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Edited Transcript of ALGT earnings conference call or presentation 24-Apr-19 8:30pm GMT

Q1 2019 Allegiant Travel Co Earnings Call

LAS VEGAS Apr 25, 2019 (Thomson StreetEvents) -- Edited Transcript of Allegiant Travel Co earnings conference call or presentation Wednesday, April 24, 2019 at 8:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Christopher Allen

Allegiant Travel Company - Director of IR

* Drew Wells

Allegiant Travel Company - VP of Revenue & Planning

* Gregory Clark Anderson

Allegiant Travel Company - Senior VP, Treasury, Principal Accounting Officer & Secretary

* John T. Redmond

Allegiant Travel Company - President & Director

* Maurice J. Gallagher

Allegiant Travel Company - Chairman of the Board & CEO

* Scott D. Sheldon

Allegiant Travel Company - Executive VP, CFO & COO

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Conference Call Participants

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* Bert William Subin

Stifel, Nicolaus & Company, Incorporated, Research Division - Associate

* Catherine Maureen O'Brien

Goldman Sachs Group Inc., Research Division - Equity Analyst

* Daniel J. Mckenzie

The Buckingham Research Group Incorporated - Research Analyst

* Duane Thomas Pfennigwerth

Evercore ISI Institutional Equities, Research Division - Senior MD

* Helane R. Becker

Cowen and Company, LLC, Research Division - MD & Senior Research Analyst

* Hunter Kent Keay

Wolfe Research, LLC - MD and Senior Analyst of Airlines, Aerospace & Defense

* Matthew Aaron Wisniewski

Barclays Bank PLC, Research Division - Research Analyst

* Michael John Linenberg

Deutsche Bank AG, Research Division - MD and Senior Company Research Analyst

* Savanthi Nipunika Syth

Raymond James & Associates, Inc., Research Division - Airlines Analyst

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Presentation

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Operator [1]

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Good day, ladies and gentlemen, and welcome to the Q1 2019 Allegiant Travel Company Earnings Conference Call. (Operator Instructions) As a reminder, this conference call may be recorded.

It is now my pleasure to hand the conference over to Mr. Chris Allen, Investor Relations. You may begin.

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Christopher Allen, Allegiant Travel Company - Director of IR [2]

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Thank you. Welcome to Allegiant Travel Company's First Quarter 2019 Earnings Call. On the call with me today are Maury Gallagher, the company's Chairman and Chief Executive Officer; John Redmond, the company's President; Scott Sheldon, our Chief Financial Officer and Chief Operating Officer; Drew Wells, our VP of Revenue and Planning; Greg Anderson, our VP of Treasury and Principal Accounting Officer; and a handful of others that will help answer questions.

We'll start with some commentary, then open it up for questions. The company's comments today will contain forward-looking statements concerning our future performance and strategic plan. Various risk factors could cause the underlying assumptions of these statements and our actual results to differ materially from those expressed or implied by our forward-looking statements. These risk factors and others are more fully disclosed in our filings with the SEC.

Any forward-looking statements are based on information available to us today, and we undertake no obligation to update publicly or any -- any forward-looking statements, whether as a result of future events, new information or otherwise.

The company cautions investors not to place undue reliance on forward-looking statements that may be based on assumptions and events that do not materialize.

To view the earnings release as well as a rebroadcast of the call, feel free to visit the company's Investor Relations site at ir.allegiantair.com. The Investor Relations website will also contain reconciliations of any non-GAAP disclosures made in the prepared comments today. With that, I would like to turn it over to Maury.

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Maurice J. Gallagher, Allegiant Travel Company - Chairman of the Board & CEO [3]

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Thank you, Chris, and good afternoon, everyone, and welcome to our Q1 conference call and comments. Firstly, I have not commented on recent calls mainly because we were in our transition period and didn't think there was that much to say. My analogy for this period is equivalent to one's house being remodeled, and mainly, there isn't a great deal to say while under construction. But now that we're living in our new home, I want to give you a tour of where we're at and what we will be able to do in the coming quarters and years.

First and foremost, we reiterated our 2019 guidance in our release, including raising fuel from $2.10 to $2.26 per gallon. Very pleased about that result. We're hitting on all cylinders post the transition. Transitions can be risky, but in our case, very much necessary. Also want to remind everyone, our results during our transition years were industry-leading in operating income and the like. In summary, our model reconstituted with Airbus aircraft is alive and well.

We have another great quarter, our 65th consecutive profitable one. We truly see the benefit of our transition to an all-Airbus fleet. We had both excellent financial and operational performance this past quarter.

We led the industry in overall completion in Q1. We're very pleased about that. And recently, we had a stretch of over 120 days without a mechanical cancellation. A record for us, I might add.

Our 85% on-time arrival in March, our peak month of the year, was only a fraction behind Delta and Spirit for the third spot.

Scott Sheldon and the team have done a great job with our operations. Long term, we are focused on completing our flight safely and on time. And in today's instant information world, doing what you say you're going to do is more important than ever.

Interestingly, the 3 ULCCs, ourselves, Spirit and Frontier, were 1, 2 and 3, respectively, in completion in this past quarter, while Spirit and we were #1 and #3 and on time.

Our financial outlook for 2019 is terrific. Our traffic is very good. Q1 results came in as planned. We had a 22% airline operating margin. Furthermore, we expect Q2 results will exceed Q1, given Easter's timing and the additional capacity we will be adding.

This flip-flop of Q2 outperforming Q1 has happened only 2 previous times in the past 10 years. The expenses inherent in our transition are being weaned from the system, ex-fuel controllable costs were trending down. As an example, we will add 17 aircraft during the year without adding an additional pilot. Completing the transition training for our last of our crew members.

Additionally, our fuel productivity continues to improve with an all-Airbus fleet. John, Drew, Scott and Greg will take you through more of the specifics.

Future is bright for us, and as an airline, we're one of the best in the country. It is the backbone of what we do as a corporation and what we will continue to do. As we've said previously, we want to enhance our relationship with our customers and offer them more leisure products and garner a bigger share of their leisure wallet.

To do this, we must offer more non-airline leisure products. The airline industry has historically been poor at generating new sources of revenues from its customers. The only enhancement I'm aware of in the past many years in many ways has been the ancillary revenues, which were developed in the late-2000s during the desperate recession we all experienced. Now these are not new revenues per se, but rather a repackaging of cabin features such as legroom, seat enhancements, WiFi and selling food. We've always looked for more revenue sources, including in-cabin ancillaries common in the industry. In fact, we pioneered many of these products. And we were able to develop these products because we already control our own reservation sales platform and are focused on leisure traffic.

We also developed third-party revenues in the early 2000s, including selling hotels, railcars and other attractions in addition to our airline offerings.

We've proven leisure customers compared to a business customer when planning their trip will purchase additional leisure products from us. And the latest of that is our credit card offering. Very pleased about how that's going. Since 2005, we have sold over $1.3 billion in what we call third-party products, resulting in almost $400 million of incremental operating income as a result. One look at the operating margin of the industry during the past 20 years, we are at the top with our 15.2% margin overall on average and on top by a wide margin, I might add, compared to #2, Alaska, at just under 11%, and #3, Southwest, at 10.5%.

Our third-party products and the margin they have generated have been substantial difference-makers during this 17-year period. We have 3 strategic focuses as we go forward. One, continue to grow the airline as we have in the past many years. Two, continue our efforts in improving our operations, as we have in recent years. And three, generate additional revenue opportunities from third-party products, including our golf effort, our family entertainment centers, Sunseeker Resorts, hotel management and other offerings.

A number of our third-party vendors will be in development for the next few years, particularly the FEC, which is beginning to come online.

We have turned these efforts non-airline for reporting purposes, and we'll provide you with updates on their progress. Today, they do not have a material impact on our results.

In 2020 and 2021, we'll begin to see the benefits from these investments as they come online, particularly the golf, FEC and Sunseeker efforts. We're also continuing our investment in our IT capabilities. As you're aware, 94% of our products are sold directly to our customers through our website and our app. Control of our automation has been pivotal in providing us with direct access to customers to sell airline products, ancillaries and our third-party products.

Today, we are continuing this investment, enhancing our platform to allow customers access to all of our products to purchase air, hotels, soon golf, either individually or in packages, and to participate in our loyalty program all via a world-class app and through our website. We're also enhancing the platform to provide day-to-day operations and management abilities for Sunseeker and our golf program, as we do for our airline.

Our strategic question is how do we leverage our exceptional customer database into further revenue opportunities in the coming years? We spent many years selling other companies' products and earned substantial returns, as I just mentioned, but we believe we can increase earnings by operating and selling third-party products we own, such as the hotels and FECs and developing management programs for golf and hotels and establishing relationships with other leisure groups, such as Minor League Baseball. In fact, we should probably change the label third-party to first-party, given we're going to own and control these products.

Not only will these efforts increase earnings, they'll probably provide additional moats around the airline part of our world, insulating us from future competition.

Ultimately, this strategy is successful because of our relationship with the customer. Since the early 1990s, the airline companies I've been involved with sold directly to their customers. There have been no middlemen with either the airline or our third-party products, allowing us to both know who our customer is as well as capture a greater share of the economics of the transaction. Now we want further control of our non-airline products via ownership, allowing us to improve our margins yet again.

Also an outcome from investing and owning additional leisure products is to allow us to increase our touch points with our leisure customers and to further brand ourselves as a leisure travel company. And what makes this all possible is our team. I believe we've demonstrated the ability to execute over the past 17 years. And the team in place, I can categorically say, is the best team we've ever had at Allegiant. We have high-quality, focused individuals, all pulling in the same direction.

As difficult an audience as you all can be, our management group and team are tougher. They know the business intimately and are appropriately critical of our ideas. They've bought into the diversification of the company from the airline is the company to we are a leisure travel company that operates an airline.

Thank you very much for your time. Welcome to the Allegiant 2.0 vision, and we're very excited as we move forward. And John?

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John T. Redmond, Allegiant Travel Company - President & Director [4]

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Well, thank you, very much, Maury, and good afternoon, everyone. I'm going to keep my comments brief in the interest of the commentary my teammates have here, but it can never be said too frequently or too often, I wanted to say, thank you and appreciate the efforts of our incredible group of employees that we have through Allegiant Airlines on another amazing quarter. Just never ceases to amaze just how wonderful the airline is performing on many levels.

I'd be remiss, though, if I didn't comment on the non-airline business operating loss in the quarter. I want to make sure that people shouldn't extrapolate that number out and think that's an annualized number. That would be a mistake. If you go back to the release, you'll see that we are not revising our guidance for the nonoperating -- or the non-airline businesses. So stay tuned. We provided some detail list to why that number was a little bit higher than maybe someone would have thought if they just simply took our guidance and divide it by 4. So I think you'll see that there. And on that note, I'm going to go ahead and turn it over to Scott.

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Scott D. Sheldon, Allegiant Travel Company - Executive VP, CFO & COO [5]

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Thanks, John, and good afternoon, everyone. As Maury mentioned in his opening comments, our operational performance was exceptional in the first quarter, which is our first full quarter as an all-Airbus operator. Despite over a 12% decrease in available aircraft year-over-year, we grew departures by 4.8%, increased our aircraft utilization by nearly 17%, and improved virtually all of our key operating metrics, while reducing our aircraft spend levels. For the March quarter, we produced an industry-leading completion factor of 99.2%, and despite significant headwinds from weather-related delays and cancellations, we reduced our regular ops cost by $2 million and over $14 million on a trailing 12-month basis. I would like to congratulate all team members and partners throughout the network for a job well done, and everyone should be proud of the results and the progress we continue to make in serving our customers the right way.

Turning quickly to our first quarter financial performance. The airline produced diluted EPS of $3.98, which is up 12.4% year-over-year on a 5.7% increase in total airline operating revenue, which is a strong start to what should be an exceptional year.

As you'll see in our release, we provided much more commentary on 1Q and full year expectations and have reiterated our full year EPS guide of $13.25 to $14.75, despite a $0.16 increase in full year cost per gallon estimates.

Our fuel efficiency and airline controllable cost performance continues to pace ahead of internal forecast. As we indicated on our January call, we expect that our CASM-X trends to be the most pressured during the first quarter, given our expected mid-single digit ASM growth and a substantial reduction in aircraft year-over-year. From a cadence perspective, we expect to see an acceleration of airline CASM-X reductions sequentially through the remainder of 2019.

In addition to the fuel cost per gallon and ASM per gallon guidance, we made slight adjustments to ASMs and CapEx, but I'll let Greg and Drew provide more color on that.

And finally, we're pleased to announce that we're going to promote Greg Anderson to EVP and CFO. As many of you know, he's been our Acting Senior Vice President and Principal Accounting Officer since 2015, and has proven to be an invaluable member of our management team. He's an exceptional leader for our team members and a partner to our shareholders, and I know I speak for Maury and John when I say this promotion is well deserved and I can't thank him enough for his contributions. Greg?

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Gregory Clark Anderson, Allegiant Travel Company - Senior VP, Treasury, Principal Accounting Officer & Secretary [6]

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Thanks, and good afternoon, everyone. I'd be remiss if I didn't mention how both humbled and excited I am for the opportunity to take on the CFO role here at Allegiant. I have very big shoes to fill, but having so many terrific partners around will certainly help me along the way.

Due to the large number of puts and takes surrounding our capital plan, we thought it helpful to add some additional color around this area. Beginning with cash flow, consolidated EBITDA for the quarter was $127 million or $1.6 million per aircraft. This marks the highest quarterly EBITDA on a per aircraft basis since the first quarter of 2016, a quarter in which we only paid $1.29 per gallon of fuel.

As can be derived through our updated full year guide, we still expect to produce over $500 million in consolidated EBITDA in 2019, or nearly $6 million per aircraft.

The economics and performance of the A320 series aircraft cannot go understated and we will continue to make strong investments in growing the airline, as evidenced by the $100 million in capital spend during the quarter on 4 aircraft and 3 new spare engines.

We expect full year airline CapEx, excluding heavy maintenance, to be roughly $400 million, down $25 million from our original guide. This downward movement is largely driven by the more clarity in the purchase price of several used aircraft based on their maintenance status at delivery.

2019 is an elevated CapEx year with the expected purchases of 7 spare engines and 13 aircraft. 10 of those 13 aircraft are scheduled to be both purchased and placed into service during this year, with the remaining 3 intended to be acquired at the end of 2019 and likely placed into service in early 2020.

Our 10 aircraft scheduled to be purchased and placed into service during the year doesn't quite align with our in-service fleet plan to add 17 aircraft, so I wanted to highlight that 7 of our 2019 in-service aircraft were acquired in prior years, the majority from the portfolio of aircraft we had on lease with the European carrier.

Airline capital spend for full year '19 should not be considered the run rate moving forward. The enhanced aircraft and engine growth during this year is necessary for us to level set the fleet and align with the additional crew members we had already hired to support our accelerated fleet transition. We expect to see a significant decrease in this capital spend as we get back to a more normal fleet growth rate of about 10% on an annual basis.

Our Sunseeker Resorts 2019 capital spend remains on target. And as a reminder, tax reform allows us to take bonus depreciation on the majority of our capital towards Sunseeker and in addition, the capital spend on used aircraft. As such, we do not expect to be cash taxpayers in a meaningful amount over the next few years.

Turning to financing. During the quarter, we announced up to $1 billion financing partnership with TPG and a commitment of $175 million in construction financing for the development of our Sunseeker Resorts Charlotte Harbor. This construction financing is a 4-year term with proceeds being 2/3 nonrecourse and last funds into the project. It was important for us -- it was important to us for our construction financing to be last funds into the project as opposed to first funds in.

The timing difference in this particular type of financing not only provides us greater flexibility in controlling the pace of our capital outlay, it also helps us save on total interest costs. By way of example, had the financing been structured as first funds in, a 5% of our LIBOR rate would have resulted in about the same amount of total interest during the term as compared with the actual structure of 7% of our LIBOR on last funds in.

Also during the quarter, we closed on a $450 million term loan in a dollar-for-dollar refinancing of our high-yield bond. Under challenging market conditions, we were able to maintain the flexibility to reprice and/or repay this term loan with 0 penalties, while also excluding any aircraft and engines as part of the collateral. The exclusion of aircraft and engines from the collateral pool is key as we intend to finance our 2019 aircraft engine purchases. In addition, we estimate we have borrowing capacity in excess of $350 million, the majority of which is supported by our 28 unencumbered aircraft.

We intend to tap into this dry powder during the year at an amount between $100 million and $150 million, and it's worth noting that secured aircraft finance market remains very competitive for A320 series aircraft. And during the first quarter this year, we closed a secured loan with the best financing economics in our company's history.

On a related topic, we recognized $20 million in interest expense during the quarter and maintained our full year guide of $70 million to $80 million. The first quarter was expected to be the highest of the year, primarily due to a $3.7 million of additional interest expense associated with the tender to repurchase our $450 million high-yield bond.

We expect the cadence of the interest expense to step down throughout the year, largely due to the impact of capitalized interest. It may be worth noting, the capitalized interest associated with capital spend from Allegiant pertaining to our Sunseeker project results in a reduction to interest expense. The capitalized interest reduction to interest expense should increase each quarter, in conjunction with the increase in non-financed Sunseeker CapEx.

And finally, we ended the quarter with nearly $555 million in total unrestricted cash and investments, which is greater than 32% of our trailing 12-month revenue. Our liquidity ratio currently leads the industry based on most recent available data, and we have headroom to reduce our current cash balance while maintaining a higher than industry average liquidity ratio.

Our capital plan signals our management team's confidence and our ability to continue to generate strong results from the airline. These results will vary meaningfully. We have retained the flexibility to pull levers, such as raising additional cash via secured aircraft financing and/or slowing the pace of capital spend. And with that, I will turn the call over to Drew.

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Drew Wells, Allegiant Travel Company - VP of Revenue & Planning [7]

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Thank you, and congratulations, Greg. Thanks to everyone for joining us this afternoon. I'm very pleased to announce the first quarter year-over-year TRASM of up 1.8% despite a headwind of 1.5 points related to Easter shifting to late April.

The biggest highlight of the quarter was a $53.10 air ancillary per passenger result, which surpassed $50 for the first time in company history. This marks an incredible milestone for the company and was led by a combination of strong seasonal back performance and increases in the customer conveniency. We're constantly striving to increase our performance here and look forward to many more milestones in the coming years.

Our co-brand program also set new highs in terms of revenue production per passenger in the first quarter and continues to be on pace to exceed $50 million in EBIT in 2020. This continued strong growth is being driven across our digital and in-flight channels. And we will soon be launching our partnership with Minor League Baseball to solicit new cardholders in more than 50 ballparks nationwide this season.

As we talked about in January, our utilization will increase in 2019 as our fleet count gets back to previous levels. In March, we had 9.9 block hours per aircraft per day, which is 40% higher than our January utilization, showcasing the same flexibility that has always been key to our business model, with the upside of being able to peak up the strongest seasons more effectively than as an MD-80 operator. As a reminder, we still expect to fly roughly 5 block hours per aircraft per day in September, which is lower than 2016 levels.

Fixed fees slightly positive year-over-year results is also strong, given the reduction in the available aircraft space, driven by decreased airframes and increased scheduled service utilization.

Additionally, the government shutdown in January caused the delay of a few aircraft in the service, which caused us to miss out on roughly $1 million in fixed fees line late in the month. In the first full quarter with an Airbus-only fleet, we saw many of the benefits begin to show immense value.

As expected, we were able to hold roughly 50% fewer spare aircraft than the first quarter last year. This enabled us to grow Sunday departures in March roughly 6.5% despite the reduction in aircraft. Additionally, the economics of the Airbus aircraft allow us to choose some more resourceful alternatives. For the last 6 weeks of the quarter, we utilized unused Saturday aircraft space in Las Vegas to boost capacity in Phoenix during peak demand periods. Including all ferry cost, we generated over $1 million of gross profit on planes that would have otherwise been parked for those days.

Throughout the first year of our new revenue management system, revenue gains were generally driven by load factor performance. As we are working through the second year, total fare performance is taking over as the driving factor, as seen in first quarter results.

Looking forward, this week, we formally applied with the U.S. DOT to operate scheduled service flying between the U.S. and Mexico. This is a monumental step for the company, and while there is still a lot of work ahead, we cannot be more excited to start the process toward the selling and operating of scheduled international flights.

Turning towards second quarter, we are very encouraged by forward demand. We expect sequential improvement in year-over-year traveling performance, including the 2.0 to 2.5 tailwind that's associated with the Easter shift.

As a reminder, we will experience some pressure from ASMs growing 13% to 14% in the quarter, including some off-peak weeks between March and Easter. In terms of the full year, we have enough confidence to both increase our ASM guide by 0.5 to 7.5% to 9.5% year-over-year and the revenue assumptions that are underlying the EPS affirmation this quarter. The bulk of ASM increases will come in the fourth quarter as we are in the process of reviewing and refining the holiday schedule now.

ASM cadence is a bit choppy through the rest of the year, with third quarter looking to be lower than the full year guide and fourth quarter higher. And with that, I'd like to turn over to the operator for Q&A.

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Questions and Answers

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Operator [1]

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(Operator Instructions) And our first question will come from Catherine O'Brien with Goldman Sachs.

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Catherine Maureen O'Brien, Goldman Sachs Group Inc., Research Division - Equity Analyst [2]

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So I know that you said that the March quarter results in general were in line, but can you maybe drill down to how March quarter RASM performed? Was that also in line? A couple of your competitors talked about seeing some weaker leisure. Is that what you saw? Or just any color there would be really helpful.

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Gregory Clark Anderson, Allegiant Travel Company - Senior VP, Treasury, Principal Accounting Officer & Secretary [3]

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Yes. No. I'm happy to provide some color on that. We were right in line with where our budget was, and I believe also right in line with where our consensus was. So I don't know that there's really a ton to read through on there other than it pretty much played out as we've expected.

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Catherine Maureen O'Brien, Goldman Sachs Group Inc., Research Division - Equity Analyst [4]

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Okay. Great. And then, we saw a much stronger performance on your non-ticket air-related versus on the fare side. Can you just give us some color on the puts and takes there? Is the fare lower just because of what's out in the market and so you push non-fare higher? Or was there some sort of intentional rebalancing between those 2 buckets on your part?

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Drew Wells, Allegiant Travel Company - VP of Revenue & Planning [5]

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Sure. So there's a little bit of both there. First and foremost, on the customer conveniency, that is basically a shifting bucket, that's a more or less one-for-one offset between the fare and the non-ticket fare. But beyond that, I think, it's worth calling out that the back performance we did have through the first quarter and kind of the non-conveniency part of our non-ticket was also the highest that we're ever seeing in company history. So there was a lot of strength kind of outside of just that shift.

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Operator [6]

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And our next question will come from the line of Savi Syth with Raymond James.

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Savanthi Nipunika Syth, Raymond James & Associates, Inc., Research Division - Airlines Analyst [7]

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Maury, I had kind of a high-level question. You have some European leisure companies that also operate airlines. Clearly, Allegiant operates a much better airline than these companies do, but I was just wondering if you can kind of compare and contrast your -- Allegiant's vision for a leisure company that also runs an airline versus some of these other companies that are out there?

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Maurice J. Gallagher, Allegiant Travel Company - Chairman of the Board & CEO [8]

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Well, there's -- in particular, we've looked a little bit at TUI who run both an airline and they've acquired a number of hotels. Haven't stated their numbers in depth. The irony of this industry is that there's been many an airline that owned a hotel and people think it doesn't work. Well, the hotel works just fine, it was the airlines that didn't work. So in particular, you look back at United and the Allegis experiment, where they had, I think, Hertz, Westin and United, and the Board decided to, as I understand the story goes, the Board decided to break it up because some of the parts were better than the whole. And as rumor has it, Mr. Ferris resigned the next day.

So there's the history of the airline industry not working well with hotels, but it's not because, again, the hotel doesn't work. And I think the main difference we have here today is that we are just so well-enamored with customer information and customer data, and John can comment, we have, for instance, 11,000 inquiries right now about Sunseeker and how people are interested in the product and things of that nature. So having this data and being able to redirect people to a product that we control versus a third-party product where we're just a middleman, candidly, we've seen our hotel take rate go down because we can't get to the hotel rooms particularly in peak times, 10 years of good times and everybody that's in business is trying to eliminate expense and middlemen are definitely an expense and so we find ourselves being restricted in those areas. So we think we're going to add amazing value. We're going to be very focused on our resort called Sunseeker initially. But as I mentioned in my notes, we're going to look in Southwest Florida to do things like managing other hotels. Those are asset-light and should be very lucrative and play off the strength that John and the team he's put together are going to bring to what we're doing here, and you mix it with like in the West Coast and Florida, we have 4 million people in and out of St. Pete and Punta Gorda. St. Pete's 90 minutes away and Punta Gorda is 10 minutes away. That's just a terrific combination. We're very excited about the opportunity.

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John T. Redmond, Allegiant Travel Company - President & Director [9]

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I think the only thing I would add to that, Maury, is the -- if you take the fundamental differences, what we're doing is organic growth. We're -- what they have done in Europe is more acquisition, right? They go out and buy out -- buy a hotel, and these are hotels with a lot excitement. They're more what we refer to as like a dormitory. So that's the biggest fundamental difference is that we have a resort and it's organically done and designed and built based on the airline data.

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Maurice J. Gallagher, Allegiant Travel Company - Chairman of the Board & CEO [10]

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One -- and just one more other comment. We're -- we've got as many as 15 million, 16 million names in our database, of which probably 12 million are usable and we talk to. But these are people we know have taken our service, know about leisure travel. And John was just telling me that we're already increasing the number of rounds at the golf course by using our e-mail database and talking and cross-pollinating with people to sell additional activities when they're going to be in the area. So this stuff, 1 plus 1 plus 1 equals 5 is when you start getting people to understand, think, put a loyalty program. Again, customer-centric stuff, that's what you're seeing industries do. Amazon being the best example of -- they're bringing together all kinds of customer information and work with customers and understand what they want and offer them many products. We're not claiming to be an Amazon at this point but we're uniquely thinking offering additional products that we can monetize and get bigger share of wallet as where we're going.

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Savanthi Nipunika Syth, Raymond James & Associates, Inc., Research Division - Airlines Analyst [11]

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That's helpful. And if I may, just to quickly follow up on Drew's comments on 2Q RASM. Just -- I know there are kind of 2 opposing trends there with the benefit from Easter and then the pressure from a higher capacity. Should we assume then kind of a deceleration in sequential RASM?

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Drew Wells, Allegiant Travel Company - VP of Revenue & Planning [12]

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Let me see if I'm following correctly. So deceleration in terms of from win to win because I -- look, sequentially, we should be better in 2Q than we were in 1Q. I guess we're for deceleration in comparison to.

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Maurice J. Gallagher, Allegiant Travel Company - Chairman of the Board & CEO [13]

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Savi? She's on?

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Christopher Allen, Allegiant Travel Company - Director of IR [14]

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Gone.

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Maurice J. Gallagher, Allegiant Travel Company - Chairman of the Board & CEO [15]

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She's gone? Oh. Take your best shot.

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Drew Wells, Allegiant Travel Company - VP of Revenue & Planning [16]

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Sure, I'll take it. I'll take it then. So yes, for 2Q, I do expect that sequentially we'll be better than where we were in 1Q. You're right that there's some opposition there, I don't think it fully will wash out -- kind of the ASMs will fully wash out the Easter benefit. And then we'll -- I think we'll see continued acceleration to third quarter beyond that. So I don't know about any deceleration, but I guess that's the best I can tell about it.

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Maurice J. Gallagher, Allegiant Travel Company - Chairman of the Board & CEO [17]

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Well, Savi, one other thing, I mentioned in my notes 2Q -- our internal numbers is going to be better than 1Q. Maybe RASM is a little softer, I'm not going to comment on that that's Drew's bailiwick but this has happened twice in the past 10 years where you have this kind of benefit and 2 fundamentals, Easter and we're going to have more capacity out there to do more things with. So that's the key part of the plan going forward.

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Operator [18]

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And our next question will come from the line of Helane Becker with Cowen.

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Helane R. Becker, Cowen and Company, LLC, Research Division - MD & Senior Research Analyst [19]

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Maury, as you think about CapEx requirements over the next 4 or 5 years, how do you weigh what goes into the airline versus what goes into Sunseeker or any of your other businesses?

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Maurice J. Gallagher, Allegiant Travel Company - Chairman of the Board & CEO [20]

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Well, the airline comes first. Yes, the airline comes first. It's going to get its need, and we've said we'll grow it 10%, and that's give or take 10 airplanes a year. We're not going to be looking at 15 or 20. We may be a little less or a little more, but that's the rule of thumb. And Sunseeker, we've got our budget for that and that will come online and be done here. Mostly, the big spend will be out of the way this year. And -- but the business plans suggest that we're going from $350 million of EBITDA last year to over $500 million this year. And so the business is going to be very lucrative, we think, in the coming years now that we've got all the transition work behind us. So we'll -- I'm not worried about sources of cash. The bank debt, as Greg said, bankrolled for financing airplanes is as good or better than it's ever been. And so we'll be able to finance those just fine, and then we've got the general cash flow we're producing on top of it.

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Operator [21]

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And our next question will come from the line of Brandon Oglenski with Barclays.

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Matthew Aaron Wisniewski, Barclays Bank PLC, Research Division - Research Analyst [22]

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This is Matt actually on for Brandon. I just wanted to kind of step back and just maybe feed off what Savi asked earlier, but as we look at potential growth and acquisitions or investments in the noncore airline business. Are there any criteria management is operating under or constraints or really just the idea of just anything that can be reasonably attached on to the leisure business to maximize the customer base? Any color or any context, that would be helpful.

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Maurice J. Gallagher, Allegiant Travel Company - Chairman of the Board & CEO [23]

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Yes, we haven't looked at any acquisitions at this point. John may have some more in-depth thoughts, given he comes from a different aspect. But right now, we're kind of growing them organically, not kind of, we are. And if something comes along and it makes sense, we will certainly look at it but we've historically been an organic company for the most part. We haven't done a lot of -- haven't done any acquisitions. So wouldn't expect anything will pop up and there's nothing on the radar that we know of at this point. John?

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John T. Redmond, Allegiant Travel Company - President & Director [24]

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Yes, I think one of the best ways to look at that is when you look at capital allocation, it's always good, I think, to look at the history of what companies have done. I think when you look at Allegiant, we've always been excellent stewards of capital, whether it's deciding between dividend and share buybacks or reinvestment of business. So it's -- that's a balancing act, that we're always looking at to see where we can get the highest return. So that approach that we've followed in the past would be no different going forward. We're always monitoring where we can get the greatest return. I think when you look at the airline growth that we're talking about in the 10% range, that's a growth that we think we can effectively implement and in -- and it doesn't stretch our balance sheet. That's the same thing when you look at hotels. We're going to be very good stewards of capital in that regard as well and all the decisions get based on demand. In the hotel world, if you're filling it and you're filling at very high rates and you're getting very high returns, you continue to look for opportunities. So again, it's really just a story that we're going to continue to deploy going forward as we've had in the past.

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Matthew Aaron Wisniewski, Barclays Bank PLC, Research Division - Research Analyst [25]

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Okay. Great. And then just kind of another question on -- I was interested in the recent announcement to expand to Mexico and international markets. Just maybe -- got to have some context on why there's been the right time, it's kind of particularly interesting given some other carriers are pulling out of some transporter markets as well.

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Drew Wells, Allegiant Travel Company - VP of Revenue & Planning [26]

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Sure. So this is Drew. This is something that we've certainly looked at for a very, very long time. I think something on the magnitude of 7 or 8 years we've been discussing international. And we're not always -- we're -- we kind of pride ourselves on digging one another's bag. And yes, there are other locations, transborder and international, that are weaker. But we can't wait until things suddenly become strong and then react with the entire process. So internally, we're getting ourselves ready to hit the right opportunity at the right time, and we have kind of a lot of network investments that we put in place domestically that is very well, I guess, propped up to serve the international destination. So we feel like a lot of things are coming together at the right time for us and this was the time to hit play, and we still have a lot of runway in the D48 space as well. So kind of all that coming together is what gives us all this excitement.

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John T. Redmond, Allegiant Travel Company - President & Director [27]

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I think another good segue that, that provides is when you look back to the 2016 Investor Day, we actually were pretty emphatic about beginning international service by 2020. So we have delivered on everything that we have -- we put out there in the end 2016 Investor Day. I think a lot of people forget, but we have delivered on everything we said. Drew also made reference to the credit card and everything else. So this is just something, again, that's an execution on what we envisioned way back in 2016. Maury, did you have anything?

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Maurice J. Gallagher, Allegiant Travel Company - Chairman of the Board & CEO [28]

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Well, yes, one other comment. We're already flying to -- charter work to Mexico. So operationally, it's not a leap to get from here to there. We're going to be selling in the same markets, we're already selling in. So we -- and the nice thing where we're at now is we have most of them with customs access so we can do nonstop service, which is important. So you're taking maybe a Cincinnati and Pitt, all these places where we're already at, it's just not a big leap to think that we can kind of sell that product. We'll see. Well, if it works, great. If it doesn't, we'll -- we're real flexible. We'll bide our time and do what we need to do.

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Operator [29]

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And our next question will come from the line of Joseph DeNardi with Stifel.

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Bert William Subin, Stifel, Nicolaus & Company, Incorporated, Research Division - Associate [30]

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This is actually Bert on for Joe. My first question's probably for Drew. Has the criteria to add new destinations to these changed? And do you think the opportunity for new noncompetitive routes is still as robust as you guys mentioned last quarter?

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Drew Wells, Allegiant Travel Company - VP of Revenue & Planning [31]

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Yes, I'll actually start with the end and work my way forward there. We absolutely feel it is as robust. I think all of the announcements you've seen us make in the last 18 months have showcased that, and I would expect that to continue. In terms of criteria for destinations, it has changed a little bit as kind of the origin city profile of Allegiant has changed. As you get into more cities that are a little bit thicker like in Cincinnati or Indianapolis and the ones that Maury mentioned previously, you don't need quite the same size of destination in order for a 2-time-a-week service to work well. So as you think about something like Charleston, something like Destin, a much larger origin city can fill out that center demand profile destination quite well, and that's where you've seen a lot of our growth come like I mentioned in the last 18 months, and we're expecting a significant amount of growth to continue to come for us.

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Bert William Subin, Stifel, Nicolaus & Company, Incorporated, Research Division - Associate [32]

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That's helpful. Just a follow-up to Matt's earlier question. How do you guys see Mexico fitting into the overall travel company strategy? Are you guys already thinking about hotel, other partnerships? Or is it pretty mature for that?

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Drew Wells, Allegiant Travel Company - VP of Revenue & Planning [33]

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I'll kick it off, and I would view more or less any international service we do as a replication of what we do domestically. We're not looking to change who we are by any means, and hotels will be a huge part of that as we move forward.

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John T. Redmond, Allegiant Travel Company - President & Director [34]

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Yes, I would echo Drew's comments. I think it's safe to say that any destination city we would fly to, we would look at adding all the components that you're used to seeing. What we also could definitely explore is, whether it's managing or branding, those are opportunities that in the past obviously warrants something that we would be looking at. Going forward, we will. The other thing we could probably say at this point in time is we would not be looking at investing or building. In international destination, these would be locations that we would be looking at as an asset-light approach, so it's branding and managing.

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Operator [35]

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And our next question will come from the line of Hunter Keay with Wolfe Research.

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Hunter Kent Keay, Wolfe Research, LLC - MD and Senior Analyst of Airlines, Aerospace & Defense [36]

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Greg, congratulations on the promotion, man.

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Gregory Clark Anderson, Allegiant Travel Company - Senior VP, Treasury, Principal Accounting Officer & Secretary [37]

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Thanks, Hunter.

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Hunter Kent Keay, Wolfe Research, LLC - MD and Senior Analyst of Airlines, Aerospace & Defense [38]

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So I'm kind of curious to know if or why you guys dropped plans for the giant pool. It looks like you did based on the renderings I've seen. And the broader question is -- because that was such a big part of the project before. And the broader question is did TPG have any input into changes in the design, specifically the pool or anything else, before they decided to invest alongside you guys?

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John T. Redmond, Allegiant Travel Company - President & Director [39]

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Oh, I didn't expect that question, but it -- thank you for the softball. We didn't -- we never did drop plans or change plans to do a giant pool. Those plans were still there when you look at the site and what's being built, Hunter. This is Phase 1 of what potentially could be a multi-phase project. So if you look at the design of that Phase 1, for us to have a giant pool sticking across the site, it would have blocked the future development of anything on that site. So for us to have built that as part of Phase 1, we wouldn't have been able to access the rest of the site without a tremendous amount of cost like in the tens of millions of dollars to do something like that and in some cases, we would've had to build from the water on a barge. So it's not a change in plans, it's still there. We intend -- if the demand properly warrants, we still intend to do that.

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Hunter Kent Keay, Wolfe Research, LLC - MD and Senior Analyst of Airlines, Aerospace & Defense [40]

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Okay. And I watched the kickoff video you guys had with the groundbreaking ceremony, and it looks like as the idea of the project has shifted a little bit from condos to hotel, it looks like you guys are taking on a little bit more of a corporate sort of conference retreat-type approach to the project and that's all well and good. But my question is really, how are you going to sell to corporate? Because you talked about your database of 14 million people, but those are all leisure travelers. How are you going to access the corporate traveler without going through third-party distributors or new distribution channel, in general, to make sure that you're accessing the right people who are planning these corporate events? Or am I wrong, is this not a corporate-type dynamic that's evolving here?

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John T. Redmond, Allegiant Travel Company - President & Director [41]

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It is not. And I think going forward, before you make some of those assumptions, it might be easier just to reach out and ask some of these questions because they're pretty straightforward for us. I know it's not as intuitive for you, but this is not being designed as a corporate hotel. We are a leisure company, we are a leisure airline focused on leisure guests. Having said that, we also know that there's some seasonality into this -- in this market, so we also want a venue that can accommodate the groups that all hotel companies focus on and target to be able to drive rate and yield and to fill slower periods of time. Now keep in mind that some of the demand for that space is even like for a wedding, right? So it's not just the corporate stuff, you get a lot of -- there's a lot of different opportunities that will allow us to be able to make sure that we run that hotel and resort at the highest level of occupancy and rate we possibly can. So that's what that business provides the opportunity to do. You're booking that big business way out in advance, and there's people who approach us as opposed to we approaching them. So we will provide some color on that, of course, as we go forward, we'll let you know about large groups that we booked from time to time. But when you're booking a group, normally those are booked a year to 2 years in advance, and we typically would not be putting a group in the building when we know we can sell it out with a leisure customer. But one of the reasons why hotel companies will focus on that is because it's much higher-paying customer, these groups. So again, we would use it for off -- call it off-peak, to get back to an airline term, off-peak times, when it's slower is when we would want to fill a hotel with some of this group business.

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Maurice J. Gallagher, Allegiant Travel Company - Chairman of the Board & CEO [42]

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And John, you might just talk about just the group business being one-to-one, this is a -- there's no third-party in this. These are a sales group -- a salesperson from a hotel talking to a group manager who -- Wolfe may have a group plan or it's Hunter for that matter that's planning your stuff out a year or 2 years.

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John T. Redmond, Allegiant Travel Company - President & Director [43]

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Yes, they approach us directly. There's absolutely no middleman and then -- that's always been, of course, the Allegiant DNA is to not have a middleman. And we -- we're not changing in that regard at all going forward. You look at a large catering function, you can have inside your ballroom and the amount of business that you do and the margins that you're doing it at are off the chart. So you take a large catering function, the margin on that is over 50%. So this is very, very high-margin business that we're talking about here.

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Maurice J. Gallagher, Allegiant Travel Company - Chairman of the Board & CEO [44]

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Well, I think the other point, Hunter, is you've got a crowd that works for us now through John and his contacts. The world-class group management, the best in the world sits here in Las Vegas. This is nothing more than a group talent that lives off that type of thing, and thousands and thousands of people able to have and handle big banquets, lots of people, it's just embedded in the DNA of this town, and we're taking some of that to Southern Florida, and we'll be, we think, the biggest supplier of the space available for groups in that place that there's a lot of demand for because it's such a great destination.

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John T. Redmond, Allegiant Travel Company - President & Director [45]

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Yes, we -- the team we're putting together, of course, they have a Rolodex like no one else. So we know all the people to reach out to. They know all the contact points to be able to do that kind of business, and we know who's out there looking for. So it's an exciting opportunity, stay tuned.

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Operator [46]

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And our next question will come from Duane Pfennigwerth with Evercore.

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Duane Thomas Pfennigwerth, Evercore ISI Institutional Equities, Research Division - Senior MD [47]

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Maury, nice to hear more of you on the call. And Greg, I echo everyone else's congratulations on the promotion.

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Gregory Clark Anderson, Allegiant Travel Company - Senior VP, Treasury, Principal Accounting Officer & Secretary [48]

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Oh, thanks, Duane.

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Duane Thomas Pfennigwerth, Evercore ISI Institutional Equities, Research Division - Senior MD [49]

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So I wanted to ask you about flexibility and lead time for changes on the nonaircraft spend as we progress through the year. If the back half does not play out as you expect, how much wiggle room do you have on that $275 million spend? And how do you think about that versus other priorities such as maintaining the dividend?

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John T. Redmond, Allegiant Travel Company - President & Director [50]

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Well, when you look at that -- Duane, of course, I must admit I wasn't going to take a question from you just because of how unprofessional and disrespectful you've been in the past, but I'll go ahead and I'll rise up to the occasion. But when you look at the spend, we are -- we've already said what our equity contribution's going to be for the resort. And as Greg pointed out, we're all in before the end of the year or around year-end. After that is when TPG's funds start to kick in to fund the balance for the project. So that's covered. We know probably in another quarter or 2 we'll be able to provide a lot more color in terms of a better timing and a better update, if you will, on how we're pacing our budget. But as we sit here today, everything is still on budget. We have no concerns there, and I think we talked about capital allocation already when you look at what's going to happen, but we look at the highest returns out there. Once you get past the airline -- the other CapEx frankly is -- it's a rounding error. So you look at these STCs and you look at Teesnap, these are de minimis amounts of capital. The only thing that's of any significance is Sunseeker, and of course, that's already been identified and explained as I just did.

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Maurice J. Gallagher, Allegiant Travel Company - Chairman of the Board & CEO [51]

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Duane, the Board, we've gone deep and wide with John and Ben Mammina, who's building this thing and their expertise in this as far as how they approach the capital allocation based on their representations and I'm not going to sit here and opine as an expert but as a qualified business guy, we're really comfortable that they're going to make their numbers. And we'll have a lot more visibility at the end of the summer when everything is finally bid out and all that's in place. But it's going to come in, as we said, based on everything we know. And again, these guys have done this many times before, so they're pretty well vetted in how to do that all.

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Gregory Clark Anderson, Allegiant Travel Company - Senior VP, Treasury, Principal Accounting Officer & Secretary [52]

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And Duane, this is Greg, I may just add -- just do a little more commentary on that, in particular $275 million that you're talking about and us being able to kind of control the pace with our funds being first funds in to begin with. Ideally, you keep the construction build going at the pace that we have today which the -- is the majority of those funds are allocated towards, but there's other capital in there such as FF&E that you could kind of pull, likely pace that down, if you had to do. We don't want to, we don't expect the need to, but if things got to that point, we can pay such a significant item like the FF&E. It'll push that back or delay that to a degree.

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Duane Thomas Pfennigwerth, Evercore ISI Institutional Equities, Research Division - Senior MD [53]

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Regarding the nonairline businesses, the $0.50 per share loss this quarter, can you just segment that between Sunseeker, Teesnap and the family fun centers?

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John T. Redmond, Allegiant Travel Company - President & Director [54]

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Well, I think when you get right down to it, individually, they're all de minimis. In the aggregate, you can see the number there, it's 7.4. It's going to skew more towards the STC because if you had 2 openings, so you have more preopening activity. Every time you open one of those, you're hiring people in advance of operating it. So when you have the more facilities you open in a particular year, the more preopening expense you're going to have. We won't run into significant preopening for a facility like Sunseeker, of course, until we start doing all the hiring, which, of course, is next year. So it's primarily those 2 entities because the golf course performance helps, of course, offset a little bit of the minor preopening that we get on Sunseeker.

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Operator [55]

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And our next question will come from Dan Mckenzie with Buckingham Research.

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Daniel J. Mckenzie, The Buckingham Research Group Incorporated - Research Analyst [56]

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A couple of questions here, and I might have to get back in the queue again. But just following up on Duane's question, obviously, the $12 million to $17 million EBIT loss from the nonairline business this year is really small, but it is something investors obsess about. And so I guess I'm just wondering what you can share on revenue trends so far. What are you learning? And when are you thinking the losses might inflict to a profit?

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John T. Redmond, Allegiant Travel Company - President & Director [57]

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Well, when you look at [STCs] right there, they're a scale gain. From a revenue perspective, you saw we put in the relief that during the quarter, you only had one that operated for any length of time in the quarter. That was the one in Clearfield, right? The other one didn't even open until after the quarter. So you're seeing the expense associated with getting the facility building without the related revenue. So both those facilities -- well, the one, of course, will have operated all of Q2. So you'll see more information on that regard. And the other one, the one in Warren would be open for at least a chunk of Q2. And like any business, a lot of times, there's a ramp up. So it's the first quarter of operations, the first full quarter of operations isn't the best. So that's not going to be any different here as well. And if you look at Sunseeker or actually, some space on Teesnap, I would expect Teesnap becomes on a stand-alone business probably profitable in 2021. And I'd say, on the stand-alone basis because there's a tremendous amount of benefit that we as a balance of the company get off of Teesnap primarily around emails. I started to talk about this in the last call. That database, as we stand today, has an excess of 2.2 million emails that are clean and to be marketed to, right? So the opportunities to be able to use that, which we've always looked at that as being very synergistic across the airline and our other business channels, that's where we're going to start to see some significant upside in advance of the company on a stand-alone basis be unprofitable. But again, that business would be profitable in '21 would be my expectation as we sit here today. That's a scale game as well. We'll know the rates and soon get courses installed. And the first year of a course is installed, you're not making any money. So it's the out years, years 2 and out, that those courses really start to produce from a staff standpoint. And Sunseeker, of course, we're looking for that to open in the back end of '20 or possibly slide it maybe into the beginning of '21, but we'll be able to provide a much greater degree of certainty after Q2. And that, of course, the expectation that's profitable the day we open.

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Daniel J. Mckenzie, The Buckingham Research Group Incorporated - Research Analyst [58]

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I understood. Okay. I appreciate the perspective. Going to an airline question, 35 new routes. What percent of the ASMs are in new markets in the second quarter, and if you could just help provide some perspective around same-store sales versus markets if you -- if we're just looking at RASM trends and the same-store sales if you're looking at RASM trends in the newer markets, where are you seeing the strength and how should we think about that going forward?

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Drew Wells, Allegiant Travel Company - VP of Revenue & Planning [59]

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Sure, this is Drew here. So coming out of first quarter, we were about 5% of our ASMs on markets that were less than 12 months since start date. Getting into 2Q, that's up over 10% and kind of back that normalized rate that you've seen from Allegiant over the last 5 years. So kind of about 12% to 14% in the quarters after that. So kind of a shorter-term blip in terms of the level of maturity of the network we'll see. Same-store sales have been strong for us for probably 15-or-so straight quarters actually, feeling very, very bullish on what we're seeing there in terms of demand, especially in the markets we've been in the longest. You think about a lot of the investment we made 2014, 2015 in these cities like Cincinnati, Indianapolis that have come up a few times. You're getting into the point where you're manifesting a lot of those new route launches coming from those cities to the center destinations and having that awareness, having that build, a lot of the work that Scott DeAngelo and his marketing team have done are really shortening kind of that awareness curve that we need on some of those newer markets. So I expect that the ramp that you see on new markets moving forward a little bit shorter than what we've had to endure in the past, but nothing that's alarming by any means in terms of new market rep cadence.

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Operator [60]

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And our next question will come from the line of Michael Linenberg with Deutsche Bank.

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Michael John Linenberg, Deutsche Bank AG, Research Division - MD and Senior Company Research Analyst [61]

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Drew, back to -- you talked about the ability to kind of flex up on aircraft utilization. I think you said you've sort of peaked at 9.9 hours and you'll be back at 5, 5.5 hours in September. How much higher do you think you can push that before you potentially compromise the operational integrity of the carrier since you've obviously done such a good job in getting your operational metrics up into kind of the upper quintile?

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Drew Wells, Allegiant Travel Company - VP of Revenue & Planning [62]

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Sure. So given how we performed in March with what is the highest utilization I believe we've ever run, I don't have qualms sitting here today about what our operation can handle. We're going to continue to throw complexity and increased levels of flying at it where we have I believe a number of days, over 400 flights coming this summer. So I'm not necessarily holding back at any point and I don't have any qualms about how the operation's going to be handle this summer. So I don't know that's the number or a level at which we can or want to talk about.

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Maurice J. Gallagher, Allegiant Travel Company - Chairman of the Board & CEO [63]

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Michael, just another qualifier. Our system is pretty simple. We go out the back. And so you have an a.m. shift and a p.m. shift and certainly in getting more complex with inside turns and doing triangles and stuff like that. But where you've got 90 airplanes going, you just can't do that many. So you can try -- you've got to start planning more days rather than -- you want to start flying at 4 in the morning and quit at midnight. We've just never done that, and I don't expect we will do that, kind of get that daily utilization up on a Friday or a Sunday. And we're -- we'll let Tuesday and Wednesday take care of themselves much better in the east than we have in the west, frankly, but yes, you can push a month or something like that, but it's not a day-in and day-out thing.

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Drew Wells, Allegiant Travel Company - VP of Revenue & Planning [64]

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Yes, and I think Maury -- I just want to add one. I think exactly what he said is right. We're going to hit the revenue constraints and where we want to go from a profitability perspective, I think long before we hit our operational.

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Michael John Linenberg, Deutsche Bank AG, Research Division - MD and Senior Company Research Analyst [65]

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All right. Now that's very helpful. And then just back on Mexico, I think maybe, Drew, you sort of made the comment that you guys sort of -- you guys zagged where others have zigged and moving into Mexico. Is this -- when we think about what you've done historically from a charter basis, sort of medium-sized cities into big leisure destinations, is that the Mexico plan? Or are there other things that you may be looking at, maybe even secondary cities in Mexico at -- or maybe even bringing people from Mexico to the U.S.? Or is it -- am I getting ahead of myself?

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Drew Wells, Allegiant Travel Company - VP of Revenue & Planning [66]

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I think you're getting a bit ahead of yourself there. I think the first part you talked about with midsize going to big leisure destinations in Mexico and Phase 2 being the Caribbean is absolutely what we'll be looking at there. It's our bread and butter. It's what we do very well domestically, and it should work very well internationally.

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Maurice J. Gallagher, Allegiant Travel Company - Chairman of the Board & CEO [67]

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Michael, the majority of our traffic originates in the blue -- cold part of the world. And we do by a margin mostly round trips. So this is really nothing more than just having an arbitrary line, south of the border, so to speak. And we'll originate a round trip there. So like for instance, selling in Mexico, we do all our own automation. There's a lot of complexity. You've got to set up a distribution network, and you wonder if that return trip coming or originating in Mexico to Cincinnati -- I'm not sure -- how deep and wide that part we would ever be. So we just -- I look at this personally as just adding another endpoint to Cincinnati or Pittsburgh and the like, albeit it's got different tax implications and some complexities, but it's really more of what we've been doing.

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Operator [68]

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This concludes our question-and-answer session for today. I would now hand the conference back over to the management team for any closing comments or remarks.

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Maurice J. Gallagher, Allegiant Travel Company - Chairman of the Board & CEO [69]

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Thank you very much. See you in 90 days.

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Operator [70]

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Ladies and gentlemen, thank you for your participation in today's conference. This does conclude our program, and you may now disconnect. Everybody, have a wonderful day.