Q3 2020 Allegiant Travel Co Earnings Call

October 28, 2020

[music].

Ladies and gentlemen, thank you for standing by and Lucky 'cause a third quarter Allegiant travel Company earnings Conference call at this time, all participants on listen only mode.

After the speaker's presentation, there will be a question answer session.

Ask a question during the session you would need to press Star then one any telephone.

I ask that you limit yourself to one question and a follow up.

Please be advised that today's call is being recorded.

Acquired this most recent press Star then he works we cannot further.

I'll now turn the call over to Sherri Wilson. Please go ahead.

Thank you Michelle welcome to the reagent travel company's third quarter 2020 earnings call on the call with me today are Maury Gallagher, the company's chairman and Chief Executive Officer, John Redmond, The company's President, Greg Anderson, our VP and Chief Financial Officer, Scott Sheldon or he VP and Chief operating Officer, Scott He Angelo.

Our EVP and Chief Marketing Officer drew wells, our VP of revenue in planning and a handful of others to help answer questions. We will start with some commentary and then open it up to questions. The company's comments today will contain forward looking statements concerning our future performance and strategic plan various risk 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 SEC.

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 result, if you prevent mation or otherwise the company cautions investors not to place undue reliance on forward looking statements, which may be based on assumptions and events that do not materialize.

To view this earnings release as well as the rebroadcast of the call visit the company's Investor Relations site at IR Dot Allegion Air Dotcom with that I'll turn it over to Maury.

Thank you Sherry and good afternoon, everyone welcome to our.

Over 40 20 conference call.

First let me thank all of our team members those policies and families. As we continue to apply these perilous times for passengers or.

Very important to us and our team members, who are doing a yeomans job as always forget thank you on revenue.

So we can report some optimism some larger but with the understanding there are still a ways to go.

We were back will be a one step at a time as it appears in the early days, we had little to no view on how we were going to get back to the tall oak recalled into this abyss today, where we are.

Good sense of where we are in are beginning to believe we can return to our former state.

February we were looking at a record deal.

After March 1st to turn to record losses, you may recall that in post cold respectively.

Still the rule that has changed how we think can you really nice communities after.

Thats United's rather after the Soviet Union fill those apart commissioned by certain historian that there was the end of history as we do it and at that time.

It was after March 1st of this year, it's the end of our history as we know it.

Our year over year comparisons are meaningless month over month is what is important as a further reminder.

We get away from March better our results will be but.

But for June each of our subsequent months has improved consecutively since that time and we expect this trend to continue through the end of this year and into 2021 and given this new measurement approach we have a very good quarter in fact September.

Wasn't a cash burn lines, but rather it was a cash flow breakeven month.

Refusal by the way includes debt service and other payables also this is without any cash payments.

Underpinning offerings, excluding special items Q3 had a breakeven operating profit.

If you take September out of that mix by itself, we have a 17% operating margin our best month in the past two quarters with actually better margins than we have in June. This operating profit. However was aided by our cares payments.

This climb out of this and this has been a slower and will continue to be slower than we would like small percentages equally each week with possible setbacks in the not too distant future.

But we are seeing a better October than September and we believe the same can be said as we look into November and December.

We will hear from from Greg about how strong we are positioned with cash going forward I want to highlight that we might be the only carrier who has not had a dilutive equity offering nor taken the expensive government loan package.

Our total debt levels have only increased $130 million from year end 2019 levels at the end of Q3, we did however add 150 million dollar number.

Additional debt in early October Furthermore, aircraft that amortizes within five years very quickly and on an annual basis, we were paying approximately $200 million in principle, plus our interest costs.

Our Q3 debt payments were $50 million with just over half of that total is paid in September.

Yeah, we had sufficient cash flow from operations to cover these debt payments and other special items during the final month of Q3, perhaps.

Perhaps the best position, we find ourselves in is our future capex requirements.

Many others have large order books in front of them price to pre Cobra numbers, most everyone will want to do sale leasebacks to finance those purchases cones will certainly be more difficult I would think them pretty cold in numbers. We however have minimal obligations going forward.

[laughter] yards away May report for the first quarter I touched on the overnight change our industry between the suppliers and operators.

Historically, there's been a natural tension between our two groups zero sum game of sorts if you will.

Past 15 years aircraft demand has been incredibly strong, particularly with the economic emergence in China, India and others have.

Results suppliers held the upper had witnessed the recent seven to eight year order backlogs between Boeing and Airbus past.

Fast forward to November 2020, and the advantage has changed namely it's moved through our side of the Ledger. This is particularly true for carriers such as us the trade and used aircraft.

Ill and industry took it on the Chin this year the leasing industry has not seen immediate problems faced by the airlines early.

Early on no one understood the depth of this malady and we were hopeful we will be in full rebound by now.

And while we are seeing a slow steady rebound in the leisure segment here in the U.S. Many places in the rest of the world still haven't found bottom as a result is appears 2021 will be a tough year for many aircraft owners. The far east is upside down as we understand it particularly carriers such as Airasia and many aircraft have been parked in the U.S. and Europe.

The hope that a significant rebound will be happening in the next year I believe this is fading.

It doesn't appear our corporate problems will leave anytime soon international governments are making up travel rules with each passing day. We are fortunate here in the U.S., we have a large robust country with a well heeled leisure traveling psych travel segment sales.

Appeared us domestic leisure space will pull itself up and out of the pandemic in the coming months hopefully in 2021.

But as a parent pandemic fatigue is setting in people want that this exercise to be over there.

Additionally, there are knowledgeable about what the risks are in our drug interactions accordingly.

We will be the beneficiary I believe of this rebound in domestic travel and added bonus will be the availability of an expensive aircraft and associated parts motors et cetera in the coming 12 to 24 months perhaps longer.

Yes, so we will be able to substantially lower ownership costs and add capital assets with minimal cash outlays.

I'll repeat my comment from our last call, namely we continued to be the best of the worst.

The U.S. airline industry will struggle for years, a number of years to come I believe, particularly with respect to business and international traffic Allegion will with our focus exclusively on domestic leisure traffic, our flexible model plus our excellent cost structure, you'll hear some of that some greg in a bit CIT emerged from this phrase better than most in the coming 12 to 24 months.

Our shareholders are fortunate to have such a capable management group, which has shown its depth and understanding of how to maneuver in this extreme environment speaking as a shareholder I know I'm grateful we have this talented team.

Lastly, our team members, who does a true heroes in our world I want to again personally. Thank each one for all they have done during this trying seven to eight months you are the backbone of this company.

In the meantime, annealing space, we will take care of our business and we are survivors with a great company and an excellent business model.

Thank you very much and with that I'll turn it over to John.

Good afternoon, Thank you Lori and good afternoon, everyone.

Can you imagine after all we've gone through the last eight months dealing with an industry does does it sitting pandemic.

That we'd be sitting on the highest cash balance in the history of the company at roughly 850 million at month end, while only adding roughly 300 million in debt and no dilutive equity is Maury mentioned.

Quite an accomplishment and a testament to the efforts of the entire Allegion team I would be remiss, if I didnt take this opportunity to thank them for their incredible effort. During these unprecedented times.

Through the combination of a resilient business model, a very broad domestic network leisure traveler focus quick an aggressive cost cutting and continued financial discipline. We are weathering the storm better than anyone such that we no longer will be referring to cash burn.

Not only is the term creatively defined and seemingly unique to each carrier that's no longer applies to us.

Greg will get into this with more detail in his remarks.

It was very important for us to get the term out of the vernacular and was it a guiding principle as we level set the entire organization.

Since the Q1 earnings call, we have stated but.

The number one priority, we're strengthening our balance sheet.

We have come a long way since then but our focus has not and will not change we.

We will continue paying down debt in a meaningful way as we move through 2021.

Furthermore, our cost initiatives to date will put us in a position for our CASM or 2021, CASM X to be below 2019 levels.

With regards to Sunseeker I have no new update nor has there been any change to our approach or strategy we.

We have spoken to many and remain open to equity investments by others.

While our conversations have been encouraging and we remain optimistic I have nothing to report at this time.

Our strengthening balance sheet and improving cash position should not be assigned we're positioning ourselves to restart the project. It's all about flexibility and we believe there will be incredible generational opportunities to purchase planes in the coming years cash.

Cash and low leverage will be golden stay tune and with that I'll turn it over to Scott Sheldon.

Thanks, John and good afternoon, everyone.

First off and before I get.

Get into providing some color on the third quarter I want to start by saying thanks in expressing how proud I am proud I am of the entire leadership team and all of our partners throughout the network. Our operational results in Threeq you were terrific. Your continued focus on health and safety.

Sensitivity and carry you show our guests in each other and most importantly in the consistency in your daily execution is making an impact in restoring customer confidence and travel.

As you'll hear from the rest of the leadership team here. Shortly we are certainly seeing signs of life science that customers are becoming increasingly confident and returning to the air.

Your efforts will be as critical as ever as we move into 2021.

Now quickly on to the third quarter. Despite the obvious continual challenges of operating in a covert environment push the highlights can be seen in our press release. There are two areas I wanted to comment on today versus our core operational performance or virtually every measurable metric is.

Is up year over year there.

The operations team produce seasonal best for easier on a 14 production and with our controllable completion factor turning back to pre covered levels. We produced just 2.5 million and irregular ops cost a dramatic bounce back from our second quarter lows. In addition, the operation team received.

Tremendous help from the planning group drew and teams continued strategy of casting a wide net creating as many selling opportunities as possible and evolve and volatile demand environment has its inherent operational challenges that being said as groups execution and the resulting schedule integrity for the third quarter had a tremendous downstream impact on the operation.

As an example, disruptor cancellations, which which we define as cash cancellations within seven days or travel or over 6700 during the second quarter off a base of nearly 17000 total cancellations as we exited the third quarter order disruptive cancellations were just under 400 Alphatecs base of 60.

800, total cancellations, so 94% decrease.

This not only reduce significant costs, coupled with better operational execution drove our net promoter score back to pre corporate levels.

Once again, a great result, the grant bounce back in a very difficult environment.

And secondly, I wanted to take a few moments and comment on labor as you recall from our second quarter. We are in active discussions with both the unionized and non unionized labor groups about a number of different cost saving measures with varying levels of success.

It's with mixed emotions I can report, although we are ultimately successful in negotiating the right deals with the right partners, many folks where I left the.

The the organization.

But we are looking forward to a successful 2021.

Ops labor costs, both direct and indirect will be substantially down and ops head count productivity.

Which we define as hedge per aircraft should return to levels not seen since 2013.

On the unionized front, we were able to successfully negotiate near term deals with dispatchers flight attendants and as of last night, our pilot group I'd like to thank each of our Union partners and leaders for their tireless efforts. Each agreement contain attributes different attributes, but I can say unequivocally all contain the right and appropriate balance of cost flexibility.

While maintaining near full operational capabilities.

On a non unionized front and although we have a number of cost saving voluntary programs in place. We made the difficult decision to right size the organization fairly aggressively both in restructuring and reductions in force I want to sincerely. Thank those individuals who are no longer here. They were instrumental in helping make allegion. What it is today and for that I, thank them and with that I'll turn.

Turn it over to Scott Angela Thank you Scott our.

Our commercial approach remains focused on leveraging the strengths of allegiance unique business model.

Being focused solely on domestic leisure travel selling directly to our customers and having a proprietary commerce platform.

They have so many times before these aspects of our business model have enabled us to stimulate and capture demand in a fashion that has is outpacing the sales in terms of relative web search traffic and leisure travel bookings, while at the same time, reducing our sales and marketing cost per booking by 75%.

Versus prior year.

Ultimately our greatest commercial advantage has been the ability of our organization to pull together and solve for the cost side of the equation, while maintaining the majority of our clients schedule and not making unnatural changes to our network strategy doing so has it seeing light at the end of this pandemic tunnel even in this current.

Levels of uncertainty.

Well the M. The initial impact of the COVID-19 pandemic shut.

Shutdowns are a number of booking drop as much as nearly 90% below prior year back in April before coming back to prior year levels briefly in mid June eight.

Each subsequent shockwave has seen about half the negativity is the one before and mid July bookings fell to as much as 50% below prior year before gaining strength again through the end of September and even now with recent headlines of rises in the number of COVID-19 cases bookings appear to be stabilizing around.

Say, 25% to 30% below prior year.

Based both on what our customers are saying and what our customers are doing we see a clear divergence in terms of their attitudes toward the pandemic and their intentions towards leisure travel that.

That is to say customers believed the situation may once again be getting worse, but their leisure travel activity or their travel booking and Kent remains largely unchanged.

Corroborating, our own customer insights, which are green two weekly tracking service that our marketing analytics team began building back in March is tremendous data analytics work by our corporate intelligence team who's been expertly translating a variety of external data most notably the consumer mobility data made available.

By the current labs.

This mobility tracking data shows that consumers nationally exhibit their highest level of movements since the pandemic began towards the end of this past quarter and even with Choppiness in the past several weeks consumer mobility remains near that high point and on the rise as we head toward holiday travel.

While pandemic flu pandemic fatigue, among consumers may certainly account for some of this dynamic many of our customers are also feeling more confident that they can smartly in safely began resuming important aspects of their lives. This includes everyday activities like shopping and eating out, but also leisure travel activities like visiting.

Family and friends, taking vacations to beaches, and national parks or traveling to and from their second vacation homes, but.

Hi, this is growing confidence to travel by air again comes with conditions and for many customers. The most critical condition is that the flight must be nonstop, which of course is a hallmark of allegiance there and back approach to operate.

Customers, we surveyed with travel booked already regardless of the airline told US a single factor that most impacted their purchase decision. During this time was finding a non stop flight.

Also a strong majority customers, regardless of whether or not they had traveled currently Bob made it abundantly clear that the prospect of connection certainly oversaw typically occurring and crowded Hobbs has a major negative impact on their intention to applied during the pandemic.

Well overall visitation to our website Allegion dot com has been down versus last year not surprisingly, it's worth noting that the vast majority of web visitors are coming at little or no cost and without the possibility for competitive in our parent by either directly entering the euro allegion dot com or by clicking on the link.

From one of our targeted marketing emails in fact, when visitation from direct you are out and email marketing was actually up by more than 15% versus last year.

Conversely, when visitation from general search Fools like search engines and online travel agencies, which we of course don't sell through but we do advertise on is down by more than half versus last year.

The fact, we communicate directly west and sell directly to our customers sets us apart from those who depend primarily on search engine for OTI days for leisure travel bookings.

As a result, despite lower overall visitation to lesion dot com visitors have been converting at rates that are considerably higher than pre pandemic levels.

During the third quarter about two thirds of our bookings were directly attributable to tactics associated with our co brand credit card or email marketing campaigns.

As mentioned in past calls these programs focused on featuring work from home away from home Air and hotel package shoppers for Las Vegas imported destinations reversed travel from larger cities to less populated National Park or beach areas and targeted promotions based on age groups family composition, and or second and vacation home.

Ownership.

Looking forward web searches at Allegion Dotcom continue to show improvement for all travel weeks through late February and in particular search volume improvements concentrated around Thanksgiving and the weeks of Christmas and new years are especially encouraging.

Third quarter also saw the debut of Allegion Stadium on Monday night football as Mega cap. This past September 20, onest more than 15 million viewers tuned in and billions of impressions were generated through broadcast conditional and digital media.

In fact sports media measurement firms reported at Allegion, what the NFL sport strongest performing brand on social media ahead of iconic brands, such as Pepsi lexis engaged or at.

Most importantly, Allegiant stadium has enabled us to build awareness during a time that our traditional advertising tactics have been virtually nonexistent and drive web traffic from our major origin cities, such as Cincinnati Indianapolis in Pittsburgh, which were each up in web visits by 50% to 60% and large.

New cities for Legion, like Chicago, Boston, and Houston, which were each up in web visits by 60% to 80%.

And most reassuring has been the heightened impact Allegion stadium exposure, it's had on marketing activities such as email marketing around the games played at the stadium, we've seen web visitation from email marketing increased by more than 200% above its already relatively strong levels.

And finally going the distance for health and safety remains foundational to all that we do.

That includes probably sharing our ranking by safe travel barometer as the number one airline among north American carriers and among the top five worldwide for best COVID-19 traveler safety measures, but that wasn't the only award we are in this quarter for the second consecutive year. The Allegion World Mastercard was voted by USA today readers.

As the number one airline Cobrand co brand card.

Our card loyalty program continues to be a shining example of how leasing continues to provide added value and flexibility to customers. During these uncertain times.

And with that I will turn it over to drew wells had a revenue management network planning Okay. Thank you Scott and thanks, everyone for joining us this afternoon.

Our third quarter revenue was down just more than 50% year over year with scheduled service Asms down 6.5% okay.

Overall I'm quite pleased with the unit metric staying relatively flat on the nearly 60% jump in asms for the second quarter as Morry mentioned earlier.

The third quarter was interesting and that we never saw troughs as low as April nor peaks as high as June for booking demand. However, a much more metered and consistent growth provided some stability and cautious optimism throughout the quarter, especially as a correlated very well with improvements in scotts customer sentiment data.

In fact, despite the revenue peaks around the fourth of July and Labor day, the load factor in the last two weeks of September for the best of the quarter.

As we look ahead October we'll continue to load factor expansion, we experienced through September we.

We have maintained TSA throughput share outperformance and a roughly double where we were last year.

However, there will still be uncertainty as we enter the winter.

Our fourth quarter Asms should finish around 15% below last year in total, but we will continue to be quite variable.

Appropriately matching capacity to demand remains our main objective and the peak Thanksgiving and Christmas weeks should see at least 30% more flying in the weeks earlier in those months.

The approach of casting a wide net continues to provide us with insight that we could not have gotten otherwise.

Despite justifiable concerns around leisure demand in September we held a significant portion of our schedule for sales and were able to record arguably our best month of the pandemic.

We believe that we have been the fastest to reactive significantly changing environment and we will continue to be nimble as we approach some potentially large demand peaks and valleys.

Very thankful for everyone's perseverance and flexibility on the reagent team as we slowly climb have the canyon.

And with that I'd like to pass over to Greg.

You drew good afternoon, everyone I too want to echo the comments in praise and appreciation for our dedicated team members their professionalism and hard work throughout this unusual period has been key to keeping us well position.

For the third quarter, our daily bookings averaged just over $2 million, resulting in an actual cash burn of $1.3 million per day and this compares with our cash burn expectations of just over a million dollars.

The month of September typically our lowest performing month of the year was cash flow positive for the airline and as a reminder, our cash burn definition takes into account cash from ops total debt payments and Capex. It excludes aircraft Capex and also excludes any cash and tax benefits received from the cares Act.

As drew mentioned, we saw slow and steady improvement in demand throughout the quarter recent trends are encouraging and at both September and October each are averaging more than $3 million per day in bookings.

Turning to costs despite.

Despite the capacity reduction of only 9.4% our cash operating costs, which exclude ownership and special items were down more than three times that amount at 29%.

Our adjusted CASM mix, which excludes special items and benefits from cares Act for the quarter was 6.25 cents and less than our full year 19, CASM mix of 6.5 cents.

We have worked hard to pull every lever we have in our operation to cut cost and preserve cash the listed measures we have taken as long extensive innovative.

Regrettably that list does include some strategic reductions to our workforce is heartbreaking to lose value colleagues in France, and we all share in that loss. These.

These position eliminations came as a last resort, but are also increasing incredibly meaningful in helping us get back to a breakeven cash flow status.

Turning to our balance sheet throughout the pandemic one of our top financial priorities is defending our balance sheet, while ensuring sufficient liquidity to withstand the weakened demand environment. We.

We are pleased with the progress to date as we ended the third quarter with net debt of $840 million, which is even less than our net debt at year end 2019 of $950 million.

Our ability to navigate the pandemic without a material negative impact to our balance sheet is attributable to the following year to date cash inflow items.

Employee voluntary pay reductions in Leeds PSP grants and associated loans of $177 million and oil carry back refund to date of $95 million with an additional 125 million expected to be received in early 2021.

Financings, a 300 million in year to date EBITDA, excluding special items of slightly positive of $2 million as a data point, we expect EBITDA to remain positive at average daily bookings of around $2.7 million or above.

These cash inflows were offset by the following year to date outflows capex of $190 million and heavy maintenance of $40 million and this includes the 46 million for sensitive.

Also as extreme partner termination payment of 15 million and total debt payments of $152 million, which includes 38 million of interest.

And subsequent to the third quarter, we issued $150 million private placement bond backed only by the collateral already pledged to our existing term loan.

Now having to post incremental collateral was important as it allows us to maintain grid greater fleet flexibility by keeping 22 of our aircraft unencumbered.

No form of for this bond our cash balance was roughly $850 million in September and October booking levels of over $3 million per day, we're flirting with cash flow breakeven, while the environment remains fluid and bookings will certainly ebb and flow. Our data suggest these average booking levels are sustainable moving forward as such we believe.

We have ample liquidity to see us through to a full recovery in demand.

Given our sound financial footing, we declined to participate in the government loan program that would have provided the company with access to an additional $270 million in borrowings.

Because we no longer view liquidity as a key risks to Legion, we will not be explicitly providing cash burn guidance going forward. Instead, we prefer to direct our messaging towards traditional areas such as capacity op expense and capital expenditure.

We expect to fourth quarter capacity reduction around 15%, we expect our total operating costs to be down closer to 25%, which.

Which assumes a fourth quarter fuel cost per gallon of 1.35, and it implies a total airline chasm of down 10% year over year.

We have made a number of long term structural cost improvements to cope with the reduced demand for airfare and in total we expect structural cost changes to equate to about $75 million in annual operating cost savings.

These include $40 million in labor $15 million in marketing 15 million to 90, and another 5 million another and as a result, we expect CASM ex fuel to be meaningfully reduced based on between 19 capacity levels.

Looking at Capex for the remaining three months of 2020, we expect total capex, including heavy maintenance to be roughly $130 million and 75% of this relates to the acquisition of five Athree 20 aircraft options to finance. These aircraft are readily available, but given our current liquidity position additional borrowings may not be required.

We expect to end 2020 with gross debt of about 1.65 billion and based on our current booking trends. We expect to end 2020 in a net debt position of roughly $875 million, which two compares favourably to our ending 2019 net debt of $950 million.

Turning to fleet, we expect to end the year with 93 aircraft in operations, five and temporary storage and eight planned for permanent retirement as we look towards 21 and beyond we're not burdened with the costly fleet order. We believe this is a key strategic advantage for Legion. In addition, we continue to see an influx of potential deals for used athree.

20, Ceos at prices significantly discounted from pre coated levels.

The post proven environment may provide a unique opportunity to either strategically replace aircraft in or grow our fleet depending on demand.

At the economics, we are seeing such deals should lead naturally in averaging down our ownership costs further improving our already industry, leading low fixed cost structure. In addition by enhancing our fleet flexibility, we expect to further reduce future heavy maintenance costs. As an example recently we were presented with an attractive opportunity to bring in a leased athree hundred 20 and 20.

21, and so we quickly action retirement of an older Athree 19, which was due for a costly maintenance visit the leased Athree 20, we'll have lower ownership cost in the 319 more seats and we will harvest the engines from the Athree 19 to avoid costly heavy maintenance capex as.

And as Morry mentioned, there are more potential fleet transition transaction, where we would have the ability to minimize upfront cash requirement, that's helping to keep our future capex at lower levels.

For 21, Capex, including heavy maintenance, we currently anticipate a $125 million. This includes $40 million for two aircraft to be delivered in early 21 prior to Covis. We estimated our 21 capex spend would have been at least 100 million higher just between the incremental heavy maintenance and other non aircraft capex.

We currently expect to end 2021 with between 90 and 103 aircraft in operations with travel demand determining when we return to service our aircraft and temporary stores and closing we are very well positioned we have sufficient liquidity to manage through the crisis. Our debt levels are modest are quickly amortizing debt will have offset the equivalent of around 40%.

The debt we raised since the onset of the pandemic.

This will happen by year end and then we think the remaining balance to be offset by next year.

Our next years and we.

We also expect our full year interest expense in 2020 to be around $55 million, which is 25% less than the $75 million interest we paid in 2019 and currently we expect 2020 ones for your interest to be lower than 2020.

For the rest of my knowledge Legion is the only carrier since the onset of the pandemic to nearly double its cash position lower net debt reduced interest expense all without issuing an equity dilutive transaction.

This provides us confidence we will continue to remain very well positioned on the other side of this pandemic and with that let me turn it over to the operator.

As a reminder to ask a question. Please press Star then one.

This afternoon Q.

The pound key we ask that you please limit yourself to one question and a follow up.

Next question comes from Michael Linenberg of Deutsche Bank. Your line is open.

Hey, good afternoon Im listening to this call and I'm just thinking what planet are you guys Todd.

Because it doesnt at all seem to reconcile what the plan if that Ahmad much.

Being an observer of the industry. So congratulations on.

Getting to breakeven and really essentially positive.

Free cash flow.

I guess.

Couple of questions here.

You know and I guess, you ran through kind of the big started.

Ticket items for White CASM ex in 2021 will be below 2019, you talked about the 75 million of of structural change and is there anything sort of incremental to that or you'd highlighted labor you talked about.

ITD marketing and are there is that is that what's driving it are there other elements of the of AFFO.

Mission see and maybe its you guys are building in just lower aircraft ownership cost in 2021 for any sort of incremental sales that you bring on just given where the market is today versus where it was pre covet.

Any any additional color there.

Sure Hey, Michael and thanks for the comments.

Let me start with the last point no. We're not building in any improvements in our ownership cost through some of the strategic kind of initiatives. We're looking around the fleet side, we wouldn't do that Intel bills were action. So we're just taking a conservative approach on the fixed side of the cost to house, but.

But no you're spot on I think the major areas that were focused on one and Scott hit on this in his opening remarks remark is labor and productivity and we add on Medicaid I will set the organization and we're going to rebuild that we're going to be more productive to put that into perspective I think in 2019, we had roughly 50 fts per aircraft.

We expect to have 38, and we havent had that level of productivity.

Back in 2015, I think in before.

So thats a big one marketing I think I'd like to the Angelos here and given him and his team a shout out because they through this pandemic. They find ways. They have found many ways to be more surgical in more efficient with the with the capital that we can provide to them and they are getting better and so we feel comfortable and confident that take our marketing budget down.

And Thats, a structural improvement and then in the other areas that you mentioned, there's just there's a lot of improvements.

From there, we think we'll be more productive and just better on the other side because of this.

Great and then just my second question and this is this is really from Morry and John you know as we come up to the election.

You know damages versus Republicans and this is not me trying to call out what here.

Secondly, which side you're leaning toward I'm, just curious you know depending on how things play out what outcome is is better to lead Gen and what I'm really moving towards is the fact that if we do get a blunt wave.

The concern is that you know in the past we've seen the dems being much more aggressive in sponsoring legislation that to some extent would undermine the allegion model.

He kind of a return of regulation on seat size and alike on one hand on the other.

[music].

Airline employees or their pizza and don't want to do anything that undermines the businesses that they work for and reregulation ultimately impacts profitability and ultimately impacts what union employees can earn so there's some tension there and that's what we've seen in the past and the possibility maybe of additional stimulus which is good for the.

Our economy. So I know, it's sort of a broad question. How do you think about the allegion, whether we get a blue wave or we end up getting you know something in between what's best for Allegion.

First on the.

During follow up.

In the years I've been doing this Mike Golding system hold hold steady in the category.

Just kidding, hopefully we will see what so more to.

You can stay away from all certainly we've seen good side has been very much regulation.

And that does have a lot of deregulation Mr. Trump administration was just lump them all.

Do things I think the seating has been settled.

I'm not going to sit here and say.

Yes, you open up Pandora's box, if you go in and try and re regulate the seats in the airplane.

All right.

I can't speak for anybody that way I, just know that you said kind of rolling that forward is going to be it's going to be a huge problem.

And this industry is already being sold.

By the federal government.

And we'll take seats on the airplane.

The economics are pretty simple yes.

Let's talk about that little bit you'll all you will see that happen.

Well.

You'll see a lot of liberal initiatives.

Record setting they want them.

The ability for people to realize.

Well.

Yes, probably downside there.

Moving to sell side will be agreed where.

Let's see.

The overall airplanes.

Greed.

Fips, which.

Which sends a signal by deals and the new engine types.

Candidly that could also be a push.

GE and both sides Airbus for that matter so.

We'll have to see but.

[music].

I think our model.

One thing we will do that yes, we will.

Workforce reduction would the pass through the increased cost will pass that that's what we do well, we probably better than anybody else John.

Yes, I mean, morys comments of course I Echo those third they are spot on I think when you look at the team here.

For the for this entire year, we've ever had a conversation on on what if at all but we only deal with things that we can control.

So we've been focused on rise. So we just on spending a lot of time doing everything that Greg just referenced.

One of the biggest ones of course was this level southern.

The organization from a labor standpoint, I think the further away you get from 10, one the less likely theres, a retroactive component to whatever may happen right just because every.

Every airline is taking whatever steps it feels to be able to right size. This organization so labor.

Labor is what it is but our focus is trying to control what we have control over and I think weve moved very quickly and aggressively to deal with bullets on the the onset of Wallace.

Great Thanks, everyone well done.

[music].

Our next question comes from Duane Pfennigwerth of Evercore ISI. Your line is open.

Hey, Thanks, maybe.

Maybe just a just a network question obviously.

Preference for direct flights certainly certainly resonates right now it's always been a part of the model, but it but it's certainly resonates right now.

And so many dots have been taken off of the domestic map not from an allegion perspective, but from a us airline industry perspective, and so I wonder if you could talk a little bit about new market opportunities that may be opening up it feels like there would just be a lot of green space.

For your low frequency model right now given given where capacity is.

Yes, Hi, this is drew and I think you're spot on.

We had already communicated.

Significant network runway pre pandemic and didn't have any concerns about our ability to grow and there was going to be incremental opportunity that stem from this I think we're trying to.

Kind of be less.

Level levelheaded about how we approach us and not trying to to grow too fast into this with uncertainty we're not trying to sit back either and trying to find that right balance I guess.

So I think you'll you'll see things from us that we know that there's going to be growth available.

I'll give you kind of a big generic answer here, saying that yes opportunities exist and we will be looking for them.

Timing kind of TBD.

So so far it's been.

Preserving what you have and preserving connectivity that you had and less diversifying into new markets is that fair.

Largely fairway, we've had one route announcements that was relatively small by our standards less than 10 route kind of strengthening where where were strong, particularly from a destination perspective.

And those of all have all started off quite well we have that are first flight on any of those yet fulfilled the booking phase there.

Certainly would agree that there's there's more that that will come from us.

Thanks, and then just for my follow up on.

On non airline I apologize if this is in the disclosure, but can you just tell us.

Where non airline revenue and cost.

And kind of loss was here in the third quarter I imagine its a lot skinnier.

And what your outlook.

Is going forward it feels like.

What we should be solving to is sort of the.

Airline CASM ex from 2019 now not the overall CASM X, but would appreciate your thoughts there. Thank you.

Hey, Duane it's Greg again, thanks for the question, Yes, I think the spirit of what you mentioned is correct. It's the focus back on the airline, but maybe I'll just run through the three non.

Non airline business line sales.

Starting with non stop to that spend for the third quarter that was not as close down very minimal costs associated with that.

Nothing to report revenue there.

As far as Sunseeker. Similarly, it was very minimal cost, maybe <unk> million or so throughout the quarter that we pages that for security or just to make sure. We're protecting our investment in that asset and then with key snap that still remains an asset held for sale teams done a really nice job of being self sufficient their restructuring that organization.

Patient, that's actually turn into a positive position so its actually earning cash.

It has for the past six seven months, so, but we'll still explore strategic options. There. We are and we have nothing to report today, but once we have more we'll we'll report back on those on that front.

Okay. Thank you.

Our next question comes from Savi set of Raymond James Your line is open.

Hi, good afternoon.

Just on the fleet side I recognize you are going to be opportunistic, but with things that come up that right now how many can aircraft you have grounded and what's your plan as you look to 2020 CASM ex staying less than 2019 is that assuming kind of 2019 levels offline.

Yes, I mean, we're not we haven't come out and given capacity guidance on 21 I was just pointing are just saying as a data point based on 2019 capacity, we would expect CASM X to be less.

But we will.

As we think about the fleet savi.

We were going to go add to it as far as where we sit today. We have five that are in storage temporary storage. We're considering those fleet our flexible fleet kind of if you will so depending on the environment and demand we bring those back in the service.

Last call I think we mentioned we had identified seven aircraft for retirement, but given the deal that I just mentioned in my opening remarks, that's now up to eight and will retire the majority of those through this year and with a few stragglers into next year.

And and then.

Quick question on the voucher is within LTL as it seems like maybe 65% of the ATM Batshit excuse me what are you seeing in terms of usage of those batches and has that kind of.

Trend changes the things happening.

With that.

Yes, definitely we have seen the voucher redemptions trend.

Increase so I think like pre Cove. It it was like a percent or two is really small as compared to no revenue right.

Right now it's at 15% to 20%. So we've definitely seen an increase and we're working through those so I think the.

The last report I had savi syth.

Since March through the end of the quarter, we issued about $350 million in credit vouchers.

And so we've burned through I think we are to 20 now so right. So we burned through about a 130 I mean, the cadence of those issuance of credit vouchers has come down significantly to put that into perspective, I think arch was $150 million alone and.

And so and then I think October and November October.

To date is much less than the September which was less than August so we're burning through it but.

Is there we will see but yes, I think thats missing anything drew on anything else you want to.

Okay, great. Thank you.

Our next question comes from Hunter Keay of Wolfe Research. Your line is open.

Hi, everybody.

A little bit more on on Sunseeker John for you.

Said you're optimistic.

What did you mean by that are you just basically suggesting you're optimistic is this just projects still occur just.

No not in the way that it was originally intended now your balance sheet is is that what you're getting at when you say that when you that word.

No is it more relates to the conversations we're having with people that we will be able to.

We'll find some sort of a solution that.

Hopefully would involve additional equity partners.

So we've had a lot of great conversations through several doing due diligence work.

We realize it's a it's obviously a big project for people to look at.

But we've had some great conversations so thats always getting out is that we're we're optimistic about these conversations we've had and people's level of interest.

I got it okay.

And then I think probably one for Scott Sheldon.

Can you elaborate on the.

In terms of the pilot agreement that you reached last.

Last night is this.

Sales reduction and you know.

Minimum pay guarantees I mean, what is give you flexibility to to grow or shrink if conditions warrant like we've been seeing from some of your competitors any M&A agenda finally able to sell to vote on it can you just give us some more color on that please thanks.

Yes, Hey, Hunter Thanks for the question.

Yes so.

As we said back into queue and we communicated this to the pilot group.

There was that there is a possibility that we could from up to 275 folks.

That would obviously drive a number of downgrades.

We had already Actioned 100 of those 275.

That was basically as of October one the next hundred.

We're getting ready to action.

Basically October 31st.

Unfortunately, we didnt have a lot of preventative and voluntary programs in place, meaning just voluntary leaves flexibility on one schedules or release, so we get a better idea.

Of what drew and team wants to fly.

So these guys.

Basically we were shooting over.

Different possibilities literally up until late last night.

So basically our furlough profile is capped at a 130.

If you think about the 136 of those were new hires that hadnt even been.

Bidders on the line yet so ultimately the impact of the 130 and the associated started downgrades is minimal.

If you look at what we want to go flying even margin even through the summer.

And targeting a 98 or 103 aircraft profile we.

We can do that very comfortably if we want to bring these folks back we can.

So that's basically kind of the language and what was agreed to yesterday, but.

We didnt change rate, we didnt change the guarantee.

But its sizable savings when you think about the search down rates and just the 130 that were on payroll.

There are no longer on.

Got it okay. Thanks, everybody.

Our next question comes from Joseph Denardi of Stifel. Your line is open.

Thanks, Doug Good afternoon, Maury can you talk a little bit about kind of the timing of when you think you would start to invest more meaningfully in the business again, I guess, primarily on the aircraft side.

And maybe the magnitude of the investment that you think you'd be willing to make at this point.

All right well.

Well I think that.

We're going to Peel that out as we go along with.

With the ability to add airplanes.

With minimal cash.

Our troops.

It makes it easier for us to do equipment.

I think we'll also have the benefits of all the cash requirements for mobile we will and so our cash flow should stay very very.

Hi, So I think in the next two years, we can have a good number of shells with the minimal amount of money out there.

The hour arrangement throughout the call we can do fixed rates that are.

Candidly, we can either through 20 now forward lease rate that's the state in which we're paying for 319 on the depreciation itself.

The other piece of this is we like going to place, particularly as you get mid level.

Towards the backend of their lives you don't want to be returning our older airplanes to spot to do that lease basis. So we think we still structured deals were effectively reversed the purchase and so putting your money down upfront with debt due at the the older Realpoint carry the paper and we buy it back side. So.

Think about that.

Capital you could have had the shells.

I think.

We'll have to see.

Integrated inside go fast books.

Take your time.

But the data revealed itself appears there's opportunities out there.

One or two things, we can do we certainly will shells or replacing Nike, perhaps with 280 succeed.

Claims you can you can go to the airplane with 180 succeeds through more seats in the 319 for the same ownership cost the marginal cost of supply that airplane is minimal and my my way of thinking that is known in school and fully shown on Sunday.

Well on Tuesday.

But all in all it takes maybe.

I'll take the benefits of line some 47 around during the week that was profit potential seats on that these days.

Mario are you on the go fast or the take your time side of the argument.

Oh, yes.

[laughter].

Okay. Okay, and then maybe a question for drew on the just on the network side can you talk about kind of the level of competition that you're seeing now and then probably more importantly.

What how much less competitive the network will be on the other side of this as you're thinking about it. Thank you.

Yeah, we certainly seen level of competition come down over the last six eight months there.

There had been a handful of new leisure oriented markets announced by other carriers on top of us.

By and large those have already been competitive routes are not only incrementally new to us just some incremental seats.

Which you know never never a great things, but not quite the same as new competition.

We have been heading back down.

And maybe some other here knows the exact and we've we've stepped up 15% competitive.

I believe over the last few months so in any markedly better position that we've been in the last several years for sure as we began making a series of network investment that elevated that number in touch.

As we move forward.

All of the route that we talked about pre pandemic only about 10% of those were competitive and we're going to enable us to.

To kind of build that most even even deeper and wider and I think it's at a lot of industry network decisions take place that that number will get even better as routes come come open.

So I could see us living in a world of closer to 10% for a while.

That might be a touch optimistic, but I think as possible as we look forward in the short to medium term.

I think one thing too just to add on or do says when you look at that even on those competitive routes.

The pricing environment going forward with the levels of debt that all these carriers have added it's going.

The very interesting we haven't done that so our pricing structure is not going to be.

Currently out of whack, where the competition can't say that I mean, they're going to have interest expense that is incredible for.

For a long time.

Very helpful. Thank you.

Our next question comes from Helane Becker of Cowen Your line is open.

Thanks, very much operator, hi, everybody and thank you very much for your time and I'm not sure who bought the stadium was referenced and and actually I haven't been there yet, but it does look like a really nice stadium.

And I'm kind of wondering if you have been able to determine the revenue benefit versus the cost and what you know what it's been and it's been what a month or so but it's been so far maybe and where you see the track you see it going so maybe the return on invested capital.

You bet. This is Scott the Angelo Thanks for the question I'll give you the constructs how we think about it there's two basic ways, one as I mentioned and do a bunch of goofy big numbers in terms of billions of impressions millions of viewers that we take and is all able to translate into what you would have to spend it.

It gets that anyway and as Greg.

As mentioned earlier, we have been able to pull down by 15 or more million in marketing based on what that investment is able to get out. So thats one way, we talked about the cost side the value and what we are able to take down and then Conversely on the revenue side, you know I mentioned the kind of left.

We see in email marketing, but the same thing is true of anything and everything we do.

Because of the heightened sense of awareness, we measure the baseline left let's say one person or people to get our emails open them and click through and now that goes to 1.11 0.2.

Per cent and just play that.

With that.

Small ball game, all the way to see what that return is and so we measure that as well.

The line in the sand is that we need what is roughly.

Two tenths of a percentage point 20 best across everything that we do.

Get several million more people in the final over a years time, meaning to the website and then all other things equal that is that when we get to some of our hurdle rate of what the investment is so without specific numbers. That's how we think about it from a construct point of view and then how we measure it.

Okay actually that's that's pretty helpful. And then I know that this question was sort of asked.

For my follow up question.

Any more he was breaking up so I didn't really get the answer other than maybe he said lease rates on Athree hundred Twentys are I'm.

About equal to what they are for Athree 19th.

So are you looking at acquiring I mean any aircraft that you would bring on above you know maybe what's what's already there. The 103 that was referenced on that's where you can end the year.

Are you looking at bringing them on its own Democrat or is leased aircraft I would think owned aircraft would make more sense than leased aircraft.

Hey, Helane. This is Greg maybe I'll just kick it off real quick and then Robert Nails in the room, who heads up our treasurer and head up our fleet acquisition team.

The way we're looking at is is what makes the most sense and economic the best economic so much.

Morry I think memorial was alluding to you're getting at is there's deals out there, where we don't have to put up capital upfront.

Weekend it kind.

Got it right.

Really strong rates lease rates and then pay in the Bakken like reverse mortgage type thing, but yes. We're just looking at deals that make sense were not going out we're looking almost a 1000 Tuesdays to see.

If it makes sense to replace or replace the existing aircraft that are coming up on heavy maintenance events or or if there.

If they.

It there.

Sorry, they're coming here at retirement age as well so with that let me turn it over to BJ. If he has anything to add some color on that side, Yes, Hey, Helane I.

I think it's probably a little bit of both I mean, we want to own our aircraft at the end of the day and most folks we worked with no that.

But I think near term, there's probably some really good opportunity for natural lease expirations from other carriers over the next 24 months and Thats where.

We've seen that's where we've seen the most benefit.

Okay.

Just worry with stages. So you have that data point correct.

He was referring to just to give you that.

Idea of how the market is what he was saying is that we are seeing.

Deals with the lease rate on a 320, that's less than the ownership costs on a threenineteen.

Okay, Yes.

Yes.

That makes more sense. Thank you alright, well thanks, everybody I appreciate all of that.

That's all the time, we ask the questions like to turn the call back over to Maury Gallagher for closing remarks.

Thanks very much appreciate your input we'll see you again in 90 days a week.

Ladies and gentlemen, this does conclude the conference you may now disconnect everyone have a great day.

[music].

Ladies and gentlemen, thank you for standby and Lucky 'cause it.

Third quarter Allegion travel company earnings Conference call.

This time, all participants on let's go lower.

After the speakers free trade show there will be a question and answer session.

Good question, either and that's really what it's about Star then one telephone.

Lets you limit yourself to one question and a follow up.

Please be advised that todays call is being recorded.

No cars as well so those are those new works with an operator.

What I would call lower tertiary Wilson. Please go ahead.

Thank you Michelle welcome to the we didn't travel company's third quarter 2020 earnings call on the call with me today are Maury Gallagher, the company's chairman and Chief Executive Officer, John Redmond, The company's President, Greg Anderson, our SVP and Chief Financial Officer, Scott Sheldon or E B P and Chief operating Officer Scott.

Angelo our EVP and Chief Marketing Officer drew wells, our VP of revenue in planning and a handful of others to help answer your question.

We will start with some commentary and then open it up to questions. The company's comments today will contain forward looking statements concerning our future performance and strategic plan various risk factors could cause the underlying assumptions of these statements and our actual results to differ materially from those expressed or implied by our forward looking statements. These risk factors and <unk>.

Others are more fully disclosed in our filings with the FCC any.

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 result, if youre events live nation or otherwise the company cautions investors not to place undue reliance on forward looking statements, which may be based on assumptions and events that do not materialize.

Do you view this earnings release as well as the rebroadcast of the call visit the company's Investor Relations site at IR Dot Allegion Air Dot com with that I'll turn it over to Maury.

Thank you Sherry and good afternoon, everyone. Welcome to our October 2020 Conference call first let me. Thank all of our team members their spouses and families. As we continue to apply these parallel strives for passengers. So it's very important to us and our team members you're doing a yeomans job as always forget thank you.

I'm happy to say Oh, we can report some optimism some mind you, but with the understanding there are still a ways to go all the way back will be a one step at a time as it appears in the early days, we had little to no view on how we were going to get back to the tall oak recalled into this the best today. However, we have a.

Good sense of where we are now beginning to believe we can return to our former state.

In February we were looking at a record year.

After March 1st it turned a record losses, we call it in postcode respectively.

Let's try to wish all that has changed how we think in the early 19 eighties after.

Actually not as rather after the Soviet Union felt it was the population by a certain just worried that there would be end of history as we do it at that time so.

Well it was after March 1st of this year, it's the end of our history as we know it.

Oh, you know where your comparisons are meeting last month over month is what is important and the.

Oh I am I do Oh, we got away from March better our results will be bought for June you traverse subsequent months has improved consecutively since that time and we expect this trend to continue through the end of this year and into 2021, and giving us more measured approach we have a very good quarter in fact September wasn't accounts.

Our lives, but rather it was a cash flow breakeven lot.

But given by the way includes debt service and other payables.

Also this is without any cares very much on.

Well the PML funk, excluding special items Q3, EBITDA breakeven operating profit.

If you take September out of that mix by itself, we have a 17% operating margin.

Best months in the past two quarters.

So actually better margins than we had in June this operating profit however was aided by our cares payments.

As crime all of this if this has been a slower will continue to be slower than we would like small percentages equally each week with possible setbacks in the not too distant future but.

Well, we are seeing a better October than September we believe the same can be said as we look into November and December.

You will recall from Greg about how strong we are positioned with cash going forward I want to highlight that we might be the only carrier who has not had a dilutive equity offer youre, taking expensive government loan package are.

Our total debt levels have only increased $130 million from year end 2019 levels at the end of Q3, we did however add 150 million dollar number on additional debt in early October. Furthermore, aircraft that amortizes within five years very quickly.

On an annual basis, we're paying approximately $200 million in principle, plus our interest costs.

Our Q3 debt payments were $50 million will just over half of that total paid in September yeah, we had sufficient cash flow from operations to cover these debt payments and other special items during the final month of Q3, perhaps.

But perhaps the best position, we find ourselves in is our future capex requirements.

Many others have large order books in front of them price, but pretty cold the numbers, most everyone who want to do sale leasebacks to finance those purchases combs will certainly be more difficult I would thank them pretty cold the numbers, we have ever had minimal obligations going forward.

In our the way May report for the first quarter I touched on the overnight change our industry between the suppliers and operators.

Historically, there's been a natural tension between our two groups the girls some game of sorts if you will.

Past 50 years aircraft demand has been incredibly strong, particularly with the economic emergency were China, India and others.

Result suppliers all the upper had witnessed the recent seven to eight year order backlogs between Boeing and Airbus That's.

Fast forward to November 2020, and the advantages change daily that's moved to our sides of the ledger. This is particularly true for carriers such as off the trade and used aircraft.

The airline industry took it on the trend this year the leasing industry has not seen immediate problems faced by the airlines earlier.

Early on knowing understood the depth of this malady and we were hopeful we would be in full rebound by now.

While we are seeing a slow steady rebound in the leisure segment here in the U.S. Many places in the rest of the world still haven't found bottom as a result of the peers 2021 will be a tough year for many aircraft owners. The far east is upside down as we understand it particularly care such as Airasia and many aircraft have been parked in the U.S. and Europe.

The hope that a significant rebound will be happening in the next year I believe is the stadium.

It doesn't appear our corporate problems will leave any time soon thereafter, we'll governments will make yelp travels with each passing day Oh, we're fortunate here in the U.S., we have a large robust country with a well heeled leisure traveling psych travel segment should appeal U.S. domestic leisure space will pull itself up and out of the pandemic in the coming months hopefully in 2021.

But it is a pandemic fatigue is setting and people want this exercise to be over.

Additionally, there are knowledgeable about what the risks are drug interactions accordingly.

We will be the beneficiary I believe have this resolved in domestic travel and added bonus will be the availability of an expensive aircraft and associated parts motors et cetera in the coming 12 to 24 months perhaps longer.

Yes, so be able to substantially lower ownership cost and add capital assets with minimal cash outlays.

I'll be quick please my comments from our last call, namely we continue to be the best of the worst.

Phil on those three will struggle for years, the number of years to come I believe, particularly with respect to business and international traffic.

Leisure as well with our focus exclusively on domestic leisure traffic or flexible model plus our excellent cost structure, you'll hear some of that from Greg in a bit CIT emerged from the spray better than most in the coming 12 to 24 months.

Our shareholders are fortunate to have such a capable management group, which has shown its depth and understanding of how to maneuver in this extreme environment.

Thank you as a shareholder I know I'm grateful we have this talented team.

Lastly, our team members is the true heroes in our world oil again personally. Thank each one for all they have done during the strike seven eight months you are the backbone of this company.

Any time in the online space, we will take care of our business and we are survivors with a great company and an excellent business model.

Thank you very much and know that I'll turn it over to John.

Good afternoon. Thank you Lori good afternoon, everyone.

Hard to imagine after all we've gone through the last eight months dealing with an industry that devastating pandemic.

We we'd be sitting on the highest cash balance in the history of the company at roughly 850 million. A month, then why only adding roughly 300 million in debt and no dilutive equity is Maury mentioned.

Quite an accomplishment and a testament to the efforts of the entire Allegion team.

I would be remiss, if I didnt take this opportunity to thank them for their incredible effort. During these unprecedented times.

So the combination of a resilient business model, a very broad domestic network leisure traveler focus quick an aggressive cost cutting and continued financial discipline. We are weathering the storm better than anyone such that we no longer will be referring to cash burn.

Not only is the term creatively defined and seemingly unique to each carrier that's no longer applies to us.

Greg will get into this with more detail in his remarks.

It was very important for us to get the term out of the vernacular and was like a guiding principle as we level set the entire organization.

Since the Q1 earnings call, we have stated but.

The number one priority, we're strengthening our balance sheet.

We have come a long way since then but our focus has not and will not change will.

We will continue paying down debt in a meaningful way as we move through 2021.

Furthermore, our cost initiatives to date will put us in a position for our CASM or 2021, CASM X to be below 2019 level.

With regards to Sunseeker I have no new update nor has there been any change to our approach or strategy.

We have spoken to many and remain open to equity investments by others.

While our conversations have been encouraging and we remain optimistic.

Turning to report at this time.

Our strengthening balance sheet and improving cash position should not be assigned we are positioning ourselves to restart the project. It's all about flexibility and we believe there will be incredible generational opportunities to purchase planes in the coming years.

Cash and low leverage will be Golden state, Tim and with that I'll turn it over to Scott Sheldon.

Thanks, John and good afternoon, everyone.

First off than before right.

Get into providing some color on the third quarter I wanted to start by saying thanks in expressing how proud I am proud I am of the entire leadership team and all of our partners throughout the network our operational results in Threeq.

Were terrific your continued focus on health and safety.

The sensitivity and carry you show our guests in each other and most importantly, the consistency and your daily execution is making an impact in restoring customer confidence and travel.

And the other from the rest of the leadership team here. Shortly we are certainly seeing signs of life science that customers are becoming increasingly confident and returning to the air and your efforts will be as critical as ever as we move into 2021.

Now quickly on to the third quarter. Despite the obvious continual challenges of operating in a covert environment, which the highlights can be seen in our press release. There are two areas I wanted to comment on today.

This is our core operational performance, we're virtually every measurable metric.

Up year over year.

The operations team produce seasonal best for D zero, and a 14 production and with our controllable completion factor turning back to pre covered levels. We produce just 2.5 million and irregular ops cost a dramatic bounce back from our second quarter lows. In addition, the operation team received.

As an example, disruptor cancellations, which we define as cash cancellations within seven days or travel or over 6700 during the second quarter off a base of nearly 17000 total cancellations as we exited the third quarter order disruptive cancellations were just under 400.

Page the base of 6800 total cancellation, so 94% decrease.

This not only reduce significant costs, coupled with better operational execution drove our net promoter score back to pre pivot levels.

Once again, a great resolve the grant bounce back in a very difficult environment.

It's with mixed emotions I can report, although we are ultimately successful in negotiating the right deals with the right partners. Many folks were left the.

The the organization.

But we are looking forward to a successful 2021.

Ops labor costs, both direct and indirect will be substantially down and ops head count productivity.

We define as heads per aircraft should return to levels not seen since 2013.

United Front were able to successfully negotiate near term deals with dispatchers flight attendants and as of last night, our pilot group I'd like to thank each of our Union partners and leaders for their tireless efforts. Each agreement contain attributes different attributes, but I can say unequivocally all contain the right and appropriate balance of cost flexibility.

While maintaining near full operational capabilities.

On a non unionized front and although we have a number of cost saving voluntary programs in place. We made the difficult decision to rightsize the organization fairly aggressively both in restructuring and reductions in force I want to sincerely. Thank those individuals who are no longer here. They were instrumental in helping make allegion. What it is today and for that I, thank them and with that I will turn.

Turn it over to Scott the Angela Thank you Scott our.

Our commercial approach remains focused on leveraging the strengths of allegiance unique business model.

Being focused solely on domestic leisure travel selling directly to our customers and having a proprietary commerce platform.

Versus prior year.

Ultimately our greatest commercial advantage has been the ability of our organization to pull together and solve for the cost side of the equation, while maintaining the majority of our clients schedule and not making unnatural changes to our network strategy doing so has a seeing light at the end of this pandemic tunnel even in this current.

Levels of uncertainty.

Well the the initial impact of the Golden 19 pandemic shut.

Shutdowns, our number of booking drop as much as nearly 90% below prior year back in April before coming back to prior year levels briefly in mid June eight.

Each subsequent shockwave has seen about half the negativity as the one before and mid July bookings fell to as much as 50% below prior year before gaining strength again through the end of September and even now with recent headlines of raises in the number of COVID-19 cases bookings appear to be stabilizing around.

The 25% to 30% below prior year.

Both on what our customers are saying and what our customers are doing we see a clear divergence in terms of their attitudes toward the pandemic and their intentions towards leisure aircraft that.

That is to say customers believed the situation may once again, beginning worse, but their leisure travel activity or their travel booking intent remains largely unchanged.

Corroborating, our own customer insights, which are great. The weekly tracking survey that our marketing analytics team began building back in March is tremendous data analytics work by our corporate intelligence team who's been expertly translating a variety of external data most notably the consumer mobility data made available.

By the cart labs.

Mobility tracking data shows that consumers nationally exhibit their highest level of movement since the pandemic began towards the end of this past quarter and even with Choppiness in the past several weeks consumer mobility remain near that high point and on the rise as we head toward holiday travel.

Well, thanks, Tim well Pandemics batik among consumers may certainly account for some of this dynamic many of our customers are also feeling more confident that they can smartly in safely began resuming important aspects of their lives. This includes everyday activities like shopping and eating out, but also leisure travel activities like visiting.

Family and friends, taking vacations, the beaches and national parks or traveling to and from their second vacation homes.

It's growing confidence to travel by Air again comes with condition and for many customers. The most critical condition is that the flight must be nonstop, which of course is the hallmark of allegiance there and back approach to operating.

Customers, we survey with travel booked already regardless of the airline told US a single factor that most impacted their purchase decision. During this time was finding a non stop flight.

Also a strong majority customers, regardless of whether or not they had traveled currently Bob made it abundantly clear that the prospect of connection certainly overseas typically occurring in crowded hub has a major negative impact on their intention to fly during the pandemic.

Our targeted marketing emails in fact, well visitation from direct you are out and email marketing was actually up by more than 15% versus last year converge.

The fact, we communicate directly with that and sell directly to our customers sets us apart from those who depend primarily on search engine for OTI AIDS for leisure travel bookings.

As a result, despite lower overall visitation to lesion dot com visitors have been converting at rates that are considerably higher than pre pandemic level.

During the third quarter about two thirds of our bookings were directly attributable to tactics associated with our co brand credit card or email marketing campaign.

As mentioned in past calls these programs focused on featuring work from home away from home Air and hotel package shoppers for Las Vegas imported destination reversed travel from larger cities to less populated National Park or beach area and targeted promotions based on age groups family composition, and or second and vacation home.

Ownership.

Looking forward web searches at Allegion Dot Com continue to show improvement for all travel weeks through late February and in particular search volume improvements concentrated around Thanksgiving and the weeks of Christmas and new years are especially encouraging.

Third quarter also saw the debut of Allegion Stadium on Monday Night football Mega cap. This past September 21st more than 15 million viewers, Jim and Dan and billions of impressions were generated through broadcast and digital and digital media.

In fact sports media measurement firms reported a lead Gen was the Nfls fourth strongest performing brand on social media ahead of iconic brands, such as Pepsi Lexus engaged or at.

Most importantly, Allegion stadium has enabled us to build awareness during a time that our traditional advertising tactics have been virtually non existent and drive web traffic from our major origin city, such as Cincinnati Indianapolis in Pittsburgh, which were each up in web visits by 50% to 60% and large.

New cities for Legion, like Chicago, Boston, and Houston, which were each up in web visits by 60% to 80%.

And most reassuring has been the high impact Allegion Stadium exposure, it's had on marketing activities such as email marketing around the games played at the stadium, we've seen web visitation from email marketing increased by more than 200% above its already relatively strong levels.

And finally going the distance for health and safety remains foundational to all that we do.

That includes probably sharing our ranking by safe travels barometer as the number one airline among north American carriers and among the top five worldwide for best COVID-19 traveler safety measures, but that wasn't the only award we are in this quarter for the second consecutive year. The Allegion World Mastercard was voted by USA today readers.

As the number one airline Cobrand co brand card.

Our card loyalty program continues to be a shining example of Allegiant continues to provide added value and flexibility to customers. During these uncertain times.

And with that I'll turn it over to drew well head of revenue management network planning great. Thank you Scott and thanks, everyone for joining US this afternoon Arthur.

Our third quarter revenue was down just more than 50% year over year with scheduled service Asms down 6.5% okay.

Overall I'm quite pleased with unit metric staying relatively flat on the nearly 60% jump in asms for the second quarter as Morry mentioned earlier.

The third quarter was interesting and that we never saw troughs as low as April nor peaks as high as June for booking demand. However, a much more metered and consistent growth provided some stability and cautious optimism throughout the quarter, especially as a quarterly did very well with improvements and Scott customer spend of data.

In fact, despite the revenue peaks around the fourth of July and Labor day, the load factor in the last two weeks of September where the best of the quarter.

As we look ahead October we'll continue to load factor expansion, we experienced through September we.

We have maintained TSA throughput share outperformance and a roughly double where we were last year.

However, there will still be uncertainty as we enter the winter.

Our fourth quarter Asms should finish around 15% below last year in total, but we will continue to be quite variable.

Appropriately matching capacity to demand remains our main objective and the peak Thanksgiving and Christmas weeks should see at least 30% more flying in the weeks earlier in those months.

The approach of casting a wide net continues to provide us with insight that we could not have gotten otherwise.

Despite justifiable concerns around leisure demand in September we held a significant portion of our schedule for sale and were able to record arguably our best month of the pandemic.

We believe that we have been the fastest to react to the significantly changing environment and we will continue to be nimble as we approach some potentially large demand peaks and valleys.

Very thankful for everyone's perseverance and flexibility on the Allegion team as we slowly climb out of the Canyon.

With that I'd like to pass over to Greg.

Andrew Good afternoon, everyone I too want to echo the comments in praise and appreciation for our dedicated team members their professionalism and hard work throughout this unusual period has been key to keeping us well positioned.

For the third quarter, our daily bookings averaged just over $2 million, resulting in an actual cash burn of 1.3 million per day, and this compared with our cash burn expectations of just over a million dollars.

As drew mentioned, we saw a slow and steady improvement in demand throughout the quarter recent trends are encouraging and at both September and October each are averaging more than $3 million per day in bookings.

Turning to costs despite.

Despite the capacity reduction of only 9.4% our cash operating costs, which exclude ownership in special items were down more than three times that amount at 29%.

Our adjusted CASM, ex which excludes special items and benefits from cares Act for the quarter was 6.25 cents and less than our full year 19, CASM ex of 6.5 cents.

We have worked hard to pull every lever we have in our operation to cut cost and preserve cash the list of measures. We have taken this long extensive and innovative.

Regrettably that list does include some strategic reductions to our workforce is heartbreaking to lose valued colleagues and friends and we all share in that loss. These.

These position eliminations came as a last resort, but are also increasing incredibly meaningful in helping us get back to a breakeven cash flow status.

We are pleased with the progress to date as we ended the third quarter with net debt of $840 million, which is even less than our net debt at year end 2019 of $950 million.

Our ability to navigate the pandemic without a material negative impact to our balance sheet is attributable to the following year to date cash inflow items.

Employee voluntary pay reductions in lease PSP grants and associated loans of $177 million and will carry back refund to date of $95 million with an additional 125 million expected to be received in early 2021.

Financing is a $300 million and year to date EBITDA, excluding special items of slightly positive.

$2 million as a data point, we expect EBITDA to remain positive average daily bookings of around $2.7 million or above.

These cash inflows were offset by the following year to date outflows capex of $190 million and heavy maintenance of $40 million and this includes the 46 million for sensitive.

Also sixthree partner termination payment of 15 million and total debt payments of $152 million, which includes 38 million of interest.

Subsequent to the third quarter, we issued $150 million private placement bond backed only by the collateral already pledged to our existing term loan.

Not having to post incremental collateral was important as it allows us to maintain great greater fleet flexibility by keeping 22 of our aircraft unencumbered.

No form of for this bond our cash balance was roughly $850 million in September and October booking levels of over $3 million per day, we're flirting with cash flow breakeven, while the environment remains fluid and bookings will certainly ebb and flow. Our data suggests these average booking levels are sustainable moving forward as such we believe.

We have ample liquidity to see us through to a full recovery in demand.

Given our sound financial footing, we declined to participate in the government loan program that would have provided the company with access to an additional $270 million in borrowings.

Because we no longer view liquidity as a key risks to Legion, we will not be explicitly providing cash burn guidance going forward. Instead, we preferred to direct our messaging towards traditional areas such as capacity op expense capital expenditure.

We expect to fourth quarter capacity reduction of around 15%, we expect our total operating cost to be down closer to 25%, which.

Which assumes a fourth quarter fuel cost per gallon 1.35, and imply that total airline chasm of down 10% year over year.

We have made a number of long term structural cost improvements to cope with the reduced demand for airfare and in total we expect structural cost changes to equate to about 75 million in annual operating cost savings.

These include $40 million in labor $15 million in marketing 15 million 90, and another 5 million. Another as a result, we expect CASM ex fuel to be meaningfully reduced based on the 2019 capacity levels.

We expect to end 2020 with gross debt of about 1.65 billion and based on our current booking trends, we expect to end 2020, and a net debt position of roughly $875 million, which two compares favourably to our ending 2019 net debt of $950 million.

Okay.

Turning to fleet, we expect to end the year with 93 aircraft and operations five and temporary storage and eight plan for permanent retirement as we look towards 21 and beyond we're not burden with the costly. We order. We believe this is a key strategic advantage for Allegion. In addition, we continue to see an influx of potential deals for used Athree 20 Ceos.

At prices significantly discounted compressco bid levels.

The post closing environment may provide a unique opportunity to either strategically replace aircraft in or grow our fleet depending on demand.

At the economics, we are seeing such deals should lead naturally in averaging down our ownership costs further improving our already industry, leading low fixed cost structure. In addition by enhancing our fleet flexibility, we expect to further reduce future heavy maintenance cost as an example recently we were presented with an attractive opportunity to bring in a leased athree hundred 20 and 20.

21, and so we quickly action retirement of an older Athree 19, which was due for a costly maintenance visit the leased Athree 20, we'll have lower ownership costs and the 319 more seats and we will harvest the engines from the Athree 19 to avoid costly heavy maintenance capex.

As Morry mentioned, there are more potential fleet transition transaction, where we would have the ability to minimize upfront cash requirement, that's helping to keep our future capex at lower levels.

For 21, Capex, including heavy maintenance, we currently anticipate a $125 million. This includes $40 million for two aircraft to be delivered in early 21 prior to Covance. We estimated our 21 capex spend would have been at least 100 million higher just between the incremental heavy maintenance and other non aircraft capex.

We currently expect to end 2021 with between 90 and 103 aircraft in operation with travel demand determining when we return to service our aircraft and temporary stores and clothing, we're very well positioned we have sufficient liquidity to manage through the crisis. Our debt levels are modest are quickly amortizing debt will have offset the equivalent of around 40%.

The debt we raised since the onset of the pandemic.

This will happen by year end and then we think the remaining balance could be offset by next year.

Our next year's end.

So to the best of my knowledge Legion is the only carrier since the onset of the pandemic to nearly double its cash position lower net debt reduced interest expense all without issuing an equity dilutive transaction Mr.

This provides us confidence we will continue to remain very well positioned on the other side of this pandemic and with that let me turn it over to the operator.

As a reminder to ask a question. Please press Star then one.

Yourself from the queue.

The pelkey, we ask that you please limit yourself to one question and a follow up.

Our next question comes from Michael Linenberg of Deutsche Bank. Your line is open.

Hey, Good afternoon, you know im listening to this call and I'm just thinking what plan and are you guys Todd.

Because it doesn't at all seem to reconcile what the plan if that I'm on with risk.

Being an observer of the industry. So congratulations on.

Getting to breakeven and you know us.

Essentially positive.

Free cash flow.

I guess.

Couple of questions here.

You know and Greg if you ran through kind of the big.

Ticket items for White CASM ex in 2021 will be below 2019, you talked about the 75 million of of structural change and is there anything sort of incremental to that or you know you'd highlighted labor you talked about.

ITD marketing and are there is that is that what's driving it or are there other elements of the <unk>.

Mission see and maybe its you guys are building and just lower aircraft ownership cost in 2021 for any sort of incremental sales that you bring on just given where the market is today versus where it was pre coven.

Any any additional color there.

Sure Hey, Michael and thanks for the comments.

But now you're spot on I think the major areas that were focused on one Scott hit on this in his opening remarks remarks is labor and productivity.

I will set the organization and we're going to rebuild the we're going to be more productive to put that into perspective I think it's 2019, we had roughly 50 ft per aircraft.

We expect to have 38, and we haven't had that level of productivity offense.

Back in 2015, I think in before.

So thats a big one marketing I think I'd like deangelis here and given him and his team a shout out because they through this pandemic. They find ways. They have found many ways to be more surgical in more efficient with the with the capital that we can provide to them and they are getting better and so we feel comfortable and confident that take our marketing budget down.

And that's a structural improvement and then in the other areas that you mentioned, there's just there's a lot of improvements.

From there, we think we'll be more productive and just better on the other side because of this.

Great and then just my second question and this is this is really for more and John you know as we come up to the election.

You know damages versus Republicans and this is not me trying to call out what your politically which side you're leaning toward I'm. Just curious you know depending.

Depending on how things play out what outcome is it better to lead Gen and what I'm really moving towards is the fact that if we do get a blue wave.

The concern is that you know in the past we've seen the dems being much more aggressive and sponsoring legislation that to some extent would undermine the Legion model.

You know kind of a return of regulation on seat size and the like on one hand on the other.

[music].

Airline employees or their peaks and don't want to do anything that undermines the businesses that they work for and reregulation ultimately impacts profitability and ultimately impacts what union employees can earn so there's some tension there and that's what we've seen in the past and the possibility maybe of additional stimulus which is good for the overall.

Economies. So I know, it's sort of a broad question. How do you think about a region, where we get a blue wave or we end up getting you know something in between what's best for Allegion.

Our first.

John follow up.

[music].

I've been doing this Mike Golding system hold hold steady in the category just given where you are seeing.

So you can see the waveform certainly we've seen the boot side has been very much regulation.

Got it thank you.

Relations Mr. Trump administration.

Welcome.

Do things I think this thing has been settled.

I'm not going to sit here and say.

Yeah, you open up Pandora's box, you go in and try and re regulate the seats in the airplane.

Ill.

I can't speak for anybody that way I, just know that you said kind of rolling that forward, it's going to be because of the huge problem.

And this industry as all the big guys by them.

Correct.

You want to take seats.

Yes. Please.

Yes.

Talk about that.

But you'll you'll see that happen.

I think you will see a lot of Labor addition, that's already out there.

Second I want to improve the ability for people to realize.

Yes.

Yes, probably downside there.

Great just outside would be greedy where.

Yeah.

Yes, the whole airplanes.

Great.

Yes, hi, which sends a signal by deals and the new engine types.

Candidly that could be a possible.

GE and those types of Airbus format. So.

I have to say, but.

Well I.

I think our model.

With that yeah.

Workload.

It's a pass through agents increased cost well past, that's what we do well probably better than anybody else John.

But yeah, I mean, most lori's comments of course, I echo those they're spot on I think when you look at the team here.

For the for this entire year, we've ever had a conversation on on what if at all but we only deal with things that we can control.

Thats focused on rise. So we just been spending a lot of time doing everything that Greg This reference.

Well one of the biggest ones of course was this level southern Europe.

The organization from a labor standpoint, I think the further away you get from 10, one the less likely so theres a retroactive component to whatever may happen right just because every.

Every airline is taking whatever steps it feels to be able to right size its organization. So.

Labor is what it is.

Our focus is trying to control what we have control over and I think weve moved very quickly and aggressively to deal with bullets on the the onset of Wallace.

Great Thanks, everyone well done.

[music].

Our next question comes from Duane Pfennigwerth of Evercore ISI. Your line is open.

Hey, thanks.

Maybe just a just a network question obviously.

Preference for direct flights certainly certainly resonates right now it's always been a part of the model, but it but it certainly resonates right now.

And so many dots have been taken off of the domestic map not from an allegion perspective, but from a us airline industry perspective, and so I wonder if you could talk a little bit about new market opportunities that may be hoping and it feels like there would just be a lot of green space.

For your low frequency model right now given given where capacity is.

Yes, Hi, this is drew and I think you're spot on.

We had already communicated.

Significant network runway pre pandemic and didn't have any concerns about our ability to grow and there were found to be incremental opportunity that stem from this I think we're trying to.

Kind of be less.

Level levelheaded about how we approach us and not trying to to grow too fast into this with uncertainty, but not trying to sit back either and trying to find that right balance I guess.

So I think you'll you'll see things from us that we know that there's going to be growth available.

I'll give you kind of a big generic answer here, saying that yes opportunities exist and we will be looking for them.

Timing kind of TBD.

So so far it's been.

Preserving what you have and preserving connectivity that you had and less diversifying into new markets is that fair.

Largely fairway, we've had one route announcements that was relatively small by our standards less than 10 route.

Kind of strengthening where wherever strong, particularly from a destination perspective.

And those of all have all started off quite well we have that are first flight on any of those yet fulfilled the booking phase there.

Thats certainly would agree that there's there's more that that will come from us.

Thanks, and then just for my follow up on.

Non airline I apologize if this is in the disclosure, but can you just tell us.

Where non airline revenue and cost.

And kind of loss was here in the third quarter I imagine its a lot skinnier.

And what your outlook.

Is going forward it feels like.

What we should be solving to is sort of the.

Airline CASM ex from 2019 now not the overall CASM X, but would appreciate your thoughts there. Thank you.

Hey, doing its Greg again, thanks for the question, Yes, I think the spirit of what you mentioned is correct. It's the focus back on the airline, but maybe I'll just run through the three non.

Non airline business line stock.

Starting with non stop so thats been for the third quarter that was not as close down very minimal costs associated with that.

Nothing to report revenue there.

As far as sunseeker. Similarly, it was very minimal cost may be familiar.

A million or so throughout the quarter that we pages that for security or just to make sure. We're protecting our investment in that asset and then with T. snap that still remains an asset held for sale teams done a really nice job of being self sufficient their restructuring that organization, that's actually turned to a positive position so its actually earning.

Cash and it has for the past six seven months. So so we'll still explore strategic options. There we are and we have nothing to report today, but.

Once we have more will.

We will report back on those on that front.

Okay. Thank you.

Our next question comes from Savi sets of Raymond James Your line is open.

Hi, good afternoon.

Just on the fleet side I recognize you are going to be opportunistic with with things that come up that right now how many can aircraft you have ground there and what's your plan as you look to 2020 CASM next being less than 2019 is that assuming kind of 2019 levels of line.

Yes, I mean, we're not we haven't come out and given capacity guidance on 21 I was just pointing are just saying as a data point based on 2019 capacity, we would expect CASM X to be less.

But as we think about the fleet savi.

We were going to go add to it as far as where we sit today. We have five that are in storage temporary storage, we're considering those please.

Couple fleet kind of if you will so depending on the environment and demand we bring those back on the service.

Last call I think we mentioned we had identified seven aircraft for retirement, but given the deal.

I just mentioned in my opening remarks that is now up to eight and will retire the majority of those through this year and that with a few stragglers into next year.

Got it.

And then just a quick question on the voucher is within LTL.

Seems like maybe 65% of the ATM is that Jay.

Matt what are you seeing in terms of usage of those batches and as that kind of trend changes bookings have moved up.

Yeah definitely we've seen the voucher redemptions trend.

Increase so I think like pre Cove. It was like a percent or two is really small as compared to no revenue right.

Right now the 15% to 20% so we've definitely seen an increase and we're working through those so I think the last report I had savi since March through the end of the quarter, we issued about 350 million in credit vouchers.

And so we burn through I think we are to 20 now so right. So we burned through about 130, I mean, the cadence of the issuance of credit batches has come down significantly to put that into perspective, I think arch was $150 million alone.

And so and then I think October and November October.

To date as much less than September which was less than August so we're burning through it but.

Is there, we'll see but yes, I think thats missing anything drawn on anything else you want to.

Great. Thank you.

Our next question comes from Hunter Keay of Wolfe Research. Your line is open.

Hi, everybody.

A little bit more on sunseeker John for you.

You said you're optimistic.

What did you mean by that are you just basically suggesting you're optimistic as to this project is still occur just.

No not in the way that it was originally intended on your balance sheet is is that we're getting and when you say that when you that word.

No is it more relates to the conversations we're having with people that we'll be able to.

Yeah.

On some sort of a solution that.

Hopefully would involve additional equity partners.

So we've had a lot of great conversations there's several doing due diligence work.

We realize that it's obviously a big project for people to look at.

But we've had some great conversations so that's always getting out is that we're we're optimistic about these conversations we've had and people's level of interest.

I got it okay.

And then I think probably one for Scott Sheldon.

Can you elaborate on the.

In terms of the pilot agreement that you reached last.

Last night is this.

The reduction in.

Kind of a pay guarantees I mean, what is give you flexibility to to grow or shrink if conditions warrant like we've been seeing from some of your competitors any entity and it finally of the sales to vote on it can you just give us some more color on that please thanks.

Yeah, Hey, Hunter Thanks for the question.

Yes so.

We set back into queue and we communicated this to the pilot group.

That there was a there is a possibility that we could follow up to 275 folks.

That would obviously drive a number of downgrades.

We had already Actioned 100 of those 275.

Basically as of October one the next hundred lira.

We are getting ready to action.

Basically October 31st.

Unfortunately, we didnt have a lot of preventative and voluntary programs in place, meaning just voluntary leaves flexibility on one schedules or a release or we get a better idea.

Of what drew and team wants to fly.

So these guys.

Basically we were shooting over.

Different possibilities literally up until late last night.

So basically our furlough profile is capped at 130.

If you think about 130 60 of those were new hires that hadn't even.

There is on the line yet so ultimately the impact of the 130 and the associated 30 downgrades is minimal.

If you look at what we want to go five EBIT margin even through the summer.

And targeting a 90 or 103 aircraft profile we.

We can do that very comfortably if we want to bring these folks back we can.

So that's basically kind of a language and what was agreed to yesterday, but.

We didnt change rate, we didnt change the guarantee.

But its sizable savings when you think about a third to down rates and just the 130 that were on payroll.

There are no longer on.

Got it okay. Thanks, everybody.

Our next question comes from Joseph Denardi of Stifel. Your line is open.

Thanks, Doug good.

Good afternoon, Maury can you talk a little bit about kind of the timing of when you think you would start to invest more meaningfully in the business again, I guess, primarily on the aircraft side.

And maybe the magnitude of the investment that you think you'd be willing to make at this point.

Oh well.

So I think that.

We're going to feel that out as we go along.

With the ability to add airplanes.

With minimal cash.

Our troops.

It makes it easier for us to.

Equipment.

I think we'll also have the benefit so cash requirements for mobile we will.

So our cash balances should stay very very.

Nice bright for the next two years, which we can have a.

Good number of shells with minimal amount of money out there.

Our arrangements are out there.

All we can do fixed rates that are.

Really we can get or maybe 320 now for at least rate that's the state in which we're paying for 319 on the depreciation so yes.

The other piece of this as we like gold pays for 50 years, you get mid level.

Towards the backend of their lives you don't want to be returning older airplanes thats built to do that lease basis. So.

Equity sales structure deals.

Effectively reverse the purchase and still putting your money down upfront with debt due at the old materially the paper and we buy it back side. So we think about that.

Much capital up you can have had the shells.

I think.

We'll have to see.

We debate inside go fast.

Take your time.

But the data revealed itself it appears there's opportunities out there.

One or two things we can do we certainly will shell will replace the IP, perhaps with one of the big succeed. The airplanes. You can if you can give us or putting with 186 seats 30 more seats in the threenineteen for the same ownership cost marginal cost supply that airplane is minimal.

By way of looking at it and I want to spend 47 on something I want to just on Tuesday.

But all all uptake.

I'll take the benefits of 47 47 around during the week to have this fall for potential seats on the piece that is.

Mario are you on the go fast or the take your time side of the argument.

Oh, yes.

Okay. Okay.

And then maybe a question for drew on the just on the network side can you talk about kind of the level of competition that you're seeing now and then probably more importantly.

What how much less competitive the network will be on the other side of this as you're thinking about it. Thank you.

Yeah, we certainly seen level of competition come down over the last six eight months there.

There's been a handful of new lease rates in markets announced by other carriers on top of us.

By and large those have already been competitive revenue so the incrementally new to us just some incremental seats.

Which never never a great thing, but not quite the same as new competition.

We have been heading back down.

And maybe some of your nose, the Bakken weve desktop of 15% competitive.

I believe over the last few months, so at any markedly better position than we've been in the last several years for sure as we began making a series of network investment that elevated that number in touch.

As we move forward.

All of the route that we talked about pre pandemic only about 10% of those were competitive and we're going to enable us to.

Kind of build that even even deeper and wider and I think it has a lot of industry network decisions take place that that number will get even better.

Routes come come open.

So I could see us living in a world closer to 10% for a while.

That might be a touch optimistic, but I think as possible as we look forward in the short to medium term.

I think one other thing too just to add on or do said when you look at that even on those competitive routes.

Pricing environment going forward with the levels of debt that all these carriers have added.

It's going be very interesting, we haven't done that so our pricing structure, so I could be complete.

Completely out of whack, where the competition can't say that I mean, they're going to have interest expense that is incredible.

For a long time.

Very helpful. Thank you.

Our next question comes from Helane Becker of Cowen Your line is open.

Thanks, very much operator, hi, everybody. Thank you very much for your time.

I'm not sure who bought the stadium was referenced and and actually I haven't been there yet, but it does look like a really nice stadium.

And I'm kind of wondering if you have been able to determine the revenue benefit versus the cost and what you know what it's been and it's been about a month or so but it's been so far maybe and where you see the track you see it going so maybe the return on invested capital.

You bet. This is Scott the answer thanks for the question I'll give you the constructs how do we think about it there's two basic ways, one as I mentioned and do a bunch of goofy big numbers in terms of billions of impressions millions of viewers that we take and it is all able to translate into what you would have to spend.

I get that anyway and as Greg.

I mentioned earlier, we've been able to pull down by 15 or more million in marketing based on what that investment is able to get out. So thats one way, we talk about the cost side of the value and what we're able to take down and then Conversely on the revenue side, you know I mentioned that kind of left.

We see a in email marketing, but the same thing is true of anything and everything we do because.

Because of the heightened sense of awareness, we measure the baseline left let's say one person or people to get our emails open and click through and now that goes to 1.11 0.2.

Per cent and just play that.

With that.

Small ball game, all the way to see what that return is and so we measure that as well.

The line in the sand is that we need what is roughly.

Two tenths of a percentage point 20 bets across everything that we do.

As you get several million more people in the final over a years time, meaning to the website and then all other things equal that is that you don't get that so our hurdle rate of what the investment is so without specific numbers that is how we think about it from a construct point of view and then how we measure.

Okay actually that's that's pretty helpful. And then I know that this question was sort of asked.

For my follow up question.

Any more he was breaking up so I didn't really get the answer other than maybe he said lease rates on athree twenties our.

About equal to what they are for Athree 19th.

So are you looking at acquiring I mean any aircraft that you would bring on above you know maybe what's what's already there the 103 that was referenced.

That's where you can end the year.

Are you looking at bringing them on the owned aircraft or is leased aircraft I would think onto aircraft would make more sense than leased aircraft.

Hey, Helane. This is Greg maybe I'll just pick it up real quick and then Robert Nails in the room, who heads our treasurer heads up our fleet acquisition team.

The way we're looking at is is what makes the most sense and economic the best economics. So Maury I think memorial was alluding to you're getting at is there's deals out there where we don't have to put up capital upfront week.

Weekend it got.

Got it.

Really strong rates lease rates and then pay in the Bakken like a reverse mortgage type thing, but yes. We're just looking at deals that make sense were not going out we're looking almost a 1002 easy to see.

That makes sense you the replay or replace the existing aircraft that are coming up on heavy maintenance events or or if there.

If they if there.

Hi, there coming near retirement age as well, but with that let me turn it over to BJ. If he has anything to add some color on that.

Yes, Hey, Hey, Helane.

I think it's probably a little bit of both I mean, we want to own our aircraft at the end of the day and most folks we worked with no that.

But I think near term, there's probably some really good opportunity for natural lease expertise from other carriers over the next 24 months and Thats where.

We've seen that's where we've seen the most benefit.

Okay.

Just.

Oreo was stages. So you have that data point correct.

He was referring to just to give you.

Right.

How the market is what he was saying is that we are seeing.

Deals with the lease rate on a 320, that's less than the ownership costs on a threenineteen.

Okay, Yes.

Yes.

That makes more sense. Thank you all right well thanks, everybody I appreciate all of that.

That's all the time, we ask a question John the call back over to Maury Gallagher for closing remarks.

Thanks, very much appreciate your inputs and we'll see you again.

Hi, good week.

Ladies and gentlemen, this does conclude the conference you may now disconnect everyone have a great day.

Q3 2020 Allegiant Travel Co Earnings Call

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