Allegiant Travel Company

Ladies and gentlemen, thank you for standing by and welcome to the first quarter 2020 Allegiant Travel Company earnings conference call. At this time, all participant lines are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star then one on your telephone. Please be advised that today's conference is being recorded. If you require any further assistance, please press star then zero. I would now like to hand the conference over to your speaker today, Sherry Wilson, Director of Investor Relations. Please go ahead.

Thank you, Sarah. Welcome to the Allegiant Travel Company's first quarter 2020 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 Chief Financial Officer, Scott Sheldon, our EVP and Chief Operating Officer, Scott D'Angelo, our EVP and Chief Marketing Officer, Drew Wells, our VP of Revenue and Planning, and a handful of others to help answer questions. We will start with some commentary and then open it up to questions. 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. Thank you, Sherry, and thank you, everyone, for joining us today.

It's been a while. First, let me thank all of our team members, their spouses and families, as we continue to fly our passengers during these difficult and disturbing times. Thank you all very much. As I said in our press release, These are unprecedented times we are living through. Most of you have been listening to calls from the different carriers the past two weeks, and the story from each of them is more from TRASM, CASM, CAPEX, and capacity changes to liquidity, liquidity, and more liquidity. To that end, we'll provide you with some thoughts on where we are today and going forward, and you will hear from our management team on the specifics regarding liquidity, as well as how we are managing our schedule and how we are responding to our customers. Over the years, we've prided ourselves on being different. You will hear today how we continue to differentiate ourselves from our industry. A critical component for us has been our model. It's always been a core strength. Based on our model, our management team, and our terrific team members, we believe we will emerge stronger from this life-changing experience in the coming months and years. Clearly, none of us has ever seen an environment where booked revenues, as well as future revenues, disappeared in less than a month. During the last three weeks of March, each week's fall off was so much worse than what we thought it might be. I tell my team members that fear is a lack of knowledge. The lack of knowledge was definitely the case from the middle of March through April. We were starting to have some clarity, some knowledge, and beginning to understand the path out of this calamity that we find ourselves in. There are three main types of traffic, in my opinion, in this industry, international, business, and leisure. I believe the first two will be slow to return. In the case of our business, you're seeing another important evolution. The world is learning to do things online, to work from home. In our specific case, we'd have multiple board meetings by video conferencing and plan to do it for the foreseeable future. This would not have happened but for COVID. Will it change our habits? Some think it will. Historically, coming out of downturns, leisure customers have been the first to return. In January 2009, With the onset of the GFC, we found leisure traffic responded very quite well in that first quarter. We believe that will be the case with respect to this downturn, that leisure traffic will respond faster than business and international. And while we do not have any specific forecast to make, we are seeing some increases the past few weeks. I want to stress to our audience how fortunate I feel to be involved with such a quality management team This group has done extraordinary work the past eight weeks. Not only are they talented, but just as important, they are working very well together. I'm comfortable stating this group will continue to shine for us in the coming months, and you'll hear from most of them today, so judge for yourself. We believe we are among the first to react to the COVID situation, recognizing quickly this was not a passing phenomenon. We immediately began shrinking our schedule, cutting expenses and capital investments, working with vendors on delaying payables, and renegotiating our relationships with them as well. We have approximately 25% of our team members participating in some form of pay reduction program to date, and I want to thank them for that effort. We quickly ceased all construction expenditures on Sunseeker. Scott D'Angelo, our CMO, since Late March has been focused on how we are going to recover. He's been surveying our customers weekly for the past eight weeks about their opinions on the pandemic, how they feel about it, when they plan to travel next, and other key questions. He'll provide you with some further detail in a few minutes. I would never wish for an event such as this pandemic, but be that as it may, it is here. It has dramatically altered the economic landscape. Bankruptcies have begun, as I'm sure you're aware. Avi Anker, this past weekend, who operate approximately 45 A320s with CFM Motors, our type, recently filed Chapter 11. Others will follow. U.S. carriers, as you know, have or will park over 2,500 aircraft in the next few weeks. In the space of 30 to 60 days, what was once a robust seller's market... for airplanes and equipment of the sort has been turned on its head. The most powerful liquidity tool we have today is to stop cash from leaving the building, both operating expenses and capital expenditures. But for some aircraft we agreed to purchase for delivering the back half of this year and a few in the first quarter of 21, we have dramatically reduced our capex. Beyond the early 2021 deliveries, we do not have any further aircraft commitments. As a result, we will be able to exploit one of our core competencies, our ability to trade in the aircraft marketplace. We have a long history in trading used aircraft. Regarding our fleet, near term, we are looking at what is the right size. As a cash-saving move, we want to retire a number of aircraft, perhaps as many as 10 to 15, because of upcoming expensive maintenance work. We will put these retired aircraft to good use. In addition to saving capital for repairs, we will benefit from parting out the aircraft, particularly the motors. We are facing a great deal of expense in the coming years, particularly motor overhauls. Now, however, between our motors from retirement and the inevitable availability of teared-out aircraft, we will substantially reduce cash outlays, in my opinion, for planned motor work and other parts costs in the coming years. It's my belief we will begin to see numbers of older 320s and 319s and their motors available as part-out opportunities in the not-too-distant future, and prices will begin to react accordingly. Furthermore, we will be one of the few players, I believe, in the market with the wherewithal to purchase these assets. As you've heard repeatedly in the recent calls, companies are planning for the worst and hoping for the best. You will hear today our version of this truth. We are definitely planning for the worst. To that end, near term, we are reviewing parking as many as 10 aircraft because of demand softness. However, I believe you can conclude from our release and our comments today that our financial strength is among the best. This strength gives us the flexibility to respond if the market snaps back. The combination of the purchased aircraft I mentioned earlier for the rest of this year and into early 2021 and the return of our parked aircraft that we'll put down here shortly to service will give us a fleet for 2021 roughly the size it is today. Should we want to grow or take advantage of opportunities, we believe there will be a wide variety of reasonably priced aircraft that we can pursue and purchase. As I mentioned a moment ago, our model has always been one of our core strengths. First and foremost, we maintain optionality with our parked aircraft. Annually, we expand and contract our network based on seasonal demands. We also have a simple network, out and back. It is the ideal approach when one has to cancel so many of their operations given the dramatic reduction in demand that we have been seeing. By trading in used aircraft, we also have an inexpensive model. Over the years, no one has been able to match our combination of a low-cost structure and low utilization. In the coming months, you will see our costs come in noticeably as we refocus on operational efficiencies. As I said previously, reducing costs and capital expenditures is the best way for a carrier to husband their liquidity. One of my favorite sayings when we operated MD80s was, we were a non-capital-intensive business competing in a capital-intensive industry. I believe we will be able to use this description in the not-too-distant future. I'm the largest shareholder in this company with almost 20% position. I want to assure you all that we are doing the necessary things to guarantee our future. We are still the same hard-nosed, disciplined company and industry leader you're used to seeing. We are right-sizing the company. We are managing expenses and capital outlays. We have sufficient liquidity. Our flexibility and managing capacity continues to pay dividends. 80% of our markets do not have any competition. We will continue these traditions. In closing, I have been amazed at the varying options one sees and how to act during this pandemic. In my own family, I have those who don't want to come out. They want to stay locked down. They believe there's a virus on every hard surface and floating everywhere in the air. Others are ready to rumble, looking to get back out and resume their lives. If one were to choose a 100-person sample, perhaps 40 to 50 would want to return to normal times while the balance do not. We as an airline have to be able to cope with this level of uncertainty, be able to right-size ourselves to service those 40 or 50 looking to rumble in the coming months and hopefully see the remaining 50 return later this year and in 2021. In my opinion, we have the ability to size ourselves better than any other carrier. This flexibility will serve us well in the coming months and years as it has the past 19 years. Lastly, I want to personally thank each one of our team members for all they have done during this trying past six to eight weeks You are the backbone of the company. And while we are still in the woods, the sunlight is shining through a bit more each day. Thank you. John?