Allegiant Travel Company - Earnings Call - Q1 2021
May 4, 2021
Transcript
Speaker 0
I would now like to hand the conference over to your speaker today, Ms. Sherry Wilson.
Thank you. Please go ahead.
Speaker 1
Thank you, Sherry. Welcome to the Allegiant Travel Company's first quarter twenty twenty one earnings call. On the call with me today are Maury Gallagher, the company's Chairman and Chief Executive Officer John Redman, the company's President Greg Anderson, our EVP and Chief Financial Officer Scott Sheldon, our EVP and Chief Operating Officer Scott DeAngelo, our EVP and Chief Marketing Officer Drew Wells, our SVP of Revenue and Planning and a handful of others to help answer questions. We've scheduled today's call for 75 to ensure sufficient time for questions. We will start with some commentary and then open it up for questions.
We ask that you please limit yourself to one question and one follow-up. The company's comments today will contain forward looking statements concerning our future performance and strategic plans. Various risk factors could cause the underlying assumptions of these statements and our actual results to differ materially from those expressed or implied by our forward looking statements. These risk factors and others are more fully disclosed in our filings with the SEC. Any forward looking statements are based on information available to us today.
We undertake no obligation to update publicly any forward looking statements, whether as a result of future events, new information or otherwise. The company cautions investors not to place undue reliance on forward looking statements, which may be based on assumptions and events that do not materialize. To view this earnings release as well as the rebroadcast of the call, feel free to visit the company's Investor Relations site at ir.allegiantair.com. With that, I'll turn it over to Maury.
Speaker 2
Thank you, Sherry, and good afternoon, everyone. Thank you again for joining our Q1 call. First, let me take a moment and thank all of our team members, their spouses, families as they continue to fly our passengers in these difficult times. They've been the true warriors for our side of the house here. Donald, thank you again.
I'm extremely excited about our future, more so than I have been in previous quarters. I expect traffic to continue to grow in the coming months. Based on the data we're seeing, would say we are back. 2021 and beyond, I believe, will be as good or better than I could have hoped. In Q1, we had EPS of $0.42 and EBITDA total of $68,000,000 for the quarter.
But the thing that was very positive is each month of the quarter was a positive EBITDA number. Understand both of these numbers include our PSP amounts of 92,000,000 I want to share with you some interesting facts that I've seen and concerning the impact of the pandemic and how it's affected us and others. One, our balance sheet is in much better shape than before we entered the pandemic, particularly as it relates to cash. By the end of Q2, our cash balance will have more than doubled to $1,000,000,000 And this is measured since the end of twenty nineteen. While our cash balance has been growing, our net debt balance has actually declined over $50,000,000 By the end of the year, we could be approaching $500,000,000 of net debt, down from $950,000,000 at the end of twenty nineteen.
An interesting stat I was taken with last year was we generated $235,000,000 of positive cash from our operational statement off our cash flow things for 2020 as a whole. The industry during this time lost $18,000,000,000 from operations. And I might add, this includes $800,000,000 of losses from the other ULCCs. Lastly, as a factoid, during Q1, without any PSP, we only had a 15,000,000 EBITDA loss or a negative 5.5% margin. The remainder of the industry's EBITDA loss for this quarter just ended was $9,000,000,000 on $15,000,000,000 of revenues or a 60% negative margin.
My conclusion from that is our personnel, our model and our excellent management team have done yeoman's work during this difficult year. We were the first to get back to positive growth. We did this just this previous quarter. We were the first to achieve positive EBITDA late last year. And we were among the first to achieve positive EPS, and we did that again this quarter.
We are fortunate to be a domestic leisure oriented carrier. Leisure is king today. Business and international traffic continue to substantially underperform. Profile of our customer and their behavior is an important distinction in our model. Our leisure customers are made up of millions of individuals, families, small independent units that make personal individual decisions to travel and spend their funds.
Business traffic has a different decision process. While there are millions of business travelers as we know, their decision to travel in most cases is ultimately controlled by the company's senior management. Namely, given dramatic circumstances, company business travel is stopped. We have seen this phenomenon three times in the past twenty years, nineeleven obviously, the great financial crisis shut down a good chunk of business traffic, and obviously this past year with the pandemic. These have been full tilt stop traveling business traveling decisions for business customers.
This has been devastating to the airline and travel industries, particularly those focused on that business customer. Allegiant has lived through two of these massive shutdowns. And while we were certainly impacted by the pandemic this past year, we candidly didn't even feel the GFC. Our leisure customer profile and our flexible model allow us to bounce back faster than everyone else, including our other ULCC compatriots. This has been the backbone of how we have built this great company.
We had a terrific 2019, and we're off to an excellent start in early twenty twenty. We've just had to wait a delay a year so we could get back to it. Vaccines have been a terrific catalyst, as we all know. And combined with people's strong desire to get out and go, has made for a really nice rebound that we're seeing these days. We believe our income levels for the remainder of 2021 and 'twenty two and beyond will meet or exceed our last full year of 'nineteen.
We want to be a leader in this effort and take advantage of our great model in the coming years and plant flags as we attack more than 1,000 markets that we have routes we have targeted. We've upped our game substantially in the past three to four years. Our brand is extremely well positioned. We've made some bold moves that have worked out extremely well as Allegiant Stadium has been all we could have hoped for and more. I continue being the drum for our model, its flexibility, which allows us to both shrink and rebound.
It continues to demonstrate its benefits, allowing us to separate ourselves from the competition. This is particularly evident when you review the industry's operating margin results for the past twenty years. From our beginning in 02/2001, we've averaged over 15% in operating margin during this twenty year period, while the next closest carriers, Alaska and Southwest, have been at 10% margins. Perhaps the best highlight of the past few months has been the elevation of our status from a noun to a verb. From what I've heard, we were the standard of comparison for the recent IPO roadshow efforts, as well as for the group of startups that are showing up at this point.
Twenty years ago, most of the airline space didn't consider us an airline, which was fine by me. No one paid attention to us. But today, we are the model to follow. This is the ultimate compliment from your industry peers. In closing, I can't tell you how proud I am again of this group of team members, particularly those who have carried the water on the front lines this past year.
They've been the true heroes in our part of the world. Every day, they have boarded their airplanes and carried our passengers safely and on time during these trying days. John?
Speaker 3
Thanks very much, Mori. Good afternoon, everyone. As I did in the previous earnings call, I thought it would be helpful to provide some directional data points to help you understand how we see things in 2021. Given our domestic leisure focused business model, we are in a better position than other carriers to look beyond a month without hope and a prayer being part of the commentary. Having said that, these directional guides assume no significant changes to the environment we are operating in.
The industry and the country are seeing a slow and steady return to normalcy and expect that to continue as more restrictions are lifted. All financial data provided is on an adjusted basis, which excludes, of course, the benefits from the CARES Act and PSPs. Furthermore, fuel is assumed at $1.99 a gallon. We expect our cash balance to be around
Speaker 4
$1,000,000,000 at the end
Speaker 3
of each quarter going forward for the balance of 2021 and of course with an ever improving net debt. And looking at cost, we see full year CASM ex less than Q1 twenty twenty one. Supporting that view, our FTEs for aircraft should be down more than 10% versus 2019, even though our average number of aircraft are expected to be up over 20% by year end. Furthermore, our Q2 CASM Ex would be less than 6%. Greg will provide further commentary on Q1 CASM Ex.
Every quarter in 2021 should have positive EBITDA, and Q2 EBITDA will be around $100,000,000 EPS every quarter for 2021 should be positive as well. In regards to airline growth, I mentioned in my comments in the last earnings call, we have never been more excited about the growth opportunities in 2021 and beyond. To that end, it is our intention to grow the airline by the end of twenty twenty four to north of 145 planes. It goes without saying there's a lot of planning that goes into such growth, and we have been working on that in earnest for the last several months. Our deep knowledge of the domestic leisure customer coupled with our aircraft acquisition experience and strong and getting stronger balance sheet allows us to execute on such a strategy better than anyone.
In regards to Sunseeker, we've been getting quite a bit of interest of late and would hope to get something done that would allow the project to start before the end of the year. We are exploring many different approaches as to how the additional funds will be raised, so to comment on how a funded transaction could shake out or look like would be premature. While the speed of our recovery may be surprising to some, if not all, it has come about due to the dedication, passion and hard work from our incredible employees. You are simply the best and our results are proving it. With that, I'll turn it over to Scott.
Sheldon?
Speaker 5
Thank you, John, and good afternoon, everyone. Thanks for joining the call. Let me first start off by saying thanks and expressing how proud I am of the entire Allegiant team and all of our partners throughout the network. Our operational results in the first quarter were terrific despite some unique challenges. It goes without saying our team members and partners are truly the ones that make this business successful, and this entire management team salutes you each and every day.
Congrats. Moving on, what a difference a quarter makes. Plant production continued to build as we turn the page on 2020. For the first time in what seems like forever, we experienced our first normalized operating quarter in more than a year as we ended up with just over 3% capacity growth compared to the first quarter of twenty nineteen. Our core operating operational performance metrics were up virtually across the board with the exception of controllable completion, which I'll touch on that in a second.
Our team's execution produced seasonal best for D0 and A14 at seventy two percent and eighty point seven percent, respectively, once again on a full schedule as compared to first quarter of twenty nineteen. Excluding the impact of extended weather delays, which was particularly bad this quarter, our controllable A14 was exceptional at 93%. Although our flying activity returned to pre COVID levels in the first quarter, it wasn't without significant challenges. Our controllable completion percent, which ended up just north of 99.5% for the quarter, was far below our historical norms. A key driver of this were bottlenecks encountered in bringing flying assets back on the line to match first quarter capacity demand, particularly to the ramp up in late February and March.
As with most carriers throughout 2020, we deferred as much heavy maintenance and induction work as possible to minimize cash burn until there was a much better line of sight on demand. While these deferrals created much needed cash savings, it also created a significant backlog of aircraft with enhanced work scope requirements required to return to service. During the quarter, we inducted five used aircraft and had as many as 32 separate heavy maintenance events. Not an ideal scenario as our core MRO partners, OEM and parts suppliers and logistic companies have been slow to ramp back to full capacity. The end result was north of 85,000,000 maintenance cancellations due to the lack of aircraft and drove just over $6,000,000 in irregular ops costs.
In closing, I'm excited to maintain the momentum we've built as we move into the second quarter and into the back half of the year. We've weathered the induction and heavy maintenance constraints from the first quarter, and we appear to be back on a normal cadence, which is critical. Although the back half of the year is aggressively scheduled and MRO pipelines are getting tighter, our plan has largely been derisked thanks to the tireless efforts and creativity of our maintenance planning, induction and engineering teams. Equally as important is looking forward to having all of our third party suppliers and partners back online and operating at full capacity. Currently, majority of our ground handling service providers are experiencing staffing challenges, namely they're finding it difficult to recruit and or retain the necessary headcount to run their businesses at pre COVID labor rates, which is a direct result of the multiple stimulus rounds.
On the direct labor front, our pilots, flight attendants, mechanics who are either furloughed or on extended voluntary time off programs have been recalled, and we are pushing them through respective pipelines as we speak. Training classes for all disciplines will begin midsummer and into the fall to meet March peak and summer of 'twenty two flying. And with that, I'll turn it over to Scott Dee.
Speaker 6
Thanks, Scott. Building on prior comments, this past quarter clearly marked a positive turning point in customer sentiment and demand for leisure travel. Back in the January, only one third of our customers said they believed things were getting better in terms of COVID-nineteen. Yet by mid March, that number had nearly tripled, and around ninety percent said things were getting better. This fundamental customer sentiment, driven by a combination of vaccine progress and destination reopening, was highly correlated with when and with how we saw demand return.
That is to say, each month of the quarter showed marked improvement with March booking levels, as already mentioned, performing around twenty nineteen levels. However, it's worth calling out that while demand is increasing upward, it's also expanding outward, and we're beginning to see more normalized leisure travel search and booking behaviors. Advanced purchase timing for the first week of twenty twenty one was nearly half of what it was in 2019. Yet as we finished the quarter, advanced purchase timing for the March had greatly increased and was virtually identical to that same week in 2019. Further to this dynamic, the volume of flight searches being performed by customers at allegiant.com continues to outpace 2019 levels, especially for mid to late summer months, suggesting additional waves of leisure travel demand are continuing to reenter the market and are searching for travel time period that they're most comfortable with.
Of those customers who have already flown or booked a Legion this year, more than seventy percent report having already been vaccinated. As mentioned last call, staying close to and winning back those customers who flew Allegion in 2019 but haven't flown since the pandemic began is our priority focus. And I'm pleased to report that we've already recaptured nearly twenty percent of these customers and their itineraries and that those who have still not booked report overwhelmingly that they have flown no other airline during this time and consider Allegiant their top choice by a wide margin over all other airlines considered for their next trip. Once again, our direct to consumer approach has remained a critical differentiator not only for selling directly to, but also communicating directly with our customers, enabling us to stay close this past year. Our approach to capturing demand continues to be rooted in cost discipline by heavily leveraging our owned media channels, namely our website and email marketing, both of which achieved first quarter web traffic increases versus 2019.
This helped us once again achieve incredibly low sales and marketing costs on a per booking basis that were 80% below pre pandemic levels. And lastly, with our enhanced digital commerce assets in place, that is both our new website and new mobile app, we turn our focus to launching our broad based non card loyalty program later this year and to expanding our leisure offerings at allegiant.com, not only in existing hotel and rental car categories, but also through launching vacation rental inventory, more than 80,000 properties nationwide with our newest partner, bookingpal.com. And of course, we look forward to soon offering travel packages for Allegiant Stadium events this fall. Moreover, we continue to explore asset light co marketing and sales channel partnerships that enable us to broaden our Allegiant Travel ecosystem and that give us privileged partner relationships that enable us to reach millions of new customers in markets that we and those partners collectively serve. With that, I'll turn it over to Drew.
Speaker 7
Thank you, Scott, and thanks, everyone, for joining us this afternoon. We continue to see sequential revenue improvement in the first quarter with scheduled service and total revenues each down 38.2% versus the first quarter of twenty nineteen. Our ancillary revenue per passenger was down just 0.2% against the same time frame and remained a great story considering it is half of the scheduled service revenue. This contributed in a large way to our total fare per passenger being down just 8.9%. We ended the quarter with significant momentum through the back half of March that carried into April.
April revenue will be quite close to the March number, even despite less capacity for the first time in company history. A lot of this is due to what Maury mentioned. Our April load factors were roughly 10 points higher than March. And, in fact, despite moving beyond the peak spring break and Easter time frame, loads have improved in each of the last eight weeks. Furthermore,
Speaker 8
most of
Speaker 7
those weeks were also positive ASMs year over two year as we ramped into the peak. In total, April and May will be roughly flat capacity versus 2019 before the growth resumes in earnest during June, producing the 2Q ASM guide of plus 2% to plus 6% versus 2019. Some of that growth is slated for the newest Allegiant cities of Portland, Oregon, which began service in April, along with Jackson Hole, Wyoming and Key West, Florida, which takes flight in June. Those are among the 51 new routes beginning service in the quarter. We are thrilled with the booking performance of our new contingent routes and what they add to the Allegiant network.
Along with the ASM guide, we are guiding 2Q scheduled service revenue to be between down 6% and down 10% versus 2019. I'm ecstatic to see numbers in the single digits, and I really look forward to flipping that sign in time. Fixed fee margins have been greatly impacted by the amount of supply and lower demand in the market, and we responded by looking to deploy more flying, and in particular valuable peak day flying, to the better current returns on the scheduled service side. While we had a great run of fixed fee flying through the college basketball March Madness tournament, it is certainly more of a one off benefit for 2021, and fixed fee revenues are likely to remain under pressure. The strength in demand we're seeing continues to give us conviction in the potential for the back half of the year.
We have the crew and the aircraft in place to grow approximately 20%, and our current selling schedule through mid December reflects that intention. That selling schedule includes the announcement of our newest base in Austin, Texas. We served Austin since October 2013 and have had success growing a wide range of route opportunities and are related to making a stronger presence in the future of our network. And with that, I'd like to pass it
Speaker 4
over to Greg. Thank you, Drew, and good afternoon, everyone. We continue on our path of leading the way in restoring earnings power as we deliver on our tried and true business model that provides affordable, convenient and reliable air travel to residents of underserved cities. Over the years, we have consistently produced industry leading returns for our shareholders. We are a long term focused bunch and taught to think like owners, particularly when the tone is set at the top by Maury, who since our company's inception has not only been at the helm, but also our single largest shareholder.
One of our key focus metrics is restoring our EBITDA production to pre pandemic levels, which is more than $6,000,000 in annual EBITDA per aircraft. So starting with the current tone of the business. During the first quarter, our average daily bookings came in just under $5,000,000 per day, which translated into an average daily revenue of $3,000,000 The quarter ended strong as March came in like a lion with average daily bookings exceeding $6,500,000 per day, ahead of 2019 levels and driving more cash flow as our ATL increased by $100,000,000 or 33% from December to March. This despite the travel voucher portion being down 19%. Additionally, we saw a couple of key metrics during the first quarter, which already outperformed 2019 results.
One is capacity. Our focus on 100% leisure, 100% domestic, and our only nonstop flights plus strength in demand resulted in March capacity of nearly 1,900,000,000 ASMs, the highest single month in our history. Another is cost. Our first quarter adjusted CASM ex, which excluded PSP benefit, is $0.06 $36 or 5% below the same period in 2019. And perhaps worth noting, our adjusted CASM ex for the quarter is by far the lowest reported by a carrier.
It is half of the industry's reported average of $0.01 $27 We are excited in getting back to pre pandemic results and the catalyst that enables us to lead the way in the flexibility of the business model. Our one of a kind low utilization and high variable cost structure aided us in generating 168,000,000 cash from operations during the first quarter, which is more than the first quarter of twenty nineteen and helped push our ending March cash balance up to $730,000,000 Additionally, we have $260,000,000 in cash that comes in after March, roughly $150,000,000 from our NOLs, dollars 98,000,000 from PSP III and a 14,000,000 top up for PSP II. Pro form a, the $260,000,000 in these cash proceeds brings our first quarter cash balances to nearly $1,000,000,000 thus resulting in a March pro form a net debt position of roughly $630,000,000 or 33 percent reduction from year end 2019 balance. Moving to our second quarter outlook. We expect to induct five aircraft during the quarter to bring our total in service fleet count to 105 by June's end, an increase of 19 aircraft compared to June of twenty nineteen.
These additional aircraft are already being put to work as capacity during the second quarter is expected to be up around 4% year over two year. It is also notable second quarter daily bookings haven't skipped a beat. April continued to roar with average daily bookings around 6,500,000 per day, which is 8% higher than April of twenty nineteen. The strong rebound we are seeing in our business supports our second quarter scheduled service revenue guidance down 6% to 10% year over two year, which translates into revenue per day of 4,800,000 nearly 60% higher per day than the first quarter and within striking distance of twenty nineteen's average revenue per day. And based on the midpoint of our capacity guide, we expect our adjusted CASM ex to come in under $06 during the second quarter.
So combining our expected daily revenue of $4,800,000 in the second quarter with our expected cost performance suggests an adjusted EBITDA margin of around 25% for the June. That 25% EBITDA margin excludes the benefit of PSP. If you include the benefit of PSP, it suggests an EBITDA margin of more than 35%. Turning to fleet. During the first quarter, we acquired three aircraft at an average all in price of $16,500,000 per tail.
These aircraft were paid for with cash and remain unencumbered, which brings our current unencumbered aircraft count to 29. In the used A320 market, our fleet team is in no short supply of deals coming across their desks at prices that reflect a 30% discount on average to pre pandemic levels. Based on current commitments, we expect to end the year with 108 aircraft, which supports our ability to increase capacity in the back half of 2021 by as much as 20% as Drew and his team see no shortage in opportunities to put aircraft to work. This level of capacity suggests our adjusted CASM ex for the back half of the year should be around the low $06 level. In the event we come across sustained weakness in the demand environment, our highly variable cost structure along with our fleet flexibility provides us a built in safety valve to let off the gas as needed.
Not only is our industry leading cost structure advantage expanded due to the structural cost savings removed during the pandemic, other carriers have increased their leverage significantly more than we have, our expected full year 'twenty one interest expense should be around 14% less than full year 'nineteen. And additionally, our full year 'twenty one scheduled debt maturity and interest payments using our 2019 passenger counts is actually $6 per passenger less than it was in 2019. And you don't have to take our word on how well positioned we are. Recently, S and P upgraded our corporate rating and changed our outlook to stable, I believe among the first rated U. S.
Airlines to see such a change. And in terms of CapEx, our full year 2021 guide remains largely unchanged with the exception of our other CapEx category, and that we increased by $20,000,000 for the opportunistic purchase of spare parts at an average price per part of 50% less than pre pandemic levels. And I'll close with TSNAP. Recently, we completed the sale of 85% of our TSNAP subsidiary to Telio Capital and had an undisclosed amount. We are excited to partner with Telio as they are committed to positioning TSNAP for a bright future with plans to further invest and accelerate growth of the business.
And I'd like to take a moment to thank our TSNAP team members who have done an incredible job building the platform, creating a deep and growing customer base and bringing the program to its next evolution. With this team, Intellio's good stewardship, the future will be very bright. And with that, we'll turn it over to questions.
Speaker 0
Your first question comes from the line of Mike Linenberg from Bishbank. Your line is now open.
Speaker 9
Oh, hey. Good afternoon, everyone. Good quarter. This is a question probably Maury and or John. Look, Maury, you alluded to, you know, competition out there.
What is it? You know, imitation is the sincerest form of flattery. And, you know, the fact is we do have, you know, a fairly you know, several new entrants. It seems like there's more in the you know, waiting in the wings, and they are targeting, you know, your market segments. You know, they're not I don't think we're getting any carriers that are gonna start flying, say, San Francisco, Tokyo.
It's all about Austin and Nashville to Florida and Vegas, etcetera, etcetera. I'm curious about, you know, how you're thinking about it. And even just in the last couple weeks, I think we've had two airlines announce new service to Phoenix Mesa. We've seen someone announce additional new service into Punta Gorda, Saint Pete. These are sort of the Allegiant mainstays.
And so how do you think about long term opportunities? Do you think that, you know, with this area becoming more fragmented, the ULCC state becoming more fragmented, that maybe consolidation is more likely over the next few years? A fairly broad question to one or both of you, however you want to answer it. Thanks.
Speaker 2
That's a mouthful. We got half an hour.
Speaker 6
Laurie, we'll catch up later. We'll call
Speaker 2
in. Yeah. Certainly, I think I classified this last year, ironically, a financial year rather than an operational year. You're seeing opportunistic financial plays that are the market's been very receptive to them. With IPOs, you have a lot of money that got their known quantities there for the most part.
But on the new front, they each have their own personality. Drew's been following them very quickly,
Speaker 7
and he may
Speaker 2
have some opinions in the near term. But Andrew, we know each other. He knows how to do what we do. But we've gotten very big. While we're certainly going to pay attention to people, that's not our first thing we look at at this point in time.
With Breeze side of the house, they have an ambitious growth schedule. But with their airplane size and some things, I'm not terribly concerned about flying against 110 seat airplane that they'll start with. The two twenty is a good airplane, but they claim to be good interest in longer haul, thinner markets. So we'll just have to wait and see. I don't think it's so much us.
I think the really interesting play is how do the Big three react I just looked at this data. They've got a ton of debt. The cost structure is twice what ANRs are. I mean, I just don't know how those guys kind of come down the hill, not to say they won't, but long term. So the issue I don't know isn't so much worried about startups is I think you're going to see the ULCC side able to really gain a lot of market share potentially over the next couple of years.
And that's what we are so bullish on because we can really stand alone in what we do and how we've done it. And we were ready for this in 2019 and into 2020. And like I said, we just took a year off, but we're stepping on the gas. John, if you have any thoughts?
Speaker 3
I think when you look at it, we've never been afraid of competition. But financially, where we stood some time ago versus where we stand now, Maury made it in his comments, we all kind of alluded to it, but we've never been stronger with a stronger balance sheet in the history of the company, frankly. So we're well positioned to take on anyone. When you look at the startups, literally, they don't have a brand. No one knows that brand in the marketplace.
So they're coming in with a brand that no one's ever heard of, and as Maury points out, maybe with a plain type that's not as cost effective as ours in some cases. So I think we're very comfortable with where we stand going forward. We're in great position to do it and growing quickly.
Speaker 9
Great. Great. Thanks. And just a quick one to Greg. Aircraft rent expense, Greg, it's a fairly new concept for you guys.
As I think about you mentioned that the last three shells were financed out of cash. You're taking a few more later this year. Is are they operating leases? Or should we assume kind of March is a good run rate for the rest of the year on aircraft rental expense? Thank you.
Speaker 4
Thanks, Michael, for the question. Yes, the three that we acquired in the first quarter are not op leases. So those purchases. We do have a couple of op leases that we'll be bringing in the next coming twelve months or so. But what I'd say is that, that number that you saw in the March, where we sit today from a rental expense perspective, is a good number for the remainder of the year.
Speaker 9
Great. Thanks, everyone.
Speaker 2
Your
Speaker 0
next question comes from the line of Johan Sverdrup from Evercore ISI. Your line is now open.
Speaker 8
Hey, good afternoon. Thanks. Thanks for the time. So your guidance implies a nice sequential improvement in RASM. We really haven't had an opportunity for a while to talk about RASM.
So it's nice to see sequential improvement there. I wonder if you could comment on the balance between load factor. I mean, you noted that 10 improvement in April, but the balance between load factor and yields, because it does feel like perhaps your average fares don't drop off as much as they might normally would from 1Q to 2Q.
Speaker 7
Yes. Thanks, Duane. Drew here. I think we're kind of in the middle of the inflection point. We predominantly tried to keep fares and yields relatively in line under the theory that and what we experienced, the dropping of fare wasn't stimulating enough incremental load for it to make sense for us.
As the demand pool in general is growing, more seats are out there. We're seeing more and more inroads to where dropping fare and creating that stimulation makes more sense for us. And I think right now, it's kind of the inflection point there where you'll see yields hold up really, I think, fairly well over the first probably half of this month before as we get into summer, seeing that kind of inversion take place. I know Maury kind of alluded to some of the cadence of loads there, but I do expect to see us cross 70 in June and continue kind of that steady improvement that we've seen from March to April.
Speaker 8
Yes. Sequential improvement in RASM and sequential in CASM. So that feels like a good outcome. Press release. But can you talk about your growth outlook for the balance of the year?
And maybe relatedly, what would it take for you all to think about bringing back EPS guidance? Because we're going to have to think about positive EPS here, again, really the first one to contemplate that.
Speaker 3
On the EPS front, mean, we've had some conversations about that. I'd imagine we'd start looking at that probably next quarter.
Speaker 2
Yes. That's a nice transition back to a really positive way to look at the business. Yes.
Speaker 3
Agreed. I did mention to you that it's going be positive every quarter for the balance of the year.
Speaker 8
You did, John. Thanks. And then just with respect to kind of the growth outlook, you gave us 2Q. Have your expectations about the second half kind of changed relative to past calls?
Speaker 7
No. I think we're still very much in line with what we suggested in the January, February call. If anything, I think we have a bit more conviction in what the back half of the year can bring. I feel stronger about our ability to be near that 20% mark. So it's not providing an official guide, but you can look toward our settling schedules, at least for what we intend to be able to fly.
Speaker 2
Just to comment, Full comment, Duane. I think Las Vegas is as exemplary of the leisure marketplace in the country as any place. And we go down to the strip. I was down there last weekend. I mean, I had to wait on a green light to make a left turn again.
I haven't seen traffic like that in a long time. Headline today, wind opens 100%. Eighty percent of their people are inoculated, eighty eight or something like that. You're just getting this feeling in our town here that the leisure world's back. And thankfully, Las Vegas has been one of the weaker cities over the last year just because it's been shut down so much.
I think Orlando obviously comes back stronger with the Disney's of the world. So the idea that we're back is a statement of the day, I think, is if it's not today, it's not it's tomorrow or the next day.
Speaker 8
Thank you very much.
Speaker 0
Your next question comes from the line of Andrew Didora from Bank of America. Your line is now open.
Speaker 10
Hi. Good afternoon, everyone. Thanks for the questions. I guess my first question is for for Drew. I guess with what you're seeing in just in broader leisure travel in your booking curve lengthening and everything, do you think you're at an inflection point in your business where it kind of reverts to more normal seasonality with 2Q strongest, 3Q the weakest?
Or do you continue to see the ability to continue to grow revenues sort of sequentially from here based on what you're seeing from a leisure traveler?
Speaker 6
Sure. I think we still have
Speaker 7
the ability to grow sequentially. Obviously, we're making it harder and harder on ourselves with each quarter. But I don't think we're back to a fully normalized world there. As we saw even last September, October, we had great shoulder and off peak demand. And I think we'll see that, at least here in the shorter term, all leisure travel patterns are a little bit different, VFR patterns are a little bit different than they've been in the past.
So I do think that there's at least some short term runway to kind of maybe get some incremental lift in what would normally be an off peak or shoulder before presumably returning to more normality in maybe a year or two.
Speaker 10
Got it. Interesting. And then, Maury, kind of strategic question here. But with with what you've seen from the from the leisure traveler, do you have any regret for not finishing Sunseeker on your original timetable? And I guess what you have to see for you to go through with it on your own again?
Thanks for the question.
Speaker 2
I've got a lot of regret. I wish we would have finished it. We'd be in great shape right now with what's going on in Southwest Florida. I don't know if you all have seen the numbers down there. But a couple of weeks ago, I was looking at hotel rooms.
They were three factor higher. Can't get rental cars down there. The people we have down there just have never seen anything like this. So having said that, we made the right decision not to do it. And our go forward approach is going to be it will stand on its own with its own debt and things like that.
But John can talk about we're seeing some good activity. And that part of the world is definitely being recognized for what it is as a vacation destination.
Speaker 3
It's unbelievable. We knew it made sense some time ago. Of course, we made the decision. It makes even health care a lot more sense now, as everyone's seen. I already, earlier in my comments, made the comment that we expect to start that project back up again before the end of the year, given the conversations we're having to date.
There's quite a bit of interest in the in seeing that project, you know, get get completed. So stay tuned, and I'll have more to report, you know, down the road. But just now, there's too many different directions they this opportunity can take for me to make any particular comments on any one. But that's why I just made pretty much a global one that we think we're gonna get started back up before the end of the year.
Speaker 8
Thank you.
Speaker 2
Thanks, Andrew.
Speaker 0
Your next question comes from the line of Helena Becker from Cowen. Your line is now open.
Speaker 11
Thanks very much, operator. Hi, everybody, and thank you also for the time. Just two questions. One is as you think about, you know, passengers coming back and airfares versus ancillaries, You know, obviously, without the passengers, you're not getting the ancillary. So are you you know, is it is there a percent that you're thinking about that you want ancillaries to grow to versus fair?
And And I think in the answer to somebody's question, maybe Duane's question about loads versus yields, you talked a little bit about it. But how are you thinking about ancillaries?
Speaker 7
Sure. I would love ancillary to be 100% of the portfolio. I mean, that's never going to be there. We've been fairly solidly at or above 50% now for, I believe, the last five, six quarters, even including pandemic time. I certainly want to see that continue to grow.
We launched our bundled ancillary program shortly before the pandemic and, frankly, haven't had as much time to see that grow as we would like, as we were kind of back into more scramble mode. I think there are several evolutions of that that will help boost, as well as performance from the new website and a lot of things that Scott DeAngelo mentioned during his remarks and other things he's working on. So there's not necessarily a targeted percentage in mind other than let's get that thing as high as we can get, and we'll be in the best overall position.
Speaker 11
Gotcha. And then my follow-up question is, you were talking about and I think this I'm not sure. Maybe it was Scott Sheldon talking about finding it hard to attract people. Are are the are are the OEMs in your MROs that do your maintenance, are are they finding that they have to raise pay to attract people, or are they sending the work outside the country? I don't I don't know what percent of your own maintenance, you know, or of your maintenance you're doing in The United States versus outside.
But, you know, I know most of it is third party.
Speaker 5
Yeah. I think my comments on the on the on the labor rate itself is is more, you know, above and below wing in our ground service providers. Our our MRO business was spread, upwards of nine different locations in six different countries. So it was difficult. They were slow to ramp up.
And just parts and logistics, that was probably the long pole in the tent. If you look at kits that we would use to convert to MaxPaks, bad weather, I mean, that played into it. But it's more on the ground handling side is the near term rate constraint for us. It's not on the MRO side.
Speaker 11
Okay. And then are you find just as a follow-up to that, are you finding it hard to find people to work in the airports for you or or some of your lower wage workers versus your high you know, I imagine the higher wage workers maybe not so hard.
Speaker 5
No. I think that you're seeing across the board. I mean, obviously, it's a it's a part time workforce. There's a lot of companies out there that are starting well north of what our hourly rates would be even if we outsource it. So at some point, you're going to have to start creeping up that direction.
Florida right now, if you look at Sanford, St. Pete's, Nashville is really tough. I mean, some of these larger cities that we're operating into, our service providers are having a hard time finding bodies. And so we're having to chase rate up here in the near term. Whether that's sticky long term, that's yet to be seen.
Speaker 3
Yes. And Helene, think you have to look at this happening in all industries, especially at the lower wage levels just because of the unemployment benefits and whatnot. So we could be seeing this problem in The US through September, frankly, just because of some of these policies. So you know, we'll have to wait and see, but but you see it across industries at the at these these rates. You can't even find an Uber driver.
Speaker 11
So very true. I'm finding that out. Okay, thank you very much, everybody.
Speaker 0
Your next question comes from the line of Joseph DeNardi from Stifel. Your line is now open.
Speaker 12
Thanks. Good afternoon. Maybe for Mari or Drew, just want to talk about kind of your bullishness on the outlook, the performance of the business through COVID and yet kind of the goal of getting to 145 aircraft by the end of twenty twenty four, that's fairly measured growth. And so is that kind of what you think is appropriate over the next few years? Is that the base case?
Or are there kind of things that throttle growth in terms of aircraft availability or things like that? Can you grow more than that?
Speaker 2
Yes, we can certainly grow more than that. We want to be measured. One of the interesting things we are finding is as we get to the size we have, you now have to go find fifteen, twenty airplanes a year unused. And we think that over time, that could present some problems. So we don't want to get out ahead of our skis too much.
The other piece of this is if you go back and look at Southwest over time, they've grown 10% to 15% a year. And when you have very chunky growth where you accelerate and then you try and back off, getting the resources to accelerate quickly where you need to train the crews. You need to have all the stuff, particularly with used airplanes. It's one thing to order a new airplane. We have to be more measured in our planning at that rate.
So there's a side of me too that says the race ultimately goes through the tortoise. That's been the Southwest story continuously for fifty years. So we can certainly grow more. We think that's a good amount of growth for us in the coming years. I'll let Drew talk about markets and our ability to grow into them.
But it's a good number to put out there at this point.
Speaker 4
Yes, Joe. I mean, it comes out to about just over a
Speaker 7
10% CAGR there. In the short term, we're talking about 20% or so in the back half of this year. That would likely continue into the beginning of next year just because fleet counts didn't change that dramatically. So we think there's a lot of near term availability to grow in it. There's certainly the market presence to do that.
And we're built structurally right now with the aircraft, with the crew, the headcount to be able to accomplish that. So kind of to echo Maury's comments, let's get to the back half of this year right now and continue to push forward at a measured rate that the entire enterprise is comfortable with. I'll give one shout out to Kristin on my team who told Vijay on the fleet side, if you buy it, we'll fly it.
Speaker 4
So we're ready to spool
Speaker 3
up. One thing to look at that, too, either the governor or the accelerator, depending on how you want to look at it, is really the rate of retirement. So we can push them up or slow them down depending on how we feel and what the market feels like. So that's always a governor or an accelerator.
Speaker 12
Okay. And then Scott, D'Angelo, you ran through some of the third party revenue opportunities you're looking at. I think you all are doing around $5 per passenger in third party products excluding the air portion. What's the opportunity there longer term next, call it, three or four years when you consider kind of better selling what you're already selling? And then the vacation properties, whatever Sunseeker turns into, kind of what's the medium term opportunity there?
Speaker 6
Yes. So I think the medium opportunity now with the digital commerce platform that enables us to showcase more inventory across hotel rental car and now vacation rental. But as or more importantly, a more personalized approach to that, so having more to sell, being better at getting the right thing in front of the right person. And then the third leg on that still will be the stay tuned for bringing on additional things that we can make part of that ecosystem. I know traditionally, we think about marketing and all of the traditional advertising.
But if you think about what I just said, a loyalty program layered on top of that and then the ability to, as I like to put it, interweave the Allegiant brand into the things that people love, whether that's the resort they stay at, whether that's the sporting event or concert that they go to and or whatever other leisure activity they need air travel to. It does all the same work that a traditional advertising would do, but brings with it a much tougher way to dislodge and think of Allegiant just as an airline that goes up against either new entrants and or incumbents. So no number there, but we are now have the platform and certainly are going in the direction in the medium term for that to improve materially.
Speaker 2
Yes, Joey, just to add on to that. Our ability to improve our brand in the last couple of years has really been exceptional. And that's really important for where we want to go with the third party revenues. And hats off to Scott and all of what his team's done out there for that. But the other piece that he's pushing, which is very important, I think, is we're moving towards as much frictionless efforts as you can to get into this stuff.
And we've all shopped at Amazon, and we know how friction free that is. And it's amazing to me today, you can't buy an airplane ticket without having to put your credit card in every time. Think about that in today's technical world, where it's just an amazing thing that you still can't have that type of customer engagement, if you will. And part of it is fractionalized. You've got Expedia people going through there.
You've got the airlines don't control their customers nearly as well as a lot of other people do. And that's our goal is to have that direct control. Those are just the subtleties that become very powerful long term. And one of Scott's big things is once you got that guy, don't lose him. Have him keep coming back.
So that's been a big piece of what we're doing as well. Anyways
Speaker 8
Okay. That's helpful. John, if I
Speaker 12
could just squeeze in the commentary around Sunseeker, is an option now that you will put Allegiant Capital into that project to get that restarted?
Speaker 3
Again, we're having so many different conversations and so many different term sheets being exchanged that I don't want to jump out too far and give any kind of direction. It might end up being somewhat misleading when you look at a final deal. I just know you have a good feeling that something's going to happen that's going to allow us to get started before the end of the year. There's enough interest there. We're making a lot of progress on having conversations with these folks.
But they all have different designs on how to put something together. So I think stay tuned. I don't think you'll have to wait that long to hear more out of us. But I just have some give them ourselves till the end of the year. But it could be much sooner.
Speaker 2
Joe, just the word we've used is no meaningful capital will go into it at this point. So that's not to say we won't do some, but where we before, it was going to be all off our balance sheet or a good piece of it. That's not going to be the case this time.
Speaker 4
Okay. Thank you.
Speaker 0
Your next question comes from the line of John McKenzie from Seaport Global Securities. Your line is now open.
Speaker 13
Yeah. Hey. Thanks for the time you guys. This actually I'm going to try to ask Joe's question maybe a little bit differently here. But, you know, Scott, the asset light partnerships where Allegiant benefits from a privileged relationship, I'm just wondering, what does that mean exactly?
Is that a reference to Sunseeker by any chance or something else? No. Okay.
Speaker 6
No. I'm happy to explain at a high level without any spoiler alerts. We look for partners that can come to the table that give us something in the leisure ecosystem to sell. But moreover, that have a bunch of customers of their own that live in the markets that we serve that they can introduce us to. So the partnerships heretofore, anything that's bigger than a breadbox likely has both, yes, it's something that we can sell in an asset light fashion, a high margin fashion, but also then kicks back on the other side and brings with it millions of new customers that we can go co market to.
And when they're buying their products, they can send them our way. So a perfect world is everyone in our ecosystem, whoever you go to first, gets, you know, sit around the carousel. And in the most technically elegant environment, right, you would have an integration where someone certainly buys all those things at allegiant.com. But in the same way, when you book that hotel somewhere else, when you buy that game and or concert ticket, Digitally, we know where you are, and we know by definition of what you bought that ticket for, where you're going. And to be able to present Allegiant as the right option for air travel to that, that's what that implies.
Certainly, SunSea will be one of those things as it will introduce itself, but no, that was no allusion to that. That was other partnerships that we hope to announce in the upcoming future that are true, what I would characterize as business and channel distribution relationships.
Speaker 13
Just following up on that, can you translate that into some aspirational metrics and how they might roll up to the system metrics just to try and bring that home somewhat?
Speaker 6
Yes. I mean, the answer is not here. There's no number
Speaker 4
I could give you,
Speaker 6
but I can check how it'll translate. It will translate certainly in the new visitors we get to the website times of conversion, which will manifest themselves in both tax counts going up and in the average transaction size as you have more to sell and people attach those things. So tax counts and then that third party revenue per ITIN or per PAC that Joe referenced would be the two metrics that you would expect to be impacted by that.
Speaker 13
I see. Okay. Second question here, it looks like from the schedules data, 40% of the ASMs in the second quarter are going to fall in the month of June, has implications for revenue in CASM Ex for the quarter. It looks like June could maybe account for 50% or more of the revenue in the quarter. But please correct me on that.
But more interesting is the CASM X. So with capacity up 16% in June I think is what the schedules are saying And you're saying a CASM sub $06 for the full second quarter. And I guess what I'm wondering is that seems to imply a CASM ex close to $0.55 for the month of June. And I'm just kind of wondering how that wrinkles out through the phases out through the remainder of the year.
And I guess, you know, where I'm going with this is, you know, is June CASM X being impacted by heavy maintenance? And, you know, I'm just wondering if you can just, you know, provide a little bit more perspective because it seems like there should be a step down in CASM Ex in the month of June that essentially gets straight line through the rest of the year.
Speaker 7
Maybe, Druj, I'll kick it off very high level. You're right. We're looking at about 40% of the ASMs to happen in the month of June. So I think the quarter basically is going to come down a lot of ways to how June is variable from now. I don't know if Greg wants to handle any parts of the cost component.
Speaker 4
Yes. Dan, thank you for the question. And the June will come in really strong from a CASM ex perspective. I think when we look at the cadence quarter by quarter, I would think the June would actually be the lowest. And I say that because as we look into the back half of the year, you're we're anticipating a couple of things.
One, increased profitability, which would roll through into profit sharing. So that's going to drive it up a little bit more as compared to what we're projecting right now for the first half of the year. And then you also you're gearing up or we're anticipating gearing up for growth into 2022 in the back half of the year. So I think that too will provide a little more unit cost pressure as compared to the second quarter. But I mean, we feel good about where we're coming in at the second quarter.
I think an interesting data point perhaps worth noting is like on the D and A front or the fixed cost, as you look on a unitized basis, perhaps in the first quarter that had a little bit of a headwind. But as you take up utilization a little bit more, that's going to drive it down and provide some strength there. I think in the first quarter from a salary and benefits perspective, you saw that's toppy in the first quarter just because and I think I mentioned this on the last call, we have with our pilots, we recognize our PTO upfront in the very in the first quarter, and then you just you run that out through the rest of the year. So it's almost $12,000,000 in the first quarter alone in PTO. And then you'll get some benefit on that in the second quarter.
But then once you get into the back half of the year, again, you're starting to hire or expecting to hire some crew members to support that 2022 growth. So yes, I'm happy to add some more detail if that's helpful. But I think just at a high level, that should be a good indicator of the cadence when it comes to unit cost by quarter and what some of the pressure points or tailwinds may be.
Speaker 13
Yes. Thank you for that clarification. It is. If I can just squeeze in one last quick housecleaning question. Does the percent of second quarter flying that's in new routes less than twelve months, I think there's 51 new markets.
I'm just curious how those yields are spooling up versus the system average. I'm thinking there's probably not a whole lot of difference actually.
Speaker 7
There's always a little bit of difference, as you can imagine. As you're trying to introduce, you'll have varying levels of confidence by route as you move in. But either way, the core goal in the first year is to ensure that you can fill the plane. And so we'll sacrifice yield initially in order to make sure we can accomplish that. So you'll see a little bit of a headwind from that.
I don't know that you'll see it at the system level. Just shy of 13% or so of our ASMs 2Q will be on routes in their first twelve months. So, you know, happy with where it's at, but we're we're focused more on on being able to fill the planes and build load on on that than than we are on gaining yield initially.
Speaker 13
Very good. Thanks for the time, you guys.
Speaker 0
Your next question comes from the line of Hunter Keay from Wolfe Research. Your line is now open.
Speaker 4
Hey, everybody.
Speaker 12
Looks like you're guiding revenue excluding Charter and other. Obviously, you mentioned you sold, the majority of TSNAP. But, what does it say about Charter? Why are you guiding excluding Charter? With Charter revenues in first quarter, it looks pretty fine to me.
Are you saying that we should expect that business ultimately to go away at some point? Are you deemphasizing it? Why did you exclude that from the guide?
Speaker 7
Yes. Hunter, the reason why I want to go to scheduled service only is we're putting our growth of ASMs into the scheduled service world. That's where we're seeing the better returns, and I wanted to ensure a lot of focus on that piece of it. The fixed fee relevant and I mentioned this in my opening comments, margins are down fairly significantly across the board there. In first quarter, we had a solid amount of March Madness flying, which boosted the fixed fee number in March.
But but like I mentioned, I think that's a one off for '21. We we won't get a lot of great insight into what fixed fee will do in the back half of the year until we get a little a little bit further along with college football contracts. So for now, I wanted to keep focus on, you know, a, scheduled service ASMs are growing. Here's why. Here's the scheduled service rev guide, and and kinda move with that.
To your point, the the other rev line will largely move to zero as we move forward with the t SNAP sales, so that becomes de minimis. The fixed fee is not going away. I think we're just trying to be good stewards of our assets in the short term, and the better returns are on the scheduled service side right now.
Speaker 12
All right. That's cool, Drew. And then Maury, I realize a little bit of an awkward question, but we've been talking about this for years. I'm wondering how you might talk about succession planning. I know it's you can't really quit in the middle of a crisis, but you sound so excited.
Now it's maybe even harder to leave given the opportunity you have in front of you. So how are thinking about your own future as CEO?
Speaker 2
Well, it's guaranteed I'm gonna leave. That part's Really? Without question. Yeah. It's a question of when.
My succession's sitting around the table here someplace. I'm going to do we'll get to spin the arrow out, and we'll sit down one day and do it that way or something. No, it's certainly been a long run, and I couldn't be happier with the management team that's here. And I'm still the largest shareholder and intend on being that. So I don't know that I'll ever go away, but I don't have to be here day to day, certainly.
And this group here are good stewards of this great business. Yes, stay tuned.
Speaker 7
Okay, Maury. Thank you.
Speaker 6
Your
Speaker 0
next question comes from the line of Catherine O'Brien from Goldman Sachs. Your line is now open.
Speaker 14
Hey. Good afternoon, everyone. Thanks for the time.
Speaker 0
Know, maybe a bit of a follow-up to
Speaker 14
the medium term, more metered growth story. You know, with spare parts and aircraft available at at the pretty attractive prices versus pre COVID, you guys noted earlier in the prepared remarks, is there not, you know, more of an opportunity to add to your fleet here and and just lock in lower ownership costs for the coming years? Or is it really just like those maintenance bottlenecks you mentioned earlier that call that? Or it's just you guys really think the current fleet plan is sufficient for what demand is going to be? Thanks, guys.
Speaker 4
Hey, Katie, it's Greg. Perhaps I'll kick it off and maybe others will jump in if they like. I think a way to describe when John gave that 2024 aircraft guide is that 10% is I mean, we're still going to be opportunistic. And BJ and his fleet team, they're seeing just a lot of opportunities to bring on used A320s. And there's a bunch out there that profile and make a lot of sense to bring on.
And I I would think of those as incremental kind of growth, and maybe it's above 10%. But we're certainly looking at that. And we see a lot of opportunity there. I think from the spare parts perspective, similarly, we've seen some opportunistic purchases there where off of 50% of pre pandemic levels. So we're excited about that.
We'll start bringing those in to help support ramp up of growth. I think Scott Sheldon and his maintenance team and organization has done a great job of positioning us to be able to get these aircraft into the pipeline moving forward good in amount of time. But I mean, I wouldn't I guess, ultimately, what I'm saying is we're to be opportunistic. And as we see nice aircraft deals come our way, we're going to continue to look at those. I think it's a great opportunity for us to continue to look to average down our ownership costs, given what we're seeing here.
And stay tuned, but we have quite a few irons in the fire.
Speaker 14
That's great. And if I could maybe just sneak two quicker modeling ones in again here. I guess, first, just a really quick clarification. Did you say two half CASM ex is gonna be low 6¢ range, or did I am I hearing things?
Speaker 4
No. You heard that right, Katie. So I think that just the second half should be just in the low $6.06 range 6¢ range.
Speaker 14
Alright. Great. And then maybe just the second little modeling one here. You know, it looks like on in terms of your ATL, current quarter, you saw positive impact of new bookings outpace some of the drawdown of credits used from prior periods. Any thoughts on how we should expect this to trend going forward just based on your current forward bookings?
Thanks so much for the time.
Speaker 4
Yes. I mean, you want me to kick it off what we're seeing, Drew, from the accounting perspective and maybe if you see any forward. But what we saw in this last quarter, Katie, in terms of redemptions, it was just in gross numbers. I think it was like $40,000,000 which reduced it by 19% that credit voucher level. So what I would say is we're not issuing nearly as many as we did last year.
You're starting to see that those will be redeemed at a nice rate. We did extend our expiry during the middle of the pandemic or early on in the pandemic, I should say, to two years. So that's keeping them out a little bit longer, but the cadence of them coming down is pretty nicely, whereas I think by the mid-twenty twenty two, you'll kind of get back to that normal percentage of ATL in terms of credit vouchers. And then I think do you want to talk change or
Speaker 7
Sure. We can touch on it on it quickly. Yeah. Yeah. We brought change fees back in a mitigated sense on May 1.
So they came back at $25 versus our original previous number of $75 Something was you know, it's really John's idea of bringing back something that was not zero, but but not all the way to to kinda help, one, with the the threshold that on on our side, but but, two, restore some some normalcy there. And and, you know, thus far, very, very early. See no real pushback on that front.
Speaker 0
Got it. Thank you so much. Come on.
Speaker 2
Operator. Yeah. Operator is here.
Speaker 1
Are you bringing in?
Speaker 2
Go
Speaker 6
ahead, Savi. Could you hear me? Yes. All
Speaker 15
right. Thanks.
Speaker 11
Good afternoon, everybody.
Speaker 15
Greg, if I can ask a little bit more on the CASM ex question. You reached the upper end of that CASM ex that you were looking to achieve. And could you walk kinda walk through your expectations for your major cross line items over the next couple of years or just a bit of a longer term view? I'm trying to understand, like, what might get you to the lower end of that target or perhaps what might kind of cause you to move up from that low $06 that you're seeing in the second half?
Speaker 4
Sure. Thanks for the question, Savi. I think an area that I get pretty excited about is in terms of helping improve a tailwind to our unit cost, as I mentioned earlier, was on the ownership side. Just some of the deals that we're seeing or potential aircraft deals we're seeing coming our way as a result of the pandemic could meaningfully help us drive that down. In addition to that, from another tailwind perspective, I get pretty excited of what Sheldon and his team are doing on the ops side of
Speaker 6
the
Speaker 4
house, doing things to make sure we're running a good airline. Expensive when you're running a not as good airline. So that's always helpful. We've talked about Skywise and the investment in Skywise, which is our predictive maintenance platform. I think the team today, we have about 25 aircraft that are retrofitted with the complete capabilities of Skywise.
By the end of the year, we think that will be up to 75% of our fleet. And then next year, that will be about 95. And I mentioned that, Savi, because that not only helps us run a better airline with dispatch reliability and things of that nature, it also allows us to handle maintenance when we want to, not in an unscheduled type environment, again, saving on costs. That's a really big deal for us. Where we're seeing some headwinds that we're looking at currently, and I don't know if this is here to stay candidly, Savi, is on the stations front.
Given that with the pandemic in a few of our airports in which perhaps there was a budget deficit that they're going back and trying to reclaim that for the moment. But we're seeing some pressures there. But I think as industry capacity picks back up, potentially that could help kind of level that back off. But what I'd say ultimately, Savi, is I think where we're at from a cost perspective, we're in a good spot. We're not here to say we need to be at 5% I'm sorry, on a five handle of CASM Ex.
That's a nice to have. But candidly, if that was like our end all, be all, we would just increase utilization from eight hours a day to twelve hours per day. We've been taught to look at this from a profitability perspective, and there's two sides to the equation. You have the revenue and the cost side. And so ultimately, that's what we're doing.
And we're going to focus on maximizing our profitability. And if down the road we need to spend $1 to make $2 or $3 we're willing to do that because that's where we're going to be keenly measured on. But I know that's kind of a lot of information. Maybe I'll pause there if I hopefully, I answered or helped answer your question or provide any other detail.
Speaker 15
No, that was great. Great. Thank you. And if I might for Scott just quickly clarify with the new rental inventory that you're talking about, how meaningful is that? And just what are you doing that maybe your competitors
Is this similar to just Allegiant being better with kind of putting people in hotels because you have a direct relationship? Or is there something differentiated about this new opportunity?
Speaker 6
Yes. So at the moment, obviously, it's going to be crawl, walk, run. But I think what's differentiated about it is the booking window for vacation rentals is much different than hotels on average. There's three to six months, whereas we see with hotels, it's much shorter, specifically Las Vegas hotels, which could be, hey, you want to go grab one this weekend type booking window. So I think strategically going forward, the big thing to think about is it gives us something to both attract and sell to a customer much further out than our hotel inventory.
The second thing real quick is, hotels have been a great story here in Las Vegas. But increasingly, as you look around all the coastal markets that we fly into and or all the national parks that we fly to, both very big success stories during and coming out of the pandemic. Increasingly, vacation rentals are a big part of how you can sell to those customers, right? There's not a lot of Park Hyatt sitting right inside of Yellowstone. And so I think that those are the strategic things that it gives us.
And us being able to sell it, sell it at scale, that's something that comes over time as we just optimize the digital channel to do that. So hopefully, that's helpful.
Speaker 3
Think the other thing that's worth pointing out too is the average trend size on that kind of transaction is much higher. And it's due to the length of stay being much longer on a vacation rental. We make a lot more money on a long length of stay type product than you do a short length of stay product.
Speaker 6
Yes. Even in the early days, it's in the several thousands versus hotels, which be more in the hundreds to low single digit thousands. So to John's point, the margins are the same. And of course, for us, meaning the net revenue margin, over 90% of that, virtually all of it falls to the bottom line. So just a highly accretive piece of business that has no real carrying cost, just the ability to get in front of the right customer to buy it from allegion.com.
Speaker 15
Perfect. All right. That answers my question. Thank you.
Speaker 2
Sorry. She quit. She had to go home. We're on our own.
Speaker 3
The call went past an hour. She didn't.
Speaker 1
Brandon, are you on the line?
Speaker 16
Yeah. Hey. This is Brandon. Can you guys hear
Speaker 6
me? Yep.
Speaker 2
Saving money.
Speaker 16
Thanks. Thanks. I don't know what happened to the operator, but
Speaker 2
Join the crowd.
Speaker 16
I'll I'll just ask one because I know it's been a long call, and I did join late. So apologies if this was already discussed. But I think you guys said income in the remaining quarters of 'twenty one should exceed 2019 levels. So I just wanted to confirm that. And then I guess as a follow-up to that question, you guys did throw out some margin guidance in the second quarter.
How do you think about margin progression in the back half of the year, especially in relation to the ability to potentially be growing 20% above where you were in 2019?
Speaker 4
Hey, Brandon. It's Greg. Why don't I maybe on your first question, just as we're seeing the positivity in the back half. And I think the way we're thinking about it, and I'll start, maybe Drew wants to comment on the revenue front. But as we look at kind of where our guide gets you on the second quarter, and I think that gets you let's just call it roughly $2 in EPS.
I think if we look at the back half of the year, though, when you see that growth that we're talking about and the team has conviction around is 20% year over two year, you're entering into the back half of the year at 70% load factors. And so I think what Drew and team are getting excited about is the ability to yield up and drive revenues there. I mean, we're certainly not trying to put a forecast out there, but what we're saying is we're cautiously optimistic on where we're going to go on that front. Now I think on the cost side, we're just we feel good where we're at there. We're pretty baked in.
So yes, it'd be on the revenue side that I think would bring that home. And then on your second question, I'm sorry, was this on margins, second quarter and how they would compare to the rest of the year?
Speaker 10
Yes. That's right. Yes.
Speaker 4
Okay. Yes. I mean, I think again, I think this is one where I'm not trying to go out and give a guide or a forecast. But I do think the second quarter will have a strong margin. We talked about on an unadjusted basis, 35% on an adjusted basis.
So adjusted excluding the benefit of the PSP, you're at a 25% margin. Can we hold that for the rest of the year? I mean we see line of sight and the ability to do that. But again, I just want to be careful or cautious that we're not I don't want to come out here and forecast. But we like where we sit.
And Drew and his team are seeing a lot of strength in the back half, I think. But I don't want to put words in your mouth, Drew, so maybe I'll pause and heard anything you want to add on the revenue front or anything else.
Speaker 6
I think
Speaker 7
seeing the strength now and seeing the booking curve normalize is giving us more and more conviction towards the back half. I wouldn't say that we have a significant line of sight to what October and November are going to look like at this point, but trying to extrapolate forward the strength we've seen in cadence kind of gives us that conviction towards the end.
Speaker 2
Just to be clear, this is a climb out still without reference to last year, which will bring us back to more of a normalized. We're pretty comfortable on cost. We know what we can do. They're gonna spend that money to fly. So you just have to be careful if we even if you hesitate a little, you could be underneath, you know, because we just don't have that ability to be looked back into a year or two years back.
So
Speaker 4
Yep. And then, Brandon, maybe just a housekeeping item. All that assumes, $2 per gallon fuel too. So fuel could be a big, you know, variable in that.
Speaker 16
Really appreciate the response. Thank you.
Speaker 14
Laurie, could you have any closing remarks?
Speaker 2
I think we're all done, folks. Appreciate your time call. And we'll have follow-up conversations, I'm sure. So thank you again. We'll talk to you in a couple of months.
Bye bye.
