Business Context and Reporting Period
Company: Allegiant Travel Company (Allegiant)
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: September 30, 2009
Business Overview: Allegiant operates as a leisure travel company focusing on low-cost passenger airline service from small cities to major leisure destinations (e.g., Las Vegas, Orlando, Los Angeles). The company also provides fixed-fee charter services.
Key Financial Metrics
Revenue and Profitability (Nine Months Ended Sept 30, 2009):
- Total Operating Revenue: $423.2 million (up 10.9% vs. prior year).
- Operating Income: $104.2 million (up 283.8% vs. prior year).
- Net Income: $65.8 million (up 282.3% vs. prior year).
- Earnings Per Share (Diluted): $3.23 (vs. $0.84 in prior year).
- Operating Margin: 24.6% (vs. 7.1% in prior year).
Liquidity and Balance Sheet (As of Sept 30, 2009):
- Cash and Cash Equivalents: $67.1 million.
- Short-term Investments: $155.2 million.
- Total Current Assets: $270.2 million.
- Total Current Liabilities: $147.7 million.
- Total Debt (Notes Payable + Capital Leases): $54.8 million (including $26.0 million current maturities).
- Stockholders' Equity: $281.3 million.
Cash Flow (Nine Months Ended Sept 30, 2009):
- Net Cash Provided by Operating Activities: $109.2 million.
- Net Cash Used in Investing Activities: $107.2 million (primarily purchase of short-term investments and property/equipment).
- Net Cash Used in Financing Activities: $32.1 million (primarily stock repurchases and debt principal payments).
Material Changes vs. Prior Period
Revenue Drivers:
- Ancillary Revenue: Increased 50.5% to $126.2 million, driven by a 28.3% increase in passengers and a 17.3% increase in ancillary revenue per passenger (due to higher fees for convenience and baggage).
- Scheduled Service Revenue: Increased 3.1% to $261.0 million, despite a 19.7% decrease in average base fare, due to a 28.3% increase in passenger volume.
- Fixed Fee Contract Revenue: Decreased 24.8% to $30.9 million due to revised contracts with Harrah's (shifting fuel cost responsibility to the customer) and reduced block hours.
Expense Drivers:
- Aircraft Fuel: Expense decreased 38.1% to $119.0 million. The average cost per gallon dropped 48.8% to $1.67 from $3.26 in the prior year.
- Salary and Benefits: Increased 34.5% to $69.3 million, primarily due to accrued employee bonuses tied to improved operating income and an 18.5% increase in full-time employees.
- Operating Expenses (Total): Decreased 10.0% to $319.0 million, despite a 23.0% increase in system departures, largely due to lower fuel costs.
Operational Statistics:
- Passengers: Increased 25.1% to 4.11 million.
- Departures: Increased 23.0% to 33,666.
- Fleet: Operating fleet increased to 44 aircraft (36 owned, 4 leased).
- Load Factor: 87.6% (up 0.5 percentage points from prior year).
Guidance, Outlook, and Risks
Management Commentary and Outlook:
- Growth Strategy: Management expects to moderate capacity growth in the fourth quarter of 2009 due to rising jet fuel prices and a weak revenue environment. Growth will focus on new routes rather than frequency increases on existing routes.
- Network Expansion: Nine new routes were announced to begin service in Q4 2009, including five to Phoenix and two to Orlando.
- Fleet Updates: Two additional owned aircraft are expected to enter service in Q4 2009 after being returned from a third-party lease.
Risks and Contingencies:
- Fuel Price Volatility: Fuel represents approximately 37-39% of operating expenses. A 10% increase in fuel prices would increase expenses by approximately $12.2 million for the nine-month period. The company currently has no fuel hedging contracts.
- Economic Conditions: Continued economic downturn impacts leisure travel demand and realized fares.
- Contractual Changes: The company ceased flying under the Cuban Family Charter Program in October 2009 and expects the Harrah's Reno program to close in November 2009, though Laughlin flying is expected to increase.
Investor Verification Checklist
- Fuel Hedging Status: Confirm the company has no outstanding fuel derivative contracts and assess exposure to rising jet fuel prices.
- Ancillary Revenue Sustainability: Verify if the 17.3% increase in ancillary revenue per passenger is sustainable or if it faces regulatory or competitive pressure.
- Fixed Fee Contract Mix: Monitor the impact of the revised Harrah's contract and the closure of the Reno program on future fixed fee revenue stability.
- Share Repurchase Program: Note the remaining authorization of approximately $10.6 million under the $35 million repurchase program.
- Debt Maturities: Review the schedule of debt maturities, with $26.0 million due within the next 12 months.