Allegiant Travel Gains on Q2 Earnings Beat, Revenues Up Y/Y

Zacks

Leisure travel company Allegiant Travel Company (ALGT) reported second-quarter 2014 earnings of $1.86 per share, comfortably ahead of the Zacks Consensus Estimate of $1.72. Earnings however, surged 38.8% from $1.34 in the prior-year quarter. The solid performance pulled the stock price up by more than 2% on Wednesday trade on NYSE.

Quarterly revenues moved up 13.6% year over year to $290.5 million, a notch lower than the Zacks Consensus Estimate of $293.0 million. On a year-over-year basis, scheduled service revenues increased 14.4% while ancillary revenues increased 9.8%. Other revenue improved a whopping 424.4% while fixed fee contact revenue declined 4.3%. The company initiated 12 new routes during the second quarter.

Operating Statistics

Revenue passenger miles moved up 7.5% year over year to 2.03 billion in the second quarter. Capacity or available seat miles increased 7.2% year over year to 2.29 billion, while load factor (percentage of seats filled with passengers) jumped a mere 20 basis points (bps) year over year to 88.7%. Revenue per available seat mile (:RASM) increased 5.8% year over year to 12.69 cents.

Operating Expenses & Operating Income

For the second quarter, operating income increased 31.5% to $56.41 million while operating margin improved 260 bps to 19.4%. Total operating expenses increased 9.9% year over year to $234.1 million owing to high aircraft rental cost, rise in marketing cost, salaries and wages, and rise in depreciation and amortization cost. Average fuel cost was $3.17 per gallon, up 2.9% from $3.08 in the year-ago quarter. Consolidated unit cost or cost per available seat mile (CASM), excluding fuel, decreased 7.2%.

Liquidity

At the end of the second quarter, Allegiant Travel had $548.2 million in unrestricted cash and total debt of $619.4 million in its balance sheet. Capital expenditure during the first six month totaled $257.0 million.

In the quarter under review, return on invested capital was 17.5%, up 160 bps from the year-ago quarter. Currently, Allegiant Travel has 68 million remaining under its share repurchase authorization.

On June 13, 2014, the company announced its plans to purchase 12 Airbus A-319 aircraft currently leased to a low cost European carrier, which will be delivered in 2018. The company also signed an agreement to acquire one A-320 and one A-319 by 2015 and 2016, respectively.

Guidance for Third-Quarter 2014

PRASM (passenger revenue per available seat mile) is expected to increase between 0%–2%, while capacity is expected to leap by 8%–12%. CASM (excluding fuel) could rise between 8.5% and 10.5%.

Guidance for Full Year 2014

Capacity is expected to rise in the range of 9%–13%, while CASM (excluding fuel) is forecasted to move up between 6.5% and 8.5%. Meanwhile, 2014 capital expenditure is likely to be in the range of $390–$400 million.

Other Airline Releases

Delta Air Lines Inc. (DAL) reported second-quarter 2014 adjusted earnings of $1.04 per share, beating the Zacks Consensus Estimate of $1.03, while Hawaiian Holdings Inc.’s (HA) earnings of 35 cents per share also steered ahead of our estimate of 33 cents.

Upcoming Releases

Of the other stocks in the sector, Spirit Airlines Inc. (SAVE) is scheduled to release its second quarter results on Jul 29, 2014.

Our Take

Allegiant Travel should get a boost from the sharp drop in the unemployment rate and the improving pace of job creation within the U.S. economy. The aircraft transaction completed in the second quarter better positions the company for the future, while initiatives taken to mitigate crew training issues are expected to improve its operational efficiency in the coming quarters. We thus remain bullish on Allegiant Travel, which currently holds a Zacks Rank #1 (Strong Buy).

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