| Summary of Significant Accounting Policies | Summary of Significant Accounting Policies Basis of Presentation The accompanying consolidated financial statements include the accounts of Allegiant Travel Company and its wholly-owned operating subsidiaries. The Company has no independent assets or operations, and all guarantees of the Company's publicly held debt are full and unconditional and joint and several. Any subsidiaries of the parent company other the subsidiary guarantors are minor. The Company's investments in unconsolidated affiliates, which are 50 percent or less owned, are accounted for under the equity method. All intercompany balances and transactions have been eliminated in consolidation. Certain reclassifications have been made to the prior period amounts to conform to current year presentation. Use of Estimates The preparation of financial statements in conformity with U.S. generally accepted accounting principles 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 based on events and transactions occurring during the periods reported, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates. Cash and Cash Equivalents Cash and cash equivalents include investments and interest bearing instruments with maturities of three months or less at the balance sheet date. Such investments are carried at cost which approximates fair value. Restricted Cash 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. Restricted cash at December 31, 2016 and 2015 was $11.6 million and $10.4 million , respectively. Accounts Receivable Accounts receivable are carried at face amount which approximates fair value. They consist primarily of amounts due from credit card companies associated with the sale of tickets for future travel, commission amounts due from Enterprise Holdings Inc., based on terms in the rental car provider agreement, income tax receivables, and amounts due related to fixed fee charter agreements. If deemed necessary, the Company records charges to its allowance for doubtful accounts for amounts not expected to be collected. The allowance for doubtful accounts was zero as of December 31, 2016 and 2015 . The Company also had an outstanding receivable from a third party as of December 31, 2016 , for which $8.3 million is due more than one year after the balance sheet date and is classified with the Company's other assets. Short-term and Long-term Investments The Company’s investments in marketable securities are classified as available-for-sale and are reported at fair value with the net unrealized gain or (loss) reported as a component of accumulated other comprehensive income in shareholders’ equity. Investment securities are classified as cash equivalents, short-term investments and long-term investments based on maturity date as of the balance sheet date. Cash equivalents have maturities of three months or less, short-term investments have maturities of greater than three months but equal to or less than one year, and long-term investments are those with a maturity date greater than one year. As of December 31, 2016 , the Company’s long-term investments consisted of corporate debt securities, government debt securities and municipal debt securities with contractual maturities of less than 24 months. Investment securities consisted of the following (in thousands): As of December 31, 2016 As of December 31, 2015 Unrealized Unrealized Cost Gains (Losses) Market Value Cost Gains (Losses) Market Value Municipal debt securities $ 153,506 $ 2 $ (216 ) $ 153,292 $ 52,669 $ 2 $ (1 ) $ 52,670 Commercial paper 108,421 14 (63 ) 108,372 83,155 — (1 ) 83,154 Corporate debt securities 101,739 3 (124 ) 101,618 108,485 50 (154 ) 108,381 Federal agency debt securities 47,524 1 (71 ) 47,454 73,783 — (80 ) 73,703 US Treasury Bonds 4,615 — (6 ) 4,609 1,607 — (1 ) 1,606 Money market funds 123 — — 123 781 — — 781 Total $ 415,928 $ 20 $ (480 ) $ 415,468 $ 320,480 $ 52 $ (237 ) $ 320,295 The amortized cost of investment securities sold is determined by the specific identification method with any realized gains or losses reflected in other (income) expense. The Company had minimal realized losses during the years ended December 31, 2016 , 2015 , and 2014 . The Company believes unrealized losses related to debt securities are not other-than-temporary and does not intend to sell these securities prior to amortized cost recoverability. The Company attempts to minimize its concentration risk with regard to its cash, cash equivalents, and investment portfolio. This is accomplished by diversifying and limiting amounts among different counterparties, the type of investment, and the amount invested in any individual security, commercial paper, or money market fund. Expendable Parts, Supplies and Fuel, Net Expendable parts, supplies and fuel inventories are valued at cost using the first-in, first-out method. Such inventories are charged to expense as they are used in operations. An obsolescence allowance for expendable parts and supplies is based on the remaining useful lives of the corresponding fleet type and salvage values. The allowance for expendable parts and supplies was $7.2 million and $4.6 million at December 31, 2016 and 2015 , respectively. Rotable aircraft parts inventories are included in property and equipment. Software Capitalization The Company capitalizes certain internal and external costs related to the acquisition and development of computer software during the application development stage of projects. The Company amortizes these capitalized costs using the straight-line method over the estimated useful life of the software, which typically ranges from three to five years. The Company had unamortized computer software development costs of $40.4 million and $38.2 million as of December 31, 2016 and 2015 , respectively. Amortization expense related to computer software was $13.3 million , $10.0 million and $6.7 million for the years ended December 31, 2016 , 2015 and 2014 , respectively. Costs incurred during the preliminary and post-implementation stages are expensed as incurred. Property and Equipment Property and equipment are recorded at cost and depreciated using the straight-line method over their estimated useful lives less an estimated salvage value. The estimated useful lives are as follows: Aircraft and related flight equipment: MD83/88 (remaining depreciable lives) 3 years Boeing 757-200 (remaining depreciable lives) 1 year Airbus A320 Series 10-15 years Rotable parts 1-7 years Buildings 25 years Equipment and leasehold improvements 3-7 years Computer hardware and software 3-5 years In estimating the useful lives and residual values of aircraft, the Company primarily has relied upon actual experience with the same or similar aircraft types, current and projected future market information, and recommendations from other industry sources. Subsequent revisions to these estimates could be caused by changing market prices of the Company’s aircraft, changes in utilization of the aircraft, and other fleet events. These estimates are evaluated each reporting period and adjusted if necessary. Changes in the estimate for useful lives or residual values of the Company’s property and equipment could result in an acceleration of depreciation expense associated with the change in estimate. Payments required to be made in advance of aircraft delivery are qualifying assets and interest attributable to these payments is capitalized as part of the cost of the related asset until the aircraft has been delivered and is ready to enter revenue service. Interest is capitalized at the Company’s weighted average borrowing rate and depreciated over the estimated useful life of the asset. Capitalized interest for 2016 was $1.8 million and zero in 2015. Aircraft Maintenance and Repair Costs The Company accounts for non-major maintenance and repair costs incurred under the direct expense method. Under this method, maintenance and repair costs for owned and leased aircraft are charged to operating expenses as incurred. Maintenance and repair costs includes all parts, materials, line maintenance, and non-major maintenance activities required to maintain the Company's multiple fleet types. The Company accounts for major maintenance costs of its MD-80 airframes and the related JT8D-219 engines using the direct expense method. Under this method, major maintenance costs are charged to expense as incurred. The Company has not experienced any major maintenance events for the Boeing 757-200 fleet. The Company accounts for major maintenance costs of its Airbus airframes and the related CFM engines using the deferral method. The first major maintenance events for these aircraft and engines occurred during 2016. Under this method, the Company capitalizes the cost of major maintenance events, which are amortized as a component of depreciation and amortization expense, over the estimated period until the next scheduled major maintenance event. During 2016, the Company capitalized $18.9 million of costs for major maintenance with associated amortization expense and accumulated amortization of $1.5 million . Measurement of Impairment of Long-Lived Assets The Company records impairment losses on long-lived assets used in operations, consisting principally of property and equipment, when events or changes in circumstances indicate, in management’s judgment, that the assets might be impaired, and the undiscounted future cash flows estimated to be generated by those assets are less than the carrying amount of those assets. In making these determinations, the Company utilizes certain assumptions, including, but not limited to: (i) estimated fair value of the assets; and (ii) estimated future cash flows expected to be generated by these assets, which are based on additional assumptions such as asset utilization, length of service for which the asset will be used in operations, and estimated salvage values. For the years ended December 31, 2016 , 2015 and 2014 , the Company incurred impairment losses related to two Boeing 757-200 airframes and other MD-80 parts, of $3.0 million , $1.1 million and $3.4 million , respectively and classified within Other operating expense. In 2014, the Company recorded a non-cash impairment charge of $43.3 million on its fleet of Boeing 757 aircraft, engines, and related assets as a result of its review of fleet value. The review was based on factors such as the Company's ability or intent to operate fleet types through their estimated useful lives, potential changes to the fleet residual values based on changes in market conditions for used aircraft, spare engines and parts, and potential changes to the scheduled revenue network based on competition trends and operational performance. Revenue Recognition Scheduled service revenue Scheduled service revenue consists of passenger revenue generated from nonstop flights in the Company’s route network, recognized either when the travel-related service or transportation is provided or when the itinerary expires unused. Nonrefundable scheduled itineraries expire on the date of the intended flight, unless the date is extended by notification from the customer in advance. Itineraries sold for transportation not yet used, as well as unexpired credits, are included in air traffic liability. Various taxes and fees, assessed on the sale of tickets to customers, are collected by the Company serving as an agent, and remitted to taxing authorities. These taxes and fees are not included as revenue in the Company’s consolidated statements of income and are recorded as a liability until remitted to the appropriate taxing authority. Ancillary air-related revenue Ancillary air-related revenue is generated from fees paid by ticketed passengers and consists of baggage fees, the use of the Company’s website to purchase scheduled service transportation, advance seat assignments, and other services. Revenues from air-related charges are recognized when the transportation is provided if the product is not deemed distinct of the original ticket sale. Change and cancellation fees for nonrefundable itineraries are air-related charges deemed distinct of the original ticket sale, and are recognized as revenue when the fee is incurred by the customer. Ancillary third party revenue Ancillary revenue is also generated from the sale of third party products such as hotel rooms, rental cars and ticket attractions. Revenue from the sale of third party products is recognized at the time the product is utilized, such as the time a purchased hotel room is occupied. The Company follows accounting standards for determining whether it is a principal or an agent in revenue arrangements to determine the amount of revenue to be recognized for each element of a bundled sale involving air-related charges and third party products in addition to airfare. Revenue from the sale of third party products is recorded net (treatment as an agent) of amounts paid to wholesale providers, travel agent commissions, and transaction costs. Fixed fee contract revenue Fixed fee contract revenue consists of agreements to provide charter service on a year-round and ad hoc basis. Fixed fee contract revenue is recognized when the transportation is provided. Other revenue Other revenue is generated from leased aircraft and flight equipment, and other miscellaneous sources. Lease revenue is recognized ratably over the lease term. Affinity Credit Card Program In 2016, the Company launched the Allegiant World MasterCard® issued by Bank of America through which arrangement points are sold and consideration is received under an agreement with a seven year scheduled duration. Under this arrangement, the Company identified the following deliverables: travel points to be awarded (the travel component), use of the Company’s brand and access to its member lists, and certain other advertising and marketing elements (collectively the marketing component). Applying guidance under Accounting Standards Update (“ASU”) 2009-13 - Revenue Recognition (Topic 605): Multiple-Deliverable Revenue Arrangements, each of these deliverables is accounted for separately and allocation of the consideration from the agreement is determined based on the relative selling price of each deliverable. The Company applied a level of management judgment and estimation in determining the best estimate of selling price for each deliverable by considering multiple inputs and methods including, but not limited to, the redemption value of points awarded, discounted cash flows, brand value, volume discounts, published selling prices, number of points to be awarded and number of points to be redeemed. The travel component is deferred based on its relative selling price and is recognized into scheduled service revenue when the points are redeemed by cardholders. The marketing component is considered earned in the period in which points are sold and is therefore recognized into third party products revenue in the same period. Advertising Costs Advertising costs are charged to expense in the period incurred. Advertising expense was $13.6 million , $12.7 million and $6.0 million for the years ended December 31, 2016 , 2015 and 2014 , respectively. Earnings per Share Basic and diluted earnings per share are computed pursuant to the two-class method as opposed to the treasury method. Under this method, the Company attributes net income to two classes, common stock and unvested restricted stock awards. Unvested restricted stock awards granted to employees under the Company’s Long-Term Incentive Plan are considered participating securities because 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 two methods. Under both methods, the exercise of employee stock options are assumed using the treasury stock method. The assumption of vesting of restricted stock, however, differs as described below: 1. Assume vesting of restricted stock using the treasury stock method. 2. Assume unvested restricted stock awards are not vested, and allocate earnings to common shares and unvested restricted stock awards using the two-class method. For the years ended December 31, 2016 , 2015 and 2014 , the second method above was used in the computation because it was more dilutive than the first method. The following table sets forth the computation of net income per share on a basic and diluted basis for the periods indicated (in thousands, except per share amounts): Year ended December 31, 2016 2015 2014 Basic: Net income attributable to Allegiant Travel Company $ 219,590 $ 220,374 $ 86,689 Less net income allocated to participating securities (1,748 ) (961 ) (293 ) Net income attributable to common stock $ 217,842 $ 219,413 $ 86,396 Net income per share, basic $ 13.23 $ 12.97 $ 4.87 Weighted-average shares outstanding 16,465 16,923 17,729 Diluted: Net income attributable to Allegiant Travel Company $ 219,590 $ 220,374 $ 86,689 Less net income allocated to participating securities (1,746 ) (958 ) (292 ) Net income attributable to common stock $ 217,844 $ 219,416 $ 86,397 Net income per share, diluted $ 13.21 $ 12.94 $ 4.86 Weighted-average shares outstanding 16,465 16,923 17,729 Dilutive effect of stock options and restricted stock 42 69 88 Adjusted weighted-average shares outstanding under treasury stock method 16,507 16,992 17,817 Participating securities excluded under two-class method (18 ) (30 ) (35 ) Adjusted weighted-average shares outstanding under two-class method 16,489 16,962 17,782 Stock awards outstanding of 1,918 ; 28,789 ; and 75,233 shares for 2016 , 2015 , and 2014 , respectively, were excluded from the computation of diluted earnings per share as they were antidilutive. Share-Based Compensation The Company accounts for share-based compensation in accordance with accounting standards which require the compensation cost related to share-based payment transactions be recognized in the Company’s consolidated statements of income. The cost is measured at the grant date, based on the calculated fair value of the award using the Black-Scholes option pricing model for stock options and cash-settled SARs, and is remeasured monthly for cash-settled SARs. Fair value is based on the closing price of the Company’s stock on the grant date for restricted stock awards. The cost is recognized as an expense over the requisite service period, the vesting period of the award, which is generally three years. Forfeiture rates for each type of award are estimated at time of grant. The Company’s share-based employee compensation plan is more fully discussed in Note 11—Employee Benefit Plans. Income Taxes The Company recognizes deferred income taxes based on the asset and liability method required by accounting standards. Deferred tax assets and liabilities are determined based on the timing differences between book basis for financial reporting purposes and tax basis of the asset and liability and measured using the enacted tax rates. A valuation allowance for deferred tax assets is provided if it is more likely than not that some portion or all of the deferred tax assets will not be realized. The Company determines the net non-current deferred tax assets or liabilities separately for federal, state, foreign and other local jurisdictions. The Company’s income tax returns are subject to examination by the Internal Revenue Service (“IRS”) and other tax authorities in the jurisdictions where the Company operates. The Company assesses potentially unfavorable outcomes of such examinations based on the criteria set forth in uncertain tax position accounting standards. The accounting standards prescribe a minimum recognition threshold a tax position is required to meet before being recognized in the financial statements. Accounting standards for income taxes utilize a two-step approach for evaluating tax positions. Recognition (Step I) occurs when the Company concludes that a tax position, based on its technical merits, is more likely than not to be sustained upon examination. Measurement (Step II) is only addressed if the position is deemed to be more likely than not to be sustained. Under Step II, the tax benefit is measured as the largest amount of benefit that is greater than 50 percent likely of being realized upon settlement. The tax positions failing to qualify for initial recognition are recognized in the first subsequent interim period they meet the “more likely than not” standard. If it is subsequently determined that a previously recognized tax position no longer meets the “more likely than not” standard, it is required that the tax position be derecognized. As applicable, the Company will recognize accrued penalties and interest related to unrecognized tax benefits in the provision for income taxes. Recent Accounting Pronouncements In May 2014, the Financial Accounting Standards Board ("FASB") issued ASU 2014-09, "Revenue from Contracts with Customers (Topic 606)" intended to create a unified model to determine when and how revenue is recognized. Under this ASU and subsequently issued amendments, the core principle is that a company should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration for which the entity expects to be entitled in exchange for those goods or services. Under the new standard, revenue related to certain air-related ancillary fees directly related to ticket revenue, such as seat fees and baggage fees, will likely no longer be considered distinct performance obligations separate from passenger travel and as a result will be reclassified into scheduled service revenue. In addition, change fees previously recognized when incurred by the customer, will likely be recognized when air travel is provided and reclassified into scheduled service revenue. The standard is effective for annual and interim periods beginning after December 15, 2017. Early adoption of the standard is permitted. The Company is evaluating the impact on its financial statements of adopting this new accounting standard. In February 2016, the FASB issued ASU 2016-02 related to leases. This standard will require leases with durations greater than twelve months to be recognized on the balance sheet as a lease liability and a corresponding right-of-use asset, and is effective for interim and annual reporting periods beginning after December 15, 2018 with early adoption permitted. The Company is assessing the impact of this new standard, specifically on its consolidated balance sheets, and currently does not expect adoption to significantly change the recognition, measurement or presentation of associated expense within the consolidated statements of income or cash flows. In March 2016, the FASB issued ASU 2016-09, which is intended to simplify various aspects related to how share-based payments are accounted for and presented in the financial statements. This ASU is effective for fiscal years, and interim periods within those years, beginning on or after December 15, 2016 and early adoption is permitted. The Company has adopted the changes related to income taxes and cash flow presentation for excess tax benefits as of the first quarter 2016 on a prospective basis, and prior periods have not been retrospectively adjusted. The remaining provisions of this ASU do not have an impact on the Company's consolidated financial statements. In August 2016, the FASB issued ASU 2016-15, which amends the guidance in Accounting Standards Codification ("ASC") 230 on the classification of certain cash receipts and payments in the statement of cash flows. The primary purpose of the ASU is to reduce the diversity in practice that has resulted from the lack of consistency on this topic. The standard is effective for annual and interim periods beginning after December 15, 2017. Early adoption is permitted. The Company does not currently expect significant classification modifications as a result of this ASU. |
