2019 Year in Review

The year 2019 marks our 
thirteenth consecutive year of profitability. In 2019, we increased our 
capacity by 14.5%, as we grew our fleet of Airbus single-aisle aircraft from 
128 to 145 aircraft, launched service to 54 new markets and added 7 new 
destinations: Austin, Texas; Nashville, Tennessee; Burbank, California; 
Charlotte-Douglas, North Carolina; Indianapolis, Indiana; Raleigh-Durham, North 
Carolina; Sacramento, California.

During 2019, we earned net income of $335.3 million ($4.89 per share, diluted), 
compared to net income of $155.7 million ($2.28 per share, diluted) in 2018. 
The increase in earnings was primarily driven by a 15.1% increase in our 
traffic and a 0.2% increase in average yield, year over year. In addition, we 
recorded special charges in 2018 that contributed to the increase in earnings 
year over year. During 2018, we recorded $90.4 million in special charges, 
non-operating and $88.9 million in special charges.

For the year ended December 31, 2019, we achieved an operating profit margin of 
13.1% on $3,830.5 million in operating revenues. Our traffic grew by 15.1% as 
we continued to address our value-conscious customers with ultra-low fares. Our 
operating yield increased by 0.2%, year over year. TRASM in 2019 was 9.17 
cents, an increase of 0.8% compared to the prior year. However, total revenue 
per passenger flight segment decreased 2.2%, year over year, from $113.37 to 
$110.91 reflecting a shorter average stage length, as compared to the prior 
year period. Fare revenue per passenger flight segment decreased 6.0% partially 
offset by a 1.9% increase in non-ticket revenue per passenger flight segment, 
as compared to the prior year. In addition to the stage length, the decrease in 
fare revenue per passenger flight segment was driven by lower fares and 
competitive pricing during the period. The increase in non-ticket revenue per 
passenger flight segment was primarily attributable to higher passenger usage 
fee, higher seat revenue and higher bag revenue per passenger flight segment, 
as compared to the prior year. Our operating cost structure is a primary area 
of focus and is at the core of our ULCC business model. Our unit operating 
costs continue to be among the lowest of any airline in the United States. 
During 2019, our adjusted CASM ex-fuel increased by 4.7% to 5.55 cents. The 
increase on a per-ASM basis was primarily due to increases in other operating 
expense per ASM, salaries, wages and benefits expense per ASM and depreciation 
and amortization expense per ASM. During 2019, we took delivery of 4 new 
aircraft financed under secured debt arrangements, 6 aircraft under 
sale-leaseback transactions and 7 aircraft under direct operating leases. In 
addition, we purchased 5 previously leased aircraft. In addition, we took 
delivery of 4 engines through cash purchases and purchased 2 previously leased 
engines. As of December 31, 2019, our 145 Airbus A320-family aircraft fleet was 
comprised of 31 A319ceos, 64 A320ceos, 20 A320neos and 30 A321ceos of which 64 
aircraft are financed through secured debt, 52 are financed under operating 
leases, 2 are financed under finance leases, and 27 are unencumbered. As of 
December 31, 2019, our aircraft orders consisted of 147 A320 family aircraft 
scheduled for delivery through 2027. Operating Revenues Our operating revenues 
are comprised of passenger revenues and other revenues. Passenger revenues

Fare revenues. Tickets sold are initially deferred within air traffic liability 
on the Company's balance sheet. Passenger fare revenues are recognized at time 
of departure when transportation is provided. All tickets sold by the Company 
are nonrefundable. An unused ticket expires at the date of scheduled travel and 
is recognized as revenue at the date of scheduled travel. Passenger revenues 
reported prior to the adoption of ASU 2014-09 are now reported as fare revenues 
within passenger revenues in our disaggregated revenue table within “Notes to 
the Financial Statements— 3. Revenue Disaggregation." Non-fare revenues. Our 
most significant non-fare revenues include revenues generated from air 
travel-related services paid for baggage, passenger usage fees, advance seat 
selection, itinerary changes, and loyalty programs. The adoption of ASU 2014-09 
impacted the classification of these ancillary items since they are deemed part 
of the single performance obligation of providing passenger transportation. 
These ancillary items are now recognized in non-fare revenues within passenger 
revenues in our disaggregated revenue table within “Notes to the Financial 
Statements— 3. Revenue Disaggregation." The majority of our passenger non-fare 
revenues are recognized at time of departure when transportation is provided. 
Passenger revenues are recognized once the related flight departs. Accordingly, 
the value of tickets and non-fare revenues sold in advance of travel is 
included under our current liabilities as “air traffic liability,” or ATL, 
until the related air travel is provided. Revenue generated from the FREE 
SPIRIT credit card affinity program and other loyalty programs are recognized 
in accordance with the criteria as set forth in Accounting Standards Update ASU 
2014-09.

Other revenues

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

Substantially all of our revenues are denominated in U.S. dollars. We recognize 
revenues net of certain taxes and airport passenger fees, which are collected 
by us on behalf of airports and governmental agencies and remitted to the 
applicable governmental entity or airport on a periodic basis. These taxes and 
fees include U.S. federal transportation taxes, federal security charges, 
airport passenger facility charges and foreign arrival and departure taxes. 
These items are collected from customers at the time they purchase their 
tickets, but are not included in our revenues. Upon collection from the 
customer, we record a liability within other current liabilities on our balance 
sheets and relieve the liability when payments are remitted to the applicable 
governmental agency or airport.

Operating Expenses Our operating expenses consist of the following line items. 
Aircraft Fuel. Aircraft fuel expense includes the cost of jet fuel, related 
federal taxes, fueling into-plane fees and transportation fees. It also 
includes realized and unrealized gains and losses arising from activity on our 
fuel derivatives, if any.

Salaries, Wages and Benefits. Salaries, wages and benefits expense includes the 
salaries, hourly wages, bonuses and equity compensation paid to employees for 
their services, as well as the related expenses associated with employee 
benefit plans and employer payroll taxes. Landing Fees and Other Rents. Landing 
fees and other rents include both fixed and variable facilities expenses, such 
as the fees charged by airports for the use or lease of airport facilities, 
overfly fees paid to other countries and the monthly rent paid for our 
headquarters facility.

Depreciation and Amortization. Depreciation and amortization expense includes 
the depreciation of fixed assets we own and leasehold improvements. It also 
includes the amortization of capitalized software costs and heavy maintenance. 
Under the deferral method, the cost of our heavy maintenance is capitalized and 
amortized on a straight-line or usage basis until the earlier of the next 
estimated heavy maintenance event or the remaining lease term.

Aircraft Rent. Aircraft rent expense consists of all minimum lease payments 
under the terms of our aircraft and spare engine lease agreements recognized on 
a straight-line basis. Aircraft rent expense also includes supplemental rent. 
Supplemental rent is made up of maintenance reserves paid to aircraft lessors 
in advance of the performance of major maintenance activities that are not 
probable of being reimbursed and probable and estimable return condition 
obligations. Prior to the adoption of Topic 842 that became effective for the 
Company on January 1, 2019, aircraft rent expense was net of the amortization 
of gains and losses on sale leaseback transactions on our flight equipment. 
Refer to “Notes to the Financial Statements—14. Leases and Prepaid Maintenance 
Deposits” for information regarding the Company's accounting policy on 
sale-leaseback transactions after the adoption of Topic 842. As of December 31, 
2019, 52 of our 145 aircraft and 9 of our 23 spare engines are financed under 
operating leases.

Distribution. Distribution expense includes all of our direct costs, including 
the cost of web support, our third-party call center, travel agent commissions 
and related GDS fees and credit card transaction fees, associated with the sale 
of our tickets and other products and services.

Maintenance, Materials and Repairs. Maintenance, materials and repairs expense 
includes parts, materials, repairs and fees for repairs performed by 
third-party vendors and in-house mechanics required to maintain our fleet. It 
excludes direct labor cost related to our own mechanics, which is included 
under salaries, wages and benefits. It also excludes the amortization of heavy 
maintenance expenses, which we defer under the deferral method of accounting 
and amortize as a component of depreciation and amortization expense. Loss on 
Disposal of Assets. Loss on disposal of assets includes the net losses on the 
disposal of our fixed assets. In addition, subsequent to the adoption of Topic 
842 that became effective for the Company on January 1, 2019, it includes net 
losses or gains resulting from our aircraft and engine sale-leaseback 
transactions.

Special Charges. Special charges include lease termination charges, 
ratification incentive payouts related to the new collective bargaining 
agreements with our pilots and dispatchers and the write-off of aircraft 
related credits. Other Operating Expenses. Other operating expenses include 
airport operations expense and fees charged by third-party vendors for ground 
handling services and food and liquor supply service expenses, passenger 
re-accommodation expense, the cost of passenger liability and aircraft hull 
insurance, all other insurance policies except for employee related insurance, 
travel and training expenses for crews and ground personnel, professional fees, 
personal property taxes and all other administrative and operational overhead 
expenses. No individual item included in this category represented more than 5% 
of our total operating expenses.

Other (Income) Expense Interest Expense. Interest expense in 2019 and 2018 was 
primarily related to the financing of purchased aircraft.

Capitalized Interest. The Company capitalizes the interest that is primarily 
attributable to the outstanding PDP balances as a percentage of the related 
debt on which interest is incurred. Capitalized interest represents interest 
cost incurred during the acquisition period of a long-term asset and is the 
amount which theoretically could have been avoided had we not paid PDPs for the 
related aircraft or engines. Capitalization of interest ceases when the asset 
is ready for service. Capitalized interest for 2019 and 2018 primarily related 
to the interest incurred on long-term debt. Interest Income. For 2019, interest 
income represents interest income earned on cash, cash equivalents and 
short-term investments. For 2018, interest income represents interest income 
earned on cash, cash equivalents, short-term investments and on funds required 
to be held in escrow in accordance with the terms of our Series 2017-1 EETC. 
Other Expense. Other expense primarily includes realized gains and losses 
related to foreign currency transactions. Special Charges, Non-operating. We 
had no special charges, non-operating in 2019. For 2018, special charges, 
non-operating represents interest related to an aircraft purchase agreement for 
the acquisition of 14 A319 aircraft previously operated under operating leases. 
The contract was deemed a lease modification which resulted in a change of 
classification from operating leases to finance leases, until the purchase date 
of the aircraft. Please see "Notes to Financial Statements—4. Special Charges" 
for further discussion.

Income Taxes We account for income taxes using the asset and liability method. 
We record a valuation allowance to reduce the deferred tax assets reported if, 
based on the weight of the evidence, it is more likely than not that some 
portion or all of the deferred tax assets will not be realized. Deferred taxes 
are recorded based on differences between the financial statement basis and tax 
basis of assets and liabilities and available tax loss and credit 
carryforwards. In assessing the realizability of the deferred tax assets, we 
consider whether it is more likely than not that some or all of the deferred 
tax assets will be realized. In evaluating the ability to utilize our deferred 
tax assets, we consider all available evidence, both positive and negative, in 
determining future taxable income on a jurisdiction by jurisdiction basis.

Trends and Uncertainties Affecting Our Business We believe our operating and 
business performance is driven by various factors affecting airlines and their 
markets, trends affecting the broader travel industry and trends affecting the 
specific markets and customer base that we target. The following key factors 
may affect our future performance.

Ability to Execute our Growth Strategy. Over recent years, we have pursued a 
high-growth strategy, which we expect to continue. Execution of such a strategy 
requires us to effectively deploy new flying into our network, as new routes or 
increased frequency of existing routes develop. New flying may not perform as 
well as expected or may result in a competitive reaction. Moreover, our growth 
strategy depends on the timely delivery of aircraft and engines in accordance 
with the intended delivery schedule in accordance with the applicable 
agreement. Delivery delays, as we have experienced from time to time in recent 
years, may cause us to scale back our growth, unless we are able to replace 
delayed aircraft in the secondary market or otherwise. Finally, our growth 
strategy relies in part on our ability to obtain additional facilities in 
airports, some of which are constrained, as well as additional flight crew, 
maintenance, and other personnel. We expect to experience an increase in our 
compensation expense to attract and retain qualified personnel.

Ability to Maintain or Grow Capacity. We pursue a high-growth strategy that 
expands revenue and maintains lower cost due to economies of scale and lower 
initial expense for aircraft and labor. Execution of such a strategy depends on 
the ability to maintain efficient utilization of existing capacity and the 
timely delivery of new aircraft and engines. In recent years, we have 
experienced aircraft operational reliability and delivery delays particularly 
regarding our A320neo aircraft. The new generation aircraft provide fuel burn 
and other efficiencies, as compared to the older A320ceo aircraft, and the 
ability to serve additional markets with greater operating range. However, 
ongoing or expanded reliability and delivery issues could materially impact our 
operations, costs and net results. Competition. The airline industry is highly 
competitive. The principal competitive factors in the airline industry are fare 
pricing, total price, flight schedules, aircraft type, passenger amenities, 
number of routes served from a city, customer service, safety record, 
reputation, code-sharing relationships, frequent flyer programs and redemption 
opportunities. Price competition occurs on a market-by-market basis through 
price discounts, changes in pricing structures, fare matching, target 
promotions and frequent flyer initiatives. Airlines typically use discount 
fares and other promotions to stimulate traffic during normally slower travel 
periods in efforts to maximize unit revenue. The prevalence of discount fares 
can be particularly acute when a competitor has excess capacity that it is 
under financial pressure to sell.

Beginning in 2015, and continuing into 2019, the airline industry saw greater 
and more persistent price discounting than in the preceding several years. In 
addition, significant airline capacity increases in certain major cities 
exerted strong downward price pressure in those markets. Finally, beginning in 
mid-2015 network carriers began matching low-cost carrier and ULCC pricing on 
portions of their marginal unsold capacity, particularly in their key hub 
markets. We expect the discounting trend to continue for the foreseeable 
future. Moreover, the network carriers have developed a fare-class pricing 
approach, in which a portion of available seats may be sold at or near ULCC 
prices, but without most product features available to their passengers paying 
at higher fare levels on the same flight. Broad fare discounting may have the 
effect of diluting the profitability of revenues of high-cost carriers but the 
fare-class approach may allow network carriers to continue offering a 
competitive price to ULCCs on some flights or routes, while maintaining higher 
pricing to their traditional constituencies of corporate and less 
price-sensitive travelers. Refer to “Risk Factors—Risks Related to Our 
Industry—We operate in an extremely competitive industry." Seasonality and 
Volatility. Our results of operations for any interim period are not 
necessarily indicative of those for the entire year because the air 
transportation business is subject to significant seasonal fluctuations. We 
generally expect demand to be greater in the second and third quarters compared 
to the rest of the year. The air transportation business is also volatile and 
highly affected by economic cycles and trends. Consumer confidence and 
discretionary spending, fear of terrorism or war, weakening economic 
conditions, fare initiatives, fluctuations in fuel prices, labor actions, 
changes in governmental regulations on taxes and fees, weather and other 
factors have resulted in significant fluctuations in revenues and results of 
operations in the past. We believe demand for business travel historically has 
been more sensitive to economic pressures than demand for low-price travel. 
Finally, a significant portion of our operations are concentrated in markets 
such as South Florida, the Caribbean, Latin America and the Northeast and 
northern Midwest regions of the United States, which are particularly 
vulnerable to weather, airport traffic constraints and other delays. Aircraft 
Fuel. Fuel costs represents one of our largest operating expenses, as it does 
for most airlines. Fuel costs have been subject to wide price fluctuations in 
recent years. Fuel availability and pricing are also subject to refining 
capacity, periods of market surplus and shortage and demand for heating oil, 
gasoline and other petroleum products, as well as meteorological, economic and 
political factors and events occurring throughout the world, which we can 
neither control nor accurately predict. We source a significant portion of our 
fuel from refining resources located in the southeast United States, 
particularly facilities adjacent to the Gulf of Mexico. Gulf Coast fuel is 
subject to volatility and supply disruptions, particularly in hurricane season 
when refinery shutdowns have occurred, or when the threat of weather-related 
disruptions has caused Gulf Coast fuel prices to spike above other regional 
sources. Our fuel hedging practices are dependent upon many factors, including 
our assessment of market conditions for fuel, our access to the capital 
necessary to support margin requirements, the pricing of hedges and other 
derivative products in the market, our overall appetite for risk and applicable 
regulatory policies. As of December 31, 2019, we had no outstanding jet fuel 
derivatives and we have not engaged in fuel derivative activity since 2015. As 
of December 31, 2019, we purchased a majority of our aircraft fuel under a 
single fuel service contract. The cost and future availability of jet fuel 
cannot be predicted with any degree of certainty. Labor. The airline industry 
is heavily unionized. The wages, benefits and work rules of unionized airline 
industry employees are determined by collective bargaining agreements, or CBAs. 
Relations between air carriers and labor unions in the United States are 
governed by the RLA. Under the RLA, CBAs generally contain “amendable dates” 
rather than expiration dates, and the RLA requires that a carrier maintain the 
existing terms and conditions of employment following the amendable date 
through a multi-stage and usually lengthy series of bargaining processes 
overseen by the NMB. This process continues until either the parties have 
reached agreement on a new CBA, or the parties have been released to 
“self-help” by the NMB. In most circumstances, the RLA prohibits strikes; 
however, after release by the NMB, carriers and unions are free to engage in 
self-help measures such as strikes and lockouts. We have five union-represented 
employee groups comprising approximately 81% of our employees at December 31, 
2019. Our pilots are represented by the Air Line Pilots Association, 
International, or ALPA, our flight attendants are represented by the 
Association of Flight Attendants, or AFA-CWA, our dispatchers are represented 
by the Professional Airline Flight Control Association, or PAFCA, our ramp 
service agents are represented by the International Association of Machinists 
and Aerospace Workers, or IAMAW, and our passenger service agents are 
represented by the Transport Workers Union, or TWU. Conflicts between airlines 
and their unions can lead to work slowdowns or stoppages. During 2017, we 
experienced operational disruption from pilot-related work action which 
adversely impacted our results. We obtained a temporary restraining order to 
enjoin further illegal labor action. In January 2018, under the guidance of the 
NMB assigned mediators, the parties reached a tentative agreement and in 
February 2018, the pilot group voted to approve the current five-year agreement 
with the Company. In connection with this agreement, we incurred a one-time 
ratification incentive of $80.2 million, including payroll taxes, and an $8.5 
million adjustment related to other contractual provisions. These amounts were 
recorded in special charges within operating expenses in the statement of 
operations for the year ended December 31, 2018. For further information, refer 
to “Notes to the Financial Statements—4. Special Charges.” In March 2016, with 
the help of the NMB, we reached a tentative agreement for a five-year contract 
with our flight attendants. In May 2016, the flight attendants voted to approve 
the new five-year contract with the Company. Our dispatchers are represented by 
the PAFCA. In June 2018, we commenced negotiations with PAFCA for an amended 
agreement with our dispatchers. In October 2018, we reached a tentative 
agreement for a new five-year agreement with our dispatchers, which was 
ratified by the PAFCA members in October 2018. In July 2014, certain ramp 
service agents directly employed by the Company voted to be represented by the 
IAMAW. In May 2015, we entered into a five-year interim collective bargaining 
agreement with the IAMAW, covering material economic terms. In June 2016, with 
the help of the IAMAW, we reached an agreement on the remaining terms of the 
collective bargaining agreement, which is amendable in June 2020. Our passenger 
service agents are represented by the TWU, but the representation applies only 
to the Fort Lauderdale station where we have direct employees in the passenger 
service classification. We began meeting with the TWU in late October 2018 to 
negotiate an initial collective bargaining agreement. As of December 31, 2019, 
we continued to negotiate with the TWU. We believe the five-year term of our 
CBAs is valuable in providing stability to our labor costs and provide us with 
competitive labor costs compared to other U.S.-based low-cost carriers. If we 
are unable to reach agreement with any of our unionized work groups in current 
or future negotiations regarding the terms of their CBAs, we may be subject to 
work interruptions or stoppages, such as the strike by our pilots in June 2010. 
A strike or other significant labor dispute with our unionized employees is 
likely to adversely affect our ability to conduct business. Any agreement we do 
reach could increase our labor and related expenses. In 2010, the Patient 
Protection and Affordable Care Act was passed into law. Under the current 
administration, this law may be repealed in its entirety or certain aspects may 
be changed or replaced. If the law is repealed or modified or if new 
legislation is passed, such action could potentially increase our operating 
costs, with healthcare costs increasing at a higher rate than our employee 
headcount. Maintenance Expense. Maintenance expense grew through 2019 and 2018 
mainly as a result of a growing fleet and the gradual increase of required 
maintenance for the older aircraft in our fleet. As the fleet ages, we expect 
that maintenance costs will increase in absolute terms. The amount of total 
maintenance costs and related amortization of heavy maintenance (included in 
depreciation and amortization expense) is subject to many variables such as 
future utilization rates, average stage length, the interval between heavy 
maintenance events, the size and makeup of the fleet in future periods and the 
level of unscheduled maintenance events and their actual costs. Accordingly, we 
cannot reliably quantify future maintenance expenses for any significant period 
of time. However, we believe, based on our scheduled maintenance events, 
maintenance expense and maintenance-related amortization expense in 2020 will 
be approximately $266 million. In addition, we expect to capitalize 
approximately $100 million of costs for heavy maintenance during 2020.

As a result of a majority of our fleet being acquired over a relatively short 
period of time, heavy maintenance scheduled on certain aircraft will overlap, 
meaning we will incur our most expensive scheduled maintenance obligations on 
certain aircraft at roughly the same time. These more significant maintenance 
activities will result in out-of-service periods during which our aircraft will 
be dedicated to maintenance activities and unavailable to fly revenue service. 
When accounting for maintenance expense under the deferral method, heavy 
maintenance is amortized over the shorter of either the remaining lease term or 
the next estimated heavy maintenance event. As a result, deferred maintenance 
events occurring closer to the end of the lease term will generally have 
shorter amortization periods than those occurring earlier in the lease term. 
This will create higher depreciation and amortization expense specific to any 
aircraft related to heavy maintenance during the final years of the lease as 
compared to earlier periods. Maintenance Reserve Obligations. The terms of some 
of our aircraft lease agreements require us to post deposits for future 
maintenance, also known as maintenance reserves, to the lessor in advance of 
and as collateral for the performance of major maintenance events, resulting in 
our recording significant prepaid deposits on our balance sheet. As a result, 
the cash costs of scheduled major maintenance events are paid in advance of the 
recognition of the maintenance event in our results of operations. Critical 
Accounting Policies and Estimates The following discussion and analysis of our 
financial condition and results of operations is based on our financial 
statements, which have been prepared in accordance with accounting principles 
generally accepted in the United States. The preparation of these financial 
statements requires us to make estimates and judgments that affect the reported 
amount of assets and liabilities, revenues and expenses and related disclosures 
of contingent assets and liabilities at the date of our financial statements. 
For a detailed discussion of our significant accounting policies, refer to 
“Notes to Financial Statements—1. Summary of Significant Accounting Policies.” 
Critical accounting policies are defined as those policies that reflect 
significant judgments or estimates about matters both inherently uncertain and 
material to our financial condition or results of operations.

Loyalty Mileage Credits earned with Co-branded credit card. Customers may earn 
mileage credits based on their spending with our co-branded credit card company 
with which we have an agreement to sell mileage credits. The contract to sell 
mileage credits under this agreement has multiple performance obligations. The 
agreement provides for joint marketing and we account for this agreement 
consistently with the accounting method that allocates the consideration 
received to the individual products and services delivered. The value is 
allocated based on the relative selling prices of those products and services, 
which generally consists of (i) travel miles to be awarded, (ii) licensing of 
brand and access to member lists and (iii) advertising and marketing efforts. 
We determined the best estimate of the selling prices by considering discounted 
cash flow analysis using multiple inputs and assumptions, including: (1) the 
expected number of miles awarded and number of miles redeemed, (2) ETV for the 
award travel obligation, (3) licensing of brand and access to member lists and 
(4) advertising and marketing efforts.

We defer the amount for award travel obligation as part of loyalty deferred 
revenue within air traffic liability on the balance sheet and recognize loyalty 
travel awards in passenger revenue as the mileage credits are used for travel. 
Revenue allocated to the remaining performance obligations, primarily marketing 
components, is recorded in other revenue as miles are delivered. During the 
year ended December 31, 2019 and 2018, total cash sales from this agreement 
were $48.1 million and $39.2 million, respectively, which are allocated to 
travel and other performance obligations. Aircraft Maintenance Deposits. Some 
of our aircraft and engine master lease agreements provide that we pay 
maintenance reserves to aircraft lessors to be held as collateral in advance of 
our performance of major maintenance activities. These lease agreements 
generally provide that maintenance reserves are reimbursable to us upon 
completion of the maintenance event. A majority of these maintenance reserve 
payments are calculated based on a utilization measure, such as flight hours or 
cycles, and are used solely to collateralize the lessor for maintenance time 
run off the aircraft until the completion of the maintenance of the aircraft. 
Maintenance reserve payments are reflected as aircraft maintenance deposits in 
the accompanying balance sheets. We make certain assumptions to determine the 
recoverability of maintenance deposits. These assumptions are based on various 
factors such as the estimated time between the maintenance events and the 
utilization of the aircraft is estimated before it is returned to the lessor. 
When it is not probable we will recover amounts currently on deposit with a 
lessor, such amounts are expensed as supplemental rent. Supplemental rent is 
made up of maintenance reserves paid to aircraft lessors that are not probable 
of being reimbursed and probable and estimable return condition obligations. We 
expensed $4.8 million and $3.4 million of supplemental rent recorded within 
aircraft rent during 2019 and 2018, respectively. These amounts include $0.5 
million and $1.3 million of paid maintenance reserves expensed as supplemental 
rent during 2019 and 2018, respectively. As of December 31, 2019 and 2018, we 
had aircraft maintenance deposits of $170.6 million and $245.6 million, 
respectively, on our balance sheets. Leased Aircraft Return Costs. Our aircraft 
lease agreements often contain provisions that require us to return aircraft 
airframes and engines to the lessor in a certain condition or pay an amount to 
the lessor based on the airframe and engine's actual return condition. Lease 
return costs include all costs that would be incurred at the return of the 
aircraft, including costs incurred to repair the airframe and engines to the 
required condition as stipulated by the lease. Lease return costs are 
recognized beginning when it is probable that such costs will be incurred and 
they can be estimated. When costs become both probable and estimable, they are 
accrued as a component of supplemental rent, through the remaining lease term. 
When determining the need to accrue lease return costs, there are various 
factors which need to be considered such as the contractual terms of the lease 
agreement, current condition of the aircraft, the age of the aircraft at lease 
expiration, projected number of hours run on the engine at the time of return, 
and the number of projected cycles run on the airframe at the time of return, 
among others. In addition, typically near the lease return date, the lessors 
may allow reserves to be applied as return condition consideration or pass on 
certain return provisions if they do not align with their current plans to 
remarket the aircraft. As a result of the different factors listed above, 
management assesses the need to accrue lease return costs periodically 
throughout the year or whenever facts and circumstances warrant an assessment. 
Lease return costs will generally be estimable closer to the end of the lease 
term but may be estimable earlier in the lease term depending on the 
contractual terms of the lease agreement and the timing of maintenance events 
for a particular aircraft. Results of Operations In 2019, we generated 
operating revenues of $3,830.5 million and operating income of $501.0 million 
resulting in a 13.1% operating margin and net income of $335.3 million. In 
2018, we generated operating revenues of $3,323.0 million and operating income 
of $350.9 million resulting in a 10.6% operating margin and net income of 
$155.7 million. Operating revenues increased, year over year, mainly as a 
result of a 15.1% increase in traffic. Increased operations resulted in higher 
operating expenses across the board with the exception of special charges, 
which decreased year over year. As of December 31, 2019, our cash and cash 
equivalents was $979.0 million, a decrease of $25.8 million compared to the 
prior year. Cash and cash equivalents is driven by cash from our operating 
activities offset by cash used to fund PDPs and capital expenditures. In 
addition to cash and cash equivalents, as of December 31, 2019, we had $105.3 
million in short-term investment securities.

Operating Revenues

Operating revenues increased by $507.5 million, or 15.3%, to $3,830.5 million 
in 2019 compared to 2018, primarily due to an increase in traffic of 15.1%, and 
a slight increase in average yield of 0.2%, year over year. TRASM for 2019 was 
9.17 cents, an increase of 0.8% compared to 2018. This increase was primarily a 
result of a 0.2% increase in operating yields and a load factor increase of 50 
basis points, year over year.

Total revenue per passenger flight segment decreased 2.2% from $113.37 in 2018 
to $110.91 in 2019. Fare revenue per passenger flight segment decreased 6.0% 
and non-ticket revenue per passenger flight segment increased 1.9%. The 
decrease in fare revenue per passenger flight segment was driven by a shorter 
average stage length, lower fares and competitive pricing during the period. 
The increase in non-ticket revenue per passenger flight segment was primarily 
attributable to higher passenger usage fee, higher seat revenue and higher bag 
revenue per passenger flight segment, as compared to the prior year.

Operating Expenses Since adopting our ULCC model, we have continuously sought 
to reduce our unit operating costs and have created one of the industry's 
lowest cost structures in the United States. The table below presents our unit 
operating costs (CASM) and year-over-year changes.

Year Ended 2019

Operating expenses increased by $357.4 million, or 12.0%, in 2019 primarily due 
to an increase in operations as reflected by a 14.5% growth in capacity and a 
15.1% increase in traffic. Our adjusted CASM ex fuel for 2019 increased by 4.7% 
as compared to 2018. The increase on a per-ASM basis was primarily due to 
increases in other operating expense per ASM, salaries, wages and benefits 
expense per ASM and depreciation and amortization expense per ASM.

Aircraft fuel expenses includes both into-plane expense (as defined below) and 
realized and unrealized net gains or losses from fuel derivatives, if any. 
Into-plane fuel expense is defined as the price that we generally pay at the 
airport, including taxes and fees. Into-plane fuel prices are affected by the 
global oil market, refining costs, transportation taxes and fees, which can 
vary by region in the United States and other countries where we operate. 
Into-plane fuel expense approximates cash paid to the supplier and does not 
reflect the effect of any fuel derivatives. We had no activity related to fuel 
derivative instruments during 2019 and 2018. Aircraft fuel expense increased by 
5.8% from $939.3 million in 2018 to $993.5 million in 2019. The increase was 
due to a 14.2% increase in fuel gallons consumed primarily driven by a 15.3% 
increase in block hours. The increase related to fuel gallons consumed was 
partially offset by a 7.5% decrease in fuel price per gallon.

Gulf Coast Jet indexed fuel is the basis for a substantial majority of our fuel 
consumption and is impacted by both the price of crude oil as well as increases 
or decreases in refining margins associated with the conversion of crude oil to 
jet fuel. Labor costs in 2019 increased by $145.4 million, or 20.2%, compared 
to 2018. The increase was primarily driven by a 20.3% increase in our pilot and 
flight attendant workforce resulting from an increase to our aircraft fleet of 
17 aircraft in 2019. On a per-ASM basis, labor costs increased due to increased 
headcount, year over year, as well as higher pay rates received by our pilots 
in connection with the collective bargaining agreement that became effective on 
March 1, 2018 and which provides for annual increases on each anniversary of 
the effective date. In addition, overtime pay and 401(k) expense increased. 
These increases were partially offset by lower bonus expense, as compared to 
the prior year, due to lower metric performance, year over year.

Landing fees and other rents for 2019 increased by $41.6 million, or 19.4%, 
compared to 2018 primarily due to a 17.7% increase in departures. On both a 
dollar and per-ASM basis, landing fees and other rents increased due to an 
increase in facility rent, landing fees and station baggage rent due to real 
estate expansions in existing stations, the addition of new stations and rate 
increases at some of our existing stations. Depreciation and amortization 
increased by $48.5 million, or 27.5%, compared to the prior year. The increase 
in depreciation expense on both a dollar and per-ASM basis was primarily due to 
the purchase of 4 new aircraft, 5 previously leased aircraft, 4 new engines and 
2 previously leased engines during 2019.

We account for heavy maintenance under the deferral method. Under the deferral 
method, the cost of heavy maintenance is capitalized and amortized as a 
component of depreciation and amortization expense in the statements of 
operations until the earlier of the next heavy maintenance event or end of the 
lease term. The amortization of heavy maintenance costs was $63.4 million and 
$41.3 million for the year ended December 31, 2019 and 2018, respectively. The 
increase in amortization of heavy maintenance was primarily due to the timing 
of maintenance events which resulted in a greater number of maintenance events 
in the current year, as compared to the prior year. This increase in heavy 
maintenance amortization was the primary driver of the per-ASM increase in 
depreciation and amortization expense, year over year. As our fleet continues 
to age, we expect that the amount of deferred heavy maintenance events will 
increase and will result in an increase in the amortization of those costs. If 
heavy maintenance events were amortized within maintenance, materials and 
repairs expense in the statements of operations, our maintenance, materials and 
repairs expense would have been $206.9 million and $170.4 million for the year 
ended December 31, 2019 and 2018, respectively. Aircraft rent expense in 2019 
increased by $5.0 million, or 2.8%, compared to 2018. The increase in aircraft 
rent expense primarily relates to the delivery of 13 aircraft under operating 
leases offset by the purchase of 5 aircraft off lease during 2019 and the 
purchase of 14 aircraft off lease during the second quarter of 2018. On a 
per-ASM basis, aircraft rent expense also decreased due to a change in the 
composition of our aircraft fleet between leased aircraft (for which rent 
expense is recorded under aircraft rent) and purchased aircraft (for which 
depreciation expense is recorded under depreciation and amortization).

During the twelve months ended December 31, 2019, we have taken delivery of 
four new purchased aircraft, which increased capacity but had no effect on 
aircraft rent expense, as these assets were purchased and are being depreciated 
over their useful life. Distribution expense increased by $16.8 million, or 
12.2%, in 2019, compared to 2018. The increase on a dollar basis was primarily 
due to increased sales volume. On a per-ASM basis, distribution costs decreased 
due to a decrease in sales from third-party travel agents, which are more 
expensive than selling directly through our website or call center.


Year Ended December 31,

Maintenance, materials and repairs expense increased by $14.5 million, or 
11.2%, in 2019, as compared to 2018 . The increase in maintenance costs on a 
dollar basis was due to routine and ongoing maintenance on a growing fleet. On 
a per unit-basis, maintenance costs decreased slightly as the timing and mix of 
maintenance events resulted in fewer maintenance events, as compared to 2018. 
We expect maintenance expense, on a dollar basis, to increase as our fleet 
continues to grow and age, resulting in the need for additional and more 
frequent repairs over time. Loss on disposal of assets totaled $17.4 million 
for the year ended 2019. This loss consisted of $13.4 million related to the 
disposal of excess and obsolete inventory, $3.1 million related to the 
write-down of certain held-for-sale assets to fair value less cost to sell and 
$2.4 million related to the write-off of certain unrecoverable costs previously 
capitalized with a project to upgrade our enterprise accounting software. This 
project was suspended in the third quarter of 2019 and we have elected to 
re-evaluate and pursue the optimal solution. Refer to "Notes to Financial 
Statements - 19. Fair Value Measurements" for information regarding our 
held-for-sale assets. These losses on disposal were partially offset by a $1.5 
million gain on sale-leaseback transactions for 6 aircraft delivered during the 
twelve months ended December 31, 2019. Refer to "Notes to Financial Statements 
- 14. Leases and Prepaid Maintenance Deposits" for information regarding the 
Company's accounting policy on sale-leaseback transactions. Loss on disposal of 
assets for the year ended 2018 primarily consisted of a $5.2 million loss 
resulting from the sale of 6 used engines and $4.4 million related to the 
disposal of excess and obsolete inventory. Special charges for the year ended 
ended 2019 consisted of a $0.7 million write-off of aircraft related credits 
resulting from the exchange of credits negotiated under the new purchase 
agreement with Airbus executed during the fourth quarter of 2019. Special 
charges for the year ended 2018 primarily consisted of $88.7 million recognized 
in connection with the pilot collective bargaining agreement that became 
effective on March 1, 2018. The total amount includes a one-time ratification 
incentive of $80.2 million, including payroll taxes, and an $8.5 million 
adjustment related to other contractual provisions. For additional information, 
refer to "Notes to Financial Statements—4. Special Charges." Other operating 
expenses in 2019 increased by $111.9 million, or 29.5%, compared to 2018 
primarily due to an increase in overall operations. As compared to the prior 
year period, we increased departures by 17.7% and had 17.8% more passenger 
flight segments, which drove increases in variable operating expenses. In 
addition, we had higher passenger reaccommodation expense, year over year, due 
to multiple storm-related flight disruptions during the second and third 
quarters of 2019 as well as other operational challenges. On a per-ASM basis, 
the increase in passenger reaccommodation and ground handling expense were the 
main drivers of the increase in other operating expense, as compared to the 
prior year period.

Other (Income) Expense Other (income) expense, net decreased from $145.9 
million in 2018 to $64.6 million in 2019 primarily due to $90.4 million of 
interest expense recorded in 2018 within special charges, non-operating related 
to an aircraft purchase agreement for the acquisition of 14 A319 aircraft 
previously operated under operating leases. The contract was deemed a lease 
modification which resulted in a change of classification from operating leases 
to finance leases. Refer to “Notes to Financial Statements—4. Special Charges" 
for further discussion. In addition, the decrease in other (income) expense was 
attributed to an increase in interest income of $6.0 million, as we earned 
higher interest income on our cash, cash equivalents and short-term investments 
due to an increase in our average cash balance and higher interest rates, as 
compared to the prior year. The decrease in special charges, non-operating and 
increase in interest income were partially offset by an increase in interest 
expense of $17.6 million which primarily consisted of interest related to the 
financing of purchased aircraft. As of December 31, 2019 and 2018, we had 64 
and 60 purchased aircraft financed through secured long-term debt arrangements, 
respectively.

Income Taxes In 2019, our effective tax rate was 23.2% compared to 24.0% in 
2018. While we expect our tax rate to be fairly consistent in the near term, it 
will tend to vary depending on recurring items such as the amount of income we 
earn in each state and the state tax rate applicable to such income. Discrete 
items particular to a given year may also affect our effective tax rates.


Interim results are not necessarily indicative of the results that may be 
expected for other interim periods or for the full year. The air transportation 
business is subject to significant seasonal fluctuations as demand is generally 
greater in the second and third quarters of each year. The air transportation 
business is also volatile and highly affected by economic cycles and trends.



Liquidity and Capital Resources

Our primary sources of liquidity are cash on hand, cash provided by operations 
and capital from debt financing. Primary uses of liquidity are for working 
capital needs, capital expenditures, aircraft and engine pre-delivery deposit 
payments ("PDPs") and debt obligations. Our total cash at December 31, 2019 was 
$979.0 million, a decrease of $25.8 million from December 31, 2018. In addition 
to cash and cash equivalents, as of December 31, 2019, we had $105.3 million in 
short-term investment securities.

Currently, one of our largest capital expenditure needs is funding the 
acquisition costs of our aircraft. Aircraft are acquired through debt 
financing, cash purchases, direct leases or sale leaseback transactions. During 
the twelve months ended December 31, 2019, we purchased 4 aircraft through debt 
financing transactions and made $337.8 million in debt payments (principal, 
interest and fees) on our outstanding debt obligations. The debt entered into 
in the current year has maturity dates ranging from 2030 to 2031 and interest 
rates ranging from 2.85% to 3.93%. During 2019, we entered into 6 sale 
leaseback transactions. In addition, during the twelve months ended December 
31, 2019, we took delivery of 7 aircraft financed through direct operating 
leases, and purchased 5 aircraft previously financed under operating leases. We 
also purchased 4 spare engines through cash purchases and purchased 2 engines 
previously financed under an operating lease.

Under our agreements with Airbus for aircraft, and International Aero Engines 
AG ("IAE") and Pratt & Whitney for engines, we are required to pay PDPs 
relating to future deliveries at various times prior to each delivery date. 
During 2019, we paid $102.1 million in PDPs, net of refunds, and $10.8 million 
of capitalized interest for future deliveries of aircraft and spare engines. As 
of December 31, 2019, we had $291.9 million of pre-delivery deposits on flight 
equipment, including capitalized interest, on our balance sheet.

During the fourth quarter of 2018, we entered into a revolving credit facility 
for up to $160 million secured by the collateral assignment of certain of our 
rights under our purchase agreement with Airbus. As of December 31, 2019, 
collateralized amounts were related to 34 Airbus A320neo aircraft scheduled to 
be delivered between January 2020 and December 2021. The final maturity of the 
facility is December 30, 2020 with final payment due in January 2021. As of 
December 31, 2019, we had drawn $160.0 million on the facility of which $50.0 
million is included in current maturities of long-term debt and finance leases 
and $110.0 million is included within long-term debt and finance leases, less 
current maturities on the Company's balance sheets. The revolving credit 
facility bears variable interest based on LIBOR.

As of December 31, 2019, we had secured debt financing for three aircraft, 
scheduled for delivery in 2020. In addition, we secured financing for 12 
aircraft to be leased directly from third-party lessors, scheduled for delivery 
in 2020 through 2021. As of December 31, 2019, we did not have financing 
commitments in place for the remaining 132 Airbus firm aircraft orders, 
scheduled for delivery through 2027. However, we have signed a financing letter 
of agreement with Airbus which provides backstop financing for a majority of 
the aircraft included in the A320 NEO Family Purchase Agreement. The agreement 
provides a standby credit facility in the form of senior secured mortgage debt 
financing. Future aircraft deliveries may be paid in cash, leased or otherwise 
financed based on market conditions, our prevailing level of liquidity, and 
capital market availability.

As of December 31, 2019, we were compliant with our credit card processing 
agreements, and not subject to any credit card holdbacks. The maximum potential 
exposure to cash holdbacks by our credit card processors, based upon advance 
ticket sales and $9 Fare Club memberships, as of December 31, 2019 and December 
31, 2018, was $342.3 million and $321.0 million, respectively.

Net Cash Flows Provided By Operating Activities. Operating activities in 2019 
provided $551.3 million in cash compared to $506.5 million provided in 2018. 
Cash provided by operating activities increased, year over year, primarily due 
to higher net income year over year. In addition, we had higher non-cash 
expenses of depreciation and amortization and deferred income tax expense, as 
compared to the prior year. Partially offsetting this increase was a decrease 
in cash provided by income tax receivable, year over year, as we had a decrease 
of $69.8 million income tax receivable during 2018 as compared to an increase 
in income tax receivable of $21.0 million recorded during 2019. In addition, 
there was a decrease in cash, year over year, provided by other working capital 
accounts.

Operating activities in 2018 provided $506.5 million in cash compared to $425.2 
million provided in 2017. The increase is primarily due to a $90.4 million 
increase in special charges, non-operating recorded for the twelve months ended 
December 31, 2018. The increase is also due to a $69.8 million income tax 
refund during 2018 and an increase in deferred income tax expense. These 
increases were partially offset by a decrease in deferred heavy maintenance, 
net.

Net Cash Flows Used In Investing Activities. During 2019, investing activities 
used $456.9 million, compared to $783.7 million used in 2018. This decrease was 
mainly driven by a decrease in the purchase of property and equipment, year 
over year, as well as a decrease in PDPs paid, net of refunds, driven by timing 
of future aircraft deliveries.

During 2018, investing activities used $783.7 million, compared to $792.0 
million used in 2017. The decrease was mainly driven by fewer purchases of 
property and equipment, year over year, as well as increased proceeds received 
from the sale of property and equipment. The decrease was partially offset by 
paid PDPs, net of refunds, driven by timing of future aircraft deliveries. Net 
Cash Used In/Provided By Financing Activities. During 2019, financing 
activities used $120.2 million. We received $225.9 million primarily related to 
the debt financing of 4 aircraft delivered during 2019. In addition, we paid 
$246.8 million in debt principal payment obligations and $96.5 million in 
finance lease obligations. The payments on finance lease obligations are 
primarily related to an aircraft purchase agreement for the purchase of four 
A320ceo aircraft which were previously financed under operating leases. Refer 
to "Notes to Financial Statements - 14. Leases and Prepaid Maintenance 
Deposits" for more information on these four aircraft.

During 2018, financing activities provided $481.1 million. We received $832.1 
million in connection with the 2015-1C and 2017-1C EETCs and the debt financing 
of 14 aircraft delivered during 2018. In addition, we paid $137.3 million in 
debt principal payment obligations and $205.7 million in finance lease 
obligations. The payments on finance lease obligations are primarily related to 
an aircraft purchase agreement for the purchase of 14 A319 aircraft which we 
previously financed under operating leases.

Commitments and Contractual Obligations Our contractual purchase commitments 
consist primarily of aircraft and engine acquisitions through manufacturers and 
aircraft leasing companies. As of December 31, 2019, our firm aircraft orders 
consisted of 135 A320 family aircraft with Airbus, including A319neos, A320neos 
and A321neos, with deliveries expected through 2027. In addition, we had 12 
direct operating leases for A320neos with third-party lessors, with deliveries 
expected through 2021. On December 20, 2019, we entered into an A320 NEO Family 
Purchase Agreement with Airbus for the purchase of 100 new Airbus A320neo 
family aircraft, with options to purchase up to 50 additional aircraft. This 
agreement includes a mix of Airbus A319neo, A320neo and A321neo aircraft with 
such aircraft scheduled for delivery through 2027. We also have one spare 
engine order for a V2500 SelectTwo engine with IAE and four spare engine orders 
for PurePower PW 1100G-JM engines with Pratt & Whitney. Spare engines are 
scheduled for delivery from 2020 through 2023. As of December 31, 2019, 
committed expenditures for these aircraft and spare engines, including 
estimated amounts for contractual price escalations and aircraft PDPs, are 
expected to be $988.0 million in 2020, $744.8 million in 2021, $123.7 million 
in 2022, $491.6 million in 2023, $1,002.5 million in 2024, and $3,605.4 million 
in 2025 and beyond. During the third quarter of 2019, the United States 
announced its decision to levy tariffs on certain imports from the European 
Union, including commercial aircraft and related parts. These tariffs include 
aircraft and other parts that we are already contractually obligated to 
purchase including those reflected above. The imposition of these tariffs may 
substantially increase the cost of new Airbus aircraft and parts required to 
service our Airbus fleet. For further discussion on this topic, please refer to 
"Risk Factors - Risks Related to Our Business - Any tariffs imposed on 
commercial aircraft and related parts imported from outside the United States 
may have a material adverse effect on our fleet, business, financial condition 
and our results of operations." We have significant obligations for aircraft 
and spare engines as 52 of our aircraft are financed under operating leases, 2 
of our aircraft are financed under finance leases and 9 of our spare engines 
are financed under operating leases. These leases expire between 2020 and 2037. 
Aircraft rent payments were $181.0 million and $214.0 million for 2019 and 
2018, respectively. We have contractual obligations and commitments primarily 
with regard to future purchases of aircraft and engines, payment of debt, and 
lease arrangements.

Some of our master lease agreements require that we pay maintenance reserves to 
aircraft lessors to be held as collateral in advance of our required 
performance of major maintenance activities. Some maintenance reserve payments 
are fixed contractual amounts, while others are based on utilization.

As of December 31, 2019, we had secured debt financing for three aircraft to be 
delivered in 2020. In addition, as of December 31, 2019, we had secured 
financing for 12 aircraft to be leased directly from third-party lessors, 
scheduled for delivery in 2020 through 2021. We did not have financing 
commitments in place for the remaining 132 Airbus aircraft currently on firm 
order, which are scheduled for delivery through 2027. However, we have signed a 
financing letter of agreement with Airbus which provides backstop financing for 
a majority of the aircraft included in the A320 NEO Family Purchase Agreement. 
The agreement provides a standby credit facility in the form of senior secured 
mortgage debt financing.

As of December 31, 2019, principal and interest commitments related to the 
future secured debt financing of 3 aircraft to be delivered in 2020 are 
approximately $9.6 million in 2020, $12.9 million in 2021, $13.0 million in 
2022, $13.0 million in 2023, $13.1 million in 2024, and $83.3 million in 2025 
and beyond. As of December 31, 2019, aircraft rent commitments for future 
aircraft deliveries to be financed under direct leases from third-party lessors 
are expected to be approximately $6.0 million in 2020, $34.9 million in 2021, 
$44.1 million in 2022, $44.1 million in 2023, $44.1 million in 2024, and $356.1 
million in 2025 and beyond. These future commitments are not included in the 
table above. Off-Balance Sheet Arrangements During the fourth quarter of 2018, 
we entered into a revolving credit facility for up to $160 million secured by 
the collateral assignment of certain of our rights under our agreements with 
Airbus. As of December 31, 2019, collateralized amounts were related to 34 
Airbus A320neo aircraft scheduled to be delivered between January 2020 and 
December 2021. The final maturity of the facility is December 30, 2020 with 
final payment due in January 2021. As of December 31, 2019, we had drawn $160.0 
million on the facility which is included in current maturities of long-term 
debt and finance leases and long-term debt and finance leases, less current 
maturities on our balance sheet. As of December 31, 2019, we had lines of 
credit related to corporate credit cards of $33.6 million from which we had 
drawn $4.6 million. As of December 31, 2019, we had lines of credit with 
counterparties for both physical fuel delivery and derivatives in the amount of 
$41.5 million. As of December 31, 2019, we had drawn $25.3 million on these 
lines of credit for physical fuel delivery. We are required to post collateral 
for any excess above the lines of credit if the derivatives are in a net 
liability position and make periodic payments in order to maintain an adequate 
undrawn portion for physical fuel delivery. As of December 31, 2019, we did not 
hold any derivatives. As of December 31, 2019, we had $9.2 million in 
uncollateralized surety bonds and a $35.0 million unsecured standby letter of 
credit facility, representing an off balance-sheet commitment, of which $23.3 
million had been drawn upon for issued letters of credit.

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

“CBA” means a collective bargaining agreement.

“CBP” means United States Customs and Border Protection.

“DOT” means the United States Department of Transportation.

“EPA” means the United States Environmental Protection Agency.

"EETC" means enhanced equipment trust certificate.

“FAA” means the United States Federal Aviation Administration. “Fare revenue 
per passenger flight segment” means total fare passenger revenue divided by 
passenger flight segments. “FCC” means the United States Federal Communications 
Commission. "FLL Airport" means the Fort Lauderdale Hollywood International 
Airport. “GDS” means Global Distribution System (e.g., Amadeus, Galileo, Sabre 
and Worldspan). "IAMAW" means the International Association of Machinists and 
Aerospace Workers. “Into-plane fuel cost per gallon” means into-plane fuel 
expense divided by number of fuel gallons consumed. “Into-plane fuel expense” 
represents the cost of jet fuel and certain other charges such as fuel taxes 
and oil. “Load factor” means the percentage of aircraft seats actually occupied 
on a flight (RPMs divided by ASMs). “NMB” means the National Mediation Board. 
"Non-ticket revenue" means total non-fare passenger revenue and other revenue. 
“Non-ticket revenue per passenger flight segment” means total non-fare 
passenger revenue and other revenue divided by passenger flight segments. “OTA” 
means Online Travel Agent (e.g., Orbitz and Travelocity). "PAFCA" means the 
Professional Airline Flight Control Association. “Passenger flight segments” 
means the total number of passengers flown on all flight segments. “PDP” means 
pre-delivery deposit payment. “Revenue passenger mile” or “RPM” means one 
revenue passenger transported one mile. RPMs equals revenue passengers 
multiplied by miles flown, also referred to as "traffic." “RLA” means the 
United States Railway Labor Act. “Total operating revenue per ASM,” “TRASM” or 
“unit revenue” means operating revenue divided by ASMs. “TWU” means the 
Transport Workers Union of America. “TSA” means the United States 
Transportation Security Administration. “ULCC” means “ultra low-cost carrier.”


QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Market 
Risk-Sensitive Instruments and Positions We are subject to certain market 
risks, including commodity prices (specifically aircraft fuel) and interest 
rates. We purchase the majority of our jet fuel at prevailing market prices and 
seek to manage market risk through execution of our hedging strategy and other 
means. We have market-sensitive instruments in the form of fixed-rate debt 
instruments. We do not hold any derivative financial instruments. The adverse 
effects of changes in these markets could pose a potential loss as discussed 
below. The sensitivity analysis provided below does not consider the effects 
that such adverse changes may have on overall economic activity, nor does it 
consider additional actions we may take to mitigate our exposure to such 
changes. Actual results may differ. Aircraft Fuel. Our results of operations 
can vary materially due to changes in the price and availability of aircraft 
fuel. Aircraft fuel expense for the years ended December 31, 2019, 2018 and 
2017 represented approximately 29.8%, 31.6% and 27.3% of our operating 
expenses, respectively. Volatility in aircraft fuel prices or a shortage of 
supply could have a material adverse effect on our operations and operating 
results. We source a significant portion of our fuel from refining resources 
located in the southeast United States, particularly facilities adjacent to the 
Gulf of Mexico. Gulf Coast fuel is subject to volatility and supply 
disruptions, particularly during hurricane season when refinery shutdowns have 
occurred, or when the threat of weather related disruptions has caused Gulf 
Coast fuel prices to spike above other regional sources. Gulf Coast Jet indexed 
fuel is the basis for a substantial majority of our fuel consumption. Based on 
our annual fuel consumption, a hypothetical 10% increase in the average price 
per gallon of aircraft fuel would have increased into-plane aircraft fuel cost 
for 2019 by $99.3 million. Interest Rates. We have market risk associated with 
our short-term investment securities, which had a fair market value of $105.3 
million and $102.8 million as of December 31, 2019 and December 31, 2018, 
respectively. Fixed-Rate Debt. As of December 31, 2019, we had $2,053.6 million 
outstanding in fixed-rate debt related to the purchase of 34 Airbus A320 
aircraft and 30 Airbus A321 aircraft, which had a fair value of $2,143.0 
million. As of December 31, 2018, we had $2,099.2 million outstanding in 
fixed-rate debt related to the purchase of 30 Airbus A320 aircraft and 30 
Airbus A321 aircraft, which had a fair value of $2,034.2 million. Variable-Rate 
Debt. As of December 31, 2019, we had $160.0 million outstanding in 
variable-rate long-term debt, which had a fair value of $160.0 million. As of 
December 31, 2018, we had $135.3 million outstanding in variable-rate long-term 
debt, which had a fair value of $135.3 million. A hypothetical increase of 100 
basis points in average annual interest rates would have increased the annual 
interest expense on our variable-rate long-term debt by $1.6 million in 2019.