Allegiant Travel Company

Thank you. Welcome to the Allegiant Travel Company's third quarter 2024 earnings call. We will begin today's call with Greg Anderson, President and CEO, providing an update on our business and high-level overview of our results. Drew Wells, Chief Commercial Officer, will walk through our revenue and customer performance. And finally, Robert Neal, Chief Financial Officer, will speak to our financial performance. We have added a slide deck to be viewed in conjunction with today's call. Following commentary, we will 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 the earnings release, as well as the rebroadcast of the call, feel free to visit the company's investor relations site at ir.allegionair.com. And with that, I'll turn it to Greg.

Thank you, Sherry, and good afternoon, everyone. As you know, Hurricane Celine and Milton caused extensive damage and destruction to areas of Florida and North Carolina. We extend our heartfelt thoughts to all the families and individuals impacted by those storms, both of which impacted communities where Allegiant team members live and work. As an organization closely connected with our communities, we are dedicated to aiding recovery efforts. We have and continue to provide essential aid to affected areas by working with national organizations. We deployed our care support team to assist and operated relief flights to help get individuals out of harm's way. I'm incredibly proud of our team for prioritizing the safety of our customers and one another. Thank you to the Allegiant family for all you've done. With that, let me turn to an update on our business. As you saw in our August traffic update reported in September, our business continues to improve. With demand coming in stronger than expected, TRASM turned positive in the back half of the month of September, and fuel prices were slightly lower than previously estimated. For the third quarter, airline operating income was positive in what is our seasonally weakest quarter of the year. These results are inclusive of the significant disruptions from the hurricanes and industry-wide CrowdStrike outages, Team Allegiant jumped to action to minimize the impact on our customers. Turning briefly to the fourth quarter, we now expect airline operating margin of roughly 7%. The impact on demand from the hurricanes resulted in a four-point headwind. Excluding this impact, we estimate fourth quarter airline operating margin would have been in the low double digits. We anticipate our affected markets in Florida and Asheville will be largely recovered by the first quarter of 2025. Additionally, we have taken proactive steps to support our longer-term goals around improving operational efficiency, including realigning certain areas in the organization and other cost actions. These changes, while difficult, have reduced redundancies and are expected to save approximately $20 million annually. Drew and BJ will provide more details on numbers and outlook shortly. I'd like to update you on our three key near-term priorities that we talked about on our last call. First is restoring our peak period utilization. Second is bringing our mass aircraft into service. And third is driving higher unit revenues, including adding new features into our Navitair reservation management system. We believe a strong catalyst to improving margins is restoring peak utilization rates. In July, we were down 20% below, we were 20% below the average daily utilization compared to 2019. By December, our schedule aims to reduce this gap to just 6%. We expect further improvement in 2025 by increasing capacity in periods with strong leisure demand on largely the same level of infrastructure we have in place today. Our next key initiative is getting our MAX aircraft into service. To that end, we received our first aircraft in September, and I'm happy to report it entered revenue service in mid-October, a very quick turnaround that reflects our team's preparedness and dedication. Equally important, the early results we have seen so far have reaffirmed our excitement and the margin potential as the aircraft offers significant operating efficiencies, including an up to 26% improvement in fuel burn on an ASM per gallon basis. Overall, we estimate the earnings potential of the MAX to be roughly 2 million more in annualized EBITDA per aircraft as compared to our A320 series fleet. The Boeing strike has obviously created some additional uncertainty to our latest delivery forecast, and we don't see this being firmed up until the strike has ended. We have built in some additional fleet flexibility to help address these challenges and have taken appropriate measures to better protect our schedule. Turning to our third key initiative, which is growing unit revenue. We have always been successful in allowing customers to choose which optional ancillary products are best for them as we pursue enhancements to our offering. That's why we continue retrofitting our aircraft to include Allegiant Extra for customers interested in premium seating. We are also making progress integrating important features into our Navitair reservation system, including our popular third bundle product offering. Drew will provide more details here in a few minutes. And aside from items outside of our controls, such as the hurricanes and the Boeing strike, I'm very pleased with our execution towards the plan we have laid out and the strong demand we are seeing in our unaffected markets. While some of the other low-cost carriers' business models are troubled, our airline remains profitable, and we see a clear path forward to expanding margins. There are structural changes happening throughout the industry. However, the fact that we have our own swim lane should help isolate us from these troubled waters. Most important, Allegiant is a great airline with a distinct approach. We have a long track record of delivering industry-leading results. We have designed and operated our company around our unique business model since our beginnings, which is built to optimize margins. Our network is a real difference maker. Over the years, no one has been able to match it. In fact, as you've heard us say before, 75% of our routes have no direct nonstop competition. In many of those markets, we are the largest carrier. We also prioritize our scheduling flexibility so that we can properly match our capacity to the leisure demand environment. When you put it all together, we have a strong brand name and reputation. And to customers in many markets, we are their best and often only option to get where they're going. All of that is validated by our steady demand for repeat customers and the continued growth of our loyalty program. An essential element of our success lies in the dedication of Team Allegiant. Our proud and committed team recognizes the significance of our brand and their role in serving our customers. consistently striving to deliver exceptional service. That is why we believe our airline is well positioned for a strong 2025 and beyond. And before I turn it over to Drew, I'd like to make some brief comments on our Sunseeker Resort. Despite being in the crosshairs of two major hurricanes, the resort held up well, reflecting the strength of its construction and the resilience of its staff. Sunseeker is an amazing resort with excellent room and suite products, outstanding food and beverage offerings, relaxing pools, and lots of recreational amenities. Our goal today is to make sure we're optimizing this asset. And that's why we retain best in class advisors to help us increase the value we can realize for the resort and appropriately navigate discussions with potential partners. We are committed to making decisions that are in the best interest of our stakeholders. We will share more as our team progresses in its work. From my perspective, I am highly focused on executing our plan to restore historical profitability levels at the airline. Having the right people in place at Sunseeker allows the airline team not to be distracted from our primary goals and objectives. And in closing, I want to extend my deepest gratitude to all of our team members for their continued dedication and hard work. You are truly among the best the industry has to offer, and your commitment is what makes Allegiant such a special company. And with that, I'll turn it over to Drew Wells.

Thank you, Greg, and thanks to everyone for joining us this afternoon. Third quarter airline revenue was $549 million, down slightly year-over-year due to the available pilot crew hour constraints during summer flying, as well as the impact from the CrowdStrike outage and two hurricanes in the quarter, Debbie and Helene. TRASM strengthened each month of the quarter, both year-over-year and versus expectations, coming in at 12.21 cents and 300 basis points higher than the initial guidance we provided on our second quarter call. and approximately 100 basis points better than the update we provided in mid-September, which was before Helene took shape. Fixed fee performance also beat expectations and set a record 3Q performance. Our approach to deploying capacity drives increased exposure to portions of the quarter. In 3Q23, our roughly 44% of quarter ASMs in July meshed excellently with elevated summer demand, as it does most years. It enabled Allegiant to have the only positive year-over-year travel and performance. In the third quarter of 2024, our roughly 44% of quarter ASMs in July, along with every other carrier's July ASMs, faced the most pressure. However, the response and demand over the final half or so of the quarter was a positive signal for the future. September month unit revenue was near break-even overall on a year-over-year basis and positive year-over-year the last three weeks of the month. Prior to the hurricanes, we had seen those trends continue into the fourth quarter with October travel expectations trending low to mid single digit positive on a unit revenue basis. Overall, we are pleased with the third quarter results. The pickup in demand and yields we are seeing is a positive indicator as the booking curve shifts to the holidays in 2025. In fact, the booking performance over the last seven days is the strongest we've had on a year over year basis since the arrival of Helene. As Greg alluded, Hurricanes Helene and Milton had an outsized impact on our business, with approximately 37% of our anticipated fourth quarter seats in the markets affected. Some regions, such as Punta Gorda, have recovered faster, while other areas like Asheville are expected to recover in the coming months. As of today, we estimate approximately 25% of our seat capacity continues to be impacted to varying degrees. Over the course of the quarter, we canceled or removed from the schedule close to 1,000 flights scheduled between the end of September and early January, or 2% to 3% of our capacity, about 2 thirds of which was a direct result of the hurricane weather, and 1 third was due to the residual impact to the regions. We believe the total revenue impact to the fourth quarter will be in the range of roughly $30 to $40 million, or approximately 5% to 7% of the total. On a per aircraft basis, Aircraft utilization is on track to approach 2019 levels in the month of December despite the hurricane impact, with December ASMs expected to grow approximately 16% year-over-year. The vast majority of that growth is expected to take place over the holiday period, including a late Thanksgiving with those travelers returning home in December. Our pre-hurricane forecast would have called for fourth-quarter scheduled service ASMs to be up approximately 3.5% to 4% versus 4Q23, with travel and performance flat to down 1%. Our current revenue forecast anticipates scheduled service ASMs up approximately 1.5% and TRASM down approximately 4.5%. Looking forward, our optimism has continued to build for our strategic initiatives. Utilization increases continue into the on-sale schedule for early 2025, and we still have capacity slack for opportunistic market and frequency additions. Allegiant Extra, our premium cabin configuration, is doing very well in the market. We've retrofitted another 13 aircraft in the third quarter, and including our new Boeing MAX that entered service in October, we expect to add another 14 aircraft before Thanksgiving, bringing us to over 50 total aircraft, or 40% of our fleet, in time for this year's holiday flying. Revenue production is maintained above $3 per passenger on flights with the extra layout, even with continued expansion. Our loyalty programs are leading the market. Allegiant Always Rewards Visa co-branded credit card program was named the best airline credit card in USA Today's 10 best 2024 Reader's Choice Awards for the sixth consecutive year. We are also proud to see that USA Today recognized our Always Rewards loyalty program as a favorite among their readers as well for the second time in three years. Revenue from these programs is up approximately 20% year to date, reflecting the success of our efforts, strong customer relationships, and continues to generate immense value for the airline and our cardholders. As Greg noted, I'm extremely proud of the work the team delivered in the third quarter to expand our bundling capabilities, which we expect to add roughly $1 to ancillary revenue per passenger going forward. The team continues to work diligently to secure the remaining expected benefit of $3 per passenger, which we expect to have fully implemented during the back half of 2025. Additionally, the team delivered both PayPal digital wallet and pay later payment options to our booking flow in the quarter. While early and complicated by weather events, We're seeing approximately 6% of bookings select a PayPal option. In particular, it is outperforming in our mobile channels as the most convenient mobile option other than always rewards points. We'll have more detail as we gather more information. Lastly, and as expected, the early feedback from our passengers has been extremely positive for the new Boeing MAX aircraft. Customer feedback has been very positive thanks to in-seat USB power and enhancements to the overall cabin experience. Our foundation is solidifying and our initiatives are taking shape. Our award-winning loyalty programs are best in class and our enhanced premium cabin offerings are reaching more customers than ever before. The pieces have come together to operate more efficiently and successfully. And with that, I'd like to turn it over to Robert Neal.