Allegiant Travel Company

Thank you for standing by. My name is Dee and I will be your conference operator today. At this time, I would like to welcome everyone to the Allegiant Travel Company first quarter 2024 earnings call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, press star 1 again. Thank you. I would now like to turn the call over to Sherry Wilson, Managing Director of Investor Relations. Please go ahead.

Thank you, Dee. Welcome to the Allegiant Travel Company's first quarter 2024 earnings call. On the call with me today are Maury Gallagher, the company's Executive Chairman and CEO, Greg Anderson, President, Micah Richens, President of Sunseeker Resorts, 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. With that, I'll turn it over to Maury.

Thank you, Sherry, and good morning, everyone. Thank you for joining us today. As you can see from our release, our results are not where we want them to be. Historically, our Q1 is one of our strongest quarters. Last year's 15% operating income showed this strength. If you look at our operations, operationally, we ran the same airline this Q1 that we ran in 23. Departures, ASMs, passengers all are within 2% of each other. In fact, we've had minimal growth since 2021, averaging approximately 3% per year during these past three years. Even with this minimal growth, however, we have been one of the most profitable airlines during these turbulent times. But in the last year, we in the industry have experienced major expense increases, particularly salaries, and specifically with our pilots. Additionally, we had problems predicting how many pilots would be available for us last year. This time last year, we were losing more than a pilot a day, annualizing out to a 40% annual attrition rate. To stop this hemorrhaging, in June, we began to accrue future bonus payable to our crew members after we signed an agreement. Through this April, we have accrued and expensed $80 million without any corresponding offset of a new pilot agreement. We hope to have this new agreement in the not-too-distant future. You will hear today from Greg, Drew, Robert, Scott, and Michael Richens about our current status, including comments on our revenue problems tied to our Navitair upgrade, Boeing deliveries, and the lack of productivity of our fleet and pilots, particularly due during our off-peak periods. There are a number of reasons for this drop-off in productivity. Clearly the pandemic changed our rhythms, our routines, our annual cycle of hiring and training new pilots for the coming year in the fall, adding them in January, February for March uptick and the late spring for the summer sprint. We've been out of this rhythm for the past three years. We're about to resume this proven approach in the back half of this year and into 2025. A critical component of this rhythm is obviously having airplanes. Our Boeing order of 50 max plus 80 options provides us with the necessary aircraft for the anticipated growth in the coming years. Let me emphasize that the model remains the same. Going forward, we need to reinstate the execution of the model that has worked so well. Additionally, we are optimizing our revenue software, finalizing MAX deliveries, as I mentioned, and working with our pilots to finish an agreement. Let me turn to Sunseeker at this point. We are excited to finally have this world-class destination resort open and operating. Initial reviews are all exceptional on the quality of the personnel, the product, and in particular, the quality of the cuisine. Like all new projects, however, there is a run in time. Opening at the end of December was not ideal. The date was driven by the construction delays we experienced for most of last year. Given we made the decision to open in late October, we did not have as much time as we would have liked to market and sell this new destination resort. We are using many tools to drive traffic, not the least of which is our 18 million person customer database We've had success with this program, sending out as many as 25 to 30 million emails per week on SunSeeker specifically. We are learning the booking patterns for Southwest Florida, what the differences are. We saw some expected strength in Q1. Q2 and Q3, however, will be slower, and we're trying to understand where they will settle. Given the patterns we are experiencing at this point, we are lowering our estimates to a negative $15 million EBITDA for this year. Michael Richens, president of SunSeeker, will have more comments in just a moment. While Sunseeker will be a project for 24 and 25, the airline problems we are currently experiencing can be addressed for the most part during the remainder of this year and into 2025. By then, we should be hitting our stride. A comment about the industry. For years, we have been grouped together with other low-cost, low-fare companies, particularly Spirit and Frontier. While all of us offer low fares and have focused on leisure customers, we would be remiss if we did not point out that our model has made money consistently during this pandemic time. In particular, I want to direct your attention to the revenue differences. In the just completed Q1, our unit revenue, or TRASM, was 13.2 cents, compared to 9.2 cents average, or 42% greater than the aforementioned operators. In today's inflationary world, the ability to generate sufficient revenues and increase revenues is the difference between success and failure. Cost management is also important, no doubt. Given our increased utilization later this year and into 2025, you'll see our unit costs decline accordingly. An important component of our revenues has been our third-party revenues. While they are not that big on an absolute basis, they are very powerful for the bottom line. This quarter, our $8.21 per passenger was worth $33 million of operating income. That's a 30% increase over last year's $6.32. In spite of our problems with our revenue tools in Navitare, we still had one of our best unit revenues in the company history. Many things go into this ability to generate stronger revenues, including brand and reputation, and we are pleased with how we have positioned ourselves. If you look at the success of the majors, one only has to point to their loyalty programs to see the power of third-party revenues. We understand this benefit and are focused on this, producing more of these very accretive dollars. Life is about rhythm. We all work better, have better results when what we do is known, is repeatable, and predictable. Looking back on our successes of the past 20 years, while the model is a critical component, namely 77% of our routes do not have direct competition, the execution component, the rhythm, each year is also critical. The past many years, post-COVID, the rhythm, the routine has not been present. To the contrary, there's been minimal predictability, uncertain rhythm, starts and stops. The fog is lifting in the traditional focus, and we are in better control of our own actions going forward. The model is just fine, as I mentioned, as strong as ever. The rhythm is coming back. Stay tuned for the good news. Greg?