SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
|
| |
ý | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended March 31, 20182019 |
| |
OR |
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number 001-33166
Allegiant Travel Company
(Exact Name of Registrant as Specified in Its Charter)
|
| |
Nevada | 20-4745737 |
(State or Other Jurisdiction of Incorporation or Organization) | (IRS Employer Identification No.) |
| |
1201 North Town Center Drive | |
Las Vegas, Nevada | 89144 |
(Address of Principal Executive Offices) | (Zip Code) |
Registrant’s Telephone Number, Including Area Code: (702) 851-7300
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ý No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
|
| |
Large accelerated filer x | Accelerated filer o |
| |
Non-accelerated filer o | Smaller reporting company o |
| |
(Do not check if a smaller reporting company) | Emerging growth company o |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No ý
The number of shares of the registrant’s common stock outstanding as of the close of business on May 1, 2018April 30, 2019 was 16,148,889.16,286,963.
Allegiant Travel Company
Form 10-Q
Table of Contents
|
| | |
PART I. | FINANCIAL INFORMATION | |
| | |
ITEM 1. | | |
| | |
ITEM 2. | | |
| | |
ITEM 3. | | |
| | |
ITEM 4. | | |
| | |
PART II. | OTHER INFORMATION | |
| | |
ITEM 1. | | |
| | |
ITEM 1A. | | |
| | |
ITEM 2. | | |
| | |
ITEM 3. | | |
| | |
ITEM 4. | | |
| | |
ITEM 5. | | |
| | |
ITEM 6. | | |
| | |
| | |
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
ALLEGIANT TRAVEL COMPANY
CONSOLIDATED BALANCE SHEETS
(in thousands)
| | | March 31, 2018 | | December 31, 2017 | March 31, 2019 | | December 31, 2018 |
| (unaudited) | | | (unaudited) | | |
CURRENT ASSETS: | | | | |
CURRENT ASSETS | | | | |
Cash and cash equivalents | $ | 50,777 |
| | $ | 59,449 |
| $ | 243,282 |
| | $ | 81,520 |
|
Restricted cash | 12,370 |
| | 11,190 |
| 14,496 |
| | 14,391 |
|
Short-term investments | 341,262 |
| | 352,681 |
| 286,955 |
| | 314,464 |
|
Accounts receivable | 64,344 |
| | 71,057 |
| 34,209 |
| | 36,014 |
|
Expendable parts, supplies and fuel, net | 18,335 |
| | 17,647 |
| 19,527 |
| | 19,516 |
|
Prepaid expenses | 27,941 |
| | 23,931 |
| |
Other current assets | 1,776 |
| | 5,320 |
| |
Prepaid expenses and other current assets | | 35,477 |
| | 29,343 |
|
TOTAL CURRENT ASSETS | 516,805 |
| | 541,275 |
| 633,946 |
| | 495,248 |
|
Property and equipment, net | 1,635,821 |
| | 1,512,415 |
| 1,940,480 |
| | 1,847,268 |
|
Long-term investments | 85,659 |
| | 78,570 |
| 24,605 |
| | 51,526 |
|
Deferred major maintenance, net | 33,321 |
| | 31,326 |
| 83,869 |
| | 67,873 |
|
Operating lease right-of-use assets, net | | 22,788 |
| | — |
|
Deposits and other assets | 17,359 |
| | 16,571 |
| 44,789 |
| | 36,753 |
|
TOTAL ASSETS | $ | 2,288,965 |
| | $ | 2,180,157 |
| |
CURRENT LIABILITIES: | | | | |
TOTAL ASSETS: | | $ | 2,750,477 |
| | $ | 2,498,668 |
|
CURRENT LIABILITIES | | | | |
Accounts payable | $ | 29,801 |
| | $ | 20,108 |
| $ | 28,690 |
| | $ | 27,452 |
|
Accrued liabilities | 119,448 |
| | 105,127 |
| 136,075 |
| | 122,027 |
|
Air traffic liability | 256,773 |
| | 204,299 |
| 276,241 |
| | 212,230 |
|
Current maturities of notes payable and capital leases, net of related costs | 154,850 |
| | 214,761 |
| |
Current maturities of long-term debt and finance lease obligations, net of related costs | | 154,027 |
| | 152,287 |
|
TOTAL CURRENT LIABILITIES | 560,872 |
| | 544,295 |
| 595,033 |
| | 513,996 |
|
Long-term debt and capital leases, net of current maturities and related costs | 984,926 |
| | 950,131 |
| |
Long-term debt and finance lease obligations, net of current maturities and related costs | | 1,203,709 |
| | 1,119,446 |
|
Deferred income taxes | 131,647 |
| | 119,013 |
| 180,136 |
| | 164,027 |
|
Other noncurrent liabilities | 11,716 |
| | 13,407 |
| 33,145 |
| | 10,878 |
|
TOTAL LIABILITIES: | 1,689,161 |
| | 1,626,846 |
| 2,012,023 |
| | 1,808,347 |
|
SHAREHOLDERS' EQUITY: | | | | |
SHAREHOLDERS' EQUITY | | | | |
Common stock, par value $.001 | 23 |
| | 23 |
| 23 |
| | 23 |
|
Treasury stock | (607,888 | ) | | (605,655 | ) | (607,316 | ) | | (605,037 | ) |
Additional paid in capital | 259,225 |
| | 253,840 |
| 276,247 |
| | 270,935 |
|
Accumulated other comprehensive loss, net | (3,959 | ) | | (2,840 | ) | (190 | ) | | (661 | ) |
Retained earnings | 952,403 |
| | 907,943 |
| 1,069,690 |
| | 1,025,061 |
|
TOTAL EQUITY | 599,804 |
| | 553,311 |
| |
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY | $ | 2,288,965 |
| | $ | 2,180,157 |
| |
TOTAL EQUITY: | | 738,454 |
| | 690,321 |
|
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY: | | $ | 2,750,477 |
| | $ | 2,498,668 |
|
The accompanying notes are an integral part of these consolidated financial statements.
ALLEGIANT TRAVEL COMPANY
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share amounts)
(unaudited)
| | | Three Months Ended March 31, | Three Months Ended March 31, |
| 2018 | | 2017 | 2019 | | 2018 |
OPERATING REVENUE: | | | | |
Passenger revenue | $ | 396,771 |
| | $ | 347,836 |
| |
OPERATING REVENUES: | | | | |
Passenger | | $ | 419,977 |
| | $ | 396,771 |
|
Third party products | 10,325 |
|
| 12,742 |
| 17,141 |
|
| 10,325 |
|
Fixed fee contract revenue | 10,556 |
| | 11,259 |
| |
Other revenue | 7,792 |
| | 8,174 |
| |
Total operating revenue | 425,444 |
| | 380,011 |
| |
Fixed fee contracts | | 10,575 |
| | 10,556 |
|
Other | | 3,929 |
| | 7,792 |
|
Total operating revenues | | 451,622 |
| | 425,444 |
|
OPERATING EXPENSES: | | | | | | |
Salary and benefits | | 119,411 |
| | 112,963 |
|
Aircraft fuel | 106,027 |
| | 84,662 |
| 99,682 |
| | 106,027 |
|
Salary and benefits | 112,963 |
| | 96,298 |
| |
Station operations | 37,584 |
| | 31,832 |
| 38,965 |
| | 37,584 |
|
Maintenance and repairs | 19,270 |
| | 30,095 |
| 22,824 |
| | 19,270 |
|
Depreciation and amortization | 28,149 |
| | 30,549 |
| 36,182 |
| | 28,149 |
|
Sales and marketing | 19,078 |
| | 13,331 |
| 20,926 |
| | 19,078 |
|
Aircraft lease rentals | 21 |
| | 164 |
| |
Other | 22,384 |
| | 19,351 |
| 22,554 |
| | 22,405 |
|
Total operating expenses | 345,476 |
| | 306,282 |
| 360,544 |
| | 345,476 |
|
OPERATING INCOME | 79,968 |
| | 73,729 |
| 91,078 |
| | 79,968 |
|
OTHER (INCOME) EXPENSE: | | | | |
OTHER (INCOME) EXPENSES: | | | | |
Interest expense | 12,724 |
| | 8,401 |
| 18,083 |
| | 12,908 |
|
Capitalized interest | | (1,503 | ) | | (184 | ) |
Interest income | (1,907 | ) | | (1,264 | ) | (3,201 | ) | | (1,907 | ) |
Loss on debt extinguishment | | 3,677 |
| | — |
|
Other, net | (240 | ) | | (360 | ) | 103 |
| | (240 | ) |
Total other expense | 10,577 |
| | 6,777 |
| |
Total other expenses | | 17,159 |
| | 10,577 |
|
INCOME BEFORE INCOME TAXES | 69,391 |
| | 66,952 |
| 73,919 |
| | 69,391 |
|
PROVISION FOR INCOME TAXES | 14,198 |
| | 24,601 |
| 16,795 |
| | 14,198 |
|
NET INCOME | $ | 55,193 |
| | $ | 42,351 |
| $ | 57,124 |
| | $ | 55,193 |
|
Earnings per share to common shareholders: | | | | | | |
Basic | $ | 3.43 |
| | $ | 2.54 |
| $ | 3.52 |
| | $ | 3.43 |
|
Diluted | $ | 3.42 |
| | $ | 2.54 |
| $ | 3.52 |
| | $ | 3.42 |
|
Shares used for computation: | | | | | | |
Basic | 15,889 |
| | 16,382 |
| 16,011 |
| | 15,889 |
|
Diluted | 15,898 |
| | 16,405 |
| 16,013 |
| | 15,898 |
|
| | | | | | |
Cash dividends declared per share: | $ | 0.70 |
| | $ | 0.70 |
| $ | 0.70 |
| | $ | 0.70 |
|
The accompanying notes are an integral part of these consolidated financial statements.
ALLEGIANT TRAVEL COMPANY
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands)
(unaudited)
| | | Three Months Ended March 31, | Three Months Ended March 31, |
| 2018 | | 2017 | 2019 | | 2018 |
Net income | $ | 55,193 |
| | $ | 42,351 |
| |
Other comprehensive (loss) income: | |
| | |
| |
NET INCOME | | $ | 57,124 |
| | $ | 55,193 |
|
Other comprehensive income (loss): | | |
| | |
|
Change in available for sale securities, net of tax | (956 | ) | | 225 |
| 477 |
| | (956 | ) |
Foreign currency translation adjustments | 101 |
| | (83 | ) | (6 | ) | | 101 |
|
Change in derivatives, net of tax | (135 | ) | | (215 | ) | — |
| | (264 | ) |
Reclassification of derivative gains into Other revenue | (129 | ) | | (289 | ) | |
Total other comprehensive loss | (1,119 | ) | | (362 | ) | |
Total other comprehensive income (loss) | | 471 |
| | (1,119 | ) |
TOTAL COMPREHENSIVE INCOME | $ | 54,074 |
| | $ | 41,989 |
| $ | 57,595 |
| | $ | 54,074 |
|
The accompanying notes are an integral part of these consolidated financial statements.
ALLEGIANT TRAVEL COMPANY
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(in thousands)
(unaudited)
|
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | Accumulated | | | | | | |
| Common | | | | Additional | | other | | | | | | Total |
| stock | | Par | | paid-in | | comprehensive | | Retained | | Treasury | | shareholders' |
| outstanding | | value | | capital | | income (loss) | | earnings | | shares | | equity |
Balance at December 31, 2018 | 16,183 |
| | $ | 23 |
| | $ | 270,935 |
| | $ | (661 | ) | | $ | 1,025,061 |
| | $ | (605,037 | ) | | $ | 690,321 |
|
Share-based compensation | 118 |
| | — |
| | 5,312 |
| | — |
| | — |
| | — |
| | 5,312 |
|
Shares repurchased by the Company and held as treasury shares | (17 | ) | | — |
| | — |
| | — |
| | — |
| | (2,279 | ) | | (2,279 | ) |
Cash dividends declared, $0.70 per share | — |
| | — |
| | — |
| | — |
| | (11,394 | ) | | — |
| | (11,394 | ) |
Other comprehensive income (loss) | — |
| | — |
| | — |
| | 471 |
| | (551 | ) | | — |
| | (80 | ) |
Net income | — |
| | — |
| | — |
| | — |
| | 57,124 |
| | — |
| | 57,124 |
|
Cumulative effect of the New Lease Standard (see Note 5) | — |
| | — |
| | — |
| | — |
| | (550 | ) | | — |
| | (550 | ) |
Balance at March 31, 2019 | 16,284 |
| | $ | 23 |
| | $ | 276,247 |
| | $ | (190 | ) | | $ | 1,069,690 |
| | $ | (607,316 | ) | | $ | 738,454 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | Accumulated | | | | | | |
| Common | | | | Additional | | other | | | | | | Total |
| stock | | Par | | paid-in | | comprehensive | | Retained | | Treasury | | shareholders' |
| outstanding | | value | | capital | | income (loss) | | earnings | | shares | | equity |
Balance at December 31, 2017 | 16,066 |
| | $ | 23 |
| | $ | 253,840 |
| | $ | (2,840 | ) | | $ | 907,943 |
| | $ | (605,655 | ) | | $ | 553,311 |
|
Share-based compensation | 98 |
| | — |
| | 5,385 |
| | — |
| | — |
| | — |
| | 5,385 |
|
Shares repurchased by the Company and held as treasury shares | (13 | ) | | — |
| | — |
| | — |
| | — |
| | (2,233 | ) | | (2,233 | ) |
Cash dividends declared, $0.70 per share | — |
| | — |
| | — |
| | — |
| | (11,295 | ) | | — |
| | (11,295 | ) |
Other comprehensive income (loss) | — |
| | — |
| | — |
| | (1,119 | ) | | 562 |
| | — |
| | (557 | ) |
Net income | — |
| | — |
| | — |
| | — |
| | 55,193 |
| | — |
| | 55,193 |
|
Balance at March 31, 2018 | 16,151 |
| | $ | 23 |
| | $ | 259,225 |
| | $ | (3,959 | ) | | $ | 952,403 |
| | $ | (607,888 | ) | | $ | 599,804 |
|
The accompanying notes are an integral part of these consolidated financial statements.
ALLEGIANT TRAVEL COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
| | | Three Months Ended March 31, | Three Months Ended March 31, |
| 2018 | | 2017 | 2019 | | 2018 |
OPERATING ACTIVITIES: | | | | | | |
Net income | $ | 55,193 |
| | $ | 42,351 |
| $ | 57,124 |
| | $ | 55,193 |
|
Adjustments to reconcile net income to net cash provided by operating activities: | | | | | | |
Depreciation and amortization | 28,149 |
| | 30,549 |
| 36,182 |
| | 28,149 |
|
(Gain) loss on aircraft and other equipment disposals | (132 | ) | | 2,548 |
| |
Provision for obsolescence of expendable parts, supplies and fuel | 586 |
| | 830 |
| |
Amortization of deferred financing costs | 494 |
| | 365 |
| |
Gain on aircraft and other equipment disposals | | (6,696 | ) | | (132 | ) |
Share-based compensation expense | 3,796 |
| | 4,349 |
| 4,538 |
| | 3,796 |
|
Deferred income taxes | 12,735 |
| | 2,508 |
| 16,103 |
| | 12,735 |
|
Other adjustments | | 4,971 |
| | 1,080 |
|
Changes in certain assets and liabilities: | | | | | | |
Decrease in accounts receivable | 6,713 |
| | 23,162 |
| |
Increase in prepaid expenses | (4,439 | ) | | (8,917 | ) | |
Increase in accounts payable | 9,959 |
| | 9,394 |
| |
Increase (decrease) in accrued liabilities | 14,267 |
| | (10,561 | ) | |
Increase in air traffic liability | 52,474 |
| | 50,078 |
| |
Change in deferred major maintenance | (4,476 | ) | | (1,504 | ) | |
Other, net | (2,392 | ) | | 1,405 |
| |
Accounts receivable | | 1,805 |
| | 6,713 |
|
Prepaid expenses | | (5,988 | ) | | (4,439 | ) |
Accounts payable | | (368 | ) | | 9,959 |
|
Accrued liabilities | | 7,877 |
| | 14,267 |
|
Air traffic liability | | 64,011 |
| | 52,474 |
|
Deferred major maintenance | | (18,376 | ) | | (4,476 | ) |
Other assets/liabilities | | (1,086 | ) | | (2,392 | ) |
Net cash provided by operating activities | 172,927 |
| | 146,557 |
| 160,097 |
| | 172,927 |
|
INVESTING ACTIVITIES: | | | | | | |
Purchase of investment securities | (93,933 | ) | | (146,625 | ) | (68,447 | ) | | (93,933 | ) |
Proceeds from maturities of investment securities | 97,224 |
| | 79,381 |
| 124,472 |
| | 97,224 |
|
Purchase of property and equipment, including capitalized interest | (69,167 | ) | | (58,536 | ) | (122,551 | ) | | (69,167 | ) |
Other investing activities | 521 |
| | 382 |
| 6,973 |
| | 521 |
|
Net cash used in investing activities | (65,355 | ) | | (125,398 | ) | (59,553 | ) | | (65,355 | ) |
FINANCING ACTIVITIES: | | | | | | |
Cash dividends paid to shareholders | (11,295 | ) | | (11,671 | ) | (11,394 | ) | | (11,295 | ) |
Proceeds from the issuance of debt | — |
| | 22,000 |
| 494,000 |
| | — |
|
Repurchase of common stock | (2,233 | ) | | (4,923 | ) | |
Principal payments on debt and capital lease obligations | (102,914 | ) | | (26,425 | ) | |
Principal payments on debt and finance lease obligations | | (386,329 | ) | | (102,914 | ) |
Debt issuance costs | | (30,060 | ) | | (176 | ) |
Other financing activities | 1,378 |
| | (513 | ) | (4,894 | ) | | (679 | ) |
Net cash used in financing activities | (115,064 | ) | | (21,532 | ) | |
Net cash provided by (used in) financing activities | | 61,323 |
| | (115,064 | ) |
Net change in cash, cash equivalents, and restricted cash | (7,492 | ) | | (373 | ) | 161,867 |
| | (7,492 | ) |
CASH, CASH EQUIVALENTS, AND RESTRICTED CASH AT BEGINNING OF PERIOD | 70,639 |
| | 76,358 |
| 95,911 |
| | 70,639 |
|
CASH, CASH EQUIVALENTS, AND RESTRICTED CASH AT END OF PERIOD | $ | 63,147 |
| | $ | 75,985 |
| $ | 257,778 |
| | $ | 63,147 |
|
| | | | | | |
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: | | | | |
CASH PAYMENTS FOR: | | | | |
CASH PAYMENTS (RECEIPTS) FOR: | | | | |
Interest paid, net of amount capitalized | $ | 17,902 |
| | $ | 14,080 |
| $ | 20,924 |
| | $ | 17,902 |
|
Income taxes paid, net of refunds | $ | 37 |
| | $ | 374 |
| |
Income tax (refunds)/payments | | $ | (4,490 | ) | | $ | 37 |
|
SUPPLEMENTAL DISCLOSURE OF NONCASH TRANSACTIONS: | | | | |
Property capitalized under operating leases | | $ | 23,320 |
| | $ | — |
|
Flight equipment acquired under finance leases | | $ | — |
| | $ | 77,162 |
|
The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported within the consolidated balance sheets:
|
| | | | | | | |
| As of March 31, |
| 2018 | | 2017 |
CURRENT ASSETS: |
|
| |
|
|
Cash and cash equivalents | $ | 50,777 |
| | $ | 64,732 |
|
Restricted cash | 12,370 |
| | 11,253 |
|
TOTAL CASH, CASH EQUIVALENTS AND RESTRICTED CASH | $ | 63,147 |
| | $ | 75,985 |
|
The accompanying notes are an integral part of these consolidated financial statements.
ALLEGIANT TRAVEL COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Note 1 — Summary of Significant Accounting Policies
Basis of Presentation
The accompanying unaudited consolidated financial statements include the accounts of Allegiant Travel Company (the “Company”) and its majority-owned operating subsidiaries. The Company has no independent assets or operations, and all guarantees of the Company's publicly held debt are full and unconditional and joint and several. Any subsidiaries of the parent company other than the subsidiary guarantors are minor. The Company's investments in unconsolidated affiliates, which are 50 percent or less owned, are accounted for under the equity or cost method. All intercompany balances and transactions have been eliminated.
These unaudited consolidated financial statements reflect all normal recurring adjustments which management believes are necessary to present fairly the financial position, results of operations, and cash flows of the Company for the respective periods presented. Certain reclassifications have been made to prior year financial statements to conform to classifications used in the current year. Certain information and footnote disclosures normally included in the annual consolidated financial statements prepared in accordance with U.S. generally accepted accounting principles ("U.S. GAAP") have been omitted pursuant to the rules and regulations of the Securities and Exchange Commission for Form 10-Q. These unaudited interim consolidated financial statements should be read in conjunction with the audited consolidated financial statements of the Company and notes thereto included in the annual report of the Company on Form 10-K for the year ended December 31, 2017,2018 and filed with the Securities and Exchange Commission.
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities, at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results may differ from these estimates.
Recent Accounting Pronouncements
Recently Adopted Standards
In February 2016, the Financial Accounting Standards Board ("FASB") issued ASU 2016-02, related to leases.Leases (Topic 842), (the "New Lease Standard"). This standard will requirerequires leases, with durations greaterother than twelve monthsshort-term, to be recognized on the balance sheet as a lease liability and a corresponding right-of-use asset,asset.
Lease payments include fixed payments, variable payments based on an index or rate, reasonably certain purchase options, termination penalties, and others as required by the standard. Lease payments do not include variable lease payments other than those that depend on an index or rate, any guarantee by the lessee of the lessor’s debt, or any amount allocated to non-lease components. This standard is effective for interim and annual reporting periods beginning after December 15, 2018 with early adoption permitted. Theand the Company will adopt this standard effectiveadopted the New Lease Standard as of January 1, 2019. The Company hasalso elected the package of practical expedients, which among other things, does not completed the assessmentrequire reassessment of this new standard. The Company believes adoption will have a significant impact on its consolidated balance sheets but is not expected to significantly change the recognition, measurement or presentation of associated expenses within the consolidated statements of income or cash flows.lease classification.
Recently Adopted Standards
In August 2016, the FASB issued ASU 2016-15, which amends the guidance in Accounting Standards Codification ("ASC") 230 on the classification of certain cash receipts and payments in the statement of cash flows. The primary purpose of the ASU is to reduce the diversity in practice that has resulted from the lack of consistency on this topic. The Company adopted the New Lease Standard using the modified retrospective transition approach as of the effective date as permitted by the amendments in ASU 2018-11, "Targeted Improvements - Leases (Topic 842)." Under this standard effective January 1, 2018. This standard was applied retrospectively, which resulted inmethod, the inclusion of restricted cash as shown in the beginning and ending balances of cash on the Consolidated Statements of Cash Flows. A reconciliation of cash, cash equivalents, and restricted cash from our Consolidated Statement of Cash Flowscumulative effect adjustment to the amounts reported within our Consolidated Balance Sheet is also included in a table below our Statementopening balance of Cash Flows.
In February 2018, the FASB issued ASU 2018-02, "Income Statement - Reporting Comprehensive Income (Topic 220)." This standard provides an option to reclassify stranded tax effects within accumulated other comprehensive income (loss) ("AOCI") to retained earnings. Stranded tax effects occur when a change in enacted tax rates is recorded in income from operations, even in situations in which the related income tax effects of items in accumulated other comprehensive income (loss) were originally recognized in AOCI. This standard is effective for interim and annual reporting periods beginning after December 31, 2018, and early adoption is permitted. The Company adopted this standard effective January 1, 2018. Due to the adoption of this standard, $0.6 million was reclassified from AOCI to retained earnings as of March 31, 2018.
In 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606), (the "New Revenue Standard"). Under this ASU and subsequently issued amendments, revenue is recognized at the timeadoption date. As a goodresult, the Company was not required to adjust its comparative period financial information for effects of the standard or service is transferred to a customermake the new required lease disclosures for the amount of consideration received. Entities may use a full retrospective approach or report the
cumulative effect as ofperiods before the date of adoption. We adopted this standard using the full retrospective transition method effectiveadoption on January 1, 2018 and recast prior year results as shown below.
Under the New Revenue Standard, revenue for all air-related ancillary fees that are directly related to ticket revenue, such as seat fees and baggage fees, are no longer considered distinct performance obligations separate from passenger travel and are reclassified into passenger revenue. These are deemed part of the single performance obligation of providing passenger transportation. While the adoption of the New Revenue Standard did not have a significant effect on earnings, $154.7 million of air-related ancillary fees for the quarter ended March 31, 2018 are now classified as passenger revenue.2019.
The Company's consolidated balance sheet was affected by this standard, but the consolidated statement of income and liquidity were not significantly impacted. The most significant change to the consolidated balance sheet upon adoption of the New Revenue Standard resulted in a net reductionon January 1, 2019 relates to our air traffic liability at December 31, 2017 of $5.9 million. This change resulted from the recognition of breakage revenue on issuancenew right-of-use (ROU) assets of $18.0 million and operating liabilities of $19.1 million. The Company's accounting for credit vouchers that are expected to expire unused. In addition, we now defer recognition of revenues for fees associated with flight changes or cancellations rather than recognizing at the time the fee is incurred. The Company already recognizes revenue from the Co-brand credit card program on the deferral method.
The Company has a significant contract with Bank of America to issue The Allegiant World Mastercard® in which points are earned and awarded to cardholders in exchange for consideration received under an agreement with a seven year scheduled duration expiring in 2023. Under this arrangement, the Company identified the following deliverables: travel points to be awarded (the travel component), use of the Company’s brand and access to its member lists, and certain other advertising and marketing elements (collectively the marketing component). Consideration received from the Company’s co-brand agreement is allocated between the two components based on the relative selling price of each deliverable. The Company applies a level of management judgment and estimation in determining the best estimate of selling price for each deliverable by considering multiple inputs and methods including, but not limited to, the redemption value of points awarded, discounted cash flows, brand value, volume discounts, published selling prices, number of points to be awarded and number of points to be redeemed.finance leases remains substantially unchanged.
See Note 2, "Revenue Recognition,5, "Leases," for more information.
Impact of Recently Adopted Standards
We recast certain prior period amounts to conform with the adoption of the New Revenue Standard as shown in the tables below.
|
| | | | | | | | | | |
| | Three Months Ended March 31, 2017 |
| | As Previously | | Current |
(in thousands, except per share data) | | Reported | Adjustments | Presentation |
Income Statement: | | | | |
Passenger revenue* | | $ | 212,097 |
| $ | 135,739 |
| $ | 347,836 |
|
Air-related charges | | 131,565 |
| (131,565 | ) | — |
|
Sales and marketing | | 9,998 |
| 3,333 |
| 13,331 |
|
Income tax provision | | 24,479 |
| 122 |
| 24,601 |
|
Net income | | 41,632 |
| 719 |
| 42,351 |
|
Diluted earnings per share | | $ | 2.50 |
| $ | 0.04 |
| $ | 2.54 |
|
*Passenger revenue previously reported as Scheduled service revenue.
|
| | | | | | | | | | |
| | December 31, 2017 |
| | As Previously | | Current |
(in thousands) | | Reported | Adjustments | Presentation |
Balance Sheet: | | | | |
Air traffic liability | | $ | 210,184 |
| $ | (5,885 | ) | $ | 204,299 |
|
Deferred income taxes | | 118,492 |
| 521 |
| 119,013 |
|
Retained earnings | | 902,579 |
| 5,364 |
| 907,943 |
|
Note 2 — Revenue Recognition
Passenger Revenue
Passenger revenue is the most significant category in our reported operating revenues. Passenger revenue is primarily composed of scheduled service revenue (includes passenger ticket sales and credit voucher breakage,breakage), revenue from ancillary air-related charges (includes seat fees, baggage fees, and other travel-related services performed in conjunction with a passenger’s flight.flight), as well as co-brand point redemptions, as outlined below:
| | | Three Months Ended March 31, | Three Months Ended March, |
| 2018 | | 2017 | |
(in thousands) | | 2019 | | 2018 |
Scheduled service | $ | 238,520 |
| | $ | 214,263 |
| $ | 234,772 |
| | $ | 238,520 |
|
Air-related ancillary charges | 154,717 |
| | 133,223 |
| |
Co-brand redemption | 3,534 |
| | 350 |
| |
Ancillary air-related charges | | 181,700 |
| | 154,717 |
|
Co-brand redemptions | | 3,505 |
| | 3,534 |
|
Total passenger revenue | $ | 396,771 |
| | $ | 347,836 |
| $ | 419,977 |
| | $ | 396,771 |
|
Scheduled service
Passenger tickets. We provide scheduled air transportation on limited-frequency, nonstop flights predominantly between under-served cities and popular leisure destinations. We record salesSales of passenger tickets to benot yet flown by usare recorded in air traffic liability. Passenger revenue is recognized when we provide transportation is provided or when ticket voucher breakage occurs.occurs, to the extent different from estimated breakage.
WeThe contract term of passenger tickets is 12 months and revenue associated with future travel will principally be recognized $155.9within this time frame. $175.7 million inwas recognized into passenger revenue during the three months ended March 31, 20182019 that was recorded in ourthe air traffic liability balance of $204.3$212.2 million at December 31, 2017. We expect the remaining balance of the December 31, 2017 air traffic liability to be recognized during the remainder of 2018.
Credit voucher breakage. We estimate the value of vouchers that will expire unused and recognize revenue at the time the credit voucher is issued.
Air-related
Air-related revenue is primarily composed of services performed in conjunction with a passenger's flight including baggage fees, the use of the Company’s website to purchase scheduled service transportation, advance seat assignments, and other services. We recognize revenue for these services when the related transportation service is provided. Prior to the adoption of the New Revenue Standard, the majority of these fees were classified separately as Ancillary air-related charges.
Co-brand redemptionredemptions
In relation to the travel component of the contract with Bank of America, the Company has a performance obligation to provide cardholders with points to be used for future travel award redemptions. Therefore, consideration received from Bank of America related to the travel component is deferred based on its relative selling price and is recognized into passenger revenue when the points are redeemed and the transportation is provided. See below for a discussion
The following table presents the activity of the marketing component.
co-brand point liability as of the dates indicated:
|
| | | |
| Points liability |
Balance at January 1, 2018 | $ | 8,903 |
|
Points awarded | 3,233 |
|
Points redeemed | (3,534 | ) |
Balance at March 31, 2018 | $ | 8,602 |
|
|
| | | | | | | |
| Three Months Ended March, |
(in thousands) | 2019 | | 2018 |
Balance at January 1 | $ | 10,708 |
| | $ | 8,903 |
|
Points awarded (deferral of revenue) | 4,164 |
| | 3,233 |
|
Points redeemed (recognition of revenue) | (3,505 | ) | | (3,534 | ) |
Balance at March 31 | $ | 11,367 |
| | $ | 8,602 |
|
As of March 31, 2019 and March 31, 2018, the amount of deferred revenue allocated to the co-branded credit card program is $8.6$8.9 million and $5.7 million, respectively, of the current points liability is reflected in the Company's consolidated balance sheet with the short-term component in Accrued liabilities and the remainder in Other noncurrent liabilities. This is estimated to be recognized over the next two years.
Third Party Products
Third party products revenue is generated from the sale of hotel rooms, rental cars, ticket attractions and co-brand marketing revenue.
Revenue from the sale of hotel rooms, rental cars, and ticket attractions is recognized at the time the product is utilized, such as the time a purchased hotel room is occupied. The Company follows accounting standards for determining whether it is a principal or an agent in revenue arrangements to determine the amountrepresents our current estimate of revenue to be recognized for each element of a bundled sale involving air-related charges and third party products in additionthe next twelve months based on historical trends, with the remaining balance reflected in Other noncurrent liabilities expected to airfare. Revenue from the sale of third party products is recorded net (treatment as an agent) of amounts paid to wholesale providers, travel agent commissions, and transaction costs.be recognized into revenue in periods thereafter.
Pursuant to the co-brand agreement with Bank of America, the Company has various performance obligations collectively referred to as the marketing component. These obligations consist of use of the Company’s brand and access to its member lists, and certain other advertising and marketing elements. The marketing component is recorded as third party products revenue in the period in which points are awarded to the credit card holders.
Fixed Fee Contract Revenue
Fixed fee contract revenue consists of agreements to provide charter service on a year-round and ad hoc basis. Fixed fee contract revenue is recognized when the transportation is provided.
Other Revenue
Other revenue is generated from leased aircraft, engines, and other miscellaneous sources. Lease revenue is recognized ratably over the lease term.
Accounts Receivable
Accounts receivable, reflected on the accompanying Consolidated Balance Sheet, primarily consist of amounts due from credit card companies associated with passenger revenue. These receivables are short-term, generally settled within a few days of sale. Bad debt expense, which occurs in the form of credit card chargebacks, was not material in any period presented.
Taxes and Fees
Various taxes and fees, assessed on the sale of tickets to customers, are collected by the Company serving as an agent, and remitted to taxing authorities. These taxes and fees are not included as revenue in the Company’s consolidated statements of income and are recorded as a liability until remitted to the appropriate taxing authority.
Note 3 — Property and Equipment
Property and equipment (in thousands):
| | | As of March 31, 2018 | | As of December 31, 2017 | As of March 31, 2019 | | As of December 31, 2018 |
Flight equipment, including pre-delivery deposits | $ | 1,668,984 |
| | $ | 1,539,433 |
| $ | 2,002,777 |
| | $ | 1,905,157 |
|
Computer hardware and software | 124,728 |
| | 123,675 |
| 143,369 |
| | 140,385 |
|
Land and buildings/leasehold improvements | | 85,925 |
| | 85,925 |
|
Other property and equipment | 142,630 |
| | 125,855 |
| 106,159 |
| | 89,778 |
|
Total property and equipment | 1,936,342 |
| | 1,788,963 |
| 2,338,230 |
| | 2,221,245 |
|
Less accumulated depreciation and amortization | (300,521 | ) | | (276,548 | ) | (397,750 | ) | | (373,977 | ) |
Property and equipment, net | $ | 1,635,821 |
| | $ | 1,512,415 |
| $ | 1,940,480 |
| | $ | 1,847,268 |
|
Note 4 — Long-Term Debt
Long-term debt and capitalfinance lease obligations (in thousands):
|
| | | | | | | |
| As of March 31, 2018 | | As of December 31, 2017 |
Fixed-rate notes payable and capital lease obligations due through 2029 | $ | 542,352 |
| | $ | 465,462 |
|
Variable-rate notes payable due through 2027 | 597,424 |
| | 699,430 |
|
Total long-term debt and capital lease obligations, net of related costs | 1,139,776 |
| | 1,164,892 |
|
Less current maturities, net of related costs | 154,850 |
| | 214,761 |
|
Long-term debt and capital lease obligations, net of current maturities and related costs | $ | 984,926 |
| | $ | 950,131 |
|
| | | |
Weighted average fixed-interest rate on debt | 5.4 | % | | 5.4 | % |
Weighted average variable-interest rate on debt | 3.8 | % | | 3.3 | % |
|
| | | | | | | |
| As of March 31, 2019 | | As of December 31, 2018 |
Fixed-rate debt and finance lease obligations due through 2030 (1) (2) | $ | 325,353 |
| | $ | 640,806 |
|
Variable-rate debt due through 2028 | 1,032,383 |
| | 630,927 |
|
Total long-term debt and finance lease obligations, net of related costs | 1,357,736 |
| | 1,271,733 |
|
Less current maturities, net of related costs (1) | 154,027 |
| | 152,287 |
|
Long-term debt and finance lease obligations, net of current maturities and related costs | $ | 1,203,709 |
| | $ | 1,119,446 |
|
| | | |
Weighted average fixed-interest rate on debt | 3.9 | % | | 5.3 | % |
Weighted average variable-interest rate on debt | 5.5 | % | | 4.2 | % |
(1) As of March 31, 2019, and December 31, 2018, respectively, $80.1 million and $428.0 million of the Company's Unsecured Senior Notes were classified as long-term as management refinanced the borrowings on a long-term basis in February 2019, as discussed below.
(2) Includes finance lease obligations secured by five A320 series aircraft.
Maturities of long-term debt and capitalfinance lease obligations for the remainder of 20182019 and for the next fivefour years and thereafter, in the aggregate, are: remaining in 2018 - $129.9 million; 2019 - $552.2$196.2 million; 2020 - $99.8$124.0 million; 2021 - $72.8$144.4 million; 2022 - $45.5$70.1 million; 2023 - $57.2 million; and $239.6$765.8 million thereafter.
Secured DebtConsolidated Variable Interest Entity
DuringThe Company evaluates ownership, contractual lease arrangements and other interests in entities to determine if they are variable interest entities ("VIEs") based on the three months ended March 31, 2018,nature and extent of those interests. These evaluations can be complex and involve judgment and the use of estimates and assumptions based on available historical information and management’s judgment, among other factors. The Company consolidates a VIE when, among other criteria, it has the power to direct the activities that most significantly impact the VIE’s economic performance as well as the obligation to absorb losses or the right to receive benefits of the VIE, thus making the Company did not enterthe primary beneficiary of the VIE.
In March 2019, the Company, through a wholly owned subsidiary, entered into any new loan agreements.agreements with a trust to borrow $44.0 million secured by one Airbus A320 series aircraft. The trust was funded on inception. These borrowings bear interest at a blended rate of 3.8 percent, payable in quarterly installments through March 2029, at which time the Company will have a purchase option at a fixed amount. As this transaction is a common control transaction, the Company, as the primary beneficiary, has measured and recorded the assets and liabilities at their carrying values, which were $39.1 million and $44.0 million, respectively, at the time of borrowing.
Senior Secured Revolving Credit Facility
In 2015, theThe Company through a wholly owned subsidiary, entered intohas a senior secured revolving credit facility under which it was entitled to borrow up to $56.0 million. As of December 31, 2017, the balance under this facility was $41.3 million, net of related costs, with five Airbus aircraft included in the collateral pool. In March 2018, the Company paid off the remaining balance under this facility.
On March 30, 2018, the Company amended this facility and will now beis able to borrow up to $81.0 million, and $46.9 million is outstanding as of March 31, 2019. The facility has a current term of 24 months and is based on the value of Airbus A320 Seriesseries aircraft which the Company may choose to placeplaced in the collateral pool. The facility has a term of 24 months. Any notes under the facility will bear interest at a floating rate based on LIBOR plus 1.75 percent. An individual aircraftAircraft may remain in the collateral pool for up to two years. Asyears, and, as of March 31, 2018,2019, there was no balancewere nine aircraft in the collateral pool. The notes for the amounts borrowed under the facility bear interest at a floating rate based on this credit facility.LIBOR and are due on March 31, 2021.
Term Loan
In February 2019, the Company entered into a Credit and Guaranty Agreement (the “Term Loan”) to borrow $450.0 million, guaranteed by all of the Company's subsidiaries, excluding Sunseeker Resorts Inc. and its subsidiaries, and other insignificant subsidiaries (the "Term Loan Guarantors"). The Term Loan is secured by substantially all property and assets of the Company and the Term Loan Guarantors, excluding aircraft and aircraft engines, and excluding certain other assets. The Term Loan has a five-year term, bears interest based on LIBOR and provides for quarterly interest payments along with quarterly principal payments of $1.1 million through February 2024, at which time the Term Loan is due. The Term Loan may be prepaid at any time without penalty.
In connection with the Term Loan, the Company conducted a tender offer for its 5.5 percent senior unsecured obligation, as outlined below.
General Unsecured Senior Notes
In June 2014, the Company completed an offering of $300.0 million aggregate principal amount of senior unsecured obligations (the "Notes") which will mature in July 2019. In December 2016, the Company completed an offering of an additional $150.0 million principal amount of these notes, which were issued at a price of 101.5 percent of the principal amount, plus accrued interest from July 15, 2016. The Notes bear interest at a rate of 5.5 percent per year, payable in cash semi-annually, on January 1515th and July 1515th of each year.
In connection with the Term Loan discussed above, the Company completed a tender offer, whereby it purchased $347.9 million of the Notes, and incurred related debt extinguishment costs of $3.7 million. The indenture pursuant to whichgoverning the Notes were issued includes operating and financial restrictions on the Company. These restrictions limit or restrict, among other things, the Company’s ability and the ability of its restricted subsidiarieswas amended to (i) incur additional indebtedness; (ii) incur liens; (iii) make restricted payments (including paying dividends on, redeeming, repurchasing or retiring capital stock); (iv) make investments; and (v) consolidate, merge or sell all or substantially all of its assets. These covenants are subject to various exceptions and qualifications under the termseliminate most of the indenture. Asrestrictive covenants and certain events of December 31, 2017default, reduce the minimum notice period required for redemptions of the Notes from 30 days as previously required by the indenture to three business days, and also March 31, 2018,amend certain other provisions applicable to the Notes. The $428.0 million net proceeds from the Term Loan have been, or will be, used to purchase the Notes. The Company exceededexpects to call the consolidated total leverage ratio limit, which could affectremaining balance of the ability to make restricted paymentsNotes in future periods after exhaustionadvance of various exceptions. However, we do not expect this to have any impact on the restricted payments we routinely make in the ordinary course of business. The calculation is made on a quarterly basis based on the trailing 12 months.their July 2019 maturity.
Construction Loan Agreement
Capital Leases
TheIn March 2019, Sunseeker Florida, Inc. (“SFI”), a wholly-owned subsidiary of the Company, entered into a Construction Loan Agreement with certain lenders affiliated with TPG Sixth Street Partners, LLC (the “Lender”). Under the Construction Loan Agreement, SFI may borrow up to $175.0 million (the “Loan”) to fund the construction of Phase 1 of Sunseeker Resort -Charlotte Harbor (the “Project”). No amount has capital lease obligations related to aircraft, which significantly impacted our recognized assets and liabilitiesbeen drawn under this agreement as of March 31, 2018, but did not result2019.
Under the Construction Loan Agreement, the Lender is to provide the final $175.0 million of funding for the Project, with initial funding to come from the Company. The loan is secured by the Project and, for a period of time, the surrounding land owned by SFI. The Company has guaranteed one-third of the debt, has agreed to bear responsibility under a Non-Recourse Carve-Out Guaranty, and has agreed to guarantee completion of the Project in any material cash receipts or cash payments duringaccordance with approved plans and specifications. All of the quarter.shares in SFI are also pledged to secure the loan. The Loan bears interest based on LIBOR and matures in March 2023.
Note 5 — Leases
The Company determines if an arrangement is a lease at inception and has lease agreements for office facilities, office equipment, certain airport and terminal facilities, and other space and assets. These commitments have remaining non-cancelable lease terms, with lease expirations which range from 2019 to 2036.
As a result of the New Lease Standard, certain real estate and property leases, and various other operating leases have been measured on the balance sheet with a lease liability and right-of-use asset ("ROU"). Airport terminal leases mostly include variable lease payments outside of those based on a fixed index, and are therefore excluded from consideration.
Application of this standard resulted in the recognition of $23.3 million in ROU assets and a corresponding lease liability of $24.2 million (with $22.0 million classified as long-term within Other non-current liabilities and the remainder classified as short-term within Accrued liabilities) as of March 31, 2019. Accounting for finance leases is substantially unchanged.
Operating leases are included in operating lease ROU assets, accrued liabilities, and other noncurrent liabilities on the consolidated balance sheets. Finance leases are included in property and equipment, current maturities of long-term debt and finance leases, and long-term debt and finance leases, net of current maturities, on the consolidated balance sheets. ROU assets represent the Company's right to use an underlying asset for the lease term, and lease liabilities represent the obligation to make scheduled lease payments. ROU assets and liabilities are recognized on the lease commencement date based on the present value of lease payments over the lease term. The present value of lease payments is calculated using the incremental borrowing rate at lease commencement, which takes into consideration recent debt issuances as well as other applicable market data available.
Lease terms include options to extend when it is reasonably certain that the option will be exercised. Leases with a term of 12 months or less are not recorded on the balance sheet. Additionally, lease and non-lease components are accounted for as a single lease component for real estate agreements.
In addition to operating leases the Company leases certain aircraft and, as of March 31, 2019, had five aircraft under finance leases with remaining terms to 2029.
See Note 8, Commitments and Contingencies, for further detail.
Lease Costs
The components of lease expense were as follows:
|
| | | | |
| | Three Months Ended |
(in thousands) | Classification on the Statements of Income | March 31, 2019 |
Finance lease costs: | | |
Amortization of assets | Depreciation and amortization | $ | 1,629 |
|
Interest on lease liabilities | Interest expense | 1,346 |
|
Operating lease cost | Station operations; Maintenance and repairs; Other operating expense | 775 |
|
Variable lease cost | Station operations; Maintenance and repairs; Other operating expense | 3,092 |
|
Total lease cost | | $ | 6,842 |
|
Lease position as of March 31, 2019
The table below presents the lease-related assets and liabilities recorded on the balance sheet.
|
| | | | |
(in thousands) | Classification on the Balance Sheet | As of March 31, 2019 |
Assets | | |
Operating lease assets | Operating lease right-of-use assets, net | $ | 22,788 |
|
Finance lease assets | Property and equipment, net | 116,553 |
|
Total lease assets | | $ | 139,341 |
|
| | |
Liabilities | | |
Current | | |
Operating | Accrued liabilities | $ | 2,101 |
|
Finance | Current maturities of long-term debt and finance lease obligations | 7,417 |
|
Noncurrent | | |
Operating | Other noncurrent liabilities | 22,049 |
|
Finance | Long-term debt and finance lease obligations | 113,710 |
|
Total lease liabilities | | $ | 145,277 |
|
| | |
Weighted-average remaining lease term | | |
Operating leases | | 9.5 years |
|
Finance leases | | 10.6 years |
|
Weighted-average discount rate | | |
Operating leases | | 4.2 | % |
Finance leases | | 4.4 | % |
Other Information
The table below presents supplemental cash flow information related to leases during the three months ended March 31, 2019.
|
| | | |
| Three Months Ended |
(in thousands) | March 31, 2019 |
Cash paid for amounts included in the measurement of lease liabilities | |
Operating cash flows for operating leases | $ | 629 |
|
Operating cash flows for finance leases | 1,346 |
|
Financing cash flows for finance leases | 1,804 |
|
Maturities of Lease Liabilities
The table below indicates the future minimum payments of lease liabilities as of March 31, 2019.
|
| | | | | | | |
(in thousands) | Operating Leases | | Finance Leases |
Remaining in 2019 | $ | 2,269 |
| | $ | 9,450 |
|
2020 | 3,206 |
| | 12,600 |
|
2021 | 3,249 |
| | 12,600 |
|
2022 | 3,295 |
| | 11,095 |
|
2023 | 3,147 |
| | 10,500 |
|
Thereafter | 14,325 |
| | 103,458 |
|
Total lease payments | 29,491 |
| | 159,703 |
|
Less imputed interest | (5,341 | ) | | (38,576 | ) |
Total lease obligations | 24,150 |
| | 121,127 |
|
Less current obligations | (2,101 | ) | | (7,417 | ) |
Long-term lease obligations | $ | 22,049 |
| | $ | 113,710 |
|
The Company adopted the New Lease Standard on January 1, 2019 as noted above, and as required, the following disclosure is provided for periods prior to adoption. Future annual minimum lease payments as of December 31, 2018 were as follows:
|
| | | | | | | |
(in thousands) | Operating Leases | | Capital Leases |
2019 | $ | 8,102 |
| | $ | 12,600 |
|
2020 | 6,031 |
| | 12,600 |
|
2021 | 3,643 |
| | 12,600 |
|
2022 | 1,630 |
| | 11,095 |
|
2023 | 1,626 |
| | 10,500 |
|
Thereafter | 8,297 |
| | 103,458 |
|
Total lease payments | $ | 29,329 |
| | 162,853 |
|
Less imputed interest | | | (39,922 | ) |
Total lease obligations | | | 122,931 |
|
Less current obligations | | | (7,336 | ) |
Long-term lease obligations | | | $ | 115,595 |
|
Note 6 — Fair Value Measurements
The Company measures certain financial assets and liabilities at fair value on a recurring basis. Fair value is an exit price, representing the amount that would be received by selling an asset or paid to transfer a liability in an orderly transaction between market participants.
Accounting standards pertaining to fair value measurements establish a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. These tiers include: Level 1, defined as observable inputs such as quoted prices in active markets for identical assets or liabilities; Level 2, defined as inputs other than Level 1 inputs that are either directly or indirectly observable; and Level 3, defined as unobservable inputs for which little or no market data exists, therefore requiring an entity to develop its own assumptions.
The Company uses the market approach valuation technique to determine fair value for investment securities. The assets classified as Level 1 consist of money market funds for which original cost approximates fair value. The assets classified as Level 2 consist of commercial paper, municipal debt securities, federal agency debt securities, US Treasury Bonds, and corporate debt securities, which are valued using quoted market prices or alternative pricing sources including transactions involving identical or comparable assets and models utilizing market observable inputs. The Company has no investment securities classified as Level 3.
For those assets classified as Level 2 that are not in active markets, the Company obtains fair value from pricing sources using quoted market prices for identical or comparable instruments, and uses pricing models which include all significant observable
inputs: maturity dates, issue dates, settlement dates, benchmark yields, reported trades, broker-dealer quotes, issue spreads, benchmark securities, bids, offers and other market related data. These inputs are observable or can be derived from, or corroborated by, observable market data for substantially the full term of the asset.
The fair value of the Company's derivative instrument is determined using standard valuation models. The significant inputs used in these models are readily available in public markets or can be derived from observable market transactions and therefore have been classified as Level 2. Inputs used in these standard valuation models for derivative instruments include the applicable exchange and interest rates.
Financial instruments measured at fair value on a recurring basis (in thousands):
| | | As of March 31, 2018 | | As of December 31, 2017 | As of March 31, 2019 | | As of December 31, 2018 |
| Total | | Level 1 | | Level 2 | | Total | | Level 1 | | Level 2 | Total | | Level 1 | | Level 2 | | Total | | Level 1 | | Level 2 |
Cash equivalents | | | | | | | | | | | | | | | | | | | | | | |
Money market funds | | $ | 125,394 |
| | $ | 125,394 |
| | $ | — |
| | $ | 43,281 |
| | $ | 43,281 |
| | $ | — |
|
Commercial paper | $ | 33,473 |
| | $ | — |
| | $ | 33,473 |
| | $ | 27,910 |
| | $ | — |
| | $ | 27,910 |
| 80,760 |
| | — |
| | 80,760 |
| | 29,138 |
| | — |
| | 29,138 |
|
Municipal debt securities | 3,102 |
| | — |
| | 3,102 |
| | 2,782 |
| | — |
| | 2,782 |
| 3,792 |
| | — |
| | 3,792 |
| | — |
| | — |
| |
|
|
Money market funds | 889 |
| | 889 |
| | — |
| | 1,297 |
| | 1,297 |
| | — |
| |
US Treasury Bonds | | 880 |
| | — |
| | 880 |
| | 1,415 |
| | — |
| | 1,415 |
|
Total cash equivalents | 37,464 |
| | 889 |
| | 36,575 |
| | 31,989 |
| | 1,297 |
| | 30,692 |
| 210,826 |
| | 125,394 |
| | 85,432 |
| | 73,834 |
| | 43,281 |
| | 30,553 |
|
Short-term | |
| | |
| | | | |
| | |
| | |
| |
| | |
| | | | |
| | |
| | |
|
Commercial paper | | 182,608 |
| | — |
| | 182,608 |
| | 180,846 |
| | — |
| | 180,846 |
|
Corporate debt securities | 122,875 |
| | — |
| | 122,875 |
| | 107,878 |
| | — |
| | 107,878 |
| 74,331 |
| | — |
| | 74,331 |
| | 101,489 |
| | — |
| | 101,489 |
|
Commercial paper | 101,058 |
| | — |
| | 101,058 |
| | 108,678 |
| | — |
| | 108,678 |
| |
Municipal debt securities | 76,381 |
| | — |
| | 76,381 |
| | 101,290 |
| | — |
| | 101,290 |
| 13,927 |
| | — |
| | 13,927 |
| | 14,252 |
| | — |
| | 14,252 |
|
Federal agency debt securities | 39,529 |
| | — |
| | 39,529 |
| | 31,428 |
| | — |
| | 31,428 |
| 11,367 |
| | — |
| | 11,367 |
| | 11,887 |
| | — |
| | 11,887 |
|
US Treasury Bonds | 1,419 |
| | — |
| | 1,419 |
| | 3,407 |
| | — |
| | 3,407 |
| 4,722 |
| | — |
| | 4,722 |
| | 5,990 |
| | — |
| | 5,990 |
|
Total short-term | 341,262 |
| | — |
| | 341,262 |
| | 352,681 |
| | — |
| | 352,681 |
| 286,955 |
| | — |
| | 286,955 |
| | 314,464 |
| | — |
| | 314,464 |
|
Long-term | |
| | |
| | |
| | |
| | |
| | |
| |
| | |
| | |
| | |
| | |
| | |
|
Corporate debt securities | 55,874 |
| | — |
| | 55,874 |
| | 60,396 |
| | — |
| | 60,396 |
| 20,300 |
| | — |
| | 20,300 |
| | 37,334 |
| | — |
| | 37,334 |
|
US Treasury Bonds | | 3,050 |
| | — |
| | 3,050 |
| | 2,901 |
| | — |
| | 2,901 |
|
Federal agency debt securities | 17,137 |
| | — |
| | 17,137 |
| | 5,775 |
| | — |
| | 5,775 |
| 1,255 |
| | — |
| | 1,255 |
| | 11,291 |
| | — |
| | 11,291 |
|
Municipal debt securities | 9,658 |
| | — |
| | 9,658 |
| | 9,405 |
| | — |
| | 9,405 |
| |
US Treasury Bonds | 2,990 |
| | — |
| | 2,990 |
| | 2,994 |
| | — |
| | 2,994 |
| |
Derivative instruments | 107 |
| | — |
| | 107 |
| | 282 |
| | — |
| | 282 |
| |
Total long-term | 85,766 |
| | — |
| | 85,766 |
| | 78,852 |
| | — |
| | 78,852 |
| 24,605 |
| | — |
| | 24,605 |
| | 51,526 |
| | — |
| | 51,526 |
|
Total financial instruments | $ | 464,492 |
| | $ | 889 |
| | $ | 463,603 |
| | $ | 463,522 |
| | $ | 1,297 |
| | $ | 462,225 |
| $ | 522,386 |
| | $ | 125,394 |
| | $ | 396,992 |
| | $ | 439,824 |
| | $ | 43,281 |
| | $ | 396,543 |
|
The fair value of the Company’s publicly held long-term debt is determined based on inputs that are readily available in public markets or can be derived from information available in publicly quoted markets; therefore, the Company has categorized its publicly held debt as Level 2. The Company's remaining debt agreements areis not publicly held. Theheld, and the Company has determined the estimated fair value of these notes to be Level 3, as certain inputs used to determine the fair value of these agreements are unobservable and, therefore, could be sensitive to changes in inputs. The Company utilizes the discounted cash flow method to estimate the fair value of Level 3 debt.
Carrying value and estimated fair value of long-term debt, including current maturities and without reduction for related costs are as follows (in thousands):
| | | As of March 31, 2018 | | As of December 31, 2017 | | As of March 31, 2019 | | As of December 31, 2018 | |
| Carrying Value | | Estimated Fair Value | | Carrying Value | | Estimated Fair Value | | Hierarchy Level | Carrying Value | | Estimated Fair Value | | Carrying Value | | Estimated Fair Value | | Hierarchy Level |
Publicly held debt | $ | 451,107 |
| | $ | 459,001 |
| | $ | 451,321 |
| | $ | 462,604 |
| | 2 | $ | 102,133 |
| | $ | 102,389 |
| | $ | 450,463 |
| | $ | 451,026 |
| | 2 |
Non-publicly held debt | 616,974 |
| | 555,099 |
| | 719,681 |
| | 660,065 |
| | 3 | 1,160,772 |
| | 937,134 |
| | 703,372 |
| | 619,379 |
| | 3 |
Total long-term debt | $ | 1,068,081 |
| | $ | 1,014,100 |
| | $ | 1,171,002 |
| | $ | 1,122,669 |
| | $ | 1,262,905 |
| | $ | 1,039,523 |
| | $ | 1,153,835 |
| | $ | 1,070,405 |
| |
Due to the short-term nature, carrying amounts of cash, cash equivalents, restricted cash, accounts receivable and accounts payable approximate fair value.
Note 6 — Shareholders’ Equity
The Company is authorized by the Board of Directors to acquire its stock through open market purchases under its share repurchase program. As repurchase authority is used, the Board of Directors has, to date, authorized additional expenditures for share repurchases.
For the three months ended March 31, 2018, the Company had no open market share repurchases. For the three months ended March 31, 2017, open market share repurchases consisted of the following:
|
| | | | | | |
| Three Months Ended March 31, |
| 2018 | | 2017 |
Shares repurchased (not in thousands) (1) | None |
| | 15,440 |
|
Average price per share | NA |
| | $ | 161.92 |
|
Total (in thousands) | None |
| | $ | 2,500 |
|
(1) Share amounts shown above include only open market repurchases and do not include shares withheld from employees for tax withholding obligations related to restricted stock vestings.
During the three months ended March 31, 2018, the Company declared and paid recurring cash dividends of $0.70 per share, or $11.3 million.
Note 7 — Earnings per Share
Basic and diluted earnings per share are computed pursuant to the two-class method. Under this method, the Company attributes net income to two classes: common stock and unvested restricted stock. Unvested restricted stock awards granted to employees under the Company’s Long-Term Incentive Plan are considered participating securities as they receive non-forfeitable rights to cash dividends at the same rate as common stock.
Diluted net income per share is calculated using the more dilutive of the two methods. Under both methods, the exercise of employee stock options is assumed using the treasury stock method. The assumption of vesting of restricted stock, however, differs:
| |
1. | Assume vesting of restricted stock using the treasury stock method. |
| |
2. | Assume unvested restricted stock awards are not vested, and allocate earnings to common shares and unvested restricted stock awards using the two-class method. |
For the three months ended March 31, 2019 and 2018, respectively, the second method, which assumes unvested awards are not vested, was used in the computation because it was more dilutive than the first method.
The following table sets forth the computation of net income per share, on a basic and diluted basis, for the periods indicated (share count and dollar amounts other than per-share amounts in table are in thousands):
| | | Three Months Ended March 31, | Three Months Ended March 31, |
| 2018 | | 2017 | 2019 | | 2018 |
Basic: | | | | | | |
Net income | $ | 55,193 |
| | $ | 42,351 |
| $ | 57,124 |
| | $ | 55,193 |
|
Less net income allocated to participating securities | (768 | ) | | (694 | ) | (799 | ) | | (768 | ) |
Net income attributable to common stock | $ | 54,425 |
| | $ | 41,657 |
| $ | 56,325 |
| | $ | 54,425 |
|
Net income per share, basic | $ | 3.43 |
| | $ | 2.54 |
| |
Earnings per share, basic | | $ | 3.52 |
| | $ | 3.43 |
|
Weighted-average shares outstanding | 15,889 |
| | 16,382 |
| 16,011 |
| | 15,889 |
|
Diluted: | |
| | |
| |
| | |
|
Net income | $ | 55,193 |
| | $ | 42,351 |
| $ | 57,124 |
| | $ | 55,193 |
|
Less net income allocated to participating securities | (768 | ) | | (693 | ) | (798 | ) | | (768 | ) |
Net income attributable to common stock | $ | 54,425 |
| | $ | 41,658 |
| $ | 56,326 |
| | $ | 54,425 |
|
Net income per share, diluted | $ | 3.42 |
| | $ | 2.54 |
| |
Earnings per share, diluted | | $ | 3.52 |
| | $ | 3.42 |
|
Weighted-average shares outstanding | 15,889 |
| | 16,382 |
| 16,011 |
| | 15,889 |
|
Dilutive effect of stock options and restricted stock | 46 |
| | 91 |
| 31 |
| | 46 |
|
Adjusted weighted-average shares outstanding under treasury stock method | 15,935 |
| | 16,473 |
| 16,042 |
| | 15,935 |
|
Participating securities excluded under two-class method | (37 | ) | | (68 | ) | (29 | ) | | (37 | ) |
Adjusted weighted-average shares outstanding under two-class method | 15,898 |
| | 16,405 |
| 16,013 |
| | 15,898 |
|
For the three months ended March 31, 2019 and 2018, respectively, anti-dilutive shares excluded from the calculation of earnings per share were 4,046 shares and 1,463 shares (not in thousands).
Note 8 — Commitments and Contingencies
As of March 31, 2018,2019, the Company had firm commitments to purchase the following aircraft:
|
| | |
Aircraft Type | | Number of Aircraft Under Contract |
Airbus A319 | | 1 |
Airbus A320 | | 13 |
In addition, the Company has entered into lease agreements for an additional 13twelve Airbus A320 series aircraft three of which have been delivered but were not in service as of March 31, 2018. The remaining 10 aircraft are expected to be delivered by the end of 2018.and four CFM engines.
Future minimum fixed payments for theThe Company's contractual purchase commitments related to the acquisitionconsist primarily of aircraft (including aircraft lease obligations), airport fees under use and lease agreements, and other operating lease obligationsengine acquisitions. The total future commitments are as follows as of March 31, 2018 (in thousands):
| | | As of March 31, 2018 | As of March 31, 2019 |
Remaining in 2018 | $ | 128,042 |
| |
2019 | 124,842 |
| |
Remaining in 2019 | | $ | 198,110 |
|
2020 | 69,488 |
| 33,800 |
|
2021 | 28,582 |
| 500 |
|
2022 | 25,004 |
| 18,000 |
|
Thereafter | 164,987 |
| |
Total commitments | $ | 540,945 |
| $ | 250,410 |
|
Contingencies
The Company is subject to certain legal and administrative actions it considers routine to its business activities. The Company believes the ultimate outcome of any pending legal or administrative matters will not have a material adverse impact on its financial position, liquidity or results of operations.
Note 9 — Related Party TransactionsSegments
DuringOperating segments are components of a company for which separate financial and operating information is regularly evaluated and reported to the Chief Operating Decision Maker ("CODM"), and is used to allocate resources and analyze performance. The Company's CODM is the executive leadership team, which reviews information about the Company's three months ended March 31, 2018,operating segments: the Company did not make any payments to related parties.Airline, Sunseeker Resort, and Other non-airline.
Entities owned or controlled byAirline Segment
The Airline segment operates as a single business unit and includes all scheduled service air transportation, ancillary air-related products and services, third party products and services, fixed fee contract air transportation and other airline-related revenue. The CODM evaluation includes, but is not limited to, route and flight profitability data, ancillary and third party product and service offering statistics, and fixed fee contract information when making resource allocation decisions with the goal of optimizing consolidated financial results.
Sunseeker Resort Segment
The Sunseeker Resort segment represents activity related to the development and construction of Sunseeker Resort in Southwest Florida, as well as the operation of Kingsway golf course. Plans for the resort include a 500-room hotel and two towers offering an estimated 180 one, two and three bedroom suites, bar and restaurant options, and other amenities. The golf course is a short drive from the resort site and is considered, from a planning and strategic perspective, to be an additional resort amenity. The construction of Sunseeker Resort is an extension of the Company's Chairmanleisure travel focus and CEO have been paidit is expected that many customers flying to Southwest Florida on Allegiant will elect to stay at this resort and enjoy its amenities.
Other non-Airline Segment
The other non-airline segment includes the Teesnap golf course management solution and Allegiant Nonstop family entertainment centers, both of which fit with the Company's leisure focus. Allegiant Nonstop family entertainment centers are comprised of games, attractions, and food facilities.
Selected information for the building of corporate training content. This approachCompany's segments and the reconciliation to training focuses on concept mastery, recognizing that individuals learn at varying paces, through different styles, and is designed to ensure the trainee fully understands each module before moving on to more advanced training. During the three months ended March 31, 2017, the Company made payments to these entities of $0.2 million. No further paymentsconsolidated financial statement amounts are expected.as follows (in thousands):
|
| | | | | | | | | | | | | | | |
| Airline | | Sunseeker Resort | | Other non- airline | | Consolidated |
Three Months Ended March 31, 2019 | | | | | | | |
Operating revenue: | | | | | | | |
Passenger | $ | 419,977 |
| | $ | — |
| | $ | — |
| | $ | 419,977 |
|
Third party products | 17,141 |
| | — |
| | — |
| | 17,141 |
|
Fixed fee contract | 10,575 |
| | — |
| | — |
| | 10,575 |
|
Other | 631 |
| | 902 |
| | 2,396 |
| | 3,929 |
|
Operating income (loss) | 98,490 |
| | (1,222 | ) | | (6,190 | ) | | 91,078 |
|
Interest expense, net of capitalized interest and interest income | 13,221 |
| | 158 |
| | — |
| | 13,379 |
|
Depreciation and amortization | 35,229 |
| | 156 |
| | 797 |
| | 36,182 |
|
Total assets, end of period | 2,640,003 |
| | 68,742 |
| | 41,732 |
| | 2,750,477 |
|
Capital expenditures | 108,920 |
| | 5,275 |
| | 8,356 |
| | 122,551 |
|
Three Months Ended March 31, 2018 | | | | | | | |
Operating revenue: | | | | | | | |
Passenger | $ | 396,771 |
| | $ | — |
| | $ | — |
| | $ | 396,771 |
|
Third party products | 10,325 |
| | — |
| | — |
| | 10,325 |
|
Fixed fee contract | 10,556 |
| | — |
| | — |
| | 10,556 |
|
Other | 6,666 |
| | — |
| | 1,126 |
| | 7,792 |
|
Operating income (loss) | 81,950 |
| | (145 | ) | | (1,837 | ) | | 79,968 |
|
Interest expense, net | 10,817 |
| | — |
| | — |
| | 10,817 |
|
Depreciation and amortization | 27,766 |
| | 7 |
| | 376 |
| | 28,149 |
|
Total assets, end of period | 2,248,340 |
| | 33,910 |
| | 6,715 |
| | 2,288,965 |
|
Capital expenditures | 59,574 |
| | 8,140 |
| | 1,453 |
| | 69,167 |
|
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis presents factors that had a material effect on our results of operations during the three months ended March 31, 20182019 and 2017.2018. Also discussed is our financial position as of March 31, 20182019 and December 31, 2017.2018. You should read this discussion in conjunction with our unaudited consolidated financial statements, including the notes thereto, appearing elsewhere in this Form 10-Q and our consolidated financial statements appearing in our annual report on Form 10-K for the year ended December 31, 2017.2018. This discussion and analysis contains forward-looking statements. Please refer to the section below entitled “Cautionary Note Regarding Forward-Looking Statements” for a discussion of the uncertainties, risks and assumptions associated with these statements.
FIRST QUARTER REVIEW
First Quarter 2019 Review
Highlights:
Added four Airbus A320 series aircraft into service and retired five MD-80 aircraft;
experienced year-over-year load factor improvements for each month during the quarter, with an overall 2.9 percentage point increase in load factor for the quarter;
operating margin remained relatively flat year over year, with less than a one percentage point decline, despite a 20.4 percent increase in the average fuel cost per gallon;
significant operational improvements, as we ranked among the the top three airlines for having the lowest cancellation rates in the industry for both January and February 2018;
paid recurring cash dividends of $11.3 million during the quarter; and
operating 390 routes as of quarter-end versus 358 at the same point in 2017. | |
– | Achieved 22 percent airline operating margin; |
| |
– | recognized record ancillary air-related revenue per passenger of $53.10, which represents an increase of 12.5 percent compared to 2018; |
| |
– | added eight aircraft into service and expect an additional nine to be added throughout 2019; |
| |
– | announced 35 new routes, including inaugural service into Anchorage, AK; and |
| |
– | broke ground on Sunseeker Resort - Charlotte Harbor. |
AIRCRAFT
The following table sets forth the aircraft in service and operated by us as of the dates indicated:
|
| | | | | | | | |
| March 31, 2018 | | December 31, 2017 | | March 31, 2017 |
MD-80 | 32 |
| | 37 |
| | 47 |
|
B757-200 | — |
| | — |
| | 2 |
|
A319 (1) | 26 |
| | 22 |
| | 19 |
|
A320 (2) | 30 |
| | 30 |
| | 17 |
|
Total | 88 |
| | 89 |
| | 85 |
|
|
| | | | | | | | |
| March 31, 2019 | | December 31, 2018 | | March 31, 2018 |
MD-80 | — |
| | — |
| | 32 |
|
A319 | 37 |
| | 32 |
| | 26 |
|
A320 (1) | 47 |
| | 44 |
| | 30 |
|
Total | 84 |
| | 76 |
| | 88 |
|
(1) Does not include eight A319 aircraft on lease to a European carrier and two that have been returned from lease but were not yet in service as of March 31, 2018.
(2) Does not include eight A320three aircraft for which we have taken delivery, but were not yet in service as of March 31, 2018.2019.
As of March 31, 2018,2019, we had firm commitments to purchase 14 Airbus A320 series aircraft and had executed lease agreements for 10 Airbus A320 series aircraft which have yet to be delivered.twelve aircraft. We expect delivery of 16nine of these committed aircraft in 20182019 and the remaining aircraft in 20192020 and 2020.2022. We continually consider aircraft acquisitions on an opportunistic basis.
Fleet Plan
The below table indicates the number of aircraft expected to be in service as of the dates indicated, based on currently scheduled additions to and retirements from, our operating fleet.
| | | As of June 30, 2018 | | As of September 30, 2018 | | As of December 31, 2018 | As of June 30, 2019 | | As of September 30, 2019 | | As of December 31, 2019 |
MD-80 | 27 |
| | 19 |
| | — |
| |
A319 | 31 |
| | 31 |
| | 32 |
| 37 |
| | 38 |
| | 38 |
|
A320 | 41 |
| | 45 |
| | 50 |
| 51 |
| | 53 |
| | 55 |
|
Total | 99 |
| | 95 |
| | 82 |
| 88 |
| | 91 |
| | 93 |
|
NETWORK
Our operating network asAs of March 31, 20182019, we are currently selling 450 routes versus 419 as of the same date last year, which represents an 8.9a 7.4 percent increase in the number of routes flown compared to March 31, 2017.increase. Our total number of origination cities and leisure destinations (for operating routes) were 98 and 1923, respectively, as of March 31, 2018, compared with 972019. Based on our currently published schedule through early-February 2020, and 20service announcements and cancellations by other airlines to date, we will have direct competition (which we consider to be similar non-stop service between markets) on 114 of our routes as of March 31, 2017. Asthat date.
During the first quarter of May 1, 2018,2019, we were selling 419 routes.announced 35 new routes including our inaugural scheduled flights to Anchorage, AK and additional service to Destin, FL, Nashville, TN, and Savannah, GA, among other route announcements. The new routes are all planned to begin service in the second quarter 2019.
In April 2019, we filed an application with the U.S. Department of Transportation to offer scheduled service to Mexico. This is the first step in beginning to offer international service to our leisure travelers, with non-stop flights between the United States and Mexico.
TRENDS
In continuing withAs we have completed our fleet transition, to an all-Airbus fleet, we added four Airbus A320 series aircraft to our operating fleet during the first quarter of 2018. Airbus aircraft flew 72.4100 percent of our scheduled service ASMs for the quarter, compared to 52.672.4 percent for the same time period in 2017.2018, which drove a 9.6 percent increase in fuel efficiency (measured as ASMs per gallon). Despite having an average of 11 fewer operating aircraft in the fleet compared to 2018, scheduled service ASMs increased 5.6 percent and scheduled service passengers increased 4.3 percent. Higher utilization of the Airbus fleet (with a 16.9 percent year-over-year increase in average block hours per aircraft per day) enabled system growth with fewer aircraft. We expect 26 more Airbus A320 seriesto return to lower aircraft to be placed in service by the end of 2018.
In conjunction with the fleet transition, we retired five MD-80 aircraftutilization during the quarteryear, as more aircraft are added to our operating fleet. Airline operating income increased more than $16 million quarter-over-quarter, and expect to retire the remaining 32 MD-80 aircraft by the end of 2018. Although the number of aircraft in our fleet will decline by the end of the year with the retirement of all of our MD-80 aircraft, we intend to continue to increase our capacity and network as we have higher utilization rates on our Airbus fleet. produced a 22 percent operating margin.
We have seen significant improvements incontinue to improve our operations. According to the most recent Department of Transportation (DOT) statistics, we ranked among the the top three airlines for having the lowest cancellation rates in the industry for both January and February 2018. We have company initiatives to engage every employee in the goal of improving operations. Additionally, we expect to gain operational efficienciesoperation, as we transition to an all Airbus fleet.
Our customer satisfaction has improved. Travel & Leisure Magazine recently announced we finished third in its 2017 American Customer Satisfaction Index of the American airline industry, ahead of all three legacy carriers. The magazine reported we had the highest jump in score from the prior year of all airlines in the report.
In April 2018, CBS airedevidenced by a 60 Minutes segment critical of our safety and the FAA oversight of our operations. We believe the report was misleading, misrepresented our safety culture at that time and now, and mostly ignored the substantial improvement in the reliability of our operations since the events reported. In the wake of this segment, our100 percent controllable completion rate of cancellations increased and bookings declined. Within a matter of a few weeks after the story aired, cancellations and bookings returned to more normal levels. Although we do not believe the impact of this story will have a material effect on our results of operations, it is not known whether there will be any lingering effect on our business.
The continued roll out of our new revenue management system has had positive results. We have seen five consecutive months of year-over-year load factor improvements. Our overall scheduled service load factor for the first quarter 2018 was 85.1 percent compared to 82.2 percent for the first quarter 2017.
As2019, and a total completion factor of March 31, 2018, we were offering service on 142 medium-sized city routes compared to 101 as of the same date in 2017.99.2 percent. We have 29 new routes expected to begin in the second quarter, including service into our newest cities - Nashville, Tennessee; Sarasota/Bradenton, Florida; and Charleston, South Carolina.also achieved a record 123 consecutive days without a maintenance cancellation.
Planning and development for Sunseeker Resorts is ongoing. Construction is expected to begin in June 2018, with the opening of the resort planned for early 2020.
Our flight dispatchers have voted for union representation and negotiations began in February 2017, but we have yet to reach an agreement. There are approximately 40 employees in this employee group. Any labor actions following an inability to reach a collective bargaining agreement with this employee group could impact our operations during the continuance of any such activity. Any labor agreement reached following negotiations would also likely increase our operating costs.
In March 2018,April 2019, our maintenance technicians, who represent approximately nine percent of our total employee base (approximately 340 employees), voted for union representationdispatchers, represented by the International Brotherhood of Teamsters, (IBT). Negotiations voted to ratify their first collective bargaining agreement. The agreement has a five year term beginning May 1, 2019 and is not expected to have a significant effect on our operating results.
In March 2019, we began construction for an agreementSunseeker Resort - Charlotte Harbor in Southwest Florida, and entered into a Construction Loan Agreement with this group will beginaffiliates of TPG Sixth Street Partners to provide $175 million in construction financing for the near future.project. We also opened our first Allegiant Nonstop family entertainment center in Clearfield, UT, in January 2019 and our second location in Warren, MI, in April 2019.
RESULTS OF OPERATIONS
Comparison of three months ended March 31, 20182019 to three months ended March 31, 20172018
Operating Revenue
Passenger revenue. Passenger revenue now includes both scheduled service revenue and air-related ancillary revenue, due to the implementation of the New Revenue Standard. For the first quarter 2018,2019, passenger revenue increased 14.15.8 percent compared to 2017.first quarter 2018. The increase was driven primarily by a 15.24.6 percent increase in scheduled service departures, which resulted in a 4.3 percent increase in scheduled service passengers offset(slightly diluted by a 1.0 percent decrease1.2 percentage point drop in scheduled service average fare.load factor). The increasehigher number of passengers resulted in scheduled service passengers is dueyear-over-year increases in ancillary revenues, the most significant of which were increases in the customer convenience fee and carry on and checked baggage fees throughout the network. These increases contributed to a 9.512.5 percent increase in departures and a 2.9 percentage point increaseunit ancillary revenue to $53.10 per passenger, the highest quarterly performance in load factor.our history.
Third party products revenue. Third party productproducts revenue for the first quarter 2018 decreased 19.02019 increased 66.0 percent, overallor $6.8 million, compared to 2017, due mostly to the allocationsame period in 2018. This is primarily the result of certaina 26.5 percent increase in net revenue components offrom rental cars resulting from the increase in scheduled service passengers coupled with a higher take rate, as well as an increase in revenue generated from our Allegiant World Mastercard® co-branded credit card whereby $3.6 million of the revenue related to the travel component was reclassified into passenger revenue. This decrease was slightly offset by revenue on rental cars, which increased 20.5 percent year over year.program.
Fixed fee contract revenue. Fixed fee contract revenue for the first quarter 2019 remained relatively flat when compared to 2018, despite a 6.5 percent decrease in fixed fee departures quarter-over-quarter. The decrease in departures resulted from the government shutdown early in the quarter, as the FAA was not available to provide certification for aircraft that we had available and ready for service; thus, we were operating fewer aircraft than planned.
Other revenue. Other revenue decreased 6.2 percentby $3.9 million for the first quarter 2019 from 2017. This was planned and expected2018, primarily due to less availabilitya decrease in aircraft lease revenue. We took redelivery of the final aircraft for charter flyingpreviously on lease to a European carrier in December 2018, whereas 10 aircraft were on lease during the first quarter 2018. The decline in lease revenue was partially offset by increased revenue from Teesnap, our fleet transition.golf course management solution.
Operating Expenses
We primarily evaluate our expense management by comparing our costs per passenger and per ASM across different periods, which enables us to assess trends in each expense category. The following table presents operating expenseunit costs on a per passengerASM basis, or CASM, for the indicated periods. The table also presents operating expenseExcluding fuel on a per passenger, excluding fuel, a statistic which givesASM basis provides management and investors the ability to measure and monitor our cost performance absent fuel price volatility. Both the cost and availability of fuel are subject to many economic and political factors beyond our control.
| | | Three Months Ended March 31, | | Percent | Three Months Ended March 31, | | Percent |
| 2018 | | 2017 | | Change | 2019 | | 2018 | | Change |
Salary and benefits | |
| 3.05 | ¢ | |
| 3.03 | ¢ | | 0.7 | % |
Aircraft fuel | $ | 32.10 |
| | $ | 29.38 |
| | 9.3 | % | 2.55 |
| | 2.84 |
| | (10.2 | ) |
Salary and benefits | 34.20 |
| | 33.42 |
| | 2.3 |
| |
Station operations | 11.38 |
| | 11.05 |
| | 3.0 |
| 1.00 |
| | 1.01 |
| | (1.0 | ) |
Maintenance and repairs | 5.83 |
| | 10.45 |
| | (44.2 | ) | 0.58 |
| | 0.52 |
| | 11.5 |
|
Depreciation and amortization | 8.52 |
| | 10.60 |
| | (19.6 | ) | 0.93 |
| | 0.75 |
| | 24.0 |
|
Sales and marketing | 5.78 |
| | 4.63 |
| | 24.8 |
| 0.54 |
| | 0.51 |
| | 5.9 |
|
Aircraft lease rentals | 0.01 |
| | 0.06 |
| | (83.3 | ) | |
Other | 6.78 |
| | 6.72 |
| | 0.9 |
| 0.57 |
| | 0.61 |
| | (6.6 | ) |
Operating expense per passenger | $ | 104.60 |
| | $ | 106.31 |
| | (1.6 | )% | |
Operating expense per passenger, excluding fuel | $ | 72.50 |
| | $ | 76.93 |
| | (5.8 | )% | |
CASM | |
| 9.22 | ¢ | |
| 9.27 | ¢ | | (0.5 | )% |
Operating CASM, excluding fuel | | 6.67 |
| | 6.43 |
| | 3.7 |
|
Non-airline operating CASM* | | 0.27 |
| | 0.08 |
| | NM |
|
Operating CASM, excluding fuel and non-airline activity | |
| 6.40 | ¢ | |
| 6.35 | ¢ | | 0.8 | % |
The following table presents unit*Includes operating costs on a per ASM basis, or CASM, for the indicated periods. As on a per-passenger basis, excluding fuel on a per ASM basis provides managementassociated with Sunseeker Resort and investors the ability to measure and monitor our cost performance absent fuel price volatility.
|
| | | | | | | | | | |
| Three Months Ended March 31, | | Percent |
| 2018 | | 2017 | | Change |
Aircraft fuel |
| 2.84 | ¢ | |
| 2.51 | ¢ | | 13.1 | % |
Salary and benefits | 3.03 |
| | 2.85 |
| | 6.3 |
|
Station operations | 1.01 |
| | 0.94 |
| | 7.4 |
|
Maintenance and repairs | 0.52 |
| | 0.89 |
| | (41.6 | ) |
Depreciation and amortization | 0.75 |
| | 0.90 |
| | (16.7 | ) |
Sales and marketing | 0.51 |
| | 0.40 |
| | 27.5 |
|
Other | 0.61 |
| | 0.58 |
| | 5.2 |
|
CASM |
| 9.27 | ¢ | |
| 9.07 | ¢ | | 2.2 | % |
Operating CASM, excluding fuel |
| 6.43 | ¢ | |
| 6.56 | ¢ | | (2.0 | )% |
Aircraft fuel expense. Aircraft fuel expense increased 25.2 percent for the first quarter 2018 compared to 2017 as the system average fuel cost per gallon increased by 20.4 percent, coupled with a 3.8 percent increase in system fuel gallons consumed on a 10.4 percent increase in system ASMs. ASM growth outpaced fuel consumption as fuel efficiency (measured as ASMs per gallon) increased 6.4 percent year over year, due to increased flying on our Airbus aircraft which are more fuel efficient.other non-airline related activity.
Salary and benefits expense. Salary and benefits expense increased $16.7$6.4 million, or 17.35.7 percent, for the first quarter 20182019 when compared to the same period last year.in 2018. The increase is largely attributabledue to a 6.87.7 percent increase in the number of full-time equivalent employees, neededas well as labor inefficiencies as we continue to support additional operating aircraft andgrow into the transitionincreased number of flight personnel we maintained during the fleet transition.
Aircraft fuel expense. Aircraft fuel expense decreased $6.3 million, or 6.0 percent, for the first quarter 2019 compared to first quarter 2018. The decrease is largely due to a single fleet type. Additionally,4.5 percent decrease in system fuel gallons consumed, coupled with a 1.8 percent decrease in the collective bargaining agreement with our flight attendants went into effect January 1, 2018. In conjunction with this agreement, flight attendant salariessystem average fuel cost per gallon. Fuel efficiency (measured as ASMs per gallon) increased an average of 149.6 percent year over year. There were also annual salary increases for our pilots, as dictatedyear, allowing us to increase system ASMs by their collective bargaining agreement.4.9 percent, while reducing total fuel consumption. The Airbus aircraft are more fuel efficient than the MD-80 aircraft, which we still had in operation during the first quarter 2018.
Station operations expense. Station operations expense for the first quarter 20182019 increased 18.1$1.4 million, or 3.7 percent on a 9.5 percent increase in scheduled service departures compared to the same period in 2017. The2018, and is in line with a 4.6 percent increase in expense outpaced the increase in departures due to expired incentives and an increase in various supplementary station expenses.scheduled service departures.
Maintenance and repairs expense. Maintenance and repairs expense for the first quarter 2018 decreased $10.82019 increased $3.6 million, or 36.018.4 percent, compared to the same period in 2017. The year-over-year decrease is largely due to nine fewer heavy maintenance events performed on our MD-80 series aircraft, which are being systematically retired from our operating fleet. The cost2018, as the average number of major maintenance events for our Airbus aircraft is deferred in accordance withservice increased by 49.2 percent. Although repairs for the deferral method of accounting andAirbus fleet type tend to be less frequent, associated costs are also generally higher than for the amortization of these expenses is included under depreciation and amortization expense.MD-80 fleet.
Depreciation and amortization expense. Depreciation and amortization expense for the first quarter 2018 decreased $2.4 million, or 7.92019 increased 28.5 percent year over year. The decrease is largely due to the retirementaverage number of Airbus aircraft in service increased 49.2 percent year over year and our MD-80 aircraft. AsAirbus aircraft have a result of the
impairment charge taken on our MD-80 fleet in fourth quarter 2017, we no longer have aircraft depreciation expense associated with this fleet type. Depreciation expense related to the MD-80 aircraft for the three months ended March 31, 2017 was $6.4 million.
This decrease in depreciation and amortization expense was partially offset by higher incremental monthly depreciation expense associated withthan our AirbusMD-80 aircraft as we continue to add Airbus aircraft intopreviously in service. Depreciation expense related toIn comparison, during the ownershipfirst quarter 2018, the MD-80 fleet was fully depreciated, yet produced 27.6 percent of ASMs during the Airbus A320 series aircraftquarter. Amortization of major maintenance costs was $18.2$4.8 million for the first quarter 20182019 compared to $12.8 million for the same period in 2017. Amortization of major maintenance costs under the deferral method of accounting for the Airbus aircraft was $2.5 million for the first quarter 2018 compared to $1.3 million for the first quarter 2017.2018.
Sales and marketing expense. Sales and marketing expense for the first quarter 20182019 increased $5.7$1.8 million compared to the same period in 2017, mostly2018 due to an increase in net credit card fees paid. There were also year-over-year increased expenses related to various marketing initiatives, forincluding our growing network.multi-year partnerships with the Vegas Golden Knights and Minor League Baseball.
Non-airline expenses
Non-airline expenses are included in the various line items discussed above, as appropriate. The non-airline expenses include those from our Teesnap golf management business, expenses incurred to operate the Kingsway golf course, pre-opening expenses incurred in connection with Allegiant Nonstop family entertainment centers (locations opened in January 2019 and April 2019), and operating expenses attributable to Sunseeker Resort (most Sunseeker Resort expenses are being capitalized at this time).
Income Tax Expense
Our effective tax rate was 22.7 percent for the three months ended March 31, 2019, compared to 20.5 percent for the three months ended March 31, 2018, compared to 37.0 percent for the three months ended March 31, 2017.2018. The effective tax rate for the three months ended March 31, 20182019 differed from the statutory federal income tax rate of 21.0 percent primarily due to the dissolution of foreign subsidiaries, offset by state taxes. While we expect our tax rate to be fairly consistent in the near term, it will vary depending on recurring items such as the amount of income we earn in each state and the state tax rate applicable to such income. Discrete items during interim periods may also affect our tax rates.
We expect to be non-cash taxpayers for federal income tax purposes for 2019.
Comparative Consolidated Operating Statistics
The following tables set forth our operating statistics for the periods indicated:
| | | Three Months Ended March 31, | | Percent | Three Months Ended March 31, | | Percent |
| 2018 | | 2017 | | Change (1) | 2019 | | 2018 | | Change (1) |
Operating statistics (unaudited): | | | | | | | | | | |
Total system statistics: | | | | | | | | | | |
Passengers | 3,302,951 |
| | 2,881,248 |
| | 14.6 |
| 3,450,278 |
| | 3,302,951 |
| | 4.5 |
|
Revenue passenger miles (RPMs) (thousands) | 3,094,805 |
| | 2,708,498 |
| | 14.3 |
| 3,228,594 |
| | 3,094,805 |
| | 4.3 |
|
Available seat miles (ASMs) (thousands) | 3,728,563 |
| | 3,376,837 |
| | 10.4 |
| 3,910,239 |
| | 3,728,563 |
| | 4.9 |
|
Load factor | 83.0 | % | | 80.2 | % | | 2.8 |
| 82.6 | % | | 83.0 | % | | (0.4 | ) |
Operating expense per ASM (CASM) (cents) | 9.27 |
| | 9.07 |
| | 2.2 |
| |
Airline operating expense per ASM (CASM) (cents) | | 8.95 |
| | 9.19 |
| | (2.6 | ) |
Fuel expense per ASM (cents) | 2.84 |
| | 2.51 |
| | 13.1 |
| 2.55 |
| | 2.84 |
| | (10.2 | ) |
Operating CASM, excluding fuel (cents) | 6.43 |
| | 6.56 |
| | (2.0 | ) | |
Airline operating CASM, excluding fuel (cents) | | 6.40 |
| | 6.35 |
| | 0.8 |
|
ASMs per gallon of fuel | 76.7 |
| | 72.1 |
| | 6.4 |
| 84.1 |
| | 76.7 |
| | 9.6 |
|
Departures | 24,248 |
| | 22,295 |
| | 8.8 |
| 25,200 |
| | 24,248 |
| | 3.9 |
|
Block hours | 57,803 |
| | 53,193 |
| | 8.7 |
| 59,819 |
| | 57,803 |
| | 3.5 |
|
Average stage length (miles) | 910 |
| | 903 |
| | 0.8 |
| 904 |
| | 910 |
| | (0.7 | ) |
Average number of operating aircraft during period | 90.7 |
| | 84.7 |
| | 7.1 |
| 79.6 |
| | 90.7 |
| | (12.2 | ) |
Average block hours per aircraft per day | 7.1 |
| | 7.0 |
| | 1.4 |
| 8.3 |
| | 7.1 |
| | 16.9 |
|
Full-time equivalent employees at end of period | 3,776 |
| | 3,536 |
| | 6.8 |
| 4,067 |
| | 3,776 |
| | 7.7 |
|
Fuel gallons consumed (thousands) | 48,640 |
| | 46,850 |
| | 3.8 |
| 46,474 |
| | 48,640 |
| | (4.5 | ) |
Average fuel cost per gallon | $ | 2.18 |
| | $ | 1.81 |
| | 20.4 |
| $ | 2.14 |
| | $ | 2.18 |
| | (1.8 | ) |
| | Scheduled service statistics: | | | | | | | | | | |
Passengers | 3,279,368 |
| | 2,845,480 |
| | 15.2 |
| 3,421,538 |
| | 3,279,368 |
| | 4.3 |
|
Revenue passenger miles (RPMs) (thousands) | 3,064,619 |
| | 2,661,934 |
| | 15.1 |
| 3,191,045 |
| | 3,064,619 |
| | 4.1 |
|
Available seat miles (ASMs) (thousands) | 3,602,015 |
| | 3,237,164 |
| | 11.3 |
| 3,802,132 |
| | 3,602,015 |
| | 5.6 |
|
Load factor | 85.1 | % | | 82.2 | % | | 2.9 |
| 83.9 | % | | 85.1 | % | | (1.2 | ) |
Departures | 23,264 |
| | 21,248 |
| | 9.5 |
| 24,344 |
| | 23,264 |
| | 4.6 |
|
Block hours | 55,689 |
| | 50,876 |
| | 9.5 |
| 57,963 |
| | 55,689 |
| | 4.1 |
|
Total passenger revenue per ASM (TRASM) (cents) (2) | 11.30 |
| | 11.14 |
| | 1.4 |
| 11.50 |
| | 11.30 |
| | 1.8 |
|
Average fare - scheduled service (3) | $ | 73.81 |
| | $ | 75.42 |
| | (2.1 | ) | $ | 69.64 |
| | $ | 73.81 |
| | (5.6 | ) |
Average fare - air-related charges (3) | $ | 47.18 |
| | $ | 46.82 |
| | 0.8 |
| $ | 53.10 |
| | $ | 47.18 |
| | 12.5 |
|
Average fare - third party products | $ | 3.15 |
| | $ | 4.48 |
| | (29.7 | ) | $ | 5.01 |
| | $ | 3.15 |
| | 59.0 |
|
Average fare - total | $ | 124.14 |
| | $ | 126.72 |
| | (2.0 | ) | $ | 127.75 |
| | $ | 124.14 |
| | 2.9 |
|
Average stage length (miles) | 916 |
| | 908 |
| | 0.9 |
| 908 |
| | 916 |
| | (0.9 | ) |
Fuel gallons consumed (thousands) | 46,872 |
| | 44,892 |
| | 4.4 |
| 45,068 |
| | 46,872 |
| | (3.8 | ) |
Average fuel cost per gallon | $ | 2.17 |
| | $ | 1.80 |
| | 20.6 |
| $ | 2.13 |
| | $ | 2.17 |
| | (1.8 | ) |
Rental car days sold | 398,587 |
| | 375,711 |
| | 6.1 |
| 471,598 |
| | 398,587 |
| | 18.3 |
|
Hotel room nights sold | 108,984 |
| | 105,328 |
| | 3.5 |
| 105,015 |
| | 108,984 |
| | (3.6 | ) |
Percent of sales through website during period | 93.8 | % | | 95.1 | % | | (1.3 | ) | 93.6 | % | | 93.8 | % | | (0.2 | ) |
(1) Except load factor and percent of sales through website during period, which are presented as a percentage point change.
(2) Various components of this measure do not have a direct correlation to ASMs. This measure is provided on a per ASM basis so as to facilitate comparison with airlines reporting revenues on a per ASM basis.
(3) Reflects division of passenger revenue between scheduled service and air-related charges in the Company's booking path.
LIQUIDITY AND CAPITAL RESOURCES
Current liquidity
Cash, restricted cash equivalents and investment securities (short-term and long-term) decreasedincreased at March 31, 2019 to $554.8 million, from $501.9$447.5 million at December 31, 20172018. Investment securities represent highly liquid marketable securities which are available-for-sale.
The increase in cash is due primarily to $490.1$178.5 million atin cash from operating activities (excluding capital expenditures related to heavy maintenance), as well as $428.0 million in net Term Loan proceeds received in February 2019.
As of March 31, 2018. 2019, $347.9 million of the Term Loan proceeds were used to purchase our unsecured senior notes. The remaining proceeds of approximately $80.1 million will be used when we retire the remaining $102.1 million balance of these notes. We expect to call the remainder of the notes prior to their maturity in July 2019.
Restricted cash represents escrowed funds under fixed fee contracts and cash collateral against letters of credit required by hotel properties for guaranteed room availability, airports and certain other parties. Under our fixed fee flying contracts, we require our customers to prepay for flights to be provided by us. The prepayments are escrowed until the flight is completed and are recorded as restricted cash with a corresponding amount reflected as air traffic liability. Investment securities represent highly liquid marketable securities which are available-for-sale.
During the first three months of 2018, our primary source of funds was $172.9 million generated by operations. Our operating cash flows and previouslong-term debt borrowings have allowed us to invest in our fleet transition and return capital to shareholders.shareholders in the form of recurring regular quarterly dividends. Our future capital needs are primarily for the acquisition of additional aircraft, including our existing Airbus A320 series aircraft commitments, as well as potentialplanned capital outlay related to Sunseeker Resorts as well asResort and other travel and leisure initiatives. Of the 26 aircraft expected to be placed into service during the remainder of 2018, 13 are structured as capital leases and will not require separate financing, and 10 have already been paid for (representing the aircraft already returned or being returned from lease to a European carrier).
We believe we have more than adequate liquidity resources through our operating cash flows, borrowings, and cash balances, to meet our future contractual obligations. In addition, we continue to consider raising funds through debt financing on an opportunistic basis.
In addition to our recurring quarterly cash dividend, we plan to continue repurchasing our stock in the open market subject to availability of cash resources and compliance with our debt covenants. Our current share repurchase authority is $100 million. There is no expiration to this program.
Debt
Our long-term debt and finance lease obligations balance, without reduction for related issuance costs, decreasedincreased from $1,171.0 million$1.3 billion as of December 31, 20172018 to $1,068.1 million$1.4 billion as of March 31, 20182019 as we paid offborrowed $450.0 million under the Term Loan plus an additional $44.0 million secured by aircraft, while repurchasing $347.9 million of our senior secured revolving credit facilityunsecured notes and continued making scheduled repaymentsprincipal payments on our other existing debt. During
In March 2019, we entered into a Construction Loan Agreement with certain lenders affiliated with TPG Sixth Street Partners, LLC under which we may borrow up to $175.0 million to fund the first quarterconstruction of 2018, we did not enter into any new debt agreements.Phase 1 of Sunseeker Resort - Charlotte Harbor. No amounts under this loan agreement have been drawn to date.
Sources and Uses of Cash
Operating Activities. During the three months ended March 31, 2018,2019, our operating activities provided $172.9$160.1 million of cash compared to $146.6$172.9 million during the same period of 2017.2018. The year-over-year increasedecrease in cash inflows is mostly the result of a $12.8 million increase inthe net income as well aseffect of changes in variouscertain asset and liability accounts, including a $24.8 million year-over-yearan increase in accrued liabilities.deferred major maintenance.
Operating cash inflows are primarily derived from providing air transportation and related ancillary products and services to customers, and we expect to use that cash flow to purchase aircraft and equipment, make scheduled debt payments, invest in Sunseeker Resort - Charlotte Harbor and other travel and leisure initiatives, and return capital to shareholders through share repurchases and dividends.
Investing Activities. Cash used in investing activities was $65.4$59.6 million during the three months ended March 31, 20182019 compared to $125.4$65.4 million for the same period in 2017. The2018. A $53.4 million year-over-year decrease is mostly due to investment security activity,increase in cash outlay for the purchase of property and equipment was offset as cash proceeds from maturities of investment securities (net of purchases) were $3.3$56.0 million induring the first three months of 2018ended March 31, 2019, compared to cash used to purchase investment securities (net of proceeds) of $67.2$3.3 million for the same period in 2017. Cash used to purchase property and equipment was $69.2 million for 2018. Additionally, in
the first three monthsquarter of 20182019 we had a $6.5 million increase in other investing activities compared to $58.5 million in the same period last year, mostly related to proceeds received from the sales of 2017.MD-80 parts.
Financing Activities. Cash used inprovided by financing activities for the three months ended March 31, 20182019 was $115.1$61.3 million, compared to $21.5$115.1 million forcash used in financing activities during the same period in 2017. The2018. This year-over-year increasefluctuation is primarily due to debt proceeds, as we entered into debt agreements totaling $494.0 million during the three months ended March 31, 2019, but did not enter any debt agreements in the first quarter 2018. The increase in debt proceeds was partially offset by an increase in principal payments on long-term debt and capitalfinance lease obligations, as we paidrepurchased $347.9 million of our unsecured notes due July 2019 in a tender offer, made $38.4 million of other debt and finance lease payments and incurred $30.1 million of debt issuance costs during the quarter. This compared to $102.9 million inof principal payments on debt and capital lease payments in the first quarter 2018 compared to $26.4 million for the same period in 2017. Our debt payments in the first quarter 2018 included various balloon payments, as well as the payoff of our senior secured revolving credit facility, which had $41.6 million in outstanding principal as of December 31, 2017. Additionally, we did not receive any funds from issuance of new debt during the first quarter 2018, whereas we received $22.0 million in loan proceeds during the same period in 2017. For the three2018.
months ended March 31, 2018, we repurchased $2.2 million of common stock and paid cash dividends of $11.3 million, compared to the repurchase of $4.9 million in common stock and payment of cash dividends of $11.7 million for the same period in 2017.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
We have made forward-looking statements in this quarterly report on Form 10-Q, and in the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” that are based on our management’s beliefs and assumptions, and on information currently available to our management. Forward-looking statements include information concerning our possible or assumed future results of operations, business strategies, fleet plan, financing plans, competitive position, industry environment, potential growth opportunities, future service to be provided, the effects of future regulation and competition, and the development of a resort in Southwest Florida. Forward-looking statements include all statements that are not historical facts and can be identified by the use of forward-looking terminology such as the words “believe,” “expect,” “anticipate,” “intend,” “plan,” “estimate,” “project” or similar expressions.
Forward-looking statements involve risks, uncertainties and assumptions. Actual results may differ materially from those expressed in the forward-looking statements. Important risk factors that could cause our results to differ materially from those expressed in the forward-looking statements may be found in our periodic reports filed with the Securities and Exchange Commission at www.sec.gov. These risk factors include, without limitation, an accident involving, or problems with, our aircraft, public perception of our safety, our reliance on automationour automated systems, limitation on growth as weafter our transition to a single fleet type, our reliance on third parties to deliver aircraft under contract to us on a timely basis, risk of breach of security of personal data, volatility of fuel costs, labor issues and costs, the ability to obtain regulatory approvals as needed , the effect of economic conditions on leisure travel, debt covenants and balances, the ability to finance aircraft under contract, terrorist attacks, risks inherent to airlines, theour competitive environment, our reliance on third parties who provide facilities or services to us, the possible loss of key personnel, economic and other conditions in markets in which we operate, the ability to successfully develop and finance a resort in Southwest Florida, governmental regulation, increases in maintenance costs and cyclical and seasonal fluctuations toin our operating results.
Any forward-looking statements are based on information available to us today and we undertake no obligation to publicly update any forward-looking statements, whether as a result of future events, new information or otherwise.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
In the first quarter of 2018, thereThere were no changes to our critical accounting policies and estimates, as of March 31, 2019, from those disclosed in the Consolidated Financial Statements and accompanying notes contained in our 20172018 Form 10-K, except as discussed below relating to the New Revenue Standard.
Effective January 1, 2018, we adopted the New Revenue Standard using the full retrospective method, which resulted in the recast of the 2017 prior period data presented. Under this ASU and subsequently issued amendments, revenue is recognized at the time a good or service is transferred to a customer for the amount of consideration received.10-K.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
We are subject to certain market risks, including commodity prices (specifically aircraft fuel). The adverse effects of changes in these markets could pose potential losses as discussed below. The sensitivity analysis provided does not consider the effects that such adverse changes may have on overall economic activity, nor does it consider additional actions we may take to mitigate our exposure to such changes. Actual results may differ.
Aircraft Fuel
Our results of operations can be significantly impacted by changes in the price and availability of aircraft fuel, as aircraft fuel expense represented 30.727.6 percent of our operating expenses for the three months ended March 31, 2018.2019. Increases in fuel prices, or a shortage of supply, could have a material impact on our operations and operating results. Based on our fuel consumption for the three months ended March 31, 2018,2019, a hypothetical ten percent increase in the average price per gallon of fuel would have increased fuel expense by approximately $10.7$9.5 million. We have not hedged fuel price risk for many years.
Interest Rates
We have market risk associated with changing interest rates due to the short-term nature of our cash and investment securities and variable-rate debt. We invest available cash in government and corporate debt securities, investment grade commercial
paper, and other highly rated financial instruments. Because of the short-term nature of these investments, the returns earned closely parallel short-term floating interest rates. A hypothetical 100 basis point change in interest rates for the three months ended March 31, 2018 would have impacted interest income from cash and investment securities by approximately $1.2 million.
As of March 31, 2018,2019, we had a total of $601.4 million$1.1 billion in variable-rate debt, including current maturities and without reduction for related costs. A hypothetical 100 basis point change in market interest rates for the three months ended March 31, 2018,2019, would have affected interest expense by approximately $1.6$2.1 million.
As of March 31, 2018,2019, we had $466.7$204.8 million of fixed-rate debt, including current maturities and without reduction for related costs, which had a fair value of $474.0 million.costs. A hypothetical 100 basis point change in market interest rates would not impact interest expense or have a material effect on the fair value of our fixed-ratefixed rate debt instruments as of such date.
See Item 7A "Quantitative and Qualitative Disclosures About Market Risk" in the Company's Annual Report on Form 10-K for the year ended December 31, 2017, for further information about market risk.
Item 4. Controls and Procedures
As of March 31, 2018,2019, under the supervision and with the participation of our management, including our chief executive officer (“CEO”("CEO") and chief financial officer (“CFO”), we evaluated the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended, or the “Exchange Act.”Act”) as of the end of the period covered by this report. Based on thisthat evaluation, management, including our managementCEO and CFO, has concluded that our disclosure controls and procedures are designed, and are effective, to give reasonable assurance that the information we are required to disclose is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Based upon this evaluation, management concluded that our disclosure controlsforms and procedures are effective in providing reasonable assurance that information required to be disclosed in our reports filed with the SEC under the Exchange Act is accumulated and communicated to the Company’s management, including the CEO and the CFO, as appropriate to allow timely decisions regarding required disclosure.
ThereExcept as noted below, there were no changes in our internal control over financial reporting that occurred during the quarter ending March 31, 2018,2019, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Effective January 1, 2018,2019, we adopted Accounting Standards Codification 606, “Revenue from Contracts with Customers”ASU 2016-02, Leases (Topic 842). Although the new revenue standard isNew Lease Standard will not expected to have a material impact on our ongoing net income, changes were made to relevant business processes and the related control activities including information systems, in order to monitor and maintain appropriate controls over financial reporting. The operating effectiveness of these changes will be evaluated as part of our annual assessment ofon the effectiveness of internal controls over financial reporting.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
We are subject to certain legal and administrative actions we consider routine to our business activities. We believe the ultimate outcome of any pending legal or administrative matters will not have a material adverse impact on our financial position, liquidity or results of operations.
Item 1A. Risk Factors
We have evaluated our risk factors and determined there are no changes to the risk factorsthose set forth in Part I, Item 1A of our Annual Report on Form 10-K.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Our Repurchases of Equity Securities
The following table reflects the repurchases of our common stock during the first quarter 2018:2019:
| | Period | | Total Number of Shares Purchased (1) | | Average Price Paid per Share | | Total Number of Shares Purchased as Part of our Publicly Announced Plan | | Approximate Dollar Value of Shares that May Yet be Purchased Under the Plans or Programs (in thousands) (2) | | Total Number of Shares Purchased (1) | | Average Price Paid per Share | | Total Number of Shares Purchased as Part of our Publicly Announced Plan | | Approximate Dollar Value of Shares that May Yet be Purchased Under the Plans or Programs (in thousands) (2) |
January | | 177 |
| | $ | 161.45 |
| | None | | | | 459 |
| | $ | 123.09 |
| | None | | |
February | | 9,741 |
| | 167.96 |
| | None | | | | 12,921 |
| | 136.87 |
| | None | | |
March | | 3,269 |
| | 174.30 |
| | None | | | | 3,565 |
| | 126.82 |
| | None | | |
Total | | 13,187 |
| | $ | 169.45 |
| | $ | 100,000 |
| | 16,945 |
| | $ | 134.38 |
| | $ | 100,000 |
|
(1) Includes shares repurchased from employees who vested a portion of their restricted stock grants. These share repurchases were made at the election of each employee pursuant to an offer to repurchase by us. In each case, the shares repurchased constituted the portion of vested shares necessary to satisfy income tax withholding requirements. |
| |
(1) | Includes shares repurchased from employees who vested a portion of their restricted stock grants. These share repurchases were made at the election of each employee pursuant to an offer to repurchase by us. In each case, the shares repurchased constituted the portion of vested shares necessary to satisfy income tax withholding requirements. |
(2) | (2) Represents the remaining dollar amount of open market purchases of our common stock which has been authorized by the Board under a share repurchase program. |
Item 3. Defaults Upon Senior Securities
None
Item 4. Mine Safety Disclosures
Not applicable
Item 5. Other Information
None
Item 6. Exhibits
|
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
101.INS | XBRL Instance Document |
101.SCH | XBRL Taxonomy Extension Schema Document |
101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document |
101.DEF | XBRL Taxonomy Extension Definition Linkbase Document |
101.LAB | XBRL Taxonomy Extension Labels Linkbase Document |
101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document |
(1) Incorporated by reference to Exhibit filed with Registration Statement #333-134145 filed by the Company with the Commission and amendments thereto.
(2) Incorporated by reference to Exhibit 3.1 to the Current Report on Form 8-K filed with the Commission on April 25, 2018. |
| |
(1) | Incorporated by reference to Exhibit filed with Registration Statement #333-134145 filed by the Company with the Commission and amendments thereto. |
(2) | Incorporated by reference to Exhibit 3.1 to the Current Report on Form 8-K filed with the Commission on April 25, 2018. |
(3) Incorporated by reference to Exhibit 4.1 to Current Report on Form 8-K filed with the Commission on February 5, 2019(4) Incorporated by reference to Exhibit 10.1 to Current Report on Form 8-K filed with the Commission on February 5, 2019.
(5) Portions of the indicated document have been omitted pursuant to a request for confidential treatment and the document indicated has been filed separately with the Commission as required by Rule 24b-2 of the Securities Exchange Act of 1934, as amended.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
| | | |
| | ALLEGIANT TRAVEL COMPANY |
| | |
| | |
Date: | May 8, 20187, 2019 | By: | /s/ Scott SheldonGregory Anderson |
| | Scott Sheldon,Gregory Anderson, as duly authorized officer of the Company (Chief Financial Officer) and as Principal Financial Officer |