Spirit Airlines Inc (SAVE) 2014 Q4 法說會逐字稿

Welcome to the Fourth-Quarter 2014 Earnings Release conference call. My name is Richard, and I will be your operator for today's call.

(Operator Instructions)

I will now turn the call over to Ms. Deanne Gabel.

Ms. Gable, you may begin.

Thank you, Richard.

Welcome to Spirit Airlines Fourth-Quarter 2014 Earnings conference call. Presenting today will be Ben Baldanza, Spirit's Chief Executive Officer, and Ted Christie, our Chief Financial Officer. Also joining us for the Q&A session today are Thomas Canfield, our General Counsel; John Bendoraitis, our Chief Operating Officer; Ted Botimer, our Senior Vice President of Network and Revenue Management; and other members of our senior leadership team.

Today's discussion contains forward-looking statements that 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, and are based on information currently available and/or management's belief as of today, February 10, 2015. And are subject to significant risks and uncertainties that could cause actual results to differ materially from those reflected in the forward-looking statements, including the information under the Caption Risk Factors included in our annual report on Form 10-K and quarterly reports on Form 10-Q. We undertake no duty to update any forward-looking statements.

In comparing results today, we will be adjusting all periods to exclude special items and non-operating special charges. Please refer to our Fourth-Quarter 2014 Earnings press release for further details regarding our assumptions for the reconciliation to the most directly comparable GAAP measure.

With that, I'll turn the call over to Ben.

Thanks, Deanne.

Thanks to everyone for joining us.

Today we reported strong fourth-quarter results in our eighth straight full year of profitability. During 2014, we achieved our goal of maintaining low fares while improving our cost structure and delivering high margins. We grew capacity 17.9%, grew revenues 16.8% to $1.9 billion, increased net income 33.3%, and had a pre-tax return on invested capital of 30.1%.

Our team also did a great job delivering operational reliability by maintaining a high completion factor, improving our on-time performance, and increasing customer satisfaction as our customers' understanding of our Bare Fare plus Frill Control product design grew throughout the year. I want to think our team members who contributed to our strong operational and financial performance in 2014.

Turning to our fourth-quarter 2014 results. Compared to the fourth quarter last year, net income increased 43.2%; operating income grew 46.1%; and our operating margin expanded 4.5 percentage points to a record fourth-quarter operating margin of 19.9%. Topline revenue grew 13% year over year, with total revenue per ASM decreasing 5.1% on a capacity increase of 18.9%.

Non-ticket revenue per passenger flight segment was about flat year over year. However, during the fourth quarter, the Company transitioned its onboard catering to a third-party provider under a revenue share agreement resulting in non-ticket revenue being lower than it would otherwise have been. Catering cost were correspondingly lower, such that a margin benefit was, and is expected to continue to be, a slight positive.

In the fourth quarter, in addition to launching service on seven new routes, we announced we will soon add 10 new nonstop destinations from Houston George Bush Intercontinental Airport, including seven destinations in Latin America. With these additions, Houston will be our second largest base of international flights.

In January, we had our inaugural flight from Cleveland. We are excited about adding Cleveland to our network, and we will soon offer service to nine destinations from Cleveland. Throughout 2015, we expect to offer our Bare Fares plus Frill Control product at approximately 35 new routes.

Our accomplishments in 2014 set us up well for 2015. I will share more about our outlook for 2015 after Ted updates you on our cost performance for the quarter.

With that, here is Ted.

Thanks, Ben.

And again, thanks to all of you for joining us today. I want to start by congratulating and thanking our team for their contributions in making 2014 a very successful year, and for once again delivering industry-leading margins.

Our CASM ex-fuel for the fourth quarter 2014 came in at $5.61, a decrease of 2.9% year over year. This was quite a bit better than our initial guidance for the quarter, largely driven by a litigation settlement gain and a refinement of our utilization plans for several engines which resulted in lower-than-expected supplemental rent.

In addition, we had an end-of-year airport true up that came in higher and sooner than we expected. Compared to the fourth quarter last year, the decrease in CASM ex-fuel was primarily driven by lower distribution expense, aircraft rent, and maintenance expense per ASM. Distribution expense per ASM in the fourth quarter 2014 was lower compared to the same period last year, primarily due to the one-time litigation settlement gain of approximately $2.9 million and a larger percentage of our tickets being booked directly through spirit.com, our lowest cost distribution channel.

The decrease in maintenance cost per ASM year over year was driven by an expense reversal in the fourth quarter 2014 associated with an insurance claim, along with lapping a one time $750,000 insurance deductible payment in the fourth quarter of 2013. The decrease in aircraft rent per ASM was driven by a change in the mix of leased and purchased aircraft. In addition, our team's continued focus on improving our reliability and our overall cost structure continues to drive benefits. Throughout all of 2014, our team did a great job driving cost improvements. Full-year 2014 adjusted CASM ex-fuel decreased 0.5%, despite 200 basis points of pressure from depreciation and amortization related to increased amortization of heavy maintenance events and additional pilots cost as a result of FAR 117.

In the fourth quarter, we transitioned our onboard catering to a third-party provider under a revenue share agreement. This initiative will lower cost and complexity, and contribute margin improvement in 2015. Q4 also saw the introduction of on-balance-sheet financing for four aircraft, which will help our aircraft ownership economics going forward by leveraging our strong balance sheet.

In addition, there were other cost initiatives we implemented in mid to late 2014 that aren't yet reflected in the full run rate of our costs. Including a modified and extended credit card processor agreement; a revamped rotable spare parts supply and repair agreement; a few renegotiated and extended leases on aircraft and engines that lower our overall rate; and a new heavy aircraft maintenance agreement with Lufthansa Technik in Puerto Rico, to name a few.

As we hit our stride in our growth profile, we believe we can continue to leverage our increased scale to provide incremental cost benefits. Our team's dedication and commitment to improve our ultra-low cost structure positions us well to deliver a step function change in our cost structure for 2015, which will further increase our competitive cost advantage.

During the quarter, we announced our Board of Directors authorized up to $100 million for share repurchases. We still believe that investing in our business is the best use of our cash. However, given the volatility we have seen recently in the stock, we do think it would be beneficial to have the ability to opportunistically step in and repurchase shares when appropriate. We ended the year with $633 million in unrestricted cash.

During the fourth quarter, we took delivery of seven new A320 aircraft, bringing our total fleet at year end to 65. We plan to take delivery of 15 aircraft in 2015, two of which entered the fleet in January. And have debt commitments in place for the first 11 deliveries and a direct lease arrangement for our first A320neo, scheduled for delivery in the fourth quarter of 2015.

Turning now to our 2015 cost guidance. Based on the forward curve as of February 5, 2015, we estimate our fuel price per gallon for the first quarter will be $1.90. We have protected approximately 81% of our first-quarter 2015 fuel volume, 60% of our second quarter, and 15% of the second half of 2015 using out-of-the-money jet fuel call options which allow us to participate 100% in the movement down in fuel price. More details will be provided in our Investor Update filed later today, but we have structured our call options to provide the most upside protection for minimal premium expense.

Capacity is expected to be up approximately 25.8% year over year in the first quarter, up 31.5% in the second quarter, up 33.5% in the third, and up 30.5% in the fourth for a full-year increase of about 30.5%. For the first quarter 2015, we estimate our CASM ex-fuel will be down 4% to 6% year over year.

For the full-year 2015, we will see the full benefits of all the initiatives launched in 2014 that I previously mentioned. The result will be a reduction in our CASM ex-fuel of 6% to 8% year over year.

On a unit cost basis we expect salary, wages and benefits, and aircraft rent to be the largest drivers of decreased CASM ex-fuel in the first quarter and full year 2015. Aircraft rent per ASM will benefit as we take on additional debt financed versus leased aircraft. And as we grow with larger-gauge aircraft, we get a per-unit cost benefit in salaries, wages and benefits.

Overall, 2015 will prove to be a very exciting year for Spirit. And I'm proud we can deliver on our promise of growth, along with continued declines in our unit costs.

With that, I'll turn it back to Ben.

Thanks, Ted.

In addition to many other accomplishments, in 2014 we were recognized as the most fuel-efficient airline by the international Council on Clean Transportation. And named the Value Airline of the year by Air Transport World, and were able to grow and further strengthen our competitive position.

We look forward to what is ahead in 2015, and will push our team to continuously get better with our focus on successfully managing our growth, including continuously improving our operation to better on-time performance and high reliability, along with high customer satisfaction metrics, as we help customers better understand our business model. And on the cost side, as Ted mentioned, we plan to leverage our growth and resources to make a big move in cost in 2015. We know that the environment can at times be volatile, but we can always rely on our ultra-low cost structure to give us room to grow.

Last quarter we noted that our growth may create a near-term drag on RASM as markets spool to maturity. In 2015, we will have about one-third of our network under development. If you include our markets in Dallas that are recalibrating following the Wright Amendment expiration, we have about 40% of our capacity developing throughout the year. In addition, we continue to see compression in the pricing structure in many of our markets, primarily for travel on off-peak days.

When the industry's highest cost input decreases 40% to 50%, it's not surprising to see a drop in the pricing of marginal capacity. We characterize this as a change, rather than as good or bad; and, as with any change, we will manage our business as effectively as possible to protect our margin expectations.

As we've pointed out in the past, we are a uniquely different airline. We run our business differently than other US airlines; we target different customers; we are growing at a faster rate than others; and we target higher returns. Some of the common metrics generally used to assess the industry are not as applicable in assessing our performance. By design, we aim toward delivering consistent high returns even if the input components may fluctuate.

Even with this, we heard a lot of chatter about the implied RASM change in our initial guide for the first quarter of 2015. For a carrier growing 15%, 20% or 30%, if you judge the quality of earnings by just the topline growth, you will miss the power of what is happening with the cost structure. In fact, we make fleet investment decisions long before we know what the operating environment will be when they deliver. When we ordered our aircraft, we were very comfortable with our fleet growth for 2015; and oil was much higher than it is now. We think oil being lower increases our opportunity for growth, even if that means we achieve our high margins and grow earnings through lower RASM and much lower CASM.

Despite having only a slight glimpse as to what March bookings look like, based on the current pricing environment and assuming fuel at $1.90, we estimate our first quarter 2015 operating margin will be between 21% and 24%. Together with the CASM guidance Ted gave, that implies a RASM decline of 9% to 11%. We estimate about one-third of the RASM decline is attributable to the ramp of our new markets and an increase in our average aircraft gauge as we bring on more A320s, which was all expected as we layer in our growth for 2015.

Another one-third is being driven by price structure compression in many of our markets, which is unusual over the past two to three years but not at all unprecedented in our industry. We know how to react and deal with this type of pricing behavior and expect it to evolve throughout the year.

The remainder of our RASM decline is driven specifically by what we are seeing in Dallas as a result of the aggressive pricing trends we assume are related to the large increase in capacity in Wright Amendment markets. As a relatively small player in the Dallas market, we will manage our business as the two large players eventually reach pricing stability. Even with these recent changes in the Dallas market, Dallas continues to make very good money for us.

For the full year 2015, given the current demand environment, pricing trends, fuel costs, and what we expect regarding our own cost structure, we estimate our operating margin will be between 24% and 29%. We feel very good about how we are positioned for the year and look forward to this year of high growth, high margins, and high returns.

Now back to Deanne.

Thank you, Ben and Ted.

We are now ready to take questions from the analysts. We do ask that you limit yourself to one question with one follow up. If you have additional questions, you are welcome to place yourself back in the question queue; and we will allow for additional questions as time permits.

Richard, with that we are ready to begin.

(Operator Instructions)

William Green.

Ben, can I ask you for your thoughts on how you think this ultimately ends up playing out? You sort of reference the past there in terms of how the industry reacts. What is the working assumption, or how do you plan out the year from the perspective of the industry fair environment, how much of this fuel do you expect to eventually makes it through into the prevailing fares that we see out there in your markets?

Bill, it is a good question. We're still trying to figure out what all of this means obviously.

I think the thing to recognize, and we mentioned this in our script, is that when the largest input cost drops it makes it more economic to sell lower fares to fill marginal capacity. And that is what we see happening, especially in off- or lower-peak periods in the timeframe. There is more seats available to fill and economically they can be filled at lower prices and that is what is happening, price drives to marginal cost, that is basic economics, right?

That does not suggest that in peak times we should necessarily see most of that benefit going back to the consumer. We've not get had a really peaky time of 2015 yet, so we are prospectively guessing, like you, as to how the industry may react as we move into a more peak period if oil prices stay relatively low. We've all seen them tip up a bit in the last couple of days, so it is unclear where that is going to go.

In general, we think that in off-peak time periods there is going to be pressure to fill empty seats, that is going to put pressure on, certainly our RASM, but we think that is logical behavior by the industry. We are not blaming anybody for that. In peak periods we, as well as the rest of the industry, should be up to take a little bit more in the fuel benefit into margin.

Makes sense. Let me ask you a follow up here on elasticity. We often think of your customer base as being far more sensitive to the prevailing price that they may pay, the fare that they actually see. Can you even say how you have seen elasticity change given the drop in fuel? Not so much because of fares but because of money in their pocket books.

It's hard to make a strong correlation there yet. It certainly our assumption that as consumers fill up their gas tank five or six times and start to actually materially realize the extra cash in their pockets that should generate a little bit more discretionary spend, which we hope some of that will be spent on travel. And Spirit would be the natural attractive carrier, I think, for that type of person that's saying I have a little extra money maybe I will take an extra trip.

We haven't been able to see that in price elasticity yet. I think it is premature to say what is going to happen there, although certainly I think if consumers benefit from lower fuel prices for a long period of time that should be good for the most price discretionary carrier, which is us.

(Operator Instructions)

Hunter Kay.

Ben, is the Dallas market structurally different today than you thought it would be when you first laid out the plan there, which I think was probably predicated around the assumption that AMR was going to file bankruptcy, and maybe you assumed they were going to shrink? I am wondering if it may be is the time to reevaluate the amount of service that you guys have in that market, given some of the permanent changes that we've seen over the last few months? Even if this fare discounting that we're seeing from Wright Amendment is temporary, is Dallas what you thought it was going to be in 2011?

I think Dallas is better than we thought it would be in 2011. And our entry into Dallas really had absolutely nothing to do with American's position at that time.

What we identified in Dallas was a fairly large un served market which were travelers who simply could not afford the prices in Dallas at that time, but would be willing to travel at lower prices. And just as we've done in other large cities in the US, adding service to attract a market that the industry was not attracting was appealing to us.

Americans own, we never assumed that American was going to -- we always assumed American was going to get itself fixed, and they have done a great job of that so far, and that was always our assumption. We always knew that the Wright Amendment was going to expire and we knew that would change the dynamic, certainly of at least the relationship between DFW and Love Field.

I think, Hunter, if you look at other places I think you can see a good model. If you look in Chicago, for example, which is a city not too different in size from Dallas in terms of the travel in and out, you have a large airport at O'Hare were both American and United operate large hubs.

We operate at O'Hare with a relatively small presence and do very well. And closer into telling you have Midway were Southwest has a very large operation, and there has never been a Wright Amendment there. Southwest, we assume, does well in Midway. We assume United and American do great in O'Hare, and we know we do great in O'Hare.

There's no reason for us to think that over time Dallas won't look like a Chicago, which is a big city with lots of traffic, lots of affinity, with demand at all points on the price scale. And there will be large network carriers, a Southwest kind of carrier, and a Spirit carrier that all serve our segments of the demand curve.

As we think about the good fuel guidance that you just gave, obviously you have protected some of your fuel consumption at a pretty low rate right now. Great CASMic fuel guide, too.

But, if fuel stays low, or you find yourself some sort of competitive advantage on fuel given what you have done in the hedge book, is this maybe the year to think about cheating a little bit on some non-fuel costs given the flexibility that you have now being down 6% to 8% on a fuel cost side? As we move through the year and say, fuel cost a low relative to others, are there some investments that may be guys might think about making in the year where your CASM all in is going go be down like 15% to 20%, and have a clear payback period but you've been considering doing, or not doing, that maybe that decision gets accelerated a little bit for some logical non-capitalized investments in the business?

Hi Hunter, it is Ted. One of the reasons I was so excited to come to Spirit, and one of the reasons I really enjoy working here, is we're not cheaters first of all, as it relates to our unit cost. We are extremely protective and disciplined in that regard. But we are also rational financial-based managers. And we make investments in the business all the time based on return.

I don't know that I would change our overall trajectory or view on that, regardless of what is happening to fuel inputs. We make smart decisions today, investing in the business that are penalizing CASM, but nonetheless we think it is the right move for our growth airline and will continue to do that overtime using rationality.

Michael Lindenberg.

Hi, good morning. Hi Ben, I want to go back to just on the ancillary per flight segment that was down and you mentioned the point about catering and if you didn't have the third party caterer, that number would actually have been up. Can you tell us what the impact of it was, how much it would have been up and how that number is trending into 2015?

Are there any initiatives on the horizon that should get that back to growth again, or should we assume that is going to be more flattish? Maybe it reflects a maturity of that line item? How do we think about it?

Well Mike, that line item--thanks by the way, that line is clearly more mature than a few years ago, and we've said for a while that's a flatter part of the curve, although we still expect opportunities and marginal improvement on that number as we go through and implement a series of initiatives, some identified, some yet to be identified.

In terms of specifically the catering change, it's a little less than $1 per passenger that we were selling on board that showed up as revenue in the revenue line, and the cost to sell that showed up in the CASM line. Now that revenue is not there and that CASM is not there, but overtime we expect to have a small bit of revenue share that will show up as a result of that deal, that is where the margin accretion that Ted talked about will come from. We think we can recover that little less than $1 through natural growth of that line, but as we have said for a couple of calls now, the changes in non-ticket are going to come in $0.05, $0.10 and $0.15 changes at a time. Not any single $1, $2 or $3 changes.

On the Houston strategy, it's a pretty sizable launch for you to offer all of those international markets, and to make it, like you said, your second largest international city. And the fact is you're doing it right before Southwest opens up their international terminal over at Hobby.

The question is, do you run the same sort of risk that you had to deal with, with Southwest all of a sudden opening up a lot of new flights out of Love Field? Wouldn't it have been easier to pick another city where maybe there is less competitors or international competitors? In fact, I would point you back to Dallas where, as you know, Southwest is precluded from flying internationally out of Love Field, you would have one major competitor.

It does seem a little bit like you are flying into this maelstrom later this year up against both United and Southwest. What's the risk that we have a repeat of what happened in Dallas, thoughts on that?

Two we don't see it is particularly risky growth. If you look at--again we're principally a local carrier. As you know, we don't carry a lot of connections, so Dallas and Houston in that sense are very different markets to places like Guatemala, or Mexico City, or El Salvador, things like that.

And the level of service that we would provide out of either city would be a function of that local market, and whether or not there is enough discretionary traffic that could fill our plane. It is not like we would choose flying internationally in Dallas over Houston, we will fly internationally out of either city proportionate to where we see the best opportunities.

Everything we have announced to add out of Houston are cities we already serve, out of either Fort Lauderdale or other places, so in that sense it's a little lower growth. We know the population base there, we know the distribution there, customers know us, at least to some extent there. So by connecting up it makes each one of those stations a little bit more efficient, it makes our cost at those stations a little bit more efficient, makes our utilization little more efficient, so it is actually pretty low risk growth.

And I would say the timing of that growth, and I know this may be hard to believe, but it is completely unrelated to what Southwest is doing in Hobby. If you look at how we grew Dallas, and how Dallas has grown, and as you know we fly three international destinations out of Dallas. As Houston has grown in very much the way Dallas did. It just started a year and half later, so everything is starting a year and a half later.

And the local market international opportunities are just bigger. There are more local market demand into Houston, which is 250 miles closer to Mexico and Central America then Dallas is, it is just a geographic reality.

We think Houston is going to do great for us. Hobby is 60, 65 miles away. Heck, when I was at Continental we used to fly between Hobby and Intercontinental. So, the reality is there's plenty of market for Southwest at Hobby. There's plenty of truly discretionary market that is not being served out of Intercontinental for us, and we think United is going to do just fine serving their segment out of Intercontinental.

Duane Pfennigwerth.

Thanks for the time. And the guidance. Just wondered-- in the past you've talked about a longer-term target margin profile, I think that you managed to from a growth perspective. I remember back in the day, 15% to 17%, maybe you've updated since that time. Can you talk about a longer-term target margin that you managed to?

Duane, it is Ted. Your right, from the IPO I've always talked about this long term margin guide, although more recently we've recognize the economics of the business and the macroeconomic conditions have divorced that margin guide from where we are actually performing. So now we're just more focused on how is the business performing, how we think it is going to perform over the next foreseeable future. So, we are able to give a little bit of clarity on that. It's clearly in the first quarter and for the year, which I think is pretty positive, obviously well in excess of what that previous guide was.

I wonder, I guess we will wait for the investor update to see what the implied revenue trends, but can you talk about the shape of the unit revenue recovery that seems to imply-- if you are thinking it is down 10% roughly in the first quarter, comps look like they get about 6 points tougher sequentially into the second quarter. It feels like it implies an improvement in the second half. Which would make some sense obviously as we think out to the fourth quarter, because that is where you begin to see some pressure. But can you help us think about the shape of that through 2015? Thanks.

Duane, this is Ben. I think the way to think about that is go back to the messaging that we gave in the script, whereas where we are seeing price compression is principally focused in the off-peak, and if you just take any 90 day quarter and you look at the number of those days that you would call peak versus off-peak, there are more peak days in the second and third quarter than there are in the first quarter. That suggest to us at the kind of pressures that are driving RASM right now in the first quarter are less of an impact in the second and third quarter, and by the time we get to the fourth quarter we start to lap some of what we saw this year.

None of that suggests exactly sort of what we think is going to happen perfectly, but we certainly think that the issue gets a little better because of the relative strengths and weaknesses of demand on any given day in the quarter. Quarters get stronger over the next two quarters, and by the fourth quarter we are lapping a little bit.

Joe DeNardi.

Ted, on the share repurchase authorization, have you used any of that? I realize you guys are probably in a blackout period for most of it, but have you used any of it and do you see the current stock price as being sufficiently compelling to the quote unquote opportunistic with that?

I wouldn't comment on the latter as it relates to our activity. We would update our activity in our regular quarterly reports, so we filed the K actually next week, and then in the Qs we would give any update as to the Companies buyback activity.

On the margin guidance for the full year, the range is a little bit wider than it typically is. Is that revenue related, or are there certain costs that are introducing some variation later in the year?

I think it is reflective of our views on what we have seen recently, a little more volatility that makes it harder in general to look into the future with any level of precision. So we've given a sense to that by broadening the range a little bit. It has more to do with what we are seeing on the revenue side than what we are seeing on the cost side.

(Operator Instructions)

David Simpson.

Ben, I think you mentioned in some of your prepared remarks about lower oil creates a larger opportunity set for growth. Can you walk us through what's the maximum growth rate over it?

I'm not talking over short periods of time but over two, three, four years that you guys feel you can comfortably sustain? You know, can 30 go to 40, or you just don't go back to 20 over the next two years in terms of growth? How should we think about oil in long-term growth rates?

Dave, obviously the thing that drives our growth over the next five years is our fleet plan more than any single thing. Certainly the amount that we fly that fleet can change our utilization, can change our growth rate, and the sizing of the airplanes that come in can affect that to some extent. Part of our growth this year, for example, is taking delivery of six A321s, which we expect to be very unit cost helpful, and very margin accretive for the airline too.

But overall, we have said for a while that we are a 15% to 20% growth carrier over the long -- over the next 5 to 10 years kind of thing, with stable margins. That's how we have talked about the investor proposition at Spirit, if you will.

When we look at our fleet plan we don't see something meaningfully different from that. In fact, earlier in 2014, you might remember that you and some others were questioning whether 30% growth was too high for us and whether we were biting off too much. And we reminded you that the two-year growth of 2014 to the end of 2015 was about 22% average annual, which is kind of the way we had been growing.

So, I think thinking of us as a 20% growth carrier over the next five years is the right way to think about us. Certainly if fuel stays lows and we can find ways to push utilization or do things we would do that. What we won't likely do is significantly complicate the model by bringing in different airplane types, or things like that to try to take advantage of what might be a short-term fuel effect.

Opportunistically you want to try to grow the order book?

Probably not in the next couple of years. We've got a lot of planes coming in the next couple of years, and a lot of big planes. So, we're going to absorb those first, which we feel really good about.

A quick one on Houston. Talk about the fair compression and off peak. Are you seeing any different demand dynamics in Houston, where maybe there's a little more feedback into demand from lower oil, maybe potentially over time but who knows if it has happened yet.

We haven't seen anything that we can ascribe specifically to Houston customer demand being greater because of the oil market there. Houston has performed very well for us, and it's justified the growth we're adding there, and we continue to have high hopes for what is a very strong part of the network.

Savi Syth.

Couple of quick follow up questions on the use of cash. I know historically the share buybacks wasn't necessarily part of the thought process. Wondering if you could share a little bit more about the thinking there, and if this is returning cash to shareholders is more of an important part of the thinking on cash going forward?

Savi, it is Ted. As we have said before I would be consistent to our view on cash is, we are a growth company, and with that in mind we plan to use the capital available to us, either in the form of the capital markets, or in the form of the capital we generate through operations and the most cost effect way finance that growth. So, we would use the cash available to us as opportunistically to lower our cost profile or improve the return that our shareholders will get over time, by investing that cash, either in the business or, as we illustrated, perhaps in our own shares as we see fit.

As I mentioned in my prepared comments, right now we see a lot of opportunity to invest in the business going forward. We have a lot of growth coming and a lot of airplanes around that growth that we need to finance.

So we can use that cash as a lever to evaluate how much we want to finance of those airplanes, or whether or not we want to finance those airplanes at all in the capital markets. And that gives us some pretty good cost benefits going forward that we will take into account as well.

Just to follow up on Ben's previous answer. From a utilization standpoint, think you are running around 12.5, 12.7 right now, how much could you increase that utilization and capture any opportunity?

It really comes down to operationally what we can deliver. On the one hand, we could on paper increase utilization to maybe 13.5 to 14 hours per day. That would put a lot of pressure on the operation to actually deliver that with some consistency or liability.

So the right income answer would probably be somewhere around the 13 hour range realistically. Not to say that in any given month in a year you couldn't do more than that to take advantage of-- in July for a year that is 13 in July you'd be more that, of course.

Stephen Trent.

A quick one for me and thank you for taking my question. You guys have done a very good job of chasing down demand and finding demand in some of these new routes. As you are thinking about some of these new destinations, to what degree have you been influenced by capacity expansions at some of the airports, particularly in LATAM?

That certainly been helpful in that, you know, the Latin American markets as a broad group are growing and expectations are growing and such. Again as I will repeat, the markets that we have added, for example our growth out of Houston, are all to cities that were already served from other locations.

So, we have a pretty good sense of where the demand is, what the price points are, what can be stimulated at different price points, and our decisions to deploy capacity are based on those expectations. And as we've done for the last number of years, we will continue to manage our capacity as the reality comes through as to whether or not we guessed high or low.

One quick follow up to generally speaking, you had mentioned some quarters back that generally you saw, and I'm low balling it, several dozen domestic markets where you could expand and generate similar level of profitability to what you have now. And I see you are opening new routes this year. Do you still see that medium-term opportunity as robust as you mentioned two or three quarters ago?

We see the opportunity for growth every bit as robust as we have seen it, but most of that growth, and we've said this in other locations as well or other venues as well, most of our growth is going to come from connecting places we already serve with modest new city growth. Last year we opened two new cities, this year we've opened one city, Cleveland so far, and if there's going to be another one we will announce that later, and that's not even clear.

The reality is that we already fly to where most of the people in the United States live in terms of large cities. There's a couple of obvious areas where it's true that we do not fly yet. But if you think about our growth over the next five years it is going to be more connecting dots rather than adding new dots to the map.

Dan McKenzie.

Following up on the last question here. As of December 31 later this year, the 500 market opportunities that you guys have identified, how many do think you will have exhausted by that point?

We said were adding 35 markets this year, so if you believe that graph doesn't change then 550 goes to 515. It is not quite that clinical.

The reality is, over the last couple of years, as we've grown, our opportunity has also has grown. Because that opportunity is a function of our own cost structure, and with the awesome step function in cost improvement that Ted outlined this year, that lowers that black line and puts more green dots in play, right?

Our own cost structure drives it, industry capacity drives it, oil drives it somewhat to an extent as well because that drives revenues to some extent. So the reality is it is very feasible that we could in this year 35 markets bigger, and our growth opportunity would be as big, or even bigger, than when the year started.

You can't just say it's a fixed 550 that every market we add deducts from that. It is an evolving thing and based on the economic activity, some of which we don't control, drives how big that opportunity is.

The important thing for us is that, that opportunity is large and more specifically, that it is larger than our growth is planned. That we have a certain number of airplanes on order, and we have multiple opportunities we believe for every airplane that comes on board that we can deploy that airplane profitably. And in what we don't want to do at Spirit is get our growth ahead of the market opportunity, and we don't have that in place today.

We have great opportunities for our growth and we want to keep it there. So whether the number is 550, or 525, or 575, or 480 it is all the same answer in terms of is there enough opportunity for the airplanes coming on in the next five years.

You just answered about two of my follow-up questions Ben, thank you. I guess I will go on to another question.

I wonder if you can talk about the $9 Fare Club and where you're seeing that growth originate from? I think the latest price was $80 for the club and I guess I'm wondering if you can provide some perspective of how big is the revenue pie from these repeaters? And then separately, to what extent does the lower unemployment rate drive or not perhaps an acceleration in this demand segment?

We don't put out a lot of information about the $9 Fare Club. It is a proprietary club for us and we don't put out membership statistics or renewal rates or things like that. I will say overall we're very happy with the club and as we grow the club creates more value for more people.

Because of the fact that you can buy our lowest fares, if you are a member of the club, and get discounts on bag charges, as a member of the club. It makes it a very attractive value play for the discretionary traveler who says I might want to take a couple trips in the year. Because I'm a member of this club and I can get these really cheap fares it makes it possible for me to do that. We are happy with our growth in $9 Fare Club, it's a good loyalty program for us, and that is pretty much all we say about it.

Steve O'Hara.

Just curious, in terms of, and maybe you said it and maybe I missed it, in terms of your greatest leverage on the cost side, where are those, what line items are those for 2015? And then what is the one-third of markets in development costing you in RASM do you think this year?

Steve, it is Ted I will take the cost per piece first, and then Ben or I can tag team on the revenue side. We see heading into the year some pretty good lever points and tailwinds for cost.

First, just from a lapping perspective obviously this year was challenged by the -- 2014 was challenged by the implementation of FAR117, we lapped that from the pilot salaries and wages benefits perspective. Most notably we're going to be heading into 2015, we're going to get pretty good cost leverage on the year financing side in the form of moving to more ownership and away from aircraft rent. That will be an overall positive to unit cost in the ownership line.

And then the growth, the 30% growth, and that growth coming in the form of both aircraft. But more importantly gauge, the aircraft itself getting longer is really efficient on salaries. Because if you look at overhead you give very dilutive when you layer in that type of growth.

But even in direct expense we have the same number of pilots flying at 319 and 321, so the longer gauge airplanes also are very helpful from [an I unit] basis on the cost side. Hopefully that helps a little bit about where we're going to see, at least some of the tailwind of cost, and Ben maybe you want to comment on the revenue side?

There's a slide in our investor deck which is available on spirit.com that I'm sure you've seen that shows a margin contribution of new flying versus mature flying, on a margin contribution basis over the last couple of years. With more of the flying in that developmental state today, and some of which comes by 30% growth year, which again we're very excited about. And because of what is going on in Dallas, that puts around 40% of our ASMs in that maturing or developing RASM state. That is what we talked about in the guidance.

We understand that, we think that goes along with the large growth, it is what helps make the cost looks as good as they look with the 6% to 8% ex-fuel CASM drop that Ted talked about for the year. We think the overall margin picture is really strong because of that, even though it drives some changes in some of the unit inputs.

Maybe quickly on the--I think you guided to the operating margin. I mean, would you expect pretax margin to be about the same? I think there was a benefit from maybe aircraft capitalized interest or something in 2015, is that going to offset-- can you talk about what the differential between pretax and operating margin might be this year?

We mentioned the CAP benefit associated with interest. I think it works out to be around $12 million for the year which will allow us to capitalize some, but not all, of our interest expense. There will be a delta between pretax and op, but it's not going to be a big number, so I think we are going to look at the full-year 2015 interest expense of around $10 million. So, it's a little bit on the margin but not a lot.

David [Banderkile].

One quick question for me. We're seeing double-digit capacity growth in Fort Lauderdale this winter continuing into the summer, and capacity coming from a few different players. So, can you talk about how that market is performing at a high level?

Fort Lauderdale is doing great for us. We like Fort Lauderdale.

Our business model nicely matches the demographics of the market here. There is a large discretionary travel base that flies to and from Fort Lauderdale, and that fits what we do really well.

We like Fort Lauderdale. Fort Lauderdale is in our growth path again for us here. We are going to be bigger this year than we were last year, and we see more growth at Fort Lauderdale down the road. Good margin producer for us and a strong and growing market for us.

Joe DeNardi.

Ted, could you provide us with what the CASM X guide for the year would look like without the benefit of the third party catering agreement?

Again, what Ben said in his comments was it is worth about-- on the revenue said it was worth about a little less than $1 a passenger and in round numbers you can assume that to be the case from the cost side too.

Longer term, just given the leverage on the cost side you are getting in 2015, should we expect that to continue if we think about on a 20% average ASM growth the next couple of years that will give you some good opportunities on the cost side. Is that the right way to think about it? Kind of low- to mid-single digit CASM X decline in the next couple years?

We've said over the last few years is we anticipate stable to declining unit cost over time, and clearly this year is a great year for us. And we knew that would be the case with this type of growth, and with the movements that we are making both on balance sheet, off-balance-sheet, and some of the initiatives that I mentioned earlier. We stand by and continue to believe that we can provide stable to declining unit cost throughout the course of this growth profile, so that would be even with this step function or reduced base we're still feeling very comfortable that is a long-term play.

Michael Weinberg.

A quick one for Ted. Now that you're putting aircraft on the balance sheet and you benefit from the accelerated depreciation, are we going to see your cash tax rate come down relative to the book tax rate and if so, do you have any estimate for what we should be using for 2015? Again a cash tax rate?

I don't have an estimate for you on the rate. You are right that cash payments because of bonus depreciation and appreciation in general, the deferral will help in the near term. But I don't just sitting here don't have a number I can quote you, but it will be a cash tailwind clearly in this year.

For the full-year 2015, Ted, your effective rate--I know you were a little bit below 37, I believe, for 2014. Should we use that for 2015, as well, for the effective tax rate?

We will have a number in the investor update. It is about 37%, Mike, I would assume.

Stephen Trent.

Very quickly, I know it is very, very early stage but Cuba, with respect to the medium and long-term potential of that market. Are you seeing anything in the tea leaves at this point that might make that market look a little interesting for you guys?

Stephen, this is Ben. Clearly the market is interesting to us. Obviously a lot the people we expect there would be a lot of interest to travel there once it is free and open to be able to travel there, which it is not right now, of course.

We are optimistic about Cuba opening at some point. We don't see anything right now that suggests that the ability to fly there with $9 Fares and the like is available to us this year. We also think however that once Cuba is up and it becomes an available tourist operation for lots of people, that it will also change the dynamics of travel probably through multiple points in the Caribbean, and being a player in all of the Caribbean we think there will be some puts and takes with that.

At this time I see we have no further questions in queue.

Thank you, everyone, for joining us today. With that, we will end our call.

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