The following discussion and analysis presents factors that had a material effect on our results of operations during the three and six months ended June 30, 2020 and 2019. Also discussed is our financial position as of June 30, 2020 and December 31, 2019. You should read this discussion in conjunction with our unaudited consolidated financial statements, including the notes thereto, appearing elsewhere in this Form 10-Q and our consolidated financial statements appearing in our annual report on Form 10-K for the year ended December 31, 2019. This discussion and analysis contains forward-looking statements. Please refer to the section below entitled "Cautionary Note Regarding Forward-Looking Statements" for a discussion of the uncertainties, risks and assumptions associated with these statements.

NETWORK

As of June 30, 2020, we were selling 519 routes versus 459 as of the same date last year, which represents a 13.1 percent increase. Our total number of origination cities and leisure destinations (for operating routes) were 97 and 28, respectively, as of June 30, 2020.

Given the fluidity of the current environment amid the effects of COVID-19, we made significant capacity reductions for the third 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 would dictate. We are maintaining a broad network and selling presence. We consistently monitor flights to assess for cash profitability. Additionally, we will provide any essential air service as directed by the U.S. Department of Transportation, in connection with our Payroll Support agreement under the CARES Act.

TRENDS



The COVID-19 pandemic and shelter-in-place directives have greatly impacted our
operating results for the first half of 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
affected. Although there were incremental demand increases during portions of
the second quarter 2020, an increase in reported COVID-19 cases in various parts
of the country towards the end of the quarter caused another decline in
bookings. We believe that demand in the forseeable future will continue to
fluctuate in response to fluctuations in COVID-19 cases, hospitalizations,
deaths, treatment efficacy and the availability of a vaccine.
The impacts of the pandemic have resulted in a reduction in our flight schedule.
It is likely that reduced schedules will continue into the future. We are
closely monitoring bookings and making decisions on schedule changes as
necessary based on demand.
Though we cannot control the current demand environment, 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. We have reduced management and
support teams by 220 positions. We have suspended payment of cash dividends and
stock buybacks. We have suspended construction of the Sunseeker Resort in
Southwest Florida as well as spend on our other non-airline subsidiaries. We
have reduced airline capital expenditures for this year and into the future. We
have eliminated other nonessential expenditures and are renegotiating our
arrangements with outside vendors, all in an effort to conserve cash until
revenues recover.
These efforts have enabled us to reduce average cash burn to under $1.0 million
per day during the second quarter. We will continue to focus on conserving cash,
along with managing capacity to meet demand, a core strength of our business
model.
RESPONSES TO THE COVID-19 PANDEMIC


                                       20

--------------------------------------------------------------------------------

Beginning in March and continuing throughout the second quarter 2020, we have taken many actions to mitigate the effects of COVID-19 on its business, as outlined below:

Network and Customer Experience

• Reduced second quarter capacity by 50.1 percent




•      Continually evaluating forward schedules to adjust capacity according to
       demand trends

• Waived change and cancellation fees for all customers

• Extended expiry on credit vouchers to two years




•      Offered opt-in option in the booking path for customers to receive
       notification that their flight has reached 65.0 percent capacity with
       option to re-book on another flight with no fee or receive a refund

Cash Outlay Reduction

• Suspended all stock buybacks and dividends




•      Executives temporarily reduced salaries by 50 percent and Board members
       are foregoing cash compensation

• Enacted a hiring freeze and offered voluntary leaves




•      Reduced management and support teams by 220 positions (employees will be
       paid through September 30, 2020, in compliance with the CARES Act)


•      Suspended nearly all contractor positions, subscriptions, non-essential
       training and travel


•      Suspended all non-essential capital expenditures including, but not
       limited to, Sunseeker Resorts, Teesnap and Allegiant Nonstop family
       entertainment centers

Liquidity Response

• Implemented immediate and meaningful cash burn reductions

• Closed financing of $31.0 million in April 2020, secured by two aircraft




•      Received proceeds of $48.0 million in June through a sale-leaseback
       transaction on four aircraft


•      As of July 31, 2020, we had 24 unencumbered aircraft and 10 unencumbered
       spare engines


•      In April 2020, signed payroll support program agreement ("PSPA") with the
       Treasury to total $171.9 million comprised of direct grants, a $21.6
       million low-interest 10-year loan, and warrants to purchase 25,889 shares
       of the Company's common stock


-         Received $154.7 million under the PSPA during the second quarter 2020 -
          includes direct grants, a $16.4 million loan, and warrants to purchase
          19,700 shares of the Company's common stock


-         The remaining $17.2 million of funds were received in July 2020 -
          includes direct grants, a $5.2 million addition to the loan, and
          warrants to purchase 6,189 shares of the Company's common stock


•      Received $45.6 million of tax refunds in May 2020 related to 2018 and 2019
       net operating loss carrybacks due to the change in loss carryback period
       under the CARES Act

- Additional $48.7 million of tax refunds received during July




-         Expect a sizable federal income tax refund related to 2020 net
          operating losses


•      Eligible to access up to $276.0 million through a loan under the Loan
       Program of the CARES Act by the end of September 2020


•      Deferring payment of the employer portion of Social Security taxes, as
       permitted under the CARES Act, to provide additional liquidity - $4.3
       million in Social Security taxes deferred as of June 30, 2020 (half to be
       paid by December 31, 2021 and the other half to be paid by December 31,
       2022)



Health and Safety

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 on our flights:



•      Maintain a comprehensive cleaning program for all aircraft that includes a
       regular schedule of standard and deep-clean procedures that exceed both
       CDC and Airbus guidance


•      Aircraft receive regular treatment with an advanced antimicrobial
       protectant that kills viruses, germs and bacteria on contact for 14 days


•      Utilize VOC (volatile organic compound) filters on board every aircraft,
       which remove additional organic compounds and ensure that cabin air is
       changed, on average, every three minutes, exceeding HEPA standards


•      Effective July 2, 2020, require customers to wear face coverings through
       all phases of travel, including at the ticket counter, in the gate area
       and during flight


•      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 required to wear face masks on board and during any
       interaction with customers


•      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



                                       21

--------------------------------------------------------------------------------



•      Treat hard surfaces in all office areas, including airport station
       offices, maintenance facilities, headquarters/administrative offices, with
       antimicrobial disinfectant/protectant, and utilize wall-mounted and
       handheld thermometers for employee and crew member temperature checks


•      Partner with Quest Diagnostics to provide at home COVID-19 test kits to
       employees in the event local testing is not immediately available




RESULTS OF OPERATIONS

Comparison of three months ended June 30, 2020 to three months ended June 30, 2019

Operating Revenue

Passenger revenue. For the second quarter 2020, passenger revenue decreased 74.4 percent compared to second quarter 2019. The decrease was driven primarily by a 50.3 percent decrease in scheduled service departures which resulted in a 69.4 percent decrease in scheduled service passengers. These declines are largely due to a dramatic decline in passenger demand and government travel restrictions and quarantine requirements during the second quarter 2020, related to COVID-19. Average passenger fare (includes scheduled service and air ancillary) decreased 16.4 percent overall year over year, driven mainly by a 30.7 percent decrease in scheduled service average fare as fares were reduced in an effort to stimulate demand.

Third party products revenue. Third party products revenue for the second quarter 2020 decreased 53.6 percent, compared to the same period in 2019. This is primarily due to decreased net revenue from both rental cars and hotels, as a result of substantially fewer passengers. This decline was partially offset by an overall increase in third-party revenue from our co-branded credit card program during the second quarter of 2020 compared to 2019.

Fixed fee contract revenue. Fixed fee contract revenue for the second quarter 2020 decreased 74.1 percent when compared to 2019, primarily due to a 53.0 percent decrease in related departures. The decrease in departures is mostly due to a significant drop in fixed fee flying for Apple Vacations in the second quarter 2020 and fewer ad hoc charter opportunities, all due to COVID-19.

Other revenue. Other revenue decreased 18.1 percent for the second quarter 2020 from 2019. The decrease was due to decreased activity in the non-airline segments, especially for Kingsway Golf Course and our family entertainment centers. As a result of the COVID-19 pandemic, we have temporarily closed our family entertainment center in Warren, Michigan and permanently discontinued all activity for our locations in Utah. We also temporarily closed Kingsway Golf Course, initially for renovation but now the renovation has been delayed as a result of our cash conservation efforts.

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.


                                          Three Months Ended June 30,      Percent
Airline only unitized costs (in cents)       2020               2019        Change
Salary and benefits                             4.16               2.46     69.1  %
Station operations                              1.23               1.03     19.4
Depreciation and amortization                   1.95               0.83    134.9
Maintenance and repairs                         0.59               0.47     25.5
Sales and marketing                             0.40               0.45    (11.1 )
Aircraft lease rentals                          0.06                  -       NM
Other                                           0.87               0.41    112.2
CARES Act grant recognition                    (3.36 )                -       NM
Operating Special charges                       3.42                  -       NM
Airline CASM, excluding fuel(1)                 9.32               5.65     65.0
Aircraft fuel                                   1.23               2.70    (54.4 )
Airline CASM                                   10.55               8.35     26.3


NM - Not meaningful

                                       22

--------------------------------------------------------------------------------

(1) Although we believe we have a relatively large proportion of variable expenses, our Airline CASM-ex fuel increased precipitously during the quarter as our fixed costs were spread over a significantly reduced number of ASMs due to schedule reductions resulting from COVID-19.

Salary and benefits expense. Salary and benefits expense decreased $18.8 million, or 16.6 percent, for the second quarter 2020 when compared to the same period in 2019. Although the average number of full-time equivalent employees increased 4.1 percent year over year, overall expense decreased due to temporary voluntary leave programs offered to employees, voluntary pay reductions, and suspension of the bonus accrual during the second quarter 2020.

Aircraft fuel expense. Aircraft fuel expense decreased $92.6 million, or 77.2 percent, for the second quarter 2020 compared to second quarter 2019, partly due to a decrease in system average fuel cost per gallon of 50.0 percent year over year as fuel prices declined due to lower worldwide demand caused by the pandemic. System fuel gallons consumed decreased by 54.4 percent on a 50.1 percent decrease in ASMs as we reduced capacity in light of the pandemic. Fuel efficiency (measured as ASMs per gallon) increased 9.4 percent year over year due to fuel saving initiatives, as well as less weight on many of our flights, due to a 32.7 percentage point year-over-year decrease in load factor.

Station operations expense. Station operations expense for the second quarter 2020 decreased $18.5 million, or 40.3 percent, on a 50.3 percent decrease in scheduled service departures as we reduced the number of flights offered due to reduced demand.

Maintenance and repairs expense. Maintenance and repairs expense for the second quarter 2020 decreased $7.8 million, or 37.6 percent, compared to the same period in 2019, mostly due to a decrease in routine maintenance costs as we flew fewer ASMs and departures during the quarter.

Depreciation and amortization expense. Depreciation and amortization expense for the second quarter 2020 increased $4.8 million, or 12.5 percent, year over year, as the average number of aircraft in service increased 6.7 percent year over year.

Accounting for most of this increase, amortization of major maintenance costs was $9.4 million for the second quarter 2020 compared to $6.1 million for the second quarter 2019, due to an increase in the number of aircraft and related deferred maintenance costs associated with them. We expect these costs will continue to increase as our fleet ages.

Sales and marketing expense. Sales and marketing expense for the second quarter 2020 decreased by 56.6 percent compared to the same period in 2019. Advertising spend was intentionally pulled back in the second quarter 2020 due to the pandemic. Also, there was a decrease in net credit card fees as a result of a 74.4 percent decrease in passenger revenue year over year.

Other expense. Other expense remained relatively flat year over year, with a $0.5 million decrease for the second quarter 2020 compared to second quarter 2019.

CARES Act grant recognition. In April 2020, we entered into an agreement with the Treasury to receive $171.9 million in emergency relief through the CARES Act payroll support program to be paid in installments through July 2020. Approximately $150.0 million of these funds are being recognized as a credit to operating expense on the statement of income, over the periods for which the funds are intended to compensate. We recognized a $74.6 million credit to operating expense on the statement of income during the second quarter of 2020 and expect to recognize the remainder of the grant proceeds from the CARES Act payroll support program as a credit to operating expense in the third quarter 2020.

Operating Special charges. Special charges of $81.2 million were recorded within operating expenses for the second quarter 2020. We did not have any special charges for the same period in 2019. Of these special charges, $5.0 million relates to a non-cash impairment charge for an investment in a third party. The remaining $76.2 million relates to expenses that were unique and specific to COVID-19. This includes accelerated depreciation on seven airframes and five engines resulting from an accelerated retirement plan, a loss on the sale-leaseback transaction which we would not likely have transacted absent cash conservation efforts as a result of COVID, salary and benefits expense, and other various expenses.




                                       23

--------------------------------------------------------------------------------

Non-operating Special charges

Special charges of $19.8 million were recorded within non-operating expenses for the second quarter 2020. We did not have any special charges for the same period in 2019. The special charges relate to an accrual on the expectation to terminate the loan agreement with Sixth Street Partners (formerly TSSP) intended to finance the development of Sunseeker Resorts Charlotte Harbor. This is expected to be paid in the second half of 2020.

Income Tax Expense

We recorded a $53.3 million tax benefit (36.4 percent effective tax rate) compared to a $21.2 million tax provision (23.1 percent effective tax rate) for the three months ended June 30, 2020 and 2019, respectively. The effective tax rate for the three months ended June 30, 2020 differed from the statutory federal income tax rate of 21.0 percent primarily due to the tax accounting impact of the CARES Act which allows the Company to carryback the 2020 net operating loss at the 35.0 percent rate applicable in earlier years.

Sunseeker and Other 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 Other non-Airline Segment (our Teesnap golf management business and Allegiant Nonstop family entertainment centers), and operating expenses attributable to Sunseeker Resort and Kingsway Golf Course (most of the Sunseeker Resort expenses were capitalized during the construction period). As of June 30, 2020 nearly all non-airline spend has been suspended indefinitely.




                                       24

--------------------------------------------------------------------------------

Comparison of six months ended June 30, 2020 to six months ended June 30, 2019

Operating Revenue

Passenger revenue. For the six months ended June 30, 2020, passenger revenue decreased 43.4 percent compared with the same period in 2019. The decrease was mostly attributable to a 25.5 percent decrease in scheduled service departures, which along with the pandemic, drove a 41.5 percent decrease in scheduled service passengers. Decreases in scheduled service departures are due to the decrease in travel demand from March throughout the second quarter 2020 related to the effects of COVID-19. Average fare per passenger decreased slightly, by 3.2 percent, during the six month period as a 4.7 percent increase in average air-related ancillary revenue per passenger tempered a 9.8 percent decrease in scheduled service average fare. Increases in our customer baggage fees and convenience fee contributed to the increase in air-related ancillary revenue to $54.80 per passenger. Third party products revenue. Third party products revenue for the six months ended June 30, 2020 decreased 30.9 percent over the same period in 2019. This is primarily due to decreased net revenue from both rental cars and hotels, as a result of substantially fewer passengers. This decline was partially offset by an overall increase in our third-party revenue from co-branded credit card program during the six months ended June 30, 2020 compared to the same period in 2019.

Fixed fee contract revenue. Fixed fee contract revenue for the six months ended June 30, 2020 decreased 47.3 percent compared with the same period in 2019, primarily due to a 34.6 percent decrease in related departures. The decrease in departures is mainly due to a reduction of flying with Apple Vacations, and the cancellation of the NCAA March Madness basketball tournament during 2020 due to COVID-19.

Other revenue. Other revenue increased by 3.0 percent for the six months ended June 30, 2020 compared to the same period in 2019. The increase is primarily driven by increases in subsidiary revenue during the first quarter 2020, especially in our family entertainment centers due to an additional store operating during the first quarter 2020 compared to 2019. As a result of the COVID-19 pandemic, in late March 2020 we temporarily closed our family entertainment center in Warren, Michigan and permanently discontinued all activity for our locations in Utah.

Operating Expenses

The following table presents airline-only unit costs on a per ASM basis, defined as Operating CASM, for the indicated periods:


                                          Six Months Ended June 30,       Percent
Airline only unitized costs (in cents)       2020              2019        Change
Salary and benefits                            3.19               2.69     18.6  %
Station operations                             1.09               1.02      6.9
Depreciation and amortization                  1.36               0.86     58.1
Maintenance and repairs                        0.55               0.52      5.8
Sales and marketing                            0.43               0.49    (12.2 )
Aircraft lease rentals                         0.04                  -       NM
Other                                          0.67               0.42     59.5
CARES Act grant recognition                   (1.19 )                -       NM
Operating Special charges                      1.36                  -       NM
Airline CASM, excluding fuel(1)                7.50               6.00     25.0
Aircraft fuel                                  1.84               2.63    (30.0 )
Airline CASM                                   9.34               8.63      8.2

NM - Not meaningful (1) Although we believe we have a relatively large proportion of variable expenses, our Airline CASM-ex fuel increased significantly during the six months ended June 30, 2020 as our fixed costs were spread over a reduced number of ASMs due to schedule reductions from mid-March resulting from COVID-19.

Salary and benefits expense. Salary and benefits expense decreased $25.6 million, or 11.0 percent, for the six months ended June 30, 2020 compared to the same period in 2019. Although the average number of full-time equivalent employees increased by 4.1 percent year over year, overall expense decreased partly due to the fact that a large portion of the $9.5 million special charges specific to COVID-19 during the first quarter of 2020 consisted of salary and benefits expense. Additionally, temporary voluntary leave programs offered to employees and voluntary pay reductions during the second quarter 2020, and suspension of the bonus accrual during the six months ended June 30, 2020 resulted in decreased expense.




                                       25

--------------------------------------------------------------------------------

Aircraft fuel expense. Aircraft fuel expense decreased $103.5 million, or 47.1 percent, for the six months ended June 30, 2020 compared to the same period in 2019 partly due to a decrease in system average fuel cost per gallon of 26.1 percent year over year as fuel prices declined due to lower worldwide demand caused by the pandemic. Additionally, system fuel gallons consumed decreased 28.2 percent on a 24.8 percent decrease in ASMs as we reduced capacity in light of the pandemic. Fuel efficiency (measured as ASMs per gallon) increased 4.9 percent year over year due to fuel saving initiatives as well as less weight on many of our flights, due to an 18.0 percentage point year-over-year decrease in load factor. Station operations expense. Station operations expense for the six months ended June 30, 2020 decreased 19.4 percent on a 25.5 percent decrease in scheduled service departures compared to the same period in 2019 as we reduced the number of flights offered due to reduced demand.

Maintenance and repairs expense. Maintenance and repairs expense for the six months ended June 30, 2020 decreased 20.3 percent compared to the same period in 2019 mostly due to a decrease in both major and routine maintenance costs as we flew fewer ASMs and departures during the period.

Depreciation and amortization expense. Depreciation and amortization expense for the six months ended June 30, 2020 increased $12.3 million, or 16.5 percent, compared to the same period in 2019. The average number of aircraft in service increased 11.9 percent year over year.

Amortization of major maintenance costs was $18.7 million for the six months ended June 30, 2020 compared to $10.9 million for the same period in 2019. We expect these costs will continue to increase as our fleet ages.

Sales and marketing expense. Sales and marketing expense for the six months ended June 30, 2020 decreased $14.1 million compared to the same period in 2019, as advertising spend was intentionally pulled back in the last half of March and throughout the second quarter 2020 due to the pandemic. Also, there was a decrease in net credit card fees as a result of a 43.4 percent decrease in passenger revenue year over year.

Other expense. Other expense increased $3.6 million year over year caused by an increase in non-airline related expenses and other various expenses.

CARES Act grant recognition. In April 2020, we entered into an agreement with the Treasury to receive $171.9 million in emergency relief through the CARES Act payroll support program to be paid in installments through July 2020. Approximately $150.0 million of these funds are being recognized as a credit to operating expense on the statement of income, over the periods for which the funds are intended to compensate. We recognized a $74.6 million credit to operating expense on the statement of income during the six months ended June 30, 2020 and expect to recognize the remainder of the grant proceeds from the CARES Act payroll support program as a credit to operating expense in the third quarter 2020.

Operating Special charges. Special charges of $247.3 million were recorded within operating expenses for the six months ended June 30, 2020. We did not have any special charges for the same period in 2019. Of these special charges, $161.6 million relate to non-cash impairment charges. The remaining $85.7 million relates to expenses that were unique and specific to COVID-19. This includes accelerated depreciation on seven airframes and five engines resulting from an accelerated retirement plan, a loss on the sale-leaseback transaction we would not likely have transacted absent cash conservation efforts as a result of COVID, salary and benefits expense, and other various expenses.

Non-operating Special charges

Special charges of $26.6 million were recorded within non-operating expenses for the six months ended June 30, 2020. We did not have any special charges for the same period in 2019. Of these special charges, $19.8 million relates to an accrual on the expectation to terminate the loan agreement with Sixth Street Partners (formerly TSSP) intended to finance the development of Sunseeker Resorts Charlotte Harbor. This is expected to be paid in the second half of 2020. The remaining $6.8 million relates to impairment charges for Sunseeker Resort during the first quarter 2020. Note that these charges were reclassified from operating special expense to non-operating special expense for the six months ended June 30, 2020



Income Tax Expense

                                       26

--------------------------------------------------------------------------------

We recorded a $151.0 million tax benefit (54.5 percent effective tax rate) compared to a $38.0 million tax provision (23.0 percent effective tax rate) for the six months ended June 30, 2020 and 2019, respectively. The 54.5 percent effective tax rate for the six months ended June 30, 2020 differed from the statutory federal income tax rate of 21.0 percent primarily due to the tax accounting impact of the CARES Act which includes a $39.6 million discrete federal income tax benefit related to the full utilization of 2018 and 2019 net operating losses as well as the ability to carryback the 2020 net operating loss at a 35.0 percent rate applicable in earlier years. The effective tax rate was also impacted by the remeasurement of deferred taxes and state taxes.

Sunseeker and Other 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 Other non-Airline Segment (our Teesnap golf management business and Allegiant Nonstop family entertainment centers), and operating expenses attributable to Sunseeker Resort and Kingsway Golf Course (most of the Sunseeker Resort expenses were capitalized during the construction period).




                                       27

--------------------------------------------------------------------------------

Comparative Consolidated Operating Statistics

The following tables set forth our operating statistics for the periods indicated:


                                                Three Months Ended June 30,         Percent
                                                  2020                2019         Change(1)
Operating statistics (unaudited):
Total system statistics:
Passengers                                        1,273,258          4,169,536        (69.5 )
Available seat miles (ASMs) (thousands)           2,220,755          4,447,066        (50.1 )
Airline operating expense per ASM (CASM)
(cents)                                               10.55               8.35         26.3
Fuel expense per ASM (cents)                           1.23               2.70        (54.4 )
Airline operating CASM, excluding fuel
(cents)                                                9.32               5.65         65.0
ASMs per gallon of fuel                                90.0               82.3          9.4
Departures                                           15,089             30,547        (50.6 )
Block hours                                          32,989             68,332        (51.7 )
Average stage length (miles)                            850                853         (0.4 )
Average number of operating aircraft during
period                                                 90.7               85.0          6.7
Average block hours per aircraft per day                3.8                8.8        (56.8 )
Full-time equivalent employees at end of
period                                                4,349              4,179          4.1
Fuel gallons consumed (thousands)                    24,664             54,064        (54.4 )
Average fuel cost per gallon                $          1.11     $         2.22        (50.0 )


Scheduled service statistics:
Passengers                                       1,266,077          4,131,855        (69.4 )

Revenue passenger miles (RPMs) (thousands) 1,107,534 3,603,076 (69.3 ) Available seat miles (ASMs) (thousands) 2,174,683 4,311,182 (49.6 ) Load factor

                                           50.9 %             83.6 %      (32.7 )
Departures                                          14,683             29,567        (50.3 )
Block hours                                         32,248             66,135        (51.2 )
Total passenger revenue per ASM (TRASM)
(cents)(2)                                            5.75              10.97        (47.6 )

Average fare - scheduled service(3) $ 40.46 $ 58.39 (30.7 ) Average fare - air-related charges(3) $ 51.57 $ 51.68 (0.2 ) Average fare - third party products $ 6.67 $ 4.40 51.6 Average fare - total

$        98.70     $       114.47        (13.8 )
Average stage length (miles)                           855                853          0.2
Fuel gallons consumed (thousands)                   24,124             52,327        (53.9 )
Average fuel cost per gallon                $         1.08     $         2.22        (51.4 )
Rental car days sold                               135,536            540,960        (74.9 )
Hotel room nights sold                              12,772            114,191        (88.8 )
Percent of sales through website during
period                                                93.8 %             93.5 %        0.3


(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 our booking path.


                                       28

--------------------------------------------------------------------------------



                                                       Six Months Ended June 30,         Percent
                                                         2020              2019         Change(1)
Operating statistics (unaudited):
Total system statistics:
Passengers                                              4,448,708         7,619,814        (41.6 )
Available seat miles (ASMs) (thousands)                 6,288,427         8,357,304        (24.8 )
Airline operating expense per ASM (CASM) (cents)             9.35              8.63          8.3
Fuel expense per ASM (cents)                                 1.85              2.63        (29.7 )
Airline operating CASM, excluding fuel (cents)               7.50              6.00         25.0
ASMs per gallon of fuel                                      87.2              83.1          4.9
Departures                                                 41,401            55,747        (25.7 )
Block hours                                                95,112           128,151        (25.8 )
Average stage length (miles)                                  879               876          0.3
Average number of operating aircraft during period           92.1              82.3         11.9
Average block hours per aircraft per day                      5.5               8.6        (36.0 )
Full-time equivalent employees at end of period             4,349             4,179          4.1
Fuel gallons consumed (thousands)                          72,143           100,537        (28.2 )
Average fuel cost per gallon                       $         1.61     $        2.18        (26.1 )


Scheduled service statistics:
Passengers                                             4,420,683         7,553,393        (41.5 )
Revenue passenger miles (RPMs) (thousands)             4,033,017         6,794,122        (40.6 )
Available seat miles (ASMs) (thousands)                6,138,692         8,113,315        (24.3 )
Load factor                                                 65.7 %            83.7 %      (18.0 )
Departures                                                40,167            53,911        (25.5 )
Block hours                                               92,594           124,098        (25.4 )
Total passenger revenue per ASM (TRASM) (cents)(2)          8.47             11.22        (24.5 )
Average fare - scheduled service(3)                $       57.27     $       63.49         (9.8 )
Average fare - air-related charges(3)              $       54.80     $       52.32          4.7
Average fare - third party products                $        5.52     $        4.68         17.9
Average fare - total                               $      117.59     $      120.49         (2.4 )
Average stage length (miles)                                 883               878          0.6
Fuel gallons consumed (thousands)                         70,229            97,395        (27.9 )
Average fuel cost per gallon                       $        1.60     $        2.18        (26.6 )
Rental car days sold                                     616,582         1,012,558        (39.1 )
Hotel room nights sold                                   104,776           219,206        (52.2 )
Percent of sales through website during period              93.7 %            93.5 %        0.2


(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 our booking path.


                                       29

--------------------------------------------------------------------------------

LIQUIDITY AND CAPITAL RESOURCES

Current liquidity

Cash, cash equivalents and investment securities (short-term and long-term) increased to $663.1 million at June 30, 2020, from $473.4 million at December 31, 2019. Investment securities represent highly liquid marketable securities which are available-for-sale.

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 were approved to receive $171.9 million in assistance through the payroll support program under the CARES Act. The funds are paid in installments, and we received multiple installments totaling $154.7 million during the second quarter 2020. The remaining funds of $17.2 million were received in July 2020.

We have also submitted an application to the Loan Program under the CARES Act in the principal amount of up to $276.0 million and expect these funds to be available through September 30, 2020 subject to reaching mutually agreeable terms with the Treasury. However, no assurance can be given that any such agreement will ever be reached. If an agreement is reached, we will be required to comply with the relevant provisions of the CARES Act, which could adversely impact our business and operations. Under the CARES Act, these restrictions will apply until one year after the loan is repaid.

Due to changes in the net operating loss carryback period under the CARES Act, we received a federal income tax refund of $45.6 million in May 2020 and an additional refund of $48.7 million in July 2020, both of which related to 2018 and 2019 net operating loss carrybacks. In the first half of 2021, we expect to receive a sizeable federal income tax refund related to a 2020 net operating loss carryback. A federal excise tax refund of up to $21.0 million related to net refunds issued during 2020 is also expected to be received during the second half of 2020.

In April 2020, we received additional proceeds of $31.0 million from a financing secured by two aircraft. As of July 31, 2020, we had 24 unencumbered aircraft and ten unencumbered spare engines.

In June 2020, we received $48.0 million of proceeds through a sale-leaseback transaction on four aircraft.

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 September 30, 2021. We have also suspended all non-airline capital expenditures and have reduced airline capital expenditures.

We believe we have more than adequate liquidity resources through our operating cash flows, borrowings, debt commitments, government funding, expected tax refunds, 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 $1.4 billion as of December 31, 2019 to $1.5 billion as of June 30, 2020. During the first half of 2020, we borrowed a net amount of $147.4 million, including an additional $100.0 million borrowed under our Term Loan, additional debt secured by aircraft of $31.0 million, and $16.4 million of debt related to the PSP Note under the CARES Act Payroll Support Program Loan.

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 six months ended June 30, 2020, our operating activities provided $276.7 million of cash compared to $277.5 million during the same period of 2019. Although net income for the six months ended June 30, 2020 decreased by $253.8 million compared to 2019, the cash effect of this fluctuation is more than offset by the non-cash nature of $263.5 million in special charges during the first half of 2020.

Investing Activities. Cash used in investing activities was $158.6 million during the six months ended June 30, 2020 compared to $96.8 million for the same period in 2019. The increase in cash used is due to a $165.7 million increase in purchases of investment securities (net of maturities). This was partially offset by a $63.8 million year-over-year decrease in cash outlays for the purchase of property and equipment, as well as $48.0 million in proceeds received from the sale-leaseback transaction.

Financing Activities. Cash provided by financing activities for the six months ended June 30, 2020 was $32.8 million, compared to $191.6 million for the same period in 2019. The year-over-year decrease is mostly due to the net effect of debt



                                       30

--------------------------------------------------------------------------------

activity, as debt proceeds net of principal payments and debt issuance cost payments were $74.7 million during the six months ended June 30, 2020, compared to $217.1 million during the same period in 2019. Additionally, there was an increase in share repurchases, which were $33.8 million in the first half of 2020 (before the share repurchase program was suspended) compared to none during the same period in 2019.

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 Treasury, aircraft financings, the timing of aircraft acquisitions and retirements, expected capital expenditures, as well as other information concerning future results of operations, business strategies, financing plans and industry environment. Forward-looking statements include all statements that are not historical facts and can be identified by the use of forward-looking terminology such as the words "believe," "expect," "anticipate," "intend," "plan," "estimate," "project" or similar expressions.

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 Securities and Exchange Commission at www.sec.gov. These risk factors include, without limitation, the impact and duration of the COVID-19 pandemic on airline travel and the economy, restrictions relating to accepting government support under the CARES Act, an accident involving, or problems with, our aircraft, public perception of our safety, our reliance on our automated systems, our reliance on third parties to deliver aircraft under contract to us on a timely basis, risk of breach of security of personal data, volatility of fuel costs, labor issues and costs, restrictions imposed by accepting funds under the CARES Act, the ability to obtain regulatory approvals as needed , the effect of economic conditions on leisure travel, debt covenants and balances, the ability to finance aircraft under contract, terrorist attacks, risks inherent to airlines, our competitive environment, our reliance on third parties who provide facilities or services to us, the possible loss of key personnel, economic and other conditions in markets in which we operate, the ability to successfully develop and finance a resort in Southwest Florida, governmental regulation, increases in maintenance costs and cyclical and seasonal fluctuations in our operating results.

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 six months ended June 30, 2020. For information regarding our critical accounting policies and estimates, see disclosures in the Consolidated Financial Statements and accompanying notes contained in our 2019 Form 10-K, and in Note 1 in Part I, Item 1 of this Form 10-Q.

© Edgar Online, source Glimpses