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Spirit Airlines (NYSE:SAVE)
Q3 2020 Earnings Call
Oct 29, 2020, 10:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:


Operator

Welcome to the third-quarter 2020 conference call. My name is James, and I will be your operator for today's call. [Operator instructions] I'd now like to turn the call over to DeAnne Gabel, senior director of investor relations. DeAnne, you may begin.

DeAnne Gabel -- Senior Director of Investor Relations

Thank you, James, and welcome, everyone, to Spirit Airlines' third-quarter earnings call. This call is being recorded and simultaneously webcast. A replay of this call will be archived on our website for 60 days. Presenting on today's call are Ted Christie, Spirit's chief executive officer; Scott Haralson, our chief financial officer; and Matt Klein, our chief commercial officer.

Also joining us today are other members of our senior leadership team. Following our prepared remarks, there will be a question-and-answer session for sell-side analysts. Today's discussion contains forward-looking statements that are not based on -- that are based on the company's current expectations, are not a guarantee of future performance and are subject to risks and uncertainties. Factors that could cause actual results to differ materially from those reflected by the forward-looking statements are included in our reports on file with the SEC.

We undertake no duty to update any forward-looking statements. In comparing results today, we will be adjusting all periods to exclude special items. Please refer to our third-quarter 2020 earnings release, which is available on our website for the reconciliation of our non-GAAP measures. With that, here's Ted.

Ted Christie -- Chief Executive Officer

Thanks, DeAnne, and thanks to everyone for joining us today. As we sit here today nearly seven months removed from the beginning of the COVID crisis, I am ever more impressed and humbled by how our team has navigated this incredibly dynamic time. I thank all our Spirit team members for their commitment and professionalism in dealing with the challenges and consequences that the COVID pandemic has imposed on our company and the industry. Together, once again, we have shown the flexibility and resiliency of our business model.

We still have a ways to go before we resume business as usual, but thanks to the efforts of our team, our strong guest satisfaction metrics, excellent operational performance, improving brand image and industry leading low-cost structure, I remain confident Spirit will be one of the first to reach sustained profitability. Additionally, I would like to take this opportunity to provide a special acknowledgment to our union leadership groups and all our team members who worked with us to find a solution to mitigate planned furloughs. Various voluntary time-off programs in place through May 2021 enabled us to capture the necessary savings while preserving jobs and/or options should demand trends worsen or recover faster than expected. The strong participation in these innovative programs demonstrates the esprit de corps of Spirit Airlines.

We also offered early out programs to eligible team members and implemented a modest reduction in force of our management staff and business partners. Those were painful but necessary actions to help us manage through this crisis. During the third-quarter 2020, our operational performance continued to excel. Completion factor was 99.8%, which earned Spirit a first place ranking among the reporting carriers, and we delivered on-time performance of 90% or better for each of the three months during the third-quarter 2020.

Year to date through September 30, we ranked second in completion factor and third in on-time performance among reporting carriers. This is remarkable performance, especially in light of the numerous network changes since March, which can further complicate a complex business such as ours. Getting guests back on the plane is one of the first and most important steps to recovery, and we're doing that quite well. For October, we estimate our load factor will average in the mid-70s.

While these load factors are still on reduced year-over-year capacity, what is clear is that history is indeed repeating itself. Leisure travelers are much more resilient, and they clearly prefer products that provide the lowest total price of travel. As we have been saying since the beginning of the crisis, our model shines in tougher times, as we are best positioned with our cost structure and our network to respond to building leisure demand. This hypothesis has proven correct once again over the past few months.

It is likely the recovery will not be linear, and we anticipate demand will ebb and flow. However, all the work we have done prepares us to add capacity back where it makes good financial sense to do so and react quickly to demand indications and changes. With that, I'll turn it over to Matt to discuss more details of our revenue performance.

Matt Klein -- Chief Commercial Officer

Thanks, Ted. I want to start by saying thank you to all our Spirit team members for going the extra mile to take excellent care of our guests. Their high service standards, especially in the face of additional challenges brought about by COVID-19, have helped us deliver great value to our guests. Despite heightened anxiety levels by some travelers around COVID-19 concerns, our guest satisfaction metrics have never been higher.

Our guests value the operational improvements we have made; our extra sanitization efforts; continued focus on guest health; our low fares and customizable travel options; and of course, our friendly and efficient service. And we are continuing to make other enhancements to the travel experience for our guests. We are rolling out new cabin interiors, upgrading our seats, which offer enhanced seat comfort and provide more usable legroom. And as we announced last week, we are relaunching our loyalty program in January to bring more value to our guests and unlock enhanced earnings potential for the airline.

The public feedback we've received from industry experts on loyalty programs have rated our new program among the best in the industry, and they've congratulated us on integrating key features of our business model into the program itself. We are also improving the overall travel experience for our guests by rolling out touchless and self-service opportunities that expedite the check-in process. We have developed meaningful updates to our mobile app that have already shifted many guests to use their own devices for check-in. And we recently launched self-bag drop in a number of our stations, which allows our guests to tag and drop their own bags.

Additionally, Spirit is the first airline to launch domestic facial biometric solutions on self-bag drop aimed at expediting our guests' airport experience. Turning now to our third-quarter revenue results. Our total operating revenue in the third quarter declined 59.5% year over year due to demand impacts from the pandemic. Total revenue per passenger flight segment decreased 21.1% year over year.

While both average fare and non-ticket spend per passenger segment declined year over year as expected, non-ticket revenue per segment declined much less than ticket revenue per segment. Average fare per segment decreased 35.1% to $35.57, while non-ticket revenue per segment only decreased 7.2% to $51.37. As a reminder, because we operated so few segments in the second-quarter 2020, items not related to passenger travel such as breakage, brand loyalty and other revenues had an outsized impact on our per segment results. However, during the third quarter, the impact from these items was in line with the third quarter last year.

Our team is doing a great job offering our guests more choices and driving superior non-ticket revenue results. In fact, right now in October, our non-ticket revenue per segment is expected to slightly increase versus October 2019, yet again, illustrating the strength of our business model. Moving to our network. We've seen some international jurisdictions lift their travel bans, but we are still not operating 100% of our previous international network.

Demand for international destinations remains highly correlated with quarantine restrictions. So while we will bring back service to all our international destinations, we have been doing so at a pragmatic pace. Our current December holiday travel period network expectations for our Latin American and Caribbean network, have us increasing ASMs versus 2019, demonstrating that the strength of our international network continues to perform. Turning to capacity expectations.

October capacity is estimated to be down 36% versus October 2019, with November and December each down approximately 20% year over year. This equates to fourth-quarter capacity being down about 25% compared to the fourth quarter last year. While we feel more upbeat and encouraged by the trends post Labor Day, we are closely monitoring the situation. As we expect demand will be fluid and at least somewhat correlated to COVID-19 headlines and jurisdictional quarantines, the booking curve is still materially shorter than normal, but both it and our travel search curves have been progressively lengthening.

We were pleasantly surprised with how October trended, and bookings for the Thanksgiving period are certainly encouraging. Based on our current assumptions, we estimate total revenue for the fourth quarter will be down between 43% to 45% year over year. Obviously, if we see heightened travel restrictions or other disruptions, it could change this outlook. We are not seeing anything in our bookings to suggest this is going to happen, but we are mindful that the recovery may still be a little bit bumpy, and there will be some noise while demand recovers to pre-COVID levels.

But make no mistake about it. Our demand is solidly on the way back, and we know that the strength of our model presents us with even more opportunity to bring low fares and more go to United States, Caribbean and Latin American traveling public. Not surprisingly, price-sensitive travelers going to visit their friends and relatives have been among the first travel segments to rebound followed by vacation travel. Both of these segments are core to our network.

And together with our industry leading cost structure and ancillary revenue model, we remain well-positioned to excel at serving this part of the demand segment. And now here's Scott.

Scott Haralson -- Chief Financial Officer

Thanks, Matt. I join Ted and Matt in thanking all of our Spirit team members for their dedication to the success of our company. Throughout the organization, we have maintained a can-do attitude in the face of all the uncertainty of the last seven months, and I am grateful and honored to be a part of this team. Turning to our third-quarter 2020 financial performance.

Our adjusted net loss was $215 million or a loss of $2.32 per share. Adjusted operating expenses for the third quarter decreased 24.3% year over year to $650 million. This change was primarily driven by a 62.9% decrease in aircraft fuel expense due to decreases in both fuel rate and volume. In addition, other expenses such as distribution, ground handling and crew accommodation expenses were lower year over year due to a substantial decrease in flight volume.

Better operational performance also drove a significant decrease in passenger reaccommodation expense compared to the same period last year. However, despite a significant decrease in flight volume compared to the third quarter last year, other rents and landing fees increased year over year due to airport signatory adjustments and rate increases at various airports that Spirit serves. Our fuel efficiency, as measured by ASMs per gallon, improved to 10.3% year over year, and we expect to see about the same year-over-year improvement in the fourth quarter due in part to the fact that we plan to keep our A319 fleet parked until next year. Turning to the balance sheet.

We ended the third quarter with $2.1 billion of unrestricted cash and short-term investments. During the third quarter, we received the remaining $33 million of the initial payroll support program funds; completed our at-the-market stock offering netting $157 million of proceeds; and we issued $850 million of 8% senior secured notes, collateralized by our brand and loyalty assets. Upon successful completion of the secured notes offering, we notified the U.S. Treasury that we had elected not to participate in the CARES Act loan program.

Regarding fleet, we took delivery of one debt financed aircraft ending the third quarter with 155 aircraft. Earlier in October, we took delivery of two aircraft, one of which was debt financed and the other was secured under a sale/leaseback transaction. With these two deliveries, we will end 2020 with 157 aircraft. We have 16 aircraft scheduled for delivery in 2021.

10 of those are secured under direct operating lease arrangements. We expect to use sale/leaseback financing for the remaining six aircraft, the first of which is not scheduled for delivery until June of 2021. Total capital expenditures for 2020 are now estimated to be approximately $545 million or $200 million net of financing, a further reduction of $15 million since our guidance last quarter. In the fourth quarter of 2020, we estimate our capex will be approximately $45 million or $5 million net of financing.

Most of these expenditures are related to aircraft. As for 2021 capex, again, assuming we use sale/leaseback financing for the six aircraft not yet financed, our initial estimate is about $100 million to $125 million. We'll have outflows of about $40 million for net pre-delivery deposits and another $60 million to $85 million of other capex, primarily related to aircraft, including one spare engine and other spare parts. Our daily cash burn averaged $2.3 million for the third quarter.

This was better than our updated guidance of approximately $3 million, primarily due to better-than-expected revenue and timing of some payments. For the fourth-quarter 2020, we estimate our average daily burn will be around $2 million per day, slightly better than what we saw in the third quarter of 2020. As a reminder, we define average daily cash burn as the sum of operating cash flows, debt service, total capex net of financing and pre-delivery deposit payments. It does not include the impact of any other financings, capital raises or funds from the payroll support program.

Given that we have fortified our liquidity position, making cash burn as a metric less relevant, we are migrating our guidance toward more traditional metrics such as EBITDA and EBITDA margin. Cash burn has its uses but becomes less important as the liquidity runway gets extended beyond the near-term horizon and working capital fluctuations become less important. EBITDA and EBITDA margin better reflect our sustainable cash generation capabilities and are a guidepost for our decision-making. As an example, in determining our level of capacity, our goal is to maximize EBITDA, and we'll continue to make capacity adjustments up or down that align with this goal.

Our adjusted EBITDA margin for the third quarter was negative 43.9%, which is good enough for second best in the industry. Looking ahead to the fourth quarter. We expect our fourth-quarter total operating expense, including fuel, to be between $675 million to $685 million, assuming a fuel price per gallon of $1.23. We estimate our EBITDA margin will improve considerably to a range between negative 9% to negative 14%.

In closing, our financial metrics are reinforcing the strength of our model in recessionary times. Leisure travel is resilient, especially at low fares, and we're seeing solid load factors, strong non-ticket numbers and top-tier margin production. While this environment is bumpy and hard to predict, we're ready for that. We built a strong balance sheet with ample liquidity.

This, combined with our low-cost structure, sets us up well to manage through this crisis. So with that, I'll hand it back to Ted.

Ted Christie -- Chief Executive Officer

Thanks, Scott. In summary, our team has done a great job tackling the challenges presented since March. While the pandemic continues to have a negative impact on demand for air travel, we do not believe it changes our competitive position or represents a paradigm shift. Our future is still very bright.

I thank the Spirit team for doing a great job managing through this crisis. When I list the accomplishments of the Spirit team on my whiteboard, I'm proud to say that we have addressed many of the issues we identified in March, such as to ensure the health and well-being of our guests and team members during this pandemic, to solidify our cost advantage and minimize our cash burn, to fortify our liquidity position, and to pivot our network in ways and magnitude that I never thought possible. Operationally, we're doing great. Our guest satisfaction metrics are higher than they have ever been, and our low fares plus ancillary revenue strategy is capturing ever higher load factors.

Soon, it will be time for us to turn our attention to the recovery, and I look forward to Spirit finding ways to continue to build upon our advantages and resume the company's growth in ways that will enhance our profitability and shareholder return. With that, back to DeAnne.

DeAnne Gabel -- Senior Director of Investor Relations

Thank you, Ted. James, we are now ready to take questions from the analysts. [Operator instructions]

Questions & Answers:


Operator

Thank you. [Operator instructions] Our first question comes from Helane Becker.

Ted Christie -- Chief Executive Officer

Good morning, Helane. Hello?

Helane Becker -- Cowen and Company -- Analyst

Sorry. Can you hear me?

Ted Christie -- Chief Executive Officer

Yes, now we can hear you. How are you?

Helane Becker -- Cowen and Company -- Analyst

OK. Not like 100% certain what happened there. OK, so I just have -- and I see sequentially, you guys actually did a really good job on generating higher revenue. Could you just talk a little bit about what you're seeing in terms of traffic coming back? I mean, it just seems -- like what percentage of maybe Orlando or Fort Lauderdale you're seeing that may have come back, number one? And number two, what's the time line to get to nonfuel unit costs back down to 2019 levels? Thanks.

Ted Christie -- Chief Executive Officer

OK. So I'm going to -- I'll kick off. I'll let Matt and Scott fill in around the edges. But as it relates to the first half of your question with regard to network strength regionally, I think as we indicated on our previous call, earlier on in the pandemic during the summer, Florida for sure -- we are a Florida airline.

Nearly 50% of our capacity touches Florida. And Florida was having its issues with the coronavirus, and I think we are seeing that in our activity and in our bookings and probably feeling a little disproportionately disadvantaged as a result of our geographic focus in Florida. That has turned, and Florida has responded well. So we're seeing good activity across the state, in Fort Lauderdale, which is clearly our home, and in Orlando and the West Coast as well.

And as Matt indicated in his comments, that flows down into the Caribbean, and you can tell from our adds there, that's been productive. Matt, do you want to add anything more, and we can turn it over to Scott from there?

Matt Klein -- Chief Commercial Officer

No, I think I would just add that as we've seen more things open up in Florida -- and we've seen this in other parts of the country as well, Helane, not just here in Florida. But as there are more things to do, for example, once the beaches opened up here in Florida and remained open, people from up north knew that there were things to do once they got down to Florida, for example. And that's true across other parts of the country as well. So as Ted mentioned, there was some impact early on from our geography, and it feels like that's rebounded, and we're set up well for the holidays, we feel.

Scott?

Scott Haralson -- Chief Financial Officer

Yes. Helane, this is Scott. I'll answer the back half of that question. When we think about 2019 CASM ex, so we were able to cut expenses out of our operating costs this year, reduce fixed costs, but we were already very lean pre-COVID.

So we also expect to see pressures in 2020, 2021 and beyond in airport costs. Airlines are having to cover some of the deficits at the airports today in the near term. Don't know how long that will extend. And SWB will continue to rise here at Spirit and in every other airline.

So we're not the only ones having to deal with some of the industry pressures. We're also going to lean a little bit more to lease financing versus debt financing in the near term. So that's going to pressure CASM. So getting back to pre-COVID CASM levels, it's going to be difficult, and that's easy to say.

But we haven't given up on that at all. We have some levers we can pull to help mitigate some of these pressures. But it's still a little early to really talk about post-COVID CASM, but those are really the puts and takes of what it's going to take to get there.

Ted Christie -- Chief Executive Officer

The only thing I'd add is 2019, as you recall, it feels like miles in the rearview mirror but was a difficult operating year for Spirit. We actually had quite a bit of challenges earlier in the year and in the summer. And we spent a lot of money recovering from that. And that, among other things, will be a tailwind for us and operate better going forward because we've got that benefit.

So as Scott said, there's definitely pressures we are seeing across the industry. But our objective here is to maintain and widen the competitive advantage that we have against everyone else. And when we look at the way things are set up, when we look at how other airlines are going to have to deal with similar challenges, I like our puts and takes better than theirs. And so whether or not we achieve absolute CASM levels of 2019 in 2021 or 2022, we don't know exactly.

But as Scott said, we haven't given up on that. What's more important is that we're expanding upon the advantage that we have against other airlines. And we do think that that's very achievable in near term.

Operator

Our next question is from Savi Syth.

Savi Syth -- Raymond James -- Analyst

Hey, good morning. Just if I look at your capacity with much of the capacity being in November, December, understanding that things can change, but if current trends hold, should we expect kind of similar trends in January, February to what we're seeing in October and perhaps March seeing that better improvement? Is that the kind of basic planning approach?

Ted Christie -- Chief Executive Officer

Hey, Savi, it's Ted. So we've been quite tactical and -- about our capacity throughout the course of the pandemic. And you've seen it in the way our network has pivoted around. I mean, we were flying 50 flights a day in May and flying 550 in July and flying 300 in August or so.

So we've been very careful at reading the signs in the tea leaves. Right now, we feel very good about how we're positioned in November and December. And we will digest that information and evaluate what that means for us in January and February. One thing I would say, and based on the experience we saw in September and October, the off-peak didn't necessarily behave linearly the same way it would normally.

So as you're building your way through the recovery, it's not same thing to say, well, September should be off versus where August was or January should be off of where November was, for example. I think it's just a different setup. So if things continue along this momentum change, you're going to see us continue to add back. And if we're right and this is -- and our plan A is accurate, we think by the midpoint of next year, we'll be closer to where we were in 2019.

And taking 16 airplanes next year, we can start thinking about growing again. And that's sort of our base case. And then, we'll evaluate whether or not we're right or wrong in real time, and we'll be able to make those adjustments accordingly. As Scott said, we've built a lot of flexibility into the model, and I think we are comfortable that we've got up and downside protection.

Matt Klein -- Chief Commercial Officer

I think, and Savi, just to add to that, specifically to January and February, in addition to what Ted mentioned is most of what we'll be evaluating is how we think about the off-peak days a week in those months. So we think about this strategically, of course, but then as we get closer to the travel period is when we really fine-tune into what we think is going to happen with demand and what we can support on the off-peak days a week until we get back to those peaker periods of spring break and beyond.

Savi Syth -- Raymond James -- Analyst

That makes sense. And if I might ask just on the financing side -- or the fleet side of things, have you had any kind of discussions with Airbus on the kind of delivery schedule beyond 2021? Is there kind of thoughts on reworking that or even kind of finalizing the 100 aircraft delivery timing?

Matt Klein -- Chief Commercial Officer

Yes, we have had our -- obviously, our initial discussions with Airbus and reworked that delivery stream, really moving aircraft out of the back half of 2020 and the front half of 2021. And we feel comfortable that we were able to move aircraft into periods where we actually didn't have deliveries in the first place. So we feel actually pretty good about where the deliveries sit as it is today. We actually might supplement some of those deliveries with direct operating leases from lessors.

That's been our plan all along. So I think that would be the flex capacity. We might move up or down that amount we might look to the lessors for. But I think our order book from Airbus is in a pretty good spot.

Savi Syth -- Raymond James -- Analyst

Thank you.

Operator

Next question is from Duane Pfennigwerth.

Ted Christie -- Chief Executive Officer

Good morning, Duane.

Duane Pfennigwerth -- Evercore ISI -- Analyst

Thank you. Good morning. So just a couple of network questions for me. Such a crazy year for your network planners, your network replanners.

Agree you've done a good job of changing the plan when required, pulling back when needed. As you think about this year, is there anything you take away from this experience organizationally that improves your long-term planning process?

Ted Christie -- Chief Executive Officer

Well, I'm going to start, and I think Matt will have a comment. But I'm going to -- the answer to the question is absolutely yes. So this has been a horrific period for the airline industry in general and for us. I'm not going to try to sugarcoat it.

But we've implemented some very interesting close-in monitoring around how route profitability is trending in ways that we probably hadn't done before maybe because we were spoiled with how our network always responded. But it clearly gives us enhanced visibility closer in. And so I think that's the first thing. I think the second thing is, while we're thinking about where we sit today as it relates to profitability or lack thereof or focus on cash generation, I think we've developed some interesting tools around that, too, at what is optimal capacity, which, in some places, is very intuitive and some might be counterintuitive to be honest.

So I think we've thought about both network placement in different ways. We can be much more dynamic in that, but also in capacity deployment and be very thoughtful about that, so.

Matt Klein -- Chief Commercial Officer

That's right. Duane, I would just simply add that this, for the most part, falls along the lines we've been talking about for a few years of just being as data driven as we possibly could be. And other aspects of the company where we've been collecting data and synthesizing it in a certain way really has come through big time, and we're using it in the network planning side that we really hadn't even anticipated previously. So as Ted said, it's been great to use new pieces of data and think of it in ways that weren't necessary before and now they're necessary, and we have a good infrastructure in place now for the future as well.

Duane Pfennigwerth -- Evercore ISI -- Analyst

Thanks for that. And then, just along those lines, as we think about kind of the industry revenue recovery, it's a bit of a chicken-and-egg challenge, right? Like if the industry -- if the inventory is not on the shelf, you're not going to generate the revenue. And there's just so many markets right now that do not have direct service. So as you look at the world from here going forward, is this a time for breadth? Or is this a time to invest in building some depth in specific markets? And thanks for taking the questions.

Ted Christie -- Chief Executive Officer

Sure. It's a great question. And as it relates to right now, October 29, the answer is we've, obviously, had to pull flying from our core network that, over time, we expect will come back. So the first move is restoring the core network back to where we believe it needs to be.

In the mix in there is an evaluation of opportunistic advancement. So we have looked around throughout the country and in Latin America and attempted to determine are there areas where we would like to be that we have opportunity perhaps to get into. Obviously, Orange County is an example of that. But your idea or your concept of depths and breadths, we always have looked at that way.

So the first step has to be to get the network back to where it was before because we believe that's the -- those are the best flying ideas on the table right now still for the most part. And then, be opportunistic around that as well.

Duane Pfennigwerth -- Evercore ISI -- Analyst

Appreciate the thought.

Ted Christie -- Chief Executive Officer

Yeah, sure.

Operator

Our next question is from Hunter Keay.

Hunter Keay -- Wolfe Research -- Analyst

Hi, everybody. Good morning.

Ted Christie -- Chief Executive Officer

Good morning.

Scott Haralson -- Chief Financial Officer

Hey, Hunter.

Hunter Keay -- Wolfe Research -- Analyst

On the 319, Scott, just remind me, you said they're all grounded. Is that correct? And then would you -- if you're struggling to drive out CASM a little bit and demand continues to get a little bit better, is there a scenario where you don't bring those planes back and you maybe replace them? Is that what you're kind of referring to when you talk about supplementing deliveries with some operating leases? Would you use that scenario? Or you would maybe just not bring the 319s back and just basically swap them out for larger A320 family aircraft?

Scott Haralson -- Chief Financial Officer

Yeah, right, right. So this is Scott, obviously. So yes, today, the 319s are parked, not necessarily grounded, but just -- they are parked in advance of the time period where we think they'll be useful again. So when we think about the 319s, obviously, we've been planning for those to go away at some point because they are our aging fleet.

They're our oldest aircraft in the fleet. So we have planned out into the future at some point where we would likely replace those either with new 319s or 320 or 321 aircraft, whatever that may be. So it's really a matter of timing. If we accelerated those retirements today or if we felt there was an opportunity to fly those in the near term -- because when you think about it, the marginal cost of those aircraft is pretty small today.

We own those outright, and they have some unique timing components that make operating them fairly inexpensive. So there are some things we can do with that aircraft depending on what happens with demand. So right now, we're viewing it as flex capacity. But depending on where the market is for A320s and all those things, it may change which aircraft we view is the right aircraft for us over the near term.

So those are all discussion that are going on right now. We're not ready to make a call on what will happen to the 319s in the near term, but it's really going to be demand driven.

Hunter Keay -- Wolfe Research -- Analyst

OK, thank you. And then, what percentage of your customers fly alone?

Matt Klein -- Chief Commercial Officer

Well, Hunter --

Ted Christie -- Chief Executive Officer

I don't know the number off the top of my head.

Matt Klein -- Chief Commercial Officer

Yeah. We're actually not dissimilar from other airlines that I've worked at in the past. So it's going to be roughly around half the passengers are flying on their own in a PNR.

Hunter Keay -- Wolfe Research -- Analyst

OK, got it. Thank you, Matt.

Operator

Our next question from Jamie Baker.

Jamie Baker -- J.P. Morgan -- Analyst

Refreshing but not surprising to hear the term PNR as opposed to six-digit record locator. Just one of my industry knits. So last week -- early last week, the week-on-week growth in TSA screenings started to slip into negative territory. I'm wondering if that's consistent with what you're seeing on the volume side or if possibly there's somewhat of a corporate influence on that broader metric, in which case your figures might be better.

Ted Christie -- Chief Executive Officer

Hey, Jamie, it's Ted. So as we indicated, and I think it was in Matt's comments, too, while there is clearly headline activity and that's ebbed and flowed throughout the course, we haven't seen anything yet that would reflect that in the way that our booking trends have moved. So it's possible that the flux in TSA capacity may be related to other demand segments that we are just not carrying to your point. But at least as of today, we haven't seen a change in trending, but we're sensitive to that.

So we're watching it. And then, I think we wanted to make that clear in our prepared remarks that we're always being careful around the areas, and we think we're prepared to deal with it one way or the other.

Jamie Baker -- J.P. Morgan -- Analyst

That's very helpful and a relief. Second point, you made a good point about how your monthly capacity has jumped around. I'm curious, though, if this is just sort of using your existing operating muscles or if there are some best practices that you're picking up. Again, specific to how you operate, your response to Duane's question was helpful, but it was more about how you are analyzing some of the data.

What I'm wondering is whether there's a corresponding operating component as well. We've always thought that nimbleness was very much part of your model. It just feels like you're getting better. I'm just not quite sure what measures to look at to test that thesis.

Thank you.

Ted Christie -- Chief Executive Officer

Thanks for the compliment. I would agree with you, and I'm extremely proud of the team because I think they haven't -- I would call them best practices, but I'm not sure some of them come from somewhere else. I think we've developed a few things on our own. It starts with the network, clearly, and the network team has come up with a way to make that network much more building block and plug and play than it used to be before.

So flights can come in and go out and be less damaging to the crew network, which ends up being our Achilles' heel from time to time. And so I think it starts there. And then, our operators have navigated that flux extremely well. So it's in the way we are doing line construction.

It's in the way that we've worked with our union leadership on bid procedures. It's a variety of different small things that have added up to us being extremely closer in and tactical than we used to be before. And I guess, their best practices, some of them -- I'm not -- I wasn't aware of, to be honest. So I think we came up with them, so.

Matt Klein -- Chief Commercial Officer

Yeah, that's right. And Jamie, what we're doing here is working very, very closely, as Ted mentioned, between network planning and the scheduling group and the operating groups. And we're flexing up and down around peak travel periods. We do that every year.

This year is even larger than normal, and part of that can be multiple day transition schedules to make sure the aircraft need to go where they need to go, get the crew in position and be ready from a maintenance perspective. So all of those things coming together. We've been building our team and getting ready for this. And the team that's in place here knows how to do that, and I think our completion factors, Ted mentioned, and our on-time performance speaks to that.

So it's been great to see everyone work together. On things added -- some airlines have traditionally been siloed off. Here, everything is one big ecosystem and working well together.

Jamie Baker -- J.P. Morgan -- Analyst

Solid answers. Thank you very much. Appreciate it.

Operator

Our next question from Mike Linenberg.

Mike Linenberg -- Deutsche Bank -- Analyst

Hey, good morning, everyone. I guess, two here. Matt, just to you, we hear a lot about how short the booking curve is, and obviously, as we approach the holiday season, it is getting a little bit longer. But if you could give us a sense of maybe what percent of tickets on Spirit maybe are being purchased within.

I don't know if it's three or maybe seven day is the right network versus what it was a year ago, maybe sub-Q and how that's trending in the fourth Q.

Matt Klein -- Chief Commercial Officer

So Mike, that's a great question and one that I cannot answer for you. But I can tell you that, directionally, we are seeing the lengthening, as I said. And what we are seeing is, around holiday periods, it's compressed. And it's more compressed than you'd like to see, but it is lengthening.

And even just in the last week or so, we've started to see the curves really kick in, which we were expecting to see and the good news is that it's happening. And to me, that's what's important, is making sure that what's happening is matching up to our expectations in this compressed curve environment. So that is what I can say for that answer.

Mike Linenberg -- Deutsche Bank -- Analyst

OK, great. And then, just second, when you look at other carriers who are sort of rolling out their own predeparture COVID testing type processes, can you talk about maybe what you're doing on that front? And sort of in the context of we have American looking to do something with flights to Jamaica, Costa Rica, Bahamas, obviously, those are cities or markets that are important to the Spirit network. Or is this kind of a situation where maybe it's better for Spirit to be a follower rather than a leader just given your price-sensitive customer base? So sort of a broad question there, but I'm just curious about your take on all of it.

Ted Christie -- Chief Executive Officer

Sure, Mike. It's Ted. So I never like to use the word follower, but I think in this regard, the industry is figuring out what the best answer is. Right now there are, in some circumstances, testing available that tends to be passed through to the customer.

So it's just access to a testing site or a location, and then it's done. And that's been the first step. We've been in conversations with a variety of airports who are looking at establishing fixed locations within the airport to make it accessible right there to the -- if they have quick testing available, and that becomes more routine. That could be the next step.

And I think these things at the margin would be helpful for us because our international network does require a lot of babysitting with regard to testing today. And so we have had to navigate. I don't know if we'll be the leader on whether or not we integrate it into our process or, for lack of a better word, which tends to be a dirty word for us, bundle it, right? But I think we will be looking and talking with airport authorities, for sure, about the best way to make it available to make it more convenient for our guests.

Matt Klein -- Chief Commercial Officer

Yes, that's right. So Mike, I think your question is more about on demand generation side probably more than anything else, and that's what Ted was referencing. Just operationally, we're -- we have quite a few number of destinations that require certain kinds of tests that we have to, in fact, do checking on before the guests would even arrive into those international destinations. So there is definitely some growing pains for a couple of weeks on that.

But it's all under control now, and we feel pretty good that we know how to make sure that we have the right paperwork and make sure the tests are correct. So at least on the operational side, we definitely have a handle on that. As Ted mentioned, on the demand side, working with airports, that's something that we would participate in, but we're working closely with airports to understand what that even means and how does it get in the hands of the guest properly.

Mike Linenberg -- Deutsche Bank -- Analyst

Very good. Thanks, guys.

Matt Klein -- Chief Commercial Officer

Yup.

Operator

Our next question from Brandon Oglenski.

Brandon Oglenski -- Barclays -- Analyst

Hey. Good morning, everyone, and thanks for taking my question. And I got to admit, I'm still cracking up about the single joke. Maybe you guys should get a partnership with Tinder or something, really spice up the frequent flier program.

Look, sorry, I'm divorced, so that's pretty funny to me. Ted, on the outlook for EBITDA margins, we really appreciate that. But do you think you can get to a breakeven outcome with industry revenue still not recovering or, let's say, corporate travel not back because aren't your larger, higher cost competitors going to be seeking out the same markets as you guys? So do you think, as investors here, we just have to wait it out?

Ted Christie -- Chief Executive Officer

So it's a great question, and we've spent a lot of time evaluating our position versus the market. And Scott will follow me here because he has some thoughts mathematically on how it works. But I've heard other carriers reference what percent of last year's revenue that they need to get to in order to break even, and that seems to me to be a little bit unfair when you're not also referencing how much capacity you plan to fly or what the inputs to the revenue are, which could be load or yield. And so I think if you fly, for example, one flight, you can break even with -- at a 50-50 fixed versus variable, you could break even with 50% of your revenue.

Clearly, that's an impossibility from a yield perspective. So clearly, what we do know today is that the low-fare leisure customer is the market. The question will always be, who can carry that traffic at a breakeven or better outcome? And based on fares that we see prevailing today, we can do that eventually. When we get our capacity back to where it needs to be, we will produce results that will be positive EBITDA and eventually trend our way back into profitability and where we want to be.

Unfortunately, higher cost carriers have a much higher hurdle rate, and therefore, their breakeven load factors at these prevailing fares are considerably above 100%. So there will have to be a rationalization eventually in there, and I think we are prepared to navigate it. Scott, what would you say about it?

Scott Haralson -- Chief Financial Officer

Yeah. I think to push on that a little bit further is that in any business that has a high fixed cost hurdle as airlines do, it's very difficult to get to cash breakeven with a limited amount of capacity. And so the relative nature around yield is the critical component, right? As you fly less of your capacity, you need higher yields in order to reach that breakeven, almost to the point where the way the math works is, if you're flying 100% of your capacity, and we've talked about this before, your reduction in revenue that you can handle is really your EBITDA margin. That's your best proxy for reduction.

Now you could also handle a corresponding reduction in capacity to that level, but you would need the same previous yield. So either a reduction in capacity or reduction in yields gets you to that same EBITDA margin breakeven point. Now if you start to reduce capacity and you're having yields that are lower than previous numbers, it makes it more and more difficult to get to cash breakeven. So I think that's what the industry has either learned or will learn or they already know the dirty little secret, is that need the capacity and the yield to get to cash breakeven.

With both of them down, very difficult to do.

Ted Christie -- Chief Executive Officer

And clearly, the ramp for us to get back to our previous capacity and a yield that gets us to breakeven is smaller than it is for anyone else because our fixed base is smaller.

Scott Haralson -- Chief Financial Officer

So the critical point that Ted said, the hurdle rate is lower. So you should naturally expect low-cost carriers, Spirit included, to fly more than the higher cost carriers. The hurdle rate's just lower. And the rate between covering variable and total allocate -- and fully allocated cost is just smaller.

So the way the math works is we'll fly more as an ultra-low-cost carrier, and we'll be likely to get to cash breakeven quicker and profitability quicker. That's just the way the math will work. And who's flying today is our low-cost leisure travelers. We're set to carry those.

So that's just the way it's playing out.

Brandon Oglenski -- Barclays -- Analyst

I appreciate the thorough response. And I guess, if I can follow up on that. Matt, I think you mentioned that your ancillary or non-ticket revenue was actually up -- or if you could comment on that. But also in a no change fee environment going forward with a lot of your competition moving there, does that change the dynamics at all on ticket versus non-ticket?

Matt Klein -- Chief Commercial Officer

Sure, Brandon. So right now, our change fees are waived just like the rest of the industry. So there's no product differentiation there right now. And in fact, right now, our change fee revenue is basically zero.

So when I talk about the October non-ticket rate being up slightly year over year, that's in the face of headwinds like no change fee revenue. So just think about that. That's a relatively large piece that's just gone away, yet we still are having the success. And it's going to be based on things that we've been talking about for a while, which is understanding how best to price our seat assignments, how to think about the merchandising of bags and when they're purchased and the purchase process.

And also, we're doing a really great job at the airports with making sure we understand what -- when to collect for a lot of those charges as well. Overweight bag fees is something that we've done a great job in making sure that we do a good job of collection on. And some of the technology we're putting in place will actually assist us in that over time, too. So I don't know if that perfectly answers your question, but that's how we're thinking about non-ticket revenue moving forward.

Brandon Oglenski -- Barclays -- Analyst

Appreciate it. Thank you.

Operator

Our next question from Joe Caiado.

Joe Caiado -- Credit Suisse -- Analyst

Hey, thanks. Good morning everyone.

Ted Christie -- Chief Executive Officer

Good morning, Joe.

Joe Caiado -- Credit Suisse -- Analyst

Question for Scott on the balance sheet. You completed your at-the-market equity distribution. You raised the $850 million in secured debt, consequently chose not to take the federal loan. So are you now effectively done with your capital raising needs for the time being? And what's the next balance sheet move you need to make? Is it addressing 2021 maturities?

Scott Haralson -- Chief Financial Officer

Yeah, Joe, this is Scott. So I think you're right. I think we're done in the short term. Obviously, we are on a wait-and-see approach to see what happens with the recovery.

We feel pretty good about where the balance sheet is today. We've been able to maintain the health of the balance sheet. Our net leverage is at a reasonable level, up a little bit from 2019, but not considerably. That was our goal as we thought about raising capital.

So the CARES Act and the equity capital provided us a good bit of flexibility here. So we feel like the balance sheet's in a good spot. Now we need EBITDAR production on the other side, and we'll see how that plays out. But I think as you think about the balance sheet going forward, yes, it's going to be to maintain or decline that net leverage position.

We were able to get through this, like I said, in the OK spot, but we'd like to reduce that over time, and that's going to come from EBITDAR production. So as we get back to profitability, that's going to be an important trigger for us. And it really might change in the near term how we think about financing the fleet. We talked about more leased aircraft versus owned, so capital deployment will be important.

But I think the idea is to start thinking about the net leverage position. We may not actually pay down debt. We may carry an extra cash by a little higher cash balance in the short term. So net leverage will be down.

There will be a little cost of coverage, but we're going to play with either paying down debt or just carrying more cash. So it's really about net leverage.

Joe Caiado -- Credit Suisse -- Analyst

Got it. OK. And then, just a quick follow-up, a quick modeling question, I apologize. Still for you, Scott.

How should we think about the salaries and wages line moving forward? It was about flat in the third quarter. How should we think about that for the fourth quarter? And then, also for 2021, if you can help us out there at a high level, just given the voluntary savings that you've secured from your employees through next May and your base case assumption that you might be close to 2019 capacity levels by next summer. Thanks for the time, everyone.

Scott Haralson -- Chief Financial Officer

Yeah, you got it. So a couple of puts and takes here. So for Q4, we're going to be about flat in SWB. We're going to fly a little bit by our airline in Q4, probably around 10% more in Q4 than we did in Q3.

So we do have benefits from more leads in Q4 than we had in Q3, but we did have a considerable amount in Q3 as well. So that is a little bit of a -- and make sure we have it modeled correctly, that the number is -- maybe not -- we said $15 million is benefit to not having furloughs and leaves instead. So that number won't actually play out in the fourth quarter because we had about half of that in the third quarter. So that flat quarter-over-quarter SWB number is mitigated a little bit by capacity increases in there as well.

So when we think about next year, we haven't completed our budgeting process for 2021. So it's difficult to say. But we will be a beneficiary of some of the reductions in force that we have this year. But we are planning to grow the airline again.

So we're going to have increased training and crew costs to make sure that we can fill those. So I think we are going to get back on that normal run rate. We may see some ASM benefit in some areas, but I think on an ASM basis, we may be pretty close to last year, 2019.

Operator

And our next question is from Catherine O'Brien.

Catherine O'Brien -- Goldman Sachs -- Analyst

Hey, good morning everyone. Thanks so much for the time.

Ted Christie -- Chief Executive Officer

Good morning.

Catherine O'Brien -- Goldman Sachs -- Analyst

Good morning. So maybe just coming back to this non-ticket per passenger strength. I've been impressed how well that's held in, especially in light of the growing gap between non-passenger and -- excuse me, non-ticket, excuse me, not non-passenger, non-ticket and average fare. Is it that demand for those products is just inelastic once the ticket has been purchased? Hello? Can you guys hear me?

Matt Klein -- Chief Commercial Officer

Yes. We just heard some music.

Catherine O'Brien -- Goldman Sachs -- Analyst

Oh, yeah, it was. OK.

DeAnne Gabel -- Senior Director of Investor Relations

Can you repeat the last part of the question?

Catherine O'Brien -- Goldman Sachs -- Analyst

Yeah, sure. So basically, the question is, is demand for these non-ticket products just inelastic once the purchase has been -- once the ticket has been purchased? Or are you seeing an increase in demand for things like seat assignments with COVID? Or is this really your own systems getting better? And then, I guess, is that what we should expect to be driving the strength in terms of revenue acceleration into the fourth quarter? Or should we also expect loads and fares to improve as well, just underlying that revenue outlook? I realize a lengthy question there. So thank you.

Matt Klein -- Chief Commercial Officer

All right, Catherine. I'll try to knock them all out there for you. I would say that our guests recognize that optionality has value. And right now, in this environment, I think that our guests want to -- we're just having a further validation that what -- choosing what they want as part of their travel experience is winning right now.

And I would say there's some level of inelasticity in there because there's definitely sort of a floor that we feel comfortable with. But overall, we're just doing a much better job as the years go by of understanding the demand on certain products, understanding -- especially, say, our big front seat product and understanding the constraint on that supply and how to drive yield out of that. Also what's helping is our revamped mobile app is definitely a better booking experience, including ancillary products. So a lot of the technology involved continues to improve.

So it's not just understanding the demand environment. It's also the distribution of the products has improved. In terms of when we think about overall production in the fourth quarter, we continue to see good sequential traction as it relates to load factor, ancillary revenue, as well as the passenger fare. So again, sequentially, we are seeing good strength across the board.

And I would add to that that, historically, as we see the passenger fare improve, the ancillary production improves marginally related to the fare itself. So that should act as a further tailwind as passenger fares return to normal after we get through the worst of the pandemic. We would expect that to be a tailwind additional to the improvements that we've seen during the pandemic itself. So I tried to be thorough there, but hopefully, I caught it for you.

Catherine O'Brien -- Goldman Sachs -- Analyst

Yeah, that was great. And if I can maybe just, if you'll allow, one quick one to Scott. On the sale/leaseback, like what does that market look like right now from an airline perspective? Is it getting more attractive with lessors looking to add growth opportunistically? Or are terms getting a bit more expensive as more airlines are looking to this financing option just given that balance sheets are generally strapped? Thank you so much for your time, everyone.

Scott Haralson -- Chief Financial Officer

Yeah, Catie, it's Scott. Good question. It's moved around. I think early in the process in the COVID crisis, lessors were not willing to put additional capital to work.

So the sale/leaseback market was tough. But I think we've seen it open up, especially for good credits like Spirit. I think most of the money is going to navigate toward credits like us and other U.S. carriers.

So that market is opening up as we speak. So I think the rates that we're seeing are going to be pretty similar, maybe a little bit higher than pre-COVID numbers or pretty close. And by the time that we go to market with an RFP, either late this year or early next year, we expect them to be pretty competitive to pre-COVID levels.

Catherine O'Brien -- Goldman Sachs -- Analyst

Understood. Thank you very much.

Operator

And next question is Joseph DeNardi.

Joseph DeNardi -- Stifel Financial Corp. -- Analyst

OK, good morning.

Ted Christie -- Chief Executive Officer

Hey, Joe.

Joseph DeNardi -- Stifel Financial Corp. -- Analyst

Ted, I'm wondering if you see this as an opportunity to maybe broaden the business model a little bit, incorporate more used aircraft and target some of the lower utilization markets out there. Are the opportunities in your traditional markets still the more attractive path? I think that's been a question for you all at various points the past couple of years. Just curious if all this changes, how you see that.

Ted Christie -- Chief Executive Officer

Well, thanks, Joe. As you know, our model has not been about low utilization used aircraft. We take new deliveries, and we stimulate in larger markets. We do have, as was asked earlier, and I think Scott answered the question with regard to the 319 fleet, it kind of sits in that window, to be honest, and for that reason, can be thought about in a variety of different ways, which we have not formed an official conclusion on as Scott alluded to.

But when we look forward, we're still -- we still have a robust delivery schedule with new aircraft because the opportunity to do that type of flying is very -- we still see that as being very bright. So I think that's going to be our core focus. And kicking up airplanes in the marketplace where we have holes will probably be done on the new side as well because one of the advantages that we've talked about in the past that doesn't get a lot of press is that our fuel efficiency will move faster than the rest of the industry because of the percent of our fleet that will be NEO powered. And I think that that's going to be a significant margin tailwind for us over time, and so we would expect that to continue.

But I think there are -- there at least sits today in our fleet some thoughts around should we look at using those airplanes in unique ways.

Joseph DeNardi -- Stifel Financial Corp. -- Analyst

Got it. That's helpful. And then, maybe, Ted or Scott, when you think about the airline and maybe most specifically, the capital structure, what it needs to look like post-COVID, do you see all this as kind of once in a generation? Or do you see this as something that needs to be factored in as potentially reoccurring even if not to the same magnitude? Do you just kind of hope this doesn't happen again? Or do you factor in that maybe it does and incorporate that into the capital structure? Thank you.

Ted Christie -- Chief Executive Officer

Yes. I'll just make a brief comment, and you can go. Hope is not a strategy. So we take away from each one of these things new learnings.

And you heard Scott say earlier that we probably will maintain a little bit more liquid balance sheet for a little while as we think about how we digest this problem. We're in the middle of it right now, so it's hard to feel good or bad about what -- whether or not it's a black swan or possibly more frequent than that. But I think we -- it would be natural for me to say that we'll probably be a little bit more careful. Scott?

Scott Haralson -- Chief Financial Officer

No, I agree. I think as managers of the business, look, this crisis has been a scar to all of us mentally. So it changes how you think about the business. It will.

And so I think the conservative nature of the balance sheet, you'll likely see that across a lot of industries, how people think about balance sheets. Very difficult for a finance group to plan for a crisis like this. If we would have brought this up to any board meeting or management meeting that we might have to plan for a crisis of this magnitude, we would get locked out of the room, right? That was yesterday. Tomorrow is a different story.

And so we'll likely see conservatism throughout the business, we expected.

Joseph DeNardi -- Stifel Financial Corp. -- Analyst

Thanks, Scott.

DeAnne Gabel -- Senior Director of Investor Relations

James, I think we're -- completes our time for today. Thank you all for joining us.

Operator

[Operator signoff]

Duration: 62 minutes

Call participants:

DeAnne Gabel -- Senior Director of Investor Relations

Ted Christie -- Chief Executive Officer

Matt Klein -- Chief Commercial Officer

Scott Haralson -- Chief Financial Officer

Helane Becker -- Cowen and Company -- Analyst

Savi Syth -- Raymond James -- Analyst

Duane Pfennigwerth -- Evercore ISI -- Analyst

Hunter Keay -- Wolfe Research -- Analyst

Jamie Baker -- J.P. Morgan -- Analyst

Mike Linenberg -- Deutsche Bank -- Analyst

Brandon Oglenski -- Barclays -- Analyst

Joe Caiado -- Credit Suisse -- Analyst

Catherine O'Brien -- Goldman Sachs -- Analyst

Joseph DeNardi -- Stifel Financial Corp. -- Analyst

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