Allegiant Travel Company (ALGT) Earnings

Management highlights

- General Financial and Operational Performance * The combined company delivered record quarterly revenue, with both Allegiant and Sun Country achieving over 20% year-over-year TRASM improvement, and unit revenue growth outpaced unit costs. * The company achieved industry-leading operating margins for the third consecutive quarter, with strong operational performance including industry-leading controllable completion and mishandled bag performance, and healthy in-flight NPS. * 70% of the company's customers are repeat flyers, and the combined company is the number one or number two carrier in roughly 95% of its originating markets. 21% of scheduled service ASMs in Q2 came from MAX aircraft, up from 11% year-over-year. - Commercial Initiatives * The recently launched Expedia OTA partnership went live July 10, with ~3% of bookings coming from the Expedia network in early weeks, over half from net new Allegiant customers. Direct channels remain core to the strategy. * The co-brand credit card delivered 24% year-over-year remuneration growth, with a target to double co-brand remuneration from 5% of current revenue to 10% over time. The company expects July 2026 to set a record for new cardholder accounts. * A new premium offering, Allegiant First, will launch in 2027 following the successful expansion of Allegiant Extra, with 8 premium seats and a net reduction of only 2 total seats from existing MAX layouts. All cabins will receive upgraded seats and power amenities. * The company has moved to complimentary onboard beverages, aligned with Sun Country's existing offering, which is expected to create only a mild near-term headwind to ancillary revenue. - Sun Country Integration Progress * Early integration steps are complete: cross-brand flight search and booking via redirect to the operating carrier is now live. A single operating certificate transition plan has been submitted to the FAA, targeting approval in H1 2028. Las Vegas airport real estate integration is upcoming, and procurement teams are consolidating the supplier base to leverage scale. * The company remains confident in a minimum of $140 million in run rate synergies expected by 2029, with further updates coming at the December 2026 analyst day. - Labor and Fleet Updates * Allegiant reached a ratified new collective bargaining agreement with its pilots, with nearly 80% voting in favor. A $275 million pilot retention bonus will be paid out in the coming weeks, funded by existing cash on hand. * The combined operating fleet stood at 193 aircraft at quarter end. Six additional 737 MAX deliveries are expected through the end of 2026, with 7 aircraft retirements, leaving a year-end fleet size of 192. Around 20 MAX deliveries are expected in 2027, with the remaining firm order aircraft delivering in 2028.

Guidance

- Third Quarter 2026 Guidance * Combined entity scheduled service ASMs are expected to be down ~5.5% year-over-year. Standalone Allegiant capacity will be down slightly more than 3% year-over-year, a deeper reduction than previously guided due to persistently elevated fuel prices. * Unit revenue growth is expected to be in line with Q2 2026's 24.6% increase on a consolidated basis, with minimal variance across the two segments. The company expects the combined entity to generate an operating profit in Q3, a meaningful improvement from year-ago modest operating losses. * At an assumed fuel price of $3.80 per gallon, the company expects a consolidated operating margin of 2% at the midpoint, and a consolidated loss per share of ~$0.50, based on a 27.3 million share count. Q3 is seasonally the weakest quarter for both carriers. * Legacy Allegiant non-fuel unit costs are expected to be up 9-10% year-over-year, while consolidated non-fuel unit costs excluding cargo are expected to be up 10-12% year-over-year. Q3 2026 is expected to be the peak of year-over-year CASM-X increases. - Full Year 2026 Guidance * Full year 2026 consolidated EPS is expected to be greater than $6 per share, based on an assumed share count of 23.9 million. This guidance assumes a fuel price of $3.80 per gallon in Q3 and $3.70 per gallon in Q4, for a full-year average of $3.75 per gallon, matching the current forward curve. A 10 cent fuel price change impacts full-year EPS by ~$0.50. * Full year 2026 capital expenditure guidance is updated to approximately $850 million, up from prior guidance, to include Sun Country capital spending and incremental PDP payments for future aircraft aligned to current contractual delivery commitments. * Fourth quarter 2026 combined ASMs are expected to have a downward bias, with full year 2026 combined capacity expected to be down mid-single digits year-over-year. - Longer Term Capacity Guidance * 2027 is the peak year for MAX aircraft deliveries, providing an option for capacity growth, but the company will only grow capacity based on market returns, not grow for growth's sake. Long-term mature run rate capacity growth is expected to be mid-single digits to high single digits.

Segment performance

Allegiant Travel Company's second quarter 2026 results include full standalone Allegiant results and Sun Country results from the May 13 acquisition date through June 30: - Standalone Allegiant: Total revenue of $776 million, up 16.1% year-over-year, with 6.8% lower system capacity. TRASM hit an all-time record of 14.42 cents, up 24.6% year-over-year. Fixed fee revenue was $14.5 million, down 14.7% year-over-year. Pre-tax income for the combined entity was $64.5 million, with Sun Country contributing $13.4 million in the stub period, for consolidated EPS of $2.19. The consolidated operating margin was 9.2%, and consolidated EBITDA was nearly $158 million for an EBITDA margin of 17%. - Standalone Sun Country (full quarter 2026 context): Fixed fee revenue hit a record $65.7 million, and cargo revenue hit a record $50.6 million. TRASM was 12.64 cents, up 22% year-over-year. Sun Country stage length is nearly 20% longer than Allegiant's, with over 85% of Sun Country flights longer than the average Allegiant flight. - Combined entity: Total revenue across all segments was $943.5 million in Q2 2026. Long-term fixed fee and cargo programs from both brands constitute approximately 9% of trailing 12-month total revenue.

Risks & headwinds

- Sun Country has experienced elevated junior pilot attrition at its Minneapolis/St. Paul (MSP) base, driven by increased hiring from the largest local full-service carrier. The company has reduced off-peak MSP capacity in the back half of 2026 in response, though the capacity reduction is expected to be temporary, with MSP growth targeted to resume in 2027. - Fuel prices remain volatile, creating ongoing pressure on unit costs and margins that could impact full-year profitability relative to guidance. - Full integration of the two airlines, including achievement of targeted synergies and transition to a single operating certificate, is a multi-year process that carries execution risk. - Incremental pilot benefit costs from the new Allegiant pilot collective bargaining agreement will create cost pressure in the back half of 2026, though this pressure is expected to abate by March 2027 as crew productivity improves.

Analyst Q&A

• Q: What are 2027 preliminary capacity plans, and how much capacity growth is needed to offset cost inflation after the new pilot labor deal? /

  A: Management stated that the company earns capacity growth based on market returns, and does not grow for growth sake. 2027 is the peak year for MAX aircraft deliveries, creating an option for growth, not a commitment to grow. The long-term mature run rate for annual capacity growth is mid-single digits to high single digits, with fuel prices being the primary determinant of next year's capacity level. The company maintains flexibility to retire older aircraft as needed to adjust to market conditions.

• Q: What are the quick wins and pain points of the Sun Country integration three months in, given you will maintain separate operating certificates for the near term? /

  A: Management noted the integration is off to a strong start, with a focus on stability first. Both airlines are performing well operationally and financially, with aligned cultures and overlapping core technology systems. Early quick wins include enabling cross-brand search and booking, submitting the single operating certificate plan to the FAA, and early procurement consolidation to leverage combined scale. Longer-term milestones like the single operating certificate and full system integration will take multiple years to complete, but the company has a clear plan in place to execute smoothly.

• Q: Can you provide details on the 737 MAX delivery cadence through 2027, and the expected benefits of these aircraft? /

  A: Management confirmed that around 20 MAX 8 aircraft will deliver in 2027, taking the in-service MAX fleet to ~45-47 aircraft by the end of 2027, with the remaining 50 firm order aircraft delivering in 2028. The company has additional attractive options for further deliveries starting in 2028. MAX aircraft deliver better fuel efficiency than older models, saving ~1% of total annual fuel costs, and have an attractive lower-cost engine maintenance profile thanks to power-by-the-hour agreements. All 2027 MAX deliveries will be built with the new Allegiant First premium configuration.

• Q: Why did Allegiant decide to add a first-class premium product, and what does it mean for future revenue? /

  A: Management explained the new Allegiant First product has been in planning for a couple of years, originating from the unexpected strong success of the Allegiant Extra premium economy offering. The decision was also supported by customer data showing a large share of Allegiant customers have household incomes over $100,000, with significant demand for additional premium amenities from repeat customers. Full economic details for the product will be shared at the December 2026 analyst day.

• Q: Is the elevated Sun Country junior pilot attrition a temporary issue or ongoing risk? /

  A: Management confirmed the attrition is viewed as temporary, driven by a large recent increase in hiring by the largest full-service carrier based in MSP, with almost all departing pilots being new hires within the last three years. The company's flight training schools are full, with a very strong supply of qualified pilot applicants who value the competitive pay and quality of life (home every night) offered by the company. New trained pilots will enter service later this year, and capacity is expected to return to growth in MSP in 2027.