Spirit Airlines 2013 Annual Report Download - page 45

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45
Year Ended December 31,
2013 2012 2011
(in thousands)
Into-plane fuel cost. . . . . . . . . . . . . . . . . . $ 542,523 $ 471,542 $ 392,278
Settlement losses (gains) . . . . . . . . . . . . . 8,958 175 (7,436)
Unrealized mark-to-market losses (gains) 265 46 3,204
Aircraft fuel . . . . . . . . . . . . . . . . . . . . . . . $ 551,746 $ 471,763 $ 388,046
(2) Includes special charges (credits) of $(8.5) million ((0.07) cents per ASM) in 2012 and $3.2 million (0.03 cents per
ASM) in 2011. Special charges (credits) for 2012 primarily include a $9.1 million gain related to the sale
of four permanent air carrier slots at Ronald Reagan National Airport (DCA), offset by $0.6 million in secondary
offering costs. Special charges for 2011 include $2.3 million of termination costs in connection with the IPO
comprised of amounts paid to Indigo Partners, LLC to terminate its professional services agreement with us and fees
paid to three individual, unaffiliated holders of our subordinated notes and $0.8 million of legal, accounting, printing
and filing fees in the fourth quarter related to the secondary offering completed on January 25, 2012. Please see “—
Our Operating Expenses—Special Charges (Credits).”
2013 compared to 2012
Operating expense increased by $227.7 million, or 19.9%, in 2013 primarily due to our 22.2% growth in capacity as well
as higher amortization of heavy maintenance events on our aircraft.
Our adjusted CASM ex fuel for 2013 decreased by 1.5% as compared to 2012. Better operational performance during
2013 as compared to 2012 helped drive lower wages and passenger re-accommodation expenses. In addition, during 2013, we
entered into lease extensions covering 14 of our existing A319 aircraft resulting in reduced lease rates for the remaining term of
the leases which contributed to the decrease in adjusted CASM ex-fuel as compared to 2012. These decreases were partially
offset by higher heavy maintenance amortization expense for 2013 resulting from the increase in deferred heavy aircraft
maintenance events as compared to 2012.
Aircraft fuel expenses includes both into-plane expense (as defined below) plus the effect of mark-to-market adjustments
to our portfolio of derivative instruments, which is a component of aircraft fuel expenses. Into-plane fuel expense is defined as
the price that we generally pay at the airport, or the “into-plane” price, including taxes and fees. Into-plane fuel prices are
affected by world oil prices and refining costs, which can vary by region in the United States and the other countries where we
operate. Into-plane fuel expense approximates cash paid to the supplier and does not reflect the effect of our fuel derivatives.
Because our fuel derivative contracts do not qualify for hedge accounting, we recognize both realized and unrealized changes
in the fair value of our derivatives when they occur as a component of aircraft fuel expense.
We evaluate economic fuel expense, which we define as into-plane fuel expense including the cash we receive from or
pay to counterparties for hedges that we settle during the relevant period, including hedges that we terminate early during the
period. The key difference between aircraft fuel expense and economic fuel expense is the timing of gain or loss recognition on
our hedge portfolio. When we refer to economic fuel expense, we include net settlement gains or losses only when they are
realized through a cash payment from our derivative contract counterparties for those contracts that were settled during the
period. We believe this is the best measure of the effect that fuel prices are currently having on our business because it most
closely approximates the net cash outflow associated with purchasing fuel for our operations. Accordingly, many industry
analysts also evaluate airline results using this measure, and it is frequently used in our internal management reporting.
Aircraft fuel expense increased by 17% from $471.8 million in 2012 to $551.7 million in 2013. The increase was
primarily due to an 20.2% increase in fuel gallons consumed partially offset by a 2.7% decrease in fuel prices per gallon.