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~~June 30, ~~2017~~2018



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)



Delaware	38-1747023
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

2800 Executive Way Miramar, Florida	33025
(Address of principal executive offices)	(Zip Code)

(954) 447-7920

(Registrant’s telephone number, including area code)

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 reporting company” and "emerging growth company" in Rule 12b-2 of the Exchange Act. (Check one):



Large accelerated filer	ý	Accelerated filer	o
Non-accelerated filer	o	Smaller reporting company	o
(Do not check if a smaller reporting company)		Emerging growth company	o

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) of the Securities 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~~July 19, ~~2017:~~2018:



Class		Number of Shares
Common Stock, $0.0001 par value		~~69,373,154~~68,252,441

Table of Contents

INDEX



			Page No.
Part I. Financial Information
	Item 1.	Condensed Financial Statements (unaudited)	1
		Condensed Statements of Operations - Three and ~~Nine~~Six Months Ended ~~September~~June 30, ~~2017~~2018 and ~~2016~~2017	1
		Condensed Statements of Comprehensive Income (Loss) - Three and ~~Nine~~Six Months Ended ~~September~~June 30, ~~2017~~2018 and ~~2016~~2017	2
		Condensed Balance Sheets – ~~September~~June 30, ~~2017~~2018 and December 31, ~~2016~~2017	3
		Condensed Statements of Cash Flows – ~~Nine~~Six Months Ended ~~September~~June 30, ~~2017~~2018 and ~~2016~~2017	4
		Notes to Condensed Financial Statements	5
	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	1727
		Glossary of Airline Terms	3042
	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	3244
	Item 4.	Controls and Procedures	3345
Part II. Other Information
	Item 1.	Legal Proceedings	3446
	Item 1A.	Risk Factors	3547
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	3748
	Item 3.	Defaults Upon Senior Securities	3748
	Item 4.	Mine Safety Disclosures	3748
	Item 5.	Other Information	3748
	Item 6.	Exhibits	3849
Signature			3951

PART I. Financial Information


ITEM 1.	UNAUDITED CONDENSED FINANCIAL STATEMENTS

Spirit Airlines, Inc.

Condensed Statements of Operations

(unaudited, in thousands, except per share amounts)


	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended June 30,						Six Months Ended June 30,
	2017			2016			2017			2016			2018			2017			2018			2017
Operating revenues:
Passenger	$	356,207		$	331,004		$	1,027,891		$	900,031		$	836,350		$	680,880		$	1,525,491		$	1,253,167
Non-ticket	331,024			290,325			952,768			843,574
Other													15,421			19,305			30,418			36,975
Total operating revenues	687,231			621,329			1,980,659			1,743,605			851,771			700,185			1,555,909			1,290,142

Operating expenses:
Aircraft fuel													246,180			142,294			450,826			282,076
Salaries, wages and benefits	134,114			120,190			391,144			349,530			187,756			129,892			342,852			257,030
Aircraft fuel	158,300			121,844			440,376			321,018
Aircraft rent	53,396			49,367			163,032			151,433			41,745			52,566			91,936			109,636
Landing fees and other rents	48,498			39,345			134,538			114,096			58,602			45,592			108,232			86,040
Depreciation and amortization	36,840			25,304			103,680			73,370			45,618			35,331			84,991			66,840
Maintenance, materials and repairs	26,176			30,443			81,473			72,010			31,653			28,985			61,363			55,297
Distribution	29,469			25,565			85,875			73,190			34,997			29,835			65,628			55,607
Special charges	7,853			7,355			12,629			31,609			174			—			89,342			4,776
Loss on disposal of assets	516			423			3,114			1,166			4,644			1,493			5,492			2,598
Other operating	87,965			66,277			268,553			197,833			91,881			102,885			185,523			180,588
Total operating expenses	583,127			486,113			1,684,414			1,385,255			743,250			568,873			1,486,185			1,100,488

Operating income	104,104			135,216			296,245			358,350			108,521			131,312			69,724			189,654

Other (income) expense:
Interest expense	15,018			11,362			41,237			29,588			20,498			13,746			38,347			26,219
Capitalized interest	(3,203		)	(3,067		)	(10,125		)	(9,163		)	(2,296		)	(3,342		)	(4,548		)	(6,922		)
Interest income	(2,605		)	(1,222		)	(5,746		)	(4,235		)	(4,430		)	(1,828		)	(8,496		)	(3,141		)
Other expense	114			180			221			407			188			104			321			107
Special charges, non-operating													79,412			—			88,613			—
Total other (income) expense	9,324			7,253			25,587			16,597			93,372			8,680			114,237			16,263

Income before income taxes	94,780			127,963			270,658			341,753
Provision for income taxes	34,590			46,581			100,390			125,367
Income (loss) before income taxes													15,149			122,632			(44,513		)	173,391
Provision (benefit) for income taxes													3,895			45,391			(10,845		)	64,889

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)													$	11,254		$	77,241		$	(33,668	)	$	108,502
Basic earnings (loss) per share													$	0.16		$	1.11		$	(0.49	)	$	1.56
Diluted earnings (loss) per share													$	0.16		$	1.11		$	(0.49	)	$	1.56

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

Spirit Airlines, Inc.

Condensed Statements of Comprehensive Income (Loss)

(unaudited, in thousands)



	Three Months Ended June 30,					Six Months Ended June 30,
	2018		2017			2018			2017
Net income (loss)	$	11,254	$	77,241		$	(33,668	)	$	108,502
Unrealized gain (loss) on short-term investment securities, net of deferred taxes of $33, ($6), $26 and ($14)	101		(11		)	78			(24		)
Interest rate derivative loss reclassified into earnings, net of taxes of $18, $31, $39 and $62	61		53			120			107
Other comprehensive income	$	162	$	42		$	198		$	83
Comprehensive income (loss)	$	11,416	$	77,283		$	(33,470	)	$	108,585

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

~~Spirit Airlines, Inc.~~

~~Condensed Statements of Comprehensive Income~~

~~(unaudited, in thousands)~~

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 $3 13
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 Financial Statements.~~

Spirit Airlines, Inc.

Condensed Balance Sheets

(unaudited, in thousands)


	September 30, 2017			December 31, 2016			June 30, 2018			December 31, 2017
Assets
Current assets:
Cash and cash equivalents	$	863,680		$	700,900		$	812,362		$	800,849
Short-term investment securities	100,732			100,155			101,714			100,937
Accounts receivable, net	46,235			41,136			58,547			49,323
Aircraft maintenance deposits, net	166,386			87,035			107,252			175,615
Income tax receivable							70,672			69,844
Prepaid expenses and other current assets	67,707			46,619			79,788			85,542
Total current assets	1,244,740			975,845			1,230,335			1,282,110

Property and equipment:
Flight equipment	2,017,888			1,461,525			2,911,378			2,291,110
Ground property and equipment	148,324			126,206			168,039			155,166
Less accumulated depreciation	(183,065		)	(122,509		)	(261,314		)	(207,808		)
	1,983,147			1,465,222			2,818,103			2,238,468
Deposits on flight equipment purchase contracts	304,732			325,688			240,224			253,687
Long-term aircraft maintenance deposits	138,672			199,415			141,183			150,617
Deferred heavy maintenance, net	87,566			75,534			172,799			99,915
Other long-term assets	112,085			110,223			79,081			121,003
Total assets	$	3,870,942		$	3,151,927		$	4,681,725		$	4,145,800

Liabilities and shareholders’ equity
Current liabilities:
Accounts payable	$	30,961		$	15,193		$	50,310		$	22,822
Air traffic liability	276,933			206,392			357,645			263,711
Current maturities of long-term debt	105,958			84,354
Current maturities of long-term debt and capital leases							145,865			115,430
Other current liabilities	249,132			226,011			346,407			262,370
Total current liabilities	662,984			531,950			900,227			664,333

Long-term debt, less current maturities	1,214,138			897,359			1,731,766			1,387,498
Deferred income taxes	406,080			308,143			295,601			308,814
Deferred gains and other long-term liabilities	17,204			19,868			20,630			22,581
Shareholders’ equity:
Common stock	7			7			7			7
Additional paid-in-capital	557,772			551,004			365,536			360,153
Treasury stock, at cost	(219,930		)	(218,692		)	(66,840		)	(65,854		)
Retained earnings	1,233,901			1,063,633			1,436,064			1,469,732
Accumulated other comprehensive loss	(1,214		)	(1,345		)
Accumulated other comprehensive income (loss)							(1,266		)	(1,464		)
Total shareholders’ equity	1,570,536			1,394,607			1,733,501			1,762,574
Total liabilities and shareholders’ equity	$	3,870,942		$	3,151,927		$	4,681,725		$	4,145,800

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

Spirit Airlines, Inc.

Condensed Statements of Cash Flows

(unaudited, in thousands)


	Nine Months Ended September 30,						Six Months Ended June 30,
	2017			2016			2018			2017
Operating activities:
Net income	$	170,268		$	216,386
Adjustments to reconcile net income to net cash provided by operations:
Net income (loss)							$	(33,668	)	$	108,502
Adjustments to reconcile net income (loss) to net cash provided by operations:
Losses reclassified from other comprehensive income	252			267			159			167
Equity-based compensation	6,723			5,503
Stock-based compensation							5,381			4,671
Allowance for doubtful accounts (recoveries)	(53		)	213			(12		)	(51		)
Amortization of deferred gains and losses and debt issuance costs	6,415			3,837			4,552			4,761
Depreciation and amortization	103,680			73,370			84,991			66,840
Deferred income tax expense	97,834			77,627
Deferred income tax expense (benefit)							(17,604		)	64,789
Loss on disposal of assets	3,114			1,166			5,492			2,598
Lease termination costs	12,629			31,609			—			4,776
Special charges, non-operating							88,613			—

Changes in operating assets and liabilities:
Accounts receivable	(5,046		)	(7,840		)	(9,212		)	(6,808		)
Aircraft maintenance deposits, net	(28,422		)	(38,299		)	11,222			(17,940		)
Prepaid income taxes	(160		)	66,218			—			(1,598		)
Long-term deposits and other assets	(81,622		)	(43,252		)	3,003			(17,507		)
Deferred heavy maintenance							(94,267		)	(28,191		)
Income tax receivable							(828		)	—
Accounts payable	13,829			(7,044		)	25,413			16,387
Air traffic liability	70,540			21,963			93,936			108,574
Other liabilities	16,152			38,317			83,809			13,518
Other	339			—			8			239
Net cash provided by operating activities	386,472			440,041			250,988			323,727
Investing activities:
Purchase of available-for-sale investment securities	(96,851		)	(100,076		)	(73,687		)	(68,459		)
Proceeds from the maturity of available-for-sale investment securities	95,881			—			72,964			67,857
Proceeds from sale of property and equipment	—			50			9,500			—
Pre-delivery deposits for flight equipment, net of refunds	(121,702		)	(109,260		)	(92,205		)	(79,357		)
Capitalized interest	(8,054		)	(7,032		)	(4,178		)	(6,375		)
Purchase of property and equipment	(428,061		)	(447,455		)	(323,229		)	(269,519		)
Net cash used in investing activities	(558,787		)	(663,773		)	(410,835		)	(355,853		)
Financing activities:
Proceeds from issuance of long-term debt	405,827			378,569			440,340			255,827
Proceeds from stock options exercised	45			92			2			29
Payments on debt and capital lease obligations	(63,643		)	(29,663		)
Excess tax (deficiency) benefit from equity-based compensation	—			(497		)
Payments on debt obligations							(60,649		)	(49,980		)
Payments on capital lease obligations							(205,403		)	(119		)
Repurchase of common stock	(1,238		)	(102,390		)	(986		)	(1,217		)
Debt issuance costs	(5,896		)	(107		)	(1,944		)	(4,164		)
Net cash provided by financing activities	335,095			246,004			171,360			200,376
Net (decrease) increase in cash and cash equivalents	162,780			22,272			11,513			168,250
Cash and cash equivalents at beginning of period	700,900			803,632			800,849			700,900
Cash and cash equivalents at end of period	$	863,680		$	825,904		$	812,362		$	869,150
Supplemental disclosures
Cash payments for:
Interest, net of capitalized interest	$	22,541		$	26,025		$	16,769		$	16,869
Income taxes paid, net of refunds	$	4,352		$	(18,169	)	$	3,270		$	4,340
Non-cash transactions:
Capital expenditures funded by capital lease borrowings	$	(1,370	)	$	(31	)	$	(315	)	$	(1,370	)

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

Notes to Condensed Financial Statements

(unaudited)


1.	Basis of Presentation

The accompanying unaudited condensed financial statements include the accounts of Spirit Airlines, Inc. ~~(the Company)~~("the Company"). These unaudited condensed 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 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 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, ~~2016~~2017 filed with the Securities and Exchange Commission on February 13, ~~2017.~~2018.

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 financial statements are not necessarily indicative of the results that may be expected for other interim periods or for the full year.

Certain prior period amounts have been reclassified to conform to the current year's ~~presentation.~~presentation and the adoption of Accounting Standards Update ("ASU") No. 2014-09, ("ASU 2014-09") "Revenue from Contracts with Customers".


2.	Recent Accounting Developments

Recently Adopted Accounting Pronouncements

Revenue from Contracts with Customers

In May 2014, the Financial Accounting Standards Board ~~(the FASB)~~("the FASB") issued Accounting Standards Update ~~(ASU)~~("ASU") No. 2014-09, ~~(ASU 2014-09)~~("ASU 2014-09") "Revenue from Contracts with Customers." The objective of ASU 2014-09 is to establish a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers. The ~~new~~Company adopted this guidance is effective for the Company in the first quarter of 2018. Entities have the option to use either a full retrospective or a modified retrospective approach to adopt ASU 2014-09. The Company currently anticipateson January 1, 2018 utilizing the full retrospective method of adoption allowed by the standard, in order to provide for comparative results in all periods ~~presented, and plans to adopt the standard as of January 1, 2018. While the Company is still evaluating the impact, it currently believes the~~presented. The most significant impact of this ASU ~~will be~~is the elimination of the incremental cost method for frequent flier program accounting, which ~~will require~~requires the Company to re-value 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.~~ The ~~Company also expects the~~ classification and timing of recognition of certain ancillary fees ~~to be~~is also impacted by the adoption of ASU 2014-09. While the ~~Company believes the~~ adoption ~~will~~did not have a significant impact on earnings, the classification of certain revenues, such as bags, seats and other travel-related fees ~~may be~~are now deemed part of the single performance obligation of providing passenger transportation. ~~The Company expects that these~~Refer to Note 3, Revenue Recognition for information regarding the Company's adoption of ASU 2014-09 and to Note 4, Revenue Disaggregation for the presentation of passenger revenues ~~currently classified as non-ticket revenue, approximately $1 billion annually, will be reclassified to passenger revenue after adoption.~~disaggregated by fare and non-fare.

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 changes in fair value recognized in net income. ASU 2016-01 is effective for the Company for interim and annual periods beginning January 1, 2018. The Company adopted this guidance on January 1, 2018 ~~and is not expected to have a~~with no material impact on the ~~Company’s~~ financial statements.

~~Leases~~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

Notes to Condensed Financial Statements—(Continued)

Company for fiscal years, and interim periods within those years, beginning January 1, 2018. The Company adopted this guidance on January 1, 2018 with no material impact on the financial statements.

Recently Issued Accounting Pronouncements Not Yet Adopted

Leases

In February 2016, the FASB issued ASU No. 2016-02, "Leases (Topic 842)." This standard will generally require all leases with durations greater than twelve months to be recognized on the condensed balance sheet and is effective for the Company in the first quarter of 2019, with early adoption permitted. The Company is currently evaluating the new guidance and believes adoption of this standard will have a significant impact on its condensed balance sheets although adoption is not expected to significantly change the recognition, measurement or presentation of lease expenses within the statements of operations and cash flows. ~~See~~Refer to Note 8,10, Commitments and Contingencies for information regarding the Company's undiscounted future lease payments and the timing of those payments.

~~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 the 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~~

Income Taxes

In ~~August 2016,~~March 2018, the FASB issued ASU 2018-05, Income Taxes ("Topic 740") - Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. ~~2016-15, "Statement of Cash Flows."~~118. The standard ~~is intended~~amends Accounting Standards Codification 740, Income Taxes ("ASC 740") to ~~reduce diversity in practice in how certain transactions are classified in~~provide guidance on accounting for the ~~statement~~tax effects of ~~cash flows. This standard is effective~~the Tax Cuts and Jobs Act ("the Tax Act") pursuant to Staff Accounting Bulletin No. 118. The provisional income tax amounts recorded may be affected as the Company gains a more thorough understanding of the tax law, including those related to the deductibility of acquired assets, state tax treatment and amounts related to employee compensation. The provisional accounting impacts for the Company ~~for fiscal years, and interim~~may change in future reporting periods ~~within those years, beginning January 1, 2018, with early adoption permitted.~~until the accounting is finalized, which will occur no later than the fourth quarter of 2018. The Company ~~is evaluating the new guidance, but~~ does not expect itthe guidance to have a material impact on its financial statements.


3.	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 4, 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 six months ended June 30, 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 the remainder of 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 4, Revenue Disaggregation.

Notes to Condensed Financial Statements—(Continued)

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 and amounts expected to expire are 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.

Other revenues

Other revenues primarily consist 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.

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 ASU 2014-09 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 ASU 2014-09 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 six months ended June 30, 2018 and 2017, total cash sales from this agreement was $19.9 million and $25.0 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.

Notes to Condensed Financial Statements—(Continued)

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 estimates are not likely to be redeemed ("breakage"), the Company recognizes the associated value proportionally during the period in which the remaining mileage credits are 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 ASU 2014-09 on the December 31, 2017 and 2016 statements of operations. 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.

Notes to Condensed Financial Statements—(Continued)



	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

Notes to Condensed Financial Statements—(Continued)



	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

Notes to Condensed Financial Statements—(Continued)

The following table shows adjusted balances after the adoption of ASU 2014-09 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

Notes to Condensed Financial Statements—(Continued)

The following table shows quarterly adjustments made due to the adoption of ASU 2014-09 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

Notes to Condensed Financial Statements—(Continued)

The following tables show adjustments made due to the adoption of ASU 2014-09 on the December 31, 2017 and 2016 balance sheets. 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.



	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 income (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

Notes to Condensed Financial Statements—(Continued)



	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 income (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

Notes to Condensed Financial Statements—(Continued)


4.	Revenue Disaggregation

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 and second quarter of 2018 and each quarter of 2017.



	For the Quarter Ended
	June 30, 2018		March 31, 2018		December 31, 2017		September 30, 2017		June 30, 2017		March 31, 2017
	(in thousands)
Operating revenues:
Fare	$	439,549	$	342,695	$	337,324	$	355,593	$	371,443	$	299,035
Non-fare	396,801		346,446		313,323		313,479		309,437		273,252
Total passenger revenues	836,350		689,141		650,647		669,072		680,880		572,287
Other revenues	15,421		14,997		15,535		18,155		19,305		17,670
Total operating revenues	$	851,771	$	704,138	$	666,182	$	687,227	$	700,185	$	589,957

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:



	Three Months Ended June 30,				Six Months Ended June 30,
	2018		2017		2018		2017
	(in millions)
DOT—Domestic	$	768.3	$	640.0	$	1,417.4	$	1,184.3
DOT—Latin America	83.5		60.2		138.5		105.8
Total	$	851.8	$	700.2	$	1,555.9	$	1,290.1


5.	Special Charges

Special Charges, Operating

Notes to Condensed Financial Statements—(Continued)

During the ~~three~~first quarter of 2018, the Company negotiated and amended the collective bargaining agreement with the Air Line Pilots Association, International ("ALPA"), under the guidance of the National Mediation Board ("NMB"). In connection with the amended agreement, the Company incurred a one-time ratification incentive bonus of $80.7 million, including payroll taxes, and an $8.5 million adjustment related to other contractual provisions. As a result, the Company recorded $89.3 million in special charges within operating expenses in the statement of operations for the six months ended ~~September~~June 30, 2018. During the second quarter of 2018, the Company paid $75.8 million of the ratification incentive bonus with the remainder expected to be paid during the third quarter of 2018.

During the six months ended June 30, 2017, the Company purchased one ~~aircraft~~engine 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 on 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 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 $0.2 million.

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.

~~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 reserves and security deposits held by the previous lessor of $4.3 ~~million and $7.4 million, respectively.~~million. 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~~comprised 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.~~million.

Special Charges, Non-Operating

During the ~~nine~~three and six months ended ~~September~~June 30, ~~2016,~~2018, the Company ~~purchased six~~recorded $79.4 million and $88.6 million, respectively, in special charges, non-operating within other (income) expense in the statement of operations. During the first quarter of 2018, the Company entered into an aircraft purchase agreement for the purchase of 14 A319 aircraft ~~which were~~ previously ~~financed~~operated under operating ~~lease agreements.~~leases by the Company. The aggregate gross purchase price for the 14 aircraft was $285.0 million, and the price for each aircraft at the time of the ~~6 aircraft~~sale was ~~$124.7 million,~~ comprised of a cash payment net of ~~$91.9 million and~~ the ~~non-cash application~~amount of maintenance reserves and security deposits for such aircraft held by the ~~previous~~applicable lessor pursuant to the lease for such aircraft. The contract was deemed a lease modification which resulted in a change of ~~$32.8 million. The Company estimated~~classification from operating leases to capital leases for the 14 aircraft. During the first quarter of 2018, the capital lease assets were recorded at 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. During the second quarter of 2018, the purchase of the 14 aircraft was completed and the obligation was accreted up to the net cash payment price with interest charges recognized in special charges, non-operating in the statement of operations. The Company determined the valuation of the aircraft based on a third-party ~~appraisal~~appraisals considering the condition of ~~each~~the 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.


4.6.	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,
2017 2016 2017 2016
(in thousands, except per share amounts)
Numerator
Net income $ 60,190
$ 81,382
$ 170,268
$ 216,386
Denominator
Weighted-average shares outstanding, basic 69,370
69,727
69,363
70,689
Effect of dilutive stock awards 88
81
174
143
Adjusted weighted-average shares outstanding, diluted 69,458
69,808
69,537
70,832
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

Anti-dilutive weighted-average shares 124

122
76
87



	Three Months Ended June 30,				Six Months Ended June 30,
	2018		2017		2018			2017
	(in thousands, except per share amounts)
Numerator
Net income (loss)	$	11,254	$	77,241	$	(33,668	)	$	108,502
Denominator
Weighted-average shares outstanding, basic	68,251		69,370		68,237			69,359
Effect of dilutive stock awards	59		191		—			217
Adjusted weighted-average shares outstanding, diluted	68,310		69,561		68,237			69,576
Net income (loss) per share
Basic earnings (loss) per common share	$	0.16	$	1.11	$	(0.49	)	$	1.56
Diluted earnings (loss) per common share	$	0.16	$	1.11	$	(0.49	)	$	1.56

Anti-dilutive weighted-average shares	248		17		264			52

Notes to Condensed Financial Statements—(Continued)


5.7.	Short-term Investment Securities

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

As of ~~September~~June 30, ~~2017~~2018 and December 31, ~~2016,~~2017, the Company had ~~$100.7~~$101.7 million and ~~$100.2~~$100.9 million in short-term available-for-sale investment securities, respectively. During the ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2018, these investments earned interest income at a weighted-average fixed rate of approximately ~~1.5%~~1.4%. For the three and ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2018, an unrealized gain of ~~$13~~$101 thousand and an unrealized ~~loss~~gain of ~~$11~~$78 thousand, net of deferred taxes of $7$33 thousand and $6$26 thousand, respectively, was recorded within ~~AOCI~~accumulated other comprehensive income/(loss) ("AOCI") related to these investment securities. For the three and ~~nine~~six months ended ~~September~~June 30, ~~2016,~~2017, an unrealized ~~gain~~loss of $4$11 thousand and $24 thousand, net of deferred taxes of $3$6 thousand and $14 thousand, respectively, was recorded within AOCI related to these investment securities. The Company has not recognized any realized gains or losses related to these securities as the Company has not transacted any sale of these securities. As of ~~September~~June 30, ~~2017~~2018 and December 31, ~~2016, $34~~2017, $27 thousand and ~~$23~~$105 thousand, net of tax, respectively, remained in AOCI, related to these instruments.


6.8.	Accrued Liabilities

Other current liabilities as of ~~September~~June 30, ~~2017~~2018 and December 31, ~~2016~~2017 consist of the following:

September 30, 2017 December 31, 2016
(in thousands)
Salaries and wages $ 50,635
$ 54,578
Airport obligations 47,289
43,989
Federal excise and other passenger taxes and fees payable 43,860
42,064
Aircraft maintenance 41,781
30,233
Interest payable 15,168
8,499
Fuel 14,940
14,828
Aircraft and facility lease obligations 11,678
10,378
Other 23,781
21,442
Other current liabilities $ 249,132
$ 226,011



	June 30, 2018		December 31, 2017
	(in thousands)
Federal excise and other passenger taxes and fees payable	$	78,393	$	42,036
Salaries and wages	77,363		54,338
Airport obligations	59,981		56,299
Aircraft maintenance	44,065		33,033
Fuel	24,543		25,171
Interest payable	19,620		11,384
Aircraft and facility lease obligations	14,020		16,992
Other	28,422		23,117
Other current liabilities	$	346,407	$	262,370


7.9.	Financial Instruments and Risk Management

As part of the Company’s risk management program, the Company from time to time ~~may use~~uses 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 the 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~~ ~~September 30, 2017, 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. As of June 30, 2018, the Company did not hold any derivatives with requirements to post collateral.

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~~The Company's fuel derivative contracts, ~~have~~if any, generally ~~consisted~~consist of United States Gulf Coast jet fuel swaps ~~(jet~~("jet fuel ~~swaps)~~swaps") and United States Gulf Coast jet fuel options ~~(jet~~("jet fuel ~~options)~~options"). Both jet fuel swaps and jet fuel options ~~have been~~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. Fair value of ~~such~~the instruments is determined using standard option valuation models.

Notes to Condensed Financial Statements—(Continued)

The Company accounts for ~~its~~any fuel derivative contracts at fair value and recognizes them in the ~~condensed~~ 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~~six months ended ~~September~~June 30, ~~2017~~2018 and ~~2016~~2017 and did not have any outstanding fuel derivatives as of ~~September~~June 30, ~~2017~~2018 and December 31, ~~2016.~~2017. Historically, the Company has not elected hedge accounting on any fuel derivative instruments entered into and, 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,~~From time to time, the Company ~~settled six forward~~may enter into interest rate swaps ~~that were designed~~ 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.~~or for other reasons. These instruments ~~limited~~limit 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~~Interest rate swaps ~~were~~may be designated as cash flow hedges. The Company generally accounts 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).~~AOCI. As of ~~September~~June 30, ~~2017~~2018 and December 31, ~~2016,~~2017, 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~~six months ended ~~September~~June 30, ~~2017~~2018 and ~~2016,~~2017, there were no unrealized gains or losses recorded within AOCI related to these instruments as they settled in 2015. For the three and ~~nine~~six months ended ~~September~~June 30, 2018, the Company reclassified interest rate swap losses of $61 thousand and $120 thousand, net of tax of $18 thousand and $39 thousand, respectively, into earnings. For the three and six months ended June 30, 2017, the Company reclassified interest rate swap losses of $53 thousand and ~~$160~~$107 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$62 thousand, respectively, into earnings. As of ~~September~~June 30, ~~2017~~2018 and December 31, ~~2016,~~2017, $1.2 million and ~~$1.3~~$1.4 million, net of tax, respectively, remained in AOCI, related to these instruments.


8.10.	Commitments and Contingencies

Aircraft-Related Commitments and Financing Arrangements

The Company’s contractual purchase commitments consist primarily of aircraft and engine acquisitions through manufacturers. During the first quarter of ~~2017,~~2018, the Company negotiated revisions to its A320 aircraft order. The Company originally had ~~four~~14 A320neo aircraft scheduled for delivery in ~~2018~~2019. Pursuant to the revisions, 5 of ~~which two~~the 14 scheduled A320neo aircraft were converted to A320ceo aircraft and are scheduled to be delivered in ~~2017,~~2018 and ~~the remaining two are deferred until~~ 2019. As of ~~September~~June 30, ~~2017,~~2018, 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



	Airbus
	A320ceo	A320neo	Total
remainder of 2018	7		7
2019	2	9	11
2020		16	16
2021		18	18
	9	43	52

On March 28, 2018, the Company entered into an aircraft purchase agreement for the purchase of 14 A319 aircraft, which were previously financed under operating lease agreements. The contract was deemed a lease modification which resulted in a change of classification from operating leases to capital leases for the 14 aircraft. As a result, the Company recorded a short-term capital lease asset of $236.7 million within flight equipment and a short-term capital lease obligation of $143.8 million, net of the related maintenance reserves and security deposits, within current maturities of long-term debt and capital leases on the condensed balance sheet as of March 31, 2018. The purchase of all 14 aircraft was completed as of June 30, 2018 for an aggregate gross purchase price of $285.0 million, which was comprised of cash payments, net of the application of cash maintenance and security deposits held by the previous lessor. For additional information, refer to Note 5, Special Charges.

During the first quarter of 2018, the Company entered into an agreement to purchase six new engines. As of June 30, 2018, the Company had purchased four of the six new engines, unencumbered. In addition, the Company sold 5 used engines for $9.5 million at a loss of $4.4 million which is recorded within loss on disposal of assets in the statement of operations. The

Notes to Condensed Financial Statements—(Continued)

Company also has ~~four~~two spare engine orders for V2500 SelectTwoengines with International Aero Engines ~~(IAE)~~("IAE") and nine spare engine orders for PurePower PW1100G-JM engines with Pratt & Whitney. Spare engines are scheduled for delivery from 2018 through ~~2023~~.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~~$345.6 million for the remainder of ~~2017, $528.4 million in~~remainder of 2018, ~~$773.7~~$600.7 million in 2019, ~~$820.5~~$821.6 million in 2020, ~~$784.8~~$785.1 million in 2021, ~~and $24.6~~$16.8 million in 2022, and $7.9 million in 2023 and beyond. As of ~~September~~June 30, ~~2017,~~2018, the Company had secured debt financing commitments of ~~$160.0~~$117.0 million for 43 aircraft, scheduled for delivery in the remainder of ~~2017,~~2018, and did not have financing commitments in place for the remaining 6149 Airbus aircraft currently on firm order, which are scheduled for delivery in ~~2017~~2018 through 2021.

Interest commitments related to the secured debt financing of 4053 delivered aircraft as of ~~September~~June 30, ~~2017~~2018 are ~~$19.5~~$40.3 million for the remainder of ~~2017, $52.9 million in~~ 2018, ~~$48.2~~$73.4 million in 2019, ~~$43.6~~$67.0 million in 2020, ~~$39.0~~$60.7 million in 2021, ~~and $141.5~~$54.4 million in 2022, and $170.8 million in 2023 and beyond. For principal commitments related to these financed aircraft, refer to Note ~~10,~~12, Debt and Other Obligations. As of ~~September~~June 30, ~~2017,~~2018, principal and interest commitments related to the Company's future secured debt financing of 43 undelivered aircraft under ~~bank debt~~the Series 2017-1 EETC are ~~zero~~approximately $2.7 million for the remainder of ~~2017, $16.5 million in~~ 2018, ~~$16.4~~$4.4 million in 2019, ~~$17.3~~$4.0 million in 2020, ~~$16.2~~$3.8 million in 2021, ~~and $137.2~~$3.6 million in 2022, and $13.1 million in 2023 and beyond.

As of ~~September~~June 30, ~~2017,~~2018, the Company had a fleet consisting of ~~107~~119 A320 family aircraft. ~~During the nine months ended September~~As of June 30, ~~2017, the Company took delivery~~2018, this fleet was comprised of ~~eleven aircraft financed under secured debt arrangements, two~~44 aircraft financed under operating leases, with lease term expirations between 2021 and 2029, and 75 purchased ~~one previously leased~~ aircraft, of which 22 were purchased off lease and ~~returned one aircraft to its lessor.~~are currently unencumbered. In addition, ~~the Company took delivery~~as of two purchased engines and one engine financed under an operating 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 lives of 25 years and estimated residual values of 10%. As of SeptemberJune 30, ~~2017,~~2018, the Company had ~~59 aircraft and 11~~12 spare engines financed under operating leases with lease term expiration dates ranging from ~~2017~~2019 to ~~2029.~~2027, and owned 6 unencumbered spare engines of which 1 was purchased off lease. One of the Company's leased aircraft has variable rent payments, which fluctuate based on changes in LIBOR (London Interbank Offered Rate). The Company entered into sale ~~and~~ leaseback transactions with third-party aircraft lessors for the majority of these aircraft and engine leases. Deferred losses resulting from

~~Notes to Condensed Financial Statements—(Continued)~~

these sale ~~and~~ leaseback transactions are included in other long-term assets on the accompanying ~~condensed~~ balance ~~sheets.~~sheet. Deferred losses are recognized as an increase to rent expense on a straight-line basis over the term of the respective operating leases. Deferred gains are included in deferred ~~credits~~gains and other long-term liabilities on the accompanying ~~condensed~~ balance ~~sheets.~~sheet. Deferred gains are recognized as a decrease to rent expense on a straight-line basis over the term of the respective operating leases.

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 expense when it is probable that such amounts will be incurred. 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, the Company executed an upgrade service agreement with Airbus Americas Customer Services Inc. ~~(Airbus)~~("Airbus") to reconfigure the seating and increase capacity in 40 of the Company’s A320ceos from 178 to 182 seats ~~(reconfiguration)~~("reconfiguration"). The reconfiguration of the aircraft commenced in the first quarter of 2016 and ~~is expected to be~~was completed in the ~~fourth~~second quarter of ~~2017 for a remaining committed cost~~2018. As of ~~$0.6 million, as of September~~June 30, ~~2017. These~~2018, the Company had no further commitments related to this agreement. The amounts ~~will be~~related to the reconfiguration are capitalized within flight equipment on the ~~condensed~~ balance ~~sheets.~~sheet.

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

Notes 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 of the Company's growing fleet and will reduce dependence on third-party facilities and contract maintenance. 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. 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.Condensed Financial Statements—(Continued)

Future minimum lease payments under capital leases and noncancellable operating leases ~~with initial or remaining terms in excess of one year~~ at ~~September~~June 30, ~~2017~~2018 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



		Capital Leases		Aircraft and Spare Engine Leases		Property Facility Leases		Total Operating and Capital Lease Obligations
	(in thousands)
remainder of 2018		$	329	$	86,675	$	27,457	$	114,461
2019		625		167,360		43,505		211,490
2020		249		161,876		28,398		190,523
2021		28		160,185		16,937		177,150
2022		—		146,904		16,250		163,154
2023 and thereafter		—		419,925		99,744		519,669
Total minimum lease payments		$	1,231	$	1,142,925	$	232,291	$	1,376,447
Less amount representing interest		65
Present value of minimum lease payments		$	1,166
Less current portion		599
Long-term portion		$	567

The majority of the Company's capital lease obligations relate to the lease of computer equipment used by the Company's flight crew. Payments ~~under this~~related to the lease ~~agreement~~of computer equipment are fixed for the 3-year term of the ~~lease which began in the second quarter of 2017.~~lease.

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. Aircraft rent expense also includes supplemental rent. Supplemental rent is made up of maintenance reserves paid or expected to be paid to 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 and estimable return condition obligations. The Company expects supplemental rent to 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.

Some of the Company’s aircraft and engine master lease agreements provide that the Company ~~pay~~pays maintenance reserves to aircraft lessors to be held as collateral in advance of the Company’s required performance of major maintenance activities. ~~Substantially all~~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. Fixed maintenance reserve payments for these aircraft and related flight equipment, including estimated amounts for contractual price escalations, are expected to be ~~$1.9~~$3.7 million for the remainder of ~~2017, $6.9~~2018, $5.8 million in ~~2018,~~2019, $5.6 million in 2020, $5.7 million in ~~2019, $5.4 million in 2020, $5.5 million in~~ 2021, ~~and $17.7~~$4.9 million in 2022, and $12.9 million in 2023 and beyond. These lease agreements generally provide that maintenance reserves are reimbursable to the Company upon completion of the maintenance event in an amount equal to either (1) the amount of the maintenance reserves held by the lessor associated with the specific maintenance event or (2) the qualifying costs related to the specific maintenance event. Some of the master lease agreements do not require that the Company pay maintenance reserves asso long as the Company's cash balance does not fall below a certain level. As of ~~September~~June 30, ~~2017,~~2018, the Company ~~was~~is in full compliance with those requirements and does not anticipate having to pay reserves related to these master leases in the future.

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~~June 30, ~~2017: $1.8~~2018: $5.3 million for the remainder of ~~2017, $5.7 million in~~ 2018, ~~$1.6~~$12.5 million in 2019, ~~$1.0~~$12.5 million in 2020, ~~$0.5~~$9.8 million in 2021, $9.9 million in 2022, and ~~$0.2~~$65.8 million thereafter. ~~The Company's current agreement~~During the first quarter of 2018, the Company entered into a contract renewal with its reservation system provider which expires in ~~2018.~~2028.

Litigation

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.

Notes to Condensed Financial Statements—(Continued)

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~~June 30, ~~2017~~2018 and December 31, ~~2016,~~2017, the Company was in compliance with such liquidity and other financial covenants in its credit card processing agreements and the processors were holding back no remittances.

The maximum potential exposure to cash holdbacks by the Company's credit card processors, based upon advance ticket sales and $9 Fare Club memberships as of ~~September~~June 30, ~~2017~~2018 and December 31, ~~2016,~~2017, was ~~$322.3~~$403.0 million and ~~$234.6~~$286.3 million,, respectively.

~~Notes to Condensed Financial Statements—(Continued)~~

Employees

The Company has four union-represented employee groups that together represented approximately 75% of all employees at ~~September~~June 30, ~~2017.~~2018. The table below sets forth the Company's employee groups and status of the collective bargaining agreements as of ~~September~~June 30, ~~2017~~2018.



Employee Groups	Representative	Amendable Date	Percentage of Workforce
Pilots	Air Line Pilots Association, International ~~(ALPA)~~("ALPA")	~~August 2015~~February 2023	~~26%~~27%
Flight Attendants	Association of Flight Attendants ~~(AFA-CWA)~~("AFA-CWA")	May 2021	44%
Dispatchers	~~Transport Workers Union (TWU)~~Professional Airline Flight Control Association ("PAFCA")	August 2018	1%
Ramp Service Agents	International Association of Machinists and Aerospace Workers ~~(IAMAW)~~("IAMAW")	June 2020	4%3%

In August 2015, 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)~~("NMB") to facilitate negotiations for an amended agreement and the Company joined ALPA in the request. ~~The NMB has assigned mediators and the parties continue to work toward an amended agreement with~~In January 2018, under the guidance of the ~~mediator. Under~~NMB assigned mediators, the ~~Railway Labor Act (RLA), the parties' current agreement remains in effect until an amended agreement is reached.~~

~~In March 2016, under the supervision of the NMB, the Company and AFA-CWA~~parties reached a tentative ~~agreement for a five-year contract with~~agreement. In February 2018, the ~~Company's flight attendants. In May 2016, the flight attendants~~pilot group voted to approve the new five-year ~~contract~~agreement with the Company. ~~In connection with this~~The new agreement ~~the Company paid~~includes a ~~$9.6 million~~one-time ratification incentive ofand other negotiated contractual provisions which ~~$8.4 million was~~were recorded in special charges within ~~salaries, wages and benefits~~operating expenses in the condensed statement of operations for the ~~nine~~six months ended ~~September~~June 30, ~~2016.~~2018. For additional information, refer to Note 5, Special Charges.

In December 2017, the Professional Airline Flight Control Association ("PAFCA") filed an application with the NMB seeking to represent the Company's dispatchers, who were previously represented by the Transport Workers Union ("TWU"). In January 2018, the NMB determined that a representation election would be held. The voting period for the representation election took place through February 20, 2018 and the dispatchers elected to be represented by the PAFCA. In June 2018, the Company commenced negotiations with PAFCA for an amended agreement with its dispatchers. The Company and PAFCA continue to meet on a regular basis.

In June 2018, the NMB notified the Company that the TWU filed an application seeking a representation election for the Company's passenger service agents. The application is currently pending, and if granted, would only apply to the Company's Ft. Lauderdale station where the Company has direct employees in the passenger service classification.

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 estimate 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~~$5.1 million and ~~$5.7~~$3.9 million in health care claims as of ~~September~~June 30, ~~2017~~2018 and December 31, ~~2016,~~2017, respectively.

Notes to Condensed Financial Statements—(Continued)


9.11.	Fair Value Measurements

Under ASC 820, ~~Fair~~"Fair Value Measurements and ~~Disclosures~~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:

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.~~instruments, if any. As a result, the Company records the fair value adjustment of ~~its~~any fuel derivatives in the accompanying statement of operations within aircraft fuel and on the ~~condensed~~ balance ~~sheets~~sheet 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~~any 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 any derivative instruments executed with the same counterparty under a master netting arrangement. The Company determines fair value of any 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, isif any, are 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~~June 30, ~~2017~~2018 and December 31, ~~2016,~~2017, the Company had no outstanding jet fuel derivatives.

Long-Term Debt

The estimated fair value of the Company's ~~non-publicly held~~term loan debt agreements has 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 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 ~~public~~Level 2 long-term debt.

Notes to Condensed Financial Statements—(Continued)

The carrying amounts and estimated fair values of the Company's long-term debt at ~~September~~June 30, ~~2017~~2018 and December 31, ~~2016~~2017 were as follows:

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 loans 41.3
42.7
47.1
48.1
Level 3
Fixed-rate loans 363.4
370.1
—
—
Level 3
Class A enhanced equipment trust certificates 423.6
440.6
409.8
416.0
Level 2
Class B enhanced equipment trust certificates 100.0
103.3
103.6
105.7
Level 2
Total long-term debt $ 1,354.7
$ 1,402.9
$ 1,012.4
$ 1,033.7



	June 30, 2018				December 31, 2017				Fair Value Level Hierarchy
	Carrying Value		Estimated Fair Value		Carrying Value		Estimated Fair Value		Fair Value Level Hierarchy
	(in millions)
Senior term loans	$	400.3	$	400.9	$	417.9	$	435.3	Level 3
Junior term loans	35.3		35.6		39.3		40.4		Level 3
Fixed-rate loans	502.0		489.5		518.0		528.6		Level 3
2015-1 EETC Class A	393.6		394.8		408.6		420.9		Level 2
2015-1 EETC Class B	84.0		84.6		92.0		94.2		Level 2
2015-1 EETC Class C	115.2		114.9		—		—		Level 2
2017-1 EETC Class AA	190.0		184.8		37.5		37.4		Level 2
2017-1 EETC Class A	63.3		61.3		12.5		12.6		Level 2
2017-1 EETC Class B	70.0		68.2		13.8		13.8		Level 2
2017-1 EETC Class C	65.7		65.5		—		—		Level 2
Total long-term debt	$	1,919.4	$	1,900.1	$	1,539.6	$	1,583.2

Cash and Cash Equivalents

Cash and cash equivalents at ~~September~~June 30, ~~2017~~2018 and December 31, ~~2016~~2017 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.

Short-term Investment Securities

~~Notes to Condensed Financial Statements—(Continued)~~

Short-term investment securities at ~~September~~June 30, ~~2017~~2018 and December 31, ~~2016~~2017 are comprised of available-for-sale asset-backed securities with contractual maturities of twelve months or less and 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 and liabilities measured at gross fair value on a recurring basis are summarized below:


	Fair Value Measurements as of September 30, 2017								Fair Value Measurements as of June 30, 2018
	Total		Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3
	(in millions)								(in millions)
Cash and cash equivalents	$	863.7	$	863.7	$	—	$	—	$	812.4	$	812.4	$	—	$	—
Short-term investment securities	100.7		100.7		—		—		101.7		101.7		—		—
Total assets	$	964.4	$	964.4	$	—	$	—	$	914.1	$	914.1	$	—	$	—

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 securities 100.2

100.2

—

—
Total assets $ 801.1

$ 801.1

$ —

$ —

Total liabilities $ —

$ —

$ —

$ —
Notes to Condensed Financial Statements—(Continued)



	Fair Value Measurements as of December 31, 2017
	Total		Level 1		Level 2		Level 3
	(in millions)
Cash and cash equivalents	$	800.8	$	800.8	$	—	$	—
Short-term investment securities	100.9		100.9		—		—
Total assets	$	901.7	$	901.7	$	—	$	—

Total liabilities	$	—	$	—	$	—	$	—

The Company had no transfers of assets or liabilities between any of the above levels during the ~~nine months~~periods ended ~~September~~June 30, 2018 and December 31, 2017.

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.


~~10.~~12.	Debt and Other Obligations

As of ~~September~~June 30, ~~2017,~~2018, the Company ~~held~~had outstanding non-public and public debt instruments. During the six months ended June 30, 2018, the Company issued additional debt through the 2015-1 and 2017-1 EETCs described below.

2017-1 Class AA, Class A and Class B EETCs

In November 2017, the Company created three separate pass-through trusts, which issued $420.5 million aggregate face amount of Series 2017-1 Class AA, Class A and Class B EETCs in connection with the financing of seven new Airbus A320 aircraft and five new Airbus A321 aircraft. Each class of certificates represents a fractional undivided interest in the respective pass-through trusts and is not an obligation of the Company. The proceeds from the issuance of these certificates are initially held in escrow by a depositary and, upon satisfaction of certain terms and conditions, are released and used to purchase equipment notes which are issued by the Company and secured by the Company's aircraft. Interest on the issued and outstanding equipment notes are payable semiannually on February 15 and August 15 of each year, commencing on August 15, 2018, and principal on such equipment notes is scheduled for payment on February 15 and August 15 of certain years. Principal payments commence on August 15, 2018 in the case of five new Airbus A321 aircraft delivered from February 2018 to March 2018 and three Airbus A320 aircraft delivered from December 2017 to January 2018 and on February 15, 2019 for four Airbus A320 aircraft scheduled for delivery from April 2018 to October 2018. Issued and outstanding Series AA and Series A equipment notes mature in February 2030 and Series B equipment notes mature in February 2026. Issued and outstanding Series AA, Series A and Series B equipment notes accrue interest at a rate of 3.375%, 3.650% and 3.800%, respectively. As of June 30, 2018, $323.3 million of the proceeds from the sale of the Series 2017-1 Class AA, Class A and Class B EETCs had been used to purchase equipment notes in connection with the financing of five Airbus A321 aircraft and four Airbus A320 aircraft. The remaining $97.2 million of escrowed proceeds held by the pass-through trusts will be used to purchase equipment notes as the remaining three new aircraft are delivered through October 2018. Equipment notes that are issued are reported as debt on the Company's condensed balance sheets.

2015-1C and 2017-1C EETCs

In May 2018, the Company completed a private placement of an aggregate amount of $115.2 million pass-through certificates, Series 2015-1C. The Company entered into 15 separate participation agreement amendments to existing participation agreements that were entered into by the Company during the period from October 2015 to February 2017 under the existing pass through trust formed by the Company on August 11, 2015. The Series 2015-1C equipment notes are secured by 12 Airbus A321 aircraft previously delivered from October 2015 to January 2017 and 3 Airbus A320 aircraft previously delivered from March 2016 to June 2016. The Series 2015-1C equipment notes mature in April 2023 and accrue interest at a rate of 4.93%. Principal and interest on the issued and outstanding Series 2015-1C equipment notes are payable semiannually

Notes to Condensed Financial Statements—(Continued)

on April 1 and October 1 of each year, commencing on October 1, 2018. Equipment notes that are issued are reported as debt on the Company's condensed balance sheets.

In May 2018, the Company also completed a private placement of an aggregate amount of $85.5 million pass-through certificates, Series 2017-1C. The Company entered into 9 separate participation agreement amendments to existing participation agreements that were entered into by the Company during the period from December 2017 to April 2018 under the existing pass through trust formed by the Company on November 28, 2017. The participation agreement amendments provide for the issuance of series 2017-1C equipment notes, in the aggregate principal amount of $65.7 million in connection with previously delivered aircraft. The 2017-1C equipment notes are secured by five Airbus A321 aircraft previously delivered from February 2018 to March 2018 and four Airbus A320 aircraft previously delivered from December 2017 to April 2018. The remaining $19.8 million in proceeds from the sale of the Series 2017-1C Certificates was placed in escrow and, upon satisfaction of certain terms and conditions, proceeds will be released to the Company and the Company will issue 2017-1C equipment notes to be secured by three new Airbus A320 aircraft scheduled for delivery from August 2018 through October 2018. The Series 2017-1C equipment notes mature in February 2023 and accrue interest at a rate of 5.11%. Interest on the Class C 2017-1 issued and outstanding equipment notes are payable semiannually on February 15 and August 15 of each year, commencing on August 15, 2018. The entire principal on the issued and outstanding Series 2017-1C equipment notes is scheduled for payment on February 15, 2023. Equipment notes that are issued are reported as debt on the Company's condensed balance sheets.

The Company evaluated whether the pass-through trusts formed are variable interest entities ("VIEs") required to be consolidated by the Company under applicable accounting guidance. The Company determined that the pass-through trusts are VIEs and that it does not have a variable interest in the pass-through trusts. Based on this analysis, the Company determined that it is not required to consolidate these pass-through trusts.

Long-term debt is comprised of the following:

~~Notes to Condensed Financial Statements—(Continued)~~

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



	As of				Three Months Ended June 30,				Six Months Ended June 30,
	June 30, 2018		December 31, 2017		2018		2017		2018		2017
	(in millions)				(weighted-average interest rates)
Fixed-rate senior term loans due through 2027	$	400.3	$	417.9	4.10	%	4.10	%	4.10	%	4.10	%
Fixed-rate junior term loans due through 2022	35.3		39.3		6.90	%	6.90	%	6.90	%	6.90	%
Fixed-rate loans due through 2029	502.0		518.0		3.83	%	3.82	%	3.83	%	3.82	%
Fixed-rate class A 2015-1 EETC due through 2028	393.6		408.6		4.10	%	4.10	%	4.10	%	4.10	%
Fixed-rate class B 2015-1 EETC due through 2024	84.0		92.0		4.45	%	4.45	%	4.45	%	4.45	%
Fixed-rate class C 2015-1 EETC due through 2023	115.2		—		4.93	%	N/A		4.93	%	N/A
Fixed-rate class AA 2017-1 EETC due through 2030	190.0		37.5		3.38	%	N/A		3.38	%	N/A
Fixed-rate class A 2017-1 EETC due through 2030	63.3		12.5		3.65	%	N/A		3.65	%	N/A
Fixed-rate class B 2017-1 EETC due through 2026	70.0		13.8		3.80	%	N/A		3.80	%	N/A
Fixed-rate class C 2017-1 EETC due through 2023	65.7		—		5.11	%	N/A		5.11	%	N/A
Long-term debt	1,919.4		1,539.6
Less current maturities	145.9		115.4
Less unamortized discounts	41.7		36.7
Total	$	1,731.8	$	1,387.5

During the three and ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2018, the Company made scheduled principal payments of ~~$13.4~~$42.0 million and ~~$63.4~~$60.6 million on its outstanding debt obligations, respectively. During the three and ~~nine~~six months ended ~~September~~June 30, ~~2016,~~2017, the Company made scheduled principal payments of ~~$10.0~~$39.8 million and ~~$29.6~~$50.0 million on its outstanding debt obligations, respectively.

At ~~September~~June 30, ~~2017,~~2018, long-term debt principal payments for the next five years and thereafter are as follows:

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
Notes to Condensed Financial Statements—(Continued)



	June 30, 2018
	(in millions)
remainder of 2018	$	76.6
2019	152.5
2020	150.0
2021	147.1
2022	144.0
2023 and beyond	1,249.2
Total debt principal payments	$	1,919.4

Interest Expense

Interest expense related to long-term debt consisted of the following:

~~Notes to Condensed Financial Statements—(Continued)~~



	Three Months Ended June 30,				Six Months Ended June 30,
	2018		2017		2018		2017
	(in thousands)
Senior term loans	$	4,257	$	4,619	$	8,573	$	9,290
Junior term loans	636		775		1,303		1,578
Fixed-rate loans	4,881		1,586		9,792		1,744
Class A 2015-1 EETC	4,015		4,321		8,157		8,629
Class B 2015-1 EETC	930		1,108		1,942		2,292
Class C 2015-1 EETC	789		—		789		—
Class AA 2017-1 EETC	1,576		—		2,257		—
Class A 2017-1 EETC	568		—		814		—
Class B 2017-1 EETC	654		—		936		—
Class C 2017-1 EETC	466		—		466		—
Commitment fees	51		28		103		58
Amortization of debt discounts	1,655		1,290		3,146		2,521
Total	$	20,478	$	13,727	$	38,278	$	26,112

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 loans 746
879
2,323
2,721
Fixed-rate loans 2,811
—
4,555
—
Class A enhanced equipment trust certificates 4,366
3,538
12,995
7,419
Class B enhanced equipment trust certificates 1,118
1,015
3,410
2,124
Commitment fees 29
32
87
97
Amortization of debt discounts 1,362
979
3,883
2,289
Total $ 14,996
$ 11,360
$ 41,107
$ 29,579


~~11.~~	~~Subsequent Events~~

On October 25, 2017, the Company's 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 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~~("the Securities ~~Act)~~Act"), and Section 21E of the Securities Exchange Act of 1934, as amended ~~(the~~("the Exchange ~~Act)~~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, ~~2016~~2017 and subsequent Quarterly Reports on Form 10-Q. 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-conscious customers. Our all-Airbus Fit Fleet^TM, is one of the youngest ~~fleet of any major~~and most fuel efficient in the U.S. ~~airline,~~We currently ~~operates~~operate more than ~~480~~500 daily flights to 6067 destinations in the United States, ~~Caribbean~~Latin America and ~~Latin America.~~the Caribbean. Our stock trades under the symbol "SAVE" on the ~~NASDAQ Global Select~~New 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 Control^TM, which provides customers the freedom to save by paying only for the options they choose, such as bags and advance seat ~~assignments and refreshments.~~assignments. We record revenue related to these options as non-fare passenger revenue, which is recorded within passenger revenues in our ~~financial statements as non-ticket revenue.~~statement of operations.

We are focused on price-sensitive travelers who pay for their own travel, and our business model is designed to deliver what we believe our customers 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 Simple^TMstrategy. 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.

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 customers 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 than other airlines on average. Through branded campaigns, we educate the public on how our unbundled pricing model works, showing them how it gives them choice on how they spend their money and saves them money compared to other airlines.

Comparative Operating Statistics:

The following tables set forth our operating statistics for the three and ~~nine-month periods~~six-month period ended ~~September~~June 30, ~~2017~~2018 and ~~2016~~2017:


	Three Months Ended September 30,				Percent Change		Three Months Ended June 30,				Percent Change
	2017		2016		Percent Change		2018		2017		Percent Change
Operating Statistics (unaudited) (A):
Average aircraft	105.5		87.4		20.7	%	118.7		102.8		15.5	%
Aircraft at end of period	107		89		20.2	%	119		104		14.4	%
Average daily aircraft utilization (hours)	11.6		12.3		(5.7	)%	12.6		11.7		7.7	%
Average stage length (miles)	1,006		968		3.9	%	1,051		982		7.0	%
Block hours	112,701		98,586		14.3	%	136,357		109,296		24.8	%
Departures	42,599		38,310		11.2	%	49,404		41,563		18.9	%
Passenger flight segments (PFSs) (thousands)	6,307		5,674		11.2	%	7,554		6,206		21.7	%
Revenue passenger miles (RPMs) (thousands)	6,452,529		5,599,370		15.2	%	7,961,128		6,219,638		28.0	%
Available seat miles (ASMs) (thousands)	7,681,312		6,507,204		18.0	%	9,515,842		7,294,578		30.5	%
Load factor (%)	84.0	%	86.0	%	(2.0) pts		83.7	%	85.3	%	(1.6) 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	%
Fare revenue per passenger flight segment ($)							58.19		59.85		(2.8	)%
Non-ticket revenue per passenger flight segment ($)							54.57		52.97		3.0	%
Total revenue per passenger flight segment ($)	108.96		109.51		(0.5	)%	112.76		112.82		(0.1	)%
Average yield (cents)	10.65		11.10		(4.1	)%	10.70		11.26		(5.0	)%
TRASM (cents)	8.95		9.55		(6.3	)%	8.95		9.60		(6.8	)%
CASM (cents)	7.59		7.47		1.6	%	7.81		7.80		0.1	%
Adjusted CASM (cents)	7.48		7.35		1.8	%	7.76		7.78		(0.3	)%
Adjusted CASM ex-fuel (cents)	5.42		5.48		(1.1	)%	5.17		5.83		(11.3	)%
Fuel gallons consumed (thousands)	90,274		78,288		15.3	%	106,144		85,533		24.1	%
Average economic fuel cost per gallon ($)	1.75		1.56		12.2	%	2.32		1.66		39.8	%

(A) See "Glossary of Airline Terms" elsewhere in this quarterly report for definitions used in this table. Certain prior period statistics reflect adjustments after the adoption of ASU 2014-09, "Revenue from Contracts with Customers".


	Nine Months Ended September 30,				Percent Change		Six Months Ended June 30,				Percent Change
	2017		2016		Percent Change		2018		2017		Percent Change
Operating Statistics (unaudited) (A):
Average aircraft	101.9		84.1		21.2	%	116.4		100.0		16.4	%
Aircraft at end of period	107		89		20.2	%	119		104		14.4	%
Average daily aircraft utilization (hours)	11.7		12.6		(7.1	)%	12.3		11.8		4.2	%
Average stage length (miles)	991		978		1.3	%	1,038		983		5.6	%
Block hours	326,033		290,529		12.2	%	259,310		213,332		21.6	%
Departures	123,492		111,495		10.8	%	94,386		80,893		16.7	%
Passenger flight segments (PFSs) (thousands)	18,083		16,268		11.2	%	14,092		11,775		19.7	%
Revenue passenger miles (RPMs) (thousands)	18,285,588		16,219,093		12.7	%	14,774,647		11,833,060		24.9	%
Available seat miles (ASMs) (thousands)	21,851,789		18,909,627		15.6	%	17,924,606		14,170,478		26.5	%
Load factor (%)	83.7	%	85.8	%	(2.1) pts		82.4	%	83.5	%	(1.1) 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	%
Fare revenue per passenger flight segment ($)							55.51		56.94		(2.5	)%
Non-ticket revenue per passenger flight segment ($)							54.90		52.63		4.3	%
Total revenue per passenger flight segment ($)	109.53		107.17		2.2	%	110.41		109.57		0.8	%
Average yield (cents)	10.83		10.75		0.7	%	10.53		10.90		(3.4	)%
TRASM (cents)	9.06		9.22		(1.7	)%	8.68		9.10		(4.6	)%
CASM (cents)	7.71		7.33		5.2	%	8.29		7.77		6.7	%
Adjusted CASM (cents)	7.64		7.15		6.9	%	7.76		7.71		0.6	%
Adjusted CASM ex-fuel (cents)	5.62		5.45		3.1	%	5.25		5.72		(8.2	)%
Fuel gallons consumed (thousands)	254,871		225,851		12.8	%	201,147		164,597		22.2	%
Average economic fuel cost per gallon ($)	1.73		1.42		21.8	%	2.24		1.71		31.0	%

Critical Accounting Policies and Estimates

Except as set forth below, for information regarding our Critical Accounting Policies and Estimates, see the "Critical Accounting Policies and Estimates" section of "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" in our Form 10-K.

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 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 our disaggregated revenue table within Note 4, Revenue Disaggregation.

As of December 31, 2017 and 2016, we had air traffic liability balances of $263.7 million and $220.2 million, respectively. During the six months ended June 30, 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 the remainder of 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 our disaggregated revenue table within Note 4, Revenue Disaggregation.

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 other service offerings. Both the service charge and credit shell amounts are recorded as deferred revenue and amounts expected to expire are 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 our financial statements.

Other revenues

Other revenues primarily consist of the marketing component of the sale of frequent flyer miles to our credit card partner and commissions revenue from the sale of various items such as hotels and rental cars.

Frequent Flyer Program

Our 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 our co-branded Spirit credit card. Mileage credits are redeemable by customers in future periods for air travel on Spirit.

The adoption of ASU 2014-09 eliminated the incremental cost method for frequent flier program accounting, which required us to re-value and record a liability associated with customer flight miles earned with travel as part of our frequent flier program with a relative fair value. Upon adoption of ASU 2014-09 on January 1, 2018, we recorded an increase to 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. We value each performance obligation on a standalone basis. To value the mileage credits earned, we consider 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").

We defer revenue for the mileage credits when earned and recognize loyalty travel awards in passenger revenue as the miles are redeemed and services are provided. We record the air transportation portion of the passenger ticket sales in air traffic liability and recognize passenger revenue when we provide transportation or if the ticket goes unused.

Sale of mileage credits. Customers may earn mileage credits based on their spending with our co-branded credit card company with which we have an agreement to sell mileage credits. Our contract to sell mileage credits under this agreement has multiple performance obligations. During the six months ended June 30, 2018 and 2017, total cash sales from this agreement was $19.9 million and $25.0 million, respectively, which are allocated to travel and other performance obligations, as discussed below.

Our co-brand credit card agreement provides for joint marketing where cardholders earn mileage credits for making purchases using co-branded cards. During 2015, we extended our agreement with the administer of the FREE SPIRIT affinity credit card program to extend through 2022. We account for this agreement consistently with the accounting method that allocates the consideration received to the individual products and services delivered. We allocate the value 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. We determined our 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.

We defer the amount for award travel obligation as part of loyalty deferred revenue within air traffic liability on the balance sheet and recognize 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 we estimate are not likely to be redeemed ("breakage"), we recognize the associated value proportionally during the period in which the remaining mileage credits are 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 our revenue in the year in which the change occurs and in future years.

Executive Summary

For the ~~third~~second quarter of ~~2017~~2018, we achieved a ~~15.1%~~12.7% operating margin, a decrease of ~~6.7~~6.1 points compared to the prior year period. We generated pre-tax income of ~~$94.8~~$15.1 million and net income of $~~60.2~~11.3 million on operating revenues of $~~687.2~~851.8 million. For the ~~third~~second quarter of ~~2016~~2017, we generated pre-tax income of $~~128.0~~122.6 million and net income of $~~81.4~~77.2 million on operating revenues of ~~$621.3~~$700.2 million.

Our adjusted CASM ex-fuel for the ~~third~~second quarter of ~~2017~~2018 was ~~5.42~~5.17 cents, ~~a 1.1%~~an 11.3% decrease year over year. The decrease on a per-ASM basis was primarily due to decreases in ~~maintenance, materials and repairs, salaries, wages and benefits~~other operating expense and aircraft rent ~~expense, partially offset by increases in other operating and depreciation and amortization~~ expense.

During 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 earlier in the year, negatively impacted our third quarter operating income by approximately $39 million.

As of ~~September~~June 30, ~~2017,~~2018, we had ~~107~~119 Airbus A320-family aircraft in our fleet comprised of 31 A319s, 5453 A320s, 30 A321s, and ~~22 A321s.~~5 A320neos. With the scheduled delivery of ~~6 aircraft and the retirement of 1~~7 aircraft during the remainder of ~~2017,~~2018 and a contract currently under negotiation for the delivery of an additional 2 aircraft, we expect to end ~~2017~~2018 with ~~112~~128 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,~~engines, 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~~first quarter of ~~2017,~~2018, the support agreement was extended through ~~the end of 2017.~~February 2018. The

support agreement ~~provides~~provided for compensation ~~to the Company~~ for grounded aircraft, if any, and for back-up spare engines. We ~~are currently negotiating certain milestone dates for remediation of the introductory into-service issues~~continuously work with Pratt & ~~Whitney.~~Whitney to secure support and relief in connection with possible engine related operation disruptions.

Comparison of three months ended ~~September~~June 30, ~~2017~~2018 to three months ended ~~September~~June 30, ~~2016~~2017

Operating Revenues

Operating revenues increased $~~65.9~~151.6 million, or ~~10.6%~~21.6%, to $~~687.2~~851.8 million for the ~~third~~second quarter of ~~2017~~2018, as compared to the ~~third~~second quarter of ~~2016~~,2017, due primarily to an increase in traffic of ~~15.2%~~28.0%, offset by a decrease in passenger yields of ~~4.1%~~ 5.0%.

Total revenue per available seat mile ~~(TRASM)~~("TRASM") for the ~~third~~second quarter of ~~2017~~2018 was 8.95 cents, a decrease of ~~6.3%~~6.8%, as compared to the ~~third~~second quarter of ~~2016.~~2017. This decrease was primarily ~~driven by~~due to lower passenger yields, year over year, ~~resulting from aggressive competitive pricing~~driven in ~~many~~part by an increase in average stage length and the calendar shift of ~~our markets. In addition, load factor decreased by 2.0 points,~~the Easter holiday, year over year.

Total revenue per passenger flight segment decreased ~~0.5%,~~slightly year over ~~year, driven by a decrease of 3.2% in ticket~~year. Fare revenue per passenger flight segment ~~offset by an increase of 2.6% in~~decreased 2.8% and non-ticket revenue per passenger flight ~~segment.~~segment increased 3.0%. The decrease in ~~ticket~~fare revenue per passenger flight segment was primarily driven by a ~~4.1%~~5.0% decrease in average yield, period over ~~period, due to a more aggressive pricing environment as compared to the prior year.~~period. The increase in non-ticket revenue per passenger flight segment was primarily attributable to higher bag revenue, passenger usage fee, and seat revenue per flight segment, as compared to the prior year.

Operating Expenses

Operating expenses increased ~~$97.0~~$174.4 million, or ~~20.0%~~30.7%, to ~~$583.1~~$743.3 million for the ~~third~~second quarter of ~~2017~~2018 compared to ~~$486.1~~$568.9 million for the ~~third~~second quarter of ~~2016,~~2017, primarily due to an increase in operations as reflected by ~~an 18.0%~~a 30.5% capacity growth and a ~~15.2%~~28.0% increase in traffic. ~~Operating~~Furthermore, operating expenses ~~also~~ increased as a result of a ~~15.3% increase in fuel gallons consumed and a 12.2%~~39.8% increase in average economic fuel cost per gallon and a 24.1% increase in fuel gallons consumed which drove higher aircraft fuel expense, year over year.

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 ~~nine~~three months ended ~~September~~June 30, ~~2017~~2018 and ~~2016.~~2017. 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.

Aircraft fuel expense increased in the ~~third~~second quarter of 2018 by $103.9 million, or 73.0%, compared to $142.3 million in the second quarter of 2017, ~~by $36.5 million, or 29.9%, compared to $121.8 million in the third quarter of 2016,~~ due to a ~~15.3% increase in fuel gallons consumed and a 12.2%~~39.8% increase in average economic fuel cost per ~~gallon.~~gallon and a 24.1% increase in fuel gallons consumed.

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 consumed 90,274

78,288

15.3 %
Into-plane fuel cost per gallon 1.75

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 June 30,
	2018		2017
	(in thousands, except per gallon amounts)				Percent Change
Fuel gallons consumed	106,144		85,533		24.1	%
Into-plane fuel cost per gallon	$	2.32	$	1.66	39.8	%
Into-plane fuel expense	$	246,180	$	142,294	73.0	%
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)	$	246,180	$	142,294	73.0	%

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 increase of ~~12.2%~~39.8% was primarily a result of an increase 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,						Three Months Ended June 30,
	2017		2016				2018		2017
	(in thousands, except per gallon amounts)				Percent Change		(in thousands, except per gallon amounts)				Percent Change
Into-plane fuel expense	$	158,300	$	121,844	29.9	%	$	246,180	$	142,294	73.0	%
Realized losses (gains) related to fuel derivative contracts, net	—		—		NM		—		—		NM
Economic fuel expense	$	158,300	$	121,844	29.9	%	$	246,180	$	142,294	73.0	%
Fuel gallons consumed	90,274		78,288		15.3	%	106,144		85,533		24.1	%
Economic fuel cost per gallon	$	1.75	$	1.56	12.2	%	$	2.32	$	1.66	39.8	%

During the three months ended ~~September~~June 30, ~~2017~~2018 and ~~2016,~~2017, 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~~June 30, ~~2017~~2018 and ~~2016~~2017, followed by explanations of the material changes on a dollar basis and/or unit cost basis:


	Three Months Ended September 30,				Dollar Change			Percent Change			Cost per ASM						Per-ASM Change		Percent Change		Three Months Ended June 30,								Dollar Change				Percent Change		Cost per ASM			Per-ASM Change		Percent Change
	2017		2016					Percent Change		2017			2016			2018			Percent Change			2017					2018		Dollar Change				Percent Change		2017			Per-ASM Change		Percent Change
	(in thousands)										(in cents)										(in thousands)														(in cents)
Aircraft fuel																					$	246,180			$	142,294			$	103,886			73.0	%	2.59		1.95	0.64		32.8	%
Salaries, wages, and benefits	$	134,114	$	120,190	Dollar Change	$	13,924		11.6	%		1.75			1.85		Per-ASM Change		(0.10	)		(5.4	)%	187,756				129,892				57,864			44.5	%	1.97	1.78		0.19		10.7	%
Aircraft fuel	158,300		121,844		36,456			29.9	%		2.06			1.87			0.19		10.2	%
Aircraft rent	53,396		49,367		4,029			8.2	%		0.70			0.76			(0.06	)	(7.9	)%	41,745				52,566				(10,821		)		(20.6	)%	0.44		0.72	(0.28	)	(38.9	)%
Landing fees and other rents	48,498		39,345		9,153			23.3	%		0.63			0.60			0.03		5.0	%	58,602				45,592				13,010				28.5	%	0.62		0.63	(0.01	)	(1.6	)%
Depreciation and amortization	36,840		25,304		11,536			45.6	%		0.48			0.39			0.09		23.1	%	45,618				35,331				10,287				29.1	%	0.48		0.48	—		—	%
Maintenance, materials and repairs	26,176		30,443		(4,267		)	(14.0	)%		0.34			0.47			(0.13	)	(27.7	)%	31,653				28,985				2,668				9.2	%	0.33		0.40	(0.07	)	(17.5	)%
Distribution	29,469		25,565		3,904			15.3	%		0.38			0.39			(0.01	)	(2.6	)%	34,997				29,835				5,162				17.3	%	0.37		0.41	(0.04	)	(9.8	)%
Special charges	7,853		7,355		498			NM			0.10			0.11			(0.01	)	NM		174				—				174				NM		—		—	—		NM
Loss on disposal of assets	516		423		93			NM			0.01			0.01			—		NM		4,644				1,493				3,151				NM		0.05		0.02	0.03		NM
Other operating	87,965		66,277		21,688			32.7	%		1.15			1.02			0.13		12.7	%	91,881				102,885				(11,004		)		(10.7	)%	0.97		1.41	(0.44	)	(31.2	)%
Total operating expenses	$	583,127	$	486,113	$	97,014		20.0	%		7.59			7.47			0.12		1.6	%	$	743,250			$	568,873			$	174,377			30.7	%	7.81		7.80	0.01		0.1	%
Adjusted CASM (1)											7.48			7.35			0.13		1.8	%															7.76		7.78	(0.02	)	(0.3	)%
Adjusted CASM ex-fuel (2)											5.42			5.48			(0.06	)	(1.1	)%															5.17		5.83	(0.66	)	(11.3	)%


(1)	Reconciliation of CASM to Adjusted CASM:


	Three Months Ended September 30,						Three Months Ended June 30,
	2017			2016			2018			2017
	(in millions)		Per ASM	(in millions)		Per ASM	(in millions)		Per ASM	(in millions)		Per ASM
CASM (cents)			7.59			7.47			7.81			7.80
Unrealized losses (gains) related to fuel derivative contracts, net	$	—	—	$	—	—	$	—	—	$	—	—
Loss on disposal of assets	0.5		0.01	0.4		0.01	4.6		0.05	1.5		0.02
Special charges	7.9		0.10	7.4		0.11	0.2		—	—		—
Adjusted CASM (cents)			7.48			7.35			7.76			7.78


(2)	Excludes aircraft fuel expense, loss on disposal of assets and special charges.

Our adjusted CASM ex-fuel for the ~~third~~second quarter of ~~2017~~2018 was down ~~1.1%~~11.3% as compared to the ~~third~~second quarter of ~~2016.~~2017. The decrease on a per-ASM basis was primarily due to decreases in ~~maintenance, materials and repairs, salaries, wages and benefits~~other operating expense and aircraft rent ~~expense, partially offset by increases in other operating and depreciation and amortization~~ expense.

Labor costs for the ~~third~~second quarter of ~~2017~~2018 increased ~~$13.9~~$57.9 million, or ~~11.6%~~44.5%, as compared to the ~~third~~second quarter of ~~2016,~~2017. The increase on both a dollar and per-ASM basis was primarily driven by a ~~22.2%~~21.3% increase in our pilot and flight attendant workforce resulting from an increase to our aircraft fleet of 1815 additional aircraft, net of 2 aircraft lease returns, since the ~~third~~second quarter of ~~2016, offset by~~2017. In addition, effective March 1, 2018, our pilots received a ~~decrease~~rate increase in incentive compensation and sick-time expense. On a per-ASM basis, labor costs decreased due to lower incentive compensation expense resulting from lower metric performance, year over year, as well as a decreaseconnection with the new pilot agreement approved in ~~our sick-time expense.~~February 2018.

Aircraft rent expense for the ~~third~~second quarter of ~~2017 increased~~2018 decreased by ~~$4.0~~$10.8 million, or ~~8.2%~~20.6%, as compared to the ~~third~~second quarter of ~~2016.~~2017. This ~~increase~~decrease in aircraft rent expense was primarily driven by the ~~delivery~~purchase of ~~seven new~~14 A319 aircraft ~~financed under operating leases, subsequent to~~off lease completed during the ~~end of the third~~second 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.~~2018. For additional information, refer to Note 5, Special Charges. On a per-ASM basis, aircraft rent expense decreased primarily due to a change 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 taken delivery of 17 new purchased 14 aircraft, of which 2

increased capacity but had no effect on aircraft rent expense, as these assets were ~~previously financed under operating lease agreements.~~purchased and are being depreciated over their useful life.

Landing fees and other rents for the ~~third~~second quarter of ~~2017~~2018 increased ~~$9.2~~$13.0 million, or ~~23.3%~~28.5%, as compared to the ~~third~~second quarter of ~~2016,~~2017, primarily due to an ~~11.2%~~18.9% 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. On a per-ASM basis, landing fees remained relatively stable period over period.

Depreciation and amortization for the second quarter of 2018 increased by ~~$11.5~~$10.3 million, or ~~45.6%~~29.1%, 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 1417 new aircraft made since the ~~third~~second quarter of ~~2016.~~2017.

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~~$9.7 million and ~~$10.1~~$14.6 million for the ~~third~~second quarters of 2018 and 2017, ~~and 2016,~~ respectively. The decrease, year over year, was primarily due to the timing of maintenance events relative to lease returns for two aircraft returned in the second half of 2017. 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 statement of operations, our maintenance, materials and repairs expense would have been ~~$40.4~~$41.4 million and ~~$40.5~~$43.6 million for the ~~third~~second quarters of ~~2017~~2018 and ~~2016,~~2017, respectively.

Maintenance, materials and repairs expense for the ~~third~~second quarter of ~~2017 decreased~~2018 increased by ~~$4.3~~$2.7 million, or ~~14.0%~~9.2%, as compared to the ~~third~~second quarter of ~~2016.~~2017. The ~~decrease~~increase in maintenance costs on a dollar basis was due to routine and ongoing maintenance on a growing fleet. On a per-unit basis, ~~was primarily due to a~~maintenance costs decreased ~~number~~as the timing and mix of ~~scheduled~~ maintenance events resulted in ~~the current period as compared to the prior year period as well as lower aircraft repair expense year over year.~~fewer expensed maintenance events. 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 ~~$3.9~~$5.2 million, or ~~15.3%~~17.3%, in the ~~third~~second quarter of ~~2017~~2018 as compared to the ~~third~~second quarter of ~~2016.~~2017. The increase on a dollar basis was primarily due to increased sales volume. On a per-ASM basis, distribution costs ~~remained relatively stable.~~

decreased primarily due to lower average fare resulting in a decrease in credit card fees year over year.

Other operating expense for the ~~third~~second quarter of ~~2017 increased~~2018 decreased by ~~$21.7~~$11.0 million, or ~~32.7%~~10.7%, as compared to the ~~third~~second quarter of ~~2016~~2017 primarily due to better operational performance which resulted in lower passenger re-accommodation expense, as compared to the prior year period. On a dollar basis, this decrease was partially offset by an increase in overall operations and higher ~~passenger re-accommodation expense year over year.~~ground handling rates. As compared to the prior year period, we increased departures by ~~11.2%~~18.9% and had ~~11.2%~~21.7% 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 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)

Our interest expense and corresponding capitalized interest for the three months ended ~~September~~June 30, ~~2017~~2018 and ~~2016~~2017 primarily represents interest related to the financing of purchased aircraft. As of ~~September~~June 30, 2018 and 2017, we had 53 and ~~2016, the Company had 40 and 28~~36 aircraft financed through secured long-term debt arrangements, respectively. Please see "Notes to Condensed Financial Statements—~~10.~~12. Debt and Other Obligations" for further discussion.

Our interest income for the three months ended ~~September~~June 30, ~~2017~~2018 primarily represents interest income earned on cash, cash equivalents, ~~and~~ short-term ~~investments. Interest income for the three months ended September 30, 2016 primarily represents interest income earned on cash, cash equivalents~~investments and on funds required to be held in escrow in accordance with the terms of our EETC. Interest income for the three months ended June 30, 2017 primarily represents interest income earned on cash, cash equivalents and short-term investments.

Our special charges, non-operating for the three months ended June 30, 2018, represents interest related to the aircraft purchase agreement to acquire 14 A319 aircraft previously operated under operating leases. The contract was deemed a lease modification which resulted in a change of classification from operating leases to capital leases. Please see "Notes to Condensed Financial Statements—5. Special Charges" for further discussion.

Income Taxes

Our effective tax rate for the ~~third~~second quarter of ~~2017~~2018 was ~~36.5%~~25.7% compared to ~~36.4%~~37.0% for the ~~third~~second quarter of ~~2016. In arriving at these rates,~~2017. The decrease in tax rate is attributed to a reduction in the federal statutory tax rate from 35% to 21%, as a result of the enactment of the Tax Cuts and Jobs Act. While 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~~expect our 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 ~~quarter~~state and ~~make adjustments when necessary. Our final~~the state tax rate applicable to such income. Discrete items particular to a given year may also affect our 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.

Comparison of ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 to ~~nine~~six months ended ~~September~~June 30, ~~2016~~2017

Operating Revenues

Operating revenues increased ~~$237.1~~$265.8 million, or ~~13.6%~~20.6%, to ~~$1,980.7~~$1,555.9 million for the ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2018, compared to the prior year period, due primarily to an increase in traffic of ~~12.7% and an increase~~24.9%, offset by a decrease in passenger yields of ~~0.7%~~3.4%.

TRASM for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 was ~~9.06~~8.68 cents, a decrease of ~~1.7%~~4.6% compared to the same period of ~~2016.~~2017. This decrease was driven by ~~a more aggressive competitive pricing environment noted in the third quarter of 2017 which put pressure on our~~lower passenger yields ~~for the nine months ended September 30, 2017. In addition,~~and a decrease in load factor, ~~decreased by 2.1 points, as compared to the prior~~year over year.

Total revenue per passenger flight segment increased ~~2.2%~~slightly from ~~$107.17~~$109.57 for the ~~nine~~six months ended ~~September~~June 30, ~~2016~~2017 to ~~$109.53~~$110.41 for the ~~nine~~six months ended ~~September~~June 30, ~~2017.~~2018. Our ~~average ticket~~ fare revenue per passenger flight segment ~~increased~~decreased from ~~$55.32~~$56.94 to ~~$56.84,~~$55.51, or ~~2.7%~~2.5%, as compared to the prior year period, and non-ticket revenue per passenger flight segment increased from ~~$51.85~~$52.63 to ~~$52.69,~~$54.90, or ~~1.6%~~4.3%, as compared to the prior year period. The increase in non-ticket revenue per passenger flight segment was primarily attributable to higher bag revenue, passenger usage fee, and seat revenue per flight segment, as compared to the prior year.

Operating Expenses

Operating expenses increased for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 by ~~$299.2~~$385.7 million, or ~~21.6%~~35.0%, as compared to the same period for ~~2016~~2017 primarily due to ~~our 15.6%~~a 26.5% capacity growth and a ~~12.7%~~24.9% increase in traffic. ~~Operating~~Furthermore, operating expenses ~~also~~ increased as a result of ana 31.0% increase in average economic fuel cost per gallon and a 22.2% increase in fuel gallons consumed which drove higher 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,						Six Months Ended June 30,
	2017		2016				2018		2017
	(in thousands, except per gallon amounts)				Percent Change		(in thousands, except per gallon amounts)				Percent Change
Fuel gallons consumed	254,871		225,851		12.8	%	201,147		164,597		22.2	%
Into-plane fuel cost per gallon	$	1.73	$	1.42	21.8	%	$	2.24	$	1.71	31.0	%
Into-plane fuel expense	$	440,376	$	321,018	37.2	%	$	450,826	$	282,076	59.8	%
Realized losses (gains) related to fuel derivative contracts, net	—		—		NM		—		—		NM
Unrealized losses (gains) related to fuel derivative contracts, net	—		—		NM		—		—		NM
Aircraft fuel expense (per Statement of Operations)	$	440,376	$	321,018	37.2	%	$	450,826	$	282,076	59.8	%

The elements of the changes in economic fuel expense are illustrated in the following table:


	Nine Months Ended September 30,						Six Months Ended June 30,
	2017		2016				2018		2017
	(in thousands, except per gallon amounts)				Percent Change		(in thousands, except per gallon amounts)				Percent Change
Into-plane fuel expense	$	440,376	$	321,018	37.2	%	$	450,826	$	282,076	59.8	%
Realized losses (gains) related to fuel derivative contracts, net	—		—		NM		—		—		NM
Economic fuel expense	$	440,376	$	321,018	37.2	%	$	450,826	$	282,076	59.8	%
Fuel gallons consumed	254,871		225,851		12.8	%	201,147		164,597		22.2	%
Economic fuel cost per gallon	$	1.73	$	1.42	21.8	%	$	2.24	$	1.71	31.0	%

During the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 and ~~2016,~~2017, 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~~six months ended ~~September~~June 30, ~~2017~~2018 and ~~2016,~~2017, 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		Six Months Ended June 30,								Dollar Change				Percent Change		Cost per ASM			Per-ASM Change		Percent Change
	2017		2016					Percent Change		2017			2016			2018			Percent Change			2017					2018		Dollar Change				Percent Change		2017			Per-ASM Change		Percent Change
	(in thousands)										(in cents)										(in thousands)														(in cents)
Aircraft fuel																					$	450,826			$	282,076			$	168,750			59.8	%	2.52		1.99	0.53		26.6	%
Salaries, wages, and benefits	$	391,144	$	349,530	Dollar Change	$	41,614		11.9	%		1.79			1.85		Per-ASM Change		(0.06	)		(3.2	)%	342,852				257,030				85,822			33.4	%	1.91	1.81		0.10		5.5	%
Aircraft fuel	440,376		321,018		119,358			37.2	%		2.02			1.70			0.32		18.8	%
Aircraft rent	163,032		151,433		11,599			7.7	%		0.75			0.80			(0.05	)	(6.3	)%	91,936				109,636				(17,700		)		(16.1	)%	0.51		0.77	(0.26	)	(33.8	)%
Landing fees and other rents	134,538		114,096		20,442			17.9	%		0.62			0.60			0.02		3.3	%	108,232				86,040				22,192				25.8	%	0.60		0.61	(0.01	)	(1.6	)%
Depreciation and amortization	103,680		73,370		30,310			41.3	%		0.47			0.39			0.08		20.5	%	84,991				66,840				18,151				27.2	%	0.47		0.47	—		—	%
Maintenance, materials and repairs	81,473		72,010		9,463			13.1	%		0.37			0.38			(0.01	)	(2.6	)%	61,363				55,297				6,066				11.0	%	0.34		0.39	(0.05	)	(12.8	)%
Distribution	85,875		73,190		12,685			17.3	%		0.39			0.39			—		—	%	65,628				55,607				10,021				18.0	%	0.37		0.39	(0.02	)	(5.1	)%
Special charges (credits)	12,629		31,609		(18,980		)	NM			0.06			0.17			(0.11	)	NM		89,342				4,776				84,566				NM		0.50		0.03	0.47		NM
Loss on disposal of assets	3,114		1,166		1,948			NM			0.01			0.01			—		NM		5,492				2,598				2,894				NM		0.03		0.02	0.01		NM
Other operating	268,553		197,833		70,720			35.7	%		1.23			1.05			0.18		17.1	%	185,523				180,588				4,935				2.7	%	1.04		1.27	(0.23	)	(18.1	)%
Total operating expenses	$	1,684,414	$	1,385,255	$	299,159		21.6	%		7.71			7.33			0.38		5.2	%	$	1,486,185			$	1,100,488			$	385,697			35.0	%	8.29		7.77	0.52		6.7	%
Adjusted CASM (1)											7.64			7.15			0.49		6.9	%															7.76		7.71	0.05		0.6	%
Adjusted CASM ex-fuel (2)											5.62			5.45			0.17		3.1	%															5.25		5.72	(0.47	)	(8.2	)%


(1)	Reconciliation of CASM to Adjusted CASM:


	Nine Months Ended September 30,						Six Months Ended June 30,
	2017			2016			2018			2017
	(in millions)		Per ASM	(in millions)		Per ASM	(in millions)		Per ASM	(in millions)		Per ASM
CASM (cents)			7.71			7.33			8.29			7.77
Unrealized losses (gains) related to fuel derivative contracts, net	$	—	—	$	—	—	$	—	—	$	—	—
Loss on disposal of assets	3.1		0.01	1.2		0.01	5.5		0.03	2.6		0.02
Special charges	12.6		0.06	31.6		0.17	89.3		0.5	4.8		0.03
Adjusted CASM (cents)			7.64			7.15			7.76			7.71


(2)	Excludes aircraft fuel expense, loss on disposal of assets and special charges and credits.

Our adjusted CASM ex-fuel for the ~~nine~~six months ended ~~September~~June 30, ~~2017 increased~~2018 decreased by ~~3.1%~~8.2% as compared to the same period in ~~2016.~~2017. The ~~increase~~decrease on a per-ASM basis was primarily due to ~~increases~~decreases in aircraft rent expense and 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~~six months ended ~~September~~June 30, ~~2017~~2018 increased ~~$41.6~~$85.8 million, or ~~11.9%~~33.4%, as compared to the same period in ~~2016.~~2017. The increase on both a dollar and per-ASM basis was primarily driven by ~~an 18.5%~~a 24.2% increase in our pilot and flight attendant workforce resulting from an increase to our aircraft fleet of 1815 additional aircraft, net of 2 aircraft lease returns, since the end of the ~~third~~second quarter of ~~2016, partially offset by~~2017. In addition, effective March 1, 2018, our pilots received a ~~decrease~~rate increase 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 inconnection with the new ~~flight attendant contract of $8.4 million recorded during the first quarter of 2016.~~pilot agreement approved in February 2018.

Aircraft rent expense for the ~~nine~~six months ended ~~September~~June 30, ~~2017 increased~~2018 decreased by ~~$11.6~~$17.7 million, or ~~7.7%~~16.1%, as compared to the same period in ~~2016.~~2017. This ~~increase~~decrease in aircraft rent expense was primarily driven by the ~~delivery~~purchase of ~~seven new~~14 A319 aircraft ~~financed under operating leases, subsequent~~off lease completed during the second quarter of 2018. For additional information, refer to Note 5, Special Charges. In addition, estimated return costs recorded during the first quarter of 2017 also contributed to the ~~end~~decrease year over year. Costs associated with return conditions of ~~the third quarter~~leased aircraft are recorded as supplemental rent within aircraft rent expense on our statement 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.~~operations. On a per-ASM basis, aircraft rent expense decreased primarily due to a change 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

17 new 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 recorded as supplemental rent withinincreased capacity but had no effect on aircraft rent expense, ~~on our statement of operations.~~as these assets were purchased and are being depreciated over their useful life.

Landing fees and other rents for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 increased ~~$20.4~~$22.2 million, or ~~17.9%~~25.8%, as compared to the same period in ~~2016~~2017 primarily due to a ~~10.8%~~16.7% 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. On a per-ASM basis, landing fees remained relatively stable period over period.

Depreciation and amortization increased by ~~$30.3~~$18.2 million, or ~~41.3%~~27.2%, 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 1417 new aircraft made since the ~~third~~second quarter of ~~2016.~~2017.

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~~$21.4 million and ~~$33.0~~$27.9 million for the ~~nine~~six months ended ~~September~~June 30, 2018 and 2017, ~~and 2016,~~ respectively. The decrease, year over year, was primarily due to the timing of maintenance events relative to lease returns for two aircraft returned in the second half of 2017. As our fleet continues to 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 statement of operations, our maintenance, materials and repairs expense would have been ~~$123.5~~$82.7 million and ~~$105.1~~$83.2 million for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 and ~~2016,~~2017, respectively.

Maintenance, materials and repairs expense for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 increased by ~~$9.5~~$6.1 million, or ~~13.1%~~11.0%, 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~~decreased as ~~compared to~~ the ~~prior year period.~~timing and mix of maintenance events resulted in fewer expensed maintenance events. 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~~$10.0 million, or ~~17.3%~~18.0%, for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 as compared to the same period in ~~2016.~~2017. The increase on a dollar basis was primarily due to increased sales volume. On a per-ASM basis, distribution costs remained relatively stable, as compared to the prior period.

Other operating expense for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 increased by ~~$70.7~~$4.9 million, or ~~35.7%~~2.7%, as compared to the prior ~~year~~ period, primarily due to an increase in overall ~~operations and higher passenger re-accommodation expense year over year.~~operations. As compared to the prior year period, we increased departures by ~~10.8%~~16.7% and had ~~11.2%~~19.7% more passenger flight segments, which drove increases in variable operating expenses. ~~Other~~Improved operational performance, year over year, resulted in lower passenger reaccommodation expense which partially offset the increase noted on a dollar basis. Lower passenger reaccommodation expense also contributed to a decrease in other operating expense ~~per ASM increased primarily due to higher passenger re-accommodation expense, as compared to the prior year period.~~on a per-ASM basis.

Special charges for the ~~nine~~six months ended ~~September~~June 30, 2018 consisted of $89.3 million recognized in connection with the new pilot agreement approved in February 2018. The total amount includes a one-time $80.7 million ratification incentive bonus, including payroll taxes, and a $8.5 million adjustment related to other contractual provisions. For the six months ended June 30, 2017, special charges consisted of ~~$12.6~~$4.8 million in lease termination charges recognized in connection with the purchase of ~~1 aircraft and 1~~an engine ~~which were~~ formerly financed under an 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.agreement. 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,~~additional information, please ~~see~~refer to "Notes to Condensed Financial Statements - 3.5. Special Charges."

Other income (expenses)

Our interest expense and corresponding capitalized interest for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 and ~~2016~~2017 primarily represents interest related to the financing of purchased aircraft. As of ~~September~~June 30, ~~2017~~2018 and ~~2016,~~2017, the Company had 4053 and 2836 aircraft financed through secured long-term debt arrangements, respectively. Please see "Notes to Condensed Financial Statements—~~10.~~12. Debt and Other Obligations" for further discussion.

Our interest income for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 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~~investments and on funds required to be held in escrow in accordance with the terms of our EETC. Interest income for the six months ended June 30, 2017 primarily represents interest income earned on cash, cash equivalents and short-term investments.

Our special charges, non-operating for the six months ended June 30, 2018, represents interest related to the aircraft purchase agreement to acquire 14 A319 aircraft previously operated under operating leases. The contract was deemed a lease modification which resulted in a change of classification from operating leases to capital leases. Please see "Notes to Condensed Financial Statements—5. Special Charges" for further discussion.

Income Taxes

Our effective tax rate for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 was ~~37.1%~~24.4% compared to ~~36.7%~~37.4% for the ~~nine~~six months ended ~~September~~June 30, ~~2016. In arriving at these rates,~~2017. The decrease in tax rate is attributed to a reduction in the federal statutory tax rate from 35% to 21%, as a result of the enactment of the Tax Cuts and Jobs Act. While 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~~expect our 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 ~~quarter~~state and ~~make adjustments when necessary. Our final~~the state tax rate applicable to such income. Discrete items particular to a given year may also affect our 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

Our primary sources of liquidity are cash on hand, cash provided by operations and capital from debt financing. Primary uses of liquidity are for working capital needs, capital expenditures, aircraft and engine pre-delivery deposit payments ~~(PDPs)~~("PDPs"), debt obligations and maintenance reserves. Our total cash at ~~September~~June 30, ~~2017~~2018 was ~~$863.7~~$812.4 million, an increase of ~~$162.8~~$11.5 million from December 31, ~~2016. As~~2017. In addition to cash and cash equivalents, as of ~~September~~June 30, ~~2017,~~2018, we had ~~$100.7~~$101.7 million in short-term ~~available-for-sale~~ investment securities.

Currently, one of our largest capital expenditure needs is funding the acquisition costs of our aircraft. Aircraft ~~are~~may 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 ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2018, we purchased 117 aircraft through debt financing transactions and ~~2 engines through cash purchases. During the nine months ended September 30, 2017, we~~ made ~~$93.8~~$90.8 million in debt payments (principal, interest and fees) on our outstanding debt obligations. ~~Capital resources required under~~The debt ~~financing transactions will generally be higher than those involving sale leaseback transactions.~~entered into in the current year had maturity dates ranging from 2023 to 2030 and interest rates ranging from 3.375% to 5.110%. In ~~sale leaseback transactions, capital is needed to fund~~addition, during the ~~initial purchase of the aircraft prior to the sale to the lessor. During the nine~~six months ended ~~September~~June 30, ~~2017, we entered into no sale leaseback transactions. During the nine months ended September 30, 2017,~~2018, we purchased ~~one engine~~six engines through cash purchases 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.sold five engines.

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 ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2018, we paid ~~$121.7~~$92.2 million ofin PDPs, net of refunds, and ~~$8.1~~$4.2 million of capitalized interest for future deliveries of aircraft and spare engines. As of ~~September~~June 30, ~~2017,~~2018, we had ~~$304.7~~$240.2 million of PDPs, including capitalized interest, on our ~~condensed~~ balance sheet.

As of ~~September~~June 30, ~~2017,~~2018, we had secured ~~bank debt~~ financing for 43 aircraft, scheduled for delivery in the remainder of ~~2017,~~2018, and did not have financing commitments in place for the remaining 6149 Airbus firm aircraft orders, scheduled for delivery between ~~2017~~2018 through 2021. 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. On March 28, 2018, we entered into an aircraft purchase agreement for the purchase of 14 A319s, which were previously financed under operating lease agreements. The contract was deemed a lease modification which resulted in a change of classification from operating leases to capital leases for the 14 aircraft. The purchase of all 14 aircraft was completed as of June 30, 2018, for an aggregate purchase price of $285.0 million, which was comprised of cash payments, net of the application of cash maintenance and security deposits held by the previous lessor. For additional information, refer to Note 5, Special Charges.

In addition to funding the acquisition of our future fleet, we are required to make maintenance reserve payments for ~~a portion~~some of the 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 ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018, we recorded an increase of ~~$28.4~~$11.2 million in maintenance reserves, net of reimbursements, and as of ~~September~~June 30, ~~2017~~2018, we had $~~305.1~~248.4 million ($~~166.4~~107.3 million in aircraft maintenance deposits and $~~138.7~~141.2 million in long-term aircraft maintenance deposits) on our condensed 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. As of June 30, 2018, we had repurchased 1.2 million shares for $44.9 million under our stock repurchase program.

Net Cash Flows Provided By Operating Activities. Operating activities in the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 provided ~~$386.5~~$251.0 million in cash compared to ~~$440.0~~$323.7 million provided in the ~~nine~~six months ended ~~September~~June 30, ~~2016.~~2017. The decrease is primarily ~~driven by higher operating costs specifically aircraft fuel, other operating~~due to special charges recorded for the six months ended June 30, 2018 associated with the amended pilot agreement, approved in February 2018. For additional information, refer to Note 5, Special Charges. In addition, we had a decrease in deferred income tax expense and ~~salaries, wages, and benefits, which~~deferred heavy maintenance, year over year. These decreases were ~~slightly~~partially offset by ~~higher revenues, as compared to the prior period. The decrease is also attributed to an income tax refund of $65.0 million received~~increases in ~~the prior period while no refund was received in 2017.~~special charges, non-operating and other liabilities.

Net Cash Flows Used In Investing Activities. In the ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2018, investing activities used ~~$558.8~~$410.8 million, compared to ~~$663.8~~$355.9 million used in the prior year period. The ~~decrease~~increase 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 purchase of property and equipment, year over year, resulting from ~~decreased~~increased purchases of aircraft and engines.

Net Cash Flows Provided By Financing Activities. During the ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2018, financing activities provided ~~$335.1~~$171.4 million in cash compared to ~~$246.0~~$200.4 million provided in the ~~nine~~six months ended ~~September~~June 30, ~~2016.~~2017. We received ~~$405.8~~$440.3 million in connection with the 2015-1C and 2017-1C EETCs and the debt financing ~~of eleven~~related to seven aircraft delivered during the ~~nine~~six months ended ~~September~~June 30, ~~2017 and~~2018. In addition, we paid ~~$63.6~~$60.6 million in debt obligations and $205.4 million in capital lease obligations. The payments on capital lease obligations are primarily related to an aircraft purchase agreement for the purchase of 14 A319 aircraft which were previously operated by the Company under operating leases. For additional information, refer to Note 5, Special Charges.

Commitments and Contractual Obligations

We have contractual obligations and commitments primarily with regard to future purchases of aircraft and engines, payment of debt, and lease arrangements. The following table discloses aggregate information about our contractual obligations as of ~~September~~June 30, ~~2017~~2018 and the periods in which payments are due (in millions):


	remainder of 2017		2018 - 2019		2020 - 2021		2022 and beyond		Total		remainder of 2018		2019 - 2020		2021 - 2022		2023 and beyond		Total
Long-term debt (1)	$	39	$	216	$	214	$	886	$	1,355	$	77	$	303	$	291	$	1,249	$	1,920
Interest commitments (2)	20		101		83		142		346		40		140		115		171		466
Capital and operating lease obligations	66		475		390		643		1,574		114		402		340		520		1,376
Flight equipment purchase obligations	228		1,302		1,605		25		3,160		346		1,422		802		8		2,578
Other (3)	2		7		2		—		11		5		25		20		66		116
Total future payments on contractual obligations	$	355	$	2,101	$	2,294	$	1,696	$	6,446	$	582	$	2,292	$	1,568	$	2,014	$	6,456

(1) Includes principal only associated with senior ~~term loans due through 2027,~~and junior term loans, ~~due through 2022, fixed-rate loans due through 2029,~~Class A, Class B, and Class AC Series 2015-1 EETCs, and Class AA, Class A, Class B, ~~enhanced equipment trust certificates due through 2028~~ and ~~2024, respectively.~~Class C Series 2017-1 EETCs. Refer to "Notes to the Financial Statements - ~~10.~~12. Debt and Other Obligations."

(2) Related to senior and junior term loans, fixed-rate 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.

(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 the Financial Statements - 8.10. Commitments and Contingencies."

Some of our master lease agreements provide 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 to the contractual obligations disclosed in the table above, we have fixed maintenance reserve payments for these aircraft and related flight equipment, including estimated amounts for contractual price escalations, which are ~~$1.9~~$3.7 million for the remainder of ~~2017, $6.9~~2018, $5.8 million in ~~2018,~~2019, $5.6 million in 2020, $5.7 million in ~~2019, $5.4 million in 2020, $5.5 million in~~ 2021, ~~and $17.7~~$4.9 million in 2022, and $12.9 million in 2023 and beyond.

As of ~~September~~June 30, ~~2017,~~2018, principal and interest commitments related to our future secured debt financing for 43 undelivered aircraft to be financed under the Series 2017-1 EETC are ~~zero~~$2.7 million for the remainder of ~~2017, $16.5 million in~~ 2018, ~~$16.4~~$4.4 million in 2019, ~~$17.3~~$4.0 million in 2020, ~~$16.2~~$3.8 million in 2021, ~~and $137.2~~$3.6 million in 2022, and $13.1 million in 2023 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 5944 of our ~~107~~119 aircraft and 1112 of our 1518 spare engines are financed under operating leases and therefore are ~~therefore~~ not reflected on our ~~condensed~~ balance sheets. These leases expire between ~~2017~~2019 and ~~2029.~~2031. Aircraft rent payments were ~~$55.0~~$52.5 million and ~~$53.5~~$56.9 million for the three months ended ~~September~~June 30, ~~2017~~2018 and ~~2016,~~2017, respectively, and ~~$168.6~~$109.1 million and ~~$160.3~~$113.6 million for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 and ~~2016~~,2017, respectively. Our aircraft lease payments for 5843 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~~LIBOR (London Interbank Offered ~~Rate (LIBOR)~~Rate).

Our contractual purchase commitments consist primarily of aircraft and engine acquisitions through manufacturers. During the first quarter of 2018, we negotiated revisions to our A320 aircraft order. We originally had 14 A320neo aircraft scheduled for delivery in 2019. Pursuant to the revisions, 5 of the 14 scheduled A320neo aircraft were converted to A320ceo aircraft and are scheduled to be delivered in 2018 and 2019. As of ~~September~~June 30, ~~2017~~2018, our firm aircraft orders consisted of the following:


	Airbus				Airbus
	A320ceo	A320neo	A321ceo	Total	A320ceo	A320neo	Total
remainder of 2017	2		4	6
2018	5		5	10
remainder of 2018					7		7
2019	1	14		15	2	9	11
2020		16		16		16	16
2021		18		18		18	18
	8	48	9	65	9	43	52

On March 28, 2018, we entered into an aircraft purchase agreement for the purchase of 14 A319 aircraft, which were previously financed under operating lease agreements. The contract was deemed a lease modification which resulted in a change of classification from operating leases to capital leases for the 14 aircraft. As a result, we recorded a short-term capital lease asset of $236.7 million within flight equipment and a short-term capital lease obligation of $143.8 million, net of the related maintenance and security deposits, within current maturities of long-term debt and capital leases on the condensed balance sheet as of March 31, 2018. The purchase of all 14 aircraft was completed as of June 30, 2018, for an aggregate gross purchase price of $285.0 million, which was comprised of cash payments, net of the application of cash maintenance and security deposits held by the previous lessor. For additional information, refer to Note 5, Special Charges.

During the first quarter of 2018, we entered into an agreement to purchase six new engines. As of June 30, 2018, we had purchased four of the six new engines, unencumbered. We also have ~~four~~two spare engine orders for V2500 SelectTwo engines with IAE and nine spare engine orders for PurePower ~~PW1100G-JM~~PW 1100G-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~~$345.6 million for the remainder of ~~2017, $528.4 million in~~remainder of 2018, ~~$773.7~~$600.7 million in 2019, ~~$820.5~~$821.6 million in 2020, ~~$784.8~~$785.1 million in 2021, ~~and $24.6~~$16.8 million in 2022 and $7.9 million in 2023 and beyond.

As of ~~September~~June 30, ~~2017,~~2018, we had lines of credit related to corporate credit cards of $33.6 million from which we had drawn ~~$10.8~~$1.1 million.

As of ~~September~~June 30, ~~2017,~~2018, we had lines of credit with counterparties for both physical fuel delivery and derivatives in the amount of $51.5 million. As of ~~September~~June 30, ~~2017,~~2018, we had drawn ~~$13.7~~$23.0 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~~June 30, ~~2017~~2018, we did not hold any derivatives.

As of ~~September~~June 30, ~~2017,~~2018, we ~~had $8.2~~have $9.0 million in uncollateralized surety bonds and a $35.0 million unsecured standby letter of credit facility, representing an off balance-sheet commitment, of which ~~$17.8~~$17.1 million had been drawn upon for issued letters of credit.

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 supplemental rent adjustment for liabilities accrued in prior years that are no longer probable, divided by ASMs.

“Adjusted CASM ex-fuel” means operating expenses excluding aircraft fuel expense, loss on disposal of assets, ~~and~~ special charges ~~(credits),~~and supplemental rent adjustment for liabilities accrued in prior years that are no longer probable, 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."~~"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.

“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.

“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).

"Non-ticket revenue" means the sum of non-fare passenger revenues and other revenues.

“Non-ticket revenue per passenger flight segment” means total non-fare passenger revenue and other revenue divided by passenger flight segments.

“NMB” means the National Mediation Board.

“OTA” means Online Travel Agent (e.g., Orbitz and Travelocity).

“Passenger flight segments” ~~or “PFS”~~ means the total number of passengers flown on all flight segments.

“PDP” means pre-delivery deposit payment.

"PAFCA" means the Professional Airline Flight Control Association.

“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.”~~“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.”


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 ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 and ~~2016~~2017 represented ~~26.1%~~approximately 30.3% and ~~23.2%~~25.6% of our operating expenses, respectively. ~~Increases~~Volatility 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 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 twelve 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~~$78 million.

As of ~~September~~June 30, ~~2017~~2018 and December 31, ~~2016,~~2017, we ~~had no~~did not have any outstanding jet fuel derivatives. We measure our financial 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~~the amount based upon further fluctuations in ~~futures~~future prices. Outstanding financial derivative instruments ~~could~~ expose us to credit loss in the event of nonperformance by the counterparties to the agreements. However, we do not expect the counterparties to fail to meet their obligations.

Interest Rates. We have market risk associated with our short-term investment securities, which had a fair market value of ~~$100.7~~$101.7 million and ~~$100.2~~$100.9 million, as of ~~September~~June 30, ~~2017~~2018 and December 31, ~~2016,~~2017, 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~~June 30, ~~2017,~~2018, we had ~~$1,354.7~~$1,919.4 million outstanding in fixed-rate debt related to the purchase of 1923 Airbus A320 aircraft and 2130 Airbus A321 aircraft which had a fair value of ~~$1,402.9~~$1,900.1 million. As of December 31, ~~2016,~~2017, we had ~~$1,012.4~~$1,539.6 million outstanding in fixed-rate debt related to the purchase of 1521 Airbus A320 aircraft and 1425 Airbus A321 aircraft, which had a fair value of ~~$1,033.7~~$1,583.2 million.


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~~June 30, ~~2017~~2018. 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’s~~SEC’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’s~~our management, including its principal 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~~June 30, ~~2017~~2018, 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~~June 30, ~~2017~~2018, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION


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.


ITEM 1A.	RISK FACTORS

There have been no material changes to the risk factors disclosed in Item 1A Risk Factors contained in our Annual Report on Form 10-K for the year ended December 31, ~~2016,~~2017, filed with the Securities and Exchange Commission on February 13, ~~2017,~~2018, other than ~~modifications to~~as disclosed in Part II, Item 1A. Risk Factors contained in our Quarterly Report on Form 10-Q for the ~~following risk factor.~~quarterly period ended March 31, 2018, filed with the Securities and Exchange Commission on April 26, 2018. Investors are urged to review these 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.


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 ~~third~~second quarter of ~~2017.~~2018. All stock repurchases during this period were made from employees who received restricted stock 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

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		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	—	$	—	—	$	—
April 1-30, 2018							103	$	35.52	—	$	55,076,306
May 1-31, 2018							135	$	36.43	—	$	55,076,306
June 1-30, 2018							507	$	37.29	—	$	55,076,306
Total	552	$	37.74	—			745	$	36.89	—


ITEM 3.	DEFAULTS UPON SENIOR SECURITIES

None


ITEM 4.	MINE SAFETY DISCLOSURES

Not applicable


ITEM 5.	OTHER INFORMATION

None


ITEM 6.	EXHIBITS



Exhibit Number		Description of Exhibits
~~10.1+~~4.1		Amended and Restated Intercreditor Agreement (2015-1), dated May 10, 2018, among Wilmington Trust, National Association, as Trustee of the Spirit Airlines ~~Inc. 2017 Executive Severance Plan, filed~~Pass Through Trust 2015-1A, as ~~Exhibit 10.1 to~~Trustee of the ~~Company’s Form 8-K dated August 22, 2017, is hereby incorporated by reference.~~Spirit Airlines Pass Through Trust 2015-1B and as Trustee of the Spirit Airlines Pass Through Trust 2015-C, Natixis, acting via its New York Branch, as Class A Liquidity Provider and Class B Liquidity Provider, and Wilmington Trust, National Association, as Subordination Agent.

~~12.1~~4.2		~~Computation~~Trust Supplement No. 2015-1C, dated as of ~~Ratio~~May 10, 2018, between Spirit Airlines, Inc. and Wilmington Trust, National Association, as Trustee, to the Pass Through Trust Agreement, dated as of ~~Earnings~~August 11, 2015.

4.3		Form of 2015-1 First Amendment to ~~Fixed Charges~~Participation Agreement (Participation Agreement among Spirit Airlines, Inc., Wilmington Trust, National Association, as Pass Through Trustee under each of the Pass Through Trust Agreements, Wilmington Trust, National Association, as Subordination Agent, Wilmington Trust, National Association, as Loan Trustee, and Wilmington Trust, National Association, in its individual capacity as set forth therein).

4.4		Form of 2015-1 First Amendment to Indenture and Security Agreement (Indenture and Security Agreement between Spirit Airlines, Inc. and Wilmington Trust, National Association, as Loan Trustee).

4.5		Amended and Restated Intercreditor Agreement (2017-1), dated May 10, 2018, among Wilmington Trust, National Association, as Trustee of the Spirit Airlines Pass Through Trust 2017-1AA, as Trustee of the Spirit Airlines Pass Through Trust 2017-1A, as Trustee of the Spirit Airlines Pass Through Trust 2017-1B and as Trustee of the Spirit Airlines Pass Through Trust 2017-1C, Commonwealth Bank of Australia, New York Branch, as Class AA Liquidity Provider, Class A Liquidity Provider and Class B Liquidity Provider, and Wilmington Trust, National Association, as Subordination Agent.

4.6		Trust Supplement No. 2017-1C, dated as of May 10, 2018, between Spirit Airlines, Inc. and Wilmington Trust, National Association, as Trustee, to the Pass Through Trust Agreement, dated as of August 11, 2015.

4.7		Amended and Restated Note Purchase Agreement, dated as of May 10, 2018, among Spirit Airlines, Inc., Wilmington Trust, National Association, as Pass Through Trustee under each of the Pass Through Trust Agreements, Wilmington Trust, National Association, as Subordination Agent, Wilmington Trust Company, as Escrow Agent, and Wilmington Trust National Association, as Paying Agent.

4.8		Form of Participation Agreement (Participation Agreement among Spirit Airlines, Inc., Wilmington Trust, National Association, as Pass Through Trustee under each of the Pass Through Trust Agreements, Wilmington Trust, National Association, as Subordination Agent, Wilmington Trust, National Association, as Loan Trustee, and Wilmington Trust, National Association, in its individual capacity as set forth therein) (Exhibit B to Note Purchase Agreement).

4.9		Form of Indenture and Security Agreement (Indenture and Security Agreement between Spirit Airlines, Inc. and Wilmington Trust, National Association, as Loan Trustee) (Exhibit C to Note Purchase Agreement).

4.10		Escrow and Paying Agent Agreement (Class C), dated as of May 10, 2018, among Wilmington Trust Company, as Escrow Agent, Morgan Stanley & Co. LLC, Citigroup Global Markets Inc., Goldman Sachs & Co. LLC and Barclays Capital Inc., as Underwriters, Wilmington Trust, National Association, not in its individual capacity, but solely as Pass Through Trustee for and on behalf of Spirit Airlines Pass Through Trust 2017-1C, and Wilmington Trust, National Association, as Paying Agent.

4.11		Deposit Agreement (Class C), dated as of May 10, 2018, between Wilmington Trust Company, as Escrow Agent, and Citibank, N.A., as Depositary.



4.12		Form of 2017-1 First Amendment to Participation Agreement (Participation Agreement among Spirit Airlines, Inc., Wilmington Trust, National Association, as Pass Through Trustee under each of the Pass Through Trust Agreements, Wilmington Trust, National Association, as Subordination Agent, Wilmington Trust, National Association, as Loan Trustee, and Wilmington Trust, National Association, in its individual capacity as set forth therein).

4.13		Form of 2017-1 First Amendment to Indenture and Security Agreement (Indenture and Security Agreement between Spirit Airlines, Inc. and Wilmington Trust, National Association, as Loan Trustee).

31.1		Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2		Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1*		Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2*		Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

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+	~~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.

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.

Date: ~~October~~July 26, ~~2017~~2018	By:	/s/ Edward M. Christie
		Edward M. Christie
		~~Executive Vice~~ President and Chief Financial Officer

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