Q1 2023 Allegiant Travel Company Earnings Call
Speaker 1: to the Q1 2023 Allegiant Travel Company Earnings Conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during that session, you will need to press star 11 on your phone.
Speaker 1: You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 1 1 again. Please be advised that today's conference is being recorded, and I would now like to hand the conference over to your speaker today, Ms. Chevy Wilson. Ms. Wilson, please go ahead.
Speaker 2: Thank you, Chris. Welcome to the Allegiant Travel Company's first quarter 2023 earnings call. On the call with me today are John Redbend, the company's Chief Executive Officer, Greg Anderson, President, Scott D'Angelo, our EVP and Chief Marketing Officer, Drew Wells, our SVP and Chief Revenue Officer, and
Speaker 2: Robert Neal, SVP and Chief Financial Officer, and a handful of others to help answer questions. 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.
Speaker 2: Various risk factors could cause the underlying assumptions of these statements and our actual results to differ materially from those expressed or implied by our forward-looking statements. These risk factors and others are more fully disclosed in our filings with the SEC. Any forward-looking statements are based on information available to us today.
Speaker 2: We undertake no obligation to update publicly any forward-looking statements, whether as a result of future events, new information, or otherwise. The company cautions investors not to place undue reliance on forward-looking statements, which may be based on assumptions and events that do not materialize.
Speaker 2: 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.allegiantair.com. And with that, I'll turn it over to John .
Speaker 3: Well, thank you very much, Harry, and good afternoon, everyone. We've hit the ground running in 2023 and continued operational strength leading to financial results.
Speaker 3: We reported earnings per share of $3.09, which compares favorably to our initial expectation and provides us confidence to raise the midpoint of our full year EPS guidance to roughly $9.75 per share. We reported earnings per share of $9.75 per share.
Speaker 3: The leisure customer range remains exceptionally strong as evidenced by total revenue growth of 29% as compared to Q1 prior year, coupled with recent company history best Q1 load factors approaching 86%. These results exceeded expectations and were underpinned by a stellar...
Speaker 4: during the quarter.
Speaker 3: More than 4.1 million guests traveled on our airline, helping fuel a record quarter for always credit card acquisitions of 46,000 cardholders as we ended the quarter with 435,000 credit cardholders.
Speaker 3: The key focus of this management team is improving the experience of our guests and the strengthening of our brand. This is a critical tool for us in expanding our powerful customer database of 16.5 million customers which is growing on average by 225,000 per month. The continued demand of our product by our customers is key to our success.
Speaker 3: named one of Forbes America's best mid-sized employers for 2023 and Newsweek's America's greatest workplaces for diversity in 2023.
Speaker 3: In addition, prioritizing our team members also includes reaching collective bargaining agreements with our flight attendants and pilots. Getting these respective deals done is number one on my priority list. I remain optimistic about reaching agreements with these team members and the team members
Speaker 3: that these team members deserve and are proud to support.
Speaker 3: Great progress has been made with both CBAs, and we would expect these to be finalized in the not too distant future.
Speaker 3: Turning to Sunseeker Resort Charlotte Harbor, I'm pleased to report we are currently on track for official opening date of October 16.
Speaker 3: The Sunseeker team and construction crews have been working around the clock and the remediation work related to hurricane and other events is just about finalized.
Speaker 3: As we work through construction delays and repair work related to the hurricane, we have clear line of sight to a final budget.
Speaker 3: We've updated the capital expenditure budget, which is inclusive of the Aileron Golf Club, including both the golf course renovation and construction of a new clubhouse and entry gate to $695 million.
Speaker 3: We are well outside of the normal hotel booking curve, yet we remain encouraged by early booking indicators. To date, we have booked roughly 2,000 transient room nights at an ADR of $407 with minimal advertising efforts. Wouldn't other
Speaker 3: More importantly, the ADR has been accelerating over the last two months, coming in at $540 and $460 for a business book in the month of March and April respectively.
Speaker 3: In addition, we have over 6 million Sunseeker Resort emails and expect the number to grow to closer to 7 million emails by opening date.
Speaker 3: We continue to attract high quality group bookings as well with over 40 different groups currently contracted for rooms, food and beverage totaling 12.7 million.
Speaker 3: There are another four groups we are in advanced conversations with on 3,000 rooms and 1.9 million in rooms food and beverage.
Speaker 3: Last month we unveiled 20 original world-class food and beverage concepts. These unique offerings will truly be one of a kind to the area.
Speaker 3: Furthermore, we have always looked at the resort as an incubator to launch all the IP being created, so we are excited to reveal these incredible concepts.
Speaker 3: Touching briefly on fund seeker financials, total operating expense during Q1-23 came in right below our estimated $5 million for the quarter.
Speaker 3: We continue to expect a similar run rate in the second quarter before jumping to roughly $15 million during the third quarter related to pre-opening expenses.
Speaker 3: All in, we currently anticipate a $1.25 loss per share for 2023 attributable to Sunseeker Resort. This amount does not include insurance recoveries related to business interruption coverage.
Speaker 3: In closing, I want to thank our employees for a tremendous quarter. Your efforts drove an exceptional operation which is paramount for our guests, for you our employees, and for the long term vision of this company.
Speaker 3: Many of you I recently visited on my travels to several of our bases and your enthusiasm, dedication and passion is infectious. Thank you. With that I'll turn it over to Greg.
Speaker 3: John , thank you and thank you everyone for joining today's call.
Speaker 3: 2023 is off to a great start as reported in our first quarter results. The team delivered meaningful improvements in operational areas across the board. Most notably, a terrific 99.9% controllable completion factor with an industry leading 99.1% completion factor.
Speaker 3: This operational excellence was evident in our financial performance as our total irregular operational costs came in just below $9 million. That's down $57 million compared to the same period in 2022.
Speaker 3: I couldn't be prouder of this team's performance, and I'm happy to report an update on our C-suite, and that's that Kenny Wilpert, who has served as our interim COO since January , has been appointed as our permanent Chief Operating Officer.
Speaker 3: Congrats, Kenny. You have our full support and confidence. This is one of the most exciting times I've experienced in my history with Allegiant. Our leadership team is strongly aligned and our team members are dedicated to executing in stride and rethinking processes to become more productive and to strengthen this organization.
Speaker 3: For example, our planning, finance, and operational teams continue to work together, shoulder-to-shoulder, on a multi-disciplined approach to drive operational excellence while expertly matching capacity with demand.
Speaker 3: Recently, and to preserve operational reliability, the team trimmed full year capacity 2.5 points, now guiding 0 to 3% ASM growth.
Speaker 3: This is a result of MRO delays for aircraft and heavy maintenance, pilot constraints, but along with airport construction disruption and ATC delays in some key markets, particularly during peak travel days. Even with this reduction in guided capacity, the
Speaker 3: we expect improvement in full year airline earnings to $11 per share, an increase in our full year guide of EPS support dollars per share.
Speaker 3: We believe our measured approach coupled with our differentiated model sets us up well to deliver industry-leading results regardless of the broader macro environment. Mentioned last quarter, we have incorporated within our EPS guide the expected cost increase for our open labor agreements. The actual increases in compensation will vary depending upon economic terms reached and the timing of these agreements.
Speaker 3: on a contract extension with our dispatchers, represented by the IBT. This agreement will modify the final pay rate increases in the CBA and provide a two-year extension on their current CBA. I think it's important to note that this contract did not even become amendable until May 31 of next year, but the parties worked together to bring this meaningful improvement to our dispatchers today.
Speaker 3: As John mentioned, we are still in active negotiations with our flight attendants represented by TWU and our pilots represented by IBT. Resolving our open labor agreements is our highest priority. Negotiations with our flight attendants opened eight months ago and we are quickly closing in on the outstanding open items. Both sides are very pleased with the progress that has been made and we look forward to announcing a tentative agreement.
Speaker 3: have already provided numerous additional dates to continue to work together towards resolution. Touching briefly on our current pilot staffing, our net headcount for the year remains roughly flat and consistent with the trends messaged last quarter. However, within our schoolhouse, the number of new hire pilots are outpacing our initial expectations.
Speaker 3: With a strong recruiting team and pathway programs in the works, we remain confident in our ability to attract, train, and grow pilots.
Speaker 3: Allegiant is uniquely set up to be the destination airline for our team members. Our out and back model is built around our flight crews having the opportunity to be home every night and that is something they highly value. We look forward to reaching agreement with our flight attendants and pilots and provide compensation and work rules that they can be proud of and most importantly they deserve. Turning briefly to our systems transformation.
Speaker 3: We continue to make significant progress on our four core system integrations. NaviTERRE, SAP, Traction, NavBlue. First up will be NaviTERRE, which we expect to go live this quarter. Its enhanced functionality in our commercial platform is expected to unlock additional features to drive higher ancillaries and bundles.
Speaker 3: In addition, Navatar provides the necessary functionality for us to expand internationally in New Mexico through our joint venture with Viva Erebus.
Speaker 3: While we are still awaiting DOT antitrust immunity, we are confident in this outcome. We are fired up about this partnership and its unique ability to provide incredible value to our guests and more growth opportunities for our team members. And in closing, these results cannot be accomplished without the efforts of Team Allegiant. Over the past 90 days, I've had the amazing opportunity to immerse myself more in the private sector in the democratic society. And we're coming to an agreement where the committee is going in the rate of opioid addiction, environmental addiction and linked Lebanon. Twohh isen Technician Joe
Speaker 3: viable and convenient product. I want to thank each and every one of them.
Speaker 3: And with that, I'll turn the call over to Scott D'Angelo, our Chief Marketing Officer. Thanks, Greg. First quarter saw unprecedented demand generation and capture that enabled Drew and his industry-leading revenue management team to maximize both load and yield resulting in record-setting revenue results.
Speaker 3: What's more, our nearly 30% year-over-year increase in revenue was driven by advertising spend that was 10% lower than prior year. This greater marketing efficacy was driven by leveraging data science and enabling technologies, including beginning to leverage artificial intelligence to create more targeted, more personalized and higher impact execution.
Speaker 5: For example, our major sales events in January and February were executed purely via digital advertising and our owned media assets and they drove four of the top eight book revenue days in our history. In addition to the historic overall base there and air ancillary revenue performance in Q1,
Speaker 5: We also, as John mentioned, continue to outperform expectations with our Always Rewards credit card program. Q1 was the strongest to date, both in terms of new card signups, with March being our single best month ever for new card signups, and in terms of program compensation. We are closing in on 500,000 cardholders.
Speaker 5: and for the year, expect to generate more than $100 million in recognized revenue from the Always Rewards credit card, which, as you know, has a NIBODO margin of more than 90%, and about $500 million in flown revenue from cardholders who still represent fewer than 3% of total customers. So plenty of upside there as we continue to generate new card signups at an ever-increasing rate.
Speaker 5: Beyond that, our Always Rewards non-credit card program, which has more than 15 million total members, saw 1 million members booked during Q1. That's up 44% versus last year. And these Rewards program members exhibited spend that was 32% higher than non-members driven by greater air ancillary take rates and greater third-party hotel and rental car attachment. These were pretty good Tour guides, including altogether Urban V18 instead of Urban's other features.
Speaker 5: Our active customer base continues to be a healthy balance of repeat and first-time customers. Like last quarter, we surveyed a representative sample from both these most frequent flying rewards program members as well as those who flew us for the first time ever this past quarter to understand why they traveled with us and what their future travel intentions were.
Speaker 5: and the results were virtually identical to what they were in January . For these most frequent flyers, nearly 80% traveled for leisure only, and nearly 20% traveled for both business and leisure. More than 40% said they stayed with family or friends, and nearly 40% said they stayed at their second vacation home. That means around 80% fall into types of travel and
Speaker 5: that are the most resilient during negative economic climate.
Speaker 5: To further validate this, we again asked these customers the extent of which they expected their travel plans with Allegiant to be impacted given the prospect of worsening economic conditions. And they told us the same thing they did a quarter ago. Nearly 50% said that economic considerations would have no impact on their flying behavior with Allegiant in the next 12 months.
Speaker 5: and more than 30% to the economic considerations would actually make them more likely to fly with Allegiant in the next 12 months. In addition to this core and growing base of loyal frequent flyers who drive a majority of our revenue, we continue to add new customers that are defecting from traditional higher fare airlines to...
Speaker 5: in this upcoming year. The only meaningful changes past quarter among first-time customers was that a significantly larger portion versus three months ago said that they last flew or regularly flew one of the top four largest traditional higher fare carriers. All that said, while some customers are expressing concern about the economy and a portion say they do plan to take fewer leisure travel trips than they did last year.
Speaker 5: bullish from a forward-look demand perspective. Allegiant is not only fully capable of maximizing peak travel demand capture, we're unique in our ability to capture a greater slice should there be any temporary shrinking of the leisure travel pie during off-peak leisure travel periods through our direct-to-consumer marketing approach.
Speaker 5: that appeals to those seeking relief from sky-high fares for flights that connect through crowded hubs and makes them aware of Allegiance's low fare and all non-stop flights brand. And as our customer research points to, we continue to grow our addressable customer audience by capturing a greater share of those who have usually flown traditional higher fare carriers, but given the current environment, Tower gather was finally contractors they were able to furthermore freightART IlITE's high fare facility, the moves to the current retirement, delivered by Google Earth fate region. Tower gather won't be over, let aloneop guess thatolog Astronaut WWE
Speaker 5: are choosing to buy into the ULCC category with Allegiant. As such, we believe Allegiant is well positioned to weather any challenging macroeconomic conditions, just as we have always done historically. And with that, I'll turn it over to our Chief Revenue Officer, Drew Wells. Thank you, Scott, and thanks everyone for joining us this morning. I'm extremely pleased with the first quarter performance of $650 million in total revenue.
Speaker 3: growth of nearly 30% on system ASM growth of just 1.2%.
Speaker 3: This combination produced a travn of 13.89, which beat any previous first quarter by a full cent and grew year over year by 28.8%.
Speaker 3: Further, four March weeks landed in the top 12 from an all-time traveling perspective.
Speaker 3: Could not be happier with the peak spring break season and the quarter as a whole both financially and operationally.
Speaker 3: The strength in the corridor was well balanced as both yield and core air ancillary products each contributed 1 to 1.5 points of outperformance against the expectation at the previous call, adding lift from the expected mid 20%.
Speaker 3: Encouragingly, the Allegiant Extra rollout, while still early, has continued to exceed expectations and we're thrilled to make this option available to more guests on more routes soon.
Speaker 3: Additionally, our Charters group worked incredibly hard to set a first quarter record revenue performance as well.
Speaker 3: They were opportunistic in filling in scheduled service gaps through high fuel January and February , with new fixed-feed business giving us the incremental lift.
Speaker 5: As I mentioned three months ago, we're looking at forward indicators and have not seen anything that causes us to incorporate a downturn into our models.
Speaker 3: While we continue to read and hear the same headlines, we have not seen booking impact from our leisure customer base and have forecasted as such.
Speaker 3: In the event macroeconomic pressures become real, our business model is well positioned to adapt and overcome.
Speaker 3: Building on Scott's commentary, many of the pieces that have made us resilient to macroeconomic pressures have strengthened over time. Our total ancillary performance of $75 per passenger in the first quarter provides a very healthy base from which we can optimize airfare to maximize total revenue and historically has shown resilience in all environments. We accomplished that milestone without the expected benefits of Navatar coming later this year.
Speaker 3: after the upcoming deployment Greg mentioned. Our trip cost has reduced and will continue to reduce drastically since the last non-COVID economic downturn thanks to the addition of first used Airbus A320 family aircraft and soon new Boeing MAX technology that continue to lower the threshold required to achieve profitability.
Speaker 3: On the whole, we still expect TRASM over the last nine months to be up mid-single digits in aggregate, even in the face of more challenging comps, with the most challenging coming in the fourth quarter.
Speaker 5: Continued operational stability, a historically mature network, expanded Allegiant Extra product, and the Navitary integration provide tailwinds that support the revenue story through the year.
Speaker 3: As we continue to work hand in hand with our operational groups to best align the future schedule, we've made the decision to trim about two and a half points of capacity out of our summer schedule, which will push the next two quarters to around flat year over year and the full year ASM story a bit lower than originally thought.
Speaker 3: While our original plan schedule already had dialed back Vegas as a percent of the overall system, an outsized portion of the recent summer trims also came here in Vegas as construction work impacts operations. We remain bullish on the demand environment, though factors like completion, operational reliability both controllable and uncontrollable to Allegiant, as well as fuel will continue to play a role in the planning process.
Speaker 5: And with that, I'd like to turn it over to Robert Neal. Thanks Drew, and thank you to everyone for joining us today. We're pleased to report today first quarter consolidated net income of $56.1 million.
Speaker 5: Yielding a consolidated adjusted earnings per share of $3.04.
Speaker 6: And when excluding Sunseeker, we reported airline-only EPS of $3.30, well ahead of our expectations. Drew mentioned that unit revenues increased 28.8% versus the same quarter last year. This was on the back of ex-fuel airline unit costs of $7.75, which were up 9.8% as compared to the same quarter last year on 1.2% more capacity.
Speaker 6: Unit cost headwinds in the quarter included elevated airport costs, lower aircraft productivity, and higher credit card fees from higher revenue, along with a one-time employee retention credit that we had in the 2022 comp. Additionally, fuel costs were elevated through much of the quarter, coming in 11.4 percent higher per gallon.
Speaker 6: on unit cost metrics throughout the year.
Speaker 6: However, since our last guidance update, we've seen improvements in our fuel cost outlook, driven primarily by a steep reduction in the crack spread of nearly a dollar per gallon from the high point in late January , allowing us to reduce our estimated full-year cost per gallon to be $3 down from $3.60.
Speaker 6: The reduced fuel forecast coupled with continued strength and peak leisure demand drives an increase to our full-year airline estimated earnings per share of $4 at the midpoint to a new range of $9 to $13. Our full-year earnings guidance incorporates increased costs associated with pilot, flight attendant, and dispatcher agreements, as well as wage increases for our maintenance technicians, all beginning in May. For more information, visit www.fema.gov
Speaker 6: While of course actual increases in these costs will vary depending on the final terms reached, completing these CVAs with major work groups is a top priority for us. We are built to be a larger airline than the one we're running today, and we believe the efficiencies gained from better utilizing our existing infrastructure and fleet will outweigh costs associated with new labor rates. In looking at the balance sheet.
Speaker 6: We finished the quarter with total available liquidity of $1.5 billion. That includes approximately $400 million in undrawn credit facilities and $1.1 billion in cash and cash equivalents.
Speaker 6: The business produced roughly $215 million in cash from operations during the quarter, a first quarter company high for a lead in.
Speaker 6: As our capital expenditure commitments remain elevated throughout 2023, we will continue to take a conservative approach to liquidity and expect to finance most of this year's CapEx with debt. Thank you.
Speaker 6: Now turning to fleet, we inducted three Airbus A320CO aircraft during the first quarter, bringing the total operating fleet to 124 aircraft with two additional A320 aircraft owned and on property at the end of the quarter, which we expect in operation in the coming weeks.
Speaker 6: For the remainder of 2023, we expect to take delivery of three midlife A320 series and two 737 MAX 8200 aircraft. As mentioned on our last call, our first 737-8200 aircraft are scheduled for delivery to the Legion very late in the fourth quarter.
Speaker 6: And so for capacity planning purposes, we are not relying on these airplanes for revenue service until early 2024. We remain in very active dialogue with Boeing regarding the remainder of our 737 MAX delivery schedule. And as of today, still expect to take delivery of all aircraft in the firm order book by late 2025.
Speaker 6: 2023 is an investment year for Allegiant with approximately $1 billion in CapEx, and most of this is for assets with earning potential coming in 2024. And so, notwithstanding our expected earnings production this year, we would expect to exit 2023 with net debt to EBITDA similar to current levels. In regard to Sunseeker CapEx, our current capitalized expenditures and updated budget in today's release would indicate a significant increase in capitalized earnings.
Speaker 6: thanks to all of our hardworking team members. Their strong execution during the first quarter, and in particular, improved operational metrics, give me great confidence in our ability to scale this unique business model.
Speaker 6: With that, Chris, we're ready to take questions.
Speaker 6: With that, Chris, we're ready to take questions. Thank you.
Speaker 1: As a reminder to ask a question, please press star 11 on your phone and wait for your name to be announced. To withdraw your question, please press star 11 again. We ask that you please limit yourself to 1 question and 1 follow up.
Speaker 1: Standby as we compile the Q&A roster.
Speaker 1: One moment for our first question.
Speaker 1: Our first question will come from Savi Sis of Raymond James. Your line is open.
Speaker 7: Hey, good morning everyone. Thanks for the time. This is Matt on Firstavi. Y'all provided some some.
Speaker 7: Some color on the capacity and Casa Max impact. So when are you going to provide maybe a little detail on each 1 of those buckets and higher thinking of the contribution there and the cadence from the 2nd quarter in the 2nd half as well.
Speaker 6: Yeah, Matt, it's BJ. I think in the 9.8% increase year over year, you can think about four points of that being related to the retention credit. That's largely offset by the benefit from reduced irregular ops costs.
Speaker 8: other bucket there.
Speaker 7: Okay, thanks. Thanks. Appreciate that there. And then also, you'll spoke on
Speaker 7: The pilot situation and your net hires for the year. Does that imply that attrition has gotten worse to your prior plan or
Speaker 3: Hey Matt, it's Greg. No, I mean, attrition is in line with what the plan is, but where we're, we've seen a lot of upside, particularly as of late is within the schoolhouse. So the new hires coming in, you know, the team there, and I think I mentioned this on the last call, have some terrific pathway programs with the military, with the universities called alleviate pilot pathway, and also with Spartan.
Speaker 3: To put that into perspective, we were planning on 12 new pilots per class. We're roughly running in May 20 and in the summer as well, 20 per class. We're encouraged on that regard. I think in my opening comments, though, I mentioned that just overall it's in line with what we were expecting and basically net pilots is flat.
Speaker 7: Okay. Thank you all very much.
Speaker 1: Thanks, Matt. Thank you.
Speaker 1: And one moment, please, for our next question. The next question will come from Michael Linnenberg of Deutsche Bank.
Speaker 3: Your line is open. Oh Hey, good morning everyone. Um, hey question for Scott D'Angelo Scott. You do a lot of survey work It seems to be very fairly granular. I was intrigued By the answer of first-time fliers who the last time they had flown they had flown
Speaker 3: one of the legacy carriers. Do you also ask some of these customers first time or even current customers who've flown the bigger carriers what was the reason and whether if the reason had to do with a loss of service? I think we've seen the big three pull out of about 70 or 80 airports over the last year or so.
Speaker 5: And some of those airports are airports that you serve. And I'm just curious if that you're, you're picking up some of that traffic. And I have a second. Thanks, Michael. Yep, absolutely. Thanks, Michael, for that question. Um, the, the answer is yes. The, the winning reasons, um, still tend to be, you know, price and nonstop flight, followed by, followed by schedule.
Speaker 5: because of price and because of non-stop lights.
Speaker 9: Okay great and then just in the revised guidance I guess this is probably for Greg and BJ you know you can back into it see kind of the impact from the reduced fuel price what sort of assumption are you building in for you know revenue that you're able to hold on to.
Speaker 9: I assume you're building in sort of loss of revenue as fuel prices decline, just given the historical correlation. What's the stickiness? I don't know if you have some sort of correlation or percentage, fuel down by a certain amount, you cut revenue by a certain amount to reflect maybe macro weakness and or pass through in the fare structure. How do you think about that? Thank you.
Speaker 6: Hey Mike, Drew here, I'll take this one. There's definitely a relationship between the two, but if you think about how a Legion has historically handled price, fuel price changes, it's been through capacity and we've kind of become our own worst enemy, if you will, towards unitized metrics as we add capacity and then take advantage of lower fuel, but is a massive benefit to the bottom line.
Speaker 6: we're probably a bit more constrained than we have been historically to be able to fully take advantage of a fuel price decline here in the short term. I would expect our revenue to remain more intact. You know it probably won't be non-impacted, but I wouldn't run away with any sort of materiality on the decreases to the revs button. Okay, so that's helpful in allowing us to sort of think through it and the impact. Thank you.
Speaker 1: Thank you. One moment, please, for our next question. Our next question will come from the line of Duane Feningworth of Evercore ISI. The line is open.
Speaker 10: Hey, thanks. Good morning to you. So, just with respect to the guidance, I think you said the next couple quarters flat, which I assume 2Q is one of those quarters, so if you can hit 2Q.
Speaker 10: Platinum 2Q, it is your biggest quarter of the year in terms of absolute ASMs.
Speaker 10: I assume you feel like you're undersized a bit relative to demand in 2Q. So just bear with me here. If you can hit flat in 2Q just mathematically, it feels like you could hit low teens growth in 3Q and mid teens growth in 4Q just mathematically. So what is holding you back?
Speaker 10: or just practically how would you push back on that mass? Yes, Dwayne. I think the way I would talk about it is break down the quarters into the different periods. We think about third quarter will be mostly constrained, obviously in our peaks. There's a ceiling on what we can do in July , which will impact the quarter as a whole.
Speaker 6: And there probably is room if we wanted to increase September , but I don't think that's something that we're looking to do today. If I think Brent's down 3% again this morning, if that continues to run down, I think you will see some additions in September . So, it's a lot about breaking out where we're constrained.
Speaker 3: September being fuel versus demand if we get goodness there then then you're right I would expect them run But otherwise, it's going to be dictated by the peak flying in each of those quarters and where that feeling hits Hey Dwayne, this is Greg Maybe let me just add one other comment to that and at the end of the year, you know We start to take our Boeing aircraft
Speaker 3: So we're going to pull crews. We want to be ready to make sure that we could support that order And so that's another element to kind of limit the capacity growth in the back half of the year Just to follow up there, why would
Speaker 10: Why would ramping on Boeing impact growth on Airbus? We have to pull the crews to get them trained to be able to fly on the Boeing MAX. So we'll have a number of pilots that are offline for that training unable to fly on the Airbus during that time. Okay, and then maybe just relatedly just.
Speaker 10: maybe we're thinking about that the wrong way.
Speaker 3: Yeah, the way we have it planned, Duane, is, you know, we, the way I think about it is, from a pilot inefficiency perspective in terms of pulling pilots to Drew's point to train on the new aircraft, you know, we think probably this year in 23 it'll be roughly $5 million in dead wind and then as we go into 24 and 25 that gets up to 15, but it then normalizes.
Speaker 3: kind of back in 25. So, you know from a DNA perspective there will be a headwind and we think in the back half of this year with the limited productivity from a chasm perspective, but you know I think that's probably two-tenths of a cent thereabouts is what we're expecting. But is that, maybe let me pause there, is that kind of where you're going? You just wanted to understand the headwinds from a DNA and a labor perspective.
Speaker 1: Thank you. Thank you. And we lost you, Dwayne. If you'd like I can bring him back. He said thank you and that was it.
Speaker 11: Silence.
Speaker 3: We can't hear. Sorry, we can't hear coming through. Looks like we have technical difficulties. Oh.
Speaker 1: Are you going to hear me now?
Speaker 1: No, it's still a little choppy. Would you like to hang up and call back in? Speak one more time. It might be a little better.
Speaker 1: How do I sound now? It's getting better. Can you hear us? You are loud and clear.
Speaker 2: Okay, I think we're good, but I'll chat you if we're not. Thank you. Let me to bring back Mr. Feningworth.
Speaker 1: No, I think we can go to the next one. Understood. Thank you. One moment please for our next question.
Speaker 1: The next question will come from Connor Cunningham of Milius Research. Your line is open.And Bodie asked his my own personal and as another member of the beating of a
Speaker 12: Hi everyone, thank you. So historically, I think you've done like 60% of your net income in the first half. I mean, this year is going to be a little bit different with labor and some of the fun seeker stuff. But just curious on how you get to the high end and the low end in the back half. Just is all unit revenue based? Just curious on the swing factors there. Thank you.
Speaker 10: Yeah, sorry, Connor, we just got the intro. Yeah, I think the revenue environment is a pretty big impact there. I would also, as we like to caution pretty much every quarter, remember our share count is relatively low. So a $4 swing in EPS is not a lot in absolute terms of bottom line....
Speaker 10: So you don't have to be a big one fuel will swing a little bit too I don't know if there's anything else you guys want to talk about
Speaker 3: Yeah, I mean, I think, Connor, this is Greg, just to hit on that point, there's kind of like three, the way I think about it, three periods in the year that really drive the bottom line. That's March or that's the summer and that's the holiday period. So first quarter, I thought we put out some really good numbers. I think the second quarter will do the same.
Speaker 12: And that will continue to catapult us into a really strong year as we see it. Okay, that's helpful. And then just on the max, I'm just curious on if there's any language in the contract that can allow you to get out of the seven if the certification continues to be delayed. Have you thought about that at all as you start to think about getting back to this double digit growth rate? I think that you just…
Speaker 6: on getting that aircraft certified. You know, I don't know that at this point we'd have any interest in getting out of those commitments just given we think those delivery positions are extremely valuable and we're really looking forward to the earnings that those aircraft are going to produce as compared to those that they'll replace.
Speaker 3: Hey Connor, this is Greg. I might just add a couple quick comments to that as well. You know, if we think about longer term over the next five to six years at Allegiant, we're planning to be an airline with 200 aircraft. This order with Boeing, this is a big foundational piece to be part of that and as BJ has talked about in the past, when you get to an airline of our size, having a new order...
Speaker 3: two million more in EBITDA for aircraft than our current fleet. So terrific operating metrics there, her numbers, you know there is some inefficiencies that we talked about with having a dual fleet type but obviously those operating economics we believe greatly outweigh those inefficiencies and also
Speaker 3: we're able to mitigate some of the complexities, giving our unique base strategy where we base the different aircraft in various bases. So an all-Airbus fleet in one base and an all-Boeing fleet in another. So all in all, we're still really fired up about the order. We think it could be a game changer long term for us, bringing that fleet type in. And the team's done a really good job of getting ready to bring it on.
Speaker 1: Okay, thank you. Appreciate it. Thank you. One moment please for our next question.
Speaker 1: The next question will come from Daniel McKenzie of Seaport Global. Your line is open.
Speaker 5: Oh, hey, thanks. Hopefully you guys can hear me. Okay. Couple of questions here to put a finer point on the full year guide. Does it embed margin expansion in each of the remaining quarters? And if not, would it tie to revenue conservatism, cost conservatism, or would it be tied more to... Dan, I'm sorry, we can't...
Speaker 13: Oh, thank you. Okay, if you just give us two minutes.
Speaker 1: 1 moment please the speakers will be back on shortly.
Speaker 1: Everyone please remain on the line. The speaker will be back shortly.
Speaker 11: One moment.