Spirit Airlines, Inc. (NYSE: SAVE) today reported third quarter 2020 financial results.

Ended the third quarter 2020 with $2.1 billion of unrestricted cash, cash equivalents
and short-term investment securities

"Our future is very bright. While the pandemic continues to affect demand for air travel, we do not believe it changes our competitive position. Our excellent operational performance, strong Guest satisfaction metrics, and industry-leading cost structure, position us well to be among the first to reach sustained profitability," said Ted Christie, Spirit's President and Chief Executive Officer. "I thank the entire Spirit team for how well they have navigated the challenges in this incredibly dynamic time, shoring up our resources, and putting us in a position of strength to fully participate when demand recovers."

COVID-19
As the COVID-19 pandemic continues to evolve, the Company's financial and operational outlook remains subject to change. The Company continues to monitor the impacts of the pandemic on its operations and financial condition, and to implement mitigation strategies while working to preserve cash and protect the long-term sustainability of the Company. Spirit has implemented measures for the safety of its Guests and Team Members as well as to mitigate the impact of COVID-19 on its financial position and operations. Please see the Company's Quarterly Report on Form 10-Q for the period ending September 30, 2020 for additional disclosures regarding these measures.

Capacity and Operations
The Company continues to experience a significant decline in demand due to COVID-19. Load factor for the third quarter 2020 was 68.1 percent on a year-over-year capacity decrease of 33 percent.

For the fourth quarter 2020, Spirit estimates its capacity will be down approximately 25 percent year over year. On a monthly basis, Spirit estimates its capacity for October will be down approximately 36 percent and that November and December will both be down about 20 percent compared to the same periods last year. The situation remains fluid and actual capacity adjustments may be different than what the Company currently expects.

As measured by the DOT, for the third quarter 2020, Spirit's Completion Factor² was 99.8 percent, which earned Spirit a first-place ranking among reporting carriers. Spirit achieved on-time performance² of 90 percent or better for each of the three months during the third quarter 2020. Year-to-date ended September 30, 2020, Spirit's Completion Factor² was 97.3 percent, second among reporting carriers, and its on-time performance² was 86.2 percent, third among reporting carriers.

Revenue Performance
Total operating revenue for the third quarter 2020 was $401.9 million, a decrease of 59.5 percent year over year as demand for air travel remains depressed due to the COVID-19 pandemic.

Based on current demand and level of operation assumptions, Spirit estimates its fourth quarter total operating revenue will be down approximately 43 to 45 percent year over year.

For the third quarter 2020, total revenue per passenger flight segment ("Segment") decreased 21.1 percent year over year to $86.94. While both average fare and non-ticket spend per passenger declined year over year, as expected, non-ticket revenue per Segment declined much less than fare revenue per Segment. Fare revenue per Segment decreased 35.1 percent to $35.57 while non-ticket revenue per Segment only decreased 7.2 percent to $51.37^3.

Cost Performance
For the third quarter 2020, total GAAP operating expenses, including $148.3 million of special items, were $501.4 million, a decrease of 42.2 percent, year over year. Adjusted operating expenses for the third quarter 2020 were $649.7 million⁴, a decrease of 24.3 percent year over year. These changes were primarily driven by a 62.9 percent decrease in aircraft fuel expense due to decreases in both fuel rate and volume. In addition, other expenses, such as distribution, ground handling, and crew accommodation expenses were lower year over year due to a 37.4 percent decrease in flight volume. Better operational performance also drove a significant decrease in passenger re-accommodation expense compared to the same period last year. Despite a significant decrease in flight volume compared to the third quarter last year, other rents and landing fees increased year over year due to airport signatory adjustments and rate increases at various airports Spirit serves.

In late August 2020, the Company and its unions and work group representatives worked to find a solution to mitigate planned furloughs that were set to take effect on October 1, 2020. Various voluntary time-off programs in place through May 2021 will enable the Company to capture savings similar to what would have been achieved with the planned furloughs while preserving jobs, and maintaining options, should demand trends worsen or recover faster than expected.

For the fourth quarter 2020, Spirit estimates its total operating expenses, excluding special items will range between $675 to $685 million. This is similar to its third quarter 2020 adjusted operating expenses on an estimated approximately 10 percent more capacity in the fourth quarter 2020 than third quarter 2020.

Fleet
Spirit took delivery of one new A320neo aircraft during the third quarter 2020, which was debt financed. Spirit ended the quarter with 155 aircraft in its fleet. Earlier in October 2020, Spirit took delivery of its two remaining 2020 deliveries, one of which was debt financed and the other was secured under a sale/leaseback transaction.

Liquidity and Capital Deployment
Spirit ended the third quarter 2020 with unrestricted cash, cash equivalents, and short-term investment securities of $2.1 billion.

"Our team continues to adapt to the fluid environment caused by the challenges of COVID-19. In addition to flexing our network as we see shifts in demand, we are taking proactive measures to manage costs, conserve cash, and enhance our liquidity profile. Our average daily cash burn⁵ for the third quarter 2020 was $2.3 million, better than our most recent guidance of approximately $3 million per day, primarily due to better top-line sales and timing of payments. We estimate our average daily cash burn⁵ for the fourth quarter 2020 will average about $2 million per day, slightly better than what we experienced for the third quarter 2020. Given that we have fortified our liquidity position making cash burn as a metric less relevant, we now intend to migrate our guidance towards more traditional metrics such as EBITDA and EBITDA margin that better reflect a company’s cash generation capabilities. For the fourth quarter 2020, we estimate our EBITDA margin will range between negative 9 percent to negative 14 percent," said Scott Haralson, Spirit’s Chief Financial Officer. “We have a solid foundation and, as we move towards recovery, I am confident that the strength of our business model will be a key differentiator of our success.”

Since the onset of the pandemic, Spirit has been focused on reducing costs and preserving and enhancing its liquidity position. During the third quarter 2020, the Company:

• Completed a private offering of an aggregate of $850 million principal amount of 8.00% senior secured notes due 2025. The Notes are guaranteed by Spirit and certain subsidiaries of Spirit. The Notes are secured by, among other things, a first priority lien on the core assets of Spirit’s loyalty programs (comprised of cash proceeds from its Free Spirit co-branded credit card programs, its $9 Fare Club program membership fees, and certain intellectual property required or necessary to operate the loyalty programs) as well as Spirit’s brand intellectual property. Upon successful completion of this offering, the Company announced that it had elected not to participate in the U.S. Department of the Treasury ("Treasury") loan program under the CARES Act;
  
• Completed the sale of 9,000,000 shares of its common stock pursuant to the at-the-market offering program entered into on July 22, 2020. The Company received proceeds of $156.7 million, net of issuance costs, from this program.

In April 2020, Spirit entered into a Payroll Support Program ("PSP") agreement with the Treasury pursuant to the Coronavirus Aid, Relief and Economic Security Act ("CARES Act"), for an initial amount of $334.7 million, of which the Company received $301.3 million in the second quarter 2020 and the remaining $33.4 million in the third quarter 2020. Of the $334.7 million, $70.4 million was in the form of a low-interest, 10-year loan. In late September 2020, the Company was notified by the Treasury that Spirit would receive $9.7 million of additional PSP funds. Of the additional $9.7 million, $2.9 million is in the form of a low-interest, 10-year loan. Also, in connection with its participation in the PSP, the Company has issued warrants to the Treasury to purchase up to 520,797 shares of the Company's common stock at a strike price of $14.08 per share with a fair value of $3.9 million, net of issuance costs. The remaining amount of $266.8 million, net of issuance costs, is in the form of a grant and was recognized in special credits in the Company's condensed consolidated statements of operations during the second and third quarters 2020. The Company booked the additional $9.7 million as a receivable in the third quarter 2020 and received the funds in early October 2020.

Total capital expenditures for 2020 are estimated to be approximately $545 million (approximately $200 million net of financings), of which approximately $45 million (approximately $5 million net of financings) is expected to be incurred in the fourth quarter of 2020.
Spirit expects to take delivery of 16 aircraft in 2021. Of the 2021 aircraft deliveries, ten are secured under direct lease arrangements and six are not yet secured under financing agreements. The Company anticipates that it will use sale/leaseback transactions to finance these six aircraft. Based on this assumption, the Company estimates total capital expenditures in 2021 will consist of approximately $40 million of pre-delivery deposits, net of refunds, and another $60 to $85 million of other capital expenditures primarily related to aircraft, including one spare engine and other spare parts.

Tax Rate
The Company recorded a $1.2 million discrete tax benefit in the third quarter 2020 related to the finalization of the Net Operating Loss carryback to tax year 2013. On a GAAP basis, the Company's tax rate for third quarter 2020 was 22.9 percent. Excluding this discrete tax benefit and special items, the Company's effective tax rate for the third quarter 2020 was 22.2 percent.