Earnings Call Transcript - ALGT Q3 2021

Operator, Operator

Good afternoon, everyone, and welcome to the Q3 2021 Allegiant Travel Company Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. I would now like to turn the conference over to your host Ms. Sherry Wilson.

Sherry Wilson, Host

Thank you, Kirby. Welcome to Allegiant Travel Company’s third quarter 2021 earnings call. On the call with me today are Maury Gallagher, the company’s Chairman and Chief Executive Officer; John Redmond, the company’s President; Greg Anderson, our EVP and Chief Financial Officer; Scott Sheldon, our EVP and Chief Operating Officer; Scott DeAngelo, our EVP and Chief Marketing Officer; Drew Wells, our SVP of Revenue and Planning; and a handful of others to help answer questions. We will start the call with commentary and then open it up to questions. We ask that you please limit yourself to one question and one follow-up. The company’s comments today will contain forward-looking statements concerning our future performance and strategic plan. Various risk factors could cause the underlying assumptions of these statements and our actual results to differ materially from those expressed or implied by our forward-looking statements. These risk factors and others are more fully disclosed in our filings with the SEC. Any forward-looking statements are based on information available to us today. We undertake no obligation to update publicly any forward-looking statements, whether as a result of future events, new information or otherwise. The company cautions investors not to place undue reliance on forward-looking statements, which may be based on assumptions and events that do not materialize. To view this earnings release as well as the rebroadcast of the call, feel free to visit the company’s Investor Relations site at ir.allegiantair.com. With that, I’ll turn it over to Maury.

Maury Gallagher, CEO

Thank you, Sherry, and good afternoon, everyone. Thank you for joining us again. We had another very good quarter as we saw loads and yields improve versus earlier this year in Q1 and Q2. Our scheduled service ASMs increased 17% this year versus the same quarter in 2019. As I mentioned in our release, we were the only carrier this year that I’m aware of who has both grown their system compared to 2019 and been profitable. And subsequently, this was a substantial increase versus the sequential 4.5% growth in Q2 and 3.1% growth in Q1. While our third quarter’s results were profitable, they were impacted by our operational challenges. This spring many in the industry were revving their motors for the drag race to restart their airlines. A common theme was flagged paint planting and getting there before someone else. Majors had to refocus much of their flying to leisure-oriented destinations, given the lack of business and international passengers. We, the low-cost carriers were feeling our oats as well and looking to get out and plant some flags. Regardless, the focus on leisure traffic and the associated airports by all concerned. As a result, the operational demands on leisure destination airports, particularly in Florida were substantial. Comparatively, business-focused airports and most of your larger NFL cities were operating at a fraction of their traditional volumes. Some of our destination airports had operational increases of up to 100% compared to 2020 and 2019 respectively. This added leisure flight activity was hampered by a difficult labor environment as well. Airports with these increases in activity did not have the necessary personnel for this substantial growth. An illustrative example of this unprecedented leisure effect was noted in Southwest comments about their recent operational problems tied to ATC issues in Florida, stating that half of their flights now touch Florida each day. This amazing evolution of the network of one of the major carriers in the U.S. is indicative of the substantial shift in where airplanes were flying this past summer. My label for this phenomena is leisure destination overload. As I said, we were not immune to the challenges the industry was experiencing this past summer. For the past few years, we have implemented a generous compensation program if and when we interrupt a customer’s trip. Our approach in this advantage is to provide a better than average amount of TLC to help make the experience feel better in one of these bad situations. If we were to add back these interrupted trip costs and other one-time associated operational expenses, our unit costs would have been on the mark. Greg will have more comments in a few minutes. You’ve heard every carrier so far comment on increasing fuel prices. Some carriers are still hedging, but understand this will only provide short-term relief. Capacity reductions are the only remedy long-term for fuel price increases. We have firsthand knowledge in this area. In 2008, we made substantial capacity cuts to offset the skyrocketing energy costs. While we plan to grow this coming year by at least low double-digit percentages, increasing fuel costs could put a damper on this growth. As we’ve told you repeatedly, our model's flexibility allows us to react better than others. We have shown a consistent ability to grow over the years, but we’ve also been able to quickly retreat if needed as we did in early 2008 and last year during the pandemic. I’m excited about where we’re at. We’re in excellent shape. Our balance sheet has improved substantially during these difficult times. At quarter-end, we had over $1.1 billion in cash and only $500 million in net debt. We restarted Sunseeker and we recently completed a $350 million financing line to finish the construction. John will have some additional comments. Our third-party revenue efforts are paying dividends and are increasing nicely. These incremental revenues have been a difference-maker through the years, providing us with industry-leading unit revenues and associated profits. This is all part of our Allegiant 2.0 strategy that we’ve talked about previously. Scott DeAngelo will have further comments as well. We are continuing our climb back from the depths of the pandemic and this climb has not been a straight line; it has been complicated by the volatility of the labor markets, as well as COVID-related absences that we experienced this past summer. But we’ve seen demand continue to increase nicely in the past few months in spite of the Delta variant outbreak. We were the first to profitability from COVID, and our model and our non-competitive route structure continue to be industry leaders. I believe 2022 will continue this return to normalcy, and we will lead the industry out of this challenging period. Lastly, as usual, I want to thank our team members who have been the difference-makers in our success for the years, and now is no different. They’ve been warriors on the front line, consistently transporting our passengers day in and day out to their destinations. Thank you to everyone.

John Redmond, President

Thank you very much, Maury, and good afternoon, everyone. Like Maury, I’d like to take this opportunity to thank all of our incredible team members who go above and beyond every day to help this company move forward out of this pandemic. The challenges brought on by the pandemic shockwave have led to supply chain upheaval and labor shortages, creating operational challenges throughout the company that none of us have ever seen or experienced before. You are all rising to the occasion, and we are getting through it, as painful as it may be. Again, I am thankful for your continued efforts and understanding. Given these unprecedented challenges, we still had a great financial quarter after adjusting for one-time costs associated with irregular operations. As we adjust to and fix these challenges, our results will continue to improve. Our revenue is strengthening, exceeding Q3 2019, and we expect Q4 to exceed 2019 Q4 as well. In regards to Sunseeker, here are a couple of updates. As previously announced, the $350 million financing transaction with Castlelake has been completed. We expect the first $175 million tranche to fund in the next couple of days. Castlelake has been a great partner, and Allegiant Travel looks forward to a long-term relationship. Construction has resumed on the resort, with approximately 250 people working on the project today. Construction on the golf course has resumed as well. We expect these projects to be completed in Q1 2023. The hotel tower should be topped off by the end of this year. The two suite towers are expected to top off in Q1 2022. We expect to begin taking reservations in Q1 2022 as well. Additionally, beginning Q1 2022, we will resume segment reporting showing Sunseeker data separately as we did in the past pre-pandemic. As I’ve done on past earnings calls, I thought it would be helpful to provide some directional data points to help you understand how we see things for the full year 2021. All these data points I’m providing are on an adjusted basis, which exclude COVID-related special charges, the net benefit from the payroll support programs and bonus accruals. Furthermore, all data points provided assume fuel at $2.17 a gallon for the full year. EBITDA is expected to be in excess of $275 million with a margin around 17%. We also expect fully diluted EPS in excess of $1.50 a share, again on an adjusted basis. In addition to the above, we expect a year-end cash balance of around $1.3 billion and net debt of around $300 million. Greg will provide more detail around these data points in his commentary. And with that, I’ll turn it over to Scott Sheldon.

Scott Sheldon, CFO

Thank you, John, and good afternoon, everyone. Perhaps a comment or two on our third-quarter operations. Without stating the obvious, our operational results and corresponding headwinds were similar to that of our industry peers who have released this earning cycle. From a capacity standpoint, we had perhaps one of the more ambitious summer schedules in the domestic U.S. market. Third quarter 2021 departures were scheduled to be up nearly 17% year over the two-year average, aircraft gross up nearly 20%, and destination and route growth were expected at 25% and 29% respectively. Furthermore, the distribution in departure growth among our approved bases has continued to shift to some of our smaller and mid-sized markets, which puts additional strain on infrastructure and labor staffing challenges. Despite those added complexities, we were seeing enough improvement in the operating environment to stay the course as we exited June, and we felt we had all the necessary flight crews and frontline employees to execute the back half of our summer schedule. Unfortunately, the Delta variant surge in late July and early August was simply too much to recover from, and we took an abnormally high number of cancellations. Our core operating performance metrics were down as compared to historical trends, but we were starting to see those trend up. Over the summer, we had as much as 30% of our frontline workforce impacted by COVID and/or other types of leaves with a definitive spike as we turned the calendar from July to August. Greg will have more commentary on irregular operations. Looking into the back half of the year and into 2022, Drew and team remain optimistic about the demand and revenue environment. That being said, we’re trying to build in some safety nets for a number of higher risk operational areas. Our ops team continues to work with planning to ensure we establish appropriate buffers to execute a more consistent schedule to help mitigate passenger disruptions. I believe that labor and MRO supply chain challenges are the number one and two focus areas as we look to support our March 2022 volume. One quick comment on labor before I sign off: I’d like to congratulate all of our maintenance technicians, maintenance control staff, quality and stores personnel represented by the IBT for ratifying their first collective bargaining agreement. This agreement helps make us competitive in the marketplace. As we look to fill much-needed positions for our 2022 schedule, I know this is a long time coming and was restricted by our 2020 COVID pause, but I very much appreciate everyone’s effort involved in getting this to the finish line. In closing, I’d like to thank all of our team members across the network for their outstanding service and professionalism in the face of our latest Delta variant spike. Your efforts have been tremendous. Our team members and partners are the backbone and face of our organization, and their unwavering commitment and loyalty to our consumers is why our organization has been, and will continue to be, successful. And with that, I’ll turn it over to Scott DeAngelo.

Scott DeAngelo, CRO

Thanks, Scott. From a marketing perspective, despite the headwinds, we’ve seen the Allegiant brand continue to shine, attracting more visitors to allegiant.com and more bookings among both first-time and repeat customers than in any third quarter in our history. In late August, while the Delta variant drove customer sentiment, as we measure in our weekly tracking survey, to its lowest level since early January, it has since turned to its highest level since mid-July. While the Delta variant negatively impacted bookings during August and September, the degree of that negative impact was far more modest than that seen at similar customer sentiment levels during 2020 and the beginning of this year. Simply put, Allegiant customer demand is showing increased resiliency, despite continued bumps along the road to recovery. Despite the Delta variant headwinds during a considerable portion of the quarter, we still managed to increase visitation to allegiant.com by 1%, and more importantly, increased bookings at allegiant.com by 5% versus 2019 levels. The fact transactions increased at five times the rate of web visits points to Allegiant's heightened brand awareness, increased marketing efficacy at attracting the right visitors to our site, and an enhanced web and app experience that makes it easier for those visitors to find and purchase what they want. All of these enhancements again, combined to attract and convert more new and returning customers in the lowest cost ways. Specifically, our lowest-cost channels, that is customers coming to us via our mobile app or by directly entering the allegiant.com URL or clicking on a link in one of the 50 million targeted emails we send each week, now account for 80% of total visits to allegiant.com, and that's driven nearly 20% more website visitors than they did in 2019. Those visitors translated into a healthy balance of both first-time and repeat Allegiant customer bookings. Bookings from first-time customers saw a nearly 2.5% increase, and those from repeat customers saw nearly a 3% increase compared to 2019. We also continue to achieve deeper levels of customer engagement across everything we offer at allegiant.com. Overall, third-party revenue, which comprises co-brand credit card, hotel stays, and car rentals, was up nearly 35% for the quarter versus 2019, compared to scheduled service passenger growth in the quarter of just over 2% versus 2019. A greater portion of customers are spending more of their leisure wallet at allegiant.com on products beyond just air travel. The continued growth in our asset-light third-party product revenue stream was driven not only by the web and app redesign launched earlier this year, but also by the introduction of our first-ever non-credit card loyalty program, Allways Rewards, and enhancements to our co-brand credit card acquisition approach that launched during this past quarter. The Allegiant World Mastercard, which is now being branded under the Allways Rewards umbrella, was once again voted the top airline co-brand credit card in the nation for the third consecutive year in USA Today Readers’ Choice Award. You may recall that our second quarter saw the number one and number three best months of new cardholder acquisition in the program's history, and this quarter, despite various headwinds in the traditional decline of leisure travel in early fall, we achieved the number four and number five best months of new cardholder acquisition in the program’s history. In total, new card signups in the quarter were up by more than 12% versus 2019. Contributing to the continued growth in new cardholders was the introduction of instant credit enrollment in our mobile app. Historically, this has been the top performing way that we acquire new cardholders on our website. We expanded this functionality to our mobile app, where 20% of our bookings are now made, and the results are exceeding our expectations. Building off the success of our co-brand credit card's simple, popular point earning and redemption model, and combining that with inspiration from winning, tech-forward, consumer-friendly programs like Apple Card and Target Circle rewards, we launched Allways Rewards this past quarter. Already, Allways Rewards members spend 23% more per transaction than non-members, driven primarily by their increased attachment of air ancillary and third-party products to their itineraries. These loyalty programs combined with the redesigned website and mobile app, and soon to be joined by other technology enhancements in the upcoming year, are all playing meaningful roles in helping us sell beyond the aircraft and take Allegiant into the most important and highest margin aspects of leisure travel, including third-party distribution of hotel, rental car, and even sports and entertainment events. To that end, Allegiant Stadium, in addition to driving more than 60 million viewers across live broadcast during the season’s first four games at the stadium, as well as driving web visits and bookings up by as much as 39% above 2019 levels on the days of and after these games, has now joined our portfolio of third-party products. As the NFL season kicked off, we launched Allegiant Stadium travel packages that include air travel, hotel stay, and game tickets. While these packages don’t represent a material revenue driver, they do serve as a high-profile way to showcase our ability to sell beyond the aircraft. For 80% of Allegiant Stadium package customers, it’s the first time they had ever booked a hotel through allegiant.com. For nearly one-third of these customers, it’s the first time they’ve flown to Las Vegas on Allegiant. Beyond the wildly positive impact we’re seeing directly from this partnership, Allegiant Stadium has become a crown jewel of sorts for broader nationwide Las Vegas advertising that the destination itself is doing. Allegiant Stadium is central to the destination's claim that Las Vegas is now the entertainment and sports capital of the world, thanks in large part to Allegiant Stadium elevating Las Vegas as a destination. In summary, the Allegiant brand is thriving. Headwinds exist, but they will ultimately subside, and as they do, we believe we are best positioned with the increased demand we continue to see from new and repeat customers for Allegiant's brand of affordable, accessible leisure travel to maximize our share, not only of their non-stop leisure air travel, but also of their spending on the increasing array of leisure products we’re able to offer at allegiant.com. With that, I’ll pass it over to Drew.

Drew Wells, SVP of Revenue and Planning

Thank you, Scott. Thanks everyone for joining us this afternoon. I’m immensely pleased with the third-quarter revenue results. Total revenue came in 5.3% higher than Q3 2019 on scheduled service ASM growth of 17%. We are among the first carriers to restore revenues above 2019 levels and likely the first U.S. carrier to do so on the scheduled service side. We hit the ground running with the July load factor over 80% and finished with a pandemic best 76.6% load factor for the quarter. The ancillary performance, once again, led the charge as bundled and redesigned website impact on take rates continue to generate positive results. The RM team continues to do a remarkable job handling the complex task of balancing loads and yields on a market level, even as the environment changes rapidly. As is always the case, with the bulk of ASMs in the first half of the quarter, before we dramatically pull down our schedule for the off-peak fall, Q3 goes as the summer goes. This scheduling flexibility is key to our model, and in the upcoming quarters, we continue to put that to the test with rising fuel costs, supply chain disruptions, potential TSA staffing issues, and the potential for additional seasonal COVID spikes. We are and will continue to work in lockstep with the organization to maintain this flexibility and ensure enterprise success. After inaugurating seven routes in the third quarter and several successful hyper-seasonal one and two weekend events, we will launch 52 new markets in the fourth quarter with 75% of those connecting the dots between existing Allegiant cities. Despite that, we will have a lower percentage of markets in their first 12 months than we previously communicated, down roughly 4 points in the third quarter and 1 point in the fourth. Similarly, we expect our fourth quarter growth rates also to come in lower than previously communicated, in part, as we react to rising fuel. We planned capacity with a typical cost per gallon buffer of $0.50, if only the third time in the last nearly decade we’ve hit or exceeded that buffer. With that, we now expect scheduled service ASMs of 12% to 16% and system ASM of 10% to 14%. We are positioned similarly today to where we were 12 months ago. So we’ve Thanksgiving having more revenue on the books today than the same holiday period finished with last year on a considerably higher base. The booking cadence has surged to be in line, seasonally adjusted, with the peaks of the summer and holiday demand looks quite strong. The reopening of cross-border travel for vaccinated travelers starting next month has shown a meaningful impact on our near-border airports. Normally, I would be quite bullish on the fourth-quarter prospects. However, the seven-day average U.S. new case count of 70,000 is hovering around an eerily similar number to late October 2020, granted on a different trajectory over the past several weeks. As such, I’m a bit worried about running away with the excitement of 4Q potential and have built in some expectation of spike-related headwinds. That said, I believe we will continue to lead the recovery and are forecasting another positive total revenue quarter of plus 0.5% to plus 4%. With some positive variance, we believe we can achieve an 80% booked load factor in both November and December. As we look to 2022, we have some fairly low comps in the first half of the year, as growth was limited to 3% versus 2019 that will provide a catalyst for headline growth and help set the stage for the rest of the year. We are still working through June and beyond to ensure we are setting up the company for success in finding the proper balance between growth and operational integrity. We’ll have much more detail to provide in three months' time. And with that, I’d like to pass over to Greg.

Greg Anderson, CFO

Drew, thank you, and good afternoon, everyone. So on the current tone of our business for the third quarter, we reported adjusted earnings per share of $0.66, our second consecutive quarter of positive adjusted net income. While this quarter’s adjusted results fell below initial expectations, we experienced non-recurring and unusual irregular operations. These incidents are not unique to Allegiant, nor do we believe they are systemic. The total cost impact during the third quarter for these elevated IROP events was around $28 million. Roughly half of this $28 million was driven by areas such as incremental contract labor, supply chain constraints, and incremental ferry flights. The other half of our 3Q IROP costs, as Maury teed up earlier, related to our compensation program for customers, in which we aspire to do more to take care of them if we significantly interrupt their trips. This past quarter, we paid $15 million to these impacted passengers. For example, in addition to credit vouchers issued to our customers, we may also compensate them between $100 to $300 per eligible passenger to provide immediate support for reaccommodation. The purpose and intended impact of providing the additional compensation is twofold. First, and of course, to better assist our customers when unusual and difficult circumstances disrupt their plans. But second, and equally important to our bigger picture, it drives greater accountability to the financial, as well as the human impact of flight disruptions to really make the same for Allegiant. With that backdrop, our third quarter adjusted total costs increased 17.5% year over two years. However, excluding the $28 million in IROP costs I just outlined, this cost increase would have been under 10% on total system capacity growth of 14.2% year over two years. Turning towards the fourth quarter. Despite expected capacity growth of 12%, we expect unit costs excluding fuel to be slightly down to flat year over two years. This is largely driven by the increased cost pressure at our airports and ground service providers. Our expected 4Q CASM-X implies a full year 2021 adjusted CASM-X at around 2019 levels. As noted earlier, fuel costs continue to rise as we are currently paying $2.55 per gallon of fuel, a sequential quarterly increase of $0.35 per gallon. However, even at these elevated fuel costs, we expect our fourth quarter financial results to remain profitable and exceed third quarter adjusted EPS. Based on our fuel consumption, an increase of $0.10 per gallon of fuel equates to roughly $5 million per quarter. Moving to the balance sheet, as of today, we have $1.2 billion in total cash and an improvement from the end of 3Q. Earlier this month, we received the remaining $116 million in cash from our NOL refund. Also, as of today, our net debt is around $400 million, a decrease of 60% since the beginning of the pandemic. For the full year 2021, we expect to reinvest $240 million back into the airline and increase our guide by $20 million. This increase is primarily driven by our strategic parts purchasing initiative, along with some other non-aircraft CapEx. Year-to-date, we have paid down more than $200 million of our debt balances, $50 million of which was in the form of prepayments. This brings our current total debt to roughly $1.5 billion, a decrease of 5% since the beginning of the year. Looking towards 2022, we are in the mid-innings, finalizing our 2022 capacity plans and expect to provide an update next time we speak. We are actually exploring a possible Investor Day/Call in December, and we’ll keep you apprised of status in the coming weeks. Given the uncertainties with rising fuel labor and supply chain constraints, we intend to establish a baseline of capacity growth for 2022 in the low double digits area, and harnessing the unique flexibility of our model, we are confident in our ability to spring up capacity, if and when appropriate. In addition, we are working towards getting a couple of steps ahead of growth by bringing on 300 frontline team members ahead of what we normally would, namely pilots, flight attendants, and mechanics. This will entail about a $15 million incremental cost during 2022 when compared to historical staffing levels. Advancing these hires should greatly aid the quality of our performance by getting team members trained and experienced, and as the choppy environment abates, we expect to naturally grow into these incremental heads. We are mindful of the looming inflationary pressures. Where we can, we are offsetting such pressures, and some examples include since the onset of the pandemic, we have acquired aircraft and spare engines at prices significantly discounted when compared to pre-pandemic levels. To date, we estimate $150 million in direct savings here. Similarly, we strategically purchased $40 million worth of spare parts at an average discount of 50%, saving another $20 million. Finally, unlike most carriers in our industry that significantly increased their debt during the pandemic, we did not. As a result, our full year 2021 interest expense is expected to be around 20% down year over two years. In closing, with fleet, we expect our full year 2022 airline gross CapEx, which includes capital leases, to be around $350 million. This is primarily driven by $200 million in aircraft gross CapEx, with the remaining $150 million roughly split between other maintenance categories. As a reminder, our fleet plan includes 19 incremental aircraft to be placed into service throughout 2022, bringing our total expected fleet count by the end of the year to 127. Of these 19 aircraft to be placed in service next year, 11 have been or will be acquired in 2021 and are already included in that 2021 CapEx guide. Eight aircraft are slated to close next year, of which six have been structured under a capital lease. As a result of these capital leases, our full year 2022 committed net aircraft cash CapEx is expected to be only $55 million. By year-end 2022, more than 50% of our fleet will be comprised of 186-seat aircraft, which compares favorably to the 2019 composition of roughly 25%, and the larger gauge 186-seat aircraft have additional benefits in a rising fuel environment as they are the most efficient in our fleet on an ASM per gallon basis. We expect full year 2022 ASMs per gallon to increase by 5% year over three years, and at a $2.55 per gallon, this increased efficiency is worth roughly $30 million in fuel savings compared to 2019 fuel efficiency levels. And with that, we’ll open it up to Q&A.

Operator, Operator

First question comes from the line of Savi Syth from Raymond James. Savi, your line is now open.

Savi Syth, Analyst

Hey, good afternoon, everyone. Just actually a quick question to start with. Greg, you talked about the liquidity right now being or cash being right now $1.2 billion. And I think the guidance is to $1.3 billion by the end of the year. Is there something kind of different about the way the cash is building in the fourth quarter this year than in the past? Or are there other kinds of inputs coming in?

Greg Anderson, CFO

I don’t think there are any other inputs, Savi. It’s just we’re a little bit over $1.2 billion right now. And I think just the inference is that we’re going to build cash through operational cash flow.

Savi Syth, Analyst

And then just a little bit more clarity on 2022 planning. So it sounds like the hiring is done for kind of operations levels above the kind of low single digits. Is that how you’re thinking about it? And then you’ll kind of grow into it, if you’re comfortable with that operations or just looking for a little bit more clarity on how you’re thinking about kind of hiring and then operating in 2022?

Greg Anderson, CFO

Yes. We have, obviously, our pipeline is full. We hired upwards of 270 pilots, and these would sort of dovetail into March peak flying in addition to summer. We are seeing a little bit of a spike in attrition, particularly on the pilot side; it’s not terribly material yet. But I think those sorts of numbers would give you low double-digit growth for the summer. Flight attendants, that attrition is fairly stable right now. Mechanics is the big one, I mean, we were just very, very underwater when it came to being competitive. And so out of any of the areas, that’s probably where we have to catch up the most.

Scott DeAngelo, CRO

Yes. So I may just clarify again that the low-double digit as well, what Maury can now look things, which I think I heard you maybe say, I just wanted to clarify that from.

Savi Syth, Analyst

Sorry. Yes, that makes sense. Thank you.

Maury Gallagher, CEO

Thanks, Savi.

Operator, Operator

Next question comes from the line of Conor Cunningham of MKM Partners. Conor, your line is now open.

Conor Cunningham, Analyst

Everyone, thank you. Just on the budget for Sunseeker, I don’t think that’s been finalized yet. So just curious where that may sit today, given all the supply chain issues and inflationary cost pressures. I just would think that it’s higher than what you had previously kind of soft guided to, which was like, I think, 510 to 550. So just curious on where that may sit right now or maybe why you haven’t finalized it in general.

John Redmond, President

It’s a good point, I think. We and the rest of the world are experiencing these supply chain disruptions. I don’t think there’s an industry that’s immune to it or a product that is. So we know that the costs are going to be higher. We’re still working through exactly how much higher, but it could be in the 10% to 15% range on the total project maybe even slightly higher. I think a lot of that we will understand better as we move more into the end of this year and probably into Q3. So it’s not only understanding better the impact of that supply chain disruption on costs but also on timing. We were, of course, pre-pandemic, we were paced to open in April of 2021; now everything’s been thrown into turmoil in that regard. So those two issues, both costs and timing are what we’re working through.

Conor Cunningham, Analyst

Okay. That’s helpful. And then more – I know you talked about the potential of slowing growth to maintain that historically fuel affair ratio that everyone always talks about. But a lot of the other airlines need to bring back capacity and just to settle like very non-fuel cost pressures that they’re dealing with given no one made any infrastructure changes during the pandemic. So I’m just curious, what gives you the confidence that the industry is going to follow what has historically been a good idea to cut capacity to drive here? And I think the risk you run is you cut growth, and no one else does. And the reason why I bring it up is, I just think it’s a point that basically everyone’s struggling with right now. So if we can just speak to the high-level dynamics that you see playing out in general.

Maury Gallagher, CEO

Well, you’re spot on. Everybody that’s sitting here today, if they had the decisions they made last December, January, and February for the summer of 2021, we’d probably do it differently. At times, we were facing 10%, 15% of our personnel in maintenance in our MROs, where we’re having our airplanes worked on; they weren’t in. COVID just rippled through the summer. We’ve got a bit of uncertainty that’s in the organization right now as to what can we count on? We’re hiring very actively. The irony of it is, I mean, everybody in this business is hiring yet, they still haven’t gotten back to full capacity. So there’s some incongruities as to what you have. Long-term, we’ve always kind of run to the beat of our own drum.