Operator: Good day and thank you for standing-by. Welcome to the Q2 2021 Allegiant Travel Company Earnings Conference Call. As a reminder this conference is being recorded. I’d now like to hand the conference over to your speaker today, Sherry Wilson. Thank you.

Please go ahead.

Sherry Wilson: Thank you, Sati. Welcome to the Allegiant Travel Company’s second quarter 2021 earnings call. On the call with me today are Maury Gallagher, the company’s Chairman and Chief Executive Officer; John Redmond, 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 will start the call with commentary and then open it up to 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 plan. 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, visit the company’s Investor Relations site at ir.allegiantair.com. With that, I’ll turn it over to Maury.

Maury Gallagher: Thank you, Sherry and good afternoon everyone.

Thank you for joining us again this quarter. We had an excellent Q2 quarter as our numbers showed, while we averaged only a 65% load factor in April and May on average June’s 77% brought us – brought the quarter average up to 70%. As is usually the case, June dominated the quarter with over 40% of our passengers and departures in that one month. These highlights from June in the quarter provide the backdrop for our comments today and our cautious optimism for the remainder of this year and on into 2022. We peak our operations every summer for approximately 75 days from Memorial Day through mid August.

In this particular quarter, we grew capacity 3.3%, while June was up 12.6% this is against 2019. This peaking also applies to the major support partners, critical to our operations. The often repeated shortage of personnel in the past 60 days was a critical problem for our operational partners including TSA, our airport contractors, fuel suppliers and others, which have resulted in less than a stellar operation.

John Redmond: Thank you very much, Maury and good afternoon, everyone. First and foremost, I want to take this opportunity to thank our incredible team members we have, who make it all happen and put us in this enviable position of producing these incredible results.

As Maury stated, we have made the decision to restart and finish construction of Sunseeker resort. You may recall on May 12, 2020 during a Q1 earnings call, I made the comment we would suspend construction for 18 months until we had greater clarity on business impacts from the pandemic and ensuring we had a better, stronger balance sheet. 14 months since I made the comment and 17 months, since we stopped, we have that stronger balance sheet, I referenced significantly stronger, I might add. We recently signed a non-binding term sheet to borrow $350 million with the resort as collateral and Allegiant guarantee, a structure that gives us the best flexibility and cost. We expect to have final loan docs completed within the next 30 to 45 days.

Now for some additional Sunseeker data points. We will announce the start date and opening timeframe at a press conference to be held at the resort site in Charlotte Harbor, Florida on August 3rd. Our media relations team will announce details to the press as we get closer to that date. This will be the only opportunity for members of the media to access the site, since it will be an active construction zone. We will host an Investor Call on August 5th to discuss all things Sunseeker.

The format will be similar to an earnings call with management presentations followed by Q&A. We intend to leave enough time to answer all questions because we will provide this dedicated opportunity, we will not be taking any questions regarding Sunseeker during today’s earnings call. Please save your questions for the Investor Call next week.

Scott DeAngelo: Thanks, John. From a marketing perspective this past quarter, we saw the strong return of domestic leisure travel demand and we laid a foundation with major initiatives that we expect to drive continued strength throughout the remainder of this year into next year and beyond.

Visits to allegiant.com were up by 5% this past quarter versus 2019, while transactions were up by 10% in the same time period. The fact that transactions increased the double the rate of web visits points to Allegiant’s tightened brand awareness, increased marketing efficacy and enhanced web and app experience. All of which combined to attract and convert more new and more returning customers in the lowest cost ways.

Drew Wells: Thank you, Scott. Thanks everyone for joining us this afternoon.

Revenue momentum continued into the second quarter with total revenues down just 3.9% versus the second quarter of 2019 on scheduled service ASM growth of plus 4.5%. Essentially, all of this growth came during the peak of Memorial Day through the end of June, included in that number is incremental breakage associated with credit vouchers amounting to roughly 5% of the quarter’s revenue. A huge part of this growth is the increase in our total ancillary revenue by 2%, despite carrying 11% fewer passengers in the quarter. As Maury mentioned, our bundled air ancillary program launched in fourth quarter 2019, and while ancillary more than held its own through the pandemic. The recovery is helping to showcase the significant value of the program aided by website redesign can deliver.

As we continue to test product mix and pricing as well further develop the program to appeal to a broader subset of itineraries, bundles will continue to produce value. Additionally, the RM Team has done a phenomenal job alongside EHI and Scott DeAngelo team managing a unique rental car market, despite the sizeable reduction in inventory available and in turn car days sold, we recorded the highest net revenue figure in company history. These, along with the co-brand wins we’ve got our fantastic story and made even better by passenger trends continuing to improve as well. Loads have improved sequentially in each of the last five months. And we’ll do so again in July, as we will cross the 80% mark.

All of the above sequential improvements led to total revenue in the month of June 2021, surpassing June 2019 total revenue, despite headwinds from fixed fee and other revenue. I expect the third quarter, we’ll replicate this and we are guiding 3Q total operating revenues to be plus 3.5% to plus 7.5% versus the third quarter of 2019. We will accomplish this scheduled service ASM growth between plus 16% and plus 20% versus 3Q 2019. As opposed to the second quarter cadence, however, this growth percentage is relatively level across each month. We are built to follow seasonal demand trends of the leisure customer.

And this year is no different as we anticipate September flying to be about 50% of July ASMs. While still early, demand trend looks fine for the off-peak and I’m pleased with how capacity and demand are aligning there. A sizable part of the growth through the back half of year will come on new reps, from year-round service to hyper seasonal one weekend route end. We will have 100 new markets to begin the service between April 1 and December 31 of this year. Among those routes, our service to four new cities announced in the second quarter, Minneapolis, Amarillo, Washington Dulles and Melbourne, Florida, in addition to complimentary Phoenix services, Sky Harbor.

For context, roughly 13% of third and fourth quarter ASMs will come from routes in their first 12 months. This is about on par with the distribution during our network investment and the groundwork laid in 2015 and 2016. We’re not the only carrier interested in pursuing new leisure opportunities. However, as Maury mentioned, our current competitive overlap outlook is virtually identical to our 2019 position. And with that, I’d like to pass over to Greg.

Greg Anderson: Thank you, Drew and good afternoon everyone. Before I begin, I too want to echo others’ comments and thank our team members for their incredible commitment, drive and hard work over the past quarter as we continue to ramp up. So looking at the current tone of our business for the second quarter, we reported GAAP net income of $95 million or $5.49 in earnings per share. Adjusted net income, excluding the impact of PSP was just under $60 million or $3.40 per year of nearly $7 per share from the previous quarter. This increase in EPS is with the added headwind of the incremental shares issued with the common stock offering during the quarter.

So for the remainder of my prepared remarks, I will plan to reference adjusted numbers only, which excludes the impact from PSP. Second quarters substantial margin improvement was fueled by June’s performance as its total revenue was the highest monthly revenue in our company’s history. Now, this does include a tailwind resulting from recognition of incremental voucher breakage revenue, as Drew mentioned. So early in the pandemic, we extended the expiry of our vouchers to 24 months as such. We appropriately adjusted our estimated breakage rates in order to monitor for variability and customer redemption patterns.

As we continue to observe sustained trends that reflect no meaningful changes to these redemption patterns, we have updated our estimates accordingly, which has also been incorporated in our forward revenue outlook. So even excluding this breakage tailwind, June was still a top three all-time revenue month. Turning to costs when comparing 2Q results with the previous quarter, our adjusted non-fuel costs increased sequentially by only 5%, which is well below our sequential ASM growth of 15%. Our reported adjusted unit costs excluding fuel came in at $5.86 for the second quarter down 1% year-over-2 and in line with expectations. Moving to liquidity adjusted EBITDA came in at $138 million just shy of our average per quarter during 2019 yet further strengthening our conviction of getting back to $6 million in annual EBITDA per aircraft.

The hefty cash generation during the quarter was aided by forward booking strength as evidenced by the increase in our total ATL to $440 million, an increase of 8% sequentially. We reinvested $46 million back into the business during the quarter in the form of airline CapEx, which includes $28 million for the purchase of two aircraft, $9 million for spare engine – for a spare engine and the remaining for kits and parts for future aircraft. Adjusted free cash flow generation of $100 million during the quarter aided our total ending balance of $1.2 billion and $400 million of net debt. These balances exclude the $136 million of incremental cash we expect to receive in the coming months in the form of our NOL refund. Our already strong liquidity position was greatly enhanced by the equity raise in May, which resulted in $335 million in incremental cash to the issuance of 1.6 million shares.

This opportunistic equity raise was very well timed to balance growth capital for the airline, while also limiting dilution. Our fortress balance sheet will serve us extremely well as we continue to grow the airline and take advantage of the numerous aircraft opportunities we see in front us. Turning to our second half of 2021 outlook, based on current trends, we expect the back half of 2021 capacity to be up around 18% year-over-2 using such capacity assumptions, adjusted unit cost, excluding fuel should come in around $6.3 for the back half of the year, which is 6% less than the same period in 2019. Since our last earnings call, these estimates reflect incremental costs of around $10 million per quarter, primarily spread over areas such as stations, labor, and sales and marketing. Addressing these essential areas help us stay a step ahead.

So for stations a major driver are strategic wage increases, our third-party service providers need in order to remain competitive in light of staffing challenges. I might add this isn’t unique to Allegiant as all carriers and other industries seem to be experiencing staffing challenges. For labor, we are hiring additional operational heads to ensure we are prepared to support not only our stated growth targets, but also future longer term opportunities. For sales, we’re seeing an uptick in total credit card processing fees, that’s primarily due to the higher than expected bookings, which I also might add as a high quality problem to have. And finally, for marketing, we were planning for some additional strategic marketing spend, which we believe will be accretive to the bottom line.

So even with these incremental costs, I just outlined, we still expect our full year 2021 CASM-X to be around $6.2 cents, nearly 5% below 2019 levels on a capacity increase of roughly 10% year-over-2. Combining our second half 2021 cost expectations with our 3Q revenue guide and current booking trends, we expect adjusted full year EPS to be more than $5 per share. This assumes fuel at $2.11 per gallon for the back half of 2021 or $2.3 for the full year as John mentioned earlier. This also takes into account the incremental share count as a result of our equity offering. So getting back to sustained earnings enhances our flexibility around minimum cash levels and deploying excess capital, our top priority, with such excess capital is to reinvest back in the airlines, followed by de-leveraging.

We expect our total full year 2021 airline CapEx to be $220 million, additionally, based on current debt maturity profiles. We expect our ending 2021 balance of gross debt to be $1.5 billion. Turning to fleet, during the second quarter, we placed into service three aircraft bringing our total in-service aircraft at June’s end to 103, and expect to have an 108 aircraft in service by year’s end. Since the onset, the pandemic, our fleet team has now signed up 24 A320 series aircraft 21 of them since the beginning of this year, all at an average price discounted by 30% when compared to pre pandemic levels. And in fact, I’m excited to announce that just this week we finalized the deal with Air Lease for the acquisition of 10 A320 series on aircraft under a finance lease.

All aircraft are expected to enter service in 2022. A press release followed by an 8-K will be forthcoming. These deliveries largely round out all the aircraft needed for next year. And our plan includes 19 incremental aircraft to be placed into service throughout 2022, bringing our total expected fleet count by the end of next year to 127 aircraft. Our fleet strategy gives us enormous flexibility in the coming months and years, as we have the optionality to pace our growth to not only match demand, but also ensure it is in lock step with our operational support.

We will be finalizing our 2022 budget this quarter and expect to provide its outlook during our October earnings call. Lastly, on fleet, all the aircraft we’ve signed up since the onset of the pandemic will be inducted into service at 186 seats bringing our estimated total of 186 seat aircraft ending in 2022 to 71, which equates to roughly 55% of our total fleet. By way of comparison, the 186 seat aircraft only made a 26% of our total fleet back in 2019. The higher gauge 186 produces more EBITDA per aircraft than our other two configurations of 156 and 177 seats. In closing with Sunseeker, and as John noted, we have a non-binding term sheet under our Sunseeker subsidiary to borrow capital to complete the construction of our resort.

I wanted to reframe that this debt is secured only by the assets under our Sunseeker subsidiary with the guarantee from Allegiant. We believe the materially lower interest rate enhanced flexibility in larger advanced amounts by having a corporate guarantee outweigh the benefit of a non-recourse structure. So with this debt financing, this project is expected to be fully funded with no additional equity capital from Allegiant. We are excited about restarting the project along with the increased optionality its completion brings and look forward to providing further detail on August 5. And with that, I’ll turn it over to the operator for questions.

Operator: The first question we have Joseph DeNardi from Stifel. Joseph, your line is open.

Joseph DeNardi: Thanks. Good afternoon, everyone. I’ll let someone else ask about Sunseeker and respect your wishes.

Drew, I think the plan is to end 2022, you said it 127 aircraft. I guess that suggests the potential for pretty good growth in 2022. So can you just – if you put that into context, how you’re thinking about ASM growth and then Greg with what seems like good growth next year, can you talk about the cost leverage that you could get off of that potentially? Thank you.

Drew Wells: I think I’ll provide a little bit of a disappointing answer. You’re right.

We have the potential for growth up to that, but we haven’t yet said any sort of 2022 targets. We’re in the final strokes of planning the spring now. And summer is obviously going to be, I think, a longer stall. So there’s a wide range of options still available for 2022. We’re happy with where the ceiling is, such that we can reach all that potential.

But like Greg said, we’re going to be moving in lockstep with the operational groups and making sure that we’re growing at the appropriate measured rate.

Greg Anderson: And Joe, just on the cost front, we’ll have some more a better outlook next quarter after we have our budget finalized. But just in general high level, I think we have really good control over our costs. The unit cost will depend on the growth that we haven’t yet set, but overall I think we can drive low and in the $6.10 to $6.30 kind of range for next year 2022 based on capacity growth. Some of the headwinds that I think that we might face this year as compared to – I’m sorry, next year as compared to this year would be labor.

Just did I mentioned, we’re staffing up operational groups to support growth. Also this year, we just didn’t have that much profit sharing as we normally have. So I think that too next year, we expect to be profitable, which will put some pressure headwind on that. Also I think some tailwinds there will be ownership. I think we’ll get some benefit there as we continue to kind of better utilize our aircraft and we’ll have to see what the capacity outlook that we put out, but there could be tailwind there.

Along with stations, some of our stations costs that we’re seeing, I think there’ll be some benefit in particular like airport landing fees. We have right now there’s some pressure there this year, just giving kind of less capacity from an industry perspective. But those we think will level out is full industry capacity starts coming back. So stay tuned. We’ll have more information, but thought we just provide a little high-level there for you.

Joseph DeNardi: Okay. Yes. That’s helpful. And then Drew, I think a couple of quarters ago, you said that the network was maybe 10% to 15% competitive and Maury, in his remarks, said its 75% non-competitive. So can you just reconcile that and maybe just, I know there are a million different ways to calculate that, but can you talk about how you’re maintaining a similar level of kind of non-competition across the network with what seems to be increased competition?

Drew Wells: Yes, I mean, it really depends on kind of the starting point that you’re looking at for your frame of reference here.

I mean, in the middle of the pandemic, we were down, I believe as low as 13%. I don’t have that number in front of me, but about 13%. And then we just kind of moved back from that. So the amount of capacity that came out has now largely been matched by the amount coming back in to put it back at those 2019 level. So it’s really just a timing element there of pandemic and changes to industry networks.

In addition to all of the announcements that we’ve made that have by and large been somewhere in the – I believe 5% to 10% competitive range. So we still continue to do our end of this by continuing to diversify away from competition.

Joseph DeNardi: Thank you.

Operator: For the next question, we have Catie OíBrien from Goldman Sachs. Catie, your line is open.

Catie OíBrien: Good afternoon, everyone. Thanks so much for the time. Maybe just one on the fleet. So you’ve talked about that you’ve sourced 21 incremental aircraft since the start of the year. But your 2021 CapEx has remained the same since February.

So did you have line of sight to these aircraft deals back then? Or should we expect CapEx to step up a bit next year as the rest of those aircraft deliver?

Greg Anderson: Hey, Catie, it’s Greg, it’s a great question and helpful for us to clarify that. Several of the aircraft that we’ve acquired like the deal I just met mentioned with Air Lease. Those are on a finance lease. So I think from a net CapEx perspective we’re roughly in line. So I think of those 10 aircraft, four will be delivered this year in 2021, and then the remaining will be next year, but under a finance lease, we didn’t update our CapEx guidance to reflect that.

And then but still that those 21 numbers that we put out there today for full year airline CapEx. We feel good about that from, I guess, to put it in like a cash – CapEx perspective.

Catie OíBrien: Got it, got it. Very clear. And then maybe a question for Scott, so last quarter you were kind of hinting that we had some coming asset, like co-marketing and sales channel partnerships sounds like we got one with the Live Nation announcement.

I just want to better understand how these types of relationship works. So is it just like if someone buys a concert in Vegas was maybe a credit card billing address or something like that outside of Vegas? Will they get an email from Live Nation pushing Allegiant there or how does that work and then just like really high level – how does the payment structure work for that type of marketing opportunity? Thanks so much.

Scott DeAngelo: Yes, you bet. And thanks for the question. You’re exactly right from the customer point of view.

Two things will happen and the select Live Nation and Ticketmaster venues that we’re partnered with as they buy a ticket, they will be presented with Allegiant. And of course, ultimately here at allegiant.com, we will be able to sell take an inventory to those venues and events. But moreover behind the scene, one should think about this as data, a digital and of course, as we mentioned a commerce partnership. And so it’s the nature of the partnerships that enable us to reach so many more consumers in the markets that we collectively serve. And be presented up exactly, as you said, sometimes digitally, sometimes physically but gaining access to individuals and potential reaching customers in a very focused and targeted way.

And this time, we’ve released that it’s a multiple year we look forward to having a long-term relationship but aren’t disclosing any other financial arrangements other just say that it’s a two-way deal where we will be looking to help them as a partner and they will be looking to help us as a partner.

Catie OíBrien: Got it. Thanks.

Operator: For the next question, we have Helane Becker from Cowen. Helane, your line is open.

Helane Becker: Thanks very much, Operator. Hi everybody. And thank you very much for your time. Just kind of curious about fuel availability on – at some of your smaller airports on the West Coast, how is that working out for you? Are you able to get what you need? Are you tinkering, how should we think about that? And if you’re tinkering what’s the cost that we should think about that maybe not be there once this issue ends?

Scott Sheldon: Helane, this is Scott Sheldon. Yes, we’re – what we’ve seen really since early summers, there’s upwards of 20 markets basically in the Midwest and the upper Northwest, some still to this day don’t have any availability.

So all this is tinkering more often than not than most missions can be accomplished just by tinkering. There’s very few situations where we got to do it, fuel text up. As far as the cost, clearly – the cost of extra pounds but you’re starting to see what used to be upwards of 20 markets. I want to say, I saw a list it’s upwards of maybe 13. So as fuel production comes back online trucking and fuel supply logistics come back online.

That stuff will be available there for normal operations.

Helane Becker: Got you. That’s very helpful. And then the other question, I have not sure who can answer this, or if it can be. But as we think about that capacity that you were talking about for 2021 and rest of 2021 and 2022 had the pandemic not happened, what would the base have been like in 2020 so that.

On a – I don’t know if you can do this, but on an adjusted, like pandemic adjusted basis, what’s the actual growth rate versus the year-over-2 number?

John Redmond: Yes, I’ll take a stab. Obviously don’t have the exact number off the top of my head, but we’re going to be relatively close to where we expected on kind of that two year horizon. I mean, if we’re 20% now, right, there’s going to be just shy of 10% CAGR on both of those years. So maybe just a tick below where we had expected, but I don’t think we’re entirely far off where we thought we’d be at this point.

Helane Becker: I’m sorry.

That was a better way. Go ahead.

Maury Gallagher: We moved the first two months of the year 16%. So that gave you an indication. 2019 was not as much growth it’s only 9% because we are limited airplanes coming out of 2018 when we finished our transition.

But we were fast looking to pick it up a little bit as we went into 2020.

Helane Becker: Yes. Okay. So that’s really helpful. All right.

Well, thanks, Maury. And thanks team. Thanks for those answers. Very helpful.

Operator: For the next question, we have Mike Linenberg from Deutsche Bank.

Mike, your line is open.

Mike Linenberg: Yes. Good afternoon, everyone. Just a quick one here on when you look at the markets that are the traditional Allegiant markets, now we have, I don’t know, four or five carriers you seem to all be targeting some of these interesting markets, like Mesa, Arizona, Punta Gorda, Bellingham. And I’m just curious on the surface, it looks like you’re going to have a lot more competition on one hand.

On the other, some of the city pairs are different and in fact it may actually there’s a halo effect, I guess, if you will, that these airports that we’re probably not on the radar screen, when you have a Southwest airlines now flying to Fresno and Bellingham and the Florida Panhandle, that there actually may be some benefit to Allegiant, especially if these markets aren’t duplicated from a city pair presence. So just curious on whether or not it’s driving more traffic to some of these smaller airports and there’s a halo effect and you’re benefiting from it. Thoughts on that. Thank you.

Drew Wells: Sure.

Yes, Drew here. At the time of announcement, we definitely see kind of a traffic halo effect. I think probably still early to say what the long-term impact of that’s going to be. I’m certainly going stop short thing that I embrace their presence in our airport. But in terms of traffic and awareness, I think you’ll definitely see them in the short term.

And we’ll circle back in 12 months and talk about the long-term.

Scott Sheldon: The only thing else I would add there is depending on the carrier, as you all well know, we are all non-stop flights and in many cases where those competitive routes are really bringing someone stay to Las Vegas to connect on a flight to somewhere else. It’s kind of the halo effect that is driving exposure from in that case and origination point. But it does very little actual competitive damage since the person really isn’t flying to be where our endpoint is. Thank you.

Maury Gallagher: Yes. Just finished out, Michael, we all were just everything we do is point to point. So you don’t have any hub. A lot of this activity, even Southwest anymore is going through a hub. It’s a connection.

So if you’re doing BWI to VPS, that’s nice. But if they’re connecting all the way up into the Northwest or into some of our cities, it’s not as competitive of product we think. So we’ll see.

Mike Linenberg: Okay, great. And then just one second question on as we think about PSP and the various restrictions that it does have on Allegiant, Greg, maybe can you just remind us, at what point did the shackles come off and I realized there’s a really cheap loan that you’re benefiting from.

And so I’m not sure sort of where things come out whether or not that has to be paid down completely before you could reinstitute a dividend potentially consider share repurchases pay executives more handsomely than in the past. What’s the timing on that? And how are you thinking about that, since among all the carriers you’re in the best position to kind of come away from that and to get out from under the microscope of the government.

Greg Anderson: Mike, thanks for the question. It’s Greg. Shackles come off October 1 of the next year in terms of a dividend, the ability to issue a dividend again and share repurchases and the like there.

In terms of like executive comp restrictions, I think that’s April 1 of 2023, just to put those two into perspective and we are in a nice liquidity position as we talked about. We have the largest shareholders sitting here to my left. So I wouldn’t be surprised if we consider returning value to shareholders, either through the form of a dividend when those shackles come off or even looking at a share repurchase, but nothing to speak to you today. It’s just something we’ll keep in mind back there – in the back of our minds. And then I would just say to your point about executive comp and just, I think that the company, Maury, John and the board has done a really nice job of getting creative to ensure that our executives and our senior leadership team are well taken care of through the pandemic and beyond.

And so we tried to get accretive in that way. And I just – my sense is that everybody’s pretty happy with what they’ve been able to do.

Mike Linenberg: Great. Great. Thanks Greg.

Thanks everyone.

Operator: For the next question, we have Duane Pfennigwerth from Evercore. Duane, your line is open.

Duane Pfennigwerth: Hey, thanks. I appreciate it and congrats on these results.

Just with respect to the breakage, what line does that fall in? Is it all passenger revenue or base fare and could we see more breakage in future quarters?

Greg Anderson: Hey, Duane, this is Greg. I’ll kick it off and if Drew wants to add. It’s basically spread throughout, so you’ll see it in Sched and third-party disproportionally. So I think about it from that perspective. And then the way I would just think about it on a go-forward basis as in the second quarter, really why you saw the number as large as you did is that we were catching up, right.

And then, so I think on a go-forward basis, I would just expect it to be back at a more of a normalized run rate pre pandemic.

Duane Pfennigwerth: Okay, great. And then in the disclosure just going back and looking at hotel room nights, so almost 73,000. Can you talk about attach rates if I recall Vegas had a higher attach rate, so maybe you could talk about, where attach rates are trending and how you see that across some of the bigger leisure destinations?

Greg Anderson: Yes, I will kick that off, maybe then, Scott, if you have anything. The biggest thing to watch with hotel room nights and what we’ve kind of tracked historically is the distribution of seats that touch Vegas.

Our cash rate here is by far the best in the system, and we’ve kind of slowly been drifting away from Vegas as a percentage of the whole, really over the last 10 years. And so you’ve kind of seen that through the hotel results. Of course, that’s offset by the higher east coast presence in a rental car, so that there’s a pretty clean correlation between that.

Scott DeAngelo: Yeah. And I would say strategically, there remains a lot of upside.

I provided a similar metric back in 2019, but I have an updated one. For every one hotel stay that is attached. There are 15 that are actually put in the shopping cart but not checked out on. So a lot of what we will be doing to help bridge the difference in those 14 that make it all the way to the shopping cart, but don’t get checked out a variety of these initiatives, Greg referenced some strategic marketing initiatives and are part of just our continued digital evolution in the next six to 12 months.

Duane Pfennigwerth: Thanks.

And then just on Vegas specifically, and I don’t know if you have a you’re not revenue managing hotel rooms yet, but to the extent you have a view into Vegas, what are you seeing into the fall in September, specifically as some of these large conferences come back online. We’ve heard anecdotally rates are very high relative to kind of where they’ve been.

Scott DeAngelo: No. In general, Vegas is holding up reasonably well for us into the fall. Certainly it doesn’t experience this quite the same seasonal chaos that Florida will through September and through the fall.

On the hotel side, things still look fine. And in general, kind of on par with what we’ve seen for the summer, I would stop short of saying that we’re a big beneficiary of conferences directly, especially as it comes to the hotel. We’ll see a little lift here and there, but it’s not quite as clean as conference comes back, we should see a massive uptick here. I pause a little bit short of that.

John Redmond: The one additional point I’d make about Las Vegas is where we are a direct beneficiary and inextricably linked.

We’ll be on the – at least nine weekends of NFL games at Allegiant’s stadium. Many have seen that six of the top 10 selling NFL games is determined by overall secondary market ticket prices. Our home games here at Allegiant stadium and Drew and Chris and team have done a terrific job of standing up capacity in those visiting markets, be it Chicago, Baltimore, et cetera. And so for the leisure traveler on those weekends and there’s a variety of other major events that will be happening. One, the yield should be way up hotel to directly answer your question.

And two, Allegiant does have a very natural play, and we’re seeing that pay dividends with the investment with Allegiant Stadium.

Duane Pfennigwerth: Thanks for the thoughts.

Operator: For the next question we have Savi Syth from Raymond James. Savi your line is open.

Savi Syth: Thank you and good afternoon, everyone.

Just curious of – I appreciate the longer term outlook here, but curious on how you’re thinking about how post summer looks like in the third quarter?

John Redmond: Savi, in terms of what demands or…

Savi Syth: Exactly. I mean a lot of your seats, I think, are in September. So are you expecting the load factors to drop or yields to drop? Or how should we think about how post summer looks this year versus kind of historical or even last year?

John Redmond: My view on September, and keep in mind, as I mentioned in the opening remarks, September is still about 50% the size of July. So it’s still the smallest portion of the quarter and really even the year. So with that, I do think that there’s a chance load factor will step back a little bit.

It naturally does. I do think the floor continues to lift a little bit on what it could be people that were priced out of summer trips because of hotel rates, because of rental car inventory and rates, will be kind of shifting that travel into the fall period. So I do still expect a leisure fall off as we would always expect, but I do think the floor is a little bit higher than normal.

Savi Syth: Makes sense. And then on the aircraft side, just curious how many of the aircraft that you’ve secured has been since the capital raise, which is four aircraft and just kind of tied to that from an operational business by Scott or Greg, just historically, I think of Allegiant taking about one aircraft a month, and that’s something that the team has been able to handle without too much disruption.

So what’s your view on taking 2021 aircraft next year?

Greg Anderson: Savi, it’s Greg. I’ll kick it off and then turn it over to Scott or BJ. here. 13 since the capital raise is how many we’ve signed out, 13 aircraft this quarter post May. In terms of bringing these aircraft in the pipeline, Scott Sheldon and Robert Neal here and their respective teams have put together a really nice facility, induction facility in Melbourne to make sure that we kind of derisk that pipeline and getting those aircraft going through.

But BJ or Scott, anything you want to add on that front?

Scott Sheldon: Yes, I think the – I think in order to obviously deploy the aircraft, the hiring for pilots started early July. So we’re hiring upwards of 270 pilots, upward of 360 flight attendants. And I suspect that the hiring cadence won’t end. We’re kind of at the upper threshold of what we can do just from a training footprint internally. And so it’s – the factory is back in high gear, so to speak.

Savi Syth: Got it. Thank you.

Maury Gallagher: Savi, it’s Maury. One other thing, too, that we’ve got to get the system back in place too. The biggest surprise to me is the dislocation of everything that’s going on, personnel being the number one issue.

Many people are leaving bags and people at the gate because they can’t get through TSA. I mean it’s just – it’s an amazing kind of, as I said, the rust is still lingering around the operations. So that’s going to be, to me, a marker as to how fast we can get into 2022 as well. But we certainly – if you go back and look at the operations of the industry in 2018 and 2019, it was really top notch. And the industry has not held its end of the bargain up, but so much of that, too, is not under our control.

I think we’re short 10,000 TSA agents, something like that. So yes, it’s got to – we got to get the whole system back up, all the supply chain conversations you’re hearing, we’re right in the middle of one of ours.

Operator: For the next question we have Hunter Keay from Wolfe Research. Hunter, your line is open.

Hunter Keay: Thank you.

Hey, Scott DeAngelo, as you studied other loyalty programs in the airline industry, what are some of the biggest features obviously not of your own of competitor programs that you find people really strongly dislike the most.

Scott DeAngelo: Thank you for the question, Hunter. The biggest thing was we found – and just about 30% to 40% of our customers are members of name-your-top program, SkyMiles, Rapid Rewards, Advantage. The big thing was about 90% said they didn’t benefit from those programs. They never flew enough to earn any kind of status, certainly not enough to get a free trip anywhere hence why we chose kind of the Apple Card, if you will, for those familiar with that, where you spend money, you get – in our case, points that don’t affect currency and you use it anytime you want for anything you can buy at Allegiant.com.

What I think they dislike the most is the moving around of – and I’m going to include myself in this one. They’re moving around of – some days, it’s 20,000, some days it’s 60,000 miles and other days, right, even if there’s seats on the plane, there’s blackout date that they can’t use their miles. So those would be the direct answer to your question that we decided just not even to play in that space, just given the "Allegiant money", if you will, we don’t call it that, but that’s in effect what it is and let them spend it they see fit.

Hunter Keay: That’s interesting. Thank you.

And then Drew, the demand for leisure travel is amazing right now. I got to say all things considered. Are you starting think that maybe leisure travel is not as elastic as maybe a lot of us thought it was? Or is this just kind of a flukish situation because of this perfect storm of stimulus money and low industry supply and pent up demand? How is what you’re seeing right now in informing your overall sort of decision-making on revenue management over the next couple of years?

Drew Wells: Yes. I’m certainly inclined to believe the first 19 years of our company’s history over the last 12 to 18 months in terms of price elasticity and customer behavior. I think this is very much the perfect storm of virtually missing out on an entire year of travel, stimulus checks, things really coming together to kind of drive different behavior.

I think this really starts to revert to normalcy really even in the back half of this year, by and large, I mean, we’re even seeing it now. It’s kind of – you’ve seen our loads return at the expense of some yield, which was our strategy all along to hold the yield up at the expense of load. So I think we’re in the midst of seeing that return to normalcy now, and we’ll be back full-fledged pretty soon.

Hunter Keay: Got it. All right.

Thanks a lot.

Maury Gallagher: Thanks, Hunter.

Operator: For the next question we have Dan McKenzie from Seaport Global. Dan, your line is open.

Dan McKenzie: questions here, with respect to the aircraft order, the 19 new aircraft next year, suggests you could potentially hit the 2024 aircraft goal of 145 planes a year early.

So I guess first question here has that fleet goal changed?

Greg Anderson: Dan, it’s Greg. I’ll just say that, yes, it gets us a nice head start on that. If you take a 10% CAGR in 2023 and 2024, I think that puts you closer to 160. But as you know, we’re always opportunistic here at Allegiant when it comes to acquiring aircraft. So we don’t have an order out there or anything like that.

We’ll continue BJ Neal and his team will continue to look at the market and see what’s available. But yes, it gives us a nice jump start on that and if you just take a 10% CAGR on those outer years, you’re up to closer to 160.

Maury Gallagher: Well, I think – an add-on, Dan, too, is that if we have good deals on airplanes, which are presenting quite a few, we should buy those airplanes sooner, but that doesn’t translate into you’re going to put them into service right away. Operations will dictate that, but a good deal is a good deal and the marketplace won’t hold these deals forever so.

Dan McKenzie: Yep.

Understood. Okay. And then just also a multi-year question here, as you think about the business, reverting back to the $6 million in EBITDA per aircraft. Given the digital efforts that I think past Investor Day’s you’ve said are 3x the profit potential of the airline operation. Could the real answer be a profit contribution that’s more than $6 million per aircraft in the next cycle? And, does that include and apologies for the Sunseeker question? Does that include a Sunseeker contribution? And I guess where I’m going with this is, if the goal is to have 145 or 160 aircraft, potentially in 2024, that seems to imply over $30 a share in earnings.

And I guess, just big picture, is this how you’re thinking about running the airline.

Greg Anderson: Dan, it’s Greg. Perhaps I’ll kick it off and Drew, DeAngelo or anyone else that may want to jump in here on the EBITDA per aircraft. The first, no, it does not include Sunseeker that would be excluded from it or getting back to that number. As you think about it, I mentioned that the – we’re bringing on one more 186-seat aircraft.

And in 2019, those aircraft produced on average $8 million, maybe a little bit north of $8 million per aircraft EBITDA per aircraft per year. So I say that to say we believe that we can get back to that $6 million in EBITDA per aircraft. That’s our goal today to get to restore that as soon as possible and I do believe that there’s upside to that as well. And where we’re at, I don’t want to get ahead of my skis here and say we think it could be this or that. But job number one is getting back there.

We feel like the cost structure is in place to support that and then Drew and Scott DeAngelo on the revenue side, see what they can do there, which would only help enhance that. Scott, Drew?

Scott DeAngelo: Yes. The only thing I would add is just strategically, I think you’re spot on. I know I’ve said it before, the most expensive to any business ourselves included, can do is attract customers to their store, in our case, a digital store, Allegiant.com. Once in the store, the most accretive thing we can do is have them add more things to that shopping cart.

And so we talk a lot here about selling beyond the aircraft. So yes, base fare, but all the air ancillary that Drew talked about, the third party and to double emphasize what Greg said, there’s absolutely upside as we’re able to sell more of different things beyond the aircraft to the customers that who are already paying to come into the stores, just getting them to put more in their cart.

Dan McKenzie: Understood. And if I just squeeze one last one in here Drew, 13% of the ASMs in routes less than 12 months. I’m curious one, what the resin discount, the system average resin was in the second quarter.

And then as we look at 2022, what should we anticipate in terms of the percent of flying that would be in markets less than 12 months.

Drew Wells: Thanks. Yes, I don’t have the 2Q number in front of me in terms of resin than discounts. So I’ll have to come back to you on that one. But in terms of route distribution, it’s only 7.4% in the second quarter, there really is a back half of the year story in terms of new routes.

So being 7.4% you’re going to be relatively in line with what we’ve done over the last three to four years. So you probably wouldn’t notice anything material on a comparison basis. Going into 2022, I still anticipate a fair amount of new route growth. I think the distribution will come down a little bit as we do more same-store growth, kind of filling in some gaps there. So I’d expect something south of that 13% to 14%.

Dan McKenzie: Very good. Thanks for the time you guys.

Maury Gallagher: Thank you, Dan.

Operator: For the next question we have Conor Cunningham from MKM Partners. Conor, your line is open.

Conor Cunningham: Hey, everyone. Thanks for the time. It seems like you’re clearly prioritizing yields during the recovery of overload factors. Just on the other side of the pandemic, should we assume that you’re willing to take a lower load going forward as maybe trying to protect yield? Or are you going to revert back to your historical norm or trying to just get people on planes and then drive revenues with the ancillary fees. Thank you.

Drew Wells: Yes. Conor, more generally it’s promoting load factor over yield as we look forward. Really the question for us came down to the size of the demand pool and as the demand pool is smaller, we thought it made more sense to prioritize the yield if we weren’t stimulating enough incremental customers to fly with discounted rates. As that pool as generally returned to on par if not larger for us here into the summer it made sense to revert back to kind of older strategies of pushing that load. Now that 100% of the network is all the way there yet, and there are places where yields still make sense, but by and large the rule of thumb is pushing that load factor once again.

Conor Cunningham: Okay, great. And then you guys would just have interesting data points on your customer base. And so, I think in the first quarter you mentioned that people that have booked their phone on your airline have a vaccination rate of above 70%. So curious where that sits today? And the reason why I ask is, there’s a lot of conversations going around about the delta variant mass and all that stuff that could hurt demand. And it just seems like your customer base is more insulated from any COVID-related issues kind of going forward.

And I appreciate the time. Thank you.

Scott DeAngelo: Yes, I’ll quickly answer that. It basically is in the high 70s, so much like we’ve seen everywhere else. Three months later it’s climbed up as many as 8 percentage points, but in that 80-20 long tail from here, not just our customer base, but the nation as a whole.

Conor Cunningham: Appreciate it. Thank you.

Operator: For the next question, we have Chris Stathoulopoulos . Chris, your line is open.

Chris Stathoulopoulos: Good afternoon, everyone, and thanks for taking my questions.

So two from me. As we work into leisure recovery here and looking at costs, are there areas that you’re doing better in versus others that perhaps have come on faster than you might’ve expected or might be harder to work off as you pull back up and capacity.

Greg Anderson: Hey, Chris, this is Greg. I just want to – you broke up there for a minute there. On the cost side, you just want to know if there’s areas that we’re performing better as we pull up the capacity, I just want to make sure I understood it, right.

Chris Stathoulopoulos: Yeah. Areas that you’re doing better a few months ago when demand really started to take off relative to today, areas that you’re perhaps outperforming and versus areas that there’s a little bit more pressure than you expected or perhaps areas that might be harder for you to work off through productivity or other measures. Thanks.

Greg Anderson: Okay. I got you.

Okay. So some of the areas that I think we’re doing a lot better on today is even as compared to the pandemic as we ramp up. In our other area and our other line item, we’ve seen some benefit from things such as taxes and just training, efficiency, things like that. So we’ve driven some tailwinds on that front. I’ll say though, as we start to ramp up, we’re going to see we bring on more pilots as Scott has alluded to, we’re going to probably see some headwinds down the road on that, but I think where we sit today, we feel good about that.

Some of the headwinds that I mentioned earlier, like on the airport cost, we think those are transitory. Those will go away. We also mentioned that our ground service providers in my opening comments, I talked about that, are inflationary, and we’re doing what we can to make sure that they have the pay to remain competitive there. But ultimately, the other areas that we’re trying to do better on, I think, from a capital perspective as well is like aircraft, I mentioned as BJ and his team are out there finding aircraft for 30% discount, that’s meaningful savings in this pandemic world. To put that into perspective, if that $6 million per aircraft that’s discounted, we just signed up 24 aircraft since the onset of the pandemic.

That’s like $150 million you’re saving. Last quarter, I talked about a little bit the strategic parts initiative, where we went out, we allocated $20 million for strategic parts that we ended up getting like a 50% discount. So essentially $40 million worth of strategic parts that we paid $20 million on. I mean those are ways that we are, I think, taking the – what the pandemic has thrown at us and being more efficient, combating some of these inflationary costs and just doing the best we can in that regard. So I hope that answered your question, but let me know if anything I could follow up on with that.

Chris Stathoulopoulos: Okay and just as a follow-up on the other side, curious – and I know what makes your model unique is you have a relatively lower route overlap, but could you comment at all on the fair dynamic you’re seeing? And if possible, split that between some of the larger network peers and then versus some of your low cost and ultra-low-cost peers? Thanks.

Drew Wells: The first thing I’ll note here is our general overlap with kind of mainline legacy flying is pretty low. So I don’t think I’ll be able to give you a great read-through on that front. That’s not fairly well biased by sample there. In general, there’s been a lot of commentary lately from other carriers about third quarter yields being flat as some folks even have mentioned the same thing for June.

I think the pricing environment, at least from where we sit in the leisure world, primarily into leisure markets is that pricing is fairly healthy. I’m not concerned with what I’m saying. We pushed higher yields in all three months of the second quarter. And like I said, we’ve heard the same from others. So I’m not at least seeing a lot of weakness from where I sit.

Chris Stathoulopoulos: Okay. Thank you.

Operator: There are no further questions at this time. I would now like to turn the call over to Maury Gallagher for closing remarks.

Maury Gallagher: Thank you all very much.

We’ll see you in 90 days. Have a good evening.

Operator: Ladies and gentlemen, this concludes today’s conference call. Thank you all for participating. You may now disconnect.