Q2 2024 Allegiant Travel Company Earnings Call
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Amy: Thank you for standing by. My name is Amy, and I will be your conference operator for today. At this time, I would like to welcome you to the Alliant Travel Company second quarter 2024 earnings call. At this time, all lines have been placed on mute to prevent any background noise.
Amy: Thank you for standing by. My name is Amy and I will be your conference operator for today. At this time, I would like to welcome you to the Alliant Travel Company second quarter 2024 earnings call. At this time,
Amy: Should you require any assistance, please press star and the number zero on your telephone keypad, and an operator will come on the line to assist. Thank you, and it is now my pleasure to turn the call over to Sherry Wilson, Managing Director of Investor Relations. Please go ahead. Thank you, Amy. Good afternoon, everyone, and welcome to the Allegiant Travel Company's second quarter 2024 earnings call. On the call with me today are Maury Gallagher, the company's Executive Chairman and CEO, Greg Anderson, President and incoming CEO, Scott DeAngelo, our EVP and Chief Marketing Officer, Drew Wells, our SVP and Chief Revenue Officer, Robert Neal, SVP and Chief Financial Officer, Micah Richins, President 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.
Speaker Change: Thank you Amy good afternoon, everyone and welcome to the Allegiant travel company's second quarter 2024 earnings call on the call with me today are Maury Gallagher, the company's executive Chairman and CEO, Greg Anderson, President and incoming CEO, Scott D. Angelo, our EVP and Chief marketing Officer.
Speaker Change: Sure drew wells, our SVP and Chief revenue Officer, Robert meal, SVP, and Chief Financial Officer, Micah Richards President of Sunseeker resort 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.
Sherry Wilson: 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.
Speaker Change: 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.
Sherry Wilson: 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. 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 Maury.
Speaker Change: 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.
Maury: <unk> and events that do not materialize to view this earnings release as well as the rebroadcast of the call feel free to visit the company's Investor Relations site at IR Dot Allegiant Air Dot com and with that I'll turn it over to Maury. Thank you Sheila and good afternoon, everyone and thank you for joining our call today.
Maurice J. Gallagher: Thank you, Sherri, and good afternoon, everyone. Thank you for joining us on our call today. The good news is we are working our way back to the Allegiant of old. We're well positioned for 2025. And you will hear that from our different speakers today. And I'm happy, on a personal note, to go out on top. We mentioned in our release four major efforts, including increasing our utilization, adding our new Boeing aircraft, continuing development work on our Navitar reservations platform, and they recently announced partnering with Prospect Hotel Advisors. As a note on Prospect, they both operated and bought and sold numerous properties, particularly on the west coast of Florida, where Sunseeker is located.
Speaker Change: Good news is we were working our way back to the reasonable we are well positioned for 2025, and you will hear that from our different speakers today.
On a personal note to go out on top.
Speaker Change: Meanwhile, released four major efforts, including increasing our utilization edition of our new Boeing aircraft.
Speaker Change: <unk> development work on our <unk> reservations platform.
Speaker Change: And we recently announced the partnering with prospects Hotel advisors.
Speaker Change: A note on prosper.
Speaker Change: <unk> operated in bar.
Speaker Change: Numerous properties, particularly on the West Coast of Florida, where sunseeker is located.
Maurice J. Gallagher: After a recent review of the property, they've been impressed. They've complimented its quality of construction, its people, products, and services, and its management team. Stay tuned as we dig into that aspect.
Speaker Change: After a recent review of the property they've been impressed we've complemented this quality of construction as people products and services and his management team.
Speaker Change: Stay tuned as we do.
Speaker Change: Dig into that aspect turning to the airlines the number one asset.
Maurice J. Gallagher: Turning to the airline, the number one asset we have available to us in the coming year is our ability to increase our flying with the existing fleet and personnel. Moreover, this increased flying will be concentrated on peak periods, which are very revenue-accretive. Additionally, this increased line will also drive down our unit cost, our CASMX. As I move to the sidelines, I would be remiss in not applauding this world-class management team. They are as good, if not better, than any team I've had the privilege of working with in the past 20 years.
Speaker Change: Available to us in the coming years, our ability to increase our flying with the existing fleet and personnel.
Speaker Change: Moreover, this increased flying will be concentrated on peak periods, which are very revenue accretive.
Speaker Change: Additionally, this increased volume will also drive down our unit.
Speaker Change: Most of our CASM ex.
As I move to the sidelines I would be remiss in not applauding This world class management team.
Speaker Change: They are as good if not better than any team I've had the privilege to work with in this past 20 some years.
Maurice J. Gallagher: The people you, the analysts, represent, the investors in this industry will be well-served by these excellent leaders in the coming years. Just as important, also, though, is that we've been fortunate to have one of the best workforces, if not the best in the industry. Their excellence can be seen in every aspect of what we do, from our 99% plus completion factor to our industry-leading NPS scores and to our top three ranking among the industry's carriers. And at this point, everyone understands that brand and reputation matter, particularly in this social media world. Allegiant and its world-class team members continually rank near the top in these categories.
Speaker Change: When people use the analyst represent the investors in this industry will be well served by these excellent leaders in the coming years just as important also though is we've been fortunate to have one of the best Workforces if not the best in the industry.
Speaker Change: They are excellent as can be seen in every aspect of what we do from our 99% plus completion factor to our industry, leading NPS scores into our top three ranking among the industry's carriers.
Speaker Change: And at this point you, everyone understands brand and reputation matter, particularly in the social media World.
Speaker Change: Allegiant and its world class team members continually ranked near the top in these categories. This reputation of quality is critical to profitability are.
Maurice J. Gallagher: This reputational quality is critical to profitability. Our unique business model has served us well over the years and continues to do so. However, the recent undoing of this low-fare industry that we all are part of does not portend well for a number of the incumbent low-fare carriers. The combination of weakening revenues, substantial cost increases, and poor reputation and brand has condemned a number of the industry's low-fare players to a loss situation that will be hard to turn around.
Speaker Change: Our unique business model over the years has served us well.
Speaker Change: <unk> continues to do so however, the recent undoing of this low fare industry that we are part of does not portend well for a number of the incumbent low fare carriers.
Speaker Change: Combination of weakening revenues substantial cost increases poor reputation and brand is condemned a number of the industry's low fare players to loss situation that will be hard to turnaround.
Maurice J. Gallagher: This environment has driven certain players to make massive schedule changes in search of a viable business plan. The magnitude of these changes almost certainly suggests losses will increase in the near term. On the regulatory front, I worry about the efforts that the federal government is working to fix something that is not broken. By any measure, the Airline Deregulation Act of 1978 has been the best outcome for the U.S. traveling public.
Speaker Change: This environment has driven certain players to make massive schedule changes and in search of a viable business plan. The magnitude of these changes almost certainly suggest losses will increase near term.
Speaker Change: On the regulatory front.
Speaker Change: I worry about the efforts that the federal government is working to fix something that is not broken by any measure. This airline deregulation Act of 1978 has been the best outcome for the U S traveling public.
Maurice J. Gallagher: However, since Allegiant began in the early 2000s, there's been a constant drumbeat by the government on a path to re-regulate the industry. The current administration has made it known that they do not want any additional mergers, that mergers, they believe, have been bad for the industry. But when a current carrier's business does not work, there's only one of two options: you go out of business, or you
Speaker Change: However, since <unk> began in the early two thousands there has been a constant drumbeat.
Speaker Change: By the government on a path to Reregulate the industry. The current administration has made it known that they do not want any additional mergers that mergers. They believe have been bad for the industry, but.
Speaker Change: But when a current carriers business does not work there is only one of two options you go out of business or emerge.
Maurice J. Gallagher: The DOT recently introduced a number of new regulations, which will only add to the cost the consumer must pay for air travel. As you are aware, the industry trade groups A4A and NACA filed suit in the Fifth Circuit to block one of these proposed regulations, the ancillary fee rule. This new regulation would have required a complete rewrite of the industry's websites, with DOT dictating how we must present our products to our customers.
Speaker Change: The Dod recently introduced a number of new regulations, which will only add to the cost to the consumer must pay for air travel.
Speaker Change: You are aware of the industry trade groups.
Speaker Change: And <unk> filed suit in the fifth circuit to block one of these proposed regulations the ancillary fee rule.
Speaker Change: This new regulation would have required a complete rewrite of the industry's websites with Dot's dictating, how we must present our products to our customers.
Speaker Change: This rewrite as you can imagine would've cost and will cost every carrier millions to develop a website to comply with the proposed presentation format.
Speaker Change: Happy to report that yesterday, the fifth circuit issued a motion to stay the implementation of the Dot's ancillary fee rule a small victory.
Speaker Change: Looking forward as I said I'm bullish on allegiance ability with its unique model with 75% of its routes noncompetitive to grow profitably and strengthened its position in the coming years.
Speaker Change: Think my ownership position says as much.
Speaker Change: Unfortunately, low fares, which politicians all pay lip service to will be more difficult to find in the coming months and years.
Speaker Change: With the unwinding of a number of low fare carriers.
Accordingly, the majors' market share should be increasing will be increasing.
Speaker Change: However, the one eye care the most about Allegiant will do well in the coming years. It is a model that works has proven its resilience over 20 years.
Speaker Change: It has the team members to execute the plan and the leadership to oversee this effort. Thank.
Speaker Change: Thank you very much Greg.
Maurice J. Gallagher: This rewrite, as you can imagine, would have cost and will cost every carrier millions to develop a website to comply with the proposed presentation format. I'm happy to report that yesterday the Fifth Circuit issued a motion to stay the implementation of the DOT's ancillary fee rule, a small victory.
Speaker Change: Alright, Thank you and good afternoon, everyone.
Maurice J. Gallagher: Looking forward, as I said, I'm bullish on Allegiant's ability, with its unique model with 75% of its routes non-competitive, to grow profitably and strengthen its position in the coming years. I think my ownership position says as much. Unfortunately, low fares, which politicians all pay lip service to, will be more difficult to find in the coming months and years with the unwinding of a number of low-fare carriers.
Speaker Change: I'd like to start by congratulating Morion its transition back to the executive Chairman role. He has been a true pioneer in this industry for the better part of the last four decades, and culminating as career by building one of the most unique and successful airlines in the world.
Maurice J. Gallagher: Accordingly, the majors' market share should be increasing and will be increasing. However, the one I care the most about, Allegiant, will do well in the coming years. It is a model that works. It's proven its resilience over 20 years. It has the team members to execute the plan and the leadership to oversee this effort. Thank you very much.
Gregory Clark Anderson: And good afternoon, everyone. I'd like to start by congratulating Maury on his transition back to the executive chairman role. He has been a true pioneer in this industry for the better part of the last four decades, culminating his career by building one of the most unique and successful airlines in the world. We have the right management team to carry on his legacy, and I'm honored to work alongside them and all of Team Allegiant in the continual strengthening of our differentiated airlines.
Speaker Change: We have the right management team to carry on his legacy and I'm honored to work alongside them and all the team Allegiant and the continuous strengthening of our differentiated airline.
Gregory Clark Anderson: Our primary objective as a management team is delivering industry-leading results. Last quarter, I spoke at length about the three key initiatives we are working on that will position the airline for a strong 2025. First, increased peak period utilization.
Speaker Change: Our primary objective as a management team is delivering industry, leading results last quarter I spoke at length about the three key initiatives. We are working on that will position. The airline for a strong 2025 first is the increased peak period utilization next is optimizing our nextgen revenue management system <unk> and.
Gregory Clark Anderson: Next is optimizing our next-gen revenue management system, Navitaire. And lastly, is to bring our new Boeing aircraft into service. Executing these initiatives requires great work from our team members, and I'm incredibly appreciative of all they do. Thank you.
Speaker Change: And lastly is to bring our new Boeing aircraft into service.
Executing these initiatives requires great work from our team members and I am incredibly appreciative of all day due thank you.
Gregory Clark Anderson: It is important we are the airline of choice for our people, and to that end, the last CBA remaining open is a contract with our pilots, which is long overdue. We look forward to bringing these negotiations to a successful conclusion and working with the IBT on a contract our pilots will get behind and that also supports our unique model. With that as a background, let me turn to our airline performance in a second. The team did an outstanding job achieving controllable completion of 99.7%, among the best in the industry.
Speaker Change: It is important we are the airline of choice for our people and to that end. The last CBA remaining open as a contract with our pilots, which is long overdue. We look forward to bringing these negotiations to a successful conclusion and working with the <unk> on a contract our pilots will get behind and it also supports our unique model.
Speaker Change: With that as background, let me turn to our airline performance in the second quarter.
Team did an outstanding job in achieving controllable completion of 99, 7% among the best in the industry.
Gregory Clark Anderson: And as noted, we are focused on increasing our peak utilization. I'm happy to report that June's 7.8 hours per day was a half hour increase year over year. The airline delivered an adjusted operating margin of 10.3% during the second quarter, well ahead of the 7-9% guidance that we provided last quarter.
Speaker Change: And as noted we are focused on increasing our peak utilization I'm happy to report that June seven eight hours per day was a half hour increase year over year.
Speaker Change: The airline delivered an adjusted operating margin of 10, 3% during the second quarter well ahead of the 7% to 9% guidance that we provided last quarter.
Gregory Clark Anderson: This would not have been possible without the increased utilization I just referenced, which was supported by stable pilot staff. I'm pleased to report the increased utilization performance has continued into July, despite the headwinds of the global vendor-induced software outage. On that note, I'm very proud of Team Allegiant for the way we all came together working around the clock during the outage to ensure our systems were back up and running as quickly as possible.
Speaker Change: This would not have been possible without the increased utilization I, just referenced which was supported by stable pilot staffing levels I.
Speaker Change: I am pleased to report the increased utilization performance has continued into July despite the headwinds of the global vendor induced software outage on that note I am very proud of team Allegiant for the way. We all came together working around the clock during the outage to ensure our systems were back up and running as quickly as possible make no mistake, we face <unk>.
Gregory Clark Anderson: Make no mistake, we faced significant challenges, but our team effectively managed the situation, resulting in hundreds of flights saved the day of the outage as we resumed a normal operation that same afternoon. And since that time, we have delivered an impressive ninety nine point five percent controllable completion rate back. We expect the global software outage will impact our margin by three points in the quarter.
Speaker Change: <unk> challenges, but our team effectively managed the situation, resulting in hundreds of flight saved the day of the outage as we resumed our normal operation that same afternoon and since that time, we have delivered an impressive 99, 5% controllable completion factor.
Gregory Clark Anderson: As a result, on a reported basis, we expect an airline only margin of negative 5.5% or a loss of two and a half percent excluding, And nearly half of the financial impact from the outage is related to our customer service plan, where we issue additional compensation to help assist customers with their disrupted travel. Recognizing that the third quarter is typically our lowest financial performing period, our current guidance reflects temporary challenges for the following reasons.
Speaker Change: We expect the global software outage will impact our margin by three points in the quarter as a result on a report on a reported basis, we expect an airline only margin of negative five 5% or a loss of two 5% excluding it.
Speaker Change: And nearly half of the financial impact from the outages related to our customer service plan, where we issue additional compensation to help assist their disrupted travel.
Speaker Change: Recognizing that the third quarter is typically our lowest financial performing period. Our current guidance reflects temporary challenges for the following reasons first our peak utilization for the third quarter summer months is still about 20% below 2019 average of 95 hours per aircraft. However, we estimate a peak summer utilization we're at 2009.
Gregory Clark Anderson: First, our peak utilization for the third quarter summer months is still about 20% below 2019's average of nine and a half hours per aircraft. However, we estimate that if we were at 2019 levels, as we expect to be closer to next summer, this would provide a substantial benefit of six points of margin to our third quarter financial performance. Next, we are still optimizing our Navitaire Revenue Management System. The fact that our ancillary revenue increased year over year in the second quarter highlights how Drew and the team improved our ancillary revenue despite the loss of functionality with Navitaire. The absence of important functionality from a year ago, The Navitar cutover is currently affecting our third quarter margin by three points.
Speaker Change: <unk> levels as we expect to be closer to next summer. We would this would provide a substantial benefit of six points of margin to our third quarter financial performance next we're still optimizing our <unk> revenue management system. The fact that our ancillary revenue increased year over year in the second quarter highlights how drew and the team improved our ancillary revenue.
Speaker Change: Despite the loss of functionality with amateur.
Speaker Change: The absence of important functionality from a year ago.
Speaker Change: This would be the Navistar cutover is currently affecting our third quarter margin by three points.
Gregory Clark Anderson: While this impact is reflected in our current estimates, we are steadily progressing toward resolving this. And lastly, we are addressing the challenges related to the Boeing delivery delays. We are currently absorbing 30 million dollars of annual expenses that are not associated with productive assets, such as pilots that were hired and trained on the MAX aircraft. Our team is focused on getting to a realistic delivery schedule and fair compensation for the extended delays. We estimate these efforts will substantially mitigate this impact, which currently stands at a negative two points of margin.
Speaker Change: While this impact is reflected in our current estimates we are steadily progressing toward resolving this issue.
Speaker Change: And lastly, we are addressing the challenges related to the Boeing delivery delays. We are currently absorbing $30 million of annual expenses that are not associated with productive assets such as pilots that were hired and trained on the Max aircraft. Our team is focused on getting to a realistic delivery schedule and fair compensation for the extended delays we estimate these efforts will.
Speaker Change: We mitigate this impact which currently stands at a negative two points of margin.
Gregory Clark Anderson: All that said, we look forward to delivering significantly improved performance starting later this year and into twenty five as we continue to execute on our plan. We have line of sight to sustained peak utilization increases for the peak weeks of December. We are scheduled for nine hours of utilization per aircraft per day.
Speaker Change: That said, we look forward to delivering significantly improved performance. Starting later this year and into 'twenty five as we continue to execute on our plan. We have line of sight to sustained peak utilization increases for the peak weeks of December were scheduled for nine hours of utilization per aircraft per day, we expect similar utilization for the peak periods in 'twenty five.
Gregory Clark Anderson: We expect similar utilization for the peak periods in twenty five. These planned increases in utilization are expected to be accomplished with roughly the same number of aircraft and infrastructure as we have in twenty four. In addition, the fourteen hundred incremental routes we've identified provide us with many more options that fit our network. Most of these routes are in underserved communities that are currently without nonstop service.
Speaker Change: These planned increases in utilization are expected to be accomplished with roughly the same number of aircrafts and infrastructure as we have in 24. In addition to <unk> hundred incremental routes. We have identified provide us with many more options that fit our network beautifully most of these routes are an underserved community communities that are currently without nonstop service and.
Gregory Clark Anderson: And on the commercial technology front, the team continues working through the optimization of Navitaire, which should yield an estimated incremental $4 per passenger at maturity. This is driven by improved dynamic pricing and new ancillary fee revenues versus our legacy homegrown. We feel confident that Navitaire will be largely optimized by 2025.
Speaker Change: And on the commercial technology front. The team continues working through the optimization of <unk>, which should yield an estimated incremental $4 per passenger at maturity. This is driven by improved dynamic pricing of new ancillary fee revenues versus our legacy homegrown system, we feel confident that <unk> will be largely optimized by 2025.
Gregory Clark Anderson: Regarding our max order discussions with Boeing, indications are that we will take our first delivery this quarter. As we start integrating this new aircraft into our fleet, we remain confident in the operational efficiencies we will gain from an improved fuel burn, increased gauge, and the integration of Allegiant X, efficiency that we believe we will be able to scale as we head into 25. Regarding Boeing deliveries, we are planning for an elongated delivery cycle and expect a slower delivery cadence in 2025 and 2026. The slower fleet growth should result in a reduction in our near and medium-term capital needs.
Speaker Change: Regarding our Max order discussions with Boeing indicate we will take our first delivery this quarter as we start integrating this new aircraft into our fleet we remain.
Speaker Change: Confident in the operational efficiencies, we will gain from an improved fuel burn increased gauge and the integration of Allegiant extra efficiencies that we that we will be able to scale as we head into 'twenty five.
Speaker Change: Regarding Boeing deliveries, we are planning for an elongated delivery cycle unexpected slower delivery cadence and 25% in 2006. This slower fleet growth should result in a reduction in our near and medium term capital needs. However, we are in active discussions with Boeing and we will have more to share when the stocks are finalized.
Gregory Clark Anderson: However, we are in active discussions with Boeing and we will have more to share when those talks are finalized. In the meantime, we believe it was the right move to suspend our dividend, allowing us to focus on working through our capital program while concurrently enhancing our financial returns, and our entire management team is focused on driving higher earnings by taking a fresh look at removing structural costs from our business and executing on our, Although we are not immune to pricing fluctuations, our network, comprising roughly of 75% non-competitive routes, coupled with our ability to pull back capacity to meet demand trends, provides a formidable moat around our business.
In the meantime, we believe it was the right move to suspend our dividend, allowing us to focus on working through our capital program, while concurrently enhancing our financial returns and our entire management team is focused on driving higher earnings by taking a fresh look and removing structural costs from our business and executing on our plan.
Speaker Change: Although we are not immune to pricing fluctuations our network comprising roughly a 75% noncompetitive routes coupled with our ability to pull back capacity to meet demand trend provides a formidable moat around our business we.
Gregory Clark Anderson: We've seen the model produce successful results in various economic conditions, and we expect no difference going forward. In touching on Sunseeker, we forecast our cash loss estimate for the year to be roughly $15 million. This includes a full-year EBITDA loss of $25 million, expected to be offset by up to $10 million of incremental proceeds from business interruption insurance due to the delays in opening the resort.
Speaker Change: We've seen the model produce successful results in various economic conditions, and we expect no difference going forward.
Speaker Change: And touching on Sunseeker, we forecast our cash loss estimate for the year to be roughly $15 million.
Speaker Change: Cash loss estimate for the year to be roughly $15 million. This includes a full year EBITDA loss of $25 million expected to be offset by up to $10 million of incremental proceeds from business interruption insurance due to the delays in opening the resort.
Gregory Clark Anderson: Clearly, Sunseeker's financial results are not meeting expectations. We are proactively addressing this by engaging prospect hotel advisors and an experienced hospitality management firm with a successful track record. They will pair nicely with our Sunseeker team, both working to improve near-term financial performance in parallel with developing potential strategic alternatives for. Given Prospect's team's proven track record of positioning and selling many resort properties, we look forward to leaning into their expertise to help maximize value as we explore alternatives.
Clearly some secret financial resort results are not meeting expectations and we are proactively addressing this by engaging prospect hotel advisors and experienced hospitality management firm with a successful track record they will pair nicely with our sunseeker team both working to improve near term financial performance in parallel with developing potential strategic alternative.
Speaker Change: As for Sunseeker.
Speaker Change: Given prospects team's proven track record of positioning and selling many resort properties, we look forward to leaning into their expertise to help maximize value as we maximize value as we explore alternatives and before I turn it over to Scott I just want to reiterate that we are focusing on our strengths, which is operating our airline and removing distractions that are added.
Gregory Clark Anderson: And before I turn it over to Scott, I just want to reiterate that we are focusing on our strengths, which is operating our airline and removing distractions that aren't part of our plan. The combination of increased utilization, the addition of our Boeing aircraft, the optimization of our revenue management software, and the benefits from prospect advisors should position us well for a much improved 2025 and beyond.
Speaker Change: Due to our plan the combination of increased utilization. The addition of our Boeing aircrafts the optimization of our revenue management software and the benefits from prospect advisors should position us well for a much improved 2025 and beyond Scott. Thanks, Greg.
Scott Wayne DeAngelo: Thanks, Greg. Well, the current domestic air travel supply versus demand environment has been well documented at this point. And while it is having some impact on our business, as we hear from our customers that modestly more of them are planning to spend less than spend more on leisure travel this year, there is marginal goodness we expect to see from the industry's domestic capacity reductions. Drew will talk more about the puts and takes here in his remarks.
Scott: The current domestic air travel supply versus demand environment has been well documented at this point and Paul It is having some impact on our business as we hear from our customers that modestly more of them are planning to spend less and spend more on leisure travel. This year. There is a marginal goodness, we expect to see from the industry's domestic capacity reductions drew will talk.
Paul: More about the puts and takes here in his remarks.
Scott Wayne DeAngelo: Also, awareness of and preference for our Allegiant brand and adoption of our evolving product continue to improve. Our net promoter score rose to 67% in the second quarter, 12 points higher than we reported last quarter.
Drew: Also awareness and preference for our Allegiant brand and adoption of our evolving product continue to improve our net promoter score rose to 67% in the second quarter, that's 12 points higher than we reported last quarter and our customers continue to rate us materially higher than all other airlines in the nation.
Scott Wayne DeAngelo: And our customers continue to rate us materially higher than all other airlines in the nation. It's also important to remember who our customers are. Nearly half of our customers have annual household incomes of greater than $100,000, and nearly two-thirds have annual household incomes of greater than $75,000. Regardless of household income, the year-over-year differences in passenger segments between higher and lower household incomes were less than two percentage points.
Drew: It's also important to remember who our customers are nearly half of our customers have annual household incomes of greater than $100000 and nearly two thirds have annual household incomes of greater than $75000, regardless of household income the year over year differences and passenger segments booked between higher and lower household incomes.
Drew: Was less than two percentage points.
Scott Wayne DeAngelo: We also surveyed our new customers this year, asking them how often they fly and with what other airlines they most frequently flew with before they first flew Allegiant. More than 60% of these new customers fly three or more times per year. Only 10% of these new customers said they flew with ULCC most often before flying with us. Rather, more than 80% of these new customers said they flew most often with the nation's four largest carriers before they flew with us. Typically, connecting via connecting flights and often via the regional arms of network carriers.
Drew: We also surveyed our new customers this year asking them, how often they fly and what other airlines. They most frequently flew with before they first flew allegiant.
Drew: More than 60% of these new customers fly three or more times per year only 10% of these new customers said they flew with the you LCC most often before flying us.
Drew: Another more than 80% of these new customers said they flew most often what the nation for largest carriers before they flew with us.
Drew: Typically connecting via connecting flights and often via the regional arms on network carriers. This is consistent with prior data that we've seen and I've shared for customers overall in past years, and it's consistent with the Legion, having its own swim lane, where we win among leisure travel customers no matter income our prior.
Scott Wayne DeAngelo: This is consistent with prior data that we've seen and I've shared for customers overall in recent years. And it's consistent with Allegiant having its own swim lane, where we win among leisure travel customers, no matter their income or prior airlines flown, who are choosing Allegiant based on nonstop flights, overall value, or smaller, more convenient airports. Most importantly, nearly 90% of these new customers say they are likely or extremely likely to fly with Allegiant again.
Speaker Change: Airlines flown core choosing allegiant based on non stop flights overall value <unk> smaller more convenient airports. Most importantly, nearly 90% of these new customers say, they are likely or extremely likely to fly with allegiant again.
Scott Wayne DeAngelo: Our high-margin third-party product revenue increased 28% during both the second quarter and first half of the year compared to 2023. Our Always Rewards Visa card led the way as the program surpassed 525,000 cardholders in the quarter and earned nearly $40 million in total co-brand credit card compensation, up 34% versus Q2 2023.
Speaker Change: Our high margin third party product revenue increased 28% during both the second quarter and first half of the year compared to 2023.
Speaker Change: We're always rewards visa card led the way as the program surpassed 525000 cardholders in the quarter and earned nearly $40 million in total co brand credit card compensation up 34% versus Q2 2023.
Drew Wells: Year-to-date, we've earned nearly $70 million in total co-brand credit card compensation, up 22% versus 2023, and we're on track to sign up more than 140,000 new cardholders this year, which would make this our second-highest new cardholder acquisition year ever in the program's eight-year history, behind only 2022. Our award-winning co-brand credit card program continues to gain steam, showing strong growth even during a period that had virtually flat capacity growth versus the prior year.
Speaker Change: Year to date, we've earned nearly $70 million in total co brand credit card compensation up 22% versus 2023, and we're on track to find out more than 140000, new card holders this year, which would make this our second highest new cardholder acquisition year ever and the programs eight year history behind it.
Speaker Change: Only 2022, our award winning co brand credit card program continues to gain steam showing strong growth even during a period that had virtually flat capacity growth versus prior year.
Drew Wells: And lastly, we continue our transition from legacy technology systems to modern open integration technology platforms that will enable us to enhance our web and app booking experience and merchandising capabilities, incorporate generative AI in both self-service and sales capacities, and ultimately drive increased take rates for high margin air ancillary products and bundles, along with continued increased attachment for high margin third party hotel, car rental, and co-brand credit card offerings. And with that, I'll turn it over to our Chief Revenue Officer, Drew Wells.
Speaker Change: And lastly, we continue our transition from legacy technology systems to modern open integration technology platforms that will enable us to enhance our web and app booking experience and merchandising capabilities incorporate generative AI and both self service and sales capacities and ultimately drive increased take rates for high <unk>.
Drew Wells: Margin air ancillary products and bundles, along with continued increased attachment for high margin third Party hotel car rental and co brand credit card offerings and with that I'll turn it over to our Chief revenue Officer drew wells.
Drew Wells: Thank you, Scott. And thanks to everyone for joining us today. I'm pleased to report second quarter airline revenue of $649.5 million and TRASM of $13.03, both figures among the best second quarter performances in Allegiant history. On a year-over-year basis, TRASM was down approximately 4.5%, and system ASMs decreased 0.8% both for 2Q20.
Drew Wells: Thank you Scott and thanks to everyone for joining us today.
Drew Wells: I am pleased to report second quarter airline revenue of $649 5 million and <unk> of $13 <unk>.
Drew Wells: Both figures are among the best second quarter performances and Allegiant history.
Speaker Change: On a year over year basis, <unk> was down approximately four 5% and system ASM decreased <unk>, 8% both versus <unk> 23.
Drew Wells: Among carriers that have reported 2Q results, Allegiant continues to represent one of the best performances versus pre-pandemic, with both double-digit TRASM and ASM gains versus the first half of 2019, along with a second consecutive quarterly record fixed-fee performance, leading the way once more with strong ancillary performance year over year. Scott detailed the Always Rewards Visa card performance, but both the expansion of Allegiant Extra Aircraft and successful price testing drove immense value in June after retrofitting 11 additional aircraft.
Among carriers that have reported <unk> results Allegiant continues to represent one of the best performances versus pre pandemic with both double digit <unk> and ASM gains versus the first half of 2019, along with a second consecutive quarterly record fixed fee performance.
Speaker Change: Leading the way once more of a strong ancillary performance year over year.
Scott: Scott detailed the always rewards visa card performance, but both the expansion of Allegiant extra aircrafts and successful price testing drove immense value in June after retrofitting 11 additional aircrafts.
Drew Wells: We're targeting 26 more aircraft, 13 in each of the third and fourth quarters through the back half of the year. When combined with our initial four Boeing MAX aircraft, we will feature the Allegiant Extra product on nearly half of the fleet by year end. As a reminder, the Allegiant XTRA aircraft features six rows of additional legroom, along with priority access, reserved overhead bin space, and an included snack on board. When starting the small three to four plane test in 2019, we believed it worked on paper given the mix of itineraries from our customers. But certainly, there was no certainty that it would work in practice.
Speaker Change: We're targeting 26 more aircraft 13 in each of the third and fourth quarters through the back half of the year.
Speaker Change: When combined with our initial four Boeing Max aircraft, we will feature the allegiant extra product and nearly half of the fleet by year end.
Speaker Change: As a reminder, the allegiant extra aircraft features six rows of additional legroom, along with priority access reserved overhead bin space and it included snack onboard.
Speaker Change: When starting to small 3% to four test in 2019, we believe that worked on paper given the mix of itineraries from our customers.
Speaker Change: There was no certainty it would work in practice.
Drew Wells: In 2024, more than 300 unique markets will have seen the Allegiant Xtra product, and while the overall revenue environment is dramatically better, driving a higher opportunity cost and hurdle rate, Xtra has excelled to a product currently contributing more than $3 in incremental revenue per passenger on flights with the Allegiant Xtra layer. These benefits have helped offset the continued headwinds from a loss of functionality during our Navitaire Reservation Management System implementation. We are in the early steps of creating a detailed timeline, but as Greg mentioned, we expect to see benefits show up in 2020.
Speaker Change: In 2020 for more than 300 unique markets have seen the allegiant extra product and while the overall revenue environment is dramatically better driving a higher opportunity cost and hurdle rate extra has excelled to our product currently contributing more than $3 in incremental revenue per passenger on flights with the allegiant extra layer.
These benefits have helped to offset the continued headwinds from a loss of functionality during our <unk> reservation management system implementation.
Speaker Change: We are in the early steps of creating a detailed timeline, but as Greg mentioned, we expect to see benefits show up in 2025.
Drew Wells: While certainly a unit revenue positive, I don't think we fully maximized our earnings potential through April and early May. As mentioned last quarter, we had more available pilots in March than initially planned as Boeing delivery timelines, and therefore, our pilot transition training timing and needs continued to slip. This held true in the first half of Q2 as well.
Speaker Change: While certainly a unit revenue positive I don't think we fully maximize our earnings potential through April and early May as mentioned last quarter. We had more available pilots in March than initially planned as Boeing delivery timelines and therefore, our pilot transition training timing and needs continue to slip to.
Speaker Change: This helps you in the first half of Q2 as well.
Drew Wells: Additionally, demand held in better than our capacity deployment would imply, and we likely should have gone down just single digits instead. The third quarter capacity plan will reflect that learning from the second quarter, with overall ASMs expected to grow roughly 1.5 points versus the third quarter of 2023, and the post-summer capacity expected to be down just slightly. This obviously will carry a stronger headwind to 3Q unit revenues when compared to the benefit of off-peak 2Q capacity decisions, but we believe it is the right thing for us.
Speaker Change: Additionally, demand held in better than our capacity deployment would imply and we'd likely should have a down just single digits instead.
Speaker Change: The third quarter capacity plan will reflect that learning from the second quarter with overall ASM expected to grow roughly one five points versus the third quarter 2023.
Speaker Change: In the post summer capacity expected to be down just slightly.
Speaker Change: This obviously will carry a stronger headwind to <unk> revenues when compared to the benefit of off peak QQ capacity decisions, but we believe it is the right thing for earnings.
Drew Wells: Further, while we will likely see a reduced impact relative to the other carriers given our network setup, we are not fully immune from industry capacity decisions, which will affect our results. And, as with most years, as July goes, the quarter goes, and approximately 44% of our third quarter ASMs are expected to fly in July. We currently expect third quarter unit revenues to be down approximately 7.5% year over year.
Speaker Change: Further while we will likely see a reduced impact relative to the other carriers given our network setup, we're not fully immune from industry capacity decisions.
Speaker Change: Which will affect our results and as with most years as July goes the quarter goes and approximately 44% of our third quarter ASM are expected to fly in July.
Speaker Change: We currently expect third quarter unit revenues to be down approximately seven 5% year over year.
Robert J. Neal: The quarter exit rate does look better than July on a year-over-year basis for flat capacity routes. However, given our ASM distribution, for September to impact the quarter meaningfully, we'd roughly double the percentage change that July required. Most important to our longer-term plans, though, is the inflection point of our utilization profile. As we discussed last quarter, the restoration of our peak utilization is paramount in our return to an acceptable margin profile. Summer 2024 was the first step toward that goal, with successful small gains and a strong operational performance.
Speaker Change: The quarter exit rate does look better than July on a year over year basis reflect capacity routes. However, given our ASM distribution for September to impact the quarter meaningfully we need roughly double the percentage change that July requires.
Speaker Change: Most important to our longer term plans, though as the inflection point of our utilization profile.
Speaker Change: As we discussed last quarter the restoration of our peak utilization is paramount in our return to acceptable margin profiles silver.
Speaker Change: <unk> of our 2024 was the first step toward that with successful small gains and a strong operational performance.
Robert J. Neal: We will look to push harder still, as our current outlook for the holiday period has us back to just a single-digit percentage deficit versus 2019 utilization, as opposed to the 20% plus reduction. We continue to gain confidence in the pilot headcount numbers, and our planning and operations teams keep working to find ways to drive valuable flying upside while not sacrificing operational integrity. And with that, I'd like to turn it over to Robert. Thanks, Drew, and good afternoon, everyone.
Speaker Change: We'll look to push harder still has our current outlook for the holiday period is it's back to just a single digit percentage deficit for 2019 utilization as opposed to the 20% plus reduction from this summer.
Speaker Change: We continue to get our confidence in the pilot head count numbers, and our planning and operations teams keep finding keep working to find ways to drive valuable flying upside, while not sacrificing operational integrity.
Speaker Change: With that I'd like to turn it over to Robert.
Robert J. Neal: Before I review our financial results, I just want to extend my sincere thanks to our team members. Throughout this year, we have been reacting and adjusting to a continuously changing aircraft delivery schedule and fleet retirement. The situation has been fluid and dynamic, causing various workgroups to be prepared for multiple operating scenarios. It's not easy, and the impacts have been felt throughout the organization, but in the face of this, our people have delivered operational excellence while still keeping a focus on cost execution.
Robert: Thanks drew and good afternoon, everyone.
Robert: Before I review, our financial results I, just wanted to extend my sincere thanks to our team members throughout this year, we have been reacting and adjusting to the continuously changing aircraft delivery schedule and fleet retirement plan.
Robert: The situation has been fluid and dynamic, causing various workgroups to be prepared for multiple operating scenarios, it's not easy and the impacts have been felt throughout the organization, but in the face of this our people have delivered operational excellence, while still keeping our focus on cost execution.
Robert J. Neal: Thank you to Team Allegiant for all you do. Now, I'll speak to our financial results and guidance today on an adjusted basis, excluding any special items. Today, we reported consolidated net income of $32.5 million for the second quarter, yielding a consolidated earnings per share of $1.77. Consolidated EBITDA came in at $118.3 million, with an EBITDA margin of $17.8%.
Robert: The team Allegiant for all you do.
Speaker Change: Now I'll speak to our financial results and guidance today on an adjusted basis, excluding any special items today.
Speaker Change: Today, we reported consolidated net income of $32 5 million for the second quarter, yielding a consolidated earnings per share of $1 77.
Speaker Change: Consolidated EBITDA came in at $118 $3 million with an EBITDA margin of 17, 8%.
Robert J. Neal: Adjusted net income at the airline was $41 million, resulting in an airline EPS of $2.24, which was above our initial expectation. Airline financial results were driven by stronger than anticipated top line revenue and better than expected cost per. Airline EBITDA for the quarter was $126.3 million, resulting in an EBITDA margin of 19.4% for the year. Fuel costs, of course, continue to play a significant role in our financial results. For the second quarter, our average fuel cost was $2.83 per gallon, slightly below our guide of $2.90.
Speaker Change: Adjusted net income at the airline was $41 million, resulting in an airline EPS of $2 24, which was above our initial expectations.
Speaker Change: <unk> financial results were driven by stronger than anticipated top line revenue and better than expected cost performance.
Speaker Change: Airline EBITDA for the quarter was $126 $3 million, resulting in an EBITDA margin of 19, 4% for the airline.
Speaker Change: Fuel costs of course continue to play a significant role in our financial results for the second quarter average fuel cost was $2 83 per gallon slightly below our guide of $2 90 for the third quarter, we are estimating our fuel cost to be $2 80 per gallon.
Robert J. Neal: For the third quarter, we are estimating our fuel cost to be $2.80 per gallon. Non-fill unit costs increased 5.6% on a flight capacity reduction of 8 tenths of a percent when compared to the second quarter of 23. This increase was better than our previous estimate of 7%, supported by improvements in various cost centers and timing of flight equipment sales during the quarter. Increases in unit costs included one extra month of the pilot retention bonus, given the accrual began in May of 23, higher labor costs and other work groups, depreciation expense related to heavy maintenance and IT systems, and a slight capacity reduction as compared to the prior year.
Speaker Change: Non fuel unit costs increased five 6% on a slight capacity reduction of eight tenths of a percent when compared to the second quarter of 'twenty three.
Speaker Change: This increase was better than our previous estimate of up 7% supported by improvements in various cost centers and on timing of flight equipment sales during the quarter.
Speaker Change: Increases in unit costs included one extra month of the pilot retention bonus given the accrual began in may of 'twenty, three higher labor costs and other work groups depreciation expense related to the heavy maintenance and it systems and the slight capacity reduction as compared to the prior year.
Robert J. Neal: While unit costs are structurally higher for the industry, we are mindful that, at Allegiant, our results this year reflect higher unit costs associated with labor agreements, but they don't benefit from increased utilization and productivity in our peak leisure periods, something we are highly focused on delivering, as Greg mentioned. Turning to the balance sheet, total liquidity at the end of the quarter was $1.1 billion, including $851 million in cash and investments and $275 million in undrawn revolver costs. During the quarter, we made principal payments totaling $31.7 million.
Speaker Change: While unit cost structurally higher for the industry. We are mindful that at Allegiant. Our results. This year reflect higher unit costs associated with labor agreements, but they don't benefit from increased utilization and productivity in our peak leisure periods, something we are highly focused on delivering as Greg mentioned.
Speaker Change: Turning to the balance sheet total liquidity at the end of the quarter was $1 1 billion, including $851 million in cash and investments and $275 million in undrawn revolver capacity.
Speaker Change: During the quarter, we made principal payments totaling $31 $7 million.
Robert J. Neal: Our consolidated net leverage at the end of the quarter was 3.8 times trailing 12-month EBITDA, which includes $89 million in costs related to our pilot retention budget. During the remainder of the year, we expect to repay approximately $73 million in regular scheduled principal amortization and expect $50 to $75 million in PDP debt to be naturally refinanced by year-end as associated maxed aircraft earnings. As previously noted, in conjunction with Boeing deliveries, we expect our net leverage to peak at year end and remain around those levels through the first half of next before we start to de-lever during the back half of 25, as we expect to see sustained margin improvement following the key initiatives we've outlined. In early July, we announced the temporary suspension of our dividends.
Speaker Change: Our consolidated net leverage at the end of the quarter was three eight times trailing 12 month, EBITDA, which includes $89 million in costs related to our pilot retention bonus.
Speaker Change: During the remainder of the year, we expect to repay approximately $73 million in regular scheduled principal amortization and expect $50 million to $75 million in PDP that can be naturally refinanced by yearend as associated Max aircraft are delivered.
As previously noted in conjunction with Boeing deliveries, we expect our net leverage to peak at year end and remain around those levels through the first half of next year before we start to deliver delever during the back half of 'twenty five as we expect to see sustained margin improvement following the key initiatives we have.
Speaker Change: In early July we announced the temporary suspension of our dividend.
Robert J. Neal: We are focused on managing our liquidity and leverage as we prepare to deploy Catholic for aircraft deliveries later this year. We remain excited about the earnings potential of these aircraft and believe this is a prudent capital allocation to support long-term airline earnings. Regarding the fleet, we inducted one A320 aircraft into revenue service during the quarter, which was delivered to us back in March. We anticipate our first Max 8 delivery from Boeing in September, and we are currently expecting a total of four units this year, down from six discussed in the last term.
Speaker Change: We are focused on managing our liquidity and leverage as we prepare to deploy capex for aircraft deliveries. Later this year. We remain excited about the earnings potential of these aircrafts and believe this is a prudent capital allocation to support long term airline earnings.
Speaker Change: Regarding fleet, we inducted one <unk> hundred 20 aircraft into revenue service during the quarter, which was delivered to us back in March.
Speaker Change: We anticipate our first Max eight delivery from Boeing in September and we are currently expecting a total of four units. This year down from six discussed on the last earnings call.
Robert J. Neal: Our plan here represents our best estimate and is not based on a forecast from Boeing. As a result of the continued delivery delay shifting our initial 737 MAX operations into the fourth quarter, we have updated our capacity assumptions for the remainder of the year and now expect full-year capacity to increase roughly 1.5% as compared to 2022. We are prepared in the event aircraft deliveries shift further to adjust operational plans to align with aircraft available.
Speaker Change: Our plan here represents our best estimate and is not based on our forecast on Boeing.
Speaker Change: As a result of the continued delivery delays shifting our initial 737 Max operations into the fourth quarter, we have updated our capacity assumptions for the remainder of the year and now expect full year capacity to increase roughly one 5% as compared to 2023.
Speaker Change: We are prepared in the event aircraft delivery shift further to adjust operational plans to align with aircraft availability.
Robert J. Neal: Looking ahead, we are in discussions with Boeing on an updated delivery schedule, which would take into account the time needed to properly ramp this new fleet type into the business. To better manage the disconnected timing of aircraft and flight crew availability for the MAX fleet, we are working with Boeing on a schedule that would envision a slower delivery profile than we had originally planned. Based on our current forecast, we are expecting full-year capital expenditures of roughly $400 million for the full year 2024, of which $190 million is aircraft or engine relief.
Speaker Change: Looking ahead, we are in active discussions with Boeing on an updated delivery schedule, which would take into account the time needed to properly ramp this new fleet type into the business.
Speaker Change: To better manage disconnected timing of aircraft in flight crew availability for the Max we are working with Boeing on a schedule, which would envision a slower delivery profile than we had originally planned.
Speaker Change: Based on our current forecast, we are expecting full year capital expenditures of roughly $400 million for the full year 2024.
Speaker Change: Of which $190 million is aircraft or engine related.
Robert J. Neal: Other airline capital expenditures are now expected to be approximately $125 million, down $40 million from our prior guide. And we continue to expect heavy maintenance capex to come in at $85 million for the full year, unchanged from the last quarter. For the third quarter, we estimate a consolidated loss per share of three dollars at the midpoint of our guidance.
Speaker Change: Other airline capital expenditures are now expected to be approximately $125 million down $40 million from our prior guidance and we continue to expect heavy maintenance capex to come in at $85 million for the full year unchanged from the last quarter.
Speaker Change: Okay.
Robert J. Neal: Roughly 75 cents of that loss is attributable to the systems outage in July, and about a dollar is attributable to losses at some other season. The third quarter represents our seasonally low period, and as noted, July utilization was well below levels we've historically achieved. On a unit cost basis, we expect third quarter CASMX to increase roughly 7% over the same period of 2023. The increase is comprised of three points related to the system outage, roughly four points in labor costs, and a point and a half related to ground handling and station charges, offset by reductions of about a point in marketing and another half a point from a handful of other items.
Speaker Change: For the third quarter, we estimate a consolidated loss per share of $3 at the midpoint of our guidance roughly 75 of that loss is attributable to the systems outage in July and about $1 is attributable to losses at sunseeker.
Speaker Change: The third quarter represents our seasonally low period and as noted July utilization was well below levels, we have historically achieved.
Speaker Change: On a unit cost basis, we expect third quarter CASM ex will increase roughly 7% over the same period of 2023.
Speaker Change: The increase is comprised of three points related to the system outage, roughly four points and labor costs and appointing a half related to ground handling and station charges offset by reductions of about a point in marketing and another half a point from a handful of other items.
Robert J. Neal: At the time of our last call, we were expecting fourth-quarter CASMX to be flat to down versus the prior year, but given the continued Boeing delays, we have removed roughly three points of capacity from the fourth quarter and now expect CASMX to be up low single digits year over year. As I wrap up, I want to reiterate that while we continue to invest in the future of Allegiant, our financial priorities are focused on strengthening our balance sheet and delivering improved financial performance in the coming quarter. And finally, on behalf of everyone here at the table and the entire Allegiant team, I want to thank Maury for the years of leadership and building this unique and amazing company.
Speaker Change: At the time of our last call, we were expecting fourth quarter CASM ex to be flat to down versus the prior year, but given the continued billing delays we've removed roughly three points of capacity from the fourth quarter and now expect CASM ex to be up low single digits year over year.
As I wrap up I want to reiterate that while we continue to invest in the future of Allegiant, our financial priorities are focused on strengthening our balance sheet and delivering improved financial performance in the coming quarters.
Speaker Change: And finally on behalf of everyone here at the table and the entire Allegiant team I want to thank Laurie for the years of leadership and building. This unique an amazing company and congratulations to Greg on his very well deserved appointment as CEO.
Speaker Change: We know the company is in good hands and the entire team is behind you and with that Amy. This concludes our prepared remarks, we can now begin the Q&A portion of the call.
Amy: And congratulations to Greg on his very well-deserved appointment as CEO. We know the company is in good hands, and the entire team is behind you. And with that, Amy, this concludes our prepared remarks. We can now begin the Q&A portion of the call. Thank you. The floor is now open for questions. If you have dialed in and would like to ask a question, please press star one on your telephone keypad to raise your hand and join the queue.
Amy: If you would like to withdraw your question, simply press star one again. If you're called upon to ask your question and are listening via a loudspeaker on your device, please be prepared to pick up your handset and ensure that your phone is not on mute when asking your question.
Speaker Change: Thank you. The floor is now opened for questions. If you have dialed in and would like to ask a question. Please press star one on your telephone keypad to raise your hand and joined the queue.
Speaker Change: I would like to withdraw your question simply press Star one again.
Speaker Change: If you called it.
Speaker Change: If called upon to ask your question and our listening via allowed speaker on mute on your device. Please be prepared to pick up your handset and ensure that your phone is not on mute when asking your question.
Amy: We do request for today's session that you please limit to one question and one follow-up. Again, press star one to join the queue. Our first question comes from the line of Michael Linenberg from Deutsches Bank. Your line is now open. Hi, everyone, this is Shannon Doherty on behalf of Mike.
Speaker Change: We do request for today's session that you. Please limit to one question and one follow up again press star one to join the queue.
Speaker Change: Our first question comes from the line of Michael Lindenberg from Deutsche Bank.
Speaker Change: Your line is now open.
Shannon Doherty: Greg, congratulations on your new role. Perhaps, for you and Micah, you know, I found one sentence within this morning's strategic review announcement particularly interesting, and that was regarding maximizing strategic alternatives, which will be key as you identify the right path forward. With the profitability of Sunseeker getting worse, can you, one, tell us how long you expect it to be, how long it expects it to take to get to profitability on an EBITDA basis now, and two, how long are you willing to produce losses at Sunseeker before seeking a divestment?
Speaker Change: Hi, everyone. This is Shannon Dougherty on for Mike Greg Congratulations on your new role maybe to you and might go on.
Speaker Change: One within this morning to strategic review announcement, particularly interesting and that was regarding maximizing strategic alternative which will be key as you identify the right path forward with the profitability of thank you Youre getting worse can you tell us how long you expect it to be how long you expect it to take to get to profitability on an EBITDA basis now and.
Speaker Change: How long are you willing to produce losses upfront CAGR, but of course you can.
Speaker Change: Yes.
Shannon Doherty: Hey, Shannon, why don't I kick it off here and just maybe give a little bit more color on, you know, the strategic positioning, and maybe a little bit more on Prospect and what we're thinking there with. They bring some extensive experience, a proven track record in positioning and selling these resorts, and they come highly recommended by big players. But what's interesting as well is that Prospect is very complimentary about the design and the service levels of the resort, and more importantly, the Sunseeker management team.
Speaker Change: Thanks, Shannon why don't I kick it off here and just maybe give a little bit more color on the strategic positioning.
Speaker Change: And maybe a little bit more on prospects and what we're thinking there with <unk>.
Speaker Change: They bring some extensive experience and proven track record and positioning and selling these resorts and they come highly recommended by big players and.
Speaker Change: But what's interesting as well is our prospects is very complimentary of the design and the service levels of the resort and more importantly, the sunseeker management team.
Gregory Clark Anderson: But as we go through our strategic review, I want to say that all options are on the table. We're, you know, digging in, and Prospect's going to help open some doors for us, excuse me, and we're focused on parallel paths. That is, optimizing the existing asset.
Speaker Change: But as we go through our strategic review I want to say that all options are on the table.
Speaker Change: We're we're digging in and prospects going to open some doors for US help open some doors for us excuse me and we're focused on parallel paths, that's optimizing the existing asset how do we increase distribution and then concurrently positioning ourselves as we engage in discussions with potential strategic partners, but.
Gregory Clark Anderson: How do we increase distribution and then concurrently position ourselves as we, you know, engage in discussions with potential strategic partners? But Prospect will be able to provide some perspective on the value of Sunseeker and how we best maximize and limit any further capital investment. But there's, I think, more value there that's currently being reflected. But in terms of the back half of your question, I don't know, Micah, if you want to add any commentary on the earnings profile.
Michael John Linenberg: Prospect will be able to buy some perspective on the value sunseeker and how we best maximize and limit any further capital investments, but there is I think more value. There thats currently being reflected in terms of the back half of your question I don't know, Mike If you want to add any commentary.
Michael John Linenberg: On the earnings.
Speaker Change: Profile.
Gregory Clark Anderson: No, I think, I think for us, in being able to understand what the rest of 24 looks like, and, more importantly, what 25 will look like, is going to be driven, as we've talked before, by how we see group business materializing. I'm happy to report, like we talked about this on the last call, you know, we think we can do around 60,000 group rooms in 25. And the sales team here has been working very, very hard, and they will continue to be on pace with that. I can't tell you how different the results will be.
Michael John Linenberg: No I think I think for us and being able to understand what the rest of 'twenty four looks like and I think more importantly.
What 25 will look like it's going to be driven as we've talked before on how we see group business Materializing I'm happy to report like we talked about this on the last call.
Michael John Linenberg: We think we can do around 60000 group rooms in 'twenty five and the sales team here has been working very very hard and continue to be on pace with that.
Speaker Change: I can't tell you how different the results will be.
Micah Richins: If we're looking at, you know, achieving 60,000 group rooms versus something like 37,000, we think we'll achieve in 24. It changes literally everything in terms of the ADR that we can drive, occupancy we can drive, and then very high-dollar catering spend as well for food and beverage. So, you know, we're not interested in continuing to lose money. We didn't build it for that.
Speaker Change: If we're looking at achieving 60000 group rooms versus something like 37000, we think we'll achieve in 'twenty four it changes literally everything in terms of ADR that we can drive occupancy we can drive and then very high dollar catering spend as well and for food and beverage.
Micah Richins: We certainly are looking at every alternative here to improve the financial results. We think we'll see improvements to a degree in the fourth quarter and are really, really excited for what we think Q1 and beyond will look like in 25. Thank you all for having me. Yeah, hang on one minute, ma'am. This is Maury.
Speaker Change: So we're not interested in continuing to lose money, we didn't bill for that we certainly are looking at every alternative here to improve the financial results. We think we will see improvements to a degree in fourth quarter and we're really excited for what we think Q1 and beyond will look like in 'twenty five.
Speaker Change: Thank you.
Speaker Change: Yes.
Speaker Change: Hey, all motivated ma'am.
Michael John Linenberg: Laurie.
Maurice J. Gallagher: Speaking for the board, the board is very cognizant of Sunseeker's performance and long-term. While everybody else is getting the product we thought we wanted, and it is a really top-notch product, it just takes time to get this to a point where it needs to be economically. But the board is very focused on working with Prospect, who has done exceptional work both operationally, and we don't think so much we need operational.
Speaker Change: Speaking for the board the board is very cognizant of.
Michael John Linenberg: Since it is performance and long term, while everybody we got the product.
Michael John Linenberg: So what we wanted and it is really top notch product. It's just takes time to get this to a point where it needs to be economically, but the board is very focused on working with prospects who has done exceptional.
Speaker Change: Both operational and we don't think so much we need operational we need revenue driven alternatives prospect can bring with us and then <unk>.
Maurice J. Gallagher: We need revenue-driven alternatives that Prospect can bring with us, and then certainly looking at the financial alternatives that can come with some different clients that Prospect can drive for us. So stay tuned. Sorry, go ahead, Amy.
Speaker Change: Suddenly looking at the.
Speaker Change: Financial alternatives that can come with.
Speaker Change: Some different.
Speaker Change: Prosper.
Speaker Change: Clients and prospects can drive for us so stay tuned.
Shannon Doherty: Oh, no, really great answers. Thank you all. If I may just shift back to the airline, can you remind us what is limiting you at this point to get back to the aircraft utilization you need to boost your margins? I know you indicated that you could get to full utilization levels in 2025 on 24 levels of aircraft and infrastructure. So I'm just wondering why you're not there now.
Amy: Sorry go ahead Amy.
Amy: Really great answers. Thank you al if I may just shift back to the airline.
Amy: Can you remind us what is limiting you at this point do you get back to the aircraft utilization you need to boost your margin.
Speaker Change: <unk> indicated that you can get to full utilization level in 2025 on 24 levels of aircraft and infrastructure. So I'm just wondering why lock there now.
Gregory Clark Anderson: Why don't I kick that off, Shannon? This is Greg again, and perhaps Drew or others may want to just jump in here. But, you know, the biggest constraint that we've been facing in terms of the peak period has been stabilized staffing levels, particularly with our pilot. That's improved dramatically. And then what we've also seen is that our strategic planning and performance have resulted in a much strengthened infrastructure and operational excellence. And so I think these two items, coupled together, give us confidence to start increasing our peak utilization. Drew, anything?
Speaker Change: Why don't I kick that option and this is Greg again, and perhaps through or others may want to just jump.
Speaker Change: In here, but the biggest constraint that we've been facing.
Speaker Change: In terms of the peak periods has been stabilized staffing levels, particularly with our pilots.
Speaker Change: That's that's improved dramatically and then what we've also seen as from our strategic planning and performance that has resulted in a much strengthened infrastructure and operational excellence and so I think these two items, coupled together gives us confidence to start increasing.
Speaker Change: Peak utilization through anything maybe it's a little more color on summer 'twenty four we plan to June and July to the maximum block hours, we thought we could fly given the head count we forecasted.
Drew Wells: I'll give you just a little more color on summer 24. We planned June and July to the maximum block hours we thought we could fly, given the headcount we forecasted, as well as worked with our planning and performance to ensure we were keeping a resilient operation. So as we move forward, the headcount number continues to grow, more commensurate with where our aircraft growth has been and allowing us to fly more. I think it's generally that simple for most people.
Speaker Change: As well as working with our planning and performance to ensure we were keeping our resilient operation. So as we move forward that head count head count number continues to grow.
Speaker Change: More commensurate with where our aircraft growth has been in allowing us to fly more.
Speaker Change: Generally that simple through most of the fees and just one other thing to add real quick that I forgot to mention is the Boeing delays and the <unk>.
Gregory Clark Anderson: And just one other thing to add real quick, I forgot to mention the Boeing delays and the inefficiency that have come with that. And so those are issues we've also been working through. But put everything together, and we expect a more normalized pattern in 2025. Well, and one other thing, the timing hasn't been in our favor. You know, getting ready for the marches in June and July is something we traditionally do in the fall.
Speaker Change: The inefficiencies that have come with that and so those are issues. We've also been working through but couple of everything together, we expect a more normalized pattern.
Speaker Change: Pattern in 2025.
Speaker Change: And one other thing the timing hasnt been in our favor.
Speaker Change: Getting ready for the margins in the June and July is something historically, we did in the fall.
Drew Wells: And you know what you can predict when you have airplanes and pilots in particular to do that, but we were losing a pilot a day last summer for 23. And as a result, we had no sense of how far we could push, you know, scheduling that started slowing down nicely in the back half of the year. But candidly, we missed our date as to when we could feel comfortable pushing utilization, so we lost as much as nine months to a year of timing to get into that really peak period, which is the spring when March and the summer in June and July.
Speaker Change: And you know, which you could predict would you have airplanes and pilots in particular to do that but we were losing a pilot a day last summer in 'twenty three.
Speaker Change: As a result had no sense of how far we can push.
Speaker Change: Scheduling.
Speaker Change: That started slowing down nicely in the back half of the year, but candidly we missed our date as to when we can feel comfortable pushing utilization. So we lost as much as nine months to a year of timing to get into that really peak periods, which are the spring in March in the summer in June July.
Drew Wells: So that's going to be why 25 is, you know, we're very comfortable with headcount and airplanes. I'll be at the Boeing product, but even that's got a better color than we had last fall. So it's unfortunate the timing is kind of stressed out so far, but it's definitely become a clearer picture. The fog has gone away to a great degree. Thanks again.
Speaker Change: So thats going to be 125 is very.
Speaker Change: Very comfortable with head count and airplanes, albeit the Boeing product, but even thats got a better color than we had last fall. So it's unfortunate the timing.
Speaker Change: Breast health, so far, but it's definitely become a clearer picture of the fog has gone away to a great degree.
Speaker Change: Thanks again.
Catherine: Our next question comes from Ravi Shanker, with Morgan Stanley. Your line is open. Hi, thank you. This is Catherine on behalf of Ravi Shanker.
Speaker Change: Our next question comes from Ravi Shanker.
Speaker Change: With Morgan Stanley Your line is open.
Catherine: Just kind of going off of that question. Curious, you know, what the catalyst was to conduct this review of the Sunseeker and whether or not you're agnostic between having, you know, Sunseeker on your balance sheet or not. Yeah, why don't I kick that off, Catherine?
Speaker Change: Hi. Thank you this is katherine on for Ravi.
Katherine: Kind of going off of that question curious what the catalyst was to conduct this review of the sunseeker and whether or not you're agnostic between having some.
Speaker Change: Take our on your balance sheet or off of it.
Gregory Clark Anderson: And I think we've just had some time to settle into the property. And we felt, and we've been having discussions around with prospects for some time now, and seeing what the right timing is, in terms of the actual engagement. And as we kind of gear up as well into the peak period, which will be the first quarter of 25. We wanted to, we wanted to start now and see what we could do.
Speaker Change: Yes, why don't I.
Speaker Change: Kicked that off Kathryn and I think just we've had some time to settle into the property.
Speaker Change: And we felt and we've been having discussions around with prospects for some time now.
Speaker Change: What the right timing is in terms of the <unk>.
Speaker Change: Actual engagement.
Speaker Change: And as we kind of gear up as well to the peak period.
Speaker Change: I'll be the first quarter 'twenty five we wanted to we wanted to start now and see what we can do so I think that that's in essence, the timing or helps helps hopefully frame the timing and why we announced now.
Gregory Clark Anderson: So, you know, I think that that's, in essence, the timing. It helps, hopefully, frame the timing and why we announced now. And then on the second part of your question, in terms of, you know, as I mentioned, all options are on the table. That includes, you know, a cell or a stake cell.
Speaker Change: And then on the second part of your question in terms of.
Speaker Change: As I mentioned all options are on the table.
Speaker Change: That includes a sale of our stake sale and I think down the road as we think about it and then not too distant future.
Speaker Change: An option will be to remove adopters of our balance sheet.
Gregory Clark Anderson: And I think down the road, as we think about it in the not too distant future, an option will be to remove it from our balance sheet. Thank you. And if I could just ask a quick follow-up, just on like demand overall, just curious, you know, what you're seeing there, whether or not there's any cracks in demand that you're seeing, especially, you know, maybe low end versus higher end consumers. Yeah, Drew here.
Speaker Change: Thank you and if I could just ask a quick follow up just on like demand overall, just curious what you're seeing there whether or not there is any cracks in demand that you're seeing especially maybe low end versus higher end consumer.
Drew Wells: I wouldn't say that we're seeing, you know, any consumer cracks. I think it's been pretty well covered by most of the airlines at this point. There are a ton of seats in the industry right now that's weighing a little bit through the summer, and I think most of us have talked about seeing that relief at the end of the quarter when overall capacity is coming down. So yeah, I'm not seeing much on the consumer front that's worth reporting here.
Speaker Change: Yes, Jerry here I wouldn't say that we're seeing any any consumer crack. So I think it's been pretty well covered from for most of the airlines at this point there is a ton of seats.
Speaker Change: And the industry right now that's weighing a little bit through the summer.
Speaker Change: Most of us have talked about seeing that relief exiting the quarter.
Speaker Change: When when overall capacity is coming down so.
Speaker Change: Yes, I'm not seeing much on the on the consumer front that Thats, where we are reporting here I think it.
Drew Wells: I think it is a capacity problem. Yeah, and just to reiterate, I had a brief comment in my prepared remarks. When we look at customers by household income segment, if you will, the difference between the highest and the lowest is within a rounding error of a couple percentage points or less.
Speaker Change #109: Capacity problem, Yeah, and just to reiterate Tom I had a brief comment in my prepared remarks, when we look at customers by household income segment. If you will the difference between the highest and the lowest is within rounding error, a couple percentage points or less so no. We don't see an issue where it's <unk>.
Speaker Change: Disproportionately a demand environment that is favoring our against higher or lower income groups.
Speaker Change: Okay.
Speaker Change: Okay.
Scott Wayne DeAngelo: So no, we don't see an issue where it disproportionately favors or against higher and lower income groups. All right, the next question comes from Scott Group with Wolf Research. Your line is now open. Hey, thanks. Afternoon. Congratulations, Maury and Greg.
Speaker Change: Alright. The next question comes from Scott Group with Wolfe Research. Your line is now open.
Scott H. Group: I want to just follow up on that last question, because to your point, right, you guys don't really have a lot of competition on your routes, and your own capacity isn't really growing. And I thought I heard you say RASM is going to be down about 7% in Q3, which I think is the worst, the biggest year-over-year decline among the airlines so far. Doesn't that suggest that it is a demand issue if supply shouldn't be as much of a factor for you if your routes aren't as competitive? Yeah, it's always a fun one for us to try to tackle, right?
Speaker Change: Okay.
Scott H. Group: Hey, Thanks afternoon, Congrats good morning, Greg.
Scott H. Group: Just follow up on that last question because to your point right. You guys don't really have a lot of competition on your routes in your own capacity isn't really growing.
Speaker Change: I thought I heard you say RASM is going to be down about 7% in Q3, which.
Speaker Change: I think the worst the biggest year over year decline among the airlines so far so.
Speaker Change: Doesn't that suggest that it is a demand issue.
Speaker Change: Supply in.
Speaker Change: Shouldnt be as much of a factor for you if youre routes are as competitive.
Drew Wells: We know even going pre-pandemic, there's a correlation between our same store performance and the overall level of our, sorry, that our same store performance and the overall level of capacity domestically, that that's just always existed, regardless of our network effects. So we are feeling that, and when you think about the distribution of our ASMs through the third quarter relative to industry capacity, it's kind of misaligned from where we like it to be right where we have most of our seats. We have the most pressure from an industry capacity perspective, as that relieves, you know, September goes down to half the ASMs of July. So there's a bit of a distribution issue. I think that is certainly unique to us among carriers that have reported.
Speaker Change: Yes, it's always a fun one for us to try to tackle right, we know even going pre pandemic.
Speaker Change: This correlation between our same store performance.
Speaker Change: And the overall level of.
Speaker Change: Of our sorry, our same store performance and the overall level of capacity domestically that has always existed regardless of our network effects.
Speaker Change: So we are feeling that and you think about the distribution of our ASM through the third quarter relative to the industry capacity.
Speaker Change: Kind of misaligned from where we'd like it to be right, where we have most of our seats. We have the most pressure from an industry capacity perspective as I believe September goes down to half the ASM of July so theres a bit of a distribution issue I think that is certainly unique to us among carriers that have reported.
Drew Wells: Second, right, remember, we're still comping the Navitaire implementation and the loss of some of that ancillary. You know, we've had strong performance thus far and the ability to offset some of that, but you know that that still is an overhang that will exist for at least one more quarter. I think those are really the primary drivers looking Scott more than anything else. Just September is just a god awful month.
Speaker Change: Second of that remember were still comping, the Nab tariff limitation and the loss of some of that ancillary.
Speaker Change: We've had strong performance thus far.
Speaker Change: Ability to offset some of that but that's still an overhang that will exist for at least one more quarter here.
Scott H. Group: I think those are really the primary drivers looking Scott more than anything else there.
Scott H. Group: Just September system got awful month.
Maurice J. Gallagher: It has been, and it just continues to be, I think as you look at the graph, if you graph the last three years, you had the ascending line going in 21, 22, into 23, and now it's going down faster in the Septembers now than it would have historically. So that's why, you know, September is just, for us, our toughest month of the year. Yeah, we won't dwell on it, but, you know, I think we're the second carrier to have reported since the CrowdStrike outage, which certainly hit us. And I think Greg mentioned it earlier in his remarks. So, you know, we have that baked in where others may not have already. And I know the color on Chasm for the fourth quarter was helpful.
Scott H. Group: It has been.
Speaker Change: This continues to be.
Speaker Change: I think as you look at the <unk>.
Speaker Change: If you graph for the last three years you had the assembly line going in 'twenty, one 'twenty two into 'twenty, three and now it's going down and it goes down faster in the September.
Speaker Change: Now than it would have historically, so thats why September.
Greg: September is just for us our toughest month of the year and we won't dwell on it but I think where the second carriers, who have reported since the crowd strike average, which certainly hit us and I think Greg mentioned it earlier in his remarks so.
Greg: Yes, we have that baked in where that may have not already.
Speaker Change: Okay, and I know the color on on CASM FERC for fourth quarter was helpful.
Speaker Change: Any thoughts preliminary thoughts about how to think about.
Speaker Change: Capacity in and causes in 'twenty five.
Scott H. Group: Any thoughts, preliminary thoughts about how to think about Capacity and Costs in 25? Hey, Scott, it's Vijay. You know, it's a little bit early. I think we want to wait and see what the cadence of Boeing deliveries looks like and kind of how we get up and running there. Before I speak too much about what kind of capacity we can deploy in 23, or sorry, in 25, but Greg did mention in his prepared remarks that we would expect the fleet count at the end of next year to be relatively flat to 2024, maybe up an airplane or two.
BJ: Hey, Scott it's BJ.
BJ: It's a little bit early I think we want to wait and see what the cadence of Boeing deliveries looks like and kind of how we get up and running there before I speak too much about what kind of capacity, we can deploy in 'twenty, three but or sorry in 'twenty five but Greg you had mentioned in his prepared remarks, we would expect fleet count at the end of next year to be.
Greg: The relatively flat to.
Greg: 2024, maybe up an airplane or two so most of our growth would come through utilization and if you just look at 2019 levels there as theres room for kind of 15% to 20% ASM growth in the existing infrastructure.
Scott H. Group: So most of our growth would come through utilization. And if you just look at 2019 levels, there's room for a kind of 15 to 20% ASM growth in the existing infrastructure. And not to say that we intend to grow that much next year, but you can understand how that growth would be achieved in a much more efficient way. And so I think you could imagine being flat to down, depending on growth. Scott, I think we may have said this in the past, and I think it holds true, and that every incremental hour of flying will reduce CASM-X by about half.
Speaker Change: And not to say that we intend to grow that much next year, but you can.
Greg: Can understand how that growth would be would be achieved in a much more efficient way.
BJ: And so I think you could envision CASM X being flat to down depending on growth levels and Scott I think we may have said this in the past.
Scott H. Group: Think it holds true.
Scott H. Group: That's every increment incremental hour of flying I think will reduce CASM ex by about 5%. So we're talking more in the peak periods, but so if you think about that on a full year basis, but just to reiterate bj's point, we have that infrastructure in place.
Gregory Clark Anderson: So we're talking more about the peak periods. But if you think about that on a full year basis, but just to reiterate BJ's point, we have that infrastructure in place. And with the roughly flat aircraft count, incremental flying or incremental utilization will help drive. Helpful. Thank you, guys. Appreciate the time. Thanks a lot.
Martin: And with the roughly flat aircraft count incremental flying Martin incremental utilization will help drive CASM down.
Speaker Change: Helpful. Thank you guys appreciate the time.
Scott H. Group: Thanks Scott.
Savvy Sith: Thank you. And the next question comes from Savvy Sith with Raymond James. Your line is now open. Hey, good afternoon, everyone.
Savanthi Nipunika Prelis: Thank you and the next question comes from Savi <unk> with Raymond James.
Savi: Your line is now open.
Savvy Sith: If I might just actually follow up on that last question, is there something different that gives you confidence or something that's happened that gives you confidence that you'll get the MAX aircraft in September in terms of the FAA approvals? kind of along that like getting to the kind of slave fleet next year. Are you planning on just adjusting retirement based on what you end up getting?
Savi: Hey, good afternoon, everyone.
Speaker Change: If I might just actually follow up on that last question.
Savi <unk>: Is there something different that gives you confidence there or something that's happened that gives you confidence that you'll get the Max aircraft in September.
Speaker Change #104: In terms of the FAA approvals.
Savi <unk>: And.
Speaker Change #103: Kind of along that might be.
Speaker Change: Getting to kind of flattish fleet next year.
Speaker Change: Are you planning on just adjusting retirements based on what you end up getting or is that kind of based on you have left with retirement planning, you'll kind of stick to it.
Savvy Sith: Or is that kind of based on, you know, you have a retirement plan, and you'll kind of stick to it? Sure, Savi, I'll try to take that, and anybody else can jump in here. The main thing that's happened since the time of the last call. I think I mentioned on the last call that, you know, the first airplane being first of spec was subject to some additional review and certification by the FAA, and they can choose whether or not to retain or delegate some of those certifications. If they delegated, it would be to Boeing.
Speaker Change #113: Sure, Saudi I'll try to take than anybody else can jump in here.
Speaker Change #106: The main thing Thats happened since the time of the last call I think I mentioned on the last call that the first airplane being first in spec.
Speaker Change: Subject to some additional review and certification by the FAA and they they.
Speaker Change: Can choose whether or not to retain or delegate some of those certifications if they delegated would be to Boeing.
Robert J. Neal: What has happened since the last call is that they chose to retain those certifications, which means longer timelines, but it means that the clock starts ticking. And so we're marching to what we're hoping is around, you know, another 30 days or so before an airplane is delivered. So that's really the thing that's changed. And then as I think about next year, you know, our retirements are largely locked in. It's pretty difficult for us to bring planned retirements back into the fleet next year, not impossible, but just with constraints at the MROs.
Speaker Change: It has happened.
Savi <unk>: <unk>.
Savi <unk>: Since the last call is that they chose to retain those certifications, which knee longer timeline, but it means that the clock starts ticking.
Savi <unk>: And so we're marching to what were hoping is around another 30 days or so before.
Savi <unk>: Before an airplane deliver so.
Savi <unk>: That's really the thing that's changed and then as I think about next year.
Savi <unk>: Our retirements are largely locked in it's pretty difficult for us to bring.
Savi <unk>: Planned retirements back into the fleet next year, not impossible, but just with constraints at the MRO.
Robert J. Neal: And, you know, think about the types of airplanes that are being retired. They're going to be the ones with the heaviest checks, which means they need the most man hours and the most days at the MRO. It's just going to be really difficult.
Savi <unk>: You think about the types of airplanes that are being retired theyre going to be the ones with the heaviest checks, which means they need the most man hours and the most days at the MRO is just going to be really difficult. So.
Robert J. Neal: So we've taken a pretty conservative view on how many aircraft we will deliver from Boeing next year and then held retirement constant. We would end up, you know, one or two aircraft positive at the end of next year. And we think that's OK. We just grow with you as partners.
Savi <unk>: We've taken a pretty conservative view on how many aircraft will deliver from Boeing next year, and then holding retirement constant we would end up one or two aircraft positive at the end of next year, and we think thats. Okay, we just grow with utilization.
Savvy Sith: Thank you. And just on the, you know, the ancillary revenue outperformance, you know, what's driving that? Because it seems like Navitaire is still having a drag, and I'm guessing you haven't gotten that functionality back.
Speaker Change: Helpful. Thank you and just on.
Speaker Change #110: And then the ancillary revenue outperformance and.
Speaker Change: What's driving that because it seems like navistar still having a drag and I am guessing you haven't gotten that functionality back in you mentioned that $4 a passenger but I'm guessing that doesn't turn on middle of next year, when you've got the <unk> or how should we think about like the timing of all this.
Drew Wells: And you mentioned the $4 a passenger, but I'm guessing that doesn't turn on in the middle of next year when you've got the Navitaire fix in. Or how should we think about the timing of all this? Yeah, so in terms of a comp for where we are today, we're down about $2 from the implementation. The additional $2 to get to the floor was what we were banking on or believing that Navitaire would provide to us in terms of future functionality. So it's about a $2 hole there.
Speaker Change: Yes so.
Speaker Change #105: In terms of the comp for where we are today, we're down about $2 from the implementation of the additional $2 to get to before was what we are banking on or believing that <unk> provide to us in terms of the future functionality. So about a $2 hole there if you work through the Allegiant extra part.
Drew Wells: If you work through the Allegiant extra part, it's a call it 20-ish percent of flying in June at about $3 incremental per passenger to get to something like a 50-60 percent overall benefit to the system that helps chip away at that. For the teams that are working really hard at optimizing within the constraints we have, we've had success with the existing bundle setup to help chip away again. So a lot of goodness on the ancillary front there, but things that will still pale to what we believe we can do with Navitaire when that comes online. And it's a little early to talk about a timeline of when we'll see the benefits specifically. I believe it'll be in 25.
Speaker Change: Call It twentyish percent of flying in June.
Speaker Change: At about $3 incremental per passenger to get to something like a 50%, 60% overall benefit to the system that helps chip away at that.
Speaker Change: Further the team's been working really hard at that.
Speaker Change: Optimizing within the constraints, we have we've had success with the existing bundle setup to help chippeway again so.
Speaker Change: A lot of goodness on the ancillary front, there, but but things that will still pale to what we believe we can do with <unk> when that comes online.
Speaker Change: It's a little early to talk timeline of when we'll see the benefits specifically I believe it will be in 'twenty five.
Speaker Change: I would venture to say probably later part of 'twenty five.
Speaker Change #101: The early part.
Scott Wayne DeAngelo: I would venture to say probably the later part of 25 versus the early part. And then the last part we hit, but I think both Scott and I hit on it. The program program continues to be phenomenal. I don't know if you want to add anything else.
Speaker Change #101: And then the last part.
Speaker Change #101: But I think both Scott and I hit on it the co brand program continues to be phenomenal.
Speaker Change #108: Anything else no. One just said, it's just worth noting that nearly record setting growth in the co brand credit card program was done in a month, where we were basically flat capacity wise, which you typically don't see given that.
Scott Wayne DeAngelo: No, just that, you know, it's just worth noting that this nearly record-setting growth in the COBRA and credit card programs was done in a month where we were basically flat capacity-wise, which you typically don't see, given that, as a general rule, half of new card sign-ups come on a customer's first or second flight ever with Allegiant. And then, obviously, while we've had new route announcements, we haven't been expanding like we did pre-pandemic and in 2022.
Speaker Change #100: As a general rule have all new card sign ups come on our customers first start second flight ever with with the Allegiant and obviously, while we've had new route announcements, we haven't been expanding like we did pre pandemic <unk> in 2022 so.
Scott Wayne DeAngelo: So, a lot to like about what the future looks like when we can finally remove that ceiling from capacity growth and really hyper-fuel the card program. Thank you. The next question comes from Conor Cunningham with Mellius Research. Your line is now open.
Speaker Change #100: A lot to like about what the future looks like when we can finally remove that ceiling.
Speaker Change #100: From capacity growth and really hyper fuel card program.
Speaker Change #100: Okay.
Speaker Change #100: Thank you. The next question comes from Connor.
Speaker Change #100: Conor Cunningham with <unk> Research your line is now open.
Conor T. Cunningham: Everyone, thank you. Drew, you mentioned this a little bit, but you know, a lot of the airlines. I was just curious if you could give any color on how you expect the months to play out. It just seems pretty important in the context of unit revenue declining 7%. So is the expectation that July is down a lot and September is down a lot less? I'm just curious about any thoughts on that.
Conor T. Cunningham: Hi, everyone. Thank you drew.
Conor T. Cunningham: You mentioned this a little bit but.
Speaker Change #111: A lot of airlines are talking about the September inflection I know.
Conor T. Cunningham: Your structure of your route network is a lot different.
Speaker Change #139: But I was just curious if you could give any color on how you expect the months by months to play out it just seems pretty important in the context of unit revenue declining 7%.
Speaker Change #117: The expectation that July is down a lot in September time.
Speaker Change #107: Im just curious on any thoughts there.
Drew Wells: In general, I know that demand is lower in September for y'all, but just any thoughts would be helpful. Thank you. Yeah, we usually stop short of doing much at the month level. I mean, directionally, I think right, July will likely be down a little bit more than the guide for the quarter and September less than that. So, That's probably about as much as we'll get on a month level.
Speaker Change #107: In general I know that demand is lower in September for you all but just any thoughts would be helpful. Thank you.
Speaker Change #116: Yes, we usually stop short of doing very much at the at the month level I mean, Directionally I think you're right July will likely down a little bit more than than the guide for the quarter and September less than that so.
Speaker Change #100: I mean, that's probably about as much as we'll get on a month level.
Speaker Change #100: Okay.
Drew Wells: Okay, and then maybe I'll ask the 25 utilization question a little bit differently. So I totally understand the cost benefit. But there's also an offset if you increase ASMs by, I think, will be a lot in the context of adding aircraft and Pushing Utilization. Just curious about the unit revenue impact you're willing to take to kind of offset the cost that you're currently carrying in general. Thank you. Yeah, this may come across as overly flippant, so someone can put me in my place here.
Speaker Change #114: Okay, and then maybe I'll ask the 25 utilization question a little bit different.
Speaker Change #115: I totally understand the cost benefit.
Speaker Change #112: But that's also an offset if you increase asm's financing.
Speaker Change #121: B a lot in the context of adding aircraft spend.
Speaker Change #157: Pushing utilization just curious on how you think about the unit revenue impact you are willing to take to kind of offset the costs are that youre currently carrying in general. Thank you.
Gregory Clark Anderson: But in general, we're earnings-driven, right? I'm willing to take a unit revenue hit, you know, largely to the point that we're still driving earnings with a reasonable enough margin buffer in the event of fuel spikes or unforeseen changes to the manor cost structure. So at the end of the day, we're trying to maximize EPS. And if we forecast that even a meaningfully lower stream is accomplishing that, then I believe that's the right path.
Speaker Change #135: Yes. This may come across overly flipped and so someone can put me in my place here, but in general we're earnings driven right I'm willing to take a unit revenue hit.
Speaker Change #112: Largely to the point that we're still driving earnings with a reasonable enough margin buffer in the event of fuel spikes or unforeseen changes to demand and cost structure. So at the end of the day, we're trying to maximize EPS and if we're forecasting that even a meaningfully lower traveling is accomplishing that.
Speaker Change #112: That's the right path forward.
Gregory Clark Anderson: Andrew, just we were on that utilization as we think about next year on roughly that flat leak out, we would prioritize or focus that generally in those peak periods, right, where there is the strongest. And so that would still be, I guess, our approach, Conor, to ensure that we're, to Drew's point, driving the highest margins that we possibly can. Yeah, when you think about where we have the most headroom of our, you know, transport versus fuel chasm, especially right peak periods have the most amount of runway there relative to, say, the September that Maury already talked about. The other piece of this is that the benefits from the Boeing product are going to be exceptional. The fuel savings alone is about 120, 30 gallons an hour.
Speaker Change #125: Sure just.
Speaker Change #112: On that utilization as we think about next year on roughly that flat fleet count.
Speaker Change #126: We would prioritize our focus that generally in those peak periods right, where there is the strongest leisure demand.
Speaker Change #126: And so that that would still be.
Speaker Change #112: I guess our approach Connor.
Speaker Change #112: To ensure that we are to <unk> point driving the highest margins that we possibly can.
Speaker Change #120: But when you think about where we have the most headroom of our traffic versus fuel CASM, especially right peak periods at the most amount of runway there relative to say the September Moriarty talked about.
Speaker Change #122: The other piece of this as the benefits from the Boeing product, they're going to be exceptional.
Moriarty: The fuel savings alone is about 120 30 gallons an hour.
Maurice J. Gallagher: The ability to fly those airplanes more hours because they're reliable. They show up. When we did 13 new airplanes in 17, 18, the profitability of those airplanes was exceptional. This began, you got a bunch of fuel savings, and they just show up, and they're brand new.
Speaker Change #123: Ability to fly those airplanes more hours because they are reliable they show up.
Speaker Change #112: When we did move 13, new airplanes in 17 and 18.
Speaker Change #112: Profitability of those airplanes was exceptional this began you got a bunch of fuel savings and they just show up in their brand new I mean, it's there's real benefit to that that.
Maurice J. Gallagher: I mean, there's a real benefit to that; that is part of the assumption factor that we put together. So, we need to make sure those come along and just the layman sitting here looking at the outside. These airplanes are already flying, so there's no certification issues outside the cabin, and we have 180 seats, 90 seats, whatever it'll be all one class configuration. For the most part, with real upfront niceness, it's just hard to believe you can't certify that interior.
Speaker Change #124: As part of the assumption of a factor that we put together so we need to make sure those come along as just a layman sitting here looking at the outside these airplanes are already flying so there's no certification issues outside the cabin and we have a 180 seats 90 seats whatever it will be.
Speaker Change #128: All one cost configuration for the most part with little upfront license.
Maurice J. Gallagher: They've been doing it for 50, 60 years now, so we're going to try and push Boeing and the FAA to get together and have a nice little powwow, and let's get this thing done. They've been trying for a year now, so it's just taking too long. Okay, thank you. Thank you. And the next question comes from Duane Pfennigwerth with Evercore. Your line is open.
Speaker Change #137: Just hard to believe you can't certify that interior they've been doing it for 50 60 years now.
Speaker Change #112: So we're going to we're going to try and push Boeing and the FAA to get together and have a nice will parallel lets get this thing done and they've been doing this for a year now so it's just taken too long.
Speaker Change #112: Okay.
Speaker Change #112: Okay, great. Thank you.
Speaker Change #112: Okay.
Duane <unk>: Thank you and the next question comes from Duane <unk> with Evercore. Your line is open.
Duane Thomas Pfennigwerth: Hey, thank you. Can we just come back to the revenue guidance, and maybe Maury, you can chime in this time as you've seen a lot of cycles. Is it fair to say you're seeing pushback on higher fares? Is it fair to say you're needing to stimulate demand? And how is demand responding to that stimulation relative to, again, lots of cycles that you've seen in the past? Well, let me jump in there, go back to 08, and 9. Fuel prices in July hit $147 a barrel.
Duane <unk>: Hey, Thank you.
Speaker Change #149: Can we just come back to the revenue guidance and maybe Maury.
Maury: You can chime in this time as you've seen a lot of cycles.
Duane: Is it fair to say Youre seeing pushback to higher fares.
Speaker Change #130: Is it fair to say youre needing to stimulate demand and how is demand.
Maury: Responding to that stimulation relative to again.
Maury: Of cycles that you've seen in the past.
Maurice J. Gallagher: We went from $53, $54 a customer for gas to 25 by the end of the year. You're not seeing any drop in fuel prices here to offset the declining revenues, which is unique. And you're not going to see anything with what's going on in the Middle East and Russia and stuff like that.
Speaker Change #142: Well, let me jump in there I would go back to eight or nine.
Speaker Change #141: Fuel prices in July had $147 a barrel, we went from $53 $54 a customer for gas to 25 by the end of the year, you're not seeing any drop in fuel here to offset the declining revenues, which is unique and youre not going to see anything with what's gone.
Speaker Change #141: And in the Middle East and Russia and stuff like that oil is just not going to be coming down anytime soon in my opinion. So you got to deal with this higher cost of gas and our revenues operating independently back then revenue in gas.
Maurice J. Gallagher: Oil is just not going to be coming down anytime soon, in my opinion. So you've got to deal with this higher cost of gas, and now revenues are operating independently. Back then, revenue and gas, you had things going the wrong way; gas came down with it. It's just not; those two aren't tied at the hip anymore.
Speaker Change #143: Things going wrong way gas came now with it is just not those two are tied at the hip anymore and that's a huge differentiator a few we lost 70 80 90 central gas.
Speaker Change #143: We're down to two Bucks a gallon from three whatever.
Speaker Change #130: <unk>.
Speaker Change #132: <unk> 32 said, we'd be right there at the top.
Duane: Okay.
Speaker Change #131: That's helpful and then.
Maurice J. Gallagher: And that's a huge differentiator. If we lost $0.70, $0.80, $0.90 of gas, down to two bucks a gallon from three, whatever, high twos, you know, talk dirty to us, we'd be right there at the top. That's helpful. And then... Maybe this one, not for Maury, just some detailed ones. Can you walk us through the special charges that you're excluding on the airline side and on the hotel side here in 2Q?
Speaker Change #152: Maybe this one not for Maury just some just some detailed ones can you walk us through the special charges.
Speaker Change #134: You're excluding on the airline side.
Speaker Change #134: And on the hotel side here in <unk>.
Robert J. Neal: And if you could, could you bridge your 3Q loss guidance to how you will actually report? We have three different loss guides in the guidance. One has X, the vendor impact, and then I assume your consolidated does not.
Speaker Change #136: And if you could could you bridge your three Q loss guidance to how you will actually report we haven't we have three different loss guides in the guidance.
Speaker Change #133: <unk> has X.
Speaker Change #146: The vendor impact and then I assume your consolidated does not so maybe you could just clean up.
Robert J. Neal: So maybe you could just clean up those issues for us. Thank you. Sure. Let me give it a try, Duane.
Speaker Change #133: Those issues for us thank you.
Robert J. Neal: First, let me hit on the different EPS calcs. We talked about this heading into the call and thought that it might be an issue. Some of what you're seeing, EPS won't tie out, and it's just due to the way the individual segments are taxed when adjusting for special items, something I'd rather just take offline because it'll take a little while to get through, but it can be tough to get to. And then on the special items on the airline side, in the second quarter, we had the sign-on bonus for our flight attendants as part of their new CBA, and then the rest was accelerated depreciation on A320 aircraft.
Speaker Change #133: Sure Let me, let me give it a try Duane.
Speaker Change #148: First let me hit on the the different EPS calix.
Duane <unk>: We talked about this heading into the call and thought that it might be an issue.
Speaker Change #138: Some of what Youre seeing EPS won't tie out.
Speaker Change #159: And it is just due to the way the individual segments or tax affected when adjusting for special items.
Speaker Change #138: Something I'd, rather just take offline because it'll take a little while to get through but it can be.
Speaker Change #138: Can be tough to get to and then on the special items on the airline side in the second quarter, we had.
Duane <unk>: The sign on bonus for our flight attendants as part of their new CBA and then the rest was accelerated depreciation on <unk> hundred 20 airframes and then on the outage Duane I will just add we wanted to just break that out to give transparency, but I think as reported in the third quarter and I'm looking at Rebecca we would not exclude that as a special the outage.
Robert J. Neal: And then on the outage, Duane, I'll just add, we wanted to just break that out to give transparency, but I think, as reported in the third quarter, and I'm looking at Rebecca, we would not exclude that as a special, the outage. Right, okay. So just as you think about the third quarter, the outage would not be a part of that. That's all helpful. And maybe just one last one.
Speaker Change #145: Right. Okay. So just as you think about the third quarter the out at the outage would not be part of a special.
Robert J. Neal: Do you maybe have a clean EBITDA loss x any business interruption for Sunseeker in 2Q? And again, what does your guidance implies for 3Q on a clean EBITDA basis? I do not have that available for you on a cleaning the job basis.
Speaker Change #153: That's all helpful and maybe just one last one do you have a maybe a clean EBITDA loss.
Speaker Change #144: Ex any business interruption for sunseeker and <unk>.
Speaker Change #144: And again, what your guidance implies for <unk> on a on a clean EBITDA basis.
Speaker Change #144: Okay.
Speaker Change #161: Did not have that available for you on clean EBITDA basis, Let me come back to you here.
Robert J. Neal: Let me come back. Thank you for taking the question. Thanks, Duane. By the way, Duane, just as a matter of course, zeroing in on EBITDA losses for Sunseeker doesn't do anything. We're really not thinking about this quarter or that quarter. It's, you know, an annual number and, you know, getting that thing to start moving in the right direction. So, I mean, it'd be nice if you could manage at the core level, but you just can't.
Speaker Change #140: Alright, Thank you for taking the questions.
Speaker Change #140: Thanks, Duane Hey by the way doing just as a matter of course.
Andrew: Zero year on EBITDA loss for Sunseeker. It doesn't do anything we're really not thinking about this quarter or that quarter. It's Andrew.
Speaker Change #150: A&D remember in getting that things start moving in the right direction.
Speaker Change #156: I mean, it would be nice if you could manage that quarter level, but curious care.
Robert J. Neal: Thank you. And the next question comes from Dan McKenzie with Seaport Global. Your line is now open.
Speaker Change #162: Thank you and the next question comes from Dan Mckenzie with Seaport Global Your line is now open.
Daniel J. McKenzie: Oh, yeah. Hey, thanks. I guess just picking up on Sunseeker and the strategic review and other questions here. So the comment about Sunseeker spooling up to the first quarter of next year 2025. Does that timeframe tie to an expectation that it would be, you know, profitable at that point? Or, if not, you know, just given where we are today, can you help us understand the shape of the path back to profitability, or at least how you're thinking about economics at maturity at this point?
Daniel J. McKenzie: Oh, Yeah, hey, thanks.
Daniel J. McKenzie: I guess just picking up on sunseeker in the strategic review and other question here.
Speaker Change #154: So the comment about sunseeker spooling up to the first quarter of next up 2025.
Speaker Change #158: Does that timeframe tie to an expectation that it would be profitable at that point or if not.
Speaker Change #160: Just given where we are today can you help us understand the shape of the path back to profitability or at least how youre thinking about economics that maturity at this point.
Daniel J. McKenzie: You know, I'll start, and Micah may want to jump in on the path to profitability, just just the comment that I was making around, you know, getting a prospect in advance of the first quarter. Dan, that was just more because that's such a peak period and an important quarter, you know, for the year, in terms of where the demand comes in in Southwest Florida. But with that, let me ask Micah to jump in on the path to profitability. Yeah, I think it'll sound like I'm beating the same horse.
Speaker Change #155: I'll start and Mike.
Michael John Linenberg: You may want to jump in on the path to profitability, just just to comment that I was making around getting a prospect in in advance of the first quarter 'twenty five and that was just more because thats such a peak period and important quarter for the for the year in terms of where the demand comes in in southwest Florida.
Michael John Linenberg: So with that let me ask Mike to jump in in terms of path to profitability.
Micah Richins: But to understand what the performance is going to look like in 25 and whether we can get the profitability completely, or certainly we'll see a dramatic improvement, we think over 2024, is all related to our ability to drive group business and then do that distributively across all four quarters. You might ask, well, why do we feel confident that we're going to see that type of growth in 25? And the reason is tied to the forward-looking bookings that we are seeing that our wonderful sales team has been putting forward for us.
Speaker Change #155: Yes.
Michael John Linenberg: It will sound like I'm, beating the same course, but to understand what the performance is going to look like in 'twenty, five and whether we can get to profitability completely or certainly we will see.
Michael John Linenberg: Dramatic improvement, we think over 2024 is all related to our ability to drive group business and then do that distributed across all four quarters.
Andrew: You might ask why do we feel confident that we're going to see that type of growth in 'twenty five and the reason is tied to the forward looking bookings that we are seeing that our our wonderful sales team has been putting forth for us as an example, and I told you we were expecting somewhere around 60000 group rooms.
Micah Richins: As an example, you know, and I've told you, we're expecting somewhere around 60,000 group rooms to materialize in 25. And, you know, Greg mentioned Q1 being critical. It absolutely is. We think we'll do somewhere around 19,000 room nights in Q1 in 25 compared to doing 9,000 in 24. And do I think I can get there?
Andrew: The material errors in 'twenty, five and Greg mentioned Q1 being critical and it absolutely is we think we'll do somewhere around 19000 room nights in in Q1, and <unk> 25 compared to doing 9024.
Speaker Change #188: And do I think I can get there while im already I'll, Marty roughly 15000 to that on the books now with a decent funnel to get to get to where we think we need to do for Q1 and Q2.
Micah Richins: Well, I'm already roughly 15,000 of that on the books now, with a decent funnel to get to where we think we need to be for Q1. In Q2, you know, we're roughly half of what we think on the books already. I like the positions that we're in, assuming that we continue to keep our funnel refreshed and continue to close business. It changes everything about our profitability, our ability to drive rates, our ability to drive occupancy, and also to drive really good catering spend. So, again, I don't think we're ready to say that 25 will be profitable. We don't know that yet.
Andrew: We're roughly half of what we think will.
Andrew: On the books already.
Speaker Change #164: I like the positions that were in assuming that we continue to keep our funnel refreshed and continue to close business again changes everything about our profitability our ability to drive rate our ability to drive occupancy and also to drive really good catering spend so again I don't think were ready.
Andrew: To say that 25 will be profitable, we don't know that yet, but we certainly see the sign that will indicate to us that we're going to see remarkable improvement over 24.
Micah Richins: But we certainly see the signs that will indicate to us that we're going to see remarkable improvement over 25. And I guess, you know, a separate question here, separate topic, I guess, Greg, this is the second quarter in a row, I think, where you're calling out nine to 11 percentage points of temporary margin pressures. So, you know, the street's modeling, I think, three and a half points of margin expansion in 2025.
Andrew: Yeah.
Andrew: And I guess.
Speaker Change #170: A separate question here separate topic I guess, Greg. This is the second quarter in a row I think where you are calling out nine to 11 percentage points of temporary margin pressures.
Speaker Change #175: So the street's modeling I think three five points of margin expansion in 2025 and is the messaging really hear now two quarters in a row that the internal projection for say next year is 8% to 10 percentage points of margin expansion is it it seems pretty pretty basic just based on what you are saying.
Micah Richins: And is the messaging really here now, two quarters in a row, that the internal projection for, you know, say, next year is eight to 10 percentage points of margin expansion? Is that, it seems, you know, pretty, pretty basic, just based on what you're saying.
Gregory Clark Anderson: And I guess I'm not asking for a guide; I guess I'm just trying to get a better sense of where, you know, the business is going. Yeah, I think for 25, there are some timing elements to that. Drew mentioned on the technology front with Navitaire, you know, that'll take some time to mature. So, but at maturity, yeah, we think that, based on our estimate, that's worth three points, $80 million on an annual basis.
Speaker Change #163: And I guess I'm not asking for a guide I guess I'm, just trying to get a better sense of where the business is going.
Gregory Clark Anderson: You know, peak flying is that is the one that I think will have the most upside into 2025. And as we talk about incremental flying in those periods, you know, we think that could be worth anywhere from four to six points.
Drew Wells: Yes, I think for 25, there is some timing elements to that drew mentioned on the technology front with <unk>.
Speaker Change #165: Take some time to mature so but at maturity, yes, we think that based on our estimates that's worth three points $80 million on an annual basis. The peak flying is the one that I think will have the most upside into 2025.
Speaker Change #163: And as we talk about an incremental flying in those periods, we think that could be worth anywhere from 4% to six points. So you can you can do the math, but that's we think a substantial step up and Thats what were planning for into 2025, but some of the other areas like Boeing and the delays there that will take time as we can on the cadence with.
Gregory Clark Anderson: So you can, you know, you could do the math, but that's, we think, a substantial step up. And that's what we're planning for into 2025. But some of the other areas, like Boeing and the delays there, you know, that'll take time as we get on the cadence with all the deliveries to build the efficiencies on that side of the house. But that $30 million number, you know, that's where we sit today. But that, along with the Navitaire, it'll take time to mature into 2025.
Speaker Change #163: All the deliveries to build the efficiencies on that side of the house, but that $30 million number that's where we sit today, but that along with an amateur that'll take time to mature into 'twenty five but the peak period client I think we have a lot of confidence that we'll be able to step up that.
Speaker Change #163: In 2025.
Daniel J. McKenzie: But the peak period flying, I think we have a lot of confidence that we'll be able to step up that in 2025. Terrific. If I had to squeeze one last one in here, BJ, I'm just wondering if you can speak to the PDPs. It looks like you're continuing to make progress payments for aircraft that are not being delivered. And if the PDPs were to sync with the actual deliveries, how much cash could that potentially free up for you?
Speaker Change #168: Terrific if I did.
Speaker Change #163: Squeeze one last one in here.
P.J: P. J I'm just wondering if you can speak to the PDP as it looks like you are continuing to make progress payments for aircraft that are not being delivered and if the PDP were to sync with the actual deliveries how much cash could that potentially free up for you.
Speaker Change #163: Yeah.
Daniel J. McKenzie: Let me think about the right way to answer that, Dan. Just to be clear, we are not continuing to make PDP payments right now. There was a payment made, I believe, in the first quarter, and nothing since then.
Speaker Change #171: Let me think about the right way to answer that Dan just to be clear, we are not continuing to make.
Speaker Change #173: <unk> payments right now we haven't been for some time there was a payment made I believe in the first quarter and nothing since then.
Speaker Change #163: Naturally pdp's would start to be due again adds aircraft start to deliver but.
Speaker Change #177: To be candid with you we are overpaid on PDP at the moment and depending on how the new delivery schedule shakes out it could free up some cash for us.
Speaker Change #163: Okay.
Robert J. Neal: Naturally, PDPs would start to be due again as aircraft start to deliver, but to be candid with you, we are overpaid for PDPs at the moment, and depending on how the new delivery schedule shakes out, it could free up. Thank you. And at this time, our last question comes from Dan Didora from Bank of America.
Speaker Change #166: Thank you and at this time.
Speaker Change #166: Our last question comes from Dan.
Dan Dora: The Dora from Bank of America.
Andrew George Didora: Your line is now open. Hey everyone, it's Andrew. Just one real, I guess, strategic question here, you know, for Greg or Maury, and Maury, you may have answered this earlier, but have you ever, you know, given all the issues with the MAX, have you ever, you know, considered walking away from the airplane at all and just going back to the simple model that you had, you know, for many years? And, you know, if you were to decide that, you know, what would be the biggest obstacles to doing so?
Speaker Change #176: Your line is now open.
Andrew: Hey, everyone. It's Andrew.
Andrew: Got it just one.
Speaker Change #182: I guess strategic question here.
Speaker Change #169: So Greg Maureen Laura you may have.
Speaker Change #169: I've answered this earlier, but have you ever given all the issues with the Max have you ever.
Speaker Change #181: Considered walking away from the airplane at all and just going back to the same simple model that you had.
Speaker Change #180: For many years.
Speaker Change #178: You were to decide that.
Speaker Change #186: What would be the biggest obstacles from doing so thank you.
Andrew George Didora: Thank you. Well, a couple of things. Part of the reason we went to a new airplane was the ability to keep growing with the used airplanes. 120 used airplanes, and we're just a big MRO after a while, just overhauling airplanes, very short lead times when you can identify a fleet.
Andrew: Well.
Speaker Change #183: Couple of things part of the reason, we went to a new airplane was the ability to keep growing with a used airplane.
Speaker Change #183: 120 used airplanes and we're just the big MRO after a while.
Speaker Change #183: Overhauling airplanes very short lead times to when you can identify a fleet. So we are planning for growth.
Maurice J. Gallagher: So you're planning for growth, and it just felt that a new airplane would be a better way to pick up the keys and go to work instead of turning yourselves into a maintenance organization. So that still holds, but it's even become more difficult. All those players we talked to in the industry, if you're looking for used airplanes, I think we're looking at a tenfold increase in the cost of a shell we can sell from like 21 to used airplanes are ridiculously priced to the point you wouldn't buy them because the economics don't work, in my opinion. Yeah, I mean, that's an unserviceable teardown airframe.
Andrew: And it was just fell to a new airplane would be a better way to go.
Andrew: Pick up the keys go to work instead of Turing yourselves into a maintenance organization. So that still holds but it's even become more difficult.
Speaker Change #174: All of those players we talked to in the industry. If you are looking for used airplanes.
Speaker Change #174: I think we're looking at a tenfold increase Vijay on cost of our show we can sell from like 21 too.
Speaker Change #172: Used airplanes are ridiculously priced to the point you wouldn't buy them because the economics don't work in my opinion, yes, I mean, thats, an unserviceable care down here frame, Brian, Yes, that's true, but directionally, yes.
Maurice J. Gallagher: Yes, that's true, but in the direction of. Yeah, I mean, it's just not. And one thing I think we can put on the table is that we've always approached this as a tortoise versus some of the rabbits that you see with some of the other carriers. Our nice steady growth has always been manageable. The management team can keep up with it. All of those things are good.
Brian: It's just not.
Brian: One thing I think we can put on the table that.
Brian: We've always approached this as a tortoise versus some of the rabbits that you see with some of the other carriers are nice steady growth has always been.
Speaker Change #172: Manageable management team can keep up with it all of those things are good. So if you don't if we don't take the Max there is really no other alternatives out there to get airplanes to grow with and more importantly, we're looking at retirements that we think are appropriate given the age of some of our airplanes.
Maurice J. Gallagher: So if we don't take the max, there are really no alternatives out there to get airplanes to grow with. And more importantly, we're looking at retirements that we think are appropriate given the age of some of our airplanes. So, no, we're not looking at that as an alternative. And furthermore, we got ourselves one hell of a deal. So it's got great economics, you know, in it relative to what you can buy today and do.
Speaker Change #172: No we're not looking at that as an alternative and Furthermore, we got ourselves one hell of a deal.
Speaker Change #172: So it's got great economics.
Speaker Change #172: Relative to what you can buy today and can do.
Andrew: Greg.
Gregory Clark Anderson: Andrew, I'll just, you know, add just a couple of quick comments to what Maury mentioned there. To his point, there's a lot of value in that order, not just equity value in the aircraft themselves but the long-term benefits that we feel the MAX brings to us. You know, these extended delays have caused some significant disruption, but we look forward to concluding our talks with Boeing and a fair resolution to help address the challenges that we face but also bring these aircraft online and begin flying them. And we were close. We're near that point now.
Andrew: Andrew I'll just add just a couple of quick comments to what Morry mentioned there to his point, there's a lot of value in that order not just equity value and the aircraft themselves, but the long term benefits that we filled the Max brings to us. These extended delays they've caused significant disruption, but we look for.
Andrew: To concluding our talks with Boeing in a fair resolution to help address the challenges that we faced in but also bring these aircraft online and begin buying them and we were close we're near that point.
Maurice J. Gallagher: And that's what we're planning to do. And that's what we're executing towards. No, I think there's a macro strategic statement here: We are profitable. While many of the carriers in our business at the low end, low fare are not, we will be profitable and returning to the numbers that we're used to doing. And, therefore, that suggests we can grow. Furthermore, when we grow, we don't go and tweak the noses of big competitors when we do it.
Andrew: And that's what we're planning to do and that's what we're executing towards.
Andrew: So I think as a macro strategic statement.
Andrew: We are profitable while many of the carriers in our business at the low end low fare or not.
Andrew: We will be profitable in returning to numbers that we are used to doing and therefore that suggest we can grow.
Andrew: Furthermore, when we grow we don't go and tweaked and those are the big competitors. When we do it. So all of those aspects suggests that the long term future for the company is one that should have growth you need airplanes to grow.
Andrew: And you need to be profitable in all of these aspects will allow us to continue with the model.
Speaker Change #185: We've talked about AD nauseum.
Maurice J. Gallagher: So all those aspects suggest that the long-term future for the company is one that should have growth; you need airplanes to grow, and you need to be profitable. And all of these aspects will allow us to continue with the model, you know, as we talked about ad nauseum when starting next year. So we're very well positioned, relatively speaking, as I said in my opening comments last time, we have our own private swim lane, and the rest of the world is playing water polo. I don't know if you guys watched any of the Paris stuff. Water polo is a nasty game.
Speaker Change #185: Starting next year so.
Speaker Change #187: No, we're very well positioned relatively speaking as I said in my opening comments last time, we have our own private swim lane and the rest of the world is playing water pool I don't know if you guys Washington.
Speaker Change #192: First of all to pose a nasty game.
Andrew George Didora: There's a lot more going on underneath that you don't see on top. And that's the same thing going on here. Okay, well, thank you for that. All my other questions have already been asked, so I appreciate the thought. Andrew, thank you. Thank you all for your questions. At this time, we are unable to take any further questions, so I would like to turn it back over to Mr. Gallagher for closing remarks. Please go ahead. Thank you all very much. Thank you all very much. And we'll be talking to you next quarter. Thank you so much. That does conclude today's call. You may now disconnect.
Speaker Change #189: There's a lot more going on underneath that you don't see on top.
Speaker Change #185: And that's the same thing going on here.
Andrew: Okay.
Speaker Change #193: Okay well. Thank you for that all my other questions have already been asked so I appreciate the thoughts.
Andrew: Andrew Thank you.
Andrew: Okay.
Andrew: Okay.
Andrew: Thank you all for your questions. At this time, we are unable to take any further questions I would like to turn it back over to Mr. Gallagher for closing remarks. Please.
Maurice J. Gallagher: Please go ahead. Thank you all very much. Thank you all very much.
Andrew: Koby will be talking to you next quarter.
Andrew: Yes.
Speaker Change #191: Thank you so much that does conclude today's call you may now disconnect.
Andrew: Yeah.