Spirit Airlines 2011 Annual Report Download - page 28

tickets are flown. Our ability to pass on any significant increases in aircraft fuel costs through fare increases could also be limited.
We rely on maintaining a high daily aircraft utilization rate to implement our low-cost structure, which makes us especially vulnerable
to flight delays or cancellations or aircraft unavailability.
We maintain a high daily aircraft utilization rate. Our average daily aircraft utilization was 12.7 hours, 12.8 hours and 13.0 hours for 2011
,
2010 and 2009 , respectively. Aircraft utilization is the average amount of time per day that our aircraft spend carrying passengers. Our revenue
per aircraft can be increased by high daily aircraft utilization, which is achieved in part by reducing turnaround times at airports, so we can fly
more hours on average in a day. Aircraft utilization is reduced by delays and cancellations from various factors, many of which are beyond our
control, including air traffic congestion at airports or other air traffic control problems, adverse weather conditions, increased security measures
or breaches in security, international or domestic conflicts, terrorist activity, or other changes in business conditions. The majority of our
operations are concentrated in markets such as South Florida, the Caribbean, Latin America and the Northeast United States, which are
particularly vulnerable to weather, airport traffic constraints and other delays. In addition, pulling aircraft out of service for unscheduled and
scheduled maintenance, which will increase as our fleet ages, may materially reduce our average fleet utilization and require that we seek short-
term substitute capacity at increased costs. Due to the relatively small size of our fleet and high daily aircraft utilization rate, the unavailability of
one or more aircraft and resulting reduced capacity could have a material adverse effect on our business, results of operations and financial
condition.
Our maintenance costs will increase as our fleet ages, and we will periodically incur substantial maintenance costs due to the
maintenance schedules of our aircraft fleet.
As of December 31, 2011, the average age of our aircraft was approximately 4.5 years. Our relatively new aircraft require less maintenance
now than they will in the future. Our fleet will require more maintenance as it ages and our maintenance and repair expenses for each of our
aircraft will be incurred at approximately the same intervals. Moreover, because our current fleet was acquired over a relatively short period,
significant maintenance that is scheduled on each of these planes will occur at roughly the same time, meaning we will incur our most expensive
scheduled maintenance obligations, known as heavy maintenance, across our present fleet around the same time. These more significant
maintenance activities result in out-of-service periods during which our aircraft are dedicated to maintenance activities and unavailable to fly
revenue service. In addition, the terms of our lease agreements require us to pay supplemental rent, also known as maintenance reserves, to be
paid to the lessor in advance of the performance of major maintenance, resulting in our recording significant prepaid deposits on our balance
sheet. We expect scheduled and unscheduled aircraft maintenance expenses to increase as a percentage of our revenue over the next several
years. Any significant increase in maintenance and repair expenses would have a material adverse effect on our business, results of operations
and financial condition. Please see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical
Accounting Policies and Estimates—Aircraft Maintenance, Materials and Repair Costs and Heavy Maintenance Amortization” and “—
Maintenance Reserves.”
Our lack of marketing alliances could harm our business.
Many airlines, including the domestic traditional network airlines (American, Delta, United and US Airways) have marketing alliances
with other airlines, under which they market and advertise their status as marketing alliance partners. These alliances, such as OneWorld,
SkyTeam and Star Alliance, generally provide for code-sharing, frequent flier program reciprocity, coordinated scheduling of flights to permit
convenient connections and other joint marketing activities. Such arrangements permit an airline to market flights operated by other alliance
members as its own. This increases the destinations, connections and frequencies offered by the airline and provides an opportunity to increase
traffic on that airline’s segment of flights connecting with alliance partners. We currently do not have any alliances with U.S. or foreign airlines.
Our lack of marketing alliances puts us at a competitive disadvantage to traditional network carriers, whose ability to attract passengers through
more widespread alliances, particularly on international routes, and may have a material adverse effect on our passenger traffic, business, results
of operations and financial condition.
We are subject to extensive and increasing regulation by the Federal Aviation Administration, the Department of Transportation, and
other U.S. and foreign governmental agencies, compliance with which could cause us to incur increased costs and adversely affect our
business and financial results.
Airlines are subject to extensive and increasing regulatory and legal compliance requirements, both domestically and internationally, that
involve significant costs. In the last several years, Congress has passed laws, and the DOT, FAA and TSA have issued regulations, relating to the
operation of airlines that have required significant expenditures. We expect to continue to incur expenses in connection with complying with
government regulations. Additional laws, regulations, taxes and increased airport rates and charges have been proposed from time to time that
could significantly increase the cost of airline operations or reduce the demand for air travel. If adopted, these measures could have the effect of
raising ticket prices, reducing revenue and
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