Release Date: July 31, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Allegiant Travel Co (ALGT, Financial) achieved a controllable completion rate of 99.7%, among the best in the industry.
- The company reported an adjusted operating margin of 10.3% for the second quarter, exceeding their guidance of 7% to 9%.
- Allegiant Travel Co (ALGT) has identified 1,400 incremental routes, mostly in underserved communities, providing significant growth opportunities.
- The Allways Rewards Visa card program saw a 34% increase in total co-brand credit card compensation, reaching nearly $40 million in Q2 2024.
- The company is focused on increasing peak utilization, with plans to achieve nine hours of utilization per aircraft per day during peak periods in 2025.
Negative Points
- The global vendor-induced software outage is expected to impact the company's margin by three points in the third quarter.
- Sunseeker Resorts is not meeting financial expectations, with a forecasted cash loss of $15 million for the year.
- The company is facing challenges related to Boeing delivery delays, absorbing $30 million of annual expenses not associated with productive assets.
- Third quarter peak utilization is still about 20% below 2019 levels, impacting financial performance.
- The company expects a consolidated loss per share of $3 for the third quarter, with significant impacts from the systems outage and Sunseeker losses.
Q & A Highlights
Q: With the profitability of Sunseeker getting worse, can you tell us how long you expect it to take to get to profitability on an EBITDA basis now? And how long are you willing to produce losses at Sunseeker before seeking a divestment?
A: (Gregory Anderson, President and CEO) We are focused on optimizing the existing asset and increasing distribution while concurrently positioning ourselves for discussions with potential strategic partners. Prospect Hotel Advisors will help us evaluate the value of Sunseeker and explore alternatives to limit further capital investments. (Micah Richins, President of Sunseeker Resorts) We expect to see improvements in the fourth quarter and are optimistic about 2025, driven by increased group business.
Q: Can you remind us what is limiting you at this point to get back to the aircraft utilization you need to boost your margins?
A: (Gregory Anderson, President and CEO) The biggest constraints have been stabilized staffing levels, particularly with pilots, and inefficiencies due to Boeing delivery delays. These issues have improved, and we expect a more normalized pattern in 2025. (Drew Wells, SVP and Chief Revenue Officer) We planned June and July to the maximum block hours we thought we could fly, given the headcount we forecasted.
Q: What was the catalyst to conduct this review of Sunseeker, and are you agnostic between having Sunseeker on your balance sheet or off of it?
A: (Gregory Anderson, President and CEO) We have had discussions with Prospect for some time and felt it was the right time to engage them as we gear up for the peak period in the first quarter of 2025. All options are on the table, including a sale or stake sale, and removing it from our balance sheet in the not-too-distant future.
Q: What are you seeing in terms of demand, especially between lower-end and higher-end consumers?
A: (Drew Wells, SVP and Chief Revenue Officer) We are not seeing any significant consumer cracks. The current environment is more of a capacity problem. (Scott Deangelo, EVP and Chief Marketing Officer) The difference in demand between higher and lower household incomes is minimal, and we don't see an issue disproportionately affecting any income group.
Q: Given your unique route network, why is your RASM expected to be down about 7% in Q3?
A: (Drew Wells, SVP and Chief Revenue Officer) Despite our unique network, we are still affected by overall domestic capacity levels. Additionally, we are still comping the Navitaire implementation, which has an overhang that will exist for at least one more quarter. September is also historically a tough month for us.
Q: What gives you confidence that you'll get the MAX aircraft in September, and how are you planning fleet retirements?
A: (Robert Neal, CFO and SVP) The FAA has chosen to retain certifications, which means a longer timeline but a clearer path. Our retirements are largely locked in, and we are taking a conservative view on Boeing deliveries. We expect to end next year with a relatively flat fleet count, growing primarily through utilization.
Q: What's driving the ancillary revenue outperformance despite Navitaire's drag?
A: (Drew Wells, SVP and Chief Revenue Officer) The Allegiant Extra product and optimization within existing constraints have helped. The co-brand credit card program also continues to show strong growth. We expect Navitaire to be largely optimized by 2025, contributing an estimated incremental $4 per passenger at maturity.
Q: How do you expect the months to play out in terms of unit revenue decline?
A: (Drew Wells, SVP and Chief Revenue Officer) Directionally, July will likely be down more than the guide for the quarter, and September less so. We usually stop short of providing month-level guidance but expect a better exit rate for the quarter.
Q: Have you considered walking away from the MAX aircraft given the issues, and what would be the obstacles?
A: (Maurice Gallagher, Executive Chairman and CEO) We need new airplanes to grow and maintain profitability. The used airplane market is not a viable alternative due to high costs. The MAX order has significant value and long-term benefits, and we are close to resolving the current delays with Boeing.
Q: Can you walk us through the special charges excluded on the airline and hotel side in 2Q, and bridge your 3Q loss guidance?
A: (Robert Neal, CFO and SVP) Special items on the airline side include the sign-on bonus for flight attendants and accelerated depreciation on A320 airframes. For 3Q, the outage impact will not be excluded as a special item in the reported results.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
