2. About Spirit Airlines
Began air charter operations in 1990
Bill Frank, investor of RyanAir, was an early investor
Ultra low-cost, low-fare airline based in Miramar, FL
More than 200 daily flights to over 50 destinations in US, Caribbean,
Latin America
Fare tickets are based on the “unbundled” base fare
3. Thesis - Why Spirit?
Consistent non-ticket and passenger growth will help
company maintain consistent revenue growth
Position: Long SAVE
4.
5. Their model is simple
Uses one airline type, making it easier to train pilots and
mechanics
Fleet of aircraft grew by 21.5% by the end of 2013 and fleet
will triple by 2021
Growth opportunities
6. Growth highlights
Passenger volume in 2013 Q2 jumped 19.1% from 2012
Total revenue rose 17.6% to $407.3 million (attributed
to add’l 8 new aircraft, 12 new markets and access to 5
new airports)
Earnings grew 29% to 63 cents a share
Analysts estimate earnings will grow 54% this year and another
19% in each of the next two years
8. Financial Highlights
Routes
Unionized (3 union-represented employee groups ~54% of
employee)
June 2010-5 day strike operations shut down
Aug 1, 2010 – 5 year collective bargaining agreement stable
labor costs
10. Income Statement
Operating Revenues:
Passenger
Non-ticket
Total Operating Revenue
Historical
12/31/2011
12/31/2010
$
537,969
243,296
781,265
$
689,650
381,536
1,071,186
Expected
12/31/2013
12/31/2012
$
782,792
535,596
1,318,388
$
986,020
659,848
1,645,868
Operating Expenses:
Aircraft fuel
248,206
388,046
471,763
549,204
Salaries, wages and benefits
Aircraft rent
156,443
101,345
181,742
116,485
218,919
143,572
257,011
166,828
Landing fees and other rents
Distribution
48,118
41,179
52,794
51,349
68,368
56,668
82,011
67,832
Maintenance, materials and repairs
27,035
34,017
49,460
58,520
Depreciation and amortization
Other operating
5,620
83,748
7,760
91,172
15,256
127,886
29,871
147,732
77
255
956
568
621
712,392
3,184
926,804
(8,450)
1,144,398
651
1,360,227
Loss on disposal of assets
Special charges (credits)
Total Operating Expenses
Operating Income
Margin %
68,873
144,382
9%
173,990
13%
285,641
13%
17%
Other (Income) Expense:
Interest expense
50,313
24,781
1,350
187
Capitalized interest
(1,491)
(2,890)
(1,350)
(187)
Interest income
(328)
(575)
(925)
(411)
Other expense
194
235
331
336
48,688
21,551
(594)
(75)
Income Before Income Taxes
20,185
122,831
174,584
285,716
Provision for income taxes
(52,296)
46,383
66,124
107,416
Net Income
72,481
76,448
108,460
178,300
Total Other (Income) Expense
11. Balance Sheet
12/31/2011
12/31/2012
Assets
Current assets:
Cash and cash equivalents
Accounts receivable, net
Deferred income taxes
Other current assets
Total Current Assets
$ 194,399
15,425
20,738
63,217
293,779
$ 159,427
22,740
12,591
95,210
289,968
Long Term Assets:
Property and Equipment:
Flight equipment
Ground and other equipment
Less accumulated
depreciation
Total Property and Equipment
Deposits on flight equipment
purchase contracts
Aircraft maintenance deposits
Deferred heavy maintenance
and other long-term assets
Total Assets
Liabilities and Shareholders’
Equity
Current Liabilities:
Accounts payable
Air traffic liability
Other current liabilities
Total Current Liabilities
15,928
112,280
98,856
227,064
24,166
131,414
121,314
276,894
12,108
33,216
39,935
27,239
279,107
337,349
6
6
1
496,136
1
504,527
(129)
(29,308)
(1,151)
79,152
Total Shareholders’ Equity
466,706
582,535
Total Liabilities and
Shareholders’ Equity
745,813
919,884
Long-term deferred income
taxes
Deferred credits and other
long-term liabilities
Total Liabilities
4,182
46,608
2,648
43,580
(27,580)
23,210
(17,825)
28,403
91,450
120,615
96,692
122,379
67,830
125,053
596,884
Shareholders’ Equity:
Common stock: Please see
note 1
Common stock: Non-Voting
common stock: see note 2
Additional paid-in-capital
Treasury stock, at cost: 60,040
and 8,215 as of December 31,
2012 and 2011, respectively
Retained earnings (deficit)
662,495
12. DCF Model
DCF
12/31/2014
FCF
145,886
12/31/2015
187,193
12/31/2016
242,371
319,112
12/31/2018
Discount Rate
431,133
12/31/2017
Future Growth Rate
Mid Discount Year
0.5
1.5
2.5
3.5
1
2
3
4
2%
FCF Exit Multiple
4.5
Full Discount Year
10%
9.7 x
5
Present Value
139,178
162,543
191,548
229,540
Sum of PV Cash Flows
282,258
1,005,067
Terminal Value
Growth
3,658,001.39
Mulitple
2,608,510.48
Growth Method Sensitivity Table
Perpetual Growth
Enterprise Value
Growth
70.79
1.5%
2.0%
2.5%
3.0%
11%
57.52
59.69
62.10
64.79
67.82
10%
W
A
C
C
1.0%
63.76
66.54
69.67
73.21
77.26
9%
71.60
75.25
79.43
84.26
89.89
8%
81.70
86.68
92.49
99.36
107.60
7%
95.21
102.31
110.82
121.23
134.24
4,663,069
% Terminal Value
78%
Multiple
3,613,578
% Terminal Value
72%
Debt
Cash
60,455
$
540,195
Equity Value
Growth
Exit FCF Multiple
5,142,809
Multiple
Multiple Method Sensitivity Table
4,093,318
Shares
72647.167
Price
56.35
9.0 x
10.0 x
11.0 x
12.0 x
Growth
$
70.79
11%
W
A
C
C
8.0 x
48.22
51.74
55.26
58.78
62.31
Multiple
$
56.35
10%
49.87
53.56
57.24
60.93
64.61
9%
51.61
55.47
59.33
63.18
67.04
8%
53.45
57.49
61.53
65.57
69.60
7%
55.38
59.62
63.85
68.08
72.31
14. Comparison to Competitors
Airline
Operating Cost Per
Available Seat Mile
(CASM) in Cents for 2013
Spirit
10.0
Delta Air Lines
13.97
United Air Lines
14.16
US Airways
12.94
Virgin America
10.70
JetBlue
11.47
Southwest
13.03
16. Potential Pitfalls
What happens when price of crude oil skyrockets?
Will it be able to maintain lower fares than competitors in
the long run?
Is the company overvalued?
