Allegiant Travel Company · NASDAQ:ALGT
Allegiant Travel — Investor Day (November 2017)
76 slides from Allegiant Travel's investor day presentation, Nov 29, 2017
Slide 1: Investor day November 2017
Investor day November 2017
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 uncertai
Slide 3: Opening comments
Opening comments • Busy year – transition year • Management • Operations • Fleet • Sunseeker • People • Strategic business overview – leisure travel company • Competition – model still strong – airline is job 1, but . . . • Want more $ from current customer wallets • Need to expand product offerings
Slide 4: Sunseeker resorts
Sunseeker resorts
Slide 5: Addressing the skepticism
Addressing the skepticism Issue How we have addressed G4 – no experience in hotels or condos Hired world class leadership/developers Port Charlotte – not Miami or New York • Hotel room growth has lagged air travel • Opposite of Panama City • Does Miami need another resort? • Example of new destinati
Slide 6: Most exciting hotel resort opportunity
“This is the most exciting hotel resort opportunity I have come across, especially with the airline tie-in” – John Redmond • With the exception of Clearwater, most hotels in area are old • Lack of a true destination resort • Hotel room growth has not kept pace with air and drive-in traffic increases
Slide 7: Florida traffic
Florida traffic 21.6% 19.3% 19.2% 11.7% 2.4% (10.6%) (15.6%) (28.1%) 8.8% 4.3% 12.6% 7.3% 15.2% 23.1% 32.3% 46.0% Emerald Coast South Florida Southwest Florida Orlando Tampa / St. Pete West Palm Jacksonville Sarasota Passenger and fare growth, 2016 vs. 2007 Change in passengers Change in fare Strong
Slide 8: Hotel demand
Hotel demand • Sunseeker = additional ancillary hotel $ • Las Vegas demand level exceeds current Punta Gorda capacity • Four Points by Sheraton, Punta Gorda: $200 ADR in peak season 23% 33% 25% 19% 30% 27% 21% 22% Q1 Q2 Q3 Q4 G4 Hotel and air bookings by quarter Distribution of hotel bookings Distri
Slide 9: Potential take rates
Potential take rates Condo Hotel Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Number of Developed Rooms 583 583 583 583 583 583 % of Rooms Put Into The Inventory Pool 75% 75% 75% 75% 75% 75% Number of Available Rooms 160,000 160,000 160,000 160,000 160,000 160,000 Occupancy % 100% 100% 100% 100% 100% 1
Slide 10: Destination demand
Destination demand • Punta Gorda geocode check-in data - wide catchment area • Significant drive-in market Map source: check-in data for August 2017 SRQ PGD RSW PIE Airport Allegiant destination Distance from resort Annual passengers Airlines PGD Punta Gorda ✔ 15 minutes south • 2017: G4 fle
Slide 11: Sunseeker video
Sunseeker video allegiant
Slide 12: Construction and development team
Construction and development team Paul Steelman Steelman Partners, Concept Architect Ben Mammina Executive Vice President, Design and Construction Farr Law Firm Local counsel Greenberg Traurig Condo counsel Future hires: Food & beverage expert Hotel expert Galaxy Phase II – Macau MGM Grand – Detroit
Slide 13: Site overview
Site overview • Resort planned to include: • 10 condo towers dependent on deposits • 76 hotel rooms - additional 196 expansion rooms • 100+ marina slips • Resort and hotel pools • 12+ bars, restaurants, and shops • Catering/banquet facilities • Grocery/pharmacy, doctor’s office • More facilities – n
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Slide 16: Project financing
Project financing • Florida law • Sales deposits can be used for construction costs • Plan: use 20% of the 30% deposits • De-risking sales: multi-step approach • Started with expression of interest – currently at about 7,000 • Now on registration phase, taking $5K deposits • Deposit plan: up to 30%
Slide 17: Condominium sales
Condominium sales • Expect to begin to enter into purchase agreements in late Q1 2018 • Proceeds of sales of all units expected to be more than the total cost of construction • Utilization of Allegiant database to understand project viability • Frequency of visitation, demographics, points of origin
Slide 18: Hotel scope
Hotel scope • Large scale = greater operational efficiency • Variety of rooms and price points to drive occupancy • Food/beverage options will drive daily non-stay visitation • Synergy with airline • Potential impact on load factor/seasonality • Concentration of amenities • Target larger groups and
Slide 19: Hotel and condo-hotel demand
Hotel and condo-hotel demand • Maximum annual available room nights: • 272 hotel rooms for 99,280 room nights • 835 condo units for 466,105 room nights (if all two bedrooms rented as two units) • Over 1,500 keys • Revenue split dependent on nights made available, time of year, and advance notice • 5
Slide 20: Food and beverage opportunities
Food and beverage opportunities • 12+ bars and restaurants • Wide variety • All on waterfront • Average stay 5-6 days • Synergy between venues • Shared kitchen/staff • Decreases overhead costs Artist’s rendering 20
Slide 21: Additional ancillary revenue
Additional ancillary revenue • Marina slips • Parking • HOA fees cover share of hotel amenities cost • Banquet hall/catering for weddings, corporate functions • Early check-in charge • Airport shuttle • Cleaning service • Short term car rental • Compare resort offerings to hotel brands such as Four
Slide 22: Estimated timeline
Estimated timeline • November 2017: asked for expressions of interest – almost 7,000 • End of 2017: all required land transactions closed • Late Q1 2018: expect to enter into purchase agreements • Late Q2 2018: expect construction of resort to start • December 2019: construction completed, unit clos
Slide 23: Operations
Operations allegiant
Slide 24: Operations – Where to focus first?
Operations – Where to focus first? • Summer operations = priority #1 • Controllable cancellations had increased 26% YOY through 2Q17 • Cancellation drivers = increased AOS AC + increased AOS Hours Day 1 Mid August - November Fleet Transition • Leadership – substantial changes in most workgroups • Ma
Slide 25: Operations – Day 1
5 55 105 155 205 255 305 Jan 17 Feb 17 Mar 17 Apr 17 May 17 Jun 17 Jul 17 Aug 17 Sep 17 Oct 17 Controllable Cancellations 2017 2016 5 10 15 20 25 Jan 17 Feb 17 Mar 17 Apr 17 May 17 Jun 17 Jul 17 Aug 17 Sep 17 Oct 17 Avg Daily AC AOS 2017 2016 Operations – Day 1 *Through 10/31/2017 5 1,005 2,005 3,00
Slide 26: Completion factor - attacking the critical issue
26 Completion factor - attacking the critical issue 96% 97% 98% 99% 100% Controllable Completion - Rolling 30 Days 2017 2016
Slide 27: Focus on critical issues
Focus on critical issues • Change the line MX culture • New leadership in most large bases (SFB, LAS, PIE) • Eliminated line maintenance contractors • Delayed training events during summer peak – more techs on the line • Dedicated AOS recovery team • Additional Airbus reps in MX control 35.7 38.8 42
Slide 28: Reduction in IROP costs
Reduction in IROP costs – aggressive but achievable *November and December projected $9.8M $18.9M $8.3M $2.4M $5.6M $11.1M $13.0M $5.1M $3.0M $5.5M $4.3M $2.3M 49.5% 14.0% (65.2%) (34.8%) (80%) (60%) (40%) (20%) - 20% 40% 60% - $2,000 $4,000 $6,000 $8,000 $10,000 $12,000 $14,000 $16,000 $18,000 $20,
Slide 29: Post summer – aggressive management restructuring
Post summer – aggressive management restructuring • ~65% of management changed/realigned in Maintenance, Stations, OCC, and Procurement departments 6 12 6 3 4 2 3 1 1 1 1 14 6 5 3 - 5 10 15 20 25 30 MX Stations OCC Procurement Manager Director VP Unchanged Positions 29
Slide 30: Materials planning – getting in front of the issue
Materials planning – getting in front of the issue • Previous approach = reactive and disjointed • Little to no predictive analysis • Modeling failed to keep up with ALGT fleet growth and complexity • Change in philosophy • Turn unscheduled MX events into shorter, planned events • Reduced AC sparing
Slide 31: Fleet transition – solid execution, the end in sight
31 33 52 73 82 0 10 20 30 40 50 60 70 80 90 2016 YE 2017 YE 2018 1H 2018 YE Airbus A320 Series 49 37 27 0 4 6 2 1 0 1 2 3 4 5 6 7 0 10 20 30 40 50 60 2016 YE 2017 YE 2018 1H 2018 YE MD 80 Series MD80 aircraft (period end) Mixed bases (period average) Fleet transition – solid execution, the end in si
Slide 32: 2016 Fleet deployment – peak complexity
2016 Fleet deployment – peak complexity 2016 Aircraft 85 Bases 14 Fleet Types 3 32
Slide 33: 2017 Fleet deployment – mid transition
2017 Fleet deployment – mid transition 2017 Aircraft 89 Bases* 15 Fleet Types 2 * Added Destin and Indianapolis, removed Honolulu 33
Slide 34: 2018 Fleet deployment – summer strategy
2018 Fleet deployment – summer strategy 2018 Aircraft 82 Bases 15 Fleet Types* 2 * Concentrate MD80s in SFB 34
Slide 35: Pilot staffing – elevated levels but improving
35 Pilot staffing – elevated levels but improving - 5% 10% 15% 20% 25% 30% - 50 100 150 200 250 300 Aug-17 Sep-17 Oct-17 Nov-17 Dec-17 Jan-18 Feb-18 Mar-18 Apr-18 May-18 Jun-18 Jul-18 Aug-18 Sep-18 Oct-18 Nov-18 Dec-18 MD80 Training Airbus Training Airbus Excess MD80 Excess Linear (Inefficiency (% L
Slide 36: Pilots per AC – returning to normalized levels
36 Pilots per AC – returning to normalized levels 5.8 9.8 7.6 1.5 0.5 0.3 1.1 0.7 (1.1) (0.7) (0.4) - 1.0 2.0 3.0 4.0 5.0 6.0 7.0 8.0 9.0 10.0 2012 Actual AC Utilization Part 117 Pilot Contract Training Overstaffing 2018 Forecast Training Overstaffing Single Fleet 2020 Forecast Pilots per AC Pilots/
Slide 37: Fleet & Treasury
Fleet & Treasury allegiant
Slide 38: Fleet transition – 2018
19 16 27 19 18 16 0 5 10 15 20 25 30 35 40 YE 2017 1Q18 2Q18 3Q18 YE 2018 MD80 series¹ MD80 - SFB MD80 - LAS 20 23 30 33 38 10 11 12 12 12 22 25 31 31 32 0 10 20 30 40 50 60 70 80 90 YE 2017 1Q18 2Q18 3Q18 YE 2018 Airbus series¹ A320s used A320s new A319s Fleet transition – 2018 32 27 19 0 37 52 59
Slide 39: Airbus – 186 seat modification
9 16 36 69 10 27 38 48 0 10 20 30 40 50 60 70 80 2017E 2018E 2019E 2020E Aircraft w/186 seats at YE² A320 (186 seats) @ 2016 investor day A320 (186 seats) - updated Airbus – 186 seat modification 1 - Airbus A320 aircraft currently do not qualify for 186 seat modification if manufactured before ~2000
Slide 40: Sourced Airbus aircraft and fleet growth
42 70 82 86 10 12 12 12 6 [VALUE]² 0 20 40 60 80 100 120 2017E 2018E 2019E 2020E Sourced Airbus aircraft Used Airbus (sourced) New Airbus (sourced) Used Airbus (to be sourced) Fleet growth ~12,800 A320 Family Aircraft produced or on order ~7,300 A320 Family Aircraft (CEO & NEO) produced (in-service
Slide 41: Fleet plan
37 22 32 37 37 20 23 25 25 10 27 38 48 0 20 40 60 80 100 120 2017E 2018E 2019E 2020E Aircraft by seat count MD80 (166 seats) A319 (156 seats) A320 (177 seats) A320 (186 seats) Fleet plan 89 82 100 110 + 30 airbus ac Estimated aircraft at end of year 1 41
Slide 42: Capital expenditures
520 195 210 185 20 15 10 75 75 75 75 35 45 90 125 35 $0 $100 $200 $300 $400 $500 $600 $700 2017E 2018E 2019E 2020E Capital expenditures ($ millions) Aircraft CAPEX 186 seat project Other CAPEX Airbus heavy maintenance Sunseeker land Capital expenditures $665 $335 $390 $395 Placeholder aircraft inclu
Slide 43: Debt
Debt 450 450 450 450 400 238 113 52 335 305 275 245 $0 $200 $400 $600 $800 $1,000 $1,200 $1,400 2017E 2018E 2019E 2020E Debt balances ($ millions) Unsecured debt Secured debt - used ac/HQ Secured debt - new ac $1,185 $993 $838 $55 $300 $425 $465 8 35 55 64 0 25 50 75 $0 $50 $100 $150 $200 $250 $300
Slide 44: Return to shareholders
Return to shareholders 17 25 54 2 5 84 139 128 66 85 15 39 42 62 68 46 $0 $20 $40 $60 $80 $100 $120 $140 $160 $180 $200 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017E Shareholder returns ($ millions) Share repurchases Dividends (year of payment) $181 $84 $44 $0 $69 $25 $17 Current authority - $1
Slide 45: Let's talk about costs
Let’s talk about costs allegiant
Slide 46: 2017 guidance
2017 guidance 5.94 0.26 0.06 0.08 0.04 0.06 0.03 0.05 0.19 0.25 0.04 5.7 5.9 6.1 6.3 6.5 6.7 6.9 2016 CASM ex-Fuel (¢) Pilot Contract Accel Dep Add'l AC Dep Heavy Mtx Dep MD80 Heavy Mtx 2017E CASM ex-Fuel (¢) Hurricane ASM Loss Other Credit Card Surcharge 2017E CASM ex-Fuel (¢) MD80 Impairment MD80
Slide 47: 2018 costs
2018 costs Fuel Expense • Accelerated MD80 retirements & Airbus utilization increases ASMs per gallon • Current forward curve ~ $2.17 / gallon 69.4 70.2 71.6 72.5 – 73.0 77.5 – 79.5 65 70 75 80 2014 2015 2016 2017E 2018E ASMs per gallon Maintenance Expense • Accelerated MD80 retirements drive fewer
Slide 48: 2018 costs – Salaries & Benefits
2018 costs Salaries & Benefits Expenses • Flight Attendant Tentative Agreement: • 5 year contract • Estimated 2018 ~ $8M • Estimated 5 year impact ~ $57M • Voting complete by end of December 60% 59% 53% 51% 54% 77% 78% 77% 75% 78% 35% 50% 65% 80% 95% 2014 2015 2016 2017E 2018E Crew productivity Pilo
Slide 49: Cost per passenger
Cost per passenger ($) $30 $24 $23 $9 $15 $14 $13 $7 $7 $26 $29 $26 $23 $24 $21 MD80 A319 A320 Fuel Ownership Maintenance Labor Other $47 $44 $48 $53 $49 $53 Aircraft Other Total Ex fuel costs = $72 Fuel cost = $30 Total MD-80 = $102 Ex fuel costs = $76 Fuel cost = $24 Total A319 = $100 Ex fuel cost
Slide 50: Estimated 2020 CASM ex-fuel
Estimated 2020 CASM ex-fuel 5.99 6.28 0.35 0.14 0.31 0.33 0.29 5.6 5.8 6.0 6.2 6.4 6.6 6.8 7.0 2017E CASM ex- Fuel (¢) AC/Hvy Mtx Depreciation MD80 Heavy Mtx Pilot Productivity Other Efficiencies 2020E CASM (¢) Credit Card Surcharge Adj 2020E CASM ex-Fuel (¢) U S Cen ts 6.43 midpoint of FY17 CASM ex
Slide 51: Commercial update
Commercial update allegiant
Slide 52: Commercial initiatives
Commercial initiatives Flexible network and capacity plans based on macro environment Off-peak flying accretive to EPS, headwind to TRASM Long network runway Network Co-brand & eCommerce Co-brand credit card acquisition ahead of schedule eCommerce project revenue impact A/B website test results Reve
Slide 53: Network
Network allegiant
Slide 54: 2018 capacity guidance
2018 capacity guidance • 2018 YoY ASM growth expected to be between 11 to 15% • Ability to grow despite decline in frames in part due to Airbus efficiency over MD80s • 4th Quarter 2018 will see least amount of growth as we end transition quickly 65 70 75 80 85 1Q 2Q 3Q 4Q Average lines of flying 201
Slide 55: Network and capacity flexibility
0% 5% 10% 15% 20% 25% 30% 35% 40% 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Network and capacity flexibility • Continue to be flexible with macro environment and oil price • Ability to manage capacity on a single round-trip basis [Fuel spike] [Low fuel] [Fuel spike] [Consistent high fue
Slide 56: Future capacity growth
Future capacity growth Tiny Small Mid-size Large Origination city size Large Medium Small Medium Large Large Desti n ati o n cit y siz e - Future opportunity - Currently served Representative Cities Tiny Origination: Grand Island, NE Small Origination: Syracuse, NY Mid-size Origination: Cincinnati,
Slide 57: Fleet comparison: MD80 vs Airbus
- 1.0 2.0 3.0 4.0 5.0 6.0 7.0 8.0 - 1.0 2.0 3.0 4.0 5.0 6.0 7.0 8.0 EBIT / Aircraf t (i n $ m ill io n s) U ti liza ti o n ( B lo ck Ho u rs / Airc raf t D ay ) Projected profitability & utilization of a 100 aircraft single fleet MD80 Utilization Airbus Utilization MD80 EBIT / Aircraft Airbus EBIT /
Slide 58: Off-peak growth impact
0% 5% 10% 15% 20% 25% 30% 35% 2014 2015 2016 2017 2018 Percent off-peak ASMs (2.0%) (1.0%) - 1.0% 2.0% 3.0% (2.0%) (1.0%) - 1.0% 2.0% 3.0% Y/ Y Imp act o n E P S Y/ Y Imp act o n T RAS M Year / year impact of incremental off-peak flying Impact on TRASM Impact on EPS 2015 2016 2017 2018E Off-peak gro
Slide 59: Co-branded credit card & eCommerce
Co-branded credit card & eCommerce
Slide 60: Co-branded credit card
• Strong, sustaining customer demand for the co- branded card benefited by • Robust and unique value proposition • Closed distribution • Small cities • Future tailwinds from • Cardholder acquisition optimization • Additional destinations from current cities • Non-card loyalty program 1 2 3 4 5 6 7 8
Slide 61: eCommerce: 2017 projects
Projected annual earnings impact 1 Original 2017E Updated 2017E 2020E eCommerce Incremental Revenue $14m $10m $92m Mobile App Purchase Path Self Service In-App Booking 3rd Party Booking Amex Payment Loyalty Improved Merchandising Platform Optimization Credit Card Promotion Codes Experiments A/B Test
Slide 62: A/B Test: select bags page
-4.9% -2.6% 1.3% 10.5% -10% -5% 0% 5% 10% 15% Bags Rev Priority Boarding Rev Revenue per passenger Pre-Launch Post-Launch A/B Test: select bags page 62
Slide 63: Revenue
Revenue allegiant
Slide 64: Next-Gen revenue management system
• Testing on next-generation RM system began on flights in Aug 2016 • Slower than expected ASM rollout due to several major programming changes through 2017 • System utilizes advances in data science to: 1. Improve flight forecasting 2. Reacts faster when bookings deviate from forecast 3. Optimize p
Slide 65: Flight clustering example
First-Gen Allegiant system: Aggregate flight demand based on regions and haul Next-Gen Allegiant system: Aggregate flight demand into best-fit clusters Flight clustering example 65
Slide 66: Clustering leads to improved accuracy
First-Gen Next-Gen 0% 10% 20% 30% 40% 50% 60% 70% 80% <-25% -20% -10% 0% 10% 20% >25% P e rc e n t o f flig h ts % Error Booking days out accuracy of best fit booking curve First-Gen Next-Gen Clustering leads to improved accuracy 66
Slide 67: Unconstrained demand
• Next-Gen system forecasts how flights would sell if they had not sold out • Unconstrained demand is used when calculating the optimal fare 0% 20% 40% 60% 80% 100% 120% 0 1 2 3 4 5 6 7 8 E x p e c te d L o a d F a c to r Months Until Departure Short Peak Long Peak Long Peak Unconstrained $0 $20 $40
Slide 68: Fixed fee revenue
• Increased fixed fee opportunities on slack in the schedule over the past two years • International track programs contracted through 2019 • Airbus charters are commanding a revenue premium over MD-80s • More opportunities for fixed fee once international scheduled service starts • Fixed fee flying
Slide 69: Revenue guidance & initiatives
Revenue guidance & initiatives
Slide 70: Commercial initiatives earnings impact
Commercial initiatives earnings impact ($m) Projected annual earnings impact 1 Original 2017E Updated 2017E Original 2020E Updated 2020E Co-brand Credit Card $10 $17 $45 $50 eCommerce Incremental Revenue $14 $10 $92 $92 Revenue Management System $7 $2 $49 $49 Fixed Fee $5 $8 $20 $20 Fleet Productivi
Slide 71: 4Q17 TRASM guidance update
• 4Q17 YoY TRASM expected to be (1) to 1%, up from previous guide of (3) to (0.5)% • Revenue initiatives performing better than expected by 100bps • Demand stronger than expected by 75bps 4Q17 TRASM guidance update 71
Slide 72: 2018 guidance & initiatives update
2018 guidance & initiatives update
Slide 73: Updating how we will guide
Updating how we will guide • Will provide full year EPS • In business to maximize EPS • Aligns the long term interests of the company with the street • Will not be providing • Quarterly TRASM • Quarterly or full year CASM ex fuel 73
Slide 74: 2018 EPS guidance
2018 EPS guidance Guidance subject to change Fuel cost as of November 17, 2017 2018 FY EPS range $8 - $10 per share Assumptions FY 2018 fuel cost $2.17 FY 2018 ASMs/Gallon 77.5 to 79.5 FY 2018 interest expense $50m to $60m FY 2018 tax rate 37% to 38% FY 2018 share count 15.9m $35m MD-80 impairment t
Slide 75: Other guidance
Other guidance Guidance subject to change 1 – Excludes Sunseeker resorts Item Guidance 4Q 2017 TRASM year over year change (1) To 1% FY 2017 CASM ex fuel – adjusted for impairment 14.5 to 15.5% FY 2018 scheduled ASMs 11 to 15% FY 2018 system ASMs 11 to 15% FY 2018 CAPEX $335m 1 FY 2018 depreciation/
Slide 76: Contribution of initiatives
Contribution of initiatives Operating earnings annual impact -$m 1 Original 2017E Update 2017E Original 2020E Update 2020E Fuel benefit from ASM production $6 $6 $21 $21 Ex-fuel savings (costs) (21) (29) 73 73 Credit card program 10 17 45 50 eCommerce initiatives 14 10 92 92 Pricing engine 7 2 49 49