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Allegiant Travel Company Third Quarter 2017 Financial Results

Third Quarter 2017 Fully Diluted Earnings per Share of $1.39
Accelerate the Retirement of the MD-80 Fleet to Fourth Quarter 2018

LAS VEGAS, Oct. 25, 2017 (GLOBE NEWSWIRE) -- Allegiant Travel Company (NASDAQ:ALGT) today 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 2016Change 2017 2016Change
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

“Our hearts go out to all of those involved in the tragic mass shooting in our home community," stated Maurice J. Gallagher Jr., chairman and CEO of Allegiant Travel Company. "While we mourn the victims we praise the heroes who always emerge from these tragedies, including a number of our Las Vegas maintenance personnel who provided shelter for more than 30 concert goers fleeing the melee of the shooting scene."

"Our team members produced another profitable quarter, the 59th consecutive. Typically, summer months have challenged our operations as we peak up. However, this July and August we saw meaningful improvements on just about every operational metric we track. Hurricane Irma created a unique set of challenges. We canceled 444 flights but quickly got back to work, providing our team members and customers with needed transportation to their abandoned homes in Florida. As usual, our team members rose to the challenge and did a great job responding to Mother Nature’s calamity."

"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


Guidance, subject to revision
4Q17
Estimated TRASM year-over-year change (3.0) to (0.5)%
Fixed fee and other revenue guidance 4Q17
Fixed fee and other revenue (millions) $19 to $21
Capacity guidance
System4Q171Q18FY17
Departure year-over-year growth7 to 11%8 to 12%
ASM year-over-year growth9 to 13%10 to 14%9 to 10%
Scheduled
Departure year-over-year growth7 to 11%8 to 12%
ASM year-over-year growth9 to 13%10 to 14%9 to 10%
Cost guidance4Q17 FY17
CASM ex fuel* – year-over-year change7 to 9% 11 to 12%
CAPEX guidance FY17
Capital expenditures (millions) $604
Capitalized Airbus deferred heavy maintenance (millions) ** $35
Sunseeker resorts ** $35

* - CASM ex fuel – cost per available seat mile excluding fuel expense
** - Not included in capital expenditure total

Aircraft fleet plan by end of period
Aircraft - (seats per AC) 3Q17YE171Q182Q183Q18YE18
MD-80 (166 seats) 40 37 35 29 20
757 (215 seats) 2
A319 (156 seats) 21 22 25 31 31 32
A320 (177/186 seats) 26 29 34 42 45 50
Total 89 88 94 102 96 82

Aircraft listed in table above include only in-service aircraft, planned retirements and future aircraft under contract (subject to change)

Allegiant Travel Company will host a conference call with analysts at 4:30 p.m. ET Wednesday, October 25, 2017 to discuss its third quarter 2017 financial results. A live broadcast of the conference call will be available via the Company’s Investor Relations website homepage at http://ir.allegiantair.com/. The webcast will also be archived in the “Events & Presentations” section of the website.

Allegiant®

Las Vegas-based Allegiant (NASDAQ:ALGT) is focused on linking travelers in small cities to world-class leisure destinations. The airline offers industry-low fares on an all-jet fleet while also offering other travel-related products such as hotel rooms and rental cars. All can be purchased only through the company website, Allegiant.com. Beginning with one aircraft and one route in 1999, the company has grown to more than 85 aircraft and 350 routes across the country with base airfares less than half the cost of the average domestic roundtrip ticket. For downloadable press kit, including photos, visit: http://gofly.us/iiFa303wrtF.

Media Inquiries: mediarelations@allegiantair.com

Investor Inquiries: ir@allegiantair.com

Under the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, statements in this press release that are not historical facts are forward-looking statements. These forward-looking statements are only estimates or predictions based on our management's beliefs and assumptions and on information currently available to our management. Forward-looking statements include our statements regarding future unit revenue, future operating expense, ASM growth, departure growth, fixed-fee and other revenues, expected capital expenditures, number of contracted aircraft to be placed in service in the future, timing of aircraft retirements, as well as other information concerning future results of operations, business strategies, financing plans, industry environment and potential growth opportunities. 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," “guidance,” "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 generally may be found in our periodic reports filed with the Securities and Exchange Commission at www.sec.gov. These risk factors include, without limitation, an accident involving, or problems with, our aircraft, our reliance on our automated systems, limitation on growth as we transition to a single fleet type, 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 under contract, terrorist attacks, risks inherent to airlines, our competitive environment, our reliance on third parties who provide facilities or services to us, the possible loss of key personnel, economic and other conditions in markets in which we operate, the ability to successfully develop a hotel-condo project in Southwest Florida, governmental regulation, increases in maintenance costs and cyclical and seasonal fluctuations in our operating results.

Any forward-looking statements are based on information available to us today and we undertake no obligation to update publicly any forward-looking statements, whether as a result of future events, new information or otherwise.

Detailed financial information follows:

Allegiant Travel Company
Consolidated Statements of Income
(in thousands, except per share amounts)
(Unaudited)
Three Months Ended September 30, Percent
2017 2016 change
OPERATING REVENUE:
Scheduled service revenue$183,064 $177,361 3.2
Ancillary revenue:
Air-related charges 130,818 127,301 2.8
Third party products 12,348 11,259 9.7
Total ancillary revenue 143,166 138,560 3.3
Fixed fee contract revenue 11,831 9,183 28.8
Other revenue 10,708 8,377 27.8
Total operating revenue 348,769 333,481 4.6
OPERATING EXPENSES:
Aircraft fuel 80,421 69,305 16.0
Salary and benefits 88,788 73,424 20.9
Station operations 37,148 32,252 15.2
Maintenance and repairs 28,870 26,263 9.9
Depreciation and amortization 31,894 25,881 23.2
Sales and marketing 13,884 5,650 145.7
Aircraft lease rentals 533 472 12.9
Other 24,315 23,394 3.9
Total operating expense 305,853 256,641 19.2
OPERATING INCOME 42,916 76,840 (44.1)
OTHER (INCOME) EXPENSE:
Interest income (1,454) (781) 86.2
Interest expense 10,041 6,938 44.7
Other, net (400) (308) 29.9
Total other (income) expense 8,187 5,849 40.0
INCOME BEFORE INCOME TAXES 34,729 70,991 (51.1)
PROVISION FOR INCOME TAXES 12,436 25,538 (51.3)
NET INCOME$22,293 $45,453 (51.0)
Earnings per share to common shareholders (1):
Basic$1.39 $2.76 (49.6)
Diluted$1.39 $2.75 (49.5)
Weighted average shares outstanding used in computing earnings per share to common shareholders (1):
Basic 15,852 16,389 (3.3)
Diluted 15,862 16,406 (3.3)

(1) The Company's unvested restricted stock awards are considered participating securities as they receive non-forfeitable rights to cash dividends at the same rate as common stock. The Basic and Diluted earnings per share calculations for the periods presented reflect the two-class method mandated by ASC Topic 260, "Earnings Per Share." The two-class method adjusts both the net income and the shares used in the calculation. Application of the two-class method did not have a significant impact on the Basic and Diluted earnings per share for the periods presented.

Allegiant Travel Company
Operating Statistics
(Unaudited)
Three Months Ended September 30, Percent
2017 2016 change*
OPERATING STATISTICS
Total system statistics:
Passengers3,045,642 2,939,055 3.6
Revenue passenger miles (RPMs) (thousands)2,672,963 2,645,533 1.0
Available seat miles (ASMs) (thousands)3,220,246 3,121,762 3.2
Load factor83.0% 84.7% (1.7)
Operating expense per ASM (CASM) (cents)9.50 8.22 15.6
Fuel expense per ASM (cents)2.50 2.22 12.6
Operating CASM, excluding fuel (cents)7.00 6.00 16.7
ASMs per gallon of fuel72.6 70.6 2.8
Departures22,723 21,384 6.3
Block hours49,932 47,739 4.6
Average stage length (miles)842 864 (2.5)
Average number of operating aircraft during period89.7 84.0 6.8
Average block hours per aircraft per day6.1 6.2 (1.6)
Full-time equivalent employees at end of period3,704 3,287 12.7
Fuel gallons consumed (thousands)44,346 44,187 0.4
Average fuel cost per gallon$1.81 $1.57 15.3
Scheduled service statistics:
Passengers2,998,476 2,904,295 3.2
Revenue passenger miles (RPMs) (thousands)2,618,446 2,603,849 0.6
Available seat miles (ASMs) (thousands)3,073,360 2,997,529 2.5
Load factor85.2% 86.9% (1.7)
Departures21,498 20,398 5.4
Block hours47,481 45,740 3.8
Total scheduled service revenue per ASM (TRASM) (cents)**10.61 10.54 0.7
Average fare - scheduled service$61.05 $61.07
Average fare - ancillary air-related charges$43.63 $43.83 (0.5)
Average fare - ancillary third party products$4.12 $3.88 6.2
Average fare - total$108.80 $108.78
Average stage length (miles)849 869 (2.3)
Fuel gallons consumed (thousands)42,193 42,439 (0.6)
Average fuel cost per gallon$1.80 $1.59 13.2
Percent of sales through website during period93.3% 94.6% (1.3)

* Except load factor and percent of sales through website, which is percentage point change.
** Various components of this measurement do not have a direct correlation to ASMs. These figures are provided on a per ASM basis to facilitate comparison with airlines reporting revenues on a per ASM basis.

Allegiant Travel Company
Consolidated Statements of Income
(in thousands, except per share amounts)
(Unaudited)
Nine Months Ended September 30, Percent
2017 2016 change
OPERATING REVENUE:
Scheduled service revenue$615,777 $568,089 8.4
Ancillary revenue:
Air-related charges 407,789 376,944 8.2
Third party products 39,394 34,482 14.2
Total ancillary revenue 447,183 411,426 8.7
Fixed fee contract revenue 34,120 22,690 50.4
Other revenue 28,140 24,743 13.7
Total operating revenue 1,125,220 1,026,948 9.6
OPERATING EXPENSES:
Aircraft fuel 250,470 182,969 36.9
Salary and benefits 277,307 211,185 31.3
Station operations 107,979 96,313 12.1
Maintenance and repairs 87,611 82,016 6.8
Depreciation and amortization 92,571 75,962 21.9
Sales and marketing 36,744 16,774 119.1
Aircraft lease rentals 3,098 924 235.3
Other 68,440 58,363 17.3
Total operating expense 924,220 724,506 27.6
OPERATING INCOME 201,000 302,442 (33.5)
OTHER (INCOME) EXPENSE:
Interest income (4,193) (2,102) 99.5
Interest expense 27,332 21,567 26.7
Other, net (1,254) (972) 29.0
Total other (income) expense 21,885 18,493 18.3
INCOME BEFORE INCOME TAXES 179,115 283,949 (36.9)
PROVISION FOR INCOME TAXES 66,715 105,669 (36.9)
NET INCOME 112,400 178,280 (37.0)
Earnings per share to common shareholders (1):
Basic$6.85 $10.74 (36.2)
Diluted$6.85 $10.73 (36.2)
Weighted average shares outstanding used in computing earnings per share to common shareholders (1):
Basic 16,142 16,493 (2.1)
Diluted 16,160 16,514 (2.1)

(1) The Company's unvested restricted stock awards are considered participating securities as they receive non-forfeitable rights to cash dividends at the same rate as common stock. The Basic and Diluted earnings per share calculations for the periods presented reflect the two-class method mandated ASC Topic 260, "Earnings Per Share." The two-class method adjusts both the net income and shares used in the calculation. Application of the two-class method did not have a significant impact on the Basic and Diluted earnings per share for the periods presented.

Allegiant Travel Company
Operating Statistics
(Unaudited)
Nine Months Ended September 30, Percent
2017 2016 change*
OPERATING STATISTICS
Total system statistics:
Passengers9,233,083 8,410,422 9.8
Revenue passenger miles (RPMs) (thousands)8,340,269 7,831,436 6.5
Available seat miles (ASMs) (thousands)10,181,292 9,302,051 9.5
Load factor81.9% 84.2% (2.3)
Operating expense per ASM (CASM) (cents)***9.08 7.79 16.6
Fuel expense per ASM (cents)***2.46 1.97 24.9
Operating CASM, excluding fuel (cents)6.62 5.82 13.7
ASMs per gallon of fuel72.2 71.6 0.8
Departures69,739 61,271 13.8
Block hours159,181 142,515 11.7
Average stage length (miles)870 896 (2.9)
Average number of operating aircraft during period86.6 83.4 3.8
Average block hours per aircraft per day6.7 6.2 8.1
Full-time equivalent employees at end of period3,704 3,287 12.7
Fuel gallons consumed (thousands)141,054 129,862 8.6
Average fuel cost per gallon***$1.78 $1.41 26.2
Scheduled service statistics:
Passengers9,110,745 8,321,716 9.5
Revenue passenger miles (RPMs) (thousands)8,183,636 7,714,172 6.1
Available seat miles (ASMs) (thousands)9,747,395 8,967,614 8.7
Load factor84.0% 86.0% (2.0)
Departures66,355 58,744 13.0
Block hours151,988 137,066 10.9
Total scheduled service revenue per ASM (TRASM) (cents)**10.91 10.92 (0.1)
Average fare - scheduled service$67.59 $68.27 (1.0)
Average fare - ancillary air-related charges$44.76 $45.30 (1.2)
Average fare - ancillary third party products$4.32 $4.14 4.3
Average fare - total$116.67 $117.71 (0.9)
Average stage length (miles)875 901 (2.9)
Fuel gallons consumed (thousands)134,906 125,291 7.7
Average fuel cost per gallon***$1.76 $1.41 24.8
Percent of sales through website during period94.1% 94.3% (0.2)

* Except load factor and percent of sales through website, which is percentage point change.
** Various components of this measurement do not have a direct correlation to ASMs. These figures are provided on a per ASM basis to facilitate comparison with airlines reporting revenues on a per ASM basis.
*** Includes effect of $8.3 million fuel tax refunds in the second quarter of 2016.

Summary Balance Sheet

(millions)9/30/2017 12/31/2016 Change
(unaudited)
Unrestricted cash
Cash and cash equivalents$74.0 $64.7 14.4%
Short-term investments351.5 269.3 30.5
Long-term investments76.9 124.8 (38.4)
Total unrestricted cash502.4 458.8 9.5
Debt
Current maturities of long-term debt, net of related costs165.8 86.2 92.3
Long-term debt, net of current maturities and related costs845.7 722.0 17.1
Total debt1,011.5 808.2 25.2
Total Allegiant Travel Company shareholders’ equity$473.8 $473.6 %

Summary Cash Flow

Nine Months Ended September 30,
Unaudited (millions)2017 2016 Change
Cash provided by operating activities$296.4 $308.1 (3.8)%
Purchase of property and equipment, including capitalized interest*(333.7) (264.1) 26.4
Repurchase of common stock(90.4) (63.4) 42.6
Cash dividends paid to shareholders(34.5) (55.9) (38.3)
Proceeds from the issuance of long-term debt292.5 120.4 142.9
Principal payments on long-term debt(88.0) (63.5) 38.6

* Includes aircraft pre-delivery deposits.

Appendix A
Additional Financial Information
(Unaudited)
Twelve Months Ended September 30,
Return on capital calculation (millions)2017 2016
Net income attributable to Allegiant Travel Company$153.7 $235.0
Income tax87.4 137.2
Interest expense34.6 27.5
Less interest income(6.2) (2.6)
269.5 397.1
Interest income6.2 2.6
Tax rate36.3% 36.9%
Numerator175.6 252.2
Total assets as of prior September 301,538.4 1,309.4
Less current liabilities as of prior September 30479.5 363.6
Plus short term debt as of prior September 30137.5 69.6
Denominator1,196.4 1,015.4
Return on capital employed14.7% 24.8%


Source:Allegiant Travel Company