SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
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| | |
ý☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended | June 30, 20182019 |
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OR |
o☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number 001-33166
Allegiant Travel CompanyCompany
(Exact Name of Registrant as Specified in Its Charter)
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| | |
Nevada | 20-4745737 |
(State or Other Jurisdiction of Incorporation or Organization) | (IRS Employer Identification No.) |
| | |
1201 North Town Center Drive | |
Las Vegas, | Nevada | 89144 |
(Address of Principal Executive Offices) | (Zip Code) |
Registrant’s Telephone Number, Including Area Code: (702) (702) 851-7300
Securities registered pursuant to Section 12(b) of the Act: |
| | | | |
Title of each class | | Trading Symbol | | Name of each exchange on which registered |
Common stock, par value $.001 | | ALGT | | NASDAQ Stock Market |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yesý☒ No o☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yesý☒ No o☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
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Large accelerated filerx | ☒ | | Accelerated filero | ☐ |
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Non-accelerated filero | ☐ | | Smaller reporting companyo | ☐ |
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(Do not check if a smaller reporting company) | Emerging growth companyo | ☐ | | | |
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o☐ Noý☒
The numberAs of July 15, 2019, the registrant had 16,306,083 shares of the registrant’s common stock, outstanding as of the close of business on August 1, 2018 was 16,163,533.$.001 par value per share, outstanding.
Allegiant Travel Company
Form 10-Q
Table of Contents
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PART I. | FINANCIAL INFORMATION | |
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ITEM 1. | | |
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ITEM 2. | | |
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ITEM 3. | | |
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ITEM 4. | | |
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PART II. | OTHER INFORMATION | |
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ITEM 1. | | |
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ITEM 1A. | | |
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ITEM 2. | | |
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ITEM 3. | | |
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ITEM 4. | | |
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ITEM 5. | | |
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ITEM 6. | | |
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PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
ALLEGIANT TRAVEL COMPANY
CONSOLIDATED BALANCE SHEETS
(in thousands)
| | | June 30, 2018 | | December 31, 2017 | June 30, 2019 | | December 31, 2018 |
| (unaudited) | | | (unaudited) | | |
CURRENT ASSETS | | | | | | |
Cash and cash equivalents | $ | 28,981 |
| | $ | 59,449 |
| $ | 453,852 |
| | $ | 81,520 |
|
Restricted cash | 13,253 |
| | 11,190 |
| 14,318 |
| | 14,391 |
|
Short-term investments | 343,180 |
| | 352,681 |
| 216,746 |
| | 314,464 |
|
Accounts receivable | 24,184 |
| | 71,057 |
| 36,100 |
| | 36,014 |
|
Expendable parts, supplies and fuel, net | 20,419 |
| | 17,647 |
| 25,131 |
| | 19,516 |
|
Prepaid expenses | 34,447 |
| | 23,931 |
| |
Other current assets | 829 |
| | 5,320 |
| |
Prepaid expenses and other current assets | | 34,100 |
| | 29,343 |
|
TOTAL CURRENT ASSETS | 465,293 |
| | 541,275 |
| 780,247 |
| | 495,248 |
|
Property and equipment, net | 1,746,707 |
| | 1,512,415 |
| 2,019,774 |
| | 1,847,268 |
|
Long-term investments | 56,358 |
| | 78,570 |
| 24,704 |
| | 51,526 |
|
Deferred major maintenance, net | 36,957 |
| | 31,326 |
| 89,868 |
| | 67,873 |
|
Operating lease right-of-use assets, net | | 22,233 |
| | — |
|
Deposits and other assets | 20,190 |
| | 16,571 |
| 45,374 |
| | 36,753 |
|
TOTAL ASSETS: | $ | 2,325,505 |
| | $ | 2,180,157 |
| $ | 2,982,200 |
| | $ | 2,498,668 |
|
CURRENT LIABILITIES | | | | | | |
Accounts payable | $ | 27,473 |
| | $ | 20,108 |
| $ | 32,097 |
| | $ | 27,452 |
|
Accrued liabilities | 124,326 |
| | 105,127 |
| 147,483 |
| | 122,027 |
|
Air traffic liability | 236,932 |
| | 204,299 |
| 267,050 |
| | 212,230 |
|
Current maturities of long-term debt and capital lease obligations, net of related costs | 144,392 |
| | 214,761 |
| |
Current maturities of long-term debt and finance lease obligations, net of related costs | | 160,523 |
| | 152,287 |
|
TOTAL CURRENT LIABILITIES | 533,123 |
| | 544,295 |
| 607,153 |
| | 513,996 |
|
Long-term debt and capital lease obligations, net of current maturities and related costs | 992,322 |
| | 950,131 |
| |
Long-term debt and finance lease obligations, net of current maturities and related costs | | 1,338,734 |
| | 1,119,446 |
|
Deferred income taxes | 144,254 |
| | 119,013 |
| 199,689 |
| | 164,027 |
|
Other noncurrent liabilities | 11,138 |
| | 13,407 |
| 32,115 |
| | 10,878 |
|
TOTAL LIABILITIES: | 1,680,837 |
| | 1,626,846 |
| 2,177,691 |
| | 1,808,347 |
|
SHAREHOLDERS' EQUITY | | | | | | |
Common stock, par value $.001 | 23 |
| | 23 |
| 23 |
| | 23 |
|
Treasury stock | (607,025 | ) | | (605,655 | ) | |
Treasury shares | | (605,115 | ) | | (605,037 | ) |
Additional paid in capital | 263,034 |
| | 253,840 |
| 280,783 |
| | 270,935 |
|
Accumulated other comprehensive loss, net | (2,473 | ) | | (2,840 | ) | (4 | ) | | (661 | ) |
Retained earnings | 991,109 |
| | 907,943 |
| 1,128,822 |
| | 1,025,061 |
|
TOTAL EQUITY: | 644,668 |
| | 553,311 |
| 804,509 |
| | 690,321 |
|
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY: | $ | 2,325,505 |
| | $ | 2,180,157 |
| $ | 2,982,200 |
| | $ | 2,498,668 |
|
The accompanying notes are an integral part of these consolidated financial statements.
ALLEGIANT TRAVEL COMPANY
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share amounts)
(unaudited)
| | | Three Months Ended June 30, | | Six Months Ended June 30, | Three Months Ended June 30, | | Six Months Ended June 30, |
| 2018 | | 2017 | | 2018 | | 2017 | 2019 | | 2018 | | 2019 | | 2018 |
OPERATING REVENUE: | | | | | | | | |
Passenger revenue | $ | 405,572 |
| | $ | 367,250 |
| | $ | 802,343 |
| | $ | 715,086 |
| |
OPERATING REVENUES: | | | | | | | | |
Passenger | | $ | 454,779 |
| | $ | 405,572 |
| | $ | 874,755 |
| | $ | 802,343 |
|
Third party products | 17,799 |
|
| 14,304 |
| | 28,124 |
| | 27,046 |
| 18,208 |
|
| 17,799 |
| | 35,350 |
| | 28,124 |
|
Fixed fee contract revenue | 7,653 |
| | 11,029 |
| | 18,209 |
| | 22,289 |
| |
Other revenue | 5,756 |
| | 9,261 |
| | 13,548 |
| | 17,434 |
| |
Total operating revenue | 436,780 |
| | 401,844 |
| | 862,224 |
| | 781,855 |
| |
Fixed fee contracts | | 12,487 |
| | 7,653 |
| | 23,061 |
| | 18,209 |
|
Other | | 6,285 |
| | 5,756 |
| | 10,215 |
| | 13,548 |
|
Total operating revenues | | 491,759 |
| | 436,780 |
| | 943,381 |
| | 862,224 |
|
OPERATING EXPENSES: | | | | | | | | | | | | | | |
Salary and benefits | | 113,592 |
| | 101,645 |
| | 233,003 |
| | 214,608 |
|
Aircraft fuel | 122,454 |
| | 85,387 |
| | 228,481 |
| | 170,049 |
| 119,987 |
| | 122,454 |
| | 219,670 |
| | 228,481 |
|
Salary and benefits | 101,645 |
| | 92,221 |
| | 214,608 |
| | 188,519 |
| |
Station operations | 41,553 |
| | 38,998 |
| | 79,137 |
| | 70,830 |
| 45,870 |
| | 41,553 |
| | 84,835 |
| | 79,137 |
|
Maintenance and repairs | 24,611 |
| | 28,645 |
| | 43,881 |
| | 58,740 |
| 20,877 |
| | 24,611 |
| | 43,701 |
| | 43,881 |
|
Depreciation and amortization | 29,833 |
| | 30,129 |
| | 57,983 |
| | 60,678 |
| 38,494 |
| | 29,833 |
| | 74,676 |
| | 57,983 |
|
Sales and marketing | 18,348 |
| | 13,492 |
| | 37,426 |
| | 26,822 |
| 20,540 |
| | 18,348 |
| | 41,466 |
| | 37,426 |
|
Aircraft lease rentals | 75 |
| | 2,400 |
| | 96 |
| | 2,564 |
| |
Aircraft lease rental | | — |
| | 75 |
| | — |
| | 96 |
|
Other | 24,039 |
| | 24,777 |
| | 46,422 |
| | 44,129 |
| 24,294 |
| | 24,039 |
| | 46,849 |
| | 46,422 |
|
Total operating expenses | 362,558 |
| | 316,049 |
| | 708,034 |
| | 622,331 |
| 383,654 |
| | 362,558 |
| | 744,200 |
| | 708,034 |
|
OPERATING INCOME | 74,222 |
| | 85,795 |
| | 154,190 |
| | 159,524 |
| 108,105 |
| | 74,222 |
| | 199,181 |
| | 154,190 |
|
OTHER (INCOME) EXPENSE: | | | | | | | | |
OTHER (INCOME) EXPENSES: | | | | | | | | |
Interest expense | 13,156 |
| | 8,889 |
| | 25,880 |
| | 17,291 |
| 20,942 |
| | 13,251 |
| | 39,025 |
| | 26,158 |
|
Capitalized interest | | (1,038 | ) | | (95 | ) | | (2,541 | ) | | (278 | ) |
Interest income | (1,927 | ) | | (1,475 | ) | | (3,834 | ) | | (2,739 | ) | (3,502 | ) | | (1,927 | ) | | (6,703 | ) | | (3,834 | ) |
Loss on debt extinguishment | | — |
| | — |
| | 3,677 |
| | — |
|
Other, net | (50 | ) | | (493 | ) | | (290 | ) | | (854 | ) | (86 | ) | | (50 | ) | | 15 |
| | (290 | ) |
Total other expense | 11,179 |
| | 6,921 |
| | 21,756 |
| | 13,698 |
| |
Total other expenses | | 16,316 |
| | 11,179 |
| | 33,473 |
| | 21,756 |
|
INCOME BEFORE INCOME TAXES | 63,043 |
| | 78,874 |
| | 132,434 |
| | 145,826 |
| 91,789 |
| | 63,043 |
| | 165,708 |
| | 132,434 |
|
PROVISION FOR INCOME TAXES | 13,027 |
| | 29,836 |
| | 27,225 |
| | 54,437 |
| 21,246 |
| | 13,027 |
| | 38,041 |
| | 27,225 |
|
NET INCOME | $ | 50,016 |
| | $ | 49,038 |
| | $ | 105,209 |
| | $ | 91,389 |
| $ | 70,543 |
| | $ | 50,016 |
| | $ | 127,667 |
| | $ | 105,209 |
|
Earnings per share to common shareholders: | | | | | | | | | | | | | | |
Basic | $ | 3.10 |
| | $ | 2.98 |
| | $ | 6.53 |
| | $ | 5.52 |
| $ | 4.33 |
| | $ | 3.10 |
| | $ | 7.85 |
| | $ | 6.53 |
|
Diluted | $ | 3.10 |
| | $ | 2.97 |
| | $ | 6.52 |
| | $ | 5.51 |
| $ | 4.33 |
| | $ | 3.10 |
| | $ | 7.84 |
| | $ | 6.52 |
|
Shares used for computation: | | | | | | | | | | | | | | |
Basic | 15,939 |
| | 16,198 |
| | 15,898 |
| | 16,290 |
| 16,063 |
| | 15,939 |
| | 16,037 |
| | 15,898 |
|
Diluted | 15,945 |
| | 16,220 |
| | 15,914 |
| | 16,317 |
| 16,069 |
| | 15,945 |
| | 16,050 |
| | 15,914 |
|
| | | | | | | | | | | | | | |
Cash dividends declared per share: | $ | 0.70 |
| | $ | 0.70 |
| | $ | 1.40 |
| | $ | 1.40 |
| $ | 0.70 |
| | $ | 0.70 |
| | $ | 1.40 |
| | $ | 1.40 |
|
The accompanying notes are an integral part of these consolidated financial statements.
ALLEGIANT TRAVEL COMPANY
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands)
(unaudited)
| | | Three Months Ended June 30, | | Six Months Ended June 30, | Three Months Ended June 30, | | Six Months Ended June 30, |
| 2018 | | 2017 | | 2018 | | 2017 | 2019 | | 2018 | | 2019 | | 2018 |
Net income | $ | 50,016 |
| | $ | 49,038 |
| | $ | 105,209 |
| | $ | 91,389 |
| |
Other comprehensive income (loss): | |
| | |
| | | | | |
NET INCOME | | $ | 70,543 |
| | $ | 50,016 |
| | $ | 127,667 |
| | $ | 105,209 |
|
Other comprehensive income: | | |
| | |
| | | | |
Change in available for sale securities, net of tax | 113 |
| | (2 | ) | | (843 | ) | | 222 |
| 177 |
| | 113 |
| | 654 |
| | (843 | ) |
Foreign currency translation adjustments | 113 |
| | (215 | ) | | 214 |
| | (298 | ) | 9 |
| | 113 |
| | 3 |
| | 214 |
|
Change in derivatives, net of tax | 1,260 |
| | (581 | ) | | 996 |
| | (1,085 | ) | — |
| | 1,260 |
| | — |
| �� | 996 |
|
Total other comprehensive income (loss) | 1,486 |
| | (798 | ) | | 367 |
| | (1,161 | ) | |
Total other comprehensive income | | 186 |
| | 1,486 |
| | 657 |
| | 367 |
|
TOTAL COMPREHENSIVE INCOME | $ | 51,502 |
| | $ | 48,240 |
| | $ | 105,576 |
| | $ | 90,228 |
| $ | 70,729 |
| | $ | 51,502 |
| | $ | 128,324 |
| | $ | 105,576 |
|
The accompanying notes are an integral part of these consolidated financial statements.
ALLEGIANT TRAVEL COMPANY
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(in thousands)
(unaudited)
|
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, 2019 |
| | | | | | | Accumulated | | | | | | |
| Common | | | | Additional | | other | | | | | | Total |
| stock | | Par | | paid-in | | comprehensive | | Retained | | Treasury | | shareholders' |
| outstanding | | value | | capital | | income (loss) | | earnings | | shares | | equity |
Balance at March 31, 2019 | 16,284 |
| | $ | 23 |
|
| $ | 276,247 |
|
| $ | (190 | ) |
| $ | 1,069,690 |
|
| $ | (607,316 | ) |
| $ | 738,454 |
|
Share-based compensation | 6 |
| | — |
| | 4,536 |
| | — |
| | — |
| | — |
| | 4,536 |
|
Shares repurchased by the Company and held as treasury shares | (5 | ) | | — |
| | — |
| | — |
| | — |
| | (730 | ) | | (730 | ) |
Stock issued under employee stock purchase plan | 20 |
| | — |
| | — |
| | — |
| | — |
| | 2,931 |
| | 2,931 |
|
Cash dividends, $0.70 per share | — |
| | — |
| | — |
| | — |
| | (11,411 | ) | | — |
| | (11,411 | ) |
Other comprehensive income | — |
| | — |
| | — |
| | 186 |
| | — |
| | — |
| | 186 |
|
Net income | — |
| | — |
| | — |
| | — |
| | 70,543 |
| | — |
| | 70,543 |
|
Balance at June 30, 2019 | 16,305 |
| | $ | 23 |
| | $ | 280,783 |
| | $ | (4 | ) | | $ | 1,128,822 |
| | $ | (605,115 | ) | | $ | 804,509 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Six Months Ended June 30, 2019 |
| | | | | | | Accumulated | | | | | | |
| Common | | | | Additional | | other | | | | | | Total |
| stock | | Par | | paid-in | | comprehensive | | Retained | | Treasury | | shareholders' |
| outstanding | | value | | capital | | income (loss) | | earnings | | shares | | equity |
Balance at December 31, 2018 | 16,183 |
| | $ | 23 |
| | $ | 270,935 |
| | $ | (661 | ) | | $ | 1,025,061 |
| | $ | (605,037 | ) | | $ | 690,321 |
|
Share-based compensation | 124 |
| | — |
| | 9,848 |
| | — |
| | — |
| | — |
| | 9,848 |
|
Shares repurchased by the Company and held as treasury shares | (22 | ) | | — |
| | — |
| | — |
| | — |
| | (3,009 | ) | | (3,009 | ) |
Stock issued under employee stock purchase plan | 20 |
| | — |
| | — |
| | — |
| | — |
| | 2,931 |
| | 2,931 |
|
Cash dividends, $1.40 per share | — |
| | — |
| | — |
| | — |
| | (22,805 | ) | | — |
| | (22,805 | ) |
Other comprehensive income | — |
| | — |
| | — |
| | 657 |
| | (551 | ) | | — |
| | 106 |
|
Net income | — |
| | — |
| | — |
| | — |
| | 127,667 |
| | — |
| | 127,667 |
|
Cumulative effect of the New Lease Standard (see Note 5) | — |
| | — |
| | — |
| | — |
| | (550 | ) | | — |
| | (550 | ) |
Balance at June 30, 2019 | 16,305 |
| | $ | 23 |
| | $ | 280,783 |
| | $ | (4 | ) | | $ | 1,128,822 |
| | $ | (605,115 | ) | | $ | 804,509 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, 2018 |
| | | | | | | Accumulated | | | | | | |
| Common | | | | Additional | | other | | | | | | Total |
| stock | | Par | | paid-in | | comprehensive | | Retained | | Treasury | | shareholders' |
| outstanding | | value | | capital | | income (loss) | | earnings | | shares | | equity |
Balance at March 31, 2018 | 16,151 |
| | $ | 23 |
| | $ | 259,225 |
| | $ | (3,959 | ) | | $ | 952,403 |
| | $ | (607,888 | ) | | $ | 599,804 |
|
Share-based compensation | — |
| | — |
| | 3,809 |
| | — |
| | — |
| | — |
| | 3,809 |
|
Issuance of common stock, net of forfeitures | 5 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Shares repurchased by the Company and held as treasury shares | (5 | ) | | — |
| | — |
| | — |
| | — |
| | (761 | ) | | (761 | ) |
Stock issued under employee stock purchase plan | 10 |
| | — |
| | — |
| | — |
| | — |
| | 1,624 |
| | 1,624 |
|
Cash dividends, $0.70 per share | — |
| | — |
| | — |
| | — |
| | (11,310 | ) | | — |
| | (11,310 | ) |
Other comprehensive income | — |
| | — |
| | — |
| | 1,486 |
| | — |
| | — |
| | 1,486 |
|
Net income | — |
| | — |
| | — |
| | — |
| | 50,016 |
| | — |
| | 50,016 |
|
Balance at June 30, 2018 | 16,161 |
| | $ | 23 |
| | $ | 263,034 |
| | $ | (2,473 | ) | | $ | 991,109 |
| | $ | (607,025 | ) | | $ | 644,668 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Six Months Ended June 30, 2018 |
| | | | | | | Accumulated | | | | | | |
| Common | | | | Additional | | other | | | | | | Total |
| stock | | Par | | paid-in | | comprehensive | | Retained | | Treasury | | shareholders' |
| outstanding | | value | | capital | | income (loss) | | earnings | | shares | | equity |
Balance at December 31, 2017 | 16,066 |
| | $ | 23 |
| | $ | 253,840 |
| | $ | (2,840 | ) | | $ | 907,943 |
| | $ | (605,655 | ) | | $ | 553,311 |
|
Share-based compensation | 98 |
| | — |
| | 9,194 |
| | — |
| | — |
| | — |
| | 9,194 |
|
Issuance of common stock, net of forfeitures | 5 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Shares repurchased by the Company and held as treasury shares | (18 | ) | | — |
| | — |
| | — |
| | — |
| | (2,994 | ) | | (2,994 | ) |
Stock issued under employee stock purchase plan | 10 |
| | — |
| | — |
| | — |
| | — |
| | 1,624 |
| | 1,624 |
|
Cash dividends, $1.40 per share | — |
| | — |
| | — |
| | — |
| | (22,605 | ) | | — |
| | (22,605 | ) |
Other comprehensive income | — |
| | — |
| | — |
| | 367 |
| | 562 |
| | — |
| | 929 |
|
Net income | — |
| | — |
| | — |
| | — |
| | 105,209 |
| | — |
| | 105,209 |
|
Balance at June 30, 2018 | 16,161 |
| | $ | 23 |
| | $ | 263,034 |
| | $ | (2,473 | ) | | $ | 991,109 |
| | $ | (607,025 | ) | | $ | 644,668 |
|
The accompanying notes are an integral part of these consolidated financial statements.
ALLEGIANT TRAVEL COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
| | | Six Months Ended June 30, | Six Months Ended June 30, |
| 2018 | | 2017 | 2019 | | 2018 |
OPERATING ACTIVITIES: | | | | | | |
Net income | $ | 105,209 |
| | $ | 91,389 |
| $ | 127,667 |
| | $ | 105,209 |
|
Adjustments to reconcile net income to net cash provided by operating activities: | | | | | | |
Depreciation and amortization | 57,983 |
| | 60,678 |
| 74,676 |
| | 57,983 |
|
(Gain) loss on aircraft and other equipment disposals | (1,491 | ) | | 4,901 |
| |
Provision for obsolescence of expendable parts, supplies and fuel | 493 |
| | 1,753 |
| |
Amortization of deferred financing costs | 744 |
| | 775 |
| |
Gain on aircraft and other equipment disposals | | (8,294 | ) | | (1,491 | ) |
Share-based compensation expense | 6,106 |
| | 7,249 |
| 9,128 |
| | 6,106 |
|
Deferred income taxes | 25,241 |
| | 52,153 |
| 35,634 |
| | 25,241 |
|
Other adjustments | | 5,199 |
| | 1,237 |
|
Changes in certain assets and liabilities: | | | | | | |
Decrease in accounts receivable | 46,873 |
| | 16,572 |
| |
Increase in prepaid expenses | (10,516 | ) | | (9,476 | ) | |
Increase in accounts payable | 7,631 |
| | 2,263 |
| |
Increase in accrued liabilities | 20,859 |
| | 10,382 |
| |
Increase in air traffic liability | 32,633 |
| | 42,394 |
| |
Change in deferred major maintenance | (7,841 | ) | | (14,331 | ) | |
Other, net | (689 | ) | | (3,782 | ) | |
Accounts receivable | | (86 | ) | | 46,873 |
|
Prepaid expenses | | (4,257 | ) | | (10,516 | ) |
Accounts payable | | 4,449 |
| | 7,631 |
|
Accrued liabilities | | 14,681 |
| | 20,859 |
|
Air traffic liability | | 54,820 |
| | 32,633 |
|
Deferred major maintenance | | (31,591 | ) | | (7,841 | ) |
Other assets/liabilities | | (4,514 | ) | | (689 | ) |
Net cash provided by operating activities | 283,235 |
| | 262,920 |
| 277,512 |
| | 283,235 |
|
INVESTING ACTIVITIES: | | | | | | |
Purchase of investment securities | (168,923 | ) | | (242,895 | ) | (130,627 | ) | | (168,923 | ) |
Proceeds from maturities of investment securities | 199,294 |
| | 154,334 |
| 258,076 |
| | 199,294 |
|
Aircraft pre-delivery deposits | — |
| | (63,468 | ) | |
Purchase of property and equipment, including capitalized interest | (187,456 | ) | | (118,846 | ) | (234,469 | ) | | (187,456 | ) |
Other investing activities | (1,468 | ) | | 1,352 |
| 10,201 |
| | (1,468 | ) |
Net cash used in investing activities | (158,553 | ) | | (269,523 | ) | (96,819 | ) | | (158,553 | ) |
FINANCING ACTIVITIES: | | | | | | |
Cash dividends paid to shareholders | (22,605 | ) | | (23,204 | ) | (22,805 | ) | | (22,605 | ) |
Proceeds from the issuance of debt | 10,797 |
| | 134,540 |
| 770,435 |
| | 10,797 |
|
Repurchase of common stock | (2,994 | ) | | (84,940 | ) | |
Principal payments on debt and capital lease obligations | (142,399 | ) | | (64,876 | ) | |
Principal payments on debt and finance lease obligations | | (522,616 | ) | | (142,399 | ) |
Debt issuance costs | | (30,759 | ) | | (409 | ) |
Other financing activities | 4,114 |
| | 188 |
| (2,689 | ) | | 1,529 |
|
Net cash used in financing activities | (153,087 | ) | | (38,292 | ) | |
Net cash provided by (used in) financing activities | | 191,566 |
| | (153,087 | ) |
Net change in cash, cash equivalents, and restricted cash | (28,405 | ) | | (44,895 | ) | 372,259 |
| | (28,405 | ) |
CASH, CASH EQUIVALENTS, AND RESTRICTED CASH AT BEGINNING OF PERIOD | 70,639 |
| | 76,358 |
| 95,911 |
| | 70,639 |
|
CASH, CASH EQUIVALENTS, AND RESTRICTED CASH AT END OF PERIOD | $ | 42,234 |
| | $ | 31,463 |
| $ | 468,170 |
| | $ | 42,234 |
|
| | | | | | |
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: | | | | |
CASH PAYMENTS FOR: | | | | |
CASH PAYMENTS (RECEIPTS) FOR: | | | | |
Interest paid, net of amount capitalized | $ | 24,370 |
| | $ | 16,001 |
| $ | 36,886 |
| | $ | 24,370 |
|
Income taxes paid, net of (refunds) | $ | (41,284 | ) | | $ | (13,967 | ) | |
Income tax refunds | | (3,340 | ) | | (41,284 | ) |
SUPPLEMENTAL DISCLOSURE OF NONCASH TRANSACTIONS: | | | | |
Property capitalized under operating leases | | 23,320 |
| | — |
|
Flight equipment acquired under finance leases | | — |
| | 102,609 |
|
The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported within the consolidated balance sheets:
|
| | | | | | | |
| As of June 30, |
| 2018 | | 2017 |
CURRENT ASSETS: | | |
|
|
Cash and cash equivalents | $ | 28,981 |
| | $ | 20,040 |
|
Restricted cash | 13,253 |
| | 11,423 |
|
TOTAL CASH, CASH EQUIVALENTS, AND RESTRICTED CASH | $ | 42,234 |
| | $ | 31,463 |
|
The accompanying notes are an integral part of these consolidated financial statements.
ALLEGIANT TRAVEL COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Note 1 — Summary of Significant Accounting Policies
Basis of Presentation
The accompanying unaudited consolidated financial statements include the accounts of Allegiant Travel Company (the “Company”) and its majority-owned operating subsidiaries. The Company has no independent operations, and all guarantees ofCompany's investments in unconsolidated affiliates, which are 50 percent or less owned, are accounted for under the Company's publicly held debt are full and unconditional and joint and several. Any subsidiaries of the parent company other than the subsidiary guarantors are minor.equity or cost method. All intercompany balances and transactions have been eliminated.
These unaudited consolidated financial statements reflect all normal recurring adjustments which management believes are necessary to present fairly the financial position, results of operations, and cash flows of the Company for the respective periods presented. Certain reclassifications have been made to prior year financial statements to conform to classifications used in the current year. Certain information and footnote disclosures normally included in the annual consolidated financial statements prepared in accordance with U.S. generally accepted accounting principles ("U.S. GAAP") have been omitted pursuant to the rules and regulations of the Securities and Exchange Commission for Form 10-Q. These unaudited interim consolidated financial statements should be read in conjunction with the audited consolidated financial statements of the Company and notes thereto included in the annual report of the Company on Form 10-K for the year ended December 31, 20172018 and filed with the Securities and Exchange Commission.
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities, at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results may differ from these estimates.
Recent Accounting Pronouncements
Recently Adopted Standards Effective in Future Years
In February 2016, the Financial Accounting Standards Board ("FASB") issued ASU 2016-02, related to leases.Leases (Topic 842), (the "New Lease Standard"). This standard will requirerequires leases, with durations greaterother than twelve monthsshort-term, to be recognized on the balance sheet as a lease liability and a corresponding right-of-use asset,asset.
Lease payments include fixed payments, variable payments based on an index or rate, reasonably certain purchase options, termination penalties, and others as required by the standard. Lease payments do not include variable lease payments other than those that depend on an index or rate, any guarantee by the lessee of the lessor’s debt, or any amount allocated to non-lease components. This standard is effective for interim and annual reporting periods beginning after December 15, 2018 with early adoption permitted. Theand the Company will adopt this standard effectiveadopted the New Lease Standard as of January 1, 2019. The Company hasalso elected the package of practical expedients, which among other things, does not completed the assessmentrequire reassessment of this new standard and believes adoption will have a significant impact on its consolidated balance sheets but is not expected to significantly change the recognition, measurement or presentation of associated expenses within the consolidated statements of income or cash flows.lease classification.
Recently Adopted Standards
In August 2016, the FASB issued ASU 2016-15, which amends the guidance in Accounting Standards Codification ("ASC") 230 on the classification of certain cash receipts and payments in the statement of cash flows. The Company adopted this standard effective January 1, 2018.
In February 2018, the FASB issued ASU 2018-02, "Income Statement - Reporting Comprehensive Income (Topic 220)." This standard provides an option to reclassify stranded tax effects within accumulated other comprehensive income (loss) ("AOCI") to retained earnings. The Company adopted this standard effective January 1, 2018 and a one-time effect of $0.6 million was reclassified from AOCI to retained earningsNew Lease Standard using the modified retrospective transition approach as of June 30, 2018the effective date as a result of this adoption.
In 2014,permitted by the FASB issuedamendments in ASU No. 2014-09, Revenue from Contracts with Customers2018-11, "Targeted Improvements - Leases (Topic 606), (the "New Revenue Standard")842)." Under this ASU and subsequently issued amendments, revenuemethod, the cumulative effect adjustment to the opening balance of retained earnings is recognized at the timeadoption date. As a goodresult, the Company was not required to adjust its comparative period financial information for effects of the standard or service is transferred to a customermake the new required lease disclosures for the amount of consideration received. Entities may use a full retrospective approach or report the cumulative effect as ofperiods before the date of adoption. adoption on January 1, 2019.
The Company adoptedCompany's consolidated balance sheet was affected by this standard, usingbut the full retrospective transition method effectiveconsolidated statement of income and liquidity were not significantly impacted. The most significant change to the consolidated balance sheet upon adoption on January 1, 2018 and recast prior year results. See Note 2, "Revenue Recognition" for more information on the financial impact of this adoption.
Under the New Revenue Standard, revenue for all air-related ancillary fees that are directly related2019 relates to ticket revenue, such as seat fees and baggage fees, are no longer considered distinct performance obligations separate from passenger travel and are reclassified into passenger revenue. These are deemed part of the single performance obligation of providing passenger transportation. While the adoption of the New Revenue Standard did not have a significant effect on earnings, $167.6 million and $322.3 million of air-related ancillary fees for the three and six months ended June 30, 2018, respectively, are now classified as passenger revenue.
The adoption of the New Revenue Standard resulted in a net reduction to air traffic liability at December 31, 2017 of $5.9 million. This change resulted from the recognition of breakage revenue on issuancenew right-of-use (ROU) assets of credit vouchers that are expected to expire unused. In addition, recognition$18.0 million and operating liabilities of revenues$19.1 million. The Company's accounting for fees associated with flight changes or cancellations are now deferred rather than being recognized at the time the fee is incurred. The Company recognizes revenue from the co-brand credit card program on the deferral method.finance leases remains substantially unchanged.
Bank of America has issued The Allegiant World Mastercard® in which points are earned and awarded to cardholders in exchangeSee Note 5, "Leases," for consideration received under an agreement with a seven year scheduled duration expiring in 2023. Under this arrangement, the Company identified the following deliverables: travel points to be awarded (the travel component), use of the Company’s brand and access to its member lists, and certain other advertising and marketing elements (collectively the marketing component). Consideration received from the Company’s co-brand agreement is allocated between the two components based on the relative selling price of each deliverable. The Company applies a level of management judgment and estimation in determining the best estimate of selling price for each deliverable by considering multiple inputs and methods including, but not limited to, the redemption value of points awarded, discounted cash flows, brand value, volume discounts, published selling prices, number of points to be awarded and number of points to be redeemed.more information.
Note 2 — Revenue Recognition
Certain prior period amounts have been recast to conform to the adoption of the New Revenue Standard as shown in the tables below.
|
| | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended June 30, 2017 | | Six Months Ended June 30, 2017 |
(in thousands, except per share | | As Previously Reported | | Current Presentation | | As Previously Reported | | Current Presentation |
data) | | Adjustments | | Adjustments |
Income Statement: | | | | | | | | |
Passenger revenue (1) | | $ | 220,615 |
| $ | 146,635 |
| $ | 367,250 |
| | $ | 432,713 |
| $ | 282,373 |
| $ | 715,086 |
|
Air-related charges | | 145,405 |
| (145,405 | ) | — |
| | 276,970 |
| (276,970 | ) | — |
|
Sales and marketing | | 12,861 |
| 631 |
| 13,492 |
| | 22,859 |
| 3,963 |
| 26,822 |
|
Income tax provision | | 29,800 |
| 36 |
| 29,836 |
| | 54,279 |
| 158 |
| 54,437 |
|
Net income | | 48,475 |
| 563 |
| 49,038 |
| | 90,107 |
| 1,282 |
| 91,389 |
|
Diluted earnings per share | | $ | 2.94 |
| $ | 0.03 |
| $ | 2.97 |
| | $ | 5.43 |
| $ | 0.08 |
| $ | 5.51 |
|
(1) Passenger revenue previously reported as Scheduled service revenue.
|
| | | | | | | | | | |
| | December 31, 2017 |
| | As Previously | | Current |
(in thousands) | | Reported | Adjustments | Presentation |
Balance Sheet: | | | | |
Air traffic liability | | $ | 210,184 |
| $ | (5,885 | ) | $ | 204,299 |
|
Deferred income taxes | | 118,492 |
| 521 |
| 119,013 |
|
Retained earnings | | 902,579 |
| 5,364 |
| 907,943 |
|
Passenger Revenue
Passenger revenue is the most significant category in our reported operating revenues. Passenger revenue is primarily composed of scheduled service revenue (including passenger ticket sales and credit voucher breakage,breakage), revenue from ancillary air-related charges (including seat fees, baggage fees, and other travel-related services performed in conjunction with a passenger’s flight,flight), as well as co-brand credit card point redemptions, as outlined below:
|
| | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
(in thousands) | 2019 | | 2018 | | 2019 | | 2018 |
Scheduled service | $ | 237,685 |
| | $ | 235,746 |
| | $ | 472,456 |
| | $ | 474,267 |
|
Ancillary air-related charges | 213,527 |
| | 167,630 |
| | 395,227 |
| | 322,347 |
|
Co-brand redemptions | 3,567 |
| | 2,196 |
| | 7,072 |
| | 5,729 |
|
Total passenger revenue | $ | 454,779 |
| | $ | 405,572 |
| | $ | 874,755 |
| | $ | 802,343 |
|
|
| | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
(in thousands) | 2018 | | 2017 | | 2018 | | 2017 |
Scheduled service | $ | 235,746 |
| | $ | 220,811 |
| | $ | 474,267 |
| | $ | 435,075 |
|
Air-related ancillary charges | 167,630 |
| | 145,887 |
| | 322,347 |
| | 279,111 |
|
Co-brand redemptions | 2,196 |
| | 552 |
| | 5,729 |
| | 900 |
|
Total passenger revenue | $ | 405,572 |
| | $ | 367,250 |
| | $ | 802,343 |
| | $ | 715,086 |
|
Scheduled service
Passenger tickets. The Company provides scheduled air transportation on limited-frequency, nonstop flights predominantly between under-served cities and popular leisure destinations. Sales of passenger tickets not yet flown are recorded in air traffic liability. Passenger revenue is recognized when transportation is provided or when ticket voucher breakage occurs.occurs, to the extent different from estimated breakage.
The contract term of passenger tickets is 12twelve months and revenue associated with future travel will principally be recognized within this time frame. $187.8During the six months ended June 30, 2019, $204.8 million was recognized into passenger revenue during the six months ended June 30, 2018 that was recorded in the air traffic liability balance of $204.3$212.2 million at December 31, 2017.2018.
Credit voucher breakage. The Company estimates the value of vouchers that will expire unused and recognizes revenue at the time the credit voucher is issued.
Air-related
Air-related revenue is primarily composed of services performed in conjunction with a passenger's flight and include baggage fees, the use of the Company’s website to purchase scheduled service transportation, advance seat assignments, and other services. Revenue for these services is recognized when the related transportation service is provided. Prior to the adoption of the New Revenue Standard, the majority of these fees were classified separately as Air-related ancillary charges.
Co-brand redemptionredemptions
In relation to the travel component of the contract with Bank of America, the Company has a performance obligation to provide cardholders with points to be used for future travel award redemptions. Therefore, consideration received from Bank of America related to the travel component is deferred based on its relative selling price and is recognized into passenger revenue when the points are redeemed and the transportation is provided.
The following table presents the activity of the current and non-currentco-brand point liabilities (in thousands):liability as of the dates indicated:
|
| | | | | | | |
| Six Months Ended June 30, |
(in thousands) | 2019 | | 2018 |
Balance at January 1 | $ | 10,708 |
| | $ | 8,903 |
|
Points awarded (deferral of revenue) | 8,827 |
| | 6,898 |
|
Points redeemed (recognition of revenue) | (7,072 | ) | | (5,730 | ) |
Balance at June 30 | $ | 12,463 |
| | $ | 10,071 |
|
|
| | | |
| 2018 |
Balance at January 1 | $ | 8,903 |
|
Points awarded | 6,898 |
|
Points redeemed | (5,730 | ) |
Balance at June 30 | $ | 10,071 |
|
As of June 30, 2019 and 2018, $9.8 million and $6.9 million, respectively, of the current points liability is reflected in Accrued liabilities and represents our current estimate of revenue to be recognized in the next twelve months based on historical trends, with the remaining balance reflected in Other noncurrent liabilities expected to be recognized into revenue in periods thereafter. See below, Third Party Products revenue, for discussion of the marketing component.
Third Party Products
Third party products revenue is generated from the sale of hotel rooms, rental cars, ticket attractions and co-brand marketing revenue.
Revenue from the sale of hotel rooms, rental cars, and ticket attractions is recognized at the time the product is utilized, such as the time a purchased hotel room is occupied. The Company follows the accounting standards for principal versus agent revenue arrangements to determine the amount of revenue to be recognized for each element of a bundled sale involving air-related charges and third party products, in addition to airfare. Revenue from the sale of third party products is recorded net (treatment as an agent) of amounts paid to wholesale providers, travel agent commissions, and transaction costs.
Pursuant to the co-brand agreement with Bank of America, the Company has various performance obligations collectively referred to as the marketing component. These obligations consist of use of the Company’s brand and access to its member lists, and certain other advertising and marketing elements. The marketing component is recorded as third party products revenue in the period in which points are awarded to the credit card holders.
Fixed Fee Contract Revenue
Fixed fee contract revenue consists of agreements to provide charter service on a year-round and ad hoc basis. Fixed fee contract revenue is recognized when the transportation is provided.
Other Revenue
Other revenue is generated from leased aircraft, engines, and other miscellaneous sources. Lease revenue is recognized ratably over the lease term.
Accounts Receivable
Accounts receivable, reflected on the accompanying consolidated balance Sheets, primarily consist of amounts due from credit card companies associated with passenger revenue. These receivables are short-term, generally settled within a few days of sale. Bad debt expense, which occurs in the form of credit card chargebacks, was not material in any period presented.
Taxes and Fees
Various taxes and fees, assessed on the sale of tickets to customers, are collected by the Company serving as an agent, and remitted to taxing authorities. These taxes and fees are not included as revenue in the Company’s consolidated statements of income and are recorded as a liability until remitted to the appropriate taxing authority.
Note 3 — Property and Equipment
Property and equipment (in thousands):equipment:
|
| | | | | | | |
(in thousands) | As of June 30, 2019 | | As of December 31, 2018 |
Flight equipment, including pre-delivery deposits | $ | 2,089,440 |
| | $ | 1,905,157 |
|
Computer hardware and software | 149,354 |
| | 140,385 |
|
Land and buildings/leasehold improvements | 85,939 |
| | 85,925 |
|
Other property and equipment | 121,285 |
| | 89,778 |
|
Total property and equipment | 2,446,018 |
| | 2,221,245 |
|
Less accumulated depreciation and amortization | (426,244 | ) | | (373,977 | ) |
Property and equipment, net | $ | 2,019,774 |
| | $ | 1,847,268 |
|
|
| | | | | | | |
| As of June 30, 2018 | | As of December 31, 2017 |
Flight equipment, including pre-delivery deposits | $ | 1,785,184 |
| | $ | 1,539,433 |
|
Computer hardware and software | 131,661 |
| | 123,675 |
|
Other property and equipment | 151,802 |
| | 125,855 |
|
Total property and equipment | 2,068,647 |
| | 1,788,963 |
|
Less accumulated depreciation and amortization | (321,940 | ) | | (276,548 | ) |
Property and equipment, net | $ | 1,746,707 |
| | $ | 1,512,415 |
|
Note 4 — Long-Term Debt
Long-term debt and capitalfinance lease obligations:
|
| | | | | | | |
(in thousands) | As of June 30, 2019 | | As of December 31, 2018 |
Fixed-rate debt and finance lease obligations due through 2029(1) (2) | $ | 321,646 |
| | $ | 640,806 |
|
Variable-rate debt due through 2029 | 1,177,611 |
| | 630,927 |
|
Total long-term debt and finance lease obligations, net of related costs | 1,499,257 |
| | 1,271,733 |
|
Less current maturities, net of related costs(1) | 160,523 |
| | 152,287 |
|
Long-term debt and finance lease obligations, net of current maturities and related costs | $ | 1,338,734 |
| | $ | 1,119,446 |
|
| | | |
Weighted average fixed-interest rate on debt | 4.7 | % | | 5.3 | % |
Weighted average variable-interest rate on debt | 5.1 | % | | 4.2 | % |
(1) As of June 30, 2019, and December 31, 2018, respectively, $80.1 million and $428.0 million of the Company's Unsecured Senior Notes were classified as long-term as management refinanced the borrowings on a long-term basis in February 2019, as discussed below.
(2) Includes finance lease obligations (in thousands):secured by five aircraft.
|
| | | | | | | |
| As of June 30, 2018 | | As of December 31, 2017 |
Fixed-rate debt and capital lease obligations due through 2030 | $ | 577,452 |
| | $ | 465,462 |
|
Variable-rate debt due through 2027 | 559,262 |
| | 699,430 |
|
Total long-term debt and capital lease obligations, net of related costs | 1,136,714 |
| | 1,164,892 |
|
Less current maturities, net of related costs | 144,392 |
| | 214,761 |
|
Long-term debt and capital lease obligations, net of current maturities and related costs | $ | 992,322 |
| | $ | 950,131 |
|
| | | |
Weighted average fixed-interest rate on debt | 5.4 | % | | 5.4 | % |
Weighted average variable-interest rate on debt | 4.0 | % | | 3.3 | % |
Maturities of long-term debt and capitalfinance lease obligations for the remainder of 20182019 and for the next fivefour years and thereafter, in the aggregate, are: remaining in 2018 - $92.5 million; 2019 - $555.4$168.1 million; 2020 - $103.5$138.9 million; 2021 - $76.6$133.4 million; 2022 - $49.2$113.9 million; 2023 - $100.9 million; and $259.5$844.1 million thereafter.
Secured DebtConsolidated Variable Interest Entity
During the six months ended June 30, 2018, the Company borrowed $10.8 million under a loan agreement secured by various ground equipment. The notes bear interest at a fixed rate of 4.2 percent per year, payable in monthly installments over five years.
Senior Secured Revolving Credit Facility
In 2015,March 2019, the Company, through a wholly owned subsidiary, entered into agreements with a trust to borrow $44.0 million secured by one aircraft. The trust was funded on inception. These borrowings bear interest at a blended rate of 3.8 percent, payable in quarterly installments through April 2029, at which time the Company will have a purchase option at a fixed amount. As this transaction is a common control transaction, the Company, as the primary beneficiary, has measured and recorded the assets and liabilities at their carrying values, which were $39.1 million and $44.0 million, respectively, at the time of borrowing.
Senior Secured Revolving Credit Facility
The Company has a senior secured revolving credit facility under which it was entitledis able to borrow up to $56.0 million. In March 2018, the Company paid off the balance of the facility and amended it to increase the borrowing limit to $81.0 million. There was no balance under this facility as of June 30, 2019. The amended facility has a term of 24 months and is based on the value of Airbus A320 Series aircraft which the Company may choose to placeplaced in the collateral pool. There was no balance under this facilityAircraft remain in the collateral pool for up to two years, and, as of June 30, 2018.2019, there were four aircraft in the collateral pool.
See Note 10, "Subsequent Events,"
Secured Debt
In June 2019, the Company entered into an agreement to borrow $213.0 million secured by 23 aircraft. The borrowing bears interest at a floating rate based on LIBOR, and is payable in quarterly installments over five years. A portion of the proceeds was used for more informationthe prepayment of six existing debt agreements and the repayment of the outstanding balance on the senior secured revolving credit facility.
During the second quarter 2019, the Company borrowed a total of $63.4 million under multiple loan agreements secured by spare engines. The borrowings bear interest at a floating rate based on LIBOR, and are payable in quarterly installments, with terms ranging from seven to ten years.
Term Loan
In February 2019, the Company entered into a Credit and Guaranty Agreement (the “Term Loan”) to borrow $450.0 million, guaranteed by all of the Company's subsidiaries, excluding Sunseeker Resorts Inc. and its subsidiaries, and other insignificant subsidiaries (the "Term Loan Guarantors"). The Term Loan is secured by substantially all property and assets of the Company and the Term Loan Guarantors, excluding aircraft and aircraft engines, and excluding certain other assets. The Term Loan has a five-year term, bears interest based on LIBOR and provides for quarterly interest payments along with quarterly principal payments of $1.1 million through February 2024, at which time the Term Loan is due. The Term Loan may be prepaid at any time without penalty.
In connection with the Term Loan, the Company conducted a tender offer for its 5.5 percent senior unsecured obligation, as outlined below.
General Unsecured Senior Notes
In June 2014,Since December 2016 and until February 2019, the Company completed an offering of $300.0had outstanding $450.0 million aggregate principal amount of senior unsecured obligations (the "Notes") which will mature in July 2019. In December 2016, the Company completed an offering of an additional $150.0 million principal amount of these notes, which were issued at a price of 101.5 percent of the principal amount, plus accrued interest from July 15, 2016. The Notes bearbore interest at a rate of 5.5 percent per year payableand matured in cash semi-annually, on January 15thJuly 2019.
In connection with the Term Loan discussed above, the Company completed a tender offer in February 2019, whereby it purchased $347.9 million of the Notes, and July 15thincurred related debt extinguishment costs of each year.
$3.7 million. The indenture pursuantgoverning the Notes was amended to eliminate most of the restrictive covenants and certain events of default and amend certain other provisions applicable to the Notes. The $428.0 million net proceeds from the Term Loan were used to purchase the Notes, of which the Notes were issued includes operating and financial restrictions on the Company. These restrictions limit or restrict, among other things, the Company’s ability and the ability of its restricted subsidiaries to (i) incur additional indebtedness; (ii) incur liens; (iii) make restricted payments (including paying dividends on, redeeming, repurchasing or retiring capital stock); (iv) make investments; and (v) consolidate, merge or sell all or substantially all of its assets. These covenants are subject to various exceptions and qualifications under the termsremaining $102.1 million outstanding at June 30, 2019 was paid at maturity in July 2019.
Construction Loan Agreement
In March 2019, Sunseeker Florida, Inc. (“SFI”), a wholly-owned subsidiary of the indenture. AsCompany, entered into a Construction Loan Agreement with certain lenders affiliated with TPG Sixth Street Partners, LLC (the “Lender”). Under the Construction Loan Agreement, SFI may borrow up to $175.0 million (the “Loan”) to fund the construction of December 31, 2017 and June 30, 2018, the Company exceeded the consolidated total leverage ratio limit, which could affect the ability to make restricted payments in future periods after exhaustionPhase 1 of various exceptions. However, it is not expected thatSunseeker Resort -Charlotte Harbor (the “Project”). No amount has been drawn under this will have any impact on the restricted payments routinely made in the ordinary course of business. The calculation is made on a quarterly basis based on the trailing 12 months.
Capital Leases
The Company has capital lease obligations related to aircraft, which significantly impacted our recognized assets and liabilitiesagreement as of June 30, 2018, but did not result2019.
Under the Construction Loan Agreement, the Lender is to provide the final $175.0 million of funding for the Project, with initial funding to come from the Company. The loan is secured by the Project and, for a period of time, the surrounding land owned by SFI. The Company has guaranteed one-third of the debt, has agreed to bear responsibility under a Non-Recourse Carve-Out Guaranty, and has agreed to guarantee completion of the Project in any significant cash receipts or cash payments duringaccordance with approved plans and specifications. All of the quarter.shares in SFI are also pledged to secure the loan. The Loan bears interest based on LIBOR and matures in March 2023.
Note 5 — Leases
The Company determines if an arrangement is a lease at inception and has lease agreements for office facilities, office equipment, certain airport and terminal facilities, and other space and assets. These commitments have remaining non-cancelable lease terms, with lease expirations which range from 2019 to 2036.
As a result of the New Lease Standard, certain real estate and property leases, and various other operating leases have been measured on the balance sheet with a lease liability and right-of-use asset ("ROU"). Airport terminal leases mostly include
variable lease payments outside of those based on a fixed index, and are therefore excluded from consideration. Accounting for finance leases is substantially unchanged.
ROU assets represent the Company's right to use an underlying asset for the lease term, and lease liabilities represent the obligation to make scheduled lease payments. ROU assets and liabilities are recognized on the lease commencement date based on the present value of lease payments over the lease term. The present value of lease payments is calculated using the incremental borrowing rate at lease commencement, which takes into consideration recent debt issuances as well as other applicable market data available.
Lease terms include options to extend when it is reasonably certain that the option will be exercised. Leases with a term of twelve months or less are not recorded on the balance sheet. Additionally, lease and non-lease components are accounted for as a single lease component for real estate agreements.
In addition to operating leases, the Company leases certain aircraft and, as of June 30, 2019, had five aircraft under finance leases with remaining terms to 2029.
Lease Costs
The components of lease expense were as follows:
|
| | | | | | | | |
| | Three Months Ended | | Six Months Ended |
(in thousands) | Classification on the Statements of Income | June 30, 2019 | | June 30, 2019 |
Finance lease costs: | | | | |
Amortization of assets | Depreciation and amortization | $ | 1,629 |
| | $ | 3,259 |
|
Interest on lease liabilities | Interest expense | 1,326 |
| | 2,672 |
|
Operating lease cost | Station operations; Maintenance and repairs; Other operating expense | 805 |
| | 1,581 |
|
Variable lease cost | Station operations; Maintenance and repairs; Other operating expense | 2,703 |
| | 5,797 |
|
Total lease cost | | $ | 6,463 |
| | $ | 13,309 |
|
Lease position as of June 30, 2019
The table below presents the lease-related assets and liabilities recorded on the balance sheet.
|
| | | | |
| | As of |
(in thousands) | Classification on the Balance Sheet | June 30, 2019 |
Assets | | |
Operating lease assets | Operating lease right-of-use assets, net | $ | 22,233 |
|
Finance lease assets | Property and equipment, net | 114,924 |
|
Total lease assets | | $ | 137,157 |
|
| | |
Liabilities | | |
Current | | |
Operating | Accrued liabilities | $ | 2,240 |
|
Finance | Current maturities of long-term debt and finance lease obligations | 7,499 |
|
Noncurrent | | |
Operating | Other noncurrent liabilities | 21,476 |
|
Finance | Long-term debt and finance lease obligations | 111,805 |
|
Total lease liabilities | | $ | 143,020 |
|
| | |
Weighted-average remaining lease term | | |
Operating leases | | 9.3 years |
|
Finance leases | | 10.4 years |
|
Weighted-average discount rate | | |
Operating leases | | 4.2 | % |
Finance leases | | 4.4 | % |
Other Information
The table below presents supplemental cash flow information related to leases during the three and six months ended June 30, 2019.
|
| | | | | | |
| Three Months Ended | | Six Months Ended |
(in thousands) | June 30, 2019 | | June 30, 2019 |
Cash paid for amounts included in the measurement of lease liabilities | | | |
Operating cash flows for operating leases | $ | 643 |
| | 1,272 |
|
Operating cash flows for finance leases | 1,326 |
| | 2,672 |
|
Financing cash flows for finance leases | 1,824 |
| | 3,628 |
|
Maturities of Lease Liabilities
The table below indicates the future minimum payments of lease liabilities as of June 30, 2019.
|
| | | | | | | |
(in thousands) | Operating Leases | | Finance Leases |
Remaining in 2019 | $ | 1,586 |
| | $ | 6,300 |
|
2020 | 3,206 |
| | 12,600 |
|
2021 | 3,249 |
| | 12,600 |
|
2022 | 3,294 |
| | 11,095 |
|
2023 | 3,147 |
| | 10,500 |
|
Thereafter | 14,325 |
| | 103,459 |
|
Total lease payments | 28,807 |
| | 156,554 |
|
Less imputed interest | (5,091 | ) | | (37,250 | ) |
Total lease obligations | 23,716 |
| | 119,304 |
|
Less current obligations | (2,240 | ) | | (7,499 | ) |
Long-term lease obligations | $ | 21,476 |
| | $ | 111,805 |
|
The Company adopted the New Lease Standard on January 1, 2019 as noted above, and as required, the following disclosure is provided for periods prior to adoption. Future annual minimum lease payments as of December 31, 2018 were as follows:
|
| | | | | | | |
(in thousands) | Operating Leases | | Capital Leases |
2019 | $ | 8,102 |
| | $ | 12,600 |
|
2020 | 6,031 |
| | 12,600 |
|
2021 | 3,643 |
| | 12,600 |
|
2022 | 1,630 |
| | 11,095 |
|
2023 | 1,626 |
| | 10,500 |
|
Thereafter | 8,297 |
| | 103,458 |
|
Total lease payments | $ | 29,329 |
| | 162,853 |
|
Less imputed interest | | | (39,922 | ) |
Total lease obligations | | | 122,931 |
|
Less current obligations | | | (7,336 | ) |
Long-term lease obligations | | | $ | 115,595 |
|
Note 6 — Fair Value Measurements
The Company measures certain financial assets and liabilities at fair value on a recurring basis. Fair value is an exit price, representing the amount that would be received by selling an asset or paid to transfer a liability in an orderly transaction between market participants.
Accounting standards pertaining to fair value measurements establish a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. These tiers include: Level 1, defined as observable inputs such as quoted prices in active markets for identical assets or liabilities; Level 2, defined as inputs other than Level 1 inputs that are either directly or indirectly observable; and Level 3, defined as unobservable inputs for which little or no market data exists, therefore requiring an entity to develop its own assumptions.
The Company uses the market approach valuation technique to determine fair value for investment securities. The assets classified as Level 1 consist of money market funds for which original cost approximates fair value. The assets classified as Level 2 consist of commercial paper, municipal debt securities, federal agency debt securities, US Treasury Bonds, and corporate debt securities, which are valued using quoted market prices or alternative pricing sources including transactions involving identical or comparable assets and models utilizing market observable inputs. The Company has no investment securities classified as Level 3.
For those assets classified as Level 2 that are not in active markets, the Company obtains fair value from pricing sources using quoted market prices for identical or comparable instruments, and uses pricing models which include all significant observable
inputs: maturity dates, issue dates, settlement dates, benchmark yields, reported trades, broker-dealer quotes, issue spreads, benchmark securities, bids, offers and other market related data. These inputs are observable or can be derived from, or corroborated by, observable market data for substantially the full term of the asset.
The fair value of the Company's derivative instrument is determined using standard valuation models. The significant inputs used in these models are readily available in public markets or can be derived from observable market transactions and therefore have been classified as Level 2. Inputs used in these standard valuation models for derivative instruments include the applicable exchange and interest rates.
Financial instruments measured at fair value on a recurring basis (in thousands):basis:
| | | As of June 30, 2018 | | As of December 31, 2017 | As of June 30, 2019 | | As of December 31, 2018 |
| Total | | Level 1 | | Level 2 | | Total | | Level 1 | | Level 2 | |
(in thousands) | | Total | | Level 1 | | Level 2 | | Total | | Level 1 | | Level 2 |
Cash equivalents | | | | | | | | | | | | | | | | | | | | | | |
Money market funds | | $ | 310,550 |
| | $ | 310,550 |
| | $ | — |
| | $ | 43,281 |
| | $ | 43,281 |
| | $ | — |
|
Commercial paper | $ | 9,952 |
| | $ | — |
| | $ | 9,952 |
| | $ | 27,910 |
| | $ | — |
| | $ | 27,910 |
| 110,429 |
| | — |
| | 110,429 |
| | 29,138 |
| | — |
| | 29,138 |
|
Municipal debt securities | 5,325 |
| | — |
| | 5,325 |
| | 2,782 |
| | — |
| | 2,782 |
| 2,408 |
| | — |
| | 2,408 |
| | — |
| | — |
| | — |
|
Money market funds | 115 |
| | 115 |
| | — |
| | 1,297 |
| | 1,297 |
| | — |
| |
Federal agency debt securities | | 950 |
| | — |
| | 950 |
| | — |
| | — |
| | — |
|
US Treasury bonds | | — |
| | — |
| | — |
| | 1,415 |
| | — |
| | 1,415 |
|
Total cash equivalents | 15,392 |
| | 115 |
| | 15,277 |
| | 31,989 |
| | 1,297 |
| | 30,692 |
| 424,337 |
| | 310,550 |
| | 113,787 |
| | 73,834 |
| | 43,281 |
| | 30,553 |
|
Short-term | |
| | |
| | | | |
| | |
| | |
| |
| | |
| | | | |
| | |
| | |
|
Commercial paper | 141,091 |
| | — |
| | 141,091 |
| | 108,678 |
| | — |
| | 108,678 |
| 138,332 |
| | — |
| | 138,332 |
| | 180,846 |
| | — |
| | 180,846 |
|
Corporate debt securities | 116,804 |
| | — |
| | 116,804 |
| | 107,878 |
| | — |
| | 107,878 |
| 55,729 |
| | — |
| | 55,729 |
| | 101,489 |
| | — |
| | 101,489 |
|
Federal agency debt securities | | 10,504 |
| | — |
| | 10,504 |
| | 11,887 |
| | — |
| | 11,887 |
|
Municipal debt securities | 53,143 |
| | — |
| | 53,143 |
| | 101,290 |
| | — |
| | 101,290 |
| 7,450 |
| | — |
| | 7,450 |
| | 14,252 |
| | — |
| | 14,252 |
|
Federal agency debt securities | 30,718 |
| | — |
| | 30,718 |
| | 31,428 |
| | — |
| | 31,428 |
| |
US Treasury Bonds | 1,424 |
| | — |
| | 1,424 |
| | 3,407 |
| | — |
| | 3,407 |
| |
US Treasury bonds | | 4,731 |
| | — |
| | 4,731 |
| | 5,990 |
| | — |
| | 5,990 |
|
Total short-term | 343,180 |
| | — |
| | 343,180 |
| | 352,681 |
| | — |
| | 352,681 |
| 216,746 |
| | — |
| | 216,746 |
| | 314,464 |
| | — |
| | 314,464 |
|
Long-term | |
| | |
| | |
| | |
| | |
| | |
| |
| | |
| | |
| | |
| | |
| | |
|
Corporate debt securities | 43,363 |
| | — |
| | 43,363 |
| | 60,396 |
| | — |
| | 60,396 |
| 20,367 |
| | — |
| | 20,367 |
| | 37,334 |
| | — |
| | 37,334 |
|
US Treasury bonds | | 3,068 |
| | — |
| | 3,068 |
| | 2,901 |
| | — |
| | 2,901 |
|
Federal agency debt securities | 10,022 |
| | — |
| | 10,022 |
| | 5,775 |
| | — |
| | 5,775 |
| 1,269 |
| | — |
| | 1,269 |
| | 11,291 |
| | — |
| | 11,291 |
|
US Treasury Bonds | 2,973 |
| | — |
| | 2,973 |
| | 2,994 |
| | — |
| | 2,994 |
| |
Derivative instruments | 21 |
| | — |
| | 21 |
| | 282 |
| | — |
| | 282 |
| |
Municipal debt securities | — |
| | — |
| | — |
| | 9,405 |
| | — |
| | 9,405 |
| |
Total long-term | 56,379 |
| | — |
| | 56,379 |
| | 78,852 |
| | — |
| | 78,852 |
| 24,704 |
| | — |
| | 24,704 |
| | 51,526 |
| | — |
| | 51,526 |
|
Total financial instruments | $ | 414,951 |
| | $ | 115 |
| | $ | 414,836 |
| | $ | 463,522 |
| | $ | 1,297 |
| | $ | 462,225 |
| $ | 665,787 |
| | $ | 310,550 |
| | $ | 355,237 |
| | $ | 439,824 |
| | $ | 43,281 |
| | $ | 396,543 |
|
The fair value of the Company’s publicly held long-term debt is determined based on inputs that are readily available in public markets or can be derived from information available in publicly quoted markets; therefore, the Company has categorized its publicly held debt as Level 2. RemainingThe Company's remaining debt is not publicly held, and the Company has determined the estimated fair value of these notes to be Level 3, as certain inputs used to determine the fair value are unobservable and, therefore, could be sensitive to changes in inputs. The Company utilizes the discounted cash flow method to estimate the fair value of Level 3 debt.
Carrying value and estimated fair value of long-term debt, including current maturities and without reduction for related costs (in thousands):are as follows:
|
| | | | | | | | | | | | | | | | | |
| As of June 30, 2019 | | As of December 31, 2018 | | |
(in thousands) | Carrying Value | | Estimated Fair Value | | Carrying Value | | Estimated Fair Value | | Hierarchy Level |
Publicly held debt | $ | 102,090 |
| | $ | 102,154 |
| | $ | 450,463 |
| | $ | 451,026 |
| | 2 |
Non-publicly held debt | 1,303,593 |
| | 1,098,068 |
| | 703,372 |
| | 619,379 |
| | 3 |
Total long-term debt | $ | 1,405,683 |
| | $ | 1,200,222 |
| | $ | 1,153,835 |
| | $ | 1,070,405 |
| | |
|
| | | | | | | | | | | | | | | | | |
| As of June 30, 2018 | | As of December 31, 2017 | | |
| Carrying Value | | Estimated Fair Value | | Carrying Value | | Estimated Fair Value | | Hierarchy Level |
Publicly held debt | $ | 450,893 |
| | $ | 453,147 |
| | $ | 451,321 |
| | $ | 462,604 |
| | 2 |
Non-publicly held debt | 589,357 |
| | 526,887 |
| | 719,681 |
| | 660,065 |
| | 3 |
Total long-term debt | $ | 1,040,250 |
| | $ | 980,034 |
| | $ | 1,171,002 |
| | $ | 1,122,669 |
| | |
Due to the short-term nature, carrying amounts of cash, cash equivalents, restricted cash, accounts receivable and accounts payable approximate fair value.
Note 6 — Shareholders’ Equity
The Company is authorized by the Board of Directors to acquire up to $100.0 million of its stock through open market purchases under its share repurchase program. As repurchase authority is used, the Board of Directors has, to date, authorized additional expenditures for share repurchases.
Share repurchases consisted of the following:
|
| | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2018 | | 2017 | | 2018 | | 2017 |
Shares repurchased (not in thousands) (1) | None |
| | 589,057 |
| | None |
| | 604,497 |
|
Average price per share | NA |
| | $ | 142.16 |
| | NA |
| | $ | 142.66 |
|
Total (in thousands) | None |
| | $ | 83,740 |
| | None |
| | $ | 86,240 |
|
(1) Share amounts shown above include only open market repurchases and do not include shares withheld from employees for tax withholding obligations related to restricted stock vestings.
During the six months ended June 30, 2018, the Company declared and paid recurring cash dividends of $1.40 per share, or $22.6 million.
Note 7 — Earnings per Share
Basic and diluted earnings per share are computed pursuant to the two-class method. Under this method, the Company attributes net income to two classes: common stock and unvested restricted stock. Unvested restricted stock awards granted to employees under the Company’s Long-Term Incentive Plan are considered participating securities as they receive non-forfeitable rights to cash dividends at the same rate as common stock.
Diluted net income per share is calculated using the more dilutive of the two methods. Under both methods, the exercise of employee stock options is assumed using the treasury stock method. The assumption of vesting of restricted stock, however, differs:
| |
1. | Assume vesting of restricted stock using the treasury stock method. |
| |
2. | Assume unvested restricted stock awards are not vested, and allocate earnings to common shares and unvested restricted stock awards using the two-class method. |
For the three and six months ended June 30, 2019 and 2018, respectively, the second method, which assumes unvested awards are not vested, was used in the computation because it was more dilutive than the first method.
The following table sets forth the computation of net income per share, on a basic and diluted basis, for the periods indicated (share count and dollar amounts other than per-share amounts in table are in thousands):
|
| | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2019 | | 2018 | | 2019 | | 2018 |
Basic: | | | | | | | |
Net income | $ | 70,543 |
| | $ | 50,016 |
| | $ | 127,667 |
| | $ | 105,209 |
|
Less net income allocated to participating securities | (997 | ) | | (659 | ) | | (1,791 | ) | | (1,427 | ) |
Net income attributable to common stock | $ | 69,546 |
| | $ | 49,357 |
| | $ | 125,876 |
| | $ | 103,782 |
|
Earnings per share, basic | $ | 4.33 |
| | $ | 3.10 |
| | $ | 7.85 |
| | $ | 6.53 |
|
Weighted-average shares outstanding | 16,063 |
| | 15,939 |
| | 16,037 |
| | 15,898 |
|
Diluted: | |
| | |
| | |
| | |
|
Net income | $ | 70,543 |
| | $ | 50,016 |
| | $ | 127,667 |
| | $ | 105,209 |
|
Less net income allocated to participating securities | (996 | ) | | (658 | ) | | (1,790 | ) | | (1,425 | ) |
Net income attributable to common stock | $ | 69,547 |
| | $ | 49,358 |
| | $ | 125,877 |
| | $ | 103,784 |
|
Earnings per share, diluted | $ | 4.33 |
| | $ | 3.10 |
| | $ | 7.84 |
| | $ | 6.52 |
|
Weighted-average shares outstanding | 16,063 |
| | 15,939 |
| | 16,037 |
| | 15,898 |
|
Dilutive effect of stock options and restricted stock | 39 |
| | 44 |
| | 39 |
| | 63 |
|
Adjusted weighted-average shares outstanding under treasury stock method | 16,102 |
| | 15,983 |
| | 16,076 |
| | 15,961 |
|
Participating securities excluded under two-class method | (33 | ) | | (38 | ) | | (26 | ) | | (47 | ) |
Adjusted weighted-average shares outstanding under two-class method | 16,069 |
| | 15,945 |
| | 16,050 |
| | 15,914 |
|
|
| | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2018 | | 2017 | | 2018 | | 2017 |
Basic: | | | | | | | |
Net income | $ | 50,016 |
| | $ | 49,038 |
| | $ | 105,209 |
| | $ | 91,389 |
|
Less net income allocated to participating securities | (659 | ) | | (789 | ) | | (1,427 | ) | | (1,482 | ) |
Net income attributable to common stock | $ | 49,357 |
| | $ | 48,249 |
| | $ | 103,782 |
| | $ | 89,907 |
|
Earnings per share, basic | $ | 3.10 |
| | $ | 2.98 |
| | $ | 6.53 |
| | $ | 5.52 |
|
Weighted-average shares outstanding | 15,939 |
| | 16,198 |
| | 15,898 |
| | 16,290 |
|
Diluted: | |
| | |
| | |
| | |
|
Net income | $ | 50,016 |
| | $ | 49,038 |
| | $ | 105,209 |
| | $ | 91,389 |
|
Less net income allocated to participating securities | (658 | ) | | (789 | ) | | (1,425 | ) | | (1,480 | ) |
Net income attributable to common stock | $ | 49,358 |
| | $ | 48,249 |
| | $ | 103,784 |
| | $ | 89,909 |
|
Earnings per share, diluted | $ | 3.10 |
| | $ | 2.97 |
| | $ | 6.52 |
| | $ | 5.51 |
|
Weighted-average shares outstanding | 15,939 |
| | 16,198 |
| | 15,898 |
| | 16,290 |
|
Dilutive effect of stock options and restricted stock | 44 |
| | 71 |
| | 63 |
| | 92 |
|
Adjusted weighted-average shares outstanding under treasury stock method | 15,983 |
| | 16,269 |
| | 15,961 |
| | 16,382 |
|
Participating securities excluded under two-class method | (38 | ) | | (49 | ) | | (47 | ) | | (65 | ) |
Adjusted weighted-average shares outstanding under two-class method | 15,945 |
| | 16,220 |
| | 15,914 |
| | 16,317 |
|
For the three and six months ended June 30, 2018, anti-dilutive shares excluded from the calculation of earnings per share were 1,379 and 607 shares (not in thousands), respectively.
Note 8 — Commitments and Contingencies
As of June 30, 2018,2019, the Company had firm commitments to purchase 11nine Airbus A320 aircraft. In addition, the Company has entered into lease agreements for an additional 13 Airbus A320series aircraft three of which have been delivered and are in service, and one of which has been delivered but was not in service as of June 30, 2018. CFM engine.
The remaining nine aircraft are currently scheduled to be delivered in the second half of 2018 and first quarter of 2019.
Future minimum fixed payments for the Company's contractual purchase commitments related to the acquisitionconsist primarily of aircraft (including aircraft lease obligations), airport fees under use and lease agreements, and other operating lease obligationsengine acquisitions. The total future commitments are as follows as of June 30, 2018 (in thousands):follows:
|
| | | |
(in thousands) | As of June 30, 2019 |
Remaining in 2019 | $ | 120,927 |
|
2020 | 33,800 |
|
2021 | 500 |
|
2022 | 18,000 |
|
Total commitments | $ | 173,227 |
|
|
| | | |
| As of June 30, 2018 |
Remaining in 2018 | $ | 79,148 |
|
2019 | 123,164 |
|
2020 | 67,422 |
|
2021 | 26,288 |
|
2022 | 23,569 |
|
Thereafter | 150,598 |
|
Total commitments | $ | 470,189 |
|
Contingencies
The Company is subject to certain legal and administrative actions it considers routine to its business activities. The Company believes the ultimate outcome of any pending legal or administrative matters will not have a material adverse impact on its financial position, liquidity or results of operations.
Note 9 — Related Party TransactionsSegments
DuringOperating segments are components of a company for which separate financial and operating information is regularly evaluated and reported to the threeChief Operating Decision Maker ("CODM"), and six months ended June 30, 2018,is used to allocate resources and analyze performance. The Company's CODM is the Company made no payments to related parties.
Entities owned or controlled byexecutive leadership team, which reviews information about the Company's Chairmanthree operating segments: the Airline, Sunseeker Resort, and CEO have been paidOther non-airline.
Airline Segment
The Airline segment operates as a single business unit and includes all scheduled service air transportation, ancillary air-related products and services, third party products and services, fixed fee contract air transportation and other airline-related revenue. The CODM evaluation includes, but is not limited to, route and flight profitability data, ancillary and third party product and service offering statistics, and fixed fee contract information when making resource allocation decisions with the goal of optimizing consolidated financial results.
Sunseeker Resort Segment
The Sunseeker Resort segment represents activity related to the development and construction of Sunseeker Resort in Southwest Florida, as well as the operation of Kingsway golf course. Plans for the buildingresort include a 500-room hotel and two towers offering an estimated 180 one, two and three bedroom suites, bar and restaurant options, and other amenities. The golf course is a short drive from the resort site and is considered, from a planning and strategic perspective, to be an additional resort amenity. The construction of corporate training content. DuringSunseeker Resort is an extension of the threeCompany's leisure travel focus and six months ended June 30, 2017,it is expected that many customers flying to Southwest Florida on Allegiant will elect to stay at this resort and enjoy its amenities.
Other non-Airline Segment
The other non-airline segment includes the Company made paymentsTeesnap golf course management solution and Allegiant Nonstop family entertainment centers. Allegiant Nonstop family entertainment centers are comprised of games, attractions, and food facilities.
Selected information for the Company's segments and the reconciliation to these entitiesthe consolidated financial statement amounts are as follows:
|
| | | | | | | | | | | | | | | |
(in thousands) | Airline | | Sunseeker Resort | | Other non- airline | | Consolidated |
Three Months Ended June 30, 2019 | | | | | | | |
Operating revenue: | | | | | | | |
Passenger | $ | 454,779 |
| | $ | — |
| | $ | — |
| | $ | 454,779 |
|
Third party products | 18,208 |
| | — |
| | — |
| | 18,208 |
|
Fixed fee contract | 12,487 |
| | — |
| | — |
| | 12,487 |
|
Other | 1,299 |
| | 373 |
| | 4,613 |
| | 6,285 |
|
Operating income (loss) | 115,546 |
| | (1,695 | ) | | (5,746 | ) | | 108,105 |
|
Interest expense, net | 15,924 |
| | 478 |
| | — |
| | 16,402 |
|
Depreciation and amortization | 36,890 |
| | 326 |
| | 1,278 |
| | 38,494 |
|
Capital expenditures | 98,128 |
| | 11,296 |
| | 2,494 |
| | 111,918 |
|
Three Months Ended June 30, 2018 | | | | | | | |
Operating revenue: | | | | | | | |
Passenger | $ | 405,572 |
| | $ | — |
| | $ | — |
| | $ | 405,572 |
|
Third party products | 17,799 |
| | — |
| | — |
| | 17,799 |
|
Fixed fee contract | 7,653 |
| | — |
| | — |
| | 7,653 |
|
Other | 3,531 |
| | — |
| | 2,225 |
| | 5,756 |
|
Operating income (loss) | 76,054 |
| | (301 | ) | | (1,531 | ) | | 74,222 |
|
Interest expense, net | 11,229 |
| | — |
| | — |
| | 11,229 |
|
Depreciation and amortization | 29,405 |
| | 10 |
| | 418 |
| | 29,833 |
|
Capital expenditures | 106,360 |
| | 9,204 |
| | 2,725 |
| | 118,289 |
|
| | | | | | | |
(in thousands) | Airline | | Sunseeker Resort | | Other non- airline | | Consolidated |
Six Months Ended June 30, 2019 | | | | | | | |
Operating revenue: | | | | | | | |
Passenger | $ | 874,755 |
| | $ | — |
| | $ | — |
| | $ | 874,755 |
|
Third party products | 35,350 |
| | — |
| | — |
| | 35,350 |
|
Fixed fee contract | 23,061 |
| | — |
| | — |
| | 23,061 |
|
Other | 1,930 |
| | 1,275 |
| | 7,010 |
| | 10,215 |
|
Operating income (loss) | 214,035 |
| | (2,917 | ) | | (11,937 | ) | | 199,181 |
|
Interest expense, net | 29,145 |
| | 636 |
| | — |
| | 29,781 |
|
Depreciation and amortization | 72,119 |
| | 482 |
| | 2,075 |
| | 74,676 |
|
Capital expenditures | 207,048 |
| | 16,571 |
| | 10,850 |
| | 234,469 |
|
Six Months Ended June 30, 2018 | | | | | | | |
Operating revenue: | | | | | | | |
Passenger | $ | 802,343 |
| | $ | — |
| | $ | — |
| | $ | 802,343 |
|
Third party products | 28,124 |
| | — |
| | — |
| | 28,124 |
|
Fixed fee contract | 18,209 |
| | — |
| | — |
| | 18,209 |
|
Other | 10,197 |
| | — |
| | 3,351 |
| | 13,548 |
|
Operating income (loss) | 158,004 |
| | (446 | ) | | (3,368 | ) | | 154,190 |
|
Interest expense, net | 22,046 |
| | — |
| | — |
| | 22,046 |
|
Depreciation and amortization | 57,172 |
| | 17 |
| | 794 |
| | 57,983 |
|
Capital expenditures | 165,934 |
| | 17,344 |
| | 4,178 |
| | 187,456 |
|
Total assets were as follows as of $0.2 million. No further payments are expected.the date indicated:
|
| | | | | | | |
(in thousands) | June 30, 2019 | | December 31, 2018 |
Airline | $ | 2,859,309 |
| | $ | 2,422,523 |
|
Sunseeker Resort | 80,895 |
| | 56,047 |
|
Other non-airline | 41,996 |
| | 20,098 |
|
Consolidated | $ | 2,982,200 |
| | $ | 2,498,668 |
|
Note 10 — Subsequent Events
In July 2018, the Company drew down $46.9 million under its senior secured revolving credit facility. The notes for the amounts borrowed under the facility bear interest at a floating rate based on LIBOR and are due on March 31, 2020.
Also in July 2018, the Company also borrowed $34.5 million under a loan agreement secured by one Airbus A320 series aircraft. The note bears interest at a floating rate based on LIBOR and will be payable in quarterly installments through July 2028.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis presents factors that had a material effect on our results of operations during the three and six months ended June 30, 20182019 and 2017.2018. Also discussed is our financial position as of June 30, 20182019 and December 31, 2017.2018. You should read this discussion in conjunction with our unaudited consolidated financial statements, including the notes thereto, appearing elsewhere in this Form 10-Q and our consolidated financial statements appearing in our annual report on Form 10-K for the year ended December 31, 2017.2018. This discussion and analysis contains forward-looking statements. Please refer to the section below entitled “Cautionary Note Regarding Forward-Looking Statements” for a discussion of the uncertainties, risks and assumptions associated with these statements.
SECOND QUARTER REVIEW
Second Quarter 2019 Review
Highlights:
| |
– | Achieved 23.7 percent airline operating margin, which represents a 6.2 percentage point increase year over year; |
| |
– | produced a 6.1 percent decrease in airline operating CASM excluding fuel; |
| |
– | recognized our second consecutive quarter of ancillary air-related revenue per passenger exceeding $50, with a total of $51.68 this quarter; |
| |
– | achieved industry leading controllable completion of more than 99.9% during the quarter; |
| |
– | improved A14 performance (flight arrival within 14 minutes of scheduled arrival) by 2.8 percentage points compared to 2018; |
| |
– | added two aircraft into service and expect an additional six to be added in the back half of 2019; and |
| |
– | announced 10 new routes, and began service on 35 routes previously announced. |
Added 10 Airbus A320 series aircraft into service and retired five MD-80 aircraft during the quarter. We are on track to retire the remaining MD-80 aircraft by the end of November 2018;
realized a 10.4 percent increase in passenger revenue which offset higher fuel costs;
achieved a 5.0 percent decrease in CASM excluding fuel costs despite higher operational costs associated with the fleet transition; and
paid recurring cash dividends of $11.3 million during the quarter, $22.6 million year to date.
AIRCRAFT
The following table sets forth the aircraft in service and operated by us as of the dates indicated:
|
| | | | | | | | |
| June 30, 2018 | | December 31, 2017 | | June 30, 2017 |
MD-80 | 27 |
| | 37 |
| | 45 |
|
B757-200 | — |
| | — |
| | 2 |
|
A319 (1) | 31 |
| | 22 |
| | 20 |
|
A320 (2) | 35 |
| | 30 |
| | 21 |
|
Total | 93 |
| | 89 |
| | 88 |
|
|
| | | | | | | | |
| June 30, 2019 | | December 31, 2018 | | June 30, 2018 |
A319 | 37 |
| | 32 |
| | 31 |
|
A320 (1) | 49 |
| | 44 |
| | 35 |
|
MD-80 | — |
| | — |
| | 27 |
|
Total | 86 |
| | 76 |
| | 93 |
|
(1) Does not include six A319four aircraft on lease to a European carrier as of June 30, 2018.
(2) Does not include seven A320 aircraft for which we have taken delivery, but were not yet in service as of June 30, 2018.2019.
As of June 30, 2018,2019, we had firm commitments to purchase 11 Airbus A320 series aircraft and had executed lease agreements for nine Airbus A320 series aircraft which have yet to be delivered.aircraft. We expect delivery of 10six of these aircraft in 20182019 and the remaining aircraft in 20192020 and 2020.2022. We continually consider aircraft acquisitions on an opportunistic basis.
Fleet Plan
The below table indicates the number of aircraft expected to be in service as of the dates indicated, based on currently scheduled additions to and retirements from, our operating fleet.
| | | As of September 30, 2018 | | As of December 31, 2018 | As of September 30, 2019 | | As of December 31, 2019 |
MD-80 | 19 |
| | — |
| |
A319 | 31 |
| | 32 |
| 37 |
| | 38 |
|
A320 | 44 |
| | 45 |
| 53 |
| | 55 |
|
Total | 94 |
| | 77 |
| 90 |
| | 93 |
|
NETWORK
As of June 30, 2018,2019, we were operating 413selling 459 routes verses 382versus 414 as of the same date last year, which represents an 8.1a 10.9 percent increase. Our total numbersnumber of origination cities and leisure destinations (for operating routes) were 9795 and 2126, respectively, as of June 30, 2018.2019. Based on our currently published schedule through May 2020, and service announcements and cancellations by other airlines as of June 30, 2019, we will have direct competition (which we consider to be similar non-stop service between markets) on approximately 100 routes as of that date.
We also
During the second quarter of 2019, we announced Knoxville, Tennessee as our 16th base, with base operations10 new routes including service into three new cities - Redmond, OR; State College, PA; and Traverse City, MI. These new routes are planned to begin service in November 2018.October 2019.
During the second quarter 2019, we also began service on 35 routes announced previously, including our inaugural scheduled flights to Anchorage, AK.
In April 2019, we filed an application with the U.S. Department of Transportation to offer scheduled service to Mexico. This is the first step in beginning to offer international service to our leisure travelers, with non-stop flights between the United States and Mexico.
TRENDS
As ourThe transition to an all-Airbus fleet transition continues we added 10 Airbus A320 seriesto produce positive operating results. Despite having an average of seven fewer aircraft to our operating fleetin service during the second quarter of2019 compared to 2018, scheduled service ASMs increased 13.6 percent on a 13.8 percent increase in departures, and scheduled service passengers increased 12.2 percent. We accomplished the increased capacity by increasing aircraft utilization (block hours per aircraft) by 20.5 percent compared to the second quarter 2018. Airbus aircraftWe were able to grow airline operating margin by 6.2 percentage points due, in large part, to reduced costs per ASM which were impacted significantly by an 8.1 percent increase in fuel efficiency.
During the second quarter, we flew 76.8more on off-peak days (32.8 percent of our scheduled service ASMs for the quarter were on Tuesdays, Wednesdays or Saturdays compared to 55.430.6 percent in the same quarter last year). This contributed to our profitability, but led to a small decline in unit revenue.
Additionally, we have led or tied for the same time periodindustry lead in 2017, which drove a 5.8 percent increase in fuel efficiency (measured as ASMs per gallon). We expect 11 more Airbus A320 series aircraft to be placed in service by the end of 2018 and to have fully retired the remaining 19 MD-80 aircraft by the end of 2018.
Although the number of aircraft in our fleet will decline by the endcontrollable completion factor for 16 of the year with the retirement of all of our MD-80 aircraft, we intend to continue increasing capacity through higher utilization rates on our Airbus fleet than we have on our MD-80 aircraft. Additionally, our Airbus fleet has more available seats, on average, than our MD-80 fleet. However, our capacity growth through the end of the 2018 year will be lower than in prior years as a result of our fleet transition.
Unexpected delayspast 18 months, including every month in the scheduled delivery timing of used Airbus A320 series aircraft caused operational disruptions during the summer of 2018, as the lack of available aircraft resulted in the reschedule or cancellation of many scheduled service flights. We believe we have been conservative in adding aircraft to our schedule when anticipating future deliveries of aircraft, but delays on certain aircraft deliveries and inductions during second quarter 2018 were unusual and beyond our ability to effectively fully recover our published schedule. In anticipation of known aircraft delivery and induction delays, we removed three lines of flying in late June and July to shore up the integrity of our operations. This will result in a reduced number of flights and reduced revenues during the periods impacted, but our completion percentage has improved.
In April 2018, CBS aired a 60 Minutes segment critical of our safety and the FAA oversight of our operations. We believe the report was misleading, misrepresented our safety culture at that time and now, and mostly ignored the substantial improvement in the reliability of our operations since the events reported. Our customers' reaction to this story appears to have been short-lived and cancellations and bookings returned to normal levels weeks later.
Planning and development for Sunseeker Resorts is ongoing. Construction is expected to begin in the secondfirst half of 2018, with the opening of the resort planned for 2020.2019, during which time we had only ten days that were affected by maintenance cancellations.
Our flight dispatchers voted for union representation by the International Brotherhood of Teamsters ("IBT") and negotiations began in February 2017. The dispatchers failed to ratify a tentative agreement reached in May 2018 and negotiations continue. There are approximately 40 employees in this operating group.
In March 2018, our maintenance technicians who represent approximately nine percent of our total employee base (approximately 340 employees), voted for union representation by the IBT. Negotiations for an agreement with this group are expected to begin in the near future.
In July 2018,2019, we announced the IBT announced thatevaluation of strategic alternatives for our pilots were supportiveTeesnap golf course management solution entity, which will trigger held-for-sale classification in the third quarter 2019.
The construction of a strike as a result of delays in our implementation of a new preferential bidding system for pilot flight assignments. We do not believe we are in violation of the collective bargaining agreement with our pilots in this regard, nor do we believe the pilots have a legal rightSunseeker Resort continues to strike because of this issue. As a result, we have filed suit against the IBT seeking to foreclose the possibility of a strike at this time.progress.
Our flight attendant group approved their collective bargaining agreement effective in December 2017.
Any labor actions whether following an inability to reach a collective bargaining agreement with any employee group or otherwise could 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 June 30, 20182019 to three months ended June 30, 20172018
Operating Revenue
Passenger revenue. Passenger revenue now includes both scheduled service revenue and air-related ancillary revenue, due to the implementation of the New Revenue Standard. For the second quarter 2018,2019, passenger revenue increased 10.412.1 percent compared to 2017.second quarter 2018. The increase was driven primarily by a 10.113.8 percent increase in scheduled service departures, and a 1.0 percentage point increase in load factor, which resulted in 12.7a 12.2 percent moreincrease in scheduled service passengers traveling. Additional passengers resultedpassengers. The 13.5 percent increase in quarter-over-quarter increasesair-related ancillary average fare offset the decrease in scheduled service average fare. Increases in the customer convenience fee and baggage fees contributed to the increase in air-related ancillary unit revenue products such as convenience, baggage and seat fees.to $51.68 per passenger.
Third party products revenue. Third party productproducts revenue for the second quarter 20182019 increased 24.42.3 percent, overall compared to 2017, duethe same period in 2018. This is primarily tothe result of increased revenue from our co-branded credit card program, as well as an increase in net revenue from rental cars.
Fixed fee contract revenue. Fixed fee contract revenue for the second quarter 2018 decreased 30.62019 increased 63.2 percent from 2017.when compared to 2018. This was planned and expectedis primarily the result of a 61.0 percent increase in related departures, which is largely attributable to greater availability of spare aircraft due to less availability of aircraft for charter flying during our fleet transition.improved operations and an all-Airbus fleet.
Other revenue. Other revenue decreased $3.5increased by $0.5 million for the second quarter 2019 from 2018, due to increased revenue from 2017 primarilyour non-airline activities. This increase was partially offset by a decrease in aircraft lease revenue, as we had six aircraft which generatedon lease revenue fromto a European carrier during the second quarter 2017, had been delivered to us prior to the second quarter 2018.of 2018 and none during 2019.
Operating Expenses
We primarily evaluate our expense management by comparing our costs per passenger and per 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 givesASM 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 | Three Months Ended June 30, | | Percent |
| 2018 | | 2017 | | Change | 2019 | | 2018 | | Change |
Aircraft fuel | $ | 33.06 |
| | $ | 25.83 |
| | 28.0 | % | |
Airline unitized costs | | | | | | |
Salary and benefits | 27.44 |
| | 27.89 |
| | (1.6 | ) | $ | 2.46 |
| | $ | 2.55 |
| | (3.5 | )% |
Station operations | 11.22 |
| | 11.80 |
| | (4.9 | ) | 1.03 |
| | 1.06 |
| | (2.8 | ) |
Depreciation and amortization | | 0.83 |
| | 0.75 |
| | 10.7 |
|
Maintenance and repairs | 6.64 |
| | 8.66 |
| | (23.3 | ) | 0.47 |
| | 0.63 |
| | (25.4 | ) |
Depreciation and amortization | 8.05 |
| | 9.11 |
| | (11.6 | ) | |
Sales and marketing | 4.95 |
| | 4.08 |
| | 21.3 |
| 0.45 |
| | 0.47 |
| | (4.3 | ) |
Aircraft lease rentals | 0.02 |
| | 0.73 |
| | (97.3 | ) | |
Other | 6.49 |
| | 7.49 |
| | (13.4 | ) | 0.41 |
| | 0.56 |
| | (26.8 | ) |
Operating expense per passenger | $ | 97.87 |
| | $ | 95.59 |
| | 2.4 | % | |
Operating expense per passenger, excluding fuel | $ | 64.81 |
| | $ | 69.76 |
| | (7.1 | )% | |
Airline CASM, excluding fuel | | 5.65 |
|
| 6.02 |
|
| (6.1 | ) |
Aircraft fuel | | 2.70 |
| | 3.12 |
| | (13.5 | ) |
Airline CASM | | 8.35 |
|
| 9.14 |
|
| (8.6 | ) |
| | | | | | |
Airline CASM | | 8.35 |
|
| 9.14 |
|
| (8.6 | ) |
Non-airline operating CASM* | | 0.28 |
| | 0.10 |
| | 180.0 |
|
Operating CASM (consolidated) | | 8.63 |
| | 9.24 |
| | (6.6 | ) |
The following table presents unit*Includes operating costs associated with Sunseeker Resort and other non-airline related activity. Various components of this measure do not have a direct correlation to ASMs but must be included to calculate total operating CASM. Total operating CASM is reported to facilitate comparison with airlines reporting total 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 managementbasis.
Salary and investors the ability to measurebenefits expense. Salary and monitor our cost performance absent fuel price volatility.
|
| | | | | | | | | | |
| Three Months Ended June 30, | | Percent |
| 2018 | | 2017 | | Change |
Aircraft fuel |
| 3.12 | ¢ | |
| 2.38 | ¢ | | 31.1 | % |
Salary and benefits | 2.59 |
| | 2.57 |
| | 0.8 |
|
Station operations | 1.06 |
| | 1.09 |
| | (2.8 | ) |
Maintenance and repairs | 0.63 |
| | 0.80 |
| | (21.3 | ) |
Depreciation and amortization | 0.76 |
| | 0.84 |
| | (9.5 | ) |
Sales and marketing | 0.47 |
| | 0.38 |
| | 23.7 |
|
Aircraft lease rentals | — |
| | 0.07 |
| | (100.0 | ) |
Other | 0.61 |
| | 0.69 |
| | (11.6 | ) |
CASM |
| 9.24 | ¢ | |
| 8.82 | ¢ | | 4.8 | % |
Operating CASM, excluding fuel |
| 6.12 | ¢ | |
| 6.44 | ¢ | | (5.0 | )% |
Aircraft fuel expense. Aircraft fuelbenefits expense increased $37.1$11.9 million, or 43.411.8 percent, for the second quarter 20182019 when compared to 2017the same period in 2018. The increase is largely due to an 8.8 percent increase in full-time equivalent employees supporting a 12.6 percent increase in system block hours, and increased activity in our non-airline subsidiaries. Pilot salaries and wages per ASM decreased 6.9 percent for the quarter, due to improved pilot productivity efficiencies as we have transitioned to an all-Airbus fleet.
Aircraft fuel expense. Aircraft fuel expense decreased $2.5 million, or 2.0 percent, for the system average fuel cost per gallon increased by 39.2 percent, coupled withsecond quarter 2019 compared to second quarter 2018, despite a 3.34.9 percent increase in system fuel gallons consumed on a 9.413.4 percent increase in system ASMs. ASM growth outpaced fuel consumption as fuel efficiency (measured as ASMs per gallon) increased 5.88.1 percent year over year, due to increased flying on our Airbus aircrafttransition to an all-Airbus fleet which are significantly more fuel efficient than ourthe MD-80 aircraft.
Salary and benefits expense. Salary and benefits expense increased $9.4 million, or 10.2aircraft we operated before their retirement which concluded in November 2018. Also, system average fuel cost per gallon decreased 6.7 percent for the second quarter 2018 when comparedyear over year, further contributing to the same period last year. The increase is largely attributable to a 5.8 percent increaseoverall decrease in full-time equivalent employees. Additionally, in conjunction with the collective bargaining agreement with our flight attendants that went into effect in December 2017, flight attendant total salaries expense increased an average of 25 percent compared to 2017.aircraft fuel expense.
Station operations expense. Station operations expense for the second quarter 20182019 increased 6.6$4.3 million, or 10.4 percent, on a 10.113.8 percent increase in scheduled service departures. The increase in departures outpaced the increase in expense due to additional station incentives realized compared to the same period in 2017.2018.
Maintenance and repairs expense. Maintenance and repairs expense for the second quarter 20182019 decreased $4.0$3.7 million, or 14.115.2 percent, compared to the same period in 2017. The year-over-year decrease is largely2018 mostly due to fewer heavya decrease in non-major maintenance events performed on our MD-80 aircraft, as they are being systematically retired from our operating fleet. Additionally, theevents. The cost of major maintenance events for our Airbus aircraft is deferred in accordance with the deferral method of accounting and the amortization of these expenses is included in depreciation and amortization expense.
Depreciation and amortization expense. Depreciation and amortization expense for the second quarter 2018 remained relatively flat, with a 1.02019 increased 29.0 percent decrease year over year. The decrease is due to the impairment charge taken on our MD-80average number of Airbus aircraft in the fourth quarter 2017 as no depreciation expense for this fleet remains in the current quarter. Depreciation expense
related toservice increased 38.7 percent year over year. Further, the MD-80 aircraft and Boeing 757-200 aircraft (retiredfleet operating in late 2017) for the three months ended June 30, 20172018 was $4.9 million and $1.4 million, respectively.
The decrease in total depreciation and amortization expensefully depreciated prior to 2018. Amortization of major maintenance costs was offset by higher monthly depreciation expense associated with our Airbus aircraft, as we continue to add Airbus aircraft into service. Depreciation expense for this fleet was $19.8$6.1 million for the second quarter 20182019 compared to $13.7 million for the same period in 2017. Amortization of major maintenance costs under the deferral method of accounting for the Airbus aircraft was $2.6 million for the second quarter 2018, comparedwith increases expected to $1.6 million for the second quarter 2017.continue as our Airbus aircraft count and related deferred maintenance costs grow.
Sales and marketing expense. Sales and marketing expense for the second quarter 20182019 increased $4.9$2.2 million compared to the same period in 2017,2018, partly due to an increase in net credit card fees paid as a result of the 10.412.1 percent increase in passenger
revenue year over year. There were also increased expenses related to various marketing initiatives, including our national ad campaign, for our growing network.multi-year partnerships with the Vegas Golden Knights and Minor League Baseball.
Aircraft lease rentals expense. Aircraft lease rentals expense for the second quarter 2018 decreased $2.3 million compared to 2017 due to fewer sub-service flightsNon-airline expenses
Non-airline expenses are included in the current quarter.various line items discussed above, as appropriate. The non-airline expenses include those from our Teesnap golf management business, Kingsway golf course, Allegiant Nonstop family entertainment centers, and operating expenses attributable to Sunseeker Resort (most of the Sunseeker Resort expenses are being capitalized at this time). We do not currently have aircraft under operating leases.expect these expenses to increase with the growth in the number of family entertainment centers and the continued operation of Teesnap pending a possible sale.
Income Tax Expense
Our effective tax rate was 23.1 percent for the three months ended June 30, 2019, compared to 20.7 percent for the three months ended June 30, 2018, compared to 37.8 percent for the three months ended June 30, 2017.2018. The effective tax rate for the three months ended June 30, 20182019 differed from the statutory federal income tax rate of 21.0 percent primarily due to the tax benefit from dissolution of foreign subsidiaries, offset by state taxes. 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. We expect to be a non-cash taxpayer for federal income tax purposes for 2019.
Comparison of six months ended June 30, 20182019 to six months ended June 30, 20172018
Operating Revenue
Passenger revenue. Passenger revenue now includes both scheduled service revenue and air-related ancillary revenue, due to the implementation of the New Revenue Standard. For the six months ended June 30, 2018,2019, passenger revenue increased 12.29.0 percent compared with 2017.2018. The increase was mostly attributable to a 9.89.5 percent increase in scheduled service departures, and a 1.9 percentage point increase in load factor, which resulted in 13.9an 8.5 percent moreincrease in scheduled service passengers traveling. Additional passengers resultedpassengers. Average total fare per passenger increased slightly during the six month period as the increase in year-to-date increases inair-related ancillary revenue products such asper passenger more than offset the decrease in scheduled service average fare. Increases in the customer convenience fee and baggage and seat fees.fees contributed to a 13.0 percent increase in air-related ancillary unit revenue to $52.32 per passenger.
Third party products revenue. Third party products revenue for the six months ended June 30, 20182019 increased 4.025.7 percent over the same period in 20172018. This is primarily due tothe result of increased revenue from our co-branded credit card program, as well as an increase in net revenue from rental cars. This was offset by revenue reclassifications related to our Allegiant World Mastercard® co-brand credit card, whereby $3.6 million of the revenue related to the travel component was reclassified into passenger revenue.
Fixed fee contract revenue. Fixed fee contract revenue for the six months ended June 30, 2018 decreased 18.32019 increased 26.6 percent compared with 2017.2018, primarily due to a 20.3 percent increase in related departures. This was planned and expectedmade possible by greater availability of spare aircraft due to less availability of aircraft for charter flying during our fleet transition.improved operations and an all-Airbus fleet.
Other revenue. Other revenue decreased $3.9$3.3 million for the six months ended June 30, 20182019 compared to 20172018 primarily asdue to a decrease in aircraft lease revenue. We had six aircraft which generatedon lease revenue fromto a European carrier during the six months ended June 30, 2017 were delivered to usfirst half of 2018 and none during the six months ended June 30, 2018.2019. The effects of this decrease were slightly offset by increases in revenue from our golf course management solution.non-airline activities.
Operating Expenses
The following table presents operating expense per passenger for the indicated periods:
|
| | | | | | | | | | |
| Six Months Ended June 30, | | Percent |
| 2018 | | 2017 | | Change |
Aircraft fuel | $ | 32.61 |
| | $ | 27.48 |
| | 18.7 | % |
Salary and benefits | 30.63 |
| | 30.47 |
| | 0.5 |
|
Station operations | 11.29 |
| | 11.45 |
| | (1.4 | ) |
Maintenance and repairs | 6.26 |
| | 9.49 |
| | (34.0 | ) |
Depreciation and amortization | 8.27 |
| | 9.81 |
| | (15.7 | ) |
Sales and marketing | 5.34 |
| | 4.33 |
| | 23.3 |
|
Aircraft lease rentals | 0.01 |
| | 0.41 |
| | (97.6 | ) |
Other | 6.63 |
| | 7.13 |
| | (7.0 | ) |
Operating expense per passenger | $ | 101.04 |
| | $ | 100.57 |
| | 0.5 | % |
Operating expense per passenger, excluding fuel | $ | 68.43 |
| | $ | 73.09 |
| | (6.4 | )% |
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 | Six Months Ended June 30, | | Percent |
| 2018 | | 2017 | | Change | 2019 | | 2018 | | Change |
Aircraft fuel |
| 2.99 | ¢ | |
| 2.44 | ¢ | | 22.5 | % | |
Airline unitized costs | | | | | | |
Salary and benefits | 2.81 |
| | 2.71 |
| | 3.7 |
| $ | 2.69 |
| | $ | 2.77 |
| | (2.9 | )% |
Station operations | 1.03 |
| | 1.02 |
| | 1.0 |
| 1.02 |
| | 1.03 |
| | (1.0 | ) |
Depreciation and amortization | | 0.86 |
| | 0.75 |
| | 14.7 |
|
Maintenance and repairs | 0.57 |
| | 0.84 |
| | (32.1 | ) | 0.52 |
| | 0.57 |
| | (8.8 | ) |
Depreciation and amortization | 0.76 |
| | 0.87 |
| | (12.6 | ) | |
Sales and marketing | 0.49 |
| | 0.39 |
| | 25.6 |
| 0.49 |
| | 0.49 |
| | — |
|
Aircraft lease rentals | — |
| | 0.04 |
| | (100.0 | ) | |
Other | 0.60 |
| | 0.63 |
| | (4.8 | ) | 0.42 |
| | 0.56 |
| | (25.0 | ) |
CASM |
| 9.25 | ¢ | |
| 8.94 | ¢ | | 3.5 | % | |
Operating CASM, excluding fuel |
| 6.26 | ¢ | |
| 6.50 | ¢ | | (3.7 | )% | |
Airline CASM, excluding fuel | | 6.00 |
|
| 6.17 |
|
| (2.8 | ) |
Aircraft fuel | | 2.63 |
| | 2.99 |
| | (12.0 | ) |
Airline CASM | | 8.63 |
| | 9.16 |
| | (5.8 | ) |
| | | | | | |
Airline CASM | | 8.63 |
| | 9.16 |
| | (5.8 | ) |
Non-airline operating CASM* | | 0.27 |
| | 0.09 |
| | 200.0 |
|
Operating CASM (consolidated) | | 8.90 |
| | 9.25 |
| | (3.8 | ) |
*Includes operating costs associated with Sunseeker Resort and other non-airline related activity. Various components of this measure do not have a direct correlation to ASMs but must be included to calculate total operating CASM. Total operating CASM is reported to facilitate comparison with airlines reporting total costs on a per ASM basis.
Aircraft fuelSalary and benefits expense. Aircraft fuel Salary and benefits expense increased $58.4$18.4 million, or 34.48.6 percent, for the six months ended June 30, 20182019 compared to the same period in 20172018. The increase is largely attributable to an 8.8 percent increase in the number of full-time equivalent employees supporting an 8.1 percent increase in system block hours, as well as increased activity in our non-airline subsidiaries. Pilot salaries and wages per ASM decreased 2.9 percent for the system averagesix months ended June 30, 2019, due to improved pilot productivity efficiencies as we have transitioned to an all-Airbus fleet.
Aircraft fuel cost per gallon increased by 29.5expense. Aircraft fuel expense decreased $8.8 million, or 3.9 percent, coupled withfor the six months ended June 30, 2019 compared to the same period in 2018, despite a 3.60.4 percent increase in system fuel gallons consumed on a 9.99.2 percent increase in system ASMs. ASM growth outpaced fuel consumption as fuel efficiency (measured as ASMs per gallon) increased 6.1 8.8
percent year over year, due to increased flying on our Airbus aircraft which are moretransition to an all-Airbus fleet. Also, system average fuel efficient than our MD-80 aircraft.
Salary and benefits expense. Salary and benefits expense increased $26.1 million, or 13.8 percent, for the six months ended June 30, 2018 compared to the same period in 2017. The increase is largely attributable to a 5.8 percent increase in the number of full-time equivalent employees. Additionally, in conjunction with the collective bargaining agreement with our flight attendants that went into effect in December 2017, flight attendant total salaries expense increased an average of 21cost per gallon decreased 4.4 percent year over year.year, further contributing to the overall decrease in aircraft fuel expense.
Station operations expense. Station operations expense for the six months ended June 30, 20182019 increased 11.77.2 percent on a 9.89.5 percent increase in scheduled service departures compared to the same period in 2017.2018. The increase in expensedepartures outpaced the increase in departuresexpense due primarily to certainadditional station incentives which expired duringrealized compared to the first quarter ofsame period in 2018.
Maintenance and repairs expense. Maintenance and repairs expense for the six months ended June 30, 2018 decreased $14.9 million, or 25.3 percent, compared with the same period in 2017. The year-over-year decrease is largely due to2019 remained flat year over year. We had fewer heavynon-major maintenance events performed onin 2019, a reduction which was offset by higher overall repair costs for our Airbus fleet than our MD-80 series aircraft, as they are being systematically retired from our operating fleet.fleet (though less frequent). Additionally, the cost of major maintenance events for our Airbus aircraft is being deferred in accordance with the deferral method of accounting and the amortization of these expenses is included under depreciation and amortization expense.
Depreciation and amortization expense. Depreciation and amortization expense for the six months ended June 30, 2018 decreased by 4.42019 increased $16.7 million, or 28.8 percent, compared to the same period in 2017, partially due to the impairment charge taken on our MD-802018. The average number of Airbus aircraft in the fourth quarter 2017 as no depreciation expense for this fleet remains in the currentservice increased 43.6 percent year over year. Depreciation expense related to the MD-80 aircraft and Boeing 757-200 aircraft (retired in late-2017) for the six months ended June 30, 2017Amortization of major maintenance costs was $11.3 million and $2.9 million, respectively.
The decrease in depreciation and amortization expense was partially offset by higher monthly depreciation expense associated with our Airbus aircraft, as we continue to add Airbus aircraft into service. Depreciation expense for this fleet was $38.0$10.9 million for the six months ended June 30, 20182019 compared to $26.5 million for the same period in 2017. Amortization of major maintenance costs under the deferral method of accounting for the Airbus aircraft was $5.1 million for the six months ended June 30, 2018, comparedwith increases expected to $2.9 million for 2017.continue as our Airbus aircraft count and related deferred maintenance costs grow.
Sales and marketing expense. Sales and marketing expense for the six months ended June 30, 20182019 increased $10.6$4.0 million compared to the same period in 2017,2018, partly due to an increase in net credit card fees paid as a result of a 12.29.0 percent increase in passenger revenue year over year. There were also increased expenses related to various marketing initiatives, including our national ad campaign, formulti-year partnerships with the Vegas Golden Knights and Minor League Baseball.
Other expense. Other expense remained flat year over year, as there were increases in general administrative expenses which were offset by over $12.0 million in gains from MD-80 and other aircraft part sales.
Non-airline expenses
Non-airline expenses are included in the various line items discussed above, as appropriate. The non-airline expenses include those from our growing network.Teesnap golf management business, Kingsway golf course, Allegiant Nonstop family entertainment centers, and operating expenses attributable to Sunseeker Resort (most of the Sunseeker Resort expenses are being capitalized at this time).
Aircraft lease rentals expense. Aircraft lease rentals expense
Income Tax Expense
Our effective tax rate was 23.0 percent for the six months ended June 30, 2018 decreased $2.5 million2019, compared to the same period in 2017 due to fewer sub-service flights in the current year. We do not currently have aircraft under operating leases.
Other expense. Other operating expense for the six months ended June 30, 2018 increased $2.3 million compared to 2017. The increase is primarily due to information technology expenses, as well as other administrative expenses incurred to support our airline operations and golf course management business.
Income Tax Expense
Our effective tax rate was 20.6 percent for the six months ended June 30, 2018, compared to 37.3 percent for the six months ended June 30, 2017.2018. The effective tax rate for the six months ended June 30, 20182019 differed from the statutory federal income tax rate of 21.0 percent primarily due to the tax benefit from dissolution of foreign subsidiaries, offset by state taxes. 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. We expect to be a non-cash taxpayer for federal income tax purposes for 2019.
Comparative Consolidated Operating Statistics
The following tables set forth our operating statistics for the periods indicated:
| | | Three Months Ended June 30, | | Percent | Three Months Ended June 30, | | Percent |
| 2018 | | 2017 | | Change (1) | 2019 | | 2018 | | Change(1) |
Operating statistics (unaudited): | | | | | | | | | | |
Total system statistics: | | | | | | | | | | |
Passengers | 3,704,113 |
| | 3,306,193 |
| | 12.0 |
| 4,169,536 |
| | 3,704,113 |
| | 12.6 |
|
Revenue passenger miles (RPMs) (thousands) | 3,276,599 |
| | 2,958,808 |
| | 10.7 |
| 3,654,369 |
| | 3,276,599 |
| | 11.5 |
|
Available seat miles (ASMs) (thousands) | 3,922,294 |
| | 3,584,209 |
| | 9.4 |
| 4,447,066 |
| | 3,922,294 |
| | 13.4 |
|
Load factor | 83.5 | % | | 82.6 | % | | 0.9 |
| 82.2 | % | | 83.5 | % | | (1.3 | ) |
Operating expense per ASM (CASM) (cents) | 9.24 |
| | 8.82 |
| | 4.8 |
| 8.63 |
| | 9.24 |
| | (6.6 | ) |
Fuel expense per ASM (cents) | 3.12 |
| | 2.38 |
| | 31.1 |
| 2.70 |
| | 3.12 |
| | (13.5 | ) |
Operating CASM, excluding fuel (cents) | 6.12 |
| | 6.44 |
| | (5.0 | ) | 5.93 |
| | 6.12 |
| | (3.1 | ) |
ASMs per gallon of fuel | 76.1 |
| | 71.9 |
| | 5.8 |
| 82.3 |
| | 76.1 |
| | 8.1 |
|
Departures | 27,063 |
| | 24,721 |
| | 9.5 |
| 30,547 |
| | 27,063 |
| | 12.9 |
|
Block hours | 60,707 |
| | 56,056 |
| | 8.3 |
| 68,332 |
| | 60,707 |
| | 12.6 |
|
Average stage length (miles) | 858 |
| | 866 |
| | (0.9 | ) | 853 |
| | 858 |
| | (0.6 | ) |
Average number of operating aircraft during period | 92.0 |
| | 85.3 |
| | 7.9 |
| 85.0 |
| | 92.0 |
| | (7.6 | ) |
Average block hours per aircraft per day | 7.3 |
| | 7.2 |
| | 1.4 |
| 8.8 |
| | 7.3 |
| | 20.5 |
|
Full-time equivalent employees at end of period | 3,840 |
| | 3,628 |
| | 5.8 |
| 4,179 |
| | 3,840 |
| | 8.8 |
|
Fuel gallons consumed (thousands) | 51,516 |
| | 49,858 |
| | 3.3 |
| 54,064 |
| | 51,516 |
| | 4.9 |
|
Average fuel cost per gallon | $ | 2.38 |
| | $ | 1.71 |
| | 39.2 |
| $ | 2.22 |
| | $ | 2.38 |
| | (6.7 | ) |
| | Scheduled service statistics: | | | | | | | | | | |
Passengers | 3,681,944 |
| | 3,266,789 |
| | 12.7 |
| 4,131,855 |
| | 3,681,944 |
| | 12.2 |
|
Revenue passenger miles (RPMs) (thousands) | 3,245,774 |
| | 2,903,257 |
| | 11.8 |
| 3,603,076 |
| | 3,245,774 |
| | 11.0 |
|
Available seat miles (ASMs) (thousands) | 3,795,815 |
| | 3,436,872 |
| | 10.4 |
| 4,311,182 |
| | 3,795,815 |
| | 13.6 |
|
Load factor | 85.5 | % | | 84.5 | % | | 1.0 |
| 83.6 | % | | 85.5 | % | | (1.9 | ) |
Departures | 25,992 |
| | 23,609 |
| | 10.1 |
| 29,567 |
| | 25,992 |
| | 13.8 |
|
Block hours | 58,536 |
| | 53,632 |
| | 9.1 |
| 66,135 |
| | 58,536 |
| | 13.0 |
|
Total passenger revenue per ASM (TRASM) (cents) (2) | 11.15 |
| | 11.10 |
| | 0.5 |
| 10.97 |
| | 11.15 |
| | (1.6 | ) |
Average fare - scheduled service (3) | $ | 64.62 |
| | $ | 67.76 |
| | (4.6 | ) | $ | 58.39 |
| | $ | 64.62 |
| | (9.6 | ) |
Average fare - air-related charges (3) | $ | 45.53 |
| | $ | 44.66 |
| | 1.9 |
| $ | 51.68 |
| | $ | 45.53 |
| | 13.5 |
|
Average fare - third party products | $ | 4.84 |
| | $ | 4.38 |
| | 10.5 |
| $ | 4.40 |
| | $ | 4.84 |
| | (9.1 | ) |
Average fare - total | $ | 114.99 |
| | $ | 116.80 |
| | (1.5 | ) | $ | 114.47 |
| | $ | 114.99 |
| | (0.5 | ) |
Average stage length (miles) | 864 |
| | 869 |
| | (0.6 | ) | 853 |
| | 864 |
| | (1.3 | ) |
Fuel gallons consumed (thousands) | 49,671 |
| | 47,821 |
| | 3.9 |
| 52,327 |
| | 49,671 |
| | 5.3 |
|
Average fuel cost per gallon | $ | 2.37 |
| | $ | 1.70 |
| | 39.4 |
| $ | 2.22 |
| | $ | 2.37 |
| | (6.3 | ) |
Rental car days sold | 404,355 |
| | 391,010 |
| | 3.4 |
| 540,960 |
| | 404,355 |
| | 33.8 |
|
Hotel room nights sold | 93,484 |
| | 107,910 |
| | (13.4 | ) | 114,191 |
| | 93,484 |
| | 22.2 |
|
Percent of sales through website during period | 93.9 | % | | 95.1 | % | | (1.2 | ) | 93.5 | % | | 93.9 | % | | (0.4 | ) |
(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 and air-related charges in the Company's booking path.
| | | Six Months Ended June 30, | | Percent | Six Months Ended June 30, | | Percent |
| 2018 | | 2017 | | Change (1) | 2019 | | 2018 | | Change(1) |
Operating statistics (unaudited): | | | | | | | | | | |
Total system statistics: | | | | | | | | | | |
Passengers | 7,007,064 |
| | 6,187,441 |
| | 13.2 |
| 7,619,814 |
| | 7,007,064 |
| | 8.7 |
|
Revenue passenger miles (RPMs) (thousands) | 6,371,403 |
| | 5,667,306 |
| | 12.4 |
| 6,882,963 |
| | 6,371,403 |
| | 8.0 |
|
Available seat miles (ASMs) (thousands) | 7,650,857 |
| | 6,961,046 |
| | 9.9 |
| 8,357,304 |
| | 7,650,857 |
| | 9.2 |
|
Load factor | 83.3 | % | | 81.4 | % | | 1.9 |
| 82.4 | % | | 83.3 | % | | (0.9 | ) |
Operating expense per ASM (CASM) (cents) | 9.25 |
| | 8.94 |
| | 3.5 |
| 8.90 |
| | 9.25 |
| | (3.8 | ) |
Fuel expense per ASM (cents) | 2.99 |
| | 2.44 |
| | 22.5 |
| 2.63 |
| | 2.99 |
| | (12.0 | ) |
Operating CASM, excluding fuel (cents) | 6.26 |
| | 6.50 |
| | (3.7 | ) | 6.27 |
| | 6.26 |
| | 0.2 |
|
ASMs per gallon of fuel | 76.4 |
| | 72.0 |
| | 6.1 |
| 83.1 |
| | 76.4 |
| | 8.8 |
|
Departures | 51,311 |
| | 47,016 |
| | 9.1 |
| 55,747 |
| | 51,311 |
| | 8.6 |
|
Block hours | 118,510 |
| | 109,249 |
| | 8.5 |
| 128,151 |
| | 118,510 |
| | 8.1 |
|
Average stage length (miles) | 883 |
| | 883 |
| | — |
| 876 |
| | 883 |
| | (0.8 | ) |
Average number of operating aircraft during period | 90.8 |
| | 85.0 |
| | 6.8 |
| 82.3 |
| | 90.8 |
| | (9.4 | ) |
Average block hours per aircraft per day | 7.2 |
| | 7.1 |
| | 1.4 |
| 8.6 |
| | 7.2 |
| | 19.4 |
|
Full-time equivalent employees at end of period | 3,840 |
| | 3,628 |
| | 5.8 |
| 4,179 |
| | 3,840 |
| | 8.8 |
|
Fuel gallons consumed (thousands) | 100,156 |
| | 96,708 |
| | 3.6 |
| 100,537 |
| | 100,156 |
| | 0.4 |
|
Average fuel cost per gallon | $ | 2.28 |
| | $ | 1.76 |
| | 29.5 |
| $ | 2.18 |
| | $ | 2.28 |
| | (4.4 | ) |
| | Scheduled service statistics: | | | | | | | | | | |
Passengers | 6,961,312 |
| | 6,112,269 |
| | 13.9 |
| 7,553,393 |
| | 6,961,312 |
| | 8.5 |
|
Revenue passenger miles (RPMs) (thousands) | 6,310,393 |
| | 5,565,191 |
| | 13.4 |
| 6,794,122 |
| | 6,310,393 |
| | 7.7 |
|
Available seat miles (ASMs) (thousands) | 7,397,830 |
| | 6,674,035 |
| | 10.8 |
| 8,113,315 |
| | 7,397,830 |
| | 9.7 |
|
Load factor | 85.3 | % | | 83.4 | % | | 1.9 |
| 83.7 | % | | 85.3 | % | | (1.6 | ) |
Departures | 49,256 |
| | 44,857 |
| | 9.8 |
| 53,911 |
| | 49,256 |
| | 9.5 |
|
Block hours | 114,224 |
| | 104,507 |
| | 9.3 |
| 124,098 |
| | 114,224 |
| | 8.6 |
|
Total passenger revenue per ASM (TRASM) (cents) (2) | 11.23 |
| | 11.12 |
| | 1.0 |
| 11.22 |
| | 11.23 |
| | (0.1 | ) |
Average fare - scheduled service (3) | $ | 68.95 |
| | $ | 71.33 |
| | (3.3 | ) | $ | 63.49 |
| | $ | 68.95 |
| | (7.9 | ) |
Average fare - air-related charges (3) | $ | 46.31 |
| | $ | 45.67 |
| | 1.4 |
| $ | 52.32 |
| | $ | 46.31 |
| | 13.0 |
|
Average fare - third party products | $ | 4.04 |
| | $ | 4.42 |
| | (8.6 | ) | $ | 4.68 |
| | $ | 4.04 |
| | 15.8 |
|
Average fare - total | $ | 119.30 |
| | $ | 121.42 |
| | (1.7 | ) | $ | 120.49 |
| | $ | 119.30 |
| | 1.0 |
|
Average stage length (miles) | 889 |
| | 887 |
| | 0.2 |
| 878 |
| | 889 |
| | (1.2 | ) |
Fuel gallons consumed (thousands) | 96,542 |
| | 92,713 |
| | 4.1 |
| 97,395 |
| | 96,542 |
| | 0.9 |
|
Average fuel cost per gallon | $ | 2.27 |
| | $ | 1.75 |
| | 29.7 |
| $ | 2.18 |
| | $ | 2.27 |
| | (4.0 | ) |
Rental car days sold | 802,942 |
| | 766,721 |
| | 4.7 |
| 1,012,558 |
| | 802,942 |
| | 26.1 |
|
Hotel room nights sold | 202,468 |
| | 213,238 |
| | (5.1 | ) | 219,206 |
| | 202,468 |
| | 8.3 |
|
Percent of sales through website during period | 93.9 | % | | 94.2 | % | | (0.3 | ) | 93.5 | % | | 93.9 | % | | (0.4 | ) |
(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 and air-related charges in the Company's booking path.
LIQUIDITY AND CAPITAL RESOURCES
Current liquidity
Cash, restricted cash equivalents and investment securities (short-term and long-term) decreasedincreased at June 30, 2019 to $695.3 million, from $501.9$447.5 million at December 31, 2017 to $441.8 million2018. Investment securities represent highly liquid marketable securities which are available-for-sale.
The increase in cash at June 30, 2018. 2019 is due primarily to cash generated from operations as well as debt proceeds in the second quarter. We received $213.0 million of debt proceeds from a financing secured by 23 aircraft, and generated $100.8 million in net proceeds after the early payoff of six loans and our revolving debt secured by aircraft. In the second quarter, we also borrowed $63.4 million secured by spare engines. We had 26 unencumbered aircraft at June 30, 2019.
In July 2019, we repaid the remaining $102.1 million principal balance of our high yield debt at maturity.
Restricted cash represents escrowed funds under fixed fee contracts 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 six months of 2018, our primary source of funds was $283.2 million generated by operations. Our operating cash flows and previouslong-term debt borrowings have allowed us to invest in our fleet transition, and return capital to shareholders.shareholders in the form of recurring regular quarterly dividends, and invest in Sunseeker Resort and our Allegiant Nonstop family entertainment centers. Our future capital needs are primarily for the acquisition of additional aircraft, including our existing Airbus A320 series aircraft commitments, as well as planned capital outlay related to Sunseeker ResortsResort and other travel and leisure initiatives. Of the 11 aircraft expected to be placed into service during the remainder of 2018, three are structured as capital leases and will not require separate financing, and one has already been paid for (the aircraft being returned from lease to a European carrier).
We believe we have more than adequate liquidity resources through our operating cash flows, borrowings, debt commitments, and cash balances, to meet our future contractual obligations. In addition, we continue to consider raising funds through debt financing on an opportunistic basis.
In addition to our recurring quarterly cash dividend, our current share repurchase authority is $100 million. There is no expiration to this program.
Debt
Our long-term debt and capitalfinance lease obligations balance, without reduction for related issuance costs, decreasedincreased from $1.2$1.3 billion as of December 31, 20172018 to $1.1$1.5 billion as of June 30, 2018 as2019. During the first half of 2019, we borrowed $450.0 million under the Term Loan plus an additional $320.4 million secured by aircraft and engines, while repurchasing $347.9 million of our unsecured notes (the remaining balance of which was paid at maturity in July 2019). Additionally, we paid off six loans and the outstanding balance on our senior secured revolving credit facility for a combined $112.2 million in payoffs, and continued makingalso made scheduled repaymentsprincipal payments on our other existing debt, includingdebt.
In March 2019, we entered into a Construction Loan Agreement with certain lenders affiliated with TPG Sixth Street Partners, LLC under which we may borrow up to $175.0 million to fund the prepaymentconstruction of certain debt secured by Airbus A320 series aircraft. During the second quarterPhase 1 of 2018, we borrowed $10.8 million secured by various ground equipment.Sunseeker Resort - Charlotte Harbor. No amounts under this loan agreement have been drawn to date.
Sources and Uses of Cash
Operating Activities. During the six months ended June 30, 2018,2019, our operating activities provided $283.2$277.5 million of cash compared to $262.9$283.2 million during the same period of 2017.2018. The year-over-year increasedecrease is due to a one-time tax benefit of $41.3 million in cash inflows is2018 that was not applicable in the resultcurrent year, as well as the net effect of changes in certain asset and liability accounts. These were partially offset by a $13.8$22.5 million increase in net income as well as changes in various asset and liability accounts, including a $46.9 million decrease in accounts receivable. This was offset by adjustments made for non-cash items such as deferred income taxes ($26.9 million lower in 2018).2019.
Operating cash inflows are primarily derived from providing air transportation and related ancillary products and services to customers, and we expect to use that cash flow to purchase aircraft and equipment, make scheduled debt payments, invest in Sunseeker Resort - Charlotte Harbor and other travel and leisure initiatives, and return capital to shareholders through share repurchases and dividends.
Investing Activities. Cash used in investing activities was $158.6$96.8 million during the six months ended June 30, 20182019 compared to $269.5$158.6 million for the same period in 2017. The2018. A $47.0 million year-over-year decrease is mostly due to investment security activity,increase in cash outlays for the purchase of property and equipment was offset as cash proceeds from maturities of investment securities (net of purchases) were $30.4$127.4 million induring the first half of 2018six months ended June 30, 2019, compared to cash used to purchase investment securities (net of proceeds) of $88.6$30.4 million for the same period in 2017. Cash used to purchase property and equipment (including pre-delivery deposits) was $187.5 million for2018. Additionally, in the first six months of 20182019 we had an $11.7 million increase in cash from other investing activities compared to $182.3 million in the same period last year, mostly related to proceeds received from the sales of 2017.MD-80 parts.
Financing Activities. Cash used inprovided by financing activities for the six months ended June 30, 20182019 was $153.1$191.6 million, compared to $38.3$153.1 million forcash used in financing activities during the same period in 2017. The2018. This year-over-year increasefluctuation is primarily due to debt proceeds, as we entered into debt agreements totaling $770.4 million during the six months ended June 30, 2019, compared to $10.8 million in the first half of 2018. The increase in debt proceeds was partially offset by an increase in principal payments on, and early payoffs of, long-term debt and capitalfinance lease obligations as we paid $142.4 million in debt and capital lease payments in the first half of 2018current year compared to $64.9 million for the same period in 2017. Our debt payments in the first half of 2018 included various scheduled balloon payments, as well as the payoff of our senior secured revolving credit facility, which had $41.6 million in outstanding principal as of December 31, 2017. Additionally, we received $10.8 million in loan proceeds during the second quarter 2018, compared to $134.5 million in loan proceeds during the same period in 2017. For the six months ended June 30,2018.
2018, we paid cash dividends of $22.6 million, compared to the payment of cash dividends of $23.2 million and $86.2 million in open market common stock repurchases for the same period in 2017.
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 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 development of a resort in Southwest Florida. 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,” “expect,” “anticipate,” “intend,” “plan,” “estimate,” “project” 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. These risk factors include, without limitation, an accident involving, or problems with, our aircraft, public perception of our safety, our reliance on automationour automated systems, limitation on growth as we transition to a single fleet type, our reliance on third parties to deliver aircraft under contract to us on a 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, 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 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
Except as discussed below relating to the New Revenue Standard, in the second quarter of 2018, thereThere were no changes to our critical accounting policies and estimates, as of June 30, 2019, from those disclosed in the Consolidated Financial Statements and accompanying notes contained in our 20172018 Form 10-K.
Effective January 1, 2018, we adopted the New Revenue Standard using the full retrospective method, which resulted in the recast of the 2017 prior period data presented. Under this ASU and subsequently issued amendments, revenue is recognized at the time a good or service is transferred to a customer for the amount of consideration received.
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 aircraft fuel expense represented 32.329.5 percent of our operating expenses for the six months ended June 30, 2018.2019. 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 six months ended June 30, 2018,2019, a hypothetical ten percent increase in the average price per gallon of fuel would
have increased fuel expense by approximately $12.0$11.9 million and $22.9$21.6 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 nature of our cash and investment securities and variable-rate debt. We invest available cash 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. A hypothetical 100 basis point change in interest rates for the six months ended June 30, 2018 would have impacted interest income from cash and investment securities by approximately $2.3 million.
As of June 30, 2018,2019, we had a total of $563.1 million$1.2 billion in variable-rate debt, including current maturities and without reduction for related costs. A hypothetical 100 basis point changeincrease in market interest rates for the three and six months ended June 30, 2018,2019, would have affected interest expense by approximately $3.2 million.$2.2 million and $4.6 million, respectively.
As of June 30, 2018,2019, we had $477.1$202.9 million of fixed-rate debt, including current maturities and without reduction for related costs. Of this amount, $102.1 million was repaid in July 2019. A hypothetical 100 basis point change in market interest rates would not impact interest expense on our fixed rate debt 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 year ended December 31, 2017, for further information about market risk.
Item 4. Controls and Procedures
As of June 30, 2018,2019, under the supervision and with the participation of our management, including our chief executive officer ("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”) as of the end of the period covered by this report. Based on that evaluation, management, including our CEO 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 and is accumulated and communicated to the Company’s management, including the CEO and the CFO, as appropriate to allow timely decisions regarding required disclosure.
ThereExcept as noted below, there were no changes in our internal control over financial reporting that occurred during the quarter ending June 30, 2018,2019, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Effective January 1, 2018,2019, we adopted Accounting Standards Codification 606, “Revenue from Contracts with Customers.”ASU 2016-02, Leases (Topic 842). Although the New RevenueLease Standard isdid not expected to have a material impact on our ongoing net income, changes were made to relevant business processes and the related control activities including information systems, in order to monitor and maintain appropriate controls over financial reporting. The operating effectiveness of these changes will be evaluated as part of our annual assessment on the effectiveness of internal controls 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 there are no changes to the risk factorsthose set forth in Part I, Item 1A of our Annual Report on Form 10-K.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Our Repurchases of Equity Securities
The following table reflects the repurchases of our common stock during the second quarter 2018:2019:
| | 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) | | 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) |
April | | 452 |
| | $ | 148.70 |
| | None | | | | 388 |
| | $ | 131.74 |
| | None | | |
May | | 4,349 |
| | 159.60 |
| | None | | | | 4,703 |
| | $ | 144.31 |
| | None | | |
June | | — |
| | — |
| | None | | | | — |
| | $ | — |
| | None | | |
Total | | 4,801 |
| | $ | — |
| | $ | 100,000 |
| | 5,091 |
| | $ | 143.35 |
| | $ | 100,000 |
|
(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.
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.INS | 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 April 25, 2018.
(3) Certain confidential information in this agreement has been omitted because it (i) is not material and (ii) would be competitively harmful if publicly disclosed.
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: | August 3, 2018July 31, 2019 | By: | /s/ Scott SheldonGregory Anderson |
| | Scott Sheldon,Gregory Anderson, as duly authorized officer of the Company (Chief Financial Officer) and as Principal Financial Officer |