Good morning, and thank you for joining us. Welcome to the Q3 2023 Allegiant Travel Company Earnings Conference Call. Currently, all participants are in a listen-only mode. After the presentations, we will have a question-and-answer session. Please note that today's conference is being recorded. I will now turn the call over to our speaker, Sherry Wilson. Please proceed.

Thank you, Lisa. Welcome to the Allegiant Travel Company's Third Quarter 2023 Earnings Call. On the call with me today are Maurice Gallagher, the company’s Executive Chairman and CEO, 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 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, please feel free to visit the company's Investor Relations site at ir.allegiantair.com. And with that, I'll turn it over to Maurice.

Thank you, Sherry, and hello again. Some of you may recognize my voice. I hope you've all been well the past 1.5 years. It's good to be back. As you saw in our release, Allegiant Airlines generated an operating profit in Q3 after adjustments, marking our 11th quarter in a row of airline operating profits beginning in Q1 of '21. Our year-to-date 2023, 13% airline operating margin leads the industry for those that have reported. And we have achieved these results while continuing to invest for the future. During the past quarter, we've installed two substantial management systems, SAP and Navitaire, both of which are operating as I write this. As you saw at the top of our release, Sunseeker will open December 15. It's been a five-year effort, almost three years longer than planned, but the wait will be worth it. Micah Richins, our Sunseeker President, and his colleagues, Jason Shkorupa and Paul Berry, all MGM Las Vegas veterans, are putting the final touches on this magnificent project. The critical reason I endorsed Sunseeker was the quality of this management group. Our ability to attract these gentlemen to convince them to work for a startup and move their families to Florida speaks volumes about their belief in this project. Micah is here with us today and I'm happy to announce he'll be available to answer any questions. Our first MAX 8200 is scheduled for delivery in early 2024. Our MAX fleet will feature premium seating of just over 50 of our 190 seats and will improve our economics in the years to come, aside from the benefits related to quality and number of seats, which will provide substantially improved fuel burn compared to the Airbus, improved reliability, maintenance time, while maintaining a comparable Airbus ownership expense. We are excited about onboarding the MAX in the coming years and beyond. During the past few months, there have been discussions concerning the structural shift in our industry, particularly as it pertains to the ULCCs. We entered the market that Frontier invented over the past 20 years, focusing on low cost and high growth for our leisure customers. There have been and still are differences between our business model and the Frankie-centric model. Ultimately, you judge us on our profitability. Costs are part of the equation, but having the lowest cost does not guarantee success. At Allegiant, we have a flexible model focused on flying when our customers want to fly. To put it another way, we minimize our flying in off-peak periods and maximize capacity during peak periods. This has been our model for over 20 years. Furthermore, our direct-to-customer sales approach is less expensive and allows us to capture important customer information. I might add we have over 18 million names in our customer database at this point. It also allows us to capture more of a leisure customer's wallet with our third-party revenue program. In the past five years, we have prioritized enhancing our brand as well. These efforts include adding Allegiant Stadium, our soon-to-be-open Sunseeker Resort, our best-in-show completion percentage, and our number one ranked credit card program. All of these elements are difference-makers. These investments have allowed us to maintain unit revenues that have been consistently higher than those of high utilization ULCCs. Today, we are achieving revenues that are as much as 40% higher. As we all know, revenue production is a crucial focus. Our revenue performance is one of the key differences that sets us apart from the ULCC crowd. Our network structure is also different. We have operated with an out-and-back schedule since our earliest days. It's much simpler to manage than the traditional hub and spoke model. Each route stands alone. We monitor expected capacity and thus profitability closely. We are diligent in managing individual route earnings. We have a 22-year history of consistent profits and growth with this scheduling approach, industry-leading profits, I might add. Additionally, by focusing on smaller cities and finding destinations, we have been able to own the majority of our markets. 75% of our routes have no direct competition. As I mentioned, we own these markets. This contrasts with the 90% overlap that high utilization ULCCs are dealing with in our networks. Lastly, we have identified as many as 1,400 new domestic routes that we could add in the coming years, alongside the addition of our international partnership with Viva. A subtler difference has been the pace of growth. Over our 22-year journey, we have grown to a fleet of 127 aircraft, averaging 5.7 additions per year. Others in this realm have grown at a significantly faster pace, adding aircraft almost three times as quickly each year. Meanwhile, others have planned deliveries in the upcoming years poised for double-digit yearly additions, creating potential operational challenges, including a concentration of the same aircraft type, which has historically been sought after but today has become a liability due to challenges with the Pratt Motor. Operational size and complexity may outpace management experience, and lastly, there is the pronounced competitive response given the network overlap with the larger incumbent carriers. We are built for the long haul for consistency. We are optimistic about the future. I understand there's a new label circulating for ULCCs - low margin airlines (LMAs) - that description doesn't accurately define or fit our model. Given the names involved and the emerging ones, I propose a new label for us: no more ULCC and certainly no more LMA. From now on, we will be recognized as a PLFC, Profitable Leisure-Focused Carrier. We are in a class of our own. Lastly, I want to thank our team members. The past three to four years have been difficult. They have supported our passengers with safe, reliable, and friendly service. They have operated the best airline this year, achieving an industry-leading 99.8% completion factor. In an era characterized by poor service and flight cancellations, they have returned us to where we belong – at the top of the pack. Thank you very much. Greg?

Maury, thank you. It's great to have you back. As we navigate broader macroeconomic uncertainties concerning geopolitical risks, inflation, and high-interest rates, there seem to be signs of structural changes occurring in our industry. In the face of these uncertainties, Allegiant is uniquely positioned to continue reshaping the leisure travel sector. We have been reinforcing our foundation to do just that. Operational excellence underpins everything we do, and our year-to-date controllable completion of 99.8% demonstrates that, resulting in a staggering reduction of nearly $100 million or 75% in total IROP costs year-over-year. Our disciplined approach to costs, particularly our variable cost model, provides us with a competitive edge as we adjust capacity to suit the environment. Whether it's day of the week, month of the year, or route by route, our planning teams are expertly matching capacity with leisure demand. As leisure demand seasonalities have normalized, we are advancing a measured approach to increase utilization during peak demand periods, or in other words, peak the peaks. For example, average aircraft utilization was seven hours during the summer, and increasing that by one hour could drive roughly $50 million more in earnings. The composition of our mixed fleet, balanced with both low per seat and low per trip costs, will further benefit us by deploying the right gauge aircraft in the right markets at the right time. Our 737 MAX aircraft will enhance fleet flexibility with a nearly 20% fuel burn advantage yet a similar ownership cost profile, bringing incremental earnings power of more than $2 million per MAX aircraft compared to our existing fleet. Furthermore, we are excited to expand premium seating options for our customers. Every MAX aircraft delivered will be put into service within the Allegiant Extra configuration, while retrofitting of the in-service A320s is already underway and will continue over time. Our Allegiant Extra product continues to perform well and is in high demand among our customers, providing significant value. During 2023, we expect to fly nearly 18 million customers. Notably, we are the most convenient and only nonstop option available on approximately 75% of the routes from the communities we serve. Our direct distribution strategy, coupled with our brand's continued ascent, is unlocking deep, long-standing relationships with our customers. On an annual basis, nearly two-thirds of our customers return to us for their travel needs, with 12 million being members of our award-winning Allways rewards program. This is fueling the impressive growth of our aspirational loyalty program, which Scott will discuss momentarily. Our continued investments in technological upgrades to foundational systems such as SAP, Navitaire, Trax, and NAVBLUE not only optimize scale and offer new capabilities but also free up development resources for strategically differentiated products aimed at driving more revenue or reducing costs. Furthermore, Navitaire will enable our international expansion to coveted beach destinations in Mexico alongside our joint venture partner, Viva Aerobus, once we secure the required government approvals. Each of the initiatives mentioned should deliver significant long-term benefits for the company. However, none have a more fruitful impact than Team Allegiant. As we listen and learn from our team members across the organization, I am continuously motivated by their commitment and passion. They are dedicated to caring for our customers and for each other. Though we recently ratified and extended two of our four labor agreements, we still have two to finalize: one with flight attendants and one with pilots. I want to reiterate management's commitment to reaching agreements that our flight crews will proudly support. What Team Allegiant has achieved this year is nothing short of remarkable. Currently, our broad presence supports 125 cities with over 550 routes throughout the U.S., and we are positioning for profitable airline growth as the environment allows. Allegiant's business model and our role within the communities we serve have engrained us within the leisure travel industry's fabric across the nation. We have identified over 1,400 additional routes that fit seamlessly into the Allegiant network. As we expand into these markets, we will further validate our essential role in the travel industry across the U.S. To conclude, I want to express my sincere gratitude to all our team members. Together, we are operating a remarkable airline. Together, we have meaningfully strengthened our foundation, and together, Team Allegiant has demonstrated that we are unstoppable. Thank you. Scott?

Thanks, Greg. The third quarter saw a continued post-pandemic normalization of domestic leisure travel demand. We witnessed peak demand levels during July with top bookings and load factors that surpassed last year's historic highs. However, in August, we experienced a slight decrease in demand compared to the prior year as schools resumed mid-month for many of the cities we serve, marking the end of the summer vacation season. We also saw further modest declines in September vs. the previous year as we officially entered the off-peak leisure travel season. As you know, our business model is centered on the domestic leisure traveler, and these fluctuations between peak and off-peak demand have existed regularly before the pandemic. A year removed from unprecedented levels of pent-up travel demand in 2022, these familiar fluctuations have returned this year. That said, there are two potential headwinds to domestic leisure travel demand that are being widely discussed in the industry, which I'd like to address based on what we're observing and hearing from our customers at Allegiant. The first is the economy. We conduct a weekly customer sentiment tracking survey where we ask our customers how they perceive the economy. At the beginning of the third quarter, about 50% of respondents felt that the economy was getting somewhat or much worse. In the past few weeks, that number has escalated to nearly 70%. However, during that same period, as captured within the same survey, the percentage of customers indicating they intend to book air travel within the next 90 days has remained virtually unchanged. We believe this seeming contradiction can be reasonably explained by the majority of our customers indicating their travels are aimed at visiting friends or family, as well as by the significant portion of our customers who noted they travel between a primary residence and a second vacation home. As we've mentioned previously, our experience has been that these forms of leisure travel remain the most reliable and resilient during economic slowdowns. The second headwind is international travel. In the past quarter, we've surveyed our customers weekly on this topic. Consistently, close to 20% of our customers have indicated that they either traveled or are planning to travel abroad this year. However, nearly 90% of those confirmed that their international travel is in addition to, not a replacement for, their domestic leisure travel plans. While these perceptions may differ from what other airlines are observing or expressing, they likely reflect Allegiant's unique low-utilization business model, focused on selling our all-nonstop route network directly to consumers, bolstered by a surging brand and winning loyalty programs that effectively engage and reward the domestic leisure traveler. Speaking of our loyalty programs, our most active segment within the Allways Rewards program is, of course, our co-brand credit cardholders. Year-to-date in the third quarter, these cardholders have demonstrated an 11% increase in spending on the card per holder compared to last year. Additionally, our co-brand cardholders continue to show strong travel frequency and spending, with net revenue increasing 10% year-over-year. Through the third quarter, total compensation from our co-brand credit card program reached $88 million, reflecting a 14% increase over last year and putting us on track to exceed $100 million in total program compensation for the full year. Our Allways Rewards non-credit card program is also displaying strong positive influence on customer behaviors. Year-to-date in the third quarter, nearly 13 million passenger segments have been booked by Allways Rewards members, which is a 17% increase over last year. For the same timeframe, spend per member has also increased approximately 5% compared to last year. Finally, as Maurice mentioned, we have made significant progress in completing enterprise-wide implementations that establish a modern technological foundation across all areas of our business, which will free up technology development capacity for smaller but critical enhancements to our website, mobile app, and loyalty programs, helping us supercharge our revenue generation efforts outside the aircraft and through high-margin third-party products and loyalty program partnerships. We believe that these enhancements will further distinguish Allegiant and diversify the ways we generate revenue. With that, I would like to turn it over to our Chief Revenue Officer, Drew Wells.

Thank you, Scott, and good morning to everyone. I'm very pleased with our record third-quarter performance, totaling $565 million in total revenue, which represents nearly a 1% increase on system ASM reduction of 0.4%. This combination produced a TRASM of $12.78, surpassing any prior third quarter and reflecting a year-over-year growth of 1.4%. Our commitment to aligning capacity with demand positioned us for success in the third quarter, with nearly 45% of our scheduled ASMs operational in July and only marginally more than half of July's flying in September. However, we remain significantly constrained during the peak demand periods, limiting our ability to fully align capacity effectively. Despite the relative imbalance in flying levels in July, our utilization remains almost 2.5 hours per aircraft per day lower than 2019 and is lower than any year since 2015, when MD-80s accounted for over 60% of our ASMs. We have demonstrated the capacity to achieve peak performance, and as always, we will continue to schedule peak periods to the very first operational constraint, either aircraft or crew, and anticipate restoring utilization alongside the resolution of those constraints. As we adapt to the new normal in the travel industry, one aspect of pre-pandemic travel has firmly returned: the gap between peak and off-peak performance. For instance, in September 2023, our unit revenue on Saturdays post-Labor Day was approximately 30% lower than that of July Saturdays, aligning with the historical variance between peak and trough revenues. Last year, this figure was merely 15% worse. As is expected, this combination of outperforming off-peak periods in late 2022 and the subsequent normalizing of demand this year presents a challenging environment for year-over-year comparisons. This reality makes me even prouder of the results we achieved. A considerable part of our success can be attributed to the ongoing growth of our air ancillary products, which has increased approximately 10% on a per passenger basis year-over-year. First and foremost, our innovations and experiments with bundled ancillaries continue to yield remarkable progress. Additionally, our Allegiant Extra contributions on a per flight basis have improved year-over-year across every quarter, even as we increase the number of configured aircraft. By the end of the year, we expect around 11% of our fleet to be configured for Allegiant Extra, with plans to expand that to nearly 30% of the fleet by the end of 2024. Further enhancing both air ancillaries and the overall Allegiant Extra program are the anticipated improvements coming from Navitaire. One implication of specific internal development is a temporary mismatch between existing capabilities and off-the-shelf products. While we have immense confidence in the potential upsides that Navitaire brings, we foresee minor headwinds in the fourth quarter due to a short-term reduction in functionality. It is essential to highlight that the entire leisure demand ecosystem remains well above pre-pandemic levels, with July remaining roughly flat compared to 2022 and showing a significant uptick of high teen percentages compared to 2019. Among the airlines that have reported thus far, Allegiant remains the only carrier with double-digit increases in both capacity and unit revenue year-over-year, both for the third quarter and through year-to-date metrics. We are also observing signs of normalization as we transition into the fourth quarter, expecting TRASM to be reasonably aligned with the pre-pandemic historic median sequential change while certainly down from the extraordinary 4Q 2022 comparisons. However, it should still yield better fourth-quarter TRASM than any pre-pandemic fourth quarter, with the preceding nine months of 2023 TRASM remaining higher than that of the first nine months of 2022. Additionally, we anticipate growth in the fourth quarter of around 5%. This should position our total scheduled service capacity up approximately 1.5% compared to the entirety of 2022, while system capacity is expected to rise by roughly 1.8%. Growth during the quarter is concentrated in two specific areas: weeks with notably large forecasted declines in costs per gallon, such as in October, and holiday weeks that extend into early January 2024. Even so, we anticipate that holiday flying will still be below our ultimate targets. Nonetheless, we believe we've mastered the right balance of profitability and operations within the limitations we have, particularly after last year's weather-impacted holiday operations throughout the industry. Moreover, we are proceeding cautiously with capacity in early 2024, given a multitude of evolving factors including Boeing deliveries, crew transitions, training, and persistently elevated fuel costs. I predict that the first half of the year will remain relatively flat, ultimately aiming for a full-year target of mid-single-digit growth. Historically resilient, the holiday weeks have produced remarkable outcomes, with Labor Day in September recording a record-breaking performance. I maintain high expectations for holiday performance while acknowledging the anticipated normal leisure softness around those periods. With that, I'd like to turn it over to Robert.

Thank you, Drew, and good morning, everyone. Today, we reported our financial results for the third quarter of 2023, which included an adjusted consolidated net income of $2.7 million and adjusted earnings per share of $0.09. Included in those results are approximately $6 million in costs associated with resort operations ahead of opening our Sunseeker property later this year. The adjusted net income for the airline was $7.9 million, yielding an adjusted airline earnings per share of $0.31. Total operating revenue for the quarter amounted to $565 million, a 1% increase over the same quarter last year, resulting in the highest third quarter revenue in our history. This was achieved amidst a slight capacity reduction of 0.8% and a TRASM of $0.1278, which was a 1.4% increase compared to the same quarter last year. Fuel costs surged sharply starting mid-August, driving our September cost per gallon up by 27.5% compared to July. Consequently, our average cost per gallon for the third quarter reached $3.09, reflecting a 15% increase over the prior quarter and bringing our full-year cost per gallon estimate to $3.12, up by $0.22 from our prior guidance of $2.90. We recorded adjusted non-fuel unit costs of just under $0.085, which marked a 9.5% increase when compared to the third quarter of 2022. Our increase in non-fuel unit costs primarily stemmed from approximately seven points attributable to wage increases for frontline employees, inclusive of our pilot payroll accrual, which was active throughout all three months of the quarter. Other contributors to the unit cost increase included 1.7 points related to reduced asset utilization, approximately half a point due to inflationary pressures within aircraft maintenance and station operations, and the remainder accounted for a few other items. Assuming a full year fuel cost projection of $3.12 per gallon, our expectations for adjusted airline earnings per share at the midpoint stand at approximately $8.15, a decline from the earlier estimate of $11.75, driven by the fuel cost increase of $2.40 per share and the diminished off-peak revenue contributing to an additional $1.20 decline. As Maury noted, the opening of Sunseeker has experienced a two-month delay. Therefore, we can now anticipate only about two weeks of revenue production during the year, which adjusts our full-year Sunseeker guidance to an anticipated loss per share of $1.75, down from our previous estimate of $1.20. While I am pleased to observe significant improvements in 2023 relative to the previous year regarding our financial performance, we acknowledge that further work is still required to return to sustained industry-leading margins. We have made considerable investments in the business this year, and we remain confident that these investments will yield expanding margins in the years to come. At the close of the quarter, our balance sheet indicated net debt of $1.3 billion and proximate liquidity of just under $1.3 billion, comprising $1 billion in cash and investments and $280 million in undrawn revolvers. Additionally, we have secured over $400 million in committed financing for upcoming aircraft deliveries and pre-delivery deposits. We successfully refinanced seven A320 aircraft during the quarter, utilizing the proceeds for the prepayment of a $150 million bond due in 2024. Now, with committed financing covering the majority of our CapEx obligations up to the second quarter of the upcoming year and our largest 2024 maturity now repaid, we expect to maintain liquidity at a minimum of twice our air traffic liability or $850 million by year-end. Our capital expenditures in the third quarter totaled $157.6 million, with $112 million allocated toward aircraft inductions and pre-delivery deposits, $45.5 million for other airline CapEx, and deferred heavy maintenance costs amounting to $14 million. Expenditures related to Sunseeker reached $71.6 million. Our current guidance lowers our full-year 2023 projected airline CapEx, excluding heavy maintenance, to around $590 million, largely due to the shifting timing of aircraft deliveries, thereby deferring some of this expenditure into 2024 and 2025. Regarding our fleet, we added one A320 aircraft this quarter, which was indeed owned and held at the end of the second quarter. We expect to purchase two additional A320s during the fourth quarter, after which we will begin receiving deliveries of our 737 MAX order book in early 2024. Throughout this quarter, we finalized an amendment with Boeing regarding our order for 50 737 MAX aircraft, with firm aircraft now scheduled to deliver through the fourth quarter of 2025. We have transitioned six of our MAX seven positions to the MAX A200 variant and are pleased to now have 80 options in our MAX order book. This secures opportunities for fleet growth until 2029 and gives us tremendous flexibility, allowing us to assess the performance of a new aircraft type in our operations before making more significant commitments. I am satisfied with our financial performance to date, which achieves an adjusted airline operating margin of approximately 13%, despite the sustained high fuel prices. Our low utilization model positions us well to strategically deploy capacity in line with seasonal demand trends, which we will enhance with the introduction of more efficient aircraft next year. By our next earnings call, we anticipate the opening of Sunseeker, the delivery of our first MAX aircraft, and the realization of benefits from Navitaire and the systemic investments we've made in 2023. While we are not yet entirely out of execution risk, we are excited about the positive momentum surrounding these initiatives as we head into 2024. Thank you, Lisa, and we can now begin taking analyst questions.

Thank you. Our first question today will be from Michael Linenberg of Deutsche Bank. Your line is open.

Hi, everyone, this is actually Shannon Doherty on for Mike. Maury, congratulations and welcome back. If I may, you guys' first half results were much better than the second half. However, there was a quite meaningful deceleration in earnings into the second half. How does that impact your decision-making for 2024 when you consider capacity, which markets to serve, and fleet planning? Any insight here would be helpful.

Hi, Shannon. This is Greg. Let me kick it off. There were components in the first half of the year contributing to the stronger performance versus the second half, including demand strength in off-peak times and fuel. As we think about 2024, we're open to the idea of unlocking many benefits from the investments we've made. First and foremost, from my perspective, we want to ensure we finalize labor agreements for our flight crews. That remains a key element. Both Maury and I, alongside Scott, alluded to the fact that we’re implementing next-gen type systems through massive investments that have required significant man-hours. Now, we need to learn how to use these systems efficiently and optimize further. Moreover, with the opening of Sunseeker and the introduction of the Boeing aircraft, we're navigating several investments in the business that I believe will enhance our standing. It's essential to note that 2023 was about leveling operations. We prioritized operational excellence and integrity, and we’ve achieved that. It's now about how we balance growth as demand normalizes, and how to effectively maximize our peaks.

Yes. As I highlighted in my remarks, the peaks are always subject to any operational constraints. At present, we're seeing more constraints than usual. A solid portion of our annual earnings comes from peak periods, and when circumstances align, we can expect to return to those levels. In the past few years, we've kept departures similar during peak days of summer, which isn't something we've typically experienced, but I’m confident we can scale back up over time.

On that note, I want to emphasize that the third quarter is always our weakest quarter. Consequently, our fourth quarter has yet to exhibit full activity due to a resetting back to traditional network processes. People are adapting to previous settings and operations. As Drew and Greg mentioned, 2024 will be when we really begin to revisit the 2019 model that worked so well. We may not achieve all of the same metrics in 2024, but we will be progressing through a strong first and second quarter and a break-even third quarter, and aiming for a solid fourth quarter.

Thank you. Did I hear you guys correctly that we should expect first quarter capacity to be somewhat flat while still targeting mid-single-digit capacity growth overall for next year?

Generally, yes. You can expect the first half of the year to be roughly flat while maintaining an overall target of mid-single-digit growth for the full year.

Great, and just one more quickly. Greg, I appreciate all the insights on utilization, but you mentioned that a one-hour increase in utilization could translate to about $50 million more in profit. Can you pinpoint what's currently limiting your aircraft utilization? I know you mentioned a mix of factors like ATC, labor, etc. What do you see as the biggest challenge right now?

Thanks for the question, Shannon. This is particularly true during the summer peak period. If you consider the entire year, with the longer peak seasons, it could be closer to $100 million total if we raise utilization by an hour. We are facing more aircraft constraints in the summer, and labor has been a challenge as well, alongside disruptions stemming from airports or ATC issues. However, the primary focus through all of this has been ensuring operational integrity, which is why we capped our peak period flying well before we hit it this year.

I will just add briefly that we've likely lost between half an hour and an hour of utilization, especially due to elevated fuel costs versus demand. Achieving value amidst these factors is more challenging when fuel prices are at $3.50 a gallon compared to $2.15 in 2019. While it is more difficult, it doesn't mean we can't find profit opportunities.

Thank you all for your time.

Thank you. While we prepare the next question, our next question will be coming from Savi Syth of Raymond James. Your line is open.

Hey, good morning. Could I ask you about your 2024 fleet plan? With Boeing, you mentioned two more Airbus deliveries, and is the rest expected to be all Boeing?

Yes, Savi. It's BJ. For 2024, we are currently contracted to take delivery of two airplanes per month throughout the year. As you know, there are many moving parts, and so staying close to Boeing on that is essential. That's why we are keeping our used fleet flexible to serve as insurance for next year. The two A320s you mentioned are to be purchased this year and inducted sometime during the first quarter of next year. Following that, we will start taking deliveries from our MAX order book in early 2024.

That's helpful. I also wanted to glean your thoughts on competition; some competitors have noted extra capacity in larger markets, while regional airlines appear to be bottoming out and possibly increasing their utilization into 2024. Based on your visibility, how are you perceiving the competitive landscape in your markets?

Yes, Drew here. Competition levels have remained quite stable for the better part of two years, in line with what we saw in 2019. The dynamics vary slightly regarding the specific entities involved and where they are operating, but overall, they have remained remarkably consistent.

You cannot expect capacity growth with fuel holding at current levels, which suggests a need for airlines to ensure they are profitable. It simply cannot work if capacity increases substantially while maintaining profitability. There needs to be adjustments made to bring capacity down to compensate for the fuel increases. That broad statement frames the current environment.

Isn't that a negative outlook for your model as well, Maurice? Given your focus on leisure travel?

While I wouldn't characterize it as aggressive growth, we hold a relatively advantageous position to grow due to minimal competition. Given our market mix, with 75% classified as non-competitive, we expect this profile to persist going forward. The overall picture for the industry doesn't look rosy, but we maintain an opportunity to grow where others cannot. However, for the market to change, oil prices need to decline somewhat as a key variable we all face.

Additionally, we can scale down our September capacity to fulfill only half of our July demand, reflecting the overall fuel environment. We recognize that demand in peak periods is sufficient to sustain capacity, and we can dial it down where conditions do not support it. I feel good about capacity deployment amidst ongoing high fuel prices.

Hey, thanks. Good morning. Drew, could you expand on your RASM commentary? I think you mentioned a normal sequential change or a normal seasonal change in RASM. Could you expound on that?

Yes. To elaborate, I believe we should reference the historical trend of sequential TRASM changes from the third to fourth quarters, drawing from data that's both recent and historical across multiple years. This context is critical.

Looking at the data for the previous two years, it appears that TRASM has gone up from 3Q to 4Q. I wanted to confirm that we are not expecting that this year.

You are correct. The figures observed in 2018 and 2019 were on the high end of the spectrum for sequential change. We can generally consider a lower sequential change this year, at least compared to that.

I appreciate your input on that. Also, could you share early thoughts on the Sunseeker ramp for 2024? Specifically, what kind of revenue and EBITDA margins should we anticipate? I understand this will likely be a two to three-year climb for the project.

Micah, can you provide commentary on that?

At this point, it's too early to give guidance. We're excited to announce the date for bookings and start marketing soon. The primary indicator we presently have relates to group bookings, which sit at about 30,000 on the books, along with another 32,000 currently in the pipeline. Thus, that's the best leading indicator we have for now. We expect to gather a much clearer picture in roughly 90 days.

Good luck with the opening. Thank you.

Thank you, Duane.

Thank you. Our next question will be coming from Scott Group of Wolfe. Your line is open.

Hello, thank you for taking my question. Maury, you made a comment indicating understanding seasonality in Q3. You mentioned a lower margin for Q4 this year. I want to clarify that point.

To clarify, the context here relates to having a higher portion of off-peak flying. This particular dynamic limits our ability to maximize peaks as significantly as we have historically done due to operational constraints. We've also needed to adopt more conservative strategies that would have previously involved more aggressive moves. If we consider 2019 juxtaposed with 2018, we'd have flown eight hours a day. In contrast, we only have around 775 aircraft now, down from 900 aircraft back when we transitioned from MDs. We are rediscovering how to adjust utilization, and that is among our top priorities as we head into 2024 and beyond.

Can you provide additional context on your assumptions for RASM? Specifically, what does the historical third to fourth quarter, absolute RASM trend look like? I want to ensure we're aligned here. Furthermore, considering capacity is poised for mid-single-digit growth next year, any early insights into CASM expectations for 2024?

To address the first aspect, I recommend reviewing the absolute RASM figures from the third quarter alongside those from the fourth quarter historically. We generally see a slight uptick, not significant, in low single digits. That is what I'm anticipating this time. This does not reflect year-over-year analysis but rather a measured sequential outlook.

Just to clarify, we have not released a quarterly guidance yet. However, you can infer that fourth quarter airline EPS should be stronger than in the third quarter. Admittedly, weighted average share counts can contribute to swings, but I wanted to communicate that we anticipate better fourth-quarter EPS compared to Q3.

Scott, we’re in the midst of our 2024 budgetary discussions, hence we aren't ready to provide guidance on CASM for the upcoming year. However, I can indicate there are multiple components tied to the delivery of Boeing aircraft as well as the induction of those planes into service, which may include crew allocation. Overall, we would expect CASM to experience a bit of growth next year, but I prefer not to commit to a specific number just yet.

Thank you, everyone. I appreciate the insights.

Thank you. Our next question will be coming from Daniel McKenzie of Global. Your line is open.

Oh, hey, thanks. Maury, welcome back. A couple of questions. My first question concerns Sunseeker. For the fourth quarter, does the full year EPS outlook include or exclude any revenue from Sunseeker? Once it opens, could you share insights on occupancy and booked room rates?

Hey Dan. To answer your first question, our outlook for Sunseeker for full-year 2023 does include some revenue but only a minimal amount, as we anticipate a very brief opening of only two weeks and won’t experience a full run rate. There is some revenue factored in, but it’s not significant, so keep that in mind for 2024 as well.

That's clear. Thank you. Drew, referring back to your commentary on capacity from mid-December, it appears Allegiant’s flights are down 14% year-over-year. Is that information accurate? Additionally, is this decline tied to any constraints? Should we expect these restrictions to carry over into peak March 2024 flying as well?

What you're observing is impactful due to the holiday timing. The dynamics of December reveal that the third week is typically more congested. With a considerable amount of scheduling into what we saw in December 2022, we anticipate a downshift in the mid-part of the month while likely recovering in the lead-up to January with a better picture on demand. This accounts for a significant portion of what you've reported.

Very insightful. Thanks for taking the time with these questions.

Thanks, Dan.

Thank you. Our next question will be coming from Conor Cunningham of Melius Research. Your line is open.

Hi, everyone. Thank you for taking my question. As you think about load factors versus yields, I'm curious about your perspective in 2024. There seems to be an inclination toward discounting to fill seats. What do you view as the primary focus for revenue growth next year?

As always, the end goal is total revenue. While you can anticipate yields to be more robust in peak periods, we also need to ensure we maximize our ancillary revenue, averaging around $70 per passenger throughout the year. I think it’s essential to distinguish those two aspects for the overall strategy. At the end of the day, we must maximize that ancillary component.

On the topic of your 1,400 identified routes, it appears Allegiant has had numerous routes available in the past. I'm trying to understand how this changes with a higher cost base in mind. Can you also brief me about where we stand currently in negotiations with pilots?

Sure. When it comes to the 1,400 routes, we are maintainconfidence in this becoming a reality. Factors like fuel are variable; however, the bulk of our cost structure can effectively maintain support for these routes as we ramp up utilization. This flexibility is a huge asset in our strategies.

Hey, Conor. It’s Greg. I want to highlight a few additional points. Currently, we have been accruing for increased labor agreements with pilots, and this is important for our future strategy. Positive trends are emerging – in the first half of 2023, we noted flat net new pilots. But in the latter half, we expect over 100 net new pilots. This improvement is driven by significantly lower attrition and full classes of new hires preparing for training. Notably, pilot applications have doubled recently, reflecting the efforts of our team in promoting our quality of life offerings amidst our operational model.

To build on that, there's a learning curve for our pilot group as they navigate the negotiation process—this cohort has never gone through it before, while the company has robust negotiating expertise. Both parties need to take the time to fully understand the process to reach a beneficial contract, ensuring long-term stability. The paradigm shift within the industry suggests that, moving forward, forecasts on available crews will be predictable enough for us to set schedules with confidence.

Thanks for taking my questions. Maury, regarding the pilot status, where do negotiations currently stand, and what are the main issues causing delays?

Hey Andrew, it’s Greg. Earlier this year, our working group with the union was established, and we began remediation talks. While we see some progress, it’s not advancing as promptly as I would prefer. Various topics are up for discussion, yet we recognize the fundamental issues requiring resolution for a competitive contract to be established. I remain optimistic about our progress, and I’m confident we will reach an agreement soon.

Yes, Andrew, to add context, this pilot group is exploring new territory in negotiations, and they're charting their path on what they want in a contract. There are experienced negotiators on both sides. Given that American, Delta, and United have their extensive historical contracts, this negotiation inherently carries complexities. Both parties, however, are committed to making this work. Our priority is to secure a beneficial outcome for both sides.

Understood, thank you for that clarity. Regarding 2024, how should we view your CapEx expectations?

Hey Andrew, it’s BJ. Regarding your 2024 CapEx inquiries, we'll be considering what we outlined earlier, such as the predelivery deposits associated with aircraft scheduled for delivery in '24. I anticipate elevated CapEx levels next year compared to 2023, but I'm not ready to provide specifics for now.

Operator, thank you for taking my question. Maurice, I want to delve deeper into your 2024 capacity. You mentioned around 70-75% of your routes lack competition. Considering you identified 1,400 new domestic routes while expecting mid-single-digit growth, how can we break down these dynamics? Are you thinking along the lines of frequency increases or merely adding new routes, or possibly combining both?

Hey Christopher, Drew here. It might still be a bit early to dive into all those specifics today. Generally speaking, you shouldn't anticipate seeing a major increase in utilization in the first half of the year given our flat ASM projection. As we bring on the Boeing aircraft, we'll gain advantages in scale, but I wouldn't expect significant stage changes through the year. It seems likely that frequency restorations will occur earlier than any new route announcements.

To frame the 2024 CASM growth expectations, think of it largely linked to the full-year impact from pilot payroll and labor agreements established this year. Mostly, the other cost factors expressed remain stable relative to the capacity we previously showcased.

Great, thank you for that perspective.

Thank you. Our next question will be coming from Helane Becker of TD Cowen. Your line is open.

Thanks very much, operator. Hi, everyone, and welcome back, Maury. I just need a couple of clarifications. Your peers have been raising concerns over maintenance. Given your stance, can you explain any differentiation in your situation, if at all?

Helane, it’s BJ here. A potential distinction from other carriers is the capitalization method we utilize, where we defer our heavy maintenance costs. The impact of our heavy maintenance expense may not be as pronounced in the current period as seen with some other competitors. Importantly, we do expect some relief moving through 2024 and beyond as we phase out aircraft requiring costly checks.

Thank you for that clarification. For my follow-up question, some airlines are signaling excess capacity in Las Vegas. Can you clarify what you are witnessing in that market? Furthermore, the Grand Prix is approaching; do you anticipate heightened traffic levels during that period alongside the holidays?

As extra capacity has entered Vegas, it doesn’t necessarily imply that Allegiant has seen comparable increases in capacity on top of our own operations. Given our route originations, we have a distinct competitive positioning that mitigates these influences. Influences from pricing have not encroached on connecting traffic as they did in 2015. So we maintain a firm differentiation within our network. Additionally, looking ahead, while I initially anticipated a decline in Vegas flight volumes, our overall performance has not confirmed that, with some cities seeing positive hotel pricing adjustments approaching the holiday season, targeted towards a broader Vegas experience versus solely catering to the F1 event.

Indeed, the Grand Prix will be a bustling event. Unlike Monaco, which has high-end pricing, Vegas is more moderate. Initial hotel pricing aimed rather high, but those rates are coming down now, so the event should prove to be quite lively.

Maury, I'm a bit disappointed that no Investor Day is planned at Allegiant Stadium. It seems like an excellent venue for such an event.

We'll consider it, Helane, and I'll note that for future opportunities. It’s a great idea.

Good morning, everyone, and welcome back, Maury. Just a couple of quick questions on ancillary revenue. I was pleased to see the credit card remuneration you shared. Is that reflective of year-over-year revenue impacts? I know there's timing involved. Any thoughts on potential tailwinds? Given the mid-single-digit capacity growth for next year, should we expect credit card remuneration advancements beyond that?

Thanks, Catty. This is Scott. To frame our understanding, about 75% to 80% of total compensation gets recognized annually. We defer a portion of payments that are recognized when points are redeemed effectively. Regarding tailwinds, we are focused on expanding what's known as a second look program to augment our credit card offerings. This initiative aims to target customers in the sub- and near-prime segments who remain unserved. To add, we are engaging in more vigorous marketing campaigns not just in-flight but through various digital platforms to increase credit card applications. All of these factors contribute to positive expectations for growth in this area.

On a related note, our network and the communities we serve offer unique opportunities; many customers aspire to earn our credit card, and we have a compelling program. In those markets, we have significant leverage.

That's great to hear. On the Allegiant Extra program, can you quantify contributions and how they compare with typical revenue growth? What’s the average buy-up per seat? Any growth trends relative to Allegiant Extra's fee structure would be helpful.

Catie, we continuously encourage discussing the details at an Investor Day. We appreciate your patience in waiting for that opportunity. With respect to Allegiant Extra, we tend to average around 50% occupancy rates, generating significant unit revenue per passenger. Historically, we previously indicated approximately $1 per passenger, though we now believe that estimate may be on the conservative side, as we are seeing consistent growth.

I’d also love the chance to visit the Sunseeker. Please keep us posted on the Investor Day!

Absolutely, we will keep everyone informed about our future Investor Day.

Hi, good afternoon, everyone. Maury, welcome back. I wanted to follow up on your earlier comment about how high jet fuel prices may lead to overarching industry capacity discipline. We are seeing indications of this in the Q3 earnings calls, where some low-cost carriers are muting their growth plans for next year. Your opinion: does the industry truly understand the need for capacity discipline, or is there still proof required for them to execute on that?

Our experience over the years shows that the airline industry has remained heavily influenced by historical deregulation trends. For reference, despite the steep rise in oil prices since February 2022, the fracking industry has remained cautious, investing conservatively. This presents a behavioral change. Airlines are increasingly focused on profitability, and major players are recognizing the benefits of strong figures, driving competition for profitability rather than growth alone. Long-term sustainability should be a priority; the past three to four years have illuminated larger challenges that must be faced. Looking at ULCCs, they are encountering over 90% overlap in the market that complicates their operations and brand positioning. Our approach allows us to strategically avoid direct competition, and we continue to find opportunity where it exists.

Considering your focus on leisure travel, does that forecast paint a negative picture for your model?

While I don't foresee explosive growth, our position grants us a significant edge due to limited competition in our sector. With 75% of our routes classified as non-competitive, we anticipate maintaining this profile in the upcoming years. The industry's outlook isn't overly optimistic, yet we have favorable opportunities for growth that are less obstructed than what competitors face.

Furthermore, we can scale back our September capacity to meet only half of the July levels, aligning with the broader fuel landscape. Our strategy accommodates the realities of reliable demand in peak periods.

Thank you. There are no additional questions in the queue. I will now turn the call back over to Maury for closing remarks.

Thank you very much for your time today, and I appreciate your interest in our organization. We look forward to speaking with you again in 90 days. Thank you.

Thank you for joining today's call. You may disconnect at this time, and have a great day.