Allegiant Travel(ALGT) - 2024 Q3 - Earnings Call Transcript

Financial Data and Key Metrics - Q3 2024 airline operating income was positive despite being the seasonally weakest quarter, with a consolidated net loss of $36.1 million and an EBITDA margin of 8.2% [42] - Q4 2024 airline operating margin is expected to be around 7%, with a four-point headwind from hurricane impacts, excluding which the margin would have been in the low-double-digits [11] - Total liquidity at the end of Q3 was$ 1.1 billion, including $805 million in cash and investments, and$ 275 million in undrawn revolver capacity [49] - Consolidated net leverage at the end of Q3 was 4.1x, with expectations to begin modest deleveraging from here [51] Business Line Performance - Q3 2024 airline revenue was $549 million, down slightly year-over-year due to pilot crew hour constraints, CrowdStrike outage, and hurricane impacts [26] - TRASM (Total Revenue per Available Seat Mile) strengthened each month of Q3, coming in at$ 0.1221, 300 basis points higher than initial guidance [26] - Allegiant Extra, the premium cabin configuration, is performing well, with revenue production maintained above $3 per passenger on flights with the extra layout [35] - Loyalty program revenue is up approximately 20% year-to-date, reflecting strong customer relationships [36] Market Performance - Approximately 37% of Q4 2024 anticipated seats were in markets affected by hurricanes Helene and Milton, with 25% of seat capacity still impacted to varying degrees [30][31] - December ASMs (Available Seat Miles) are expected to grow approximately 16% year-over-year, with the majority of growth occurring over the holiday period [32] - The company anticipates affected markets in Florida and Asheville will largely recover by Q1 2025 [11] Strategic Direction and Industry Competition - The company is focused on three key near-term priorities: restoring peak period utilization, bringing MAX aircraft into service, and driving higher unit revenues [13] - The first MAX aircraft entered revenue service in mid-October, with early results showing significant operating efficiencies, including up to 26% improvement in fuel burn [14][15] - The company has a unique business model with 75% of routes having no direct non-stop competition, and in many markets, it is the largest carrier [20][21] Management Commentary on Operating Environment and Future Outlook - Management is pleased with the execution of the strategic plan and strong demand in unaffected markets, despite challenges from hurricanes and the Boeing strike [18] - The company expects to restore historical profitability levels at the airline and is focused on optimizing the Sunseeker Resort asset [24] - Management is optimistic about 2025, with expectations of improved cash burn at Sunseeker and continued margin expansion at the airline [58] Other Important Information - The company has identified approximately$ 20 million in annual run-rate cost savings through organizational realignment and other cost actions [12] - The Boeing strike has created uncertainty in the delivery schedule, with the company planning to end 2024 with just one MAX aircraft in service [53] - The company expects to take delivery of 11 MAX aircraft in 2025 and retire 10 A320ceo family aircraft, resulting in a net fleet increase of one unit [55] Q&A Session Summary Question: Capacity and utilization trends - The company is focusing on peak period utilization, with December utilization expected to approach 2019 levels, and further improvements anticipated in 2025 [62][63][64] Question: Allegiant Extra and premium seating - The company has retrofitted 13 aircraft in Q3 and plans to add another 14 before Thanksgiving, bringing the total to over 50 aircraft with Allegiant Extra [65][69] Question: Sunseeker Resort recovery and FEMA business - The resort experienced minimal damage from hurricanes, and the company is seeing recovery business, including FEMA bookings, with group business moving to 2025 [73][74][75][76] Question: Hurricane impact on RASM - The hurricanes had an outsized impact on RASM due to reduced demand in affected markets, with Asheville expected to take time to recover [79][80] Question: Capacity growth and CASM for 2025 - The company expects to grow ASM capacity by about 5% in 2025 to keep CASM-ex flat, with potential for higher growth due to existing infrastructure [84][85] Question: Navitaire optimization - The majority of the Navitaire optimization benefits are expected in the back half of 2025, with expanded bundle offerings already showing benefits [90][91] Question: Fleet management and airlines within an airline - The company plans to isolate different fleet types by base to mitigate complexity, with MAX aircraft expected to operate on higher utilization routes [94][95][96] Question: Sunseeker strategic process - The company is focused on optimizing the resort, exploring distribution partnerships, and seeking strategic capital partners, with no change in the thesis despite hurricane impacts [100][101] Question: Premium pricing opportunities - The company is testing premium pricing, with early results showing higher ceilings than previously seen, indicating potential for further premium pricing growth [104] Question: Full aircraft utilization - The company is focused on restoring peak period utilization to 2019 levels, with off-peak utilization constrained by fuel costs [106][107] Question: Sunseeker holiday bookings - Holiday bookings for Sunseeker are trending well, with Q1 2025 group business already on the books and expected to drive positive EBITDA [110][111][112] Question: CapEx outlook for 2025 and 2026 - The company expects total CapEx for 2025 to be between $400 million and$ 500 million, with further updates expected in January [115] Question: Pilot strike risk - The company is committed to finding common ground with pilots through mediation and aims to deliver a contract that supports the business model [117][118] Question: Sunseeker EBITDA and asset value - The company is assessing the impact of Hurricane Milton on Sunseeker's EBITDA, with damage to the property excluded from the $25 million to$ 30 million EBITDA loss range [120][121] - The company has approximately $650 million to$ 700 million in unencumbered assets, including aircraft and spare engines [123] Question: Margin potential in 2025 - The company expects meaningful margin expansion in 2025, driven by restoring peak utilization and executing on strategic initiatives [126] Question: Q4 RASM guidance - The Q4 RASM guidance of down 4.5% includes hurricane-related impacts and growth pressures, with the bulk of the headwind coming from December growth [128] Question: Sunseeker book value and potential sale - The book value of Sunseeker is in the mid- $600 million range, with potential for a partial sale to be reported as a special item depending on circumstances [131][134] Question: Capacity growth and market mix - The company expects 75% to 80% of capacity growth to come from existing routes, with some new market opportunities also being explored [139][140] Question: Sunseeker Q1 2025 outlook - The company expects positive EBITDA in Q1 2025 for Sunseeker, driven by strong group business and ADRs north of$ 300 [142]