Allegiant Travel CO Q1 FY2025 Earnings Call

Thank you for standing by. My name is Kayla and I will be your conference operator today. At this time, I would like to welcome everyone to the Allegiant Travel Company First Quarter 2025 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 would now like to turn the call over to Sherry Wilson, Managing Director of Investor Relations. You may begin.

Thank you, Kayla. Welcome to the Allegiant Travel Company's first quarter 2025 earnings call. We will begin today's call with Greg Anderson, President and CEO, providing a high-level overview of our results along with an update on our business. Drew Wells, Chief Commercial Officer, will walk through our capacity plans and revenue performance. And finally, Robert Neal, Chief Financial Officer, will speak to our financial results and outlook. 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.

Sherry, thank you. Before I dive in, I am pleased to announce Tyler Hollingsworth has been officially named as our Chief Operating Officer. Over his 15 years at Allegiant, Tyler has held key roles across operations, most recently serving as Interim COO and has been instrumental in delivering the strong performance we continue to see today. That makes Tyler an excellent fit. Congratulations Tyler. Turning to the quarter. The team delivered an outstanding controllable completion rate of 99.9% on 32,000 departures, up 14% compared to the same period last year. More than 4.4 million passengers flew our airline in the quarter, a first quarter record with 75% being repeat customers. Our customers recognize Allegiant's role in leisure-focused travel and consistently choose us for the distinctive value and experience we provide. This ongoing preference is evident in the strong engagement in our award-winning loyalty program with the number of active cardholders increasing by nearly 7% year-over-year. The solid execution of our key initiatives discussed in prior quarters helped boost financial performance improvement. We reported an airline operating margin of 9.3% during the first quarter, up three percentage points versus last year. These results fell comfortably within the range of our initial guidance provided in January, making us one of the few airlines to meet their initial targets. This excellent performance demonstrates the great work done by Team Allegiant despite a challenging start to the year. I want to extend my sincere appreciation for them. In January of 2025, we turned the capacity knob up to plan for a year of strong growth. The demand backdrop was robust and our favorable availability of crew and aircraft set us up nicely to drive meaningful margin expansion throughout the year. However, as economic uncertainty weighed on consumer confidence and discretionary spending, we acted quickly to adapt. Fortunately, Allegiant was built and designed with flexibility in mind. While peak leisure demand remains healthy, we responded promptly by turning the capacity knob down, primarily in the shoulder and off-peak given the demand softness that showed up during these periods. Cost discipline is essential for us to protect margins. Aggressively managing capacity combined with additional structural cost reductions action during the quarter are expected to keep the airline solidly profitable in 2025 even in a stabilized lower demand environment. That said, we are currently seeing some improvements in our bookings. Allegiant pioneered the successful low-fare model targeting leisure travelers. Our differentiated approach allows us to not only perform better than most during downturns but hold strong in our niche in the industry. Our airline has structural advantages with the foundation built on the following cornerstones; first, minimizing competitive overlap with other domestic carriers and offering a network that ensures convenient nonstop travel from the core leisure airports we serve. Second, a strategic design focused on tactical utilization, optimizing profitability by operating aircraft for only six to eight hours per day on average. Third, a long-term fleet strategy centered on opportunistically acquiring and owning aircraft to support low fixed costs while building a high degree of fleet flexibility. Lastly, maintaining an industry-leading cost structure, as most leisure travelers are highly influenced by lower fares. For these reasons, Allegiant has been and will continue to be positioned uniquely. Furthermore, the execution of our key initiatives is going well. And with these initiatives, we expect to further strengthen our foundation and drive margin improvement. Let me provide you with a brief update on our progress. First, restoring peak utilization. In the first quarter, peak utilization increased by 20% compared to the previous year and just slightly below 2019 levels. Peak leisure demand remains healthy, with same-store TRASM during these periods holding up well despite meaningful growth. Second, fleet flexibility. We are proactively managing our aircraft to the market conditions and our strategic needs. Moreover, our fleet holds significant equity value, a value we expect to meaningfully increase as we expand our in-service MAX fleet. During the first quarter, our growing cadre of MAX aircraft lost 6% of our ASMs and continues to outperform expectations operationally and financially. By year-end, we anticipate 16% of ASMs to be flown by the MAX fleet, which will continue to support strengthening our differentiated model. Third, product enhancements. Allegiant Extra is now on more than half of our fleet, a fivefold increase compared to the first quarter of 2024 and importantly, maintaining a strong revenue premium over our standard product. Additionally, we continue to enhance our bookings and reservation system Navitaire. These improvements have strengthened our operations and enabled us to reintroduce lost functionality and new features that are resulting in higher revenue. And fourth, cost discipline. Managing costs relentlessly is an everyday commitment to improve productivity, streamline decision-making, and challenge the status quo. Due to the recent economic downturn, material structural cost savings have already been proactively actioned with more initiatives under review. These changes support sustainable margin growth, including adjustments in workforce alignment and enhancement through technology-enabled productivity. And finally, Sunseeker. We are confident that our new Sunseeker Resort will do well over the long term. Sunseeker's financial performance exceeded expectations during the first quarter, with EBITDA reaching $4.8 million compared to an EBITDA loss of $4.6 million in the first quarter of 2024. To that end, we recognize our core competencies lie within the airline business where we see abundant opportunity and long-term success. Maintaining a strong industry-leading balance sheet is also a top priority of ours. Pursuing a transaction related to the sale of the resort is an important step towards our objectives for the airline. And so, we're pleased to report this process remains on track for completion this summer and we look forward to sharing further details when appropriate. And I'll close where I started. In a volatile environment, consistent execution and adaptability are essential and that's where Allegiant excels. Our ability to deliver strong results while maintaining operational flexibility sets us apart. The foundation of our model enables us to perform, adapt, and repeat. As we look ahead, our true North will remain centered around expanding margins and positioning Allegiant for long-term success. We will continue to manage capacity and costs aggressively as we closely monitor the demand environment. And our greatest driver to success is Team Allegiant. Their dedication continues to set us apart, and it is an honor to work with such a talented and inspiring team.

Thanks, Greg.

Thank you, Greg, and thanks everyone for joining us this afternoon. We finished the first quarter with $668 million in airline revenue, approximately 6% above the prior year, producing a 1Q TRASM of 0.1229, which was down 7.1% year-over-year, in line with our early March reguide and off just about one point from the initial guided figure of down just more than 6%. Allegiant grew total ASMs by 14.2%, with stage length increasing by about 1.6%. The first quarter capacity continues to build upon the unique attributes of our business model while supporting growth without adding aircraft and personnel. We were able to increase aircraft utilization by approximately 19% to 7.5 hours per aircraft, per day in the first quarter. Despite the growth in the quarter, utilization still remains more than 10% lower than any other reporting carrier. To expand on this a bit more, given the demand environment that existed throughout the initial capacity planning process, we grew off-peak day-of-week ASMs approximately 34% in the first quarter. Even with this growth, we still flew 73% of ASMs on the peak leisure days of Thursday, Friday, Sunday, and Monday, the highest of reporting carriers in the first quarter. Due to the rapidly changing demand dynamics in the first quarter, this became increasingly important as the spread from peak day to off-peak day unit revenue performance returned to pre-pandemic variance. As we previously communicated, 2025 growth supported growing into our infrastructure. The schedule was designed to fully leverage the existing infrastructure and in turn, expand the margin profile. The abrupt change in demand forced us to course-correct and better align our capacity with the current demand environment. That current demand environment continues to present challenges across the industry. We've diligently worked to find both the right price point that continues to stimulate customer demand and the right capacity to balance the overall revenue and cost outlook. Through all economic environments, leisure customers have shown the intent to continue to travel but typically need a lower price point to fulfill that intent. To support bookings, we've seen pressure on yields, but ancillary revenue has remained resilient. In the first quarter, our ancillary revenue per passenger of $79.28 was a record and up nearly 5% year-over-year, primarily driven by Allegiant Extra expansion and fully regained functionality from our Navitaire cutover in fall 2023. Given the off-peak weakness experienced in the quarter, we focused our capacity review on shoulder season flying in May and August and in particular, off-peak day flying in those months. More than 7.5 points of May through August capacity was removed and roughly two-thirds of that capacity came from cuts to Tuesday, Wednesday, and Saturday flying. The adjustments to peak day flying were largely driven by the closure of our LAX base, a strategic decision in response to rising airport costs along with targeted route suspensions aimed at optimizing network efficiency. Following the capacity adjustments, we anticipate 2Q ASMs to be up approximately 15.5% year-over-year, showcasing our continued ability to adapt and optimize in response to changing demand. In comparison to other airlines, we removed a larger percentage of capacity than any other carrier relative to published schedules at the start of the year. The quarter's ASM jump is predominantly driven by April's roughly 20% capacity increase, based on the late Easter shift and a comp of down double-digits in April 2024. Due to the timing of shifting demand trends, we had limited flexibility to adjust our April schedule. Looking ahead, while we anticipate second quarter TRASM to face greater year-over-year pressure than in the first quarter, periods like Easter and peak June are expected to deliver solid performance. We will remain vigilant and flexible with capacity moving forward to remain best positioned. Recent booking trends are promising and we are optimistic about the continued recovery and growth in demand. As we move forward, we expect to see continued strength and growth in our strategic initiatives. Nearly 65% of 2Q departures are planned to be on Allegiant Extra equipped aircraft. Despite the growth in departures and routes served, we continue to see a benefit of nearly $500 per departure on flights with the seat layout. 10% of 2Q departures are expected to take place on a new Boeing MAX. To-date, our capacity deployment has been done to maximize throughput of crew members completing their operating experience. However, later this year, we expect to shift scheduled capacity toward a more commercial-driven solution. We have lapped the first year of our Allianz travel insurance products and have seen the absolute contribution grow nearly 60% in April 2025 versus April 2024. And finally, at the end of the first quarter, our co-branded Allegiant Allways Visa credit card grew cardholders approximately 11% over the last year despite trailing 12-month ASM growth of less than 4% versus the previous 12 months. Additionally, consumer spend on the card was robust and outpaced 1Q year-over-year passenger growth with early indications that April remains strong as well. We look forward to continuing to grow the program alongside our partners. And now I'd like to hand it over to Robert Neal.

All right. Thank you, Drew. Good afternoon, everyone, and thank you for joining us today. I'll walk through our results and our outlook this afternoon, providing commentary on an adjusted basis excluding any special items unless otherwise noted. For the first quarter 2025, Allegiant Travel Company consolidated net income was $33.4 million, resulting in consolidated earnings per share of $1.81. Our Airline segment reported net income of $39 million, yielding airline-only earnings per share of $2.11, placing both consolidated and airline-only EPS within our original guidance. The airline generated $121 million in EBITDA during the quarter, 25% higher than the first quarter of 2024, resulting in an EBITDA margin of 18.1%. Fuel came in at $2.61 per gallon, in line with our initial expectations. Total airline operating expenses were $606 million, approximately 2% above the first quarter of 2024, on 14% higher capacity. Excluding fuel, airline operating costs were $440 million, bringing non-fuel airline unit costs to $0.0807, down 9% year-over-year, outperforming our expectations. As a reminder, CASM ex-fuel for the quarter included wage increases for our flight attendants from the April 2024 collective bargaining agreement, as well as approximately $20 million in costs related to our pilot retention bonus. The better-than-expected cost performance was attributable to various items throughout each of our cost lines, some of which are timing-related and will shift into later quarters. But I will note better-than-expected benefits from non-salaried flight crew expenses and higher-than-expected gains on asset sales, both of which are reflected in the other expenses line. I'm pleased to see the cost performance coming in on plan, as we benefit from better leveraging our existing infrastructure and growing into our workforce. And I'm optimistic about our cost structure looking through the rest of the year. Turning to the balance sheet, we ended the quarter with $1.2 billion in available liquidity, comprised of $906 million in cash and investments and $275 million in undrawn revolvers. Debt repayment during the quarter was $281 million, inclusive of $246 million in prepayments and $35 million in scheduled debt repayments. Net leverage improved to 2.6 turns, down from 3.2 turns at the end of 2024, driven by $191 million in cash from operations. Total debt ended at $2 billion, down 10% versus the first quarter of 2024, reflecting the final prepayment of the Sunseeker construction loan and repayment of $96 million in an unsecured bridge facility, offset by financing for four MAX aircraft deliveries. While we remain committed to investments in the business, specifically our ongoing fleet renewal, we expect to see leverage reductions in the balance of the year, with support for moderated capital expenditures, reduced operating expenses, and assuming we finalize a plan for Sunseeker in the coming months. As we've shared before, earning the right to grow is underpinned by balance sheet strength, which remains a top priority for our management team. Liquidity metrics remained strong, with cash at 37% of trailing 12-month revenues, exclusive of $275 million in undrawn revolver capacity. Additionally, our unencumbered fleet assets carry a current market value of approximately $600 million. Capital expenditures during the quarter were $83 million, which included approximately $65 million for aircraft engines, pre-delivery payments, and inductions, and $18 million in other airline capital expenditures. Deferred heavy maintenance spend was approximately $14 million. On the fleet side, we retired two A320 Series aircraft during the quarter and placed four 737 MAX aircraft into service, two more than previously anticipated. And we ended the quarter with 127 aircraft in the operating fleet. We're becoming increasingly confident in Boeing's ability to deliver and we now expect 12 MAX deliveries during 2025, three more than our previous estimate. As discussed on our February call, we plan to offset these incremental aircraft by removing three more A320 Series aircraft from service this year, in addition to the 12 aircraft we had previously planned to exit, and still anticipate ending the year with 122 aircraft in service. We've secured financing for all of our aircraft deliveries this year, with the first nine having either closed already or under definitive documentation, and the remaining three under letter of intent. In addition, during the second quarter, we extended $100 million of our revolving credit capacity with Credit Agricole, providing liquidity support through 2028. Notwithstanding the improved delivery performance at Boeing, we are reducing our full-year capital expenditure forecast by $80 million to $435 million at the midpoint of today's guidance. We expect aircraft-related capital expenditures to come down by about $30 million from the midpoint of prior guidance to approximately $270 million, as incremental aircraft delivery capital expenditures are more than offset by a reduction in pre-delivery payment requirements from a slower delivery schedule in 2026. We're forecasting deferred heavy maintenance capital expenditures of approximately $60 million and other airline capital expenditures of approximately $105 million. Moving to our second-quarter outlook, while we remain confident in the structural advantages of our model, including cost flexibility and a highly adaptable fleet, we think it's prudent to hold off on providing full-year projections. So, for the second quarter, we expect an airline-only operating margin of approximately 7% at the midpoint and consolidated earnings per share of $0.50, with the airline contributing roughly $1. Our guidance today assumes a second-quarter fuel cost of $2.40 per gallon. In light of the fluid environment, we're not explicitly providing detailed unit cost guidance in our comments today. That said, we do expect to perform in line with messaging provided on our February call, where we expect to see unit cost reductions throughout the year, even considering capacity reductions action to date with the first quarter delivering the strongest year-over-year performance. As Greg said, Allegiant's tactical utilization model focused exclusively on the leisure traveler has historically positioned us well during times of economic uncertainty. We expect no different this time with continued flexibility in our owned fleet as well as great opportunity in our order book. In response to economic headlines and the challenging environment, leaders from across the business have come together to implement numerous cost initiatives, including early-out options for certain employee groups, closure of our crew and aircraft base in Los Angeles, adjustments to overhead infrastructure, and reduction of department budgets across the board. In total, we reduced our operating budget by more than $15 million in fixed costs in the balance of the year with the expectation to capture more than $20 million annually. Together with reduced or deferred capital expenditures, we have removed over $90 million in spend from our 2025 plan, excluding variable cost reductions from lower capacity, demonstrating the agility and responsiveness of our team. In closing, I want to thank all of our team members for their hard work and dedication, not only for strong performance during the first quarter, but for coming together and making the right decisions to position Allegiant to outperform over the long-term. Despite near-term headwinds, the strength of our model, rooted in flexibility, low fixed costs, and a bias for action provides a solid foundation to weather the current environment and capitalize on future opportunities. Thank you all for your time today.

Our first question comes from Duane Pfennigwerth with Evercore ISI. Your line is open.

Hey, it's great to talk with you. I know you're not providing full-year guidance, but could you discuss the margin trends from last year, particularly in the second half, which seemed quite variable? Specifically, on an airline-only basis, how do you view the trajectory of those margins? Also, regarding the third quarter of last year where there was a significant loss, what are your thoughts on the margin trajectory in relation to the second quarter guidance you're providing?

Hey, Duane, nice to speak with you as well. This is Greg. Why don't I kick it off and the team can add if there's anything that I may miss. But you hit on it. Our true North is going to be to drive and optimize margins. And so I think in the second half of the year, while we're not going to give a guide, we'll continue to aggressively manage capacity and costs to optimize margin. We'll have more time to adjust to the environment for Drew and his team to try and optimize the capacity and also optimize the network. We'll continue to assess the structural costs. And if there's opportunity to pull more structural costs out of the business, we're going to continue to look at that. But to your point on the third quarter, that's generally for us and seasonally, this has been the way in the history of our model is the softest quarter of the year. Fourth quarter, we would see stronger earnings in the third quarter. But we're focused on optimizing any way we can in this environment, and we're going to make the necessary decisions to do so.

Got it. Can you provide an update on the Sunseeker process and the timing? Additionally, with regards to food and beverage or out-of-room spending, how much of this revenue comes from resort guests compared to local customers? When we look at the balance between room revenue and out-of-room revenue, are these trends consistent and repeatable, or is there something unique about the first quarter that makes it a one-off?

I want to start by addressing your first question about the process, Duane. Micah is on the call and can provide some additional insights regarding your second question about the growth profile of food and beverage spend versus guests staying at the resort. As you know, we’ve been conducting a competitive process for several months and are continuously narrowing down our options to the most suitable counterparties. This includes financially strong partners that are prepared to engage meaningfully, as we are focused on effective execution in this environment. We are still on schedule to close a transaction by this summer. Given the nature of the ongoing discussions, I will keep it brief. The good news is that we remain on track. Micah, would you like to elaborate on Duane's question?

Yeah, absolutely, Duane. The food and beverage revenues are probably a 70-30 split, 70% coming from inside the hotels and 30% the work that we do to attract locals to the property. In terms of sustainability, the key in driving the earnings in Q1 and Q2 and then beyond has been, as we talked before, is really, really tightly related to how well we do with group business and putting that group business on the books in advance. In Q1, we had just about double versus what we had in prior year. And that shows up really well in occupancy in ADR as well as in catering, which is a high-margin business for us. So, it's absolutely sustainable on a go-forward basis. You can always consider Q1 to be the strongest of the quarters in the year for sure. But that is the model going forward.

And your next question comes from the line of Mike Linenberg with Deutsche Bank. Your line is open.

Hi, everyone. I have a couple of questions about modeling. What type of fuel are you currently using? Also, what is your current cost for jet fuel, especially since it has decreased significantly during earnings season? At the beginning of the year, we had a capacity of 17%, which then dropped to 13%. What do you consider to be a good capacity number on an annual basis?

Hey, Mike. It's B.J. here. On fuel we're using $2.40 for our assumptions for the rest of the year at this point. We usually just peg to sort of what we're paying immediately before the call and it's pretty close to that today.

And then on the capacity front, Drew here, based on what's published today what we anticipate what I think goes on sale today or tomorrow for the last six weeks of the year with a little bit of completion adjustment 13% is the right number. But we'll stay on top of that as we see how things progress here in the coming months.

And Mike, it's Greg. Just to Drew's point on that, we are remaining very flexible. However, if the demand environment does not improve, our tendency would be to reduce capacity in the latter half of the year.

Okay. Great. As a quick follow-up, your other operating expenses decreased significantly. I know B.J. mentioned you recorded a gain. What is the amount of that gain? I didn't see it in the release, and I apologize if you already mentioned it. Looking ahead for modeling, should we expect to see this gain in future quarters? Thanks for taking my question.

Thanks, Mike. Yeah, on the gain, I don't want to give the number exactly. These are from asset sales that are still happening kind of on a continued basis. The fleet team is liquidating some of the assets that we have begun to retire as these MAX airplanes have come into service. And so they're still sort of negotiating with counterparties and whatnot. We didn't disclose the gain this time like we did in the fourth quarter, so that should tell you it's not as large, as it was in the fourth quarter. And then there's another meaningful good guy in the other expenses line, this year which is a reduction in non-salary flight crew expenses. So, these are costs related to like crew travel and training events and things like that, which were significantly lower this year and actually were elevated through all of last year. Maybe lastly on the gains from sale, we don't have anything planned currently for the second quarter. Not to say something couldn't get done, but we don't have anything planned currently, and there were some gains last year. So I would expect to see a little bit of pressure there in 2Q. But the program will continue in the back half of the year as the MAX airplanes deliver.

And your next question comes from the line of Catherine O'Brien with Goldman Sachs. Your line is open.

Hey, good afternoon, everyone. Thanks for the time. So you called out over the last few weeks you've seen demand stabilize and there's been some improvement over the last several days. Can you just give us a bit more color on that like over what period you've seen the improvement? Maybe help us think about the magnitude of the step down starting in February to stabilization and then how much things have improved off that bottom realizing it's a recent trend. And I know you noted to expect a steeper RASM decline in 2Q. Just trying to get a sense of how big of a step down kind of putting all that mosaic together on trends. Thanks so much.

Yeah, Drew here, and I'll invariably disappoint you by not giving you all the details you're looking for. But I mean, if you just think about maybe size of the change in RASM, right? In the last call, we said we'd be down just more than 6% ended at 7.1% said, we'll be down more despite taking about five points out of the 2Q schedule. So there's probably a mid-single-digit kind of variance in what we thought the revenue production would be. So you maybe read between the lines in terms of what that meant for change in demand. And then really it's been about the last week that we've seen kind of an uptick back half of last week through today, it's felt a little bit better. I'll probably stop short of magnitude of downswing or upswing there, but that's kind of long and short of it.

I guess, maybe just a quick follow-up. Anything notable on where you're seeing that improvement? Is it something regional? Is it closed-in bookings? Is it something beyond 30 days like any noticeable trends or it's pretty broad-based?

The situation is quite broad-based. In the first quarter, we mentioned during our last call that Canadian border cities have stabilized. While I wouldn’t say there’s a significant increase, at least it has stabilized. We're seeing a bit more activity as we move into summer, although it’s not as much as we hoped for in May. However, I believe this sets us up well for the comments made today regarding the peak period around Memorial Day through June, where we expect to see an increase. We are certainly still in a transitional phase until we reach Memorial Day.

And your next question comes from the line of Scott Group with Wolfe Research. Your line is open.

Thank you for the afternoon. I wanted to follow up on the last answer. Can you provide any guidance on the RASM expectation for Q2, whether it's sequentially or year-over-year?

I'd probably leave it where I had it in my remarks, right? We'll be down. We'll be pressured more than we were in the first quarter on a year-over-year but I think that's about the expense of what we're sharing today.

Yeah. I think, what you just said right you're mid-single digits a headwind of 5%, 6% I think, Scott in the second quarter is what we're seeing we're estimating, excuse me.

So, I'm curious if you're indicating that Q2 is five or six points worse than Q1?

No. Just yes, we are considering how this compares to our expectations from the first quarter call, which we indicated would perform better than what we experienced in the first quarter. Now that we have passed that point, we are trying to gauge the extent of change, which remains uncertain. But yes, that is essentially what we are conveying, right?

Your next question comes from the line of Conor Cunningham with Melius Research. Your line is open.

Thank you, everyone. When I consider your company, I don’t view you as someone who prioritizes market share like some other carriers have discussed during this earnings cycle. I’m trying to understand how you arrived at the decision to withdraw 7.5 points of capacity from the market. It appears that your unit revenue is declining a bit faster than expected, which makes sense. However, I’m curious why we aren’t reducing more capacity. Additionally, I’m not entirely clear on how we are addressing issues for the second half without making further reductions. I would appreciate any insights on how you determined the 7.5% figure in general. Thank you.

Yes. Not a problem, Conor. So as we think about the short-term kind of right capacity load we're still looking to maximize the margin profile understanding that we don't have maybe quite as many levers to pull broadly from the fixed expense perspective. So if we take a look at February about 97% of our markets cover their variable expenses. We think May is going to look somewhat similar to that maybe slightly more depressed. And so that's kind of what we're targeting again, right? We're targeting ensuring that the capacity that's out there is covering the variable that will push earnings and by way of margin as well as high as we can. I'm sure we'll get some of those calls wrong but that's kind of where we left out just taking a look at where the bookings were where we felt we were in a good place from that gross contribution. And then of course everything that's spilled out from the LAX base closure and impact there primarily through the summer. But that was the approach.

In the second half, we're monitoring the environment and will manage capacity aggressively. We don't need to make those decisions today, but we will be in the coming weeks and months. Is that fair, Drew?

Yes, that's fair, right?

I appreciate that, Conor. Let me begin. This is an important question. I believe that compared to previous downturns, Allegiant's foundation remains strong. The four cornerstones I mentioned earlier—network, tactical utilization, and fleet flexibility—provide us with plenty of options to adapt to changing conditions. Our infrastructure, as you and others may know, has been larger than anticipated due to delays with the MAX aircraft, which we expected to use for growth this year. However, as demand has decreased, we have already begun to adjust our infrastructure accordingly and will continue to do so. Regarding the industry, there is a consensus that we need less supply, especially in the low fare segment. Leisure fares are not keeping pace with rising costs, and some low-cost carriers are facing challenges with their models. I believe we are in a unique position. While consolidation may not be necessary for Allegiant, we have a strong model with valuable assets, a solid network, and the flexibility to perform well in a downturn and emerge in a stronger position. Our primary focus is always to enhance shareholder value, and if opportunities arise that align with that goal, we will take action.

Hey, Conor, it's B.J. I'd just add in back to your first question to tie to that last one. I mean that's one of the reasons that you haven't seen further cuts from us. The cuts that we've done to date, we believe are margin optimizing, and doing much more than that would make us cut into our infrastructure to a place that might not put us in such an advantageous position on the other side of all this. So we just want to be thinking about what we're doing today with the future in mind.

And your next question comes from the line of Andrew Didora with Bank of America. Your line is open.

Hey, good afternoon, everyone. First question might be a little bit of a stretch. But just in terms of Sunseeker, is there anything that you're seeing in your booking curve there maybe in the longer-dated group bookings that can give you like a bit of a read in terms of how you think airline demand could trend over the rest of 2025?

Yes. On the – I don't know that we have a good answer for you on that candidly, Andrew. What I would say though in Sunseeker it's tough because it's more nascent right? We just opened it last year. But year-over-year we've seen a lot of strength. That's on the Sunseeker side. That's – group business has been a big catalyst of that. And on the second quarter I think we put out our guide which is down, roughly $1 million I think in EBITDA. But that's a significant improvement year-over-year. So I think it's just a little bit difficult for us to kind of read through just given the relatively new nature of the resort. But let us follow up and see if there's something we can glean from that and come back to you on.

Maybe the only other thing I'd mention right with that area Punta Gorda, we're kind of exiting the peak season going into the off-peak now. It's going to be tough to get a little bit of a read-through from the airline side until we get that full winter schedule extended and then you'll get a bit more of a read-through to the actual core peak demand for that area. So yes, it's a great point might need a little time to get back on that.

No understood. I knew it was a little bit of a stretch question. Again just kind of as a follow-up here just with regards to the capacity changes, you've discussed on the call. I assume these are the lowest margin flying that you have. Some other airlines have spoken to the kind of the RASM differential of peak versus off-peak. Any way you could help quantify that RASM differential for the routes you've cut versus the rest of your system?

Yes. I don't have that off top of my head for that split. When we look at just overall, through the peak March period like I put in my remarks it looks very much like pre-pandemic peak days to off-peak days. So as you peel that back into what we cut back it would be things we anticipate maybe a little bit weaker as you can imagine or places where we could easily absorb. We do believe it or not have a few of these in our system a double day that we could absorb onto a single with relatively little loss of revenue there. So maybe that helps a little bit, but I know I'm not getting all the way there for you.

That’s all I had. Thank you.

Thanks, Andrew.

Next question comes from Tom Fitzgerald with TD Cowen. Your line is open.

Hi, everyone. Thanks so much for the time. In the slides you talked about how the MAX is outperforming your expectations operationally and financially. Wondering if you could give any numbers on that. I remember when the order was first placed, you talked about looking at it on EBITDA per aircraft metrics. So I don't know if it's outperforming on your margin expectations versus the rest of the aircraft in your fleet but any color there would be helpful.

Yes, Tom, thanks. It's Greg. I'll take that and B.J. might add some details if he wants. Regarding operational performance, dispatch reliability has exceeded the levels Boeing advertised before we placed our order, and it's consistently above our system average, which is a positive sign. Financially, we placed our order when market demand was low, and we believe that timing was advantageous. In the first quarter, although it's still early, we observed approximately a 35% EBITDA advantage per aircraft on the MAX fleet compared to the A320 180 seat Allegiant Extra configuration. The MAX is performing well so far. Drew mentioned in his opening remarks that we haven't yet developed a full commercialization plan for the MAX; our focus has been on training pilots. Last year, we had around 100 pilots offline waiting for MAX training, but now, I believe all or nearly all of them have completed the training and are actively flying. Would you say that's accurate?

Yes, that's fair.

So in the fall then we'll begin to better commercialize the MAX where we think there could even be more opportunity. But I'd caveat all that with it's still early and this is the first quarter.

And your next question comes from the line of Christopher Stathoulopoulos with Susquehanna International Group. Your line is open.

Good afternoon. I want to revisit the comments that Scott made regarding RASM. In the prepared remarks, I noted that same-store RASM seems to be performing well, although the outlook for the second quarter appears more negative compared to the first quarter. Considering your route structure, it seems to indicate less relative route overlap. Could you rank your routes and indicate the difference between the top quartile and bottom quartile routes, ideally on a stage length adjusted basis? I’m looking to gain a clearer understanding of how the performance varies in relation to your network structure and reduced overlaps.

Yes. So if I remember right from Greg's remarks, he was talking to kind of the peak March and peak periods in particular holding up quite well which is true. We're not going to sit here and say that the off-peaks and shoulders are holding up well. That's why you've seen capacity come out in the way you have and will continue to be reviewed. I'm not particularly interested in going through quartile results here on the call. So, no.

And your next question comes from the line of Dan McKenzie with Seaport Global. Your line is open.

Hey. Thanks. Good afternoon, guys. Drew, apologies for kicking a dead horse here on the recent uptick. But does the guide embed that pickup as continuing into the month of June? And I guess I'm just trying to get some sense of the sustainability of the current trends. Is that uptick just as simple as lower pricing stimulating demand further out? Or are you seeing it tied more to reduced say macro headline risk?

Yes. Good question. So fares yields have been depressed for a few months as we work to stimulate customer demand. That's been successful. April sale looked really good candidly a few weeks back. So that's had definitely an influence. I think this goes just a level deeper in terms of search traffic and overall visitation being a little bit healthier that helps drive more bookings while fares remain lower as well. So a little bit of both with more recently probably being more than just fares on their own.

And our 2Q guide does not assume any increase in revenue.

No, I'm not assuming that this is, yes, continuing in a meaningfully positive fashion or something like that. So that's more of a status quo kind of approach.

And your next question comes from the line of Tom Fitzgerald with TD Cowen. Your line is open.

Hi, everyone. Thanks so much for the time. Thanks again for the time everyone.

Thank you everyone for joining the call today. Please feel free to reach out with questions. Otherwise, we'll talk to you next quarter.

This concludes today's conference call. You may now disconnect.