Allegiant Travel Company

managing director of investor relations. Please go ahead.

Thank you, Kelvin. Welcome to the Allegiant Travel Company's third quarter 2025 earnings call. We will begin today's call with Greg Anderson, CEO, providing a high-level overview of the quarter, along with an update on our business. Drew Wells, chief commercial officer, will walk through demand commentary and revenue performance. And finally, Robert Neal, President and 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 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.legionair.com. And with that, I'll turn it to Greg.

Sherry, thank you, and thank you, everyone, for joining us today. As I reflect back on the past year plus as CEO, I am proud of the great strides we have made to strengthen our core airline and our focus on making sure we return to our roots as a solid double-digit operating margin business. A hallmark of our success is that we are the leisure carrier of choice in the communities we serve by offering convenient on-site flights at the lowest fares. That success is also because of Team Allegiant's dedication and execution that underscores our ability to provide consistent and reliable operations for our customers. Our performance is demonstrated by our industry-leading completion factor for July, a peak period that set a new monthly record for the number of customers flown. It is also reinforced by our Net Promoters Force, which remain near all-time highs, reaffirming the loyalty of our customer base and the strength of our brand. I am particularly proud that we were recognized by USA Today's Reader's Choice Award for the best airline credit card for the seventh year in a row and best frequent flyer program for the second consecutive year. We designed our programs to serve the needs of our leisure customers, which include high-value and frequent travelers. The success of our loyalty program and the fact that we are on pace to generate $135 million in remuneration from it this year underscores our relevancy in the markets we serve, and we see a lot of opportunities to enhance these programs to drive outsized growth in the years ahead. Turning to the third quarter, we saw steady improvement in the demand environment, allowing us to outperform our initial forecast in both revenue and cost. As expected, we reported a modest operating loss, It was typically our weakest period of the year, but it was at the better end of our guidance range. So far this year, average daily peak utilization per aircraft is over nine hours, near record 2019 levels, and we are delivering one of our best operational performances despite the higher level of applying on these peak days. The fruit of our cost structure initiatives can be seen in our industry-leading CASMX, which is down 7% year-to-date. That reflects our efforts to remove structural costs and grow ASMs without adding aircraft or personnel. As discussed on prior calls, there are several continuing heat initiatives driving financial performance improvement. By year end, we anticipate having 16 MAX aircraft in service. Bringing on this new fleet type has been a long time coming, and its integration this year has gone very well. We are now on pace for the MAX fleet to comprise over 20% of our ASMs in 2026, and earn strong returns on the investments we have made in them over the past few years. The MAX fleet continues to perform nicely both operationally and financially and is much improved from our older gen A320s. In addition, owning our aircraft rather than leasing gives us important flexibility to respond to dynamic market conditions. Our Allegiant Extra product is now available on 70% of our planes and is exceeding expectations and demand and customer satisfaction, with positive benefits to travel and margins. We continue to modernize our technology. Now that our Navitainer system is post-implementation, we are turning our sites to other technology initiatives for improvement, such as website conversion, customer personalization, customer journey, and enhancing communication throughout all phases of travel. we are investing in our technology staff to take advantage of the power of AI and optimize our infrastructure for faster interactions and data-driven decision-making. As we turn towards the remainder of 2025, we are seeing improvement in leisure demand, particularly around the holidays. We expect a fourth quarter operating margin in double digits and a full year airline operating margin of approximately 7%. As a result, we raised our airline EPS our airline-only EPS guide to more than $4.35 per share for the full year 2025. And we are optimistic if we look forward to 2026. From an industry perspective, carriers are moderating their domestic capacity plans, and we are planning on flattish capacity next year as we drive a higher percentage of peak-day flying and harness a full year of benefits from the initiatives I just mentioned. When you put it all together, we are poised to deliver margin expansion that continues to set us apart from our peers, further highlighting our low-utilization, flexible capacity model is truly differentiated. Our capital allocation priorities remain the same. Our top priority is reinvesting in our business. We will remain disciplined in our goal to balance growth with margins and maintain flexibility, which has served us well throughout our history. And before I conclude, I'd like to congratulate BJ on his promotion to president. He will also continue to serve in the Chief Financial Officer role. BJ has been an exceptional partner and leader, instrumental in driving both Allegiant's financial and operational strengths alongside our strategic execution. He knows our business and its industry well, and I look forward to continuing to work closely with him and the rest of our excellent management team in shaping Allegiant's bright future. I also want to extend my sincere gratitude to the entire team at Allegiant. Their hard work and discipline have meaningfully strengthened our foundation and positions us well for 2026 and beyond. Lastly, I also want to thank the aviation professionals across the system, both within Allegiant and throughout the industry, who have continued to work tirelessly throughout the government shutdown and ongoing ATC constraints. Thanks to their dedication, we have successfully minimized disruption and protected the journeys of our customers. And with that, let me turn it over to Drew to provide details on our commercial performance. Thank you, Greg, and thanks, everyone, for joining us this afternoon. We finished the third quarter with $553 million in airline revenue, approximately half a percent above the prior year, producing a third-quarter travel of 11.19%. This is down 8.4% year-over-year, in line with our internal expectations from our mid-quarter update, inconsistent with the original expectation of sequential year-over-year improvements. Allegiant grew total ASM 9.7% versus 3Q24, with overall utilization of 10%. Also consistent with our audit call was the expected unit revenue improvement in same capacity markets first to second quarter, which recovered approximately one point to down about 5% year over year. Again, perhaps oversimplified, with a growth expected travel headwind of approximately four points, we slightly outperformed the combination of core flat capacity performance AND THE EXPECTATION FROM OUR ELEVATED GROWTH RATE. FURTHER, WITHIN THE QUARTER, WE THOUGHT ALL THREE MONTHS PRODUCED BETTER YEAR-OVER-YEAR UNIVERSITY FIGURES THAN ANY MONTH ON THE SECOND QUARTER, AND THE BEST LOW FACTOR RESULTS FOR THIS PRIOR YEAR OF ANY MONTH YEAR-TO-DATE. MEANWHILE, THE PROFILE OF NEW MARKET ASM HAS A PERCENT OF THE TOTAL STEADILY TICKED HIGHER. THE THIRD QUARTER ENDED AROUND 5%, WHILE THE FOURTH QUARTER WILL RAMP UP TO OVER 5.5% OF SCHEDULED SERVICE ASM. and is expected to rise again in the first quarter. 51 routes operated in the summer of 2025 that did not operate in the previous summer. Of those, approximately 85% of them contributed positively to earnings in their first summer of operation. The results from these markets rolled into announcing more new and exciting route opportunities through the third quarter. 19 new routes are set to begin Thanksgiving to early spring, including four new cities, Fort Myers, Florida, Huntsville, Alabama, Atlantic City, New Jersey, and Burbank, California. We're encouraged by the early performance of our new cities and markets and continue to see customers embrace our reliable and convenient travel at unbeatable value. The third quarter of 2025 marked three consecutive years of industry commentary around abnormal peak to off-peak relationships in the quarter, be it the tail end of the post-pandemic demand surge into a more typical fall in 2023, or the relatively sluggish July marked by late summer demand uptick into the fall over the last two years. All three of those quarters saw sequential traveling declines in the second quarter below pre-pandemic median levels. Meanwhile, the fourth quarter has remained more resilient with each of the last three years hitting a traveling above 13 cents, a feat we'd accomplished in just one quarter pre-pandemic. As a result of the diverging quarterly trends, our 4Q performance has looked relatively better each year, and that pattern is expected to continue in 2025. As mentioned on the last column, We expect sequential improvement in the year-over-year travel intervals for the fourth quarter, and that should hold into the first quarter of 2026 as well. The converting benefits from Medicare development we discussed in the last call yield a low factor benefit in the third quarter, as I described earlier, and should persist into the fourth quarter. Despite a roughly 10% scheduled service ASM growth profile in 4Q25, we expect low factors to be flat to slightly up in the fourth quarter versus 4Q24. And While capacity for the corner as a whole is expected to grow roughly 10%, much of that is due to the weather-impacted comparisons of October 2024. November and December 2025 expects the volume to be approximately 6% higher year-over-year for scheduled service ASNs. Our peak Thanksgiving and Christmas week utilization profiles slightly higher than prior year and around all-time highs during the peak period. We are incredibly encouraged by peak holiday demand, profiling similar to last year as well. Our customer base remains well positioned for leisure travel. Our network lends itself to a lower cost of living profile with median household income over $100,000. We continue to see demand trend closely to legacy commentary on main cabin performance, as well as continued opportunity with our Legion Extra cabin, our award-winning Allegiant Always co-branding credit card and loyalty programs, and beyond. We have completed a multi-year journey retrofitting our Airbus aircraft with the Allegiant Extra layout. We continue to see revolts hold through the expanded offering and repurchase rates growing. Further, the revolts on the MAX aircraft are in line with the expectations set by current Airbus performance, and we should start to see efficiency benefits from the transition of our Fort Lauderdale base to solely MAX aircraft in the fourth quarter. Our formal review of the co-brand program is nearing an end. We expect to receive approximately 135 million dollars of remuneration in full year 25, but As we'd expect, given the time since program launch, we believe there will be meaningful opportunities for evolution and improvement. However, there are a few ways to get to the easy part. Of course, we will soon shift into execution mode, working through the negotiations, logistics, and bringing the plan to life. In the short term, we continue to test new acquisition tactics and offers. We realized a mid-20% lift on new card acquisition in the months of September and October. As a multi-year core system transition moves into the rearview mirror, our foundation and technology can enable further commercial individuals, and we're excited to bring the customer experience out of value into focus. Elysian Extra, co-brand program updates, and other commercial developments allow us a better segment for a broad spectrum of customer preferences. And now, I'd like to hand it over to Robert Hinn, Mr. President.

And good afternoon, everyone. I'll go ahead and walk through our results and provide an update on our outlook and financial position. As with prior calls, my comments today will reference results that have been adjusted to exclude special items unless otherwise noted.

This afternoon, we reported a consolidated net loss of $37.7 million for a loss of $2.09 per share.

We had a net loss in the airline segment of $29.5 million, or a loss of $1.64 per share.

Our airline segment generated a negative 3.1% operating margin, which was at the better end of our original guided range, as suggested in our August traffic release. The quarter came in ahead of our forecast on both cost and revenue. while a reduced tax benefit brought EPS slightly below our September expectations. This was driven predominantly by a change in our estimated tax rate, which reflected an improved revenue outlook for the remainder of 2025.

Notably, the sale of Sunseeker Resort closed on September 4th, marking a significant milestone for the company, supporting balance sheet improvement and driving better consolidated earnings.

Airline unit job for the quarter was 41.5 million, giving us a needed job margin of 7.5%. Through the peak summer season, our team delivered operational excellence for our customers, which underpinned cost performance that continued to exceed our forecast.

Third quarter, non-field unit costs were down 4.7% year-over-year. Our ability to leverage existing infrastructure, grow into our workforce,

An execute on the cost initiatives outlined on prior calls has resulted in industry-leading cost performance year-to-date with a nearly 7% reduction in cavern-x fuel through the first nine months of the year. Our unit cost performance kept the shape we expected at the start of the year despite removal of 4.5 points of capacity growth during the year, primarily coming from the third quarter. With four-year capacity growth of 12.5% on flat aircraft and reduced headcount, We are on track to see four-year caverns down to single digits, and I want to thank the entire lead-in team for their remarkable execution.

Our cost structure remains a top priority as we look ahead to 2026.

We are realizing the full benefit of approximately $20 million in run-rate savings initiatives implemented this year, which delivered ahead of schedule and will carry over into next year. I'm very pleased with the continued focus and discipline the team has demonstrated on this front. Before I move on from costs, I will mention the increase in the maintenance line this quarter. A portion of this was timing-related and a shift from the second quarter, largely related to an elevated number of road board repairs. There was also some maintenance spend associated with aircraft lease returns and, to a lesser degree, some tariff costs on parts. We view nearly all of this as transitory. Our unique, flexible capacity model is rooted in strong balance sheets.

We manage the quarter with total available liquidity of $1.2 billion, consisting of $991.2 million in cash and investments and $175 million in undrawn revolving credit facilities.

Cash and investments add up to 40% of trading 12-month revenue quarter ends. With this robust liquidity position, we continue to make meaningful progress on debt reduction, including more than $180 million in voluntary prepayments during the quarter. Additionally, in October, we repaid $120 million of 2027 bonds under a call notice issued on September 15th. We expect total debt to decline a bit further by year-end. Net leverage remains unchanged from the end of the second quarter, and we anticipate ending the year at a similar level. We're continuing to make long-term, lasting investments in the business. Capital spending was approximately $142 million for the quarter, including $107 million for aircraft-related CapEx and $22 million in other airline spend, while deferred heavy maintenance CapEx was $11 million. We ended the quarter with 121 aircraft in our operating fleet, down from 126 at the end of the second quarter. During the quarter, we took delivery of three aircraft, one of which entered revenue service, while four leased aircraft exited service and two airframes were sold to the third party.

Looking ahead, we expect to end up six,

these H320 series aircraft during the fourth quarter, bringing our year-end fleet count to 123. Boeing have produced ahead of plan with all of our 2025 aircraft having been received by the end of the third quarter, and we continue to expect four-year capex of approximately 435 million. Now, on to our fourth quarter operating outlook. The improvement in booking teams

observed in late July have continued.

At the midpoint of our guidance, we expect to produce an 11% operating margin and deliver consolidated earnings of approximately $2 per share, which, following the final figure sale, reflects solely the airline segment. The fourth quarter performance should result in four-year airline-only earnings of more than $4.35 per share.

Although we're not going to provide guidance on 2026, I will share some high-level commentary.

We expect to take the delivery of 11 737 MAX aircraft next year, all of which will replace A319s or A320s, resulting in flat year-over-year fleet count. With respect to CAPEX, we're working with Boeing to update 2027 and 2028 delivery schedules following their recent approval for increased production rate, which the requirement of pre-delivery deposits and overall CapEx profile for 2026. We expect CapEx to be above 2025 levels, though we do not expect this to place meaningful pressure on that leverage. We're not anticipating notable capacity growth in 2026. While not guidance, we expect a year-over-year increase in traction driven by limited growth industry supply moderation, and revenue initiatives, Drew has mentioned, to exceed any increase in Chasm X. Not because of the cost, they will experience some pressure given limited growth, but the team has done an excellent job driving structural costs out of the business. Additionally, with approximately 20% of our ASMs going on fuel-efficient MAX aircraft, we expect the differential between Chasm and Chasm to result in margin expansion next year. In closing, I'm very pleased with the team's operational execution and financial discipline throughout this year.

Throughout 2025, Team Allegiant's ability to manage through what has been an early setback for the industry has been impressive.

It's an exciting time at Team Allegiant as we turn the corner to 2026. With the sale of some features completed, a strong balance sheet, and continued progress on cost and fleet initiatives, we're structurally well-positioned. to deliver higher and more consistent earnings in 26 and beyond. And now, Calvin, you can go handle this question.

Thank you.

Ladies and gentlemen, we will now begin the question and answer session. During the Q&A, we ask that you please limit your inputs to one question and one follow-up. I would like to remind everyone to ask a question. Please press the star button followed by the number one on your telephone keypad. If you would like to withdraw your question, please press star one again. One moment, please, for your first question. Your first question comes from the line of of Raymond James. Please go ahead.

Hey, good afternoon, and congrats, and maybe I'll give the first question to you as a result. You mentioned a little bit about capex stepping up but not meaningfully impacting the leverage, but could you talk a little bit more about how you're thinking about the balance sheet now that there's a little bit more kind of stability across kind of the operation and with Plum Seeker out of the way, just how are you thinking about cash levels and leverage and just cash flow generation?

Thanks, Bobby. I appreciate the comments.

Yeah, so when we think about next year, I guess I would remind you we have a limited amount of PPP of problems that have been made in prior years in the face of some of the aircraft delays.

So I expect those to come back into the CapEx profile next year.

As I think you're getting at, we were carrying quite a bit of cash at the end of the quarter. That was partially a result of the Sunseeker sale. And then also, I think maybe I mentioned on a previous call, we kind of overfinanced our max deliveries at the beginning of the year, and that was just out of around the April timeframe. So I do think we can get to a point where we're carrying a little bit less liquidity on the balance sheet. We've historically talked about two times air traffic liability, and as things have started to stabilize and sunseekers behind us, and especially as we have aircraft finance further out, we can bring those cash levels down a little bit. We will continue to use cash to invest in the business, though, for the rest of 25 and, of course, 26.

But that's helpful. And if I might, just on the, I'm not sure if this is Drew or Greg, on the AI and data infrastructure side, investments that you're talking about, you know, generally you think those kind of large organizations as having an advantage there. Could you talk about just maybe how it's being implemented at Allegiant and maybe what advantages you have versus some of your bigger peers?

Sure, let me take it off, and Drew will add some color, I'm sure. But I started on the AI front, just as an organization, really proud in the way we're embracing AI to make our business better. We've been working over the past year or so on structured and unstructured data to ensure that it's in the right place for advanced technology and deploying solutions here at HQ across the board, such as co-pilot for our developers, GitHub, which is improving productivity. In that regard, we're reshaping functions across the board, but in areas specifically like the call center operations, where we're using AI and use cases to drive more efficiency, productivity, and we're just scratching the surface. One of the things that I think is important is a lot of the changes that come from AI are through change management. And as an organization, we're building that muscle. And the reason why you're feeling confident about kind of building that muscle and it's what's called before we walk, walk before we run type attitude is because of the transformational technology stack that's We've talked a lot about it with the IT team that's done over the past couple of years. They've definitely taken what the whole airline was built on, proprietary software, and moved it to state-of-the-art systems. We talked about Navitare, SAP, Trax, and other systems. And so now that we have all those in place, we'll really be able to start harnessing them list of priorities and initiatives along with the rest of the team. I'm sure I kind of went off on it a little bit. Anything that adds up from your perspective? No, I'll be fairly quick. You know, on the AA front, there's, you know, there's wins we have. and how we think about offer management as we think about, you know, right-sizing the combination of air pricing and ancillary pricing, which is sort of a major challenge to solve. There will be some wins there. You're right, it's a small organization. We have to be a little bit more nimble. We won't get the benefits of scale that the larger ones will. That's not to say there's not wins here. I'm really bullish on what this could mean for 26 and beyond, but we're kind of in the development phase now.

Thank you.

Your next question comes from the line of Dwayne Fenworth of Evercore ISI. Please go ahead.

Hey, thank you. Flattish 26 capacity outlook, how are you thinking about the shape of that by quarter? And specifically, how are you thinking about 1Q growth? And I don't know if it's too early, but, you know, could you characterize maybe the difference between the shape of off-peak versus the shape of peak within that flattish outlook?

I'll give it a try here.

So the shape will be kind of, you know, down low to mid single digits in each of the first couple of quarters, just following the shape of the week. We'll be slightly down, but I guess more down on off-peak at that in the first quarter. while keeping relatively flat utilization through the March peaks in particular. With Easter pulling forward a little bit, you'll see April come down a bit more, but similar story in the second quarter as off-peaks will underweight relative to peak periods to form that. Back half-year, they're kind of, you know, inverse, and it'll be off-loaded, but they'll just get back to that slattish outlook. I'll just add to Drew's point there. There's going to be a higher percentage. We're planning on a higher percentage of peak capacity next year than, say, this year.

That's helpful. And then I don't know if you're able to do it, but on the MAX, can you speak to how you were able to deploy those aircraft, what base limitations you may have had, this year uh and how those constraints ease up i i guess i'll stay with you drew maybe you could just speak to the types of routes the max had to fly this year uh versus the optimal routes you'd like them to fly on thank you yeah so through i mean really but from the time of the first delivery until

This week, next week, we've flown them very heavily on short haul markets, trying to maximize the number of takeoffs and landings to help facilitate some of the transition training needs. We had to get pilots certified and ready to fly. As we beat up that number of pilots efficiently, we'll see that shift more towards longer haul, taking a little more advantage of the stage length and fuel burn benefits there. As we split the Fort Lauderdale base to solely max, we'll get a stage length benefit there as well. We didn't necessarily have base constraints. We opted to split Stanford and St. Pete to start. Just help provide a little bit of resiliency in the event of changes to the delivery schedule from Boeing. I have a little bit of a shock that's over there where Airbus could replace that. We could do more Boeing flying as the delivery is shaped up. And then with Fort Lauderdale, we're keeping things fairly geographically centralized to ease just some of the logistics that may come about. As we get to the back half of next year, we'll kind of get our next wave of base considerations as more deliveries come in. But as of this point, there's no real constraints that we said that I'm aware of. I don't want to interrupt the team's family, but this is all kind of our choice.

I'm trying.

Thanks, Scott. It's great. Maybe when we all start at a high level and then Guru BJ will add in some color insurance. Just kind of taking a step back, we've accomplished quite a bit here in 2025, strengthening the airline. We're going to build on those accomplishments in 2026. So if I think about the margin improvement for 2026. And if you break it into three or four areas, one, the travel scale wins, which is a high-level, you know, flash capacity that should also obviously help on the universe side, but also flying a higher percentage of peak days, right, versus off-peak, where they're helpful. The commercial initiatives that we've been talking about all year, extra, Navitare, are larger contributions next year than in 2026. And this year, loyalty contributions are exceeding revenue growth. Drew may want to hit some more on the travel front there. But on the cost side, just... BPJ and team that has come through a couple of passes of the budget. So while we're not final, we're in the, I guess, mid-innings of it. And I think the costs have come in to a point where if you area that we can control on the cost side, that we can keep those at a point at which, if all else being equal on the demand side or the revenue side, that we'd be able to see margin expansion. The max performance, we talked a lot about that. Twenty percent of our ASMs next year will be put on the max, which we get from a fuel perspective. The ASMs per gallon on a match are just over 100. It's 105, I want to say, versus the A320 series is closer to 80. So call about a 30% benefit in that regard. The same ownership costs. So that and a couple of the technology initiatives. I don't want to go so far as to get guidance. So you can kind of read in. next year relative to food costs with being down a little bit in the first two quarters, that's going to put the most pressure on Cabinex in the first two quarters of next year. And then, like Greg said, I'm relatively optimistic that even given limited growth that we can hold the line on cost next year given some of the structural cost improvements that we've made this year. Thank you, guys. Appreciate it. Thanks, guys. Your next question comes from the line of Ravi Shankar of Morgan Stanley. Please go ahead.

Great. Thanks, everyone. So it seems like it's a clear coast ahead. Obviously, Sunseeker is behind you now. Margin is starting to improve. It seems like you're on a better path with stable capacity and the present relationship with everything else. So can we start to dream the dream about what normalized ETS looks like again? Obviously, coming out of the pandemic, it is a very different level than you guys are right now. How do you think about what that long-term trajectory looks like and that destination as well?

Thanks, Ravi. Let me kick it off. Again, we're not going to guide 2020 or 6 or long-term EPS at this point, but I'll stop I think in 2027, there's still of our commercial strategy, and this is more tied to the longer-term, I think, margin, improving margins or driving margins. And it's from continued loyalty and enhancement to different products, non-ASM revenue in different areas on that front. Like BJ and team on the cost side have done a terrific job. We're unique in the industry in the sense that we have high variable costs, low fixed costs, but it doesn't So when demand stopped this year, by way of example, I think the team reacted quickly. We scaled that growth, and we went in and took out some of the structural costs. And so I mentioned that because looking ahead towards 2026, 2027, and beyond, we're always going to take a hard look at our cost structure. We're going to continue to find ways to better optimize the business. I think that's actually as well. If you take about 2027, 2028, The efficiencies we're seeing there, by the time we get to 2028, I expect 50% of our ASMs are flown by the MAX aircraft and driving a nice tailwind on the fuel side. So we've talked about it. We teased it on the last earnings call. We probably think it's helpful at some point next year to have an investor day to really walk through some of these initiatives, the barbells and things. But I think if it's a high-level long-term call today, where we sit, we feel confident in 2026, the demand and fuel backdrop, and we can continue to build on that momentum in 2027.

Got it. Those are helpful building blocks. And maybe as a follow-up, can you give us an update on the Vegas market and kind of what you're seeing there and remind us of seasonality there again?

Now, it's historically been a very unfeasible market. You know, pre-pandemic, it was very reliable year-round.

It definitely feels more feasible today than it has, which is unfortunate, given how much of a rock star it has been for so long. These are definitely coming out of the market. I think there's room for more improvement. I've seen more from the Vegas resorts in terms of innovative ways to recapture customers and recapture trips. So I think there's better times ahead for Vegas, but we're still kind of climbing out of the hole a bit. Great. Thank you. Your next question comes from the line of Michael Lindenberg of Deutsche Bank. Please go ahead.

Hi, there. This is Shannon Daugherty, author of My Extra Starters. Congratulations on your promotion, CJ. This first question is probably not for you, but maybe to Drew. Can you guys speak to how your competitive landscape is evolving, moving into new cities like Atlanta City and Burbank? And I'd also be very interested to hear more about the 15% of new routes that you launched this summer that did not perform to expectations. What did you see there?

Yeah, so maybe first on what I think about kind of the new city selection. You know, it continues to be the same, the same pillars that guide all of our network selection. Looking for unserved and underserved markets that fit our customer profile well.

Atlantic City, so we kind of diversified our basin. capacity between Burbank and FNA, where we've been in for a few years now.

You know, I think Burbank's going to be a great addition, so that's going to be helpful for us. On the competitive capacity front within those cities, obviously, you know, there is some capacity on Atlantic City and on half of our Burbank selection. You know, it's not something that we're... running away from capacity. We're trying to do what's right for Allegiant to run our race and we've found success on some of these markets and on the 15% where we weren't successful, we'll take a look at each of those. It's the first year. It may or may not be meeting expectations, but there should be some level of maturity and run rate associated with those. And for those, we don't see a future that will come out. We won't operate them next year. It's kind of that simple. We've got a long runway of new opportunities. So I have no issue cutting bait on those and finding something new. Shannon, it's Greg. I just want to add to your commentary there that Now, for serving the domestic leisure space, our low utilization taxable capacity model works well. I was interested. I thought Drew provided an interesting comment in his opening remarks. I paraphrased, but it's just along the line of the resilience of our leisure customers who represent all facets of the economy. They like to travel. They have the means to do so. What he and his team are doing is continuing to find old markets that are low fares and convenient nonstop service.

That's great. And maybe just a bigger picture, right, is the demand that you're seeing today supportive of higher growth in the peak period than slottish, like you're expecting next year? I guess I'm just trying to figure out how constrained you are from a utilization perspective.

For the, you know, most peak periods, you know, kind of more growth would come in the off-peak, such as the environment calls for, where, you know, demand would peak up or fuel would immediately come down. You can find a little bit more in there. I think as we get toward the summertime and that schedule comes out now, we'll be in public things in the coming weeks, you'll see a little bit more slack that we can add into on that front. Your next question comes from the line of Connor Cunningham of Milius Research. Please go ahead.

Hi, everybody. Thank you. Congratulations, BJ, on the promotion. I was hoping we could talk. So, yeah, the max situation, you're obviously talking that up a fair bit with, I think, Greg, you mentioned that it's going to be 50% of your capacity in 2027, 2028 or something in that timeframe. Can you just talk about, in the past, you've talked about like a rule of thumb around EBITDA per aircraft. And I would just think that there's the max capacity EBITDA contribution is way higher than the current A320 fleet. So just any, like, high-level thoughts around that? I think you mentioned 30% fuel efficiencies, but is there anything else that's within it that could be helpful in building that type of thought process? Thanks.

Yeah, maybe let me kick that one off. We talked in the past, Connor, quite a bit pre-pandemic. was our true north. I want to say right now we're at roughly $3.5 million per aircraft thereabouts.

I won't go into all the detail on the initiative sleep.

I want to dig on that and dig in on that a little bit here. But the other thing is the operational reliability is outstanding. It's not quite a point, but nearly a point higher than the 320 series fleet. But some of the questions as you think about the way we deploy capacity through an AST and you think about utilization, I think about it in thirds. So in terms of line to climb, so you have the first third through utilization roughly The middle third, the middle tranche, roughly six hours, and then you go from three to four hours on the lower tranche. So, obviously, with these aircraft, we're going to put them in on our highest line just because of their performance and their reliability. But Drude did an interesting study where, because of our base structure, was comparing the highest lines are flying in Base A versus a MAX performance in respective bases. And it's still, life for life, significantly outperforming the 320, just given, you know, just given the economics that we've talked about in the past. But, Drew, I'm excited about the MAX. What we're seeing is we need to take more deliveries of those aircraft. We commercially a good deal for us. And I'm sure, BJ, anything else you want to add?

I'll take one step. That was comparing the highest line to make sure that we're getting the most value for those going forward. It's incredible.

Yeah, and I'll just ask one thing today, Connor. You know, we talked about the overall earnings at the max at this point being, you know, about 30% better than just an average. We do expect most of that comes from fuel efficiency, but there's still a bit of improvement in other offense as well, primarily coming in on the maintenance line. Just don't want to underappreciate the value of the maintenance honeymoon.

We had gone a few years where we weren't adding any new airplanes, and that meant two things.

One, we weren't getting any relief on maintenance costs of aging aircraft, but two, we had a larger percentage of our overall fleet. And so by introducing some component of new aircraft again, we've got more of the fleet

Super helpful and detailed. Just around the co-branded credit card program review and nearing completion, I was hoping you could drill down on that a little bit more, just talk about what you've learned, what needs to be tweaked. Just if there's anything else there behind it. I know that you've talked about it for a couple of quarters. As we're closing on the end, just any thoughts in general. Thank you.

Yeah, and probably still a bit early for me to get too detailed. There's obviously a lot of work left to go. Some of what was in my remarks, we do have a fairly affluent and well-off customer as a subset of our overall base, and we haven't been providing, I think, probably the best value propositions

So, you know, I think something that's a bit more segmented is something that provides a better value proposition than, you know, what we were offering 10 years ago as well as leaning a little bit more into what we know with our customers specifically.

One area that's pretty obvious and something that I've mentioned elsewhere, you know, we weren't giving our customers a great reason to spend. that to be a bit more relevant more often. And I think that's been pretty low-hanging fruit to drive very scalable and efficient volume in terms of contribution to us. Great. Thank you. Thanks, Collin. Your next question comes from the line of Dan McKenzie of Seaport Global. Please go ahead.

Hey, good afternoon. Thanks. BJ, congrats on the promotion here. So, you know, I know you guys are guiding to flat capacity in 2026, you know, but probably, you know, the biggest change over the past quarter is just Spirit, you know, filing for Chapter 11 and downsizing. And I know that your overlap with them is very de minimis, I think 2.5% or something like that. But I guess the question really is, you know, is spirits downsizing causing you to, you know, rethink the network composition? So, you know, have you picked up more gates either at Fort Lauderdale or elsewhere or just kind of thinking about the percent of flying that you have either in the West Coast versus into the state of Florida?

Yeah, we haven't seen kind of those direct benefits to date. I'm unsure if we will, and I think for maintaining a fairly large Fort Lauderdale presence, we've certainly seen some full-time capacity out there. We're very excited about Fort Lauderdale. We're putting our MAX aircraft there, trying to grow capacity where we can, so we're very interested, but I don't know that...

pressure on leverage to go back to the script. I'm just wondering if you can provide a little bit more perspective on that. Are you planning to pay cash for some of the aircraft next year, or how should we think about the decision to lease versus to purchase, and how do we think about year-end leverage at 2026 versus 2025?

Thanks, Dan. Yeah, I'll give it a shot here.

So when I think about next year, you know, I kind of mentioned in response to Sagi's question, some of the CapEx, I guess, lift, if you want to think of it that way, next year is really going to be driven by a PDT. And those will come due throughout the year.

Our aircraft delivery schedule is in the first quarter, certainly we could pay cash for the amount due to Boeing at delivery for our airplanes probably for the first half of the year. That said, you know, we'll be opportunistic and keep our ears to the ground on the markets to look for the most attractive way I would tell you we've spent a lot of time on this this year. I would tell you that we expect to continue owning airplanes and that's why we try to shoot allows for owning airplanes in our mind is half the cost of leasing airplanes over the life of the asset. And we think that that's one of the extreme ingredients that supports our low utilization model. So I would expect that we'll continue to be focused there.

We'll always

keep an open mind and look at the offers that come in, but that's my guess.

Greg, I guess I've heard a lot of questions tonight around growth and, you know, now that the hotel is behind you, I think, like, what's the next phase for Allegiant here as you focus on the core of the business? Historically, we've always heard, you know, there's, what, 500 or 600 markets out there that could be Allegiant-esque. Is that still... And especially, you know, in lines with Dan's question just previously, I mean, airlines are still losing money even as some of the low-cost capacity comes out. So do you just need to see the industry still right-size itself in the next year before you can start thinking again about, you know, future network expansions?

Thanks, Brandon. I'll kick it off and ask Drew to come in on his views around the growth and a little more detail of that. The good thing about us is we have optionality. As we just mentioned at the end, we own our aircraft. We plan to own the new aircraft that are coming to us, and we own our used 320 fleet. In prior calls, I think we talked at least at a high level about the importance of running the right to grow. And so that fleet flexibility advantage, I think that's something we have that gives us the ability to determine what that growth rate looks like. And this is to drive better discipline, to ensure that we grow, that we grow profitably, and that we run a really good airline. I think what we've seen from Tyler Hollingsworth and the operational teams over the past couple of years, our ops team has really stepped up. And we're pleased with what we're seeing, but we're not going to push it to a point to where it's going to do more harm than good. In terms of our model and what we do, we think it's unique. We think there's a lot of opportunities for us to continue to grow. And it's the industry, as you kind of mentioned, but Drew, I mean, you feel like there's a lot of network and runway ahead. So do you want to talk about how you view the opportunities? Yeah, I'll kind of take it in two pillars here, maybe. Number one, right, we talked in the remarks about over 50 new routes that operated this last summer that weren't operating the summer before. I believe there's an immense amount of opportunity that remains. We've talked about 1,400 plus, you know, we'll be on the 500, 600 that I think will work well for us. Certainly not all of them will, but I think the vast majority are perfect for what we do. So I think there's no shortage there. Second, and, you know, Greg mentioned kind of this post-Navater implementation timeframe. It's not, you know, a big secret that we didn't have the cleanest of implementations with our Navater system. And, you know, it's taken us a little over two years to start to turn toward, okay, what's the next thing that we can start to build on our new foundation to help further develop the commercial stack and how we're interacting with customers, providing the right experience, you know, throughout the journey. And that's where that next phase goes. It's kind of a little bit of catch-up, candidly, to where others have seen success, which tells me there's a lot of low-hanging fruit for us to do over here. So it's not just on the network front. It's about the entire commercial strategy to make sure that the current network and future network work as well as we possibly can.

Appreciate that response. And I guess, Greg, as you think about... you know, potential industry M&A, if that does play out. I don't know. Where does Allegiant fall within that context?

Thanks, Brandon.

You know, and we believe that it's in everybody's best interest, certainly consumer's best interest, and having stronger airlines competing against the big fours. I'll tell you, for us, we like our model. We like our ability to outperform, especially given everything we're doing and that we've been talking to the street about for some time now. So I don't want to say I don't think consolidation is needed for us to get back to our historic earnings profile. But at the end of the day, what we're focused on is driving sales value.

Thank you.

Your next question comes from the line of Katherine O'Brien of Goldman Sachs. Please go ahead.

Hey, good afternoon, everyone. Thanks for the time and congrats, BJ. Maybe a follow-up to Shannon's question earlier. Is the flat capacity outlook next year a function of the fleet being maxed out or if demand got significantly better? Could you and would you delay retirements or push utilization hiring off peaks? And I guess, like, if the answer is yes to that, how much better would demand have to be for you to consider doing that? And what are the guardrails you assess in making those kinds of decisions?

Yeah, so we're, you know, I think like I mentioned, we're operating...

There's absolutely room for us to grow.

Value would be to be looking for, say, demand needs to get 5% better to add 1% capacity. I'm not sure that I have that for you today, but it's something we'll continue to monitor. We certainly have the bandwidth for anything in the spring, and then summer is so far away that lots of time to react, regardless of what happens.

Okay, I'll just take the fleece side of that.

Just keep in mind the aircraft reduction that we see in the first part of 26 is a result of eight East airplanes returning, really exiting service from late third quarter through late fourth quarter. These were transactions that originated back in the pandemic, and those airplanes needed And then as we move through the year, there's probably some more flexibility to use a few shells to extend retirements. But just don't underestimate how expensive that gets when you start talking about 24-year-old, 8- through 20-year-old families.

Sounds like a prudent plan. I guess, you know, as you, for my second question, as you've increased the proportion of the fleet with Legion Extra over the course of this year, any updates on the impact of... Thanks so much for the time.

Yeah, so the contribution has remained pretty flat around that $500 per departure rate. Obviously, as we put more and more onto that layout, it gets a little bit harder because our counterfactual or our control is a little bit smaller. So that re-measuring gets a little more challenging moving forward, but I feel good about the 500. From a four-year basis, I think we'll be something around 10 points of departures incremental on a four-year basis. So you can think about the 500 per departure across roughly 10% more flights or 10 points of distribution.

Great. Thank you.

Your next question comes from the line of Atul Myswari of UBS. Please go ahead. Good afternoon. Thanks a lot for taking my question and congrats on your promotion, DJ. I had a question on the fourth quarter of Rasmus. Last year's fourth quarter was really a fail of two halves of the industry, and I also think for Allegiant as well. First half was difficult last year with the elections and some weather, and then the back half of fourth quarter, especially December last year, was very strong.

Yeah, I mean, the lumpiness is nothing new for a Legion, right? As being a Legion carrier, we're going to ride the highs and lows of Legion demand, which means just about every year Thanksgiving and Christmas are good.

The shoulder and off-peaks are a little bit weaker sometimes. Um, you know, we'll certainly get the benefit of having the weather in our comparison, uh, through October. Um, I would expect, you know, more of that, that flat capacity weakness to persist in, in the offbeat period, early November, early December. Um, while the holiday period, I think will be much closer to on par with last year. Uh, probably not flat, but much closer to on par. So, um, very, very resilient holiday periods with kind of typical fluctuations within the quarter between the peak and the off-peak. Got it. That's helpful. Then just quickly, are you able to share what portion of the fourth quarter is booked by month, if you can? The portion books, I can talk to the quarter, maybe. We have about 75% of the fourth quarter books At this point, we do have about 100% of October books. So, you know, we have some pretty good line of sight. You know, the fourth quarter, in particular the holidays, tend to be the longest booking curve of the year. So we do get a little bit of forward insight there. Looking forward to the first quarter is obviously much slower.

We won't get a lot of insight to the first quarter until the calendar starts releasing.

Understood.

Thanks for that and good luck with the fourth quarter. There are no further questions at this time and with