Q3 2023 Allegiant Travel Co Earnings Call

November 2, 2023

[laughter].

Yeah.

Good morning, and thank you for standing by welcome to the Q3 2023, Adulate travel Company earnings Conference call.

At this time all participants are in a listen only mode. After the speaker's presentation there'll be a question and answer session.

I ask a question during the session you will need to press star one on your telephone you will then hear an automated message advisory your hand is right.

To withdraw your question. Please press star one again please.

Please be advised that today's conference is being recorded I would now like to hand, the conference over to your speaker today Sherry Wilson. Please go ahead.

Thank you Lisa welcome to the Allegiant travel company's third quarter 2023 earnings call on the call with me today are Maury Gallagher, the company's executive Chairman and CEO, Greg Anderson, President Scott D'angelo, our EVP and Chief Marketing Officer Drew wells, our SVP and Chief revenue Officer Robert.

Ill, SVP and Chief financial Officer, and a handful of others to help answer your 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 various risk factors could cause the underlying.

Assumptions of these statements and our actual results to differ materially from those expressed or implied by our forward looking statements.

These risk factors and others are more fully disclosed in our filings with the SEC any forward looking statements are based on information available to US today, we undertake no obligation to update publicly any forward looking statements whether as a result of future events, new information or otherwise 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.

This earnings release as long as the rebroadcast of the call feel free to visit the company's Investor Relations site at IR, Doug lesion are dot com and with that I'll turn it to Lori.

Sure well again some of you may recognize my voice I.

I hope, you've all been well over the past year and a half it's good to be back.

As you saw in our release Allegiant Airlines generated an operating profit in Q3 after adjustments our 11th quarter in a row of airline operating profit beginning in Q1 of 'twenty one.

Our year to date 22, 2023, 13% airline operating margin leads the industry for those that have reported.

And we have achieved these results while continuing to invest for the future during the past quarter. We have installed two substantial management systems and <unk>. Both are operating as I write this.

As you saw at the top of our release Sunseeker will open December 15th.

It's been a five year effort almost three years longer than planned, but the weight will be worth it Micah Richards, our sunseeker, president and his cohorts, Jason Skorupa and Paul Barry.

MGM Las Vegas veterans are putting the final touches on this magnificent project.

Critical reason I endorse sunseeker was the quality of this management group our ability to attract these gentlemen to convince them to work for a startup move their families for Florida speaks volumes of their belief in this project.

Nick is here with us today, I am happy to announce to answer any questions.

Our first Max 8200 is scheduled for delivery in early 2024.

Our Max fleet will have a premium seating of just over 50 of our 190 seats.

Improve our economics in the coming years, besides the benefits from the quality of number of seats that will have a substantially improved fuel burn compared to the Airbus improved reliability and maintenance honeymoon, while maintaining a comparable Airbus ownership expense, we're excited about on boarding the maxim coming years and beyond.

During the past few months there have been discussions concerning a structural shift in our industry, particularly as it pertains to the <unk>.

Spirit and frontier invented this industry segment during the past 20 years, focusing on low cost and high growth for our leisure customers.

And still our differences between our business model and the Franke centric model at the end of the day you Judge us on our profitability cost are a part of the equation, but having the lowest cost does not guarantee success.

We really didn't have a flexible model focused on flying when the customers want to fly.

Or said differently, we minimized our flying in off peak periods and pick up for the peak periods and that has been our model for over 20 years. In addition, our direct to customer sales approach is less expensive and allows us to capture important customer information I might add we have over 18 million names in our customer database at this point.

It also allows us to capture more of a leisure customers wallet with our third party revenue program.

During the past five years, we have prioritized enhancing our brand as well.

These efforts include adding Allegiant stadium or soon to be opened sunseeker resort.

Our best in show completion percentage.

And our number one rank credit card program all of our different difference makers. These investments have allowed us to maintain unit revenues.

<unk> been consistently higher than the high utilization year occ's today as much as 40% higher as we all do revenue production as the issue of the day.

Our revenue production is one of the critical differences that separates us from the OCC crowd.

Our network structure is also different we've operated in and out and back schedule. Since our earliest days, it's much simpler to manage through the traditional hub and spoke each route standalone, we monitor what we believe its capacity should be enhance its profitability.

Our diligent in managing individual route earnings.

We have had a 22 year history of consistent profits and growth with the scheduling approach industry, leading profits I might add.

Additionally, with our focus on smaller cities to southern find destinations, we've been able to own the majority of our markets.

75% of our routes have no direct competition.

As I said, we own these markets. This contrasts with the 90% overlap to high utilization Uscc's, having their networks lastly.

Lastly, we have identified as many as 4500, new domestic routes that we could add.

Coming years, plus the addition of our international partnership with Veeva.

More subtle difference has been the pace of growth during our 22 years, we have grown to 127 aircraft or an average of $5 seven per year.

In this space have grown at a much faster pace to date, adding aircraft almost three times faster per year than we have still others had planned deliveries in the coming years that have double digit yearly ads with a three handle if you do the math.

<unk> growth, while attractive attractive to the audience on the phone here creates potential operational problems.

Lastly, a pronounced competitive response, given the network overlap with the larger incumbent carriers.

We are built for the long haul for consistency, we have a bright future.

Understand there is a new label as well for your LCC circulating <unk> low margin Airlines.

That description does not define our north fit our model at this time given the names seem to be involved given new names I'm pros proposing a new label for US no more you LCC and certainly no LMA, our new label as <unk> FC profitable leisure focused carriers, that's what we're gonna be call from now on we are in a class of our own.

Lastly, let me. Thank our team members there has been a difficult three years to four years, they have been supporting our passengers with safe reliable and friendly service. During this time they have run the best airline in this year, an industry, leading 99, 8% completion factor and.

In today's era of poor service and cancel flights they have put us back where we belong at the top of the pack.

You very much Greg.

Alright, thank you.

Great to have you back.

As we experienced broader macro uncertainty around geopolitical risk inflation and high interest rates. They are also appear to be signs of structural changes happening in our industry.

In the face of these uncertainties Allegiant is uniquely set up to continue to reshape the leisure travel sector, we have been strengthening our foundation to do just that.

Operational excellence underpins everything we do and our year to date controllable completion of 99, 8% demonstrates that also resulting in a staggering reduction of nearly $100 million.

Our 75% in total Iraq costs year over year.

Our disciplined approach to cost and particularly our variable cost model gives us a competitive advantage as we adjust capacity to the environment, whether Dave weak month of year a route by route our planning teams are expertly matching capacity with leisure demand.

Leisure demand seasonal seasonality is more normalized we are working towards a measured approach to take utilization higher during the peak demand periods or in other words peak the peaks.

For instance, average aircraft utilization was seven hours during this past summer increasing that by one hour avoid drive roughly $50 million more in earnings.

The composition of our mixed fleet balanced with our with both LOE per seat and low per trip costs will further benefit us by deploying the right gauge aircraft in the right markets at the right time.

Our 737, Max aircraft will strengthen our fleet flexibility, it's nearly 20% fuel burn advantage yet similar ownership cost profile translates into incremental earnings power of more than $2 million more per Max aircraft, when compared to the compared to our existing fleet.

Furthermore, we are excited to expand premium seedings for our customers every Max aircraft delivered will enter into service and the Allegiant extra configuration, while the retrofit of the in service <unk> hundred <unk> has already begun and will complete over time.

Our allegiant extra product continues to deliver as it is in high demand with our customers and driving meaningful value.

During 2023, we expect to find nearly 18 million customers, notably.

We were the most convenient and only nonstop option available on approximately 75% of the routes from the communities we serve.

Our direct distribution strategy, coupled with our continued ascension of our brand is unlocking deep and long standing relationships with our customers on.

On an annual basis, nearly two thirds of our customers are repeating their experience with us $12 million of whom are members of our award winning always rewards fueling the amazing growth of our aspirational loyalty program that Scott will discuss momentarily.

Our continued investments in technological upgrades to our foundational systems, such as SAP Navistar tracks in Nab flu not only optimize scale and provide new capabilities. They also free up development resources for strategic differentiated products to drive more revenue or reduce costs further.

Furthermore, <unk> will unlock international expansion for us and to Covenant Beach destinations in Mexico, alongside our joint venture partner Veeva Airbus Once we can secure the necessary government approvals.

Each of these initiatives mentioned have or should provide significant long term benefits for the company. However, none have near as creative impact his team Allegiant as we listened and learned from our team members across the system I am constantly energized by their commitment and their passion. They are dedicated to taking care of our customers and each other.

And while earlier this year, we ratified an extended two of our four labor agreements, we still have to to go one with flight attendants and one with pilots.

Want to reiterate managements commitment to getting agreements in place that our flight crews will be proud to support.

What team Allegiant has accomplished this year it is truly remarkable while today, our broad footprint serves 125 cities with over 550 routes throughout the United States, we are positioning to grow our airline profitably as the environment allows.

Allegiance business model and the role we play in the communities, we serve as needed us into the fabric of the nation's leisure travel industry.

We have identified 4500, plus incremental routes that fits beautifully into the Allegiant network.

As we expand in those markets, we further solidify the important and necessary part we play in the travel industry throughout the U S and in closing I want to extend my sincerest. Thanks to all of our team members together, we are running a great airline together, we have meaningfully strengthened our foundation and together team Allegiant has proven to be unstoppable. Thank you Scott.

Thanks, Greg third quarter saw continued post pandemic normalization of domestic leisure travel demand. We saw peak demand levels, starting July when we top bookings and load factor versus last year's historic highs. We saw slight demand declined during August versus prior year as back to school came mid month for many of the cities, we serve and <unk>.

I'm on vacation season came to an end and we saw further modest demand decline in September versus prior year as we officially entered the off peak leisure travel season.

As you all know our business model has always focused on the domestic leisure traveler and these peak versus off peak ebbs and flows and domestic leisure travel demand regularly existed before the pandemic.

And a year removed from unprecedented levels of pent up revenge travel demand in 2022 the same.

Familiar ebbs and flows have returned this year that said there are two areas of potential domestic leisure travel demand headwinds that are being talked about a lot in the industry and that I'd like to address based on what we're seeing and hearing from our customers at Allegiant. The first is the economy, we conduct a weekly customer sentiment tracking survey, where we ask our.

Customers, how they feel about the state of the economy at the beginning of the third quarter about 50% said they felt the economy was getting somewhat are much worse in the past several weeks that number has grown to nearly 70%. However during that same time span is captured within the same survey the portion of customers.

They intend to book Air travel in the next 90 days has remained virtually unchanged. We believe this seeming contradiction can be easily explained by the majority of our customers, who say they are traveling to visit friends or family as well as by the material portion of our customers who say they are traveling between our primary residence and a second vacation.

As we've stated in the past it's been our experience that these remain the most reliable and resilient forms of leisure travel during economic downturns.

Second area is international travel for the past quarter. We've also surveyed our customers weekly on this topic consistently up to 20% of our customers do say that they either had traveled or are planning to travel abroad. This year. However, the vast majority of those nearly 90% said that their international travel.

In addition to not in substitution of their domestic leisure travel plans. While these observations may be different than what other airlines are seeing are saying it likely speaks to allegiance differentiated low utilization business model with a focus on selling our all nonstop route network direct to consumers under our <unk>.

<unk> brand and winning loyalty programs that are unique and their ability to engage and reward the domestic leisure traveler.

Speaking of our loyalty programs, our most loyal and engaged segment within the always rewards program is of course, our co brand credit card holders third quarter year to date. These cardholders have exhibited 11% greater spend on the card on a per cardholder basis versus last year. In addition, our co brand card holders.

To exhibit strong travel frequency and spend with net revenue bumped up 10% versus prior year.

Third quarter total co brand credit card program compensation has been $88 million, which is 14% higher than last year and puts us well on our way to surpassing $100 million in total program compensation for the full year.

<unk> always rewards non credit card program also continues to show strong positive impact on customer behavior third quarter year to date, nearly $13 million always rewards member passenger segments have been booked at 17% more than last year and for the same time period spend per member is about 5% greater.

Then last year finally, as Morry mentioned completion of enterprise wide systems implementations that provide a modern technology foundation for all areas of our business will free up technology development capacity for smaller, but nonetheless critical strategic enhancements to our website mobile app and loyalty programs helping.

On supercharge, our abilities to drive greater revenue outside the aircrafts and high margin third party products and loyalty program partnerships. We believe that these enhancements enable us to further differentiate allegiant and further diversify the ways, we drive revenue 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.

I am extremely pleased with our record third quarter performance of $565 million in total revenue growth of nearly 1% on system ASM reduction of <unk>, 4%. This.

This combination produces trials one of $12 70.

Which bested any previous third quarter and grew year over year by one 4%.

Our commitment to matching capacity and demand set us up for success in the third quarter with nearly 45% of our scheduled ASM coming in July and September having just more than half of July fly.

We are still meaningfully constrained at the best demand periods, limiting our ability to truly match with appropriate capacity.

Despite the relatively outweighed in July level of flying our utilization was almost two five hours per aircraft per day lower than 2019 lower than any year since 2015, when MD 80 skill over 60% of our ASM.

We have proven the ability to achieve peak flying and as we will always scheduled peak periods to the first operational constraint either aircraft or crew expected restore utilization alongside the relief of those constraints.

As we continue to learn what the new normal means for the travel industry. One component of pre pandemic travel has firmly returned the gap between peak and off peak performance by way of example, Saturdays and post Labor Day September 2023, or approximately 30% worse than July Saturdays in terms of unit revenue and in line with 2019 peak to trough.

<unk>.

Last year that figure was just 15% worse.

And as one would expect the combination of outperforming off peak periods in late 2022, and current year demand normalizing creates a tough environment for year over year figures.

This makes me even prouder of the results we generated.

A significant part of this was continued success of our air ancillary products, which grew approximately 10% on a per passenger basis year over year first.

First and foremost our learning and experimenting with bundled ancillary has continued to show incredible strides.

Additionally, allegiant extra contribution on a per site basis has improved year over year and every quarter, despite increasing the number of configured aircrafts.

We will end the year with roughly 11% of the fleet configured for Allegiant Xtra and expect that to grow to nearly 30%.

The year end 2020 for fleet.

Underscoring bolt in air ancillary at large are the expected improvements from <unk> one of the ramifications of specific used case internal development at some mismatch of existing capabilities versus the off the shelf product.

We believe this is a significant signal of strength for our internal capabilities that will become supercharged and the future state.

So while we still have immense confidence in the upside to come with <unk>, we actually expect to see some slight headwinds into the fourth quarter due to a short term small loss of functionality.

I believe it's worth reminding that the entire leisure demand ecosystem remains well above pre pandemic levels with July roughly flat with 2022 and high teen percent above 2019 in fact, among carriers reporting thus far allegiant as the only carrier up double digits in both capacity and unit revenue year over four years, both in the third quarter.

And year to date through the third quarter.

We are also seeing some normalcy as we shift into <unk> and expect to travelers reasonably in line with pre pandemic Historic median sequential change.

While certainly off from the extraordinary for Q2 two comp.

It should still produce a better <unk>, but any pre pandemic fourth quarter and our last nine months of 2023 traveling higher than the last nine months 2022.

Additionally, there is some growth for the fourth quarter around 5% this year.

But full year scheduled service capacity up approximately one 5% versus full year 2022, while system capacity should be approximately plus one 8%.

The growth in the quarter is focused in two areas weeks with large forecasted cost per gallon declines like in October at holiday weeks, which will extend into early January 2024 as well.

As I mentioned, even with the growth holiday flying will still be lower than when you. Ultimately desire. However, we believe we struck the right balance of profitability potential and operations within the limitations presence, particularly after 2020 twos weather impacted holiday operations across the industry.

Further we are treading carefully with capacity in early 2024 with so many moving parts Boeing deliveries crew poles for transition training and persistent elevated fuel among others.

I expect the first half of the year to be fairly flat for the full year target of up mid single digits.

The holiday weeks as with all peaks have shown incredible resilience, even labor day in September was a record.

Maintain high expectations for holiday performance, while expecting normal leisure softness around them.

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

Thanks drew and good morning, everyone.

This morning, we reported our third quarter 2023 financial results, which included an adjusted consolidated net income of $2 7 million.

And an adjusted earnings per share of <unk>.

Included in that number is approximately $6 million in costs related to resort operations ahead of opening our sunseeker property later this year.

Adjusted net income for the airline was $7 9 million, yielding an adjusted airline earnings per share of <unk> 31.

Total operating revenue during the quarter was $565 million up approximately 1% over the same quarter last year and the highest of any third quarter in our history.

This was on a slight capacity reduction of eight tenths of a percent, resulting in <unk> of $12 78, which was one 4% higher as compared to the same quarter last year.

Fuel costs increased sharply beginning mid August driving our September cost per gallon and 27, 5% above July.

This brought our third quarter cost per gallon to $3 95.

15% above the prior quarter and brings our estimated full year cost per gallon to $3 12, an increase of 22 from the prior guide of $2 90.

Adjusted non fuel unit costs were just under eight five which was an increase of nine 5% over the third quarter of 2022.

Our non fuel unit cost increase was driven by approximately seven points in wage increases for our frontline employees.

Inclusive of our pilot payroll accrual, which was in place for all three months during the quarter.

Other drivers of the unit cost increase were one seven points from lower asset utilization at approximately a half a point related to inflationary cost in aircraft maintenance and stations and the rest from a handful of other items.

Assuming an estimated fuel cost of $3 12 per gallon for the full year, we are expecting an adjusted airline earnings per share of approximately $8 15 at the midpoint.

Down from $11 75 at the midpoint of prior guidance fuel.

Fuel cost drive a reduction of $2 40 per share and the reduced off peak revenue makes up most of the remaining dollars 20.

As Maury noted opening of Sunseeker is shifted by about two months and as a result, we are now expecting only about two weeks of revenue production during the year, which would take our full year sunseeker guidance to a loss per share of $1 75, as compared to our prior estimate of $1 20.

Although I am pleased to see significant improvement over in 2023 over the prior year with respect to financial performance, we still have work to do to return to sustained industry leading margins.

With the introduction of a new fleet type alongside a volatile fuel environment and the normalization of leisure demand patterns, we expect to take a conservative and measured approach to growth during next year we.

We've made significant investments in the business this year and we remain confident these investments investments will deliver expanding margins in the coming years.

On the balance sheet, we ended the quarter with net debt of $1 3 billion.

And just under $1 3 billion in available liquidity, which included $1 billion in cash and investments and $280 million and Undrawn revolvers.

In addition, we are pleased to have more than $400 million in committed financing for upcoming aircraft deliveries and pre delivery deposits.

We refinanced 700, <unk> hundred 20 aircraft during the quarter and used proceeds towards this morning's prepayment of a $150 million bond, which was scheduled to mature in 2024.

With committed financing covering the vast majority of our capex obligations up to the second quarter of next year and our largest 24 maturity now repaid we expect to maintain liquidity at the greater of two times, our air traffic liability or $850 million at year end.

Third quarter airline capital expenditures were $157 6 million, which included $112 million in aircraft inductions and pre delivery deposits $45 $5 million in airline other airline capex and deferred heavy maintenance spend of $14 million.

Capital expenditures related to sunseeker were $71 6 million.

Our guidance today reduces our full year 2023 estimated airline capex, excluding heavy maintenance to approximately $590 million largely due to the timing of aircraft deliveries shifting some of this spend into 2024 and 25.

Turning to fleet, we inducted one <unk> hundred 20 aircraft during the quarter, which was owned and on property at the end of the second quarter. We expect two additional <unk> hundred 20 purchases during the fourth quarter before we begin taking deliveries of our 737 Max order book in early 2024.

During the quarter, we reached agreement with Boeing on an amendment to our order for 50 737 Max aircraft.

Whereby the firm aircrafts are now scheduled to deliver through the fourth quarter of 2025, we've converted six of our Max seven positioned to the Max eight 200 variant and we're pleased to now have 80 options in our Max order book securing opportunities for fleet growth through 2029, and providing tremendous flexibility, allowing us to evaluate the results of it.

New fleet type in our business prior to making further commitments.

I am pleased with our year to date financial performance, yielding an adjusted airline operating margin of roughly 13% notwithstanding the continued heightened fueled our low utilization model sets us up nicely to expertly deployed capacity to meet seasonal demand trend and we will enhance this with the introduction of more efficient aircraft next year.

By the time of our next earnings call. We expect to have open sunseeker taken delivery of our first Max aircraft and starting to see the benefits of navigator and the systems investments we've made in 2023.

Certainly we're not out of the woods on execution risk yet, but we are excited about the positive momentum we have on these initiatives heading into 2024.

Thank you Lisa and we can now begin taking analyst questions.

Thank you.

As a reminder to ask a question. Please press star one on your telephone and wait for your name to be announced to withdraw. Your question. Please press Star. One again also please limit yourself to one question and one follow up thank you and please standby, while we compile the Q&A roster.

Our first question today will be coming from Michael Lindenberg.

Of Deutsche Bank. Your line is open.

Hi, everyone. This is actually Shannon Doherty on for Mike Morry, Congratulations and welcome back.

I May you know you guys first half results were much better than the second half it was actually quite a meaningful deceleration of earnings into the second half. So how does that impact your decision, making for 2024, when you think about capacity, which markets a surge fleet planning. If you can give us anything any more color here that would be helpful. Thank you.

Hey, Shannon this is Greg why don't I kick it off there's some components in the first half of the year, obviously demand strength in the off peak fuel to help fuel that.

Higher profitability versus the second half of the year, but.

But as we think about 'twenty four we're not coming out and kind of give a guide this year, but I think Vijay hit on a really nicely in his remarks were that we should think about 'twenty for unlocking a lot of the benefits and the investments that we've made I mean first and foremost it from my perspective, we want to continue to work hard to get labor deals complete for our flight crews, but that's a key component.

Systems, both morry and I alluded to this as it's got the Angelo.

In our opening remarks, but we've made massive investments in new kind of next generational type systems and when I say investments I mean, these are hundreds of thousands of man hours that we've been putting in on each one of these systems SAP tracks. We've cut those two over we have two more to go and what we're going to do with those systems now as we're going to get better we're going to learn how to use them properly and we're going to become more.

<unk>, we can scale better so thats, an important element as well, obviously sunseeker opening bringing on the Boeing aircrafts. So there's just been a lot of investments in the business.

That I think truly believe will strengthen us, but one thing I want to say as we think about capacity next year and balancing that with with the environment and the normalization that we've that we've seen.

How do we get back to peak and those peaks and we been constrained for various reasons, whether that be the broader ecosystem ATC, whether that'd be labor, but really if you think about 2023, and if you remember a year ago. When we talked about entering 2023, we said we needed to level set operations, we need to make sure we ran.

Integrity operational excellence and integrity, and we've done that and now it's how do we balance and build that back and as we think about peak and the peak symmetric drew or anyone wants to add any commentary there for next year or anything else on 24.

We hit on this a little bit in my remarks, but the.

Peaks.

Subject to any operational constraint all of the time right and right now there's a bit more constraining the typical.

And a significant amount of our.

Our annual earnings through those periods.

And there will come a time that those that we get some relief on those constraints and then we will be able to peak.

We've been capped relatively similar in terms of departures per peak day in the summer for the last several years.

Which is not something we've experienced in the past.

Beyond that we've taken a lot of strides to maintain operational integrity, and we kind of threw a lot of things at that and that we can start to claw those back in a meaningful way as we start to understand how each of those components built up to the whole.

So I think what Youre seeing is something that's on the more conservative side relative to what will turn out before we've proven that we can do peaks at close to 10 hours a day and that I have every bit of confidence we'll get back there.

Well one other comment third quarter is always our weakest quarter.

What we've got going on now is our fourth quarter, just hasnt shown up because you've got a resetting of going back to traditional network types of things.

We're trying to get back into a form factor that they're used to and so drew and Craig's point, we need to now 24 will be the first time I think when we can really looking reinstitute to 2019 model that we see.

So well ramp back then.

We may not be hitting on all cylinders in 'twenty, four, but we will be well on our way through our typical very good first quarter very good second quarter third quarter breakeven week fourth quarter start getting ready for the next year and do the same thing.

Thank you and did I hear you guys correctly that we should think first quarter capacity somewhat flat and still targeting mid single digits next year capacity.

<unk>.

Generally, yes first half of the year, probably roughly flat with mid singles, but full year target.

Okay, great and if I can just squeeze one more in really quickly.

Greg.

Thank you for all the remarks on utilization, but I was intrigued by the <unk>.

Our increase in utilization.

Possibly increased profits by $15 million, if you were to just.

Pinpoint what is limiting you the most right now on increasing your aircraft with inflation I know you guys listed a bunch of things like Hec labor, what where is the biggest pain point currently.

Jim.

No. Thanks for the question Shannon.

That would be just in the summer period. So if you think about it on a full year on the summers are Pts of August peak period, but if you add in March and you add the winner of the holidays.

Probably up more like $100 million.

In total if youre able to take an hour up in utilization.

I'd say it just depends on the stuff on the period in March. It was we were more aircraft constraint in the summer.

It's been more labor constraints, but also trying to balance what we're seeing with some of the disruptions around airports or ATC, but underpinning all of this Shannon, though is operational integrity and we kept our peak period flying this year before we even entered we just said we won't do any more than this roughly seven hours per day until we build it back.

And I might just add real quick well, that's the biggest component to peaking the peaks that we probably lost between the half hour and hour of utilization simply with elevated fuel and.

Demand versus fuel.

Beg off that happened in off peak periods, but there is still a value to be had in off peaks. Despite all of this but it's much harder to find it at $3 50, a gallon than it is at $2 15 kind of where we were in 2019, so I don't want to fully lose sight of that either.

Alright. Thank you all for your time.

Thank you while we prepare for the next question.

Our next question will be coming from satisfied.

Raymond James Your line is open.

Hey, good morning, Alright.

Alright.

Yes, good morning.

Ask you about your 2020 for fleet plan.

I'm following you.

You said two more Airbus and then kind of is it the rest just following them and hopefully youll get two months.

Yes, so he saw the SBA.

Four we are currently we are contracted to take delivery of two airplanes per month throughout 2024, as you know and I think youre alluding to there is a lot of moving parts. There. So we're staying close to Boeing on that and it's for that reason that we kept a good amount of flexibility in the used fleet that will keep in service for <unk>.

Next year candidly Theres a few other candidates out there that we'd like to retire a little bit more quickly, but we're going to keep those in through next year is a bit of an insurance policy to two <unk> hundred <unk> that youre talking about are purchased this year and is updated in January February or sometime during the first quarter next year.

And then we have the Max aircraft entering service late first quarter.

And building on that throughout the year on the on the high end I would expect the total fleet count around $141 41, but that's not guidance that's about as high as it could go.

That's helpful and then if I might.

Some of your competitors talking about.

A lot of the extra capacities and in some of the kind of bigger markets crowded markets and wanting to redeploy the capacity I am wondering and then on the other hand too you have regional airlines that I think trends are bottoming and maybe starting test.

As you get into 'twenty, four, possibly being able to pick up their utilization as well just curious.

On the visibility you have what youre seeing from a competitive standpoint in your markets.

Yes drew here.

Relative level of <unk>.

Competition has been quite flat for the better part of two years and is relatively in line with what we saw in 2019, obviously that dynamic change a little bit who it is and where it is but the overall level has been remarkably consistent.

And Thats, what youre seeing in the forward schedule CAGR.

Correct.

Youre just going to ask you can't see capacity grow with the way fuel is.

Fuel stays at this level and there is a good argument to suggest it's been permanently changed given the.

Environmental issues and what's going on in the world.

Capacity, we can't grow that much if people are going to make money.

Just to just doesn't work.

Capacity has got to come out to raise fares to offset the fuel increases.

So that's a macro statement.

It does negative for your model Tomorrow, because you talk about leisure.

I'm not going to sit here and say, we're going to grow like a week, but we have better opportunities to grow because we have less competition I think we're not facing a lot of headwinds that everybody else has with our 75% noncompetitive and that profile will continue we believe going forward. So.

It's not a rosy picture for the industry I'm not going to sit here and say it is but.

Oil has to come down somewhat as the big variable, we all face and further sub you remember we can pull our September capacity down to half of what we do in July is a reflection of the broader fuel environment recognizing that demand is picking up in the peaks to withstand the capacity of member going to withdraw it where it doesn't make sense.

For all factors, including fuel.

We feel really good about how we think about capacity deployment in the face of persistent type deal.

That makes sense. Thank you.

Thank you.

Okay.

Our next question will be coming from Duane.

Some of them work.

Evercore Your line is open.

Hey, Thanks morning, welcome back.

Yes.

Drew maybe you could just expand on your RASM commentary I think you made.

Some statements like normal sequential change your normal seasonal change in RASM could you just expand on that.

Yes, I mean, if you just look back.

I was losing even like 2005 to 2019 sequential change of absolute traveling from <unk> to <unk>.

Seems to be the right barometer as we're looking at 'twenty three.

So hopefully that gets to what you were driving at.

Yeah. It just looks like it's up in <unk>, sorry in 2018 and 19 it looks like it's up sequentially. So I just wanted to make sure thats not not what youre, suggesting there.

18, and 19, we're definitely at the high end of if you look at all however, many in 2014 and 15 years there.

So I would expect something sequentially less than that but in line. If you take a much bigger sample.

Okay and then.

Just taking a step back and I know you've got some of the team on the phone here, but.

Early thoughts on sunseeker ramp in 2024, what kind of topline and EBITDA margins, we should be thinking about to understand this could be.

Two to three year ramp, but maybe in year, one how youre thinking about it.

Micah Green comments, yes, I think right now it's really too early for US to guide we're happy about to just be announcing the date being able to kick off our our bookings in.

And get going on the marketing.

The real indicators the only real indicator that we have right now is group bookings that are on the books and we've got about 30000 on the books and another 32000 literally refiners one room nights room nights.

So that's probably the best leading indicator right now were still outside of the booking window and well.

We will know a lot more in about 90 days.

Okay, well good luck with the launch thank you.

Thank you thank you Duane.

Thank you.

Our next question will be coming from Scott Group of Wolfe. Your line is open.

Yes, Hi, I think this is Scott I think you called me.

Okay.

Yes.

I just wanted to more you made a comment about I guess the seasonality in Q3.

See that you made a comment about why Q4 is a lower margin. This year I wasn't sure I was following your point can you just maybe.

Go back to that.

It just goes through the theme that we've got more in the.

A way of off peak flying that we can't do we can't pick up as much as we have historically.

Because we've just utilization crews all the things we've talked about.

Somewhat lower re learning how to do all this stuff too I might add but our first priority. This year was to make sure. We ran a a good operation. So we didn't we got conservative and pullback being.

Being pushy in energy that we might have been in the past times. If you go back to 19 versus 18, we flew eight hours a day and we came out of we only had I think like <unk>.

75 airplanes down from 90 airplanes in <unk>, when we moved out of the Mds and we push the edge and that.

So dramatic benefits of being able to fly view push utilization up. So those are the things we have to re learn and we will do that.

One of our top priorities going into 'twenty four and beyond.

Okay and then just following up on that last question. Mike can you just maybe be a little bit more.

Explicit with what you're what you're assuming for RASM or at least what that historical <unk> absolute RASM trend should be.

I just want to make sure all on the same page and then in an environment where.

Capacity is up mid single digits next year.

Early thoughts how you're thinking about CASM for next year. Thank you.

Yeah, I'll take the first part.

And maybe I missed if I look around the table.

Taken the absolute traveling from third quarter, the absolute traveling from from fourth quarter historically.

We've tended to step up a little bit.

Not by huge amount low singles.

And that's generally what I'm expecting so about a year over year commentary, but simply an in year sequential.

Hey, Scott This is Greg real quick.

And I know, we haven't put out quarterly guide. So we're getting there you can kind of back into it with the fourth quarter, but I think it might just be helpful.

To <unk> comment about third quarter being the weakest seasonally for us what you saw in the third quarter airline EPS I, just want to say that fourth quarter airline EPS. The midpoint of our guide we expect it to be stronger than the third quarter.

Sometimes with the weighted average share counts and what's happening on that side of the house and the lower overall share count that we have.

Kind of.

The highlights are the pronounces the swings, but I just wanted to make sure that that came across that we expect the fourth quarter airline EPS to be higher than the third quarter, and then sorry, Vijay let me jump in there on 'twenty forecast, but no no that's.

Great.

We're in the middle it's Scott.

Our budget process for 2024, so not ready to give a guide on CASM X for next year and I'll. Just say there are a lot of moving parts around delivery of the Boeing aircraft induction of those airplanes, having crew members ready et cetera.

But on the capacity guidance that drew put out there we would expect CASM ex to be up a little bit next year I don't want to give a number yet.

Okay. Thank you guys appreciate the time.

Thank you.

Our next question will be coming from Daniel <unk>.

ANZ.

Husky post global your line is open.

Oh, Hey, Thanks, Maury welcome back here.

Questions I guess the first two is really a house cleaning question on Sunseeker I know you don't want to elaborate on 2024, but at least for the fourth quarter here does the full year EPS outlook include or exclude sunseeker revenue and then once it opens can you share what at least what youre seeing today in terms.

Of occupancy and booked room rates.

Hey, Dan It's D. J I'll start with the first question the outlook on Sunseeker for full year 'twenty. Three does include some revenue, but it's very very minimal assuming that you are only open for two weeks out of the year and Youre just kind of barely opening youre not expected to be at any kind of full run rate.

So there is something there, but I wouldn't run away with that for 2004.

Our 23 sorry.

Okay Alright.

And then I guess in terms of the occupancy room rates I understand it's in there.

Drew going back to your commentary of peak periods been scheduled to aircraft and crew constraints I am looking at the back half of December and it looks like allegiance flying is down 14% year over year, and so I guess a couple of questions tied to that one.

Is that accurate and then secondly is that tied to constraints and if and I'm. Just wondering if we should model. These constraints extending into peak March 2020 for flying as well potentially.

I think what you're capturing there as some of the shift in the holiday timing as well so.

Let's call the third week of December was a pretty meaningful capacity.

In December of 'twenty, two as the travel started a bit sooner that we comes down I believe it's about 22% and then you get a little bit of growth into the more peak.

Call. It last 10 days or so of the month so.

I think our competitor called this out as well, but there will be a downshift in the mid part of December Thats kind of captured on upside at the beginning of January.

I think it explains most of what Youre seeing.

I see okay very good thanks for the time guys.

Thanks, Dan.

Thank you.

Our next question for today will be coming from Conor Cunningham of most research your line is open.

Hi, everyone I think you called me.

On <unk>.

As you think about load factor yields.

And I'm not trying to talk about price I was just like from a high level as you think into 'twenty four there seems to be a lot of discounting to fill seats. So I'm just trying to I'm just curious on what you're viewing as the key priority.

And building Robyn and next year. Thank you.

Yes, I mean at the end of the day total revenue is the endgame I think youll see yields be more resilient than the peaks.

And then also making sure that we're capitalizing on $70 and total ancillary per passenger through the rest of the year, which is generally driven by load factor build.

As a general rule of thumb so.

I would.

Kind of separate those two elements.

Like that but at the end of the day, we need to make sure that we're maximizing.

That ancillary components.

Okay and then.

On the <unk> hundred route comment that you had all the opportunities going forward.

<unk> always had a lot of quite opportunities I'm. Just your cost structure is obviously a lot higher so I'm just trying to understand.

How that how that changes with a higher cost base and then if you could just touch on where you sit with the pilots today on what's going on there that would be helpful. Thank you very much.

Sure unfortunate Hunter routes I mean, we're still extremely confident in that.

I think you have to strip it back a little bit into a fixed versus variable.

Type of thought on that cost structure right and fuel.

<unk>.

As variable as it gets.

But for the rest of the cost structure. It still supports all of these 1400 routes.

As.

The fixed cost portion will kind of take care of itself as we get back to utilization, we get back to growing again.

Again, that's not how we think about new network deployment, it's all on a variable basis.

Hey, Conor, it's Greg I might try and hit on a couple of other parts there.

On the cost to his point Keith.

Keep in mind, we're accruing this year at least beginning in May accruing, Florida increased labor agreement with our pilots.

But increase in productivity of just a half hour.

Utilization per aircraft per day is worth like a half a percent of CASM ex so.

So you have that that I think over time that I've mentioned that we've invested in this infrastructure, where the infrastructure is outpaced ASM.

But we're going to get back there and when we did the system cutover as everyone has their day job and these are massive system cutover.

So that philosophy with measure twice cut once it get it done, but it's going to allow us to scale and grow more efficiently.

And then on the pilot side of the house just the trends are meaningfully improving just to put that into perspective in the first half of 'twenty. Three if you think about a net new pilots we were flat.

As in the back half of 'twenty three we will have over 100 or we expect over 100 net new pilots and that's twofold. One on attrition is meaningfully down too.

Two the classes are full and they remain full and in fact applications over the past couple of months have more than doubled.

And I think our the shout out to our flight ops team and the focus that they have and their pathway programs and making sure that we are identifying the pilots to want to be here at Allegiant, we have a unique quality of life offering overall, which is that outback model.

But the most important thing that we need to do and I keep saying. This is we are working hard and we're committed to getting a deal done for our pilots for our flight attendants and Thats a key focus for us and we'll carry that in and get try and get that done as soon as possible.

Well Conor Rowley.

Editorial on top of that.

You can understand the mindset inside of an airline in March February Luca pilot issues going on.

You just didn't know what was going to happen, particularly if you're in the middle of the sandwich like we were where a lot of our guys are going up the hill to American Delta and United.

Can we literally trained 200 pilots in 2002, <unk>. So a lot of expenses going and just training these guys.

But now that you are seeing the world I mean spirit announced they are not hiring any pilots through 'twenty four I mean, there is a radical shift in mindset. How you can think about having access to cruise.

For us we need to make sure we need some extra crew certainly for the Boeing as we transition. So we needed to have that type of mindset and it's there to Greg's point, we will get a contract on our pilots are very much onboard with.

Growing this business and we're also being much more selective in who we bring into the business we need to know that they want to be in our model and want to be here long term not to say, we werent selected before but it was much more could you fly an airplane then what are your personal needs. So.

Those are the kinds of things we've learned from this effort and not only us but everybody in this industry is going to be much more comfortable that they can make a forecast on pilots and availability. So you can put a schedule out nine months from now and still operator.

I appreciate the thoughts thank you.

Thanks Connor.

Our next question will be coming from Andrew <unk> of bank.

<unk> of America. Your line is open.

Hi, everyone. Thanks for taking the question.

Well, we'll come back.

Good morning, maybe Greg just staying on the pilots.

Kind of where are you kind of where does the negotiations stand right now.

If you can just what are the some of the key holdouts at this point.

Yeah.

Hey, Andrew it's Greg.

So our earlier this year we.

Combined with the with the Union.

Started mediation remediation process and while we are progressing candidly, it's not at the rate I would like to see.

But we're still working through it and.

Now there is a variety of items, we're working through but we understand.

The important items that we need to get done to get a competitive contract is paramount in our in our view.

I have all the confidence that we will continue to make progress and then we'll get a deal done.

Yes, Andrew.

Some practical applications.

We're both cable young in our maturity in many ways in doing a contract.

This group of pilots has never been involved in negotiating a contract before and so there I think.

Kind of feeling their way forward as to what they want to see in the contract.

Have proper people, who could cable that know how to do this so United American Delta 70 years, they have 500 page contracts that.

They don't have a lot to talk about we've got a lot of items that are still young and tender and both sides need to feel their way through it so to greg's point, it's it's been slower than we would've liked but.

We get the materiality of what we want to do but.

I think both sides are getting a better deal fatigue candidly, if I had to say so.

Just to get something done in the.

As we all know this is this is not these contracts move around they are just expenses until we sit down and do it again, three or four or five years from now.

Got it thank you and then.

As a follow up you spoke a little bit about kind of.

The contracted deliveries for 2024.

In that context, how should we be thinking about capex for next year.

Hey, Andrew it's BJ.

We're live in discussing some of this with Boeing.

What I will tell you is in 2023, we were paying large amounts of pre delivery deposits substantially focused on aircraft delivering in 'twenty four and so you would see the same thing in 'twenty four for aircraft delivering in 'twenty five given the new schedule.

I would expect capex to be elevated next year versus 2023, but don't have a guide for you yet.

Okay. Thank you.

Yeah.

Thank you.

Our next question will be coming from Christopher <unk>.

That's a lot of it.

Susquehanna.

Financial Group your line is open.

Thank you operator, good afternoon, everyone I'll keep this to one up more so I wanted to understand.

You could a little bit more on the composition of your 2024 capacity.

The idea here that not all capacity is created equal it comes with different margin profiles et cetera. So.

I think you said 70, 75% of routes noncompetitive <unk> hundred new domestic routes identified.

And that you have a line of sight or looking to get back to 2019, Utah.

Utilization levels on.

On the other side of it.

<unk> mid single digit.

And growth as well.

Hello, what you've typically done so as we think about the moving pieces and if you want to frame it.

Departure stage engage or.

However, Alex is this about frequencies within existing doors, adding dots a little bit of both just wanted to understand here. The moving pieces that makes up and built into that mid single digit capacity guide and that soft CASM ex guide that you gave for next year.

<unk>.

Hey, Christopher drew here.

Probably a little early to get into all of those dynamics today.

I think maybe speaking fairly generally.

I wouldn't anticipate seeing that utilization rebuild in the first half of the year, but with the flat ASM Thats, probably goes without saying.

As we bring on the Boeing's, we will get a little bit of gauge benefit.

Eight two hundreds will come in at 196, which is larger than what we have today by a little bit.

I don't I don't foresee fastest stage differences through the year.

But we will get back to you and maybe on that in 90 days.

But I think as we think about the overall network I would foresee a bit more frequency restoration coming earlier.

Then that new route announcements, then kind of relative to our typical split before probably more of a late 'twenty four but really more of a $25 six story.

Network expansion would be my guess it at this point.

Hey, Chris and then BJ.

The main thing to think about for CASM ex next year is really just the full year of the pilot payroll costs and the full year of labor agreements that were implemented this year.

Other than that we don't have most of the other buckets moving so much on the capacity that drew just outlined.

Okay.

Okay. Thank you.

Thank you.

Our next question will.

We will be coming from.

<unk> Becker of TV Cowen Your line is open.

Thanks, very much operator, hi, everybody will come back tomorrow.

Just to maybe clarification questions. All your peers are calling up maintenance and you didn't really mention that is there something I mean, what's different between you and them.

Yeah.

Helane its BJ here I think one of the things is potentially that.

Our heavy maintenance is capitalized or ease of deferred method and so you don't see the immediate impact of it in the period that the cash goes out. So there has been some pressure in heavy maintenance expense.

Not to the degree that like we've been hearing from some of the other carriers calls.

But also expecting some pretty nice relief on that as we move through 'twenty four 'twenty five and those aircraft with the most expensive heavy checks can be retired prior prior to.

Undergoing that maintenance.

Alright got it that's really helpful and then for my follow up question.

The other thing that some of your.

Competitor I don't know if theyre really competitors, but some of the other airlines have been calling out has been too much capacity in Las Vegas, and you didn't mention that either.

And yet Las Vegas tends to be one of your larger locations I don't think its the largest anymore I think that shifted around the network, but maybe can you talk a little bit about what youre seeing in Las Vegas, and I guess.

Grand Prix is coming pretty soon so I'm imagining or NFC, a fair step up in in traffic. There in addition to the holidays.

Thanks Helane.

Just because vegas has seen incremental seats is up does that necessarily mean that allegiant have seen incremental seats are top on top of ourselves into Vegas.

And wherever you originate customers tends to be pretty differentiated.

And the price points haven't linked at the connecting traffic in a way that we saw in like 2015.

When you could get to Vegas, one stop for 100 Bucks.

That has not manifested yet so we still maintain a really solid network differentiation here that I think it kind of puts us on an island if you will there.

In terms of F. One Canada had been a little wrong on this I went into it saying that it would probably be the worst week that allegiant had ever had coming into Vegas.

And Luckily that has not manifested.

Hotel pricing come down here looking at Scott, the Antelope, but 50%, 60% in places that I think is catering back toward.

Away from the core Epsilon customer and more towards is Vegas.

<unk>.

Have some fast cars going.

<unk>.

So it will be fine, but I wouldn't call. It out if anything that I believe will be super special for us.

Okay great.

Epsilon is vegas as a midterm mid priced talent, it's not a high end town Monaco or something like that in the hotel prices, we're starting off stratosphere and you can't blame them they'd start there and then come down but.

It's going to be a zoo here that weekend, but it's.

2000, $15000 to get into who have panic because they call. It those are those are not unusual biggest prices.

Got it alright, I'm really disappointed that you haven't done an investor day at Allegiant Stadium.

In conjunction with one of the football games, we'll put it out we'll put it on the list right. That's a good idea.

We could do alright, alright, thanks, very much you guys.

Thank you.

Great.

One moment for our next question.

Our next question will be coming from Catherine O'brien of Goldman Sachs. Your line is open.

Hey, good morning, everyone and welcome back Maury.

Maybe just two quick ones on some of the ancillary revenue buckets.

Great you shared that remuneration year to date on the credit card I guess is that similar to the revenue impact.

There's a bit of a timing difference there.

I guess any any thoughts on what the tailwind is are there going forward like how should we think about if we're talking mid single digit capacity growth are we thinking about credit card remuneration above and beyond that.

And I've got one more.

Thanks, Casey This is Scott Deangelis I'll take the first couple of parts there.

So the way to think about it as a rule of thumb about three quarters to 80% of total compensation is recognized in any given year.

A portion of what we get paid gets immediately recognized in the other portion is deferred and it's in effect Subsidising right.

Card holder when they use points to buy air travel and it gets recognized as revenue once those points are redeemed in terms of tailwind.

Couple of things that I'll speak to a high level at.

We are aggressively pursuing what's referred to as a second look program. So an augmentation of.

Our credit card program that to the customer looks no different but it's other issuers who are willing to issue in the subprime and near Prime spaces, which currently are largely unserved by our product and that should enable us to open. The aperture if you will on approval rate.

And then finally, the other thing we're doing is.

Marketing more aggressively not just in the plane, but to digital and even in some cases traditional advertising to build preference for and drive applications for the card in a way that we've never done before.

So all of those things combined we expect to continue new flame tailwind last point are we currently sit at about three percentage of our loyalty program has the card mature Airlines Delta and American I believe <unk> made this public or more in the 13% to 14% of their loyalty program.

So that gives you a kind of an idea of what upside is there if these tailwind above and beyond.

That traditional ASM growth.

<unk>.

Can can drive us army and Katie it's Greg I just wanted to add one quick point that Scott mentioned, there and Thats that the network that we serve and the communities that we're in so many of them were a really big deal and our cards aspirational. They want that card and it's a great I think kind of program that we continue to build on.

On that's unique to Allegiant because again in those markets. We are the game in town.

That's great and then maybe up one.

Oh, sorry go ahead.

Thank you. We'll go ahead I'm just that Allegiant extra I know you talked about a positive contribution.

A final point on that you don't like what's the average buy up on an extra theater or can you talk about how revenue growth is trending.

On a leash maybe versus allegiant extra growth.

There would be great. Thanks, so much.

Yes, David I think this is something we continually say hey, we'll dive into more detail at Investor day and really provide.

So good stuff, there and we keep pushing the investor day.

Problems will get there at a future Investor day.

In terms of occupancy we tend to get by up right around the 50% Mark.

Give or take.

At a pretty meaningful.

Unitize Rev over over any other seat.

So we're I think we've stated about one dollar per passenger in the past that I think that I think that might be a little bit conservative as we've seen continued growth right.

Maybe I'll just throw another location to the rain with Helane I would love to go to Sunseeker Keith.

Keep us keep us close.

Thanks, guys.

Alright.

Thanks Katie.

Thank you.

Sounds good.

And our last question for today is coming from Ravi.

<unk>.

Of Morgan Stanley Your line is open.

Hi, good afternoon, everyone.

Marty welcome back and be kind of just wanted to follow up on something you said earlier about how high jet fuel prices.

Almost forces capacity discipline across the industry.

<unk> seen some indications of that on the <unk> conference calls with some of the low cost carriers talking about muting their growth plans for next year.

Do you think the industry finally get set on capacity discipline for next year.

Or do you think there is kind of still.

A little bit of proof needed on kind of walking the talk there.

We've got <unk>.

30, or 40 years of deregulation history booking.

A new 10 sort of a trend.

If you want to take a comparable one.

Rice of oil has gone up dramatically since February of 'twenty, two but you haven't seen the FERC <unk> industry run out and put a lot of new wells in Colorado grew from your compatriots about saving.

Investment and make some money so you've seen behavioral changes there, which is I think affected supply.

<unk> has always been the counterbalance for oil and knocking the price down when it gets too rich from the middle East and Russia, and those guys. So maybe you have new trends there.

The industry is very focused on making money. The big guys are definitely showing that they like Kevin those numbers, they've got a very well rounded product they've got.

A lot of debt on the balance sheet, they want to pay down so making good money the way. They have is maybe becomes infectious.

But long term, we're making money is the name of the game and what you've seen over the last three years four years as we've all been thrown out of our.

Our habits and what we've done historically I think few American Delta and United have benefited.

Bye.

Just kind of the stuff they did pre pandemic and brought it to home here in the last few months in last year with both international being so rich and with the ability to offer competitive products.

Look at the LCC market as I said, they've got over a 90% overlap.

And there are marketplaces that's.

That's tough competition to go up against if you've got a comparable product that's sitting there with a well known brand that has a credit card has all the attributes.

Attributes so we like staying out of People's way.

And doing those things, but as far as capacity growth I think it's.

We're certainly not going to see kind of a wide open funnel.

We saw in the mid teens and the like in my mind.

Could it get there a couple of years from now sure but.

Right now I think everybody's a bit.

Good cautious.

He wants to bring it back slowly.

Assuming you're on top of all this is ATC when you're being asked to purchase your summer travel into New York City, because ATC can't keep up that's a big Big whack to your your operation in your bottom line.

Always appreciate the thoughts thanks, Mark thank.

Thank you.

Thank you there are no more questions in the queue and I will now turn the call back over to Maurice for closing remarks. Please go ahead.

Thank you all very much for your time appreciate your interest and we will see you in 90 days. Thank you.

Yes.

Okay.

Thank you for joining you may all disconnect and have a great day.

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Good morning, and thank you for standing by and welcome to the Q3 2023, Adulate travel Company earnings Conference call.

At this time all participants are in listen only mode. After the speaker's presentation. There will be a question and answer session to ask a question. During this session you will need to press star one on your telephone.

You will then hear an automated message advisory your hand is right.

To withdraw your question. Please press star one again please.

Please be advised that today's conference is being recorded I would now like to hand, the conference over to your speaker today Sherry Wilson. Please go ahead.

Thank you Lisa welcome to the Allegiant travel company's third quarter 2023 earnings call on the call with me today are Maury Gallagher, the company's executive Chairman and CEO, Greg Anderson, President Scott de Angelo, our EVP and Chief Marketing Officer Drew wells, our SVP and Chief revenue Officer Robert.

Neil 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 various risk factors could cause the underlying.

Assumptions of these statements and our actual results to differ materially from those expressed or implied by our forward looking statements.

These risk factors and others are more fully disclosed in our filings with the SEC any forward looking statements are based on information available to US today, we undertake no obligation to update publicly any forward looking statements, whether as a result of future events, new information or otherwise.

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.

This earnings release as well as the rebroadcast of the call feel free to visit the company's Investor Relations site at IR, Doug lesion are dot com and with that I'll turn it to Marie. Thank you Sherry Hello again, some of you may recognize my voice.

I hope, you've all been well over the past year and a half it's good to be back.

As you saw on our release Allegiant Airlines generated an operating profit in Q3 after adjustments our 11th quarter in a row of airline operating profit beginning in Q1 of 'twenty one.

Year to date 2000 to 2023, 13% airline operating margin leads the industry for those that have reported.

And we have achieved these results while continuing to invest for the future during the past quarter. We have installed two substantial management systems <unk> and <unk> both are operating as I write this.

As you saw at the top of our release Sunseeker will open December 15th.

It's been a five year effort almost three years longer than planned, but the week will be worth it Micah Richards, our sunseeker, president and his cohorts Jason's Garoupa and Paul Barry All MGM Las Vegas veterans are putting the final touches on this magnificent project.

He is here with us today, I am happy to announce to answer any questions.

Our first Max 8200 is scheduled for delivery in early 2024.

Our Max fleet, we will have a premium seating of just over 50 of our 190 seats.

Improve our economics in the coming years, besides the benefits from the quality of number of seats that will have a substantially improved fuel burn compared to the Airbus improve reliability and maintenance honeymoon, while maintaining a comparable Airbus ownership expense, we're excited about onboarding, new Max in coming years and beyond.

During the past few months there have been discussions concerning the structural shift in our industry, particularly as it pertains to the <unk>.

Spirit and frontier invented this industry segment during the past 20 years, focusing on low cost and high growth for our leisure customers.

Been and still are differences between our business model and the Franke centric model at the end of the day you Judge us on our profitability cost are a part of the equation, but having the lowest cost does not guarantee success.

We really didn't have a flexible model focused on flying when the customers want to fly.

It also allows us to capture more of a leisure customers wallet with our third party revenue program.

During the past five years, we have prioritized enhancing our brand as well.

These efforts include adding Allegiant stadium or soon to be opened sunseeker resort.

Our best in show completion percentage.

And our number one ranked credit card program all of our different difference makers. These investments have allowed us to maintain unit revenues that have been consistently higher than the high utilization <unk> today as much as 40% higher because we all grew revenue production as the issue of the day.

Our revenue production is one of the critical differences that separates us from the OCC crowd.

Our network structure is also different we've operated in and out and back schedule. Since our earliest days, it's much simpler to manage through the traditional hub and spoke each route stands alone. We monitor what we believe its capacity should be enhance its profitability.

We're diligently managing individual route earnings.

We have had a 22 year history of consistent profits and growth with the scheduling approach industry, leading profits I might add.

Additionally, with our focus on smaller cities to southern fund destinations, we've been able to own the majority of our markets.

75% of our routes have no direct competition.

As I said, we own these markets. This contrasts with the 90% overlap the high utilization uscc's, having their networks lastly.

Lastly, we have identified as many as 4500, new domestic routes that we could add in the coming years plus. The addition of our international partnership with Veeva.

More subtle difference has been the pace of growth during our 22 years, we have grown to 127 aircraft or an average of $5 seven per year.

In this space have grown at a much faster pace to date, adding aircraft to almost three times faster per year than we have still others are planned deliveries in the coming years that have double digit yearly ads with a three handle if you do the math.

This growth while attractive attracted to the audience on the phone here creates potential operational problems.

<unk> a concentrated fleet the same aircraft type, which has historically been desired, but today has become a burden with the Brac motor problem operational size and complexity that most likely outpaces management experience and lastly, a pronounced competitive response, given the network overlap with the larger incumbent carriers.

We are built for the long haul for consistency, we have a bright future I understand there is a new label as well for your LCC circulating LMA or low margin airlines.

That description does not define our nor fit our model at this time given the names seem to be intermodal given new names I'm proposing proposing a new label for US no more you LCC and certainly no oil on our new label as <unk> FC.

Profitable leisure focused carrier that's what we earn we call from now on we are in a class of our own.

Today's era of poor service and cancel flights were put us back where we belong at the top of the pack. Thank you very much Greg.

Thank you.

Hate to have you back.

As we experienced broader macro uncertainty around geopolitical risks inflation and high interest rates. They are also appear to be signs of structural changes happening in our industry.

In the face of these uncertainties Allegiant is uniquely set up to continue to reshape the leisure travel sector, we have been strengthening our foundation to do just that.

Operational excellence underpins everything we do and our year to date controllable completion of 99, 8% demonstrates that also resulting in a staggering reduction of nearly $100 million or.

Our 75% in total Iraq costs year over year.

As leisure demand seasonal seasonality is more normalized we are working towards a measured approach to take utilization higher during the peak demand periods or in other words peak the peaks.

For instance, average aircraft utilization was seven hours during this past summer increasing that by one hour avoid drive roughly $50 million more in earnings.

Furthermore, we are excited to expand premium seating for our customers every Max aircraft delivered will enter into service and the Allegiant extra configuration, while the retrofit of the in service <unk> hundred <unk> has already begun and will complete over time.

Our allegiant extra product continues to deliver as it is in high demand with our customers and driving meaningful value.

During 2023, we expect to fly nearly 18 million customers, notably we were the most convenient and only nonstop option available on approximately 75% of the routes from the communities we serve.

Our direct distribution strategy, coupled with our continued ascension of our brand is unlocking deep and longstanding relationships with our customers.

Our continued investments in technological upgrades to our foundational systems, such as SAP <unk> flu not only optimized scale and provide new capabilities. They also free up development resources for strategic differentiated products to drive more revenue or reduce costs further.

And while earlier this year, we ratified an extended two of our four labor agreements, we still have two tango, one with flight attendants and one with pilots.

Want to reiterate managements commitment to getting agreements in place that our flight crews will be proud to support.

Allegiance business model and the role we play in the communities. We serve has moved us into the fabric of the nation's leisure travel industry.

We have identified 4500, plus incremental routes that fit beautifully into the Allegiant network.

As we expand in those markets, we further solidify the important and necessary part we play in the travel industry throughout the U S and in closing I want to extend my sincere. Thanks to all of our team members together, we are running a great airline together, we have meaningfully strengthened our foundation and together team Allegiant has proven to be unstoppable. Thank you Scott.

Thanks, Greg third quarter saw continued post pandemic normalization of domestic leisure travel demand. We saw peak demand levels. During July when we top bookings and load factor versus last year's historic highs. We saw slight demand declined during August versus prior year as back to school came mid month for many of the cities, we serve and <unk>.

Vacation season came to an end and we saw further modest demand decline in September versus prior year as we officially entered the off peak leisure travel season.

And a year removed from unprecedented levels of pent up revenge travel demand in 2022, the same familiar ebbs and flows have returned this year that said there are two areas of potential domestic leisure travel demand headwinds that are being talked about a lot in the industry and that I'd like to address based on what we're seeing and hearing from our customer.

At Allegiant. The first is the economy, we conduct a weekly customer sentiment tracking survey, where we ask our customers how they feel about the state of the economy at the beginning of the third quarter about 50% said they felt the economy was getting somewhat are much worse in the past several weeks that number has grown to nearly seven.

Percent. However, during that same time span is captured within the same survey the portion of customers, saying they intend to book Air travel in the next 90 days has remained virtually unchanged. We believe this seeming contradiction can be easily explained by the majority of our customers, who say they are traveling to visit friends or family.

As well as by the material portion of our customers, who say they are traveling between our primary residence and a second vacation home as we've stated in the past it's been our experience that these remain the most reliable and resilient forms of leisure travel during economic downturns.

The second area is international travel for the past quarter. We've also surveyed our customers weekly on this topic consistently up to 20% of our customers do say that they either had traveled are planning to travel abroad. This year. However, the vast majority of those nearly 90% said that they are international travel.

And in addition to not in substitution of their domestic leisure travel plans. While these observations may be different than what other airlines are seeing are saying it likely speaks to allegiance differentiated low utilization business model with a focus on selling our all non stop route network direct to consumers under a.

Surging brand and winning loyalty programs that are unique in their ability to engage and reward the domestic leisure traveler.

Our loyalty programs, our most loyal and engaged segment within the always rewards program is of course, our co brand credit card holders third quarter year to date. These cardholders have exhibited 11% greater spend on the card on a per cardholder basis versus last year.

In addition, our co brand card holders continue to exhibit strong travel frequency and spend with net revenue bumped up 10% versus prior year through third quarter total co brand credit card program compensation has been $88 million, which is 14% higher than last year and puts us well on our way to surpassing 100.

Million in total program compensation for the full year.

Are always rewards non credit card program also continues to show strong positive impact on customer behavior third quarter year to date, nearly $13 million always rewards member passenger segments have been bought at 17% more than last year and for the same time period spend per member is about 5% greater.

And then last year finally, as Morry mentioned completion of enterprise wide systems implementations that provide a modern technology foundation for all areas of our business, we will free up technology development capacity for smaller, but nonetheless critical strategic enhancements to our website mobile app and loyalty programs.

On supercharge, our abilities to drive greater revenue outside the aircraft and high margin third party products and loyalty program partnerships. We believe that these enhancements enable us to further differentiate our Legion and further diversify the ways, we drive revenue and with that I'll turn it over to our Chief revenue Officer drew wells.

Scott and thanks, everyone for joining us this morning.

I am extremely pleased with our record third quarter performance of $565 million in total revenue growth of nearly 1% on system ASM reduction of <unk>, 4%.

This combination produces <unk> of $12 78.

Which best in any previous third quarter and grew year over year by one 4%.

Our commitment to matching capacity and demand set us up for success in the third quarter with nearly 45% of our scheduled ASM coming in July and September having just more than half of July <unk>.

We are still meaningfully constrained and the best demand periods limiting our ability to truly match with appropriate capacity.

As we continue to learn what the new normal means for the travel industry. One component of pre pandemic travel has firmly returned the gap between peak and off peak performance by way of example, Saturdays and post Labor Day September 2023, where approximately 30% worse than July Saturdays in terms of unit revenue and in line with 2019 peak to trough.

Marion.

Last year that figure was just 15% worse.

And as one would expect the combination of outperforming off peak periods in late 2022, and current year demand normalizing creates a tough environment for year over year figures.

This makes me even prouder of the results we generated.

A significant part of this was continued success of our air ancillary products, which grew approximately 10% on a per passenger basis year over year.

First and foremost our learning and experimenting with bundled ancillary is continue to show incredible strides.

Additionally, allegiant extra contribution on a per fleet basis has improved year over year and every quarter, despite increasing the number of configured aircraft.

We will end the year with roughly 11% of the fleet configured really jet Xtra and expect that to grow to nearly 30%.

The year end 2020 for fleet.

Underscoring bolt in air ancillary at large are the expected improvement from NAFTA.

One of the ramifications of specific use case internal development as some mismatch of existing capabilities first the off the shelf product.

I truly believe this is a significant signal of strength for our internal capabilities that will become supercharged in the future state.

So while we still have immense confidence in the upside to come with <unk>, we actually expect to see some slight headwinds into the fourth quarter due to a short term small loss of functionality.

And year to date through the third quarter.

We are also seeing some normalcy as we shift into <unk> and expect to traveling reasonably in line with pre pandemic Historic median sequential change.

While certainly off from the extraordinary for Q 'twenty to comp.

It should still produce a better <unk> traveling but any pre pandemic fourth quarter and our last nine months of 2023 <unk> higher than the last nine months 2022.

Additionally, there is some growth through the fourth quarter around 5%.

<unk> put full year scheduled service capacity up approximately one 5% versus full year 2022, while system capacity should be approximately plus one 8% the.

The growth in the quarter is focused in two areas weeks with large forecasted cost per gallon declines like in October and holiday weeks, which will extend into early January 2024 as well.

As I mentioned, even with the growth holiday flying will still be lower than when you ultimately desire.

We believe we struck the right balance of profitability potential and operations within the limitations presence, particularly after 2020 twos weather impacted Holly operations across the industry.

Further we are treading carefully with capacity in early 2024 with so many moving parts Boeing deliveries crew poles for transition training and persistent elevated fuel among others I.

Expect the first half of the year to be fairly flat for the full year target of up mid single digits.

The holiday weeks as with all peaks have shown incredible resilience, even labor day in September was a record.

I maintain high expectations for holiday performance, while expected normal leisure softness around.

Q3 2023 Allegiant Travel Co Earnings Call

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