Allegiant Travel Company

today's Allegiant Travel Company second quarter 2025 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'd like to ask a question during that time, simply press star followed by the number one on your telephone keypad. Once again, star one. And if you'd like to withdraw your question, simply press star one again. Thank you. I would now like to turn the call over to Sherry Wilson, Managing Director of Investor Relations.

Sherry? Thank you, Greg. Welcome to the Allegiant Travel Company's second quarter 2025 earnings call. We will begin today's call with Greg Anderson, President and CEO, providing a high-level overview of our results, along with an update on our business. Drew Wells, Chief Commercial Officer, will walk through our capacity plans and revenue performance. And finally, Robert Neal, Chief Financial Officer, will speak to our financial results and outlook. 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 this 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 over to Greg.

Thanks, Sherry, and thank you all for joining us today. I'm proud of our second quarter results where, once again, we delivered an excellent operating performance with a 99.9% controllable completion. We flew more than 5 million passengers, a record for the second quarter, and approximately 70% of those are repeat customers. a sign of our strong net promoter scores and reflects our position as the leading airline in most of the communities we serve, offering reliable, nonstop travel at unbeatable value. I'm also happy to report that we achieved an airline operating margin of 8.6%, exceeding our initial guidance. Combined with our first quarter performance, our first half operating margin was close to 9%, an improvement compared to the first half of 2024. Team Allegiant has done a good job of controlling what we can control, Aircraft utilization is back to our historic productivity levels, increasing by 17% in the first half versus a year ago, while total aircraft and personnel have remained flat. Furthermore, we are continually enhancing our commercial offerings, and we are keeping a tight lid on costs. While we can't control the demand environment, as many airlines have already commented, domestic leisure demand was noticeably softer during the first half of this year than initially anticipated. Despite this weaker domestic demand backdrop, we achieved solid profitability because we are one of the lowest cost providers in the industry and have a relentless focus on offering our customers attractive prices and a safe, reliable on-time product. We are making headway with our allegiance-centric initiatives. With Navitare's initial revenue headwinds behind us, we are better positioned to accelerate our progress as we further enhance its capabilities along with pursuing additional commercial initiatives. Our new MAX aircraft are boosting our performance as expected, leading our fleet in reliability and contributing a significant margin advantage when compared to our older A320 aircraft. The MAX fleet accounted for roughly 10% of our ASMs in the second quarter, and we expect that amount to exceed 15% by year end. Our premium Allegiant Extra offering is in high demand by our customers. We are benefiting from a significant price bump for this product, which is both additive to margin and TRASM. Drew will speak in more detail, but I wanted to provide some insight to our overall TRASM trends. There are several factors that impact TRASM, including the mix of peak versus off-peak flying, existing markets versus new markets, and, of course, capacity growth. When you look deeper into the numbers, peak TRASM is performing relatively well, reflecting strong customer demand during high travel periods. It is the shoulder and off-peak periods where demand softness, coupled with the capacity growth, has driven outside headwinds to reported TRASM. There are two things that are important here. The first is that we continue to manage our network to maximize profitability, and the shoulder and off-peak flying we added this year have been margin accretive. Second, adjusting for the mix of flying, we believe our TRASM decline compared favorably to domestic leisure trends of our peers, highlighting our strong competitive offering and positioning with our customers. As we announced last month, we are exiting Sunseeker, allowing us to further simplify the business and solely focus on our core airline. With that, let me shift to our initial views for the second half of the year. Although signs from the performance of the U.S. economy appear to be mixed, we are cautiously optimistic in our recent bookings that suggest a modest strengthening of leisure demand. Keep in mind that our third quarter is typically our seasonally weakest period for leisure demand due to the higher proportion of shoulder and off-peak compared to other quarters, with the second half of August and most of September representing the lowest period for leisure travel during the year. A key attribute of Allegiant is our flexible scheduling as we look to peak to peaks and fly off peak when it makes sense economically. Appropriately, we pulled back on our capacity growth expectations for the full year due to increased macro and geopolitical uncertainty. We have made further adjustments with September ASMs now expected to be roughly flat year over year. BJ will provide more details shortly, but we expect to incur an operating loss in the third quarter. Importantly, we continue to expect to report a healthy operating profit for the full year, with our fourth quarter historically more in line with the first two quarters and a much stronger quarter than the third, as leisure travel typically picks up seasonally. I also want to reiterate that we remain steadfast on our core principle that we need to earn the right to grow. While 2025 has been a year with meaningful growth, And as mentioned, that growth was accomplished without adding to our fleet count or to our personnel. It represents a one-time catch-up year after max delivery delay that sharply curtailed our capacity growth in previous years. Encouragingly, when we compare our first half 25 year-over-year changes between TRASM and CASM-X, we believe it to be among the industry's best. As we look to 2026, we currently expect capacity to be relatively flat, as we further harvest our current infrastructure. Those plans should help us improve our yields for several reasons. First, we expect to drive incremental revenue through enhanced nanotier capabilities and new commercial initiatives. Second, we should benefit from routes maturing and with peak flying representing a greater proportion of ASMs in 26 and 2025. Also, we expect a tailwind from a more fully ramped Allegiant Extra, which will start the year being deployed on 70% of our fleet, up from 50% at the beginning of 2025. Third, we anticipate our Allegiant credit card remuneration will continue to grow from the $140 million expected this year. It is a great source of steady incremental cash flows. Drew will provide more details, but suffice it to say, those offerings, as well as other revenue-generating initiatives, give us confidence today that the unit revenues should improve in 2026, all else being equal in the demand backdrop. On the cost side, we are continuing to increase the usage of the MAX aircraft which are expected to be more than 20% of our ASMs for 2026, up sharply from 25. We are planning to divest some of the Airbus fleet over the course of the coming year with any proceeds used to further strengthen our balance sheet. We are keeping a tight control over costs. Our cost structure is a key competitive advantage. So when you put it all together, we are taking important steps to simplify our business and further strengthening our core airline competencies. The airline is operating extremely well, and we continue to position ourselves to deliver strong incremental margins. I'm excited about what's in store for us over the coming year and beyond. And let me close by highlighting how proud I am that our team's performance resulted in Allegiant being named Skytrak's best low-cost carrier in North America for the second year in a row. Our greatest driver of success is Team Allegiant, our dedicated team members who deliver a great service for our customers every day of the year. Their dedication sets us apart, and I'm honored to work with such a talented team. And with that, I'll turn it over to Drew.