Allegiant Travel Company Q4 FY2025 earnings call

• Strong leisure demand throughout the fourth quarter with TRASM declining 2.6% on 10.5% capacity growth, and adjusted operating margin of 12.9%. • Controllable completion was 99.9% in 2025. • Successfully integrated MAX aircraft into the fleet, with ~20% fuel burn advantage over A320. • Completed technology modernization, transitioning to modern platforms. • Commercial initiatives like Allegiant Extra performing well, loyalty engagement rising. • Unit costs fell more than 6% in 2025, net leverage reduced to 2.3 turns.

The airline segment's fourth quarter net income was $50.1 million, resulting in airline-only earnings of $2.72 per share. Full-year 2025 consolidated net income was $70.3 million or $3.80 per share, with the airline earning $93.8 million and full-year airline-only earnings of $5.07 per share. Fourth quarter total airline revenue was approximately $656 million, up ~7.6% versus Q4 2024, and full year total airline revenue was ~$2.5 billion, up ~4.3% versus full year 2024. The airline segment's adjusted operating margin in Q4 was 12.9%, and full-year unit costs fell more than 6%.

• Expect first quarter adjusted operating margin of 13.5%. • Full-year 2026 guidance: adjusted EPS more than $8 per share, an increase of approximately 60% year over year. • Fleet plan: no fleet growth in 2026 as a standalone, expect capacity down slightly year over year. • First quarter ASMs expected to be down ~5.7%, second quarter more, ramping up in third and fourth quarter to achieve full-year expectation of down 0.5% versus full year 2025. • Expect to lean into existing infrastructure and commercial initiatives to drive traffic improvement and margin expansion.

• Macro-economic uncertainties that could impact demand and financial performance. • Integration risks associated with the proposed acquisition of Sun Country Airlines. • Potential impact of other carriers' actions on the competitive landscape.

Q: Afternoon. So I think the term you used was January was exceptional from a demand standpoint. Maybe just, like, some color on what you think is driving that. And I know it's early, but when you look at the rest of the quarter, how does it look? Are you seeing that same trend continue? Any degree of moderation?

A: Yeah. Thanks, Scott. You know, it helps that we have seats pulling back a little bit when it comes to demand, but I don't think what we're talking about is much different than what we've heard from a number of carriers through this cycle. The user, the visitation coming through the front door is better than we've seen in several of the prior years, able to manifest both in terms of bookings and through some pricing capabilities and yield, which is a nice change of pace for us over the last couple of years. So I think that's going to be really pronounced going through the spring break and Easter period. And then, you know, we'll kind of see what happens as bookings and demand start to turn a corner toward post-Easter into the summer time frame, which is still a bit too far out for the current booking curve. So, you know, I think we're hopeful as we get into the second and third quarters that there remains upside similar to what we've seen in January. But, you know, not something that I'm willing to bank on quite yet. Bear bars on what we've seen for the summer period over the last several years are just so much wider. That it's hard to have a great deal of conviction that this will definitively continue through that time frame.

Q: And then if I heard correctly, I think you have a view that you guys are going to have the best RASM, CASM spread in the industry this year. Maybe just some a little bit more color on how you are thinking about both RASM and CASM this year would be helpful.

A: Hey, Scott. I think in Drew's comments, he was referring to, in 2025, the best spread between TRASM and CASM ex. But I will say as we look to 2026, we expect TRASM to improve more than CASM ex this year as well, which reinforces the margin expansion that we're looking at.

Q: Good evening. Thanks a lot for taking my question. Vijay, you mentioned your prepared remarks that you were being conservative with the full-year guidance given, you know, how some of the macro issues hit the region and the industry last year. So just to be clear on what's assumed for the full-year guidance, you're not really assuming the current from January trends to continue and it's what gets you to the $8 versus that the right way to think about, you know, like, in January trends, you want to continue to get a number higher than that. Is that the right way to think about it?

A: Yeah. Cool. I think that's right. Can just kind of think about, Drew's answer there to Scott's question. That would line up.

Q: Hey, good afternoon. Two questions here. You talk about demand and the strength that you're seeing, how much of that is just a function of the fact that you're coming into the year with a very favorable supply backdrop. I mean, you indicated, Drew, that you're going to be down March and June and then it picks up. And, you know, maybe more specifically, you know, where is the demand across the network? You know, is it stronger in some regions versus others? Like, we know that Vegas has been struggling, but we've also seen a lot of capacity come out of Vegas. So I you know, I realized the headline number may be somewhat deceiving, and some just curious if you could drill down and give us a little more color.

A: Yeah. Perhaps a little more color, but you know, I'll probably stop short of great detail. Geographically, it all looks pretty strong. I mean, to your point, it's not a new story that Vegas has struggled. I think LBCBA's numbers had it down about seven and a half percent or so in visitation year over year, but convention attendees were flat. Right? It's becoming a very events-driven and holiday-driven destination, which is very similar to the rest of our network, but a bit unfortunate to lose kind of that year-round rock star reliable that it once was. So, yeah, certainly having seats down helps, but it's, you know, I alluded to the visitation to the website. I mean, what's coming through the front door, you know, we would have loved to have in '25 too. When we were talking about, you know, how strong it was to start the year, and we're beating that. So I feel really good about where we sit. I feel good about it in elevated capacity. I feel really good about it with those seats coming down a little bit.

Q: Thank you. I just wonder if you could speak to how you were deploying the MAX aircraft. Any more flexibility that you have currently versus maybe how you were using them with just a few on the property. And as you begin to consider the combination with Sun Country's fleet and your own fleet, do you see the biggest opportunities?

A: Yeah. So I think we talked about this in previous quarters. Starting around mid-November, we pivoted a little bit on MAX from flying a lot of cycles and getting up and down for pilot transition training. And something that supported a bit of longer-haul flying, something that's a bit more commercially driven. So that, yeah, that started what, two and a half months ago or so. And, you know, contributing to the numbers I quoted in the remarks. Feeling great about that. You know, we'll get into additional basing on that in the back half of this year as delivery resumes.

Q: Hey, guys. Thanks for taking my question. Obviously, great quarter, great guidance. I wanted to just think about Q1 guidance versus the full year a little bit in a little bit more detail. Last year, if we think about the seasonality of margins, we saw Q2 margins just a little bit lower than Q1 margin. Obviously, Q3 is very different. And then Q4 margin above significantly the Q1 level. Is that the right general seasonality that we should be thinking for 2026 off of this 13.5% margin at the midpoint? It seems like the full-year guidance at least at the $8 level really doesn't contemplate that kind of seasonality, but maybe I'm wrong. Maybe you could just kind of offer some thoughts there.

A: Sure. I mean, maybe just, you know, thinking of the rep side in particular and going back to some of the early comments, you know, a lot of this will depend on your view on what happens with core demand as we go through the summer. I think the industry as a whole, and we're no different, is taking a slightly more conservative view on how that will roll out. Again, we've just seen so much variability in those actual results as we go back through the last several years. So, you know, depending on your level of bullishness on summer demand will probably dictate how you think that margin cadence looks through 2026.

Q: There's a view out there that there could be a carrier liquidating relatively soon. I'm not sure if that's true or not. I'm just curious if you guys have a playbook for an event like that. Does that influence anything that you would do? Is there kind of a second step to that if we see an event like that occur in the industry?

A: I'll start, and Drew may want to add. But we don't view our success here at Allegiant as being kind of dependent on what other carriers in our sector may or may not do. We believe we're just uniquely positioned here at Allegiant just because of our differentiated model and, candidly, we have limited overlap. But what Drew and his team always do is they keep a close eye on capacity, industry capacity, and they'll continue to evaluate that. As they would. Normally. Right?

Q: Hey. Good afternoon. Just maybe a little expanding a little bit on Mike's earlier question. I was kind of curious how you're thinking about balance sheet this year and targets. And, you know, you do have a big CapEx plan this year, and this merger. So curious how you're kind of thinking about where you'd like to kind of keep the balance sheet.

A: Sure. Thanks, Savi. You know, I've spoken on these calls for a while about trying to keep net leverage in the two to two and a half turns. We don't have a specific mandate from Greg or our board on that, but we update on it every quarter, and I think that's a healthy place to be. I'd like to see that number closer to two versus two and a half, but as we've kind of alluded to on the call, there's been a lot of opportunity out in the industry, and there are certain times where we should move within that range. As I think about 2026, the things that we need to consider are refinancing our bond, that's maturing in 2027. We don't need to do that in 2026, but the markets are quite constructive at the moment. It could be a good opportunity to build up some cash balances at attractive economics. And then there's the consideration, the cash consideration due to Sun Country in the back of the year. And then we've been trying to keep cash balances elevated a little bit, toward the higher end of our targets, and that's because we'd like to envision a world where we're paying out our pilot retention bonus at some point soon as well. And so we want to be ready to do that when we have an opportunity. So those are the big things. And then we have a big CapEx here, as you mentioned. Now most of most of the all of that could be financed at delivery. We'll probably pay cash for airplanes in the first half of the year and then think about aircraft financing in the back half of the year.

Q: Everyone, thank you. We could just start on the new development or new market development. It's been a bit since we've started to add back new cities and whatnot. You highlighted the 10% of your capacity in Q2 and Q3. Just curious if you could provide some maybe some historical context to what a unit revenue drag would normally be on new markets just as we start to think about past Q1 in general. Thank you.

A: Yeah. I think in the past, what we've talked about is something in the 10 to 15% range relative to the rest of the system. And no reason to expect it to be different through the cycle.

Q: Good afternoon. Wanna dig into the capacity outlook for '26. So the 10 to fifteen the new routes, it's consistent with your historical profile. If you could speak to the composition, so departure stage engage, and then on utilization, hours per day, year on year, and then the mix peak versus off-peak year on year. And then, also, on the allocations of just look at first Q1, excuse me, you know, inventory is down solidly across most of your key markets, obviously, with the exception of FLL and how you're thinking about inventory, I guess, distribution against that full-year guide. Thanks. Bye, Mark.

A: I, yeah. Hi, Mark. Yeah. You got it. How about day two? We'll kind of go through all of it. I'll do my best to unpack everything we talked through here. You know, age and engage are a little bit offsetting through the year. So those are somewhat of a neutral for us. Yeah. We talked about Lauderdale and some of the other growth spots that, you know, kind of come from the new market announcements. We filled out SNA a little bit, filled out a little more in Gulf Shores. Lauderdale, we talked about. You know, in the spring, it's come a little bit at the expense of Provo capacity. That's gone elsewhere, but by and large, we backed by summer. So some of it has really just been kind of a seasonal kind of sculpting having to make some tough choices through the spring. But, really, a lot of that capacity that is coming out is off-peak day. We're able to hold our peak days pretty close to flat in terms of actual flying, which to Greg's earlier point, will be, you know, a bit of a tailwind to our unit revenue outlook, you know, and better overall patterns for customers on that perspective. So, I can promise you I didn't hit all of your topics there. Is there anything else you wanted me to dive into?

Q: Hey. Good afternoon, everyone. Thanks for the time. So I just want to bring back to the fourth quarter beat for a minute. You know, you came ahead in ahead despite the government shutdown. We don't know what your RASM or CASM expectations were going into the quarter. You just walk us through what went better and maybe just put some numbers around maybe how much better roughly, if not exactly. I'm really just trying to get a sense of, you know, where there might be continued momentum into the first quarter. Thanks.

A: Yes. I'm happy to start. Mean the rev outlook, you know, outperformed a little bit. And in particular, you know, we certainly I think we had communicated we did see a bit of a slowdown during the government shutdown as flights were being pulled back. But that recovered so well in the weeks following. And yeah, I talked a little bit about the holiday period, but, you know, that three-week stretch with some of which does spill into January being a positive on a year-over-year, certainly a bigger catalyst than I had anticipated at the beginning of the quarter. So, you know, kind of that late demand spike was a good guy.

Q: Hey. Good afternoon. So I just want to bring back to the fourth quarter beat for a minute. You know, you came ahead in ahead despite the government shutdown. We don't know what your RASM or CASM expectations were going into the quarter. You just walk us through what went better and maybe just put some numbers around maybe how much better roughly, if not exactly. I'm really just trying to get a sense of, you know, where there might be continued momentum into the first quarter. Thanks.

A: Sure, Katie. I'll just add in. Yeah. We did have a handful of beats on the cost side as well. There were a few areas. Salaries and wages came in a little bit lower than we had expected. And then I think the point of your question, there are a few items, maybe one, that I'll call out, which is in the maintenance line. We had a meaningful beat there, which I would expect to be a bit of a shift into the '26.