Allegiant Travel Company · NASDAQ:ALGT
Allegiant Travel — Investor Day (November 2016)
68 slides from Allegiant Travel's investor day presentation, Nov 28, 2016
Slide 1: 2016 Investor Day
2016 investor day allegiant
Slide 2: Forward looking statements
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 uncertain
Slide 3: Welcome
Welcome Maury Gallagher– CEO
Slide 4: State of the state
State of the state • Past solid financial performance • Operations focus o Catch up with the commercial side of the business o Excellent progress this year – more work to do • Transition to all Airbus fleet underway • Strategy remains constant – great deal of runway in front of us o Focus on leisure
Slide 5: New roles
New roles John Redmond - President
Slide 6: Corporate focus
Corporate focus • Talent • IT • Right sizing •Execution
Slide 7: Third party focus
Third party focus • Cars •Hotels o Inventory o Content o Direct connect o Analytics o We know you and where you are • Other
Slide 8: IT update
IT update Scott Allard - ClO allegiant
Slide 9: Wired for the Future
Wired for the Future *AIS – proprietary, tightly-coupled web-based application *Reservations/Airline Ops/Mx Ops/General Ledger *Platform control has allowed accelerated innovation *Aging platform presents scalability & enhancement challenges *G4Plus – next generation, loosely-coupled, web service-ba
Slide 10: Leveraging platform investment
Leveraging platform investment 100+ web services created 57 Applications running in G4+ portal 20 million web service calls per day Average response time:140 milliseconds Website Call Center Mobile Operations
Slide 11: eCommerce…solid foundation for future
eCommerce…solid foundation for future Foundational work continues: *14 modules completed *4 modules due 1Q17 *5 modules remaining *Customer-centered sales with integrated loyalty *Dynamic packaging of 3rd-party products *Rules-based pricing of rental cars, hotels pending *CMS, exhaustive data report
Slide 12: Customer mobile
Customer mobile Mobile Functionality Mobile Usage Check-in/Alerts 1.6M users since 6/16 Purchase Seats/Bags 40K users / day IROP Self Service/Change/Canc el 7.5k new users / day Post travel customer surveys 50% of pax check-in’s Bookings coming Q1 2017 IOS / Android
Slide 13: Employee mobile – extensive task driven connectivity
Employee mobile –extensive task driven connectivity • Sales • Manuals • Forms •Kiosks •Event Driven Notifications •Manuals •Wakeup Checks •IPC •Log Book •EFB •Weather •Log Book •Manuals •Nav Flight Ops Mx Infllght Stations & Cust Ops 2200+ Devices to personnel
Slide 14: Reliable, dependable, scalable infrastructure
Reliable, dependable, scalable infrastructure •Virtualization of Servers using UCS Blades •Extensive Flash Storage •Virtualization of Desktops for limited Support, extended life Virtualization •Highly Available Redundant Servers •Redundant Network Switches •Redundant Storage •Secondary DC Redundancy
Slide 15: Leveraging the cloud for a big data future
Leveraging the cloud for a big data future IBM Cloudant / DB2 in the Cloud: * Real-time insight into customer behavior on the website. * Proactive monitoring of site activity. Future Predictive Analytics Leveraging NoSQL : * Redis- Key Value Store Caching Real-time aggregations * Mongo db- Document
Slide 16: Award winning investments in infrastructure
Award winning investments in infrastructure: 2016 Security Innovation Award/Americas - Check Point Software Technologies 2016 Software Innovators Award - Honorable Mention - HP Enterprise 2016 Brandon Hall Group Excellence in Learning Bronze Award 2015 Best in Class Information Security Program/Inte
Slide 17: Improved software development velocity
Improved software development velocity Monthly platform releases (75% reduction in post-release related patches 19% increase in overall major releases year over year 57 in 2015, tracking to 68 in 2016 Software Quality Assurance runs around the clock with an onshore/offshore team Automated Deployment
Slide 18: Extending platform for future development
Extending platform for future development *Extension of the new pattern through ticket counters *Enhanced Mobile functionality *Enhanced self-service tools = smoother IROPS *Leveraging common services for applications *Continued eCommerce enhancements *Extension of Web Functionality to Mobile
Slide 19: Self service IROPS – a case study in reuse
Self service IROPS – a case study in reuse Project Goals: 1. Streamline the rescheduling of flights 2. Empower customers to select their own resolution Solution: Reuse of several existing web services Creation of 1 new web service Stitched together with situational business logic (cancel, reschedule
Slide 20: eCommerce & credit card
eCommerce & credit card Brian Davis– VP Marketing
Slide 21: eCommerce: roadmap
Air Ancillary Purchase Path Flexible Fare In-App Purchase Third Party Automated Pricing Round-Trip Disc. Mobile Website Product Personalization Automatic Cancel Multi-Variant Testing Payment Options Loyalty Launch / Grow Credit Card Point Earning Partnerships eCommerce: roadmap
Slide 22: eCommerce: multi-variant testing
eCommerce: multi-variant testing • Results of Test #1: Increase in Click-Thru Rate of +1.05% • Currently on Test #4 (from a pipeline of 200+)
Slide 23: eCommerce: third-party initiatives
eCommerce: third-party initiatives • Experiment with Autos Apply learning with Hotels • 1Q15 - Introduced tri-brands (Alamo, Enterprise, & National) • 2Q15 – Revised pricing methodology based on margin of opportunity “MOO” • 3Q16 – Signed new 4-year agreement with EHI, capturing new opportunities
Slide 24: eCommerce: product personalization
eCommerce: product personalization
Slide 25: Co-branded credit card
Co-branded credit card • Launched on September 1st, 2016 • Partnership with Bank of America + MasterCard • Designed for Allegiant’s infrequent, leisure traveler • Based on principles of value and simplicity • Allegiant is primarily an opportunity to “burn”, not “earn”
Slide 26: Point earning potential
Point earning potential 15,000 Bonus Points equal to $150 off your next trip, awarded after $1,000 or more in purchases within the first 90 days. 3 Points per $1 Spent on all Allegiant Travel purchases. 2 Points per $1 Spent on qualifying dining purchases (excluding fast food). 1 Point per $1 Spent
Slide 27: Redeeming myAllegiant points
Redeeming myAllegiant points
Slide 28: Additional travel benefits
Additional travel benefits Free Inflight Beverage when cardholder shows their Allegiant MasterCard. Priority Boarding on Allegiant flights. myAllegiant Member Services – dedicated phone line for cardholders Buy One, Get One Free Airfare when card is used to purchase a vacation package with 4 hotel n
Slide 29: Incremental revenue potential
Incremental revenue potential ($m) 2017E 2020E eCommerce Initiatives $14 $92 Co-Branded Credit Card 10 45 Total $24m $137m Estimates are based on various assumptions which may not materialize
Slide 30: Transition cost impact
Transition cost impact Trent Porter – VP FP&A
Slide 31: 2017 foundation investments
2017 foundation investments 5 used A319s, 4 used A320s and 9 new A320s Headwind: Increase depreciation expense by $15m Tailwind: Increase ASMs/Gallon by 2% (inclusive effect of 757 retirements) Fleet Acquisitions Fleet Retirements 4 B757s and 8 MD80s Headwind: Accelerated depreciation expense of $7.
Slide 32: Capex & Airbus heavy maintenance
Capex & Airbus heavy maintenance 315 360 190 295 270 54 55 58 60 62 18 30 30 75 65 2016E 2017E 2018E 2019E 2020E Aircraft Other Capex Heavy Maintenance Estimates are based on various assumptions which may not materialize Other Capex includes Capex for IT projects as well as other non-aircraft CAPEX
Slide 33: 2017 pilot contract impact
2017 pilot contract impact $153 $153 $216 $216 $125 $145 $165 $185 $205 $225 $245 $265 Jan-10 Jan-15 Jul-16 Jan-17 G4 F9 (14yr) NK (15yr) 1 - Dataset includes top of scale rates for B737s & A320s for Alaska, Allegiant, American, Delta, Frontier, jetBlue, Southwest, Spirit, Virgin America, United G4
Slide 34: 2017 CASM ex-fuel build
2017 CASM ex-fuel (¢) build 5.95 6.25 0.25 0.05 0.11 0.06 0.07 5.60 5.80 6.00 6.20 6.40 6.60 2016E CASM ex- Fuel (¢) Pilot Contract Accelerated Dep Add'l AC Dep Heavy Mtx Dep MD80 Heavy Mtx 2017E CASM ex- Fuel (¢) 6.48 +5 – 9% U S c e n ts Estimates are based on various assumptions which may not mat
Slide 35: 2020 CASM build
5.99 0.34 0.35 0.12 0.27 0.33 5.6 6.1 6.6 7.1 7.6 8.1 8.6 9.1 2017E CASM (¢) Fuel Efficiency AC/Hvy Mtx Depreciation MD80 Heavy Mtx Pilot Productivity Other Efficiencies 2020E CASM (¢) 6.37 midpoint of 2017 CASM ex guidance 2020 CASM (¢) build 8.03 1 – 2017 CASM built using 2017 estimated burn rate
Slide 36: 2017 guidance
2017 guidance • FY 2017 system ASMs +8 to 12% versus FY 2016 • FY 2017 CASM ex fuel +5 to 9% versus FY 2016 • FY 2017 maintenance per aircraft per month $90 - $100 thousand • FY 2017 depreciation per aircraft per month $125 - $135 thousand • FY 2017 CAPEX $415m* • FY 2017 Airbus heavy maintenance $3
Slide 37: Network and revenue
Network and revenue Lukas Johnson – VP Network and Pricing
Slide 38: Network and revenue
Network and revenue Flexible capacity plans based on macro environment Catching our breath, connecting the dots Network runway long (and getting longer) Network Revenue Management Complexity of network/schedule, effect on revenue management Unique pricing environment for Allegiant, need a customized
Slide 39: Single plane flexible capacity example
Single plane flexible capacity example - 5 ₵ 10 ₵ 15 ₵ Wed Thu Fri Sat Sun Mon Tue Week 2014 - Lower utilization - 5 ₵ 10 ₵ 15 ₵ Wed Thu Fri Sat Sun Mon Tue Week 2016 - Higher utilization TRASM Variable CASM 2014 Variable CASM - 5 ₵ 10 ₵ 15 ₵ Wed Thu Fri Sat Sun Mon Tue Week 2014 Utilization with 20
Slide 40: Network: catching our breath
Network: catching our breath 0 1 2 3 4 5 6 7 8 New cities launched by quarter • Low oil allowed us to accelerate new city development the past two years • New city growth will slow as we transition to an all-Airbus fleet • Focus on maturing markets and connect- the-dot opportunities -10 0 10 20 30 4
Slide 41: Network runway long (and getting longer)
Network runway long (and getting longer) Future market growth as of: 2010 (blue) • Small airports to large destinations only • 150 potential markets 2015 (orange) • Added mid-size airports, secondary destinations • 300 potential markets 2020E (green) • Add international, all-airbus fleet • 450 poten
Slide 42: Unique network and schedule
Unique network and schedule • Complexity in less than daily schedules allows for better matching capacity with demand • Complex schedules requires lower utilization and systems / work rules / specifically built for the business model 95% Daily 82% Daily 52% Daily 3% Daily 0% 2x/Week 2% 2x/Week 1% 2x
Slide 43: An economic sandbox
An economic sandbox • Allegiant has the unique position of being able to control schedules / fares in most markets • Leisure customers are extremely price sensitive • Opportunity to create a pricing system with value only to Allegiant 4% 13% 83% Competitive $75+ Advantage No Competition Allegiant ma
Slide 44: Schedule change pricing example
Schedule change pricing example • Less than daily schedules have large, varied revenue shifts • Traditional RM systems had difficulty with our small sample sizes and schedule design • Designed our system with small markets / less than daily schedules in mind 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 10
Slide 45: Flight history demand aggregation
Flight history demand aggregation First Gen Allegiant System: Aggregate based on regions and haul Traditional RM system: Aggregate based on market
Slide 46: Pricing better, but room for improvement
Pricing better, but room for improvement 0% 5% 10% 15% 20% 25% 30% 35% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% % o f fl ig h ts Standard deviation of fares sold / Average fare of flight Flight pricing distribution Well priced flights Before 1st gen system Current
Slide 47: First generation RM system results
First generation RM system results • New RM system started pricing flights 4Q 2010 • +10% PRASM difference vs US mainline domestic in 2011 • 48% of flights still hand- managed by analysts -15% -10% -5% 0% 5% 10% 15% 20% 25% 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11 G4 - Mainline Domestic PRASM Differe
Slide 48: Next generation of revenue management
Next generation of revenue management • Modular machine-learning system • AI clustering algorithm learns which flights across entire system are most similar, aggregates to minimize forecast error • Customizable to any date range or set of criteria weighting • Modularity allows for continual experime
Slide 49: Flight clustering example
Flight clustering example First Gen Allegiant system: Aggregate based on regions and haul Next Gen Allegiant system: Aggregates individual flights into best-fit demand clusters
Slide 50: Module optimization example
Module optimization example • Can update forecast optimization with new AI logic while leaving other modules alone • Easier to isolate and measure small changes • Not as much of a black box as traditional systems • High potential as we get more eCommerce / customer data Cluster Creation Forecast Dem
Slide 51: Fixed fee
Fixed fee • Limited fixed fee opportunities the last few years due to pilot availability • Airbus significantly more desirable for charters compared to MD80 • Started international track charter programs in 2016 Fixed fee revenue by year 2015: $20m 2016E: $30m 2017E: $40m
Slide 52: Revenue initiatives earnings impact
Revenue initiatives earnings impact ($m) 2017E 2018E 2019E 2020E New RM System $7 $28 $39 $49 Fixed Fee $5 $10 $15 $20 Total $12m $38m $54m $69m Estimates are based on various assumptions which may not materialize
Slide 53: Fleet & operations update
Fleet & operations update Jude Bricker COO & SVP
Slide 54: Fleet plan – A320 seat density project
Fleet plan – A320 seat density project 47 39 12 17 22 35 36 36 9 16 36 69 16 20 31 28 5 7 13 13 10 6 - 20 40 60 80 100 120 2016E 2017E 2018E 2019E 2020E A ir c ra ft c o u n t 757 MD80 A319 A320 (186 seats) A320 (177 seats) Peak Spare Aircraft 94 84 90 100 110 Estimated aircraft count at end of year
Slide 55: Continued focus on used Airbus aircraft
Continued focus on used Airbus aircraft “Sourced” is defined as being under a purchase agreement or letter of intent expected by the end of 2016 Estimated aircraft count at end of year 9 12 12 12 33 42 69 76 80 0 20 40 60 80 100 120 2016E 2017E 2018E 2019E 2020E A ir c ra ft c o u n t New Airbus Use
Slide 56: Monthly aircraft depreciation + rent
Monthly aircraft depreciation + rent (stacked) - 20 40 60 80 100 120 2014 2015 2016E 2017E 2018E 2019E 2020E M o n th ly e x p e n se p e r a ir cr a ft ($ 0 0 0 ’s) MD80 B757 Airbus Excludes heavy maintenance depreciation and sub-service expense Estimates are based on various assumptions which may
Slide 57: Airbus purchase prices have remained steady
Airbus purchase prices have remained steady - 20 40 60 80 100 120 2014 2015 2016E 2017E 2018E 2019E 2020E M o n th ly e x p e n se p e r a ir cr a ft ($ 0 0 0 ’s) Airbus Depreciation + Rent (per month per aircraft) Based on actual costs of aircraft now in fleet and estimated acquisition costs of air
Slide 58: Conservative leverage & debt flexibility
Conservative leverage & debt flexibility Upcoming debt is potential future debt and is subject to availability on terms acceptable to the Company 46% 53% 49% 45% 40% 0% 10% 20% 30% 40% 50% 60% $- $100,000 $200,000 $300,000 $400,000 $500,000 $600,000 $700,000 $800,000 $900,000 $1,000,000 2016E 2017E
Slide 59: Key operational performance metrics
Key operational performance metrics Percent of flights arriving within 60 minutes of schedule Action Items: • Improve STAR and Turn Time • Block time improvement • Technology: no-pax count, FlyDesk A60 Completion Factor Interruption Rate Target: 90% Target: 99% Continuous Decline Percent of flights
Slide 60: A60 – improving
A60 – improving 75.0% 80.0% 85.0% 90.0% 95.0% 1-Feb 2-Mar 1-Apr 1-May 31-May 30-Jun 30-Jul 29-Aug 28-Sep 28-Oct A60 - Rolling 30 days 2016 2015 2014 Target
Slide 61: STAR performance is improving
STAR performance is improving 60.0% 65.0% 70.0% 75.0% 80.0% 85.0% 90.0% 1-Feb 2-Mar 1-Apr 1-May 31-May 30-Jun 30-Jul 29-Aug 28-Sep 28-Oct STAR D0 - Rolling 30 days 2016 2015 2014 Target STAR – Start the Airline Right % of on-time departures for first daily flight on an aircraft
Slide 62: Completion – peak periods are critical
Completion – peak periods are critical 95.0% 100.0% 1-Feb 2-Mar 1-Apr 1-May 31-May 30-Jun 30-Jul 29-Aug 28-Sep 28-Oct Completion % - Rolling 30 days 2016 2015 2014 Target Excludes – cancels for airport conditions, weather, passenger medical and security Excludes – flights scheduled less than seven d
Slide 63: Investing heavily in Summer 2017
Investing heavily in Summer 2017 0% 5% 10% 15% 20% 25% 30% 201720162015 Summer Y/Y Departure Growth 0 2 4 6 8 10 12 14 201720162015 Summer Spare Aircraft 0 100 200 300 400 500 600 700 800 900 1000 201720162015 Summer Pilot Staffing “Summer” shown as June and July only Estimates are based on various
Slide 64: Interruptions – continuous improvement
Interruptions – continuous improvement 0.00% 1.00% 1-Feb 2-Mar 1-Apr 1-May 31-May 30-Jun 30-Jul 29-Aug 28-Sep 28-Oct Interruption % - Rolling 90 Days 2016 2015 2014 Excludes – Air-traffic Control, Weather, Passenger Medical and Fuel Stops Includes – Any flight diverted or turning back to origination
Slide 65: Pilot transition
Pilot transition 0% 5% 10% 15% 20% 25% % o f p ilot s Pilots in Training as % Line Pilot Requirement Target Estimates are based on various assumptions which may not materialize
Slide 66: Operations lagniappes
Operations lagniappes • NCHEP Inspection and Results Implementation • Pilot Contract Implementation • East Coast Training Center • FlyDesk Integration • Flight Attendant Contract Negotiations • CFM Engine Program • Aircraft divestments
Slide 67: Contribution of initiatives
Contribution of initiatives Operating earnings impact -$m 2017E 2020E Fuel benefit from ASM production $6 $21 Ex-fuel savings (costs) (21) 73 Credit card program 10 45 eCommerce initiatives 14 92 Pricing engine 7 49 Fixed fee 5 20 186 seat modification 0 27 Fleet productivity 0 21 Total $21m $348m E
Slide 68: 2017 guidance summary
2017 guidance summary • FY 2017 system ASMs +8 to 12% versus FY 2016 • FY 2017 scheduled service ASMs +8 to 12% versus FY 2016 • FY 2017 CASM ex fuel +5 to 9% versus FY 2016 • FY 2017 maintenance per aircraft per month $90 - $100 thousand • FY 2017 depreciation per aircraft per month $125 - $135 tho