Spirit Airlines' CEO Discusses Q2 2012 Results - Earnings Call Transcript

Spirit Airlines, Inc. (SAVE)

Q2 2012 Earnings Call

July 24, 2012 1:00 pm ET

Executives

DeAnne Gabel – Director, Investor Relations

Ben Baldanza – President and Chief Executive Officer

Ted Christie – Chief Financial Officer

Barry Biffle – Chief Marketing Officer

Thomas Canfield – General Counsel

Analysts

Michael Linenberg – Deutsche Bank Securities

Jim Parker – Raymond James

Duane Pfennigwerth – Evercore Partners Inc.

Ray Neidl – Maxim Group Securities

Hunter Keay – Wolfe Trahan & Co.

John Godyn – Morgan Stanley & Co. LLC

Bob Mcadoo – Imperial Capital, LLC

David Fintzen – Barclays Capital

Glenn Engel – Bank of America/Merrill Lynch

Stephen O’Hara – Sidoti & Company

Stephen Trent – Citigroup

Helane Becker – Dahlman Rose & Co.

Presentation

Operator

Welcome to the Spirit Airlines Second Quarter 2012 Earnings Conference Call. My name is Sandra, and I will be your operator for today's call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session.

I will now turn the call over to Ms. DeAnne Gabel. Ms. Gabel, you may begin.

DeAnne Gabel

Thank you, Sandra, and thanks to all of you for joining us this afternoon, and welcome to Spirit Airlines second quarter 2012 earnings conference call. Presenting today will be Ben Baldanza, Spirit's President and Chief Executive Officer; and Ted Christie, our Chief Financial Officer. Also joining us are Chief Marketing Officer, Barry Biffle; Chief Operating Officer, Tony Lefebvre; General Counsel, Thomas Canfield; and Senior VP of Human Resources, Jim Lynde.

Ben and Ted will discuss our second quarter results and current business trends. We will then open the call for questions.

Our remarks during this conference call will contain forward-looking statements, which represent the Company's current expectations or beliefs concerning future events and financial performance. Forward-looking statements are not a guarantee of future performance or results. Forward-looking statements with respect to future events are based on information available at the time those statements are made and/or management's belief as of today, July 24, 2012, and are subject to significant risks and uncertainties that could cause actual results, performance to differ materially from those reflected in the forward-looking statements, including the information under the caption 'Risk Factors' included in our 10-K for the year ending December 31, 2011. We undertake no duty to update any forward-looking statements.

In our remarks today, we will be comparing second quarter 2012 to second quarter 2011 results adjusting all periods for proforma items and excluding unrealized hedge gains and losses of special items. Please refer to our second quarter 2012 earnings press release for further details regarding our assumptions for pro forma results and for the reconciliation to the most directly comparable GAAP measure for our non-GAAP measures discussed.

Unless otherwise noted, when we discuss our results, we will be excluding special charges, loss on disposal of assets, and unrealized mark-to-market losses on fuel hedges. These items as well as our pro forma adjustments for the second quarter 2011 are detailed in our earnings release.

And with that I will turn the call over to Ben Baldanza, Spirit's President and Chief Executive Officer.

Ben Baldanza

Thank you, DeAnne, and thanks to everyone joining us for the call today. We're pleased to report our second quarter profit of $35.3 million, this 35.4% year-over-year increase in adjusted net income was achieved while lowering our base fare per segment, to just $81.06. Offering low base fares is a key highlight of our business model, as it gives consumers more pricing power and grows the traveling market.

We increased our operating margin by 1.5 points year-over-year to 16.3% and achieved an EBITDA margin of 27.6% for the second quarter. Over the last six quarters, we have achieved our target of growing the business 15% to 20% per year, without depressing our margin and we are confident we continue to do so for the next several years.

I want to thank the hard-working Spirit team, for their contribution to the success. Thanks to the efforts of everyone from the front-line to the flight maintenance crews, to our back-office, Spirit is a profitable, successful airline and I'm pleased to be part of your team.

Total operating revenue increased 25.5% year-over-year to $346.3 million on a capacity increase of 16.5% and a total operating yield increase of 9.1% year-over-year. Our ancillary revenue per passenger segment in the second quarter was $51.47, up 18.6% year-over-year, primarily due to per segment increases, in passenger convenience fee and bag fees.

We believe there are many opportunities ahead to expand the source of revenue. During the second quarter 2012, we launched nonstop service on ten new routes and last week we announced even more new city pairs that we plan to liberate from high pairs, including eleven new route that of Dallas/Fort Worth airport, bringing our total cities to be served for DFW to 26.

We continue to see smart value conscious consumers respond favorably to our low fares, as evidenced by both our new and mature markets performing well. This ongoing expense of the network is proving excellent for our margins, but it is also creating some cost pressures that Ted will comment on his remarks.

Looking ahead, we expect capacity to be up 22% year-over-year in the third quarter with our average state links down about 2% year-over-year to 890 miles. Fourth quarter capacity is expected to be up 30.2% with full-year 2012 capacity up 21.6%.

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