Allegiant Travel Company · NASDAQ:ALGT
Allegiant Travel — Investor Day (November 2007)
32 slides from Allegiant Travel's investor day presentation, Nov 16, 2007
Slide 1: Growth
Growth Robert Ashcroft, VP Planning Institutional Investor Day November 16, 2007
Slide 2: Notice on Forward Looking Statements
Notice on Forward Looking Statements This presentation as well as oral statements made by officers or directors of Allegiant Travel Company, its advisors and affiliates (collectively or separately, the "Company") will contain forward-looking statements that are only predictions and involve risks and
Slide 3: Big Picture
Big Picture Sole occupant of previously ignored market niche Leverage assets, customers and markets no one else wants Sources of growth: Grow/improve existing markets Connect existing small cities to existing leisure destinations Add new leisure destinations Add new small cities Bottom line: lots of
Slide 4: Big and Small
Big and Small YE 2007 Five destinations, 53 small cities 106 routes (including seasonal) At least 34 MD-80 aircraft in operation Potential: At least 100 small cities = 100M+ people
Slide 5: Minimal Direct Competition
Minimal Direct Competition Delta: Knoxville Greenville/ Spartanburg Greensboro Huntsville US Airways: Colorado Springs Medford Eugene US Airways/United: Fresno Head-to-Head Competition on Only Eight Routes at YE07 Competition pre-existed on all eight routes To date, it is rare for other carriers to
Slide 6: Past Growth
Past Growth 3.5 3 2.5 2 1.5 1 0.5 0 CACR = 76% Pax (mm) YYY Growth 2002 2003 2004 2005 2006 YE3Q07 200% 180% 160% 140% 120% 100% 80% 60% 40% 20% 0% 35 30 25 20 15 10 5 0 3 7 9 17 24 29 Period-end A/C 2002 2003 2004 2005 2006 YE3Q07 60 50 40 30 20 10 0 2002 2003 2004 2005 2006 YE3Q07 Sma;; Cities 2 6
Slide 7: Past Growth: Profit Growth
Past Growth The most important measure: Profit Growth $400 $350 $300 $250 $200 $150 $100 $50 $0 4($50) ($100) $1.05 $1.12 $1.41 $1.87 $2.12 $2.12 2002 2003 2004 2005 2006 YE3Q07 20% 15% 10% 5% 0% -5% Fuel Price Revenue (mm) Operating Margin
Slide 8: Growth Sources
Growth Sources Add/improve capacity on existing routes Connect existing small cities to existing leisure destinations New leisure destinations New small cities Four ways to grow
Slide 9: Growing Existing Routes
Growing Existing Routes Developing existing routes the easiest way to grow, in our view “Same store” 3Q07 Vegas revenue increased 16.9% “Old” routes have growth potential Word of mouth brings us new customers year after year Des Moines-Vegas started 2003 but 3Q07 rev grew > 33% Y/y RASM growth absen
Slide 10: Optimizing Existing Routes
Optimizing Existing Routes Y/y route optimization can have dramatic results: 3Q07 “same store” Vegas revenue increased 16.9%, but operating profits increased 188% The longer we’re on a route the more deeply we penetrate, especially year two over year one Determine route capacity on granular basis Ro
Slide 11: Connect the Dots
Connect the Dots Connect existing small cities to existing destinations Leverage at both ends Newer destinations under-connected to existing small cities Of 42 LAS small cities, only 13 connected to IWA Of 27 YE SFB small cities, only 14 connected to PIE Of 27 YE SFB small cities, only 11 connected
Slide 12: New Destinations
New Destinations PIE profitable in its first full month Easy to leverage small city presence to new destination At least one more major US leisure destination International: east/west coast Mexico, Caribbean Some small niche destination potential Concept tested in Palm Springs & Reno Many other pote
Slide 13: Finding New Small Cities
Finding New Small Cities Meet appropriate regulatory & physical standards Far from other low-cost carrier airports “Enough” population and income in airport catchment area Border communities work well Access (ideally close to an Interstate highway) Need to get airport costs right – importance of fue
Slide 14: Finding New Small Cities: The good ones are not all gone
Limits of our business model still not defined What constitutes “good”? “How small is too small?” Canada Good airport costs prerequisite, this can take time to achieve One unserved good small city only recently “got real” after many years Still unserved: two major small cities with fuel supply issue
Slide 15: Growing Existing Routes: Las Vegas room supply
Growing Existing Routes 2006-2011 room increase 42.9K or 32%. CAGR = 5.8% “More new rooms than in any other five year period” Historically, Vegas induces demand to (more than) match room supply 320 airport pax/Vegas room Vegas will continue to need to find new customers and new markets Significant i
Slide 16: Fixed Fee
Fixed Fee Two part business: Track Ad hoc On Jan 1 we grow from 2.5 to 4.5 fixed fee aircraft as we expand into another Harrah’s geography Always seeking more fixed-fee opportunities and over time we expect to get more, but growth hard to predict Recently became DOD certified, so we now qualify for
Slide 17: Bottom Line: No shortage of growth!
Bottom Line No shortage of growth!
Slide 18: The MD-80
The MD-80 Sean Hopkins, VP Fleet Planning Institutional Investor Day November 16, 2007
Slide 19: Notice on Forward Looking Statements
Notice on Forward Looking Statements This presentation as well as oral statements made by officers or directors of Allegiant Travel Company, its advisors and affiliates (collectively or separately, the "Company") will contain forward-looking statements that are only predictions and involve risks and
Slide 20: Why the MD-80?
Why the MD-80? Good aircraft Best fit for our low utilization business strategy High availability of the type Low in-service cost (acquisition price + prep cost) Favorable, predictable maintenance costs
Slide 21: Allegiant Fleet
Allegiant Fleet Number 34 in service by the end of the year 37 in service by second quarter of 2008 Average Age 17 years 27,000 cycles 38,000 hours Lineage 11 ex-Scandinavian Airlines (SAS) 12 ex-Aeromexico 5 ex-Korean Air 4 ex-Finnair 5 miscellaneous
Slide 22: Quality Aircraft
Quality Aircraft MD80 is a financially distressed asset but Well built High dispatch reliability
Slide 23: MD80 is Best Fit for Low Utilization Operation
MD80 is Best Fit for Low Utilization Operation Majority of MD80 related costs are tied directly to usage Lower ownership cost = lower fixed costs Trade off is higher fuel burn, a variable cost This cost equation is appropriate for a low utilization operation We are able to match the incurrence of ou
Slide 24: MD-80 is an Out of Favor Aircraft
MD-80 is an Out of Favor Aircraft Start-ups prefer new aircraft New aircraft provide better economics for high utilization models No simple transition is available out of the MD80 Challenging to build a fleet of used aircraft Identification, purchase of used aircraft is time consuming Integration of
Slide 25: Large World Wide Fleet
Large World Wide Fleet World wide fleet 1,200 aircraft manufactured from 1981 to 1999 1,000 aircraft remain Largest operators constitute 50% American Airlines 304 Delta Airlines 117 Alitalia 73 Most mid-sized operators are exiting the type Iberia, Alaska, Aeromexico, Japan Airlines Some regions of M
Slide 26: Market Trends
Market Trends The MD80 has suffered from accelerated devaluation since 2001 The market value of an MD80 at 15 years old is roughly equivalent to the expected value of a 737/A320 at 25 years old General downward trend in pricing over the last few years Counter to most other aircraft Prices have stabi
Slide 27: Purchasing Strategy
Purchasing Strategy Aircraft assessment Commonality - lineage, avionics, engine thrust rating Maintenance condition Engine condition - recent shop visits and long life parts Airframe check status Airworthiness directives, modifications and upgrades Seeking opportunities to purchase fleets Competitio
Slide 28: Low Acquisition Price
Low Acquisition Price Aircraft trades at a slight premium to part-out value Components of price Base parts value Maintenance condition Operating premium Cost at entry into service ranges from $5.0mm to $6.0mm Includes appearance costs of $400k New exterior paint, seats, carpet, etc. Additional induc
Slide 29: MD-83 Acquisition and Prep Cost
MD-83 Acquisition and Prep Cost Aircraft # 1 Aircraft Price $3,600,000 Maintenance $1,200,000 Appearance $ 400,000 Into Service Cost $5,200,000 Aircraft Price $5,100,000 Maintenance $ 100,000 Appearance $ 400,000 Into Service Cost $5,600,000 Aircraft # 2 Recent Transactions:
Slide 30: Favorable Maintenance Costs
Favorable Maintenance Costs Engine overhaul costs low vs. newer generation engines Spare engines are readily available and priced relative to maintenance value Aircraft has a strong airframe 120,000 cycle design life Aging is not a big factor for the fleet - Most significant requirements begin at 60
Slide 31: Aircraft Performance Comparison in Allegiant's System
Aircraft Performance Comparison in Allegiant’s System CASM v Plane Mile MD83 MD87 A320 B737-800 B717 B757-200 B737-700 A319 $10 $11 $12 $13 $14 $15 $16 $17 7.00¢ 7.50¢ 8.00¢ 8.50¢ 9.00¢ 9.50¢ CASM Plane Mile Cost Year end 3Q07 data - 909mile Stage Length, $2.12/gal Fuel, 6.6 BH/day Note:
Slide 32: MD80 Capital Investment & Payback
MD80 Capital Investment & Payback Allegiant Air Aircraft Into Service Cost $5,500,000 Revenue per Aircraft per month $1,047,000 Operating Margin at 14.1% $ 148,000 Nominal Payback Period 37 months Note: Year end 3Q07 data