The accompanying notes are an integral part of these consolidated financial statements.
The accompanying notes are an integral part of these consolidated financial statements.
The accompanying notes are an integral part of these consolidated financial statements.
The accompanying notes are an integral part of these consolidated financial statements.
The accompanying unaudited consolidated financial statements include the accounts of Allegiant Travel Company (the “Company”) and its majority-owned operating subsidiaries. The Company's investments in unconsolidated affiliates, which are 50 percent or less owned, are accounted for under the equity or cost method, and are insignificant to the consolidated financial statements. All intercompany balances and transactions have been eliminated.
These unaudited consolidated financial statements reflect all normal recurring adjustments which management believes are necessary to present fairly the financial position, results of operations, and cash flows of the Company for the respective periods presented. Certain reclassifications have been made to prior year financial statements to conform to classifications used in the current year. Certain information and footnote disclosures normally included in the annual consolidated financial statements prepared in accordance with U.S. generally accepted accounting principles ("U.S. GAAP") have been omitted pursuant to the rules and regulations of the Securities and Exchange Commission for Form 10-Q. These unaudited interim consolidated financial statements should be read in conjunction with the audited consolidated financial statements of the Company and notes thereto included in the annual report of the Company on Form 10-K for the year ended December 31, 20192020 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.
The rapid spread of COVID-19 and the related government restrictions, social distancing measures, and consumer fears have impacted flight loads, resulted in unprecedented cancellations of bookings and substantially reduced demand for new bookings throughout the airline industry. Starting in March 2020, the Company experienced a severe reduction in air travel, which continued intothrough the secondfirst quarter 2020. Although there were incremental demand increases during portions of the second quarter 2020, an increase in reported COVID-19 cases in various parts of the country towards the end of the quarter caused another decline in bookings. It is evident that demand2021. Demand in the foreseeable future will continue to fluctuate in response tobe affected by fluctuations in COVID-19 cases, hospitalizations, deaths, treatment efficacy and the availability of a vaccine.vaccines. The Company is continuously reevaluating flight schedules and adjusting capacity based on demand trends.
Given the Company's efforts to conserve and raise liquidity and the Company's assumptions about the future impact of COVID-19 on travel demand, which could be materially different due to the inherent uncertainties of the current operating environment, the Company expects to meet its cash obligations as well as remain in compliance with the debt covenants in its existing financing agreements for the next 12 months based on its current level of unrestricted cash and short-term investments, its anticipated access to liquidity and tax refunds, and projected cash flows from operations.
Sales of passenger tickets not yet flown are recorded in air traffic liability. Passenger revenue is recognized when transportation is provided or when ticket voucher breakage occurs, to the extent different from estimated breakage. As of June 30, 2020,March 31, 2021, approximately 38.855.5 percent of the air traffic liability balance was related to forward bookings, with the remaining 61.244.5 percent related to credit vouchers for future travel.
expiration date of two years from the original booking date. This policy continues in effect at the current time. This change
has been considered in estimating the future breakage rate, which represents the value of credit vouchers that are not
expected to be redeemed prior to their contractual expiration date.
In relation to the travel component of the co-branded credit card contract with Bank of America, the Company has a performance obligation to provide cardholders with points to be used for future travel award redemptions. Therefore, consideration received from Bank of America related to the travel component is deferred based on its relative selling price and is recognized into passenger revenue when the points are redeemed and the transportation is provided.
The following table summarizes the Company's property and equipment as of the dates indicated:
The following table summarizes the Company's Long-term debt and finance lease obligations as of the dates indicated:
The Company evaluates all operating leases and they are measured on the balance sheet with a lease liability and right-of-use asset (“ROU”) at inception. 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. Airport terminal leases mostly include variable lease
| | | | | | | | | | | | | | |
| (in thousands) | Classification on the Balance Sheet | March 31, 2021 | | December 31, 2020 |
| Assets | | | | |
Operating lease assets(1) | Operating lease right-of-use assets | $ | 116,998 | | | $ | 115,911 | |
Finance lease assets(2) | Property and equipment, net | 242,280 | | | 133,175 | |
| Total lease assets | | $ | 359,278 | | | $ | 249,086 | |
| | | | |
| Liabilities | | | | |
| Current | | | | |
Operating(1) | Current operating lease liabilities | $ | 15,247 | | | $ | 14,313 | |
Finance(2) | Current maturities of long-term debt and finance lease obligations | 13,358 | | | 9,767 | |
| Noncurrent | | | | |
Operating(1) | Noncurrent operating lease liabilities | 103,103 | | | 102,289 | |
Finance(2) | Long-term debt and finance lease obligations | 215,354 | | | 117,060 | |
| Total lease liabilities | | $ | 347,062 | | | $ | 243,429 | |
(1) Represents assets and liabilities of 713 aircraft, office facilities, office equipment, certain airport and terminal facilities, and other assets under operating leaseleases
(2) RepresentsMarch 31, 2021, number represents assets and liabilities of 59 aircraft under finance leaseleases
Sale-Leaseback Transaction
In June 2020,March 2021, the Company entered into a sale-leaseback transaction on 4 aircraft. The transaction qualified as a sale,involving 3 aircraft and generated $48.0generating $105.0 million of proceeds. The lease was classified as a finance lease and as a result, the transaction did not qualify as a sale. The aircraft were not removed from property and equipment in the Company's balance sheet within property and equipment, resulting in a $30.2 million loss on sale. The loss is reflected within operating special charges on the statement of income since the Company would not likely have transacted absent cash conservation efforts asrecorded a resultfinancial liability in the amount of COVID.$105.0 million. The leased aircraft were subsequently recorded within operating lease right-of-use assets, with the related lease liabilities recorded within accrued liabilities and other noncurrent liabilities on the balance sheet. Thisproceeds from this transaction isare treated as an cash inflowinflows from investingfinance lease obligations and reported in financing activities on the statement of cash flows.
Note 8 — Fair Value Measurements
The Company utilizes the market approach to measure the fair value of its financial assets. The market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets. The assets classified as Level 2 primarily utilize quoted market prices or alternative pricing sources including transactions involving identical or comparable assets and models utilizing market observable inputs for valuation of these securities. No changes in valuation techniques or inputs occurred during the sixthree months ended June 30, 2020.March 31, 2021.
Financial instruments measured at fair value on a recurring basis:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| March 31, 2021 | | December 31, 2020 |
| (in thousands) | Total | | Level 1 | | Level 2 | | Total | | Level 1 | | Level 2 |
| Cash equivalents | | | | | | | | | | | |
| Money market funds | $ | 160,730 | | | $ | 160,730 | | | $ | 0 | | | $ | 5,340 | | | $ | 5,340 | | | $ | 0 | |
| Municipal debt securities | 59,417 | | | 0 | | | 59,417 | | | 34,338 | | | 0 | | | 34,338 | |
| Commercial Paper | 21,889 | | | 0 | | | 21,889 | | | 48,908 | | | 0 | | | 48,908 | |
| Corporate debt securities | 7,407 | | | 0 | | | 7,407 | | | 0 | | | 0 | | | 0 | |
| Federal agency debt securities | 0 | | | 0 | | | 0 | | | 51,400 | | | 0 | | | 51,400 | |
| | | | | | | | | | | |
| Total cash equivalents | 249,443 | | | 160,730 | | | 88,713 | | | 139,986 | | | 5,340 | | | 134,646 | |
| Short-term | | | | | | | | | | | |
| Commercial paper | 188,937 | | | 0 | | | 188,937 | | | 229,821 | | | 0 | | | 229,821 | |
| | | | | | | | | | | |
| Corporate debt securities | 115,812 | | | 0 | | | 115,812 | | | 166,768 | | | 0 | | | 166,768 | |
| Municipal debt securities | 84,294 | | | 0 | | | 84,294 | | | 87,290 | | | 0 | | | 87,290 | |
| Federal agency debt securities | 37,338 | | | 0 | | | 37,338 | | | 48,598 | | | 0 | | | 48,598 | |
| Total short-term | 426,381 | | | 0 | | | 426,381 | | | 532,477 | | | 0 | | | 532,477 | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| Total financial instruments | $ | 675,824 | | | $ | 160,730 | | | $ | 515,094 | | | $ | 672,463 | | | $ | 5,340 | | | $ | 667,123 | |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | June 30, 2020 | | December 31, 2019 |
| (in thousands) | Total | | Level 1 | | Level 2 | | Total | | Level 1 | | Level 2 |
| Cash equivalents | | | | | | | | | | | |
| Money market funds | $ | 107,066 |
| | $ | 107,066 |
| | $ | — |
| | $ | 42,653 |
| | $ | 42,653 |
| | $ | — |
|
| Municipal debt securities | 32,575 |
| | — |
| | 32,575 |
| | 1,202 |
| | — |
| | 1,202 |
|
| Commercial paper | 30,351 |
| | — |
| | 30,351 |
| | 5,807 |
| | — |
| | 5,807 |
|
| Federal agency debt securities | 7,909 |
| | — |
| | 7,909 |
| | — |
| | — |
| | — |
|
| Total cash equivalents | 177,901 |
| | 107,066 |
| | 70,835 |
| | 49,662 |
| | 42,653 |
| | 7,009 |
|
| Short-term | |
| | |
| | | | |
| | |
| | |
|
| Commercial paper | 208,194 |
| | — |
| | 208,194 |
| | 161,286 |
| | — |
| | 161,286 |
|
| Corporate debt securities | 128,344 |
| | — |
| | 128,344 |
| | 145,975 |
| | — |
| | 145,975 |
|
| Municipal debt securities | 36,892 |
| | — |
| | 36,892 |
| | 12,237 |
| | — |
| | 12,237 |
|
| Federal agency debt securities | 14,375 |
| | — |
| | 14,375 |
| | 13,515 |
| | — |
| | 13,515 |
|
| US Treasury bonds | 3,059 |
| | — |
| | 3,059 |
| | 2,915 |
| | — |
| | 2,915 |
|
| Total short-term | 390,864 |
| | — |
| | 390,864 |
| | 335,928 |
| | — |
| | 335,928 |
|
| Long-term | |
| | |
| | |
| | |
| | |
| | |
|
| Corporate debt securities | — |
| | — |
| | — |
| | 15,396 |
| | — |
| | 15,396 |
|
| US Treasury bonds | — |
| | — |
| | — |
| | 146 |
| | — |
| | 146 |
|
| Total long-term | — |
| | — |
| | — |
| | 15,542 |
| | — |
| | 15,542 |
|
| Total financial instruments | $ | 568,765 |
| | $ | 107,066 |
| | $ | 461,699 |
| | $ | 401,132 |
| | $ | 42,653 |
| | $ | 358,479 |
|
None of the Company's debt is publicly held and as a result, the Company has determined the estimated fair value of these notes to be Level 3. Certain inputs used to determine fair value are unobservable and, therefore, could be sensitive to changes in inputs. The Company utilizes the discounted cash flow method to estimate the fair value of Level 3 debt.
Carrying value and estimated fair value of long-term debt, including current maturities and without reduction for related costs, are as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| March 31, 2021 | | December 31, 2020 | | |
| (in thousands) | Carrying Value | | Estimated Fair Value | | Carrying Value | | Estimated Fair Value | | Hierarchy Level |
| Non-publicly held debt | $ | 1,408,823 | | | $ | 1,197,427 | | | $ | 1,555,637 | | | $ | 1,191,008 | | | 3 |
|
| | | | | | | | | | | | | | | | | |
| | June 30, 2020 | | December 31, 2019 | | |
| (in thousands) | Carrying Value | | Estimated Fair Value | | Carrying Value | | Estimated Fair Value | | Hierarchy Level |
| Non-publicly held debt | $ | 1,411,188 |
| | $ | 1,294,748 |
| | $ | 1,329,882 |
| | $ | 1,140,232 |
| | 3 |
Due to their short-term nature, the carrying amounts of cash, cash equivalents, restricted cash, accounts receivable and accounts payable approximate fair value.
Note 9 — Earnings (Loss) per Share
Basic and diluted earnings (loss) per share are computed pursuant to the two-class method. Under this method, the Company attributes net income (loss) to two classes: common stock and unvested restricted stock. Unvested restricted stock awards granted to employees under the Company’s Long-Term Incentive Plan are considered participating securities as they receive non-forfeitable rights to cash dividends at the same rate as common stock.
Diluted net income (loss) per share is calculated using the more dilutive of the two methods. Under both methods, the exercise of employee stock options is assumed using the treasury stock method. The assumption of vesting of restricted stock, however, differs:
| |
1. | Assume vesting of restricted stock using the treasury stock method. |
1.Assume vesting of restricted stock using the treasury stock method.
| |
2. | Assume unvested restricted stock awards are not vested, and allocate earnings to common shares and unvested restricted stock awards using the two-class method. |
2.Assume unvested restricted stock awards are not vested, and allocate earnings to common shares and unvested restricted stock awards using the two-class method.
For the three and six months ended June 30, 2019, respectively,March 31, 2021, the second method which assumes unvested awards are not vested, was used in the computation because it was more dilutive than the first method.
The following table sets forth the computation of net income (loss) per share, on a basic and diluted basis, for the periods indicated (share count and dollar amounts other than per-share amounts in the table are in thousands):
| | | | | | | | | | | | | | | |
| Three Months Ended March 31, | | |
| 2021 | | 2020 | | | | |
| Basic: | | | | | | | |
| Net income (loss) | $ | 6,869 | | | $ | (33,009) | | | | | |
| Less income allocated to participating securities | (103) | | | (236) | | | | | |
| Net income (loss) attributable to common stock | $ | 6,766 | | | $ | (33,245) | | | | | |
| Earnings (loss) per share, basic | $ | 0.42 | | | $ | (2.08) | | | | | |
| Weighted-average shares outstanding | 16,167 | | | 15,952 | | | | | |
| Diluted: | | | | | | | |
| Net income (loss) | $ | 6,869 | | | $ | (33,009) | | | | | |
| Less income allocated to participating securities | (103) | | | (236) | | | | | |
| Net income (loss) attributable to common stock | $ | 6,766 | | | $ | (33,245) | | | | | |
| Earnings (loss) per share, diluted | $ | 0.42 | | | $ | (2.08) | | | | | |
Weighted-average shares outstanding(1) | 16,167 | | | 15,952 | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
|
| | | | | | | | | | | | | | | |
| | Three Months Ended June 30, | | Six Months Ended June 30, |
| | 2020 | | 2019 | | 2020 | | 2019 |
| Basic: | | | | | | | |
| Net income (loss) | $ | (93,103 | ) | | $ | 70,543 |
| | $ | (126,113 | ) | | $ | 127,667 |
|
| Less income allocated to participating securities | — |
| | (997 | ) | | (236 | ) | | (1,791 | ) |
| Net income (loss) attributable to common stock | $ | (93,103 | ) | | $ | 69,546 |
| | $ | (126,349 | ) | | $ | 125,876 |
|
| Earnings (loss) per share, basic | $ | (5.85 | ) | | $ | 4.33 |
| | $ | (7.93 | ) | | $ | 7.85 |
|
| Weighted-average shares outstanding | 15,902 |
| | 16,063 |
| | 15,927 |
| | 16,037 |
|
| Diluted: | |
| | |
| | |
| | |
|
| Net income (loss) | $ | (93,103 | ) | | $ | 70,543 |
| | $ | (126,113 | ) | | $ | 127,667 |
|
| Less income allocated to participating securities | — |
| | (996 | ) | | (236 | ) | | (1,790 | ) |
| Net income (loss) attributable to common stock | $ | (93,103 | ) | | $ | 69,547 |
| | $ | (126,349 | ) | | $ | 125,877 |
|
| Earnings (loss) per share, diluted | $ | (5.85 | ) | | $ | 4.33 |
| | $ | (7.93 | ) | | $ | 7.84 |
|
| Weighted-average shares outstanding | 15,902 |
| | 16,063 |
| | 15,927 |
| | 16,037 |
|
| Dilutive effect of stock options and restricted stock | 26 |
| | 39 |
| | 56 |
| | 39 |
|
| Adjusted weighted-average shares outstanding under treasury stock method | 15,928 |
| | 16,102 |
| | 15,983 |
| | 16,076 |
|
| Participating securities excluded under two-class method | (26 | ) | | (33 | ) | | (56 | ) | | (26 | ) |
| Adjusted weighted-average shares outstanding under two-class method | 15,902 |
| | 16,069 |
| | 15,927 |
| | 16,050 |
|
Note 10 — Commitments and Contingencies
As of June 30, 2020, the Company had commitments to purchase 8 Airbus A320 aircraft as well as purchase agreements for 4 spare engines.
The Company's contractual purchase commitments consist primarily of aircraft and engine acquisitions. The total future commitments are as follows:
|
| | | |
| (in thousands) | June 30, 2020 |
| Remaining in 2020 | $ | 126,141 |
|
| 2021 | 37,900 |
|
| 2022 | 21,000 |
|
| Total commitments | $ | 185,041 |
|
Contingencies
The Company is subject to certain legal and administrative actions it considers routine to its business activities. The Company believes the ultimate outcome of any potential and pending legal or administrative matters will not have a material adverse impact on its financial position, liquidity or results of operations.
Note 11 — SegmentsSubsequent Events
Operating segments are components of a company for which separate financial and operating information is regularly evaluated and reported toIn April 2021, the Chief Operating Decision Maker ("CODM"), and is used to allocate resources and analyze performance. The Company's CODM is the executive leadership team, which reviews information about the Company's 3 operating segments: the Airline, Sunseeker Resort, and other non-airline.
Airline Segment
The Airline segment operates as a single business unit and includes all scheduled service air transportation, ancillary air-related products and services, third party products and services, fixed fee contract air transportation and other airline-related revenue. The CODM evaluation includes, but is not limited to, route and flight profitability data, ancillary and third party product and
service offering statistics, and fixed fee contract information when making resource allocation decisions with the goal of optimizing consolidated financial results.
Sunseeker Resort Segment
The Sunseeker Resort segment represents activityCompany received $13.8 million in funds related to the development and construction of Sunseeker Resort in Southwest Florida, as well asPSP2. In consideration for these additional funds, the operation of Kingsway Golf Course. DueCompany issued additional warrants ( the "PSP2 Warrants") to the various impactsTreasury to acquire 924 shares of COVID-19,common stock at a price of $179.23 per share (based on the Company suspended construction of Sunseeker Resort and temporarily closed operation of Kingsway Golf Course. At this time, it is uncertain when construction will resume and when the golf course will re-open.
Other non-Airline Segment
The other non-airline segment includes the Teesnap golf course management solution and Allegiant Nonstop family entertainment centers. Allegiant Nonstop family entertainment centers are comprised of games, attractions, and food facilities.
Due to the impacts of COVID-19, the Company temporarily closed the Allegiant Nonstop location in Warren, MI, and permanently closed the Allegiant Nonstop location in Clearfield, Utah. The Company also permanently discontinued all activity for the Allegiant Nonstop location in West Jordan, Utah, which was being developed.
In July 2019, management began evaluating strategic alternatives for Teesnap, and its business-to-business software as a service offering.
Selected information for the Company's segments and the reconciliation to the consolidated financial statement amounts are as follows:
|
| | | | | | | | | | | | | | | |
| (in thousands) | Airline | | Sunseeker Resort | | Other non- airline | | Consolidated |
| Three Months Ended June 30, 2020 | | | | | | | |
| Operating revenue: | | | | | | | |
| Passenger | $ | 116,520 |
| | $ | — |
| | $ | — |
| | $ | 116,520 |
|
| Third party products | 8,443 |
| | — |
| | — |
| | 8,443 |
|
| Fixed fee contract | 3,237 |
| | — |
| | — |
| | 3,237 |
|
| Other | 809 |
| | 32 |
| | 4,306 |
| | 5,147 |
|
Operating income (loss) (1) | (105,389 | ) | | (7,689 | ) | | (174 | ) | | (113,252 | ) |
| Interest expense, net | 12,651 |
| | (15 | ) | | — |
| | 12,636 |
|
| Depreciation and amortization | 43,240 |
| | 56 |
| | — |
| | 43,296 |
|
| Capital expenditures | 11,845 |
| | — |
| | — |
| | 11,845 |
|
| Three Months Ended June 30, 2019 | | | | | | | |
| Operating revenue: | | | | | | | |
| Passenger | $ | 454,779 |
| | $ | — |
| | $ | — |
| | $ | 454,779 |
|
| Third party products | 18,208 |
| | — |
| | — |
| | 18,208 |
|
| Fixed fee contract | 12,487 |
| | — |
| | — |
| | 12,487 |
|
| Other | 1,299 |
| | 373 |
| | 4,613 |
| | 6,285 |
|
| Operating income (loss) | 115,546 |
| | (1,695 | ) | | (5,746 | ) | | 108,105 |
|
| Interest expense, net | 15,924 |
| | 478 |
| | — |
| | 16,402 |
|
| Depreciation and amortization | 36,890 |
| | 326 |
| | 1,278 |
| | 38,494 |
|
| Capital expenditures | 98,128 |
| | 11,296 |
| | 2,494 |
| | 111,918 |
|
| | | | | | | | |
| (in thousands) | Airline | | Sunseeker Resort | | Other non- airline | | Consolidated |
| Six Months Ended June 30, 2020 | | | | | | | |
| Operating revenue: | | | | | | | |
| Passenger | $ | 495,431 |
| | $ | — |
| | $ | — |
| | $ | 495,431 |
|
| Third party products | 24,419 |
| | — |
| | — |
| | 24,419 |
|
| Fixed fee contract | 12,156 |
| | — |
| | — |
| | 12,156 |
|
| Other | 1,685 |
| | 653 |
| | 8,184 |
| | 10,522 |
|
Operating income (loss) (2) | (54,269 | ) | | (140,122 | ) | | (29,864 | ) | | (224,255 | ) |
| Interest expense, net | 23,850 |
| | 561 |
| | — |
| | 24,411 |
|
| Depreciation and amortization | 85,691 |
| | 532 |
| | 772 |
| | 86,995 |
|
| Capital expenditures | 130,744 |
| | 45,160 |
| | 442 |
| | 176,346 |
|
| Six Months Ended June 30, 2019 | | | | | | | |
| Operating revenue: | | | | | | | |
| Passenger | $ | 874,755 |
| | $ | — |
| | $ | — |
| | $ | 874,755 |
|
| Third party products | 35,350 |
| | — |
| | — |
| | 35,350 |
|
| Fixed fee contract | 23,061 |
| | — |
| | — |
| | 23,061 |
|
| Other | 1,930 |
| | 1,275 |
| | 7,010 |
| | 10,215 |
|
| Operating income (loss) | 214,035 |
| | (2,917 | ) | | (11,937 | ) | | 199,181 |
|
| Interest expense, net | 29,145 |
| | 636 |
| | — |
| | 29,781 |
|
| Depreciation and amortization | 72,119 |
| | 482 |
| | 2,075 |
| | 74,676 |
|
| Capital expenditures | 207,048 |
| | 16,571 |
| | 10,850 |
| | 234,469 |
|
(1) For the three months ended June 30, 2020, Operating loss was impacted by special charges of: $75.9 million for the Airline; $5.5 million for Sunseeker Resort; and a $0.2 million gain for Other non-airline.
(2) For the six months ended June 30, 2020, Operating loss was impacted by special charges of: $85.4 million for the Airline; $135.4 million for Sunseeker Resort; and $26.4 million for Other non-airline.
Total assets were as follows as of the dates indicated:
|
| | | | | | | |
| (in thousands) | June 30, 2020 | | December 31, 2019 |
| Airline | $ | 3,221,917 |
| | $ | 2,830,236 |
|
| Sunseeker Resort | 35,159 |
| | 133,362 |
|
| Other non-airline | 15,893 |
| | 47,205 |
|
| Consolidated | $ | 3,272,969 |
| | $ | 3,010,803 |
|
Note 12 — Impairment
Accounting Standards Codification (ASC) 360 - Property, Plant, and Equipment (ASC 360) requires long-lived assets to be assessed for impairment when events and circumstances indicate that the assets may be impaired.
As described in Note 2, in the first six months of 2020, the Company's operations and liquidity were significantly impacted by decreased passenger demand and U.S. government travel restrictions and quarantine requirements due to COVID-19. As a result of these events and circumstances, the Company performed impairment tests on its long-lived assets in connection with the preparation of its financial statements.
In accordance with ASC 360, an impairment of a long-lived asset or group of long-lived assets exists only when the sum of the estimated undiscounted future cash flows expected to be generated directly by the assets are less than the carrying value of the assets. Assets were grouped by operating segment when estimating future cash flows, and further grouped within each segment as applicable. Estimates of future cash flows were generally based on historical results, and management's best estimate of future market and operating conditions.
Airline Segment
Long-lived assets for the Airline segment consist primarily of owned and leased flight and ground equipment. To test the recoverabilityprice of the Company's common stock on the Nasdaq Global Select Market.on December 24, 2020). Also, in consideration for these additional funds received, the PSP2 note was increased to $1.7 million.
In April 2021, the Company through its airline operating fleet, undiscounted future cash flows for each aircraft under the Company's current expected operating fleet plan were assessed and it was determined that there was 0 impairment as of June 30, 2020. As the Company obtains greater clarity about the duration and extent of reduced demand and potentially executes further capacity adjustments, the Company will continue to evaluate its current fleet compared to network requirements and may decide to permanently retire additional aircraft.
The Airline has an equity investment insubsidiary Allegiant Air, LLC entered into a technology company. A $5.0 million charge was recorded to impair the investment as of June 30, 2020, to reflect management's best estimate of the fair value of this investment based on recent market trends.
Sunseeker Resort Segment
Long-lived assets for Sunseeker Resort and related Kingsway Golf Course consist primarily of the land, construction in process, building, and other various equipment. As a result of the impairment tests performed, the Company determined the sum of the undiscounted cash flows was less than the long-lived assets' carrying value. A $136.8 million impairment charge was recorded in the first quarter 2020 to reflect the difference between the carrying values of these assets and their fair values. Fair value reflects management's best estimate,including valuation inputs from third parties and recent market transactions. Based on an evaluation of impairment indicators in the second quarter 2020, 0 additional impairment was recognized.
Other non-Airline Segment
Long-lived assets for Allegiant Nonstop family entertainment centers consist primarily of leasehold improvements, arcade games, various equipment, and ROU assets. As a result of the impairment tests performed, the Company determined the sum of the undiscounted cash flows were less than the long-lived assets' carrying value. An $18.3 million impairment charge was recorded in the first quarter 2020 to reflect the difference between the carrying values of these assets and their fair values. Fair value reflects management's best estimate,including valuation inputs from third parties and recent market trends. Based on an evaluation of impairment indicators in the second quarter 2020, 0 additional impairment was recognized.
Long-lived assets for Teesnap consist primarily of capitalized software and computer equipment. As a result of the impairment tests performed, the Company determined the sum of the undiscounted cash flows was less than the long-lived assets' carrying value. Management does not expect to recover any of the book value of the assets through operations, and an $8.3 million impairment charge was recorded in the first quarter 2020 to write down all long-lived assets to a net book value of 0. This reflects management's best estimate of the fair value of these assets based on recent market trends.
Note 13 — Subsequent Events
In July 2020, the Company received the fourth and final installment of funds under the Payroll Support Program 3 Agreement (the "PSPA""PSP3") with the Treasury under section 7301 of the CARES Act.American Rescue Plan Act of 2021. The fourth installment totaled $17.2 million. The proceedstotal amount expected to be allocated to Allegiant Air under the PSP3 is approximately $98.4 million, which must be used exclusively for wages, salaries and benefits. The Company received an initial installment of $49.2 million in April 2021 and the remainder of the funds are expected to be received during the second quarter 2021.
In considerationIf additional funds are allocated by the Treasury under the PSP3 such that the amount received by the Company exceeds $100.0 million, then Allegiant Air will issue a note for 30 percent for the fourth installmentfunds received under the PSP3 in excess of $100.0 million and the Company will be required to issue warrants based on the amount of the grant, the PSP Note was increased by $5.2 million. See Note 5 for a description of the PSP Note.notes.
Also in consideration for the fourth installment of the grant,On April 30, 2021, the Company issued additional PSP Warrantsclosed on a transaction to sell 85 percent of Teesnap, its golf course management software subsidiary. The Company will retain 15 percent ownership in the Treasury to acquire 6,189 shares of common stock of the Company at a price of $83.33 per share (based on the closing price of the Company’s common stock on The Nasdaq Global Select Market on April 9, 2020). The PSP Warrants issued in July 2020 are valued at $0.3 million. See Note 2 for a description of the PSP Warrants.business.
In connection with the PSPA, the Company is required to comply with the relevant provisions of the CARES Act, including those prohibiting the repurchase of common stock and the payment of common stock dividends until September 30, 2021, as well as those restricting the payment of certain executive compensation for periods through March 24, 2022.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis presents factors that had a material effect on our results of operations during the three and six months ended June 30, 2020March 31, 2021 and 2019.2020. Also discussed is our financial position as of June 30, 2020March 31, 2021 and December 31, 2019.2020. 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, 2019.2020. 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.
NETWORKFirst Quarter 2021 Review
Highlights:
–Earnings per share of $0.42 as the PSP funds contributed to our first net profit since the onset of the pandemic
–Restored capacity to pre-pandemic levels with scheduled service capacity up 3.1 percent versus first quarter of 2019
–Continued sequential quarterly improvement in total revenue with first quarter 2021 total revenue up 13.2 percent from the fourth quarter 2020
–Fixed fee revenue of $7.7 million, the strongest quarter since the onset of the pandemic
–Total cash and investments at March 31, 2021 were $728 million, up from $685 million at December 31, 2020
–Included on Forbes' list of America's Best Employers for Diversity in 2021
–Partnered with The Smith Center for the Performing Arts as a sponsor of the annual Heart of Education Awards honoring outstanding teachers in Southern Nevada by awarding travel vouchers to 700 teachers
AIRCRAFT
The following table sets forth the aircraft in service and operated by us as of the dates indicated:
| | | | | | | | | | | | | |
| March 31, 2021 | | December 31, 2020 | | |
| A319 | 35 | | | 34 | | | |
A320(1) | 65 | | | 61 | | | |
| Total | 100 | | | 95 | | | |
(1) Does not include four aircraft of which we have taken delivery, but were not yet in service as of March 31, 2021.
As of June 30, 2020,March 31, 2021, we had firm commitments to purchase four aircraft. We expect delivery of three of these aircraft in 2021 and the remaining aircraft in 2022.
NETWORK
As of March 31, 2021, we were selling 519580 routes versus 459520 as of the same date last year, which represents a 13.1an 11.5 percent increase. Our total number of origination cities and leisure destinations (for operating routes) were 97 and 28,32, respectively, as of June 30, 2020.March 31, 2021. During the first quarter, we announced the addition of a new base in Austin, Texas, beginning base operations in November 2021, which is expected to house three A320 aircraft.
Given the fluidity of the current environment amid the effects of COVID-19, we made significant capacity reductions for the third quarter.
Our unique model is predicated around expanding and contracting capacity to meet seasonal travel demands. We are currently leveraging this core strength, just at a much more significant contracting level than normal seasonal demand changes would dictate. We are maintaining a broad network and selling presence. We consistently monitor flights to assess for cash profitability. Additionally, we will provide any essential air service as directed by the U.S. Department of Transportation, in connection with our Payroll Support agreement under the CARES Act.
TRENDS
The COVID-19 pandemic and shelter-in-place directives have greatlyhas significantly impacted our operating results for the first half of 2020three months ending March 31, 2021 and will continue to do so into the future. Air traffic demand is down precipitously,substantially and base air fares are down as well. We cannot predict when air travel will begin to pick upreturn to customary levels or at what pace. In the meantime, our revenues will be adversely affected. Although there were incremental demand increases during portions of the second quarter 2020, an increase in reported COVID-19 cases in various parts of the country towards the end of the quarter caused another decline in bookings. We believe that demand in the forseeableforeseeable future will continue to fluctuate in response to fluctuations in COVID-19 cases, new variations of the virus, hospitalizations, deaths, treatment efficacy and the availability of a vaccine.vaccines.
The impacts ofDespite the pandemic and airline industry challenges, since the beginning of 2021 and through March 31, 2021, we have resulted in a reduction in our flight schedule. It is likely that reduced schedulesannounced service on 50 new routes and to three new cities, including seasonal and temporary routes. We will continue into the future. We are closely monitoring bookings and making decisions on schedule changes as necessary based on demand.to manage capacity to meet demand, which we believe is a core strength of our business model.
Though we cannot control the current demand environment, ourOur primary focus atduring the current timepandemic has been to conserve cash, and we have taken immediate and extensive measures to reduce daily cash burn. We have reduced management and support teams by 220 positions.cash. We have suspended payment of cash dividends and stock buybacks. We have suspended construction of the Sunseeker Resort in Southwest Florida as well as spend onand closed and disposed of our other non-airline subsidiaries. We have reduced airline capital expenditures for this year and into the future.family entertainment centers. We have eliminated other nonessential expenditures and are renegotiating ourhave renegotiated arrangements with outside vendors, all in an effort to conserve cash until revenues more fully recover.
These efforts have enabled us to reduce average cash burn to under $1.0 million per day during the second quarter. We will continue to focus on conserving cash, along with managing capacity to meet demand, a core strength of our business model.
RESPONSES TO THE COVID-19 PANDEMIC
Beginning in March and continuing throughout the second quarter 2020, we have taken many actions to mitigate the effects of COVID-19 on its business, as outlined below:
Network and Customer Experience
Reduced second quarter capacity by 50.1 percent
Continually evaluating forward schedules to adjust capacity according to demand trends
Waived change and cancellation fees for all customers
Extended expiry on credit vouchers to two years
Offered opt-in option in the booking path for customers to receive notification that their flight has reached 65.0 percent capacity with option to re-book on another flight with no fee or receive a refund
Cash Outlay Reduction
Suspended all stock buybacks and dividends
Executives temporarily reduced salaries by 50 percent and Board members are foregoing cash compensation
Enacted a hiring freeze and offered voluntary leaves
Reduced management and support teams by 220 positions (employees will be paid through September 30, 2020, in compliance with the CARES Act)
Suspended nearly all contractor positions, subscriptions, non-essential training and travel
Suspended all non-essential capital expenditures including, but not limited to, Sunseeker Resorts, Teesnap and Allegiant Nonstop family entertainment centers
Liquidity Response
Implemented immediate and meaningful cash burn reductions
Closed financing of $31.0 million in April 2020, secured by two aircraft
Received proceeds of $48.0 million in June through a sale-leaseback transaction on four aircraft
As of July 31, 2020, we had 24 unencumbered aircraft and 10 unencumbered spare engines
| |
• | In April 2020, signed payroll support program agreement ("PSPA") with the Treasury to total $171.9 million comprised of direct grants, a $21.6 million low-interest 10-year loan, and warrants to purchase 25,889 shares of the Company's common stock
|
| |
– | Received $154.7 million under the PSPA during the second quarter 2020 - includes direct grants, a $16.4 million loan, and warrants to purchase 19,700 shares of the Company's common stock |
| |
– | The remaining $17.2 million of funds were received in July 2020 - includes direct grants, a $5.2 million addition to the loan, and warrants to purchase 6,189 shares of the Company's common stock |
Received $45.6 million of tax refunds in May 2020 related to 2018 and 2019 net operating loss carrybacks due to the change in loss carryback period under the CARES Act
| |
– | Additional $48.7 million of tax refunds received during July |
| |
– | Expect a sizable federal income tax refund related to 2020 net operating losses |
Eligible to access up to $276.0 million through a loan under the Loan Program of the CARES Act by the end of September 2020
Deferring payment of the employer portion of Social Security taxes, as permitted under the CARES Act, to provide additional liquidity - $4.3 million in Social Security taxes deferred as of June 30, 2020 (half to be paid by December 31, 2021 and the other half to be paid by December 31, 2022)
Health and Safety
Amid various uncertainties and public concern during the COVID-19 pandemic, we have implemented the followingbelow measures to ensure health and safety for all traveling on our flights:flights. Due to our focus on these health and safety measures, we were ranked by Safe Travel Barometer in August 2020 as the #1 airline among North American carriers and among the top five worldwide for best COVID-19 Traveler Safety Measures, with results based on an independent audit of more than 150 airlines.
–Maintain a comprehensive cleaning program for all aircraft that includes a regular schedule of standard and deep-clean procedures that exceed both CDC and Airbus guidance
–Aircraft receive regular treatment with an advanced antimicrobial protectant that kills viruses, germs and bacteria on contact for 14 days
–Utilize VOC (volatile organic compound) filters on board every aircraft, which remove additional organic compounds and ensure that cabin air is changed, on average, every three minutes, exceeding HEPA standards
Effective July 2, 2020, require–Require customers to wear face coverings through all phases of travel, including at the ticket counter, in the gate area and during flight
| |
• | –Complimentary health and safety kits,which include a single-use face mask and cleaning wipes, available to all of our customers –which include a single-use face mask, a pair of non-latex disposable gloves and cleaning wipes, provided to all of our customers |
Crew members required to wear face masks on board and during any interaction with customers
–Social distancing principles at check-in, boarding and on-board to the extent practicable
–Treat hard surfaces in all office areas, including limiting adjacent row seatingairport station offices, maintenance facilities, headquarters/administrative offices, withantimicrobial disinfectant/protectant, and allowing only customers on the same itinerary to utilize middle seats as practicablewall-mounted and handheld thermometers for employee and crew member temperature checks
| |
• | Treat hard surfaces in all office areas, including airport station offices, maintenance facilities, headquarters/administrative offices, with–antimicrobial disinfectant/protectant, and utilize wall-mounted and handheld thermometers for employee and crew member temperature checks
|
Partner with Quest Diagnostics to provide at home COVID-19 test kits to employees in the event local testing is not immediately available
RESULTS OF OPERATIONS
Comparison of three months ended June 30, 2020March 31, 2021 to three months ended June 30, 2019March 31, 2020
Operations during the first quarter of 2020 consisted of two months of pre-pandemic activity and March 2020, which was substantially impacted by the pandemic. The entirety of first quarter 2021 was impacted by continuing reduced demand for air travel.
Operating Revenue
Passenger revenue. For the secondfirst quarter 2020,2021, passenger revenue decreased 74.432.3 percent compared to secondfirst quarter 2019. The decrease2020. This decline was driven primarily by a 50.3 percent decrease in scheduled service departures which resulted in a 69.4 percent decrease in scheduled service passengers. These declines are largely due to a dramaticsignificant decline in passenger demand and government travel restrictions and quarantine requirements during the second quarter 2020, related to COVID-19. Average passenger fare (includesCOVID-19 as scheduled service and air ancillary) decreased 16.4passengers were down 26.4 percent overall year over year, driven mainly by a 30.7 percent decrease inand scheduled service average base fare as fares were reduced in an effort to stimulate demand.was down 8.8 percent.
Third party products revenue. Third party products revenue for the secondfirst quarter 20202021 decreased 53.614.7 percent, compared to the same period in 2019.first quarter 2020. This is primarily due to decreased net revenue from both rental cars and hotels, as a result of substantially fewer passengers. This declinepassengers and with respect to hotel room revenue, particularly reductions in those traveling to Las Vegas. On a per passenger basis, third party products revenue was partially offset by an overall increase in third-party revenue from our co-branded credit card program during the secondup 15.9 percent year over year and 17.0 percent year over first quarter of 2020 compared to 2019.
Fixed fee contract revenue. FixedDespite increased fixed fee flying for March Madness in the first quarter 2021, fixed fee contract revenue for the secondfirst quarter 20202021 decreased 74.113.8 percent when compared to 2019, primarilythe same period in 2020 due to a 53.0 percent decreasedecreases in related departures.demand. The decrease in departures is mostly due to a significant dropdecreases in fixed fee flying for Apple Vacations in the second quarter 2020 and fewer ad hoc charter opportunities, all duerevenue are related to COVID-19.
Other revenue. Other revenue decreased 18.179.3 percent for the secondfirst quarter 20202021 from 2019.the same period in 2020. The decrease was due to decreased activity in the non-airline segments, especially for Kingsway Golf Course and oursubsidiaries including the closure of the family entertainment centers. As a result of the COVID-19 pandemic, we have temporarily closed our family entertainment center in Warren, Michigan and permanently discontinued all activity for our locations in Utah. We also temporarily closed Kingsway Golf Course, initially for renovation but now the renovation has been delayed as a result of our cash conservation efforts.
Operating Expenses
We primarily evaluate our expense management by comparing our costs per ASMavailable seat mile (ASM) across different periods, which enables us to assess trends in each expense category. The following table presents airline-only unit costs on a per ASM basis, or CASM, for the indicated periods. Excluding fuel on a per ASM basis provides management and investors the ability to measure and monitor our cost performance absent fuel price volatility. Both the cost and availability of fuel are subject to many economic and political factors beyond our control.
| | | | | | | | | Three Months Ended March 31, | | Percent |
| | Three Months Ended June 30, | | Percent | |
| Airline only unitized costs (in cents) | 2020 | | 2019 | | Change | |
| Unitized costs (in cents) | | Unitized costs (in cents) | 2021 | | 2020 | | Change |
| Salary and benefits | 4.16 |
| | 2.46 |
| | 69.1 | % | Salary and benefits | 2.94 | | | 2.77 | | | 6.1 | % |
| Aircraft fuel | | Aircraft fuel | 2.06 | | | 2.18 | | | (5.5) | |
| Depreciation and amortization | | Depreciation and amortization | 1.08 | | | 1.07 | | | 0.9 | |
| Station operations | 1.23 |
| | 1.03 |
| | 19.4 |
| Station operations | 1.07 | | | 1.01 | | | 5.9 | |
| Depreciation and amortization | 1.95 |
| | 0.83 |
| | 134.9 |
| |
| Maintenance and repairs | 0.59 |
| | 0.47 |
| | 25.5 |
| Maintenance and repairs | 0.58 | | | 0.54 | | | 7.4 | |
| Sales and marketing | 0.40 |
| | 0.45 |
| | (11.1 | ) | Sales and marketing | 0.29 | | | 0.45 | | | (35.6) | |
| Aircraft lease rentals | 0.06 |
| | — |
| | NM |
| Aircraft lease rentals | 0.12 | | | 0.02 | | | 500.0 |
| Other | 0.87 |
| | 0.41 |
| | 112.2 |
| Other | 0.44 | | | 0.66 | | | (33.3) | |
| CARES Act grant recognition | (3.36 | ) | | — |
| | NM |
| |
| Payroll Support Programs grant recognition | | Payroll Support Programs grant recognition | (2.28) | | | — | | | NM |
| Operating Special charges | 3.42 |
| | — |
| | NM |
| Operating Special charges | 0.04 | | | 4.25 | | | (99.1) | |
Airline CASM, excluding fuel(1) | 9.32 |
| | 5.65 |
|
| 65.0 |
| |
| Aircraft fuel | 1.23 |
| | 2.70 |
| | (54.4 | ) | |
| Airline CASM | 10.55 |
|
| 8.35 |
|
| 26.3 |
| |
| CASM | | CASM | 6.34 | | | 12.95 | | | (51.0) | |
| Operating CASM, excluding fuel | | Operating CASM, excluding fuel | 4.28 | | | 10.77 | | | (60.3) | |
|
NM - Not meaningful
(1) Although we believe we have a relatively large proportion of variable expenses, our Airline CASM-ex fuel increased precipitously during the quarter as our fixed costs were spread over a significantly reduced number of ASMs due to schedule reductions resulting from COVID-19.
Salary and benefits expense. Salary and benefits expense decreased $18.8increased $5.3 million, or 16.64.7 percent, for the secondfirst quarter 20202021 when compared to the same period in 2019. Although2020. The increase is due to the average numberclassification of full-time$9.5 million as COVID-19 related special charges in the first quarter 2020 (consisting almost entirely of salary and benefit expense) offset by a decline in full time equivalent employees increased 4.1of 9.9 percent year over year, overall expense decreased duewhen compared to temporary voluntary leave programs offered to employees, voluntary pay reductions, and suspension of the bonus accrual during the second quarterMarch 31, 2020.
Aircraft fuel expense. Aircraft fuel expense decreased $92.6$6.0 million, or 77.26.7 percent, for the secondfirst quarter 2021 compared to first quarter 2020 compared to second quarter 2019, partly due to a decrease in system averageas fuel cost per gallon of 50.0 percentwas relatively flat year over year as fuel prices declined due to lower worldwide demand caused by the pandemic.year. System fuel gallons consumed decreased by 54.46.4 percent on a 50.11.3 percent decrease in ASMs as we reduced capacity in light of the pandemic.ASMs. Fuel efficiency (measured as ASMs per gallon) increased 9.45.5 percent year over year due to fuel saving initiatives, as well as less weight on many of our flights, due to a 32.718.5 percentage point year-over-year decrease in load factor.factor as compared to the first quarter 2020.
Depreciation and amortization expense. Depreciation and amortization expense for the first quarter 2021 was relatively flat as compared to the first quarter 2020 with a 1.2 percent decrease due to the retirement and sale lease-back transactions of aircraft during 2020.
Station operations expense. Station operations expense for the secondfirst quarter 2020 decreased $18.52021 increased $2.1 million, or 40.35.1 percent on a 50.3 percent decreasecompared to the same period in scheduled service departures as we reduced the number of flights offered2020 primarily due to reduced demand.a 12.7 percent increase in airport and landing fees.
Maintenance and repairs expense. Maintenance and repairs expense for the secondfirst quarter 2020 decreased $7.82021 increased $1.6 million, or 37.67.2 percent, compared to the same period in 2019, mostly due to a decrease in routine2020. Routine maintenance costs increased as we flew fewer ASMs and departuresaircraft utilization was up 1.4 percent during the quarter.
Depreciationquarter and amortization expense. Depreciation and amortization expense for the second quarter 2020 increased $4.8 million, or 12.5 percent, year over year, as the average number of aircraft in service increased 6.7 percent year over year.
Accounting for most of this increase, amortization of major maintenancewe incurred incremental costs was $9.4 million for the second quarter 2020 compared to $6.1 million for the second quarter 2019, due to an increase in the number of aircraft and related deferred maintenance costs associated with them. We expect these costs will continue to increase aspreparing our fleet ages.to operate at full capacity again.
Sales and marketing expense. Sales and marketing expense for the secondfirst quarter 20202021 decreased by 56.637.1 percent compared to the same period in 2019. Advertising spend was intentionally pulled back in the second quarter 2020, due to the pandemic. Also, there was a decrease in net credit card fees as a result of a 74.432.3 percent decrease in passenger revenue year over year.year-over-year as well as efforts to more adeptly deploy advertising spend during the pandemic.
Other operating expense. Other expense remained relatively flat year over year, with a $0.5decreased $8.9 million decrease for the secondfirst quarter 2021 compared to the first quarter 2020, comparedmostly due to second quarter 2019.decreased activity in our non-airline subsidiaries.
CARES ActPayroll Support Program grant recognition. In April 2020, we entered into an agreement with the Treasury to receive $171.9We received a total of $91.8 million in emergency reliefdirect grants during the first quarter 2021 through the CARES Act payroll support program to be paid in installments through July 2020. Approximately $150.0 million of these funds are beingPayroll Support Extension Program. The direct grants were recognized as a credit to operating expense on theour statement of income, over the periods for which the funds arewere intended to compensate. We recognized a $74.6the entire $91.8 million creditas an offset to operating expense on theour statement of income during the secondfirst quarter of 2020 and expect to recognize the remainder of the grant proceeds from the CARES Act payroll support program as a credit to operating expense in the third quarter 2020.2021.
Operating Special charges. Special charges of $81.2$1.7 million were recorded within operating expenses for the secondfirst quarter 2020. We did not have any special charges2021 compared to $172.9 million for the same period in 2019. Of these2020. The special charges $5.0 million relates to a non-cash impairment charge for an investment in a third party. The remaining $76.2 million relatesrelate to expenses that were unique and specific to COVID-19. This includesThese charges in 2021 include accelerated depreciation on seven airframes and five engines resulting from an accelerated retirement plan, a loss onand losses within our non-airline subsidiaries. Special charges recorded in the sale-leaseback transaction which we would not likely have transacted absent cash conservation effortsfirst quarter 2020 primarily consisted of impairments related to our non-airline subsidiaries. See Note 2 of Notes to Consolidated Financial Statements (unaudited) for further information.
Interest Expense
Interest expense for the quarter ended March 31, 2021 declined by $1.4 million, or 7.5 percent, as a result of COVID, salary and benefits expense, and other various expenses.declines in LIBOR impacting our variable rate debt.
Non-operating Special charges
Special charges of $19.8 million were recorded within non-operating expenses for the second quarter 2020. We did not have any special charges for the same period in 2019. The special charges relate to an accrual on the expectation to terminate the loan agreement with Sixth Street Partners (formerly TSSP) intended to finance the development of Sunseeker Resorts Charlotte Harbor. This is expected to be paid in the second half of 2020.
Income Tax Expense
We recorded a $53.3 million tax benefit (36.4 percentOur effective tax rate) compared to a $21.2 million tax provision (23.1rate was 20.8 percent effective tax rate)and 74.7 percent for the three months ended June 30,March 31, 2021 and 2020, and 2019, respectively. The effective tax rate for the three months ended June 30, 2020March 31, 2021 differed from the statutory federal income tax rate of 21.0 percent primarily due to state income taxes; the tax accounting impact of the CARES Act which allows the Company to carryback the 2020 net operating loss at the 35.0 percent rate applicable in earlier years.
Sunseeker and Other Non-airline expenses
Non-airline expenses are included in the various line items discussed above, as appropriate. The non-airline expenses include those from our Other non-Airline Segment (our Teesnap golf management business and Allegiant Nonstop family entertainment centers), and operating expenses attributable to Sunseeker Resort and Kingsway Golf Course (most of the Sunseeker Resort expenses were capitalized during the construction period). As of June 30, 2020 nearly all non-airline spend has been suspended indefinitely.
Comparison of six months ended June 30, 2020 to six months ended June 30, 2019
Operating Revenue
Passenger revenue. For the six months ended June 30, 2020, passenger revenue decreased 43.4 percent compared with the same period in 2019. The decrease was mostly attributable to a 25.5 percent decrease in scheduled service departures, which along with the pandemic, drove a 41.5 percent decrease in scheduled service passengers. Decreases in scheduled service departures are due to the decrease in travel demand from March throughout the second quarter 2020ASU 2016-09 related to the effects of COVID-19. Average fare per passenger decreased slightly, by 3.2 percent, during the six month period as a 4.7 percent increase in average air-related ancillary revenue per passenger tempered a 9.8 percent decrease in scheduled service average fare. Increases in our customer baggage feesshare-based payments; and convenience fee contributed to the increase in air-related ancillary revenue to $54.80 per passenger.
Third party products revenue. Third party products revenuereserve for the six months ended June 30, 2020 decreased 30.9 percent over the same period in 2019. This is primarily due to decreased net revenue from both rental cars and hotels, as a result of substantially fewer passengers. This decline was partially offset by an overall increase in our third-party revenue from co-branded credit card program during the six months ended June 30, 2020 compared to the same period in 2019.
Fixed fee contract revenue. Fixed fee contract revenue for the six months ended June 30, 2020 decreased 47.3 percent compared with the same period in 2019, primarily due to a 34.6 percent decrease in related departures.uncertain tax positions. The decrease in departures is mainly due to a reduction of flying with Apple Vacations, and the cancellation of the NCAA March Madness basketball tournament during 2020 due to COVID-19.
Other revenue. Other revenue increased by 3.0 percent for the six months ended June 30, 2020 compared to the same period in 2019. The increase is primarily driven by increases in subsidiary revenue during the first quarter 2020, especially in our family entertainment centers due to an additional store operating during the first quarter 2020 compared to 2019. As a result of the COVID-19 pandemic, in late March 2020 we temporarily closed our family entertainment center in Warren, Michigan and permanently discontinued all activity for our locations in Utah.
Operating Expenses
The following table presents airline-only unit costs on a per ASM basis, defined as Operating CASM, for the indicated periods: |
| | | | | | | | |
| | Six Months Ended June 30, | | Percent |
| Airline only unitized costs (in cents) | 2020 | | 2019 | | Change |
| Salary and benefits | 3.19 |
| | 2.69 |
| | 18.6 | % |
| Station operations | 1.09 |
| | 1.02 |
| | 6.9 |
|
| Depreciation and amortization | 1.36 |
| | 0.86 |
| | 58.1 |
|
| Maintenance and repairs | 0.55 |
| | 0.52 |
| | 5.8 |
|
| Sales and marketing | 0.43 |
| | 0.49 |
| | (12.2 | ) |
| Aircraft lease rentals | 0.04 |
| | — |
| | NM |
|
| Other | 0.67 |
| | 0.42 |
| | 59.5 |
|
| CARES Act grant recognition | (1.19 | ) | | — |
| | NM |
|
| Operating Special charges | 1.36 |
| | — |
| | NM |
|
Airline CASM, excluding fuel(1) | 7.50 |
|
| 6.00 |
|
| 25.0 |
|
| Aircraft fuel | 1.84 |
| | 2.63 |
| | (30.0 | ) |
| Airline CASM | 9.34 |
| | 8.63 |
| | 8.2 |
|
NM - Not meaningful
(1) Although we believe we have a relatively large proportion of variable expenses, our Airline CASM-ex fuel increased significantly during the six months ended June 30, 2020 as our fixed costs were spread over a reduced number of ASMs due to schedule reductions from mid-March resulting from COVID-19.
Salary and benefits expense. Salary and benefits expense decreased $25.6 million, or 11.0 percent, for the six months ended June 30, 2020 compared to the same period in 2019. Although the average number of full-time equivalent employees increased by 4.1 percent year over year, overall expense decreased partly due to the fact that a large portion of the $9.5 million special charges specific to COVID-19 during the first quarter of 2020 consisted of salary and benefits expense. Additionally, temporary voluntary leave programs offered to employees and voluntary pay reductions during the second quarter 2020, and suspension of the bonus accrual during the six months ended June 30, 2020 resulted in decreased expense.
Aircraft fuel expense. Aircraft fuel expense decreased $103.5 million, or 47.1 percent, for the six months ended June 30, 2020 compared to the same period in 2019 partly due to a decrease in system average fuel cost per gallon of 26.1 percent year over year as fuel prices declined due to lower worldwide demand caused by the pandemic. Additionally, system fuel gallons consumed decreased 28.2 percent on a 24.8 percent decrease in ASMs as we reduced capacity in light of the pandemic. Fuel efficiency (measured as ASMs per gallon) increased 4.9 percent year over year due to fuel saving initiatives as well as less weight on many of our flights, due to an 18.0 percentage point year-over-year decrease in load factor.
Station operations expense. Station operations expense for the six months ended June 30, 2020 decreased 19.4 percent on a 25.5 percent decrease in scheduled service departures compared to the same period in 2019 as we reduced the number of flights offered due to reduced demand.
Maintenance and repairs expense. Maintenance and repairs expense for the six months ended June 30, 2020 decreased 20.3 percent compared to the same period in 2019 mostly due to a decrease in both major and routine maintenance costs as we flew fewer ASMs and departures during the period.
Depreciation and amortization expense. Depreciation and amortization expense for the six months ended June 30, 2020 increased $12.3 million, or 16.5 percent, compared to the same period in 2019. The average number of aircraft in service increased 11.9 percent year over year.
Amortization of major maintenance costs was $18.7 million for the six months ended June 30, 2020 compared to $10.9 million for the same period in 2019. We expect these costs will continue to increase as our fleet ages.
Sales and marketing expense. Sales and marketing expense for the six months ended June 30, 2020 decreased $14.1 million compared to the same period in 2019, as advertising spend was intentionally pulled back in the last half of March and throughout the second quarter 2020 due to the pandemic. Also, there was a decrease in net credit card fees as a result of a 43.4 percent decrease in passenger revenue year over year.
Other expense. Other expense increased $3.6 million year over year caused by an increase in non-airline related expenses and other various expenses.
CARES Act grant recognition. In April 2020, we entered into an agreement with the Treasury to receive $171.9 million in emergency relief through the CARES Act payroll support program to be paid in installments through July 2020. Approximately $150.0 million of these funds are being recognized as a credit to operating expense on the statement of income, over the periods for which the funds are intended to compensate. We recognized a $74.6 million credit to operating expense on the statement of income during the six months ended June 30, 2020 and expect to recognize the remainder of the grant proceeds from the CARES Act payroll support program as a credit to operating expense in the third quarter 2020.
Operating Special charges. Special charges of $247.3 million were recorded within operating expenses for the six months ended June 30, 2020. We did not have any special charges for the same period in 2019. Of these special charges, $161.6 million relate to non-cash impairment charges. The remaining $85.7 million relates to expenses that were unique and specific to COVID-19. This includes accelerated depreciation on seven airframes and five engines resulting from an accelerated retirement plan, a loss on the sale-leaseback transaction we would not likely have transacted absent cash conservation efforts as a result of COVID, salary and benefits expense, and other various expenses.
Non-operating Special charges
Special charges of $26.6 million were recorded within non-operating expenses for the six months ended June 30, 2020. We did not have any special charges for the same period in 2019. Of these special charges, $19.8 million relates to an accrual on the expectation to terminate the loan agreement with Sixth Street Partners (formerly TSSP) intended to finance the development of Sunseeker Resorts Charlotte Harbor. This is expected to be paid in the second half of 2020. The remaining $6.8 million relates to impairment charges for Sunseeker Resort during the first quarter 2020. Note that these charges were reclassified from operating special expense to non-operating special expense for the six months ended June 30, 2020
Income Tax Expense
We recorded a $151.0 million tax benefit (54.5 percent effective tax rate) compared to a $38.0 million tax provision (23.0 percent effective tax rate) for the six months ended June 30, 2020 and 2019, respectively. The 54.5 percent effective tax rate for the sixthree months ended June 30,March 31, 2020 differed from the statutory federal income tax rate of 21.0 percentwas primarily due to the tax accounting impact of the CARES Act which includes a $39.6 million discrete federal income tax benefit related to the full utilization of 2018 and 2019 net operating losses as well asagainst taxable income in earlier years in which 35.0 percent was the enacted tax rate; the ability to carryback the 2020 net operating loss at a 35.0 percent rate applicable in earlier years. Theyears; a deferred tax remeasurement related to the 2020 tax year; and state taxes. While we expect our effective tax rate was also impacted by the remeasurement of deferred taxes and state taxes.
Sunseeker and Other Non-airline expenses
Non-airline expenses are includedto be fairly consistent in the various linenear term, it will vary depending on recurring items discussed above,such as appropriate. The non-airline expenses include those fromthe 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 Other non-Airline Segment (our Teesnap golf management business and Allegiant Nonstop family entertainment centers), and operating expenses attributable to Sunseeker Resort and Kingsway Golf Course (most of the Sunseeker Resort expenses were capitalized during the construction period).tax rates.
Comparative Consolidated Operating Statistics
The following tables set forth our operating statistics for the periods indicated:
| | | | | | | | | | | | | | | | | |
| Three Months Ended March 31, | | Percent |
| 2021 | | 2020 | | Change(1) |
| Operating statistics (unaudited): | | | | | |
| Total system statistics: | | | | | |
| Passengers | 2,334,503 | | | 3,175,450 | | | (26.5) | |
| | | | | |
| Available seat miles (ASMs) (thousands) | 4,013,989 | | | 4,067,671 | | | (1.3) | |
| | | | | |
| | | | | |
| Operating expense per ASM (CASM) (cents) | 6.34 | | | 12.96 | | | (51.1) | |
| Fuel expense per ASM (cents) | 2.06 | | | 2.18 | | | (5.5) | |
| Operating CASM, excluding fuel (cents) | 4.28 | | | 10.77 | | | (60.3) | |
| | | | | |
| ASMs per gallon of fuel | 90.4 | | | 85.7 | | | 5.5 | |
| Departures | 25,684 | | | 26,312 | | | (2.4) | |
| Block hours | 60,373 | | | 62,123 | | | (2.8) | |
| Average stage length (miles) | 898 | | | 895 | | | 0.3 | |
| Average number of operating aircraft during period | 97.3 | | | 93.5 | | | 4.1 | |
| Average block hours per aircraft per day | 7.4 | | | 7.3 | | | 1.4 | |
| Full-time equivalent employees at end of period | 3,998 | | | 4,436 | | | (9.9) | |
| Fuel gallons consumed (thousands) | 44,426 | | | 47,479 | | | (6.4) | |
| Average fuel cost per gallon | $ | 1.86 | | | $ | 1.87 | | | (0.5) | |
|
| | | | | | | | | | |
| | Three Months Ended June 30, | | Percent |
| | 2020 | | 2019 | | Change(1) |
| Operating statistics (unaudited): | | | | | |
| Total system statistics: | | | | | |
| Passengers | 1,273,258 |
| | 4,169,536 |
| | (69.5 | ) |
| Available seat miles (ASMs) (thousands) | 2,220,755 |
| | 4,447,066 |
| | (50.1 | ) |
| Airline operating expense per ASM (CASM) (cents) | 10.55 |
| | 8.35 |
| | 26.3 |
|
| Fuel expense per ASM (cents) | 1.23 |
| | 2.70 |
| | (54.4 | ) |
| Airline operating CASM, excluding fuel (cents) | 9.32 |
| | 5.65 |
| | 65.0 |
|
| ASMs per gallon of fuel | 90.0 |
| | 82.3 |
| | 9.4 |
|
| Departures | 15,089 |
| | 30,547 |
| | (50.6 | ) |
| Block hours | 32,989 |
| | 68,332 |
| | (51.7 | ) |
| Average stage length (miles) | 850 |
| | 853 |
| | (0.4 | ) |
| Average number of operating aircraft during period | 90.7 |
| | 85.0 |
| | 6.7 |
|
| Average block hours per aircraft per day | 3.8 |
| | 8.8 |
| | (56.8 | ) |
| Full-time equivalent employees at end of period | 4,349 |
| | 4,179 |
| | 4.1 |
|
| Fuel gallons consumed (thousands) | 24,664 |
| | 54,064 |
| | (54.4 | ) |
| Average fuel cost per gallon | $ | 1.11 |
| | $ | 2.22 |
| | (50.0 | ) |
| | | Scheduled service statistics: | | | | | | Scheduled service statistics: | | | | |
| Passengers | 1,266,077 |
| | 4,131,855 |
| | (69.4 | ) | Passengers | 2,323,302 | | | 3,154,606 | | | (26.4) | |
| Revenue passenger miles (RPMs) (thousands) | 1,107,534 |
| | 3,603,076 |
| | (69.3 | ) | Revenue passenger miles (RPMs) (thousands) | 2,166,417 | | | 2,925,482 | | | (25.9) | |
| Available seat miles (ASMs) (thousands) | 2,174,683 |
| | 4,311,182 |
| | (49.6 | ) | Available seat miles (ASMs) (thousands) | 3,921,090 | | | 3,964,009 | | | (1.1) | |
| Load factor | 50.9 | % | | 83.6 | % | | (32.7 | ) | Load factor | 55.3 | % | | 73.8 | % | | (18.5) | |
| Departures | 14,683 |
| | 29,567 |
| | (50.3 | ) | Departures | 24,947 | | | 25,484 | | | (2.1) | |
| Block hours | 32,248 |
| | 66,135 |
| | (51.2 | ) | Block hours | 58,851 | | | 60,346 | | | (2.5) | |
Total passenger revenue per ASM (TRASM) (cents)(2) | 5.75 |
| | 10.97 |
| | (47.6 | ) | Total passenger revenue per ASM (TRASM) (cents)(2) | 6.89 | | | 9.96 | | | (30.8) | |
Average fare - scheduled service(3) | $ | 40.46 |
| | $ | 58.39 |
| | (30.7 | ) | Average fare - scheduled service(3) | $ | 58.38 | | | $ | 64.02 | | | (8.8) | |
Average fare - air-related charges(3) | $ | 51.57 |
| | $ | 51.68 |
| | (0.2 | ) | Average fare - air-related charges(3) | $ | 52.11 | | | $ | 56.10 | | | (7.1) | |
| Average fare - third party products | $ | 6.67 |
| | $ | 4.40 |
| | 51.6 |
| Average fare - third party products | $ | 5.86 | | | $ | 5.06 | | | 15.8 | |
| Average fare - total | $ | 98.70 |
| | $ | 114.47 |
| | (13.8 | ) | Average fare - total | $ | 116.35 | | | $ | 125.18 | | | (7.1) | |
| Average stage length (miles) | 855 |
| | 853 |
| | 0.2 |
| Average stage length (miles) | 902 | | | 900 | | | 0.2 | |
| Fuel gallons consumed (thousands) | 24,124 |
| | 52,327 |
| | (53.9 | ) | Fuel gallons consumed (thousands) | 43,306 | | | 46,105 | | | (6.1) | |
| Average fuel cost per gallon | $ | 1.08 |
| | $ | 2.22 |
| | (51.4 | ) | Average fuel cost per gallon | $ | 1.82 | | | $ | 1.87 | | | (2.7) | |
| Rental car days sold | 135,536 |
| | 540,960 |
| | (74.9 | ) | Rental car days sold | 275,584 | | | 481,046 | | | (42.7) | |
| Hotel room nights sold | 12,772 |
| | 114,191 |
| | (88.8 | ) | Hotel room nights sold | 56,208 | | | 92,004 | | | (38.9) | |
| Percent of sales through website during period | 93.8 | % | | 93.5 | % | | 0.3 |
| Percent of sales through website during period | 93.3 | % | | 93.6 | % | | (0.3) | |
(1) Except load factor and percent of sales through website during period, which are presented as a percentage point change.
(2) Various components of this measure do not have a direct correlation to ASMs. This measure is provided on a per ASM basis so as to facilitate comparison with airlines reporting revenues on a per ASM basis.
(3) Reflects division of passenger revenue between scheduled service (base fare) and air-related charges in our booking path.
|
| | | | | | | | | | |
| | Six Months Ended June 30, | | Percent |
| | 2020 | | 2019 | | Change(1) |
| Operating statistics (unaudited): | | | | | |
| Total system statistics: | | | | | |
| Passengers | 4,448,708 |
| | 7,619,814 |
| | (41.6 | ) |
| Available seat miles (ASMs) (thousands) | 6,288,427 |
| | 8,357,304 |
| | (24.8 | ) |
| Airline operating expense per ASM (CASM) (cents) | 9.35 |
| | 8.63 |
| | 8.3 |
|
| Fuel expense per ASM (cents) | 1.85 |
| | 2.63 |
| | (29.7 | ) |
| Airline operating CASM, excluding fuel (cents) | 7.50 |
| | 6.00 |
| | 25.0 |
|
| ASMs per gallon of fuel | 87.2 |
| | 83.1 |
| | 4.9 |
|
| Departures | 41,401 |
| | 55,747 |
| | (25.7 | ) |
| Block hours | 95,112 |
| | 128,151 |
| | (25.8 | ) |
| Average stage length (miles) | 879 |
| | 876 |
| | 0.3 |
|
| Average number of operating aircraft during period | 92.1 |
| | 82.3 |
| | 11.9 |
|
| Average block hours per aircraft per day | 5.5 |
| | 8.6 |
| | (36.0 | ) |
| Full-time equivalent employees at end of period | 4,349 |
| | 4,179 |
| | 4.1 |
|
| Fuel gallons consumed (thousands) | 72,143 |
| | 100,537 |
| | (28.2 | ) |
| Average fuel cost per gallon | $ | 1.61 |
| | $ | 2.18 |
| | (26.1 | ) |
|
| | | | | | | | | | |
| Scheduled service statistics: | | | | | |
| Passengers | 4,420,683 |
| | 7,553,393 |
| | (41.5 | ) |
| Revenue passenger miles (RPMs) (thousands) | 4,033,017 |
| | 6,794,122 |
| | (40.6 | ) |
| Available seat miles (ASMs) (thousands) | 6,138,692 |
| | 8,113,315 |
| | (24.3 | ) |
| Load factor | 65.7 | % | | 83.7 | % | | (18.0 | ) |
| Departures | 40,167 |
| | 53,911 |
| | (25.5 | ) |
| Block hours | 92,594 |
| | 124,098 |
| | (25.4 | ) |
Total passenger revenue per ASM (TRASM) (cents)(2) | 8.47 |
| | 11.22 |
| | (24.5 | ) |
Average fare - scheduled service(3) | $ | 57.27 |
| | $ | 63.49 |
| | (9.8 | ) |
Average fare - air-related charges(3) | $ | 54.80 |
| | $ | 52.32 |
| | 4.7 |
|
| Average fare - third party products | $ | 5.52 |
| | $ | 4.68 |
| | 17.9 |
|
| Average fare - total | $ | 117.59 |
| | $ | 120.49 |
| | (2.4 | ) |
| Average stage length (miles) | 883 |
| | 878 |
| | 0.6 |
|
| Fuel gallons consumed (thousands) | 70,229 |
| | 97,395 |
| | (27.9 | ) |
| Average fuel cost per gallon | $ | 1.60 |
| | $ | 2.18 |
| | (26.6 | ) |
| Rental car days sold | 616,582 |
| | 1,012,558 |
| | (39.1 | ) |
| Hotel room nights sold | 104,776 |
| | 219,206 |
| | (52.2 | ) |
| Percent of sales through website during period | 93.7 | % | | 93.5 | % | | 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 our booking path.
LIQUIDITY AND CAPITAL RESOURCES
Current liquidity
Cash, cash equivalents and investment securities (short-term and long-term) increased to $663.1$728.0 million at June 30, 2020,March 31, 2021, from $473.4$685.2 million at December 31, 2019.2020. Investment securities represent highly liquid marketable securities which are available-for-sale.
Restricted cash represents escrowed funds under fixed fee contracts and cash collateral against letters of credit required by hotel properties for guaranteed room availability, airports and certain other parties. Under our fixed fee flying contracts, we require our customers to prepay for flights to be provided by us. The prepayments are escrowed until the flight is completed and are recorded as restricted cash with a corresponding amount reflected as air traffic liability.
We were approved to receive $171.9During the first quarter 2021, we received a total of $91.8 million in assistance through the payroll support program under the CARES Act. The funds are paid in installments, and we received multiple installments totaling $154.7 million during the second quarter 2020. The remaining funds of $17.2 million were received in July 2020.Payroll Support Extension Program.
We have also submitted an application to the Loan Program under the CARES Act in the principal amount of up to $276.0 million and expect these funds to be available through September 30, 2020 subject to reaching mutually agreeable terms with the Treasury. However, no assurance can be given that any such agreement will ever be reached. If an agreement is reached, we will be required to comply with the relevant provisions of the CARES Act, which could adversely impact our business and operations. Under the CARES Act, these restrictions will apply until one year after the loan is repaid.
Due to changes in the net operating loss carryback period under the CARES Act, we received a federal income tax refund of $45.6 million in May 2020 and an additional refund of $48.7 million in July 2020, both of which related to 2018 and 2019 net operating loss carrybacks. In the first half of 2021, we expect to receive a sizeable federal income tax refund related to a 2020 net operating loss carryback. A federal excise tax refund of up to $21.0 million related to net refunds issued during 2020 is also expected to be received during the second half of 2020.
In April 2020, we received additional proceeds of $31.0 million from a financing secured by two aircraft. As of July 31, 2020, we had 24 unencumbered aircraft and ten unencumbered spare engines.
In June 2020, we received $48.0 million of proceeds through a sale-leaseback transaction on four aircraft.
We have suspended share repurchases and our quarterly cash dividend, as part of cash preservationconservation efforts in response to the effects of COVID-19 on our business. In connection with our receipt of financial support under the payroll support program, we agreed not to repurchase shares or pay cash dividends through September 30, 2021. We have also suspended all non-airline capital expenditures and have reduced airline capital expenditures.2022.
We believe we have more than adequate liquidity resources through our cash balances, operating cash flows, borrowings debt commitments, government funding,and expected tax refunds, and cash balances, to meet our future contractual obligations. We will continue to consider raising funds through debt financing on an opportunistic basis.
Debt
Our long-term debt and finance lease obligations balance, without reduction for related issuance costs, increaseddecreased from $1.4$1.68 billion as of December 31, 20192020 to $1.5$1.64 billion as of June 30, 2020.March 31, 2021. During the first halfquarter of 2020,2021, we borrowed a net amount$105.0 million and we made principal payments of $147.4$151.5 million, including an additional $100.0$53.9 million borrowed underon our Term Loan, additionalsenior secured revolving credit facility that matured on March 31, 2021 and a $54.8 million prepayment of debt secured by aircraft of $31.0 million,aircraft.
Despite substantially lower revenues caused by the pandemic, our total debt and $16.4 million of debt related to the PSP Note under the CARES Act Payroll Support Program Loan.finance lease obligations declined by 2.7% from December 31, 2020 until March 31, 2021.
Sources and Uses of Cash
Operating Activities. Operating cash inflows are primarily derived from providing air transportation and related ancillary products and services to customers. During the sixthree months ended June 30, 2020,March 31, 2021, our operating activities provided $276.7$168.0 million of cash compared to $277.5$106.3 million during the same period of 2019. Although2020 mostly attributable to a $39.9 million increase in net income for the six months ended June 30, 2020 decreased by $253.8and a $41.7 million compared to 2019, the cash effect of this fluctuation is more than offset by the non-cash nature of $263.5 millionlarger increase in special charges during the first half of 2020.air traffic liability.
Investing Activities. Cash used inprovided by investing activities was $158.6$35.7 million during the sixthree months ended June 30, 2020March 31, 2021 compared to $96.8cash used of $106.9 million for the same period in 2019.2020. The increase in cash usedchange is due to a $165.7 million increase in purchases of investment securities (net of maturities). This was partially offset by a $63.8$65.0 million year-over-year decrease in cash outlays for the purchase of property and equipment as well as $48.0and an increase of $79.9 million inof proceeds received from the sale-leaseback transaction.maturities of investment securities net of purchases.
Financing Activities. Cash providedused by financing activities for the sixthree months ended June 30, 2020March 31, 2021 was $32.8$47.2 million, compared to $191.6cash provided of $17.8 million for the same period in 2019.2020. The year-over-year decreasechange is mostly due to the net effect of debt
activity, as principal payments exceeded debt proceeds netby $47.2 million during the three months ended March 31, 2021, compared to $63.0 million of debt proceeds (net of related costs) in excess of principal payments and debt issuance cost payments were $74.7 million during the six months ended June 30, 2020, compared to $217.1 million during the same period in 2019.2020. Additionally, there was an increase inwere no share repurchases which were $33.8 million in the first halfquarter of 2020 (before the2021 (the share repurchase program was suspended) compared to none$33.8 million during the same period in 2019.first three months of 2020. Dividends paid decreased by $11.5 million year-over-year as dividend payments were also suspended due to the pandemic.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
We have made forward-looking statements in this quarterly report on Form 10-Q, and in the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” that are based on our management’s beliefs and assumptions, and on information currently available to our management. Forward-looking statements include our statements regarding future airline operations and capacity, the efficacy of cost saving measures, future expenditures, our ability to access additional funds from the Treasury, aircraft financings, the timing of aircraft acquisitions and retirements,expenses, revenues, earnings, ASM growth, fuel consumption, expected capital expenditures, number of contracted aircraft to be placed in service in the future, the development and financing of our Sunseeker Resort, as well as other information concerning future results of operations, business strategies, financing plans, competitive position, industry environment, potential growth opportunities, the effects of future regulation and industry environment.the effects of competition. 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,"believe," "expect," "anticipate," "intend," "plan," "estimate," “project,” “expect,” “anticipate,” “intend,” “plan,” “estimate,” “project”“hope” 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.www.sec.gov. These risk factors include, without limitation, the impact and duration of the COVID-19 pandemic on airline travel and the economy, liquidity issues resulting from the effect of the COVID-19 pandemic on our business, restrictions relating toimposed on us a result of accepting government supportgrants under the CARES Act,Payroll Support Programs, an accident involving, or problems with, our aircraft, public perception of our safety, our reliance on our automated systems, our reliance on third parties to deliver aircraft under contract to us on a timely basis, risk of breach of security of personal data, volatility of fuel costs, labor issues and costs, restrictions imposed by accepting funds under the CARES Act, the ability to obtain regulatory approvals as needed, , the effect of economic conditions on leisure travel, debt covenants and balances, the ability to finance aircraft under contract,to be acquired, terrorist attacks, risks inherent to airlines, our competitive environment, our reliance on third parties who provide facilities or services to us, the possible loss of key personnel, economic and other conditions in markets in which we operate, the ability to successfully develop and finance a resort in Southwest Florida, governmental regulation, increases in maintenance costs and cyclical and seasonal fluctuations in our operating results.
Any forward-looking statements are based on information available to us today and we undertake no obligation to publicly update any forward-looking statements, whether as a result of future events, new information or otherwise.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
There have been no material changes to our critical accounting estimates during the sixthree months ended June 30, 2020.March 31, 2021. For information regarding our critical accounting policies and estimates, see disclosures in the Consolidated Financial Statements and accompanying notes contained in our 20192020 Form 10-K, and in Note 1 in Part I, Item 1 of this Form 10-Q.Notes to Consolidated Financial Statements (unaudited).
Item 3. Quantitative and Qualitative Disclosures About Market Risk
We are subject to certain market risks, including commodity prices (specifically aircraft fuel). The adverse effects of changes in these markets could pose potential losses as discussed below. The sensitivity analysis provided does not consider the effects that such adverse changes may have on overall economic activity, nor does it consider additional actions we may take to mitigate our exposure to such changes. Actual results may differ.
Aircraft Fuel
Our results of operations can be significantly impacted by changes in the price and availability of aircraft fuel, as aircraftfuel. Aircraft fuel expense for the three months ended March 31, 2021 represented 15.232.6 percent of our total operating expenses for the six months ended June 30, 2020.expenses. Increases in fuel prices, or a shortage of supply, could have a material impact on our operations and operating results. Based on our fuel consumption for the three and six months ended June 30, 2020,March 31, 2021, a hypothetical ten percent increase in the average price per gallon of fuel would have increased fuel expense by approximately $2.7 million and $11.5 million, respectively.$8.2 million. We have not hedged fuel price risk for many years.
Interest Rates
As of June 30, 2020,March 31, 2021, we had $1.2$1.01 billion inof variable-rate debt, including current maturities and without reduction for related costs. A hypothetical 100 basis point increase$16.8 million in market interest rates for the three and six months ended June 30, 2020 would have affected interest expense by approximately $3.8 million and $6.1 million, respectively.
As of June 30, 2020, we had $162.1 million of fixed-rate debt, including current maturities and without reduction for related costs. A hypothetical 100 basis point change in market interest rates would not impacthave affected interest expense on our fixedvariable rate debt as of such date.by approximately $2.8 million for the three months ended March 31, 2021.
Item 4. Controls and Procedures
As of June 30, 2020,March 31, 2021, under the supervision and with the participation of our management, including our chief executive officer ("CEO") and chief financial officer (“CFO”), we evaluated the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended, or the “Exchange Act”) as of the end of the period covered by this report. Based on that evaluation, management, including our CEO and CFO, has concluded that our disclosure controls and procedures are designed, and are effective, to give reasonable assurance that the information we are required to disclose is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and is accumulated and communicated to the Company’s management, including the CEO and the CFO, as appropriate to allow timely decisions regarding required disclosure.
There were no changes in our internal control over financial reporting that occurred during the quarter ending June 30, 2020,March 31, 2021, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
We are subject to certain legal and administrative actions we consider routine to our business activities. We believe the ultimate outcome of any pending legal or administrative matters will not have a material adverse impact on our financial position, liquidity or results of operations.
Item 1A. Risk Factors
We have evaluated our risk factors and determined there are no changes to those set forth in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2020 and those additional Risk Factors below.
The COVID-19 pandemic has materially and adversely affected, and will likely continue to materially and adversely affect, our results of operations, financial position and liquidity.
In December 2019, an outbreak of COVID-19 was identified in Wuhan, China. The COVID-19 outbreak has since spread and grown globally, including within the United States and, in March 2020, the President of the United States declared a national emergency. The COVID-19 pandemic has materially and adversely affected passenger demand and bookings for air travel, thereby materially and adversely affecting operating income and cash flows from operations. We have attempted to conserve our liquidity through cost reductions and other means. These efforts include reducing airline capital expenditures, suspending all non-airline capital expenditures; reducing our published flight schedule; placing a number of aircraft in storage; retiring certain aircraft; implementing voluntary time-off programs for employees; suspending all hiring and non-contract salary increases; temporarily reducing named executive officer salaries and Board of Director cash retainer fees; and extending vendor payment terms. The extent of the impact of the COVID-19 pandemic on our business and our financial and operational performance will depend on future developments, including the duration, spread, severity and any recurrence of the COVID-19 pandemic; the duration and scope of related federal, state and local government restrictions; the extent of the impact of the COVID-19 pandemic on overall demand for air travel; and our access to capital, all of which are highly uncertain and cannot be predicted.
The COVID-19 pandemic has caused public health officials to recommend precautions to mitigate the spread of the virus. Since the onset of the COVID-19 pandemic, federal, state and local authorities have at various times instituted measures such as imposing self-quarantine requirements, issuing directives forcing businesses to temporarily close, restricting air travel and issuing shelter-in-place and similar orders limiting the movement of individuals. Such measures have depressed demand for air travel, disrupted our operations, and materially adversely affected our business. The resulting cancellations of flights has resulted in an unprecedented amount of cash refunds and the issuance of travel vouchers to customers. Further, due to the fears and restrictions involved with travel in the near term, sales of tickets for future travel have been adversely affected. The cancellations and cash refunds have negatively affected our revenues and liquidity, and we expect such negative effects to continue. We will continue to be materially adversely affected if government authorities extend existing orders or impose new orders or other restrictions intended to mitigate the spread of COVID-19, or if fear of travel continues to depress future ticket sales.
Instances of actual or perceived risk of infection among our employees, or our service providers’ employees, could further negatively impact our operations. We could also be materially adversely affected if we are unable to effectively maintain a suitably skilled and sized workforce, address employment-related matters, or maintain satisfactory relations with our employees or our employees’ labor representatives.
Moreover, the ability to attract and retain passengers depends, in part, upon the perception and reputation of our company and the public’s concerns regarding the health and safety of air travel generally. Actual or perceived risk of infection on our flights could have a material adverse effect on the public's comfort with air travel, which could harm our reputation and business. We expect we will continue to incur COVID-19 related costs as we sanitize airplanes and implement additional hygiene-related protocol to airplanes, and take other action to limit infection among our employees and passengers.
The COVID-19 pandemic has also significantly increased economic and demand uncertainty. Historically, unfavorable U.S. economic conditions have driven changes in travel patterns, including reduced spending for both leisure and business travel. Unfavorable economic conditions, when low fares are often used to stimulate traffic, have also historically hampered the ability of airlines to raise fares to counteract any increases in fuel, labor, and other costs. Any significant increases in unemployment in the United States due to the adoption of social distancing and other policies to slow the spread of the virus would likely continue to have a negative impact on passenger bookings, and these effects could exist for an extensive period of time. The COVID-19 pandemic continues to rapidly evolve. The ultimate impact of the COVID-19 pandemic is highly uncertain and subject to change.
We rely on discretionary spending by individuals and households as most of our customers fly with us for leisure as opposed to business purposes.
Many attractions in the leisure destinations we serve, such as Walt Disney World in Orlando, Florida and Las Vegas hotels, temporarily closed, and those which have reopened have done so with restrictions in place, which will also impact travel to these destinations.
The spread of COVID-19 and related responsive actions have adversely impacted our financial condition, liquidity and cash flow.
The spread of COVID-19 and related government and private sector responsive actions, including actions we have taken to stem the spread of the virus, have and will continue to adversely impact our financial condition, liquidity and cash flow in the near term. While we are focused on mitigating the impact to our balance sheet by, among other things, suspending dividends and share repurchases and suspending all non-essential capital expenditures and discretionary spending, a prolonged disruption due to the COVID-19 pandemic could have a longer-term material adverse effect on our financial condition, liquidity and cash flow.
We may need to seek significant amounts of additional liquidity in the short-term, including through the issuance of additional debt securities, equity securities and equity-linked securities, as well as through credit facilities. However, the terms of our existing debt agreements, including out Term Loan, may not permit us to do so. The Term Loan contains covenants limiting our ability to, among other things, make certain types of restricted payments, including paying dividends, incur debt or liens, merge or consolidate with others, dispose of assets, enter into certain transactions with affiliates, engage in certain business activities or make certain investments. In addition, the Term Loan contains financial covenants, including requiring us, at the end of each calendar quarter, to maintain a maximum total leverage ratio of 5.00:1.00 and to maintain a minimum aggregate amount of liquidity of $300.0 million. We have pledged our assets to secure the Term Loanfiled with the exceptions of aircraft and aircraft engines, the Sunseeker Resort and certain other exceptions. This will limit our ability to obtain debt secured by these pledged assets while the Term Loan is outstanding. The Term Loan contains various events of default (including failure to comply with the covenants under the Term Loan), and upon an event of default the lenders may, subject to various cure rights, require the immediate payment of all amounts outstanding under the Term Loan. As a result of these restrictive covenants, we may be limited in how we conduct business, and we may be unable to raise additional debt or equity financing.
Moreover,Commission on March 17, 2020, S&P Global Ratings downgraded our corporate issue rating and Moody’s Investors Service placed our ratings on downgrade review, in both cases due to reduced demand for air travel. Our ability to raise cost-effective capital is in part dependent on our credit ratings, and we cannot assure you that our credit ratings will be stable or improve. Such downgrade actions and potential future downgrade actions may negatively affect our ability to seek additional sources of liquidity on favorable terms, if at all.
Although our working capital has been sufficient to meet our obligations to date, our future liquidity could be severely impacted by the COVID-19 pandemic and the aforementioned negative effects on our ability to raise cost-effective capital, which could have a material adverse effect on our business, financial condition and results of operations. 1, 2021.
We have entered into agreements with the U.S. Treasury with respect to funding support pursuant to the Payroll Support Program under the CARES Act; pursuant to these agreements we have agreed to certain restrictions on how we operate our business and use our cash and which could limit our ability to take actions that we otherwise might have determined to be in the best interests of our company and our shareholders.
On March 27, 2020, the CARES Act was signed into law. The CARES Act provides liquidity in the form of grants and loans to air carriers, such as to us, that incurred, or are expected to incur, covered losses such that the continued operations of the business are jeopardized, as determined by the Treasury. In April 2020, we reached an agreement with the Treasury with respect to funding support pursuant to the Payroll Support Program. Pursuant to this agreement, we have agreed to certain restrictions on our business and operations, including the following:
We are prohibited from repurchasing our common stock and from paying dividends on our common stock until September 30, 2021;
We must place certain restrictions on certain higher-paid employee and executive pay, including limiting pay increases and severance pay or other benefits upon terminations, until March 24, 2022;
We are prohibited from involuntary terminations or furloughs of our employees (except for death, disability, cause, or certain disciplinary reasons) until September 30, 2020;
We may not reduce the salary, wages, or benefits of our employees (other than our executive officers, or as otherwise permitted under the terms of the Payroll Support Program) until September 30, 2020;
Until March 1, 2022, we must comply with any requirement issued by the Department of Transportation (“DOT”) that we maintain certain scheduled air transportation service as DOT deems necessary to ensure services to any point served by us before March 1, 2020.
These restrictions may require that we take, or limit taking, actions that we believe to be in the best interests of our company and our shareholders. For example, the restrictions could require that we change certain of our business practices, risk our ability to retain key personnel, and expose us to additional costs (including increased compliance costs). Additionally, we could be required to issue additional warrants and be subject to additional significant restrictions if we participate in additional loan programs under the CARES Act.
We have also submitted an application to the Loan Program under the CARES Act in the principal amount of approximately $276 million and expect these funds to be available through September 30, 2020 subject to reaching mutually agreeable terms with Treasury. However, no assurance can be given that any such agreement will ever be reached. If an agreement is reached, we will be required to comply with the relevant provisions of the CARES Act as listed above, which could adversely impact our business and operations. In the event we receive such a loan under the CARES Act, these restrictions will apply until one year after the loan is repaid.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Our Repurchases of Equity Securities
(a) As previously disclosed, in connection with funding that we have received under the CARES Act, we have issued to the Treasury warrants to purchase up to 25,889 shares of our common stock since April 2020 under an exemption from registration pursuant to Section 4(a)(2) of the Securities Act of 1933, as amended. Of these warrants, warrants to purchase 19,700 shares were issued prior to June 30, 2020 and warrants for an additional 6,189 shares were issued in July 2020. For additional information regarding the Warrants, see Note 2 of the Notes to Consolidated Financial Statements (unaudited).Not applicable
(b) Not applicable
(c) We did not repurchase any common stock during the secondfirst quarter 2020.2021.
Item 3. Defaults Upon Senior Securities
None
Item 4. Mine Safety Disclosures
Not applicable
Item 5. Other Information
None
Item 6. Exhibits
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| 101.SCH | XBRL Taxonomy Extension Schema Document |
| 101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document |
| 101.DEF | XBRL Taxonomy Extension Definition Linkbase Document |
| 101.LAB | XBRL Taxonomy Extension Labels Linkbase Document |
| 101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document |
(1) Incorporated by reference to Exhibit filed with Registration Statement #333-134145 filed by the Company with the Commission and amendments thereto.
(2) Incorporated by reference to Exhibit 3.1 to the Current Report on Form 8-K filed with the Commission on May 12, 2020.
(3) Incorporated by reference to Exhibit 10.19 to Quarterlythe Company's Annual Report on Form 10-Q10-K for the year ended December 31, 2020, filed by the Company with the Commission on May 22, 2020.March 1, 2021.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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| | ALLEGIANT TRAVEL COMPANY |
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| Date: | AugustMay 4, 20202021 | By: | /s/ Gregory Anderson |
| | Gregory Anderson, as duly authorized officer of the Company (Chief Financial Officer) and as Principal Financial Officer |
