Allegiant Travel Q1 2024 Earnings Report

Allegiant Travel EPS Results

• Actual EPS: $0.57
• Consensus EPS: $0.51
• Beat/Miss: Beat by +$0.06
• One Year Ago EPS: $3.04

Allegiant Travel Revenue Results

• Actual Revenue: $656.70 million
• Expected Revenue: $645.23 million
• Beat/Miss: Beat by +$11.47 million
• YoY Revenue Growth: +1.10%

Allegiant Travel Announcement Details

• Quarter: Q1 2024
• Date: 5/7/2024
• Time: Before Market Opens
• Conference Call Date: Tuesday, May 7, 2024
• Conference Call Time: 12:30PM ET

Allegiant Travel (NASDAQ:ALGT) is a holding company that operates Allegiant Air, a low‐cost leisure airline offering scheduled and charter air service. The company focuses on connecting underserved secondary markets with popular vacation destinations across the United States. By targeting price‐sensitive leisure travelers, Allegiant Air operates a point‐to‐point network that avoids the traditional hub‐and‐spoke model, providing non‐stop flights from smaller cities to resort and entertainment hubs.

In addition to its core flight operations, Allegiant Travel Company offers packaged travel services that include hotel accommodations, rental cars and attraction tickets through its online portal. This bundled approach allows customers to book complete vacation itineraries in a single transaction, generating ancillary revenue streams from services such as priority boarding, seat assignments and onboard amenities. The airline also provides charter services for sports teams, corporate groups and other large‐party travelers.

Founded in 1997 and headquartered in Las Vegas, Nevada, Allegiant Travel Company went public in 2006 and has since expanded its network to more than 125 destinations, primarily serving leisure markets in Florida, California, Nevada and other sunbelt states. Under the leadership of Chairman and Chief Executive Officer Maurice J. Gallagher Jr., the company emphasizes disciplined cost control, fleet consistency and point‐to‐point scheduling. Allegiant’s business model is designed to capitalize on seasonal demand patterns, offering daily and weekly frequencies that align with peak travel periods.

Allegiant Travel Q1 2024 Earnings Call Transcript

Key Takeaways

• First Quarter 2024 Results Below Targets: Adjusted operating margin fell to 6.2% due to three headwinds—pilot staffing issues, Navitaire migration, and Boeing 737 MAX delivery delays—versus an estimated 13% margin if excluded.
• Pilot retention bonus accruals totaled $80 million through April, driving roughly $6 million per month in extra costs ahead of a new pilot contract and constraining peak flying.
• Navitaire Migration Impact: Implementation gaps reduced ancillary revenue by about $2 per passenger in Q1, but full optimization is expected to deliver up to three margin points by 2025.
• Boeing 737 MAX Delivery Delays: Anticipated 2024 deliveries cut from 12 to 6, with no MAX in service in 1H24, $30 million in annual carry costs, and a $315 million CapEx reduction to $475 million.
• Sunseeker Resorts is in a run-in phase after its late-December opening; email marketing to 18 million customers boosted bookings but Q2/Q3 softness will drive a $15 million EBITDA loss for 2024.

Presentation

[Operator]

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 one again. Thank you. I would now like to turn the call over to Sherry Wilson, Managing Director of Investor Relations. Please go ahead.

[Sherry Wilson, Managing Director of Investor Relations at Allegiant Travel Company]

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 Richins, President of Sunseeker Resorts, Scott DeAngelo, 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.

[Sherry Wilson, Managing Director of Investor Relations at Allegiant Travel Company]

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.

[Maury Gallagher, Executive Chairman and CEO at Allegiant Travel Company]

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 2023. 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 and the industry have experienced major expense increases, particularly salaries, and specifically with our pilots.

[Maury Gallagher, Executive Chairman and CEO at Allegiant Travel Company]

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 bonuses 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 Micah Richins about our current status, including comments on our revenue problems tied to our Navitaire 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.

[Maury Gallagher, Executive Chairman and CEO at Allegiant Travel Company]

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 a March uptick, and the late spring for the summer sprint. We've been out of this rhythm for the past three years. We are 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.

[Maury Gallagher, Executive Chairman and CEO at Allegiant Travel Company]

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.

[Maury Gallagher, Executive Chairman and CEO at Allegiant Travel Company]

We've had success with this program, sending out as many as 25 million-30 million emails per week on Sunseeker and 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 -$15 million EBITDA for this year. Micah Richins, President of Sunseeker, will have more comments in just a moment. While Sunseeker will be a project for 2024 and 2025, 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.

[Maury Gallagher, Executive Chairman and CEO at Allegiant Travel Company]

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 $0.132, compared to $0.092 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.

[Maury Gallagher, Executive Chairman and CEO at Allegiant Travel Company]

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, and that's a 30% increase over last year's $6.32. In spite of our problems with our revenue tools in Navitaire, 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.

[Maury Gallagher, Executive Chairman and CEO at Allegiant Travel Company]

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 has 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?

[Greg Anderson, President at Allegiant Travel Company]

Maury, thank you. Team Allegiant delivered another strong operational performance this quarter with a 99.7% controllable completion rate. That puts us near the top of the industry, and that's thanks to the tremendous efforts of our frontline team members. We have a long history of providing a great service at an attractive price for our customers, and our differentiated model is focused on being the only nonstop carrier on the vast majority of our 525 routes. That is a structural advantage that affords us great relationships within our origination and destination markets, which, in addition, contribute to our strong ancillary and third-party revenue. Our differentiation is why we are—we have been able to generate industry-leading margins and profitability for our investors over the long term.

[Greg Anderson, President at Allegiant Travel Company]

While I am pleased with our operational and customer service metrics this quarter, our first quarter adjusted operating margin of 6.2% is disappointing and is not reflective of Allegiant's earnings potential. These results were impacted by three distinct issues: lower aircraft utilization during peak periods, Navitaire implementation timing, and Boeing's delivery delays. Starting with lower utilization. March 2024, flying was about 20% less than where we would have liked it to be. The primary constraint of our peak utilization has been the uncertainty of our pilot staffing levels. We were impacted by the same industry-wide shortage faced by our peers, and our attrition levels were meaningfully elevated coming out of COVID, but beginning to normalize around the middle of 2023. It was because at this time, we implemented a retention bonus for our pilots that materially helped stem attrition.

[Greg Anderson, President at Allegiant Travel Company]

It is important to us that our pilots receive fair and competitive compensation. In advance of an agreed-upon pilot contract, we are accruing upwards of $6 million per month for this bonus. Given our pilot staffing levels have turned to being stable, we are just starting to realize some of these benefits through our scheduling as we work towards restoring our peak utilization. On a related note, achieving a pilot labor contract continues to be a priority of ours, and I am optimistic that we can come to an agreement in the not-too-distant future. We value our relationships with our pilots and are encouraged by the forward movement made since the recent changes in union leadership. Since cutting over to Navitaire in the second half of 2023, we have made a lot of progress in the system that runs all of our reservations and revenue management.

[Greg Anderson, President at Allegiant Travel Company]

It offers critical new features over our legacy homegrown system. This includes the ability for international expansion and further efficiencies that are expected to improve our dynamic pricing and increase ancillary revenues. That migration last year went well for the most critical aspects, as customers had a seamless ability to book and to fly. However, migrating our ancillary data has taken longer than we expected, which caused a reduction of about $2 per passenger in ancillary fees in the quarter. As you all know, that is high margin revenue for us. Turning to Boeing, due to their well-publicized issues, we are experiencing even further delivery delays since our last earnings call. As a reminder, we had originally anticipated and planned for 6 MAX deliveries in the first half of this year.

[Greg Anderson, President at Allegiant Travel Company]

Prior to this brand-new type of aircraft entering the Allegiant fleet, we hire and train pilots, we plan our network, and we take on other preparation and infrastructure costs. These material headwinds are at a current runway rate of roughly $30 million annually to operating income. At this time, we do not anticipate any MAX aircraft to be placed in service during the first half of 2024, yet we continue to incur these significant expenses. Excluding these three distinct items I just outlined, our adjusted airline operating margin for the quarter would have been approximately 13%. This does not, however, change the fact that our current financial performance is not acceptable to us. The good thing is we have solutions. So I'd like to talk about the key drivers of how we will return to our normal industry-leading margins.

[Greg Anderson, President at Allegiant Travel Company]

The first driver is increasing peak flying. While the airline has recovered well from COVID, our peak flying is still 20% below 2019 levels. Fortunately, our pilot hiring and attrition issues have improved considerably, and we are seeing normalized staffing levels. Given these improvements, we are pushing up peak utilization and look to fully restore it by 2025, in 2025, which we expect to add roughly 4 points of incremental margin. The second driver is harnessing the full power of our Navitaire's reservation system. While the implementation of the system was more complex and took longer than we expected, we are now at the right point with Drew Wells, our Chief Revenue Officer, spearheading this initiative at this pivotal time. We see a big opportunity using Navitaire's tools to drive greater ancillary revenue.

[Greg Anderson, President at Allegiant Travel Company]

Drew will talk in more detail about this platform, but we estimate enhancements to Navitaire will drive as much as 3 points of incremental margin at a mature state in 2025. We are also growing and improving our product offerings through other commercial opportunities in areas such as loyalty, co-brand, Allegiant Extra, and our planned international expansion with Viva. Finally, the third driver is ramping up our Boeing MAX fleet. Once in service and operating at scale, at scale, we expect the MAX aircraft will provide a meaningful tailwind to our earnings. The annual operating income carrying cost of $30 million we are currently incurring will naturally subside. Furthermore, there is a 20% fuel burn savings and other advantages of this new fleet for Allegiant.

[Greg Anderson, President at Allegiant Travel Company]

We are working with Boeing to ensure an orderly delivery schedule, and given their extended delivery delays, our 2024 CapEx, CapEx is expected to be significantly below our initial forecast. Last, but certainly not least, we are very happy to report we have reached a deal with the TWU and our flight attendants on a new contract, a deal our in-flight team members were proud to support. And in closing, our airline is one of the best proven models in the business. This management team is laser-focused on restoring our industry-leading margins. We are executing on a clear path, just as outlined, and further building on our strength. I'm excited about the opportunities ahead for us. With that, I'll turn it to Micah.

[Micah Richins, President of Sunseeker Resorts at Allegiant Travel Company]

Thanks, Greg, and good morning, everyone. As Maury mentioned in his opening remarks, we're extremely pleased with the progress that's been made at Sunseeker this past quarter. When we last updated you, we were in the early days of transition from a construction site to an operating resort. We still had thousands of punch list items to complete and several venues to bring online. Today, all of our outlets are online and all but a handful of the punch list items have been completed. Feedback from guests has been overwhelmingly positive, with consistent month-over-month improvements in our Medallia NPS scores. Of note, our customers are not only impressed by the resort, but have been delighted by our wonderful team members. In terms of quality of experience drivers, the leading category is helpfulness of staff. We couldn't be more proud of them.

[Micah Richins, President of Sunseeker Resorts at Allegiant Travel Company]

Guests and locals alike have been highly complimentary of our food and beverage offerings. Opening this many restaurants concurrently is no easy task. Despite that, all six of our specialty restaurants have satisfaction ratings over four on a scale of five, with the average being four and a half. These venues, in addition to our spectacular pool experiences, allow us the ability to activate the property in meaningful ways, including sporting events like Super Bowl and the Kentucky Derby we had just this past weekend. In terms of group business, year to date, we've successfully hosted more than 50 groups. Our operating and services team have worked tirelessly to ensure the satisfaction of meeting planners and the attendees alike, building reputational credibility that will pay dividends throughout the remainder of the year and certainly into 2025 and beyond.

[Micah Richins, President of Sunseeker Resorts at Allegiant Travel Company]

In the hospitality business, the convention segment is the most effective leading indicator of future financial performance. While our sales teams are still fielding leads for short term in the year, for the year bookings, much of their activity is now focused on planners booking 2025 and beyond. Our 2025 goal for convention room nights is 60,000. We expect to open the year with 43 room nights, 43,000 room nights on the books and 17,000 to be booked in the year. We already have 20,000 on the books, with 62,000 room nights in the funnel. In future calls, I'll provide updates on our progress. Clearly, our occupancy and our resulting financial performance is not yet where we expect it to be.

[Micah Richins, President of Sunseeker Resorts at Allegiant Travel Company]

The repeated shifting of our opening date made it extremely challenging for our sales teams to book convention business into Q1 and Q2 of this year. Understandably, group planners are historically risk-averse when it comes to new hotel products. That's why the reputational credibility I mentioned earlier is so critical. Right now, at 785 keys, we have a short-term excess room capacity challenge with the associated cost structures. As with any new venture, particularly one of this scale, it will take time and significant effort to rectify. We've assembled an executive committee of highly skilled, experienced leaders, some from Vegas, some from Florida, and others from around the country. Most have been through the rigors of opening multiple properties. They know what to expect, they know what to do, and how to accomplish the results we anticipate going forward.

[Micah Richins, President of Sunseeker Resorts at Allegiant Travel Company]

With that, I'll turn it over to Scott DeAngelo.

[Scott DeAngelo, EVP and CMO at Allegiant Travel Company]

Thanks, Micah. Our Allegiant brand and product continue to improve and are increasingly highly regarded among our customer base. Our net promoter score rose to 55 in the first quarter. That's 4 points higher than we reported last quarter, and our customers rated us materially higher than all other airlines in the nation.

[Scott DeAngelo, EVP and CMO at Allegiant Travel Company]

Our high-margin third-party product revenue increased nearly 30% during the first quarter compared to Q1 2023, with our Allways Rewards Visa card leading the way as the program surpassed 500,000 cardholders in the quarter and earned nearly $35 million in total co-brand credit card compensation, up 24% versus Q1 2023. It's also noteworthy that this program was included among Newsweek's 2024 listing of America's Best Loyalty Programs for the value it delivers to consumers, as voted on by consumers. We also continued to see progress during the first quarter from our marketing support for Sunseeker Resorts, primarily email marketing to our 18 million customer database, but also including prominent merchandising on our website and mobile app, and onboard through our in-flight magazine, Nonstop Life, dedicated seat back inserts.

[Scott DeAngelo, EVP and CMO at Allegiant Travel Company]

We also enabled functionality on Allegiant.com for customers to be able to book their stay without requiring a deposit. Bookings improved sequentially each month from an average of 140 room nights booked per day in December, when the resort opened, to an average of 265 room nights booked per day in March. While we're heading into a typical off-peak season for Southwest Florida, we expect to continue making progress on the sales and distribution front in order to be at full strength when customers begin booking in earnest for fall and winter. Lastly, our transition from legacy homegrown booking and operating systems to modern, open integration technology platforms will enable us greater speed and flexibility as we enhance our customer-facing website and mobile app to improve the booking experience and maximize customer-driven revenue.

[Scott DeAngelo, EVP and CMO at Allegiant Travel Company]

Specifically, as our Navitaire implementation unlocks its full set of features and functionalities, as both Maury and Greg referenced, and Drew will elaborate on, we will in parallel be enhancing our web and app booking experience and merchandising capabilities to drive increased take rate for high-margin air ancillary products and bundles, along with continued increased attachment for high-margin third-party hotel, rental car, and credit card. Also, the expansion of newer air ancillary products, such as Allegiant Extra, Legroom+, and Trip Insurance, along with future new product additions, such as gift card, flight subscriptions, and more, should collectively play key roles in driving profitable revenue growth on a per-passenger basis. With that, I'll turn it over to our Chief Revenue Officer, Drew Wells.

[Drew Wells, SVP and Chief Revenue Officer at Allegiant Travel Company]

Thank you, Scott, and thanks to everyone for joining us today. I'm pleased to report a first quarter airline revenue of $632.5 million and TRASM of $0.1323, both the second-highest first-quarter figures in Allegiant history. System ASM also increased 2% versus 1Q23. I believe this continues to represent one of the best performances versus pre-pandemic, at roughly 15% TRASM gains on over 20% ASM gains versus the first quarter of 2019, along with a record first-quarter fixed fee performance. Leading the way once more was a total ancillary per passenger increase of roughly $0.50. Our core products were strong, and the addition of Allianz Travel Insurance drove new opportunities in the booking path. Further, as Scott described, the Allways Rewards Visa card continued to drive excellent value.

[Drew Wells, SVP and Chief Revenue Officer at Allegiant Travel Company]

The air ancillary portion was down slightly, and we know that we're leaving value on the table here, as Greg mentioned, but more on that later. The 1Q TRASM represents a 0.54% sequential increase versus 4Q 2023 and in line with our revised guidance. While on a year-over-year basis, TRASM was down 4.8%, as communicated in the last quarter's call, our peak spring break flying at the end of March was unit revenue positive versus the same weeks in 2023. Obviously, 2024 gets the benefit of Easter in that comparison. However, it is still a great signal that the best leisure travel periods remain resilient. Of course, there's the other side to Easter shifting. The first two weeks of March were weaker than anticipated, and early April felt the pain of the spring travel season ending earlier.

[Drew Wells, SVP and Chief Revenue Officer at Allegiant Travel Company]

While Easter shifts every year, it landed in March just twice between 2009 and 2019. Both of those times saw 1Q to 2Q sequential TRASM decline at least 5%. The expectations for 2Q 2024 exceed those comparisons, and we expect sequential TRASM to decline just 2.5% versus 1Q 2024. This represents a year-over-year decline of roughly 5.5%. While I still expect the total ancillary per passenger to grow slightly year-over-year in the second quarter, we're accomplishing this with reduced functionality versus the same time last year. Our Navitaire cutover in late August 2023 was implemented with some known gaps and a path to not just bridging, but improving our position.

[Drew Wells, SVP and Chief Revenue Officer at Allegiant Travel Company]

Included in those gaps were roughly $2 per passenger in booking path ancillary functionality, impacts to our ability to collect all revenues at the airport, and a handful of factors driving additional call volume to our customer care team for issues previously self-servable. The bridges have proven significantly more challenging than initially thought. The additional upside of at least another $2 per passenger we had communicated from the increased dynamic abilities had to take a back seat. I'd like to commend the entire organization for their efforts in developing, testing, finding ways to go above and beyond, and continuing to make this company great through the growing pains. As we become more familiar with the platform and its capabilities, we feel it is time to take a step back and acknowledge there may be a better way to move forward.

[Drew Wells, SVP and Chief Revenue Officer at Allegiant Travel Company]

We have incredibly high conviction in the Navitaire platform when done right, and done right is what we need to do. It won't be an overnight fix, but we believe it's the right long-term decision. We'll have more details around timing and value beyond what I've described here in the coming quarters. One of the ways we continue to offset the current integration headwind is with our extra products. As the fleet grows and we gather more data, we continue to work to align our product mix and experience with what customers value most. The first quarter ended with 15 tails in the 180-seat extra layout, and thanks to our maintenance strategy team and our Mesa hangar, we expect as many as 11 additional aircraft to be modified by the end of May.

[Drew Wells, SVP and Chief Revenue Officer at Allegiant Travel Company]

As we shift to the capacity front, our summer capacity did increase as indicated on the last call. The month of June is expected to grow approximately 7%, and while it offsets the 11% April decline, primarily associated with the Easter shift, we expect the quarter to have ASMs approximately 1% below 2Q 2023. Despite the delays in Boeing aircraft, our planning and ops teams have found a way to preserve the selling schedule through July and August, allowing us to maintain a mid-single-digit % ASM growth in each month, and about a half-hour utilization per day per aircraft increase over last summer. This is generally in line with 2018 summer utilization and a solid first step toward restoring our peak period utilization.

[Drew Wells, SVP and Chief Revenue Officer at Allegiant Travel Company]

It has taken about a year from the announcement of the pilot retention bonus to have comfort levels at the appropriate lead time to push on flying a bit harder. Candidly, we ended with enough pilots to fly a little more in March. Unfortunately, that certainty occurred too close to March to react accordingly, but it does provide support for our summer plan. However, our reduced Boeing delivery expectations will impact our anticipated fourth quarter capacity and, in turn, our full year guidance, and we now expect 2%-4% year-over-year ASM growth. The demand environment continues to be elevated well above pre-pandemic levels. Peaks have shown resiliency, and the gaps between peak and off-peak leisure demand appear normal.

[Drew Wells, SVP and Chief Revenue Officer at Allegiant Travel Company]

We see a path forward with our system implementation and other plans laid out today, and are confident that we are building out the tools and processes to optimize flying, revenue, and most importantly, profitability. And with that, I'd like to turn it over to Robert.

[Robert Neal, SVP and CFO at Allegiant Travel Company]

Good afternoon. As you've heard from others today, our first quarter results are below our expectations. As Greg outlined, there are several contributing factors for this underperformance. We are encouraged, however, that for each of the factors Greg identified, we have a clear and actionable plan to restore our earnings potential in the coming quarters. I'll speak today to our financial results and guidance on an adjusted basis. Looking at the first quarter, we delivered a consolidated net income of $10.4 million, yielding an earnings per share of $0.57. Consolidated EBITDA came in at $92.3 million, generating an EBITDA margin of just over 14%. The airline business recorded a net income of $19.8 million, yielding an airline-only EPS of $1.08.

[Robert Neal, SVP and CFO at Allegiant Travel Company]

The airline produced $97 million in EBITDA during the quarter for an EBITDA margin of 15.3%. Fuel continued to pressure results, coming in at $3.03 per gallon for the quarter, which was $0.18 above our initial expectations. We have seen some slight relief as of late, and we're estimating second quarter fuel costs to be approximately $2.90 per gallon. Non-fuel unit costs were up 14% year-over-year. Six points of this increase was related to the accrual for our pilot retention bonus, as we were not accruing during the first quarter of 2023. Three points were driven by pilot training and loss of pilot productivity, awaiting delivery of the 737 MAX aircraft. Roughly a point and a half was attributable to the maintenance CBA that was passed last May.

[Robert Neal, SVP and CFO at Allegiant Travel Company]

One point came from the timing of light engine maintenance, and the remainder was from a handful of various other items. Turning to the balance sheet, our total liquidity at the end of the quarter was $1.1 billion, comprised of $854 million in cash and investments, and $275 million in undrawn revolvers. We made principal payments of $31.5 million during the first quarter and expect about the same during the second quarter. Net leverage was higher at the end of the quarter, with net debt to trailing 12-month EBITDA at 3.4x, which included $75 million in pilot retention bonus costs.

[Robert Neal, SVP and CFO at Allegiant Travel Company]

At the end of the quarter, we had pre-arranged financing commitments for $435 million to cover our first nine 737 MAX deliveries, which in aggregate, provide the business with approximately $100 million in liquidity from efficient financing vehicles as those aircraft deliver. This will give us valuable flexibility with respect to aircraft financing heading into 2025, while retaining ownership of those assets. I want to thank our committed financing partners and our PDP lenders, who have been particularly supportive and flexible for us in the face of the aircraft delivery delays. We retired two A320 aircraft during the quarter and placed one A320 into service. We took delivery of one A320 aircraft during the quarter.

[Robert Neal, SVP and CFO at Allegiant Travel Company]

This delivery represents our last A320 under contract, and we expect the airplane to enter revenue service for our summer peak. As Greg mentioned, we're working with Boeing to devise an orderly delivery schedule, which may moderate our capacity growth in the short to midterm, but should mitigate risks to the operation, risks to our selling schedule, and cost drag resulting from the disconnected timing of crew and aircraft availability. At the time of our last earnings call, we anticipated our first 737 MAX aircraft delivery to be in March. That aircraft, the first in Allegiant's spec, is awaiting FAA inspection, which will need to be completed before deliveries to Allegiant can begin. We now expect this aircraft to enter revenue service during the third quarter.

[Robert Neal, SVP and CFO at Allegiant Travel Company]

We are updating our delivery expectations and planning the business for delivery of six aircraft this year, rather than 12 previously communicated. This estimate is not based on guidance from Boeing, but rather represents our best estimate based on information available to us today. While we remain excited about and committed to the MAX entering our fleet this year, we're very happy to own 86% of our operating fleet, providing meaningful flexibility to help manage these delays. Given the reduction in expected deliveries, we have updated our full year airline CapEx to $475 million, down roughly $315 million from the prior guide. As indicated last quarter, these expectations differ from our contractual obligations.

[Robert Neal, SVP and CFO at Allegiant Travel Company]

Updated CapEx guidance consists of $240 million in aircraft and engine-related payments, $85 million related to heavy maintenance, and $165 million related to other airline CapEx. Because we're planning for six fewer aircraft to deliver in 2024, we've trimmed our full year capacity guide by 1% and now expect the capacity to be up 3% over the prior year. On a quarterly cadence, we are estimating second quarter capacity to remain unchanged at down 1% year-over-year. Third quarter capacity to be up about 4% year-over-year, and fourth quarter capacity to be up about 7% over the fourth quarter of 2023.

[Robert Neal, SVP and CFO at Allegiant Travel Company]

Due to further reductions in capacity this year and uncertainty around our 2025 aircraft delivery schedule, we are now reviewing our airline infrastructure and expect to make adjustments over the coming months to align with a more moderate growth trajectory. Turning to second quarter guidance, we expect the airline to produce an adjusted earnings per share of $1.50 at the midpoint of our guide, yielding an airline operating margin of around 8%. We expect second quarter CASM-ex to increase by approximately 7% over the second quarter of 2023.

[Robert Neal, SVP and CFO at Allegiant Travel Company]

While this assumes a slight year-over-year reduction in capacity in the quarter, the increase is due primarily to increases in the salary and benefits line, including one additional month of the pilot retention bonus accrual, as well as incorporating increased wage rates for our flight attendants, technicians, and dispatchers as a result of new agreements or amendments. It's worth noting that these labor agreements are part of our path back to incremental utilization and better productivity in the business. I want to congratulate our flight attendants on their recently ratified agreement. As we progress throughout the back half of the year, we expect CASM-ex to moderate into the third quarter, with a slight year-over-year reduction expected in the fourth quarter.

[Robert Neal, SVP and CFO at Allegiant Travel Company]

Based on Maury's commentary regarding Sunseeker and much of the second quarter being off-peak for the property, we are guiding consolidated earnings per share of $0.75 for the second quarter. Before I close, I want to thank our team members for all of their efforts this quarter. Despite this financial outcome, the operation again ran safely and smoothly, thanks to your hard work, and that's foundational for us as we now focus on increasing utilization in peak leisure demand periods. As we head into our peak summer schedule, thank you for all you do. And with that said, Dee, we can now turn it back to you for analyst questions.

[Operator]

Thank you. We will now begin the question-and-answer session. If you have dialed in and would like to ask questions, please press star one on your telephone keypad to raise your hand and join the queue. If you would like to withdraw your question, simply press star one again. If you are called upon your question and are listening via loudspeaker on your device, please pick up your handset and ensure that your phone is not on mute when asking your question. We do request for today's session that you please limit to one question and one follow-up. Again, press star one to join the queue, and our first question comes from the line of Helane Becker from TD Cowen. Please go ahead.

[Helane Becker, Managing Director and Senior Advisor at TD Cowen]

Thanks very much, operator. Hi, everybody. Thanks for the time here. Just a couple of questions on guidance. As we're looking forward, the maintenance costs, is that just a one-quarter item, or is that a full year item that we should expect at that level?

[Robert Neal, SVP and CFO at Allegiant Travel Company]

Hey, Helane, it's BJ. Thanks. Yeah, it, it's a little bit of both. There's some noise in the comp in the first quarter of 2023. So we are running some light, check and repair level maintenance visits on our engines. That will persist throughout the year, but it's offset by a nice reduction in contract labor expense. So on an ASM basis, we expect maintenance costs to be down, unitized throughout the year.

[Helane Becker, Managing Director and Senior Advisor at TD Cowen]

Okay, that's very helpful. And then, actually, a follow-up question for you: Is there a level of cash or, I don't know, if you want to measure it in liquidity, that you are not willing to go below as you think about it?

[Robert Neal, SVP and CFO at Allegiant Travel Company]

Sure. You know, we normally talk on these calls about, liquidity levels being maintained at 2x ATL. Now, for our purposes, we would credit that with some of the available balance under our undrawn revolver facilities. So all in, we're a little bit above that today. I'd still like to maintain cash balances, around 2x ATL, until we have some clarity on the Boeing delivery schedules. But as we have financing lined up further and further out, be comfortable at 2x ATL, including revolver balances.

[Helane Becker, Managing Director and Senior Advisor at TD Cowen]

Okay. Thanks, BJ. That's very helpful.

[Operator]

Our next question comes from the line of Ravi Shanker from Morgan Stanley. Please go ahead.

[Ravi Shanker, Managing Director at Morgan Stanley]

Great. Thanks. Good afternoon, everyone. Thanks for all the detail on the call. Maybe the first question is, you said that you are taking steps to kind of improve the financials, and the first step was to improve your peak flying. One of your peers also kind of increased their flying once they resolved their staffing issues, but they ended up with too much capacity, and they're now pulling back. Do you have the visibility that kind of your increasing peak flying is kind of not going to end up in that outcome and will actually kind of be accretive to earnings?

[Drew Wells, SVP and Chief Revenue Officer at Allegiant Travel Company]

This is Drew. If I'm reading between the lines properly and thinking of the right other airline, I believe they commented that there was outsized growth in April and May, that they wished they had pulled back a little bit, given current fare levels. What we're talking about is, you know, summer flying, it's March, it's the holidays, where I still believe that there is immense incremental value for us to drive by flying more there, and not quite as much in the April-May timeframe. So, forgive me if I'm thinking of the wrong quote, but that's my position.

[Greg Anderson, President at Allegiant Travel Company]

Ravi, this is Greg. I just want to add a comment to that. You know, 80% of our earnings come in those peak periods, the March, the summers, and the holidays. You know, Drew is still, and his team are still seeing, you know, terrific demand, leisure demand in those periods as well. I don't know if you caught in his comments, but we're already taking a nice step up this summer with a half hour more of utilization per aircraft, and we're gonna continue to take those steps up until we get into 2025, where we want to restore that 20% delta that we're under today in terms of aircraft utilization in the peak periods.

[Ravi Shanker, Managing Director at Morgan Stanley]

Got it. That's really helpful. Maybe as a follow-up, I know that a lot of the industry is kind of pushing towards premiumizing their product, and some of your ULCC peers are also introducing new front-of-cabin product and kind of pushing the potential kind of premium offering. What are your thoughts on that? Kind of obviously, you have a good bundled product now with Sunseeker. Kind of anything you can do, kind of, on the aircraft itself to kind of push towards a premium flyer that you're thinking of?

[Drew Wells, SVP and Chief Revenue Officer at Allegiant Travel Company]

Yeah. So, you know, we're not that far removed from talking about bringing the extra products across all of our fleet. You know, we still haven't received our first MAX aircraft, which would've materially increased the number of either extra or Legroom+ seats on an aircraft. We're constantly looking and evaluating other options, but, you know, I don't think we're in a position today, you know, again, seeing we haven't received a MAX aircraft, to say we need to be pushing harder. There's a lot of, I think, confirmation bias in what we've seen, right, in putting aircraft on the most valuable routes. So give it time.

[Drew Wells, SVP and Chief Revenue Officer at Allegiant Travel Company]

We'll continue to review everything, and maybe it makes sense, maybe it doesn't, but that's probably a little bit further down the road for us.

[Maury Gallagher, Executive Chairman and CEO at Allegiant Travel Company]

But I think, this is Maury, one other thing. When you have 77% of your routes are without competition, a lot of what you're seeing is the one-upsmanship and competitiveness and ability to price, which the majors have really rolled in, so they can roll people up in their purchasing. Having that ability to fly, you know, our customer, while they're, you know, we've got a great brand and we do a good job, I don't know that they're that price sensitive. In a two-hour flight, you know, it's hard to, you know, see that you're really adding a lot of value in first class. But, you know, that's very much, you know, being driven by the majors and the others are following to try and keep up.

[Ravi Shanker, Managing Director at Morgan Stanley]

Very helpful. Thanks, everyone.

[Operator]

Our next question comes from the line of Andrew Didora from Bank of America. Please go ahead.

[Andrew Didora, Senior Equity Research Analyst at Bank of America]

Hey, thanks for the questions, everyone. Maybe first question for Greg or BJ. You know, just given the CapEx changes in 2024, I think down, what, $315 million, what would be kind of a your first look in terms of how 2025 and maybe 2026 look like? You know, I would assume that $300 million just moves into those years. Any initial thoughts?

[Robert Neal, SVP and CFO at Allegiant Travel Company]

Hey, Andrew, it's BJ. You know, apologize, I'm just trying to get back to that page. But what I will say is there's just still a lot of uncertainty around 2025, and I mentioned at the moment, you know, we're taking a close look at different areas of the business and where we need to adjust to be prepared for a little bit slower growth profile. So I think we'll have a lot more for you next quarter that maybe we can share on 2025. We were originally contracted to take 24 airplanes next year. Just given what we've learned from the risk of, you know, relying on two aircraft a month, I would expect we adjust that down somewhat.

[Robert Neal, SVP and CFO at Allegiant Travel Company]

So as that does shift into 2025, some of the 2025 CapEx, I would expect to shift to 2026.

[Andrew Didora, Senior Equity Research Analyst at Bank of America]

Got it. Okay. Thank you. And then second question, just for, maybe for, for Maury. I mean, I guess just in terms of Sunseeker, I guess what changed so rapidly, on the year that brought kind of RevPAR assumptions down about 30%? And does the year one EBITDA losses make you think any differently about, you know, owning or running the asset and potentially thinking about, thinking about a potential divestiture here? Thank you.

[Maury Gallagher, Executive Chairman and CEO at Allegiant Travel Company]

You know, unfortunately, we didn't have a lot of front-end time to market and sell. You know, I think we're also a bit of victims of the curve that's coming down and normalizing that to... You know, when we've been started in 2021, 2022, you know, we were looking-- I know I personally looked at rates of $2,000 a night. There are a lot of equivalent properties down there. But it's just, you know, an effort that we've got to go after. You know, Micah can probably add more color than I can at this point. As far as looking at other alternatives, yes, we're gonna look at those types of alternatives. I think that this year, this-- I look at this as I call it a project.

[Maury Gallagher, Executive Chairman and CEO at Allegiant Travel Company]

We're gonna learn a lot this year, and we'll be able to react and do things accordingly for filling it in next year. It's definitely gonna improve as we go forward. But bottom line, as I said, we have a really quality product, so we'll fill it up. It's just a question of, you know, how fast. Micah, any thoughts?

[Micah Richins, President of Sunseeker Resorts at Allegiant Travel Company]

Yeah, in terms of why the adjustment, I think there's a couple of things. One, we now have four months of data, and that helps us at least think better about what's gonna happen in the next coming months. When we were talking about this in Q1, we had zero, so that helps us a little bit. Scott talked about the booking trends and the way they were ramping up like we wanted them to into March... and they slowed down a little bit. So part of the booking trend analysis that we were watching and its decline has led to us thinking about Q2 and Q3 a little differently than we were thinking about it in February and March. There's anecdotal softness in Florida.

[Micah Richins, President of Sunseeker Resorts at Allegiant Travel Company]

Some of you, you're starting to see people talking about that, so that's a part of it. We're still learning every day about how the locals behave and how they'll handle food and beverage demand in, you know, between seasons, in and out of season. And I think the last thing that I would tell you is that we didn't really know for sure when we first talked about what of our group prospects would materialize and which ones wouldn't. We kind of hoped we'd play a little more lucky than we have, and I think those are probably some of the things that led to the changes in the short term.

[Andrew Didora, Senior Equity Research Analyst at Bank of America]

Great. Thank you.

[Operator]

Our next question comes from the line of Duane Pfennigwerth from Evercore ISI. Please go ahead.

[Duane Pfennigwerth, Senior Managing Director at Evercore ISI]

Hey, thank you, guys. Good morning. I wanted to maybe ask the CapEx question a different way. Obviously, you're disappointed in the delays. The delays drive your hiring plan and your ops plan, or at least the fleet plan does. But from the outside looking in, the irony feels like it's actually a good thing for 2024. And so the question is, do you see an opportunity to smooth out the capital commitments beyond just this year? And how do you think about the guardrails from a balance sheet perspective that shape your longer-term capital plans?

[Robert Neal, SVP and CFO at Allegiant Travel Company]

Sure, Duane. Yeah, I mean, I guess there is an ability to smooth it out. I think we'll have to wait to see, you know, just how many airplanes, Boeing is going to produce in a month and how many of those are delivered to Allegiant. You know, we do need to be careful of what I think is an outsized risk, for Allegiant compared to some of the other carriers with respect to these deliveries, in that what Greg mentioned is we're getting ready for these airplanes and taking pilots off of the A320 and having them standing by ready for 737. And so sitting here relying on two aircraft a month, just doesn't feel like a good recipe at the moment.

[Robert Neal, SVP and CFO at Allegiant Travel Company]

And then that said, that's also creating some pressure on earnings as we talked about today, which would limit what we can do from a leverage perspective. So all things that we're mindful of, but I don't know that I have a clean answer for you as we think about 2025, 2026 yet.

[Greg Anderson, President at Allegiant Travel Company]

Duane, it's Greg. I might just add, and BJ mentioned this in his opening comments, that he and the team, you know, they're actively working with Boeing on setting up an orderly delivery schedule that we can all execute to. And, so that flexibility is important, and that plan is going to be important. And, together, we, we believe, you know, we'll get to the right outcome.

[Maury Gallagher, Executive Chairman and CEO at Allegiant Travel Company]

Yeah. One other final comment, Duane. If we slow down a little bit, it won't be the end of the world, too. You know, clearly, a part of that process, we're going to retire some airplanes when—as we took those—that new equipment. But you know, just given the way the world's, you know, developing, you know, just taking our time a little bit longer is, is not a bad thing for where we see ourselves. And I think you also get some benefits, maybe in interest rates, that you take them all very quickly, we won't have the interest rate benefits that might come, you know, a year or two later. But you know, Boeing and we have to come to an agreement, and they're certainly, you know, continuing...

[Maury Gallagher, Executive Chairman and CEO at Allegiant Travel Company]

I can't believe how they can't get off the front page. It's just astonishing. So, yes.

[Duane Pfennigwerth, Senior Managing Director at Evercore ISI]

Okay. Appreciate those thoughts. And then maybe you gave part of the answer with the Navitaire commentary, but can you speak to the level of integration of air and hotel packages within your booking engine? When do you think you'll have the ability to fully market Sunseeker to your airline customers?

[Scott DeAngelo, EVP and CMO at Allegiant Travel Company]

Hi, Duane, this is Scott. Thanks for the question. The answer is we've gotten there, technically now. As of a couple of weeks ago, we removed one of the biggest barriers, which you may recall was, requiring customers to pay for the entire air plus hotel purchase at once. Now, when you book Sunseeker, you actually are required to leave no deposit, as you book your air and hotel together. We will begin to market that now that we've got a couple of weeks knowing that everything works, from a customer experience standpoint and customer servicing standpoint, market that in earnest, very soon. I will tell you just one other little tidbit. Of the different channels, the allegiant.com, if you will, customer who books air and hotel, is by far, the highest value.

[Scott DeAngelo, EVP and CMO at Allegiant Travel Company]

Their length of stay is longer, and they're paying more in average daily rate. So continuing to fuel that fire of air plus hotel for Sunseeker is going to be critical, and we're already at now the technical ability to do that in earnest.

[Duane Pfennigwerth, Senior Managing Director at Evercore ISI]

Thanks. And if I could sneak one last one in. Just, just on the Sunseeker OpEx run rate, is this first quarter level a good level? Do we go up from there sequentially, or is there a way to kind of flex it down in these off-peak periods? Thank, thanks for taking the questions.

[Maury Gallagher, Executive Chairman and CEO at Allegiant Travel Company]

Micah?

[Micah Richins, President of Sunseeker Resorts at Allegiant Travel Company]

Say that again, Duane. I had a hard time hearing you.

[Duane Pfennigwerth, Senior Managing Director at Evercore ISI]

Yeah, we now have a full quarter of Sunseeker OpEx.

[Micah Richins, President of Sunseeker Resorts at Allegiant Travel Company]

Sure.

[Duane Pfennigwerth, Senior Managing Director at Evercore ISI]

And so is this, is this the right level to model off of going forward, or can you flex that up or down depending upon seasonality?

[Micah Richins, President of Sunseeker Resorts at Allegiant Travel Company]

No, absolutely, you can flex it up and down based on seasonality. So you should see us-

[Micah Richins, President of Sunseeker Resorts at Allegiant Travel Company]

... become more efficient in Q2 and Q3, and then flex back up a little bit into Q4 as demand returns.

[Duane Pfennigwerth, Senior Managing Director at Evercore ISI]

Okay, thank you.

[Operator]

Our next question comes from the line of Scott Group from Wolfe Research. Please go ahead.

[Scott Group, Managing Director and Senior Analyst at Wolfe Research]

Hey, thanks. Afternoon. So I think you talked about 7% increase in airline CASM-ex in Q2. Is that—I just want to make sure, is that apples to apples with the up 14.5% in Q1? And then any thoughts on back half of the year CASM?

[Robert Neal, SVP and CFO at Allegiant Travel Company]

Sure. Hey, hey, Scott. Yeah, apples to apples with the first quarter. I will mention in the second quarter, you have still one month of the pilot payroll accrual, I think I mentioned in the script, and then incorporating some of the new labor agreements. But yeah, otherwise, apples to apples.

[Greg Anderson, President at Allegiant Travel Company]

Scott, hey, it's Greg. Just as you think about maybe even longer term and the power of increasing utilization, I think something like an hour increase of aircraft utilization per year results in a reduction of CASM-ex about $0.005. So that could be a nice tailwind. And then as we work through some of the kind of inefficiencies with the overhead, getting ready to take on the new MAX aircraft, I believe as that starts to work itself through, it's another, like, $0.00125 of CASM-ex that we could see there, too.

[Robert Neal, SVP and CFO at Allegiant Travel Company]

And then just, Scott, as I mentioned in the prepared remarks, we expect CASM-ex on a year-over-year comp basis to moderate into the third quarter, and end up slightly below the fourth quarter comp.

[Scott Group, Managing Director and Senior Analyst at Wolfe Research]

You're saying fourth quarter CASM-ex should be down something year-over-year?

[Robert Neal, SVP and CFO at Allegiant Travel Company]

Right. Slightly.

[Scott Group, Managing Director and Senior Analyst at Wolfe Research]

Okay.

[Robert Neal, SVP and CFO at Allegiant Travel Company]

Yeah.

[Scott Group, Managing Director and Senior Analyst at Wolfe Research]

Okay. Any... I know you said RASM down about 2.5% sequentially, Q1 to Q2, just absolute terms. I know it's early, but any early thoughts about how you're thinking about back half of year RASM?

[Drew Wells, SVP and Chief Revenue Officer at Allegiant Travel Company]

Not particularly. You know, there's still obviously a long ways to go, even for July has at least 75% left to book, so everything's still early. And I think the general themes still hold that we believe there's resiliency in the peak period. I'd expect continued normalization between the peak and the off-peak. But other than that, I don't have a lot more to add to the back half of the year.

[Scott Group, Managing Director and Senior Analyst at Wolfe Research]

Okay. And then just last one, I know you got asked the question already about sort of liquidity targets and all that sort of stuff. To the extent that you wanted... How do you balance liquidity needs versus where you're willing to take the leverage? Is, you know, give or take 4x, that as high as you're willing to take the balance sheet leverage? Would you take it higher? Or, you know, if any incremental capital raise, that more likely to be with equity than debt?

[Robert Neal, SVP and CFO at Allegiant Travel Company]

Sure. Yeah, no, no plans for any equity-related capital raise at this time. You know, I realize what that could mean for leverage if we're trying to maintain liquidity at 2x ATL. But, you know, as we've locked in financing for some of this future CapEx, we're okay with liquidity coming down a little bit, as I mentioned in response to Helane's question. Well, or the other part of your question, did I miss something?

[Scott Group, Managing Director and Senior Analyst at Wolfe Research]

No, I mean, I guess you're saying you're okay either with the liquidity coming down a little bit or the leverage metrics going up a little bit.

[Robert Neal, SVP and CFO at Allegiant Travel Company]

Yeah, and we had expected leverage to be elevated throughout this year. I think we may have mentioned that on the last call, but certainly, you know, in one-on-ones and whatnot throughout the year, this is an investment period with a lot of CapEx for airplanes, so we would have expected leverage to be pressured a little bit as we move through 2024.

[Scott Group, Managing Director and Senior Analyst at Wolfe Research]

Okay. Thank you guys for the time. Appreciate it.

[Robert Neal, SVP and CFO at Allegiant Travel Company]

Thanks.

[Operator]

Thank you. Our next question comes from a line of Michael Linenberg from Deutsche Bank. Please go ahead.

[Michael Linenberg, Managing Director and Senior Airline Analyst at Deutsche Bank]

Yeah. Hey, good morning, everyone. With respect to the distribution of Sunseeker, I know that, you know, you are going through third-party channels, which I know historically was not the model for Allegiant. Can you tell us, you know, as of now, maybe what you're booking through Allegiant.com versus third-party channels? And I'm just curious, out of the 18 million people in your customer database, what's the uptake of them? Would you say that the majority of people at Sunseeker today are out of that 18 million database, or are these just entirely new clients, new customers?

[Scott DeAngelo, EVP and CMO at Allegiant Travel Company]

Hey, Mike, it's Scott. I'll start and let Mike chime in. So right now, the majority, I'd put it at, like, 80%-85%, and Mike, you can correct me, are coming directly either to sunseekerresorts.com or via allegiant.com. So that's great news that we're seeing the majority of bookings without requiring both the added cost and the disintermediation that comes via OTA.

[Michael Linenberg, Managing Director and Senior Airline Analyst at Deutsche Bank]

Mm-hmm.

[Scott DeAngelo, EVP and CMO at Allegiant Travel Company]

In terms of the majority of folks that are staying, back in January, call it. You've seen it go from about, like, 3/4 to 1/4 in favor of Allegiant customers, to now close to 50/50, while the overall pie grows. So it's a good story that, yes, we're driving a lot directly and through the email, but that proportion, as the pie has grown, has become, you know, smaller, meaning that more other people are coming into the Allegiant Travel Company family, if you will, many from places that Allegiant doesn't currently serve or serve in earnest, like Atlanta or New York City, et cetera. Mike, I'd invite you for any additional commentary.

[Micah Richins, President of Sunseeker Resorts at Allegiant Travel Company]

You know, the only thing that I'd add to that, Scott, is, is as you mentioned in Q1, we were just in the very early stages of ramping up OTA productivity. So for, for example, when you looked at January, I mean, we, we booked less than, less than 15 rooms. By February, we were booking 300-350, and by March, you know, upwards of 1,800-2,000, and we think that will continue to grow. One of the things that we think, you know, I think Scott mentioned it, it's, it's obviously best for us to produce as much as we can through G4 direct as part of packages. They have long lengths of stay. They, they have really good rates. And then obviously, anything that we can book directly to our own website and/or through group business is our priority.

[Micah Richins, President of Sunseeker Resorts at Allegiant Travel Company]

But third party will always be a good partner to have for us, and it's important for us to continue to grow that. And, so you'll see our sales and marketing teams, particularly over the next several months, working to not only establish, but then, make our partnerships that we have already established them more effective, working marketing programs with them, and, and see better production out of the OTA partners. But I think Scott nailed it the right way. We have a priority of how we'd like that to happen, but they're a key component for us.

[Michael Linenberg, Managing Director and Senior Airline Analyst at Deutsche Bank]

Micah, is that 1,800-2,000 in March? That's a monthly booking rate? Is that-

[Micah Richins, President of Sunseeker Resorts at Allegiant Travel Company]

That's... No, that's an, that's an actualized in the, in the month. So, you know-

[Michael Linenberg, Managing Director and Senior Airline Analyst at Deutsche Bank]

I see.

[Micah Richins, President of Sunseeker Resorts at Allegiant Travel Company]

On a go-forward basis. Yeah, in a go-forward basis, you'd expect that to be somewhere in the 2,000-3,000 a month or so.

[Michael Linenberg, Managing Director and Senior Airline Analyst at Deutsche Bank]

Okay, great. Then just my second question, you know, with respect to, you know, let's call it this, you know, DOT, I guess, consumer protection plan or benefits, as, as they, characterize, from what we hear, you know, you have this refund element that kicks in, I think, in the next month or so, maybe it's, like, at the end of June, and it's the transparency piece. And, you know, carriers have come back, and some have said that it disproportionately impacts low-fare carriers. It's ultimately going to raise the cost to the consumer, which is actually, I do think that it is gonna—it is gonna add cost, so it's gonna make it harder to offer lower fares. But what, what, what are the gating issues?

[Michael Linenberg, Managing Director and Senior Airline Analyst at Deutsche Bank]

It seems like some of the refund elements are already being done today, but it does seem like, you know, we've gotten feedback on the technology piece that, you know, the industry may not be ready in six weeks to meet, you know, the various elements of what the DOT is requiring. Your, your thoughts on that? Thanks for taking my question.

[Drew Wells, SVP and Chief Revenue Officer at Allegiant Travel Company]

Sure. Drew here, I'll start, and we'll probably keep it pretty high level. This is all pretty fresh, right? And we're trying to work through it. Yeah, I think we do comply, particularly to the refund language. I think we comply with quite a bit of it already. I'm proud of how we've addressed a lot of that around cancels, in particular. I think there's a little work we need to do around the delay side. But in terms of gating or how ready we'll be in six weeks, I think we still need to kind of do some work on that. But I don't think it's quite as big of a lift, given what we've already done to date.

[Drew Wells, SVP and Chief Revenue Officer at Allegiant Travel Company]

And not a lot of commentary on the transparency part of ancillary fees. I think we still need to do a lot of work to understand what that's gonna look like in the booking funnel. So, sorry to keep it maybe a bit vague for today, but we're still working through it, just like everyone else.

[Greg Anderson, President at Allegiant Travel Company]

Can I just add one thing, Drew? Mike, this is Greg.

[Greg Anderson, President at Allegiant Travel Company]

On the refund point, you know, Allegiant, we've talked about this over the years, but when we have cancellations with our customers, you know, we issue them actual what's called a payment voucher, up to $300, and so we compensate our customers, when we have cancellations. We've been doing that. I think we're one of the unique carriers in the U.S. to do that. And so when, you know, we talk about IROPS, that's a big chunk of the IROPS. So just wanted to point that out, that we, we've already, for years have tried to take care of our customers in those difficult type of situations when there's a cancellation.

[Michael Linenberg, Managing Director and Senior Airline Analyst at Deutsche Bank]

Very good. Thanks, everyone.

[Greg Anderson, President at Allegiant Travel Company]

Thanks, bud.

[Operator]

Our next question comes from the line of Dan McKenzie from Seaport Global. Please go ahead.

[Dan McKenzie, Equity Research Analyst at Seaport Global]

Oh, hey, thanks. I know you're not guiding to the full year, obviously, but the street's pretty divided. You know, you could drive a Mack truck through estimates. I think you got a low of $2.55 to over $7. And I guess, you know, just based on what you're seeing for the summer, can we start to eliminate either the high end or the low end here? And, you know, I guess as part of that, does the current plan, you know, contemplate profitability in each of the quarters?

[Robert Neal, SVP and CFO at Allegiant Travel Company]

Hey, hey, Dan, it's BJ. You know, I'm gonna shy away from, you know, giving guidance in the third and fourth quarter. There's a lot of moving parts as we've talked about today, one of which is execution of a CBA with our pilots, which will have an impact on full year results, as will the timing of Boeing deliveries and when those airplanes can be placed into service. And one that would be more immediate is just around some of the improvements in Navitaire that Drew's been speaking to. So as you can see, just a lot moving and so apologies for dodging the question.

[Dan McKenzie, Equity Research Analyst at Seaport Global]

Mm-hmm. Yep, understood. Okay, I guess second question here, you know, Legroom+ seems to... It's, it's now part of the booking process. I can see it there, but it doesn't look like you're really monetizing it yet. And I'm just wondering if you can remind us, when did that start exactly, and, you know, where are you at with this program?

[Dan McKenzie, Equity Research Analyst at Seaport Global]

Then I guess, what is the, you know, kind of target benefit that this could potentially provide?

[Drew Wells, SVP and Chief Revenue Officer at Allegiant Travel Company]

Yeah, so we started testing the Allegiant Extra layout, what was it? 2019, I believe, and then, of course, ran right into the pandemic and kind of got derailed a little bit through there. We announced probably, what? 18-24 months ago, we were going to bring this to the full fleet, in addition to putting it on all MAX aircraft, with about double the number of seats, a little bit less than double the amount of premium seats.

[Drew Wells, SVP and Chief Revenue Officer at Allegiant Travel Company]

So there's a little distinction between Allegiant Extra, which is kind of an all-inclusive, by Allegiant standards product, that has the extra legroom, comes with the priority boarding, the dedicated overhead bin space, and now a free snack on board, which complements very well for our cardholders who will get a free drink and really, maybe not to the full extent, but rival kind of a Delta Comfort+ type of experience, which I think is a remarkable perk there. So in terms of monetizing, right, it's on only a few, with a portion of our fleet, 15 aircraft, with 11 more, primed for this summer. So I think there's a lot left to go here in terms of experimentation with pricing and product mix.

[Drew Wells, SVP and Chief Revenue Officer at Allegiant Travel Company]

But so far, we've been responding to what our customers say is valuable to them and led us to where we are today. So still in the infancy, I think, of where this will go, but absolutely thrilled with what we've been able to do with the product and monetization thus far.

[Dan McKenzie, Equity Research Analyst at Seaport Global]

Hmm. I see. Okay, well, thanks for the time, you guys.

[Drew Wells, SVP and Chief Revenue Officer at Allegiant Travel Company]

Thanks, Dan.

[Operator]

This concludes our Q&A session. I will now turn the conference back over to Maury Gallagher for closing remarks.

[Maury Gallagher, Executive Chairman and CEO at Allegiant Travel Company]

Thank you all very much. Appreciate your input, and we'll talk to you in 90 days. Have a good day.

[Operator]

Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.

Participants

Executives

• Drew Wells, SVP and Chief Revenue Officer
• Greg Anderson, President
• Maury Gallagher, Executive Chairman and CEO
• Micah Richins, President of Sunseeker Resorts
• Robert Neal, SVP and CFO
• Scott DeAngelo, EVP and CMO
• Sherry Wilson, Managing Director of Investor Relations

Analysts

• Andrew Didora, Senior Equity Research Analyst at Bank of America
• Dan McKenzie, Equity Research Analyst at Seaport Global
• Duane Pfennigwerth, Senior Managing Director at Evercore ISI
• Helane Becker, Managing Director and Senior Advisor at TD Cowen
• Michael Linenberg, Managing Director and Senior Airline Analyst at Deutsche Bank
• Ravi Shanker, Managing Director at Morgan Stanley
• Scott Group, Managing Director and Senior Analyst at Wolfe Research