Allegiant Travel Co (ALGT) 2025 Q2 法說會逐字稿

Thank you for standing by. At this time, I would like to welcome everyone to today's Allegiant Travel Company second-quarter 2025 earnings call. (Operator Instructions)

Thank you. I would now like to turn the call over to Sherry Wilson, Managing Director of Investor Relations. Sherry?

Thank you, Greg. Welcome to the Allegiant Travel Company's second-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 Neale, 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 FEC. 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.egionaire.com.

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

Thanks, Sherry, and thank you all for joining us today.

I'm proud of our second quarter results where once again we delivered an excellent operating performance with a 99.9% controllable completion.

We flew more than 5 million passengers, a record for the 2nd quarter.

Approximately 70% of those are repeat customers, a sign of our strong net promoter scores and reflects our position as the leading airline in most of the communities we serve, offering reliable nonstop travel and unbeatable value.

I'm also happy to report that we achieved an airline operating margin of 8.6% exceeding our initial guidance.

Combined with our first quarter performance, our first half operating margin was close to 9%, an improvement compared to the first half of 2024.

Team Allegian has done a good job of controlling what we can control. Aircraft utilization is back to our historic productivity levels, increasing by 17% in the first half versus a year ago, while total aircraft and personnel have remained flat.

Furthermore, we are continually enhancing our commercial offerings and we are keeping a tight lid on costs. What we can't control the demand environment as many airlines have already commented, domestic leisure demand was noticeably softer during the first half of this year than initially anticipated.

Despite this weaker domestic demand backdrop, we achieved solid profitability because we are one of the lowest cost providers in the industry and have a relentless focus on our offering our customers attractive prices and a safe, reliable on on time product.

We are making headway with our legion centric initiatives with Navita's initial revenue headwinds behind us, we are better positioned to accelerate our progress as we further enhance its capabilities along with pursuing additional commercial initiatives.

Our new max aircraft are boosting our performance as expected, leading our fleet and reliability and contributing a significant margin advantage when compared to our older A320 aircraft. The max fleet accounted for roughly 10% of our ASMs in the 2nd quarter, and we expect that amount to exceed 15% by year end.

Our premium Allegiant extra offering is in high demand by our customers. We are benefiting from a significant price bump for this product, which is both additive to margin and tram.

Drew will speak in more detail, but I wanted to provide some insight to our overall tram trends. There are several factors in impact tram, including the mix of peak versus off-peak flying, existing markets versus new markets, and of course capacity growth.

When you look deeper into the numbers, heat tram is performing relatively well, reflecting strong customer demand during high travel periods. It is the shoulder and off-peak periods where demand softness, coupled with the capacity growth has driven outside headwinds to reported tram. There are two things that are important here. The first is that we continue to manage our network to maximize profitability, and the shoulder and off-peak flying we added this year have been Martin accreta.

Second, adjusting for the mix of flying, we believe our tram decline compared favorably to domestic leisure trends of our peers, highlighting our strong competitive offering and positioning with our customers.

As we announced last month, we are exiting Sunseeker, allowing us to further simplify the business and solely focus on our core airlines.

With that, let me shift to our initial views for the second half of the year.

Although signs from the performance of the US economy appear to be mixed, we are cautiously optimistic in our recent bookings that suggest a modest strengthening of leisure demand.

Keep in mind that our 3rd quarter is typically our seasonally weakest period for leisure demand due to the higher proportion of shoulder and off peak compared to other quarters, with the 2nd half of August and most of September representing the lowest period for leisure travel during the year.

A key attribute of allegiance is our flexible scheduling as we look to peak to peaks and fly off peak when it makes sense economically.

Appropriately, we pulled back on our capacity growth expectations for the full year due to increased macro and geopolitical uncertainty. We have made further adjustments with September ASMs now expected to be roughly flat year over year.

BJ will provide more details shortly, but we expect to incur an operating loss in the 3rd quarter. Importantly, we continue to expect to report a healthy operating profit for the full year, with our 4th quarter historically more in line with the first two quarters in a much stronger quarter than the 3rd, as leisure travel typically picks up seasonally.

I also want to reiterate that we remain steadfast on our core principle that we need to earn the right to grow. Well 2025 has been a year with meaningful growth, and as mentioned, that growth was accomplished with adding to our fleet count without adding to our fleet count or to our personnel. It represents a one-time catch up year after max delivery delays that sharply curtailed our capacity growth in previous years.

Encouragingly, when we compare our first half 25 year over year changes between Trazam and Chasm X, we believe it to be among the industry's best.

As we look to 2026, we currently expect capacity to be relatively flat as we further further harvest our current infrastructure. Those plans should help us improve our yields for several reasons. First, we expect to drive incremental revenue through enhanced navita capabilities and new commercial initiatives. Second, we should benefit from routes maturing and with peak flying representing a greater proportion of ASMs at 26 and 2025. Also, we expect a tailwind from a more fully ramped Allegiant extra which will start the year being deployed on 70% of our fleet, up from 50% at the beginning of 2025.

Third, we anticipate our Allegiant credit card remuneration will continue to grow from the 140 million expected this year. It is a great source of steady incremental cash flows.

Drew will provide more details, but suffice it to say those offerings, as well as other revenue generating initiatives, give us confident today that the unit revenues should.

Improve in 2026.

All else being equal in the demand backdrop.

On the cost side, we are continuing to increase the usage of the Max aircraft, which are expected to be more than 20% of our ASMs in 2026, up sharply from 25%. We are planning to divest some of the Airbus fleet over the course of the coming year with any proceeds used to further strength in our balance sheet.

Now we are keeping a tight control over costs. Our cost structure is a key competitive advantage. So when you put it all together, we are taking important steps to simplify our business and further strengthening our core airline competencies.

The airline is operating extremely well, and we continue to position ourselves to deliver strong incremental margins. I'm excited about what's in store for us over the coming year and beyond. And let me close by highlighting how proud I am that our team's performance resulted in the Legion being named Skytrack best low cost carrier in North America for the 2nd year in a row.

Our greatest driver of of success is Team Allegiant, our dedicated team members who deliver a great service for our customers every day of the year. Their dedication sets us apart, and I'm honored to work with such a talented team. With that, I'll turn it over to Drew.

Thank you, Greg, and thanks everyone for joining us this afternoon.

We finished the second quarter with $669 million in airline revenue, approximately 3% above the prior year, producing a few trap of 11.$0.57, which was down 11.2% year over year in line with our internal expectations from the prior call.

Allegiant group total AFM 16% with overall utilization of 17%.

Despite the increase in utilization, reducing available plane space for a fixed fee slide, our fixed fee revenue was down just 4% on a year over year basis and ahead of our internal estimates for the quarter.

While BJ will hit on the unit cost benefits of our growth profile, they expectedly have an impact on our units.

Focusing a bit on the core of the region's strengths and deploying predominantly peak day capacity, unit revenues in our markets operate in the same capacity in both the current year and prior year, mainly comprised of markets flying 2 to 3 times per week. We offer roughly 6% year over year, seemingly in line with commentary from others throughout the cycle.

While perhaps oversimplified slightly, the growth profile contributed roughly 5 incremental points of headwidth and fell generally in line with our typical expectations of the relationship between growth and unit revenue change.

We certainly saw more resilience on peak days where even in the aforementioned same capacity scenario, peak days held up about 4.5 points better year over year than on peak days.

It peak weekends even came to light.

The emergence of Juneteenth as a strong traveling holiday was a welcome addition and was in fact the strongest traveling week of the summer. A traditional peak week around the 4th of July was top in to.

Our approach to capacity in the second half of the year aims to align capacity with demand in our typical fashion.

Our 3Q growth rate is down more than 10 points from our estimates at the start of the year. As mentioned on the last call, those cuts are heavily focused on the off-peaks, both day week and sea.

August, for example, saw an 18 point change in expected capacity in September will only be approximately 48% of July flying.

After the cuts.

We still expect third quarter.

Scheduled service ASMs to grow approximately 10%, with the fourth quarter slightly higher than that given 2024 hurricane-related cancels in comparison.

We've certainly seen demand pick up in July, earlier than last year, and while those same capacity marks did improve slightly in July relative to June, the uptake missed a good portion of the July booking window.

Additionally, due to the overweight portion of 3QASMs falling in July, the third quarter will see a lower overall benefit than other carriers most likely.

Broadly, we do believe the back half of the year is setting up better than most of the last 6 months. Consumer confidence ticked higher in July and the industry setup is improving through the post-summer trough.

That said, the November, December industry growth profile remains elevated and in particular capacity to leader-oriented destinations have been even a larger spread 1st last year.

A revenue forecast for the back half of the year contemplates this year's various factors largely washing out and producing a generally similar trajectory relative to 2024.

Sufficient to forecast sequentially improving year over year traveling trends in each of the 3rd and 4th quarters.

Significant tailwinds beyond that would represent upside, more likely in the 4th quarter than the 3rd simply given amount of time left to.

We feel bullish enough about forward demand to introduce a small handful of new markets into the network. These include service to a new airport in our network, Southwest Florida International, RSW in Fort Myers, Florida, which we believe is complimentary to our incredible service in Ponagorda, about 40 minutes away, as well as the 9th route into Gulf Shores, Alabama, an airport we began serving in only May of this year.

ALL7 of our new routes launched just before Thanksgiving, focusing on peak demand times over the holidays and into next year's spring break period.

A part of the improving trends is through the continued traction of our initiatives. Eliion extra will grow to 2/3 of departures in the 3rd quarter while showing extreme resilience with the increased profile. And as indicated on the last call, we were captured $2 per passenger of lost revenue from the initial map implementation and now believes we've gained the first incremental dollar of benefit from the system.

Some of the early winds we're discovering aren't necessarily solely ancillary revenue per passenger lift, or rather conversion, and in turn load factor, benefits that we expect to see manifest more fully in the coming months.

In fact, July load factor should be the best month, year-to-date, both in terms of the actual metric and the year over year performance.

Finally, while we're thrilled with the trajectory and results of our award winning Allegiant Alway co a credit card and loyalty programs to date, we have kicked off an in-depth review of the programs to ensure we are continuing to offer a value proposition that resonates with our customers after 9 years and much industry change.

As we dig in on the evolution of these programs, the best support our customers' needs, we'll come back with more details in the coming quarters.

And now I'd like to hand it over to Robert.

All right, thank you, Drew. Good afternoon, everyone. I'll walk through our results and share our outlook today all on an adjusted basis unless otherwise noted.

This afternoon we reported second quarter consolidated debt income of $22.7 million in consolidated earnings per share of $1.23.

The airline segment produced net income of $34.3 million in airline only earnings of $1.06 per share, exceeding our initial expectations of approximately $1.

This outperformance was attributable to solid cost execution throughout the quarter on a share count of just under 18 million and drove operating margins to 8.6% ahead of our guided range.

Our second quarter consolidated results do include special charges of $103 million related to the pending sale of Sunseeker Resort announced in early July. We remain on track to close on the sale in early September.

Caroline UEA with $122.5 million yielding an IEDA margin of 18.3%. Fuel averaged $2.42 per gallon during the quarter in line with our initial forecast.

Our focus on growing into our labor force and leveraging existing infrastructure kept momentum during the second quarter, with total airline operating expenses of $611 million up just 4.9% year over year on capacity growth of 15.7%. I'm very pleased with the team's cost execution, excluding fuel, unit costs were down 6.7% despite removal of nearly 7 points of planned capacity growth in the quarter.

Our cow the next result included a 1 point headwind from expected transitory costs in the aircraft rent line as we prepare to return 11 aircraft operating leases which originated during the pandemic.

Department leaders across the organization have been focused on cost performance, especially in light of capacity reductions and the softer demand environment experienced during the first half.

We will continue to set capacity for optimized margins, and we are not solely focused on unit cost results. But that said, we've pulled 4.5 points of capacity growth from our 2025 plan and still expect full year non-field unit costs to be down mid single digits thanks to numerous budget initiatives across the organization.

Turning to the balance sheet, we ended the period with robust total liquidity of $1.1 billion which includes $853 million in cash and investments and $275 million in undrawn revolving credit facilities. In addition, we have $335 million in available undrawn loan commitments at the end of the quarter.

Cash and investments were approximately 34% of trailing 12 month revenue at quarter.

We made continued progress on debt reduction, repaying $152 million including $113.5 million in non-recurring repayments, and $38.5 million in scheduled principal payments, ending the quarter just below $2 billion in total debt. Net leverage remained flat sequentially at 2.6 times, down from 3.8 times at the end of the second quarter last year.

Capital expenditures for the quarter totaled $137.7 million comprised of $108.3 million in aircraft related spend and $29.4 million in other airline caps.

Deferred heavy maintenance accounted for an additional 10 million during the period.

Now moving to fleet, we retired 2 A320 series aircraft and took delivery of 5 new 737 mass aircraft, of which one was placed into service at quarter end.

We are pleased to say that Boeing has exceeded our expectations on aircraft deliveries throughout this year, and we expect our remaining 3 aircraft for 2025 to be delivered in the third quarter as we ramp up operation of our max fleet in the 4th quarter.

Predictable and reliable performance from Boeing provides us with tremendous fleet flexibility, and we're leaving our full year CapEx forecast unchanged at this time at $435 million.

In light of staffing costs incurred in 2024, we made the conscious decision at the start of the year not to hire additional flight crews for these aircraft and plan for pilot transition after our summer peak schedule.

And thus we expect to place the remainder of these aircraft in service alongside available type rated flight crews beginning in October when we transition our Fort Lauderdale base to an ALL737 Max operation.

Looking ahead to the 3rd quarter, as previously announced, we've entered into a definitive agreement to sell Sunseeker Resort for $200 million with closing plans for early September and expectation for sales proceeds to be used for debt repayment.

We will report consolidated and airline only results for the 3rd quarter, which we expect will include approximately 2 months of operating losses at Sunseeker during its off-peak season.

As most of the 3rd quarter is seasonally our softest. While we've recently seen some strength in bookings, much of July, our peak month, would have been booked before a notable increase in demand was observed.

As such, the benefit to the 3rd quarter is somewhat muted, though we expect to capture some upside in our full year guidance, which I'll discuss in a moment. For the 3rd quarter, we expect a consolidated loss per share of $2.25 including a loss of approximately $0.50 from Sunseeker.

For the full year 2025, we are expecting airline only earnings of greater than $3.25 per share.

Factoring in 8 months of operations at Sunseeker, we expect consolidated full year earnings per share above $2.25.

Our outlook today contemplates some of the demand improvement observed in July. However, we believe there's still room for upside, particularly during the 4th quarter, if macroeconomic conditions continue to improve.

Although it's still too early for us to guide 2026, we will share that we expect to retire 8 A320 family aircraft and plan to induct 9 incremental mass aircraft into the operating fleet next year, weighted to the back half.

As a result, we do not expect fleet count to drive capacity growth next year.

With continued progress on revenue initiatives, the earnings dragged from Sunseeker removed, and an improving macroeconomic backdrop, we believe we're well positioned to deliver materially higher earnings in 2026.

In closing, I want to thank the entireegian team for their efforts during our peak summer travel season. We operated a record number of flights this summer, and the operational performance exceeded expectations.

Despite a nearly 17% increase in fleet utilization and flat employee headcount, we operated nearly 16% more flights compared to 2024 and did so with significantly fewer operational disruptions.

From cost discipline to operational execution, we're proving our ability to adapt, execute, and position allegiance for long-term outperformance.

And with that, Greg, this concludes management's prepared remarks. We can now go to analyst questions.

(Operator Instructions) Mike Linenberg, Deutsche Bank.

Yeah, hey, good afternoon, everyone. Hey, I just, on the numbers for the full year you have the consolidated at greater than 225 and the airline greater than 325. I guess Sunseeker has already lost over $1 per share for the first half of the year. There's another $0.50 in the third quarter for the last two months, I guess. What's I see the dollar difference, but I guess.

You sort of left the GAAP at that point, but Maybe that was by design.

Mike, it's great. Let me kick it off and BJ or the team can jump in.

The, what we're expecting for our guide is that at the end of September, by September, that Sunseeker is no longer a part of a legion and excluded, obviously moving forward in earnings and so I think that's the way it was built and if we need to go kind of more in detail, we could do that certainly offline, but what I What the guide suggests, you have our 3rd quarter number, but I believe on the EPS what it would suggest that is about $1.25 in airline only EPS.

Okay, thanks then.

Then just my second question on Sunseeker itself, I mean, the AK that came out talked about, I guess cash proceeds of $200 million. I mean, I'm not sure, if there was anything else tied to that, if there's a residual stake. I mean, is it clean, $200 million coming in? Are there some other impacts there? How should we think about it just because, the original AK.

Was fairly terse in providing details around that transaction. Thanks. Thanks for taking my question.

Yeah, of course, Mike, just the, it's ALL100% sold to Blackstone and that's the sell agreement and then the 200 proceeds to allegion upon close of the deal.

Savi Syth, Raymond James.

Thank you and good afternoon everyone. Maybe I can kind of talk a little bit about the 2026, kind of way you're thinking about it. I appreciate that that color this early on. Just curious, your ex cost execution this year has been remarkable and given the kind of the flat outlook, how should we think about non-fuel costs next year? Given that you still don't know what the pilot deal might look like and just how should we think about puts and takes into 2026.

Sure thanks. One of the reasons, we're not prepared to guide 2026, of course we're still just actually kicking off our budget initiatives now, but also just fully understanding what capacity is going to look like next year. Remember we had a good bit of off-peak capacity during certain periods in 2025 and based on the current environment we wouldn't expect to see that.

Next year, so I'm just.

Trying to get our get a handle around aircraft and team member.

Utilization. So I keep those in.

Mind and then and then timing of a pilot deal as you mentioned in the question.

Anything else then as we think about like some of the cost savings that you have this year, do any of those get reversed next year, or is there kind of a rule of thumb if you didn't have any of those kind of moving parts, just how much, you know cost pressure you see?

I mean.

We.

Expect.

The where you're seeing the most benefit on a unit cost basis this year is in the salaries and wages line.

I would expect.

That the total cost for that line, I don't want to commit to it being flat, but I don't expect it to be up materially and and on lower utilization, if we have lower utilization. Or lower ASMs, you would see some pressure there but again it just depends on what kind of capacity we put out there.

Hey, it's Greg. I might just add just a more high level comment, and the team's probably heard me say this too many times, but you know everything that an airline begins and ends by running a great operation, and I think from a cost perspective it can get pretty expensive quickly when we don't run a goodop and so just really proud you're hearing some of the operational performance.

That we're seeing and the improvements we've seen over the past couple of years that's helped drive a lot of our costs out of the business. So that's step one next year and giving us even some more confidence to fly a little bit.

More in those peak periods.

Given that the performance.

One of the things that, I think I want to say as well, just the organization has been incredibly focused on just driving unnecessary costs out of the business. BJ and his team, a team of cost hawks and we've seen, close a couple of high cost bases like LAX and Austin. We've reduced corporate personnel over the past year by 10%. We've reduced fixed marketing expenses and we've reduced IT spend. I mean there's areas in the business that structurally we've gone through and they've done a really nice job, and what I am, I guess very encouraged by is the culture where everyone's looking to, really be prudent on the cost front.

Maybe one more quick addition to the answer there, Savi and this one I can give you to help with modeling. I mentioned in the prepared remarks, an increase in the aircraft rent line. I would expect that to persist through the back half of this year, maybe a little bit of relief in the 4th quarter, but in 2026 we should see that return to the same run rate that we had in 204.

Very helpful. Thank you.

Duane Pfennigwerth, Evercore.

Hey, thank you. On the growth headwind to ram of 5 points, I assume that's that's a comment and this might be impossible, but how would you frame that maybe earlier in the year and even in the 3rd quarter here, is it fair to say that the year-to-date impact is probably in a similar range to that 5 points?

Yeah, here, I think that's probably fair year-to-date, what's just looking at the severe off peaks like September, we didn't have that same comp in in January as we were still kind of thriving from from a booking perspective, so we're kind of forecasting that.

You see a similar but slightly improving through the quarter to a point that's maybe a little bit better than that 6% that we put up in the second quarter.

Got it. And then just on some of the cost leverage because I thought the driver of the growth this year was really about legging into the investments that you already made in support of this transition for the max. And so would you say there's still cost leverage to achieve?

Based on investments you've already made, I mean, you are effectively growing the Max fleet in 26, shrinking on the Airbus side, so it doesn't feel like your average flat capacity year maybe from from a chasm perspective. So maybe just talk about what inning we're in in sort of you know getting cost leverage on the max investments you've already made. Thanks for taking the questions.

Thanks, Wayne. Yeah, I'm happy to start. Gray if you want to add in. Yeah, early innings for sure. I think Greg gave the percentage of ASMs that were operated by the max, but certainly expect that to be up, in the 20% range next year. So there's definitely room to grow. We're also not able to schedule the max aircraft on the most optimal lines of flying yet because we're still training crew members and so the airplanes are operating shorter stage lengths, which is not optimal for.

The fuel burn performance of that airplane. So I think there's definitely room to go. And then I would just say on the on the DNA side, you've got to remember there's also a little bit of overlap in the in the 2nd quarter of this year. We had a one-time re up on on on some unrelated assets, so there's a little bit of a bump in the 2nd quarter. I would expect to see some relief there in the 3rd quarter and then as we move into the next year, you see some of the Airbus assets start to fall off from the DA line.

And Duane, I just add maybe a little more specific on the cost improvements to BJ's point. If we, we're up to next year about 20% of our ASMs flown by the more cost efficient max fleet.

We'd expect ASMs per gallon next year to improve by 2 to 4 points.

I think in 27, you would expect that to step up even further. I think our just our kind of tentative plan has us, between.

7 to 9 points or 7 to 10 points in ASM per gallon.

Improvement.

Thank you.

Thanks.

Ravi Shanker, Morgan Stanley.

I'm not asking you to guide for 26, but do you have a sense of what your normalized EPS might look like? One of your peers quantified it on their call for 2027, and also what might that be depended on in terms of moving parts.

Hey Robbie, why don't I kick it off, but yeah, we're not, we're not going to give a guide right here and I'll just, I mentioned a lot of the initiatives as we think about 26 or perhaps items to keep an eye on and we mentioned, we believe there's a clear path to improving unit revenue.

And we we're going to keep a tight lid on costs.

You've seen the team and the performance this year, and so we want to continue to really run a great operation.

The flattest capacity is not going to put any pressure. We don't think on the operations we can fly a little bit more in the peak period, we think, given what we're seeing on the operational front and Drew and his team are starting to think about plan towards 2026.

Right now, if the demand backdrop improves, particularly leisure, you'd still have some flexibility to push the utilization in the shoulder and off peak. We're not planning on that today, but what I say is just you kind of put it all together, Ravi, and I know this isn't giving you a specific answer, but we think there's an opportunity to, materially improve our earnings.

EPS for us we have 18 million shares, so you can kind of back into, here and there, each one of these levers is worth 1 points in EPS just all else being equal.

Understood that's helpful and maybe as a follow up slash clarification just on 3 on the demand environment, are you saying that the 3Q you've guided to is essentially what a normal 3Q like non-peak environment looks like, or do you think we're still seeing drags from from what happened the first to get a sense of what that sequential step through 234 looks like relative to what you think normal would be.

Yeah, I'd probably caution normal for sure.

What we're thinking about for the 3rd quarter is a ramp in demand similar to what we experienced last year.

So 2024 was not particularly normal as we talked about, a year ago.

We're starting from a little bit of a lower point, right? So getting a slightly stronger ramp, I think we'll get you to the sequential tram. Year over year benefit that that we talked about. But I don't think we're quite normal yet, very little post-pandemic feels normal at all. But with more than 2024 is kind of the guiding principle there more than anything.

Very good, thank you.

Scott Group, Wolfe Research.

Hey, thanks, afternoon. I apologize I missed this, but maybe can you just repeat sort of how you're thinking about Rasam and chasm and Q3, and I think you had a point that things are getting better, but maybe you're not going to see the same benefit of things getting better, maybe as much as others. I just didn't follow that point if you can.

Go through that again.

Yeah, I'll start on I'll start on the side and really what that comes back to is how we deploy our capacity, right? 42% of our ASMs for the quarter will come in July, leaving only 58% for the rest of it. So as demand picks up, we don't have the same flat kind of schedule that many other carriers do that would enable them to better feel a third quarter impact from that uptick. That was really the extent of that commentary, but more generally maybe. I think in the remarks that I mentioned, you would expect sequential wins on on year over year as we get into the 3rd quarter and then into the 4th quarter, getting just a little better, in each of those.

Yeah, hey Scott, it's BJ.

And then on the cost side, we did not guide unit metrics for the for the quarter, but I will tell you that I gave a bit of a cadence of unit costs at the first call this year of the 1,424 earnings call, so I'll just kind of repeat that so it's out there. We expected at the time, first quarter to be down the most. 2nd quarter would be down not quite as much and then we had talked about the 4th quarter coming in maybe flat and that and that did assume a little bit higher capacity so we've pulled some capacity out since then, but I think those comments will largely hold and then I said in my prepared remarks that we would expect the full year to end down mid single digits.

Okay, that's helpful. And then just secondly, I think you had a comment about 4th quarter capacity and leisure markets looking higher, maybe just any more color there. I just want to sort of like if I look at the Q4 guide of a dollar plus of airline earnings, obviously a big improvement from Q3, but still a big decline from 4th quarter last year, and that just feels a little different than what some of the other airlines have guided to, so just any.

Thoughts or color.

Yeah, I mean some of that's just going to come down to, a belief in what the full ramp is going to look like. I think we maybe have a slightly more conservative view on where the fourth quarter can end up, but just looking at leisure oriented markets, there's a pretty big change, for example, the Orlando area that was down 10% for quarter last year is now, showing up 7 7. 5% at an industry level. So there's a little bit of. Different dynamic, I think in the geography of where seats are still in the market now that's all subject to change, that kind of lives in the back of my mind as something that you know maybe it's reason for us to be a little more cautious as we go into November December than maybe how other airlines have described it.

Okay.Great. And then I apologize if I can just sneak one last thing, just going back to my first question, like relative to the radom down 11% or whatever in Q2, like how much sequential improvement are we talking about? Is it 5 points? Is that a good ballpark? Is it more or less any just any thoughts just to give us a little bit of.

Help.

Yeah, I probably won't go into, trying to guide an actual number here, but I appreciate the question. Do you think it will be better, a lot of this will come down to your view on how good you think September can be in in a typically leisure week period. Like I said, we're planning on something roughly similar to what we saw in 2024, as a kind of a rat from this point forward in terms of demand.

That maybe as far as I take it.

Andrew Didora, Bank of America.

Hey, good afternoon, everyone. Thanks for the questions here. His first question for Drew. When you look at, all the commercial initiatives you outlined in your prepared remarks, whether it's a Legion extra more peak flying, now you have Naviter operating as you initially thought.

How should we think about whether it's Razam or maybe it's ancillary per passenger, how do you think about the uplift from all these initiatives in kind of a status quo demand environment as we head into 2026? How should we think about that?

Sure, so on the Navitare front, we had always talked about that being left in the ancillary per passenger line.

I think what we've seen is actually a little bit more coming in load factor and conversion, which may actually put a little pressure on air per passenger or ancillary per passenger, but it's good for the overall as we can drive incremental bookings. But that's a little bit candidly of a change. We had called that out as the $2. To get back to level and an incremental $2 per passenger, but we might have to start to shape that differently given we're seeing it come through through load instead.

On the allegian extra that's purely purely an ancillary revenue for passenger metric.

We're still holding pretty strong at that roughly $3 per passenger on flights with the extra layout coming out to $500 per departure. That number is still still intact on that front here.

Got it. Okay, thank you. And then, question for BJ, thanks for the color on the higher lease cost in the quarter I was going to ask you about that, but I mean thinking like when you think about, you have the maxes coming in, yeah, would you ever consider, leases or sell lease back as a way to finance future deliveries or are you still 100% committed to the full on ownership? Thanks.

Yeah, thanks, Andrew. The answer is yes, we will always consider it. We revisit it 2 to 3 times a year. At this point, it's our view that over the long term, over the long, the full useful.

Life of the aircraft.

It's 2 times as expensive to lease airplanes as it is to own them. And so long as the balance sheet allows us to own aircraft, I think you'll continue to see that from us. It doesn't mean that we won't diversify our funding sources or, be opportunistic here there, we have an order for 50 firm aircraft. I can envision a few of those being operating leases by the time we take the last one, but at the moment we don't have any plans to use sal lease back.

And Andrew, it's Greg. I might just add a quick comment high level on that as well, and that's our strategy is not only to be really good at operating aircraft, but very opportunistic trading assets and aircraft, and we like to own that provides us flexibility, but there's a lot of embedded value in our fleet, and one of the things that I've been DJ and team as we talk about capital allocation, I think they've been doing a really nice job.

Is selling some of our underutilized assets in a very high market or hot market to help us buy aircraft we ordered, at the bottom of the market. And so that's been helpful as well. But the thing that's most impressive is they're looking at every which way to be opportunistic and they're on their game.

Conor Cunningham, Melius Research.

Hi everyone, thank you. I was hoping to ask about the booking curve and maybe tie it into a couple of questions that you had, so just I'm just trying to understand like is the booking curve normal at this point and and I guess the question that I think a lot of us are trying to figure out is just how much do you have left to book. 3Q. I realized that July is obviously your most important month. But then if you could just talk about where you are at 4 and is that comping up on what you currently have? I'm just trying to understand like what's out there right now again, you've kind of struck a more cautious tone, which is fine, but I'm just trying to benchmark like where we're at.

Thank you.

Yeah, July.

The one I'm most confident in responding with 0% left to book for the rest of the quarter, August and September, we probably have something in the 40, maybe 35 to 40% left to book there. So certainly still some room, but you know it's starting to get dark on that booking window.

Four quarters still still left to go we're 85% left at that point.

So there there's still a lot to learn, but like I kind of said in the previous response, a lot of fourth quarter right now is just about trying to forecast, how a lot of things are going to unfold.

Just because of the industry set up, it looks a little bit different for such a leisure oriented carrier than maybe one that has a business outlook or is more hub oriented where you've seen kind of come down this year relative to others, it's just enough for the back of my mind to say, hey, maybe that look just a little different as we get to the end of the year.

And Connor, I would just add a brief comment to that as well that if you take the suggested EPS guide for the 4th quarter. It's below both the 1st quarter and 2nd quarter of this year. Scott mentioned, he called out rightfully so well below the 4th quarter of last year. And just back to Drew's point, there's still a lot left to book and we just, our guide suggests a modest improvement in leisure demand, and we're keeping a close eye on it and we're going to do everything we can. And to maximize the 4th quarter earnings and you know.

And you may just get back to your booking curve questions. So we saw a lot of compression last year, where we were down probably you know medium booking curve down 7%, 8% something like that. We held them relatively flat with with that.

Kind of close in proportion, so, we haven't seen quite the same surge that you've seen from others, but it's normalized with what we saw last year, which was a surge, that maybe, I don't know if others saw or not, it wasn't quite as popular a question last year.

Okay, appreciate it. Then maybe on the comment that you need to earn the right to grow. I was just hoping that you could potentially benchmark what that means to you. Is there a margin target, a return on invested capital target that you're looking that would give you the green light to grow again? I'm just trying to understand what maybe long term, when does the legion start to go back at this, 10% number that you've historically been at for some time.

Thank you.

Thanks for the question, Connor. I don't think we're ready like publicly to go out there with the benchmark. What I would tell you is how we're looking at it internally. It's kind of a couple factor fold.

One is margin, how do we get back to restoring our historic margin performance. Others balance sheet, we want to continue to strengthen and improve our balance sheet. Obviously improving margin helps in that regard, and then the others are cost of capital and what that looks like.

So you kind of put all that together and you balance the environment and some of the items that we mentioned before just being disciplined. I don't think allegiance dependent on high growth. I think we're able to produce. Solid margins and with growth or without. And but with that said, we want to maintain flexibility and as the demand environment fluctuates, we want to be able to adjust accordingly and continue to focus on initiatives that will help us drive more margin and I think just, our the mode around our airline that we've talked about for many years as our model and our team members and Last quarter we talked about like the four cornerstones that kind of fortified that mode and what is that in the network tactical utilization, fleet flexibility and having, a low cost structure and Connor, that's what we're incredibly focused on simplifying the. Business continue to strengthen those four cornerstones. We've talked about how we're doing that today with more, obviously initiatives down the road as well, and we think you put all that together, that'll continue to help us improve and drive more earnings and earn that right to grow as you said.

Appreciate it. Greg, thank you.

Tom Fitzgerald, TD Cowen.

Hey, thanks so much for the time. So I was kind of picking up with that last response to Connor's question. Should we be expecting an investor day in the next like 1,218 months and just you are at an interesting point in the road and would you look to just focus on these like kind of asset li opportunities and like a low growth organic story, or would you be open to any any any M&A at all? Thanks again for the time.

Hey Tom, thanks for the question. We're, you can't obviously see us, but there's a couple of smiles across the table because what we've been talking about that for some time and in fact, Drew, BJ, and I, we want to get something scheduled in the not too distant future because we think that'll be incredibly helpful to walk through. Obviously we're viewing the business in long term as well and the initiatives that we think could help be a little more creative. We've held off on that just given some of the I guess idiosyncratic issues that we've been facing or constraints we've been facing. We're now working through those, and it's the story is kind of clearing up a little bit more. So I think my point of going into into that detail is, yes, that's the plan. We don't have anything set. I wouldn't expect it in the coming months, but I would expect in the next year to 18 months or so, maybe probably within the next year, we would have we get something scheduled for an investor day.

And then I think on your M&A question, I thought I heard an M&A question in there.

We get asked quite a bit about that. The, I would say I think there's a degree of consolidation that could be positive for the industry. I think right now, less supply would be better, particularly in the domestic leisure space.

I think for a legion, we're we're continuing to be profitable. Not all airlines right now are durable. I think we're a very durable model and airline, and we're producing healthy earnings. I mean, candidly, my focus, this team's focus is more about improving our margins, getting 3 quarterback to profitability. If you recall pre-pandemic, we have what, 6,869 consecutive quarters of profitability. We need to get 3 quarterback, where it needs to be. We're taking measures to do that.

I don't think consolidation is required for us to get back to those historical margin levels.

With that said, we, as we always do, we look to expand and drive more shareholder value and whatever that looks like, we keep a close eye on all the time.

Great, thank you so much. That's those are both of mine. Thanks again.

Chris Stathoulopoulos, Susquehanna.

That's right, thanks. Thanks everyone. So, on the, next year's Outlook flat capacity, and apologies if you went over this, but if you could help parse that out, so.

I guess the usual input stage gauge departures and then if you could peak versus off peak and new versus existing markets.

Thank you.

I don't know if I'm going to have all that in front of me to share with you right now.

On the new versus existing, right now we're running about 5.5% of our ASMs being in new markets.

I some of that will start to come up, but something mid singles is probably fine for an overall outlook on on that front.

Off the top of my head, I don't think we'll see stage change much. We'll see a slight increase in gauge as the movement of the maxes at 190 seats and retire from the 177 seat aircraft, but I don't know if there's a lot of moving parts in there.

The only other thing I might add through is that we would expect how you're planning right now a higher mix of peak flying first off peak flying proportionally year over year and what gives us, at least for me. A lot more confidence in that it's just back to how the operations have performed this year in those peak periods. Now we pushed it significantly and we wanted to make sure we could achieve that and the team that the front line and the operational teams have done just a fantastic job with the same overall infrastructure, and they continue to improve processes, systems and continue to strengthen that foundation. And so part of the Drew and team are planning is that there's an ability even on that same. Infrastructure that we could push a little bit more in those peak periods, and I think they're planning as such and then back to an earlier comment, this is based on, if the demand backdrop improves, there's still opportunity to push utilization in the shoulder and off-peak periods, but again, we're planning to drive most of as much in the peaks as we can next year.

So.

But, and I think I heard you say on the max piece the percentage of your total fleet or capacity was that was that 20%?

For next year.

I didn't mention that. I don't know if.

Mark, you have that number? Oh.

Oh, on the Max fleet. I'm sorry, I thought you said Peak. Yeah, max fleet we expect. I'm sorry, Chris, yeah, the Max fleet we expect 20% of our ASMs to be produced with the Max aircraft.

Okay, but overall at the system level flattish on gauge at this point.

I think we'll see.

Gauge come up just a little bit. We're retiring aircraft with 177 seats and adding airplanes with 190.

Okay, so my second question, so the materially materially higher, excuse me, earnings for next year, I realize you don't want to, you're still early stages here. What I heard was, so qualitative flat capacity we have loyalty benefit.

At this point, assuming steady state economy, leisure, let's say sideways to light seasonal outperformance, Navatar, so maybe on the utilization piece, any color you can give on how you're thinking about utilization or perhaps on load factors, are we at a point where there's a, I guess, sustained and permanent return to kind of that low 80s.

System load factor or any color really on how you're thinking about utilization at this point here in addition to what you've said about Navatar loyalty and everything else.

Thanks.

Yeah. Utilization will effectively ebb and flow with the off-peak percentage of flying, right? I mean that that's the easiest flying to plug into the schedule. We'll be able to do a little bit longer peak days like Greg mentioned, but I would expect utilization to maybe be slightly lower given the lower.

Portion of off peak day flying in the schedule.

So with that, yes, there should be a with, the, passenger, there should be some low factor benefits we talked a little bit in my remarks about July seeing an improvement in the navia helping to drive conversion, which is turning into low factor as well. So I do think there's a line of sight to that, it may take, a few months to get back to the levels we really want to be at, but yeah, there's there's kind of sight.

And at this point just you said earlier I think 4th quarters 85% left, it sounds like 15 or so is is on the books.

Yeah, that's good for a semi round number.

Okay. All right. Thank you.

Atul Maheswari, UBS.

Thanks for squeezing me in. Good afternoon, everybody. So two quick ones really. So first, you're expecting a similar level of ram acceleration in the 4th quarter, like you saw last year. So question is, how much confidence do you have that this acceleration will come through? Last year you had about, I'm looking at the model correctly 300 to 400 basis point improvement like sequentially from 4 to 3 so. Like, are you already seeing yield improvement in recent bookings that's commensurate with this level of acceleration or any other color that you can provide that helps us get more confidence about the employed 4th quarter ramp?

Yeah, I mean we've certainly seen the uptick in demand happen, across the selling schedule.

Just bear in mind I mean it's 15% for the entirety of the fourth quarter, right? So you're looking at more than 90% left to go for December. So I'm trying not to run away with the small sample size theater, but hey, it looks it looks fine in the small sample we do have.

Okay.

And then as a follow up in 2023, you earned well north of $7 in EPS. So do you think you were over earning then, or is that level of EPS something that you expect to achieve in the next couple of years and somewhat related to this, and what elements of the business that drove that $7 plus in EPS a few years back that is maybe not going to repeat going forward and what are some of the things that were missing then that you expect to drive earnings in the future?

Hey, it's great. I can kick it off at a high level. I think 23 looking at Drew had a very strong demand backdrop.

Also 23 is when we began nearly mid-year, I want to say in May, so it wasn't a full year we started accruing a 35% increase for our pilots in terms of pay that, as we're in negotiations.

But kind of just putting it all back together what we've talked about and the focus and the areas, whether that be, flying more in the peak period, the operational performance, all the commercial initiatives, the cost discipline, bringing on more max aircraft, growing the loyalty program, technology advancements, all of that, better productivity, we see a path where we sit today to continue to grow and expand our earnings, and we see that. We expect to be able to get back to where we were and were in historical performance. I don't want to come out and give a guide and say, hey, we're going to be in 23, we're going to recapture 23 EBS by this year or that year, but we expect to get back to where we were, and that's what we're working towards.

Great, thanks for that and good luck with the rest of the year.

Thank you. And that does conclude our Q&A session for today, so I will now turn the call back over to Sherry Wilson for closing remarks. Sherry?

Thank you all for joining the call. We'll speak again next quarter.

Thanks, Sherry and again, ladies and gentlemen, that concludes today's call.

Thank you all for joining and you may now disconnect.