Allegiant Travel Co (ALGT) 2025 Q1 法說會逐字稿

Thank you for standing by. My name is Kayla, and I will be your conference operator today. At this time, I would like to welcome everyone to the Allegiant Travel Company first-quarter 2025 earnings call. (Operator Instructions) I would now like to turn the call over to Sherry Wilson, Managing Director of Investor Relations. You may begin.

Thank you, Kayla. Welcome to the Allegiant Travel Company's first-quarter 2025 earnings call. We will begin today's call with Greg Anderson, President and CEO, providing a high-level overview of our results, along with an update on our business. Drew Wells, Chief Commercial Officer, will walk through our capacity plans and revenue performance. And finally, Robert Neal, Chief Financial Officer, will speak to our financial results and outlook.

Following commentary, we will open it up to questions. We ask that you please limit yourself to one question and one follow-up. The company's comments today will contain forward-looking statements concerning our future performance and strategic plan. Various risk factors could cause the underlying assumptions of these statements and our actual results to differ materially from those expressed or implied by our forward-looking statements. These risk factors and others are more fully disclosed in our filings with the SEC.

Any forward-looking statements are based on information available to us today. We undertake no obligation to update publicly any forward-looking statements, whether as a result of future events, new information or otherwise. The company cautions investors not to place undue reliance on forward-looking statements, which may be based on assumptions and events that do not materialize. To view this earnings release as well as the rebroadcast of the call, feel free to visit the company's Investor Relations site at ir.allegiantair.com. And with that, I'll turn it over to Greg.

Sherry, thank you. Before I dive in, I am pleased to announce Tyler Hollingsworth has been officially named as our Chief Operating Officer. Over his 15 years at Allegiant, Tyler has held key roles across operations, most recently serving as interim COO and has been instrumental in delivering the strong performance we continue to see today. That makes Tyler an excellent fit. Congratulations, Tyler.

Thanks, Greg.

Turning to the quarter. The team delivered an outstanding controllable completion rate of 99.9% on 32,000 departures, up 14% compared to the same period last year. More than 4.4 million passengers flew our airline in the quarter, a first quarter record, with 75% being repeat customers. Our customers recognize Allegiant's role in leisure-focused travel and consistently choose us for the distinctive value and experience we provide. This ongoing preference is evident in the strong engagement in our award-winning loyalty program with the number of active cardholders increasing by nearly 7% year-over-year.

The solid execution of our key initiatives discussed in prior quarters helped boost financial performance improvement. We reported an airline operating margin of 9.3% during the first quarter, up 3 percentage points versus last year. These results fell comfortably within the range of our initial guide provided in January, making us one of the few airlines to meet their initial targets. This excellent performance demonstrates the great work done by Team Allegiant despite a challenging start to the year. I want to extend my sincere appreciation for them.

Thank you. In January of 2025, we turned the capacity knob up to plan for a year of strong growth. The demand backdrop was robust and our favorable availability of crew and aircraft set us up nicely to drive meaningful margin expansion throughout the year. However, as economic uncertainty weighed on consumer confidence and discretionary spending, we acted quickly to adapt. Fortunately, Allegiant was built and designed with flexibility in mind.

While peak leisure demand remains healthy, we responded promptly by turning the capacity knob down, primarily in the shoulder and off-peak given the demand softness that showed up during these periods. Cost discipline is essential for us to protect margins. Aggressively managing capacity, combined with additional structural cost reductions action during the quarter are expected to keep the airline solidly profitable in 2025, even in a stabilized lower demand environment. That said, we are currently seeing some improvements in our bookings. Allegiant pioneered the successful low-fare model targeting leisure travelers.

Our differentiated approach allows us to not only perform better than most during downturns, but hold strong our niche in the industry. Our airline has structural advantages with the foundation built on the following cornerstones: first, minimizing competitive overlap with other domestic carriers and offering a network that ensures convenient nonstop travel from the core leisure airports we serve. Second, a strategic design focused on tactical utilization, optimizing profitability by operating aircraft for only 6 to 8 hours per day on average. Third, a long-term fleet strategy centered on opportunistically acquiring and owning aircraft to support low fixed costs while building a high degree of fleet flexibility. Lastly, maintaining an industry-leading cost structure as most leisure travelers are highly influenced by lower fares.

For these reasons, Allegiant has been and will continue to be positioned uniquely. Furthermore, the execution of our key initiatives are going well. And with these initiatives are expected to further strengthen our foundation and drive margin improvement. Let me provide you with a brief update on our progress. First, restoring peak utilization.

In the first quarter, peak utilization increased by 20% compared to the previous year and just slightly below 2019 levels. Peak leisure demand remains healthy with same-store TRASM during these periods holding up well despite meaningful growth. Second, fleet flexibility. We are proactively managing our aircraft to the market conditions and our strategic needs. Moreover, our fleet holds significant equity value, a value we expect to meaningfully increase as we expand our in-service MAX fleet.

During the first quarter, our growing cadre of MAX aircraft lose 6% of our ASMs and continues to outperform expectations operationally and financially. By year-end, we anticipate 16% of ASMs to be flown by the MAX fleet and will continue to support strengthening our differentiated model. Third, product enhancements. Allegiant Extra is now on more than half of our fleet, a fivefold increase when compared to the first quarter of 2024 and importantly, maintaining a strong revenue premium over our standard product. Additionally, we continue to enhance our bookings and reservation system, Navitaire.

These improvements have strengthened our operations and enabled us to reintroduce lost functionality and new features that are resulting in higher revenue. And fourth, cost discipline. Managing costs relentlessly is an everyday commitment to improve productivity, streamline decision-making and challenge the status quo. Due to the recent economic downturn, material structural cost savings have already been proactively actioned with more initiatives under review. These changes support sustainable margin growth, including adjustments in workforce alignment and enhancement through technology-enabled productivity.

And finally, Sunseeker. We are confident that our new Sunseeker Resort will do well over the long term. Sunseeker's financial performance exceeded expectations during the first quarter with EBITDA reaching $4.8 million compared to an EBITDA loss of negative $4.6 million in the first quarter of 2024. To that end, we recognize our core competencies lie within the airline business where we see abundant opportunity and long-term success. Maintaining a strong industry-leading balance sheet is also a top priority of ours.

Pursuing a transaction related to the sale of the resort is an important step towards our objectives for the airline. And so we're pleased to report this process remains on track for completion this summer, and we look forward to share further details when appropriate. And I'll close where I started. In a volatile environment, consistent execution and adaptability are essential, and that's where Allegiant excels. Our ability to deliver strong results while maintaining operational flexibility sets us apart.

The foundation of our model enables us to perform, adapt and repeat. As we look ahead, our true North will remain centered around expanding margins and positioning Allegiant for long-term success. We will continue to manage capacity and cost aggressively as we closely monitor the demand environment. And our greatest driver to success is Team Allegiant. Their dedication continues to set us apart, and it is an honor to work with such a talented and inspiring team.

And with that, I'll turn it over to Drew.

Thank you, Greg, and thanks everyone, for joining us this afternoon. We finished the first quarter with $668 million in airline revenue, approximately 6% above the prior year, producing a 1Q TRASM of [0.1229] which was down 7.1% year-over-year, in line with our early March reguide and off just about 1 point from the initial guided figure of down just more than 6%. Allegiant grew total ASMs by 14.2% with stage length increasing by about 1.6%. The first quarter capacity continues to build upon the unique attributes of our business model while supporting growth without adding aircraft and personnel. We were able to increase aircraft utilization by approximately 19% to 7.5 hours per aircraft per day in the first quarter.

Despite the growth in the quarter, utilization still remains more than 10% lower than any other reporting carrier. To expand on this a bit more, given the demand environment that existed throughout the initial capacity planning process, we grew off-peak day of week ASMs approximately 34% in the first quarter. Even with this growth, we still flew 73% of ASMs on the peak leisure days of Thursday, Friday, Sunday, and Monday, the highest of reporting carriers in the first quarter. Due to the rapidly changing demand dynamics in the first quarter, this became increasingly important as the spread from peak day to off-peak day unit revenue performance returned to pre-pandemic variance. As we previously communicated, 2025 growth supported growing into our infrastructure.

The schedule was designed to fully leverage the existing infrastructure and in turn, expand the margin profile. The abrupt change in demand forced us to course correct and better align our capacity with the current demand environment. That current demand environment continues to present challenges across the industry. We've diligently worked to find both the right price point that continues to stimulate customer demand and the right capacity to balance the overall revenue and cost outlook. Through all economic environments, leisure customers have shown the intent to continue to travel, but typically need a lower price point to fulfill that intent.

To support bookings, we've seen pressure on yields, but ancillary revenue has remained resilient. In the first quarter, our ancillary revenue per passenger of $79.28 was a record and up nearly 5% year-over-year, primarily driven by Allegiant Extra expansion and fully regained functionality from our Navitaire cutover in fall 2023. Given the off-peak weakness experienced in the quarter, we focused our capacity review on shoulder season flying in May and August and in particular, off-peak day flying in those months. More than 7.5 points of May through August capacity was removed and roughly 2/3s of that capacity came from cuts to Tuesday, Wednesday and Saturday flying. The adjustments to peak day flying were largely driven by closure of our LAX base, a strategic decision in response to rising airport costs along with targeted route suspensions aimed at optimizing network efficiency.

Following the capacity adjustments, we anticipate 2Q ASMs to be up approximately 15.5% year-over-year, showcasing our continued ability to adapt and optimize in response to changing demand. In comparison to other airlines, we removed a larger percentage of capacity than any other carrier relative to published schedules at the start of the year.

The quarter's ASM jump is predominantly driven by April's roughly 20% capacity increase based on the late Easter shift and a comp of down double-digits in April 2024. Due to the timing of shifting demand trends, we had limited flexibility to adjust our April schedule. Looking ahead, while we anticipate second quarter TRASM to face greater year-over-year pressure than in the first quarter, periods like Easter and peak June are expected to deliver solid performance.

We will remain vigilant and flexible with capacity moving forward to remain best positioned. Recent booking trends are promising, and we are optimistic about the continued recovery and growth in demand. As we move forward, we expect to see continued strength and growth in our strategic initiatives. Nearly 65% of 2Q departures are planned to be on Allegiant Extra equipped aircraft. Despite the growth in departures and routes served, we continue to see a benefit of nearly $500 per departure on flights with the seat layout.

10% of 2Q departures are expected to take place on a new Boeing MAX. To date, our capacity deployment has been done to maximize throughput of crew members completing their operating experience. However, later this year, we expect to shift scheduled capacity toward a more commercial-driven solution. We have lapped the first year of our Allianz travel insurance products and have seen the absolute contribution grow nearly 60% in April 2025 versus April 2024. And finally, at the end of the first quarter, our co-branded Allegiant Allways Visa credit card grew cardholders approximately 11% over the last year despite trailing 12 month ASM growth of less than 4% versus the previous 12 months.

Additionally, consumer spend on the card was robust and outpaced 1Q year-over-year passenger growth with early indications that April remains strong as well. We look forward to continuing to grow the program alongside our partners. And now I'd like to hand it over to Robert Neal.

All right. Thank you, Drew. Good afternoon, everyone, and thank you for joining us today. I'll walk through our results and our outlook this afternoon, providing commentary on an adjusted basis, excluding any special items unless otherwise noted. For the first quarter 2025, Allegiant Travel Company consolidated net income was $33.4 million, resulting in consolidated earnings per share of $1.81.

Our Airline segment reported net income of $39 million, yielding airline-only earnings per share of $2.11, placing both consolidated and airline-only EPS within our original guidance. The airline generated $121 million in EBITDA during the quarter, 25% higher than the first quarter of 2024, resulting in an EBITDA margin of 18.1%. Fuel came in at $2.61 per gallon, in line with our initial expectations. Total airline operating expenses were $606 million, approximately 2% above the first quarter of 2024 on 14% higher capacity. Excluding fuel, airline operating costs were $440 million, bringing nonfuel airline unit costs to [$0.0807], down 9% year-over-year, outperforming our expectations.

As a reminder, CASM ex fuel for the quarter included wage increases for our flight attendants from the April 2024 CBA as well as approximately $20 million in costs related to our pilot retention bonus. The better-than-expected cost performance was attributable to various items throughout each of our cost lines, some of which are timing related and will shift into later quarters. But I will note better-than-expected benefits from non-salaried flight crew expenses and higher-than-expected gains on asset sales, both of which are reflected in the other expenses line. I'm pleased to see the cost performance coming in on plan as we benefit from better leveraging our existing infrastructure and growing into our workforce, and I'm optimistic about our cost structure looking through the rest of the year. Turning to the balance sheet.

We ended the quarter with $1.2 billion in available liquidity, comprised of $906 million in cash and investments and $275 million in undrawn revolvers. Debt repayment during the quarter was $281 million, inclusive of $246 million in prepayments and $35 million in scheduled debt repayments. Net leverage improved to 2.6 turns, down from 3.2 turns at the end of 2024, driven by $191 million in cash from operations.

Total debt ended at $2 billion, down 10% versus the first quarter of 2024, reflecting the final prepayment of the Sunseeker construction loan, and repayment of $96 million in an unsecured bridge facility, offset by financing for 4 MAX aircraft deliveries. While we remain committed to investments in the business, specifically our ongoing fleet renewal, we expect to see leverage reductions in the balance of the year with support for moderated CapEx, reduced operating expenses and assuming we finalize a plan for Sunseeker in the coming months.

As we've shared before, earning the right to grow is underpinned by balance sheet strength, which remains a top priority for our management team. Liquidity metrics remained strong with cash at 37% of trailing 12 month revenues, exclusive of $275 million in undrawn revolver capacity. Additionally, our unencumbered fleet assets carry a current market value of approximately $600 million. Capital expenditures during the quarter were $83 million, which included approximately $65 million for aircraft engines, PDPs and inductions and $18 million in other airline CapEx. Deferred heavy maintenance spend was approximately $14 million.

On the fleet side, we retired 2 A320 Series aircraft during the quarter and placed 4 737 MAX aircraft into service, 2 more than previously anticipated, and we ended the quarter with 127 aircraft in the operating fleet. We're becoming increasingly confident in Boeing's ability to deliver, and we now expect 12 MAX deliveries during 2025, 3 more than our previous estimate. As discussed on our February call, we plan to offset these incremental aircraft by removing 3 more A320 Series aircraft from service this year in addition to the 12 aircraft we had previously planned to exit and still anticipate ending the year with 122 aircraft in service.

We've secured financing for all of our aircraft deliveries this year with the first 9 having either closed already or under definitive documentation and the remaining 3 under LOI. In addition, during the second quarter, we extended $100 million of our revolving credit capacity with Credit Agricole, providing liquidity support through 2028.

Notwithstanding the improved delivery performance at Boeing, we are reducing our full year capital expenditure forecast by $80 million to $435 million at the midpoint of today's guidance. We expect aircraft-related CapEx to come down by about $30 million from the midpoint of prior guide to approximately $270 million as incremental aircraft delivery CapEx is more than offset by a reduction in PDP requirements from a slower delivery schedule in 2026. We're forecasting deferred heavy maintenance CapEx of approximately $60 million and other airline CapEx of approximately $105 million. Moving to our second quarter outlook. While we remain confident in the structural advantages of our model, including cost flexibility and a highly adaptable fleet, we think it's prudent to hold off on providing full year projections.

So for the second quarter, we expect airline-only operating margin of approximately 7% at the midpoint and consolidated earnings per share of $0.50, with the airline contributing roughly $1. Our guidance today assumes a second quarter fuel cost of $2.40 per gallon. In light of the fluid environment, we're not explicitly providing detailed unit cost guidance in our comments today.

That said, we do expect to perform in line with messaging provided on our February call, where we expect to see unit cost reductions throughout the year, even considering capacity reductions action to date with the first quarter delivering the strongest year-over-year performance. As Greg said, Allegiant's tactical utilization model, focused exclusively on the leisure traveler, has historically positioned us well during times of economic uncertainty.

We expect no different this time with continued flexibility in our owned fleet as well as great opportunity in our order book. In response to economic headlines and the challenging environment, leaders from across the business have come together to implement numerous cost initiatives, including early out options for certain employee groups, closure of our crew and aircraft base in Los Angeles, adjustments to overhead infrastructure and reduction of department budgets across the board. In total, we reduced our operating budget by more than $15 million in fixed costs in the balance of the year with the expectation to capture more than $20 million annually.

Together with reduced or deferred CapEx, we have removed over $90 million in spend from our 2025 plan, excluding variable cost reductions from lower capacity, demonstrating the agility and responsiveness of our team. In closing, I want to thank all of our team members for their hard work and dedication, not only for strong performance during the first quarter, but for coming together and making the right decisions to position Allegiant to outperform over the long-term.

Despite near-term headwinds, the strength of our model, rooted in flexibility, low fixed costs and bias for action provides a solid foundation to weather the current environment and capitalize on future opportunities. Thank you all for your time today. And with that, Kayla, we can now begin analyst questions.

(Operator Instructions) Duane Pfennigwerth, Evercore ISI.

Nice to speak with you. Could you speak to -- I know you're not giving full year guidance here, but just the shape of margins last year in the back half was pretty variable. So maybe you could just speak in broad strokes, at least on an airline-only basis, how you're thinking about that margin trajectory? And specifically, the third quarter of last year where you had a pretty decent sized loss, how you're thinking about, again, the trajectory of margins relative to the 2Q guide that you're giving here?

Duane, nice to speak with you as well. This is Greg. Why don't I kick it off and the team can add if there's anything that I may miss. But you hit on it. Our true North is going to be to drive and optimize margins.

And so I think in the second half of the year, while we're not going to give a guide, we'll continue to aggressively manage capacity and costs to optimize margin. We'll have more time to adjust to the environment for Drew and his team to try and optimize the capacity and also optimize the network. We'll continue to assess the structural costs. And if there's opportunity to pull more structural costs out of the business, we're going to continue to look at that. But to your point on the third quarter, that's generally for us and seasonally, this has been the way in the history of our model is the softest quarter of the year.

Fourth quarter, we would see stronger earnings in the third quarter. But we're focused on optimizing any way we can in this environment, and we're going to make the necessary decisions to do so. I'm going to pause there, to see if Drew or B.J. have any other commentary on the second half of the year. I may just add then, Duane, that we -- in the fourth quarter last year, we did produce -- I want to say it was like a 13% margin for the airline.

And our goal is to continue to, again, optimize margins, and then we'll see how we can improve the third quarter, which is our quarter with the most off-peak demand environment as we focus on the leisure customer.

Got it. And then maybe just on Sunseeker. Can you give us an update on the process and maybe timing? And then with respect to the F&B or out-of-room spend, how much of that is actually generated by customers that are staying in the resort versus locals? And if we just think about the mix between room revenue and out-of-room revenue, are these trends kind of -- are these trends consistent? Are these trends repeatable? Or is there something about the first quarter that makes it a one-off?

I want to -- why don't I start on your first question there, Duane, about the process. And then Micah is on the call. I think he can add some commentary on your second part of the question around the growth -- the profile of F&B versus who's staying there. But in terms of the process, as you know, and we've been running a competitive process for several months now. We continue to down select along the way with the best suited counterparties.

And this includes counterparties that are well capitalized with dry powder, meaning that we're focused on execution in this environment. But the process does remain on track to have a transaction closed by this summer. I think just given kind of the nature of the discussions we're in, I should probably just leave it at that. But the positive is we do remain on track. And then, Micah, do you want to add to Duane's question?

Yes, absolutely, Duane. The food and beverage revenues are probably 70-30 split, 70% coming from inside the hotels and 30% the work that we do to attract locals to the property. In terms of sustainability, the key in driving the earnings in Q1 and Q2 and then beyond has been, as we've talked before, is really, really tightly related to how well we do with group business and putting that group business on the books in advance.

In Q1, we had just about double versus what we had in prior year. And that shows up really well in occupancy in ADR as well as in catering, which is a high-margin business for us. So it's absolutely sustainable on a go-forward basis. You can always consider Q1 to be the strongest of the quarters in the year for sure. But that is the model going forward.

Mike Linenberg, Deutsche Bank.

Just some modeling -- some boring modeling questions here. What is the underlying fuel that you're using? And maybe what are you paying for jet fuel now just because it has come down so much through earnings season. And the capacity, I know we started the year at 17% and then it was 13%. Where are we -- like what's a good number for where we think your capacity is on an annual basis?

Mike, It's B.J. here. On fuel, we're using $2.40 for our assumptions for the rest of the year at this point. We usually just pegged to sort of what we're paying immediately before the call, and it's pretty close to that today.

And then on the capacity front, Drew here, based on what's published today, what we anticipate what I think goes on sale today or tomorrow for the last 6 weeks of the year, with a little bit of completion adjustment, 13% is the right number. But we'll stay on top of that as we see how things progress here in the coming months.

And Mike, it's Greg. Just to Drew's point on that, we'll -- we're remaining very flexible, but should the demand environment not improve, our bias would be to cut more capacity in the back half of the year.

Okay. Great. And then just as a quick follow-up, your other operating expenses were down pretty meaningfully. I know, B.J., you mentioned you ended up taking a gain. What was the -- I mean, I didn't see it in the release and maybe you said it, and I apologize.

What is the amount on that gain? And then is that -- as we look forward for modeling, is that something we're going to continue to see in subsequent quarters?

Thanks, Mike. Yes, on the gain, I don't want to give the number exactly. These are from asset sales that are still happening kind of on a continued basis. The fleet team is liquidating some of the assets that we have begun to retire as these MAX airplanes have come into service. And so they're still sort of negotiating with counterparties and whatnot.

We didn't disclose the gain this time like we did in the fourth quarter, so that should tell you it's not as large as it was in the fourth quarter. And then there's another meaningful good guy in the other expenses line this year, which is a reduction in non-salary flight crew expenses. So these are costs related to like crew travel and training events and things like that, which were significantly lower this year and actually were elevated through all of last year.

Maybe lastly, on the gains from sale, we don't have anything planned currently for the second quarter. Not to say something couldn't get done, but we don't have anything planned currently, and there were some gains last year. So I would expect to see a little bit of pressure there in 2Q. But the program will continue in the back half of the year as the MAX airplanes delivered.

Catherine O'Brien, Goldman Sachs.

So you called out over the last few weeks, you've seen demand stabilize, and there's been some improvement over the last several days. Can you just give us a bit more color on that, like over what period you've seen the improvement? Maybe help us think about the magnitude of the step down starting in Feb to stabilization and then how much things have improved off that bottom, realizing it's a recent trend. And I know you noted to expect a steeper RASM decline in 2Q. Just trying to get a sense of how big of a step down kind of putting all that mosaic together on trends.

Yes, Drew here, and I'll invariably disappoint you by not giving you all the details you're looking for. But I mean, if you just think about maybe size of the change in RASM, right? In the last call, we said we'd be down just more than 6% ended at 7.1%, said we'll be down more despite taking about 5 points out of the 2Q schedule. So there's probably a mid -- accounting for all that, there's probably a mid-single-digit kind of variance and what we thought the revenue production would be. So you maybe read between the lines in terms of what that meant for change in demand.

And then really, it's been about the last week that we've seen kind of an uptick back half of last week through today it's felt a little bit better. I'll probably stop short of magnitude of downswing or upswing there, but that's kind of long and short of it.

I guess maybe just a quick follow-up. Anything notable on where you're seeing that improvement? Is it something regional? Is it closed-in bookings? Is it something beyond 30 days, like any noticeable trends or it's pretty broad-based?

Pretty broad-based. In the first quarter, we -- our last call, we talked about Canadian border cities in particular, that's stabilized. I wouldn't say it's meaningfully on the upswing, but that's at least stabilized. Seeing a little bit more come into summer, a little bit less than we'd like maybe into May. But I think that builds well into some of the comments today around the peak and Memorial Day through June is where we would hope to see that lift, and we're definitively still in a shoulder period here until we get to Memorial Day.

Scott Group, Wolfe Research.

Just wanted to follow-up there. So any just -- maybe I missed it in that last answer, but any directional color you can give on sort of the RASM expectation for Q2, either sequentially year-over-year, however you want to think about it?

I'd probably leave it where I had it in my remarks, right? We'll be down. We'll be pressured more than we were in the first quarter on a year-over-year, but I think that's about the expense of what we're sharing today.

Yes. I think what you just said, right, you're mid single-digits a headwind of 5%, 6%, I think, Scott, in the second quarter is what we're seeing -- we're estimating, excuse me.

So I just wonder -- you're saying that Q2 is 5 or 6 points worse than Q1?

No. Just -- yes, thinking relative to what we would have expected at the first quarter call that we said it would be better than where the first quarter ended up, if you -- second quarter will be better than first, and now we're on the other side of that. So just trying to size the amount of the swing, which is, again, unknown to unknown. But yes, I think that's kind of what we're giving, right?

Okay. So we're all on [this here] -- you thought second -- previously thought second quarter would be less negative than first quarter. Now it's going to be more negative than first quarter and the delta between the 2 is about a 5 or 6 point swing. But again, we don't know how much less negative you originally thought Q2 was going to be.

That's right. You rolled up the mystery very well there.

Okay. Fair enough. Okay. And then maybe just similar question around -- I just want to understand what your sort of messaging is on CASM. Is it down sort of each quarter year-over-year of the rest of the year? And any more -- I don't know, any more color you want to -- you can share on CASM?

Sure, Scott. Yes, I just wanted to reiterate, I think there was a question on the February call about sort of the cadence of CASM ex through the year. I think we'll maintain that, although maybe not completely the same degree with some of the capacity pulls that have taken place. So we said 1Q would be the low point in year-over-year cost performance. But unit cost performance will be strong throughout the year and expecting unit cost to be down in the second quarter and the third quarter.

Fourth quarter is a little bit more challenging. Remember, we had a $15 million gain on sale in the fourth quarter of '24, and we had utilization coming back up in the last few weeks of the year. But feeling really good about unit cost performance if we can get the read there.

Conor Cunningham, Melius Research.

So when I think about you guys, I don't necessarily view you as someone who cares about market share as much as some of the other carriers that have talked about that this earnings cycle. So just trying to understand how you got to the 7.5 points of capacity that you pulled out of the market. Maybe like to all the questions that have kind of been asked already, just it seems like your unit revenue is deteriorating a little bit faster than you anticipated, which is understandable. But why are we not pulling down more? And then I'm not quite -- it's not quite clear to me that we're fixing the second half issues without pulling down incrementally more from here. So just any thoughts around how you got to the 7.5% number in general?

Yes. Not a problem, Conor. So as we think about the short-term kind of right capacity load, we're still looking to maximize the margin profile, understanding that we don't have maybe quite as many levers to pull broadly from the fixed expense perspective. So if we take a look at February, about 97% of our markets cover their variable expenses. We think May is going to look somewhat similar to that, maybe slightly more depressed.

And so that's kind of what we're targeting again, right? We're targeting ensuring that the capacity that's out there is covering the variable that will push earnings and by way of margin as well as high as we can. I'm sure we'll get some of those calls wrong, but that's kind of where we left out, just taking a look at where the bookings were, where we felt we were in a good place from that gross contribution. And then, of course, everything that's spilled out from the LAX base closure and impact there primarily through the summer. But that was the approach.

And then in the second half, we just -- Drew, on the second half, just to hit on your point there, Conor, around capacity. I mean we're just -- we're monitoring the environment, and we will -- but we're going to aggressively manage capacity in the second half. I don't want to put words in Drew's mouth, but we just don't have to make those decisions today on the second half. But in the coming weeks and months, we will be. Is that fair, Drew?

Yes, that's fair, right?

Okay. And then maybe bigger picture, you mentioned in the deck past performance, and I think that we all know your competitive advantages relative to some of these other peers out there. So when you look at a potential downturn, I mean, I know that you're not seeing that quite yet, but a further one from here, this cycle is a lot different than prior cycles.

You have other leisure-focused airlines that are really struggling out there, and there's relative strength at the larger airlines. So I'm just trying to understand on how you may approach this downturn a little bit different. Like is M&A something that you guys would look at? Just like what are the thought process around a further pullback knowing that you'll be at a relative advantage to a lot of other airlines out there?

No, I appreciate that, Conor. Why don't I kick it off? It's an important question. And I do though think that relative to, let's say, prior downturns that the kind of foundation of Allegiant is still intact, meaning kind of talking about the 4 cornerstones that I mentioned in my script are really the network, the tactical utilization and the flexibility within our fleet. So that gives us a lot more optionality, I think, to adjust to the environment.

And our infrastructure, as I think you and others are aware, we've been waiting for some time on the delays with the MAX aircraft. So we've been carrying an infrastructure that was larger than what we had thinking we'd have the opportunity to grow in that this year. But with the demand environment dropping now, we've already actioned on the infrastructure, and we will continue to do so. But to your point on the -- or your question on the industry, I think consolidation or M&A, I think we're all aligned that the industry needs less supply, particularly in the low fare space. Leisure fares have not kept up, obviously, with the rising cost environment.

And clearly, there are some low-cost carriers that their models are struggling. I think we continue to be, in my opinion, in a category of our own. While I'll say consolidation isn't necessarily a requirement for Allegiant. I think we still have a great model with great assets, network, the product set, the flexibility and all that to continue to outperform in a downturn and emerge in a relative stronger position. That said, our focus is and always will be to drive shareholder value and should -- we should always be open to any opportunities that are in support of that.

Conor, it's B.J. I'd just add in back to your first question to tie to that last one. I mean that's one of the reasons that you haven't seen further cuts from us. The cuts that we've done to date, we believe are margin optimizing, and doing much more than that would make us cut into our infrastructure to a place that might not put us in such an advantageous position on the other side of all this. So we just want to be thinking about what we're doing today with the future in mind.

Andrew Didora, Bank of America.

First question might be a little bit of a stretch. But just in terms of Sunseeker, is there anything that you're seeing in your booking curve there, maybe in the longer-dated group bookings that can give you like a bit of a read in terms of how you think airline demand could trend over the rest of 2025?

Yes. On the -- I don't know that we have a good answer for you on that, candidly, Andrew. What I would say, though, in Sunseeker, it's tough because it's more nascent, right? We just opened it last year. But year-over-year, we've seen a lot of strength.

That's on the Sunseeker side. That's -- group business has been a big catalyst of that. And on the second quarter, I think we put out our guide, which is down roughly $1 million, I think, in EBITDA. But that's a significant improvement year-over-year. So I think it's just a little bit difficult for us to kind of read through just given the relatively new nature of the resort. But let us follow up and see if there's something we can glean from that and come back to you on.

Maybe the only other thing I'd mention, right, with that area, Punta Gorda, we're kind of exiting the peak season going into the off-peak now. It's going to be tough to get a little bit of a read-through from the airline side until we get that full winter schedule extended and then you'll get a bit more of a read-through to the actual core peak demand for that area. So yes, it's a great point, might need a little time to get back on that.

No, understood. I knew it was a little bit of a stretch question. Again, just kind of as a follow-up here, just with regards to the capacity changes you've discussed on the call. I assume these are the lowest margin flying that you have. Some other airlines have spoken to the kind of the RASM differential of peak versus off-peak. Any way you could help quantify that RASM differential for the routes you've cut versus the rest of your system?

Yes. I don't have that off top of my head for that split. When we look at just overall through the peak March period, like I put in my remarks, it looks very much like pre-pandemic peak days to off-peak days. So as you peel that back into what we cut back, it would be things we anticipate maybe a little bit weaker, as you can imagine, or places where we could easily absorb. We do believe it or not, have a few of these in our system, a double day that we could absorb onto a single with relatively little loss of revenue there. So maybe that helps a little bit, but I know I'm not getting all the way there for you.

Tom Fitzgerald, TD Cowen.

In the slides, you talked about how the MAX is outperforming your expectations operationally and financially. Wondering if you could give any numbers on that. I remember when the order was first placed, you talked about looking at it on EBITDA per aircraft metrics. So I don't know if it's outperforming on your margin expectations versus the rest of the aircraft in your fleet, but any color there would be helpful.

Yes. Tom, thanks. It's Greg. Why don't I take it, and B.J. may add some color if he'd like. On the operational front, I mean, dispatch reliability is above advertised from Boeing before we placed the order. And it's almost -- it's a full point, maybe a little bit more than that, above our system average. So really pleased with the operational performance. On the financial performance, and I think you were alluding to this, but we placed our order at a time when no one else was buying airplanes. So it was timed well, we believe.

But in the first quarter, keep in mind, it's still early, but the first quarter, we had about, I want to say, a 35% EBITDA advantage per aircraft on the MAX fleet as compared to the A320 180 seat Allegiant Extra product configuration. So we're seeing it perform nicely. It's still early. Drew mentioned this, I think, in his opening comments as well. We haven't built the plan around the MAX yet to commercialize.

We've been really working the pilots and getting them titrated and trained. Last year, I think we had roughly 100 pilots or a little bit more offline waiting to be titrated on the MAX aircraft. And today, Tyler, I think all or nearly all are now through and are flying for the most part. Is that fair?

Yes, that's fair.

So in the fall, then we'll begin to better commercialize the MAX where we think there could even be more opportunity. But I'd caveat all that with it's still early, and this is the first quarter.

Tom, I'd just add that in addition to the EBITDA performance that Greg mentioned, we've talked about depreciation expense being similar to those A320s that we were adding kind of, I'll call it, 2018, '19 time frame. So you're seeing similar depreciation, but you're also seeing a benefit from the maintenance honeymoon. We haven't been adding new airplanes in a long time. And so there's a meaningful benefit in the maintenance honeymoon as well.

Okay. That's really helpful color. I appreciate that. Just as a quick follow-up on the modeling side, and apologies if you mentioned this in your prepared, but on the sales and distribution line item and OpEx, that was down, I want to say like 17%. Was that just improvements on Navitaire? Or is that a higher mix of direct bookings? I appreciate any color you could provide there.

Sure, Tom. Yes, it was a handful of things. There is some reduced spending in certain types of advertising like sponsorships. There's some improvement in credit card fees. But the meaningful driver there is settlement with one of the card processors related to processing fees going back a number of years.

Christopher Stathoulopoulos, Susquehanna International Group.

I want to circle back to the comments, I think it was from Scott on RASM. So in the prepared remarks, I heard same-store RASM, I think, performing well or up and 2Q qualitatively, more negative than 1Q. So as we think about your route structure here, you screen lower with respect to relative route overlap. So if you could -- perhaps if we could rank order your routes here, what is the delta between the top quartile and bottom quartile routes if you want to show it on a stage length adjusted basis? Just want to better understand here given your network structure and fewer overlaps, how the better to kind of -- how that quartile, I guess, or rank order, however you want to describe it is performing on a relative basis?

Yes. So if I remember right from Greg's remarks, he was talking to kind of the peak March and peak periods in particular, holding up quite well, which is true. We're not going to sit here and say that the off-peaks and shoulders are holding up well. That's why you've seen capacity come out in the way you have and will continue to be reviewed. I'm not particularly interested in going through quartile results here on the call, so no.

Okay. And so as a follow-up on the shape of second half capacity, any color you can provide with respect to markets, new routes, suspensions, frequency and, of course, the new aircraft configuration that you cited earlier?

So for the second half of the year, we remain somewhat elevated low double-digits for July and into August. Mind you, August has come down approximately 15 points, give or take, from what we had originally planned. September, I believe, is in the mid-to-high single. October looks quite high. But remember, we have a hurricane comp there that cut out a meaningful amount of capacity.

And then you're kind of getting into -- by the time you get to the holidays, that's the capacity that's going to go on sale here this week. So we've got a lot more time to digest what the demand environment looks like and respond accordingly. And remember, we had boosted December 2024 utilization as kind of our first peak period. So I wouldn't expect meaningful growth there. So that's kind of where we stand today for published or soon-to-be published schedules.

But as Greg mentioned, that's all very much still under review. As we think about kind of new route profile, we'll stay probably mid single-digits. I think maybe 5% of routes that will be in a period of maturing still the first 12 months. The rest should be in a same-store capacity. I think we're down -- for this year, I think we've announced mid '20s number of routes that have gone canceled or suspended. And obviously, door is still open for more of those such that the environment calls for it.

And then on aircraft configuration, I'm sorry, Drew, feel free to add in if you know by flights. On configuration, we ended '24 with 52 of our A320s in the Allegiant Extra configuration and 4 of our MAXs, currently at 60 A320s and 9 MAXs in the fleet. And then by the year -- end of the year, I'm showing 75 A320s in the Allegiant Extra configuration and then all 16 MAXs.

Yes, a little bit less than half of what's left to retrofit on the A320s will happen here in the next couple of weeks with the balance happening in September to round that out.

Yes. And actually, maybe just to share, if you look at the fleet plan in the earnings release for this year, we started breaking out 180 versus 186 seat A320. The 180 seat is the Allegiant Extra configuration. So we gave a guide by quarter.

Dan McKenzie, Seaport Global.

Drew, apologies for kicking a dead horse here on the recent uptick. But does the guide embed that pickup as continuing into the month of June? And I guess I'm just trying to get some sense of the sustainability of the current trends. Is that uptick just as simple as lower pricing stimulating demand further out? Or are you seeing it tied more to reduced, say, macro headline risk?

Yes. Good question. So fares yields have been depressed for a few months as we work to stimulate customer demand. That's been successful. April sale looked really good, candidly, a few weeks back.

So that's had definitely an influence. I think this goes just a level deeper in terms of search traffic and overall visitation being a little bit healthier that helps drive more bookings while fares remain lower as well. So a little bit of both with more recently probably being more than just fares on their own.

And our 2Q guide does not take into -- we're not assuming any uptick in revenue.

No, I'm not assuming that this is, yes, continuing in a meaningfully positive fashion or something like that. So that's more of a status quo kind of approach.

Understood. Okay. And then I guess, Drew, Allegiant Extra is on, I guess, over 50% of the fleet today. So I guess the question is, what does that look like at the end of the second quarter and for the full year? And can you share what percent of the revenue picture it is and what rate it's growing at?

I can try on that. So we mentioned that 65% of the second quarter departures will have Allegiant Extra on board. That will tick up just a little bit, I believe, in the third quarter and maybe just a little bit more in the fourth, but without a huge number of MAXs coming through the back half of the year. It's going to be the retrofits of which there's only 15, I believe, remaining in the year. So it will tick up a little bit, but I wouldn't run away with it.

It's definitely outpunching its weight. So remember, Allegiant Extra rolls through as an ancillary item as seat revenue and not something in the fare line. So while we don't go to that level of detail, you're going to outpunch 62% of departures in terms of the contribution of seat rev, if that makes sense.

And I would now like to turn the call back over to Sherry Wilson.

Thank you, everyone, for joining the call today. Please feel free to reach out with questions. Otherwise, we'll talk to you next quarter.

This concludes today's conference call. You may now disconnect.