ALLEGIANT TRAVEL COMPANY The following discussion and analysis presents factors that had a material effect on our results of operations during the three and nine months endedSeptember 30, 2022 and 2021. Also discussed is our financial position as ofSeptember 30, 2022 andDecember 31, 2021 . 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 endedDecember 31, 2021 . 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.
Third Quarter 2022 Review
Highlights:
-Total operating revenue was$560.3 million , up 28.4 percent year over three-year -Total average fare of$125.95 up 15.5% from the third quarter 2019. -Total average fare - air-related charges of$58.40 , up 16.7 percent from 2019, driven predominantly by strength in bundled ancillary -Total average fare - third party products of$6.29 , up 29.7 percent year over three-year driven by Allways Allegiant World Mastercard strength -Load factor of 88.5 percent, a 2.5 percentage point increase from the third quarter of 2019 -Acquired 38 thousand new Allways Allegiant World Mastercard holders during the quarter, the strongest third quarter acquisition since the program's inception -Allegiant World Mastercard® and Allegiant Allways Rewards® were voted as the No. 1 Best Airline Credit Card and Best Frequent Flyer Program inUSA Today's 10 Best 2022 Loyalty/Rewards Readers' Choice Awards -In October, named to Newsweek's Top 100 Most Loved Workplaces® list for the second consecutive year -Donated$100,000 to theAmerican Red Cross for critical disaster relief to communities in the aftermath of Hurricane Ian
AIRCRAFT
The following table sets forth the aircraft in service and operated by us as of
the dates indicated:
September 30, 2022 December 31, 2021
A319 35 35
A320(1) 81 73
Total 116 108
(1)Does not include ten aircraft of which we have taken delivery as of
As ofSeptember 30, 2022 , we are party to forward purchase agreements for 52 aircraft with five aircraft scheduled for delivery in 2023 and the remainder under contract thereafter. Additionally, we are party to a finance lease for one aircraft which has now been delivered inOctober 2022 .
NETWORK
As ofSeptember 30, 2022 , we were selling 583 routes versus 598 as of the same date in 2021 and 466 as ofSeptember 30, 2019 , which represents a 2.5 percent decrease and 25.1 percent increase, respectively. Our total active number of origination cities and leisure destinations were 94 and 32, respectively, as ofSeptember 30, 2022 .
Our unique model is predicated around expanding and contracting capacity to meet seasonal travel demands.
TRENDS COVID-19 The COVID-19 pandemic significantly impacted our operating results in 2020 and 2021 and we suffered numerous cancellations due to the effect of the Omicron variant on flight crews into first quarter 2022. COVID-19 may continue to impact our operations into the future. We believe that demand in the foreseeable future could fluctuate in response to fluctuations in COVID-19 cases, variants of the virus, hospitalizations, deaths, treatment efficacy, the availability of vaccines, CDC recommendations, and government restrictions.
Strong Demand Momentum
20
--------------------------------------------------------------------------------As concerns over COVID-19 have declined, we have seen significant increases in load factors and average total fare per passenger beginning in March and continuing through the year to date.
Aircraft Fuel
The cost of fuel is volatile, as it is subject to many economic and geopolitical factors we can neither control nor predict. Significant increases in fuel costs could materially affect our operating results and profitability. We have not sought to use financial derivative products to hedge our exposure to fuel price volatility, nor do we have any plans to do so in the future. The cost per gallon of fuel began to increase significantly in 2021 and the increases were exacerbated by the geopolitical impact of the war inUkraine . As a result, the average fuel cost per gallon increased by 75.0 percent in third quarter 2022 over third quarter 2021 and 78.2 percent over third quarter 2019. We expect high fuel costs will continue to impact our total costs and operating results. Boeing Agreement InDecember 2021 , we signed an agreement with The Boeing Company to purchase 50 newly manufactured 737MAX aircraft scheduled to be delivered in 2023 to 2025 with options to purchase an additional 50 737's. We believe this new aircraft purchase is complimentary with our low cost strategy based on our intent to retain ownership of the aircraft, the longer useful life for depreciation purposes, expected fuel savings and operational reliability from the use of these new aircraft.
Operations
Staffing challenges continue to impact our operations and costs and we have pulled back some of our planned growth for fourth quarter 2022 and into 2023 as a result. We believe these issues are not unique to Allegiant nor do we believe they are systemic. Our irregular operations costs are also impacted by our policy to compensate passengers for their inconvenience in addition to the ticket price, not generally done in the airline industry. We are investing incrementally in our employee hiring and retention and our operations in an attempt to improve performance and this may put pressure on unit costs in the near term. However, if these problems persist, we may suffer reputational damage and incur higher costs for irregular operations.
Union Negotiations
The collective bargaining agreement with our pilots is currently amendable and the parties have begun to discuss the terms of a new labor agreement for this work group. We are also in the process of negotiating a new contract with the union representing our flight attendants. The terms of any new collective bargaining agreement will impact our costs over the term of the contract.
Pilot Scarcity
The supply of pilots necessary for airline industry growth may be a limiting factor. The pandemic resulted in more than 3,000 early pilot retirements acrossU.S. mainline and cargo carriers and the pipeline for new pilots does not appear at the present time to be sufficiently robust to replace retired pilots and to allow for projected industry growth. The ability to hire and retain pilots will be critical to our and the industry's growth.
Engagement of Schneider Electric as ESG Consultant
We have entered into a three-year partnership with Schneider Electric to help us develop an Environmental, Social and Governance (ESG) program including:
-Identifying and prioritizing relevant ESG topics through a materiality assessment -Establishing ESG goals and environmental goal achievement plans -Developing an inaugural ESG report referencing theGlobal Reporting Initiative (GRI) andSustainability Accounting Standards Board (SASB) frameworks -Providing ongoing carbon emissions reporting of Scope 1, 2 and 3 greenhouse gas (GHG) emissions -Supporting the communications efforts around our ESG program
InDecember 2021 , we announced plans for a fully-integrated commercial alliance agreement with VivaAerobus, designed to expand options for nonstop leisure air travel between our markets inthe United States andMexico . We and VivaAerobus have submitted a joint application to the DOT requesting approval of and antitrust immunity for the alliance. VivaAerobus has received approval from theMexican Federal Economic Competition Commission to proceed with the alliance.
We and VivaAerobus currently expect to offer new routes under the alliance
beginning in the first half of 2023, pending
21
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Near the end of September 2022 , Hurricane Ian cut a destructive path through
Florida and Charlotte County , in particular. Sunseeker Resort suffered damage
from the Hurricane, to a large extent attributable to subcontractor cranes which
fell onto the buildings.
We have begun and will continue to evaluate damage caused by the Hurricane and
have engaged outside specialists, including structural engineers, to evaluate
the damage and advise as to the course of action to assure the safe completion
of the Resort. We maintain robust insurance coverage against damage from
hurricanes and business interruption insurance and are pursuing claims to
recover losses.
The Resort was previously selling rooms for as early as May 2023 . Realizing
there will be some delays caused by the Hurricane, the Resort has now pushed
back the selling date to September 2023 . As the extent of the damage is not yet
known nor can the Company predict how quickly resources will be available to
complete the construction, it is too early to tell whether the delays will be
longer or shorter.
22
--------------------------------------------------------------------------------RESULTS OF OPERATIONS
Comparison of three months ended
As comparisons of our 2022 results to periods during 2021 reflect disproportionate changes due to the continued impact of the pandemic on air travel during 2021, we have also provided analysis of certain revenue and expense line items to 2019 results where helpful to understand trends in our performance.
Operating Revenue Passenger revenue. For the third quarter 2022, passenger revenue increased 21.9 percent compared to the same period in 2021 as scheduled service passengers were up 12.5 percent due to stronger passenger demand. In addition, stronger passenger demand resulted in a 17.7 percent increase in scheduled service average base fare. We reduced the number of departures year-over-year to support operational reliability. Capacity was flat year-over-year as an increase in the average stage length and a slight increase in average seats per departure offset the reduction in departures. Passenger revenue for the third quarter 2022, as compared to third quarter 2019, increased by 32.0 percent, as passengers increased by 15.0 percent on a 17.0 percent increase in capacity and average stage length increased by 4.4 percent, resulting in a 2.5 percentage point increase in load factor. Average total fare per scheduled service passenger increased by 15.5 percent over the same period in 2019 as a result of a 16.7 percent increase in ancillary air-related revenue per passenger and a 29.7 percent increase in ancillary third party revenue per passenger.
The increase in ancillary air-related revenue per passenger over the same period in 2019 was primarily driven by increased revenue from the sale of bundled products as bundled products were not offered during the same period in 2019.
Third party products revenue. Third party products revenue for the third quarter
2022 increased 10.6 percent compared to the third quarter 2021 and 49.0 percent
compared to the third quarter 2019. The increase from 2021 is primarily the
result of greater travel demand for hotels over the same period and increased
Allways® Rewards Program revenues. Increased rental car and hotel rates also
contributed to the increase over 2021.
The substantial increase from 2019 is attributable to increased rental car rates
(which more than offset the impact of fewer rental car days) and growth in our
Allways® Rewards Program revenues.
Fixed fee contract revenue. Fixed fee contract revenue for the third quarter
2022 increased 42.9 percent compared to the same period in 2021 as a result of
an 8.1 percent increase in fixed fee departures when compared to lower charter
activity during the 2021 quarter impacted by the pandemic. In addition, fuel per
gallon pass throughs (which are accounted for as fixed fee contract revenue)
increased 75.0 percent as compared to 2021.
Fixed fee contract revenue for the third quarter 2022, as compared to 2019,
decreased by 19.8 percent as a result of a 28.5 percent decrease in fixed fee
revenue departures partially offset by an increase in fuel pass throughs treated
as revenue.
Operating Expenses
We primarily evaluate our expense management by comparing our costs per
available seat mile (ASM) across different periods, which enables us to assess
trends in each expense category. The following table presents unit costs on a
per ASM basis, or CASM, for the indicated periods, 2019 being included as a more
representative pre-pandemic third quarter comparison. 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.
23
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Three Months Ended September 30, Percent Change
Unitized costs (in cents) 2022 2021 2019 YoY Yo3Y
Aircraft fuel 4.68 ¢ 2.67 ¢ 2.69 ¢ 75.3 % 74.0 %
Salaries and benefits 3.09 2.83 2.77 9.2 11.6
Station operations 1.49 1.60 1.12 (6.9) 33.0
Depreciation and amortization 1.13 1.04 1.01 8.7 11.9
Maintenance and repairs 0.72 0.69 0.64 4.3 12.5
Sales and marketing 0.58 0.50 0.45 16.0 28.9
Aircraft lease rentals 0.13 0.13 - - NM
Other 0.67 0.50 0.69 34.0 (2.9)
Payroll Support Programs grant recognition - (1.12) - NM NM
Special charges 0.79 0.01 - NM NM
CASM 13.28 ¢ 8.85 ¢ 9.37 ¢ 50.1 41.7
Operating CASM, excluding fuel 8.60 ¢ 6.18 ¢ 6.68 ¢ 39.2 28.7
Sunseeker Resort CASM 0.85 0.05 0.04 NM NM
Operating CASM, excluding fuel and
Sunseeker Resort activity 7.75 ¢ 6.13 ¢ 6.64 ¢ 26.4 16.7
NM - Not meaningful
Aircraft fuel expense. Aircraft fuel expense increased
When compared to the same period in 2019, aircraft fuel expense increased by 99.1 percent as average fuel cost per gallon increased 78.2 percent and fuel gallons consumed increased 11.6 percent on a 14.5 percent increase in capacity. Salaries and benefits expense. Salaries and benefits expense increased$11.5 million , or 9.2 percent, for the third quarter 2022 when compared to the same period in 2021. The increase is primarily due to a 24.2 percent increase in the number of full time equivalent employees from the third quarter 2021. When compared to the same period in 2019, salaries and benefits expense increased by$29.8 million or 27.7 percent on a 24.1 percent increase in the number of full time equivalent employees year over three-year. On a per ASM basis, salaries and benefits expense increased 11.6 percent. The cost increases primarily relate to increases in crew pay and increased salaries and benefit costs associated with irregular operations. Station operations expense. Station operations expense for the third quarter 2022 decreased$4.6 million , or 6.5 percent compared to the same period in 2021 due to decreased departures of 4.0 percent.
As compared to the same period in 2019, station operations expense increased by
Depreciation and amortization expense. Depreciation and amortization expense for the third quarter 2022 increased by 8.0 percent as compared to the third quarter 2021 as the average number of aircraft owned and in service increased 6.6 percent year-over-year. Compared to the same period in 2019, depreciation and amortization expense increased$10.7 million or 27.0 percent as the average number of aircraft owned and in service increased 17.3 percent and our deferred major maintenance balance increased 49.4 percent for the period endedSeptember 30, 2022 as compared toSeptember 30, 2019 . Maintenance and repairs expense. Maintenance and repairs expense for the third quarter 2022 increased$1.7 million , or 5.7 percent, compared to the same period in 2021. Routine maintenance costs increased as the average number of aircraft in service increased 9.0 percent year-over-year and as a result of increased costs related to outsourced labor in 2022 (largely attributable to our smaller bases and outstations). Compared to the same period in 2019, maintenance and repairs expense increased by$7.4 million or 29.9 percent primarily due to a 31.4 percent increase in the average number of aircraft in service and as a result of increased costs related to outsourced labor in 2022. Sales and marketing expense. Sales and marketing expense for the third quarter 2022 increased by 17.1 percent compared to the same period in 2021, due to an increase in net credit card fees as a result of a 21.9 percent increase in passenger revenue year-over-year. 24 -------------------------------------------------------------------------------- Compared to the same period in 2019, sales and marketing expense increased by 46.8 percent primarily due to an increase in net credit card fees as a result of a 32.0 percent increase in passenger revenue compared to the same period in 2019 as well as our entrance into new marketing agreements. Other operating expense. Other expense increased$7.9 million or 35.4 percent for the third quarter 2022 compared to the third quarter 2021 attributable to incremental increases in our employee training activity.
Payroll Support Programs grant recognition. During 2021, we received
Special charges. Special charges of$35.1 million were recorded within operating expenses for the third quarter 2022 compared to$0.3 million for the same period 2021. The special charges in 2022 relate to an estimated loss incurred from the impact of Hurricane Ian. The amount of the loss will be offset in future periods by amounts to be recovered under our insurance policies. The charges in 2021 include accelerated depreciation on an airframe resulting from an accelerated retirement plan. See Note 2 of Notes to Consolidated Financial Statements (unaudited) for further information on the special charge recorded in 2022 related to Hurricane Ian.
Interest Expense
Interest expense for the quarter endedSeptember 30, 2022 increased by$17.6 million , or 106.3 percent over third quarter 2021, due to new fixed rate debt and finance lease transactions entered into since third quarter 2021 as well as a 2.1 percentage point increase in the weighted average variable interest rate year-over-year as general interest rates have risen. During the third quarter 2022, we recognized a loss on debt extinguishment of$5.0 million in relation to the prepayment of our Term Loan B.
Income Tax Expense
We recorded a$9.7 million income tax benefit at an effective tax rate of 17.3 percent and an$11.0 million income tax expense at a 21.9 percent effective tax rate for the three months endedSeptember 30, 2022 and 2021, respectively. The effective tax rate for the three months endedSeptember 30, 2022 differed from the statutory Federal income tax rate of 21.0 percent primarily due to state income taxes and the impact of permanent tax differences. 25 --------------------------------------------------------------------------------
Comparison of nine months ended
As comparisons of our 2022 results to periods during 2021 reflect disproportionate changes due to the continued impact of the pandemic on air travel during 2021, we have also provided analysis of certain revenue and expense line items to 2019 results where helpful to understand trends in our performance.
Operating Revenue Passenger revenue. For the nine months endedSeptember 30, 2022 , passenger revenue increased 39.9 percent compared with the same period in 2021 as scheduled service passengers were up 29.5 percent due to stronger passenger demand in general and when compared to lower passenger demand related to COVID-19 during the first nine months of 2021. In addition, stronger passenger demand resulted in a 10.4 percent increase in scheduled service average base fare. Passenger revenue for the first nine months of 2022, as compared to the first nine months of 2019 increased by 24.3 percent, as scheduled service passengers increased by 12.6 percent on a 16.2 percent increase in capacity and average stage length increased by 3.3 percent, resulting in a 0.5 percentage point increase in load factor. Average total fare per scheduled service passenger increased by 11.0 percent over the same period in 2019 primarily driven by a 16.5 percent increase in ancillary air related revenue per passenger and a 28.3 percent increase in ancillary third party revenue per passenger.
The increase in ancillary air related revenue per passenger over the same period in 2019 was primarily driven by increased revenue from the sale of bundled products as bundled products were not offered in the 2019 period.
Third party products revenue. Third party products revenue for the nine months endedSeptember 30, 2022 increased 26.5 percent over the same period in 2021 and 44.5 percent when compared to 2019. The increase from 2021 is primarily the result of greater travel demand for rental cars and hotels and increased Allways® Rewards Program revenues. Increased rental car and hotel rates combined with a 11.0 percent increase in rental car days sold and a 13.7 percent increase in room nights sold contributed to the substantial increase over 2021. The increase from 2019 is attributable to increased rental car and hotel room rates (which more than offset the impact of fewer rental car days and hotel room nights) and substantial growth in our Allways® Rewards Program revenues. Fixed fee contract revenue. Fixed fee contract revenue for the nine months endedSeptember 30, 2022 increased 59.5 percent compared to the same period in 2021 as a result of an 11.1 percent increase in fixed fee departures largely due to lower charter activity during the pandemic in the same period of 2021. In addition, fuel per gallon pass throughs (which are accounted for as fixed fee contract revenue) increased 84.8 percent as compared to the same period in 2021.
Fixed fee contract revenue for the nine months ended
Operating Expenses
The following table presents unit costs on a per ASM basis, defined as Operating CASM, for the indicated periods:
Nine Months Ended September 30, Percent Change
Unitized costs (in cents) 2022 2021 2019 YoY Yo3Y
Aircraft fuel 4.48 ¢ 2.38 ¢ 2.65 ¢ 88.2 % 69.1 %
Salaries and benefits 2.92 2.80 2.78 4.3 5.0
Station operations 1.41 1.31 1.05 7.6 34.3
Depreciation and amortization 1.04 1.03 0.93 1.0 11.8
Maintenance and repairs 0.65 0.59 0.56 10.2 16.1
Sales and marketing 0.54 0.39 0.48 38.5 12.5
Aircraft lease rentals 0.12 0.12 - - NM
Other 0.59 0.43 0.60 37.2 (1.7)
Payroll Support Programs grant recognition - (1.55) - NM NM
Special charges 0.25 0.02 - NM NM
CASM 12.00 ¢ 7.52 ¢ 9.05 ¢ 59.6 32.6
Operating CASM, excluding fuel (2) 7.52 ¢ 5.14 ¢ 6.40 ¢ 46.3 17.5
Sunseeker Resort CASM 0.30 0.04 0.05 NM NM
Operating CASM, excluding fuel and
Sunseeker Resort activity 7.22 ¢ 5.10 ¢ 6.35 ¢ 41.6 13.7
26-------------------------------------------------------------------------------- Aircraft fuel expense. Aircraft fuel expense increased$318.9 million , or 102.7 percent, for the nine months endedSeptember 30, 2022 compared to the same period in 2021. This is primarily driven by a 84.8 percent increase in average fuel cost per gallon. In addition, ASMs increased by 7.7 percent contributing to a 9.6 percent increase in fuel gallons consumed. Aircraft fuel expense increased by$305.3 million or 94.2 percent for the nine months endedSeptember 30, 2022 compared to the same period in 2019. This is primarily driven by an increase in average fuel cost per gallon of 72.9 percent in addition to a 14.8 percent increase in ASMs resulting in a 12.1 percent increase in fuel gallons consumed. Salaries and benefits expense. Salaries and benefits expense increased$45.4 million , or 12.4 percent, for the nine months endedSeptember 30, 2022 compared to the same period in 2021. The increase is primarily due to a 24.2 percent increase in the number of full time equivalent employees from the same period in 2021, offset by the employee retention tax credit recognized in the first quarter of 2022. Salaries and benefits expense for the nine months endedSeptember 30, 2022 increased by$70.4 million or 20.7 percent as compared to the same period in 2019. The increase is primarily due to a 24.1 percent increase in the number of full time equivalent employees from same period in 2019, offset by the employee retention tax credit recognized in the first quarter of 2022. On a per ASM basis, salaries and benefits expense increased 5.0 percent. The cost increases primarily relate to increases in crew pay and increased salaries and benefits costs associated with irregular operations. Station operations expense. Station operations expense for the nine months endedSeptember 30, 2022 increased$27.7 million or 16.2 percent due to a 2.5 percent increase in departures, increased costs associated with irregular operations, and increased airport and landing fees.
As compared to the nine month period ended
Irregular operations costs in 2022 were significantly attributable to COVID absences due to the Omicron variant in January and February. These absences resulted in numerous flight cancellations. Higher than usual cancellations continued into the third quarter as a result of staffing challenges and other factors. The amount of irregular operations costs is significantly impacted by our decision to compensate impacted passengers for their inconvenience in addition to the ticket price. Depreciation and amortization expense. Depreciation and amortization expense for the nine months endedSeptember 30, 2022 increased$11.5 million or 8.6 percent as compared to the same period in 2021 due to a 7.6 percent increase in the average number of aircraft owned and in service. When compared to the nine months endedSeptember 30, 2019 , depreciation and amortization expense increased 27.6 percent as the average number of aircraft owned and in service increased 20.3 percent and our deferred major maintenance balance increased 61.6 percent. Maintenance and repairs expense. Maintenance and repairs expense for the nine months endedSeptember 30, 2022 increased by$14.7 million or 19.2 percent compared to the same period in 2021. Routine maintenance costs increased as the average number of aircraft in service increased 10.9 percent year-over-year and as a result of increased costs related to outsourced labor in 2022. As compared to the nine months endedSeptember 30, 2019 , maintenance and repairs expense increased by$22.7 million or 33.1 percent as the number of aircraft in service increased by 34.0 percent and increased costs related to outsourced labor in 2022 (largely attributable to our smaller bases and outstations). Sales and marketing expense. Sales and marketing expense for the nine months endedSeptember 30, 2022 increased 47.1 percent compared to the same period in 2021, due to an increase in net credit card fees as a result of a 39.9 percent increase in passenger revenue year-over-year.
Compared to the nine months ended
Other expense. Other expense for the nine months endedSeptember 30, 2022 increased by$27.5 million or 49.4 percent year-over-year, due to increased service, incremental increases in our employee training activity and offset by decreased activity in our non-airline subsidiaries due to the sale of Teesnap in the second quarter of 2021. Payroll Support Programs grant recognition. During 2021, we received$203.9 million in funds through the payroll support programs and recognized$202.2 million as an offset to operating expense on our income statement for the nine month period endingSeptember 30, 2021 . The funds were fully utilized in 2021. There were no such funds received in 2022. Special charges. Special charges of$35.4 million were recorded within operating expenses for the nine months endedSeptember 30, 2022 compared to$2.9 million for the same period in 2021. The special charges in 2022 relate to the estimated 27 -------------------------------------------------------------------------------- loss incurred from the impact of of Hurricane Ian. The amount of the loss will be offset in future periods by amounts to be recovered under our insurance policies. The charges in 2021 include accelerated retirements of five airframes and eight engines and an impairment loss on a building associated with the Allegiant Nonstop family entertainment line of business. See Note 2 of the Notes to Consolidated Financial Statement (unaudited) for further information on the special charge recorded in 2022 related to Hurricane Ian.
Income Tax Expense
We recorded a$10.9 million income tax benefit at an effective rate of 17.9 percent compared to a$40.3 million tax expense at a 22.2 percent effective tax rate for the nine months endedSeptember 30, 2022 and 2021, respectively. The 17.9 percent effective tax rate for the nine months endedSeptember 30, 2022 differed from the statutory federal income tax rate of 21.0 percent primarily due to state income taxes and the impact of permanent tax differences. The 22.2 percent effective tax rate for the nine months endedSeptember 30, 2021 differed from the statutory federal income tax rate of 21.0 percent primarily due to state income taxes and the impact of ASU 2016-09 related to share-based payments. 28 --------------------------------------------------------------------------------
Comparative Consolidated Operating Statistics
The following tables set forth our operating statistics for the periods
indicated:
Three Months Ended September 30, Percent Change (1)
2022 2021 2019 YoY Yo3Y
Operating statistics (unaudited):
Total system statistics:
Passengers 4,359,417 3,872,651 3,806,369 12.6 % 14.5 %
Available seat miles (ASMs) (thousands) 4,450,595 4,441,201
3,888,400 0.2 14.5
Operating expense per ASM (CASM) (cents) 13.28 ¢ 8.85 ¢ 9.37 ¢ 50.1 41.7
Fuel expense per ASM (cents) 4.68 ¢ 2.67 ¢ 2.69 ¢ 75.3 74.0
Operating CASM, excluding fuel (cents) 8.60 ¢ 6.18 ¢ 6.68 ¢ 39.2 28.7
Sunseeker Resort CASM (cents)(2 ) 0.85 ¢ 0.05 ¢ 0.04 ¢ NM NM
Operating CASM, excluding fuel and
Sunseeker Resort activity (cents) 7.75 ¢ 6.13 ¢ 6.64 ¢ 26.4 16.7
ASMs per gallon of fuel 82.4 82.5 80.3 (0.1) 2.6
Departures 29,432 30,663 27,707 (4.0) 6.2
Block hours 67,277 67,398 59,678 (0.2) 12.7
Average stage length (miles) 857 829 823 3.4 4.1
Average number of operating aircraft
during period 115.1 105.6 87.6 9.0 31.4
Average block hours per aircraft per day 6.4 7.0 7.4 (8.6) (13.5)
Full-time equivalent employees at end of
period 5,294 4,261 4,267 24.2 24.1
Fuel gallons consumed (thousands) 54,044 53,850 48,443 0.4 11.6
Average fuel cost per gallon $ 3.85 $ 2.20 $ 2.16 75.0 78.2
Scheduled service statistics:
Passengers 4,316,163 3,834,956 3,753,611 12.5 15.0
Revenue passenger miles (RPMs)
(thousands) 3,820,339 3,302,519 3,170,826 15.7 20.5
Available seat miles (ASMs) (thousands) 4,315,984 4,312,893 3,687,473 0.1 17.0
Load factor 88.5 % 76.6 % 86.0 % 11.9 2.5
Departures 28,436 29,593 26,238 (3.9) 8.4
Block hours 65,182 65,296 56,576 (0.2) 15.2
Average seats per departure 175.8 174.3 170.8 0.9 2.9
Yield (cents) (3) 6.92 ¢ 6.04 ¢ 6.42 ¢ 14.6 7.8
Total passenger revenue per ASM (TRASM)
(cents)(4 ) 12.60 ¢ 10.40 ¢ 11.10 ¢ 21.2 13.5
Average fare - scheduled service(5) $ 61.26 $ 52.05 $ 54.20 17.7 13.0
Average fare - air-related charges(5) $ 58.40 $ 58.45 $ 50.03 (0.1) 16.7
Average fare - third party products $ 6.29 $ 6.40 $ 4.85 (1.7) 29.7
Average fare - total $ 125.95 $ 116.91 $ 109.08 7.7 15.5
Average stage length (miles) 860 834 824 3.1 4.4
Fuel gallons consumed (thousands) 52,491 52,249 46,038 0.5 14.0
Average fuel cost per gallon $ 3.84 $ 2.19 $ 2.17 75.3 77.0
Rental car days sold 364,481 366,407 482,944 (0.5) (24.5)
Hotel room nights sold 71,205 66,626 99,991 6.9 (28.8)
Percent of sales through website during
period 96.1 % 95.4 % 93.1 % 0.7 3.0
(1)Except load factor and percent of sales through website during period, which
are presented as a percentage point change.
(2)Includes a $35.0 million special charge in the third quarter 2022 relating to
Hurricane Ian damage to Sunseeker Resort .The amount of the loss will be offset
in future periods by amounts to be recovered under our insurance policies.
(3)Defined as scheduled service revenue divided by revenue passenger miles.
(4)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.
(5)Reflects division of passenger revenue between scheduled service (base fare)
and air-related charges in our booking path.
29
--------------------------------------------------------------------------------Comparative Consolidated Operating Statistics
The following tables set forth our operating statistics for the periods
indicated:
Nine Months Ended September 30, Percent Change (1)
2022 2021 2019 YoY Yo3Y
Operating statistics (unaudited):
Total system statistics:
Passengers 12,834,078 9,906,371 11,426,183 29.6 % 12.3 %
Available seat miles (ASMs) (thousands) 14,060,825 13,049,732 12,245,704 7.7 14.8
Operating expense per ASM (CASM) (cents) 12.00 ¢ 7.52 ¢ 9.05 ¢ 59.6 32.6
Fuel expense per ASM (cents) 4.48 ¢ 2.38 ¢ 2.65 ¢ 88.2 69.1
Operating CASM, excluding fuel (cents) 7.52 ¢ 5.14 ¢ 6.40 ¢ 46.3 17.5
Sunseeker Resort CASM (cents)(2 ) 0.30 ¢ 0.04 ¢ 0.05 ¢ NM NM
Operating CASM, excluding fuel and
Sunseeker Resort activity (cents) 7.22 ¢ 5.10 ¢ 6.35 ¢ 41.6 13.7
ASMs per gallon of fuel 84.2 85.6 82.2 (1.6) 2.4
Departures 90,064 87,854 83,454 2.5 7.9
Block hours 212,403 197,581 187,829 7.5 13.1
Average stage length (miles) 885 852 858 3.9 3.1
Average number of operating aircraft
during period 112.7 101.6 84.1 10.9 34.0
Average block hours per aircraft per day 6.9 7.1 8.2 (2.8) (15.9)
Full-time equivalent employees at end of
period 5,294 4,261 4,267 24.2 24.1
Fuel gallons consumed (thousands) 167,070 152,464 148,980 9.6 12.1
Average fuel cost per gallon $ 3.77 $ 2.04 $ 2.18 84.8 72.9
Scheduled service statistics:
Passengers 12,736,268 9,838,512 11,307,004 29.5 12.6
Revenue passenger miles (RPMs)
(thousands) 11,646,212 8,657,151 9,964,948 34.5 16.9
Available seat miles (ASMs) (thousands) 13,716,838 12,739,769 11,800,788 7.7 16.2
Load factor 84.9 % 68.0 % 84.4 % 16.9 0.5
Departures 87,475 85,303 80,149 2.5 9.1
Block hours 206,868 192,481 180,674 7.5 14.5
Average seats per departure 175.7 173.8 171.0 1.1 2.7
Yield (cents) (3) 6.94 ¢ 6.53 ¢ 6.85 ¢ 6.3 1.3
Total passenger revenue per ASM (TRASM)
(cents)(4 ) 12.03 ¢ 9.30 ¢ 11.18 ¢ 29.4 7.6
Average fare - scheduled service(5) $ 63.44 $ 57.48 $ 60.40 10.4 5.0
Average fare - air-related charges(5) $ 60.07 $ 56.79 $ 51.56 5.8 16.5
Average fare - third party products $ 6.08 $ 6.22 $ 4.74 (2.3) 28.3
Average fare - total $ 129.59 $ 120.49 $ 116.70 7.6 11.0
Average stage length (miles) 889 857 861 3.7 3.3
Fuel gallons consumed (thousands) 162,933 148,578 143,433 9.7 13.6
Average fuel cost per gallon $ 3.77 $ 2.03 $ 2.17 85.7 73.7
Rental car days sold 1,161,579 1,046,751 1,495,502 11.0 (22.3)
Hotel room nights sold 222,334 195,535 319,197 13.7 (30.3)
Percent of sales through website during
period 96.2 % 94.3 % 93.4 % 1.9 2.8
(1)Except load factor and percent of sales through website during period, which
are presented as a percentage point change.
(2)Includes $35.0 million special charge in the third quarter 2022 relating to
Hurricane Ian damage to Sunseeker Resort .The amount of the loss will be offset
in future periods by amounts to be recovered under our insurance policies.
(3)Defined as scheduled service revenue divided by revenue passenger miles.
(4)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.
(5)Reflects division of passenger revenue between scheduled service (base fare)
and air-related charges in our booking path.
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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, escrowed airport project funds 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 believe we have more than adequate liquidity resources through our cash balances, operating cash flows and borrowings to meet our future contractual obligations. We will continue to consider raising funds through debt financing on an opportunistic basis. Debt Our debt and finance lease obligations balance, without reduction for related issuance costs, increased from$1.77 billion as ofDecember 31, 2021 to$2.02 billion as ofSeptember 30, 2022 . During the nine months endedSeptember 30, 2022 , we entered into debt and finance leases for$918.3 million including debt of$550.0 million to refinance our term loan due 2024. During this period, we made principal payments of$666.0 million , including a$531.7 million prepayment of our term loan due 2024,$24.7 million prepayment of our payroll support program loans and$1.7 million prepayment of debt secured by aircraft.
As of
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 nine months ended
Investing Activities. Cash used for investing activities was$335.6 million during the nine months endedSeptember 30, 2022 compared to$513.3 million used for investing activities during the same period in 2021. The change is due to a$405.7 million increase in proceeds from maturities, net of purchases, of investment securities during the nine months endedSeptember 30, 2022 as proceeds from maturities exceeded purchases of investment securities in the nine months endedSeptember 30, 2022 but not in the same period of 2021. This was offset by a$227.0 million increase in purchases of property and equipment, including$88.5 million related to aircraft pre-delivery deposits during the nine months endedSeptember 30, 2022 . Financing Activities. Cash used for financing activities for the nine months endedSeptember 30, 2022 was$15.7 million , compared to$205.4 million cash provided by financing activities for the same period in 2021. The change resulted from$335.1 million of proceeds from the issuance of common stock in the first nine months of 2021 offset by an increase in proceeds from debt issuance in excess of principal payments and debt issuance costs of$200.8 million compared to the same period in 2021 as debt proceeds exceeded principal payments and debt issuance costs in the nine months endedSeptember 30, 2022 but not in the same period of 2021. The$82.8 million in other financing activities is largely attributable to the deposit of$87.5 million of loan proceeds into a construction disbursement account and as such, is a direct offset to$87.5 million of proceeds from the issuance of debt obligations forSunseeker Resort . 31 --------------------------------------------------------------------------------
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 number of contracted aircraft to be placed in service in the future, the timing of aircraft deliveries and retirements, the implementation of a joint alliance with VivaAerobus, the development of ourSunseeker Resort , as well as other information concerning future results of operations, business strategies, financing plans, competitive position, industry environment, potential growth opportunities, the effects of future regulation and the effects of competition. 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," "hope" 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 theSecurities and Exchange Commission at www.sec.gov. These risk factors include, without limitation, the impact of Hurricane Ian on ourFlorida markets and on completion ofSunseeker Resort , the impact and duration of the COVID-19 pandemic on airline travel and the economy, liquidity issues resulting from the effect of the COVID-19 pandemic on our business, restrictions imposed on us a result of accepting government grants under the government payroll support programs, 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, 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 to be acquired, the ability to obtain necessary government approvals to implement the announced alliance with VivaAerobus and to otherwise prepare to offer international service, 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 a resort inSouthwest 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 nine months endedSeptember 30, 2022 . For information regarding our critical accounting policies and estimates, see disclosures in the Consolidated Financial Statements and accompanying notes contained in our 2021 Form 10-K, and in Note 1 of Notes to Consolidated Financial Statements (unaudited). 32
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