Q4 2021 Allegiant Travel Co Earnings Call
Yes.
Thank you for standing by and welcome to the Allegiant travel company's fourth quarter and full year 2021 earnings conference call. At this time all participants are in listen only mode. After the speaker's presentation. There will be a question and answer session to ask a question. During the session you will need to press star one on your telephone as a reminder, today's broke.
Ram maybe recorded I would now like to introduce your host for today's program Sherry Wilson Director of Investor Relations. Please go ahead.
Thank you Jonathan and welcome to the Allegiant travel company's fourth quarter and full year 2021 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 the Angelo our EVP and Chief Marketing Officer drew wells, our SVP of revenue and planning and a handful of others to help answer questions.
We'll start the call the call with commentary and then open it up to questions. We ask that you. Please limit yourself to one question and one follow up 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 your.
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 of 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 Sherry and good afternoon, everyone. Thank you for joining our call today.
We were profitable again in the quarter just ended.
Model and our personnel continue to shine in these very difficult times.
Operations were returning to normal in December were normal Kahn took over.
But it is trending down and hopefully will be just a bad memory by Mark.
You will hear an overview of our performance and what we believe the coming months hold in just a moment.
Well it takes some time to reflect on some of our history, we have completed our 'twenty.
Full year first year was 2002.
We early on understood, we cannot copy existing carriers and attempt to beat them at their game.
So in early 2002, we began an experiment.
This model you have come to appreciate and admire.
It was developed and refined during the next three years.
20 years and continues to differentiate us.
During these 20 years, we have led the industry in operating margins as well averaging 15%. During this time, while the next close to southwest and Alaska every 10% that's a 50% difference in margin.
We also led the industry. During this time was 69 consecutive quarters of profitability through.
Through the first quarter of 2020.
Including remaining profitable during the 2008 2009 period when coal others were falling underneath the zero line.
At the end of 'twenty, one completed our 15th year as a public company. We've had 60 of these quarterly calls this is our 61.
Our market cap on December eight 2006.
Our first day as a public company was approximately $400 million today.
We have a $3 $2 billion market cap, 800% increase in value for our shareholders. During these 15 years.
No one in the industry has had anywhere close to this wealth creation.
In the past years as we emerge from Covid, we have made the necessary strategic moves to position us for the coming years, including.
Terrific order.
Currently placed with Boeing and international relationship that will allow us to enter the international markets in the next years.
Investing in branding tools, including the Allegiant Stadium and soon sunseeker necessary components of our branding for leisure to auto.
Our continued development of our incremental ancillary in third party revenues and lastly, a greatly enhanced balance sheet with almost $1 $2 billion of cash.
Leisure travel company is extraordinarily well positioned our airline and our unique competitive model continue to be the backbone of our success.
75% of our routes by the way are still not competitive.
We have years of growth left with as many as 1400 new routes.
We feel strongly will provide us that growth opportunity and one as I told you this history.
Because this team this company has proven here and in Europe , They can execute.
And while the Times' history has not been a reliable prognosticater at this time I believe its very much very reliable lastly, this management team is the best in the industry in my opinion when combined with the best team members, who have proven themselves continuously for the past 20 years.
We will continue to lead the industry in our rightful place at the head of the pack.
John .
Thank you. Good morning, good afternoon, everyone I would like to first and foremost. Thank every one of our team members for their incredible efforts throughout this crazy 2021 year.
The Allegiant story in history, our amazing to hear and difficult to replicate for any company in any industry. The company has been a model of consistency.
10 years depth and breadth of our management team as a foundation of our success.
As I reflected after the Boeing Investor Day, we recently had.
Two words that were used most in that call and then all preceding calls and presentations I have participated in the past our opportunistic and flexibility.
Im confident youll hear these words use going forward as well that's our DNA.
Everything this company has ever done is created flexibility or took advantage of an opportunity regardless of whether the timing was pre pandemic or post.
Post pandemic when we did the equity raise in May of 'twenty, one we raise growth capital when our stock was trading close to all time highs while other carriers raised survival capital throughout 2020.
This opportunistic timing created incredible financial flexibility.
To date during the pandemic, we have purchased or leased 25% to <unk> hundred 20 series aircraft at the most opportunistic prices we've ever seen.
Furthermore, we purchased roughly $30 million in spare parts and engine related supplies at a discount of approximately 40%.
Sunseeker was started and will be completed during the.
Period of time that allowed us to take advantage of the tax Reform Act <unk>.
Likewise, the recently announced 50 plane Boeing purchase to be completed by the end of 2025 was not only on favorable terms, but we'll also take advantage of the tax Reform Act before this exploration.
This past year has had its highs and lows, but we stayed the course and ended the year in a much better position than it started not only financially, but we added nine cities to the network further broadening our reach and exposure.
2022 will truly be a foundational year as we move into the 'twenty one.
Here are the company's existence.
Quickly on Sunseeker as I mentioned on the previous call the budget for Sunseeker resort was originally $500 million.
We're on track for the anticipated opening and on budget when we stopped the project due to the pandemic.
When we restarted their project in August of 'twenty, one the budget was revised to $510 million given the costs incurred while we were shutdown.
After restarting the project and spending some time understanding the impact to the budget due to the unexpected supply chain.
Impacted price and delivery Timeframes I mentioned on the last earnings call Q3, 'twenty, one budget could increase by 10% to 15%.
That estimate has not changed as of today in order to provide some level of comfort. We have bought out we have signed commitments for 74% of the revised budget, assuming the high end of the estimate of $585 million.
By the end of Q2 2022, we should be roughly 100% bought out.
As a reminder, we will restart sunseeker segment reporting beginning year end 2021.
The following sunseeker resort data points, our Q1 $2 22, guys.
Capital expenditures should be between 50 and $60 million.
And Preopening expenses will be in the range of $3 million to $4 million.
And with that I will turn it over to Scott to Angela Thank.
Thanks, John .
Q4, the Allegiant brand continued to shine, attracting 9% more visitors to our Legion Dot com, who drove 16% more transactions versus 2019.
Simply put we attracted more web visitors and converted them into customers at a greater rate to drive more bookings among both first time and repeat customers than in any fourth quarter in our history.
As we get each quarter in 2021, we sequentially improved narrowing the gap versus 2019 during the first half of the year and widening the lead versus 2019 during the second half.
For Q4. This included about overall passenger passenger revenue, which would be 2019 by nearly 9% and third party revenue, which would be 2019 by nearly 54%.
Always Allegiant World Mastercard program was a key driver having its strongest year ever in terms of new card sign ups average spend on the card and total compensation to allegiant each.
Each month of the fourth quarter and seven months in the last three quarters ranked among our top 10 months ever for new card sign ups and.
In total new card sign ups were up by 27% for the quarter and 16% for the year versus 2019, Paul co brand compensation to our lead Gen was up by 52% and 38% for the quarter and the year respectively versus 2019.
For the year, we focused tightly on the $1 9 million passengers who flew adopt.
And drove an $880 million of revenue in 2019, but did not fly.
During the main part of the pandemic during 2020.
Im happy to report that we won back nearly 40% of these customers and one third of that revenue. This past year. Despite continued periods of pandemic driven customer uncertainty and demand headwinds.
2021 saw the launch of our new web and App customer experience. The launch of always rewards our first ever broad based non credit card loyalty program and the activation of major strategic partnerships with live nation, and Allegiant Stadium as leisure travelers returned to attend live music and sporting events in droves.
In summary, the Allegiant brand is thriving and our direct to consumer distribution model are all non stop flight network and selling beyond the aircraft to increasingly win share of leisure travel dollars for our asset light high margin third party products is enabling us to proactively.
Stimulate demand and preference for a legion, while driving deeper levels of customer engagement across all we offer at Allegiant Dot com.
And ultimately setting up unprecedented growth prospects for Allegiant, and 2022 and beyond and with that I'll turn it over to drill wells.
Thank you Scott and thanks, everyone for joining us this afternoon.
Im quite pleased with the fourth quarter revenue results total revenue came in at seven 8% higher than 2019 on system ASM growth of 13%.
And a lot of ways the fourth quarter marks more normalcy and how we are thinking about the world peak demand periods, namely the holidays, so load factors and revenue per flight that largely mirrored pre pandemic norms.
Once again the network was expanding to the tune of 56, new routes in five new airports.
Those routes were part of a 10% of ASM in their first 12 months of operation.
That feeling of normalcy was interrupted in December and the Copa like reared its head once more.
We are proactively cut roughly 10% of our anticipated December schedule and a smaller portion of November to rightsize and protect the schedule.
However, despite manifested in a new way as closer and holiday bookings never materially slowed while the impact of the industry's operation was heavily felt.
Off peak January and February did feel the impact of slower bookings and the overall outlook for the first quarter is an exaggerated story of peak versus off peak demand.
The off peak period will add considerably in January board of load factors finished just shy of 70%.
However, I expect the peaks to continue to be on par with pre pandemic levels.
Demand is incredibly strong I.
I think March could book over 85% and while still early are relatively normal booking curve gives us a bit more insight into summer, which is also showing great promise.
As we continue to compare back to 2019, we are still mired in the MD 80 retirement com and the resulting muted growth.
This results in modestly higher January and February percentage growth versus peak March.
Even with an elevated growth rate in the first quarter, our <unk> scheduled service compound growth rate since 2018 is just 7%.
It is important to note that nearly 90% of markets are still running just twice a week through the off peak season.
This means growth is primarily fleet and market driven and not increased frequency.
Another 13 markets inaugurate service in the first quarter and just over 12% of first quarter scheduled service ASM will be in their first year of operation.
Similar to the holiday peak, the fourth quarter and despite incredible demand March capacity has been reduced around 11% as we continue to work alongside our ops teams to rightsize and protect the schedule.
We are forecasting our first quarter ASM guide at plus 19, plus 23% versus 2019, the weather patterns currently forming in the Midwest will put some pressure on the top end right out of the gate.
The distribution of peak versus off peak demand and ASM, along with higher new market mix puts a bit of a feeling on how the quarter is likely to take shape and we are.
You're guiding the first quarter total revenue to be up between 5% and nine 5% versus 2019.
The continued fluidity of the environment and back loaded nature of the quarter drive slightly more uncertainty and in turn a wider range.
That I'd like to pass it over to Greg.
Drew thank you and good afternoon, everyone.
'twenty one was another challenging years and it has been amazing and humbled to see team Allegiant continually rise to the occasion in this unpredictable environment.
During 2021, we inducted 13 aircraft into our fleet, we added more than 700 team members, we flew 8% more ASM than we did in 2019. Additionally, our passenger and revenue accounts for the past two quarters exceeded the same periods in 2019.
We had three consecutive profitable quarters, including the port and the full year adjusted operating margin of six 6% and adjusted net income of $35 million.
These are industry, leading results in 'twenty, one and in recognition of these extraordinary efforts. It is with great pleasure to mentioned our board approved a special variable compensation payout to all of our team members based on GAAP results.
Our sincere thanks to all of you.
For the fourth quarter, we reported adjusted earnings per share of $1 18, our third consecutive quarter profit positive adjusted net income.
<unk> revenue was strong even in the face of omicron and disruptive weather, our <unk> 'twenty, one revenue was up 8% year over two year on increased capacity of 13%.
On the cost front, we still have some work to do adjusted operating costs, excluding fuel outpace growth and were up 21% year over two year.
On a unit size basis, our adjusted CASM ex was 724 or up 7% year over year.
Excluding the effects of our Iraq cost specific to customer compensation during the fourth quarter. Our adjusted CASM ex would have been six seven <unk> or flat year over two years now.
As described last quarter, the largest component of our IRA cost is the compensation program for inconvenience passengers.
This is compensation, we provide in excess of the ticket amount we.
We are not aware of any program in the industry nearest generous and importantly, our customers impacted by summer <unk> have returned to book at the same rates at those who are not impacted.
This customer compensation program drove an incremental $23 million in payments to our impacted customers during the fourth quarter.
Turning towards 2022.
<unk> continued to rip into January and drove further irregular operations as Maury noted we expect this volatility to largely be behind us, we expect Iraq customer compensation cost to provide roughly three tenths of a cent headwind to our first quarter CASM.
Based on our first quarter 'twenty two capacity guide, we estimate our first quarter CASM ex at a midpoint of $6 85.
Up 3% when compared to <unk> 2019.
In addition to the elevated IRA ops, the primary headwinds around unitize cost year over three are largely driven by inflationary pressures with stations wages and fuel.
These headwinds are in part combated by efficiencies gained in labor productivity as we expect our FTE per aircraft in 2022 to be closer to 42% or 43, which compares favorably to our 2019 average of 48.
This decrease primarily relates to management and corporate areas scaling with our growth.
In addition, our average fee per departure is up by 5% to 3% year over three.
ASM per gallon in the first quarter are also expected to increase by 5% compared to the same period in 2019.
Fuel prices, however continue to rise and we are currently seeing Brent hovering around $90 per barrel.
Elevated fuel coupled with labor constraints inflationary pressures Sonoma kroner as some of the current challenges at hand, given these uncertainties. We are pleased with our measured baseline growth plan for 2022 today, we expect to comfortable with full year 'twenty two parcher growth in the low double digits compared to 2021.
However year over year ASM growth should naturally outpaced departure growth by roughly five percentage points, given the increasing average seats in stage length for departure.
We expect our earnings potential to improve throughout 2022 as the environment becomes more normalized.
Our unique model should allow us to layer on more capacity at the appropriate times to drive higher profitability, while maintaining the flexibility to not fly if the environment or returns do not justify it.
Flexibility is further supported by our strong balance sheet over the past two years, we have more than doubled our cash balances, while nearly cutting our net debt in half.
We did not have the enhanced burden of leveraging up with the expensive debt during the pandemic as most other carriers did and the strength of our balance sheet, coupled with our broad network support well, our new aircraft order with Boeing for the 50, Max 737 family powered by CFM.
The operating efficiencies of Max aircraft should drive even higher returns on our most productive line decline.
We are excited to incorporate these aircrafts in our fleet as we do so we expect a nominal headwind towards unit costs during 2022 due to training and staffing.
In early January we made our first pre delivery deposits towards this order and the first delivery is expected in June of 2023 are.
Our full year 2022, aircrafts cash capex of $260 million includes pre delivery deposits for this year.
For full year 'twenty, two we expect roughly $990 million and heavy maintenance Capex. This is 30% less than our pre pandemic expectations for 2022, and given our Max order, coupled with the resulting deeper partnership with CSM and supporting our existing CEO engines Seo engine.
We have increased our ability to more efficiently manage our heavy maintenance program for years to come.
Our fleet plan has us ending 2022 with 127 <unk> hundred 20 aircraft of which 70 are configured at 180 <unk>.
Of the 19 incremental aircraft year over year, we have already taken delivery of nine as a reminder, 15 of these aircraft were acquired through finance or operating lease.
We expect to exit 2022 with average seats per departure of 177 seats in average ASM per gallon of 87%.
As we incorporate the 737 Max aircraft over the next three years, our ASM per gallon should increase by more than 10% versus the 'twenty two exit rate and we estimate a percentage point increase in ASM per gallon is worth roughly $7 million in fuel savings when compared to 2019 fuel efficiency levels.
In closing and as noted earlier 2021 was another chaotic year.
Throughout this chaos, we felt there were unique point some time to make several moves to enhance long term value for our stakeholders. These moves include but are not limited to aircraft order with Boeing partnership with Veeva Arrow booths secured financing to complete our sunseeker project and increased investments in systems tools and infrastructure to better support our long term growth plans.
With many of these major strategic items that we will continue to focus on getting and staying ahead on the execution front.
<unk> team Allegiant has seen and experienced a lot together over many years and I believe our results stand for themselves.
With that I'll turn it over to questions.
Certainly ladies and gentlemen, once again, if you have a question. Please press Star then one.
Our first question comes from the line of Mike Lindenberg from Deutsche Bank. Your question. Please.
Yeah, Hey, good afternoon, everyone.
Hey, I guess drew I wanted to ask you the question on your model.
Stimulation and low fares and yet.
It's not just fuel prices going up it's lots of input costs going up as Greg talked about and <unk>.
You look at your capacity growth in the March quarter, although thanks for the context that you provided versus 2018, it's obviously not as much as what the headline number would suggest.
Having gone through these cycles before when energy prices, Ron or input cost move up at what point do you feel like you may have to back off on the growth in order to generate the type of rent.
The type of revenue that you need to offset these higher costs do you feel like we're close or getting closer.
I'm curious about your thoughts and maybe it's more of a philosophical question and maybe even more he can chime in on that thank you.
Sure I'll kick it off and then Maureen please fill in if you have anything there.
Yes, I think we are there in terms of.
Having to review based on where fuel is.
It's a little challenging when youre running so high a twice a week market right you are really making a decision on do we keep this market for the season or do we not okay.
So the first part of first quarter, we've opted to keep a lot of those market then.
As we look towards the post Easter Memorial day timeframe kind of the next off people see.
That may not be the case, especially if theres continued run so we're undergoing right now to ensure that we are right size for where oil is and possibly could be trending for.
For the peaks like March in the summer our hurdle rate right now just to get into the schedule given some tighter scheduling erez already.
Well higher than where oil sits today, so I don't feel compelled and the lease to cut out of the peaks.
So it maybe its a kind of a stay tuned for the late April early may timeframe and Thats. The next one I think we can affect materially.
Okay.
The other comment Michael is when you've got 75% of your routes that are noncompetitive.
You have some more power to do things because you don't have somebody pricing against you at that point.
New markets also give you an ability to go in China, central and pricing, but classically you can't rates there just because you want to.
Costs are going up you've got to cut capacity, there's no doubt about it.
So we have to be mindful of that and we've generally stimulated traffic to where it is given the fares out there and every incremental dollar does put some headwind on both markets. So we have to be fairly fairly picking in how we deploy that in any way other than the typical supply and demand.
Very helpful. And then just one quick one just on pilots I know you didn't it wasn't in the commentary the prepared commentary, but I'm just curious what youre seeing on really the pilots and.
The mechanics I'm talking about just the hiring perspective, it just seems like we're hearing a lot of carriers.
When I say luck.
It's out there in the press that it's getting harder to recruit.
Youre seeing et cetera. Thank you.
Yeah, Hey, Michael this is Sheldon.
Yes, it's definitely it's very competitive.
We are currently under in section six bargaining with our pilots.
We're trying to expedite sort of the renewal of the existing CBA and so.
Sort of re upped our efforts there.
We ratified CBA or the auto mechanics ratified their first contract in the fourth quarter. So it gives us more levers to pull in order to be a little more competitive in the marketplace.
We are seeing some attrition go up on the pilot side, if you sort of look at steady state.
Attrition runs anywhere from 5% to 6%.
That's crept up to below 10% if you will.
The majority on that Bose side majority go into legacy carriers and so on.
We clearly see the need there is a lot of planes coming in and obviously, we need to get something in place in order to.
Support the back end of 'twenty, two and into 'twenty three growth.
And that's obviously the core focus at least in my part of the World.
Okay, Great I'll, just can add and you may recall last quarter over quarter. Prior we've talked about trying to get out ahead.
On the pilot mechanic and flight attendant side, and so we as compared to prior staffing model levels. We've increased that we went out and increase those and try and get those line level employees and team members and more quickly and I think we.
We see a lot of strong applicant come in on the lesion is a great place to work from a pilot perspective, we have a unique model out and back. So it is just different folks or crew members are in their beds at night. So there is some advantages there.
So with the ability to move from right to left too.
Can I just is it for the first time in a long time are we seeing that the ability to advance at a legacy carrier.
Youre able to advance at a pace that maybe is almost similar to two at a relatively younger you LCC is that because I've never I can't think of the last time, when we saw maybe a decent number of pilots jumping from say.
From your company to a legacy.
Yes, I think thats accurate I mean, if you look at some folks that took early outs.
During 2020 and 21.
These folks are struggling to get back to 2019 capacity. So there is definitely opportunities.
But steady state obviously these guys don't grow at the pace at which sort of yields these spaces.
And just to add on there I mean, if you look at the compression of narrow body rates between legacies in the LCC space, it's never been more compressed.
So it's.
It's getting more and more it's less less about literally the rate spread than it is about.
Advancement right to left.
Obviously, each one has a different proposition quality life proposition.
So that's an area we do like we think we can punch above our weight limit so.
So to speak and I should probably should add this on the front end I mean were getting 70 applicants a week okay.
Certain classes, we are very successful so typical class size for us is 25 to 30.
We started a class. This week, we had all 24 applicants show up so it's somewhat of a mixed bag.
If you will.
But it's obviously the core focus but longer term with the rate compression specifically.
We think we have a better value proposition than most great.
Great. Thanks, Thanks, everyone.
Thanks, Michael.
Thank you. Our next question comes from the line of Ravi Shanker.
Morgan Stanley Your question please.
Thanks, Scott for everyone.
You said at the start of the call that 75% of your routes are still not competitive why do you think thats. The case or is it just too hard for others to compete in those routes are they just not getting enough attention.
Have a really really good mouse trap and kind of how do you think that trends over time.
Paul I'll, let.
Drew do most of the talking about the mousetrap factor we fly.
Two times a week.
It's not enough to support a lot of people. They just don't have the configurations <unk> when you're flying 12 hours a day.
As you LCC you need to you need to have markets, where you can run those airplanes seven days a week. We can we have a lot more flexibility. We can do more if we need to but majority we don't group I think adding more hit although the major point that it's far easier. When you built your business model to operate at twice a week and have the ability to scale up when demand dictates.
And then the opposite of design your business model around daily service and try to scale that down which doesn't work very well. So it's just part and parcel of who we are in the core of this business model to cater to lessen daily routes, where no one else, particularly paying attention.
The other the other component of this.
Really important to US is in peak times, we can add capacity and really good numbers and no. One else is going to react because everybody is making money.
You come in underneath you had capacity you can add it at a lower cost and in many cases, a big markets. So it's providing another avenue for us to kind of grow into markets, where heretofore, we might not have even looked at.
Understood and I think I know the answer to this but just given all the headlines in recent weeks.
Anything around potential disruption on some of the smaller airports kind of older equipment.
How do you see that trending and any impact you at all thank you.
Yeah.
Yes, I mean, it's in general it's.
Probably one of the least impacted airlines, obviously, we're monitoring it.
But for the most part it's been somewhat of a non event for us.
Yes.
That's the way I can describe it.
Great. Thanks.
Thank you. Our next question comes from the line of Catherine O'brien from Goldman Sachs. Your question. Please.
Hey, everyone. Good afternoon. Thanks, so much for the time.
So just one on on the capacity plans for this year.
I know we haven't thrown out.
Finalized number and let's say.
Miss it but I know on the last call you were talking about.
Low double digit growth for this year versus 19 and I know.
One <unk> comps are a little bit messy.
So I'm guessing that 19% to 23 is probably the high watermark for this year, but correct me if I'm wrong, but I guess since the last time, we talked are you seeing incremental opportunities to add capacity or just it just sounded to me like your comments based on ASN running several points ahead of double digit departure increase.
Sounded like growth is running maybe a bit higher than you were thinking last time, we talked.
Yeah, maybe I'll kick it off and open up the floor if anyone else wants them.
I think it's fair that we are seeing a little bit more in terms of.
<unk> ability to add some capacity if you remember last time, we were still kind of working alongside with the ops groups to make sure that we can rightsize the schedule.
<unk> truly believe that we had Thanksgiving and Christmas in a really good place.
Borrowing COVID-19 polls that were kind of unforeseen and how they.
Came to fruition.
So I think kind of the place we've gotten two working alongside one of a kind of as an enterprise as a whole.
It has given us a bit more confidence that in some incremental departures.
Throughout the year do you think youll see a lot come through the off peak months.
I think there'll be a little bit less stressful in terms of ads.
So theres, probably a little bit more granularity and detail there than simply headline numbers as we go throughout the year.
And Katy I would just maybe add on.
Low double digit growth.
As we talked about that last time, we probably should have better explained that that was more around departures, but a bit.
ASM will naturally ASM growth will naturally outpaced that due to larger average higher average fee per departure, plus a little bit longer gauged by about five percentage points is what we're expecting.
Okay got it and so then I guess, maybe just a related question for you Greg.
In the same sentence about talking about low double digit on the <unk>.
Last call. You also mentioned you are expecting that.
Full year 2022, CASM ex will be about flat.
I guess is that still the case and then.
Can you just help us think about what expenses roll off through the year that youll be able to get to flat CASM.
I'm, what I'm guessing is going to be less.
<unk> Citigroup, just how that works thanks, so much.
Yeah, no. Thanks for the question Katy and.
Let's just when we're talking flat CASM.
<unk> on 2019 at about six five.
And where we sit today.
I think we're a little bit higher than that maybe a point or so.
But.
We will see a lot of that is going to be based on capacity. We started in January as Morry mentioned omicron rip through and that puts some pressure on us on the <unk> side and that customer compensation program in which we that's things for us to be candid, but.
You take that out I think we'll start working through the year. If we some opportunities I think on the tailwind side Katie will be as the operating.
Environment or travel ecosystem gets better ideally, we're able to be more productive with our assets and our team members to kind of grow up or come in underneath that so that you can help I think.
On the station side, one of the things that.
We're seeing on the inflationary pressures has been around brand ground handling I think we've talked about that quite a bit.
Catering for example will see some pressure on the catering side, it's not a big number, but it's still about 10% there, but we offset that through our buying board program. I mean, the margins. There is still the same I think you have the potential to improve on stations a little bit.
We're assuming on the airport side.
We're assuming inflationary pressures around 7% year over year, So 22 versus 21.
And I mentioned that is just as the the bigger carriers and some of our larger airport they start applying international or they start buying more business.
That should help with those costs come down, but we're not making any assumptions on that side yet.
Maybe.
I should have added in the first.
<unk>.
I think this is going to be a point of confusion throughout bunge much of this year, but.
I think Maureen comments were mostly driven on $22 21, and not versus 19 like we're guiding today. So if you think about departures in and $22 21, I think a lot of what was said holds true with the.
The lower double digits, and adding a little bit into that.
The comparison versus 19 so.
It probably only found us to be a lot clearer in the comparison of reference point, but.
I believe that's what mornings, referring to last quarter.
Okay got it maybe just one really quick follow up Greg just to make sure I have this on the chasm. So you think probably this year I know you guys gaining formal but maybe like low single digit inflation versus 19, it's probably where we end up with some of these pressures.
Part of the year is that right.
Yeah, I think youre right I don't want to come out and formal formally guide that I think will be maybe slightly above where we were at potentially depending on how the environment works capacity and the like but yes.
That's right.
Okay. Thank you so much for all the time.
Thank you. Our next question comes from the line of greater local landscape from Barclays. Your question. Please.
Hey, good evening, everyone and thank you for taking my question.
I guess can you guys give us a little bit of context here on the quarter, because obviously capacity growth close to 20%, but revenue five to nine.
Assuming that there is a big drag here in January and February that you alluded to can you give us some feeling like how this is booking up for March in the spring break period, if you don't mind.
Yes, I think March is going to be.
Particularly the peak spring break weeks will be reflective of pre pandemic revenue stats in terms of loads the amount of revenue carried by flight.
I think as you think about where demand is relative to 2018, we are there.
It's the other weeks that we need the recovery to get that full.
What kind of traffic benefit of traffic growth.
So I guess you pointed that youre getting recovered PRASM too not just demand because obviously your capacity is up a lot as well.
Yes, the peak spring break weeks will look very much like they did in 2019 or 2018, there are healthy in terms of demand in.
And any unitize metric you'd like you'd like to use.
Okay I appreciate that and then Greg on the.
Irregular operation costs here.
I get it that a lot of this might have been driven by Abercrombie can you give us.
A sense of like how much of this was disruptive because of crew availability versus just normal weather. We had assumed that some of this is going to be ongoing in the future right.
Yeah. It's a good question Brandon, let me kick it off and maybe Scott wants to add it on it as well but.
What I'd say is we're as I've been talking to us on.
On this call and as I've been talking about iron routes have been given the numbers that have been trying to be more specific on the customer compensation, which is just a component of the Iraq split because thats somewhat we believe unique to us.
That's what I've been really when I talk about like the $23 million from the fourth quarter, that's what I'm talking about there.
In 2019, Brandon when we had the operating environment like we did Iraq's were negligible I mean, I think it was like $4 5 million in total for the full year.
So we've been getting out ahead of that we talked about the staffing we have talked about parts and things of that nature to try and combat the IRA situation.
So I don't have.
Guide for that in 2022 or buffer I do we do have a little bit, but we think we're going to get ahead of that omicron came on quickly.
So it hit us quickly, but we think it's abated quite nicely.
In terms of the mix between omicron of weather I don't have a percentage Scott, but I know omicron drove a lot of it if not.
Yes.
To put this in context, because the results really don't show sort of how good we were set up for.
Peak December flying.
We basically had call it 900 controllable cancellations for the quarter.
450 of those happened in the last 11 days and that would include.
Crew and Mechanicals and so it was so back end loaded if you look at the distribution of departures for the quarter. It was very obviously heavily weighted to December in addition to the back half of December So we're really set up nicely.
Weather, obviously was impacted but the majority of that is just.
You go from sort of $30 40.
<unk>.
Crew pools.
Going up to 300, and about 12 days and so I think this is no different than any other carriers.
This is definitely different than the delta variance.
We saw a dramatically increase increased amount of just cycles.
Which obviously you're pulling for Covid at the 10 day by day to 10 day sort of events.
Our our Crusade calls were north of 30% over a five day period. It just it was such a shock to the system.
Prior to the omicron sort of spite there we were just really really set up nicely drew and team did a nice job sort of matching.
The capacity to what our crews could handle that.
Yes, I mean, it really was the story of this quarter was really the last 11 days other than that it was a fairly clean quarter.
Thank you.
Thank you. Our next question comes from the line of Dan Mckenzie from Seaport Global Your question. Please.
Oh, Hey, thanks, guys.
So the revenue forecast of up 5% to nine 5% I guess on a 21% increase in capacity a couple of questions here.
Stripping away the sub optimal fleet utilization in the fourth and first quarters, what would the growth look like if no supply chain bottlenecks and if we could just dip and then secondly related to that if we can just AAA COVID-19 crew.
Impact is there an updated expectation around the timing for <unk>.
When supply chain issues might be resolved I think last quarter, you had talked about some MRO MRO challenges.
Yes.
I wish we could tell you.
I mean as I sit here today.
I continue to be baffled by the ongoing nature of this and usually these markets are pretty efficient from a fixed themselves.
But you have the combination of labor.
<unk> got the combination of just parts and alike.
Having said that.
Our MRO activities I was just talking with VJ VJ draw some comments in here, we've got 10 or 11 airplanes.
<unk> undergoing stuff and it's actually working pretty well so.
You're looking for a positive rays of light to show through but.
So much of the broad message is still difficult stuff isn't on grocery shelves personnel shortages pilots in particular moving around very quickly.
But the MRO seems to be hanging in there.
Yes, I think thats just on the induction side, we got ahead of it really well this year because there was such a supply of used aircraft that everything's already on property really for this year and lots of parts and kits and everything are on hand earlier I don't know if thats really representative the heavy maintenance environment, Scott, yes, the heavy it's definitely more volatile.
We do the best we can to be surgical in mesh sand as two anticipated findings both routine and non routine.
In a lot of these we can deal with paper cuts, but we find non routines that drive a substantial amount of engineering work, which obviously is tied back to labor and then any.
Component repairs, obviously that supply chain so they can drive.
Definitely increased spend days and that's where it gets pretty invasive on the schedule, but it's slowly getting better I think everyone's point when we do fleet is going to be more problematic and heavy maintenance the newer fleet.
It's 456 years old as well.
Great way to work, we're going to pay more of a price for it this year just on schedule and availability. So we're probably going to keep more airplanes on the sideline. We normally would we're doing a lot of things differently than we normally would at this point still.
And Dan its Greg.
One high level comment just to add here is that.
We're long term thinkers and yes, there's going to be noise in the short term, we're going to get through it we'll get through it well if not better than anybody and then if the environment starts to stabilize and get more normal.
But we're going to be firing on all cylinders and thats going to be pretty powerful. We think ahead of us as Marty mentioned in his opening comments.
The best on the best way to approach the standard is to come up underneath that don't try to time it perfectly.
Spot on because we've been.
We haven't been able to do that but if we come up I think our best guess you'd rather not be canceling flights and maybe leave a little on the table. So to speak in capacity or you could have done more than just grow that you grow into that.
So I guess, that's really gets to my next question as we think about this noise.
What would growth have been this year without the noise. So instead of departures up low double digits with ASM is up about five percentage points of that.
This trimming as the noise, you're trimming <unk> five percentage points of growth off of 2022 that potentially could come back in 2023.
I think that that's a bit challenging to say I think the biggest the biggest growth limiter for us this year and into next year will be more of a crew hiring pipeline and more so than other supply chain elements. So.
With more crews we grow more I mean, it's that straightforward. So I think you can run that as far as you want but I think it's pretty interesting Dan I don't think anyone's growing as much as we are.
And I don't want to sit here and make excuses for that but.
We're in a growth mode. It's just a question of how we do it and at the end of the day when you say youre going to do something we want to complete it and we haven't been able to do that.
Regularity in the ability that we've historically you look at 19, how well we ran whole industry for that matter, we've got to get back to that.
There are so many moving parts, we've got to try and coordinate as many as we can.
Since we will get back there because.
The <unk> stuff has really been a tough, but I don't know about you, but everybody that I'm talking to is just done with change in lifestyles all of them.
A sudden closing down so opening up closing down so.
Bullish in this certainly in the second half of the year, if not even in the second quarter will be in good shape, even march should be good.
Yeah.
Prudent growth I get it under shooting.
And then if I can just squeeze one last one in here going back to the fleet presentation. I'm. Just wondering if you can help us tie growth and cost into our CASM ex target say three years out so not a guide, but if we just juxtapose growth with scale I'm, just trying to get a sense for what that means to the airline further out in it.
You guys are delivering in a very positive message today on growth in the longer term.
And I'm just wondering if you can help us connect the dots on how to think about the cost structure over that longer term.
Yes.
Thanks, Dan for the question.
I mean, I think what I would start off by saying is that we're focused on margins and we think the aircraft that we will bring on with Boeing in the future.
What we're going to be focused on so there's two sides to the equation cost and revenue and nobody in our view.
We can adapt and matched capacity with demand quite like us so maintaining that flexibility is important.
That said, we think that we have a great cost structure will continue to hold that cost structure for years to come.
<unk> of the fleet, the new order with Boeing isn't going to change that one bit and as we look out for 'twenty three 'twenty five.
I don't want to go out and give a guide, but I don't think its going to materially.
Where we're seeing today, all else being equal, but theres pressures that are going to Tom Scott mentioned that now we are in discussions with pilots and there's other items that we want to think about.
But I don't want to give a guide other than I would say that our cost structure. We feel is in a great spot and we will continue to focus on that it's an everyday commitment by all of us and we'll make sure that it's the right.
It's in the right place moving forward.
That's great. Thanks for the time you guys.
Thank you. Our next question comes from the line of Helane Becker from Cowen Your question. Please.
No. Thank you very much hi, everybody.
So here's my question.
One thing as a point of clarification.
I think you said that some markets youre doing.
A couple of times a week, we talked a lot about that what percent of markets did you say are new.
Prior year's end with staff for 'twenty, two or 'twenty one.
So I had mentioned a couple of percent or <unk> 21 was about 10% of ASM and.
<unk> 22 ramping up to 12%.
Okay.
That's around kind of late 17 early 18 levels.
Right exactly so so those are levels that you've done before and do you feel comfortable with.
Getting too far over your skis.
Well, we certainly exceeded these levels before so we're quite comfortable I think <unk> will probably ramp a little bit again over <unk>, but that would likely be the high watermark for for this year and possibly into early 'twenty three by the guests.
Great. That's perfectly helpful. Thank you and then my other question is with respect to debt and principal repayments I see the guide for 2022 is there.
Is there that you could prepay.
It would make sense or is it or.
No.
I'm, sorry, I think you said desk what percentage of the aircraft deliveries. This year are financed now.
The aircrafts that will be delivered this year I think there is only one that will not be.
Under a finance lease Helane.
And in terms of our debt, where we sit today I think around.
Well, so let's call it $1 5 billion I'm rounding here.
7500 of the term loan is all pre payable we have some other pre payable debt on the aircraft side. That's something we will look at closely given the market conditions and getting out ahead, and so we're having discussions now and thinking about our balance sheet long term and there is.
I think there is some momentum behind us I think there is a lot of capital out there to be put to use in stone is something it's a great question and we don't have a specific answer for you today other than there is a big chunk of our debt that is pre payable that we will look at.
In the near term to see kind of long term.
In the near term.
No.
Potentially refinancing or taking out.
Okay, that's really helpful and if I could just squeeze one more in.
Keith did you issue warrants to the government last year.
Now I mean.
A very small amount, but it's very small annapolis because.
We didn't take the loan the government loan we took the grant and then most of what we received.
Was it didn't have a loan associated with anything.
From a $100 million or below for each one of the cycles. There if you will or each one of the grant issuance as there was no loan or warrants attached.
Right because.
If there are any government holds you could.
Theoretically right.
Yes.
I can't remember the percentage.
It's something we're not focused on but it is negligible for us.
Okay. Okay. That's really helpful. Thank you everybody and thanks for the extra time.
Thanks Helane.
Thank you. Our next question comes from the line of Andre <unk> from Wolfe Research. Your question. Please.
Hi, everybody.
Drew you were the only airline executive three months ago too.
Warn us that Covid wasn't gone yet.
And.
Yeah.
But a good call and I'm kind of curious too.
Get your updated feelings on that how did you know that what is it that you were looking at.
I was curious like what is it what did you look at these higher case, Kevin So what is it that youre looking at at the time that gave you some caution on everybody running a victory lap on Covid being done and are you seeing any of those same things now any of the metrics that you might look at to give you. The same degree of caution or do you feel like we're good to go here.
I feel like I'm getting away way outside of my way in here, but.
And I think some of this data has come out recently, but.
It's kind of followed the flu season, it very much depends on.
Temperature humidity, and where people are likely congregating in that's why.
And most of the country through the winter as people go inside and then you see it somewhat in the high human high heat areas in the summer as people start to comprehend inside their commissioning and so I think it's more of a seasonality aspects to it than anything.
It wasn't something that we were picking up in demand. It was just kind of.
What we've seen in terms of trends of cases, and what's happening geographically in it.
It made sense from that perspective, but by no means am I am I trying to pretend to be an epidemiologist, but you don't take any of my words.
Serious here.
But thats really nothing beyond that yes, I guess the question was that you feel a little better now than you did then.
How do I feel I feel a lot better about about what we're seeing and moving forward I don't think we're completely out of the clear, but Scott Daniel mentioned this in previous calls each each wave has had.
Less of an impact in a previous wave and I became the bookings, particularly in the peak period those did not slow down at all you felt that in the off peak. So I do have more confidence moving forward that even.
It does make headlines again, it won't be quite as impactful.
Wish I could say the same with any confidence on kind of the operation side and what it means for Covid polls I don't have any good line of sight to that I don't think anybody does but that's kind of the next.
The next thing to fall it yes, Okay and then.
Is there any changes in switching for Sheldon maybe.
<unk> would you be forbidden to make any changes to the bidding process without amending any cba's I'm kind of curious we see these.
Really good peaks and he's really bad troughs and if there is a situation where this is this is sort of the new normal is there going to be anything you can do.
Outside of the CPA amendments to sort of.
Change the way you schedule your folks to have a little bit more nimbleness.
On the bidding process that you could make more scheduled changes closer in or does that require CPA amendments yes.
Yes, Unfortunately, we're sort of tied up there we were able to.
Come to an agreement this is in 2020, where you.
<unk> basically in order to keep crews.
Sort of on staff and try to mitigate and voluntary furloughs.
How do we pay these people have time use them when we start to see strength.
And just sort of have these guys in standby mode and so we could do that but the minute. This thing.
Was amendable, our hands are basically Todd.
Okay. Thank you.
Thanks Hunter.
Thank you. Our next question comes from the line of Duane <unk>.
Evercore ISI your question please.
Hey, thanks.
So could you.
Add it all up.
How much would you say omicron is costing you in revenue in the first quarter again, a lot of this commentary is very.
Backwards looking but if we could just.
Estimate between cancels that where maybe.
People, calling in sick.
As opposed to staffing constraints and lost demand.
How many points of revenue do you think you lost there.
And to put a finer point on many of the previous questions are we sort of fully back to.
<unk> bookings momentum you would expect in a normal period.
For a time like March.
So honestly I don't have a great number for you in terms of points of revenue lost due to AUM.
One of the things I think that's challenging with that is as estimate the true return of demand and peak versus off peak like like I mentioned March demand looks fully normal pre pandemic level, I'd say zero and the loss to that.
It's possible, we should be above and beyond that it's really hard to tell.
Your guests may be as good as mine of what January should have looked like without omicron at the shortest booking curve of the year.
That's a very very compressed in the vast majority of bookings should come in during a time when <unk> was was present and very active so.
I think it's a wild challenge to try to get to that number in a meaningful way for you.
Okay fair enough.
With respect to small markets I wonder if youre seeing more white space.
Obviously constraints impact regionals as well.
And the ability to sort of serve some of those smallest markets is going to be.
He is going to be impacted at least for a period of time. So is your opportunity set.
Getting bigger here or there.
Orphan markets for lack of a better word that are sort of incremental growth opportunities for you.
Yes, I mean, there certainly are I would caution with running away too far with this merger. We're only a couple of years three years may be now removed from the questions and the opposite fashion and while a lot of small things are being added and a point at that time was we didn't see a lot of degradation in performance.
Where we were serving those small cities and I would envision the same universe now I don't.
I don't expect a massive amount of lift.
To come through the results, obviously fewer seats is better in general, but not something I would run away with here.
I'll have some incremental opportunity.
Nothing on the call game changing.
Okay.
Maybe one last one for Maury as you as you look at the <unk>.
Staffing constraints across the industry.
During this period of time, how does it impact if at all your thinking around M&A and the low cost sector.
Who knows I think there is a lot of variables and M&A. That's outside of just the day to day operations.
But.
I think everybody has got their heads down just trying to figure out how to run a model.
Without trying to kind of look big picture at this point.
Never say never.
Okay. Thank you very much.
Thank you. This does conclude the question and answer session of today's program I'd like to hand, the program back to more Gallagher for any further remarks.
Thank you all very much and we appreciate your calls we'll talk to you again next quarter.
Thank you, ladies and gentlemen for your participation in today's conference. This does conclude the program you may now disconnect good day.
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