Allegiant Travel Q4 2024 Earnings Call Transcript

Quartr
Provided by Quartr
February 4, 2025

There are 14 speakers on the call.

Operator

Thank you for standing by. My name is Rebecca, and I will be your conference operator today. At this time, I would like to welcome everyone to the Allegiant Travel Company Fourth Quarter and Full Year twenty twenty four Earnings Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session.

Operator

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

Speaker 1

Thank you, Rebecca. Welcome to the Allegiant Travel Company's fourth quarter and full year twenty twenty four earnings call. We will begin today's call with Greg Anderson, President and CEO, providing an update on our business and high level overview of our results. Drew Wells, Chief Commercial Officer, will walk through our revenue performance and outlook. And finally, Robert Neal, Chief Financial Officer, will speak to our financial performance.

Speaker 1

Following commentary, we will open it

Operator

up to questions. We ask

Speaker 1

that you please limit yourself to one question and one follow-up. The company's comments today will contain forward looking statements concerning our future performance and strategic plan. Various risk factors could cause the underlying assumptions of these statements and our actual results to differ materially from those expressed or implied by our forward looking statements. These risk factors and others are more fully disclosed in our filings with the SEC. Any forward looking statements are based on information available to us today.

Speaker 1

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. And with that, I'll turn it to Greg.

Speaker 2

Sherry, thank you, and good afternoon, everyone. We appreciate you joining us today. Before we get into it, I wanted to take a moment to extend our heartfelt condolences to the loved ones of the passengers and crew who were involved in the tragic accident near DCA Reagan Airport last week. Our thoughts are with the individuals, their families and all those impacted during this difficult time. Now to our earnings report.

Speaker 2

We concluded 2024 with a commendable performance, achieving an adjusted airline only operating margin of over 13% for the December, marking a 6.5 increase from the previous year. This was driven by a 16% increase in December capacity, primarily due to aircraft utilization averaging nine point six hours per day during the peak holiday period, reflecting a 21% year over year increase. Despite significant growth during the peak period, our team attained a controllable completion rate of 99.7%, and I want to thank them for ensuring smooth operations during one of the busiest times of the year. Last year, we introduced three primary initiatives, one of which focused on restoring utilization during peak leisure demand periods, a goal we successfully achieved in December and expect to maintain this momentum throughout 2025, particularly during spring and summer peak periods. Additionally, we prioritize upgrading our commercial technology and introducing new MAX aircraft, and we have made substantial progress in both of these areas.

Speaker 2

The ongoing optimization of our NaviCare system has already led to incremental improvements and is expected to continue enhancing revenue throughout 2025. Furthermore, we ended the year with four MAX aircraft in service, beginning to address operational inefficiencies caused by previous aircraft delivery delays. The tactical excellence demonstrated by Team Allegiant around these three key priorities significantly strengthens our foundation for improved performance. Underlying our execution is the deliberate efforts of being laser focused on our core strength, the airline. Consequently, a significant step in this strategy is the goal of transitioning Sunseeker off Allegiance balance sheet.

Speaker 2

Over recent months, we have made significant progress in our strategic review of Sunseeker. This unique resort located in a popular state offers excellent amenities and is managed by a highly skilled team. We have great confidence in Sunseeker's future success and have observed material improvements in its financial performance. Nonetheless, we need to acknowledge that a new capital partner will be important for Sunseeker to achieve its full potential. As such, we have launched a competitive process with our team of experienced advisors for a potential sale or stake sale and have received promising indications of interest from several high quality named investors.

Speaker 2

Our goal is to conclude this process by summer. We will update when appropriate and BJ will touch on the impairment announced last week and how we are guiding for the resort. Further strengthening our balance sheet remains crucial. Although leverage is improving, there is still work to be done and it continues to be a key focus for this management team. Fortunately, we own the vast majority of our aircraft, which has allowed the fleet team to strategically sell older, underutilized A320 assets in a favorable market, resulting in substantial cash proceeds supporting our deleveraging efforts.

Speaker 2

The sale of these assets is aligned with our growing confidence in the delivery schedule from Boeing. Given the firmness of the aircraft market and the timing of our order, each MAX delivered and purchased represents significant value. In addition to the day one equity value, the operating economics of our MAX aircraft exceed the fleet average by as much as 30%. To add to that, every new aircraft delivered to us is configured with our impactful premium seating product, Allegion Extra. Currently, 46% of our fleet is equipped with our Allegion Extra product, and we plan to end the year at 70%.

Speaker 2

This compares favorably with prior year's average of 23%. We continue to see strong demand from our customers for this premium seating as we expand the product more broadly across the network. Similarly, the Allegiant Always credit card continues to perform as we expect to receive more than $140,000,000 in total remuneration during 2025. As we advance our commercial technology infrastructure, we are enthusiastic about the future products we will introduce to our customers, aiming to drive more to the top line and improve upon our industry leading ancillary revenue. Starting out 2025, we have a clear path ahead to deliver on.

Speaker 2

The industry capacity backdrop is one of the most constructive we have seen for some time. The health of the consumer is strong and we are well positioned to capitalize on this trend with expected capacity growth of over 15% throughout the year. This growth will further enhance our operational efficiency by utilizing our existing infrastructure and expanding productively. The midpoint of our airline full year EPS guidance of $9 suggests an improvement in earnings of over 50% compared to 2024. This is an exciting new chapter for Allegiant, which would not be possible without the ongoing excellence demonstrated by team Allegiant and their persistent dedication and hard work.

Speaker 2

Additionally, I am encouraged by recent progress in contract negotiation with our pilot team. It is a privilege to work alongside the most talented team in the industry as we strengthen our position as the leading airline in the communities we serve, delivering reliable, nonstop travel at unbeatable value. And with that, I'll turn it over to Drew.

Speaker 3

Thank you, Greg, and thanks to everyone for joining us this afternoon. We finished 2024 with $2,440,000,000 of airline revenue, approximately 2.6% below the prior year on total ASMs 1.1% higher. Our fixed fee and operations teams did an incredible job leveraging the available aircraft space all year to an Allegiant record $81,000,000 of fixed fee revenue. Further, our total ancillary per passenger of nearly $76 improved almost $3 versus 2023. Our fourth quarter total airline revenue of nearly $610,000,000 was up slightly on a year over year basis.

Speaker 3

This result significantly outperformed our expectations during our last call and outpaced our revised expectations in early December. The main drivers of the outperformance were faster than expected recovery to hurricane impacted destinations, continued core ancillary strength, as well as a stronger than expected holiday period. Over the Christmas week, we operated our aircraft roughly nine point six hours per aircraft per day, in line to slightly above our 2019 levels. I cannot be more proud of the operation and all of our team members that successfully navigated the push. In total, the three week holiday period consisting of the last two weeks of December and January grew more than 14% year over year while ending just better than negative 1% unit revenue.

Speaker 3

The increased utilization over the holidays along with post Thanksgiving travel falling into December drove December ASMs 16.4% higher year over year in a theme that will continue into 2025. The first quarter capacity is expected to grow 14% versus 1Q twenty twenty four, while the year as a whole is expected to be up 17% versus 2024.

Speaker 2

The first quarter will mark

Speaker 3

the first time in three years with quarterly growth over 10%. In fact, only two of the last ten quarters exceeded 1.5. Pre pandemic, you'd have to go back to 2011 to find the last year without a single quarter over 10% ASM growth. The planning team is ecstatic to have some flexibility and freedom in deploying capacity once more. This means growing in high demand months, announcing new routes and testing the limits of route level capacity.

Speaker 3

It allows the team to focus on driving dollars to the bottom line rather than trying to fit 12 pounds of good flying into a 10 pound bag. Diving into that growth a little bit, while we have focused heavily on flying in peak months, just about a third of net growth will take place in March, June and July. And roughly a third of that will take place on peak leisure days in those peak leisure months. Over half of all growth will come in shoulder months like February, April and August, April being a large beneficiary due to Easter shifting later. The dynamics of that flying are different than a typical year.

Speaker 3

On average, a third of seats in any given week during the first half of the year will be in existing markets flying more than any prior year. This produces 300% more seats operating in excess of prior years versus the first half in 2024. Also, between 45% of seats will be on new routes. In mid November, we announced a record time 44 new routes that start with start dates in spring and summer twenty twenty five. The long lead time means it's still early to judge many of the routes, though we're particularly excited about new service to our three new cities, Colorado Springs, Colorado, Columbia, South Carolina, and Gulf Shores, Alabama.

Speaker 3

Let me touch on Gulf Shores a little more. We've heard from our customers that they travel to the Alabama Coast for an annual vacation, but currently drive as much as fifteen hours each way. This looks a lot like prior Allegiant success stories like Punta Gorda or Destin, Florida, where we've been able to spur additional trips each year owing to our unique and affordable nonstop network. Whether through new routes or increased frequency, our general approach to 2025 is growing into our infrastructure. And while the growth profile I just outlined will have unit revenue impacts in the near term, we strongly believe the benefits of the flying will still outweigh the marginal cost of that increased flying.

Speaker 3

The added elevated flying will either work and continue to mature into future seasons or be trimmed back if it doesn't produce. In addition to the growth driven unit revenue impacts, Easter timing will play a role in shaping the final result for leisure oriented carriers like us in both the first and second quarters. When combining the headwind of Easter timing and the tailwind of New Year's travel, we expect a one to 1.5 headwind to TRASM in the first quarter. Additionally, a mild stage increase through the first half of the year will carry an additional one point headwind. Lastly, while our network has diversified away from near border exposure in the last ten to fifteen years, the strengthening U.

Speaker 3

S. Dollar to twenty ish year highs against the Canadian dollar has applied some pressure on those origination cities. Many of the same initiatives that supported ancillary growth in 2024 will continue to produce benefit into 2025 to help mitigate the impacts of growth. Aircraft with the Allegiant XL layout will see more than five times as many departures in the first quarter of twenty twenty five versus the first quarter of twenty twenty four. For the full year, more than two thirds of departures should have an Allegiant extra aircraft.

Speaker 3

We continue to regain lost functionality from our 2023 Navitaire cutover. We expect to fully recapture the loss $2 per passenger in the first half of twenty twenty five and the $2 of expected upside early in 2026. Finally, the contribution from Allianz travel insurance has roughly doubled on a per passenger basis since its launch in February. All things considered, we expect 1Q TRASM down slightly more than negative 6%, implying airline rev excluding fixed fee up about 7% for the quarter. We ended the year with another phenomenal performance from our co branded Visa Allegiant Always program.

Speaker 3

We continue to add new cardholders at a great clip, ending 2024 with over 540,000 accounts. This kind of scale gives us confidence that the program offering has matured nicely and we are excited to collaborate further with our bank partners to better, both engage our existing cardholders and ensure we're providing the best offering for existing and future cardholders alike. The power of loyalty revenue is evident across the industry, and we believe our program is still in the early days of its full potential. And now, I'd like to hand it over to Robert Neal.

Speaker 4

Thank you, Drew. Good afternoon, everyone, and thanks for joining us today. As I speak to our results and guidance this afternoon, please note that all of these are on an adjusted basis and will exclude any special items. In the fourth quarter, we delivered net income of $38,900,000 on a consolidated basis, yielding earnings per share of $2.1 The airline segment reported an adjusted net income of $55,600,000 or earnings of $3 per share. For the full year, we posted a consolidated net income of $45,700,000 resulting in a consolidated EPS of $2.48 Our airline segment generated full year 2024 net income of $107,500,000 or $5.84 of airline only earnings per share.

Speaker 4

As Greg and Drew have highlighted, we began seeing notable financial strength in the quarter driven by improved peak utilization, implementation of revenue initiatives and delivery of seven thirty seven MAX aircraft ahead of our estimates. The airline earned $139,200,000 in EBITDA during the quarter, resulting in an EBITDA margin of 22.8%, which is nearly seven points higher than the fourth quarter of twenty twenty three. On the cost side, fuel averaged $2.5 for the quarter, in line with our expectations. Adjusted non fuel unit costs were $0.0829 an improvement of 2.5% year over year, slightly underperforming the estimate we provided in December. This miss was driven by increased stock compensation related to the share price increase throughout the quarter, a maintenance expense true up and timing related impacts from a new maintenance and materials system, which went live in the third quarter.

Speaker 4

As a reminder, fourth quarter CASM ex does include roughly $20,000,000 related to our pilot retention bonus. For the full year 2024, we had unit costs of 5.4 on capacity of 1.1. While we had a tailwind from serviceable engine sales mentioned in our December traffic release, we saw cost headwinds from eight months of our new flight attendant CVA and four additional months of our pilot retention bonus accrual as compared to 2023. Turning to the balance sheet, we ended the year with $1,100,000,000 in available liquidity, including $833,000,000 in cash and investments and $275,000,000 in revolver capacity. Net leverage improved almost a full term from the end of the third quarter down to 3.2x.

Speaker 4

This result was achieved by improved fourth quarter earnings, proceeds from equipment sales, early debt repayments during the quarter and benefits from our amended agreement with Boeing as disclosed in November. Total debt balances were down nearly $200,000,000 during 2024. As mentioned on our October call, we expect that the third quarter marked our peak leverage. And based on current fleet expectations, we should continue deleveraging throughout 2025. While we'll continue to invest in the business, the balance sheet remains a top priority for this team.

Speaker 4

Fourth quarter airline capital expenditures included $34,100,000 in aircraft and engine related spend, other airline CapEx of $8,800,000 and $18,700,000 in deferred heavy maintenance costs. For the full year, total airline capital expenditures were $326,000,000 16 million dollars higher than our forecast with three more aircraft in service than contemplated at

Speaker 3

the third quarter earnings call.

Speaker 4

Following downward revision to earnings estimates for our Sunseeker entity throughout 2024, the assets were tested for recoverability and we recorded a total non cash impairment of $322,000,000 in the fourth quarter. As of today's call, we've fully repaid the debt associated with Sunseeker assets, allowing us to increase flexibility as we continue evaluating strategic alternatives for the resort. Moving over to fleet, during the quarter, we retired one A320ceo and placed into service three seven thirty seven MAX aircraft ending the year with 125 airplanes in our operating fleet. Looking ahead to 2025, we're anticipating delivery of 9,737 MAX aircraft during the year. While Boeing's recent estimates have 12 aircraft delivering to us during 2025, we're planning conservatively to keep a better balance of type of flight crews with aircraft available to operate, particularly through our summer peak.

Speaker 4

We plan to retire 12 aircraft during this year, so we should close 2025 with a total of 122 aircraft in service with some slight upside to that number. As I've mentioned on prior calls, estimates today differ from contractual commitments. Should aircraft deliveries exceed our expectations this year, we are prepared to accelerate exit of A320 family aircraft once we have more visibility into 2026. Based on these estimates, we're projecting all in capital expenditures for 2025 to be approximately $515,000,000 at the midpoint of our guidance, including approximately $300,000,000 in aircraft and engine related CapEx, January in airline other capital expenditures and $90,000,000 in deferred heavy maintenance. This guidance, of course, is subject to change depending on the timing of aircraft deliveries.

Speaker 4

Turning to our 2025 outlook, we're providing full year expectations for the airline segment. And based on uncertainty around timing and potential outcomes for Sunseeker, we'll continue to guide that segment on a quarterly basis. That said, we expect to deliver full year 2025 airline earnings per share of $9 a significant improvement over 2024. In the first quarter, the airline is expected to produce an airline only operating margin of around 9.5%, more than three points higher than the prior year. This result implies a non fuel unit cost reduction of around 7% year over year on capacity growth of 13.5% as we're better able to leverage our existing infrastructure, assets and staffing.

Speaker 4

We're growing into our headcount as well as our fleet, and we expect to deliver airline only earnings per share of $2.25 in the quarter. We're expecting Sunseeker to produce $2,000,000 in EBITDA during the first quarter. Due to the recent impairment charge, depreciation expense is now expected at $3,000,000 per quarter. These results combined with the airline should produce a first quarter consolidated earnings per share of $2 As we move through the year, we remain focused on cost discipline, improving efficiency through increased utilization, operational excellence and continued balance sheet improvement. The momentum we've built exiting 2024 puts us in a strong position for 2025 and beyond.

Speaker 4

In closing, I'd like to express my gratitude to the entire Allegiant team. Their dedication and hard work continue to drive our performance and I'm extremely proud of what we've accomplished in the fourth quarter. The increase in December capacity was completed with two fewer aircraft and a 9% reduction in overhead headcount over the holiday peak and the team still delivered strong operational performance. This ability to increase peak utilization is core to our margin restoration efforts. Thank you all for your time today.

Speaker 4

And with that, Rebecca, we can now go to analyst questions.

Operator

Your first question comes from the line of Savi Saath with Raymond James.

Speaker 5

Hey, good afternoon, everyone. Drew, if I might, you gave some really interesting helpful information on the capacity growth, but it was a lot to digest. I'm just wondering if you could maybe take a step back and help us think a bit just maybe across the quarters, how you're thinking about kind of that the progression of the capacity growth for the four quarters and which quarters might have more kind of capacity growth in peak versus off peak period?

Speaker 3

Sure. Flavio, let me take a quick stab at that. So yes, we guided out the first quarter approximately 14% for that. The second and third quarter is likely about the same coming into the low 20s. And then we'll certainly see the lowest year over year growth in the fourth quarter in large part because of everything we talked about here in December of twenty twenty four, not getting the lap, they're not getting the same utilization comp there.

Speaker 3

In terms of the overall growth profile, I talked about, the peak months, March, June and July will be about a third of the overall growth. But the bigger focus on the net ASM increase will be the shoulder months. We had February, April, May, August, October, getting the more of the overall lift and the balance will take place in January and September. So I don't know if I have a too high level for you there or where you'd like me to dive in. Savi, real quick, this

Speaker 2

is Greg. Just wanted to add maybe another perspective to 2025 and the way we've been talking about it here internally. In a lot of ways, it's like a one time catch up year, kind of a level setting. And that's due to some of the prior year delivery delays or other constraints that we've seen. And so, what we're really trying to do in 2025 is optimize that existing infrastructure that's in place, grow with roughly the same FTE count, maybe slightly up, roughly or a flat aircraft count, and then drive absolute higher earnings or drive higher absolute earnings, excuse me.

Speaker 2

But I would think of '25 more as an anomaly when it comes to growth. As we think about 26% and beyond, we'd get back to a different formula than 25% and really earning that right to grow.

Speaker 5

That's helpful perspective. Appreciate it. And maybe just on the follow-up on the unit cost, just curious how we should think about it because given your guide and unit revenue, I mean, it looks like there's a lot of kind of unit cost improvement here. Is that also kind of fair to assume like more first half weighted and kind of moderates as you go into back half and generally how we should think about that?

Speaker 4

Yes, I think that's right. Hey Savi, it's BJ. I think that's right. 1Q will probably be down the most on a year over year basis. 2Q, 3Q still be down, really nice cost improvement, middle of the year.

Speaker 4

But you do have, some of the Boeing aircraft, entering the fleet in the middle of the year. You have the increased, utilization means that we're also utilizing the A319s a little bit more. So you don't see quite the same year over year unit cost improvement in 2Q and 3Q. And then 4Q, similar to Drew's answer, just we had a good amount of growth in 4Q of twenty four and then we also had that gain on engine sales in the fourth quarter.

Speaker 5

Helpful. Thank you.

Operator

Your next question comes from the line of Duane Pfaffingworth with Evercore ISI.

Speaker 6

Just on

Speaker 7

the debt that you're paying down related to Sunseeker, can you talk a little bit about how you're accomplishing that? What financing you're using to kind of take down that debt? And how to think about the rate on what you're taking on versus the debt that you're taking out? And I guess just like why you thought this was important to do now? Thank you.

Speaker 4

Sure. Hey, Duane, it's PJ. A couple of things there. I mean, one, the debt on Sunseeker was beginning to amortize just after the end of the quarter, I think beginning in April. And given the cash flow production of that asset, it was something that we wanted to get ahead of.

Speaker 4

In addition, we've been very focused on balance sheet improvement, really beginning in the back half of twenty twenty four when we started to realize sort of what our level of operations was going to be on the airline side in the back half of twenty twenty four and through 2025. And so one of the first places to go when we're trying to get leverage in the right place was paying off debt that was maturing earliest. And then we've also had this strategic review going on and we've been learning a lot along the way and we thought it would be best to have maximum kind of flexibility there. So that's really the reason. And then how we did that, I mentioned we had proceeds from sale of fleet equipment during the fourth quarter, improved earnings.

Speaker 4

We had a loan out to another entity that was repaid to us. And so just overall, the balance sheet improvement didn't come from net net refi of that debt.

Speaker 7

Okay. And then I guess, hard to comment while this is going on, but I guess if everything went right, when would you think you'd be able to kind of separate yourself from this asset and any color from the interested parties? Do you think we'll need to see quarters or years for this to kind of spool up before there's separation? Thanks for taking the questions.

Speaker 2

Yes, of course, Duane. Thanks for the question. Maybe let me hit on it a little bit more and that's that we've talked about in the past that we're focused on the parallel pass and those paths are we need to improve the existing resort, and the team has done that. You see the EBITDA positive in the first quarter, the driving group business and doing a lot of things to improve the financial performance. And then the second two items that we've been looking at is the distribution partner or soft brand then a capital partner.

Speaker 2

And I mentioned that because as we've gone through the process with our experienced advisors, what we're learning is that or what we've learned that investors want a seat at the table to determine who that distribution partner is or that flag, the Marriott, the Hildens and the likes. And so, all of those potential flags are distribution partners that toward the property. They're very positive on it. And then in terms of the next steps, we're in a competitive process. I appreciate you respecting that on the call and your comments is kind of hard to talk about.

Speaker 2

But I'll try and give you a little bit as high a level as I think we can hit. And that's that there's high single digit number of investors. These are well known high quality investors. The indications of interest that they've provided, they're promising. We're advancing the process.

Speaker 2

There's no two structures that are like exactly alike. But what we're pushing what we're working towards is at least we sell at the minimum, we sell a majority ownership, and our advisors who we're working with. It's our goal is to drive as much value to our shareholders as we possibly can, more to come. But as I mentioned in the early or my opening remarks that we would expect the transaction buttoned up by this summer. And if all went well, it could be early summer, but we're just we're really working through the process and trying to get to the right deal.

Speaker 7

That's great, Greg. Thanks for the info.

Operator

Your next question comes from the line of Tom Fitzgerald with TD Cowen.

Speaker 6

Hi, everyone. Thanks so much for the time. Just curious how spring break is booking up across all your products as well as on the Legion Xtra?

Speaker 3

Sure. Yes. I may not have Legion Xtra detail off the top of my head in advance. But very generally, there's kind of a couple different pieces of March specific to spring break. So Easter shifting out will put a pretty big headwind on the final week.

Speaker 3

Remember, well over a third, even as much as 40% of our spring breaks, had coalesced around that week last year. And being a bit compressed on capacity, we certainly couldn't take full advantage of that. So that week will look relatively poor, on a year over year basis. Additionally, the March tends to get a little softer, with Easter pushing back as well. The middle two that are more, apples to apples look great.

Speaker 3

I think we have some solid flat capacity market strength there, and then we'll see how the growth markets handle it. But so far pleased with how the March is looking. A bit early to talk to April, but obviously with Easter moving out there, that's going to look really good on any year over year basis. So, feel good about the peak period. Okay.

Speaker 3

That's really helpful. And then just as a follow-up, I think

Speaker 6

on the last call, Dwayne had asked about how you're merchandising Allegiant Extra. And you talked about it as an ancillary versus its distinct fair product. And one of your competitors recently moved to, start retailing their extra legroom seat as its own distinct fair class. I'm just kind of curious how you view the pros and cons of of those two strategies and if you'd ever consider, changing how you retail it. Thanks again for the time.

Speaker 3

Yeah. I mean, it's it's almost like you're in some of our revenue strategy meetings where we've discussed this for the better part of a couple of quarters now. There's some tax implications depending on how you want to position it. As I understand, anything that moves into the same click is the fair, everything is subject to the 70% excise tax by keeping them separated. The premium seat would still keep that 7.5%, but other pieces of the product or that bundle would not.

Speaker 3

We do like having a little bit more flexibility in how we can approach the product mix in a distinct offering versus from the fare classes. But there's a few other kind of backend complications that are more collegiate centric than anything that would make bundling it together upfront a little bit more challenging. So I don't have necessarily a very clear answer for which is going to be better. We will continue to debate this for a while and but for the foreseeable future, we like wherever like having it separated. I feel like it's the best overall thing for the consumer experience, but to be determined.

Operator

Your next question comes from the line of Mike Linenberg with Deutsche Bank.

Speaker 8

Just back on Sunseeker, seeing it turn to EBITDA positive. Can you just remind us of the seasonality of the resort? What is typically the strongest quarters for Sunseeker?

Speaker 2

Hey, Mike, it's Greg. Let me hit it at a high level. Mike is on if I misspeak or if there's any detail he wants to add. But typically the first quarter is the strongest quarter, the fourth quarter being probably the second strongest and then the summer would be the softest period. Okay.

Speaker 3

Is that right, Michael?

Speaker 2

Yes, absolutely.

Speaker 8

Great. Thanks. And then just, Vijay, I heard you mentioned you talked about I think it was $20,000,000 in pilot bonus accrual. Can you where are we now? Like how much have you accrued, Because I know it's been going on for some time.

Speaker 8

And as we move into 2025, how does that change? Just as you add more airplanes and grow your pilot ranks, what should we what number should we think per quarter?

Speaker 4

Sure, Mike. Yes, thanks for the question. We were just under $140,000,000 I believe at the end of twenty twenty four. And it's building it was building right around $20,000,000 a quarter. For 2025, I have it coming up by about $22,500,000 a quarter.

Speaker 8

Perfect. Thanks for taking my questions.

Speaker 2

Thanks, Mike. Thanks, Mike.

Operator

Your next question comes from the line of Dan McKenzie with Seaport Global.

Speaker 9

Hi, guys. Thanks for the time here. It looks like the sale of Sunseeker will swing cash nicely positive this year. And I know you can't talk a whole lot about it, so I'm not sure how it would be recorded exactly. But could you speak to the potential use of cash and the implications for year end debt and leverage metrics?

Speaker 4

Hey, Dan. Thanks for the question. I'm glad you asked that. I should mention that my prepared comments around deleveraging throughout the year did not include any assumptions on cash proceeds from Sunseeker transaction. That was just based on airline earnings.

Speaker 4

So we haven't, you know, look, I mean, we're still exploring and it could be there could be many different ways that a transaction would be structured. So I'm hesitant to run away with anything, but I would tell you, you know, our primary focus is just on continued improvement of our balance sheet. So maybe we'll pay cash for the airplanes, maybe we'll pay down some debt. I know what you're probably looking for. I don't think we'd be committing to any kind of shareholder returns with those proceeds, but we can have that discussion when we get there.

Speaker 4

Opportunistically, I think we do have 70 in authority on share repurchases if we wanted to look at that.

Speaker 9

Yes. Okay. And then with respect to Allegion's strategic focus here, Frontier, of course, has expressed interest in Spirit. And I'm

Speaker 3

wondering if you could just speak to

Speaker 9

the overlap that you would have with Spirit. And I'm just wondering, is M and A something that's even on the radar for you? Or strategically, does some kind of would some kind of acquisition or bolt on acquisition at some point appeal to you guys?

Speaker 3

Yes. I'll kick it off with the overlap. It's relatively thin. I want to say approximately 4%, give or take. I haven't rerun it since the schedule has extended recently, but I can't imagine we've deviated far from

Speaker 2

that. Hey, Dan, I'll add on the consolidation question. And, I think just underperformance, if that continues for like other carriers, maybe that could result and we'll see they'll do what's best for them, but specifically to Allegiant around consolidation. And our view is that consolidation really isn't necessary for us. We have great assets.

Speaker 2

We have the right network. We have room for organic growth. Through his team, they talk about the 1,400 incremental routes. Now, as I mentioned earlier, we need to earn that right to grow. But our focus is really on driving shareholder value and that's what we've really worked towards 2024, '20 '20 '5 and continue on in future years.

Speaker 2

So that's where our focus is at, right, Tom?

Speaker 9

Yes, of course. And I'll squeeze one last one in here. For investors that are taking a two to three year horizon, how can just given the sharp expansion in margins in 2025, how should longer term investors think about normalized margins for Allegiant at this point?

Speaker 2

How about I'll kick it off and feel free, Drew or BJ to jump in. But as I think about, as I mentioned earlier, '25 and that's kind of a one time catch up year with '26 being a different kind of growth formula. All else equal, if the environment were equal, I would expect '26 margins to be higher than '25. And as we think about how we look beyond that as well, our focus is getting back to historical margins with what we've seen. We have a plan to do that, but we need to continue to execute.

Speaker 2

Some examples that may be worth highlighting why we have conviction that again all else being equal 26 margins stronger than 25 is we still think there's upside with productivity internally here. How do we keep becoming more productive, growing productively? From the commercial standpoint, we talked about some of the enhancements that we've been working through, in terms of like Legion Xtra or Navitaire. By the end of this year coming into 2026, those will largely be in full swing. Drew and his team have a number of other commercial initiatives that we think could be beneficial.

Speaker 2

The network maturation, that too should help drive less growth next year, which we expect would help drive margins. So, all in all, I just our goal is to get back to historic margins and we're I think we're heading in the right direction. And so hopefully stay tuned and we'll continue to execute on our plan.

Operator

Your next question comes from the line of Scott Group with Wolfe Research.

Speaker 10

Hey, thanks. Afternoon, guys. So the guidance is airline RASM down more than 6% in the first quarter. And I get that there's timing issues in Easter and all that. But that's a pretty big step down from the down 1% in Q4.

Speaker 10

So I guess any color there? And then what's assumed in the guidance for the rest of the year? So it's like capacity goes from 14% to 20% in Q2, Q3. Does RASM get better than the down 6%? Or does it get worse?

Speaker 10

I'm not really sure what's in the guide.

Speaker 3

Sure. And maybe well, first talking 4Q to 1Q, stock to Easter is a pretty big headwind on that front. But additionally, if you look at the growth a little bit, there was very little growth in little to no growth really in October, November and the vast majority of the December growth came from the back end of Thanksgiving falling into early December as well as concentrated around the holiday itself. So it's really, really productive growth there, that won't quite realize the same way in January, February and even early March in particular. So the way in which the growth is manifesting and how we see that I guess, play out in revenue, will look probably meaningfully different than how it did in December.

Speaker 3

Looking, I guess, broader through the year, I do expect that because of Easter falling into the second quarter, because of some of the backdrop changes in the summer, that affected the entire industry last year and at least today look to be more constructive in 'twenty five. I think they should look a little bit better, probably similar to one another, but a little bit better than the first quarter. And then with growth kind of tapering off in the fourth quarter, I would expect, probably the best performance on a year over year basis in the fourth quarter.

Speaker 10

So I guess when you add it all up, right, if does RASM down more than CASM this year or is CASM down more than RASM this year?

Speaker 2

CASM is down more than RASM.

Speaker 3

Okay.

Speaker 2

Does that make sense? I mean, what I'm saying is it's accretive that the costs will come down more than the revenue side of the house. Is that what you're getting at, Scott?

Speaker 10

Yes. I mean, ultimately, I guess you're saying Q1, CASM is down 7%, RASM is down six percent. You're saying CASM is going to be down less than 7% the rest of the year, right? So I guess you need RASM has got to be better than down 6% the rest of the year for that to be true, but that's sort of what's in I just want to understand what's in the guide.

Speaker 4

Yes. And Scott, I think it's just important the nuance there. You're asking about CASM. So both CASM ex and CASM should be down. And just keep in mind the benefit as we get more and more of these MAX airplanes into the fleet on total CASM in the back half of the year.

Speaker 10

Okay. And then just last thing really quick. The engine gain in Q4, do we assume any additional engine gains as some of the new planes come in? Are there any other engine gains assumed in the guide?

Speaker 4

There are some in the guide for 2025 minor nothing is meaningful as what we had in 4Q that's why we called it out. Just remind you that we've kind of always had disposition of scrap assets run through our other expense lines. Sometimes it's a gain, sometimes it's a loss. In 2024, it was lumpy actually. We had a couple of quarters with gains on it could be parts, landing gears on serviceable engines, things like that.

Speaker 4

So I am assuming a little bit of that in 2024, but it will be lumpy quarter to quarter. I don't know that we'll give a lot of clarity on it.

Speaker 2

And Scott, maybe just at a high level, it's worth adding that there's value in the order. We work with Boeing for our new MAX. We have a value in our existing fleet assets, which we own. As we look about how as we look out and BJ and his team how productive we are with those assets, how do we optimize that value? And we're well positioned and experienced not only as a commercial airline, but also in monetizing aircraft assets over the value of their life cycle.

Speaker 2

And so that's just what the team is doing. They're finding less productive assets and monetizing it in this unique market.

Speaker 4

Thanks, Greg. And Scott, maybe just one more thing I should add in. I mentioned in my script that there is potential for Boeing to deliver more aircraft than we have in the plan. If that happens and it happens early enough and we feel like that delivery schedule is reliable, then maybe we've changed our position on that, like in the fourth quarter or something. We've disposed of Airbus

Speaker 11

assets

Speaker 3

more

Speaker 11

quickly.

Operator

Your next question comes from the line of Ravi Shanker with Morgan Stanley.

Speaker 11

Great. Thanks. Good evening, guys. So maybe as a follow-up to some of the kind of the questions here. Great to see the traction with Allegion Extra and kind of getting to 70% of claims at the end of the year.

Speaker 11

But can you just help unpack how you guys kind of just ideated the between the strategies of growing to higher margins through higher through more capacity versus trying to push to higher margins through less capacity and more price? Because it feels like the industry is going one way and you guys may be going a different way. And I'm not saying that's the wrong thing to do because you guys are your own have your own strategy, but just how do you come to that conclusion?

Speaker 3

I think we're guilty of that since probably the start of 2020. It feels like we've grown when no one else is and we've gotten the unit revenue when everyone else is growing and it's hard to tell that story for the last five years, so why would we stop now? The core of this to me and then maybe I'll hand it off, is really about growing into the infrastructure we have. The marginal cost that we add into the business that was flying is relatively low, relative to what we believe we can achieve on the revenue side. So to me, this has really been about driving earnings and then harvesting the margin in the coming years as Greg mentioned a little bit ago as we get back to earning that right to grow.

Speaker 3

But by and large, we have the pieces in place to achieve this growth without having to add much on the foundational front.

Speaker 11

Got it. That's really helpful. And maybe as a follow-up, just for the Sunseeker timing, you said, I think late summer. How firm is that deadline? And what are maybe some of the moving pieces in terms of the process that will enable you to either hit or maybe even advance that deadline?

Speaker 2

Yes. We just put it by summer, so it's kind of a little wider range. If we were to everything were to go as planned, it could be on the early part of the summer, Ravi, but we're just trying to get some buffer there and really take the right time that is needed to get to the right deal and structure. And so we're just we're working through that. There's steps along the way, the process.

Speaker 2

And so we're in a more advanced step now than we were a month ago, meaning we've kind of narrowed it down and really focusing on advanced due diligence and discussions with soft brands, things like that. So we're working through it as expeditiously as we can. But so we're just we're putting that out there. The best information we have today is when we think we'll conclude this transaction.

Speaker 11

Very good. Thank you.

Speaker 2

Thanks, Robbie.

Operator

Your next question comes from the line of Connor Cunningham with Melas Research.

Speaker 12

Everyone, just going back to the cost outlook here, it's a little confusing. So in the past, I think you've talked about having the infrastructure in place to grow 15%. And then you've also said that, if you grow five, your CASM ex is basically going to be flat. So I'm just trying to understand in the context of 17% growth why the best quarter on CASM ex is going to be 1Q when you're going to have 20% growth. Like is there anything that we're missing from I don't know if there's like labor assumption, anything just within it that we need to know about on the cost side that may be thrown off that a little bit?

Speaker 12

Thank

Speaker 4

you. Thanks, Connor. Yes, let me try that. So, first quarter, let's see. First quarter, remember, you have or sorry, I should get to second quarter.

Speaker 4

I mentioned, I think in response to another question on the call, there was some lumpiness in the other line. Some of that was related to asset and part sales from parting out A320 family equipment. So that has some impact. And then you have more utilization on smaller aircraft and seats coming off of A320s for Allegiant Extra in 2Q and 3Q. Let's see what I'm missing here.

Speaker 4

Then you start to add some depreciation expense back into the business in the third quarter.

Speaker 3

What am I missing guys? You have

Speaker 4

the engine sale, it probably didn't happen there. Yes. And then of course the engine sale in the fourth quarter. So you don't really get much of a year over year benefit in the fourth quarter.

Speaker 12

Okay. Maybe I can ask it a little bit different. Drew, just like again, we're pushing capacity again. I know that you guys have been very clear about that. But just as you build a schedule in the current environment, obviously, there's been a big debate around ultra low cost carriers and the model and all that stuff.

Speaker 12

But just have you changed your approach at all to building a schedule when you think about pushing growth now in the context of what you're seeing out there? Thank you.

Speaker 2

No, I mean, by and large, it's the

Speaker 3

same approach, right? Through the peak periods, you're trying to schedule up to whatever, your first operational constraint is. Historically, in the summer, that's been our pilot headcount. Today, I think we're a little more balanced on that front and filling up our peak days until the aircraft space runs out. But one of the innovative things that we continue to bring to the industry is our ability to schedule it two and three times a week.

Speaker 3

And as constraints allow, we push a number of those markets up to three and four to see where they can go. Outside of the peak, we're still using a demand and fuel bake off to ensure we're doing the right level of flying. And we probably changed our margin threshold targets a little bit in terms of what we're willing to deploy, as we're focused more on the dollars than the margin in '25. But I think by and large, it's the same general process, but just a minor tweak.

Speaker 4

Hey, Connor. If I can just come back in on the cost question now that I had a little bit of help from the team here. Just a couple of things maybe to add in. When you think about 1Q twenty twenty four, we had, bit of, elevated cost related crew related costs. This is crew related travel and crews offline for training for the Boeing aircraft and that relieves a little bit in the first quarter of 'twenty five.

Speaker 4

And so you don't see as much pressure there. And then just remember, we didn't have, the flight attendant deal in first quarter of twenty twenty four.

Speaker 2

Right.

Speaker 3

Okay. Appreciate it. Thank you.

Operator

And your next question comes from the line of Catherine O'Brien with Goldman Sachs.

Speaker 13

Hey, this is Jack Yul on for Katie. Thanks for taking our questions. Just to dig in a little more on the 1Q margin expansion, you got RASM down 6%, CASM down 7%. Is this more about increasing efficiency to drive better margin or would you also call it the revenue backdrop as a driver? All else equal, would you expect RASM to be worse at that level of growth in Easter shift?

Speaker 13

Maybe you could speak to same store sales?

Speaker 3

Yes. Thanks, Jack. I think the piece in all that is the Belt and Right fuel is down a modest amount on a year over year, which will help, but also is a headwind towards revenue production at the same time. So I talked a little bit about flat capacity or same store performance over the spring break. I might stop short of doing that at any greater detail.

Speaker 3

I think the maybe just through the quarter, getting the New Year's travel benefit into January will serve as a positive, similar to some commentary we heard this morning. I think February will be a little bit softer than we otherwise would have anticipated with the growth. But I think the spring break period looks, looks pretty good when, when considering the Easter shift impact, that's expected. I don't know if I ran around your question too much there, but, but I think not entirely out of line in total with maybe a little bit of extra softness in February than I would have anticipated.

Speaker 13

That makes a lot of sense and super helpful. And just as a quick follow-up, on Sunseeker, this year the business drove 2024 the business drove $3 EPS degradation. Understood you're in discussions to sell at least the majority stake now and therefore not given a full year guide. But given the EBITDA improvement you're speaking to in 1Q, would you expect the drag to earnings from Sunseeker to be smaller year over year in 2025, in addition to the expected improvement on an airline only basis? And if Sunseeker is still a wholly owned property for 2Q, understand it's a tougher seasonal quarter, are there other factors that could drive some EBITDAR momentum despite that seasonality?

Speaker 4

Hey, Jack, it's Vijay. I'll start. I would say, so on a full year basis, no, we wouldn't expect Sunseeker to be as much of an EPS drag as it was in 2024. I will tell you, we're still working through interest expense allocation to that segment. There's the actual loan on the property is paid off, but we may need to allocate some of the travel company that consolidated interest expense to that segment.

Speaker 4

So still need to look at that. And then the EBITDA improvement is really nice to see in the first quarter. We see that really throughout the year, but not as pronounced in 2Q and 3Q.

Speaker 3

Thank you.

Operator

Your final question comes from the line of Tom Wadewitz.

Speaker 3

This is Atul Maheshwari on for Tom Wadewitz. Thanks a lot for taking our question. Granted it's a fluid situation, but if fuel prices were to move materially higher from here either due to tariffs or otherwise, As that begins to put pressure on your capacity plans or aircraft utilization, and what levers do you have that you can pull to similar to your guidance? Sure. Just to make sure I understood the question, if fuel were to to spike meaningfully, how would that impact capacity and what levers do we have to pull to combat it?

Speaker 3

Exactly. That's the question. Yes. Yes. So I think depending on the, I guess, how rapid the rise looks, we'll be pulling capacity out of our shoulder and off peak periods relatively quickly.

Speaker 3

Depending on, I guess, the level of booking there, we tend to be about three months out to action that. We're going to put customers first. If our flights are meaningfully sold, even if it would put us in a advantageous position. And just natural economics should take place after that as you restrict supply. The pair should rise a little bit to help offset the cost of the fuel there.

Speaker 3

We would have to take a deeper look at some of the peak periods. Historically, demand has been sufficient to offset largely any fuel price in the peak of the period. So that would purely depend on the magnitude of that rise,

Speaker 6

as well as the,

Speaker 3

I guess, economic response to it from a demand perspective. And maybe just not that it's directly related to this, but with more Boeing coming online too, that does make us more resilient, to whatever spikes in fuel may occur, just to provide us a slightly easier hurdle rate on that front.

Speaker 4

Yes. It's cool. It's a little bit hard for me to hear your question, but just to add to Drew's last comment there, I think we would look at Drew and the commercial team trying to see as much flying as possible on the fuel efficient MAX aircraft. And then perhaps that even opens up opportunity for some early exits on the A320 fleet too.

Speaker 3

And maybe the final piece here, because utilization is rising, it will put pressure on our fixed fee team to be able to deliver at the same levels in 2025 they did in 2024. Your scenario would play really well to be able to get into the fixed fee space, in more earnestly and then try to backfill some of the lost scheduled service capacity where fuel will be a pass through. Okay, great. That was very helpful. And then just quickly on the unit cost versus unit revenue dynamic.

Speaker 3

So CASM down more than RASM, is that going to be the case in each quarter of the year? Or is there certain quarters where that spread is going to be lot higher than others? Yes, that might be a little bit far in the weeds for where we're going to go here. I think we've given some pretty good direction on that for the year as a whole as well as directionality for each of the two items. We feel really good about our position.

Speaker 3

We have leverage to pull it if things don't manifest as we see it today, but, maybe we won't go to quite that far.

Operator

I will now turn the call back over to Sherry Wilson for closing remarks.

Speaker 1

Thank you, everyone, for joining today's call. Please feel free to reach out with any questions. Otherwise, we will

Operator

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

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Earnings Conference Call
Allegiant Travel Q4 2024
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