Q1 2024 Allegiant Travel Co Earnings Call

Participants

Sherry Wilson; IR Contact Officer; Allegiant Travel Co

Maurice Gallagher; Executive Chairman of the Board, Chief Executive Officer; Allegiant Travel Co

Gregory Anderson; President; Allegiant Travel Co

Michael Broderick; SVP, Financial Planning and Business Transformation; Allegiant Travel Co

Scott Deangelo; Executive Vice President, Chief Marketing Officer; Allegiant Travel Co

Drew Wells; Senior Vice President, Chief Revenue Officer; Allegiant Travel Co

Robert Neal; Chief Financial Officer, Senior Vice President; Allegiant Travel Co

Helane Becker; Analyst; TD Cowen

Ravi Shanker; Analyst; Morgan Stanley

Andrew Didora; Analyst; Bank of America

Duane Pfennigwerth; Analyst; Evercore ISI

Scott Group; Analyst; Wolfe Research

Mike Linenberg; Analyst; Deutsche Bank

Dan McKenzie; Analyst; Seaport Global

Presentation

Operator

Thank you for standing by. My name is D. and I will be your conference operator today. At this time, I would like to welcome everyone to the Allegiant Travel Company. First Quarter 2024 earnings call. (Operator Instructions) Thank you. I would now like to turn the call over to Sherry Wilson, Managing Director of Investor Relations. Please go ahead.

Sherry Wilson

Thank you, Dave, and welcome to the Allegiant Travel Company's first quarter 2024 earnings call. On the call with me today are Maury Gallagher, the company's Executive Chairman and CEO, Greg Anderson, President, Mike Origin's, President of Sunseeker Resorts being Angelo, our EVP and Chief Marketing Officer, Drew Wells, our SVP and Chief Revenue Officer, Robert Neal, SVP and Chief Financial Officer, and a handful of others to help answer questions. We will start the call with commentary and then open it up to questions. We ask that you please limit yourself to one question and one follow-up.
The Company's comments today will contain forward-looking statements concerning our future performance and strategic plan. Various risk factors could cause the underlying assumptions of these statements and our actual results to differ materially from those expressed or implied by our forward-looking statements. These risk factors and others are more fully disclosed in our filings with the SEC.
Any forward-looking statements are based on information available to us today, and we undertake no obligation to update publicly any forward-looking statements, whether as a result of future events, new information or otherwise. The Company cautions investors not to place undue reliance on forward-looking statements which may be based on assumptions and events that do not materialize.
To view this earnings release as well as the rebroadcast of the call, feel free to visit the company's Investor Relations site at ir dot allegion.com. With that, I'll turn it over to Maurice.

Maurice Gallagher

Thank you, Sherry, and good morning, everyone. Thank you for joining us today on because you can see from our release, our results are not where we want them to be. Historically, our Q1 is one of our strongest quarters. Last year's 15% operating income showed the strength.
If you look at our operations operationally, we ran the same airline this Q1 that we ran in 23 departures ASMs, passengers all were within 2% of each other fact, we've had minimal growth since 2021, averaging approximately 3% per year during these past three years, even with this minimal growth.
However, we have been one of the most profitable airlines during these turbulent times. But in the last year, we and the industry have experienced major expense increases, particularly South salaries and specifically with our pilots.
Additionally, we had problems predicting how many pilots would be available for us last year. This time last year, we were losing more than a pilot a day, annualizing out to a 40% annual attrition rate stopped hemorrhaging. In June, we began to accrue future bonus payable to our crew members. After we signed an agreement through this April, we have accrued and expensed $80 million without any corresponding offset of a new pilot agreement. We hope to have this new agreement in the not-too-distant future.
You'll hear today from Greg Drew, Robert Scott and Mike Origin's about our current status, including comments on our revenue problems tied to our Navitaire upgrade, Boeing deliveries and the lack of productivity of our fleet and pilots, particularly do during our off-peak periods there are a number of reasons for this drop off in productivity.
Clearly, the pandemic changed our rhythms, our routines, our annual cycle of hiring and training new pilots for the coming year and the fall adding them in January and February for March, OPTIC and the late spring for the summer, Sprint, we have been out of this rhythm for the past three years, we are about to resume this proven approach in the back half of this year and into 2025.
A critical component of this rhythm is obviously having airplanes our Boeing order of 50 MAX plus 80 options provides us with the necessary aircraft for the anticipated growth in the coming years.
Let me emphasize that the model remains the same going forward, we need to reinstate the execution of the model that has worked so well.
Additionally, we are optimizing our revenue software, finalizing MAX deliveries, as I mentioned, and working with our pilots to finish an agreement. Let me turn to Sunseeker at this point. We are excited to finally have this world-class destination resort opened and operating initial reviews are all exceptional on the quality of the personnel, the product and in particular to the quality of the cuisine by calling projects.
However, there is a run-in time opening at the end of December was not ideal. The date was driven by the construction delays we experienced for most of last year. Given we made the decision to open in late October, we did not have as much time as we would have liked to market and sell this new destination resort, we use many tools to drive traffic, not the least of which is our 18 million person customer database. We've had success with this program's sending out as many as 25 million to 30 million e-mails per week on Sunseeker.
And specifically, we are already the booking patterns for Southwest Florida of what the differences are. We saw some expected strength in Q1, Q2 and Q3, however, will be slower and we're trying to understand where they will sell given the patterns we are experiencing. At this point, we are lowering our estimates to a negative $15 million EBITDA for this year.
Michael Richards, President of Sunseeker, will have more comments in just a moment for Sunseeker will be a project for 24 and 25 airline problems we are currently experiencing can be addressed for the most part during the remainder of this year and into 2025.
By then, we should be hitting our stride a comment about the industry for years. We have been grouped together with other low-cost low-fare companies particularly Spirit and Frontier. While all of us offer low fares and focused on leisure customers, we would be remiss if we did not point out that our model has made money consistently during this pandemic.
Time in particular, I want to direct your attention to the revenue differences in the just-completed q. one, our unit revenue or transit was $0.132 compared to $0.092 average for 42% greater than the aforementioned operators in today's inflationary world. The ability to generate sufficient revenues and increased revenues is the difference between success and failure. Cost management is also important. No doubt, given our increased utilization later this year and into 2025, you'll see our unit cost decline accordingly.
An important component of our revenues has been our third party revenues. While they are not that big on an absolute basis, they are very powerful for the bottom line. This quarter, our $8.21 per passenger was worth $33 million of operating income, and that's a 30% increase over last year's $6.32. In spite of our problems with our revenue tools and Navitaire. We still had one of our best unit revenues in the Company history.
Many things go into this ability to generate stronger revenues, including brand and reputation, and we are pleased with how we have positioned ourselves to look at the success of the majors. One only has to point to their loyalty programs to see the power of third party revenues.
We understand this benefit and are focused on this producing more of these very accretive dollars license about revenue. We all work better, have better results when we and what we do is know is repeatable and predictable.
Looking back on our successes of the past 20 years, while the model is a critical organ component, namely 77% of our routes not have direct competition. The execution component, the rhythm each year is also critical.
For the past many years post COVID, the rhythm, the routine has not been present to the contrary, there's been minimal predictability, uncertain rhythm starts and stops. The fog is lifting in the traditional focus, and we are in better control of our own actions going forward, the model is just fine. As I mentioned, as strong as ever, the rhythm is coming back. Stay tuned for the good news, Greg, Maury.

Gregory Anderson

Thank you, team. Allegiant delivered another strong operational performance this quarter with a 99.7% controllable completion rate that puts us near the top of the industry. And that's thanks to the tremendous efforts of our frontline team members. We have a long history of providing a great service at an attractive price for our customers.
And our differentiated model is focused on being the only nonstop carrier on the vast majority of our 525 routes has a structural advantage that affords us great relationships within our origination and destination market, which in addition contribute to our strong ancillary and third party revenue.
Our differentiation is why we are we have been able to generate industry-leading margins and profitability for our investors over the long term. While I am pleased with our operational and customer service metrics this quarter. Our first quarter adjusted operating margin of 6.2% is disappointing and is not reflective of Allegiant's earnings potential these results were impacted by three distinct issues, lower aircraft utilization during peak periods, Navitaire implementation timing and Boeing's delivery delays starting with lower utilization.
March 2020 for flying was about 20% less than where we would have liked it to be. The primary constraint of our peak utilization has been the uncertainty of part of our pilot staffing levels. We were impacted by the same industry-wide shortage faced by our peers in our attrition levels were meaningfully elevated coming out of COVID, but beginning to normalize around the middle of 2023 it was because at this time we implemented a retention bonus for our pilots that materially helped stem attrition.
It is important to us that our pilots receive fair and competitive compensation in advance of an agreed-upon pilot contract, and we are accruing upwards of $6 million per month for this bonus. Given our pilot staffing levels have turned to being stable, we are just starting to realize some of these benefits through our scheduling as we work towards restoring our peak utilization.
On a related note, achieving a pilot labor contract continues to be a priority of ours, and I am optimistic that we can come to an agreement in the not-too-distant future. We value our relationships with our pilots and are encouraged by the forward movement made since the recent changes in union leadership since cutting over to Navitaire in the second half of 23, we have made a lot of progress in the system that runs all of our reservations and rent revenue management. It offers critical new features of our legacy homegrown system.
This includes the ability for international expense expansion and further efficiencies that are expected to improve our dynamic pricing and increase ancillary revenues. That migration last year went well for the most critical aspects as customers had a seamless ability to book and to fly. However, migrating our ancillary data has taken longer than we expected, which caused a reduction of about $2 per passenger in ancillary fees in the quarter. As you all know, that is high margin revenue for us.
Turning to Boeing due to their well-publicized issues, we are experiencing even further delivery delays since our last earnings call. As a reminder, we had originally anticipated and planned for six MAX deliveries in the first half of this year. Prior to this brand, new type of aircraft entering the Allegiant fleet, we hire and train pilots, and we plan our network and we take on other preparation and infrastructure costs.
These material headwinds are at a current run rate rate of roughly $30 million annually to operating income at this time, we do not anticipate any MAX aircraft to be placed in service during the first half of 24. Yet we continue to incur these significant expenses. Excluding these three distinct items I just outlined, our adjusted airline operating margin for the quarter would have been approximately 13%.
This does not, however, change the fact that our current financial port performance is not acceptable to us. The good thing is we have solutions. So I'd like like to talk about the key drivers of how we will. We will return to our normal industry-leading margins. The first driver is increasing peak flying. While the airline has recovered well from COVID, our peak flying is still 20% below 2019 levels.
Fortunately, our pilot hiring and attrition issues have improved considerably, and we are seeing normalized staffing levels. Given these improvements, we are pushing up peak utilization and look to fully restore it by 2025 and 2025, which we expect to add roughly four points of incremental margin.
The second driver is harnessing the full power of our Navitaire reservation system. While the implementation of the system was more complex and took longer than we expected. We are now at the right point with Drew Wells, our Chief Revenue Officer, spearheading this initiative at this pivotal time we see a big opportunity using avatars tools to create to drive greater ancillary revenue.
Drew will talk in more detail about this platform, but we estimate enhancements to Navitaire will drive as much as three points of incremental margin at a mature state in 2025. We are also growing and improving our product offerings through other commercial opportunities in areas such as loyalty co-brand, Allegiant extra and our planned international expansion with Veeva.
And finally, the third driver is ramping up our Boeing MAX fleet once in service and operating scale at scale we expect the MAX aircraft will provide a meaningful tailwind to our earnings. The annual operating income carrying cost of $30 million we are currently incurring will naturally subside. Furthermore, there is a 20% fuel burn savings and other advantages of this new fleet for Allegion, we are working with Boeing to ensure an orderly delivery schedule and given their extended delivery delays.
Our 2024 CapEx CapEx is expected to be significantly below our initial forecast. Last, but certainly certainly not least, we are very happy to report. We have reached a deal with the TWU and our flight attendants on a new contract, a deal, our in-flight team members were proud to support. In closing, our airline is one of the best proven models in the business. This management team is laser focused on restoring our industry-leading margins. We are executing on a clear path just as outlined and further building on our strength.
I'm excited about the opportunities ahead for us. With that, I'll turn it to Mike.

Michael Broderick

Thanks, Greg, and good morning, everyone. As Maury mentioned in his opening remarks, we're extremely pleased with the progress that's been made at Sunseeker this past quarter. When we last updated you, we were in the early days of transitions from a construction site to an operating resort. We still had thousands of punch list items to complete in several venues to bring online today.
All of our outlets are online and all but a handful of the punch list items have been completed. Feedback from guests has been overwhelmingly positive with consistent month-over-month improvements in our Medallia NPS scores. Of note, our customers are not only impressed by the resort, but have been delighted by our wonderful team members in terms of quality of experience drivers, the leading categories, helpfulness of staff, we couldn't be more proud of them.
Guests and locals alike have been highly complimentary of our food and beverage offerings. Opening this many restaurants concurrently is no easy task. Despite that, all six of our specialty restaurants have satisfaction ratings over four on a scale of five with the average being 4.5.
These venues, in addition to our spectacular pool experiences allow us the ability to activate the property in meaningful ways, including sporting events like Super Bowl and the Kentucky Derby. We had just this past weekend in terms of group business, year to date, we successfully hosted more than 50 groups.
Our operating and services team have worked tirelessly to ensure the satisfaction of meeting planners and the attendees alike, building reputational credibility that will pay dividends throughout the remainder of the year and certainly into 2025 and beyond.
In the hospitality business, the convention segment is the most effective leading indicator of future financial performance. While our sales teams are still fielding leads for short term in the year. For the year bookings, much of their activity is now focused on planners booking 2025 and beyond. Our 2025 goal for convention room nights is 60,000.
We expect to open the year with 43 room nights, 43,000 room nights on the books and 17,000 to be booked in the year. We already have 20,000 on the books with 62,000 room nights in the funnel in future calls, I'll provide updates on our progress. Clearly, our occupancy and our resulting financial performance is not yet where we expect it to be.
The repeated shifting of our opening date, made it extremely challenging for our sales teams to book convention business into Q1 and Q2 of this year, understandably good planners historically risk-averse when it comes to new hotel product. That's why the reputational credibility I mentioned earlier is so critical right now at 785 keys. We have a short term excess room capacity challenge with the associated cost structures.
As with any new venture, particularly one of this scale, it will take time and significant effort to rectify. We've assembled an executive committee of highly skilled experienced leaders, some from Vegas, some from Florida and others from around the country. Most have been through the rigors of opening multiple properties. They know what to expect.
They know what to do and how to accomplish the results we anticipate going forward.

Scott Deangelo

With that, I'll turn it over to Scott DeAngelo face Micah, our leading brand and product continue to improve and are increasingly highly regarded among our customer base. Our Net Promoter Score rose to 55 in the first quarter.
That's four points higher than we reported last quarter, and our customers rated us materially higher than all other airlines in the nation. Our high margin third party product revenue increased nearly 30% during the first quarter compared to Q1 2023, with our always Rewards Visa card, leading the way as the program surpassed 500,000 cardholders in the quarter and earned nearly $35 million in total co-brand credit card compensation, up 24% versus Q1 2023.
It's also noteworthy that this program was included among Newsweek's 2020 forward listing of America's best loyalty programs for the value it delivers to consumers as voted on by consumers.
We also continued to see progress during the first quarter from our marketing support for Sunseeker Resort, primarily e-mail marketing to our 18 million customer database, but also including prominent merchandising on our website and mobile app and onboard through our in-flight magazine nonstop flight from dedicated seatback insureds.
We also enable functionality allegiant.com for customers to be able to book their stay without requiring a deposit bookings improved sequentially each month from an average of 140 room nights booked per day in December when the resort opens to an average of 265 room nights booked per day in March for heading into a typical off-peak season for Southwest Florida.
We expect to continue making progress on the sales and distribution front in order to be at full strength when customers begin booking in earnest for fall and winter.
Lastly, our transition from legacy homegrown booking and operating systems to modern open integration technology platforms will enable us greater speed and flexibility as we enhance our customer-facing website and mobile app to improve the booking experience and maximize customer driven revenue, specifically as our Navitaire implementation unlocks its full set of features and functionalities as both Maury and Greg referenced, Andrew will elaborate on.
We will in parallel be enhancing our web and app booking experience and merchandising capabilities to drive increased take rate for high margin air ancillary products and bundles, along with continued increased attachment for high margin, third party hotel rental car and credit cards.
Also the expansion of newer air ancillary products such as Allegion extra leg room, Boston trip insurance, along with future new product conditions such as gift card play subscriptions and more should collectively play key roles in driving profitable revenue growth on a per passenger basis.
And with that, I'll turn it over to our Chief Revenue Officer, Drew Wells from.

Drew Wells

Thank you, Scott, and thanks to everyone for joining us today. I'm pleased to report a first first quarter airline revenue of $632.5 million and travel of $0.1323. Both the second-highest first quarter figures in Allegion history.
System Anthem also increased 2% versus 1Q 23. I believe this continues to represent one of the best performances versus pre-pandemic at roughly 15% travel gains on over 20% ASM. gains versus the first quarter of 2019, along with a record first quarter fixed fee performance, leading the way once more with a total ancillary per passenger increase of roughly $0.5.
Our core products are strong and the addition of all eOn's travel insurance drove new opportunities in the booking path. Further, as Scott described, the always Rewards Visa card continued to drive excellent value. The ancillary portion was down slightly and we know that we're leaving value on the table here, as Greg mentioned, but more on that later.
1q travel represented 0.54% sequential increase versus four Q. 23, and in line with our revised guidance well, on a year-over-year basis, traffic was down 4.8%. As communicated during last quarter's call, our peak spring break flying at the end of March with unit revenue positive versus the same weeks in 2023. Obviously, 2024 gets the benefit of Easter in that comparison. However, it is still a great signal that the best leisure travel periods remain resilient.
Of course, there's the other side, Easter shifting the first two weeks of March were weaker than anticipated and early April felt the pain of the spring travel season ending earlier. While Easter shifts every year it landed in March just twice between 29 and 2019. Both of those time saw 1Q to 2Q sequential travel decline at least 5%. The expectations for 2Q 2024 exceed those comparisons, and we expect sequential travel to declined just 2.5% versus 1Q 24.
This represents a year-over-year decline of roughly 5.5% while I still expect the total ancillary per passenger to grow slightly year over year in the second quarter were accomplishing this with reduced functionality versus same time last year.
Our Navisphere cutover in late August 2023 was implemented with some known gaps and a path to not just bridging but improving our position included in those gas or roughly $2 per passenger and booking path ancillary functionality impacts to our ability to collect all revenues at the airport and a handful of factors driving additional call volume to our customer care team for issues previously, self durable in the bridges have proven significantly more challenging than initially thought.
The additional upside of at least another $2 per passenger we had communicated from the increased dynamic abilities have to take a backseat. I'd like to commend the entire organization for their efforts in developing testing, finding ways to go above and beyond and continuing to make this company great through the growing pains.
As we become more familiar with the platform and its capabilities, we feel it is time to take a step back and acknowledge there may be a better way to move forward. We have incredibly high conviction in the Navisphere platform. When done right and done right is what we need to do. It won't be an overnight fix, but we believe it's the right long-term decision. We'll have more details around timing and value beyond what I've described here in the coming quarters.
One of the ways we continue to offset the current integration headwind is with our extra product. As the fleet grows and we gather more data, we continue to work to align our product mix and experience with what customers value most the first quarter ended with 15 tails and the 180 seat extra Leo, and thanks to our maintenance strategy team and our Mesa hangar we expect as many as 11 additional aircraft to be modified by the end of May.
As we shift to the capacity front, our summer capacity did increase, as indicated on the last call, the month of June is expected to grow approximately 7%. And while it offsets the 11% April decline primarily associated with the Easter shift, we expect the quarter to have a SIM is approximately 1% below 2Q 23.
Despite the delays and Boeing aircraft, our planning and ops teams have found a way to preserve the selling schedule through July and August, allowing us to maintain a mid single digit percent ASM growth in each month and about 0.5 hour utilization per day per aircraft increase over last summer.
This was generally in line with 2018 summer utilization and a solid first step toward restoring our peak period utilization. It has taken about a year from the announcement of the pilot retention bonus to have comfort levels at the appropriate lead time to push on flying a bit harder. Candidly, we ended with enough pilots to fly a little more in March.
Unfortunately, that certainty occurred too close to march to react accordingly, but it does provide support for our summer plan of our reduced Boeing delivery expectations will impact our anticipated fourth quarter capacity and in turn our full year guidance, and we now expect 2% to 4% year over year ASM growth.
The demand environment continues to be elevated well above pre-pandemic levels peaks have shown resiliency and the gap between peak and off-peak leisure demand appear normal. We see a path forward with our system into implementation and other plans laid out today and are confident that we are building out the tools and processes to optimize flying revenue and most importantly, profitability.
And with that, I'd like to turn it over to Robert.

Robert Neal

Good afternoon. As you've heard from others today, our first quarter results are below our expectations. As Greg outlined, there are several contributing factors for this underperformance. We are encouraged, however, that for each of the factors Greg identified, we have a clear and actionable plan to restore our earnings potential in the coming quarters. I'll speak today to our financial results and guidance on an adjusted basis.
Looking at the first quarter, we delivered a consolidated net income of $10.4 million, yielding an earnings per share of $0.57. Consolidated EBITDA came in at $92.3 million, generating an EBITDA margin of just over 14%. Airline business recorded a net income of $19.8 million, yielding an airline only EPS of $1.8. The airline produced 97 million in EBITDA during the quarter for an EBITDA margin of 15.3%.
Fuel continued to pressure results coming in at $3 and $0.03 per gallon for the quarter, which was $0.18 above our initial expectations. But we have seen some slight relief as of late, and we are estimating second quarter fuel costs to be approximately $2.90 per gallon. Non-fuel unit costs were up 14% year over year.
Six points of this increase was related to the accrual for our pilot retention bonus as we were not accruing during the first quarter of 2023, three points were driven by pilot training and lots of pilot productivity awaiting delivery of the seven three seven MAX aircraft, roughly a 0.5 was attributable to the maintenance CVA that was passed last May one point came from the timing of light engine maintenance and the remainder was from a handful of various other items.
Turning to the balance sheet, our total liquidity at the end of the quarter was $1.1 billion comprised of $854 million in cash and investments and $275 million in undrawn revolver. We made principal payments of $31.5 million during the first quarter and expect about the same during the second quarter.
Net leverage was higher at the end of the quarter with net debt to trailing 12-month EBITDA at $3.4 times, which included $75 million in pilot retention bonus costs. At the end of the quarter, we had prearranged financing commitments for $435 million to cover our first nine seven three seven MAX deliveries, which in aggregate provide the business with approximately $100 million in liquidity from efficient financing vehicles that those aircraft deliver. This will give us valuable flexibility with respect to aircraft financing heading into 2025 while retaining ownership of those assets.
I want to thank our committed financing partners and our PDP. lenders who have been particularly supportive and flexible for us in the face of the aircraft delivery delays, we retired two A3 20 aircraft during the quarter and placed one A. through 20 into service. We took delivery of one A3 20 aircraft during the quarter. This delivery represents our last A3 20 under contract, and we expect that airplane to Interserve revenue service for our summer peak. As Greg mentioned, we're working with Boeing to devise an orderly delivery schedule, which may moderate our capacity growth in the short to mid term, but should mitigate risks to the operation risks to our selling schedule and cost drag resulting from the disconnected timing of crew and aircraft availability.
At the time of our last earnings call, we anticipated our first seven 37 MAX aircraft delivery to be in March. That aircraft. The first in a leading spec is awaiting FAA inspection, which will need to be completed before deliveries to lead. It can begin, we now expect this aircraft to enter revenue service during the third quarter. We are updating our delivery expectations and planning the business for delivery of six aircraft this year rather than 12 previously communicated.
This estimate is not based on guidance from Boeing, but rather represents our best estimate based on information available to us today. While we remain excited about and committed to the MAX entering our fleet this year, we're very happy to own 86% of our operating fleet providing meaningful flexibility to help manage these delays given the reduction in expected deliveries, we have updated our full year airline CapEx to $475 million, down roughly $315 million from the prior guide.
As indicated last quarter, these expectations differ from our contractual obligations. Updated CapEx guidance consists of $240 million in aircraft and engine related payments, $85 million related to heavy maintenance and $165 million related to other airline CapEx because we're planning for six fewer aircraft to deliver in 2024. We have trimmed our full year capacity guide by one point and now expected capacity to be up 3% over the prior year.
On a quarterly cadence, we are estimating second quarter capacity to remain unchanged at down 1% year over year. Third, capacity to be up about 4% year over year and fourth quarter capacity and be up about 7% over the fourth quarter of 2023 due to further reductions in capacity this year and uncertainty around our 2025 aircraft delivery schedule. We are now reviewing our airline infrastructure and expect to make adjustments over the coming months to align with a more moderate growth trajectory.
Turning to second quarter guidance, we expect to airlines reduce and adjusted earnings per share of $1.50 at the midpoint of our guide, yielding an airline operating margin of around 8%. We expect second quarter CASMex to increase by approximately 7% over the second quarter of 2023.
While this assumes a slight year-over-year reduction in capacity in the quarter, the increase is due primarily to increases in the salary and benefits line, including one additional month of the pilot retention bonus accrual as well as incorporating increased wage rates for our flight attendants, technicians and dispatchers as a result of new agreements or amendments. It's worth noting that these labor agreements are part of our path back to incremental utilization and better productivity in the business.
I want to congratulate our flight attendants on their recently ratified agreement. As we progress throughout the back half of the year, we expect CASMex to moderate into the third quarter with a slight year-over-year reduction expected in the fourth quarter based on worries commentary regarding Sunseeker and much of the second quarter being off peak for the property, we are guiding consolidated earnings per share to $0.75 for the second quarter.
Before I close, I want to thank our team members for all their efforts this quarter. Despite this financial outcome, the operation again ran safely and smoothly, thanks to your hard work, and that's foundational for us as we now focus on increasing utilization and peak leisure demand periods as we head into our peak summer schedule.
Thank you for all you do. And with that said, DI, we can now turn it back to you for analyst questions. Thank you.

Question and Answer Session

Operator

(Operator Instructions) Helane Becker, TD Cowen.

Helane Becker

Thanks very much, operator.
Hi, everybody. Thanks for the time here. And just a couple of questions on on guidance on as we're looking forward, the maintenance costs, is that is that just a one quarter item or is that a full year item that we should expect at that level hail.

Robert Neal

And as BJ said, yes, it's a little bit of both there. Some noise in the comp in the first quarter of 2023. So we are running some light on check and repair level. Maintenance visits on our engines now persist throughout the year, but it's offset by a nice reduction in contract labor expense. So on an ASM basis, we expect maintenance costs to be down on unitized throughout the year.

Helane Becker

Okay. That's very helpful. And then I actually follow up question for you. Is there a level on cash or I don't know if you want to measure in liquidity that you are not willing to go below, as you pointed out at.

Robert Neal

Sure, you know, we normally talk on these calls about some liquidity levels being maintained at two times ATL. Now for our purposes, we would credit that data some of the available balance under our undrawn revolver facilities. So all in, we're a little bit above that today. I'd still like to maintain cash balances of around two times ATL until we have some clarity on the Boeing delivery schedules. But as we have financing lined up further and further out, we would be comfortable at two times a deal, including revolver balances.

Operator

Ravi Shanker, Morgan Stanley.

Ravi Shanker

Great. Thanks. Good afternoon and thanks for all the detail on the call. Maybe the first question is you said that you are taking steps to kind of improve the financials, and the first step was to improve your peak flying.

Robert Neal

One of your peers are also going to have increased their flying once they resolve their staffing issues, but they ended up with too much capacity and they are now pulling back.

Ravi Shanker

Do you have the visibility that kind of your increasing peak flying is kind of not going up that outcome and will actually be accretive to earnings if this is Drew, if I'm reading between the lines properly and thinking of the right other airline, I believe they commented that there was outsized growth in April and May that they wish they hadn't had pulled back a little bit given current fare levels.
And what we're talking about is summer flying, it's market, it's the holidays and where I still believe that there is immense incremental value for us to drive by flying more there, but not quite as much and April May timeframe. So forgive me if I'm thinking of the wrong quote, but that's that's my position in Ravi, this is Craig.

Gregory Anderson

I just wanted to add a comment to that. And 80% of our earnings come in those peak periods, March, March, the summers in the holidays and Drew is still and his team are still seeing terrific demand, leisure demand in those periods as well. I don't know if you caught in his comments, but we've already taken a nice step up this summer with a half hour more of utilization per aircraft. So we're going to continue to take those steps up until we get into 2025 where we want to restore that 20% delta that work that we're under today and in terms of aircraft utilization in the peak periods.

Ravi Shanker

Got it. That's really helpful. And maybe as a follow up, I know that a lot of the industry is kind of pushing towards premiumizing their product. And some of your ULCC peers are also introducing new front of cabin product and kind of pushing the potential kind of premium offering. Wondering your thoughts on that kind of. Obviously, you have a good bundle product now at Sunseeker. And if anything you can do kind of on the aircraft itself to kind of push towards a premium player or anything else?

Drew Wells

Yes. So no, we're not that far removed from talking about bringing the extra products from across all of our fleet. And we sought and received our first MAX aircraft, which would have materially increased the number of either extra or leg room plus on seats on the aircraft.
We're constantly looking and evaluating other options that, you know, I don't think we're at a position today against and we haven't received the MAX aircraft to say we need to be pushing harder but a lot of I think, confirmation bias and will be what we've seen right and putting aircraft on the most valuable routes.
So given time, we'll continue to review everything and maybe it makes sense. Maybe it doesn't, but that's probably a little bit further down the road for us.

Maurice Gallagher

But I think it goes more to one other thing when you have 77% of your routes are without competition. A lot of what you're seeing is the one element ship and competitiveness and ability to price with some majors really rolled in so they can roll people up in their purse or in their purchasing of having that ability to fly.
You know, our customer well, our we've got a great brand and we do a good job. I don't know that they're that price sensitive in a two hour flight. It's hard to see that you're really adding a lot of value first class, but that's very much being driven by the majors and the others are following trying to keep up.

Operator

Andrew Didora, Bank of America.

Andrew Didora

Hey, thanks for the questions, everyone. Maybe first question for Greg or P.J. Just given the CapEx changes in 2024 and down $315 million. What would be kind of your first look in terms of how 2025 and maybe 2026 look like? I would assume that 300 just moves into those years on any initial thoughts?

Robert Neal

Hey, Andrew, is BJ. I apologize. I'm trying to get back to that page. But what I will say is there's still a lot of uncertainty around 2025. And I mentioned at the moment, we're taking a close look at different areas of the business and where we need to adjust to be prepared for a little bit slower growth profile.
So I think we'll have a lot more for you next quarter that maybe we can share on 2025. We were originally contracted to take 24 airplanes next year, just given what we've learned from the risk of relying on two aircraft a month, and I would expect we adjust that down somewhat. So as that does shift into 2025 and into 2025 CapEx, and we expect to ship to 2026.

Andrew Didora

Got it. Okay. Thank you. And then second question just for maybe first for Maury. I mean, I guess just in terms of Sunseeker and what changed so rapidly on the years that brought kind of RevPAR assumptions down about 30%? And does the year one EBITDA losses, but do you think any differently about owning or running the asset and potentially picking up thinking about a potential divestiture here?
Thank you.

Maurice Gallagher

What unfortunately, we didn't have a lot of front end time to market and sell. And I think we're also a bit of victims of the curve that's coming down and normalizing that, you know, and we've been started in 21, EUR22. We were looking I know I personally looked at rates of 2009. There are a lot of equivalent of properties down there, but that's just up putting all effort that we've got to go after on.
I can Michael can probably add more color than I can at this point.
As far as looking at other alternatives? Yes, we're going to look at those types of alternatives. I think that this year that I look at this as I call it a project. We're going to learn a lot this year and we'll be able to react and do things accordingly for filling it in next year. It's definitely going to improve as we go forward. But bottom line, as I said, we have a really quality product, so we'll fill it up. It's just a question of how fast, Michael, any thoughts.

Michael Broderick

Yes, in terms of why why the adjustment? Because a couple of things. One, we now have four months of data and that helps us at least I think, better about what's going to happen in the next coming months. When we're talking about this in Q1, we had almost we had zero. So that helps us a little bit. Scott talked about the bookings trends and the way they were ramping up, like we wanted them to into March and they slowed down a little bit.
So part of the booking trend analysis that we were watching and its decline has led to led to us thinking about Q2 and Q3 a little differently than we were thinking about it in February and March. There's anecdotal softness in Florida, some of you're starting to see people talking about that. That's a part of it. We're still learning every day about how the locals behave and how how they'll handle food and beverage demand between seasons in and out of season.
And I think the last thing that I would tell you is that we didn't really know for sure when we first talked about what our what of our group prospects would materialize and which ones wouldn't we kind of hoped. We play a little more lucky than we have. And I think those are probably some of the things that led to the changes in the short term.

Operator

Duane Pfennigwerth, Evercore ISI.

Duane Pfennigwerth

Hey, thank you, guys. Good morning. Tom. I wanted to maybe ask the CapEx question a different way. Obviously, you're disappointed in the delays, the delays, drive your hiring plan and your ops plan or at least the fleet plan does look from the outside looking in the higher any feels like it's actually a good thing for 2024 and so the question is, do you see an opportunity to smooth out? Are the capital commitments beyond just this year? And how do you think about the guardrails from a balance sheet perspective that shape your longer term capital plans?

Robert Neal

Sure, Duane. Yes, I mean, I guess there is there is an ability to smooth it out. I think we'll have to wait to see No, just how many airplanes on Boeing is going to produce in a month and how many of those are delivered to Allegiant.
We do need to be careful of what I think is an outsized risk for leading compared to some of the other carriers with respect to the deliveries in that what Greg mentioned is we're getting ready for the airplanes and taking pilots off of the A3 20 and having them standing by ready for seven, three, seven or so sitting here relying on two aircraft a month, just just doesn't feel like a good recipe at at the moment.
And then that said, that's also creating some pressure on earnings as we talked about today, which would would limit on what we can do from a leverage perspective. So all things that we're mindful of, but I don't know that I have a clean answer for you as we think about 25, 26 yet.

Gregory Anderson

Duane, it's Greg. I might just add, and BJ mentioned this in his opening comments that he and the team they're actively working with Boeing on setting up an orderly delivery schedule that we can all electric execute to. And so that flexibility is important and that plan is going to be important. And together, we believe we'll get to the right outcome Yes, whatever fund come and play.

Maurice Gallagher

And if we slow down a little bit, it won't be the end of the world to on certain credit part of that process. We're going to retire some more airplanes when we took those those that new equipment. But Bill, just given the way the world's developing just taking our time a little bit longer, it's not a bad thing for where we see ourselves.
And I think you also get some benefits maybe in interest rates that the you take them all very quickly. We'll have the interest rate benefits that might come on a year to later on. But we are going and we have to come to an agreement and there certainly are continuing to hire carefully how they can't get off the front page. It's just astonishing so on.

Duane Pfennigwerth

Yes. Okay. Appreciate those thoughts. And maybe you gave part of the answer with the Navitaire commentary, but can you speak to the level of integration of air and hotel packages within your booking engine. When do you think you'll have the ability to fully market Sunseeker to your airline customers?

Scott Deangelo

Hi, Duane, this is Scott. Thanks for the question. On the answer is we've gotten there on technically now as of a couple of weeks ago, we removed one of the biggest barriers which you may recall was from requiring customers to pay for the entire air plus hotel purchase at once. Now, when do you book Sunseeker, you actually are required to leave?
No deposit as you book your air and hotel together, we will begin to market that now that we've got a couple of weeks knowing that everything works on from a customer experience standpoint and customer servicing standpoint, market that in earnest come very soon. And I will tell you just one other tidbit of the different channels, the the Allegiant.com, if you will customer who books air and hotel is by far the highest value.
Their length of stay is longer and they're paying more on an average daily rate. So continuing to fuel that fire on our air plus hotel for Sunseeker is going to be critical, and we're already at now the the technical ability to do that.

Duane Pfennigwerth

Enormous. Thanks. And if I could sneak one last one in just on the Sunseeker OpEx run rate. Is this first quarter level a good level? Do we go up from there sequentially? Or is there a way to kind of flex it down in these off-peak periods. Thanks.
Thanks for taking the questions. Micah Say that again, Duane, I had a hard time hearing if you just just we now have a quarter a full quarter of Sunseeker OpEx. And so is this the right level to model off of going forward? Or can you flex that up or down depending upon seasonality?

Michael Broderick

No, absolutely. You can flex it up and down based on the seasonality. So you should see us become more efficient in Q2 and Q3 and then flex back up a little bit into Q4 as demand returns.

Operator

Scott Group, Wolfe Research.

Scott Group

Good afternoon. So I think you talked about 7% increase in airline CASMex in Q2. Two. Is that I just want to make sure it's not apples to apples with the up 14.5% in Q. one? And then any thoughts on back half of the year cash?

Robert Neal

Hey, Scott. Yes, it's apples to apples with the first quarter. I will mention in the second quarter, you have still one month of the on pilot payroll accrual. I think I mentioned in the script and then incorporating some of the new labor agreements. But yes, otherwise apples-to-apples.

Gregory Anderson

Scott, it's Greg. I'm just as you think about maybe even longer term and the power of increasing utilization, I think something like an hour increase of aircraft utilization per year results in a reduction of CASMex about 0.5%. So that could be a nice tailwind. And then as we work through some of the kind of inefficiencies with the overhead getting ready to take on the new MAX aircraft. I believe as that starts to work itself through, it's another like eight of a cent per CASMex that you said we could see there, too.

Robert Neal

And then just Scott, as I mentioned in the prepared remarks, we expect CASMex on a year-over-year comp basis to to moderate into the third quarter and up so slightly below the fourth quarter comp, you're saying Q4 CASMex should be down something year-over-year, right. Slightly recovered from any of them.

Maurice Gallagher

I know you said Rezum down about 2.5% sequentially, Q1 to Q2. Just absolute terms. I know it's early, but any early thoughts about how you're thinking about back half of your resin?

Scott Group

Not particularly?

Maurice Gallagher

Yes.

Drew Wells

There's still, obviously a long ways to go in for July has at least 75% left to book. So everything still early. And I think the general theme still hold that we believe there's resiliency in the peak period. I'd expect continued normalization between the peak and the off-peak. But other than that, I don't have and I have a lot more to ask the back half of the year.

Scott Group

And then just last one, I know you got asked a question earlier about them sort of liquidity targets and all that sort of stuff to the extent that you wanted them and how do you balance liquidity needs versus where you're willing to take?
The leverage is no give or take four times. Is that as high as you're willing to take the balance sheet leverage, would you take it higher or is if any incremental capital raises that more likely to view it with equity than debt Sure.

Robert Neal

Yes, no, no plans for any equity related capital raise at this time. You know, I realize what that could mean for leverage if we're trying to maintain liquidity at two times a deal. But as we've locked in financing for some of this future, CapEx, we're okay with liquidity coming down a little bit, as I mentioned in response to the last question. And so we're really part of your question. I missed something like that.

Scott Group

I guess you're saying you're okay, either with Phil liquidity coming down a little bit or the leverage metrics going up a little bit?

Robert Neal

Yes. And we had expected leverage to be elevated throughout this year. I think we may have mentioned on the last call that certainly, you know, in one-on-ones and whatnot throughout the year. We would this is an investment period, a lot of CapEx for airplanes that we would have expected leverage to be pressured a little bit as we move through 2024.

Operator

Mike Linenberg, Deutsche Bank.

Mike Linenberg

Please go ahead your Haithum. Good morning, everyone. With respect to the distribution of Sunseeker, I know that you know you're going through third party channels, which I know historically was not the model for for Allegiant. Can you tell us, you know, as of now maybe what you're booking to Allegiant.com versus third party channels? And I'm just curious out of the $18 million people in your customer database, what's the uptake of them? Would you say that the majority of people at Sunseeker today are out of that $18 million database? Are these just entirely new clients, new customers?

Scott Deangelo

Hey, Mike, it's Scott. I'll start and let lead might come chime in. So right now, the majority I'd put it at like 80% to 85%. And Michael, you'd correct me are coming directly either to Sunseeker Resorts.com or via allegiant.com. So that's that's great news that we're seeing the majority of bookings come without requiring of both the added cost and the disintermediation that comes via OTA.
Um, in terms of the majority of folks that are staying back in January, call it, you've seen it go from about late three-quarters to one-quarter in favor of Allegiant customers to now close to 50 50 home while the overall pie grows. So it's a good story that yes, we're driving a lot directly and do the email, but that proportion, as the pie has grown has become smaller, meaning that more other people are coming into the Allegiant Travel Company family, if you will, from many from places that Allegiant doesn't currently serve or serve in earnest like Atlanta or New York City, et cetera.
Mike, I'd invite you for any additional commentary?

Michael Broderick

Yes. The only thing that I'd add to that, Scott, is, as you mentioned in Q1, we were just in the very early stages of ramping up of peak productivity so for example, when you looked at January and the way we put us in less than 15 rooms by February, we're booking 3 to 300 to three 50. And by March now upwards of 1800 to 2000, and we think that will continue to grow.
One of the things that we think you know, I think Scott mentioned it, which is obviously best for us to produce as much as we can through G4 direct as part of packages. They have long lengths of stay. They have really good rates. And then obviously, anything we can book directly through our own website and or through group business is our priority. But third party will always be a good partner to it for us.
And it's important for us to continue to grow that. And so you'll see our sales and marketing teams, particularly over the next several months and working to not only establish, but then make them make our partnerships that we have already established now more effective work in marketing programs with them and see better production out of the OTA partners. But I think Scott nailed it the right way. We have a priority of how we'd like that to happen, but they are a key component for us.

Mike Linenberg

Mike, was that 1800 to 20 March that is that's a monthly booking rate, is that?

Michael Broderick

No, that's and that's an actualized in the month. So, you know, I think on a go forward basis, yes, on a go forward basis, you'd expect that to be somewhere in the 2 to 3,000 a month or so.

Mike Linenberg

Okay, great. And then just my second question with respect to on this call, to said, DOT on, I guess, consumer protection plan or benefits as a young characterized. And from what we hear you have this refund element that kicks in, I think, in the next month or so, maybe it's like at the end of June.
And the transparency piece and carriers have come back incentives that it disproportionately impacts low-fare carriers. It's ultimately going to raise the cost to the consumer, which is actually I do think that it is going to it is going to add cost. So it's going to make it harder to offer lower fares, but what what are the gating issues?
It seems like some of the refund elements are already being done today. It does seem like we've gotten feedback on the technology piece that the industry may not be ready in six weeks can meet the various elements of what the DOT is requiring your thoughts on that. Thanks for taking my questions.

Drew Wells

Sure. I'll start it and we'll probably keep it pretty high levels is all pretty fresh. Right. And where we're trying to work through with some.
Yes, I think we do comply, particularly to the refund length. I think we comply with quite a bit of it already. I'm proud of how we've how we've addressed a lot of that around cancels, in particular, I think there's a little work we need to do around the delay side.
But in terms of the gating or how ready will be in 60, I think we still need to kind of do some work on that, but I don't think it's quite as big of a lift given what we've already done to date and not a lot of commentary on the transparency part of ancillary fees, but you still need to do a lot of work to understand what that's going to look like and the booking funnel. So I'm sorry to keep it maybe a bit vague for today, but we're still working through just like everyone else.

Gregory Anderson

Can I just add one thing? Drew, Mike, this is Greg. Just on the refund point?
Yes, region, we've talked about this over the years, but when we have cancellations with our customers, we issue them actual, let's call the pain over time up to $300. And so we compensate our customers when we have cancellations. We've been doing that. I think we're one of the unique carrier or carriers in the U.S. to do that. And so when we talk about higher offsets a big chunk of the eye drops. So just wanted to point that out that we've already and for years of tried to take care of our customers in those difficult type of situations when they had a cancellation.
Very good. Thanks, everyone.

Operator

Dan McKenzie, Seaport Global.

Dan McKenzie

Well, hey, thanks. I know you're not guiding to the full year, obviously, but the Street's pretty divided you could drive a Mac truck through estimates. I think you had a low of $2.55 to over $7. And I guess just based on what you're seeing for the summer, can we start to eliminate either the high end or the low end here? And I guess part of that, does the current plan contemplate profitability in each of the quarters?

Robert Neal

It's Dan. It's P.J. I'm going to shy away from giving guidance in the third and fourth quarter of theirs. A lot of moving parts, as we talked about today, one of which is execution of the CBA with our pilots which will have an impact on full year results, as will the timing of Boeing deliveries and when those airplanes can be placed into service and one that would be more immediate is just around some of the of the improvements in Navitaire that Drew, since speaking to side, you can see just a lot moving. And so apologies for going to dodge the question.

Dan McKenzie

Yes, understood. Okay. I guess second question here. Leg room plus seems it's now part of the booking process. I can see it there, but it doesn't look like you're really monetizing it yet. I just want if you could remind us when did that start exactly and where are you at with this program? And then I guess what is the kind of target benefit that this could potentially provide?

Drew Wells

Yes. So we started testing the Allegiant Xtra layout as for the 2019, I believe. And then, of course, ran right into the pandemic and kind of got derailed a little bit through there. We announced probably what, 18, 24 months ago, we were going to bring this to the full fleet. In addition to putting it on all MAX aircraft with about double the number of seats, a little bit less than double the amount of premium seats.
So there's a little distinction between Allegion extra, which is kind of an all-inclusive by legal standards product that has the extra leg room comes with the priority boarding, the dedicated overhead bin space. I now have free snack onboard, which complements very well for our cardholders who will get a free drink and really maybe not to the full extent that rival kind of a delta Comfort plus type of experience, which I think is a remarkable remarkable perk there.
So in terms of monetizing right, it's on only a few of what a portion of our fleet 15 aircraft out with 11 more primed for the summer. So I think there's a lot left to go here in terms of experimentation with pricing and product mix. But so far, we've been responding to what our customers say is valuable to them and lead us to where we are today. So still in the infancy, I think of where this will go, but absolutely thrilled with what we've been able to do with the product and monetization thus far.

Operator

And since this concludes our Q&A session, I will now turn the conference back over to Maury Gallagher for closing.

Maurice Gallagher

Thank you all very much. Appreciate your input, and we'll talk to you in 90 days. Have a good day.

Operator

Ladies and gentlemen, that concludes today's call. Thank you all for joining, and you may now disconnect.