Allegiant Travel Company First Quarter 2020 Financial Results

"The events that have unfolded over the last eight weeks are truly unprecedented," said Maurice J. Gallagher, Jr., chairman and CEO of Allegiant Travel Company, adding "We began to see the first signs of demand weakness at the end of February, with a steep downward demand trajectory by mid-March."  

That downturn has had a massive effect on the Allegiant Travel Company's latest financial results for the first quarter of 2020.  

Consolidated	Three Months Ended March 31,							Percent Change
(unaudited) (in millions, except per share amounts)	2020				2019
Total operating revenue	$	409.2			$	451.6		(9.4)	%
Operating income (loss)	(117.8)				91.1			(229.3)
Income (loss) before income taxes	(130.7)				73.9			(276.9)
Net income (loss)	(33.0)				57.1			(157.8)
Diluted earnings (loss) per share	$	(2.08)			$	3.52		(159.1)
Consolidated - adjusted	Three Months Ended March 31,							Percent Change
(unaudited) (in millions, except per share amounts)	2020				2019
Adjusted operating income(1)	$	55.1			$	91.1		(39.5)
Adjusted income before income taxes(1)	42.2				73.9			(42.9)
Adjusted net income(1)	33.3				57.1			(41.7)
Adjusted diluted earnings per share (1)	$	2.05			$	3.52		(41.8)
Airline only	Three Months Ended March 31,							Percent Change
(unaudited)	2020				2019
Airline operating revenue (millions)(1)	$	404.7			$	448.3		(9.7)	%
Airline operating income (millions)(1)	51.1				98.5			(48.1)
Airline operating margin	12.6		%		22.0		%	(42.7)
Airline income before income taxes (millions) (1)	$	38.8			$	81.5		(52.4)
Airline fully diluted earnings per share(1)	$	1.89			$	3.98		(52.5)
Airline CASM ex fuel (cents)(1)	6.51				6.40			1.7

(1) Denotes a non-GAAP financial measure. Refer to the Non-GAAP Presentation section within this document for further information.

"The events that have unfolded over the last eight weeks are truly unprecedented," stated Maurice J. Gallagher, Jr., chairman and CEO of Allegiant Travel Company. "We began to see the first signs of demand weakness at the end of February, with a steep downward demand trajectory by mid-March. Despite March revenues down nearly 40 percent year over year, we finished the quarter with airline-only EPS of $1.89 per share and an airline-only operating margin of 12.6 percent. These numbers are a true testament to the flexibility of our model and our ability to right-size capacity quickly and seamlessly.

"Since the onset of the pandemic, we have been laser-focused on ensuring the health and safety of our employees and passengers. Enhancing our cleaning procedures, adding health precautions and employing smart principles of social distancing, we recently launched our Going the Distance for Health and Safety initiative as a resource to customers, the details of which can be found in the bullets below. It outlines a set of principles which are as much a part of our DNA as flying from small cities to vacation destinations. These principles are designed to evolve with travel needs, as a permanent part of our operation.

"In addition to health and safety enhancements, we took early and decisive action to preserve liquidity and reduce cash burn. These measures, outlined below, have brought immediate and significant progress over the past few weeks. Most notably, more than 25 percent of our team members have strengthened these efforts by participating in voluntary leave and pay reduction programs. I am humbled by their generosity and personal investment in our company. These investments will help preserve jobs and the company alike. The effect of these combined liquidity preservation measures has reduced daily cash burn to roughly $2.1 million a day, in a matter of a few weeks.

"As previously reported, we will receive $172 million in payroll support under the CARES Act, of which $86 million has been received to date, with the remainder being paid in installments. In addition, we will receive nearly $100 million in federal income tax refunds during the second quarter of 2020 related to favorable net operating loss (NOL) carryback rules as outlined by the CARES Act. We anticipate another projected $100 million or more early next year related to 2020 expected losses and capital expenditures. I look at this very material $200 million plus in federal income tax refunds as our 'equity' offering other carriers are currently pursuing in the market. With these refunds and our aggressive cost and capital expenditure savings, we believe we have sufficient liquidity going forward. Should we project a need for additional funds, we have up to $276 million of dry powder available through the end of September from the CARES Act loan program.

"Near term is painful and will continue to be painful. But I believe our model, given the current economic impact, is best-suited to withstand the brutal impact from this pandemic. In the near term, we will most likely shrink our fleet by as many as 25 aircraft. These aircraft, particularly the motors, will 'seed' our near and long-term ability to materially reduce planned engine overhauls, beginning in 2020 and for years thereafter. Going forward, the market will favor buyers, not sellers as has been the case the past few years. We will be able to use our expertise, as we did with the MD80s, to purchase aircraft and associated parts at what we believe will be substantial discounts to recent prices. We will 'manage' planned overhauls via our balance sheet versus expensive overhaul shop visits. Another substantial advantage is that we do not have meaningful aircraft purchase commitments in 2021 and beyond. The combination of our retirements and the greatly reduced cost of used aircraft and their motors is a key part of both our near-term liquidity benefit and long-term - 2021 and beyond -  reduced capital requirements for our growth. Finally, I am reminded of a saying I used with our MD80s, namely 'we were a non-capital-intensive business in a capital-intensive industry.'

"Going forward, we are prepared to make tough choices and take any steps necessary to adapt and right-size our cost structure. Since the outset of the COVID-19 crisis, we have taken proactive measures to adjust quickly and aggressively to meet the demands of this challenging and changing environment. With that said, our low-cost business model has proven its resilience during past economic downturns, and we expect it will support our ability to rebound here as well. The Allegiant model, based on simplicity, flexibility and optionality is well-suited for these difficult environments."

Covid-19 Responses - Going the Distance for Health and Safety

• Enhanced aircraft cleaning, including regular treatment with an advanced antimicrobial protectant that kills viruses, germs and bacteria on contact for 14 days. Our treatment schedule, along with regular cleaning processes, far exceeds manufacturer guidelines
• Social distancing principles at check-in, boarding and on-board, including limiting adjacent row seating and allowing only customers on the same itinerary to utilize middle seats as practicable
• Volatile Organic Compound (VOC) air filters that ensure the air quality on our planes exceeds HEPA standards
• Complimentary health and safety kits, which include a single-use face mask, a pair of non-latex disposable gloves and cleaning wipes, provided to all of our customers
• Crew members wear face masks on board and gloves during in-flight service
• All in-flight service offerings consist of prepackaged, factory sealed goods
• In-flight service frequency has been reduced to once per flight

Network and Customer Experience

• Reduced April capacity by 87.4 percent
• Evaluating May and June and expect significant capacity reductions based on diminished leisure demand trends
• Waived change and cancellation fees for all customers for future travel
• Extended expiry on credit vouchers to two years

Cash Outlay Reduction - as much as $375 million in cash outlay reductions to our initial 2020 plan

• Suspended all stock buybacks and dividends
• Executives reduced salaries by 50 percent and Board members are foregoing cash compensation
• Neither the chairman and CEO nor the president draw a salary
• Enacted a hiring freeze and offering voluntary leave
• More than 1,100 team members are currently participating in some form of pay reduction program
• Suspended nearly all contractor positions, subscriptions, non-essential training and travel
• Suspended all non-essential capital expenditures including non-airline subsidiaries
• Extended payment terms and renegotiating contracts with vendors

CARES Act Relief

• Payroll support in the amount of $171.9 million comprised of $150.3 million in direct grants and a $21.6 million low-interest, unsecured 10-year loan.
• Received first installment of $86 million with remainder expected over the next three months
• Warrants will be issued to the U.S. Department of the Treasury to purchase 25,898 shares at a strike price of $83.33 per share
• Federal income tax refund of $94 million related to 2018 and 2019 net operating loss carrybacks
• Anticipated federal income tax refund of $100 million expected to be received between March and May 2021 for 2020 net operating loss carryback
• Submitted application under the Loan Program with the option to access up to $276 million secured loan through September 2020

Balance Sheet, Cash and Liquidity

• Total cash and investments at March 31st and April 30th were $464 million and $517 million(1), respectively
• Repriced Term Loan B facility with a 150 basis points rate reduction and upsized by $100 million in February
• Obtained financing of $31 millionin April secured by two A320 aircraft
• Current 2Q20 cash burn is expected to be $2.1 million per day(2)
• Cash burn assumes gross bookings for 2Q20 average $750 thousand per day
• 3Q20 cash burn is expected to be $1.5 million per day assuming gross bookings average $750 thousand per day
• Further sources of liquidity expected during the second quarter around $163 million, including:
• Additional payroll support from CARES Act in the amounts of $68.7 million
• Federal income tax refund of $94 million related to net operating losses from 2018 and 2019
• Reduced full year capital expenditures by $260 million
• $100 million reduction in airline capital expenditures
• Expect all remaining 2020 aircraft and engine acquisitions to be financed
• $160 million reduction in non-airline capital expenditures
• We currently have 28 unencumbered aircraft and 8 unencumbered spare engines with an appraised value of roughly $431 million
• Air traffic liability at March 31 and April 30 was $304 million and $305 million, respectively
• March 31 and April 30 balance related to future scheduled flights are $137 million and $95 million
• March 31 and April 30 balance related to travel vouchers issued for future use are $167 million and $210 million

(1) April 30 ending cash balance of $517 million includes the first installment payment received under the CARES Act Payroll Support Program of $86 million.

(2) Daily cash burn defined as cash from operations less debt and rent obligations and capital expenditure outflows excluding aircraft and engine acquisitions as they are expected to be financed. Excludes impact of CARES Act Payroll Support Program funding.

Non-airline Subsidiaries

• Nearly all non-airline subsidiary spend has been suspended indefinitely
• COVID-19 triggered impairment review and as a result of the uncertainty moving forward, the company recognized a total impairment of $163 million over its non-airline subsidiaries:
• Sunseeker impairment of $137 million - suspended construction indefinitely
• No plans for future capital commitments from Allegiant
• Exploring potential strategic partnerships
• Nonstop impairment of $18 million - reorganized to be self-sufficient, not requiring future funding from the airline
• Warren location temporarily closed - produced positive cash flow prior to closing
• Permanently closed Utah locations
• Teesnap impairment of $8 million - reorganized to be self-sufficient, not requiring future funding from the airline
• Remains an asset held for sale

First quarter 2020 results

• TRASM decreased 13.4 percent
• March capacity cut 23.3 percent and down 12.2 percent year over year
• Airline only CASM, excluding fuel increased 1.7 percent on capacity growth of 4.0 percent
• CASM, excluding fuel had been on track to be down 2.0 percent on capacity growth of 16.0 percent prior to COVID-19 scheduling changes

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