Good day and thank you for standing by. Welcome to the Full Year and Fourth Quarter 2022 Allegiant Travel Company Earnings Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Sherry Wilson. Please go ahead.

Thank you, Justin. Welcome to the Allegiant Travel Company's full year and fourth quarter 2022 earnings call. On the call with me today are John Redmond, the Company's Chief Executive Officer; Greg Anderson, President; Scott DeAngelo, our EVP and Chief Marketing Officer; Drew Wells, our SVP and Chief Revenue Officer, Robert Neal, SVP and Chief Financial Officer; 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 John.

Thank you very much, Sherry, and good afternoon, everyone. I'd like to begin by taking a moment to thank our team members for all their efforts this past year. 2022 was yet another difficult year. The operation was hit with countless challenges from COVID spikes to hurricanes and most recently, winter storms, but you stepped up and made sure our customers were taken care of. Your commitment to safety and service is remarkable, and I am proud of how you responded to these challenges. You likely heard the news that our COO, Scott Sheldon has made the decision to resign to pursue other opportunities. I want to thank Scott for his many years of service and dedication to our airline, and we wish him all the best in his future endeavors. With Scott's departure, Greg Anderson will continue to serve as President and will assume oversight of the Company's operational teams. As you all know, Greg has been with the Company for more than a decade. There is no better person to take on this role. He is highly respected both internally and within the industry, and I have the utmost faith he will execute on the numerous strategic initiatives we have in store this year. I'm pleased to report that despite the operational difficulties during the first half of the year, the last half of 2022 is a testament to the success of the challenges we implemented. We exited the year with a controllable completion percentage of 99.5%. Earlier this year, I noted we are a margin-focused company, and with operational improvements, margins would grow. This is exactly what happened; we saw during the fourth quarter. We recorded an operating margin, excluding employee recognition bonus and special charges, just shy of 16% for the quarter. In addition, we generated more than $140 million in EBITDA during the quarter. Underpinning this strong financial performance is a robust demand environment that shows no signs of slowing. Fourth quarter TRASM of just about $0.14 was the highest quarterly TRASM in company history. This helped contribute to a record-setting total revenue for 2022 of $2.3 billion. We have great momentum heading into 2023. Regarding our ongoing negotiations with our flight attendants and pilots, it is our expectation to have an agreement in principle done with our flight attendants by midyear. To date, we have reached tentative agreements on two-thirds of open sections. The pilot negotiations are progressing as well with tentative agreements reached on about half the open sections. In an effort to expedite the bargaining process and secure an agreement in principle, the Company and the union jointly requested NMB mediation. We look forward to working collaboratively on an agreement that our pilots are proud to support while providing the Company with the ability to continue to fly a safe, reliable operation and remain positioned to grow profitably. It is our expectation to have an agreement in principle done by midyear. Touching on Sunseeker, we continue to make progress towards completion. Construction crews are back in full force. Much of the remediation work related to Hurricane Ian is now behind us. Further investigation necessitated an increase in total estimated damage related to Ian resulting in additional special charges of $5 million in losses. We continue to believe all Hurricane Ian damage will be fully recoverable by insurance. In addition, a significant thunderstorm followed Hurricane Ian in early November prior to Ian damage being fully remediated, resulting in additional damage as well as a small elevator fire in November. Losses related to these events were recorded in the amount of $10 million and $1.2 million, respectively. Both events are covered by insurance. Recorded losses were offset by $18 million insurance proceeds related predominantly to Ian damages. As insurance recoveries are received during the coming months, we will record these special charges offsetting the recorded losses. Also worth pointing out again, we have business interruption insurance, which we believe will cover the period May '26 and the pre-hurricane scheduled opening date to the opening date of the resort. Given the delays caused by Ian and the subsequent storm, we pushed the first accepted reservation date to October 15 of this year. We are still working through remediation timelines related to the recent storms, but intend to provide a firm opening date at our next earnings call in April. We have not provided any guidance in the release on Sunseeker operations due to uncertainty at this early stage on the opening date. In the Q1 2023 earnings call in April, we will provide guidance on preopening expenses leading up to the opening of the resort, revenue, EBITDA, and operating income for the year 2023. We will also update final construction budget numbers and a business interruption update to the extent we have information. We also intend to extend to any of you who are interested, the opportunity to tour the resort in early May. Sherry Wilson will be happy to coordinate with you dates and times in April this year. Regarding our partnership with Viva Aerobus, we still expect all the necessary approvals will be in place, including category one status in Mexico in the first half of this year. As you saw in the release, we are returning to providing annual guidance as we did in 2019. At the end of each quarter, we will update the annual guidance, if appropriate, given the results to date and future forecasts. As a reminder, we will be segment reporting as it relates to Sunseeker in 2023. In addition, we will be comparing to 2022 and not 2019. We have progressed beyond 2019 results and feel moving to prior year or 2022 is a more comparable and relevant going forward. In closing, Allegiant has a strong history of shareholder returns, and I am pleased to report we bought back 377,529 shares during the fourth quarter at an average price of $78.94 a share, totaling $29.8 million. Furthermore, our Board approved increasing our repurchase authority to $100 million. This authorization reaffirms the Board's conviction in both future results and balance sheet strength. With that, I will turn it over to Greg.

John, thank you, and I echo your sentiment about wishing Scott the best of luck in his future endeavors. He and I have worked shoulder to shoulder for nearly 15 years here, which has been an amazing and fun ride. One of the best compliments I can provide Scott is that the organization is in terrific hands. We have an incredibly strong team with an incredibly bright future. As announced, Keny Wilper will take on the interim COO role. Over the past 20 years, Keny has demonstrated his strength as an operator and as an exceptional leader. Additionally, Tracy Tulle will serve as our Chief Experience Officer. Tracy has vast operations experience overseeing both flight ops and in-flight as well as sharing our customer experience leadership team. In this new role, she will focus on improving the customer-centric experience for our team members while also helping to develop leaders internally and drive organizational alignment. Finally, and I have to admit it's pretty awesome to be able to say, Robert Neal is now our Chief Financial Officer; and Drew Wells is our Chief Revenue Officer. BJ and Drew are both A+ leaders, the best at what they do, and I feel no further introduction is needed, given they are already well known to our investors. I look forward to working even closer with and supporting each of them in their expanded roles. While I have mentioned only a few names, the depth and breadth throughout this organization is the best and strongest it has ever been. As we look forward to the amazing opportunities in front of us, I can speak for the team when I say we are fired up about establishing Allegiant as the most exciting story in the space. While 2022 brought its own unique challenges, we achieved a lot during the past year. We added more than 900 team members, bringing our total team member count to more than 5,630. These team members enabled us to grow our fleet by 13 aircraft and fly 14% more ASMs compared to 2019. The first half of 2022 experienced unique challenges with the Omicron spikes. This resulted in labor constraints and unplanned absences during peak leisure travel periods, which led to elevated cancellations. This operational environment had a significant financial impact. The financial impact of the irregular operations was more than $100 million, including fuel and crew costs, lost revenue, and going above and beyond by providing cash compensation to those customers impacted by canceled flights. To combat these challenges, our planning and operational teams worked closely together in refining the schedule to adjust for this environment. While this came at a cost to aircraft productivity, our operations strengthened quickly as the second half of '22 saw a meaningful improvement; controllable completion was 99.5%, more than 2 points better than the first half of '22 and near our industry-leading controllable completion results of 2019. I am pleased to report these much improved operational results had a positive impact on our financial results. The impact from our irregular operations in the back half of the year had a total financial impact of $30 million. This is $70 million less than the first six months of '22. These improvements showed up in our financial report as we closed out the December quarter with a 16% adjusted operating margin, which is substantially higher than our initial adjusted operating margin guidance of 8%. These impressive results were achieved despite the impact to the quarter from the winter storm over the holidays. Another important element of 2022 is the significant progress we made towards our systems transformation. In 2021, we made the decision to move from certain core proprietary software systems to best-in-class systems such as SAP, Navitaire, Trax, and NAVBLUE. We remain on track to go live with the first three of these key systems in 2023. NAVBLUE should follow shortly after. Such systems have been key investments to more efficiently scale the organization. In addition, we continue to track ahead of schedule on incorporating our new Boeing MAX aircraft as we expect our first delivery near the end of the year. We intend to place these early MAX deliveries at our Orlando Sanford base. And as John touched on, one of our highest priorities remains finalizing labor contracts that our crew members deserve. So far, we have put a great amount of effort into updating our agreements with both our flight attendant and pilot unions. It is our goal to get both of these deals across the finish line as soon as possible. While we are unsure around the exact timing of getting these deals done, we have incorporated the potential cost in the back half of the year within our 2023 guidance. Please realize that the actual increases in cost will depend on the economic terms reached and the timing of the agreements. As a reminder, although these contracts will be cost headwinds, we expect them to increase momentum towards restoring staffing levels and optimizing aircraft utilization, but we are not assuming any improved productivity in our full year '23 capacity guide. BJ will provide more full year guidance detail momentarily. We will continue our focus on strengthening the operation and are excited about what's in front of us in '23. As we've highlighted on prior calls, we have laid the foundation for executing on these items and our teams across the organization are making steady progress on the implementations of the new systems and other initiatives such as labor contracts, Sunseeker, Viva, and Boeing. These leadership changes announced will further support these initiatives. As we progress further into '23 and have a better vision on the completion time frames, we expect to host an Investor Day to more specifically outline expected contributions from these strategic initiatives. More information will follow on that front. And with that, I'll turn it over to Scott DeAngelo, our Chief Marketing Officer.

Thanks, Greg. The fourth quarter saw continued strong leisure travel demand for Allegiant across both web and app traffic to allegiant.com as well as passenger segments, capping off a record-setting year for Allegiant on both measures. Surging awareness and preference for the Allegiant brand, along with our direct-to-consumer distribution approach, continues to give us an advantage in capturing demand by being able to satisfy the two most important buying factors for leisure travelers: low fares and non-stop flights. For full year 2022, 136 million web users came to allegiant.com, up 24% from 2019. And notably, despite the fact that new route growth is limited, new web users to allegiant.com were up by nearly 40% from 2019. Why? Because, as I referenced in the past two quarters, our addressable customer audience continues to grow as more new customers enter the ULCC category and consider Allegiant for their leisure travel needs. They are seeking relief from sky-high fares and looking to avoid the risk, inconvenience, and time associated with connecting flights through crowded airport hubs. What's more, 77% of our allegiant.com users came via our most direct and lowest-cost channels – that’s direct URL, our app, email marketing, or organic search. That's up 37% from 2019. It means we're relying less and less on paid advertising as awareness of and preference for the Allegiant brand continues to grow in a scalable fashion based on our fixed investments like Allegiant Stadium and our Live Nation partnership as well as our Always Rewards loyalty programs, both co-brand credit card and non-card. We continue to outperform expectations with our co-brand card program, ending the year with more than 400,000 active cardholders and more than 150,000 new cardholders acquired in 2022. That's more than 40% higher than we had acquired the previous highest year, which was 2021. As a result, the co-brand card program drove total compensation of more than $100 million in 2022. In addition, our non-card loyalty program, Always Rewards, added 2 million new members last year and now totals 15 million members. In 2022, 3.2 million customers, nearly 70% of our total unique transacting customers, were active members of the Always Rewards program. On average, they exhibited 39% greater booking frequency than non-members and an average spend per booking that was 36% higher than non-members. This greater spend was driven by higher take rates in air ancillary products as well as higher attachment of third-party products like hotels and rental cars. This customer behavior reinforces the continued opportunity that Allegiant has to sell beyond the aircraft in order to achieve greater revenue per passenger growth that can outpace and is not constrained solely by capacity growth. In terms of our customer makeup, our elite subset of Always Rewards members and cardholders, just over 0.5 million customers, which is about 15% of our total unique transacting customers for the year, fly three or more times with us and drive roughly 60% of both total passenger segments booked and total revenue for the year. In the past week, we surveyed a representative sample of more than 3,000 respondents from this group of frequent flyers to understand why they traveled with us and what their future travel intentions were. And the news keeps getting better for Allegiant. Of these Allegiant frequent flyers, nearly 80% travel for leisure only, while nearly 20% traveled for both business and leisure. More than 40% said they stayed with family or friends, and nearly 40% said they stayed at their second or vacation home. That means around 80% fall into travel types that are the most resilient during negative economic climates. To validate this, we ask these customers the extent to which they expected their travel plans with Allegiant to be impacted by the prospect of worsening economic conditions. And here's what they told us: basically, they said that economic considerations would have no impact on their flying behavior with Allegiant in the next 12 months, and nearly one-quarter said that they would be more likely to fly with Allegiant in the next 12 months. It is common for many to think that ULCCs have an infrequent and transitory customer base, but that's not the case for Allegiant. We have a core base of loyal frequent flyers who drive a majority of our revenue, while at the same time we continue to add new customers that are defecting from other airlines, namely Southwest and legacy carriers to our customer base and record numbers. Looking forward, forward-looking searches for travel at allegiant.com are up by 40% to 75% versus last year, which, as we all know, was a historic high year for bookings and revenue. Put simply, and in conclusion, Allegiant has a trifecta when it comes to our balanced customer base. We have a solid core of frequent flyers who show no signs of retracting their travel behavior with us in the upcoming year regardless of the economic climate. At the same time, we are also showing lift across all existing repeat customers that are members of our loyalty programs. We are seeing a continued surge in new customers that are coming to Allegiant in record numbers from other airlines because they are seeking low fares and non-stop flights along with our strong and growing assortment of asset-light, high-margin third-party leisure products that we make available at allegiant.com. Put another way, all of these customer segments are seeking to live what we at Allegiant refer to as the non-stop life. And with that, I'll turn it over to Drew Wells, our Chief Revenue Officer.

Thank you, Scott, and thanks, everyone, for joining us this afternoon. I'm extremely pleased to close out the year with a record $2.3 billion in total revenue, easily the best number in company history and 25% higher than the previous best in 2019. When accounting for seasonality, nearly all metrics improved sequentially through the year to produce the record results. While we remained flexible throughout a lot of the year to find the right capacity levels, the teams continued to optimize incredibly well within shifting constraints to produce great results. The fourth quarter had the most stability throughout the year, and our results reflect that. Fourth quarter revenue came in nicely above the range at $612 million and 32.6% above the fourth quarter of 2019, despite ASMs ending approximately 2.5 points lower at the system level and 3 points lower for scheduled service. We did take a benefit of approximately $9.6 million associated with updated guidance on breakage factors for the co-branded credit card and the initial guidance for the Always Rewards program. Even excluding that benefit, the divergence between revenue and ASMs produced an all-time best TRASM just under $0.14 and nearly 20% higher than 4Q 2019. The yield performance in the quarter was the major upside catalyst, particularly in December. The roughly 75% sequential improvement exceeded our expectations and drove almost 6.5 points of upside to the quarter. Total ancillary per passenger exceeded $70 for the first time at the quarter level and total revenue per passenger of $151 was also an all-time high. On the weather disruption front, Winter Storm Elliott saw a revenue loss of $8 million and nearly 2 points of lost capacity. Close-in demand, some of which was rebooking of impacted customers and some incremental, was exceptional around the holidays to round out the year. Further, while the rest of Florida bounced back quickly from Hurricane Ian, Monte Gordo did see continued softness through the quarter and was a headwind of just under the expected 3 points. The impact should temper a bit into the first quarter, but we still expect a roughly 1.5 point headwind to total revenue as the region continues to recover. In November, we opened our 24th aircraft, crew, and maintenance base in Provo, Utah. Since our entry to the market in 2013, we've been the low-cost option for Provo and the surrounding areas. We began serving our 13th route Nashille on February 15, which is coincidentally our 10-year anniversary in the city. As we turn toward the New Year, we have a somewhat different story. Our midpoint year-over-year ASM growth rate of 4% would be lower than any full year other than 2011. First and foremost, continuing the successes of the second half of 2022 and ensuring a stable and solid operation is paramount to 2023. Second, our EPS guidance includes continued elevated fuel cost per gallon, which will temper the amount of off-peak growth as we continue to balance fuel and demand in non-peak periods. First quarter growth will be close to 1% year-over-year. The second and third quarters should be a bit higher than the first before a high single fourth quarter growth rate. Perhaps worth reminding that the first quarter is still slated to be 20% larger than the first quarter of 2019. The Omicron year-over-year comparison in 1Q '22, coupled with a continued robust demand environment and low growth rate should provide some runway for great unit revenue metrics. I’m expecting year-over-year TRASM growth in the mid-20% for the first quarter, and I'm extremely encouraged by the peak spring break outlook. Load factors are higher, and the discrepancy between the search volumes Scott mentioned and available inventory bodes well for yield results. Through the rest of the year, we are not contemplating material changes broadly to the economy. While we read and hear the same headlines, we have not seen any booking impact from our leisure customer base and have forecasted as such. Additionally, the network will be the most mature at any time in Allegiant's history in terms of markets in their first 12 months. Approximately only 4% of the on-sale scheduled for the first half of '23 is in that maturing window. We should also see the rollout of our Navitaire commercial platform and the expansion of our Allegiant Extra program, both providing air ancillary tailwinds weighted more heavily to the second half of the year. Collectively, this leads us to expect unit revenues in the positive mid-single-digit percent range over the last nine months as we hit more reasonable and challenging comps. There are significant catalysts for Allegiant's revenue capabilities through 2023 and beyond. We are setting an incredible foundation for us to continue to capitalize on what remains a truly remarkable leisure demand environment. And with that, I'd like to turn it over to BJ.

Thanks, Drew, and thank you to everyone on the call for joining us today. This afternoon, we reported fourth quarter net income of $52.5 million. Adjusting to exclude the 2022 employee recognition bonus and special charges related to Sunseeker, earnings per share was $3.17 in the quarter, well above our initial guidance. Catalysts behind the strength of our fourth quarter results included, of course, the sustained strong demand environment, operational improvements, which brought decreased irregular operations costs, a favorable fuel cost that was more favorable than we had anticipated, and better-than-expected non-fuel cost performance. Fourth quarter unit costs, excluding fuel, employee recognition bonus, and the Sunseeker special charge was 7.56 cents, up 12.2% compared with the fourth quarter of 2019 on 10.9% more ASM capacity. The cost increase in comparison to fourth quarter '19 was primarily comprised of 5.5 points for reduced aircraft utilization, 3.8 points in labor productivity, and 1.5 points related to Winter Storm Elliott. As you've seen in our release, we will temper capacity growth in '23 to ensure that operational integrity is prioritized. Even with this reduced capacity, we are forecasting full year airline-only earnings per share of approximately $7 on an assumed average fuel cost of $3.60 per gallon and increased labor cost assumptions related to pilot and flight attendant contracts, which for our guidance purposes, would begin midyear. With respect to Sunseeker, we expect to record our normal quarterly operating expense run rate of roughly $5 million to $7 million in each of the first two quarters of the year. We are not prepared today to provide full year guidance on preopening expenses or operating income associated with the property until we have a firm opening date on our next earnings call. Turning to CapEx, we expect total CapEx for the airline in 2023 to be roughly $700 million, comprised of roughly $560 million related to aircraft, engines, PDPs, and induction costs and the remaining $140 million coming from other airline CapEx. In addition, we expect deferred heavy maintenance costs similar to levels observed in 2022 or roughly $55 million. We expect to receive 27 MAX 8200 aircraft during late 4Q '23. While it’s certainly possible for these aircraft to be in service by year-end, we are planning conservatively for operational requirements of onboarding a new fleet type at the end of the year and have chosen not to plan ASM capacity for these aircraft until the early weeks of 2024. We remain in discussions with Boeing to finalize our 2024 delivery schedule, but we can share that directionally, we're planning to take roughly two aircraft per month throughout next year based on what we know today. For 2023, we plan to induct 7 A320 aircraft into the operating fleet throughout the year, two of which have already entered revenue service in January, and three of which were owned and non-operational at the end of 2022. We expect the bulk of our CapEx spending during 2023 to be debt financed and have been pleased with the level of financing support and attractive terms proposed to us thus far. Although 2023 will be a heavy CapEx year for Allegiant, we plan to maintain total available liquidity of roughly 2x our ATL balance and expect to end the year with roughly $1 billion in cash and investments. In closing, I'd like to add my thanks to our more than 5,600 team members for their incredible efforts during 2022. After a very challenging first half of the year, the team came together in the back half to deliver results, which reduced the financial impact of the irregular operations by over 70% as compared to the first two quarters. We're extremely proud of how the team turned the story around, particularly in the fourth quarter, and excited about the momentum we have stepping into 2023. With that, thank you, Justin. We can begin taking analyst questions.

Our first question comes from Catherine O'Brien from Goldman Sachs. Your line is now open.

I wanted to consider some of the costs related to our operations this year. I'm thinking about the effects of implementing the flight attendant and pilot contract for half the year, along with the slowdown in capacity growth. Previously, we discussed costs being relatively stable with high single-digit growth aside from labor contracts. I'm looking to understand how this influences your current EPS guidance.

Hey, Catie, it's great to hear from you. This is Greg. I'll start off here. Regarding your point on the labor contracts, as BJ mentioned, starting in the second half of the year, from July 1, we've included labor agreements for our pilots and flight attendants. For the half-year, I expect this to lead to about one-third of the CASM impact. In terms of other factors, I think IROP will provide a benefit of roughly two to three points year-over-year. We'll experience a slight headwind from inflation. The D&A will also present a minor headwind of about one or two points due to lower productivity. You noted that the ASMs are lower than what we anticipated at around 10%, which is roughly a four-point impact year-over-year. Additionally, it's worth mentioning the recognition bonus from last year, which was excluded last year but will be included this year, creating another headwind. However, when you compare these two aspects year-over-year, they seem to balance each other out. But I'll stop there. We're not providing formal guidance, so if anyone else wants to add anything or if that clarified your questions, Catie?

Yes, that was great unless anything else to add. I do have a follow-up. So this might be front-running some of the initiatives you're going to talk about at Investor Day. But now you set a new record ancillary per passenger over $70, should we think about growth from here being a little bit more tempered going forward? Like you hit a lot of low-hanging fruit or some of the new levers that are going along with Navitaire? You think there's upside to that? Just kind of like, I don't know, blue-sky like next couple of years type number, if you have it.

Yes. Thank you, Catie. It's great to see you back. I believe there are still more improvements to come. We have not implemented Navitaire yet; that is expected to happen around the second quarter. I anticipate a slight slowing down as we prepare for its potential. Additionally, we discussed Allegiant Extra. We had only seven tails in that LOPA at the end of 2022; we expect to reach 14 by the end of 2023. Many of these developments will be delayed, but we expect them to fully materialize in 2024. We will provide more details at an Investor Day regarding valuation and related topics. Scott, would you like to add anything?

Yes, I would like to emphasize that as we consider our bundled ancillary offerings, which have been a significant factor in allowing customers to purchase a more comprehensive service rather than just individual items, we still see substantial potential for growth. Furthermore, by continuing to utilize the technology foundation mentioned by Greg, we anticipate small yet meaningful improvements over time that will simplify the process of merchandising and make it easier for our customers to incorporate these options into their purchases.

Our next question comes from Daniel McKenzie from Seaport Global. Your line is now open.

Congrats to Drew and BJ. I've got a few questions here. I guess, first, just RASM up mid-single digits, second quarter through fourth quarter. Obviously, that's pretty strong. I'm just wondering if you can elaborate on that a bit. How big is the benefit that you just spoke to Navitaire and the, I guess, the Extra comfort? Is there more from Navitaire that can help drive that? And then, I guess, secondly, related to that, if there is a mild recession, to what extent would that potentially change the forecast?

Yes. Thanks, Dan. Maybe I have a slightly different perspective. I didn't view mid-single-digit positive and overly aggressive given kind of the growth cadence we have in place. It's been a long time since we had a series of quarters in the low to mid-single digits. Historically, we've had some really strong revenues along with that. If you remember back to last summer, we did have to pull out a material amount of our capacity. We did in April and took out 15% to 20% of our summer ASM, which did contribute some thrash as we think about final results, and I think that will be able to buoy this year a little bit more. Navitaire coming online will certainly support. Like I mentioned, we'll get into a bit more in terms of valuation, whatnot through Investor Day, but that will provide a bit of upside there. So all in all, I do think it's a reasonable revenue target and not something particularly aggressive.

Hey, Drew, and this is Greg. I might add, Dan. Just some other puts the items to think about last year. We talked about IROP already in our opening remarks, then $100 million full year, right? But a big chunk of that is lost revenue. So that's going to be a helpful comp year-over-year on these unit revenue numbers. The growth, although it's limited that Drew is looking at, it's measured, it's de-risked. It's in markets that already exist today. So we're not going out and trying to add new markets. There's already a maturation there. And then the other thing, maybe just to your point about potential recession is our utilization per aircraft going into this year is low, 6.2 hours. In 2019, by way of comparison, it was eight hours. And so we already have the lower utilization, and our model is built to flex in those peak periods to capture that demand. So I think we're just very well positioned in the event we do see a slowdown.

Yes. As we look ahead to the next few quarters, we anticipate that only 20% to 25% of our capacity will be utilized on off-peak days, aligning with what Greg mentioned. We are well positioned to meet the travel needs of leisure customers. We recognize their strong resilience and will monitor the impact on fares across the industry if conditions change. The leisure customer is still eager to travel; it's just about identifying the right price point to encourage that travel.

And on the inflation front, I mean, we have great visibility on the first half of the year, for sure, the first quarter. So, to the extent there are any modest inflationary pressures, we just don't feel or see it, but it's going to be back-ended in the year to the extent there is anything.

Wow, that's a great perspective. I can get a second question in here. I guess, BJ, I'm already getting inbound on negative free cash flow this year. It's a solid outlook to be sure, but I'm just wondering if you can speak to that. And if the plan is to use cash on the balance sheet, potentially equity or additional debt if we could potentially just take that worry off the table?

Thank you, Dan. Most of our capital expenditures this year are financed through debt. Greg, if you would like to share specific numbers, we are looking at potentially bringing in over $450 million in new debt, which we can manage as we progress through the year. Additionally, we have between $150 and $200 million in principal payments. I want to highlight that we see excellent terms for financing that will support our capital expenditures. Sunseeker is already financed at a favorable interest rate, which we are very happy with. Regarding the aircraft, appraisal values have increased by about $3 million to $3.5 million since we placed our order in late 2021. This positions us well to secure financing and attract interest for supporting the airlines.

This is Greg. I wanted to add a couple of points to BJ's comments. While we plan to increase our leverage, the midpoint of our guidance for 2023 indicates that we will have around $500 million in EBITDA. Considering our net leverage, BJ mentioned that we expect to finish the year with $1 billion in cash, which, after accounting for debt, will result in $2.5 billion in total debt and a net debt of $1.5 billion. Thus, a net leverage ratio of three times remains manageable. However, this is a period of reinvestment for the Company. We are putting money into assets that have not yet begun generating revenue, and we are doing so with a robust credit position. As we move into 2024 and thereafter, we anticipate a swift reduction in leverage.

And our next question comes from Helane Becker from Cowen Securities. Your line is now open.

Two questions. One is, as you think about your ASM growth being so low single digits this year, how are you thinking about where to prioritize the growth? Or in other words, is it new markets? Is it increased service in existing markets? How should we think about that?

Sure. Thanks, Helane. It's not a lot of new markets. For the first half of the year, only about 4% of our ASMs will come from markets in their first 12 months. And within that, we have a few new markets starting here in the first quarter, and that's about it. It's pretty minimal. I focus more on the restoration of a little bit of that frequency if we can get it. But when we're talking 1% in the first quarter and a small step up, there's not a ton beyond that.

That's helpful. My follow-up question is regarding the Sunseeker resort in Punta Gorda and the surrounding region, particularly considering the growing concern about climate issues impacting many companies. Last year, this was a significant challenge for you. How are you addressing hurricane seasons going forward, specifically in terms of protecting the resort from future impacts?

Helane, this is John. Hurricanes have been part of Florida's landscape for a long time. The state has adapted over the years by updating building codes and implementing technologies that allow for different construction methods and operational practices. When we designed the resort, we took these factors into consideration. Many of you may not have realized this at first, but we constructed the resort 16 feet above the average height of the pipeline to avoid damage, except for falling cranes. If you examine the worst hurricane referred to in Florida's history, our resort would have survived the type of storm surge experienced in Port Myers without any issues, with water flowing beneath the building. We are the only resort in Florida built to withstand such conditions and we meet Category five building standards. This approach reflects how we have adapted to Florida's climate challenges, and I believe others are doing the same, whether in commercial buildings or homes. Homeowners are likely to change their building practices after seeing the impact of events in Fort Myers. We are very pleased with our construction and are well-prepared to handle any future storms in Florida. To emphasize, we wouldn’t have faced any issues had it not been for the falling cranes. It's important to note that the last significant hurricane in Southwest Florida before this was Charley in 2004. These major storms are not annual occurrences; they may happen annually in some areas, but not necessarily in the same region. There were 18 years between Charley and the next significant hurricane in 2022, which, had we been completed, would not have impacted us at all.

And our next question comes from Brandon Oglenski from Barclays. Your line is now open.

Congrats on all the promotions. But John, I guess, as you look at 2023, you have had some leadership changes. You're pulling back growth, as noted in the earlier remarks, since I think 2011. So how do you put this in context? Like what are the strategic priorities for the organization this year? Is it preparing for the MAX? Is it really giving some figure up? What do you want investors to take away from this year?

I mean, you're hitting on them, a couple of them right there. We started in '21; we started it in '22, significantly investing in it, which was all of our plumbing and electrical, all the package, if you will, we've been spending significant sums of money to make sure that we are at the leading edge of technology in all of our systems. By the end we will be at that leading edge with everything and all of them turned on and operating. All the system investments, Greg touched on SAP, Navitaire, NAVBLUE—that's a heavy lift. You look at in '22, for instance, we spent in the neighborhood of about $50 million alone on all the technology upgrades, if you will. So that's a big initiative, which allows us to do everything from Viva, that relationship to obviously operate and yield what we're doing in a much better format. The Viva relationship is very strategic for us. We had to fix some of the technology in order to accommodate that. We reached to do that, and we're in great shape to do that. Now we're just waiting on all the regulatory approvals. Boeing in the MAX mean that's well understood. We know it's back-end driven, Q4 really driven. But there's a lot of work that has to be done leading up to the receipt of any plane. So that's all being done. So we like where we're at. I mean the resort is an obvious one. We've been working on that for some time. We've actually had delays that have taken longer than what it has taken to build it. Obviously, I had nothing to do with anything we did, but we are scheduled to open that in '21. But all of these are major initiatives that are driving major CapEx in the last 1.5 years to 2 years that we're not going to see any revenue benefit from until the back end of this year. BJ and Greg touched on that. But we are in great shape with all these initiatives. The team has done a great job. We have a lot of people focused on it. They're working, burning the midnight oil, as I say. But we like where we stand. We're not falling behind on anything, and we're well-positioned to be able to absorb all of this significant growth that the Company has taken on with all these new opportunities.

And John, if I might add, and you hit on this in your opening remarks, and Brandon, maybe it's already stating the obvious, but the airline is at the heart of everything we do, operational integrity, as I hope you heard in the opening remarks, is number one, too—that's top priority. And as John mentioned, getting a deal for our crew members, our flight attendants, and pilots is the highest priority. Our Executive Chairman, Maury Gallagher, continues to spend time or has been spending time trying to make sure we continue to move and advance this ball and get a deal done with our crew members as soon as possible. So I know that probably went without saying, but all of that is a very high priority for us as we think about '23.

John and Greg, I appreciate that. And I guess specific to the growth this year because you had been planning for more. And I think, Drew, you spoke to this a little bit, but is this really demand-related cost related or operational integrity? What are the constraints right now? Is it really pilot availability that's constraining your ability to grow? Or is this commercial as well?

The demand environment is still extraordinarily robust. So that is not a concern. We're generally scheduling up to our first operational constraints in many months. That's going to be our pilot headcount; in others, it might be the number of available tails we have given our heavy maintenance lines and how we try to structure that with some peaks and valleys. So that's primarily the driver. As we get into the back half of the year, in preparation for the first MAX deliveries, we will have to start pulling some crew members off the line to begin training in order to be ready to fly those as early as possible. So we'll run into a little bit more of that being kind of the constraints as we get later into the year.

And Drew, I might add that our team is eager and ready for what’s to come. As you mentioned, we've planned for a larger organization, which means there are some pacing issues, such as crew constraints. However, once those constraints ease up, we are prepared to move forward. Our infrastructure will support that, and we see this as a long-term view. We are excited about this and are actively working towards it. Therefore, you may notice that next year or in 2025, there could be growth that exceeds the norm when compared to our aircraft count, as there is potential for increased utilization. In 2023, we are currently flying an average of 6.2 to 6.3 hours per day per aircraft. If we can increase that by an hour, it will naturally enhance our capacity. I wanted to make sure to mention this as well.

And our next question comes from Duane Pfennigwerth from Evercore Partners. Your line is now open.

I don't know if the one question was just meant for me, but I'll respect it. On the 4Q revenue outcome, you touched on the breakage, I guess if you could go into a little bit more detail on what were the drivers of the upside and on base fares in particular. Any particular markets and I think the pattern we've seen in the last couple of quarters is that there was kind of an inability or constraints to flex up in these peak demand periods, and that was kind of holding you back. Is there something that has changed or something you're doing differently that is helping you kind of flex back up in the peaks again unlike the last two or three quarters?

Duane, I’m not sure that’s entirely accurate. Some of our best performance before the holidays occurred during the summer, although we weren't able to achieve the same yield levels. There has always been a distinction between holiday travel and spring break compared to summer travel, which has a much broader time frame. The holiday demand is very concentrated, particularly around Christmas and New Year, while summer demand is more spread out. We were able to effectively capitalize on that concentrated demand window, whereas I don't believe we were able to do the same during the summer. Everything still looks promising, with October showing healthy results. There aren't any specific issues to highlight; overall, things appeared strong, perhaps with a slight outperformance during the holiday period due to those tight demand windows.

Yes. I think I'm going to contradict myself. Is the guidance just for airline EPS, or is it for consolidated EPS?

Yes, Airline EPS.

And our next question comes from Michael Linenberg from Deutsche Bank. Your line is now open.

Congrats to the team on the promotions. Just one here. I guess Scott DeAngelo, you called out, you talked about the loyalty of your customer base and you provided some qualifiers around it. I thought it was interesting that you called out Southwest and other airlines of where you were getting passengers or picking up new customers. Is the Southwest mention? Is it because of the overlap that you have with them? Or more recently, are you actually seeing meaningful traction in the markets where you may compete head-to-head or just in their backyard?

Thank you for the question, Michael. It is more of the former. We tend to have the most overlap with them. When you ask our customers who they last or most recently flew with, about one-third of the time they will say Southwest. Although it's convenient for the market to classify us alongside other ULCCs, we don’t actually have much overlap with those airlines. The next three airlines that are mentioned when asked who they last or most recently flew with are consistently Delta, American, and United in that order. Many of our customers fly with the regional branches of those airlines but identify with the overall brand. This was simply meant to illustrate that even in a potential recession, I encourage the market to consider, if there is any contraction in leisure travel, the segment of ULCC. Our data suggests that even if the total market were to decrease, our share would continue to grow as customers from Southwest and other network carriers increasingly opt for ULCCs due to our focus on non-stop travel. I hope this provides some clarity.

Well, Scott, on the survey, when they give you the airline, what is the number one reason? Is it because of fares? Or is it because they had a lousy experience? I'm just curious.

Yes, usually non-stop flights and fares are the top reasons for choosing an airline. Schedule is the third reason but ranks much lower, while preferred airport and other factors tie for fourth place and beyond. We haven't noticed a significant increase in demand due to a single negative experience, but overall disruptions, particularly with connecting flights, tend to push customers toward non-stop options. As you know, all our flights are non-stop, which is a crucial factor during times of disruption, whether caused by weather or other irregular operations. Every airline faces this challenge. While getting canceled or delayed at your origin or destination is one thing, nothing is worse than being stuck in the middle. This is why we see many customers gravitating toward an airline that only offers non-stop flights.

And our next question comes from Andrew Didora from Bank of America Merrill Lynch. Your line is now open.

Just a question on the CapEx, right? I think last call you said a floor of like $500 million on CapEx. I guess at the time I never thought it could be north of the $700 million you just guided to. I guess, one, what are the big buckets of CapEx kind of that are coming in this year ahead of plan, particularly on the non-aircraft side? And then when you think about the CapEx, and I know you can finance a lot of this. How do you think about minimum liquidity going forward? Because I would think with the MAX pushed out to 2024 deliveries, CapEx will be pretty high next year as well.

Andrew, it's Greg. I'm going to kick it off real quick, and BJ will walk through a little bit more detail just because I think I'm the one that threw out that floor of $500 million of CapEx next year. Really, there was a lot of uncertainty around the timing of the Boeing aircraft being delivered in '24 and PDPs. We wanted to throw that out as a floor; that will be no less than. So we've had more time to work through that and understand the timing, which is now why we're updating you with those numbers. But with that, BJ?

Yes. Andrew, just on that same point, if you think about a large portion of the aircraft being paid for in the calendar year prior to delivery, so with so many aircraft moving into 2024, you've got a lot of CapEx going out for pre-delivery deposits this year. I think that's actually our largest CapEx commitment this year is pre-delivery deposits. Then you have the two aircraft delivering from Boeing in the fourth quarter of this year. Remember, we also slid four placeholder aircraft from 2022 into 2023. So a lot of this CapEx was sliding from '22 to '23 and then paying PDPs for '24 and '23.

It’s about $135 million in total non-aircraft CapEx, $60 million to $70 million that's going to be that IT investment that we were talking about. You have some sims and simulators that we're going to be acquiring to take on the delivery of the Boeing aircraft or fleet. The remaining would be just your normal kind of standard CapEx, maintenance CapEx, such as parts, tools, things like that.

And our next question comes from Savi Syth from Raymond James. Your line is now open.

Just on the kind of the pilot and flight attendant deals. What have you seen in terms of attrition levels or kind of being able to staff that well? I'm just curious if you're only getting a deal by midyear that means as you head into the summer, you will be kind of having a headwind versus a lot of other airlines that have increased pay deals. So just curious on what you're expecting there and what you're seeing there.

Savi, it's Greg. I'll take a shot at this. The main point is that as we plan for 2023, we are approaching it conservatively regarding attrition and onboarding, ensuring we have enough resources and crews for peak flying seasons like March and the summer. For the entire year of 2023, we are anticipating about a 25% attrition rate among pilots, compared to 17% in 2022. In the last three months, it has been around 20%. This indicates that we are planning for attrition to be higher than what we've observed historically or in the recent months. Regarding our training capacity and the ability to attract new pilots, we expect to hire around 12 new pilots for each class. In January, we held two classes with a total of 30 pilots. Overall, we're estimating around 200 to 250 new pilots will join Allegiant this year. We're thrilled about the efforts of Tyler Hollingsworth and Rod Hardisty, our Chief Pilot, along with Tyler, our VP of Flight Ops, who are actively recruiting and enhancing our pathway programs from six to eight. We are strategically taking steps to manage our future, but we're also preparing for a less favorable scenario. Overall, we feel positive about our plan.

I am showing no further questions. I would now like to turn the call back over to John Redmond for closing remarks.

Well, we appreciate everyone's time and questions, all great questions. You can see why we're excited about '23 and the out years. Greg uses the term spring coiled as he mentioned for '24; we wouldn't be in a position but to the investments in '21 and '22. So we're excited. Of course, those investments, as we touched on, are not only in IT infrastructure, etc., that we're doing, but also all of the employee investments, everything from pilots, flight attendants, to everything else we're doing. So it's a heavy CapEx lift, but it's needed and required in order to take on the growth that we're driving moving forward. So stay tuned, '23 is going to be amazing, but '24 will be really something else. Thank you, everyone.

This concludes today's conference call. Thank you for participating. You may now disconnect.