Thank you for standing by and welcome to the Allegiant Travel Company's Fourth Quarter and Full Year 2021 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. As a reminder, today's program may be recorded. I would now like to introduce your host for today's program Sherry Wilson, Director of Investor Relations. Please go ahead.

Thank you, Jonathan. Welcome to Allegiant Travel Company’s fourth quarter and full year 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 will start the call with commentary and then open it up to questions. We ask that you please limit yourself to one question and one follow-up. The company’s comments today will contain forward-looking statements concerning our future performance and strategic plan. Various risk factors could cause the underlying assumptions of these statements and our actual results to differ materially from those expressed or implied by our forward-looking statements. These risk factors and others are more fully disclosed in our filings with the SEC. Any forward-looking statements are based on information available to us today. We undertake no obligation to update publicly any forward-looking statements, whether as a result of future events, new information, or otherwise. The company cautions investors not to place undue reliance on forward-looking statements, which may be based on assumptions and events that do not materialize. 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 for joining our call today. We were profitable again in the quarter just ended. The model and our personnel continue to shine in these very difficult times. Operations were returning to normal in December when Omicron took over, but it's trending down and hopefully will be just a bad memory by March. You will hear an overview of our performance and what we believe the coming months hold in just a moment. Or take some time and reflect on some of our history. We have completed our 20th full year at Allegiant, first year was 2002. Early on, we understood we could not copy existing carriers and attempt to beat them at their game. So, in early 2002, we began experimenting and implementing this model you have come to appreciate and admire. It was developed and refined during the next three years, and 20 years in, it continues to differentiate us. During these 20 years, we have led the industry in operating margins as well, averaging 15% during this time, while the next closest, Southwest and Alaska, averaged 10%. That’s a 50% difference in margin. We also led the industry during this time with 69 consecutive quarters of profitability up until the first quarter of 2020, including remaining profitable during the 2008-2009 period when all others were falling below the zero line. The end of 2021 marked our 15th year as a public company. We've had 60 of these quarterly calls. This is our 61st. Our market cap on December 8th, 2006, our first day as a public company, was approximately $400 million. Today, we have a $3.2 billion market cap, or an 800% increase in value for our shareholders during these 15 years. No one in the industry has had anywhere close to this wealth creation. In the past years as we have emerged from COVID, we have made the necessary strategic moves to position us for the coming years, including a terrific order we recently placed with Boeing, a new international relationship that will allow us to enter the international markets in the next few years, investing in branding tools including Allegiant Stadium and soon Sunseeker, necessary components of our branding for Allegiant 2.0. Our continued development of our incremental, ancillary and third-party revenues. And lastly, a greatly enhanced balance sheet with almost $1.2 billion in cash. Allegiant Travel Company is extraordinarily well-positioned. Our airline and our unique competitive model continue to be the backbone of our success. 75% of our routes, by the way, are still not competitive. We have years of growth left with as many as 1,400 new routes that we feel strongly will provide us that growth opportunity. And why have I told you this history? Because this team, this company has proven year in and year out they can execute. And while at times history has not been a reliable prognosticator, this time, I believe it’s very much more reliable. Lastly, this management team is the best in the industry, in my opinion. When combined with the best team members who have proven themselves continuously for the past 20 years, we will continue to lead the industry in our rightful place at the head of the pack. John?

Thank you, Maury and good afternoon everyone. I would like to first and foremost thank every one of our team members for their incredible efforts throughout this crazy 2021 year. Allegiant's story and history are amazing to hear and difficult to replicate for any company in any industry. The company is a model of consistency. The 10 years depth and breadth of our management team is the foundation of our success. As I reflected after the Boeing Investor Day, we recently had two words that were used most in that call, and in all preceding calls and presentations that have participated in the past are opportunistic and flexibility. I'm confident you'll hear these words used going forward as well. That's our DNA. Everything this company has ever done has created flexibility or taken advantage of an opportunity, regardless of whether the timing was pre-pandemic or post. Post-pandemic when we did the equity raise in May of 2021, we raised growth capital when our stock was trading close to all-time highs, while other carriers raised survival capital throughout 2020. This opportunistic timing created incredible financial flexibility. To date, during the pandemic, we have purchased or leased 25 A320 series aircraft at the most opportune prices we've ever seen. Furthermore, we purchased roughly $30 million in spare parts and engine-related supplies at a discount of approximately 40%. Sunseeker was started and will be completed during a period of time that allowed us to take advantage of the Trump Tax Reform Act. Likewise, the recently announced 50-plane Boeing purchase to be completed by the end of 2025 was not only on favorable terms but will also take advantage of the Tax Reform Act before its expiration. This past year had its highs and lows, but we stayed the course and ended the year in a much better position than it started, not only financially, but we added nine cities to the network, further broadening our reach and exposure. 2022 will truly be a foundational year as we move into the 21st year of the company's existence. Quickly on Sunseeker, I mentioned on the previous call, the budget for Sunseeker Resort was originally $500 million. We were on track for the anticipated opening and on budget when we stopped the project due to the pandemic. When we restarted the project in August of 2021, the budget was revised to $510 million, given the costs incurred while we were shut down. After restarting the project and spending some time understanding the impact to the budget due to the unexpected supply chain issues that impacted price and delivery timeframes, I mentioned in the last earnings call for Q3 2021 that the budget could increase by 10% to 15%. That estimate has not changed as of today. In order to provide some level of comfort, we have signed commitments for 74% of the revised budget, assuming the high end of the estimate of $585 million. By the end of Q2 2022, we should be roughly 100% bought out. As a reminder, we will restart Sunseeker segment reporting beginning year-end 2021. The following Sunseeker Resort data points are Q1 2022 guide. Capital expenditures should be between $50 million and $60 million, and pre-opening expenses will be in a range of $3 million to $4 million. And with that, I will turn it over to Scott DeAngelo.

Thanks, John. Throughout Q4, the Allegiant brand continued to shine, attracting 9% more visitors to allegiant.com who drove 16% more transactions versus 2019. Simply put, we attracted more web visitors and converted them into customers at a greater rate to drive more bookings among both first-time and repeat customers than in any fourth quarter in our history. As we did in each quarter in 2021, we sequentially improved, narrowing the gap versus 2019 during the first half of the year and widening the lead versus 2019 during the second half. For Q4, this included both overall passenger revenue, which beat 2019 by nearly 9%, and third-party revenue, which beat 2019 by nearly 54%. The Allways Allegiant World MasterCard program was a key driver, having the strongest year ever in terms of new card signups, average spend on the card, and total compensation to Allegiant. Each month of the fourth quarter and seven months in the last three quarters ranked among our top 10 months ever for new card signups. In total, new card signups were up by 27% for the quarter and 16% for the year versus 2019. While full brand compensation to Allegiant was up by 52% and 38% for the quarter and the year, respectively, versus 2019. For the year, we focused currently on the 1.9 million passengers who flew with us and drove $880 million of revenue in 2019 but did not fly during the main part of the pandemic during 2020. I'm happy to report that we won back nearly 40% of these customers and one-third of that revenue this past year despite continued periods of pandemic-driven customer uncertainty and demand headwinds. 2021 saw the launch of our new web and customer experience, the launch of Allways Rewards, their first-ever broad-based non-credit card loyalty program, and the activation of major strategic partnerships with Live Nation and Allegiant Stadium as leisure travelers returned to attend live music and sporting events. In summary, the Allegiant brand is thriving, and our direct-to-consumer distribution model, our all non-stop flight network, and selling beyond the aircraft to increasingly win share of leisure travel dollars for asset-light high-margin third-party products is enabling us to proactively stimulate demand in preference for Allegiant, while driving deeper levels of customer engagement across all we offer at allegiant.com and ultimately setting up unprecedented growth prospects for Allegiant in 2022 and beyond. And with that, I'll turn it over to Drew Wells.

Thank you, Scott and thanks everyone for joining us this afternoon. I'm quite pleased with the fourth quarter revenue results. Total revenue came in 7.8% higher than 2019 on system ASM growth of 13%. In a lot of ways, the fourth quarter marks more normalcy in how we are thinking about the world. Peak demand periods, namely the holidays, saw load factors and revenue per flight that largely mirrored pre-pandemic norms. Once again, the network was expanding to the tune of 56 new routes and five new airports. Those routes were part of the 10% of ASMs in their first 12 months of operation. That feeling of normalcy was interrupted in December as COVID reared its head once more. We proactively cut roughly 10% of our anticipated December schedule and a smaller portion of November to right-size and protect the schedule. However, despite manifested in a new way, as closer end holiday bookings never materially slowed, while the impact of the industry's operation was heavily felt. Off-peak January and February did feel the impact of slower bookings and the overall outlook for the first quarter is an exaggerated story of peak versus off-peak demand. The off-peak period will lag considerably in January, with load factors finishing just shy of 70%. However, I expect the peak to continue to be on par with pre-pandemic levels. Peak demand is incredibly strong. I think March could book over 85%, and while still early, a relatively normal booking curve gives a bit more insight into summer, which is also showing great promise. As we continue to compare back to 2019, we are still mired in the NBAD retirement comp and the resulting muted growth. This results in modestly higher January and February percentage growth versus peak March. Even with the elevated growth rate in the first quarter, our 1Q's scheduled service compound growth rate since 2018 is just 7%. It is important to note that nearly 90% of markets are still running just twice a week through the off-peak season. This means growth is primarily fleet and market-driven and not increased frequency. Another 13 markets inaugurate service in the first quarter and just over 12% of first quarter scheduled service ASMs will be in their first year of operation. Similar to the holiday peaks, the fourth quarter and despite incredible demand, March capacity has been reduced around 11% as we continue to work alongside our ops teams to right-size and protect the schedule. We are forecasting our first quarter ASM guide at plus 19% to plus 23% versus 2019. The weather patterns currently forming in the Midwest will put some pressure on the top end right out of the gate. The distribution of peak versus off-peak demand in ASMs along with a higher new market mix puts a bit of a feeling on how the quarter is likely to take shape, and we are guiding the first quarter total revenue to be up between 5% and 9.5% for 2019. The continued fluidity of the environment and backloaded nature of the quarter drives slightly more uncertainty and in turn a wider range. With that, I'd like to pass it over to Greg.

Drew, thank you and good afternoon everyone. 2021 was another challenging year and it has been amazing and humbling to see team Allegiant continually rise to the occasion in this unpredictable environment. During 2021, we inducted 13 aircraft into our fleet, we added more than 700 team members, and we flew 8% more ASMs than we did in 2019. Additionally, our passenger and revenue accounts for the past two quarters exceeded the same periods in 2019. We had three consecutive profitable quarters including the fourth and a full year adjusted operating margin of 6.6%, and adjusted net income of $35 million. These are industry-leading results in 2021, and in recognition of these extraordinary efforts, it is with great pleasure to mention our Board approved a special variable compensation payout to all of our team members based on GAAP results. Our sincerest thanks to all of you. For the fourth quarter, we reported adjusted earnings per share of $1.18, our third consecutive quarter of positive adjusted net income. Demand and revenue are strong. Even in the face of Omicron and disruptive weather, our 4Q 2021 revenue was up 8% year-over-year on increased capacity of 13%. On the cost front, we still have some work to do. Adjusted operating costs excluding fuel outpaced growth and were up 21% year-over-year. On a unitized basis, our adjusted CASM-X was $0.0724 or up 7% year-over-year. Excluding the effects of our IROP costs specific to customer compensation during the fourth quarter, our adjusted CASM-X would have been $0.0673 or flat year-over-year. As described last quarter, the largest component of our IROP cost is the compensation program for inconvenience passengers. This is compensation we provide in excess of the ticket amount. We are not aware of any program in the industry near as generous and importantly, our customers impacted by summer IROPs have returned to book at the same rate as those who were not impacted. This customer compensation program drove an incremental $23 million in payments to our impacted customers during the fourth quarter. Turning towards 2022, Omicron continued to disrupt January and drove further irregular operations. As Maury noted we expect this volatility to largely be behind us. We expect IROP customer compensation costs to provide roughly $0.30 headwind to our first quarter CASM. Based on our first-quarter 2022 capacity guide, we estimate our first quarter CASM-X at a midpoint of $0.0685, up 3% when compared to 1Q 2019. In addition to the elevated IROPs, the primary headwinds around unitized cost year-over-year are largely driven by inflationary pressures with stations wages and fuel. These headwinds are in part combated by efficiencies gained and labor productivity as we expect our FTE per aircraft in 2022 to be closer to 42 or 43, which compares favorably to our 2019 average of 48. This decrease primarily relates to management and corporate area scaling with our growth. In addition, our average seat per departure is up by five seats year-over-year. ASMs per gallon in the first quarter are also expected to increase by 5% compared to the same period in 2019. Fuel prices, however, continue to rise and we are currently seeing Brent hovering around $90 per barrel. Elevated fuel coupled with labor constraints, inflationary pressures, and Omicron are some of the current challenges at hand. Given these uncertainties, we are pleased with our measured baseline growth plan for 2022. Today, we expect a comfortable full-year 2022 departure growth in the low double-digits compared to 2021. However, year-over-year ASM growth should naturally outpace departure growth by roughly five percentage points given the increasing average seats and stage length for departure. We expect our earnings potential to improve throughout 2022 as the environment becomes more normalized. Our unique model should allow us to layer on more capacity at the appropriate times to drive higher profitability while maintaining the flexibility to not fly if the environment or returns do not justify. This flexibility is further supported by our strong balance sheet. Over the past few years, we have more than doubled our cash balance as well, while nearly cutting our net debt in half. We did not have the enhanced burden of leveraging up with expensive debt during the pandemic as most other carriers did. And the strength of our balance sheet coupled with our broad network supports our new aircraft order with Boeing for the 50 MAX 737 family powered by CFM. The operating efficiencies of the MAX aircraft should drive even higher returns on our most productive lines of flying. We are excited to incorporate these aircraft in our fleet. As we do so, we expect a nominal headwind towards unit cost during 2022 due to training and staffing. In early January, we made our first pre-delivery deposit for this order, and the first delivery is expected in June of 2023. Our full-year 2022 aircraft cash CapEx of $260 million includes pre-delivery deposits for this year. For full-year 2022, we expect roughly $90 million in heavy maintenance CapEx. This is 30% less than our pre-pandemic expectations for 2022. And given our MAX order coupled with the resulting deeper partnership with CFM in supporting our existing engines or CO engine, we have increased our ability to more efficiently manage our heavy maintenance program for years to come. Our fleet plan has an ending 2022 with 127 A320 aircraft, of which 70 are configured at 180.60. Of the 19 incremental aircraft year-over-year, we have already taken delivery of nine. As a reminder, 15 of these aircraft were acquired through finance or operating lease. We expect to exit 2022 with average seats per departure of 177 seats and average ASMs per gallon of 87. As we incorporate the 737 MAX aircraft over the next three years, our ASMs per gallon should increase by more than 10% versus the 2022 exit rate. And we estimate a percentage point increase in ASMs per gallon is worth roughly $7 million in fuel savings when compared to 2019 fuel efficiency levels. In closing, as noted earlier, 2021 was another chaotic year. Throughout this chaos, we felt there were unique points in time to make several moves to enhance long-term value for our stakeholders. These moves include, but are not limited to, aircraft orders with Boeing; partnerships with Viva Aerobus; secured financing to complete our Sunseeker project; and increased investments in systems, tools, and infrastructure to better support our long-term growth plans. With many of these major strategic items set, we will continue to focus on getting and staying ahead on the execution front. Team Allegiant has seen and experienced a lot together over many years, and I believe our results stand for themselves. With that, I turn it over to questions.

Certainly. Our first question comes from the line of Michael Linenberg from Deutsche Bank. Your question, please.

Hey, good afternoon, everyone. I guess Drew, I want to ask you this question on your model and it's been one of stimulation and low fares. And yet, it's not just fuel prices going up, it's lots of input costs going up, as Greg talked about. And you look at your capacity growth in the March quarter, although thanks for the context that you provided versus 2018, it's obviously not as much as what the headline number would suggest. But having gone through these cycles before when energy prices run or input costs come up, at what point do you feel like you may have to back off on the growth in order to generate the type of revenue that you need to offset these higher costs? Do you feel like we're close or getting closer? I'm curious about your thoughts, and maybe it’s more of a philosophical question, and maybe even more you can chime in on that? Thank you.

Sure, I'll kick it off. And Maury, please fill in if you have anything there. I think we're there in terms of having your view based on where fuel is. It's a little challenging when you're running so many high twice-a-week markets, right, you're really making a decision on do we keep this market for the season or do we not?

Okay.

For the first part of the first quarter, we've opted to keep a lot of those markets in. As we look towards the post-Easter to Memorial Day timeframe, kind of, the next off-peak, we'll see that may not be the case, especially if there's continued pressure on fuel. So, we're undergoing that right now to ensure that we are right-sized for where oil is and possibly could be trending. For the peaks like March and the summer, our hurdle rate right now just to get into the schedule, given some tighter scheduling, is already well higher than where oil sits today. So, I don't feel compelled, in the least, to cut out the peaks. So, maybe it's a kind of a stay tuned for the late April early May timeframe is that's the next one, I think, we can affect materially.

Okay. Thank you.

The other comment, Michael, is when you've got 75% of your routes that are non-competitive, you have some more power to do things because you don't have somebody pricing against you at that point. And new markets also give you an ability to go in and kind of set your own pricing. But classically, you can't raise fares just because you want to, and because costs are going up, you’ve got to cut capacity, there's no doubt about it. So, you have to be mindful of that.

We've generally stimulated traffic to where it is given the fares out there and every incremental dollar does put some headwind on most markets. So, we have to be fairly picky in how we deploy that in any way other than typical supply and demand.

Very helpful. I have a quick question about pilots. I know it wasn't mentioned in the prepared remarks, but I'm curious about the situation regarding pilots and hiring. It seems that many carriers are experiencing difficulties in recruitment, as reported in the press. What are you observing in this area? Thank you.

Yes, hey, Michael, this is Sheldon. It's definitely it's very competitive. We're currently under in Section 6, bargaining with our pilots. We're trying to expedite sort of the renewal of the existing CBA and so we sort of reupped our efforts there. We ratified our CBA, or the art mechanics ratified their first contract in the fourth quarter. So, it gives us some more levers to pull in order to be a little more competitive in the marketplace. We are seeing some attrition go up on the pilot side. If you sort of look at steady state, our attrition runs anywhere from 5% to 6%, that's crept up to below 10%, if you will, majority on that both side, majority going to legacy carriers. And so we clearly see the need, there's a lot of planes coming in and obviously, we need to get something in place in order to support the backend of 2022 and into 2023 growth. And that's obviously the core focus, at least, in my part of the world.

Okay.

I want to add that last quarter and the quarter before, we discussed our efforts to get ahead with staffing for pilots, mechanics, and flight attendants. Compared to previous staffing model levels, we have increased our recruitment efforts to bring in line level employees and team members more quickly. We've seen a strong influx of qualified applicants, and Allegiant is an attractive place to work. From a pilot's standpoint, our unique out-and-back model is different, allowing crew members to return home at night, which offers advantages and flexibility.

Are we suggesting that for the first time in a long while, the ability to advance at a legacy carrier is comparable to that of a younger ULCC? I can't recall the last time we observed a significant number of pilots transitioning from your company to a legacy carrier.

Yes, I believe that's correct. If you consider those who left early in 2020 and 2021, they are having difficulty reaching the capacity levels of 2019. There are definitely opportunities available. However, in a stable environment, these individuals don't grow at the same rate as others in terms of yield. Furthermore, the gap in narrowbody rates between legacy airlines and ULCCs has never been narrower. It has become less about the actual rate difference and more about the advancements in position. Each option offers a different quality of life. We believe we can perform exceptionally well in this area. Additionally, we are currently receiving around 70 job applications each week.

Okay.

Certain classes, we are very successful. So, typical class size for us is 25 to 30. We started a class this week, we had all 24 applicants show up. So, it's somewhat of a mixed bag, if you will, but it's obviously the core focus, but longer term with the rate compression, specifically we think we have a better value proposition than most.

Great. Thanks. Thanks everyone.

Thanks, Michael.

Thank you. Our next question comes from the line of Ravi Shanker from Morgan Stanley. Your question, please.

Thanks. Good afternoon everyone. Maury, at the beginning of the call you mentioned that 75% of your routes remain uncompetitive. What do you believe is the reason for this? Is it simply too challenging for others to compete on those routes? Are they not receiving enough focus? Do you have an exceptionally effective approach? How do you see this evolving over time?

I'll let Drew do most of the talking about the mousetrap factor. If I were flying twice a week, it's not enough to support a lot of people. They just don't have the configurations and/or when you're flying 12 hours a day as a ULCC, you need to have markets where you can run those airplanes seven days a week. We can do more if we need to, but the majority, we don't. Drew?

I think Maury hit all the major points. It's far easier when you built your business model to operate at twice a week and have the ability to scale up when demand dictates than the opposite of design your business model around daily service and try to scale that down, which doesn't work very well. So, it's just part and parcel of who we are and core in this business model to cater to less than daily routes wherever no one else, particularly, is paying attention.

The other component of this that is something really important to us is in peak times, we can add capacity in really good numbers and no one else is going to react because everybody's making money. You come in underneath, you add capacity, you can add it at a lower cost, and in many cases in big markets, so it's providing another avenue for us to grow into markets where previously we might not have even looked.

Understood. And I think I know the answer to this, but just given all the 5G headlines in recent weeks, kind of, anything around potential disruption around some of the smaller airports, kind of older equipment, kind of how do you see that trending and any impact you could have? Thank you.

Yes, I mean, it's in general, we're probably one of the least impacted airlines. Obviously, we're monitoring it. But for the most part, it's been somewhat of a non-event for us. The best way I can describe it.

Thank you. Our next question comes from the line of Catherine O’Brien from Goldman Sachs. Your question, please.

Hey, everyone, good afternoon. Thanks so much for the time. So, just one on the capacity plans for this year, I know we haven't thrown out a finalized number unless I missed it. But I know on the last call, you were talking about low double-digit growth for this year versus 2019 and I know 1Q comps are a little bit messy, of course. So, guessing that 2019 to 2023 is probably the high watermark for this year. But correct me if I'm wrong. But I guess since the last time we talked, are you seeing incremental opportunities to add capacity? Or it just sounded to me like your comments based on ASMs running several points ahead of a double-digit departure increase sound like growth is running maybe a bit higher than you were thinking last time we talked? Thanks.

Yes, Kate, maybe I'll kick it off and open up to the floor if anyone else wants in. I think it's fair that we're seeing a little bit more in terms of ability to add some capacity. If you remember, last time we were still kind of working alongside with the ops groups to make sure that we can right-size the schedule. I truly believe that we had Thanksgiving and Christmas in a really good place, barring COVID pulls that were kind of unforeseen and how they came to fruition. So, I think kind of the place we’ve gotten to working alongside one another, kind of, as an enterprise as a whole has given us a bit more confidence to add in some incremental departures throughout the year. We think you'll see a lot come through the off-peak months, things that will be a little bit less stressful in terms of ads. So, there's probably a little bit more granularity and detail there than simply headline numbers as we go throughout the year.

And Katie, I would just add that the low double-digit growth we mentioned last time relates more to departures. However, ASM growth will naturally exceed that, driven by a higher average seat per departure and a slightly longer gauge, which we expect to increase by about five percentage points.

Okay, got it. And so then, I guess maybe just a related question for you, Greg. In the same sentence about talking about low double-digits, on the last call, you also mentioned, you're expecting that full-year 2022 CASM-X will be about flat. I guess, is that still the case? And then can you just help us think about what expenses roll off through the year that you'll be able to get to flat CASM just on what I'm guessing is going to be less capacity growth it's how that works? Thanks so much.

Thank you for the question, Katie. Regarding flat CASM, that's based on the 2019 figure of about $0.065. Currently, we are slightly above that, perhaps by a point, but we'll have to see. A lot depends on our capacity. We started this year with pressures from Omicron, which impacted our operations and customer compensation. However, excluding that, I believe we will make progress throughout the year. With improvements in the travel environment, we should be able to enhance our productivity with our resources and staff. On the station side, we are noticing inflationary pressures particularly in ground handling, which we have discussed before. For instance, catering is seeing about a 10% increase, though this is offset by our onboard program, keeping margins stable. We expect some improvement at the stations. As for airport-related costs, we’re looking at around 7% inflation year-over-year from 2022 to 2021. I noted that as larger carriers begin international flights or increase business, costs should help decrease, but we aren't making any assumptions regarding that aspect just yet. Katie, I should have clarified something earlier. There may be some confusion this year regarding the comparisons being made. Maury's comments are primarily focused on 2022 compared to 2021, rather than 2019, which is what we are discussing today. If you look at departures in 2022 versus 2021, much of what was mentioned still holds true, showing low double-digit changes while also considering the comparison to 2019. It may be clearer if we specify the reference points in our discussions, but that's what Maury was addressing last quarter.

Okay, got it. Maybe just one really quick follow up, Greg, just to make sure I have this on the CASM. So, you think probably this year, I know you're guiding to anything formal, but maybe like low single-digit inflation versus 2019 is probably where we end up with some of these IROP pressures in the start of the year, is that right?

Yes, I think you're right. I don't want to come out and formally guide on that. I think we'll be maybe slightly above where we were at, potentially, depending on how the environment works in capacity and the light, but yes, that's right.

Okay. Thank you so much for all the time.

Thank you. Our next question comes from the line of Brandon Oglenski from Barclays. Your question, please.

Hey, good evening everyone and thank you for taking my question. I guess, can you guys give us a little bit of context here on the quarter because obviously, capacity growth close to 20%, but revenue 5% to 9%. I'm assuming that there's a big drag here in January and February that you alluded to, can you give us some feeling like how this is booking up for March and the spring break period, if you don't mind?

I believe March will be particularly indicative of pre-pandemic revenue figures regarding passenger loads and revenue generated from flights. When comparing demand to 2019 and 2018 levels, we see that we still need improvement in the other weeks to fully capitalize on travel benefits and growth.

So, I guess, your point is that you are getting recovered PRASM too, not just demand, because obviously, your capacity is up a lot as well?

Yes, the peak spring break will look very much like they did in 2019 or 2018. They're healthy in terms of demand and any unitized metric you'd like to use.

Okay, appreciate that. And then Greg, on the irregular operation costs here, I get it that a lot of this might have been driven by Omicron, but can you give us a sense of how much of this was disrupted because of crew availability versus just normal weather? We had assumed that some of this is going to be ongoing in the future, right?

Yes, that's a good question, Brandon. Let me start and maybe Scott will want to chime in as well. I'd like to clarify that, as I’ve mentioned during this call, IROPs are a focus because of their impact on customer compensation, which is just one part of the IROPs situation. When I refer to the $23 million from the fourth quarter, that's what I'm addressing. In 2019, the operating environment was quite different, and IROPs were minimal, totaling around $4 million or $5 million for the entire year. We are proactively addressing these issues. We've discussed staffing and parts as measures to manage the IROP situation. I don’t have a detailed forecast for 2022, but we do have some precautions in place and feel confident about managing it. The Omicron variant emerged rapidly and affected us quickly, but we believe the situation has improved significantly. I can’t provide an exact percentage on the impact of Omicron versus weather, Scott, but I know that Omicron was a significant factor.

Just to put this in context, the results do not accurately reflect how well we were prepared for peak flying in December. We experienced around 900 controllable cancellations for the quarter, with 450 occurring in the last 11 days, including issues related to crew and mechanicals. The distribution of departures was heavily weighted towards December, particularly the latter half of the month. We were well-prepared, but weather disruptions were significant. Additionally, we saw a rapid increase in COVID-related cases, going from around 30-40 to 300 in just 12 days. Crew sick calls exceeded 30% over a five-day period, which was a shock to our operations. Prior to the surge of the Omicron variant, we had effectively matched our capacity with our crew's ability to handle it. Overall, the last 11 days were the defining aspect of this quarter; aside from that, it was largely a smooth quarter.

Thank you.

Thank you. Our next question comes from the line of Dan McKenzie from Seaport Global. Your question, please.

Thank you, everyone. The revenue forecast is between 5% and 9.5%, supported by a 21% increase in capacity. I have a couple of questions. If we exclude the inefficient fleet utilization in the fourth and first quarters, what would growth look like without supply chain issues? Additionally, if we could eliminate COVID-related crew impacts, do we have an updated timeline for when the supply chain challenges might be resolved? I believe last quarter, you mentioned some maintenance, repair, and operations difficulties.

I wish I could provide clearer insight. As I reflect on the current situation, I remain puzzled by its persistence. Typically, these markets operate efficiently and tend to correct themselves. However, we are facing a mix of labor challenges and supply issues. On a positive note, our MRO activity is progressing well. I've spoken with BJ, and we currently have 10 or 11 airplanes in maintenance, and that process is running smoothly. While we are trying to find encouraging signs, the overall scenario remains complex. There are still products missing from grocery shelves, shortages of personnel, particularly pilots who are frequently changing roles, but the MRO side appears to be holding steady.

Yes, I think just on the induction side, we got ahead of it really well this year because there was such a supply of used aircraft that everything is already on property really, for this year, and lots of parts and kits and everything are on hand earlier. I don't know if that's really representative of the heavy maintenance environment, Scott.

Yes, the heavy is definitely more volatile. We do the best we can to be surgical and match spend days to anticipated findings, both routine and non-routine. A lot of these we can deal with paper cuts, but we find non-routines that drive a substantial amount of engineering work, which obviously is tied back to labor and then any component repairs, obviously, that's supply chain, so they can drive definitely increased spend days, and that's where it gets pretty invasive on the schedule. But it's slowly getting better, to everyone’s point.

Fleet is going to be more problematic in heavy maintenance. The newer fleet, it's four or five, six years old and while it's a great way to work, we're going to pay more of a price for it this year, just on schedule and availability. So, we're probably going to keep more airplanes on the sideline than we normally would. We're doing a lot of things differently than we normally would at this point still.

And, Dan, it’s Greg. Let me give one high-level comment, just to add here is that we're long-term thinkers and yes, there's going to be noise in the short-term, we're going to get through it, and get through it well, if not better than anybody. And then if the environment starts to stabilize and get more normal, I mean, watch out, we're going to be firing on all cylinders and it's going to be pretty powerful, we think ahead of us, as Maury mentioned in his opening comments.

The best way to approach this, Dan, is to take a more measured stance. There's no need to aim for perfect timing since we haven’t managed that in the past. Instead, if we make our best estimate, it’s preferable to avoid canceling flights and perhaps accept a slight underutilization of capacity, allowing for gradual growth into that capacity.

So, I guess that really gets to my next question. As we think about this noise, what would growth have been this year without the noise? Instead of departures being up low double-digits with ASMs increasing by about five percentage points, this trimming is the noise, reducing growth by around five percentage points off of 2022, which could potentially be regained in 2023?

I think it's a bit challenging to say. I think the biggest growth limiter for us this year and into next year will be more of crew hiring pipeline and more so than other supply chain elements. So, with more crews, we grow more. I mean, it's that straightforward. So, I think you can run that as far as you want.

I think it's pretty interesting, Dan. I don't think anyone's growing as much as we are. I don't want to make excuses for that. We're in a growth mode; it's just a matter of how we approach it. Ultimately, when you commit to doing something, you want to see it through. We haven't been able to achieve that consistently, and when you look at 2019, we operated very well, as did the entire industry. We need to return to that level, and there are many moving parts that we need to coordinate. I believe we'll get back to that point, despite the challenges presented by the Omicron variant. Frankly, everyone I speak to is ready to move on from constantly changing lifestyles and the cycle of closing and reopening. I'm optimistic about the second half of the year and even the second quarter; I expect we'll be in a good position, and March should be strong.

Yes, prudent growth, I get it, undershooting. And then if I need to squeeze one last one in here, going back to the fleet presentation, I'm just wanting to help us tie growth in cost into a CASM-X target, say three years out, so not a guide, but if we just juxtapose growth with scale, I'm just trying to get a sense for what that means to the airline for the route and you guys are delivering a very positive message today, on growth and longer-term. And I'm just wondering if you can help us connect the dots on how to think about the cost structure over that longer term?

Thank you for the question, Dan. To begin, I want to emphasize that we are focused on margins. Our future aircraft from Boeing will align with this focus. There are two key components to consider: cost and revenue, and we believe that we are uniquely positioned to adjust capacity in response to demand. This flexibility is crucial. We have a strong cost structure that we plan to maintain for the foreseeable future, and the recent order with Boeing will not affect that. Looking ahead to 2023 to 2025, while I don’t want to provide specific guidance, I don't anticipate a significant increase in costs, barring any unforeseen pressures. As Scott pointed out, we are currently in discussions with pilots and there are other factors to consider. However, our cost structure is solid, and we will continue our commitment to it every day, ensuring it remains robust moving forward.

That's great. Thanks for the time you guys.

Thank you. Our next question comes from the line of Helane Becker from Cowen. Your question please.

Hello, thank you very much. Hi, everybody. So, here's my question. One thing as a point of clarification, I think you said that some markets you're doing a couple times a week, we talked a lot about that. What percent of markets did you say are new versus prior years and was that for 2022 or 2021?

So, I mentioned a couple of percentages; so 4Q 2021 was about 10% of ASM and 1Q 2022 ramping up to 12%. So, historically, that's around kind of late 2017, early 2018 levels.

Right, exactly so. So, those are levels that you've A, done before, and B, you feel comfortable with. It's not getting too far over your skis, right?

We've certainly exceeded these levels before. So, we're quite comfortable. I think 2Q will probably ramp a little bit again over 1Q, but that that will likely be the high watermark for this year and possibly early 2023 if I had to guess.

Thank you, that's really helpful. My other question is regarding debt and principal repayments. I noticed the guidance for 2022. Is there any debt that you could prepay that would be beneficial? Also, what percentage of the aircraft deliveries this year are currently financed?

The aircrafts scheduled for delivery this year have only one that will not be under a finance lease. Currently, our debt is approximately $1.5 billion, with $500 million of the term loan being pre-payable, along with some other pre-payable debt related to the aircraft. We are closely monitoring the situation, considering market conditions and planning for the future of our balance sheet. We are having discussions about this and believe there is some momentum. There is a substantial amount of capital available for use, and while we don’t have a specific answer today, we will evaluate the significant portion of our pre-payable debt in the near term for potential refinancing or repayment options.

Okay, that's really helpful. And if I could just squish one more in. Did you issue warrants to the government last year?

No, I mean, a very small amount, but that’s a very small because we didn't take the loan, the government loan, we took the grant. Most of what we received didn't have a loan associated with it anything from $100 million or below, for each one of the cycles there, or each one of the grant issuances. There was no loan or warrants attached.

Right, because if there are any that the government holds, you could buy this, theoretically, right?

Yes, but I can't recall the exact percentage. It's something we're not focused on, and it's negligible for us—just really small.

Okay, that's really helpful. Thank you, everybody, and thanks for the extra time.

Thanks, Helane.

Thank you. Our next question comes from the line of Hunter Keay from Wolfe Research. Your question please.

Hi, everybody. Drew, three months ago, you were the only airline executive to caution us that COVID wasn't over yet. I'm curious to hear your updated thoughts on that. How did you know? What were you observing? Seriously, what indicators were you looking at that made you cautious while others were celebrating COVID being done? Are you noticing any similar metrics now that would warrant the same level of caution, or do you believe we're in the clear?

I feel like I'm getting way, way outside of my lane here. But I think some of this data has come out recently, but it's kind of follow flu season, I very much depends on temperature and humidity, and where people are likely congregating. And that's why you see it in most of the country through the winter as people go inside. And then you see it somewhat in the high humid, high heat areas in the summer as people start to congregate inside air conditioning. And so I think it's more of a seasonality aspect to it than anything. There wasn't something that we were picking up in demand. It was just kind of what we'd seen in terms of trends of cases and where what's happened geographically and made sense from that perspective. But by no means am I trying to pretend to be an epidemiologist, please don't take any of my words as serious here. But that's really it, nothing beyond that.

Yes, I guess the question was, do you feel a little better now than you did then?

I do. I feel a lot better about what we're seeing and moving forward. I don't think we're completely out of the clear, but Scott DeAngelo mentioned this in previous calls, each wave has had less of an impact than the previous wave. And I became the bookings, particularly in the peak period, those did not slow down at all. You felt it in the off-peak. So, I do have more confidence moving forward that that even if it doesn’t make headlines, again, it won't be quite as impactful. I wish I could say the same with any confidence on kind of the operation side and what it means for COVID pulls. I don't have any good line of sight of that. I don't think anybody does. But it's kind of the next thing to follow I guess.

Thank you. Our next question comes from the line of Duane Pfennigwerth from Evercore ISI. Your question please.

Thanks. So, if you add it all up, how much would you say Omicron is costing you in revenue in the first quarter? Again, a lot of this commentary is very backwards looking, but if we could just estimate between cancellations that were maybe people calling in sick as opposed to staffing constraints and lost demand, how many points of revenue do you think you lost there? And to put a finer point on many of the previous questions, are we sort of fully back to the bookings momentum you would expect in a normal period for a time like March?

Honestly, I don't have a precise figure for you regarding the revenue loss due to Omicron. The challenge lies in estimating the true return demand and distinguishing between peak and off-peak periods. As I mentioned, demand in March appears to be back to normal pre-pandemic levels, but it’s hard to determine how much it should exceed that. It's difficult to predict what January would have looked like without Omicron since this time typically has the shortest booking curve, and most bookings occur when Omicron was prevalent. So, it's quite challenging to provide a meaningful estimate for you.

Okay, fair enough. With respect to small markets, I wonder if you're seeing more whitespace. Obviously, constraints impact regionals as well, and the ability to sort of serve some of those smallest markets is going to be impacted, at least for a period of time. So, is your opportunity set, getting bigger here or are there orphan markets, for lack of a better word, that are sort of incremental growth opportunities for you?

Yes, I would advise caution in jumping to conclusions. Remember, we are only a few years removed from similar questions being raised. While we are adding many small cities, we previously observed that our performance in those areas did not degrade significantly, and I anticipate a similar situation now. I don't expect substantial improvements in the results. Generally, having fewer seats is advantageous, but it's not something to get overly excited about. There will be some incremental opportunities, but nothing transformative.

Okay. And maybe one last one for Maury, as you look at the staffing constraints across the industry, during this period of time, how does it impact, if at all, your thinking around M&A in the low-cost sector?

Who knows. I think there's a lot of variables in M&A that's outside of just the day-to-day operations. But I think everybody's got their heads down just trying to figure out how to run tomorrow without trying to kind of look big picture at this point. But never say never.

Okay. Thank you very much.

Thank you. This does conclude the question-and-answer session of today's program. I'd like to hand the program back to Maury Gallagher for any further remarks.

Thank you all very much. We appreciate your calls. And we'll talk with you again next quarter.

Thank you, ladies and gentlemen, for your participation in today's conference. This does conclude the program. You may now disconnect. Good day.