Spirit Airlines 2013 Annual Report Download - page 66

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Notes to Financial Statements—(Continued)
66
The following table summarizes the primary components of non-ticket revenue and the revenue recognition method
utilized for each service or product:
Year Ended December 31,
Non-ticket revenue Recognition method 2013 2012 2011
(in thousands)
Baggage. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Time of departure $ 275,958 $ 217,536 $ 168,290
Passenger usage fee. . . . . . . . . . . . . . . . . . . . . Time of departure 188,911 149,577 71,757
Advance seat selection . . . . . . . . . . . . . . . . . . Time of departure 59,241 48,956 42,112
Service charges for changes and cancellations When itinerary is changed 32,546 27,762 25,927
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 111,711 91,765 73,450
Non-ticket revenue . . . . . . . . . . . . . . . . . . . . . $ 668,367 $ 535,596 $ 381,536
Charges for services recognized at time of departure are initially recorded as a liability until time of departure. The
passenger usage fee is charged for tickets sold through the Company’s primary sales distribution channels, to cover the
Company’s distribution costs. The primary sales distribution channels for which passenger usage fees are charged include sales
through the Company’s website, sales through the third-party provided call center and sales through travel agents; the Company
does not charge a passenger usage fee for sales made at its airport ticket counters. Other non-ticket revenues include revenues
from other air related charges as well as non-air related charges. Other air related charges include optional services and
products provided to passengers such as on-board products, travel insurance and use of the Company’s call center or travel
agents, among others. Non-air related charges primarily consist of revenues from advertising on the Company’s aircraft and
website, the Company’s $9 Fare Club subscription-based membership program and the Company’s FREE SPIRIT affinity
credit card program.
Airframe and Engine Maintenance
The Company accounts for heavy maintenance and major overhaul and repair under the deferral method whereby the cost
of heavy maintenance and major overhaul and repair is deferred and amortized until the earlier of the end of the remaining
lease term or until the next scheduled heavy maintenance event.
Amortization of heavy maintenance and major overhaul costs is charged to depreciation and amortization expense and
was $23.6 million, $9.1 million and $2.6 million for the years ended 2013, 2012 and 2011, respectively. During the years ended
2013, 2012 and 2011, the Company deferred $70.8 million, $61.6 million and $22.1 million, respectively, of costs for heavy
maintenance. At December 31, 2013 and 2012, the Company had deferred heavy maintenance balance of $165.3 million and
$94.5 million, and accumulated heavy maintenance amortization of $40.0 million and $14.0 million, respectively.
On October 15, 2013, the Company had an aircraft experience an engine failure shortly after takeoff. The aircraft
immediately returned to the airport, and the passengers and crew safely disembarked from the aircraft. The airframe and engine
incurred damage as a result of the failure. The Company anticipates it will recover insurance proceeds to cover the expenses
related to this incident and therefore it has expensed the insurance deductible of approximately $0.8 million recorded within
maintenance, materials and repairs expense.
The Company outsources certain routine, non-heavy maintenance functions under contracts that require payment on a
utilization basis, such as flight hours. Costs incurred for maintenance and repair under flight hour maintenance contracts, where
labor and materials price risks have been transferred to the service provider, are expensed based on contractual payment terms.
All other costs for routine maintenance of the airframes and engines are charged to expense as performed.
The table below summarizes the extent to which the Company’s maintenance costs are rate capped due to flight hour
maintenance contracts:
Year Ended December 31,
2013 2012 2011
(in thousands)
Flight hour-based maintenance expense . . . . . . . . . . . . . . . . . . . $ 30,322 $ 25,748 $ 21,974
Non-flight hour-based maintenance expense. . . . . . . . . . . . . . . . 29,821 23,712 12,043
Total maintenance, materials and repairs. . . . . . . . . . . . . . . . . . . $ 60,143 $ 49,460 $ 34,017