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Operator: Good day and thank you for standing by. Welcome to the Q1 2023 Allegiant Travel Company Earnings Conference Call. At this time all participants are in a listen-only mode. After the speaker’s presentation there will be a question and answer session Please be advised that today’s conference is being recorded. And I would now like to hand the conference over to your speaker today Ms. Sherry Wilson. Ms. Wilson, please go ahead.

Sherry Wilson: Thank you Chris. Welcome to the Allegiant Travel Company’s first quarter 2023 earnings call. On the call with me today are John Redmond, the company’s Chief Executive Officer; Greg Anderson, President; Scott DeAngelo our EVP and Chief Marketing Officer; Drew Wells our SVP and Chief Revenue Officer; Robert Neal, SVP and Chief Financial Officer; and a handful of others to help answer questions. We will start the call with commentary and then open it up to questions. We ask that you please limit yourself to one question and one follow-up. The Company’s comments today will contain Forward-Looking Statements concerning our future performance and strategic plan. Various risk factors could cause the underlying assumptions of these statements and our actual results to differ materially from those expressed or implied by our forward-looking statements.

These risk factors and others are more fully disclosed in our filings with the SEC. Any forward-looking statements are based on information available to us today. We undertake no obligation to update publicly any forward-looking statements whether as a result of future events, new information or otherwise. The Company cautions investors not to place undue reliance on forward-looking statements, which may be based on assumptions and events that do not materialize. To view this earnings release as well as the rebroadcast of the call, feel free to visit the Company’s Investor Relations site at ir.allegiantair.com. And with that, I will turn it over to John.

John Redmond: Thank you very much, Sherry and good afternoon, everyone. We have hit the ground running in 2023 and continued operational strength leading to financial results. We reported earnings per share of $3.09, which compares favorably to our initial expectation and provides us confidence to raise the midpoint of our full-year EPS guidance to roughly $9.75 a share. The leisure customer range remains exceptionally strong as evidenced by total revenue growth of 29% as compared to Q1 prior year coupled with recent company history best Q1 load factors approaching 86%. These results exceeded our expectations and were underpinned by a stellar operational performance with an impressive controllable completion during a quarter of 99.9%.

We delivered this operational performance while growing departures 2.3% on a load factor of 85.8% during the quarter. More than 4.1 million guests traveled on our airline helping fuel a record quarter for always credit card acquisitions of 46,000 card holders as we ended the quarter with 435,000 active card holders. A key focus of this management team is improving the experience of our guests and the strengthening of our brand. This is a critical tool for us in expanding our powerful customer database of 16.5 million customers, which is growing on average by 225,000 per month. The continued demand of our product by our customers is key to support the 1400 incremental routes that airline growth our team has identified. Being the employer of choice for our team members is one of our top priorities, we strive to make a positive impact on our employees, thus, I was very pleased to see Allegiant named one of Forbes America’s best mid-size employers for 2023 and Newsweek’s America’s Greatest Workplaces for Diversity in 2023.

In addition, prioritizing our team members also includes reaching collective bargaining agreements with our flight attendants and pilots. Getting these respective deals done is number one on my priority list. I remain optimistic about reaching agreements with these team members that these team members deserve and are proud to support. Great progress has been made with both CBAs and we would expect these to be finalized in the not too distant future. Turning to Sunseeker Resort, Charlotte Harbor, I’m pleased to report we are currently on track for official opening date of October 16th. The Sunseeker team and construction crews have been working around the clock and the remediation work related to our hurricane and other events is just about finalized.

As we have worked through construction delays and repair work related to the hurricane, we have clear line of sight to a final budget. We have updated the capital expenditure budget, which is inclusive of the Aileron Golf Club, including both the golf course renovation and construction of the new clubhouse and entry gate to $695 million. We are well outside of the normal hotel booking curve, yet we remain encouraged by early booking indicators. To-date, we have booked roughly 2000 transient room nights at an ADR of $407 with minimal advertising effort. More importantly, the ADR has been accelerating over the last two-months, coming in at $540 and $460 for business booked in the months of March and April respectively. In addition, we have over six million Sunseeker Resort emails and expect the number to grow to closer to seven million emails by opening date.

We continue to attract high quality group bookings as well with over 40 different groups currently contracted for rooms, food and beverage totaling 12.7 million. There are another four groups we are in advanced conversations with on 3000 rooms and 1.9 million in rooms food and beverage. Last month, we unveiled 20 original world-class food and beverage concepts. These unique offerings will truly be one of a kind for the area. Furthermore, we have always looked at the resort as an incubator to launch all the IP being created, so we are excited to reveal these incredible concepts. Touching briefly on Sunseeker financials. Total operating expense during Q1 2023 came in right below our estimated five million for the quarter. We continue to expect a similar run rate in the second quarter before jumping to roughly 15 million during the third quarter, related to pre-opening expenses.

All in, we currently anticipate a $1.25 loss per share for 2023 attributable to Sunseeker Resort. This amount does not include insurance recoveries related to business interruption coverage. In closing, I want to thank our employees for a tremendous quarter. Your efforts drove an exceptional operation, which is paramount for our guests, for you our employees and for long-term vision of this company. Many of you I recently visited on my travels to several of our bases and your enthusiasm, dedication and passion is infectious. Thank you. With that, I will turn it over to Greg.

Gregory Anderson: John, thank you and thank you everyone for joining today’s call. 2023 is off to a great start as reported in our first quarter results. The team delivered meaningful improvements in operational areas across the Board, most notably a terrific 99.9% controllable completion factor with an industry-leading 99.1% completion factor. This operational excellence was evident in our financial performance as our total irregular operational cost came in just below $9 million, that is down $57 million compared to the same period in 2022. I couldn’t be prouder of this team’s performance, and I’m happy to report an update on our C-suite and that is the Keny Wilper, who has served as our Interim COO since January, has been appointed as our permanent Chief Operating Officer.

Congrats, Keny. You have our full support and confidence. This is one of the most exciting times I have experienced in my history with Allegiant. Our leadership team is strongly aligned and our team members are dedicated to executing and strides and rethinking process to become more productive and to strengthen this organization. For example, our planning, finance and operational teams continue to work together shoulder-to-shoulder on a multi-disciplined approach to drive operational excellence while expertly matching capacity with demand. Recently and to preserve operational reliability, the team trimmed full-year capacity 2.5 points now guiding zero to 3% ASM growth. This is a result of MRO delays for aircraft and heavy maintenance, pilot constraints, but along with airport construction disruption and ATC delays in some key markets, particularly during peak travel days.

Even with this reduction in guided capacity, we expect improvement in full-year airline earnings to $11 per share, an increase in our full-year guide of EPS of $4 per share. We believe our measured approach coupled with our differentiated model, sets us up well to deliver industry leading results regardless of the broader macro environment. As mentioned last quarter, we have incorporated within our EPS guide the expected cost increase for our open labor agreements. The actual increases in compensation will vary depending upon economic terms for each and the timing of these agreements. This increased compensation was initially incorporated into our full-year EPS guide beginning in July. However, we have now moved this date up to May 1st as we fully expect to be paying higher rates in the near future once agreements are finalized and approved.

In fact, I’m happy to announce we reached a tentative agreement on a contract extension with our dispatchers represented by the IBT. This agreement will modify the final pay rate increases in the CBA and provide a two-year extension on their current CBA. I think it is important to note that this contract did not even become amendable until May 31st of next year, but the parties work together to bring this meaningful improvements to our dispatchers today. And as John mentioned, we are still in active negotiations with our flight attendants represented by TWU and our pilots represented by IBT. Resolving our open labor agreements is our highest priority. Negotiations with our flight attendants opened eight months ago and we are quickly closing in on the outstanding open items.

Both sides are very pleased with the progress that has been made, and we look forward to announcing a tentative agreement very soon. On the pilot front, we had our first mediation sessions with the IBT last week with another session taking place next week. After working to highlight and identify the gaps in each side’s proposals, all parties left the first sessions encouraged by the possibility of finding a path to an expedited deal. As a result, the mediators have already provided numerous additional dates to continue to work together towards resolution. Touching briefly on our current pilot staffing, our net head count for the year remains roughly flat and consistent with the trends message last quarter. However, within our schoolhouse, the number of new hire pilots are outpacing our initial expectations.

With the strong recruiting team and pathway programs in the works, we remain confident in our ability to attract, train, and grow pilots. Allegiant is uniquely set up to be the destination airline for our team members. Our out and back model is built around our flight crews having the opportunity to be home every night and that is something they highly value. We look forward to reaching agreement with our flight attends and pilots, and provide compensation and work rules that they can be proud of and most importantly, they deserve. Turning briefly to our systems transformation, we continue to make significant progress on our four core system integrations, Navitaire, SAP Tracks and NAVBLUE. First up will be Navitaire, which we expect to go live this quarter.

It enhanced functionality in our commercial platform is expected to unlock additional features to drive higher ancillaries and bundles. In addition, Navitaire provides the necessary functionality for us to expand internationally in New Mexico through our joint venture with Viva Airbus. While we are still awaiting DOT antitrust immunity, we are confident in this outcome. We are fired up about this partnership and its unique ability to provide incredible value to our guests and more growth opportunities for our team members. And in closing, these results cannot be accomplished without the efforts of Team Allegiant over the past 90-days, I have had the amazing opportunity to immerse myself more broadly throughout the organization and in particular with our frontline team members.

Each visit has been exceptional for me. I have the privilege of meeting the best team members in the industry, a learning experience that provides me with the insights to continue to assist and help those in the field that everyday provide our guests with a safe, reliable, and convenient product. I want to thank each and every one of them. And with that, I will turn the call over to Scott DeAngelo, our Chief Marketing Officer.

Scott DeAngelo: Thanks, Greg. First quarter saw unprecedented demand generation and capture that enabled Drew and his industry leading revenue management team to maximize both load and yield, resulting in record setting revenue results. What is more, our nearly 30% year-over-year increase in revenue was driven by advertising spend that was 10% lower than prior year. This greater marketing efficacy was driven by leveraging data science and enabling technologies, including beginning to leverage artificial intelligence to create more targeted, more personalized and higher impact execution. For example, our major sales events in January and February were executed purely via digital advertising and our owned media assets and they drove four of the top eight book revenue days in our history.

In addition to the historic overall base fare and air ancillary revenue performance in Q1 we also, as John mentioned, continue to outperform expectations with our Always Rewards credit card program. Q1 was the strongest to-date, both in terms of new card signups with March being our single best month ever for new card signups and in terms of program compensation. We are closing in on 500,000 card holders and for the year expect to generate more than $100 million in recognized revenue from the Always Rewards credit card, which, as you know, has an EBITDA margin of more than 90% and about 500 million in flown revenue from card holders who still represent fewer than 3% of total customers. So plenty of upside there as we continue to generate new card signups at an ever increasing rate.

Beyond that our Always Rewards non-credit card program, which has more than 15 million total members saw one million members booked during Q1. That is up 44% versus last year. And these rewards program members exhibited spend that was 32% higher than non-members driven by greater air ancillary take rates and greater third party hotel and rental car attachment. Our active customer base continues to be a healthy balance of repeat and first time customers. Like last quarter, we surveyed a representative sample from both these most frequent flying rewards program members as well as those who flew us for the first time ever this past quarter. To understand why they traveled with us and what their future travel intentions were, and the results were virtually identical to what they were in January.

For these most frequent flyers, nearly 80% traveled for leisure only, and nearly 20% traveled for both business and leisure. More than 40% said they stayed with family or friends, and nearly 40% said they stayed at their second vacation home. That means around 80% fallen into types of travel that are the most resilient during negative economic climate. To further validate this, we again ask these customers the extent to which they expected their travel plans with Allegiant to be impacted, given the prospect of worsening economic conditions, and they told us the same thing they did a quarter ago. Nearly 50% said that economic considerations would have no impact on their flying behavior with Allegiant in the next 12-months and more than 30% said that economic considerations would actually make them more likely to fly with Allegiant in the next 12-months.

In addition to this core and growing base of loyal frequent flyers, who drive the majority of our revenue, we continue to add new customers that are defecting from traditional higher fare airlines to Allegiant at record levels. And these customers express similar future travel intention with more than 40% of these first time customers saying that the macroeconomic climate will have no impact and more than 40% saying, it will make them more likely to fly again with Allegiant in this upcoming year. The only meaningful change past quarter among first time customers was at a significantly larger portion versus three-months ago said that, they last flew or regularly flew were one of the top four largest traditional higher fare carriers. All that said, while some customers are expressing concern about the economy and a portion say they do plan to take fewer leisure travel trips than they did last year, we view this simply as a return to normalized pre-pandemic peak and non peak seasonal travel patterns.

And the fact that, any downward pressure that might come from macroeconomic factors appears to be only reinforcing our existing customer’s decision to keep flying Allegiant as well as driving more new customers to Allegiant has us remaining bullish from a forward look demand perspective. Allegiant is not only fully capable of maximizing peak travel demand capture, we are unique in our ability to capture a greater slide, should there be any temporary shrinking of the leisure travel pie during off peak leisure travel periods through our direct-to-consumer marketing approach that appeals to those seek and relief from sky high fares for flights that connect through crowded hubs and makes them aware of believes in slow fare and all non-stop flights brand.

And as our customer research points do, we continue to grow our addressable customer audience by capturing a greater share of those who have usually flown traditional higher fare carriers, but given the current environment are choosing to buy into the ULCC category with Allegiant. As such, we believe Allegiant is well-positioned to weather any challenging macroeconomic conditions, just as we have always done historically. And with that, I will turn it over to our Chief Revenue Officer, Drew Wells.

Drew Wells: Thank you, Scott, and thanks everyone for joining us this morning. I’m extremely pleased with the first quarter performance of 650 million in total revenue, growth of nearly 30% and system ASM growth of just 1.2%. This combination produced a TRASM of 13.89, which beat any previous first quarter by a $0.04 and grew year-over-year by 28.8%. Further, four March weeks landed in the top 12 from an all time TRASM perspective. Could not be happier with the peak spring break season and the quarter as a whole, both financially and operationally. The strength in the quarter was well balanced as both yields and core air ancillary products each contributed one to 1.5 points of outperformance against the expectation of the previous call, providing lift from the expected mid-20%.

Encouragingly, the Allegiant extra rollout while still early has continued to exceed expectations and we are thrilled to make this option available to more guests on more routes soon. Additionally, our Charter Group worked incredibly hard to set a first quarter record revenue performance as well. They were opportunistic in filling in scheduled service gaps, through high fuel January and February, with new fixed fee business giving us the incremental lift. As I mentioned three-months ago, we are looking at forward indicators and have not seen anything that causes to incorporate a downturn into our models. While we continue to read and hear the same headlines, we have not seen booking impact from our leisure customer base and have forecasted as such.

In the event, macroeconomic pressures become real, our business model is well-positioned to adapt and overcome. Building on Scott’s commentary, many of the pieces that have made us resilient to macroeconomic pressures have strengthened overtime. Our total ancillary performance of $75 per passenger in the first quarter provides a very healthy base from which we can optimize airfare to maximize total revenue and historically has shown resilience in all environments. We accomplished that milestone without the expected benefits of Navitaire coming later this year after the upcoming deployment Greg mentioned. Our trip costs has reduced and will continue to reduce drastically since the last non-COVID economic downturn. Thanks to the addition of first used Airbus A320 family aircraft and soon, New Boeing Max technology that continue to lower the threshold required to achieve profitability.

On the whole, we still expect chasm over the last nine-months to be up mid single digits in aggregate even in the face of more challenging comps with the most challenging coming in the fourth quarter. Continued operational stability, a historically mature network, expanded Allegiant extra product and the Navitaire integration provide tailwinds that support the revenues fairly through the year. As we continue to work hand-in-hand with our operational groups to best align the future schedule, we have made the decision to trim about 2.5 points of capacity out of our summer schedule, which will push the next two-quarters to around flat year-over-year and the full-year ASM story a bit lower than originally thought. While our original plan schedule already had dialed back Vegas as a percent of the overall system, an outsized portion of the recent summer trims also came here in Vegas as construction work impacts operations.

We remain bullish on the demand environment, though factors like completion, operational reliability, both controllable and uncontrollable to Allegiant as well as fuel will continue to play a role in the planning process. And with that, I would like to turn it over to Robert Neal.

Robert Neal: Thanks Drew. And thank you to everyone for joining us today. We are pleased to report today first quarter consolidated net income of $56.1 million, yielding a consolidated adjusted earnings per share of $3.04 and when excluding Sunseeker, we reported airline only EPS of $3.30 well ahead of our expectations. Drew mentioned that unit revenues increased 28.8% versus the same quarter last year. This was on the back of X fuel airline unit cost of 7.75, which were up 9.8% as compared to the same quarter last year on 1.2% more capacity. Unit cost headwinds in the quarter included elevated airport costs, lower aircraft productivity and higher credit card fees from higher revenue along with a one-time employer retention credit that we had in the 2022 comp.

Additionally, fuel costs were elevated through much of the quarter coming in 11.4% higher per gallon versus the first quarter of 2022, but improved operational performance provided a nice tailwind to our unit costs. As noted, we have reduced our full-year 2023 capacity outlook by roughly 2.5 percentage points. So we expect this will leave continued pressure on unit cost metrics throughout the year. However, since our last guidance update, we have seen improvements in our fuel cost outlook driven primarily by a steep reduction in the crack spread of nearly a dollar per gallon from the high point in late January, allowing us to reduce our estimated full-year cost per gallon to be $3 down from $3.60. The reduced fuel forecast coupled with continued strength and peak leisure demand drives an increase to our full-year airline estimated earnings per share of $4 at the midpoint to a new range of $9 to $13.

Our full-year earnings guidance incorporates increased costs associated with pilot flight attendant and dispatcher agreements, as well as wage increases for our maintenance technicians all beginning in May. While of course actual increases in these costs will vary depending on the final terms reach, completing these CBAs with major work groups is a top priority for us. We are built to be a larger airline than the one we are running today, and we believe the efficiencies gain from better utilizing our existing infrastructure and fleet will outweigh costs associated with new labor rates. In looking at the balance sheet, we finished the quarter with total available liquidity of $1.5 billion. That includes approximately 400 million in undrawn credit facilities and 1.1 billion in cash and cash equivalents.

The business produced roughly 215 million in cash from operations during the quarter, a first quarter company high for Allegiant. As our capital expenditure commitments remain elevated throughout 2023, we will continue to take a conservative approach to liquidity and expect to finance most of this year’s CapEx with debt. Now turning to fleet, we inducted three Airbus A320ceo aircraft during the first quarter, bringing the total operating fleet to 124 aircraft with two additional A320 aircraft owned in on property at the end of the quarter, which we expect in operation in the coming weeks. For the remainder of 2023, we expect to take delivery of three midlife A320 series and two 737 MAX 8-200 aircraft. As mentioned on our last call, our first 737 8-200 aircraft are scheduled for delivery to Allegiant very late in the fourth quarter.

And so for capacity planning purposes, we are not relying on these airplanes for revenue service until early 2024. We remain in very active dialogue with Boeing regarding the remainder of our 737 MAX delivery schedule. And as of today, still expect to take delivery of all aircraft in the firm order book by late 2025. 2023 is an investment year for Allegiant with approximately one billion in CapEx, and most of this is for assets with earning potential coming in 2024. And so notwithstanding our expected earnings production this year, we would expect to exit 2023 with net debt to EBITDA similar to current levels. In regard to Sunseeker CapEx, our current capitalized expenditures and updated budget in today’s release would indicate 124 million remaining to complete the project.

The deposit account for our Sunseeker financing facility holds 118 million in cash allocated for completion of resort construction. So to clarify, for the remaining 124 million, we do not expect meaningful use of liquidity sources to cover remaining construction costs. In closing, I would like to add my thanks to all of our hardworking team members, their strong execution during the first quarter, and in particular, improved operational metrics gives me great confidence in our ability to scale this unique business model. With that, Chris, we are ready to take questions.

Operator: Thank you. One moment for our first question. Our first question will come from Savi Syth of Raymond James. Your line is open.

Unidentified Analyst: Hey, good morning, everyone. Thanks for the time. This is (Ph) on for Savi. You all provided some color on the capacity and CASM-X impacts. I’m wondering if you could provide maybe a little detail on each one of those buckets and how you are thinking of the contribution there and the cadence from second quarter and the second half as well.

Robert Neal: Yes, Matt, it is BJ, you know, I think in the 9.8% increase year-over-year, you can think about four points of that being related to the retention credit. That is largely offset by the benefit from, reduced irregular offs costs. And then you have got a couple points for reduced asset utilization. A couple points for credit card fees and then, let’s call it, three for stations and airport related costs. I think that covers it, the rest of it should kind of fall onto the other bucket there.

Unidentified Analyst: Okay. Thanks. I appreciate that there. And then also you all spoke on the pilot situation and your net hires for the year. Does that imply that attrition has gotten worse to your prior plan or how are you thinking about attrition relative to when you spoke about it last quarter?

Gregory Anderson: Hey, Matt. It is Greg. No. I mean, attrition is in-line with what the plan is, but where we have seen a lot of upside, particularly as of late as within the schoolhouse, so the new hires coming in. The team there and I think I mentioned this on the last call have some terrific pathway program with the military, with the universities called Alleviate Pilot Pathway and also with Spartan. So to put that into perspective, we were planning on like 12 new pilots per class. We are roughly running in May 20 and in the summer as well, 20 per class. So we are encouraged on that regard. I think in my opening comments, so I mentioned that just overall, it is in-line with what we are expecting and basically net pilot is flat.

Unidentified Analyst: You did great. Thank you all very much.

John Redmond: Thanks Matt.

Operator: Thank you. The next question will come from Michael Linenberg of Deutsche Bank. Your line is open.

Michael Linenberg: Good morning everyone. Question for Scott DeAngelo. Scott, you do a lot of survey work, it seems to be fairly granular. I was intrigued by the answer of first time flyers who – the last time they had flown, they had flown one of the legacy carriers. Do you also ask some of these customers first time or even current customers who’ve flown the bigger carriers? What was the reason and whether if the reason had to do with a loss of service? I think we have seen the big three pull out of about 70 or 80 airports over the last year or so. And some of those airports are airports that you serve. And I’m just curious if that – you are picking up some of that traffic? And I have a second question.

Scott DeAngelo: Yes, absolutely. Thanks Michael for that question. The answer is, yes. The winning reasons still tend to be price and non-stop flight, followed by schedule. But indeed in places where they pulled out as has been kind of our history of growing up market that certainly is a tailwind as well. But I would say, largely these are people actively choosing us versus other options because of price and because of non-stop flights.

Michael Linenberg: Okay, great. And then just in the revised guidance, I guess this is probably for Greg and BJ. You can back into kind of the impact from the reduced fuel price. What sort of assumption are you building in for revenue that you are able to hold on to. I assume you are building in sort of loss of revenue as fuel prices decline, just given the historical correlation, what is the stickiness? I don’t know, if you have some sort of correlation or percentage fuel down by a certain amount, you cut revenue by a certain amount to reflect maybe macro weakness and/or pass through in the fair structure. How do you think about that? Thank you.

Drew Wells: Hey, Mike. Drew here, I will take this one. There is definitely a relationship between the two. But if you think about how Allegiant has historically handled fuel price changes has been through capacity. And as we have kind of become our own worst enemy if you will towards unitized metrics as we add capacity and to take advantage of lower fuel, but is a massive benefit to the bottom line. We are probably a bit more constrained than we have been historically to be able to fully take advantage of a fuel price declines here in the short-term. So I would expect our revenue to remain more intact, it will probably won’t be non-impacted, but I wouldn’t run away with any sort of materiality on decreases to the rest side.

Scott DeAngelo: Okay, fair that is helpful in allowing us to set the things right and the impact. Thank you.

Operator: Thank you. Next question will come from the line of Duane Pfennigwerth of Evercore ISI. Your line is open.

Duane Pfennigwerth: Hey thanks, good morning to you. So just with respect to the guidance, I think you said the next couple quarters flat, which I assume 2Q is one of those quarters. So if you can hit 2Q flatten 2Q, it is your biggest quarter of the year in terms of absolute ASMs. I assume you feel like you are undersized a bit relative to demand in 2Q. So, just bear with me here. If you can hit flat in 2Q just mathematically, it feels like you could hit low teens growth in 3Q and mid-teens growth in 4Q just mathematically. So what is holding you back or just practically how would you push back on that math?

John Redmond: Yes, Duane, I think the way I would talk about is break down the quarters into the different periods, right. So we think about third quarter will be mostly constrained, obviously in our peaks. And so, there is a ceiling on what we can do in July, which will impact the quarter as a whole. And there probably is room if we wanted to increase September. But I don’t think that is something that we are looking to do today. I think – is down 3% again this morning. If that continues to run down, I think you will see some, some additions into September. So it is a lot about breaking out where we are constrained. September being fuel versus demand, if we get goodness there, then you are right. I would expect some run, but otherwise, it is going to be dictated by the peak flying in each of those quarters and where that ceiling hits.

Gregory Anderson: Hey Duane, this is Greg. Maybe let me just add one other comment to that, and at the end of the year, we start to take our Boeing aircraft, so we are going to pull crew. We want to be ready to make sure that we could support that order. And so that is another element to kind of limit the capacity growth in the back half of the year.

Duane Pfennigwerth: Just to follow-up there, why would ramping on Boeing impact growth on Airbus?

John Redmond: We have to pull the crews to get them trained to be able to fly on the Boeing Max. So we will have a number of pilots that are offline for that training that unable to fly on the Airbus during that time.

Duane Pfennigwerth: Okay, and then maybe just relatedly, just because I wanted to ask you about that. What are the sort of second fleet type costs that you are expecting in the back half of the year that you are not incurring now? I guess I would have thought of that as sort of net new, fresh recruiting of Boeing and pilots, but maybe we are thinking about that the wrong way.

Gregory Anderson: Yes, the way we have it planned Duane, is, the way I think about it is. From a pilot inefficiency perspective in terms of pulling pilots to Drew’s point to train on the new aircraft, we think probably this year in 2023 it will be roughly $5 million headwind. And then as we go into 2024 and 2025, that gets up to $15, but it then normalizes kind of back in 2025. So from a DNA perspective, there will be a headwind, we think of the back half of this year with the limited productivity from a CASM perspective. But, you know, I think that is probably two tenths of a cent thereabouts, is what we are expecting. But is that, maybe, let me pause there. Is that kind of where you are going. You just wanted to understand the headwinds from a D&A and a, you know, labor perspective.

Duane Pfennigwerth: Thank you.

Operator: Thank you. One moment please for our next question. The next question will come from Conor Cunningham of Melius Research. Your line is open.

Conor Cunningham: Hi everyone. Thank you. So historically I think you have done like 60% of your net income in the first half. I mean, this year’s going to be a little bit different with labor and some of the Sunseeker stuff, but just curious on how you get to the high end and the low end in the back half, if not just, is it all, you know, unit revenue based. Just curious on the swing factors there. Thank you.

John Redmond: Yes. Sorry Conor, we were discussing it. Yes, I think the revenue environment is a pretty big impact there. I would also, as we would like to caution pretty much every quarter, remember our share count is relatively low. So a $4 swing in EPS, is not a lot in absolute terms of bottom line. So you don’t have to be a big one, fuel. We will swing a little bit too. I don’t know if there is anything else you guys want to talk about.

Gregory Anderson: Yes, I mean, I think Connor, this is Greg just to hit, you know, on that point. And there is kind of like three, the way I think about it, three periods in the year that really, you know, drive the bottom line. That is March or, that is the summer and that is the holiday period. So, you know, first quarter I think, I thought we put out some really good numbers. I think second quarter we will do the same and that that will continue to catapult us into a really strong year as we see it.

Conor Cunningham: Okay. That is helpful. And then just on the MAX, I’m just curious on if there is any language in the contract that can allow you to get out of the seven if the certification continues to be delayed. Have you thought about that at all, as you start to think about like, getting back to this double digit growth rate, I think that you have historically spoke to in 2024 and beyond? Thank you.

John Redmond: Yes. Hey Conor, I mean, we can’t talk about language in the contract. I think we have, you know, adequate protection for the company in that agreement with respect to the certification on the MAX, we have been close to Boeing throughout all of this year, as they have been working on getting that aircraft certified. I don’t know that at this point we have any interest in getting out of those commitments just given we think those delivery positions are extremely valuable and we are really looking forward to the earnings that those aircraft are going to produce as compared to those that they will replace.

Gregory Anderson: Hey, Connor. This is Greg. I might just add a couple of quick comments to that as well. As we think about longer-term over the next five to six years, at Allegiant, we are planning to be an airline with 200 aircraft. This order with Boeing, this is a big foundational piece of partners to be part of that. And as BJ has talked about in the past, when you get to an airline of our size, having a new order is really important to support those long-term fleet plan targets. But as you said, the economics on the Boeing aircraft, they are 20% more fuel efficient. That is like we talked a lot about EBITDA per aircraft, six million in 2019. If you think about the MAX aircraft, those on average earn two million more in EBITDA per aircraft than our current fleet.

So terrific operating metrics there – numbers. There is some inefficiencies that we talked about with having dual fleet type, but obviously those operating economics we believe greatly outweigh those inefficiencies and also we are able to mitigate some of the complexities giving our unique base strategy where we base the different aircraft in various basis on all Airbus fleet of one base and all Boeing fleet in another. So all-in-all, we are still really fired up about the order. We think it could be a game changer long-term for us, bringing that fleet type in. The team has done a really good job of getting ready to bring it on.

Conor Cunningham: Okay. Thank you. I appreciate it.

Operator: Thank you. Next question will come from Daniel McKenzie of Seaport Global. Your line is open.

Daniel McKenzie: Thanks you guys. So a couple questions here. One was just trying to put a finer point on the full-year guide and my question really was just whether it embeds margin expansion in each of the remaining quarters. And if it would tie to revenue conservatism possibly some cost conservatism or perhaps more tied to sub-optimal aircraft utilization. Just, whatever you can share would be great.

Robert Neal: Hey, Dan, it is BJ, if you can hear me. Look, I mean, we have really tried to stay away from any guidance on the quarterly cadence in particular. Really proud of the on margin that we produced in the first quarter. I will say that, and I think you can kind of back into the off margin on a full-year basis and see about what we produced in the remaining three-quarters. To answer your question, we are not expecting continued expansion throughout the year. On the cost side, I think we feel pretty good about the cost scoring, most of a – lot of our costs are in definitely keeping an eye on fleet utilization and just the drag on asset productivity. But that is in our guide already. And then on the revenue side, Drew, if you have anything to add there?

Drew Wells: No, I mean we have pretty good insight to the second quarter, and then we are kind of a bit more blind as you go into the back half of the year. So there is certainly some variability that could be there.

Daniel McKenzie: Yes, I understood. Okay. Fair enough. Second question here, just follows up on that last point kind of a question on the cost of a good operation, and just getting at unpacking the upside from here operationally. So I guess what I’m trying to get at is the buffer that you guys have built into the schedule whatever may year it makes sense to benchmark against so reserves soft times spares today versus where you would like to be once past ATC understaffing, and then just related to the cost of this good operation, how can we think about the cost and revenue penalty that eventually goes away once we get back to the environment where we can operate a little bit more efficiently?

Gregory Anderson: Hey, Dan, why don’t I start with and just the – I think the quick takeaway is if you look at our IROPs numbers from last year, I think full-year 2022, it was roughly like 136 million in IROPs. The first quarter of 2022 was like 66 million. We were well below that this quarter, eight or nine million, eight million. So you can see that when you are not completing flights and you are running an operation that is not doing that, it gets really expensive really quickly. And so that is why, and shout out to John Redmond, and Drew and Kenny and team to make sure that we are putting up operational reliability focus, and then we will build on that. And then once you have that in place, you start seeing things across the board improve, for example, like unplanned absences with our, our flight crews are much better now trending in the right direction, because there is a better operations out there.

So you get that stability and then you start strengthening on top of that. So I think that gives a good indication on what the upside is and how important it is, particularly for us. We believe to run bid ops. But I think on the revenue side, Drew, did you want to follow-up with anything on that?

Drew Wells: No, I mean, you are right. We built that a fair amount and then schedule in terms of slack through the day to be able to catch up for be it ATC or things even out of our control, spare count’s a little bit higher. I would say we probably were under spared earlier, and we are probably at a healthier number now. We will continue to run heavy maintenance lines through the entire year, which is something that we weren’t doing as a smaller airline. So there are some kind of unique things that will persist in terms of lack of productivity, but are the right things overall for the company. So there is a little bit for us to recapture as we get into the next couple of years, particularly taking advantage of the reliability of the Boeing Mac aircraft as that rolls out. But I would say there is a fair amount of those penalties that will remain in place.

John Redmond: And when you look at all that, we obviously, we provide annual guidance because we are long-term thinkers, not short-term. And when you have a bad operation if you will, you denigrate your brand. And so our brand, as you heard me make a comment about is extremely important to us today and long-term. And that is why the operational integrity of the airline is paramount to what we want to do.

Gregory Anderson: And, Dan, just think I might just add one more quick point. Sorry to jump back in. But, we talked about this, I think, on the last call, but just like what an extra half hour productivity does to the bottom-line. Just an extra half hour of flying in today’s environment is worth like $50 million to the bottom-line with like an extra half hour worth a quarter of a cent of mix as well. So right now we are running about six hours a little over six hours per day, because that is for reasons we talked about some of the constraints. But as you are able to take that up with productivity, you can see some meaningful upside to the numbers that we provided.

Daniel McKenzie: Perfect. Thanks, you guys. I appreciate the time.

Operator: Thank you. Our next question will come from the line of Helane Becker of TD Cowen. Your line is open.

Helane Becker: Thanks very much, operator. Hi everybody. Thank you for the question. On second quarter CASM, just wanting to know, are you implying 10% year-over-year and then for second and third quarter and then fourth quarter down a little bit?

John Redmond: I don’t think we have implied anything at a quarter level. I think you could probably read between the lines a little bit over the last nine-months of aggregate and where the comparisons came in from last year, and maybe run with it from there. But, like Robert mentioned earlier, we are not going to buy too much of the quarterly specifics.

Helane Becker: Okay. Did you give a full-year CASM guidance number?

Robert Neal: No. We didn’t.

Helane Becker: Can you?

Robert Neal: No. I think we decided that we would just guide full-year EPS, Helane and then the other numbers that are there in the guidance table that you can kind of back into what is happening with CASM-ex throughout the year at the big fuel price.

Helane Becker: Okay. That is fair enough. And then I just have one unrelated question. Is the DOT approval of the Viva code share contingent on Mexico recouping CAT 1 status. And do you anticipate – I know I know the Mexicans, who are thinking they should have it by the fourth quarter. But given that FAA has to be reauthorized this year, are you anticipating any delays?

Gregory Anderson: Hey, Helane. It is Greg. Why don’t I take that real quick? The audits take place here in May and the expectation, this is for – I’m sorry that category one status being reinstated. Does that set to take place in May and our counterparts kind of Viva expect a great outcome there would expect the category one data to be reestablished in the summer. That is kind of the timing in that regard. In terms of our antitrust community approval with the DOT, the application is substantially complete. And so we are waiting for the DOT to come back with a ruling on that. There is not a set timeline per say. But I think we have all the information in and they get to it, then we will be looking forward to hearing where we are at with that. But we are optimistic that we will be.

Helane Becker: Thank you. Thanks

Gregory Anderson: Thanks Helane.

Operator: Thank you. Our next question will come from Catherine O’Brien with Goldman Sachs. Your line is open.

Catherine O’Brien: Hi, everyone. Thanks so much for the time. Really helpful to have the Sunseeker outlook that you gave us this quarter, but I was just hoping you could help us part that out a bit further. As we think about the fourth quarter, which is almost a full operating quarter, does that get closer to breakeven or how do we think about a typical ramp up for a new hotel opening to get to breakeven? Thanks.

Gregory Anderson: Hi Catherine. I think the best number we are going to provide at this point in time is the dollar and a quarter negative dollar and a quarter. There is a lot of moving parts we are going to still run into in Q4. You know, we believe the opening date is pretty solid, but anything can happen including another hurricane and you also have BI, interruption insurance. So there is a lot of things that can happen there that I wouldn’t want to mislead anyone in that regard. So I think as we stand today, I think we will just stick with the guidance that we gave on the negative UTS of a dollar a quarter for Sunseeker and leave it at that.

Catherine O’Brien: Okay fair enough. And then I apologize, I do want to come back to CASM for this year. I know, you are not providing any formal guidance, but you gave a lot of details last quarter on puts and takes. That got me personally to a high single digit airline only CASM-X increase year-over-year. And understanding council won’t be throughout the year, but now capacity is expected to be 2.5 points lower, and we are now assuming the labor step up in May versus July, versus where you were three-months ago is that a couple of extra points or given the capacity cut was a little further out, we shouldn’t be doing a one for one capacity versus CASM-X increase. Just on my own high single digit number that would get me into low double digits is, is any of that mask like in the right zip code?

Robert Neal: Yes actually it BJ. I think that with the guidance that we have put out there, that is about what you would imply or what you could take away on CASM-X for the full-year. You have got the – we took the labor costs, which were previously baked in beginning July 1 and brought them up to May 1, and then you take out a little bit of capacity, so it is slightly above where you were when we spoke last quarter.

Catherine O’Brien: Okay, got it. Thank you.

Operator: Thank you. Next question will come from Chris Stathoulopoulos of Susquehanna International Group. Your line is open.

Christopher Stathoulopoulos: Good afternoon everyone. So sorry to beat a dead horse here. But in the absence of some of the kind of more core explicit guidance items here, I just want to understand this. So in your prepared remarks, you talk about EPS growth despite lower capacity, it would seem that this is mostly chasm led, but you are really not giving kind of really much color on the cadence of that. The last question implied, it was sort of a low double digit if I got that for airline only for full-years. So in absence of hard numbers here, qualitatively here could you kind of put a fuller point here is this tram and better utilization and productivity led and also if I caught you right, it sounded like the base case or midpoint of your guide, the economic scenario underpinning that is sort of a steady state, and want to make sure that that is correct. Thank you.

Robert Neal: Yes, I will start and others can in here. I think, the raise on the guide of course taken into account the benefit of the reduced cool year fuel price. And then you are adding in some of the labor costs that we talked about for a couple of additional months there, and then continued revenue strengths in particular in the peak period. Drew.

Drew Wells: Yes. On the travel front outperformance in the first quarter relative to what we had communicated, but a reiteration of what we were expecting for the last nine-months. So that steady comment is accurate from that front.

Robert Neal: And we are not at the moment not forecasting a significant increase in asset utilization between now and the end of the year and that is just because we still have additional A320 aircraft coming on between now and -.

Christopher Stathoulopoulos: Okay. Got it. Thank you. And my follow-up. So when I talk about the trade down, which you referenced in your prepared remark in a recession scenario with clients, it is generally perceived as sort of an academic view and perhaps let’s wait and see how that plays out. So, and your customers are generally thought of as different versus the big three and the LCCs, I don’t think you gave much car in terms of demographics in your survey work, but there is the perception that it is a different bucket if you will, given really kind of how you run the airline and more variable flying, et cetera. So if you could give some more detail on why you believe that in a slowdown – I realize that it is perhaps ultimately going to just come down to lower fares there, but if you could put a finer point on why you feel so strongly about this trade down effect into cyclical slowing. Thank you.

Scott DeAngelo: You bet. This is Scott, and I’m happy to start there. So first off, the demographic profile of our customers, and let’s use CVG as a prime example. Formerly a Delta hub, they largely reduce flying it. We move it is one of our largest origin cities, and we share a bunch of customers with them. And from an income perspective, specifically discretionary from a summer second home ownership perspective, they are virtually the same customers. They often fly Delta when they are doing it on a corporate card, and when they are on their own dime, they don’t want to stop the Atlanta and route to their second home in Florida. So they fly us. So I know that is one airport specific example, a big one for us, but we see that play over and over again in the Indianapolis, in the Pittsburgh.

Think about places that network carriers traditionally had strong presence, but through consolidation, pulled outers, I like to say orphan in these markets. And what is left now is a former U.S. there – a former Delta and or shared customer that we have. So well, I know the market like to classify us next to the other ULCC. The customers don’t see it that way. All they know is what airports flying nonstop at low cost from their airport and cities we serve that is us. And the only other thing I would tell you, we have even, and this is complete back to the envelope, fuzzy mass, but as we extrapolate from the mini surveys we do to our customer base, it suggests anywhere from 1.5 to two to one kind of trade down, if you will. Meaning for every one customer who goes out of the market decides to drive or not fly, we are seeing 1.5 to two come from another carrier, as part of the buy down.

And so, we triangulate a bunch of different ways, but as a rule of thumb, that is what we have seen the last several quarters. And that is why we believe that if an app, macroeconomic environment shows deterioration people are still going to go see grandma for the holidays. They are still going to do a summer vacation as we saw. They went on spring break. They are just going to be a little more deliberate about the price they are paying and how quickly they can get there?

John Redmond: I think what it comes down to, this is John, the carrier selection is not indicative of someone’s net worth or demographic. The carrier selection is indicative of what someone’s willing to pay on the travel as opposed to what they are willing to pay on the experience. So people who want to pay more on the experience and less on travel, they are selecting a lower cost carrier like us because that is the decision they make. So the mistake a lot of people make is associating Allegiant with a different demographic and that is a large mistake, and it is really indicative of a customer deciding to spend less on travel, and more on the experience when they arrive.

Christopher Stathoulopoulos: Okay. Thank you.

Operator: Thank you. Our next question will come from the line of Scott Group of Wolfe Research. Your line is open.

Unidentified Analyst: Good afternoon. This is (Ph) on for Scott. Just one here. Some of your peers have discussed sort of weaker than normal trough periods given less fill of peak demand. Just wondering if this is something Allegiant is seeing as well.

Drew Wells: Drew here, I think what a lot of carriers are experiencing is what the leisure seasonality looks like. What we saw in January and February was very typical for what we would expect. We have still elevated relative to pre pandemic kind of performance. But the leisure customer, it generally needs that that catalyst, travel at spring break, that summer, holidays, a lot of things that Scott just mentioned in the last response. And I think maybe as an industry, we got carried away with how good September was, I think folks got priced out of the summer, and we are able to re-accommodate it to September. But I don’t think that forward run rate we should expect through the January, February, through September, through the early December that are traditionally quite poor in the leisure space. So everything is elevated, but there is still going to be the peaks and valleys that are supposed to be leisure travel.

Unidentified Analyst: That is helpful. Thanks.

Operator: Thank you. This will end the Q&A session for today’s call. I would now like to turn the conference back to John Redmond for closing remarks.

John Redmond: Thank you, operator. I recently had read a analyst report and it kind of reminds me of a comment I made several years ago in a Investor Day, which was, don’t bet again Allegiant. This Allegiant team has only gotten better with each negative issue raised in the past from pre-transition risk to management change and course two more recent events such as pandemics and hurricanes. But we have only gotten significantly better as a team with a model that has been refined and transformed for an incredible future. So stay tuned. And again, I look forward to hosting many of you next week in Florida, should be a lot of fun and very informative as well. So thank you all for your time and take care.

Operator: This concludes today’s conference call. Thank you all for participating. You may now disconnect, and have a pleasant day.