Q1 2022 Allegiant Travel Co Earnings Call
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Q1, 2022, Allegiant travel Company earnings Conference call. My name is John Hope your operator for today's call. At this time all participants are in a listen only mode.
Later, we will conduct a question and answer session.
Any question and answer session. If you do have a question, Chris Euro and one on your Touchtone phone.
As a reminder conference is being recorded.
I'll turn the call over to Sherry Wilson.
Thank you John .
Welcome to the Allegiant travel company's first quarter 2022 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 and incoming Chief Executive Officer, Greg Anderson, our EVP and Chief Financial Officer, Scott Sheldon, our EVP and Chief operating officer.
<unk> got the Angelo our EVP and Chief Marketing Officer drew wells, our SVP of revenue and planning and a handful of others to help answer. Your question. We will start 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 in <unk>.
T J <unk> various risk factors could cause the underlying assumptions of these statements and our actual results to differ materially from those expressed or implied by our forward looking statements. These risk factors and 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.
<unk> cautions investors not to place undue reliance on forward looking statements, which may be based on assumptions and events that do not materialize.
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 John Redmond.
Thank you Sherry and good afternoon, everyone.
Our dedicated and passionate team members of the reason for the stellar results and industry, leading margins we are reporting today.
To come out of the throes of Omicron 600 weather cancellations out of 1800 total cancellations ATC issues and high fuel and still produce a 10, 7% and one 4% EBITDA and operating margins respectively.
Rather amazing.
This spring was the busiest and best spring in our company's history and this incredible demand continued into April and shows no and <unk>.
Very strong load factors, especially March at 87% helped to offset the run up in fuel prices and those high load factors are now expected to continue through the year.
Again, I can only say thank you very much to each and every team member.
Our priority for the rest of the year as operational integrity.
Paramount not only for our guests, but our employees, our long term vision and our brand.
Our business model and DNA has always been to match capacity with demand and fuel prices. We have shown over the years no. One in the industry is better at it.
Our Q2 guidance reflects as comparative adjusting our capacity to up roughly 12% year over three year and total operating revenue increase of roughly 30% year over three years.
2022 is a foundational year for our company significant investments are being made in various initiatives, including it.
I will set us up well into the future and drive focus to where it matters most continuing to differentiate our differentiate our business model and improve the customer experience and interaction with Allegiant and of course drive more revenue streams.
Strategic initiatives don't happen overnight, but the benefits can be transformational.
Always Allegiant World Mastercard was an initiative that launched in 2016 and there is really starting to hit a stride helping to drive total average fare.
The cash benefit of the card was $53 million in 2021.
We have roughly 320000 cardholders to date, which will further accelerate in the out years, given our partnerships relationships and resorts.
Our credit card along with our always rewards program are intended to increase share of wallet through greater interaction with the leisure travel portfolio.
Our joint venture with Viva Air Booz is a piece of that foundation that is being late this year, but for that relationship another it initiatives.
He would be years of entering the Mexican leisure market and the financial benefits would not have been the same as our joint venture.
Sunseeker of course started in 2017 and after a pandemic interruption will be completed over the next year.
That project in turn will lead to further asset light opportunities, we ever work cut out but our team members are up to the challenge.
All of these initiatives will set the foundation for Allegiant to point out.
Even with all the foundation work being done we should still end the year with total liquidity in the neighborhood of $1 1 billion with that I will turn it over to Scott Sheldon.
Thank you John and good afternoon, everyone before I get into the first quarter seems I'd first like to thank you from this management team and to all of our customers team members and partners throughout the network.
This continues to be an incredibly unpredictable time, and we were certainly not immune to the impacts on the crown had on our operations in late December and the residual impact for most of the first quarter.
We had claims physician crudes position the planning team did an outstanding job aligning peak holiday capacity with our internal capabilities and unfortunately over a 30 day period starting December 20th.
Gainesville, nearly 1000 flights or over 12% of our schedule. We went from having 20 folks offline due to COVID-19. It's over 410, they span perhaps more importantly was the longer term impact on our frontline training pipelines.
And the training needs to train and deploy team members throughout the network to meet future schedule needs.
Before I get into pilots, which is clearly dominating the headlines. These days I want to take a minute to talk about operational trends historically, we've prided ourselves on leading the industry in controllable completion factor and targeting high 70% on time performance.
Unfortunately, we're falling short of these targets in this current environment, some reasons being self inflicted some being very much out of our control.
Looking back at full year 'twenty, one we led the industry and being the only carrier to exceed 2019 capacity levels, which drove an incredible 717% adjusted EBITDA margin.
We're best positioned to take advantage of the leisure recovery cycle, we made a conscious decision to keep as why do the selling that is possible, but it did come at a cost is reflected as is being lost in completion on time performance clearly we have lots of work to do.
Fast forward to today, our network is simply much more complex and disbursed than it was in first quarter of mid teen year over three year departures are up 13% on cream base growth in aircraft growth, approximately 50% and 40% respectively. During.
During the quarter, we opened two new bases Appleton influence, which brings our total to 23 up from 15% in 2019, we plan on opening our 24th base and program. This fall and pre pandemic environment. Many of these attributes that give us operational and commercial advantages in these small markets or headwinds today small bases.
Which are loosely defined as five aircraft or less are highly dependent on a certain level of labor stability and a more or less relied upon to operate as standalone entities.
A high degree of focus on dispatch reliability and labor consistency, particularly our flight crews without labor consistency will be challenged to drive substantial improvements in performance, which is undoubtedly our key focus as we move into summer.
Moving onto pilots pilot staffing and pilot nutrition, we are seeing some of the same themes as our industry peers with perhaps a slight difference we continue to be successful in bringing on quality opportunity. Since July of last year. We've hired over 200 pilots through April and our May and June classes are already filled to target levels.
That would bring our total hiring levels to nearly 250 pilots.
It was just short of our projected 270 target need for summer flying 2022 attrition.
Attrition levels on the other hand, our elevated above historical norms and have impacted our first officer ranks the hardest.
Year to date, we've lost 80 crew members to other carriers.
Primarily the legacy carriers.
And 123 total since may of last year.
And the last thing I'd like to touch on is our efforts to ratify a new contract with our pilots. It's our number one focus and is critical to stabilizing our current workforce and to meet the demands of the airline as we look into 2023, given the attrition trends we were seeing in mid fourth quarter of last year, we made a substantial effort to expedite the framework of a new deal since.
January we passed for comprehensive proposals that touch on everything from rates rate guarantees retirement scheduling work rules quality of life enhancements and investments in virtually every destock crew members interfaced with daily it's an unusual approach for sure and there is no way meant to short change the processes. Our pilots are critical to.
The success of this company and we hope to have something positive to report in the near future.
In closing I'd, just like to thank our team members and partners once again, your patience and perseverance and this environment has been tremendous and we are here to support your efforts to help make this the premier leisure brands in the travel space.
We've always prided ourselves on being ultra flexible and taking calculated risks this year will be no different and I know it will take some lumps that being said, we feel we struck the right balance to drive operational performance, while maximizing earnings potential and we look forward to a successful summer and with that I'll turn it over to Scott.
Thanks, Scott on the commercial side first quarter saw a historic highs for Allegiant in terms of both web traffic to Allegiant Dot com and passenger segments booked total visitors to our website were up by more than 25% in the quarter versus 2019 with repeat visitors being up by more than 10% and <unk>.
First time visitors being up by more than 50%.
Most notably visitors coming to Allegiant Dot com did sell by directly entering the U R L or by using our mobile app.
Users come in that way were up by more than 80%. This speaks to the ever increasing awareness levels for our brand more people know about us and they are coming directly to us at Allegiant Dot com.
The number of passenger segments booked in Q1 was 35% more than in 2019, and we achieved our highest ever trailing seven day, moving average and passenger segments Bob on two separate occasions in the quarter. Moreover, this demand for leisure travel shows no sign of slowing down as the number of visitors who came to our web.
In March the conduct flight searches for travel in April through November was up by 150% to 250% compared to 2019 levels for the majority of weeks and that travel time period.
While bookings from customers of all ages showed increases on a year over three year basis, most in that 15% to 20% range customers 65 years and older show dramatic booking increases at more than 60% above 2019 levels.
This is great news is this age group represents our most frequent travelers many flying between the primary residence and their vacation home.
In addition, as we saw in the past two quarters third party revenue growth continued to outpace passenger and passenger revenue growth exceeding 2019 levels by more than 30%.
This continues to be driven by our Allegiant two in auto approach of enhancing our web and app experience to make it easy for our customers to buy more of their leisure travel needs from us and by enhancing the breadth of our leisure travel offerings at Allegiant Dot com.
That said the always Allegiant World Mastercard was once again, the prominent driver having its strongest three months ever in terms of new card sign ups average spend on the card and total compensation to allegiant each month of the first quarter successively set the record for new card sign ups for the quarter New card sign.
<unk> were up by nearly 100% and compensation to Allegiant was up just over 130% versus 2019 and.
In closing the historic high demand, we saw in the first quarter for capacity levels at higher than both 2021, and 2019 appears to be structural not simply fleeting pent up demand or revenge travel at least for the foreseeable future. It's broad based across all of the markets we serve for all upcoming.
Travel periods, we're selling into and it's coming from both repeat customer growth, which we believe speaks to the effectiveness of our loyalty programs and first time customers, which we believe speaks to the growing awareness and preference for our Allegiant brand of low fare and all non stop travel and with that I'll turn it over to drew.
Thank you Scott and thanks, everyone for joining us this afternoon.
The cadence of revenue performance since the midpoint of the first quarter has been the best I have ever seen.
We have been traveling positive for eight consecutive weeks with line of sight to many more against comparable 2019 weeks.
The first quarter finished with total revenue 10, 7% ahead of 2019 on system ASM plus 18, 2%.
Better than expected close in bookings superior always Allegiant World Mastercard performance as well as an extraordinarily robust March madness fixed fee program drove us above the guided range.
The month of March was the mic drop month, we've waited over two years for now.
By growing ASM by over 14% of the month, our board a load factor of 86, 5% and traveling 12 eight <unk> both exceeded March 2019.
The incredible March Madness resulted in the best <unk> fixed fee revenue total in company history, and the third best month.
The $500 million in total revenue for the quarter was the first time, we've exceeded that milestone.
Our Rev and loyalty teams have continued to drive immense ancillary success, which in turn make the load factor performance significantly more powerful.
The $68 per passenger represents a 17% increase over first quarter 2019, and the second best quarter in company history trailing just for Q2 'twenty one.
As excited as I am about marches performance, the second quarter looks even better.
We are guiding total revenue growth of plus 28% to 32% over second quarter 2019 on scheduled service ASM, plus 10 to plus 14% and system ASM plus nine plus 13.
This implies a double digit traffic growth on double digit ASM growth at.
In total revenue in excess of $600 million.
April continued market success and postal load factor beat of over four points versus 2019.
And as I mentioned, all weeks where trends are positive.
We havent finalized everything, but I expect amongst travelers and plus mid teens.
While we are seeing solid performance in the off peak weeks. The peak periods are where the real upside is on display.
And I expect June to have the best year over three year performance in the quarter.
While I mentioned traveling extensively I want to point out that the metric is an output and not the end goal.
Our team is focused on maximizing total profitability to our network and pricing decisions.
In 2021, we began service to 10, new cities plus one more in March 'twenty two.
So therefore its range from smaller like key west in Amarillo to larger like Dallas and Minneapolis.
This summer's network, we will still have roughly 13% of ASM coming from routes in the first 12 months of operation.
And we've already had some incredible successes in these new ads.
So we prepare our network strategy, so that markets can mature over several years.
Put differently, we've been planting seeds for the future.
And we expect our future network strategy to look like this indefinitely with a broad mix of Citi sizes, and destination profiles that fit our strategy and that we can expand upon.
Lastly, after a test we started in 2019, we are happy to announce that we will rollout our allegiant extra product across most of the fleet.
While both the results and customer feedback of the product have been compelling throughout the test the pandemic put a bit of a pause in the decision process.
We have been further encouraged by even stronger results over the last six months and we'll now take all inducted Airbus <unk> hundred <unk>. It's.
180 seat Allegiant extra configuration.
In the fourth quarter of this year. Additionally.
Additionally, all new Boeing aircraft will deliver in an allegiant extra layout.
Remember our layout, primarily involves the removal and re pitching of Roes and nothing structural enabling a relatively easy returned to maximum seat count should that be desired.
Customers enjoyed legroom advantages complimentary priority boarding entering cardboard as well reserved overhead bin space.
This should drive an air ancillary boost into 2023 as the fleet grows.
And with that I'd like to pass it over to Greg.
Thank you and good afternoon, everyone.
For the first quarter, we reported a net loss of seven 9 million. These.
These results can be characterized by the tale of two halves. The first half of our flying for the quarter was not profitable primarily due to the impacts of homerun.
We recorded an operating margin of negative, 18% and net loss of $44 million for the months of January and February however.
However, the second half of our flying during the quarter was very profitable as evidenced by an operating margin north of 21% and net income of $36 million for the month of March despite paying $3 46 per gallon of fuel and increase of 40% from January .
The revenue team came through as <unk> accelerated during the quarter closing just under 13 for the month of March meeting first quarters <unk> $10 78.
Excluding fuel our unit costs for the quarter was seven <unk>.
And we're seeing deceleration into the second quarter.
Costs were pressured during the first quarter by $16 million in customer compensation relating to Iraq.
Primarily that was due to the <unk> and $7 million for the special recognition bonus for our team members.
Normally our first quarter results would not trigger a profit sharing however, given these extraordinary circumstances in both the airline sector in the broader macroeconomic environment.
Our board is pleased to guarantee our team members' recognition bonus for 2022, we.
We have the best team in the business and our sincere thanks to each of you.
Excluding this recognition bonus accrual in our Iraq's customer comp compensation, our CASM mix would have been down or was down 5% compared to the first quarter of 2019.
Through the robust demand environment and strengthen sales drove a sequential increase in our <unk> of $150 million nearly 50% higher from the fourth quarter. Our strong liquidity of $1 2 billion is more than two times, our ATM and 60% of 2019 revenue.
Our net debt balances remained flat sequentially at approximately $550 million and well below pre pandemic levels.
Turning towards the second quarter, our guidance issued today suggests an operating margin north of 12% for the second quarter, an ASM capacity growth of 12% at year over three.
This guidance also assumes an average of $4 per.
Per gallon of fuel in February we actually trimming our plant capacity in the second quarter by roughly 10 percentage points and his message back then these reductions were primarily driven by staffing challenges and the volatility around rising fuel costs, given the uncertain geopolitical pressures.
This capacity reduction does add some headwind to our unit costs as we expect second quarter CASM ex to be up 14% year over three.
This increase is primarily related to inflationary pressures and productivity, we've talked at length around inflationary costs on prior calls so I thought I would touch briefly on productivity to help frame. This we expect to place into service three aircraft this quarter, bringing our total fleet count to 115 by June 10.
Based on our capacity guide, we expect the average ASM produced per aircraft during the second quarter to be $46 million. This was 12% less production than the average aircraft. During the same period in 2019, which we estimate is approximately a third of a cent headwind to our CASM ex.
While this reduced production puts pressure on our unit cost there is a benefit to the other side of the profitability equation by driving higher yields and higher unit revenue.
As drew indicated demand is on fire and current bookings suggest total revenue for the second quarter to be up approximately 30% and try them up nearly 20% as compared to the same period in 2019.
Which I believe segways well into our Allegiant extra announcement.
While reducing the number of seats may not fully optimized unit costs. Our data suggests this initiative will be meaningfully accretive to our bottom line as we are margin focused company.
And what gives us an advantage in driving higher margins as our unique ability to align capacity with demand given our low fixed high variable cost structure.
Wireless in the macro environment, where the high fuel that will fuel a weak economy are strong one we have a proven track record of always outperforming over the long run with.
With flexibility brings stability.
And speaking of flexibility that the hallmark around our fleet given supply chain disruptions and MRO delays were going to give ourselves a little more breathing room by slowing the deduction of three aircrafts in 'twenty to pushing them into early 'twenty three.
As a result, we now expect to end the year with 124 aircraft compared to our initial plan to end with 127.
Pushing these three aircraft to 'twenty three should not impact our second half capacity expectation.
Turning to REIT to Reinvestments in the business, our full year 'twenty two airline Capex guidance remains unchanged at $260 million in aircraft Capex. This is inclusive of our pre delivery deposits.
$100 million and $90 million and other heavy maintenance capex, respectively, and at closing we continue to make meaningful progress on our major strategic items.
One incorporating Boeing aircraft coming in online in mid 2023. These aircrafts are 30% more fuel efficient as measured by ASM per gallon, our partnership with visa at Airbus.
Expecting that we're expecting to go on sale later this year opening our sunseeker resort in approximately a year from now the increased investments in our systems tools and infrastructure to better support our long term global growth plans drive higher revenue in Tibet costs and progress with our partner Schneider electric on our ESG initiatives with the intention of publishing our inaugural sustainability report.
Later this year.
Now with that said it is my privilege to turn the call over to Maury Gallagher and morning on behalf of the team we want to thank you for your Mentorship guidance and leadership over these many years you are legend.
Well, how do you follow me, Matt Thank you Greg.
<unk> gotten a good overview from these.
Very stupid managers in the last few minutes and as you can see we're making very good progress on our way back to normalcy preparing in particular for peak flying this coming summer.
As you can see.
Alaska to speak.
Suggested that should be the case because this is my last conference call.
I've done 61 of these calls before today.
Talk to you about the leisure our journey our exports.
And our successes over the past 15 years.
Deep breath, we have talked about the leisure to donahoe, a numbers of times our efforts to drive additional revenues from our current customer base and we are the only carrier I'm aware of that talks directly to all of its customers and to that end. We have almost 15 million E mail addresses available to us to do that communication and while <unk>.
Leasing unit revenues from our den customers' wallets was important strategically we wanted to further enhance our brand, particularly in the last few years.
And what was the best way to increase the awareness of all Egypt with the travelling leisure oriented public front and center in this effort was our partnering with the Las Vegas Raiders in this stadium naming rights.
And in that process in the past 24 months, having our name on what has now become Allegiant Stadium has done more to increase our brand.
With the traveling public nationwide and we were able to accomplish in my opinion in the first 20 years.
But just as important these naming rights have provided us with credibility.
I've heard the following statement a number of times from different people that I've talked to Wow, you own a premier football stadium in the world's greatest leisure destination, then you must be a great company.
We don't own the stadium would be nice, but we don't own it but we are receiving a benefit of this affiliation and has substantially increased people's belief.
And us.
As a company that is reliable and.
Trusting.
Our second major trophy property will be our sunseeker resorts due to open early next year. This has been one of the more ambitious undertakings during my time here.
And there has been a great deal of pushback from many of you on the phone call today, but im going to make a forecast.
Unlike anytime before sunseeker is going to be a huge success you can see you heard it here first.
John Redmond, Who's one of the few people in the world who could have pulled this off.
Including finding location designing the building and recruiting this world class management team that we are now assembling.
And I've had the privilege of knowing Jon for 20 years, and even bigger privilege larger privilege of working closely with him in the past five five years.
And when he joined management in 2016 year of US understood what he might recommend.
Specifically asked them to enhance our third party revenues, particularly hotels given his background.
But one once gone located the 23 acre waterfront property and Port Charlotte.
Florida and laid out his vision and plan I became a believer.
In the coming months, you will hear about Johns efforts to develop our asset light approach. There are a number of substantial irons in the fire that will leverage our sunseeker effort and the management talent that we have put together John has put together.
And there are some early returns on sunseeker that we would like to share with you today preliminary bookings and interest and I'm going to ask John to give us some of those numbers Jon.
Thank you Marty.
These are rather amazing to say the least but currently we have one 4 million E mails and the Sun Secret database, and we're targeting $2 5 million by year end.
Put that perspective, the 3500 room, new property on the strip resorts World After nine months of being open at 200000 E mails.
So we're headed in the right direction. This is done a big focus above to have a lot of emails.
We have also booked 226 transient reservations totaling 610 room nights to date at an ADR of $380.
We modeled ADR of 255.
We went on sale mid February selling into May of 2023.
Reservations, where made by individuals from 27 different states.
So it's a breath.
Our email database amazing.
We've also booked 17 groups.
Totaling 21500 room nights.
The total contracted rooms, food and beverage revenue is roughly $8 3 million.
The March 2022 year to date southwest, Florida transient ADR as provided by FTR Smith travel research for the markets, which are 25 hotels in southwest, Florida was $638 up 38% over the same period last year.
For the comp set which is 810 hotels grouping that we tracked in southwest, Florida. The transient ADR was up was $644 and up 29% over the same period last year.
For the year 2021 full year, the southwest, Florida transient ADR again as provided by STR Smith travel research for the markets that was $411.
And the transient.
For the comp set was $457.
Again incredibly impressive to see what's going on in Florida.
I'll turn it back over to you Martin.
Thanks, John .
This is going to be an amazing additive trophy.
Trophy property to us.
Maybe not equal quite what's the stadiums done for us, but it's going to be high in those ranks pushing.
Pushing our brand out there and bringing more awareness of the leisure traveling public to Allegiant as we go forward.
I've spent 40 years in this industry.
And this word different has been my operative.
We're going to have fallen too all the time and I've learned over the years, we needed to differentiate ourselves from the other 10 carriers in this industry that we knock heads with currently operating are safe quality Airlines critical a critical component of this success, but a focus on the customer has been just as critical.
And I believe we have done this better than any other carrier since our beginning in the early two thousands and going forward. The Legion is extremely well positioned to continue to differentiate itself not the least of which what you just heard from John from competitors and generate incremental revenue so important to our profitability.
In closing I am an airline personnel heart. The airline has been the driver of our success over the years and it will continue to do that in the coming years.
In the next five to eight years, we should double our size.
And be able to service in excess of 30 million customers with our airline network as we grow our way to 200 aircrafts.
Your line is the catalyst that will drive these incremental revenue so important for our industry leading success.
2006, we named the company leads and travel for a reason while we operate an airline we are first and foremost a travel company focused on providing our leisure customers with the quality of experience both in the year and soon to be on the ground.
Now I will not be leaving the company, but rather working to support the management team in the coming months.
Our efforts to finalize the deal with the pilots.
We'll be working with Andrew robust the president of our local here.
Other efforts in Washington, DC, as we work towards a solution to the supply pilot supply problem.
But I will be moving to the background and that's.
And as it should be and will continue to be on the board and certainly one of the premier shareholders as far as I'm concerned lastly.
I want to thank all of our team members.
Who had been the backbone of this successful effort for the past 20 years.
Nothing is giving me more pleasure and watching the young people, who have joined the Legion over the years find our sea legs become knowledgeable in the field.
And begin their future with this great company.
And fitting statement.
Being a history major bye.
Choice in many years ago.
Calling upon Mr. General Douglas Macarthur famous speech to Congress in April and 51 about his retirement.
And as he said quote the refrain of one of the most popular barrick balanced proclaimed most probably on soldiers never die.
Hi.
We just cleared away.
And social life. Thank you.
And with that we'll turn it over for questions Sherry.
Yeah.
Thank you we will now begin the question and answer session. If you do have a question press zero then one on your Touchtone phone.
If you wish to be removed from the queue. Please press star one to.
If youre using a speakerphone you may need to pick up the handset first before pressing the numbers and we also ask that you. Please limit yourself to one question and one follow up.
Once again, if you do have a question Chris.
Zero and one on you touched on phone.
Our first question is from Savi <unk> from Raymond James.
Yes.
Hey, good afternoon.
Maury I agree with Greg that you are.
Nothing so looking forward to your contributions continuing contributions to region and industry here.
Thanks, Let me thanks for me.
Thanks Marie.
Just if I might on the capacity front, given this outlook assuming much different times.
Then we'll finance.
Demand or fuel I was curious what what this means for maybe 2022 capacity in and if there's any adjustment here.
During 2023 growth from here or do you kind of catch up on utilization and then okay.
And that growth in 2023.
Sure drew here I'll start with this one yes.
I think for full year 'twenty, two we're still looking at growth.
Around that 20% number.
As Brent Cross the 110 again today, so I would expect there to potentially some some revisions in the back half of the year.
Maintain.
But I still feel good about that number in general.
Barring some runaway there.
Think about 'twenty three I think we're moving back toward that long term measured type.
Type of approach of roughly 10%.
Again that assumes that fuel that runaway demand stayed elevated et cetera et cetera.
But I really like where we're going and then in terms of getting back to that measured approach and some of them will probably come from utilization sure.
And then just can you talk about I know.
Some of it and I wonder if if some LCD capacity.
The constraints are related to what you're seeing in Florida, and I know youre operational impacts there.
Much of it is going to drill.
Driven by Allegiant internal.
Kind of supply issues versus kind of external partners shoes, or even the ATC issues in Florida.
Sure a lot there picking.
<unk> taken it probably at a high level without diving in dramatically. If you think about what we did for this summer.
Just a little bit over half of our cuts.
Come in Florida.
Certainly so the ATC and flow environment, there did that have an impact on our decisions.
I think for any peak period going forward.
We're going to run utilization basically as hard as the first constraint being come up against whether it's labor, whether it's aircraft or whatever it is demand and peak periods has always been there such.
Such that we should operate at the limit when you feel comfortable at the company.
Off peaks will always be driven by either the demand environment fuel and the resulting profitability.
So thats kind of a little bit of both depending on which time frame, where we're talking about.
That makes sense. Thank you.
Our next question is from Mike Lindenberg from Deutsche Bank.
Yeah, Hey, good afternoon, everyone and yes, echoing savvy Georgetown definitely alleged Maureen you will be missed.
Knowing that youre going to remain one of our largest shareholders if not the largest.
It gives us good comfort.
On to my questions here I.
I guess this would be Greg with respect to the $700 excuse me 737 Max deliveries.
We hear from other carriers that have airplanes coming this year that aircraft continue to get put back excuse me yes.
Delayed because of some of the.
Manufacturing issues at our bottlenecks that Boeing is facing whether it's supply chain labor.
Getting raw materials et cetera.
When you think about 2023.
Are you starting to sort of rethink that.
10 aircraft coming in is it more of a 2024 phenomenon.
And I have sort of a related question on real economics of those airplanes.
Hey, Mike, It's Craig why don't I kick it off and turn it over to Robert <unk>, our lead <unk>, but where we sit today, we're still planning and expecting to take.
At Boeing Max aircraft in the back half of 2023.
What we're thinking about right now.
The split between the 80 to 100 and the Dash seven so we're evaluating that candidly we may look to take the AG 201 that would be a little easier for us in terms of getting it through on this back in for our maintenance and her team members to get it and up and running and then you can leverage that work on the dash seven but I'll now turn it over to BJ to give you.
Some additional color.
Mike I guess I'd, just say that we're still over a year away from the first scheduled delivery now so we aren't hearing anything out of Boeing about potential delays. We are hearing some of that same chatter that you mentioned about their current situation, but I guess I would just pointed the fact that these airplanes are coming in pretty late in the year and so we didn't have a lot of capacity plan on those are.
Appointed in 2023.
To start with so I think we all feel pretty good about that I'm looking at drew here, but yes. We're okay. Yes, I mean, we just put our winter 22 capacity out there we got a lot of time to think about 2003.
And then just on the economics on the airplane. We go back to late last year early this year.
The view was that the seven you were looking at something on the order of like 7 million of EBITDA per aircraft and I think the eighth.
Closer to like $10 million.
And yet we've just seen this significant surge in inflation not just fuel, but we're dealing with labor.
Are there like things coming in a lot higher than what anybody expect including the fed right and I'm curious where you are as you think about that $7 million to $10 million for each airplane or is it the view that that's going to find its way into the fare structure and the $710 million are still pretty good numbers too.
So to us when we think about overall profitability.
And.
No. It's a great question, it's Craig why don't I kick it off and I'm sure others would like to add some commentary on that.
Certainly that the rise in fuel, it's something to keep an eye on and it's great that these Max aircraft there.
Block hour I'm, sorry on a gallon.
<unk>.
Basis.
Per gallon on an efficiency basis for fuel.
About 30% more fuel efficient so that obviously will be helpful for us in terms of combating the higher fuel costs.
What I would say is we think that it certainly on like for like utilization.
We'll outperform our earn with the Boeing aircraft.
Because we have.
Third of our network, that's going to support those aircraft and we have a 20% improvement on operating cost. So it certainly should help us continue to drive.
Back to that industry, leading EBITDA per aircraft that we had in 2019.
As other areas of the business, we're constantly looking at combating.
The inflationary pressures that you mentioned.
<unk> that through systems, John talked about transfer transformational systems, we'll see that.
The backend, where we can scale up more on the management side through SAP or track or with productivity as Scott mentioned on the on getting a new systems for our pilots and crew members not blue that should help us with scheduling and improve on productivity from that side of the house.
Have also.
John mentioned, our VEBA partnership right, where we think there is some accretion there assuming that gets proved through ATI. So as Marty and John have said, we're looking at growing combating our cost, but also growing on the revenue side and there's a lot of irons in the fire that we think will help us and restore and get back to that EBITDA per aircraft and drew I don't know if you want to talk about the fare environment to Mike.
Yes, My view looking forward is that there is a structural change in the demand environment and one that that will produce a higher level of demand for for quite a while than we saw in 2019.
But I do think that the summer of 'twenty two is probably the pinnacle of animated retreat a little bit.
But the structural change in how I think people view travel view experiencing life has changed such that there will be a persistent upward pressure on.
The overall demand with its fair whether it's loads.
For the foreseeable future. So I do think we will recapture some of it through through that Avenue as well.
Okay.
Michael is we're going to buy these airplanes and so the balance sheet will come into effect in our ownership costs are just not going to be that much higher than we would spend for a normal <unk> Airbus, but you get all the benefits of fuel burn and things like that so thats going to help us offset.
A lot of pressure on the cost side.
Exceptional airplanes, if you can manage in the proper way.
<unk> ownership.
And b in them for the long haul.
Yes, Mara your timing and the obviously, the Greg and the team when you bought those airplanes.
More perfect and even things like the benefits of tax depreciation and it's a lot of things that are going to help you on ownership that I think people don't readily.
Well. Thank you I will tell you one other thing Michael that really helped US is candidly if you make a lot of money in any business, particularly this business you've got a partner in downturns is called the federal government.
All of that money back.
All of that sitting on our balance sheet that we paid in taxes over the years. When we made so much money yeah no no very good.
Very good one of the few that can make that claim.
Yes.
Our next question is from Brandon <unk> from Barclays.
Hey, good afternoon, Marty very poetic into two o'hagan here. So so thank you for that.
I guess guys can you talk to.
The pilot issues that you were speaking to in the prepared remarks, I think you mentioned attrition levels at the end of the year is that.
<unk> gotten worse or have you been able to solve for that and what's the long term solution here.
Hey, this is Scott.
Yes, you're starting to see sort of a trickle.
May of last year, there was a pretty bad months I wanted to say it was October .
November and December settled down I think there was a quiet period. When you look at what was going on with Amazon for December January .
And I sort of viewed as sort of pent up where you had back to back months of 20 plus.
Pilot nutrition months.
But that seems that seems to have come down a little bit.
Longer term obviously the contract is critical to getting something competitive out in our pilots hand, something that reflects.
Industry standard at worse.
We have some interesting and unique concepts.
We'll keep these guys more and more in a more competitive.
And a more competitive foothold as other carriers start to.
Solidified their contracts I think everyone has a minimal contracts with the exception of spirit and frontier right now so it's going to be a moving target, but we feel if we can keep sort.
The economics to the sidelines and just know that youre going to be paid a reasonable rates, we think that sort of the mouse trap that we have to offer which is.
Looking back it's a simple system single day trips.
Just the quality of life aspect is much more desirable than what other carriers have to offer.
And then there's the traditional stuff like partner with flight schools and the like but first.
First and foremost we've got to get a contract in place. Let me. Let me also comment Brian one of my jobs post the job is going to be working closely with the leader of our IBP group.
Working to see if we can move this thing along and.
Get ourselves in a good position sooner rather than later.
Some of these things we're on our second contract if you will.
Typically the first contracts as clumsy and needs to be revised.
We've got a commitment on the other side to make things work.
It will take some time, but hopefully we'll have some answers here in the not too distant future.
I appreciate the response from both of you and I guess, Greg as you think longer term about unit cost not just specific to the pilots but.
Inflation is real here does this change the trajectory for the company.
Hey, Brandon.
Thinking longer term.
What I would say kind of echoing some of the comments I was making before but.
We of course, right now, where we said we are investing in our organization.
<unk> used to term grow come up underneath it.
So we have an infrastructure thats larger right now, we're going to grow and come up underneath it and I mentioned that because the goal there as John mentioned in his opening remarks is now operational integrity, and so getting back and getting driving higher opt out of the business. That's certainly going to help on the cost side productivity as I mentioned, whether that's through utilization.
<unk> on the aircraft, but pilot productivity crew productivity will be hopeful we'd talked about the systems marketing I think is another one we don't I Didnt mentioned earlier, but we had some investments that we mentioned in the stadium that Scott the agile and his team put together also with live nation, Brandon as we grow.
The.
ASM, if you will CASM ex will come down relatively speaking on those items because those costs are fixed and so you kind of come about it from that perspective.
That's another example, where we're working closely with Veeva and their team.
Combating cost and where we can find synergies working together on the cost front, we're spending some time there. So we think that too will help so all in all I mean, yes, there is an absolute pressure on the cost side.
We are we're a margin focused company, we talk a lot about madam here and Theres two sides to the equation.
So we will continue to focus on that but we'll make sure that we keep a low fixed high variable cost structure. So we can continue to outperform.
Okay.
Matthew I will have a new acronym thanks guys.
Our next question is from Catherine O'brien from Goldman Sachs.
Hey, good afternoon, everyone I'm, just want to echo everyone else's comments, Laurie it's been a pleasure working with you over the years and congratulations.
Hum.
Moving into the new role.
So I wanted to come back and talk about revenue a little bit your revenue outlook like many of your peers.
Incredibly strong for the second quarter.
But you don't have the same exposure to some of the business or longer haul international recovery Thats really.
Early stages some of them do though is is.
It's just really good old fashion pent up leisure demand outstripping supply and passengers are willing to pay higher fares or are there also some maybe some positive competitive developments there.
Less overall domestic supply being pointed at luxury leisure destinations excuse me than it was.
Over the last year or two or I know your third party outstrip.
Is it is it just non fare initiatives also taken you that extra mile next quarter I know that's.
Quite a few questions in one, but just trying to get a sense of where you're seeing them both strengths coming from as we head into the next quarter.
Sure I think the simplest answer to that is yes, I mean, all of the above are certainly influencing and putting up with what we're accomplishing.
<unk> here.
I think first and foremost.
We've had U S domestic leisure travel, but the entire time the demand pool is larger for that than it ever has been in being as well positioned as we are to take advantage, we're seeing the benefits of that.
We'll see some in fair first quarter, our average fare passenger was slightly higher than it was in 1019, we're starting to expand load factors, which I think is.
Result of that larger pool, but.
I think you alluded to it a little bit with the return of business International I think focus around the industry are going to start to shift a little bit away.
Away from simply the leisure traveler here domestically and in trying to recover elsewhere that will open up more kind of more leader field for us.
So I may have glossed over some things there, but but suffice it to say all of those things are true, but it really is just overall core strength of the leisure demand and where we're positioned right now.
That's great. Thanks.
One for Greg. So your net debt is lower than it was pre pandemic really strong liquidity position I know that you and the industry are barred from shareholder returns until later this fall, but you think reinstating your dividend.
Is on the table over the short to medium term or just maybe a little bit of incremental seeker capex, we're seeing or the Max ordered just change the calculus of how you think about deploying capital going forward. Thanks, so much for the time.
Thank you Katy this is John .
When you look at it.
The history the company history.
Returning capital to shareholders.
I think it's not a bad proxy to look at when.
When you're looking at what companies future actions may be.
It has not been the conversation we've had yet as a board on whether or not Q4. This year, some future quarters, the right quarter to start that.
So that's probably the best way to look at it but as you know we have a history of paying dividends and buying back stock.
So as I said, that's a good proxy for future activity that we would consider.
That's great. Thanks, so much John .
Our next question is from Ravi Shanker Morgan Stanley .
Thanks, Good evening everyone.
I will sign onto the petition.
<unk> you legend status. So thanks for everything you've done for us.
A couple of questions here, maybe a little bit bigger picture I think what are the big debates over the past several weeks has been.
The point of demand destruction and I think.
And what are the debate in the space is weather.
That point is the reserve for AUO cc airline because the customer may be more price sensitive or if it's further away because the fare itself is lower.
Do you ask that question again are you seeing that point at this point and kind of do you think it's clean or was there a farther away for you obviously.
For the first time I've heard those questions. So bear with me for App.
I would say if you look through the history of all of the environments in which Allegiant has operated we have not seen demand destruct at any of those whether we're in a recession, whether we're growing the economy rapidly high fuel low fuel whatever it is.
The cost model that Greg and team maintain enabled us to be successful in any of those environments. So we can respond with lower fares as needed. We will typically use our capacity in order to your supply and demand to our benefit to get there.
If fuel remains high we can pull capacity back and make sure we're getting the fair needed to remain profitable at the expense of some of that demand of a purposely so.
I would say, it's certainly farther off if not well into the future if I'm understanding the premise is correct.
Hey, Scott.
We are the ultimate demand management company, we are.
From the get go manage the demand and septembers in January so we are geared for that better than anybody, but Scott yeah. The only thing I would add is looking at our customer base I know I've mentioned this on calls before 85% of our customers. When asked what airline did you have last flight or what airline you regularly fly.
I'd say southwest of one of the three network carriers, obviously be at their regional partners as well.
In that order so our customers are the same as their customers so in as much.
They are somewhat inelastic.
And their demand.
Airfare, so too are the last point I'd make.
The comment I pointed out in my prepared remarks was the significant growth of our customers age 65 and older. Most of these are those that own second some of them third homes that fly us out of Cincinnati Grand Rapids, India et cetera.
Many legacy markets for network carriers that upon consolidation left those areas as hubs.
They biased because we're taking a non stop and they are actually have quite amount of discretionary time in income So I would just.
Put that forward to say, our customer base, probably looks a lot different than maybe even other ULC customer basis.
And both for the the over or the further out on our customer base being impacted by the effects Youre talking about.
Maybe you guys got to extend expand a little bit on what Scott was saying.
A customer.
Carrier selection.
Not indicative of a customer's network.
They're just willing to spend more on when they get there on the experience rather than on how they get there and in case in our case of course, when you have 75% of your flights are nonstop noncompetitive.
<unk>.
Some cases, where the only choice.
That's very good color. Thank you for that and maybe a related follow up there.
Thank you for the stats on your higher web traffic.
Do you have details on.
How many of those visits were going to.
New to Allegiant.
<unk> in general I'm, just trying to get a sense if at all.
Are you guys taking share or are you growing the pie here.
Yeah, and I think a little bit about the answer is yes to the first question about half of our web visits in Q1 were from first time users. We don't know what their first time in the LCC. We just know it's the first time, we ever saw them.
So that's the first one.
There is a combination.
That as Eric fares have gone up.
<unk>.
Hypothesize that given the last comment I made about who our customers tell us. They last are regularly fly how we remain still even though the elevated airfare and an attractive option versus say network carriers and our southwest from a price perspective.
So we could very well be seeing people if you will.
Coming to us for the first time, because they may be priced out and are price shopping more vigorously than they've done in the past just given all the variety of inflationary pressures, but just our hypothesis for now.
Great. Thank you for that and I look forward to Allegiant analyst day or close to that sunseeker before it opens just an idea.
Thank you.
Uh huh.
Our next question is from Scott Group from Wolfe Research.
Hey, Thanks afternoon. So you had a comment on the call that summer could be the pinnacle of.
Demand in May retreat, a little bit I, just wanted to or is that something you are seeing is that just a sort of processes and if thats right, though just maybe talk about why why do you want to ramp capacity from low double digits to mid twenty's in the back half of the year.
Demand may start to moderate a little bit.
So when I talk about that I think the summer is going to get the perfect storm combination of that structural change that that both Scott and I talked about as well as some of the maybe more temporary pent up from folks that haven't traveled in two to three years.
It kind of just that Cherry on top of that I think will come out because holiday is 21 were relatively strong as folks said come hell or high water are going to travel for holidays and I'll take January off which every airline saw their results.
I'm not suggesting we're coming back to 2019 levels by any means it's looking to remain quite elevated and quite strong.
Just maybe maybe slightly moderated from what I think will be the pinnacle in summer of 'twenty, one so I wouldn't run away with with taking it down but I also wouldn't run away with continued.
Sequential growth or something like that.
Okay, and what changes actually allows you to get to that.
Low double digit capacity growth to a mid 20% capacity growth what actually changes that lets you do that.
So im not sure were mid point I'm thinking something about <unk> 20 for the full year. So I guess, you're implying that <unk> for the back half some of it will be more comp driven for what we have in the back half of the year. We will have some off peak off peak growth certainly through the August September October timeframe.
And it's a nice kind of round number for the year as well.
So I don't know that something needs to materially change for us to get there we'll have the aircraft because we have the pilots in place to do it. This is purely our take on where profitability will begin with the right level of flying for us to accomplish and as I see it today.
That's about right with maybe a little downward pressure applied by another fuel.
Like that kind of thing today.
Okay and then just last thing real quick can you just give an update on the updated budget for sunseeker and.
Confidence level that this is sort of the final.
Raise here.
Yes.
I think when you look at the world and the challenges all of us have face regardless of industry with supply chain and cost inflation pressures, it's been tough to put up.
Pinta as to when things may stop entirely.
Say stop I mean escalation, we think we think we're there now.
There could be obviously, some slight movement, but we think the six to 18.
The final number.
But I always want to caution that this world is changing.
Really when it comes to supply chain and cost pressures.
Maybe to give some additional comfort around that number we are 75% bought out on the project.
And we will be 100% bought out by July one.
So over the next 60 days, we will be buying out the rest of the project.
And of course by by the Q2 call there will be incredible conviction around our number and hopefully that number is still $6 18, and we feel real good about that number today.
As a sidebar you want to see an impressive building coming together glad to sunseeker resorts Dot com.
Which is it's got a double ours and.
There is.
What's the word.
Clean footage the drone footage, but what's the.
But you have to project updates project updates and look at the drone footage.
It's impressive.
Thank you and I would like to turn the call back over to Mark Brugger for closing remarks.
Thank you all very much and this group will be talking to you in 90 days have a good week.
And thank you ladies and gentlemen that concludes today's call. Thank you for participating and you may now disconnect.
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