SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
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☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended | September 30, 20192020 |
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OR |
☐ | 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 |
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(State or Other Jurisdiction of Incorporation or Organization) | (IRS Employer Identification No.) |
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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: |
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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. Yes☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). Yes ☒ No ☐
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 filer | ☒ | | Accelerated filer | ☐ |
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Large accelerated filer | ☒ | | Accelerated filer | ☐ |
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Non-accelerated filer | ☐ | | Smaller reporting company | ☐ |
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Emerging growth company | ☐ | | | |
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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. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
As of October 28, 2019,30, 2020, the registrant had 16,288,44816,389,481 shares of common stock, $.001 par value per share, outstanding.
ALLEGIANT TRAVEL COMPANY
Allegiant Travel Company
FormFORM 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)
| | | September 30, 2019 | | December 31, 2018 | | September 30, 2020 | | December 31, 2019 |
| (unaudited) | | | | (unaudited) | | |
CURRENT ASSETS | | | | CURRENT ASSETS | | |
Cash and cash equivalents | $ | 88,114 |
| | $ | 81,520 |
| Cash and cash equivalents | $ | 268,042 | | | $ | 121,888 | |
Restricted cash | 20,475 |
| | 14,391 |
| Restricted cash | 17,426 | | | 14,897 | |
Short-term investments | 314,822 |
| | 314,464 |
| Short-term investments | 441,764 | | | 335,928 | |
Accounts receivable | 31,450 |
| | 36,014 |
| Accounts receivable | 166,924 | | | 25,516 | |
Expendable parts, supplies and fuel, net | 27,210 |
| | 19,516 |
| Expendable parts, supplies and fuel, net | 26,305 | | | 28,375 | |
Prepaid expenses and other current assets | 43,356 |
| | 29,343 |
| Prepaid expenses and other current assets | 30,742 | | | 35,617 | |
| TOTAL CURRENT ASSETS | 525,427 |
| | 495,248 |
| TOTAL CURRENT ASSETS | 951,203 | | | 562,221 | |
Property and equipment, net | 2,102,815 |
| | 1,847,268 |
| Property and equipment, net | 2,004,829 | | | 2,236,808 | |
Long-term investments | 39,057 |
| | 51,526 |
| Long-term investments | 0 | | | 15,542 | |
Deferred major maintenance, net | 99,564 |
| | 67,873 |
| Deferred major maintenance, net | 127,457 | | | 129,654 | |
Operating lease right-of-use assets, net | 22,433 |
| | — |
| Operating lease right-of-use assets, net | 114,573 | | | 22,081 | |
Deposits and other assets | 45,184 |
| | 36,753 |
| Deposits and other assets | 25,031 | | | 44,497 | |
TOTAL ASSETS: | $ | 2,834,480 |
| | $ | 2,498,668 |
| TOTAL ASSETS: | $ | 3,223,093 | | | $ | 3,010,803 | |
CURRENT LIABILITIES | | | | CURRENT LIABILITIES | | | |
Accounts payable | $ | 21,493 |
| | $ | 27,452 |
| Accounts payable | $ | 64,674 | | | $ | 27,667 | |
Accrued liabilities | 121,399 |
| | 122,027 |
| Accrued liabilities | 130,665 | | | 159,031 | |
Current operating lease liabilities | | Current operating lease liabilities | 13,814 | | | 2,662 | |
Air traffic liability | 267,676 |
| | 212,230 |
| Air traffic liability | 334,061 | | | 249,950 | |
Current maturities of long-term debt and finance lease obligations, net of related costs | 138,685 |
| | 152,287 |
| Current maturities of long-term debt and finance lease obligations, net of related costs | 233,680 | | | 173,274 | |
| TOTAL CURRENT LIABILITIES | 549,253 |
| | 513,996 |
| TOTAL CURRENT LIABILITIES | 776,894 | | | 612,584 | |
Long-term debt and finance lease obligations, net of current maturities and related costs | 1,213,299 |
| | 1,119,446 |
| Long-term debt and finance lease obligations, net of current maturities and related costs | 1,316,171 | | | 1,248,579 | |
Deferred income taxes | 211,801 |
| | 164,027 |
| Deferred income taxes | 292,661 | | | 232,520 | |
| Noncurrent operating lease liabilities | | Noncurrent operating lease liabilities | 101,864 | | | 21,290 | |
Other noncurrent liabilities | 33,519 |
| | 10,878 |
| Other noncurrent liabilities | 23,805 | | | 12,279 | |
TOTAL LIABILITIES: | 2,007,872 |
| | 1,808,347 |
| TOTAL LIABILITIES: | 2,511,395 | | | 2,127,252 | |
SHAREHOLDERS' EQUITY | | | | SHAREHOLDERS' EQUITY | | | |
Common stock, par value $.001 | 23 |
| | 23 |
| Common stock, par value $.001 | 23 | | | 23 | |
Treasury shares | (620,655 | ) | | (605,037 | ) | Treasury shares | (648,118) | | | (617,579) | |
Additional paid in capital | 285,318 |
| | 270,935 |
| Additional paid in capital | 315,150 | | | 289,933 | |
Accumulated other comprehensive income (loss), net | 29 |
| | (661 | ) | |
Accumulated other comprehensive income, net | | Accumulated other comprehensive income, net | 183 | | | 98 | |
Retained earnings | 1,161,893 |
| | 1,025,061 |
| Retained earnings | 1,044,460 | | | 1,211,076 | |
TOTAL EQUITY: | 826,608 |
| | 690,321 |
| TOTAL EQUITY: | 711,698 | | | 883,551 | |
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY: | $ | 2,834,480 |
| | $ | 2,498,668 |
| TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY: | $ | 3,223,093 | | | $ | 3,010,803 | |
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 September 30, | | Nine Months Ended September 30, |
| 2020 | | 2019 | | 2020 | | 2019 |
OPERATING REVENUES: | | | | | | | |
Passenger | $ | 181,916 | | | $ | 391,222 | | | $ | 677,347 | | | $ | 1,265,978 | |
Third party products | 11,337 | | | 18,207 | | | 35,756 | | | 53,557 | |
Fixed fee contracts | 5,284 | | | 19,797 | | | 17,440 | | | 42,859 | |
Other | 2,447 | | | 7,283 | | | 12,969 | | | 17,498 | |
Total operating revenues | 200,984 | | | 436,509 | | | 743,512 | | | 1,379,892 | |
OPERATING EXPENSES: | | | | | | | |
Salary and benefits | 95,829 | | | 107,586 | | | 303,264 | | | 340,589 | |
Aircraft fuel | 52,540 | | | 104,583 | | | 168,711 | | | 324,253 | |
Depreciation and amortization | 45,291 | | | 39,436 | | | 132,285 | | | 114,112 | |
Station operations | 39,954 | | | 43,522 | | | 108,359 | | | 128,357 | |
Maintenance and repairs | 14,038 | | | 24,768 | | | 48,866 | | | 68,470 | |
Sales and marketing | 7,967 | | | 17,591 | | | 35,331 | | | 59,057 | |
Aircraft lease rental | 3,015 | | | 0 | | | 5,404 | | | 0 | |
Other | 19,755 | | | 26,907 | | | 70,225 | | | 73,756 | |
CARES Act grant recognition | (77,909) | | | 0 | | | (152,448) | | | 0 | |
Special charges | 33,585 | | | 0 | | | 280,852 | | | 0 | |
Total operating expenses | 234,065 | | | 364,393 | | | 1,000,849 | | | 1,108,594 | |
OPERATING INCOME (LOSS) | (33,081) | | | 72,116 | | | (257,337) | | | 271,298 | |
OTHER (INCOME) EXPENSES: | | | | | | | |
Interest expense | 11,943 | | | 19,506 | | | 44,149 | | | 58,531 | |
Capitalized interest | 0 | | | (903) | | | (4,067) | | | (3,444) | |
Interest income | (868) | | | (3,335) | | | (4,596) | | | (10,038) | |
Loss on debt extinguishment | 0 | | | 0 | | | 1,222 | | | 3,677 | |
Special charges | 0 | | | 0 | | | 26,632 | | | 0 | |
Other, net | 552 | | | (57) | | | 1,173 | | | (41) | |
Total other expenses | 11,627 | | | 15,211 | | | 64,513 | | | 48,685 | |
INCOME (LOSS) BEFORE INCOME TAXES | (44,708) | | | 56,905 | | | (321,850) | | | 222,613 | |
INCOME TAX PROVISION (BENEFIT) | (15,565) | | | 12,976 | | | (166,595) | | | 51,017 | |
NET INCOME (LOSS) | $ | (29,143) | | | $ | 43,929 | | | $ | (155,255) | | | $ | 171,596 | |
Earnings (loss) per share to common shareholders: | | | | | | | |
Basic | $ | (1.82) | | | $ | 2.70 | | | $ | (9.75) | | | $ | 10.55 | |
Diluted | $ | (1.82) | | | $ | 2.70 | | | $ | (9.75) | | | $ | 10.54 | |
Shares used for computation: | | | | | | | |
Basic | 16,006 | | | 16,037 | | | 15,953 | | | 16,037 | |
Diluted | 16,006 | | | 16,039 | | | 15,953 | | | 16,045 | |
| | | | | | | |
Cash dividends declared per share: | $ | 0 | | | $ | 0.70 | | | $ | 0.70 | | | $ | 2.10 | |
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| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2019 | | 2018 | | 2019 | | 2018 |
OPERATING REVENUES: | | | | | | | |
Passenger | $ | 391,222 |
| | $ | 355,100 |
| | $ | 1,265,978 |
| | $ | 1,157,443 |
|
Third party products | 18,207 |
|
| 15,921 |
| | 53,557 |
| | 44,045 |
|
Fixed fee contracts | 19,797 |
| | 14,791 |
| | 42,859 |
| | 33,000 |
|
Other | 7,283 |
| | 7,297 |
| | 17,498 |
| | 20,845 |
|
Total operating revenues | 436,509 |
| | 393,109 |
| | 1,379,892 |
| | 1,255,333 |
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OPERATING EXPENSES: | | | | | | | |
Salary and benefits | 107,586 |
| | 97,706 |
| | 340,589 |
| | 312,314 |
|
Aircraft fuel | 104,583 |
| | 113,525 |
| | 324,253 |
| | 342,006 |
|
Station operations | 43,522 |
| | 43,128 |
| | 128,357 |
| | 122,265 |
|
Depreciation and amortization | 39,436 |
| | 34,658 |
| | 114,112 |
| | 92,641 |
|
Maintenance and repairs | 24,768 |
| | 31,983 |
| | 68,470 |
| | 75,864 |
|
Sales and marketing | 17,591 |
| | 16,798 |
| | 59,057 |
| | 54,224 |
|
Aircraft lease rental | — |
| | 671 |
| | — |
| | 767 |
|
Other | 26,907 |
| | 28,459 |
| | 73,756 |
| | 74,881 |
|
Total operating expenses | 364,393 |
| | 366,928 |
| | 1,108,594 |
| | 1,074,962 |
|
OPERATING INCOME | 72,116 |
| | 26,181 |
| | 271,298 |
| | 180,371 |
|
OTHER (INCOME) EXPENSES: | | | | | | | |
Interest expense | 19,506 |
| | 14,309 |
| | 58,531 |
| | 40,467 |
|
Capitalized interest | (903 | ) | | — |
| | (3,444 | ) | | (279 | ) |
Interest income | (3,335 | ) | | (2,425 | ) | | (10,038 | ) | | (6,259 | ) |
Loss on debt extinguishment | — |
| | — |
| | 3,677 |
| | — |
|
Other, net | (57 | ) | | (118 | ) | | (41 | ) | | (408 | ) |
Total other expenses | 15,211 |
| | 11,766 |
| | 48,685 |
| | 33,521 |
|
INCOME BEFORE INCOME TAXES | 56,905 |
| | 14,415 |
| | 222,613 |
| | 146,850 |
|
PROVISION FOR INCOME TAXES | 12,976 |
| | (732 | ) | | 51,017 |
| | 26,494 |
|
NET INCOME | $ | 43,929 |
| | $ | 15,147 |
| | $ | 171,596 |
| | $ | 120,356 |
|
Earnings per share to common shareholders: | | | | | | | |
Basic | $ | 2.70 |
| | $ | 0.94 |
| | $ | 10.55 |
| | $ | 7.46 |
|
Diluted | $ | 2.70 |
| | $ | 0.94 |
| | $ | 10.54 |
| | $ | 7.45 |
|
Shares used for computation: | | | | | | | |
Basic | 16,037 |
| | 15,957 |
| | 16,037 |
| | 15,929 |
|
Diluted | 16,039 |
| | 15,962 |
| | 16,045 |
| | 15,938 |
|
| | | | | | | |
Cash dividends declared per share: | $ | 0.70 |
| | $ | 0.70 |
| | $ | 2.10 |
| | $ | 2.10 |
|
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 September 30, | | Nine Months Ended September 30, |
| 2020 | | 2019 | | 2020 | | 2019 |
NET INCOME (LOSS) | $ | (29,143) | | | $ | 43,929 | | | $ | (155,255) | | | $ | 171,596 | |
Other comprehensive income (loss): | | | | | | | |
Change in available for sale securities, net of tax | (292) | | | 16 | | | 32 | | | 669 | |
Foreign currency translation adjustments | 51 | | | 17 | | | 53 | | | 21 | |
| | | | | | | |
Total other comprehensive income | (241) | | | 33 | | | 85 | | | 690 | |
TOTAL COMPREHENSIVE INCOME (LOSS) | $ | (29,384) | | | $ | 43,962 | | | $ | (155,170) | | | $ | 172,286 | |
| | | | | | | |
| | | | | | | |
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2019 | | 2018 | | 2019 | | 2018 |
NET INCOME | $ | 43,929 |
| | $ | 15,147 |
| | $ | 171,596 |
| | $ | 120,356 |
|
Other comprehensive income: | |
| | |
| | | | |
Change in available for sale securities, net of tax | 16 |
| | (83 | ) | | 669 |
| | (926 | ) |
Foreign currency translation adjustments | 17 |
| | 4 |
| | 21 |
| | 218 |
|
Change in derivatives, net of tax | — |
| | 1,325 |
| | — |
| | 2,321 |
|
Total other comprehensive income | 33 |
| | 1,246 |
| | 690 |
| | 1,613 |
|
TOTAL COMPREHENSIVE INCOME | $ | 43,962 |
| | $ | 16,393 |
| | $ | 172,286 |
| | $ | 121,969 |
|
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 September 30, 2020 |
| Common stock outstanding | | Par value | | Additional paid-in capital | | Accumulated other comprehensive income (loss) | | Retained earnings | | Treasury shares | | Total shareholders' equity |
Balance at June 30, 2020 | 16,240 | | | $ | 23 | | | $ | 310,628 | | | $ | 424 | | | $ | 1,073,603 | | | $ | (648,118) | | | $ | 736,560 | |
Share-based compensation | 58 | | | — | | | 4,099 | | | — | | | — | | | — | | | 4,099 | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Other comprehensive income (loss) | — | | | — | | | — | | | (241) | | | — | | | — | | | (241) | |
CARES Act warrant issuance | — | | | — | | | 423 | | | — | | | — | | | — | | | 423 | |
Net loss | — | | | — | | | — | | | — | | | (29,143) | | | — | | | (29,143) | |
Balance at September 30, 2020 | 16,298 | | | $ | 23 | | | $ | 315,150 | | | $ | 183 | | | $ | 1,044,460 | | | $ | (648,118) | | | $ | 711,698 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Nine Months Ended September 30, 2020 |
| Common stock outstanding | | Par value | | Additional paid-in capital | | Accumulated other comprehensive income | | Retained earnings | | Treasury shares | | Total shareholders' equity |
Balance at December 31, 2019 | 16,303 | | | $ | 23 | | | $ | 289,933 | | | $ | 98 | | | $ | 1,211,076 | | | $ | (617,579) | | | $ | 883,551 | |
Share-based compensation | 171 | | | — | | | 23,842 | | | — | | | — | | | — | | | 23,842 | |
Shares repurchased by the Company and held as treasury shares | (217) | | | — | | | — | | | — | | | — | | | (33,773) | | | (33,773) | |
Stock issued under employee stock purchase plan | 41 | | | — | | | — | | | — | | | — | | | 3,234 | | | 3,234 | |
Cash dividends declared, $0.70 per share | — | | | — | | | — | | | — | | | (11,361) | | | — | | | (11,361) | |
Other comprehensive income (loss) | — | | | — | | | — | | | 85 | | | — | | | — | | | 85 | |
CARES Act warrant issuance | — | | | — | | | 1,375 | | | — | | | — | | | — | | | 1,375 | |
Net loss | — | | | — | | | — | | | — | | | (155,255) | | | — | | | (155,255) | |
Balance at September 30, 2020 | 16,298 | | | $ | 23 | | | $ | 315,150 | | | $ | 183 | | | $ | 1,044,460 | | | $ | (648,118) | | | $ | 711,698 | |
| | | Three Months Ended September 30, 2019 | | Three Months Ended September 30, 2019 |
| Common stock outstanding | | Par value | | Additional paid-in capital | | Accumulated other comprehensive income (loss) | | Retained earnings | | Treasury shares | | Total shareholders' equity | | Common stock outstanding | | Par value | | Additional paid-in capital | | Accumulated other comprehensive income (loss) | | Retained earnings | | Treasury shares | | Total shareholders' equity |
Balance at June 30, 2019 | 16,305 |
| | $ | 23 |
| | $ | 280,783 |
| | $ | (4 | ) | | $ | 1,128,822 |
| | $ | (605,115 | ) | | $ | 804,509 |
| Balance at June 30, 2019 | 16,305 | | | $ | 23 | | | $ | 280,783 | | | $ | (4) | | | $ | 1,128,822 | | | $ | (605,115) | | | $ | 804,509 | |
Share-based compensation | — |
| | — |
| | 4,535 |
| | — |
| | — |
| | — |
| | 4,535 |
| Share-based compensation | — | | | — | | | 4,535 | | | — | | | — | | | — | | | 4,535 | |
Shares repurchased by the Company and held as treasury shares | (110 | ) | | — |
| | — |
| | — |
| | — |
| | (15,540 | ) | | (15,540 | ) | Shares repurchased by the Company and held as treasury shares | (110) | | | — | | | — | | | — | | | — | | | (15,540) | | | (15,540) | |
Cash dividends, $0.70 per share | — |
| | — |
| | — |
| | — |
| | (11,409 | ) | | — |
| | (11,409 | ) | |
Other comprehensive income | — |
| | — |
| | — |
| | 33 |
| | 551 |
| | — |
| | 584 |
| |
| Cash dividends declared, $0.70 per share | | Cash dividends declared, $0.70 per share | — | | | — | | | — | | | — | | | (11,409) | | | — | | | (11,409) | |
Other comprehensive income (loss) | | Other comprehensive income (loss) | — | | | — | | | — | | | 33 | | | 551 | | | — | | | 584 | |
Net income | — |
| | — |
| | — |
| | — |
| | 43,929 |
| | — |
| | 43,929 |
| Net income | — | | | — | | | — | | | — | | | 43,929 | | | — | | | 43,929 | |
Balance at September 30, 2019 | 16,195 |
| | $ | 23 |
| | $ | 285,318 |
| | $ | 29 |
| | $ | 1,161,893 |
| | $ | (620,655 | ) | | $ | 826,608 |
| Balance at September 30, 2019 | 16,195 | | | $ | 23 | | | $ | 285,318 | | | $ | 29 | | | $ | 1,161,893 | | | $ | (620,655) | | | $ | 826,608 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Nine Months Ended September 30, 2019 |
| Common stock outstanding | | Par value | | Additional paid-in capital | | Accumulated other comprehensive income (loss) | | Retained earnings | | Treasury shares | | Total shareholders' equity |
Balance at December 31, 2018 | 16,183 | | | $ | 23 | | | $ | 270,935 | | | $ | (661) | | | $ | 1,025,061 | | | $ | (605,037) | | | $ | 690,321 | |
Share-based compensation | 124 | | | — | | | 14,383 | | | — | | | — | | | — | | | 14,383 | |
Shares repurchased by the Company and held as treasury shares | (132) | | | — | | | — | | | — | | | — | | | (18,549) | | | (18,549) | |
Stock issued under employee stock purchase plan | 20 | | | — | | | — | | | — | | | — | | | 2,931 | | | 2,931 | |
Cash dividends, $2.10 per share | — | | | — | | | — | | | — | | | (34,214) | | | — | | | (34,214) | |
Other comprehensive income (loss) | — | | | — | | | — | | | 690 | | | 0 | | | — | | | 690 | |
Net income | — | | | — | | | — | | | — | | | 171,596 | | | — | | | 171,596 | |
Cumulative effect of the New Lease Standard | — | | | — | | | — | | | — | | | (550) | | | — | | | (550) | |
Balance at September 30, 2019 | 16,195 | | | $ | 23 | | | $ | 285,318 | | | $ | 29 | | | $ | 1,161,893 | | | $ | (620,655) | | | $ | 826,608 | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Nine Months Ended September 30, 2019 |
| Common stock outstanding | | Par value | | Additional paid-in capital | | Accumulated other comprehensive income (loss) | | Retained earnings | | Treasury shares | | Total shareholders' equity |
Balance at December 31, 2018 | 16,183 |
| | $ | 23 |
| | $ | 270,935 |
| | $ | (661 | ) | | $ | 1,025,061 |
| | $ | (605,037 | ) | | $ | 690,321 |
|
Share-based compensation | 124 |
| | — |
| | 14,383 |
| | — |
| | — |
| | — |
| | 14,383 |
|
Shares repurchased by the Company and held as treasury shares | (132 | ) | | — |
| | — |
| | — |
| | — |
| | (18,549 | ) | | (18,549 | ) |
Stock issued under employee stock purchase plan | 20 |
| | — |
| | — |
| | — |
| | — |
| | 2,931 |
| | 2,931 |
|
Cash dividends, $2.10 per share | — |
| | — |
| | — |
| | — |
| | (34,214 | ) | | — |
| | (34,214 | ) |
Other comprehensive income | — |
| | — |
| | — |
| | 690 |
| | — |
| | — |
| | 690 |
|
Net income | — |
| | — |
| | — |
| | — |
| | 171,596 |
| | — |
| | 171,596 |
|
Cumulative effect of the New Lease Standard (see Note 5) | — |
| | — |
| | — |
| | — |
| | (550 | ) | | — |
| | (550 | ) |
Balance at September 30, 2019 | 16,195 |
| | $ | 23 |
| | $ | 285,318 |
| | $ | 29 |
| | $ | 1,161,893 |
| | $ | (620,655 | ) | | $ | 826,608 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, 2018 |
| Common stock outstanding | | Par value | | Additional paid-in capital | | Accumulated other comprehensive income (loss) | | Retained earnings | | Treasury shares | | Total shareholders' equity |
Balance at June 30, 2018 | 16,161 |
| | $ | 23 |
| | $ | 263,034 |
| | $ | (2,473 | ) | | $ | 991,109 |
| | $ | (607,025 | ) | | $ | 644,668 |
|
Share-based compensation | — |
| | — |
| | 3,873 |
| | — |
| | — |
| | — |
| | 3,873 |
|
Issuance of common stock, net of forfeitures | 3 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Shares repurchased by the Company and held as treasury shares | (5 | ) | | — |
| | — |
| | — |
| | — |
| | (624 | ) | | (624 | ) |
Cash dividends, $0.70 per share | — |
| | — |
| | — |
| | — |
| | (11,314 | ) | | — |
| | (11,314 | ) |
Other comprehensive income | — |
| | — |
| | — |
| | 1,246 |
| | — |
| | — |
| | 1,246 |
|
Net income | — |
| | — |
| | — |
| | — |
| | 15,147 |
| | — |
| | 15,147 |
|
Balance at September 30, 2018 | 16,159 |
| | $ | 23 |
| | $ | 266,907 |
| | $ | (1,227 | ) | | $ | 994,942 |
| | $ | (607,649 | ) | | $ | 652,996 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Nine Months Ended September 30, 2018 |
| Common stock outstanding | | Par value | | Additional paid-in capital | | Accumulated other comprehensive income (loss) | | Retained earnings | | Treasury shares | | Total shareholders' equity |
Balance at December 31, 2017 | 16,066 |
| | $ | 23 |
| | $ | 253,840 |
| | $ | (2,840 | ) | | $ | 907,943 |
| | $ | (605,655 | ) | | $ | 553,311 |
|
Share-based compensation | 98 |
| | — |
| | 13,067 |
| | — |
| | — |
| | — |
| | 13,067 |
|
Issuance of common stock, net of forfeitures | 8 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Shares repurchased by the Company and held as treasury shares | (23 | ) | | — |
| | — |
| | — |
| | — |
| | (3,617 | ) | | (3,617 | ) |
Stock issued under employee stock purchase plan | 10 |
| | — |
| | — |
| | — |
| | — |
| | 1,623 |
| | 1,623 |
|
Cash dividends, $2.10 per share | — |
| | — |
| | — |
| | — |
| | (33,919 | ) | | — |
| | (33,919 | ) |
Other comprehensive income | — |
| | — |
| | — |
| | 1,613 |
| | 562 |
| | — |
| | 2,175 |
|
Net income | — |
| | — |
| | — |
| | — |
| | 120,356 |
| | — |
| | 120,356 |
|
Balance at September 30, 2018 | 16,159 |
| | $ | 23 |
| | $ | 266,907 |
| | $ | (1,227 | ) | | $ | 994,942 |
| | $ | (607,649 | ) | | $ | 652,996 |
|
The accompanying notes are an integral part of these consolidated financial statements.
ALLEGIANT TRAVEL COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
| | | | | | | | | | | |
| Nine Months Ended September 30, |
| 2020 | | 2019 |
Cash flows from operating activities: | | | |
Net income (loss) | $ | (155,255) | | | $ | 171,596 | |
Adjustments to reconcile net income to net cash provided by operating activities: | | | |
Depreciation and amortization | 132,285 | | | 114,112 | |
Special charges | 279,114 | | | 0 | |
Other adjustments | 89,342 | | | 60,135 | |
Changes in certain assets and liabilities: | | | |
Air traffic liability | 84,111 | | | 55,446 | |
| | | |
Other - net | (152,872) | | | (79,862) | |
Net cash provided by operating activities | 276,725 | | | 321,427 | |
Cash flows from investing activities: | | | |
Purchase of investment securities | (511,667) | | | (397,504) | |
Proceeds from maturities of investment securities | 421,658 | | | 413,038 | |
| | | |
Purchase of property and equipment | (198,567) | | | (350,187) | |
Proceeds from sale-leaseback transactions | 78,185 | | | 0 | |
Other investing activities | 1,247 | | | 10,647 | |
Net cash used in investing activities | (209,144) | | | (324,006) | |
Cash flows from financing activities: | | | |
Cash dividends paid to shareholders | (11,361) | | | (34,214) | |
Proceeds from the issuance of debt | 272,548 | | | 770,435 | |
Repurchase of common stock | (33,773) | | | (18,549) | |
Principal payments on debt and finance lease obligations | (146,416) | | | (670,148) | |
Debt issuance costs | (4,505) | | | (32,592) | |
Other financing activities | 4,609 | | | 325 | |
Net cash provided by financing activities | 81,102 | | | 15,257 | |
NET CHANGE IN CASH, CASH EQUIVALENTS, AND RESTRICTED CASH | 148,683 | | | 12,678 | |
CASH, CASH EQUIVALENTS, AND RESTRICTED CASH AT BEGINNING OF PERIOD | 136,785 | | | 95,911 | |
CASH, CASH EQUIVALENTS, AND RESTRICTED CASH AT END OF PERIOD | $ | 285,468 | | | $ | 108,589 | |
| | | |
| | | |
| | | |
CASH PAYMENTS (RECEIPTS) FOR: | | | |
Interest paid, net of amount capitalized | $ | 36,801 | | | $ | 53,089 | |
Income tax refunds | (95,258) | | | (2,227) | |
SUPPLEMENTAL DISCLOSURE OF NONCASH TRANSACTIONS: | | | |
Right-of-use (ROU) assets acquired | $ | 103,499 | | | $ | 2,213 | |
Purchases of property and equipment in accrued liabilities | 19,294 | | | 6,091 | |
| | | |
| | | |
|
| | | | | | | |
| Nine Months Ended September 30, |
| 2019 | | 2018 |
OPERATING ACTIVITIES: | | | |
Net income | $ | 171,596 |
| | $ | 120,356 |
|
Adjustments to reconcile net income to net cash provided by operating activities: | | | |
Depreciation and amortization | 114,112 |
| | 92,641 |
|
(Gain)/loss on aircraft and other equipment disposals | (8,553 | ) | | 2,274 |
|
Share-based compensation expense | 13,563 |
| | 11,043 |
|
Deferred income taxes | 47,795 |
| | 21,760 |
|
Other adjustments | 7,330 |
| | 1,833 |
|
Changes in certain assets and liabilities: | | | |
Accounts receivable | 4,564 |
| | 38,005 |
|
Prepaid expenses | (13,493 | ) | | (6,709 | ) |
Accounts payable | (3,655 | ) | | (2,437 | ) |
Accrued liabilities | (8,158 | ) | | 5,960 |
|
Air traffic liability | 55,446 |
| | 27,432 |
|
Deferred major maintenance | (48,081 | ) | | (21,699 | ) |
Other assets/liabilities | (11,039 | ) | | (336 | ) |
Net cash provided by operating activities | 321,427 |
| | 290,123 |
|
INVESTING ACTIVITIES: | | | |
Purchase of investment securities | (397,504 | ) | | (263,057 | ) |
Proceeds from maturities of investment securities | 413,038 |
| | 355,325 |
|
Purchase of property and equipment, including capitalized interest | (350,187 | ) | | (273,999 | ) |
Other investing activities | 10,647 |
| | (5,399 | ) |
Net cash used in investing activities | (324,006 | ) | | (187,130 | ) |
FINANCING ACTIVITIES: | | | |
Cash dividends paid to shareholders | (34,214 | ) | | (33,919 | ) |
Proceeds from the issuance of debt | 770,435 |
| | 191,724 |
|
Repurchase of common stock | (18,549 | ) | | (3,617 | ) |
Principal payments on debt and finance lease obligations | (670,148 | ) | | (171,438 | ) |
Debt issuance costs | (32,592 | ) | | (1,147 | ) |
Other financing activities | 325 |
| | 5,834 |
|
Net cash provided by (used in) financing activities | 15,257 |
| | (12,563 | ) |
NET CHANGE IN CASH, CASH EQUIVALENTS, AND RESTRICTED CASH | 12,678 |
| | 90,430 |
|
CASH, CASH EQUIVALENTS, AND RESTRICTED CASH AT BEGINNING OF PERIOD | 95,911 |
| | 70,639 |
|
CASH, CASH EQUIVALENTS, AND RESTRICTED CASH AT END OF PERIOD | $ | 108,589 |
| | $ | 161,069 |
|
| | | |
CASH PAYMENTS (RECEIPTS) FOR: | | | |
Interest paid, net of amount capitalized | $ | 53,089 |
| | $ | 43,751 |
|
Income tax refunds | (2,227 | ) | | (41,145 | ) |
SUPPLEMENTAL DISCLOSURE OF NONCASH TRANSACTIONS: | | | |
Property capitalized under operating leases | $ | 25,533 |
| | $ | — |
|
Flight equipment acquired under finance leases | — |
| | 127,625 |
|
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's investments in unconsolidated affiliates, which are 50 percent or less owned, are accounted for under the equity or cost method, and are insignificant to the consolidated financial statements. 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, 20182019 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
In FebruaryOn June 16, 2016, the Financial Accounting Standards Board ("FASB")FASB issued ASU 2016-02, Leases (Topic 842), (the "New Lease Standard"). ThisNo. 2016-13, Measurement of Credit Losses on Financial Instruments. The standard requires leases, other than short-term,the use of an “expected loss” model on certain types of financial instruments. The standard also amends the impairment model for available-for-sale debt securities and requires estimated credit losses to be recognized on the balance sheetrecorded as a lease liability and a corresponding right-of-use asset.
Lease payments include fixed payments, variable payments based on an index or rate, reasonably certain purchase options, termination penalties, and other payments 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 lesseeallowances instead of reductions to amortized cost of the lessor’s debt, or any amount allocatedsecurities. The Company adopted this accounting standard prospectively as of January 1, 2020, and it did not have a significant impact on its consolidated financial statements.
On December 18, 2019, the FASB issued ASU No. 2019-12, Simplifying the Accounting for Income Taxes. The standard simplifies the accounting and disclosure requirements for income taxes by clarifying existing guidance to non-lease components. Thisimprove consistency in application of ASC 740. The standard also removes the requirement to calculate income tax expense for the stand-alone financial statements of wholly-owned subsidiaries. The standard is effective for fiscal years, and interim and annual reporting periods within those years, beginning after December 15, 2018 and the2020, with early adoption permitted in any interim period within that year. The Company adopted the New Lease Standard as ofplans to adopt this accounting standard effective January 1, 2019. The Company also elected the package of practical expedients, which among other things, does not require reassessment of lease classification.2021.
The Company adopted the New Lease Standard using the modified retrospective transition approach as of the effective date as permitted by the amendments in ASU 2018-11, "Targeted Improvements - Leases (Topic 842)." Under this method, the cumulative effect adjustment to the opening balance of retained earnings is recognized at the adoption date. As a result, the Company was not required to adjust its comparative period financial information for effects of the standard or make the new required lease disclosures for periods before the date of adoption on January 1, 2019.
The Company's consolidated balance sheet was affected by this standard, but the consolidated statements of income and the Company's liquidity were not significantly impacted. The most significant change to the consolidated balance sheet upon adoption on January 1, 2019 relates to the recognition of new right-of-use (ROU) assets of $18.0 million and operating liabilities of $19.1 million. The Company's accounting for finance leases remains substantially unchanged.
See Note 5, "Leases," for more information.
Note 2 — Impact of the COVID-19 Pandemic
The rapid spread of COVID-19 and the related government restrictions, social distancing measures, and consumer fears have impacted flight loads, resulted in unprecedented cancellations of bookings and substantially reduced demand for new bookings throughout the airline industry. Starting in March 2020, the Company experienced a severe reduction in air travel, which has continued. Demand in the foreseeable future will continue to be affected by fluctuations in COVID-19 cases, hospitalizations, deaths, treatment efficacy and the availability of a vaccine. The Company is continuously reevaluating flight schedules based on demand trends.
The Coronavirus Aid, Relief and Economic Security Act (the "CARES Act") was enacted in March 2020, providing support for the airline industry and other businesses and individuals.
On April 20, 2020, the Company through its airline operating subsidiary Allegiant Air, LLC entered into a Payroll Support Program Agreement (the “PSPA”) with the U.S. Department of the Treasury ("Treasury") for an award Allegiant Air would receive under the CARES Act. The total amount initially allocated to Allegiant Air under the PSP was $171.9 million, all of which was received by the end of July 2020. On September 30, 2020, the Company received an additional installment of $5.0 million for a total aggregate of $176.9 million under the PSPA. The proceeds of the award were used exclusively for wages, salaries and benefits during the second and third quarters 2020, in accordance with the agreement.
The $176.9 million received under the PSPA during the second and third quarters of 2020 includes direct grants, a $23.1 million loan, and warrants to purchase 27,681 shares of the Company's common stock, as further discussed below.
In consideration for the grant, Allegiant Air issued to Treasury a low-interest rate, senior unsecured term promissory note (the “PSP Note”) which will mature 10 years after issuance. The principal amount of the PSP Note is $23.1 million. The PSP Note is guaranteed by the Company and is prepayable at any time at par (see Note 5).
Also in consideration for the grant, the Company issued warrants (the “PSP Warrants”) to Treasury to purchase 27,681 shares of common stock of the Company at a price of $83.33 per share (based on the closing price of the Company’s common stock on The Nasdaq Global Select Market on April 9, 2020). Warrants to purchase 19,700 shares (valued at $1.0 million) were issued in May and June 2020, and warrants for the remaining 7,981 shares (valued at $0.4 million) were issued in July and September 2020. The PSP Warrants expire five years after issuance, and will be exercisable either through net share settlement or cash, at the Company’s option. The PSP Warrants include customary anti-dilution provisions, do not have any voting rights and are freely transferable, with registration rights.
In connection with the PSPA, the Company is required to comply with the relevant provisions of the CARES Act, including those prohibiting the repurchase of common stock and the payment of common stock dividends until September 30, 2021, as well as those restricting the payment of certain executive compensation for periods through March 24, 2022.
Given the Company's efforts to conserve and raise liquidity and the Company's assumptions about the future impact of COVID-19 on travel demand, which could be materially different due to the inherent uncertainties of the current operating environment, the Company expects to meet its cash obligations as well as remain in compliance with the debt covenants in its existing financing agreements for the next 12 months based on its current level of unrestricted cash and short-term investments, its anticipated access to liquidity and tax refunds, and projected cash flows from operations.
Special Charges
The effects of COVID-19 triggered an impairment review, and a non-cash impairment charge was recognized during the nine months ended September 30, 2020 (see Note 12 - Impairment for additional detail). The Company also identified expenses that were unique and specific to COVID-19. The impairment charges and other expenses that resulted from the effects of COVID-19 are recorded as special charges within both operating and non-operating expenses during the nine months ended September 30, 2020. See the table below for a summary of operating and non-operating special charges recorded by segment during the three and nine months ended September 30, 2020.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
(in thousands) | | Airline | | Sunseeker Resort | | Other non-airline | | Total |
Three Months Ended September 30, 2020 | | | | | | | | |
| | | | | | | | |
| | | | | | | | |
Operating | | $ | 32,617 | | | $ | 0 | | | $ | 968 | | | $ | 33,585 | |
Non-operating | | 0 | | | 0 | | | 0 | | | 0 | |
Total special charges | | $ | 32,617 | | | $ | 0 | | | $ | 968 | | | $ | 33,585 | |
Nine Months Ended September 30, 2020 | | | | | | | | |
| | | | | | | | |
| | | | | | | | |
Operating | | $ | 118,059 | | | $ | 135,443 | | | $ | 27,350 | | | $ | 280,852 | |
Non-operating | | 0 | | | 26,632 | | | 0 | | | 26,632 | |
Total special charges | | $ | 118,059 | | | $ | 162,075 | | | $ | 27,350 | | | $ | 307,484 | |
Additional detail for the $307.5 million total special charges (operating and non-operating) for the nine months ended September 30, 2020 appears below:
•$168.4 million in impairment charges
◦Includes Airline - $5.0 million; Sunseeker Resort - $136.8 million; Other non-airline - $26.6 million
•$89.3 million adjustment resulting from the accelerated retirements of 7 airframes and 5 engines, loss on sale leaseback transactions of 7 aircraft, and write-offs of other aircraft related assets
•$21.5 million adjustment for additional salary and benefits expense in relation to the elimination of positions as well as other non-recurring compensation expense associated with the acceleration of certain existing stock awards
◦Includes Airline - $21.1 million; Sunseeker Resort - $0.4 million
•$19.8 million related to the termination of the loan agreement with Sixth Street Partners (formerly TSSP) intended to finance the development of Sunseeker Resorts Charlotte Harbor
◦$14.9 million paid during the third quarter 2020 and remaining $4.9 million recorded in accrued liabilities (subsequently paid in October 2020)
•$5.0 million related to suspension of construction at Sunseeker
•$3.5 million write-down on various non-aircraft assets and other various expenses
Note 3 — Revenue Recognition
Passenger Revenue
Passenger revenue is the most significant category in ourthe Company's reported operating revenues. Passenger revenue is primarily composed of scheduled service revenue (including passenger ticket sales and credit voucher 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), as well as co-brand credit card point redemptions, as outlined below:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
(in thousands) | 2020 | | 2019 | | 2020 | | 2019 |
Scheduled service | $ | 79,464 | | | $ | 200,233 | | | $ | 325,404 | | | $ | 672,690 | |
Ancillary air-related charges | 100,262 | | | 187,776 | | | 342,520 | | | 583,003 | |
Co-brand redemptions | 2,190 | | | 3,213 | | | 9,423 | | | 10,285 | |
Total passenger revenue | $ | 181,916 | | | $ | 391,222 | | | $ | 677,347 | | | $ | 1,265,978 | |
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
(in thousands) | 2019 | | 2018 | | 2019 | | 2018 |
Scheduled service | $ | 200,233 |
| | $ | 202,796 |
| | $ | 672,690 |
| | $ | 677,061 |
|
Ancillary air-related charges | 187,776 |
| | 150,095 |
| | 583,003 |
| | 472,443 |
|
Co-brand redemptions | 3,213 |
| | 2,209 |
| | 10,285 |
| | 7,939 |
|
Total passenger revenue | $ | 391,222 |
| | $ | 355,100 |
| | $ | 1,265,978 |
| | $ | 1,157,443 |
|
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, to the extent different from estimated breakage. As of September 30, 2020, approximately 34.7 percent of the air traffic liability balance was related to forward bookings, with the remaining 65.3 percent related to credit vouchers for future travel.
The normal contract term of passenger tickets is twelve months and revenue associated with future travel will principally be recognized within this time frame. During the nine months ended September 30, 2019, $210.12020, $204.1 million was recognized into passenger revenue that was recorded in the air traffic liability balance of $212.2$250.0 million at December 31, 2018.2019.
In April 2020, the Company announced that credits issued for canceled travel in April through the end of the COVID-19 pandemic will have an extended expiration date of two years from the original booking date. This change has been considered in estimating the future breakage rate, which represents the value of credit vouchers that are not expected to be redeemed prior to their contractual expiration date.
Co-brand redemptions
In relation to the travel component of the co-branded credit card 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. In September 2020, the Company amended its existing co-brand agreement, which among other things extended the term of the agreement through August 2029 and provided for the pre-purchase of credit card points. This transaction was treated as a financing transaction for accounting purposes using an effective interest rate consistent with the Company’s credit rating.
The following table presents the activity of the co-brand point liability as of the dates indicated:
| | | | | | | | | | | |
| Nine Months Ended September 30, |
(in thousands) | 2020 | | 2019 |
Balance at January 1 | $ | 15,613 | | | $ | 10,708 | |
Points awarded (deferral of revenue) | 15,018 | | | 14,308 | |
Points redeemed (recognition of revenue) | (9,510) | | | (10,285) | |
Balance at September 30 | $ | 21,121 | | | $ | 14,731 | |
|
| | | | | | | |
| Nine Months Ended September 30, |
(in thousands) | 2019 | | 2018 |
Balance at January 1 | $ | 10,708 |
| | $ | 8,903 |
|
Points awarded (deferral of revenue) | 14,308 |
| | 10,872 |
|
Points redeemed (recognition of revenue) | (10,285 | ) | | (7,939 | ) |
Balance at September 30 | $ | 14,731 |
| | $ | 11,836 |
|
As of September 30, 2020 and 2019, and 2018, $10.6$11.8 million and $8.1$10.6 million, respectively, of the current points liability is reflected in Accrued liabilities and represents ourthe Company's 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. Given the inherent uncertainty of the current operating environment due to COVID-19, the Company will continue to monitor redemption patterns and may adjust its estimates in the future.
Note 34 — Property and Equipment
Property and equipment:
|
| | | | | | | |
(in thousands) | As of September 30, 2019 | | As of December 31, 2018 |
Flight equipment, including pre-delivery deposits | $ | 2,168,557 |
| | $ | 1,905,157 |
|
Computer hardware and software | 158,720 |
| | 140,385 |
|
Land and buildings/leasehold improvements | 86,163 |
| | 85,925 |
|
Other property and equipment | 142,198 |
| | 89,778 |
|
Total property and equipment | 2,555,638 |
| | 2,221,245 |
|
Less accumulated depreciation and amortization | (452,823 | ) | | (373,977 | ) |
Property and equipment, net | $ | 2,102,815 |
| | $ | 1,847,268 |
|
The following table summarizes the Company's property and equipment as of the dates indicated:
| | | | | | | | | | | |
(in thousands) | September 30, 2020 | | December 31, 2019 |
Flight equipment, including pre-delivery deposits | $ | 2,259,358 | | | $ | 2,289,157 | |
Computer hardware and software | 151,602 | | | 171,516 | |
Land and buildings/leasehold improvements | 86,825 | | | 98,885 | |
Other property and equipment | 80,156 | | | 161,760 | |
Total property and equipment | 2,577,941 | | | 2,721,318 | |
Less accumulated depreciation and amortization | (573,112) | | | (484,510) | |
Property and equipment, net | $ | 2,004,829 | | | $ | 2,236,808 | |
Accrued capital expenditures as of September 30, 2020 and December 31, 2019 and September 30, 2018 were $6.1$19.3 million and $3.8$16.5 million, respectively.
Note 45 — Long-Term Debt
The following table summarizes the Company's Long-term debt and finance lease obligations:
|
| | | | | | | |
(in thousands) | As of September 30, 2019 | | As of December 31, 2018 |
Fixed-rate debt and finance lease obligations due through 2029(1) | $ | 215,839 |
| | $ | 640,806 |
|
Variable-rate debt due through 2029 | 1,136,145 |
| | 630,927 |
|
Total long-term debt and finance lease obligations, net of related costs | 1,351,984 |
| | 1,271,733 |
|
Less current maturities, net of related costs(1) | 138,685 |
| | 152,287 |
|
Long-term debt and finance lease obligations, net of current maturities and related costs | $ | 1,213,299 |
| | $ | 1,119,446 |
|
| | | |
Weighted average fixed-interest rate on debt | 3.9 | % | | 5.3 | % |
Weighted average variable-interest rate on debt | 4.8 | % | | 4.2 | % |
(1) As of December 31, 2018, $428.0 millionobligations as 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. dates indicated:
| | | | | | | | | | | |
(in thousands) | September 30, 2020 | | December 31, 2019 |
Fixed-rate debt and finance lease obligations due through 2029 | $ | 363,080 | | | $ | 235,071 | |
Variable-rate debt due through 2029 | 1,186,771 | | | 1,186,782 | |
Total long-term debt and finance lease obligations, net of related costs | 1,549,851 | | | 1,421,853 | |
Less current maturities, net of related costs | 233,680 | | | 173,274 | |
Long-term debt and finance lease obligations, net of current maturities and related costs | $ | 1,316,171 | | | $ | 1,248,579 | |
| | | |
Weighted average fixed-interest rate on debt | 3.9 | % | | 3.7 | % |
Weighted average variable-interest rate on debt | 2.4 | % | | 4.5 | % |
Maturities of long-term debt and finance lease obligations for the remainder of 20192020 and for the next four years and thereafter, in the aggregate, are: remaining in 2019 - $33.0 million; 2020 - $138.9$44.7 million; 2021 - $133.4$229.3 million; 2022 - $113.8$135.5 million; 2023 - $100.9$122.1 million; 2024 - $656.3 million; and $832.0$362.0 million thereafter.
Consolidated Variable Interest EntityCARES Act Payroll Support Program Loan
In March 2019,April 2020 the Company through a wholly owned subsidiary, entered into agreementsa low-interest rate, senior unsecured term promissory note (the "PSP" Note) with a trust to borrow $44.0 million secured by 1 aircraft.the Treasury under the CARES Act payroll support program. The trust was funded on inception. These borrowings bearPSP Note will mature 10 years after issuance and bears interest at a blended rate of 3.81.0 percent payable in quarterly installments through April 2029,for the first five years, with interest at whichthe secured overnight financing rate (SOFR) plus 2.0 percent thereafter. The PSP Note is prepayable at any time at par, without penalty.
During the second and third quarters 2020, the Company will have a purchase option at a fixed amount. As this transactionreceived $23.1 million in funds under the PSP Note, which is a common control transaction,recorded within noncurrent debt on the balance sheet.
In connection with the PSP Note, the Company is required to comply with the relevant provisions of the CARES Act, including those prohibiting the repurchase of common stock and the payment of common stock dividends until September 30, 2021, as well as those restricting 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 timepayment of borrowing.certain executive compensation for periods through March 24, 2022.
Senior Secured Revolving Credit Facility
The Company has a senior secured revolving credit facility under which it is able to borrow up to $81.0 million. There was 0 balance under this facility as of September 30, 2019. The facility has a term of 24 months and the borrowing ability is based on the value of the Airbus A320 series aircraft placed in the collateral pool. In 2019 the Company drew down the entire $81.0 million under this facility. A principal payment of $11.7 million was made in September 2020, and the remaining balance as of September 30, 2020 is $69.3 million. Aircraft remain in the collateral pool for up to two years, and, as of September 30, 2019,2020, there were 46 aircraft in the collateral pool.
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
usednotes for the prepayment ofamounts borrowed under the balance under 6 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 loan agreements secured by spare engines. The borrowingsfacility bear interest at a floating rate based on LIBOR and are due in March 2021.
Other Secured Debt
In September 2020, the Company borrowed $84.0 million under a loan agreement secured by 2 aircraft and 8 spare engines. The note bears interest at a fixed rate, payable in quarterlymonthly installments with terms ranging from seven to ten years.maturity after five and six years for the spare engines and aircraft, respectively.
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"). In February 2020 the Company entered into an amendment to the Term Loan under which the interest rate was reduced by 150 basis points, and the principal amount of the debt was increased by a net amount of $100.0 million to $545.5 million. Quarterly principal payments increased under the amendment, but the remaining provisions were substantially unchanged, including the maturity date. 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$1.4 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
Until February 2019, the Company had outstanding $450.0 million aggregate principal amount of senior unsecured obligations (the "Notes") which bore interest at 5.5 percent per year and matured in July 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 incurred related debt extinguishment costs of $3.7 million. The remaining $102.1 million of the Notes were paid at their maturity in July 2019.
Construction Loan Agreement
In March 2019, Sunseeker Florida, Inc. (“SFI”), a wholly-owned subsidiary of the Company, entered into a Construction Loan Agreement with certain lenders affiliated with TPG Sixth Street Partners, LLC (the “Lender”). Under the Construction Loan Agreement, SFI maywould have been able to borrow up to $175.0 million (the “Loan”) to fund the construction of Phase 1 of Sunseeker Resort -Charlotte Harbor (the “Project”).Harbor. NaN amount has beenwas ever drawn under this agreement.
Due to the various impacts of COVID-19, the Company suspended construction of Sunseeker Resort, and it is uncertain when construction will resume. In light of these conditions, the Company reached a $19.8 million settlement agreement aswith the Lender to terminate the Loan. During the third quarter 2020, the Company paid $14.9 million of the settlement, and the remaining $4.9 million was paid in October 2020. The expense is reflected within non-operating special charges on the statement of income for the nine months ended September 30, 2019.2020.
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 accordance with approved plans and specifications. All of the shares in SFI are also pledged to secure the loan. The Loan bears interest based on LIBOR and matures in March 2023.
Note 56 — LeasesIncome Taxes
The Company determines if an arrangement isrecorded a lease at inception$15.6 million tax benefit (34.8 percent effective tax rate) compared to a $13.0 million tax provision (22.8 percent effective tax rate) for the three months ended September 30, 2020 and has lease agreements2019, respectively. The effective tax rate 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 rangethe three months ended September 30, 2020 differed from 2019the statutory federal income tax rate of 21.0 percent primarily due to 2036.
As a resultthe tax accounting impact of the New Lease Standard, certain real estateCARES Act which allows the Company to carryback the 2020 net operating loss at the 35.0 percent tax rate applicable in earlier years.
The Company recorded a $166.6 million tax benefit (51.8 percent effective tax rate) compared to a $51.0 million tax provision (22.9 percent effective tax rate) for the nine months ended September 30, 2020 and property2019, respectively. The 51.8 percent effective tax rate for the nine months ended September 30, 2020 differed from the statutory federal income tax rate of 21.0 percent primarily due to the tax accounting impact of the CARES Act which includes a $40.9 million discrete federal income tax benefit related to the full utilization of 2018 and 2019 net operating losses as well as the ability to carryback the 2020 net operating loss at a 35.0 percent rate applicable in earlier years. The effective tax rate was also impacted by the remeasurement of deferred taxes and state taxes.
Note 7 — Leases
The Company evaluates all operating leases and various other operating leases have beenthey are measured on the balance sheet with a lease liability and right-of-use asset ("ROU"(“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.
at inception. ROU assets represent the Company'sCompany’s right to use an underlying asset for the lease term, and lease liabilities represent the obligation to make scheduled lease payments. Airport terminal leases mostly include variable lease payments outside of those based on a fixed index, and are therefore not recorded as ROU assets.
The following table summarizes the Company's total assets and liabilities are recognized onrelated to leases as of the lease commencement date based on the present valuedates indicated:
| | | | | | | | | | | | | | |
(in thousands) | Classification on the Balance Sheet | September 30, 2020 | | December 31, 2019 |
Assets | | | | |
Operating lease assets(1) | Operating lease right-of-use assets | $ | 114,573 | | | $ | 22,081 | |
Finance lease assets(2) | Property and equipment, net | 106,777 | | | 111,665 | |
Total lease assets | | $ | 221,350 | | | $ | 133,746 | |
| | | | |
Liabilities | | | | |
Current | | | | |
Operating(1) | Current operating lease liabilities | $ | 13,814 | | | $ | 2,662 | |
Finance(2) | Current maturities of long-term debt and finance lease obligations | 7,922 | | | 7,666 | |
Noncurrent | | | | |
Operating(1) | Noncurrent operating lease liabilities | 101,864 | | | 21,290 | |
Finance(2) | Long-term debt and finance lease obligations | 101,955 | | | 107,930 | |
Total lease liabilities | | $ | 225,555 | | | $ | 139,548 | |
(1) Represents assets and liabilities 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 as10 aircraft, office equipment, certain airport and terminal facilities, and 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 toassets under operating leases the Company had
(2) Represents assets and liabilities of 5 aircraft under finance leases as of September 30, 2019, with remaining terms to 2029.
Lease Costs
The components of lease costs recognized on the statements of income were as follows:
|
| | | | | | | | |
| | Three Months Ended | | Nine Months Ended |
(in thousands) | Classification on the Statements of Income | September 30, 2019 | | September 30, 2019 |
Finance lease costs: | | | | |
Amortization of assets | Depreciation and amortization | $ | 1,629 |
| | $ | 4,888 |
|
Interest on lease liabilities | Interest expense | 1,306 |
| | 3,978 |
|
Operating lease cost | Station operations; Maintenance and repairs; Other operating expense | 897 |
| | 2,634 |
|
Variable lease cost | Station operations; Maintenance and repairs; Other operating expense | 663 |
| | 1,672 |
|
Total lease cost | | $ | 4,495 |
| | $ | 13,172 |
|
Sale-Leaseback Transaction
Lease position as of September 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 | September 30, 2019 |
Assets | | |
Operating lease assets | Operating lease right-of-use assets, net | $ | 22,433 |
|
Finance lease assets | Property and equipment, net | 113,294 |
|
Total lease assets | | $ | 135,727 |
|
| | |
Liabilities | | |
Current | | |
Operating | Accrued liabilities | $ | 2,388 |
|
Finance | Current maturities of long-term debt and finance lease obligations | 7,582 |
|
Noncurrent | | |
Operating | Other noncurrent liabilities | 21,744 |
|
Finance | Long-term debt and finance lease obligations | 109,878 |
|
Total lease liabilities | | $ | 141,592 |
|
| | |
Weighted-average remaining lease term | | |
Operating leases | | 9.4 years |
|
Finance leases | | 10.1 years |
|
Weighted-average discount rate | | |
Operating leases | | 4.3 | % |
Finance leases | | 4.4 | % |
Other Information
The table below presents supplemental cash flow information related to leases duringDuring the three and nine months ended September 30, 2019.2020, the Company entered into two separate sale-leaseback transactions involving 7 total aircraft. The transactions qualified as sales, and generated $78.2 million of proceeds. As a result of the sales, the aircraft were removed from property and equipment in the Company's balance sheet, resulting in a $49.8 million loss on the sales. The loss is reflected within operating special charges on the statement of income since the Company would not likely have completed the transactions absent cash conservation efforts as a result of COVID. The leased aircraft were subsequently recorded within operating lease right-of-use assets, with the related lease liabilities recorded within current and noncurrent operating lease liabilities on the balance sheet. The proceeds from the sales of aircraft in these transactions are treated as cash inflows from investing activities on the statement of cash flows.
|
| | | | | | | |
| Three Months Ended | | Nine Months Ended |
(in thousands) | September 30, 2019 | | September 30, 2019 |
Cash paid for amounts included in the measurement of lease liabilities | | | |
Operating cash flows for operating leases | $ | 725 |
| | $ | 2,190 |
|
Operating cash flows for finance leases | 1,306 |
| | 3,978 |
|
Financing cash flows for finance leases | 1,844 |
| | 5,472 |
|
Maturities of Lease Liabilities
The table below indicates the future minimum payments of lease liabilities as of September 30, 2019.
|
| | | | | | | |
(in thousands) | Operating Leases | | Finance Leases |
Remaining in 2019 | $ | 726 |
| | $ | 3,150 |
|
2020 | 3,566 |
| | 12,600 |
|
2021 | 3,382 |
| | 12,600 |
|
2022 | 3,361 |
| | 11,095 |
|
2023 | 3,213 |
| | 10,500 |
|
Thereafter | 15,317 |
| | 103,459 |
|
Total lease payments | 29,565 |
| | 153,404 |
|
Less imputed interest | (5,433 | ) | | (35,944 | ) |
Total lease obligations | 24,132 |
| | 117,460 |
|
Less current obligations | (2,388 | ) | | (7,582 | ) |
Long-term lease obligations | $ | 21,744 |
| | $ | 109,878 |
|
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 | | Finance 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 68 — 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 usesutilizes the market approach valuation technique to determinemeasure the fair value for investment securities.of its financial assets. The assets classified as Level 1 consist of money market funds for which original cost approximates fair value.approach uses prices and other relevant information generated by market transactions involving identical or comparable assets. 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 usingprimarily utilize 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.inputs for valuation of these securities. No changes in valuation techniques or inputs occurred during the nine months ended September 30, 2020.
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.
Financial instruments measured at fair value on a recurring basis:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| September 30, 2020 | | December 31, 2019 |
(in thousands) | Total | | Level 1 | | Level 2 | | Total | | Level 1 | | Level 2 |
Cash equivalents | | | | | | | | | | | |
Money market funds | $ | 80,121 | | | $ | 80,121 | | | $ | 0 | | | $ | 42,653 | | | $ | 42,653 | | | $ | 0 | |
Commercial paper | 22,783 | | | 0 | | | 22,783 | | | 5,807 | | | 0 | | | 5,807 | |
Municipal debt securities | 10,205 | | | 0 | | | 10,205 | | | 1,202 | | | 0 | | | 1,202 | |
Federal agency debt securities | 1,340 | | | 0 | | | 1,340 | | | 0 | | | 0 | | | 0 | |
| | | | | | | | | | | |
| | | | | | | | | | | |
Total cash equivalents | 114,449 | | | 80,121 | | | 34,328 | | | 49,662 | | | 42,653 | | | 7,009 | |
Short-term | | | | | | | | | | | |
Commercial paper | 212,992 | | | 0 | | | 212,992 | | | 161,286 | | | 0 | | | 161,286 | |
Corporate debt securities | 139,659 | | | 0 | | | 139,659 | | | 145,975 | | | 0 | | | 145,975 | |
Municipal debt securities | 52,437 | | | 0 | | | 52,437 | | | 12,237 | | | 0 | | | 12,237 | |
Federal agency debt securities | 35,389 | | | 0 | | | 35,389 | | | 13,515 | | | 0 | | | 13,515 | |
US Treasury bonds | 1,287 | | | 0 | | | 1,287 | | | 2,915 | | | 0 | | | 2,915 | |
Total short-term | 441,764 | | | 0 | | | 441,764 | | | 335,928 | | | 0 | | | 335,928 | |
Long-term | | | | | | | | | | | |
| | | | | | | | | | | |
Corporate debt securities | 0 | | | 0 | | | 0 | | | 15,396 | | | 0 | | | 15,396 | |
US Treasury bonds | 0 | | | 0 | | | 0 | | | 146 | | | 0 | | | 146 | |
| | | | | | | | | | | |
| | | | | | | | | | | |
Total long-term | 0 | | | 0 | | | 0 | | | 15,542 | | | 0 | | | 15,542 | |
Total financial instruments | $ | 556,213 | | | $ | 80,121 | | | $ | 476,092 | | | $ | 401,132 | | | $ | 42,653 | | | $ | 358,479 | |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| As of September 30, 2019 | | As of December 31, 2018 |
(in thousands) | Total | | Level 1 | | Level 2 | | Total | | Level 1 | | Level 2 |
Cash equivalents | | | | | | | | | | | |
Money market funds | $ | 65,014 |
| | $ | 65,014 |
| | $ | — |
| | $ | 43,281 |
| | $ | 43,281 |
| | $ | — |
|
Commercial paper | 5,731 |
| | — |
| | 5,731 |
| | 29,138 |
| | — |
| | 29,138 |
|
Municipal debt securities | 4,087 |
| | — |
| | 4,087 |
| | — |
| | — |
| | — |
|
Federal agency debt securities | 124 |
| | — |
| | 124 |
| | — |
| | — |
| | — |
|
US Treasury bonds | — |
| | — |
| | — |
| | 1,415 |
| | — |
| | 1,415 |
|
Total cash equivalents | 74,956 |
| | 65,014 |
| | 9,942 |
| | 73,834 |
| | 43,281 |
| | 30,553 |
|
Short-term | |
| | |
| | | | |
| | |
| | |
|
Corporate debt securities | 149,854 |
| | — |
| | 149,854 |
| | 101,489 |
| | — |
| | 101,489 |
|
Commercial paper | 142,656 |
| | — |
| | 142,656 |
| | 180,846 |
| | — |
| | 180,846 |
|
Federal agency debt securities | 11,510 |
| | — |
| | 11,510 |
| | 11,887 |
| | — |
| | 11,887 |
|
Municipal debt securities | 7,785 |
| | — |
| | 7,785 |
| | 14,252 |
| | — |
| | 14,252 |
|
US Treasury bonds | 3,017 |
| | — |
| | 3,017 |
| | 5,990 |
| | — |
| | 5,990 |
|
Total short-term | 314,822 |
| | — |
| | 314,822 |
| | 314,464 |
| | — |
| | 314,464 |
|
Long-term | |
| | |
| | |
| | |
| | |
| | |
|
Corporate debt securities | 35,996 |
| | — |
| | 35,996 |
| | 37,334 |
| | — |
| | 37,334 |
|
US Treasury bonds | 3,061 |
| | — |
| | 3,061 |
| | 2,901 |
| | — |
| | 2,901 |
|
Federal agency debt securities | — |
| | — |
| | — |
| | 11,291 |
| | — |
| | 11,291 |
|
Total long-term | 39,057 |
| | — |
| | 39,057 |
| | 51,526 |
| | — |
| | 51,526 |
|
Total financial instruments | $ | 428,835 |
| | $ | 65,014 |
| | $ | 363,821 |
| | $ | 439,824 |
| | $ | 43,281 |
| | $ | 396,543 |
|
The fair valueNone of the Company’sCompany's debt is publicly held long-term debt was 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 categorized its publicly held debtand as Level 2. The Company's remaining debt is not publicly held, anda result, the Company has determined the estimated fair value of these notes to be Level 3, as certain3. 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, are as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| September 30, 2020 | | December 31, 2019 | | |
(in thousands) | Carrying Value | | Estimated Fair Value | | Carrying Value | | Estimated Fair Value | | Hierarchy Level |
Non-publicly held debt | $ | 1,461,705 | | | $ | 1,349,111 | | | $ | 1,329,882 | | | $ | 1,140,232 | | | 3 |
|
| | | | | | | | | | | | | | | | | |
| As of September 30, 2019 | | As of December 31, 2018 | | |
(in thousands) | Carrying Value | | Estimated Fair Value | | Carrying Value | | Estimated Fair Value | | Hierarchy Level |
Non-publicly held debt | $ | 1,259,130 |
| | $ | 1,053,911 |
| | $ | 703,372 |
| | $ | 619,379 |
| | 3 |
Publicly held debt | — |
| | — |
| | 450,463 |
| | 451,026 |
| | 2 |
Total long-term debt | $ | 1,259,130 |
| | $ | 1,053,911 |
| | $ | 1,153,835 |
| | $ | 1,070,405 |
| | |
Due to thetheir short-term nature, the carrying amounts of cash, cash equivalents, restricted cash, accounts receivable and accounts payable approximate fair value.
Note 79 — Earnings (Loss) per Share
Basic and diluted earnings (loss) per share are computed pursuant to the two-class method. Under this method, the Company attributes net income (loss) 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. |
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. |
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 nine months ended September 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 (loss) per share, on a basic and diluted basis, for the periods indicated (share count and dollar amounts other than per-share amounts in the table are in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2020 | | 2019 | | 2020 | | 2019 |
Basic: | | | | | | | |
Net income (loss) | $ | (29,143) | | | $ | 43,929 | | | $ | (155,255) | | | $ | 171,596 | |
Less income allocated to participating securities | 0 | | | (578) | | | (236) | | | (2,441) | |
Net income (loss) attributable to common stock | $ | (29,143) | | | $ | 43,351 | | | $ | (155,491) | | | $ | 169,155 | |
Earnings (loss) per share, basic | $ | (1.82) | | | $ | 2.70 | | | $ | (9.75) | | | $ | 10.55 | |
Weighted-average shares outstanding | 16,006 | | | 16,037 | | | 15,953 | | | 16,037 | |
Diluted: | | | | | | | |
Net income (loss) | $ | (29,143) | | | $ | 43,929 | | | $ | (155,255) | | | $ | 171,596 | |
Less income allocated to participating securities | 0 | | | (578) | | | (236) | | | (2,440) | |
Net income (loss) attributable to common stock | $ | (29,143) | | | $ | 43,351 | | | $ | (155,491) | | | $ | 169,156 | |
Earnings (loss) per share, diluted | $ | (1.82) | | | $ | 2.70 | | | $ | (9.75) | | | $ | 10.54 | |
Weighted-average shares outstanding(1) | 16,006 | | | 16,037 | | | 15,953 | | | 16,037 | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
(1) Dilutive effect of common stock equivalents excluded from the diluted per share calculation is not material.
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2019 | | 2018 | | 2019 | | 2018 |
Basic: | | | | | | | |
Net income | $ | 43,929 |
| | $ | 15,147 |
| | $ | 171,596 |
| | $ | 120,356 |
|
Less net income allocated to participating securities | (578 | ) | | (194 | ) | | (2,441 | ) | | (1,602 | ) |
Net income attributable to common stock | $ | 43,351 |
| | $ | 14,953 |
| | $ | 169,155 |
| | $ | 118,754 |
|
Earnings per share, basic | $ | 2.70 |
| | $ | 0.94 |
| | $ | 10.55 |
| | $ | 7.46 |
|
Weighted-average shares outstanding | 16,037 |
| | 15,957 |
| | 16,037 |
| | 15,929 |
|
Diluted: | |
| | |
| | |
| | |
|
Net income | $ | 43,929 |
| | $ | 15,147 |
| | $ | 171,596 |
| | $ | 120,356 |
|
Less net income allocated to participating securities | (578 | ) | | (194 | ) | | (2,440 | ) | | (1,601 | ) |
Net income attributable to common stock | $ | 43,351 |
| | $ | 14,953 |
| | $ | 169,156 |
| | $ | 118,755 |
|
Earnings per share, diluted | $ | 2.70 |
| | $ | 0.94 |
| | $ | 10.54 |
| | $ | 7.45 |
|
Weighted-average shares outstanding | 16,037 |
| | 15,957 |
| | 16,037 |
| | 15,929 |
|
Dilutive effect of stock options and restricted stock | 56 |
| | 35 |
| | 45 |
| | 42 |
|
Adjusted weighted-average shares outstanding under treasury stock method | 16,093 |
| | 15,992 |
| | 16,082 |
| | 15,971 |
|
Participating securities excluded under two-class method | (54 | ) | | (30 | ) | | (37 | ) | | (33 | ) |
Adjusted weighted-average shares outstanding under two-class method | 16,039 |
| | 15,962 |
| | 16,045 |
| | 15,938 |
|
Note 810 — Commitments and Contingencies
As of September 30, 2019,2020, the Company had firm commitments to purchase 148 Airbus A320 series aircraft.aircraft as well as purchase agreements for 2 spare engines.
The Company's contractual purchase commitments consist primarily of aircraft and engine acquisitions. The total future commitments are as follows:
| | | | | |
(in thousands) | September 30, 2020 |
Remaining in 2020 | $ | 110,762 | |
2021 | 37,900 | |
2022 | 21,000 | |
| |
| |
| |
Total commitments | $ | 169,662 | |
|
| | | |
(in thousands) | As of September 30, 2019 |
Remaining in 2019 | $ | 53,400 |
|
2020 | 157,900 |
|
2021 | 37,900 |
|
2022 | 21,000 |
|
Total commitments | $ | 270,200 |
|
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 potential and pending legal or administrative matters will not have a material adverse impact on its financial position, liquidity or results of operations.
Note 911 — Segments
Operating segments are components of a company for which separate financial and operating information is regularly evaluated and reported to the Chief Operating Decision Maker ("CODM"), and is used to allocate resources and analyze performance. The Company's CODM is the executive leadership team, which reviews information about the Company's 3 operating segments: the Airline, Sunseeker Resort, and other 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 forGolf Course. Due to the resort 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 fromvarious impacts of COVID-19, the resort site and is considered, from a planning and strategic perspective, to be an additional resort amenity. TheCompany suspended construction of Sunseeker Resort is an extensionand temporarily closed operation of the Company's leisure travel focus andKingsway Golf Course. At this time, it is expected that many customers flying to Southwest Florida on Allegiantuncertain when construction will elect to stay at this resortresume and enjoy its amenities.when the golf course will re-open.
Other non-Airline Segment
The other non-airline segment includes the Teesnap golf course management solution and Allegiant Nonstop family entertainment centers. Allegiant Nonstop family entertainment centers are comprised of games, attractions, and food facilities.
Due to the impacts of COVID-19, the Company temporarily closed the Allegiant Nonstop location in Warren, MI (which has subsequently opened as of early October 2020). The Company also permanently closed the Allegiant Nonstop location in Clearfield, Utah, and permanently discontinued all activity for the Allegiant Nonstop location in West Jordan, Utah, which was being developed.
In July 2019, management began evaluating strategic alternatives for Teesnap, and its business-to-business software as a service offering. As the Company's current strategy has a business to customer focus, rather than business to business, management determined that the best course of action for both entities would be to sell Teesnap. Management expects the sale to be finalized before the end of the second quarter 2020. The carrying value of the disposal group expected to be transferred in the sale is approximately $5.5 million as of September 30, 2019.
Selected information for the Company's segments and the reconciliation to the consolidated financial statement amounts are as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
(in thousands) | Airline | | Sunseeker Resort | | Other non- airline | | Consolidated |
Three Months Ended September 30, 2020 | | | | | | | |
Operating revenue: | | | | | | | |
Passenger | $ | 181,916 | | | $ | — | | | $ | — | | | $ | 181,916 | |
Third party products | 11,337 | | | — | | | — | | | 11,337 | |
Fixed fee contract | 5,284 | | | — | | | — | | | 5,284 | |
Other | (224) | | | 0 | | | 2,671 | | | 2,447 | |
Operating income (loss) (1) | (28,836) | | | (2,619) | | | (1,626) | | | (33,081) | |
Interest expense, net | 11,075 | | | 0 | | | 0 | | | 11,075 | |
Depreciation and amortization | 45,247 | | | 44 | | | 0 | | | 45,291 | |
Capital expenditures | 25,066 | | | 0 | | | 0 | | | 25,066 | |
Three Months Ended September 30, 2019 | | | | | | | |
Operating revenue: | | | | | | | |
Passenger | $ | 391,222 | | | $ | — | | | $ | — | | | $ | 391,222 | |
Third party products | 18,207 | | | — | | | — | | | 18,207 | |
Fixed fee contract | 19,797 | | | — | | | — | | | 19,797 | |
Other | 1,648 | | | 251 | | | 5,384 | | | 7,283 | |
Operating income (loss) | 77,335 | | | (1,281) | | | (3,938) | | | 72,116 | |
Interest expense, net | 14,761 | | | 507 | | | 0 | | | 15,268 | |
Depreciation and amortization | 38,409 | | | 329 | | | 698 | | | 39,436 | |
Capital expenditures | 98,308 | | | 16,931 | | | 479 | | | 115,718 | |
| | | | | | | |
(in thousands) | Airline | | Sunseeker Resort | | Other non- airline | | Consolidated |
Nine Months Ended September 30, 2020 | | | | | | | |
Operating revenue: | | | | | | | |
Passenger | $ | 677,347 | | | $ | — | | | $ | — | | | $ | 677,347 | |
Third party products | 35,756 | | | — | | | — | | | 35,756 | |
Fixed fee contract | 17,440 | | | — | | | — | | | 17,440 | |
Other | 1,460 | | | 653 | | | 10,856 | | | 12,969 | |
Operating income (loss) (2) | (83,106) | | | (142,741) | | | (31,490) | | | (257,337) | |
Interest expense, net | 34,925 | | | 561 | | | 0 | | | 35,486 | |
Depreciation and amortization | 130,938 | | | 577 | | | 770 | | | 132,285 | |
Capital expenditures | 155,810 | | | 45,160 | | | 442 | | | 201,412 | |
Nine Months Ended September 30, 2019 | | | | | | | |
Operating revenue: | | | | | | | |
Passenger | $ | 1,265,978 | | | $ | — | | | $ | — | | | $ | 1,265,978 | |
Third party products | 53,557 | | | — | | | — | | | 53,557 | |
Fixed fee contract | 42,859 | | | — | | | — | | | 42,859 | |
Other | 3,578 | | | 1,526 | | | 12,394 | | | 17,498 | |
Operating income (loss) | 291,371 | | | (4,199) | | | (15,874) | | | 271,298 | |
Interest expense, net | 43,906 | | | 1,143 | | | 0 | | | 45,049 | |
Depreciation and amortization | 110,528 | | | 811 | | | 2,773 | | | 114,112 | |
Capital expenditures | 305,356 | | | 33,502 | | | 11,329 | | | 350,187 | |
(1) For the three months ended September 30, 2020, Operating loss was impacted by special charges of: $32.6 million for the Airline and $1.0 million for Other non-airline.
(2) For the nine months ended September 30, 2020, Operating loss was impacted by special charges of: $118.1 million for the Airline; $135.4 million for Sunseeker Resort; and $27.4 million for Other non-airline.
|
| | | | | | | | | | | | | | | |
(in thousands) | Airline | | Sunseeker Resort | | Other non- airline | | Consolidated |
Three Months Ended September 30, 2019 | | | | | | | |
Operating revenue: | | | | | | | |
Passenger | $ | 391,222 |
| | $ | — |
| | $ | — |
| | $ | 391,222 |
|
Third party products | 18,207 |
| | — |
| | — |
| | 18,207 |
|
Fixed fee contract | 19,797 |
| | — |
| | — |
| | 19,797 |
|
Other | 1,648 |
| | 251 |
| | 5,384 |
| | 7,283 |
|
Operating income (loss) | 77,335 |
| | (1,281 | ) | | (3,938 | ) | | 72,116 |
|
Interest expense, net | 14,761 |
| | 507 |
| | — |
| | 15,268 |
|
Depreciation and amortization | 38,409 |
| | 329 |
| | 698 |
| | 39,436 |
|
Capital expenditures | 98,308 |
| | 16,931 |
| | 479 |
| | 115,718 |
|
Three Months Ended September 30, 2018 | | | | | | | |
Operating revenue: | | | | | | | |
Passenger | $ | 355,100 |
| | $ | — |
| | $ | — |
| | $ | 355,100 |
|
Third party products | 15,921 |
| | — |
| | — |
| | 15,921 |
|
Fixed fee contract | 14,791 |
| | — |
| | — |
| | 14,791 |
|
Other | 4,611 |
| | 94 |
| | 2,592 |
| | 7,297 |
|
Operating income (loss) | 29,727 |
| | (1,136 | ) | | (2,410 | ) | | 26,181 |
|
Interest expense, net | 11,884 |
| | — |
| | — |
| | 11,884 |
|
Depreciation and amortization | 34,138 |
| | 47 |
| | 473 |
| | 34,658 |
|
Capital expenditures | 74,799 |
| | 8,197 |
| | 3,547 |
| | 86,543 |
|
| | | | | | | |
(in thousands) | Airline | | Sunseeker Resort | | Other non- airline | | Consolidated |
Nine Months Ended September 30, 2019 | | | | | | | |
Operating revenue: | | | | | | | |
Passenger | $ | 1,265,978 |
| | $ | — |
| | $ | — |
| | $ | 1,265,978 |
|
Third party products | 53,557 |
| | — |
| | — |
| | 53,557 |
|
Fixed fee contract | 42,859 |
| | — |
| | — |
| | 42,859 |
|
Other | 3,578 |
| | 1,526 |
| | 12,394 |
| | 17,498 |
|
Operating income (loss) | 291,371 |
| | (4,199 | ) | | (15,874 | ) | | 271,298 |
|
Interest expense, net | 43,906 |
| | 1,143 |
| | — |
| | 45,049 |
|
Depreciation and amortization | 110,528 |
| | 811 |
| | 2,773 |
| | 114,112 |
|
Capital expenditures | 305,356 |
| | 33,502 |
| | 11,329 |
| | 350,187 |
|
Nine Months Ended September 30, 2018 | | | | | | | |
Operating revenue: | | | | | | | |
Passenger | $ | 1,157,443 |
| | $ | — |
| | $ | — |
| | $ | 1,157,443 |
|
Third party products | 44,045 |
| | — |
| | — |
| | 44,045 |
|
Fixed fee contract | 33,000 |
| | — |
| | — |
| | 33,000 |
|
Other | 14,808 |
| | 94 |
| | 5,943 |
| | 20,845 |
|
Operating income (loss) | 187,731 |
| | (1,582 | ) | | (5,778 | ) | | 180,371 |
|
Interest expense, net | 33,929 |
| | — |
| | — |
| | 33,929 |
|
Depreciation and amortization | 91,309 |
| | 64 |
| | 1,268 |
| | 92,641 |
|
Capital expenditures | 240,733 |
| | 25,541 |
| | 7,725 |
| | 273,999 |
|
Total assets were as follows as of the dates indicated:
| | | | | | | | | | | |
(in thousands) | September 30, 2020 | | December 31, 2019 |
Airline | $ | 3,170,834 | | | $ | 2,830,236 | |
Sunseeker Resort | 37,264 | | | 133,362 | |
Other non-airline | 14,995 | | | 47,205 | |
Consolidated | $ | 3,223,093 | | | $ | 3,010,803 | |
|
| | | | | | | |
(in thousands) | September 30, 2019 | | December 31, 2018 |
Airline | $ | 2,689,869 |
| | $ | 2,422,523 |
|
Sunseeker Resort | 104,283 |
| | 56,047 |
|
Other non-airline | 40,328 |
| | 20,098 |
|
Consolidated | $ | 2,834,480 |
| | $ | 2,498,668 |
|
Note 12 — Impairment
Accounting Standards Codification (ASC) 360 - Property, Plant, and Equipment (ASC 360) requires long-lived assets to be assessed for impairment when events and circumstances indicate that the assets may be impaired.
As described in Note 2, in the first nine months of 2020, the Company's operations and liquidity were significantly impacted by decreased passenger demand and U.S. government travel restrictions and quarantine requirements due to COVID-19. As a result of these events and circumstances, the Company performed impairment tests on its long-lived assets in connection with the preparation of its financial statements.
In accordance with ASC 360, an impairment of a long-lived asset or group of long-lived assets exists only when the sum of the estimated undiscounted future cash flows expected to be generated directly by the assets is less than the carrying value of the assets. Assets were grouped by operating segment when estimating future cash flows, and further grouped within each segment as applicable. Estimates of future cash flows were generally based on historical results, and management's best estimate of future market and operating conditions.
Airline Segment
Long-lived assets for the Airline segment consist primarily of owned and leased flight and ground equipment. To test the recoverability of the Company's airline operating fleet, undiscounted future cash flows for each aircraft under the Company's current expected operating fleet plan were assessed and it was determined that there was 0 impairment as of September 30, 2020. As the Company obtains greater clarity about the duration and extent of reduced demand and potentially executes further capacity adjustments, the Company will continue to evaluate its current fleet compared to network requirements and may decide to permanently retire additional aircraft.
The Airline has an equity investment in a technology company. A $5.0 million charge was recorded to impair the investment in the second quarter 2020. As a result of the impairment, net book value of the investment is zero. This decision reflects management's best estimate of the fair value of this investment based on recent market trends.
Sunseeker Resort Segment
Long-lived assets for Sunseeker Resort and related Kingsway Golf Course consist primarily of the land, construction in process, building, and other various equipment. As a result of the impairment tests performed, the Company determined the sum of the undiscounted cash flows was less than the long-lived assets' carrying value. A $136.8 million impairment charge was recorded in the first quarter 2020 to reflect the difference between the carrying values of these assets and their fair values. Fair value reflects management's best estimate,including valuation inputs from third parties and recent market transactions. Based on an evaluation of impairment indicators in the second and third quarters 2020, 0 additional impairment was recognized.
Other non-Airline Segment
Long-lived assets for Allegiant Nonstop family entertainment centers consist primarily of leasehold improvements, arcade games, various equipment, and ROU assets. As a result of the impairment tests performed, the Company determined the sum of the undiscounted cash flows were less than the long-lived assets' carrying value. An $18.3 million impairment charge was recorded in the first quarter 2020 to reflect the difference between the carrying values of these assets and their fair values. Fair value reflects management's best estimate,including valuation inputs from third parties and recent market trends. Based on an evaluation of impairment indicators in the second and third quarters 2020, 0 additional impairment was recognized.
Long-lived assets for Teesnap consist primarily of capitalized software and computer equipment. As a result of the impairment tests performed, the Company determined the sum of the undiscounted cash flows was less than the long-lived assets' carrying value. Management does not expect to recover any of the book value of the assets through operations, and an $8.3 million impairment charge was recorded in the first quarter 2020 to write down all long-lived assets to a net book value of 0. This reflects management's best estimate of the fair value of these assets based on recent market trends.
Note 13 — Subsequent Events
In October 2020, the Company closed on the private offering of $150.0 million principal amount of a 8.5 percent Senior Secured Note due 2024. The Notes and related guarantees are secured by first priority security interests in substantially all of the property and assets of the Company and the guarantors of the Notes (excluding aircraft, aircraft engines and certain other assets).The guarantors of the Notes include all significant subsidiaries other than Sunseeker Resorts, Inc. and its subsidiaries.
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 nine months ended September 30, 20192020 and 2018.2019. Also discussed is our financial position as of September 30, 20192020 and December 31, 2018.2019. 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, 2018.2019. 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.
Third Quarter 2019 ReviewNETWORK
Highlights:
| |
– | Achieved 17.9 percent airline operating margin, which represents a 10.3 percentage point increase year over year; |
| |
– | recognized our third consecutive quarter of ancillary air-related revenue per passenger exceeding $50, with a total of $50.03 this quarter; |
| |
– | recognized a 33.8 percent increase in fixed fee revenue quarter over quarter, which resulted in the highest quarterly fixed fee revenue in company history; |
| |
– | achieved third party products revenue per passenger of $4.85, the highest third quarter revenue since 2013; |
| |
– | achieved a total fare increase of 1.8 percent year over year despite a 5.8 percent increase in scheduled service capacity; |
| |
– | produced a 5.6 percent decrease in airline operating CASM excluding fuel; |
| |
– | ranked number two by Forbes in list of best airlines to fly this fall and received recognition from the USA Today Reader's Choice Award for having the best airline co-branded credit card; |
| |
– | achieved industry leading controllable completion of more than 99.9% during the quarter; |
| |
– | improved controllable A14 performance (flight arrival within 14 minutes of scheduled arrival) by 4.5 percentage points compared to 2018; and |
| |
– | scheduled 22 new routes which are planned to begin service in November 2019. |
AIRCRAFT
The following table sets forth the aircraft in service and operated by us as of the dates indicated:
|
| | | | | | | | |
| September 30, 2019 | | December 31, 2018 | | September 30, 2018 |
A319 | 37 |
| | 32 |
| | 31 |
|
A320 (1) | 52 |
| | 44 |
| | 43 |
|
MD-80 | — |
| | — |
| | 19 |
|
Total | 89 |
| | 76 |
| | 93 |
|
(1) Does not include four aircraft of which we have taken delivery, but were not yet in service as of September 30, 2019.
As of September 30, 2019, we had firm commitments to purchase 14 aircraft and have signed an agreement to take delivery of four additional aircraft through operating leases. We expect delivery of seven of these aircraft in 2019 and the remaining aircraft in 2020, through 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 our operating fleet.
|
| | |
| As of December 31, 2019 |
A319 | 38 |
|
A320 | 55 |
|
Total | 93 |
|
NETWORK
As of September 30, 2019, we were selling 466520 routes versus 421466 as of the same date last year, which represents a 10.7an 11.6 percent increase. Our total number of origination cities and leisure destinations (for operating routes) were 9497 and 26,29, respectively, as of September 30, 2019. Based2020.
Our unique model is predicated around expanding and contracting capacity to meet seasonal travel demands. We are currently leveraging this core strength, just at a much more significant contracting level than normal seasonal demand changes would dictate. We are maintaining a broad network and selling presence. We consistently monitor flights to assess for cash profitability.
TRENDS
The COVID-19 pandemic and shelter-in-place directives have greatly impacted our operating results for the nine months ending September 30, 2020 and will continue to do so into the future. Air traffic demand is down substantially and base air fares are down as well. We cannot predict when air travel will return to customary levels or at what pace. In the meantime, our revenues will be adversely affected. We believe that demand in the foreseeable future will continue to fluctuate in response to fluctuations in COVID-19 cases, hospitalizations, deaths, treatment efficacy and the availability of a vaccine.
The impacts of the pandemic have resulted in a reduction in our flight schedule. It is likely that reduced schedules will continue into the future. We are closely monitoring bookings and making decisions on schedule changes as necessary based on demand.
Though we cannot control the current demand environment, our primary focus at the current time has been to conserve cash, and we have taken immediate and extensive measures to reduce daily cash burn. We have reduced management and support teams by roughly 300 positions. We have suspended payment of cash dividends and stock buybacks. We have suspended construction of the Sunseeker Resort in Southwest Florida as well as spend on our currently published schedule through Mayother non-airline subsidiaries. We have reduced airline capital expenditures for this year and into the future. We have eliminated other nonessential expenditures and have renegotiated arrangements with outside vendors, all in an effort to conserve cash until revenues recover.
We will continue to focus on conserving cash, along with managing capacity to meet demand, which we believe is a core strength of our business model.
RESPONSES TO THE COVID-19 PANDEMIC
Beginning in March and continuing throughout 2020, we have taken many actions to mitigate the effects of COVID-19 on our business, as outlined below:
Network and Customer Experience
•Reduced third quarter system-wide capacity by 9.4 percent
•Continually evaluating forward schedules to adjust capacity according to demand trends
•Waived change and cancellation fees for all customers
•Extended expiry on credit vouchers to two years
•Offered opt-in option in the booking path for customers to receive notification that their flight has reached 65.0 percent capacity with option to re-book on another flight with no fee or receive a refund
Cash Outlay Reduction
•Suspended all stock buybacks and dividends
•Enacted a hiring freeze and offered voluntary leaves
•Reduced management and support teams by approximately 300 positions (includes 220 positions previously disclosed in the prior quarter), a 25 percent reduction in these work groups
•Furloughed 100 pilots as of October 1, 2020, and service announcementsan additional 27 furloughs as of November 1, 2020
•Suspended nearly all contractor positions, subscriptions, non-essential training and cancellationstravel
•Suspended all non-essential capital expenditures including, but not limited to, Sunseeker Resorts, Teesnap and Allegiant Nonstop family entertainment centers
Liquidity Response
•Implemented immediate and meaningful cash spend reductions
•Obtained $84 million in proceeds from financings secured by other airlinesA320 aircraft and CFM engines in September
•Received proceeds of $30.0 million in September through a sale-leaseback transaction on three aircraft
•As of September 30, 2020, we had 21 unencumbered aircraft and two unencumbered spare engines
•During the second and third quarters, received $176.9 million under the payroll support program agreement ("PSPA") with the Treasury, comprised of direct grants, a $23.1 million low-interest 10-year loan, and warrants to purchase 27,681 shares of our common stock.
•Received $94.3 million of tax refunds during the second and third quarters related to the 2018 and 2019 net operating loss carrybacks due to the change in loss carryback period under the CARES Act
–Under current law, we expect a sizable federal income tax refund to be received in the first half of 2021 related to 2020 net operating losses
•Deferring payment of the employer portion of Social Security taxes, as permitted under the CARES Act, to provide additional liquidity - $7.8 million in Social Security taxes deferred as of September 30, 2019, we will have direct competition (which we consider2020 (half to be similar non-stop service between markets) on approximately 101 routes as of that date.paid by December 31, 2021 and the other half to be paid by December 31, 2022)
As of the date of this filing, service is scheduled on 22 new routes beginning in fourth quarter 2019, including service into West Palm Beach, FL, which we are welcoming back to the Allegiant network.Health and Safety
TRENDS
The transition to an all-Airbus fleet continues to produce positive operating results. Despite having an average of eight fewer aircraft in serviceAmid various uncertainties and public concern during the third quarter 2019 comparedCOVID-19 pandemic, we have implemented the below measures to 2018, scheduled service ASMs increased 5.8 percentensure health and safety for all traveling on our flights. Due to our focus on these health and safety measures, we were ranked by Safe Travel Barometer in August 2020 as the #1 airline among North American carriers and among the top five worldwide for best COVID-19 Traveler Safety Measures, with results based on an 8.1 percent increase in departures,independent audit of more than 150 airlines.
•Maintain a comprehensive cleaning program for all aircraft that includes a regular schedule of standard and scheduled service passengers increased 8.4 percent. We accomplisheddeep-clean procedures that exceed both CDC and Airbus guidance
•Aircraft receive regular treatment with an advanced antimicrobial protectant that kills viruses, germs and bacteria on contact for 14 days
•Utilize VOC (volatile organic compound) filters on board every aircraft, which remove additional organic compounds and ensure that cabin air is changed, on average, every three minutes, exceeding HEPA standards
•Effective July 2, 2020, require customers to wear face coverings through all phases of travel, including at the increased capacity by increasing aircraft utilization (block hours per aircraft) by 15.6 percent compared to the third quarter 2018. The increase in utilization was enabled by the younger and more reliable all-Airbus fleet. Despite the capacity increase, we were able to achieve a 1.8 percent increase in average total fare year over year.
We grew airline operating margin by 10.3 percentage points, to 17.9 percentticket counter, in the third quarter 2019. This was partly duegate area and during flight
•Complimentary health and safety kits,which include a single-use face mask, a pair of non-latex disposable gloves and cleaning wipes, provided to a 3.6 percent increase in fuel efficiency (ASMs per gallon of fuel), coupled with a 10.4 percent decrease in average per gallon fuel cost. The margin improvement was also attributable to a 5.6 percent decrease in total airline unit cost excluding fuel, driven by continued improvement in operations, lower maintenance expense, and lower irregular operations costs.
Margin improvement was also bolstered by increases in revenue. 28.2 percentall of our scheduled ASMs werecustomers
•Crew members required to wear face masks on off-peak daysboard and during any interaction with customers
•Social distancing principles at check-in, boarding and on-board, including limiting adjacent row seating and allowing only customers on the same itinerary to utilize middle seats as practicable
•Treat hard surfaces in all office areas, including airport station offices, maintenance facilities, headquarters/administrative offices, withantimicrobial disinfectant/protectant, and utilize wall-mounted and handheld thermometers for employee and crew member temperature checks
•Partner with Quest Diagnostics to provide at home COVID-19 test kits to employees in the third quarter 2019 (generally Tuesdays, Wednesdays and Saturdays) compared to 26.7 percent in the same quarter last year, and we still achieved an increase in total unit revenue of 4.3 percent. Although off-peak flying has contributed to our margin improvement, our operating strategy remains unchanged and we reduce flying when demandevent local testing is low. We were able to profitably decrease flight hours this September by over 48 percent when compared to our busiest months in 2019.not immediately available
Additionally, we have led or tied for the U.S. domestic airline industry lead in completion factor for 18 of the past 21 months since the beginning of 2018. During the first three quarters of 2019, we had only eleven days affected by maintenance cancellations, and achieved a 99.97 controllable completion percentage.
RESULTS OF OPERATIONS
Comparison of three months ended September 30, 20192020 to three months ended September 30, 20182019
Operating Revenue
Passenger revenue. For the third quarter 2019,2020, passenger revenue increased 10.2decreased 53.5 percent compared to third quarter 2018.2019. The increasedecrease was driven primarily by an 8.1due to a 46.6 percent increasedecline in scheduled service departures, which, along withpassengers from a slight increase36.3 percentage point decrease in load factor, resultedfactor. These declines are largely due to a dramatic decline in an 8.4 percent increase inpassenger demand and government travel restrictions and quarantine requirements related to COVID-19, which continued during the third quarter 2020. Additionally, we reduced our scheduled service passengers. A 15.4capacity by 6.5 percent increaseduring the third quarter, in air-related ancillary averageresponse to passenger demand trends. Average total passenger fare more than offset an 8.5(includes scheduled service and air ancillary) decreased 12.9 percent year over year, driven by a 24.8 percent decrease in scheduled service average fare. Increasesbase fare as fares were reduced in the customer convenience fee and baggage fees contributedan effort to the increase in air-related ancillary unit revenue to $50.03 per passenger.stimulate demand.
Third party products revenue. Third party products revenue for the third quarter 2019 increased 14.42020 decreased 37.7 percent, compared to the same period in 2018.2019. This is primarily the result of increased revenue from our co-branded credit card program, as well as an increase indue to decreased net revenue from both rental cars and hotels.hotels, as a result of substantially fewer passengers as well as reduced hotel room inventory, particularly in the Las Vegas market.
Fixed fee contract revenue. Fixed fee contract revenue for the third quarter 2019 increased 33.82020 decreased 73.3 percent when compared to 2018, mostlyyear over year due to increased flying fordecreases in demand. Departures decreased 57.9 percent resulting from a significant drop in ad hoc charter opportunities in the Department of Defense. This increase was the result of greater availability of spare aircraft due to improved operations and an all-Airbus fleet.third quarter 2020. The grounding of the Boeing 737 Max of other airlines likely also contributed to our increaseddecreases in fixed fee flying opportunities during the quarter.revenue are related to COVID-19.
Other revenue. Other revenue remained relatively flat year over year, with a decrease of less than onedecreased 66.4 percent for the third quarter 20192020 from 2018.2019. The slight decline isdecrease was due to decreased activity in the conclusionnon-airline segments, especially for Kingsway Golf Course and our family entertainment centers. As a result of the COVID-19 pandemic, we temporarily closed our family entertainment center in Warren, Michigan and permanently discontinued all activity for our locations in Utah. We also temporarily closed Kingsway Golf Course, initially for renovation but now the renovation has been delayed as a result of our aircraft lease revenue arrangement with a European carrier, as we had six aircraft on lease during the third quarter of 2018 and none during 2019. This was mostly offset by an increase in revenue from our non-airline activities.cash conservation efforts.
Operating Expenses
We primarily evaluate our expense management by comparing our costs per ASM across different periods, which enables us to assess trends in each expense category. The following table presents airline-only unit costs on a per ASM basis, or CASM, for the indicated periods. Excluding fuel on a per ASM basis provides management and investors the ability to measure and monitor our cost performance absent fuel price volatility. Both the cost and availability of fuel are subject to many economic and political factors beyond our control.
| | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Percent |
Airline only unitized costs (in cents) | 2020 | | 2019 | | Change |
Salary and benefits | 2.68 | | | 2.66 | | | 0.8 | % |
Depreciation and amortization | 1.28 | | | 0.99 | | | 29.3 | |
Station operations | 1.13 | | | 1.12 | | | 0.9 | |
Maintenance and repairs | 0.40 | | | 0.64 | | | (37.5) | |
Sales and marketing | 0.23 | | | 0.45 | | | (48.9) | |
Aircraft lease rentals | 0.09 | | | — | | | NM |
Other | 0.43 | | | 0.54 | | | (20.4) | |
CARES Act grant recognition | (2.21) | | | — | | | NM |
Operating Special charges | 0.93 | | | — | | | NM |
Airline CASM, excluding fuel | 4.96 | | | 6.40 | | | (22.5) | |
Aircraft fuel | 1.49 | | | 2.69 | | | (44.6) | |
Airline CASM | 6.45 | | | 9.09 | | | (29.0) | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
|
| | | | | | | | |
| Three Months Ended September 30, | | Percent |
| 2019 | | 2018 | | Change |
Airline unitized costs (in cents) | | | | | |
Salary and benefits | 2.66 |
| | 2.64 |
| | 0.8 | % |
Station operations | 1.12 |
| | 1.18 |
| | (5.1 | ) |
Depreciation and amortization | 0.99 |
| | 0.94 |
| | 5.3 |
|
Maintenance and repairs | 0.64 |
| | 0.88 |
| | (27.3 | ) |
Sales and marketing | 0.45 |
| | 0.46 |
| | (2.2 | ) |
Other | 0.54 |
| | 0.68 |
| | (20.6 | ) |
Airline CASM, excluding fuel | 6.40 |
|
| 6.78 |
|
| (5.6 | ) |
Aircraft fuel | 2.69 |
| | 3.12 |
| | (13.8 | ) |
Airline CASM | 9.09 |
|
| 9.90 |
|
| (8.2 | ) |
| | | | | |
Airline CASM | 9.09 |
|
| 9.90 |
|
| (8.2 | ) |
Non-airline operating CASM* | 0.28 |
| | 0.17 |
| | 64.7 |
|
Operating CASM (consolidated)* | 9.37 |
| | 10.07 |
| | (7.0 | ) |
*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. Consolidated operating CASM is reported to facilitate comparison with airlines reporting total costs on a per ASM basis.
Salary and benefits expense. Salary and benefits expense increased $9.9decreased $11.8 million, or 10.110.9 percent, for the third quarter 20192020 when compared to the same period in 2018. The increase is largely due to an 11.3 percent increase in2019. Although the average number of full-time equivalent employees supporting a 5.9 percent increase in system block hours, and increased activity in our non-airline subsidiary activity. Flight crew salaries and wages per ASMwas relatively flat year over year, overall expense decreased for the quarter, due to improved productivity efficiencies gained from our transitiontemporary voluntary leave programs offered to an all-Airbus fleet.employees, voluntary pay reductions, and suspension of the bonus accrual during the year. We expect the number of full-time equivalent employees to decline by up to 9.0 percent during fourth quarter 2020 due to furloughs and reductions in force.
Aircraft fuel expense. Aircraft fuel expense decreased $8.9$52.0 million, or 7.949.8 percent, for the third quarter 20192020 compared to third quarter 2018, as2019, largely due to a decrease in system average fuel cost per gallon decreased 10.4of 38.9 percent year over year.year as fuel prices
declined due to lower worldwide demand caused by the pandemic. System fuel gallons consumed increaseddecreased by 3.017.9 percent on a 6.79.4 percent increasedecrease in ASMs. ASM growth outpaced fuel consumptionASMs as fuelwe reduced capacity in light of the pandemic. Fuel efficiency (measured as ASMs per gallon) increased 3.610.2 percent quarteryear over quarter,year due to fuel saving initiatives, as well as less weight on many of our transitionflights, due to a 36.3 percentage point year-over-year decrease in load factor.
Depreciation and amortization expense. Depreciation and amortization expense for the third quarter 2020 increased $5.9 million, or 14.8 percent, year over year, as the average number of aircraft in service increased 3.5 percent year over year.
Accounting for a large portion of this increase, amortization of major maintenance costs was $9.5 million for the third quarter 2020 compared to $6.8 million for the third quarter 2019, due to an all-Airbus fleet.increase in the number of aircraft and related deferred maintenance costs associated with them. We expect these costs will continue to increase as our fleet ages.
Station operations expense. Station operations expense for the third quarter 2019 increased $0.42020 decreased $3.6 million, or 0.98.2 percent, on an 8.1a 9.6 percent increasedecrease in scheduled service departures. Stations expense per departure decreased by 6.6 percentdepartures as we reduced the number of flights offered due primarily to a significant decrease in irregular operations experienced quarter over quarter as a result of Airbus aircraft reliability.reduced demand.
Maintenance and repairs expense. Maintenance and repairs expense for the third quarter 20192020 decreased $7.2$10.7 million, or 22.643.3 percent, compared to the same period in 2018, mostly due to a decrease in routine maintenance costs. Furthermore, 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 third quarter 2019 increased $4.8 million, or 13.8 percent, year over year as the average number of Airbus aircraft in service increased 21.7 percent year over year.
Amortization of major2019. Routine maintenance costs decreased as aircraft utilization was $6.8 million fordown 14.9 percent during the third quarter 2019 compared to $2.9 million for the third quarter 2018, with increases expected to continue as our Airbus aircraft count and related deferred maintenance costs grow. Further, the MD-80 fleet operating in 2018 was fully depreciated prior to 2018.quarter.
Sales and marketing expense. Sales and marketing expense for the third quarter 2019 increased slightly2020 decreased by 54.7 percent compared to the same period in 2018, mostly due to an increase2019. There was a decrease in net credit card fees paid as a result of the 10.2a 53.5 percent increasedecrease in passenger revenue year over year. We have improved our utilization of customer dataAdditionally, advertising spend has been intentionally pulled back this year due to optimize marketing efforts, allowing us to decrease marketing spend per passenger by 3.4 percent year over year.the pandemic.
Other operating expense. Other expense decreased $1.6$7.2 million for the third quarter 20192020 compared to third quarter 2018,2019, mostly due to decreased activity in our non-airline subsidiaries.
CARES Act grant recognition. We received a total of $176.9 million in funds during the second and third quarters 2020 through the Payroll Support Program Agreement (the “PSPA”) under the CARES Act. Of the total, $152.4 million of these funds relate to direct grants, and were recognized as therea credit to operating expense on our statement of income, over the periods for which the funds were decreasesintended to compensate - second and third quarters 2020. Of this total amount, we recognized a $77.9 million credit to operating expense on our statement of income during the third quarter of 2020.
Operating Special charges. Special charges of $33.6 million were recorded within operating expenses for the third quarter 2020. We did not have any special charges for the same period in flight operations related2019. The special charges relate to expenses as well as various general administrative expenses.that were unique and specific to COVID-19. These charges include accelerated depreciation on airframes and engines resulting from an accelerated retirement plan, losses on the sale-leaseback transactions, a portion of salary and benefits expense, and losses within our non-airline subsidiaries. See Note 2 of Notes to Consolidated Financial Statements (unaudited) for further information.
Non-operating Special charges
There were no special charges recorded within non-operating expenses for the third quarter 2020. We did not have any special charges for the same period in 2019.
Interest Expense
Interest expense for the quarter ended September 30, 2020 declined by $7.6 million, or 38.8 percent, as we were able to reduce the interest rate on our Term Loan with a principal balance of approximately $542.7 million after we amended the Term Loan in February 2020 and as a result of declines in LIBOR impacting our variable rate debt.
Income Tax Expense
We recorded a $15.6 million tax benefit (34.8 percent effective tax rate) compared to a $13.0 million tax provision (22.8 percent effective tax rate) for the three months ended September 30, 2020 and 2019, respectively. The effective tax rate for the three months ended September 30, 2020 differed from the statutory federal income tax rate of 21.0 percent primarily due to the tax accounting impact of the CARES Act which allows us to carryback the 2020 net operating loss at the 35.0 percent tax rate applicable in earlier years.
Sunseeker and Other 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 Other non-Airline Segment (our Teesnap golf management business Kingsway golf course,and Allegiant Nonstop family entertainment centers,centers), and operating expenses attributable to Sunseeker Resort and Kingsway Golf Course (most of the Sunseeker Resort expenses are beingwere capitalized at this time)during the construction period). We expect these expenses to increase as the openingAs of Sunseeker Resort approaches and with the growth in the number of family entertainment centers and the continued operation of Teesnap pending the sale of this entity.
Income Tax Expense
Our effective tax rate was 22.8 percent for the three months ended September 30, 2019, compared to negative 5.1 percent for the three months ended September 30, 2018. The effective tax rate for the three months ended September 30, 2019 differed from the statutory federal income tax rate of 21.0 percent primarily due to state taxes. The effective tax rate for the three months ended September 30, 2018 was negative primarily due to a one-time income tax refund for tax deductions not previously claimed. 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 2019.2020, nearly all non-airline spend has been suspended.
Comparison of nine months ended September 30, 20192020 to nine months ended September 30, 20182019
Operating Revenue
Passenger revenue. For the nine months ended September 30, 2019,2020, passenger revenue increased 9.4decreased 46.5 percent compared with 2018. The increase was mostlythe same period in 2019 due to a 43.2 percent decline in scheduled service passengers from a 24.5 percent decrease in load factor. These declines are attributable to a 9.0 percent increasesubstantial decline in scheduled service departures, which resulted in an 8.5 percent increase in scheduled service passengers.passenger demand and government travel restrictions and quarantine requirements related to COVID-19, since March 2020. Average total fare per passenger increased slightlydecreased by 5.8 percent, during the nine month period as a 13.73.4 percent increase in average air-related ancillary revenue per passenger more thanpartially offset the 8.1a 13.7 percent decrease in scheduled service average base fare. Increases in our customer baggage fees and convenience fee and baggage fees contributed to the increase in air-related ancillary revenue to $51.56$53.32 per passenger.
Third party products revenue. Third party products revenue for the nine months ended September 30, 2019 increased 21.62020 decreased 33.2 percent over the same period in 2018.2019. This is primarily thedue to decreased net revenue from both rental cars and hotels, as a result of increasedsubstantially fewer passengers as well as reduced hotel room inventory, particularly in the Las Vegas market. The decline in revenue from rental cars and hotels was slightly offset by a 1.3 percent increase in third-party revenue from our co-branded credit card program as well as an increaseduring the nine months ended September 30, 2020 compared to the same period in net revenue from rental cars.2019.
Fixed fee contract revenue. Fixed fee contract revenue for the nine months ended September 30, 2019 increased 29.92020 decreased 59.3 percent compared with 2018,the same period in 2019, primarily due to decrease in demand resulting in a 26.845.6 percent increasedecrease in related departures. This was the result of greater availability of spare aircraftThe decrease in departures is mainly due to improved operationsa significant drop in ad hoc charter opportunities and an all-Airbus fleet. The groundingthe cancellation of events such as the Boeing 737 Max of other airlines likely also contributedNCAA March Madness basketball tournament during 2020 due to our increased fixed fee flying opportunities during 2019.COVID-19.
Other revenue. Other revenue decreased $3.3 millionby 25.9 percent for the nine months ended September 30, 20192020 compared to 2018 primarily due to a decreasethe same period in aircraft lease revenue. We had six aircraft on lease to a European carrier during the first nine months of 2018 and none during 2019. The effectsdecrease is primarily driven by decreases in subsidiary revenue through the third quarter 2020. As a result of this decrease were slightly offset by increasesthe COVID-19 pandemic, we temporarily closed our family entertainment center in revenue fromWarren, Michigan and permanently discontinued all activity for our non-airline activities.locations in Utah. We also temporarily closed Kingsway Golf Course, initially for renovation but now the renovation has been delayed as a result of our cash conservation efforts.
Operating Expenses
We primarily evaluate our expense management by comparing our costs per ASM across different periods, which enables us to assess trends in each expense category. The following table presents airline-only unit costs on a per ASM basis, defined as Operatingor CASM, for the indicated periods: |
| | | | | | | | |
| Nine Months Ended September 30, | | Percent |
| 2019 | | 2018 | | Change |
Airline unitized costs (in cents) | | | | | |
Salary and benefits | 2.68 |
| | 2.73 |
| | (1.8 | )% |
Station operations | 1.05 |
| | 1.08 |
| | (2.8 | ) |
Depreciation and amortization | 0.90 |
| | 0.81 |
| | 11.1 |
|
Maintenance and repairs | 0.56 |
| | 0.67 |
| | (16.4 | ) |
Sales and marketing | 0.47 |
| | 0.48 |
| | (2.1 | ) |
Other | 0.47 |
| | 0.60 |
| | (21.7 | ) |
Airline CASM, excluding fuel | 6.13 |
|
| 6.37 |
|
| (3.8 | ) |
Aircraft fuel | 2.65 |
| | 3.03 |
| | (12.5 | ) |
Airline CASM | 8.78 |
| | 9.40 |
| | (6.6 | ) |
| | | | | |
Airline CASM | 8.78 |
| | 9.40 |
| | (6.6 | ) |
Non-airline operating CASM* | 0.27 |
| | 0.12 |
| | 125.0 |
|
Operating CASM (consolidated)* | 9.05 |
| | 9.52 |
| | (4.9 | ) |
*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. Consolidated operating CASM is reported to facilitate comparison with airlines reporting total costsperiods. Excluding fuel on a per ASM basis.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.
| | | | | | | | | | | | | | | | | |
| Nine Months Ended September 30, | | Percent |
Airline only unitized costs (in cents) | 2020 | | 2019 | | Change |
Salary and benefits | 3.01 | | | 2.68 | | | 12.3 | % |
Depreciation and amortization | 1.33 | | | 0.90 | | | 47.8 | |
Station operations | 1.10 | | | 1.05 | | | 4.8 | |
Maintenance and repairs | 0.50 | | | 0.56 | | | (10.7) | |
Sales and marketing | 0.36 | | | 0.47 | | | (23.4) | |
Aircraft lease rentals | 0.06 | | | — | | | NM |
Other | 0.58 | | | 0.47 | | | 23.4 | |
CARES Act grant recognition | (1.55) | | | — | | | NM |
Operating Special charges | 1.20 | | | — | | | NM |
Airline CASM, excluding fuel | 6.59 | | | 6.13 | | | 7.5 | |
Aircraft fuel | 1.72 | | | 2.65 | | | (35.1) | |
Airline CASM | 8.31 | | | 8.78 | | | (5.4) | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
NM - Not meaningful
Salary and benefits expense. Salary and benefits expense increased $28.3decreased $37.3 million, or 9.111.0 percent, for the nine months ended September 30, 20192020 compared to the same period in 2018. The increase is largely attributable to an 11.3 percent increase in2019. Although the average number of full-time equivalent employees supportingwas relatively flat year over year, temporary voluntary leave programs offered to employees, voluntary pay reductions, and suspension of the bonus accrual during the year resulted in decreased expenses. Additionally, a 7.4 percent increase in system block hours, as well as increased activity in our non-airline subsidiary activity. Flight crew salarieslarge portion of the $9.5 million special charges specific to COVID-19 during the first quarter of 2020 consisted of salary and wages per ASM decreased for the nine months ended September 30, 2019, due to improved productivity efficiencies gained from our transition to an all-Airbus fleet.benefits expense.
Aircraft fuel expense. Aircraft fuel expense decreased $17.8$155.5 million, or 5.248.0 percent, for the nine months ended September 30, 20192020 compared to the same period in 2018 as2019 largely due to a decrease in system average fuel cost per gallon decreased 6.0of 30.7 percent year over year. Systemyear as fuel prices declined due to lower worldwide demand caused by the pandemic. Additionally, system fuel gallons consumed increased 1.2decreased 24.9 percent on an 8.4a 19.9 percent increasedecrease in ASMs. ASM growth outpaced fuel consumptionASMs as fuelwe reduced capacity in light of the pandemic. Fuel efficiency (measured as ASMs per gallon) increased 7.16.6 percent year over year due to fuel saving initiatives as well as less weight on many of our transitionflights, due to an all-Airbus fleet.a 24.5 percentage point year-over-year decrease in load factor.
Depreciation and amortization expense. Depreciation and amortization expense for the nine months ended September 30, 2020 increased $18.2 million, or 15.9 percent, compared to the same period in 2019. The average number of aircraft in service increased 9.5 percent year over year.
Amortization of major maintenance costs was $28.3 million for the nine months ended September 30, 2020 compared to $17.7 million for the same period in 2019. We expect these costs will continue to increase as our fleet ages.
Station operations expense. Station operations expense for the nine months ended September 30, 2019 increased 5.02020 decreased 15.6 percent on a 9.020.3 percent increasedecrease in scheduled service departures compared to the same period in 2018. Stations expense per departure decreased by 3.7 percent due mostly2019 as we reduced the number of flights offered due to additional incentives realized, contractor efficiencies gained, as well as a decrease in irregular operations costs resulting from efficiencies realized from the Airbus fleet.reduced demand.
Maintenance and repairs expense. Maintenance and repairs expense for the nine months ended September 30, 20192020 decreased 9.728.6 percent compared to 2018the same period in 2019 mostly due to a decrease in both major and routine maintenance costs. Additionally,costs as aircraft utilization was down 29.3 percent as we flew fewer ASMs and departures during 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.period.
Depreciation and amortization expense. Depreciation and amortization expense for the nine months ended September 30, 2019 increased $21.5 million, or 23.2 percent, compared to the same period in 2018. The average number of Airbus aircraft in service increased 35.0 percent year over year.
Amortization of major maintenance costs was $17.7 million for the nine months ended September 30, 2019 compared to $8.0 million for 2018, with increases expected to continue as our Airbus aircraft count and related deferred maintenance costs grow.
Sales and marketing expense. Sales and marketing expense for the nine months ended September 30, 2019 increased $4.82020 decreased $23.7 million compared to the same period in 2018, partially due to an increase2019. There was a decrease in net credit card fees paid as a result of a 9.446.5 percent increasedecrease in passenger revenue year over year. There were also increased expenses related to various marketing initiatives, including our multi-year partnerships withAdditionally advertising spend was intentionally pulled back after the Vegas Golden Knights and Minor League Baseball. However, we have improved our utilizationonset of customer data to optimize marketing efforts, allowing us to decrease marketing spend per passenger.the pandemic in March 2020.
Other operating expense. Other expense decreased $1.1$3.5 million year over year, as there were decreasesmostly due to a decrease in flight operationsnon-airline related expenses and other various expenses.
CARES Act grant recognition. We received a total of $176.9 million in funds during the second and third quarters 2020 through the Payroll Support Program Agreement under the CARES Act. We recognized $152.4 million, the amount relating to direct grants, as a credit to operating expense on our statement of income during the nine months ended September 30, 2020.
Operating Special charges. Special charges of $280.9 million were recorded within operating expenses for the nine months ended September 30, 2020. We did not have any special charges for the same period in 2019. The special charges relate to expenses that were unique and specific to COVID-19, and include impairment charges, accelerated depreciation on seven airframes and five engines resulting from an accelerated retirement plan, losses on sale-leaseback transactions, a portion of salary and benefits expense, and other various expenses. See Note 2 of Notes to Consolidated Financial Statements (unaudited) for further information.
Non-operating Special charges
Special charges of $26.6 million were recorded within non-operating expenses for the nine months ended September 30, 2020. We did not have any special charges for the same period in 2019. Of these special charges, $19.8 million relates to the termination of the loan agreement with Sixth Street Partners (formerly TSSP) intended to finance the development of Sunseeker Resorts Charlotte Harbor. The remaining $6.8 million relates to impairment charges for Sunseeker Resort during the first quarter 2020.
Interest Expense
Interest expense for the nine months ended September 30, 2020 declined by $14.4 million, or 24.6 percent, as we were able to reduce the interest rate on our Term Loan with a principal balance of approximately $542.7 million after we amended the Term Loan in February 2020 and as a result of declines in LIBOR impacting our variable rate debt.
Income Tax Expense
We recorded a $166.6 million tax benefit (51.8 percent effective tax rate) compared to a $51.0 million tax provision (22.9 percent effective tax rate) for the nine months ended September 30, 2020 and 2019, respectively. The 51.8 percent effective tax rate for the nine months ended September 30, 2020 differed from the statutory federal income tax rate of 21.0 percent primarily due to the tax accounting impact of the CARES Act which includes a $40.9 million discrete federal income tax benefit related to the full utilization of 2018 and 2019 net operating losses as well as over $12.0 millionthe ability to carryback the 2020 net operating loss at the 35.0 percent tax rate applicable in gains from MD-80earlier years. The effective tax rate was also impacted by the remeasurement of deferred taxes and other aircraft part sales. This was mostly offset by increases in various administrative expenses, as well as expenses related to our non-airline activities.state taxes.
Sunseeker and Other 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 Other non-Airline Segment (our Teesnap golf management business Kingsway golf course,and Allegiant Nonstop family entertainment centers,centers), and operating expenses attributable to Sunseeker Resort and Kingsway Golf Course (most of the Sunseeker Resort expenses are beingwere capitalized at this time). We expect these expenses to increase asduring the opening of Sunseeker Resort approaches and with the growth in the number of family entertainment centers and the continued operation of Teesnap pending the sale of this entity.construction period).
Our effective tax rate was 22.9 percent for the nine months ended September 30, 2019, compared to 18.0 percent for the nine months ended September 30, 2018. The effective tax rate for the nine months ended September 30, 2019 differed from the statutory federal income tax rate of 21.0 percent primarily due to state taxes. The effective tax rate for the nine months ended September 30, 2018 was lower primarily due to a one-time income tax refund for tax deductions not previously claimed and the tax benefit from dissolution of foreign subsidiaries. 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 September 30, | | Percent |
| 2020 | | 2019 | | Change(1) |
Operating statistics (unaudited): | | | | | |
Total system statistics: | | | | | |
Passengers | 2,016,241 | | | 3,806,369 | | | (47.0) | |
| | | | | |
Available seat miles (ASMs) (thousands) | 3,521,508 | | | 3,888,400 | | | (9.4) | |
| | | | | |
Airline operating expense per ASM (CASM) (cents) | 6.45 | | | 9.09 | | | (29.0) | |
Fuel expense per ASM (cents) | 1.49 | | | 2.69 | | | (44.6) | |
Airline operating CASM, excluding fuel (cents) | 4.96 | | | 6.40 | | | (22.5) | |
| | | | | |
ASMs per gallon of fuel | 88.5 | | | 80.3 | | | 10.2 | |
Departures | 24,365 | | | 27,707 | | | (12.1) | |
Block hours | 52,238 | | | 59,678 | | | (12.5) | |
Average stage length (miles) | 834 | | | 823 | | | 1.3 | |
Average number of operating aircraft during period | 90.7 | | | 87.6 | | | 3.5 | |
Average block hours per aircraft per day | 6.3 | | | 7.4 | | | (14.9) | |
Full-time equivalent employees at end of period | 4,275 | | | 4,267 | | | 0.2 | |
Fuel gallons consumed (thousands) | 39,786 | | | 48,443 | | | (17.9) | |
Average fuel cost per gallon | $ | 1.32 | | | $ | 2.16 | | | (38.9) | |
|
| | | | | | | | | | |
| Three Months Ended September 30, | | Percent |
| 2019 | | 2018 | | Change(1) |
Operating statistics (unaudited): | | | | | |
Total system statistics: | | | | | |
Passengers | 3,806,369 |
| | 3,503,849 |
| | 8.6 |
|
Available seat miles (ASMs) (thousands) | 3,888,400 |
| | 3,643,948 |
| | 6.7 |
|
Operating expense per ASM (CASM) (cents) | 9.37 |
| | 10.07 |
| | (7.0 | ) |
Fuel expense per ASM (cents) | 2.69 |
| | 3.12 |
| | (13.8 | ) |
Operating CASM, excluding fuel (cents) | 6.68 |
| | 6.95 |
| | (3.9 | ) |
ASMs per gallon of fuel | 80.3 |
| | 77.5 |
| | 3.6 |
|
Departures | 27,707 |
| | 25,601 |
| | 8.2 |
|
Block hours | 59,678 |
| | 56,329 |
| | 5.9 |
|
Average stage length (miles) | 823 |
| | 838 |
| | (1.8 | ) |
Average number of operating aircraft during period | 87.6 |
| | 95.6 |
| | (8.4 | ) |
Average block hours per aircraft per day | 7.4 |
| | 6.4 |
| | 15.6 |
|
Full-time equivalent employees at end of period | 4,267 |
| | 3,835 |
| | 11.3 |
|
Fuel gallons consumed (thousands) | 48,443 |
| | 47,016 |
| | 3.0 |
|
Average fuel cost per gallon | $ | 2.16 |
| | $ | 2.41 |
| | (10.4 | ) |
| | Scheduled service statistics: | | | | | | Scheduled service statistics: | | | | |
Passengers | 3,753,611 |
| | 3,461,267 |
| | 8.4 |
| Passengers | 2,003,648 | | | 3,753,611 | | | (46.6) | |
Revenue passenger miles (RPMs) (thousands) | 3,170,826 |
| | 2,988,962 |
| | 6.1 |
| Revenue passenger miles (RPMs) (thousands) | 1,714,622 | | | 3,170,826 | | | (45.9) | |
Available seat miles (ASMs) (thousands) | 3,687,473 |
| | 3,485,800 |
| | 5.8 |
| Available seat miles (ASMs) (thousands) | 3,449,339 | | | 3,687,473 | | | (6.5) | |
Load factor | 86.0 | % | | 85.7 | % | | 0.3 |
| Load factor | 49.7 | % | | 86.0 | % | | (36.3) | |
Departures | 26,238 |
| | 24,281 |
| | 8.1 |
| Departures | 23,710 | | | 26,238 | | | (9.6) | |
Block hours | 56,576 |
| | 53,723 |
| | 5.3 |
| Block hours | 51,057 | | | 56,576 | | | (9.8) | |
Total passenger revenue per ASM (TRASM) (cents)(2) | 11.10 |
| | 10.64 |
| | 4.3 |
| Total passenger revenue per ASM (TRASM) (cents)(2) | 5.60 | | | 11.10 | | | (49.5) | |
Average fare - scheduled service(3) | $ | 54.20 |
| | $ | 59.23 |
| | (8.5 | ) | Average fare - scheduled service(3) | $ | 40.75 | | | $ | 54.20 | | | (24.8) | |
Average fare - air-related charges(3) | $ | 50.03 |
| | $ | 43.36 |
| | 15.4 |
| Average fare - air-related charges(3) | $ | 50.04 | | | $ | 50.03 | | | — | |
Average fare - third party products | $ | 4.85 |
| | $ | 4.60 |
| | 5.4 |
| Average fare - third party products | $ | 5.66 | | | $ | 4.85 | | | 16.7 | |
Average fare - total | $ | 109.08 |
| | $ | 107.19 |
| | 1.8 |
| Average fare - total | $ | 96.45 | | | $ | 109.08 | | | (11.6) | |
Average stage length (miles) | 824 |
| | 845 |
| | (2.5 | ) | Average stage length (miles) | 839 | | | 824 | | | 1.8 | |
Fuel gallons consumed (thousands) | 46,038 |
| | 44,910 |
| | 2.5 |
| Fuel gallons consumed (thousands) | 38,853 | | | 46,038 | | | (15.6) | |
Average fuel cost per gallon | $ | 2.17 |
| | $ | 2.41 |
| | (10.0 | ) | Average fuel cost per gallon | $ | 1.32 | | | $ | 2.17 | | | (39.2) | |
Rental car days sold | 482,944 |
| | 472,301 |
| | 2.3 |
| Rental car days sold | 255,800 | | | 482,944 | | | (47.0) | |
Hotel room nights sold | 99,991 |
| | 95,690 |
| | 4.5 |
| Hotel room nights sold | 44,655 | | | 99,991 | | | (55.3) | |
Percent of sales through website during period | 93.1 | % | | 93.7 | % | | (0.6 | ) | Percent of sales through website during period | 92.3 | % | | 93.1 | % | | (0.8) | |
(1) Except load factor and percent of sales through website during period, which are presented as a percentage point change.
(2) Various components of this measure do not have a direct correlation to ASMs. This measure is provided on a per ASM basis so as to facilitate comparison with airlines reporting revenues on a per ASM basis.
(3) Reflects division of passenger revenue between scheduled service (base fare) and air-related charges in the Company'sour booking path.
|
| | | | | | | | | | |
| Nine Months Ended September 30, | | Percent |
| 2019 | | 2018 | | Change(1) |
Operating statistics (unaudited): | | | | | |
Total system statistics: | | | | | |
Passengers | 11,426,183 |
| | 10,510,913 |
| | 8.7 |
|
Available seat miles (ASMs) (thousands) | 12,245,704 |
| | 11,294,805 |
| | 8.4 |
|
Operating expense per ASM (CASM) (cents) | 9.05 |
| | 9.52 |
| | (4.9 | ) |
Fuel expense per ASM (cents) | 2.65 |
| | 3.03 |
| | (12.5 | ) |
Operating CASM, excluding fuel (cents) | 6.41 |
| | 6.49 |
| | (1.2 | ) |
ASMs per gallon of fuel | 82.2 |
| | 76.8 |
| | 7.1 |
|
Departures | 83,454 |
| | 76,912 |
| | 8.5 |
|
Block hours | 187,829 |
| | 174,838 |
| | 7.4 |
|
Average stage length (miles) | 858 |
| | 868 |
| | (1.2 | ) |
Average number of operating aircraft during period | 84.1 |
| | 92.4 |
| | (9.0 | ) |
Average block hours per aircraft per day | 8.2 |
| | 6.9 |
| | 18.8 |
|
Full-time equivalent employees at end of period | 4,267 |
| | 3,835 |
| | 11.3 |
|
Fuel gallons consumed (thousands) | 148,980 |
| | 147,172 |
| | 1.2 |
|
Average fuel cost per gallon | $ | 2.18 |
| | $ | 2.32 |
| | (6.0 | ) |
|
| | | | | | | | | | |
Scheduled service statistics: | | | | | |
Passengers | 11,307,004 |
| | 10,422,579 |
| | 8.5 |
|
Revenue passenger miles (RPMs) (thousands) | 9,964,948 |
| | 9,299,355 |
| | 7.2 |
|
Available seat miles (ASMs) (thousands) | 11,800,788 |
| | 10,883,630 |
| | 8.4 |
|
Load factor | 84.4 | % | | 85.4 | % | | (1.0 | ) |
Departures | 80,149 |
| | 73,537 |
| | 9.0 |
|
Block hours | 180,674 |
| | 167,947 |
| | 7.6 |
|
Total passenger revenue per ASM (TRASM) (cents)(2) | 11.18 |
| | 11.04 |
| | 1.3 |
|
Average fare - scheduled service(3) | $ | 60.40 |
| | $ | 65.72 |
| | (8.1 | ) |
Average fare - air-related charges(3) | $ | 51.56 |
| | $ | 45.33 |
| | 13.7 |
|
Average fare - third party products | $ | 4.74 |
| | $ | 4.23 |
| | 12.1 |
|
Average fare - total | $ | 116.70 |
| | $ | 115.28 |
| | 1.2 |
|
Average stage length (miles) | 861 |
| | 874 |
| | (1.5 | ) |
Fuel gallons consumed (thousands) | 143,433 |
| | 141,452 |
| | 1.4 |
|
Average fuel cost per gallon | $ | 2.17 |
| | $ | 2.31 |
| | (6.1 | ) |
Rental car days sold | 1,495,502 |
| | 1,408,357 |
| | 6.2 |
|
Hotel room nights sold | 319,197 |
| | 313,360 |
| | 1.9 |
|
Percent of sales through website during period | 93.4 | % | | 93.8 | % | | (0.4 | ) |
| | | | | | | | | | | | | | | | | |
| Nine Months Ended September 30, | | Percent |
| 2020 | | 2019 | | Change(1) |
Operating statistics (unaudited): | | | | | |
Total system statistics: | | | | | |
Passengers | 6,464,949 | | | 11,426,183 | | | (43.4) | |
| | | | | |
Available seat miles (ASMs) (thousands) | 9,809,934 | | | 12,245,704 | | | (19.9) | |
| | | | | |
Airline operating expense per ASM (CASM) (cents) | 8.31 | | | 8.78 | | | (5.4) | |
Fuel expense per ASM (cents) | 1.72 | | | 2.65 | | | (35.1) | |
Airline operating CASM, excluding fuel (cents) | 6.59 | | | 6.13 | | | 7.5 | |
ASMs per gallon of fuel | 87.6 | | | 82.2 | | | 6.6 | |
Departures | 65,766 | | | 83,454 | | | (21.2) | |
Block hours | 147,350 | | | 187,829 | | | (21.6) | |
Average stage length (miles) | 862 | | | 858 | | | 0.5 | |
Average number of operating aircraft during period | 92.1 | | | 84.1 | | | 9.5 | |
Average block hours per aircraft per day | 5.8 | | | 8.2 | | | (29.3) | |
Full-time equivalent employees at end of period | 4,275 | | | 4,267 | | | 0.2 | |
Fuel gallons consumed (thousands) | 111,929 | | | 148,980 | | | (24.9) | |
Average fuel cost per gallon | $ | 1.51 | | | $ | 2.18 | | | (30.7) | |
| | | | | | | | | | | | | | | | | |
Scheduled service statistics: | | | | | |
Passengers | 6,424,331 | | | 11,307,004 | | | (43.2) | |
Revenue passenger miles (RPMs) (thousands) | 5,747,639 | | | 9,964,948 | | | (42.3) | |
Available seat miles (ASMs) (thousands) | 9,588,031 | | | 11,800,788 | | | (18.8) | |
Load factor | 59.9 | % | | 84.4 | % | | (24.5) | |
Departures | 63,877 | | | 80,149 | | | (20.3) | |
Block hours | 143,651 | | | 180,674 | | | (20.5) | |
Total passenger revenue per ASM (TRASM) (cents)(2) | 7.44 | | | 11.18 | | | (33.5) | |
Average fare - scheduled service(3) | $ | 52.12 | | | $ | 60.40 | | | (13.7) | |
Average fare - air-related charges(3) | $ | 53.32 | | | $ | 51.56 | | | 3.4 | |
Average fare - third party products | $ | 5.57 | | | $ | 4.74 | | | 17.5 | |
Average fare - total | $ | 111.00 | | | $ | 116.70 | | | (4.9) | |
Average stage length (miles) | 867 | | | 861 | | | 0.7 | |
Fuel gallons consumed (thousands) | 109,082 | | | 143,433 | | | (23.9) | |
Average fuel cost per gallon | $ | 1.50 | | | $ | 2.17 | | | (30.9) | |
Rental car days sold | 872,382 | | | 1,495,502 | | | (41.7) | |
Hotel room nights sold | 149,431 | | | 319,197 | | | (53.2) | |
Percent of sales through website during period | 93.2 | % | | 93.4 | % | | (0.2) | |
(1) Except load factor and percent of sales through website during period, which are presented as a percentage point change.
(2) Various components of this measure do not have a direct correlation to ASMs. This measure is provided on a per ASM basis so as to facilitate comparison with airlines reporting revenues on a per ASM basis.
(3) Reflects division of passenger revenue between scheduled service (base fare) and air-related charges in the Company'sour booking path.
LIQUIDITY AND CAPITAL RESOURCES
Current liquidity
Cash, cash equivalents and investment securities (short-term and long-term) decreasedincreased to $709.8 million at September 30, 2019 to $442.0 million,2020, from $447.5$473.4 million at December 31, 2018.2019. Investment securities represent highly liquid marketable securities which are available-for-sale.
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.
Our operating cash flowsWe received a total of $176.9 million in assistance through the payroll support program under the CARES Act. The funds were paid in installments, and long-term debt borrowings have allowed us to invest in our fleet transition, return capital to shareholderswe received $154.7 million during the second quarter 2020 and the remaining $22.2 million in the formthird quarter 2020.
Due to changes in the net operating loss carryback period under the CARES Act, we received a federal income tax refund of recurring regular quarterly dividends$45.6 million in May 2020 and an additional refund of $48.7 million in July 2020, both of which related to 2018 and 2019 net operating loss carrybacks. In the first half of 2021, we expect to receive under current law a federal income tax refund in excess of $125 million related to a 2020 net operating loss carryback. We received a $13 million federal excise tax refund related to net customer refunds issued for the first quarter 2020. We are also anticipating an additional $16 million in federal excise tax refunds in the first half of 2021.
In September 2020, we received proceeds of $84.0 million from a financing secured by two aircraft and eight spare engines. As of September 30, 2020, we had 21 unencumbered aircraft and two unencumbered spare engines.
In September 2020, we received $30.0 million of proceeds through a sale-leaseback transaction on three aircraft and a fourth closed in October for an additional $10.0 million.
We have suspended share repurchases and investour quarterly cash dividend, as part of cash preservation efforts in Sunseeker Resortresponse to the effects of COVID-19 on our business. In connection with our receipt of financial support under the payroll support program, we agreed not to repurchase shares or pay cash dividends through September 30, 2021. We have also suspended all non-airline capital expenditures and our Allegiant Nonstop family entertainment centers. Futurehave reduced airline capital needs are primarily for the acquisition of additional aircraft, including our existing aircraft commitments, as well as planned capital outlay related to Sunseeker Resort and other travel and leisure initiatives.expenditures.
We believe we have more than adequate liquidity resources through our cash balances, operating cash flows, borrowings debt commitments and cash balances,expected tax refunds, to meet our future contractual obligations. We will 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 $85.3 million. There is no expiration to this program.
Debt
Our long-term debt and finance lease obligations balance, without reduction for related issuance costs, increased from $1.3$1.4 billion as of December 31, 20182019 to $1.4$1.5 billion as of September 30, 2019.2020. During the first three quartersthird quarter of 2019,2020, we borrowed $450.0a net amount of $90.7 million, under the Term Loan, and $320.4including additional debt of $84.0 million secured by aircraft, and engines. Additionally, we retiredan additional $6.7 million of debt related to the PSP Note under the CARES Act Payroll Support Program. We also received an advance of $6.2 million from the pre-purchase of credit card points related to our unsecured notes of $450.0 million and paid off six loans, plus the outstanding balanceamended co-branded credit card contract, which is recorded within debt on our revolving credit facility for combined securedbalance sheet.
Despite net losses and substantially lower revenues caused by the pandemic, our net debt payoffs of $112.2 million.(total debt less cash, cash equivalents and investment securities) declined by $108.5 million from December 31, 2019 until September 30, 2020.
In March 2019, we entered intoOctober 2020, We closed on a Construction Loan Agreement withprivate offering of $150.0 million principal amount of 8.5 percent Senior Secured Notes due 2024. The Notes and related guarantees are secured by first priority security interests in substantially all of our property and assets (excluding aircraft, aircraft engines, the Sunseeker development, and certain lenders affiliated with TPG Sixth Street Partners, LLC under which we may borrow up to $175.0 million to fund the construction of Phase 1 of Sunseeker Resort - Charlotte Harbor. No amount under this loan agreement has been drawn to date.other assets).
Sources and Uses of Cash
Operating Activities. Operating cash inflows are primarily derived from providing air transportation and related ancillary products and services to customers. During the nine months ended September 30, 2019,2020, our operating activities provided $321.4$276.7 million of cash compared to $290.1$321.4 million during the same period of 2018. The increase is mainly due to a $51.2 million increase in2019. Although net income in 2019. This is partiallyfor the nine months ended September 30, 2020 decreased by $326.9 million compared to 2019, the cash effect of this fluctuation was largely offset by the net effectnon-cash nature of changes$279.1 million in certain asset and liability accountsspecial charges during the period, including the effect of a one time income tax refund of over $41 million received in 2018.nine months ended September 30, 2020.
Investing Activities. Cash used in investing activities was $324.0$209.1 million during the nine months ended September 30, 20192020 compared to $187.1$324.0 million for the same period in 2018.2019. The increasedecrease in cash used is mostly due to a $76.2$151.6 million year-over-year increasedecrease in cash outlays for the purchase of property and equipment and $78.2 million in proceeds received from sale-leaseback
transactions. These decreases in the use of cash were partially offset by a lower amount of$105.5 million increase in cash proceeds from maturitiesused for investment security activity, as purchases of investment securities (net of purchases). The use of cashmaturities) were $90.0 million for investing activities in the first nine months of 2019 was reduced by a $16.0 million difference in cash provided by other investing activitiesended September 30, 2020, compared to $15.5 million in proceeds from investment security maturities (net of purchases) for the same period last year, mostly related to proceeds received from the sales of MD-80 parts.in 2019.
Financing Activities. Cash provided by financing activities for the nine months ended September 30, 20192020 was $15.3$81.1 million, compared to $12.6$15.3 million cash used in financing activities duringfor the same period in 2018. This2019. The year-over-year fluctuationincrease is primarilymostly due to the net effect of debt activity, as debt proceeds as we entered intonet of principal payments and debt agreements totaling $770.4issuance cost payments were $121.6 million during the nine months ended September 30, 2019,2020, compared to $191.7$67.7 million induring the same period in 2018. The2019. Additionally, there was an increase in debt proceeds was partially offset by a $498.7share repurchases, which were $33.8 million increase in principal payments on, and early payoffs of, long-term debt and finance lease obligations in the current yearfirst quarter of 2020 (before the share repurchase program was suspended) compared to 2018.$18.5 million during the first nine months of 2019. Dividends paid decreased by $22.9 million year-over-year as dividend payments were also suspended due to the pandemic.
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 assumedstatements regarding future airline operations and capacity, the efficacy of cost saving measures, future expenditures, aircraft financings, the timing of aircraft acquisitions and retirements, expected capital expenditures, as well as other information concerning future results of operations, business strategies, fleet plan, financing plans competitive position,and 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.environment. 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, the impact and duration of the COVID-19 pandemic on airline travel and the economy, liquidity issues resulting from the effect of the COVID-19 pandemic on our business, restrictions imposed on us a result of accepting government grants under the CARES Act, an accident involving, or problems with, our aircraft, public perception of our safety, our reliance on our automated systems, 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,to be acquired, terrorist attacks, risks inherent to airlines, our 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 in 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
There werehave been no material changes to our critical accounting estimates during the nine months ended September 30, 2020. For information regarding our critical accounting policies and estimates, as of September 30, 2019, from those disclosedsee disclosures in the Consolidated Financial Statements and accompanying notes contained in our 20182019 Form 10-K.10-K, and in Note 1 of Notes to Consolidated Financial Statements (unaudited).
Item 3. Quantitative and Qualitative Disclosures About Market Risk
We are subject to certain market risks, including commodity prices (specifically aircraft fuel). The adverse effects of changes in these markets could pose potential losses as discussed below. The sensitivity analysis provided does not consider the effects that such adverse changes may have on overall economic activity, nor does it consider additional actions we may take to mitigate our exposure to such changes. Actual results may differ.
Aircraft Fuel
Our results of operations can be significantly impacted by changes in the price and availability of aircraft fuel, as aircraft fuel expense represented 29.216.9 percent of our operating expenses for the nine months ended September 30, 2019.2020. 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 nine months ended September 30, 2019,2020, a hypothetical ten percent increase in the average price per gallon of fuel would have increased fuel expense by approximately $10.7$5.2 million and $33.3$17.1 million, respectively. We have not hedged fuel price risk for many years.
Interest Rates
As of September 30, 2019,2020, we had $1.2 billion in variable-rate debt, including current maturities and without reduction for related costs. A hypothetical 100 basis point increase in market interest rates for the three and nine months ended September 30, 20192020 would have affected interest expense by approximately $2.2$3.1 million and $6.7$9.4 million, respectively.
As of September 30, 2019,2020, we had $98.9$255.2 million of fixed-rate debt, including current maturities and without reduction for related costs. A hypothetical 100 basis point change in market interest rates would not impact interest expense on our fixed rate debt as of such date.
Item 4. Controls and Procedures
As of September 30, 2019,2020, 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.
Except as noted below, thereThere were no changes in our internal control over financial reporting that occurred during the quarter ending September 30, 2019,2020, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Effective January 1, 2019, we adopted ASU 2016-02, Leases (Topic 842). Although the New Lease Standard did not have a material impact on our ongoing net income, changes were made to relevant business processes and the related control activities 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 those set forth in Part I, Item 1A of our Annual Report on Form 10-K.10-K and those additional Risk Factors disclosed in our Quarterly Report on Form 10-Q for the quarter ended June 30, 2020 and filed with the Commission on August 4, 2020.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Our Repurchases of Equity Securities
The following table reflects(a) As previously disclosed, in connection with funding that we have received under the repurchasesCARES Act, we have issued to the Treasury warrants to purchase up to 27,681 shares of our common stock since April 2020 under an exemption from registration pursuant to Section 4(a)(2) of the Securities Act of 1933, as amended. Of these warrants, warrants to purchase 19,700 shares were issued on or prior to June 30, 2020 and warrants for an additional 7,981 shares were issued in third quarter 2020. For additional information regarding the Warrants, see Note 2 of the Notes to Consolidated Financial Statements (unaudited).
(b) Not applicable
(c) We did not repurchase any common stock during the third quarter 2019:2020.
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Period | | Total Number of Shares Purchased (1) | | Average Price Paid per Share | | Total Number of Shares Purchased as Part of our Publicly Announced Plan | | Approximate Dollar Value of Shares that May Yet be Purchased Under the Plans or Programs (in thousands) (2) |
July | | 994 |
| | $ | 149.14 |
| | None |
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August | | 104,539 |
| | 141.64 |
| | 103,943 |
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September | | 3,935 |
| | 148.95 |
| | None |
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Total | | 109,468 |
| | 143.35 |
| | | | $ | 85,277 |
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(1) Includes shares repurchased from employees who vested a portion of their restricted stock grants. These share repurchases were made at the election of each employee pursuant to an offer to repurchase by us. In each case, the shares repurchased constituted the portion of vested shares necessary to satisfy income tax withholding requirements.
(2) Represents the remaining dollar amount of open market purchases of our common stock which has been authorized by the Board under a share repurchase program.
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.SCH | XBRL Taxonomy Extension Schema Document |
101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document |
101.DEF | XBRL Taxonomy Extension Definition Linkbase Document |
101.LAB | XBRL Taxonomy Extension Labels Linkbase Document |
101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document |
(1) Incorporated by reference to Exhibit filed with Registration Statement #333-134145 filed by the Company with the Commission and amendments thereto.
(2) Incorporated by reference to Exhibit 3.1 to the Current Report on Form 8-K filed with the Commission on May 12, 2020.
(3) Incorporated by reference to respective Exhibit to the Current Report on Form 8-K filed with the Commission on October 25, 2019.7, 2020.
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: | October 31, 2019November 5, 2020 | By: | /s/ Gregory Anderson |
| | Gregory Anderson, as duly authorized officer of the Company (Chief Financial Officer) and as Principal Financial Officer |