Allegiant Travel Company

Ladies and gentlemen, thank you for standing by, and welcome to the Q4 2020 Allegiant Travel Company Earnings Conference Call. At this time, all participants are on a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask the question during this session, you will need to press star then 1 on your telephone. If you require any further assistance, please press star then 0. I would now like to hand the conference over to your speaker for today, Sherri Wilson. You may begin.

Thank you, Swanda. Welcome to the Allegiant Travel Company's fourth quarter and full year 2020 earnings call. On the call with me today are Maury Gallagher, the company's chairman and chief executive officer, John Redman, the company's president, Greg Anderson, our EVP and chief financial officer, Scott Sheldon, our EVP and chief operating officer, Scott D'Angelo, 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 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. 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.illegionaire.com. With that, I'll turn it over to Maury.

Thank you, Sherry, and good afternoon, everyone. Thank you for joining our call today. First, let me thank all of our team members, their spouses and families, as we continue to fly through these difficult times and carry our passengers to their destinations. Thank you again for all your hard work and dedication. Last quarter, we were able to report some optimism. I qualified my statement at that time by saying some. This time, I can say more in terms of optimism. And as it turned out, though, we were a little more bullish on the call last quarter than we were able to deliver. Nevertheless, we had noticeable improvements over that quarter. My hat's off to Drew Wells and his team as he had to navigate their way through the increased COVID's in November and December. They did an excellent job maneuvering us through the declining demand during those months. To that end, we flew 2,200 fewer flights during this quarter, or 9% less than what we did in the third quarter. But we saw our unit revenue numbers go the right way. Some numbers. Passengers increased overall 7%. Load factor increased by 9 points to 58%. Average fare increased 15% to $110, up from 96. TRASM was up 30% with that combination to 7.3 cents. Total revenues were up a total of $46 million. And I'm happy to say we were EBITDA positive during the quarter, our first one for the year. Well, I guess we may have been there first quarter. But again, we did this with 2,200 fewer flights. While we still have a way to go, TRASM in 2019 was just over 11 cents. We are making excellent progress. On the balance sheet front, we improved our position from 2019, even with the pandemic sandwiched in the middle. Our cash closed up over $200 million at year-end 2020, and while we raised $150 million of new debt in the past few months, our net debt was essentially flat year over year. We were one of the few airlines to not approach the equity markets during these difficult times, But we've generated the equivalent of equity raises, as I said before, by our NOL refunds. We have one coming in the not-too-distant future of $147 million, and that will add nicely to the cash balances. Adding this total to our $685 million year-end cash balance, this gives us over $800 million of cash equivalents, or a $320-some million increase over our balance at the end of 2019. Can't tell you how proud I am of this management group. Not only did they do a marvelous job during the down days last spring and summer, but just as important, they have positioned the company to take advantage of the disruption we're seeing in the industry in the coming year and thereafter. We've leaned out the company during the past year. It will show in our CASMX going forward. And in difficult times, difficult decisions are required. Scott D'Angelo and his team, working with our IT group, has revamped our website and mobile app, making both more user-friendly, and particularly the mobile portion. We are seeing meaningful uptakes in our packages and other products. It was turned on in the last month, and while we are still learning how to use it and what to do with it, the initial response has been positive. Scott will have more comments in a moment. Our model continues to be the key to our success. It provides us with amazing flexibility to go in either direction. To shrink dramatically, as we did this past April, we were down almost tenfold, if you can believe that, year over year in capacity, or to leave the industry in total capacity available for sale, as we did in 2020. Our ASMs were only down 19% for the year, and in the back half of the year, the last two quarters, we were only 13% down for that period. The team has developed an independent forecasting tool as well to help us gauge where demand is going. Year-over-year comparisons and using that to see where we're at does not work. For the past three or four months, we've been looking at a number of data components to attempt to understand demand. These data points include our weekly survey and other meaningful metrics that show activity, what people are doing to correlate to future air travel. We are comfortable this is a good marker for the future travel, and this is pointing as well up to the right, so much so that we believe it's time to step on the gas. You heard an announcement a couple weeks ago of our 21 new routes. We see opportunity and want to act on it. We will now use this flexibility we have in our system to grow the company in the coming months. We have the aircraft and sufficient crews to allow us to increase capacity. While we felt we had to reduce staff this year, looking backwards, including laying off some of our crews, I'm happy to report we'll be asking these crew members to return to duty shortly. We see excellent opportunities in 2021 and in the following years. We believe those increasing revenue numbers I summarized for the last quarter will carry over into Q1 and beyond. The U.S. airline industry will struggle for a number of years to come, particularly with respect to the business and international traffic. But I believe we are in a better place during this time. As an example, we are forecasting a growing capacity, and Drew will talk about this, of up a half a percent to up 5.5% for Q1 compared to our 2019 Q1. Most other carriers are either down 35% or more for this same period. Why are we able to separate so much from the others in the coming months? Once again, we are showing you the benefit of our model. In particular, our focus on flying on peak days or said differently, not flying on off-peak days. The remainder of the industry has historically operated seven days per week and has utilization as a result of 11 to 12 hours per day per aircraft. Our approach, focusing on peak days or when our leisure customers want to travel, has us only flying our aircraft an average of six to seven hours per day with that pattern. Today, the industry appears to be matching our approach, given leisure traffic is all that's moving. Namely, they have stopped flying on the Tuesdays of the week and hence their 35% reduction or more compared to the same period in 2019. There's a good reason for them not to fly on Tuesday, namely minimal business traffic. The industry is rationalizing their offerings to customers available, the leisure customer, and the leisure customer, for the most part, does not move on Tuesday or Wednesday. This is advantage of Legion, in my opinion. As I like to say, the other guy is playing our game. With our focus exclusively on domestic customers, leisure traffic, and on our flexible model and with our excellent cost structure, we should emerge from this fray better than most in the coming 12 to 24 months. Lastly, our team members have been the true heroes in our world, and I want to thank them again personally, each and every one, for all they have been doing during this trying 10 months. You are the backbone of this company. In the meantime, in the airline space, we will take care of business. We are the survivors with a great company and an excellent business model. John?