Q3 2022 Allegiant Travel Co Earnings Call
Good day, and thank you for standing by.
Welcome to the Q3 2022, Allegiant travel company earnings Conference call.
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Please be advised that today's conference call is being recorded I would now like to hand, the conference over to your speaker today Sherri Wilson. Please go ahead.
Thank you Craig.
Comes to the Allegiant travel company third quarter 2022 earnings call on the call with me today are John Redman, The company's Chief Executive Officer.
Anderson, President and Chief Financial Officer, Scott, Sheldon, President and Chief operating Officer got Angelo, our EVP and Chief marketing officer through Wells are SEPA revenue in planning and a handful of others to help answer questions, but we'll see.
Start to call the commentary and then open it up to questions. We ask that you. Please limit yourself to one question and one follow up.
Companies comments today will contain forward looking statements concerning our future performance and strategic plan.
Risk factors could cause the underlying assumptions that these statements and our actual results to differ materially from those expressed or implied by are forward looking statements.
These risk factors and others are more fully disclosed sooner 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.
Company cautions investors not to place undue reliance on forward looking statements, which may be based on assumptions and events that did not materialize.
This earnings release as well as the rebroadcast of the call feel free to visit the company's Investor Relations site at I R. Dot Allegiant Air Dot com with that I'll turn it over to John .
Thank you very much sharing good afternoon, everyone.
Quartersaw airline operations getting back to more acceptable performance levels more in line with where we were in 2019 before the pandemic.
The respective teams have done a lot of hard work getting to these levels in the effort and results. So it continues into Q4.
The revenue picture was also solid with total average fair decided $126 and up 15.5% for Q3 of 19.
Q for should exceed Q4, 19 by a similar percentage assuming no severe weather issues and the balance of the quarter.
And this rising Sarah environment, we are uniquely positioned to not only capture customers trading down but to continue to grow total average fair given a significant domestic average base fair gap between us and other carriers.
With the exception of the other Uscc's all other carriers average base there.
Somewhere between two and almost four times higher than us.
After adjusting for one off items, such as a sunseeker resort special charge of 35 million the employee recognition bonus of $9.3 million and the $5 million loss on extinguishment of debt per quarter was strong and encouraging going into Q4 and 23 as well.
Turning to our balance sheet, one important point to make regarding our outstanding debt given the interest rate outlook.
The fact that we are 83% fixed and only 17% floating.
Are floating rate that is all secured by aircraft and primarily shorter duration or less than five year maturities.
All this death is very flexible prepayable and refinance symbol.
Equally important our current maturities early 8% of our outstanding debt.
In regards to a hurricane Ian was struck on 928, we are currently operational that all Florida airports.
<unk> the only airport shutdown posted in.
But flying resumed October 6th.
Our team is that a fantastic job relocating aircraft pre and post in allowing us to become operational faster than expected even.
Even better are traffic volumes returned to normal within 14 days of reopening.
Southwest, Florida is incredible and the resilience never ceases to amaze and is further validation of a sunseeker story.
So, let's seek resort Charlotte Harbour survived hurricane Ian which some have referred to as the worst storm to hit the state without any damage, except from falling cranes or unfinished parts of the building, which allowed water intrusion.
We believe all stored storm damage to the resort is fully insured including business interruption.
The initial estimate of damage determined by the insurance carriers was $35 million, but this amount is subject to change after further assessment and understanding of impacted supply chains.
We have estimated the opening of the resort to be delayed roughly 90 days <unk>.
As a result, we've pushed the beginning reservation acceptance date or opening date from May 26th 2003 to September one of 23.
Given all to all the it system upgrades happening throughout the company and touching everything we do we knew 2022 and 20 through three would be foundational years for our company and transformational at the same time the.
The effort put in by our team members has been nothing short of exceptional does complete change out would take decades for some to achieve and never contemplated by others, but our team members will accomplish the impossible in two years <unk>.
Certain upgrades will allow us to take full advantage of and more seamlessly integrate our Viva air boost partnership while not a certainty we believe all necessary approvals will be in place, including category one status in Mexico, and the first half of 2003.
Or Viva partners recently reported an outstanding Q3, extending their compelling growth story.
Because of the upgrades, we will be able to take full advantage of the partnership and the opportunities that offers in conjunction with the necessary approvals.
And the Q2 earnings call I made reference to ongoing negotiations with our pilot.
Personally involved in those negotiations and progress is being made on a weekly basis.
An arduous process that frankly, it takes longer than it should.
We will get a deal done that works for both parties that recognizes the value and contributions of our pilots and the importance of maintaining our business model, we expect significant progress towards that end over the next couple of months.
Thank you to our incredible team members for their passion and stamina, you have shown not only in the quarter, but throughout the year and with that I'll turn it over to Scott Sheldon.
Thank you John and good afternoon, everyone before I touch on third quarter results first wanted to say thank you from this management team and talk to all of our team members and partners shopping network.
You referenced throughout the third quarter, and particularly through the devastating hurricane that impacted southwest Florida in late September were tremendous R.
Our ground maintenance and flight crew volunteers enabled and movement of nearly 25% of our fleet countless passengers well in excess of 100 team and family members out of our Florida basis, My hats off to you for an outstanding effort.
A few quick comments on the operational environment before I touch on labor.
Continue to see improvements on our operational performance on all fronts during the third quarter.
It was a relatively clean quarter and that it wasn't solely dominated by labor and stability.
As discussed on prior calls our network is more complex and disburse than it was in the third quarter of 19 <unk>.
<unk> three years scheduled departures were up 8.4% and our crew base growth and aircraft growth of 21 and 31% respectively.
This month, we plan on opening our 2004 crew based in Provo, Utah up from 19 basis in 2019, the breath of our operational footprint requires individual basis to operate a standalone franchises.
And to drive high completion factors in on time performance, we need to see some.
Significant improvements in dispatch reliability, an unplanned absence trends.
We remain cautiously optimistic, but we are seeing nice traction on both fronts. We ended the quarter with nearly 99.5% controllable completion and a 14 production of just over 70% through the end of October .
Uncontrollable factors, such as air traffic control staffing and flow control programs in the Florida will continue to be on time performance headwinds, but we hope to see substantial reductions in our ups cost as we move into 2023.
Moving on to pilots, we're happy to report we entered into our first exclusive pilot pathway program with Spartan College of Aeronautics in Denver, Colorado. This exclusive program to be branded altitude will be a closed loop partnership customize for perspective, Allegiant pilots and is expected to produce upwards of 250 pilots annually.
The program matures.
Details in a formal joint announcement are still to come but we're excited to secure a direct pipeline for future growth needs.
And the last thing I would like to touch on is our efforts to ratify a new contract with our pilots and ratified agreement is and continues to be our number one focus and is critical to the long term success of the Airlines is Jr. Mentioned, our team headed up by the old Man himself more Gallagher continues to meet in person with diabetes.
And good progress has been made over the last three months.
<unk> must be the right environment continues to be incredibly volatile and since January we past seven comprehensive proposals for IBD consideration.
Our proposals touch on everything from rates right guarantees retirement scheduling work rules and quality of life and hands Hansman all of which Directionally reflect other domestic air carrier cba's better than ratified since the beginning of the year.
A newly ratified contract coupled with the roll out of our out to two pilot pathway programs sets us up nicely for the introduction of our new Boeing fleet in the back half of the year and into 2024 hope.
Hope to have something to report in the not too distant future and without will turn it over to Scotland, Angela Thanks, Scott Q.
Q3 saw sustained strong leisure travel demand for allegiant across both the web traffic to Allegiant dot com and passenger segments bug.
Just as we saw during the pandemic and as we're seeing again in the face of negative economic factors threatening to impact consumer discretionary spending our direct to consumer distribution approach gives us an advantage by enabling us to stay close to our customers and engaged with them and ongoing two way communication to ensure that.
The Allegiant brand is top of mine at addressing the two most important buying factors for leisure travelers low fares and nonstop flights.
During the current economic climate, we're seeing our brand proposition, what we positioned as living the nonstop life to affordable accessible leisure travel resonate more than ever to attract new customers and retain existing ones.
Year to date total visitation to our website remains up by nearly 30% versus 2019, and new first time visitors are up by nearly 50% versus 2019 and.
In addition, the number of new customers booking their first Allegiant flight is up by nearly 25% versus 2019 levels. We.
We also continue to see the strong positive impact of leisure travel from the unprecedented number of baby Boomers, who retired the past two years and now have the discretionary time to travel more year to date, the number of new Elysian customers ages 60 or older is up by more than 60%.
Versus 2019 levels.
As a reference last quarter are addressable customer audience continues to grow as more new customers consider allegiant for their leisure travel needs, they're seeking relief from sky high fares as well as avoiding the risk inconvenience and time associated with connecting flight through crowded airport hubs.
This past week and a survey of customers, who fluids Allegiant. This year, we ask them, whether economic considerations, such as inflation gas prices and recession fears would make them more or less likely to consider applying with allegiant again in the next 12 months.
Among those customers who are traditionally flown most often with southwest Delta American or United more than 40% said they are more likely to consider flying with the Legion in light of these economic concerns and.
In particular.
For those customers, who said they have traditionally fallen most often with American or United nearly 50% said they were more likely to consider flying with the Legion this upcoming year.
Also noteworthy coming out of the survey was getting a deeper understanding into their reasons for travel among allegiant customers in 2022 to date.
About 15% are flying for combined work and leisure representing the first time, we've seen the materials segment of our customer base and this growing believes your category.
Also nearly 60% of leisure only allegion customers are flying to visit family and friends and as we've noted in the past 15% to 20% depending on the season are flying to a second or vacation homes.
Each of these customer travel occasion types represent what we believed to be the most resilient forms of leisure travel during economic downturns and to that point looking forward web searches for applied staring virtually all upcoming weeks that travels through March of next year remain between 10% to 40% above last.
Tears flight search levels at the same time.
Beyond the growth of new customers to allegiance, we're also retaining customers and growing customer value at our greatest levels ever. Thanks to our award winning loyalty programs USA today readers Choice Award advanced airline credit card to the always Allegiant World Mastercard for the fourth consecutive year.
And its inaugural year always rewards also claim the top spot as best frequent Flyer program in the nation. They.
He always Allegiant will Mastercard continues to post record setting months in terms of new card sign ups averaged spin non card in total compensation to allegiant, most notably however may be that above and beyond the programs third party revenue and profit stream or cardholder base of nearly 400000 currently drives about 15% of.
Total error and error ancillary revenue and the level of spend by this group on air near ancillary has grown by more than 350% since 2019.
Similarly are always rewards program has about 3 million active members who account for about two thirds of all your total air and air ancillary revenue.
And one year into its existence, we're already seeing these members spending 34% more on average per itinerary bulbs and booking 28% more frequently on average compared to non members having.
Having the vast majority of our revenue linked to customers and our loyalty program is not only positive in terms of retaining these customers in this revenue, but also helps motivate these customers to attach air ancillary in third party products, such as hotel and rental car at a greater rate.
In closing, we believe allegiance unique brand of low fares and non-stop flight remains a compelling distinct the value proposition, especially in these uncertain economic times that is attracting new and returning customers alike in record numbers, who are engaging with our popular loyalty programs and making allegiant their airline of choice.
And with that I'll turn it over to the drove thank you Scott and thanks to everyone for joining us this afternoon.
Third quarter revenue was tracking nicely to come in a bit above the original guidance of plus 29% versus the third quarter of 2019.
However, due to hurricane in we lost approximately three and a half million dollars in revenue to finish the total revenue plus 28.4%.
Similarly, we lost one point, a scheduled service capacity to finish it plus 17%.
The resulting in $12 six zero try them in the quarter is the best third quarter since 2008.
Perhaps most importantly through an immense amount of communication and collaboration the planning and operational groups have done an incredible job balancing the needs across the enterprise to set the operation up for success and we're excited about the improvements we've seen on that front.
There are generally three distinct pre hurricane periods to the third quarter.
Summer weeks were marked with lower growth and strong demand that was strong unitize metrics.
The ensuing for weeks or roughly 45% ASM growth and high rates of cash positive flying and while unit revenues were relatively challenge due to the growth they were still positive.
The rest of the quarter until the hurricane was likely to starve the quarter based on relative outperformance.
ASM growth was elevated between 25% to 30% traveling growth still perform in the double digits in September load factors were the highest since 2011.
With long theorize, the changing dynamics of leisure and hybrid travel should lift the floor on September and other off peak period, and we're pleased with how that is manifested through the first trial.
Scott touched on the emerging significance of hybrid traveled to our business and everyone. Around this table believes in the structural shift of both how travels value as a life experience, but also how our business model meshes, so well with that ship.
Despite the relative September strength the growth came from the quarter was still unit revenue headwind.
If weekly ASM growth through the quarter was the same as the average peak summer growth rate, we'd have expected to perform about five five points better on a year over three year basis.
With the unbundled approach to itineraries that we employ.
Tried to balance the approach to maximizing total revenue per flight generally ensuring that we are capturing the ancillary piece, where inventory allows and pushing yields where demand is the greatest.
As a part of this balanced we accomplished monthly record total revenue per passenger in both September and October on top of load factors, we hadn't seen since the early part of last decade.
The step up an ancillary per passenger during the third quarter was essentially in line with the second quarter at 17.9% again, driven by success there bundle the ancillary products and the always Allegiant will Mastercard program.
And the fourth quarter should end at approximately $70 per passenger.
While we won't see much incremental upside in this quarter, we will begin to adopt new to us Airbus aircraft aircraft and the 100 AC Allegiant extra layout. This month, gaining three tales by quarter, then at two more shortly after the new year.
Throughout 2022, Allegion extra returns on the four initial aircraft currently in service continue to widen the gap on both the required hurdle rate for positive contribution and the performance for his previous years.
We are ecstatic to make this available to more customers and the kind of quarters.
Zooming out a little bit we expect total revenue for the fourth quarter to be up between 26, and a half and 2008.5% year over three year with scheduled service capacity up 15%, implying miles sequential traveling acceleration at the midpoint.
And while ASM growth is a bit flatter throughout the fourth quarter versus the third two primary headwinds remain.
3% due to hurricane Ian and roughly one point due to incremental off peak days in Hollywood holiday timing how.
However, despite these headwinds the fourth quarter will buy for the highest travelling any quarter and Allegiant history.
And with that I'd like to turn it over to Greg.
Drew thank you and we appreciate everyone joining us today and of course, a special things to team Allegiant. We are extremely proud of the amazing work you continue to accomplish.
So operational stability has been one of our top priorities in third quarter results did not disappoint.
Controllable completion for the quarter of $99, 4% was 2.1% higher than the first half of 2022 and very much trending in the right direction.
However, as we were closing out the quarter, we experienced an uncontrollable disruption as hurricane Ian Rip through Florida.
First and foremost our heartfelt thoughts are with those impacted by the storm is announced earlier. This week, we deepened our partnership with the Red Cross to support the recovery and rebuilding of this area.
When Ian made landfall in southwest, Florida devastated the surrounding areas, including the Port Charlotte <unk> area.
This is home for us in many ways has proved to gourd is one of our largest aircraft basis in port Charlotte is home to our Sunseeker resort over 550 Allegiant in some secret team members live in and around the surrounding areas. We are grateful to report that all of our team members were safe and accounted for although the recovery for many of them continues.
We estimate the hurricane headwind to our operating margin to be one point and three points in the third and fourth quarters, respectively.
And regarding the damage to the resort, we still have limited information, but preliminary estimates suggest approximately $35 million a physical damage primarily caused by sub contractor creams hitting the buildings.
We believe we have ample insurance to cover these estimated damages and from an accounting perspective gap required us to record a preliminary loss estimate of the $35 million, which will be offset in subsequent quarters as insurance proceeds are collected so if we exclude the $35 million or adjusted operating income for the third quarter was $13.5 million.
Up to 4% off margin and.
Prior to the Hurricane in and is drew explained revenue for the quarter was on pace to exceed our initial expectations.
Absolute costs were down 8% from prior quarter aided by a reduction in fuel costs and our third quarter fuel cost per gallon was 385 was generally in line with our initial guide.
Our unitize cost excluding fuel recognition grant and that 35 million Hurricane Ian special charge. It came in at 761.
13.9% versus the same period in 2019 on 14.5% ASM growth and this just increase was largely driven by four points of labor productivity three points of inflation and four points of aircraft utilization.
Aircraft utilization is measured by block hours per day with $6 four hours per day during the third quarter.
When you compare that to seven four hours during the same period in 2019, and so we estimate of one hour increase in utilization per aircraft per day would have reduced our unit cost by half a cent.
Turning to the fourth quarter or guidance issued today suggested adjusted operating margin of 8%.
And that's it for the fourth quarter and meaningful improvement sequentially and this assumes an average of $3.75 per gallon of fuel and based on system ASM growth, 13.5%, we expect chasm X for the quarter to be up 14% year over three.
This increase is summarized as follows one inflationary pressures that our airports and the service providers roughly four points to lower aircraft utilization should drive roughly four points and three labor lower labor productivity should result in another two points of this increase.
As we look towards 2023 uncertainty remains of around fuel price level of supply chain and OEM delays and pilot constraints and as such we are not prepared to share specifics on our twenty-three budget plans, but will provide some high level thoughts overall.
Overall are 23 2023 priority is to continue improving margins, which we have line of sight on a couple of important steps in helping us get theirs first operational stability, which is not only paramount for our team members and our guests, but will also improve financial results. This is underscored by our year to date expanded total eyedrops.
Which is $60 million more than than all of 2019. In addition, we are seeing improved reliability has naturally help with cruise stability by reducing the number of unplanned Absinthism singles.
Second securing labor contracts were active in a good contract negotiations with our pilot and flight attendant groups. We have terrific crew members improving communications upgrading systems are getting a new contract. They deserve our top priority. While these new deals should have a headwind to absolute costs, we expect them to increase the momentum and achieving staff staffing levels and restoring.
Our ability to optimize aircraft productivity and speaking of aircraft. Our internal teams continue to pace nicely with our plans of being ready to take delivery of our 737 Max aircraft order. We are excited to bring on the Max aircraft craft, particularly as we believe they will bring a 30% earnings advantage compared to our <unk>. However that the delivery timing from Boeing is <unk>.
<unk> to the right a few months, we accidentally expect three of the aircraft next year with the first one now not expected until October of 2023.
With that backdrop, we want to reinforce reaffirm our current plan of 2023 ASM growth to be around 10%. This in no way suggests demand is weak in fact, we continue to see very strong demand. We will however continue to keep a close eye on the consumer as the fed is still far off from achieving its target goal with 2% inflation and is raising interest rates at unprecedented speed.
Which leads into some recent that transactions that have greatly derisked R capital stack during the third quarter, we carefully time, the market's by extending our $533 million term loan maturity from one year out to five years. This was with the $550 million secured bond offering.
Offering was six times oversubscribed and priced at a fixed rate of 7.25% and interest to be paid on the new bond is expected to be less than the pre existing loan given the high rising rate environment. In addition, and as part of this transaction with security <unk> $75 million revolving credit facility with Barclays.
Such we expect to end the year with $1.2 billion in total liquidity inclusive of cash on hand, and Undrawn revolvers. This is more than two times or liquidity on hand prior to the pandemic.
It'll that inclusive of finance leases is expected to end 2022, roughly 2 billion, which applies 1 billion of net debt.
Last month, we drew our final tranche from our 350 million dollar loan with Cassel linked to fund some seeker and that's at a fixed interest rate of $5, 75%.
Also during the quarter, we secured $200 million in financing for our upcoming PDP commitment commitments with Boeing we were really pleased to find standalone PDP financing, which didn't require long term financing commitments for any aircraft. This will provide us with tremendous flexibility in managing the balance sheet as we take delivery of those aircraft and 23 and 24, while also now.
Advocating the interest rate environment.
We are fortunate to have a fleet plan with tremendous flexibility and in the event of extended delays and delivery of our 737, Max order boot, we could adjust timing of our a 320 retirements <unk> take Additionally aircraft from the used market to meet our network requirements. In addition, we are valuable options for up to 50 additional 737 Max aircraft for delivery beats.
<unk> 2025 in 2028 and.
And as mentioned last quarter, we decided to hold three aircraft and storage this year and place them into service in the first half of 2023, just change means we will end 2022, with 123 aircraft and service and with that I'll take your questions.
Thank you at this time, we will conduct a question and answer session. As a reminder to ask a question and you will need a quest star one one on your telephone and wait till your name to be announced in addition, we ask that you limit your questions to one question on what the follower.
Please stand by while we've compiled Q&A roster.
Mmm.
Our first question comes from the line of Savant thesis at Raymond James.
Your line is open.
Alright, Thanks, good afternoon, everyone and I just kind of curious if he could add provide you save a little color on seeing your career level the nutrition levels improving.
And as you can I think about 2023 is inaccurate expecting an improvement in 2023, how much of that will be offset by having taken a higher <unk>.
And train ahead of the Max kind of coming into the fleet.
Hey, Salve this is zoning Sheldon.
I appreciate the question.
There's certain months definitely throughout 22, where we saw first officer attrition specifically.
Reached 30% on an annual basis.
If you look at the compliment of pilots throughout the system.
It's running about 15%.
We've put in more than 350 folks through the school schoolhouse this year.
If you look at the net seniority list increase were up about 135 folks so.
That's a lot of soreness rash in order to sort of get ready for the for the introduction of the of the Boeing fleet.
That being said what's the.
The launch of a pilot program and more importantly, we gotta get a deal done.
At the end of the day, our rates are so far underwater.
I think directionally, we know or the contract needs to be.
We're just plowing through as quickly as we can so.
I think aspirational, we want to have courses of 25 each month.
Which should more than offset any sort of attrition.
But that's that's sort of how we're looking at modeling this into 2003.
Okay and Savviest Craig on your question around the costs headwinds from incorporating the Max aircraft now where we're looking at today 2023, we would expect that to be roughly 1.05, the chasm X headwind 24, I think where it would hit the top there would be about one zero sense of <unk>.
That that's super helpful. Thanks highlight color anti might.
Fuel efficiency sign it it seems like the <unk> of the Airbus fleet hasn't really been showing up and.
Wondering if you could just provide a little bit more color and what the trend there might be.
Hey, sure Savviest, Greg Let me, let me take that I think overall the.
But we target the fuel efficiency on the <unk> hundred thousand fleet to be roughly like 86 asm's per gallon.
It also has impacted season by season, so by a quarter of the third quarter is generally the hottest in.
So that will be the lowest are less efficient least efficient quarter in terms of asm's per gallon.
So we're I think we're going to end the year is probably 84 ASM per gallon I would expect that a little bit of step up next year in 2023, and then once we take that the Boeing aircraft at the heel roughly mix.
Mixed in the fleet that those are mixed between the two types of 700 8200. Thank you are about 110 asm's per gallon. So I'd like to see in 2024 via closer to 90 Asm's per gallon and been in 2025, when we have more on.
Filling above the 98 cents per gallon.
Okay, well thank you.
Thank you.
Our next question comes from our next question comes from the line of Duane <unk> at Evercore ISI. Your line is open.
Hey, Thank you for the time.
So your your guidance.
Imply some sequential improvement in margins from <unk> and honestly, we haven't had a lot of time to.
Dissect the special bonuses that charge, the hurricane charge, but it looks like X all of that you still.
A loss of money, which is which is historically unusual for allegiant.
What would you 0.2 is the biggest drivers.
Of your loss and and three Q and what are the fundamental reasons, you see margins getting better.
Is this really about like.
We're gonna be chugging, along your at similar levels until you guys have more confidence in your ability to flex up in the peaks.
And I would love your comments on if you think that confidence is increasing yet.
Okay. Duane Thanks for the question is Greg why don't I kick it off here and that others. So I'm sure want to jump in but.
I think in terms of the sequential improvement in margins.
The fourth quarters is stronger than the third quarter seasonal east. So we should see strength mess it helped drive revenue.
Some of the tailwind that we should see as well as operational reliability third quarter was did we did a nice job there, but as Steven.
Training much better and to the fourth quarter.
Some of the headwinds I think through pointed this out in the fourth quarter was was still lingering as a hurricane and.
We have some of the sunseeker operating costs that are have been trending up over the quarters as we get closer to.
To opening as well.
I think what I would say, though as we think about like optimizing aircraft utilization.
And how we get there way Scott mentioned the focus on labor, but also with the operational reliability improvements we have seen a reduction in unplanned crew absences and sick time, which if you think about that and you take that cruise stability that can give you more of an opportunity to.
Increase utilization in those peak periods candidly this year, we've kept our peak periods and Thats, whereas you I know Dwayne followed us for so many years, that's where we make most of our money I think in March in the summer, we make 60% of all of our earnings and those peak periods, so having that cap.
And.
More difficult for us to produce those type of results, but we see line of sight and getting back there and as we mentioned with.
With operational stability, that's the first step and then we'll continue to layer on any kind of.
We lose a torque up utilization.
Utilization, where where we can and where it makes sense at the right time right an appropriate time.
He'll pause there through that anything anybody else.
Did that help doing it that we miss anything.
I appreciate appreciate those those thoughts.
And then just on just on Capex I think we can back into the remaining spend on sunseeker next year from the from the disclosure that you have.
Can you just remind us.
Total aircraft.
Capex and maintenance related Capex you'd expect next year.
Hey, doing it's Craig.
That's a great question and what a.
Caveated with us it's just it's fluid at this point given the uncertainty timing around Max deliveries not only 23, but as you know a big part of our Capex is going to be PDP payments and trying to understand all that between for the entire order. So what I will say is where we sit today I think.
Capex next year as a floor should be at least $500 million. So I wanted to say will end this year $350 million for the airlines. So for next year, the airline will be at least $500 million, but what I would want to say, maybe it but BJ on the spot here, but as PJ to add some color because of that Capex I think he's done a really nice job of making sure we have the appropriate <unk>.
Dancing to supportive PJ anything you want to add.
Maybe just to win the moving parts are of course, the actual delivered it to Boeing airplanes light Greg mentioned, the 2024 schedule impact PDE Capex and 23, and then there's a couple of other things in there.
Whether or not those first deliveries of those those early deliveries in 24 end up being Mac sevens or Mac AIDS.
And then finally, just just movement and used a 320 acquisition that we may need to bridge that gap.
Okay. Thank you very much.
Thanks.
Thank you.
Our next question comes from the line of Michael Lindenberg from Deutsche Bank. Your line is now open.
Oh, Great Hey, good afternoon, everyone, Hey, Greg I want to go back to.
The 8% adjusted operating margin that you sort of threw out earlier on the call.
Is that incorporating like the three points from in so we should be thinking more like a five point margin.
5% margin X N or are you rolling that through and then also just the employee recognition P. Some I know you call it out as a special for the last two quarters.
Is that going to feature as a cost item in.
In the fourth quarter, because I know you don't include it in chasm. So we just trying to get to that 8%.
Any color thanks, Sir yeah.
So for the fourth quarter I've said, he adjusted off margin of 8% will exclude that recognition or the bulk of that recognition bonus and I'll tell you here why in one second Michael but it would include the impact of a hurricane Ian So save.
Hurricane and it would be 11% if that makes sense.
The reason and the reason we excluded this year the recognition bonuses, we've had a policy for many many years too.
You would have to achieve a 5% operating margin before we started accruing.
Opponents profit sharing for our team members given this unique environment from labor across all of our team members and they're just going above and beyond we wanted to make sure that we did the right thing and we accrued and.
Bonuses ready for them irrespective of where our profit came in or lack thereof.
He'd say that next year, what we're going to pull that out next year, when we expect to be back to earning again and providing profits, we're not going to peg it to a recognition grand it's going to be based on profitability and we would not exclude that in chasm.
Okay that that helps and then just a quick one two drew on on capacity fourth quarter, you mentioned, 15% I think the schedules are still indicating a bit higher than that so I guess, we should be we should assume that we're going to see some additional cuts through through additional filing schedules over the next month or so.
Is that is that accurate.
I think essentially we just need to file the changes that have been made things that happened around and we'll never be reflected in India or other public sources, because they were so close in okay.
Second impact there.
I think I think we're scheduled I thought we were going to have this last weekend I think a new filing is coming soon.
The deal will remain or public forums remained slightly elevated just due to those closing cancelled associated with your fair enough. Okay. Thanks, Thanks, everyone for answering my question.
Thank you.
Our next question comes from the line of Scott Group at Wolf Research your.
The lines are now open.
Hey, Thanks, good afternoon. So.
I wanted to see if you have any thoughts on chasm next year. So if asm's are up about 10% sounds like maybe you will be expensing. The employee recognition, maybe you get a new pilot deal.
Are you thinking about chasm X next year do you think it can be down on a year over year basis and any directional color.
Hey, Scott, It's Craig Yeah, maybe just directionally and we're still in the process of budgeting for 2023, so I want to be careful and not get the two specific here on where we expect chasm X to be.
You mentioned that 10% ASM number that we have of course mentioned as well I would say that growth is generally you should expect that to be back half of 23 loaded. So the first half is going to be.
Limited ASM growth.
Or generally flat.
And I would say some of the tailwinds or at least a big tailwind in 2023 vs 2022 to the unit costs will be the higher ups being down right I think that should be super helpful and that some of the headwinds.
Are savvy asked early on Boeing incorporating the Boeing aircraft. So that's about 1.05 <unk>.
<unk> next headwind you have fte's her up with the exception of pilots to kind of support this infrastructure to be larger I mean candidly a year ago. At this time, we thought at 2023 would be 20% larger than we are going to be.
But we have that infrastructure in place and as we kind of loosen up and get.
The pipeline is Scott Sheldon.
Sheldon mentioned with the pilots coming in and the ability to kind of makeup utilization and growth. The good thing is where spring coiled and ready to go and so we have that foundation in place and then at some point I think you can see nice growth, but I wouldn't expect that to even begin happening until the back half of 2023 and again, that's gonna be contingent.
On a labour Gilby done are likely being done and then.
And then it just <unk>.
Everything I talked about here directionally that doesn't assume.
<unk> and.
And the cost, but I would say for an internal forecasts assess what we're expecting or building that in for our forecasts, but I don't want to give numbers and negotiate publicly if you will.
Yeah.
And so.
Your guiding to margin improvement next year.
Planning that feels like double digit margin is.
Tough to get too, but let me know if you think differently, but.
I guess, what is the path to getting back to double digit margin.
<unk> margin, which you guys have consistently used to have how do we get there.
Yes, it's a great question, let let me kick it off here again.
I would say and I keep saying it off stability getting rid of ire up that's got to come out of the business $60 million incremental and total higher up cost this year versus 2019. So that's one that stable officers. We mentioned is stabilizing ops that gives us cruise stability. So we could pick up more so we could fly more than those P series, which is the most profitable time for us to fly so that's too late.
Deals getting done which helps with utilization with growth. That's three aircraft the aircraft for bringing in if you think about 2019 are we talked to EBITDA per aircraft of 6 million per share of shell to 321 86 feet or even the 320, that's going to be a legion extra that we that has a earnings potential of $7 million of EBITDA per copy. So we think for.
And know that along with a 30%.
Economic advantage of the Boeing aircraft is going to be key there as well Ah cost discipline, you know like as I mentioned, we're going through the budget and a <unk> a big theme here at Allegiant This year to make sure that we're cutting out any unnecessary costs, but.
But we can support the opportunities that we have ahead, and maybe I'll pause and North Korea, Scott one hit on some of the commercial initiatives such as systems that like <unk>. I mean, we think these can clearly drive.
Earnings potential or drive margins higher not to mentioned loyalty and everything that's happening on that side of the house as well.
Anybody else Lynnette.
Okay great.
So that.
That is okay.
Okay.
Go ahead, if you have more that go ahead. Please.
No I think that I waited fly probably just took too much time to answer for everybody as I apologize, but but.
Yeah, I think that covers kind of where we wanted to hit.
Thank you guys appreciate that that's.
Thank you.
Okay.
Our next question comes from the lineup Andrew Dora from Bank of America. Your line is now open.
Hey, good afternoon, everyone, John or Greg.
And the release you highlighted.
Suspense, Joseph Google up a suspension on the existing buyback obviously, all the government restrictions are lifted at the end of September .
Curious how do you think about Alec capital allocation today not that these restrictions have been lifted and would you consider buying back stock before say getting a new pilot Gilf just just curious your thoughts there.
We're not going to try to predict timing in that regard I think.
<unk> wanted to.
Make sure that the capital allocation strategies, we had.
Okay.
Past.
We open those back up as soon as we are able to do that which is why they are they lifted the restriction that we put in place due to the cares Act.
So now we no longer have that.
You know that restriction if you will so we do have the flexibility to do what we historically have done past going forward trying to predict timing you know, we're not we're not going to try to do that here.
But it but it is nice to have but those were stick restrictions gone.
Understood.
And maybe.
For Scott the Angelo or drew.
I think a lot of your LCC peers have some pretty aggressive goals for their non ticket revenues over the next few years.
Just curious what do you think your opportunity is for non ticket and how do you think about the tradeoff between ticket and non ticket.
I'll kick it off here drew here.
I think in the last call you talked about an incremental $10 being quite plausible over the next five or so years I continue to believe that thats, a very firm target.
There's a number of initiatives, Greg hinted at in Avatar and that alone marketing capabilities for us on the ancillary side that we have not had.
Internally.
Really in the history of Allegiant.
Provide a lot more flexibility in terms of how we approach.
The ancillary program I think we've been dynamic we're capable particularly around seats, but in other areas like bags, we've been fairly handcuffed by our own doing and can really unlock a lot there.
We're pretty bullish on that Allegiant extra Rodolfo mentioned, which will drive a lot to the steep line Greg.
Greg mentioned.
Can take the <unk> hundred 27 million EBITDA per copy if we can return to some of the 19 bandwidth.
Beyond that we have a lot of I'll kick it over to Scott you're going to hear a lot of the co branded stuff in and some third party elements that he can.
Yes, that's exactly what I would add to that and things for the question.
The next point as Morry would put it up he was in the room is selling outside the aircrafts so even.
If there are capacity challenges.
Part of the <unk>.
The transformation that the.
John spoke about.
Includes really being able to add hotel inventory beyond just Las Vegas, where traditionally we have been strong.
But also to streamline the buying and the adding of hotels and rental cars.
To be at parity with leading Otas switches is something we don't currently have but we'll have.
In the near future so.
Additional hotel and rental car.
The sales in addition, what drew says I think.
Helps us outpace from a revenue perspective, I think maybe just some closing the idea is not to just.
Focus on ancillary as the opportunity, but the base fare as well so.
Everyone can deploy a different strategy, if you will on getting to a larger total average fare.
As we get there it's not strictly a focus on ancillary, but a focus on our base here as well.
Alright, thanks, everyone.
Thanks, Andrew.
Thank you.
Our next question comes from the line of Daniel Mckenzie of Seaport Global Your line is now open.
Oh, Hey, thanks, guys.
Couple of questions here.
Just following up on an earlier question on CASM X for next year.
Should we be including the upfront sunseeker cost and that cost outlook and the reason I ask you just because there's there's no real offsetting revenue.
You know until that opens I guess now September 1st or I guess, maybe if you can provide some perspective on it.
At least how you're initially thinking you report that.
And then more broadly.
Just going.
On this on this point of expanding margins for next year.
I'm just wondering if you can elaborate a little bit more on that you know what kind of economic scenario does that contemplate I think Bloomberg has.
So theres, a 100% probability of recession, I think the market's assuming 60% so.
If you can just elaborate a little bit more of that on those topics that would be great.
Hey, Dan Thanks, It's Greg why don't I kick it off I'll try and hit them. Both on your Sunseeker comment next year, we're going to segment report. So we'll break all that out so youll see it separately. So we're planning to kick in that next year in 'twenty three.
And then in terms of just as we're thinking about next year I think.
In the face of a recession to get to your 0.1, we focus on leisure customers with generally it's a stickier or we've kind of historically been a stickier customer base Scott the annual I think mentioned in his opening comments, 80% VFR and second home, which if you peel that onion back a little bit on the leisure customer I think thats, probably even more sticky right.
Think about it from that perspective to measure growth, we're growing up to 10% next year I think drew and team are planning on that to be in existing markets. So derisking that type of growth.
And then we have our flexible model the network that their direct distribution, but overall I mean with that.
The capacity is somewhat constrained and where GDP.
<unk> 2019, more so than even the industry and are we seeing even if a recession were to come in there is some headwinds to the consumer that we can continue to continue to stimulate demand and we're going to be just fine and I think we're better.
As well if not better positioned than most other carriers, where we sit today given all our unique facts and circumstances.
Dan maybe just to elaborate a little bit on the sunseeker piece.
You asked about <unk>.
You will see.
We're incurring now and Youll see next year is primary level preopening.
Alright, So next year, we'll blow out all the remaining part of the leading up to the opening of the resort and most of that will skew in Q3 of 'twenty three.
We'll have of course in the first two quarters, but most of those Q1 of 'twenty three.
And we will share with you what that number is in Q4, when we when we finished the quarter, we'll break it out let's not that number is and then give you some thoughts as to what the order of magnitude is forward for all of us.
All of 'twenty three the other thing of course that will impact that as the blade opening.
Preopening is larger just to delay, but having said that we would expect to recover some of that through insurance as well so a lot more.
The guidance if you will on that we'll share with you.
After Q4.
Yeah, that'd be terrific okay.
Thanks, you guys.
Second question here for I guess, Scott the Angelo total visibility visitation pardon me to the website was up 30% versus 19.
To what extent is this data feeding into your revenue management systems or at least informing how the revenue management system should work.
And is the reference.
Go ahead, I'm, sorry is going to follow up with one more and then I'll go ahead and finish my apologies.
I was just going to ask the reference to the to the up 30% versus 2019 and kind of the second part of this question.
Is that.
Our best indicator of pent up demand as we think about the 2023 revenue picture or does it really more reflect the leisure referenced earlier in the script. So a structural change in demand so kind of a two part question.
So I'll take the second part first and it's the ladder, we think its structural demand.
Commented versus 2019, just to keep it consistent but I'm happy to share. Our total web users were up by 34% versus last year. So you actually see it gaining steam so that suggest structural as drew had mentioned and then on the first question.
Marketing and the revenue management and network planning team do work extremely close, especially as you think about.
<unk> peak.
Being able to grab some of what we might not be able to grab on peaking the peaks as it were.
And so where are we when we drive those users and where we are driving them from market wise.
We do in lock step with network planning and revenue to make sure. Those users are coming at the right time and wanting to fly from into the right places.
Maybe just this is Jerry here this expand slightly on the actual RM model.
It's probably more art than science is integrated into the model, but not in a way that's that's driving significant automated changes or recommendations at this point if they will follow up on the analyst to interpret.
And react accordingly.
Yeah understood. Okay. Thanks for the time you guys.
Sure.
Thanks, Dave.
Thank you.
Yeah.
Yeah.
Our next question comes from the line.
Conor Cunningham from Melius Research your line is now open.
Hi, everyone. Thank you just on the 10% capacity growth. It seems like your size on that to your resources that you have right now, but theres still a lot of issues in terms of aviation infrastructure at TCP and a major problem. Just curious on how you plan on navigating a lot of those issues outside of your own control next year.
Sure. So as we look at next year and really using 22 as the baseline.
<unk> has certainly caused some <unk> issues I wouldn't call. It anything major after probably the first quarters of the year, we started a little bit through March didn't really feel a material impact for the summer outside of like I mentioned, some in 2014, not a lot of cancels being driven by that so at this point, we're not restructuring our network plan.
<unk> our schedule around that.
I think similar story on TSA and other infrastructure issues.
There's probably one offs.
We can point to but.
At this juncture I would not plan on material changes to our plan in 'twenty three based on infrastructure that youre referring to.
Okay.
And then just the changing dynamics from like the flexibility you talked about them at all of it in the press release from a monthly standpoint, but.
Some of the other airlines have talked about like day of weeks changing a fair bit and when I think about you guys apparently the apparently fly on Tuesdays and Saturdays and I'm, just curious on how that trend.
It may be changing or how youre looking at that trend now going forward and saying, if you're making any adjustments to your model as a result of it. Thank you.
Yes, I think you hit the nail on the head we don't have a ton of exposure to markets that are beyond two and three times per week.
Where we are running six or more times a week, we certainly have seen some of that same shift to where wednesday's, primarily when they could come up a bit more toward the week average Tuesday still lagging a little bit behind that.
I think it necessarily changes our philosophy at all even though we've had the compressed scheduled even on larger markets.
A little bit given the constraints, we have in place and we'd love to be able to restore that and take better advantage, we would be doing that with or without the results that we've been seeing I believe so.
Seeing thing, what you're indicating but it's not something that needs to change our approach in my opinion.
I think the other part worth.
<unk> that came up just the other day as you think about load factors exceeding 90% booked that kind of implies more than just your peak patterns that are that are booking right. So instead of just a heavy Friday Monday Thursday Sunday weekend pattern.
Coming into the destination you also experiencing those going out of the destination as well as covering kind of the mid week type of travel. So that's more how we will see the dynamic shifts in kind of the dynamic that you need to adjust in order to facilitate book load factor at those levels.
Okay. Thank you.
Thanks Connor.
Thank you.
Our next question comes from Christopher <unk> from.
Susquehanna Susquehanna International Group.
Thank you good afternoon, everyone. So John on the 10% ASM growth for next year what is your.
What is your risk adjusted view on the order book, so, meaning youre contracted to recede.
Aircraft that youre expecting a minimum of let's say why and then on the 10% could you give us some color on the moving pieces there how much youre expecting to come from departures gauge and stage. Thank you.
Well I'll, let I'll let to.
Greg or BJ talked about some of the more of those those kind of details but at the end of the day.
We have an agreement in play.
<unk> with Boeing.
We're not going to renegotiated fuel over the phone.
As we come into more information through conversation with Boeing.
We will react in a way that makes sense for allegiant.
We're just going to stay tuned and see what happens, but right now there is.
No nothing really to add beyond what.
Great and BJ mentioned about about 23 deliveries that we expect.
Because on the other detailed you've talking about sure Chris I think.
On the 10% growth and drew my check me here, but.
No departures are going to lag the ASM growth because it's gauged slightly maybe a point or two.
But we'll get it back on that and we'll see where that comes out with next year.
And then to John's point, but what I would say.
The Boeing deliveries, they're always going to be back half of next year. That's what we're expecting we're eager to get these aircraft in we're planning on it we have a whole team set up and working towards that and as I mentioned, there are 30% earnings advantage with that with those aircraft we.
We have bonus depreciation, which is 100% 2023 steps down to 80% and 24, and then 60% and 25.
That's very helpful for us in terms of offsetting cash taxes as part of our decision making candidly.
We want to get these aircraft in their game changers, particularly in high fuel environment for us but.
We were planning are preparing and being flexible depending on when that time comes but but I don't know BJ if I Miss anything if there's anything else you want to add just to your question on contractual deliveries and expected deliveries.
No.
So we are contracted to take originally 10 aircrafts. During 2023, we have mutually agreed to reduce that to eight aircraft. Shortly after signing the agreement Dallas for.
Some operational reason to help us with on boarding the airplane type.
And then we've now received notice from Boeing that it will only be three aircraft delivered in 2023, and we're still working with them to determine when the five airplanes that fell out of 'twenty three will deliver to greg's point, we want to be made whole on that there are a lot of things we were counting on with those but.
We're not sure they're going to fit into 2020 for us and we'll have to update that maybe on the next call.
Okay, and Greg on the CASM ex breakout for four <unk>.
Much of that 10 points that you outlined do you see carrying over.
Into 2023, and then also I believe you suggested in response to Scott's CASM ex question that you were anticipating some CASM ex relief.
In the second half, which sounds like just a function of where your capacity is expected to be plus these three aircrafts. So is that is that the case and then b is that including a labor deal in that scenario. Thank you.
Yes.
That is not including the labor deal with illuminate what I would say is getting a labor deal done gives us a path to take up utilization or optimize utilization per.
Per aircraft, which I think is really meaningful in my prepared.
<unk>, Chris I think I mentioned every hour increase in utilization per aircraft per day is worth like a half a cent of CASM ex so that that could be a meaningful tailwind for us there.
I think to your question about kind of what's rolling over <unk> costs.
Versus next year into early next year.
One of the things that.
I think that maybe lindenberg was getting getting ahead, but there is going to be the headwind.
In unit cost.
When it comes to.
Bonus accrual is.
As mentioned, we're excluding it this year, but we would add FX and next year, so that would be a headwind.
No.
Unit costs were seasonal depending on just ASM first quarter, we're going to generally have more assets than we would in the fourth quarter.
So that we'd have to take that into account as well.
But yes, I mean I think like.
Yes.
I'm just going to stop there because I want.
Got to be careful about not getting into too much detail and guided before we're ready to because again, we're just we're still working through the budget and debt.
To be fair to that process.
Okay.
The integration from Boeing did you say that was.
Five or <unk>.
Please <unk>.
Thank you and then added in my 24 without a mature one zero cents of CASM ex.
Okay. Thank you.
Okay.
Thank you.
I would now like to turn it back to John Redmond, CEO for closing remarks.
Well, we appreciate it.
Appreciate the questions.
Yeah.
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