Q4 2020 Allegiant Travel Co Earnings Call
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Ladies and gentlemen, thank you for standing by and welcome to the Q for 2020, Allegiant Travel Company earnings Conference call and.
At this time all participants are in a listen only mode. After the speaker's presentation. There will be a question and answer session to ask a question. During this session you will need to press Star then one on your telephone.
If you require any further assistance. Please press star then zero.
I would now like to hand, the conference over to your speaker for today Sherry Wilson you may begin.
Thank you Wanda and welcome to the Allegiant travel company's fourth quarter and full year 'twenty and 'twenty 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 EVP and Chief Financial Officer, Scott, Sheldon, our EVP and Chief operating officer.
Scott and allow our EVP and Chief marketing Officer drew wells, our SVP of revenue and planning and a handful of others to help answer questions. We will start with some commentary and then open it up to 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.
<unk> of 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.
Future events, new information 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 feel free to visit the company's Investor Relations site at IR Dot Allegiant Air Dot com with that I'll turn it over to Maury.
Thank you Shari and good afternoon, everyone and thank you for joining our call today for.
First let me thank all of our team members their spouses and families. As we continue to flow through these difficult times and caring for our passengers to their destinations.
Thank you again for all your hard work and dedication of.
And this quarter, we were able to report some optimism.
Quarter ballpark and my statement at that time by saying some at this time I can say more and.
In terms of optimism.
And as it turned out we were a little more bullish on the call last quarter than we were able to deliver.
Nevertheless, we had noticeable improvements over that quarter.
I talked to drew wells and his team was.
And then you get navigate and navigate their way through the increased COVID-19.
Problems in November and December did an excellent job maneuvering us through to declining demand during those months for.
For that and we flew 2200 fewer flights during this quarter and 9% lift.
And we did and the third quarter.
But we saw our unit revenue numbers go the right way up.
And some numbers passengers increased overall, 7% load factor increased by nine points to 58%.
Average fare increased 15% to $110 up from 96.
PRASM was up 30% through that combination to seven <unk>.
Total revenues were up for total of $46 million and.
Happy to say, we were EBIT positive during the quarter. Our first one for the year. After I guess, we've made and their first quarter, but.
Again, we did this with 200 fewer flex.
And we still have a way to go PRASM and 2019 was just over 11, and we are making excellent progress.
And the balance sheet front, we improved our position from 2019, even with the pandemic sandwich and the middle or.
Our cash closed up over $200 million at year end, 2020, and while we raised $150 million and new debt and the past few months, our net debt was essentially flat year over year.
For all of a few airlines not approach the equity markets during these difficult times.
But we generate the equivalent of equity raises as I said before by our NOL refunds.
We have one coming in and not too distant future, a $147 million and that will add nicely to the cash balances.
Adding this total to our $685 million year end cash balance, which gives us over $800 million of cash equivalents for.
For a 320 some million dollars increase over our balance at the end of 2019.
Can't tell you how proud I am of this management group.
And did they do a marvelous job during the down days last.
Spring and summer, but just as importantly, and positioning the company to take advantage and the disruption, we're seeing and the industry and the coming year and thereafter.
We've leaned out the company during the past year, It will show and our CASM X going forward.
And in difficult times difficult decisions are required.
Scott the Angelo and his team working with our it group has revamped our website and mobile app, making both more user friendly and particularly the mobile portion, we're seeing seeing meaningful upticks and our packages and other products.
Is turned on and the last month and while we are still learning how to use it and what to do with it. The initial response has been positive.
And I will have more comments and a moment.
Our model continues to be our key to our success.
Rides us with amazing flexibility to go in either direction to shrink dramatically as we did this past April we were down almost 10 fold. If you can believe that year over year and capacity for to lead the industry and total capacity available for sale as we did in 2020.
And <unk> were only down 19% for the year and and the back half of the year. The last two quarters, we were only 13% down for.
For that period.
The team has developed and independent forecasting tool as well to help us gauge where demand is growing year over year comparisons and using that to see where we're at does not work for the past three or four months, we have been looking at a number of data components to attempt to understand the demand.
These data points include our weekly survey and other meaningful metrics and show activity what people are doing to correlate to future air travel.
We're comfortable this is a good marker for the future travel and this was.
And as well up to the right. So.
And so much so that we believe it's time to step on the gas.
You heard our announcement a couple of weeks ago of our 21, new routes, we see opportunity and we'll act on it.
We will now use this flexibility we have and our system to.
Grow the company in the coming months, we have the aircraft and sufficient crews to allow us to increase capacity. While we felt we had to reduce staff. This year looking backwards, including laying off some of our crews and I'm happy to report we will be asking these crew members to return to duty shortly.
We see excellent opportunities in 'twenty and 'twenty, one and then the follow on years, we believe those increasing revenue numbers I summarized for the last quarter will carryover into Q1 and beyond.
U S airline industry will struggle for a number of years to come, particularly with respect to the business and international traffic.
But I believe we are and a better place. During this time as an example, we are forecasting a growing capacity and drew will talk about this of up a half a percent true up.
And five 5% for Q1 compared to our 2019 Q1.
Most other carriers.
They're down 35% or more for the same period.
While we were able to separate so much.
From the others in the coming months.
Once again, we are showing you the benefit of our model and particular, our focus on flying on peak days or said differently not flying on off peak days.
The remainder of the industry has historically operated seven days per week and has utilization as a result of 11% to 12 hours per day per aircraft.
Our approach focusing on peak days, when our leisure customers want to travel has us only firing and at our aircrafts and average of six to seven hours per day.
With that pattern.
Day, the industry appears to be matching our approach given leisure traffic has all of its moving.
Namely day of stop flying on the Tuesdays of the week and hence there are 35% reduction or more compared to the same period in 2019.
There's a good reason for them not to fly on Tuesday, and namely minimal business traffic. The industry is rationalizing their offerings to customers available for leisure customer and the leisure customer for the most part does not move on Tuesday or Wednesday.
This is advantaged allegiant and my opinion.
For us I'd like to say the other guy is playing our game.
With our focus exclusively on domestic leisure traffic are and our flexible model and with our excellent cost structure, we should emerge from this for a better than most in the coming 12 months to 24 months.
Lastly, our team members have been the true heroes and our world.
And thank them again personally each and everyone for all they have been doing during this trying 10 months you are the backbone of this company.
Meantime, and the airline space, we will take care of business. We are the survivors with a great company and an excellent business model John.
And thank you.
And good morning, everyone.
And we're fortunate that our model and history apply and domestic leisure customers. We don't have to sit here today and predict the timing of vaccination rollouts.
We're all aware of the benefits and future upside, but they are events were happening beyond our control.
We have been laser focused on what we can control, which is cost capacity capital and network, which leads to deleveraging and balance sheet improvement.
Without giving specific guidance I thought it might be helpful to provide some directional data points to help you understand how we see things and 21 day.
And as directional guidance assume no significant changes to the environment, we are operating in today.
With all of the hard work and difficult decisions, we have pulled roughly $75 million and structural changes out of our cost structure using 19 at the baseline are difficult, but impressive number, especially for an ultra low cost carrier.
As a result, our CASM ex for full year 2021 should be less than Q1 of 'twenty one.
Greg will provide some commentary on Q1 'twenty one chasm.
Given that our best results and margin are ahead of us not behind.
On top of that our interest expense will be lower in 'twenty, one and 22 and 2019.
Don't think another airline can make such a statement.
Our capacity will be up and every quarter and 'twenty one versus same COVID-19 drew.
Of course, we'll give a little more color on Q1 and 21.
We expect to be EPS positive and the first quarter of 'twenty one.
Our net debt each quarter and a 21 will be less than year end 2019.
Again, all of these directional guide assumed no significant changes to the environment, we are operating and today.
And regards to Sunseeker resort.
We will not invest any more meaningful capital.
We remain incredible believers and the thesis and future opportunities and continue to explore other options, including other equity investors <unk> Nonrecourse project financing.
The resort is far more valuable built out and provides greater flexibility and more options and how it sits today.
We have had and continue to have numerous discussions about the art of the possible with various and arrested part.
We have never been more excited about the future potential of the airline and intend to grow and 21 and beyond.
And the release has a chart showing the fleet growing to 108 claims by year end.
Aircraft acquisition opportunities are generational and we intend to take advantage of that.
Greg will provide a little more color about our fleet count and his commentary.
And my 41 years of working I've never been more excited about the year ahead of us GAAP.
And the opportunities in 'twenty, one and beyond are significant and.
And achievable, especially at a time when the market per plane has never been debt.
We all understand how terrible and devastating this pandemic has them, but this management team has stepped up and a significant way refined our business model quickly and aggressively which a lot, which is allowing us to recover faster than anyone.
I would be remiss by not take a moment to thank each and every one of our valued team members and the continuing effects of the pandemic or staying at home and not deterred anyone for performing at the highest level, which is why we find ourselves in a position we are today and what the brightest future.
There's still a line from Tina Turner you are simply the best.
With that I'll turn it over to Scott Angela.
Thanks, John and.
And 2020, our commercial approach continue to stay disciplined by executing against our data driven recovery roadmap, which enabled us to do multiple things.
We reduced marketing costs, while still capturing a disproportionately high share of the leisure travel demand that didn't exist and the markets. We serve we continued building our transformational capabilities and the digital commerce and customer loyalty areas and.
And ultimately we laid the groundwork to enter 2021, well equipped to drive a faster and stronger recovery and the post pandemic leisure travel era.
Our direct to customer distribution model continues to allow us to stay close to what our customers are saying and how our customers are behaving.
As recently as Sunday more than half of the customers who responded to our weekly survey. So they plan to travel this spring and nearly two thirds. So they plan to travel this summer.
And while we appreciate that the situation and customer sentiment will continue to be fluid.
Noteworthy that flight searches at Allegiant Dot com for the next month for key spring break weeks and for Memorial day week are near or above prior year levels overall, and both searches and bookings continue to show relative strength for destination like the beaches, along Florida's west coast and Panhandle as well as other small.
And mid sized cities nationwide debt service gateways to national parks and outdoor recreation.
Marketed as non stop to nature.
And that would obviously continues to fluctuate by season on average since last March about a third of our book customers said, they traveled to visit friends and relatives and more than 25% state and hotels, nearly 20% state and a vacation rental and more than 20% flow between their primary residence and a second vacation.
And <unk>.
Total web traffic to Allegiant Dot com and 2020 was down by 26% versus 2019.
But the absolute number of visitors coming to the most direct and lowest cost ways either by entering the Allegiant dotcom Urls and their browser or by clicking on a link and our marketing E. Mails was actually flat versus 2019.
For visitors coming from higher cost and less direct ways search engine marketing and OTT digital advertising, we're down 40% to 60%.
And 2019 were pointing to our $3 30 per booking sales and marketing cost as an industry, leading benchmark yet in 2020, we reduced that same cost on a per booking basis by nearly 50% for the year and by nearly 75% during the past three quarters.
This was achieved and two fundamental ways strategically by leveraging marketing analytics to create market specific models for optimizing our mix of fixed cost and variable cost activities and also tactically by restructuring contracts and reworking plans across our advertising E commerce and loyalty function.
We also continued to do more with flat thanks to aggressive co marketing efforts with our great Airport destination and hotel partners.
Continuing to strengthen our existing relationships and build new ones with entities in and around the leisure travel space eight remains central to our philosophy at the leisure travel ecosystem player.
We believe that pulling marketing dollars and brand equities with these partners is doing approach for maximizing the capture of demand as it returns to the markets we collectively serve.
And for the final portion of the marketing 2020 recap the back half of the year saw unprecedented awareness of the Allegiant brand as Allegiant Stadium played home to for nationally broadcast NFL games, including the season's most watch Monday night football and most watched Sunday night football games the line.
And are of which finished and the top 10, most watched television shows of any kind in 2020.
We've commented before that our goal for Allegiant Stadium wasn't that people would see the stadium and instantly book a flight rather it was at the heightened awareness driven by Allegiant Stadium millions of exposures and billions of impressions would help drive increased efficacy across all other marketing tactics are dynamic best exemplified by our.
E Mail marketing program, and we're quite deal marketing E mail and on the days off and after Raiders home games, and Allegiant Stadium drove year over year web traffic increases of more than 30%.
Looking forward, while our marketing approach for 2021 remains balanced our primary focus will be to win back customers, who flew with us and 2019 and early 2020, but have not fallen with any airline since the pandemic began.
Base jointly on proprietary behavioral data and consumer research. We estimate this group to represent $1 9 million customers, who accounted for more than $880 million of revenue and 2019.
And based on recent survey data and 40% of this customer group since they expect to book Air travel at some point and the next six months and virtually all of them say that allegiant won't be considered for that trip.
As such we remain vigilant by tailoring, our communication with this group of customers and measuring our success at winning back the potential revenue their future travel represents and they re enter the market.
When they do return to Allegiant dot com there'll be welcomed by our newly redesigned website, which we rolled out two weeks ago. After extensive parallel testing versus our legacy website showed that the enhanced user experience drove sustained levels of improved conversion and higher ancillary take rate and as a result larger trends.
Action sizes.
And while the left to air and Air ancillary offerings is driving strong initial returns overhauling the technical foundation of our leisure travel platform affords us new degrees of freedom and selling beyond the aircraft by enhancing our ability to integrate and showcase increased levels of hotel inventory along with other true.
<unk> products and the future such as vacation rental properties and Allegiant Stadium travel packages.
Already we are seeing improved attachment rates for our hotel and rental car a function not only of the improved digital experience, but also the greatly reduced consumer web search and OTT traffic I referenced earlier.
Also you may recall, nearly 85% of our customers say that era is the first purchase they make as part of their travel planning, which means we're the first to know where theyre going putting us in prime position to present them with hotel stay and railcar offers before anyone else.
We believe the new Allegiant dot com exhibits not only industry, leading features and functionality, but also incorporates leading internet retail element to form the foundation for improved product merchandising personalized recommendations and third party advertising as we continue to expand as a holistic leisure travel provider.
And while the new Allegiant Dot Com is the first day rollout rollout, it's not the only major new commercial capability that we focus on developing during the past year are fully redesigned mobile app, which mirrors. The improved websites user experience is planned to launch and the first half of this year and can also be expected to drive meaningful impact given that about.
20% of total bookings now come through the mobile App.
And because it now and will include the instant credit approval functionality that enables users the opportunity to apply be instantly approve and use the allegiant world Mastercard to book.
While that will be new to the app or website as feature Dysfunctionality per years and is the leading method for acquiring new cardholders.
Speaking of the Allegiant World Mastercard and it did into winning USA Today's readers' Choice Award as the best airline co branded card for a second straight year nearly half of our cardholders fluids us during 2020, averaging more than three and a half itineraries, each and above transaction sizes that reflected their higher.
Are ancillary and third party product take rates and finally, our loyalty focus will be considerably expanded by the introduction of our first ever non credit card rewards program planned to launch later this year pending both technical and strategic considerations and summary, our continuous monitoring and assessment of the Covid <unk>.
And situation along with its impact on consumer travel attitudes and behaviors are informing debt.
How and where we market to date, while we continue building rich commercial and technical capabilities that are laying the foundation for Allegiant recovery and growth tomorrow and with that I'll turn it over to drew wells right. Thank you Scott and thanks, everyone for joining us this afternoon.
All things considered I am very pleased with the cadence of revenue results from the depths and the pandemic, especially considering the level of flying you've been able to maintain.
Our yield and load factor metric steadily improved over the third quarter and in absolute terms, our fourth quarter revenue performance of down 46, 5% year over year was about seven five points better than the third quarter.
We are further encouraged by our ancillary portfolio remaining in line with prior year and per passenger and was down just three quarters of a per cent for the quarter, while 2020 was up 3% year over year.
Our fourth quarter scheduled service Afm's were down approximately 14% as we flew heavily during the high demand weak and cut significantly during the lower demand weeks as mentioned in the previous call.
And this approach persist into the first corner as January and flight levels were quite low while we're looking to fly decidedly more and the ladder higher demand half of the quarter.
Despite January ASM is being down roughly 16% versus 2019, we believe that first quarter ASM will be between plus half a percent and plus five 5% versus 2019 levels of flying.
Our low cost high flexibility model allows us to pull down capacity, while setting us up well to operate when demand exists.
As a matter of example, our typical Sunday and thinking about 260 flights, while we haven't had a single scheduled to decline yet and this year.
Over the last several years, we have worked to increase resiliency for a diversified array of origination and destination profiles.
This is evident in the round and that route expansion over the last 90 days with 36 routes and five new cities, including more non traditional allegiant destinations like Jackson hole Wyoming.
This is assisted by the success of Scott D and teams and rollout of the non stop to nature campaign, which has not only provided a new avenue for us to pursue immediate and future network growth, but also enable us to unlock more potential out of the existing structure.
We believe with the success of these route announcements and marketing campaigns that we can continue to evolve and definition of the Allegiant network from solely serving the largest leisure destinations to serving any leisure oriented market and definition that is changing as rapidly as the world around us.
We have a runway of over 1000 markets that encompasses a bevy of origination and destination profiles and will make us a more resilient and stronger airline and the future.
Our <unk> team has done a remarkable job to put us and the driver seat towards the back half of 2021 net.
Efforts enabled us to announce yesterday that we will open our des Moines crew base and in July.
And will allow us to further develop our mid continent basic strategy.
We will now have the ability to grow the second half nearly 20% for 2019 levels such net demand dictates that growth we have.
And also have the ability to strategically and replace fleet with already secured aircraft. If the revenue environment does not pick up and Ernest.
We believe that we continue to be and a great position to capture revenue upside and when and where it is manifesting and expanding our network and fleet only further solidifies that position.
I am looking towards the future with cautious optimism knowing what we're capable of achieving while ensuring we are practical about our short term realities.
And with that I'd like to pass it over to Greg. Thank you drew and good afternoon everyone.
2020 is truly reinforced our core belief and the incredible value of the flexibility inherent in our business model, our low cost low utilization model has allowed us to reasonably adapt to the unprecedented time of a low fare low demand environment.
On the fortunate side, we have benefited from the fact that flexibility has always been the bedrock of our model, but the pandemic environment has further highlighted its value.
It's worth noting a few points to illustrate this.
After adjusting for special charges and for the benefits of the cares Act, we produced a full year 'twenty positive EBITDA of $35 million, our full year adjusted unitize costs decreased by 6%, Despite a decrease and capacity of 18%.
And these are pretty impressive full year results given the circumstances.
For the fourth quarter, our daily bookings average just under $2 5 million this translates into $225 million and passenger revenue sequentially. This compares favorably with an increase of 23% quarter over third quarter, and a jump of more than 93% versus second quarter.
While bookings ebbed and flowed throughout the fourth quarter. We are pleased to see strength as we moved into the peak holiday season.
As a result, we produced positive adjusted EBITDA. Another key milestone we have reached on the road to recovery and the fourth quarter.
We remain encouraged with recent trends as January averaged approximately $3 5 million and bookings per day with consistent improvements building throughout the month on.
On the cost front, our adjusted operating expense for the fourth quarter, which excludes special items was down 30% year over year. Despite a capacity reduction of only 15, 6%.
This translates into and adjusted CASM ex for the quarter of just over 607.
This is well below the six seven and <unk> average during the fourth quarter of 2019, and also below 2019 and full year CASM ex of $6 48.
Turning to the balance sheet and as noted in earlier calls defending our balance sheet has been one of our top financial priorities throughout the pandemic and we are pleased with the results to date achieved without issuing issuing any equity are participating and the cares loan program.
We ended the year with just under $700 million and cash and when adjusted for the NOL carry back refunds of approximately $150 million, our pro forma liquidity would have been around $850 million. We have already filed a refund refund claims with the IRS and expect to receive the cash within the coming months.
During the fourth quarter, we spent roughly $100 million and three aircraft and three engines and we one of which we decided to include seller financing. This is $30 million less and we expected it to late year aircraft acquisitions shifted into 'twenty. One we ended the year with 20 unencumbered aircrafts.
Additionally, we ended 2020 with $1 six $1 65 billion and total debt, which reflected a fourth quarter increase of $150 million and debt proceeds offset by roughly $60 million and principal payments, our net debt of $950 million to $75 million and roughly flat when compared to year end 2019, and we'd be more than 13% load.
And if pro forma for the remaining $150 million and NOL refunds.
Looking at 'twenty, one we've received the first half of the 92 million allocated to us as part of the second round of the federal payroll support for PSP too and as a reminder, the entire amount issued to us as a grant as it falls below the 100 million threshold that requires alone and warrants.
We expect our full year 'twenty, one total capex to be roughly $200 million and the majority driven by aircraft acquisitions, which we will touch on and a bit.
Additionally, we expect our total debt payments to be roughly $225 million $175 million and scheduled principal payments and with the remaining being interest and.
And expect a decrease in interest expense of 30% for 2019.
Based on current booking trends and giving our amortizing debt, we expect to further reduce our net debt position. During 'twenty. One we have no intention of tapping the equity market capital raises and 21, if any would likely be targeted and the debt markets associated with opportunistic aircraft acquisitions and <unk>.
Including the benefits from <unk>, we expect <unk> 'twenty, one CASM ex to be down between 4% to 5% from <unk> 19, and this is based on the midpoint of our <unk> 'twenty one capacity guide that you just mentioned.
We expect the first quarter to be the high point, and 21 and part due to some carrying costs and adding back levered and mobilizing maintenance to get our previously parked aircraft ready to fly.
The remaining quarters of 'twenty, one should see CASM ex come in below the first quarter based on similar capacity levels. However, if the demand environment were to support us raising capacity on normalized utilization profile with our 'twenty. One fleet plan, we should see we should be and the low sixes and perhaps flirting with a five handle on our CASM ex for the respective <unk>.
<unk>.
These expected improvements to our CASM ex for driven in part by the $75 million and annual operating cost savings John mentioned these.
And these structural cost savings include about $25 million, and labor $15 million and marketing $15 million and <unk> <unk>.
$15 million, and non airline and $5 million and other.
You May note the total amount and is consistent with the $75 million, we outlined last quarter. However, the labor savings has been reduced by $15 million due to the recalling of our pilots. The adjustment has been offset by the savings and non airline costs, which I will touch on momentarily and on a quick and exciting note. We are positioning ourselves to hire pilots and the back half of 'twenty one.
And to support potential 22 growth.
Back to the non airline real quick as a result of the pandemic, we permanently closed our family entertainment centers and liquidated nearly all of the associated assets.
These actions became necessities due to the impact of the pandemic and our cash savings strategy I want to make a point to acknowledge the hard work of all of our non stop team members for building net enterprise and for their tremendous efforts and support through the transition.
Regarding key snap at the onset of the pandemic, we restructured the business with the goal of making it a 100% self sufficient.
And I'm pleased to report over the past nine months T snap <unk> and cash flow positive producing a double digit EBITDA margin on almost 50% increase and net revenue from 2019.
And late 2020, we started rerunning a process to sell the business and.
And just wanted to also add my deepest appreciation to our teams key snap team members for their remarkable turnaround for the remarkable turnaround they have accomplished particularly during this unusual time.
Turning to fleet. We ended 2020 with 95 aircraft in operation and our current fleet plan has us ending 'twenty, one with 108 and service aircraft. This is based on firm signed agreements the aircraft growth and 21 is achieved by returning three aircrafts previously parked to service, adding five aircrafts signed up pre Covid six aircrafts signed up.
Since the onset of the pandemic offset by one aircraft retirement.
All added aircraft and <unk>.
Excluding one will come in and 180 <unk>.
As we look forward into 'twenty, one and beyond we are not burdened with the costly fleet order, which means we can maintain enormous fleet flexibility to sign up aircrafts at our discretion and the price as well discounted from pre Covid levels. We continue to explore a significant number of our opportunistic aircraft deals.
Just on leading indicators, we believe our 'twenty one fleet plan supports the appropriate number of aircraft for both our short and long term growth plans. However, if we encounter a situation where and the environment does not support our plan, we have a built and safety Val as up to 20 aircraft to be moved to retirement status and also avoiding costly heavy maintenance visits.
One metric we can keep continue to keep an eye towards restoring our industry, leading $6 million and annual EBITDA per aircraft and we believe our future fleet profile may help sort of a catalyst as a catalyst and getting us back there back to there as we increase our proportion of 180 60 aircraft, which is the highest EBITDA producing very and our fleet.
To close we believe strongly that we are positioned to thrive in a post pandemic world our ability to flex up and down in any environment will continue to serve us well moving forward adjusting for passenger demand and helping mitigate any further volatility on the path to recovery.
Being as well positioned as we are would of course not be possible without each and every one of our more than 4000 team members Nike remiss if I didn't take this opportunity to not only think them, but you highlight and for the benefit of everyone listening to this call the importance of their work for.
From our frontline and operational crews who are so incredibly dedicated to ensuring every passenger can travel safely and seamlessly every day to our team members working tirelessly behind the scenes that make us strong creative and strategic please know that your work while the extra hours preparation and efforts does not go unnoticed and please know how much it is.
And as you are the greatest reason, we have been so well prepared to meet the challenges of the pandemic and this uncertain environment and it's because of you. We continue we will continue to be prepared for anything the future might bring we can't thank enough with that I will turn it over to questions.
Thank you.
And ladies and gentlemen, as a reminder to ask a question you will need to press Star then one on your telephone.
To withdraw your question press the pound key.
Again, Thats star one to ask a question.
Please stand by while we compile the Q&A roster.
Ladies and gentlemen, and the interest of time, we ask that you limit yourself to one question and one follow up please.
Our first question comes from the line of Joseph de Nardi with Stifel. Your line is open.
Oh, great. Thank you.
Maybe for Scott the Angela that Theres been a lot of talk about pent up demand what are you seeing or hearing from your customers to support or.
And maybe not support that notion are you asking customers, whether they plan on devoting more wallet share and travel post COVID-19.
For the adult travel more post COVID-19 and they did pre COVID-19 because they've been unable to or are you seeing any of that.
For the.
Yes.
We're hearing that.
And we survey, we do ask about the financial impact and personal financial impact that pandemic has and.
And the vast majority.
Still say debt.
And that they have either neither been impacted at all or only somewhat negatively impacted.
And some of the items I quoted the fact that two thirds are saying they have summer travel plans are there and they plan to make summer travel.
And about half are seeing spring break are all consistent with debt one other quick anecdotal data points, while obviously the city, we leave and Las Vegas continues to hit it hard.
Our casino operators have comment that retail high and dining and other high and experiences.
Actually.
And Ben well up over prior year, suggesting maybe at the tip of the iceberg on some of this force savings as well as some of the psychology behind.
On a year of realizing how how valuable it is to have the ability to travel and.
And spin freely.
Okay. That's helpful and then maybe a follow up for.
Scott Sheldon and Greg and pre Covid.
And then thinking was going to and dumped 10 airplanes a year at most and I'm wondering if given the opportunities you're seeing and some of the favorable pricing if you could accelerate that or if youre going to stick to kind of the 10 cap and then Greg where you're saying that to get to a five handle on CASM X you would need to fly 120% of <unk>.
And 19 capacity is that what you bet. Thank you.
Yes, I'll kick it out there and I'll start with the last question there first Joe but yes. That's if you were to take and kind of maxed up that the fleet.
Unlike a normal utilization.
Profile that yes, so that would probably be about 120% 2019 capacity would get you down into the into the low sixes or potentially a five handle and in terms of induction aircrafts. I mean, we're certainly capable of conducting more than 10 aircraft per year. That's been a good rule of thumb for growth for 10% to 15% I think just generally.
But what I'd say is we will be opportunistic and in markets like this where there is the opportunity potentially to buy and or acquire aircrafts.
Prices and drew and team and have the ability to deploy those aircrafts and we can flex that up and we feel good about that and we have the infrastructure to support it.
Got it thank you.
Thank you.
Our next question comes from the line of Duane <unk> with Evercore. Your line is open.
Close enough. Thanks, thanks for the time.
And it's the gift that keeps on giving.
And can you just repeat what you said about the first quarter CASM and then just generally.
Could you ask CASM down and the fourth quarter on this level of capacity and I. Appreciate you were a lower utilization airlines to begin with but like how do you.
How do you do that what are the reasons that allegiant can get.
Down CASM relative to 19 on on capacity EBIT down.
Sure Duane this is Greg I'll take that and and maybe I'll start on the first quarter CASM ex and.
And that the reason that is going to be top tier the highest quarter, we think and the year is really given that now with the PSP to and bringing back the labor that we're going to need to bring back not only the pilots, but we'll continue to pay the management folks that were also.
Moving for that moved on for Seth.
And I put a burden there and.
So it's going to.
Put a headwind there I should say on top of that and you may recall, you may not I can't remember if I've mentioned this and earnings call, but typically in the first quarter.
And we recognize and expense for all our PTO for our crew members based on the on the rules and their CVA agreements and Thats, roughly $10 million and and of itself. So it puts some pressure on the first quarter there for that.
And then I think as you're just starting to mobilize and get ready to fly and as you are running aircrafts and induction and just getting things going there are some headwinds I guess pre investments if you will back into the business and.
That will start taking place and the first quarter, along with training and things like that.
On your fourth quarter comment it's a good question Duane and I think the the way I've been thinking about it and it's almost just like this intersection of this point and time and on the fourth quarter. We didnt have the incremental labor rate, we had that out because it.
The cares act and fallen out there.
And we ran just all discretionary expenses were out.
What I will say is that that's just unique and.
As we think about the future and we think about positioning ourselves for growth. Both short term and long term you have to have a scalable sense, a scalable type of infrastructure and there to support that growth and so you have to spend above to make a couple of box and so I would just now that fourth quarter again that was an anomaly and we went back and we pulled out all discretionary expenses, but I wouldn't view.
That is like a run rate going forward if that makes sense.
It does makes sense and then just for my follow up maybe for Scott.
Scott and more Ebola.
Look at your portfolio of our big focus destinations.
Who do you think is doing the best job of.
Giving people a reason to travel right like we're hearing and the New York area.
Once upon a time that was the big leisure destination.
You can have various opinions, but but.
You may be in New York, not the best advocate for for giving people a reason to travel here.
Whether it's Vegas or just mother nature as you highlighted.
What are the destinations that are doing the best job of giving folks a reason to travel again.
Okay.
And well give you a high level, Scott and more detail, but you got to point to Florida.
And all your international travel now Thats been forced to have a test coming back where you are.
And Latin America and your Caribbean.
Testing is difficult if not impossible to get down there.
You've got.
People wanting to get away from traditional spring break is coming up.
Florida is the place to go and California.
And historically, a good place, but we've heard a lot of.
Don't come here and types of messages going out, albeit theyre getting better.
Las Vegas.
Shutdown for lack of a better description and.
The interesting stat I heard the highway 15 is back to its for.
<unk> compared to a year ago, so coming up from L. A and.
People want to move.
We did oil analysis, where we took the bell curve of the population age and <unk>.
You get from 18 to 50 is what 65% of the people in this country and.
You know stuff about Covid now and you know our friends that have had it may have known unfortunately someone who.
Passed away from it but you don't worry that much as the sense I'm getting if you're a 30 year old that youre going to get it and get it to has a cold and move on and they just don't want to be locked down.
And it's.
Tumor nature, where social animals.
And we want to move I was with some people from a premier car manufacturer here recently and they had a oh my God fourth quarter and I ask them why.
And as the simple answer is people have all this extra money if they are not spending on travel.
And out to eat all the stuff you used to consume money on spring a hole in your pocket. So they built a lot of cars.
So these things are going to revert back to the norm, which is leisure traffic and leisure travel and Thats why I think we're so well positioned.
Business traffic goes.
And that business, but I wouldn't wouldn't want to be on our business and trying to make that model come back quickly and Scott, Yes, I would just simply add to that I think Las Vegas is doing a good job of laying the foundation from a health and safety perspective, because the <unk> is more on getting the big conventions back like the Ces's et cetera, but I would do.
Double down on what more you said floor.
Florida, and specifically entities like visit Florida visit St. Pete Clearwater, Sarasota had been very actively and structurally partnering with airlines like us to go out and co market together. The part I mentioned about that was specifically related to those partners and others like them.
<unk>.
Beyond the health and safety and all the things required to operate are making and aggressive push to once again attract vacationers to their destinations.
I appreciate the thoughts.
Thank you.
Thank you.
Our next question comes from the line of Savi Smith with Raymond James Your line is open.
Thank you Hey, good afternoon, everyone and go.
If I might add and I know you are not looking at cash for them and I know you've kind of talked to operating cash flow and you've given a lot of that kind of item for us to think about it but just wondering if you could provide a little bit more color on just how much of ticket sales and our cash races vouchers.
And that Etfs, it seems pretty high and on a voucher basis, and then what level of booking you need to see kind of to get that EBITDA breakeven or better.
Share Savi, let me kick it off and drew may want to add some stuff on the <unk>.
The redemption from ATL, but yes.
Yes.
And I'd say on <unk> first as you probably didn't see or you probably noticed that we didn't reduce like as a percent of our outstanding ATL.
And the number of credit voucher, So I think and the third quarter. It was $220 million and I think and the fourth quarter was consistent and when you kind of Peel that back a little bit and take a look.
It really has happened and the fourth quarter is that you've seen what we've seen as debt and theres still some issuances that are largely offsetting the redemption of the credit vouchers.
So, but as we look into the first quarter that trend, meaning the redemption of the credit vouchers nicely outpacing the issuances.
And with day in January so.
And what we're burning that out and I think just in 'twenty, one and will continue to chew through that and then the one other thing I may add and then see if true wants to add some commentary just to your kind of what we need to be EBITDA positive.
I talked about the three 5 million and what we're currently seeing and I want to highlight that's non inclusive of any voucher. So that's just true cash and the door. So that's what we're seeing there and I think where we're at today given some of the roll off of the taxes, such as the FCT taxes, the segment taxes and things.
And from the cares Act. They are now back in play and 21 <unk> seen a spike in fuel, which is putting a little more headwind on your cash.
I think you are probably closer to between three three and a half and daily bookings to get to that kind of EBITDA breakeven.
And I'll give or take a little bit.
And I think you captured it.
Yes.
Great and then if I might just quickly ask for a clarification on the fleet for the fleet plan that was kind of provided in the release and that you talked about does that include any aircraft in storage or is that just the plan and excludes anything kind of that's put in short term sorry.
So I'll take it and so what it does savi as we I think we talked about six aircrafts and storage last quarter three of those have already kind of run through the pipeline and are back and service.
Now as well as at the end of the year of 2020, and then yes for that growth I think what were incremental 13 aircraft three of those incremental aircrafts and 21 are the three additional storage aircrafts coming back.
Okay perfect all right. Thank you.
Thank you.
Our next question comes from the lineup.
<unk>.
Research Your line is open.
Thanks, Hi, everybody.
Hey, Marty.
You had this vision of a travel sort of like ecosystem for Allegiant. When you. When you have thought about sunseeker and kind of curious if the Covid crisis and then the thousand markets that you mentioned does that open up.
Enough growth for you organically for the point, where youre comfortable just focusing on the airline or or is there still this draw to diversify the business. Because you just think it's sort of a good idea for your company anyway.
Well.
It's hard to change the spots from a leopard hunter.
<unk>.
And we are long term I, just it's proving to be just such a huge number for us we've done $1 $7 billion of third party revenue since 2002.
Which we've made close to $550 million of operating income per.
Pushing 600.
So you can't say that that hasn't been a difference maker for us.
We do things like we have no middleman between us and our customer.
You have.
Expedia charges you have no.
Branding charges any of those types of things.
Having said that we're focused on your line and we're not going to shortchange the airline whatsoever.
We want to pick up and move as much as we can towards rental cars and hotels and we're doing a lot and the new website that.
We are still open and Thats, where were using our strength and part of this whole reason for this travel company is we have a tool that no one else and this industry has it we own our own <unk> platform, we were the leaders and the two thousands and developing seating assignments and all the ancillary revenues and you can do that when you control the tool.
All of these attributes and you add them up.
Customer oriented.
And as much wallet share as you can out of that customer.
As a range of.
I'll leave the industry and operating margin and we've done a gear and a near out is because we have extra revenue we have more revenue than the average carrier who is fighting over that same person.
And with those seats and who can commoditize, it to a lower price or whatever.
So business that.
And we will have a lot of separation, we have some certainly and we focus on a different customer than most.
At the leisure level, but youll need differentiation and that we are different has been the constant use and all.
Our situation. So that's a long winded answer there basically says we're really focused on the airline now we're going to grow this year.
I think we said, 19% something like that.
There's opportunity and we're going to definitely take advantage of that.
As far as Sunseeker goes and Thats still on the backburner its something that is.
I think a good long term strategy for us, but near term, it's let's keep our head down and take care of business here.
And the last thing I may ask.
We're not trying to guide and the full year to 19% growth simply that we have the ability to get there and the back half of the year such that demand.
Calls for them, so, let's not kind of way.
Alright.
Yes.
Yeah, you said it too late.
John and good question.
A follow up for for John.
And that land across the street from Sunseeker.
How does the prospect of that getting developed impact how youre.
Thinking about the valuation or the attractiveness of finding and equity partner and sunseeker or selling the land with third parties is that factoring and at all for the <unk>.
Operations that you are having.
No not at all.
And all the people were having conversations with.
I would imagine most of them already been away for what May.
Happen on the other side of the street to be honest with you.
Rather insignificant in the Grand scheme of things.
But no one's ever rates that are brought it up and my conversation.
Got it thank you.
Youre welcome.
Our next question comes from the line of Brendan Glinski with Barclays. Your line is open.
Hey, good afternoon, everyone and thanks for taking my question.
I guess I do want to come back to the 20% comment and I realize you guys aren't guiding to full year growth of that level, but I guess can you give us some of the decision and factors that would actually drive you to add debt level of capacity and the network are we talking about.
EBITDAR margins that are matching prior levels, our cash flow levels give us some insight and how those capacity additions would come on if they do.
Sorry, this is Judy.
Yes, im not necessarily setting EBITDA threshold at this point book, but I'd like to get back to a point, where and certainly we're moving past path just cash profitability on flights and thinking more expanded gross margin perspective.
Not baking and thoughts debt.
Future PST is going to come online and crew costs are certainly a consideration as we move forward.
So I'll stop short of giving you specific thresholds that it's more of a hopefully normalized <unk>.
Perspective in terms of what is making money and what is best for the company and not just simply relying on cash profitability at that point, because thats not something we can sustain for a long period.
Brandon This is Greg I might just add one quick data point to just the.
And the infrastructure for the 'twenty, one growth was pretty much in place right, maybe not to the extent of the 28 or the 19% growth and the back half, but if you think about it we had we have all the pilots and the crews to support it and then for the most part we had the.
The aircraft as well so the large kind of infrastructure to support 21 was in place.
Yes, Brandon.
The results will do.
And as simple as that.
Okay. I guess the question is just more around is this where we should expect the network is going to grow once you guys attain certain level of profitability.
We don't lose that returns focus long term is that right.
Correct, Yes, I am not I don't think anyone here is trying to suggest that we are a long term 20% company at this point I think we see specific opportunity to Greg's point, we have infrastructure in place to be able to do this such that demand is there.
So by no means are we trying to to reduce the margin profile of this company is simply for the sake of growth that's not at all the case and Thats why brand and we threw out as well the EBITDA per aircraft to 6 million that we want to get back there to show the balance if that's that's our true north so to speak and I don't think we'll be there in 'twenty.
One, but that's what we're looking at long term is to get back to that and now there are some positive catalysts to support that.
We think and.
And Thats, what <unk> already said here today, that's our target and that's why we need to be economically and so we're keeping that in mind as well.
Yes, let me clarify.
And we're not going to grow.
Just purely and market share type of thing one of the value very much treasured as we keep our margins up.
And I ended up bigger and.
But our margin is down by 30% and 40%.
Kind of like why are you doing that.
And Theres plenty of real estate out there for us to look at longer term, but.
This year to Greg's point, we have infrastructure and and ability to do it quicker, particularly and the first half for the year and we will see where we go and order numbers were pointing up suggest we can go and do some things.
Okay. Thank you.
Thanks Brandon.
Thank you.
Our next question comes from the line of Mike Lindenberg with Deutsche Bank. Your line is open.
Oh, Hey, Hey, good afternoon, everyone I am just to hear one quick one Greg just the guide to positive EPS for the March quarter, what's the underlying fuel price range that youre using.
Yes, that's right now are paying just about $1 65 per gallon and.
And maybe worth just clarifying too that would include Thats a GAAP number. So I think that would include the benefit from the PSP, which for US Michael is $92 million and all.
Recognized in the first quarter and an offset to lately.
Okay, Great and then second question.
It's probably the dru and because and maybe even more because you sort of mentioned it talking about the model and really flying during peak periods for peak days and not find Tuesdays and Wednesdays et cetera.
And when we look at it the March quarter would excuse me the March schedule, which I think you just loaded.
For our city pairs, where.
In fact, several or maybe even a decent number of city pairs, where you're operating what looks like maybe two and even in some cases three daily flights and I realize that that could be that you have Sundays, Fridays, where you're flying three or four.
But the fact is it's a type of frequency that we just we haven't seen in the past and.
Knowing that March and especially to places like Florida can be as strong.
A strong time for Allegiant and I'm just I'm curious.
Striking when the iron is hot and how are you.
Deviating away and maybe I shouldn't say deviating away, but sort of expanding upon your peak strategy that you've used in the past because I didn't think it was quite interesting to see the type of frequency adds and some of these markets.
Yes drew.
Here you can certainly look historically and find those markets, where we have operated more than two times daily.
I think one of the things and I'm pretty keen on and my team can can vouch for and this is ensuring that we're right sizing frequencies on the markets that can that can take it.
And so you will see that specifically and the peak periods, where there is a more resilient demand profile.
And we're looking to capitalize on that and and part of the wide net strategy right and putting that out there and it's a lot easier.
To be able to re a common customer and do that you have to cancel to another plant and the same day and then and it is to try it with and data so and I think we have a little bit more flexibility.
And it pertains to that as well towards the wider net can be even more successful during these peak periods moving forward.
So I have every intention of operating all of those on some of our thicker markets and divested period.
But we will remain flexible and we need to pull down a little bit and demand and manifest quite and the way we expect it to.
Very good thanks, Thanks, Joe.
Yes.
Thank you.
Our next question comes from the line of Darryl Genovesi with vertical research partners. Your line is open.
Hey, everybody thanks for the time.
Moving back to on your.
Your third quarter conference call in October.
You talked a lot about.
<unk>.
How important it is for for customers to fly direct.
And this environment how much more.
That's the case and it was pre pandemic can you or Scott Ginn total based on your survey work help.
Help us understand just how much of an opportunity that is for you and I guess in particular.
If I might just offer this question as a guide do you think that the desire to go direct can meaningfully influence the passengers the OND.
Specifically the markets that you serve direct versus those that you don't.
Yes, so I'll give it a start thanks for the question.
The answer is we continue to push non stop both us and health and safety benefits and not go into crowded hub, but the reality is.
It has been high it remains the key distinction points.
And I'll tell you as you may have seen and charts I showed during Investor day is the reason we share a lot of customers with Delta and Cincinnati, because while they might fly one for business on their own money there'll be happy to fly into Sanford to take their family to Universal Orlando or Walt Disney World and then same thing happened and me.
Rather than where they might fly business the Sky Harbor.
We continue to see that and it continues to be distinctive point I cant speak how much of that is the health benefit they perceived versus just the convenience.
But theres no doubt that it remains a high reason that we share customers with a lot of other airlines that you wouldn't think would mix just because.
Leisure dollar and on their leisure time, and they wanted to get their non stop.
Okay.
Thanks for that and then I guess.
And my sense.
Greg is that the the fourth quartile as much number.
And we came in a little bit better than you might've expected and just listening and you talk about 2021.
The outlook for her.
It's a little bit more optimistic than what we heard from you and Q3, there and youre $75 million number.
Is the same so I guess, if there is there something about.
The more discretionary.
Pieces of your cost profile that are perhaps coming and a little bit better.
And the fourth brand into 'twenty one.
Hey, Dara thanks for the question and.
Yes, I think it's fair.
And really surprised with where we came in and the fourth quarter of this year.
There are some items there that some benefits that we saw maybe some onetime in nature to like we had a and some insurance proceeds that came in.
For an event and net that was helpful as well, but as.
As we think about it and the $75 million and structural cost savings and I think what's that worth about half a cent and CASM X on a full year or thereabouts and.
So that's obviously helpful, but I think what's giving us more conviction to come out and talk about that as just we have more line of sight and what potential capacity could be and.
The other driver and us getting down into the low six handle kind of range and so I think thats, giving us a little more confidence or conviction behind it.
And just leave it at that I guess.
Okay, great. Thanks, a lot guys.
Thank you ladies.
Ladies and gentlemen, and the interest of time I will now turn the call back over to management for closing remarks.
Thank you very much appreciate your interest and we'll talk to you. After another 90 days. Thank you.
Ladies and gentlemen, this concludes today's conference call. Thank you for your participation you may now disconnect.
Yes.
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