Allegiant Travel Company

Good morning, and thank you for standing by. Welcome to the Q3 2023 Agilent Travel Company earnings conference call. At this time, all participants are in listening 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 11 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 11 again. please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Sherry Wilson, please go ahead.

Thank you, Lisa. Welcome to the Allegiant Travel Company's third quarter 2023 earnings call. On the call with me today are Maury Gallagher, the company's executive chairman and CEO, Greg Anderson, president, Scott D'Angelo, our EVP and chief marketing officer, Drew Wells, our SVP and chief revenue officer, Robert Neal, SVP and Chief Financial Officer, 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. And with that, I'll turn it to Maury.

Thank you, Sherry. Well, hello again. Some of you may recognize my voice. I hope you've all been well the past year and a half. It's good to be back. As you saw in our release, Allegiant Airlines generated an operating profit in Q3 after adjustments, our 11th quarter in a row of airline operating profits beginning in Q1 of 21. Our year-to-date 2023 13% airline operating margin leads the industry for those that have reported. And we have achieved these results while continuing to invest for the future. During the past quarter, we've installed two substantial management systems, SAP and Navitare. Both are operating as I write this. As you saw at the top of our release, Sunseeker will open December 15th. It's been a five-year effort, almost three years longer than planned, but the wait will be worth it. Micah Richens, our SunSeeker president, and his cohorts, Jason Scarupa and Paul Berry, all MGM Las Vegas veterans, are putting the final touches on this magnificent project. The critical reason I endorse SunSeeker was the quality of this management group. Our ability to attract these gentlemen, to convince them to work for a startup, move their families to Florida, speaks volumes of their belief in this project. And Micah is here with us today, I'm happy to announce, to answer any questions. Our first MAX 8200 is scheduled for delivery in early 2024. Our MAX fleet will have a premium seating of just over 50 of our 190 seats, and it will improve our economics in the coming years. Besides the benefits from the quality and number of seats, it will have a substantially improved fuel burn compared to the Airbus, improved reliability, a maintenance honeymoon, while maintaining a comparable Airbus ownership expense. We're excited about onboarding the MAX in the coming years and beyond. During the past few months, there have been discussions concerning a structural shift in our industry, particularly as it pertains to the ULCCs. We, Spirit and Frontier, invented this industry segment during the past 20 years, focusing on low cost and high growth for our leisure customers. There's been and still are differences between our business model and the Frankie-centric model. At the end of the day, you judge us on our profitability. Costs are a part of the equation, but having the lowest cost does not guarantee success. We at Legion have a flexible model focused on flying when the customers want to fly. Or said differently, we minimize our flying in off-peak periods and peak up for the peak periods. That has been our model for over 20 years. In addition, our direct-to-customer sales approach is less expensive and allows us to capture important customer information. I might add we have over 18 million names in our customer database at this point. It also allows us to capture more of a leisure customer's wallet with our third-party revenue program. During the past five years, we have prioritized enhancing our brand as well. These efforts include adding Allegiant Stadium, our soon-to-be-opened Sunseeker Resort, our best-in-show completion percentage, and our number-one-ranked credit card program. All are difference makers. These investments have allowed us to maintain unit revenues that have been consistently higher than the high utilization ULCCs, today as much as 40% higher. As we all knew, revenue production is the issue of the day. Our revenue production is one of the critical differences that separates us from the ULCC crowd. Our network structure is also different. We have operated an out and back schedule since our earliest days. It's much simpler to manage than the traditional hub and spoke. Each route stands alone. We monitor what we believe its capacity should be and hence its profitability. We are diligent in managing individual route earnings. We have had a 22-year history of consistent profits and growth with this scheduling approach. Industry-leading profits, I might add. Additionally, with our focus on smaller cities to sun and find destinations, we've been able to own the majority of our markets. 75% of our routes have no direct competition. As I said, we own these markets. This contrasts with the 90% overlap the high-utilization ULCCs have in their networks. Lastly, we have identified as many as 1,400 new domestic routes that we could add in the coming years, plus the addition of our international partnership with VIVA. A more subtle difference has been the pace of growth. During our 22 years, we've grown to 127 aircraft, or an average of 5.7 per year. Others in this space have grown at a much faster pace. adding aircraft almost three times faster per year than we have. Still others have planned deliveries in the coming years that have double-digit yearly ads with a three handle, if you do the math. Fast growth, while attractive to the audience on the phone here, creates potential operational problems, including a concentrated fleet of the same aircraft type, which has historically been desired, but today has become a burden with the Pratt Motor problem. Operational size and complexity that most likely outpaces management experience And lastly, a pronounced competitive response given the network overlap with the larger incumbent carriers. We are built for the long haul for consistency. We have a bright future. I understand there's a new label as well for ULCC circulating LMAs or low margin airlines. That description does not define nor fit our model. At this time, given the names seem to be in vogue, given new names, I'm proposing a new label for us. No more ULCC and certainly no LMA. Our new label is PLFC. Profitable, leisure, focused carriers. That's what we are going to be called from now on. We are in a class of our own. Lastly, let me thank our team members. There's been a difficult three to four years. They have been supporting our passengers with safe, reliable, and friendly service during this time. They have run the best airline this year, an industry-leading 99.8% completion factor. In today's era of poor service and canceled flights, they have put us back where we belong, at the top of the pack. Thank you very much. Greg?