ALLEGIANT TRAVEL COMPANY The following discussion and analysis presents factors that had a material
effect on our results of operations during the three months ended
AIRCRAFT
The following table sets forth the aircraft in service and operated by us as of the dates indicated:
March 31, 2020 December 31, 2019 March 31, 2019
A319 38 37 37
A320 (1) 57 54 47
Total 95 91 84
(1) Does not include seven aircraft of which we have taken delivery, but were
not yet in service as of
As of
NETWORK
As of
Given the fluidity of the current environment amid the effects of COVID-19, we have made significant capacity reductions for the second quarter.
Our unique model is predicated around expanding and contracting capacity to meet
seasonal travel demands. We are currently leveraging this core strength, just at
a much more significant contracting level than normal seasonal demand changes
require. We are maintaining a broad network and selling presence. We
consistently monitor flights that are a week or more out to assess for cash
profitability. Additionally, we will provide any essential air service as
directed by the
TRENDS
The COVID-19 pandemic and shelter-in-place directives have greatly impacted our operating results for first quarter 2020 and will continue to do so into the future. Air traffic demand is down precipitously, and air fares are down as well. We cannot predict when air travel will begin to pick up to customary levels or at what pace. In the meantime, our revenues will be adversely
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affected. If there is a relapse of increasing COVID-19 cases, hospitalizations
and deaths, future restrictions will further harm leisure travel and our
operating results.
The impacts of the pandemic have resulted in cancellations of many flights for
myriad reasons. It is likely that higher than normal cancellations will continue
into the future. We are closely monitoring bookings and making decisions on a
round-trip basis to determine profitability of flights a week or more in
advance. This requires a lot of work in the short-term, but allows us to react
immediately whenever and wherever demand begins to return, on a route-by-route
basis. We have seen mild sequential improvements in May bookings.
Though we cannot control the current demand environment, we have a large degree
of control over maintaining sufficient liquidity. To that end, our primary focus
at the current time has been to conserve cash, and we have taken immediate and
extensive measures to reduce daily cash burn. Almost 25 percent of our employees
have taken voluntary salary reductions or taken leave at reduced pay. Our
executives have reduced their base salaries and our Board members are forgoing
their cash compensation. We have suspended payment of cash dividends and stock
buybacks. We have suspended construction of the
HEALTH AND SAFETY RESPONSES TO THE COVID-19 PANDEMIC
Amid various uncertainties and public concern during the COVID-19 pandemic, we have implemented the following measures to ensure health and safety for all traveling:
• Enhanced aircraft cleaning, including regular treatment with an advanced
antimicrobial protectant that kills viruses, germs and bacteria on contact
for 14 days
• Volatile Organic Compound (VOC) air filters that ensure the air quality on
our planes exceeds HEPA standards
• Complimentary health and safety kits, which include a single-use face
mask, a pair of non-latex disposable gloves and cleaning wipes, provided
to all of our customers
• Crew members wear face masks on board and gloves during in-flight service
- All in-flight service offerings consist of prepackaged, factory sealed goods
- In-flight service frequency has been reduced to once per flight
• Social distancing principles at check-in, boarding and on-board, including
limiting adjacent row seating and allowing only customers on the same
itinerary to utilize middle seats as practicable
RESULTS OF OPERATIONS
Comparison of three months ended
Operating Revenue
Passenger revenue. For the first quarter 2020, passenger revenue decreased 9.8
percent compared to first quarter 2019 due to a 7.8 percent decrease in
scheduled service passengers despite a 4.7 percent increase in schedule service
departures. Correspondingly, load factor declined by 10.1 percentage points.
These declines are largely due to a dramatic decline in passenger demand and
Third party products revenue. Third party products revenue for the first quarter
2020 decreased 6.8 percent, compared to the same period in 2019. This is
primarily due to decreased net revenue from both rental cars and hotels during
Fixed fee contract revenue. Fixed fee contract revenue for the first quarter
2020 decreased 15.7 percent when compared to 2019. This is primarily the result
of a 13.6 decrease in departures which is largely due to the cancellation of the
Other revenue. Other revenue increased 36.8 percent for the first quarter 2020
from 2019. The increase was due to increased activity in the non-airline
segments, especially in our family entertainment centers due to an additional
store operating in 2020 compared to 2019. As a result of the COVID-19 pandemic,
we have temporarily closed our family entertainment center in
Operating Expenses
We primarily evaluate our expense management by comparing our costs per ASM across different periods, which enables us to assess trends in each expense category. The following table presents airline-only unit costs on a per ASM basis, or CASM, for the indicated periods. Excluding fuel on a per ASM basis provides management and investors the ability to measure and monitor our cost performance absent fuel price volatility. Both the cost and availability of fuel are subject to many economic and political factors beyond our control.
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Three Months Ended March 31, Percent
2020 2019 Change
Airline only unitized costs (in cents)
Salary and benefits 2.66 2.96 (10.1 )%
Station operations 1.01 1.00 1.0
Depreciation and amortization 1.04 0.90 15.6
Maintenance and repairs 0.54 0.58 (6.9 )
Sales and marketing 0.45 0.52 (13.5 )
Aircraft lease rentals 0.02 - -
Other 0.56 0.43 30.2
Special charges 0.23 - -
Airline CASM, excluding fuel 6.51 6.39 1.9
Aircraft fuel 2.18 2.55 (14.5 )
Airline CASM 8.69 8.94 (2.8 )
Consolidated CASM (in cents)
Airline CASM 8.69 8.94 (2.8 )
Non-airline operating CASM* 4.27 0.28 NM
Operating CASM (consolidated)* 12.96 9.22 40.6
NM - Not meaningful
*Includes operating costs associated with
Salary and benefits expense. Salary and benefits expense decreased
Aircraft fuel expense. Aircraft fuel expense decreased
Station operations expense. Station operations expense for the first quarter
2020 increased
Maintenance and repairs expense. Maintenance and repairs expense for the first
quarter 2020 decreased
Depreciation and amortization expense. Depreciation and amortization expense for
the first quarter 2020 increased
Accounting for most of this increase, amortization of major maintenance costs
was
Sales and marketing expense. Sales and marketing expense for the first quarter
2020 decreased by 11.8 percent compared to the same period in 2019, mostly due
to a decrease in national and online advertising. Also, advertising spend was
intentionally pulled back in the last half of
Other expense. Other expense increased
Special charges. Special charges of
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Resort and our other non-airline segment, as discussed in Note 12. The remaining
Non-airline expenses
Non-airline expenses are included in the various line items discussed above, as
appropriate. The non-airline expenses include those from our Teesnap golf
management business, Kingsway golf course, Allegiant Nonstop family
entertainment centers, and operating expenses attributable to
Income Tax Expense
The Company recorded a
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Comparative Consolidated Operating Statistics
The following tables set forth our operating statistics for the periods indicated:
Three Months Ended March 31, Percent
2020 2019 Change(1)
Operating statistics (unaudited):
Total system statistics:
Passengers 3,175,450 3,450,278 (8.0 )
Available seat miles (ASMs) (thousands) 4,067,671 3,910,239 4.0
Airline only CASM 8.69 8.94 (2.8 )
Fuel expense per ASM (cents) 2.18 2.55 (14.5 )
Airline only CASM, excluding fuel 6.51 6.39 1.9
ASMs per gallon of fuel 85.7 84.1 1.9
Departures 26,312 25,200 4.4
Block hours 62,123 59,819 3.9
Average stage length (miles) 895 904 (1.0 )
Average number of operating aircraft during
period 93.5 79.6 17.5
Average block hours per aircraft per day 7.3 8.3 (12.0 )
Full-time equivalent employees at end of
period 4,436 4,067 9.1
Fuel gallons consumed (thousands) 47,479 46,474 2.2
Average fuel cost per gallon $ 1.87 $ 2.14 (12.6 )
Scheduled service statistics:
Passengers 3,154,606 3,421,538 (7.8 )
Revenue passenger miles (RPMs) (thousands) 2,925,482 3,191,045 (8.3 ) Available seat miles (ASMs) (thousands) 3,964,009 3,802,132 4.3 Load factor
73.8 % 83.9 % (10.1 )
Departures 25,484 24,344 4.7
Block hours 60,346 57,963 4.1
Total passenger revenue per ASM (TRASM)
(cents)(2 ) 9.96 11.50 (13.4 )
Average fare - scheduled service(3)
$ 125.18 $ 127.75 (2.0 ) Average stage length (miles) 900 908 (0.9 ) Fuel gallons consumed (thousands) 46,105 45,068 2.3 Average fuel cost per gallon $ 1.87 $ 2.13 (12.2 ) Rental car days sold 481,046 471,598 2.0 Hotel room nights sold 92,004 105,015 (12.4 ) Percent of sales through website during period 93.6 % 93.6 % - (1) Except load factor and percent of sales through website during period, which are presented as a percentage point change. (2) Various components of this measure do not have a direct correlation to ASMs. This measure is provided on a per ASM basis so as to facilitate comparison with airlines reporting revenues on a per ASM basis. (3) Reflects division of passenger revenue between scheduled service and air-related charges in the Company's booking path. 21
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LIQUIDITY AND CAPITAL RESOURCES
Current liquidity
Cash, cash equivalents and investment securities (short-term and long-term)
decreased to
Restricted cash represents escrowed funds under fixed fee contracts and cash collateral against letters of credit required by hotel properties for guaranteed room availability, airports and certain other parties. Under our fixed fee flying contracts, we require our customers to prepay for flights to be provided by us. The prepayments are escrowed until the flight is completed and are recorded as restricted cash with a corresponding amount reflected as air traffic liability.
We have been approved to receive
We have also submitted an application to the Loan Program under the CARES Act in
the principal amount of approximately
Due to changes in the loss carryback period under the CARES Act, we expect to
receive a federal income tax refund of
In
We have made extensive efforts to preserve liquidity, and have reduced average
daily cash burn by approximately 66 percent in
We have suspended share repurchases and our quarterly cash dividend, as part of
cash preservation efforts in response to the effects of COVID-19 on our
business. In connection with our receipt of financial support under the payroll
support program, we agreed not to repurchase shares or pay cash dividends
through
We believe we have more than adequate liquidity resources through our operating cash flows, borrowings, debt commitments, government funding, and cash balances, to meet our future contractual obligations. We will continue to consider raising funds through debt financing on an opportunistic basis.
Debt
Our long-term debt and finance lease obligations balance, without reduction for
related issuance costs, increased from
Sources and Uses of Cash
Operating Activities. Operating cash inflows are primarily derived from
providing air transportation and related ancillary products and services to
customers. During the three months ended
Investing Activities. Cash used in investing activities was
Financing Activities. Cash provided by financing activities for the three months
ended
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repurchases, which were
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
We have made forward-looking statements in this quarterly report on Form 10-Q,
and in the section entitled "Management's Discussion and Analysis of Financial
Condition and Results of Operations," that are based on our management's beliefs
and assumptions, and on information currently available to our management.
Forward-looking statements include our statements regarding future airline
operations and capacity, the efficacy of cost saving measures, future
expenditures, our ability to access additional funds from the
Forward-looking statements involve risks, uncertainties and assumptions. Actual
results may differ materially from those expressed in the forward-looking
statements. Important risk factors that could cause our results to differ
materially from those expressed in the forward-looking statements may be found
in our periodic reports filed with the
Any forward-looking statements are based on information available to us today and we undertake no obligation to publicly update any forward-looking statements, whether as a result of future events, new information or otherwise.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
There have been no material changes to our critical accounting estimates during
the three months ended
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