Allegiant Travel CO Q2 FY2020 Earnings Call

Thank you, Kevin. Welcome to the Allegiant Travel Company's Second Quarter 2020 Earnings Call. On the call with me today are Maury Gallagher, the company's Chairman and Chief Executive Officer; John Redmond, the company's President; Scott Sheldon, our EVP and Chief Operating Officer; Greg Anderson, our EVP and Chief Financial Officer; Scott DeAngelo, our EVP and Chief Marketing Officer; Drew Wells, our VP of Revenue and Planning; and a handful of others to help answer questions. We will start with some commentary and then open it up to questions. The company's comments today will contain forward-looking statements concerning our future performance and strategic plans. Various risk factors could cause the underlying assumptions of these statements and our actual results to differ materially from those expressed or implied by our forward-looking statements. These risk factors and others are more fully disclosed in our filings with the SEC. Any forward-looking statements are based on information available to us today. We undertake no obligation to update publicly any forward-looking statements, whether as a result of future events, new information or otherwise. The company cautions investors not to place undue reliance on forward-looking statements, which may be based on assumptions and events that do not materialize. 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. With that, I'll turn it over to Maurice.

Thank you, Sherry, and thank you all for joining us today. First, let me thank all of our team members, their spouses and families as we continue to fly our passengers during these difficult times. They've done exceptional work. I'm sure you've all heard of the movie, Groundhog Day with Bill Murray and his adventures repeating the same day over and over. That's where we find ourselves today. Each day seems to be repeating itself as we wind our way through the slow motion video called COVID. Each of us is managing through these repetitive awkward days in our own way. Bottom line, I believe things will get better, but most likely not as fast as we all would have liked. Today, we and the airline industry are putting our economic hopes on the upcoming holidays at the end of the year and 2021. Many of my colleagues have been providing you their best guesses on what will happen in the future. So let me throw a few ideas out there. First and foremost, I don't believe we'll go back to a full shutdown. People just won't put up with it. While we made an operating profit in June, which I'm very proud of, I don't believe we will get back to those numbers anytime soon. The near-term calendar will not allow it. At present, we believe we have to plan on this current state as being the norm. The near-term problem is how do we work towards breakeven cash flow. In the middle of August until November 15 is traditionally one of our slowest periods, particularly September. Given the problems we are seeing, it will be even more difficult than in past years, assuming no CARES extension. Adjusting labor costs is our number one cash flow lever available as we work towards our breakeven cash flow goal. We will eliminate 220 jobs, including 87 personnel associated with those jobs on October 1, a difficult task, but a necessary one. We are in the late stages of discussions with our other contract personnel that will allow us to generate the needed savings in the coming months. We want to keep as many team members on board as possible to take advantage of our operating peaks. To do this, in between these peaks, we need financial relief on our labor payrolls. Unfortunately, our pilots' leadership is unwilling to work with us on this approach. As a result, we have notified the IBT management and we intend to furlough up to as many as 275 of our crew members, pilots, that is. While we're going to have to do this, these numbers will allow us to optimize both the peaks and valleys that we just discussed in the coming months and into 2021. You'll hear more about this from Scott Sheldon in just a moment. With respect to liquidity, we're in good shape, given what we know today. Our cash balance was $663 million at the end of the quarter, up almost 50% from our Q1 balance. We also have other capital avenues open to us if we feel we have a need to go-to-market, including near-term prospects of an extension of the CARES Act, and Greg will fill you in with more of those specifics. I am very happy with how we have managed through our worst situations in the past 5 months. We've led the industry in almost all of the critical operating areas, including having the largest percentage of our scheduled flown compared to other carriers. We had the largest percentage of passengers carried compared to our historic market share and we had the best negative cash burn percentage. I've joked around the office that we are the best of the worst, given the state of the airline industry and the tourism industry overall. Once again, our model with its flexibility allows us to react as demand dictates. This will continue to be our strategic asset in the coming months, as we quickly adjust to the vagaries that the market allows us to experience. It has provided us with tremendous financial results over the years and continues to allow us to lead the industry in near-term results. Our financial strength has also allowed us to minimize the dilution to our shareholders during this period. As I said in our last call, we have not had to go to the equity or convert markets and have no plans to. Our $200 million plus of tax refunds from NOLs has and will provide us with the equivalent of a substantial equity raise. Those NOL dollars are a return of our tax dollars paid on our profits from our 68 quarters of profitability in recent months and years. These are difficult times, hard to believe times, frankly. Hopefully, there will be some relief in the near term by a slowdown in the virus cases. Perhaps the only better near-term news, given the increase in cases we've been experiencing, is that the rate of death has dropped substantially. Many people are working tirelessly to find ways to both control or end this terrible plague. News of vaccines is reassuring; a decline in reported cases would also be beneficial. But at the end of the day, to return to any semblance of normalcy, to begin to interact with others as we used to do, people have to believe they won't become infected. This is particularly important for our industry since leisure activities involve people congregating in close quarters. We're hearing good news about increased testing. Good. We need more of this. And while more testing is better, I'm concerned about its ability to scale to the levels we need, about the time it takes to receive results and about what one does with the information on their status. Namely, it's easy to know what to do if you have it; you quarantine yourself. If your test is negative, you're happy about the results, but what do you do with this information? How does it help the instant problem of getting together with others and feeling good about it? If you look at our medical establishment, it was not designed nor does it have the capacity to provide us with the one thing we all want to need most in today's COVID environment: information. When I receive my negative test results, good information, but then what? More importantly, I want information that tells me the person next to me is not infected. Not a big ask until it becomes everyone, 330 million people, and it becomes an almost impossible ask. Only the federal government can manage this national task, and I would hope there are plans being developed to create a national approach to managing this pandemic and the next one that is sure to follow. We cannot allow this type of event to cause this level of disruption anytime in the future. In the meantime, as I said on the last call, I believe we will continue to be one of the top performers. I think we have the ability to flex ourselves to meet the conditions better than any other carrier. Our model will continue to serve us well. I also want to thank each of our team members for everything they have done for us during these trying past 5 months. You are the backbone of this company. In the meantime, in the airline space, we will take care of business. We are survivors with a great company and an excellent business model.

Thank you very much, Maury, and good afternoon, everyone. Of course, I echo Maury's comments regarding our incredible team members here and the sacrifices they and their families have made through this craziest of times. I thought I'd spend a quick couple of minutes talking about the leisure travel space since those are the only customers flying now and deep into 2021, if not all of '21. On most other airlines, the lucrative business traveler accumulates frequent flyer miles using a company credit card for business-related travel and then uses their accumulated miles from business travel as currency to pay for their leisure travel. The databases of these other airlines are populated with people whose leisure travel is free or substantially offset through the use of accumulated business travel miles. I am sure a lot of you are walking examples of this. As a result, there was little to no reason for these individuals to comparison shop when traveling for leisure. As these other carriers pivot to a leisure travel-only environment, they are marketing to individuals who historically have not used their own wallet for leisure travel. Will some of these customers comparison shop going forward when using their own money? I would imagine some percentage will after burning off their accumulated points. The Allegiant database, on the other hand, is populated solely with people who have used their own money since the inception of the airline. We have been accumulating emails and data on these cash-paying leisure customers for over 20 years. We have been marketing to these individuals, pushing leisure-only travel options for longer than any other domestic carrier. It is not an accident that we are performing better than all the other airlines in the leisure-only environment. Speaking of leisure, I want to further expand on the $20 million settlement with Sixth Street Partners. As long as the agreement was in place, we were required to invest another $150 million in equity with a completion guarantee and a date of December of '21. The settlement agreement gives us much more flexibility in dealing with the project, from an outright sale, finding an additional equity partner or further borrowings, which Greg will expand further on in his comments. In the COVID-19 related special charges section of the release, there was an additional salary and benefit expense relating to personnel eliminations that Greg will elaborate on in his comments. As difficult as the decision was, it demonstrates how quickly we will move to reduce cash burn and right-size the business model. Going forward, we will pull additional costs out, if necessary, to adjust to the revenue environment we find ourselves in. On that note, I'll turn it over to Scott.

Thank you, John, and good afternoon, everyone. First, I'd like to thank our 4,500 plus team members and partners across the network for their outstanding service. Your efforts since the start of this pandemic have been amazing, and the sensitivity and care you've shown our guests and each other are the reason we have and will continue to be successful. COVID has challenged all aspects of our operation in ways we couldn't have contemplated 6 months ago, from shutting down operations, restarting operations, canceling and revising schedules, cutting costs, educating consumers, creating new safety strategies and health policies have all introduced a great deal of complexity to the operation, and the team's execution has been something we should all be proud of. From the onset of the pandemic, we had 3 immediate focus areas: The first was ensuring the safety of our passengers and Allegiant team members. This continues to be our top priority. Our customer experience leadership team, along with members of our emergency command center, have done an amazing job rolling out initiatives related to Allegiant's 'Going the Distance for Health and Safety' program, offering additional layers of safety throughout a guest's journey, along with an enhanced educational campaign to drive consumer confidence, which is critical to our long-term success. The second was rapidly adjusting our daily operations to reflect a near-zero demand environment while positioning our operational cost structure for the long-term slow recovery. As you'll hear from Drew, our strategy of maintaining a wide selling footprint and managing cancellations close in on the 7 to 10-day cycle has resulted in our outsized Q2 performance relative to our industry peers. Unfortunately, we find ourselves at somewhat of a crossroads as we look for additional cost-saving opportunities as we exit our summer peak into what is traditionally our weakest quarter. Much more on that to follow. The third was to develop an aircraft storage program for potential fleet management scenarios, as we progress through the recovery. As mentioned on our earlier call, our fleet, induction, maintenance and engineering teams did a tremendous job to set up a flexible program that will allow us to execute any number of strategies in the back half of the year on short notice. Despite a successful June, we all recognize how deep this pandemic really is, and it's clearly going to last longer than we had hoped. COVID hotspot flare-ups, quarantines, state pauses on reopening plans, and in many cases, reimposing restrictions provide for a very choppy and uncontrollable demand outlook. As we move into the back half of the year, our focus now becomes how do we balance our continued approach of casting a wide selling net, maintaining base and labor structure integrity while driving much needed cost relief, particularly in soft shoulder months. No doubt costs have to come out of the organization in this current revenue environment, if we are going to approach our goal of being cash flow neutral by the end of the year. Therefore, our focus has been and continues to be driving down labor costs and improving productivity, doing more with fewer employees in all aspects of the organization. During the second quarter, we made strides in reducing labor costs in both unionized and nonunionized workgroups. On the nonunionized labor front, we eliminated 121 positions within the ops organization. These reductions are expected to save the company approximately $9 million in annual labor costs through voluntary or early retirement programs. Also, with virtually all line-level support teams working from home, we continue to find ways to drive productivity and consolidate areas of responsibility, and we feel confident there are more savings to come. In the event these savings are not attainable, we may look at a second round of headcount reductions to meet our goals. On the unionized labor front, we have been transparent from the start of the pandemic about the challenges we face as an organization. We work closely with the union leadership through weekly meetings and educational town halls to specifically outline our strategy, knowing we would need their involvement and cooperation at some point. Well, that point is unfortunately now. Despite the fact we are able to drive approximately $10 million in line-level labor savings through the combination of emergency time-off agreements and better scheduling practices, which essentially drove down flight crew guarantees to contractual minimums, we need additional cooperation as CARES support funds roll off October 1, if we want to eliminate network disruptions. As Maury mentioned in his opening remarks, we've been in discussions with all unionized workgroups to drive creative solutions to reduce labor costs in much-needed off-peak periods. We've made substantial progress with most of our groups and hope to have something to report shortly. That being said, we have notified IBT leadership of our intention to furlough up to 275 pilots. Unfortunately, there appears to be little appetite within the IBT leadership to engage in constructive talks. Therefore, we have taken the first necessary step and plan to execute accordingly. In closing, we remain focused on structuring our organization for the current reality. COVID is here to stay. It's unpredictable, and relying on a stable demand outlook isn't the best strategy. Reducing controllable costs, namely labor, while maintaining maximum flexibility is what we're focused on. We plan to push forward with labor discussions and remain optimistic we can come to some sort of creative solution, but we are ready to modify our approach if needed. All in all, this is a difficult balancing act, but I'm confident our team is up for the challenge. And with that, I'll turn it over to Scott DeAngelo.

Thank you, Scott. Our commercial approach remains focused on going the distance for health and safety while providing value and flexibility to customers during these uncertain times. Our unique business model of all nonstop routes enables our customers to avoid crowded hubs, direct-to-consumer distribution, which allows us to sell at industry-low sales and marketing costs, and focusing on selling beyond the aircraft to third-party products have all helped us punch above our weight, so to speak, in Q2, and continue to position us well as market demand returns. During the second quarter, despite the challenging demand environment, Allegiant saw relative highs in web traffic and load factor versus the industry. As Maury mentioned, our share of total U.S. passengers was nearly 3 times higher than it was during the second quarter last year. In addition, our increasingly precise and predictive digital marketing approach, along with co-op funding support from many of our great airports and destination partners, enabled us to reduce our sales and marketing costs on a per booking basis by more than 90%. There's no silver bullet to generating demand at a time like this, but there is a silver lining in becoming more cost-efficient and effective at capturing the demand that does exist across the markets we serve. We continue to stay close to our customers, primarily through our weekly customer sentiment tracking survey, which we've been building weekly since March. We're finding that the everyday mobility of our customers has become a leading indicator for their willingness to travel. About two-thirds of our customers currently say they feel comfortable dining in restaurants or going to shopping centers where they live. When it comes to travel, nearly one-third say they plan to travel by air in the next 3 months and have planned to do so before the end of the year. Only one-quarter of customers say that they're actually delaying travel plans altogether. Most are closely monitoring the situation before booking or simply traveling as planned. It certainly helps that more than half of our customers continue to report that their personal finances have not been negatively impacted by the COVID-19 situation, and an additional one-third said their personal finances have only been somewhat negatively impacted. For those customers who flew with us during Q2, 20% were flying between their primary residence and a second vacation home. One-third were visiting family or relatives, and just under half were on vacation or even working remotely at a hotel or vacation rental. To that end, we continue to be vigilant by engaging with our hotel partners across the nation to create more value for our customers and stronger economics for Allegiant. We're also addressing trends we're beginning to see emerge as part of the next normal. For example, we are working with a top Las Vegas casino resort operator to capture opportunities presented by the rise in remote working. As John referenced earlier, the business traveler, paying on the corporate card, is now giving way to the individual traveler paying their own way to work remotely, but away from home. Last, but maybe most notable, has been Allegiant's unique ability to serve what has become a relatively strong reverse travel trend as people from larger cities, like Los Angeles, Oakland, and Phoenix in the West or like Tampa, Orlando, and Fort Lauderdale in the East, have increasingly planned their vacations to more natural, less crowded destinations like Yellowstone National Park, Mt. Rushmore, the Smoky Mountains, and Niagara Falls. And with that, I'll turn it over to Drew Wells.

Great. Thank you, Scott, and thanks to everyone for joining us this afternoon. Our approach of maintaining a wide selling footprint enabled us to capitalize exceedingly well on the increasing demand cadence throughout the second quarter. We believe our ability to match demand with supply is unparalleled. Virtually every week in the quarter saw both revenue per flight and the percentage of flying versus our pre-COVID-19 expectations increase from the previous week. We recorded a 56.8% load factor while operating roughly 70% of our expected June schedule. We accomplished that through deep cuts on off-peak Tuesdays and Wednesdays, while growing ASMs year-over-year on many peak days. As mentioned, our 6% share of TSA throughput in the month was roughly 4 points higher than our prior year figure. As destinations reopened, demand improved not just for flying, but also for the third-party products that help further differentiate ourselves from the industry. Auto and hotel per passenger was higher in June versus the prior year, led by Scott and teams working to strengthen relationships with many great partners and create new opportunities. Our strategy of reviewing flights in the 7 to 10-day window resulted in minimal cancellations through June and to date in July. However, we continue to review and monitor to ensure the schedule is rightsized for the demand we're seeing. Our normal seasonal variance will kick in mid-August when the schedule drops precipitously as it does every year. Even prior to COVID-19, September was scheduled to operate at less than 50% of July's departures. This will still be the case as departures will likely be below 5,000 for the month, and over 90% of routes are currently scheduled to operate only 2 times per week. Bookings have trended slightly better over the last few weeks after a rough start to July. The slope is definitely shallower than the initial recovery period we experienced, but any positive slope is certainly welcome. This fall and winter have a wide range of potential outcomes, and we look to continue to be flexible in our approach. It is too early to make any projections on where the schedule will settle or where we think daily revenues will be. We are comfortable reacting to and operating a near-full schedule as we have done through summer, a skeleton schedule as we did in April, or anything in between. This would not be possible without all of our incredible team members and a business model structured around extreme flexibility. Thank you to all the team members that have continued to relentlessly push forward through the stops and the starts. With that, I'd like to turn it over to Greg.

Thank you, Drew, and thank you, everyone, for joining us today. For the second quarter of 2020, revenues declined by 73%, and we recorded an adjusted net loss of $95 million or $5.96 per share. This excludes items pertaining to the impact of COVID-19, particularly the benefit of $75 million of CARES Act payroll support, offset by roughly $100 million of special charges. Simply put, our focus remains on liquidity and reducing cash burn. Thanks to our quick response to increase liquidity and reduce cash burn, we improved our total cash balance by nearly $200 million and ended the quarter with $663 million of cash. Regarding cash burn, our second quarter average daily cash burn was $900,000, down from our original estimate of $2.1 million per day. In fact, for the month of June, we produced a slightly positive daily cash inflow. As a reminder, our daily cash burn is defined as cash from operations, less debt and rent payments and CapEx. It excludes aircraft acquisitions, new financings, and cash benefits from the CARES Act. Also during the second quarter, we received $200 million between payroll support funds in our first installment of our 2018/19 NOL carryback tax refund. In addition, we raised nearly $80 million in aircraft financings, $48 million of which pertains to a sale-leaseback of 4 aircraft and the remaining $31 million of the loan secured by 2 aircraft at a very low interest rate. During July, we will receive our remaining 10% of the payroll support funds or $17 million, and we've already received a second installment of our NOL carryback refund of nearly $50 million. Beyond the liquidity sources we have tapped thus far, we expect to receive an additional $125 million by mid-2021 and a cash refund through our 2020 NOL carryback. Furthermore, we have an option to access a loan of up to $270 million available through the CARES Act, along with unencumbered assets with a market value of just under $400 million. However, managing cash burn still remains our most effective liquidity strategy. As we look ahead, our average cash burn for the third quarter would be just over $1 million per day, assuming gross bookings per day of $2 million for the quarter. This is based on booking trends thus far in July and represents a reduction of approximately 60% from 2019 booking levels. If current booking trends do not improve and remain flat through the duration of the year, we expect our third quarter's cash burn to be the highest of any quarter moving forward as we have the ability on October 1 to further rightsize our cost structure. Managing our cash burn effectively helps us highlight the flexibility of the model we have refined over many years. In fact, back in 2004's annual letter to Allegiant team members, Mr. Gallagher stated, "It's easy to be low fare, and that can be done almost instantaneously by lowering one's prices. The hard part is being low cost. That is an everyday commitment from each of us, and that's what makes the low fare bid work and an efficient cost structure is the best insurance for our success." More than 16 years later, Maury's words and this core principle of our model couldn't hold more true. We continue to believe we have the most variable cost structure in the airline industry. Allegiant remains the low-cost carrier built around low utilization, which allows us to adjust capacity to match the demand environment. As a recent example, during the second quarter, we reacted quickly to adjust capacity due to shifting demand. During April and May, we pulled back capacity by as much as 87% and 50%, respectively. However, in June, we only pulled back capacity by 30% due to the relative demand strength. This flexibility not only allowed Allegiant to take full advantage of the stronger demand in June, but also reduced direct operating expenses in April and May. To illustrate, on roughly 50% fewer ASMs during the second quarter, our adjusted operating expense was down 38% compared to the same period a year ago. This was largely driven by a 77% decrease in fuel expenses and reductions in other flight volume-related expenses. Additionally, total labor costs were down 17.5% year-over-year despite an increase in total airline FTEs of nearly 10%, with an even larger increase in crew members of roughly 17%. These labor cost reductions were helped largely by our many team members who volunteered to contribute by reducing their pay and/or taking voluntary leave. Our sincerest thanks go out to each and every one of them. Turning to debt quickly, we ended the quarter with $1.5 billion in total debt, nearly flat compared to the same period in 2019. Since that time, our average cost of debt has reduced by more than 150 basis points, and this reduction is evidenced by a more than 30% decrease in second quarter interest expense compared to the same period a year ago. Additionally, over 60% of our outstanding debt relates to secured aircraft and amortizes quickly over an average of just 5 years. This rapid paydown in debt results in annual principal payments of roughly $150 million. And as a reminder, these payments are included within our cash burn definition. Defending our balance sheet has been another top financial priority for us as we navigate this very fluid environment. Where we stand today, we believe we are well-positioned to emerge on the other side of this crisis with one of the stronger balance sheets in the sector. Looking to CapEx, for the remaining 6 months of 2020, we expect total CapEx to be roughly $165 million, of which $135 million relates to the acquisition of 5 A320 aircraft and 4 spare CFM engines. We expect all of these acquisitions to be financed. We expect full-year CapEx to be approximately $375 million compared to our initial plan of roughly $750 million. We have reduced our total full-year airline CapEx by $100 million from planned levels and total CapEx by over $375 million for the year. For 2021, we currently anticipate total CapEx to be around $125 million. Looking over to fleet, our flexibility here has always been critical to Allegiant's business model. You may recall that we identified up to 22 aircraft for either early retirement or storage to defer maintenance-related costs and rightsize the fleet. Fortunately, our flexible business model gives us the ability to make fleet decisions in a nimble manner. You may recall that we identified up to 22 aircraft for either early retirement or storage in order to defer maintenance-related costs and to rightsize the fleet. Fortunately, our flexible business model gives us the ability to make fleet decisions in a nimble manner. The decision has been made to retire 7 of the identified aircraft, 5 of which will retire by year-end and the other 2 in 2021 and 2023, respectively. Retirement dates for each aircraft are scheduled around their respective upcoming heavy maintenance events, allowing us to utilize remaining time on these assets. We maintain further flexibility with our fleet through 6 aircraft currently in storage, and that will take place at least until early 2021. In the event we need to reduce our fleet count due to continued weak demand, we would maintain flexibility through these aircraft. Conversely, should we see improvements in passenger demand, our fleet planning team has identified several aircraft in the used market that would be a good fit for our fleet moving forward. As of now, we entered 2020 with 91 total Airbus aircraft. During the year, aircraft inductions are largely offset by retirements and storage, bringing our expected in-service fleet count to 93 by year-end. Regarding special charges booked during the quarter, $59 million of noncash expense related to the book loss on the sale-leaseback of 4 aircraft, coupled with accelerated depreciation related to the retirement of 7 aircraft and write-offs on other aircraft-related assets. Additionally, about $16 million of additional noncash expenses associated with the retirement of the 7 aircraft will be recognized in subsequent quarters, with approximately $12 million of the remaining $16 million being recognized in the third quarter of this year. Also during the quarter, and as John mentioned, we accrued a $20 million minimum yield fee on the expectation to terminate our loan commitment with Sixth Street Partners. The fee is expected to be paid throughout the remainder of the year. The team at Sixth Street has been good partners, and we appreciate their ongoing support of the project, as evidenced by their willingness to work with us on an extension of their commitment. However, without a clear line of sight of when we can resume constructions, both parties agreed the best path forward at this time would be to terminate their loan commitment. We continue to explore various strategic options for Sunseeker. As John mentioned, all options are on the table as we look for the best ways to optimize our investment there. We believe there's significant value in the land, the NOL, and our value if we resume construction much later down the road. Finally, during the second quarter and consistent with the CARES Act, we reduced 220 positions from our corporate management and support teams, many of which were voluntary and/or early retirements. These reductions are expected to save the company approximately $15 million annually in labor costs. It's very difficult for us to see so many talented, hard-working team members moving on from Allegiant. Our sincere thanks for their tireless efforts over the years. They will be greatly missed. And with that, we will turn it over to our operator for questions.

[Operator Instructions]. The first question comes from Helane Becker with Cowen.

I'm just thinking about the network and the way it looks right now. I'm wondering if you could just talk about Las Vegas versus Orlando and other focus cities? Because it looked like based on the Las Vegas data, there were about 120,000 passengers that went through Las Vegas in the quarter versus the 1.3 million almost 1.27 million that you reported carrying. So I'm just kind of wondering what the network looks like or will look like in September maybe.

Certainly, this is Drew. I'll kick this one off. So we anticipate the network is going to look very similar to how it always has. We'll pull back in September, just like we have every year since the inception of the company. Obviously, Florida is a bit more impacted by the seasonal swings in Las Vegas, which stays a bit more flat. I think that will be exacerbated this year with more pent-up demand for Las Vegas given the shutdowns earlier this year. I think it's fair to say that Orlando never really saw the large step change we expected with the reopening of theme parks down there. My impression is that, given the limited capacity theme parks were allowing, if you didn't already have a reservation, it was very difficult to create a new one and, therefore, generate new travel down to the area. Las Vegas being different, having the room capacity and having that elevating has created more opportunities. So I think Las Vegas has certainly held up better and will continue to hold up better through September than Orlando for a few reasons.

Okay. And then for my follow-up question on the headcount. I just wanted to be clear on that. You announced 220, I think, and not including the pilots. Should we think about more -- I guess I'm a little confused. You talked about eliminating 220 jobs, but 87 people on October 1. Does that mean there are open jobs that you're just not filling? Or are there other people later on that get terminated? Sorry, I guess I got a little confused there.

No, it is a good question and one we should clarify. So thanks for asking that, Helane. Yes, I would say there are 220 total positions, some of which were individuals that left from April through June. So we weren't counting those as part of the 87. The 87 are the individuals we notified on a particular day. Some are remaining open positions that we just were not going to backfill, and those are all corporate and admin function roles. So no, that wasn't a lever on the labor side at all.

Yes, that is very helpful. I appreciate it.

Thanks, Helane.

[Operator Instructions]. Our next question comes from Mike Linenberg with Deutsche Bank.

I guess two quick ones here. Greg, the million -- just over $1 million burn per day in the sub-Q, you indicated that that does include a portion of the $20 million accrual? What -- how much of that accrual actually runs through the September quarter?

We haven't finalized that yet with the Sixth Street folks, Michael. But I think a good way to model it is just taking that and amortizing it straight over the rest of the year.

Okay. That's helpful. And then on your air traffic liability at 230 -- you were $355 million. Now is that a short-term number there? Or are your refunds -- the vouchers that you have, are they only good for 12 months? Or have you actually extended that beyond 12 months?

Yes. No, I think you're right. We did extend it to two years. Of the $350 million ATL, roughly 60% are credit vouchers. That's down a bit from when we reported in April. The remainder would be advanced bookings, part of that. But some of those, to your point, have been extended for the credit vouchers for two years.

The next question comes from Duane Pfennigwerth with Evercore ISI.

I don't know if you're able to speak to it, but I think about Allegiant as a carrier, which will fly as much as it possibly can when the demand is there and not fly as much when the demand is not there. Can you talk about the flexibility or the incremental flexibility that you're seeking? And is this something that you gave up at some point in the past when margins were super high, and clearly, the demand was there to support it?

I'll just chime in. I don't know that we've ever given that up. You can go back year after year with our famous graph, which shows January low, peaking in March, falling off in April, peaking again in June and July, then falling noticeably almost half or more in September. That graph is repeated almost every decade. As far as this one, certainly, Drew -- the peaks have been what they have been historically, although who knows how much higher or lower they will be in September than we otherwise would. But Drew, what's the plan?

Sure. One of the things that we've talked about in the past is coming out of MD-80 and into Airbus actually exacerbated the peaks and valleys. We were able to fly significantly more in March and July, while maintaining the same -- roughly the same level of utilization in September. So we kind of stretched that out. I don't believe we've given anything up, and we maintain the ability to fly as much as we can when the demand exists. All we're trying to communicate is that we're trying to right-size the entirety of the organization to match where demand is as we see it, while still providing optionality for what may come.

Another component, Scott can touch on this a little, is that we dug into a lot of things that we otherwise weren't looking at closely to save cash, like scheduling, how do we optimize scheduling with crews and flight attendants, particularly in the early days when we were canceling a lot, we had a lot of ups and downs, but we're much more efficient than we were even coming into this situation with how we are able to deal with crews.

If you look at the buildup of base sizes, medium to small bases, which can be anywhere from 6 aircraft down to 1, are inherently less cost-effective and efficient, but they contain about half of our labor, our flight crews. All that is built into the economics during good times, but when you're built for roughly 30,000-plus block hours and you're flying maybe 40%, you take a hard look at still getting through the footprint needed, but how to reduce costs in a reasonable manner. But to get substantial savings, you really have to start pulling base structures down, and that's something we would really not like to do.

That's super helpful. Just on the cost reductions that you're outlining, I don't know if you can say, but what level of revenue decline sort of post these cost saves, what level of revenue decline do you think you would achieve cash flow breakeven?

Sure, Duane, this is Greg. If you factor in some of these levers that we're anticipating to pull, particularly in the fourth quarter, I think we could achieve cash flow breakeven if year-over-year bookings are down roughly 40% to 45%. If they're elevated above that, you'd have to get there, and this is just kind of expanding on Scott's point as you -- you would have to take further reductions, such as consolidating bases and things like that to get the cost down to the breakeven point. I'm not suggesting we do that. I think regardless in the fourth quarter, we'll be rather low on the cash burn front, but we believe we can be significantly lower than we are in the third quarter. We're going to manage the business for flexibility as best as we can.

Duane, it's an interesting question. I was asking the group. We really never looked at breakeven load factor. When you're looking at 21% operating margins, as we averaged in 2019, candidly, we didn't know the exact percentage. Of course, you have the vagaries in revenue because unit revenue, I think Michael and I looked and saw someone selling an Atlanta trip out of New York for $9. You will see a lot of the unit revenue pieces being problematic. Our third-party revenue is coming on strong. We've made positive cash flow in June. I think it's important to note, without going into specifics, the model is highly responsive. I am optimistic that we are getting to a cash flow breakeven. We can do it better than anyone else.

Our next question comes from Savi Syth with Raymond James.

On the loan program, the CARES Act loan program. Just wondering is this kind of stance that you still might not need to tap into that? Or has that changed? And what -- have you had a discussion on the kind of collateral that might be used for that?

Savi, thanks for the question. It's Greg. Yes, so as far as whether or not we're going to take it, that's still undecided. I wouldn't read into that, we haven't signed an LOI that we're not still eligible for it. We certainly are. B.J. and I are having great discussions with the Treasury team and the PJT team, their advisers, about the loan. Just an interesting tidbit, Allegiant qualifies for the Main Street lending program, say if we could find a bank to support that. So we've been talking with treasury and some banks about potentially that program, and we're not saying we're going to tap that either. Just looking at options. The benefit to that program as compared to just the CARES Act loan is that it doesn't require warrants and the like. Regarding collateral, they've been responsive on what we can do and other possibilities with collateral. We have the unencumbered aircraft and engines. Those would be prime collateral, if you will. However, we qualify for unsecured financing as well based on the requirements for the CARES Act loan. My point in saying that is if we decide to pull that lever, we should have the ability to raise up to the liquidity available to us under that program. Again, we're not ready to make that call at this point in time.

And if I might just follow-up on some of the Sunseeker comments. I'm just wondering, what’s your time line for making a decision there? I know you have a team in place. Just how should we think about when certain decisions have to be made about that? Or have the steps you've taken just kind of bought you 12 to 24 months?

Again, last call, Savi, we said we weren't going to touch anything or do anything for 18 months, and that thinking hasn't changed at all. We don’t have any staff to speak of other than 3 individuals, and they are operating on significant reductions in pay. We have a couple of people working through the construction close down. You need to have to keep these people. It's not like parking an airplane. When you saw the construction process in motion, you have to wind down payables and everything else. We have just a handful of people remaining, all working on significant pay cuts. So our burn associated with that project is at very minimal levels.

Is there -- so from a -- no movement on 18 months, but is there a timeline if you're kind of taking a strategic alternative to spin it off versus if you want to kind of continue with the start of the construction again, when do those decisions need to be made? Or is there no such kind of timeline?

We don't have any committed timeline beyond what we've already stated. Having said that, I probably get a call a week regarding what the art of the possible is. So we're entertaining and exploring the options that I made in my comments, whether there's an opportunity for an outright sale, whether there's an opportunity to JV it or bring in another equity partner or to look at borrowing the entire amount that's left to be built; I mean all these are options that are on the table beyond just waiting and doing nothing for 18 months. We are exploring those; we haven't ruled anything out. I think the takeaway should be that we're open to everything. So it's not like we're seeing or saying we're not going to do this or that. We had to say that perhaps before this call or before this last couple of weeks when we had the discussions with TSSP. But now that we've reached a settlement with them, the options are wide open; we have no limitation.

Our next question comes from Joseph DeNardi with Stifel.

Maybe, Drew, just the commentary in the release about June bookings being up for a period year-over-year. Can you just talk about why that isn't a pretty bullish point; maybe the quality of that demand in terms of price point? And what exactly does that mean? Were revenues up for a period or just kind of absolute bookings?

Yes, it was certainly a bullish time for those few days before things changed again. It was just looking at a segment count, the number of people buying tickets and traveling, not the revenue. So I wouldn't read that far into it. That was when we were at our high point and looking forward to what the rest of the year could be before about the third or fourth week of June when it turned back down. So that was a distant memory at this point.

I would simply add, the key thing there were some key catalysts, right? There was Las Vegas coming online June 3, Universal Studios, and Walt Disney World shortly after that. There was the grand reopening, if you will. Since then, just as Drew mentioned, we lack an obvious catalyst for what can push through the ceiling they currently exist since we've already kind of reopened and now pulled back and/or semi-open. There's nothing obvious staring us in the face, like when we had an initial flip switch in early June.

Okay. That's helpful. And then maybe Greg or Scott Sheldon. I think the plan was last quarter that you would maybe have to shrink the fleet by 25 aircraft. How did the recovery in June inform that decision? How are you all thinking about that now?

Sure. I'll kick it off. What I would say is, in June, we remained cautiously optimistic, yet we saw bookings coming down again shortly in July. It just goes back to flexibility and fleet flexibility. Fortunately, we're in a position here because of a lot of hard work in the past to be nimble with our fleet. As we think about the number of aircraft to retire in the future we're taking it day by day, so to speak, in a wait-and-see approach. We decided on up to 7 aircraft recently. Those were good aircraft to put down at this point in time as we compared their reliability, age, and cash generation as we weighed those investments. That will save costs going forward, particularly on the heavy maintenance side. We still have flexibility with that as the 22 number hasn't changed. We still have 6 in storage, and we'll continue to evaluate the other remaining 10 and react accordingly.

Our next question comes from Matthew Wisniewski with Barclays.

I just wanted to come back to how you're managing incremental capacity back. Are you managing load factors; or is the idea to manage covering variable costs, or some type of profitability level as you're adding incremental flights or taking them out? Any thoughts would be appreciated.

Yes, this is Drew here. Your latter point is exactly right. We’re still thinking about a cash basis, cash profitability as we’re considering capacity, as Maury stated. There's not necessarily one load factor that drives or necessitates whether or not that flight will make money, but that's very much where we're focused is variable costs. It will become easier to sprinkle in more peak-day flying and more markets as needed.

Okay. And I guess kind of as a side of that, the ancillaries per passenger stayed relatively intact year-over-year. Can you keep that rate going forward? Or is there something skewing that in the near term? Because if I'm wrong, it can set you up pretty well if ticket pricing does face some competitive pressures.

Yes. This has certainly been the largest test for our ancillary. Our thesis has always been that ancillary is much more sticky than the air component. I think we've shown that over the last few months. We're still over $50 per passenger in air ancillary; third party, such that things are open for sale and available to sell for resorts and for auto. The co-brand credit card has been phenomenal for bolstering the third-party business as well. I have confidence the ancillary can continue to remain sticky and at levels we're seeing today.

Our next question comes from Hunter Keay with Wolfe Research.

But John and Maury, other than price, what are some of the conditions on sale of Sunseeker or a scenario where you relinquished some portion of control of the project?

Oh goodness, Hunter, there's still zero opportunities now other than the occasional call that gets logged in. Again, the focus is on the airline. Today, we probably wouldn't take much to get -- if it's got cash associated with it or I'd like to see us stay involved in the management because John is just so good at that stuff. But we really just don't talk about it that much, and John's got this offer coming across the TRASM, yet in today's world, it's pretty hard to get even a reasonable offer.

I think, Hunter, you can appreciate we kind of lose some negotiating leverage if we talked about what price we have to accept over the earnings call. So we won't go that far. The takeaway is that there is a willingness to have those conversations and explore any opportunity. We don't have any restrictions on anything, and we're open to having any dialogue. I have a phone call tomorrow that's an interesting one. As I said, I get at least one phone call a week. So it's one of those stories. Stay tuned. That story is yet to be written. We just don't know how it's going to play out. We are open to numerous options available.

Hunter, just a big picture statement. The strategy is solid and sound that we embarked on here. We've sold third-party revenues for 20 years. We've proven year in, year out that we could make money on that. You look at the strength of the West Coast of Florida. If all the areas in this country, it probably is among the strongest because the people going there are older and they have money and are less affected by this, and that's going to continue. It's got a tremendous history. So the combination of that and the feed we can bring to it from where we fly, all the markers are incredibly strong. While we're not going to put any capital into it at this point in time, longer term, as a strategy, I think what we're embarked on is a diversification that is second to none in the industry. We've got a great head start with that asset. We want to stay involved in some fashion to feed ourselves and continue to enhance third-party revenues, so that's a good strategic overview.

That's great. I appreciate that, Maury. And then Bill, I want to talk to you a second about the IBT disagreement that you mentioned. I assume that was then just not really cooperating with your vision of facilitating voluntary early out. But more importantly, how does that impact your support or lack thereof on potential TSSP extension? Or does that factor in?

Yes. I think, if you look at the strategy, right? Early on, we had a really wide schedule out there. First half of May, we canceled a lot off. We flew a lot more in the back half of May. June was down, but it was relatively intact. There was a workforce that, on the surface, looked like everything was good. We’re flying full schedules, but then you start to see spikes, flare-ups. Just as Scott D. mentioned, what's the vision? What’s the expectation for the back half of the year? You got to assume it's going to be bumpy. That's how we positioned this. We were educating folks on what our options are: Option A, let’s go wide; or B, we consolidate. We encountered an issue with IBT because we really couldn’t grant a lot of short-term leads because we need the bodies since we were flying relatively healthy schedules. This is just to protect off-peak periods. We want to have discussions and explore potential solutions. We proposed different creative ways to flex down and flex up to provide clarity on what snapback provisions would look like. It’s been tough; they assume everything is great, but we are preparing for a soft off-peak period.

We've managed peaks and valleys consistently for years. The idea of us peaking is important because that’s a large part of how we've historically made money. You know I discovered a long time ago, you make more money on Sunday than you do the other 6 days of the week, and you want to carry those seats around for profit potential. The same analogy applies to those peak periods where our March is like 20% or 25% of our operating income historically. You need the bodies to do that type of flying. In this period, we’re asking to spread that cost during the bottom end and mitigate our expenses going forward. That's cash management 101. Most of our people are understanding this. Others prefer to leave things as they are.

Yes. The 275 figure really maintains the footprint. If we go above that, then there will be a consolidation of bases, which would be painful. That’s a longer-term strategy. This is our first pass at it. Until you start pushing notices and rosters of impacted folks, it’s not real. It’s about how these folks respond. The 275 folks are worth about $25 million to $30 million in payroll, but you give up upside from a network configuration standpoint.

Thank you. Ladies and gentlemen, this concludes the Q&A portion of the conference. I'd like to turn the call back over to Maury Gallagher for closing remarks.

Thank you all for your time. I appreciate it. Stay safe in the next 90 days. We'll talk to you in October. Thank you.

Ladies and gentlemen, this does conclude today's presentation. You may now disconnect, and have a wonderful day.