Allegiant Travel CO - Quarter Report: 2023 March (Form 10-Q)
UNITED STATES
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 ended March 31, 2023 | ||||||||
| 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
Allegiant Travel Company
(Exact Name of Registrant as Specified in Its Charter)
| Nevada | 20-4745737 | |||||||
| (State or Other Jurisdiction of Incorporation or Organization) | (IRS Employer Identification No.) | |||||||
| 1201 North Town Center Drive | ||||||||
| Las Vegas, | Nevada | 89144 | ||||||
| (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 class | Trading Symbol | Name of each exchange on which registered | ||||||||||||
| Common stock, par value $0.001 | ALGT | NASDAQ Global Select 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 filer | ☒ | Accelerated filer | ☐ | |||||||||||
| Non-accelerated filer | ☐ | Smaller 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 April 24, 2023, the registrant had 18,429,004 shares of common stock, $0.001 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)
| March 31, 2023 | December 31, 2022 | ||||||||||
| (unaudited) | |||||||||||
| CURRENT ASSETS | |||||||||||
| Cash and cash equivalents | $ | 317,573 | $ | 229,989 | |||||||
| Restricted cash | 17,157 | 15,457 | |||||||||
| Short-term investments | 690,593 | 725,063 | |||||||||
| Accounts receivable | 57,798 | 106,578 | |||||||||
| Expendable parts, supplies and fuel, net | 35,086 | 35,546 | |||||||||
| Prepaid expenses and other current assets | 181,893 | 161,636 | |||||||||
| TOTAL CURRENT ASSETS | 1,300,100 | 1,274,269 | |||||||||
| Property and equipment, net | 2,946,941 | 2,810,693 | |||||||||
| Long-term investments | 68,801 | 63,318 | |||||||||
| Deferred major maintenance, net | 162,221 | 157,410 | |||||||||
| Operating lease right-of-use assets, net | 106,999 | 111,679 | |||||||||
| Deposits and other assets | 95,359 | 93,928 | |||||||||
| TOTAL ASSETS: | $ | 4,680,421 | $ | 4,511,297 | |||||||
| CURRENT LIABILITIES | |||||||||||
| Accounts payable | $ | 65,936 | $ | 58,335 | |||||||
| Accrued liabilities | 225,510 | 226,276 | |||||||||
| Current operating lease liabilities | 20,200 | 19,973 | |||||||||
| Air traffic liability | 479,530 | 379,459 | |||||||||
| Loyalty program liability | 36,417 | 32,888 | |||||||||
| Current maturities of long-term debt and finance lease obligations, net of related costs | 289,669 | 152,900 | |||||||||
| TOTAL CURRENT LIABILITIES | 1,117,262 | 869,831 | |||||||||
| Long-term debt and finance lease obligations, net of current maturities and related costs | 1,816,151 | 1,944,078 | |||||||||
| Deferred income taxes | 348,334 | 346,388 | |||||||||
| Noncurrent operating lease liabilities | 89,903 | 94,972 | |||||||||
| Loyalty program liability | 23,216 | 23,612 | |||||||||
| Other noncurrent liabilities | 14,158 | 11,718 | |||||||||
| TOTAL LIABILITIES: | 3,409,024 | 3,290,599 | |||||||||
| SHAREHOLDERS' EQUITY | |||||||||||
Common stock, par value $0.001 | 25 | 25 | |||||||||
| Treasury shares | (672,493) | (660,023) | |||||||||
| Additional paid in capital | 714,506 | 709,471 | |||||||||
| Accumulated other comprehensive income, net | 3,242 | 1,257 | |||||||||
| Retained earnings | 1,226,117 | 1,169,968 | |||||||||
| TOTAL EQUITY: | 1,271,397 | 1,220,698 | |||||||||
| TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY: | $ | 4,680,421 | $ | 4,511,297 | |||||||
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 March 31, | |||||||||||
| 2023 | 2022 | ||||||||||
| OPERATING REVENUES: | |||||||||||
| Passenger | $ | 609,277 | $ | 463,961 | |||||||
| Third party products | 26,037 | 22,480 | |||||||||
| Fixed fee contracts | 14,117 | 13,386 | |||||||||
| Other | 256 | 282 | |||||||||
| Total operating revenues | 649,687 | 500,109 | |||||||||
| OPERATING EXPENSES: | |||||||||||
| Aircraft fuel | 189,546 | 164,137 | |||||||||
| Salaries and benefits | 159,623 | 134,010 | |||||||||
| Station operations | 61,520 | 65,744 | |||||||||
| Depreciation and amortization | 54,680 | 46,343 | |||||||||
| Maintenance and repairs | 26,442 | 27,820 | |||||||||
| Sales and marketing | 26,928 | 22,350 | |||||||||
| Aircraft lease rentals | 7,092 | 6,132 | |||||||||
| Other | 30,643 | 26,202 | |||||||||
| Special charges | (1,612) | 142 | |||||||||
| Total operating expenses | 554,862 | 492,880 | |||||||||
| OPERATING INCOME | 94,825 | 7,229 | |||||||||
| OTHER (INCOME) EXPENSES: | |||||||||||
| Interest expense | 35,708 | 19,791 | |||||||||
| Capitalized interest | (5,180) | (1,216) | |||||||||
| Interest income | (10,128) | (773) | |||||||||
| Other, net | 7 | (6) | |||||||||
| Total other expenses | 20,407 | 17,796 | |||||||||
| INCOME (LOSS) BEFORE INCOME TAXES | 74,418 | (10,567) | |||||||||
| INCOME TAX PROVISION (BENEFIT) | 18,269 | (2,686) | |||||||||
| NET INCOME (LOSS) | $ | 56,149 | $ | (7,881) | |||||||
| Earnings (loss) per share to common shareholders: | |||||||||||
| Basic | $ | 3.09 | $ | (0.44) | |||||||
| Diluted | $ | 3.09 | $ | (0.44) | |||||||
| Shares used for computation: | |||||||||||
| Basic | 17,766 | 17,954 | |||||||||
| Diluted | 17,769 | 17,954 | |||||||||
| Cash dividends declared per share: | $ | — | $ | — | |||||||
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 March 31, | |||||||||||
| 2023 | 2022 | ||||||||||
| NET INCOME (LOSS) | $ | 56,149 | $ | (7,881) | |||||||
| Other comprehensive income: | |||||||||||
| Change in available for sale securities, net of tax | 1,985 | 3,355 | |||||||||
| Total other comprehensive income (loss) | 1,985 | 3,355 | |||||||||
| TOTAL COMPREHENSIVE INCOME (LOSS) | $ | 58,134 | $ | (4,526) | |||||||
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 March 31, 2023 | |||||||||||||||||||||||||||||||||||||||||
| Common stock outstanding | Par value | Additional paid-in capital | Accumulated other comprehensive income (loss) | Retained earnings | Treasury shares | Total shareholders' equity | |||||||||||||||||||||||||||||||||||
| Balance at December 31, 2022 | 18,128 | $ | 25 | $ | 709,471 | $ | 1,257 | $ | 1,169,968 | $ | (660,023) | $ | 1,220,698 | ||||||||||||||||||||||||||||
| Share-based compensation | (5) | — | 5,035 | — | — | — | 5,035 | ||||||||||||||||||||||||||||||||||
| Shares repurchased by the Company and held as treasury shares | (125) | — | — | — | — | (12,470) | (12,470) | ||||||||||||||||||||||||||||||||||
| Other comprehensive income | — | — | — | 1,985 | — | — | 1,985 | ||||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | 56,149 | — | 56,149 | ||||||||||||||||||||||||||||||||||
| Balance at March 31, 2023 | 17,998 | $ | 25 | $ | 714,506 | $ | 3,242 | $ | 1,226,117 | $ | (672,493) | $ | 1,271,397 | ||||||||||||||||||||||||||||
| Three Months Ended March 31, 2022 | |||||||||||||||||||||||||||||||||||||||||
| Common stock outstanding | Par value | Additional paid-in capital | Accumulated other comprehensive income (loss) | Retained earnings | Treasury shares | Total shareholders' equity | |||||||||||||||||||||||||||||||||||
| Balance at December 31, 2021 | 18,111 | $ | 25 | $ | 692,053 | $ | 2,056 | $ | 1,167,475 | $ | (638,057) | $ | 1,223,552 | ||||||||||||||||||||||||||||
| Share-based compensation | 8 | — | 3,270 | — | — | — | 3,270 | ||||||||||||||||||||||||||||||||||
| Other comprehensive income | — | — | — | 3,355 | — | — | 3,355 | ||||||||||||||||||||||||||||||||||
| Net (loss) | — | — | — | — | (7,881) | — | (7,881) | ||||||||||||||||||||||||||||||||||
| Balance at March 31, 2022 | 18,119 | $ | 25 | $ | 695,323 | $ | 5,411 | $ | 1,159,594 | $ | (638,057) | $ | 1,222,296 | ||||||||||||||||||||||||||||
6
ALLEGIANT TRAVEL COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
| Three Months Ended March 31, | |||||||||||
| 2023 | 2022 | ||||||||||
| Cash flows from operating activities: | |||||||||||
| Net income (loss) | $ | 56,149 | $ | (7,881) | |||||||
| Adjustments to reconcile net income (loss) to net cash provided by operating activities: | |||||||||||
| Depreciation and amortization | 54,680 | 46,343 | |||||||||
| Special charges | (1,835) | 142 | |||||||||
| Other adjustments | 1,592 | 6,155 | |||||||||
| Changes in certain assets and liabilities: | |||||||||||
| Air traffic liability | 100,071 | 145,169 | |||||||||
| Other - net | 4,743 | (13,927) | |||||||||
| Net cash provided by operating activities | 215,400 | 176,001 | |||||||||
| Cash flows from investing activities: | |||||||||||
| Purchase of investment securities | (251,937) | (302,161) | |||||||||
| Proceeds from maturities of investment securities | 288,591 | 311,332 | |||||||||
| Aircraft pre-delivery deposits | (33,516) | (46,694) | |||||||||
| Purchase of property and equipment | (129,883) | (71,659) | |||||||||
| Other investing activities | 12,506 | (572) | |||||||||
| Net cash (used in) investing activities | (114,239) | (109,754) | |||||||||
| Cash flows from financing activities: | |||||||||||
| Proceeds from the issuance of debt and finance lease obligations | 59,516 | — | |||||||||
| Repurchase of common stock | (12,470) | — | |||||||||
| Principal payments on debt and finance lease obligations | (51,492) | (37,335) | |||||||||
| Debt issuance costs | (877) | (308) | |||||||||
| Other financing activities | (6,554) | — | |||||||||
| Net cash (used in) financing activities | (11,877) | (37,643) | |||||||||
| NET CHANGE IN CASH, CASH EQUIVALENTS, AND RESTRICTED CASH | 89,284 | 28,604 | |||||||||
| CASH, CASH EQUIVALENTS, AND RESTRICTED CASH AT BEGINNING OF PERIOD | 245,446 | 400,701 | |||||||||
| CASH, CASH EQUIVALENTS, AND RESTRICTED CASH AT END OF PERIOD | $ | 334,730 | $ | 429,305 | |||||||
| CASH PAYMENTS FOR: | |||||||||||
| Interest paid, net of amount capitalized | $ | 41,645 | $ | 18,007 | |||||||
| Income tax payments | 14 | 17 | |||||||||
| SUPPLEMENTAL DISCLOSURE OF NONCASH TRANSACTIONS: | |||||||||||
| Flight equipment acquired under finance leases | — | 68,211 | |||||||||
| Purchases of property and equipment in accrued liabilities | 69,240 | 37,083 | |||||||||
The accompanying notes are an integral part of these consolidated financial statements.
7
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 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, 2022 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.
The Company has reclassified certain prior period amounts to conform to the current period presentation.
8
Note 2 — Sunseeker Special Charges
As a result of Hurricane Ian's direct hit on the southwest coast of Florida on September 28, 2022, the construction site of Sunseeker Resort at Charlotte Harbor (the "Resort" or "Sunseeker Resort") was damaged. Additionally in the fourth quarter of 2022, there was another weather-related event and a fire that caused additional damage. Based on the Company’s assessment of these damages and the anticipated future restoration costs, an estimated loss of $52.1 million was recorded as a special charge in 2022.
During the quarter ended March 31, 2023, the Company recorded $1.8 million of insurance recoveries. The recoveries are offset by $0.2 million of additional losses recorded during the quarter, resulting in a special charge of $(1.6) million. To date, the Company has recorded insurance recoveries of $19.9 million related to Hurricane Ian and subsequent insurance events.
9
Note 3 — Revenue Recognition
Passenger Revenue
Passenger revenue is the most significant category in the Company's reported operating revenues, as outlined below:
| Three Months Ended March 31, | |||||||||||
| (in thousands) | 2023 | 2022 | |||||||||
| Scheduled service | $ | 311,728 | $ | 223,854 | |||||||
| Ancillary air-related charges | 283,902 | 229,464 | |||||||||
Loyalty redemptions | 13,647 | 10,643 | |||||||||
| Total passenger revenue | $ | 609,277 | $ | 463,961 | |||||||
Sales of passenger tickets not yet flown are recorded in air traffic liability. Passenger revenue is recognized when transportation is provided. As of March 31, 2023, the air traffic liability balance was $479.5 million, of which approximately $425.3 million was related to forward bookings, with the remaining $54.2 million related to credit vouchers for future travel.
The normal contract term of passenger tickets is 12 months and passenger revenue associated with future travel will principally be recognized within this time frame. Of the $379.5 million that was recorded in the air traffic liability balance as of December 31, 2022, approximately 68.8 percent was recognized into passenger revenue during the three months ended March 31, 2023.
In 2020, the Company announced that credit vouchers issued for canceled travel beginning in January 2020 would have an extended expiration date of two years from the original booking date. This policy continued for vouchers issued through June 30, 2021. Effective July 1, 2021, vouchers issued have an expiration date of one year from the original booking date.
The Company periodically evaluates the estimated amount of credit vouchers expected to expire unused and any adjustment is removed from air traffic liability and included in passenger revenue in the period in which the evaluation is complete. Estimates of passenger revenue to be recognized from air traffic liability for credit voucher breakage may be subject to variability and differ from historical experience due to the change in contract duration and uncertainty regarding demand for future air travel.
Loyalty redemptions
In relation to the travel component of the Allways® Allegiant 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 underlying service is provided. Similarly, in relation to the Allways Rewards program, points earned through the program are deferred based on the stand-alone selling price and recognized into passenger revenue when the points are redeemed and the underlying service has been provided.
The following table presents the activity of the point liability for the periods indicated:
| Three Months Ended March 31, | |||||||||||
| (in thousands) | 2023 | 2022 | |||||||||
| Points balance at January 1 | $ | 56,541 | $ | 40,490 | |||||||
| Points awarded (deferral of revenue) | 16,739 | 16,957 | |||||||||
| Points redeemed (recognition of revenue) | (13,647) | (10,643) | |||||||||
| Points balance at March 31 | $ | 59,633 | $ | 46,804 | |||||||
The current portion of the loyalty program liability represents the estimate of revenue to be recognized in the next 12 months based on historical trends, with the remaining balance reflected in noncurrent liabilities expected to be recognized into revenue in periods thereafter.
10
Note 4 — Property and Equipment
The following table summarizes the Company's property and equipment as of the dates indicated:
| (in thousands) | March 31, 2023 | December 31, 2022 | |||||||||
| Flight equipment, including pre-delivery deposits | $ | 3,000,824 | $ | 2,937,767 | |||||||
| Computer hardware and software | 230,034 | 209,808 | |||||||||
| Land and buildings/leasehold improvements | 62,157 | 62,227 | |||||||||
| Other property and equipment | 100,213 | 95,156 | |||||||||
| Sunseeker Resort | 406,192 | 320,572 | |||||||||
| Total property and equipment | 3,799,420 | 3,625,530 | |||||||||
| Less accumulated depreciation and amortization | (852,479) | (814,837) | |||||||||
| Property and equipment, net | $ | 2,946,941 | $ | 2,810,693 | |||||||
Accrued capital expenditures as of March 31, 2023 and December 31, 2022 were $69.2 million and $54.6 million, respectively.
11
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) | March 31, 2023 | December 31, 2022 | |||||||||
| Fixed-rate debt and finance lease obligations due through 2032 | $ | 1,719,077 | $ | 1,720,998 | |||||||
| Variable-rate debt due through 2029 | 386,743 | 375,980 | |||||||||
| Total debt and finance lease obligations, net of related costs | 2,105,820 | 2,096,978 | |||||||||
| Less current maturities, net of related costs | 289,669 | 152,900 | |||||||||
| Long-term debt and finance lease obligations, net of current maturities and related costs | $ | 1,816,151 | $ | 1,944,078 | |||||||
| Weighted average fixed-interest rate on debt | 6.4% | 6.5% | |||||||||
| Weighted average variable-interest rate on debt | 6.6% | 6.1% | |||||||||
| Interest Rate(s) Per Annum at | March 31, 2023 | December 31, 2022 | |||||||||||||||||||||||||||||||||
| (in thousands) | Maturity Dates | March 31, 2023 | |||||||||||||||||||||||||||||||||
| Senior secured notes | 2024 | — | 2027 | 7.25 | % | — | 8.50% | $ | 700,000 | $ | 700,000 | ||||||||||||||||||||||||
| Consolidated variable interest entities | 2024 | — | 2029 | 2.92 | % | — | 4.10% | 103,966 | 79,453 | ||||||||||||||||||||||||||
| Revolving credit facilities | 2024 | — | 2027 | 7.32% | 62,844 | 30,327 | |||||||||||||||||||||||||||||
| Debt secured by aircraft, engines, other equipment and real estate | 2023 | — | 2029 | 1.87 | % | — | 7.45% | 438,282 | 466,335 | ||||||||||||||||||||||||||
| Finance leases | 2028 | — | 2032 | 4.44 | % | — | 7.00% | 473,339 | 494,328 | ||||||||||||||||||||||||||
| Construction loan agreement | 2028 | 5.75% | 350,000 | 350,000 | |||||||||||||||||||||||||||||||
| Total debt | $ | 2,128,431 | $ | 2,120,443 | |||||||||||||||||||||||||||||||
| Related costs | (22,611) | (23,465) | |||||||||||||||||||||||||||||||||
| Total debt net of related costs | $ | 2,105,820 | $ | 2,096,978 | |||||||||||||||||||||||||||||||
Maturities of long term debt as of March 31, 2023, for the next five years and thereafter, in the aggregate, are:
| (in thousands) | As of March 31, 2023 | ||||
| Remaining in 2023 | $ | 104,631 | |||
| 2024 | 365,058 | ||||
| 2025 | 161,775 | ||||
| 2026 | 155,579 | ||||
| 2027 | 709,921 | ||||
| 2028 | 278,929 | ||||
| Thereafter | 329,927 | ||||
| Total debt and finance lease obligations, net of related costs | $ | 2,105,820 | |||
Revolving Credit Facility
In February 2023, the Company, through a wholly owned subsidiary, entered into a credit agreement with Credit Agricole Corporate and Investment Bank, under which the Company is entitled to borrow up to $100.0 million. This revolving credit facility replaced a revolving credit facility with the same lender which was to expire in March 2023. The revolving credit facility has a maturity date of March 31, 2026 and the borrowing ability is based on the value of aircraft and engines placed into the collateral pool. The notes under the facility bear interest at a floating rate based on SOFR. As of March 31, 2023, the facility remains undrawn.
Consolidated Variable Interest Entities
12
In February 2023, the Company, through a wholly owned subsidiary, entered into agreements with a trust to borrow $27.0 million secured by one Airbus A320 series aircraft. The trust was funded on inception. The borrowing bears interest at a rate of 2.92 percent and is payable in monthly installments through February 2029, at which time the Company will have a purchase option at a fixed amount.
13
Note 6 — Income Taxes
The Company recorded an $18.3 million income tax expense at an effective tax rate of 24.5 percent and a $2.7 million income tax benefit at a 25.4 percent effective tax rate for the three months ended March 31, 2023 and 2022, respectively. The effective tax rate for the three months ended March 31, 2023 differed from the statutory Federal income tax rate of 21.0 percent primarily due to state income taxes and the impact of permanent tax differences. While the Company expects its effective tax rate to be fairly consistent in the near term, it will vary depending on recurring items such as the amount of income earned in each state and the state tax rate applicable to such income. Discrete items during interim periods may also affect the Company's tax rates.
14
Note 7 — 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 three months ended March 31, 2023.
Financial instruments measured at fair value on a recurring basis:
| As of March 31, 2023 | As of December 31, 2022 | ||||||||||||||||||||||||||||||||||
| (in thousands) | Total | Level 1 | Level 2 | Total | Level 1 | Level 2 | |||||||||||||||||||||||||||||
| Cash equivalents | |||||||||||||||||||||||||||||||||||
| Money market funds | $ | 105,574 | $ | 105,574 | $ | — | $ | 88,073 | $ | 88,073 | $ | — | |||||||||||||||||||||||
| Commercial paper | 70,727 | — | 70,727 | 50,791 | — | 50,791 | |||||||||||||||||||||||||||||
| Municipal debt securities | 7,593 | — | 7,593 | 8,599 | — | 8,599 | |||||||||||||||||||||||||||||
| Total cash equivalents | 183,894 | 105,574 | 78,320 | 147,463 | 88,073 | 59,390 | |||||||||||||||||||||||||||||
| Short-term | |||||||||||||||||||||||||||||||||||
| Commercial paper | 373,285 | — | 373,285 | 421,279 | — | 421,279 | |||||||||||||||||||||||||||||
| US Treasury Bonds | 23,457 | — | 23,457 | — | — | — | |||||||||||||||||||||||||||||
| Corporate debt securities | 133,273 | — | 133,273 | 166,136 | — | 166,136 | |||||||||||||||||||||||||||||
| Municipal debt securities | 12,157 | — | 12,157 | 30,426 | — | 30,426 | |||||||||||||||||||||||||||||
| Federal agency debt securities | 148,421 | — | 148,421 | 107,222 | — | 107,222 | |||||||||||||||||||||||||||||
| Total short-term | 690,593 | — | 690,593 | 725,063 | — | 725,063 | |||||||||||||||||||||||||||||
| Long-term | |||||||||||||||||||||||||||||||||||
| Federal agency debt securities | 38,261 | — | 38,261 | 20,050 | — | 20,050 | |||||||||||||||||||||||||||||
| Corporate debt securities | 22,904 | — | 22,904 | 35,688 | — | 35,688 | |||||||||||||||||||||||||||||
| Municipal debt securities | 7,636 | — | 7,636 | 7,580 | — | 7,580 | |||||||||||||||||||||||||||||
| Total long-term | 68,801 | — | 68,801 | 63,318 | — | 63,318 | |||||||||||||||||||||||||||||
| Total financial instruments | $ | 943,288 | $ | 105,574 | $ | 837,714 | $ | 935,844 | $ | 88,073 | $ | 847,771 | |||||||||||||||||||||||
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, excluding finance leases, including current maturities and without reduction for related costs, are as follows:
| As of March 31, 2023 | As of December 31, 2022 | ||||||||||||||||||||||||||||
| (in thousands) | Carrying Value | Estimated Fair Value | Carrying Value | Estimated Fair Value | Hierarchy Level | ||||||||||||||||||||||||
| Non-publicly held debt | $ | 1,655,092 | $ | 1,636,067 | $ | 1,626,114 | $ | 1,561,939 | 3 | ||||||||||||||||||||
Due to their short-term nature, the carrying amounts of cash, restricted cash, accounts receivable and accounts payable approximate fair value.
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Note 8 — 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 months ended March 31, 2022, basic and diluted loss per share are the same because of the loss position.
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 March 31, | |||||||||||
| 2023 | 2022 | ||||||||||
| Basic: | |||||||||||
| Net income (loss) | $ | 56,149 | $ | (7,881) | |||||||
| Less income allocated to participating securities | (1,254) | — | |||||||||
| Net income (loss) attributable to common stock | $ | 54,895 | $ | (7,881) | |||||||
| Earnings (loss) per share, basic | $ | 3.09 | $ | (0.44) | |||||||
| Weighted-average shares outstanding | 17,766 | 17,954 | |||||||||
| Diluted: | |||||||||||
| Net income (loss) | $ | 56,149 | $ | (7,881) | |||||||
| Less income allocated to participating securities | (1,254) | — | |||||||||
| Net income (loss) attributable to common stock | $ | 54,895 | $ | (7,881) | |||||||
| Earnings (loss) per share, diluted | $ | 3.09 | $ | (0.44) | |||||||
| Weighted-average shares outstanding | 17,766 | 17,954 | |||||||||
| Dilutive effect of stock options and restricted stock | 104 | — | |||||||||
| Adjusted weighted-average shares outstanding under treasury stock method | 17,870 | 17,954 | |||||||||
| Participating securities excluded under two-class method | (101) | — | |||||||||
| Adjusted weighted-average shares outstanding under two-class method | 17,769 | 17,954 | |||||||||
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Note 9 — 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.
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Note 10 — 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 two operating segments: Airline and Sunseeker Resort.
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.
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 renovation of Aileron Golf Course (formerly known as Kingsway Golf Course). Plans for the resort include a 500-room hotel and two towers offering more than 180 one, two and three-bedroom suites, bar and restaurant options, and other amenities. The golf course is a short drive from the resort and is considered, from a planning and strategic perspective, to be an additional resort amenity. The construction of Sunseeker Resort is an extension of the Company's leisure travel focus and it is expected that many customers flying to Southwest Florida on Allegiant will elect to stay at this resort and enjoy its amenities.
Selected information for the Company's segments and the reconciliation to the consolidated financial statement amounts are as follows:
| (in thousands) | Airline | Sunseeker Resort | Consolidated | |||||||||||||||||
| Three Months Ended March 31, 2023 | ||||||||||||||||||||
| Operating revenue: | ||||||||||||||||||||
| Passenger | $ | 609,277 | $ | — | $ | 609,277 | ||||||||||||||
| Third party products | 26,037 | — | 26,037 | |||||||||||||||||
| Fixed fee contracts | 14,117 | — | 14,117 | |||||||||||||||||
| Other | 251 | 5 | 256 | |||||||||||||||||
| Operating income (loss) | 97,574 | (2,749) | 94,825 | |||||||||||||||||
| Interest expense, net | 18,741 | 1,695 | 20,436 | |||||||||||||||||
| Depreciation and amortization | 54,622 | 58 | 54,680 | |||||||||||||||||
| Capital expenditures | 92,432 | 85,620 | 178,052 | |||||||||||||||||
| Three Months Ended March 31, 2022 | ||||||||||||||||||||
| Operating revenue: | ||||||||||||||||||||
| Passenger | $ | 463,961 | $ | — | $ | 463,961 | ||||||||||||||
| Third party products | 22,480 | — | 22,480 | |||||||||||||||||
| Fixed fee contracts | 13,386 | — | 13,386 | |||||||||||||||||
| Other | 281 | 1 | 282 | |||||||||||||||||
| Operating income (loss) | 10,176 | (2,947) | 7,229 | |||||||||||||||||
| Interest expense, net | 15,828 | 1,974 | 17,802 | |||||||||||||||||
| Depreciation and amortization | 46,341 | 2 | 46,343 | |||||||||||||||||
| Capital expenditures | 142,178 | 63,781 | 205,959 | |||||||||||||||||
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Total assets were as follows as of the dates indicated:
| (in thousands) | As of March 31, 2023 | As of December 31, 2022 | |||||||||
| Airline | $ | 4,130,023 | $ | 4,047,134 | |||||||
| Sunseeker Resort | 550,398 | 464,163 | |||||||||
| Consolidated | $ | 4,680,421 | $ | 4,511,297 | |||||||
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Note 11 — Subsequent Events
In April, 2023, the Company received advances of $55.9 million under the $200 million credit facility used to fund pre-delivery deposits for the Company's Boeing order.
20
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 months ended March 31, 2023 and 2022. Also discussed is our financial position as of March 31, 2023 and December 31, 2022. 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, 2022. 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.
First Quarter 2023 Review
First quarter 2023 highlights include:
–Earnings per share of $3.09
–Operating income of $94.8 million, yielding an operating margin of 14.6 percent
–Total operating revenue was $649.7 million, up 29.9 percent over prior year
–Total fixed fee contracts revenue of $14.1 million, the highest first-quarter total in company history
–Total revenue per available seat mile or TRASM of 13.89 cents, up 28.8 percent year-over-year
–Load factor of 85.8 percent, a 6.9 point improvement year-over-year
–Total average fare of $154.12, up 17.5 percent year-over-year, the highest quarterly average fare in company history
–Total average ancillary revenue per passenger, including third party products, of $75.19, up 10.7 percent as compared to first quarter 2022 driven by overall strength in core products and the Allegiant Extra rollout
–Acquired over 46 thousand new Allways rewards credit card holders during the quarter, the highest quarterly acquisition in program history
–Received $28 million in remuneration from the co-branded credit card during the quarter
–Allegiant recently named to the Forbes' America's Best Midsize Employers for 2023, Newsweek's America's Greatest Workplaces for Diversity 2023, and Fortune's America's Most Innovative Companies 2023 lists
AIRCRAFT
The following table sets forth the aircraft in service and operated by us as of the dates indicated:
| March 31, 2023 | December 31, 2022 | ||||||||||
| A319 | 35 | 35 | |||||||||
A320(1) | 89 | 86 | |||||||||
| Total | 124 | 121 | |||||||||
(1)Does not include two aircraft of which we have taken delivery as of March 31, 2023, but were not yet in service as of that date.
As of March 31, 2023, we are party to forward purchase agreements for 53 aircraft with five deliveries expected in 2023, 24 in 2024 and the remainder thereafter. Two of the aircraft scheduled for delivery in 2023 are the initial aircraft under our Boeing contract, which are scheduled to be delivered in fourth quarter 2023.
NETWORK
As of March 31, 2023, we were selling 574 routes versus 617 as of the same date in 2022. As discussed below, overall capacity and the number of routes served have been reduced to preserve systemwide operational reliability. We expect route count to remain below 2022 levels throughout the year as we focus on our core markets during our busiest travel periods. We have identified 1,400 incremental routes as opportunities for future network growth, of which over 80% currently have no current non-stop service. Our total active number of origination cities and leisure destinations were 93 and 32, respectively, as of March 31, 2023.
Our unique model is predicated around expanding and contracting capacity to meet seasonal travel demands.
TRENDS
COVID-19
The COVID-19 pandemic significantly impacted our operating results in 2020 and 2021 and we suffered numerous cancellations due to the effect of the Omicron variant on flight crews into first quarter 2022. Although legislation has been passed to end the national emergency from the pandemic, future outbreaks of COVID-19 or other similar diseases may impact our operations into the future. We believe that demand in the foreseeable future could vary in response to fluctuations in COVID-19 cases, variants
21
of the virus, hospitalizations, deaths, treatment efficacy, the availability of vaccines, CDC recommendations, and government restrictions.
Strong Demand Momentum
As concerns over COVID-19 have declined, we have seen significant increases in load factors and average total fare per passenger beginning in March 2022, and continuing to date.
Aircraft Fuel
The cost of fuel is volatile, as it is subject to many economic and geopolitical factors we can neither control nor predict. Significant increases in fuel costs could materially affect our operating results and profitability. We have not sought to use financial derivative products to hedge our exposure to fuel price volatility, nor do we have any plans to do so in the future.
The cost per gallon of fuel began to increase significantly in 2021 and the increases were exacerbated by the geopolitical impact of the war in Ukraine. As a result, the average fuel cost per gallon increased by 11.4 percent in first quarter 2023 over first quarter 2022. Fuel prices reached a peak in the second quarter of 2022, and have declined by approximately 22 percent since that time as we have seen refinery costs decline by 15 percent year over year. Fuel costs remain significantly higher than prior periods. We expect high fuel costs will continue to impact our total costs and operating results.
Boeing Agreement
In December 2021, we signed an agreement with The Boeing Company to purchase 50 newly manufactured 737MAX aircraft scheduled to be delivered in 2023 to 2025 with options to purchase an additional 50 737’s. We believe this new aircraft purchase is complementary with our low cost strategy based on our intent to retain ownership of the aircraft, the longer useful life for depreciation purposes, expected fuel savings and operational reliability from the use of these new aircraft.
Operations
Delays for aircraft in heavy maintenance, pilot constraints, airport construction disruption and air traffic control delays in certain markets continue to impact our operations and we have further pulled back some of our capacity in 2023 as a result. We believe these issues are not unique to Allegiant nor do we believe they are systemic.
Union Negotiations
The collective bargaining agreement with our pilots is currently amendable and the parties have jointly requested the involvement of the National Mediation Board ("NMB") to assist with the negotiations. The mediation process with the NMB has begun. We are also in the process of negotiating a new contract with the union representing our flight attendants. Further, we have reached a tentative agreement with the union for our flight dispatchers which will increase pay rates and extend the term of that collective bargaining agreement by two years.
The terms of any new collective bargaining agreement will impact our costs over the term of the contract.
Pilot Scarcity
The supply of pilots necessary for airline industry growth may be a limiting factor. The pandemic resulted in more than 3,000 early pilot retirements across U.S. mainline and cargo carriers and the pipeline for new pilots does not appear at the present time to be sufficiently robust to replace retired pilots and to allow for projected industry growth. The ability to hire and retain pilots will be critical to our and the industry’s growth.
Engagement of Schneider Electric as ESG Consultant
We are continuing our partnership with Schneider Electric to help us develop our Environmental, Social and Governance (ESG) program. During 2023, we expect to establish ESG goals and environmental goal achievement plans and will continue to provide carbon emissions reporting of Scope 1, 2, and 3 greenhouse gas (GHG) emissions.
VivaAerobus Alliance
In December 2021, we announced plans for a fully-integrated commercial alliance agreement with VivaAerobus, designed to expand options for nonstop leisure air travel on transborder flights between United States and Mexico. We and VivaAerobus have submitted a joint application to the DOT requesting approval of and antitrust immunity for the alliance. In January 2023, the DOT declared our application substantially complete, but we have yet to receive a final ruling from the DOT. Allegiant and VivaAerobus have received approval from the Mexican Federal Economic Competition Commission to proceed with the alliance.
We and VivaAerobus currently expect to offer new routes under the alliance in late 2023, pending U.S. governmental approval of the applications and the return of Mexico to a Category 1 status under the FAA’s International Aviation Safety Assessment (“IASA”) program. The Category 1 status allows foreign airlines to expand their services to U.S. destinations and enter into codeshare partnerships with U.S. airlines. The FAA and Mexican Authorities currently anticipate an upgrade to Category 1 this summer pending successful completion of the final steps of the process.
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Sunseeker Resort
Construction of Sunseeker Resort Charlotte Harbor is continuing and we expect to open the resort in October 2023.
23
RESULTS OF OPERATIONS
Comparison of three months ended March 31, 2023 to three months ended March 31, 2022
As comparisons of our first quarter 2023 results to the first quarter of 2022 reflect changes due to the continued impact of the COVID-19 pandemic on air travel during the first quarter of 2022, year-over-year comparisons below are not necessarily indicative of expected full year-over-year results.
Operating Revenue
Passenger revenue. For the first quarter 2023, passenger revenue increased 31.3 percent compared to the same period in 2022 on relatively flat capacity year over year, with scheduled service available seat miles (ASMs) increasing by 1.4 percent. Stronger passenger demand drove a 24.8 percent increase in average base fare and a 6.9 percentage point increase in scheduled service load factor. An 11.3 percent increase in ancillary air-related revenue per passenger, excluding third party products, also contributed to the increase in passenger revenue.
The increase in ancillary air-related revenue per passenger over the same period in 2022 was primarily driven by overall strength in core products and the Allegiant Extra rollout.
Third party products revenue. Third party products revenue for the first quarter 2023 increased 15.8 percent compared to the first quarter 2022. The increase from 2022 is primarily the result of a $2.8 million, or 23.6 percent, increase in the marketing component of co-branded credit card revenues.
Fixed fee contract revenue. Fixed fee contract revenue for the first quarter 2023 increased 5.5 percent compared to the same period in 2022 on stronger than expected performance during March Madness.The increase was also driven by increased fuel per gallon pass throughs, which are accounted for as fixed fee contract revenue. Fixed fee departures were relatively flat year over year.
Operating Expenses
We primarily evaluate our expense management by comparing our costs per available seat mile (ASM) across different periods, which enables us to assess trends in each expense category. The following table presents 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 March 31, | Percent Change | ||||||||||||||||
| Unitized costs (in cents) | 2023 | 2022 | YoY | ||||||||||||||
| Aircraft fuel | 4.05 | ¢ | 3.55 | ¢ | 14.1 | % | |||||||||||
| Salaries and benefits | 3.41 | 2.90 | 17.6 | ||||||||||||||
| Station operations | 1.32 | 1.42 | (7.0) | ||||||||||||||
| Depreciation and amortization | 1.17 | 1.00 | 17.0 | ||||||||||||||
| Maintenance and repairs | 0.57 | 0.60 | (5.0) | ||||||||||||||
| Sales and marketing | 0.58 | 0.48 | 20.8 | ||||||||||||||
| Aircraft lease rentals | 0.15 | 0.13 | 15.4 | ||||||||||||||
| Other | 0.64 | 0.59 | 8.5 | ||||||||||||||
| Special charges | (0.03) | — | NM | ||||||||||||||
| CASM | 11.86 | ¢ | 10.67 | ¢ | 11.2 | ||||||||||||
| Operating CASM, excluding fuel | 7.81 | ¢ | 7.12 | ¢ | 9.7 | ||||||||||||
| Sunseeker Resort CASM | 0.06 | 0.06 | — | ||||||||||||||
| Operating CASM, excluding fuel and Sunseeker Resort activity | 7.75 | ¢ | 7.06 | ¢ | 9.8 | ||||||||||||
NM - Not meaningful
Aircraft fuel expense. Aircraft fuel expense increased $25.4 million, or 15.5 percent, for the first quarter 2023 compared to first quarter 2022. This is primarily due to an 11.4 percent increase in average fuel cost per gallon and a 3.7 percent increase in gallons consumed.
Salaries and benefits expense. Salaries and benefits expense increased $25.6 million, or 19.1 percent, for the first quarter 2023 when compared to the same period in 2022. The increase is primarily due to a 17.1 percent increase in the number of full time equivalent employees from the first quarter 2022.
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Station operations expense. Station operations expense for the first quarter 2023 decreased $4.2 million, or 6.4 percent compared to the same period in 2022 due to an 86.5 percent decrease in customer compensation related to irregular operations offset by a 2.3 percent increase in departures and continued inflationary pressures on landing fees, ground handling, and other stations related expense.
Depreciation and amortization expense. Depreciation and amortization expense for the first quarter 2023 increased by 18.0 percent as compared to the first quarter 2022 driven by a 12.1 percent increase in the average number of aircraft owned and in service as well as an increase in the amortization of major maintenance costs.
Maintenance and repairs expense. Maintenance and repairs expense for the first quarter 2023 decreased $1.4 million, or 5.0 percent, compared to the same period in 2022, primarily due to a higher volume of repairs in the prior year quarter.
Sales and marketing expense. Sales and marketing expense for the first quarter 2023 increased by 20.5 percent compared to the same period in 2022, primarily due to an increase in credit card fees as a result of a 31.3 percent increase in passenger revenue year-over-year.
Other operating expense. Other operating expense increased $4.4 million or 16.9 percent for the first quarter 2023 compared to the first quarter 2022 attributable to incremental increases in outsourced labor and software support associated with ongoing IT initiatives.
Special charges. During first quarter 2023, we recorded $(1.6) million of special charges as recognition of $1.8 million of insurance recoveries were offset by $0.2 million of additional charges during the quarter.
Interest Expense and Income
Interest expense for the quarter ended March 31, 2023 increased by $15.9 million, or 80.4 percent over first quarter 2022, due to new fixed rate debt and finance lease transactions entered into since first quarter 2022 as well as a 3.5 percentage point increase in the weighted average variable interest rate year-over-year due to increases in the indexes. The increase in interest expense was partially offset by a $9.4 million increase in interest income compared to first quarter 2022, due to higher yields on investments in debt securities.
Income Tax Expense
We recorded an $18.3 million income tax expense at an effective tax rate of 24.5 percent and a $2.7 million income tax benefit at a 25.4 percent effective tax rate for the three months ended March 31, 2023 and 2022, respectively. The effective tax rate for the three months ended March 31, 2023 differed from the statutory Federal income tax rate of 21.0 percent primarily due to state income taxes and the impact of permanent tax differences.
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Comparative Airline-Only Operating Statistics
The following tables set forth our airline operating statistics for the periods indicated:
| Three Months Ended March 31, | Percent Change (1) | ||||||||||||||||
| 2023 | 2022 | YoY | |||||||||||||||
| Airline operating statistics (unaudited): | |||||||||||||||||
| Total system statistics: | |||||||||||||||||
| Passengers | 4,148,453 | 3,734,262 | 11.1 | % | |||||||||||||
| Available seat miles (ASMs) (thousands) | 4,677,622 | 4,620,144 | 1.2 | ||||||||||||||
| Airline operating expense per ASM (CASM) (cents) | 11.80 | ¢ | 10.61 | ¢ | 11.2 | ||||||||||||
| Fuel expense per ASM (cents) | 4.05 | ¢ | 3.55 | ¢ | 14.1 | ||||||||||||
| Airline operating CASM, excluding fuel (cents) | 7.75 | ¢ | 7.06 | ¢ | 9.8 | ||||||||||||
| Departures | 29,145 | 28,494 | 2.3 | ||||||||||||||
| Block hours | 71,790 | 69,655 | 3.1 | ||||||||||||||
| Average stage length (miles) | 908 | 920 | (1.3) | ||||||||||||||
| Average number of operating aircraft during period | 122.7 | 109.5 | 12.1 | ||||||||||||||
| Average block hours per aircraft per day | 6.5 | 7.1 | (8.5) | ||||||||||||||
| Full-time equivalent employees at end of period | 5,318 | 4,692 | 13.3 | ||||||||||||||
| Fuel gallons consumed (thousands) | 55,434 | 53,438 | 3.7 | ||||||||||||||
| ASMs per gallon of fuel | 84.4 | 86.5 | (2.4) | ||||||||||||||
| Average fuel cost per gallon | $ | 3.42 | $ | 3.07 | 11.4 | ||||||||||||
| Scheduled service statistics: | |||||||||||||||||
| Passengers | 4,122,196 | 3,709,104 | 11.1 | ||||||||||||||
| Revenue passenger miles (RPMs) (thousands) | 3,925,362 | 3,558,045 | 10.3 | ||||||||||||||
| Available seat miles (ASMs) (thousands) | 4,573,766 | 4,512,315 | 1.4 | ||||||||||||||
| Load factor | 85.8 | % | 78.9 | % | 6.9 | ||||||||||||
| Departures | 28,273 | 27,637 | 2.3 | ||||||||||||||
| Block hours | 70,009 | 67,829 | 3.2 | ||||||||||||||
| Average seats per departure | 176.0 | 175.6 | 0.2 | ||||||||||||||
Yield (cents) (2) | 8.29 | ¢ | 6.59 | ¢ | 25.8 | ||||||||||||
Total passenger revenue per ASM (TRASM) (cents)(3) | 13.89 | ¢ | 10.78 | ¢ | 28.8 | ||||||||||||
Average fare - scheduled service(4) | $ | 78.93 | $ | 63.22 | 24.8 | ||||||||||||
Average fare - air-related charges(4) | $ | 68.87 | $ | 61.87 | 11.3 | ||||||||||||
| Average fare - third party products | $ | 6.32 | $ | 6.06 | 4.3 | ||||||||||||
| Average fare - total | $ | 154.12 | $ | 131.15 | 17.5 | ||||||||||||
| Average stage length (miles) | 915 | 926 | (1.2) | ||||||||||||||
| Fuel gallons consumed (thousands) | 54,145 | 52,110 | 3.9 | ||||||||||||||
| Average fuel cost per gallon | $ | 3.42 | $ | 3.01 | 13.6 | ||||||||||||
| Rental car days sold | 354,426 | 367,094 | (3.5) | ||||||||||||||
| Hotel room nights sold | 68,939 | 72,539 | (5.0) | ||||||||||||||
| Percent of sales through website during period | 95.6 | % | 96.0 | % | (0.4) | ||||||||||||
(1)Except load factor and percent of sales through website during period, which are presented as a percentage point change.
(2)Defined as scheduled service revenue divided by revenue passenger miles.
(3)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.
(4)Reflects division of passenger revenue between scheduled service (base fare) and air-related charges in our booking path.
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LIQUIDITY AND CAPITAL RESOURCES
Current liquidity
Cash, cash equivalents and investment securities (short-term and long-term) increased to $1.08 billion at March 31, 2023, from $1.02 billion at December 31, 2022. Investment securities represent highly liquid marketable securities which are available-for-sale.
Restricted cash represents escrowed funds under fixed fee contracts, escrowed airport project funds 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 believe we have more than adequate liquidity resources through our cash balances, operating cash flows, availability under revolving credit facilities, and borrowings 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 slightly from $2.12 billion as of December 31, 2022 to $2.13 billion as of March 31, 2023. Net debt (total debt less unrestricted cash, cash equivalents, and investments) as of March 31, 2023 was $1.03 billion, a decrease of $49.8 million from December 31, 2022. During the three months ended March 31, 2023, we exercised a $15.2 million purchase option on one Airbus A320 finance leased aircraft and subsequently refinanced the same aircraft for $27.0 million. We also entered into a revolving credit facility to borrow up to $100 million which remains undrawn. During this period, we made principal payments on debt of $51.5 million.
As of March 31, 2023, approximately 82 percent of our debt and finance lease obligations are fixed-rate.
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 three months ended March 31, 2023, our operating activities provided $215.4 million of cash compared to $176.0 million during the same period 2022. This change is mostly attributable to a $64.0 million increase in net income offset by changes in current assets and liability accounts.
Investing Activities. Cash used for investing activities was $114.2 million during the three months ended March 31, 2023 compared to $109.8 million used for investing activities during the same period in 2022. The change is due to a $58.2 million increase in purchases of property and equipment, offset by a decrease of $13.2 million in aircraft pre-delivery deposits and a $27.5 million increase in proceeds from maturities, net of purchases, of investment securities compared to the three months ended March 31, 2022.
Financing Activities. Cash used for financing activities for the three months ended March 31, 2023 was $11.9 million, compared to $37.6 million for the same period in 2022. The change was the result of $59.5 million in proceeds from debt and finance lease obligations in the three months ended March 31, 2023, compared to none in the prior year quarter, which was offset by $12.5 million used for repurchases of common stock in the three months ended March 31, 2023, compared to none in the prior year quarter and by a $14.2 million increase in principal payments of debt and finance lease obligations.
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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 the number of contracted aircraft to be placed in service in the future, the timing of aircraft deliveries and retirements, the implementation of a joint alliance with VivaAerobus, the opening date for our Sunseeker Resort, as well as other information concerning future results of operations, business strategies, financing plans, competitive position, industry environment, potential growth opportunities, the effects of future regulation and the effects of competition. 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,” “hope” 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 of Hurricane Ian on our Florida markets and on completion of Sunseeker Resort, the impact and duration of the COVID-19 pandemic on airline travel and the economy, 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 impact of government regulations on the airline industry, the ability to finance aircraft to be acquired, the ability to obtain necessary government approvals to implement the announced alliance with VivaAerobus and to otherwise prepare to offer international service, terrorist attacks, risks inherent to airlines, our competitive environment, our reliance on third parties who provide facilities or services to us, the impact of management changes and the possible loss of key personnel, economic and other conditions in markets in which we operate, the ability to successfully develop a resort in Southwest Florida, increases in maintenance cost, cyclical and seasonal fluctuations in our operating results and the perceived acceptability of our environmental, social, and governance efforts.
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 three months ended March 31, 2023. For information regarding our critical accounting policies and estimates, see disclosures in the Consolidated Financial Statements and accompanying notes contained in our 2022 Form 10-K, and in Note 1 of Notes to Consolidated Financial Statements (unaudited).
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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. Aircraft fuel expense for the three months ended March 31, 2023 represented 34.2 percent of our total operating expenses. 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 months ended March 31, 2023, a hypothetical ten percent increase in the average price per gallon of fuel would have increased fuel expense by approximately $18.9 million. We have not hedged fuel price risk for many years.
Interest Rates
As of March 31, 2023, we had $391.6 million of variable-rate debt, including current maturities and without reduction for $4.9 million in related costs. A hypothetical 100 basis point change in interest rates would have affected interest expense on variable rate debt by approximately $0.9 million for the three months ended March 31, 2023.
Item 4. Controls and Procedures
As of March 31, 2023, 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 March 31, 2023, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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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 for the year ended December 31, 2022 and filed with the Commission on February 27, 2023.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Our Repurchases of Equity Securities
The following table reflects the repurchases of our common stock during the first quarter 2023:
| Period | Total Number of Shares Purchased (1) | Average Price Paid per Share | Total Number of Shares Purchased as Part of our Publicly Announced Plan | Approximate Dollar Value of Shares that May yet be Purchased Under the Plans or Programs (in thousands) (2) | ||||||||||||||||||||||
| January | 7,028 | $ | 86.02 | None | ||||||||||||||||||||||
| February | 84,010 | $ | 98.94 | 83,973 | ||||||||||||||||||||||
| March | 34,431 | $ | 103.29 | 33,681 | ||||||||||||||||||||||
| Total | 125,469 | $ | 99.41 | 117,654 | $ | 88,196 | ||||||||||||||||||||
(1)Includes shares repurchased from employees who vested a portion of their restricted stock grants. These share repurchases were made at the election of each employee pursuant to an offer to repurchase by us. In each case, the shares repurchased constituted a portion of vested shares necessary to satisfy income tax withholding requirements.
(2)Represents the remaining dollar amount of open market purchases of our common stock which has been authorized by our board under a share repurchase program.
Item 3. Defaults Upon Senior Securities
None
Item 4. Mine Safety Disclosures
Not applicable
Item 5. Other Information
None
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Item 6. Exhibits
| 101.SCH | XBRL Taxonomy Extension Schema Document | ||||
| 101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document | ||||
| 101.DEF | XBRL Taxonomy Extension Definition Linkbase Document | ||||
| 101.LAB | XBRL Taxonomy Extension Labels Linkbase Document | ||||
| 101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document | ||||
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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: | May 8, 2023 | By: | /s/ Robert J. Neal | ||||||||
| Robert J. Neal, as duly authorized officer of the Company (Senior Vice President and Chief Financial Officer) and as Principal Financial Officer | |||||||||||
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