Allegiant Travel Company

Ladies and gentlemen, thank you for standing by and welcome to the Q2 2020 Allegiant Travel Company earnings call. At this time, all participants 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 need to press star 1 on your telephone. If you require further assistance, please press star then 0. I would now like to introduce you to this conference call. Ms. Sherry Wilson, you may begin, ma'am.

Thank you, Kevin. Welcome to the Allegiant Travel Company second 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, Scott Sheldon, our EVP and chief operating officer, Greg Anderson, our EVP and chief financial 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 plans. 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 Maurice.

Thank you, Sherry. Thank you all for joining us today. First, let me thank all of our team members, their spouses and families as we continue to fly our passengers during these difficult times. They've done yeoman's work. I'm sure you've all heard of the movie Groundhog Day with Bill Murray and his adventures of repeating the same day over and over. That's where we find ourselves today. Each day seems to be repeating itself as we wind our way through this slow motion video called COVID. Each of us is managing through these repetitive, awkward days in our own way. Bottom line, I believe things will get better, but most likely not as fast as we all would have liked. Today, we in the airline industry are printing our economic hopes on the upcoming holidays at the end of the year in 2021. Many of my colleagues have been providing you the best guesses on what will happen in the future, so let me throw a few ideas out there. First and foremost, I don't believe we'll go back to a full shutdown. People just won't put up with it. And while we made an operating profit in June, very proud of that, and thought we might be back to some form of normalcy, I don't believe we will get back to those numbers anytime soon. At a minimum, the near-term calendar will not allow it. At present, we believe we have to plan on this current state as being the norm. The near-term problem is how do we work towards break-even cash flow? From the middle of August until November 15th is traditionally one of our slowest periods, particularly September. Given the problems we are seeing, it will be even more difficult than in past years. Assuming no CARES extension, adjusting labor costs is our number one cash flow lever available as we work towards our breakeven cash flow goal. We will eliminate 220 jobs, including 87 personnel associated with those jobs on October 1st, a difficult task, but a necessary one. We're in the late stages of discussions with our other contract personnel that will allow us to generate the needed savings in the coming months. We want to keep as many team members on board as possible to take advantage of our operating peaks. To do this in between these peaks, we need financial relief on our labor payrolls. We need to spread the pain, as we've said in the past, to save the labor expense accordingly. Unfortunately, our pilot's leadership is unwilling to work with us on this approach, and as a result, we have notified the IBT management that we intend to furlough up to as many as 275 of our crew members, pilots that is. While we regret having to do this, these numbers will allow us to optimize both the peaks and valleys that we just discussed in the coming months and into 2021. You'll hear more about this from Scott Sheldon in just a moment. With respect to liquidity, we're in good shape given what we know today. Our cash balance was $663 million at the end of the quarter, up almost 50% from our Q1 balance. We also have other capital avenues open to us if we feel we have a need to go to market. including near-term prospects of an extension of the CARES Act. And Greg will fill you in with more of those specifics. I'm very happy how we have managed through our worst situations in the past five months. We've led the industry in most, almost all the new, what we call the now important operating areas including we had the largest percentage of our schedule flown compared to other carriers. We had the largest percentage of passengers carried compared to our historic market share and we had the best negative cash burn percentage. I've joked around the office that we are the best of the worst, given the state of the airline industry and the tourism industry overall. Once again, our model with its flexibility is allowing us to react as demand dictates. It will continue to be our strategic asset in the coming months as we quickly adjust to the vagaries that the market allows us to experience. It has provided us with terrific financial results over the years and continues to allow us to lead the industry in near-term results. Our financial strength has also allowed us to minimize the dilution to our shareholders during this period. As I said in our last call, we have not had to go to the equity or convert markets and have no plans to. Our $200 million plus of tax refunds from NOLs has and will provide us with the equivalent of a good-sized equity raise. Those NOL dollars are a return of our tax dollars paid on our profits from our 68 quarters of profitability in past months and years. These are difficult times, hard to believe times, frankly, Hopefully there will be some relief in the near-term via slowdown in the virus cases. Perhaps the only better near-term news given the increase in cases we've been experiencing is that the rate of death has dropped substantially. Many people are working tirelessly to find ways to both control and end this terrible plague. News of vaccines are reassuring. A decline in reported cases would also be beneficial. But at the end of the day, to return to any semblance of normalcy, to begin to interact with others as we used to do, people have to believe they won't become infected. This is particularly important for our industry since leisure activities involve people congregating in close quarters. You're hearing good news about increased testing. Good. We need more of this. And while more testing is better, I'm concerned about its ability to scale to the levels we need, about the time it takes to receive results, and about what one does with the information on their status. Namely, it's easy to know what to do if you have it. You quarantine yourself. If your test is negative, you're happy about the results, but what do you do with this information? How does it help the instant problem of getting together with others and feeling good about it? If you look at our medical establishment, it was not designed, nor does it have the capacity to provide us the one thing we all want and need most in today's COVID environment, information. When I get my negative test results, good information, like I said, but then what? As an important or perhaps more important, I want information that tells me the person next to me is not infected. Not a big ask until it becomes everyone, 330 million people. Then it becomes an almost impossible ask. Only the federal government can manage this national task. I would hope there are plans in the offing to develop a national approach to managing this pandemic and the next one that is sure to follow. We cannot allow this type of event to cause this level of destruction any time in the future. In the meantime, as I said on the last call, I believe we will continue to be one of the top performers. In my opinion, we have the ability to flex ourselves to meet the conditions better than any other carrier. Our model will continue to serve us well. Lastly, I want to again personally thank each one of our team members for all they have done for us during these trying past five months. You are the backbone of this company. In the meantime, in the airline space, we will take care of business. We are survivors with a great company and an excellent business model. John?