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Allegiant Travel Company (ALGT)
F3Q08 Earnings Call
October 22, 2008 1:00 pm ET
Maurice J. Gallagher, Jr. – Chairman of the Board & Chief Executive Officer
Andrew C. Levy – Chief Financial Officer & Managing Director Planning
M. Ponder Harrison – Managing Director Marketing & Sales
Michael Linenberg – Merrill Lynch
Kevin Crissy – UBS
Steve O’Hara – Sidoti & Company, LLC
James Parker – Raymond James
James Parker - Raymond James
Duane Pfennigwerth - Raymond James
Bob McAdoo - Avondale Partners
Travis Anderson - Gilder Gagnon Howe
[Scott Mackey - AAD Capital]
Kim Zotter - Imperial Capital
Previous Statements by ALGT
» Allegiant Travel Company Q4 2008 Earnings Call Transcript
» Allegiant Travel Company Q2 2008 Earnings Call Transcript
» Allegiant Travel Company Q1 2008 Earnings Call Transcript
After the presentation we will hold a short question and answer session. We wish to remind listeners to this webcast that the company’s comments today will contain forward-looking statements that are only predicts and involve risks and uncertainties. Forward-looking statements made today may include, among others, references to future performance and any comments about our strategic plans.
There are many risk factors that could prevent us from achieving our goals and cause the underlying assumptions of these forward-looking statements and our actual results to differ materially from those expressed in or implied by our forward-looking statements. These risk factors and others are more fully discussed in our filings with the Securities & Exchange Commission.
Any forward-looking statements are based on information available to us today and we undertake no obligation to update publically any forward-looking statements whether as a result of future events, new information or otherwise. The company cautions users of this presentation not to place undue reliance on forward-looking statements which may be based on assumptions and anticipated events that do not materialize.
The earnings release as well as a rebroadcast of this call are available at the company’s investor relations site ir.AllegiantAir.com. At this time I would like to turn the call over to Maury Gallagher for opening remarks.
Maurice J. Gallagher, Jr.
It’s a pleasure to talk with you again this morning. Joining me today as the operator indicated are Andrew Levy, our CFO and Managing Director of Planning, Ponder Harrison, Managing Director of Sales and Marketing and also in the room is Robert Ashcroft of Vice President of Planning. I’ll give a brief overview, Ponder will comment on our revenue results and Andrew will wrap up with comments on our network activity, expenses and balance sheet.
Once again, we had an excellent quarter. If you recall, our last conversation we talked about our unit revenues beginning to increase nicely particularly in June. The story this quarter is the maturing of these revenue increases. They are the culmination of a great many changes taken by our management team over the past year to maintain and increase our profitability in the face of accelerating fuel costs.
It takes time to roll these changes through our system. But, in the third quarter we began to see some real traction from reductions in capacity and corresponding fare increases. As a result, operating margins almost doubled to 7% this quarter from our second quarter operating margin of 3.6% while fuel was essentially unchanged from the second quarter. I might add that we produced our results without the benefit of any fuel hedges.
Ironically, while operating without hedges opened us up for some criticism when fuel prices were racing towards $150 a barrel, it’s serving us quite well now that oil prices are in free fall. As we have been commenting, our number one corporate goal is profits. Moreover, we continue to be focused on double digit margins as our standard. Last year we achieved these results in the third quarter and then fuel began its decline.
We reacted by cutting long haul flights in a number of markets and trimming capacity in many others. We redoubled our efforts to increase our ancillary revenues and I’m pleased to report an increase of $11 per passenger to $32 in the quarter a 51% increase. We also focused on higher load factors with a $30 plus per passenger in ancillary revenue, we wanted to fill as many seats as possible and we achieved a 94% load factor for the quarter in our scheduled service system, averaging 137 passengers per departure.
The overall net effect of these changes is a stunning 33% increase in total RASM. Regarding capacity reductions we were very focused about who we handled them. With a cautious effort to end a number of our long haul flights and to trim capacity in many of our mid haul markets such as Peoria and Des Moines. We were also careful about how we redeployed our new service emphasizing short hauls looking to trim our stage length.
This combination of fewer trips in the market and a shorter overall stage length we knew would allow us to increase unit revenues necessary to try and catch up with accelerating fuel costs. The outcome of these efforts for this quarter for our scheduled service was 4% more departures on 3% fewer ASMs resulting in a 7% shorter stage length. The last element of the puzzle was to focus on increasing our passengers per departure.
This would allow us to not only leverage our increasing ancillary revenues but also to spread out costs, particularly increasing fuel costs across more passengers on each flight. The result is we carried over 100,000 more passengers during the quarter, a 14% increase compared to the third quarter in 2007. Moreover, the combination of a shorter stage length and more passengers per flight allowed us to substantially drop our fuel consumed per passenger.