Daniel McKenzie

Daniel McKenzie asked if the $8 EPS full-year guidance embeds a full or partial recovery of the 5 percentage points of RASM lost in 2025. He also questioned if the lowest leisure demand segments are still missing due to the K-shaped economic recovery and if the airline can maintain mid-teens operating margins throughout the cycle without that demand.

Answer

Drew Wells, Chief Commercial Officer, clarified that the guidance does not plug in a full recovery of the 2025 same-store deficiency, leaving room for upside. He stated that Allegiant's customer mix is generally on the top part of the K-shape, and the model is designed to stimulate demand and protect margins. Greg Anderson, CEO, reiterated the model's flexibility and the team's execution in strengthening the foundation. Drew Wells also detailed the credit card program's next phase, noting double-digit new card acquisition growth and strong spend, aiming for remuneration above 5% of revenue.

Daniel McKenzie asked if the Q2 guidance incorporated a continuation of the recent demand uptick and whether that uptick was driven more by lower fares or improving macro sentiment. He also inquired about the rollout plan for Allegiant Extra and its contribution to revenue.

Answer

CCO Drew Wells attributed the recent demand uptick to both lower fares stimulating travel and healthier underlying search traffic. However, both he and CEO Greg Anderson confirmed the Q2 guidance does not assume this positive trend continues. Regarding Allegiant Extra, Wells stated it would be on 65% of Q2 departures, with the full A320 retrofit completed by September. He noted that as an ancillary item, it "outpunches its weight" in revenue contribution but did not provide a specific percentage.

Daniel McKenzie asked about the potential use of proceeds from a Sunseeker sale, Allegiant's interest in M&A, and the company's long-term normalized margin outlook.

Answer

CFO Robert Neal said any proceeds would prioritize balance sheet improvement over shareholder returns. CCO Drew Wells noted minimal network overlap with Spirit. CEO Gregory Anderson stated consolidation is not necessary and that he expects 2026 margins to be higher than 2025, with a long-term goal of returning to historical levels through productivity and commercial initiatives.

Daniel McKenzie followed up on the 2025 margin outlook, asking if the previously mentioned 6-point margin benefit from full utilization is still a fair benchmark. He also sought clarification on whether the Q4 RASM guide embeds weakness over the holidays and asked about Sunseeker's book value.

Answer

President and CEO Gregory Anderson affirmed that restoring peak utilization should drive 'meaningful margin expansion' in 2025. Chief Commercial Officer Drew Wells clarified the Q4 RASM guide is primarily impacted by hurricane recovery uncertainty, not just holiday growth. Management noted that accounting for a potential Sunseeker sale would be a future decision based on the circumstances.

Daniel McKenzie asked for elaboration on the 'healthy demand backdrop' in Latin America, seeking to understand the underlying drivers despite macro volatility in the region.

Answer

CEO Pedro Heilbron suggested factors like demographics (lower travel penetration compared to Europe/US) and increased travel by the 'traveling class' post-pandemic. He noted Brazil's slow recovery after a strong devaluation, stable Andean Pac, and a strong but capacity-saturated market in Argentina. Daniel also inquired about the durability of growth opportunities beyond 2026, asking if low double-digit growth is sustainable longer term.

Daniel McKenzie asked for elaboration on the 'healthy demand backdrop' in Latin America, its underlying drivers, and the durability of Copa's growth opportunities beyond 2026.

Answer

Pedro Heilbron, CEO of Copa Holdings, explained that Latin America has a lower percentage of travelers compared to Europe or the U.S., but the traveling class has resources and is traveling more post-pandemic. He noted healthy demand and growing load factors despite increased capacity, citing Brazil's gradual recovery from devaluation and Argentina's booming market attracting significant capacity. Regarding long-term growth, Heilbron referenced Copa's aircraft order book, which supports a consistent 7%-8% average annual growth (CAGR) for the next four years, emphasizing a pragmatic, profitability-focused approach. Peter Donkersloot, CFO, added that Copa has flexibility with leased and unencumbered aircraft to adapt to market conditions.

Daniel McKenzie asked about the historical performance of the U.S. market during downturns and potential offsetting factors like the Star Alliance partnership. He also inquired about whether Copa offers a vacations package and its financial contribution.

Answer

CEO Pedro Heilbron expressed cautious optimism, citing the company's diversified network, ability to rebalance traffic, and low-cost structure as key advantages during downturns. He clarified that Copa does not have a dedicated vacations package product but maintains strong relationships with vacation wholesalers.

Daniel McKenzie asked for a breakdown of the drivers behind the 2025 capacity growth and sought an update on the diplomatic situation between Panama and Venezuela regarding the flight suspension.

Answer

Executive Daniel Tapia detailed that the 7-8% capacity growth is driven primarily by the full-year effect of prior additions (about two-thirds), increased frequencies on existing routes (about 20%), and the remainder from gauge and new destinations. CEO Pedro Heilbron stated he is not aware of any current conversations to normalize relations with Venezuela but remains hopeful for a resolution to resume service to that important market.

Daniel McKenzie asked about the CapEx outlook for 2026-2027, plans for the Wingo brand, the composition of 2025 growth, and gate access at Tocumen Airport.

Answer

CFO Jose Montero projected that CapEx in 2026 and 2027 would likely be similar to the ~$900 million expected in 2025, contingent on Boeing deliveries. CEO Pedro Heilbron stated Wingo will receive at least one aircraft in 2025. Montero detailed that 2025 growth is primarily driven by the full-year effect of 2024 routes, with smaller contributions from frequency and gauge. Heilbron assured that Tocumen Airport is not slot-controlled and has expansion plans to accommodate future growth.

Daniel McKenzie of Seaport Research Partners inquired about the expected pace of capacity growth starting in 2026 due to fewer grounded aircraft and the potential size of JetBlue's network without adding pilot headcount. He also asked for an update on the value of airline partnerships and the potential RASM impact from increased international connectivity.

Answer

CFO Ursula Hurley projected low single-digit capacity growth from 2026 through the end of the decade, driven by an improved forecast for aircraft on the ground (AOG). CEO Joanna Geraghty confirmed that pilot staffing is sufficient due to the use of voluntary programs. President Marty St. George added that while the partner portfolio is crucial, especially with the new United collaboration, the focus has shifted from simple feed metrics to the broader value for the TrueBlue loyalty program and the Paisley subsidiary.

Daniel McKenzie asked for the outlook on Pratt & Whitney related aircraft-on-ground (AOG) numbers for 2026 and questioned whether certain aspects of the JetForward plan could be accelerated to counter the current market downturn.

Answer

Financial Officer Ursula Hurley stated that the P&W situation remains fluid and declined to provide a 2026 AOG forecast, emphasizing that they are still working through it. CEO Joanna Geraghty responded that while some JetForward revenue initiatives tied to volume may see a drag from the economy, others like NPS improvements are ahead of plan. She highlighted the resilience of the loyalty program and noted that while the company is always adjusting, the core pillars of the long-term strategy remain the focus.

Daniel McKenzie inquired about the long-term earnings outlook, asking if investors could simply add the future JetForward EBIT benefits to the 2025 outlook to arrive at a normalized figure. He also asked about the CASM ex-fuel cadence for 2025 and into 2026.

Answer

CEO Joanna Geraghty affirmed this was the right way to think about the earnings trajectory, with the $800-$900 million EBIT target by 2027 building on the 2025 base. CFO Ursula Hurley added that Q1 2025 CASM ex-fuel will be the highest for the year and will moderate. She projected that if capacity remains flat in 2026, a similar mid-single-digit cost growth could be expected, with the Pratt & Whitney AOG count peaking in the next 1-2 years.

Daniel McKenzie asked for confirmation on the 2025 outlook, specifically whether a breakeven operating margin is still a reasonable base case, and what key variables could influence that outcome.

Answer

CFO Ursula Hurley reiterated that the company is building its 2025 plan with the goal of achieving a breakeven or better operating margin. She confirmed that key planning assumptions include flat year-over-year capacity due to mid-to-high teens of aircraft on the ground (AOG) from Pratt & Whitney GTF engine issues, which historically implies mid-single-digit CASM ex-fuel growth. The outlook assumes the macro backdrop remains constructive.

Daniel McKenzie from Seaport Research Partners asked about the current percentage of tickets sold at the lowest fare tier and future expectations. He also inquired about Southwest's interest in the MAX 10 aircraft and further premium product segmentation as part of its long-term strategy.

Answer

President & CEO Bob Jordan and COO Andrew Watterson noted that while previously the vast majority of fares were in the lowest tier, now roughly half are in the new 'Basic Economy' tier, indicating successful buy-up. Regarding future strategy, Jordan stated that while the current transformation is the focus, it is not the endpoint. He used examples like lounges and long-haul international to illustrate a commitment to meeting customer needs and capturing wallet share, but confirmed no decisions have been made.

Daniel McKenzie of Seaport Global asked about the potential cash proceeds from aircraft sales and the associated timeline, as well as the impact of 2025 debt paydowns on balance sheet metrics and capital return plans.

Answer

CFO Tammy Romo and CEO Bob Jordan explained that while not providing specific proceeds figures, the goal is to maximize value from the fleet to fund share buybacks and fleet modernization. On the balance sheet, CFO Tammy Romo confirmed the plan is to continue reducing leverage towards their mid-30% target. CEO Bob Jordan added that they are committed to a strong balance sheet and will discuss further capital return plans with the board.

Daniel McKenzie asked about the initial influence of new board members on strategy and sought to identify the primary financial drivers of the fleet monetization benefit.

Answer

CEO Bob Jordan discussed the ongoing board refreshment and the diverse experience the new members bring, stating their focus is on executing the current plan. CFO Tammy Romo clarified that the primary driver of the fleet monetization benefit is the gain on sale of aircraft, stemming from attractive order book pricing and low net book values.

Daniel McKenzie asked about the resilience of the consumer to negative macroeconomic news and sought to quantify the RASM contribution from revenue initiatives in Q4. He also inquired about the company's investments and strategy regarding machine learning and AI.

Answer

CFO Shane Tackett noted the resilience of premium cabin demand and growing confidence among the broader consumer base. He declined to quantify the Q4 RASM impact but highlighted the high probability of success for initiatives like the new premium card. CEO Ben Minicucci stated that AI focus is on safety, operational efficiency, and improving the guest experience.

Dan McKenzie from Seaport Global asked what percentage of revenue international flying could represent in the coming years and about the contribution from the oneworld alliance. He also inquired about upcoming IT initiatives and opportunities to improve merchandising.

Answer

CCO Andrew Harrison stated that long-haul international is currently about 5% of revenue and will remain a small percentage for the next few years, emphasizing its importance for loyalty and utility out of Seattle. CFO Shane Tackett noted that all planned initiatives, including e-commerce and merchandising improvements, are already contemplated in the full-year EPS guide. He highlighted the unique opportunity of managing two distinct brand front doors into the network.

Daniel McKenzie asked if the 40% premium for premium economy varies by stage length and requested details on the San Francisco market's 80% recovery, including its revenue contribution and whether the lag is from corporate or leisure travel.

Answer

CCO Andrew Harrison confirmed the premium is higher on longer-haul flights and noted that Alaska's long domestic stage length makes the product a huge asset. Regarding San Francisco, Harrison clarified his earlier comment referred specifically to business travel recovery. He stated that network growth in the Bay Area has been moderate to avoid getting ahead of the demand curve.

Asked about strategies to make the business model more resilient to macro swings, the company's leverage targets, the path to an optimal balance sheet, and CapEx expectations for this year and next.

Answer

The company manages macro exposure primarily through fares, which have historically offset currency devaluation over time. They are also focused on efficiency, with headcount down and ASKs up. A key future hedge will be rebuilding their ability to finance Embraer jets in local currency. While there is no formal guidance on leverage or CapEx, the goal is to reduce leverage by generating cash and paying down debt. A key advantage is having all next-generation engines under power-by-the-hour contracts, which protects against rising overhaul costs.

Asked about the 2025 growth outlook given the macro environment, the impact of economic growth on corporate travel, and the flexibility with their United Airlines partnership in light of potential M&A with GOL.

Answer

The 2025 growth outlook will be driven by E2 fleet renewal and international expansion, supported by a strong domestic economy. The corporate travel segment is performing well, with Azul holding an outsized revenue share. While their United partnership is strong and no longer exclusive, a potential domestic combination with GOL is the primary strategic focus.

Daniel McKenzie asked about the potential revenue upside from using technology and IT investments for targeted customer offers and upselling. He also inquired about the future of efficiency metrics and potential cost savings from the application of AI.

Answer

CEO Robert Isom and Vice Chair Steve Johnson confirmed a strong focus on using technology, including AI, to create more tailored customer offers and improve revenue, though they did not quantify the opportunity. CEO Robert Isom and CFO Devon May explained that the next phase of their 'Reengineering the Business' initiative will apply an 'AI lens' to all operations, building on the $400 million in cost savings targeted for 2024 and aiming for continued margin expansion and efficiency gains, such as growing capacity faster than headcount.

Asked about the reliability of engines on new Airbus deliveries and questioned the nature of a $200 million deposit mentioned in the 10-Q related to a credit card processing agreement.

Answer

Pratt & Whitney is delivering new engines with revised parts, but the main issue is the MRO supply chain backlog, causing long service times and increasing AOGs. The $200 million is an unrestricted cash deposit with the processor's parent bank, not a credit card holdback, and its timing is linked to negotiations with bondholders.