Annual Statements Open main menu

Allegiant Travel CO - Quarter Report: 2020 September (Form 10-Q)


SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period endedSeptember 30, 2020
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from               to            
Commission File Number 001-33166
algt-20200930_g1.jpg
Allegiant Travel Company
(Exact Name of Registrant as Specified in Its Charter)
Nevada20-4745737
(State or Other Jurisdiction of Incorporation or Organization)(IRS Employer Identification No.)
1201 North Town Center Drive
Las Vegas,Nevada89144
(Address of Principal Executive Offices)(Zip Code)
Registrant’s Telephone Number, Including Area Code: (702) 851-7300

Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading SymbolName of each exchange on which registered
Common stock, par value $.001ALGTNASDAQ Stock Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  No 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).   Yes   No 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filerAccelerated filer
Non-accelerated filerSmaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes    No

As of October 30, 2020, the registrant had 16,389,481 shares of common stock, $.001 par value per share, outstanding.



ALLEGIANT TRAVEL COMPANY
FORM 10-Q
TABLE OF CONTENTS
PART I.FINANCIAL INFORMATION 
  
ITEM 1.
  
ITEM 2.
  
ITEM 3.
  
ITEM 4.
  
PART II.OTHER INFORMATION
  
ITEM 1.
  
ITEM 1A.
  
ITEM 2.
ITEM 3.
ITEM 4.
ITEM 5.
  
ITEM 6.
2


PART I. FINANCIAL INFORMATION

Item 1. Consolidated Financial Statements
ALLEGIANT TRAVEL COMPANY
CONSOLIDATED BALANCE SHEETS
(in thousands)
September 30, 2020December 31, 2019
(unaudited)
CURRENT ASSETS 
Cash and cash equivalents$268,042 $121,888 
Restricted cash17,426 14,897 
Short-term investments441,764 335,928 
Accounts receivable166,924 25,516 
Expendable parts, supplies and fuel, net26,305 28,375 
Prepaid expenses and other current assets30,742 35,617 
TOTAL CURRENT ASSETS951,203 562,221 
Property and equipment, net2,004,829 2,236,808 
Long-term investments— 15,542 
Deferred major maintenance, net127,457 129,654 
Operating lease right-of-use assets, net114,573 22,081 
Deposits and other assets25,031 44,497 
TOTAL ASSETS:$3,223,093 $3,010,803 
CURRENT LIABILITIES
Accounts payable$64,674 $27,667 
Accrued liabilities130,665 159,031 
Current operating lease liabilities13,814 2,662 
Air traffic liability334,061 249,950 
Current maturities of long-term debt and finance lease obligations, net of related costs233,680 173,274 
TOTAL CURRENT LIABILITIES776,894 612,584 
Long-term debt and finance lease obligations, net of current maturities and related costs1,316,171 1,248,579 
Deferred income taxes292,661 232,520 
Noncurrent operating lease liabilities101,864 21,290 
Other noncurrent liabilities23,805 12,279 
TOTAL LIABILITIES:2,511,395 2,127,252 
SHAREHOLDERS' EQUITY
Common stock, par value $.00123 23 
Treasury shares(648,118)(617,579)
Additional paid in capital315,150 289,933 
Accumulated other comprehensive income, net183 98 
Retained earnings1,044,460 1,211,076 
TOTAL EQUITY:711,698 883,551 
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY:$3,223,093 $3,010,803 
 
The accompanying notes are an integral part of these consolidated financial statements.
3


ALLEGIANT TRAVEL COMPANY
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share amounts)
 (unaudited)
 Three Months Ended September 30,Nine Months Ended September 30,
 2020201920202019
OPERATING REVENUES:
Passenger$181,916 $391,222 $677,347 $1,265,978 
Third party products11,337 18,207 35,756 53,557 
Fixed fee contracts5,284 19,797 17,440 42,859 
Other2,447 7,283 12,969 17,498 
   Total operating revenues200,984 436,509 743,512 1,379,892 
OPERATING EXPENSES:
Salary and benefits95,829 107,586 303,264 340,589 
Aircraft fuel52,540 104,583 168,711 324,253 
Depreciation and amortization45,291 39,436 132,285 114,112 
Station operations39,954 43,522 108,359 128,357 
Maintenance and repairs14,038 24,768 48,866 68,470 
Sales and marketing7,967 17,591 35,331 59,057 
Aircraft lease rental3,015 — 5,404 — 
Other19,755 26,907 70,225 73,756 
CARES Act grant recognition(77,909)— (152,448)— 
Special charges33,585 — 280,852 — 
   Total operating expenses234,065 364,393 1,000,849 1,108,594 
OPERATING INCOME (LOSS)(33,081)72,116 (257,337)271,298 
OTHER (INCOME) EXPENSES:
Interest expense11,943 19,506 44,149 58,531 
Capitalized interest— (903)(4,067)(3,444)
Interest income(868)(3,335)(4,596)(10,038)
Loss on debt extinguishment— — 1,222 3,677 
Special charges— — 26,632 — 
Other, net552 (57)1,173 (41)
   Total other expenses11,627 15,211 64,513 48,685 
INCOME (LOSS) BEFORE INCOME TAXES(44,708)56,905 (321,850)222,613 
INCOME TAX PROVISION (BENEFIT)(15,565)12,976 (166,595)51,017 
NET INCOME (LOSS)$(29,143)$43,929 $(155,255)$171,596 
Earnings (loss) per share to common shareholders:
Basic$(1.82)$2.70 $(9.75)$10.55 
Diluted$(1.82)$2.70 $(9.75)$10.54 
Shares used for computation:
Basic16,006 16,037 15,953 16,037 
Diluted16,006 16,039 15,953 16,045 
Cash dividends declared per share:$— $0.70 $0.70 $2.10 

The accompanying notes are an integral part of these consolidated financial statements.
4


ALLEGIANT TRAVEL COMPANY
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands)
(unaudited)
 
 Three Months Ended September 30,Nine Months Ended September 30,
 2020201920202019
NET INCOME (LOSS)$(29,143)$43,929 $(155,255)$171,596 
Other comprehensive income (loss):  
Change in available for sale securities, net of tax(292)16 32 669 
Foreign currency translation adjustments51 17 53 21 
Total other comprehensive income(241)33 85 690 
TOTAL COMPREHENSIVE INCOME (LOSS)$(29,384)$43,962 $(155,170)$172,286 

The accompanying notes are an integral part of these consolidated financial statements.
5


ALLEGIANT TRAVEL COMPANY
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(in thousands)
(unaudited)
Three Months Ended September 30, 2020
Common stock outstandingPar valueAdditional paid-in capitalAccumulated other comprehensive income (loss)Retained earningsTreasury sharesTotal shareholders' equity
Balance at June 30, 202016,240 $23 $310,628 $424 $1,073,603 $(648,118)$736,560 
Share-based compensation58 — 4,099 — — — 4,099 
Other comprehensive income (loss)— — — (241)— — (241)
CARES Act warrant issuance— — 423 — — — 423 
Net loss— — — — (29,143)— (29,143)
Balance at September 30, 202016,298 $23 $315,150 $183 $1,044,460 $(648,118)$711,698 
Nine Months Ended September 30, 2020
Common stock outstandingPar valueAdditional paid-in capitalAccumulated other comprehensive incomeRetained earningsTreasury sharesTotal shareholders' equity
Balance at December 31, 201916,303 $23 $289,933 $98 $1,211,076 $(617,579)$883,551 
Share-based compensation171 — 23,842 — — — 23,842 
Shares repurchased by the Company and held as treasury shares(217)— — — — (33,773)(33,773)
Stock issued under employee stock purchase plan41 — — — — 3,234 3,234 
Cash dividends declared, $0.70 per share— — — — (11,361)— (11,361)
Other comprehensive income (loss)— — — 85 — — 85 
CARES Act warrant issuance— — 1,375 — — — 1,375 
Net loss— — — — (155,255)— (155,255)
Balance at September 30, 202016,298 $23 $315,150 $183 $1,044,460 $(648,118)$711,698 
6


Three Months Ended September 30, 2019
Common stock outstandingPar valueAdditional paid-in capitalAccumulated other comprehensive income (loss)Retained earningsTreasury sharesTotal shareholders' equity
Balance at June 30, 201916,305 $23 $280,783 $(4)$1,128,822 $(605,115)$804,509 
Share-based compensation— — 4,535 — — — 4,535 
Shares repurchased by the Company and held as treasury shares(110)— — — — (15,540)(15,540)
Cash dividends declared, $0.70 per share— — — — (11,409)— (11,409)
Other comprehensive income (loss)— — — 33 551 — 584 
Net income— — — — 43,929 — 43,929 
Balance at September 30, 201916,195 $23 $285,318 $29 $1,161,893 $(620,655)$826,608 
Nine Months Ended September 30, 2019
Common stock outstandingPar valueAdditional paid-in capitalAccumulated other comprehensive income (loss)Retained earningsTreasury sharesTotal shareholders' equity
Balance at December 31, 201816,183 $23 $270,935 $(661)$1,025,061 $(605,037)$690,321 
Share-based compensation124 — 14,383 — — — 14,383 
Shares repurchased by the Company and held as treasury shares(132)— — — — (18,549)(18,549)
Stock issued under employee stock purchase plan20 — — — — 2,931 2,931 
Cash dividends, $2.10 per share— — — — (34,214)— (34,214)
Other comprehensive income (loss)— — — 690 — — 690 
Net income— — — — 171,596 — 171,596 
Cumulative effect of the New Lease Standard— — — — (550)— (550)
Balance at September 30, 201916,195 $23 $285,318 $29 $1,161,893 $(620,655)$826,608 

The accompanying notes are an integral part of these consolidated financial statements.
7


ALLEGIANT TRAVEL COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
 Nine Months Ended September 30,
 20202019
Cash flows from operating activities:
Net income (loss)$(155,255)$171,596 
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization132,285 114,112 
Special charges279,114 — 
Other adjustments89,342 60,135 
Changes in certain assets and liabilities:
Air traffic liability84,111 55,446 
Other - net(152,872)(79,862)
Net cash provided by operating activities276,725 321,427 
Cash flows from investing activities:
Purchase of investment securities (511,667)(397,504)
Proceeds from maturities of investment securities 421,658 413,038 
Purchase of property and equipment(198,567)(350,187)
Proceeds from sale-leaseback transactions78,185 — 
Other investing activities1,247 10,647 
Net cash used in investing activities(209,144)(324,006)
Cash flows from financing activities:
Cash dividends paid to shareholders(11,361)(34,214)
Proceeds from the issuance of debt272,548 770,435 
Repurchase of common stock(33,773)(18,549)
Principal payments on debt and finance lease obligations(146,416)(670,148)
Debt issuance costs(4,505)(32,592)
Other financing activities4,609 325 
Net cash provided by financing activities81,102 15,257 
NET CHANGE IN CASH, CASH EQUIVALENTS, AND RESTRICTED CASH148,683 12,678 
CASH, CASH EQUIVALENTS, AND RESTRICTED CASH AT BEGINNING OF PERIOD136,785 95,911 
CASH, CASH EQUIVALENTS, AND RESTRICTED CASH AT END OF PERIOD$285,468 $108,589 
CASH PAYMENTS (RECEIPTS) FOR:
Interest paid, net of amount capitalized$36,801 $53,089 
Income tax refunds(95,258)(2,227)
SUPPLEMENTAL DISCLOSURE OF NONCASH TRANSACTIONS:
Right-of-use (ROU) assets acquired$103,499 $2,213 
Purchases of property and equipment in accrued liabilities19,294 6,091 

The accompanying notes are an integral part of these consolidated financial statements.
8


ALLEGIANT TRAVEL COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

Note 1 — Summary of Significant Accounting Policies

Basis of Presentation

The accompanying unaudited consolidated financial statements include the accounts of Allegiant Travel Company (the “Company”) and its majority-owned operating subsidiaries. The Company's investments in unconsolidated affiliates, which are 50 percent or less owned, are accounted for under the equity or cost method, and are insignificant to the consolidated financial statements. All intercompany balances and transactions have been eliminated.

These unaudited consolidated financial statements reflect all normal recurring adjustments which management believes are necessary to present fairly the financial position, results of operations, and cash flows of the Company for the respective periods presented. Certain reclassifications have been made to prior year financial statements to conform to classifications used in the current year. Certain information and footnote disclosures normally included in the annual consolidated financial statements prepared in accordance with U.S. generally accepted accounting principles ("U.S. GAAP") have been omitted pursuant to the rules and regulations of the Securities and Exchange Commission for Form 10-Q. These unaudited interim consolidated financial statements should be read in conjunction with the audited consolidated financial statements of the Company and notes thereto included in the annual report of the Company on Form 10-K for the year ended December 31, 2019 and filed with the Securities and Exchange Commission.

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities, at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results may differ from these estimates.

Recent Accounting Pronouncements

On June 16, 2016, the FASB issued ASU No. 2016-13, Measurement of Credit Losses on Financial Instruments. The standard requires the use of an “expected loss” model on certain types of financial instruments. The standard also amends the impairment model for available-for-sale debt securities and requires estimated credit losses to be recorded as allowances instead of reductions to amortized cost of the securities. The Company adopted this accounting standard prospectively as of January 1, 2020, and it did not have a significant impact on its consolidated financial statements.

On December 18, 2019, the FASB issued ASU No. 2019-12, Simplifying the Accounting for Income Taxes. The standard simplifies the accounting and disclosure requirements for income taxes by clarifying existing guidance to improve consistency in application of ASC 740. The standard also removes the requirement to calculate income tax expense for the stand-alone financial statements of wholly-owned subsidiaries. The standard is effective for fiscal years, and interim periods within those years, beginning after December 15, 2020, with early adoption permitted in any interim period within that year. The Company plans to adopt this accounting standard effective January 1, 2021.

Note 2 — Impact of the COVID-19 Pandemic

The rapid spread of COVID-19 and the related government restrictions, social distancing measures, and consumer fears have impacted flight loads, resulted in unprecedented cancellations of bookings and substantially reduced demand for new bookings throughout the airline industry. Starting in March 2020, the Company experienced a severe reduction in air travel, which has continued. Demand in the foreseeable future will continue to be affected by fluctuations in COVID-19 cases, hospitalizations, deaths, treatment efficacy and the availability of a vaccine. The Company is continuously reevaluating flight schedules based on demand trends.

The Coronavirus Aid, Relief and Economic Security Act (the "CARES Act") was enacted in March 2020, providing support for the airline industry and other businesses and individuals.

On April 20, 2020, the Company through its airline operating subsidiary Allegiant Air, LLC entered into a Payroll Support Program Agreement (the “PSPA”) with the U.S. Department of the Treasury ("Treasury") for an award Allegiant Air would receive under the CARES Act. The total amount initially allocated to Allegiant Air under the PSP was $171.9 million, all of which was received by the end of July 2020. On September 30, 2020, the Company received an additional installment of $5.0 million for a total aggregate of $176.9 million under the PSPA. The proceeds of the award were used exclusively for wages, salaries and benefits during the second and third quarters 2020, in accordance with the agreement.

The $176.9 million received under the PSPA during the second and third quarters of 2020 includes direct grants, a $23.1 million loan, and warrants to purchase 27,681 shares of the Company's common stock, as further discussed below.

9


In consideration for the grant, Allegiant Air issued to Treasury a low-interest rate, senior unsecured term promissory note (the “PSP Note”) which will mature 10 years after issuance. The principal amount of the PSP Note is $23.1 million. The PSP Note is guaranteed by the Company and is prepayable at any time at par (see Note 5).

Also in consideration for the grant, the Company issued warrants (the “PSP Warrants”) to Treasury to purchase 27,681 shares of common stock of the Company at a price of $83.33 per share (based on the closing price of the Company’s common stock on The Nasdaq Global Select Market on April 9, 2020). Warrants to purchase 19,700 shares (valued at $1.0 million) were issued in May and June 2020, and warrants for the remaining 7,981 shares (valued at $0.4 million) were issued in July and September 2020. The PSP Warrants expire five years after issuance, and will be exercisable either through net share settlement or cash, at the Company’s option. The PSP Warrants include customary anti-dilution provisions, do not have any voting rights and are freely transferable, with registration rights.

In connection with the PSPA, the Company is required to comply with the relevant provisions of the CARES Act, including those prohibiting the repurchase of common stock and the payment of common stock dividends until September 30, 2021, as well as those restricting the payment of certain executive compensation for periods through March 24, 2022.

Given the Company's efforts to conserve and raise liquidity and the Company's assumptions about the future impact of COVID-19 on travel demand, which could be materially different due to the inherent uncertainties of the current operating environment, the Company expects to meet its cash obligations as well as remain in compliance with the debt covenants in its existing financing agreements for the next 12 months based on its current level of unrestricted cash and short-term investments, its anticipated access to liquidity and tax refunds, and projected cash flows from operations.

Special Charges

The effects of COVID-19 triggered an impairment review, and a non-cash impairment charge was recognized during the nine months ended September 30, 2020 (see Note 12 - Impairment for additional detail). The Company also identified expenses that were unique and specific to COVID-19. The impairment charges and other expenses that resulted from the effects of COVID-19 are recorded as special charges within both operating and non-operating expenses during the nine months ended September 30, 2020. See the table below for a summary of operating and non-operating special charges recorded by segment during the three and nine months ended September 30, 2020.
(in thousands)AirlineSunseeker ResortOther
non-airline
Total
Three Months Ended September 30, 2020
Operating$32,617 $— $968 $33,585 
Non-operating— — — — 
Total special charges$32,617 $— $968 $33,585 
Nine Months Ended September 30, 2020
Operating$118,059 $135,443 $27,350 $280,852 
Non-operating— 26,632 — 26,632 
Total special charges$118,059 $162,075 $27,350 $307,484 

Additional detail for the $307.5 million total special charges (operating and non-operating) for the nine months ended September 30, 2020 appears below:

$168.4 million in impairment charges
Includes Airline - $5.0 million; Sunseeker Resort - $136.8 million; Other non-airline - $26.6 million
$89.3 million adjustment resulting from the accelerated retirements of seven airframes and five engines, loss on sale leaseback transactions of seven aircraft, and write-offs of other aircraft related assets
$21.5 million adjustment for additional salary and benefits expense in relation to the elimination of positions as well as other non-recurring compensation expense associated with the acceleration of certain existing stock awards
Includes Airline - $21.1 million; Sunseeker Resort - $0.4 million
$19.8 million related to the termination of the loan agreement with Sixth Street Partners (formerly TSSP) intended to finance the development of Sunseeker Resorts Charlotte Harbor
$14.9 million paid during the third quarter 2020 and remaining $4.9 million recorded in accrued liabilities (subsequently paid in October 2020)
$5.0 million related to suspension of construction at Sunseeker
$3.5 million write-down on various non-aircraft assets and other various expenses

10


Note 3 — Revenue Recognition

Passenger Revenue

Passenger revenue is the most significant category in the Company's reported operating revenues. Passenger revenue is primarily composed of scheduled service revenue (including passenger ticket sales and credit voucher breakage), revenue from ancillary air-related charges (including seat fees, baggage fees, and other travel-related services performed in conjunction with a passenger’s flight), as well as co-brand credit card point redemptions, as outlined below:
Three Months Ended September 30,Nine Months Ended September 30,
(in thousands)2020201920202019
Scheduled service$79,464 $200,233 $325,404 $672,690 
Ancillary air-related charges100,262 187,776 342,520 583,003 
Co-brand redemptions2,190 3,213 9,423 10,285 
Total passenger revenue$181,916 $391,222 $677,347 $1,265,978 

Sales of passenger tickets not yet flown are recorded in air traffic liability. Passenger revenue is recognized when transportation is provided or when ticket voucher breakage occurs, to the extent different from estimated breakage. As of September 30, 2020, approximately 34.7 percent of the air traffic liability balance was related to forward bookings, with the remaining 65.3 percent related to credit vouchers for future travel.

The normal contract term of passenger tickets is twelve months and revenue associated with future travel will principally be recognized within this time frame. During the nine months ended September 30, 2020, $204.1 million was recognized into passenger revenue that was recorded in the air traffic liability balance of $250.0 million at December 31, 2019.

In April 2020, the Company announced that credits issued for canceled travel in April through the end of the COVID-19 pandemic will have an extended expiration date of two years from the original booking date. This change has been considered in estimating the future breakage rate, which represents the value of credit vouchers that are not expected to be redeemed prior to their contractual expiration date.

Co-brand redemptions

In relation to the travel component of the co-branded credit card contract with Bank of America, the Company has a performance obligation to provide cardholders with points to be used for future travel award redemptions. Therefore, consideration received from Bank of America related to the travel component is deferred based on its relative selling price and is recognized into passenger revenue when the points are redeemed and the transportation is provided. In September 2020, the Company amended its existing co-brand agreement, which among other things extended the term of the agreement through August 2029 and provided for the pre-purchase of credit card points. This transaction was treated as a financing transaction for accounting purposes using an effective interest rate consistent with the Company’s credit rating.

The following table presents the activity of the co-brand point liability as of the dates indicated:
Nine Months Ended September 30,
(in thousands)20202019
Balance at January 1$15,613 $10,708 
Points awarded (deferral of revenue)15,018 14,308 
Points redeemed (recognition of revenue)(9,510)(10,285)
Balance at September 30$21,121 $14,731 

As of September 30, 2020 and 2019, $11.8 million and $10.6 million, respectively, of the current points liability is reflected in Accrued liabilities and represents the Company's current estimate of revenue to be recognized in the next twelve months based on historical trends, with the remaining balance reflected in other noncurrent liabilities expected to be recognized into revenue in periods thereafter. Given the inherent uncertainty of the current operating environment due to COVID-19, the Company will continue to monitor redemption patterns and may adjust its estimates in the future.

11


Note 4 — Property and Equipment

The following table summarizes the Company's property and equipment as of the dates indicated:
(in thousands)September 30, 2020December 31, 2019
Flight equipment, including pre-delivery deposits$2,259,358 $2,289,157 
Computer hardware and software151,602 171,516 
Land and buildings/leasehold improvements86,825 98,885 
Other property and equipment80,156 161,760 
Total property and equipment2,577,941 2,721,318 
Less accumulated depreciation and amortization(573,112)(484,510)
Property and equipment, net$2,004,829 $2,236,808 

Accrued capital expenditures as of September 30, 2020 and December 31, 2019 were $19.3 million and $16.5 million, respectively.

Note 5 — Long-Term Debt

The following table summarizes the Company's Long-term debt and finance lease obligations as of the dates indicated:
(in thousands)September 30, 2020December 31, 2019
Fixed-rate debt and finance lease obligations due through 2029$363,080 $235,071 
Variable-rate debt due through 20291,186,771 1,186,782 
Total long-term debt and finance lease obligations, net of related costs1,549,851 1,421,853 
Less current maturities, net of related costs233,680 173,274 
Long-term debt and finance lease obligations, net of current maturities and related costs$1,316,171 $1,248,579 
Weighted average fixed-interest rate on debt3.9 %3.7 %
Weighted average variable-interest rate on debt2.4 %4.5 %

Maturities of long-term debt and finance lease obligations for the remainder of 2020 and for the next four years and thereafter, in the aggregate, are: remaining in 2020 - $44.7 million; 2021 - $229.3 million; 2022 - $135.5 million; 2023 - $122.1 million; 2024 - $656.3 million; and $362.0 million thereafter.

CARES Act Payroll Support Program Loan

In April 2020 the Company entered into a low-interest rate, senior unsecured term promissory note (the "PSP" Note) with the Treasury under the CARES Act payroll support program. The PSP Note will mature 10 years after issuance and bears interest at a rate of 1.0 percent for the first five years, with interest at the secured overnight financing rate (SOFR) plus 2.0 percent thereafter. The PSP Note is prepayable at any time at par, without penalty.

During the second and third quarters 2020, the Company received $23.1 million in funds under the PSP Note, which is recorded within noncurrent debt on the balance sheet.

In connection with the PSP Note, the Company is required to comply with the relevant provisions of the CARES Act, including those prohibiting the repurchase of common stock and the payment of common stock dividends until September 30, 2021, as well as those restricting the payment of certain executive compensation for periods through March 24, 2022.

Senior Secured Revolving Credit Facility

The Company has a senior secured revolving credit facility under which it is able to borrow up to $81.0 million. The facility has a term of 24 months and the borrowing ability is based on the value of the Airbus A320 series aircraft placed in the collateral pool. In 2019 the Company drew down the entire $81.0 million under this facility. A principal payment of $11.7 million was made in September 2020, and the remaining balance as of September 30, 2020 is $69.3 million. Aircraft remain in the collateral pool for up to two years, and, as of September 30, 2020, there were six aircraft in the collateral pool. The notes for the amounts borrowed under the facility bear interest at a floating rate based on LIBOR and are due in March 2021.


12


Other Secured Debt

In September 2020, the Company borrowed $84.0 million under a loan agreement secured by two aircraft and eight spare engines. The note bears interest at a fixed rate, payable in monthly installments with maturity after five and six years for the spare engines and aircraft, respectively.

Term Loan

In February 2019, the Company entered into a Credit and Guaranty Agreement (the “Term Loan”) to borrow $450.0 million, guaranteed by all of the Company's subsidiaries, excluding Sunseeker Resorts Inc. and its subsidiaries, and other insignificant subsidiaries (the "Term Loan Guarantors"). In February 2020 the Company entered into an amendment to the Term Loan under which the interest rate was reduced by 150 basis points, and the principal amount of the debt was increased by a net amount of $100.0 million to $545.5 million. Quarterly principal payments increased under the amendment, but the remaining provisions were substantially unchanged, including the maturity date. The Term Loan is secured by substantially all property and assets of the Company and the Term Loan Guarantors, excluding aircraft and aircraft engines, and excluding certain other assets. The Term Loan bears interest based on LIBOR and provides for quarterly interest payments along with quarterly principal payments of $1.4 million through February 2024, at which time the Term Loan is due. The Term Loan may be prepaid at any time without penalty.

Construction Loan Agreement

In March 2019, Sunseeker Florida, Inc. (“SFI”), a wholly-owned subsidiary of the Company, entered into a Construction Loan Agreement with certain lenders affiliated with TPG Sixth Street Partners, LLC (the “Lender”). Under the Construction Loan Agreement, SFI would have been able to borrow up to $175.0 million (the “Loan”) to fund the construction of Phase 1 of Sunseeker Resort -Charlotte Harbor. No amount was ever drawn under this agreement.

Due to the various impacts of COVID-19, the Company suspended construction of Sunseeker Resort, and it is uncertain when construction will resume. In light of these conditions, the Company reached a $19.8 million settlement agreement with the Lender to terminate the Loan. During the third quarter 2020, the Company paid $14.9 million of the settlement, and the remaining $4.9 million was paid in October 2020. The expense is reflected within non-operating special charges on the statement of income for the nine months ended September 30, 2020.

Note 6 — Income Taxes

The Company recorded a $15.6 million tax benefit (34.8 percent effective tax rate) compared to a $13.0 million tax provision (22.8 percent effective tax rate) for the three months ended September 30, 2020 and 2019, respectively. The effective tax rate for the three months ended September 30, 2020 differed from the statutory federal income tax rate of 21.0 percent primarily due to the tax accounting impact of the CARES Act which allows the Company to carryback the 2020 net operating loss at the 35.0 percent tax rate applicable in earlier years.

The Company recorded a $166.6 million tax benefit (51.8 percent effective tax rate) compared to a $51.0 million tax provision (22.9 percent effective tax rate) for the nine months ended September 30, 2020 and 2019, respectively. The 51.8 percent effective tax rate for the nine months ended September 30, 2020 differed from the statutory federal income tax rate of 21.0 percent primarily due to the tax accounting impact of the CARES Act which includes a $40.9 million discrete federal income tax benefit related to the full utilization of 2018 and 2019 net operating losses as well as the ability to carryback the 2020 net operating loss at a 35.0 percent rate applicable in earlier years. The effective tax rate was also impacted by the remeasurement of deferred taxes and state taxes. 

13


Note 7 — Leases

The Company evaluates all operating leases and they are measured on the balance sheet with a lease liability and right-of-use asset (“ROU”) at inception. ROU assets represent the Company’s right to use an underlying asset for the lease term, and lease liabilities represent the obligation to make scheduled lease payments. Airport terminal leases mostly include variable lease payments outside of those based on a fixed index, and are therefore not recorded as ROU assets.

The following table summarizes the Company's total assets and liabilities related to leases as of the dates indicated:
(in thousands)Classification on the Balance SheetSeptember 30, 2020December 31, 2019
Assets
Operating lease assets(1)
Operating lease right-of-use assets$114,573 $22,081 
Finance lease assets(2)
Property and equipment, net106,777 111,665 
Total lease assets$221,350 $133,746 
Liabilities
Current
Operating(1)
Current operating lease liabilities$13,814 $2,662 
Finance(2)
Current maturities of long-term debt and finance lease obligations7,922 7,666 
Noncurrent
Operating(1)
Noncurrent operating lease liabilities101,864 21,290 
Finance(2)
Long-term debt and finance lease obligations101,955 107,930 
Total lease liabilities$225,555 $139,548 
(1) Represents assets and liabilities of ten aircraft, office equipment, certain airport and terminal facilities, and other assets under operating leases
(2) Represents assets and liabilities of five aircraft under finance leases

Sale-Leaseback Transaction

During the nine months ended September 30, 2020, the Company entered into two separate sale-leaseback transactions involving seven total aircraft. The transactions qualified as sales, and generated $78.2 million of proceeds. As a result of the sales, the aircraft were removed from property and equipment in the Company's balance sheet, resulting in a $49.8 million loss on the sales. The loss is reflected within operating special charges on the statement of income since the Company would not likely have completed the transactions absent cash conservation efforts as a result of COVID. The leased aircraft were subsequently recorded within operating lease right-of-use assets, with the related lease liabilities recorded within current and noncurrent operating lease liabilities on the balance sheet. The proceeds from the sales of aircraft in these transactions are treated as cash inflows from investing activities on the statement of cash flows.

Note 8 — Fair Value Measurements

The Company utilizes the market approach to measure the fair value of its financial assets. The market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets. The assets classified as Level 2 primarily utilize quoted market prices or alternative pricing sources including transactions involving identical or comparable assets and models utilizing market observable inputs for valuation of these securities. No changes in valuation techniques or inputs occurred during the nine months ended September 30, 2020.

14


Financial instruments measured at fair value on a recurring basis:
September 30, 2020December 31, 2019
(in thousands)TotalLevel 1Level 2TotalLevel 1Level 2
Cash equivalents   
Money market funds$80,121 $80,121 $— $42,653 $42,653 $— 
Commercial paper22,783 — 22,783 5,807 — 5,807 
Municipal debt securities10,205 — 10,205 1,202 — 1,202 
Federal agency debt securities1,340 — 1,340 — — — 
Total cash equivalents114,449 80,121 34,328 49,662 42,653 7,009 
Short-term     
Commercial paper212,992 — 212,992 161,286 — 161,286 
Corporate debt securities139,659 — 139,659 145,975 — 145,975 
Municipal debt securities52,437 — 52,437 12,237 — 12,237 
Federal agency debt securities35,389 — 35,389 13,515 — 13,515 
US Treasury bonds1,287 — 1,287 2,915 — 2,915 
Total short-term441,764 — 441,764 335,928 — 335,928 
Long-term      
Corporate debt securities— — — 15,396 — 15,396 
US Treasury bonds— — — 146 — 146 
Total long-term— — — 15,542 — 15,542 
Total financial instruments$556,213 $80,121 $476,092 $401,132 $42,653 $358,479 

None of the Company's debt is publicly held and as a result, the Company has determined the estimated fair value of these notes to be Level 3. Certain inputs used to determine fair value are unobservable and, therefore, could be sensitive to changes in inputs. The Company utilizes the discounted cash flow method to estimate the fair value of Level 3 debt.

Carrying value and estimated fair value of long-term debt, including current maturities and without reduction for related costs, are as follows:
September 30, 2020December 31, 2019
(in thousands)Carrying ValueEstimated Fair ValueCarrying ValueEstimated Fair ValueHierarchy Level
Non-publicly held debt$1,461,705 $1,349,111 $1,329,882 $1,140,232 3

Due to their short-term nature, the carrying amounts of cash, cash equivalents, restricted cash, accounts receivable and accounts payable approximate fair value.

Note 9 — Earnings (Loss) per Share

Basic and diluted earnings (loss) per share are computed pursuant to the two-class method. Under this method, the Company attributes net income (loss) to two classes: common stock and unvested restricted stock. Unvested restricted stock awards granted to employees under the Company’s Long-Term Incentive Plan are considered participating securities as they receive non-forfeitable rights to cash dividends at the same rate as common stock.

Diluted net income per share is calculated using the more dilutive of the two methods. Under both methods, the exercise of employee stock options is assumed using the treasury stock method. The assumption of vesting of restricted stock, however, differs:

1.Assume vesting of restricted stock using the treasury stock method.

2.Assume unvested restricted stock awards are not vested, and allocate earnings to common shares and unvested restricted stock awards using the two-class method.

For the three and nine months ended September 30, 2019, the second method, which assumes unvested awards are not vested, was used in the computation because it was more dilutive than the first method.

15


The following table sets forth the computation of net income (loss) per share, on a basic and diluted basis, for the periods indicated (share count and dollar amounts other than per-share amounts in the table are in thousands):
Three Months Ended September 30,Nine Months Ended September 30,
2020201920202019
Basic:  
Net income (loss)$(29,143)$43,929 $(155,255)$171,596 
Less income allocated to participating securities— (578)(236)(2,441)
Net income (loss) attributable to common stock$(29,143)$43,351 $(155,491)$169,155 
Earnings (loss) per share, basic$(1.82)$2.70 $(9.75)$10.55 
Weighted-average shares outstanding16,006 16,037 15,953 16,037 
Diluted:    
Net income (loss)$(29,143)$43,929 $(155,255)$171,596 
Less income allocated to participating securities— (578)(236)(2,440)
Net income (loss) attributable to common stock$(29,143)$43,351 $(155,491)$169,156 
Earnings (loss) per share, diluted$(1.82)$2.70 $(9.75)$10.54 
Weighted-average shares outstanding(1)
16,006 16,037 15,953 16,037 
(1) Dilutive effect of common stock equivalents excluded from the diluted per share calculation is not material.


Note 10 — Commitments and Contingencies

As of September 30, 2020, the Company had commitments to purchase eight Airbus A320 aircraft as well as purchase agreements for two spare engines.

The Company's contractual purchase commitments consist primarily of aircraft and engine acquisitions. The total future commitments are as follows:
(in thousands)September 30, 2020
Remaining in 2020$110,762 
202137,900 
202221,000 
Total commitments$169,662 

Contingencies

The Company is subject to certain legal and administrative actions it considers routine to its business activities. The Company believes the ultimate outcome of any potential and pending legal or administrative matters will not have a material adverse impact on its financial position, liquidity or results of operations.

Note 11 — Segments

Operating segments are components of a company for which separate financial and operating information is regularly evaluated and reported to the Chief Operating Decision Maker ("CODM"), and is used to allocate resources and analyze performance. The Company's CODM is the executive leadership team, which reviews information about the Company's three operating segments: the Airline, Sunseeker Resort, and other non-airline.

Airline Segment

The Airline segment operates as a single business unit and includes all scheduled service air transportation, ancillary air-related products and services, third party products and services, fixed fee contract air transportation and other airline-related revenue. The CODM evaluation includes, but is not limited to, route and flight profitability data, ancillary and third party product and service offering statistics, and fixed fee contract information when making resource allocation decisions with the goal of optimizing consolidated financial results.

16


Sunseeker Resort Segment

The Sunseeker Resort segment represents activity related to the development and construction of Sunseeker Resort in Southwest Florida, as well as the operation of Kingsway Golf Course. Due to the various impacts of COVID-19, the Company suspended construction of Sunseeker Resort and temporarily closed operation of Kingsway Golf Course. At this time, it is uncertain when construction will resume and when the golf course will re-open.

Other non-Airline Segment

The other non-airline segment includes the Teesnap golf course management solution and Allegiant Nonstop family entertainment centers. Allegiant Nonstop family entertainment centers are comprised of games, attractions, and food facilities.

Due to the impacts of COVID-19, the Company temporarily closed the Allegiant Nonstop location in Warren, MI (which has subsequently opened as of early October 2020). The Company also permanently closed the Allegiant Nonstop location in Clearfield, Utah, and permanently discontinued all activity for the Allegiant Nonstop location in West Jordan, Utah, which was being developed.

In July 2019, management began evaluating strategic alternatives for Teesnap, and its business-to-business software as a service offering.

Selected information for the Company's segments and the reconciliation to the consolidated financial statement amounts are as follows:
17


(in thousands)AirlineSunseeker ResortOther non- airlineConsolidated
Three Months Ended September 30, 2020
Operating revenue:
    Passenger$181,916 $— $— $181,916 
    Third party products11,337 — — 11,337 
    Fixed fee contract5,284 — — 5,284 
    Other(224)— 2,671 2,447 
Operating income (loss) (1)
(28,836)(2,619)(1,626)(33,081)
Interest expense, net11,075 — — 11,075 
Depreciation and amortization45,247 44 — 45,291 
Capital expenditures25,066 — — 25,066 
Three Months Ended September 30, 2019
Operating revenue:
    Passenger$391,222 $— $— $391,222 
    Third party products18,207 — — 18,207 
    Fixed fee contract19,797 — — 19,797 
    Other1,648 251 5,384 7,283 
Operating income (loss)77,335 (1,281)(3,938)72,116 
Interest expense, net14,761 507 — 15,268 
Depreciation and amortization38,409 329 698 39,436 
Capital expenditures98,308 16,931 479 115,718 
(in thousands)AirlineSunseeker ResortOther non- airlineConsolidated
Nine Months Ended September 30, 2020
Operating revenue:
    Passenger$677,347 $— $— $677,347 
    Third party products35,756 — — 35,756 
    Fixed fee contract17,440 — — 17,440 
    Other1,460 653 10,856 12,969 
Operating income (loss) (2)
(83,106)(142,741)(31,490)(257,337)
Interest expense, net34,925 561 — 35,486 
Depreciation and amortization130,938 577 770 132,285 
Capital expenditures155,810 45,160 442 201,412 
Nine Months Ended September 30, 2019
Operating revenue:
    Passenger$1,265,978 $— $— $1,265,978 
    Third party products53,557 — — 53,557 
    Fixed fee contract42,859 — — 42,859 
    Other3,578 1,526 12,394 17,498 
Operating income (loss)291,371 (4,199)(15,874)271,298 
Interest expense, net43,906 1,143 — 45,049 
Depreciation and amortization110,528 811 2,773 114,112 
Capital expenditures305,356 33,502 11,329 350,187 
(1) For the three months ended September 30, 2020, Operating loss was impacted by special charges of: $32.6 million for the Airline and $1.0 million for Other non-airline.
(2) For the nine months ended September 30, 2020, Operating loss was impacted by special charges of: $118.1 million for the Airline; $135.4 million for Sunseeker Resort; and $27.4 million for Other non-airline.

18


Total assets were as follows as of the dates indicated:
(in thousands)September 30, 2020December 31, 2019
Airline$3,170,834 $2,830,236 
Sunseeker Resort37,264 133,362 
Other non-airline14,995 47,205 
Consolidated$3,223,093 $3,010,803 

Note 12 — Impairment

Accounting Standards Codification (ASC) 360 - Property, Plant, and Equipment (ASC 360) requires long-lived assets to be assessed for impairment when events and circumstances indicate that the assets may be impaired.

As described in Note 2, in the first nine months of 2020, the Company's operations and liquidity were significantly impacted by decreased passenger demand and U.S. government travel restrictions and quarantine requirements due to COVID-19. As a result of these events and circumstances, the Company performed impairment tests on its long-lived assets in connection with the preparation of its financial statements.

In accordance with ASC 360, an impairment of a long-lived asset or group of long-lived assets exists only when the sum of the estimated undiscounted future cash flows expected to be generated directly by the assets is less than the carrying value of the assets. Assets were grouped by operating segment when estimating future cash flows, and further grouped within each segment as applicable. Estimates of future cash flows were generally based on historical results, and management's best estimate of future market and operating conditions.

Airline Segment

Long-lived assets for the Airline segment consist primarily of owned and leased flight and ground equipment. To test the recoverability of the Company's airline operating fleet, undiscounted future cash flows for each aircraft under the Company's current expected operating fleet plan were assessed and it was determined that there was no impairment as of September 30, 2020. As the Company obtains greater clarity about the duration and extent of reduced demand and potentially executes further capacity adjustments, the Company will continue to evaluate its current fleet compared to network requirements and may decide to permanently retire additional aircraft.

The Airline has an equity investment in a technology company. A $5.0 million charge was recorded to impair the investment in the second quarter 2020. As a result of the impairment, net book value of the investment is zero. This decision reflects management's best estimate of the fair value of this investment based on recent market trends.

Sunseeker Resort Segment

Long-lived assets for Sunseeker Resort and related Kingsway Golf Course consist primarily of the land, construction in process, building, and other various equipment. As a result of the impairment tests performed, the Company determined the sum of the undiscounted cash flows was less than the long-lived assets' carrying value. A $136.8 million impairment charge was recorded in the first quarter 2020 to reflect the difference between the carrying values of these assets and their fair values. Fair value reflects management's best estimate, including valuation inputs from third parties and recent market transactions. Based on an evaluation of impairment indicators in the second and third quarters 2020, no additional impairment was recognized.

Other non-Airline Segment

Long-lived assets for Allegiant Nonstop family entertainment centers consist primarily of leasehold improvements, arcade games, various equipment, and ROU assets. As a result of the impairment tests performed, the Company determined the sum of the undiscounted cash flows were less than the long-lived assets' carrying value. An $18.3 million impairment charge was recorded in the first quarter 2020 to reflect the difference between the carrying values of these assets and their fair values. Fair value reflects management's best estimate, including valuation inputs from third parties and recent market trends. Based on an evaluation of impairment indicators in the second and third quarters 2020, no additional impairment was recognized.

Long-lived assets for Teesnap consist primarily of capitalized software and computer equipment. As a result of the impairment tests performed, the Company determined the sum of the undiscounted cash flows was less than the long-lived assets' carrying value. Management does not expect to recover any of the book value of the assets through operations, and an $8.3 million impairment charge was recorded in the first quarter 2020 to write down all long-lived assets to a net book value of zero. This reflects management's best estimate of the fair value of these assets based on recent market trends.

19


Note 13 — Subsequent Events


In October 2020, the Company closed on the private offering of $150.0 million principal amount of a 8.5 percent Senior Secured Note due 2024. The Notes and related guarantees are secured by first priority security interests in substantially all of the property and assets of the Company and the guarantors of the Notes (excluding aircraft, aircraft engines and certain other assets).The guarantors of the Notes include all significant subsidiaries other than Sunseeker Resorts, Inc. and its subsidiaries.


Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis presents factors that had a material effect on our results of operations during the three and nine months ended September 30, 2020 and 2019. Also discussed is our financial position as of September 30, 2020 and December 31, 2019. You should read this discussion in conjunction with our unaudited consolidated financial statements, including the notes thereto, appearing elsewhere in this Form 10-Q and our consolidated financial statements appearing in our annual report on Form 10-K for the year ended December 31, 2019. This discussion and analysis contains forward-looking statements. Please refer to the section below entitled “Cautionary Note Regarding Forward-Looking Statements” for a discussion of the uncertainties, risks and assumptions associated with these statements.

NETWORK

As of September 30, 2020, we were selling 520 routes versus 466 as of the same date last year, which represents an 11.6 percent increase. Our total number of origination cities and leisure destinations (for operating routes) were 97 and 29, respectively, as of September 30, 2020.

Our unique model is predicated around expanding and contracting capacity to meet seasonal travel demands. We are currently leveraging this core strength, just at a much more significant contracting level than normal seasonal demand changes would dictate. We are maintaining a broad network and selling presence. We consistently monitor flights to assess for cash profitability.

TRENDS

The COVID-19 pandemic and shelter-in-place directives have greatly impacted our operating results for the nine months ending September 30, 2020 and will continue to do so into the future. Air traffic demand is down substantially and base air fares are down as well. We cannot predict when air travel will return to customary levels or at what pace. In the meantime, our revenues will be adversely affected. We believe that demand in the foreseeable future will continue to fluctuate in response to fluctuations in COVID-19 cases, hospitalizations, deaths, treatment efficacy and the availability of a vaccine.
The impacts of the pandemic have resulted in a reduction in our flight schedule. It is likely that reduced schedules will continue into the future. We are closely monitoring bookings and making decisions on schedule changes as necessary based on demand.
Though we cannot control the current demand environment, our primary focus at the current time has been to conserve cash, and we have taken immediate and extensive measures to reduce daily cash burn. We have reduced management and support teams by roughly 300 positions. We have suspended payment of cash dividends and stock buybacks. We have suspended construction of the Sunseeker Resort in Southwest Florida as well as spend on our other non-airline subsidiaries. We have reduced airline capital expenditures for this year and into the future. We have eliminated other nonessential expenditures and have renegotiated arrangements with outside vendors, all in an effort to conserve cash until revenues recover.
We will continue to focus on conserving cash, along with managing capacity to meet demand, which we believe is a core strength of our business model.

RESPONSES TO THE COVID-19 PANDEMIC

Beginning in March and continuing throughout 2020, we have taken many actions to mitigate the effects of COVID-19 on our business, as outlined below:

Network and Customer Experience

Reduced third quarter system-wide capacity by 9.4 percent
Continually evaluating forward schedules to adjust capacity according to demand trends
Waived change and cancellation fees for all customers
Extended expiry on credit vouchers to two years
Offered opt-in option in the booking path for customers to receive notification that their flight has reached 65.0 percent capacity with option to re-book on another flight with no fee or receive a refund

20




Cash Outlay Reduction

Suspended all stock buybacks and dividends
Enacted a hiring freeze and offered voluntary leaves
Reduced management and support teams by approximately 300 positions (includes 220 positions previously disclosed in the prior quarter), a 25 percent reduction in these work groups
Furloughed 100 pilots as of October 1, 2020, and an additional 27 furloughs as of November 1, 2020
Suspended nearly all contractor positions, subscriptions, non-essential training and travel
Suspended all non-essential capital expenditures including, but not limited to, Sunseeker Resorts, Teesnap and Allegiant Nonstop family entertainment centers

Liquidity Response

Implemented immediate and meaningful cash spend reductions
Obtained $84 million in proceeds from financings secured by A320 aircraft and CFM engines in September
Received proceeds of $30.0 million in September through a sale-leaseback transaction on three aircraft
As of September 30, 2020, we had 21 unencumbered aircraft and two unencumbered spare engines
During the second and third quarters, received $176.9 million under the payroll support program agreement ("PSPA") with the Treasury, comprised of direct grants, a $23.1 million low-interest 10-year loan, and warrants to purchase 27,681 shares of our common stock.
Received $94.3 million of tax refunds during the second and third quarters related to the 2018 and 2019 net operating loss carrybacks due to the change in loss carryback period under the CARES Act
Under current law, we expect a sizable federal income tax refund to be received in the first half of 2021 related to 2020 net operating losses
Deferring payment of the employer portion of Social Security taxes, as permitted under the CARES Act, to provide additional liquidity - $7.8 million in Social Security taxes deferred as of September 30, 2020 (half to be paid by December 31, 2021 and the other half to be paid by December 31, 2022)

Health and Safety

Amid various uncertainties and public concern during the COVID-19 pandemic, we have implemented the below measures to ensure health and safety for all traveling on our flights. Due to our focus on these health and safety measures, we were ranked by Safe Travel Barometer in August 2020 as the #1 airline among North American carriers and among the top five worldwide for best COVID-19 Traveler Safety Measures, with results based on an independent audit of more than 150 airlines.

Maintain a comprehensive cleaning program for all aircraft that includes a regular schedule of standard and deep-clean procedures that exceed both CDC and Airbus guidance
Aircraft receive regular treatment with an advanced antimicrobial protectant that kills viruses, germs and bacteria on contact for 14 days
Utilize VOC (volatile organic compound) filters on board every aircraft, which remove additional organic compounds and ensure that cabin air is changed, on average, every three minutes, exceeding HEPA standards
Effective July 2, 2020, require customers to wear face coverings through all phases of travel, including at the ticket counter, in the gate area and during flight
Complimentary health and safety kits, which include a single-use face mask, a pair of non-latex disposable gloves and cleaning wipes, provided to all of our customers
Crew members required to wear face masks on board and during any interaction with customers
Social distancing principles at check-in, boarding and on-board, including limiting adjacent row seating and allowing only customers on the same itinerary to utilize middle seats as practicable
Treat hard surfaces in all office areas, including airport station offices, maintenance facilities, headquarters/administrative offices, with antimicrobial disinfectant/protectant, and utilize wall-mounted and handheld thermometers for employee and crew member temperature checks
Partner with Quest Diagnostics to provide at home COVID-19 test kits to employees in the event local testing is not immediately available

21


RESULTS OF OPERATIONS

Comparison of three months ended September 30, 2020 to three months ended September 30, 2019

Operating Revenue

Passenger revenue. For the third quarter 2020, passenger revenue decreased 53.5 percent compared to third quarter 2019. The decrease was due to a 46.6 percent decline in scheduled service passengers from a 36.3 percentage point decrease in load factor. These declines are largely due to a dramatic decline in passenger demand and government travel restrictions and quarantine requirements related to COVID-19, which continued during the third quarter 2020. Additionally, we reduced our scheduled service capacity by 6.5 percent during the third quarter, in response to passenger demand trends. Average total passenger fare (includes scheduled service and air ancillary) decreased 12.9 percent year over year, driven by a 24.8 percent decrease in scheduled service average base fare as fares were reduced in an effort to stimulate demand.

Third party products revenue. Third party products revenue for the third quarter 2020 decreased 37.7 percent, compared to the same period in 2019. This is primarily due to decreased net revenue from both rental cars and hotels, as a result of substantially fewer passengers as well as reduced hotel room inventory, particularly in the Las Vegas market.

Fixed fee contract revenue. Fixed fee contract revenue for the third quarter 2020 decreased 73.3 percent year over year due to decreases in demand. Departures decreased 57.9 percent resulting from a significant drop in ad hoc charter opportunities in the third quarter 2020. The decreases in fixed fee revenue are related to COVID-19.

Other revenue. Other revenue decreased 66.4 percent for the third quarter 2020 from 2019. The decrease was due to decreased activity in the non-airline segments, especially for Kingsway Golf Course and our family entertainment centers. As a result of the COVID-19 pandemic, we temporarily closed our family entertainment center in Warren, Michigan and permanently discontinued all activity for our locations in Utah. We also temporarily closed Kingsway Golf Course, initially for renovation but now the renovation has been delayed as a result of our cash conservation efforts.

Operating Expenses

We primarily evaluate our expense management by comparing our costs per ASM across different periods, which enables us to assess trends in each expense category. The following table presents airline-only unit costs on a per ASM basis, or CASM, for the indicated periods. Excluding fuel on a per ASM basis provides management and investors the ability to measure and monitor our cost performance absent fuel price volatility. Both the cost and availability of fuel are subject to many economic and political factors beyond our control.
 Three Months Ended September 30,Percent
Airline only unitized costs (in cents)20202019Change
Salary and benefits2.68 2.66 0.8 %
Depreciation and amortization1.28 0.99 29.3 
Station operations1.13 1.12 0.9 
Maintenance and repairs0.40 0.64 (37.5)
Sales and marketing0.23 0.45 (48.9)
Aircraft lease rentals0.09 — NM
Other0.43 0.54 (20.4)
CARES Act grant recognition(2.21)— NM
Operating Special charges0.93 — NM
Airline CASM, excluding fuel4.96 6.40 (22.5)
Aircraft fuel1.49 2.69 (44.6)
Airline CASM6.45 9.09 (29.0)
NM - Not meaningful


Salary and benefits expense. Salary and benefits expense decreased $11.8 million, or 10.9 percent, for the third quarter 2020 when compared to the same period in 2019. Although the average number of full-time equivalent employees was relatively flat year over year, overall expense decreased due to temporary voluntary leave programs offered to employees, voluntary pay reductions, and suspension of the bonus accrual during the year. We expect the number of full-time equivalent employees to decline by up to 9.0 percent during fourth quarter 2020 due to furloughs and reductions in force.

Aircraft fuel expense. Aircraft fuel expense decreased $52.0 million, or 49.8 percent, for the third quarter 2020 compared to third quarter 2019, largely due to a decrease in system average fuel cost per gallon of 38.9 percent year over year as fuel prices
22


declined due to lower worldwide demand caused by the pandemic. System fuel gallons consumed decreased by 17.9 percent on a 9.4 percent decrease in ASMs as we reduced capacity in light of the pandemic. Fuel efficiency (measured as ASMs per gallon) increased 10.2 percent year over year due to fuel saving initiatives, as well as less weight on many of our flights, due to a 36.3 percentage point year-over-year decrease in load factor.

Depreciation and amortization expense. Depreciation and amortization expense for the third quarter 2020 increased $5.9 million, or 14.8 percent, year over year, as the average number of aircraft in service increased 3.5 percent year over year.

Accounting for a large portion of this increase, amortization of major maintenance costs was $9.5 million for the third quarter 2020 compared to $6.8 million for the third quarter 2019, due to an increase in the number of aircraft and related deferred maintenance costs associated with them. We expect these costs will continue to increase as our fleet ages.

Station operations expense. Station operations expense for the third quarter 2020 decreased $3.6 million, or 8.2 percent, on a 9.6 percent decrease in scheduled service departures as we reduced the number of flights offered due to reduced demand.

Maintenance and repairs expense. Maintenance and repairs expense for the third quarter 2020 decreased $10.7 million, or 43.3 percent, compared to the same period in 2019. Routine maintenance costs decreased as aircraft utilization was down 14.9 percent during the quarter.

Sales and marketing expense. Sales and marketing expense for the third quarter 2020 decreased by 54.7 percent compared to the same period in 2019. There was a decrease in net credit card fees as a result of a 53.5 percent decrease in passenger revenue year over year. Additionally, advertising spend has been intentionally pulled back this year due to the pandemic.

Other operating expense. Other expense decreased $7.2 million for the third quarter 2020 compared to third quarter 2019, mostly due to decreased activity in our non-airline subsidiaries.

CARES Act grant recognition. We received a total of $176.9 million in funds during the second and third quarters 2020 through the Payroll Support Program Agreement (the “PSPA”) under the CARES Act. Of the total, $152.4 million of these funds relate to direct grants, and were recognized as a credit to operating expense on our statement of income, over the periods for which the funds were intended to compensate - second and third quarters 2020. Of this total amount, we recognized a $77.9 million credit to operating expense on our statement of income during the third quarter of 2020.

Operating Special charges. Special charges of $33.6 million were recorded within operating expenses for the third quarter 2020. We did not have any special charges for the same period in 2019. The special charges relate to expenses that were unique and specific to COVID-19. These charges include accelerated depreciation on airframes and engines resulting from an accelerated retirement plan, losses on the sale-leaseback transactions, a portion of salary and benefits expense, and losses within our non-airline subsidiaries. See Note 2 of Notes to Consolidated Financial Statements (unaudited) for further information.
Non-operating Special charges

There were no special charges recorded within non-operating expenses for the third quarter 2020. We did not have any special charges for the same period in 2019.

Interest Expense

Interest expense for the quarter ended September 30, 2020 declined by $7.6 million, or 38.8 percent, as we were able to reduce the interest rate on our Term Loan with a principal balance of approximately $542.7 million after we amended the Term Loan in February 2020 and as a result of declines in LIBOR impacting our variable rate debt.

Income Tax Expense

We recorded a $15.6 million tax benefit (34.8 percent effective tax rate) compared to a $13.0 million tax provision (22.8 percent effective tax rate) for the three months ended September 30, 2020 and 2019, respectively. The effective tax rate for the three months ended September 30, 2020 differed from the statutory federal income tax rate of 21.0 percent primarily due to the tax accounting impact of the CARES Act which allows us to carryback the 2020 net operating loss at the 35.0 percent tax rate applicable in earlier years.

Sunseeker and Other Non-airline expenses

Non-airline expenses are included in the various line items discussed above, as appropriate. The non-airline expenses include those from our Other non-Airline Segment (our Teesnap golf management business and Allegiant Nonstop family entertainment centers), and operating expenses attributable to Sunseeker Resort and Kingsway Golf Course (most of the Sunseeker Resort expenses were capitalized during the construction period). As of September 30, 2020, nearly all non-airline spend has been suspended.

23


Comparison of nine months ended September 30, 2020 to nine months ended September 30, 2019
 
Operating Revenue

Passenger revenue. For the nine months ended September 30, 2020, passenger revenue decreased 46.5 percent compared with the same period in 2019 due to a 43.2 percent decline in scheduled service passengers from a 24.5 percent decrease in load factor. These declines are attributable to a substantial decline in passenger demand and government travel restrictions and quarantine requirements related to COVID-19, since March 2020. Average total fare per passenger decreased by 5.8 percent, during the nine month period as a 3.4 percent increase in average air-related ancillary revenue per passenger partially offset a 13.7 percent decrease in scheduled service average base fare. Increases in our customer baggage fees and convenience fee contributed to the increase in air-related ancillary revenue to $53.32 per passenger.
Third party products revenue. Third party products revenue for the nine months ended September 30, 2020 decreased 33.2 percent over the same period in 2019. This is primarily due to decreased net revenue from both rental cars and hotels, as a result of substantially fewer passengers as well as reduced hotel room inventory, particularly in the Las Vegas market. The decline in revenue from rental cars and hotels was slightly offset by a 1.3 percent increase in third-party revenue from our co-branded credit card program during the nine months ended September 30, 2020 compared to the same period in 2019.

Fixed fee contract revenue. Fixed fee contract revenue for the nine months ended September 30, 2020 decreased 59.3 percent compared with the same period in 2019, primarily due to decrease in demand resulting in a 45.6 percent decrease in related departures. The decrease in departures is mainly due to a significant drop in ad hoc charter opportunities and the cancellation of events such as the NCAA March Madness basketball tournament during 2020 due to COVID-19.

Other revenue. Other revenue decreased by 25.9 percent for the nine months ended September 30, 2020 compared to the same period in 2019. The decrease is primarily driven by decreases in subsidiary revenue through the third quarter 2020. As a result of the COVID-19 pandemic, we temporarily closed our family entertainment center in Warren, Michigan and permanently discontinued all activity for our locations in Utah. We also temporarily closed Kingsway Golf Course, initially for renovation but now the renovation has been delayed as a result of our cash conservation efforts.

Operating Expenses
    
We primarily evaluate our expense management by comparing our costs per ASM across different periods, which enables us to assess trends in each expense category. The following table presents airline-only unit costs on a per ASM basis, or CASM, for the indicated periods. Excluding fuel on a per ASM basis provides management and investors the ability to measure and monitor our cost performance absent fuel price volatility. Both the cost and availability of fuel are subject to many economic and political factors beyond our control.
 Nine Months Ended September 30,Percent
Airline only unitized costs (in cents)20202019Change
Salary and benefits3.01 2.68 12.3 %
Depreciation and amortization1.33 0.90 47.8 
Station operations1.10 1.05 4.8 
Maintenance and repairs0.50 0.56 (10.7)
Sales and marketing0.36 0.47 (23.4)
Aircraft lease rentals0.06 — NM
Other0.58 0.47 23.4 
CARES Act grant recognition(1.55)— NM
Operating Special charges1.20 — NM
Airline CASM, excluding fuel6.59 6.13 7.5 
Aircraft fuel1.72 2.65 (35.1)
Airline CASM8.31 8.78 (5.4)
NM - Not meaningful

Salary and benefits expense. Salary and benefits expense decreased $37.3 million, or 11.0 percent, for the nine months ended September 30, 2020 compared to the same period in 2019. Although the average number of full-time equivalent employees was relatively flat year over year, temporary voluntary leave programs offered to employees, voluntary pay reductions, and suspension of the bonus accrual during the year resulted in decreased expenses. Additionally, a large portion of the $9.5 million special charges specific to COVID-19 during the first quarter of 2020 consisted of salary and benefits expense.


24


Aircraft fuel expense. Aircraft fuel expense decreased $155.5 million, or 48.0 percent, for the nine months ended September 30, 2020 compared to the same period in 2019 largely due to a decrease in system average fuel cost per gallon of 30.7 percent year over year as fuel prices declined due to lower worldwide demand caused by the pandemic. Additionally, system fuel gallons consumed decreased 24.9 percent on a 19.9 percent decrease in ASMs as we reduced capacity in light of the pandemic. Fuel efficiency (measured as ASMs per gallon) increased 6.6 percent year over year due to fuel saving initiatives as well as less weight on many of our flights, due to a 24.5 percentage point year-over-year decrease in load factor.
Depreciation and amortization expense. Depreciation and amortization expense for the nine months ended September 30, 2020 increased $18.2 million, or 15.9 percent, compared to the same period in 2019. The average number of aircraft in service increased 9.5 percent year over year.
Amortization of major maintenance costs was $28.3 million for the nine months ended September 30, 2020 compared to $17.7 million for the same period in 2019. We expect these costs will continue to increase as our fleet ages.

Station operations expense. Station operations expense for the nine months ended September 30, 2020 decreased 15.6 percent on a 20.3 percent decrease in scheduled service departures compared to the same period in 2019 as we reduced the number of flights offered due to reduced demand.

Maintenance and repairs expense. Maintenance and repairs expense for the nine months ended September 30, 2020 decreased 28.6 percent compared to the same period in 2019 mostly due to a decrease in both major and routine maintenance costs as aircraft utilization was down 29.3 percent as we flew fewer ASMs and departures during the period.

Sales and marketing expense. Sales and marketing expense for the nine months ended September 30, 2020 decreased $23.7 million compared to the same period in 2019. There was a decrease in net credit card fees as a result of a 46.5 percent decrease in passenger revenue year over year. Additionally advertising spend was intentionally pulled back after the onset of the pandemic in March 2020.

Other operating expense. Other expense decreased $3.5 million year over year, mostly due to a decrease in non-airline related expenses and other various expenses.

CARES Act grant recognition. We received a total of $176.9 million in funds during the second and third quarters 2020 through the Payroll Support Program Agreement under the CARES Act. We recognized $152.4 million, the amount relating to direct grants, as a credit to operating expense on our statement of income during the nine months ended September 30, 2020.

Operating Special charges. Special charges of $280.9 million were recorded within operating expenses for the nine months ended September 30, 2020. We did not have any special charges for the same period in 2019. The special charges relate to expenses that were unique and specific to COVID-19, and include impairment charges, accelerated depreciation on seven airframes and five engines resulting from an accelerated retirement plan, losses on sale-leaseback transactions, a portion of salary and benefits expense, and other various expenses. See Note 2 of Notes to Consolidated Financial Statements (unaudited) for further information.

Non-operating Special charges

Special charges of $26.6 million were recorded within non-operating expenses for the nine months ended September 30, 2020. We did not have any special charges for the same period in 2019. Of these special charges, $19.8 million relates to the termination of the loan agreement with Sixth Street Partners (formerly TSSP) intended to finance the development of Sunseeker Resorts Charlotte Harbor. The remaining $6.8 million relates to impairment charges for Sunseeker Resort during the first quarter 2020.

Interest Expense

Interest expense for the nine months ended September 30, 2020 declined by $14.4 million, or 24.6 percent, as we were able to reduce the interest rate on our Term Loan with a principal balance of approximately $542.7 million after we amended the Term Loan in February 2020 and as a result of declines in LIBOR impacting our variable rate debt.
Income Tax Expense

We recorded a $166.6 million tax benefit (51.8 percent effective tax rate) compared to a $51.0 million tax provision (22.9 percent effective tax rate) for the nine months ended September 30, 2020 and 2019, respectively. The 51.8 percent effective tax rate for the nine months ended September 30, 2020 differed from the statutory federal income tax rate of 21.0 percent primarily due to the tax accounting impact of the CARES Act which includes a $40.9 million discrete federal income tax benefit related to the full utilization of 2018 and 2019 net operating losses as well as the ability to carryback the 2020 net operating loss at the 35.0 percent tax rate applicable in earlier years. The effective tax rate was also impacted by the remeasurement of deferred taxes and state taxes. 
25



Sunseeker and Other Non-airline expenses

Non-airline expenses are included in the various line items discussed above, as appropriate. The non-airline expenses include those from our Other non-Airline Segment (our Teesnap golf management business and Allegiant Nonstop family entertainment centers), and operating expenses attributable to Sunseeker Resort and Kingsway Golf Course (most of the Sunseeker Resort expenses were capitalized during the construction period).

26


Comparative Consolidated Operating Statistics

The following tables set forth our operating statistics for the periods indicated:
Three Months Ended September 30,Percent
20202019
Change(1)
Operating statistics (unaudited):   
Total system statistics:   
Passengers 2,016,241 3,806,369 (47.0)
Available seat miles (ASMs) (thousands)3,521,508 3,888,400 (9.4)
Airline operating expense per ASM (CASM) (cents)
6.45 9.09 (29.0)
Fuel expense per ASM (cents)1.49 2.69 (44.6)
Airline operating CASM, excluding fuel (cents)4.96 6.40 (22.5)
ASMs per gallon of fuel88.5 80.3 10.2 
Departures24,365 27,707 (12.1)
Block hours52,238 59,678 (12.5)
Average stage length (miles)834 823 1.3 
Average number of operating aircraft during period90.7 87.6 3.5 
Average block hours per aircraft per day6.3 7.4 (14.9)
Full-time equivalent employees at end of period 4,275 4,267 0.2 
Fuel gallons consumed (thousands)39,786 48,443 (17.9)
Average fuel cost per gallon$1.32 $2.16 (38.9)
Scheduled service statistics:  
Passengers 2,003,648 3,753,611 (46.6)
Revenue passenger miles (RPMs) (thousands)1,714,622 3,170,826 (45.9)
Available seat miles (ASMs) (thousands)3,449,339 3,687,473 (6.5)
Load factor49.7 %86.0 %(36.3)
Departures23,710 26,238 (9.6)
Block hours51,057 56,576 (9.8)
Total passenger revenue per ASM (TRASM) (cents)(2)
5.60 11.10 (49.5)
Average fare - scheduled service(3)
$40.75 $54.20 (24.8)
Average fare - air-related charges(3)
$50.04 $50.03 — 
Average fare - third party products$5.66 $4.85 16.7 
Average fare - total$96.45 $109.08 (11.6)
Average stage length (miles)839 824 1.8 
Fuel gallons consumed (thousands)38,853 46,038 (15.6)
Average fuel cost per gallon$1.32 $2.17 (39.2)
Rental car days sold255,800 482,944 (47.0)
Hotel room nights sold44,655 99,991 (55.3)
Percent of sales through website during period92.3 %93.1 %(0.8)
(1) Except load factor and percent of sales through website during period, which are presented as a percentage point change.
(2) Various components of this measure do not have a direct correlation to ASMs. This measure is provided on a per ASM basis so as to facilitate comparison with airlines reporting revenues on a per ASM basis.
(3) Reflects division of passenger revenue between scheduled service (base fare) and air-related charges in our booking path.

27


Nine Months Ended September 30,Percent
20202019
Change(1)
Operating statistics (unaudited):   
Total system statistics:   
Passengers 6,464,949 11,426,183 (43.4)
Available seat miles (ASMs) (thousands)9,809,934 12,245,704 (19.9)
Airline operating expense per ASM (CASM) (cents)
8.31 8.78 (5.4)
Fuel expense per ASM (cents)1.72 2.65 (35.1)
Airline operating CASM, excluding fuel (cents)6.59 6.13 7.5 
ASMs per gallon of fuel87.6 82.2 6.6 
Departures65,766 83,454 (21.2)
Block hours147,350 187,829 (21.6)
Average stage length (miles)862 858 0.5 
Average number of operating aircraft during period92.1 84.1 9.5 
Average block hours per aircraft per day5.8 8.2 (29.3)
Full-time equivalent employees at end of period 4,275 4,267 0.2 
Fuel gallons consumed (thousands)111,929 148,980 (24.9)
Average fuel cost per gallon$1.51 $2.18 (30.7)
Scheduled service statistics:  
Passengers 6,424,331 11,307,004 (43.2)
Revenue passenger miles (RPMs) (thousands)5,747,639 9,964,948 (42.3)
Available seat miles (ASMs) (thousands)9,588,031 11,800,788 (18.8)
Load factor59.9 %84.4 %(24.5)
Departures63,877 80,149 (20.3)
Block hours143,651 180,674 (20.5)
Total passenger revenue per ASM (TRASM) (cents)(2)
7.44 11.18 (33.5)
Average fare - scheduled service(3)
$52.12 $60.40 (13.7)
Average fare - air-related charges(3)
$53.32 $51.56 3.4 
Average fare - third party products$5.57 $4.74 17.5 
Average fare - total$111.00 $116.70 (4.9)
Average stage length (miles)867 861 0.7 
Fuel gallons consumed (thousands)109,082 143,433 (23.9)
Average fuel cost per gallon$1.50 $2.17 (30.9)
Rental car days sold872,382 1,495,502 (41.7)
Hotel room nights sold149,431 319,197 (53.2)
Percent of sales through website during period93.2 %93.4 %(0.2)
(1) Except load factor and percent of sales through website during period, which are presented as a percentage point change.
(2) Various components of this measure do not have a direct correlation to ASMs. This measure is provided on a per ASM basis so as to facilitate comparison with airlines reporting revenues on a per ASM basis.
(3) Reflects division of passenger revenue between scheduled service (base fare) and air-related charges in our booking path.

28


LIQUIDITY AND CAPITAL RESOURCES

Current liquidity

Cash, cash equivalents and investment securities (short-term and long-term) increased to $709.8 million at September 30, 2020, from $473.4 million at December 31, 2019. Investment securities represent highly liquid marketable securities which are available-for-sale.

Restricted cash represents escrowed funds under fixed fee contracts and cash collateral against letters of credit required by hotel properties for guaranteed room availability, airports and certain other parties. Under our fixed fee flying contracts, we require our customers to prepay for flights to be provided by us. The prepayments are escrowed until the flight is completed and are recorded as restricted cash with a corresponding amount reflected as air traffic liability.

We received a total of $176.9 million in assistance through the payroll support program under the CARES Act. The funds were paid in installments, and we received $154.7 million during the second quarter 2020 and the remaining $22.2 million in the third quarter 2020.

Due to changes in the net operating loss carryback period under the CARES Act, we received a federal income tax refund of $45.6 million in May 2020 and an additional refund of $48.7 million in July 2020, both of which related to 2018 and 2019 net operating loss carrybacks. In the first half of 2021, we expect to receive under current law a federal income tax refund in excess of $125 million related to a 2020 net operating loss carryback. We received a $13 million federal excise tax refund related to net customer refunds issued for the first quarter 2020. We are also anticipating an additional $16 million in federal excise tax refunds in the first half of 2021.
In September 2020, we received proceeds of $84.0 million from a financing secured by two aircraft and eight spare engines. As of September 30, 2020, we had 21 unencumbered aircraft and two unencumbered spare engines.

In September 2020, we received $30.0 million of proceeds through a sale-leaseback transaction on three aircraft and a fourth closed in October for an additional $10.0 million.

We have suspended share repurchases and our quarterly cash dividend, as part of cash preservation efforts in response to the effects of COVID-19 on our business. In connection with our receipt of financial support under the payroll support program, we agreed not to repurchase shares or pay cash dividends through September 30, 2021. We have also suspended all non-airline capital expenditures and have reduced airline capital expenditures.

We believe we have more than adequate liquidity resources through our cash balances, operating cash flows, borrowings and expected tax refunds, to meet our future contractual obligations. We will continue to consider raising funds through debt financing on an opportunistic basis.

Debt

Our debt and finance lease obligations balance, without reduction for related issuance costs, increased from $1.4 billion as of December 31, 2019 to $1.5 billion as of September 30, 2020. During the third quarter of 2020, we borrowed a net amount of $90.7 million, including additional debt of $84.0 million secured by aircraft, and an additional $6.7 million of debt related to the PSP Note under the CARES Act Payroll Support Program. We also received an advance of $6.2 million from the pre-purchase of credit card points related to our amended co-branded credit card contract, which is recorded within debt on our balance sheet.

Despite net losses and substantially lower revenues caused by the pandemic, our net debt (total debt less cash, cash equivalents and investment securities) declined by $108.5 million from December 31, 2019 until September 30, 2020.

In October 2020, We closed on a private offering of $150.0 million principal amount of 8.5 percent Senior Secured Notes due 2024. The Notes and related guarantees are secured by first priority security interests in substantially all of our property and assets (excluding aircraft, aircraft engines, the Sunseeker development, and certain other assets).

Sources and Uses of Cash

Operating Activities. Operating cash inflows are primarily derived from providing air transportation and related ancillary products and services to customers. During the nine months ended September 30, 2020, our operating activities provided $276.7 million of cash compared to $321.4 million during the same period of 2019. Although net income for the nine months ended September 30, 2020 decreased by $326.9 million compared to 2019, the cash effect of this fluctuation was largely offset by the non-cash nature of $279.1 million in special charges during the nine months ended September 30, 2020.

Investing Activities. Cash used in investing activities was $209.1 million during the nine months ended September 30, 2020 compared to $324.0 million for the same period in 2019. The decrease in cash used is due to a $151.6 million year-over-year decrease in cash outlays for the purchase of property and equipment and $78.2 million in proceeds received from sale-leaseback
29


transactions. These decreases in the use of cash were partially offset by a $105.5 million increase in cash used for investment security activity, as purchases of investment securities (net of maturities) were $90.0 million for the nine months ended September 30, 2020, compared to $15.5 million in proceeds from investment security maturities (net of purchases) for the same period in 2019.

Financing Activities. Cash provided by financing activities for the nine months ended September 30, 2020 was $81.1 million, compared to $15.3 million for the same period in 2019. The year-over-year increase is mostly due to the net effect of debt activity, as debt proceeds net of principal payments and debt issuance cost payments were $121.6 million during the nine months ended September 30, 2020, compared to $67.7 million during the same period in 2019. Additionally, there was an increase in share repurchases, which were $33.8 million in the first quarter of 2020 (before the share repurchase program was suspended) compared to $18.5 million during the first nine months of 2019. Dividends paid decreased by $22.9 million year-over-year as dividend payments were also suspended due to the pandemic.

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

We have made forward-looking statements in this quarterly report on Form 10-Q, and in the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” that are based on our management’s beliefs and assumptions, and on information currently available to our management. Forward-looking statements include our statements regarding future airline operations and capacity, the efficacy of cost saving measures, future expenditures, aircraft financings, the timing of aircraft acquisitions and retirements, expected capital expenditures, as well as other information concerning future results of operations, business strategies, financing plans and industry environment. Forward-looking statements include all statements that are not historical facts and can be identified by the use of forward-looking terminology such as the words “believe,” “expect,” “anticipate,” “intend,” “plan,” “estimate,” “project” or similar expressions.

Forward-looking statements involve risks, uncertainties and assumptions. Actual results may differ materially from those expressed in the forward-looking statements. Important risk factors that could cause our results to differ materially from those expressed in the forward-looking statements may be found in our periodic reports filed with the Securities and Exchange Commission at www.sec.gov. These risk factors include, without limitation, the impact and duration of the COVID-19 pandemic on airline travel and the economy, liquidity issues resulting from the effect of the COVID-19 pandemic on our business, restrictions imposed on us a result of accepting government grants under the CARES Act, an accident involving, or problems with, our aircraft, public perception of our safety, our reliance on our automated systems, our reliance on third parties to deliver aircraft under contract to us on a timely basis, risk of breach of security of personal data, volatility of fuel costs, labor issues and costs, the ability to obtain regulatory approvals as needed, the effect of economic conditions on leisure travel, debt covenants and balances, the ability to finance aircraft to be acquired, terrorist attacks, risks inherent to airlines, our competitive environment, our reliance on third parties who provide facilities or services to us, the possible loss of key personnel, economic and other conditions in markets in which we operate, the ability to successfully develop and finance a resort in Southwest Florida, governmental regulation, increases in maintenance costs and cyclical and seasonal fluctuations in our operating results.

Any forward-looking statements are based on information available to us today and we undertake no obligation to publicly update any forward-looking statements, whether as a result of future events, new information or otherwise.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

There have been no material changes to our critical accounting estimates during the nine months ended September 30, 2020. For information regarding our critical accounting policies and estimates, see disclosures in the Consolidated Financial Statements and accompanying notes contained in our 2019 Form 10-K, and in Note 1 of Notes to Consolidated Financial Statements (unaudited).

Item 3. Quantitative and Qualitative Disclosures About Market Risk

We are subject to certain market risks, including commodity prices (specifically aircraft fuel). The adverse effects of changes in these markets could pose potential losses as discussed below. The sensitivity analysis provided does not consider the effects that such adverse changes may have on overall economic activity, nor does it consider additional actions we may take to mitigate our exposure to such changes. Actual results may differ.

Aircraft Fuel

Our results of operations can be significantly impacted by changes in the price and availability of aircraft fuel, as aircraft fuel expense represented 16.9 percent of our operating expenses for the nine months ended September 30, 2020. Increases in fuel prices, or a shortage of supply, could have a material impact on our operations and operating results. Based on our fuel consumption for the three and nine months ended September 30, 2020, a hypothetical ten percent increase in the average price per gallon of fuel would have increased fuel expense by approximately $5.2 million and $17.1 million, respectively. We have not hedged fuel price risk for many years.

30


Interest Rates

As of September 30, 2020, we had $1.2 billion in variable-rate debt, including current maturities and without reduction for related costs. A hypothetical 100 basis point increase in market interest rates for the three and nine months ended September 30, 2020 would have affected interest expense by approximately $3.1 million and $9.4 million, respectively.

As of September 30, 2020, we had $255.2 million of fixed-rate debt, including current maturities and without reduction for related costs.

Item 4. Controls and Procedures

As of September 30, 2020, under the supervision and with the participation of our management, including our chief executive officer ("CEO") and chief financial officer (“CFO”), we evaluated the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended, or the “Exchange Act”) as of the end of the period covered by this report. Based on that evaluation, management, including our CEO and CFO, has concluded that our disclosure controls and procedures are designed, and are effective, to give reasonable assurance that the information we are required to disclose is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and is accumulated and communicated to the Company’s management, including the CEO and the CFO, as appropriate to allow timely decisions regarding required disclosure.

There were no changes in our internal control over financial reporting that occurred during the quarter ending September 30, 2020, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 PART II. OTHER INFORMATION

Item 1. Legal Proceedings

We are subject to certain legal and administrative actions we consider routine to our business activities. We believe the ultimate outcome of any pending legal or administrative matters will not have a material adverse impact on our financial position, liquidity or results of operations.

Item 1A.  Risk Factors

We have evaluated our risk factors and determined there are no changes to those set forth in Part I, Item 1A of our Annual Report on Form 10-K and those additional Risk Factors disclosed in our Quarterly Report on Form 10-Q for the quarter ended June 30, 2020 and filed with the Commission on August 4, 2020.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Our Repurchases of Equity Securities

(a) As previously disclosed, in connection with funding that we have received under the CARES Act, we have issued to the Treasury warrants to purchase up to 27,681 shares of our common stock since April 2020 under an exemption from registration pursuant to Section 4(a)(2) of the Securities Act of 1933, as amended. Of these warrants, warrants to purchase 19,700 shares were issued on or prior to June 30, 2020 and warrants for an additional 7,981 shares were issued in third quarter 2020. For additional information regarding the Warrants, see Note 2 of the Notes to Consolidated Financial Statements (unaudited).

(b) Not applicable

(c) We did not repurchase any common stock during the third quarter 2020.

Item 3. Defaults Upon Senior Securities

None

Item 4. Mine Safety Disclosures

Not applicable

Item 5. Other Information

None
31


Item 6. Exhibits
101.SCHXBRL Taxonomy Extension Schema Document
101.CALXBRL Taxonomy Extension Calculation Linkbase Document
101.DEFXBRL Taxonomy Extension Definition Linkbase Document
101.LABXBRL Taxonomy Extension Labels Linkbase Document
101.PREXBRL Taxonomy Extension Presentation Linkbase Document
(1) Incorporated by reference to Exhibit filed with Registration Statement #333-134145 filed by the Company with the Commission and amendments thereto.
(2) Incorporated by reference to Exhibit 3.1 to the Current Report on Form 8-K filed with the Commission on May 12, 2020.
(3) Incorporated by reference to respective Exhibit to the Current Report on Form 8-K filed with the Commission on October 7, 2020.



32


SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
ALLEGIANT TRAVEL COMPANY
Date: November 5, 2020By:/s/ Gregory Anderson
Gregory Anderson, as duly authorized officer of the Company (Chief Financial Officer) and as Principal Financial Officer
33