ALGT earnings call transcript, November 4, 2026

Thank you for joining us and welcome to the Allegiant Travel Company third quarter 2026 earnings call. After today's prepared remarks, we will host a question and answer session. If you'd like to ask a question, please press star one to raise your hand. To withdraw your question, press star one again. I will now hand to the conference. over to Sherry Wilson, Managing Director of Investor Relations. Sherry, please go ahead.

Thank you and good afternoon, everyone. Welcome to Allegiant Travel Company's third quarter, 2026. On the call with me today are Greg Anderson, Chief Executive Officer, Drew Wells, Executive Vice President and Chief Commercial Officer, and BJ Neal, President and Chief Financial Officer. Last afternoon, we issued our third quarter earnings release, which is available on the investor relations section of our website, along with the supplemental materials accompanying today's call. We ask that you refer to these documents as we walk through our results. The company's comments today will contain forward-looking statements, including our fourth quarter and full year 2026 outlook, statements regarding the integration of Sun Country and expected synergies, and other statements concerning our future performance. And strategic plans. These statements are subject to risks and uncertainties and actual results could differ materially from those anticipated. For additional information, please refer to the safe harbor language in this afternoon's earnings release. And our filings with the SEC. We will also be discussing non-GAAP financial measures. A reconciliation of these measures to the most directly comparable GAAP measures where available is included in the earnings release posted on our. Investor Relations website. Before we begin, a brief note on comparability. Speaker commentary will focus on year over year comparisons against 2025 pro forma results unless otherwise noted. And with that, I'll turn.

Call over to Greg.

Thank you, Sherry.

The third quarter marked another quarter of operating profit. Even in what is typically our lowest margin quarter, we expanded our consolidated adjusted operating margin by. 340 basis points versus last year. Leisure demand is still strong as consolidated revenue grew 19% despite a nearly 6% reduction in capacity. A lever reused to help offset a 55%. increase in fuel cost per gallon. And our year-to-date performance demonstrates the strength of our flexible capacity model as we have expanded margins even as we absorbed higher fuel costs and began the integration of our Sun Country merger. We achieved this by focusing... ...on peak days, reducing flying on routes that fall short of return expectations, introducing more MAX aircraft, and growing revenue through our commercial initiatives. Matching capacity to demand with discipline. ...is a key reason we consistently have the highest margin of all the leisure-focused airlines and are among the leaders in the industry. Our total fares are roughly 30% below the industry average, and we are the number one or number two carrier in more than 90% of our origination markets. underscoring our commitment to the communities that we serve. Our reliable operation gives customer service they can depend on. To that point, our teams delivered through the peak summer travel season, leading the industry in completion factor. And I'm proud that Skytrax named Allegiant the best low-cost airline in North America for the third consecutive year. Together, this quarter's results highlight our loyal customer base and the resilient demand it generates.

Value proposition is straightforward. Convenient, reliable service at an attractive price. Let me turn to several initiatives that helped drive this quarter's performance, strengthen our foundation, and position us for further improvement. Starting with our credit card, co-brand remuneration is up nearly 24% year-over-year with growth accelerating as we drove greater engagement and spending. And it now represents roughly 6%. Standalone Allegiant revenue. Ongoing program improvements and our recently amended Bank of America Agreement strengthens our confidence in reaching our goal of 10% of Standalone Allegiant revenue. Turning to fleet, the 737 MAX generated more than 22% of Legacy Allegiant's third quarter ASMs, and that's up from 12% a year earlier, while making up only 17% of the Legacy fleet. Aircrafts significantly reduce fuel and maintenance costs, and their share of ASMs will keep growing. The MAX fleet serves our highest lines of flying, and their incremental seats per aircraft are especially valuable on peak days. Our premium seating strategy continues to gain momentum. Allegiant Extra, now on 75% of our fleet, and the equivalent Sun Country Best products sees sustained demand and meaningfully boosts our unit ancillary revenue per flight. We expect a similar financial profile for Allegiant First. Strong bookings ahead of its March 20th. 2027 launch show customer interest exceeding initial expectations and reinforcing our confidence as we prepare to expand the product with the new max deliveries.

And early results from our Expedia partnership are all. Also encouraging this additional distribution channel is attracting customers who had not considered Allegiant previously, helping boost load factors across our network and introducing new customers into our ecosystem and last. Not least, I am very pleased with the strong progress we are making on the integration of Sun Country. Customers can search and book across both airlines, and our comprehensive bottom-up synergy plan has set the integration blueprint for the coming years. We have already realized some benefits by consolidating gates and ground handling at several airports, combining insurance coverage, eliminating duplicate corporate costs, and leveraging our greater purchasing power. Building on these early wins, we are being very thoughtful to sequence the integration to maximize the long-term value, particularly with the integration of our commercial and operating systems. And we remain confident in achieving more than 140. million in annual run rate synergies by 2029. Together, these initiatives give us multiple pathways to increase our earnings power, and we will share more details at our upcoming Investor Day. Pilots, our recruiting classes are full, and new hires will enter service in the coming weeks. And since our last call, legacy Sun Country pilot attrition has come down, and new hire classes will continue.

And we are going to continue to keep a close eye on it. The Twin Cities remains the combined company's list. And growing our leisure-focused, variable capacity offering in MSP is an important part of our long-term strategy. Following the ratification of our pilot agreement with Legacy Allegiant last quarter, we are pleased to distribute $270 million, averaging almost $200,000 per pilot in well-earned bonuses, recognizing their dedication to our customers and the essential role they play in our airlines business. Sharing our success with our workforce is central to how we operate. Looking ahead, given continued strength and leisure demand, we expect fourth quarter TRASM to set a record for the highest in our company's history. Planning for fourth quarter fuel cost of about $4.75 per gallon, a sharp increase from the third quarter. Even so, with strong demand, maturing initiatives, and our growing MAX fleet, we remain confident in our 20-year-olds. Full-year adjusted earnings per share guidance of greater than $6, despite fuel costs significantly higher than we first issued it. Our capital allocation priorities are clear. Maintain a strong balance. Invest in our MAX aircraft and the initiatives that unlock the combined company's earnings potential and use excess cash to reduce debt. In closing, we are building the nation's leading leisure-focused carrier with a more. Diversified business model and a clear path to sustainable earnings growth.

Our focus is on execution, operating safely and reliably, aligning capacity with demand, maintaining cost discipline. Advancing our commercial initiatives and successfully integrating Sun Country. And we look forward to our investor day on December 7th in Las Vegas, where we will share more on our integration milestones and commercial initiatives and provide. Our long-term financial framework and a simpler reporting structure. Before I hand it over to Drew to discuss our commercial performance, I want to thank our team members across both airlines. We are well positioned because of their tireless.

I am proud to serve next to them. Drew?

Thank you, Drew, and thanks to all of our Legion. SunCountry team members for the continued focus and collaboration as we manage the business through a period of record high fuel prices. I'll once again comment on our results and outlook today on an adjusted basis unless otherwise noted. This quarter was another period of solid execution for our newly combined organization. Despite a challenging fuel environment and the seasonally softer nature of the September quarter, we delivered meaningful year over year margin improvement while continuing to progress on the integration of our two airlines. For the third quarter, the combined. Entity generated operating income of $29.8 million and an operating margin of 3.1%. Together, Allegiant and Sun Country produced $111 million in EBITDA, yielding an EBITDA margin of 11.5%. As persistent strength in demand outpaced the increase in fuel expense. At the bottom line, we reported a net loss of approximately $1 million or a loss of just $0.03 per share. Importantly, this performance at the favorable... ...end of our guidance range came despite fuel averaging $0.18 per gallon above our initial expectation. These results underscore the resilience of our flexible capacity operating model and the importance of our business to the communities we serve. Third quarter non-fuel unit costs were $0.923, an increase of 9.1% versus the pro forma third quarter of 2025 on 6% lower capacity. This ChasmX result was better than our expectations.

Primarily due to a true up of the accrual associated with our pilot retention bonus, which was paid out in the quarter. As we discussed on our last call, we expect the third quarter to mark the peak of our year over year non-fuel cost pressure. We're pleased with the Chasm X performance throughout this year, but we continue to focus on driving improvements through crew productivity and operating efficiencies as we move into 2027. Fuel expense was roughly $294 million during the quarter. Higher than the pro forma prior year quarter and averaging $3.98 per gallon versus our August guidance of 380. While we continue to navigate the elevated fuel cost environment, our focus remains on further deployment of fuel efficient max. aircraft and allocating our capacity to support the highest return flying. During the third quarter, we invested approximately $136 million in consolidated capital expenditures in addition to $20 million in deferred heavy maintenance spend across the two areas. For the full year, our CapEx outlook for Allegiant Travel Company, as reported, remains approximately $850 million. Looking ahead to 2027, given our increased aircraft delivery cadence and the recent exercise of six 737 options, we are expecting capital expenditures to be elevated above 2026 levels. We ended the quarter in a strong financial position with total available liquidity of $1.1 billion, including $865 million in cash and investments and $250 million in undrawn revolvers. With the payout of our pilot retention bonus and

closing of the Sun Country transaction behind us, alongside prearranged financing for upcoming CapEx needs, we have thoughtfully relieved cash balances to approximately 21% of trailing 12-month pro-former revenue, exclusive of the $250 million. in revolver capacity. This is consistent with our objective of maintaining a more efficient cash position in line with the peer group while preserving ample liquidity for the business. Total debt at quarter end was $2.9 billion. with net debt at $2.1 billion. For the remainder of 2026, we expect funding needs to be met through prearranged financing facilities disclosed earlier in the year and further financing origination would be focused around 2027 activity. Importantly, we continue to operate with approximately $2 billion in fleet equity, providing robust financial flexibility as we fund craft investments and continue integrating the two airlines. During the quarter, we placed two seven- 37 MAX aircraft into service while retiring three passenger aircraft to end the quarter with 192 aircraft operating across the combined entity, which includes 22 freighter aircraft owned by our cargo customer. Looking ahead, our delivery out- outlook remains consistent with what we shared last quarter. We continue to expect approximately 20 aircraft deliveries in 2027, bringing our in-service MAX fleet to around 45 aircraft by year end. As we've discussed, these deliveries-

provide us with significant flexibility, but they aren't necessarily an indication of incremental capacity. Given the current fuel environment, we've not yet finalized our 2027 fleet or capacity plans. We continue to appreciate our own ability to manage- retirements of owned aircraft and adjust utilization, allowing us to remain disciplined in how we deploy capacity while benefiting from the improved fuel efficiency and maintenance economics of the MAX fleet. We remain confident in the long-term value of our- order book, and in October, we exercised six options for MAX 8 aircraft with deliveries expected in 2028. This brings our total firm order to 56 aircraft, including the 22 delivered through October, with another 74 options remaining. We believe the attractive operating economics of this fleet, coupled with our combined growing network, provide us with considerable opportunity to expand the business even more profitably over time. For the fourth quarter, we expect combined capacity to be roughly flat to the fourth quarter of 25. Based on an assumed fuel price of $4.75 per gallon, we expect an operating margin of approximately 6.5%. and consolidated earnings of roughly $1.25 per share. While fuel remains a headwind, the fourth quarter outlook reflects continued strength in demand and our ability to flex schedules to maximize operating income. Importantly, this outlook keeps...

...us on track to deliver full-year earnings of more than $6 per share, consistent with the guidance we provided on our last call, despite a meaningful increase in forecasted fuel costs. On the integration, we've seen encouraging progress, identifying opportunities and... ...advancing initiatives that will drive value for the combined organization. Our confidence in the synergy opportunity remains strong, and we look forward to providing additional detail around the timing and cadence of our synergy capture at upcoming Investor Day on December. I want to recognize the teams across both airlines for their continued hard work. Integrating two organizations while maintaining strong operational performance and navigating record high fuel costs requires tremendous effort. I'm appreciative of the professionalism and commitment to safe operations our team members demonstrate every day. As I wrap up, demand remains robust and our model continues to demonstrate its resilience. We have the flexibility to respond to a fluid max. A strong balance sheet supporting our future investments and an increasingly efficient fleet. Combined with the progress we're making on integration and an engaged team that's excited about what we're building, we remain confident in our ability to drive sustainable. Earnings growth and margin expansion in the years ahead. Operator, this concludes our prepared remarks. We can now open the line for analyst questions.

We will now begin the question and answer session. Please limit yourself to one question and one follow-up. If you'd like to ask a question, please press star one to raise your hand. To withdraw your question, press star one again. We ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster.

Your next question comes from the line of Mike Linenberg with Georgia Bank. Your line is open. Please go ahead.

Your next question comes from the line of Dwayne Fenningworth with Evercore ISI. Your line is open. Please go ahead.

Your next question comes from the line of James Kirby with JP.

Your next question comes from the line of John Godden with Citi. Your line is open. Please go ahead.

Your next question comes from the line.

Hey, everyone. Thank you. Just, we've heard a lot of different, you know, debate around load factor. and yield. You guys have obviously have the most like nimble strategy of maybe all the carriers and do the right thing and like quickly adjust supply. So, I mean, your load factor was up. Your yields are up a bunch too. Just curious on how, like what you may. Take up some of the strategies that are out there, how you plan on positioning yourself into next year from that perspective. Thank you.

Yeah, thanks, Connor.

Yeah, it's fun on our rev team to kind of. Pull on both these levers and see what's going to take. I mean, often a lot of our tests show that changing the fare, either higher or lower, is better than keeping it the same. And so we'll just keep kind of pulling on that and see what spits out. I think by and large, what you'll see through the fourth quarter is probably a bit more of a yield story than the low growth we've seen over the last four quarters. And, you know, I think that's I think that's going to be totally fine, especially to get into the holidays, which is a notoriously high yielding environment. Way. So that's probably how I see it over over the fourth quarter, possibly into the into the first, especially if you're pulling capacity down a little bit more for a high fuel environment in Jan and Feb.

Okay. Maybe piggybacking on that a little bit. So you just talked a little bit about 2027 capacity being up low singles to mid singles. I know that's not firm. There's a lot of moving parts. Totally get it. But like this is clearly an uncertain time. You guys have been the most nimble in the past. You're also, again, to Greg's earlier comment that your pricing is 30% below the industry average. How aggressive could you actually be next year? If things broke in the right direction for you and how quickly could you restore capacity? Maybe to ask it a different way, what's the gating factors? I think you talked a little bit about staffing levels, but just curious on how. Progressive we could be if oil were to retrace or something like that. Just any thoughts around it would be would be helpful. Thank you. Yeah, I think, you know, you'll continue to see us push pretty much as hard as we can in these peak periods, the demand levels. Are still sufficient to outweigh even high oil, where you start to, I think, see some separation is in the shoulder period. So think of, you know, maybe a little bit post Easter, October, those kind of timeframes. It's a pretty good amount of, you know, freed up plane space and crew availability that we can lean into that, you know, and we don't need a significant amount of time. I think our RM team would probably like at least 90 days. 120 days for a full booking curve. But, you know, I think we're, we're spring coiled and ready to go such that oil is, is, is playing ball there.

Maybe I can ask it a different way. Like, do you. Have incremental slack in the peak periods at this point, or are you effectively full at the, or as, as, as, as full as you can be? Yeah, maybe just a little bit of nuance. I think for peak day in the peak period, we're, we're probably. Add or very near we can do, but that's, you know, there, there's room to add Wednesday and Saturday capacity as, as you know, that hurdle rate to, to clear the, the, the variable cost comes down in your scenarios.

We'll get utilization to, you know, this year with fuel, where it is, we do have aircraft utilization down a little bit versus 2025. If that just gives you some sort of illustration of where we could go to Drew's point on off peak days and peak periods.

Your next question comes from the line of Ravi Shankar with Morgan Stanley. Your line is open.

Your next question comes from the lineup.

Katherine O' Hey, everyone.

Thanks for the time.

So I know we're going to get a lot more details next month on this, but could you just remind us high level of the puts and takes on Synergy? and other initiatives into 2027? You know, like how impactful will the higher level of max line be? What are the key synergies building year over year? And should there be a meaningful impact to the bottom line from the startup of Allegiant First? Thanks.

Hey, Katie, it's Greg.

Your next question comes from the line of Andrew Dodoro.

outlook going forward great thank you your next question comes from the line of chris thessalopoulos with susquehanna.

your line is open please go ahead hey good afternoon so going back to the earlier question on um uh if fuel prices do retreat here and and uh you being able to i guess flex up on capacity i think you mentioned to look at utilization so average block hours per aircraft day and perhaps on a two-year basis or what that might look like but there are a lot of moving pieces as you just commented to andrew's question around headcount so if that were to happen and you know it feels lower and it's kind of a mid to high single digit 2027 could you walk us through what needs to be done i guess on the headcount piece getting uh folks into the network sounds like you're able to fill the classes now but um want to hear your thoughts on pilots and crew if if fuel does move lower and of course capacity um moves to the higher end thanks i'm happy to to start off here and we'll look to the others to help fill in you know through through most of the year i think we have the the slack in in the schedule right now to be able to react and again going back to those shoulder periods uh going back to off peak such that that oil drops um you know to that extent um yeah i think there's even still uh some slack in the midweek during the peak periods as we think about raising our peak day and peak period profile you know that's going to come back a little bit to aircraft it's going to come back to headcount there's a lot of pieces that need to go into that

to be able to support so I do I feel pretty good about you know the vast majority of the schedule being able to be filled in without significant headcount need but you know yeah I just add Chris kind of more of a high level comment and that's that as we mentioned earlier we're going to plan for fuel to be higher we have flexibility built into our model naturally and we're going to stay disciplined and if we're able to as drew said if fuel comes down and in the shoulder or off peak periods there's an opportunity to take up utilization a little bit more we're going to do that but where we sit today we would rather take a more disciplined conservative approach on fuel and then we'll we'll react accordingly which we've done and it's a hallmark of our our model that flex capacity approach okay great and then as a follow-up on the induction of the max aircraft could you help us think about what utilization or ASMs per gallon might look like next year based on the current capacity plan thanks yeah yeah I would say with so in 26 what are we trending to about 86 ASMs per gallon there about I would think next year we could get that up to 88 maybe even closer to 90 and just depending on how you know what we're talking about in terms of capacity where that's at and how much is flown by the max aircraft but that's a good story beyond as well as we continue to take more max aircraft we would expect that fuel burn efficiency to continue to go up throughout the system and maybe just think about utilization right I mean these almost to a tail these are the high

highest utilized aircraft in our network you're already teasing a little bit of what I plan to talk about at the analyst day in December so I probably won't go into too much detail but but the opportunity for high utilization lines within a low utilization carrier exists and that will continue I think through the deliveries we see in 27 as we turn over a few extra bases to make sure that these things are flying. Okay, thank you.

Your next question comes from the line of Dan McKenzie with Seaport Research Partners. Your line is open. Please go ahead.

This concludes today's call.

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