Allegiant Travel CO Q4 FY2024 Earnings Call

Thank you for standing by. My name is Rebecca, and I will be your conference operator today. At this time, I would like to welcome everyone to the Allegiant Travel Company Fourth Quarter and Full-Year 2024 Earnings Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. Thank you. I will now turn the call over to Sherry Wilson, Managing Director of Investor Relations.

Thank you, Rebecca. Welcome to the Allegiant Travel Company's fourth-quarter and full-year 2024 earnings call. We will begin today's call with Greg Anderson, President and CEO, providing an update on our business and a high-level overview of our results. Drew Wells, Chief Commercial Officer, will walk through our revenue performance and outlook. And finally, Robert Neal, Chief Financial Officer, will speak to our financial performance. Following commentary, we will 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. And with that, I'll turn it to Greg.

Sherry, thank you, and good afternoon, everyone. We appreciate you joining us today. Before we get into it, I wanted to take a moment to extend our heartfelt condolences to the loved ones of the passengers and crew who were involved in the tragic accident near DCA Reagan Airport last week. Our thoughts are with the individuals, their families, and all those impacted during this difficult time. Now to our earnings report. We concluded 2024 with a commendable performance, achieving an adjusted airline-only operating margin of over 13% for the December quarter, marking a 6.5 point increase from the previous year. This was driven by a 16% increase in December capacity, primarily due to aircraft utilization averaging 9.6 hours per day during the peak holiday period, reflecting a 21% year-over-year increase. Despite significant growth during the peak period, our team attained a controllable completion rate of 99.7%. I want to thank them for ensuring smooth operations during one of the busiest times of the year. Last year, we introduced three primary initiatives, one of which focused on restoring utilization during peak leisure demand periods, a goal we successfully achieved in December and expect to maintain this momentum throughout 2025, particularly during spring and summer peak periods. Additionally, we prioritized upgrading our commercial technology and introducing new MAX aircraft, and we have made substantial progress in both of these areas. The ongoing optimization of our Navitaire system has already led to incremental improvements and is expected to continue enhancing revenue throughout 2025. Furthermore, we ended the year with four MAX aircraft in service, beginning to address operational inefficiencies caused by previous aircraft delivery delays. The tactical excellence demonstrated by Team Allegiant around these three key priorities significantly strengthens our foundation for improved performance. Underlying our execution are deliberate efforts to remain laser-focused on our core strength, the airline. Consequently, a significant step in this strategy is the goal of transitioning Sunseeker off Allegiant's balance sheet. Over recent months, we have made significant progress in our strategic review of Sunseeker. This unique resort located in a popular state offers excellent amenities and is managed by a highly-skilled team. We have great confidence in Sunseeker's future success and have observed material improvements in its financial performance. Nonetheless, we need to acknowledge that a new capital partner will be important for Sunseeker to achieve its full potential. As such, we have launched a competitive process with our team of experienced advisers for a potential sale or stake sale and have received promising indications of interest from several high-quality name investors. Our goal is to conclude this process by summer. We will update when appropriate, and BJ will touch on the impairment announced last week and how we are guiding for the resort. Further strengthening our balance sheet remains crucial. Although leverage is improving, there is still work to be done and it continues to be a key focus for this management team. Fortunately, we own the vast majority of our aircraft, which has allowed the fleet team to strategically sell older underutilized A320 assets in a favorable market resulting in substantial cash proceeds supporting our deleveraging efforts. The sale of these assets is aligned with our growing confidence in the delivery schedule from Boeing. Given the firmness of the aircraft market and the timing of our order, each MAX delivered and purchased represents significant value. In addition to the day one equity value, the operating economics of our MAX aircraft exceed the fleet average by as much as 30%. To add to that, every new aircraft delivered to us is configured with our impactful premium seating product, Allegiant Extra. Currently, 46% of our fleet is equipped with our Allegiant Extra product, and we plan to end the year at 70%. This compares favorably with the prior year's average of 23%. We continue to see strong demand from our customers for this premium seating as we expand the product more broadly across the network. Similarly, the Allegiant Always credit card continues to perform as we expect to receive more than $140 million in total remuneration during 2025. As we advance our commercial technology infrastructure, we are enthusiastic about the future products we will introduce to our customers, aiming to drive more to the top line and improve upon our industry-leading ancillary revenue. Starting out 2025, we have a clear path ahead to deliver on. The industry capacity backdrop is one of the most constructive we have seen for some time. The health of the consumer is strong and we are well-positioned to capitalize on this trend with expected capacity growth of over 15% throughout the year. This growth will further enhance our operational efficiency by utilizing our existing infrastructure and expanding productively. The midpoint of our airline's full-year EPS guidance of $9 suggests an improvement in earnings of over 50% compared to 2024. This is an exciting new chapter for Allegiant, which would not be possible without the ongoing excellence demonstrated by Team Allegiant and their persistent dedication and hard work. Additionally, I'm encouraged by recent progress in contract negotiation with our pilot team. It is a privilege to work alongside the most talented team in the industry as we strengthen our position as the leading airline in the communities we serve, delivering reliable non-stop travel at unbeatable value. And with that, I'll turn it over to Drew.

Thank you, Greg, and thanks to everyone for joining us this afternoon. We finished 2024 with $2.44 billion of airline revenue, approximately 2.6% below the prior year, and total ASMs 1.1% higher. Our fixed fee and operations teams did an incredible job leveraging the available aircraft space all year to an Allegiant record $81 million of fixed fee revenue. Further, our total ancillary per passenger of nearly $76 improved by almost $3 versus 2023. Our fourth quarter total airline revenue of nearly $610 million was up slightly on a year-over-year basis. This result significantly outperformed our expectations during our last call and outpaced our revised expectations in early December. The main drivers of the outperformance were faster-than-expected recovery to hurricane-impacted destinations, continued core ancillary strength, as well as a stronger-than-expected holiday period. Over the Christmas week, we operated our aircraft roughly 9.6 hours per aircraft per day in line with or slightly above our 2019 levels. I cannot be more proud of the operation and all of our team members who successfully navigated the push. In total, the three-week holiday period consisting of the last two weeks of December and the first week of January grew more than 14% year-over-year while ending just better than negative 1% unit revenue. The increased utilization over the holidays, along with post-Thanksgiving travel falling into December drove December ASMs 16.4% higher year-over-year, a theme that will continue into 2025. The first quarter capacity is expected to grow 14% versus Q1 2024, while the year as a whole is expected to be up 17% versus 2024. The first quarter will mark the first time in three years with quarterly growth over 10%. In fact, only two of the last 10 quarters exceeded 1.5%. Pre-pandemic, you'd have to go back to 2011 to find the last year without a single quarter over 10% ASM growth. The planning team is ecstatic to have some flexibility and freedom in deploying capacity once more. This means growing in high-demand months, announcing new routes, and testing the limits of route-level capacity. It allows the team to focus on driving dollars to the bottom line rather than trying to fit 12 pounds of good flying into a 10-pound bag. Diving into that growth a little bit, while we have focused heavily on flying in peak months, just about a third of net growth will take place in March, June, and July, and roughly a third of that will take place on peak leisure days in those peak leisure months. Over half of all growth will come in shoulder months like February, April, and August, with April being a large beneficiary due to Easter shifting later. The dynamics of that flying are different than a typical year. On average, a third of seats in any given week during the first half of the year will be in existing markets flying more than any prior year, producing 300% more seats operating in excess of prior years. Also, between 4% and 5% of seats will be on new routes. In mid-November, we announced a record-time 44 new routes that start in spring and summer 2025. The long lead time means it's still early to judge many of the routes, so we're particularly excited about new service to our three new cities: Colorado Springs, Colorado; Columbia, South Carolina; and Gulf Shores, Alabama. Let me touch on Gulf Shores a little more. We've heard from our customers that they travel to the Alabama coast for an annual vacation but currently drive as much as 15 hours each way. This looks a lot like prior Allegiant success stories like Punta Gorda or Destin, Florida, where we've been able to spur additional trips each year with our unique and affordable non-stop network. Whether through new routes or increased frequency, our general approach to 2025 is growing into our infrastructure. While the growth profile I just outlined will have unit revenue impacts in the near term, we strongly believe the benefits of the flying will still outweigh the marginal cost of that increased flying. The added elevated flying will either work and continue to mature into future seasons or be trimmed back if it doesn't produce. In addition to the growth-driven unit revenue impacts, Easter timing will play a role in shaping the final result for leisure-oriented carriers like us in both the first and second quarters. When combining the headwind of Easter timing and the tailwind of New Year's travel, we expect a 1 point to 1.5-point headwind to TRASM in the first quarter. Additionally, a mild stage increase through the first half of the year will carry an additional 1 point headwind. Lastly, while our network has diversified away from near-border exposure in the last 10 to 15 years, the strengthening U.S. dollar to 20-year highs against the Canadian dollar has applied some pressure on those origination cities. Many of the same initiatives that supported ancillary growth in 2024 will continue to produce benefits into 2025 to help mitigate the impacts of growth. Aircraft with the Allegiant Extra layout will see more than five times as many departures in the first quarter of 2025 compared to the first quarter of 2024. For the full year, more than two-thirds of departures should have an Allegiant Extra aircraft. We continue to regain lost functionality from our 2023 Navitaire cutover. We expect to fully recapture the loss of $2 per passenger in the first half of 2025 and the $2 of expected upside early in 2026. Finally, the contribution from Alliance travel insurance has roughly doubled on a per passenger basis since its launch in February. All things considered, we expect Q1 TRASM to be down slightly more than 6%, implying airline revenue excluding fixed fee is up about 7% for the quarter. We ended the year with another phenomenal performance from our co-branded Visa Allegiant Always program. We continue to add new cardholders at a great clip, ending 2024 with over 540,000 accounts. This kind of scale gives us confidence that the program offering has matured nicely and we are excited to collaborate further with our bank partners to better engage our existing cardholders and ensure we provide the best offering for existing and future cardholders alike. The power of loyalty revenue is evident across the industry, and we believe our program is still in the early days of its full potential. And now I'd like to hand it over to Robert Neal.

Thank you, Drew. Good afternoon, everyone, and thanks for joining us today. As I speak to our results and guidance this afternoon, please note that all of these are on an adjusted basis and will exclude any special items. In the fourth quarter, we delivered net income of $38.9 million on a consolidated basis, yielding earnings per share of $2.10. The Airline segment reported an adjusted net income of $55.6 million or earnings of $3 per share. For the full year, we posted a consolidated net income of $45.7 million, resulting in a consolidated EPS of $2.48. Our Airline segment generated full-year 2024 net income of $107.5 million, or $5.84 of Airline-only earnings per share. As Greg and Drew have highlighted, we began seeing notable financial strength in the quarter, driven by improved peak utilization, implementation of revenue initiatives, and delivery of 737 MAX aircraft ahead of our estimates. The Airline earned $139.2 million in EBITDA during the quarter, resulting in an EBITDA margin of 22.8%, which is nearly seven points higher than the fourth quarter of 2023. On the cost side, fuel averaged $2.50 for the quarter, in line with our expectations. Adjusted non-fuel unit costs were $8.29, an improvement of 2.5% year-over-year, slightly underperforming the estimate we provided in December. This mix was driven by increased stock compensation related to the share price increase throughout the quarter, the maintenance expense true-up, and timing-related impacts from a new maintenance and material system, which went live in the third quarter. As a reminder, the fourth quarter CASM mix includes roughly $20 million related to our pilot retention bonus. For the full year 2024, we had unit costs of 5.4% on capacity up 1.1%. While we had a tailwind from serviceable engine sales mentioned in our December traffic release, we saw cost headwinds from eight months of our new flight attendant CBA and four additional months of our pilot retention bonus accrual as compared to 2023. Turning to the balance sheet. We ended the year with $1.1 billion in available liquidity, including $833 million in cash and investments and $275 million in revolver capacity. Net leverage improved almost a full turn from the end of the third quarter down to 3.2 times. This result was achieved by improved fourth-quarter earnings, proceeds from equipment sales, early debt repayments during the quarter, and benefits from our amended agreement with Boeing as disclosed in November. Total debt balances were down nearly $200 million during 2024. As mentioned on our October call, we expect the third quarter marked our peak leverage and based on current fleet expectations, we should continue deleveraging throughout 2025. While we'll continue to invest in the business, the balance sheet remains a top priority for this team. Fourth quarter Airline capital expenditures included $34.1 million in aircraft and engine-related spend, other airline CapEx of $8.8 million, and $18.7 million in deferred heavy maintenance costs. For the full-year, total airline capital expenditures were $326 million, $16 million higher than our forecast with three more aircraft in service than contemplated at the third quarter earnings call. Following a downward revision to earnings estimates for our Sunseeker entity throughout 2024, the assets were tested for recoverability and we recorded a total non-cash impairment of $322 million in the fourth quarter. As of today's call, we've fully repaid the debt associated with Sunseeker assets, allowing us to increase flexibility as we continue evaluating strategic alternatives for the resort. Moving over to fleet. During the quarter, we retired one A320NEO and placed into service three 737 MAX aircraft, ending the year with 125 airplanes in our operating fleet. Looking ahead to 2025, we are anticipating delivery of nine 737 MAX aircraft during the year. While Boeing's recent estimates have 12 aircraft delivering to us during 2025, we're planning conservatively to keep a better balance of type-rated flight crews with aircraft available to operate, particularly through our summer peak. We plan to retire 12 aircraft during this year, so we should close 2025 with a total of 122 aircraft in service with some slight upside to that number. As I've mentioned on prior calls, estimates today differ from contractual commitments. Should aircraft deliveries exceed our expectations this year, we are prepared to accelerate exit of A320 family aircraft once we have more visibility into 2026. Based on these estimates, we're projecting all-in capital expenditures for 2025 to be approximately $515 million at the midpoint of our guidance, including approximately $300 million in aircraft and engine-related CapEx, $125 million in airline other capital expenditures, and $90 million in deferred heavy maintenance. This guidance, of course, is subject to change depending on the timing of aircraft deliveries. Turning to our 2025 outlook. We're providing full-year expectations for the Airline segment. And based on uncertainty around timing and potential outcomes for Sunseeker, we'll continue to guide that segment on a quarterly basis. That said, we expect to deliver full-year 2025 airline earnings per share of $9, a significant improvement over 2024. In the first quarter, the airline is expected to produce an airline-only operating margin of around 9.5%, more than three points higher than the prior year. This result implied a non-fuel unit cost reduction of around 7% year-over-year on capacity growth of 13.5%, as we're better able to leverage our existing infrastructure, assets, and staffing. We're growing into our headcount as well as our fleet and we expect to deliver airline-only earnings per share of $2.25 in the quarter. We're expecting Sunseeker to produce $2 million in EBITDA during the first quarter due to the recent impairment charge; depreciation expense is now expected at $3 million per quarter. These results combined with the airline's should produce a first-quarter consolidated earnings per share of $2. As we move through the year, we remain focused on cost discipline, improving efficiency through increased utilization, operational excellence, and continued balance sheet improvement. The momentum we've built exiting 2024 puts us in a strong position for 2025 and beyond. In closing, I'd like to express my gratitude to the entire Allegiant team. Their dedication and hard work continue to drive our performance, and I'm extremely proud of what we've accomplished in the fourth quarter. The increase in December capacity was completed with two fewer aircraft and a 9% reduction in overhead headcount over the holiday peak, and the team still delivered strong operational performance. This ability to increase peak utilization is core to our margin restoration efforts. Thank you all for your time today. And with that, Rebecca, we can now go to analyst questions.

Your first question comes from Savi Syth with Raymond James.

Good afternoon, everyone. Drew, you provided some valuable information on capacity growth, but it was quite a bit to take in. Could you please help us understand this in terms of the progression of capacity growth across the four quarters? Specifically, which quarters are expected to experience more capacity growth during peak versus off-peak periods?

Sure. Savi, let me take a quick stab at that. So we guided out the first quarter approximately 14%. For that, the second and third quarter is likely about the same, coming into the low '20s. And then, we'll certainly see the lowest year-over-year growth in the fourth quarter, largely because of everything we talked about here in December of '24, not getting to lap and not getting the same utilization comp there. In terms of the overall growth profile, I talked about the peak months; March, June, and July will be about a third of the overall growth. But the bigger focus on the net ASM increase will be the shoulder months, right? February, April, May, August, October getting to more of the overall lift, and the balance will take place in January and September. But I don't know if I went too high-level for you there or you'd like me to dive in?

And Savi, real quick, this is Greg. Yes, I just wanted to add maybe another perspective to '25 and the way we've been talking about it here internally. In a lot of ways, it's like a one-time catch-up year with kind of a level-setting due to some of the prior year delivery delays or other constraints we've seen. What we're really trying to do in '25 is optimize that existing infrastructure that's in place, grow with roughly the same FTE count, maybe slightly up, roughly or a flat aircraft count. Then drive higher absolute earnings. So I would think of '25 more as an anomaly when it comes to growth. As we think about '26 and beyond, we expect to get back to a different formula than '25 and really earn that right to grow.

That's a helpful perspective. Appreciate it. And maybe just on the follow-up on the unit cost. Just curious how we should think about it because given your guidance and unit revenue, it looks like there's a lot of unit cost improvement here. Is that also fair to assume to be more first-half weighted and moderates as you go to the back half and generally how we should think about that?

Yes, I think that's right. Hey, Savi, it's BJ. I think that's right. Q1 will probably be down the most on a year-over-year basis. Q2, Q3 will still be down, really nice cost improvement in the middle of the year, but you do have some of the Boeing aircraft entering the fleet in the middle of the year. You have the increased utilization which means we're also utilizing the A319s a little bit more. So you don't see quite the same year-over-year unit cost improvement in Q2 and Q3. And then Q4, similar to Drew's answer, just we had a good amount of growth in Q4 of '24 and also had that gain on engine sales in the fourth quarter.

Hey, thanks. Just on the debt that you're paying down related to Sunseeker. Can you talk a little bit about how you're accomplishing that? What financing you're using to take down that debt? And how to think about the rate on what you're taking on versus the debt that you're taking out, and I guess just like why you think this was important to do now? Thank you.

Yes. Hey, Duane, it's BJ. Yes, a couple of things there. I mean, one, the debt on Sunseeker was beginning to amortize just after the end of the quarter, I think beginning in April. Given the cash flow production of that asset, it was something that we wanted to get ahead of. In addition, we've been very focused on balance sheet improvement really beginning in the back half of 2024 when we started to realize what our level of operations was going to be on the Airline side in the back half of '24 and through '25. One of the first places to go when we're trying to get leverage in the right place was paying off debt that was maturing earliest. We've also had this strategic review going on and been learning a lot along the way and we thought it best to have maximum flexibility there. So that's really the reason. How we did that? I mentioned we had proceeds from the sale of fleet equipment during the fourth quarter, improved earnings, and we had a loan out to another entity that was repaid to us. Overall, the balance sheet improvement didn't come from net-net refi of that debt.

Okay. And then, I guess, hard to comment while this is going on, but if everything went right, when would you think you'd be able to separate yourself from this asset and any color from the interested parties? Do you think we'll need to see quarters or years for this to kind of school up before there's separation? Thanks for taking the questions.

Yes, first, Duane, thanks for the question. We've talked about in the past that we're focused on the parallel paths. Those paths are we need to improve the existing resort, which the team has done, with EBITDA positive in the first quarter, driving group business and doing a lot of things to improve financial performance. The second two items we've been looking at are the distribution partner or soft brand and then a capital partner. I mention that because as we've gone through the process with our experienced advisors, what we're learning is that investors want a seat at the table to determine who that distribution partner is or flag, like Marriott, Hilton, and the likes. All those potential flags or distribution partners have toured the property and are very positive on it. In terms of the next steps, we're in a competitive process. I appreciate your respecting that on the call and your comments. It's kind of hard to talk about, but I'll try to give you a little bit as high-level as I can. There are a high single-digit number of investors, and these are well-known high-quality investors. The indications of interest that they provided are promising, and we're advancing the process. There’s no two structures that are exactly alike. But what we're working towards is at least selling a majority ownership. Our goal is to drive as much value to our shareholders as we can, and more to come. But as I mentioned in my early remarks, we would expect a transaction buttoned up by the summer. If all goes well, it could be early summer, but we're just really working through the process and trying to get to the right deal.

Hi, everyone. Thanks for the time. Just curious how Spring Break is booking up across all your products as well as Allegiant Extra.

Sure. Yes, I mean I have Allegiant Extra detail off the top of my head, but very generally there are a couple of different pieces of March specific to Spring Break. Easter shifting out will put a pretty big headwind on the final week. Remember, well over a third, even as much as 40% of our Spring Breaks coalesced around that week last year, and with being a bit compressed on capacity, we certainly couldn't take full advantage of that. That could look relatively poor on a year-over-year basis. Additionally, the first week of March tends to get a little softer with Easter pushing back as well. The middle two weeks that are more apples-to-apples look great. I think we have solid capacity market strength there, and then we’ll see how the growth markets handle it. So far, I'm pleased with how the middle of March is looking. A bit early to talk to April, but obviously with Easter moving out there, that's going to look really good on any year-over-year basis. So we feel good about the peak period.

Yes. I mean, it's almost like you're in some of our revenue strategy meetings. We've discussed this for the better part of a couple of quarters now. There are some tax implications depending on how you want to position it. As I understand, anything that moves into the same click as the fare is subject to the 7.5% excise tax; by keeping them separated, the premium seat would still keep that 7.5%, but other pieces of the product or that bundle would not. We like having a little bit more flexibility in how we can approach the product mix in a distinct offering versus from the fare class, but there are a few other back-end complications that are more Allegiant-centric. I don't have necessarily a very clear answer for which is going to be better. We will continue to debate this for a while, but for the foreseeable future, we like where we are because we feel like it's the best overall thing for the consumer experience, but it's to be determined.

Oh, yes. Hey, good afternoon. Just back on Sunseeker seeing it turn to EBITDA positive. Can you just remind us of the seasonality of the resort? What are typically the strongest quarters for Sunseeker?

Hey, Mike, it's Greg. Let me hit it at a high level. Typically, the first quarter is the strongest quarter, the fourth quarter being probably the second strongest, and then the summer would be the softest period.

Yes, thanks for the question. We were just under $140 million, I believe, at the end of 2024. It's been building right around $20 million a quarter. For 2025, I have it coming up by about $22.5 million a quarter.

Oh, hi, guys. Thanks for the time here. It looks like the sale of Sunseeker will swing cash nicely positive this year. I know you can't talk a lot about it. So I'm not sure how it would be recorded exactly. But could you speak to the potential use of cash and the implications for year-end debt and leverage metrics?

Hey, Dan. Thanks for the question. I'm glad you asked that. I should mention that in my prepared comments around deleveraging throughout the year did not include any assumptions on cash proceeds from the Sunseeker transaction. That was just based on airline earnings. We're still exploring, and there could be many different ways that a transaction would be structured. I'm hesitant to run away with anything, but I would tell you our primary focus is just on the continued improvement of our balance sheet. Maybe we'll pay cash for the airplanes, maybe we'll pay down some debt. I know what you're looking for; I don't think we'd be committing to any kind of shareholder returns with those proceeds, but we can have that discussion when we get there. Opportunistically, I think we do have over $70 million in authority on share repurchases if we wanted to look at that.

Yes. Okay. And then with respect to Allegiant's strategic focus here. Frontier has expressed interest in Spirit. I wonder if you could speak to the overlap that you would have with Spirit. I'm just wondering, is M&A something that's even on the radar for you or does some kind of bolt-on acquisition appeal to you?

Yes, I'll kick it off with the overlap. It's relatively thin. I want to say approximately 4%, give or take. I haven't rerun it since the schedule has extended recently, but I can't imagine we've deviated far from that.

Hey, Dan, I'll add on the consolidation question. Underperformance, if that continues for like other carriers, maybe that could result and we'll see they'll do what's best for them, but specifically to Allegiant around consolidation. Our view is that consolidation really isn't necessary for us. We have great assets, we have the right network. We have room for organic growth. Drew and his team talk about the 1,400 incremental routes. We need to earn that right to grow. However, our focus is really on driving shareholder value. That's what we've been working towards in '24, '25 and continue in future years. So that's where our focus is at right now.

Absolutely. For investors looking at a two to three-year timeframe, how should they consider the normalized margins for Allegiant, especially in light of the significant margin expansion expected in '25?

How about I'll kick it off and feel free, Drew or BJ, to jump in. As I think about '25, that's kind of a one-time catch-up year with '26 being a different kind of growth formula. All else equal, if the environment were equal, I would expect '26 margins to be higher than '25. We think there's upside of productivity internally. How do we keep becoming more productive, growing productively from a commercial standpoint? We've talked about some enhancements we've been working through, like Allegiant Extra or Navitaire. By the end of this year coming into '26, those will largely be in full swing. We have a number of other commercial initiatives that we think could be beneficial. The network maturation should help drive less growth next year, which we expect would help drive margins. Our goal is to get back to historic margins, and I think we're heading in the right direction. So, hopefully, stay tuned and we'll continue to execute on our plan.

Hey, thanks. Good afternoon, guys. The guidance is airline RASM down more than 6% in the first quarter. I get that there are timing issues in Easter and all that. But that's a pretty big step down from the down 1% in Q4. So I guess any color there? What's assumed in the guidance for the rest of the year? So if capacity goes from 14% to 20% in Q2, Q3, does RASM get better than down 6% or does it get worse? I'm just not really sure what's in the guide.

Sure. And maybe, first talking Q4 to Q1, Easter is a pretty big headwind on that front. But when looking at the growth a little bit, there was very little growth in October and November, and the vast majority of the December growth came from the back end of Thanksgiving falling into early December as well as concentrated around the holiday itself. So it's really productive growth that won't quite realize the same way in January, February, and even early March in particular. The way in which the growth manifests and how we see that, I guess, play out in revenue will look a bit different than how it did in December. Looking broader through the year, I expect that because of Easter falling into the second quarter and some backdrop changes in the summer affecting the entire industry last year, I'm seeing more constructive results in '25. I think they should look a little better, probably similar to one now, but a little better than the first quarter. With growth tapering off in the fourth quarter, I would expect probably the best performance on a year-over-year basis in that fourth quarter.

CASM is down more than RASM.

Okay. Okay.

What I'm saying is it's accretive. The costs will come down more than the revenue side of the house. Is that what you're getting at, Scott?

Yes. So, you're indicating that Q1 CASM is down 7% and RASM is down 6%. You mentioned that CASM will be down less than 7% for the rest of the year, correct? Therefore, RASM needs to improve beyond a decline of 6% for that to hold true, which aligns with your guidance. I'm just trying to clarify what the guidance entails.

Yes, and Scott, it's important to note that you're asking about CASM, so both CASMEX and CASM should be down. Just keep in mind the benefit as we get more and more of these MAX airplanes into the fleet on total CASM in the back half of the year. There are some projections for 2025, but they are not significant compared to what we experienced in Q4. That's why we highlighted this point. I want to remind you that we've generally treated the disposal of scrap assets as part of our other expenses. Sometimes this results in gains, and other times in losses. In 2024, it varied quite a bit. We experienced a few quarters with gains, which could come from parts, landing gear, serviceable engines, and similar items. I expect some of that in 2024, but it will fluctuate from quarter to quarter, and I don't think there's much clarity on this.

And Scott, at a high level, it's worth adding that there’s value in the order with Boeing for our new MAX. We have value in our existing fleet assets, which we own. As we look at how productive we are with those assets, we’re well-positioned and experienced not only as a commercial airline but also in monetizing aircraft assets over the value of their life cycle. That is what the team is doing. They are finding less productive assets and monetizing them in this unique market.

Thanks, Greg. Maybe just one more thing I should add in. I mentioned in my script that there is potential for Boeing to deliver more aircraft than we have in the plan. If that happens and it happens early enough, and we feel like that delivery schedule is reliable, then maybe we've changed our position on that like in the fourth quarter or something. We've disposed of Airbus assets more quickly.

Hi, great. Thanks. Good evening, guys. As a follow-up to some of the questions here, great to see the traction with Allegiant Extra and getting to 70% of the planes at the end of the year. But can you just help unpack how you guys kind of identify the strategies of growing to higher margins through higher capacity versus trying to push to higher margins through less capacity and more price? It feels like the industry is going one way, and you guys may be going a different way. I'm not saying that's the wrong thing to do, but just how do you come to that conclusion?

I believe we've been in this situation since early 2020. It seems like we've managed to grow while others haven't, and we've achieved unit revenue even when the broader market was expanding. Communicating this narrative has been challenging over the past five years, so why stop now? The essence of this, for me, is about effectively utilizing the infrastructure we have. The additional costs incurred from flying are relatively small compared to the revenue potential we foresee. This has primarily been about boosting earnings and then capitalizing on margin growth in the coming years, as Greg mentioned earlier, as we earn back the opportunity to grow. Overall, we have the necessary components in place to facilitate this growth without needing significant enhancements to our foundational resources.

Got it. That's really helpful. And maybe as a follow-up, just for the Sunseeker timing, you said late summer. How firm is that deadline? What are some of the moving pieces in terms of the process that will enable you to either hit or advance that deadline?

Yes. We just put it by summer, which gives a little wider range. If everything were to go as planned, it could be the early part of the summer, Ravi. But we're just trying to give some buffer and really take the right time needed to get to the right deal and structure. There are steps along the way in the process, and we're at a more advanced step now than we were a month ago. We’re focusing on advanced due diligence and discussions with soft brands, things like that. We're working through it as expeditiously as we can, so we’re just providing the best information we have today on when we think we’ll conclude the transaction.

Hi, everyone. Just going back to the cost outlook here. It's a little confusing. In the past, I think you've talked about having infrastructure in place to grow 15%. You've also said that if you grow 5%, your CASMX is basically going to be flat. I'm trying to understand in the context of 17% growth, why the best quarter on CASMX is going to be Q1 when you're going to have 20% growth. Is there anything that we're missing from a labor assumption or anything within it that we need to know about on the cost side that may be throwing it up a little?

Thanks, Conor. Let me address that. In the first quarter, keep in mind there was some irregularity in other lines. This was partly due to asset and part sales from dismantling A320 family equipment, which had an impact. Additionally, we saw increased utilization of smaller aircraft and the removal of seats from A320s for Allegiant Extra in the second and third quarters. Is there something I'm overlooking? We will begin to reintegrate some depreciation expense into the business in the third quarter, but what am I missing?

You had the engine sale. We probably didn't highlight that.

Yes, and of course, the engine sale in Q4. You don't really get much of a year-over-year benefit in Q4.

Hey, Conor, I'd like to revisit the cost question now that I've had some assistance from the team. There are a few additional points to consider. When thinking about the first quarter of 2024, we experienced some increased costs related to crew, specifically for crew travel and crews being offline for training with the Boeing aircraft. This should ease a bit in the first quarter of 2025, so you won't see as much pressure. Also, keep in mind that we didn't have the flight attendant agreement in the first quarter of 2024.

Hey, this is Jack Hu on for Kate. Thanks for taking our questions. Just to dig in a little more on the Q1 margin expansion. You got RASM down 6%, CASM down 7%. Is this more about increasing efficiency to drive better margin? Or would you also call out the revenue backdrop as a driver? All else equal, would you expect RASM to be worse with that level of growth in Easter shift? Maybe you could speak to same-store sales. Thank you.

Yes, thanks, Jack. I think the piece to all that that's also helpful, right. Fuel is down a modest amount on a year-over-year basis, which will help, but also is a headwind towards revenue production at the same time. I talked a little bit about flat capacity or same-store performance over Spring Break. I might stop short of doing that in any greater detail. I think the Spring Break period looks pretty good when considering the Easter shift impact that's expected. I don't know if I ran around your question too much there, but I think it's not entirely out of line in total with maybe a little extra softness in February than I would have anticipated.

Hey, Jack, it's BJ. I'll start. So on a full-year basis, no, we wouldn't expect Sunseeker to be as much of an EPS drag as it was in 2024. I will tell you, we're still working through interest expense allocation to that segment. The actual loan on the property is paid off, but we may need to allocate some of the travel company to consolidated interest expense to that segment. We're still evaluating that. The EBITDA improvement is really nice to see in the first quarter. We see that really throughout the year, but not as pronounced in Q2 and Q3.

This is Atul Maheswari on for Tom Wadewitz. Thanks a lot for taking our question. Granted it's a fluid situation, but if fuel prices were to move materially higher from here, either due to tariffs or otherwise. If that begins to put pressure on your capacity plans or aircraft utilization, and what levers do you have that you can pull to some of your guidance?

Sure. Just to make sure I understood the question: If fuel were to spike meaningfully, how would that impact capacity and what levers do we have to pull to combat it?

Yes, depending on how rapid the rise looks, we'd be pulling capacity out of our shoulder and off-peak periods relatively quickly. Depending on the level of booking there, we tend to be about three months out to action that. We're going to put customers first if our flights are meaningfully sold, even if that will put us in a disadvantageous position. Natural economics should take place after that as you restrict supply, which in theory should rise to help offset the cost of fuel. We would have to take a deeper look at some of the peak periods. Historically, demand has been sufficient to offset largely any fuel price in the peakest of periods. That would depend on the magnitude of that rise, as well as the economic response to demand perspective. Just not that it's directly related to this, but with more Boeing coming online, that does make us more resilient to whatever spikes in fuel may occur and just provides an easier hurdle rate on that front.

A little hard for me to hear your question, but to add to Drew's last comment, I would look at Drew and the commercial team trying to see as much flying as possible on the fuel-efficient MAX aircraft. That perhaps even opens up opportunities for some early exits on the A320 fleet too.

And maybe the final piece here: Utilization is rising; it will put pressure on our fixed-fee team to deliver at the same levels in '25 that they did in '24. Your scenario would play well to be able to get into the fixed-fee space and earnestly try to backfill some of the loss scheduled service capacity where fuel will be a pass-through.

Okay, great. That was very helpful. And quickly on the unit cost versus unit revenue dynamic. So CASM is down more than TRASM, is that going to be the case in each quarter of the year, or are there certain quarters where that spread is going to be a lot higher than others?

Yes. That might be a bit far in the weeds for where we're going to go here. We've given some direction on that for the year as a whole, as well as directionality for each of the two items. We feel really good about our position. We have levers to pull if things don't manifest as we see it today, but yes, maybe we won't go to quite that far.

Thank you, everyone, for joining today's call. Please feel free to reach out with any questions; otherwise, we will chat with you next quarter.

Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.