Allegiant Travel Company Q3 FY2025 earnings call

Greg Anderson's Remarks

• Proud of progress to strengthen the core airline and return to double-digit operating margin.
• Industry-leading completion factor in July, net promoter scores near all-time highs.
• Recognized for Best Airline Credit Card and Best Frequent Flyer Program.
• Third quarter saw steady demand improvement, outperforming initial forecast in revenue and costs.
• By year-end, 16 MAX aircraft in service, with MAX fleet to comprise over 20% of ASMs in 2026.
• Allegiant Extra product on 70% of planes, exceeding expectations.
• Modernizing technology, including Navitaire system implementation and AI investment.
• Expect fourth quarter operating margin in double digits and full-year airline operating margin ~7%, raising full-year airline EPS guide to >$4.35.

Drew Wells' Remarks

• Third quarter airline revenue $553 million, TRASM $0.1119, down 8.4% year-over-year.
• ASM grew 9.7%, utilization up 10%. New market ASMs as a percent of total steadily ticking higher.
• 19 new routes set to begin Thanksgiving to early spring.
• Fourth quarter expected to have sequential improvement in TRASM, load factors flat to slightly up.
• Peak holiday demand profiling similar to last year.

Robert Neal's Remarks

• Third quarter consolidated net loss $37.7 million.
• CASM-ex fuel down nearly 7% year-to-date.
• Ended quarter with $1.2 billion total available liquidity.
• Repaid $120 million of 2027 bonds.
• Expect fourth quarter operating margin 11%, full-year airline-only earnings >$4.35.
• 2026 expects flat fleet count, CapEx above 2025, TRASM expected to exceed CASM-ex.

The airline segment was the primary focus. In the third quarter, airline revenue was $553 million, approximately 0.5% above the prior year, with a TRASM of $0.1119, down 8.4% year-over-year. Total ASM grew 9.7% versus 3Q '24, with overall utilization up 10%. The airline generated a net loss of $29.5 million in the third quarter, with a negative 3.1% operating margin. Year-to-date, CASM-ex fuel was down nearly 7%. Revenue contribution is primarily from the airline segment.

Full-Year 2025

• Raised airline EPS guide to more than $4.35 per share.
• Full-year airline operating margin approximately 7%.

2026

• Expected flat capacity, CapEx above 2025 but not meaningfully impacting leverage.
• TRASM expected to exceed CASM-ex due to limited growth, industry supply moderation, and revenue initiatives.
• MAX fleet to comprise 20% of ASMs in 2026, expected to drive margin expansion.

• Government shutdown impact on demand if prolonged.
• Market competition affecting route performance and revenue.
• Transitory maintenance costs in the fourth quarter.
• Uncertainty around the co-brand program review outcomes.

Q: Congrats BJ, and maybe I'll give you the first question to you as a result. You mentioned a little bit about CapEx stepping up, but not meaningfully impacting leverage. But could you talk a little bit more about how you're thinking about the balance sheet now that there's a little bit more kind of stability across kind of the operation and with Sunseeker out of the way, just how you're thinking about cash levels and leverage and just cash flow generation?

A: Thanks, Savi. Appreciate the comments. Yes. So when we think about next year, I guess I would remind you, we had a limited amount of PDP CapEx in 2025 because we were catching up from pre-delivery deposits that have been made in prior years in the face of some of the aircraft delays. So, I expect those to come back into the CapEx profile next year. As I think you're getting at, we were carrying quite a bit of cash at the end of the quarter. That was partially a result of the Sunseeker sale. And then also -- and I think maybe I mentioned on a previous call, we kind of overfinanced our MAX deliveries at the beginning of the year, and that was just out of caution with what we were seeing in some of the economic headlines back around the April timeframe. So, I do think we can get to a point where we're carrying a little bit less liquidity on the balance sheet. We've historically talked about 2x air traffic liability. And as things have started to stabilize and Sunseeker is behind us and especially as we have aircraft finance further out, we can bring those cash levels down a little bit. And we'll continue to use cash to invest in the business though for the rest of '25 and of course, '26.

Q: On the kind of AI and data infrastructure side investments that you're talking about, generally, you think of kind of large organizations as having an advantage there. Could you talk about just maybe how it's being implemented at Allegiant and maybe what advantages, disadvantages you have versus some of your bigger peers?

A: Sure. Let me kick it off and Drew will add some color, I'm sure. But starting on the AI front, Savi, just as an organization, really proud in the way we're embracing AI to make our business better. We've been working over the past year or so on our structured and unstructured data to ensure that it's in the right place for advanced technology and deploying solutions here at HQ across the board, such as Copilot for our developers, GitHub, which is improving productivity. In that regard, we're reshaping functions across the board, but in areas specifically like the call center, our operations where we're using AI and use cases to drive more efficiency, productivity, and we're just scratching the surface. One of the things though I think that's important is a lot of the changes that come from AI are through case management. And as an organization, we're building that muscle. And the reason we're feeling confident about kind of building that muscle and it's let's crawl before we walk, walk before we run type attitude is because of the transformational technology stack that's in place now, which is best-in-class. And we've talked a lot about it what the IT team has done over the past couple of years. They've definitely taken what the whole airline was built on proprietary software and moved it to state-of-the-art systems. We've talked about Navitaire, SAP, Trax and other systems. And so now that we have all those in place, we're really able to start harnessing and leveraging where that's at to be a little bit more nimble. And Drew has got a whole list of priorities and initiatives along with the rest of the team. But Drew, I kind of went off on it a little bit. Anything to add though from your perspective? Drew Wells: No, I'll be fairly quick. On the AI front, there's wins we have as it pertains to revenue modeling, how we think about offer management as we think about rightsizing the combination of air pricing and ancillary pricing, which has historically been a major challenge to solve. There will be some wins there. You're right, a small organization, we have to be a little bit more nimble. We won't get the benefits of scale that the larger ones will. That's not to say there's not wins here. I'm really bullish on what this could mean for '26 and beyond, where we're kind of in the development phase now.