Allegiant Travel (NASDAQ:ALGT) held its first-quarter earnings conference call on Thursday. Below is the complete transcript from the call.
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Access the full call at https://events.q4inc.com/attendee/466554751
Summary
Allegiant Travel reported a 14.9% adjusted operating margin for Q1 2026, up nearly 6 points year over year, and achieved its highest first-quarter adjusted operating margin since pre-COVID.
The company emphasized its operational strategy of flexible capacity, focusing on peak demand periods, and noted a 99.9% controllable completion factor.
Total revenue for Q1 was $732.4 million, up 9.6%, with a 16.4% increase in TRASM, and the co-branded credit card revenue grew by 9%.
Allegiant Travel is planning a 6.5% year-over-year reduction in ASMs for Q2 due to higher jet fuel costs, while maintaining strong demand in peak periods.
The company is on track to close its acquisition of Sun Country in the coming weeks, which is expected to provide synergy benefits and enhance operational flexibility.
Management highlighted the strength of Allegiant Extra and the co-branded credit card as significant contributors to revenue and customer loyalty.
While facing increased fuel costs, the company maintains a strong liquidity position with $1.2 billion and plans to refinance senior secured notes.
Management expressed confidence in achieving $140 million in expected synergies from the Sun Country acquisition and emphasized the value of the combined companies.
Full Transcript
Colby (Conference Operator)
Ladies and gentlemen, thank you for standing by. My name is Colby and I'll be your conference operator today. At this time I would like to welcome you to the Allegiant Travel Company first quarter 2026 earnings call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, we will conduct a question and answer session. We please ask that you limit yourself to one question and one follow up if needed. Thank you. If you would like to ask a question at that time, please press Star then the number one on your telephone keypad to raise your hand and enter the queue. If you would like to withdraw your question at any time, please press Star one again. I will now turn the call over to Sherry Wilson. You may begin.
Sherry Wilson
Thank you and welcome to the Allegiant Travel Company's first quarter 2026 earnings call. We will begin today's call with Greg Anderson, CEO providing a high level overview of the quarter along with update on our business. Drew Wells, Chief Commercial Officer will walk through demand commentary and revenue performance. And finally, Robert Neal, President and Chief Financial Officer will speak to our financial results and outlook. Following commentary, we will open it up to questions. We ask that you please limit yourself to one question and one follow up if needed. 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. 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 siteat ir.allegiantair.com and with that I'll turn it to Greg.
Greg Anderson (CEO)
Thank you Sherry and thanks to everyone for joining us this afternoon. For today's call, I'll start with a brief overview of our first quarter performance and then update you on our commercial initiatives, outline how we're navigating the current environment and close with a few remarks on the status of our acquisition of Sun Country. We started the year on a very strong note. Our first quarter results reflect the momentum we built through last year, delivering a 14.9% adjusted operating margin, up nearly 6 points year over year and slightly above our guided range. Importantly, we achieved our highest first quarter adjusted operating margin since pre Covid and we believe our margin will prove to be industry leading for the second quarter in a row. That performance reflects our deliberate operating strategy. We prioritize flexible capacity to capitalize on peak demand periods rather than chasing maximum utilization over the entire year. Notably, we achieved those results serving the leisure traveler without large international networks or premium cabins. That highlights the strength of our model and execution. Our focus remains on running a highly reliable, efficient airline because when we operate well, the financial results follow. To that point our operational performance was outstanding with a 99.9% controllable completion factor even with a higher mix of peak day flying. Demand was particularly strong in peak periods helping to drive a 16.4% increase in TRASM. ASMs were down 5.9% from the previous year and heavily influenced our CASM ex which was up 7.1% compared to last year. However, excluding fuel, our adjusted operating expenses were down nearly 6% year over year. Our cost structure remains one of the best in the industry. We ended the quarter with total liquidity of 1.2 billion. We have a very strong financial position and that will even be stronger as we join forces with sun country turning to our commercial initiatives. After several years of investing in our technology, we're now positioned to leverage our platform to accelerate our commercial strategy. Our co branded credit card currently has over 600,000 cardholders. Today. Card remuneration represents just over 5% of our annual revenue and is a significant contributor to our profits. In the first quarter, compensation from the bank increased by 9% compared to the same period last year, reflecting ongoing significant opportunities to encourage greater customer adoption. Our premium seating product Allegiant Extra is continuing to outpace expectations by contributing to our TRASM growth and and driving higher loyalty. With an increasing number of Allegiant Extra purchasers being repeat customers, we expect continued strong performance. Let me now shift to how we are managing through the current environment. We have always focused on what we can control and manage through what we can't. We strive to optimize our network for profitability and flex our schedules to match capacity with demand throughout each year. Making adjustments is simply part of our DNA. Overall leisure demand is still strong as shown by our robust cash sales. We had many record sales days in the quarter and continue our double digit growth over prior year. The main pressure point is jet fuel costs which have risen sharply and crack spreads nearly tripled to about $1.70 per gallon in early April but have since dropped to $1.20, still about twice as much as the pre conflict level of roughly 60 cents. We are looking forward to taking deliveries on our max order book, particularly as that aircraft offers more than a 20% improvement in fuel burn efficiency. While we continue to see healthy fare strength overall, we are navigating the volatility by reducing off peak capacity where margin pressure is most acute. We have also reduced service on some of our longer stage length routes where the hurdle on fuel cost is higher. All told, we are now planning for a 6.5% year over year reduction in ASMs in the second quarter, down from our initial plan at the start of the year, and we are not seeing any reasons to pull back on our peak flying. Given the strong demand and higher mix of peak flying, we expect TRASM will be up sequentially in the second quarter. We continue to closely monitor the evolving geopolitical environment and will adjust our operations as conditions warrant. While we have already taken some modest schedule actions, our flexible model and agility still give us ample time to refine these decisions as the year unfolds. The sharp rise in fuel prices will weigh on near term industry profits. We are not immune. This is reflected in our second quarter guidance. That said, a silver lining is that the gap between efficient, well run airlines and weaker operators is widening. Allegiant and sun country are on the right side of that gap. I'm very pleased with the progress we've made toward closing on our sun country deal which is now expected in the coming weeks in just over four months. From the announcement, this super compressed timeline underscores the strong execution and the agility of both organizations. Our integration planning has reinforced our confidence in what this combination can deliver. Meanwhile, the value of Sun Country's charter and cargo businesses are which carry contractual fuel pass through structures is even more beneficial in today's volatile fuel environment. Both airlines own their aircraft and our fleet strategies complement each other. In a market where managing capacity is crucial, owners have greater flexibility than those who lease. We look forward to completing the merger and demonstrating the value of the combined companies in the coming quarters. In closing, Allegiant continues to separate itself from the package we have the model, the balance sheet, the people and the strategic transaction to extend our leadership position within the value segment. We take great pride in being the leisure carrier of choice in the communities we serve and delivering convenience and reliability that our customers know that they can count on that performance is all because of the tireless efforts of Team Allegiant, whose dedication and passion shows up every single day and I'm deeply appreciative of all of you and honored to work by your side. With that. Let me turn it over to Drew to walk through our commercial performance.
Drew Wells (Chief Commercial Officer)
Thank you Greg and thanks everyone for joining us this afternoon. We finished the first quarter with $732.4 million in total revenue, up 9.6% versus the prior year, total revenue on 5.9% less capacity, producing a first quarter TRASM of 14.31 cents, up 16.4% year over year. Both total revenue and TRASM represent first quarter records for the company and in fact the strongest quarterly performance in our history, with revenue approximately 7% higher than any previous quarter. Our fixed fee results contributed meaningfully to the first quarter. Revenue came in at $18.1 million up 11.5% versus the prior year, an incredible performance. The demand environment was exceptional through the first quarter. Load factors increased 4 points and yields were up 21% a year over year, results rivaled only by the revenge travel surge of early 2023. This strength is also supported by a unit revenue favorable scheduled deployment, highlighting the benefits of our flexible capacity approach. It is worth reminding that despite the overall ASM reduction in the first quarter, peak day of week capacity grew very slightly versus first quarter25. A huge shout out and thank you to so many, including our frontline team members for continuing to deliver while we push further on our best days of flying. While the demand environment certainly facilitated some of the load factor growth, our continued adoption and usage of Navitaire tools are coming together to drive meaningful performance lift. As Greg touched on co brand performance was a standout in the quarter, helping push average third party revenue per passenger up 20% year over year. Card acquisition trends remain strong continuing on last quarter's remarks, with seven of the last eight months being double digit higher on a year over year basis. In addition to the healthy growth in new accounts, spend on the card remains robust, with Both metrics exceeding 15% year over year in each month of the quarter. Our plan for the second quarter had a similar feeling, with overall capacity down by the expectation of peak day ASMs growing slightly. In fact, given the demand environment year to date, we were on the verge of targeted capacity increases right as fuel spikes higher, turning a feeling of potentially missed opportunity to one of feeling nearly appropriately scheduled for the environment. We now expect second quarter capacity to be slightly lower than implied on the last call and down approximately 6.5% year over year. Perhaps Most importantly, cash sales are running up double digits through April, despite the reduction in capacity and booking trends remain healthy. While I'll refrain from providing a specific TRASM guide, we do expect second quarter year over year unit revenue growth to exceed the 16.4% delivered in the first quarter. Despite the macro uncertainty, our customer base continues to show strong intent to travel through all economic environments. Leisure customers have shown the desire to continue to travel and we're seeing that play out in our booking trends. That said, we remain disciplined. We'll continue to leverage the flexibility inherent in our model to align capacity with demand, particularly during off peak periods as we work through the current fuel environment. We've already refined second quarter capacity as noted and expect further adjustments as we move into the third quarter. While we had previously anticipated modest growth in 3Q, we now expect capacity to be flat to perhaps slightly down year over year and will solidify that plan further in the coming weeks. As has been our approach, the reductions are primarily focused on off peak day of week and shoulder season flying and as is possible in such a fluid environment, we maintain flexibility to add capacity back should the overall environment warrant. Remains early to provide specific commentary on the fourth quarter, though I remain incredibly bullish about holiday performance given extreme resiliency over the past several years, I wanted to take just a moment to mention our national partner, Make a Wish. April is World Wish Month and we've been a Proud partner since 2012. It's an incredibly worthy cause, which is why we have throughout our partnership donated over $32 million to the organization through in kind flights and sponsorships. Most importantly, we have flown more than 2,000 Wish Kids and their families to their wish destinations, making a transformative difference in their lives. Stepping Back what we're seeing today reinforces the strength of our model. Demand remains resilient even against a higher fuel backdrop, and our ability to dynamically align capacity with demand continues to be a key differentiator while still ramping into the commercial platforms Greg mentioned. We're seeing the burgeoning combination of foundational technology, investment and product performance align in a really powerful way. The team is truly making a strong impact on the allegiant results. We're operating with discipline, prioritizing peak flying, honing off peak exposure, and maintaining the flexibility to adjust as conditions evolve. The unit revenue results speak for themselves and we believe we're well positioned heading into the summer and beyond. And with that, I'd like to hand it over to Vijay.
Vijay
Thank you Drew and good afternoon everyone. I'll walk through our first quarter financial results and then provide an update on our cost, performance, balance sheet and outlook. As with prior calls, my comments today will reference results on an adjusted basis excluding special items and year over year comparisons. Will reference prior year airline only results unless otherwise noted. So let me start by echoing the comments you've already heard regarding operational performance. Despite several Winter Storm systems that added complexity throughout the quarter, our team delivered reliably and efficiently without missing a beat. It's their level of execution that continues to underpin our financial performance. For the first quarter we generated net income of $69.6 million, resulting in earnings per share of $3.77, coming in just above our mid March updated guidance and up nearly 80% versus airline only results in the prior year quarter as demand for leisure travel remains strong throughout the period. We delivered an adjusted operating margin of 14.9% and generated 168 million in EBITDA, resulting in an EBITDA margin of 22.9%. This performance reflects the progress we've made over the past several years executing against our margin expansion initiatives, and it's a direct result of the hard work and dedication our team members bring day in and day out. Turning to costs first quarter non fuel unit costs were 8.64 cents, up 7.1% year over year, primarily driven by a 5.9% reduction in capacity and slightly above our initial expectations. Fuel averaged $3.04 per gallon in the quarter compared to our initial guide of $2.60, highlighting the increased energy prices and widening crack spreads that we saw late in the quarter. This dynamic is consistent with what we've seen more broadly across the industry, where fuel volatility has been a key driver of near term earnings pressure. We're encouraged to see ASMS per gallon increase 1.2% year over year to 86.7, marking our fifth consecutive quarter of improvement. We're pleased with the continued contribution from the integration of our 737 Max fleet and expect further efficiency gains as additional aircraft delivery. Turning to the balance sheet, we ended the quarter in a strong financial position with total available liquidity of $1.2 billion, including $933.5 million in cash and investments and $250 million of undrawn revolver capacity. Cash and investment stood at 36% of trailing twelve month revenues at quarter end alongside unencumbered fleet assets with a market value of approximately 1.3 billion. Total debt at quarter end was $1.8 billion, roughly flat to 4Q25 and net debt was 858 million, down more than 100 million from the fourth quarter, the result of strong generation in cash from operations. We made 29.4 million of debt principal payments and ended the period with net leverage of 1.8 times. Looking ahead, we expect to refinance our 2027 senior secured notes in the coming months pending constructive market conditions. Importantly, we remain well positioned to fund upcoming capital expenditures with significant flexibility. Nearly half of our fleet remains unencumbered, providing an additional source of liquidity if needed, particularly in a more uncertain fuel environment. During the first quarter we invested $176 million in capital expenditures, including 155 million in aircraft related spending and 21 million in other airline investments. In addition, we had deferred heavy maintenance spend of $11 million. Moving to fleet, we ended the quarter with 123 aircraft in operation, taking delivery of 1,737 MAX and retiring 1A320 during the period. As we move to the second quarter, we expect to take delivery of 3.737 MAX and to retire 1A320. Our delivery schedule for the remainder of the year remains consistent with prior guidance. Fleet flexibility underpinned by aircraft ownership continues to be a key competitive advantage for Allegiant, notably in a high fuel environment because we retain the optionality to accelerate retirements of older aircraft if elevated fuel prices persist and when action those retirements support reduction in heavy maintenance spend. And following closing of the sun country transaction in a few weeks time, we expect the combined entity to own 163 of the 172 aircraft in the passenger fleet, further enhancing our financial and operational flexibility. And on the topic of the sun country transaction, we received DOT approval in April, with the remaining step being shareholder votes for each of Allegiant and Sun country scheduled for May 8th. Assuming a favorable vote at each entity, the transaction should close around May 13. Given the expectation of a near term closing along with the current fuel environment, we don't believe it would be valuable to provide updates to our full year guidance at the moment. We stand to gain a great deal of insight into the combined business over the coming months and expect to share more on full year earnings estimates in due course. And so the guidance we are providing today is for Allegiant on a standalone basis for the second quarter at the midpoint of our guided range, we expect to produce an operating margin of 1% and to generate a loss per share of approximately $0.50 based on an assumed fuel price of $4.35 per gallon in the quarter, which is driving nearly 120 million of incremental operating expense relative to expectations at the time of our last call. At this time we are maintaining our full year CAPEX guidance as the transaction is not expected to materially change that outlook. Similar to prior updates, our CAPEX guidance assumes management's best estimate and differs from contractual obligations. While we're not providing post close guidance for the combined entity, I want to reiterate our confidence in the 140 million in expected synergies and our ability to grow earnings in the first full year post close. The first quarter reflected strong demand, improved cost structure and predictable aircraft deliveries, all of which contributed to an industry leading operating margin. As we move to the second quarter, our focus shifts to navigating the elevated fuel environment. We will continue to actively manage capacity and optimize profitability consistent with the disciplined approach we've taken in prior periods of volatility. Importantly, our healthy balance sheet and flexible operating model set us up well to manage through this environment from a position of strength and to focus on the structural advantages that have made this model successful throughout various cycles. In closing, I'd like to thank our team members for their continued hard work and operational execution this quarter. Their efforts remain the foundation of our performance. We're excited about what lies ahead, especially as we approach closing of the sun country acquisition and continue to build on the strong foundations both airlines have established. And with that operator we can open the line for analyst questions.
Colby (Conference Operator)
Thank you. We will now begin the question and answer session. Again, we please ask you to limit yourself to one question and one follow up if needed. If you'd like to ask a question, please press Star, then the number one on your telephone keypad to raise your hand and enter the queue. If you'd like to withdraw your question at any time, simply press Star one Again. We'll pause just for a moment to compile the roster. Your first question comes from Mike Lindenberg. Your line is open.
Mike Lindenberg
Oh, hey, good afternoon everyone. Really, two questions here. Just dialing back capacity in the June quarter and you somewhat gave us a hint on what the third quarter could be. How much of that is just the higher fuel? Or how much of that maybe is a result of the fact that the Sun Country merger seemed it it's closing much faster than anticipated and so you're probably going to have a few more shells to play with. Is that, is that having some impact on how you think about the full year capacity outlook?
Drew Wells (Chief Commercial Officer)
Hey, Mike Drew here. Zero impact from sun country timeline or integration this is purely a fuel related decision.
Mike Lindenberg
Okay, great. And then just my second question. I know that you're one of the card carrying members of the value airline association. What sort of feedback have you received? I know the letter went out whatever a week ago. I know we've been seeing a lot about Spirit and the government wanting to help them. I haven't seen much in response to that. Anything that you can tell us on the response from the administration, et cetera. Thanks.
Greg Anderson (CEO)
Hey Mike, it's great. Thanks for the question. There we go. We haven't seen or I haven't heard of any specific feedback from some of the asks. But you know, to your point, maybe a little background on it that the Department of Transportation they requested a meeting of the Aviation Business Association carriers which we are a member of at Allegiant. I think that was last week. The intent of the meeting was just to discuss how, you know, our segment of the industry is doing in this, particularly in this environment. And as a follow up of that meeting, the department did request AVA to provide some potential options that could be helpful in navigating this high fuel environment. Just candidly, Allegiant and Sun country, we're, you know, two of the stronger, are in a stronger financial position than some of the other members of aba. But I just, however there is federal assistance offered. We just want to, you know, preserve our option there to consider. But we really haven't heard much specifics back outside of what I just shared there.
Mike Lindenberg
Okay, great. Thanks for the update.
Colby (Conference Operator)
Your next question comes from the line of Dwayne Finningworth with Evercore isi. Your line is open.
Dwayne Finningworth
Hey, thanks. So can you talk a little bit about the mix of fixed fee flying in your going forward plan? Historically I think you've leaned into that when fuel prices are higher because it's a pass through. Maybe you could just speak to that as a potential lever and what demand looks like on, on the fixed fee side.
Drew Wells (Chief Commercial Officer)
Yeah, Drew here I'll speak to to the extent I can, you know, fixed fee through, through the first quarter and into early April was, was phenomenal. You know, I mentioned that in the prepared remarks. Going forward, I don't foresee any difference in aiming to, you know, in high fuel environments, you know, focus on the lines of revenue that have the fuel pass through. Of course it takes two parties to get that fuel pass through and you need counterparties that want to continue to fly and pay that rate. So I don't foresee any differences as we do integrate and plan. We're pretty like minded in that approach. I Don't see a change.
Greg Anderson (CEO)
Hey, Dwayne, let me just add a couple comments to that as well. And that's as part of the merger with sun country bringing on. They have, I know you're aware, meaningful fixed fee and cargo business. I think it's roughly 35 or 40% of their revenues. So you think about that and that being fuel, being agnostic, and you're able to pass that through in the combined company, it'll be a meaningful part of our combined business. I think roughly 10 or maybe a little over the 10%. So just as we think about this fuel environment, bringing that into the combined business we think will be obviously very beneficial.
Dwayne Finningworth
Makes sense. And then the comment about the card remuneration being 5% of revenue. Just curious where you think that could go longer term and how you would benchmark that with where sun country sits today on that, on that same stat, if you know it. Thank you.
Drew Wells (Chief Commercial Officer)
Yeah, I think what we've talked about in the past has been kind of 10% of revenue kind of being that stretch goal. You know, given some of the success we've had over really the last eight months. I think that is something that's more achievable as we go through and really try to modernize the offering and really go back for a first major amendment with the bank that we've had in 10 years in signing. I think there's an immense amount of upside here and I feel more confident today than I probably did six, eight months ago saying that 10% is achievable. I don't know, maybe specifics on the sun country side, they were more recent to turn over the bank provider on that side. So I think there was a little bit of time through that transition where acquisition spends maybe a little bit slower than what they'd anticipated. But as far as I'm aware, it's kind of on track now. And I don't know that I have anything more specific beyond that.
Dwayne Finningworth
Okay, thank you.
Colby (Conference Operator)
Your next question comes from the line of Atul Maswari with ubs. The line is open.
Atul Maswari
Good afternoon. Thanks a lot for taking my question. I have a question on the RASM cadence for this year. Based on what you know today, should we expect the second quarter RASM growth year over year to be the high watermark of the year for the standalone company? Given this, your compares are the easiest in the second quarter. It sounds like the third and fourth quarter capacity might pick up a little bit related to the down six and a half for the second quarter. Or should we think that or do you think that there is any possibility of RASM accelerating even further in the back half of the year, year over year basis?
Drew Wells (Chief Commercial Officer)
I mean, never say never. I have to imagine the second quarter will be the high water mark. You know, there's still, you know, over 80% of the third quarter left to book. So some pretty wide error bars there. But I think you hit the major components as to why 2Q should be the highest with probably the easiest comp and a lower growth rate there. So I would expect 2Q to be the top. But hey, this environment's fluid.
Atul Maswari
Got it. And then my quick follow up, what's the expectation for yield and load factors in the second quarter? As my expectation again, you would be driving the majority of the organ growth. But would you expect load factors to be up or down year over year for the second quarter
Drew Wells (Chief Commercial Officer)
I expect to see some continued load factor expansion. I don't know, candidly to get all the way to four points again. I think you are right in your hunch that yields will probably lead the way.
Atul Maswari
Great, thank you after that and good luck with this year.
Drew Wells (Chief Commercial Officer)
Thank you.
Colby (Conference Operator)
Your next question comes from the line of Savi Sif. From Raymond James. Your line is open.
Carter Eads
Good afternoon guys, this is Carter Eads on for Savi. So two questions for me. First off, as you mentioned, you're aggressively adjusting the capacity plan in response to higher fuel and you guys are no longer looking to grow in the third quarter. So with that in mind, I'm just wondering if you could speak any further to some of the key aspects of those adjustments and maybe just directionally how we should think about the impact of standalone unit costs in the back half of the year.
Drew Wells (Chief Commercial Officer)
Drew here. I'll take the beginning on the capacity. You're primarily looking at kind of the fall off peak changes. Summer we feel pretty good about. I think we pulled back July maybe maybe a couple of points. I think there's going to be more that comes out of August and September that kind of bridge the gap between what you see in the public filings and where I think we'll end up. September, I think it's still showing about a 9% growth rate and that should certainly come down a little bit. So certainly more focused in off peak periods than anything.
Vijay
Hey Carter, it's bj. And then just on the cost side, I think most of the comments that we gave at at our last call should generally hold true or at least directionally remain intact. So we talked about unit costs for the year being up mid single digits. I think there's Going to be a little bit of pressure from where we had expected to be in February to where we would expect to be now. But you know, that range is still achievable. We also said that based on the shape of our capacity this year, we would expect the second quarter to be the high point. I think that probably still holds true. And then the only other thing we mentioned to just sort of help with modeling is that we were expecting non fuel unit costs in 26 absolute to still be down versus 2024. Again, an area where there's a little bit of pressure now with some ASMs coming out of the plan, but not unachievable.
Carter Eads
Got it. Super helpful. And then for my second question, apologies if I missed it, but did you guys provide quarterly fuel recapture target and if so, or even if not directionally, could you help us frame how much you're looking to drive that via fares versus capacity actions?
Drew Wells (Chief Commercial Officer)
Yeah, so we didn't provide that explicitly. You know, I think what we're handling primarily through two functions like you talked about. One is refining and honing in capacity in the off peaks, where we're going to be probably most sensitive to the fare changes, and then pushing fare where, where appropriate in the peaks. And you know, through the, the 20% yield bump we saw in the, in the first quarter, we feel pretty good about how customers are reacting. And so we'll keep kind of dynamically approaching that on a flight by flight basis. We aren't the carrier that's going to be passing arbitrary 5 and $10 fares through. It's more responding to where demand takes us. And you know, so far, so good. We feel really good about the demand environment right now continuing to take us further.
Carter Eads
Got it. Super helpful. Thanks, guys.
Drew Wells (Chief Commercial Officer)
Thanks, Carter.
Colby (Conference Operator)
Your next question comes from the line of John Gooden with Citigroup. Your line is open.
John Gooden
Hey guys, thank you for taking my question. I wanted to just use the opportunity to talk a little bit more about the 737 and their sort of performance in this new fuel environment. I recall you guys previously saying that the EBITDA contribution was 40% higher. They're much more fuel efficient. You mentioned some of that in the prepared remarks. You know, I'm just sort of curious, you know, any, any updates to the incremental contribution of those aircraft? Any ability to accelerate fleet planning back of the fuel shock? Or are you kind of thinking that way? Or are you thinking this is temporary? I appreciate some of the commentary about ASM cuts, but I really wanted to plug into your thinking on fleet strategy at Large.
Greg Anderson (CEO)
Hey John, thanks, that's a great question. I'm going to start it and BJ is going to come in and add some detail. But just in general high level on the max. It continues to represent a larger share of our ASMs. We talked, I think we mentioned 20% in a fuel burn efficiency. So burns I was about 650 block hours per hour but on an ASM per gallon basis it's closer to 30% just because of the seat configuration there. This year what we would expect about 20, a little over 20% of our ASMs to be produced by the MAX aircraft. That's going to step up each year. By 2028 we're going to get to about 50% of our ASM. And an important point I want to make before I hand it over to BJ is that while that fuel benefits coming and it's beneficial obviously in this environment we're going to maintain at or about the same ownership cost as we are our used a320BJ.
Vijay
Yeah, thanks Greg. John. The only thing I would add there is just, you know, we talked on the last call about, you know, sort of our excitement for the results that we're seeing from the MAX aircraft and you know, coming up on opportunities to exercise some of the options from our order book. You know, we remain just as excited today as we did as we did at the time of the last call. And I think given what we're seeing in fuel, there is an opportunity to potentially accelerate some retirement of some of our older A320s. But we're not making any calls quite yet. We'll see how long, how long this lasts and then at the end of the day we just got to keep in mind that it's going to be the balance sheet that drives those decisions and how quickly we can make drastic fleet changes.
Greg Anderson (CEO)
Maybe one last plug here on the capacity side, since I neglected on the previous question, having the MAX and the fleet enable us to keep probably about 1% of added capacity in that we would have otherwise canceled in an all Airbus state. So it has benefits even in the state that are probably overweighted relative to other scenarios. So it's been huge having that.
Drew Wells (Chief Commercial Officer)
And you know, they also have additional premium fees, you know, an added decount in general. And you know, does that allow you to kind of price a little bit more smartly in a high fuel price environment or are you seeing some good guys there as well? I don't know about more smartly and hopefully we're doing that across the board. Yeah. We do see. Well, while we predominantly have a price sensitive customer, we do see a little bit less price sensitivity in those that are picking up the allegiant extra seats. And I think that's been, you know, a fascinating development for us to see that kind of segmentation form through the customer base. And so you're exactly right. Having those seats on the max and beyond right across all of our 180 seat Airbus A320 I think has proved to be really valuable for us, as Greg mentioned in his remarks.
John Gooden
Great, thanks guys. Appreciate it. Thanks. John.
Connor Cunningham
Your next question comes from the line of Connor Cunningham with Melius Research. Your line is open. Hi everyone. Thank you. I had a question. So just taking everything that you've said so far, just RASM accelerating on a sequential basis and then bj, your comments around second quarter, CAS MEX being the most elevated. So just if you look at the, to get to your guide, I'm sorry to get this granular, but to get to your guide, the RASM to CASM X spread was like nine points in the first quarter, which is obviously great. But then it seems like it implies a sequential deceleration. So I'm just trying to understand that a little bit better. Maybe it's the fact that you had a close in, not close in, but you had some capacity tweaks. But just if you could talk about that, that would be super helpful. Thank you.
Vijay
Hey Connor. I think what you're seeing for the most part, and I don't know if you're talking about CASM X, but what you're seeing for the most part in our guide should just be the ASMS for the full quarter at the higher fuel rate. We do, we do have a little bit of pressure in a handful of line items on the non fuel side. But I don't know if I'm getting a spread quite what you're saying.
Connor Cunningham
Yeah, so I'm maybe I'm talking about CASM X. Maybe I'm asking, I'm asking it wrong. Should, should, should RASM and CASM X accelerate on the same basis going from, from first quarter to second quarter?
Vijay
I think we may, I think we probably have CASM X accelerating slightly higher, slightly faster in the second quarter. I mentioned second quarter would be our, our peak. And then I mentioned in the prepared remarks first quarter came in just slightly above what I was thinking at the time of the last call and I expect the same in, in 2Q.
Connor Cunningham
Okay, so it's just an anomaly of the fact that second quarter is you just have like cost pressures that are adding. Okay, that's fine. Okay. And then if we flip over to the fleet section.
Vijay
Sorry, go ahead, go ahead. I was going to say it's mostly just the lower capacity.
Connor Cunningham
Okay, all good. All right, Perfect. Thank you. And then just on the fleet side, I hate to nitpick, but you do have two of the smaller A320s that are hanging in there a little bit longer. And I don't want to make a big deal out of that, but is it a fact that you could potentially have some swing capacity in the second half of the year if you needed it, if fuel did kind of act appropriately?
Drew Wells (Chief Commercial Officer)
You know, I was afraid this question was going to come up on the call today. So just after the last call, early February, you know, we were obviously very excited about what we were seeing in the demand environment. And so the teams got together to find a way to extend the useful lives on those older a 320s by like a number of weeks or months or something with a very small maintenance check. And so I think they retire like January 6th or something like that. So it's actually not that big of a move. But I recognize it looks like a step up in the high fuel environment. It is. It is friendly to be able to use those as extra operational spares in a way to keep the operation humming, allowing us to use non smaller gauge a 320s a bit more often. So, you know, even. Even if they don't see the light of day, they do have benefit within the fleet. And they'll probably fly for the holiday,
Connor Cunningham
I would assume, or you. Okay. Apologize for the awkward questions. Thank you. Thanks, Connor.
Colby (Conference Operator)
Your next question comes from the line of Catherine o' Brien with Goldman Sachs. Your line is open.
Catherine o' Brien
Hey, good afternoon, everyone. Thanks for the time. I just wanted to pull apart some of what's driving the acceleration in 2q rasm growth. I'm guessing a big piece of that is higher industry fares. But can you give us some color on how much more of 2q capacity will be flying during peak times versus 1q given some of the cuts, what the ramp and maybe allegiant extra contribution looks like between the quarters or any other allegiant specific drivers you'd want to call out apart from industry uplifting?
Drew Wells (Chief Commercial Officer)
Yeah, great question, Katie. On the peak, off peak, it's not wildly different from a day of week perspective. The second quarter should be about 20% off peak versus 22 or 23 in the first quarter. So generally the same, I think demand, which is macro, but demand has just run really strong since we talked 90 days ago or so. It continues to be a benefit there. And I mean, I think that captures a lot of it. I mean demand has just been great. Obviously this had the biggest headwind to us on same store markets last year and we had a little bit of cautious optimism about what that could mean. And I think we're hitting closer to the hope of where it could get rather than maybe where we had feared it could go. If that makes sense.
Vijay
Okay, got it. And then one for pj. I know you just mentioned an earlier question. You think you could still maybe achieve the full year unit cost guide? I guess. Can you help us think about how long in advance you need to cut capacity to get at some of the fixed costs? Is it mostly cutting before crews get scheduled? Just given you're looking to cut 2Q and 3Q and I guess 4Q is still a TBD. Just wondering, wondering where the costs are coming out from or I guess mid single digit. There's a range there. So just love to think, to understand more how you think about it. Thanks. Katie, I apologize, I couldn't hear the first part of your question very well, but I think you're just asking like what are the moving parts on CASMX from 2Q to 4Q?
Catherine o' Brien
Oh no, I just, I think. Can you hear me okay now?
Vijay
Okay. I was saying, you know, someone you know to an earlier question you had said you thought you could still possibly achieve the full year unit cost guide of up mid single digit even though you're cutting a little bit in the second quarter and probably the third quarter and fourth quarter tbd. So I guess I was just looking to get some color on like what costs you think you can get out of the system? Is it just about having a little bit more time and you can, you know, avoid scheduling the crews. Just that you could cut capacity and still hit that guidance. And then I said, or you know, maybe mid single digit technically implies a range. So maybe there's some like high and low end going on that calculus as well. Any color on just where the costs are coming out will be helpful. Thanks. Okay, thanks. Yeah, sorry. Sorry to make you repeat the question. Yeah, I think in the back half of the year, just couple of different things. So salaries, what does attrition look like and how productive are we in the third quarter and fourth quarter? And then definitely the changes that could still take place with respect to capacity is why I was cautious on our non guide CASM X.
Catherine o' Brien
Fair enough. Thank you.
Colby (Conference Operator)
Your next question comes from the line of Ravi Shankar with Morgan Stanley. Your line is open.
Madison
Hi. Thanks for taking the question. This is Madison on for Ravi. I was just wondering if you guys could give a little bit more color on how you're thinking about growing again if you can. Should start growing again. Or do you think that's only after absorbing Sun Country?
Greg Anderson (CEO)
I guess, you know, maybe I'll try to take a stab this and I guess depends on your timeline. Right. Obviously, as we pull some capacity out here in the near term, you know, there will be slack that we could grow back into such that the overall environment calls for. Right. Demand remains pretty healthy and fuel comes back to us a bit. On the longer term, I think there's probably a lot that we have to. To figure out post close. We're a little bit ahead of that. But I would expect there to be growth given our delivery schedule coming back half of this year and into next year.
Vijay
Yeah, that's right, Madison. I was going to say the same thing. I think we've shared potentially on the last call, but we certainly shared that we would expect 2027 to be the high point for aircraft deliveries from our firm, Boeing Order. Now, over the last few years, we've seen a handful of different headwinds, whether that was the demand environment or aircraft delivery delays or whatnot. So we've used a lot of our deliveries to date for replacement, but we have a lot of flexibility next year. And this is just on a standalone basis. You know, we have a lot of flexibility in how many aircraft we decide to retire, but we expect next year to be the peak year for firm deliveries.
Madison
Got it. Okay, that makes sense. Another one. Just wondering if you have any sense of your investor day timing.
Greg Anderson (CEO)
It's Greg. Let me, let me take that one. We certainly recognize the importance of having an investor day. To update you on our outlook and everything we're doing on the near term, you know, we're really focused on closing our sun country transaction, getting that behind us for a period of time, but with the expectation that, yes, we still plan to have an investor day when it's practical. And so we'll, we'll update you when we have that more in mind. But ideally it's before the end of this year is what we're thinking, but we haven't firmed that up by any means yet.
Madison
Understood. Thank you.
Colby (Conference Operator)
Your next question comes from the line of Dan MacKenzie with Seaport Global. Your line is open.
Dan MacKenzie
Oh, hey, good afternoon, guys. Couple questions here. So a number of media outlets are reporting that a government rescue at Spirit Basically has hidden impasse here and I know you don't have a lot of overlap with them, but I'm curious if it would nonetheless impact your guide for the second quarter if they don't make it.
Drew Wells (Chief Commercial Officer)
There's a whole lot of speculation in there. Maybe we're all kind of steer this a little bit is you know we've, we've grown pretty meaningfully into Fort Lauderdale in the last two years. I think we're about, about 30% up on a year over year trailing 12 months ending October and that's on a base of like 20% in the year before that. So you know we've, we've been growing nicely in there and seeing results. I would expect if that capacity were to, to go away there, there would be some amount of spillover coming to us. But I'm not going to run away with, you know, changing of the guide. It's pretty, it's probably pretty small in the grand scheme of the whole network.
Greg Anderson (CEO)
And the only thing I would just add to that Dan, is that you know we're very different, very different model than Spirit and just at a very different financial position. But so whatever happens with them, that just shouldn't impact the success we expect to see here at Allegiant.
Drew Wells (Chief Commercial Officer)
Yeah, yeah. Second question here is for Drew on premium revenue and I think that was previously quantified at $500 per departure. And just given that the industry has boosted fares 15 to 20% and seen higher fare increases for the economy plus segment, I'm wondering how you would characterize that revenue today. And then second for those of us that are not really close to sun country, is there a similar kind of premium revenue opportunity there once you close on the merger? Yeah. Thanks Dan. You know, if you, if you look at the 1Q results, you know the vast majority of our improvement came on, on the yield line as well as some of the third party primarily co brand related ancillary was, was relatively flat and our allegiant extra revenue does go into the ancillary line. So I think you've probably seen us hold pretty steady on that 500. The hurdle rate obviously goes up. The higher your load factor goes, the more opportunity cost of losing the seats. So you know, it gets a little bit more challenging to overcome. But I don't know that I would move that number right now off the top of my head with the sun country product. You know, you're looking at a very similar layout they have. I think it's about six rows of extra legroom seats that Have a product mix very similar to the Allegiant extra. It's actually really complementary and I would expect, you know, similar strong results from them on that and a very cohesive experience between customers as we combine.
Dan MacKenzie
Very good. Thanks so much, you guys.
Colby (Conference Operator)
Your next question comes from the line of Chris Staphopoulos with Susquehanna. Line is open.
Chris Staphopoulos
Hey, good afternoon. So as we think about, I'm going to ask a question from or follow on to an earlier question asked in a different way. The second half, really post Labor Day, demand tends to get a little squishy, if you will. And so if we're in a scenario fuel higher for longer, you know, thinking about capacity and fuel, you cut too close, you hurt margins, you cut too far out, potentially lose some opportunity. When are you. How are you thinking about, I guess, you know, placing your bets there or decisions? I typically think about bookings 30 to 60 day out is. Is it sort of July, August. And I realize there's a lot of moving parts here, sun, country, et cetera. But just want to understand how you're thinking about a post Labor Day in. In a scenario where. Where fuel is. Is higher and capacity. Thanks.
Drew Wells (Chief Commercial Officer)
Yeah, I think we would probably be looking ahead of that timeline. Probably something even, you know, May into early June, kind of those coming weeks that I referred to in the prepared remarks. I'm not interested in getting a bit too close and having to cut too many passengers because things didn't materialize to the 80th percentile or something. So I'm fine to maybe take a little less risk on upside generating and canceling a little bit further out just for passenger convenience to the extent we can keep that.
Chris Staphopoulos
Okay. And then did you give the spread in the peak versus off peak? And if we think of just parsing out rasm here, core versus initiatives,
Drew Wells (Chief Commercial Officer)
I don't know that that's something we went down for this call. You know, at 16.4% in the first quarter, I mean, just about everything was clicking. You know, peak day and off peak day look great. We talked a little bit before the quarter about the holiday shift and a meaningful amount of traffic coming into early January from New Year's travel and a little bit of benefit from Easter shifting forward. So I don't know that we went beyond that. But suffice it to say, everything looks great no matter how you want to splice it.
Chris Staphopoulos
Okay, thank you.
Colby (Conference Operator)
And our last question will come from Scott Group with Wolf Research. Your line is open.
Scott Group
Hey, thanks. So I apologize. You touched on this. I got on a little bit Late. I think I heard rasm or sorry, CASM x accelerates a little bit more in Q2 than rasm. Did you put, did you or can you put any sort of numbers around that? And then the second part of that is do you think I'm getting a little ahead of myself? Is Q3 the opposite of that?
Drew Wells (Chief Commercial Officer)
We haven't really touched on Q3. I think that the world is variable enough that, you know, that's challenging. I think I mentioned earlier you may have missed, you know, we saw over 80% of Q3 left. Yeah, I do feel pretty good about how, you know, the July part of Q3 is going, going to go. I hopefully be something of an extension of Q2. It'll be, it'll be fun to watch what happens with leisure demand through the fall. Chris kind of touched on a little bit in the previous question but you know, notoriously obviously weak for leisure demand looks great right now. So what happens when you know, the unstoppable force meets the, the immovable object? We shall see. I don't know if you have comments on yeah.
Vijay
And then and Scott on, on the chasm side, you know we, we didn't give numbers. I think we sort of referred back to some of the commentary that we made on, on the February call with the shape of CASM x and, and did say that 1Q came in a little bit above, above our expectations and that we expect 2Q to be the high point from a year over year perspective. I think with capacity as we have it today, it's possible that 3Q could be the opposite of that or the inverse. I don't know that you, that the spread is the same inversely, but yeah, you see the opposite effect.
Greg Anderson (CEO)
And then obviously since you've announced sun country, you know lots happened certainly with fuel like how does this change timeline of synergies, magnitude of synergies, planning and anything like that. Yeah, let me kick it off and BJ if you want to, you want to talk about the timeline but you know, as we've gone through the integration planning we still remain or retain a very high degree of conviction on the synergy target that we put out the 140 million there. Scott, some of the network synergies with in a higher fuel environment may be under pressure but we would expect that to normalize over time and achieve that 140 million in synergies in timing. BJ do you, I know you hit on that a little bit in your opening remarks, but you want to hit on that anymore.
Vijay
Yeah, and I think you hit it though. When we announced the transaction, we Talked about the $140 million in run rate synergies. We said it wouldn't be unreasonable to expect to achieve half of that rate in the first full year post close. I tried to be clear on the earlier calls that we were really thinking of that like 2027. So from that perspective they probably pulled forward a little bit right. With the closing coming up. But we've also got a faster ramp right now and that's going to be challenging when some of those synergies were coming from added capacity. That said, you know, with the baseline changing in light of the fuel environment, I don't see a substantial change.
Greg Anderson (CEO)
And then I would just mention, you know, we see a lot of the value in this combination outside of the PNL synergies. We've talked a lot about the flexibility and fleet ownership of aircraft, the scale that comes along with all of that, the broader loyalty program. So in the P L, you know, our synergy is moving a little bit a quarter here, there potentially. But we're really excited about, about the overall value of the transaction.
Scott Group
Okay, and then just very like last thing, like the guide tip that you gave us for Q2, is that purely standalone or does that include a two months or a month and a half of. Of Sun Country? And like how are you thinking about like any. Will sun country just get fully rolled into the model everywhere or will it be reported separately somehow? Any such so we can get our models in a decent place?
Vijay
Yeah, I appreciate you asking. I'm surprised that question hadn't. Hasn't come up yet. Yeah. So the, the guide is standalone allegiant for the second quarter. We talked about expecting the closing now around May 13th and so I realized the guide goes a little bit stale but should still give you some color into how the allegiant business is performing in the second quarter and then you know, as soon as possible after the closing, once we have insight into all the financials on the, on the sun country side, we would hope to get out and provide some updated guidance on the combined entity. And then lastly, I would just say we're still working through how we expect to report and guide, you know, what, what segments will be, will we show things like that and expect to have some answers in the coming weeks.
Scott Group
Okay, May 21st seems like a great See you guys soon. Thank you guys.
Colby (Conference Operator)
Thanks Scott, and thank you. And with no further questions in queue, I'd like to turn the conference back over to Sherry for closing remarks.
Sherry Wilson
Thank you all for joining this afternoon's call. We'll speak again soon.
Colby (Conference Operator)
This concludes today's conference call. You may now disconnect.
Disclaimer: This transcript is provided for informational purposes only. While we strive for accuracy, there may be errors or omissions in this automated transcription. For official company statements and financial information, please refer to the company's SEC filings and official press releases. Corporate participants' and analysts' statements reflect their views as of the date of this call and are subject to change without notice.
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