UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_______________________________________________________________________
Form 10-Q

(Mark One)
ý☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2017March 31, 2021
OR
o☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from              to             
Commission File Number: 001-35186

SPIRIT AIRLINES, INC.
(Exact name of registrant as specified in its charter)

Delaware38-1747023
(State or other jurisdiction of

incorporation or organization)
(I.R.S. Employer

Identification No.)
2800 Executive Way
Miramar, Florida
MiramarFlorida33025
(Address of principal executive offices)(Zip Code)

(954) 447-7920
(Registrant’s telephone number, including area code) 


Securities registered pursuant to Section 12(b) of the Act:
Title of each className of exchange on which registeredTrading Symbol
Common Stock, $0.0001 par valueNew York Stock ExchangeSAVE

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ý☒  No  o☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  ý☒    No  o☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “small“smaller reporting company” and "emerging growth company" in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filerý☒Accelerated filero☐
Non-accelerated filero☐Smaller reporting companyo☐
(Do not check if a smaller reporting company)Emerging growth companyo☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B)13(a) of the Securities Act.Exchange Act..     o☐
Indicate by check mark whether the registrant is a shell company (as defined by Rule 12b-2 of the Exchange Act).    Yes  o☐    No  ý☒
Indicate the number of shares outstanding of each of the registrant’s classes of common stock as of the close of business on October 19, 2017:
April 14, 2021:
ClassNumber of Shares
Common Stock, $0.0001 par value69,373,15497,806,430

1



Table of Contents
INDEX
 
Page No.
1
1
2
3
4
5
56
1724
3036
3238
3339
3440
3541
3742
3742
3742
3742
3843
3944

2



PART I. Financial Information
ITEM 1.UNAUDITED CONDENSED FINANCIAL STATEMENTS
ITEM 1.UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Spirit Airlines, Inc.
Condensed Consolidated Statements of Operations
(unaudited, in thousands, except per share amounts)
 
Three Months Ended September 30, Nine Months Ended September 30, Three Months Ended March 31,
2017 2016 2017 201620212020
Operating revenues:       Operating revenues:
Passenger$356,207
 $331,004
 $1,027,891
 $900,031
Passenger$450,335 $753,550 
Non-ticket331,024
 290,325
 952,768
 843,574
OtherOther10,944 17,531 
Total operating revenues687,231
 621,329
 1,980,659
 1,743,605
Total operating revenues461,279 771,081 
       
Operating expenses:       Operating expenses:
Salaries, wages and benefits134,114
 120,190
 391,144
 349,530
Salaries, wages and benefits
245,692 240,480 
Aircraft fuel158,300
 121,844
 440,376
 321,018
Aircraft fuel142,930 213,208 
Depreciation and amortizationDepreciation and amortization74,312 65,991 
Landing fees and other rentsLanding fees and other rents72,108 67,121 
Aircraft rent53,396
 49,367
 163,032
 151,433
Aircraft rent54,782 45,146 
Landing fees and other rents48,498
 39,345
 134,538
 114,096
Depreciation and amortization36,840
 25,304
 103,680
 73,370
Maintenance, materials and repairs26,176
 30,443
 81,473
 72,010
Maintenance, materials and repairs29,903 34,076 
Distribution29,469
 25,565
 85,875
 73,190
Distribution23,642 33,743 
Special charges7,853
 7,355
 12,629
 31,609
Loss on disposal of assets516
 423
 3,114
 1,166
Loss on disposal of assets1,117 0 
Special creditsSpecial credits(176,938)0 
Other operating87,965
 66,277
 268,553
 197,833
Other operating96,261 129,308 
Total operating expenses583,127
 486,113
 1,684,414
 1,385,255
Total operating expenses563,809 829,073 
       
Operating income104,104
 135,216
 296,245
 358,350
Operating income (loss)Operating income (loss)(102,530)(57,992)
       
Other (income) expense:       Other (income) expense:
Interest expense15,018
 11,362
 41,237
 29,588
Interest expense44,806 23,878 
Capitalized interest(3,203) (3,067) (10,125) (9,163)Capitalized interest(4,732)(3,664)
Interest income(2,605) (1,222) (5,746) (4,235)Interest income(4,371)(3,593)
Other expense114
 180
 221
 407
Other (income) expenseOther (income) expense(52)(19)
Total other (income) expense9,324
 7,253
 25,587
 16,597
Total other (income) expense35,651 16,602 
       
Income before income taxes94,780
 127,963
 270,658
 341,753
Provision for income taxes34,590
 46,581
 100,390
 125,367
Income (loss) before income taxesIncome (loss) before income taxes(138,181)(74,594)
Provision (benefit) for income taxesProvision (benefit) for income taxes(25,860)(46,766)
       
Net income$60,190
 $81,382
 $170,268
 $216,386
Basic earnings per share$0.87
 $1.17
 $2.45
 $3.06
Diluted earnings per share$0.87
 $1.17
 $2.45
 $3.05
Net income (loss)Net income (loss)$(112,321)$(27,828)
Basic earnings (loss) per shareBasic earnings (loss) per share$(1.15)$(0.41)
Diluted earnings (loss) per shareDiluted earnings (loss) per share$(1.15)$(0.41)
The accompanying Notes are an integral part of these Condensed Consolidated Financial Statements.

1


Spirit Airlines, Inc.
Condensed Consolidated Statements of Comprehensive Income (Loss)
(unaudited, in thousands)

Three Months Ended March 31,
20212020
Net income (loss)$(112,321)$(27,828)
Unrealized gain on short-term investment securities and cash and cash equivalents, net of deferred taxes of $2 and $547 185 
Interest rate derivative loss reclassified into earnings, net of taxes of $13 and $2445 41 
Other comprehensive income (loss)$52 $226 
Comprehensive income (loss)$(112,269)$(27,602)
 Three Months Ended September 30, Nine Months Ended September 30,
 2017 2016 2017 2016
Net income$60,190
 $81,382
 $170,268
 $216,386
Unrealized gain (loss) on short-term investment securities, net of deferred taxes of $7, $3, ($6) and $313
 4
 (11) 4
Interest rate derivative losses reclassified into earnings, net of taxes of $31, $32, $92 and $97
53
 56
 160
 170
Other comprehensive income (loss)$66
 $60
 $149
 $174
Comprehensive income$60,256
 $81,442
 $170,417
 $216,560

The accompanying Notes are an integral part of these Condensed Consolidated Financial Statements.


2

Spirit Airlines, Inc.
Condensed Consolidated Balance Sheets
(unaudited, in thousands)
September 30, 2017 December 31, 2016March 31, 2021December 31, 2020
Assets   Assets
Current assets:   Current assets:
Cash and cash equivalents$863,680
 $700,900
Cash and cash equivalents$1,774,471 $1,789,723 
Restricted cashRestricted cash64,000 71,401 
Short-term investment securities100,732

100,155
Short-term investment securities106,376 106,339 
Accounts receivable, net46,235
 41,136
Accounts receivable, net100,366 42,940 
Aircraft maintenance deposits, net166,386

87,035
Aircraft maintenance deposits, net72,281 73,134 
Income tax receivableIncome tax receivable37,472 147,460 
Prepaid expenses and other current assets67,707
 46,619
Prepaid expenses and other current assets121,127 124,983 
Total current assets1,244,740
 975,845
Total current assets2,276,093 2,355,980 
   
Property and equipment:   Property and equipment:
Flight equipment2,017,888
 1,461,525
Flight equipment4,207,088 4,177,631 
Ground property and equipment148,324
 126,206
Ground property and equipment341,050 334,167 
Less accumulated depreciation(183,065) (122,509)Less accumulated depreciation(731,308)(680,230)
1,983,147
 1,465,222
3,816,830 3,831,568 
Deposits on flight equipment purchase contracts304,732
 325,688
Operating lease right-of-use assetsOperating lease right-of-use assets1,461,743 1,417,823 
Pre-delivery deposits on flight equipmentPre-delivery deposits on flight equipment412,682 356,262 
Long-term aircraft maintenance deposits138,672
 199,415
Long-term aircraft maintenance deposits50,431 53,158 
Deferred heavy maintenance, net87,566
 75,534
Deferred heavy maintenance, net334,508 347,907 
Other long-term assets112,085
 110,223
Other long-term assets35,448 36,127 
Total assets$3,870,942
 $3,151,927
Total assets$8,387,735 $8,398,825 
   
Liabilities and shareholders’ equity   Liabilities and shareholders’ equity
Current liabilities:   Current liabilities:
Accounts payable$30,961
 $15,193
Accounts payable$33,199 $28,454 
Air traffic liability276,933
 206,392
Air traffic liability509,172 401,966 
Current maturities of long-term debt105,958
 84,354
Current maturities of long-term debt and finance leasesCurrent maturities of long-term debt and finance leases356,623 384,197 
Current maturities of operating leasesCurrent maturities of operating leases135,260 133,791 
Other current liabilities249,132
 226,011
Other current liabilities473,826 393,614 
Total current liabilities662,984
 531,950
Total current liabilities1,508,080 1,342,022 
   
Long-term debt, less current maturities1,214,138
 897,359
Long-term debt and finance leases, less current maturitiesLong-term debt and finance leases, less current maturities3,048,378 3,066,635 
Operating leases, less current maturitiesOperating leases, less current maturities1,290,800 1,248,519 
Deferred income taxes406,080
 308,143
Deferred income taxes398,097 439,894 
Deferred gains and other long-term liabilities17,204
 19,868
Deferred gains and other long-term liabilities49,391 52,060 
Shareholders’ equity:   Shareholders’ equity:
Common stock
7
 7
Common stock10 10 
Additional paid-in-capital557,772
 551,004
Additional paid-in-capital750,359 799,549 
Treasury stock, at cost(219,930) (218,692)Treasury stock, at cost(75,431)(74,124)
Retained earnings1,233,901
 1,063,633
Retained earnings1,418,617 1,524,878 
Accumulated other comprehensive loss(1,214) (1,345)
Accumulated other comprehensive income (loss)Accumulated other comprehensive income (loss)(566)(618)
Total shareholders’ equity1,570,536
 1,394,607
Total shareholders’ equity2,092,989 2,249,695 
Total liabilities and shareholders’ equity$3,870,942
 $3,151,927
Total liabilities and shareholders’ equity$8,387,735 $8,398,825 
The accompanying Notes are an integral part of these Condensed Consolidated Financial Statements.

3

Spirit Airlines, Inc.
Condensed Consolidated Statements of Cash Flows
(unaudited, in thousands) 
 Nine Months Ended September 30,
 2017 2016
Operating activities:
 
Net income$170,268
 $216,386
Adjustments to reconcile net income to net cash provided by operations:
 
Losses reclassified from other comprehensive income252

267
Equity-based compensation6,723
 5,503
Allowance for doubtful accounts (recoveries)(53) 213
Amortization of deferred gains and losses and debt issuance costs6,415
 3,837
Depreciation and amortization103,680
 73,370
Deferred income tax expense97,834
 77,627
Loss on disposal of assets3,114
 1,166
Lease termination costs12,629

31,609



 

Changes in operating assets and liabilities:

 

Accounts receivable(5,046) (7,840)
Aircraft maintenance deposits, net(28,422) (38,299)
Prepaid income taxes(160)
66,218
Long-term deposits and other assets(81,622) (43,252)
Accounts payable13,829
 (7,044)
Air traffic liability70,540
 21,963
Other liabilities16,152
 38,317
Other339
 —
Net cash provided by operating activities386,472
 440,041
Investing activities:   
Purchase of available-for-sale investment securities(96,851)
(100,076)
Proceeds from the maturity of available-for-sale investment securities95,881

—
Proceeds from sale of property and equipment—
 50
Pre-delivery deposits for flight equipment, net of refunds(121,702) (109,260)
Capitalized interest(8,054)
(7,032)
Purchase of property and equipment(428,061) (447,455)
Net cash used in investing activities(558,787) (663,773)
Financing activities:   
Proceeds from issuance of long-term debt405,827

378,569
Proceeds from stock options exercised45
 92
Payments on debt and capital lease obligations(63,643) (29,663)
Excess tax (deficiency) benefit from equity-based compensation—
 (497)
Repurchase of common stock(1,238) (102,390)
Debt issuance costs(5,896)
(107)
Net cash provided by financing activities335,095
 246,004
Net (decrease) increase in cash and cash equivalents162,780
 22,272
Cash and cash equivalents at beginning of period700,900
 803,632
Cash and cash equivalents at end of period$863,680
 $825,904
Supplemental disclosures   
Cash payments for:   
Interest, net of capitalized interest$22,541
 $26,025
Income taxes paid, net of refunds$4,352
 $(18,169)
Non-cash transactions:   
Capital expenditures funded by capital lease borrowings$(1,370)
$(31)

 Three Months Ended March 31,
20212020
Operating activities:
Net income (loss)$(112,321)$(27,828)
Adjustments to reconcile net income (loss) to net cash provided by operations:
Losses reclassified from other comprehensive income58 65 
Share-based compensation4,254 3,790 
Allowance for doubtful accounts (recoveries)(170)0 
Amortization of debt issuance costs3,509 2,106 
Depreciation and amortization74,312 65,991 
Accretion of 8.00% senior secured notes434 0 
Deferred income tax expense (benefit)(26,869)36,367 
Loss on disposal of assets1,117 0 
Changes in operating assets and liabilities:
Accounts receivable, net(57,256)39,910 
Aircraft maintenance deposits, net1,755 (1,330)
Long-term deposits and other assets4,998 (666)
Prepaid income taxes(303)0 
Deferred heavy maintenance, net(10,466)(35,564)
Income tax receivable109,988 (83,213)
Accounts payable3,202 14,854 
Air traffic liability107,206 95,876 
Other liabilities83,042 (75,541)
Other158 (235)
Net cash provided by operating activities186,648 34,582 
Investing activities:
Purchase of available-for-sale investment securities(20,692)(24,036)
Proceeds from the maturity and sale of available-for-sale investment securities20,500 23,600 
Pre-delivery deposits on flight equipment, net of refunds(52,738)(123,044)
Capitalized interest(4,342)(2,860)
Assets under construction for others(797)(2,057)
Purchase of property and equipment(39,437)(195,371)
Net cash used in investing activities(97,506)(323,768)
Financing activities:
Proceeds from issuance of long-term debt25,338 168,981 
Proceeds from issuance of warrants2,146 0 
Proceeds from stock options exercised0 16 
Payments on debt obligations(135,925)(42,561)
Payments on finance lease obligations(189)(24,846)
Reimbursement for assets under construction for others586 2,095 
Repurchase of common stock(1,307)(1,536)
Debt issuance costs(2,444)(3,695)
Net cash provided (used) by financing activities(111,795)98,454 
Net increase (decrease) in cash, cash equivalents, and restricted cash(22,653)(190,732)
Cash, cash equivalents, and restricted cash at beginning of period (1)1,861,124 978,957 
Cash, cash equivalents, and restricted cash at end of period (1)$1,838,471 $788,225 
Supplemental disclosures
Cash payments for:
Interest, net of capitalized interest$40,206 $17,702 
Income taxes paid (received), net$(109,056)$(1,497)
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows for operating leases$61,378 $50,805 
Financing cash flows for finance leases$24 $113 
Non-cash transactions:
Capital expenditures funded by operating lease borrowings$82,745 $85,787 
(1) The sum of cash and cash equivalents and restricted cash on our condensed consolidated balance sheets equals cash, cash equivalents, and restricted cash in our statement of cash flows.
The accompanying Notes are an integral part of these Condensed Consolidated Financial Statements.
4

Spirit Airlines, Inc.
Condensed Consolidated Statements of Shareholders’ Equity
(unaudited, in thousands)
Three Months Ended March 31, 2020
Common StockAdditional Paid-In-CapitalTreasury StockRetained EarningsAccumulated Other Comprehensive Income (Loss)Total
Balance at December 31, 2019$7 $379,380 $(72,455)$1,955,187 $(787)$2,261,332 
Effect of ASU No. 2016-13 implementation
— — — (1,609)— (1,609)
Share-based compensation— 3,790 — — 3,790 
Repurchase of common stock— — (1,536)— — (1,536)
Proceeds from options exercised— 16 — — — 16 
Changes in comprehensive income— — — — 226 226 
Net loss— — — (27,828)— (27,828)
Balance at March 31, 2020$7 $383,186 $(73,991)$1,925,750 $(561)$2,234,391 

Three Months Ended March 31, 2021
Common StockAdditional Paid-In-CapitalTreasury StockRetained EarningsAccumulated Other Comprehensive Income (Loss)Total
Balance at December 31, 2020$10 $799,549 $(74,124)$1,524,878 $(618)$2,249,695 
Effect of ASU No. 2020-06 implementation (refer to Note 3)— (55,590)— 6,060 — (49,530)
Share-based compensation— 4,254 — — — 4,254 
Repurchase of common stock— — (1,307)— — (1,307)
Changes in comprehensive income— — — — 52 52 
Issuance of warrants— 2,146 — — — 2,146 
Net loss— — — (112,321)— (112,321)
Balance at March 31, 2021$10 $750,359 $(75,431)$1,418,617 $(566)$2,092,989 
The accompanying Notes are an integral part of these Condensed Consolidated Financial Statements.

5

Notes to Condensed Consolidated Financial Statements
(unaudited)
1.Basis of Presentation
1. Basis of Presentation
The accompanying unaudited condensed consolidated financial statements include the accounts of Spirit Airlines, Inc. (“Spirit”) and its consolidated subsidiaries (the Company)"Company"). In August 2020, Spirit formed several new subsidiaries; Spirit Finance Cayman 1 Ltd. (“HoldCo 1”), Spirit Finance Cayman 2 Ltd. (“HoldCo 2”), Spirit IP Cayman Ltd. (“Spirit IP”) and Spirit Loyalty Cayman Ltd. (“Spirit Loyalty”). Each are Cayman Islands exempted companies incorporated with limited liability. Spirit IP and Spirit Loyalty are wholly-owned subsidiaries of HoldCo 2 (other than the special share issued to the special shareholder, who granted a proxy to vote such share to the collateral agent for the 8.00% senior secured notes (as defined herein)). HoldCo 1 and HoldCo 2 are special purpose holding companies. HoldCo 2 is a wholly-owned direct subsidiary of HoldCo 1 (other than the special share issued to the special shareholder, who granted a proxy to vote such share to the collateral agent for the 8.00% senior secured notes). HoldCo 1 is a wholly-owned subsidiary of Spirit (other than the special share issued to the special shareholder, who granted a proxy to vote such share to the collateral agent for the 8.00% senior secured notes). As a result, our financial statements are presented on a consolidated basis.
These unaudited condensed consolidated financial statements reflect all normal recurring adjustments which management believes are necessary to fairly present the financial position, results of operations and cash flows of the Company for the respective periods presented. Certain information and footnote disclosures normally included in the audited annual financial statements prepared in accordance with U.S. generally accepted accounting principles (GAAP)("GAAP") have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission for Form 10-Q. These unaudited interim condensed consolidated financial statements should be read in conjunction with the audited financial statements of the Company and notes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 20162020 filed with the Securities and Exchange Commission on February 13, 2017.10, 2021.
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect both the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results may differ from these estimates.
The interim results reflected in the unaudited condensed consolidated financial statements are not necessarily indicative of the results that may be expected for other interim periods or for the full year. The air transportation business is subject to significant seasonal fluctuations as demand is generally greater in the second and third quarters of each year. The air transportation business is also volatile and highly affected by economic cycles and trends. In addition, the Company experienced significant impacts from the global coronavirus ("COVID-19") pandemic during the year ended December 31, 2020 and has continued to experience a significant impact through the three months ended March 31, 2021.
Certain prior period amounts have been reclassified
2. Impact of COVID-19

Since its initial onset in early 2020, the impact of the COVID-19 pandemic has evolved and continues to conformbe fluid. As a result, the Company's financial and operational outlook remains subject to change. The Company continues to monitor the impacts of the pandemic on its operations and financial condition, and to adjust its mitigation and operational strategies accordingly in order to protect the long-term sustainability and growth of the Company.

Capacity Reductions

At the onset of the COVID-19 pandemic in March 2020, in response to government restrictions on travel and drastically reduced consumer demand, the Company began to significantly reduce capacity each month with the largest capacity reduction in May 2020 at approximately 94%, year over year, and smaller capacity reductions of 20.8% and 20.1% in the holiday months of November and December, respectively. Through the first quarter of 2021, the Company continued to operate at reduced capacity levels although to a lesser extent than noted at the height of the pandemic during mid 2020. For the first quarter of 2021, the Company had a 26.9% decrease in capacity as compared to the current year's presentation.prior year period.
2.Recent Accounting Developments

The COVID-19 pandemic and its effects continue to evolve, with developments including fluctuations in the rate of infections during 2021, the emergency use authorization issued by the U.S. Food and Drug Administration for COVID-19 vaccines, the requirement, effective January 26, 2021, that all U.S. inbound international travelers provide a negative COVID-19 test prior to flying and recent increases in the availability of COVID-19 vaccines resulting in expanded eligibility to more groups of people to receive the vaccine. While the Company currently estimates that air travel demand will continue to be
6

volatile and will fluctuate in the upcoming months as the lingering effects of COVID-19 continue to develop, it expects that air travel demand will continue to gradually recover in 2021. However, the situation continues to be fluid and actual capacity adjustments may be different than what the Company currently expects. Refer to Note 4, Revenue, from Contractsfor discussion of the impact of COVID-19 on the Company's air traffic liability, credit shells and refunds.

COVID-19 Legislation

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act ("CARES Act") was signed into law. The CARES Act was a relief package intended to assist many aspects of the American economy, including providing the airline industry with Customersup to $25 billion in grants to be used for employee salaries, wages and benefits and up to $25 billion in secured loans.

On April 20, 2020, the Company entered into a Payroll Support Program ("PSP") Agreement with the United States Department of the Treasury ("Treasury"), pursuant to which the Company received a total of $344.4 million, used exclusively to pay for salaries, wages and benefits for the Company’s Team Members through September 30, 2020. Of that amount, $73.3 million is in the form of a low-interest 10-year loan. In addition, in connection with its participation in the PSP, the Company issued to Treasury warrants pursuant to a warrant agreement to purchase up to 520,797 shares of the Company’s common stock at a strike price of $14.08 per share (the closing price for the shares of the Company's common stock on April 9, 2020) with a fair value of $3.9 million. The Company registered the resale of the warrants pursuant to the warrant agreement with Treasury in September and October 2020. The remaining amount of $267.2 million is in the form of a grant and was recognized in special credits in the Company's condensed consolidated statement of operations.

On December 27, 2020, the Consolidated Appropriations Act, 2021 was signed into law which extended the PSP portion of the CARES Act through March 31, 2021 ("PSP2") and provided an additional $15 billion to fund the PSP2 for employees of passenger air carriers. The Company entered into a new payroll support program agreement with the Treasury on January 15, 2021. During the first quarter of 2021, the Company received a total of $184.5 million through the PSP2, used exclusively to pay for salaries, wages and benefits for the Company’s Team Members through March 31, 2021. Of that amount, $25.3 million is in the form of a low-interest 10-year loan. In addition, in connection with its participation in the PSP2, the Company issued to Treasury warrants pursuant to a warrant agreement to purchase up to 103,761 shares of the Company’s common stock at a strike price of $24.42 per share (the closing price for the shares of the Company's common stock on December 24, 2020) with a fair value of $2.1 million. The remaining amount of $156.5 million, net of related costs, is in the form of a grant and was recognized in special credits in the Company's condensed consolidated statement of operations. Total warrants issued in connection with the PSP and PSP2 represent less than 1% of the outstanding shares of the Company's common stock as of March 31, 2021.

In May 2014,connection with the Financial Accounting Standards Board (the FASB) issued Accounting Standards Update (ASU) No. 2014-09, (ASU 2014-09) "RevenueCompany's participation in the PSP2, the Company is subject to certain restrictions and limitations, including, but not limited to:

•Restrictions on payment of dividends and stock buybacks through March 31, 2022;

•Limits on executive compensation through October 1, 2022;

•Restrictions from Contractsconducting involuntary furloughs or reducing pay rates and benefits until March 31, 2021;

•Requirements to maintain certain levels of scheduled services through March 1, 2022;

•Reporting requirements; and

•A recall of all employees that were involuntarily furloughed or terminated between October 1, 2020 and the date the carrier enters into the new payroll support agreement with Customers." the Treasury. Such employees, if returning to work, must be compensated for lost pay and benefits between December 1, 2020 and the date of such new payroll support agreement.
The objectiveCARES Act also provided an employee retention credit (“CARES Employee Retention credit”) which was a refundable tax credit against certain employment taxes of ASU 2014-09up to $5,000 per employee for eligible employers. The credit is equal to establish50% of qualified wages paid to employees during a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers.quarter, capped at $10,000 of qualified wages through year end. The new guidance is effectiveCompany qualified for the credit beginning on April 1, 2020 and received additional credits for qualified wages through December 31, 2020.

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The Consolidated Appropriations Act extended and expanded the availability of the CARES Employee Retention credit through June 30, 2021. Subsequently, the American Rescue Plan Act of 2021 ("ARP"), enacted on March 11, 2021, extended and expanded the availability of the CARES Employee Retention credit through December 31, 2021, however, certain provisions apply only after December 31, 2020. This new legislation amended the employee retention credit to be equal to 70% of qualified wages paid to employees after December 31, 2020, and before January 1, 2022. During calendar year 2021, a maximum of $10,000 in qualified wages for each employee per qualifying calendar quarter may be counted in determining the 70% credit. Therefore, the maximum tax credit that can be claimed by an eligible employer is $7,000 per employee per qualifying calendar quarter of 2021. The Company will qualify for the employee retention credit for quarters that experience a significant decline in gross receipts defined as quarterly gross receipts that are less than 80 percent of its gross receipts for the same calendar quarter in 2019. During the three months ended March 31, 2021, the Company recorded $21.3 million related to the CARES Employee Retention credit within special credits on the Company’s condensed consolidated statements of operations and within accounts receivable, net on the Company's condensed consolidated balance sheet. Refer to Note 5, Special Credits, for additional information.

ARP also authorized Treasury to provide additional assistance to passenger air carriers that received financial assistance under PSP2 ("PSP3"). Under the ARP, Treasury will provide up to $14 billion to fund the PSP3 for employees of passenger air carriers. In April 2021, the Company was notified that, subject to final execution of an agreement with Treasury, it will receive an approximate $197.9 million under the PSP3 and an additional $27.7 million under the PSP2.

In connection with the Company's participation in the PSP3, the Company will be subject to certain restrictions and limitations, including, but not limited to:

•Restrictions on payment of dividends and stock buybacks through September 30, 2022;

•Limits on executive compensation through April 1, 2023;

•Restrictions from conducting involuntary furloughs or reducing pay rates and benefits until September 30, 2021, or the date on which all PSP funding has been expended; and

•Reporting requirements.

Finally, the CARES Act also provided for deferred payment of the employer portion of social security taxes through the end of 2020, with 50% of the deferred amount due December 31, 2021 and the remaining 50% due December 31, 2022. As of March 31, 2021, the Company had deferred $23.2 million in social security tax payments. The deferred amounts are recorded within other current liabilities and within deferred gains and other long-term liabilities on the Company’s condensed consolidated balance sheet.

Income Taxes
The Company's effective tax rate for the three months ended March 31, 2021 was 18.7% compared to 62.7% for the three months ended March 31, 2020. The decrease in tax rate, as compared to the prior year period, is primarily due to a $31.1 million discrete federal tax benefit recorded during the three months ended March 31, 2020 related to the passage of the CARES Act. The CARES Act allows for carryback of net operating losses generated at a 21% tax rate to recover taxes paid at a 35% tax rate. While the Company expects its tax rate to be fairly consistent in the near term, it will tend to vary depending on recurring items such as the amount of income we earn in each state and the state tax rate applicable to such income. Discrete items particular to a given year may also affect our effective tax rates.

Balance Sheet, Cash Flow and Liquidity

Since the onset of the COVID-19 pandemic in the U.S. in the first quarter of 2018. Entities have2020, the optionCompany has taken several actions to use eitherincrease liquidity and strengthen its financial position. These actions include the private offering of $850 million of the 8.00% senior secured notes, the public offering of $175.0 million in convertible notes, the public offering of 20,125,000 shares of the Company's voting common stock for which it received net proceeds of $192.4 million, the issuance and sale of 9,000,000 shares of the Company's voting common stock through its ATM Program for which it received net proceeds of $156.7 million and the execution of a full retrospective orrevolving credit facility with a modified retrospective approachtotal commitment of $180.0 million as of December 31, 2020. During the first quarter of 2021, the Company entered into an amendment to adopt ASU 2014-09.this revolving credit facility which extended the maturity to March 30, 2024 and increased the commitment amount to $240.0 million. The additional $60.0 million was undrawn and available as of March 31, 2021. Refer to Note 12, Debt and Other Obligations for additional information. As a result of these
8

actions, as of March 31, 2021, the Company had $1,940.8 million of liquidity comprised of unrestricted cash and cash equivalents, short-term investment securities and funds available under its revolving credit facility due in 2024.

For purposes of assessing its liquidity needs, the Company estimates that demand will continue to recover in 2021. The Company currentlybelieves the actions taken since the onset of the COVID-19 pandemic address its future liquidity needs, yet anticipates utilizingit may implement further discretionary changes and other cost reduction and liquidity preservation and/or enhancement measures, as needed, to address the full retrospective methodvolatility and quickly changing dynamics of adoption allowed bypassenger demand and the standard,impact of revenue changes, regulatory and public health directives and prevailing government policy and financial market conditions.

Workforce Actions

In 2020, in orderresponse to provide for comparative results in all periods presented, and plans to adopt the standard as of January 1, 2018. WhileCOVID-19 pandemic, the Company is still evaluatingworked with unionized employees and the impact, it currently believes the most significant impact of this ASU will be the elimination of the incremental cost methodrelated unions to create voluntary leave programs for frequent flier program accounting, which will require the Company to re-valuepilots, flight attendants and record a liability associated with customer flight miles earned as part of the Company’s frequent flier program with a relative fair value approach. While our evaluation is ongoing, the Company currently estimates that applying a relative fair value would increase its air traffic liability by approximately $10 million at the date of adoption.other unionized employee groups. The Company also expectscreated voluntary leave programs for certain non-unionized employee groups. Due to the classificationhigh level of support and timingacceptance of recognitionthe voluntary programs offered, the total number of certain ancillary fees to be impactedTeam Members involuntarily terminated in 2020 was reduced by more than 95%. As required by the adoptionPSP2, during the first quarter of ASU 2014-09. While2021, the Company believesoffered to rehire all eligible Team Members who were involuntarily terminated during 2020. For the adoption will not have a significant impact on earnings, the classification of certain revenues, such as bags, seats and other travel-related fees may be deemed part of the single performance obligation of providing passenger transportation. Thethree months ended March 31, 2021, the Company expects that these revenues currently classified as non-ticket revenue, approximately $1 billion annually, will be reclassified to passenger revenue after adoption.

Financial Instruments

In January 2016, the FASB issued ASU 2016-01, “Financial Instruments – Overall (Subtopic 825-10).” ASU 2016-01 makes several modifications to Subtopic 825-10 including the elimination of the available-for-sale classification of equity investments, and requires equity investments with readily determinable fair values to be measured at fair value with changesrecorded $0.8 million in fair value recognized in net income. ASU 2016-01 is effective for the Company for interim and annual periods beginning January 1, 2018 and is not expected to have a material impactspecial charges within special credits on the Company’s condensed consolidated statement of operations related to the rehiring of Team Members under its involuntary employee separation program. In addition, in response to increased air travel demand, during the first quarter of 2021, the Company requested the voluntary return to work of certain Team Members on leave under the Company's voluntary leave programs. As of March 31, 2021, 12% of Team Members previously on voluntary leave had returned to work. Expenses related to voluntary leave programs were recorded within salaries, wages and benefits on the Company’s condensed consolidated statement of operations. As the Company continues to monitor the impacts of the pandemic on its operations and financial statements.condition, it will consider and evaluate the need for any additional workforce actions in future periods.

Leases3. Recent Accounting Developments

Notes to Condensed Financial Statements—(Continued)
Recently Adopted Accounting Pronouncements

Convertible Instruments and Contracts

In February 2016,August 2020, the FASB issued ASU No. 2016-02, "Leases (Topic 842).2020-06, "Accounting for Convertible Instruments and Contracts in an Entity's Own Equity." This new standard willsimplifies and adds disclosure requirements for the accounting and measurement of convertible instruments. It eliminates the treasury stock method for convertible instruments and requires application of the “if-converted” method for certain agreements. In addition, the standard eliminates the beneficial conversion and cash conversion accounting models that require all leases with durations greater than twelveseparate accounting for embedded conversion features and the recognition of a debt discount and related amortization to interest expense of those embedded features.

The Company elected to early adopt this standard effective January 1, 2021 using the modified retrospective approach transition method. Therefore, the condensed consolidated financial statements for the three months ended March 31, 2021 are presented under the new standard, while the comparative periods presented are not adjusted and continue to be reported in accordance with the Company's historical accounting policy.

In connection with the adoption of this standard, the Company recognized a cumulative effect adjustment, net of tax, of $6.1 million to retained earnings on the Company's condensed consolidated balance sheet as of January 1, 2021. This adjustment was primarily driven by the derecognition of interest expense related to the accretion of the debt discount associated with the embedded conversion option recorded in the prior period as required under the legacy guidance. In addition, the Company reclassified $75.6 million, less related tax of $17.1 million and issuance costs of $2.9 million, from additional paid-in-capital ("APIC") to long-term debt and finance leases on the Company's condensed consolidated balance sheet as of January 1, 2021. The reclassification was recorded in order to combine the two legacy units of account into a single instrument classified as a liability since bifurcation of the instrument into two units of account is no longer required under the new standard. Under this new guidance, the Company will no longer incur interest expense related to the accretion of the debt discount associated with the embedded conversion option.

Income Taxes

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740), "Simplifying the Accounting for Income Taxes." This new standard simplifies various aspects related to the accounting for income taxes. The standard removes certain exceptions to the general principles in Topic 740 and also clarifies and modifies existing guidance to improve consistent
9

application of Topic 740. The Company adopted this standard effective January 1, 2021 with no material impact to its condensed consolidated financial statements.

4. Revenue
    Operating revenues is comprised of passenger revenues, which includes fare and non-fare revenues, and other revenues. The following table shows disaggregated operating revenues for the three months ended March 31, 2021 and 2020.
Three Months Ended March 31,
20212020
(in thousands)
Operating revenues:
Fare$174,287 $321,447 
Non-fare276,048 432,103 
Total passenger revenues450,335 753,550 
Other10,944 17,531 
Total operating revenues$461,279 $771,081 

The Company is managed as a single business unit that provides air transportation for passengers. Operating revenues by geographic region as defined by the Department of Transportation ("DOT") are summarized below:
Three Months Ended March 31,
20212020
(in thousands)
DOT—Domestic$408,693 $697,828 
DOT—Latin America52,586 73,253 
Total$461,279 $771,081 
The Company defers the amount for award travel obligation as part of loyalty deferred revenue within air traffic liability ("ATL") on the Company's condensed consolidated balance sheets and recognizes loyalty travel awards in passenger revenues as points are used for travel or expire unused.
As a result of the COVID-19 pandemic, the Company experienced significantly increased customer requests for credit shells, or customer travel funds held by the Company that can be redeemed for future travel, and refunds beginning in the second half of March 2020 and continuing to varying degrees through the first quarter of 2019, with early adoption permitted. 2021 primarily due to flight cancellations and a change in the Company's flight cancellation and refund policy. The total value of refunds issued during the three months ended March 31, 2021 and 2020 were $31.9 million and $43.7 million, respectively.
The Company expects that the level of requests for credit shells and refunds in the upcoming months will continue to decrease with some fluctuation as the effects of COVID-19 continue to evolve. In addition, in response to COVID-19, during 2020 and early 2021, the Company increased the expiration period on some of its credit shells from 60 days to up to 12 months or longer and waived change and cancellation fees for Guests who booked travel through the first quarter of 2021. As a result, the outstanding balance of the unused credit shells (which is currently evaluatingrecorded within ATL on the Company's condensed consolidated balance sheets), as of March 31, 2021, significantly exceeds the balance in the prior year period. As of March 31, 2021 and December 31, 2020, the Company had ATL balances of $509.2 million and $402.0 million, respectively. Substantially all of the Company's ATL, including the balance of credit shells, is expected to be recognized within 12 months of the respective balance sheet date.

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For credit shells that the Company estimates are not likely to be used prior to expiration (“breakage”), the Company recognizes the associated value proportionally during the period over which the remaining credit shells may be used. Breakage estimates are based on the Company's historical information about customer behavior as well as assumptions about customers' future travel behavior. Assumptions used to generate breakage estimates can be impacted by several factors including, but not limited to, changes to the Company's ticketing policies, changes to the Company’s refund, exchange, and credit shell policies, and economic or governmental regulation factors. Given the unprecedented amount of cancellations in the past year and the related increase in credit shells provided, the Company expects additional variability in the amount of breakage revenue recorded in future periods, as the estimates of the portion of those funds that will expire unused may differ from historical experience.

Loyalty Programs

The Company operates the Free Spirit loyalty program, which attracts members and partners and builds customer loyalty for the Company by offering a variety of awards, benefits and services. Free Spirit loyalty program members earn and accrue points for dollars spent on Spirit for flights and other non-fare services as well as services from non-air partners such as retail merchants, hotels or car rental companies or by making purchases with credit cards issued by partner banks and financial services providers. Points earned and accrued by Free Spirit loyalty program members can be redeemed for travel awards such as free (other than taxes and government-imposed fees), discounted or upgraded travel. In January 2021, the Company launched a new, more expansive frequent flyer program, “Free Spirit Program”, with extended point expiration, additional benefits based on status tiers, and other changes.

The Company operates the Spirit Saver$ ClubTM (the "Spirit Saver$ ClubTM" formerly known as the $9 Fare ClubTM), which is a subscription-based loyalty program that allows members access to unpublished, extra-low fares as well as discounted prices on bags, exclusive offers on hotels, rental cars and other travel necessities. Also in January 2021, the benefits of the Spirit Saver$ ClubTM were expanded to include discounts on seats, shortcut boarding and security, and "Flight Flex" flight modification product.

The Company's frequent flyer program generates customer loyalty by rewarding customers with points to travel on Spirit. Customers earn redeemable points for every dollar spent on Spirit. Customers can also earn points through participating companies such as the co-branded Spirit credit card. Points are redeemable by customers in future periods for air travel on Spirit.

To reflect the points earned, the program includes two types of transactions that are considered revenue arrangements with multiple performance obligations: (1) points earned with travel and (2) points sold to co-branded credit card partner. Passenger ticket sales earning points provide customers with points earned and air transportation. The Company values each performance obligation on a standalone basis.

The Company defers revenue for the points when earned and recognizes loyalty travel awards in passenger revenue as the points are redeemed and services are provided. The Company records the air transportation portion of the passenger ticket sales in air traffic liability and recognizes passenger revenue when transportation is provided or if the ticket goes unused, at the date of scheduled travel.

Customers may earn points based on their spending with the Company's co-branded credit card company with which the Company has an agreement to sell points. The contract to sell points under this agreement has multiple performance obligations, as discussed below.

The Company's co-branded credit card agreement provides for joint marketing where cardholders earn points for making purchases using co-branded cards. During 2020, the Company extended its agreement with the administrator of the FREE SPIRIT affinity credit card program to extend through March 31, 2024. The Company accounts for this agreement consistently with the accounting method that allocates the consideration received to the individual products and services delivered. The value is allocated based on the relative selling prices of those products and services, which generally consists of (i) points to be awarded, (ii) licensing of brand and access to member lists and (iii) advertising and marketing efforts. The Company determined the best estimate of the selling prices by considering discounted cash flow analysis using multiple inputs and assumptions, including: (1) the expected number of points awarded and number of points redeemed, (2) the estimated stand-alone selling price of the award travel obligation, (3) licensing of brand and access to member lists and (4) advertising and marketing efforts. Based on the terms of the new guidanceprogram, the Company updated its estimates of the allocation of future revenues to the performance obligations described above. The Company defers the amount for award travel obligation as part of loyalty deferred revenue within air traffic liability on the consolidated balance sheet and believes adoption
11

recognizes loyalty travel awards in passenger revenue as the points are used for travel. Revenue allocated to the remaining performance obligations, primarily marketing components, is recorded in other revenue over time as points are delivered.

5. Special Credits

During the three months ended March 31, 2021, the Company recorded $156.5 million, net of this standard will have a significant impactrelated costs, within special credits on itsthe Company’s condensed balance sheets although adoption is not expected to significantly change the recognition, measurement or presentation of lease expenses within theconsolidated statements of operations related to the grant component of the PSP2 agreement with the Treasury. These funds were used exclusively to pay for salaries, wages and cash flows. See Note 8, Commitments and Contingenciesbenefits for information regarding the Company's undiscounted future lease paymentsTeam Members through March 31, 2021.

In addition, during the three months ended March 31, 2021, the Company recorded $21.3 million related to the CARES Act Employee Retention credit within special credits on the Company’s condensed consolidated statements of operation. These special credits were partially offset by $0.8 million in special charges recorded during the three months ended March 31, 2021. The $0.8 million was related to salaries, wages and benefits paid to rehired employees, previously terminated with the Company's involuntary employee separation program, in compliance with the restrictions of PSP2. Refer to Note 2, Impact of COVID-19, for further information on the CARES Act and the timing of those payments.Company 's workforce actions.

Share-Based Compensation

In March 2016, the FASB issued ASU No. 2016-09, "Improvements to Employee Share-Based Payment Accounting," which simplifies several aspects of the accounting for employee share-based payment transactions, including the accounting for income taxes, forfeitures, and statutory tax withholding requirements, as well as classification on the statement of cash flows. The Company adopted this guidance on January 1, 2017. As a result, excess income tax benefits and deficiencies related to share-based compensation are now included within income tax expense rather than additional paid in capital. For the nine months ended September 30, 2017, $0.6 million of income tax deficiency related to share-based compensation was included within income tax expense on the Company's statements of operations. Additionally, excess income tax benefits and deficiencies for share-based payments are now included in net operating cash flows rather than net financing cash flows. The changes have been applied prospectively in accordance with the guidance and prior periods have not been adjusted.

Accounting for Credit Losses

In June 2016, the FASB issued ASU No. 2016-13, "Financial Instruments - Credit Losses." The standard requires the use of an "expected loss" model on certain types of financial instruments. The standard also amends the impairment model for available-for-sale securities and requires estimated credit losses to be recorded as allowances instead of reductions to amortized cost of the securities. This standard is effective for the Company for fiscal years, and interim periods within those years, beginning January 1, 2020, with early adoption permitted. The Company is evaluating the new guidance, but does not expect it to have a material impact on its financial statements.

Statement of Cash Flows

In August 2016, the FASB issued ASU No. 2016-15, "Statement of Cash Flows." The standard is intended to reduce diversity in practice in how certain transactions are classified in the statement of cash flows. This standard is effective for the Company for fiscal years, and interim periods within those years, beginning January 1, 2018, with early adoption permitted. The Company is evaluating the new guidance, but does not expect it to have a material impact on its financial statements.

3.Special Charges

During the three months ended September 30, 2017,March 31, 2020, the Company purchased one aircraft which was previously financed under an operating lease agreement. The purchase price of the aircraft was $20.0 million, comprised of a cash payment of $12.6 million and the non-cash application of maintenance and security deposits held by the previous lessor of $7.4 million. The Company estimated the fair value of the aircraft to be $11.9 million and has recorded the 1 purchased aircraft at fair value within flight equipment onhad 0 special credits in the condensed balance sheets. The Company determined the valuation of the aircraft based on a third-party appraisal considering the condition of the aircraft (a Level 3 measurement). The Company recognized $7.9 million as a cost of terminating the lease within special charges on the condensedconsolidated statement of operations, made up of the excess of the purchase price paid over the fair value of the aircraft, less other non-cash items of $0.2 million.operations.

During the three months ended September 30, 2016, the Company purchased three A319 aircraft which were formerly financed under operating lease agreements. The purchase price for the 3 aircraft was $58.8 million, comprised of a cash payment of $58.1 million and the application of security deposits held by the previous lessor of $0.7 million. The Company estimated the fair value of the aircraft to be $38.2 million and has recorded the 3 purchased aircraft within flight equipment on the condensed balance sheets. The Company determined the valuation of the aircraft based on a third-party appraisal considering the condition of each aircraft (a Level 3 measurement). The Company recognized $7.4 million as a cost of terminating the leases within special charges on the condensed statement of operations, made up of the excess of the purchase price paid over the fair value of the aircraft, less previously expensed supplemental rent and other non-cash items of $13.2 million.

6. Earnings (Loss) per Share
Notes to Condensed Financial Statements—(Continued)

During the nine months ended September 30, 2017, the Company purchased one engine and one aircraft which were previously financed under operating lease agreements. The purchase price of the 1 engine and 1 aircraft was $8.1 million and $20.0 million, respectively, comprised of a cash payment of $3.8 million and $12.6 million, respectively, and the non-cash application of maintenance and security deposits held by the previous lessor of $4.3 million and $7.4 million, respectively. The Company estimated the fair value of the engine and aircraft to be $3.1 million and $11.9 million, respectively, and has recorded the 1 purchased engine and 1 aircraft at fair value within flight equipment on the condensed balance sheets. The Company determined the valuation of the engine and aircraft based on a third-party appraisal considering the condition of the engine and aircraft (a Level 3 measurement). The Company recognized $4.8 million and $7.9 million as a cost of terminating the lease within special charges on the condensed statement of operations, respectively, made up of the excess of the purchase price paid over the fair value of the engine and the aircraft, less other non-cash items of $0.2 million and $0.2 million, respectively.
During the nine months ended September 30, 2016, the Company purchased six A319 aircraft which were previously financed under operating lease agreements. The purchase price of the 6 aircraft was $124.7 million, comprised of a cash payment of $91.9 million and the non-cash application of maintenance and security deposits held by the previous lessor of $32.8 million. The Company estimated the fair value of the aircraft to be $79.4 million and has recorded the 6 purchased aircraft at fair value within flight equipment on the condensed balance sheets. The Company determined the valuation of the aircraft based on a third-party appraisal considering the condition of each aircraft (a Level 3 measurement). The Company recognized $31.6 million as a cost of terminating the leases within special charges on the condensed statement of operations, made up of the excess of the purchase price paid over the fair value of the aircraft, less other non-cash items of $13.7 million.

4.Earnings per Share
The following table sets forth the computation of basic and diluted earnings (loss) per common share:
Three Months Ended September 30, Nine Months Ended September 30, Three Months Ended March 31,
2017 2016 2017 2016 20212020
(in thousands, except per share amounts)(in thousands, except per-share amounts)
Numerator       Numerator
Net income$60,190
 $81,382
 $170,268
 $216,386
Net income (loss)Net income (loss)$(112,321)$(27,828)
Denominator       Denominator
Weighted-average shares outstanding, basic69,370
 69,727
 69,363
 70,689
Weighted-average shares outstanding, basic97,775 68,521 
Effect of dilutive stock awards88
 81
 174
 143
Effect of dilutive stock awards0 0 
Adjusted weighted-average shares outstanding, diluted69,458
 69,808
 69,537
 70,832
Adjusted weighted-average shares outstanding, diluted97,775 68,521 
Net income per share       
Basic earnings per common share$0.87
 $1.17
 $2.45
 $3.06
Diluted earnings per common share$0.87
 $1.17
 $2.45
 $3.05
Earnings (loss) per shareEarnings (loss) per share
Basic earnings (loss) per common shareBasic earnings (loss) per common share$(1.15)$(0.41)
Diluted earnings (loss) per common shareDiluted earnings (loss) per common share$(1.15)$(0.41)
       
Anti-dilutive weighted-average shares124

122
 76
 87


Notes to Condensed Financial Statements—(Continued)
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5.Short-term Investment Securities
7. Short-term Investment Securities

The Company's short-term investment securities are classified as available-for-sale and generally consist of available-for-sale asset-backedU.S. Treasury and U.S. government agency securities with contractual maturities of twelve12 months or less. These securities are stated at fair value within current assets on the Company's condensed consolidated balance sheets. Realized gains and losses on sales of investments, if any, are reflected in non-operating income (expense) in the condensed consolidated statements of operations. Unrealized gains and losses on investment securities are reflected as a component of accumulated other comprehensive income (AOCI).

As of September 30, 2017March 31, 2021 and December 31, 2016,2020, the Company had $100.7$106.4 million and $100.2$106.3 million in short-term available-for-sale investment securities, respectively. During the ninethree months ended September 30, 2017,March 31, 2021, these investments earned interest income at a weighted-average fixed rate of approximately 1.5% 0.1%. For the three and nine months ended September 30, 2017,March 31, 2021, an unrealized gain of $13 thousand and an unrealized loss of $11$7 thousand, net of deferred taxes of $7$2 thousand and $6was recorded within accumulated other comprehensive income ("AOCI") related to these investment securities. For the three months ended March 31, 2020, an unrealized gain of $321 thousand, respectively,net of deferred taxes of $94 thousand, was recorded within AOCI related to these investment securities. For the three and nine months ended September 30, 2016, an unrealized gain of $4 thousand, net of deferred taxes of $3 thousand, was recorded within AOCI related to these investment securities. TheMarch 31, 2021 and March 31, 2020, the Company has not recognized anyhad 0 realized gains or losses related to these securities as the Company hasdid not transactedsell any sale of these securities.securities during these periods. As of September 30, 2017March 31, 2021 and December 31, 2016, $342020, $38 thousand and $23$31 thousand, net of tax, respectively, remained in AOCI, related to these instruments.

6.Accrued Liabilities
8. Accrued Liabilities
Other current liabilities as of September 30, 2017March 31, 2021 and December 31, 20162020 consist of the following:
March 31, 2021December 31, 2020
(in thousands)
Salaries, wages and benefits$119,842 $112,838 
Federal excise and other passenger taxes and fees payable102,661 36,884 
Airport obligations71,933 68,677 
Aircraft and facility lease obligations59,575 67,374 
Interest payable33,301 37,202 
Aircraft maintenance30,857 27,466 
Fuel21,493 11,704 
Other34,164 31,469 
Other current liabilities$473,826 $393,614 
 September 30, 2017 December 31, 2016
 (in thousands)
Salaries and wages$50,635
 $54,578
Airport obligations47,289
 43,989
Federal excise and other passenger taxes and fees payable43,860
 42,064
Aircraft maintenance41,781
 30,233
Interest payable15,168
 8,499
Fuel14,940
 14,828
Aircraft and facility lease obligations11,678
 10,378
Other23,781
 21,442
Other current liabilities$249,132
 $226,011



7.Financial Instruments and Risk Management
As part of the Company’s risk management program, the Company, from time to time, may use a variety of financial instruments to reduce its exposure to fluctuations in the price of jet fuel and interest rates. The Company does not hold or issue derivative financial instruments for trading purposes.

The Company is exposed to credit losses in the event of nonperformance by counterparties to these financial instruments. The Company periodically reviews and seeks to mitigate exposure to the financial deterioration and nonperformance of any counterparty by monitoring the absolute exposure levels, each counterparty's credit ratings and the historical performance of counterparties relating to hedge transactions. The credit exposure related to these financial instruments is limited to the fair value of contracts in a net receivable position at the reporting date. The Company also maintains security agreements that require the Company to post collateral if the value of selected instruments falls below specified mark-to-market thresholds. As of 9.September 30, 2017Leases, the Company did not hold any derivatives with requirements to post collateral. The Company records financial derivative instruments at fair value, which includes an evaluation of each counterparty's credit risk.

Fuel Derivative Instruments

From time to time, the Company may enter into fuel derivative contracts in order to mitigate the risk of future volatility in fuel prices. Historically, the Company's fuel derivative contracts have generally consisted of United States Gulf Coast jet fuel swaps (jet fuel swaps) and United States Gulf Coast jet fuel options (jet fuel options). Both jet fuel swaps and jet fuel options have been used at times to protect the refining price risk between the price of crude oil and the price of refined jet fuel, and to manage the risk of increasing fuel prices. Fair value of such instruments is determined using standard option valuation models.

The Company accountsleases aircraft, engines, airport terminals, maintenance and training facilities, aircraft hangars, commercial real estate, and office and computer equipment, among other items. Certain of these leases include provisions for its fuel derivative contracts at fair valuevariable lease payments which are based on several factors, including, but not limited to, relative leased square footage, enplaned passengers, and recognizes them inairports’ annual operating budgets. Due to the variable nature of the rates, these leases are not recorded on the Company's condensed consolidated balance sheet in prepaid expenses and other current assets or other current liabilities. The Company did not enter into any fuel derivative instruments during the nine months ended September 30, 2017 and 2016 and did not have any outstanding fuel derivatives as of September 30, 2017 and December 31, 2016. Historically, the Company has not elected hedge accounting on any fuel derivative instruments entered into and,sheets as a result, changes in the fair value of fuel derivative contracts, if any, were recorded in aircraft fuel expense.
Interest Rate Swaps
During 2015, the Company settled six forward interest rate swaps that were designedright-of-use asset and lease liability. Lease terms are generally 8 years to fix the benchmark interest rate component of interest payments on the debt related to three Airbus A321 aircraft, which the Company took delivery of during the third quarter of 2015. These instruments limited the Company's exposure to changes in the benchmark interest rate in the period from the trade date through the date of maturity. The interest rate swaps were designated as cash flow hedges. The Company accounts18 years for interest rate swaps at fair value and recognizes them in the condensed balance sheet in prepaid expenses and other current assets or other current liabilities with changes in fair value recorded within accumulated other comprehensive income (AOCI). As of September 30, 2017 and December 31, 2016, the Company did not have any outstanding interest rate swaps.
Notes to Condensed Financial Statements—(Continued)

Realized gains and losses from cash flow hedges are recorded in the statement of cash flows as a component of cash flows from operating activities. Subsequent to the issuance of each debt instrument, amounts remaining in AOCI are amortized over the life of the fixed-rate debt instrument. During the three and nine months ended September 30, 2017 and 2016, there were no unrealized gains or losses recorded within AOCI related to these instruments as they settled in 2015. For the three and nine months ended September 30, 2017, the Company reclassified interest rate swap losses of $53 thousand and $160 thousand, net of tax of $31 thousand and $92 thousand, respectively, into earnings. For the three and nine months ended September 30, 2016, the Company reclassified interest rate swap losses of $56 thousand and $170 thousand, net of tax of $32 thousand and $97 thousand, respectively, into earnings. As of September 30, 2017 and December 31, 2016, $1.2 million and $1.3 million, net of tax, respectively, remained in AOCI, related to these instruments.

8.Commitments and Contingencies
Aircraft-Related Commitments and Financing Arrangements
The Company’s contractual purchase commitments consist primarily of aircraft and engine acquisitions through manufacturers. During the first quarter of 2017, the Company negotiated revisionsup to its A320 aircraft order. The Company originally had four A320neo aircraft scheduled99 years for delivery in 2018 of which two were converted to A320ceo aircraft, to be delivered in 2017,other leased equipment and the remaining two are deferred until 2019. As of September 30, 2017, the Company's aircraft orders consisted of the following:
  Airbus 
  A320ceo A320neo A321ceo Total
remainder of 2017 2 
 4 6
2018 5 
 5 10
2019 1 14 
 15
2020 
 16 
 16
2021 
 18 
 18
  8 48 9 65


The Company also has four spare engine orders for V2500 SelectTwoengines with International Aero Engines (IAE) and nine spare engine orders for PurePower PW1100G-JM engines with Pratt & Whitney. Spare engines are scheduled for delivery from 2018 through 2023. Purchase commitments for these aircraft and spare engines, including estimated amounts for contractual price escalations and pre-delivery payments, are expected to be $227.8 million for the remainder of 2017, $528.4 million in 2018, $773.7 million in 2019, $820.5 million in 2020, $784.8 million in 2021, and $24.6 million in 2022 and beyond. As of September 30, 2017, the Company had secured debt financing commitments of $160.0 million for 4 aircraft, scheduled for delivery in the remainder of 2017, and did not have financing commitments in place for the remaining 61 Airbus aircraft currently on firm order, which are scheduled for delivery in 2017 through 2021.
Interest commitments related to the secured debt financing of 40 delivered aircraft as of September 30, 2017 are $19.5 million for the remainder of 2017, $52.9 million in 2018, $48.2 million in 2019, $43.6 million in 2020, $39.0 million in 2021, and $141.5 million in 2022 and beyond. For principal commitments related to these financed aircraft, refer to Note 10, Debt and Other Obligations. As of September 30, 2017, principal and interest commitments related to the Company's future secured debt financing of 4 undelivered aircraft under bank debt are zero for the remainder of 2017, $16.5 million in 2018, $16.4 million in 2019, $17.3 million in 2020, $16.2 million in 2021, and $137.2 million in 2022 and beyond.property.
As of September 30, 2017,March 31, 2021, the Company had a fleet consisting of 107159 A320 family aircraft. During the nine months ended September 30, 2017,As of March 31, 2021, the Company took delivery of eleven aircraft financed under secured debt arrangements, twohad 56 aircraft financed under operating leases purchased one previously leased aircraftwith lease term expirations between 2023 and returned one aircraft to its lessor.2039. In addition, the Company took deliveryowned 103 aircraft of twowhich 31 were purchased engines and one engine financed under an operatingoff lease and purchased one previously leased engine. For further discussion on the previously leased aircraft and engine, refer to Note 3, Special Charges. New purchased aircraft are capitalized within flight equipment with depreciable liveswere unencumbered as of 25 years and estimated residual values of 10%.March 31, 2021. As of September 30, 2017,March 31, 2021, the Company also had 59 aircraft and 118 spare engines financed under operating leases with lease term expiration dates ranging from 20172023 to 2029. The2033 and owned 16 spare engines, all of which, as of March 31, 2021, were pledged as collateral under the Company's revolving credit facility maturing in 2024.
Some of the Company’s aircraft and engine master lease agreements provide that the Company entered into sale and leaseback transactions with third-partypays maintenance reserves to aircraft lessors forto be held as collateral in advance of the Company’s required performance of major maintenance activities. A majority of these maintenance reserve payments are calculated based on a utilization measure, such as flight hours or cycles, while some maintenance reserve payments are fixed, time-based contractual amounts. Maintenance reserve payments that are probable of being recovered when the Company performs qualifying maintenance are recorded in aircraft maintenance deposits on the Company's condensed consolidated balance sheets. Fixed maintenance reserve payments that are not probable of being recovered are considered lease payments and engine leases. Deferred losses resulting from
Notes to Condensed Financial Statements—(Continued)

these sale and leaseback transactions are included in other long-term assetsthe right-of-use asset and lease liability. Maintenance reserve payments that are based on the accompanying condensed balance sheets. Deferred lossesa utilization measure and are not probable of being recovered are considered variable lease
13

payments that are recognized when they are probable of being incurred and are not included in the right-of-use asset and lease liability.
Some of the master lease agreements do not require that the Company pay maintenance reserves so long as an increasethe Company's cash balance does not fall below a certain level. As of March 31, 2021, the Company was in full compliance with those requirements and does not anticipate having to pay reserves related to these master leases in the future.
Aircraft rent expense consists of monthly lease rents for aircraft and spare engines under the terms of the Company's aircraft and spare engine lease agreements recognized on a straight-line basis over the termbasis. Aircraft rent expense also includes maintenance reserves paid to aircraft lessors in advance of the respective operating leases. Deferred gainsperformance of major maintenance activities that are included in deferred creditsnot probable of being reimbursed and other long-term liabilities on the accompanying condensed balance sheets. Deferred gains are recognized as a decrease to rent expense on a straight-line basis over the term of the respective operating leases.probable lease return condition obligations.
Under the terms of the lease agreements, the Company will continue to operate and maintain the aircraft. Payments under the majority of the lease agreements are fixed for the term of the lease. The lease agreements contain standard termination events, including termination upon a breach of the Company's obligations to make rental payments and upon any other material breach of the Company's obligations under the leases, and standard maintenance and return condition provisions. These return provisions are evaluated at inception of the lease and throughout the lease terms and are accounted for as supplemental rent expenseeither fixed or variable lease payments (depending on the nature of the lease return condition) when it is probable that such amounts will be incurred. When determining probability and estimated cost of lease return obligations, there are various other factors that need to be considered such as the contractual terms of the lease, the ability to swap engines or other aircraft components, current condition of the aircraft, the age of the aircraft at lease expiration, utilization of engines and other components, the extent of repairs needed at return, return locations, current configuration of the aircraft and cost of repairs and materials at the time of return. Management assesses the factors listed above and the need to accrue lease return costs throughout the lease as facts and circumstances warrant an assessment. As a result of COVID-19, the Company is currently operating its aircraft at lower utilization levels. If the Company continues flying its aircraft at lower utilization levels beyond its current projections, the timing of future maintenance events may change such that the Company will be required to accrue lease return costs and/or record reserves against its maintenance deposits earlier than it would have expected and such amounts could be significant. The Company expects lease return costs and unrecoverable maintenance deposits will increase as individual aircraft lease agreements approach their respective termination dates and the Company begins to accrue the estimated cost of return conditions for the corresponding aircraft. Upon a termination of the lease due to a breach by the Company, the Company would be liable for standard contractual damages, possibly including damages suffered by the lessor in connection with remarketing the aircraft or while the aircraft is not leased to another party.
In July 2015,During the three months ended March 31, 2021, the Company executed an upgrade service agreement with Airbus Americas Customer Services Inc. (Airbus) to reconfigure the seatingtook delivery of 2 aircraft under operating leases and increase capacity in 40purchased 2 previously leased aircraft.
As of the Company’s A320ceos from 178 to 182 seats (reconfiguration). The reconfiguration of the aircraft commenced in the first quarter of 2016 and is expected to be completed in the fourth quarter of 2017 for a remaining committed cost of $0.6 million, as of September 30, 2017. These amounts will be capitalized within flight equipment on the condensed balance sheets.
In September 2015, the Company executed a lease agreement with Wayne County Airport Authority (the Authority), which owns and operates Detroit Metropolitan Wayne County Airport (DTW). Under the lease agreement, the Company leases a 10-acre site, adjacent to the airfield at DTW, in order to construct, operate and maintain an approximately 126,000-square-foot hangar facility (the project). The project allows for the development of a maintenance hangar in order to fulfill the requirements ofMarch 31, 2021, the Company's growing fleet and will reduce dependence on third-party facilities and contract maintenance. Thefinance lease agreement has a 30-year term with two 10-year extension options. Upon termination of the lease, title of the project, which will be fully depreciated, will automatically pass to the Authority. The Company completed the project during the first quarter of 2017 and has no remaining commitments related to this project as of September 30, 2017.

Future minimum lease payments under capital leases and noncancellable operating leases with initial or remaining terms in excess of one year at September 30, 2017 were as follows:
  Capital Leases Aircraft and Spare Engine Leases Property Facility Leases 
Total
Operating and Capital Lease Obligations
 (in thousands)
remainder of 2017 $134
 $53,017
 $12,409
 $65,560
2018 537
 204,292
 43,726
 248,555
2019 504
 189,106
 36,512
 226,122
2020 188
 180,842
 25,604
 206,634
2021 28
 170,643
 12,740
 183,411
2022 and thereafter —
 570,120
 73,142
 643,262
Total minimum lease payments $1,391
 $1,368,020
 $204,133
 $1,573,544
Less amount representing interest 114
      
Present value of minimum lease payments $1,277
      
Less current portion 468
      
Long-term portion $809
      

The majority of the Company's capital lease obligations primarily relate to the lease of computer equipment used by the Company's flight crew.crew and office equipment. Payments under thisthese finance lease agreementagreements are fixed for terms ranging from 4 to 5 years. Finance lease assets are recorded within property and equipment and the 3-year termrelated liabilities are recorded within long-term debt and finance leases in the Company's condensed consolidated balance sheets.
The following table provides details of the Company's future minimum lease which began in the second quarter of 2017.
Aircraft rent expense consists of monthlypayments under finance lease rents for aircraftliabilities and spare engines under the terms ofoperating lease liabilities recorded on the Company's condensed consolidated balance sheets as of March 31, 2021. The table does not include commitments that are contingent on events or other factors that are currently uncertain or unknown.
14

Finance LeasesOperating Leases
Aircraft and Spare Engine LeasesProperty Facility LeasesTotal
Operating and Finance Lease Obligations
(in thousands)
remainder of 2021 (1)$564 $179,092 $3,704 $183,360 
2022725 212,304 4,671 217,700 
2023349 204,097 3,983 208,429 
202497 182,035 2,819 184,951 
20250 160,411 1,060 161,471 
2026 and thereafter0 1,072,555 143,093 1,215,648 
Total minimum lease payments$1,735 $2,010,494 $159,330 $2,171,559 
Less amount representing interest113 589,617 134,283 724,013 
Present value of minimum lease payments$1,622 $1,420,877 $25,047 $1,447,546 
Less current portion673 131,744 3,516 135,933 
Long-term portion$949 $1,289,133 $21,531 $1,311,613 
(1) Includes $19.9 million of aircraft and spare engine lease agreements recognizedrent payment deferrals due to COVID-19 which are recorded in other current liabilities within the Company's condensed consolidated balance sheets.
Commitments related to the Company's noncancellable short-term operating leases not recorded on a straight-line basis. Aircraft rent expense also includes supplemental rent. Supplemental rent is made up of maintenance reserves paid orthe Company's condensed consolidated balance sheets are expected to be paid$2.2 million for the remainder of 2021 and NaN for 2022 and beyond. During 2020, the Company entered into agreements to defer payments in 2020 and early 2021 related to facility rents and other airport service contracts at certain locations. Also during 2020, the Company entered into agreements to defer payments in 2020 and early 2021 related to certain aircraft lessors in advance of the
Notes to Condensed Financial Statements—(Continued)

performance of major maintenance activities that are not probable of being reimbursed, and probable return condition obligations.engine leases. The Company expects supplementalelected to apply the practical expedient issued by the Financial Accounting Standards Board in April 2020 which allows companies to treat a lease concession related to COVID-19 as though enforceable rights and obligations for the concessions existed regardless of whether those enforceable rights and obligations explicitly exist in the lease agreement. Amounts deferred as of March 31, 2021 are recorded in accrued rent within other current liabilities on the Company's condensed consolidated balance sheet.
The table below presents information for lease costs related to increasethe Company's finance and operating leases:
Three Months Ended March 31,
20212020
(in thousands)
Finance lease cost
Amortization of leased assets$168 $135 
Interest of lease liabilities24 113 
Operating lease cost
Operating lease cost (1)
52,141 47,217 
Short-term lease cost (1)
7,015 3,823 
Variable lease cost (1)
38,149 32,706 
Total lease cost$97,497 $83,994 
(1) Expenses are classified within aircraft rent and landing fees and other rents on the Company's condensed consolidated statements of operations.
The table below presents lease terms and discount rates related to the Company's finance and operating leases:
15

March 31, 2021March 31, 2020
Weighted-average remaining lease term
Operating leases13.2 years13.1 years
Finance leases2.4 years3.0 years
Weighted-average discount rate
Operating leases6.06 %6.04 %
Finance leases5.52 %6.16 %


10. Commitments and Contingencies
Aircraft-Related Commitments and Financing Arrangements
The Company’s contractual purchase commitments consist primarily of aircraft and engine acquisitions through manufacturers and aircraft leasing companies. As of March 31, 2021, the Company's total firm aircraft orders consisted of 126 A320 family aircraft with Airbus, including A319neos, A320neos and A321neos, with deliveries expected through 2027. Out of these 126 aircraft, the Company has 6 aircraft scheduled for delivery in the remainder of 2021 and 17 aircraft scheduled for delivery in 2022. In addition, as individual aircraft lease agreements approach their respective termination dates andof March 31, 2021, the Company begins to accruehas financing agreements in place for 8 direct leases for A320neos with third-party lessors with deliveries scheduled in the estimated costremainder of return conditions2021.

The Company also has 1 spare engine order for the corresponding aircraft.
Somea V2500 SelectTwo engine with International Aero Engines ("IAE") and 2 spare engine orders for PurePower PW1100G-JM engines with Pratt & Whitney. Spare engines are scheduled for delivery from 2021 through 2023. As of the Company’s master lease agreements provide that the Company pay maintenance reserves to aircraft lessors to be held as collateral in advance of the Company’s required performance of major maintenance activities. Substantially all of these maintenance reserve payments are calculated based on a utilization measure, such as flight hours or cycles, while some maintenance reserve payments are fixed contractual amounts. Fixed maintenance reserve paymentsMarch 31, 2021, purchase commitments for these aircraft and related flight equipment,engines, including estimated amounts for contractual price escalations and pre-delivery payments, are expected to be $1.9$380.3 million for the remainder of 2017, $6.9 million in 2018, $5.7 million in 2019, $5.4 million in 2020, $5.5 million in 2021, and $17.7$884.5 million in 2022, $908.3 million in 2023, $980.0 million in 2024, $1,066.6 million in 2025, and $2,248.4 million in 2026 and beyond. During the third quarter of 2019, the United States announced its decision to levy tariffs on certain imports from the European Union, including commercial aircraft and related parts. These lease agreements providetariffs include aircraft and other parts that maintenance reserves are reimbursable to the Company upon completionis already contractually obligated to purchase including those reflected above. In February 2020, the rate of this tariff was increased from 10% to 15%. The imposition of these tariffs may substantially increase the cost of new Airbus aircraft and parts required to service the Company's Airbus fleet.

As of March 31, 2021, the Company did not have financing commitments in place for the remaining 126 Airbus aircraft on firm order through 2027. However, the Company has a financing letter of agreement with Airbus which provides backstop financing for a majority of the maintenance eventaircraft included in an amount equalthe A320 NEO Family Purchase Agreement signed in the fourth quarter of 2019. The agreement provides a standby credit facility in the form of senior secured mortgage debt financing.
As of March 31, 2021, aircraft rent commitments for future aircraft deliveries to either (1)be financed under direct leases from third-party lessors are expected to be approximately $13.7 million for the amountremainder of the maintenance reserves held by the lessor associated with the specific maintenance event or (2) the qualifying costs2021, $29.2 million in 2022, $29.2 million in 2023, $29.2 million in 2024, $29.2 million in 2025, and $220.3 million in 2026 and beyond.
Interest commitments related to the specific maintenance event. Somesecured debt financing of 72 delivered aircraft as of March 31, 2021 are $59.4 million for the master lease agreements do not require that the Company pay maintenance reserves as long asremainder of 2021, $71.7 million in 2022, $61.0 million in 2023, $49.8 million in 2024, $42.4 million in 2025, and $96.1 million in 2026 and beyond. As of March 31, 2021, interest commitments related to the Company's cash balance does not fall below a certain level. As8.00% senior secured notes, convertible debt financing, unsecured term loans and revolving credit facility are $60.1 million for the remainder of September 30, 2017, the Company was2021, $77.3 million in full compliance with those requirements2022, $77.3 million in 2023, $77.3 million in 2024, $68.2 million in 2025, and does not anticipate having to pay reserves$11.8 million in 2026 and beyond. For principal commitments related to these master leases in the future.Company's debt financing, refer to Note 12, Debt and Other Obligations.
The Company is contractually obligated to pay the following minimum guaranteed payments for its reservation system new airport kiosks and other miscellaneous subscriptions and services as of September 30, 2017: $1.8March 31, 2021: $20.7 million for the remainder of 2017, $5.72021, $21.4 million in 2018, $1.62022, $18.9 million in 2019, $1.02023, $16.1 million in 2020, $0.52024, $16.7 million in 2021,2025, and $0.2$35.6 million in 2026 and thereafter. The Company's current agreementDuring the first quarter of 2018, the Company entered into a contract renewal with its reservation system provider which expires in 2018.2028.
Litigation
16

The Company is subject to commercial litigation claims and to administrative and regulatory proceedings and reviews that may be asserted or maintained from time to time. The Company believes the ultimate outcome of such lawsuits, proceedings and reviews will not, individually or in the aggregate, have a material adverse effect on its financial position, liquidity or results of operations.
Credit Card Processing Arrangements
The Company has agreements with organizations that process credit card transactions arising from the purchase of air travel, baggage charges, and other ancillary services by customers. As is standard in the airline industry, the Company's contractual arrangements with credit card processors permit them, under certain circumstances, to retain a holdback or other collateral, which the Company records as restricted cash, when future air travel and other future services are purchased via credit card transactions. The required holdback is the percentage of the Company's overall credit card sales that its credit card processors hold to cover refunds to customers if the Company fails to fulfill its flight obligations.
The Company's credit card processors do not require the Company to maintain cash collateral ifprovided that the Company satisfies certain liquidity and other financial covenants. Failure to meet these covenants would provide the processors the right to place a holdback resulting in a commensurate reduction of unrestricted cash. As of September 30, 2017March 31, 2021 and December 31, 2016,2020, the Company was in compliance with such liquidity and other financial covenants in itsCompany's credit card processing agreements and the processors were holding back no0 remittances.
The maximum potential exposure to cash holdbacks by the Company's credit card processors, based upon advance ticket sales and $9 FareSpirit Saver$ ClubTM memberships as of September 30, 2017March 31, 2021 and December 31, 2016,2020, was $322.3$600.9 million and $234.6$423.7 million,, respectively.
Notes to Condensed Financial Statements—(Continued)

Employees
The Company has four5 union-represented employee groups that together represented approximately 75%82% of all employees at September 30, 2017.as of March 31, 2021. The table below sets forth the Company's employee groups and status of the collective bargaining agreements as of September 30, 2017.
March 31, 2021.
Employee GroupsRepresentativeAmendable DatePercentage of Workforce
PilotsAir Line Pilots Association, International (ALPA)("ALPA")August 2015February 202326%29%
Flight AttendantsAssociation of Flight Attendants (AFA-CWA)("AFA-CWA")MaySeptember 202144%46%
DispatchersTransport Workers Union (TWU)Professional Airline Flight Control Association ("PAFCA")August 2018October 20231%
Ramp Service AgentsInternational Association of Machinists and Aerospace Workers (IAMAW)("IAMAW")June 20204%3%
Passenger Service AgentsTransport Workers Union of America ("TWU")NA3%

In August 2015,February 2020, the Company's collective bargaining agreement with its pilots, represented by ALPA, became amendable. In June 2016, ALPA requested the services of the National Mediation Board (NMB) to facilitate negotiations for an amended agreement andIAMAW notified the Company, joined ALPA in the request. The NMB has assigned mediators and the parties continue to work toward an amended agreement with the guidance of the mediator. Underas required by the Railway Labor Act, (RLA),that it intends to submit proposed changes to the parties' currentcollective bargaining agreement remainscovering the Company's ramp service agents which became amendable in effect untilJune 2020. The parties expect to schedule meeting dates for negotiations soon.
The Company's passenger service agents are represented by the TWU, but the representation applies only to the Company's Fort Lauderdale station where the Company has direct employees in the passenger service classification. The Company and the TWU began meeting in late October 2018 to negotiate an amended agreement is reached.initial collective bargaining agreement. As of March 31, 2021, the Company continued to negotiate with the TWU.

In March 2016, underFebruary 2021, the supervisionCompany entered into a Letter of Agreement with the AFA-CWA to change the amendable date of the NMB, the Company and AFA-CWA reached a tentativecollective bargaining agreement for a five-year contract with the Company's flight attendants. Infrom May 2016, the flight attendants voted4, 2021 to approve the new five-year contract with the Company. In connection with this agreement, the Company paid a $9.6 million ratification incentive of which $8.4 million was recorded within salaries, wages and benefits in the condensed statement of operations for the nine months ended September 30, 2016.
The Company is self-insured for health care claims, up to a stop loss amount for eligible participating employees and qualified dependent medical claims, subject to deductibles and limitations. The Company’s liabilities for claims incurred but not reported are determined based on an estimate1, 2021. All other terms of the ultimate aggregate liability for claims incurred. The estimate is calculated from actual claim rates and adjusted periodically as necessary. The Company has accrued $5.5 million and $5.7 million in health care claims as of September 30, 2017 and December 31, 2016, respectively.collective bargaining agreement remain the same.

9.Fair Value Measurements
Under ASC 820, 11.Fair Value Measurements
Under ASC 820, "Fair Value Measurements and Disclosures,," disclosures relating to how fair value is determined for assets and liabilities are required, and a hierarchy for which these assets and liabilities must be grouped is established, based on significant levels of inputs, as follows:
17

Level 1—Quoted prices in active markets for identical assets or liabilities.
Level 2—Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
Level 3—Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.
Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The Company utilizes several valuation techniques in order to assess the fair value of the Company’s financial assets and liabilities.
Fuel Derivative Instruments
From time to time, the Company may enter into fuel derivative contracts in order to mitigate the risk of future volatility in fuel prices. The Company’s fuel derivative contracts generally consist of jet fuel swaps and jet fuel options. These instruments are valued using energy and commodity market data, which is derived by combining raw inputs with quantitative models and processes to generate forward curves and volatilities.
The Company utilizes the market approach to measure fair value for its fuel derivative instruments, if any. The market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities.
Notes to Condensed Financial Statements—(Continued)


The Company does not elect hedge accounting on its fuel derivative instruments. As a result, the Company records the fair value adjustment of its fuel derivatives in the accompanying statement of operations within aircraft fuel and on the condensed balance sheets within prepaid expenses and other current assets or other current liabilities, depending on whether the net fair value of the derivatives is in an asset or liability position as of the respective date. Fair values of the fuel derivative instruments are determined using standard option valuation models. The Company also considers counterparty risk and its own credit risk in its determination of all estimated fair values. The Company offsets fair value amounts recognized for derivative instruments executed with the same counterparty under a master netting arrangement. The Company determines fair value of jet fuel options utilizing an option pricing model based on inputs that are either readily available in public markets or can be derived from information available in publicly quoted markets. The Company has consistently applied these valuation techniques in all periods presented and believes it has obtained the most accurate information available for the types of derivative contracts it holds.

The fair value of the Company's jet fuel swaps is determined based on inputs that are readily available in public markets or can be derived from information available in publicly quoted markets; therefore, the Company categorizes these instruments as Level 2. Due to the fact that certain inputs utilized to determine the fair value of jet fuel options are unobservable (principally implied volatility), the Company categorizes these derivatives as Level 3. Implied volatility of a jet fuel option is the volatility of the price of the underlying commodity that is implied by the market price of the option based on an option pricing model. Thus, it is the volatility that when used in a particular pricing model yields a theoretical value for the option equal to the current market price of that option. Implied volatility, a forward-looking measure, differs from historical volatility because the latter is calculated from known past returns. At each balance sheet date, the Company substantiates and adjusts unobservable inputs. The Company routinely assesses the valuation model's sensitivity to changes in implied volatility. Based on the Company's assessment of the valuation model's sensitivity to changes in implied volatility, it concluded that holding other inputs constant, a significant increase (decrease) in implied volatility would result in a significantly higher (lower) fair value measurement for the Company's aircraft fuel derivatives. As of September 30, 2017 and December 31, 2016, the Company had no outstanding jet fuel derivatives.
Long-Term Debt
The estimated fair value of the Company's non-publicly heldsecured notes, term loan debt agreements hasand revolving credit facilities have been determined to be Level 3 as certain inputs used to determine the fair value of these agreements are unobservable. The Company utilizes a discounted cash flow method to estimate the fair value of the Level 3 long-term debt. The estimated fair value of the Company's publicly and non-publicly held EETC debt agreements and the Company's convertible notes has been determined to be Level 2 as the Company utilizes quoted market prices in markets with low trading volumes to estimate the fair value of its publicLevel 2 long-term debt.
The carrying amounts and estimated fair values of the Company's long-term debt at September 30, 2017March 31, 2021 and December 31, 20162020 were as follows:
March 31, 2021December 31, 2020Fair Value Level Hierarchy
 Carrying ValueEstimated Fair ValueCarrying ValueEstimated Fair Value
(in millions)
8.00% senior secured notes$850.0 $881.8 $850.0 $886.0 Level 3
Fixed-rate term loans1,272.9 1,303.2 1,301.9 1,362.9 Level 3
Unsecured term loans98.7 105.5 73.3 83.1 Level 3
2015-1 EETC Class A322.6 323.4 322.6 323.4 Level 2
2015-1 EETC Class B64.0 63.8 64.0 62.5 Level 2
2015-1 EETC Class C86.6 81.7 86.6 77.8 Level 2
2017-1 EETC Class AA207.3 207.9 214.4 207.4 Level 2
2017-1 EETC Class A69.1 67.2 71.5 68.8 Level 2
2017-1 EETC Class B58.2 56.2 60.6 56.2 Level 2
2017-1 EETC Class C85.5 79.9 85.5 76.3 Level 2
Convertible debt175.0 538.2 175.0 380.3 Level 2
Revolving credit facilities180.0 180.0 275.1 275.1 Level 3
Total long-term debt$3,469.9 $3,888.8 $3,580.5 $3,859.9 
 September 30, 2017 December 31, 2016 Fair Value Level Hierarchy
 Carrying Value Estimated Fair Value Carrying Value Estimated Fair Value 
 (in millions)  
Senior term loans$426.4
 $446.2
 $451.9
 $463.9
 Level 3
Junior term loans41.3
 42.7
 47.1
 48.1
 Level 3
Fixed-rate loans363.4
 370.1
 —
 —
 Level 3
Class A enhanced equipment trust certificates423.6
 440.6
 409.8
 416.0
 Level 2
Class B enhanced equipment trust certificates100.0
 103.3
 103.6
 105.7
 Level 2
Total long-term debt$1,354.7
 $1,402.9
 $1,012.4
 $1,033.7
  

Cash and Cash Equivalents

Cash and cash equivalents at September 30, 2017March 31, 2021 and December 31, 20162020 are comprised of liquid money market funds and cash, and are categorized as Level 1 instruments. The Company maintains cash with various high-quality financial institutions.
Restricted Cash

Restricted cash is comprised of cash held in account subject to account control agreements or otherwise pledged as collateral against the Company's letters of credit and is categorized as a Level 1 instrument. As of March 31, 2021, the Company had a $30.0 million standby letter of credit secured by restricted cash, of which $24.4 million had been drawn upon for issued letters of credit. In addition, the Company had $34.0 million of restricted cash held in accounts subject to control agreements to be used for the payment of interest and fees on the 8.00% senior secured notes.
18

Short-term Investment Securities
Notes to Condensed Financial Statements—(Continued)


Short-term investment securities at September 30, 2017March 31, 2021 and December 31, 20162020 are comprisedclassified as available-for-sale and generally consist of available-for-sale asset-backedU.S. Treasury and U.S. government agency securities with contractual maturities of twelve12 months or less andless. The Company's short-term investment securities are categorized as Level 1 instruments, as the Company uses quoted market prices in active markets when determining the fair value of these securities. For additional information, refer to Note 7, Short-term Investment Securities.

Assets Held for Sale

The Company's assets held for sale consist of rotable aircraft parts. When long-lived assets are identified as held for sale and the required criteria are met, the Company reclassifies the assets from property and equipment to prepaid expenses and other current assets on the Company's condensed consolidated balance sheets and discontinues depreciation. The assets are measured at the lower of the carrying amount or fair value less cost to sell and a loss is recognized for any initial adjustment of the asset’s carrying amount to fair value less cost to sell. Such valuations include estimations of fair values and incremental direct costs to transact a sale. The fair value measurements for the Company's held-for-sale assets were based on Level 3 inputs, which include information obtained from third-party valuation sources. As of March 31, 2021 and December 31, 2020, the Company had $2.3 million in assets held for sale recorded within prepaid expenses and other current assets in the Company's condensed consolidated balance sheets. The balance of the Company's held-for-sale assets remained the same during the three months ended March 31, 2021, as the Company had no purchases, sales nor realized and unrealized losses or gains related to these assets during this period.
Assets and liabilities measured at gross fair value on a recurring basis are summarized below:
 Fair Value Measurements as of March 31, 2021
 TotalLevel
1		Level
2		Level
3
(in millions)
Cash and cash equivalents$1,774.5 $1,774.5 $0 $0 
Restricted cash64.0 64.0 0 0 
Short-term investment securities106.4 106.4 0 0 
Assets held for sale2.3 0 0 2.3 
Total assets$1,947.2 $1,944.9 $0 $2.3 
Total liabilities$0 $0 $0 $0 
 Fair Value Measurements as of September 30, 2017
 Total
Level
1
Level
2
Level
3

(in millions)
Cash and cash equivalents$863.7

$863.7

$—

$—
Short-term investment securities100.7

100.7

—

—
Total assets$964.4

$964.4

$—

$—











Total liabilities$—

$—

$—

$—
 Fair Value Measurements as of December 31, 2016
 Total
Level
1
Level
2
Level
3

(in millions)
Cash and cash equivalents$700.9

$700.9

$—

$—
Short-term investment securities100.2

100.2

—

—
Total assets$801.1

$801.1

$—

$—












Total liabilities$—

$—

$—

$—

 Fair Value Measurements as of December 31, 2020
 TotalLevel
1		Level
2		Level
3
(in millions)
Cash and cash equivalents$1,789.7 $1,789.7 $0 $0 
Restricted cash71.4 71.4 0 0 
Short-term investment securities106.3 106.3 0 0 
Assets held for sale2.3 0 0 2.3 
Total assets$1,969.7 $1,967.4 $0 $2.3 
Total liabilities$0 $0 $0 $0 

The Company had no transfers of assets or liabilities between any of the above levels during the ninethree months ended September 30, 2017.March 31, 2021 and the year ended December 31, 2020.

19

The Company's Valuation Group, which reports to the Chief Financial Officer, is made up of individuals from the Company's Treasury and Corporate Accounting departments. The Valuation Group is responsible for the execution of the Company's valuation policies and procedures. The Valuation Group compares the results of the Company's internally developed valuation methods with counterparty reports at each balance sheet date, assesses the Company's valuation methods for accurateness and identifies any needs for modification.


12. Debt and Other Obligations

10.Debt and Other Obligations

As of September 30, 2017,March 31, 2021, the Company heldhad outstanding public and non-public and public debt instruments. During the three months ended March 31, 2021, the Company incurred debt through a fixed-rate unsecured term loan.

Unsecured term loans

In connection with the Company's participation in the PSP2, the Company received a total of $184.5 million in the first quarter of 2021, used exclusively to pay for salaries, wages and benefits for the Company's Team Members through March 31, 2021. Of that amount, $25.3 million isin the form of a low-interest 10-year unsecured term loan. Interest on this loan is payable semi-annually at a rate of 1.0% in years 1 through 5 and a rate of the Secured Overnight Financing Rate plus 2.0% in years 6 through 10. The note is prepayable at any time, without penalty, at the Company’s option and has principal due at maturity in 2031.

The Company has concluded that no terms exist within the contract that would require a short-term classification of the debt instrument within the Company’s condensed consolidated balance sheet at the inception of the loan. Therefore, the debt has been recorded at face value and classified within long-term debt and finance leases in the Company’s condensed consolidated balance sheets.

Revolving credit facility due in 2024

On March 30, 2020, the Company entered into a revolving credit facility for $110.0 million, with an option to increase the overall commitment amount up to $350 million with the consent of any participating lenders and subject to borrowing base availability. In the second quarter of 2020, the commitment was increased to $180.0 million. During the first quarter of 2021, the commitment was further increased to $240.0 million. As of March 31, 2021 and December 31, 2020, the Company had drawn $180.0 million on the revolving credit facility leaving $60.0 million undrawn and available as of March 31, 2021. Any amounts drawn on this facility are included in long-term debt and finance leases, less current maturities on the Company's condensed consolidated balance sheets. During the first quarter of 2021, the maturity date of the facility was extended for two additional years. The final maturity of the facility is March 30, 2024.

Revolving credit facility due in 2021

During the fourth quarter of 2018, the Company entered into a revolving credit facility for up to $160.0 million secured by the collateral assignment of certain of the Company's rights under the purchase agreement with Airbus, related to Airbus A320neo aircraft scheduled to be delivered at the time. The maximum borrowing capacity of the facility decreased with the deliveries of the related aircraft. As of December 31, 2020, the Company had drawn the then maximum borrowing capacity of $95.1 million, included in current maturities of long-term debt and finance leases on the Company's condensed consolidated balance sheets. The revolving credit facility matured on March 30, 2021 and as such, no amounts remained outstanding as of March 31, 2021.

Convertible debt

On May 12, 2020, the Company completed the public offering of $175.0 million aggregate principal amount of 4.75% convertible senior notes due 2025. As of March 31, 2021, the if-converted value exceeds the principal amount of the convertible notes by $265.4 million, using the average stock price for the three months ended March 31, 2021. Since the notes are currently convertible in accordance with the terms of the indenture governing such notes, the Company has $175.0 million recorded within current maturities of long-term debt and finance leases on its condensed consolidated balance sheets related to its convertible debt.

20

Noteholders may convert their notes at their option only in the following circumstances: (1) during any calendar quarter commencing after the calendar quarter ending on June 30, 2020 (and only during such calendar quarter), if the last reported sale price per share of the Company’s common stock exceeds 130% of the conversion price for each of at least 20 trading days (whether or not consecutive) during the 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding calendar quarter; (2) during the five consecutive business days immediately after any five consecutive trading day period (such five consecutive trading day period, the “measurement period”) in which the trading price per $1,000 principal amount of notes for each trading day of the measurement period was less than 98% of the product of the last reported sale price per share of the Company’s common stock on such trading day and the conversion rate on such trading day; (3) upon the occurrence of certain corporate events or distributions on the Company’s common stock; and (4) at any time from, and including, February 18, 2025 until the close of business on the second scheduled trading day immediately before the maturity date. As of March 31, 2021, the notes may be converted by noteholders through June 30, 2021. No notes were converted during the quarter ended March 31, 2021.

Upon conversion, the Company will pay or deliver, as the case may be, cash, shares of the Company’s common stock or a combination of cash and shares of common stock, at the Company’s election. The initial conversion rate is 78.4314 shares of voting common stock per $1,000 principal amount of convertible notes (equivalent to an initial conversion price of approximately $12.75 per share of common stock). The conversion rate will be subject to adjustment in some events but will not be adjusted for any accrued and unpaid interest. The Company intends to settle conversions in cash up to the principal amount of the convertible notes, with any excess conversion value settled in shares of the Company's common stock.


Long-term debt is comprised of the following:
Notes to Condensed Financial Statements—(Continued)
As ofAs of
March 31, 2021December 31, 2020March 31, 2021December 31, 2020
(in millions)(weighted-average interest rates)
8.00% senior secured notes due in 2025$850.0 $850.0 8.00 %8.00 %
Fixed-rate loans due through 20321,272.9 1,301.9 3.36 %3.36 %
Unsecured term loans due in 203198.7 73.3 1.00 %1.00 %
Fixed-rate class A 2015-1 EETC due through 2028322.6 322.6 4.10 %4.10 %
Fixed-rate class B 2015-1 EETC due through 202464.0 64.0 4.45 %4.45 %
Fixed-rate class C 2015-1 EETC due through 202386.6 86.6 4.93 %4.93 %
Fixed-rate class AA 2017-1 EETC due through 2030
207.3 214.4 3.38 %3.38 %
Fixed-rate class A 2017-1 EETC due through 2030
69.1 71.5 3.65 %3.65 %
Fixed-rate class B 2017-1 EETC due through 2026
58.2 60.6 3.80 %3.80 %
Fixed-rate class C 2017-1 EETC due through 2023
85.5 85.5 5.11 %5.11 %
Convertible debt due in 2025175.0 175.0 4.75 %4.75 %
Revolving credit facility due in 20210 95.1 N/A1.55 %
Revolving credit facility due in 2024180.0 180.0 2.11 %2.15 %
Long-term debt$3,469.9 $3,580.5 
Less current maturities356.0 383.5 
Less unamortized discounts, net

66.5 131.4 
Total$3,047.4 $3,065.6 

  As of Three Months Ended September 30, Nine Months Ended September 30,
 September 30, 2017 December 31, 2016 2017 2016 2017 2016
  (in millions) (weighted-average interest rates)
Fixed-rate senior term loans due through 2027 $426.4
 $451.9
 4.10% 4.10% 4.10% 4.10%
Fixed-rate junior term loans due through 2022 41.3
 47.1
 6.90% 6.90% 6.90% 6.90%
Fixed-rate loans due through 2029 363.4
 —
 3.76% N/A
 3.76% N/A
Fixed-rate class A enhanced equipment trust certificates due through 2028 423.6
 409.8
 4.10% 4.03% 4.10% 4.03%
Fixed-rate class B enhanced equipment trust certificates due through 2024 100.0
 103.6
 4.45% 4.38% 4.45% 4.38%
Long-term debt $1,354.7
 $1,012.4
        
Less current maturities 106.0
 84.4
        
Less unamortized discounts

 34.6
 30.6
        
Total $1,214.1
 $897.4
        

During the three and nine months ended September 30, 2017,March 31, 2021, the Company made scheduled principal payments of $13.4 million and $63.4$135.9 million on its outstanding debt obligations, respectively.obligations. During the three and nine months ended September 30, 2016,March 31, 2020, the Company made scheduled principal payments of $10.0 million and $29.6$42.6 million on its outstanding debt obligations, respectively.obligations.
21

At September 30, 2017,March 31, 2021, long-term debt principal payments for the next five years and thereafter are as follows:
March 31, 2021
(in millions)
remainder of 2021$154.0 
2022192.0 
2023335.5 
2024401.0 
20251,212.2 
2026 and beyond1,175.2 
Total debt principal payments$3,469.9 
  September 30, 2017
  (in millions)
Remainder of 2017 $39.0
2018 108.0
2019 107.5
2020 107.1
2021 106.9
2022 and beyond 886.2
Total debt principal payments $1,354.7



Interest Expense

Interest expense related to long-term debt consistedand finance leases consists of the following:
Notes to Condensed Financial Statements—(Continued)
 Three Months Ended March 31,
20212020
(in thousands)
8.00% senior secured notes (1)$17,434 $0 
Fixed-rate term loans10,903 10,426 
Unsecured term loans199 0 
Class A 2015-1 EETC3,275 3,549 
Class B 2015-1 EETC705 795 
Class C 2015-1 EETC1,056 1,209 
Class AA 2017-1 EETC1,755 1,887 
Class A 2017-1 EETC633 680 
Class B 2017-1 EETC557 644 
Class C 2017-1 EETC1,080 1,092 
Convertible debt2,078 0 
Revolving credit facilities1,170 1,159 
Finance leases24 113 
Commitment and other fees428 218 
Amortization of deferred financing costs3,509 2,106 
Total$44,806 $23,878 

 Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016
 (in thousands)
Senior term loans$4,564
 $4,917
 $13,854
 $14,929
Junior term loans746
 879
 2,323
 2,721
Fixed-rate loans2,811
 —
 4,555
 —
Class A enhanced equipment trust certificates4,366
 3,538
 12,995
 7,419
Class B enhanced equipment trust certificates1,118
 1,015
 3,410
 2,124
Commitment fees29
 32
 87
 97
Amortization of debt discounts1,362
 979
 3,883
 2,289
Total$14,996
 $11,360
 $41,107
 $29,579


(1) Includes $0.4 million of accretion and $17.0 million of interest expense for the three months ended March 31, 2021.
11.Subsequent Events
13. Equity

Warrants
22


In connection with the Company's participation in the PSP2 agreement with the Treasury, the Company issued to the Treasury warrants pursuant to a warrant agreement to purchase up to 103,761 shares of the Company's common stock at a strike price of $24.42 per share (the closing price for the shares of the Company's common stock on December 24, 2020). The warrant agreement sets out the Company’s obligations to issue warrants in connection with disbursements under the PSP2 and to file a resale shelf registration statement for the warrants and the underlying shares of common stock. The Company has also granted the Treasury certain demand and piggyback registration rights with respect to the warrants and the underlying common stock. The warrants include adjustments for below market issuances, payment of dividends and other customary anti-dilution provisions. The warrants are transferable and have no voting rights. The warrants expire in five years from the date of issuance and at the Company's option, may be settled on a "net cash" or "net shares" basis. Refer to Note 2, Impact of COVID-19, for further information on the PSP2 agreement with Treasury. The 103,761 warrants issued in connection with the PSP2 agreement, together with the 520,797 warrants issued in connection with the PSP agreement, represent less than 1% of the outstanding shares of the Company's common stock as of March 31, 2021.

The Company concluded that the PSP and PSP2 warrant agreements are derivative contracts classified within equity, at fair value upon issuance, within the Company’s condensed consolidated balance sheet. Equity-classified contracts are initially measured at fair value and subsequent changes in fair value are not recognized as long as the contract continues to be classified in equity. As of March 31, 2021, the Company had recorded $2.1 million in APIC related to the fair value of warrants issued in connection with the Company's participation in the PSP2 program.

Series A Preferred Stock Purchase Rights

On October 25, 2017,March 29, 2020, the Company's Board of Directors authorizedof the Company declared a new repurchase programdividend of up1 preferred stock purchase right (a “Right”) for each outstanding share of common stock of the Company. The dividend was paid on April 9, 2020 to $100 million in aggregate valueholders of sharesrecord as of our Common Stock, par value $0.0001 per share, from timethe close of business on that date. The Board of Directors adopted the Rights Agreement to time inreduce the likelihood that a potential acquirer would gain (or seek to influence or change) control of the Company by open market accumulation or privately negotiated transactions. The authorization will expire on October 25, 2018. The timingother tactics without paying an appropriate premium for the Company’s shares. In general terms and amount of any stock repurchases are subject to prevailing market conditions and other considerations.
certain exceptions, it works by imposing a significant penalty upon any person or group (including a group of persons that are acting in concert with each other) that acquires 10% or more of the outstanding common stock of the Company without the approval of the Board of Directors. These Rights expired on March 29, 2021.

23

ITEM 2.MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

ITEM 2.MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Forward-Looking Statements
This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the Securities Act)"Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as amended (the Exchange Act)"Exchange Act"), which are subject to the “safe harbor” created by those sections. Forward-looking statements are based on our management’s beliefs and assumptions and on information currently available to our management. All statements other than statements of historical factors are “forward-looking statements” for purposes of these provisions. In some cases, you can identify forward-looking statements by terms such as “may,” “will,” “should,” “could,” “would,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “project,” “predict,” “potential,” and similar expressions intended to identify forward-looking statements. Such forward-looking statements are subject to risks, uncertainties and other important factors that could cause actual results and the timing of certain events to differ materially from future results expressed or implied by such forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those identified below, and those discussed in the section titled “Risk Factors” in this report and in Item 1A "Risk Factors" in our Annual Report on Form 10-K for the year ended December 31, 20162020 and subsequent Quarterly Reports on Form 10-Q.10-Q or Current Reports on Form 8-K. Furthermore, such forward-looking statements speak only as of the date of this report. Except as required by law, we undertake no obligation to update any forward-looking statements to reflect events or circumstances after the date of such statements.
Overview

Spirit Airlines, is an ultra low-cost, low-fare airline headquartered in Miramar, Florida, that offers affordable travel to price-consciousvalue-conscious customers. Our all-Airbus Fit FleetTM,fleet is one of the youngest fleet of any major U.S. airline, currently operates more than 480 daily flights to 60 destinationsand most fuel efficient in the United States. We serve destinations throughout the United States, Latin America and the Caribbean, and Latin America.are dedicated to giving back and improving those communities. Our stock trades under the symbol "SAVE" on the NASDAQ Global SelectNew York Stock Market.

Exchange ("NYSE").
Our ultra low-cost carrier, or ULCC, business model allows us to compete principally by offering customers our Bare Fares
TM, which are unbundled base fares that remove components traditionally included in the price of an airline ticket. We then give customers Frill ControlTM, which provides customers the freedom to save by paying only for the options they choose, such as bags, advance seat assignments and refreshments. We record revenue related to these options in our financial statements as non-ticket revenue.

We are focusedfocus on price-sensitivevalue-conscious travelers who pay for their own travel, and our business model is designed to deliver what we believe our customersGuests want: low fares. We aggressively use low fares to address an underserved market, which helps us to increase passenger volume, load factors and non-ticket revenue on the flights we operate. We also have high-density seating configurations on our aircraft and a simplified onboard product designed to lower costs, which is part of our Plane SimpleTM strategy. High passenger volumes and load factors help us sell more ancillary products and services, which in turn allows us to reduce the base fare we offer even further. We strive to be recognized by our customers and potential customers as the low-fare leader in the markets we serve.

great experience. We compete based on total price. We believe other airlines have used an all-inclusive pricing concept to effectively maintain higher total prices to consumers, rather than lowering fares by unbundling each product or service. For example, carriers that tout “free bags” have included the cost of checking bags in the total ticket price, which does not allow passengers to see how much they would save if they did not check luggage. We believe that we and our customers benefit when we allow our customers to know the total price of their travel by breaking out the cost of optional products or services.

We allow our customersGuests to see all available options and their respective prices prior to purchasing a ticket, and this full transparency illustrates that our total price, including options selected, is lower on average than other airlinesairlines. By offering Guests unbundled base fares, we give them the power to save by paying only for the À La SmarteTM options they choose, such as checked and carry-on bags and advance seat assignments. We record revenue related to these options as non-fare passenger revenue, which is recorded within passenger revenues in our statement of operations.

We use low fares to address underserved markets, which helps us to increase passenger volume, load factors and non-ticket revenue. We also have high-density seating configurations on average. Through branded campaigns, we educateour fuel-efficient, all-Airbus fleet and a simplified onboard product designed to lower costs. High passenger volumes and load factors help us sell more ancillary products and services, which in turn allows us to reduce our fares even further.

We are committed to delivering the publicbest value in the sky while providing an exceptional Guest experience. Our optimized mobile-friendly website makes booking easier. Our updated mobile app allows Guests to search for the lowest fares, book and check in while on howthe go, and our unbundled pricing model works, showing them how it gives them choice on how they spend their moneyairport kiosks and saves them money compared to other airlines.self-bag tagging help our Guests move through the airport more quickly.




24

Comparative Operating Statistics:
The following tables set forth our operating statistics for the three and nine-monthmonth periods ended September 30, 2017March 31, 2021 and 2016:2020:
 
Three Months Ended March 31,Percent Change
 20212020
Operating Statistics (unaudited) (A):
Average aircraft157.3 147.5 6.6 %
Aircraft at end of period159 151 5.3 %
Average daily aircraft utilization (hours)7.6 11.8 (35.6)%
Average stage length (miles)1,040 1,021 1.9 %
Block hours107,855 157,847 (31.7)%
Departures40,002 58,174 (31.2)%
Passenger flight segments (PFSs) (thousands)5,474 7,653 (28.5)%
Revenue passenger miles (RPMs) (thousands)5,747,555 7,948,963 (27.7)%
Available seat miles (ASMs) (thousands)7,976,158 10,913,934 (26.9)%
Load factor (%)72.1 %72.8 %(0.7) pts
Fare revenue per passenger flight segment ($)31.84 42.00 (24.2)%
Non-ticket revenue per passenger flight segment ($)52.43 58.75 (10.8)%
Total revenue per passenger flight segment ($)84.27 100.75 (16.4)%
Average yield (cents)8.03 9.70 (17.2)%
TRASM (cents)5.78 7.07 (18.2)%
CASM (cents)7.07 7.60 (7.0)%
Adjusted CASM (cents)9.20 7.60 21.1 %
Adjusted CASM ex-fuel (cents)7.40 5.64 31.2 %
Fuel gallons consumed (thousands)80,546 117,944 (31.7)%
Average economic fuel cost per gallon ($)1.77 1.81 (2.2)%
 Three Months Ended September 30, Percent Change
 2017 2016 
Operating Statistics (unaudited) (A):     
Average aircraft105.5
 87.4
 20.7 %
Aircraft at end of period107
 89
 20.2 %
Average daily aircraft utilization (hours)11.6
 12.3
 (5.7)%
Average stage length (miles)1,006
 968
 3.9 %
Block hours112,701
 98,586
 14.3 %
Departures42,599
 38,310
 11.2 %
Passenger flight segments (PFSs) (thousands)6,307
 5,674
 11.2 %
Revenue passenger miles (RPMs) (thousands)6,452,529
 5,599,370
 15.2 %
Available seat miles (ASMs) (thousands)7,681,312
 6,507,204
 18.0 %
Load factor (%)84.0% 86.0% (2.0) pts
Average ticket revenue per passenger flight segment ($)56.48
 58.34
 (3.2)%
Average non-ticket revenue per passenger flight segment ($)52.48
 51.17
 2.6 %
Total revenue per passenger flight segment ($)108.96
 109.51
 (0.5)%
Average yield (cents)10.65
 11.10
 (4.1)%
TRASM (cents)8.95
 9.55
 (6.3)%
CASM (cents)7.59
 7.47
 1.6 %
Adjusted CASM (cents)7.48
 7.35
 1.8 %
Adjusted CASM ex-fuel (cents)5.42
 5.48
 (1.1)%
Fuel gallons consumed (thousands)90,274
 78,288
 15.3 %
Average economic fuel cost per gallon ($)1.75
 1.56
 12.2 %

(A) See "Glossary of Airline Terms" elsewhere in this quarterly report for definitions used in this table.





 Nine Months Ended September 30, Percent Change
 2017 2016 
Operating Statistics (unaudited) (A):     
Average aircraft101.9
 84.1
 21.2 %
Aircraft at end of period107
 89
 20.2 %
Average daily aircraft utilization (hours)11.7
 12.6
 (7.1)%
Average stage length (miles)991
 978
 1.3 %
Block hours326,033
 290,529
 12.2 %
Departures123,492
 111,495
 10.8 %
Passenger flight segments (PFSs) (thousands)18,083
 16,268
 11.2 %
Revenue passenger miles (RPMs) (thousands)18,285,588
 16,219,093
 12.7 %
Available seat miles (ASMs) (thousands)21,851,789
 18,909,627
 15.6 %
Load factor (%)83.7% 85.8% (2.1) pts
Average ticket revenue per passenger flight segment ($)56.84
 55.32
 2.7 %
Average non-ticket revenue per passenger flight segment ($)52.69
 51.85
 1.6 %
Total revenue per passenger flight segment ($)109.53
 107.17
 2.2 %
Average yield (cents)10.83
 10.75
 0.7 %
TRASM (cents)9.06
 9.22
 (1.7)%
CASM (cents)7.71
 7.33
 5.2 %
Adjusted CASM (cents)7.64
 7.15
 6.9 %
Adjusted CASM ex-fuel (cents)5.62
 5.45
 3.1 %
Fuel gallons consumed (thousands)254,871
 225,851
 12.8 %
Average economic fuel cost per gallon ($)1.73
 1.42
 21.8 %

(A) See "Glossary of Airline Terms" elsewhere in this quarterly report for definitions used in this table.



Executive Summary

As a result of the COVID-19 pandemic, we experienced sharp declines in passenger demand and bookings beginning in March 2020 that lasted throughout 2020, and to a lesser extent throughout the first quarter of 2021. Since its initial onset in early 2020, the impact of the COVID-19 pandemic has evolved and continues to be fluid. While air travel demand improved during the first quarter of 2021, as compared to the majority of 2020, we still experienced weakened passenger demand and bookings as compared to pre-pandemic levels.
Load factor for the first quarter of 2021 was 72.1% as compared to 72.8% for the same period in the prior year. We experienced a decrease in operating revenues of 40.2%, period over period, and a decrease in capacity of 26.9%, period over period. As the COVID-19 pandemic continues to evolve, our financial and operational outlook remains subject to change. We continue to monitor the impact of the pandemic on our operations and financial condition, and to adjust our mitigation and operational strategies, accordingly, in order to protect our long-term sustainability and growth.

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Caring for Guests and Team Members

In response to the COVID-19 pandemic, in early 2020, we implemented measures for the safety of our Guests and Team Members as well as to mitigate the impact of COVID-19 on our financial position and operations. In addition to previously existing procedures including utilization of hospital-grade disinfectants and state-of-the-art HEPA filters that capture 99.97% of airborne particles on board the aircraft, we expanded cleaning protocols which included increased cleaning at airports and other facilities, expanded aircraft turn and overnight cleaning protocols and use of new antimicrobial fogging tool in our facilities and aircraft. In addition, we continue to require Guests and Guest-facing Team Members to wear an appropriate face covering when traveling through the airport or onboard aircraft. We have continued these safety measures through 2021 and our Operations and Task Force teams remain in constant contact with authorities, continuing to evolve its response to ensure the safety of Guests and Team Members. We have also offered future flight credits with extended expiration dates to Guests with impacted travel plans and waived change and cancellation fees for Guests who booked travel through the first quarter of 2021.

Capacity Reductions

At the onset of the COVID-19 pandemic in March 2020, in response to government restrictions on travel and drastically reduced consumer demand, we began to significantly reduce capacity each month with the largest capacity reduction in May 2020 at approximately 94%, year over year, and smaller capacity reductions of 20.8% and 20.1% in the holiday months of November and December, respectively. Through the first quarter of 2021, we continued to operate at reduced capacity levels although to a lesser extent than noted at the height of the pandemic during mid 2020. For the first quarter of 2021, we had a 26.9% decrease in capacity as compared to the prior year period.

The COVID-19 pandemic and its effects continue to evolve, with developments including fluctuations in the rate of infections during 2021, the emergency use authorization issued by the U.S. Food and Drug Administration for COVID-19 vaccines, the requirement, effective January 26, 2021, that all U.S. inbound international travelers provide a negative COVID-19 test prior to flying and recent increases in the availability of COVID-19 vaccines resulting in expanded eligibility to more groups of people to receive the vaccine. While we currently estimate that air travel demand will continue to be volatile and will fluctuate in the upcoming months as the lingering effects of COVID-19 continue to develop, we expect that air travel demand will continue to gradually recover in 2021. However, the situation continues to be fluid and actual capacity adjustments may be different than what we currently expect. Refer to "Notes to Condensed Consolidated Financial Statements—Note 4, Revenue," for discussion of the impact of COVID-19 on our air traffic liability, credit shells and refunds.

COVID-19 Legislation

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act ("CARES Act") was signed into law. The CARES Act was a relief package intended to assist many aspects of the American economy, including providing the airline industry with up to $25 billion in grants to be used for employee salaries, wages and benefits and up to $25 billion in secured loans.

On April 20, 2020, we entered into a Payroll Support Program ("PSP") Agreement with the United States Department of the Treasury ("Treasury"), pursuant to which we received a total of $344.4 million, used exclusively to pay for salaries, wages and benefits for our Team Members through September 30, 2020. Of that amount, $73.3 million is in the form of a low-interest 10-year loan. In addition, in connection with its participation in the PSP, we issued to Treasury warrants pursuant to a warrant agreement to purchase up to 520,797 shares of our common stock at a strike price of $14.08 per share (the closing price for the shares of our common stock on April 9, 2020) with a fair value of $3.9 million. We registered the resale of the warrants pursuant to the warrant agreement with Treasury in September and October 2020. The remaining amount of $267.2 million is in the form of a grant and was recognized in special credits in our condensed consolidated statement of operations.

On December 27, 2020, the Consolidated Appropriations Act, 2021 was signed into law which extended the PSP portion of the CARES Act through March 31, 2021 ("PSP2") and provided an additional $15 billion to fund the PSP2 for employees of passenger air carriers. We entered into a new payroll support program agreement with the Treasury on January 15, 2021. During the first quarter of 2021, we received a total of $184.5 million through the PSP2, used exclusively to pay for salaries, wages and benefits for our Team Members through March 31, 2021. Of that amount, $25.3 million is in the form of a low-interest 10-year loan. In addition, in connection with our participation in the PSP2, we issued to Treasury warrants pursuant to a warrant agreement to purchase up to 103,761 shares of our common stock at a strike price of $24.42 per share (the closing price for the shares of our common stock on December 24, 2020) with a fair value of $2.1 million. The remaining amount of $156.5 million, net of related costs, is in the form of a grant and was recognized in special credits in our condensed consolidated statement of operations. Total warrants issued in connection with the PSP and PSP2 represent less than 1% of the outstanding shares of our common stock as of March 31, 2021.
26


In connection with the our participation in the PSP2, we are subject to certain restrictions and limitations, including, but not limited to:

•Restrictions on payment of dividends and stock buybacks through March 31, 2022;

•Limits on executive compensation through October 1, 2022;

•Restrictions from conducting involuntary furloughs or reducing pay rates and benefits until March 31, 2021;

•Requirements to maintain certain levels of scheduled services through March 1, 2022;

•Reporting requirements; and

•A recall of all employees that were involuntarily furloughed or terminated between October 1, 2020 and the date the carrier enters into the new payroll support agreement with the Treasury. Such employees, if returning to work, must be compensated for lost pay and benefits between December 1, 2020 and the date of such new payroll support agreement.
The CARES Act also provided an employee retention credit (“CARES Employee Retention credit”) which was a refundable tax credit against certain employment taxes of up to $5,000 per employee for eligible employers. The credit is equal to 50% of qualified wages paid to employees during a quarter, capped at $10,000 of qualified wages through year end. We qualified for the credit beginning on April 1, 2020 and received additional credits for qualified wages through December 31, 2020.

The Consolidated Appropriations Act extended and expanded the availability of the CARES Employee Retention credit through June 30, 2021. Subsequently, the American Rescue Plan Act of 2021 ("ARP"), enacted on March 11, 2021, extended and expanded the availability of the CARES Employee Retention credit through December 31, 2021, however, certain provisions apply only after December 31, 2020. This new legislation amended the employee retention credit to be equal to 70% of qualified wages paid to employees after December 31, 2020, and before January 1, 2022. During calendar year 2021, a maximum of $10,000 in qualified wages for each employee per qualifying calendar quarter may be counted in determining the 70% credit. Therefore, the maximum tax credit that can be claimed by an eligible employer is $7,000 per employee per qualifying calendar quarter of 2021. We will qualify for the employee retention credit for quarters that experience a significant decline in gross receipts defined as quarterly gross receipts that are less than 80 percent of our gross receipts for the same calendar quarter in 2019. During the three months ended March 31, 2021, we recorded $21.3 million related to the CARES Employee Retention credit within special credits on our condensed consolidated statements of operations and within accounts receivable, net on our condensed consolidated balance sheet. Refer to "Notes to Condensed Consolidated Financial Statements—5. Special Credits," for additional information.

ARP also authorized Treasury to provide additional assistance to passenger air carriers that received financial assistance under PSP2 ("PSP3"). Under the ARP, Treasury will provide up to $14 billion to fund the PSP3 for employees of passenger air carriers. In April 2021, we were notified that, subject to final execution of an agreement with Treasury, we will receive an approximate $197.9 million under the PSP3 and an additional $27.7 under the PSP2.

In connection with our participation in the PSP3, we will be subject to certain restrictions and limitations, including, but not limited to:

•Restrictions on payment of dividends and stock buybacks through September 30, 2022;

•Limits on executive compensation through April 1, 2023;

•Restrictions from conducting involuntary furloughs or reducing pay rates and benefits until September 30, 2021, or the date on which all PSP funding has been expended; and

•Reporting requirements.

Finally, the CARES Act also provided for deferred payment of the employer portion of social security taxes through the end of 2020, with 50% of the deferred amount due December 31, 2021 and the remaining 50% due December 31, 2022. As of
27

March 31, 2021, we had deferred $23.2 million in social security tax payments. The deferred amounts are recorded within other current liabilities and within deferred gains and other long-term liabilities on our condensed consolidated balance sheet.


Balance Sheet, Cash Flow and Liquidity

Since the onset of the COVID-19 pandemic in the U.S. in the first quarter of 2020, we have taken several actions to increase liquidity and strengthen our financial position. These actions include the private offering of $850 million of the 8.00% senior secured notes, the public offering of $175.0 million in convertible notes, the public offering of 20,125,000 shares of our voting common stock for which we received net proceeds of $192.4 million, the issuance and sale of 9,000,000 shares of our voting common stock through our ATM Program for which we received net proceeds of $156.7 million and the execution of a revolving credit facility with a total commitment of $180.0 million as of December 31, 2020. During the first quarter of 2021, we entered into an amendment to this revolving credit facility which extended the maturity to March 30, 2024 and increased the commitment amount to $240.0 million. The additional $60.0 million was undrawn and available as of March 31, 2021. Refer to "Notes to Condensed Consolidated Financial Statements—Note 12, Debt and Other Obligations," for additional information. As a result of these actions, as of March 31, 2021, we had $1,940.8 million of liquidity comprised of unrestricted cash and cash equivalents, short-term investment securities and funds available under our revolving credit facility due in 2024.

For purposes of assessing our liquidity needs, we estimate that demand will continue to recover in 2021. We believe the actions taken since the onset of the COVID-19 pandemic address our future liquidity needs, yet anticipate we may implement further discretionary changes and other cost reduction and liquidity preservation and/or enhancement measures, as needed, to address the volatility and quickly changing dynamics of passenger demand and the impact of revenue changes, regulatory and public health directives and prevailing government policy and financial market conditions.

Workforce Actions

In 2020, in response to the COVID-19 pandemic, we worked with unionized employees and the related unions to create voluntary leave programs for pilots, flight attendants and other unionized employee groups. We also created voluntary leave programs for certain non-unionized employee groups. Due to the high level of support and acceptance of the voluntary programs offered, the total number of Team Members involuntarily terminated in 2020 was reduced by more than 95%. As required by the PSP2, during the first quarter of 2021, we offered to rehire all eligible Team Members who were involuntarily terminated during 2020. For the thirdthree months ended March 31, 2021, we recorded $0.8 million in special charges within special credits on our condensed consolidated statement of operations related to the rehiring of Team Members under our involuntary employee separation program. In addition, in response to increased air travel demand, during the first quarter of 2021, we requested the voluntary return to work of certain Team Members on leave under our voluntary leave programs. As of 2017March 31, 2021, 12% of Team Members previously on voluntary leave had returned to work. Expenses related to voluntary leave programs were recorded within salaries, wages and benefits on our condensed consolidated statement of operations. As we achievedcontinue to monitor the impacts of the pandemic on our operations and financial condition, we will consider and evaluate the need for any additional workforce actions in future periods.

Summary of Results

For the first quarter of 2021, we had a 15.1%negative operating margin of 22.2%, a decrease of 6.714.7 percentage points compared to the prior year period. We generated a pre-tax incomeloss of $94.8$138.2 million and a net incomeloss of $60.2$112.3 million on operating revenues of $687.2 million.$461.3 million. For the thirdfirst quarter of 2016,2020, we generated pre-tax incomeloss of $128.0$74.6 million and net incomeloss of $81.4$27.8 million on operating revenues of $621.3$771.1 million.
Our adjustedAdjusted CASM ex-fuel for the thirdfirst quarter of 20172021 was 5.427.40 cents a 1.1% decrease year overcompared to 5.64 cents in the same period in prior year. The decreaseincrease on a per-ASM basis was primarily due to decreasesdriven by an average increase in maintenance, materials and repairs,fixed costs such as salaries, wages and benefits expense, depreciation and amortization expense, landing fees and other rents expense and aircraft rent expense partially offset by increasesas well as a decrease of 26.9% in other operating and depreciation and amortization expense.
DuringASMs compared to the third quarter 2017, we had over 1,650 flight cancellations related to Hurricanes Harvey, Irma and Maria. We estimate that this unusually intense hurricane season, together with the overhang of the pilot-related work action earliersame period in the year, negatively impacted our third quarter operating income by approximately $39 million.prior year. The decrease in ASMs was due to reduced air travel demand resulting from the COVID-19 pandemic.
As of September 30, 2017,March 31, 2021, we had 107159 Airbus A320-family aircraft in our fleet comprised of 31 A319s, 5464 A320s, 30 A321s, and 22 A321s.34 A320neos. With the scheduled delivery of 6 aircraft and the retirement of 114 aircraft during the remainder of 2017,2021, we expect to end 20172021 with 112173 aircraft in our fleet.
Since the delivery of our initial five A320neo aircraft in the fourth quarter of 2016, we have experienced introductory issues with the new-generation PW1100G-JM engines, which has resulted in diminished service availability of such aircraft. As a result of the reliability problems associated with the introduction of the new engine, during the second quarter of 2017, we executed a support agreement with manufacturer Pratt & Whitney in order to obtain support and relief related to these operational disruptions. During the fourth quarter of 2017, the support agreement was extended through the end of 2017. The

support agreement provides for compensation to the Company for grounded aircraft and for back-up spare engines. We are currently negotiating certain milestone dates for remediation of the introductory into-service issues with Pratt & Whitney.

Comparison of three months ended September 30, 2017March 31, 2021 to three months ended March 31, 2020
28

September 30, 2016
Operating Revenues

Operating revenues increased $65.9decreased $309.8 million,, or 10.6%40.2%, to $687.2$461.3 million for the thirdfirst quarter of 2017,2021, as compared to the thirdfirst quarter of 2016,2020, primarily due primarily to an increasecontinued weakened air travel demand resulting from the COVID-19 pandemic. The length and severity of the reduction in traffic of 15.2%, offset by a decrease in passenger yields of 4.1% .
Total revenue per available seat mile (TRASM) for the third quarter of 2017 was 8.95 cents, a decrease of 6.3%, as comparedair travel demand due to the third quarter of 2016. This decrease was primarily driven by lower passenger yields, year over year, resulting from aggressive competitive pricing in many of our markets. In addition, load factor decreased by 2.0 points, year over year.COVID-19 pandemic continue to be uncertain although we expect it to continue to gradually improve throughout 2021.

Total revenue per passenger flight segment decreased 0.5%16.4%, year over year, driven by a decrease of 3.2% in ticketyear. Fare revenue per passenger flight segment offset by an increase of 2.6% indecreased 24.2% and non-ticket revenue per passenger flight segment.segment decreased 10.8%. The decrease in tickettotal revenue per passenger flight segment was primarily driven by a 4.1%17.2% decrease in average yield, period over period, due to a more aggressive pricing environment as compared to the prior year.period. The increasedecrease in non-ticket revenue per passenger flight segment was primarily attributable to higher passenger usage fee and seat revenue per flight segment,the suspension or reduction of certain booking-related fees which have been modified as comparedpart of our response to the prior year.impact of the COVID-19 pandemic.
Operating Expenses
Operating expenses increased $97.0decreased $265.3 million, or 20.0%32.0%, to $583.1$563.8 million for the thirdfirst quarter of 20172021 compared to $486.1$829.1 million for the thirdfirst quarter of 2016,2020, primarily due to an increasea decrease in operations as reflected by an 18.0%a 26.9% decrease in capacity growth and a 15.2% increase27.7% decrease in traffic. Operating expenses also increasedtraffic, as a result of a 15.3% increasethe impact of COVID-19 on air travel demand. In addition, we had $176.9 million in fuel gallons consumed and a 12.2% increasespecial credits in average economic fuel cost per gallon which drove higher aircraft fuel expense year over year.the first quarter of 2021. For additional information, refer to "Notes to Condensed Consolidated Financial Statements—5. Special Credits."
Aircraft fuel expense includes into-plane fuel expense (defined below) and realized and unrealized gains and losses associated with our fuel derivative contracts, if any. Into-plane fuel expense is defined as the price that we generally pay at the airport, including taxes and fees. Into-plane fuel prices are affected by the global oil market, refining costs, taxes and fees, which can vary by region in the United States and other countries where we operate. Into-plane fuel expense approximates cash paid to the supplier and does not reflect the effect of any fuel derivatives. From time to time, we may enter into fuel derivative contracts to protect the refining price risk between the price of crude oil and the price of refined jet fuel. We had no activity related to fuel derivative instruments during the ninethree months ended September 30, 2017March 31, 2021 and 2016. Historically, management has chosen not to elect hedge accounting on any fuel derivative instruments and, as a result, changes in the fair value of fuel derivative contracts have been recorded each period in aircraft fuel expense.2020.
Aircraft fuel expense increased in the third quarter of 2017decreased by $36.5$70.3 million, or 29.9%33.0%, compared to $121.8from $213.2 million in the thirdfirst quarter of 2016,2020 to $142.9 million in the first quarter of 2021. This lower fuel expense, year over year, was due to a 15.3% increase31.7% decrease in fuel gallons consumed, as a result of the impact of COVID-19 on air travel demand, and a 12.2% increase2.2% decrease in average economic fuel cost per gallon.
The elements of the changes in aircraft fuel expense are illustrated in the following table:

 Three Months Ended September 30,

 2017
2016

(in thousands, except per gallon amounts)
Percent Change
Fuel gallons consumed90,274

78,288

15.3%
Into-plane fuel cost per gallon1.75

1.56

12.2%
Into-plane fuel expense$158,300

$121,844

29.9%
Realized losses (gains) related to fuel derivative contracts, net—

—

NM
Unrealized losses (gains) related to fuel derivative contracts, net—

—

NM
Aircraft fuel expense (per statement of operations)$158,300

$121,844

29.9%


 Three Months Ended March 31,
 20212020
(in thousands, except per-gallon amounts)Percent Change
Fuel gallons consumed80,546 117,944 (31.7)%
Into-plane fuel cost per gallon$1.77 $1.81 (2.2)%
Aircraft fuel expense (per consolidated statements of operations)$142,930 $213,208 (33.0)%
Gulf Coast Jet indexed fuel is the basis for a substantial majority of our fuel consumption and is impacted by both the price of crude oil as well as increases or decreases in refining margins associated with the conversion of crude oil to jet fuel. The into-plane fuel cost per gallon increasedecrease of 12.2%2.2% was primarily a result of an increasea decrease in jet fuel prices.

We track economic fuel expense, which we believe is the best measure of the effect fuel prices are currently having on our business, because it most closely approximates the net cash outflow associated with purchasing fuel used for our operations during the period. We define economic fuel expense as into-plane fuel expense and realized gains or losses on fuel derivative contracts. The key difference between aircraft fuel expense as recorded in our statement of operations and economic fuel expense is unrealized mark-to-market changes in the value of aircraft fuel derivatives outstanding. Many industry analysts evaluate airline results using economic fuel expense and it is used in our internal management reporting.
The elements of the changes in economic fuel expense are illustrated in the following table:
 Three Months Ended September 30,

 2017
2016

(in thousands, except per gallon amounts)
Percent Change
Into-plane fuel expense$158,300

$121,844

29.9%
Realized losses (gains) related to fuel derivative contracts, net—

—

NM
Economic fuel expense$158,300

$121,844

29.9%
Fuel gallons consumed90,274

78,288

15.3%
Economic fuel cost per gallon$1.75

$1.56

12.2%

During the three months ended September 30, 2017 and 2016, we had no activity related to fuel derivatives and thus had no realized or unrealized losses (gains) related to fuel derivative contracts.
We measure our operating cost performance on a per-ASM basis, since one ASM is the unit of production of an airline’s capacity. The following table presents our cost per-ASM, or unit cost, for the three months ended September 30, 2017March 31, 2021 and 2016,2020, followed by explanations of the material changes on a dollar basis and/or unit cost basis:


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Three Months Ended March 31,Dollar ChangePercent ChangeCost per ASMPer-ASM ChangePercent Change
Three Months Ended September 30, Dollar Change Percent Change Cost per ASM Per-ASM Change Percent ChangeThree Months Ended March 31,
2017 2016 2017 2016  2021202020212020
(in thousands)   (in cents)  (in thousands)(in cents)
Salaries, wages, and benefits$134,114
 $120,190
 $13,924
 11.6 % 1.75
 1.85
 (0.10) (5.4)%Salaries, wages, and benefits$245,692 $240,480 $5,212 2.2 %3.08 2.20 0.88 40.0 %
Aircraft fuel158,300
 121,844
 36,456
 29.9 % 2.06
 1.87
 0.19
 10.2 %Aircraft fuel142,930 213,208 (70,278)(33.0)%1.79 1.95 (0.16)(8.2)%
Depreciation and amortizationDepreciation and amortization74,312 65,991 8,321 12.6 %0.93 0.60 0.33 55.0 %
Landing fees and other rentsLanding fees and other rents72,108 67,121 4,987 7.4 %0.90 0.62 0.28 45.2 %
Aircraft rent53,396
 49,367
 4,029
 8.2 % 0.70
 0.76
 (0.06) (7.9)%Aircraft rent54,782 45,146 9,636 21.3 %0.69 0.41 0.28 68.3 %
Landing fees and other rents48,498
 39,345
 9,153
 23.3 % 0.63
 0.60
 0.03
 5.0 %
Depreciation and amortization36,840
 25,304
 11,536
 45.6 % 0.48
 0.39
 0.09
 23.1 %
Maintenance, materials and repairs26,176
 30,443
 (4,267) (14.0)% 0.34
 0.47
 (0.13) (27.7)%Maintenance, materials and repairs29,903 34,076 (4,173)(12.2)%0.37 0.31 0.06 19.4 %
Distribution29,469
 25,565
 3,904
 15.3 % 0.38
 0.39
 (0.01) (2.6)%Distribution23,642 33,743 (10,101)(29.9)%0.30 0.31 (0.01)(3.2)%
Special charges7,853
 7,355
 498
 NM
 0.10
 0.11
 (0.01) NM
Loss on disposal of assets516
 423
 93
 NM
 0.01
 0.01
 —
 NM
Loss on disposal of assets1,117 — 1,117 NM0.01 — 0.01 NM
Special creditsSpecial credits(176,938)— (176,938)NM(2.22)— (2.22)NM
Other operating87,965
 66,277
 21,688
 32.7 % 1.15
 1.02
 0.13
 12.7 %Other operating96,261 129,308 (33,047)(25.6)%1.21 1.18 0.03 2.5 %
Total operating expenses$583,127
 $486,113
 $97,014
 20.0 % 7.59
 7.47
 0.12
 1.6 %Total operating expenses$563,809 $829,073 $(265,264)(32.0)%7.07 7.60 (0.53)(7.0)%
Adjusted CASM (1)        7.48
 7.35
 0.13
 1.8 %Adjusted CASM (1)9.20 7.60 1.60 21.1 %
Adjusted CASM ex-fuel (2)        5.42
 5.48
 (0.06) (1.1)%Adjusted CASM ex-fuel (2)7.40 5.64 1.76 31.2 %
 
(1)Reconciliation of CASM to Adjusted CASM:

(1)Reconciliation of CASM to Adjusted CASM:

Three Months Ended March 31,
20212020
(in millions)Per ASM(in millions)Per ASM
CASM (cents)7.07 7.60 
Loss on disposal of assets$1.1 0.01 $— — 
Special credits(176.9)(2.22)— — 
Supplemental rent adjustments4.3 0.05 — — 
Accelerated depreciation1.8 0.02 — — 
Adjusted CASM (cents)9.20 7.60 

 Three Months Ended September 30,
 2017 2016
 (in millions) Per ASM (in millions) Per ASM
CASM (cents)  7.59
   7.47
Unrealized losses (gains) related to fuel derivative contracts, net$—
 —
 $—
 —
Loss on disposal of assets0.5
 0.01
 0.4
 0.01
Special charges7.9
 0.10
 7.4
 0.11
Adjusted CASM (cents)  7.48
   7.35
(2)Excludes aircraft fuel expense, loss on disposal of assets, special credits, supplemental rent adjustments related to the accrual of lease return costs for two aircraft purchased off lease partially offset by the release of an accrual related to an engine lease modification, and accelerated depreciation on current aircraft seats related to the plan to retrofit 36 aircraft with new Acro6 seats, expected to be completed in the remainder of 2021.

(2)Excludes aircraft fuel expense, loss on disposal of assets and special charges.
Our adjustedAdjusted CASM ex-fuel for the thirdfirst quarter of 20172021 was down 1.1%7.40 cents as compared to 5.64 cents for the thirdfirst quarter of 2016.2020. The decreaseincrease on a per-ASM basis was primarily due to decreasesan average increase in maintenance, materials and repairs,fixed costs such as salaries, wages and benefits expense, depreciation and amortization expense, landing fees and other rents expense and aircraft rent expense partially offset by increasesas well as a decrease of 26.9% in other operatingASMs compared to the same period in the prior year. The decrease in ASMs was due to reduced air travel demand resulting from the COVID-19 pandemic.
Salaries, wages and depreciation and amortization expense.
Labor costsbenefits for the thirdfirst quarter of 20172021 increased $13.9$5.2 million, or 11.6%2.2%, as compared to the thirdfirst quarter of 2016,2020. This increase was primarily driven by higher health insurance, bonus and 401(k) expense, period over period. The increase in health insurance was mainly driven by higher volume of claims as compared to the prior year period. The increase in bonus was driven by bonus-based performance metrics being met during the first quarter of 2021 and the increase in 401(k) was mainly driven by higher average pay rates and 401(k) employer contribution rates to our pilots as compared to the prior year period. These increases were partially offset by a 22.2% increasedecrease in salaries driven by a 5.0% decrease in our pilot and flight attendant workforce, resulting from an increase to our aircraft fleet of 18 additional aircraft since the third quarter of 2016, offset byperiod over period, and a decrease in incentive compensationcrew overtime and sick-time expense.per diem pay as a result of reduced operations related to the impact of COVID-19. On a per-ASM basis, labor costs decreasedprimarily increased due to lower incentive compensation expensehigher average pay rates to our pilots in connection with the collective bargaining agreement that became effective on March 1, 2018, which provides for annual increases on each anniversary of the effective date. In addition, during the three months ended March 31, 2021, we paid salaries and wages to our unionized employees at a guaranteed volume greater than what we actually operated due to the reduced
30

demand resulting from lower metric performance, yearCOVID-19. The increase in group health insurance claims, period over year, as well asperiod, also contributed to the increase in labor costs noted on a per-ASM basis. Additionally, the increase on a per-ASM basis was due to a decrease of 26.9% in our sick-time expense.
Aircraft rent expense for the third quarter of 2017 increased by $4.0 million, or 8.2%, asASMs compared to the third quarter of 2016. This increase in aircraft rent expense was primarily driven by the delivery of seven new aircraft, financed under operating leases, subsequent to the end of the third quarter of 2016. This increase was partially offset by the purchase of two aircraft since the end of the third quarter of 2016, which were formerly financed under operating lease agreements. On a per-ASM basis, aircraft rent expense decreased primarily due to a changesame period in the compositionprior year. For more detailed information on the impact of our aircraft fleet between leased aircraft (for which rent expense is recorded under aircraft rent) and purchased aircraft (for which depreciation expense is recorded under depreciation and amortization). Since the prior year period, we have purchased 14 aircraft,COVID-19, please refer to "Notes to Condensed Consolidated Financial Statements—2. Impact of which 2 were previously financed under operating lease agreements.
Landing fees and other rents for the third quarter of 2017 increased $9.2 million, or 23.3%, as compared to the third quarter of 2016, primarily due to an 11.2% increase in departures. In addition, on both a dollar and per-ASM basis, landing fees and other rents increased due to increased volume at higher cost airports, year over year, as well as an increase in facility rent resulting from the addition of new stations and rate increases at some of our existing stations.COVID-19."
Depreciation and amortization for the first quarter of 2021 increased by $11.5$8.3 million, or 45.6%12.6%, as compared to the prior year period. The increase in depreciation expense on both a dollar and per-ASM basis was primarily due to increased depreciation expense resulting fromdriven by the purchase of 14four new aircraft madeand the purchase of two previously leased aircraft since the thirdfirst quarter of 2016.2020. In addition, for the three months ended March 31, 2021, we recorded $1.8 million in accelerated depreciation related to the plan to retrofit 36 aircraft with new Acro6 seats. Since depreciation and amortization expense is generally a fixed cost, the decrease in ASMs of 26.9%, year over year, also impacted the increase on a per-ASM basis.
We account for heavy maintenance under the deferral method. Under the deferral method, the cost of heavy maintenance is capitalized and amortized as a component of depreciation and amortization expense in the statement of operations until the earlier of the next heavy maintenance event or end of the lease term. The amortization of heavy maintenance costs was $14.2$23.9 million and $10.1$20.4 million for the thirdfirst quarters of 20172021 and 2016,2020, respectively. The increase in amortization of heavy maintenance was primarily due to the timing and number of maintenance events, as compared to the prior year period. This increase in heavy maintenance amortization also contributed to the per-ASM increase in depreciation and amortization expense, period over period. As our fleet continues to grow and age, we expect that the amount of deferred heavy maintenance events will increase and will result in an increase in the amortization of those costs. If heavy maintenance events were amortized within maintenance, materials and repairs expense in the statementcondensed consolidated statements of operations, our maintenance, materials and repairs expense would have been $40.4$53.8 million and $40.5$54.5 million for the third quartersfirst quarter of 20172021 and 2016,2020, respectively.
Maintenance, materialsLanding fees and repairs expenseother rents for the thirdfirst quarter of 2017 decreased by $4.32021 increased $5.0 million, or 14.0%7.4%, as compared to the thirdfirst quarter of 2016.2020. On both a dollar and a per-ASM basis, landing fees and other rents increased primarily due to an increase in facility rent driven by higher rent rates, period over period, and a decrease in signatory adjustment credits as compared to the prior year period. The decrease in maintenance costssignatory adjustment credits is due to airports recovering operating losses from lower utilization fees as well as increased market share at certain airports where other airlines have decreased flying due to the impact of COVID-19 on air travel demand. On a dollar basis, these increases were offset by a decrease in landing fees driven by a 31.2% decrease in departures as a result of the impact of COVID-19 on air travel demand partially offset by higher landing fee rates. A portion of our landing fees and other rents are variable in nature and vary based on factors such as the number of departures. The increase in landing fee rates, period over period, also contributed to the increase in landing fees and other rents on a dollar and per-unitper-ASM basis, as compared to the prior year period.
Aircraft rent expense for the first quarter of 2021 increased by $9.6 million, or 21.3%, as compared to the first quarter of 2020. This increase in aircraft rent expense was primarily due to a decreaseddriven by an increase in the number of scheduled maintenance events inaircraft financed under operating leases throughout the current period, as compared to the prior year period as well as lowerperiod. Since the first quarter of 2020, we have acquired 4 new aircraft repairfinanced under operating leases. The increases generated by the new leased aircraft were partially offset by the purchase of 2 aircraft off lease made during the first quarter of 2021.
Maintenance, materials and repairs expense year over year. We expect maintenance expense to increase as our fleet continues to grow and age, resulting infor the need for additional or more frequent repairs over time.
Distribution costs increasedfirst quarter of 2021 decreased by $3.9$4.2 million, or 15.3%12.2%, in the third quarter of 2017 as compared to the thirdfirst quarter of 2016.2020. The decrease in maintenance, materials and repairs expense on a dollar basis was mainly due to fewer aircraft maintenance events as a result of a decrease of 35.6% in average daily aircraft utilization in the current period compared to the prior year period as a result of the impact of COVID-19 on air travel demand. On a per-ASM basis, the increase is primarily related to a decrease of 26.9% in ASMs, year over year, with no associated decrease in fixed maintenance, material and repair costs.
Distribution costs decreased by $10.1 million, or 29.9%, in the first quarter of 2021 as compared to the first quarter of 2020. The decrease on a dollar basis was primarily due to increaseddecreased sales volume. Onvolume as a per-ASM basis,result of the impact of COVID-19 on air travel demand which impacts our variable distribution costs remained relatively stable.such as credit card fees and GDS fees.

Loss on disposal of assets for the three months ended March 31, 2021 consisted of $1.1 million related to the sale of auxiliary power units ("APUs") and disposal of excess and obsolete inventory. We had no loss on disposal of assets for the three months ended March 31, 2020.
Special credits for the three months ended March 31, 2021 consisted of $156.5 million related to the grant component of the PSP2 agreement with the Treasury. In addition, we recorded$21.3 million related to the CARES Act Employee Retention credit. These special credits were partially offset by $0.8 million in special charges recorded in connection with the rehire of Team Members previously terminated under our involuntary employee separation program which were rehired in compliance
31

with the restrictions mandated by our participation in the PSP2. For additional information, refer to "Notes to Condensed Consolidated Financial Statements—5. Special Credits." We had no special credits for the three months ended March 31, 2020.
Other operating expense for the thirdfirst quarter of 2017 increased2021 decreased by $21.7$33.0 million, or 32.7%25.6%, as compared to the thirdfirst quarter of 20162020. The decrease in other operating expense is primarily due to an increase in overall operations and higher passenger re-accommodation expense year over year.driven by lower volume-related costs resulting from the decreased capacity during the period as a result of the impact of COVID-19 on air travel demand. As compared to the prior year period, departures decreased by 31.2% and we increased departures by 11.2% and had 11.2% more28.5% less passenger flight segments, which drove increasesdecreases in variable other operating expenses. Other operatingIn addition, we had lower passenger reaccommodation expense, per ASM increased primarily due to higher passenger re-accommodation expense, as compared to the prior yearperiod over period.
Special charges for the third quarter of 2017 consisted of $7.9 million in lease termination charges recognized in connection with the purchase of 1 aircraft, which was formerly financed under an operating lease agreement. For the third quarter of 2016, special charges consisted of $7.4 million in lease termination charges recognized in connection with the purchase of 3 aircraft formerly financed under operating lease agreements. The amount recorded as lease termination charges represents the excess of the purchase price paid over the appraised fair value of the asset(s), less previously expensed supplemental rent and other non-cash items. For further discussion on this purchase, please see "Notes to Condensed Financial Statements - 3. Special Charges."


Other Income (Expenses)(Income) Expense

Our interest expense and corresponding capitalized interest for the three months ended September 30, 2017March 31, 2021 primarily represent interest related to the financing of purchased aircraft as well as the interest related to our convertible notes and 20168.00% senior secured notes. Our interest expense and corresponding capitalized interest for the three months ended March 31, 2020, primarily represents interest related to the financing of purchased aircraft. As of September 30, 2017March 31, 2021 and 2016, the Company2020, we had 4072 and 2868 aircraft financed through secured long-term debt arrangements, respectively. Please see "Notes to Condensed Financial Statements—10. Debt and Other Obligations" for further discussion.

Our interest income for the three months ended September 30, 2017 primarilyMarch 31, 2021 represents interest income earned on our income tax receivable, cash, cash equivalents and short-term investments. InterestOur interest income for the three months ended September 30, 2016 primarilyMarch 31, 2020 represents interest income earned on our cash, cash equivalents and on funds required to be held in escrow in accordance with the terms of our EETC.short-term investments.

Income Taxes

Our effective tax rate for the thirdfirst quarter of 20172021 was 36.5%18.7% compared to 36.4%62.7% for the thirdfirst quarter of 2016. In arriving at these rates, we considered a variety of factors, including our forecasted full-year pre-tax results, the U.S. federal rate of 35%, expected nondeductible expenses, and estimated state income taxes. We evaluate our2020. The decrease in tax rate, each quarter and make adjustments when necessary. Our final effective tax rate for the full year is dependent on the level of pre-tax income and the magnitude of any nondeductible expenses in relation to the respective pre-tax income.

Comparison of nine months ended September 30, 2017 to nine months ended September 30, 2016
Operating Revenues
Operating revenues increased $237.1 million, or 13.6%, to $1,980.7 million for the nine months ended September 30, 2017, compared to the prior year period, due primarily to an increase in traffic of 12.7% and an increase in passenger yields of 0.7%.
TRASM for the nine months ended September 30, 2017 was 9.06 cents, a decrease of 1.7% compared to the same period of 2016. This decrease was driven by a more aggressive competitive pricing environment noted in the third quarter of 2017 which put pressure on our passenger yields for the nine months ended September 30, 2017. In addition, load factor decreased by 2.1 points, as compared to the prior year.
Total revenue per passenger flight segment increased 2.2% from $107.17 for the nine months ended September 30, 2016 to $109.53 for the nine months ended September 30, 2017. Our average ticket fare per passenger flight segment increased from $55.32 to $56.84, or 2.7%, as compared to the prior year period, and non-ticket revenue per passenger flight segment increased from $51.85 to $52.69, or 1.6%, as compared to the prior year period. The increase in non-ticket revenue per passenger flight segment was primarily attributable to higher passenger usage fee and seat revenue per flight segment, as compared to the prior year.
Operating Expenses


Operating expenses increased for the nine months ended September 30, 2017 by $299.2 million, or 21.6%, as compared to the same period for 2016 primarily due to our 15.6% capacity growth and a 12.7% increase in traffic. Operating expenses also increased as a result of an increase in aircraft fuel expense year over year.
Aircraft fuel expense for the nine months ended September 30, 2017 increased $119.4 million, or 37.2%, compared to the prior year period as a result of a 21.8% increase in average economic fuel price per gallon and a 12.8% increase in fuel gallons consumed.
The elements of the changes in aircraft fuel expense are illustrated in the following table:
 Nine Months Ended September 30,

 2017
2016

(in thousands, except per gallon amounts)
Percent Change
Fuel gallons consumed254,871

225,851

12.8%
Into-plane fuel cost per gallon$1.73

$1.42

21.8%
Into-plane fuel expense$440,376

$321,018

37.2%
Realized losses (gains) related to fuel derivative contracts, net—

—

NM
Unrealized losses (gains) related to fuel derivative contracts, net—

—

NM
Aircraft fuel expense (per Statement of Operations)$440,376

$321,018

37.2%
The elements of the changes in economic fuel expense are illustrated in the following table:
 Nine Months Ended September 30,

 2017
2016
 (in thousands, except per gallon amounts) Percent Change
Into-plane fuel expense$440,376

$321,018

37.2%
Realized losses (gains) related to fuel derivative contracts, net—

—

NM
Economic fuel expense$440,376

$321,018

37.2%
Fuel gallons consumed254,871

225,851

12.8%
Economic fuel cost per gallon$1.73

$1.42

21.8%
During the nine months ended September 30, 2017 and 2016, we had no activity related to fuel derivatives and thus had no realized or unrealized losses (gains) related to fuel derivative contracts.



We measure our operating cost performance on a per-ASM basis, since one ASM is the unit of production of an airline’s capacity. The following table presents our cost per-ASM, or unit cost, for the nine months ended September 30, 2017 and 2016, followed by explanations of the material changes on a unit cost basis and/or dollar basis:
 Nine Months Ended September 30, Dollar Change Percent Change Cost per ASM Per-ASM Change Percent Change
 2017 2016  2017 2016 
 (in thousands)   (in cents)  
Salaries, wages, and benefits$391,144
 $349,530
 $41,614
 11.9% 1.79
 1.85
 (0.06) (3.2)%
Aircraft fuel440,376
 321,018
 119,358
 37.2% 2.02
 1.70
 0.32
 18.8 %
Aircraft rent163,032
 151,433
 11,599
 7.7% 0.75
 0.80
 (0.05) (6.3)%
Landing fees and other rents134,538
 114,096
 20,442
 17.9% 0.62
 0.60
 0.02
 3.3 %
Depreciation and amortization103,680
 73,370
 30,310
 41.3% 0.47
 0.39
 0.08
 20.5 %
Maintenance, materials and repairs81,473
 72,010
 9,463
 13.1% 0.37
 0.38
 (0.01) (2.6)%
Distribution85,875
 73,190
 12,685
 17.3% 0.39
 0.39
 —
 — %
Special charges (credits)12,629
 31,609
 (18,980) NM
 0.06
 0.17
 (0.11) NM
Loss on disposal of assets3,114
 1,166
 1,948
 NM
 0.01
 0.01
 —
 NM
Other operating268,553
 197,833
 70,720
 35.7% 1.23
 1.05
 0.18
 17.1 %
Total operating expenses$1,684,414
 $1,385,255
 $299,159
 21.6% 7.71
 7.33
 0.38
 5.2 %
Adjusted CASM (1)        7.64
 7.15
 0.49
 6.9 %
Adjusted CASM ex-fuel (2)        5.62
 5.45
 0.17
 3.1 %
(1)Reconciliation of CASM to Adjusted CASM:
 Nine Months Ended September 30,
 2017 2016
 (in millions) Per ASM (in millions) Per ASM
CASM (cents)  7.71
   7.33
Unrealized losses (gains) related to fuel derivative contracts, net$—
 —
 $—
 —
Loss on disposal of assets3.1
 0.01
 1.2
 0.01
Special charges12.6
 0.06
 31.6
 0.17
Adjusted CASM (cents)  7.64
   7.15

(2)Excludes aircraft fuel expense, loss on disposal of assets and special charges and credits.
Our adjusted CASM ex-fuel for the nine months ended September 30, 2017 increased by 3.1% as compared to the same period in 2016. The increase on a per-ASM basis was primarily due to increases in other operating and depreciation and amortization expense, partially offset by decreases in special charges and salaries, wages and benefits expense.
Labor costs for the nine months ended September 30, 2017 increased $41.6 million, or 11.9%, as compared to the same period in 2016. The increase was primarily driven by an 18.5% increase in our pilot and flight attendant workforce resulting from an increase to our aircraft fleet of 18 additional aircraft since the end of the third quarter of 2016, partially offset by a decrease in incentive compensation expense year over year. On a per-ASM basis, labor costs decreased primarily due to lower incentive compensation expense, year over year, resulting from lower metric performance and the ratification incentive in the new flight attendant contract of $8.4 million recorded during the first quarter of 2016.
Aircraft rent expense for the nine months ended September 30, 2017 increased by $11.6 million, or 7.7%, as compared to the same period in 2016. This increase in aircraft rent expense was primarily driven by the delivery of seven new aircraft, financed under operating leases, subsequent to the end of the third quarter of 2016. This increase was partially offset by the purchase of two aircraft since the end of the third quarter of 2016, which were formerly financed under operating lease agreements. On a per-ASM basis, aircraft rent expense decreased primarily due to a change$31.1 million discrete federal tax benefit recorded during the three months ended March 31, 2020 related to the passage of the CARES Act. The CARES Act allows for carryback of net operating losses generated at a 21% tax rate to recover taxes paid at a 35% tax rate. While we expect our tax rate to be a fairly consistent in the composition of our aircraft fleet between leased aircraft (for which rent expense is recorded under aircraft rent) and purchased aircraft (for which depreciation expense is recorded under depreciation and amortization). Since the prior year period, we have purchased 14


aircraft, of which 2 were previously financed under operating lease agreements. This decrease was partially offset by an increase in return costs for two leased aircraft. Costs associated with return conditions of leased aircraft are recordednear term, it will tend to vary depending on recurring items such as supplemental rent within aircraft rent expense on our statement of operations.
Landing fees and other rents for the nine months ended September 30, 2017 increased $20.4 million, or 17.9%, as compared to the same period in 2016 primarily due to a 10.8% increase in departures. In addition, on both a dollar and per-ASM basis, landing fees and other rents increased due to increased volume at higher cost airports, year over year, as well as an increase in facility rent resulting from the addition of new stations and rate increases at some of our existing stations.
Depreciation and amortization increased by $30.3 million, or 41.3%, as compared to the prior year period. The increase on both a dollar and per-ASM basis was primarily due to increased depreciation expense resulting from the purchase of 14 aircraft made since the third quarter of 2016.
We account for heavy maintenance under the deferral method. Under the deferral method, the cost of heavy maintenance is capitalized and amortized as a component of depreciation and amortization expense in the statement of operations until the earlier of the next heavy maintenance event or end of the lease term. The amortization of heavy maintenance costs was $42.1 million and $33.0 million for the nine months ended September 30, 2017 and 2016, respectively. As our fleet continues to age, we expect that the amount of deferred heavy maintenance events will increaseincome we earn in each state and will result in an increase in the amortization of those costs. If heavy maintenance events were amortized within maintenance, materials and repairs expense in the statement of operations,state tax applicable to such income. Discrete items particular to a given year may also affect our maintenance, materials and repairs expense would have been $123.5 million and $105.1 million for the nine months ended September 30, 2017 and 2016, respectively.
Maintenance, materials and repairs expense for the nine months ended September 30, 2017 increased by $9.5 million, or 13.1%, as compared to the prior year period. The increase in maintenance costs on a dollar basis was due to routine and ongoing maintenance on a growing fleet. On a per-unit basis, maintenance costs remained relatively stable as compared to the prior year period. We expect maintenance expense to increase as our fleet continues to grow and age, resulting in the need for additional or more frequent repairs over time.
Distribution costs increased by $12.7 million, or 17.3%, for the nine months ended September 30, 2017 as compared to the same period in 2016. The increase on a dollar basis was primarily due to increased sales volume. On a per-ASM basis, distribution costs remained stable, as compared to the prior period.
Other operating expense for the nine months ended September 30, 2017 increased by $70.7 million, or 35.7%, as compared to the prior year period, primarily due to an increase in overall operations and higher passenger re-accommodation expense year over year. As compared to the prior year period, we increased departures by 10.8% and had 11.2% more passenger flight segments, which drove increases in variable operating expenses. Other operating expense per ASM increased primarily due to higher passenger re-accommodation expense, as compared to the prior year period.
Special charges for the nine months ended September 30, 2017 consisted of $12.6 million in lease termination charges recognized in connection with the purchase of 1 aircraft and 1 engine, which were formerly financed under operating lease agreements. For the nine months ended September 30, 2016, special charges consisted of $31.6 million in lease termination charges recognized in connection with the purchase of 6 aircraft formerly financed under operating lease agreements. The amount recorded as lease termination charges represents the excess of the purchase price paid over the appraised fair value of the asset(s), less previously expensed supplemental rent and other non-cash items. For further discussion on this purchase, please see "Notes to Condensed Financial Statements - 3. Special Charges."

Other income (expenses)

Our interest expense and corresponding capitalized interest for the nine months ended September 30, 2017 and 2016 primarily represents interest related to the financing of purchased aircraft. As of September 30, 2017 and 2016, the Company had 40 and 28 aircraft financed through secured long-term debt arrangements, respectively. Please see "Notes to Condensed Financial Statements—10. Debt and Other Obligations" for further discussion.
Our interest income for the nine months ended September 30, 2017 primarily represents interest income earned on cash, cash equivalents and short-term investments. Interest income for the nine months ended September 30, 2016 primarily represents interest income earned on cash, cash equivalents and on funds required to be held in escrow in accordance with the terms of our EETC.

Income Taxes


Our effective tax rate for the nine months ended September 30, 2017 was 37.1% compared to 36.7% for the nine months ended September 30, 2016. In arriving at these rates, we considered a variety of factors, including our forecasted full-year pre-tax results, the U.S. federal rate of 35%, expected nondeductible expenses, and estimated state income taxes. We evaluate our tax rate each quarter and make adjustments when necessary. Our final effective tax rate for the full year is dependent on the level of pre-tax income and the magnitude of any nondeductible expenses in relation to the respective pre-tax income.rates.


Liquidity and Capital Resources
    
Since its initial onset in early 2020, the impact of the COVID-19 pandemic has evolved and continues to be fluid. As a result, our financial and operational outlook still remains subject to change and fluctuation. We continue to monitor the impacts of the pandemic on our liquidity and financial condition, and to adjust our mitigation and operational strategies, accordingly, in order to protect our long-term sustainability and growth. As a result of the COVID-19 pandemic, we have taken certain actions to increase liquidity and strengthen our financial position. Please refer to "Notes to Condensed Consolidated Financial Statements—2. Impact of COVID-19," for additional information on the measures we have implemented to focus on the safety of our customers and employees as well as the impact on our liquidity, financial position and operations. As of March 31, 2021, we had $1,940.8 million of liquidity comprised of unrestricted cash and cash equivalents, short-term investment securities and funds available under our revolving credit facility due in 2024.

Our primary sources of liquidity aregenerally include cash on hand, cash provided by operations and capital from debt and equity financing. Primary uses of liquidity are for working capital needs, capital expenditures, aircraft and engine pre-delivery deposit payments (PDPs)("PDPs"), debt and lease obligations and maintenance reserves. Our total unrestricted cash and cash equivalents at September 30, 2017March 31, 2021 was $863.7$1,774.5 million, an increasea decrease of $162.8$15.3 million from December 31, 2016. As2020. In addition to cash and cash equivalents, as of September 30, 2017,March 31, 2021, we had $100.7$106.4 million in short-term available-for-sale investment securities. We expect to meet our cash needs for the next twelve months with cash and cash equivalents, financing arrangements and cash flows from operations.

Since the onset of the COVID-19 pandemic in the U.S. in the first quarter of 2020, we have taken several actions to increase liquidity and strengthen our financial position. These actions include the private offering of $850 million of the 8.00% senior secured notes, the public offering of $175.0 million in convertible notes, the public offering of 20,125,000 shares of our voting common stock for which we received net proceeds of $192.4 million, the issuance and sale of 9,000,000 shares of our voting common stock through our ATM Program for which we received net proceeds of $156.7 million and the execution of a revolving credit facility with a total commitment of $180.0 million as of December 31, 2020 for which the commitment amount
32

was increased to $240.0 million during the first quarter of 2021. The additional $60.0 million remained undrawn and available as of March 31, 2021. In addition, we entered into a PSP Agreement with the Treasury, and received a total of $344.4 million through the PSP and $184.5 million through the PSP2.

As of March 31, 2021, we had $175.0 million recorded within current maturities of long-term debt and finance leases on our consolidated balance sheets related to our convertible debt. As of March 31, 2021, the convertible notes may be converted by noteholders through June 30, 2021. No notes were converted during three months ended March 31, 2021. Upon conversion and at our election, we may satisfy part or all of our conversion obligation in either cash, shares of the Company’s common stock or a combination of cash and shares of common stock.
Currently, one of our largest capital expenditure needs is funding the acquisition costs of our aircraft. Aircraft aremay be acquired through debt financing, sale leaseback transactions,cash purchases, direct leases or cash purchases. In debt financing transactions, capital is needed to make equity investments in capital assets and payments on debt obligations (principal and interest) after the acquisition of the aircraft.sale-leaseback transactions. During the ninethree months ended September 30, 2017,March 31, 2021, we took delivery of two aircraft financed through direct operating leases and purchased 11two aircraft through debt financing transactions and 2 engines through cash purchases.off lease. During the ninethree months ended September 30, 2017,March 31, 2021, we made $93.8$60.2 million in debt payments (principal, interest and fees) on our outstanding aircraft debt obligations. Capital resources required under debt financing transactions will generally be higher than those involving sale leaseback transactions. In sale leaseback transactions, capital is needed to fund the initial purchase of the aircraft prior to the sale to the lessor. During the nine months ended September 30, 2017, we entered into no sale leaseback transactions. During the nine months ended September 30, 2017, we purchased one engine and one aircraft, which were previously financed under operating lease agreements, for $8.1 million and $20.0 million, respectively, comprised of a cash payment of $3.8 million and $12.6 million, respectively, and the non-cash application of maintenance and security deposits held by the previous lessor of $4.3 million and $7.4 million, respectively.
Under our agreement with Airbus for aircraft, and International Aero Engines AG (IAE)("IAE") and Pratt & Whitney for engines, we are required to pay PDPs relating to future deliveries at various times prior to each delivery date. During the ninethree months ended September 30, 2017,March 31, 2021, we paid $121.7$52.7 million ofin PDPs, net of refunds, and $8.1$4.3 million of capitalized interest for future deliveries of aircraft and spare engines. As of September 30, 2017,March 31, 2021, we had $304.7$412.7 million of PDPs,pre-delivery deposits on flight equipment, including capitalized interest, on our condensed consolidated balance sheet.sheets.
As of September 30, 2017,March 31, 2021, we hadhave secured bank debt financing for 4eight aircraft scheduled for deliveryto be leased directly from third-party lessors, with deliveries expected in the remainder of 2017, and did2021. We do not have financing commitments in place for the remaining 61126 Airbus firm aircraft orders, scheduled for delivery between 2017 through 2021.2027. However, we have a financing letter of agreement with Airbus which provides backstop financing for a majority of the aircraft included in the A320 NEO Family Purchase Agreement signed in the fourth quarter of 2019. The agreement provides a standby credit facility in the form of senior secured mortgage debt financing. Future aircraft deliveries may be paid in cash, leased or otherwise financed based on market conditions, our prevailing level of liquidity, and capital market availability.
In addition to funding the acquisition of our future fleet, we are required to make maintenance reserve payments for a portionsome of the leased aircraft in our current fleet. Maintenance reserves are paid to aircraft lessors and are held as collateral in advance of our performance of major maintenance activities. InDuring the ninethree months ended September 30, 2017,March 31, 2021, we recorded an increase of $28.4paid $1.8 million in maintenance reserves, net of reimbursements, and asreimbursements. As of September 30, 2017,March 31, 2021, we had $305.1$122.7 million ($166.4 ($72.3 million in aircraft maintenance deposits and $138.7$50.4 million in long-term aircraft maintenance deposits) on our condensed consolidated balance sheet.
On October 25, 2017, our Board of Directors authorized a new repurchase program of up to $100 million in aggregate value of shares of our Common Stock, par value $0.0001 per share, from time to time in open market or privately negotiated transactions. The authorization will expire on October 25, 2018. The timing and amount of any stock repurchases are subject to prevailing market conditions and other considerations.sheets.
Net Cash Flows Provided By Operating Activities. Operating activities in the ninethree months ended September 30, 2017March 31, 2021 provided $386.5$186.6 million in cash compared to $440.0$34.6 million provided in the ninethree months ended September 30, 2016. TheMarch 31, 2020. Cash provided by operating activities increased, year over year, primarily due to cash provided from a decrease is primarily driven by higher operating costs specifically aircraft fuel,in income tax receivable and increases in air traffic liability, other operatingliabilities and salaries, wages,non-cash expense of depreciation and benefits, whichamortization. These increases in cash were slightlypartially offset by higher revenues,a net loss for the first quarter of 2021, as compared to the prior period. The decrease is also attributedwell as cash used due to an increase in accounts receivable, net and a decrease in deferred income tax refund of $65.0 million received in the prior period while no refund was received in 2017.expense (benefit).
Net Cash Flows Used In Investing Activities. In the ninethree months ended September 30, 2017,March 31, 2021, investing activities used $558.8$97.5 million, compared to $663.8$323.8 million used in the prior year period. The decrease was mainly driven by the initial investment in our available-for-sale investment security portfolio made in the prior period. During the nine months ended September 30, 2016, we purchased $100.0 million of available-for-sale investment securities while in the current period all investment purchases were made from reinvestment of proceeds generated from the maturity of our investment securities. In


addition, we had a decrease in the purchasepurchases of property and equipment, year over year, resulting from decreased purchasesas well as a decrease in PDPs paid, net of refunds, driven by timing of future aircraft and engines.deliveries.
Net Cash Flows Provided (Used) By Financing Activities. During the ninethree months ended September 30, 2017,March 31, 2021, financing activities provided $335.1used $111.8 million in cash compared to $246.0$98.5 million provided in the ninethree months ended September 30, 2016. WeMarch 31, 2020. During the three months ended March 31, 2021, we received $405.8$25.3 million related to the unsecured term loan in connection with the debt financing of eleven aircraft delivered during the nine months ended September 30, 2017PSP2 and paid $63.6$135.9 million in debt and capital lease obligations.principal obligations


Commitments and Contractual Obligations
Our contractual purchase commitments consist primarily of aircraft and engine acquisitions through manufacturers and aircraft leasing companies. As of March 31, 2021, our aircraft orders consisted of 126 A320 family aircraft with Airbus, including A319neos, A320neos and A321neos, with deliveries expected through 2027. Out of these 126 aircraft, we have 6 aircraft scheduled for delivery in the remainder of 2021 and 17 aircraft scheduled for delivery in 2022. In addition, as of March 31, 2021, we had secured 8 direct leases for A320neos with third-party lessors, with deliveries in the remainder of 2021.
33

We also have a spare engine order for one V2500 SelectTwo engine with IAE and two spare engine orders for PurePower PW 1100G-JM engines with Pratt & Whitney. Spare engines are scheduled for delivery from 2021 through 2023. As of March 31, 2021, committed expenditures for these aircraft and spare engines, including estimated amounts for contractual price escalations and aircraft PDPs, are expected to be $380.3 million for the remainder of 2021, $884.5 million in 2022, $908.3 million in 2023, $980.0 million in 2024, $1,066.6 million in 2025 and $2,248.4 million in 2026 and beyond. During the third quarter of 2019, the United States announced its decision to levy tariffs on certain imports from the European Union, including commercial aircraft and related parts. These tariffs would include aircraft and other parts that we are already contractually obligated to purchase including those reflected above. In February 2020, the rate of this tariff was increased from 10% to 15%. The imposition of these tariffs may substantially increase the cost of new Airbus aircraft and parts required to service our Airbus fleet.
As of March 31, 2021 we do not have financing commitments in place for the remaining 126 Airbus aircraft on firm order through 2027. However, we have a financing letter of agreement with Airbus which provides backstop financing for a majority of the aircraft included in the A320 NEO Family Purchase Agreement signed in the fourth quarter of 2019. The agreement provides a standby credit facility in the form of senior secured mortgage debt financing.
Aircraft rent commitments for future aircraft deliveries to be financed under direct leases from third-party lessors are expected to be approximately $13.7 million for the remainder of 2021, $29.2 million in 2022, $29.2 million in 2023, $29.2 million in 2024, $29.2 million in 2025, and $220.3 million in 2026 and beyond.
We have significant obligations for aircraft and spare engines as 56 of our 159 aircraft and 8 of our 24 spare engines are financed under operating leases. These leases expire between 2023 and 2039. Aircraft rent payments were $59.0 million and $48.5 million for the three months ended March 31, 2021 and 2020, respectively.
Our fixed-rate operating leases with terms greater than 12 months are included within operating lease right-of-use assets with the corresponding liabilities included within current maturities of operating leases and operating leases, less current maturities on our condensed consolidated balance sheets. Leases with a term of 12 months or less and variable-rate leases are not recorded on our condensed consolidated balance sheets. Please see "Notes to Condensed Consolidated Financial Statements—9. Leases" for further discussion on our leases.
We have contractual obligations and commitments primarily with regard to future purchases of aircraft and engines, paymentpayments of debt, and lease arrangements. The following table discloses aggregate information about our contractual obligations as of September 30, 2017March 31, 2021 and the periods in which payments are due (in millions): 

 remainder of 2017 2018 - 2019 2020 - 2021 2022 and beyond TotalRemainder of 20212022 - 20232024 - 20252026 and beyondTotal
Long-term debt (1) $39
 $216
 $214
 $886
 $1,355
Long-term debt (1)$154 $528 $1,613 $1,175 $3,470 
Interest commitments (2) 20
 101
 83
 142
 346
Capital and operating lease obligations 66
 475
 390
 643
 1,574
Interest and fee commitments (2)Interest and fee commitments (2)120 287 238 108 753 
Finance and operating lease obligationsFinance and operating lease obligations183 426 346 1,216 2,171 
Flight equipment purchase obligations 228
 1,302
 1,605
 25
 3,160
Flight equipment purchase obligations380 1,793 2,047 2,248 6,468 
Other (3) 2
 7
 2
 —
 11
Other (3)21 40 33 36 130 
Total future payments on contractual obligations $355
 $2,101
 $2,294
 $1,696
 $6,446
Total future payments on contractual obligations$858 $3,074 $4,277 $4,783 $12,992 

(1) Includes principal only associated with our 8.00% senior secured notes, senior term loans, due through 2027, juniorfixed-rate loans, unsecured term loans, due through 2022, fixed-rate loans due through 2029,Class A, Class B, and Class C Series 2015-1 EETCs, Class AA, Class A, Class B, and Class B enhanced equipment trust certificates due through 2028C Series 2017-1 EETCs, convertible notes and 2024, respectively.our revolving credit facilities. Refer to "Notes to theCondensed Consolidated Financial Statements - 10.Statements—12. Debt and Other Obligations."
(2) Related to our 8.00% senior and juniorsecured notes, senior term loans, fixed-rate loans, unsecured term loans and Class A, Class B, and Class C Series 2015-1 EETCs, and Class AA, Class A, Class B, enhanced equipment trust certificates only.and Class C Series 2017-1 EETCs and convertible debt. Includes interest accrued as of March 31, 2021 related to our variable-rate revolving credit facilities.
(3) Primarily related to our reservation system new airport kiosks and our A320ceo seating reconfiguration project.other miscellaneous subscriptions and services. Refer to "Notes to theCondensed Consolidated Financial Statements - 8.Statements—10. Commitments and Contingencies."
Some of our master lease agreements providerequire that we pay maintenance reserves to aircraft lessors to be held as collateral in advance of our required performance of major maintenance activities. Some maintenance reserve payments are fixed contractual amounts, while others are based on utilization. In addition
34

During the fourth quarter of 2019, we purchased an 8.5-acre parcel of land for $41.0 million and entered into a 99-year lease agreement for the lease of a 2.6-acre parcel of land, in Dania Beach, Florida, where we intend to the contractual obligations disclosedbuild a new headquarters campus. Operating lease commitments related to this lease are included in the table above we have fixed maintenance reserve payments for these aircraftunder the caption "Finance and related flight equipment, including estimated amounts for contractual price escalations, which are $1.9 million for the remainder of 2017, $6.9 million in 2018, $5.7 million in 2019, $5.4 million in 2020, $5.5 million in 2021, and $17.7 million in 2022 and beyond.operating lease obligations." For more detailed information, please refer to “Notes to Condensed Consolidated Financial Statements— 9. Leases."

As of September 30, 2017, principal and interest commitments related to our future secured debt financing for 4 undelivered aircraft are zero for the remainder of 2017, $16.5 million in 2018, $16.4 million in 2019, $17.3 million in 2020, $16.2 million in 2021, and $137.2 million in 2022 and beyond.

In September 2015, we executed a lease agreement with Wayne County Airport Authority (the Authority), which owns and operates Detroit Metropolitan Wayne County Airport (DTW). Under the lease agreement, we lease a 10-acre site, adjacent to the airfield at DTW, in order to construct, operate and maintain an approximately 126,000-square-foot hangar facility. The lease agreement has a 30-year term with two 10-year extension options. Upon termination of the lease, title of the project, which will be fully depreciated, will automatically pass to the Authority. We completed the project during the first quarter of 2017 and have no remaining commitments related to this project as of September 30, 2017.



Off-Balance Sheet Arrangements
We have significant lease obligations for our aircraft and spare engines as 59 of our 107 aircraft and 11 of our 15 spare engines are financed under operating leases and are therefore not reflected on our condensed balance sheets. These leases expire between 2017 and 2029. Aircraft rent payments were $55.0 million and $53.5 million for the three months ended September 30, 2017 and 2016, respectively, and $168.6 million and $160.3 million for the nine months ended September 30, 2017 and 2016, respectively. Our aircraft lease payments for 58 of our aircraft are fixed-rate obligations. One of our aircraft leases provide for variable rent payments, which fluctuate based on changes in the London Interbank Offered Rate (LIBOR).
Our contractual purchase commitments consist primarily of aircraft and engine acquisitions through manufacturers. As of September 30, 2017, our aircraft orders consisted of the following:
  Airbus  
  A320ceo A320neo A321ceo  Total
remainder of 2017 2 
 4  6
2018 5 
 5  10
2019 1 14 
  15
2020 
 16 
  16
2021 
 18 
  18
  8 48 9  65
We also have four spare engine orders for V2500 SelectTwo engines with IAE and nine spare engine orders for PurePower PW1100G-JM engines with Pratt & Whitney. Spare engines are scheduled for delivery from 2018 through 2023. Committed expenditures for these aircraft and spare engines, including estimated amounts for contractual price escalations and aircraft PDPs, are expected to be $227.8 million for the remainder of 2017, $528.4 million in 2018, $773.7 million in 2019, $820.5 million in 2020, $784.8 million inMarch 31, 2021, and $24.6 million in 2022 and beyond.
As of September 30, 2017, we had lines of credit related to corporate credit cards of $33.6$5.1 million, from which we had drawn $10.8$0.7 million.
As of September 30, 2017,March 31, 2021, we had lines of credit with counterparties for both physical fuel delivery and derivatives in the amount of $51.5$41.5 million. As of September 30, 2017,March 31, 2021, we had drawn $13.7$6.5 million on these lines of credit for physical fuel delivery. We are required to post collateral for any excess above the lines of credit if the derivatives are in a net liability position and make periodic payments in order to maintain an adequate undrawn portion for physical fuel delivery. As of September 30, 2017,March 31, 2021, we did not hold any derivatives.
As of September 30, 2017,March 31, 2021, we had $8.2$11.5 million in uncollateralized surety bonds and a $35.0$30.0 million unsecuredsecured standby letter of credit facility, representing an off balance-sheet commitment, of which $17.8$24.4 million had been drawn upon for issued letters of credit.



35

GLOSSARY OF AIRLINE TERMS
Set forth below is a glossary of industry terms:
“Adjusted CASM” means operating expenses, excluding unrealized gains or losses related to fuel derivative contracts, out of period fuel federal excise tax, loss on disposal of assets, and special charges (credits),and credits, supplemental rent adjustments and accelerated depreciation, divided by ASMs.
“Adjusted CASM ex-fuel”ex fuel” means operating expenses excluding aircraft fuel expense, loss on disposal of assets, and special charges (credits),and credits, supplemental rent adjustments and accelerated depreciation, divided by ASMs.
“AFA-CWA” means the Association of Flight Attendants-CWA.
“Air traffic liability” or “ATL” means the value of tickets sold in advance of travel.
“ALPA” means the Air Line Pilots Association, International.
“ASIF” means an Aviation Security Infrastructure Fee assessed by the TSA on each airline.
“Available seat miles” or “ASMs” means the number of seats available for passengers multiplied by the number of miles the seats are flown, also referred to as "capacity."
“Average aircraft” means the average number of aircraft in our fleet as calculated on a daily basis.
“Average daily aircraft utilization” means block hours divided by number of days in the period divided by average aircraft.
“Average economic fuel cost per gallon” means total aircraft fuel expense excluding unrealized gains or losses related to fuel derivative contracts and out of period fuel federal excise tax, divided by the total number of fuel gallons consumed.
“Average non-ticket revenue per passenger flight segment” means the total non-ticket revenue divided by passenger flight segments.
“Average ticket revenue per passenger flight segment” means total passenger revenue divided by passenger flight segments.
“Average stage length” represents the average number of miles flown per flight.
“Average yield” means average operating revenue earned per RPM, calculated as total revenue divided by RPMs.RPMs, also referred to as "passenger yield."
“Block hours” means the number of hours during which the aircraft is in revenue service, measured from the time of gate departure before take-off until the time of gate arrival at the destination.
“CASM” or “unit costs” means operating expenses divided by ASMs.

“CBA” means a collective bargaining agreement.

“CBP” means United States Customs and Border Protection.

“DOT” means the United States Department of Transportation.

"EETC" means enhanced equipment trust certificate.

“EPA” means the United States Environmental Protection Agency.

"EETC" means enhanced equipment trust certificate.

“FAA” means the United States Federal Aviation Administration.
“Fare revenue per passenger flight segment” means total fare passenger revenue divided by passenger flight segments.
“FCC” means the United States Federal Communications Commission.
"FLL Airport" means the Fort Lauderdale Hollywood International Airport.
“GDS” means Global Distribution System (e.g., Amadeus, Galileo, Sabre and Worldspan).
"IAMAW" means the International Association of Machinists and Aerospace Workers.
“Into-plane fuel cost per gallon” means into-plane fuel expense divided by number of fuel gallons consumed.
“Into-plane fuel expense” represents the cost of jet fuel and certain other charges such as fuel taxes and oil.


“Load factor” means the percentage of aircraft seats actually occupied on a flight (RPMs divided by ASMs).
36

“NMB” means the National Mediation Board.
"Non-ticket revenue" means total non-fare passenger revenue and other revenue
“Non-ticket revenue per passenger flight segment” means total non-fare passenger revenue and other revenue divided by passenger flight segments.
“OTA” means Online Travel Agent (e.g., Orbitz and Travelocity).
"PAFCA" means the Professional Airline Flight Control Association.
“Passenger flight segments” or “PFS” means the total number of passengers flown on all flight segments.
“PDP” means pre-delivery deposit payment.
“Revenue passenger mile” or “RPM” means one revenue passenger transported one mile. RPMs equals revenue passengers multiplied by miles flown, also referred to as “traffic.”
“RLA” means the United States Railway Labor Act.
"Total operating revenue per-ASM," "TRASM" or "unit revenue" means operating revenue divided by ASMs.
“TWU” means the Transport Workers Union of America.
“TSA” means the United States Transportation Security Administration.
“ULCC” means “ultra low-cost carrier.”



37

    
ITEM 3.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
ITEM 3.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market Risk-Sensitive Instruments and Positions
We are subject to certain market risks, including commodity prices (specifically aircraft fuel) and interest rates. We purchase the majority of our jet fuel at prevailing market prices and seek to manage market risk through execution of our hedging strategy and other means. We have market-sensitive instruments in the form of fixed-rate debt instruments, short-term investment securities and, from time to time, financial derivative instruments used to hedge our exposure to jet fuel price increases and interest rate increases. We do not purchase or hold any derivative financial instruments for trading purposes. The adverse effects of changes in these markets could pose a potential loss as discussed below. The sensitivity analysis provided below does not consider the effects that such adverse changes may have on overall economic activity, nor does it consider additional actions we may take to mitigate our exposure to such changes. Actual results may differ.

Aircraft Fuel. Our results of operations can vary materially due to changes in the price and availability of aircraft fuel. Aircraft fuel expense for the ninethree months ended September 30, 2017March 31, 2021 and 20162020 represented 26.1%approximately 25.4% and 23.2%25.7% of our operating expenses, respectively. IncreasesVolatility in aircraft fuel prices or a shortage of supply could have a material adverse effect on our operations and operating results. We source a significant portion of our fuel from refining resources located in the southeast United States, particularly facilities adjacent to the Gulf of Mexico. Gulf Coast fuel is subject to volatility and supply disruptions, particularly during hurricane season when refinery shutdowns have occurred, or when the threat of weather relatedweather-related disruptions has caused Gulf Coast fuel prices to spike above other regional sources. Both jet fuel swaps and jet fuel options are used at times to protect the refining price risk between the price of crude oil and the price of refined jet fuel, and to manage the risk of increasing fuel prices. Gulf Coast Jet indexed fuel is the basis for a substantial majority of our fuel consumption. Based on our annual fuel consumption over the last twelve12 months, a hypothetical 10% increase in the average price per gallon of aircraft fuel would have increased into-plane aircraft fuel expense by approximately $57$36 million.
As of September 30, 2017March 31, 2021 and December 31, 2016,2020, we had nodid not have any outstanding jet fuel derivatives. We measure our financialderivatives and we have not engaged in fuel derivative instruments at fair value. Fair value of the instruments is determined using standard option valuation models. Changes in the related commodity derivative instrument cash flows may change by more or less than this amount based upon further fluctuations in futures prices. Outstanding financial derivative instruments could expose us to credit loss in the event of nonperformance by the counterparties to the agreements.activity since 2015.
Interest Rates. We have market risk associated with our short-term investment securities, which had a fair market value of $100.7of $106.4 million and $100.2 $106.3 million, as of September 30, 2017March 31, 2021 and December 31, 2016,2020, respectively. We also have market risk associated with changing interest rates due to LIBOR-based lease rates on one of our aircraft. A hypothetical 10% change in interest rates would affect total aircraft rent expense by less than $0.1 million per annum.
Fixed-Rate Debt. As of September 30, 2017,March 31, 2021, we had $1,354.7$2,166.2 million outstanding in fixed-rate debt related to the purchase of 1942 Airbus A320 aircraft and 2130 Airbus A321 aircraft which had a fair value of $1,402.9$2,183.3 million. In addition, as of March 31, 2021, we had $850.0 million and $98.7 million outstanding in fixed-rate debt related to our 8.00% senior secured notes and our unsecured term loans, respectively, which had fair values of $881.8 million and $105.5 million. As of March 31, 2021, we also had $175.0 million outstanding in convertible debt which had a fair value of $538.2 million. As of December 31, 2016,2020, we had $1,012.4$2,207.1 million outstanding in fixed-rate debt related to the purchase of 1542 Airbus A320 aircraft and 1430 Airbus A321 aircraft, which had a fair value of $1,033.7$2,235.3 million. In addition, as of December 31, 2020, we had $850.0 million and $73.3 million outstanding in fixed-rate debt related to our 8.00% senior secured notes and our unsecured term loans, respectively, which had fair values of $886.0 million and $83.1 million. As of December 31, 2020, we also had $175.0 million outstanding in convertible debt which had a fair value of $380.3 million.
Variable-Rate Debt. As of March 31, 2021, we had $180.0 million outstanding in variable-rate long-term debt, which had a fair value of $180.0 million. As of December 31, 2020, we had $275.1 million outstanding in variable-rate debt, which had a fair value of $275.1 million. During the three months ended March 31, 2021, a hypothetical increase of 100 basis points in average annual interest rates would have increased the annual interest expense on our variable-rate long-term debt by $0.6 million.

38


ITEM 4.CONTROLS AND PROCEDURES
ITEM 4.CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures
Our management,
Management, with the participation of our Chief Executive Officer and our Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of September 30, 2017March 31, 2021. . The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’sSEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the Company’sour management, including its principalchief executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure.

Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures.
Based on the evaluation of our disclosure controls and procedures as of September 30, 2017March 31, 2021, , our Chief Executive Officer and Chief Financial Officer concluded that, as of such date, our disclosure controls and procedures were effective at the reasonable assurance level.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act), during the quarter ended September 30, 2017March 31, 2021, that have materially affected or are reasonably likely to materially affect our internal control over financial reporting.

39

PART II. OTHER INFORMATION

ITEM 1.LEGAL PROCEEDINGS
ITEM 1.LEGAL PROCEEDINGS

We are subject to commercial litigation claims and to administrative and regulatory proceedings and reviews that may be asserted or maintained from time to time. We believe the ultimate outcome of such lawsuits, proceedings and reviews will not, individually or in the aggregate, have a material adverse effect on our financial position, liquidity or results of operations.

40

ITEM 1A.RISK FACTORS
ITEM 1A.RISK FACTORS

There have been no material changes to the risk factors disclosed in Item 1A Risk Factors"Risk Factors" contained in our amended Annual Report on Form 10-K for the year ended December 31, 2016,2020, filed with the Securities and Exchange Commission on February 13, 2017, other than modifications to the following risk factor.10, 2021. Investors are urged to review thesesuch risk factors carefully.

We depend on a limited number of suppliers for our aircraft and engines.

One of the elements of our business strategy is to save costs by operating a single-family aircraft fleet - currently Airbus A320-family, single-aisle aircraft, powered by engines manufactured by IAE and Pratt & Whitney. If any of Airbus, IAE, or Pratt & Whitney become unable to perform its contractual obligations, or if we are unable to acquire or lease aircraft or engines from these or other owners, operators or lessors on acceptable terms, we would have to find other suppliers for a similar type of aircraft or engine. If we have to lease or purchase aircraft from another supplier, we would lose the significant benefits we derive from our current single fleet composition. We may also incur substantial transition costs, including costs associated with retraining our employees, replacing our manuals and adapting our facilities and maintenance programs. Our operations could also be harmed by the failure or inability of aircraft, engine and parts suppliers to provide sufficient spare parts or related support services on a timely basis, particularly in connection with new-generation introductory technology. Our business would be significantly harmed if a design defect or mechanical problem with any of the types of aircraft, engines or components currently on order or that we operate were discovered that would halt or delay our aircraft delivery stream or that would ground any of our aircraft while the defect or problem was corrected, assuming it could be corrected at all. For example, introductory issues with the new-generation PW1100G-JM engines, designed and manufactured by Pratt & Whitney, have resulted in the intermittent grounding of certain of our A320neo aircraft. During the fourth quarter of 2016, and continuing through the third quarter of 2017, we have experienced and continue to experience various reliability problems associated with the new engine resulting in the grounding of two of our five A320neo aircraft which we expect to continue until the defect or problem is corrected. In part, due to issues involving the new engine, we renegotiated our aircraft delivery schedule. We originally had four A320neos scheduled for delivery in 2018 of which two were converted to A320ceo aircraft, to be delivered in 2017, and the remaining two are deferred until 2019. We cannot be certain that this defect will be corrected or if the defect will require the grounding of the remaining A320neos. These types of events, if appropriate design or mechanical modifications cannot be adequately implemented, could materially adversely affect our business, results of operations and financial condition. Moreover, the use of our aircraft could be suspended or restricted by regulatory authorities in the event of actual or perceived mechanical or design problems. Our business would also be significantly harmed if the public began to avoid flying with us due to an adverse perception of the types of aircraft, engines or components that we operate stemming from safety concerns or other problems, whether real or perceived, or in the event of an accident involving those types of aircraft, engines or components. Carriers that operate a more diversified fleet are better positioned than we are to manage such events.

Airlines are often affected by factors beyond their control, including: air traffic congestion at airports; air traffic control inefficiencies; adverse weather conditions, such as hurricanes or blizzards; increased security measures; new travel related taxes or the outbreak of disease, any of which could harm our business, operating results and financial condition.

Like other airlines, our business is affected by factors beyond our control, including air traffic congestion at airports, air traffic control inefficiencies, adverse weather conditions, increased security measures, new travel related taxes, the outbreak of disease, new regulations or policies from the presidential administration and Congress. Factors that cause flight delays frustrate passengers and increase costs, which in turn could adversely affect profitability. The federal government currently controls all U.S. airspace, and airlines are completely dependent on the FAA to operate that airspace in a safe, efficient and affordable manner. The air traffic control system, which is operated by the FAA, faces challenges in managing the growing demand for U.S. air travel. U.S. and foreign air-traffic controllers often rely on outdated technologies that routinely overwhelm the system and compel airlines to fly inefficient, indirect routes resulting in delays. A significant portion of our operations is concentrated in markets such as South Florida, the Caribbean, Latin America and the Northeast and Northern Midwest regions of the United States, which are particularly vulnerable to weather, airport traffic constraints and other delays. Adverse weather conditions and natural disasters, such as hurricanes affecting southern Florida and the Caribbean (such as Hurricanes Irma and Maria in September 2017) as well as southern Texas (such as Hurricane Harvey in August 2017), winter snowstorms or the September 2017 earthquakes in Mexico City, Mexico, can cause flight cancellations, significant delays and certain facility disruptions. For example, during 2017 the timing and location of Hurricanes Irma and Maria produced a domino effect on our operations resulting in approximately 1,400 flight cancellations and numerous flight delays, which resulted in an adverse effect on our results of operations. Cancellations or delays due to adverse weather conditions or natural disasters, air traffic control problems or inefficiencies, breaches in security or other factors may affect us to a greater degree than other, larger airlines that may be able to recover more quickly from these events, and therefore could harm our business, results of operations and financial condition to a greater degree than other air carriers. Because of our high utilization, point-to-point network, operational disrupt


ions can have a disproportionate impact on our ability to recover. In addition, many airlines reaccommodate their disrupted passengers on other airlines at prearranged rates under flight interruption manifest agreements. We have been unsuccessful in procuring any of these agreements with our peers, which makes our recovery from disruption more challenging than for larger airlines that have these agreements in place. Similarly, outbreaks of pandemic or contagious diseases, such as ebola, measles, avian flu, severe acute respiratory syndrome (SARS), H1N1 (swine) flu and Zika virus, could result in significant decreases in passenger traffic and the imposition of government restrictions in service and could have a material adverse impact on the airline industry. Increased travel taxes, such as those provided in the Travel Promotion Act, enacted March 10, 2010, which charges visitors from certain countries a $10 fee every two years to travel into the United States to subsidize certain travel promotion efforts, could also result in decreases in passenger traffic. Any general reduction in airline passenger traffic could have a material adverse effect on our business, results of operations and financial condition.





41

ITEM 2.UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
ITEM 2.UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Repurchases of Equity Securities
The following table reflects our repurchases of our common stock during the thirdfirst quarter of 2017.2021. All stock repurchases during this period were made from employees who received restricted stock or performance share awards. All employee stock repurchases were made at the election of each employee pursuant to an offer to repurchase by us. In each case, the shares repurchased constituted the portion of vested shares necessary to satisfy tax withholding requirements.
ISSUER PURCHASES OF EQUITY SECURITIES
PeriodTotal Number of Shares PurchasedAverage Price Paid per ShareTotal Number of Shares Purchased as Part of Publicly Announced Plans or ProgramsApproximate Dollar Value of Shares that May Yet be Purchased Under Plans or Programs
January 1-31, 202135,744 $26.44 — $— 
February 1-28, 2021— — — — 
March 1-31, 20219,459 37.75 — — 
Total45,203 $28.81 — 

ISSUER PURCHASES OF EQUITY SECURITIES
         
Period Total Number of Shares Purchased Average Price Paid per Share Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs Approximate Dollar Value of Shares that May Yet be Purchased Under Plans or Programs
July 1-31, 2017 —
 $—
 —
 $—
August 1-31, 2017 552
 $37.74
 —
 $—
September 1-30, 2017 —
 $—
 —
 $—
Total 552
 $37.74
 —
  

On October 25, 2017, our Board of Directors authorized a new repurchase program of up to $100 million in aggregate value of shares of our Common Stock, par value $0.0001 per share, from time to time in open market or privately negotiated transactions. The authorization will expire on October 25, 2018. The timing and amount of any stock repurchases are subject to prevailing market conditions and other considerations.

ITEM 3.DEFAULTS UPON SENIOR SECURITIES
ITEM 3.DEFAULTS UPON SENIOR SECURITIES

None

ITEM 4.MINE SAFETY DISCLOSURES
ITEM 4.MINE SAFETY DISCLOSURES

Not applicable

ITEM 5.OTHER INFORMATION
ITEM 5.OTHER INFORMATION

None


42

ITEM 6.EXHIBITS
ITEM 6.Exhibit NumberEXHIBITS
Description of Exhibits
Exhibit NumberDescription of Exhibits
10.1+10.1

12.110.2+
31.110.3+
10.4+
10.5+
10.6+
31.1
31.2
32.1*
32.2*
101.INSXBRL Instance Document - The instance document does not appear in the interactive data file because its XBRL tags are embedded within the inline XBRL document.
101.SCHXBRL Taxonomy Extension Schema
101.CALXBRL Taxonomy Extension Calculation Linkbase
101.LABXBRL Taxonomy Extension Label Linkbase
101.PREXBRL Taxonomy Extension Presentation Linkbase
104Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101)
 
+Indicates a management contract or compensatory plan or arrangement.
*Exhibits 32.1 and 32.2 are being furnished and shall not be deemed to be “filed” for purposes of Section 18 of the Exchange Act, or otherwise subject to the liability of that section, nor shall such exhibits be deemed to be incorporated by reference in any registration statement or other document filed under the Securities Act or the Exchange Act, except as otherwise specifically stated in such filing.


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SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
SPIRIT AIRLINES, INC.
April 21, 2021SPIRIT AIRLINES, INC. By:/s/ Scott M. Haralson   
Scott M. Haralson
Date: October 26, 2017 By:/s/ Edward M. Christie   
Edward M. Christie
ExecutiveSenior Vice President and

Chief Financial Officer


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