Q4 2022 Allegiant Travel Co Earnings Call

February 1, 2023

The conference will begin shortly to raise and lower your hand during Q&A you can dial star one.

[music].

Okay.

Good day, and thank you for standing by welcome to the full year and fourth quarter of 2022, Allegiant travel company earnings call. At this time, all participants are in a listen only mode.

After the Speakers' presentation there'll be there will be a question and answer session to ask a question. During this session you will need to press star one on your telephone you will then hear an automated message advising your hand is raised to draw. Your question Press Star. One again, please be advised that today's conference is being recorded I would now like to hand the call.

Over to your speaker today.

Sherry Wilson. Please go ahead.

Thank you Jonathan welcome to the Allegiant travel company's full year and fourth quarter 2022 earnings call on the call with me today are John <unk>, The company's Chief Executive Officer, Greg Anderson, President Scott <unk>, our EVP and Chief Marketing Officer Drew wells, our SVP and Chief revenue Officer, Robert Neal.

SVP and Chief Financial Officer, 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 and strategic plan.

These 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.

Company cautions investors not to place undue reliance on forward looking statements, which may be based on assumptions and events that do not materialize.

To view this earnings release as well as the rebroadcast of the call feel free to visit the company's Investor Relations site at IR Dot Allegiant Air Dot com with that I'll turn it over to John .

Thank you very much Sherry and good afternoon, everyone I'd like to begin by taking a moment to thank our team members for all their efforts this past year two.

2022 is yet another difficult year.

Operation was hit with countless challenges from Covid spikes to Hurricanes and most recently winter storms, but you stepped up to make sure our customers were taken care of.

Your commitment to safety and service is remarkable and I am proud of how you responded to these challenges.

Do you like your likelihood the news that our CFO Scott Sheldon has made the decision to resign to pursue other opportunities.

I want to thank Scott for his many years of service and dedication to our airline and we wish him all the best in his future endeavors.

Well Scott's departure, Greg Anderson will continue to serve as president and will assume oversight of the company's operational teams.

As you all know Greg has been with the company for more than a decade. There is no better person to take on this role. He is highly respected both internally and within the industry and I have the utmost faith you will execute on the numerous strategic initiatives we have in store this year.

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I am pleased to report that despite the operational difficulties during the first half of the year.

Last half of 2022 is a testament to the success of the challenges we implemented.

We exited the year with a controllable completion percentage of 99, 5%.

Earlier this year I noted, we are margin focused company and with operational improvements margins wouldn't would grow.

This is exactly what happened we saw during the fourth quarter.

We recorded an operating margin excluding employee recognition bonus and sunseeker special charges, just shy of 16% for the quarter and.

In addition, we generated more than $140 million in EBIT EBITDA during the quarter.

Underpinning the strong financial performance is a robust demand environment that shows no signs of slowing.

Fourth quarter <unk> of just above 2014 was the highest quarterly <unk> in company history.

This helped contribute to a record setting total revenue for 2022 of $2 3 billion.

We have great momentum heading into 2023.

In regards to our ongoing negotiations with our flight attendants and pilot.

It is our expectation to have an agreement in principle them with our flight attendants by mid year.

To date, we have reached tentative agreements on two thirds of open sections.

The pilot negotiations are progressing as well with tentative agreements reached on about half the open sections.

In an effort to expedite the bargaining process and secure an agreement in principle the company and the Union jointly requested NMD mediation.

We look forward to working collaboratively on an agreement that our pilots are proud to support while providing the company with the ability to continue to fly a safe and reliable operation and remain positioned to grow profitably.

It is our expectation to have an agreement in principle done by mid year.

Touching on Sunseeker, we continued to make progress towards completion construction crews are back in full force much.

Much of the remediation work related to hurricane and is now behind us.

Further investigation necessitated an increase in total estimated damage related to Ian resulting in additional special charges of $5 million in losses.

We continue to believe all hurricane Ian damage will be fully recover growth recoverable by insurance.

In addition, a significant thunderstorm followed hurricane in in early November prior to Ian damage being fully remediated, resulting in additional damage as well as a small elevator fire in November .

Losses related to these events were recorded in the amounts of $10 million and $1 2 million respectively.

Both events are covered by insurance.

Recorded losses were offset by $18 million in insurance proceeds related predominantly to Ian damages.

As insurance coverage.

Our received during the coming months, we will record. These are special charges offsetting the recorded losses.

Also worth pointing out again, we have business interruption insurance, which we believe will cover the periods may 26th the pre hurricane scheduled opening date. So the opening date of the resort.

Given the delays caused by <unk> and the subsequent storm we pushed the first accepted reservation dates to October 15th of this year.

We're still working through remediation timelines related to the recent storms, but intend to provide a firm opening date at our next earnings call in April .

We have not provided any guidance in the release on sunseeker operations due to uncertainty at this early stage on the opening date.

In the Q1 2023 earnings call in April we will provide guidance on preopening expenses, leading up to opening the resort revenue EBITDA and operating income for the year 2023.

We will also update the final construction budget numbers and a business interruption update to the extent we have information.

We also intend to extend to any of you who are interested the opportunity to tour. The resort in early May Sherri.

Sherry Wilson will be happy to coordinate with you dates and times in April this year.

In regards to our partnership with Viva Air booths, we still expect all the necessary approvals.

Will be in place, including category one status in Mexico in the first half of this year.

As you saw in the release, we are returning to providing annual guidance as we did in 2019.

At the end of each quarter, we will update that annual guidance if appropriate given the results to date and future forecasts.

As a reminder, we will be segment reporting as it relates to sunseeker and 2023.

In addition, we will be comparing to 2022 and not 2019.

We have progressed beyond 2019 results and field moving to prior year or 2022 is a more comparable and relevant and relevant going forward.

In closing Allegiant has a strong history of shareholder returns and I am pleased to report we bought back 377529 shares during the fourth quarter at an average price of $78 94, a share totaling $29 8 million.

Furthermore, our board approved increasing our repurchase authority to $100 million.

This is also the authorization reaffirms the board's conviction in both future results and balance sheet strength with that I will turn it over to Greg.

John .

Thank you and I Echo your sentiment around wishing Scott the best of luck in his future endeavors Eni work shoulder to shoulder for nearly 15 years here, which has been an amazing and fund right. One of the best complements I can provide Scott as the organization is in terrific hands, we have an incredibly strong team with an incredibly bright future.

As announced Kenny Wilbur will take on the interim COO role over the past 20 years <unk> has demonstrated his strength as an operator and as an exceptional leader. Additionally, Tracy <unk>, who will serve as our chief experience Officer Tracy has vast operations experience overseeing both flight ops and in flight as.

Well as chairing our customer experienced leadership team in this new role she will focus on improving the customer centric experience for our team members, while also helping to develop leaders internally and drive organizational alignment.

Finally, and I have to admit it's pretty awesome to be able to say Robert Neal is now our chief financial Officer, and drew wells in our Chief revenue Officer.

The J&J, we're both a plus leaders the best at what they do and that Phil No further introduction as needed given they are already well known to our investors.

I look forward to working even closer with and supporting each of them in their expanded roles.

I've mentioned only a few names the depth and breadth throughout this organization is the best and strongest it has ever been as we look forward to the amazing opportunities in front of us I can speak for the team when I say, we are fired up and establishing Allegiant is the most exciting story in this space.

While 2022 brought its unique its own unique challenges we achieved a lot during the past year, we added more than 900 team members, bringing our total team member count to more than 5630. These teen. These team members enabled us to grow our fleet by 13, aircrafts and slide 14% more ASM as compared to 2019.

The first half of 2022 experienced unique challenges with the omicron spikes. This resulted in labor constraints and unplanned absences during peak leisure travel periods, which led to elevated cancellations. The operating environment had a significant financial impact. This operating environment had a significant significant financial impact of over.

$100 million in Iraq cost, including fuel and crude cost loss revenue and going above and beyond by providing cash compensation to those customers impacted by canceled flights.

To combat these challenges are planning and operational teams worked closely together and refining the scheduled to adjust for this environment. While this came at a cost to aircraft productivity our operations strengthened quickly as the second half of 'twenty two saw meaningful improvement controllable completion was 99, 5% more than two points better than the <unk>.

First half of 'twenty, two and near our industry, leading controllable completion results of 2019.

I am pleased to report these much improved operational results had a positive impact on our financial results the impact from our irregular operations in the back half of the year at a total financial impact of 30 million to $70 million less in the first six months of 'twenty two.

Impressive results were achieved despite the impact to the quarter from the winter storm over the holidays.

Another important element of 2022 is a significant progress we made towards our systems transformation in 2021, we made the decision to move from certain core proprietary software systems to best in class systems, such as SAP <unk> tracks and NAV Glu, we remain on track to go live with the <unk>.

First three of these key systems in 2023 now Blue should follow shortly after such systems have been key investments to more efficiently scale the organization.

In addition, we continued to track ahead of schedule and the incorporation of our new Boeing Max aircraft as we expect our first deliveries near the end of the year.

We intend to place these Max deliveries at our Orlando. These near these early Max deliveries at our Orlando Sanford base and.

And as John touched on one of our highest priorities remains finalizing labor contracts that our crew members deserve.

So far we have put a great amount of effort into updating our agreements with both our flight attendants and pilot unions. It is our goal to get both of these deals across the finish line as soon as possible.

While we are unsure around the exact timing of getting these deals done we have incorporated the potential costs in the back half of the year within our 2023 guidance. Please.

Please realize that the actual increases in costs will depend on the economic terms reached in the timing of the agreements as a reminder, although these contracts will be cost headwinds, we expect them to increase momentum towards restoring staff staffing levels and optimizing aircraft utilization, but we are not assuming any improved productivity and.

Our full year 'twenty three capacity guide Vijay will provide more full year guidance detail momentarily.

We will continue our focus in strengthening the operation and are excited about what's in front of us in 'twenty three as we as we've highlighted on prior calls we have laid the foundation for executing on these items and our teams across the organization are making steady progress on the implementation of the new systems and other initiatives such as labor contracts <unk>.

<unk> Viva and Boeing These leadership changes announced will further support these initiatives as we progressed further into 'twenty three and have better vision on the completion time frames, we expect to host an investor day to more specifically outline expected contributions from these strategic initiatives more information will follow on that front and with.

That I will turn it over to Scott the Angelo our Chief marketing officer. Thanks, Greg fourth quarter sauce continued strong leisure travel demand for Legion across both web and App traffic to Allegiant dot com as well as passenger segments bulk capping off a record setting year for Legion on both measures searching awareness and preference for the Allegiant.

Brand along with our direct to consumer distribution approach continues to give us an advantage in capturing demand by being able to satisfy the two most important buying factors for leisure travelers low fares and non stop flights.

For full year 2020 to 136 million web users came to Allegiant dot com up 24% from 2019.

And notably despite the fact that no new route.

That new route will go through its limited excuse me new web users to Allegiant Dot com were up by nearly 40% from 2019, why because as I referenced in the past two quarters, our addressable customer customer audience continues to grow as more new customers enter the LCC.

<unk> and consider our allegiant for their leisure travel needs Theyre seeking relief from Sky high fares and looking to avoid the risks inconvenience and time associated with connecting flights through crowded airport hubs.

What's more 77% of our Allegiant Dot com users came via our most direct and lowest cost channels. That's direct you Ral are app email marketing or organic search that's up 37% from 2019.

Means we're relying less and less on paid advertising as awareness and preference for the Allegiant brand continues to grow in a scalable fashion based on our fixed investments like Allegiant Stadium, and our live nation partnership as well as our always rewards loyalty programs, both co brand credit card and non.

Card, we continued to outperform expectations with our co brand card program ending the year with more than 400000 active cardholders and more than 150, new cardholders acquired in 2022, that's more than 40% higher than we had acquired the previous highest year, which is 2021.

As a result, the co brand card program drove total compensation of more than $100 million in 2022.

In addition, our non card loyalty program always rewards added 2 million new members last year and now totals 15 million members in 2020 to $3 2 million customers nearly 70% of our total unique transacting customers, where active members of the always rewards program.

And on average they exhibited 39% greater booking frequency than non members and an average spend per booking that was 36 higher 36% higher than non members. This lift in average spend was driven by higher take rates and air ancillary products as well as higher attachment of third party products like <unk>.

<unk> and rental car this customer behavior reinforces the continued opportunity that a lesion has to sell beyond the aircraft in order to achieve greater revenue per passenger growth that can outpace and is not constrained solely by capacity growth.

In terms of our customer makeup allegiance on elite subset of always rewards members and cardholders just over half a million customers, which is about 15% of our total unique transacting customers for the year flight three or more times with us and drive roughly 60% of both total passenger segments booked and <unk>.

Revenue for the year.

In the past, we surveyed a representative sample with more than 3000 respondents from this group of frequent Flyers to understand why they traveled with us and what their future travel intention was and the news keeps getting better for a Legion of these Alicia and frequent fliers nearly 80% travel for leisure only and nearly 20.

Percent traveled per Blasier, both business and leisure more than 40% said, they stayed with family or friends and nearly 40% said they stayed at their second or vacation home that means around 80% fall into types of travel that are the most resilient during negative economic climates to validate this week.

These customers the extent to which they expected their travel plans with the Legion to be impacted given the prospect of worsening economic conditions and here's what they told US basically have said that economic considerations would have no impact on their flying behavior, what the Legion in the next 12 months and nearly one quarter said that they would be more.

Likely to fly with Allegiant in the next 12 months.

It's common for many to think that <unk> have an infrequent and transitory customer base, but thats not the case for Allegiant, we have a core base of loyal frequent fliers, who drive a majority of our revenue.

At the same time, we continue to add new customers that are defecting from other airlines, namely southwestern legacy carriers to our customer base in record numbers and then looking forward at forward looking searches for travel in the lesion dot com searches for our all important travel season during spring break and summer.

Our up by 40% to 75% versus last year, which as we all know was a historic high year for bookings and revenue put simply in conclusion Allegiant has a trifecta when it comes to our balanced customer base, we have a solid core of frequent fliers.

Who show no signs of re tracking their travel behavior with us in the upcoming year, regardless of the economic climate.

And at the same time, we are also showing lift across all existing repeat customers that are members of our loyalty programs and we're seeing a continued surge in new customers that are coming to allegiant in record numbers from other airlines, because they're seeking low fares and non stop flight along with our strong and growing.

Dortmund of asset light high margin third party leisure products that we make available Allegiant dotcom.

Put another way all of these customer segments are seeking to lift what we at Allegiant referred to as the nonstop life and with that I'll turn it over to drew wells, our chief revenue Officer.

Thank you Scott and thanks to everyone for joining us this afternoon I'm.

I am extremely pleased to close out the year with a record $2 3 billion in total revenue.

Easily the best number in company history at 25% higher than the previous best in 2019.

When accounting for seasonality nearly all metrics improved sequentially through the year to produce the record results.

And while we remain flexible to a lot of the year to find the right capacity levels. The teams continue to optimize incredibly well within shifting constraints to produce great results.

Fourth quarter had the most stability throughout the year and our results reflect that.

Fourth quarter revenue came in nicely above the range at $612 million and 32, 6% above the fourth quarter of 2019, despite ASM, sending approximately two five points lower at the system level and three points lower for scheduled service.

We did take a benefit of approximately $9 6 million associated with updated guidance on breakage factors for the co branded credit card in the initial guidance for the always rewards program.

Even excluding that benefit the divergence between revenue and ASM, producing all time best try to just under 14% and nearly 20% higher than <unk> 2019.

The yield performance in the quarter was the major upside catalyst, particularly in December .

The roughly 75% sequential improvement exceeded our expectations and drove almost six five points of upside to the quarter.

Total ancillary per passenger exceeded $70 for the first time in the quarter level and total revenue per passenger of 151 was also an all time high.

On the weather disruption from winter storm Elliot saw revenue loss of $8 million and nearly two points of lost capacity.

But close in demand, which was re booking of impacted customers and some incremental was exceptional around the holidays to round out the year.

Further while the rest of Florida bounce back quickly from Hurricane in South Dakota did see continued softness through the quarter and was a headwind of just under the expected three points.

The impact should temper a bit into the first quarter, but we still expect a roughly one five point headwind to total revenue as the region continues to recover.

In November we opened our 24 aircrafts crew and maintenance base in Provo, Utah.

Since our entry to the market in 2013, we have been the low cost option for provost and the surrounding areas.

We began serving our 13th route Nashville on February 15th which is coincidentally, our 10 year anniversary and the city.

As we turn toward the new year, we have a somewhat different than usual story, our midpoint year over year ASM growth rate of 4% would be lower than any full year other than 2011.

First and foremost continuing the successes of the second half of 2022, and ensuring a stable and solid operation if paramount to 2023.

Second our EPS guide includes the continued elevated fuel cost per gallon, which will temper the amount of off peak growth as we continue to balance fuel and demand in non peak periods.

First quarter growth will be close to 1% year over year.

The second and third quarter should be a bit higher than the first before a high singles fourth quarter growth rate.

Perhaps worth reminding that the first quarter is still slated to be 20% larger than the first quarter of 2019.

The omicron Rone comparison of <unk> 22, coupled with the continued robust demand environment and low growth rate should provide some runway for great unit revenue metrics.

Im expecting year over year traveling growth in the mid 20 percents for the first quarter and are extremely encouraged by the peak spring break outlook.

Load factors are higher and the discrepancy between the search volumes, Scott Angela mentioned and available inventory bodes well for yield results.

Through the rest of the year, we are not contemplating material changes broadly to the economy.

While we read and hear the same headlines we've not seen any booking impact from a leisure customer base and a forecasted as such.

Additionally, the network will be the most mature of anytime and Allegiant history in terms of markets in their first 12 months.

Approximately only 4% of the on sales schedule for the first half of 'twenty three is in that maturing window.

We should also see the rollout of our <unk> commercial platform and the expansion of our Leach extra program, both providing air ancillary tailwind weighted more heavily to the second half of the year.

Collectively this leads us to expect unit revenues in the positive mid single digit percent range over the last nine months as we get more reasonable and challenging comps.

There are a significant catalyst for allegiance revenue capabilities through 2023 and beyond.

We're setting an incredible foundation for us to continue to capitalize on what remains a truly remarkable leisure demand environment.

And with that I'd like to turn it over to BJ.

Thanks drew and thank you to everyone on the call for joining us today.

This afternoon, we reported fourth quarter net income of $52 5 million.

Adjusting to exclude the 2022 employee recognition bonus special charges related to Sunseeker earnings per share was $3 17 in the quarter well above our initial guidance.

Catalyst behind the strength of our fourth quarter results included of course, the sustained strong demand environment operational improvements, which brought decreased irregular ops cost a favorable a more favorable fuel costs than we had anticipated and a better than expected non fuel cost performance.

Fourth quarter unit cost, excluding fuel employee recognition bonus and the Sunseeker special charge was 756 up 12, 2% as compared with the fourth quarter of 2019 on 10, 9% more ASM capacity.

The cost increase as compared to fourth COVID-19 was primarily comprised of five five points for reduced aircraft utilization three eight points and labor productivity and a point and a half related to winter storm Elliot.

As you've seen in our release, we will temper capacity growth in 'twenty three to ensure that operational integrity is prioritized.

Even with this reduced capacity, we are forecasting full year airline only earnings per share of approximately $7 on an assumed average fuel cost of $3 60 per gallon and increased labor cost assumptions related to pilot and flight attendant contracts, which were our guidance purposes would begin mid year.

With respect to Sunseeker, we expect to record our normal quarterly operating expense run rate of roughly $5 million to $7 million in each of the first two quarters of the year.

We're not prepared today to provide guide full year preopening expenses or operating income associated with the property until we have a firm opening date on our next earnings call.

Turning to Capex, we expect total capex for the airline in 2023 to be roughly 700 million comprised of roughly $560 million related to aircraft engine, PDP and induction costs and the remaining $140 million coming from other airline capex.

In addition, we expect deferred heavy maintenance costs similar to levels observed in 2022 were roughly $55 million.

We expect to receive $2 737, Max <unk> hundred aircraft during late <unk> 'twenty three.

While it's certainly possible for these aircraft to be in service by year end. We are not we are planning conservatively for operational requirements of Onboarding, a new fleet type at the end of the year and have chosen not to plant ASM capacity for these aircrafts until the early weeks of 2024.

We remain in discussions with Boeing to finalize our 2024 delivery schedule.

But we can share that directionally, we're planning to take roughly two aircraft per month throughout next year based on what we know today.

For 2023, we plan to end up 7% <unk> hundred 20 aircraft into the operating fleet throughout the year two of which have already injured revenue service in January and three of which were owned and non property at the end of 2022.

We expect the bulk of our Capex spend during 2023 to be debt financed.

And have been pleased with the level of financing support and attractive terms proposed to us thus far.

Although 2023, it will be a heavy capex year for Allegiant, we plan to maintain total available liquidity of roughly two times, our ATL balance and expect to end the year with roughly $1 billion in cash and investments.

In closing I'd like to add my thanks to our more than 5600 team members for their incredible efforts during 2022.

After a very challenging first half of the year. The team came together in the back half to deliver results, which reduce the financial impact of irregular operations by over 70% as compared to the first few quarters. We're extremely proud of how the team turned the story around particularly in the fourth quarter and excited about the momentum we have stepping into 2023.

With that thank you Justin we can begin taking analyst questions.

Thank you very much.

As a reminder to ask a question. Please press star one on your telephone and wait for your name to be announced towards Joel. Your question. Please press star one again and we ask that you. Please limit yourself to one question and one follow up and one moment for our first question.

Okay.

And our first question comes from Catherine O'brien from Goldman Sachs. Your line is now open.

Hey, good afternoon, everyone great feedback.

I just wanted to so I just wanted to think about some of the puts and costs.

Puts and takes casino classes here.

Trying to think about what the impact adding the flight attendant pilot contract for half of the year and then slowing capacity growth for me.

I think the last time, we talked about.

Or kind of flattish on high single digit growth ex labor contract.

How to think about the walk from their underlying your current EPS guidance. Thanks, so much.

Hey, Katy it's great to hear your this is Greg why don't I kick it off here.

So just on your point on the as BJ mentioned beginning in the back half of the year. So July one we've incorporated labor deals both CVA deals for our pilots and flight attendants.

And for a half year basis, what I would expect this to be about a third of a cent of CASM hit for a half year again basis.

In terms of some of the other puts and takes IRA I think that'd be a tailwind so call. It about two to three points year over year on the IRA side, we'll see we'll see there.

And a slight headwind in inflation.

DNA I think theres going to be a slight headwind there from that a point or two based on lower productivity. I mean, you called out the ASM as being lower than what maybe we were anticipating at that 10% I think that's worth roughly four points to year over year.

But.

Other thing Thats, probably just worth mentioning is the bonus this year I'm, sorry last year in 'twenty two.

We carved out that recognition bonus.

But this year that.

Three that'll be included in so that you will be a headwind, but really if you kind of compare those two year over year I think they kind of wash each other out but I'll pause. There obviously, we're not giving formal guidance if anyone else wants to add anything or if that answered to help answer some of your questions.

Yes.

Yes that was great and Anthony anything else to add an idea or a follow up.

So there may be front running some of the initiatives you guys have planned investor day, but how do you set a new record.

Per passenger over $70 should we think about growth from here being a little bit more tempered going forward like if you hit a lot of velocity through or some of the new levers that get along with <unk> do you think there is upside to that just kind of like.

I don't know Blue Sky like next couple of years type number if you have it. Thank you so much.

Yes, thanks, good glad to have you back.

Yes, I do think that there are more step ups to come we have not yet rolled out an avatar that'll come likely in the second quarter.

And I would expect a little bit of a tapering at that kind of builds into to what it could become.

Additionally, we talked about Allegiant extra.

Only seven tail in that low but at the end of 'twenty two we'll be up to 14 by the end of 'twenty three.

A lot of these things will be back half loaded but really.

Fully pronounces it 24 stories.

We will certainly get into those more at Investor day in terms of valuation and whatnot.

Got a few like that anymore, yes, no and I would say that even still to this day as we think about our bundled ancillary which has been a big driver of people being able to not just buy ala carte, but but have that fuller ancillary we are still at levels of penetration that we think have plenty of room for upside.

And last but not least.

As we just continue to leverage the technology Foundation that Greg mentioned would be going in to create just a better user interface and user experience. We think there is.

Mall, but material gains along the way.

As we make it easier to merchandise and easier for our customers.

To add these things to their cart.

Thanks, so much everyone.

And.

Thank you and one moment for our next question.

And our next question comes from Daniel Mckenzie from Seaport Global Your line is now open.

Oh, Hey, good afternoon, guys, congrats to drew and BJ.

I've got a few questions here.

I guess first just RASM up mid single digits second quarter through fourth quarter, obviously, that's pretty strong I'm. Just wondering if you can elaborate on that a bit how big is the benefit that you just spoke to an average here in the I.

I guess, the extra comfort as or more from <unk> that can help drive that.

And then I guess secondly related to that if there is a mild recession.

To what extent would that potentially change the forecast.

Yes, Thanks, Dan.

Yes, maybe.

So I have a different perspective I didn't view.

Mid single digits positive as overly aggressive given kind of the growth cadence we have in place.

It's been a long time since we had.

A series of quarters in the low to mid single digits and historically, we've had some really strong.

Along with that.

If you remember back to last summer, we had did have to pull out a material amount of our capacity.

We actually did in April and took out 50% to 20% of our summer ASM, which did contribute some thrash as we think about final results and I think that will.

Be able to buoy this year a little bit more.

Navistar coming online will certainly support like I mentioned will get into a bit more in terms of evaluation whatnot through investor day.

But that will provide a little bit of upside there.

So all in all I do think it's a reasonable.

A reasonable revenue target and nothing particularly aggressive.

And this is Greg I might add Dan.

Some other puts the items to think about last year.

We've talked about Iraq already in our opening remarks, and $100 million full year right, but a big chunk of that is lost revenue. So that's going to be helpful comp year over year on these unit revenue numbers the growth. Although it's limited the truth is looking at its measured its de risk. It's in markets that already exist today. So we're not going out and trying to add new markets. There is already a maturation.

And then the other thing maybe just to your point.

Potential recession is now our utilization per aircraft going into this year as low as $6 two hours right in 2019 by way of comparison and with eight hours and so we already have the lower utilization in our model is built to flex in off peak periods to capture that demand. So I think we're just very well positioned in the event, we do see a slowdown.

If we look at the next couple of quarters, the only 20% 25% of our capacity likely to be on off peak day of week kind of going up with Greg was mentioning so we're very well aligned with where the leisure customer wants to travel already.

Well positioned for that and we know that the leisure customer is incredibly resilient.

We'll see what that means for fair kind of broadly across the industry in the event that that happens. So the leisure customer is still able to be stimulated travel just finding that right price point to get there.

On the inflation front I mean, we have great visibility on the first half of the year for sure in the first quarter. So to the extent there is any modest inflationary pressures.

We just don't see it but it is going to be back ended in the year to the extent there is anything.

Well, that's a great perspective thanks.

If I can.

Get a second question in here I guess, Vijay I'm already getting inbounds on negative free cash flow. This year, it's a solid outlook to be sure, but I'm. Just wondering if you can speak to that and what the plan is to use cash on the balance sheet potentially equity or additional debt. If we could potentially just take that that worry off the table.

Yes, Thanks, Dan most of most of the Capex. This year is debt financed.

Greg I don't know if you want to talk to specific numbers here.

If you think about where the Capex is and just use sort of like rough historical ltvs and can bring in north of $450 million in new debt.

At our discretion as we as we navigate throughout the year.

And then there is between 150 and 200 and principal payments.

The thing I'd mentioned is we have line of sight to really fantastic terms on attractive financing.

We're all of the Capex coming in as you know sunseeker is already financed at an interest rate that's in the money now.

Something that we're really pleased with and then on the aircraft. The appraisal values are up I think $335 million since we placed our order at the end of 2021.

Which just gives us a great ability to go out and raise financing and draw a lot of interest for supporting those airplanes.

Hey, Dan. This is Greg I was just going to add a few things just to Bj's point, maybe just to crystallize here that's.

While we are going to add leverage if you just take the midpoint of our guide for 'twenty. Three that gives you about $500 million in EBITDA. If you take the net leverage so I think P. J said, we'll end the year with $1 billion in cash and you kind of take the the waterfall of debt that gets you to 5%.

1 billion and debt net debt one five so returns net leverage still comfortable but these are this is a time when we're investing back in the company. We're investing in assets that are yet to be revenue producing we're doing it with a strong credit and so when we get on the other side of this 24 and beyond Youre going to see that that Delever pretty quick.

And our expectation yes. Thanks, so much you guys thats perfect.

And thank you.

And one moment our next question.

And our next question comes from Helane Becker from Cowen Securities. Your line is now open.

Thanks, very much operator, hi, everybody and thank you of course for the time two questions one is.

As you think about your ASM growth being so low single digits. This year, how are you thinking about where to prioritize growth.

Or in other words is it new markets is it increased service in existing markets, how should we think about that.

Sure. Thanks Blayne.

It's not a lot of new markets for the first half of the year only about 4% of our ASM will come from markets in their first 12 months.

And within that it's been.

A few new markets starting here in the first quarter and Thats and Thats about it it's pretty pretty minimal.

It's more on the restoration of a little bit of that frequency.

That's where we can get it but.

When we're talking 1% in the first quarter and a small step up but it's not it's not a time beyond that.

Okay. That's helpful actually thank you and then my follow up question is.

As youre thinking about.

The resort.

Sunseeker printer Gorda, there the region and so on.

Okay.

Climate has been an increasing issue for a lot of.

Companies and obviously.

It was a big issue last year for you guys. How are you thinking about hurricane seasons going forward in the hurricane season this year.

Maybe it's how do you protect the resort from hits like this in the future.

Okay.

Hi, Linda this is John .

Im stating the obvious when I say hurricanes have been around in Florida forever.

<unk>.

The state has.

Has reacted to those.

Over time by changing building codes by doing a lot of things with technology that allowed buildings to be built differently in operations to be run differently. So when you take the resort we thought about that when we were designing is frankly a lot of a lot of you probably didn't understand will go for chatting about it.

We built the resort 16 feet above the mean high pipeline. So we wouldn't have had any damage, but we're falling cranes. If youll look at the worst hurricane a lot of people are referring to the top of the state of Florida. So put another way if the resort was done and if the type of storm surge that hit Fort Myers hit where the resort is.

It would have gone underneath the building and out the other end. So we wouldn't have had any damage. So we're the only resort in the entire state of Florida, the adult like that.

To be able to withstand it and also were built to category five standards. So I think that's how we reacted to what we've seen in the state of Florida, and I'm sure that so others.

Reacted and whether they are building office buildings or anything else. They are building them differently and I'm sure homeowners will build differently going forward as well after seeing what happened down in Fort Myers. So we like we are.

We obviously love what we did we're positioned fantastic going forward to weather any kind of assortment in Florida.

<unk>.

I guess this was a test to that again, but for these hurricanes falling down to the building we wouldnt had a issue and it's also worth pointing out the last major hurricane that hit southwest, Florida like that was Charlie <unk> four so it's not like these are annual event they might be annual to a certain extent somewhere in the state does not always an exact.

Same region.

You went from <unk> to 'twenty two.

<unk> the next major one.

<unk>, one which was the worst would not hurt us at all but we were completed.

Okay, Alright actually thank you that's that's actually very helpful. I appreciate the color.

Thank you.

And one moment for our next question.

And our next question comes from Brandon Glinski from Barclays. Your line is now open.

Yes.

Good evening and thanks for taking the question.

Congrats on all the promotions.

But John I guess as you look at 2023, you have had some leadership changes.

Youre pulling back growth as noted in the earlier remarks, we are the lowest.

I think 2011.

So how do you put this in context like what are the strategic priorities for the organization. This year is it preparing for the Max is it getting some figure out what what do you want investors to take away from this year.

I mean, youre hitting on hitting on them.

Couple of them right there.

Greg touched on it a little bit, but we have been starting in 'twenty. One we started it in 'twenty two significantly invested in it which was all of our calls our plumbing and electrical all the package. If you will we've been spending significant sums of money to make sure that we are at the leading edge of technology and all.

All of our systems.

So by the by the end of 'twenty three.

We'll be at that leading edge with everything and all of them turned on and operating so all the system investments Greg touched on SAP tracks now that they're now blue.

That's a heavy lift do you look at 2020 two for instance.

It's in the neighborhood of about $50 million alone on all of the technology upgrades, if you will.

That's our biggest initiative, which allows us to do everything from Veeva.

That relationship to obviously operate and yield what we're doing in a much better format.

The relationship is very strategic for US we had to fix some of the technology in order to accommodate that we reached to do that and we're in great shape to do that now we're just waiting on all the regulatory approvals.

Boeing and the Max.

Well understood. We know its backend driven in Q4 really driven but theres a lot of work that has to be done leading up to the.

<unk>.

Receipt of any any planes, so that's all being done.

So we're we're we like where we're at the resort is an obvious one we've been working on that for some time, we've actually got delays that have been longer than what it would take time to build obviously.

Nothing to do with anything we did but we are scheduled to open that in 'twenty, one but all of these are major initiatives that are driving major capex in the last year.

Year, and a half to two years that we're not going to see any revenue benefit from until the back end of this year.

DJ and Greg touched on that but we are in great shape with all of these initiatives. The team has done a great job, we have a lot of people focused on it.

They are working.

Burning the midnight oil as I say.

But we like where we stand we're not falling behind on anything and we're well positioned to be able to absorb all of this significant growth. The company has taken on with all these new opportunities and John if I might add and you hit on this in your opening remarks.

And maybe it's R&D, stating the obvious but.

The airlines at the heart of everything we do operation operational integrity as I Hope you heard in the opening remarks number one too that's top priority and as John mentioned getting a deal for our crew members our flight attendants and pilots at the highest priority our executive Chairman Maury Gallagher continues to spend time or has been timed trying to make sure we continue to.

Move in advance this ball and get a deal done with our crew members as soon as possible. So I know that probably went without saying, but in all of that too is a very high priority for us as we think about 'twenty three.

Barry.

Very much worth reiterating us for sure.

John and Greg I appreciate that and I guess specific to the growth. This year, because you had been planning for more.

You spoke to this a little bit but is this.

Really demand related costs related or operational integrity.

What are the constraints right now as it really pilot availability, that's constraining your ability to grow or is this commercial as well.

The demand environment is still extraordinarily robust.

So that is not a concern.

We're generally scheduling up to our first operational constraints.

And many months, that's going to be our pilot head count and others that might be the number of available tails, we have given our heavy maintenance line and.

And how we how we try to structure that with some peaks and valleys.

Thats, primarily the driver as we get into the back half of the year in preparation for the first Max deliveries, we will have to start pulling some crew members offline to begin training in order to be ready to fly those as early as possible. So we will run into a little bit more of that being kind of the constraints as we get later into the year.

Andrew sorry, I might add and the team is going to tease me here branded because I use this term that we're screen coiled and ready to go in.

As you alluded to in your comment is that we planned for a larger organization and so there is some pacing items grew constraints being one but when those loosen up if you will where.

Spring coiled and ready to go the infrastructure is going to be able to support that and that's how we're viewing it long term. So we're excited about that and we're working towards that but you may see next year or 25%, maybe higher growth than normal like if you were to compare it to aircraft count because you'll see the idea is you have.

Have the potential to take utilization up so where clients 6263 hours per day per aircraft per day, and 23, maybe take that up an hour that's going to obviously.

To improve capacity as well so just wanted to make sure we mentioned that also.

Thank you both.

And thank you.

And in the interest of time, we ask that you. Please limit yourself to one question again and in the interest of time. We please ask that you limit yourself to one question and one moment our next question.

Yeah.

Uh huh.

And our next question comes from Duane <unk> from Evercore Partners. Your line is now open.

Hey, Thanks, I don't know if the one question was just just meant for me, but I will respect it.

Yep.

On the on the <unk> revenue outcome.

You touched on the breakage I.

I guess, if you could go into a little bit more detail on what were the drivers of the upside and on and on base fares in particular any particular markets.

And I think look I think the pattern we've seen in the last couple of quarters is that there was kind of an inability or constraints.

The flex up in these peak demand periods and that was kind of holding you back.

Is there something that has changed or something you're doing differently that is helping you kind of flex back up in the peaks again, unlike the last two or three quarters.

And what I don't know that Thats.

Fairly true I mean, some of our best.

Performance before the holiday it was in the summer and what we were able to do on a yield basis. It certainly wasn't to this extent.

I think theres, a little bit of a different and there always has been in terms of the holidays and spring break versus summer, whereas this Barry.

Tight window in which travel occurs I think giving us very heavily concentrated around the holiday same with Christmas and new year's.

How much kind of longer and drawn out summer thats, good, but its kind of spread drawn out good.

So we were really able to capitalize well on that very concentrated window of demand probably in a way that year I thought we were.

Not able to do the same level in summer.

The optic stuff still looks good October was was healthy as well so there's not necessarily any individual piece to call out it all looks good with maybe some slight outperformance in the holidays like I mentioned.

Tight windows.

And I guess, sorry, I'm going to contradict myself on the guidance is that just airline EPS or is that.

Consolidated EPS guidance.

Yes airline EPS.

Okay. Thank you guys.

Thanks, Duane Thanks, Mike.

Thank you and one moment for our next question.

And our next question comes from Michael Lindenberg from Deutsche Bank. Your line is now open.

Hey, good afternoon, and hey, congrats to the team on the promotions.

Yes.

Just one here I guess that Scott the Angelo.

You called out you talked about the loyalty of your customer base and <unk>.

<unk> provided some qualifiers around it I thought it was interesting that.

You called out southwest and other airlines and where you were.

Getting passengers or picking up new customers.

Is the southwest mentioned is it because of the overlap that you have with them or more recently are you actually seeing meaningful traction in the markets where.

You may compete head to head or in their backyard.

Thanks, Michael for the question it is more the former.

We tended to overlap with them. The most so when you ask our customers who did you last or most recently fly with about a third of the time that answer is going to be south west and then the other carriers, even though it's convenient I know for the market to classify us alongside other Ulc's <unk>. The reality is we don't have much overlap there.

And so the next three airlines that are answered when asked who did you last or most recently fly with our always Delta American and United in that order with obviously many of our customers actually find that the regional arms, but identifying with right.

The overall brand of those airlines and so it was meant simply to show that in this environment. Even if there was some type of recession I would just ask the market too.

As much as there was any contraction at any point in leisure travel also look at the slice of pie that is you LCC because.

Our data would indicate that even if the overall pie where to shrink.

Our slice of that pie would continue to grow as customers of whether it's southwest or other network carriers are increasingly buying down <unk> coming into the U LCC category.

I think given our brand of non stop travel. So hopefully that's helpful in providing some color there Scott Im sure when they give you the airline what is the number one reason is it because of first or is it because they had a lousy experience I'm just I'm curious I know, it's usually non stop flight and fares.

And those those can go one to two but those are far and away. The top two schedule is the third one.

It's usually in a way down and then preferred airport.

Everything else tied for.

Fourth and beyond.

But we don't we haven't seen that Theres, just a swell given just one bad experience, but we undoubtedly know that right overall disruptions.

Especially when it involves connecting flights.

We will draw someone now to look for non stop flights.

As you all know all of our flights are non stop so that's really the key driver I think in times of disruption, whether it's weather whether its just irregular operations over the summer over the winter and happens to every airline, but if there's one thing we know it's one thing to potentially get cancel or delay in your origin or your death.

The nation, there is nothing worse than getting stuck in the middle and that's what we're seeing a lot of customers react too can be drawn in by an airline that only applies nonstop.

Thanks Scott.

You bet. Thank you.

Thank you.

And one moment for our next question.

And our next question comes from Andrew <unk> from Bank of America Merrill Lynch. Your line is now open.

Hey, good afternoon, everyone.

Just a question on the Capex Alright, I think last call you you set a floor like $500 million on Capex I guess at the time I never thought it could be north.

North of a $700 million you just guided to I guess, what are the big buckets of Capex kind of set that are coming in this year.

Ahead of plan.

Particularly on the non aircraft side.

And then when you think about yet.

The Capex and I know you can.

Finance a lot of this how do you think about minimum liquidity going forward because I would think with the Max is pushed out to 2024 deliveries capex will be will be pretty high next year as well.

Hey, Andrew it's Craig I'm going to kick it off real quick can Vijay I'll walk through a little bit more detail just because I think I'm. The one that throughout that floor of $500 million of Capex next year and really.

There was a lot of uncertainty around the timing of the Boeing aircraft being delivered in 2004 in PDP and so we wanted to throw that out of the Florida there'll be no less than and so we've had more time to work through that and understand the timing, which which is now why we're updating you with those numbers, but with that yes.

Yes, Andrew just on that same point I mean, if you think about a large portion of the aircraft are paid for in the calendar year. Prior two deliveries so with so many aircraft moving into 2024, you've done a lot of capex going out for PDP. This year, I think thats actually our largest capex.

Commitment. This year is pre delivery deposits and then you have the two aircraft delivering from Boeing in the fourth quarter of this year and then remember we also slid four placeholder aircrafts from 2022 into 2023. So a lot of this capex was sliding from 'twenty to 'twenty three and then we obtained PDP for 'twenty four and 'twenty three.

And then liquidity I think you mentioned it in his opening comments the two times roughly two times ATL, which gets you right now <unk> is running about $400 million.

Total liquidity would be around $1 billion is what we're targeting for the year at the end is that fair.

Yes, and then maybe just mentioned that our revolver facilities are undrawn today, which are $225 million and then.

Better part of our $200 million PDP financing facility is undrawn as well so we're using those as necessary throughout the year.

Understood.

What are the big buckets of non aircraft Capex.

It's I think it's a it's about a $135 million in total non aircraft.

$60 million to $70 million, that's going to be that it investment that we were talking about you have some <unk>.

Stimulators that we're going to be acquiring to take.

Start taking delivery of the Boeing.

Aircraft, our fleet and then.

The remaining would be tissue normal kind of standard capex maintenance capex, such as parts tools things like that.

Got it thank you.

Thank you.

And one moment for our next question.

Yeah.

And our next question comes from Savi <unk> from Raymond James Your line is now open.

Hey, good afternoon, everyone.

Just on the.

The pilot and flight isn't that and most of that on the pilot side, what have you seen in terms of.

Attrition levels are kind of being able to staff that Wally.

I'm, just kind of curious with ICR on getting a deal by midyear that means as you head into the summer.

You will be kind of having a headwind versus a lot of other airlines that have increased pay deals. So just curious on what youre expecting there and what youre seeing there.

Hey, Savi, it's Greg why don't I give this one a stab and.

What I would just say in the big takeaway is that I think as we plan to schedule for 'twenty three we've taken a very conservative approach in terms of attrition and Onboarding and making sure that we have the available resources and crews to support those peak those peak flying seasons, such as March in the summer.

Just to put some more color around that for the full year 'twenty three we're expecting about a 25% system attrition on the pilot side.

Perspective, and that in 'twenty two it was 17% the last three months. However, it has been roughly 20%, but again the point being we're expecting higher or.

We're planning and scheduling for it to be higher than what we've seen historically or at least in the past.

Three months past year in terms of the school house, and our ability to attract and bring on pilots and I think just to.

Give some perspective there.

Every class we're anticipating around 12, new hires our pilots we had two classes in January there was 30 pilots in that class all in all just to kind of sink.

To bring this together I think were expecting roughly two to 250, new pilots join Allegiant during 2023.

Excited about Tyler Hollingsworth, and Rod Hardesty, Ross, our chief pilot Tyler's, our VP of our flight ops.

We're also out there on the recruiting front and putting in additional pathway program. So I think theres five create a pathway programs today theyre taking that to eight.

And so we're really doing the taken the appropriate steps I think to kind of protect.

<unk> and control, our destiny, and and but we're planning for kind of what we're planning for a down case scenario and and so far we feel good about that plan.

Alright, thank you.

And thank you.

Okay.

And I would now I'm showing no further questions I would now like to turn the call back over to John Redmond for closing remarks.

Well, we appreciate everyone's time and questions all great questions. You can see why we're excited about 23 in the out years.

Great uses the term spring coiled as you mentioned for for 'twenty, four we wouldn't be enough position a bunch of investments in 'twenty one 'twenty two.

So were jazz and of course those investments as we touched on are not only all of the it infrastructure. So that we are doing but but all of the <unk>.

<unk> investments everything from pilots flight attendants everything else, we're doing so.

It's a heavy capex lift but.

Needed and required in order to take on the growth that we're doing going forward.

Stay tune 23, it's going to be amazing.

24, it will be really something else. Thank you everyone.

This concludes today's conference call. Thank you for participating you may now disconnect.

Great job everyone.

The conference will begin shortly to raise and lower Johan during Q&A you can dial one one.

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Good day, and thank you for standing by welcome to the full year and fourth quarter of 2022, Allegiant travel company earnings call.

At this time all participants are in a listen only mode.

After the speaker's presentation, there will be there will be a question and answer session to ask a question. During the session you will need to press star one on your telephone you will then hear an automated message advising our hand is raised to withdraw your question Press Star. One again, please be advised that today's conference is being recorded I would now like to hand the call.

Over to your speaker today.

Sherry Wilson. Please go ahead.

Thank you, Jeff and welcome to the Allegiant travel company's full year and fourth quarter 2022 earnings call on the call with me today are John <unk>, The Companys, Chief Executive Officer, Greg Anderson, President Scott <unk>, our EVP and Chief Marketing Officer Drew wells, our SVP and Chief revenue Officer, Robert Neal.

Any forward looking statement, 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 do not materialize to view this earnings release as well as the rebroadcast of the call feel free to visit the company's Investor Relations site at IR Dot Allegiant Air Dot com with that I'll turn it over to John .

Thank you very much Sherry and good afternoon, everyone I'd like to begin by taking a moment to thank our team members for all their efforts this past year two.

2022 is yet another difficult year.

Operation was hit with countless challenges from Covid spikes to Hurricanes and most recently winter storms, but you stepped up to make sure our customers were taken care of.

Your commitment to safety and service is remarkable and I am proud of how you responded to these challenges.

Do you like your likelihood the news that our COO Scott Sheldon has made the decision to resign to pursue other opportunities.

I want to thank Scott for his many years of service and dedication to our airline and we wish him all the best in his future endeavors.

With Scott's departure, Greg Anderson will continue to serve as president and will assume oversight of the company's operational teams.

As you all know Greg has been with the company for more than a decade. There is no better person to take on this role he is highly respected both internally and within the industry.

The utmost faith, you will execute on the numerous strategic initiatives, we have in store this year.

I am pleased to report that despite the operational difficulties during the first half of the year. The last half of 2022 is a testament to the success of the challenges we implemented.

We exited the year with a controllable completion percentage of 99, 5%.

Earlier this year I noted, we are margin focused company and with operational improvements margins wouldn't would grow.

This is exactly what happened we saw during the fourth quarter.

We recorded an operating margin excluding employee recognition bonus and sunseeker special charges, just shy of 16% for the quarter and.

In addition, we generated more than $140 million in EBIT EBITDA during the quarter.

<unk> the strong financial performance is a robust demand environment that shows no signs of slowing.

Fourth quarter <unk> of just above 2014 was the highest quarterly <unk> in company history.

This helped contribute to a record setting total revenue for 2022 of $2 3 billion.

We have great momentum heading into 2023.

In regards to our ongoing negotiations with our flight attendants and pilot.

It is our expectation to have an agreement in principle them with our flight attendants by mid year.

To date, we have reached tentative agreements on two thirds of open sections.

The pilot negotiations are progressing as well with tentative agreement reached on about half the open sections.

In an effort to expedite the bargaining process and secure an agreement in principle the company and the Union jointly requested NMD mediation.

We will look forward to working collaboratively on an agreement that our pilots are proud to support while providing the company with the ability to continue to fly a safe and reliable operation and remain positioned to grow profitably.

It is our expectation to have an agreement in principle done by mid year.

Touching on Sunseeker, we continue to make progress towards completion construction crews are back in full force much of the remediation work related to hurricane and is now behind us.

Further investigation necessitated an increase in total estimated damage related to Ian resulting in additional special charges of $5 million in losses.

We continue to believe all hurricane Ian damage will be fully recover growth recoverable by insurance.

In addition, a significant thunderstorm followed hurricane Ian in early November prior to Ian damage being fully remediated, resulting in additional damage as well as a small elevator fire to November <unk>.

Losses related to these events were recorded in the amounts of $10 million and $1 2 million respectively.

Both events are covered by insurance.

Accorded losses were offset by $18 million in insurance proceeds related predominantly to Ian damages.

As insurance coverage.

Our received during the coming months, we will record. These are special charges offsetting the recorded losses Alt.

Also worth pointing out again, we have business interruption insurance, which we believe will cover the periods may 26.

Hurricanes scheduled opening date, so the opening date of the resort.

Given the delays caused by Ian and the subsequent storm we pushed the first accepted reservation dates to October 15th this year.

We're still working through remediation timelines related to the recent storms, but intend to provide a firm opening date at our next earnings call in April .

We have not provided any guidance in the release on sunseeker operations due to uncertainty at this early stage on the opening date.

And the Q1 2023 earnings call in April we will provide guidance on preopening expenses, leading up to opening the resort revenue EBITDA and operating income for the year 2023.

We will also update the final construction budget numbers and a business interruption update to the extent we have information.

We also intend to extend to any of you who are interested the opportunity to tour the resort in early may.

Sherry Wilson will be happy to coordinate with you dates and times in April this year.

In regards to our partnership with Viva Air Booth, we still expect all the necessary approvals.

Will be in place, including category one status in Mexico in the first half of this year.

As you saw in the release, we are returning to providing annual guidance as we did in 2019.

At the end of each quarter, we will update the annual guidance if appropriate given the results to date and future forecasts.

As a reminder, we will these segment reporting as it relates to sunseeker and 2023.

In addition, we will be comparing to 2022 and not 2019.

We have progressed beyond 2019 results and field moving to prior year or 2022 is a more comparable and relevant relevant going forward.

Furthermore, our board approved increasing our repurchase authority to $100 million.

This is also the authorization reaffirms the board's conviction in both future results and balance sheet strength with that I will turn it over to Greg.

John .

As announced kidney Wilbur will take on the interim COO role over the past 20 years Kinney has demonstrated his strength as an operator and as an exceptional leader. Additionally, Tracy <unk>, who will serve as our chief experience Officer Tracy has vast operations experience overseeing both flight ops and in flight as.

Finally, and I have to admit it's pretty awesome to be able to say Robert Neal is now our chief financial Officer, and drew wells as our Chief revenue Officer.

J&J, we're both a plus leaders the best of what they do and I feel no further introduction as needed given they are already well known to our investors.

I look forward to working even closer with and supporting each of them in their expanded roles.

While 2022 brought its unique its own unique challenges we achieved a lot during the past year, we added more than 900 team members, bringing our total team member count to more than 5630 <unk>. These team members enabled us to grow our fleet by 13, aircrafts and slide 14% more ASM as compared to 2019.

$100 million in Iraq cost, including fuel and crude cost loss revenue and going above and beyond by providing cash compensation to those customers impacted by canceled flights to.

First half of 'twenty, two and near our industry, leading controllable completion results of 2019.

I am pleased to report these much improved operational results had a positive impact on our financial results the impact from our irregular operations in the back half of the year at a total financial impact of $30 million. This is $70 million less in the first six months of 'twenty two.

These improvements showed up in our financial report as we closed out the December quarter with a 16% adjusted op margin and this is substantially higher than our initial adjusted operating margin guide of 8%. These impressive results were achieved despite the impact to the quarter from the winter storm over the holidays.

Another important element of 2022 is a significant progress we made towards our systems transformation in 2021, we made the decision to move from certain core proprietary software systems to best in class systems, such as SAP <unk> tracks and now Blue we remain on track to go live with the <unk>.

First three of these key systems in 2023 now Blue should follow shortly after such systems have been key investments to more efficiently scale the organization.

In addition, we continued to track ahead of schedule on the incorporation of our new Boeing Max aircraft as we expect our first delivery near the end of the year.

We intend to place these Max deliveries at our Orlando. These near these early Max deliveries at our Orlando Sanford base in.

And as John touched on one of our highest priorities remains finalizing labor contracts that our crew members deserve.

So far we have put a great amount of effort into updating our agreements with both our flight attendant and pilot unions. It is our goal to get both of these deals across the finish line as soon as possible.

While we are unsure around the exact timing of getting these deals done we have incorporated the potential costs in the back half of the year within our 2023 guidance. Please.

Please realize that the actual increases in cost will depend on the economic terms reached in the timing of the agreements as a reminder, although these contracts will be cost headwinds, we expect them to increase momentum towards restoring staff staffing levels and optimizing aircraft utilization, but we are not assuming any improved productivity in <unk>.

Our full year 'twenty three capacity guide Vijay will provide more full year guidance detail momentarily.

We will continue our focus on strengthening the operation and are excited about what's in front of us in 'twenty three as we as we've highlighted on prior calls we have laid the foundation for executing on these items and our teams across the organization are making steady progress on the implementation of the new systems and other initiatives such as labor contracts sensitive.

<unk> Viva and Boeing These leadership changes announced will further support these initiatives as we progressed further into 'twenty three and have better vision on the completion Timeframes, we expect to host an investor day to more specifically outline expected contributions from the strategic initiatives more information will follow on that front and with.

I'll turn it over to Scott the Angelo our Chief Marketing officer, Thanks, Greg fourth quarter sauce continued strong leisure travel demand for allegiant across both web and App traffic to Allegiant dot com as well as passenger segments bulk capping off a record setting year for Legion on both measures surging awareness and preference for the Allegiant.

For full year 2020 to 136 million web users came to Allegiant dot com up 24% from 2019, and notably despite the fact that no new route.

That new route will go through its limited excuse me.

New web users to Allegiant Dot com were up by nearly 40% from 2019, because as I referenced in the past two quarters, our addressable customer customer audience continues to grow as more new customers enter the LCC category and consider allegiant for their leisure travel needs.

We're seeking relief from Sky high fares and looking to avoid the risks inconvenience and time associated with connecting flights through crowded airport hubs.

But smaller 77% of our Allegiant Dot com users came via our most direct and lowest cost channels. That's direct you Ral are app email marketing or organic search.

37% from 2019, it means we're relying less and less on paid advertising as awareness and preference for the Allegiant brand continues to grow in a scalable fashion based on our fixed investments like Allegiant Stadium, and our live nation partnership as well as our always rewards.

Loyalty programs, both co brand credit card and non card, we continued to outperform expectations with our co brand card program ending the year with more than 400000 active cardholders and more than 150, new cardholders acquired in 2022, that's more than 40% higher than we had.

Wired the previous highest year, which is 2021 as a result, the co brand card program drove total compensation of more than $100 million in 2022.

In addition, our non card loyalty program always rewards.

Added 2 million new members last year, and now totals 15 million members in 2020 to $3 2 million customers nearly 70% of our total unique transacting customers, where active members of the always rewards program and on average they exhibited 39% greater booking frequent.

See the non members and an average spend per booking that was 36 higher 36% higher than non members. This left in average spend was driven by higher take rates and air ancillary products as well as higher attachment of third party products like hotel and rental car this customer behavior reinforces the continued.

Opportunities at Allegiant has to sell beyond the aircraft in order to achieve greater revenue per passenger growth that can outpace and is not constrained solely by capacity growth.

In terms of our customer makeup allegiance on elite subset of always rewards members and cardholders just over half a million customers, which is about 15% of our total unique transacting customers for the year fly three or more times with us and drive roughly 60% of both total passenger segments book and <unk>.

Total revenue for the year.

In the past, we surveyed a representative sample with more than 3000 respondents from this group of frequent Flyers to understand why they traveled with us and what their future travel intention was and the news keeps getting better for a Legion of these Alicia and frequent Flyers, nearly 80% travel for leisure only and nearly 20.

Percent travel for leisure, both business and leisure more than 40% said, they stayed with family or friends and nearly 40% said they stayed at their second our vacation home that means around 80% fall into types of travel that are the most resilient during negative economic climates to validate this.

Unlikely to fly with Allegiant in the next 12 months.

It's common for many to think that Uscc's have an infrequent and transitory customer base, but thats not the case for Allegiant, we have a core base of loyal frequent fliers, who drive a majority of our revenue while at the same time, we continue to add new customers that are defecting from other airlines, namely southwest.

And legacy carriers to our customer base in record numbers and then looking forward at forward looking searches for travel and the leisure Dot com searches for our all important travel season during spring break and summer are up by 40% to 75% versus last year, which as we all know was a historic high.

High year for bookings and revenue put simply in conclusion Allegiant has a trifecta when it comes to our balanced customer base, we have a solid core of frequent fliers.

Who show no signs of retracting their travel behavior with us in the upcoming year, regardless of the economic climate and at the same time. We are also showing lift across all existing repeat customers that are members of our loyalty programs and we're seeing a continued surge in new customers that are coming to allegiant in record numbers.

<unk> from other airlines, because they're seeking low fares and non stop flight along with our strong and growing assortment of asset light high margin third party leisure products that we make available Allegiant dotcom put it another way in all of these customer segments are seeking the lift what we at Allegiant referred to as the non stop.

And with that I'll turn it over to drew wells, our chief revenue officer. Thank.

Thank you Scott and thanks to everyone for joining us. This afternoon I am extremely pleased to close out the year with a record $2 3 billion in total revenue.

The best number in company history, and 25% higher than the previous best in 2019.

When accounting for seasonality nearly all metrics improved sequentially through the year to produce the record result.

And while we remain flexible through a lot of the year to find the right capacity levels. The teams continue to optimize incredibly well within shifting constraints to produce great results for.

The fourth quarter had the most stability throughout the year and our results reflect that.

Fourth quarter revenue came in nicely above the range at $612 million and 32, 6% above the fourth quarter of 2019, despite ASM lending approximately two five points lower at the system level and three points lower for scheduled service.

We did take a benefit of approximately $9 6 million associated with updated guidance on breakage factors for the co branded credit card and the initial guidance for the always rewards program.

Even excluding that benefit the divergence between revenue and ASM producing all time best try to just under 14%.

Nearly 20% higher than <unk> 2019.

The yield performance in the quarter was the major upside catalyst, particularly in December .

The roughly 75% sequential improvement exceeded our expectations and drove almost six five points of upside to the quarter.

Total ancillary per passenger exceeded $70 for the first time at the quarter level and total revenue per passenger of 151 was also an all time high.

On the weather disruption from winter storm Elliot saw revenue loss of $8 million and nearly two points of lost capacity.

But close in demand, which was re booking of impacted customers and some incremental was exceptional around the holidays to round out the year.

Further while the rest of Florida bounced back quickly from Hurricane in South Dakota did see continued softness through the quarter and was a headwind of just under the expected three points.

The impact should temper a bit into the first quarter, but we still expect a roughly one five point headwind to total revenue as the region continues to recover.

In November we opened our 24th aircrafts crew and maintenance base in Provo, Utah.

Since our entry to the market in 2013, we have been the low cost option for provost and the surrounding areas.

We began serving our 13th route Nashville on February 15th which is coincidentally, our 10 year anniversary and the city.

As we turn toward the new year, we have a somewhat different unusual story, our midpoint year over year ASM growth rate of 4% would be lower than any full year other than 2011.

First and foremost continuing the successes of the second half of 2022, and ensuring a stable and solid operation if paramount to 2023.

Second our EPS guide include the continued elevated fuel cost per gallon, which will temper the amount of off peak growth as we continue to balance fuel and demand in non peak periods.

First quarter growth will be close to 1% year over year.

The second and third quarter should be a bit higher than the first before a high singles fourth quarter growth rate.

Perhaps worth reminding that the first quarter is still slated to be 20% larger than the first quarter of 2019.

The omicron real in comparison of <unk> 22, coupled with the continued robust demand environment and low growth rate should provide some runway for great unit revenue metrics.

Im expecting year over year traveling growth in the mid 20 percents for the first quarter and I'm extremely encouraged by the peak spring break outlook.

Load factors are higher and the discrepancy between the search volumes, Scott Angela mentioned and available inventory bodes well for yield results.

Through the rest of the year, we are not contemplating material changes broadly to the economy.

While we read and hear the same headlines we've not seen any booking impact from a leisure customer base and our forecasted as such.

Additionally, the network will be the most mature of anytime and Allegiant history in terms of markets in their first 12 months.

Approximately only 4% of the on sales schedule for the first half of 'twenty three isn't that maturing window.

We should also see the rollout of our <unk> commercial platform and the expansion of our Allegiant extra program, both providing air ancillary tailwind is weighted more heavily to the second half of the year.

Collectively this leads us to expect unit revenues in the positive mid single digit percent range over the last nine months as we get more reasonable and challenging comps.

There are significant catalysts for allegiance revenue capabilities through 2023 and beyond.

We're setting an incredible foundation for us to continue to capitalize on what remains a truly remarkable leisure demand environment.

And with that I'd like to turn it over to BJ.

Thanks drew and thank you to everyone on the call for joining us today.

This afternoon, we reported fourth quarter net income of $52 5 million.

Adjusting to exclude the 2022 employee recognition bonus special charges related to Sunseeker earnings per share was $3 17 in the quarter well above our initial guidance.

Catalysts behind the strength of our fourth quarter results included of course, the sustained strong demand environment operational improvements, which brought decreased irregular ops cost a favorable a more favorable fuel costs than we had anticipated and a better than expected non fuel cost performance.

Fourth quarter unit cost excluding fuel employee recognition bonus in the Sunseeker special charge was 756 up 12, 2% as compared with the fourth quarter of 2019 on 10, 9% more ASM capacity.

As you've seen in our release, we will temper capacity growth in 'twenty three to ensure that operational integrity is prioritized.

With respect to Sunseeker, we expect to record our normal quarterly operating expense run rate of roughly $5 million to $7 million in each of the first few quarters of the year.

We're not prepared today to provide that to guide full year preopening expenses or operating income associated with the property until we have a firm opening date on our next earnings call.

Turning to Capex, we expect total capex for the airline in 2023 to be roughly $700 million comprised of roughly $560 million related to aircraft engine PDP is an induction costs and the remaining 140 million coming from other airline capex.

In addition, we expect deferred heavy maintenance costs similar to levels observed in 2022 were roughly $55 million.

We expect to receive $2 737, Max <unk> hundred aircraft during late <unk> 'twenty three.

We remain in discussions with Boeing to finalize our 2024 delivery schedule.

So we can share that directionally, we're planning to take roughly two aircraft per month throughout next year based on what we know today.

We expect the bulk of our Capex spend during 2023 to be debt financed.

And have been pleased with the level of financing support and attractive terms proposed to us thus far.

In closing I'd like to add my thanks to our more than 5600 team members for their incredible efforts during 2022.

After a very challenging first half of the year. The team came together in the back half to deliver results, which reduce the financial impact of irregular operations by over 70% as compared to the first few quarters. We're extremely proud of how the team turn the story around particularly in the fourth quarter and excited about the momentum we have stepping into 2023.

With that thank you Justin we can begin taking analyst questions.

Thank you very much.

As a reminder to ask a question. Please press star one on your telephone and wait for your name to be announced to ensure your question. Please press star one again and we ask that you. Please limit yourself to one question and one follow up and one moment for our first question.

Okay.

And our first question comes from Catherine O'brien from Goldman Sachs. Your line is now open.

Hey, good afternoon, everyone great feedback.

Hey, just wanted to so I just wanted to think about some of the puts and costs.

Puts and takes of unit cost this year.

Trying to think about what the impact adding the flight attendant pilot contract for half of the year and then flung Pat SEDAR for me.

I think the last time, we talked about.

Or kind of flattish on high single digit growth ex labor contract.

When I think about the walk from their underlying your current EPS guidance. Thanks, so much.

Hey, Katy it's great to hear your this is Greg why don't I kick it off here.

So just on your point on the as BJ mentioned beginning in the back half of the year. So July one we've incorporated labor deals both CVA deals for our pilots and flight attendants.

And for a half year basis, what I would expect this to be about a third of a cent of CASM hit for a half year again basis.

In terms of some of the other puts and takes IRA I think that'd be a tailwind so call. It about two to three points year over year on the IRA side, we'll see we'll see there.

And a slight headwind in inflation.

But the.

Other thing Thats, probably just worth mentioning is the bonus this year I'm, sorry last year in 'twenty two.

We carved out that recognition bonus.

But this year that.

Yes.

Yes that was great and Anthony anything else to add an idea or a follow up.

So there may be front running some of the initiatives you guys have on Investor Day, you said a new record.

Per passenger over $70 should we think about growth from here being a little bit more tempered going forward like if you hit a lot of color.

Through or some of the new levers that get along with <unk> do you think you can take that size that just kind of like.

I don't know Blue Sky like next couple of years type number if you have it. Thank you so much.

Yes, I think CAGR out there heading back.

Yes, I do think that there are more step ups to come we have not yet rolled out an avatar that'll come likely in the second quarter.

And I would expect a little bit of a tapering is that kind of builds into to what it could become.

Additionally, we talked about Allegiant extra.

Only seven tail in that low but at the end of 'twenty two we'll be up to 14 by the end of 'twenty three.

So a lot of these things will be back half loaded but really.

Fully pronounces it 24 stories.

We will certainly get into those more.

At Investor day in terms of valuation and whatnot.

If you'd like to add anymore, yes, no and I would say that even still to this day as we think about our bundled ancillary which has been a big driver of people being able to not just buy ala carte, but but have that fuller ancillary we are still at levels of penetration that we think have plenty of room for upside.

And last but not least.

As we just continue to leverage the technology Foundation that Greg mentioned would be going in to create just a better user interface and user experience. We think there is.

Small, but material gains along the way.

As we make it easier to merchandise.

And easier for our customers.

To add these things to their cart.

Thanks, so much everyone.

And thank you and one moment for our next question.

And our next question comes from Daniel Mckenzie from Seaport Global Your line is now open.

Oh, Hey, good afternoon, guys, congrats to drew and BJ.

I've got a few questions here.

I guess first.

RASM up mid single digits.

Quarter to fourth quarter, obviously, that's pretty strong I'm. Just wondering if you can elaborate on that a bit how big is the benefit that you just spoke to narrow here in the U.

I guess, the extra comfort as or more from <unk> that can help drive that.

And then I guess secondly related to that if there is a mild recession.

To what extent would that potentially change the forecast.

Yes, Thanks, Dan.

Yes, maybe.

Slightly different perspective, I didn't view.

Mid single digits positive as well.

Overly aggressive given kind of the growth cadence we have in place.

It's been a long time since we had a series of quarters in the low to mid single digits and historically, we've had some really strong unit revenues along with that.

If you remember back to last summer, we had did have to pull out a material amount of our capacity.

Reaction in April and took out 15% to 20% of our summer ASM, which did contribute some thrash as we think about final result, and I think that will.

Be able to buoy this year a little bit more.

Avatar coming online will certainly support like I mentioned, we'll get into a bit more in terms of valuation whatnot through investor day.

But that will provide a little bit of upside there.

So all in all I do think it's a reasonable.

A reasonable revenue target and nothing particularly aggressive.

Hey, drew this is Greg I might add Dan.

Some other puts the items to think about last year we.

We talked about Iraq's already in our opening remarks.

Hundred million full year, right, but a big chunk of that is lost revenue. So that's going to be helpful comp year over year on these unit revenue numbers the growth, although it's limited that youre looking at its measured its de risk. It's in markets that already exist today. So we're not going out and trying to add new markets. There is already a maturation there and then the other thing maybe just to your point.

<unk> potential recession is now our utilization per aircraft going into this year's low six two hours right in 2019 by way of comparison and with eight hours and so we're already have the lower utilization in our model is built to flex in off peak periods to capture that demand. So I think we're just very well positioned in the event, we do see a slowdown.

I think if we look at the next couple of quarters, the only 20% to 25% of our capacity likely to be on off peak day of week kind of going up with Greg was mentioning so we're very well aligned with where the leisure customer wants to travel already.

Well positioned for that and we know that the leisure customer is incredibly resilient.

On the inflation front I mean, we have great visibility on the first half of the year for sure in the first quarter. So to the extent there is any modest inflationary pressures.

We just don't see it but it is going to be back ended in the year to the extent there is anything.

Wow, that's a great great perspective thanks.

If I can.

To get a second question in here I guess, Vijay I'm already getting inbounds on negative free cash flow. This year, it's a solid outlook to be sure, but I'm. Just wondering if you can speak to that and the plan is to use cash on the balance sheet potentially equity or additional debt. If we could potentially just take that worry off the table.

Yes, Thanks, Dan most of most of the Capex. This year is debt financed.

Greg I don't know if you want to talk to specific numbers here.

And if you think about where the Capex is and just use sort of like rough historical ltvs and can bring in north of $450 million in new debt.

At our discretion as we as we navigate throughout the year.

Then there is between 150 and 200 in principal payments.

The thing I'd mentioned is we have line of sight to really fantastic terms on attractive financing.

Where all of the Capex coming in as you know sunseeker is already financed at an interest rate that's in the money now.

Something that we're really pleased with and then on the aircraft. The appraisal values are up I think $335 million since we placed our order at the end of 2021.

Which just gives us a great ability to go out and raise financing and draw a lot of interest for supporting those airplanes.

Hey, Dan.

This is Greg I was just going to add a few things just to Bj's point, maybe just to crystallize here that's.

While we are going to add leverage if you just take the midpoint of our guide for 'twenty three that gives you about $500 million in EBITDA. If you take the net leverage so I think BJ said, we'll end the year with a $1 billion in cash and you kind of take the the waterfall of debt that gets you to 5%.

<unk> billion and debt net debt one five so returns net leverage still comfortable but these are this is a time when we're investing back in the company. We're investing in assets that are yet to be revenue producing we're doing it with a strong credit and so when we get on the other side of this 24 and beyond youre going to see that that delever pretty quickly.

And our expectation yes. Thanks, so much you guys thats perfect.

And thank you.

And one moment our next question.

And our next question comes from Helane Becker from Cowen Securities. Your line is now open.

Thanks, very much operator, hi, everybody and thank you of course for the time two questions. One is is.

As you think about your ASM growth being so low single digits. This year, how are you thinking about where to prioritize growth.

Or in other words is it new market.

Increased service in existing markets, how should we think about that.

Sure. Thanks Blayne.

Not a lot of new markets.

For the first half of the year only about 4% of our ASM will come from markets in their first 12 months.

And within that.

And then we have a <unk>.

<unk> market starting here in the first quarter and Thats and Thats about it it's pretty pretty minimal I focus more on the restoration of a little bit of that frequency.

That's where we can get it but.

When we're talking 1% in the first quarter and a small step up but it's not.

Not a ton beyond that.

Okay. That's helpful actually thank you and then my follow up question is.

As youre thinking about.

The resort.

Sunseeker printer gorta, either the region and so on.

Okay.

Climate has been an increasing issue for a lot of them.

Companies and obviously.

It was a big issue last year for you guys. How are you thinking about hurricane seasons going forward in the hurricane season this year.

Maybe it's how do you protect the resort from hits like this in the future.

Hi, Linda this is John .

Stating the obvious when I say hurricanes have been around in Florida forever.

The state has.

Has reacted to those.

Over time by changing building codes by doing a lot of things with technology that allowed buildings to be built differently in operations to be run differently. So when you take the resort we thought about that when we were designing it frankly lot of a lot of you probably didn't understand when they're first chatting about it but we built that.

Resort 16 feet above the mean high pipeline. So we wouldn't have had any damage, but we're falling cranes. If you look at the worst.

Hurricane in a lot of people are referring to the top of the state of Florida. So put another way if the resort was done and the types of storm surge that hit Port Myers hit where the resort is it would've gone underneath the building and out the other end. So we wouldn't have had any damage. So we're the only resort in the entire state of Florida.

Adult like that.

To be able to withstand it and also were built to category five standards. So I think that's how we reacted to what we've seen in the state of Florida, and I am sure that others.

We obviously love what we did we're positioned fantastic going forward to weather any kind of a storm in Florida.

<unk>.

I guess this was a test to that again, but for these hurricanes falling down to the building. We went head of issue and it's also worth pointing out the last major hurricane that hit southwest, Florida like that was Charlie <unk> four so it's not like these are annual events they might be annual so to certain extent somewhere in the state, but not always an exact.

Same region.

You went from <unk> to 'twenty two.

<unk> the next major one.

<unk>, one which was the worst would not have hurt us at all but we were completed.

Okay, Alright actually thank you that's that's actually very helpful. I appreciate the color.

Thank you.

And one moment for our next question.

And our next question comes from Brandon <unk> from Barclays. Your line is now open.

Yes.

Good evening and thanks for taking the question.

Congrats on all the promotions.

But John I guess, if you look at 2023, you have had some leadership changes.

Are you pulling back growth as noted in the earlier remarks.

I think 2011.

So how do you put this in context like what are the strategic priorities for the organization. This year is it preparing for the Max is it we're getting some figure out what what do you want investors to take away from this year.

I mean, youre hitting on hitting on them.

Couple of them right there.

Greg touched on a little bit, but we have been starting in 'twenty. One we started it in 'twenty two significantly invested in it which was all of our calls our plumbing and electrical all of package. If you will we've been spending significant sums of money to make sure that we are at the leading edge of technology and <unk>.

All of our systems.

So by the by the end of 'twenty, three we will be at that leading edge with everything and all of them turned on and operating so all the system investments Greg touched on SAP tracks now that they're now blue.

That's a heavy lift do you look at 2020. Two for instance, we spent in the neighborhood of about $50 million alone on all the technology upgrades if you will.

That's a big initiative, which allows us to do everything from Veeva.

That relationship to obviously operate and yield what we're doing in a much better format.

Boeing and the Max.

Well understood. We know its backend driven in Q4 really driven but theres a lot of work that has to be done leading up to the.

Receipt of any any planes, so that's all being done.

So we're we're we like where we're at I mean, the resort is an obvious one we've been working on that for some time, we've actually got delays that have been longer than what it would take time to build obviously you had.

Nothing to do with anything we did but we are scheduled to open that in 'twenty, one but all of these are major initiatives that are driving major capex in the last.

Year, and a half to two years that we're not going to see any revenue benefit from until the back end of this year.

And BJ and Greg touched on that but we are in great shape with all of these initiatives. The team has done a great job, we have a lot of people focused on it.

They are working.

Turning to midnight oil as I say.

Brandon, maybe it's R&D, stating the obvious but.

The airlines at the heart of everything we do operation operational integrity as I Hope you heard in the opening remarks number one too that's top priority and as John mentioned getting a deal for our crew members our flight attendants and pilots is at the highest priority our executive Chairman Maury Gallagher continues to spend time or has been timed trying to make sure we continue to.

Barry.

I'm very much worth reiterating us for sure.

Okay.

John and Greg I appreciate that and I guess specific to the growth. This year, because you had been planning for more.

You spoke to this a little bit but is this.

Really demand related costs related or operational integrity.

What are the constraints right now as it really pilot availability, that's constraining your ability to grow or is this commercial as well.

The demand environment is still extraordinarily robust.

So that is not a concern.

We're generally scheduling up to our first operational constraint.

And many months, that's going to be our pilot head count and others that might be the number of available tails, we have given our heavy maintenance line and.

And how we how we try to structure that with some peaks and valleys.

Thats, primarily the driver as we get into the back half of the year in preparation for the first Max deliveries, we will have to start pulling some crew members offline to begin training in order to be ready to fly those as early as possible. So we'll run into a little bit more of that being kind of the constraints as we get later into the year.

Andrew sorry, I might add and the team is going to tease me here branded because I use this term that we're screen coiled and ready to go in.

As you alluded to in your comment is that we planned for a larger organization and so there is some pacing items grew constraints being one but windows loosen up if you will where.

6263 hours per day per aircraft per day, and 23, maybe take that up an hour that's going to obviously.

To improve the capacity as well so just wanted to make sure we mentioned that also.

Thank you both.

And thank you.

Yes.

Sure.

And our next question comes from Duane <unk> from Evercore Partners. Your line is now open.

Hey, Thanks, I don't know if the one question was just just meant for me, but I'll respect it.

Yep.

On the on the <unk> revenue outcome.

You touched on the breakage.

Yes, if you could go into a little bit more detail on what were the drivers of the upside and on and on base fares in particular any particular markets.

And I think look I think the pattern we've seen in the last couple of quarters is that there was kind of an inability or constraints.

Flex up in these peak demand periods and that was kind of holding you back.

Is there something that has changed or something you're doing differently that is helping you kind of flex back up in the peaks again, unlike the last two or three quarters.

And what I don't know that Thats necessarily true I mean, some of our best performance before the holidays in the summer and what we were able to do on a yield basis. It certainly wasn't to this extent.

I think theres, a little bit of a different and there always has been in terms of the holiday and spring break versus summer, whereas this Barry.

Tight window in which travel occurs I think giving us very heavily concentrated around the holiday.

Same with Christmas and new year's.

Just kind of longer and drawn out summer. That's that's good but it's kind of spread drawn out good so.

So we were really able to capitalized well on that very concentrated window of demand probably in a way that year I felt we were not able to do the same level in the summer.

The optic stuff still look good October was what's helping as well.

There's not necessarily any individual piece to call out it all looks good with maybe some slight outperformance in the holidays like I mentioned.

Tight windows.

Okay, I guess, sorry, I'm going to contradict myself on the guidance is that just airline EPS or is that.

Consolidated EPS guidance.

Yes airline EPS.

Okay. Thank you guys.

Thanks, Duane Thanks, Brent.

Thank you and one moment for our next question.

And our next question comes from Michael Lindenberg from Deutsche Bank. Your line is now open.

Hey, good afternoon, and hey, congrats to the team on the promotions.

Yes.

One here.

Yes that Scott de Angelo.

You called out you talked about the loyalty of your customer base.

<unk>.

Provided some qualifiers around it I thought it was interesting.

You called out southwest and other airlines and where you were.

Getting passengers or picking up new customers.

Is the southwest mentioned is it because of the overlap that you have with them or more recently are you actually seeing meaningful traction in the markets where you.

You may compete head to head or in their backyard.

Thanks, Michael for the question. It is more of the former we've tended to overlap with them. The most so when you ask our customers who did you last or most recently fly with about a third of the time that answer is going to be south west and then the other carriers, even though it's convenient I know for the market to classify us alongside other you.

<unk>. The reality is we don't have much overlap there.

So the next three airlines that are answered when asked what did you last or most recently fly with our always Delta American and United in that order with obviously many of our customers actually flying that the regional arms, but identifying with right.

The overall brand of those airlines and so it was meant simply to show that in this environment. Even if there was some type of recession I would just ask the market too.

As much as there was any contraction at any point in leisure travel also look at the slice of pie that is <unk> because.

Our data would indicate that even if the overall pie where to shrink.

Our slice of that pie would continue to grow as customers of whether it's southwest or other network carriers are increasingly buying down <unk> coming into the U LCC category.

I think given our brand of non stop travel. So hopefully that's helpful in providing some color there Scott on this survey when they give you the airline what is the number one reason is it because of first or is it because they had a lousy experience I'm just I'm curious oh, yeah, no great. It's usually non stop flight and fares.

And those those can go one to two but those are far and away the top two.

Schedule is the third one.

But it's usually in a way down and then preferred airport.

Everything else tied for <unk>.

Fourth and beyond.

But we don't we haven't seen that Theres, just a swell given just one bad experience, but we undoubtedly know that right overall disruptions.

Especially when it involves connecting flights.

We will draw someone now to look for non stop flights.

As you all know all of our flights are non stop so that's really the key driver I think in times of disruption, whether it's weather whether its just irregular operations over the summer over the winter. It happens to every airline but if there's one thing we know it's one thing to potentially get canceled delay in your origin or your desk.

The nation, there is nothing worse than getting stuck in the middle and that's what we're seeing a lot of customers react too can be drawn in by an airline that only fly nonstop.

Thanks Scott.

You bet. Thank you.

Thank you.

And one moment for our next question.

And our next question comes from Andrew <unk> from Bank of America Merrill Lynch. Your line is now open.

Hey, good afternoon, everyone.

A question on the Capex I think last call you you set a floor like $500 million on Capex I guess at the time I never thought it would be.

North of the $700 million you just guided to I guess what.

What are the big buckets of Capex kind of set that are coming in this year ahead of plan, particularly on the non aircraft side.

And then.

When you think about yet.

The Capex and I know you can finance a lot of this how do you think about minimum liquidity going forward because I would think with the Max was pushed out to 2024 deliveries capex will be will be pretty high next year as well.

Hey, Andrew it's Craig I'm going to kick it off real quick and BJ I'll walk through a little bit more detail just because I think I'm. The one that throughout that floor of $500 million of Capex next year and really it was.

There was a lot of uncertainty around the timing of the Boeing aircraft being delivered in 2004 in PDP and so we wanted to throw that out as a Florida there'll be no less than and so we've had more time to work through that and understand the timing, which which is now why we're updating you with those numbers, but with that okay.

Yes, Andrew just on that same point I mean, if you think about a large portion of the aircraft are paid for in the calendar year. Prior two deliveries so with so many aircraft moving into 2020, where you've done a lot of capex going out for PDP. This year, I think thats actually our largest capex.

Commitment. This year is pre delivery deposits and then you have the two aircraft delivering from Boeing in the fourth quarter of this year and then remember we also slid four placeholder aircraft from 2022 into 2023. So a lot of this capex was sliding from 'twenty to 'twenty three and then we obtained PDP for 'twenty four and 'twenty three.

And then liquidity I think you mentioned it in his opening comments the two times roughly two times ATL, which gets you right now <unk> is running about $400 million.

Total liquidity would be around $1 billion is what we're targeting for the year at the end is that fair.

Yes, and then maybe just mentioned that our revolver facilities are undrawn today, which are $225 million and then the <unk>.

Better part of our $200 million PDP financing facility is undrawn as well so we're using those as necessary throughout the year.

Understood.

What are the big buckets of non aircraft Capex.

It's I think it's a it's about a $135 million in total non aircraft.

$60 million to $70 million, that's going to be that it investment that we were talking about you have some simpson.

Stimulators that we're going to be acquiring to take.

Start taking delivery of the Boeing.

Aircraft, our fleet and then.

The remaining would be just your normal kind of standard capex maintenance capex, such as parts tools things like that.

Got it thank you.

Okay.

Thank you.

And one moment for our next question.

Yeah.

And our next question comes from Savi <unk> from Raymond James Your line is now open.

Hey, good afternoon, everyone.

Just on the <unk>.

Pilot implied as outside analysts that are on the pilot side, what have you seen in terms of.

Attrition levels are kind of being able to staff that well I'm just kind of curious with ICR only getting a deal by midyear that means as you head into the summer.

You will be kind of having a headwind versus a lot of other airlines that have increased pay deal, but just curious on what youre expecting there and what you're seeing there.

Hey, Savi, it's Greg why don't I give this one a stab and.

Just to put some more color around that for the full year 'twenty three we're expecting about a 25% system attrition on the pilot side.

Put perspective in that in 'twenty two it was 17% the last three months. However, it has been roughly 20%, but again the point being we're expecting higher or.

Our planning and scheduling for it to be higher than what we've seen historically or at least in the past.

Three months or past year in terms of the school house, and our ability to attract and bring on pilots and I think just to.

Give some perspective there.

Every class, we're anticipating around 12, new hires or pilots. We had two classes in January there was 30 pilots in that class all in all just to kind of bring.

To bring this together I think were expecting roughly two to 250, new pilots join Allegiant during 2023 really excited about with Tyler Hollingsworth and Rod Hardesty or Ross, our chief pilot Tyler's, our VP of flight ops.

They are also out there on the recruiting front and putting an additional pathway programs. So I think theres five create a pathway programs today they are taken that to eight.

So we're really doing the taken the appropriate steps I think to.

And kind of protect and control, our destiny and and but we're planning for kind of the what we're planning for a down case scenario and and so far we feel good about that plan.

Alright, thank you.

And thank you.

Okay.

And I would now I'm showing no further questions I would now like to turn the call back over to John Redmond for closing remarks.

Well, we appreciate everyone's time and questions all great questions. You can see why we're excited about 23 in the out years.

Greg uses the term spring coiled as you mentioned for for 'twenty, four we wouldn't be enough position, but to the investments in 'twenty one 'twenty two.

So were Jasmine and of course those investments as we touched on are not only all of the it infrastructure. So that we are doing but but all of the.

The employee investments everything from pilots flight attendants everything else we're doing so.

It's a heavy capex lift but.

Needed and required in order to take on the growth that we're doing going forward. So stay tune 23 is going to be amazing, but 'twenty four it will be really something else. Thank you everyone.

This concludes today's conference call. Thank you for participating you may now disconnect.

Q4 2022 Allegiant Travel Co Earnings Call

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