Allegiant Travel Company

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. If anyone should require any assistance during the conference, you may press star zero. I would now like to turn the conference over to your host, Ms. Sherry Wilson.

Thank you, Kirby. Welcome to the 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 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 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 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 Maury.

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 are 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. And 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. Common theme was flag planting and get there before someone else. Majors had to refocus much of their flying to leisure-oriented destinations, given the lack of business and international passengers. And we, the low-cost carriers, were feeling our oats as well and looking to get out and plant some flags. We all were looking to get out of the gates quickly and stake the new turf. Regardless, the focus on leisure traffic in 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 in 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 Southwest's 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. Over the past few years, we have implemented a generous compensation program if and when we interrupt a customer's trip. Our approach in this event is to provide a a better than average amount of TLC to help take the sting out of this bad situation. If we were to add back these interrupted trip costs and other one-time associated operational expenses, our unit cost 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, in the first half of the year, we made substantial capacity cuts to offset the then skyrocketing energy costs. And while we plan on growing this coming year by at least low double-digit percentages, increasing fuel costs could put a damper on this growth. As we told you repeatedly, our model's flexibility allows us to flex up and down 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's pandemic. I'm excited about where we're at. We're in excellent shape. Our balance sheet has improved substantially during these difficult times. The quarter end, we had over $1.1 billion of cash and only $500 million of net debt. We've restarted Sunseeker, and we recently completed a $350 million financing line to finish the construction. And John will have some additional comments. Our third-party revenue efforts are paying dividends. They 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 out 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 have 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. Our model and our non-competitive route structure continue to be industry leaders. And I believe 2022 will continue this return to normalcy, and we will lead the industry out of this abyss of the past year and a half. Lastly, as usual, I want to thank our team members who have been the difference maker in our success through the years and now is no different. They have been warriors on the front line this entire time, the past year and a half, consistently transporting our passengers day in and day out to their destinations. Thank you to everyone. John?