Q1 2023 Spirit Airlines Inc Earnings Call

April 27, 2023

1023 earnings conference call.

All lines have been placed on mute to prevent any background noise.

After the Speakers' remarks, there will be a question and answer session.

If you would like to ask a question. During this time simply press star followed by the number one on your telephone keypad.

If you would like to withdraw your question again press to Starkey followed by the number one.

I'll now turn the conference over to Vivian <unk> you may begin.

Thank you Amy and welcome everyone to Spirit Airlines first quarter 2023 earnings Conference call. This call is being recorded and simultaneously webcast.

This call will be archived on our website for a minimum of 60 days.

On today's call are Ted Christie.

Chief Executive Officer, Matt Klein, our Chief commercial Officer, and Scott Haralson, our Chief Financial Officer.

Also joining us are other members of our senior leadership team.

Following our prepared remarks, there will be a question and answer session for analysts.

Today's discussion contains forward looking statements that are based on the company's current expectations and are not a guarantee of future performance there could be significant risks and uncertainties that cause actual results to differ materially from those contained in our forward looking statements, including but not limited to various risks.

And uncertainties related to the acquisition of spirit by Jetblue and other risk factors discussed in our reports on file with the SEC.

We undertake no duty to update any forward looking statements and investors should not place undue reliance on these forward looking statements.

In comparing results today, we will be adjusting all periods to exclude special items unless otherwise noted.

For an explanation and reconciliation of these non-GAAP measures to GAAP. Please refer to the reconciliation table provided in our first quarter 2023 earnings release, a copy of which is available on our website under the Investor Relations section at IR, Scott Spirit Dot Com I will now turn the call over to Ted.

Steve There is president and CEO .

Thanks, Dan and thanks to everyone for joining us on the call today.

Want to start by thanking all our team members and business partners across the network for their contributions in delivering a high value experience for our guests.

Spirit recently had the privilege of being named value airline of the year by a T. W and the most affordable Airlines and number two overall airline and wallet hubs 2023 best airline awards.

I'm proud of the spirit family, who made these recognitions possible through their hard work innovation and commitment to serving each other and our guests.

Regarding our merger with Jetblue as expected in early March the Doj has sued to block the transaction. The trial date has been set for October 16th 2023.

The creation of a fifth challenger to the big four with both low cost and low fares seems to us to be 100% aligned with the government's views on a competitive industry.

So while we are disappointed with the Doj's decision. We are confident that we can successfully illustrate to the court the significant benefits to both consumers and employees of the Jetblue spirit merger.

Turning now to our first quarter 2023 performance, our adjusted operating margin came in better than expected at negative six 8% helped by lower fuel and a strong total RASM performance.

Operationally numerous weather events during the first quarter made for a challenging operating environment.

It's exacerbated by the continued understaffing at various air traffic control centers throughout the country.

Lately, we've seen Las Vegas, where we are now the number two carrier emerge as the newest hotspot as runway construction has driven unprecedented approach and departure configuration changes and ground delay programs, creating significant delays and cancellations.

That said our team has done an excellent job minimizing the impact to our network and solving for problems within our control.

And our mid March update we shared that we pulled about a half a percentage point of capacity from the first quarter due to an increase in the number of unscheduled engine removals proud as a long term partner and is working closely with us to help solve these engine availability issues.

Unfortunately, there is no quick fix but we do expect to see some improvement as we move throughout the year.

Before I turn it over to Matt I want to give some extra kudos to our entire spirit team in mid April the Fort Lauderdale area experienced severe flash flooding referred to by meteorologists as a 1000 year event, requiring a 40 hour closure of the Fort Lauderdale Airport, where we are the number one carrier as a result of this weather event.

Spirit canceled nearly 600 flights and diverted many others disrupting travel plans for a substantial number of our guests and driving numerous complications for our crews despite the significant and outsized disruption to our network. Our team was primed and ready to go on Friday morning, Once the airport reopened.

Quick recovery is a testament to the diligent efforts of our entire team as well as the innovative changes we've put in place to help accelerate recovery operations. I also want to thank the Broward County Aviation Department and the FAA for their assistance in getting the airport up and running as quickly as possible.

Matt over to you.

Thanks, Ed I also want to thank the spirit team members for their contributions during the quarter.

Load factors on the peak days were quite high and our team did a terrific job caring for our guests.

Turning now to our first quarter revenue performance.

Compared to the first quarter last year total revenue was 135 billion up 39, 5%.

In total RASM was 10 <unk>.

Up nearly 24% on a capacity increase of 13%.

This was a great outcome and continues its trend of strong topline revenue production.

Load factor increased three six percentage points versus the same period last year.

As a reminder, in the first quarter of 2022, we were dealing with fallout from the omicron variant, which had an adverse impact on flow and load factors.

So while load factor for the first quarter 2023 was up year over year, it was a bit lower than historic norms for the period.

As noted previously we have been flying more on off peak days and we have had less variability in the number of flights operated by day of week since the summer last year.

However, given the technology investments, we have made together with network changes and changing how we flow our aircraft as well as opening additional crew basis. We are comfortable that we can begin to have a more varied day, a week schedule again, while maintaining good operational performance.

Beginning in June we will start to introduce a more very day, a week schedule again, which should fuel improved load factors and benefit unit revenue as well.

On a per segment basis total revenue per passenger increased to over $127, a 12% increase compared to the first quarter 2022.

Passenger revenue per segment increased about 17% to over $57 and non ticket per segment increased over 8% to a first quarter record of $70.

Important to note for the second quarter of 2023 on a year over year basis, we will begin to compare our results to a period of unusually robust <unk> performance on a year over year basis in other words. The comparison to last year is not a true reflection of the underlying demand strength, we continue to see it.

Feels like we are returning to a more normalized seasonality period much like we saw prior to the COVID-19 pandemic.

In terms of our network structure, we had reduced our Latin American and Caribbean footprint to under 20% of our capacity for an interim period of time, while we were dealing with a fluctuating fleet plan due to issues that Ted previously mentioned.

We are now ahead of that curve again from a planning perspective and that has allowed us to resume our growth in this region. Starting next month, we are back to having at least 20% of our capacity in Latin America, and the Caribbean on a monthly basis.

Taking all this into account we estimate total revenue for the second quarter 2023 will range between one <unk> and $148 billion.

Up about six 5% to 8% on a capacity increase of 17, 7% compared to the second quarter 2022.

This equates to a total RASM estimate of down 8% to nine 3% year over year.

As a reminder, second quarter last year benefited greatly from pent up travel demand. So while total RASM is down year over year the demand environment does remain very strong.

To compare this expectation to the second quarter of 2019, it equates to total RASM being up 11, 5% to 13% on a capacity increase of nearly 30% which is an excellent result.

And with that I will now turn it over to Scott.

So Matt I will start by covering our Q1 results and some Q2 guidance updates and then I want to outline a few things happening in our business today.

Our first quarter operating costs were $144 billion.

With both fuel and non fuel expenses coming in better than expected.

Fuel price per gallon was still up significantly up 16% year over year. The good news is that we have seen fuel prices decline over the past couple of months with correct spreads coming down over that period. The current curve implies that <unk> will remain roughly flat. So let's hope that crack spreads will continue its downward trend.

Total non operating expense came in higher than estimated due to the periodic valuation of the derivative liability associated with the 2026 convertible notes driving about $2 million of additional noncash expense in the quarter.

Liquidity at the end of the first quarter was $1 7 billion, which includes unrestricted cash and cash equivalents short term investments and $300 million of undrawn capacity under our revolving credit facility.

During the first quarter, we took delivery of five <unk> hundred 20, Neo aircraft and retired 400, <unk> hundred 19 Seo aircrafts.

Ending the period with 195 aircraft in the fleet.

We are taking delivery of our first <unk> hundred 21 Neo aircraft over the next week with seven more expected before year end.

We are excited to be introducing this larger fuel efficient variant of the <unk> hundred 20 Neo family of aircraft into our fleet.

Our first <unk> hundred 20, <unk> aircraft with an inter service scheduled service in June .

We disclosed in our Investor update last night that total capital expenditures would be about $360 million.

$75 million of that coming from net PDP.

We received updated delivery dates from Airbus recently, and that number is now reduced to $20 million.

We will modify the investor update today, so total capital expenditures will be approximately $305 million of.

Of which $20 million of this was related to net pre delivery deposits and about $150 million is related to our new headquarter facility in Dania Beach with the remainder primarily related to engines and spare parts.

We are on track to begin phasing in the occupancy of the new facilities in the first quarter of 2024.

Looking ahead to the second quarter. There are a couple of items to highlight that are included in our second quarter 2023 guidance we.

We estimate the flood in Fort Lauderdale earlier, this month cost us about $8 5 million of operating income or about 50 basis points on the margin primarily from loss revenue.

And in mid April we reached an amended collective bargaining agreement with our flight attendants represented by the assay, which adds an estimated $9 million of cost to <unk> and.

And $24 million for the full year of 2023.

Taking these items into consideration for the second quarter of 2023, we estimate our operating margin will range between four five to six 5%.

And this along with a few other guidance metrics are noted in the investor update furnished in our form 8-K filing with the SEC a copy of which can be found on our website at IR Dot spirit Dot com I.

I mentioned this specifically because we are now providing our guidance and a separate investor update rather than in the body of our earnings release.

So with all that said for clarity I want to highlight five overall key takeaways number one our utilization has been and will continue to be hampered by Neil engine availability and pilot attrition both of which should gradually improve throughout the rest of the year we.

We signed a new pilot contract at the end of last year that put our rates towards the top of the industry, but we have yet to see attrition rates improve to the levels we are expecting.

We are disappointed, but we are assuming attrition levels will improve as the year progresses.

Number two.

Both during this period of inefficiency has not been as productive as it would be in a normal environment. It is a challenge to improve profitability and recover lost utilization, while simultaneously growing with more aircraft, we know that and it will remain true in the short run.

However, the growth opportunities are significant.

And once our constraint to remedied, we expect a return to accretive and efficient growth.

Number three operations are solid and investments in the operation and changes in our infrastructure and network are paying off our ability to handle disruptive activity is much improved.

As evidenced by our fast recovery after the sudden airport closure in early April in the past this would've been a much more impactful event.

Number four we estimate our full year CASM ex fuel will be about seven.

CASM ex fuel should decline throughout the year as neo engine availability and pilot attrition improves and we estimate our CASM ex fuel exit rate for the year will be in the high sixes.

And number five we are still on track to be profitable in each of the remaining quarters. This year and anticipate we will be profitable for the full year.

Given the external constraints on our business our capacity is heading towards the lower end of our full year 2023 guide of 18% to 20%.

Not being able to operate the airline we want to right now is obviously frustrating.

In this demand environment and with declining fuel prices. If we were operating at full utilization the business should be producing double digit operating margins for the second quarter.

We are however, running a great airline and I'm proud of the way our team members are taking care of our guests and committed to handling all of the unique curve balls that are being thrown our way.

So a big thank you to all of the hardworking spirit team members.

And with that I'll turn it back over to Ted.

Thanks, Scott the outlook for peak summer leisure demand remained strong both domestically and internationally.

Non ticket revenue per passenger segment is robust and we anticipate seeing a sequential improvement from the first quarter and the setup is favorable to have a new record performance throughout the year with.

With our 235 seat <unk> hundred 21, Neo deliveries beginning this month and the <unk> hundred 19, retirements well underway, we will be gradually increasing our average gauge, which will drive efficiencies that will benefit our unit cost and fuel burn.

Pilot attrition is still too high, but our new deal coupled with the unique benefits to our team members associated with the combination with Jetblue and an improving pipeline and new certificated pilots will we expect provide some relief in the coming years.

In conclusion, while we are facing several headwinds related to staffing and fleet and have continued to grow our business in what has proven to be a particularly challenging environment. Our team is doing a great job managing the volatility in making tactical adjustments to our plan and although it may take as much as another year to get to normalized profitability double digit op margins are in sight.

Which will provide a base from which we can continue to refine and improve and with that back to you.

Thank you Ted we are now ready to take questions from the analysts.

Ask that you limit yourself to one question with one related follow up.

We are ready to begin.

At this time I would like to remind everyone in order to ask a question Press Star then the number one on your telephone keypad.

And we will take our first question from Duane Thanks Duane.

Duane Your line is open.

Hey, Thanks, good morning.

Just on the attrition to Ed I Wonder if you might put some some numbers to it I don't know if you can talk about kind of.

Monthly attrition rate and what improvement you've seen in.

What versus what improvement you were hoping for and what your line of sight is for stabilization there.

Sure. Thanks Duane.

When we signed our deal we did anticipate that attrition would begin to mitigate mitigate although we knew it would take some time and we were <unk>.

Really surprised with the results January February and March we saw signs of sort of an anomaly in April which.

Put it back into the levels, we saw last year, and that's kind of made us be a little bit more conservative in our view, but we don't know if thats a.

One data point or not so we're certainly not.

We're still very optimistic that the results will come in the way we hope.

And I think all you're hearing from US is it still an issue and in over the course of this year, we expected to continue to mitigate and.

Go down we haven't disclosed.

The actual rates, but I can tell you, we'll just like we said before it's definitely elevated.

<unk> successfully recruiting the number of pilots we need right now.

To make the airline run, but you can imagine there's quite a bit of infrastructure and training involved in handling that debt as this improves we will be a tailwind to costs.

Okay.

And then maybe maybe one for Matt just with respect to the tradeoff between load factor and yield I Wonder if you could backtrack a little bit on the first quarter.

This an outcome that you anticipated from a load factor perspective may be sitting in the beginning of March.

Or did you see some resistance in the month of March the high fares.

And then I guess the punch line is looking forward I appreciate your comments about.

Day, a week getting getting more refined on the schedule out into June but are we taking more of.

Kind of load factor active approach here into the second quarter given the experience of the first thanks, thanks for taking the questions.

Yes sure Duane.

Thanks for the question, let me just start off by saying just a general statement that demand remains strong.

Out there.

The off peak period in Q1 performed as we had suggested on our last quarterly call. We talked about this so this was not a surprise to us at all.

And what we saw in Q1.

I think it's important that as spring break was very strong continuing the trend of peak periods, showing both load factor and yield strength.

For the rest of Q2, we expect the next month here to be a relatively normal what we would call shoulder period, but then we'll ramp up which we expect will lead to a strong memorial day holiday and strong June in general.

Just for some added detail on that we are anticipating through normal seasonality, we could see around one week of shoulder period demand in early June between the holiday ending in schools getting out for the summer across the system as we all know schools getting out generally then kicks off the peak summer travel season.

<unk>.

I would add though that by comparison in 2022.

That early June shoulder period that normally happens I didn't really happen last year on summer really started a couple of weeks early last year from a realized results perspective, a little bit unusual last year, but everything was a little bit unusual probably last year.

I'd say the takeaway with all of that is that normal seasonality continues to return to the Americas.

Which is where we are operating with one caveat the off peak periods, where a little bit off normal trends and the peaks are performing so much stronger than normal trends, we expect that to continue.

<unk> through Q2, and Q3 and I give you all that detail. Because this is this is the level that we think about this when you talk about fair versus load factor tradeoffs. We are we're thinking about and targeting what we know to be shoulder periods. You don't really have a true off peak per se in Q2, and as you know Q3 doesn't really hit anything like that until you get after.

Labor day.

So we are targeting periods that we think need more volume, we will target those with lower fares, if we need to.

The Tuesday, and Wednesday situation for us.

Even like post Easter and May we would normally have a little bit of Tuesday, Wednesday pull downs in those shoulder periods, so little bit of a headwind for us theyre all of that will be tailwind in the future, especially once we get past labor day, presuming that we'll be able to hold up with these new.

New operating trends that we like to see.

So.

Yes.

Long answer to your question, but the reality is we are still seeing some periods that need low fares were doing that when we need to but we expect the peaks to be very strong and we expect the yields there to be relatively healthy as well last year was very very strong. So we'll see if we can catch last year, but in general the strength is still there and we expect to realize.

Ed.

Thanks, and then just maybe one minor follow up there I guess, just just unload specifically longer term to.

To the extent there is a longer term for spirit.

Is the target load factor that you're that you're driving towards or that you're solving for and again. Thanks. Thanks to you both for taking the questions. Yeah sure Duane I Wouldnt say there is exactly a target load factor that were shooting for clearly for us volume because of our non ticket.

And the model in general with not ticket revenue.

Strength higher loads does obviously help us to some extent, but what we're not going to do is just sell sell low fares for the sake of selling low fares were looking at total revenue production and we're all we always have been in our calculus. When we have off peak periods, we will definitely drive more demand with low fares.

But it can be very very yield dilutive to try to get one more point of load factor in an already a peak period that can have pretty detrimental effect. So we're thinking about all of that when we think about total revenue generation.

Thank you.

Alright.

And your next question comes from Jamie Baker Your line is open.

Hey, good morning, everybody.

Just one for me today so.

Take away fuels like many of your current challenges are considered transitory and I'm sure some of them are.

I mean globally discount airlines still appear to.

To have the upper hand.

But the longer it takes for spirits challenges to get sorted out.

During that period, the more skymiles members get signed up more big three credit cards get issue the stronger the big three international margins become.

Im confident spirit can do better than perhaps the merger solves for this but simply doing better doesn't mean that you were store.

Pre COVID-19 margin superiority that you use to enjoys so.

Yes, I can see a path towards improvement, but not a restoration of consistently superior margins to those of the industry what am I missing.

Thanks, Jamie plenty of loaded questions in there.

Look.

And thanks for your expression of confidence we agree with you that while it is a challenging environment right now we do have line of sight too.

Addressing the issues that get us back to the margin production we expected.

And it's hard to say, what the future will be from a normalized perspective, when you compare our more legacy product against a low cost product you really don't know right now what.

What will happen with the macro economy, what will happen with capacity what history has told US is that in times of very strong premium demand out.

Large legacy carriers do relatively outperform and then in down cycles low cost carriers tend to outperform but the good news is that low cost carriers. When they are operating at peak efficiency are the most resilient models in the business and Thats really what were pushing towards you know I mentioned that.

Double digit op margins are well within sight at this point.

That's still not where we would target.

Ourselves, we usually looking at a number that's more towards the mid teens level on the upside and so it's incumbent upon the management team to start to refine.

The way, we get there once we kind of cross the hurdle of getting into the double digit territory and I think we have ways to do that I mentioned, a couple of them on this call and prior that as our airline matures through this phase.

We're going to start picking up real margin points in our fuel burn if activity were moving more and more towards neo aircraft faster than any of the big four.

Which which relatively we will pick up absolute margin points, probably based on our calculation is somewhere between one and two relative to where everyone else is today you couple that with the unit efficiency of the larger gauge airplanes in this demand environment, where it is basically.

Untapped demand.

We should see relative efficiency in the way that are more fixed costs are spread the cost of the airplane and the cost of the crew on board the airplane the way that our fixed costs and airports are.

Our charge and all of those things creates margin efficiency, which we expect we will claw back incremental points that way as well.

And so we will be and are tackling those to get us back to the kind of target way, we think about things will that be the best margin in the business don't know.

I think that as I said earlier I think it's a pretty good season, right now to be a legacy carrier, but thats not always true.

And so we'll just have to do what we do best which we will do and see how the rest of the industry shakes out.

Okay. Thanks for that I'll yield the floor I appreciate it.

Yes.

And our next question comes from CIBC. Your line is open.

Hey, good morning, everyone. This is Matt on for Savi.

On the first question anything you just talked about.

You are expecting utilization to trend throughout the year.

Particularly the what rates are embedded into that.

Q exit rate in the high <unk>.

I can start this is Ted and Scott feel free to jump in.

So we've been saying all along we are on a steady March here to a more normalized.

Fleet utilization, which would be total aircraft divided by block hours.

And or excuse me total block hours about them until aircrafts and right now that fleet number is artificially penalize with the number of aircraft on ground we have.

In the Neo fleet because of the engine issues, which we expect to start to move in the right direction, but won't be fully remedied by the end of the year based on our current expectations from Pratt so full utilization in the fourth quarter for spirit.

<unk> used to be lower than average utilization for the year, it's a lower utilization quarter, but its somewhere in on a fleet basis in the high Elevens. So 11, 11, 611 711 eight hours per day 11, eight hours per day, we're still toward moving in that direction and I expect to get pretty close to that number by the end of this year.

But thats artificially limited by.

By the number of aircraft we have on the ground right now and we're expecting in there to continue to see crew attrition mitigate that will help us catch back up. So next year, we will still have some recovery in it but.

But we're definitely moving in the right direction Scott.

Thats exactly right Q4 is typically lower seasonality is the point there.

But I'd like to add that we won't be back to full capacity in Q4, even if we do reach historical Q4 levels, which are generally lower.

Be it what we would call full capacity. So we would expect that to happen as we enter 2024, but Q4 will be close to historical utilization levels.

Okay. That's very helpful. Thank you both.

Maybe if you could just on the operational front maybe.

Can you provide an update what you're seeing in Florida in terms of the Hec there.

And then also any additional color on Vegas, how long do you expect that to persist. Thanks again.

Sure. Thanks. So the good news is we are seeing some progress in Florida.

And that's excellent news for spirit, given the exposure, we have here and how important Florida is to us in fact based on the phase one data.

Delay minutes in.

In the first two months of this year versus the first two months of last year actually down in both the Jacksonville Centre in the Miami Center. The two most important.

Routing centers in Florida, which is which is a positive trend I suspect some of that is related to gently improving staffing, although not fully staffed in those centers, but also the airlines have reacted by having less capacity. So it's beginning to have the effect. So that's a good news the bad news however is that in the northeast.

We're going to have a very challenging set up this.

This summer and we've seen the FAA voluntarily or asked the airlines to volunteer.

To not operate slot positions in the slot controlled airports and I know some of the larger airlines, who operate there are partaking in that we will have a very small presence of doing the same because we're relatively small in that area, but that's going to be a challenge and I believe I heard jetblue mentioned that that staffing there is nearly half of what they expect it to.

Or what it was even in.

2015, so that's not a good set up and then in Las Vegas.

When we look at the same data compared to the first two months of 2022 versus 2023 delay minutes are up 16, 100%.

That's not a 160% that's not 16% at 16, 100%, which is driving real problems for the larger airlines in and out of Vegas, and while Vegas. We are the number two airline in Vegas. It represents about 25% of our domestic capacity.

Theres runway construction, there, which will move through the summer and once that's done we hope that that's a step in the right direction, but we're going to see challenges in and out of Vegas, probably through the remainder of the summer and that kind of leads me to a thought which is.

Over the last decade, or so that I've been at spirit and I imagine even prior to that and I know most airlines have been doing this we have been actively lobbying the government for significant investment in the air traffic control system to take the United States back into a premier position and increase efficiency across the network, which is good for the environment because.

It will reduce fuel burn it will improve the utilization of slot controlled airports today. There is room at airports in the slot controlled areas. It's just that they're restricted because theres not enough aerospace, but unimproved air traffic control system will improve that.

And what that does this free up capacity for low cost carriers, which will stimulate competition all of those things are very much aligned with with what they say they are doing but theyre not doing that yet.

So we as a carrier we're advocating for that and we said well if we can't get.

Better competitive hold on the industry that way.

Then help us in real estate constrained airports. These large legacy hub airports airports, where the incumbent carrier is very inefficient in the use of their real estate and we're the opposite of that and we're saying too.

The department of Justice and the Department of Transportation, Hey, help us figure out a way to free up some of that real estate. So we can enhance competition that way and we've routinely been told no. We can't do anything there. So then we go to our third option, which is well I guess, we need to get bigger because scale is the best way for us to compete with these dominant airlines that control, 80% of the capacity in the United.

So we've been getting bigger over that decade, obviously dramatically so but it is not having fast enough. They continue to use their the power of their networks to two.

Stifle our growth in our <unk> activity and it's and it's something that we try to tackle everyday. So instead, we did the next best thing, which was we decided we're going to merge with another airline and Theyre, saying theyre going to object to that too is quite frustrating for us around here, where we say we're trying to stimulate competition, we've come up with real ideas.

And it's not happening yet so.

As I said in my prepared comments I think we have a really good path towards us.

A stronger fifth competitor, which will still be half the size of the fourth competitor, but one that can actually start to create.

Competitive balance in the industry and I think we'll lay out a very successful case, but in the meantime, we will be looking for the government to find ways to improve the air traffic control system and to provide more access for low cost carriers in constrained airports.

A very valid points. Thank you Ted.

And our next question comes from Stephen Chen Your line is open.

Yes, good morning, everybody and thanks very much for taking my questions.

Just one or two for you actually so the first U.

Mentioned that.

That 20, some odd percent of your capacity.

Should be back to <unk>.

Latin America, and the Caribbean I believe.

And any high level view.

On how the weighting of that deployment may have changed versus where you guys were in 2019.

Yes, Stephen it's Matt.

Yes, so so a lot of our.

A lot of our growth.

From say 18 19 into today, we had a very successful Fort Lauderdale franchise heading heading to South America, Latin America, and the Caribbean out of Fort Lauderdale late 18 into 19, we started to grow Orlando.

South as well.

So a lot of the growth initially started in Orlando and then throughout the last few years, we've really seen a relatively large increase for ourselves.

When you called some of it's sort of tourist leisure like Ken Kun and other other.

Growth has been and what we would call VFR traffic, which which to some extent you can call Puerto Rico, both tourist and VFR. So we've we've really grown a lot in Puerto Rico, as well and we're continuing that growth with.

With some new routes actually starting next month.

And into the summer as well so we're excited about all of that.

Bookings looks strong there for us as well and it really it really continues along where we do where we do well in our model works, great low LOE costs lead to low fares and it's great, especially for VFR traffic. So we can create travel opportunities for people that may otherwise not have them.

I appreciate that Matt.

<unk>.

We also appreciate your guys' comments on the regulatory situation.

Im just curious in that regard.

I know you reached an agreement with the pilots you're still seeing some attrition.

Do you think that it's going to be necessary for.

Regulatory related steps.

To help soon as the situation I know there was kind of a proposal out there to raise the retirement age of pilots and this kind of thing than anything else do you think that.

The regulatory side could help in terms of pilot supply. Thank you.

The advanced bookings looks strong there for us as well and it really it really continues along where we do where we do well in our model works, great low LOE costs lead to low fares and it's great, especially for VFR traffic. So we can create travel opportunities for people that may otherwise not have them.

Sure. Stephen This is Ted yes, so on that on that front, obviously the airlines have been.

Advocating for some changes there and I think you mentioned one of them which is.

Our move into retirement age, which would really act as a short term buffer.

As retirements in the industry are going to be peaky here for the next two or three years.

But the other is has to do with the way that training and experiences gained for pilots.

And there is some discussion about the minimum of 500 hours. How you achieve those 1500 hours are certain hours worth more than other hours.

If you spend time in our and the dual engine airplane. For example are you spend time in our simulator or Youre doing things are those hours potentially worth more than if you're flying a single engine airplane those types of debates are out there and going on and I think that we're certainly supportive of that kind of thing because we see that there is tremendous demand for people who want to be professional pilots I think that that.

It is absolutely happening the career as a very attractive career.

And there are now considerably more avenues for private individuals not members of the military because we are seeing considerably less pilots come out of the military than we used to have for private individuals to gain their certification and become a certificated commercial pilot, but it still takes a while and and it's expensive.

So there are ways for the government to ease that either and the speed at which they they gain their certification or <unk>.

Allowing the application of 529 programs for four pilots, who want to use that to gain their experience. There is a number of things that we believe and are being advanced at the government level will help the industry because again at the end of the day, we're really talking about is competitive fares for offer travelers, we as an industry are limited.

On how much capacity, we are deploying youre seeing it in small communities.

Where regional providers are actively cutting capacity because there are no pilots to serve.

And so getting more pilots will be good for the consumer would be good for fare levels.

And it'll be great for us because we can continue to expand and probably expand in those markets that are now vacated which has tremendous opportunity going forward.

That's super helpful really appreciate that Ted.

And our next question comes from Conor Cunningham Your line is open.

Everyone. Thank you for the time.

Just around your growth as we think about next year.

A lot of these constraints feel a bit stickier I know that some of them are a bit about onetime item, but just maybe it will be helpful. If you could provide some context on how you how.

SaaS you plan to be growing as you exit 2022.

Again.

Think about your original capacity plan in August of last year basically half the size of what you wanted to grocery loss a fair bit. So just trying to understand the growth algorithm as we think about 2024 and beyond thank you.

On how much capacity, we are deploying youre seeing it in small communities.

Where regional providers are actively cutting capacity because there are no pilots to serve.

And so getting more pilots will be good for the consumer would be good for fare levels.

Sure I'll start Scott you can.

Correct me, where I'm wrong so.

And it would be great for us because we can continue to expand and probably expand in those markets that are now vacated which is a tremendous opportunity going forward.

I disagree with you that the constraints are sticky I think.

The the horizon by which you consider them, maybe the debate but overtime.

That's super helpful really appreciate that Ted.

Our fleet will get remedied.

And our next question comes from Conor Cunningham Your line is open.

We will we will have a full utilization of the fleet probably over the next year.

Everyone. Thank you for the time.

And and when we do that.

Just around your growth as we think about next year.

That fleet will be the most fuel efficient and the youngest fleet in.

A lot of these constraints feel a bit stickier I know that some of them are a bit about onetime item, but just maybe it would be helpful. If you could provide some context on how you.

Amongst the youngest fleet in the world, which will provide us with significant benefit.

On the maintenance side and the reliability side. So I do think that that's that's it.

SaaS you plan to be growing as you exit 2022.

Obviously, an active constraint right now it's one is very frustrating for us, but I think that that does.

Again like when I think about your original capacity plan in August of last year basically half the size of what you wanted to grocery loss a fair bit. So just trying to understand the growth algorithm as we think about 2024 and beyond thank you.

Get remedied, because thats purely engineering and throughput.

In that side of the business and those guys are experts in solving that problem. The secondary constraint is labor and.

Clearly, we've all learned that the pandemic was a generational disruption in that regard.

Sure I'll start Scott you can.

Correct me, where I'm wrong so.

And I don't think any of US did a good job at forecasting the impact of that.

I disagree with you that the constraints are sticky I think.

And we're all reaping the benefits of choices that had to be made during their to preserve the vast majority of jobs to keep the industry healthy to have capacity available for people, who wanted to travel when there was limited or no demand all of those things are now bearing fruit.

The the horizon by which you consider them, maybe the debate but overtime.

Our fleet will get remedied.

We will we will have a full utilization of the fleet probably over the next year.

And it's working its way through the system supply and demand will eventually intersect. There is a considerable number of people who want to be professional pilots, we see it in the number of people who are filing for their licenses.

And when we do that that fleet will be the most fuel efficient and the youngest fleet in amongst the youngest fleet in the world, which will provide us with significant benefit.

Need to work their way through the system, which will take some time, we have a lot of pilots retiring they're reaching the maximum age which is a downward pressure on that but again that will rectify and once it does.

On the maintenance side and the reliability side, so I do think that Thats obviously.

Obviously, an active constraint right now, it's very frustrating for us, but I think that that does.

Get remedied, because thats purely engineering and throughput.

Those two constraints are lifted don't know exactly when they happen, but I don't think they are sticky.

In that side of the business and those guys are experts at solving that problem. The secondary constraint is labor and.

Yes, maybe a third component of that Conor is it supply chain and really in regards to aircraft.

Clearly, we've all learned that the pandemic was a generational disruption in that regard.

Obviously, we've talked about delays in deliveries and they've been relatively small I mean, we're talking over the 'twenty to 'twenty four period about 10 aircrafts get moved out of that period. So.

And I don't think any of US did a good job at forecasting the impact of that and we're all reaping the benefits of choices that had to be made during their to preserve the vast majority of jobs to keep the industry healthy to have capacity available for people, who wanted to travel when there was limited or no demand all of those things are now bearing fruit and it's working its way through this.

It does helps smooth deliveries a bit I mean, we will take 24 deliveries this year and plan for 37 deliveries next year of which.

'twenty three 'twenty four of those will be <unk> hundred 21, So we'll still see significant capacity growth next year in terms of fleet size and a return to utilization so.

System supply and demand will eventually intersect there is a considerable number of people who want to be professional pilots, we see it in the number of people who are filing for their licenses they.

The numbers, we haven't given yet, but it will be considerable and as we think about next year, but supply chain will help smooth deliveries.

They need to work their way through the system, which will take some time, we have a lot of pilots retiring they're reaching the maximum age which is a downward pressure on that but again that will rectify and once it does.

That will.

Kind of give us a little bit of a reduction as we think about next year smoothing into 'twenty five 'twenty six but all of those three things together have returned to full utilization or whatever we call full utilization of that time.

Those two constraints are lifted don't know exactly when they happen, but I don't think they're sticky.

Yes, maybe a third component of that Conor is.

Supply chain and really in regards to aircraft.

And the return or at least a predictable supply chain of aircrafts.

Obviously, we've talked about delays in deliveries and they have been relatively small I mean, we're talking over the 'twenty to 'twenty four period about 10 aircrafts get moved out of that period. So.

We will be a component.

As well as we talked about the 319 retirements those will also be.

In our in our calculus, as we think about capacity growth, but all of that sort of yields a capacity growth.

It does helps smooth deliveries a bit I mean, we will take 24 deliveries this year and plan for 37 deliveries next year of which <unk>.

Some significant number next year.

Okay.

Helpful and then.

<unk> hundred 24 of those will be <unk> hundred 21, So we'll still see significant capacity growth next year in terms of fleet size Ana returned to utilization so.

Matt This is Matt.

I'm still a little surprised on the implied unit revenue guide for the second quarter.

Totally get the comp issue that makes a lot of sense, but relative to some of these euro appears youre underperforming a bit. So I was just curious if you could.

The numbers, we haven't given yet, but it will be considerable and as we think about next year, but supply chain will help smooth deliveries.

Unpack that a little bit more I know Duane talked about the load factor of our scale, but just is there anything else within the network that we should be aware of that that is kind of impacting the second quarter specifically thank you.

That will.

Yes, I think.

I think I touched on it earlier really.

These shoulder periods are a little bit weaker than we've seen in the past the peaks have been very strong.

And our return or at least a predictable supply chain of aircrafts.

We will be a component.

So we're comfortable with all that we recognize that our guide is a little bit below what what others.

As well as we talked about a 119 retirements those will also be.

In our in our calculus, as we think about capacity growth, but all of that sort of yields a capacity growth.

Are talking about some of that is still still the way that we have the network setup by day of week. So there is still a little bit of a drag.

Some significant number next year.

And in there for that last quarter for example, first quarter some of the some of the drags we had out there we had predicted to be about one five points of <unk> drag and actually came out to be just about right on top of that number we calculate and that has to do with some of the things Ted mentioned too with the Jacksonville Center.

Okay.

Helpful and then.

I'm still Matthew this is Matt I'm still a little surprised on the implied unit revenue guide for the second quarter.

Totally get the comp issue that makes a lot of sense, but relative to some of these euro appears youre underperforming a bit. So I was just curious if you could.

Unpack that a little bit more I know.

Constraints.

Duane talked about load factor, where seo, but just is there anything else within the network that we should be aware of that that is kind of impacting the second quarter specifically thank you.

We have seen in their day week flying is still not exactly where we would like it to be these will all become tailwind for us as we we think they will be by the time, we get to the end of this year into next year. So we're still dealing with that a little bit.

Yes, I think.

No I think I touched on it earlier really.

Overall overall demand remains remained strong and really last year part of what we're looking at here is we're comping our own incredible strength last year as well.

These shoulder periods are a little bit weaker than we've seen in the past the peaks have been very strong.

So we're comfortable with all of that we recognize that our guide is a little bit below what what others.

We took a very large step up in unit revenue production as well as capacity growth last year. So we are comping a P.

Are talking about some of that is still still the way that we have the network setup by day of week. So there is still a little bit of a drag.

Period that is incredibly strong I mean.

In there for that.

Not 100% updated for other airlines that reported this morning, but our topline growth.

Last quarter for example, first quarter some of the some of the drags we had out there we had predicted to be about one five points of tried some drag and actually came out to be just about right on top of that number we calculate and that has to do with some of the things Ted mentioned too with the Jacksonville Center constraints.

Versus second quarter of 19 is going to be up 45%.

Versus second COVID-19, so we are growing the revenues there it looks and there's one metric it looks like were behind the industry year over year, but if you go back to pre COVID-19 to today, we're performing very well I think that last point as Ted that last point and that made US is one of the most important ones it's difficult to precise.

And that we've seen in their day week flying is still not exactly where we would like it to be these will all become tailwind for us as we we think they will be by the time, we get to the end of this year into next year. So we're still dealing with that a little bit overall.

We calculate but coming out of the omicron variant.

Overall overall demand remains remained strong and really last year part of what we're looking at here is we're comping our own incredible strength last year as well.

<unk> really depressed Q1 last year, Q2 screened and where did it scream, Florida.

Because nobody was going internationally yet.

So we took a very large step up in unit revenue production as well as capacity growth last year. So we are comping a period that is incredibly strong I mean I don't know.

And where our biggest Florida.

And I think we reaped the benefits of that which were.

Thrilled about by the way.

So New York, the northeast those things and do very well last year in the second quarter and they are probably going to do better. So I think that what youre seeing is the abnormalities of the exit of Covid starting to work its way into normal seasonality, which is why you got a smooth it a little more than just year over year.

I'm not 100% updated for other airlines that reported this morning, but our topline growth versus second quarter of 19 is going to be up 45% versus second COVID-19. So we are growing the revenues there.

Okay I appreciate it thank you.

And there's one metric it looks like were behind the industry year over year, but if you go back to pre COVID-19 to today, we're performing very well I think that last point as Ted that last point and that made US is one of the most important ones, it's difficult to precisely calculate but coming out of the omicron variant.

Yes.

And your next question comes from Helane Becker Your line is open.

Thanks, very much operator, hi, everybody. Thanks for the time team.

Can you say how much.

This is for Matt how much of the second quarter is already booked.

Which really depressed Q1 last year, Q2 screened and where did it scream, Florida.

Helane, we don't we don't comment on.

On that we've never had historically and we're not going to start today as well sorry about that.

Because nobody was going internationally yet.

That's quite alright. So my second question then is.

And where are we biggest Florida.

If you can talk about the number of aircrafts that were granted during the quarter because of engine issues and if you get the sense that.

And I think we reap the benefits of that which were.

Thrilled about by the way.

Pat says, we'll we'll just give you an engine this week and.

Keep your client and then when you complain loudly again it gives you another one as opposed to really having.

Our plan for delivering on that as they're supposed to do.

Okay I appreciate it thank you.

Yes.

Yeah good.

And your next question comes from Helane Becker Your line is open.

Good question, so it's been volatile through the quarter.

And to date in the second quarter, it's bounced around from sort of three aircrafts six aircrafts and we work with Pratt on forecasting the slide forward to see what <unk>.

Thanks, very much operator, hi, everybody. Thanks for the time team.

Can you say how much.

This is for Matt how much of the second quarter is already booked.

Helane, we don't we don't comment on on that we'd never had historically and we're not going to start today as well sorry about that.

We expect obviously.

One five issues occasionally that May drive something.

And in turn times of engines that are.

That's quite all right. So my second question then is.

In the shop those exiting so all of those variables create.

If you can talk about the number of aircraft that were granted during the quarter because of engine issues and if you get the sense that.

Volatility in the number.

We're probably going to be looking at five six aircraft and as we think about heading into the summer we will see what.

Pat says, we'll we'll just give you an engine this week and.

What happens after the second quarter, but it's going to be going to be something thats not a quick fix as we mentioned in the prepared comments, it's going to continue through the summer.

Kind of keep you quiet and then when you complain loudly again. It gives you another one as opposed to really having.

Our plan for delivering on as they're supposed to.

Into the fall and the end of the year. So we will probably be dealing with this for the next sort of 708 910 months.

Yes.

Good question, so it's been volatile through the quarter.

We will have to see where.

And to date in the second quarter, it's bounced around from sort of three aircraft to six aircraft and we work with Pratt on forecasting the slide forward to see what <unk>.

Both throughput of shop visits and production from Brad ends up and we'll have to see where random.

Okay. Thank you very much and since I got shutdown and my first question.

We expect obviously.

Can I ask about.

One five issues occasionally that May drive something.

The new corporate headquarters.

And how we should think about the spending for that where that shows up is that included in numbers or any given us and what percentage is complete.

And in turn times of engines that are.

In the shop those exiting so all of those variables create.

Volatility in the number.

Yes, so from a capex perspective, we will spend about.

We're probably going to be looking at five six aircraft and as we think about heading into the summer we will see what.

$150 million or so.

What happens after the second quarter, but it's going to be going to be something thats not a quick fix as we mentioned in the prepared comments, it's going to continue through the summer.

And we're probably start so as this year and capex of the clarify and we're probably <unk>.

60% spent and developed on the property will spend in.

Into the fall and the end of the year. So we will probably be dealing with this for the next sort of 708 910 months.

Total, including what we've already spent which is.

We bought land in 2019 of $40 million and we'll spend some.

We will have to see where.

Both throughput of shop visits and production from Brad ends up and we.

This year as well so we're probably in the sort of $200 million ish, probably a little more than that actually it will spend some that'll spill over into 2024, but the total cost is.

We will have to see where random.

Okay. Thank you very much and since I got shutdown and my first question.

And the $275 million 80 range and we spent.

[laughter].

Ask about.

60% to 70% of that today, and we're probably on a completion of the facility in a similar number.

The new corporate headquarters.

And how we should think about the spending for that where that shows up is that included in numbers for any given us and what percent of it is complete.

Okay. That's very helpful. Thank you.

Okay.

And our next question comes from Michael Ladenburg. Your line is open.

Yes, so from a capex perspective, we will spend about.

Oh, Hey, good morning, everyone, Hey, Matt I had a question.

$150 million or so.

Don.

<unk> through Google flights.

And we're probably start so as this year and capex of clarifying and were probably six.

Price guarantee program I did see that you're one of the few airlines that seems to be testing. It out I guess any early reads and I guess, maybe just a bigger question here is that we are seeing a lot of different alternative forms.

60% spent and developed on the property, we'll spend in total including what we've already spent which is.

We bought land in 2019 of 40 something million dollars and we'll spend some.

Being able to sell tickets and.

Given your low cost it does seem like these platforms that are out there maybe lower cost than anything except I guess other than direct.

This year as well so we're probably in the sort of $200 million ish, probably a little more than that actually but we will spend some that'll spill over into 2024, but the total cost is.

What are your thoughts on it and just maybe the evolution here.

And the 275 $2 80 range and we spent.

Any color would be great.

Yes sure Mike.

60% to 70% of that today, and we're probably on a completion of the facility in a similar number.

So just just to be clear the product you're referring to.

Google with their guarantee that's something that Google is doing.

Okay. That's very helpful. Thank you.

On their own through their own algorithm algorithms on the road analytics. So we are not specifically participating in that guarantee that is something that Google is doing.

Okay.

And our next question comes from Michael Ladenburg. Your line is open.

Oh, Hey, good morning, everyone, Hey, Matt I had a question.

On their own but it leads into your second part of your question, there which is about having.

Just on distribution through Google flights.

Nice guarantee program I did see that you're one of the few airlines that seems to be testing. It out I guess any early reads and I guess, maybe just a bigger question here is that we are seeing a lot of different alternative forms.

This MDC new distribution capability.

Distribution of all of our product and our content and partners like Google.

Of being able to sell tickets and.

Our very good partners in that and then they're ingesting our content and they are not the only ones or is there is a lot of progress that we've made on this topic. This has been something thats been going on for seven eight years of a journey and a lot of other airlines are starting to talk about this in terms.

Given your low cost it does seem like these platforms that are out there maybe lower cost than anything except I guess other than direct.

What are your thoughts on it and just maybe the evolution here.

Any color would be great.

Yes sure Mike.

So just just to be clear the product you're referring to Google.

Of progress that they've made recently, we made all this progress really before COVID-19 and through Covid. So we're very comfortable with understanding how this new distribution.

Google with their guarantee that's something that Google is doing.

On their own through their own algorithm the algorithms on the road analytics. So we are not specifically participating in that guarantee that is something that Google is doing.

Capability works.

It's great for us because it gets more of our product out in front of our customers.

On their own but it leads into your second part of your question, there, which waste is about having.

Further in advance of travel so whether whether the customer wants to save for example AD that big front seat to their to their itinerary.

This MDC new distribution.

<unk> ability.

Distribution of all of our product and our content and partners like Google.

But it's not necessarily that they add it right away, but the fact that theyre introduced to it or that they see it more often leads to better take rates later on better take rates will then lead to better blended rates as we call it or the or the price of of the service charge down the line. So.

More engagement leads to more volume, which should lead to better yields which leads to overall better revenue production. That's the idea and we think it's great that other airlines are starting to catch up on that because the more the more ubiquitous this becomes for the industry just a better distribution as overall for customers.

The progress that they've made recently, we made all this progress really before COVID-19 and through Covid. So we're very comfortable with understanding how this new distribution.

Capability works.

Great for us because it gets more of our product out in front of our customers.

It's sort of along those lines. If I were to go back I don't know 15 20 years. It would seem that the majority of what was purchased was purchased at the first point, 90%, 100%, maybe you bought or sold on an airplane.

Further in advance of travel so whether whether the customer wants to save for example AD that big front seat to their to their itinerary.

Bag of chips.

For you guys today.

But it's not necessarily that they add it right away, but the fact that theyre introduced to it or that they see it more often leads to better take rates later on better take rates will then lead to better blended rates as we call or the or the price of of the service charge down the line. So.

What percent of your revenue is actually purchased maybe in that second or third or fourth transaction.

That's got to be moving away from that initial.

Not just ancillary, but I'm thinking things like car rental hotel et cetera, that's got to be shifting to the right right.

Well, Mike Yes. It is we don't we don't talk about the metrics publicly that you just brought up but you did bring up a great point and youre following onto it perfectly that's exactly how we think about distribution and the more engagement look this is why we're not the only ones. This is why apps are important the more engagement you have.

With your airline specific App just.

It's sort of along those lines. If I were to go back I don't know 15 20 years. It would seem that the majority of what was purchased was purchased at the first point, 90%, 100%. Maybe you brought it showed on an airplane.

The more that youre, introducing products and two to the customer and and that's why we've spent a decent amount of investment in getting our technology up to speed and really improving from where we were say five six years ago to today from a technology perspective for guest facing technology is night and day.

Bag of chips.

Where are you guys today.

Like what percent of your revenue is actually purchased maybe in that second or third or fourth transaction.

From where it was and we do think it's important and we do expect there to be a lot more.

That's got to be moving away from that initial.

On that front as we move forward, we have we still as great as our progress has been we still have a lot of opportunity to still capture there.

Not substantially but I'm thinking things like car rental hotel et cetera, that's going to be shifting to the right right.

Great. Thanks, Thanks for answering my questions.

Well, Mike Yes.

It is we don't we don't talk about the metrics publicly that you just brought up but you did bring up a great point and Youre following on to it perfectly that's exactly how we think about distribution and the more engagement look this is why we're not the only ones. This is why apps are important the more engagement you have with your airline specific.

Sure.

And the final question will come from Dan Mckenzie Your line is open.

Oh, Hey, Thanks for squeezing me in my last two questions.

Two questions really sort of put a fine point on some of the ones that were asked before.

Just going back to the release and the outlook for improving margins throughout the year is it really just utilization and cost driven or is there. Some network normalization that can contribute to RASM and margin improvement as well.

At.

I guess in the past you've shared that the network. This summer was going to be suboptimal, just given the air traffic control Understaffing in Florida.

I've addressed that you talked about Latin America, but I guess, just higher level I'm wondering if the where the overall network stands yes, what kind of revenue penalty. If any is in the embedded in the second quarter outlook.

From where it was and we do think it's important and we do expect there to be a lot more.

On that front as we move forward, we have we still as great as our progress has been we still have a lot of opportunity to still capture there.

And if the network evolves to get planes, where you want them. If that's going to help you drive better unit revenue later this year.

Great. Thanks, Thanks for answering my questions.

Sure Dan This is Ted I can kick off Matt you feel free to offer anything, but I think you're right. We're definitely seeing improvement in at least as it relates to Florida.

Sure.

And the final question will come from Dan Mckenzie Your line is open.

Oh, Hey, Thanks for squeezing me in my last two questions. My two questions really sort of put a fine point on some of the ones that were asked before.

And we're getting closer on a percentage basis.

And just going back to the release and the outlook for improving margins throughout the year is it really just utilization and cost driven or is there. Some network normalization that can contribute to RASM and margin improvement as well and I guess in the past you've shared that the network. This summer was going to be suboptimal, just given the airtran.

Two.

Pre pandemic.

Network percentages in and out of Florida, However, given the demand straightforward, we probably want to do more and so we're still we still are artificially limiting ourselves in that Florida is probably another point on the margin right now by the way.

And so it won't get better immediately because we're going to watch how things operate throughout the course of the summer and the peak.

Pick control Understaffing in Florida.

And then we head into the fall and if we have good signs that it will allow the network team two to start to relax a little bit more than an hour, Florida. So there is definitely still room to go there.

And if the network evolves to get planes, where you want them. If that's going to help you drive better unit revenue later this year.

You heard Matt mentioned about Latin America, we are excited about.

Opportunities that continue to evolve there.

Sure Dan This is Todd.

And that will be a tailwind to us as well so to the first part of your question margins improving throughout the course of the year, which is our current our current view it as a mix of utilization improving the overall marginal throughput of the business because youre getting just a better spread on unit cost and unit revenue.

Ed I can kick off Matt you feel free to.

Or anything but.

I think you're right, we're definitely seeing improvement in at least as it relates to Florida.

And we're getting closer on a percentage basis.

Two.

Pre pandemic.

And thats some of it but.

Network percentages in and out of Florida, However, given the demand straightforward, we probably want to do more and so we're still we still are artificially limiting ourselves in that floor is probably another point on the margin right now by the way.

But the rest of it is continued optimization of all the things that kind of hammered us during COVID-19, which was throttling the network in certain geographies and inserting a lot of buffer in the system too to make sure that we had the ability to recover while we were deploying.

And so it won't get better immediately because we're going to watch how.

Things operate throughout the course of the summer and the peak.

New technology and new processes in our schedule planning process. So a lot of block pad and a lot of turn pad and a lot of buffer in and out of tougher geographies that again, as we learn more and deploy the right systems and processes, which appear to be working.

And then we head into the fall and if we have good signs that it will allow the network team two to start to relax a little bit more in and out of Florida. So there's definitely still room to go there.

Matt mentioned about Latin America, we are excited about.

Opportunities that continue to evolve there and that will be a tailwind to us as well so to the first part of your question margins improving throughout the course of the year, which is our current our current view it as a mix of utilization improving the overall marginal throughput of the business because youre getting just a better spread on unit cost and unit.

We can start to relax some of that and you gain more efficiency that way. So it's sort of all in there.

We think utilization is amongst the biggest lever, but those other things are meaningful to us.

Yes.

And one thing I would add to that too is in order to try to run even more efficiently, especially maneuvering through some of the air traffic control issues. This summer, where we took a we took an approach to extend our stage or stage had kind of shrunk in a little bit for about six months or so and we're pushing that stage back out so we can produce.

Canoe.

And thats some of it but.

But the rest of it is continued optimization of all of the things that kind of hammered us during COVID-19, which was throttling the network in certain geographies and inserting a lot of buffer in the system too to make sure that we had the ability to recover while we were deploying.

The capacity produce the available seat miles on less departures should help us overall from navigating through air traffic control a little bit better. So thats. An example of something that we don't talk about that much but thats. An example of trying to find more creative solutions to some of the constraints that are hampering us.

And hampering the industry for that matter.

Yes very helpful.

And staying on that that point here.

We can start to relax some of that and you gain more efficiency that way. So it's sort of all in there.

Double digit margins in the path back there.

We think utilization is amongst the biggest lever, but those other things are meaningful to us.

You guys have done a great job today detailing the transitory issues and a resolution, but yeah, just going back to an earlier question.

Yes.

Is it possible to put some loose brackets around how transitory. They are three to six months transitory one to two years.

And are the pieces there to get you to your double digit margins next year.

So we don't know for sure.

And that's part of part of the frustration because they are somewhat.

The capacity produced the available seat miles on less departures should help us overall from navigating through air traffic control a little bit better. So that's an example of something that we don't talk about that much but thats. An example of trying to find more creative solutions to some of the constraints that are hampering us.

Outside of our control most notably on the fleet side, but we are encouraged.

Bye.

Our partners are doing to remedy the issue, although as Scott mentioned earlier, we expect.

The fleet to continue to have penalty throughout.

Throughout the course of the summer at the levels, we're seeing right now and it really won't start to improve until the probably the third or fourth quarter, but the reason for that delay is that we are seeing significantly more engines input into the shop.

And hampering the industry for that matter.

Yes very helpful.

And staying on that that point here.

Double digit margins in the path back there.

And those should start to spit out in the fall and winter of this year, which assuming all of that executes well then we can start to gain some confidence and probably do a better job at bracketing. It for you.

You guys have done a great job today detailing the transitory issues and a resolution, but yeah, just going back to an earlier question.

Is it possible to put some loose brackets around how transitory. They are three to six months transitory one to two years.

But based on the current plan, we should expect improvement through this year and into 2020 for on that side on the pilot side of things or the.

And are the pieces there to get you to your double digit margins next year.

The broader staffing side of things, we're just going to have to digest, a little bit more Intel before we can.

So we don't know for sure.

And that's part of it part of the frustration because they are somewhat.

Call. It for sure we've only had our new deal in place here for about three five months.

Outside of our control most notably on the fleet side, but we are encouraged.

We do have a looming transaction with Jetblue, which we think will be highly accretive to.

Bye.

Our partners are doing to remedy the issue, although as Scott mentioned earlier, we expect.

To all constituents our team members, the consumer group and our shareholders and when that actually that uncertainty is removed I think thats going to be a natural stimulus.

The fleet to continue to have penalty throughout.

Four.

Staffing challenges we face.

And so.

Theres, probably some of that in there as well so.

I wish I could put exact terms to it but it does feel like its over the next year or so as we clawed our way back.

Perfect. Thanks, so much for the time you guys.

Yeah.

And there are no further questions at this time I will hand, the call back over to Mr. <unk>.

But based on the current plan, we should expect improvement through this year and into 2020 for on that side on the pilot side of things or the.

Thanks, Amy and thank you everyone for joining the call today, please contact Investor relations at Investor Relations.

The broader staffing side of things, we're just going to have to digest, a little bit more Intel before we can.

Com if you have any further questions and we look forward to talking to you.

Call. It for sure we've only had a new deal in place here for about three five months.

Net player.

And this concludes today's conference call you may now disconnect.

We do have a looming transaction with Jetblue, which we think will be highly accretive to.

To all constituents our team members, the consumer group and our shareholders and when that actually that uncertainty is removed I think that's going to be a natural stimulus.

Four.

Staffing challenges we face.

And so there's probably some of that in there as well so.

I wish I could put exact terms to it but it does feel like its over the next year or so as we clawed our way back.

Perfect. Thanks, so much for the time guys.

Yeah.

And there are no further questions at this time I will hand, the call back over to Mr. Dan <unk>.

Thanks, Amy and thank you everyone for joining the call today, please contact Investor relations at Investor Relations.

Com if you have any further questions and we look forward to talking to you.

Net player.

And this concludes today's conference call you may now disconnect.

Okay.

Q1 2023 Spirit Airlines Inc Earnings Call

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