ALGT - NASDAQ

Thank you for standing by. My name is Mandeep, and I'll be your operator today. At this time, I'd like to welcome everyone to the Allegiant Travel Company Third Quarter 2024 Earnings Call. [Operator Instructions] Thank you. I would now like to turn the call over to Sherry Wilson, Managing Director of Investor Relations. You may begin.

Thank you. Welcome to the Allegiant Travel Company's third quarter 2024 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 and customer performance; and finally, Robert Neal, Chief Financial Officer, will speak to our financial performance. We have added a slide deck to be viewed in conjunction with today's call. 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 the 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.

Thank you, Sherry, and good afternoon, everyone. As you know, Hurricanes Helene and Milton caused extensive damage and destruction to areas of Florida and North Carolina. We extend our heartfelt thoughts to all the families and individuals impacted by those storms, both of which impacted communities where Allegiant team members live and work. As an organization closely connected with our communities, we are dedicated to aiding recovery efforts. We have and continue to provide essential aid to affected areas by working with national organizations, we deployed our care support team to assist and operated relief flights to help get individuals out of harm's way. I'm incredibly proud of our team for prioritizing the safety of our customers and one another. Thank you to the Allegiant family for all you've done. With that, let me turn to an update on our business. As you saw in our August traffic update reported in September, our business continues to improve. With demand coming in stronger than expected, TRASM turned positive in the back half of the month of September and fuel prices were slightly lower than previously estimated. For the third quarter, airline operating income was positive in what is our seasonally weakest quarter of the year. These results are inclusive of the significant disruptions from the hurricanes and industry wide CrowdStrike outage as team Allegiant jumped to action to minimize the impact on our customers. Turning briefly to the fourth quarter, we now expect airline operating margin of roughly 7%. The impact on demand from the hurricanes resulted in a four-point headwind, excluding this impact, we estimate fourth quarter airline operating margin would have been in the low-double-digits. We anticipate our affected markets in Florida and Ashville will be largely recovered by the first quarter of 2025. Additionally, we have taken proactive steps to support our longer term goals around improving operational efficiency, including realigning certain areas in the organization and other cost actions. These changes, while difficult, have reduced redundancies and are expected to save approximately $20 million annually. Drew and BJ will provide more details on numbers and outlook shortly. I'd like to update you on our three key near-term priorities that we talked about on our last call. First is restoring our peak period utilization. Second is bringing our MAX aircraft into service; and third is driving higher unit revenues, including adding new features into our Navitaire reservation management system. We believe a strong catalyst to improving margins is restoring peak utilization rates. In July, we were down 20% below -- we were 20% below the average daily utilization compared to 2019. By December, our schedule aims to reduce this gap to just 6%. We expect further improvement in 2025 by increasing capacity in periods with strong leisure demand on largely the same level of infrastructure we have in-place today. Our next key initiative is getting our MAX aircraft into service. To that end, we received our first aircraft in September, and I'm happy to report it entered revenue service in mid-October, a very quick turnaround that reflects our team's preparedness and dedication. Equally important, the early results we have seen so far have reaffirmed our excitement in the margin potential as the aircraft offers significant operating efficiencies, including an up to 26% improvement in fuel burn on an ASM per gallon basis. Overall, we estimate the earnings potential of the MAX to be roughly $2 million more in annualized EBITDA per aircraft as compared to our A320 series fleet. The Boeing strike has obviously created some additional uncertainty to our latest delivery forecast, and we don't see this being firmed up until the strike has ended. We have built-in some additional fleet flexibility to help address these challenges and have taken appropriate measures to better protect our schedule. Turning to our third key initiative, which is growing unit revenue. We have always been successful in allowing customers to choose which optional ancillary products are best for them as we pursue enhancements to our offering. That's why we continue retrofitting our aircraft to include Allegiant Extra for customers interested in premium seating. We are also making progress integrating important features into our Navitaire reservation system, including our popular third bundle product offering. Drew will provide more details here in a few minutes. And aside from items outside of our controls such as the hurricanes and the Boeing strike, I'm very pleased with our execution towards the plan we have laid out and the strong demand we are seeing in our unaffected markets. While some of the other low cost carrier's business models are troubled, our airline remains profitable and we see a clear path forward to expanding margin. There are structural changes happening throughout the industry, however, the fact that we have our own swim lane should help isolate us from these troubled waters. Most important, Allegiant is a great airline with a distinct approach. We have a long track-record of delivering industry-leading results. We have designed and operate our company around our unique business model since our beginnings, which is built to optimize margins. Our network is a real difference maker. Over the years, no one has been able to match it. In fact, as you've heard us say before, 75% of our routes have no direct non-stop competition. In many of those markets, we are the largest carrier. We are -- we also prioritize our scheduling flexibility so that we can properly match our capacity to the leisure demand environment. When you put it all together, we have a strong brand name and reputation and to customers in many markets, we are their best and often only option to get where they're going. All of that is validated by our steady demand for repeat customers and the continued growth of our loyalty program. An essential element of our success lies in the dedication of team Allegiant. Our proud and committed team recognizes significance of our brand and their role in serving our customers, consistently striving to deliver exceptional service. That is why we believe our airline is well positioned for a strong 2025 and beyond. And before I turn it over to Drew, I'd like to make some brief comments on our Sunseeker Resort, despite being in the crosshairs of two major hurricanes, the resort held up well, reflecting the strength of its construction and the resilience of its staff. Sunseeker is an amazing resort with excellent room and suite products, outstanding food and beverage offerings, relaxing pools and lots of recreational amenities. Our goal today is to make sure we're optimizing this asset and that's why we retain best-in-class advisors to help us increase the value we can realize for the resort and appropriately navigate discussions with potential partners. We are committed to making decisions that are in the best interest of our stakeholders. We will share more as our team progresses in its work. From my perspective, I am highly focused on executing our plan to restore historical profitability levels at the airline. Having the right people in place at Sunseeker allows the airline team not to be distracted from our primary goals and objectives. And in closing, I want to extend my deepest gratitude to all of our team members for their continued dedication and hard work. You are truly among the best the industry has to offer and your commitment is what makes Allegiant such a special company. And with that, I'll turn it over to Drew Wells.

Thank you, Greg, and thanks everyone for joining us this afternoon. Third quarter airline revenue was $549 million, down slightly year-over-year due to the available pilot crew hour constraints during summer flying as well as the impact from the CrowdStrike outage and two hurricanes in the quarter, Debby and Helene. TRASM strengthened each month of the quarter, both year-over-year and versus expectations coming in at $0.1221 and 300 basis points higher than the initial guidance we provided on our second quarter call and approximately 100 basis points better than the update we provided in mid-September, which is before Helene took shape. Fixed-fee performance also beat expectations and set a record 3Q performance. Our approach to deploying capacity drives increased exposure to portions of the quarter. In 3Q 2023, our roughly 44% of quarter ASMs in July meshed excellently with elevated summer demand, as it does most years. And enabled Allegiant to have the only positive year-over-year TRASM performance. In the third quarter of 2024, our roughly 44% of quarter ASMs in July, along with every other carrier's July ASMs faced the most pressure. However, the response in demand over the final half or so of the quarter was a positive signal for the future. September month unit revenue was near breakeven overall on a year-over-year basis and positive year-over-year in the last three weeks of the month. Prior to the hurricanes, we had seen those trends continue into the fourth quarter with October travel expectations trending low to mid-single-digit positive on a unit revenue basis. Overall, we are pleased with the third quarter results. The pickup in-demand and yield we are seeing is a positive indicator as the booking curve shifts to the holidays in 2025. In fact, the booking performance over the last seven days is the strongest we've had on a year-over-year basis since the arrival of Helene. As Greg alluded, hurricanes Helene and Milton had an outsized impact on our business. With approximately 37% of our anticipated fourth quarter seats in the markets affected. Some regions such Punta Gorda have recovered faster, while other areas like Asheville are expected to recover in the coming months. As of today, we estimate approximately 25% of our seat capacity continues to be impacted to varying degrees. Over the course of the quarter, we canceled or removed from the schedule close to 1,000 flights scheduled between the end of September and early January or 2% to 3% of our capacity. About two-thirds of which was a direct result of the hurricane weather and one-third was due to the residual impact to the regions. We believe the total revenue impact to the fourth quarter will be in the range of roughly $30 million to $40 million or approximately 5% to 7% of the total. On a per aircraft basis, aircraft utilization is on track to approach 2019 levels in the month of December despite the hurricane impact, with December ASMs expected to grow approximately 16% year-over-year. The vast majority of that growth is expected to take place over the holiday period, including a late Thanksgiving with those travelers returning home in December. Our pre-hurricane forecast would have called for fourth quarter scheduled service ASMs to be up approximately 3.5% to 4% versus 4Q 2023, with TRASM performance flat to down 1%. Our current revenue forecast anticipates scheduled service ASMs up approximately 1.5% and TRASM down approximately 4.5%. Looking-forward, our optimism has continued to build for our strategic initiatives. Utilization increases continue into the on-sale schedule for early 2025, and we still have capacity slack for opportunistic market and frequency additions. Allegiant Extra, our premium cabin configuration is doing very well in the market. We've retrofitted another 13 aircraft in the third quarter and including our new Boeing MAX that entered service in October, we expect to add another 14 aircraft before Thanksgiving, bringing us to over 50 total aircraft or 40% of our fleet in time for this year's holiday flying. Revenue production is maintained above $3 per passenger on flights with the extra layout even with continued expansion. Our loyalty programs are leading the market. Allegiant always rewards Visa co-branded credit cards, program was named the best airline credit card in USA Today's 10 Best 2024 Readers Choice Awards for the sixth consecutive year. We are also proud to see that USA Today recognized our Always Rewards loyalty program as a favorite among their readers as well for the second time in three years. Revenue from these programs is up approximately 20% year-to-date, reflecting the success of our efforts, strong customer relationships and continues to generate immense value for the airline and our cardholders. As Greg noted, I'm extremely proud of the work the team delivered in the third quarter to expand our bundling capabilities, which we expect to add roughly $1 to ancillary revenue per passenger going forward. The team continues to work diligently to secure the remaining expected benefit of $3 per passenger, which we expect to have fully implemented during the back half of 2025. Additionally, the team delivered both PayPal digital wallet and pay later payment options to our booking flow in the quarter. While early and complicated by weather events, we're seeing approximately 6% of bookings select a PayPal option. In particular, it is outperforming in our mobile channels as the most convenient mobile option other than always rewards points. We'll have more detail as we gather more information. Lastly, and as expected, the early feedback from our passengers has been extremely positive for the new Boeing MAX aircraft. Customer feedback has been very positive, thanks to in seat USB power and enhancements to the overall cabin experience. Our foundation is solidifying and our initiatives are taking shape. Our award winning loyalty programs are best-in-class and our enhanced premium cabin offerings are reaching more customers than ever before. The pieces have come together to operate more efficiently and successfully. And with that, I'd like to turn it over to Robert Neal.

Thanks, Drew. Now I'll comment on our financial results and guidance this afternoon, excluding any special items. We reported a consolidated net loss of $36.1 million for the third quarter or a consolidated loss per share of $2.02. Consolidated EBITDA was $46.3 million in the quarter for an EBITDA margin of 8.2%. Airline results were much better-than-expected with operating income slightly positive in what is typically our seasonally weakest quarter. We had an airline only net loss per share of $8.8 million, resulting in a loss per share of $0.49 in the Airline segment. These results included a headwind of approximately $0.40 from the CrowdStrike systems outage in July. The airline reported $56.6 million in EBITDA for the quarter, bringing the airline to an adjusted EBITDA margin of 10.3%. Cost performance exceeded our expectations during the third quarter, on a slight capacity increase of 1.5%, non-fuel unit costs were up by 4.7% compared to the prior year quarter, much better than the 7% we were expecting back in July and in line with revised guidance we provided in our August traffic update. Higher labor expense from updated CBAs drove roughly 2.5 points of the increase. Other increases included a point from irregular operations from the systems outage and weather events, a point from pressure in airport related expenses and a point from further delays on Boeing aircraft where we continue to carry extra headcount in anticipation of additional 737 aircraft in service for the fourth quarter. And then we had some offsetting reductions in maintenance and other expenses. We are taking action to manage costs that are structurally higher in today's post-pandemic environment. We continue to scrutinize the business to uncover cost saving opportunities and find ways to operate more efficiently. As Greg outlined, we have already identified approximately $20 million in annual run rate cost savings, some of which have been implemented in the quarter. Meanwhile, our unit costs will improve as we drive peak period utilization higher with our current December and March monthly schedules nearing 2019 levels. Bringing more of our MAX aircraft into service should provide a nice cost tailwind, driving better utilization while more fuel efficient equipment enters the operating fleet. As I mentioned on the last call, we are currently recognizing higher labor costs associated with ratified contracts and accrual for a pilot retention bonus, but without the full benefit of improved infrastructure productivity during peak leisure periods, something we expect will be constructive heading into 2025. And fuel was down nicely beginning in August, allowing us to finish the third quarter with an average fuel cost per gallon of $2.69 as compared to our initial expectation of $2.80. Moving to the balance sheet. We feel very good about our capital position. Total liquidity at the end of the quarter was $1.1 billion, including $805 million in cash and investments and $275 million in undrawn revolver capacity. In addition, we have just over $380 million in committed financing for aircraft delivering from our order book. During the quarter, we made principal payments totaling $107 million, of which $60 million was prepayment of debt on PDP loans ahead of the associated aircraft deliveries. We finished the third quarter with total debt just below $2.2 billion, marking the fourth consecutive quarter of debt reductions and we anticipate some further debt reduction in the fourth quarter. Our consolidated net leverage at the end of the quarter was 4.1 times, which includes $94 million in costs related to the pilot retention bonus. We previously discussed our expectation for net leverage to peak in mid-2025. With updates to our planned aircraft delivery schedule and expected EBITDA improvement from increased utilization, we now anticipate net leverage has peaked during the third quarter and we expect to begin modest deleveraging from here. Strength of the balance sheet remains one of our top priorities, and I'm pleased with the progress we're making on this front, especially considering earnings constraints in the trailing 12 months. Now turning to fleet. We retired four A320 aircraft during the quarter and we took delivery of one aircraft, our first 737 MAX in September. I mentioned on the last call that we've been working together with Boeing on an updated delivery schedule since early in the second quarter. As you might expect, this process has taken longer than expected in light of the ongoing machinist strike. That said, Boeing and CFM have been very supportive and we expect to disclose an amendment to our purchase agreement during the fourth quarter. The updated schedule, along with delays from the current machinist strike will result in a slower delivery profile than we had originally planned through 2025. Based on delays resulting from the stoppage so far, we are planning to end the year with just one MAX aircraft in service alongside 121 A320 family airplanes. As such, we have reduced our capital expenditure forecast for the year by $75 million and now expect aircraft related CapEx to be approximately $115 million for the full year 2024. Other airline capital expenditures are now expected to be approximately $110 million, down $15 million from our prior guide. And we continue to expect heavy maintenance to come in at $85 million for the full year, unchanged from the last quarter. For 2025, we are currently planning to take delivery of 11 MAX aircraft and remove 10 A320ceo family aircraft from operation, which would result in total fleet count up by just one unit at year end. That said, the bulk of our A320 retirements in 2025 are expected to take place late in the year, leaving peak summer aircraft availability similar to 2024 numbers with better peak period utilization expected. As a reminder, our expectations on aircraft deliveries differ from our contractual obligations. As we think about managing our fleet plan through anticipated delays on new build aircraft, we're fortunate to own 86% of our operating fleet and to have continued flexibility to support the business. Now looking ahead, we expect airline earnings per share of approximately $1 for the fourth quarter, including a $1.25 headwind attributable to Hurricane Helene and Milton. On a consolidated basis, we expect to earn $0.50 at the midpoint of today's guidance. With capacity up about 1% compared to the fourth quarter of 2023, we expect fourth quarter CASM-ex fuel to be flat to up 2% as we start to grow into some of our existing staffing and infrastructure in December. Now let me provide a quick update on Sunseeker. While the resort experienced minimal damage from the hurricanes, we did see some impacting cancellations. As a result, we are tracking slightly below our prior guidance of a $25 million EBITDA loss for the year. Looking forward to 2025, we expect significantly improved cash burn and look forward to sharing more details on our strategic review in the new year. And finally, before I turn it over to Q&A, I want to extend my thanks to all of our team members throughout the system for their dedication to Allegiant. On top of close in changes to our fleet and capacity plans once again, they've also managed through a series of major severe weather events disrupting our network. Many of our team members were personally impacted by Hurricanes Helene and Milton and still they delivered on their commitment to take care of our customers. So thank you once again to team Allegiant for your dedication and support. And with that, Mandeep, we can now go to analyst questions.

[Operator Instructions] Our first question comes from the line of Savi Syth with Raymond James. Please go ahead.

Hi, good afternoon, everyone. If I might ask on the capacity side, just given the Boeing uncertainty, just how you're thinking about and including like fourth quarter, what you're seeing in terms of increasing utilization, how much of that is showing up in kind of the peak days and peak travel -- you fly the peak days, but kind of peak travel periods versus the off peaks? And how does that progress as you kind of look into 1Q and then into the summer?

Sure, Savi, I'll take that. So for December in particular, we're going pretty full throttle over the holiday period. Day week isn't quite as sensitive as you can imagine around Christmas and New Year's since so many days are not in school already and off from work. So that goes pretty much all the way through with some exception around the actual holiday itself. Going into the first quarter, we'll still have a higher percentage of our ASMs on peak days in January and February than we did in either last year or 2019. In March, we'll go slightly more off-peak day than last year, but still higher peak day than 2019. Summer is not yet released for sale. So I'll stop short of talking on that. But hopefully, that got to your question.

Savi, hi, it's Greg. I just want to add one comment to that point and it's -- on that growth, as we look into next year and we called it out, but that's on the -- pretty much using the existing infrastructure we have today. It's kind of a onetime catch up. And so we think that it's going to be accretive flying for us.

No, good point. And then just on Allegiant Extra, given kind of what you're seeing there, can you talk about how many you have today and then just kind of the plan in 2025?

Yes. So we are sitting at, I believe it's 39, 40 today actually with the Boeing. We should bring on 13 more here in the next couple of weeks, we get those retrofitted. All of the rest of the Airbus aircraft that are eligible, the ones that are 186 seats today will be retrofit likely during the first half of next year. And then obviously, every Boeing we receive will have the Allegiant Extra on board. So every aircraft that intends to have it will be there next year.

Perfect. Thank you.

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

Hi, thanks. Just to follow-up on Savi's question there on the premium seating. Can you just remind us how the seating configuration is changing, how many premium seats you're adding and if the total seat count is going down? And I see you called this out as a $3 in ancillary. Is it all ancillary or are there effectively different fares for these premium seats that you're selling? And then maybe just lastly, given that you are still ramping it, where are you in your ability to actually like merchandise it effectively given that it's just a subset of your fleet?

Yes, Duane. So on the Airbus, we were taking aircraft that had 186 seats, removing one row, six seats total to give us 36 extra legroom seats at the front of the aircraft and 180 total seats. So that's been a relative no-brainer to lose those six to pick-up so many premiums. On the Boeing, we'll have 21 upfront. There will be branded Allegiant Extra and they'll have some more that are just kind of a legroom plus after the exit row. So not the full -- the full product there. For the Airbus aircraft, we have pretty good line of sight to when those are going to be retrofitted, how we can get the back into the schedule and feel like we're able to merchandise that extremely well. Very much too early to talk about the Boeing aircraft yet as we haven't had really a full booking cycle for those aircraft to be on sale. So standby for another 90 days or so on that one.

Okay. And I guess just on the -- again, on the ancillary call-out that you made there, is it all ancillary or can you speak just generally about what sort of fair uplift that you're seeing on those 36 seats relative to the rest of the cabin?

Yes, sorry about that, Duane. Yes, that will all hit the ancillary bucket, we continue to have kind of one fair at the beginning of the bookings flow with various options as you go through, but that would not hit an airline.

Okay. And then maybe just on Sunseeker, can you comment if you've been able to pick up any recovery business, I mean, I don't really know the state-of-the-heart situation there, but sometimes you pick-up FEMA business or contractor business after a big event like this and we had actually heard that some locals were trying to write out the storm at your asset, but that you actually didn't allow that and had it, I guess, shut down. So I guess, any line of sight into recovery business and maybe are you in the right channels to even pick that up?

Hi, Duane, this is Greg. Why don't I kick it off and maybe Micah can add a little bit more detail on the recovery business. It's a good question, an important one. I just want to hit that on our full year 2024 guide, the adjustment, we were coming in close to that guide, but for the hurricane, that set us back a bit. Some of our group business though, I think Micah told me about 80% of the group business that was booked in 2024 moved to 2025. So that was positive. And then on the FEMA side of the house, Micah, if you're able to provide some feedback or at least on that recovery business, if you don't mind jumping in.

Yes, Duane, great question. And I think you covered it well, Greg, on the group. A lot of that group business that we had to move out of October, we were able to capture about 85% of it in the aggregate, some of it falling into November, December, some of it carrying into Q1. In terms of FEMA, we are absolutely connected to that channel. We're seeing decent production for that and you'll start to see that show-up in November. These are -- you don't see it in terms of a lot of ancillary spend, but it's a decent ADR and the phase are long stays. So we are absolutely working with those -- with FEMA on that on that channel.

Okay. Thanks for the thoughts.

Thanks, Duane.

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

Hi, thanks. Good afternoon guys. So just on the hurricane, I totally get the impact on capacity, but can you just help me understand why there's such an outsized impact to RASM? And then maybe along those lines could be helpful. Can you just talk about some of like the monthly RASM trends that as you see Q4 playing out?

I may stop short of monthly trends. That's not something we typically give out, but we're still operating to all of these destinations, right? And there's varying degrees of impact to the level of revenue. The flights we maintain, I guess, maybe going back a little bit, we maintain some flying in the immediate aftermath of the hurricanes because I believe that there was a duty for us to aid customers in Ashville to get out of town, help aid get into Asheville. I believe it all still made cash, but it went beyond that. As we look forward, they're still flying that makes sense for us to do, makes sense for our customers, but it just won't have the same unit revenue profile that it would have given the demand that we've seen coming into the hurricane. So it's not a one for one match in terms of flights that we cancel off and revenue that we'll lose. That makes sense. And then we're making some forecast on how demand will return to each of these destinations in the coming weeks and months. Asheville still is in pretty bad shape. It's going to take a bit of time for it to get back to kind of full steam and that was 6%, 7% of our seats for the fourth quarter. And so it -- we feel it there.

Okay. Okay. That makes sense. And then just at a high-level, just directional thoughts on capacity growth next year, what that should mean for CASM, what it could mean for RASM, if we're seeing outsized growth next year in ASM?

Yes, maybe I'll tee it up quickly on capacity front. So we're on-sale through mid-May. What you see in kind of the public deal or similar has a sub kind of low-double-digits, I think over the four full months. We should maintain some of the utilization increases through summer. Like I said, it's not yet on sale, but I think it's a fair read through what we're able to do in March should carry on to the -- into the summer months. And then likely will curtail a little bit into the back half of the year, obviously December, we recaptured some of that utilization here in 2024, so we won't have that comp going into 2025. But there's some modest runway there that's almost entirely driven as we see it today through the infrastructure we have in place and not requiring significant CapEx to get to obviously, any sort of growth will put some pressure on the unit revenues. Navitaire is a back half of the year thing, I wouldn't anticipate pulling a lot of that forward, but we put more extra out there, we've got the expanded bundle options. There's some tailwinds that will help on that front. Maybe Robert for CASM.

Sure. Yes. So if you just go through kind of the puts and takes that I gave you on fleet for next year, you should have a fleet count relatively flat throughout the year, in particular in the peak periods. We've been clear about our plan to increase peak day and peak season utilization, trying to get back to 2019 levels. Obviously, we will be keeping an eye on revenue and fuel and other inputs as we move through next year. But the way I think about that from kind of the finance side of the house, we need to grow ASM capacity about 5% next year, I guess, depending on fleet composition a little bit, but about 5% next year to keep CASM-ex flat. And with what we just kind of gave you on fleet and the comments from Drew there, there's opportunity in existing infrastructure and really existing staffing levels to be kind of north of 15% next year. So based on the CASM guide, we gave you for the fourth quarter, hopefully that gives you some good direction for 2025.

And just quickly to follow-up, so if we're talking about double-digit to if you just said 15% capacity growth, would you think about -- how should we think about RASM in that kind of -- with that kind of growth?

Yes. I probably won't say a lot more than we are today. Any kind of growth will likely put pressure on unit revenue metrics. That's not a big surprise. We talked about some of the initiatives that we have in-place to kind of help bolster and provide some tailwinds there. In particular, when you're growing in March and growing in the summer, that's some of the best flying that's out there. First, and maybe not first, but foremost here, right, this is about driving earnings and EPS more so than making sure that we're maximizing unit rev or minimizing unit costs. So we're going to do the right thing by earnings at least as we forecasted out and I think the unit metrics will shake-out where they will.

And Drew, maybe it's just worth hitting, as we think about that growth in those peak periods in particular, kind of reinstating some of the capacity that was there before into some of our mature and stronger markets, is that fair to say?

Yes. I mean, that's a great example there. And in first quarter, right, for markets that we operated in 2024 and 2019, over 50% of those markets actually had fewer seats in 2024 than it did in the first quarter of 2019. So there's a lot of probably somewhat lower ceiling, but higher floor kind of ads that we can put in-place given the history there and more so than maybe our traditional ads that would be very heavily skewed towards new markets. So yes, I think there's some maybe more narrow error bars that come along with this as well.

Helpful. Thank you, guys. Appreciate it.

Thanks, Scott.

Our next question comes from the line of Thomas Fitzgerald with TD Cowen. Please go ahead.

Thanks so much for the time. Would you mind just walking through the cadence of the Navitaire optimization in 2025?

Yes. And then might be fairly easy. The vast majority of the upside and benefit recovery that we see will take place at the time of cutover in the back half of 2025. We did release in the third quarter kind of expand the bundle offering that we had ahead of the first implementation that will show benefits through the entirety of the year and we'll continue to work to find upside in the meantime. But I believe the vast majority of what we'll uncover will happen towards the end of next year.

And I might just add on that, Tom, just at a high level, with our tech stack with Navitaire being a big step-in strengthening that foundation. And we want to make sure that we get the commercial tech stack right for the long-term. So Drew and the IT team have really gone through to set that up properly. But what we're encouraged by is not only will we get some of these wins that we talked about in the past from Navitaire that full cutover, but the system should enable us to be much more nimble in the future, introduce new features, dynamically adjust pricing, things like that that we're encouraged by as well.

Okay. That's really helpful. And then just if I might -- with you taking on a MAX now, would you mind just like refreshing us on the kind of the concept of the airlines within the airlines and then how you manage the different segments of the fleet? Thanks again for the time.

I'm happy to kick that off. And we have -- I think the concept there is we have like 24 bases throughout our network, Thomas. And within those bases, we have infrastructure such as we have our cruise domicile there, our maintenance technicians. We have aircraft base there, parts, tools. And so in terms of operating a split fleet type, which we've done in the past. By the way, at one point, we operated three different fleet types, the MDs, the 75s and the 320s, but that you can isolate different fleet type by base. So you can have an all say Airbus base and an all Boeing base. And we think that isolation in those airlines within an airline could really help mitigate some of the complexity of operating a split fleet type. But I think it's an important point because we often get questions like-new aircraft, is that going to work for Allegiant? And just want to remind we've taken 13 new aircraft off the line from Airbus and we think we know these new MAX aircraft, they're going to work really well with our model. The size we are as an organization where we built the business primarily on used aircraft, we got to a point where we think a foundation of new aircraft make a lot of sense. We have different lines of flying and then we'll deploy, we think the MAX aircraft on more of the higher utilization lines of flying. And the early indicators of what we're seeing is -- is that the fuel burns meeting or exceeding expectation, the reliability is terrific and we stand by and ready to take more of these -- more MAX aircraft and introduce them to our fleet.

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

Hi, good afternoon. This is Katherine on for Ravi. So thank you for taking my questions. I just wanted to follow-up on a few questions asked before. One, just given the frequency of storms that we've kind of seen over the last couple of years. Does this change your view on the strategic process at Sunseeker?

Let me kick it off Katherine and Micah, may want to add some color on it. But after each storm, what I would say and had the chance to go and visit a lot of our bases that were impacted, including Sunseeker by the hurricanes, I feel like the team gets better on recovering and responding to the hurricanes and particularly talking about the Sunseeker team. But put that aside, as we think about the strategic review of Sunseeker what we talked about, we are focused on multiple paths, parallel paths, one is optimizing the existing resort, the other is a distribution partner and the third is the strategic capital partner. We're in early discussions in that regard. And I think the asset is positioned on the water with the amenities that we talked about with the opportunity with vacant land to continue to grow. So I don't know that it hurts the thesis. I think it just hardens the team in terms of being better prepared for hurricanes coming through that area. But Micah and his team eat, sleep and breathe this and they've been involved in all the storms there. So, Micah, what are your thoughts?

I think that -- I just echo what you said. I couldn't be more proud of the team. Each time we have a -- an event, we get better, we learn more about the building. I think it's important to emphasize that we've only been operating for 10 months. And then in that 10-month period, we've dealt with three different storms. The asset has performed exactly like it's supposed to base on its designs. And each time we go through it, our people get better, more efficient and we learn things that help us prepare for the next event. And while we don't want one, we know we can handle it. Proud to say that the asset is running well. Right now, there are several places up and down the coast of Florida that are not. And again, one would love to complement the team. The team has done a phenomenal job at getting it open and then making the challenges that we're dealing with transparent to customers.

Maybe just let me add one more point, Katherine. And I meant to mention this and I apologize, but the way it was designed to withstand the hurricanes that it's seen, when we were there for the customer, the guest experience, they wouldn't have noticed really that too much of an impact from the hurricane, because all of that went through the lower area that the resort was built like 14 or 16 feet off the mean high tideline.

It's very helpful. And just as a quick follow-up, we've been talking about premium and other peers increasing premium products, et cetera. So with Allegiant bringing in newer planes and the extra room, do you think this kind of creates an opportunity for you guys to push the floor of premium pricing higher as maybe peers are increasing products and fares as well?

I mean, we're continually testing our pricing across all products and premiums no different. Hats off to our ancillary pricing team that have been trying to push on this for -- since really the inception in 2018, 2019. Yes, I think the ceiling has probably been a little higher candidly lately than we saw early-on in our testing, which probably lends credibility to what you're saying there. But we'll keep testing. Hopefully, there's more to go.

Thank you.

Our next question comes from the line of Brandon Oglenski with Barclays. Please go ahead.

Hi, good afternoon. Greg, I guess, can we come back to the idea that you want to get back to full aircraft utilization? Maybe this is just nuance, but is it truly during just the peak period so we should be thinking in aggregate, you won't see the type of utilization did pre-pandemic or is the idea over-time you're flexing network up to full utilization throughout the week? Or am I missing something?

Well, let me hit it and Drew can add some color on that, Brandon. In 2019, I think we on average over the year, we -- our utilization was about eight hours per aircraft per day. Fuel was at a different point. I think it was a 212 or 215 in 2019. So generally in those off-peak periods, fuel is going to be the constraining factor when you're going to want to take-up utilization and if it's lower or if it's higher, you pull back utilization in a higher fuel environment to drive up payers. And in terms of the peak periods where kind of where we've been framing this message around, that's where we're focused on. The demand maintains for our network and the leisure demand remains very robust and strong in those peak periods. And so that's why we're kind of isolating it more to the peak periods when we talk about restoring utilization to 2019 levels. Is that fair, Drew, anything you want to add.

Yes, the thought process moving forward is no different than it looked in 2019. To Greg's point, your peak periods have rarely been constrained by demand or fuel. It's been about your first operational constraint. So having a lower or constraint being either the crew of pilot headcount hours available or the number of aircraft we have, that lifts, right, as we move forward. But like a September decision is the same. What's demand look like, what's fuel look like because we're not running into one of those operational constraints. So no change in the thought process. Certainly changed the demand environment and a massive change coming with Boeing's in terms of the operating economics that we'll have and how we choose to utilize those but nothing beyond that.

Okay. Thank you both. And then if I can follow real quick on Sunseeker. I mean I get it the hurricane impacts will be negative in the quarter, but it looks like the earnings outlook may be slightly more negative here on a full-year basis too. Can you talk to maybe just the holiday period, like how that's booking year-on-year at year-end is it seasoning better and maybe longer expectations or taking longer?

But why don't I kick it off, Micah and jump-in, Micah with some more detail there. But Micah talk more about the holiday bookings. The reason we gave you such a range on the full-year guide, I think we gave $25 million to $30 million is that we are seeing some strength in that recovery booking, the FEMA that Micah was talking about. And so we're seeing some of the bookings in the -- like the group business to move to '25. We're seeing some of that being recaptured with the FEMA side of the house. But one thing that we are building more conviction in Brandon, and I think it's an important point to make is that like in the first quarter of '25 and that's a peak period for Sunseeker. But what we're seeing now with the group business that's being booked, it's already on the books, it's trending really strong. We expect EBITDA in the first-quarter of next year to be positive. So let Micah come in through to add some color on that and also about more of the holiday bookings are shaping up.

Yes. No, great you hit it on the head. I like what I'm seeing in terms of what the holidays will look like for Thanksgiving, New Year's and Christmas to look good. Couldn't be more excited about Q1. As I sit here right now, we actualized in Q1 last year, we actualized under 10,000 group rooms. We're sitting on almost 19,000 for 2025. We talked about the transient needs for business, but there's nothing that's a greater indicator for us of what the future quarters will look like, that is more effective than the group business. And so to be able to tell you that I'm sitting on roughly double what that was last year for the coming quarter really is reassuring for me.

Thank you.

Thanks, Brandon.

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

Hi, good afternoon, everyone. Thanks for taking the questions. First one, just one, thank you for the fleet update next year. Obviously, CapEx schedules across the industry are changing pretty rapidly here because of Boeing. I guess, Robert, any guidepost on how we should think about CapEx next year, maybe 2026 based on what you know, today out of Boeing and maybe kind of how is that split between aircraft and non-aircraft?

Hi, Andrew. Sure. We sort of expected to come up and we're not ready to give a guide on CapEx for either 2025 or 2026, but I will tell you kind of how we're thinking about it. Maybe start by saying, what we know out of Boeing right now is very little. As you can imagine, discussions really on restarting deliveries have largely been on pause other than we know the state of aircraft that are being produced us that are in production, so the near-term units. And that really informed kind of what I walked through in the prepared remarks with respect to puts and takes on fleet. And so if I think about ending the year with a flat fleet count or 11 deliveries next year, and adjusting the rest of the 2025 schedule, I would expect that -- I would expect that CapEx kind of -- and this is kind of all-in CapEx is between $400 million and $500 million. Again, that would differ from our contractual obligations. And while I think I would typically say, I would look to the low-side of that range, just that range already considers that there are some further delays. So I'm kind of thinking about like mid-$400 million -- or yes, somewhere between $400 million and $500 million next year and we'll give a real update in January.

Got it. That is -- that's helpful. Thank you. And then second one maybe for -- maybe for Greg. Just pilots, I know you're in mediation, but I know -- I think they're voting on a potential strike authorization. I know that it is hard to strike in this industry, but I guess the last airline to do so was a ULCC. I guess, how do you view this risk? And is there anything you can do to potentially mitigate anything that could potentially happen? Thank you.

Thanks, Andrew. I appreciate the question. It's a very important one. And as you mentioned, it's typical in our industry to have a strike authorization vote and doesn't necessarily mean it will happen. I think it's important, though it's an important part of the process for labor to come together show that solidarity. In terms of where we're at, we have and we will continue to work in good faith throughout the mediation process. So we're committed to finding common ground on the open -- on the open issues, Andrew. And our priority is to deliver an AIP that our pilots will support and one that protects the business model. We have just incredibly really great pilots at Allegiant and they're integral to our success and we want to get a contract for them as well. And I know they want that also is obviously.

Got it. Thank you, Greg.

Thanks, Andrew.

Our next question comes from the line of Michael Linenberg with Deutsche Bank. Please go ahead.

Hi, good afternoon, everyone. I just -- I want to go back to the revised range for Sunseeker, the $25 million to $30 million. I noted in the release, some you did indicate that the Hurricane Milton impact is still being assessed and you'll provide an update in the December quarter. Is that like an insurance impact for damages? Or is it just all-in as it relates to overall bookings and how that performs in the fourth quarter?

Hi, Mike, it's good to talk to you. I think what we're -- I would take damages and put that aside. I think what we're putting in the $25 million to $30 million would be more on the revenue loss side of the house and kind of going back to the -- without the hurricane, we were going to -- we felt be close to that guide, but some of that damage from the hurricane, damage for Milton pushed some of the bookings into 2025, but then we have some FEMA bookings coming in now and then we're still trying to iron that out. And so that's where we -- once we had a little bit more color, we felt we could come back and provide an updated guide on the EBITDA side of the house. And then in terms of damage to the lower areas of the property, I don't think we're still assessing the damage there. That would be for both hurricanes and going through to get it repaired. But that would be excluded from that $25 million and $30 million -- $25 million to $30 million EBITDA loss.

Okay. That's super helpful. And then just my second question, just the BJ, you talked about owning 86% of your fleet and that's always been one of the positive attributes where the aircraft is high for you versus some of your other ULCC counterparts. If I were to sort of translate that into unencumbered asset value, I suspect that maybe some of those airplanes they may have debt on them, they may not, they may be completely free and clear. How can I think about what your unencumbered availability is, whether it's fleet and non-fleet, just to kind of get a sense of where things sit today? Thanks. Thanks for taking my questions.

Sure. Thanks, Mike. Yes, the way the way I would think about that is we're at 51 of our aircraft in the fleet today are unencumbered. I would think about that along with unencumbered spare engines, some of which we bought brand-new just before the pandemic. And then maybe add-in sort of the under-levered value in some of the aircraft that are financed that you referenced. I think all in there you about $650 million, maybe $700 million, something like that.

Awesome. Thanks, BJ. Thanks, everyone.

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

Hi, thanks. Good afternoon, guys. Greg, it'd be great to follow-up on the 2025 commentary. And I believe the messaging over the last couple of quarters is that full utilization has been worth roughly 6 percentage points to improve margins this year. And so I guess -- and that was with fuel, I think at 260 to 290. And so is that 6% referenced in prior calls, a reference to peak only flying and I know you're not guiding to 25 metrics, but is that 6 percentage point zip code a fair way to think about the margin potential directionally next year?

Yes. I think to your point, there's different elements for the backdrop, whether that be fuel or the revenue environment. And in 2023 and during those peak periods coming into 2024, we valued that incremental peak utilization would be worth, I think, I want to say up to 4 to 6 points of margin. And so as you kind of extrapolate that into 2025 without giving guidance, we think as we continue to restore the peak utilization and execute on the plan that we've laid out, we expect meaningful expansion on the margin side of the house higher than 2024.

Yes. And then, Drew, I guess, really this -- my next question is really just a clarification of the guide. So September unit revenues are positive the last three weeks, but I think the outlook for the fourth quarter RASM is down 4.5%. So is -- and I'm just curious, just for clarification, if the guide is embedding weaker year-over-year RASM over the holidays, just given the 16% growth and I know the more peak flying is accretive, but I'm just trying to get at what's embedded in the guide.

Certainly, there will be some RASM headwind associated with growth, even in the holidays growing 16% for the month will have its pressure. The biggest impacts really are hurricane-related and some question marks around the cadence of recovery around some destinations. At the outset before the hurricane, we thought or we mentioned that we thought the unit revenue forecast would be flat to about down one with the bulk of the headwind there coming from the growth in December on a unitized basis. But I mean, hurricanes are big deal for our network.

It's a big deal. Yes. Understood. And then if I could squeeze one last one in here, BJ. I know that Sunseeker was written-down during COVID. And can you just remind us of the book-value currently? And then secondly, if there is a loss, let's say, you were able to sell it sometime in 2025 or sell some partial or some stake in it. I'm just curious if the auditors would want to strip that out as a special item or report it as continuing. And I guess I'm just trying to get a sense of that's something we should anticipate in our models.

Hi, Dan. We have some of our accounting leaders here in the room as well. So I was just looking to them. Maybe start with the first part of your question. I think you were asking about like after the write-down what the book-value was on the resort. Is that what you're asking?

Yes, correct. Thanks.

Yes. If you think about the CapEx guide that we gave and then the write-down that we would have announced, I guess that would have been late 2020 and I really don't have the number right in front of me, but I think you should end up with something in like the mid-$600 million area on that.

The write-down, the impairment, I think, Dan, if I recall, was like -- over $100 million, like $120 million to $140 million.

Okay. And then just -- when you do sell a partial stake in that, is that something that the auditors would strip out as a special item or is that -- I guess I'm just trying if we should factor that into our model or just directionally how we can think about that?

I don't know that we know the answer to that. Greg, do you have.

Yes. Yes. It would really be our management decision. And I guess we'd have to look at like-kind of the circumstances of the sale. When you say a partial sale, there's so many different ways to kind of think about that. I'm sure there are some circumstances where we would need to or want to report that as a special item, but many where we wouldn't need to. I don't know if anyone else in the room wants to add anything.

Well, okay, that's fine. That helps. But thanks so much for the time, you guys.

Of course, Dan. Thank you.

Our next question comes from the line of [Chris Staff] with SIG. Please go ahead.

Thanks, everyone. Good afternoon. So I want to go back to earlier question on capacity. So it's the net -- your fleet is net plus 1% on the aircraft side. I think I heard around 5% to keep CASM-ex here flat. So just kind of working through the math here, and if you could help us think so on a flattish fleet count, your seats per departure gauge. And I'm guessing this is a more kind of departure driven year utilization looks like it's going to be up or you said that you're already there. Just want to better understand the moving pieces of that. And then also the seasonal routes, I think historically you're at 15% and the mix of new routes as well. Thanks.

Sure. A few things here. So please circle back when I inevitably forget one. You're right, this is primarily a departure-driven growth that's coming from utilization and not necessarily from incremental fleet. We will be plus a little bit on the fleet side in the first half of the year before coming back to that net plus one at the end, which will contribute a little bit. In terms of gauge, right, for every MAX we bring on it at 190, they'll be offsetting a retirement at 177. So there's maybe a small amount of gauge lift there, but I wouldn't necessarily run away with it. Anything else on that before I talk market pieces?

Yes. And I would just say like as the MAX has come in just due to some the uncertainty of the delivery timing and Drew, I want to speak for you and your team, but particularly in the beginning of the year, I would assume at some point, they're just taking over some A320 lines as well that would have been scheduled at the lowest capacity.

Right. Such as they deliver earlier than we had planned that will happen. Yes. From a market mix, I'd expect the majority of the added frequencies to be on existing routes, something in probably the 75% to 80% of the growth coming on existing routes and existing frequency. Going back to -- Greg made the great point earlier around how much of our network is actually operating less than it did in 2019 or in other prior years, providing kind of a solid floor as we add that back in. But there will be some component of new markets that I know the network team is excited about getting back in that game in a more meaningful way. So yes, maybe 75%, 80% of that same-store restoration before getting to the new markets.

Yes. Thank you. And then on the Sunseeker, so I think I heard you say positive adjusted EBITDA in 1Q and group is up double-digits year-on-year. Just if you could give me those numbers and also on the positive side, the mix of ADR versus occupancy. I just want to kind of better understand where you see ADR going and how occupancy might be tracking? Thanks.

Yes, I can hit that real quick. And that's occupancy in the high 50%, so call it between 57% to 59% ADRs north of 300. And yes, the expectation is the EBITDA-positive in the first quarter and the strength of group business is really -- it's helping to drive that.

Okay. Thank you.

That concludes our Q&A session. I will now turn the call back over to Sherry Wilson for closing remarks.

Thank you all for joining today's call. Please feel free to reach out if you have any questions. Otherwise, we will chat with you next year.