DeAnne Gabel - Senior Director, IR Bob Fornaro - CEO Matt Klein - SVP & Chief Commercial Officer Ted Christie - EVP & CFO Thomas Canfield - General Counsel John Bendoraitis - COO

Hunter Keay - Wolfe Research Kevin Crissey - Citigroup Savanthi Syth - Raymond James Andrew Didora - Bank Of America Merrill Lynch Michael Lindenberg - Jefferies Jamie Baker - JP Morgan Matt Wisniewski - Barclays Duane Pfennigwerth - Evercore ISI Joseph DeNardi - Stifel Helane Becker - Cowen Securities Susan Donofrio - Macquarie Capital

Welcome to the Third Quarter 2017 Earnings Conference Call. My name is Ally and I will be your operator for today's call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. [Operator Instructions] I will now turn the call over to DeAnne Gabel, Senior Director of Investor Relation. DeAnne, you may begin.

Thank you, Ally. Welcome to the Spirit Airlines' third quarter 2017 earnings conference call. Bob Fornaro, our Chief Executive Officer, will give a few brief opening comments, followed by Matt Klein, our Senior Vice President and Chief Commercial Officer, who will review our revenue performance and outlook, then Ted Christie, our Executive Vice President and Chief Financial Officer, will discuss our cost performance, followed by Bob with some closing remarks. We will have a Q&A session for sell-side analysts following our prepared remarks. Also joining us in the room today are Thomas Canfield, our General Counsel; John Bendoraitis, our Chief Operating Officer, and other members of our senior leadership team. This call is being recorded and simultaneously webcast. A replay of this call will be archived on our website for 60 days. Today's discussion contains forward-looking statements that represent the Company's current expectations or beliefs concerning future events and financial performance. Forward-looking statements are not a guarantee of future performance or results and are based on information currently available and/or management's belief as of today, October 26, 2017. There could be significant risks and uncertainties that could cause actual results to differ materially from those reflected in the forward-looking statements including the risk factors discussed in our Annual Report on Form 10-K and quarterly reports on Form 10-Q. 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 2017 earnings press release which is available on our website for the reconciliation of our non-GAAP measures. With that, here is Bob.

Thanks, DeAnne, and thanks to everyone for joining us. A special thank you for all our team members that went above and beyond as we prepared for and we cover from hurricanes Harvey, Irma and Maria and that will be shootings in Las Vegas. For Irma, we're forced to move our system operation control center to our satellite location in Detroit and this so, successfully while planning for a dramatic pull down in scheduled flights for the impacted period. Following the storms in addition to dedicated company resources, our team members answered the call to action by donating their time and money to help those impacted by the storms. I couldn’t be proud of our team members, how the team members handled these situations. Our hearts and prayers go out to the team members, friends and families who have been affected by these events. Excluding the hurricane related impacts, during the quarter we ran a good airline and continue to make progress on our operational and reliability goals. The pricing and environment remains competitive, but we continue to be well positioned to leverage our industry-leading cost structure to stimulate and grow markets we serve with a low total fares. On our second quarter earnings call, we discussed how we're pivoting our revenue management strategy and a portion of our roots to compensate for a change we saw in the competitive environment. As anticipated, this has begun to benefit our load factor and therefore our TRASM. I'm pleased with how well these initiatives have worked. With that, I will turn it over to Matt and Ted to discuss our third quarter performance in more detail.

Thanks, Bob, and I would like to start by joining Bob and thanking our team for their extraordinary efforts to keep the operations running smoothly despite disruptions caused by the unprecedented number and severity of hurricanes that affected our network. For the third quarter 2017, we reported total revenue of $687.2 million. Total revenue per available seat mile decreased 6.3% year-over-year. We estimate the hurricanes and overhang from the pilot work action earlier this year, negatively impacted our third quarter revenues by approximately $40 million. As Bob mentioned, in response to the dramatic change in the competitive environment in many of our markets, we pivoted our revenue management approach in these markets, which was helpful in mitigating some of the impact from lower fares. In our model, volume does matter and we've taken this opportunity to focus on the things that we do very well. Low fares, ultra low cost and significant ancillary production, this has always been a recipe for success. Contrary to some rhetoric of late, the Spirit model continues to produce excellent returns, and our focus on new and optimized ancillary products is unique driver for unit revenue for us. On the topic ancillary revenue, we continue to see year-over-year improvement in non-ticket revenue per passenger, which increased 2.6% compared to the third quarter 2016. We’re delivering on products to improve our customer facing technology and we're investing in e-commerce initiatives. We're excited about the benefits for our customer as well as our bottom line, as we improve to get experience and leverage technology to drive non-ticket revenue. In Q3, our new app went live and was only limited notification to select Spirit customer, the number of downloads has already surpassed our most bullish expectations. Additionally, just yesterday, we launched the new website which included dedicated mobile design, approximately 50% of spirit.com visitors use the mobile device to access the website. So, we expect this will be highly beneficial from the guest experience prospective. While the direct revenue impact of the app, website redesign, and other ease of use business initiatives are somewhat difficult to pinpoint, there is no doubt that together with our improved operational reliability, improved guest experience, low total fares and accretive non-ticket initiatives, we have a platform to continue to deliver excellent returns. Turning to our fourth quarter outlook, I thought it would helpful to give a bit of color to what we're seeing. We're experiencing a lingering impact from hurricane Harvey, which is modestly affecting our Huston markets. We're not seeing a significant lingering impact in Florida as a result of Hurricane Irma. We've temporarily pulled down some of our capacity in several of our Caribbean locations, rightsizing them for the new demand environment post Irma and Maria. As for the calendar shift of Christmas, from Sunday to Monday for our network, we think it's roughly neutral on a year-over-year basis. We've tuned some flying on the off-peak days of Tuesday and Wednesday for the quarter, and we also have somewhat less new flying in its initial 90-day school period than we did last year, which are modest boost on a year-over-year basis. Together with the current pricing environment, our continued improvement in non-ticket revenue and our improved revenue management strategies, we estimate our fourth quarter TRASM will decrease between 4% to 6% year-over-year. With that, here's Ted.

Thanks, Matt. And thanks to everyone for joining us this morning. I want to thank our entire Spirit family for pulling together in the midst of what has been a time fought with disasters. Both before and after the disasters, people from all areas of the Company were raising their hands, asking how they could help. I appreciate the tireless effort of all that worked to help keep the airline functioning, assisted with restarting the network post the storms, and continue to help with the relief efforts in the Caribbean. It is a privilege to serve alongside our dedicated Spirit team. Moving onto our third quarter 2017 results, net income excluding special items was $65.5 million or $0.94 per diluted share, and our operating margin was 16.4%. We estimate the overhang from the pilot action and the hurricanes Harvey, Irma and Maria, negatively impacted our third quarter operating income by approximately $39 million, and our operating margin by 450 basis points. CASM ex-fuel decreased 1.1% year-over-year to $0.0542. On a per ASM basis, the decrease year-over-year was primarily driven by lower maintenance and salaries, wages and benefits per ASM, partially offset by higher passenger re-accommodation expense and depreciation and amortization. Lower ASMs as a result of storm-related cancellations also pressured CASM. In the face of a very difficult operating quarter, the Spirit team delivered admirable results on cost control. In fact, excluding the expenses associated with the hurricanes and the loss of ASM production as a result for the cancellations, our CASM ex-fuel would have decreased by nearly 5% year-over-year. I commend the team for retaining their focus on our guests and each other all while running the business the Spirit way. Regarding fleet, during the quarter, we took delivery of three new A321ceo aircraft and one new A320ceo and returned one A321 to its lessor, ending the quarter with 107 aircraft in our fleet. We continue to schedule service with only three of our five neo aircrafts. The latest solution to alleviate the reliability issues has had some success, but it's too early to say this issue is fully resolved. We continue to work with Pratt and Airbus to find the solution to support the neo fleet in both the short and long-term. We ended the quarter with unrestricted cash, cash equivalent and short-term investments of $965 million. As mentioned in our earnings release this morning, our Board has authorized the Company to repurchase up to an additional $100 million of common stock. Looking ahead to the fourth quarter, we estimate CASM ex-fuel will be down 3% to 4% year-over-year on a capacity increase of about 17.5%. I want to spend a few minutes discussing our 2018 capacity growth. Our 2017 capacity production has been artificially depressed. Throughout the year, we've only operated three of our five neo aircrafts. We've also experienced the lower than normal completion factor due to the impact of the pilot work action that continued into the summer and the cancellations related to the hurricanes. Therefore, our 2017 capacity increase of 16% should have been closure to about 19%. In the beginning of 2017, we expected our growth in 2018 to be 18.5%, which was based on similar operating assumptions as 2017. We now estimate our 2018 capacity will increase between 22% to 25% of which about 7% is attributable to 2018 aircraft deliveries and the remainder is run rate growth from 2017 and increases engagement stage. For the period of 2019 and beyond, we estimate that our growth rate will be in the low-to mid-double digit range. Nonetheless, as we communicated previously, our annual capacity growth rate for 2019 based on our current from aircraft commitments is about 10%, which is at the low end of this target. However, we don’t intend to lock down any additional aircraft until when we have more certainty around the productivity of our pilot deal. We're still in the early stages of the budgeting process, but initial estimates for 2018 indicate our CASM ex-fuel will be down 3% to 5% compared to 2017. This excludes any impact from a new pilot contract. In closing, our team has done a great job overcoming and adapting the challenges we faced in the third quarter. In additional to our industry-leading cost structure, it is this can do attitude that positions us well to achieve our long-term goals. Now, I'll turn it back to Bob.

Thanks Ted. Based on our guidance for the fourth quarter, we’re on target to achieve an operating margin of 14% to 14.5% for the full year 2017. You know just for the impact of the pilot disruptions and hurricanes that equates to an operating margin of about 17% for the year, this is below where we had anticipated to land at the beginning of the year by considering the aggressive pricing we've seen in about half of our markets since late June, I think we've done a pretty good job being nimble on adapting as needed to address the challenges. Overall, we continue to make good strides in improving our operational reliability and we're focused on leveraging the strength of our business model by offering the lowest fares in the marketplace. With that, turn it over DeAnne.

Thanks Bob, Matt and Ed. We are now ready to take questions from the analysts. We ask that you limit yourself to one question with one related follow-up. Ally, we're ready to begin.

Thank you. [Operator Instructions] And our first question is from Hunter Keay. Please go ahead

So, I'm sorry, those are one of the numbers that I may have missed this. I know you said the 2018 capacity is going to be up 22%, 25%. How much that is because of the strange comp, like what sort of like the schedule on schedule growth rate, may be a better way to ask that?

Hi, Hunter. It's Ted. We look at -- one way to look at seats and seats are going to be up more like 17.5 to 21 or something like, which is closure to where we would have expected capacity to look, prior to the unusual comp. So, it's right in line, it’s the same number of seats we'd planned to deliver when we entered the year 2017. So I would say the ASM comp is skewed by at least 300 basis points.

I got you. Okay, thank you, Ted. And then obviously I appreciate the commentary around 2019 being in the 10% range and then you said low-to mid-double digits, so it's a lot of moving part, I get that with pilots. But, is it a foregone conclusion that you're going to place an aircraft order? I mean, would you actually contemplate 10% growth? Is there a way to maybe do that and not grow, maybe like you extend some lease returns and grow maybe like 10%, 12% without placing an aircraft order? Or is it fair to say that continuing to not getting the pilot deal in terms you think you can get from them around productivity that aircraft orders effectively matter of when, not if? Or is there a scenario where you actually don't place that order for a couple of years?

I mean you've kind of laid out the option pretty well. I think where we are -- I think, we actually have the luxury with potential returns, but we have a pretty good base. And I think overtime, we expect the neo to begin to play the role that we expect, which is really to give us the length of whole opportunity. We can do these things with leases, small orders, relatively small. It is a lot of flexibility because we still have an underlying core order that was made years ago. When I think actually it gives us the opportunity to be fairly tactical in the way, we will approach the market. Ted, you've got anything else to add?

That's a 100% correct and I know you did lay out the options. And I think that the flexibility that Bob mentioned is one of the things we're excited about is it does give us the ability to be more tactical. So, it's really possible we remained excited that 2019's fine word is and we're just going to continue where we are or we can be little bit more nimble in that regard. So I think that's right.

And just staying on that, I think our preference would be if we have to make decisions to do with the smaller chunks, to the often an airline can place an order and start taking deliveries six to seven years later when there could be a lot of changes in the market. So I think overtime, we will approach the marketplace from up to position of flexibility.

And our next question comes from Kevin Crissey. Please go ahead.

Good morning, thank you for the time. Can you talk about where you're growing in 2018, if not specific markets, maybe the types of markets that you're looking at?

Sure, Kevin. Let me just -- before I even talk about that, maybe just let me just kind of summarize really what we did this year. And I think this year we opened up a couple of mid-sized cities, but there has been a really a lot of talk about where we're growing and carrier responses to that, but kind of start it again. The three, let's say -- let's call the three areas of concentration that we've seen the most pricing pressure in our network are Chicago, Dallas and Huston. In Chicago, our capacity was down about 4% in 2017. In Dallas, it was down about 4%. Huston was about 8%. When you put them all together, the capacity in those three areas was down about 1%. And so in fact and if you go up back over 2 years, I guess the numbers would be similar. So there isn't -- wasn't a whole a lot of correlation between where we were growing and the pricing activity in the market. But this year, we had a fairly big expansion in Fort Lauderdale. We opened up new organic and two mid-sized cities. I think as go forward, what you're going to see us to do is continued to grow on a diversified what large cities, mid-sized cities and small cities. It's likely that we will open up two mid-sized cities or now at sometimes during the year. We've been waiting for a number of years to add new international destinations out of Fort Lauderdale and you'll see a lot of that coming as we move into latter part of the year. We also have certain things that have been announced. We've added several flights in New Orleans, last year. And this year, we've gotten bigger in Florida. And I think you will see us seasonally stronger once again in the February to June period. So it's -- but I think the key thing is its diverting and we have a number of cities on our system that have in excess of 10% of our capacity. And so I think in our own way, we're building again diverse and overtime and more defensible network.

Terrific. Thank you for that color. And maybe if you could kind of expand on and talk about the characteristics, I'm sure you’re not going to tell me what's specific markets are going the best, but maybe the characteristics, if there is any consistency among the characteristics of the markets that are doing the best financially?

Generally, again, for the most part, we're pretty happy with some of the new cities. I think Fort Lauderdale has been especially strong. It's our biggest market. It's about 27%, 28% of our total capacity. It's got most of our international capacity. I think we're pretty happy with the way things have gone in New York this year. Again, New York is -- its part of New York and quite frankly, if we could get a gate in JFK, we take one of those as well. We want to be in big cities. Big cities create opportunities. Because generally speaking the carriers that control cities of operating towards more than double. And so I think those opportunities we think will continue to exist for us. So in the big cities, I think there is -- they're generally overpriced and some of the mid-sized cities, there is an opportunity just to stimulate the markets in a very big way.

And our next question comes from Savanthi Syth. Please go ahead.

Ted, maybe a question for you. I appreciate the color on next year's cost trends. Could you just talk about, is that mostly because of the strong growth? Or is there any, anything we should consider from a headwind and tailwind aspect next year?

Sure, Savy. So next year obviously growth helps. We do have some puts and takes and they're not just similar from what the Company has been tackling for the last three or four years. So maintain related amortization expense is still going to be a pressure. We will see benefit on rent per ASM, as we optimize the balance sheet and take advantage of cost effective financing. Of course, we're lapping a difficult year as well. So, there is some benefit to that. But nonetheless, despite all of that, I'm encouraged by what we're seeing, as we go through the budget process. And as we always do, we turn some knobs around here to kind a figure out ways to get the cost to move in the right direction. And our job is to manage the business. We all know that we're going to be tackling or getting done with a pilot deal soon, we all hope. And our pilots are doing great job for us and we want to make sure we get that done, and we're moving on. But our job is to make sure that we're paying for that deal, as best as we can. And so, the business is very engaged and coming up with ways to continue to move the cost structure in right direction. And like I said, I'm very encouraged as what I'm seeing initially, as we get ready for 2018.

That's helpful. Thanks for that. And if I may follow up with Matt. The ancillary revenue at least on a per passenger basis is starting to return. Any color there and what you're seeing?

Yes certainly. We're making lots of good strides in the way that we're merchandising on our website. a couple of new products have come out. The way that we're merchandising and putting some products together in bundles for customers is having some pretty good take rates thus far. And as you can imagine, it's really just started for us, so on that product or that combination of products I should say. So we're still testing up with pricing and understanding on market-by-market basis what can work best. But really happy there, and a lot of the work that we've done in the last year on revenue management theory around other products like our Big Front Seat product is paying off for us now.

And our next question comes from Andrew Didora. Please go ahead. Your line is open.

Hi, good morning everyone. Bob, I know you weren't in your currency overall back in 2015, but you were still heavily involved with the Company. You mentioned in your prepared remarks and Matt as well just in terms of pivoting revenue managements in the face of these competitive pressures. But what do you think Spirit learned in 2015 that has helped you pretty much cope better with some of the competitive actions you're seeing today? Is it anything from a ticket perspective and ancillary perspective little bit of both, so just curious to get your thoughts there?

I think it's a lot of things, but actually again from time-to-time and first of all, it's a competitive business. And I think, we should be expecting competition. And it's just always going to be a matter of degree. But I think we found in 2015, these things have a way of working the sales up. First of all, pricing issues tend to spread. And more they spread eventually lead to a term. Because rarely what can start out as someone bracketing a flight, eventually at the end of the day, takes the whole market and maybe even nearby markets and can ultimately even spread across the whole series of markets. What we found and quite frankly, we played a fairly big role going back to last summer and actually taking risk and actually raising average fares. And for the most part, most of the industry was following us. And so, we played a fairly big role. And I think as we've guided the late June early July, we saw a fairly big change, what's left us exposed for a couple of months. And we can have a long debate about, about why those changes ultimately took place. I can't be sure. But we're all letting our load factor go down. And so again going forward, we're not going to take the same load factor risk. But I think the market place is going to present opportunities to improve price. Because I think once again even this summer, we're seeing that they don’t stay contained to our one flight. And depending on the carrier each carrier has their own level of impact and ultimately have their own margins to manage. So I think eventually, these things will subside. We never said up -- I've been here in the position about two years. I don't think we've ever -- we never talk about market share because in our side, it's relevant. And we want to serve key markets. We’re working and we think our cost structure can widen overtime, if we keep doing what we're doing. And that’s always our focus. So I think and with our balance sheet, there is lot of airlines trying to play our game. And I think it’s a pretty difficult situation. We don’t have 20 airplanes. We had 110 and we've got a $1 billion in the bank. So, we won't stay in every route, but our plan is to build diversified route network. And I think we can pretty much stay at a reasonable side in all the key markets. And our feeling is, if we're not doing it, somebody else is going to be doing it. So again, its diversification and we're not out to build the 100 flights in anyone of these cities. We got 20 and 30, and if you look at what we’re doing around the country, again it's -- maybe a different kind of network that with others are used to seeing, but nonetheless, we're building breadth and that’s going to allow us to enhance our brand overtime.

Thank you for that. My second question is for Ted. Just given what's transpired the last few months. Your net leverage has come up about a turn surrounding, maybe around 2.5 times over the past year, probably going maybe mostly higher in 2018. Can you remind us where do you feel comfortable with your leverage? What are your leverage goals? And based on our current plan, when do you see leverage peeking?

Yes, sure. So, it is up above to and most of that is because of the pressure we’ve seen in the revenue environment, driving what’s happened around this denominator has little or nothing to do with the Company's borrowing activity. Because we generally lever the Company to grow with airplanes and that’s relatively consistent. There is a notable timing penalty associated with buying aircraft versus leasing aircraft in the way that people generally calculate both leverage and ROIC. And we've illustrated this before, but in theory, if we leased all of these airplanes, our leverage position would be less today than it is as indicated, which is not necessary the right answer for either the balance sheet or the P&L. And that’s true of ROIC as well. So while we manage to leverage and we do that by optimizing the use of the balance sheet and the amount we borrow, and how we amortize and eliminate that debt. The Company is a growth company and we will continue to make sure that we have optimal capital to deploy that growth. So, it's not a concern for me at 2, 2.5. And we’re going to continue to execute.

And our next question comes from Michael Lindenberg. Please go ahead.

Hey, good morning everybody. Hey, Bob, if we went back and actually Matt as well, if we were to go back and kind a look at, how maybe intense the competitive backdrop was back in July, maybe even on your last call. And maybe compare that to early September and I realized that we were dealing with hurricanes. And where we are today, like how would you -- would it be fair to say that the intensity has moderated? Is it the same? Is it worse? Is it market-by-market?

Yes, Mike, thanks. This is Matt. Since our last update, if we go back to early September, when we did our last update. But we say that we've seen the pricing environment largely stabilize. We believe there are many route -- we believe there are many routes for the fare to still relatively too low and are diluting on the revenue. We also recognize that the environment may be around for a little while, but that's okay. Our cost structure allows us to thrive this way and grow in a little fair environment. Having said, we have seen some evidence of fares firming up around the holiday periods. And I would characterize the overall environment is improving relative to a couple of months ago. I think it's important to also add about the two separate components to revenue management. You have the actual fare menus that are filed at any given routes, as the first component. Then, you also have the inventory, yield control of those fares on the routes. So, it's normally effective to improve realized average fares by simply not having low dilutive fares filed on the route. The good thing is we're always seeing more evidence that our competitors are shutting off the availability of these low fares more often than they had in the past. What this means for us ultimately is that where and when we see the ability to shut off the lowest to the low fares then we will, and we realized higher yields along the way. I guess to summarize, it's not happening as often as we think it could be happening. But I'd say the trend in certain markets, some of the trends are certainly encouraging.

If I could just get more granular here, is there any meaningful difference between within seven day and outside seven day? I mean, has there been any noticeable shift in activity around that over the past several months?

Yes, certainly. So, on a route-by-route basis, the answer is going to be different, as you would normally expect me to say something like that. I would say in general inside seven days, we're starting to see some changes there that are encouraging. Outside seven days, it's still extremely competitive. And from our perspective, when you start thinking about instant close to travel, inside seven is one thing, inside 14 matters almost as much as inside seven. So, we still think there is some room there that we're looking forward to optimizing on in the near future. So, there is still some room there, but inside seven is certainly a little bit healthier.

Okay, great. And then just a quick one of Bob or maybe you Matt as well. When you announced that you're going to flight from New York to Vegas and New Orleans. Are those two flights are they incremental to your current schedule? Or did you actually pair back services to other markets?

Mike, we dropped. No, also in New York again I think just in terms of New York I think we're probably jammed at the end. So that we don't know more flights because we're using our one gate. But in the fall, we dropped one of our Fort Lauderdale North, North of 43. And we kind of focused on these large leisure markets. In fact I actually think another carrier may have dropped New York, Vegas. So that's -- so we think added to two, we drop one and that could be our schedule going forward.

Okay, that’s what I figured. You're pretty full up at that gate. Okay great, thanks Bob.

Okay.

Our next question is from Jamie Baker. Please go ahead.

Guys, years ago when American had uncompetitive pilot economics, George used to cite, what should be able to earn, if he had the wages in work rules of some of these competitors. So I'm wondering if you worked up anything similar, not really in the wage front, but if you had Southwest work rules. And again I'm setting aside the wage component, but if you had their flexibility. How would Spirit fly differently, if it all at any metric you chose, cruse per aircraft, turns per cruse whether this would potentially makes some point-to-point markets more feasible that sort of thing?

Well, I think Jamie. I think in terms of pilot work rules and things. We have some -- we just have certain issues which to some degree can impact really what we do, but I think why a Spirit do what it does. And if you think about our company, I think in 2010 we might have had 25 airplanes, round number. And so to some degree, you got to shape around available gates and where are those opportunities. And to a large degree, our network is kind shape as to perhaps what's available to us. And if we think about at lot of these key places, it could be Chicago, three or four gates in New York, its one gate. In Atlanta, we have two to three. The ability to get real density in any markets, very difficult, Fort Lauderdale happens to be where we headquartered, and we have a fairly big state here, we don't hit. So, a lot of what we're doing to some degree is shaped by what the competition is doing. So that I think really to find the driver and to some degree it shapes, how we market ourselves, see pitch in. So we -- for us to grow, we actually have to be different. And like I said, I was not here when we develop the strategy, but I would not change that. If we start doing what other low cost carriers doing or even a legacy carrier, I think we find ourselves in a difficult spot, right.

And second, and I guess this is somewhat of I know like a philosophical-type question. But when I look at the deployment of the LCC model around the world, and I realized there is no actual written play book. But one of the core tenets appears to be the avoidance of OA hubs. So when I think about Ryanair overtime, when I think about Southwest's first, so I don’t know, 34 year years, when I think where is most, not all, but most low cost carriers seek to avoid the type of hand-to-hand hub combat, that Spirit seems, I don’t know egger to engage in. And I'm just curious whether that speaks to a differentiated approach at Spirit or if it's really just driven by sort of where the U.S. is in terms of discounted penetrations? What's been net available to you, getting back to the first question. Why the OA hub willing this, given that it does seem inconsistent with some of the world's other low cost high margin operators?

I think it's a great question. And I've seen a lot of comparisons between Europe and U.S. And the bankruptcy laws in the U.S. have made the U.S. a lot different than perhaps the other places. And again when we think about all that, Europe, quite frankly there isn't a strong legacy profile in Europe, really other than Lufthansa, on the confident. So there is actually a very, very big opportunities over there, but when we think about opportunities here, the reality is the legacy carriers still have very cost. And consolidation didn't really approve the cost structure and improve the networks. But the costs are going higher quite frankly I think our guests are going to grow versus them. But in terms of the things that we do, Las Vegas in December is about 19% of our capacity. Our biggest growth large market last year was Orlando, we were up about. So those are the natural places that you would expect a lot of the lower fare carriers to be or more will be. So, we actually have a quite a few of those. To some degree, Spirit replaced AirTran in Dallas. Spirit's been in Chicago for years. It's not just a brand new it always been there. But there it is an opportunity and I've kind of watched this in the large markets or high cost carriers. The cost of that cost structure can't price the markets for their typical leisure custom. And that's why they're going to have an opportunity let's say in the large markets and probably not the opportunity in the small one. But I think it's because of the cost structure, and the cost structure not narrowing, they’re widening.

Thank you. Our next question comes from Brandon Oglenski. Please go ahead.

Hi, this is actually Matt Wisniewski on for Brandon. Thanks for taking my question. I was hoping you could expand a little bit on the ancillary products and the ancillary revenue streams potential. How is it changed? How is it can be used as kind of a tools respond to changing fares? I know around this time last year there was a big initiative to rollout dynamic pricing. So just hoping for some more color there?

Yes, absolutely. This is Matt. Thanks for the question. Let's say, a piece of our largest opportunity continues to be how we revenue manage our products. So we talked the year ago about starting to dynamic price. And we're likely overseeing there, it's paying off. We have other products that we're not yet revenue managing that there are relatively static price points. So we're looking forward to starting to test out some of those. And in any testimony scenario, not every test there is a 100% successful. So we learned from that and then reapply our learnings. Again, our sea products are responding very well to that, and we just started with the bundling of services. And as we get smarter and better -- so, when you think of ancillary, I like to also think about we're doing on our website from our e-commerce initiatives in general. As we get smarter about who our customers are and the personas of the shoppers, we will then learn from that and we able to merchandize and offer proper products at the right time to the right customers. So, there is a lot of opportunity still there for us to grow into the future as well.

Okay, great. And just kind of a quick follow-up. How is this changed at all with now that kind of more pervasive basic economy going to the system? Has that changed? Does it still seem a clear advantage of pricing? Any color there as well.

Yes, sure. So, one of the things with our product relative to basic economy is that when you purchase products on us, we give us full options and optionality is to what products you want to add to your travel. So in most regards, we actually believe that when the customers choosing between basic economy and the Spirit product, the Spirit product gives them the opportunity to add to their trip and gives them there optionality that they are looking for. So generally speaking, our ancillary products seem to be producing very well in those scenarios.

And our next question comes from Duane Pfennigwerth. Please go ahead.

Most of my questions have been asked, but I just wanted to see and maybe you've said this in the prepared remarks. But obviously, you had a lot going on this year both on the pilot side and massive storm impact. So is there a way to very simply add up all of the perhaps non-recurring bad guys on the cost side for 2017? How many points of CASM did all of that represent from a cost prospective?

Hi, Duane, it's Ted. It's a combo of the actual expense and the reduction in the ASMs, so which can actually be more punitive than the expense. I seem to recall that, we indicated on the second quarter call that we thought pilot disruption related expenses was around $25 million. We did incur some of the incremental amounts, $20 million. We did incur some incremental amounts in the third quarter, but that coupled with the ASM production, reduction. We think at least a couple of point on CASM.

The customer of [Indiscernible]?

Yes, exactly.

And then just a follow-up to the last question on the ancillary and ancillary revenue growth. Maybe this is strategy, but do you think that the basic economy push is actually helping to stimulate ancillary revenue for you or impact your ability to price up on those ancillary offerings?

Duane, it's Matt. I am trying to put in an answer there. We're not seeing negative impacts from our ability to sell ancillary services. One of the things that we do get impacted by is that, as when we have competitive fair environments then we take a small hit to the average rates that we're going to get on some of the services. But generally speaking, it doesn’t prevent us from selling the service. And what we're doing right now with our ability to do better analysis and merchandize is actually off setting some of those headwinds that we would perhaps otherwise be seeing from general ticket levels. So, that’s really the big benefit that we're seeing now is that we've more than offset maybe some of the headwinds. At a couple of years ago, you would have seen trend in the negatives on non-ticket. Now, we're able to not only offset that, but actually still push up slightly in this environment.

Is there opportunities to perhaps bundle more aggressively as the rest of the industry unbundled? So, is there -- from a revenue management perspective, is there the potential to reference a main cabin price point for Spirit?

No, I wouldn’t say that we would really ever get into that game for say. But some of the things that we're doing with bundling, in general is taking a look at what products the customers are naturally like to put together and we really just started this. So it's really hard to say exactly how the learnings will play out. But when we see certain travel patterns and almost in some cases doesn't matter who the customer is and matters more about what's size their party, where they travelling, how long are they going on their trip. We can start to learn some things. And much like the other ecommerce companies, we can use that knowledge to then offer up what's maybe most appropriate or what we think is most appropriate for them at that time approaches. They can choose to accept if they want. And if not, they can still go through our all cart menu and still add what they would like. It's very exciting for us moving forward.

And our next question comes from Joseph DeNardi. Please go ahead.

Ted, I think one of the questions out there is, when and if you guys start to grow at a slower rate which you guys are kind a spoken to starting in 2019. Can you maintain kind of the cross performance that you've been able to deliver recently? So, can you just talk about if you start to grow at 10% to 12% in '19? Can we still think about CASM ex every year kind a flat to down? Can you still get that kind of leverage?

Yes, that's right. While growth is beneficial to cost production, it is not the only thing that we focused on. So, optimal deployment of existing assets is as beneficial as the growth. And we definitely have pressures that we talk about every year and I won't regurgitate them. But the truth of the matter is that our objective is to always manage to stable declining cost structure. And growth at 12%, 15% 10%, 18%, we come up with ways to make it work. And so, I'm still in the same camp, but I was before this call before where you learned that we might be attained for 2019. It still feels the same way.

And just to go over further, Ted. I think at some point there will be opportunities for us to perhaps adjust our utilization positively, as the operation continues to improve. But I think to get certain work rule improvements, yes, it should create efficiencies, because I think one of the things kind a built into our numbers still. And unfortunately, we didn't make progress because of the issues this year. There is a high cost of disruption which we think will start going down in 2018 and create opportunities for us. And again, those numbers when you have one or two flights in the market cause disruption exceptionally high. And we see the opportunity it would have started this year. You'll start seeing some of those benefits next year and probably more in 2019.

Yes. And I guess just to the pilot contract. I think again one of the questions is how much of that the higher pay rate can you offset with productivity I guess Jamie's question. Is the right way to think about that that maybe the pilot contract cost you maybe four point to CASM, but in the first year you can offset two of that? Or is the offset really the year after and the year after that, like how quickly the productivity actually starts to offset the higher pay rates?

The good way to phrase the question and we're -- we and our pilots are in that active discussions about how we get the recoverability that we need to make the airline work and be reliable such that we can deliver upon the utilization the Bob was referencing. And that’s why I say that that aircraft growth is not the only knob that the airline has available to it. So to answer your question directly, we think that the benefits of running a better airline phasing overtime, as the airline start to become confident and stability to deliver, it will add more utilization which should enhance the overall cost structure and profitability and recoverability. So, I think it is more of a phase look than just kind like offset of day one, and that’s certainly the way we’re planning and thinking about it.

And our next question comes from Helane Becker. Please go ahead.

So, just two questions. One and Ted this is probably for you. What’s the right amount of cash for an airline of your size to have on the balance sheet?

Hi, Helane. You know that we’ve always maintain a comfortable level of liquidity on purpose to deal with fluctuations in fuel. We basically self ensure a lot of different things, changes in the competitive environment. We deliver a lot of airplanes every year and we want to make sure we're getting the best possible deal. So the adequate level for any particular airline is going to change, depending on their scale. For Spirit, we think the adequate level is someone in neighborhood of what we enjoy today and could we operate with less cash absolutely and we look at opportunities to be broadly diversified, the way we deploy our capital. So today, we talked about the fact that our Board is authorized another repurchase, it would be deferred, $100 million allotment. And that’s just another indication that we plan to deploy capital in a verity of different ways, we're going to grow. We're going to maintain an optimal balance sheet from a leverage prospective, and we will return to the shareholders when we think the time is right. And so I think we're comfortable in this range.

Great. Thank you very much. And then, I mean maybe this is for Bob. What do you think is the most misunderstood part of your airline, either your competitors or your customers or your shareholders don’t understand about what’s Spirit does, so well that makes it successful. And maybe why do you think they don’t get you?

I think that most of the competition doesn’t understand this, quite frankly. Again, I worked in high cost carriers and low cost carriers, and I had learned myself, but we're hard to compete with. And number one, we got the youngest fleet in the country. We round numbers have a $1 billion in the bank and we have a very, very wide cost structure advantage versus the competition. It's huge and necessary because we're competing against giants. But probably the other piece is when we do have these pricing impacts and they are uncomfortable, the reality is they don't impact only about half our revenue. And that's a big difference because we still have that other ancillary pocket which is $50 to $55 whatever happens to be. That makes this a little bit harder to compete with. And the competition has to get their prices awfully low. And they typically prove that they can compete with us without any paying for themselves. So, I think we could be underestimated, something where we have some reputational issues, which are improving and the quite frankly, we would have made huge progress this year, if we didn't have a couple of things adversely impact us. But I think we're going to surprise a lot of people about how good the airline we can run. So, it's maybe typical that there has always been a sense that I mean the world that is different. And when I started the business, we used to look at the big three or four and say that's the way at airline should be. But for your younger millennial, you are less interested in some of the attributes that these launch carriers have to offer. And they're much more price oriented than perhaps the target market. And I think finally I guess the last thing is. We're just going to keep doing what we're doing and really keeping it simple. We have companies out there, substantially larger than us, trying to do what we do, trying to do what Delta does. They're trying to do what everybody does and eventually that just rise cost. And there is a huge advantage to keeping it simple and it's hard, because it's easy to do one-offs, one-offs, one-offs. And I think we do a very good job of avoiding it and that's actually something that I actually did understand and I think our company knows very well. It's a scale to not to just go after one or every other little project before you know what dramatically changes everything they're doing. I think as always a sense they can beat you at your own game, I think we disagree because we always do one thing. And I think competing with our revenue structure they're only competing with half of it. So I think and I like our chances and we can always be impacted from time-to-time, but we've got very good core strengths.

Thank you. Our next question comes from Susan Donofrio. Please go ahead.

Thanks for taking my question. And you've done some work already on this, but I was just wondering if you could talk about your operations, as we go into the holidays? And what you're doing to proactively manage some of the ATC issues? And just as a follow-up, if you could talk about, if you feel you're properly staffed on the pilot side?

Again, from the pilot perspective, we are properly staffed. We don't see any issues there. Again, regarding ATC, we all report our numbers. And I think we all know generally operations get tougher as you move least. And I think probably the areas that are most difficult for carriers like Spirit or even JetBlue is, we don't have RJs to cancel flying. And when there are long delays, we are in a much difficult situation. We don’t have eight slots in an hour and so that makes it much more difficult, puts us in a situation where you have to again absorb the delays. So what we do the number of things about how we lock in our first, we try to create extra time sometimes we try to isolate certain types of flying from the network. So, if we're going to have the way days contain, that we try a lot of different things and sometimes they work very, well. I think it was yesterday or two days ago, it was a tough day but as best we can, we try to anticipate. Some of this stuff is, you can actually predict some of the seasonality, I mean September and October always very good and the given months have their own issues. But I think if you look overtime, even with the disruptions and we have a good chance of running a better operation this year than the last year. So it's routings, it's planning, it's proper time, it's launching new airplanes at 90%. And I think we’re doing a little bit of all these things. And quite frankly as you're team member begin to succeed, it starts to get building on this. I mean, we used to be on the bottom everyday and now we're in the middle sometimes top, that’s where we want to be. And again our target is somewhere 79% to 80%, manage issues, recover well. And I think we're making pretty good progress on those things.

Ally, with that, we're at the top of the hour and we're out of time for questions. But I thank you all for joining us today and we will talk to you next time.

Thank you.

Thank you ladies and gentleman. This concludes today's conference. Thank you for participating. You may now disconnect.