The following table sets forth the aircraft in service and operated by us as of the dates indicated:
We have two employee groups which have voted for union representation and with which we have yet to reach agreement - flight attendants and flight dispatchers. These employees make up approximately 30 percent of our total employee base. Any labor actions following an inability to reach collective bargaining agreements with these employee groups could materially impact our operations during the continuance of any such activity. Any labor agreement reached following negotiations would also likely increase our operating costs.
RESULTS OF OPERATIONS
Comparison of three months ended SeptemberJune 30, 20172021 to three months ended SeptemberJune 30, 20162020
As comparisons of our 2021 results to periods during 2020 reflect disproportionate changes due to the impact of the pandemic on air travel, we have also provided analysis of certain revenue and expense line items to 2019 results where helpful to understand trends in our performance.
Operating Revenue
Scheduled servicePassenger revenue. Scheduled serviceFor the second quarter 2021, passenger revenue for the third quarter 2017 increased 3.2280.8 percent compared to 2016. Thethe same period in 2020. This increase was drivendue to a significant decline in passenger demand related to COVID-19 during the second quarter 2020. Revenue in the second quarter 2021 was favorably impacted by estimates of breakage on vouchers whose expiration was extended as a 3.2 percent increase in scheduledresult of the pandemic. Scheduled service passengers whilewere up 190.7 percent and scheduled service average base fare was flat.up 54.7 percent.
Ancillary air-related charges. Ancillary air-related chargesPassenger revenue for the thirdsecond quarter 2017 increased 2.8 percent2021, as compared to 2016, due mostly to the increasesecond quarter 2019, decreased by 2.4 percent, as load factor decreased by 13 percentage points resulting in a 10.9 percent decline in scheduled service passengers. The increase was slightly diluted by a 0.5 percent decrease in average ancillary air-related fare per passenger which correlates with a 2.3 percent reduction in stage length, as shorter trips tend to produceimpact of lower ancillary charges.
Ancillary third party revenue. Ancillary third party revenue increased 9.7 percent for the third quarter 2017 compared to 2016 due to revenue generated from our co-branded credit card program. This increase from co-branded credit card revenueloads was partially offset by a decrease in net revenue from third party products (hotel rooms, rental cars, attraction and show tickets) resulting from a 20.3 percent and 15.4 percent decrease in hotel room nights and rental car days, respectively. Hurricane Irma had a significant impact on rental car sales in our Florida markets as over 200 flights entering these markets were canceled. Overall, there was a 6.27.2 percent increase in average base fare over the same period in 2019.
Air ancillary thirdaverage fare for the second quarter 2021 increased by 12.5 percent when compared to 2020 and 12.2 percent when compared to 2019.
Third party products revenue. Third party products revenue per passenger year over year.for the second quarter 2021 increased 172.4 percent compared to the second quarter 2020 and 26.3 percent compared to the second quarter 2019. The increase from 2020 is primarily the result of greater travel demand for rental cars and hotels than during the early part of the pandemic. The increase from 2019 is attributable to increased rental car rates and growth in our co-branded credit card revenues.
Fixed fee contract revenue. Fixed fee contract revenue for the thirdsecond quarter 20172021 increased $2.6 million from 201658.6 percent compared to the same period in 2020 as a result of a 21.8 percent increase in related departures due mostly to increased flying under our Apple Vacations charter.charter activity.
Fixed fee contract revenue for the second quarter 2021, as compared to 2019, decreased by 58.9 percent due to continuing depressed demand for group charters resulting from the pandemic.
Other revenue. Other revenue decreased 89.3 percent for the second quarter 2021 from the same period in 2020. The decrease was due to decreased activity in the non-airline subsidiaries.
Operating Expenses
We primarily evaluate our expense management by comparing our costs per passenger and per ASMavailable seat mile (ASM) across different periods, which enables us to assess trends in each expense category. The following table presents operating expenseunit costs on a per passengerASM basis, or CASM, for the indicated periods. The table also presents operating expenseExcluding fuel on a per passenger, excluding fuel, a statistic which gives
ASM basis provides management and investors the ability to measure and monitor our cost performance absent fuel price volatility. Both the cost and availability of fuel are subject to many economic and political factors beyond our control.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Percent Change |
Unitized costs (in cents) | 2021 | | 2020 | | 2019 | | YoY | | Yo2Y |
Salary and benefits | 2.65 | | | 4.27 | | | 2.55 | | | (37.9) | % | | 3.9 | % |
Aircraft fuel | 2.38 | | | 1.23 | | | 2.70 | | | 93.5 | | | (11.9) | |
Station operations | 1.25 | | | 1.23 | | | 1.03 | | | 1.6 | | | 21.4 | |
Depreciation and amortization | 0.97 | | | 1.95 | | | 0.87 | | | (50.3) | | | 11.5 | |
Maintenance and repairs | 0.49 | | | 0.59 | | | 0.47 | | | (16.9) | | | 4.3 | |
Sales and marketing | 0.38 | | | 0.40 | | | 0.46 | | | (5.0) | | | (17.4) | |
Aircraft lease rentals | 0.11 | | | 0.06 | | | — | | | 83.3 | | | NM |
Other | 0.34 | | | 1.07 | | | 0.55 | | | (68.2) | | | (38.2) | |
Payroll Support Programs grant recognition | (1.33) | | | (3.36) | | | — | | | (60.4) | | | NM |
Operating special charges | 0.02 | | | 3.66 | | | — | | | (99.5) | | | NM |
CASM | 7.26 | | | 11.10 | | | 8.63 | | | (34.6) | | | (15.9) | |
Operating CASM, excluding fuel | 4.88 | | | 9.87 | | | 5.93 | | | (50.6) | | | (17.7) | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
NM - Not meaningful
|
| | | | | | | | | | |
| Three Months Ended September 30, | | Percent |
| 2017 | | 2016 | | Change |
Aircraft fuel | $ | 26.41 |
| | $ | 23.58 |
| | 12.0 | % |
Salary and benefits | 29.15 |
| | 24.98 |
| | 16.7 |
|
Station operations | 12.20 |
| | 10.97 |
| | 11.2 |
|
Maintenance and repairs | 9.48 |
| | 8.94 |
| | 6.0 |
|
Depreciation and amortization | 10.47 |
| | 8.81 |
| | 18.8 |
|
Sales and marketing | 4.56 |
| | 1.92 |
| | 137.5 |
|
Aircraft lease rentals | 0.18 |
| | 0.16 |
| | 12.5 |
|
Other | 7.97 |
| | 7.96 |
| | 0.1 |
|
Operating expense per passenger | $ | 100.42 |
| | $ | 87.32 |
| | 15.0 | % |
Operating expense per passenger, excluding fuel | $ | 74.01 |
| | $ | 63.74 |
| | 16.1 | % |
The following table presents unit costs on a per ASM basis, or CASM, for the indicated periods. As on a per-passenger basis, excluding fuel on a per ASM basis provides management and investors the ability to measure and monitor our cost performance absent fuel price volatility.
|
| | | | | | | | | | |
| Three Months Ended September 30, | | Percent |
| 2017 | | 2016 | | Change |
Aircraft fuel |
| 2.50 | ¢ | |
| 2.22 | ¢ | | 12.6 | % |
Salary and benefits | 2.76 |
| | 2.35 |
| | 17.4 |
|
Station operations | 1.15 |
| | 1.03 |
| | 11.7 |
|
Maintenance and repairs | 0.90 |
| | 0.84 |
| | 7.1 |
|
Depreciation and amortization | 0.99 |
| | 0.83 |
| | 19.3 |
|
Sales and marketing | 0.43 |
| | 0.18 |
| | 138.9 |
|
Aircraft lease rentals | 0.02 |
| | 0.02 |
| | — |
|
Other | 0.75 |
| | 0.75 |
| | — |
|
CASM |
| 9.50 | ¢ | |
| 8.22 | ¢ | | 15.6 | % |
Operating CASM, excluding fuel |
| 7.00 | ¢ | |
| 6.00 | ¢ | | 16.7 | % |
During third quarter 2017, cost per passenger and per ASM were negatively impacted by the cancellation of approximately two percent of our ASMs due to Hurricane Irma.
Aircraft fuel expense. Aircraft fuel expense increased 16.0 percent for the third quarter 2017 compared to 2016 as the system average fuel cost per gallon increased by 15.3 percent. Fuel consumption remained relatively flat on a 3.2 percent increase in system ASMs as fuel efficiency increased 2.8 percent percent year over year.
Salary and benefits expense. Salary and benefits expense increased $15.4$27.1 million, or 20.928.6 percent, for the thirdsecond quarter 20172021 when compared to the same period last year. The increase is largely attributable to $9.8 million in incremental expense related to2020. Although the collective bargaining agreement with our pilots, which went into effect in August 2016, as well as costs associated with a 12.7 percent increase in theaverage number of full-timefull time equivalent employees neededdecreased 5.6 percent year over year, overall expense increased due to support additional operating aircrafttemporary voluntary leave programs offered to employees, voluntary pay reductions, and suspension of the transition to a single fleet type.bonus accrual during the second quarter 2020.
Station operations expense. Station operations expense for the third quarter 2017 increased 15.2 percent on a 5.4 percent increase in scheduled service departuresWhen compared to the same period in 2016.2019, salaries and benefits expense increased by $8.3 million or 7.3 percent on a relatively flat number of full time equivalent employees year over two year. On a per ASM basis, salary and benefits expense increased only 3.92 percent. The per ASM cost increase relates to annual increases in crew pay.
Aircraft fuel expense. Aircraft fuel expense increased $82.1 million, or 300.1 percent, for the second quarter 2021 compared to second quarter 2020. This is primarily due to the recovery from the COVID-19 pandemic driving increased capacity resulting in a 119.7 percent increase in expense outpaced thefuel gallons consumed on a 108.8 percent increase in departures dueand an 82.0 percent increase in average fuel cost per gallon which was depressed during the pandemic.
When compared to servicing more mid-size cities at higher frequencies, as well as increased interrupted travel costs related to irregularthe same period in 2019, aircraft fuel expense decreased by 8.8 percent, which is in line with the decrease in average fuel cost per gallon of 9.0 percent.
Station operations and various supplementary station expenses.
Maintenance and repairs expense. Maintenance and repairsexpense. Station operations expense for the thirdsecond quarter 20172021 increased 9.9$29.8 million, or 108.8 percent compared to the same period in 2016 which is partially2020 primarily due to a 6.8increased departures of 108.8 percent.
Compared to the same period in 2019, station operations expense increased by $11.3 million or 24.7 percent. This increase is due an increase in departures of 3.1 percent increase inand increased costs associated with irregular operations.
Depreciation and amortization expense. Depreciation and amortization expense for the second quarter 2021 increased by 2.8 percent as compared to the second quarter 2020 as the average number of aircraft in service. There was also an increase in expenses related to routine maintenance in the current quarter, mostly for our MD-80 aircraft.service increased 12.2 percent year over year.
DepreciationMaintenance and amortizationrepairs expense. Depreciation Maintenance and amortizationrepairs expense for the thirdsecond quarter 20172021 increased 23.2$9.6 million, or 73.4 percent, compared to 2016, partially relatedthe same period in 2020. Routine maintenance costs increased as aircraft utilization was up 97.4 percent during the quarter and we incurred incremental costs preparing our fleet to operate at full capacity again.
Compared to the same period in 2019, maintenance and repairs expense increased by $1.7 million or 8.2 percent primarily due to incremental costs preparing our fleet to operate at full capacity, and the maintenance and repairs on additional aircraft purchased over the past two years.
Sales and marketing expense. Sales and marketing expense for the second quarter 2021 increased by 97.9 percent compared to the same period in 2020, due to a 6.8increase in net credit card fees as a result of a 280.8 percent increase in average numberpassenger revenue year-over-year as well as reduced advertising spend in 2020 during the pandemic.
Compared to the same period in 2019, sales and marketing expense decreased by 14.2 percent due to efforts to more adeptly deploy advertising spend.
Other operating expense. Other expense decreased $8.3 million compared to the second quarter 2020, mostly due to decreased activity in our non-airline subsidiaries.
Payroll Support Programs grant recognition. We received a total of aircraft$112.2 million in service. Additionally, depreciationfunds during the second quarter 2021 through the payroll support programs. Of the total, $110.4 million of these funds represent direct grants, and will be recognized as a credit to operating expense relatedon our statement of income, over the periods for which the funds were intended to MD-80 aircraft was approximately $5.0compensate. We recognized $61.2 million as an offset to operating expense on our statement of income during the second quarter of 2021.
During 2020, we received $176.9 million in funds through the payroll support program and recognized a $74.5 million offset to operating expense on our statement of income for the thirdsecond quarter 2017 and 2016. With the recent decision to accelerate the retirement2020.
Special charges. Special charges of the MD-80 fleet to fourth quarter 2018, we are evaluating this fleet and related assets for possible impairment charge in the fourth quarter 2017. As a result, depreciation expense for our MD-80 fleet for future periods will likely be impacted by the decision to accelerate the retirement of this fleet and any impairment charge taken.
We also continue to add Airbus aircraft into service which results in higher incremental monthly depreciation expense than our MD-80s. Depreciation expense related to Airbus A320 series aircraft was $15.7$0.9 million were recorded within operating expenses for the thirdsecond quarter 20172021 compared to $11.3$81.2 million for the same period in 2016. Amortization of major maintenance costs under2020. The special charges relate to expenses that were unique and specific to COVID-19. These charges in 2021 include accelerated depreciation on airframes and engines resulting from an accelerated retirement plan, and losses within our non-airline subsidiaries. Special charges recorded in the deferral method of accounting for the Airbus aircraft was $1.7 million for the third quarter 2017 compared to $0.4 million for the third quarter 2016, as our first major maintenance event on our Airbus aircraft did not occur until second quarter 2016.2020 included accelerated depreciation on airframes and engines resulting from an accelerated retirement plan, a loss on a sale-leaseback transaction which we would not likely have transacted absent cash conservation efforts as a result of COVID, salaries and benefits expense, and a non-cash impairment charge for an investment in a third party. See Note 2 of Notes to Consolidated Financial Statements (unaudited) for further information.
Sales and marketing expense. Sales and marketing
Interest Expense
Interest expense for the third quarter 2017ended June 30, 2021 increased $8.2by $2.7 million, or 19.0 percent over second quarter 2020, due to increased market rates for the fixed rate debt entered into during the pandemic offset by lower interest rates on our variable debt.
Income Tax Expense
Our effective tax rate was 22.5 percent and 36.4 percent for the three months ended June 30, 2021 and 2020, respectively. The effective tax rate for the three months ended June 30, 2021 differed from the statutory federal income tax rate of 21.0 percent primarily due to state income taxes and the impact of ASU 2016-09 related to share-based payments. The effective tax rate for the three months ended June 30, 2020 was primarily due to the tax accounting impact of the CARES Act which allowed the Company to carryback the 2020 net operating loss at the 35.0 percent rate applicable in earlier years.
Comparison of six months ended June 30, 2021 to six months ended June 30, 2020
Operations during the six months ended June 30, 2021 consisted of two months of pre-pandemic activity and the period from March 2020 through June 2020 which was substantially impacted by the pandemic. The comparisons below of the results for the six month periods ended June 30, 2021 and June 30, 2020 should be read with this in mind.
As comparisons of our 2021 results to periods during 2020 reflect disproportionate changes due to the impact of the pandemic on air travel, we have also provided analysis of certain revenue and expense line items to 2019 results where helpful to understand trends in our performance.
Operating Revenue
Passenger revenue. For the six months ended June 30, 2021, passenger revenue increased 41.4 percent compared with the same period in 2020. Revenue in the second quarter 2021 was favorably impacted by estimates of breakage on vouchers whose expiration was extended as a result of the pandemic. The increase is primarily attributable to the effects of COVID-19 in 2020, where a significant decline in passenger demand impacted operations from March to June 2020. Scheduled service passengers and base fares in the current period are up 35.8 percent and 6.4 percent, respectively, over the same period in 2020.
As compared to the same period in 2016, mostly due to an2019, passenger revenue decreased by 19.9 percent, as a 24.1 percent decline in scheduled service load factor was partially offset by a 3.9 percent increase in net credit card fees paid by us. We previously charged for credit card fee reimbursement (a fee charged to customers for using a credit card) at zero margin, which was applied as a reduction to sales and marketing expense, and the net amount paid by us for credit card fees was reduced. We discontinued the charge for credit card fee reimbursement in January 2017, and as such, credit card fee reimbursementscapacity.
Air ancillary average fare for the third quarter were minimalsix months ended June 30, 2021 increased by 1.7 percent when compared to $6.2 million in the third quarter 2016. There were also year-over-year increased expenses related to various marketing initiatives for our growing network.
Income Tax Expense
Our effective tax rate remained relatively flat quarter over quarter, at 35.82020 and 6.5 percent for the three months ended September 30, 2017,when compared to 36.0 percent for the three months ended September 30, 2016. While we expect our tax rate to be fairly consistent in the near term, it will vary depending on recurring items such as the amount of income we earn in each state and the state tax rate applicable to such income. Discrete items during interim periods may also affect our tax rates.2019.
Comparison of nine months ended September 30, 2017 to nine months ended September 30, 2016
Operating Revenue
Scheduled service revenue. Scheduled serviceThird party products revenue. Third party products revenue for the ninesix months ended SeptemberJune 30, 20172021 increased 8.450.0 percent compared with 2016. The increase was mostly the result of a 9.5 percent increase in scheduled service passengers offset by a 1.0 percent decrease in scheduled service average base fare.
Ancillary air-related charges. Ancillary air-related charges for the nine months ended September 30, 2017 increased 8.2 percent compared with 2016 due mostly to the increase in scheduled service passengers.
Ancillary third party revenue. Ancillary third party revenue for the nine months ended September 30, 2017 increased $4.9 million over the same period in 2016 due2020 and 3.6 percent when compared to revenue generated2019. The increase from 2020 is primarily the result of greater travel demand for rental cars and hotels than the early part of the pandemic. The increase from 2019 is attributable to growth in our co-branded credit card program. This increase from co-branded credit card revenue was offset by a decrease in net revenue from third party products (hotel rooms, rental cars, attraction and show tickets) resulting from a 10.4 percent and 5.4 percent decrease in hotel room nights and rental car days, respectively. Hurricane Irma had a significant impact on rental car sales in our Florida markets during the third quarter 2017. Overall, there was a 4.3 percent increase in ancillary third party revenue per passenger year over year.revenues.
Fixed fee contract revenue. Fixed fee contract revenue for the ninesix months ended SeptemberJune 30, 20172021 increased 50.45.5 percent compared with 2016,the same period in 2020. This is primarily due to an 11.2 percent increase in related departures due to increased charter activity. During the six months ended June 30, 2021, ad-hoc charters increased by 217.6 percent over 2020 levels and we benefited from March Madness flying which did not occur in the prior year due to the pandemic.
Fixed fee contract revenue for both the Departmentsix months ended June 30, 2021 as compared to the same period in 2019, decreased by 44.4 percent due to continuing depressed demand for group charters since the onset of Defense and under our Apple Vacations charter.the pandemic.
Other revenue. Other revenue decreased by 84.2 percent for the six months ended June 30, 2021, when compared to the same period in 2020. The decrease is due to decreased activity in the non-airline subsidiaries, including the closure of the family entertainment centers.
Operating Expenses
The following table presents operating expense per passenger for the indicated periods:
|
| | | | | | | | | | |
| Nine Months Ended September 30, | | Percent |
| 2017 | | 2016 | | Change |
Aircraft fuel* | $ | 27.13 |
| | $ | 21.76 |
| | 24.7 | % |
Salary and benefits | 30.03 |
| | 25.11 |
| | 19.6 |
|
Station operations | 11.69 |
| | 11.45 |
| | 2.1 |
|
Maintenance and repairs | 9.49 |
| | 9.75 |
| | (2.7 | ) |
Depreciation and amortization | 10.03 |
| | 9.03 |
| | 11.1 |
|
Sales and marketing | 3.98 |
| | 1.99 |
| | 100.0 |
|
Aircraft lease rentals | 0.34 |
| | 0.11 |
| | 209.1 |
|
Other | 7.41 |
| | 6.94 |
| | 6.8 |
|
Operating expense per passenger* | $ | 100.10 |
| | $ | 86.14 |
| | 16.2 | % |
Operating expense per passenger, excluding fuel | $ | 72.97 |
| | $ | 64.38 |
| | 13.3 | % |
*Includes effect of $8.3 million fuel tax refunds in the second quarter of 2016.
The following table presents unit costs on a per ASM basis, defined as Operating CASM, for the indicated periods: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Six Months Ended June 30, | | Percent Change |
Unitized costs (in cents) | 2021 | | 2020 | | 2019 | | YoY | | Yo2Y |
Salary and benefits | 2.79 | | | 3.30 | | | 2.79 | | | (15.45) | % | | — | % |
Aircraft fuel | 2.23 | | | 1.85 | | | 2.63 | | | 20.54 | | | (15.21) | |
Station operations | 1.17 | | | 1.09 | | | 1.02 | | | 7.34 | | | 14.71 | |
Depreciation and amortization | 1.02 | | | 1.38 | | | 0.89 | | | (26.09) | | | 14.61 | |
Maintenance and repairs | 0.53 | | | 0.55 | | | 0.52 | | | (3.64) | | | 1.92 | |
Sales and marketing | 0.34 | | | 0.44 | | | 0.50 | | | (22.73) | | | (32.00) | |
Aircraft lease rentals | 0.11 | | | 0.04 | | | — | | | 175.00 | | | NM |
Other | 0.39 | | | 0.80 | | | 0.56 | | | (51.25) | | | (30.36) | |
Payroll Support Programs grant recognition | (1.78) | | | (1.19) | | | — | | | 49.58 | | | NM |
Operating Special charges | 0.03 | | | 3.93 | | | — | | | (99.24) | | | NM |
CASM | 6.83 | | | 12.19 | | | 8.91 | | | (43.97) | | | (23.34) | |
Operating CASM, excluding fuel | 4.60 | | | 10.34 | | | 6.28 | | | (55.51) | | | (26.75) | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
|
| | | | | | | | | | |
| Nine Months Ended September 30, | | Percent |
| 2017 | | 2016 | | Change |
Aircraft fuel* |
| 2.46 | ¢ | |
| 1.97 | ¢ | | 24.9 | % |
Salary and benefits | 2.72 |
| | 2.27 |
| | 19.8 |
|
Station operations | 1.06 |
| | 1.04 |
| | 1.9 |
|
Maintenance and repairs | 0.86 |
| | 0.88 |
| | (2.3 | ) |
Depreciation and amortization | 0.91 |
| | 0.82 |
| | 11.0 |
|
Sales and marketing | 0.36 |
| | 0.18 |
| | 100.0 |
|
Aircraft lease rentals | 0.03 |
| | 0.01 |
| | 200.0 |
|
Other | 0.68 |
| | 0.62 |
| | 9.7 |
|
CASM* |
| 9.08 | ¢ | |
| 7.79 | ¢ | | 16.6 | % |
Operating CASM, excluding fuel |
| 6.62 | ¢ | |
| 5.82 | ¢ | | 13.7 | % |
*Includes effect of $8.3 million fuel tax refunds in the second quarter of 2016.
Aircraft fuelSalary and benefits expense. Aircraft fuel Salary and benefits expense increased 36.9$32.4 million, or 15.6 percent, for the ninesix months ended SeptemberJune 30, 20172021 compared to the same period in 2016. Excluding2020. Although the effectaverage number of one-time $8.3 million in fuel tax refunds in the second quarter 2016, fuel expense would have increased 31.0 percent and the system average fuel cost per gallon would have increased full-time equivalent employees decreased
by 21.1 percent. Additionally, there was an 8.6 percent increase in system fuel gallons consumed due to an increase in total system capacity of 9.5 percent. ASM growth outpaced fuel consumption as average ASMs per gallon increased 0.85.6 percent year over year.year, expense increased due to temporary voluntary leave programs offered to employees, voluntary pay reductions, and suspension of the bonus accrual during the six months ended June 30, 2020.
Salary and benefits expense.
Salary and benefits expense increased 31.3by $6.9 million or 2.9% as compared to the six months ended June 30, 2019. Although the average number of full time equivalent employees decreased by 1.8 percent, overall expense increased due to annual increases in crew pay.
Aircraft fuel expense. Aircraft fuel expense increased $76.1 million, or 65.5 percent, for the ninesix months ended SeptemberJune 30, 20172021 compared to the same period in 2016.2020. This is primarily due to the recovery from the COVID-19 pandemic as departures increased by 38.1 percent resulting in an increase of 36.7 percent in fuel gallons consumed. The increase is largely attributable to $40.8 million in incremental expense related to the collective bargaining agreement with our pilots, which went into effect in August 2016, as well as costs associated with a 12.7 percentalso partially driven by an increase in the numberfuel expense per ASM of full-time equivalent employees needed20.5 percent due to support additional operating aircraft and the transition to a single fleet type. Additionally, stock compensationan increase in fuel prices.
Aircraft fuel expense increased incrementallydecreased by $5.9$27.4 million related to management equity grants which were not in place until late third quarter and fourth quarter 2016.
Station operations expense. Station operations expenseor 12.5 percent for the ninesix months ended SeptemberJune 30, 2017 increased 12.1 percent on a 13.0 percent increase in scheduled service departures2021 compared to the same period in 2016.2019. This is primarily driven by a decrease in average fuel cost per gallon of 10.6 percent.
Station operations expense. Station operations expense for the six months ended June 30, 2021 increased $31.9 million or 46.6 percent primarily due to a 61.8 percent increase in airport and landing fees as a result of an increase in travel demand and
a 38.1 percent increase in departures.
As compared to the six month period ended June 30, 2019, station operations expense increased by $15.5 million or 18.2 percent due to a 2.6 percent increase in departures, increased costs associated with irregular operations and airports fees.
Maintenance and repairs expense. Maintenance and repairs expense for the ninesix months ended SeptemberJune 30, 20172021 increased 6.8by $11.1 million or 32.0 percent compared withto the same period in 2016,2020. This is primarily due primarily to a 3.8 percentthe increase in averageaircraft utilization and incremental costs preparing our fleet to operate at full capacity again.
As compared to the six months ended June 30, 2019, maintenance and repairs expense increased by $2.3 million or 5.2 percent as the number of aircraft in service as well as incremental expenses related to parts repairs and routine maintenance.increased by 20.9 percent.
Depreciation and amortization expense. Depreciation and amortization expense for the ninesix months ended SeptemberJune 30, 20172021 remained relatively flat as compared to the same period in 2020. Although the average number of aircraft in service increased by 21.98.0 percent, a majority of the increase was due to aircraft on operating lease.
When compared to the six months ended June 30, 2019, depreciation and amortization expense increased 17.4 percent as the average number of aircraft in service during the period increased 20.9 percent.
Sales and marketing expense. Sales and marketing expense for the six months ended June 30, 2021 increased 6.9 percent compared to the same period in 2016, partially related to a 3.8 percent increase2020. In 2020, advertising spend was intentionally pulled back beginning in average number of aircraft in service. Depreciation expense related to MD-80 aircraft declined to $16.4 million for the nine months ended September 30, 2017 compared to $17.4 million for the same period in 2016 as we have fewer MD-80 aircraft in service and all are nearing retirement.
We also continue to add Airbus aircraft into service which results in higher incremental monthly depreciation expense than our MD-80s. Depreciation expense related to Airbus A320 series aircraft was $42.2 million for the nine months ended September 30, 2017 compared to $33.0 million for the same period in 2016. Amortization of major maintenance costs under the deferral method of accounting for the Airbus aircraft was $4.6 million for the nine months ended September 30, 2017 compared to $0.7 million for the same period in 2016, as our first major maintenance event on our Airbus aircraft did not occur until June 2016.
Sales and marketing expense. Sales and marketing expense for the nine months ended September 30, 2017 increased $20.0 million comparedMarch due to the same period in 2016, mostly due topandemic. There was also an increase in net credit card fees paid by us. We previously charged for credit card fee reimbursement (a fee charged to customers for using a credit card) at zero margin, which was appliedin the current year as a reductionresult of a 41.4 percent increase in passenger revenue year over year.
As compared to the six months ended June 30, 2019, sales and marketing expense decreased by 29.5 percent due to our efforts to more adeptly deploy advertising spend.
Other expense. Other expense decreased by $17.2 million or 34.1 percent year over year, due to decreased activity in our non-airline subsidiaries.
Payroll Support Programs grant recognition. We received a total of $203.9 million during the six months ended June 30, 2021 through the payroll support programs. The direct grants were recognized as a credit to operating expense on our statement of income, over the periods for which the funds were intended to compensate.
During 2020, we received $176.9 million in funds through the payroll support program and the net amount paid by us for credit card fees was reduced. We discontinued the charge for credit card fee reimbursement in January 2017, although this charge still appliesrecognized a $74.5 million offset to travel booked up to the discontinuation date. Consequently, credit card fee reimbursementsoperating expense on our statement of income for the ninesix months ended SeptemberJune 30, 20172020.
declined to $4.0Special charges. Special charges of $2.6 million from $19.4 million in the first nine months of 2016. There were also year-over-year increasedrecorded within operating expenses related to various marketing initiatives for our growing network.
Aircraft lease rentals expense. Aircraft lease rentals expense for the ninesix months ended SeptemberJune 30, 2017 increased $2.22021. The special charges relate to expenses that were unique and specific to COVID-19. This includes accelerated depreciation on four airframes and six engines resulting from an accelerated retirement plan, a loss on the sale-leaseback transaction we would not likely have transacted absent cash conservation efforts as a result of COVID, salary and benefits expense, and other various expenses during the six months ended June 30, 2020.
Non-operating special charges. Special charges of $26.6 million compared towere recorded within non-operating expenses for the six months ended June 30, 2020. We did not have any special charges for the same period in 2016 due2021. Of these special charges in 2020, $19.8 million relates to additional subservice flights neededthe termination of the loan agreement with Sixth Street Partners (formerly TSSP) intended to finance the development of Sunseeker Resorts Charlotte Harbor. The remaining $6.8 million relates to impairment charges for irregular operations inSunseeker Resort during the secondfirst quarter 2017. We do not currently have2020. These charges were reclassified from operating aircraft under lease.
Other expense. Other operatingspecial expense to non-operating special expense for the ninesix months ended SeptemberJune 30, 2017 increased $10.1 million compared to 2016. The increase is partially due to losses recorded on disposed aircraft parts in 2017 compared to a gain of over $2.0 million recorded on an engine sale in 2016. Expenses related to crew training in 2017 to support our fleet transition and network growth also increased year over year.2020.
Income Tax Expense
OurWe recorded a $29.3 million tax expense (22.4 percent effective tax rate remained flat at 37.2rate) compared to a ($151.0 million) tax benefit (54.5 percent effective tax rate) for each of the ninesix months ended SeptemberJune 30, 20172021 and 2016.2020 respectively. The 22.4 percent effective tax rate for the ninesix months ended SeptemberJune 30, 20172021 differed from the statutory federal income tax rate of 35.021.0 percent primarily due to executive compensation deduction limitationsstate income taxes and the impact of ASU 2016-09 related to share-based payments. The 54.5 percent effective tax rate for the six months ended June 30, 2020 differed from the statutory federal income tax rate of 21.0 percent primarily due to the tax accounting impact of the CARES Act which includes a $39.6 million discrete federal income tax benefit related to the full utilization of 2018 and 2019 net operating losses as well as state and foreign taxes. While we expect our tax ratethe ability to be fairly consistent incarryback the near term, it will vary depending on recurring items such as the amount of income we earn in each state and the state tax2020 net operating loss at a 35.0 percent rate applicable to such income. Discrete items during interim periods may also affect our tax rates.in earlier years.
Comparative Consolidated Operating Statistics
The following tables set forth our operating statistics for the periods indicated:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Percent Change (1) |
| 2021 | | 2020 | | 2019 | | YoY | | Yo2Y |
Operating statistics (unaudited): | | | | | | | | | |
Total system statistics: | | | | | | | | | |
Passengers | 3,699,217 | | | 1,273,258 | | | 4,169,536 | | | 190.5 | | | (11.3) | |
| | | | | | | | | |
Available seat miles (ASMs) (thousands) | 4,594,542 | | | 2,220,755 | | | 4,447,066 | | | 106.9 | | | 3.3 | |
| | | | | | | | | |
| | | | | | | | | |
Operating expense per ASM (CASM) (cents) | 7.26 | | | 11.10 | | | 8.63 | | | (34.6) | | | (15.9) | |
Fuel expense per ASM (cents) | 2.38 | | | 1.23 | | | 2.70 | | | 93.5 | | | (11.9) | |
Operating CASM, excluding fuel (cents) | 4.88 | | | 9.87 | | | 5.93 | | | (50.6) | | | (17.7) | |
| | | | | | | | | |
ASMs per gallon of fuel | 84.8 | | | 90.0 | | | 82.3 | | | (5.8) | | | 3.0 | |
Departures | 31,507 | | | 15,089 | | | 30,547 | | | 108.8 | | | 3.1 | |
Block hours | 69,809 | | | 32,989 | | | 68,332 | | | 111.6 | | | 2.2 | |
Average stage length (miles) | 838 | | | 850 | | | 853 | | | (1.4) | | | (1.8) | |
Average number of operating aircraft during period | 101.8 | | | 90.7 | | | 85.0 | | | 12.2 | | | 19.8 | |
Average block hours per aircraft per day | 7.5 | | | 3.8 | | | 8.8 | | | 97.4 | | | (14.8) | |
Full-time equivalent employees at end of period | 4,104 | | | 4,349 | | | 4,179 | | | (5.6) | | | (1.8) | |
Fuel gallons consumed (thousands) | 54,188 | | | 24,664 | | | 54,064 | | | 119.7 | | | 0.2 | |
Average fuel cost per gallon | $ | 2.02 | | | $ | 1.11 | | | $ | 2.22 | | | 82.0 | | | (9.0) | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Scheduled service statistics: | | | | | | | | | |
Passengers | 3,680,254 | | | 1,266,077 | | | 4,131,855 | | | 190.7 | | | (10.9) | |
Revenue passenger miles (RPMs) (thousands) | 3,188,215 | | | 1,107,534 | | | 3,603,076 | | | 187.9 | | | (11.5) | |
Available seat miles (ASMs) (thousands) | 4,505,786 | | | 2,174,683 | | | 4,311,182 | | | 107.2 | | | 4.5 | |
Load factor | 70.8 | % | | 50.9 | % | | 83.6 | % | | 19.9 | | | (12.8) | |
Departures | 30,763 | | | 14,683 | | | 29,567 | | | 109.5 | | | 4.0 | |
Block hours | 68,334 | | | 32,248 | | | 66,135 | | | 111.9 | | | 3.3 | |
Total passenger revenue per ASM (TRASM) (cents)(2) | 10.36 | | | 5.75 | | | 10.97 | | | 80.2 | | | (5.6) | |
Average fare - scheduled service(3) | $ | 62.58 | | | $ | 40.46 | | | $ | 58.39 | | | 54.7 | | | 7.2 | |
Average fare - air-related charges(3) | $ | 58.00 | | | $ | 51.57 | | | $ | 51.68 | | | 12.5 | | | 12.2 | |
Average fare - third party products | $ | 6.25 | | | $ | 6.67 | | | $ | 4.40 | | | (6.3) | | | 42.0 | |
Average fare - total | $ | 126.82 | | | $ | 98.70 | | | $ | 114.47 | | | 28.5 | | | 10.8 | |
Average stage length (miles) | 842 | | | 855 | | | 853 | | | (1.5) | | | (1.3) | |
Fuel gallons consumed (thousands) | 53,022 | | | 24,124 | | | 52,327 | | | 119.8 | | | 1.3 | |
Average fuel cost per gallon | $ | 2.01 | | | $ | 1.08 | | | $ | 2.22 | | | 86.1 | | | (9.5) | |
Rental car days sold | 404,760 | | | 135,536 | | | 540,960 | | | 198.6 | | | (25.2) | |
Hotel room nights sold | 72,701 | | | 12,772 | | | 114,191 | | | 469.2 | | | (36.3) | |
Percent of sales through website during period | 94.3 | % | | 93.8 | % | | 93.5 | % | | 0.5 | | | 0.8 | |
|
| | | | | | | | | | |
| Three Months Ended September 30, | | Percent |
| 2017 | | 2016 | | Change* |
Operating statistics (unaudited): | | | | | |
Total system statistics: | | | | | |
Passengers | 3,045,642 |
| | 2,939,055 |
| | 3.6 |
|
Revenue passenger miles (RPMs) (thousands) | 2,672,963 |
| | 2,645,533 |
| | 1.0 |
|
Available seat miles (ASMs) (thousands) | 3,220,246 |
| | 3,121,762 |
| | 3.2 |
|
Load factor | 83.0 | % | | 84.7 | % | | (1.7 | ) |
Operating expense per ASM (CASM) (cents) | 9.50 |
| | 8.22 |
| | 15.6 |
|
Fuel expense per ASM (cents) | 2.50 |
| | 2.22 |
| | 12.6 |
|
Operating CASM, excluding fuel (cents) | 7.00 |
| | 6.00 |
| | 16.7 |
|
ASMs per gallon of fuel | 72.6 |
| | 70.6 |
| | 2.8 |
|
Departures | 22,723 |
| | 21,384 |
| | 6.3 |
|
Block hours | 49,932 |
| | 47,739 |
| | 4.6 |
|
Average stage length (miles) | 842 |
| | 864 |
| | (2.5 | ) |
Average number of operating aircraft during period | 89.7 |
| | 84.0 |
| | 6.8 |
|
Average block hours per aircraft per day | 6.1 |
| | 6.2 |
| | (1.6 | ) |
Full-time equivalent employees at end of period | 3,704 |
| | 3,287 |
| | 12.7 |
|
Fuel gallons consumed (thousands) | 44,346 |
| | 44,187 |
| | 0.4 |
|
Average fuel cost per gallon | $ | 1.81 |
| | $ | 1.57 |
| | 15.3 |
|
|
| | | | | | | | | | |
Scheduled service statistics: | | | | | |
Passengers | 2,998,476 |
| | 2,904,295 |
| | 3.2 |
|
Revenue passenger miles (RPMs) (thousands) | 2,618,446 |
| | 2,603,849 |
| | 0.6 |
|
Available seat miles (ASMs) (thousands) | 3,073,360 |
| | 2,997,529 |
| | 2.5 |
|
Load factor | 85.2 | % | | 86.9 | % | | (1.7 | ) |
Departures | 21,498 |
| | 20,398 |
| | 5.4 |
|
Block hours | 47,481 |
| | 45,740 |
| | 3.8 |
|
Total scheduled service revenue per ASM (TRASM) (cents)** | 10.61 |
| | 10.54 |
| | 0.7 |
|
Average fare - scheduled service | $ | 61.05 |
| | $ | 61.07 |
| | — |
|
Average fare - ancillary air-related charges | $ | 43.63 |
| | $ | 43.83 |
| | (0.5 | ) |
Average fare - ancillary third party products | $ | 4.12 |
| | $ | 3.88 |
| | 6.2 |
|
Average fare - total | $ | 108.80 |
| | $ | 108.78 |
| | — |
|
Average stage length (miles) | 849 |
| | 869 |
| | (2.3 | ) |
Fuel gallons consumed (thousands) | 42,193 |
| | 42,439 |
| | (0.6 | ) |
Average fuel cost per gallon | $ | 1.80 |
| | $ | 1.59 |
| | 13.2 |
|
Percent of sales through website during period | 93.3 | % | | 94.6 | % | | (1.3 | ) |
*(1) Except load factor and percent of sales through website during period, which are presented as a percentage point change.
**(2) Various components of this measure do not have a direct correlation to ASMs. This measure is provided on a per ASM basis so as to facilitate comparison with airlines reporting revenues on a per ASM basis.
(3) Reflects division of passenger revenue between scheduled service (base fare) and air-related charges in our booking path.
|
| | | | | | | | | | |
| Nine Months Ended September 30, | | Percent |
| 2017 | | 2016 | | Change* |
Operating statistics (unaudited): | | | | | |
Total system statistics: | | | | | |
Passengers | 9,233,083 |
| | 8,410,422 |
| | 9.8 |
|
Revenue passenger miles (RPMs) (thousands) | 8,340,269 |
| | 7,831,436 |
| | 6.5 |
|
Available seat miles (ASMs) (thousands) | 10,181,292 |
| | 9,302,051 |
| | 9.5 |
|
Load factor | 81.9 | % | | 84.2 | % | | (2.3 | ) |
Operating expense per ASM (CASM) (cents)*** | 9.08 |
| | 7.79 |
| | 16.6 |
|
Fuel expense per ASM (cents)*** | 2.46 |
| | 1.97 |
| | 24.9 |
|
Operating CASM, excluding fuel (cents) | 6.62 |
| | 5.82 |
| | 13.7 |
|
ASMs per gallon of fuel | 72.2 |
| | 71.6 |
| | 0.8 |
|
Departures | 69,739 |
| | 61,271 |
| | 13.8 |
|
Block hours | 159,181 |
| | 142,515 |
| | 11.7 |
|
Average stage length (miles) | 870 |
| | 896 |
| | (2.9 | ) |
Average number of operating aircraft during period | 86.6 |
| | 83.4 |
| | 3.8 |
|
Average block hours per aircraft per day | 6.7 |
| | 6.2 |
| | 8.1 |
|
Full-time equivalent employees at end of period | 3,704 |
| | 3,287 |
| | 12.7 |
|
Fuel gallons consumed (thousands) | 141,054 |
| | 129,862 |
| | 8.6 |
|
Average fuel cost per gallon*** | $ | 1.78 |
| | $ | 1.41 |
| | 26.2 |
|
|
| | | | | | | | | | |
Scheduled service statistics: | | | | | |
Passengers | 9,110,745 |
| | 8,321,716 |
| | 9.5 |
|
Revenue passenger miles (RPMs) (thousands) | 8,183,636 |
| | 7,714,172 |
| | 6.1 |
|
Available seat miles (ASMs) (thousands) | 9,747,395 |
| | 8,967,614 |
| | 8.7 |
|
Load factor | 84.0 | % | | 86.0 | % | | (2.0 | ) |
Departures | 66,355 |
| | 58,744 |
| | 13.0 |
|
Block hours | 151,988 |
| | 137,066 |
| | 10.9 |
|
Total scheduled service revenue per ASM (TRASM) (cents)** | 10.91 |
| | 10.92 |
| | (0.1 | ) |
Average fare - scheduled service | $ | 67.59 |
| | $ | 68.27 |
| | (1.0 | ) |
Average fare - ancillary air-related charges | $ | 44.76 |
| | $ | 45.30 |
| | (1.2 | ) |
Average fare - ancillary third party products | $ | 4.32 |
| | $ | 4.14 |
| | 4.3 |
|
Average fare - total | $ | 116.67 |
| | $ | 117.71 |
| | (0.9 | ) |
Average stage length (miles) | 875 |
| | 901 |
| | (2.9 | ) |
Fuel gallons consumed (thousands) | 134,906 |
| | 125,291 |
| | 7.7 |
|
Average fuel cost per gallon*** | $ | 1.76 |
| | $ | 1.41 |
| | 24.8 |
|
Percent of sales through website during period | 94.1 | % | | 94.3 | % | | (0.2 | ) |
Comparative Consolidated Operating Statistics*
The following tables set forth our operating statistics for the periods indicated:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Six Months Ended June 30, | | Percent Change (1) |
| 2021 | | 2020 | | 2019 | | YoY | | Yo2Y |
Operating statistics (unaudited): | | | | | | | | | |
Total system statistics: | | | | | | | | | |
Passengers | 6,033,720 | | | 4,448,708 | | | 7,619,814 | | | 35.6 | | | (20.8) | |
| | | | | | | | | |
Available seat miles (ASMs) (thousands) | 8,608,531 | | | 6,288,427 | | | 8,357,304 | | | 36.9 | | | 3.0 | |
| | | | | | | | | |
| | | | | | | | | |
Operating expense per ASM (CASM) (cents) | 6.83 | | | 12.19 | | | 8.90 | | | (44.0) | | | (23.3) | |
Fuel expense per ASM (cents) | 2.23 | | | 1.85 | | | 2.63 | | | 20.5 | | | (15.2) | |
Operating CASM, excluding fuel (cents) | 4.60 | | | 10.35 | | | 6.27 | | | (55.6) | | | (26.6) | |
| | | | | | | | | |
ASMs per gallon of fuel | 87.3 | | | 87.2 | | | 83.1 | | | 0.1 | | | 5.0 | |
Departures | 57,191 | | | 41,401 | | | 55,747 | | | 38.1 | | | 2.6 | |
Block hours | 130,183 | | | 95,112 | | | 128,151 | | | 36.9 | | | 1.6 | |
Average stage length (miles) | 865 | | | 879 | | | 876 | | | (1.6) | | | (1.3) | |
Average number of operating aircraft during period | 99.5 | | | 92.1 | | | 82.3 | | | 8.0 | | | 20.9 | |
Average block hours per aircraft per day | 7.2 | | | 5.5 | | | 8.6 | | | 30.9 | | | (16.3) | |
Full-time equivalent employees at end of period | 4,104 | | | 4,349 | | | 4,179 | | | (5.6) | | | (1.8) | |
Fuel gallons consumed (thousands) | 98,614 | | | 72,143 | | | 100,537 | | | 36.7 | | | (1.9) | |
Average fuel cost per gallon | $ | 1.95 | | | $ | 1.61 | | | $ | 2.18 | | | 21.1 | | | (10.6) | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Scheduled service statistics: | | | | | | | | | |
Passengers | 6,003,556 | | | 4,420,683 | | | 7,553,393 | | | 35.8 | | | (20.5) | |
Revenue passenger miles (RPMs) (thousands) | 5,354,632 | | | 4,033,017 | | | 6,794,122 | | | 32.8 | | | (21.2) | |
Available seat miles (ASMs) (thousands) | 8,426,876 | | | 6,138,692 | | | 8,113,315 | | | 37.3 | | | 3.9 | |
Load factor | 63.5 | % | | 65.7 | % | | 83.7 | % | | (2.2) | | | (24.1) | |
Departures | 55,710 | | | 40,167 | | | 53,911 | | | 38.7 | | | 3.3 | |
Block hours | 127,185 | | | 92,594 | | | 124,098 | | | 37.4 | | | 2.5 | |
Total passenger revenue per ASM (TRASM) (cents)(2) | 8.75 | | | 8.47 | | | 11.22 | | | — | | | (22.0) | |
Average fare - scheduled service(3) | $ | 60.95 | | | $ | 57.27 | | | $ | 63.49 | | | 6.4 | | | (4.0) | |
Average fare - air-related charges(3) | $ | 55.72 | | | $ | 54.80 | | | $ | 52.32 | | | 1.7 | | | 6.5 | |
Average fare - third party products | $ | 6.10 | | | $ | 5.52 | | | $ | 4.68 | | | 10.5 | | | 30.3 | |
Average fare - total | $ | 122.77 | | | $ | 117.59 | | | $ | 120.49 | | | 4.4 | | | 1.9 | |
Average stage length (miles) | 869 | | | 883 | | | 878 | | | (1.6) | | | (1.0) | |
Fuel gallons consumed (thousands) | 96,329 | | | 70,229 | | | 97,395 | | | 37.2 | | | (1.1) | |
Average fuel cost per gallon | $ | 1.92 | | | $ | 1.60 | | | $ | 2.18 | | | 20.0 | | | (11.9) | |
Rental car days sold | 680,344 | | | 616,582 | | | 1,012,558 | | | 10.3 | | | (32.8) | |
Hotel room nights sold | 128,909 | | | 104,776 | | | 219,206 | | | 23.0 | | | (41.2) | |
Percent of sales through website during period | 93.8 | % | | 93.7 | % | | 93.5 | % | | 0.1 | | | 0.3 | |
(1) Except load factor and percent of sales through website during period, which are presented as a percentage point change.
**(2) Various components of this measure do not have a direct correlation to ASMs. This measure is provided on a per ASM basis so as to facilitate comparison with airlines reporting revenues on a per ASM basis.
*** Includes effect(3) Reflects division of $8.3 million fuel tax refundspassenger revenue between scheduled service (base fare) and air-related charges in the second quarter of 2016.our booking path.
LIQUIDITY AND CAPITAL RESOURCES
Current liquidity
Cash, restricted cash equivalents and investment securities (short-term and long-term) increased to $1.2 billion at June 30, 2021, from $470.5$685.2 million at December 31, 2016 to $519.8 million at September 30, 2017. 2020. Investment securities represent highly liquid marketable securities which are available-for-sale.
Restricted cash represents escrowed funds under fixed fee contracts, escrowed project funds and cash collateral against letters of credit required by hotel properties for guaranteed room availability, airports and certain other parties. Under our fixed fee flying contracts, we require our customers to prepay for flights to be provided by us. The prepayments are escrowed until the flight is completed and are recorded as restricted cash with a corresponding amount reflected as air traffic liability. Investment securities represent highly liquid marketable securities which are available-for-sale.
During the first ninesix months ended June 30, 2021, we received a total of 2017, our primary source of funds was $296.4 million generated by operations as well as $292.5$203.9 million in proceeds from debt issuance. Our operatingassistance through the payroll support programs.
We suspended share repurchases and our quarterly cash flows and borrowings have allowed usdividend, as part of cash conservation efforts in response to invest inthe effects of COVID-19 on our fleet transition and return capitalbusiness. In connection with our receipt of financial support under the payroll support program, we agreed not to shareholders. repurchase shares or pay cash dividends through September 30, 2022.
We believe we have more than adequate liquidity resources through our cash balances, operating cash flows, borrowings and cash balances,expected tax refunds, to meet our future contractual obligations, and expect to finance a significant portion of the purchase price of our remaining newly manufactured Airbus aircraft order on acceptable terms.obligations. We will continue to consider raising funds through debt financing on an opportunistic basis.
In addition to our recurring quarterly cash dividend, we plan to continue repurchasing our stock in the open market subject to availability of cash resources and compliance with our debt covenants. Our current repurchase authority is $100 million. There is no expiration to this program.
Debt
Our long-term debt and finance lease obligations balance, without reduction for related issuance costs, increaseddecreased from $813.2 million$1.68 billion as of December 31, 20162020 to $1,017.0 million$1.60 billion as of SeptemberJune 30, 2017 as2021. During the six months ended June 30, 2021, we borrowed additional funds secured by aircraft, while making scheduled repayments$122.1 million and we made principal payments of $199.6 million, including $53.9 million on our existing debt. During the third quarter 2017 we borrowed $102.0 million secured by three aircraft as well as $56.0 million against our senior secured revolving credit facility.facility that matured on March 31, 2021 and a $57.0 million prepayment of debt secured by aircraft.
Despite substantially lower revenues caused by the pandemic compared to pre-pandemic periods, our total debt and finance lease obligations declined by 4.6 percent from December 31, 2020 to June 30, 2021.
Sources and Uses of Cash
Operating Activities. During the nine months ended September 30, 2017, our operating activities provided $296.4 million of cash compared to $308.1 million during the same period of 2016. The year-over-year decrease in cash inflows is principally the result of a $65.9 million decrease in net income, offset by the effect of an increase in deferred income taxes.
Operating cash inflows are primarily derived from providing air transportation and related ancillary products and services to customers,customers. During the six months ended June 30, 2021, our operating activities provided $405.0 million of cash compared to $276.7 million during the same period of 2020. This change is mostly attributable to a $228.0 million increase in net income offset by changes in special charges and we expect to use that cash flow to purchase aircraftcurrent assets and equipment, make scheduled debt payments, and return capital to shareholders through share repurchases and dividends. liability accounts.
Investing Activities. Cash used in investing activities was $366.3$369.4 million during the ninesix months ended SeptemberJune 30, 20172021 compared to $284.0$158.6 million for the same period in 2016.2020. The year-over-year increasechange is due primarily to $333.7an increase of $199.1 million inof purchases of investment securities, net of maturities, and a decrease of $48.0 million related to proceeds from sale-leaseback transactions during the six months ended June 30, 2020. Purchases of property and equipment purchases duringwere $36.2 million less in the first ninecurrent year.
Financing Activities. Cash provided by financing activities for the six months of 2017ended June 30, 2021 was $245.5 million, compared to $264.1 million in the same period of 2016. Additionally, our net cash used to purchase investment securities (net of proceeds from maturities) was $33.9 million during the first nine months of 2017 compared to $23.9$32.8 million for the same period in 2016.
Financing Activities. Cash2020. The year-over-year change is mostly due to the equity offering completed on May 10, 2021 which resulted in the receipt of $335.1 million in cash. This was offset by the net effect of debt activity, as principal payments and debt issuance costs exceeded debt proceeds from financing activities forby $93.6 million during the ninesix months ended SeptemberJune 30, 2017 exceeded cash used by $79.22021, compared to $74.7 million while cash used exceeded cashof debt proceeds by $62.5 million for(net of related costs) in excess of principal payments during the same period in 2016. Proceeds from2020. Additionally, there were no share repurchases or dividends paid in the issuancefirst half of debt net2021, where there was $33.8 million and $11.4 million of principal payments were $204.5 million in 2017 and $56.9 millionsuch activity, respectively, in the same period of 2016. During the first nine months of 2017, we repurchased common stock for $90.4 million and paid cash dividends of $34.5 million, compared to the repurchase of common stock for $63.4 million and payment of cash dividends of $55.9 million ($27.7 million of which was a special dividend declared in December 2015) in the same period of 2016.2020.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
We have made forward-looking statements in this quarterly report on Form 10-Q, and in the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” that are based on our management’s beliefs and assumptions, and on information currently available to our management. Forward-looking statements include our statements regarding number of contracted aircraft to be placed in service in the future, the development and financing of our Sunseeker Resort, as well as other information concerning our possible or assumed future results of operations, business strategies, fleet plan, financing plans, competitive position, industry environment, potential growth opportunities, future service to be provided, the effects of future regulation
and competition, and the developmenteffects of a hotel-condo resort.competition. Forward-looking statements include all statements that are not historical facts and can be identified by the use of forward-looking terminology such as the words “believe,"believe," "expect," "anticipate," "intend," "plan," "estimate," “project,” “expect,” “anticipate,” “intend,” “plan,” “estimate,” “project”“hope” or similar expressions.
Forward-looking statements involve risks, uncertainties and assumptions. Actual results may differ materially from those expressed in the forward-looking statements. Important risk factors that could cause our results to differ materially from those expressed in the forward-looking statements may be found in our periodic reports filed with the Securities and Exchange Commission at www.sec.gov.www.sec.gov. These risk factors include, without limitation, the impact and duration of the COVID-19 pandemic on airline travel and the economy, liquidity issues resulting from the effect of the COVID-19 pandemic on our business, restrictions imposed on us a result of accepting government grants under the Payroll Support Programs, an accident involving, or problems with, our aircraft, public perception of our safety, our reliance on automationour automated systems, limitationour reliance on growth as we transitionthird parties to deliver aircraft under contract to us on a single fleet type,timely basis, risk of breach of security of personal data, volatility of fuel costs, labor issues and costs, the ability to obtain regulatory approvals as needed, the effect of economic conditions on leisure travel, debt covenants and balances, the ability to finance aircraft under contract,to be acquired, terrorist attacks, risks inherent to airlines, theour competitive environment, our reliance on third parties who provide facilities or services to us, the possible loss of key personnel, economic and other conditions in markets in which we operate, the ability to successfully develop and finance a hotel-condo resort in Southwest Florida, governmental regulation, increases in maintenance costs and cyclical and seasonal fluctuations toin our operating results.
Any forward-looking statements are based on information available to us today and we undertake no obligation to publicly update any forward-looking statements, whether as a result of future events, new information or otherwise.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
A description ofThere have been no material changes to our critical accounting estimates during the six months ended June 30, 2021. For information regarding our critical accounting policies is includedand estimates, see disclosures in Item 7 ofthe Consolidated Financial Statements and accompanying notes contained in our Annual Report on2020 Form 10-K, for the year ended December 31, 2016. There has been no material changeand in Note 1 of Notes to these policies during the nine months ended September 30, 2017.Consolidated Financial Statements (unaudited).
Item 3. Quantitative and Qualitative Disclosures About Market Risk
We are subject to certain market risks, including commodity prices (specifically aircraft fuel). The adverse effects of changes in these markets could pose potential losses as discussed below. The sensitivity analysis provided does not consider the effects that such adverse changes may have on overall economic activity, nor does it consider additional actions we may take to mitigate our exposure to such changes. Actual results may differ.
Aircraft Fuel
Our results of operations can be significantly impacted by changes in the price and availability of aircraft fuel, as aircraftfuel. Aircraft fuel expense for the six months ended June 30, 2021 represented 27.1 percent32.7% of our total operating expenses for the nine months ended September 30, 2017.expenses. Increases in fuel prices, or a shortage of supply, could have a material impact on our operations and operating results. Based on our fuel consumption for the three and ninesix months ended SeptemberJune 30, 2017,2021, a hypothetical ten percent increase in the average price per gallon of fuel would have increased fuel expense by approximately $7.8$10.8 million and $26.0$19.7 million respectively. We have not hedged fuel price risk for many years.
Interest Rates
We have market risk associated with changing interest rates due to the short-term natureAs of our cashJune 30, 2021, we had $0.98 billion of variable-rate debt, including current maturities and investment securities and variable-rate debt. We invest available cashwithout reduction for $15.2 million in government and corporate debt securities, investment grade commercial paper, and other highly rated financial instruments. Because of the short-term nature of these investments, the returns earned closely parallel short-term floating interest rates.related costs. A hypothetical 100 basis point change in interest rates for the nine months ended September 30, 2017 would have affected interest income from cash and investment securities by approximately $2.6 million.
As of September 30, 2017, we had a total of $549.7 million in variable-rate debt, including current maturities and without reduction for related costs. A hypothetical 100 basis point change in market interest rates for the nine months ended September 30, 2017, would have affected interest expense on variable rate debt by approximately $3.4 million.
As of September 30, 2017, we had $467.4$5.3 million of fixed-rate debt, including current maturities and without reduction for related costs, which had a fair value of $482.4 million. A hypothetical 100 basis point change in market interest rates would not impact interest expense or have a material effect on the fair value of our fixed-rate debt instruments as of such date.
See Item 7A "Quantitative and Qualitative Disclosures About Market Risk" in the Company's Annual Report on Form 10-K for the yearsix months ended December 31, 2016, for further information about market risk.June 30, 2021.
Item 4. Controls and Procedures
As of SeptemberJune 30, 2017,2021, under the supervision and with the participation of our management, including our chief executive officer (“CEO”("CEO") and chief financial officer (“CFO”), we evaluated the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended, or the “Exchange Act.”Act”) as of the end of the period covered by this report. Based on thisthat evaluation, management, including our managementCEO and CFO, has concluded that our disclosure controls and procedures are designed, and are effective, to give reasonable assurance that the information we are required to disclose is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Based upon this evaluation, management concluded that our disclosure controlsforms and procedures are effective in providing reasonable assurance that information required to be disclosed in our reports filed with the SEC under the Exchange Act is accumulated and communicated to the Company’s management, including the CEO and the CFO, as appropriate to allow timely decisions regarding required disclosure.
There were no changes in our internal control over financial reporting that occurred during the quarter ending SeptemberJune 30, 2017,2021, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
We are subject to certain legal and administrative actions we consider routine to our business activities. We believe the ultimate outcome of any pending legal or administrative matters will not have a material adverse impact on our financial position, liquidity or results of operations.
Item 1A. Risk Factors
We have evaluated our risk factors and determined the followingthere are no changes to those set forth in Part I, Item 1A in the Form 10-K since we filedof our Annual Report on Form 10-K.10-K for the year ended December 31, 2020 and filed with the Commission on March 1, 2021.
The acceleration of the retirement of our MD-80 fleet will put pressure on our fleet induction team to complete the fleet transition on a timely basis.
Although we have been able to successfully add 23 Airbus aircraft to our operating fleet since the beginning of 2016, the accelerated retirement of our MD-80 fleet per our fleet transition plan contemplates placing into service an additional 35 Airbus aircraft through November 2018. Most of these aircraft are used and they will come from different sources. This is a significant undertaking which will require operational efficiency to accomplish on a timely basis. If we are unable to complete these inductions as contemplated, the fleet replacement plan could be delayed which could increase costs or impact revenues.
The successful development of a hotel-condo resort is dependent on commercial and economic factors, many of which are beyond our control.
We have announced the development of a hotel-condo resort in Southwest Florida with construction expected to begin in mid-2018 and completion of the hotel expected in late 2019 or early 2020. The successful development of the project will be subject to various risks inherent in construction projects (such as financing, cost overruns and construction delays) as well as risks of gaining sufficient interest from purchasers of the condo units at the prices we envision, the desirability of the project’s location, competition and the ability to profitably operate the hotel and related offerings once open.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Our Repurchases of Equity Securities
The following table reflects the repurchases of our(a) Not applicable
(b) Not applicable
(c) We did not repurchase any common stock during the thirdsecond quarter 2017:2021.
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Period | | Total Number of Shares Purchased (1) | | Average Price Paid per Share | | Total Number of Shares Purchased as Part of our Publicly Announced Plan | | Approximate Dollar Value of Shares that May Yet be Purchased Under the Plans or Programs (in thousands) (2) |
July | | 508 |
| | $ | 139.78 |
| | None | | |
August | | None |
| | None |
| | None | | |
September | | 4,278 |
| | 115.71 |
| | None | | |
Total | | 4,786 |
| | $ | 118.27 |
| | | | $ | 100,000 |
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(1) | Includes shares repurchased from employees who vested a portion of their restricted stock grants. These share repurchases were made at the election of each employee pursuant to an offer to repurchase by us. In each case, the shares repurchased constituted the portion of vested shares necessary to satisfy income tax withholding requirements. |
(2) | Represents the remaining dollar amount of open market purchases of our common stock which has been authorized by the Board under a share repurchase program.
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Item 3. Defaults Upon Senior Securities
None
Item 4. Mine Safety Disclosures
Not applicable
Item 5. Other Information
None
Item 6. Exhibits
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101.INS101.SCH | XBRL Instance Document |
101.SCH | XBRL Taxonomy Extension Schema Document |
101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document |
101.DEF | XBRL Taxonomy Extension Definition Linkbase Document |
101.LAB | XBRL Taxonomy Extension Labels Linkbase Document |
101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document |
(1) Incorporated by reference to Exhibit filed with Registration Statement #333-134145 filed by the Company with the Commission and amendments thereto.
(2) Incorporated by reference to Exhibit 3.1 to the Current Report on Form 8-K filed with the Commission on May 12, 2020.
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(1) | Incorporated by reference to Exhibit filed with Registration Statement #333-134145 filed by the Company with the Commission and amendments thereto. |
(2) | Incorporated by reference to Exhibit 3.2 to the Quarterly Report on Form 10-Q for the quarter ended September 30, 2016, filed with the Commission on November 1, 2016. |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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| | ALLEGIANT TRAVEL COMPANY |
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Date: | OctoberJuly 30, 20172021 | By: | /s/ Scott SheldonGregory Anderson |
| | Scott Sheldon,Gregory Anderson, as duly authorized officer of the Company (Chief Financial Officer) and as Principal Financial Officer |