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Spirit Airlines (NASDAQ:SAVE)

Q1 2013 Earnings Call

April 30, 2013 11:00 am ET

Executives

Deanne Gabel - Director of Investor Relations

B. Ben Baldanza - Chief Executive Officer, President and Director

Edward M. Christie - Chief Financial Officer and Senior Vice President

Barry L. Biffle - Chief Marketing Officer and Executive Vice President

Analysts

John D. Godyn - Morgan Stanley, Research Division

Hunter K. Keay - Wolfe Research, LLC

James D. Parker - Raymond James & Associates, Inc., Research Division

Helane R. Becker - Cowen Securities LLC, Research Division

Michael Linenberg - Deutsche Bank AG, Research Division

Duane Pfennigwerth - Evercore Partners Inc., Research Division

Isaac Husseini - Barclays Capital, Research Division

Stephen Trent - Citigroup Inc, Research Division

Stephen O'Hara - Sidoti & Company, LLC

Operator

Welcome to the First Quarter 2013 Earnings Release Conference Call. My name is John, and I will be your operator for today's call. [Operator Instructions]

And I'll now turn the call over to Deanne Gabel. You may begin, Deanne.

Deanne Gabel

Thank you, John, and thanks to all of you for joining us this afternoon. 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.

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 beliefs as of today, April 30, 2013, and are subject to significant risks and uncertainties that could cause actual results or 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, 2012. We undertake no duty to update any forward-looking statements.

In our remarks today, we will be comparing first quarter 2013 to first quarter 2012 results, adjusting all periods to exclude unrealized hedge gains and losses and special items. Please refer to our first quarter 2013 earnings press release for further details regarding our assumptions for the reconciliation to the most directly comparable GAAP measure for non-GAAP measures discussed.

And now I'll turn the call over to Ben Baldanza, Spirit's President and Chief Executive Officer.

B. Ben Baldanza

Thank you, Deanne, and thanks to everyone joining us for the call today.

We are pleased to report that our first quarter profit increased 37.4% year-over-year to $32.8 million or $0.45 per diluted share. Operating income grew 40.6% to $53.2 million, resulting in an operating margin of 14.4%, and that's a year-over-year improvement of 1.8 percentage points.

I'd like to thank all of our team members who contributed to achieving these strong results. Revenue grew 22.9% to $370.4 million on a capacity increase of 20.8%. We've continued to grow our network over the last year, and we are pleased to continue to have one of the highest new route successes in the industry. Mature markets, coupled with the new route success, enabled us to grow our first quarter unit revenue 1.7% year-over-year. We estimate that the calendar shift of Easter occurring in March this year as compared to in April last year, contributed about 1.5 percentage points to our first quarter 2013 year-over-year improvement in RASM.

Our low-cost, low-fare, high-choice strategy continues to be successful in providing value to our customers and our shareholders. Spirit average base fare per passenger segment in the first quarter 2013 was just $79.09. We are pleased to offer extremely low base fares so that, even when adding in the optional extras, the total price our customers pay is almost always less than they would pay on other airlines.

During the first quarter, our ancillary revenue as a percent of our total revenue grew to 41% and our ancillary revenue per passenger segment in the first quarter increased $3.07 year-over-year to $54.75, driven by the implementation of applying revenue management strategies to ancillaries such as advanced purchase restrictions on bags. As many -- as with many of our add-on options, we offer customers the opportunity to save money when they behave in a manner that helps us save money.

In addition to growing our network, maximizing revenue and managing the day-to-day business in the first quarter, we focused our attention on strengthening the building blocks that will provide for long-term sustainable profitability. On the operational front, by the end of the first quarter, we achieved our targeted aircraft sparing ratio. And in the last few weeks, we have seen a marked improvement in our operational reliability, which we will measure by percent of flights completed. We also started work on another initiative that we think will greatly benefit our operational performance and we hope to have more information on that front to share with you in the coming weeks.

On the finance side, in addition to maintaining our vigilance to our lower cost structure, we completed the implementation of our new ERP system, which streamlines our business processes, allowing for more efficient use of our resources. And on the employee front, we've been busy communicating our company goals to our team members throughout the system, getting their input on how to improve our business. We've set some aggressive targets for ourselves and I'm confident that our team possesses the drive and ingenuity to achieve them.

Looking ahead, we expect our second quarter capacity to increase 21.8% year-over-year. And for the full year, we expect our capacity to increase 21.1%. As we grow our network this year, we are primarily focused on adding new connections among our existing destinations. For example, we previously served Latrobe, Pennsylvania from Fort Lauderdale and we served Dallas from several destinations, but until this year, we didn't serve Latrobe to Dallas on a nonstop basis. We believe that, over time, by creating a more concentrated spider web route network, we will be able to gain scale benefits and drive other cost efficiencies.

As for the second quarter, the Easter shift, along with a 4% increase in stage length, makes year-over-year comparisons difficult but not inconsistent with similar patterns in the past on a stage-adjusted basis when Easter fell in March. From a monthly perspective, we estimate capacity will increase 17% in April, 26.5% in May and 24.5% in June. Demand trends in May are stable but the pricing environment is a bit softer than we had anticipated at the beginning of the quarter, so we pulled our revenue forecast for May down a bit, but June bookings are tracking to expectations.

On a stage-neutral basis and adjusting for the Easter shift, we would expect a flattish RASM environment for second quarter. We have not witnessed any direct sequestration impact to revenues. And while forward bookings are stable, we are closely monitoring pricing volatility in the marketplace created by carriers dependent on business traffic. Overall, it is very early in the quarter from a visibility perspective and we will update you if we see any major changes in demand.

Before I turn it over to Tony to discuss our cost performance -- I'm sorry, before I give it to Ted to discuss our cost performance, as you may have read yesterday, Tony Lefebvre has announced he is leaving Spirit to pursue other opportunities. I've worked with Tony for many years, including the last 7 here at Spirit, and I want to thank Tony for his many contributions over the years and for helping to develop a strong team of leaders within our operations division. We'll miss him and wish him the best in his new endeavors.

And now here's Ted.

Edward M. Christie

Thanks, Ben. And again, thanks to all of you for joining us today.

A special thanks goes out to all our Spirit team members for their contributions to our first quarter results.

In the first quarter, our total operating expenses increased 20.3% to $317.2 million, primarily due to fuel and other direct expenses related to a capacity increase of 20.8%. Excluding fuel, our CASM increased 0.8% year-over-year to $0.0604, in line with our guidance for the quarter. The primary driver of the increase in CASM, ex-fuel, was a depreciation and amortization expense related to the amortization of heavy maintenance events.

Due to an increased number of severe winter storms during the quarter, the company experienced a higher number of weather-related flight cancellations as compared to the same period last year. The CASM pressure associated with the resulting decrease in ASMs, as well as other weather-related expenses such as higher de-icing expense, also contributed to the increase in adjusted CASM, ex-fuel. These pressures were partially offset by lower labor expense per ASM as a result of improved efficiencies, lower distribution expense per ASM as a result of reduced credit card fees and a longer stage length.

We ended the quarter with $483.5 million in unrestricted cash and with no debt on our balance sheet. During the quarter, we had capital expenditures of $10.6 million, including the purchase of a spare engine, which we financed through a sale-leaseback transaction after it was delivered. Net of reimbursements, we paid $15.1 million in pre-delivery deposits for aircraft. Net cash from operating activities includes $15.3 million paid for heavy maintenance events and paid $6.8 million in maintenance reserves net of reimbursements.

During the quarter, we took delivery of 2 used A319s and 2 new A320s, ending the quarter with 49 aircraft in the fleet. Our March A320 aircraft delivery was our first aircraft to be delivered with sharklets. We have 5 additional new A320s with sharklets scheduled for delivery before the end of the year.

Looking ahead to the second quarter, we estimate CASM, ex-fuel, will be flat to down 1% year-over-year. We expect to see the trend of lower distribution expense per ASM continue through the second quarter, and believe we will see benefits throughout the cost structure of running a better operation. By the end of the first quarter, after we had integrated the 2 used A319s into the operational fleet, we began to see the operational benefits of an increased aircraft sparing ratio. And that, along with now having the additional maintenance spaces in Chicago, Las Vegas and Dallas, gives us confidence we have the resources in place to improve our operational reliability. Partially offsetting these benefits will be the continued pressures related to the amortization of heavy maintenance events.

We remain on target to achieve our projection for CASM, ex-fuel, down about 1% year-over-year.

Over the last couple of months, we have experienced a fall in fuel prices, which is a welcome relief. However, on a historical basis, they are still very high and we remain keenly focused on increasing our fuel efficiency. As we continue to grow with the A320, which in our configuration produces a fuel burn that is about 14% more efficient on a per unit basis than our A319s, we expect to see continued efficiency gains. In addition, all our new A320s, starting with the delivery in March of this year, will be delivered with sharklets, which decreases fuel burn at cruising altitudes.

For the second quarter, we estimate our economic fuel price will be $3.04 per gallon based on Gulf Coast jet fuel curve as of April 24, 2013. This includes our estimated impact from realized fuel hedges. We have approximately 21% of our second quarter 2013 and 17% of our third quarter 2013 projected fuel volume hedged using U.S. Gulf Coast jet collars. In addition, we have put in place our annual hurricane hedge program for the period from August through October. Additional details about our hedge positions are included in the investor update we plan to file this afternoon.

In closing, we are pleased with our first quarter performance. We maintained our position as the lowest cost producer in our markets versus our primary competitors and we are aggressively working to lower our cost structure further. In so doing, we believe our relative cost advantage will continue to expand over time.

Our growth gives us tremendous leverage to realize scale benefits. In addition, we've only just begun to realize the benefits from increasing our aircraft sparing ratio while maintaining high utilization, and from having additional maintenance spaces to support the growth of our network, both of which should drive operational improvements and additional efficiencies throughout the system.

Before we move on back to Ben, just let me circle back. We forecast our -- or we targeted our CASM, ex-fuel, down 1% for the full year, and we remain on target to achieve that goal.

And with that, I'll turn it back to Ben.

B. Ben Baldanza

Thanks, Ted. In summary, we are pleased with our first quarter results and with how our business model keeps delivering among the best margins in the industry. And while the current pricing environment is a bit softer than we had anticipated at the beginning the quarter, demand remained strong, and in conjunction with the lower fuel prices, leads us to reiterate our EBITDAR margin target for the full year 2013 of between 25% to 27%.

As you've heard us say before, we believe that we have plenty of opportunities to profitably grow our business. We expect that consumers' demand for value will continue to grow, and with our low base fares, Spirit is uniquely positioned in the Americas to take advantage of this continuing trend. In addition to having a vision of where we want to grow, we have the infrastructure and the capital to make it happen and the team in place to successfully execute our plan for the long-term benefit of our shareholders.

Now, back to Deanne.

Deanne Gabel

Thank you, gentlemen. We're now ready to take your questions. [Operator Instructions] And with that, John, we're ready to begin.

Question-and-Answer Session

Operator

And our first question is from John Godyn.

John D. Godyn - Morgan Stanley, Research Division

Ben, I just wanted to follow-up on the margin guidance. You reiterated the 25% to 27%, but at the same time, we're seeing falling fuel. You've reiterated the down CASM, ex-fuel, guidance number. And for the second quarter, you were talking about sort of flat PRASM. And if anything, I think PRASM comps -- I'm sorry, flat RASM. And if anything, RASM comps get easier throughout the year from the second quarter. It just seems like the 26% margin guidance for the full year is pretty conservative, unless we're really missing a big moving part somewhere. So I was hoping that you could just sort of elaborate on kind of putting all that together.

B. Ben Baldanza

Well, let me just sort of repeat what we said, in that the -- what we said is that if you adjust for the fact that Easter moved and the fact that we had a 4% greater stage length, the second quarter would be a little flattish in revenue. But those things didn't happen, so you've got to adjust for those. And that's why we sort of, that's why we're thinking the full year 25% to 27% EBITDAR still makes sense. And again, while we're encouraged by current fuel, we still sort of budget based on the curve and such, and there's still not a lot of visibility obviously for the second half of the year in fuel. So we don't want to be overly optimistic on that.

John D. Godyn - Morgan Stanley, Research Division

Got it. Okay. So sort of using kind of a higher-than-current fuel and thinking with some conservatism, that's how you get to 26%?

B. Ben Baldanza

Basically, we just don't see enough in the current environment that we are confident to extrapolate through the next 7 months of the year to say that we should change the annual guidance on margin.

John D. Godyn - Morgan Stanley, Research Division

Okay, fair enough. And if I could just ask another question on margins. When I think about the history of Spirit, your biggest margin -- EBITDAR margin year, was actually 2009 when fuel prices fell as much as they did. If you could just sort of help us think about how you participate in falling fuel. And what I'm getting at is, when fuel falls, of course, we always think that the airlines are going to give some back on the RASM side. But just looking at your history, and perhaps this is because of where you are in the market with low fares and kind of a price setter in most of the markets, you're not in a position where you have to necessarily give as much back on the RASM side when fuel falls. Can you just kind of help us think about that? If fuel were to fall further, how should we be translating that? How should we think about your sensitivity on the RASM line?

B. Ben Baldanza

Well, let me give you some high level thoughts and then I'll ask Ted to also comment on this. But basically, in a lower fuel price environment, that obviously means that's going to have effect on the revenue environment where absolute fares are likely to be a little lower. That can be good for us on the margin side, of course. I mean, we're spending -- fuel is our largest single expense, and if we spend less money on fuel, that's good for the overall margin. But in 2009, we did very well in a falling fuel price environment, in part because we -- again, we don't carry a lot of business traffic, and so we didn't see the downgrade in RASM that most of the industry saw in 2009 as a result of a shortfall in business traffic. So we tend to be a little more resilient and since we're dependent on the lower end of the RASM spectrum for our revenue performance, we don't tend to swing with the industry that way as much. Ted, do you want to...

Edward M. Christie

Yes, I don't know that I'd add a lot other than to say, it's -- and we're speaking historically only, it's not all that inconsistent to have -- on a macro basis, to have revenue environments and fuel somewhat track together. So you have seen in the past where fuel has fallen and the revenue environment has gotten softer. But we're -- I'm not speaking specifically to what we expect over the next 90 days, for example, but there's certainly history there, too.

John D. Godyn - Morgan Stanley, Research Division

Great. And, Ben, I think you answered this, but what I'm getting at here is just when I think about your exposures, the segments that you appeal to, I mean it sounds like you're positioned to give less revenue back, so to speak, in a falling fuel environment. Is that fair, just to put a point to it?

B. Ben Baldanza

Yes, I think that's fair. I mean, we look to try to make the highest margins we can with the lowest fares possible. That's basically the core of the business model.

Operator

Our next question is from Hunter, Wolfe Research.

Hunter K. Keay - Wolfe Research, LLC

So when you guys make route decisions, do you think more -- maybe, categorize this for me into 3 buckets, Ben or whoever. Do you look at the average fare -- the prevailing average fare in the market? Or do you look at what the cost structure is of the airlines that serve that market? Or do you factor in what kind of competitive response you might get when you enter that market? What's the breakdown if you had to force it into those 3 buckets?

Barry L. Biffle

Hunter, this is Barry Biffle. I'll take this one. The answer is, we look at all these things, okay? We look at the average fares, we look at the cost structures of the prevailing competitors that would be in that market. But again, we look, first and foremost, at just what we believe the overall demand would be in passengers, then we look at what they pay on average today, and then we look at what we can do from a discount perspective and meet our target margins and how much that would mean in terms of a discount. So we like -- I mean, obviously, we look for places that we can drop the fare 30% to 50% and get the biggest stimulation, if you will. And then from a competitive response, we believe that our model contrasted to like a Ryanair or a Southwest, is less abrasive, if you will, from a competitive perspective, because we don't go in with 5, 6, 10 flights a day and try to take the whole market. We're only going to stimulate the market and we'll put in that amount of capacity or even less so that we don't disrupt the marketplace.

Hunter K. Keay - Wolfe Research, LLC

As I look at some of the growth you guys have had over the last 1 or 2 years, I think I saw that originally, you're adding red eye service and off-peak flights in busy markets. But I feel like I've noticed, maybe just anecdotally, but I feel like I've noticed more that you're adding flights for frequencies that are usually pretty high-yielding type departure times. And have there been any kind of competitive responses that have caught you off guard? I mean, like you said, I mean you're careful not to sort of irritate these guys too much. But have there been any instances where maybe you think you pushed a little bit too hard or you added a flight at a time that just somebody had to respond to? That you had to sort of respond in terms of that? Do you know what I mean, have you pushed too far?

Barry L. Biffle

No, not really. We've not deviated at all. I mean, this has been the strategy for some time now and we're not bumping up the frequency. Yes, there's flights that are at off-peak times and red eyes and so forth, but the reality is the planes fly all day. So there's going to be some desirable times as well, just as much the undesirable times. So, obviously, let's -- if you're in a big competitive market, and the airplane kicks off in the morning, which might be considered a prime time, yes, you'd have a prime time departure. Then, unfortunately, sometimes though, the return is, as soon as the airplane gets to City B, where it went to, so if you want to go for the day, well, that's kind of impossible in that city. But you could go for a full day and come back tomorrow. So it's still not a business schedule, if you will so...

B. Ben Baldanza

I think that's a real important point that Barry is making, is that no matter what time the plane leaves -- I mean, a trip that's thought of as well-timed for a corporate business traveler is a pattern of services that allow flexibility in their travel, multiple options, if their meeting runs late or they want to come home early or something like that, and that's not the product that we're offering, which is what many other airlines, not all airlines, but many other airlines do offer. So when we're 1 or maybe 2 trips a day in a market, when you take that level of frequency combined with the physical product set of features that we offer, none of that is geared to naturally attract the sort of frequent corporate business traveler.

Operator

Our next question is from Jim Parker.

James D. Parker - Raymond James & Associates, Inc., Research Division

I have a question regarding JetBlue's planned expansion out of Fort Lauderdale to LatAm, largely. And of course, you're on opposite ends of the spectrum in terms of customer service and fares. I'm curious about, one, the opportunity for another airline to expand substantially out of Fort Lauderdale, and does that infringe upon your growth opportunities? And then secondly, LatAm, is it a market that you all want to defend aggressively? Or maybe you'll continue to do what you've been doing, that domestically there are better opportunities? Can you address those 2 issues?

B. Ben Baldanza

Sure. This is Ben. I'll start. And if Barry wants to add something, of course, he can. In general, we have -- Fort Lauderdale has been an important piece of the Spirit network and remains that, and likely will remain -- will stay that way. Although as a percentage of the total, it has become smaller, not because it has shrunk but because other pieces of the network have grown some. And so we think about Fort Lauderdale the way we think about everywhere else we fly, which is where can we deploy our assets to produce the highest return for our shareholders. And as the market changes or may change in Fort Lauderdale, just like any other place, we'll continue to reevaluate the best deployment of our assets in order to produce high margins and

return a positive -- a high positive return for shareholders. JetBlue's specific growth in Fort Lauderdale may or may not be consistent with what they're trying to do, but we maintain a large cost advantage versus JetBlue. They -- I would argue with your point that they're at a different end of the spectrum of both customer service and price. On price, yes. But on customer service, the single most important thing for most customers is the price they pay. So I wouldn't argue that we have a lower customer service, we just serve the customer in a different way. We give them the #1 thing they care about. JetBlue gives them the eighth or ninth thing they care about most, which is legroom and TVs. Barry, you want to add anything?

Barry L. Biffle

Yes, I would have to agree with that, Ben. Definitely on -- South Florida already has a high-cost, high-touch airline and it already has a high-quality, low-cost, low-fare airline. So they're kind of third one to the party and we already have the marketplace served. It's not going to impact us but that would question it for them. They have a different ROIC than we have. And if you look at where we've been growing the last few years, clearly, the margins domestic U.S. are a better opportunity for growth if you want to grow your ROIC and maintain it at a high level. It's kind of a -- 5 years ago, that was not true. But it's a little late for that -- those dynamics, at least in the current environment. But as far as defending it, we believe that the lowest priced leader is going to be the best defense you can have, and our costs are going to allow us to continue to do that.

James D. Parker - Raymond James & Associates, Inc., Research Division

Okay. Barry, I have one more question for you. You mentioned that the market potential, there are like 400 markets that you can get into. It seems like about every other day, we get a press release from Spirit with about 5 or 10 new markets. I'm curious, do you keep a tally? Is that 400 diminishing? Or are there just more opening up as you put new -- as you add service?

Barry L. Biffle

That's a good question. We had around 200 when we first started looking at it that way. And what's happened for -- and that was probably 2 to 3 years ago. And that increased to 300. And then in the last year, remember we're a little lagged because we're using public data, it went over 400. So even though we've been adding over 20 new destinations per year, or 20 new routes for the last few years, the dynamics in the market have been increasing faster. So the high fares that are starting to happen through consolidation and the capacity constraint that you've seen across the industry is actually increasing the opportunity faster than we can actually grow.

Operator

Our next question is from Helane Becker.

Helane R. Becker - Cowen Securities LLC, Research Division

Ben, I saw some remarks attributed to you about 1 week or so ago regarding your views on the model you operate versus the model other airlines operate and that the government kind of wants to push everybody into one model. That may not be the most attractive for passengers. Can you just talk about your thoughts with respect to that?

B. Ben Baldanza

Well, sure. And what you might be referring to is some comments I made where I said that the DOT regulation, which, in the areas of sort of consumer protection, started to get into product delivery. And we think that, that's a somewhat dangerous vein, only in that it starts to force airlines to look more like each other. And we think it's better for consumers when they have a lot of choices. If McDonald's were regulatorily forced to offer filet mignon on their menu, for example, that would be not as good as McDonald's will be able to do what they do and Morton's do what they do, because that gives more options to consumers. So our general view, and we have pushed this with the DOT directly, at one point, we and Southwest and Allegiant had sued the DOT on these issues on the grounds that we should provide the most -- the best possible choices to consumers among competing different models and let consumers vote with their feet about the types of airlines they want to support and those that they don't.

Helane R. Becker - Cowen Securities LLC, Research Division

And is -- I mean I feel like it's falling on deaf ears.

B. Ben Baldanza

Well, I'm not sure that it is or isn't. I mean there's -- we've seen some things change in a couple of different ways.

Barry L. Biffle

Helane, this is Barry. Let me give an example. Over the last year, there's been a lot of discussion about pushing the DOT to require airlines to put all the ancillaries through the GDSs and so forth and have all of this homogenous distribution across all channels. And we spent a decent amount of time last year in discussions with the DOT, we attended hearings and so forth, and there's a lot of misinformation that's been put out in the marketplace, suggesting, for example, that airlines have hidden fees and so forth. And that's just simply not true. And I think we've debunked a lot of those myths and you see a lot of the stories that are very -- kind of on the other side of this discussion, but we have seen the DOT be very reasonable about it once they understand the situations. And we feel very positive about the current environment and where we are, and where we think the DOT is headed.

Helane R. Becker - Cowen Securities LLC, Research Division

Okay. All right. And then just one other follow-up on Atlantic City, specifically. Do you anticipate any change with the port authority taking that over?

B. Ben Baldanza

I mean, we've spoken with the port authority on an informal basis and we'll be having more formal discussions with the port authority on that. But in general, no. I mean, the port authority understands what Atlantic City is, how it works and what its unique benefits to consumers in South New Jersey are. The port authority manages Stewart Airport, north of New York as well. And they don't manage it in the exact same way they manage JFK or Newark or La Guardia. So I think they're a very professional organization that understands, when they have a diverse set of airports, they'll manage each one to provide the best service it can at the appropriate cost structures for what the airport does.

Operator

Our next question is from Mike Linenberg.

Michael Linenberg - Deutsche Bank AG, Research Division

A couple of questions here. I just -- a quick clarification. I think -- I don't know if Ben, you had made the comment about the A320s as they come in and replace A319s, that they were 14% more, I guess, from a -- maybe it was cost-effective or maybe more fuel-efficient on a per seat basis. And I didn't know if that included the sharklets or not?

Edward M. Christie

Yes, Mike, this is Ted. What we said was, exactly what, or to reiterate what your answer was, it was 14% more fuel efficient on a per unit basis. And that assumes our current kind of run rate. So there's additional upside with sharklets.

Michael Linenberg - Deutsche Bank AG, Research Division

Great. And then just, my second question, when we look at your RASM performance for the quarter, it was good and we know some of that is, obviously, the shift in Easter. How do we -- how should we think about unit revenue performance when we compare same-store sales versus ramp-up? Because in that -- in this quarter, you had a lot of new city pairs that you were ramping up in and yet, the overall performance was quite strong. So I'm just curious if you could give us any color between the core versus the new business?

Barry L. Biffle

This is Barry Biffle, I'll take it. In terms of new markets versus existing mature markets, we've been growing pretty steady for the last several years now. And, as Jim Parker mentioned a while ago, we continue to do new routes. And as a general rule, most of our -- every new flight, as a general rule, is a new route. And so, we've added, kind of at the same rate, so -- and there's seasonal dips and there's 1 or 2 months here and there that can be good for 1 quarter, bad for another because they don't hit exactly the same because the planes don't come in. But we generally operate with those -- 20% to 25% of our capacity at any given moment has been in new versus mature. And that's kind of been our run rate. So to be honest, it's been the same. So your comp year-over-year was the same and so forth. So if we were to see a dip in the new route performance, obviously we would have a challenge. But we haven't seen that over the last several years and we continue to deploy our assets pretty well. Yes, there was the shift of Easter, but I think if you factor in the stage adjustment as well, we would have been positive, even without Easter, in the first quarter on this capacity increase.

Michael Linenberg - Deutsche Bank AG, Research Division

Great. And just one last one. You look at some of the taxes that are proposed under the new budget. I mean, it's not going to kick in until 2014, assuming we're able to get to some form of agreement. But when I look at what's out there, it does seem to disproportionally hurt airlines, like yourselves, that rely a lot more on a lower fare product. Your stage length is roughly average of the industry. That said, you may want to consider flying long or haul. I mean, Ben, you've historically always been very adaptable. You change very quickly. I mean, if this level of taxes, or some portion of it comes in, I mean, how do you respond to that? And do you change the product? Do you focus on more international versus domestic? What are your thoughts on some of these potential changes that we could see and how it would impact Spirit?

B. Ben Baldanza

Well, taxes -- high taxes raise fares and higher fares depress economic activity. And that's just economic reality. As taxes change or more specifically to your question, as taxes may increase, that obviously is one piece of the overall cost structure that affects the price point, and the price point determines how much stimulation we'll see. So it certainly affects our operation to some extent. In Spirit's case, higher taxes are almost always a terribly regressive tax since we tend to carry customers at an economic level that aren't the average for the industry, lower -- total income level versus the standard traveler in the industry. So higher taxes on that group is a very regressive thing and we don't like that, and we think that's generally unfair. But in terms of our -- how we manage the airline, higher taxes are like any cost that goes up. You think about what that does and how that changes the hurdle performance of any one route or any one deployment of an asset and you continue to sort of manage the network and redeploy the network to be as profitable as it can be for the highest margins it can be and we'll look at that. But it's -- at this point, it's all speculation, because we don't know what budget is going to be approved. And we don't know what taxes, if any, new taxes, would be levied on the industry. And as many others have pointed out, the industry is already very heavily taxed.

Operator

Our next question is from Duane Pfennigwerth.

Duane Pfennigwerth - Evercore Partners Inc., Research Division

Just to follow-up to Mike's first question, can you tell us what unit revenue growth was in markets you have served for at least 1 year?

Edward M. Christie

No, we don't give the revenue information on that kind of detail. Sorry.

Duane Pfennigwerth - Evercore Partners Inc., Research Division

Maybe just qualitatively? I mean, it is -- I guess, what I'm getting at is, if you look at the new markets that you're adding, is your unit revenue growth coming from entering those higher fare markets or are you seeing unit revenue growth across new and existing markets?

Barry L. Biffle

Across both. The composition -- mature markets didn't overperform on a year-over-year basis versus new and vice versa. I mean, we're seeing a very stable growth pattern of the company and we continue to see -- what improvements we've seen were kind of across the system.

Duane Pfennigwerth - Evercore Partners Inc., Research Division

Okay. And then on the sequential improvement in non-ticket per passenger, can you just give a little more color on what is really driving that improvement? And if it's just generally revenue management of fees, how far are we along in that process?

Edward M. Christie

Most of it, it's just doing the same things we're already doing, trying to do it better. Changing price and policy -- I mean, the bags is a great example, where we've kind of put it or instituted, if you will, advanced payment or different levels, depending upon where you are in the travel process and so forth. I think we're definitely in the first inning of that because it's -- the systems were not really created to provide dynamic pricing of ancillary products. So it's going to take a while from a technology perspective to institute those types of things from a delivery and then from a management, operationally and so forth, and then ultimately to merchandising and so forth. But as a general rule, I mean airlines are not as strong of retailers as many other industries. And so the support infrastructure for that just doesn't exist. So it's going to be a while before we can really, really extrapolate the benefits in time. But we hit $54 and we're still growing. It's just at a slower pace. So our next goal will obviously be how do we get to $60. But it will take a little more time.

Operator

And we have a question from David Fintzen.

Isaac Husseini - Barclays Capital, Research Division

This is actually Isaac for David. Just had a question on ancillaries. I'm wondering, maybe Barry or Ben, if you can just give us a sense of what the take rates and the customer behavior has looked like, if it has changed at all, with the new revenue management approach that you have?

Barry L. Biffle

Sure, this is Barry. I'll take that, Isaac. We -- the take rates have not changed a whole lot. We are, obviously, as we do this, not only looking to increase revenue, but also make it cheaper for us to operate. I mean, to take the bag example in particular, what those changes did is we're trying to move all of the operational challenges to, first, in advance of arriving at the airport; and number two, preferably online which is the cheapest way to operate, sell it and so forth. So, but we haven't seen a major change necessarily in their behavior, but how and when and where they buy it. Incentives do matter and what your incentive buy is what you get. And we test a lot of different things in that regard, but we're very pleased with it.

Isaac Husseini - Barclays Capital, Research Division

Have you seen any change with the take rates given the stage length increasing over the last couple of quarters? And I think schedules show that's going to be increasing over the next 2 quarters?

Barry L. Biffle

There's increases in some and then some are static. I mean, some of the charges we have are static. And so you've got to -- to your point, you're saying, do I get more bags on the longer stage and will that benefit the dollars per passenger, if you will? I mean, there are some changes to that. I mean, it stands to reason that the further you go, the longer you stay. The longer you stay, you need more stuff when you're there. The itineraries are generally a little longer stay. So there's some, but it's not huge. 3% on the macro is not going to move it a lot. But, yes, you see a big difference between a 1-hour haul versus a 5-hour haul. It's materially different. Seat assignments, for example. The longer you're on an aircraft, the more you care about where you're sitting. The longer you're on a plane, the more likely you're going to want to sit with the people that you're traveling with.

B. Ben Baldanza

The longer you're on a plane, the more likely you're going to want to buy something to eat or drink.

Barry L. Biffle

Exactly. So there is a relationship, and it kind of gets -- if you look at it, and we don't report it this way, but on a yield basis, if you look at like a non-ticket yield, it definitely does increase the dollars, but the yield itself goes down just like on a fare. But it's not huge when you're talking a couple of percent moves in stage.

Isaac Husseini - Barclays Capital, Research Division

Okay, that's helpful. And then maybe a quick one for Ted. I realized the CASM guidance for the full year hasn't changed, still down 1%. Has anything changed specifically within certain line items like D&A maybe or maintenance? Because I know you gave guidance for that in the prior earnings call.

Edward M. Christie

Well, there's no change. We'll be putting out our investor update here after the call and you will get the information in there, but there's no real change.

Operator

Our next question is from Stephen Trent.

Stephen Trent - Citigroup Inc, Research Division

I'm just curious, there's been a great deal of flux these days with respect to what the FAA is doing, the on-again, off-again cuts. You've got San Juan, Luis Muñoz Airport, recently privatized. And there also seems to be at least some speculation that they want to do the same thing with Midway Airport. Outside of the U.S., or let's say, the U.S. mainland, are you seeing, kind of any of these facilities kind of dangling extra incentives in front of you in order to launch service or perhaps, increase service?

B. Ben Baldanza

Well, this is Ben. We -- as we grow, cities and municipalities want more volume because that creates economic activity and low fares don't do that. So we have -- there are a number of places who have offered economic incentives for us to expand. And that's been true in the industry for a long time, obviously. Other -- many airlines have benefited from those sorts of things. We take advantage of those things when it makes sense for us. On its own, an incentive from an airport can be a great thing, but it usually doesn't justify us adding service if we don't think in the long-term it's going to produce high returns for investors without that incentive. It might lower the risk of starting it or help offset some start-up costs or things like that. And that tends to be the way we look at them.

Barry L. Biffle

This is Barry. I would add this. If you look at the airport environment and you go back 10 to 15 years, there's definitely been swings of incentives and so forth. And the dynamics kind of changed in the mid-2000s, even late 2000s. Things were great for them. Especially with the RJs. They had a lot of departures and it looked like a lot of activity and a lot of airports unfortunately made long term plans that were detrimental when you look at their cost. They have now seen the consolidation being bad for them in many places. And as the yields have gone up, it's great for the airlines but the volume is what the airline -- the airports need. And we're starting to see that change. I mean, the environment, as an airline that's growing like ourselves, we're seeing a lot more hands out welcoming us, like incentives, like you're talking about. But we've only recently starting to see, what we're really looking for is then the recognition of, okay, we're going to have to modify the way we look at the cost structure because airlines aren't just going to pay for everything. And if they incur too much debt at their airport, that's unfortunately not our problem at as airline.

Operator

Our next question is from Stephen O'Hara.

Stephen O'Hara - Sidoti & Company, LLC

I just had a quick question. First, about the next-generation aircraft. I guess, as you take delivery of them, over the next decade, I mean -- and the industry does as well, I mean my guess is you would see a -- because you have a smaller fleet, you're going to see a bigger impact on your overall CASM. And I mean does that -- that should increase your competitiveness versus the industry? Is that fair to say?

B. Ben Baldanza

I think you're right, but there's more around that. I mean the newer-generation airplanes, both the sharklets on the A320s, which make it a little more efficient and ultimately the A320neo, which will start to be delivering on the second half of the decade, those will be good for us just like they will be good for everybody who flies them. And we have the case in Spirit where a large percentage of our fleet comes off lease at the same time the neos are delivering. So we're probably ahead of this curve versus other airlines and essentially, being able to, by the end of the decade, convert a much higher percentage of our fleet to the newer technology, at least sharklet-ed or sharklet-ed with neo engine airplane because we got a lot of the more classic planes without the sharklets or without the new engines coming off lease in that same window. So that's good for us. There's a lot of reasons that we believe our costs are going to come down over the next 5 years. Some of it is fleet efficiencies, some of it is financing efficiency, some of it is scale efficiency and so on. And so we feel optimistic about our relative cost position improving over time and what you identified as one piece of it, but not the only piece.

Stephen O'Hara - Sidoti & Company, LLC

Okay. And then kind of going to the Maintenance Expense Depreciation line, how do you see -- in terms of the way I understand it, do you amortize the maintenance -- the heavy maintenance expense over the expected life of that event? Or is it through the end of the lease term? And what happens if you decide to extend or shorten lease terms? What does that do to the D&A line?

Edward M. Christie

Yes, Steve, this is Ted. The amortization would be through the -- up until the next scheduled maintenance event or the next maintenance event relative to that event or the end of the lease, whichever occurs sooner. And then if you choose to change the terminal lease, at the time you would change the terminal lease, you would recalculate what that would do to your amortization profile.

Stephen O'Hara - Sidoti & Company, LLC

Okay. So I mean, in terms of that -- and I mean, the timing of the maintenance event, I mean are there some maintenance events that you know are scheduled for close in the end of the lease term and that -- or you anticipate close to the end of the lease term, that could lead to kind of a bubble up in terms of maintenance? It's a little more detrimental to the bottom line later on at the end of the term? Or do you have enough new aircraft kind of coming in throughout that time to kind of smooth that out?

Barry L. Biffle

Well there are some events that happen later in the life of the lease that may or may not create that type of effect. But to your point, we're also in the process at the same time, and I think Ben mentioned it earlier, we're going to be going through a transitional phase as the neo technology comes in, where a lot of our older aircraft will be potentially rolling off their lease. And so, we will have new airplanes coming in that will contribute to the dilutive effect of that. So it's a mix of both issues of what you said.

Deanne Gabel

John, we have time for one more question.

Operator

And we have a question from Hunter, Wolfe Research.

Hunter K. Keay - Wolfe Research, LLC

Can we talk about cash a little bit here? I mean, you guys have a huge stockpile of cash, and it looks like it's going to be another really good year of free cash flow for you. What are your options here? I mean, first of all, what's the earliest plane that you have in the delivery schedule that you can actually buy with cash. How many leases are you committed to? I know this is very uncommon for a high-growth company like you guys, but I mean would you actually really consider deploying this back to in the form of -- one form or another back to equity holders? I mean, is that something that is even on the radar screen given your growth rate right now?

Edward M. Christie

Well, Hunter, I know we've talked about this in the past, we'll kind of reiterate what we've said before. You're right in that we are a very high-growth company and our cash balance is critical and important to us for that reason. So we have a lot of airplanes coming between now and the end of the decade that -- and to answer your question, we're financed through the end of this year on operating lease. So the remainder of that delivery stream is yet unfinanced. And so, we maintain that liquidity balance to give us options as to how we want to finance those airplanes and tackle our growth going forward. So for a high-growth company, it would be very unusual for us to be thinking about the types of cash deployment strategies you're suggesting and I think, although all of those list of options are always on the table, we're clearly focused on maintaining our cash balance to fund the growth we have coming.

Hunter K. Keay - Wolfe Research, LLC

So then, Ted, do you think about using your cash balance maybe instead of deploying it back to equity holders as sort of a tool to manage your cost of capital down, again, by maybe adding some debt to the balance sheet or something like that? I mean, like, is there a way that you could create more economic value? Or should we just think about this cash running at like a -- that kind of a bad metric, kind of like mid- to high-30s percentage to LTM revenues just kind of indefinitely?

Edward M. Christie

Well, yes, I think you're exactly correct, Hunter, we would think about -- we're constantly thinking about ways to not just lower our unit cost but to your point, to -- on a cost of capital basis and a return basis, to deliver where we are, exceed that for our shareholders. And you mentioned one tool that is available to us, right? And so using that cash as a weapon in that arsenal is clearly on the table as one of the reasons we're keeping it around.

B. Ben Baldanza

And Hunter, this is Ben. Ted said something very important there, which is on a return basis, if we choose to use our cash to maybe buy an airplane instead of lease an airplane, it would only be because we believe that, that cash -- use of cash, provides a better return for our shareholders than other uses of that cash. That may prove to be the case at some point versus other options for that cash or it may not. So we don't have an objective for capital structure of the fleet, for example, or for percentage of cash that is anything separate from our objective of provide the most positive -- the highest return for shareholders we can provide.

Hunter K. Keay - Wolfe Research, LLC

Okay. And just to round it out, should I just assume that if you are going to entertain the concept of deploying cash back to equity holders, I mean, should we think of you guys as almost like a tech company in the sense that if you're paying a dividend or buying back stock, that you've basically kind of just acknowledged that the growth is, to some extent, kind of over? I mean, is that -- is it going to be that far off in the future? That it's that kind of end game for the cash where there's just really nowhere else to grow, that that's where it comes down to the best use of the cash for you?

B. Ben Baldanza

I wouldn't deal in absolutes like that.

Deanne Gabel

Well, that concludes our call today. Thank you, everyone, for joining us. If you have any follow-up questions, I am available and give me a call later today. Thank you again.

Operator

Thank you, ladies and gentlemen. This concludes today's conference. Thank you for participating. You may now disconnect.

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