Allegiant Travel Company · NASDAQ:ALGT
Allegiant Travel — Investor Day (2016)
68 slides from Allegiant Travel's investor day presentation, 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: Platform Evolution: Wired for the Future
*AIS – proprietary, tightly-coupled web-based Platform application *Reservations/Airline Ops/Mx Ops/General Ledger *Platform control has allowed accelerated innovation *Aging platform presents scalability & enhancement Evolution: challenges Wired for *G4Plus – next generation, loosely-coupled, web s
Slide 10: Leveraging platform investment
Leveraging platform investment 100+ web 57 Applications services created running in G4+ portal Website Call Center Mobile Operations Average 20 million web response service calls per time:140 day milliseconds
Slide 11: eCommerce…solid foundation for future
eCommerce…solid foundation for future Foundational *14 modules completed work *4 modules due 1Q17 *5 modules remaining continues: 98% revenue booked on new platform *Customer-centered sales with integrated loyalty Capabilities: *Dynamic packaging of 3rd-party products *Rules-based pricing of rental
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 7.5k new users / day Service/Change/Canc el Post travel customer 50% of pax check-in’s surveys Bookings coming Q1 IOS / Android 2017
Slide 13: Employee mobile – extensive task driven connectivity
Employee mobile –extensive task driven connectivity •EFB •Manuals •Weather •Wakeup Checks •Log Book •IPC •Manuals •Log Book •Nav Flight Ops Mx Stations & Cust Infllght Ops •Kiosks • Sales •Event Driven • Manuals Notifications • Forms 2200+ Devices to personnel
Slide 14: Reliable, dependable, scalable infrastructure
Reliable, dependable, scalable infrastructure •Virtualization of Servers using UCS Blades Virtualization •Extensive Flash Storage •Virtualization of Desktops for limited Support, extended life •Highly Available Redundant Servers Redundancy/Disaster •Redundant Network Switches Recovery •Redundant Sto
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 Load/Performance testing releases year over year now integrated into a standard cycle 57 in 2015, tracking to 68 in 2016 Software Quality Assurance Automated
Slide 18: Extending platform for future development
Extending platform for future development *Extension of the new pattern *Enhanced self-service tools = *Continued eCommerce through ticket counters smoother IROPS enhancements *Enhanced Mobile functionality *Leveraging common services *Extension of Web for applications 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
eCommerce: roadmap Multi-Variant Testing Purchase Path Payment Options In-App Purchase Mobile Website Air Ancillary Flexible Fare Round-Trip Disc. Automatic Cancel Third Party Automated Pricing Product Personalization Loyalty Launch / Grow Credit Card Point Earning Partnerships
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 Car Days vs. System PAX 15,000,000 1,600,000 • 1Q15 - Introduced tri-brands 14,000,000 1,500,000 (Alamo, Enterprise, & National) 13,000,000 1,400,000 12,000,000 1,300,000 • 2Q15 – Revised pricing 11,000,000 1,200,000 methodology based on margin 10,000,000 1,100,000
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 $1 Spent
Slide 27: Redeeming myAllegiant points
Redeeming myAllegiant points
Slide 28: Additional travel benefits
Additional travel benefits Priority Boarding on Allegiant flights. Free Inflight Beverage when cardholder shows their Allegiant MasterCard. myAllegiant Member Services – dedicated phone line for cardholders Buy One, Get One Free Airfare when card is used to purchase a vacation package with 4 hotel n
Slide 29: Incremental revenue potential ($m)
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 Fleet Headwind: Increase depreciation expense by $15m Acquisitions Tailwind: Increase ASMs/Gallon by 2% (inclusive effect of 757 retirements) 4 B757s and 8 MD80s Fleet Headwind: Accelerated depreciation expense of $7.5m Retiremen
Slide 32: Capex & Airbus heavy maintenance
Capex & Airbus heavy maintenance 445 430 30 397 387 55 75 18 65 54 60 278 62 Millions USD 30 58 360 315 295 270 190 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
Slide 33: 2017 pilot contract impact
2017 pilot contract impact $265 G4 F9 (14yr) $245 NK (15yr) $225 $216 $216 $205 $185 $165 $153 $145 $153 $125 Jan-10 Jan-15 Jul-16 Jan-17 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 6.60 0.06 6.48 6.40 0.11 +5 – 9% 0.07 0.05 0.25 6.20 6.25 US cents 6.00 5.95 5.80 5.60 2016E CASM ex- Pilot Contract Accelerated Dep Add'l AC Dep Heavy Mtx Dep MD80 Heavy Mtx 2017E CASM ex- Fuel (¢) Fuel (¢) Estimates are based on various assumptions which may not materia
Slide 35: 2020 CASM (¢) build
2020 CASM (¢) build 9.1 1 8.73 0.35 8.6 0.12 0.34 0.27 8.1 8.03 0.33 US cents 7.6 7.1 6.6 6.37 midpoint of 2017 CASM ex 6.1 guidance 5.99 5.6 2 2017E CASM (¢) Fuel Efficiency Fuel Efficiency AC/Hvy Mtx MD80 Heavy Mtx Pilot Productivity Other Efficiencies 2020E CASM (¢) Depreciation 1 – 2017 CASM bui
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 Network Catching our breath, connecting the dots Network runway long (and getting longer) Complexity of network/schedule, effect on revenue management Revenue Unique pricing environment for Allegiant, need a customized solution M
Slide 39: Single plane flexible capacity example
Single plane flexible capacity example 15 ₵ 2014 - Lower utilization AC/year average 10 ₵ EBIT = $2.3m 5₵ TRASM = 12.71 - Wed Thu Fri Sat Sun Mon Tue Week 15 ₵ 2016 - Higher utilization TRASM 10 ₵ Variable EBIT = $4.6m CASM TRASM = 10.98 5₵ 2014 Variable - CASM Wed Thu Fri Sat Sun Mon Tue Week 15 ₵
Slide 40: Network: catching our breath
Network: catching our breath YoY change in markets New cities launched by quarter 80 • Low oil allowed us to 8 accelerate new city 70 7 development the past two years 60 6 50 5 • New city growth will slow as we transition 40 4 to an all-Airbus fleet 30 3 • Focus on maturing 20 2 markets and connect-
Slide 41: Network runway long (and getting longer)
Network runway long (and getting longer) Destinations Future market growth as of: Older Newer 2010 (blue) • Small airports to large destinations only Larger • 150 potential markets D48 Airport size 2015 (orange) • Added mid-size airports, secondary destinations • 300 potential markets 2020E (green)
Slide 42: Unique network and schedule
Unique network and schedule Unique market schedules by carrier 100% 0% 2% 1% 65% • Complexity in less than 2x/Week 2x/Week 2x/Week 2x/Week 90% daily schedules allows 80% for better matching capacity with demand 70% 60% • Complex schedules 50% requires lower utilization and systems / 40% work rules /
Slide 43: An economic sandbox
An economic sandbox Allegiant market fare comparison 83% • 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 13% 4% Competitive $75+ Adva
Slide 44: Schedule change pricing example
Schedule change pricing example Booking curve by day of week 100% • Less than daily schedules have large, varied revenue 90% shifts 80% 70% • Traditional RM systems had difficulty with our small Selling Fare 60% Load Factor sample sizes and schedule 50% design 40% • Designed our system with 30% smal
Slide 45: Flight history demand aggregation
Flight history demand aggregation First Gen Allegiant System: Traditional RM system: Aggregate based on regions Aggregate based on market and haul
Slide 46: Pricing better, but room for improvement
Pricing better, but room for improvement Flight pricing distribution 35% 30% 25% % of flights 20% 15% 10% 5% 0% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% Standard deviation of fares sold / Average fare of flight Well priced flights Before 1st gen system Current
Slide 47: First generation RM system results
First generation RM system results G4 - Mainline Domestic PRASM Difference 2010-2011 25% RM System 20% • New RM system started pricing flights 4Q 2010 15% 10% • +10% PRASM difference vs US mainline domestic in 2011 5% 0% • 48% of flights still hand- managed by analysts -5% -10% -15% 1Q10 2Q10 3Q10 4
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: Next Gen Allegiant system: Aggregate based on regions Aggregates individual flights and haul 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 Price Web Search & Sensitivit
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: $40m
Slide 52: Revenue initiatives earnings impact ($m)
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 $69m Estimates are based on various assumptions which may not materialize
Slide 53: Fleet & operations update
Fleet & operations update Jude Bricker COO & SVP
Slide 54: Fleet plan – A320 seat density project
Fleet plan – A320 seat density project 120 110 94 100 5 100 90 84 28 80 20 31 Aircraft count 16 69 9 60 17 16 36 22 40 47 35 20 39 36 36 13 13 10 7 12 6 - 2016E 2017E 2018E 2019E 2020E 757 MD80 A319 A320 (186 seats) A320 (177 seats) Peak Spare Aircraft Estimated aircraft count at end of year Peak sp
Slide 55: Continued focus on used Airbus aircraft
Continued focus on used Airbus aircraft 120 100 18 12 1 80 Aircraft count 60 76 80 69 40 42 20 33 9 12 12 12 0 2016E 2017E 2018E 2019E 2020E New Airbus Used Airbus (sourced) Used Airbus (to be sourced) “Sourced” is defined as being under a purchase agreement or letter of intent expected by the end o
Slide 56: Monthly expense per aircraft
Monthly aircraft depreciation + rent (stacked) 120 Monthly expense per aircraft ($ 000’s) 100 80 60 40 20 - 2014 2015 2016E 2017E 2018E 2019E 2020E MD80 B757 Airbus Excludes heavy maintenance depreciation and sub-service expense Estimates are based on various assumptions which may not materialize
Slide 57: Airbus purchase prices have remained steady
Airbus purchase prices have remained steady Airbus Depreciation + Rent (per month per aircraft) 120 Monthly expense per aircraft ($ 000’s) 100 80 60 40 20 - 2014 2015 2016E 2017E 2018E 2019E 2020E Based on actual costs of aircraft now in fleet and estimated acquisition costs of aircraft to be acquir
Slide 58: Conservative leverage & debt flexibility
Conservative leverage & debt flexibility Secured Aircraft Debt Balances $1,000,000 60% $900,000 53% 49% 50% $800,000 46% 45% Debt Balance (000's) $700,000 40% 40% $600,000 $500,000 30% $400,000 20% $300,000 $200,000 10% $100,000 $- 0% 2016E 2017E 2018E 2019E 2020E Secured Debt - current Secured Debt
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 A60 • Block time improvement Target: 90% • Technology: no-pax count, FlyDesk Percent of flights operated on the same day as scheduled Action Items: Completion • Im
Slide 60: A60 – improving
A60 – improving A60 - Rolling 30 days 95.0% 90.0% Target 85.0% 80.0% 75.0% 1-Feb 2-Mar 1-Apr 1-May 31-May 30-Jun 30-Jul 29-Aug 28-Sep 28-Oct 2016 2015 2014
Slide 61: STAR performance is improving
STAR performance is improving STAR D0 - Rolling 30 days 90.0% 85.0% Target 80.0% 75.0% 70.0% 65.0% 60.0% 1-Feb 2-Mar 1-Apr 1-May 31-May 30-Jun 30-Jul 29-Aug 28-Sep 28-Oct 2016 2015 2014 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 Completion % - Rolling 30 days 100.0% Target 95.0% 1-Feb 2-Mar 1-Apr 1-May 31-May 30-Jun 30-Jul 29-Aug 28-Sep 28-Oct 2016 2015 2014 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 Summer Y/Y Departure Summer Spare Aircraft Summer Pilot Staffing Growth 14 1000 30% 900 12 800 25% 10 700 20% 600 8 500 15% 6 400 10% 4 300 200 5% 2 100 0% 0 0 2015 2016 2017 2015 2016 2017 2015 2016 2017 “Summer” shown as June and July only Estimates are based on va
Slide 64: Interruptions – continuous improvement
Interruptions – continuous improvement Interruption % - Rolling 90 Days 1.00% 0.00% 1-Feb 2-Mar 1-Apr 1-May 31-May 30-Jun 30-Jul 29-Aug 28-Sep 28-Oct 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 Pilots in Training as % Line Pilot Requirement 25% 20% 15% % of pilots 10% 5% Target 0% 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