Allegiant Travel Company (NASDAQ:ALGT) Q2 2025 Earnings Call Transcript

Allegiant Travel Company (NASDAQ:ALGT) Q2 2025 Earnings Call Transcript August 4, 2025

Allegiant Travel Company beats earnings expectations. Reported EPS is $1.23, expectations were $0.83.

Operator: Thank you for standing by. At this time, I would like to welcome everyone to today’s Allegiant Travel Company Second Quarter 2025 Earnings Call. [Operator Instructions] Thank you. I would now like to turn the call over to Sherry Wilson, Managing Director of Investor Relations. Sherry?

Sherry Wilson: Thank you, Greg. Welcome to the Allegiant Travel Company’s Second Quarter 2025 Earnings Call. We will begin today’s call with Greg Anderson, President and CEO, providing a high-level overview of our results, along with an update on our business. Drew Wells, Chief Commercial Officer, will walk through our capacity plans and revenue performance. And finally, Robert Neal, Chief Financial Officer, will speak to our financial results and outlook. Following commentary, we will open it up to questions. We ask that you please limit yourself to one question and one follow-up. The company’s comments today will contain forward-looking statements concerning our future performance and strategic 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. 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 over to Greg.

Gregory Clark Anderson: Thanks, Sherry, and thank you all for joining us today. I’m proud of our second quarter results where once again, we delivered an excellent operating performance with a 99.9% controllable completion. We flew more than 5 million passengers, a record for the second quarter. And approximately 70% of those are repeat customers, a sign of our strong Net Promoter Scores and reflects our position as the leading airline in most of the communities we serve, offering reliable nonstop travel at unbeatable value. I’m also happy to report that we achieved an airline operating margin of 8.6%, exceeding our initial guidance. Combined with our first quarter performance, our first half operating margin was close to 9%, an improvement compared to the first half of 2024.

Team Allegiant has done a good job of controlling what we can control. Aircraft utilization is back to our historic productivity levels, increasing by 17% in the first half versus a year ago, while total aircraft and personnel have remained flat. Furthermore, we are continually enhancing our commercial offerings, and we are keeping a tight lid on costs. What we can’t control is the demand environment, as many airlines have already commented, domestic leisure demand was noticeably softer during the first half of this year than initially anticipated. Despite this weaker domestic demand backdrop, we achieved solid profitability because we are one of the lowest cost providers in the industry and have a relentless focus on offering our customers attractive prices and a safe, reliable on-time product.

We are making headway with our Allegiant-centric initiatives. With Navitaire’s initial revenue headwinds behind us, we are better positioned to accelerate our progress as we further enhance its capabilities along with pursuing additional commercial initiatives. Our new MAX aircraft are boosting our performance as expected, leading our fleet and reliability and contributing a significant margin advantage when compared to our older A320 aircraft. The MAX fleet accounted for roughly 10% of our ASMs in the second quarter, and we expect that amount to exceed 15% by year-end. Our premium Allegiant Extra offering is in high demand by our customers. We are benefiting from a significant price bump for this product, which is both additive to margin and TRASM.

Drew will speak in more detail, but I wanted to provide some insight to our overall TRASM trends. There are several factors that impact TRASM, including the mix of peak versus off-peak flying, existing markets versus new markets and, of course, capacity growth. When you look deeper into the numbers, peak TRASM is performing relatively well, reflecting strong customer demand during high travel periods. It is the shoulder and off-peak periods where demand softness, coupled with the capacity growth has driven outside headwinds to reported TRASM. There are 2 things that are important here. The first is that we continue to manage our network to maximize profitability and the shoulder and off-peak flying we added this year have been margin accretive.

Second, adjusting for the mix of flying, we believe our TRASM decline compared favorably to domestic leisure trends of our peers, highlighting our strong competitive offering and positioning with our customers. As we announced last month, we are exiting Sunseeker, allowing us to further simplify the business and solely focus on our core airline. With that, let me shift to our initial views for the second half of the year. Although, signs from the performance of the U.S. economy appear to be mixed, we are cautiously optimistic in our recent bookings that suggest a modest strengthening of leisure demand. Keep in mind that our third quarter is typically our seasonally weakest period for leisure demand due to the higher proportion of shoulder and off-peak compared to other quarters, with the second half of August and most of September, representing the lowest period for leisure travel during the year.

A key attribute of Allegiant is our flexible scheduling as we look to peak the peaks and fly off peak when it makes sense economically. Appropriately, we pulled back on our capacity growth expectations for the full year due to increased macro and geopolitical uncertainty. We have made further adjustments with September ASMs now expected to be roughly flat year-over-year. BJ will provide more details shortly, but we expect to incur an operating loss in the third quarter. Importantly, we continue to expect to report a healthy operating profit for the full year with our fourth quarter historically more in line with the first 2 quarters and a much stronger quarter than the third as leisure travel typically picks up seasonally. I also want to reiterate that we remain steadfast on our core principle that we need to earn the right to grow.

While 2025 has been a year with meaningful growth, and as mentioned, that growth was accomplished with adding to our fleet count — without adding to our fleet count or to our personnel, it represents a onetime catch-up year after MAX delivery delays that sharply curtailed our capacity growth in previous years. Encouragingly, when we compare our first half ’25 year-over-year changes between TRASM and CASM ex, we believe it to be among the industry’s best. As we look to 2026, we currently expect capacity to be relatively flat as we further harvest our current infrastructure. Those plans should help us improve our yields for several reasons. First, we expect to drive incremental revenue through enhanced Navitaire capabilities and new commercial initiatives.

Second, we should benefit from routes maturing and with peak flying representing a greater proportion of ASMs in ’26 than 2025. Also, we expect a tailwind from a more fully ramped Allegiant Extra, which will start the year being deployed on 70% of our fleet, up from 50% at the beginning of 2025. Third, we anticipate our Allegiant credit card remuneration will continue to grow from the $140 million expected this year. It is a great source of steady incremental cash flows. Drew will provide more details, but suffice it to say, those offerings as well as other revenue-generating initiatives give us confidence today that the unit revenue should improve in 2026, all else being equal in the demand backdrop. On the cost side, we are continuing to increase the usage of the MAX aircraft, which are expected to be more than 20% of our ASMs in 2026, up sharply from ’25.

We are planning to divest some of the Airbus fleet over the course of the coming year with any proceeds used to further strengthen our balance sheet. And we are keeping a tight control over costs. Our cost structure is a key competitive advantage. So, when you put it all together, we are taking important steps to simplify our business and further strengthening our core airline competencies. The airline is operating extremely well, and we continue to position ourselves to deliver strong incremental margins. I’m excited about what’s in store for us over the coming year and beyond. And let me close by highlighting how proud I am that our team’s performance resulted in Allegiant being named Skytrax Best Low-Cost Carrier in North America for the second year in a row.

Our greatest driver of success is Team Allegiant, our dedicated team members who deliver a great service for our customers every day of the year. Their dedication sets us apart, and I’m honored to work with such a talented team. And with that, I will turn it over to Drew.

Drew Wells: Thank you, Greg, and thanks, everyone, for joining us this afternoon. We finished the second quarter with $669 million in airline revenue, approximately 3% above the prior year, producing a 2Q TRASM of $0.1157, which was down 11.2% year-over-year, in line with our internal expectations from the prior call. Allegiant grew total ASM 16% with overall utilization up 17%. Despite the increase in utilization, reducing available plane space for our fixed fee flying, our fixed fee revenue was down just 4% on a year-over-year basis and ahead of our internal estimates for the quarter. While BJ will hit on the unit cost benefits of our growth profile, we expected to have an impact on our unit growth. Focusing a bit on the core of Allegiant strength and deploying predominantly peak day capacity, unit revenues in our markets operating the same capacity in both the current year and prior year, mainly comprised of markets flying 2 to 3x per week were off roughly 6% year-over-year, seemingly in line with commentary from others throughout the cycle.

While perhaps oversimplified slightly, the growth profile contributed roughly 5 incremental points of headwind and fell generally in line with our typical expectations of the relationship between growth and unit revenue change. We certainly saw more resilience on peak days where even in the aforementioned same capacity scenario, peak days held up about 4.5 points better year-over-year than off-peak days. New peak weekends even came to light. The emergence of Juneteenth as a strong traveling holiday was a welcome addition and was, in fact, the strongest TRASM week of the summer while a traditional peak week around the 4th of July was top in total revenue. Our approach to capacity in the second half of the year aims to align capacity with demand in our typical fashion.

Our 3Q growth rate is down more than 10 points from our estimates at the start of the year. As mentioned on the last call, those cuts are heavily focused on the off-peaks, both day of week and season. August, for example, saw an 18-point change in expected capacity and September will only be approximately 48% of July flying. After the cuts, we still expect third quarter scheduled service ASMs to grow approximately 10%, with the fourth quarter slightly higher than that, given 2024 hurricane-related cancellations comparison. We’ve certainly seen demand pick up in July earlier than last year. And while those same capacity markets did improve slightly in July relative to June, the uptick missed a good portion of the July booking window. Additionally, due to the overweight portion of 3Q ASMs falling in July, the third quarter will see a lower overall benefit than other carriers most likely.

Broadly, we do believe the back half of the year is setting up better than most of the last 6 months. Consumer confidence ticked higher in July, and the industry setup is improving through the post-summer trough. That said, the November, December industry growth profile remains elevated and in particular, capacity into leisure-oriented destinations has an even larger spread versus last year. Our revenue forecast for the back half of the year contemplates this year’s various factors largely washing out and producing a generally similar trajectory relative to 2024, sufficient to forecast sequentially improving year-over-year TRASM trends in each of the third and fourth quarters. Significant tailwinds beyond that would represent upside, more likely in the fourth quarter than the third, simply given the amount of time left to book.

We feel bullish enough about forward demand to introduce a small handful of new markets into the network. These include service to a new airport in our network, Southwest Florida International, RSW in Fort Myers, Florida, which we believe is complementary to our incredible service in Punta Gorda about 40 minutes away, as well as the ninth route into Gulf Shores, Alabama, an airport we began serving in only May of this year. All 7 of our new routes launched just before Thanksgiving, focusing on peak demand times over the holidays and into next year’s spring break period. A part of the improving trend is due to the continued traction of our initiatives. Allegiant Extra will grow to 2/3 of departures in the third quarter, while showing extreme resilience with the increased profile.

And as indicated on the last call, we recaptured $2 per passenger of lost revenue from the initial map share implementation, and now believe we’ve gained the first incremental dollar of benefit from the system. Some of the early wins we’re discovering aren’t necessarily solely ancillary revenue per passenger lift, but rather conversion and in turn, load factor, benefits that we expect to see manifest more fully in the coming months. In fact, July load factor should be the best month year-to-date, both in terms of the actual metric and the year-over-year performance. Finally, while we’re thrilled with the trajectory and results of our award-winning Allegiant Always co-branded credit card and loyalty programs to date, we have kicked off an in-depth review of the programs to ensure we are continuing to offer a value proposition that resonates with our customers after 9 years and much industry change.

As we dig in on the evolution of these programs to best support our customers’ needs, we’ll come back with more details in the coming quarters. And now I’d like to hand it over to Robert Neal.

Robert J. Neal: All right. Thank you, Drew. Good afternoon, everyone. I’ll walk through our results and share our outlook today, all on an adjusted basis, unless otherwise noted. This afternoon, we reported second quarter consolidated net income of $22.7 million and consolidated earnings per share of $1.23. The Airline segment produced net income of $34.3 million and airline-only earnings of $1.86 per share, exceeding our initial expectations of approximately $1. This outperformance was attributable to solid cost execution throughout the quarter on a share count of just under 18 million and drove operating margin to 8.6%, ahead of our guided range. Our second quarter consolidated results do include special charges of $103 million related to the pending sale of Sunseeker Resort announced in early July.

We remain on track to close on the sale in early September. Airline EBITDA was $122.5 million, yielding an EBITDA margin of 18.3%. Fuel averaged $2.42 per gallon during the quarter, in line with our initial forecast. Our focus on growing into our labor force and leveraging existing infrastructure kept momentum during the second quarter with total airline operating expenses of $611 million, up just 4.9% year-over-year on capacity growth of 15.7%. I’m very pleased with the team’s cost execution. Excluding fuel, unit costs were down 6.7% despite removal of nearly 7 points of planned capacity growth in the quarter. Our CASM ex result included a 1-point headwind from expected transitory costs in the aircraft lent line as we prepare to return 11 aircraft off operating leases, which originated during the pandemic.

Department leaders across the organization have been focused on cost performance, especially in light of capacity reductions and the softer demand environment experienced during the first half. We will continue to set capacity for optimized margins, and we are not solely focused on unit cost results. But that said, we pulled 4.5 points of capacity growth from our 2025 plan and still expect full year nonfuel unit cost to be down mid-single digits, thanks to numerous budget initiatives across the organization. Turning to the balance sheet. We ended the period with robust total liquidity of $1.1 billion, which includes $853 million in cash and investments and $275 million in undrawn revolving credit facilities. In addition, we had $335 million in available undrawn loan commitments at the end of the quarter.

Cash and investments were approximately 34% of trailing 12-month revenue at quarter end. We made continued progress on debt reduction, repaying $152 million, including $113.5 million in nonrecurring repayments and $38.5 million in scheduled principal payments, ending the quarter just below $2 billion in total debt. Net leverage remained flat sequentially at 2.6x, down from 3.8x at the end of the second quarter last year. Capital expenditures for the quarter totaled $137.7 million, comprised of $108.3 million in aircraft-related spend and $29.4 million in other airline CapEx. Deferred heavy maintenance accounted for an additional $10 million during the period. Now moving to fleet. We retired 2 A320 series aircraft and took delivery of 5 new 737 MAX aircraft, of which was placed into service at quarter end.

We are pleased to say that Boeing has exceeded our expectations on aircraft deliveries throughout this year, and we expect our remaining 3 aircraft for 2025 to be delivered in the third quarter as we ramp up operation of our MAX fleet in the fourth quarter. Predictable and reliable performance from Boeing provides us with tremendous fleet flexibility, and we’re leaving our full year CapEx forecast unchanged at this time at $435 million. In light of staffing costs incurred in 2024, we made the conscious decision at the start of the year not to hire additional flight crews for these aircraft and plan for pilot transitions after our summer peak schedule. And thus, we expect to place the remainder of these aircraft into service alongside available titrated flight crews beginning in October when we transition our Fort Lauderdale base to an all 737 MAX operation.

Looking ahead to the third quarter, as previously announced, we’ve entered into a definitive agreement to sell Sunseeker Resort for $200 million, with closing planned for early September and expectation for sales proceeds to be used for debt repayment. We will report consolidated and airline-only results for the third quarter, which we expect will include approximately 2 months of operating losses at Sunseeker during its off-peak season. As most of you know, the third quarter is seasonally our softest. While we’ve recently seen some strength in bookings, much of July, our peak month, would have been booked before a notable increase in demand was observed. As such, the benefit to the third quarter is somewhat muted, though we expect to capture some upside in our full year guidance, which I’ll discuss in a moment.

For the third quarter, we expect a consolidated loss per share of $2.25, including a loss of approximately $0.50 from Sunseeker. For the full year 2025, we are expecting airline-only earnings of greater than $3.25 per share. Factoring in 8 months of operations at Sunseeker, we expect consolidated full year earnings per share above $2.25. Our outlook today contemplates some of the demand improvement observed in July. However, we believe there’s still room for upside, particularly during the fourth quarter if macroeconomic conditions continue to improve. Although, it’s still too early for us to guide 2026, we will share that we expect to retire 8 A320 family aircraft and plan to induct 9 incremental MAX aircraft into the operating fleet next year weighted to the back half.

As a result, we do not expect fleet count to drive capacity growth next year. With continued progress on revenue initiatives, the earnings drag from Sunseeker removed and an improving macroeconomic backdrop, we believe we’re well positioned to deliver materially higher earnings in 2026. In closing, I want to thank the entire Allegiant team for their efforts during our peak summer travel season. We operated a record number of flights this summer and the operational performance exceeded expectations. Despite a nearly 17% increase in fleet utilization and flat employee headcount, we operated nearly 16% more flights compared to 2024 and did so with significantly fewer operational disruptions. From cost discipline to operational execution, we’re proving our ability to adapt, execute and position Allegiant for long-term outperformance.

And with that, Greg, this concludes management’s prepared remarks. We can now go to analyst questions.

Q&A Session

Operator: [Operator Instructions] Okay. It looks like our first question comes from the line of Michael Linenberg with Deutsche Bank.

Michael John Linenberg: I just — on the numbers for the full year, you have the consolidated at greater than $2.25 and the airline greater than $3.25. I guess, Sunseeker has already lost over $1 per share for the first half of the year. There’s another $0.50 in the third quarter for the last 2 months, I guess. What’s — I see the dollar difference, but I guess you sort of left the gap at that point, but maybe that was by design.

Gregory Clark Anderson: Mike, it’s Greg. Let me kick it off and BJ or the team can jump in. The — what we’re expecting for our guide is that at the end of September, by September that Sunseeker is no longer a part of Allegiant and excluded, obviously, moving forward in earnings. And so, I think that’s the way it was built. And if we need to go kind of more in the detail, we could do that certainly offline. But what I — what the guide suggests, you have our third quarter number, but I believe on the EPS, what it would suggest then is about $1.25 in airline-only EPS.

Michael John Linenberg: Okay. Okay. Then just my second question on Sunseeker itself, I mean, the 8-K that came out talked about, I guess, cash proceeds of $200 million. I mean, I’m not sure if there was anything else tied to that, if there’s a residual stake. I mean, is it clean $200 million coming in? Are there some other impacts there? How should we think about it just because the original 8-K was fairly terse in providing details around that transaction.

Gregory Clark Anderson: Yes, of course, Mike. Just it’s all 100% sold to Blackstone, and that’s the sale agreement and then the $200 million of proceeds to Allegiant upon close of the deal.

Operator: Our next question comes from the line of Savanthi Syth with Raymond James.

Savanthi Nipunika Prelis-Syth: Maybe I can kind of talk a little bit about the 2026 kind of way you’re thinking about it. I appreciate that color this early on. Just curious, your cost execution this year has been remarkable. And given the kind of the flat outlook, how should we think about nonfuel costs next year given that you still don’t know what the pilot deal might look like? And just how should we think about puts and takes into 2026?

Robert J. Neal: Sure. Thanks, Savi. One of the reasons we’re not prepared to guide 2026, of course, we’re still just actually kicking off our budget initiatives now but also just fully understanding what capacity is going to look like next year. Remember, we had a good bit of off-peak capacity during certain periods in 2025. And based on the current environment, we wouldn’t expect to see that next year. So just trying to get our — get a handle around aircraft and team member utilization. So, I keep those in mind and then timing of a pilot deal, as you mentioned in the question.

Savanthi Nipunika Prelis-Syth: Anything else, BJ, as we think about like some of the cost savings that you have this year, do any of those get reversed next year? Or is there kind of a rule of thumb if you didn’t have any of those kind of moving parts, just how much unit cost pressure you see?

Robert J. Neal: I mean, we expect the — where you’re seeing the most benefit on a unit cost basis this year is in the salaries and wages line. I would expect that the total cost for that line, I don’t want to commit to it being flat, but I don’t expect it to be up materially. And on lower utilization, if we had lower utilization or lower ASMs, you would see some pressure there. But again, this just depends on what kind of capacity we put out there.

Gregory Clark Anderson: Savi, it’s Greg. I might just add just a more high-level comment. And the team has probably heard me say this too many times, but everything at an airline begins and ends by running a great operation. And I think from a cost perspective, it can get pretty expensive quickly when we don’t run a good ops. And so just really proud, you’re hearing some of the operational performance that we’re seeing and the improvements we’ve seen over the past couple of years that’s helped drive a lot of our costs out of the business. So that’s step 1 next year and giving us even some more confidence to fly a little bit more in those peak periods given the ops performance. One of the things that I think I want to say as well is just the organization has been incredibly focused on just driving unnecessary costs out of the business.

BJ and his team, it’s a team of cost hawks, and we’ve seen close a couple of high cost bases like LAX and Austin. We’ve reduced corporate personnel over the past year by 10%. We’ve reduced fixed marketing expenses, and we’ve reduced IT spend. I mean, there’s areas in the business that structurally we’ve gone through, and they’ve done a really nice job. And what I am, I guess, very encouraged by is the culture where everyone is looking to really be prudent on the cost front.

Robert J. Neal: Maybe one more quick addition to the answer there, Savi. And this one I can give you to help with modeling. I mentioned in the prepared remarks, an increase in the aircraft lent line. I would expect that to persist through the back half of this year, maybe a little bit of relief in the fourth quarter. But in 2026, we should see that return to the same run rate that we had in ’24.

Operator: And our next question comes from the line of Duane Pfennigwerth with Evercore.

Duane Thomas Pfennigwerth: On the growth headwind to RASM of 5 points, I assume that’s a 2Q comment, and this might be impossible, but how would you frame that maybe earlier in the year and even into third quarter here? Is it fair to say that the year-to-date impact is probably in a similar range to that 5 points?

Drew Wells: Yes, Drew here, I think that’s probably — probably fair year-to-date. What’s — just looking at the severe off-peaks like September, we didn’t have that same comp in January as we were still kind of thriving from a booking perspective. So, we’re kind of forecasting that we see a similar but slightly improving through the quarter to a point maybe a little bit better than that 6% that we put up in the second quarter.

Duane Thomas Pfennigwerth: Got it. And then just on some of the cost leverage because I thought the driver of the growth this year was really about legging into the investments that you already made in support of this transition for the MAX. And so, would you say there’s still cost leverage to achieve based on investments you’ve already made? I mean you are effectively growing the MAX subfleet in ’26, shrinking on the Airbus side. So, it doesn’t feel like your average flat capacity year maybe from a CASM perspective. So maybe just talk about what inning we’re in, in sort of getting cost leverage on the MAX investments you’ve already made?

Robert J. Neal: Thanks, Duane. Yes, I’m happy to start, Greg, if you want to add in. Yes, early innings for sure. I think Greg gave the percentage of ASMs that were operated by the MAX, but certainly expect that to be in the 20% range next year. So, there’s definitely room to grow. We’re also not able to schedule the MAX aircraft on the most optimal lines of flying yet because we’re still training crew members. And so, the airplanes are operating shorter stage lengths, which is not optimal for the fuel burn performance of that airplane. So, I think there’s definitely room to go. And then I would just say on the DNA side, you got to remember, there’s also a little bit of overlap in the second quarter of this year, we had a onetime true-up on some unrelated assets.

So, there’s a little bit of a bump in the second quarter. I would expect to see some relief there in the third quarter. And then as we move into next year, you see some of the Airbus assets start to fall off from the DNA line.

Gregory Clark Anderson: And Duane, I’d just add maybe a little more specific on the cost improvements. To BJ’s point, we’re up to next year, about 20% of our ASMs flown by the more cost-efficient MAX fleet. We’d expect ASMs per gallon next year to improve by, call it, 2 to 4 points. I think in ’27, you would expect that to step up even further. I think our — just our kind of tentative plan has us between 7 to 9 points or 7 to 10 points in ASM per gallon improvement.

Operator: And our next question comes from the line of Ravi Shanker with Morgan Stanley.

Ravi Shanker: I’m not asking you to guide for ’26, but do you have a sense of what your normalized EPS might look like? One of your peers quantified it on their call for 2027. And also, what might that be dependent on in terms of moving parts?

Gregory Clark Anderson: Ravi, why don’t I kick it off? Yes, we’re not going to give a guide right here. And I’ll just — I mentioned a lot of the initiatives as we think about ’26 or perhaps items to keep an eye on. And we mentioned we believe there’s a clear path to improving unit revenue, and we’re going to keep a tight lid on costs. You’ve seen the team and the performance this year. And so, we want to continue to really run a great operation. The flattish capacity is not going to put any pressure, we don’t think on the operations. We can fly a little bit more in the peak period, we think, given what we’re seeing on the operational front and Drew and his team out there starting to think about and plan towards 2026. Right now, if the demand backdrop improves, particularly leisure, you’d still have some flexibility to push some utilization in the shoulder and off-peak.

We’re not planning on that today. But what I’d say is just you kind of put it all together, Ravi, and I know this isn’t giving you a specific answer, but we think there’s an opportunity to materially improve our earnings. EPS for us, we have 18 million shares. So, you can kind of back into here and there, each one of these levers is worth x points in EPS, just all else being equal.

Ravi Shanker: Understood. That’s helpful. And maybe as a follow-up/clarification. Just on 3Q on the demand environment, are you saying that the 3Q you’ve guided to is essentially what a normal 3Q like non-peak environment looks like? Or do you think we’re still seeing drags from what happened in the first half? Just trying to get a sense of what that sequential step through 2Q, 3Q, 4Q looks like relative to what you think normal would be.

Drew Wells: Yes, I’d probably caution normal for sure. What we’re thinking about for the third quarter is a ramp in demand similar to what we experienced last year. So, 2024 was not particularly normal as we talked about a year ago. We’re starting from a little bit of a lower point, right? So, getting a slightly stronger ramp, I think, will get you to the sequential TRASM year-over-year benefit that we talked about. So, I don’t think we’re quite normal yet. Very little post-pandemic feels normal at all. But look forward to 2024 as kind of the guiding principle there more than anything.

Operator: And our next question comes from the line of Scott Group with Wolfe Research.

Scott H. Group: I apologize, I missed this, but maybe can you just repeat sort of how you’re thinking about RASM and CASM in Q3? And I think you had a point that things are getting better, but maybe you’re not going to see the same benefit of things getting better, maybe as much as others. I just didn’t follow that point, if you can just go through that again.

Drew Wells: Yes. I’ll start on €“ Drew here, I’ll start on the RASM side. And really, Scott, what that comes back to is how we deploy our capacity, right? 42% of our ASMs for the quarter will come in July, leaving only 58% for the rest of it. So as demand picks up, we don’t have the same flat kind of schedule that many other carriers do that would enable them to better feel a third quarter impact from that uptick. That was really the extent of that commentary. But more generally, maybe I think in the remarks, I mentioned we would expect sequential wins on year-over-year as we get into the third quarter and then into the fourth quarter, getting just a little bit better in each of those.

Robert J. Neal: Scott, it’s BJ. And then on the cost side, we did not guide unit metrics for the quarter, but I will tell you that I gave a bit of a cadence of unit costs at the first call this year, the 4Q ’24 earnings call. So, I’ll just kind of repeat that so it’s out there. We expected at the time first quarter to be down the most, second quarter to be down not quite as much. And then we had talked about the fourth quarter coming in maybe flat and that did assume a little bit higher capacity. So, we’ve pulled some capacity out since then. But I think those comments will largely hold. And then I said in my prepared remarks that we would expect the full year to end down mid-single digits.

Scott H. Group: Okay. That’s helpful. And then just secondly, I think you had a comment about fourth quarter capacity in leisure markets looking higher? Maybe just any more color there? I just want to sort of — like if I look at the Q4 guide of $1 plus of airline earnings, obviously, a big improvement from Q3, but still a big decline from fourth quarter last year, and that just feels a little different than what some of the other airlines have guided to. So just any thoughts or color.

Drew Wells: Yes. I mean some of that’s just going to come down to a belief in what the full ramp is going to look like. I think we maybe have a slightly more conservative view on where the fourth quarter can end up. But just looking at leisure-oriented markets, there’s a pretty big change. For example, the Orlando area that was down 10% fourth quarter last year is now showing up 7%, 7.5% at an industry level. There’s a little bit of a different dynamic, I think, in the geography of where seats are still in the market. Now that’s all subject to change. But that just kind of lives in the back of my mind as something that maybe is a reason for us to be a little more cautious as we go into November, December than maybe how other airlines have described it.

Scott H. Group: Okay. Great. And then I apologize if I can just sneak one last in. Just going back to my first question, like relative to the RASM down 11% or whatever in Q2, like how much sequential improvement are we talking about? Is it 5 points? Is that a good ballpark? Is it more or less? And just any thoughts just to give us a little bit of help.

Drew Wells: Yes, we won’t go into trying to guide an actual number here, though I appreciate the question. Do you think it will be better. A lot of this will come down to your view on how good you think September can be in a typically leisure week period. Like said, we’re planning on something roughly similar to what we saw in 2024 as kind of a ramp from this point forward in terms of demand maybe as far as I take it.

Operator: And our next question comes from the line of Andrew Didora with Bank of America.

Andrew George Didora: I guess, first question for Drew. When you look at all the commercial initiatives you outlined in your prepared remarks, whether it’s Allegiant Extra, more peak flying, now you have Navitaire operating as you initially thought. How should we think about whether it’s RASM or maybe it’s ancillary per passenger? How do you think about the uplift from all of these initiatives in kind of the status quo demand environment as we head into 2026? How should we think about that?

Drew Wells: Sure. So, on the Navitaire front, we had always talked about that being lift in the ancillary per passenger line. I think what we’ve seen is actually a little bit more coming in load factor and conversion, which may actually put a little pressure on air per passenger or ancillary per passenger, but it’s good for the overall as we can drive incremental bookings. So that’s a little bit candidly of a change. We had called that out as the $2 to get back to level and then an incremental $2 per passenger, but we might have to start to shape that a little differently given we’re seeing it come through load instead. On the Allegiant Extra, that’s purely an ancillary revenue per passenger metric. We’re still holding pretty strong at that roughly $3 per passenger on flights with the Allegiant Extra layout coming out to $500-ish per departure. That number is still intact on that front. So, I’ll end this one here.

Andrew George Didora: Got it. Okay. And then a question for BJ. Thanks for the color on the higher lease costs in the quarter. I was going to ask you about that. But I mean thinking like when you think about you have the MAXs coming in, would you ever consider leases or sale leasebacks as a way to finance future deliveries? Or are you still 100% committed to the full-on ownership?

Robert J. Neal: Yes. Thanks, Andrew. The answer is yes, we’ll always consider it. We revisit it 2 to 3 times a year. At this point, it’s our view that over the long term, over the long — the full useful life of the aircraft, it’s 2x as expensive to lease airplanes as it is to own them. And so long as the balance sheet allows us to own aircraft, I think you’ll continue to see that from us. It doesn’t mean that we won’t diversify our funding sources or be opportunistic here or there. We have an order for 50 firm aircraft. I can envision a few of those being operating leases by the time we take the last one. But at the moment, we don’t have any plans to use sale leasebacks.

Gregory Clark Anderson: And Andrew, it’s Greg. I might just add a quick comment high level on that as well. And that’s — our strategy is not only to be really good at operating aircraft, but very opportunistic in trading assets and aircraft. And we like to own that provides us flexibility, but there’s a lot of embedded value in our fleet. And one of the things that I’ve been — BJ and team, as we talk about capital allocation, I think they’ve been doing a really nice job is selling some of our underutilized assets in a very high market or hot market to help us buy aircraft we ordered at the bottom of the market. And so that’s been helpful as well. But the thing that’s most impressive is they’re looking at every which way to be opportunistic and they’re on their game.

Operator: And our next question comes from the line of Conor Cunningham with Melius Research.

Conor T. Cunningham: I was hoping to ask about the booking curve and maybe tie it into a couple of other questions that you had. So, I’m just trying to understand like is the booking curve normal at this point? And I guess, the question that I think a lot of us are trying to figure out is just how much do you have left to book in 3Q? I realize that July is obviously your most important month. But then if you could just talk about where you are at 4Q? And is that comping up on what you currently have? I’m just trying to understand like what’s out there right now. Again, you’ve kind of struck a more cautious tone, which is fine, but I’m just trying to benchmark like where we’re at.

Drew Wells: Yes. July is the one I’m most confident in responding with 0% left to book. For the rest of the quarter, August and September, we probably have something in the 40% — maybe 35% to 40% left to book there. So certainly, still some room, but it’s starting to get dark on that booking window. Fourth quarter is still a lot to go. We’re 85% left at that point. So, there’s still a lot to learn. Like I kind of said in the previous response, a lot of fourth quarter right now is just about trying to forecast how a lot of things are going to unfold. Just because the industry setup, it looks a little bit different for such a leisure-oriented carrier than maybe one that has a business outlook or is more hub oriented where you’ve seen seats kind of come down this year relative to others. It’s just enough for the back of my mind to say, hey, maybe this outlook is just a little different as we get to the end of the year.

Gregory Clark Anderson: And Conor, I would just add a brief comment to that as well that if you take the kind of suggested EPS guide for the fourth quarter, it’s below both the first quarter and second quarter of this year. Scott mentioned, he called out rightfully so well below fourth quarter of last year. And just back to Drew’s point, there’s still a lot left to book, and we just — our guide suggests a modest improvement in leisure demand, and we’re keeping a close eye on it, and we’re going to do everything we can to maximize the fourth quarter earnings, and all earnings for that matter.

Drew Wells: And maybe just to get back to your booking curve question. So, we saw a lot of compression last year where we were down probably median booking curve down 7%, 8%, something like that. We’ve held relatively flat with that kind of close in proportion. So, we haven’t seen quite the same surge that you’ve seen from others, but it’s normalized with what we saw last year, which was a surge that maybe — I don’t know if others saw or not, it wasn’t quite as popular of a question last year.

Conor T. Cunningham: Okay. Appreciate it. Then maybe on the comment that you need to earn the right to grow. I was just hoping that you could potentially benchmark what that means to you. Is there a margin target, a return on invested capital target that you’re looking that would give you the green light to grow again? I’m just trying to understand like maybe long term, when does Allegion start to grow back at this 10%-ish number that you’ve historically been at for some time.

Gregory Clark Anderson: Thanks for the question, Conor. I don’t think we’re ready like publicly to go out there with the benchmark. But what I would tell you is how we’re looking at it internally is kind of a couple factor fold. One is margin. How do we get back to restoring our historic margin performance. Other is balance sheet. We want to continue to strengthen and improve our balance sheet. Obviously, improving margin helps in that regard. And then the other is our cost of capital and what that looks like — so you kind of put all that together and you balance the environment and some of the items that we mentioned before, just being disciplined. I don’t think Allegiant is dependent on high growth. I think we’re able to produce solid margins with growth or without.

And — but with that said, we want to maintain flexibility. And as the demand environment fluctuates, we want to be able to adjust accordingly and continue to focus on initiatives that will help us drive more margin. And I think just our — the moat around our airline that we’ve talked about for many years is our model and our team members. And last quarter, we talked about like the 4 cornerstones that kind of fortify that moat. And what is it in the network, tactical utilization, fleet flexibility and having a low cost structure. And Conor, that’s what we’re incredibly focused on simplifying the business, continue to strengthen those 4 cornerstones. We’ve talked about how we’re doing that today with more, obviously, initiatives down the road as well.

And we think you put all that together, that will continue to help us improve and drive more earnings and earn that right to grow, as you said.

Operator: And our next question comes from the line of Tom Fitzgerald with TD Cowen.

Thomas John Fitzgerald: So just kind of picking up with that last response to Conor’s question. Should we be expecting an Investor Day in the next like 12, 18 months? And just you are at an interesting point in the road. And would you look to just focus on these like, kind of asset-light opportunities and like a low-growth organic story? Or would you be open to any M&A at all?

Gregory Clark Anderson: Tom, thanks for the question. We’re — you can’t obviously see us, but there’s a couple of smiles across the table because we’ve been talking about that for some time. And in fact, Drew, BJ and I, we want to get something scheduled in the not-too-distant future, because we think that will be incredibly helpful to walk through — obviously, we’re viewing the business in long term as well and the initiatives that we think could help be a little more accretive. We’ve held off on that just given some of the, I guess, idiosyncratic issues that we’ve been facing or constraints we’ve been facing. We’re now working through those, and it’s the story is kind of clearing up a little bit more. So, I think my point in going into that detail is, yes, that’s the plan.

We don’t have anything set. I wouldn’t expect it in the coming months, but I would expect in the next year to 18 months or so, maybe probably within the next year, we would have — we get something scheduled for an Investor Day. And then I think on your M&A question, I thought I heard an M&A question in there. We get asked quite a bit about that. The — I would say, I think there’s a degree of consolidation that could be positive for the industry. I think right now, less supply would be better, particularly in the domestic leisure space. I think for Allegiant, we’re continuing to be profitable. Not all airlines right now are durable. I think we’re a very durable model an airline, and we’re producing healthy earnings. I mean, candidly, my focus, this team’s focus is more about improving our margins, getting third quarter back to profitability.

If you recall, pre-pandemic, we had, what, 68 — 69 consecutive quarters of profitability. We need to get third quarter back where it needs to be. We’re taking measures to do that. I don’t think consolidation is required for us to get back to those historical margin levels. That said, we — as we always do, we look to expand and drive more shareholder value. And whatever that looks like, we keep a close eye on all the time.

Operator: And it looks like our final question today comes from the line of Chris Stathoulopoulos with Susquehanna. Chris, I hope I got your name right.

Q – Christopher Nicholas Stathoulopoulos: That’s right. So, on the next year’s outlook, flat capacity, and apologies if you went over this, but if you could help parse that out. So, I guess, the usual input stage gauge departures and then if you could, peak versus off-peak and new versus existing markets.

A – Drew Wells: I don’t know, if I’m going to have all that in front of me to share with you right now. On the new versus existing, right now, we’re running about 5.5% of our ASMs being in new markets. Obviously, some of that will start to come off, but something mid-singles is probably fine for an overall outlook on that front. Stage — off the top of my head, I don’t think we’ll see stage change much. We’ll see a slight increase in gauge as we move into the MAXs at 190 seats and retire some of the 177-seat aircraft. I don’t know that there’s a lot of moving parts in there.

A – Gregory Clark Anderson: The only other thing I might add, Drew, is that we would expect how you’re planning right now a higher mix of peak flying versus off-peak flying proportionately year-over-year. And — what gives us, at least for me, a lot more confidence in that is just back to how the operations have performed this year in those peak periods. Now we pushed it significantly, and we wanted to make sure we could achieve that. And the team — the front line and the operational teams have done just a fantastic job with the same overall infrastructure, and they continue to improve processes, systems and continue to strengthen that foundation. And so, part of how Drew and team are planning is there’s an ability even on that same infrastructure that we could push a little bit more in those peak periods, and I think they’re planning as such.

And then back to just an earlier comment, this is based on — if the demand backdrop improves, there’s still opportunity to push utilization in the shoulder and off-peak periods. But again, we’re planning to drive most of the — as much in the peaks as we can next year.

Q – Christopher Nicholas Stathoulopoulos: So — but — and I think I heard you say on the MAX piece, the percentage of your total fleet or capacity, was that 20% for next year?

A – Drew Wells: I didn’t mention that. I don’t know if anybody else can tell you better than for next year better than.

Q – Christopher Nicholas Stathoulopoulos: Do you have that number?

A – Gregory Clark Anderson: On the MAX fleet, I’m sorry, I thought you said peak flight. Yes, MAX fleet, we expect — I’m sorry, Chris. Yes, the MAX fleet, we expect 20% of our ASMs to be produced with the MAX aircraft.

Q – Christopher Nicholas Stathoulopoulos: Okay. But overall, at the system level, flattish on gauge at this point?

A – Robert J. Neal: No, I think we’ll see gauge come up just a little bit because we’re retiring aircraft with 177 seats and adding airplanes with 190.

Q – Christopher Nicholas Stathoulopoulos: Okay. So, my second question, so the materially higher — excuse me, earnings for next year, I realize you don’t want to — you’re still early stages here. What I heard was — so qualitative flat capacity, we have loyalty benefit at this point, assuming steady-state economy, leisure, let’s say, sideways to slight seasonal outperformance, Navitaire. So maybe on the utilization piece, any color you can give on how you’re thinking about utilization or perhaps on load factors? Are we at a point where there’s, I guess, sustained and permanent return to kind of that low 80s system load factor? Or any color really on how you’re thinking about utilization at this point here in addition to what you’ve said about Navitaire loyalty and everything else?

A – Drew Wells: Yes. Utilization will effectively ebb and flow with the off-peak percentage of flying, right? That’s the easiest flying to plug into the schedule. We’ll be able to do a little bit longer peak days, like Greg mentioned, but I would expect utilization to maybe slightly lower given the lower portion of off-peak day flying in the schedule. So, with that, yes, there should be with the flat capacity, there should be some load factor benefits. We talked a little bit in my remarks about July seeing that improvement and the Navitaire helping to drive conversion, which is turning into load factor as well. So, I do think there’s line of sight to that. It may take a few months to get back to the levels we really want to be at. But yes, there’s line of sight.

Q – Christopher Nicholas Stathoulopoulos: And at this point, just you had said earlier, I think fourth quarter is 85% left. It sounds like 15% or so is on the books.

A – Drew Wells: Yes, that’s good for a semi round number.

Operator: And we did have one additional caller jump into the queue. Atul Maheswari with UBS has a question.

Q – Atul Maheswari: So 2 quick ones really. So first, you’re expecting a similar level of RASM acceleration in the fourth quarter like you saw last year. So, question is, how much confidence do you have that this acceleration will come through? Last year, you had about — if I’m looking at the model correctly, 300 to 400 basis points improvement like sequentially from 4Q to 3Q. So, like are you already seeing yield improvement in recent bookings that’s commensurate with this level of acceleration? Or any other color that you can provide that helps us get more confidence about the implied fourth quarter ramp?

A – Drew Wells: Yes. I mean, we’ve certainly seen the uptick in demand happen across the selling schedule. Just bear in mind, I mean, it’s 15% for the entirety of the fourth quarter, right? So, you’re looking at more than 90% left to go for December. So, it’s — I’m trying not to run away with a small sample size theater. But it looks fine in the small sample we do have.

Q – Atul Maheswari: Okay. And then as a follow-up, in 2023, you earned well north of $7 in EPS. So, do you think you were over-earning then? Or is that level of EPS something that you expect to achieve in the next couple of years? And somewhat related to this, like what elements of the business that drove that $7 plus in EPS a few years back that is maybe not going to repeat going forward? And what are some of the things that were missing then that you expect to drive earnings in the future?

A – Gregory Clark Anderson: Atul, it’s Greg. I can kick it off at a high level. I think ’23 — I’m looking at Drew at a very strong demand backdrop. Also, ’23 is when we began nearly midyear, I want to say, in May. So, in the full year, we started accruing a 35% increase for our pilots in terms of pay that as we’re in negotiations. But kind of just putting it all back together, what we’ve talked about and the focus in the areas, whether that be flying more in the peak periods, the operational performance, all the commercial initiatives, the cost discipline, bringing on more MAX aircraft, growing the loyalty program, technology advancements, all of that, better productivity, we see a path where we sit today to continue to grow and expand our earnings.

And we see that we expect to be able to get back to where we were and were in historical performance. I don’t want to come out and give a guide and say, hey, we’re going to be in ’23 by — we’re going to recapture ’23 EPS by this year or that year. But we expect to get back to where we were, and that’s what we’re working towards.

End of Q&A:

Operator: And that does conclude our Q&A session for today. So, I will now turn the call back over to Sherry Wilson for closing remarks. Sherry?

Sherry Wilson: Thank you all for joining the call. We’ll speak again next quarter.

Operator: Thanks, Sherry. And again, ladies and gentlemen, that concludes today’s call. Thank you all for joining, and you may now disconnect.