Good afternoon and thank you for joining us for the Q1 2021 Allegiant Travel Company Earnings Conference Call. I would now like to introduce your speaker today, Ms. Sherry Wilson. Please proceed.

Thank you, Cherry. Welcome to the Allegiant Travel Company's First Quarter 2021 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; Greg Anderson, our EVP and Chief Financial Officer; Scott Sheldon, our EVP and Chief Operating Officer; Scott DeAngelo, our EVP and Chief Marketing Officer; Drew Wells, our SVP of Revenue and Planning; and a handful of others to help answer questions. We scheduled today's call for 75 minutes to ensure sufficient time for questions. We will start with some commentary and then open it up for questions. We ask that you please limit yourself to one question and one follow-up. The company's comments today will contain forward-looking statements concerning our future performance and strategic 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 Maury.

Thank you, Sherry. Good afternoon, everyone. Thank you again for joining our Q1 call. First, let me take a moment to thank all of our team members, their spouses, families as they continue to fly our passengers in these difficult times. They've been the true warriors for our side of the house here. Thank you again. I'm extremely excited about our future, more so than I have been in previous quarters. I expect traffic to continue to grow in the coming months. Based on the data we're seeing, I would say we are back. 2021 and beyond, I believe, will be as good or better than I could have hoped. In Q1, we had EPS of $0.42 and EBITDA total of $68 million for the quarter, but the thing that was very positive is each month of the quarter was a positive EBITDA number. Understand both of these numbers include our PSP amounts of $92 million. I want to share with you some interesting facts that I've seen concerning the impact of the pandemic and how it's affected us and others. One, our balance sheet is in much better shape than before we entered the pandemic, particularly as it relates to cash. By the end of Q2, our cash balance will have more than doubled to $1 billion, and this is measured since the end of 2019. While our cash balance has been growing, our net debt balance has actually declined over $50 million. By the end of the year, we could be approaching $500 million of net debt, down from $950 million at the end of 2019. An interesting stat I was taken with last year was we generated $235 million of positive cash from our operational statement off our cash flow things for 2020 as a whole. The industry, during this time, lost $18 billion from operations. Lastly as a factoid: During Q1, without any PSP, we only had a $15 million EBITDA loss or a negative 5.5% margin. The remainder of the industry's EBITDA loss for this quarter just ended was $9 billion on $15 billion of revenues or a 60% negative margin. My conclusion from that is our personnel, our model, and our excellent management team have done yeoman's work during this difficult year. We were the first to get back to positive growth. We did this just this previous quarter. We were the first to achieve positive EBITDA late last year. And we are among the first to achieve positive EPS; and we did that, again, this quarter. We are fortunate to be a domestic leisure-oriented carrier. Leisure is king today. Business and international traffic continue to substantially underperform. Profile of our customer and their behavior is an important distinction in our model. Our leisure customers are made up of millions of individuals, families, small independent units that make personal individual decisions to travel and spend their funds. Business traffic has a different decision process. While there are millions of business travelers, as we know, their decision to travel in most cases is ultimately controlled by the company's senior management. Given dramatic circumstances, company business travel is stopped. We have seen this phenomenon three times in the past 20 years, 9/11 obviously. The great financial crisis shut down a good chunk of business traffic, and obviously, this past year with the pandemic. These have been full-tilt stopped traveling business decisions for business customers. This has been devastating to the airline and travel industries, particularly those focused on that business customer. Allegiant has lived through two of these massive shutdowns, and while we were certainly impacted by the pandemic this past year, we candidly didn't even feel the GFC. Our leisure customer profile and our flexible model allow us to bounce back faster than everyone else, including our other ULCC compatriots. This has been the backbone of how we have built this great company. We had a terrific 2019 and we're off to an excellent start in early 2020. We just had to wait a delay of a year so we could get back to it. Vaccines have been a terrific catalyst, as we all know. And combined with people's strong desire to get out and go has made for a really nice rebound that we're seeing these days. We believe our income levels for the remainder of 2021 and '22 and beyond will meet or exceed our last full year of '19. We want to be a leader in this effort and take advantage of our great model in the coming years and plant flags as we attack more than 1,000 markets that we have targeted. We have upped our game substantially in the past 3 to 4 years. Our brand is extremely well positioned. We've made some bold moves that have worked out extremely well, as Allegiant Stadium has been all we could have hoped for and more; and continue beating the drum for our model and its flexibility which allows us to both shrink and rebound. It continues to demonstrate its benefits, allowing us to separate ourselves from the competition. This is particularly evident when you review the industry's operating margin results for the past 20 years. From our beginning in 2001, we've averaged over 15% in operating margin during this 20-year period, while the next closest carriers, Alaska and Southwest, have been at 10% margins. Perhaps the best highlight of the past few months has been the elevation of our status from a noun to a verb. From what I've heard, we were the standard of comparison for recent IPO road show efforts as well as for the group of start-ups that are showing up at this point. 20 years ago, most in the airline space didn't consider us an airline, which was fine by me. No one paid attention to us, but today we are the model to follow. This is the ultimate compliment from your industry peers. In closing, I can't tell you how proud I am again of this group of team members, particularly those who have carried water on the front lines this past year. They have been the true heroes in our part of the world. Every day, they have boarded their airplanes and carried our passengers safely and on time during these trying days. John?

Thanks very much, Maury. Good afternoon, everyone. As I did in previous earnings calls, I thought it would be helpful to provide some directional data points to help you understand how we see things in 2021. Given our domestic leisure-focused business model, we are in a better position than other carriers to look beyond a month without hope and a prayer being part of the commentary. Having said that, these directional guides assume no significant changes to the environment we are operating in. The industry and the country are seeing a slow and steady return to normalcy and expect that to continue as more restrictions are lifted. All financial data provided is on an adjusted basis, which excludes, of course, the benefits from the CARES Act and PSPs. Furthermore, fuel is assumed at $1.99 a gallon. We expect our cash balance to be around $1 billion at the end of each quarter going forward for the balance of '21 and, of course, with an ever-improving net debt. And looking at costs, we see full year CASM-X less than Q1 '21. Supporting that view, our FTEs per aircraft should be down more than 10% versus 2019 even though our average number of aircraft are expected to be up over 20% by year-end. Furthermore, our Q2 CASM-X would be less than $0.06. Greg will provide further commentary on Q1 CASM-X. Every quarter in '21 should have positive EBITDA, and Q2 EBITDA will be around $100 million. EPS every quarter for '21 should be positive as well. In regards to airline growth. I mentioned in my comments in the last earnings call we have never been more excited about the growth opportunities in '21 and beyond. To that end, it is our intention to grow the airline by the end of 2024 to north of 145 planes. It goes without saying there is a lot of planning that goes into such growth, and we have been working on that in earnest for the last several months. Our deep knowledge of the domestic leisure customer, coupled with our aircraft acquisition experience and strong and getting-stronger balance sheet, allows us to execute on such a strategy better than anyone. In regards to Sunseeker, we've been getting quite a bit of interest of late and would hope to get something done that would allow the project to start before the end of the year. We are exploring many different approaches as to how the additional funds will be raised, so to comment on how a transaction could shake out or look like would be premature. While the speed of our recovery may be surprising to some, if not all, it has come about due to the dedication, passion, and hard work from our incredible employees. You are simply the best and our results are proving it. With that, I'll turn it over to Scott Sheldon.

Thank you, John. Good afternoon, everyone. I appreciate you joining the call. First, I want to express my gratitude and pride in the entire Allegiant team and our partners across the network. Our operational results in the first quarter were impressive despite facing unique challenges. It's important to acknowledge that our team members and partners are the driving force behind our business's success, and this management team appreciates your efforts every day. Congratulations. Now, reflecting on the past quarter, flying production has continued to improve as we moved beyond 2020. For the first time in quite a while, we achieved a normalized operating quarter, showing a capacity growth of just over 3% compared to the first quarter of 2019. Our key operational performance metrics improved significantly across the board, except for controllable completion, which I will discuss shortly. Our team's performance resulted in seasonal bests for on-time departures and arrivals, achieving 72% and 80.7%, respectively, on a full schedule compared to the first quarter of 2019. Excluding the considerable impact of weather delays, our controllable on-time arrivals were outstanding at 93%. While our flying activity rebounded to pre-COVID levels in the first quarter, it came with notable challenges. Our controllable completion percentage was just above 99.5% for the quarter, which is below our historical averages. This was primarily due to delays in getting our flying assets back into service to meet the first quarter capacity demand, especially during the ramp-up in late February and March. Like many carriers, we postponed heavy maintenance and induction work throughout 2020 to manage cash flow until we had clearer visibility on demand. While these deferrals were financially beneficial, they also created a backlog of aircraft needing extensive work before returning to service. During the quarter, we inducted five used aircraft and handled as many as 32 heavy maintenance events, which was less than ideal since our main maintenance partners, original equipment manufacturers, and parts suppliers have been slow to return to full operational capacity. The outcome was over 85 maintenance cancellations due to insufficient aircraft, resulting in just over $6 million in irregular operational costs. In conclusion, I'm excited to carry on the momentum we've built as we enter the second quarter and the latter half of the year. We have managed the induction and heavy maintenance constraints from the first quarter, and we seem to be back on a normal schedule, which is crucial. Although the schedule for the latter half of the year is demanding and maintenance, repair, and operations pipelines are becoming tighter, our plan has largely mitigated risks, thanks to the relentless efforts and creativity of our maintenance, planning, induction, and engineering teams. Additionally, we look forward to having all our third-party suppliers and partners back to full operational capability. Currently, most of our ground-handling service providers are struggling with staffing issues, making it challenging to find and retain the necessary workforce to operate at pre-COVID levels, a situation arising from the multiple rounds of stimulus. On the labor front, our pilots, flight attendants, and mechanics who were furloughed or on extended voluntary time-off programs have been recalled, and we are actively moving them through the necessary training pipelines. Training classes for all positions will commence in mid-summer and continue into the fall to prepare for the peak in March and the summer flying in 2022. With that, I will hand it over to Scott D.

Thanks, Scott. Building on prior comments. This past quarter clearly marked a positive turning point in customer sentiment and demand for leisure travel. Back in the first week of January, only one-third of our customers said they believe things were getting better in terms of COVID-19, yet by mid-March, that number had nearly tripled, and around 90% said things were getting better. This fundamental customer sentiment driven by a combination of vaccine progress and destination reopenings was highly correlated with when and how we saw demand return. That is to say each month of the quarter showed marked improvement, with March booking levels, as already mentioned, performing around 2019 levels. However, it's worth calling out that, while demand is increasing upward, it's also expanding outward. And we're beginning to see more normalized leisure travel search and booking behaviors. Advanced purchase timing for the first week of 2021 was nearly half of what it was in 2019, yet as we finish the quarter, advanced purchase timing for the last week of March had greatly increased and was virtually identical to that same week in 2019. Further to this dynamic, the volume of flight searches being performed by customers at allegiant.com continues to outpace 2019 levels, especially for mid- to late summer months, suggesting additional waves of leisure travel demand are continuing to reenter the market and are searching for travel time periods that they're most comfortable with. Of those customers who have already flown or booked Allegiant this year, more than 70% report having already been vaccinated. As mentioned last call, staying close to and winning back those customers who flew Allegiant in 2019 but haven't flown since the pandemic began is our priority focus. And I'm pleased to report that we've already recaptured nearly 20% of these customers and their itineraries and that those who have still not booked report overwhelmingly that they had flown no other airline during this time and consider Allegiant their top choice by a wide margin over all other airlines considered for their next trip. Once again, our direct-to-consumer approach has remained a critical differentiator not only for selling directly to but also communicating directly with our customers, enabling us to stay close this past year. Our approach to capturing demand continues to be rooted in cost discipline by heavily leveraging our owned media channels, namely our website and e-mail marketing, both of which achieved first quarter web traffic increases versus 2019. This helped us once again achieve incredibly low sales and marketing costs on a per-booking basis that were 80% below pre-pandemic levels. And lastly, with our enhanced digital commerce assets in place, that is both our new website and new mobile app, we turn our focus to launching our broad-based non-card loyalty program later this year; and to expanding our leisure offerings at allegiant.com not only in existing hotel and rental car categories but also through launching vacation rental inventory, more than 80,000 properties nationwide, with our newest partner bookingpal.com. And of course, we look forward to soon offering travel packages for Allegiant Stadium events this fall. Moreover, we continue to explore asset-light co-marketing and sales channel partnerships that enable us to broaden our leisure travel ecosystem and that give us privileged partner relationships that enable us to reach millions of new customers in markets that we and those partners collectively serve. With that, I'll turn it over to Drew.

Thank you, Scott. And thanks, everyone, for joining us this afternoon. We continued to see sequential revenue improvement in the first quarter, with scheduled service and total revenues each down 38.2% versus the first quarter of 2019. Our ancillary revenue per passenger was down just 0.2% against the same time frame and remained a great story considering it is half of scheduled service revenue. This contributed in a large way to our total fare per passenger being down just 8.9%. We ended the quarter with significant momentum through the back half of March that carried into April. April revenue will be quite close to the March number even despite less capacity for the first time in company history. A lot of this is due to what Maury mentioned. Our April load factors were roughly 10 points higher than March. And in fact, despite moving beyond the peak spring break and Easter time frame, loads have improved in each of the last eight weeks. Furthermore, most of those weeks were also positive ASMs year-over-2 year as we ramped into the peak. In total, April and May will be roughly flat capacity versus 2019 before the growth resumes in earnest during June, producing the 2Q ASM guide of plus 2% to plus 6% versus 2019. Some of that growth is slated for the newest Allegiant cities of Portland, Oregon, which began service in April; along with Jackson Hole, Wyoming, and Key West, Florida, which take flight in June. Those are among the 51 new routes beginning service in the quarter. We are thrilled with the booking performance of our new contingent routes and what they add to the Allegiant network. Along with the ASM guide, we are guiding 2Q scheduled revenue to be between down 6% and down 10% versus 2019. I'm ecstatic to see numbers in the single digits, and I really look forward to flipping that sign in time. Fixed fee margins have been greatly impacted by the amount of supply and lower demand in the market, and we responded by looking to deploy more flying and in particular valuable peak-day flying to the better current returns on the scheduled service side. While we had a great run of fixed-fee flying through the college basketball March Madness tournament, that is certainly more of a one-off benefit for 2021, and fixed fee revenues are likely to remain under pressure. The strength in demand we're seeing continues to give us conviction in the potential for the back half of the year. We have the crew and the aircraft in place to grow approximately 20%, and our current selling schedule through mid-December reflects that intention. That selling schedule includes the announcement of our newest base in Austin, Texas. We've served Austin since October 2013 and have had success growing a wide range of route opportunities and are elated to make it a stronger presence in the future of our network. And with that, I'd like to pass it over to Greg.

Thank you, Drew. And good afternoon, everyone. We continue on our path of leading the way and restoring earnings power as we deliver on our tried and true business model that provides affordable, convenient, and reliable air travel to residents of underserved cities. Over the years, we have consistently produced industry-leading returns for our shareholders. We are a long-term-focused bunch and taught to think like owners, particularly when the tone is set at the top by Maury, who since our company's inception has been at the helm but also our single largest shareholder. One of our key focus metrics is restoring our EBITDA production to pre-pandemic levels, which is more than $6 million in annual EBITDA per aircraft. So starting with the current tone of the business. During the first quarter, our average daily bookings came in just under $5 million per day, which translated into an average daily revenue of $3 million. The quarter ended strong as March came in like a lion, with average daily bookings exceeding $6.5 million per day, ahead of 2019 levels; and driving more cash flow as our ATL increased by $100 million or 33% from December to March, despite the travel voucher portion being down 19%. Additionally, we saw a couple key metrics during the first quarter which already outperformed 2019 results. One is capacity. Our focus on 100% leisure, 100% domestic and our only nonstop flights, plus strength in demand, resulted in March capacity of nearly 1.9 billion ASMs, the highest single month in our history. Another is cost. Our first quarter adjusted CASM-X, which excluded PSP benefit, is $0.0636 or 5% below the same period in 2019. And perhaps worth noting, our adjusted CASM-X for the quarter is by far the lowest reported by a carrier. It is half of the industry's reported average of $0.127. We are excited in getting back to pre-pandemic results, and the catalyst that enables us to lead the way is the flexibility of the business model. Our one-of-a-kind, low-utilization and high-variable-cost structure aided us in generating $168 million cash from operations during the first quarter, which is more than the first quarter in 2019 and helped push our ending March cash balance up to $730 million. Additionally, we have $260 million in cash that comes in after March, roughly $150 million from our NOLs, $98 million from PSP3 and a $14 million top-up for PSP2. Pro forma, the $260 million in these cash proceeds brings our first quarter cash balances to nearly $1 billion, thus resulting in a March pro forma net debt position of roughly $630 million or a 33% reduction from year-end 2019 balance. Moving to our second quarter outlook. We expect to induct 5 aircraft during the quarter to bring our total in-service fleet count to 105 by June's end, an increase of 19 aircraft compared to June of 2019. These additional aircraft are already being put to work, as capacity during the second quarter is expected to be up around 4% year-over-2 year. It is also notable second quarter daily bookings haven't skipped a beat. April continued to roar with average daily bookings around $6.5 million per day, which is 8% higher than April of 2019. The strong rebound we are seeing in our business supports our second quarter scheduled service revenue guide of down 6% to 10% year-over-2 year, which translates into revenue per day of $4.8 million, nearly 60% higher per day than the first quarter and within striking distance of 2019's average revenue per day. And based on the midpoint of our capacity guide, we expect our adjusted CASM-X to come in under $0.06 during the second quarter. So combining our expected daily revenue of $4.8 million in the second quarter with our expected cost performance suggests an adjusted EBITDA margin of around 25% for the June quarter. That 25% EBITDA margin excludes the benefit of PSP. If you include the benefit of PSP, it suggests an EBITDA margin of more than 35%. Turning to fleet. During the first quarter, we acquired 3 aircraft at an average all-in price of $16.5 million per tail. These aircraft were paid for with cash and remain unencumbered, which brings our current unencumbered aircraft count to 29. In the used A320 market, our fleet team is in no short supply of deals coming across their desks at prices that reflect a 30% discount on average to pre-pandemic levels. Based on current commitments, we expect to end the year with 108 aircraft, which supports our ability to increase capacity in the back half of '21 by as much as 20% as Drew and his team see no shortage in opportunities to put aircraft to work. This level of capacity suggests our adjusted CASM-X for the back half of the year should be around below $0.06 level. In the event we come across sustained weakness in the demand environment, our highly variable cost structure, along with our fleet flexibility, provides us a built-in safety valve to let off the gas as needed. Not only is our industry-leading cost structure advantage expanded due to the structural cost savings removed during the pandemic, other carriers have increased their leverage significantly more than we have. Our expected full year '21 interest expense should be around 14% less than full year '19. And additionally, our full year '21 scheduled debt maturity and interest payments, using our 2019 passenger count, is actually $6 per passenger less than it was in 2019. You don't have to take our word on how well positioned we are. Recently, S&P upgraded our corporate rating and changed our outlook to stable; I believe, among the first rated U.S. airlines to see such a change. And in terms of CapEx, our full year '21 guide remains largely unchanged, with the exception of our other CapEx category. And that, we increased by $20 million for the opportunistic purchase of spare parts at an average price per part of 50% less than pre-pandemic levels. And I'll close with Teesnap. Recently, we completed the sale of 85% of our Teesnap subsidiary to TELEO Capital at an undisclosed amount. We are excited to partner with TELEO, as they are committed to positioning Teesnap for a bright future with plans to further invest and accelerate growth of the business. And I'd like to take a moment to thank our Teesnap team members, who have done an incredible job building the platform, creating a deep and growing customer base, and bringing the program to its next evolution. And with that, we will turn it over to questions.

Operators around?

Your first question comes from the line of Mike Linenberg from Deutsche Bank.

Good quarter. This is probably a question for Maury and/or John. Maury, you mentioned competition out there. What does it look like? Imitation is the sincerest form of flattery. The reality is we have several new entrants, and it appears there are more waiting to enter, all targeting your market segments. It doesn’t seem like we're getting any carriers planning flights like San Francisco to Tokyo. Instead, it’s about routes from Austin and Nashville to Florida and Vegas, among others. I'm interested in your thoughts on this. Recently, we've seen two airlines announce new service to Phoenix-Mesa, as well as another airline announcing additional service into Punta Gorda and St. Pete. These locations are key for Allegiant, so how do you view the long-term opportunities? With the industry becoming more fragmented, do you think consolidation is more likely in the next few years? This is a broad question for either or both of you to address as you see fit.

That’s quite a lot to cover. We have half an hour. I would describe the past year more as a financial year instead of an operational one. We are seeing financial opportunities that the market has responded positively to, particularly with IPOs. There’s significant capital in familiar ventures, but new entrants have distinct characteristics. Drew has been closely monitoring these developments, and while he might share his views soon, Andrew and I have a good understanding of our work. However, we have grown considerably. Although we remain attentive to new players, it’s not our primary focus at this time. On the Breeze front, they have an ambitious growth plan, but I’m not overly worried about competing with their initial 110-seat aircraft. The 220 is a solid plane, but they are claiming interest in longer-haul, less saturated markets, so we’ll have to observe how that plays out. The more pressing question is how the major three airlines will respond. Based on the data I've reviewed, they are heavily in debt, and their cost structure is high. Long-term, it’s unclear how they will navigate these challenges. Rather than being concerned about new startups, I believe the ULCC segment will likely capture a considerable share of the market in the upcoming years. We are optimistic about this because we can operate independently and effectively. We were prepared for this shift back in 2019 and into 2020, took a pause, but now, we are ready to accelerate. John, do you have any additional insights?

Yes. We've never been afraid of competition, but financially, we are in a much stronger position now than we were in the past. As Maury mentioned, our balance sheet has never been stronger. This puts us in a great position to compete with anyone. Start-ups lack brand recognition, and many are entering the market with names that are unfamiliar to consumers and potentially using less cost-effective aircraft. We feel confident about our future and are positioned to grow quickly.

Great. I have a quick question for Greg. Regarding aircraft rent expense, which is relatively new for you. You mentioned that the last three shells were financed with cash, and that you will be taking on a few more later this year. Are those operating leases? Should we expect that the March quarter will serve as a good indicator for the aircraft rental expense for the remainder of the year?

Thanks, Michael, for the question. Yes. And the 3 that we acquired in the first quarter are not operating leases. So those are purchases. We do have a couple operating leases that we'll be bringing on in the next coming 12 months or so, but what I'd say is that, that number that you saw in the March quarter, where we sit today from a rental expense perspective, is a good number for the remainder of the year.

Your next question comes from the line of Duane Pfennigwerth from Evercore ISI.

So your guidance implies a nice sequential improvement in RASM. We really haven't had an opportunity for a while to talk about RASM, so it's nice to see sequential improvement there. I wonder if you could comment on the balance between load factor. I mean you noted that 10-point improvement in April but the balance between load factor and yields. Because it does feel like perhaps your average fares don't drop off as much as they might normally would from 1Q to 2Q.

Yes. Thanks, Duane. Drew here. I believe we are at a pivotal moment. We mainly try to keep fares and yields aligned based on our experience. The fare decreases haven’t been sufficient to increase our load meaningfully. As overall demand increases and more seats become available, we are starting to see that lowering fares and stimulating demand makes more sense for us. Currently, we are at a turning point where I expect yields to remain relatively stable during the first half of this month, before we see changes as summer approaches. I understand Maury mentioned some trends in load factors, but I anticipate we will surpass 70% in June and continue the steady improvement we’ve seen from March to April.

Yes. There has been sequential improvement in RASM and CASM, which seems like a positive result. Can you discuss your growth outlook for the rest of the year? Also, what would it take for you to consider reinstating EPS guidance? We need to start thinking about achieving positive EPS again for the first time.

Well, on the EPS front, I mean, we've had some conversation about that. I'd imagine we'd start looking at that probably next quarter.

Yes. That's a nice transition back to a really positive way to look at the business, so yes.

Agreed.

But I did mention too that it's going to be positive every quarter for the balance of the year.

You did, John. And then just with respect to kind of the growth outlook, you gave us 2Q. Have your expectations about the second half kind of changed relative to past calls?

No. I think we're still very much in line with what we suggested in the January and February call. If anything, I have even more confidence in what the second half of the year can bring. I feel stronger about our ability to be near that 20% mark. While this isn’t an official guide, you can refer to our selling schedules for what we plan to fly.

Just a quick comment, Duane. I believe Las Vegas is one of the best leisure markets in the country. I was down on the strip last weekend and had to wait for a green light to make a left turn. I haven’t seen traffic like that in a long time. Today’s headline is that Wynn has reopened at full capacity, with 80% of their staff vaccinated. There’s a strong sense that the leisure industry is returning to our town. Las Vegas has been one of the slower cities to recover this past year due to being shut down for so long. In comparison, Orlando is making a stronger comeback, thanks to attractions like Disney. The notion that we are back is becoming a reality, and if it’s not today, it will be tomorrow or soon after.

Your next question comes from the line of Andrew Didora from Bank of America.

My first question is for Drew. Given what you're observing in broader leisure travel and with your booking patterns lengthening, do you think your business is reaching a turning point where it returns to more typical seasonality, with the second quarter being the strongest and the third quarter the weakest? Or do you believe there is still potential for revenue growth to continue sequentially based on what you're seeing from leisure travelers?

Sure. I think we still have the ability to grow sequentially, obviously. We're making it harder and harder on ourselves with each quarter, but I don't think we're back to a fully normalized world there. As we saw even last September and October, we had a great shoulder and off-peak demand. And I think we'll see that at least here in the shorter term, as all leisure travel patterns are a little bit different. VFR patterns are a little bit different than they've been in the past. So I do think that there's at least some short-term runway to kind of maybe get some incremental lift in what would normally be an off-peak or shoulder before presumably returning to more normality in maybe a year or two.

Got it. Interesting. And then Maury, kind of strategic question here, but with what you've seen from the leisure traveler, do you have any regret for not finishing Sunseeker on your original timetable? And I guess, what would you have to see for you to go through with it on your own again?

I've got a lot of regret. I wish we would have finished it. We'd be in great shape right now, with what's going on in Southwest Florida. I don't know if you all have seen the numbers down there, but a couple weeks ago, I was looking at hotel rooms. They were three times higher, can't get rental cars down there. People we have down there just have never seen anything like this. So having said that, we made the right decision not to do it. And our go-forward approach is going to be stand on its own with its own debt and things like that, but John can talk about we're seeing some good activity. And that part of the world is definitely being recognized for what it is, as a vacation destination.

It's unbelievable. We knew it made sense some time ago, of course, when we made the decision. It makes even a hell of a lot more sense now, as everyone is seeing. I already earlier in my comments made the comment that we expect to start that project back up again before the end of the year given the conversations we're having to take. There is quite a bit of interest in seeing that project get completed, so stay tuned.

Your next question comes from the line of Helane Becker from Cowen.

I have two questions. First, as you consider the return of passengers and the relationship between airfares and ancillary revenue, how are you planning for ancillary revenue to grow compared to fares, especially since ancillaries depend on having passengers? Second, regarding your earlier comments related to loads and yields, can you elaborate on your thoughts about ancillary revenue?

Sure. I would love ancillary to be 100% of the portfolio. I mean that's never going to be there. We've been fairly solidly at or above 50% now for, I believe, the last 5, 6 quarters, even including pandemic time. I certainly want to see that continue to grow. We launched our bundled ancillary program shortly before the pandemic and, frankly, haven't had as much time to see that grow as we would like as we were kind of back into more scramble mode. I think there are several evolutions of that, that will help boost, as well as performance from the new website and a lot of things that Scott DeAngelo mentioned during his remarks and other things he's working on. So there's not necessarily a targeted percentage in mind other than let's get that thing as high as we can get and we'll be in the best overall position.

Got you. My follow-up question is regarding the challenges in attracting talent. Are the OEMs and your maintenance repair organizations finding that they need to increase pay to attract people, or are they outsourcing work to other countries? I'm not sure of the percentage of your maintenance being performed in the United States compared to overseas, but I understand that a significant portion is handled by third parties.

Yes. I think my comments on the labor rate itself is more above and below wing in our ground service providers. Our MRO business is spread upwards of nine different locations in six different countries, so it was difficult. They were slow to ramp up. And just parts and logistics, that was probably the long pole in the tent, if you look at kits that we would use to convert to max pax, bad weather. I mean that played into it, but it's more on the ground handling side is the near-term rate constraint for us. It's not on the MRO side.

Okay. As a follow-up, are you finding it challenging to recruit staff for the airports or for some of your lower-wage positions compared to the higher-wage roles?

No, I think that you're seeing across the board. I mean obviously it's a part-time workforce. There's a lot of companies out there that are starting well north of what our hourly rates would be even if we outsource it, so at some point, you're going to have to start creeping up that direction. Florida right now, if you look at Sanford, St. Pete; Nashville is really tough. I mean some of these larger cities that we're operating into. Our service providers are having a hard time finding bodies, and so we're having to chase rates up here in the near term. Whether that's sticky long term is yet to be seen.

Yes. Helane, I think you have to look at if it's happening in all industries, especially at the lower wage levels, just because of the unemployment benefits and whatnot. So we could be seeing this problem in the U.S. through September, frankly, just because of some of these policies. So we'll have to wait and see, but you see it across industries at these rates. You can't even find an Uber driver.

Your next question comes from the line of Joseph DeNardi from Stifel.

Maybe for Maury or Drew. Just want to talk about kind of your bullishness on the outlook, the performance of the business through COVID and yet kind of the goal of getting to 145 aircraft by the end of '24. That's fairly measured growth. And so is that kind of what you think is appropriate over the next few years? Is that the base case, or are there kind of things that throttle growth in terms of aircraft availability or things like that? Can you grow more than that?

Yes, we can definitely grow more than that, but we want to be cautious. As we reach our current size, we need to acquire 15 to 20 used airplanes each year, which could pose challenges over time. Therefore, we prefer not to rush our growth. Historically, Southwest has grown at a rate of 10% to 15% annually. When growth is inconsistent, like when you accelerate and then need to scale back, it’s crucial to have the right resources in place, especially when it comes to training crews and managing used airplanes. While acquiring a new airplane is straightforward, our planning needs to be more deliberate at this pace. There's a saying that the race goes to the slow and steady, which reflects Southwest’s journey over the past 50 years. We believe we can achieve more growth, and we see the current target as a solid benchmark for the upcoming years. I'll let Drew discuss market dynamics and our growth potential, but this seems like a reasonable figure for now.

Yes, Joe. I mean it comes up to about just over a 10% CAGR there. In the short term, we're talking about 20% or so in the back half of this year. That would likely continue into the beginning of next year just because fleet count didn't change that dramatically. So we think there's a lot of near-term availability to grow, and there's certainly the market presence to do that. And we're built structurally right now with the aircraft, with the crew, and the head count to be able to accomplish that. So kind of to echo Maury's comments: Let's get to the back half of this year right now and continue to push forward at a measured rate that the entire enterprise is comfortable with. I'll give one shoutout to Chris in my team, who told B.J. on the fleet side, If you buy it, we'll fly it. So we're ready to spool up.

One way to look at that too: The governor or the accelerator, depending how you want to look at it, is really the rate of retirement, right? So we can push them up or slow them down depending on how we feel and what the market feels like. So that's always a governor or an accelerator.

Okay. And then Scott DeAngelo, you ran through some of the third-party revenue opportunities you're looking at. I think you all are doing around $5 per passenger in third-party products, excluding the air portion. What's the opportunity there longer term, the next, call it, 3 or 4 years, when you consider kind of better selling what you're already selling and then the vacation properties, whatever Sunseeker turns into? Kind of what's the medium-term opportunity there?

I believe the medium opportunity lies in our digital commerce platform, which allows us to showcase more inventory for hotels, rental cars, and vacation rentals, while also adopting a more personalized approach. This means having more options to sell and being more effective at presenting the right offerings to the right customers. Additionally, we are exploring other components to enhance this ecosystem. While we typically consider traditional marketing and advertising, we can integrate a loyalty program and connect the Allegiant brand with experiences that people enjoy, such as resorts, sporting events, or concerts, and other leisure activities that require air travel. This strategy can achieve the same objectives as traditional advertising, but makes it harder to view Allegiant merely as an airline competing against new entrants and established players. While I do not have specific numbers to share, we now have the necessary platform and are headed in a positive direction for significant improvement in the medium term.

Yes, Joe, I want to emphasize that we have made significant strides in enhancing our brand over the past few years, which is crucial for our growth in third-party revenues. I commend Scott and his team's efforts in this area. Additionally, one of the key improvements we are striving for is to create a more seamless experience for our customers, similar to what we experience when shopping on Amazon. It's surprising to me that even today, purchasing an airplane ticket still requires entering your credit card information every time. This seems quite outdated in our current technological landscape, especially considering how fragmented the process is, with companies like Expedia and the airlines not maintaining strong control over customer engagement. Our goal is to establish that direct relationship with our customers. Scott has emphasized the importance of retaining customers once we acquire them, ensuring they keep coming back. This focus has been a significant aspect of our strategy as well.

I think the other thing that's worth pointing out too is the average transaction size on that kind of transaction is much higher. And it's due to the length of stay being much longer on a vacation rental. So we make a lot more money on a 'long length of stay' type product than you do a 'short length of stay' product.

Yes. It will be a nice contributor to the overall performance over the coming years. She quit. She headed home. We're on our own.

The call went past an hour. She didn't.

Are you bringing Savi in?

Yes. This is Brandon. Can you guys hear me?

Yes.

Join the crowd.

I'll just ask one because I know it's been a long call. And I did join late, so apologies if this was already discussed, but I think you guys said income in the remaining quarters of '21, it should exceed 2019 level. So I just wanted to confirm that. And then I guess, as a follow-up to that question: You guys did throw out some margin guidance and second quarter. How do you think about margin progression in the back half of the year, especially in relation to the ability to potentially be growing 20% above where you were in '19?

Brandon, it's Greg. Regarding your first question about the positive outlook for the second half, I'll start and perhaps Drew can add to the revenue discussion. Based on our guidance for the second quarter, we're targeting roughly $2 in earnings per share. Looking at the second half of the year, we anticipate a growth rate of about 20% year-over-year, starting with a 70% load factor. Drew and the team are excited about the potential to increase yields and generate more revenue. While we aren't issuing a formal forecast, we feel cautiously optimistic about this direction. On the cost front, we are comfortable with our current position. We're not fixated on achieving a specific CASM-X figure, as our focus is on profitability rather than just cost-cutting. We recognize that there's a balance between revenue and costs, and we aim to optimize profitability. If it makes sense to invest $1 to earn $2 or $3 in the long run, we are prepared to do that. I hope this addresses your question and provides some additional clarity.

Can you hear me?

Yes.

Yes.

All right, great. Greg, if I can ask a little bit more on the CASM-X question. You reached the upper end of that CASM-X that you were looking to achieve. And could you kind of walk through your expectations for your major cost line items over the next couple of years or just a bit of a longer-term view? I'm trying to understand what might get you to the lower end of that target or perhaps what might kind of cause you to move up from that low $0.06 that you're seeing in the second half.

Thank you for the question, Savi. I'm really enthusiastic about improving our unit costs, particularly regarding our ownership deals. The potential aircraft deals coming our way due to the pandemic could significantly help reduce costs. Additionally, I am excited about what Sheldon and his team are doing to ensure we operate efficiently. Running a profitable airline is crucial, and we've invested in Skywise, our predictive maintenance platform. Currently, we have about 25 aircraft equipped with Skywise capabilities, and we expect that to rise to 75% of our fleet by the end of the year and around 95% next year. This technology not only enhances our airline's reliability but also allows us to schedule maintenance efficiently, saving costs. However, we are facing some challenges at certain airports due to budget deficits emerging from the pandemic. As industry capacity increases, this may stabilize. Overall, I believe our cost structure is solid. While reaching a 5% CASM-X is desirable, it’s not our primary focus. We’ve learned to prioritize profitability, balancing revenue and costs, and that will remain our central goal.

No, that was great, Greg. That's great. And if I might, for Scott, just quickly clarify with the new rental inventory that you're talking about. How meaningful is that? And just what are you doing that maybe your competitors can't do? Is this similar to just Allegiant being better with kind of putting people in hotels because you have a direct relationship? Or is there something differentiated about this new opportunity?

Yes. So at the moment obviously it's going to be crawl, walk, run, but I think what's differentiated about it is the booking window for vacation rentals is much different than hotels. On average, there's 3 to 6 months, whereas we see with hotels it's much shorter, specifically Las Vegas hotels, which could be, 'Hey, you want to go grab one this weekend?' type booking window. So I think strategically, going forward, the big thing to think about is it gives us something to both attract and sell to a customer much further out than our hotel inventory. The second thing, real quick, is hotels have been a great story here in Las Vegas, but increasingly, as you look around all the coastal markets that we fly into and/or all the national parks that we play to, both very big success stories during and coming out of the pandemic, increasingly, vacation rentals are a big part of how you can sell to those customers, right? There's not a lot of Park Hyatts sitting right inside of Yellowstone. And so I think that those are the strategic things that it gives us. And us being able to sell it, sell it at scale, that's something that comes over time as we just optimize the digital channel to do that. So hopefully, that's helpful.

I think the other thing that's worth pointing out too is the average trend size on that kind of transaction is much higher. And it's due to the length of stay being much longer on a vacation rental. So we make a lot more money on a 'long length of stay' type product than you do a 'short length of stay' product.

Yes. It will be a nice contributor to the overall performance over the coming years.

Yes. We will be seeing great opportunities here and looking for it to expand rapidly.

Thank you, everyone, for joining us. We will be available for any follow-up questions.