| Revenue Recognition | Revenue Recognition Passenger revenues Fare revenues. Tickets sold are initially deferred as “air traffic liability.” Passenger fare revenues are recognized at time of departure when transportation is provided. All tickets sold by the Company are nonrefundable. An unused ticket expires at the date of scheduled travel and is recognized as revenue at the date of scheduled travel. Passenger revenues reported prior to the adoption of ASU 2014-09 are now reported as fare revenues within passenger revenues in the Company's disaggregated revenue table within Note 5, Revenue Disaggregation. As of December 31, 2017 and 2016, the Company had air traffic liability (ATL) balances of $263.7 million and $220.2 million , respectively. During the three months ended March 31, 2018, substantially all of the ATL balance as of December 31, 2017 has been recognized. The remaining balance of the December 31, 2017 liability is expected to be recognized during 2018. Non-fare revenues. The adoption of ASU 2014-09 impacted the classification of certain ancillary items such as bags, seats and other travel-related fees, since they are deemed part of the single performance obligation of providing passenger transportation. These ancillary items are now recognized in non-fare revenues within passenger revenues in the Company's disaggregated revenue table within Note 5, Revenue Disaggregation. Other. Other revenue primarily consists of the marketing component of the sale of frequent flyer miles to the Company's credit card partner and commissions revenue from the sale of various items such as hotels and rental cars. Changes and cancellations. Customers may elect to change or cancel their itinerary prior to the date of departure. For changes, a service charge is recognized at time of departure of newly scheduled travel and is deducted from the face value of the original purchase price of the ticket, and the original ticket becomes invalid. For cancellations, a service charge is assessed and the amount remaining after deducting the service charge is called a credit shell which generally expires 60 days from the date the credit shell is created and can be used towards the purchase of a new ticket and the Company’s other service offerings. Both the service charge and credit shell amounts are recorded as deferred revenue, net of the amount expected to expire, which is recognized as revenue upon issuance of the credit shell and is estimated based on historical experience. Estimating the amount of credits that will go unused involves some level of subjectivity and judgment. However, given the relatively short period of time to expiration, this does not have a significant impact on the Company's financial statements. Frequent Flyer Program The Company's frequent flyer program generates customer loyalty by rewarding customers with mileage credits to travel on Spirit. When traveling, customers earn redeemable mileage credits for each mile flown on Spirit. Customers can also earn mileage credits through participating companies such as the co-branded Spirit credit card. Mileage credits are redeemable by customers in future periods for air travel on Spirit. To reflect the mileage credits earned, the program includes two types of transactions that are considered revenue arrangements with multiple performance obligations: (1) mileage credits earned with travel and (2) mileage credits sold to co-branded credit card partner. The adoption of the ASU eliminated the incremental cost method for frequent flier program accounting, which required the Company to re-value and record a liability associated with customer flight miles earned with travel as part of the Company’s frequent flier program with a relative fair value. Upon adoption of the ASU on January 1, 2018, the Company recorded an increase to its air traffic liability of $12.4 million . Passenger ticket sales earning mileage credits. Passenger ticket sales earning mileage credits provide customers with (1) mileage credits earned and (2) air transportation. The Company values each performance obligation on a standalone basis. To value the mileage credits earned, the Company considers the quantitative value a passenger receives by redeeming miles for a ticket rather than paying cash, which is referred to as equivalent ticket value (ETV). The Company defers revenue for the mileage credits when earned and recognize loyalty travel awards in passenger revenue as the miles 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. Sale of mileage credits. Customers may earn mileage credits based on their spending with the Company's co-branded credit card company with which the Company has an agreement to sell mileage credits. The contract to sell mileage credits under this agreement has multiple performance obligations. During the three months ended March 31, 2018 and 2017, total cash sales from this agreement was $10.0 million and $11.7 million , respectively, which are allocated to travel and other performance obligations, as discussed below. The Company's co-brand credit card agreement provides for joint marketing where cardholders earn mileage credits for making purchases using co-branded cards. During 2015, the Company extended its agreement with the administer of the FREE SPIRIT affinity credit card program to extend through 2022. 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) travel miles 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 miles awarded and number of miles redeemed, (2) ETV for the award travel obligation, (3) licensing of brand and access to member lists and (4) advertising and marketing efforts. The Company defers the amount for award travel obligation as part of loyalty deferred revenue within air traffic liability on the balance sheet and recognizes loyalty travel awards in passenger revenue as the mileage credits are used for travel. Revenue allocated to the remaining performance obligations, primarily marketing components, is recorded in other revenue over time as miles are delivered. Mileage breakage. For mileage credits that the Company estimate are not likely to be redeemed ("breakage"), the Company recognize the associated value proportionally during the period in which the remaining mileage credits are expected to be redeemed. Management uses statistical models to estimate breakage based on historical redemption patterns. A change in assumptions as to the period over which mileage credits are expected to be redeemed, the actual redemption activity for mileage credits or the estimated fair value of mileage credits expected to be redeemed could have an impact on revenues in the year in which the change occurs and in future years. Current activity of frequent flyer program. Mileage credits are combined in one homogeneous pool and are not separately identifiable. As such, the revenue is comprised of miles that were part of the frequent flyer deferred revenue balance at the beginning of the period as well as miles that were issued during the period. The following tables show adjustments made due to the adoption of Accounting Standards Update (ASU) No. 2014-09, (ASU 2014-09) "Revenue from Contracts with Customers" on the December 31, 2017 and 2016 statements of operations, respectively. Previously reported results were derived from audited financial statements included in Company's Annual Report on Form 10-K for the fiscal years ended December 31, 2017 and December 31, 2016, as applicable. Year ended December 31, 2017 (in thousands, except share and per share data) As Reported Topic 606 Adjustment As Adjusted Operating revenues: Passenger $ 1,366,034 $ 1,206,853 $ 2,572,887 Other 1,281,632 (1,210,967 ) 70,665 Total operating revenues 2,647,666 (4,114 ) 2,643,552 Operating expenses: Aircraft fuel 615,581 — 615,581 Salaries, wages and benefits 527,959 — 527,959 Aircraft rent 205,852 — 205,852 Landing fees and other rents 180,655 — 180,655 Depreciation and amortization 140,152 — 140,152 Maintenance, materials and repairs 110,439 — 110,439 Distribution 113,620 (148 ) 113,472 Special charges 12,629 — 12,629 Loss on disposal of assets 4,168 — 4,168 Other operating 347,820 — 347,820 Total operating expenses 2,258,875 (148 ) 2,258,727 Operating income 388,791 (3,966 ) 384,825 Other (income) expense: Interest expense 57,302 — 57,302 Capitalized interest (13,793 ) — (13,793 ) Interest income (8,736 ) — (8,736 ) Other expense 366 — 366 Total other (income) expense 35,139 — 35,139 Income before income taxes 353,652 (3,966 ) 349,686 Provision (benefit) for income taxes (66,954 ) 1,118 (65,836 ) Net income $ 420,606 $ (5,084 ) $ 415,522 Basic earnings per share $ 6.08 $ (0.07 ) $ 6.00 Diluted earnings per share $ 6.06 $ (0.07 ) $ 5.99 Year ended December 31, 2016 (in thousands, except share and per share data) As Reported Topic 606 Adjustment As Adjusted Operating revenues: Passenger $ 1,200,621 $ 1,057,180 $ 2,257,801 Other 1,121,335 (1,059,115 ) 62,220 Total operating revenues 2,321,956 (1,935 ) 2,320,021 Operating expenses: Salaries, wages and benefits 472,471 — 472,471 Aircraft fuel 447,553 — 447,553 Aircraft rent 201,675 — 201,675 Landing fees and other rents 151,679 — 151,679 Depreciation and amortization 101,136 — 101,136 Maintenance, materials and repairs 98,587 — 98,587 Distribution 96,627 268 96,895 Special charges 37,189 — 37,189 Loss on disposal of assets 4,187 — 4,187 Other operating 267,191 — 267,191 Total operating expenses 1,878,295 268 1,878,563 Operating income 443,661 (2,203 ) 441,458 Other (income) expense: Interest expense 41,654 — 41,654 Capitalized interest (12,705 ) — (12,705 ) Interest income (5,276 ) — (5,276 ) Other expense 528 — 528 Total other (income) expense 24,201 — 24,201 Income before income taxes 419,460 (2,203 ) 417,257 Provision (benefit) for income taxes 154,581 (807 ) 153,774 Net income $ 264,879 $ (1,396 ) $ 263,483 Basic earnings per share $ 3.77 $ (0.02 ) $ 3.75 Diluted earnings per share $ 3.76 $ (0.02 ) $ 3.74 The following table shows adjusted balances after the adoption of ASU 2014-09, "Revenue from Contracts with Customers" on the quarterly statements of operations for each quarter of 2017. For the Quarter ended March 31, 2017 June 30, 2017 September 30, 2017 December 31, 2017 (in thousands, except share and per share data) Operating revenues: Passenger $ 572,287 $ 680,880 $ 669,072 $ 650,647 Other 17,670 19,305 18,155 15,535 Total operating revenues 589,957 700,185 687,227 666,182 Operating expenses: Aircraft fuel 139,782 142,294 158,300 175,205 Salaries, wages and benefits 127,138 129,892 134,114 136,815 Aircraft rent 57,070 52,566 53,396 42,820 Landing fees and other rents 40,448 45,592 48,498 46,117 Depreciation and amortization 31,509 35,331 36,840 36,472 Maintenance, materials and repairs 26,312 28,985 26,176 28,966 Distribution 25,772 29,835 29,695 28,170 Special charges 4,776 — 7,853 — Loss on disposal of assets 1,105 1,493 516 1,054 Other operating 77,703 102,885 87,965 79,267 Total operating expenses 531,615 568,873 583,353 574,886 Operating income 58,342 131,312 103,874 91,296 Other (income) expense: Interest expense 12,473 13,746 15,018 16,065 Capitalized interest (3,580 ) (3,342 ) (3,203 ) (3,668 ) Interest income (1,313 ) (1,828 ) (2,605 ) (2,990 ) Other expense 3 104 114 145 Total other (income) expense 7,583 8,680 9,324 9,552 Income before income taxes 50,759 122,632 94,550 81,744 Provision (benefit) for income taxes 19,498 45,391 34,506 (165,231 ) Net income $ 31,261 $ 77,241 $ 60,044 $ 246,975 Basic earnings per share $ 0.45 $ 1.11 $ 0.87 $ 3.59 Diluted earnings per share $ 0.45 $ 1.11 $ 0.86 $ 3.58 The following table shows quarterly adjustments made due to the adoption of ASU 2014-09, "Revenue from Contracts with Customers" on the statements of operations for 2017. Adjustments, for the Quarter ended Full Year 2017 As Reported March 31, 2017 June 30, 2017 September 30, 2017 December 31, 2017 Full Year 2017 Adjusted (in thousands, except share and per share data) Operating revenues: Passenger $ 1,366,034 $ 272,525 $ 308,959 $ 312,865 $ 312,504 $ 2,572,887 Other 1,281,632 (274,314 ) (310,455 ) (312,869 ) (313,329 ) 70,665 Total operating revenues 2,647,666 (1,789 ) (1,496 ) (4 ) (825 ) 2,643,552 Operating expenses: Aircraft fuel 615,581 — — — — 615,581 Salaries, wages and benefits 527,959 — — — — 527,959 Aircraft rent 205,852 — — — — 205,852 Landing fees and other rents 180,655 — — — — 180,655 Depreciation and amortization 140,152 — — — — 140,152 Maintenance, materials and repairs 110,439 — — — — 110,439 Distribution 113,620 (726 ) (73 ) 226 425 113,472 Special charges 12,629 — — — — 12,629 Loss on disposal of assets 4,168 — — — — 4,168 Other operating 347,820 — — — — 347,820 Total operating expenses 2,258,875 (726 ) (73 ) 226 425 2,258,727 Operating income 388,791 (1,063 ) (1,423 ) (230 ) (1,250 ) 384,825 Other (income) expense: Interest expense 57,302 — — — — 57,302 Capitalized interest (13,793 ) — — — — (13,793 ) Interest income (8,736 ) — — — — (8,736 ) Other expense 366 — — — — 366 Total other (income) expense 35,139 — — — — 35,139 Income before income taxes 353,652 (1,063 ) (1,423 ) (230 ) (1,250 ) 349,686 Provision (benefit) for income taxes (66,954 ) (389 ) (522 ) (84 ) 2,113 (65,836 ) Net income $ 420,606 $ (674 ) $ (901 ) $ (146 ) $ (3,363 ) $ 415,522 Basic earnings per share $ 6.08 $ (0.01 ) $ (0.01 ) $ — $ (0.05 ) $ 6.00 Diluted earnings per share $ 6.06 $ (0.01 ) $ (0.01 ) $ — $ (0.05 ) $ 5.99 The following tables show adjustments made due to the adoption of Accounting Standards Update (ASU) No. 2014-09, (ASU 2014-09) "Revenue from Contracts with Customers" on the December 31, 2017 and 2016 balance sheets, respectively. Previously reported results were derived from audited financial statements included in Company's Annual Report on Form 10-K for the fiscal years ended December 31, 2017 and December 31, 2016, as applicable. Year ended December 31, 2017 (in thousands) As Reported Topic 606 Adjustment As Adjusted Assets Current assets: Cash and cash equivalents $ 800,849 $ — $ 800,849 Short-term investment securities 100,937 — 100,937 Accounts receivable, net 49,323 — 49,323 Aircraft maintenance deposits, net 175,615 — 175,615 Income tax receivable 69,844 — 69,844 Prepaid expenses and other current assets 83,692 1,850 85,542 Total current assets 1,280,260 1,850 1,282,110 Property and equipment: Flight equipment 2,291,110 — 2,291,110 Ground property and equipment 155,166 — 155,166 Less accumulated depreciation (207,808 ) — (207,808 ) 2,238,468 — 2,238,468 Deposits on flight equipment purchase contracts 253,687 — 253,687 Long-term aircraft maintenance deposits 150,617 — 150,617 Deferred heavy maintenance, net 99,915 — 99,915 Other long-term assets 121,003 — 121,003 Total assets $ 4,143,950 $ 1,850 $ 4,145,800 Liabilities and shareholders’ equity Current liabilities: Accounts payable $ 22,822 $ — $ 22,822 Air traffic liability 246,404 17,307 263,711 Current maturities of long-term debt 115,430 — 115,430 Other current liabilities 262,370 — 262,370 Total current liabilities 647,026 17,307 664,333 Long-term debt, less current maturities 1,387,498 — 1,387,498 Deferred income taxes 313,140 (4,326 ) 308,814 Deferred gains and other long-term liabilities 19,205 3,376 22,581 Shareholders’ equity: Common stock: Common stock, $0.0001 par value, 240,000,000 shares authorized at December 31, 2017; 69,770,795 issued and 68,196,964 outstanding as of December 31, 2017 7 — 7 Additional paid-in-capital 360,153 — 360,153 Treasury stock, at cost: 1,573,831 shares as of December 31, 2017 (65,854 ) — (65,854 ) Retained earnings 1,484,239 (14,507 ) 1,469,732 Accumulated other comprehensive loss (1,464 ) — (1,464 ) Total shareholders’ equity 1,777,081 (14,507 ) 1,762,574 Total liabilities and shareholders’ equity $ 4,143,950 $ 1,850 $ 4,145,800 Year ended December 31, 2016 (in thousands) As Reported Topic 606 Adjustment As Adjusted Assets Current assets: Cash and cash equivalents $ 700,900 $ — $ 700,900 Short-term investment securities 100,155 — 100,155 Accounts receivable, net 41,136 — 41,136 Aircraft maintenance deposits, net 87,035 — 87,035 Income tax receivable — — — Prepaid expenses and other current assets 46,619 1,702 48,321 Total current assets 975,845 1,702 977,547 Property and equipment: Flight equipment 1,461,525 — 1,461,525 Ground property and equipment 126,206 — 126,206 Less accumulated depreciation (122,509 ) — (122,509 ) 1,465,222 — 1,465,222 Deposits on flight equipment purchase contracts 325,688 — 325,688 Long-term aircraft maintenance deposits 199,415 — 199,415 Deferred heavy maintenance, net 75,534 — 75,534 Other long-term assets 110,223 — 110,223 Total assets $ 3,151,927 $ 1,702 $ 3,153,629 Liabilities and shareholders’ equity Current liabilities: Accounts payable $ 15,193 $ — $ 15,193 Air traffic liability 206,392 13,792 220,184 Current maturities of long-term debt 84,354 — 84,354 Other current liabilities 226,011 — 226,011 Total current liabilities 531,950 13,792 545,742 Long-term debt, less current maturities 897,359 — 897,359 Deferred income taxes 308,143 (5,443 ) 302,700 Deferred gains and other long-term liabilities 19,868 2,776 22,644 Shareholders’ equity: Common stock: Common stock, $0.0001 par value, 240,000,000 shares authorized at December 31, 2016; 73,549,872 issued and 69,326,202 outstanding as of December 31, 2016 7 — 7 Additional paid-in-capital 551,004 — 551,004 Treasury stock, at cost: 4,223,670 shares as of December 31, 2016 (218,692 ) — (218,692 ) Retained earnings 1,063,633 (9,423 ) 1,054,210 Accumulated other comprehensive loss (1,345 ) — (1,345 ) Total shareholders’ equity 1,394,607 (9,423 ) 1,385,184 Total liabilities and shareholders’ equity $ 3,151,927 $ 1,702 $ 3,153,629 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 first quarter of 2018 and each quarter of 2017. For the Quarter ended March 31, 2018 March 31, 2017 June 30, 2017 September 30, 2017 December 31, 2017 (in thousands) Operating revenues: Fare $ 342,695 $ 299,035 $ 371,443 $ 355,593 $ 337,324 Non-fare 346,446 273,252 309,437 313,479 313,323 Total passenger revenues 689,141 572,287 680,880 669,072 650,647 Other revenues 14,997 17,670 19,305 18,155 15,535 Total operating revenues 704,138 589,957 700,185 687,227 666,182 The following table shows disaggregated operating revenues for years ended December 31, 2017 and 2016. Year ended December 31, 2017 2016 (in thousands) As Reported Topic 606 Adjustment As Adjusted As Reported Topic 606 Adjustment As Adjusted Operating revenues: Fare $ 1,366,034 $ (2,639 ) $ 1,363,395 $ 1,200,621 $ (2,514 ) $ 1,198,107 Non-fare — 1,209,492 1,209,492 — 1,059,694 1,059,694 Total passenger revenues 1,366,034 1,206,853 2,572,887 1,200,621 1,057,180 2,257,801 Other revenues 1,281,632 (1,210,967 ) 70,665 1,121,335 (1,059,115 ) 62,220 Total operating revenues 2,647,666 (4,114 ) 2,643,552 2,321,956 (1,935 ) 2,320,021 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) area are summarized below: For the Quarter ended March 31, 2018 2017 (in millions) DOT—Domestic $ 647.8 $ 543.9 DOT—Latin America 56.3 46.0 Total $ 704.1 $ 589.9 |
