Allegiant reports its 3Q results, will now retire its last McDonnell Douglas MD-80 by the end of 2018

Allegiant Air McDonnell Douglas DC-9-83 (MD-83) N884GA (msn 49401) BWI (Tony Storck). Image: 939690.

Allegiant Travel Company (Allegiant Air) has reported the following financial results for the third quarter 2017, as well as comparisons to the prior year:

Three Months Ended
September 30,
Nine Months Ended
September 30,
Unaudited 2017 2016 Change 2017 2016 Change
Total operating revenue (millions) $ 348.8 $ 333.5 4.6 % $ 1,125.2 $ 1,026.9 9.6 %
Operating income (millions) $ 42.9 $ 76.8 (44.1 )% $ 201.0 $ 302.4 (33.5 )%
Net income (millions) $ 22.3 $ 45.5 (51.0 )% $ 112.4 $ 178.3 (37.0 )%
Diluted earnings per share $ 1.39 $ 2.75 (49.5 )% $ 6.85 $ 10.73 (36.2 )%
Return on capital employed* 14.7 % 24.8 %

* – see appendix for calculation, represents twelve months ended September 30

 

“Lastly, our board of directors approved a more aggressive retirement plan for our MD-80s. We now plan to retire our last MD by the end of 2018. This is one year earlier than was previously expected. A hearty ‘thank you’ goes out to the members of our fleet team, who through hard work were able to source enough used A320 aircraft to make this happen. This is the end of an era for our company. The ‘80’ has been critical to our success and growth for the past 15 years – it will be missed.”

Notable highlights

  • Operational improvements – 61 percent reduction in controllable cancellations in the quarter
  • Airbus growth – Added five A320s and one A319 into revenue service during the quarter
  • MD-80 retirements – Retired five MD-80s during the quarter – remainder expected to be retired by the end of 2018
    ◦ MD-80s and related assets have a net book value of $42 million and are being reviewed for impairment
  • Sunseeker Resorts – In August, announced plans to develop a hotel/condo resort in Charlotte County, Florida
  • Network growth – As of September 30, 2017 the company is operating 373 routes versus 337 last year
  • New aircraft base – Announced Indianapolis, Indiana as an aircraft base to support the growth in that area
  • Shareholder returns – $11 million was returned through its recurring dividend paid in September 2017. The company:
    ◦ Will pay dividend of $0.70/share on December 5, 2017 to shareholders of record as of November 22, 2017
    ◦ Has share repurchase authorization of up to $100 million

Third quarter 2017 revenue

  • TRASM results – Third quarter TRASM increased 0.7 percent in spite of:
    Increased MD-80 spares during the quarter, which resulted in a three percent decline in peak period capacity
    Hurricane Irma:
    ▪ Approximately two percent of scheduled ASMs for the quarter were canceled
    ▪ TRASM – Expected benefit from reduced ASMs – offset by refunds and decreased demand to Florida

Fourth quarter 2017 revenue trends

  • TRASM guidance – Expect a decline between three and 0.5 percent which is influenced by:
    ◦ Hurricane Irma and the Las Vegas mass shooting
           ▪ Approximately 80 percent of fourth quarter ASMs touch Las Vegas or Florida
    ▪ So far a decrease in demand during fourth quarter
    ▪ Impact on fourth quarter TRASM expected to be approximately between 3 and 3.5 percentage points
    ◦ Peak period flying – Fourth quarter peak capacity expected to increase nine percentage points

Third quarter cost

  • Third quarter CASM ex fuel increased 16.7 percent versus the same period last year, primarily driven by:
    ◦ Transition costs added four percentage points to increase, including:
    Reduced ASMs from fleet transition through lower utilization of MD-80s
    ▪ Other operational inefficiencies driven by the transition to an all Airbus fleet
      ◦ New pilot agreement – Added one percentage point
    Incremental depreciation from additional Airbus aircraft – added three percentage points
    Elimination of the credit card surcharge product
    ▪ January 2017 discontinued credit card surcharge which had offset sales and marketing expense
    ▪  Added four percentage points in quarter
    Hurricane Irma – Added almost two percentage points due to flight cancellations

Fourth quarter 2017 cost trends

  • Fourth quarter 2017 CASM ex fuel is expected to increase between seven and nine percent, primarily driven by:
    ◦ Transition costs – Expected to add three percentage points to increase, including:
    Reduced ASMs from fleet transition through lower utilization of MD-80s
    ▪ Other operational inefficiencies driven by the transition to an all Airbus fleet
      ◦ New pilot agreement – Expected to add one percentage point due to increased benefit costs
    Incremental depreciation on additional Airbus aircraft – Expected to add two percentage points
    Elimination of credit card surcharge – Expected to add three percentage points

Full year 2017 cost trends

  • Full year 2017 CASM ex fuel
      ◦ Expected to increase between eleven and twelve percent
    ◦ Previously guided range of plus ten to twelve percent
  • Maintenance and repairs expense
    ◦ Expected between $105 and $110 thousand per in-service aircraft per month for 2017
    ◦ Previously guided range – between $100 and $110 thousand
  • Total ownership expense per aircraft per month
      ◦ 2017 ownership expense per in-service aircraft – between $125 and $130 thousand per month
    ◦ Previously guided range between $125 and $135 thousand

Balance sheet activity and full year 2017 trends

  • Full year CAPEX guidance is expected to be $604 million, versus prior guidance of $525 million
    ◦ Higher amount driven by expected commitment for five additional Airbus A320 aircraft in the fourth quarter
    ◦ Excludes Airbus heavy maintenance and Sunseeker resort
  • Raised $158 million in debt proceeds during the third quarter
    ◦ Includes monies drawn from existing $56 million revolving credit facility
    ◦ Seven Airbus aircraft remain unencumbered at end of third quarter
    ▪ Includes one new A320 which was collateralized in October

Copyright Photo: Allegiant Air McDonnell Douglas DC-9-83 (MD-83) N884GA (msn 49401) BWI (Tony Storck). Image: 939690.

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