Q2 2020 Allegiant Travel Co Earnings Call

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Ladies and gentlemen, thank you for standing by and walk through the Q2 2020, Allegion travel company earnings call. At this time all participants are in listen only mode. After the speakers presentation. There will be a question and answer session, who asked the question during the session due to the press star one on your telephone if you require further assistance. Please press star one zero I went electric is.

Police Conference call, Missouri, Wilson, you may be getting ma'am.

Thank you Kevin welcome to the elite travel company second quarter 2020, earning call on the call with me today, our Maury Gallagher, the company's chairman and Chief Executive Officer, John Redmond, The company's President Scott Sheldon our E VP and Chief operating Officer Grade Anderson, our SVP and Chief Financial Officer Scott.

Hello, our EVP and Chief Marketing Officer drew wells, our VP of revenue and planning and a handful of others to help answer questions. We will start with some commentary and then open it up to question. The company's comments today will contain forward looking statements concerning our future performance and strategic plans various risks factors could cause the underlying assumptions.

These statements and our actual results to differ materially from those expressed or implied by our forward looking statements. These risk factors and others are more fully disclosed in our filings with the FTC any forward looking statements are based on information available to US today, we undertake no obligation to update publicly any forward looking statements whether as a real.

Also future events, new information or otherwise the company cautions investors not to place undue reliance on forward looking statements, which maybe based on assumptions and events that do not materialize debut this earnings release as well as the rebroadcast of the call feel free to visit the company's Investor Relations site and I are dot Allegion area.

Tom with that I'll turn it over to mores, making sure. Thank you all for joining us today [noise].

First let me thank all of our team members their spouses and families. As we continue to fly our passengers during these difficult comps they've done yeoman's work.

I'm sure you've all heard of the movie Groundhog day with Bill Murray of as adventures of repeating the same day over and over.

That's where we find arsenals today, each day seems to be repeating itself as we wanted our way through the slow motion Videocon cobot.

Hi, this is managing through these repetitive awkward days in our own way bottom line I believe things will get better, but most likely not as fast as we all would have liked today, we have the airline industry are printing proving our economic hopes on the upcoming holidays at the end of the year and 2021.

Many of my colleagues have been providing your best guesses on what will happen in the future. So let me throw a few ideas out there.

First and foremost I don't believe we'll go back to a full shutdown people just won't put up with us.

While we were made an operating profit in June very proud of that.

Until we might be back to some form of normal for you I don't believe we will get back to those numbers anytime soon and minimum the near term calendar will not allow at present, we believe we have our plan we have to play on this current state as being the norm.

Near term problem is how do we worked towards breakeven cash flow when middle of August until November 15th is traditionally one of our slowest periods, particularly September given the problems. We are seeing it will be even more difficult than in past years, assuming no cares extension adjusting labor costs is our number one cash flow lever available.

As we work towards.

Work towards our breakeven cash flow goal.

We will eliminate 220 jobs, including 87 personnel associated with those jobs on October Onest, a difficult task, but a necessary one we're in the late stages of discussions with our other contract personnel that will allow us to generate the needed savings in the coming months, we want to keep as many team members onboard as possible to take advantage of our.

Operating peaks to do this in between these peaks, we need financial really far labor payrolls we.

We need to spread the pain as we've said in the past to save labor expense. Accordingly. Unfortunately, our pilots leadership is unwilling to work with US on this approach and as a result, we have notified the IBT management and we intend to follow up to as many as 275 of our crew members pilots that is while we regret having to do this these numbers will allow us to optimize both.

Thanks, and values that we just discussed in the coming months and into 2021.

We'll hear more about this from Scott Sheldon and just a moment with respect to liquidity. We're in good shape, given what we know today, our cash balance was $663 million at the end of the quarter up almost 50% from our Q1 balance. We also have other capital avenues open to us if we feel we have a need to go to market, including near term prospects.

An extension of the Caretech and Greg will fill you in was more of those specifics I.

Im very happy how we've managed through our worst we're situations in the past five months, we've led the industry. Most almost all the new now what we call. The now important operating areas, including we had the largest percentage of our schedule flown compared to other carriers, we had the largest percentage of passengers carried compared to our historic market share.

And we had the best negative cash burn percentage.

Joked around the office, who we are the best of the worst given the state of the airline industry in the tourism industry overall.

Once again, our model with its flexibility is allowing us to react as demand dictates. We will continue to beat our strategic asset in the coming months as we quickly adjust to the vagaries that the market allows us to experience who is providing us with terrific financial results over the years and continues to allow us to lead the industry in near term results.

Our financial strength has also allowed us to minimize the dilution to our shareholders. During this period.

As I said in our last call we have not had to go to the equity or convert markets and have no plans to.

Our $200 million plus of tax refunds from and our wells has and will provide us with the equivalent of a good sized equity raise those going a little dollars. Our return of our tax dollars paid on our profits from our 68 quarters or profitability in past months in years.

These are difficult times hard to believe times, frankly, hopefully there'll be some relief in the near term by a slowdown in the virus cases, perhaps the only better near term news given the increasing cases, we've been experiencing is at the rate of dust has dropped substantially.

Many people are working tirelessly to find ways to both control and in this terrible plague news of vaccines are reassuring to decline reported cases would also be beneficial but at the end of the day to return to any semblance enormously to begin to interact with those as we used to do people have to believe they won't become infected this is particularly important for our industry says.

This leisure activities involve people congregating and close quarters.

Are you hearing good news about increased testing good we need more of this and while more testing is better I'm concerned about its ability to scale to levels, we need about the time. It takes to receive results in about one one what one does with the information on their status, namely it's easy to know what to do if you Havent you quarantine yourself.

If you are test is negative you're happy about the results for what do you do with this information how does it help the instant problem, we have getting together with others and feeling good about it.

If you look at our medical establishment. It was not design nor does it have the capacity to provide us. The one thing we all want and need most in today's cobot environment information.

And I get my negatively test results good information like I said, but then what.

As an important and perhaps more important I will information that tells me. The person next to me is not infected not a big ask until it becomes everyone 330 million people then it becomes an almost impossible ask only the federal government can manage this tap this national task I would hope there are plans in the offering to develop a national approach to managing this pandemic and.

The next one than assure default we cannot allow this type of into caused this level of destruction anytime in the future.

In the meantime, as I said on the last call I believe we will continue to be one of the top performers in my opinion, we have the ability to flex ourselves to meet the conditions better than any other carrier.

Our model will continue to service well lastly, I want to again personally. Thank each one of our team members for all the have done force. During these trying past five months you are the backbone of this company in the meantime, an airline space. We will take care business. We are survivors with a great company and an excellent business model John.

Thank you very much more and good afternoon, everyone of course I Echo for his comments regarding our incredible a team members here in the sacrifices they and their families have made.

Through this craziness of times.

That extend a quick couple of minutes talking about leisure travel space. Since those are the only people flying now and deep into 2021, if not all of 21.

On most other airlines the lucrative business traveler accumulates frequent flyer miles using a company credit card for business related travel and then uses their accumulated miles from business travel as currency to pay for their leisure travel.

The databases of these other airlines are populated with people who is leisure travel is free or substantially offset through the use of the cumulated business travel Myles.

I am sure a lot of the or walking examples of this.

As a result, there was little to no reason for these individuals to comparison shop when traveling for leader.

As these other curious pivot to leisure travel only environment. They are marketing to people, who historically have not used their own wallet for leisure travel well some of these people fair shop going forward when using their own money.

I would imagine some percentage will ask the burning off the accumulated points.

The leaders database on other hand as populated solely with people who have used their own money since the inception of the airline.

We have been accumulating E mails and data on these cash payment leisure customers over 20 years, we have been marketing to these individuals pushing leisure only travel options for longer than any other domestic carrier that is not an accident that we are performing better than all the other airlines in the leisure only environment.

Speaking of leisure I want to further expand on the 20 million settlement was six three partners.

As long as the agreement was in place we were required to invest another 150 million in equity with a completion guarantee end date.

December of 21.

The settlement agreement gives us much more flexibility in dealing with the project from an outright sale finding an additional equity partner or further borrowings Greg will expand further in his comments.

In the coded 19 related special charges section of the release, there was an additional salary and benefit expense relating to position limits safe eliminations that Greg will expand on in his comments.

As difficult as a decision was this demonstrates how quickly we will move to reduce cash burn and right size. The business model going forward, we will pull additional cost out if necessary to adjust to the revenue environment, we find ourselves said.

On that note alternate over to Scott.

Thank you John and good afternoon, everyone first I'd like to thank our 4500 plus team members and partners across the network for their outstanding service.

Since the start of this pandemic.

Has been amazing in the sensitivity and carrying shown our guests and each other or the reason, we have and will continue to be successful.

So it has resulted in a challenging all aspects of our operation in ways. We couldn't have contemplated six months ago from shutting down operations restarting operations cancelling revising schedules cutting costs educating consumers, creating new safety strategies and held policies have all introduced a great deal of complexity to the operation and the.

Team's execution has been something we should all be proud of.

From the onset of the pandemic wait three immediate focus areas. The first was ensuring the safety of our passengers on leasing team members. This continues to grow our top priority our customer experience leadership team members of our emergency Command center have done an amazing job rolling out initiatives related to allegiance going the distance for health and safety program offering.

Additional layers of safety for our guests, Germany, along with an enhanced educational campaigns to drive consumer confidence are critical to our long term success.

Second one is rapidly adjusting our daily operations to reflect a near zero demand environment, while positioning our operational cost structure for the long term slow recovery as you'll hear from drew our strategy and maintaining a wide selling footprint managing cancellations close and on seven to 10 day cycle has resulted in our outsized QQ performance.

Relative to our industry peers. Unfortunately, we find ourselves at somewhat of a crossroads as we look for additional cost saving opportunities as we exit our summer peak into what has traditionally our weakest quarter much more on that to follow and third less to develop an aircraft storage program for potential fleet management scenarios as we progressed through the recovery.

As mentioned on our earlier call our fleet induction maintenance and engineering teams did a tremendous job standing up a flexible program that will allow us to execute any number of strategies in the back half the year on short notice.

Despite a successful gene we all recognize how deep is pandemic really is and is clearly going to last longer than we had hoped cobot hotspot flare ups quarantines state pausing reopening plans and any in many cases reimposing restrictions provide for a very choppy and uncontrollables demand outlook as we move into the back half the.

Year, our focus now becomes how do we balanced our continued approach at casting a wide selling that maintain based in labor structure integrity, while driving much needed cost relief, particularly in soft shoulder months no doubt costs have to come out of the organization in this current revenue environment.

If we're going to approach our goal of being cash flow neutral by the end of year. Therefore, our focus has been in continues to be driving down labor costs and improving productivity.

Said differently doing more with less employees and all aspects of the organization.

During the second quarter, we made strides in reducing labor costs in both unionized and non unionized work groups.

On the non unionized labor front, we eliminated 121 positions within the ops organization.

These reductions are expected to save the company approximately 9 million annual labor costs, the voluntary or early retirement programs.

Also with virtually all nine on non long line level support teams working from home, we continue to find ways to drive productivity and consolidate areas that responsibility, which we feel confident there are more safe.

And the event. These savings are not attainable, we may look at a second round of head count reductions in order to meet our goals.

On the unionized labor fine we were very transparent from the start of the pandemic on challenges we faced as an organization. We work closely with Union leadership for weekly meetings and educational town halls to specifically layout our strategy knowing we need their involvement in cooperation at some point will that point is unfortunately now.

Despite the fact, we are able to drive approximately $10 million in line level labor savings due to combination on emergency time off agreements and better scheduling practices, which essentially drove down flight crew guarantees to contractual minimums, we need additional cooperation has care support funds roll off October one if we.

Want to eliminate network disruption.

As Morry mentioned in his opening remarks, we've been in discussions with all unionized or groups to drive create creative solutions to reduce labor costs and much needed off peak periods. We've made substantial progress with most most work groups and hope to has something to report shortly that being said, we have noticed IBT leadership of our intention to follow up to 200.

For the seven five pilots. Unfortunately, there appears to be little appetite within the IBT leadership to engage in constructive talks. Therefore, we have taken the first necessary step and plan to execute accordingly.

In closing we remain focused on structuring our organization for the current reality cobot is here to stay it's unpredictable and relying on a stable demand outlook isn't the best strategy.

Reducing controllable costs naming labor, while maintaining maximum flexibility is what we're focused on we planned push forward with labor discussions and remain optimistic we can come to some sort of creating solution, but are ready to modify our approach if need be on all this is a difficult balancing act, but I'm confident our team is up for the challenge and with that I'll turn it over to Scott Angela.

Thank you Scott.

Our commercial approach remains focused on going to distance for health and safety, while providing value and flexibility to customers. During these uncertain times.

And our unique business model of all non stop routes, which enable our customers to avoid crowded hubs.

The consumer distribution, which enables us to sell at industry low sales and marketing costs and focused on selling beyond the aircraft to third party products, all helped us punch above our weight so to speak in Q2 and continue to position us well as market demand returns.

During the second quarter, despite the challenging demand environment Allegion solved relative highs in web traffic and load factor versus the industry and as Morry had mentioned our share of total us passengers was nearly three times higher than it was during the second quarter last year.

In addition, our increasingly press sites and predictive digital marketing approach along with co op finding support from many of our great airports and destination partners enabled us to reduce our sales and marketing costs on a curve booking basis by more than 90%.

There is no silver bullet to generating demand at a time like this but there is a silver lining and getting more cost efficient and effective at capturing the debt that demand that does exist across the markets we serve.

We continue to stay close to our customers primarily through our weekly customer sentiment tracking survey, which we've been fielding weekly since march or finding that the everyday mobility of our customers has become a leading indicator of sorts for their willingness to travel.

About two thirds of our customers currently say they feel comfortable eating out at restaurants or going to shopping centers, where they left.

When it comes to travel nearly one third tell us they plan to travel by air in the next three months and half plan to do so before the ended the year.

Only one quarter customers say that they're actually delaying travel plans altogether. Most are closely monitoring the situation before bulking or simply traveling and plant.

It certainly helps that more than half of our customers continue to report that their personal finances has not been negatively impacted by the Kobin 19 situation.

And an additional one third say that their personal finances have only been somewhat negatively impacted.

Are those customers to flow with us during Q2, 20% refine between their primary residential and a second vacation home one third were visiting family, our relatives and just under half or on vacation or even working remotely at a hotel our effective vacation rental.

To that end, we continued to be vigilant by engaging with our hotel partners across the nation to create more value for our customers and stronger economics for our leadership.

We're also addressing trends were beginning to see emerge as part of the next normal.

For example, we're working with a top Las Vegas Casino resort, operator to capture opportunities presented by the right and remote working.

As John referenced earlier that business traveler paying on the corporate card is now giving way to the individual traveler paying our own way to work remote but away from home.

And last but may be most notable has been allegiance unique ability to serve point has become a relatively strong in reverse travel trend as people from larger cities like Los Angeles, Oakland and Phoenix in the west or light Tampa, Orlando and Fort Lauderdale in the east have increasingly plan.

In their vacation to more natural less crowded destination like Yellowstone National Park, Mount Rushmore, The Smoky Mountains, and Niagara Falls and with that I'll turn it over to drill drill wells.

Head of revenue flat, but thank you Scott and thanks, everyone for joining us this afternoon.

Our approach of maintaining a wide selling footprint enable us to capitalize exceedingly well on the increasing demand cadence throughout the second quarter.

We believe our ability to match demand the supply is unparalleled in virtually every week in the quarter, both revenue per flight and the percentage of flying versus our pre cobot 19 expectation increase from the previous week.

We recorded a 56.8% load factor, while operating roughly 70% of our expected June schedule.

We accomplish that through deep cuts on off peak, Tuesdays and Wednesdays, while growing asms year over year on many peak days.

In turn as has been mentioned, our 6% share at Ts a throughput in the month was roughly four points higher than our prior year figure.

At destinations reopened demand improved not just for flying but also for the third party products that help further differentiate ourselves from the industry.

Auto and hotel per passenger is higher in the month of June versus the prior year led by Scott and teams work strengthening relationships with many great partners and creating new opportunities.

Our strategy of reviewing flights in the seven to 10 day window resulted in minimal close and cancellations through June and to date in July.

However, we continue to review and monitor to ensure the schedule is rightsides for the demand we are seeing.

Our normal seasonal variance will kick in mid August when the schedule dropped precipitously as it does every year.

Even prior to covert 19 September was scheduled to operate at less than 50% of july's departures.

This will still be the case as departures will almost certainly below 5000 for the month and over 90% of routes are currently scheduled to operate only two times per week.

Bookings have trended slightly better over the last few weeks after a rough start to July.

The slope is definitely shallower than the initial recovery period, we experience, but any positive slope is certainly welcome.

This fall and winter have a wide range of potential results and we look to continue to be flexible in our approach.

It is too early to make any call.

On where the schedule will shake out for where we think daily revenues will be.

We are comfortable reacting to and operating a near full schedule as we have done throughout summer a skeleton schedule as we Didnt April and anything in between.

This would not be possible without all of our incredible team members in a business model structure around extreme flexibility.

Thank you to all the team members that have continued to relentlessly push forward through the stops in the starts with that like turned over to Greg.

Thank you drew and thank you everyone for joining us today.

After the second quarter 2020 revenues declined by 73% and we recorded in the adjusted net loss of $95 million or a $5. A 96 cents per share. This excludes items pertaining to the impact of cobot 19, particularly the benefit of $75 million of cares Act payroll support offset by route.

<unk> million dollars a special charges.

Simply put our focus remains on liquidity and readers reducing cash burn through.

Thanks to our quick response to increase liquidity and reduce cash burn we improved our total cash balance by nearly $200 million and ended the quarter with $663 million cash.

Regarding cash burn our second quarter average daily cash burn was $900000 down from our original estimate of 2.1 million per day and in fact for the month of June we produced a slightly positive daily cash inflow.

As a reminder, our daily cash burn a defined as cash from operations less debt and repeat Britain rent payments and Capex. It excludes aircraft acquisitions, new financings and cash benefits from the cares Act.

Also during the second quarter, we received 200 million between payroll support funds in our first installment of our 2018 19 and oil carry back tax refund. In addition, we raised nearly 80 million in aircraft financings 48 million of which pertains to a sale leaseback of four aircraft and the remaining $31 million a loan secured by two aircraft at a very low interest rate.

During July we will release, we will receive our remaining 10% of the payroll support funds or $17 million and we've already received the SEC second installment of our in oil carry back refunds of nearly $50 million.

Beyond the liquidity sources, we have tapped thus far we expect to receive an additional $125 million by mid 2021, and a cash refund through our 2020 in oil carry back.

Furthermore, we have an option to access alone of up to 270 million available to the cares Act along with unencumbered assets with the market value of just under $400 million.

However, managing cash burn still remains our most effective liquidity strategy as we look ahead, our average cash burn for the third quarter would be just over $1 million per day, assuming gross bookings per day of $2 million for the quarter. This is based on booking trends thus far in July and represents a reduction of approximately 60% from 2019 booking levels.

If current booking trends do not improve and remained flat to the duration of the year, we expect our third quarters cash burn to be the highest of any quarter moving forward as we have the ability on October onest to further rightsize our cost structure.

Managing our cash burn effectively helps us highlights a flexibility of the model we have refined over many years in fact back in 2000 fours annual letter to Allegion team members. Mr. Gallagher said and I quote is easy to be low fare and that can be done almost instantaneously by lowering ones prices. The hard part is being low cost.

That is an everyday commitment from each and every one of US that's what makes the low fair bit work in an efficient cost structure is the best insurance for our success close quote.

More than 16 years later mores words in this core principle of our model couldn't be more true. We continue to believe we have the most variable cost structure in the airline industry Allegion remains de low cost carrier built around low utilization, which allows us to nimbly adjust capacity to match the demand environment as a recent example, during the second quarter we reacted.

Quickly to adjust capacity due to shifting demand during April and May we pull back capacity by as much as 87 and 50% respectively. However in June we only pulled back capacity by 30% due to the relative demand strength.

This flexibility not only allowed allegion to take full advantage of the stronger demand in June but also reduced direct operating expenses in April name.

To further illustrate on roughly 50% fewer asms during the second quarter, our adjusted operating expense was down 38% versus the same period a year ago. This was largely driven by a 77% decrease in fuel expense and reductions in other slight volume related expenses.

Additionally, total labor cost were down 17.5% year over year. Despite an increase in total airline fts of nearly 10% with an even larger increase in crew members of roughly 17%.

These labor cost reductions were helped in large part by our mini team members, who volunteered to contribute by reducing their pay and are taking voluntary lead our sincerest things because apt to each and every one of them.

Turning to debt real quick we ended the quarter was 1.5 billion in total debt nearly flat compared to the same period in 2019 since that time, our average cost of debt is reduced by more than 150 basis points and this reduction is evidenced by more than 30% reduction in second quarter interest expense versus same period a year ago.

Additionally, more than 60% of our outstanding debt relates to secure in aircraft and Amortizes quickly over an average of just five years.

This rapid paydown in debt results in annual principal payments of roughly $150 million and as a reminder, these payments are included within our cash burn definition.

Defending our balance sheet has been another top financial preorder priority for us as we navigate this very fluid environment, where we stand today. We believe we are well positioned to emerge on the other side of this crisis with one of the stronger balance sheets in the sector.

Looking to Capex for the remaining six months of 2020, we expect total capex to be roughly a $165 million of which 135 million relates to the acquisition of five Athree 20 aircraft and for spare CFM engines, we expect all these acquisitions to be financed.

We expect full year capex to be approximately $375 million compared to our initial plan of approximately $750 million, we've reduced our total full year airline capex by 100 million from planned levels and total capex by over $375 million for the year.

And looking to 2021, we only have two committed aircraft currently we anticipate total 2021 capex to be around $125 million.

Looking over to fleet, our flexibility here has always been critical to allegiance business model and that continues today you may recall that there are up to 22 aircraft identified for either early retirement, our storage in order to defer maintenance related costs in to rightsize. The fleet. Fortunately, our flexible business model gives us the ability to make fleet descent decisions.

In a nimble manner.

Adjusting as we go based on a variety of factors, including but not limited to our current and projected at year end cash position demand trends status of the used aircraft market and opportunities for growth when demand returns for now the decision has been made to retire seven of the 22 identified aircraft five will retire by year end and the other two in 2021.

And 23, respectively.

Retirement date for each aircraft for schedules around the respective upcoming heavy maintenance events. This allows us to utilize remaining green time on these assets.

We maintain further flexibility with our fleet through six aircraft currently in storage status and that will take place to be at least early 2021 and in the event, we need to reduce our fleet counts due to continued weak demand we would maintain flexibility through these aircraft.

Conversely, though should we see improvements in passenger demand our fleet team plan. Our fleet planning team has identified several aircraft in the U.S market that would be a good fits for our fleet moving forward.

And with that said, we entered 2020 with 91 total Airbus aircraft. During the year aircraft inductions are largely offset by the aircraft retirements and storage, bringing our expected in service fleet count to 93 at year end.

In regards to special charges booked during the quarter 59 million of noncash expense related to book loss on the sale leaseback of four aircraft coupled this with accelerated depreciation related to the retirement of the seven aircraft and write offs on other aircraft related assets.

And just to note approximately $60 million of additional noncash expense associated with the retirement of the seven aircraft that will be recognized in subsequent quarters with roughly 12.6 of the remaining 16 million being recognized in the third quarter. This year.

Also during the quarter and as John mentioned, we accrue $20 million minimal knee field minimum yield fee on the expectation to terminate our sunseeker loan commitment with Sixthree partners to see is expected to be paid throughout the remainder of the year. The chemistry. They have been good partners and we appreciate their continued supported the project as evidenced by their willingness to work.

With us on an extension of their commitment however, without clear line of sight of when we can resume constructions. Both parties agreed the best path forward at this time with the to terminate their loan commitment.

We continue to explore various strategic options for sunseeker as John mentioned all options are on the table as we look for best ways to optimize our investment there. We believe there's significant value in the land value in the possible in oil and our value. If we resumed construction much later on down the road and finally during the second quarter and consistent with the cares Act, we reduced 220.

Positions from our corporate management and just more teams many of which were voluntary into early retirements. These reductions are expected to save the company approximately 15 million annually in labor costs.

It's very difficult for us to see so many talented hard working team members moving on from Allegion ourselves our sincere. Thanks for their tireless efforts over the years it will be greatly missed and with that we will turn it over to our operator for questions.

Ladies and gentlemen, if you have a question or comment at this time. Please press the star than the one key on your touched on telephone. If your question has been answered. The wishing you spoken would you. Please press the pound.

Also our Sicher limit yourself to one question and one follow up.

First question comes from Helane Becker of Cowen.

Hi, everybody. Thank you very much operator I appreciate the.

The time thank you.

For all of that information.

So im just thinking about the network in the way it looks right now and I'm wondering if you could.

You know just talk about Las Vegas versus.

Versus Orlando and their focus cities because it looked like based on that Las Vegas data. There are about 120000 passengers that went through Las Vegas in the quarter versus the 1.3, almost 1.27 million that you carried.

You know that youre pretty occurring so I'm, just kind of wondering what that what the network looks like.

You know or will look like on in September maybe thanks.

Certainly and this is drew all all kick this one off.

So we anticipate the networks going to look very similar to how it always has will pull back in September much like we have every year really since the inception of the company, obviously, Florida is a bit more impacted by the seasonal swings in Vegas is which stays a bit more flat I think that will be exacerbated this year with kind of more pent up demand for Vegas, given the shut.

Downs earlier this year.

I think it's also fair to say that Orlando never really got the large step change we expected with the reopening of theme parks down there.

My impression of that is given the limited capacity theme parks were allowing if you didn't already have a reservation. It was very hard to create a new one therefore generate new travel down to the area Vegas, obviously being different having the room capacity and having that elevating has created more opportunity. So I think Vegas has certainly held up better and will come.

Thank you to hold up better through September that Orlando for the reason.

Okay, and then for my follow up question on.

On the head count I, just wanted to be clear on that you announced 220, I think and not including the pilots.

Should we think about more I.

I guess I'm, a little confuse you talked about eliminating 220 jobs, but 87 people on October Onest does that mean, there are open jobs that you're just not filling for.

Or are there other people later on that kept terminated sorry, I didn't I got geltech on a little confused there [laughter].

Good question and one we should clarify so thanks for asking that Helane, Yes, I would say there is 220 total positions of those some of those positions where individuals that left let's say from April through June. So we weren't counting those as part of the 87 on the 87 or what we are the individual we notified on a particular day.

And then some more some remaining open positions that we were just not going to backfill and those are all corporate admin ups in roles.

Note that wasn't a lever on the left on the labor side at all.

So that thanks for the question that that hopefully that helps with Walmart color there.

Yes that is very helpful. Thank you very much for.

For your answers I appreciate it.

Thanks willing.

Thanks.

Our next question comes from Mike Linenberg with Deutsche Bank.

Yes, Hey.

Good afternoon, everybody I guess.

Quick ones here, Greg the.

Million just over a million burned for gain this Q you indicated that does include a portion of the 20 million accrual what how much of that accrual actually runs through the.

September quarter.

No we haven't finalized that yet with the Sixthree folks, Michael but I think what from for modeling purposes, perhaps a way to do at Asus take that and amortize it.

Straight over the rest of the year.

Okay. Okay. That's helpful and then.

On your air traffic liability at June Thirtyth, you were 355 million now is that is that a short term number there or are your refunds vouchers that you have R&D only good for 12 months or have you have actually extended that beyond 12 months.

Yes, now that you're right. We did we extended into two years and so of the I think the $350 million Hcl.

And what we're seeing today is roughly 60% or credit vouchers, that's down a little bit front on when we reported in April.

And so yes and in the remainder of the advance bookings a part of that but some of those added to your point has been extended for on the credit batches for two years.

Okay very good that's all ahead. Thank you.

Michael.

Our next question comes from device framework with Evercore ISI.

Hey, Thank you.

So.

I don't know, if you're able to speak to it but I think about allegion as a carrier, which will fly as much as it possibly can win when the demand is there and you know not fly as much when the demand is not there.

Can you talk about the flexibility or the incremental.

Flexibility that you're seeking and is this something that yet.

You gave up in at some point in the past when when margins were Super high end and clearly the demand was there to support it.

Well I'll describe Evan I don't know than we've ever given that up you can go back year after year with the or famous graph, which shows January low going up peaking in March falling off in April we again June July following very noticeably almost half or more in September and starting to work its way back to us.

Good for you ended the year that graph is repeated god decade for more.

As far as this one certainly drews.

Now with peaks of in what they have been historically although.

Who knows how much higher or lower will be in September than we otherwise would accrue with what's what's the plan.

One of the things that we've talked about in the past is coming out of MD 80 and into Airbus actually exacerbated the peaks and valleys right, though we were able to fly up significantly more in March in July.

Maintaining the same roughly the same level of utilization in September. So so we kind of stretch that out so debt to echo Maurice might I believe we've given anything up and we we maintain the ability to fly is much as we can win when the demand exists. All we're trying to do right now I think all we're trying to communicate that we're trying to rightsize the entirety of the organization.

And to match, where demand is as we see it.

And still provide optionality for for what May come.

While the other components.

Scott can touch on this little bit is we really dug into a lot of things that we otherwise sport looking carefully at to save cash like scheduling how do we optimize schedule with crews and flight attendants and.

Ill, particularly the early days, we were canceling so much we had lot of ups and downs, but.

We're much more efficient ivig Scott than we were a couple even coming into this thing with how we are able to deal with cruise.

Yes, if you kind of look at the build up of base sizes. So if you kind of looking medium to small bases, which are anywhere from six aircraft down to one.

Our inherently less cost effective and efficient, but they contain about half of our labor our flight crews and so.

Yes, all that is built into the economics during good times, but one year builds for call. It 30000, plus block hours and you're flying maybe 40%.

You take a hard look at still getting through the footprint that he needs, but how do you how do you reduce costs in a reasonable manner.

But there's a point in which to get substantial savings you really got a sharp pulling based structures down and thats something that we really would not like to do which is why we're in active negotiations trying to get specific early for off peak periods. So.

That's that's super helpful Thats Super helpful.

Just just on the the cost reductions that you're outlining.

I don't know if you can say, but what what level of revenue decline sort of post these cost saves what level of revenue decline you think you could achieve cash flow breakeven and thanks for taking the questions.

Sure Duane this is Greg.

And if you bake into some of these lever on these levers excuse me that we're anticipating to Paul particularly in the fourth quarter.

I think we could get to cash flow breakeven at.

Year over year bookings are down to 40% to 45%.

They are elevated above that I think the way you'd have to get there. In this has just kind of expanding on Scott's point as you probably you'd have to take further productions, such as like consolidating basis and things like that tend to get the cost down a breakeven point.

I'm not suggesting we do that I think regardless in the fourth quarter and we're going to be.

Rather low on the cash burn fronts, I believe will be significantly lower than we are in the third quarter and now we're just going to manage the business for flexibility in the best we can.

Now we Havent owner here next test Maury Gallagher is looking at this.

Every day, and he's asking questions and making sure we're making the right decision. So we'll continue to lift can try and react as nimbly and flexibility as we can but I think to long story short that yet in the fourth quarter, we'd we'd be able to pull down quite a bit on the labor front.

To get near breakeven I'll wait another comment it's an interesting question I was asking the group. We really are never looked at breakeven load factor when you're looking at 21% operating margins.

We are averaged in 2019 of candidly, we didnt know the 65% of course, you got that were vagaries in revenue 'cause unit revenue I think Michael I look to has a schedule somebody was showing on Atlanta trip out of New York for $9.

So you're going to see a lot of the unit revenue pieces are going to be problematic, but our third party revenues coming on strong.

We will making money in June I don't think anybody can say that takeaway the exceptional stuff.

The model still is.

Responsive goes all Hell Anda I think we're going have to find some unit revenue as everybody just piles back in and nobody quite knows how to comprise things because it's all new booked.

I'm pretty bullish as deno is getting to a cash flow breakeven, we can do as best as anybody can going forward.

Appreciate the thoughts thank you.

Our next question comes from Sally Smith with revenues.

Hi, good afternoon.

Justin.

On the loan program the carriers Akron program just wondering.

Is this kind of stands that you still might not need to tap into that are you.

Has that changed and what have you had a discussion on what kind of collateral not east for that.

Hey, Savi. Thanks for the question, it's Greg, Yes, set so as far as whether or not we're going to take it thats still undecided.

I wouldn't read into though that we havent signed an ally that were not still eligible for it we certainly are.

BJ NIE, we're having great discussions with the treasury team in the PJ team their advisors about the loan.

Just an interesting kind of tidbit on it we.

We allegion. We also qualify for the main street lending program save we could find a bank to support that so we've been talking with treasury and some banks about potentially that program and we're not saying we're going to tap that either just looking at options. If you will and the benefit to that program as compared to just that cares act loan is that doesn't require warrants.

And then everything else is pretty similar.

But in terms of collateral just to answer that question.

I think theyve been pretty responsive on kind of what we can do and what the are the possible as with collateral we have the unencumbered aircraft and engines those would be kind of the prime collateral. If you will open. However, we also qualify.

Per unsecured if you look at the requirements on the cares act loan for unsecured and so.

My point with that saying is if we decide to pull that lever I think we can we should have the ability to raise up to the deals liquidity available to us under that program.

Again, we're not we're not ready to make that Paul at this point in time.

Okay, and if I might add follow up on some of the Sunseeker comment just wondering so what's your timeline for making a decision. There I know you have a team in place.

How should we think about when certain decisions have to be made about that or have you taken just kind of block you in a 12 to 24 months.

Good thing again, you know less called.

So I'll be we said, we weren't going to touch anything you're doing for 18 months soon.

But thinking hasn't changed at all but we don't have any staff to speak of other than.

Three individuals and their operating on significant reductions in pay.

We have a couple of people working through the construction.

Closed down if you will so you need to have these people it's not like.

Parking in airplanes. When you saw the construction process when it's in process you have to wind down payables and everything else. So theres just a handful of people level still that are still remaining all working on significant pay cuts so our burn associated with that project.

Thats very minimum levels.

Is there so from a new movement on 18 months that is there Ed timeline, if you're kind of taking a strategic alternative to you.

To the spin it off worse NDC in one team, it's going to continue with a startup the construction again when do those efficiencies to be made rights and no such kind of.

We don't we don't have any committed timeline.

On what we've already stated having said that.

Pipe I, probably get a call the week regarding what the article possible is so we are entertaining and exploring the options that I made in my comments, whether there's an opportunity for an outright sale, but whether as an opportunity to JV it or bring in another equity partner or to look at.

Borrowing the entire amount that's left to be built in all of these are options around the table beyond sitting and waiting.

And doing nothing for 18 months so.

We are exploring those we haven't rule anything out to think Thats. The takeaway should come out here is is we are open to everything.

So it's not like we're seeing they're saying, we're not going into this market to do that.

We had to say that arguably before this call. A report this last couple of weeks when we've had the conversations both TSP, but now that we have reached a settlement with them. We let the options are wide open we have no limitation.

That's helpful. Thank you.

Hello.

[music].

Our next question comes from Joseph Joseph Denardi with Stifel.

Hey, good evening guys.

Maybe drew.

Just the commentary in the release about June bookings being up for a period year over year can you just talk about why that isn't a pretty bullish state point maybe that.

The quality of that demand in terms of of price plan, what exactly that may does that mean or revenues up for a period or just kind of absolute bookings. Thanks.

Sure Joe Yes. So it was certainly a bullish time for those few days before things changed again. It was just looking at a segment counts so the number of people.

Buying buying tickets and traveling not the revenues I wouldn't read that far into it.

But yes that was kind of when we were at our high point and really looking forward to what the rest the here could be before about the third fourth we could June when when it turned back down that you've heard from everyone else though.

That was a distant memory at this point.

I would simply add the key thing now where there were some key catalysts right. There was Las Vegas coming online June 3rd.

Universal Studios, Walt Disney World Shortly after that.

So there was that kind of a grand reopening if you will.

And since then just as drew mentioned, we lack kind of at least an obvious catalyst for what Ken.

Yes through the ceiling. They currently exists.

Since we've already kind of reopened in now hold back end or pause I open.

Is there is not an obvious staring us in the face like flip a switch like we had in early June.

Okay. That's helpful and then maybe Gregory.

Got Sheldon I think the plan was last quarter that you would maybe at the strength of fleet by 25 aircraft like how did the recovery in June in form that decision. How are you all thinking about that now.

Sure I'll kick it off in parts of Scott or anybody wants to add to it Joe you know I think what I'd say is in June we were we remain cautiously optimistic but.

We certainly in July we saw bookings coming down again, and just goes back to flexibility and fleet flexibility and Fortunately, we're in a position and allegion here because a lot of hard work in the past that weekend being nimble with our fleet and so as we think about the number of aircraft to retire in the future we're kind of taking a day by day extended.

Beacon and that will change the approach and we decided on up to seven aircraft today, earning greet recently and that's because those aircraft made a lot of sense for us to retire as we compared add their reliability their age their ability to generate additional cash as we repaid as we compare their investments and things of that nature. We've.

Terminal at these were good aircraft that to put down at this point in time.

And that's going to save on cost down the road, particularly on the heavy maintenance side and then one last thing I may add just before aircraft strangled somebody else has said we stopped flexibility with sitting on a 22 number hasn't changed we still have that flexibility six or in storage and we'll continue to evaluate six more of those excuse me and storage and then we'll continue to evaluate the rack.

The remaining 10 on it on a go forward basis, and just trying to be flexible on react accordingly.

Thanks, I'll get back into queue.

Industrial.

Our next question comes from Matthew Mcclintock with Barclays.

Hi, Thanks for taking my question.

So I just wanted to come back to how you are the management thinking about adding incremental capacity back are you are you managing the load factors are his idea to managing the covering variable costs or some type of profitability level. As you are adding incremental flights are taking them out any thoughts there would be appreciated.

Yeah. This is your here and your latter point exactly right, we're still thinking about.

Cash basis cash profitability as we're thinking about capacity.

But as Morry stated there is not necessarily one load factor that drives or necessitates.

Whether or not that flight, we will make money, but thats very much where we're focused is variable costs and as as we start to gain margin on that it becomes a lot easier to sprinkling more peak day flying and more markets where.

Where required.

Okay.

And I guess kind of as a side as the ancillaries per passenger stay relatively intact.

Year over year.

Can you keep that rate.

Going forward or is there something skewing that in the near term because.

If I'm.

I'm wrong.

Second set you up pretty pretty well ticket pricing ducts.

Based on competitive pressures.

Yes, well this has certainly been the largest test for our ancillary our thesis has always been that ancillaries is much more sticky than than the air component.

And I think we've shown that over the last few months, we're still over 50 per passenger and air ancillary.

The is a third party such that things are open and available to sell for resorts and for auto will be there and the co brand credit card has been phenomenal both during the third party as well.

I have I have confidence that the ancillary can continue to remain sticky and at levels, we're seeing today.

Okay. Thank you.

Thank you.

Our next question comes from Hunter Keay with Wolfe Research.

Hi, how are you guys.

The Middle class, sorry, Hey, Hey, good to talk to EPS I'm, sorry, the call dropped for like five minutes unfamiliar scripted remarks, I'm sorry, if you touched on this I doubt it but.

John and Morry other than price what are some of the conditions.

On a sale of sunseeker or a scenario, where you relinquished some portion of control of the project.

Oh Gosh Hunter I.

It's there's still zero opportunities now other than a occasional call that gets labia.

Given the focus is on the airline.

Today, we probably wouldn't take much to do good has got cash associated with it or not.

I'd like to see US stay involved in the management because John is we just feel good about stuff but.

Really I just don't talk about it that much of near John's got this or that offer come across the transom, but.

Todays world, it's pretty hard to get even muster a reasonable offer I think the hunter you can appreciate we kind of loose some negotiating leverage if we.

Talked about what price, we have except over the earnings call. So we won't go that far but I guess the takeaway as I mentioned.

Earlier is that there is a willingness to have those kind of conversations and have any kind of conversation regarding any opportunity. So I think the the you made some allusion to that but we don't have any restrictions on anything we're open to having any and all dialogue I have a phone call tomorrow, that's an interesting one.

And I have on as I say I get that at least one one phone call a week. So it's one of those stories stay tune.

That that story is yet to be written we just don't know.

How is going to play out and what we are open to any numerous options that are out there.

100, just big picture statement the strategy is solid and sound that we we embark on here. We've sold third party revenues for 20 years, we've proven year in Europe that we could make money on that.

You look at the strength of the West coast to Florida evolve the areas in this country is probably is among the strongest.

Because the people going there are older and they have money and they are less affected by this and thats going to continue its got a tremendous history.

So the combination of that the bread basket. The feed we can bring to act from where we fly all the markers are incredibly strong so while we're not going to putting capital into it.

At this point in time longer term as a strategies I think that what were embark on is a diversification that second to none in the industry and we've got a Greeks headstart without that asset. So we certainly want to stay involved in some fashion defeat ourselves.

You know and continue to enhance third party revenues.

So that's a good strategic.

That's great. Thank you I appreciate that more and then.

Pollen talk to your second at the IBT disagreement that you talked to be you mentioned down.

I assume that was them just not really cooperating with your vision of facilitating voluntary early outs, but more importantly, how does that impact to your support or lack thereof.

Central PSP extension.

Does that factor and thank you.

Yes, I think.

Kevin If you look at the strategy right. So we had a really wide schedule out there.

First half a may we cancel the ton off we flew a lot more in the back half. The May June was down but it was relatively intact in July year over year was down 10% maybe on departures. So.

Yes, the workforce that on the surface it looks like everything is good.

We are flying full schedules.

But then you start to see spikes flare ups and just as Scott mentioned, what's the vision, what's the expectation for the back half the year in each has got to assume it's going to be bumpy and.

So thats kind of how we position this.

And early on I mean, we're educating folks on what was our option option any which is let's go wide and so otherwise or be which has consolidate and so I think theres a middle ground there.

What the issue we had in July as we couldn't really Grand a lot of short term lease because we need to the body's when we were fonts business lines, such as a relatively healthy schedule and so.

This is just you know to protect the off peaks.

As far as around too.

If that does come through obviously, that's the that we're going to have to pivot and change the discussions but.

If that doesn't hits like I said, we still want to have these discussions there is a solution here, we proposed a number of different kind of creative ways in order to flex down inflect stuff to give these guys clarity on what snap back provisions would look like and so.

It's just tougher like I said on the surface. They just assume everything is great and we're just preparing for a very soft off peak period.

The 100, we have managed print peaks and valleys consistently for years. So.

Ideas that we.

Can pick up is important to us because thats, you'll have discovered long time ago, you make more money on Sunday, the new to the other seven days the six days a week and you want to carry those seats around for your profit potential same analogy applies to those peak periods, where you are marches slide 20%, 25% of our operating income in historic terms. So.

So you need to bodies to do that type of flying but now in this period what were our ask is as we spread that that cost during the trip the bottom and when we get less expense going forward Thats cash management Warner one so those thats Gascon most of our people are getting it some people they just want to leave status quo and.

Thats their their call that's their group to management, which are basically saying here is that.

We'll go to the top guys are going to get taken care of in the bottom guys still we don't care.

Fertilizer work what happens in the industry, so anyway different philosophies for different people yen in kind of the number around the 275 I mean that really maintains the footprint. If you go above that then there is going to be a consolidation of basis.

Which is painful thats over a longer term different strategy.

But at the end of the data in Mike worn going there.

So this is this is kind of our first first pass audits.

I think until you start pushing notices and rosters of impacted folks.

Technically it's not real and so.

We'll see we'll see how these folks these folks respond, but if you know the day in the 275 folks that's worth about 25 to 30 million in payroll.

But you give upside from a from a network configuration standpoint.

Thank you, ladies and gentlemen conclude securing a portion of the conference I'd like turn the call back over to Maury Gallagher for closing remarks.

Thank you all for your time through shoot.

So we've seen from the next 90 days, we'll talk to October. Thank you.

Well it brings us conclude todays presentation you may now disconnect and have a wonderful day.

Hi.

[music].

[music].

Ladies and gentlemen, thank you were standing by and walk through the Q2 2020, Allegiant travel company hurting school at this time all participants are in listen only mode. After the speakers presentation. There will be a question and answer especially to asked a question. During the session you to press star one on your telephone if you require further assistance. Please press star zero I want to let you guys.

Trophies Congress arbitrary Wilson, you may be getting better.

Thank you Kevin welcome to the elite don't travel company second quarter 2020 earnings call on the call with me today, our Maury Gallagher, the company's chairman and Chief Executive Officer, John Redmond, The company's price. It got killed in our E VP and Chief operating Officer, Greg Anderson, our EVP and Chief Financial Officer Scott.

Hello, our EVP and Chief marketing officer drill wells, our VP of revenue and planning and a handful of others to help answer question. We will start with some commentary and then open it up to question. The company's comments today will contain forward looking statements concerning our future performance with strategic plans various risk factors could cause the underlying assumptions.

These statements and our actual results to differ materially from those expressed <unk> implied by our forward looking statements. These risk factors and others are more fully disclosed in our filings with the FCC any forward looking statements are based on information available to US today, we undertake no obligation to update publicly any forward looking statements whether other.

He's also future events, new information or otherwise the company cautions investors not to place undue reliance on forward looking statements, which maybe based on assumptions and events, but do not materialize debut this earnings release as well as the rebroadcast of the call feel free to visit the company's Investor Relations website at <unk> or Dot Allegion area.

Uh huh with that I'll turn it over to mores, making sure. Thank you all for joining us today.

First let me thank all of our team members their spouses and families. As we continue to fire passengers. During these difficult comps they've done yeoman's work.

I'm sure you've all heard at the movie Groundhog day, with Bill Murray and as adventures of repeating the same day over and over.

That's where we find ourselves today, each day seems to be repeating itself as we wind our way through the slow motion video cold cold it.

Each of us managing through these repetitive awkward days in our way bottom line I believe things will get better, but most likely not as fast as we all would have liked today, we have the airline industry are printing printing our economic hopes on the upcoming holidays at the end of the year and 2021.

Many of my colleagues have been providing your best guesses on what will happen in the future. So let me throw a few ideas out there.

First and foremost I don't believe we'll go back to a full shutdown our people just won't put up with it.

While we are made an operating profit in June very proud of that.

That's all we might be back to some form of normal free I don't believe we'll get back to those numbers anytime soon and amount on the near term calendar will not a lot at present, we believe we have a plan we have to pay on this current state as being the norm.

Near term problem as how do we worked towards breakeven cash flow on middle of August the until November 15th is traditionally one of our slowest periods, particularly September given the problems. We're seeing it will be even more difficult than in past years, assuming no cares extension adjusting labor costs is our number one cash flow lever available.

As we work towards Oh, we work towards our breakeven cash flow goal.

We will eliminate 220 jobs, including 87 personnel associated with those jobs on October Onest, a difficult task, but necessary. One we're in a late stages of discussions with our other contract personnel that will allow us to generate the needed savings in the coming months, we want to keep as many team members onboard as possible to take advantage of our.

Operating peaks to do this in between these piece, we need financial really far labor payrolls.

We need to spread the pain as we've said in the past to save labor expense. Accordingly. Unfortunately, our pilots leadership is I'm going to work with US on this approach and as a result, we have notified the IBP management, we intend to follow up to as many as 275 of our crew members pilots that as.

While we regret having to do this these numbers will allow us to optimize both the peaks and valleys that we just discussed in the coming months and into 2021.

We'll hear more about this from Scott Sheldon and just a moment with respect to liquidity. We're in good shape, given what we know today, our cash balance was $663 million with the ended the quarter up almost 50% from our Q1 balance. We also have other capital avenues open to us if we feel we have a need to go to market, including near term prospects.

An extension of the cares Act and Greg will tell you and with more of those specifics I'm very happy how we've managed through our worst we're situations in the past five months, we've led the industry. Most almost all the new now what we call. The now important operating areas, including we had the largest percentage of our schedule flown compared to other carriers, we are the larger.

As percentage of passengers carried compared to our historic market share and we had the best negative cash burn per se.

Joked around the office. So we are the best of the worst given the state of the airline industry and the tourism industry overall.

Once again, our model with its flexibility is allowing us to react as demand dictates. It will continue to be our strategic asset in the coming months as we quickly adjust to the vagaries that the market allows us to experience has provided us with terrific financial results over the years and continues to allow us to lead the industry in near term results our financial strength.

There's also allowed us to minimize the dilution to our shareholders. During this period.

As I said in our last call we have not had to go to the equity or convert markets and have no plans to.

Our $200 million plus of tax refunds from animal wells has and will provide us with equivalent of a good sized equity raise most going a little dollars. Our return of our tax dollars paid on our profits from our 68 quarters or profitability going past months of years.

These are difficult times hard to believe times, frankly, hopefully there'll be some relief in the near term via slowdown in the virus cases, perhaps the only better near term news given the increasing cases, we've been experiencing is at the rate of dust has dropped substantially.

Many people are working tirelessly to find ways to both control and this terrible play news of vaccines are reassuring decline reported cases would also be beneficial but at the end of the day to return to any semblance enormously to begin to interact with those as we used to do people have to believe they won't become infected this is particularly important for our industry since.

Leisure activities involve people congregating and close quarters.

Is there any good news about increased testing good we need more of this and while more testing is better I'm concerned about its ability to scale to levels, we need about the time. It takes to receive results and about one was one does with the information on their status, namely it's easy to know what to do if you haven't few quarantine yourself.

If you are test is negative you're happy about the results, but what are you do with this information how does it help the instant problem, you're getting together with others and feeling good about it.

If you look at our medical establishment. It was not design nor does it have the capacity to provide us. The one thing we all want and need most in today's cobot environment information.

And I get my negatively test results good information like I said, but then what.

As an important perhaps more important I want information that tells me. The person next to me is not infected not a big ask until it becomes everyone 330 million people then it becomes it almost impossible ask only the federal government can manage this path. This national task I would hope there are plans and the offering to develop a national approach to managing this pandemic and.

The next one that is sure to fall we cannot allow this type of into caused this level of destruction anytime in the future.

In the meantime, as I said on the last call I believe we will continue to be one of the top performers in my opinion, we have the ability to flex ourselves to meet the conditions better than any other carrier.

Our model will continue to service well lastly, I want to again personally. Thank each one of our team members for all they have done Forrester and these trying past five months you are the backbone of this company in the meantime in the airline space, We will take care business, we're survivors with a great company and an excellent business model John.

Thank you very much more and good afternoon, everyone of course I Echo for his comments regarding our incredible team members here in the sacrifices they and their families have made.

Sure this craziness of time.

I thought I spend a quick couple of minutes talking about leisure travel space. Since those are the only people flying now and deep into 2021, if not all of 21.

On most other airlines the lucrative business traveler accumulates frequent flyer miles using a company credit card for business related travel and then use their accumulated miles from business travel as currency to pay for their leisure travel.

Databases of these other airlines are populated with people who is leisure travel is free or substantially offset through the use of the cumulated business travel mild.

I am sure a lot of Youre walking examples of those.

As a result.

There was little to no reason for these individuals to comparison shop when traveling for leader.

As he doesnt curious pivotal leisure travel only environment their marketing to people, who historically has not use their own wallet for leisure travel.

Well some of these people fair shop going forward when using their own money.

I would imagine some percentage will after burning off the accumulated points.

The Allegion database on other hand as populated solely with people who have used their own money since the inception of the airline.

We have been accumulating E mails and data on these cash paying leisure customers for over 20 years, we have been marketing to these individuals pushing leisure only travel options for longer than any other domestic carrier and there's not an accident that we're performing better than all the other airlines in the leisure only environment.

Speaking of leisure I want to further expand on the 20 million settlement was six three partners.

As long as the agreement was in place we were required to invest another 150 million.

Equity with a completion guarantee end date.

December 21.

The settlement agreement gives us much more flexibility and dealing with the project from an outright sale finding an additional equity partner or further borrowings Greg will expand further in his comments.

Nicole that 19 related special charges sex. Another release, there was an additional salary and benefit expense relating to position on the safe eliminations that Greg will expand on in his comments.

As difficult as a decision was this demonstrates how quickly we will move to reduce cash burn and right size. The business model going forward, we will pull additional cost out if necessary so adjust to the revenue environment, we find ourselves.

On that note ill turn over to Scott.

Thank you John and good afternoon, everyone first I'd like to thank our 4500 plus scheme on merchant partners across the network for their outstanding service.

Since the start of this pandemic.

Has been amazing when the sensitivity in carrying shown our guests and each other or the reason, we have and will continue to be successful.

So it has resulted in challenging all aspects of our operation ways, we couldn't have contemplated six months ago from shutting down operations restarting operations.

I was wondering revising schedules cutting costs educating consumers, creating new safety strategies and help policies have all introduced a great deal of complexity to the operation and the team's execution has been something we should all be proud of.

On the onset of the pandemic with three media focus areas. The first wasn't sharing the safety of our passengers and leadership team members. This continues to get a top priority our customer experience leadership team members of our emergency Command center have done an amazing job rolling out initiatives related to allegiance going the distance for health and safety program.

Offering additional layers of safety for our guests, Germany, along with an enhanced educational campaigns to drive consumer confidence are critical to our long term success.

Second one is rapidly adjusting our daily operations to reflect a near zero demand environment, while positioning our operational cost structure for the long term slow recovery.

We'll hear from drew our strategy of maintaining a wide selling footprint managing cancellations close then on seven to 10 day cycle has resulted in our outsized QQ performance relative to our industry peers. Unfortunately, we find ourselves at somewhat of a crossroads as we look for additional cost saving opportunities as we exit our summer peak interwar.

Finally, our weakest quarter much more on that to follow and third was to develop an aircraft stored for around for potential fleet management scenarios as we progressed through the recovery as mentioned on our earlier call our fleet induction maintenance and engineering teams done a tremendous job standing up a flexible program that will allow us to execute any number of strategy.

On the back half the year on short notice.

Despite a successful June we all recognize how deep is pandemic really is and is clearly going to last longer than we had hoped cobot hotspot flare ups quarantines state pausing reopening plans and in many cases ran posing restrictions provide for a very choppy and uncontrollables demand outlook as we move into the back half the.

Our focus now becomes how do we balanced our continued approach at casting a wide selling that maintain based on labor structure integrity, while driving much needed cost relief, particularly in soft shoulder months no doubt costs have to come out of the organization in this current revenue environment.

If we're going to approach our goal or being cash flow neutral by the end of the here.

For our focus has been continues to be driving down labor costs and improving productivity.

Said differently doing more with less employees and all aspects of the organization.

During the second quarter on made strides in reducing labor costs in both unionized and non unionized work groups.

On the non unionized labor front, we eliminated 121 positions within the ops organization. These reductions are expected to save the company approximately 9 million and labor costs, the voluntary or early retirement programs.

Also with virtually all line non long flying level support teams working from home, we continue to find ways to drive productivity and consolidate areas that responsibility, which we feel confident there are more safe.

And then these savings are not attainable, we may look at a second round of head count reductions in order to meet our goals.

On the unionized labor fine we were very transparent from the start of the pandemic on challenges we faced as an organization. We work closely with Union leadership for weekly meetings and educational town halls, just specifically layout our strategy, knowing we would need their involvement in cooperation at some point well that point is unfortunately now.

Despite the fact, we are able to drive approximately $10 million in line level labor savings due to combination on the emergency time off agreements and better scheduling practices, which essentially drove down flight crew guarantees to contractual minimums, we need additional cooperation has care support funds roll off October one if we.

Want to eliminate network disruption.

As Morry mentioned in his opening remarks, we've been in discussions with all unionized or groups to drive create creative solutions.

To reduce labor costs and much needed off just curious.

We've made substantial progress with most most work groups and hope to have something to report shortly that being said we have noticed IVC leadership of our intention is a follow up to 207 five pilots. Unfortunately, there appears to be little appetite within the IBT leadership to engage in constructive talks. Therefore, we have taken the first necessary step and plan to execute.

Accordingly.

Closing, we remain focused on structuring our organization for the current reality cobot is here to say, it's unpredictable and relying on a stable demand outlook isn't the best strategy, reducing controllable costs naming labor, while maintaining maximum flexibility is what we're focused on we plan to push forward with labor discussions and remain optimistic we.

Can come to some sort of creative solution, but are ready to modify our approach. It maybe on all this is a difficult balancing act, but I'm confident our team is up for the challenge and what that will turn it over to study Angela. Thank you Scott.

Our commercial approach remains focused on Boeing the distance for health and safety, while providing value and flexibility to customers. During these uncertain times.

Unique business model of all non stop routes, which enable our customers to avoid crowded hubs.

Consumer distribution, which enables us to sell at industry low sales and marketing costs.

And focused on selling beyond the aircraft and third party products, all helped us punch above our weight so to speak in Q2 and continue to position us well as market demand returns.

During the second quarter, despite the challenging demand environment allegion soft relative highs in web traffic and load factor versus the industry and as Morry had mentioned our share of total us passengers was nearly three times higher than it was during the second quarter last year.

In addition, our increasingly press site and predictive digital marketing approach along with co op funding support from many of our great airports and destination partners enabled us to reduce our sales and marketing costs on a herd booking basis by more than 90%.

There is no silver bullet to generating demand at the time like this but there is a silver lining and getting more cost efficient and effective at capturing the demand that does exist across the markets we serve.

We continue to stay close to our customers primarily through our weekly customer sentiment tracking survey, which we've been building weekly since March.

We're finding that the everyday mobility of our customers has become a leading indicator of stores for their willingness to travel.

About two thirds of our customers currently say they feel comfortable eating out at restaurants or going to shopping centers, where they led.

When it comes to travel nearly one third tell us they plan to travel by air in the next three months and half trying to do so before the ended the year.

Only one quarter of customers say that theyre actually delaying travel plans altogether. Most are closely monitoring the situation before bulking or simply traveling as planned.

It certainly helps that more than half of our customers continue to report that their personal finances has not been negatively impacted by the Kobin 19 situation.

And an additional one third and say that their personal finances have only been somewhat negatively impacted.

For those customers to flow with us during Q2, 20% refine between their primary residential and a second vacation home one third were visiting family or relative and just under half were on vacation or even working remotely added hotel or a big vacation rental.

To that and we continue to be vigilant by engaging with our hotel partners across the nation to create more value for our customers and stronger economics for Allegion.

We're also addressing trends were beginning to see emerge as part of the next normal.

For example, we're working with a top Las Vegas Casino resort, operator to capture opportunities presented by the rise in remote working.

As John referenced earlier that business traveler paying on the corporate card is now giving way to the individual traveler paying their own way to work remote but away from home.

And last but maybe most notable has been allegiance unique ability to serve what has become a relatively strong reverse travel trend as people from larger cities like Los Angeles outlet in Phoenix and the west.

Our light Tampa, Orlando and Fort Lauderdale, Indeed have increasingly plan their vacation to more natural less crowded destination like Yellowstone National Park, Mount Rushmore, The Smoky Mountains, and Niagara Falls and with that I'll turn it over to Jim drill wells.

Head of revenue Latin great. Thank you Scott and thanks, everyone for joining us this afternoon.

Our approach of maintaining a wide selling footprint enable us to capitalize exceedingly well on the increasing demand cadence throughout the second quarter.

We believe our ability to match demand of the supply is unparalleled in virtually every week in the quarter, both revenue per flight and the percentage of flying for as our pre cobot 19 expectation increase from the previous week.

We recorded a 56.8% load factor, while operating roughly 70% of our expected June schedule.

We accomplish that through deep cuts on off peak, Tuesdays and Wednesdays, while growing asms year over year on many peak days.

In turn as has been mentioned, our 6% share TSH throughput in the month was roughly four points higher than our prior year figure.

At destinations reopened demand improved not just for flying but also for the third party products that help further differentiate ourselves from the industry.

Auto and hotel per passenger was higher in the month of June versus the prior year led by Scott and teams work strengthening relationships with many great partners and creating new opportunities.

Our strategy of reviewing flights in the seven to 10 day window resulted in minimal close in cancellations through June and to date in July.

However, we continue to review and monitor to ensure the schedule is rightsides for the demand we are seeing.

Our normal seasonal variance will kick in mid August when the schedule dropped precipitously as it does every year.

Even prior to covert 19 September was scheduled to operate at less than 50% of july's departures.

This will still be the case as departures will almost certainly be below 5000 for the month and over 90% of routes are currently scheduled to operate only two times per week.

Bookings have trended slightly better over the last few weeks after a rough start to July.

The slope is definitely shallower than the initial recovery period, we experience, but any positive slope is certainly welcome.

This fall and winter have a wide range of potential results and we look to continue to be flexible in our approach.

It is too early to make any call.

On where the schedule will shake out or where we think Danny revenues will be.

We are comfortable reacting to and operating a near full schedule as we have done throughout summer a skeleton schedule as we Didnt April and anything in between.

This would not be possible without all of our incredible team members and a business model structure around extreme flexibility.

Thank you to all the team members that have continued to relentlessly push forward through the stops and starts with that let's turn it over to Greg.

Thank you Jim and thank you everyone for joining us today.

For the second quarter 2020 revenues declined by 73% and we recorded in the adjusted net loss of $95 million or a $5. A 96 cents per share. This excludes items pertaining to the impact of covert 19, particularly the benefit of $75 million of cares Act payroll support offset by a.

A million dollars a special charges.

Simply put our focus remains on liquidity and readers reducing cash burn.

Thanks to our quick response to increase liquidity and reduce cash burn we improved our total cash balance by nearly $200 million and ended the quarter with 663 million of cash.

Regarding cash burn our second quarter average daily cash burn was $900000 down from our original estimate of 2.1 million per day and in fact for the month of June we produced a slightly positive daily cash inflow.

As a reminder, our daily cash burn a defined as cash from operations less debt and ramping written rent payments and Capex and excludes aircraft acquisitions, new financings and cash benefits from the cares Act.

Also during the second quarter, we receive 200 million between payroll support funds in their first installment of our 2018 19 and well carry back tax refund. In addition, we raised nearly 80 million in aircraft financings 48 million of which pertains to a sale leaseback of four aircraft and the remaining $31 million a loan secured by two aircraft at a very low interest rate.

During July we will release, we will receive our remaining 10% of the payroll support funds or $17 million and we've already received the SEC second installment of our Noel carry back refund of nearly $50 million.

Beyond the liquidity sources, we have tapped thus far we expect to receive an additional $125 million by mid 2021, and a cash refund through our 2020 NFL carry back.

Furthermore, we have an option to access alone of up to $270 million available to the cares act along with unencumbered assets with the market value of just under $400 million.

However, managing cash burn still remains our most effective liquidity strategy as we look ahead, our average cash burn for the third quarter would be just over $1 million per day, assuming gross bookings per day of $2 million for the quarter. This is based on booking trends thus far in July and represents a reduction of approximately 60% from 2019 booking levels.

If current booking trends do not improve and remained flat through the duration of the year, we expect our third quarters cash burn to be the highest of any quarter moving forward as we have the ability on October onest to further rightsize our cost structure.

Managing our cash burn effectively helps us highlighted flexibility of the model we have refined over many years in fact back in 2004 as annual letter to Allegion team members. Mr. Gallagher said and I quote is easy to be low fare and that can be done almost instantaneously by lowering ones prices. The hard part is being low cost.

That is an everyday commitment from each and every one of US that's what makes the low fair bit work in an efficient cost structure is the best insurance for our success close quote.

More than 16 years later mores words in this core principle of our model couldn't be more true. We continue to believe we have the most variable cost structure and the airline industry Allegiant remains de low cost carrier built around low utilization, which allows us to nimbly adjust capacity to match the demand environment as a recent example, during the second quarter we reacted.

Quickly to adjust capacity due to shifting demand during April and May we pulled back capacity by as much as 87 and 50% respectively. However in June we only pulled back capacity by 30% due to the relative demand strength.

This flexibility not only allowed allegion to take full advantage of the stronger demand in June but also reduced direct operating expenses in April and May.

To further illustrate on roughly 50% fewer asms during the second quarter, our adjusted operating expense was down 38% versus the same period a year ago. This was largely driven by a 77% decrease in fuel expense and reductions in other flight volume related expenses.

Additionally, total labor costs were down 17.5% year over year. Despite an increase in total airline fts of nearly 10% with an even larger increase in crew members of roughly 17%.

These labor cost reductions were helped in large part by our many team members, who volunteered to contribute by reducing their pay and are taking voluntary lead our sincere. Thanks goes out to each and every one of them.

Turning to debt real quick we ended the quarter with 1.5 billion in total debt nearly flat compared to the same period and 29 team since that time or average cost of debt is reduced by more than 150 basis points and this reduction is evidenced by more than 30% reduction in second quarter interest expense versus same period a year ago.

Additionally, more than 60% of our outstanding debt relates to secure aircraft and amortize quickly over an average of just five years.

This rapid paydown in debt results in annual principal payments of roughly $150 million and as a reminder, these payments are included within our cash burn definition.

Defending our balance sheet has been another top financial preorder priority for us as we navigate this very fluid environment, where we stand today. We believe we are well positioned to emerge on the other side of this crisis with one of the stronger balance sheets in the sector.

Looking to Capex for the remaining six months of 2020, we expect total capex to be roughly a $165 million of which 135 million relates to the acquisition of five Athree 20 aircraft and for spare CFM engines, we expect all these acquisitions to be financed.

We expect full year capex to be approximately $375 million compared to our initial plan of approximately $750 million, we've reduced our total full year airline capex by 100 million from planned levels and total capex by over $375 million for the year.

And looking to 2021, we only have two committed aircraft currently we anticipate total 2021 capex to be around $125 million.

Looking over to fleet, our flexibility here has always been critical to allegiance business model and that continues today you may recall that there are up to 22 aircraft identified for either early retirement, our storage in order to defer maintenance related costs in to rightsize. The fleet. Fortunately, our flexible business model gives us the ability to make the fleet descent decisions.

In a nimble manner.

Adjusting as we go based on a variety of factors, including but not limited to our current and projected year end cash position demand trends status of the used aircraft market and opportunities for growth when demand returns for now the decision has been made to retire seven of the 22 identified aircraft five will retire by year end and the other two in 2021.

And 23, respectively.

Retirement dates for each aircraft for schedules around their respective upcoming heavy maintenance events. This allows us to utilize remaining green time on these assets.

We maintain further flexibility with our fleet through six aircraft currently in storage status and that will take place to be at least early 2021 and in the event, we need to reduce our fleet count due to continued weak demand we would maintain flexibility through these aircraft.

Firstly, though should we see improvements in passenger demand our fleet team plan. Our fleet planning team has identified several aircraft in the U.S market there would be a good fit for our fleet moving forward.

And with that said, we enter 2020 with 91 total Airbus aircraft. During the year aircraft inductions are largely offset by the aircraft retirements and storage, bringing our expected in service fleet count to 93 at the year end.

In regards to special charges booked during the quarter.

59 million of noncash expense related to book loss on the sale leaseback of four aircraft coupled this with accelerated depreciation related to the retirement of the seven aircraft and write offs on other aircraft related assets.

Just to note approximately $16 million of additional noncash expense associated with the retirement of the seven aircraft.

Recognized in subsequent quarters with roughly 12.

The remaining 16 million being recognized in the third quarter this year.

Also during the quarter and as John mentioned, we accrue $20 million minimal knee, Phil minimum yield fee on the expectation to terminate our sunseeker loan commitment with six three partners. The fee is expected to be paid throughout the remainder of the year. The team has an extreme they have been good partners and we appreciate their continued supported the project as evidenced by their willingness to work.

With us on an extension of their commitment however, without clear line of sight of when we can resume constructions. Both parties agreed the best path forward at this time would be to terminate their loan commitment.

We continue to explore various strategic options for sunseeker as John mentioned all options are on the table as we look for best ways to optimize our investment there. We believe there's significant value in the land value in the possible into well and our value. If we resumed construction much later on down the road and finally during the second quarter inconsistent with the cares Act, we reduced 220.

Positions from our corporate management and more teams many of which were voluntary into early retirements. These reductions are expected to save the company approximately 15 million annually in labor costs.

It's very difficult for us to see so many talented hard working team members moving on from Allegion ourselves our sincere. Thanks for their tireless efforts over the years it will be greatly missed and with that we will turn it over to our operator for questions.

Ladies and gentlemen, if you have a question or comment at this time. Please press the star them a warranty on your touched on telephone. If your question has been answered. The wishing you spoken would you. Please press the balance sheet.

Also worth it you limit yourself to one question and one follow up.

First question comes from Helane Becker of Cowen.

Hi, everybody. Thank you very much operator I appreciate the.

The time thank you.

All of that information.

So im just thinking about that network in the way it looks right now and I'm wondering if you could.

You know just talk about Las Vegas versus.

Versus Orlando and their focus cities because it looked like based on that Las Vegas data. There are about 100 and Twentyish thousand passengers that went through Las Vegas in the quarter versus the 1.3, almost 1.27 million that you carried.

You know that youre carrying so I'm just kind of wondering what that what the network looks like.

You know or will look like.

September maybe thanks.

Certainly and this is true all all kick this one off.

So we anticipate the networks going to look very similar to how it always has will pull back in September much like we have every year really since the inception of the company, obviously, Florida is a bit more impacted by the seasonal swings in Vegas is which states a bit more flat I think that will be exacerbated this year with kind of more pent up demand for Vegas, given the shut.

Downs earlier this year.

I think it's also fair to say that Orlando never really got the large step change we expected with the reopening of theme parks down there.

My impression of that is given the limited capacity theme parks were allowing if you didnt already have a reservation. It was very hard to create a new one and therefore generate new travel down to the area Vegas, obviously being different having the room capacity and having that elevating has created more opportunity. So I think Vegas has certainly held up better and will come.

Turning to hold up better through September than Orlando for the reasons.

Okay, and then for my follow up question on.

On the head count I, just wanted to be clear on that you announced 220, I think and non including the pilots.

Should we think about more I.

I guess I'm, a little confuse you talked about eliminating 220 jobs, but 87 people on October 1st does that mean, there are opened jobs that you're just not filling for.

Or are there other people leader on that get terminated sorry, I didn't I guess I got a little confused there [laughter].

It's a good question and one we should clarify so thanks for asking that Helane, Yes, I would say there's 220 total positions of those some of those positions were individual that left let's say from April through June. So we weren't counting those as part of the 87 on the 87 or what we are the individual we notified on a particular day.

And then some Morrison remaining open positions that we were just not going to backfill and those are all corporate admin ups in roles.

Note that wasn't a lever on the left on the labor side at all but so that thanks for the question that that hopefully that helps with a little more color there.

Yes that is very helpful. Thank you very much for.

For your answers I appreciate it.

Thanks Helane.

Thanks.

Our next question comes from Mike Linenberg with Deutsche Bank.

Yes, Hey.

Good afternoon, everybody I guess two quick ones here Greg the.

Million just over million burned for gain since Q. You indicated that does include a portion of the 29 accrual what how much of that accrual actually runs through the.

September quarter.

No we haven't finalized that yet with the Sixthree folks, Michael but I think what from for modeling purposes, perhaps a way to do at Asus take that and amortize it.

Straight over the rest of the year.

Okay. Okay. That's helpful and then.

On your air traffic liability at June Thirtyth, you were 355 million now is that is that any short term number there or are your refunds. The vouchers that you have are they only good for 12 months or have you have actually extended that beyond 12 months.

Yes, no that you're right. We did we extended into two years and so I think the 350 million Hcl.

And what we're seeing today is roughly 60% or credit vouchers, that's down a little bit from when we reported in April.

And so yes on and the remainder of the advanced bookings are part of that but some of those added to your point had been extended for on the credit about just for two years.

Okay very good that's all ahead. Thank you.

Michael.

Our next question comes from device spending work with Evercore ISI.

Hey, Thank you.

So.

I don't know, if you're able to speak to it but I think about allegion as a carrier, which will fly as much as it possibly can when when the demand is there and you know not fly as much when the demand is not there.

Can you talk about the flexibility or the incremental.

Flexibility that you're seeking and is this something that yet.

You gave up in at some point in the past when when margins were Super high and clearly the demand was there to support it.

Well I'll describe Evan I don't know that we've ever given that up you can go back year after year with the or famous graph, which shows January low going up peaking in March falling off in April we again June July following very noticeably almost half or more in September and starting to work its way back to us.

If the ended the year that graph is repeated.

Decade or more.

As far as this one certainly drews.

The peaks of than what they have been historically although.

Who knows how much higher or lower will be in September than we otherwise would accrue.

What's the plan.

One of the things that we've talked about in the passes.

Coming out of MD, 80, and into Airbus actually exacerbated the peaks and valleys right, though we were able to fly up significantly more in March in July while maintaining the same roughly the same level of utilization in September. So so we kind of stretch that out so that to echo morally point I believe we've given anything up and we maintain the ability to fly.

As much as we can win when the demand exists all we're trying to do right now I think all we're trying to communicate that we're trying to rightsize the entirety of the organization to match where demand is as we see it.

And still provide optionality for for what May come.

The other components that Scott can touch on this little bit is we really dug into a lot of things that we otherwise sport looking carefully at to save cash like scheduling how do we optimize schedule would crews and flight attendants.

Ill.

Particularly early days, we were capturing so much we had lot of ups and downs, but.

We're much more efficient ivig Scott than we were a couple coming into this thing with how we are able to deal with cruise.

Yes, if you if you kind of look at the buildup of base sizes. So if you kind of look and medium to small bases, which are anywhere from six aircraft down to one.

Our inherently less cost effective and efficient, but they contain about half of our labor our flight crews and so.

All that is built into the economics during good times, but when you're builds for call. It 30000, plus block hours and you're flying maybe 40%.

You take a hard look at still getting through the footprint that he needs, but how do you how do you reduce costs in a reasonable manner.

As a point in which to get substantial savings you really got a sharp on based structures down and that's something that we really would not like the new which is why we're in active negotiations trying to get specific early for off peak periods. So.

Yes, that's that's super helpful Thats Super helpful.

Just just on the cost reductions that you're outlining.

I hope you can say, but what what level of revenue decline sort of post these cost saves what level of revenue decline you think you could achieve cash flow breakeven and thanks for taking the questions.

Sure Duane this is Greg.

If you back into some of these lever these levers excuse me that we're anticipating to Paul particularly in the fourth quarter.

I think we could get to cash flow breakeven at.

Year over year bookings are down to 40% to 45%.

They are elevated above that I think the way you'd have to get there and this has just kind of expanding on Scott's point as you probably you'd have to take further productions, such as like consolidating basis and things like that to get the cost down a breakeven point.

Im not suggesting we do that I think regardless in the fourth quarter and we're going to be.

Rather low on the cash burn fronts, I believe will be significantly lower than we are in the third quarter and we're just going to manage the business the flexibility in the best we can.

Now we Havent owner here next test Maury Gallagher is looking at this every day and he's asking questions and making sure we're making the right decisions. So we'll continue to left can try and react as nimbly and flexibility as we can but I think long story short that yet in the fourth quarter, we'd we'd be able to pull down quite a bit on the labor front.

Get near breakeven.

Another comment.

Interesting question I was asking the group, we really I'd never looked at breakeven load factor when you're looking at 21% operating margins.

We are averaged in 2019 of.

And we Didnt know the 65% of course, you got that were vagaries in revenue because unit revenue right Hey, Michael I look to has a schedule somebody was showing on Atlanta trip out a new York for $9.

So youre going to see a lot of the unit revenue pieces are going to be problematic, but our third party revenues coming on strong.

We will making money in June I don't think anybody could say that takeaway the exceptional stuff.

The model still is.

Responsive goes all Hell and I think we're ahead for quite some unit revenue as everybody just piles back in and nobody quite knows how to the pricings, because it's all new but.

I'm pretty bullish.

Good to have cash flow breakeven, we can do it as best as anybody can going forward.

Appreciate the thoughts thank you.

Our next question comes from sat respect with Raymond James.

Hey, good afternoon.

Justin.

On the loan program the carriers Akron program just wondering.

Is this kind of stands that you still might not need to tap into that or you.

Has that changed and what have you had a discussion on what kind of collateral is for that.

Hey, Savi. Thanks for the question, it's Craig, Yes, set so as far as whether or not we're going to take it thats still undecided.

I wouldn't read into though that we havent signed an ally that were not still eligible for it we certainly are.

BJ NIE, we're having great discussions with the Treasury team is the PJ team their advisors about the loan.

Just an interesting kind of ticket on it we.

Allegion. We also qualify for the main street lending program save we could find a bank to support that so we've been talking with treasury and some banks about potentially that program and we're not saying we're going to tap that either just looking at options. If you will and the benefit to that program as compared to just that cares act loan is that doesn't require warrants.

And then everything else is pretty similar.

But in terms of collateral just to answer that question.

I think theyve been pretty responsive on kind of what we can do and what the are the possible as with collateral we have the unencumbered aircraft engines those would be kind of the prime collateral if you will but however, we also qualify.

For unsecured if you look at the requirements on the cares act loan for unsecured and so.

My point with that saying is if we decide to pull that lever I think we can we should have the ability to raise up to the the liquidity available to us under that program.

But again, we're not we're not ready to make that Paul at this point in time.

Okay, and if I might add follow up on some of the from take our comments.

During so what's your timeline for making a decision there I know you have a team in place.

How should we think about when certain decisions have to be made about that or have you taken just kind of bought you.

12 to 20 format.

And again, you know last call.

So I'll be we said we weren't going to.

Lets say anything you're doing for 18 months soon.

But thinking hasn't changed at all but we don't have any staff to speak of other than.

Three individuals and their operating on significant reductions in pay.

We have a couple of people working through the construction.

I'll close down if you will so you need to have these people it's not like.

Parking in airplane when you saw the construction process when it's in process you have to wind down payables and everything else. So theres just a handful of people level still that are still remaining.

While working on significant pay cuts so our burn associated with that project.

Is that very minimum level.

Hi.

Is there so for me.

Moving on 18 months, but is there Ed timeline, if you're kind of taking a strategic alternative to.

That.

Spin it off worry says if you want to its going to continue with the startup the construction again when do those efficiencies to be made or is there no such kind of.

Time, we'd on it we don't have any committed timeline of beyond what we've already stated having said that.

I, probably get a call the week regarding what the article possible is so we are entertaining and exploring the options that I made in my comments, whether there's an opportunity for an outright sale, whether it's an opportunity to JV, it or bringing another equity partner or to look at.

Borrowing the entire amount that's left to be built in all of these are options around the table beyond sitting and waiting.

And doing nothing for 18 months so.

We are exploring those we haven't rule anything out the think thats. The takeaway should come out here is says we are open to everything.

So it's not like we're seeing they're saying, we're not going to do this marketing to do that.

We had to say that arguably before this call or before this last couple of weeks. When you had the conversations the PSST, but now that we have reached a settlement with them. We the options are wide open we have no limitation.

That's helpful. Thank you.

Hello.

Our next question comes from Joseph Joseph Denardi with Stifel.

Hey, good evening guys.

Maybe drew.

Just the commentary in the release about June bookings being up for a period year over year can you just talk about why that is a pretty bullish stick point, maybe that the quality of that demand in terms of of price plan, what exactly that may does that mean or revenues up for a period or just kind of absolute bookings. Thanks.

Sure Yeah. So it was certainly a bullish time for those few days before things changed again. It was just looking at a segment counts or the number of people.

Buying buying tickets and traveling not the revenues I wouldn't read that far into it.

But yes that was kind of when we were at our high point and really looking forward to what the rest of the year could be.

Before about the third fourth we could June when when it turned back down that you've heard from everyone else though.

That was a distant memory at this point.

I would simply add.

The key thing there and where there were some key catalysts right. There was Las Vegas coming online June 3rd.

Universal Studios, Walt Disney World Shortly after that.

So there was that kind of grand reopening if you will.

And since then just as drew mentioned, we lack kind of at least an obvious catalyst for what Ken.

But through the ceiling. They currently exists.

Yes, we've already kind of reopened in now pulled back end or pause I open.

Is there is nothing the obvious staring us in that space like flip a switch like we had in early June.

Okay. That's helpful and then maybe Gregory.

Got Sheldon I think the plan was last quarter that you would maybe at the strength of fleet by 25 aircraft like how did the recovery in June and form that decision. How are you all thinking about that now.

Sure I'll kick it off in parts of Scott or anybody wants to add to it Joe.

I think what I'd say as in June we were we remain cautiously optimistic but.

We certainly in July we saw bookings coming down again, and just goes back to flexibility and fleet flexibility and Fortunately, we're in a position and allegion here because a lot of hard work in the past that we can be nimble with our fleet and so as we think about.

The number of aircraft retired in the future or kind of taking it Dave I'd age so to speak and that will change the approach.

We decided on up to seven aircraft today earn greet recently and that's because those aircraft made a lot of sense for us to retire as we compared add that their reliability their age their ability to generate additional cash as we repaid as we compare their investments and things of that nature. We determined that these were good aircraft that to but down at this point.

In a time.

And that's going to save on cost down the road, particularly on the heavy maintenance side and then one last thing I may add just before aircraft Sandguard somebody else has said we stopped flexibility with 22 number hasn't changed we still have that flexibility six or in storage and we'll continue to evaluate six more of those excuse me and storage and then we'll continue to evaluate the rest.

The remaining 10 on it on a go forward basis, and just trying to be flexible on react accordingly.

Thanks, I'll get back in the Q.

Thanks, Joe.

Our next question comes from Matthew Mcclintock with Barclays.

Hi, Thanks for taking my question.

So I just wanted to come back to how you are the management thinking about adding incremental capacity back are you are you managing the load factors are his idea to managing the covering.

Well costs or some type of profitability level as you are adding incremental flights are taking them out on any thoughts there would be appreciated.

Yeah. This is your here and your latter points exactly right, we're still thinking about.

Cash basis cash profitability as we're thinking about capacity.

But as Morry stated there is not necessarily one load factor that drives over necessitates.

Whether or not that flight will make money, but thats very much where we're focused is variable costs and as as we start to gain margin on that it becomes a lot easier to sprinkling more peak day flying and more markets where.

Where required.

Okay.

And I guess kind of as the cited as the Ancillaries per passenger stayed relatively intact.

Year over year.

Can you keep that rate.

Going forward or is there something skewing that in the near term because.

If I'm.

I'm wrong.

Second set you up pretty pretty well ticket pricing does.

Based on competitive pressures.

Yes, well this is certainly been the largest tests for our ancillary our thesis has always been that ancillary is is much more sticky then then the air component.

And I think we've shown that over the last few months, we're still over 50 per passenger and air ancillary.

The is a third party such that things are open and available to sell for resort and for auto will be there and the co brand credit card has been phenomenal both during the third party as well.

I have I have confidence that the ancillary can continue to remain sticky and at levels, we're seeing today.

Okay. Thank you.

Thank you.

Our next question comes from Hunter Keay with Wolfe Research.

Hi, how are you guys.

Oh I'm sorry.

Hi, good to talk to you is I'm sorry the.

Dropped for like five minutes unfamiliar scripted remarks, I'm, sorry, if you touched on this I doubt it but.

John and Morry other than price what are some of the conditions on a sale of sunseeker or a scenario, where you relinquished some portion of control of the project.

Oh Gosh Hunter I.

It's there's still zero opportunities now other than a occasional call that gets labia.

Given the focus is on the airline.

Today, we probably wouldn't take much to do to get has got cash associated with it or not.

I'd like to see US stay involved in the management because John is there just so good at that stuff, but.

Really I, just don't talk about it that much and John Scott this or that offer come across the transom, but.

Todays world, it's pretty hard to get even muster a reasonable offer I think the hunter you can appreciate we kind of loose some negotiating leverage if we.

Talked about what price, we have except over the earnings call. So we won't go that far but I guess the takeaway as I mentioned.

Earlier is that there is a willingness to have those kind of conversations and have any kind of conversation regarding any opportunity. So I think the the you would made some allusion to that but we don't have any restrictions on anything we're open to having any and all dialogue I have a phone call tomorrow, that's an interesting one.

And I have on as I say I guess at least one one phone call a week. So it's one of those stories stay tune.

That that story is yet to be written we just don't know.

How is going to play out and but we are open to any numerous options that are out there.

100, just big picture statement, the strategy is solid and sound that we embark on here we've sold to third party revenues for 20 years, we've proven year in Europe that we could make money on that.

You look at the strength of the West coastal Florida evolve the areas in this country. It probably is among the strongest.

Because the people going there are older and they have money and they are less affected by this and thats going to continue its got a tremendous history.

So the combination of that the bread basket. The feed we can bring to act from where we fly all the markers are incredibly strong so while we're not going to putting capital into it.

At this point in time longer term as a strategies I think that what were embark on is a diversification that second to none in the industry and we've got a Greeks headstart when that that asset. So we certainly want to stay involved in some fashion defeat ourselves.

You know and continue to enhance third party revenues.

So that's a good strategic.

That's great. Thank you I appreciate that more and then.

I will talk to your second at the IBT disagreement that you talked to be you mentioned down.

I assume that was them just not really cooperating with your vision of facilitating voluntary early outs, but more importantly, how does that impact to your support or lack thereof.

Central PSP extension.

Does that factor and thank you.

Yes, I think.

Ken if you look at the strategy right. So we had a really wide schedule out there.

First half a may we cancel the town off we flew a lot more in the back half. The May June was down but it was relatively intact July year over year was down 10% maybe.

Sure so.

You have a workforce that on the surface it looks like everything looks good.

We are flying full schedules.

But then you start to see spikes flare ups and just as Scott mentioned, what's the vision, what's the expectation for the back half the year and you just got to assume it's going to be bumpy and.

So that's that's kind of how we position this.

Early on I mean, we're educating folks on what was our option option any which is let's go wide and so otherwise or be which has consolidates and so I think theres a middle ground there.

What the issue we had in July as we couldn't really grant a lot of short term lease because we need to the bodies and we are font business lines, such as a relatively healthy schedule and so.

This is just you know to protect the off peaks.

As far as around too.

If that does come through obviously, that's the that we're going to have to pivot and changed the discussions but.

If that doesn't hit like I said, we still want to have these discussions there is a solution. We proposed a number of different kind of creative ways in order to flex down in flexed up to give these guys clarity on what snap back provisions would look like and so.

It's just tougher like I said on the surface. They just assume everything is great and or just preparing for a very soft off peak period.

Yes, 100, we have managed print peaks and valleys consistently for years so.

So that we.

Can pick up is important to us because thats, you'll discover long time ago do make more money on Sunday, the new to the other seven days the six days a week and you want to carry those seats around for your profit potential same analogy applies to those peak periods, where you are marches slide 20%, 25% of our operating income in historic terms.

So you need to bodies to do that type of flying but now in this period. What were are asking is as we spread that the cost during the trip the bottom and when we get less expense going forward, that's cash management, one or one so thats gascon most of our people are getting it some people they just want to leave status quo and.

That's their call that's their group to manage and what you're basically saying here is that.

The top guys are going to take care of in the bottom guys still we don't care no terminals or what what happens in the industry. So anyway different philosophies for different people yen kind of the number around the 275 I mean that really maintains the footprint. If you go above that then there is going to be a consolidation of basis.

Which is painful that's over a longer term different strategy.

But at the end of the they might want to going there.

So this is this is kind of our first first pass audits.

I think until you start pushing notices and rosters of impacted folks.

Technically is not real and so.

We'll see we'll see how these funds these folks respond, but if you know the day in the 275 folks that's worth about 25 to 30 million and payroll.

But you give upside from a from a network configuration standpoint.

Thank you, ladies and gentlemen conclude securing a portion of the conference I'd like turn the call back over to Maury Gallagher for closing remarks.

Thank you all for your time through shoot.

So we've seen for the next 90 days, we'll talk to you in October Thank you.

This concludes todays presentation you may now disconnect have a wonderful day.