Spirit Airlines Inc (SAVE) Q1 2020 earnings call dated May 07, 2020
Corporate Participants:
DeAnne Gabel — Investor Relations
Ted Christie — President & Chief Executive Officer and Class III Director
Scott M. Haralson — Senior Vice President and Chief Financial Officer
Matthew H. Klein — Executive Vice President and Chief Commercial Officer
Analysts:
Duane Pfennigwerth — Evercore Partners — Analyst
Hunter Keay — Wolfe Trahan — Analyst
Savanthi Syth — Raymond James & Associates — Analyst
Michael Linenberg — Deutsche Bank — Analyst
Brandon Oglenski — Barclays — Analyst
Jamie Baker — JP Morgan — Analyst
Helane Becker — Cowen Securities — Analyst
Joe Caiado — Credit-Suisse — Analyst
Catherine O’brien — Goldman, Sachs & Co. — Analyst
Stephen Trent — Citi Research — Analyst
Christopher N. Stathoulopoulos — Susquehanna Financial Group (SIG) — Analyst
Joseph DeNardi — Stifel — Analyst
Presentation:
Operator
Welcome to the 1Q 2020 Conference Call.
My name is Rebecca, and I will be your operator for today’s call.
[Operator Instructions]
I will now turn the call over to DeAnne Gabel. You may begin.
DeAnne Gabel — Investor Relations
Thank you, Rebecca, and welcome, everyone, to Spirit Airlines first quarter earnings call.
This call is being recorded and simultaneously webcast. A replay of this call will be archived on our website for 60 days. Presenting on today’s call are Ted Christie, Spirit’s Chief Executive Officer, Scott Haralson, our Chief Financial Officer, and Matt Klein, our Chief Commercial Officer. Following our prepared remarks, there will be a question-and-answer session for sell-side analysts. Also joining us on the call today are other members of our senior leadership team.
Today’s discussion contains forward-looking statements that are based on the company’s current expectations, are not a guarantee of future performance and are subject to risks and uncertainties. Facts that could cause actual results to differ materially from those reflected by the forward-looking statements are included in our reports on file with the SEC. We undertake no duty to update any forward-looking statements.
In comparing results today, we will be adjusting all periods to exclude special items. Please refer to our first quarter 2020 earnings release, which is available on our website for the reconciliation of our non-GAAP measures. Yesterday, we issued a press release announcing underwritten public offerings of our common stock and convertible notes. We cannot discuss those offerings on this call, and we won’t be taking questions about the offering. We will, however, discuss topics covered in our earnings release and 10-Q, such as liquidity, cash burn, capacity, etc.
And with that, I’ll turn the call over to Ted.
Ted Christie — President & Chief Executive Officer and Class III Director
Thanks, DeAnne. Thanks to everyone for joining us today.
As others in the industry have already commented, the impacts of COVID-19 on the airline industry and Spirit have been profound. Prior to the coronavirus pandemic, we were on target to meet or beat our initial first quarter pretax margin expectation of 6.5% to 7.5%. In early March, yield pressures heightened as competitors looked to fill empty seats no longer filled with business traffic. Through the second week of March, we were able to stimulate demand with lower fares, but as events throughout the nation were canceled, theme parks closed and travel bans implemented, load factors dropped precipitously.
Capacity growth was reduced as soon as possible, but it was not fast enough or deep enough to keep up with the falling demand, resulting in a first quarter revenue decline of 9.9% year-over-year and total unit revenue decrease of 18.8%. This led to a pretax loss for the first quarter 2020 of $74.6 million compared to a pretax profit of $72.1 million in the first quarter last year. As the virus spread, our entire team quickly mobilized to protect the health and well-being of our guests and team members and to shore up our liquidity.
I don’t have the words to express how proud I am to be part of the Spirit team. Whether it is helping each other, our guests or our communities, this free decor of this group is unsurpassed. My heartfelt gratitude goes out to them, along with my condolences for anyone who has personally suffered loss due to this pandemic. In addition to the many actions we took to maintain our financial strength, which Scott will elaborate on, our first priority was to see to the safety and protection of our guests and team members.
We adopted enhanced cleaning procedures between each flight, including utilization of hospital-grade disinfectant and state-of-the-art HEPA filters on our entire fleet. We are also implementing the use of new disinfectant fogging procedures on our aircraft and electrostatic disinfected in our facilities. We are also providing support to our guests with flexible seating while on-board, travel flexibility during the crisis and expanding the use of technology to provide for contactless check-in. And earlier this week, we announced that we will be requiring team members and guests to wear face coverings during flight and while traveling through airports.
Supporting our communities is one of our cornerstones. As bans on travel were implemented, often with little notice, travelers became stranded abroad. Spirit took the opportunity to provide specially approved flights to bring stranded travelers home throughout our network. Many of our team members raised their hands to volunteer to work these unscheduled flights. Thus far, Spirit has provided transportation to more than 3,000 stranded travelers, and we will transport hundreds more in the coming days. As the needs of our communities have grown, The Spirit Airlines Charitable Foundation has partnered with other non-profits to provide food to seniors and families struggling during this time, and has supported organizations with the fabrication of face mask for health care workers. Again, a big thank you to all our team members.
I also want to commend President Trump, the administration and members of Congress for their support of the airline assistance programs included in the CARES Act. This legislation recognized the important role airlines play as critical infrastructure for our country and as catalysts for the economic recovery.
With that, here is, Scott.
Scott M. Haralson — Senior Vice President and Chief Financial Officer
Thanks, Ted. And I appreciate all of you being on the call today, although I wish it was under different circumstances.
I would also like to join Ted in thanking the entire Spirit team. The hard work and dedication of all our team members has truly been inspiring. Let’s talk about the first quarter. Prior to the arrival of COVID-19, favorable weather patterns and strong operational results, together with good overall cost control were setting us up to handily beat our first quarter CASM ex-fuel expectations of up 3.5% to 4.5% year-over-year. On a per ASM basis, the largest driver of the year-over-year increase was salaries, wages and benefits. Higher depreciation and amortization and other operating expense per ASM also contributed to the increase.
Turning to the topic of the day, that is liquidity. We ended the first quarter of 2020 with $894.4 million of unrestricted cash and short-term investments. The dramatic change in the economic environment and passenger demand led us to take quick and decisive action to preserve cash. We suspended hiring, deferred capex projects, implemented voluntary leave programs and cut costs throughout the business. Based on those actions, before considering savings related to capacity cuts, we eliminated or deferred approximately $20 million to $30 million of non-fuel operating expense for the remainder of 2020, and we expect to increase those savings as we head into the latter half of the year.
We have reduced our non-aircraft capex by $50 million and are in discussions with Airbus to defer some of our 2020 and 2021 aircraft deliveries and corresponding predelivery deposits. Assuming these discussions are successful, we would reduce our aircraft related capex by approximately $185 million. In addition to actions to preserve cash, over the last six weeks, we have tapped several sources of liquidity. We entered into a two-year secured revolving credit facility for up to $350 million, with an initial commitment of $110 million. In April, the commitment was increased to $135 million and was fully drawn. We expect to receive a commitment to increase the revolver by an additional $30 million, effective around May 18, 2020.
This revolver is currently secured by about $250 million of our $900 million of previously unencumbered assets, leaving us with $650 million of other unencumbered assets to use as collateral and other secured financings, should we decide to do so. We are participating in the Payroll Support Program under the CARES Act and expect to receive a total of approximately $335 million, of which 50% of that amount or $167 million has already been received. The remaining 50% will be spread as follows, 20% in May, 20% in June, and 10% in July. These funds will be used exclusively to pay for salaries and benefits of our team members.
Also in connection with the Payroll Support Program, we are obligated to issue to the US Treasury warrants to purchase up to 500,150 shares of common stock. Spirit has also applied for the CARES Act Loan Program prior to the April 30 deadline to reserve our allocation of up to $741 million. One of the benefits of the program is that we can wait until September 30 of 2020, to decide whether to take any part of the loan. If we decide to participate, it would need to be 100% secured by assets of the company, and we would be required to issue warrants equal to 10% of the final amount taken.
The CARES Act also includes several provisions associated with income and federal excise tax relief. We estimate these provisions will provide approximately $200 million of cash benefit before the end of the year, comprised of $180 million of tax-related benefits and more than $20 million of benefits from the deferral of FICA payments. Most of the $180 million of tax-related benefits are from provisions that allow the company to amend the prior-year tax returns and recapture cash tax payments from prior years.
As we think about overall liquidity, our plan is to raise enough liquidity to be able to remove the liquidity risk under almost any reasonable downside scenario and put us in a healthy position to prepare for the recovery. Also, we want to be able to do it in a manner that maintains the health of our balance sheet and restores our ability to grow again, once demand returns. As of April 30, our estimated unrestricted cash and short-term investments balance was around $915 million. Our April balance includes the initial Payroll Support Program payment of $167 million, and $135 million from the drawdown of the revolver.
In addition to operating cash flow, in April, we paid debt service of $47 million and had capex and predelivery deposits, net of financing of $9 million. Our air traffic liability balance as of April 30 was approximately $400 million, of which our holdback exposure was about $335 million. And of this amount, nearly 85% is in the form of credit shells or about $285 million. Due to the phasing of our schedule changes, cash refunds in April were approximately $50 million but reflect a number that is considerably higher than we expect in May and going forward. The most important action we have taken to date to minimize our cash burn is reducing our operation to a bare minimum. These reductions are saving the company at least $150 million a month.
Today, the operation is at a level that is 95% below our planned capacity. At these capacity levels with basically zero cash sales net of refunds, we estimate our operating cash burn per day is about $4 million. We will continue to evaluate options to further reduce that amount, if demand does not begin to rebound in the coming months. The approximate $4 million of burn per day is calculated as the sum of operating cash flows, debt service, fleet capex, net of financing and PDPs, and it does not include the impact of any financing, capital raises and payroll support funds.
In summary, we have done and still continue to do a lot of work to shore up our balance sheet, minimize our cash burn and put ourselves in a position to be as healthy as possible when demand returns.
And with that, here’s Matt.
Matthew H. Klein — Executive Vice President and Chief Commercial Officer
Thanks, Scott, and hello, everyone.
I hope you and your families are healthy and doing well. I also want to thank our dedicated Spirit team. We’ve all had to adapt to a lot of changes in a very short period of time. Ted gave you a snapshot of what we were seeing throughout the [Technical Issues] it’s not possible to know exactly when the economy will improve. Given uncertainty of when demand levels will begin to recover, we are taking a conservative view. We expect demand for travel in the summer will rebound a bit, but still be significantly lower than last year. We’ve reduced April capacity by approximately 75% versus our original plan and for May and June, we’ve cut our schedule by about 95%. However, based on anticipated demand trends, we are looking to add a little flying back to June, such that, it is only a 90% cut.
If trends improve in the coming weeks, then you could see us add some additional flying for later in June. It’s too early to assess what our schedule beyond June will be. To the extent things are better or worse than expected, we have flexibility to adjust up or down, but our decisions on that will depend on prevailing demand. Fourth quarter capacity will be determined after the trends over the next couple of months are assessed. Rather than leading the demand recovery with empty capacity, we will err on the side of conservatism for now. So that may mean our summer schedule is under optimized to an extent, if demand returns more quickly than we currently expect. However, we feel that’s a better starting point versus overestimating what demand might be in this environment.
When demand does recover, we anticipate consumers will be searching for low fares. Given our industry-leading low-cost structure, we are well positioned to provide just that. Historically, lower fare leisure and VFR travel is the first to come back after an economic downturn and our expectation is that we will see the recovery earlier than most carriers, as people begin to visit their friends and relatives, which is very much core to our network. International travel bans still restrict us from serving our international destinations. But once the bans are lifted, we intend to bring back service to all of the destinations we serve prior to COVID-19. Again, visiting family and friends will be a big part of the near field international recovery, which will help drive our international rebounds. As is also true for domestic flying, demand trends will be our guide as to the pace of bringing services back online.
Switching gears a bit to non-ticket. Our first quarter 2020 non-ticket per segment was very strong, coming in at $58.75. There wasn’t one particular initiative that drove this performance but rather a variety of items contributed. Unfortunately, in this environment of drastically reduced demand, it’s too soon to know what to expect for non-ticket trends in the future. However, the infrastructure and planning we put in place over the last few years will serve us quite well, as we reestablish non-ticket trends and production.
In closing, I think it’s important to state that demand will recover. The pace of that recovery is unknown, but this is a resilient industry and the economy of the United States always comes back stronger than before. As we move past this crisis, we intend to be in a position to best capitalize on the opportunities that clearly lie ahead.
And now, I hand it back over to Ted.
Ted Christie — President & Chief Executive Officer and Class III Director
Thanks, Matt.
Going into this crisis, we were in a very strong liquidity position, had a healthy balance sheet and over $900 million of unencumbered assets, which will assist us as we manage through what is likely to be an extended period of low travel demand. As Matt described, we are taking a conservative view in the context of planning for the recovery. This will allow us to grow into the demand we see, rather than using hope as a strategy. We believe this approach sets us up well to conserve resources, but allow us to react quickly to the economic recovery. When we look past this crisis, the fundamentals of our business remain intact, demand will return and we believe that our product and cost structure will be key drivers of our performance during the recovery phase.
For the next couple of years, it may be that we are smaller than we had planned before the current economic situation developed. However, we believe there are plenty of new market opportunities to support our growth, once demand begins to recover, including, perhaps, some opportunities in constrained markets that didn’t exist before. In fact, we strongly believe that we will emerge from this crisis even better positioned than we were previously. If history is any indicator, low cost, low-fare travel is where the recovery comes first. And it is our belief, there is no other airline in our space with the cost structure, brand, reliability and network to take advantage of that better than us.
Cost control and low costs have always been core to Spirit. But it will matter even more as the leisure traveler returns to the market. Thankfully, we have never relied on high yields to justify higher costs. We stimulate demand with low fares and we believe that will be the hallmark of post COVID-19 traveler. In the meantime, we rely on our years of conservatism with our balance sheet, our low-cost and improving brand to carry us through this period. The focus now is on making sure our guests and team members feel safe and can rely on Spirit to take care of them. I sincerely believe that this period is a good test of our strategy to build one of the best low-cost airlines in the world. While it may be hard to see the end right now, I am sure that Spirit will be part of that new opportunity.
And with that, back to DeAnne.
DeAnne Gabel — Investor Relations
Thank you, Ted.
We are now ready to take questions from the analysts.
[Operator Instructions]
Rebecca, we are ready to begin.
Questions and Answers:
Operator
[Operator Instructions]
Duane, your line is open.
Duane Pfennigwerth — Evercore Partners — Analyst
Hey, thank you. Thanks for taking the questions.
Ted Christie — President & Chief Executive Officer and Class III Director
Good morning.
Duane Pfennigwerth — Evercore Partners — Analyst
I wanted to say, really good detail in the 10-Q. It’s unusual to have that before the earnings call, but it did trigger some questions, and I want to just check my math. Your remaining aircraft capex for this year stood at $700 million, but you’re negotiating with Airbus to get that down by $185 million. To just check that, $185 million pertains to this year? And how much of that is financed at this point?
Scott M. Haralson — Senior Vice President and Chief Financial Officer
Duane, of the remaining capex you’re talking about, I assume to be financed?
Duane Pfennigwerth — Evercore Partners — Analyst
Yeah. So is the $185 million reduction related to the $700 million you have left, so that would get us to call it $500 million. And how much of that is financed at this point?
Scott M. Haralson — Senior Vice President and Chief Financial Officer
Yeah. The anticipated reduction is — we’ll say it instead another way. The aircraft we plan to take this year, it will be financed. The remaining component of what we expect to defer with Airbus is part of that $185 million.
Duane Pfennigwerth — Evercore Partners — Analyst
So where would you peg capex for the remainder of the year from an aircraft perspective, relative to the $700 million that’s in the queue?
Scott M. Haralson — Senior Vice President and Chief Financial Officer
We have a finance amount of capex of probably around [Indecipherable] $200 million-ish of finance.
DeAnne Gabel — Investor Relations
I think that leaves about $375 million, Duane. I can check the math with you afterwards. It’s DeAnne.
Duane Pfennigwerth — Evercore Partners — Analyst
Okay. And then, it said debt principal repayments for the rest of this year of $300 million. Is that still a good number? There was a lot of movement back and forth with the credit lines. And so that may be a stale number, but is $300 million is still a good assumption in terms of principal for the rest of the year?
Scott M. Haralson — Senior Vice President and Chief Financial Officer
Yeah, that’s right, Duane. No change in the principal payments.
Duane Pfennigwerth — Evercore Partners — Analyst
Okay. And then, can you just remind us, I know historically you guided to heavy maintenance over and above that, where does that stand for the rest of 2020?
Scott M. Haralson — Senior Vice President and Chief Financial Officer
We had initially discussed around $110 million of maintenance capex. That number right now is down to about $80 million of maintenance capex and will likely come down a little bit further as we go through the year, but right now, it’s about $80 million.
Duane Pfennigwerth — Evercore Partners — Analyst
Okay. That’s great. And then just lastly, maybe one for Matt. The sequential improvement in load factor, good to see it get off the mat here or start to anyway. Can you talk about what level of fare stimulation that required — so that may actually be some improvement, in other words, demand was not responding to lower fares, maybe this is evidence that it’s starting to. So any color around the fares required to get that? And any trends regionally, where are folks going as we wait for big leisure destinations to open back up? Thanks for taking the questions, guys.
Matthew H. Klein — Executive Vice President and Chief Commercial Officer
Yeah, sure thing, Duane. So you’re correct. Yields were very low as we bottomed out. They’re still low. We have had the opportunity to begin to test some higher fare levels, which again, for us, are still very low stimulative levels, but definitely off the bottoms of where we were. So we are encouraged by some of the movement in fares from where it was, even as recently as a few weeks ago. So that is definitely a positive that we’re starting to see. But again, it’s on a relative basis. Let’s keep that in mind.
Duane Pfennigwerth — Evercore Partners — Analyst
Thanks, guys.
Ted Christie — President & Chief Executive Officer and Class III Director
We’re ready for the next question.
Operator
Hunter Keay, your line is open.
Hunter Keay — Wolfe Trahan — Analyst
Thanks, operator. So most airlines generally talk about cost advantage on a unit basis. Scott, do you know what your non-unit absolute cost advantage is, normalizing for growth in utilization?
Scott M. Haralson — Senior Vice President and Chief Financial Officer
You mean on an absolute per departure basis? I mean obviously, [Speech Overlap].
Hunter Keay — Wolfe Trahan — Analyst
Yeah, totally.
Scott M. Haralson — Senior Vice President and Chief Financial Officer
No, we haven’t done the math on a per departure basis for the other airlines. But I assume on a percentage basis, it’s probably about the same as our departures are big driver of our utilization advantage.
Hunter Keay — Wolfe Trahan — Analyst
Okay. And then again, I read the Q, like Duane did, but I didn’t see anything in there on holdbacks that seemed incremental, but can you just tell me, Scott, did you say something that changed? Was there a subsequent event about the holdback after the quarter ended? Or were you just — can you just tell me what you said? I think I missed what your comment is on the holdback.
Scott M. Haralson — Senior Vice President and Chief Financial Officer
The holdback in regards to the credit card, nothing has changed in regard to that. The ATO balance has moved around a little bit as the amount of refunds has impacted that, but the credit card holdback trigger hasn’t changed.
DeAnne Gabel — Investor Relations
What he — what he mentioned, Hunter, was that, he gave the April, and it’s in the 10-Q as well. In addition to the 3/31, he just gave you April balances.
Hunter Keay — Wolfe Trahan — Analyst
Okay. Got it. All right. Thanks, everybody.
Ted Christie — President & Chief Executive Officer and Class III Director
We’re ready for the next question.
Operator
Savi, your line is open.
Savanthi Syth — Raymond James & Associates — Analyst
Hey, good morning. Thank you.
Ted Christie — President & Chief Executive Officer and Class III Director
Good morning.
Savanthi Syth — Raymond James & Associates — Analyst
I realize we’re in survival mode here, but Ted, you contemplated what things would look like when demand returns. And just kind of curious, if you could talk a little bit more about what cost might look at. I’m guessing, there will some difficult decisions around the size of the organization and the network. So I’m guessing, you’ll be able to maintain your kind of high utilization rates and whatever, kind of the new normal is, but just how should we think about — if we’re going to have a few years of slower growth, what that means from a cost structure standpoint and competitiveness standpoint?
Ted Christie — President & Chief Executive Officer and Class III Director
Sure. Thanks, Savi. So I mentioned multiple times in the script that costs are key to who we are. That doesn’t change. As we evaluate the recovery as we’ve indicated, we expect the leisure component of the marketplace to recover sooner than corporate demand or even long-haul, and long-haul domestic and long-haul international. And for that reason, what we’re really talking about is, some of our cost advantage is related to our utilization of the assets and our capacity growth. In the near term, we would expect capacity growth to be a little muted because I think, there’s going to be a macroeconomic effect in both the leisure marketplace as well as the corporate marketplace.
But as that starts to recover, we would expect that our advantage to continue to widen vis-a-vis our peers because the growth will be at the leisure side of things. So you can think about it on a capacity basis. It doesn’t necessarily have to be utilization or anything like that. It’s really just, wherever the demand exists, that’s where the capacity will be, and we feel that in our segment, capacity will follow that demand a little bit strongly — more strongly because that demand will exist. So cost for us will be about widening our advantage and in the near term, maintaining our current cost structure as much as we can. We’re going to see pressure when there is less growth. But we’re going to be managing that as best we can as well.
And we haven’t made a specific decision yet on, as Matt indicated, on what the size of the airline will be for the remainder of the year. But amongst the range of outcomes would be that we’re maybe not growing as much or perhaps, a little smaller for a period of time, and that means we’ll have to make some decisions about rightsizing the airline at that point.
Savanthi Syth — Raymond James & Associates — Analyst
That’s helpful. And just a follow-up on the comment about rightsizing. Just how much of your fleet is kind of fully unencumbered or maybe leases coming off this year where you have the flexibility, if you need to kind of downsize it with kind of minimal impact?
Ted Christie — President & Chief Executive Officer and Class III Director
Yeah. Scott, you want to…?
Scott M. Haralson — Senior Vice President and Chief Financial Officer
Yeah. Hey Savi, this is Scott. So today, we have 29 unencumbered aircraft, 25 of which are A319s, four A320s, and we do have one lease that will come due at the end of 2022. So that’s the extent of our owned and upcoming leases from a fleet flexibility perspective.
Savanthi Syth — Raymond James & Associates — Analyst
That’s helpful. Thanks, Scott.
Ted Christie — President & Chief Executive Officer and Class III Director
So roughly it was about 20% of the fleet right now, gives us some level of flexibility.
DeAnne Gabel — Investor Relations
Flexibility.
Ted Christie — President & Chief Executive Officer and Class III Director
Yeah.
Savanthi Syth — Raymond James & Associates — Analyst
Right. Makes sense. All right. Great. Thank you.
Operator
And our next question is from Mike Linenberg. Your line is open.
Michael Linenberg — Deutsche Bank — Analyst
Hey, good morning, everyone. Just I guess two liquidity related questions here. I guess, Ted and Scott, when I look at the potential size of what is available to you under the loan program, the $741 million, it’s roughly double of your PSP payment. And I’m just curious sort of the calculus there, because most who’ve applied are getting a number that’s much less. And I’m not sure, if maybe you were just first in line, I realized maybe there was a bit of a land grab here for people to get earmarks. But if you can just talk about that, because it is interesting, it did stand out as a — and obviously, a good back stop.
Scott M. Haralson — Senior Vice President and Chief Financial Officer
Yeah. Hey Mike, this is Scott. So I think it’s really the calculus behind it. The grant program was based off of 2019 payroll. And so I think the number in that perspective was a little bit depressed because that as a growth carrier, our 2019 payroll had increased into 2020. And then the loan program is based on ASMs and so our utilization produces a pretty good amount of ASMs relative to the size of the airline. So I think that’s where the disconnects likely sits.
Michael Linenberg — Deutsche Bank — Analyst
That’s very interesting. And then, super helpful, too. And then just my second question, under the CARES Act, this ability to go back with your — to carry back losses and get the benefit, you obviously took at this quarter, presumably, this discrete tax benefit, we will see this continue through the year with additional losses, if you could answer that, number one? Number two sort of ties into it. Is that cash, or is that just an accounting construct?
Scott M. Haralson — Senior Vice President and Chief Financial Officer
No, it is actually going to be cash, and it will be anticipated later in the year, likely in the fourth quarter. So we’ll apply for those amended tax returns. And receive cash payment in the later part of the year. It’s actual cash.
Michael Linenberg — Deutsche Bank — Analyst
So Scott, but — and then just so I know that goes — you can go back — is it five years that you can go back?
Scott M. Haralson — Senior Vice President and Chief Financial Officer
Yeah. It’s a five-year tax carryback. So 2018 amended returns can go back to 2013 and 2014 cash tax payments.
Michael Linenberg — Deutsche Bank — Analyst
Well, okay. Because you generated a lot of profit over those years. So very good. Thanks for the heads up.
Scott M. Haralson — Senior Vice President and Chief Financial Officer
We did, and we leased a lot of aircraft back then. So we were a cash taxpayer.
Michael Linenberg — Deutsche Bank — Analyst
Yeah. Very good. Thank you.
Operator
And our next question is from Brandon Oglenski. Your line is open.
Brandon Oglenski — Barclays — Analyst
Hey, good morning, everyone. Thanks for taking my question. So I guess on the cash burn, it was about $120 million a month right now, that you guys spoke about. In a less robust environment later this year, where do you think you could get that to, especially, as we lap some of the restrictions on employee reductions later this year? And I know that’s a difficult topic.
Scott M. Haralson — Senior Vice President and Chief Financial Officer
Hey Brandon, this is Scott. I’ll start, and Ted can chime in, too. So the $4 million in really sort of where we sit today, we would consider to be the trough. It’s sort of the bottom. As we progress through the summer and into September, the things that are going to move that are obviously going to be bookings. And a little bit more as we think about capacity manipulations and doing a handful of things around the edges. But until then, we’re going to be around that number. And then the flexibility would be able to come post September 30.
Ted Christie — President & Chief Executive Officer and Class III Director
Brandon, the only thing I’d add is, Scott mentioned bookings, the big levers are bookings and rightsizing the airline. So we’ll be using this time to evaluate how those trends are going. And so as we start to see traction from a demand perspective and bookings start to recover, that’s going to have a material impact on the burn rate. And then post September 30, to the extent that bookings do not recover and we’re forced to make decisions, that would actually reduce the burn rate as well. So in either case, we’re looking at a longer runway to the extent there is a protracted demand decline. But we know that the way the industry is looking at it right now is what’s the worst-case scenario, and that’s the $4 million a day.
Brandon Oglenski — Barclays — Analyst
Okay. And then I just want to come back to the questions around the order book here, the $185 million reduction. I think you said that would be to 2020 capital outlays, right? But it also mentions that this is impacting the 2021 order book. I guess, are those discussions just initial? Are you still expecting to take as many aircraft as you thought, pre-COVID-19?
Scott M. Haralson — Senior Vice President and Chief Financial Officer
Yeah, hey Brandon, the $185 million is related to 2020. And we are in discussions with Airbus as we speak around the back half of 2020 deliveries and the front half of 2021 deliveries as the primary component of our discussions. So we do expect those delivery positions to move.
DeAnne Gabel — Investor Relations
And Brandon, this is DeAnne. The $185 million includes not only what would be for aircraft, but also as we move the delivery stream, of course, the phasing of pre-delivery to payments also moves.
Brandon Oglenski — Barclays — Analyst
Okay. All right. Well, thank you, guys.
Operator
And our next question is from Jamie Baker. Your line is open.
Jamie Baker — JP Morgan — Analyst
Hey, good morning, everybody. Also some cash burn questions. So in the release, you said that you’re working on voluntary leave programs. Can you give us an update on that? And whether there’d be any structural reason that your take rate wouldn’t be similar, at least in the ballpark of what others have achieved and how that relates to potentially drawing down that $4 million daily burn?
Ted Christie — President & Chief Executive Officer and Class III Director
Sure. Thanks, Jamie. It’s Ted. So we’ve worked with our partners, and I’m referring principally to our flight attendants and pilots right now, just because those are the vast majority of the company’s workforce. As you know, on the ground service personnel, we have Spirit employees at Fort Lauderdale Airport, both on the ramp as well as at the ticket counter. But everywhere else, we have contract service providers. So those are a different discussion. But as it relates to our pilots and flight attendants specifically, we were able to work with them to come up with reduced minimum voluntary leave programs.
And the take rate in the month of May was good. It was very good. We maxed out what we were looking for. So our team has responded very well, which we like to see. And I think it’s consistent with what you’ve been hearing from other members of the industry.
Jamie Baker — JP Morgan — Analyst
So it’s already captured in the current numbers? That’s fine.
Ted Christie — President & Chief Executive Officer and Class III Director
That’s correct.
Jamie Baker — JP Morgan — Analyst
That wasn’t clear to me. But also just on the aircraft side, you mentioned, obviously, working with Airbus and the deliveries. Have you also saw deferrals on aircraft leases? If the answer is yes, any color on terms with duration would be appreciated. Thanks.
Scott M. Haralson — Senior Vice President and Chief Financial Officer
Hey Jamie, this is Scott. The vast majority of our discussions around the positions will be with aircraft that are taken directly from Airbus. Given the complexity of the number of parties, it’s the easiest way to think about moving the deliveries. And the vast majority of our deliveries are with Airbus directly.
Jamie Baker — JP Morgan — Analyst
Well, I wasn’t thinking so much in terms of aircraft units. Our channel checks suggest that anywhere between 80% and 99% of the world’s airlines have raised their hand and saw some level of lease deferral. And I just didn’t know if you should be counted in that assumption or if that is still under negotiation, or not a consideration of yours?
Scott M. Haralson — Senior Vice President and Chief Financial Officer
Yeah. Jamie, so if you’re talking about payment deferrals, we are in discussions with our lessors, lenders and all of our significant vendors about payment deferrals [Indecipherable].
Jamie Baker — JP Morgan — Analyst
Okay. So to be determined. All right. Thanks very much. Appreciate it.
Ted Christie — President & Chief Executive Officer and Class III Director
Thanks.
Operator
Our next question is from Helane Becker. Your line is open.
Helane Becker — Cowen Securities — Analyst
Thanks very much, operator. Hi everybody. Thank you very much for the time. So I have two questions. One is, the model is a high-density model, and people are talking about social distancing onboard planes. And clearly, it’s not sustainable to keep the middle seats empty for an indefinite period of time. But can you just talk about how you’re thinking about the model in light of some protracted period of time where you have to ensure safety onboard the aircraft beyond what you already do?
Ted Christie — President & Chief Executive Officer and Class III Director
Hey, good morning, Helane. It’s Ted.
Helane Becker — Cowen Securities — Analyst
Hi.
Ted Christie — President & Chief Executive Officer and Class III Director
Hi. As I mentioned in my comments, we have made — we already had a number of things in place, and we’ve made a number of adjustments to ensure the safety of our guests and our team members on board the airplane that include enhanced cleaning procedures on high-touch items, disinfectant fogging and requiring face coverings for team members and guests. We think that that’s the solution to help ensure that people view air travel as a safe environment.
Clearly, the air quality onboard airplane is amongst the best in the world. And it recirculates quicker than in any other fixed facility that you would be in. So I think over time, that will prove to be the most important component is — is ensuring that the guests feel comfortable being on board airplanes with these initiatives that we’ve taken. And that’s the way that the industry will start to lead the recovery. So that’s where we’ve been focused, actually.
Helane Becker — Cowen Securities — Analyst
Okay. That’s very helpful. And then my other question is, are you able to do any to capture well enough people’s information for contact tracing? And you know, you can’t stop someone from writing on their e-mail that they’re mickeymouse@disney.com, but is it — are you able to do that? And then, the other question is, since Florida is one of the first states to open, are you noticing at all an increase in bookings for later in the summer from your local residents?
Ted Christie — President & Chief Executive Officer and Class III Director
So Helane, as it relates to the first half of the question, obviously, there’s PII information, and the company is a custodian of that. And to the extent that there were government regulation and/or legislation around contract tracing, we would be an active listener, I guess, at that point. So I think that that’s probably an ongoing discussion. With regard to bookings, I’ll let Matt up in a second, but you’re right, Florida has begun the process of loosening some restriction in the non — the not larger counties. So Miami-Dade, Broward and West Palm, which are the three largest counties in the state are still in the Phase 0 of the process. But the rest of the state has started to open, which is encouraging.
And it is early, by the way. That process just started within the last seven days. So Matt, I’ll let you comment any more, if you’re seeing any trends you want to share or not.
Matthew H. Klein — Executive Vice President and Chief Commercial Officer
Yeah, sure. So Helane, I would actually characterize what we’re seeing as relatively broad. It’s not specific to any given geography or region. In many cases, what we’re simply finding is that, people are starting to want to move around a little bit. They’ve put off seeing significant others in other states. And as long as they’re traveling in a safe way, we’re starting to see that come back a little bit. Low fares is definitely helpful in driving some of that extra demand. So I wouldn’t classify it as any given region per se. It’s just — it’s going to take some time.
And as things like, states and beaches and attractions and other kinds of venues start to open up, we do expect we’ll start to see some more confidence overall in the economy, which will lead to just overall confidence in traveling, whether it’s to a certain state or not. So I think that’s the best way for me to characterize it.
Helane Becker — Cowen Securities — Analyst
Okay. That’s hugely helpful. Well, thanks, team.
Ted Christie — President & Chief Executive Officer and Class III Director
Thanks, Helane.
Matthew H. Klein — Executive Vice President and Chief Commercial Officer
Thanks, Helane.
Operator
Our next question is from Joe Caiado. Your line is open.
Joe Caiado — Credit-Suisse — Analyst
Hey, good morning. Just a couple of quick ones here. Can you just give us an update, please, on the relief that you have or not been granted for minimum service requirements, how much you’re still seeking there? And is the planned capacity cuts here for the balance of Q2, is that contingent on getting more exemptions there?
Ted Christie — President & Chief Executive Officer and Class III Director
Sure, Joe. So we did initially go out with a relatively large list of exemption requests. They were initially denied with the exception of one in Puerto Rico, in Aguadilla, which was in fact closed. So that was granted. We then subsequently came back with a request for a number of large airports that have a significant amount of service in them from other airlines already. So we were granted exemptions for six large cities across the country. We have then subsequently applied for a handful of other, say, medium-sized cities that we are in discussions with now on receiving those exemptions.
If we were to receive them, we would have some schedule changes to make. Right now, we are planning on serving those communities. If granted, we would make those adjustments. I would tell you that the way that we added back the service — for some of those minimum service requirements, didn’t really add a whole lot of flying into the network. I’d say, it was minimal. The bigger issue that we have in some of those — with some of that flying is more around how limited the flying is and whether or not it’s providing the best service that we can be providing in this critical time right now. So that’s the reason for the secondary service exemption requests.
Joe Caiado — Credit-Suisse — Analyst
Okay. Got it. And then just real quick on the capex reductions. Can you describe more precisely what discretionary capex you’re deferring? What those projects are? And then on the aircraft side, are you actively exploring sale-leaseback opportunities to further reduce that burden? Thanks, everyone.
Scott M. Haralson — Senior Vice President and Chief Financial Officer
Hey Joe, on the non-discretionary capex, yeah, we’re deferring almost all of our discretionary capex, minus a few items that will continue to be completed, but we expect that number to drop dramatically through the year. I think we have about a $50 million reduction in non-discretionary capex. And in relation to the sale-leaseback component, that is a financing possibility for go forward deliveries. We’re not looking at sale-leaseback for currently owned aircraft at this point.
Joe Caiado — Credit-Suisse — Analyst
Right. Yeah. That’s what I meant for future deliveries. The piece of the aircraft capex that isn’t financed. Okay. Got it. Thank you, everyone.
Operator
Our next question is from Catherine O’brien. Your line is open.
Catherine O’brien — Goldman, Sachs & Co. — Analyst
Hi, good morning, everyone. Thanks for the time.
Ted Christie — President & Chief Executive Officer and Class III Director
Good morning.
Catherine O’brien — Goldman, Sachs & Co. — Analyst
Good morning. One follow up on the May load factor. I think is an encouraging sign, but just wanted to dig into that a little deeper. On channel checks, on just TSA passenger numbers, we haven’t really seen any lift off the bottom yet month-to-date versus April. I realize early days here. But could you just talk about, what your load factor on flights look like today? Is that above 50% load factor, may be more back-half weighted? Or you’re seeing that today? And then, if it is more back-half loaded, how confident are you in those bookings, just maybe versus any trends on cancellations you’ve seen over the past six, seven weeks? That would be helpful. Thank you.
Matthew H. Klein — Executive Vice President and Chief Commercial Officer
Sure, Catherine. It’s Matt. So I would tell you that in May, we’ve been starting to see some improvements in the load factors. Part of it has to do with our schedule adjustments. Part of it has to do with the way that we’ve been pricing the product and what we’ve been seeing in May was definitely more than what we saw in April. And we do anticipate that, as we move through May and go into June, that the load factors will continue to improve. Now we’re also making sure that we’re pricing the product properly and seeing where we can best take advantage of any demand that’s out there.
Keep in mind, we’re talking about a significantly depressed flying schedule right now as well. So in terms of the TSA checkpoint numbers, things of that nature, the amount of capacity that’s come out, especially for us, is significant. And us seeing some improvement on those loads and then, subsequently, which we anticipate to see on fares down the line is going to be not a big number in the grand scheme of things right now. As we move through this month, we will then be able to anticipate — we’ll be able to review trends and then see what we think is going to happen from anticipation perspective towards the end of June.
So I would love to be able to tell you exactly what is going to happen between now and the end of June and into the summer. But from what we can tell right now, things are improving slightly off of a relatively low base and we are starting to have more confidence in thinking about how we price some of the products that we have out there. So to me, I would tell you that we are improving. If you had asked me this question three weeks ago, I would have had a different answer probably than I have today. So it is nice to see things are starting to move out a little bit.
Catherine O’brien — Goldman, Sachs & Co. — Analyst
Understood. Maybe one quick follow-up on that one, and then I just have one more on the unencumbered assets. So is your book load factor, above 50%? Or that’s more — you’re just starting to see some movement in booking channels and feeling good about your pricing strategy? Just trying to get a sense of how much of that commentary is actually lost in bookings versus what’s expected based on pricing versus capacity? Thanks.
Matthew H. Klein — Executive Vice President and Chief Commercial Officer
Right. Sure. So just to be more clear on that, I apologize for that earlier. We are seeing a shortened booking curve for sure, compared to what would be normal for Spirit. So we are seeing demand come in. It’s coming in closer to departure than what we have seen historically. And I think that makes a lot of sense. It’s — I think as people gain more confidence in what they’re hearing and seeing and feeling, then they’re having confidence in booking some of that travel. So the booking curve has come in quite a bit. We anticipate, it’s going to stay muted like that for a period of time.
And as, again, from a prior question, I think maybe Helane asked, as we move forward through the summer, we anticipate the booking curve is going to push back out as people get more confidence in being able to go on their July 4 holidays and picnics and seeing their family and friends that they haven’t seen for what is now months.
Ted Christie — President & Chief Executive Officer and Class III Director
And I’d add — Catie, this is Ted. The loads we’re seeing or what we’re experiencing today.
Catherine O’brien — Goldman, Sachs & Co. — Analyst
Okay. Understood. Thank you. That’s clear. And then if I could just sneak one quick one in, on unencumbered assets. Is this $650 million remaining after — is that all of the assets? Is there any more you could potentially add to that pool that you’re not including in your current definition? And then given this level of unencumbered assets, do you expect to be eligible for the entire portion of the CARES loan? Thanks so much for the time.
Scott M. Haralson — Senior Vice President and Chief Financial Officer
Yeah. Hey Catherine, this is Scott. So the $650 million is our tangible asset base. We do have other intangible assets that are not included in that number. And in regards to the loan program, we’ve got limited discussions with the Treasury in regards to this, but the one statement that has been made is that they intend to be flexible on the types of collateral, including listing frequent flyer program as one of the possibilities. Obviously, we have our frequent flyer program. We also have a paid loyalty program that acts very similar to that.
So there is an expectation that there will be some type of flexibility. We don’t really know how much yet. We haven’t been down the path of discussing that with the Treasury. So we’ll update you when we do have that detail.
Catherine O’brien — Goldman, Sachs & Co. — Analyst
Thanks. Appreciate that.
Operator
Our next question is from Stephen Trent. Your line is open.
Stephen Trent — Citi Research — Analyst
Thank you very much, everybody. And double thanks for taking my question. So I just have one or two quick ones. When we think about your ticket refund policy, for example, maybe fully flexible coach tickets, you have to pay a cash refund versus other tickets. Could you just refresh my memory, kind of what’s the broad mix? And how you’ll expect that might evolve going forward?
Matthew H. Klein — Executive Vice President and Chief Commercial Officer
Sure, Stephen. It’s Matt. So right now, our policy has been relaxed from our pre COVID-19 policies. And right now, if guests are impacted, if their travel is impacted, then we have the ability to issue credit shells for them, for use within 12 months of the date of issue, which is different. Our previous policy was that you had 60 days to book your future travel. So in many cases, that covered you out maybe eight, nine, 10 months. In this case now, we’ve relaxed that where you have 12 months to decide to travel and that — but you must be completed your travel within that same 12-month period.
So in terms of policy for Spirit, it’s greatly relaxed. In fact, it’s probably one of the most relaxed in the industry compared to our previous credit shell policy. So that’s something that we anticipate to be out there for some period of time. And in terms of — I think your other question was regards to maybe our mix of refunds versus credit shells. Thus far, we’ve had quite a few credit shells that have been created. As we go through some schedule change activity, the refund number does increase. It’s very specific to when we have to reduce some of our future schedules. So those refunds happen for a finite period of time, and then they kind of go away.
As we move through the summer, we anticipate right now that our reductions to the schedule won’t be as heavy as they are right now. So that would have a muting effect on that number, as we move through the summer — spring and then summer.
Stephen Trent — Citi Research — Analyst
Very helpful, Matt. Thank you very much. And just one other quick follow up. I know that the Department of Treasury is still requiring you guys to do some flights where you sought some relief. Could you just touch briefly on what might be the opportunity to run additional air cargo on those flights, if any, assuming the imaginables are low?
Ted Christie — President & Chief Executive Officer and Class III Director
Hey Stephen, it’s Ted. We don’t carry any cargo today. So that’s not part of our operating certificates. So that’s not what we’re doing today. To the extent that we were to evaluate that as a future opportunity, we would. But today, we’re not carrying cargo.
Stephen Trent — Citi Research — Analyst
Okay. Thanks, Ted. Let me leave it there. And hope you and your families are well.
Ted Christie — President & Chief Executive Officer and Class III Director
Likewise. Thank you, Stephen.
Matthew H. Klein — Executive Vice President and Chief Commercial Officer
Thanks, Stephen.
Operator
Our next question is from Chris. Your line is open.
Christopher N. Stathoulopoulos — Susquehanna Financial Group (SIG) — Analyst
Thanks for taking my question. And thank you for all the detail on the liquidity and early Q release. So going back to an earlier question on how the ULCC model might have to evolve in this pre-vaccine world. And you spoke about increasing traveler confidence, and hygiene kits and your cleaning of the aircraft, etc. But could you give us a little bit more sort of detail in the interim, how that works with respect to, structurally speaking, whether it’s with load factors or flight frequencies? And then thinking about that, how that might evolve as we look about — think about cash profits per flight system ROIC and then tying that back to — you mentioned in your prepared remarks about opportunities potentially to go into markets that you didn’t have a presence for before because of constrained capacity? Thank you.
Ted Christie — President & Chief Executive Officer and Class III Director
Sure. Thanks, Chris. It’s Ted again. So in the near term, obviously, people are getting familiar with the effects of the virus and what that’s having on their travel behavior. So there are things happening in the near-term here that are an attempt to kind of get people more comfortable. And that can include some of the items we already discussed. We’re obviously on board, offering some seating flexibility as well to the extent that people request that.
But to the broader question, we do not believe that this is a secular shift in the airline business, that it will take some time for people to regain their confidence and to get comfortable traveling generally. But we don’t think it represents a change in the way the business will work down the road. And so our expectation is that utilization will return to normal, once we start to recover and our guests will be focused on, hey, do I have the necessary protection to make myself comfortable? And what are the fare levels that make me comfortable to get back on the road? So that’s where we’re focused, and that is our belief and that has been the case in other crises-type recoveries as well.
Post 9/11, there was a lot of fear as to whether or not the airline business would be the same, and I think we proved to each other that it was actually a recoverable and strong business coming out of that. So it is our expectation. There will be some time required in there for that to happen. With regard to the growth opportunity down the road, as we alluded to, there is a possibility, at least that we’re going to see windows of opportunity in places where today there is constraint. And as I’ve said multiple times throughout the course of this call, the leisure traveler will be the vast majority of the recovery. And so to the extent that those places open up, we want to be ready to be able to pursue that opportunity, which is part of our establishing a strong balance sheet, maintaining resiliency and being there ready to capitalize on those opportunities when they occur.
DeAnne Gabel — Investor Relations
Rebecca, we have time for one more question.
Operator
All right. Our last question is from Joseph. Your line is open.
Joseph DeNardi — Stifel — Analyst
Thanks. Good morning. Matt, just on the commentary about some early signs of demand recovery. Like how fluid is that? How quickly are things changing? Like, would you have said what you said a week ago or two weeks ago?
Matthew H. Klein — Executive Vice President and Chief Commercial Officer
Joe, they are moving a lot with what the news is that’s going on, that people are hearing and experiencing themselves. and it is moving, I’d say, probably a little quicker than what I had personally anticipated even from a few weeks ago. But again, I just have to caution by saying it’s on a relatively low base. So that’s — in my prepared remarks, we talked about taking our June schedule. We’ve added some more flying back into where we had initially started. So we are seeing some more movement on that. The fares are still low.
If you would have asked me, like I said earlier, three weeks ago, I would have had a different answer to this question. So we are starting to see some signs of some traction. Again, I just have to caution that it’s on a low base.
Joseph DeNardi — Stifel — Analyst
Okay. That’s fair. And then, Scott, just given the conversations you’re having with Airbus, can you just kind of level set like, what that means in terms of fleet count, like sometime or middle of next year, where do you see the fleet, just based on the discussions you’re having now?
Scott M. Haralson — Senior Vice President and Chief Financial Officer
Yeah. Hey Joe, I can’t give exact numbers here. We’re still in the midst of the discussions. But I would expect our new deliveries over this, call it, 18-month period from the middle of this year, through 2021, those new deliveries to be down around 40% or so, give or take. So you can do the math there and sort of figure out whatever the number is. But that’s about the extent of the detail I can give at this point.
Joseph DeNardi — Stifel — Analyst
Okay. With no aircraft leaving the fleet?
Scott M. Haralson — Senior Vice President and Chief Financial Officer
That’s — yeah, a different discussion. But as we talk about with Airbus, that’s the way we’re thinking about the number of deliveries coming in. We talked earlier about the number of unencumbered aircraft we have and that kind of flexibility. So those will be different thoughts and discussions about how we either exit that fleet or encumber that in some type of financing facility or not.
Joseph DeNardi — Stifel — Analyst
Okay. Thank you very much.
DeAnne Gabel — Investor Relations
Thank you very much. Everyone, have a nice day.
Scott M. Haralson — Senior Vice President and Chief Financial Officer
Thank you.
Ted Christie — President & Chief Executive Officer and Class III Director
Thank you.
Operator
[Operator Closing Remarks]