Allegiant Travel CO Q2 FY2025 Earnings Call

Thank you, Greg. Welcome to the Allegiant Travel Company's Second 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 at ir.allegiantair.com. And with that, I'll turn it over to Greg.

Thanks, Sherry, and thank you all for joining us today. I'm proud of our second quarter results where once again, we delivered an excellent operating performance with a 99.9% controllable completion. We flew more than 5 million passengers, a record for the second quarter. And approximately 70% of those are repeat customers, a sign of our strong Net Promoter Scores and reflects our position as the leading airline in most of the communities we serve, offering reliable nonstop travel at unbeatable value. I'm also happy to report that we achieved an airline operating margin of 8.6%, exceeding our initial guidance. Combined with our first quarter performance, our first half operating margin was close to 9%, an improvement compared to the first half of 2024. Team Allegiant has done a good job of controlling what we can control. Aircraft utilization is back to our historic productivity levels, increasing by 17% in the first half versus a year ago, while total aircraft and personnel have remained flat. Furthermore, we are continually enhancing our commercial offerings, and we are keeping a tight lid on costs. What we can't control is the demand environment, as many airlines have already commented, domestic leisure demand was noticeably softer during the first half of this year than initially anticipated. Despite this weaker domestic demand backdrop, we achieved solid profitability because we are one of the lowest cost providers in the industry and have a relentless focus on offering our customers attractive prices and a safe, reliable on-time product. We are making headway with our Allegiant-centric initiatives. With Navitaire's initial revenue headwinds behind us, we are better positioned to accelerate our progress as we further enhance its capabilities along with pursuing additional commercial initiatives. Our new MAX aircraft are boosting our performance as expected, leading our fleet and reliability and contributing a significant margin advantage when compared to our older A320 aircraft. The MAX fleet accounted for roughly 10% of our ASMs in the second quarter, and we expect that amount to exceed 15% by year-end. Our premium Allegiant Extra offering is in high demand by our customers. We are benefiting from a significant price bump for this product, which is both additive to margin and TRASM. Drew will speak in more detail, but I wanted to provide some insight into our overall TRASM trends. There are several factors that impact TRASM, including the mix of peak versus off-peak flying, existing markets versus new markets and, of course, capacity growth. When you look deeper into the numbers, peak TRASM is performing relatively well, reflecting strong customer demand during high travel periods. It is the shoulder and off-peak periods where demand softness, coupled with capacity growth has driven outside headwinds to reported TRASM. There are 2 things that are important here. The first is that we continue to manage our network to maximize profitability and the shoulder and off-peak flying we added this year have been margin accretive. Second, adjusting for the mix of flying, we believe our TRASM decline compares favorably to domestic leisure trends of our peers, highlighting our strong competitive offering and positioning with our customers. As we announced last month, we are exiting Sunseeker, allowing us to further simplify the business and solely focus on our core airline. With that, let me shift to our initial views for the second half of the year. Although, signs from the performance of the U.S. economy appear to be mixed, we are cautiously optimistic in our recent bookings that suggest a modest strengthening of leisure demand. Keep in mind that our third quarter is typically our seasonally weakest period for leisure demand due to the higher proportion of shoulder and off-peak compared to other quarters, with the second half of August and most of September representing the lowest period for leisure travel during the year. A key attribute of Allegiant is our flexible scheduling as we look to peak the peaks and fly off-peak when it makes sense economically. Appropriately, we pulled back on our capacity growth expectations for the full year due to increased macro and geopolitical uncertainty. We have made further adjustments with September ASMs now expected to be roughly flat year-over-year. BJ will provide more details shortly, but we expect to incur an operating loss in the third quarter. Importantly, we continue to expect to report a healthy operating profit for the full year with our fourth quarter historically more in line with the first 2 quarters and a much stronger quarter than the third as leisure travel typically picks up seasonally. I also want to reiterate that we remain steadfast on our core principle that we need to earn the right to grow. While 2025 has been a year with meaningful growth, and as mentioned, that growth was accomplished by adding to our fleet count without adding to our fleet count or our personnel, it represents a one-time catch-up year after MAX delivery delays that sharply curtailed our capacity growth in previous years. Encouragingly, when we compare our first half '25 year-over-year changes between TRASM and CASM ex, we believe it to be among the industry's best. As we look to 2026, we currently expect capacity to be relatively flat as we further harvest our current infrastructure. Those plans should help us improve our yields for several reasons. First, we expect to drive incremental revenue through enhanced Navitaire capabilities and new commercial initiatives. Second, we should benefit from routes maturing and with peak flying representing a greater proportion of ASMs in '26 than 2025. Also, we expect a tailwind from a more fully ramped Allegiant Extra, which will start the year being deployed on 70% of our fleet, up from 50% at the beginning of 2025. Third, we anticipate our Allegiant credit card remuneration will continue to grow from the $140 million expected this year. It is a great source of steady incremental cash flows. Drew will provide more details, but suffice it to say, those offerings as well as other revenue-generating initiatives give us confidence today that the unit revenue should improve in 2026, all else being equal in the demand backdrop. On the cost side, we are continuing to increase the usage of the MAX aircraft, which are expected to be more than 20% of our ASMs in 2026, up sharply from '25. We are planning to divest some of the Airbus fleet over the course of the coming year with any proceeds used to further strengthen our balance sheet. And we are keeping a tight control over costs. Our cost structure is a key competitive advantage. So, when you put it all together, we are taking important steps to simplify our business and further strengthen our core airline competencies. The airline is operating extremely well, and we continue to position ourselves to deliver strong incremental margins. I'm excited about what's in store for us over the coming year and beyond. And let me close by highlighting how proud I am that our team's performance resulted in Allegiant being named Skytrax Best Low-Cost Carrier in North America for the second year in a row. Our greatest driver of success is Team Allegiant, our dedicated team members who deliver great service for our customers every day of the year. Their dedication sets us apart, and I'm honored to work with such a talented team. And with that, I will turn it over to Drew.

Thank you, Greg, and thanks, everyone, for joining us this afternoon. We finished the second quarter with $669 million in airline revenue, approximately 3% above the prior year, producing a 2Q TRASM of $0.1157, which was down 11.2% year-over-year, in line with our internal expectations from the prior call. Allegiant grew total ASM 16% with overall utilization up 17%. Despite the increase in utilization, reducing available plane space for our fixed fee flying, our fixed fee revenue was down just 4% on a year-over-year basis and ahead of our internal estimates for the quarter. While BJ will hit on the unit cost benefits of our growth profile, we expected to have an impact on our unit growth. Focusing a bit on the core of Allegiant strength and deploying predominantly peak day capacity, unit revenues in our markets operating the same capacity in both the current year and prior year, mainly comprised of markets flying 2 to 3 times per week were off roughly 6% year-over-year, seemingly in line with commentary from others throughout the cycle. While perhaps oversimplified slightly, the growth profile contributed roughly 5 incremental points of headwind and fell generally in line with our typical expectations of the relationship between growth and unit revenue change. We certainly saw more resilience on peak days where even in the aforementioned same capacity scenario, peak days held up about 4.5 points better year-over-year than off-peak days. New peak weekends even came to light. The emergence of Juneteenth as a strong traveling holiday was a welcome addition and was, in fact, the strongest TRASM week of the summer while a traditional peak week around the 4th of July was top in total revenue. Our approach to capacity in the second half of the year aims to align capacity with demand in our typical fashion. Our third quarter growth rate is down more than 10 points from our estimates at the start of the year. As mentioned on the last call, those cuts are heavily focused on the off-peaks, both day of week and season. August, for example, saw an 18-point change in expected capacity and September will only be approximately 48% of July flying. After the cuts, we still expect third quarter scheduled service ASMs to grow approximately 10%, with the fourth quarter slightly higher than that, given 2024 hurricane-related cancellations comparison. We've certainly seen demand pick up in July earlier than last year. And while those same capacity markets did improve slightly in July relative to June, the uptick missed a good portion of the July booking window. Additionally, due to the overweight portion of third quarter ASMs falling in July, the third quarter will see a lower overall benefit than other carriers most likely. Broadly, we do believe the back half of the year is setting up better than most of the last 6 months. Consumer confidence ticked higher in July, and the industry setup is improving through the post-summer trough. That said, the November-December industry growth profile remains elevated and in particular, capacity into leisure-oriented destinations has an even larger spread versus last year. Our revenue forecast for the back half of the year contemplates this year's various factors largely washing out and producing a generally similar trajectory relative to 2024, sufficient to forecast sequentially improving year-over-year TRASM trends in each of the third and fourth quarters. Significant tailwinds beyond that would represent upside, more likely in the fourth quarter than the third, simply given the amount of time left to book. We feel bullish enough about forward demand to introduce a small handful of new markets into the network. These include service to a new airport in our network, Southwest Florida International, RSW in Fort Myers, Florida, which we believe is complementary to our incredible service in Punta Gorda about 40 minutes away, as well as the ninth route into Gulf Shores, Alabama, an airport we began serving in only May of this year. All 7 of our new routes launched just before Thanksgiving, focusing on peak demand times over the holidays and into next year's spring break period. A part of the improving trend is due to the continued traction of our initiatives. Allegiant Extra will grow to two-thirds of departures in the third quarter, while showing extreme resilience with the increased profile. And as indicated on the last call, we recaptured $2 per passenger of lost revenue from the initial map share implementation, and now believe we've gained the first incremental dollar of benefit from the system. Some of the early wins we're discovering aren't necessarily solely ancillary revenue per passenger lift, but rather conversion and in turn, load factor benefits that we expect to see manifest more fully in the coming months. In fact, July load factor should be the best month year-to-date, both in terms of the actual metric and the year-over-year performance. Finally, while we're thrilled with the trajectory and results of our award-winning Allegiant Always co-branded credit card and loyalty programs to date, we have kicked off an in-depth review of the programs to ensure we are continuing to offer a value proposition that resonates with our customers after 9 years and much industry change. As we dig in on the evolution of these programs to best support our customers' needs, we'll come back with more details in the coming quarters. And now I'd like to hand it over to Robert Neal.

All right. Thank you, Drew. Good afternoon, everyone. I'll walk through our results and share our outlook today, all on an adjusted basis, unless otherwise noted. This afternoon, we reported second quarter consolidated net income of $22.7 million and consolidated earnings per share of $1.23. The Airline segment produced net income of $34.3 million and airline-only earnings of $1.86 per share, exceeding our initial expectations of approximately $1. This outperformance was attributable to solid cost execution throughout the quarter on a share count of just under 18 million and drove operating margin to 8.6%, ahead of our guided range. Our second quarter consolidated results do include special charges of $103 million related to the pending sale of Sunseeker Resort announced in early July. We remain on track to close on the sale in early September. Airline EBITDA was $122.5 million, yielding an EBITDA margin of 18.3%. Fuel averaged $2.42 per gallon during the quarter, in line with our initial forecast. Our focus on growing into our labor force and leveraging existing infrastructure kept momentum during the second quarter with total airline operating expenses of $611 million, up just 4.9% year-over-year on capacity growth of 15.7%. I'm very pleased with the team's cost execution. Excluding fuel, unit costs were down 6.7% despite the removal of nearly 7 points of planned capacity growth in the quarter. Our CASM ex result included a 1-point headwind from expected transitory costs in the aircraft lent line as we prepare to return 11 aircraft off operating leases, which originated during the pandemic. Department leaders across the organization have been focused on cost performance, especially in light of capacity reductions and the softer demand environment experienced during the first half. We will continue to set capacity for optimized margins, and we are not solely focused on unit cost results. But that said, we pulled 4.5 points of capacity growth from our 2025 plan and still expect full year nonfuel unit costs to be down mid-single digits, thanks to numerous budget initiatives across the organization. Turning to the balance sheet. We ended the period with robust total liquidity of $1.1 billion, which includes $853 million in cash and investments and $275 million in undrawn revolving credit facilities. In addition, we had $335 million in available undrawn loan commitments at the end of the quarter. Cash and investments were approximately 34% of trailing 12-month revenue at quarter end. We made continued progress on debt reduction, repaying $152 million, including $113.5 million in nonrecurring repayments and $38.5 million in scheduled principal payments, ending the quarter just below $2 billion in total debt. Net leverage remained flat sequentially at 2.6 times, down from 3.8 times at the end of the second quarter last year. Capital expenditures for the quarter totaled $137.7 million, comprised of $108.3 million in aircraft-related spend and $29.4 million in other airline CapEx. Deferred heavy maintenance accounted for an additional $10 million during the period. Now moving to fleet. We retired 2 A320 series aircraft and took delivery of 5 new 737 MAX aircraft, which were placed into service at quarter end. We are pleased to say that Boeing has exceeded our expectations on aircraft deliveries throughout this year, and we expect our remaining 3 aircraft for 2025 to be delivered in the third quarter as we ramp up operation of our MAX fleet in the fourth quarter. Predictable and reliable performance from Boeing provides us with tremendous fleet flexibility, and we're leaving our full year CapEx forecast unchanged at this time at $435 million. In light of staffing costs incurred in 2024, we made the conscious decision at the start of the year not to hire additional flight crews for these aircraft and plan for pilot transitions after our summer peak schedule. Thus, we expect to place the remainder of these aircraft into service alongside available train flight crews beginning in October when we transition our Fort Lauderdale base to an all 737 MAX operation. Looking ahead to the third quarter, as previously announced, we've entered into a definitive agreement to sell Sunseeker Resort for $200 million, with closing planned for early September and expectation for sales proceeds to be used for debt repayment. We will report consolidated and airline-only results for the third quarter, which we expect will include approximately 2 months of operating losses at Sunseeker during its off-peak season. As most of you know, the third quarter is seasonally our softest. While we've recently seen some strength in bookings, much of July, our peak month, would have been booked before a notable increase in demand was observed. As such, the benefit to the third quarter is somewhat muted, though we expect to capture some upside in our full year guidance, which I'll discuss in a moment. For the third quarter, we expect a consolidated loss per share of $2.25, including a loss of approximately $0.50 from Sunseeker. For the full year 2025, we are expecting airline-only earnings of greater than $3.25 per share. Factoring in 8 months of operations at Sunseeker, we expect consolidated full year earnings per share above $2.25. Our outlook today contemplates some of the demand improvement observed in July. However, we believe there's still room for upside, particularly during the fourth quarter if macroeconomic conditions continue to improve. Although, it's still too early for us to guide 2026, we will share that we expect to retire 8 A320 family aircraft and plan to induct 9 incremental MAX aircraft into the operating fleet next year weighted to the back half. As a result, we do not expect fleet count to drive capacity growth next year. With continued progress on revenue initiatives, the earnings drag from Sunseeker removed and an improving macroeconomic backdrop, we believe we're well positioned to deliver materially higher earnings in 2026. In closing, I want to thank the entire Allegiant team for their efforts during our peak summer travel season. We operated a record number of flights this summer and the operational performance exceeded expectations. Despite a nearly 17% increase in fleet utilization and flat employee headcount, we operated nearly 16% more flights compared to 2024 and did so with significantly fewer operational disruptions. From cost discipline to operational execution, we're proving our ability to adapt, execute and position Allegiant for long-term outperformance. And with that, Greg, this concludes management's prepared remarks. We can now go to analyst questions.

Okay, it looks like our first question comes from Michael Linenberg with Deutsche Bank.

I just mentioned the consolidated numbers for the full year, which are over $2.25, and for the airline, which exceed $3.25. Sunseeker has already incurred a loss of over $1 per share in the first half of the year. There is another $0.50 expected in the third quarter for the last two months. I notice the dollar difference, but it seems you left the gap at that point, which may have been intentional.

Mike, it's Greg. Let me start, and then BJ or the team can add more. We expect that by the end of September, Sunseeker will no longer be part of Allegiant and will be excluded from future earnings. That's how it was structured. If we need to go into more detail, we can certainly discuss that offline. The guidance suggests that for the third quarter, we anticipate around $1.25 in airline-only EPS.

Okay. Okay. Then just my second question on Sunseeker itself, I mean, the 8-K that came out talked about, I guess, cash proceeds of $200 million. I mean, I'm not sure if there was anything else tied to that, if there's a residual stake. I mean, is it clean $200 million coming in? Are there some other impacts there? How should we think about it just because the original 8-K was fairly terse in providing details around that transaction.

Yes, of course, Mike. Just it's all 100% sold to Blackstone, and that's the sale agreement and then the $200 million of proceeds to Allegiant upon close of the deal.

Maybe I can kind of talk a little bit about the 2026 kind of way you're thinking about it. I appreciate that color this early on. Just curious, your cost execution this year has been remarkable. And given the kind of the flat outlook, how should we think about nonfuel costs next year given that you still don't know what the pilot deal might look like? And just how should we think about puts and takes into 2026?

Sure. One reason we are not ready to provide guidance for 2026 is that we are just starting our budget initiatives and need to better understand what capacity will look like next year. Remember, we had a significant amount of off-peak capacity during certain periods in 2025, and based on the current situation, we don't expect to see that next year. We're working on getting a clear picture of aircraft and team member utilization, and we also need to consider the timing of the pilot deal you mentioned.

Anything else, BJ, as we think about like some of the cost savings that you have this year, do any of those get reversed next year? Or is there kind of a rule of thumb if you didn't have any of those kind of moving parts, just how much unit cost pressure you see?

We anticipate that the most significant benefit in terms of unit costs this year will come from the salaries and wages line. While I can't guarantee that this cost will remain unchanged, I do not expect it to increase significantly. If we experience lower utilization or reduced available seat miles, we could face some pressure in this area. However, it ultimately depends on the capacity we decide to implement.

Savi, it's Greg. I might just add just a more high-level comment. And the team has probably heard me say this too many times, but everything at an airline begins and ends by running a great operation. And I think from a cost perspective, it can get pretty expensive quickly when we don't run a good ops. And so just really proud, you're hearing some of the operational performance that we're seeing and the improvements we've seen over the past couple of years that's helped drive a lot of our costs out of the business. So that's step 1 next year and giving us even some more confidence to fly a little bit more in those peak periods given the ops performance. One of the things that I think I want to say as well is just the organization has been incredibly focused on just driving unnecessary costs out of the business. BJ and his team, it's a team of cost hawks, and we've seen close a couple of high-cost bases like LAX and Austin. We've reduced corporate personnel over the past year by 10%. We've reduced fixed marketing expenses, and we've reduced IT spend. I mean, there are areas in the business that structurally we've gone through, and they've done a really nice job. And what I am, I guess, very encouraged by is the culture where everyone is looking to really be prudent on the cost front.

Maybe one more quick addition to the answer there, Savi. And this one I can give you to help with modeling. I mentioned in the prepared remarks, an increase in the aircraft lent line. I would expect that to persist through the back half of this year, maybe a little bit of relief in the fourth quarter. But in 2026, we should see that return to the same run rate that we had in '24.

On the growth headwind to RASM of 5 points, I assume that's a 2Q comment, and this might be impossible, but how would you frame that maybe earlier in the year and even into the third quarter here? Is it fair to say that the year-to-date impact is probably in a similar range to that 5 points?

Yes, Drew here. I think that's probably fair year-to-date. If we look at the extreme off-peak periods, like September, we didn't experience the same comparison in January as we were still performing well in terms of bookings. Therefore, we're forecasting a similar trend with slight improvements throughout the quarter, potentially better than the 6% we reported in the second quarter.

Got it. And then just on some of the cost leverage because I thought the driver of the growth this year was really about legging into the investments that you already made in support of this transition for the MAX. And so, would you say there's still cost leverage to achieve based on investments you've already made? I mean you are effectively growing the MAX subfleet in '26, shrinking on the Airbus side. So, it doesn't feel like your average flat capacity year maybe from a CASM perspective. So maybe just talk about what inning we're in, in sort of getting cost leverage on the MAX investments you've already made?

Thanks, Duane. Yes, I'm happy to start, Greg, if you want to add in. Yes, early innings for sure. I think Greg gave the percentage of ASMs that were operated by the MAX, but certainly expect that to be in the 20% range next year. So, there's definitely room to grow. We're also not able to schedule the MAX aircraft on the most optimal lines of flying yet because we're still training crew members. And so, the airplanes are operating shorter stage lengths, which is not optimal for the fuel burn performance of that airplane. So, I think there's definitely room to go. And then I would just say on the DNA side, you got to remember, there's also a little bit of overlap in the second quarter of this year, we had a one-time true-up on some unrelated assets. So, there's a little bit of a bump in the second quarter. I would expect to see some relief there in the third quarter. And then as we move into next year, you see some of the Airbus assets start to fall off from the DNA line.

And Duane, I'd like to provide some specific details regarding the cost improvements. To BJ's point, by next year, around 20% of our available seat miles will be operated by the more cost-efficient MAX fleet. We anticipate that available seat miles per gallon will improve by approximately 2 to 4 points next year. Looking ahead to 2027, we expect this improvement to accelerate even further. Our preliminary plan indicates an improvement of between 7 to 9 points or 7 to 10 points in available seat miles per gallon.

I'm not asking you to guide for '26, but do you have a sense of what your normalized EPS might look like? One of your peers quantified it on their call for 2027. And also, what might that be dependent on in terms of moving parts?

Ravi, I'll start off by saying that we won't provide guidance at this moment. I previously mentioned several initiatives we are considering for 2026 and things to keep an eye on. We believe there is a clear opportunity to enhance unit revenue while maintaining strict control over costs. Our team's performance this year has been strong, and we aim to keep operations running smoothly. The flat capacity should not create any operational challenges. We anticipate being able to increase flights during peak times based on our operational insights, and Drew and his team are already planning for 2026. If demand improves, especially in leisure travel, we might have some flexibility to increase utilization in off-peak and shoulder periods, although we aren't currently planning on that. Overall, while I can't provide a specific answer, I believe we have a significant opportunity to enhance our earnings. We have 18 million shares outstanding, so you can calculate the impact on EPS for each lever under consideration, assuming all else remains equal.

Understood. That's helpful. And maybe as a follow-up/clarification. Just on 3Q on the demand environment, are you saying that the 3Q you've guided to is essentially what a normal 3Q like non-peak environment looks like? Or do you think we're still seeing drags from what happened in the first half? Just trying to get a sense of what that sequential step through 2Q, 3Q, 4Q looks like relative to what you think normal would be.

Yes, I'd probably caution normal for sure. What we're thinking about for the third quarter is a ramp in demand similar to what we experienced last year. So, 2024 was not particularly normal as we talked about a year ago. We're starting from a little bit of a lower point, right? So, getting a slightly stronger ramp, I think, will get you to the sequential TRASM year-over-year benefit that we talked about. So, I don't think we're quite normal yet. Very little post-pandemic feels normal at all. But look forward to 2024 as kind of the guiding principle there more than anything.

I apologize, I missed this, but maybe can you just repeat sort of how you're thinking about RASM and CASM in Q3? And I think you had a point that things are getting better, but maybe you're not going to see the same benefit of things getting better, maybe as much as others. I just didn't follow that point, if you can just go through that again.

Yes. I'll begin with the RASM aspect. Essentially, Scott, this relates to how we manage our capacity. For the quarter, 42% of our ASMs will occur in July, which leaves only 58% for the remaining months. As demand increases, we don't maintain the same flat schedule that many other airlines do, which would allow them to better capitalize on any gains from the increased demand in the third quarter. That summarizes my comments on that. More broadly, I previously mentioned that we anticipate improvements on a year-over-year basis as we move into the third and fourth quarters, expecting gradual enhancements in each.

And then on the cost side, we did not guide unit metrics for the quarter, but I will tell you that I gave a bit of a cadence of unit costs at the first call this year, the 4Q '24 earnings call. So, I'll just kind of repeat that so it's out there. We expected at the time first quarter to be down the most, second quarter to be down not quite as much. And then we had talked about the fourth quarter coming in maybe flat and that did assume a little bit higher capacity. So, we've pulled some capacity out since then. But I think those comments will largely hold. And then I said in my prepared remarks that we would expect the full year to end down mid-single digits.

I guess, first question for Drew. When you look at all the commercial initiatives you outlined in your prepared remarks, whether it's Allegiant Extra, more peak flying, now you have Navitaire operating as you initially thought. How should we think about whether it's RASM or maybe it's ancillary per passenger? How do you think about the uplift from all of these initiatives in kind of the status quo demand environment as we head into 2026? How should we think about that?

Sure. So, on the Navitaire front, we had always talked about that being lift in the ancillary per passenger line. I think what we've seen is actually a little bit more coming in load factor and conversion, which may actually put a little pressure on air per passenger or ancillary per passenger, but it's good for the overall as we can drive incremental bookings. So that's a little bit candidly of a change. We had called that out as the $2 to get back to level and then an incremental $2 per passenger, but we might have to start to shape that a little differently given we're seeing it come through load instead. On the Allegiant Extra, that's purely an ancillary revenue per passenger metric. We're still holding pretty strong at that roughly $3 per passenger on flights with the Allegiant Extra layout coming out to $500-ish per departure. That number is still intact on that front. So, I'll end this one here.

Yes. Thanks, Andrew. The answer is yes, we'll always consider it. We revisit it 2 to 3 times a year. At this point, it's our view that over the long term, over the full useful life of the aircraft, it's twice as expensive to lease airplanes as it is to own them. And so long as the balance sheet allows us to own aircraft, I think you'll continue to see that from us. It doesn't mean that we won't diversify our funding sources or be opportunistic here or there. We have an order for 50 firm aircraft. I can envision a few of those being operating leases by the time we take the last one. But at the moment, we don't have any plans to use sale leasebacks.

I was hoping to ask about the booking curve and maybe tie it into a couple of other questions that you had. So, I'm just trying to understand like is the booking curve normal at this point? And I guess, the question that I think a lot of us are trying to figure out is just how much do you have left to book in 3Q? I realize that July is obviously your most important month. But then if you could just talk about where you are at 4Q? And is that comping up on what you currently have? I'm just trying to understand like what's out there right now. Again, you've kind of struck a more cautious tone, which is fine, but I'm just trying to benchmark like where we're at.

Yes. I'm most confident in July, which has no bookings left. For the remainder of the quarter, in August and September, we likely have about 35% to 40% still to book. So there is still some opportunity, but the booking window is closing. For the fourth quarter, we still have 85% left to book, so there's much to anticipate. As I mentioned earlier, a lot of the fourth quarter depends on how various factors will evolve. The industry landscape appears different for a leisure-focused carrier compared to one that is more business-oriented or hub-based, where you've noticed a decline in seat availability this year compared to others. This variation makes me think that our outlook could be somewhat different as we approach year-end.

I would like to add that the suggested EPS guidance for the fourth quarter is lower than both the first and second quarters of this year. Scott pointed out that it's significantly below the fourth quarter of last year. Regarding Drew's point, there is still a substantial amount left to be booked, and our guidance indicates a slight improvement in leisure demand. We are monitoring the situation closely and will do everything possible to enhance our fourth quarter earnings and overall earnings.

To address your question about the booking curve, we experienced significant compression last year, with median bookings decreasing by about 7% to 8%. We have maintained a relatively stable position in terms of close ratios. While we haven't seen as much of a surge as others have reported, the situation has normalized compared to last year, which experienced a surge that may or may not have been as widely discussed.

So just kind of picking up with that last response to Conor's question. Should we be expecting an Investor Day in the next like 12, 18 months? And just you are at an interesting point in the road. And would you look to just focus on these like, kind of asset-light opportunities and like a low-growth organic story? Or would you be open to any M&A at all?

Tom, thanks for the question. There's a couple of smiles around here because we've been discussing that for a while. Drew, BJ, and I want to schedule something soon because we believe it would be very beneficial to walk through our long-term view of the business and our initiatives that could enhance value. We've delayed this due to some unique challenges we’ve been facing, but we’re currently working through them, and things are starting to clear up. So, to clarify, yes, that’s our plan. We don’t have anything set yet. I wouldn't expect it in the next few months, but I anticipate we will schedule an Investor Day within the next year to 18 months, likely sooner. Regarding your M&A question, which I believe I heard, we frequently get inquiries about that. I think there is potential for positive consolidation in the industry. Currently, having less supply would be beneficial, especially in the domestic leisure sector. Allegiant continues to be profitable, while not all airlines can say the same. Our model remains robust, and we’re generating healthy earnings. My main focus, and the team's focus, is on improving our margins and returning to profitability in the third quarter. Before the pandemic, we had 68 or 69 consecutive profitable quarters, and we need to get back to that level. We're taking steps to achieve this. I don’t believe consolidation is necessary for us to reach our historical margin levels. However, we consistently look for ways to expand and enhance shareholder value, keeping a close watch on every opportunity.

That's right. So, on the next year's outlook, flat capacity, and apologies if you went over this, but if you could help parse that out. So, I guess, the usual input stage gauge departures and then if you could, peak versus off-peak and new versus existing markets.

I don't know if I have all the details to share with you right now. Currently, about 5.5% of our available seat miles are in new markets. Some of that will decrease, but a mid-single digit outlook seems reasonable. As for stage, I don't expect to see much change. We will see a slight increase in gauge as we transition to the MAXs with 190 seats and retire some of the 177-seat aircraft. I don’t believe there are many moving parts involved.

The only other thing I might add is that we expect a higher proportion of peak flying compared to off-peak flying year-over-year. What gives me a lot more confidence in that is how the operations have performed this year during those peak periods. We pushed it significantly and ensured that we could achieve that. The front-line and operational teams have done a fantastic job with the same overall infrastructure, and they continue to improve processes and strengthen that foundation. Part of how the team is planning is based on the ability to push a little bit more during those peak periods, and I believe they're planning accordingly. Additionally, if the demand backdrop improves, there's still an opportunity to increase utilization during the shoulder and off-peak periods. However, we are focused on maximizing capacity during the peaks as much as we can next year.

I didn't mention that. I don't know if anybody else can tell you better than for next year better than.

On the MAX fleet, we expect 20% of our ASMs to be produced with the MAX aircraft.

Okay. But overall, at the system level, flattish on gauge at this point?

No, I think we'll see gauge come up just a little bit because we're retiring aircraft with 177 seats and adding airplanes with 190.

I have two quick questions. First, are you anticipating a similar level of RASM acceleration in the fourth quarter as you experienced last year? How confident are you that this acceleration will materialize? Last year, it looks like there was a 300 to 400 basis points improvement sequentially from the third quarter to the fourth quarter. Are you already seeing yield improvements in recent bookings that align with this level of acceleration? Any additional insights you could share to increase our confidence about the expected ramp in the fourth quarter would be appreciated.

Yes, we have definitely noticed an increase in demand throughout the selling schedule. It’s important to remember that this reflects a 15% increase for the entire fourth quarter. Therefore, there is still more than 90% of December left to consider. While I don’t want to draw conclusions based on a limited sample size, the data we do have appears promising.

Atul, it's Greg. I can start with a high-level overview. I think 2023 shows a very strong demand backdrop. Also, we began in midyear, around May. For the full year, we started to implement a 35% pay increase for our pilots as part of ongoing negotiations. To summarize what we've discussed, our focus areas include flying more during peak periods, improving operational performance, launching commercial initiatives, maintaining cost discipline, bringing in more MAX aircraft, growing the loyalty program, and advancing technology. All of these factors contribute to better productivity, and we see a clear path to continue growing and expanding our earnings. We expect to return to our previous historical performance levels. While I don't want to provide specific guidance on when we will reach our 2023 EPS targets, we are committed to getting back to where we were, and that remains our goal.

And that does conclude our Q&A session for today. So, I will now turn the call back over to Sherry Wilson for closing remarks.

Thank you all for joining the call. We'll speak again next quarter.

Thanks, Sherry. And again, ladies and gentlemen, that concludes today's call. Thank you all for joining, and you may now disconnect.