Allegiant Travel CO Q2 FY2024 Earnings Call

Thank you for standing by. My name is Amy, and I will be your conference operator for today. At this time, I would like to welcome you to the Allegiant Travel Company’s Second Quarter 2024 Earnings Call. At this time all lines have been placed on mute to prevent any background noise. Thank you, and it is now my pleasure to turn the call over to Sherry Wilson, Managing Director of Investor Relations. Please go ahead.

Thank you, Amy. Good afternoon everyone, and welcome to the Allegiant Travel Company’s second quarter 2024 earnings call. On the call with me today are Maury Gallagher, the company’s Executive Chairman and CEO; Greg Anderson, President and Incoming CEO; Scott DeAngelo, our EVP and Chief Marketing Officer; Drew Wells, our SVP and Chief Revenue Officer; Robert Neal, SVP and Chief Financial Officer; Micah Richins, President of Sunseeker Resorts, 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. And with that, I’ll turn it over to Maury.

Thank you, Sherry, and good afternoon everyone. Thank you for joining our call today. The good news is we are working our way back to the Allegiant of old. We are well-positioned for 2025, and you will hear that from our different speakers today. I’m happy, on a personal note, to be glad on top. We mentioned in our release four major efforts, including increasing our utilization, addition of our new Boeing aircraft, continued development work on our Navitaire reservations platform, and the recently announced partnering with Prospect Hotel Advisors. A note on Prospect; they have operated and bought and sold numerous properties, particularly on the West Coast of Florida, where Sunseeker is located. After a recent review of the property, they were impressed and complemented its quality of construction, its people, products and services, and its management team. So stay tuned as we dig into that aspect. Turning to the airline, the number one asset we have available to us in the coming years is our ability to increase our flying with the existing fleet and personnel. Moreover, this increased flying will concentrate on peak periods, which are very revenue-accretive. Additionally, this increased flying will also drive down our unit cost, our CASMx. I would be remiss if I did not applaud this world-class management team. They are as good, if not better, than any team I have had the privilege to work with in the past 27 years. The people you, the analysts, represent, the investors in this industry will be well served by these excellent leaders in the coming years. Just as important, we’ve been fortunate to have one of the best workforces, if not the best in the industry. Their excellence can be seen in every aspect of what we do, from our over 99% completion factor to our industry-leading NPS scores and our top three ranking among the industry’s carriers. At this point, everyone understands that brand and reputation matter, particularly in this social media world. Allegiant and its world-class team members continually rank near the top in these categories. This reputational quality is critical to profitability. Our unique business model over the years has served us well and continues to do so. However, the recent undoing of this low-fare industry that we all are part of does not portend well for a number of the incumbent low-fare carriers. A combination of weakening revenues, substantial cost increases, poor reputation, and brand has condemned a number of the industry’s low-fare players to a loss situation that will be hard to turn around. This environment has driven certain players to make massive schedule changes in search of a viable business plan. The magnitude of these changes almost certainly suggests losses will increase in the near term. On the regulatory front, I worry about the efforts that the federal government is working to fix something that is not broken. By any measure, this Airline Deregulation Act of 1978 has been the best outcome for the U.S. traveling public. However, since Allegiant began in the early 2000s, there’s been a constant drumbeat by the government on a path to re-regulate the industry. The current administration has made it known that they do not want any additional mergers, believing that mergers have been bad for the industry. But when a current carrier’s business does not work, there’s only one of two options: either go out of business or merge. The DOT recently introduced a number of new regulations, which will only add to the cost the consumer must pay for air travel. As you are aware, the industry trade groups A4A and NACA filed suit in the Fifth Circuit to block one of these proposed regulations, the ancillary fee rule. This new regulation would have required a complete rewrite of the industry’s websites, with the DOT dictating how we must present our products to our customers. This rewrite, as you can imagine, would cost every carrier millions to develop a website that complies with the proposed presentation format. I’m happy to report that yesterday, the Fifth Circuit issued a motion to stay the implementation of the DOT’s ancillary fee rule, which is a small victory. Looking forward, as I said, I’m bullish on Allegiant’s ability with its unique model, with 75% of its routes non-competitive, to grow profitably and strengthen its position in the coming years. I think my ownership position says as much. Unfortunately, low fares, which politicians all pay lip service to, will be more difficult to find in the coming months and years due to the unwinding of several low-fare carriers. Accordingly, the major airlines' market share should be increasing. However, the one I care the most about, Allegiant, will do well in the coming years. It is a model that works. It has proven its resilience over 20 years. It has the team members to execute the plan and the leadership to oversee this effort. Thank you very much. Greg?

Maury, thank you and good afternoon everyone. I’d like to start by congratulating Maury on his transition back to the Executive Chairman role. He has been a true pioneer in this industry for the better part of the last four decades, culminating his career by building one of the most unique and successful airlines in the world. We have the right management team to carry on his legacy, and I’m honored to work alongside them and all of team Allegiant in the continual strengthening of our differentiated airline. Our primary objective as a management team is to deliver industry-leading results. Last quarter, I spoke at length about the three key initiatives we are working on that will position the airline for a strong 2025. First is the increased peak period utilization. Next is optimizing our next-gen revenue management system Navitaire, and lastly is to bring our new Boeing aircraft into service. Executing these initiatives requires great work from our team members, and I’m incredibly appreciative of all they do. Thank you. It is important that we are the airline of choice for our people, and to that end, the last CBA remaining open is a contract with our pilots, which is long overdue. We look forward to bringing these negotiations to a successful conclusion and working with the IBT on a contract our pilots will support while also supporting our unique model. With that as background, let me turn to our airline performance in the second quarter. The team did an outstanding job in achieving controllable completion of 99.7%, among the best in the industry. And as noted, we are focused on increasing our peak utilization. I’m happy to report that June’s 7.8 hours per day was a half-hour increase year-over-year. The airline delivered an adjusted operating margin of 10.3% during the second quarter, well ahead of the 7% to 9% guidance that we provided last quarter. This would not have been possible without the increased utilization I just referenced, which was supported by stable pilot staffing levels. I’m pleased to report that increased utilization performance has continued into July despite the headwinds of the global vendor-induced software outage. On that note, I’m very proud of team Allegiant for the way we all came together, working around the clock during the outage to ensure our systems were back up and running as quickly as possible. Make no mistake; we faced significant challenges, but our team effectively managed the situation, resulting in hundreds of flights saved the day of the outage as we resumed normal operation that same afternoon. Since that time, we have delivered an impressive 99.5% controllable completion factor. We expect the global software outage will impact our margin by three points in the quarter. As a result, on a reported basis, we expect an airline-only margin of negative 5.5% or a loss of 2.5% excluding it, and nearly half of the financial impact from the outages relates to our customer service plan, where we issued additional compensation to assist with their disrupted travel. Recognizing that the third quarter is typically our lowest financial performing period, our current guidance reflects temporary challenges for the following reasons. First, our peak utilization for the third quarter summer months is still about 20% below 2019’s average of 9.5 hours per aircraft. However, we estimate if peak summer utilization were at 2019 levels, as we expect to be closer to next summer, this would provide a substantial benefit of six points of margin to our third quarter financial performance. Next, we are still optimizing our Navitaire revenue management system. The fact that our ancillary revenue increased year-over-year in the second quarter highlights how Drew and the team improved our ancillary revenue despite the loss of functionality with Navitaire. The absence of important functionality from a year ago, vis-à-vis the Navitaire cutover, is currently affecting our third quarter margin by three points. While this impact is reflected in our current estimates, we are steadily progressing toward resolving this issue. Lastly, we are addressing the challenges related to the Boeing delivery delays. We are currently absorbing $30 million of annual expenses that are not associated with productive assets, such as pilots that were hired and trained on the MAX aircraft. Our team is focused on getting to a realistic delivery schedule and fair compensation for the extended delays. We estimate these efforts will substantially mitigate this impact, which currently stands at a negative two points of margin. All that said, we look forward to delivering significantly improved performance starting later this year and into 2025 as we continue to execute on our plan. We have line of sight to sustained peak utilization increases. For the peak weeks of December, we are scheduled for nine hours of utilization per aircraft per day. We expect similar utilization for the peak periods in 2025. These planned increases in utilization are expected to be accomplished with roughly the same number of aircraft and infrastructure as we have in 2024. In addition, the 1,400 incremental routes we have identified provide us with many more options that fit our network beautifully. Most of these routes are in underserved communities that currently lack nonstop service. On the commercial technology front, the team continues working through the optimization of Navitaire, which should yield an estimated incremental $4 per passenger at maturity. This is driven by improved dynamic pricing and new ancillary fee revenues versus our legacy homegrown system. We feel confident that Navitaire will be largely optimized by 2025. Regarding our MAX order, discussions with Boeing indicate we will take our first delivery this quarter. As we start integrating this new aircraft into our fleet, we remain confident in the operational efficiencies we will gain from improved fuel burn, increased gauge, and the integration of Allegiant Extra efficiencies that we will scale as we head into 2025. Regarding Boeing deliveries, we are planning for an elongated delivery cycle and expect a slower delivery cadence in 2025 and 2026. This slower fleet growth should result in a reduction in our near and medium-term capital needs. However, we are in active discussions with Boeing, and we will have more to share when those talks are finalized. In the meantime, we believe it was the right move to suspend our dividend, allowing us to focus on working through our capital program while concurrently enhancing our financial returns. Our entire management team is focused on driving higher earnings by taking a fresh look at removing structural costs from our business and executing on our plan. Although we are not immune to pricing fluctuations, our network, comprising roughly 75% non-competitive routes, coupled with our ability to pull back capacity to meet demand trends, provides a formidable moat around our business. We’ve seen the model produce successful results in various economic conditions, and we expect no difference going forward. Touching on Sunseeker, we forecast our cash loss estimate for the year to be roughly $15 million, including a full-year EBITDA loss of $25 million, expected to be offset by up to $10 million of incremental proceeds from business interruption insurance due to the delays in opening the resort. Clearly, Sunseeker’s financial results are not meeting expectations. We are proactively addressing this by engaging Prospect Hotel Advisors, an experienced hospitality management firm with a successful track record. They will pair with our Sunseeker team, both working to improve near-term financial performance while developing potential strategic alternatives for Sunseeker. Given Prospect’s team’s proven track record of positioning and selling many resort properties, we look forward to leaning on their expertise to help maximize value as we explore alternatives. Before I turn it over to Scott, I want to reiterate that we are focusing on our strengths, which is operating our airline and removing distractions that aren’t additive to our plan. The combination of increased utilization, the addition of our Boeing aircraft, the optimization of our revenue management software, and the benefits from Prospect Advisors should position us well for a much improved 2025 and beyond. Scott?

Thanks, Greg. While the current domestic air travel supply versus demand environment has been well documented at this point and while it is having some impact on our business, customers are planning to spend less on leisure travel this year. However, we expect marginal benefits from the industry's domestic capacity reductions. Drew will talk more about the puts and takes here in his remarks. Also, awareness of and preference for our Allegiant brand and adoption of our evolving product continue to improve. Our net promoter score rose to 67% in the second quarter, which is 12 points higher than we reported last quarter. Our customers continue to rate us materially higher than all other airlines in the nation. It’s also important to remember who our customers are. Nearly half of our customers have annual household incomes of greater than $100,000, and nearly two-thirds have annual household incomes of greater than $75,000. Regardless of household income, the year-over-year differences in passenger segments booked between higher and lower household incomes was less than two percentage points. We also surveyed our new customers this year, asking them how often they fly and what other airlines they most frequently flew with before they first flew Allegiant. More than 60% of these new customers fly three or more times per year. Only 10% of these new customers said they flew with the ULCC most often before flying us. Rather, more than 80% of these new customers said they flew most often with the nation’s four largest carriers before they flew with us, typically connecting via regional arms of network carriers. This is consistent with prior data that we’ve seen and shared for customers overall in past years and is consistent with Allegiant having its own swim lane where we win among leisure travel customers, regardless of income or prior airlines flown. Most importantly, nearly 90% of these new customers say they are likely or extremely likely to fly with Allegiant again. Our high-margin third-party product revenue increased 28% during both the second quarter and first half of the year compared to 2023. Our Allways Rewards Visa card led the way as the program surpassed 525,000 cardholders in the quarter and earned nearly $40 million in total co-brand credit card compensation, up 34% versus Q2 2023. Year-to-date, we’ve earned nearly $70 million in total co-brand credit card compensation, up 22% versus 2023, and we’re on track to sign up over 140,000 new cardholders this year, which would make this our second-highest new cardholder acquisition year ever in the program’s eight-year history, behind only 2022. Our award-winning co-brand credit card program continues to gain steam, showing strong growth even during a period of virtually flat capacity growth versus the prior year. Lastly, we continue our transition from legacy technology systems to modern open integration technology platforms that will enable us to enhance our web and app booking experience and merchandising capabilities, incorporate generative AI in self-service and sales capacities, and ultimately drive increased take rates for high-margin air ancillary products and bundles, along with continued increased attachment for high-margin third-party hotel, car rental, and co-brand credit card offerings. With that, I’ll turn it over to our Chief Revenue Officer, Drew Wells.

Thank you, Scott, and thanks to everyone for joining us today. I’m pleased to report second quarter airline revenue of $649.5 million and TRASM of $13.03. Both figures are among the best second quarter performances in Allegiant history. On a year-over-year basis, TRASM was down approximately 4.5%, and system ASMs decreased 0.8%, both versus Q2 2023. Among carriers that have reported Q2 results, Allegiant continues to represent one of the best performances versus pre-pandemic, with both double-digit TRASM and ASM gains versus the first half of 2019, alongside a second consecutive quarterly record fixed fee performance leading the way once more with strong ancillary performance year-over-year. Scott detailed the Allways Rewards Visa card performance, but both the expansion of Allegiant Extra aircraft and successful price testing have driven immense value. In June, after retrofitting 11 additional aircraft, we’re targeting 26 more aircraft—13 in each of the third and fourth quarters through the back half of the year. When combined with our initial four Boeing MAX aircraft, we will feature the Allegiant Extra product on nearly half of the fleet by year-end. As a reminder, the Allegiant Extra aircraft features six rows of additional legroom along with priority access, reserved overhead bin space, and an included snack onboard. When starting the small three to four plane test in 2019, we believed it worked on paper given the mix of itineraries from our customers, but certainly, there was no certainty it would work in practice. In 2024, more than 300 unique markets have seen the Allegiant Extra product, and while the overall revenue environment is dramatically better, driving a higher opportunity cost and hurdle rate, Extra has excelled as a product currently contributing more than $3 in incremental revenue per passenger on flights with the Allegiant Extra layout. These benefits have helped offset the continued headwinds from the loss of functionality during our Navitaire reservation management system implementation. We are in the early steps of creating a detailed timeline, but as Greg mentioned, we expect to see benefits show up in 2025. While certainly a unit revenue positive, I don’t think we fully maximized our earnings potential through April and early May. As mentioned last quarter, we had more available pilots in March than initially planned as Boeing delivery timelines, and therefore our pilot transition training timing and needs have continued to slip. This held true in the first half of Q2 as well. Additionally, demand has held in better than our capacity deployment would imply, and we likely should have been down just single digits instead. The third quarter capacity plan will reflect that learning from the second quarter, with overall ASMs expected to grow roughly 1.5 points versus the third quarter of 2023, and the post-summer capacity is expected to be down just slightly. This will obviously carry a stronger headwind to our Q3 unit revenues when compared to the benefit of off-peak Q2 capacity decisions, but we believe it is the right thing for earnings. Further, while we will likely see a reduced impact relative to other carriers given our network setup, we are not fully immune from industry capacity decisions, which will affect our results. As with most years, as July goes, the quarter goes, and approximately 44% of our Q3 ASMs are expected to fly in July. We currently expect Q3 unit revenues to be down approximately 7.5% year-over-year. The quarter exit rate looks better than July on a year-over-year basis for flat capacity routes. However, given our ASM distribution for September, to impact the quarter meaningfully, we need roughly double the percentage change that July requires. Most important to our longer-term plans is the inflection point of our utilization profile. As we discussed last quarter, the restoration of our peak utilization is paramount in our return to acceptable margin profiles. Summer 2024 was the first step toward that with successful small gains and strong operational performance. We will look to push harder still as our current outlook for the holiday period has us back to just a single-digit percentage deficit versus 2019 utilization, whereas last summer we experienced a 20% plus reduction. We continue to gather confidence in the pilot headcount numbers, and our planning and operations teams keep working to drive valuable flying upside without sacrificing operational integrity. With that, I’d like to turn it over to Robert.

Thanks, Drew, and good afternoon everyone. Before I review our financial results, I want to extend my sincere thanks to our team members. Throughout this year, we have been reacting and adjusting to a continuously changing aircraft delivery schedule and fleet retirement plan. The situation has been fluid and dynamic, causing various workgroups to be prepared for multiple operating scenarios. It’s not easy, and the impacts have been felt throughout the organization, but in the face of this, our people have delivered operational excellence while still keeping a focus on cost execution. Thank you, team Allegiant, for all you do. Now I’ll speak to our financial results and guidance today on an adjusted basis, excluding any special items. Today, we reported consolidated net income of $32.5 million for the second quarter, yielding a consolidated earnings per share of $1.77. Consolidated EBITDA came in at $118.3 million with an EBITDA margin of 17.8%. Adjusted net income at the airline was $41 million, resulting in an airline EPS of $2.24, which was above our initial expectations. Airline financial results were driven by stronger than anticipated top-line revenue and better than expected cost performance. Airline EBITDA for the quarter was $126.3 million, resulting in an EBITDA margin of 19.4% for the airline. Fuel costs, of course, continue to play a significant role in our financial results. For the second quarter, average fuel cost was $2.83 per gallon, slightly below our guidance of $2.90. For the third quarter, we estimate our fuel cost to be $2.80 per gallon. Non-fuel unit costs increased 5.6% on a slight capacity reduction of 0.8% compared to Q2 2023. This increase was better than our previous estimate of up 7%, supported by improvements in various cost centers and on timing of flight equipment sales during the quarter. Increases in unit costs included one extra month of the pilot retention bonus given that accrual began in May of 2023, higher labor costs in other workgroups, depreciation expense related to heavy maintenance and IT systems, and the slight capacity reduction compared to the prior year. While unit costs are structurally higher for the industry, we are mindful that at Allegiant our results this year reflect higher unit costs associated with labor agreements, but they don’t benefit from increased utilization and productivity in our peak leisure periods, something we are highly focused on delivering as Greg mentioned. Turning to the balance sheet, total liquidity at the end of the quarter was $1.1 billion, including $851 million in cash and investments and $275 million in undrawn revolver capacity. During the quarter, we made principal payments totaling $31.7 million. Our consolidated net leverage at the end of the quarter was 3.8 times trailing 12-month EBITDA, which includes $89 million in costs related to our pilot retention bonus. During the remainder of the year, we expect to repay approximately $73 million in regular scheduled principal amortization and expect $50 million to $75 million in PDP debt to be naturally refinanced by year-end as associated MAX aircraft are delivered. As previously noted, in conjunction with Boeing deliveries, we expect our net leverage to peak at year-end and remain around those levels through the first half of next year before we start to deleverage during the second half of 2025, as we expect to see sustained margin improvement following the key initiatives we’ve outlined. In early July, we announced the temporary suspension of our dividend. We are focused on managing our liquidity and leverage as we prepare to deploy CapEx for aircraft deliveries later this year. We remain excited about the earnings potential of these aircraft and believe this is a prudent capital allocation to support long-term airline earnings. Regarding our fleet, we inducted one A320 aircraft into revenue service during the quarter, which was delivered to us back in March. We anticipate our first MAX 8 delivery from Boeing in September, and we are currently expecting a total of four units this year, down from six discussed on the last earnings call. Our plan represents our best estimate and is not based on a forecast from Boeing. As a result of the continued delivery delay shifting our initial 737 MAX operations into the fourth quarter, we have updated our capacity assumptions for the remainder of the year and now expect full-year capacity to increase roughly 1.5% compared to 2023. We are prepared, in the event aircraft deliveries shift further, to adjust operational plans to align with aircraft availability. Looking ahead, we are in active discussions with Boeing about an updated delivery schedule, which would take into account the time needed to ramp this new fleet type into the business to better manage disconnected timing of aircraft and flight crew availability for the MAX fleet. We are working with Boeing on a schedule that envisions a slower delivery profile than we had originally planned. Based on our current forecast, we are expecting full-year capital expenditures of roughly $400 million for the full year 2024, of which $190 million is aircraft or engine-related. Other airline capital expenditures are now expected to be approximately $125 million, down $40 million from our prior guidance, and we continue to expect heavy maintenance CapEx to come in at $85 million for the full year, unchanged from the last quarter. For the third quarter, we estimate a consolidated loss per share of $3 at the midpoint of our guidance. Roughly $0.75 of that loss is attributable to the systems outage in July, and about a dollar is attributable to losses at Sunseeker. The third quarter represents our seasonally low period and, as noted, July utilization was well below levels we historically achieved. On a unit cost basis, we expect third quarter CASMx will increase roughly 7% over the same period of 2023. The increase is comprised of three points related to the system outage, roughly four points in labor costs, and a point and a half related to ground handling and station charges, offset by reductions of about a point in marketing, and another half a point from several other items. At the time of our last call, we were expecting fourth quarter CASMx to be flat to down compared to the prior year, but given the continued Boeing delays, we have removed roughly three points of capacity from the fourth quarter and now expect CASMx to be up low single digits year-over-year. As I wrap up, I want to reiterate that while we continue to invest in the future of Allegiant, our financial priorities are focused on strengthening our balance sheet and delivering improved financial performance in the coming quarters. On behalf of everyone here at the table and the entire Allegiant team, I want to thank Maury for the years of leadership in building this unique and amazing company. Congratulations to Greg on his well-deserved appointment as CEO. We know the company is in good hands, and the entire team is behind you. Amy, this concludes our prepared remarks. We can now begin the Q&A portion of the call.

Thank you. Our first question comes from the line of Michael Linenberg from Deutsche Bank. Your line is now open.

Hi, everyone, this is Shannon Doherty on for Mike. Greg, congratulations on your new role. Maybe to you and Micah. I found one sentence within this morning’s strategic review announcement particularly interesting, and that was regarding maximizing strategic alternatives, which will be key as you identify the right path forward. With the profitability of Sunseeker getting worse, can you one, tell us how long you expect it to be? How long do you expect it to take to get to profitability on an EBITDA basis now? And two, how long are you willing to produce losses at Sunseeker or before seeking a divestment?

Hey, Shannon, why don’t I kick it off here and just give a little bit more color on the strategic positioning and maybe a little bit more on Prospect and what we’re thinking there. They bring some extensive experience and a proven track record in positioning and selling these resorts, and they come highly recommended by big players. What’s interesting is Prospect is very complementary to the design and service levels of the resort and importantly, to the Sunseeker management team. But as we go through our strategic review, I want to say that all options are on the table. We’re digging in, and Prospect’s going to help open some doors for us. We’re focused on parallel paths to optimize the existing asset and increase distribution while concurrently positioning ourselves as we engage in discussions with potential strategic partners. Prospect will provide some perspective on the value of Sunseeker and how we best maximize and limit any further capital investments. There’s more value there than what’s currently reflected. But in terms of the back half of your question, I don’t know, Micah, if you want to add any commentary on the earnings profile.

No, I think for us, being able to understand what the rest of 2024 looks like and more importantly, what 2025 will look like, is driven by how we see group business materializing. I’m happy to report, as we discussed on the last call, we think we can achieve around 60,000 group rooms in 2025. The sales team has been working very hard and continues to pace well with that. It’s challenging to estimate how different the results will be. If we achieve 60,000 group rooms versus something like the 37,000 we think we’ll achieve in 2024, it changes literally everything in terms of ADR, occupancy, and high-dollar catering spend as well for food and beverage. We’re not interested in continuing to lose money; we didn’t build for that. We are looking at every alternative here to improve the financial results. We believe we’ll see improvements to some degree in the fourth quarter, and we’re really excited for what we expect Q1 and beyond will look like in 2025.

Yes, hang on one minute, ma’am. This is Maury speaking for the board. The board is very cognizant of Sunseeker’s performance, and long term, while everybody felt we got the product we thought we wanted, it is a really top-notch product. It just takes time to get this to an economically viable point. The board is focused on working with Prospect, who has done exceptional work operationally. We need revenue-driven alternatives that Prospect can bring us, additionally looking at financial alternatives from different clients that Prospect can help us connect with. Stay tuned. Sorry. Go ahead, Amy.

Oh, no. Really great answers. Thank you all. If I may just shift back to the airline, can you remind us what is limiting you at this point to get back to the aircraft utilization you need to boost your margins? I know you indicated that you can get to full utilization levels in 2025 on 2024 levels of aircraft and infrastructure, so I’m just wondering why you’re not there now.

Why don’t I kick that off, Shannon. The biggest constraint we’ve been facing in the peak periods has been stabilized staffing levels, particularly with our pilots, and that’s improved dramatically. What we’ve also seen from our strategic planning and performance has resulted in a much strengthened infrastructure and operational excellence. These two items, coupled together, give us confidence to start increasing our peak utilization. Drew, do you want to add anything?

Maybe just a little more color on summer 2024: we planned June and July to the maximum block hours we thought we could fly, given the headcount we forecasted, as well as working with off planning and performance to ensure we were keeping a resilient operation. Going forward, that headcount number continues to grow more commensurate with where our aircraft growth has been, allowing us to fly more. It’s generally that simple through most of the peaks.

I forgot to mention the Boeing delays and the inefficiencies that have come with that, which are also things we’ve been working through. We expect a more normalized pattern in 2025.

One other thing: the timing hasn’t been in our favor. Getting ready for the March and June periods has historically been done in the fall. We lost a pilot a day last summer in 2023, leaving us uncertain about how far we could push scheduling. That started to improve in the back half of the year. Unfortunately, we missed our date as to when we felt comfortable pushing utilization, losing as much as nine months to a year of timing to get into those peak periods, which are critical in the spring and summer. So that’s why 2025 is looking better with headcount and airplanes—albeit with the Boeing product—but even that has better clarity than we had last fall. The timing has been stretched out for some time, but it has also become clearer.

Thanks again.

Hi. Thank you. This is Katherine on for Ravi. Just kind of going off of that question: curious what the catalyst was to conduct this review of the Sunseeker and whether or not you’re agnostic between having Sunseeker on your balance sheet or off of it.

I’ll kick that off. We’ve had some time to settle into the property, and we felt it was time to engage Prospect as we gear up toward the peak period starting in the first quarter of 2025. We wanted to start now and see what we could do. In terms of your second question, I mentioned that all options are on the table; that includes a sell or stake sell. We may look to remove it from our balance sheet soon.

Thank you. And if I could just ask a quick follow-up just on demand overall. Just curious what you are seeing there, whether or not there’s any cracks in demand you’re seeing, especially maybe low-end versus higher-end consumers.

This is Drew here. I wouldn’t say that we are seeing any consumer cracks. It’s been pretty well covered from most of the airlines at this point. There’s a ton of seats in the industry right now that’s weighing through the summer. Most of us have talked about seeing relief exiting the quarter when overall capacity comes down. I’m not seeing much on the consumer front that’s worthy of reporting here. I think it is a capacity problem.

To reiterate, when we look at customers by household income segment, the difference between the highest and lowest is within rounding error, a couple of percentage points or less. So, no, we don’t see an issue where it disproportionately favors or hinders higher or lower income groups.

Hey, thanks. Afternoon and congrats, Maury and Greg. I want to just follow up on that last question because, to your point, you don’t really have a lot of competition on your routes, and your own capacity isn’t really growing. I thought I heard you say RASM is going to be down about 7% in Q3, which I think is the biggest year-over-year decline among the airlines so far. So doesn’t that suggest that it is a demand issue, if supply shouldn’t be as much of a factor for you if your routes aren’t as competitive?

It’s always a fun one for us to tackle. We know even going pre-pandemic, there’s correlation between our same-store performance and the overall level of domestic capacity. That’s just always existed, regardless of our network effects. So we are feeling that. Moreover, when we consider the distribution of our ASMs through the third quarter relative to industry capacity, it’s kind of misaligned from where we would prefer it to be. Most of our seats are under the most pressure from an industry capacity perspective. As that relieves, September goes down to half the ASMs of July. That said, we’re also comping the Navitaire implementation and the loss of some ancillary revenue. We’ve had strong performance thus far and managed to offset some of that, but it’s still an overhang that will exist for at least one more quarter. Those are the primary drivers.

September has historically been just a tough month for us. It has been and continues to be. If you look at the graphs of the last three years, you’ll notice the descending line that we’ve seen going into 2023, and that seems to persist in descending over the September period.

We won’t dwell on it, but I believe we are the second carrier to have reported since the CrowdStrike outage, which certainly impacted us. We have that baked in, while others may have not already accounted for it.

Hey Scott, it’s BJ. It’s a bit early, but we want to wait for the cadence of Boeing deliveries to guide our thoughts on capacity and costs in 2025. Greg mentioned that we expect fleet count at the end of next year to be relatively flat to 2024, with most of our growth coming through utilization. There’s room for about 15% to 20% ASM growth in the existing infrastructure. That doesn’t mean we intend to grow that much, but we can achieve growth in a more efficient way. You could envision CASMx being flat to down depending on growth levels.

We may have said this in the past, and I think it holds true. Every incremental hour of flying may reduce CASMx by about 0.5%. We’re focusing on peak periods, but reiterating BJ’s point, we have the infrastructure in place and with the roughly flat aircraft count. Incremental flying or incremental utilization will drive CASM down.

Hey, good afternoon everyone. If I might just follow up on that last question. Is there something different that gives you confidence or something that’s happened that gives you confidence that you’ll get the MAX aircraft in September in terms of the FAA approvals? And are you planning on adjusting retirements based on what you end up getting? Or is that kind of based on your existing retirement plan?

The main thing that’s changed since the last call is that the FAA chose to retain certifications, which means a longer timeline. However, the clock starts ticking, and we’re hoping for delivery within 30 days or so. When thinking about next year, our retirements are largely locked in. It’s difficult to bring planned retirements back into the fleet next year. We’ve taken a conservative view on how many aircraft we’ll deliver from Boeing next year. Holding retirements constant, we will end up one or two aircraft positive at the end of next year. We think that’s okay, and we just grow with utilization.

Thank you. And just on the ancillary revenue outperformance, what’s driving that? It seems like Navitaire is still having a drag, and I’m guessing you haven’t gotten that functionality back. You mentioned the $4 a passenger, but I’m guessing that doesn’t turn on until mid-next year when you’ve got the Navitaire fix in? How should we think about the timing of all this?

In terms of comp for where we are today, we’re down about $2 due to the implementation. The additional $2 to get to the $4 is what we were banking on from Navitaire’s future functionality. The Allegiant Extra part—call it a 20% share of flying in June—contributed about $3 incremental per passenger, resulting in a 50% to 60% overall system benefit. Our teams are working incredibly hard at optimizing within those constraints. However, overall performance has been strong thus far. We believe that we will see benefits in 2025 when Navitaire is largely optimized.

It’s worth noting that this nearly record-setting growth in the co-brand credit card program occurred during a month where we were basically flat in terms of capacity—unusual, considering typically a half of new card signups come from customers' first or second flights with Allegiant. While we’ve had new route announcements, we haven’t expanded like we did pre-pandemic. There’s a lot to like about what the future holds when we can finally remove that ceiling from capacity growth and fuel the card program further.

Hi everyone. Thank you. Drew, you mentioned this a little bit, but a lot of the airlines are talking about the September inflection. I know that your route network differs significantly, but I was just curious if you could give any color on how you expect the months to play out, given that unit revenue is declining 7%. Is July expected to be down a lot and September down a lot? Any thoughts would be helpful. Thank you.

We usually stop short of doing much at the month level. Directionally, July will likely be down a bit more than the guide for the quarter, and September less than that. That’s about as much detail as we’re able to provide on a month level.

Oh, yes. Hey, thanks. Just picking up on Sunseeker and the strategic review. Another question here: does the comment about Sunseeker spooling up to the first quarter of next year tie to an expectation that it would be profitable at that point? If not, can you help us understand the path to profitability based on economics at maturity at this point?

I’ll start, and Micah may want to add. The comment I made regarding getting Prospect involved ahead of the first quarter of next year is due to that period being critical for demand in Southwest Florida. But let me have Micah add some detail on the path to profitability.

To understand the performance in 2025 and whether we can achieve profitability depends on our ability to drive group business annually and distributedly across all four quarters. We believe we can achieve around 60,000 group room nights in 2025, which, as we discussed, would change everything regarding ADR, occupancy, and catering spend. We shouldn’t continue losing money here, and we believe we will see improvements in Q4. We are excited about Q1 and beyond for 2025.

And maybe one last one. Is there a way to walk us through the special charges you’re excluding here in Q2 and how you could bridge your Q3 loss guidance to a clean EBITDA basis?

Zeroing in on EBITDA loss for Sunseeker doesn’t help us much. We’re not really focused on this quarter or that quarter. It’s about the annual performance getting things moving in the right direction. Managing at the quarter level is often too difficult to achieve.

Hey, everyone, it’s Andrew. Just one real, I guess, strategic question here for Greg or Maury. Given the issues with the MAX, have you ever considered walking away from the airplane at all and just reverting back to the simple model you had for many years? If you were to decide that, what would be the biggest obstacles in doing so?

Part of the reason we went to a new airplane was to keep growing with the used aircraft. Having about 120 used airplanes and just maintaining them wasn’t feasible. Bringing in new aircraft seemed more efficient. Additionally, all players in the industry face high costs in used aircraft, with prices escalating significantly. With our gradual growth and profitability, we believe growth is sustainable, and we are not considering changing our direction. It’s more difficult to find alternatives to grow without being profitable.

There’s significant value in the MAX order, both in terms of equity value and the long-term operational benefits it brings us. These delays have caused significant disruption, but we look forward to concluding our talks with Boeing to address our challenges. We’re near that point and are planning to execute toward that goal.

In a macro view, we are profitable while many low-fare carriers are not. We will return to our usual performance numbers. As we grow, we remain cautious. We need airplanes to grow, but we believe our long-term future remains strong.

Okay, well, thank you for that. All my other questions have already been asked, so I appreciate the thoughts.

Thank you, Andrew.

Thank you all for your questions. We are now unable to take further questions. I would like to turn it back over to Mr. Gallagher for closing remarks.

Thank you all very much. The company will be speaking to you next quarter.

Thank you so much. That does conclude today’s call. You may now disconnect.