Q1 2022 Allegiant Travel Company Earnings Conference Call. My name is John, I’ll be the operator for today's call. At this time, all participants are in listen-only mode. Later, we will conduct a question-and-answer session. As a reminder, the conference is being recorded. And I will now turn the call over to Sherry Wilson.

Thank you, John. Welcome to the Allegiant Travel Company’s First Quarter 2022 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 and incoming Chief Executive Officer; 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 number of others to help answer questions. We will start the call with commentary, 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 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 John Redmond.

Thank you, Sherry, and good afternoon, everyone. Our dedicated and passionate team members are the reason for the stellar results and industry-leading margins we are reporting today. To come out of the throes of Omicron, 600 weather cancellations out of 1,800 total cancellations, ATC issues, and high fuel and still produce a 10.7% EBITDA and 1.4% operating margins, respectively, is rather amazing. This spring was the busiest and best spring in the company's history, and this incredible demand continued into April and shows no signs of ending. Very strong load factors, especially in March at 87%, helped offset the run-up in fuel prices, and those high load factors are now expected to continue through the year. Again, I can only say thank you very much to each and every team member. Our priority for the rest of the year is operational integrity. It is paramount, not only for our guests but for our employees, our long-term vision, and our brand. Our business model and DNA have always been to match capacity with demand and fuel prices. We have shown over the years that no one in the industry is better at it. Our Q2 guidance reflects this imperative, adjusting our capacity to be roughly up 12% year over 3 years and total operating revenue to increase roughly 30% year over 3 years. 2022 is a foundational year for our company. Significant investments are being made in various initiatives, including IT, that will set us up well into the future and drive focus to where it matters most: continuing to differentiate our business model, improve the customer experience and interaction with Allegiant, and of course, drive more revenue streams. Strategic initiatives don't happen overnight, but the benefits can be transformational. The Always Allegiant World MasterCard was an initiative that launched in 2016 and is really starting to hit its stride, helping to drive total average fare. The cash benefit of the card was $53 million in 2021. We have roughly 320,000 cardholders to date, which will further accelerate in the out years given our partnerships, relationships, and resorts. Our credit card, along with our Always Rewards program, is intended to increase share of wallet through greater interaction with the Allegiant Travel portfolio. Our joint venture with Viva Aerobus is a piece of that foundation that is being laid this year. Without that relationship and other IT initiatives, we would be years off entering the Mexican leisure market, and the financial benefits would not have been the same as our joint venture. Sunseeker, of course, started in 2017 and, after a pandemic interruption, will be completed over the next year. That project, in turn, will lead to further asset-light opportunities. We have our work cut out, but our team members are up to the challenge. All of these initiatives will set the foundation for Allegiant 2.0. Even with all the foundation work being done, we should still end the year with total liquidity in the neighborhood of $1.1 billion. With that, I'll turn it over to Scott Sheldon.

Thank you, John, and good afternoon, everyone. Before I get into the first quarter themes, I'd first like to thank you on behalf of this management team and to all of our customers, team members, and partners throughout the network. This continues to be an incredibly unpredictable time, and we were certainly not immune to the impact Omicron had on our operations in late December and the residual impact for most of the first quarter. We had claims positions and crudes positions. The planning team did an outstanding job aligning peak holiday capacity with our internal capabilities. Unfortunately, over a 30-day period starting December 20, we canceled nearly 1,000 flights or over 12% of our schedule. We went from having 20 folks offline due to COVID to over 400 in a 10-day span. Perhaps more importantly, was the longer-term impact on our frontline training pipelines and the training needs to train and deploy team members throughout the network to meet future scheduling needs. Before I get into pilots, which is clearly dominating the headlines these days, I want to take a minute to talk about operational trends. Historically, we prided ourselves on leading the industry in a controllable completion factor and targeting high 70% on-time performance. Unfortunately, we're falling short of these targets in this current environment, some reasons being self-inflicted and some being very much out of our control. Looking back at full year '21, we led the industry as the only carrier to exceed 2019 capacity levels, which drove an incredible 17% adjusted EBITDA margin. We are best positioned to take advantage of the leisure recovery cycle. We made a conscious decision to keep as wide a selling net as possible, but it did come at a cost that reflects as lasting completion and on-time performance. Clearly, we have lots of work to do. Fast-forward to today, our network is simply much more complex than it was in the first quarter of '19. Year-over-year departures are up 13% on a crime-based growth and aircraft growth of approximately 50% and 40%, respectively. During the quarter, we opened two new bases, Appleton and Influent, which brings our total to 23, up from 15 in 2019. We plan on opening our 24th base in Provo this fall. In a pre-pandemic environment, many of these attributes that give us operational and commercial advantages in these small markets are headwinds today. Small bases, which are loosely defined as 5 aircraft or less, are highly dependent on a certain level of labor stability and are relied upon to operate as stand-alone entities. There's a high degree of focus on dispatch reliability and labor consistency, particularly among our flight crews. Without labor consistency, we will be challenged to drive substantial improvements in performance, which is undoubtedly our key focus as we move into summer. Moving on to pilots, pilot staffing, and pilot attrition. We are seeing some of the same themes as our industry peers with perhaps a slight difference. We continue to be successful in bringing on quality applicants. Since July of last year, we've hired over 200 pilots through April, and our May and June classes are already filled to target levels. That would bring our total hiring levels to nearly 250 pilots, which is just short of our projected 270 target need for summer flying 2022. Attrition levels, on the other hand, are elevated above historical norms and have impacted our first officer ranks the hardest. Year-to-date, we've lost 8 crew members to other carriers, primarily to legacy carriers, and 123 total since May of last year. The last thing I'd like to touch on is our efforts to ratify a new contract with our pilots. It's our number one focus and it's critical to stabilizing our current workforce and to meet the demands of the airline as we look into 2023. Given the attrition trends we were seeing in mid-fourth quarter of last year, we made a substantial effort to expedite the framework of a new deal. Since January, we passed four comprehensive proposals that touch on everything from rates, rate guarantees, retirement, scheduling, work rules, quality of life enhancements, and investments in virtually every stock crew member interface with daily. It's an unusual approach for sure and is no way meant to shortchange the process as our pilots are critical to the success of this company, and we hope to have something positive to report in the near future. In closing, I'd just like to thank our team members and partners. Once again, your patience and perseverance in this environment has been tremendous, and we are here to support your efforts to help make this the premier leisure brand in the travel space. We've always prided ourselves on being ultra-flexible and taking calculated risks. This year will be no different, and I know we'll take some lumps. That being said, we feel we've struck the right balance to drive operational performance while maximizing earnings potential, and we look forward to a successful summer. And with that, I'll turn it over to Scott DeAngelo.

Thanks, Scott. On the commercial side, the first quarter saw historic highs for Allegiant in terms of web traffic to allegiant.com and passenger segments booked. Total visitors to our website were up by more than 25% in the quarter versus 2019, with repeat visitors being up by more than 10% and first-time visitors being up by more than 50%. Most notably, visitors coming to allegiant.com did so by directly entering the URL or by using our mobile app. Users coming that way were up by more than 80%. This speaks to the ever-increasing awareness levels for our brand. More people know about us, and they're coming directly to us at allegiant.com. The number of passenger segments booked in Q1 was 35% more than in 2019, and we achieved our highest ever trailing 7-day moving average in passenger segments booked on two separate occasions in the quarter. Moreover, this demand for leisure travel shows no sign of slowing down, as the number of visitors who came to our website in March to conduct flight searches for travel in April through November was up by 150% to 250% compared to 2019 levels for the majority of weeks in that travel time period. While bookings from customers of all ages showed increases on a year-over-3-year basis, most in the 15% to 20% range, customers 65 years and older showed dramatic booking increases at more than 60% above 2019 levels. This is great news, as this age group represents our most frequent travelers, many flying between a primary residence and vacation homes. In addition, as we saw in the past two quarters, third-party revenue growth continued to outpace passenger and passenger revenue growth exceeding 2019 levels by more than 30%. This continues to be driven by our Allegiant 2.0 approach of enhancing our web and app experience to make it easy for our customers to buy more of their leisure travel needs from us and by enhancing the breadth of our leisure travel offerings at allegiant.com. That said, the Always Allegiant World MasterCard was once again the prominent driver, having its strongest three months ever in terms of new card sign-ups, average spend on the card, and total compensation to Allegiant. Each month in the first quarter successively set the record for new card sign-ups. For the quarter, new card sign-ups were up by nearly 100% and compensation to Allegiant was up just over 130% versus 2019. In closing, the historic high demand we saw in the first quarter for capacity levels at higher than both 2021 and 2019 appears to be structural, not simply fleeting pent-up demand or revenge travel, at least for the foreseeable future. It's broad-based across all the markets we serve for all upcoming travel periods we're selling into, and it's coming from both repeat customer growth, which we believe speaks to the effectiveness of our loyalty programs and first-time customers, which we believe speaks to the growing awareness of and preference for our Allegiant brand of low fare and all non-stop travel. And with that, I'll turn it over to Drew.

Thank you, Scott, and thanks, everyone, for joining us this afternoon. The cadence of revenue performance since the midpoint of the first quarter has been the best I've ever seen. We have been TRASM positive for eight consecutive weeks with line of sight to many more against comparable 2019 weeks. The first quarter finished with total revenue 10.7% ahead of 2019 on system ASMs of plus 18.2%. Better-than-expected close-in bookings, superior Always Allegiant World MasterCard performance, as well as an extraordinarily robust March Madness fixed fee program drove us above the guided range. The month of March was the mic drop month we have waited over 2 years for. Despite growing ASMs by over 14% in the month, our boarded load factor of 86.5% and TRASM $0.1286 both exceeded March 2019. The incredible March madness resulted in the best 1Q fixed fee revenue total in company history and the third best month. The $500 million in total revenue for the quarter was the first time we've exceeded that milestone. Our REV and loyalty teams have continued to drive immense ancillary success, which in turn makes the load factor performance significantly more powerful. The $68 per passenger represents a 17% increase over first quarter 2019 and the second best quarter in company history, trailing just 4Q '21. As excited as I am about March's performance, the second quarter looks even better. We are guiding total revenue growth of plus 28% to plus 32% over second quarter 2019 on scheduled service ASMs of plus 10% to plus 14% and system ASMs of plus 9% to plus 13%. This implies double-digit PRASM growth on double-digit ASM growth and total revenue in excess of $600 million. April continued the march of success and posted a load factor beat of over 4 points versus 2019. All weeks were TRASM positive. We haven't finalized everything, but I expect the month's TRASM to be in the mid-teens. While we are seeing solid performance in the off-peak weeks, the peak periods are where the real upside is on display, and I expect June to show the best year-over-3-year performance in the quarter. While I mentioned TRASM extensively, I want to point out that the metric is an output and not the end goal. Our team is focused on maximizing total profitability to our network and pricing decisions. In 2021, we began service to 10 new cities plus one more in March 22. Those airports range from smaller like Key West and Amarillo to larger like Dulles and Minneapolis. This Silver's network will still have roughly 13% of ASMs coming from routes in the first 12 months of operations, and we've already had some incredible successes in these new ads. We prepare our network strategy so that markets can mature over several years. Put differently, we've been planting seeds for the future. We expect our future network strategy to look like this indefinitely, with a broad mix of city sizes and destination profiles that fit our strategy and that we can expand upon. Lastly, after a test started in 2019, we are happy to announce the rollout of our Allegiant Extra product across most of the fleet. Both the results and customer feedback on this product have been compelling throughout the test. The pandemic put a bit of a pause in the decision process, but we have been encouraged by even stronger results over the last six months, and will now take all inducted Airbus A320s in the 180-seat Allegiant extra configuration starting in the fourth quarter of this year. Additionally, all new Boeing aircraft will deliver in an Allegiant extra layout. Remember, our layout primarily involves the removal and re-pitching of rows and nothing structural, enabling a relatively easy return to maximum seat count should that be desired. Customers enjoy legroom advantages, complementary priority boarding, drinks on board, as well as reserved overhead bin space. This should drive an ancillary boost into 2023 as the fleet grows. And with that, I'd like to pass it over to Greg.

Drew, thank you, and good afternoon, everyone. For the first quarter, we reported a net loss of $7.9 million. These results can be characterized by the tale of two halves. The first half of our flying for the quarter was not profitable, primarily due to the impacts of Omicron. We recorded an operating margin of negative 18% and net loss of $44 million for the months of January and February. However, the second half of our flying during the quarter was very profitable, as evidenced by an operating margin of north of 21% and net income of $36 million for the month of March. This despite paying $3.46 per gallon of fuel, an increase of 40% from January. The revenue team came through as TRASM accelerated during the quarter, closing just under $0.13 for the month of March, gaining first quarter TRASM of $10.78. Excluding fuel, our unitized costs for the quarter were $7.012, and we are seeing deceleration into the second quarter. Costs were pressured during the first quarter by the $16 million in customer compensation relating to IROPs, primarily due to Omicron, and $7 million for the special recognition bonus for our team members. Normally, our first quarter results would not trigger profit sharing. However, given these extraordinary circumstances in both the airline sector and the broader macroeconomic environment, our Board was pleased to guarantee our team members a recognition bonus for 2022. We have the best team in the business, and our sincere thanks to each of you. Excluding this recognition bonus accrual and our IROPs customer compensation, our CASM mix would have been down or was down 0.5% compared to the first quarter of 2019. The robust demand environment and strength in sales drove a sequential increase in our ATL of $150 million, nearly 50% higher from the fourth quarter. Our strong liquidity of $1.2 billion is more than two times our ATL and 60% of 2019's revenue. Our debt balances remained flat sequentially at approximately $550 million and well below pre-pandemic levels. Turning towards the second quarter, our guidance issued today suggests an operating margin north of 12% for the second quarter on ASM capacity growth of 12%, year over 3. This guidance also assumes an average of $4 per gallon of fuel. In February, we actioned trimming our planned capacity in the second quarter by roughly 10 percentage points. As messaged back then, these reductions were driven primarily by staffing challenges and the volatility around rising fuel costs given the uncertain geopolitical pressures. This capacity reduction does add some headwind to our unit cost, as we expect second quarter CASM ex to be up 14% year over 3. This increase is primarily related to inflationary pressures and productivity. We've talked at length about inflationary costs on prior calls, and I thought I'd touch briefly on productivity. To help frame this, we expect to place into service 3 aircraft this quarter, bringing our total fleet count to 115 by June 10. Based on our capacity guide, we expect the average ASMs produced per aircraft during the second quarter to be $46 million. This is 12% less production than the average aircraft during the same period in 2019, which we estimate is approximately 30% headwind to our CASM ex. While this reduced production puts pressure on our unit cost, there is a benefit to the other side of the profitability equation by driving higher yields and higher unit revenue. As Drew indicated, demand is on fire, and current bookings suggest total revenue for the second quarter to be up approximately 30% and TRASM up nearly 20% as compared to the same period in 2019, which I believe segues well into our Allegiant Extra announcement. While reducing the number of seats may not fully optimize unit costs, our data suggests this initiative will be meaningfully accretive to our bottom line, as we are a margin-focused company. What gives us an advantage in driving higher margins is our unique ability to align capacity with demand given our low fixed, high variable cost structure. Regardless of the macro environment, whether high fuel, low fuel, a weak economy or a strong one, we have a proven track record of always outperforming over the long run with the flexibility to bring stability. And speaking of flexibility, that is the hallmark around our fleet. Given supply chain disruptions and MRO delays, we're going to give ourselves a little more breathing room by slowing the induction of 3 aircraft in '22, pushing them into early '23. As a result, we now expect to end the year with 124 aircraft compared to our initial plan to end with 127. Pushing these 3 aircraft to '23 should not impact our second half capacity expectations. Turning to reinvestments in the business, our full year '22 airline CapEx guide remains unchanged at $260 million in aircraft CapEx. This is inclusive of our pre-delivery deposits and $100 million to $90 million in other and heavy maintenance CapEx, respectively. In closing, we continue to make meaningful progress on our major strategic items, such as incorporating Boeing aircraft coming online in mid-2023. These aircraft are 30% more fuel-efficient as measured by ASMs per gallon, our partnership with Viva Aerobus—expected to go on sale later this year, opening our Sunseeker Resort approximately a year from now, increased investments in our systems, tools, and infrastructure to better support our long-term growth plans to drive higher revenue and combat costs, and progress with our partner, Schneider Electric, on our ESG initiatives with the intention of publishing our inaugural sustainability report later this year. And with that said, it is my privilege to turn the call over to Maury Gallagher. Maury, on behalf of the team, we want to thank you for your mentorship, guidance, and leadership over these many years. You are a legend.

Well, how do you follow that? Thank you, Greg. You've gotten a good overview from these very astute managers in the last few minutes. As you can see, we're making very good progress on our way back to normalcy, preparing in particular for our peak flying this coming summer. As you can see, I’m last to speak, and I suggested that should be the case because this is my last conference call. I've done 61 of these calls before to date, talking about Allegiant—our journey, our exploits, and our successes over the past 15 years. Deep breath. We have talked about Allegiant 2.0 numbers of times, our efforts to drive additional revenues from our current customer base. We are the only carrier I'm aware of that talks directly to all of its customers. To that end, we have almost 15 million email addresses available to us to do that communication. While increasing unit revenues from our customer wallets was important strategically, we wanted to further enhance our brand, particularly in the last few years. What was the best way to increase the awareness of Allegiant with the traveling leisure-oriented public? Front and center in this effort was our partnership with the Las Vegas Raiders and the stadium naming rights. In that process, in the past 24 months, having our name on what has now become Allegiant Stadium has done more to increase our brand with the traveling public nationwide than we were able to accomplish in my opinion in the first 20 years. Just as important, these naming rights have provided us with credibility. I've heard the following statement a number of times from different people: wow, you own a premier football stadium in the world's greatest leisure destination, and you must be a great company. Well, clearly, we don't own the stadium; it would be nice, but we don't own it. But we are receiving a benefit from this affiliation and in a substantially increased people's belief in us as a company that is reliable and worth trusting. Our second major trophy property will be our Sunseeker Resort due to open early next year. This has been one of the more ambitious undertakings during my time here. There has been a great deal of pushback from many of you on the phone call today. But I'm going to make a forecast, unlike any time before: Sunseeker is going to be a huge success. You can say you heard it here first. John Redmond is one of the few people in the world who could have pulled this off, including finding location, designing the building, and recruiting this world-class management team that we're now assembling. I’ve had the privilege of knowing John for 20 years and an even bigger privilege, a larger privilege of working closely with him in the past 5.5 years. When he joined management in 2016, neither of us understood what he might recommend, and I specifically asked him to enhance our third-party revenues, particularly hotels, given this background. John found and located the 23-acre waterfront property in Port Charlotte, Florida, and laid out his vision and plan; I became a believer. In the coming months, you will hear about John's efforts to develop our asset-light approach. There are a number of substantial irons in the fire that will leverage our Sunseeker effort and the management talent that we have put together—John has put together. There are some early returns on Sunseeker that we would like to share with you today: preliminary bookings and interest, and I'm going to ask John to give us some of those numbers. John?

Thank you, Maury. These are rather amazing to say the least. Currently, we have 1.4 million emails in the Sunseeker database, and we're targeting 2.5 million by year-end. To put that in perspective, the 3,500-room new property on the Strip, Resorts World, after 9 months of being open had 200,000 emails. So we're headed in the right direction. This has been a big focus of ours to have a lot of emails. We've also booked 226 transient reservations totaling 610 room nights to date at an ADR of $380. We modeled ADR at $255. We went on sale mid-February selling into May of 2023. The reservations were made by individuals from 27 different states, showing the breadth of our email database, which is amazing. We've also booked 17 groups, totaling 21,500 room nights. The total contracted rooms and food and beverage revenue is roughly $8.3 million. The March 2022 year-to-date Southwest Florida transient ADR, as provided by STR (Smith Travel Research), for the market set— which includes 25 hotels in Southwest Florida—was $638, up 38% over the same period last year. For the comp set, which is a 10-hotel grouping that we track in Southwest Florida, the transient ADR was $644 and up 29% over the same period last year. For the year 2021 full year, the Southwest Florida transient ADR (again, as provided by STR Smith Travel Research for the market set) was $411, and the transient ADR for the comp set was $457. Again, incredibly impressive to see what's going on in Florida. I'll turn it back over to you, Maury.

Thanks, John. This is going to be an amazing additive trophy property for us. It may not equal quite what the stadium has done for us, but it's going to be high in those ranks. So pushing our brand out there and bringing more awareness of the leisure traveling public to Allegiant as we go forward. I've spent 40 years in this industry, and this word 'different' has been my operative word that I've fallen to all the time. I've learned over the years that we need to differentiate ourselves from the other 10 carriers in this industry that we knock heads with. Currently operating a safe, quality airline is a critical component of this success, but a focus on the customer has been just as critical. I believe we've done this better than any other carrier since our beginning in the early 2000s. Going forward, Allegiant is extremely well-positioned to continue to differentiate itself—not the least of what you just heard from John—from competitors and generate incremental revenue, which is so important to our profitability. In closing, I'm an airline person at heart. The airline has been the driver of our success over the years, and it will continue to do that in the coming years. In the next 5 to 8 years, we should double our size and be able to service over 30 million customers with our airline network as we grow our way to 200 aircraft. The airline is a catalyst that will drive these incremental revenues, which are so important for our industry-leading success. In 2006, we named the company Allegiant Travel for a reason. While we operate an airline, we are first and foremost a travel company focused on providing our leisure customers with a quality experience, both in the air and soon to be on the ground. Now, I will not be leaving the company, but rather working to support the management team in the coming months in our efforts to finalize the deal with the pilots. I will work with Andrew Robles, the President of our local here, and other efforts in Washington, D.C., as we work towards a solution to the pilot supply problem. I will be moving to the background, and that’s as it should be. I will continue to be on the board and certainly one of the premier shareholders, as far as I'm concerned. Lastly, I want to thank all of our team members who have been the backbone of this successful effort for the past 20 years. Nothing has given me more pleasure in watching the young people who have joined Allegiant over the years find their sea legs, become knowledgeable in the field, and begin their future with this great company. And a fitting statement, considering my history as a history major by choice many years ago, I have called upon General Douglas MacArthur's famous speech to Congress in April 1951 about his retirement. As he said, cloaked in the refrain of one of the most popular ballads, I can most proudly say: old soldiers never die, they just fade away—and so I. Thank you.

And with that, we'll turn it over for questions. Sherry?

Thank you. Our first question is from Savanthi Syth from Raymond James.

Hey, good afternoon. And congrats, Maury. I agree with Greg that you are a legend. Still looking forward to your continued contributions to Allegiant and the industry here.

Thanks.

Thanks, Maury. Just if I might, on the capacity front, given this outlook, assuming much doesn't change on the demand or fuel side. I was curious what this means for maybe 2022 capacity. If there's an adjustment here, should 2023 grow from here? Or do you kind of catch up on utilization and catch up on some of the growth in 2023?

Sure, Drew here. I'll start with this one. I think for the full year '22, we're still looking at growth around that 20% number. I say that as Brent crossed $110 again today. So I would expect there to potentially be some revision in the back half of the year if this maintains. But I still feel good about that number in general, and some runaway there. As you think about '23, I think we're moving back toward that long-term measured type of approach of roughly 10%. Again, that assumes that fuel doesn't run away and demand remains elevated, et cetera, et cetera. But I really like where we're going and in terms of getting back to that measured approach. Some of it will probably come from utilization, sure.

Makes sense. And then, can you talk about some of the capacity constraints? I wonder if some of it is related to what you're seeing in Florida and your operational impact there, how much of it is driven by Allegiant internal supply issues versus external partner issues or even the ATC issues in Florida?

Sure. At a high level, if you think about what we did for this summer, just a little bit over half of our cuts came in Florida—though certainly, the ATC and flow environment there did have an impact on our decision. I think for any peak period going forward, we're going to run utilization basically as hard as the first constraint we come up against—whether it's labor, whether it's aircraft, whatever it is. Demand in peak periods has always been there, such that we should operate to the limit we feel comfortable with the company. Off-peak will always be driven by either the demand environment or fuel and the resulting profitability. So that's kind of a little bit of both, depending on which time frame we're talking about.

That makes sense. Thank you.

Our next question is from Mike Linenberg from Deutsche Bank.

Hey, good afternoon. Yes, echoing Savi's words, definitely legendary, Maury. You will be missed. Knowing that you're going to remain one of the largest shareholders, if not the largest, gives us good comfort. Onto my questions here. I guess this would be to Greg with respect to the 737 MAX deliveries. We hear from other carriers that have airplanes coming this year, that aircraft continue to get delayed due to some of the manufacturing issues or bottlenecks that Boeing is facing, whether it's supply chain labor, getting raw materials, etc. When you think about 2023, are you starting to rethink the 10 aircraft coming in? Is it more of a 2024 phenomenon? I have sort of a related question on the overall economics of those airplanes. Thanks.

Mike, it's Greg. I'll start off and then hand it over to someone else. Currently, we still plan to receive the Boeing MAX aircraft in the latter half of 2023. Our main focus right now is deciding between the 8200s and the dash 7s. We may end up taking the 8200s first since it would make things easier for us in terms of specifications and maintenance, allowing our team to get it operational. After that, we could apply that experience to the dash 7. Now, I'll pass it to BJ for more details.

Yes, Mike, I would just say that we're still over a year away from the first scheduled delivery. So we aren't hearing anything out of Boeing about potential delays. We are hearing some of that same chatter that you mentioned about their current situation. But I guess I would point to the fact that these airplanes are coming in pretty late in the year. We didn't have a lot of capacity planned on those airplanes in 2023 to start with. I think we all feel pretty good about that and look at Andrew here, but yes, we're okay.

Yes. We just put our winter '22 capacity out there; we're going to have time to think about '23.

Good. And then just on the economics of the airplane, we go back to late last year, early this year, the view was that the 7s, you were looking at something in the order of like $7 million of EBITDA per aircraft, and I think the 8 were closer to like $10 million. Yet we've just seen this significant surge in inflation, not just fuel, but we're dealing with labor and other things coming in a lot higher than what anybody expected, including the Fed. I'm curious where you are as you think about that $7 million to $10 million for each aircraft? Or is it the view that that's going to find its way into the fare structure, and the $7 million and $10 million are still pretty good numbers to sort of use when we think about overall profitability.

Mike, no, it's a great question. It's Greg. Why don't I kick it off, and I'm sure others would like to add some commentary on that. Certainly, the rise in fuel is something to keep an eye on, and it's great that these MAX aircraft, on a block hour—or I’m sorry, on a gallon basis, ASMs per gallon on an efficiency basis for fuel. They're about 30% more fuel-efficient. That will obviously help us in terms of combating the higher fuel cost. What I would say is that we think that certainly on like-for-like utilization, we will outperform or out-earn with the Boeing aircraft because we have a third of our network that's going to support those aircraft, and we have a 20% improvement on operating costs. It should drive us to continue to that industry-leading EBITDA per aircraft that we had in 2019. There are other areas in the business. We're constantly looking at combating the inflationary pressures that you mentioned. We're doing that through systems. John talked about transformational systems; we'll see that from the back end where we can scale up more on the management side through SAP or track or with productivity, as Scott mentioned, on getting a new system for our pilots and crew members, NapBlue—that should help us with scheduling and improve on productivity from that side of the house. You also have our—John mentioned our Viva partnership, right? Where we think there's some accretion there, assuming that gets approved through ATI. As Maury and John have said, we're looking at growing, combating our cost but also growing on the revenue side. There are lots of irons in the fire that we think will help us and restore and get back to that EBITDA per aircraft. Drew, I don't know if you want to talk about the fare environment to Mike.

My view looking forward is that there is a structural change in the demand environment, one that will produce a higher level of demand for quite a while than you saw in 2019. I do think that the summer of '22 is probably the pinnacle; it may retreat a little bit. The structural change in how I think people view travel, view experiencing life has changed such that there will be persistent upward pressure on the overall demand, whether it's airfares, whether it's loans, for the foreseeable future. So I do think we'll recapture some through that avenue as well.

Great.

The point, Michael, is we're going to buy these airplanes. The balance sheet will come into effect, and our ownership costs are just not going to be that much higher than we would spend for a normal 186-seat Airbus. But you get all the benefits of fuel burn and things like that, so that's going to help us offset a lot of pressure on the cost side. And they're just exceptional airplanes. If you can manage in the proper way, in a sense of ownership, and be in for the long haul.

Yes, Maury, your timing—and obviously, Greg and the team—when you bought those airplanes, it couldn't have been more perfect. Even things like the benefits of tax depreciation and a lot of things that are going to help you in ownership that I think people don't fully appreciate.

Our next question is from Brandon Oglenski from Barclays.

Hey, good afternoon. Maury, very politic in to a long run here, so thank you for that. I guess, guys, can you talk to the pilot issues that you're speaking to in the prepared remarks? I think you mentioned attrition levels at the end of the year. Has that gotten worse, or have you been able to solve for that? And what's the long-term solution here?

This is Scott. Yes, you started to see sort of a trickle in May of last year. There was a pretty bad month; I want to say it was October. November and December settled down. I think there was a quiet period when you look at what was going on with Omicron for December and January. I sort of view it as sort of pent-up demand, where you had back-to-back months of 20-plus pilot attrition months. That seems to have come down a little bit. Longer-term, obviously, the contract is critical to getting something competitive out in our pilot hands—something that reflects industry standards at worst. We think we have some interesting and unique concepts that will keep these guys in a more competitive foothold as other carriers start to solidify their contracts. I think everyone has minimal contracts with the exception of Spirit and Frontier right now. It's going to be a moving target, but we feel if we can keep sort of the economics to the sidelines and just know that you're going to be paid a reasonable rate. We think that's sort of the mousetrap that we have to offer, which is out and back—it's a simple system, single-day trips. Just the quality of life aspect is much more desirable than what other carriers have to offer. Then there are traditional matters like partnering with flight schools and the like, but first and foremost, we got to get a contract in place.

Let me also comment, Brandon. One of my jobs post the job is going to be working closely with the leader of our IBT group and working to see we can move this thing along to get ourselves in a good position sooner rather than later. Some of these things. We're on our second contract, if you will, and the language typically in first contracts is clumsy and needs to be revised. We have a commitment on the other side to make things work. It will take some time, but hopefully, we'll have some answers here in the not-too-distant future.

I appreciate the response from both of you. And I guess, Greg, as you think longer-term about unit costs—not just specific to the pilots—but inflation is real here. Does this change the trajectory for the company?

Brandon, thinking longer-term, what I would say, echoing some of the comments I made before, we, of course, right now, where we said we are investing in our organization. As Maury used the term, we’re growing and coming up underneath it. I mentioned that because the goal is operational integrity—getting back and driving IROPs out of the business—that's certainly going to help on the cost side. Productivity, as I mentioned, whether that's the utilization on the aircraft, but pilot productivity, crew productivity will be helpful. We've talked about the systems marketing. I think it's another one—I didn't mention earlier, but we had some investments, as Maury mentioned, in the stadium that Scott Angel and his team put together, along with Live Nation. Brandon, as we grow, the ASMs, if you will, CASM ex will come down relatively speaking on those items because those costs are fixed. You combat it from that perspective. Viva—that's another example where we're working closely with Viva, and their team is combating costs and where we can find synergies working together on the cost front. We're spending some time there. We think that too will help. So we think there's pressure on the cost side, but we are a margin-focused company. We talk a lot about MASM here, and there are two sides to the equation. We'll continue to focus on that, but make sure we keep a low fixed, high variable cost structure, so we can continue to outperform.

MASM—I love a new acronym. Thanks, guys.

Our next question is from Catherine O’Brien from Goldman Sachs.

Hey. Good afternoon, everyone. I want to echo everyone else's comments, Maury. It's been a pleasure working with you over the years, and congratulations, John, on moving into the new role. I want to come back and talk about revenue a little bit. Your revenue outlook, like many of your peers, is incredibly strong for the second quarter. But you don't have the same exposure to some of the business or longer-haul international recovery that really is in its early stages that some of them do. So is this strength it's just really good old-fashioned pent-up leisure demand outstripping supply? Are passengers willing to pay higher fares? Or are there also some positive competitive developments where less overall domestic supply is being pointed at leisure destinations than it was over the last year or two? I know your third-party ones outstrip—are non-fare initiatives also taking that extra mile next quarter? I know that's quite a few questions in one, but just trying to get a sense of where you're seeing the most strength come from as we head into next quarter. Thanks.

Sure. I think the simplest answer to that is just yes. All of the above are certainly influencing and putting upward structure on what we're accomplishing here. First and foremost, we've had U.S. domestic leisure travel this entire time. The demand pool is larger for that than it ever has been, and being as well-positioned as we are to take advantage, we're seeing the benefits of that. We'll see some in fares in the first quarter. Our average fare per passenger was slightly higher than it was in 1Q '19. We're starting to expand on load factors, which I think is a direct result of just that larger pool. But I think you alluded to it a little bit with the return of business internationally. I think the focus around the industry is going to start to shift a little bit away from simply the leisure traveler here domestically and trying to recover elsewhere, opening up more leisure travel for us. I may have lost over some things there, but suffice it to say all those things are true, but really, it's just the overall core strength of the leisure demand and where we're positioned right now.

That's great. Thanks. And then maybe one for Greg. Your net debt is lower than it was for content, a really strong liquidity position. I know that you in the industry are barred from shareholder returns until later this fall. But do you think reinstating your dividend is on the table over the short to medium term? Or do you think there might be a little bit of incremental Sunseeker CapEx you're seeing or the MAX order change the calculus of how you're thinking about deploying capital going forward? Thanks so much for the time.

Thank you, Caty. This is John. When you look at the company history of returning capital to shareholders, I think it's not a bad proxy to look at when you're looking at what the company's future actions may be, but it has not been a conversation we've had yet as a Board on whether or not Q4 this year or some future quarters is the right quarter to start that. That's probably the best way to look at it. But as you know, we have a history of paying dividends and buying back stock, so as I said, it's a good proxy for future activity that we would consider.

Our next question is from Ravi Shanker from Morgan Stanley.

Thanks, everyone. Maury, I will sign on to the petition granting you legend status, so thanks for everything you've done for us. A couple of questions here—maybe a little bit bigger picture. I think one of the big debates over the last several weeks has been the point of demand destruction. One of the debates in the space is whether that point is closer for a ULCC airline because the customer may be more price sensitive or if it's further away because the fare itself is lower. How would you answer that question? Again, are you seeing that point at this point, and do you think it's closer or further away for ALCC?

First time I've heard this question, so bear with me. I would say if you look through the history of all of the environments in which Allegiant has operated, we have not seen demand destruction at any of those—whether we're in a recession, whether we're growing the economy rapidly, high fuel, low fuel, whatever it is, the cost model that Greg and team maintain enabled us to be successful in any of those environments. We can respond with lower fares as needed. Typically, we'll use our capacity in order to use supply and demand to our benefit to get there. If fuel remains high, we can pull capacity back and ensure we're getting the fare needed to remain profitable at the expense of some of that demand. It purposely so. I would say it's certainly farther off, if not well into the future if I'm understanding the premise correctly.

Yes, we're the ultimate demand management company. We manage demand in September and January. So we're geared for that better than anybody.

Thank you.

Scott, let me add one thing. Customer carrier selection is not indicative of a customer's network. They're just willing to spend more on when they get there on the experience rather than on how they get there. In our case, of course, when you have 75% of your flights that are non-stop, non-competitive, in some cases, we're the only choice.

That's very good color. Thank you. And maybe kind of a related follow-up there. Thank you for the stats on your higher web traffic. Do you have details on how many of those visits were new to Allegiant and new to ULCCs in general? I'm just trying to get a sense of are you guys taking share or are you growing the pie here?

Yes. I think a little bit of both. The answer is yes to the first question. About half of our web visits in Q1 were from first-time users. We don't know if they're first time to ULCC. We just know it's the first time we ever saw them. So that's the first one. I think there is a combination. I think that as airfares have gone up, I hypothesized that given the last comment I made about who our customers tell us they last or regularly fly—we remain, even at an elevated airfares, an attractive option versus, say, network carriers and or Southwest from a price perspective. We could very well be seeing people, if you will, coming to us for the first time because they may be priced out and are price shopping more vigorously than they've done in the past, given all the variety of inflationary pressures. Just a hypothesis for now.

Great, thank you for that. I look forward to an Allegiant Analyst Day hosted at Sunseeker before it opens—just an idea.

Thank you. And I would now like to turn the call back over to Maury Gallagher for closing remarks.

Thank you all very much, and this group will be talking to you in 90 days. Have a good week.

And thank you, ladies and gentlemen. That concludes today's call. Thank you for participating, and you may now disconnect.