks right is getting the utilization back up and allowing the network to be where it optimally wants to be.
And that's why we've sort of and we said this a few times, we've used words like methodical and pragmatic and all that other kind of stuff.
We've drawn our our guidance line as to when we think we can get back to.
That type of operation and were on that line today.
And so.
Admittedly, it's not where we would prefer to be today, but we understand where it is and we're confident that we will get there by the middle part of next year.
That's helpful. Thank you.
So I think we have time for one more question.
Thank you Ms stable I will take that question. This morning from Andrew <unk> of Bank of America.
Hey, good morning, everyone and thanks for squeezing me in here.
My questions have been answered just maybe of random one for Ted obviously, a lot has transpired over the course of this year yes.
Yes, the lengthy regulatory process coming up.
Where are you and the team spending your time today.
Can you can you focus as much around the day to day as we did say kind of <unk>.
February of this year. Thanks.
Sure.
Yes, it was a distracting period for a select number of senior management as we work through the various ups and downs throughout the course of this M&A.
Drama.
But that's all behind us now.
Our running the business like we would run the business any other day and I speak for everyone from from the ramp of all the way up so.
100% time being focused on achieving those objectives that I laid out for you and kind of hitting the points that I just laid out the savvy, which is getting us back to where we want to be both on the margin and on utilization.
Got it makes sense. Thank you.
Great. That's it for this call box, we will catch you next quarter. Thank you for joining us.
Thank you Ms cable again, ladies and gentlemen that will conclude spirit Airlines' third quarter 2022 earnings conference call, we'd like to thank you all so much for joining us and wish you all a great remainder of your day.