Spirit Airlines 2014 Annual Report Download - page 16

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alternatives, such as bus, train or automobile. In addition, technology advancements may limit the demand for air travel. For
example, video teleconferencing and other methods of electronic communication may reduce the need for in-person
communication and add a new dimension of competition to the industry as travelers seek lower-cost substitutes for air travel. If
we are unable to adjust rapidly in the event the basis of competition in our markets changes, it could have a material adverse
effect on our business, results of operations and financial condition.
Risks Related to Our Business
Increased labor costs, union disputes, employee strikes and other labor-related disruption may adversely affect our
business, results of operations and financial conditions.
Our business is labor intensive, with labor costs representing approximately 19.9%, 19.1% and 19.1% of our total
operating costs for 2014, 2013 and 2012, respectively. As of December 31, 2014, approximately 67% of our workforce was
represented by labor unions. We cannot assure you that our labor costs going forward will remain competitive because in the
future our labor agreements may be amended or become amendable and new agreements could have terms with higher labor
costs; one or more of our competitors may significantly reduce their labor costs, thereby reducing or eliminating our
comparative advantages as to one or more of such competitors; or our labor costs may increase in connection with our growth.
We may also become subject to additional collective bargaining agreements in the future as non-unionized workers may
unionize.
Relations between air carriers and labor unions in the United States are governed by the Railway Labor Act, or the RLA.
Under the RLA, collective bargaining agreements generally contain “amendable dates” rather than expiration dates, and the
RLA requires that a carrier maintain the existing terms and conditions of employment following the amendable date through a
multi-stage and usually lengthy series of bargaining processes overseen by the National Mediation Board, or the NMB. This
process continues until either the parties have reached agreement on a new collective bargaining agreement, or the parties have
been released to “self-help” by the NMB. In most circumstances, the RLA prohibits strikes; however, after release by the NMB,
carriers and unions are free to engage in self-help measures such as lockouts and strikes.
Our flight operations were shut down due to a strike by our pilots beginning on June 12, 2010 and lasting until we and the
union representing our pilots reached a tentative agreement for a new contract. Under a Return to Work Agreement, we began
to resume flights on June 17, 2010 and resumed our full flight schedule on June 18, 2010. On August 1, 2010, we and the
pilots’ union executed a five-year collective bargaining agreement. This agreement becomes amendable in 2015. This shutdown
had a material adverse effect on our results of operations for 2010.
We entered into a five-year agreement with our flight dispatchers in August 2013. In August 2014, under the supervision
of the NMB, we reached a tentative agreement for a five-year contract with our flight attendants. The tentative agreement was
subject to ratification by the flight attendant membership. On October 1, 2014, we were notified that the flight attendants voted
not to ratify the tentative agreement. We will continue to work together with the AFA-CWA and the NMB with a goal of
reaching a mutually beneficial agreement. In July 2014, approximately 250 ramp service agents directly employed by the
Company voted to be represented by the International Association of Machinists and Aerospace Workers (IAM). As of
December 31, 2014, these ramp service agents served 4 of the 56 airports where we operate. We have begun the process of
negotiating a collective bargaining agreement with the IAM. If we are unable to reach agreement with any of our unionized
work groups in current or future negotiations regarding the terms of their collective bargaining agreements, we may be subject
to work interruptions or stoppages. Any such action or other labor dispute with unionized employees could disrupt our
operations, reduce our profitability, or interfere with the ability of our management to focus on executing our business
strategies.
We have a significant amount of aircraft-related fixed obligations that could impair our liquidity and thereby harm our
business, results of operations and financial condition.
The airline business is capital intensive and, as a result, many airline companies are highly leveraged. As of
December 31, 2014, our 65 aircraft fleet consisted of 61 aircraft financed under operating leases and 4 aircraft financed under
debt arrangements. In 2014 and 2013, we paid the lessors rent of $198.7 million and $166.3 million, respectively, and
maintenance deposits net of reimbursements of $31.9 million and $24.1 million, respectively. As of December 31, 2014, we
had future operating lease obligations of approximately $1.7 billion. In 2014 and 2013, we had no payments related to debt
arrangements as we entered into these arrangements in late 2014 and repayment commences in 2015. As of December 31,
2014, we had future principal debt obligations of approximately $148.0 million, of which $10.4 million is due in 2015. In
addition, we have significant obligations for aircraft and spare engines that we have ordered from Airbus, International Aero
Engines AG, or IAE, and Pratt and Whitney for delivery over the next several years. Our ability to pay the fixed costs
associated with our contractual obligations will depend on our operating performance, cash flow and our ability to secure
adequate financing, which will in turn depend on, among other things, the success of our current business strategy, fuel price