Spirit Airlines (SAVE)Presentation by: Witisada Wattananimitgul

February 16, 2014

About Spirit Airlines

Began air charter operations in 1990

Bill Frank, investor of RyanAir, was an early investor

Ultra low-cost, low-fare airline based in Miramar, FL

More than 200 daily flights to over 50 destinations in US, Caribbean,

Latin America

Fare tickets are based on the “unbundled” base fare

Thesis - Why Spirit?

Consistent non-ticket and passenger growth will help

company maintain consistent revenue growth

Position: Long SAVE

Their model is simple

Uses one airline type, making it easier to train pilots and

mechanics

Fleet of aircraft grew by 21.5% by the end of 2013 and fleet

will triple by 2021

Growth opportunities

Growth highlights

Passenger volume in 2013 Q2 jumped 19.1% from 2012

Total revenue rose 17.6% to $407.3 million (attributed

to add’l 8 new aircraft, 12 new markets and access to 5

new airports)

Earnings grew 29% to 63 cents a share

Analysts estimate earnings will grow 54% this year and another

19% in each of the next two years

Airbus Fleet Growth

Financial Highlights

Routes

Unionized (3 union-represented employee groups ~54% of

employee)

June 2010-5 day strike operations shut down

Aug 1, 2010 – 5 year collective bargaining agreement stable

labor costs

Financial Highlights

Average

EV/Revenue 2.45 x 0.78 x 0.93 x 0.86 x

EV/EBIT 18.56 x 10.81 x 6.08 x 8.44 x

EV/EBITDA 17.07 x 6.44 x 4.75 x 5.60 x

EV/FCF 56.12 x 13.01 x 6.36 x 9.69 x

Historical ExpectedIncome Statement 12/31/2010 12/31/2011 12/31/2012 12/31/2013

Operating Revenues:Passenger $ 537,969 $ 689,650 $ 782,792 $ 986,020 Non-ticket 243,296 381,536 535,596 659,848 Total Operating Revenue 781,265 1,071,186 1,318,388 1,645,868

Operating Expenses:Aircraft fuel 248,206 388,046 471,763 549,204

Salaries, wages and benefits 156,443 181,742 218,919 257,011 Aircraft rent 101,345 116,485 143,572 166,828

Landing fees and other rents 48,118 52,794 68,368 82,011 Distribution 41,179 51,349 56,668 67,832

Maintenance, materials and repairs 27,035 34,017 49,460 58,520

Depreciation and amortization 5,620 7,760 15,256 29,871 Other operating 83,748 91,172 127,886 147,732

Loss on disposal of assets 77 255 956 568

Special charges (credits) 621 3,184 (8,450) 651 Total Operating Expenses 712,392 926,804 1,144,398 1,360,227

Operating Income 68,873 144,382 173,990 285,641 Margin % 9% 13% 13% 17%

Other (Income) Expense:

Interest expense 50,313 24,781 1,350 187

Capitalized interest (1,491) (2,890) (1,350) (187)

Interest income (328) (575) (925) (411)

Other expense 194 235 331 336

Total Other (Income) Expense 48,688 21,551 (594) (75)

Income Before Income Taxes 20,185 122,831 174,584 285,716

Provision for income taxes (52,296) 46,383 66,124 107,416

Net Income 72,481 76,448 108,460 178,300

Balance Sheet 12/31/2011 12/31/2012

Assets

Current assets:Cash and cash equivalents $ 194,399 $ 159,427 Accounts receivable, net 15,425 22,740 Deferred income taxes 20,738 12,591 Other current assets 63,217 95,210 Total Current Assets 293,779 289,968

Long Term Assets:

Property and Equipment:Flight equipment 4,182 2,648 Ground and other equipment 46,608 43,580 Less accumulated depreciation (27,580) (17,825)Total Property and Equipment 23,210 28,403

Deposits on flight equipment purchase contracts 91,450 96,692 Aircraft maintenance deposits 120,615 122,379 Deferred heavy maintenance and other long-term assets 67,830 125,053

Total Assets 596,884 662,495

Liabilities and Shareholders’ Equity

Current Liabilities:Accounts payable 15,928 24,166 Air traffic liability 112,280 131,414 Other current liabilities 98,856 121,314 Total Current Liabilities 227,064 276,894

Long-term deferred income taxes 12,108 33,216 Deferred credits and other long-term liabilities 39,935 27,239

Total Liabilities 279,107 337,349

Shareholders’ Equity:

Common stock: Please see note 1 6 6

Common stock: Non-Voting common stock: see note 2 1 1 Additional paid-in-capital 496,136 504,527 Treasury stock, at cost: 60,040 and 8,215 as of December 31, 2012 and 2011, respectively (129) (1,151)Retained earnings (deficit) (29,308) 79,152

Total Shareholders’ Equity 466,706 582,535

Total Liabilities and Shareholders’ Equity 745,813 919,884

DCF 12/31/2014 12/31/2015 12/31/2016 12/31/2017 12/31/2018

FCF 145,886 187,193 242,371 319,112 431,133

Mid Discount Year 0.5 1.5 2.5 3.5 4.5

Full Discount Year 1 2 3 4 5

Present Value 139,178 162,543 191,548 229,540 282,258

Growth Method Sensitivity Table

Perpetual Growth

70.79 1.0% 1.5% 2.0% 2.5% 3.0%

W

A

C

C

11% 57.52 59.69 62.10 64.79 67.82

10% 63.76 66.54 69.67 73.21 77.26

9% 71.60 75.25 79.43 84.26 89.89

8% 81.70 86.68 92.49 99.36 107.60

7% 95.21 102.31 110.82 121.23 134.24

Multiple Method Sensitivity Table

Exit FCF Multiple

56.35 8.0 x 9.0 x 10.0 x 11.0 x 12.0 x

W

A

C

C

11% 48.22 51.74 55.26 58.78 62.31

10% 49.87 53.56 57.24 60.93 64.61

9% 51.61 55.47 59.33 63.18 67.04

8% 53.45 57.49 61.53 65.57 69.60

7% 55.38 59.62 63.85 68.08 72.31

Discount Rate 10%

Future Growth Rate 2%

FCF Exit Multiple 9.7 x

Sum of PV Cash Flows 1,005,067

Terminal Value

Growth 3,658,001.39

Mulitple 2,608,510.48

Enterprise Value

Growth 4,663,069

% Terminal Value 78%

Multiple 3,613,578

% Terminal Value 72%

Debt 60,455

Cash $ 540,195

Equity Value

Growth 5,142,809

Multiple 4,093,318

Shares 72647.167

Price

Growth $ 70.79

Multiple $ 56.35

DCF Model

FCF 12/31/2010 12/31/2011 12/31/2012 12/31/2013 12/31/2014 12/31/2015 12/31/2016 12/31/2017 12/31/2018

Operating Revenues:

Passenger

$ 537,969

$ 689,650

$ 782,792

$ 986,020

$ 1,216,411

$ 1,472,212

$ 1,750,847

$ 2,049,079

$ 2,363,209

Non-ticket 243,296 381,536 535,596 659,848 889,464 1,229,933 1,747,807 2,557,329 3,860,240

Total Operating Revenue 781,265 1,071,186 1,318,388 1,645,868 2,105,874 2,702,145 3,498,654 4,606,409 6,223,449

Operating Expense 712,392 926,804 1,144,398 1,360,227 1,740,399 2,233,186 2,891,460 3,806,964 5,143,366

Operating Income (EBIT) 68,873 144,382 173,990 285,641 365,476 468,959 607,193 799,445 1,080,083

Tax 26,172 54,865 66,116 108,543.71 138,881 178,204 230,733 303,789 410,432

Capital Expenditure 30,799 67,367 36,397 77,808.00 58,137 74,599 96,588 127,170 171,812

Change in Net Working Capital 37,887 (20,856) 33,507 41,829.95 53,521 68,675 88,919 117,072 158,170

Depreciation and amortization 5,620 7,760 15,256 29,870.67 24,369 31,268 40,485 53,304 72,016

Stock Based Comp 569 530 4,327 5,143.05 6,580 8,444 10,933 14,394 19,447

Free Cash Flow (19,795.74) 51,296 57,553 92,473 145,886 187,193 242,371 319,112 431,133

Assumptions 12/31/2010 12/31/2011 12/31/2012 12/31/2013 12/31/2014 12/31/2015 12/31/2016 12/31/2017 12/31/2018

Revenue Growth

Passenger 28% 14% 26% 23% 21% 19% 17% 15%

Non-Ticket 57% 40% 23% 21% 19% 17% 15% 14%

Operating Expenses as % of Revenue 91% 87% 87% 83% 83% 83% 83% 83% 83%

Capital Expenditure % Revenue 4% 6% 3% 3% 3% 3% 3% 3% 3%

D&A as % of Revenue 1% 1% 1% 1% 1% 1% 1% 1% 1%

Change in New Working Capital % Revenue 5% -2% 3% 3% 3% 3% 3% 3% 3%

Stock Based Comp as % of Operating Expense 0.1% 0.1% 0.4% 0.4% 0.4% 0.4% 0.4% 0.4% 0.4%

Comparison to Competitors

Airline Operating Cost Per

Available Seat Mile

(CASM) in Cents for 2013

Spirit 10.0

Delta Air Lines 13.97

United Air Lines 14.16

US Airways 12.94

Virgin America 10.70

JetBlue 11.47

Southwest 13.03

Comparative Analysis

Operating Stats Spirit JetBlue Southwest

2012 2011 2012 2011 2012 2011

Revenue passenger

miles (RPMs)

(millions)

9,664 8,007 33,563 30,698 102,875 97,583

Available seat miles

(ASM) (millions)

11,344 9,352 40,075 37,232 128,137 120,579

Load factor (%) 85.2 85.6 83.8 82.4 80.3 80.9

Potential Pitfalls

What happens when price of crude oil skyrockets?

Will it be able to maintain lower fares than competitors in

the long run?

Is the company overvalued?

Action: Long SAVE

Questions?