ALGT

Allegiant Travel Company (ALGT)

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Exchange: NASDAQ
Industry: Transportation
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Allegiant Travel Company (ALGT)

Q4 2009 Earnings Call

January 26, 2010 12:00 pm ET

Executives

Maury Gallagher – Chairman and CEO

Andrew Levy – President and CFO

Analysts

Bill Greene – Morgan Stanley

Mike Linenberg – Bank of America/Merrill Lynch

Duane Pfennigwerth – Raymond James

Jim Parker – Raymond James

Helane Becker – Jesup & Lamont

Daniel McKenzie – Next Generation Equity Research

Dave Fintzen – Barclays Capital

Steve O'Hara – Sidoti & Company

Bob McAdoo – Avondale Partners

Presentation

Operator

Welcome to the Allegiant Travel Company's fourth quarter and full year 2009 financial results conference call. We have on the call today Maury Gallagher, the company's CEO and Chairman and Andrew Levy, the company's President and CFO.

Today's comments will begin with Maury Gallagher's, followed by Andrew Levy. After their prepared remarks, we will hold a short question-and-answer session.

We wish to remind the listeners to this webcast that the company's comments today will contain forward-looking statements that are only predictions and involve risks and uncertainties. Forward-looking statements made today may include, among others, references to future performance and any company – or 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 and Exchange Commission. Any forward-looking statements are based on information available to us today and we undertake no obligation to update politically 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 rebroadcast of this call are available at the company's investor relations site, ir.allegianttravel.com.

At this time I would like to turn the call over to Maury Gallagher for opening remarks.

Maury Gallagher

Thank you very much. Good morning, everyone. It's a pleasure again to talk with you. As the operator said today joining me is Andrew Levy. Pleased with the outcome of the just completed quarter, some highlights. We achieved a 13.4% operating margin, a decline certainly from a breakout Q4 last year. Revenues actually grew year-over-year by 10%. This is the 20th consecutive profitable quarter. This is our fifth quarter in a row in double-digit margins.

Year-over-yea, our TRASM for the quarter was down 9.8%, but December's TRASM was down just at 2.5%. December's combined scheduled service average fare grew nicely again sequentially, increasing to $115 per passenger from $100 in October, 15% increase in the past 60 days. December's 2009 scheduled service average fare was also greater than last year's December fare.

As I mentioned, last year's fourth quarter was a breakout quarter, a 23% operating margin. We earned $28 per passenger on revenues that quarter of $120.50 per passenger. This year, we earned $14.79 per passenger on revenues of $110.40.

Interestingly enough, in both quarters our fuel cost was $2.07. However, our cost per passenger this year was up $3.35. $1 of that was from fuel, because our stage length increased 3% and thereby increasing our gallons per passenger from just below 18 to 18.2 gallons. The non-fuel cost per passenger increased $2.35. And that was driven by higher maintenance cost from heavy C-checks, as we mentioned in our release and one-time adjustments for inventory values.

The largest influence in 2009's fourth quarter results was a decline in revenues. $10 drop in that quarter represented 75% of the overall $13 decrease in our profit per passenger for the quarter. So looking forward, it will be difficult for us to top our Q1 2009 results because of the $1.46 in fuel cost that we had during that time. However, it appears first quarter scheduled service average fare and TRASM in totals should exceed 2009's Q1 totals of $109 and $10.83 or $10.83, respectively.

This past year was a watershed year for us, the transitional year in our profitability results. We achieved a 22% operating margin overall for the last year, a record for the company and something we can certainly be proud of. We achieved these results while we grew 23% in ASMs and 22% in departures and in spite of a drop of over $12 per passenger in our system unit revenue year-over-year. Certainly, we're helped by declining fuel prices, particularly in the first half of the year.

Regardless of how we got there, these results have raised the bar. Our target operating margin percentages today all begin with a two. It's an ambitious goal but one we believe is attainable. We are focused on maintaining this level of operating profitability.

So what are the components necessary to maintain these lofty returns on a sustained basis? Certainly a low-cost structure for one, particularly in non-fuel area is critical. In each of the past three years since 2007, we've had a cost per passenger ex-fuel of just over $50. In 2009 and 2008, we had virtually the same cost per passenger excluding fuel, $50.80. And this year, we did maintain that in spite of higher maintenance costs and the one-time adjustment of inventory.

With respect to fuel, our $1.76 cost per gallon in 2009 generated a $31 fuel cost per passenger, a big contributor to our 2009 22% margin. It doesn't appear, I might add, we will return to these fuel prices in the coming year. Expectations for 2010 from industry experts suggest $80 per barrel as a target price, which translates into the low $40 per passenger for fuel in our system.

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