ALGT (2019 - Q1)

Good day, ladies and gentlemen, and welcome to the Q1 2019 Allegiant Travel Company Earnings Conference Call. At this time, all participants are in a listen-only mode. Following management's prepared remarks, we will host a question-and-answer session and our instructions will be given at that time. [Operator Instructions] As a reminder, this conference call may be recorded. It is now my pleasure to hand the conference over to Mr. Chris Allen, Investor Relations. You may begin. Chris Al

Thank you. Welcome to Allegiant Travel Company's First Quarter 2019 Earnings Call. On the call with me today are; Maury Gallagher, the company's Chairman and Chief Executive Officer; John Redmond, the company's President; Scott Sheldon, our Chief Financial Officer and Chief Operating Officer; Drew Wells, our VP of Revenue & Planning; Greg Anderson, our VP of Treasury and Principal Accounting Officer; and a handful of others that will help answer questions. We will start with some commentary and then open it up to question. The company's comments today will contain forward-looking statements concerning our future performance and strategic plan. Various risk factors that could cause the underlying assumptions of these statements and our actual results to differ 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 they do not materialize. To view the earnings release, as well as a rebroadcast of the call, feel free to visit the company's Investor Relations site at ir.allegiantair.com. Investor Relations website also contain reconciliations of any non-GAAP disclosures made in the prepared comments today. With that, I would like to turn it over to Maury.

Thank you, Chris, and good afternoon, everyone, and welcome to our Q1 conference call and comments. Firstly, I have not commented on recent calls maybe because we were in our transition period and we didn't think there was that much the same. My analogy for this period is equivalent to one hefty remodel and mainly there isn't a great deal, the same while under construction. But now that we're living in our new home, I want to give you a tour of where we're at and what we will be able to do in the coming quarters and years. First and foremost, we reiterated our 2019 guidance in our release, including raising fuel from $2.10 to $2.26 per gallon. Very pleased about that result. We're hitting our all cylinders post the transition. You know the transitions can be risky, but in our case, very much necessary. Also want to remind everyone, our results during our transition years, we're industry-leading in operating income in the like and some are model reconstituted with Airbus, Aircraft is alive and well. We have another great quarter, our 65th consecutive profitable one. We truly see the benefit of our transition to all-Airbus fleet. We have both an excellent financial and operational performance this past quarter. We led the industry in overall completion in Q1, and we're very pleased about that. And recently, we had a stretch of over 120 days without the mechanical cancellation, a record for us I might add. Our 85% on time arrival in March our peak month of the year was only a fraction behind Delta and Spirit for the third spot. Scott Sheldon and the team have done a great job with our operations. Long term, we are focused on completing our flight safely and on time. And in today's instant information world, doing what you say you're going to do is more important than ever. Interestingly, the three ULCCs; ourselves, Spirit and Frontier or one, two and three, respectively, in completion in this past quarter, while Spirit and we were number one and three and on time. Our financial outlook for 2019 is terrific. Our traffic is very good. Q1 results came in as planned. We had a 22% airline operating margin. Furthermore, we expect Q2 results will exceed Q1, given the Easter timing and the additional capacity we will be adding. In this flip-flop of Q2 outperforming Q1 has happened only two previous times in the past 10 years. The expenses inherent in our transition are being leaned from the system; ex-fuel controllable costs were trending down. As an example, we will have 17 aircraft during the year without adding the additional pilot, completing the transition, training for -- last of our crew members. Additionally, our fuel productivity continues to improve within all-Airbus fleet. John, Drew, Scott and Greg will take you through more of the specifics. Future is bright for us, and as airline, we're one of the best in the country, it is the backbone of what we do as a corporation and what we will continue to do. As we've said previously, we want to enhance our relationship with our customers and offer them more leisure products and garner a bigger share of their leisure wallet. To do this, we must offer more non-airline leisure products. The airline industry has historically been poor at generating new sources and revenues from its customers. The only enhancement I'm aware of in the past many years in many ways has been the ancillary revenues, which were developed in the late 2000 during the desperate recession we all experienced. These are not new revenues per se, but rather a repackaging of cabin features, such as wine room, seat assignments, Wi-Fi and serving food. We’ve always look for more revenue sources, including in-cabin ancillaries common in the industry, in fact, we pioneered many of these products, and we were able to develop these products because we not only control our own reservation sales platform and are focused on leisure traffic. We also developed third-party revenues in the early 2000s, including selling hotels, railcars and other attractions in addition to our airline offerings. We've proven leisure customers compared to a business customer and planning their trip who purchase additional leisure products from us. The more latest of that is our credit card offering, very pleased with that how that's going. Since 2005, we have sold over $1.3 billion in what we call third-party products, resulting in almost $400 million of incremental operating income as a result. One looks at the operating margin of the industry during the past 20 years, we are at the top with our 15.2% margin overall on average and on top by a wide margin I might add compared to number two Alaska at just under 11% and number three Southwest of 10.5%. Our third party products and the margin they have generated have been substantial difference makers during this 17 year period. We have three strategic focuses as go forward. One, continue to grow the airline as we have in the past many years. Two, continue our efforts in improving operations as we have in recent years and three, generate additional revenue opportunities from third-party products, including our golf effort, our family entertainment centers, Sunseeker Resorts, hotel management and other offerings. None of our third-party vendors will be in development for the next few years, particularly the FEC, which is beginning to come online. We have turned these efforts on non-airline for reporting purposes, and we'll provide you with updates on their progress. Today, they do not have a material impact on our results. In 2020 and 2021, we'll begin to see the benefits from these investments. As they come online, particularly the golf, FEC and Sunseeker efforts. We're also continuing our investment in our IT capabilities. As you're aware, 94% of our products are sold directly to our customers through our website and our app. Control of our automation has been pivotal in providing us with direct access to customers to sell airline products, ancillaries and our third-party products. Today, we are continuing this investment, enhancing our platform to allow customer -- customers' access to all of our products to purchase air, hotels, golf, our individually or in packages and to participate in our loyalty program all via a world-class app and through our website. We're also enhancing the platform to provide day-to-day operations and management abilities for Sunseeker and our golf program as we look for our airline. Our strategic question is how do we leverage our exceptional customer database into further revenue opportunities in the coming years? We spent many years selling other companies' products and earned substantial returns as I just mentioned. But we believe we can increase earnings by operating and selling third-party products we owned, such as the hotels and FECs and developing management programs for the golf and hotels and establishing relationships with other leisure groups such as minor league baseball. In fact, we should probably change the level of third party to first party, given we're going to own and control these products. Not only will these efforts increase earnings and will probably provide additional notes around the airline part of our world insulating us from future competition. Ultimately, this strategy is successful because of our relationship with the customer. Since the early 1990s, the airline companies have not been involved with and sold directly to their customers. There've been no middlemen with either of the airline or our third-party products, allowing us to both know who our customer is as well as capture a greater share of the economics of the transaction. Now we want further control of our non-airline products via ownership, allowing us to improve our margins yet again. We also have an outcome from investing and owning additional leisure products is to allow us to increase our touch points with our leisure customers and to further brand ourselves as a leisure travel company. And what makes this whole possible is our team. I believe, we've demonstrated the ability to execute over the past 17 years and the team in place like the categorically say is the best team we've ever had in the leisure. We have high quality focused individuals, all pulling in the same direction. It's difficult than audience as you can all could be our management group and team are tougher. They know the business intimately and are appropriately critical of our ideas. They have brought into the diversification of the company from the airline is the company to read our leisure travel company that operates in airline. Thank you very much for your time, and I'll welcome to the Allegiant 2.0 vision and we're very excited as we move forward. And John?

Well, thank you, very much, Maury, and good afternoon, everyone. I'm going to keep my comments brief in the interest of the commentary my teammates have here, but you can never at least said too frequently or too often wanted to say, thank you and appreciate the efforts of our incredible group of employees that we have for Allegiant Airlines on another amazing quarter, just never ceases to amaze, just how wonderful the airline is performing on many levels. I'd be remiss if I didn't comment on the non-airline business operating loss in the quarter. I want to make sure that people shouldn't extrapolate that number out and think that's an annualized number. That would be a mistake. But if you go back to the release, you'll see that we are not revising our guidance for the non-operating -- the non-airline businesses. So stay tune. We provided some detail list of why that number was a little higher than maybe someone would have thought if they just simply took our guidance and divided by four. So I think you'll see that there. And on that note, I'm going to go ahead and turn it over to Scott.

Thanks, John, and good afternoon, everyone. As Maury mentioned in his opening comments, our operational performance was exceptional in the first quarter, which is our first full quarter as an all-Airbus operator. Despite over a 12% decrease in available aircraft year-over-year, we grew departures by 4.8%, increased our aircraft utilization by nearly 17% and improved virtually all of our key operating metrics, while reducing our aircraft spend levels. For the March quarter, we produced an industry-leading completion factor of 99.2% and despite significant headwinds from weather-related delays and cancellations; we reduced our regular ops cost by $2 million and over $14 million on a trailing 12-month basis. I would like to congratulate all team members and partners throughout the network for a job well done and everyone should be proud of the results in the progress we continue to making serving our customers the right way. Turning quickly to our first quarter financial performance. The airline produced diluted EPS of $3.98, which is up 12.4% year-over-year on a 5.7% increase in total airline operating revenue, which is a strong start to what should be an exceptional year. As you'll see in our release, we provided much more commentary on 1Q and full year expectations and have reiterated our full year EPS guidance $13.25 to $14.75, despite a $0.16 increase in full year cost per gallon estimates. Our fuel efficiency in airline controllable cost performance continues to pace ahead of internal forecast. As we indicated on our January call, we expect that our CASM-X trends to be the most pressured during the first quarter, given our expected mid-single digit ASM growth, and a substantial reduction in aircraft year-over-year. From our cadence perspective, we expect to see an acceleration of airline CASM-X reductions sequentially through the remainder of 2019. In addition to the fuel costs per gallon in ASMs per gallon guidance, we make slight adjustments to ASMs and CapEx, but I'll let Greg and Drew provide more color on that. And finally, we're pleased to announce that we're going to promote Greg Anderson to EVP and CFO. As many of you, he’s been our acting Senior Vice President and Principal Accounting Officer since 2015 and has proven to be an invaluable member of our management team. He is an exceptional leader for our team members and a partner to our shareholders, and I know I speak for more in John, when I say this promotion is well deserved and I can't thank him enough for his contributions. Greg?

Thanks, and good afternoon, everyone. I'd be remiss, if I didn't mention, I'm both humble and excited I am for the opportunity to take on the CFO role here at Allegiant. I have a very big shoes to fill, but having so many terrific partners around us will certainly help me along the way. Due to the large number of puts and takes surrounding our capital plan, we thought it helpful to add some additional color around this area. Beginning with cash flow, consolidated EBITDA for the quarter was $127 million, or $1.6 million per aircraft. This marks the highest quarterly EBITDA on a per aircraft basis since the first quarter of 2016, a quarter in which we only paid $1.29 per gallon of fuel. As can be derived through our updated full year guide, we still expect to produce over $500 million in consolidated EBITDA in 2019, or nearly $6 million per aircraft. The economics and performance of the A320 series aircraft cannot go understated and we will continue to make strong investments in growing the airline as evidenced by the $100 million in capital spend during the quarter on four aircraft and three new spare engines. We expect full year airline CapEx, excluding heavy maintenance, to be roughly $400 million, down $25 million from our original guide. This downward movement is largely driven by the more clarity in the purchase price of several used aircraft based on their maintenance status at delivery. 2019 is an elevated CapEx year with the expected purchases of seven spared engines and 13 aircraft. 10 of those 13 aircraft are scheduled to be both purchased and placed into service during this year with the remaining three intended to be acquired at the end of 2019 and likely placed into service in early 2020. Our 10 aircraft scheduled to be purchased and placed into service during the year doesn't quite align with our in-service fleet plan to add 17 aircraft, so I wanted to highlight the seven of our 2019 in-service aircraft were acquired in prior years, the majority from the portfolio of aircraft we had on lease with the European carrier. Airline capital spend for full year 2019 should not be considered the run rate moving forward. The enhanced aircraft and engine growth during this year is necessary for us to level set the fleet and align with the additional crew members we had already hired to support our accelerated fleet transition. We expect to see a significant decrease in this capital spend as we get back to a more normal fleet growth rate of about 10% on an annual basis. Our Sunseeker Resort 2019 capital spend remains on target. And as a reminder, tax reform allows us to take bonus depreciation on the majority of our capital towards Sunseeker and then in addition, the capital spend on used aircraft. As such, we do not expect to be cash taxpayer in a meaningful amount over the next few years. Turning to financing. During the quarter, we announced up to a $1 billion financing partnership with TPG and a commitment of $175 million in construction financing for the development of our Sunseeker Resorts, Charlotte Harbor. This construction financing is a four-year term with proceeds being two-thirds non-recourse and last funds into the project. It was important for us. It was important to us for our construction financing to be last funds into the project as opposed to first funds in. The timing difference in this particular type of financing not only provides us greater flexibility in controlling the pace of our capital outlay. It also helps us save on total interest costs. By way of example, has the financing been structured as first funds in, a 5% of our LIBOR rate would have resulted in about the same amount of total interest during the term as compared with the actual structure of 7% over LIBOR on last funds in. Also during the quarter, we closed on $450 million term loan and a dollar-per-dollar refinancing of our high-yield bond. Under challenging market conditions, we were able to maintain the flexibility to re-price and/or repay this term loan with zero penalties, while also excluding any aircraft and engines as part of the collateral. The exclusion of aircraft in engines from the collateral pole is key as we intend to finance our 2019 aircraft engine purchases. In addition, we estimate we have borrowing capacity in excess of $350 million, the majority of which is supported by our 2018 unencumbered aircraft. We intend to tap into this dry powder during the year at an amount between $100 million and $150 million. And it's worth noting that secured aircraft finance market remains very competitive for A320 series aircraft. And during the first quarter this year, we closed the secured loan with the best financing economics in our company's history. On a related topic, we recognized $20 million in interest expense during the quarter, and maintained our full year guidance to $70 million to $80 million. The first quarter was expected to be the highest of the year, primarily due to a $3.7 million of additional interest expense associated with the tender to repurchase our $450 million high-yield bond. We expect the cadence of the interest expense to step down throughout the year largely due to the impact of capitalized interest. And may be worth noting the capitalized interest associated with capital spend from the Allegiant pertaining to our Sunseeker project results in a reduction to interest expense. The capitalized interest reduction to interest expense should increase each quarter in conjunction with the increase in non-finance CapEx. And finally, we ended the quarter with nearly $555 million in total unrestricted cash and investments, which is greater than 32% of our trailing 12-month revenue. Our liquidity ratio currently leads the industry based on most recent available data, and we have headroom to reduce our current cash balance, while maintaining a higher than industry average liquidity ratio. Our capital plan signals, our management team's confidence, and our ability to continue to generate strong results from the airline. And these results will vary meaningfully. We have retained the flexibility to pull levers, such as raising additional cash via -- additional cash via secured aircraft financing, and/or slowing the pace of capital spend. And with that, I'll turn the call over to Drew.

Thank you, and congratulations, Greg.

Thank you.

Thanks, everyone, for joining us this afternoon. I'm very pleased to announce our first quarter year-over-year travel of 1.8% despite a headwind of 1.5 points related to Easter shifting to late April. The biggest highlight of the quarter, was the $53.10 air ancillary per passenger result, which surpassed $50 for the first time in the company history. This marks an incredible milestone for the company, and was led by a combination of strong seasonal back performance and increases the customer conveniency. We're constantly striving at increase our performance here, and look forward to many more milestones in the coming years. Our co-brand program also set new highs in terms of revenue production, per passenger in the first quarter and continues to be on pace to exceed $50 million in EBIT in 2020. This continued strong growth is being driven across our digital and in-flight channels. And we'll soon be launching our partnership with minor league baseball just was to solicit new cardholders in more than 50 ballparks nationwide this season. As we talked about in January, our utilization will increase in 2019, as our fleet count gets back to previous levels. In March, we had 9.9 block hours per aircraft per day, which is 40% higher than our January utilization, showcasing the same flexibility that has always been keys to our business model, with the upside of being able to peak the strongest seasons more effectively than as an MD-80 operator. As a reminder, we still expect to fly roughly 5 block hours per aircraft, per day in September, which is lower than 2016 levels. Fixed fees slightly positive year-over-year results is also strong, given the reduction in the available aircraft space, driven by decreased airframes and increased scheduled service utilization. Additionally, the government shutdown in January caused the delay of a few aircraft in the service, which caused to miss out on roughly $1 million in fixed fees line late in the month. In the first full quarter, with an Airbus only fleet, we saw many of the benefits begin to show immense value. As expected, we were able to hold roughly 50% fewer space aircraft than the first quarter last year. This enabled us to grow some departures in March, roughly 6.5% despite the reduction in aircraft. Additionally, the economics of the Airbus aircraft allow us to more resourceful alternatives. For the last six weeks of the quarter, we utilized unused Saturday aircraft space in Las Vegas to boost capacity in Phoenix during peak demand periods, including all fairly cost, we generated over $1 million of gross profit on planes that would have otherwise been parked for those days. Throughout the first year of our new revenue management system, revenue gains were generally driven by load factor performance. As we are working to the second year, total fare performance is taking over as the driving factor as seen in the first quarter results. Looking forward, this week, we formally applied but the U.S. DOTs operate scheduled service line between the U.S. and Mexico. This is a monumental step for the company, and while there is still a lot of work ahead, we cannot be more excited to start the process toward the selling and operating of scheduled international flights. Turning to our second quarter, we are very encouraged by forward demand. We expect sequential improvement in year-over-year traveling performance including the 2.0 point to 2.5 point tailwind associated with the Easter shift. As a reminder, we will experience some pressure from ASMs growing 13% to 14% in the quarter, including some off-peak weeks between March and Easter. In terms of the full year, we have enough confidence to both increase our ASM guide by 0.5 to 7.5% to 9.5% per passenger year-over-year and the revenue assumption that are underlying the EPS affirmation this quarter. The bulk of ASM increases will come in the fourth quarter, as we are in the process of reviewing and refining the holiday schedule now. ASM cadence is a bit choppy to the rest of the year with third quarter looking to be lower than the full year guide and fourth quarter was higher. And with that, I would like to turn over to the operator for Q&A.

Thank you, Sir. [Operator Instructions] And our first question will come from Catherine O'Brien with Goldman Sachs. Your line is now open.

Good afternoon, everyone. Thanks for the time. I know the March quarter results were general in line, but can you maybe drill down to how March quarter RASM performed? Was that also in line, couple of your competitors talked about seeing some weaker leisure. Is that what you saw or just any color there that would be really helpful?

Yes, I'm happy to, so provide a color on that. We were right in line with where our budget was, and I believe also right in line with where our consensus was. So I don't know if there's really a ton to read through on there other than pretty much played out as we'd expected.

Okay, great. And then we saw a much stronger performance on your non-ticket air related versus on the fare side. Can you just give us some color and the puts and takes there? Is the fare lower just because of what's out in the market and so you push non-fare higher. Or was there some sort of intentional rebalancing between those two buckets on your part? Thanks.

Sure. So there's a little bit of both there. First and foremost, on the customer convenient, that is basically shifting bucket, that's more or less one-for-one offset between the fare and the non-ticket there. But beyond that, I think, it's worth calling out the bad performance we did have through the first quarter and the non-convenience fee part of our non-ticket was also the highest that we'd ever seen in company history. So there was a lot of strength kind of outside that shift.

Thank you. And our next question will come from the line of Savanthi Syth with Raymond James. Your line is now open.

Hey, good afternoon. Maury, I had a high-level question. You have some European leisure companies that also operate also airline. Clearly, Allegiant operates a much better airline than these companies do. But I was just wondering if you can kind of compare and contrast your -- the Allegiant’s vision for a leisure company that also runs an airline versus some of these other companies that are out there?

Well, there is, in particular, we've looked at a little bit of twoey who run both airline and they have acquired a number of hotels, haven't stated their numbers in depth. The irony of this industry is that there has been many airline around the hotel and people think it doesn't work, while the hotel works just fine, it was the airline that didn't work. So particular, you look back at the experiment, where they had I think Western and United and the Board decided to, as I understand the story goes, the Board decided to bring it up because some of the parts were better than the whole. And rumor has that Mr. Ferris [ph] resigned the next day. So there's the history of the airline industry not working well with the hotels but it's not because, again, the hotel does work. I think the main difference we have here today is that we are just so well enamored with customer information and customer data, John can comment, we have for instance 11,000 inquiries right now, about Sunseeker and how people are interested in the product and things of that nature. So having this data and being able to redirect people to a product that we control versus a third-party product where we're just a middleman, candidly, we've seen our hotel take rate go down because we can't get to the hotel rooms particularly in peak times, 10 years of good times and everybody that's in business is trying to eliminate expense and middlemen are differently are expensing. So we find ourselves being restricted in those areas. So we think we're going to have amazing value. We're going to be very focused on our resort called Sunseeker initially. But as I mentioned in my own note, we're going to look in Southwest Florida to do things like managing other hotels. Those are asset-like and should be very lucrative and play off the strength that John, the team he's put together are going to bring to what we're doing here, and you mix it with back in the West Coast and Florida, we have four million people in and out of St. Pete and Punta Gorda. St. Pete's 90 minutes away and Punta Gorda is 10 minutes away. That's just a terrific combination. We're very excited about the opportunity.

I think the only thing I want to add to that Maury is the -- I mean, you take fundamental differences what we're doing is organic growth. What they have done in Europe was more acquisition, right? They go out and buy our hotels, and these are hotels with a lot excitement. They're more what we refer to as like dormitory. So that's the biggest fundamental difference is that we have a resort and it's organically done and designed and built based on the airline data.

And one just other comment, we're -- we've got as many as many 15 million, 16 million names in our database, of which probably 12 million are usable and we talk to. These are people we know and taken our services, know about leisure travel. And John was just telling me that we're already increasing the number of rounds at the golf course by using our e-mail database and talking across pollinating with people to sell additional activities whether they're going to be in the area. So this stuff, one plus one plus one equals five if -- when you start getting people to understand thing to put the loyalty program, again, customer centric stuff that's what you're seeing industries do, Amazon being the best example of they bring together all kinds of customer information and work with customers and understand what they want and offer many products. We're not planning to be an Amazon at this point, but we're uniquely thinking offering additional products that we can monetize and get bigger share of wallet as where we're going.

Okay. That's helpful. Thank you. And if I may just quickly follow-up on Drew's comments on 2Q RASM. Just I know there are kind of two opposing kind of trends there with the kind of the benefits from Easter, and then the pressure from some higher capacity. Should we kind of assume then kind of the deceleration in sequential RASM?

Let me see, if I'm following correctly. So deceleration in terms of from win to win, sequentially we should be better in 2Q than we were in 1Q. I guess way for the deceleration in comparison to.

Savi is on. I think you both starts.

Sure. I'll take it that. So yes, for 2Q, I do expect that sequentially we'll be better than we were in 1Q. You’re right that there are some opposition there. I don't think it's fully will wash out or kind of the ASMs will fully wash out the Easter benefit. And then we'll -- I think we'll see continued acceleration to third quarter beyond that. So I don't know about any deceleration, but I think that's the best I can tell for you.

Well, Savi, one other thing I mentioned in my notes. 2Q our internal numbers is going to better than 1Q. Maybe RASM is little softer. I'm not going to comment on that, [indiscernible]. But this has happened twice in the past 10 years, where you have this kind of benefit and two fundamentals Easter, and we're going to have more capacity out there to do more things with. So that's the key part of the plan going forward.

Thank you. And our next question will come from the line of Helane Becker with Cowen. Your line is now open.

Thanks very much, operator. Hi, team. Thank you very much for taking the time. Maury, as you think about CapEx requirements over the next four or five years. How do you weigh what goes into the airline versus what goes into Sunseeker or any of your other businesses?

Well, the airline comes first. Yes, the airline comes first. It's going to give it me, and we've said we'll grow at 10%, and that's give or take 10 airplanes a year. We're not going to be looking at 15 or 20. We maybe a little less or more, but that's the rule of thumb. And Sunseeker, we've got our budget for that, and that will come online and be done here, mostly the big strength will be out of the way this year. But the business plans suggest that we're going from $350 million of EBITDA last year of over $500 million this year. And so the business is going to be very lucrative, we think, in the coming years, now that we've got all the transition work behind us. So we'll -- I'm not worried about sources of cash. The bank debt, as Greg said, bank role for financially year plan is good or better than it's ever been. And so we'll be able to finance those, just fine. And then we've got general cash flow we're producing on top of it.

Okay. That’s great. That answered my only question. Thanks very much.

Thanks, Helane.

Thank you. And our next question will come from the line of Brandon Oglenski with Barclay. Your line is now open.

Hey. This is Matt actually on for Brandon, and thanks for taking my question. I just wanted to kind of step back and this maybe a feet of what Savi asked earlier. But as we look at potential growth and acquisitions or investments in the non-core airline business, are there any criteria management is operating under constraints. Really just the idea just anything that can be reasonably attached on to the leisure business to maximize the customer base? Any color or any context that would be helpful.

Yes. We haven't looked at any acquisitions at this point. John may have some more in-depth thoughts, given he comes from a different aspect. But right now, we're kind of growing them organically, not that kind we are. And if something comes along and it makes sense, we will certainly look at it, but we've historically been an organic company for the most part. We haven't done a lot of -- haven't done any acquisitions. So we wouldn't expect anything on top of it, and nothing on the radar that we know that at this point. John?

I think one of the best ways to look at that is when you look at capital allocation, it's really because I think to look at the history of what companies have done. And I think when you look at Allegiant, we've always been excellent stewards of capital, whether deciding between dividend and share buybacks or reinvestment of business. So that's the balancing act that we're always looking at to see where we can get the highest return. So that approach that we followed in the past would be no different going forward. We're always monitoring where we can get the greatest return. I think when you look at the airline growth that we're talking about in the 10% range, that's the growth that we think we can effectively implement. And it doesn’t stretch our balance sheet, that's the same thing when you look at hotels. We're going to be a very good stewards of capital in that regard as well, and all the decisions get based on demand. I mean, in the hotel world, if you're filling it, and you're filling it very high rates and you're getting very high returns, you continue to look for opportunity. So again, it's really just a story that we're going to continue to deploy going forward as we had in the past.

Okay, great. And then just kind of another question on -- I was interested in the recent announcement to expand to Mexico and international markets. Just maybe kind of some contexts on why there's been the right time it's kind of particularly interesting given some other carriers are pulling out of some transborder markets as well?

Sure. This is Drew. This is something that we've certainly looked at from a very, very long time, I think, something on the magnitude of seven years or eight years, we've been discussing international. And we're not always -- we're kind of finest although digging one others drag and yes, there are other locations transborder and international that are weaker. But we can't wait until things certainly become strong than react with the entire process. So internally, we're getting ourselves ready to hit the right opportunity at the right time, and we have kind of a lot of network investments that we put in place domestically that is very well, I guess, propped up to serve the international destination. So we feel like a lot of things are coming together at the right time for us. And this was the time to hit play and we still have a lot of runway in the D-48 space as well. So kind of all that coming together is what gives us all this excitement.

I think another good segue to that provides is when you look back to the 2016 Investor Day, we actually were pretty emphatic about beginning international service by 2020. So we've delivered on everything that we put out there in the end 2016 Investor Day, I think, a lot of people forget that we have delivered on everything that we've said. Drew also made reference to the credit card and everything else. So this is just something, again, that's an execution on what we envisioned way back in 2016. Maury, did you have anything?

Yes, one other comment, we're already flying to Charter One to Mexico. So operationally, it's not a leap to get from here to there. We're going to be selling the same market, we're already selling in. So -- and the nice thing where we're at now is we have most of them with the customers' access so we can do non-stop service, which is important. So you take MD and Cincinnati and Pete, all these places where we're already at, it's just not a big leap to think that we can kind of sell that product. We'll see, if it works, it's great. If it doesn't work, we're real flexible and by the time and do what we need to do.

Thank you. And our next question will come from the line Joseph DeNardi with Stifel. Your line is now open.

Good afternoon everyone. This is actually Bert on for Joe. My first question is probably for Drew. Has the criteria to add new destinations to these changed and do you think the opportunity for new non-competitive routes is still as robust, as you guys mentioned last quarter?

Yes, so I'll just start with the end and work my way forward that we absolutely feel is as robust. I think all of the announcements you've seen us make in, in the last 18 months have showcased that and I would expect that to continue. In terms of criteria for destinations, it has changed a little bit as kind of the origin city profile of Allegiant has changed. As you get into more cities that are a little bit thicker than Cincinnati or Indianapolis some of the ones that more you mentioned previously. You don't need quite the same size of destination or for two times a week service to work well. So as you think about something like Charleston, something like Destine, a much larger origin city can fill out that center demand profile destinations quite well, and that's where you've seen a lot of our growth come like I mentioned in the last 18 months, and we expect this significant amount of growth to continue to come for us.

Thanks. That's helpful. Just a follow-up to Matt's earlier question. How do you guys see Mexico fitting into the overall travel company’s strategy? Are you guys already thinking about hotel other partnerships? Or is it pretty mature for that?

I'll kick it off and I would view more or less any international service we do as a replication of what we do domestically. We're now looking to change who we are by any means and hotels will be a huge part of that as we move forward.

Yes, I mean, I would echo Drew's comments. I think it's safe to say that any destination city we would fly, we would look at adding all the components if you used to seeing, but we also could definitely explore is, whether it's managing or branding, those are opportunity that past obviously weren’t something that we'd be looking at. Going forward, we will. The other thing we could probably sit at this point in time is we would not be looking at investing or building. I mean, in international destination, these would be locations that we will be looking at as an asset-light approach, so as branding and managing.

Thank you. And our next question will come from the line of Hunter Keay with Wolfe Research. Your line is now open.

Hi everybody. Thanks. Greg, congratulation of the promotion.

Thanks, Hunter.

Yes. So I'm kind of curious to know if or why you guys dropped plans for the giant pool, it looks like you did based on the rendering I've seen. And the broader question is, is that was such a big part of the project before, the broader question does PPG have any input into changes in the design, specifically the pool or anything else before they decided to invest alongside you guys?

I think it's just that question, but thank you for the softball. We didn't -- we never did drop plans or change plans to do a giant pool. Those plans were still there. When you look at the site and what's being built, Hunter, this is phase 1 of what potentially could be a multi-phase project. So, if you look at the design of that phase 1, for us to have a giant pool sticking across the site, it would have blocked the future development of anything on that side. So for us to build that as part of phase 1, we wouldn't have been able to access the rest of the site without a tremendous amount of cost like in the tens of millions of dollars to do something like that. And in some cases, we would have built from the water on the barge. So it's not a change in plans. It's still there. We intend if the demand properly warrants, we still intend to do that.

Okay. Thank you, John. And I watched the kick-off video with you guys have with the groundbreaking ceremony, and it looks like as the idea of the projects are shifted a little bit from condos to hotels, it looks like you guys are taking on a little bit more of a corporate sort of conference retreat-type approach to the project and that's all well and good. My question is really, how are you going to sell to corporate? Because you talked about your database of 40 million, but those are all leisure travelers. How are you going to access the corporate traveler without going through third-party distributors or new distribution channel, in general, to make sure that you're accessing the right people who are planning these corporate events, or am I wrong is this not a corporate-type dynamic that's evolving here?

It is not. And I think going forward, before you make some of those assumptions, it might easier to just reach out and ask some of these questions, because they're pretty straightforward for us. And I know it's not as intuitive for you, but this is not being designed as a corporate hotel. We are leisure company, leisure airline, focused on leisure guests. Having said that, we also know that there is some seasonality in this market, so we also want a venue that can accommodate the groups that all the hotel companies focus on in target to be able to drive rate and yield and to fill slower periods of time. Now to keep in mind that some of the demand for that space is [indiscernible]. So it's not just corporate stuff you get a lot of -- there's a lot of different opportunities that will allow us to be able to make sure that we run that hotel and resort with the highest level of occupancy and rate possibly we can. So that's what that business provides opportunity to do. You're booking at this business way up advance and there is people who approach us as opposed we're approaching them. So, we will provide some color on that, of course, as we go forward, but we'll let you know about large groups that we've booked from time to time. But when you're booking a group, normally those are booked a year to two years in advance, and we typically would not be putting a group in the building when we know we can sell that up with the leisure customer. But one of the reasons why hotel companies were focused on that is because it's much higher paying customer, these groups. So, again, we would use it off -- call it, off-peak, get back to the airline, the term off-peak times when there's floors and when we would want to sell the hotel with some of these group business.

And John, you might just talk about just the group business being one-to-one, this is -- there's no third-party in this resort -- sales purchasing from our hotel probably to a group manager who may have a group plan under that matter that you're planning your stuff out a year and two years.

Yes, they approach us directly. There is absolutely no, no middleman and that's always been, of course, the Allegiant DNA is to not have the middleman that we're not changing in that regard at all going forward. You look at a large catering function, you can have inside your ballroom and the amount of business that you do and the margin that you do want to add are off the chart. So you take a large catering function, the margin on that is over 50%. So this is very, very high margin business that we're talking about here.

Well, I think the other point has, you've got a crowd that works for us now through John and his context, the world-class group management, the best in the world sits here in Las Vegas. This is nothing more than a group talent that lives of that type of thing, thousands and thousands of people able to hire and handle big banquets, lots of people. It's just getting the DNA of this talent, and we're taking some of that to Southern Florida. And we'll be -- we think the biggest supplier of the space available for groups in that place if there's a lot of demand for, because it's such a great destination.

Yes, I mean, the team were putting together. Of course, they have Rolodex like no one else. So, we know other people to reach out and through all the contact points to be able to do that kind of business, and we know who's out there looking for. So, it's an exciting opportunity, stay tuned.

Thank you. And our next question will come from Duane Pfennigwerth with Evercore. Your line is now open.

Hey, thanks. Maury, nice to hear more of you on the call and Greg, I echo everyone else's congratulations on the promotion.

Thanks, Duane.

So, I wanted to ask you about flexibility and lead times for changes on the non-aircraft spend as we progress through the year. If the back half does not play out as we expect, how much wiggle room do you have on that $275 million spend? And how do you think about that versus other priorities, such as maintaining the dividend?

Well, when you look at that, Duane, of course, I must admit I wasn't going to think a question from you just because how unprofessional and disrespectful you've been in the past, but I'll go ahead and I'll rise to your occasion. But you look at the spend, we're -- we've already said what our equity contribution is going to be for the resort and as Greg pointed out, we're all in before the end of the year or around year-end. After that is when TPG's fund started to kick-in to fund the balance for the project. So, that's covered. We know probably another quarter or two will be able to provide a lot more color in terms of a better timing and a better update, if you will, on how we're pacing our budget. But as we sit here today, everything is still on budget. We have no concerns there, and I think we talked about capital allocation already when you look at what's going to happen and we look at the highest returns out there. Once you get past the airline, I mean the other CapEx frankly is rounding error. I mean, so you look at these SECs and you look at amounts 0of capital. The only thing that's of any significant is Sunseeker, and of course, that's already been identified and explained as I just did.

The Board we've gotten deep and wide with John and Ben Mammina, who is building this thing and they're expertise and as far as how they approach the capital allocation based on their representation and I'm going to plan as an expert but is a qualified business guy, we're really comfortable that they're going to make their numbers and we'll have a lot more visibility at the end of the summer whenever we think is finally bid out and all that's in place. But it's kind of come in as we said based on everything we know, and again, these guys have done this many times before. So they're pretty well embedded and how they do that at all.

And Duane, this is Greg. I mean just to add a little bit more commentary on seems 275 that you're talking about and us being able to kind of control the pace with our funds being and to begin. I mean, ideally, you keep the construction bill, you're going the pace that we have today with the majority of those funds are allocated towards, but there's other capital in there such as that you can kind of pull like we pace that down if you had to do, we don't want to, we don't expect the need to, but if things got to a point, we can pace so significant like FF&E, it will push that back or delay that to a degree.

Thanks Greg for answering the question. Regarding non-airline businesses, $0.50 per share loss this quarter. Can you just segment that between Sunseeker, Teesnap and the family fun centers? Thanks for taking the questions guys.

I think, when we get right down to it, individually, there are also deminimis in the aggregate, you can see the number there and 7.4 is going to skew more towards the FECs because if you had two openings. So, you have more preopening activity every time you put one of those, you're hiring people in advance of operating it. So, when you have the more facilities you open and particularly, more preopening expenses you're going to have. We won't you significant preopening for facility like Sunseeker, of course, until we start doing all the hiring, which is, of course, next year. So, it's primarily those two entities because the golf course performance of course offset a little bit of the minor preopening as you get on Sunseeker.

Thank you. And our next question will come from the line of Dan McKenzie with Buckingham Research. Your line is now open.

Hey thanks guys. Couple of questions here and I might have to get back in the queue again, but just following up on Duane's question, obviously the $12 million to $17 million EBIT loss from the non-airline business this year is really small, but it is something that investors obsess about. And so I guess, I'm just wondering what you can share on revenue trends so far? What are you learning and when are you thinking the losses might inflict to a profit?

Well, when you look at FECs right there, their scale gain from a revenue perspective, you saw we put in the relief. During the quarter, you only had one that operated for any length of time in the quarter that was the one in the Clearfield, right? The other one, then you open until after the quarter. So, you're seeing the expense associated were facility without being related to revenue. So, both those facilities -- one, of course, will have operated all of Q2. So, you'll see more information on that regard and the other one, the one in the warrant with the open for at least a chunk of Q2. Unlike any business, the lot of time, there's a ramp-up. So, the first quarter operations -- the first full quarter of operations isn't the best. So, that's not going to be any different here as well. And if you look at Sunseeker some space on Teesnap, I would expect Teesnap becomes on a standalone business probably profitable in 2021 and I'd say, on the standalone basis because there's a tremendous amount of benefit that we as a balance of the company gets off of Teesnap primarily around emails. I started to talk about this in the last call. That database as we stand today has an excess of 2.2 million emails that are clean and to be marketed to, right? So, the opportunities to be able to use that, which we've always looked at that as being very synergistic across the airline or other business channels, I mean, that's where we're going to start to see some significant upside in advance of the company on a stand-alone basis be unprofitable. But again, that business would be profitable in 2021 would be my expectations as we sit here today. That's a scale game as well. We never racing them to get courses installed and the first year of course is installed, you're not making any money. So as the out years, years two and out, that close course really start to produce from SaaS standpoint. And Sunseeker of course, we're looking for that open in the back end of 2020 or possibly slight maybe into the beginning of 2021, but we'll be able to provide a much greater degree of certainty after Q2. And that, of course, the expectation that's profitable the day we open.

I understood. Okay. I appreciate the perspective. Going to an airline question, 35 new routes, what percent of the ASMs are in new markets in the second quarter? And if you could just help provide some perspective around same-store sales versus markets, if we're just looking at RASM trends and the same-store sales, if you're looking at RASM trends in the newer markets, where are you seeing the strength and how should we think about that going forward?

Sure, this is Drew here. So coming out of the first quarter, we were about 5% of our ASMs on markets that were less than 12 months since start date. Getting into 2Q, that's up over 10% and we're kind of back that normalized rate that you've seen from Allegiant over the last five years. So kind of about 12% to 14% in the quarters after that. So kind of a shorter-term blip in terms of the level of maturity of the network we'll see. Same-store sales have been strong for us for probably 15-or-so straight quarters actually, feeling very, very bullish on what we're seeing there in terms of demand flushings and the market we've been in the longest. You think about a lot of the investments we made 2014, 2015 in these cities like Cincinnati, Indianapolis that have come up a few times. You're getting into the point where you're manifesting a lot of those new route launches, coming from those cities to those center destinations and having that awareness, having that build, a lot of the work that Scott DeAngelo and his marketing team have done are really shortening kind of that awareness curve that we need on some of those newer markets. So I expect that, that's the ramp you see on new markets, moving forward a little bit shorter than what we've had to indoor in the past, but nothing that that's alarming by any means in terms of new market without cadence.

Thank you. And our next question will come from the line of Michael Linenberg with Deutsche Bank. Your line is now open.

Hey, good afternoon everyone. Back to -- you talked about the ability to kind of flex upon aircraft utilization, I think you said you've sort of peaked that 9.9 hours and you'll be back at 5 and 5.5 hours in September. How much higher do you think you can push that before you potentially compromise the operational integrity of the carrier since -- you've obviously done such a good job in getting your operational metrics up kind of the upper quintile?

Sure, so I mean given how we perform in March with what's the highest utilization I believe we've ever run, I don't have qualms sitting here today about what our operations can handle. We're going to continue to throw complexity and increased levels of flying at it where we have I believe a number of days over 400 flights coming this summer. So I'm not still holding back any point and I don't have any qualms about how the operations going to handle this summer. So I don't know that's the number or a level that which we can want to talk about.

Go ahead, Maury.

Michael, just another qualifier our system is pretty simple. We go after out and back and so you have an a.m. shift and the p.m. shift and certainly in getting more complex so the inside turns and doing triangle and stuff like that. But where you've got 90 airplanes going you just can't do that many. So you can try, you're going to start plan more days, rather than you want to start flying it four in the morning and quit at midnight. We've just never done that, and I don't expect we will do that kind of get the daily utilization up on a Friday or a Sunday. And we're, over Tuesday and Wednesday, you take care of themselves much better than in the east and we have and the west frankly, but yes, you can push a month or something like that, but it's not a day-in and day-out thing.

Yes, I think Maury, I just want to add one I think exactly what he said is right. We're going to hit the revenue constraints where we want to go from a profitability perspective I think long before we hit our operational.

All right. That's very helpful. And then Just back on Mexico, I think maybe Drew, you sort of made the comment that you guys sort of -- you guys zagged where others have zigged and moving into Mexico. Is this when we think about what you've done historically a charter basis sort of medium-sized cities into big leisure destinations. Is that the Mexico plan or are there other things that you may be looking at maybe even secondary cities in Mexico and or maybe even bringing people from Mexico to the U.S. Or is it, am I getting ahead of myself?

I think you're getting a bit ahead of yourselves there. I think the first part you've talked about what midsize going to be big leisure destinations in Mexico and phase two being the Caribbean is absolutely, what we would be looking at there. It's our bread and butter and what's we do it very well domestically and so work very well internationally.

Michael, majority of our traffic originated in the blue called part of the world and we do by margin mostly round trips. So this is really nothing more than just having an arbitrary line south from the border, so to speak. And we'll originate a round trip there. So, like for instance, certainly, in Mexico, we do all of our own automation. There's a lot of complexity, you've got to set up a distribution network and you wonder if that return trip coming or originating in Mexico to Cincinnati. I'm not sure how deep and wide that part will there be. So I look at this personally and just adding another endpoint to Cincinnati or Pittsburgh and like albeit it's got different tax implications and some complexities, but it's fairly more what we've been doing.

Thank you. This concludes our question-and-answer session for today. I would now hand the conference back over to the management team for any closing comments or remarks.

Thank you very much. See you in 90 days.

Ladies and gentlemen, thank you for your participation in today's conference. This does conclude our program, and you may now disconnect. Everybody, have a wonderful day.