Allegiant Travel Company ($ALGT)

Ladies and gentlemen, thank you for standing by. My name is Colby, and I'll be your conference operator today. At this time, I would like to welcome you to the Allegiant Travel Company First Quarter 2026 Earnings Call. [Operator Instructions] I will now turn the call over to Sherry Wilson. You may begin.

Thank you, and welcome to the Allegiant Travel Company's First Quarter 2026 Earnings Call. We will begin today's call with Greg Anderson, CEO, providing a high-level overview of the quarter, along with an update on our business. Drew Wells, Chief Commercial Officer, will walk through demand commentary and revenue performance. And finally, Robert Neal, President and Chief Financial Officer, will speak to our financial results and outlook. Following commentary, we will open it up to questions. We ask that you please limit yourself to one question and one follow-up if needed. 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. We undertake no obligation to update publicly 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, which may be based on assumptions and events that do not materialize. To view this earnings release as well as the rebroadcast of the call, feel free to visit the company's Investor Relations site at ir.allegiantair.com. And with that, I'll turn it to Greg.

Thank you, Sherry, and thanks to everyone for joining us this afternoon. For today's call, I'll start with a brief overview of our first quarter performance and then update you on our commercial initiatives, outline how we're navigating the current environment and close with a few remarks on the status of our acquisition of Sun Country. We started the year on a very strong note. Our first quarter results reflect the momentum we built through last year, delivering a 14.9% adjusted operating margin, up nearly 6 points year-over-year and slightly above our guided range. Importantly, we achieved our highest first quarter adjusted operating margin since pre-COVID, and we believe our margin will prove to be industry-leading for the second quarter in a row. That performance reflects our deliberate operating strategy. We prioritize flexible capacity to capitalize on peak demand periods rather than chasing maximum utilization over the entire year. Notably, we achieved those results serving the leisure traveler without large international networks or premium cabins. That highlights the strength of our model and execution. Our focus remains on running a highly reliable, efficient airline because when we operate well, the financial results follow. To that point, our operational performance was outstanding with a 99.9% controllable completion factor, even with a higher mix of peak day flying. Demand was particularly strong in peak periods, helping to drive a 16.4% increase in TRASM. ASMs were down 5.9% from the previous year and heavily influenced our CASM ex, which was up 7.1% compared to last year. However, excluding fuel, our adjusted operating expenses were down nearly 6% year-over-year. Our cost structure remains one of the best in the industry. We ended the quarter with total liquidity of $1.2 billion. We have a very strong financial position, and that will even be stronger as we join forces with Sun Country. Turning to our commercial initiatives. After several years of investing in our technology, we're now positioned to leverage our platform to accelerate our commercial strategy. Our co-branded credit card currently has over 600,000 cardholders. Today, card remuneration represents just over 5% of our annual revenue and is a significant contributor to our profits. In the first quarter, compensation from the bank increased by 9% compared to the same period last year, reflecting ongoing significant opportunities to encourage greater customer adoption. Our premium seating product, Allegiant Extra, is continuing to outpace expectations by contributing to our TRASM growth and driving higher loyalty. With an increasing number of Allegiant Extra purchasers being repeat customers. We expect continued strong performance. Let me now shift to how we are managing through the current environment. We have always focused on what we can control and manage through what we can't. We strive to optimize our network for profitability and flex our schedules to match capacity with demand throughout each year. Making adjustments is simply part of our DNA. Overall, leisure demand is still strong, as shown by our robust cash sales. We had many record sales days in the quarter and continue our double-digit growth over prior year. The main pressure point is jet fuel costs, which have risen sharply and crack spreads nearly tripled to about $1.70 per gallon in early April, but have since dropped to $1.20, still about twice as much as the pre-conflict level of roughly $0.60. We are looking forward to taking deliveries on our MAX order book, particularly as that aircraft offers more than a 20% improvement in fuel burn efficiency. While we continue to see healthy fare strength overall, we are navigating the volatility by reducing off-peak capacity where margin pressure is most acute. We have also reduced service on some of our longer stage length routes where the hurdle on fuel cost is higher. All told, we are now planning for a 6.5% year-over-year reduction in ASMs in the second quarter, down from our initial plan at the start of the year. And we are not seeing any reasons to pull back on our peak flying. Given the strong demand and higher mix of peak flying, we expect TRASM will be up sequentially in the second quarter. We continue to closely monitor the evolving geopolitical environment and will adjust our operations as conditions warrant. While we have already taken some modest schedule actions, our flexible model and agility still give us ample time to refine these decisions as the year unfolds. The sharp rise in fuel prices will weigh on near-term industry profits. We are not immune. And this is reflected in our second quarter guidance. That said, a silver lining is that the gap between efficient, well-run airlines and weaker operators is widening. Allegiant and Sun Country are on the right side of that gap. I'm very pleased with the progress we've made toward closing on our Sun Country deal, which is now expected in the coming weeks and just over 4 months from the announcement. This super compressed time line underscores the strong execution and the agility of both organizations. Our integration planning has reinforced our confidence in what this combination can deliver. Meanwhile, the value of Sun Country's charter and cargo businesses, which carry contractual fuel pass-through structures is even more beneficial in today's volatile fuel environment. Both airlines own their aircraft, and our fleet strategies complement each other. In a market where managing capacity is crucial, owners have greater flexibility than those who lease. We look forward to completing the merger and demonstrating the value of the combined companies in the coming quarters. In closing, Allegiant continues to separate itself from the pack. We have the model, the balance sheet, the people and the strategic transaction to extend our leadership position within the value segment. We take great pride in being the leisure carrier of choice in the communities we serve and delivering convenience and reliability that our customers know that they can count on. That performance is all because of the tireless efforts of team Allegiant, whose dedication and passion shows up every single day. And I'm deeply appreciative of all of you and honored to work by your side. With that, let me turn it over to Drew to walk through our commercial performance.

Thank you, Greg, and thanks, everyone, for joining us this afternoon. We finished the first quarter with $732.4 million in total revenue, up 9.6% versus the prior year total revenue on 5.9% less capacity, producing a 1Q TRASM of $0.1431, up 16.4% year-over-year. Both total revenue and TRASM represent first quarter records for the company and in fact the strongest quarterly performance in our history, with revenue approximately 7% higher than any previous quarter. Our fixed fee results contributed meaningfully to the first quarter. Revenue came in at $18.1 million, up 11.5% versus the prior year, an incredible performance. The demand environment was exceptional through the first quarter. Load factors increased 4 points and yields were up 21%, a year-over-year result rivaled only by the revenge travel surge of early 2023. This strength is also supported by a unit revenue favorable schedule deployment, highlighting the benefits of our flexible capacity approach. It is worth reminding that despite the overall ASM reduction in the first quarter, peak day of week capacity grew very slightly versus 1Q '25. A huge shout out and thank you to so many, including our frontline team members for continuing to deliver while we push further on our best days of flying. While the demand environment certainly facilitated some of the load factor growth, our continued adoption and usage of Navitaire tools are coming together to drive meaningful performance lift. As Greg touched on, co-brand performance was a standout in the quarter, helping push average third-party revenue per passenger up 20% year-over-year. Card acquisition trends remain strong, continuing on last quarter's remarks with 7 of the last 8 months being double-digit higher on a year-over-year basis. In addition to the healthy growth in new accounts, spend on the card remains robust, with both metrics exceeding 15% year-over-year in each month of the quarter. Our plan for the second quarter had a similar view with overall capacity down by the expectation of peak day ASMs growing slightly. In fact, given the demand environment year-to-date, we were on the verge of targeted capacity increases right as fuel spike higher, turning a feeling of potentially missed opportunity to one of feeling nearly appropriately scheduled for the environment. We now expect second quarter capacity to be slightly lower than implied on the last call and down approximately 6.5% year-over-year. Perhaps most importantly, cash sales are running at double digits through April despite the reduction in capacity and booking trends remain healthy. While I'll refrain from providing a specific TRASM guidance, we do expect second quarter year-over-year unit revenue growth to exceed the 16.4% delivered in the first quarter. Despite the macro uncertainty, our customer base continues to show strong intent to travel. Through all economic environments, leisure customers have shown the desire to continue to travel, and we're seeing that play out in our booking trends. That said, we remain disciplined. We'll continue to leverage the flexibility inherent in our model to align capacity with demand, particularly during off-peak periods as we work through the current fuel environment. We've already refined second quarter capacity as noted and expect further adjustments as we move into the third quarter. While we had previously anticipated modest growth in 3Q, we now expect capacity to be flat to perhaps slightly down year-over-year, and we'll solidify that plan further in the coming weeks. As has been our approach, the reductions are primarily focused on off-peak day of week and shoulder season flying. And as is possible in such a fluid environment, we maintain flexibility to add capacity back should the overall environment warranted. It remains early to provide specific commentary on the fourth quarter, though I remain incredibly bullish about holiday performance given extreme resiliency over the past several years. I wanted to take just a moment to mention our national partner, Make-A-Wish. April is World Wish Month, and we've been a proud partner since 2012. It's an incredibly worthy cause, which is why we have, throughout our partnerships, donated over $32 million to the organization through in-kind flights and sponsorships. Most importantly, we have flown more than 2,000 wish kids and their families to their wish destinations, making a transformative difference in their lives. Stepping back, what we're seeing today reinforces the strength of our model. Demand remains resilient even against a higher fuel backdrop and our ability to dynamically align capacity with demand continues to be a key differentiator. While still ramping into the commercial platforms Greg mentioned, we're seeing the burgeoning combination of foundational technology investments and product performance align in a really powerful way. The team is truly making a strong impact on the Allegiant results. We're operating with discipline, prioritizing peak flying, owning off-peak exposure and maintaining the flexibility to adjust as conditions evolve. The unit revenue results speak for themselves, and we believe we're well-positioned heading into the summer and beyond. And with that, I'd like to hand it over to BJ.

Thank you, Drew, and good afternoon, everyone. I'll walk through our first quarter financial results and then provide an update on our cost performance, balance sheet and outlook. As with prior calls, my comments today will reference results on an adjusted basis, excluding special items and year-over-year comparisons will reference prior year airline-only results unless otherwise noted. So let me start by echoing the comments you've already heard regarding operational performance. Despite several winter storm systems that added complexity throughout the quarter, our team delivered reliably and efficiently without missing a beat. It's the level of execution that continues to underpin our financial performance. For the first quarter, we generated net income of $69.6 million, resulting in earnings per share of $3.77, coming in just above our mid-March updated guidance and up nearly 80% versus airline-only results in the prior year quarter as demand for leisure travel remained strong throughout the period. We delivered an adjusted operating margin of 14.9% and generated $168 million in EBITDA, resulting in an EBITDA margin of 22.9%. This performance reflects the progress we've made over the past several years executing against our margin expansion initiatives and it's a direct result of the hard work and dedication our team members bring day in and day out. Turning to costs. First quarter nonfuel unit costs were $0.0864, up 7.1% year-over-year, primarily driven by a 5.9% reduction in capacity and slightly above our initial expectations. Fuel averaged $3.04 per gallon in the quarter compared to our initial guide of $2.60, highlighting the increased energy prices and widening crack spreads that we saw late in the quarter. This dynamic is consistent with what we've seen more broadly across the industry, where fuel volatility has been a key driver of near-term earnings pressure. We're encouraged to see ASMs per gallon increase 1.2% year-over-year to 86.7, marking our fifth consecutive quarter of improvement. We're pleased with the continued contribution from the integration of our 737 MAX fleet and expect further efficiency gains as additional aircraft deliver. Turning to the balance sheet. We ended the quarter in a strong financial position with total available liquidity of $1.2 billion, including $933.5 million in cash and investments and $250 million of undrawn revolver capacity. Cash and investments stood at 36% of trailing 12-month revenues at quarter end alongside unencumbered fleet assets with a market value of approximately $1.3 billion. Total debt at quarter end was $1.8 billion, roughly flat to the fourth quarter of '25, and net debt was $858 million, down more than $100 million from the fourth quarter, a result of strong generation in cash from operations. We made $29.4 million of debt principal payments and ended the period with net leverage of 1.8x. Looking ahead, we expect to refinance our 2027 senior secured notes in the coming months, pending constructive market conditions. Importantly, we remain well positioned to fund upcoming capital expenditures with significant flexibility. Nearly half of our fleet remains unencumbered, providing an additional source of liquidity if needed, particularly in a more uncertain fuel environment. During the first quarter, we invested $176 million in capital expenditures, including $155 million in aircraft-related spend and $21 million in other airline investments. In addition, we had deferred heavy maintenance spend of $11 million. Moving to fleet. We ended the quarter with 123 aircraft in operation, taking delivery of 1 737 MAX and retiring 1 A320 during the period. As we move to the second quarter, we expect to take delivery of 3 737 MAX and to retire 1 A320. Our delivery schedule for the remainder of the year remains consistent with prior guidance. Fleet flexibility underpinned by aircraft ownership continues to be a key competitive advantage for Allegiant, notably in a high fuel environment because we retain the optionality to accelerate retirements of older aircraft if elevated fuel prices persist. And when action, those retirements support reduction in heavy maintenance spend. And following closing of the Sun Country transaction in a few weeks' time, we expect the combined entity to own 163 of the 172 aircraft in the passenger fleet, further enhancing our financial and operational flexibility. And on the topic of the Sun Country transaction, we received DOT approval in April with the remaining step being shareholder votes for each of Allegiant and Sun Country scheduled for May 8. Assuming a favorable vote at each entity, the transaction should close around May 13. Given the expectation of the near-term closing, along with the current fuel environment, we don't believe it would be valuable to provide updates to our full year guidance at the moment. We stand to gain a great deal of insight into the combined business over the coming months and expect to share more on full year earnings estimates in due course. And so the guidance we are providing today is for Allegiant on a stand-alone basis for the second quarter. At the midpoint of our guided range, we expect to produce an operating margin of 1% and to generate a loss per share of approximately $0.50 based on an assumed fuel price of $4.35 per gallon in the quarter, which is driving nearly $120 million of incremental operating expense relative to expectations at the time of our last call. At this time, we are maintaining our full year CapEx guidance as the transaction is not expected to materially change that outlook. Similar to prior updates, our CapEx guidance assumes management's best estimate and differs from contractual obligations. While we are not providing post-close guidance for the combined entity, I want to reiterate our confidence in the $140 million in expected synergies and our ability to grow earnings in the first full year post close. The first quarter reflected strong demand, improved cost structure and predictable aircraft deliveries, all of which contributed to an industry-leading operating margin. As we move to the second quarter, our focus shifts to navigating the elevated fuel environment. We will continue to actively manage capacity and optimize profitability, consistent with the disciplined approach we've taken in prior periods of volatility. Importantly, our healthy balance sheet and flexible operating model set us up well to manage through this environment from a position of strength and to focus on the structural advantages that have made this model successful throughout various cycles. In closing, I'd like to thank our team members for their continued hard work and operational execution this quarter. Their efforts remain the foundation of our performance. We're excited about what lies ahead, especially as we approach closing of the Sun Country acquisition and continue to build on the strong foundations both airlines have established. And with that, operator, we can open the line for analyst questions.

[Operator Instructions] Your first question comes from Mike Linenberg.

Really 2 questions here. Just dialing back capacity in the June quarter, and you sort of gave us a hint on what the third quarter could be. How much of that is just the higher fuel? Or how much of that maybe is a function of the fact that the Sun Country merger seems -- it's closing much faster than anticipated, and so you're probably going to have a few more shells to play with. Is that having some impact on how you think about the full year capacity outlook?

Mike, Drew here. Zero impact from the Sun Country time line or integration. This is purely a fuel-related decision.

Okay. Great. And then just my second question, I know that you're one of the card-carrying members of the Value Airline association. What sort of feedback have you received? I know the letter went out whatever a week ago. I know we've been seeing a lot about Spirit and the government wanting to help them. I haven't seen much in response to that. Anything that you can tell us on the response from the administration, et cetera?

Mike, it's Greg. Thanks for the question there. We haven't seen or I haven't heard of any specific feedback from some of the asks. But to your point, maybe a little background on it that the DOT, they requested a meeting of the AVA carriers, which we are a member of at Allegiant, I think that was last week. And the intent of the meeting was just to discuss how our segment of the industry is doing in this -- particularly in this environment. And as a follow-up of that meeting, the department did request AVA to provide some potential options that could be helpful in navigating this high-fuel environment. Just candidly, Allegiant and Sun Country, we're 2 of the strong -- are in a stronger financial position than some of the other members of AVA. But I just -- however, if there is federal assistance offered, we just want to preserve our option there to consider. But we really haven't heard much specific outside of what I just shared there.

Your next question comes from the line of Duane Pfennigwerth with Evercore ISI.

So can you talk a little bit about the mix of fixed fee flying in your going-forward plan? Historically, I think you've leaned into that when fuel prices are higher because it's a pass-through. Maybe you could just speak to that as a potential lever and what demand looks like on the fixed fee side.

Yes. Drew here, I'll speak to it to the extent I can. Fixed fee through the first quarter and into early April was phenomenal. I mentioned that in the prepared remarks. Going forward, I don't foresee any difference in aiming to in high fuel environments, focus on the lines of revenue that have the fuel pass-through. Of course, it takes 2 parties to get that fuel pass-through and you need counterparties that want to continue to fly and pay that rate. So I don't foresee any difference as we do integrate and plan. We're pretty like-minded in that approach. I don't see a change.

Duane, let me just add a couple of comments to that as well, and that's as part of the merger with Sun Country, bringing on -- they have, I know you're aware, a meaningful fixed fee and cargo business. I think it's roughly 35% or 40% of their revenues. So you think about that and that being fuel being agnostic and you're able to pass that through in the combined company. It will be a meaningful part of our combined business, I think roughly 10% or maybe a little over than 10%. So just as we think about this fuel environment, bringing that into the combined business, we think will be obviously very beneficial.

Makes sense. And then the comment about the card remuneration being 5% of revenue, just curious where you think that could go longer term? And how you would benchmark that with where Sun Country sits today on that same stat, if you know it?

Yes. I think what we've talked about in the past has been kind of 10% of revenue kind of being that stretch goal. Given some of the success we've had over really the last 8 months, I think that is something that's more achievable as we go through and really try to modernize the offering and really go back for our first major amendment with the bank that we've had in 10 years since signing. I think there's an immense amount of upside here, and I feel more confident today than I probably did 6, 8 months ago saying that 10% is achievable. I don't know maybe specifics on the Sun Country side. They were more recent to turn over the bank provider on that side. So I think there was a little bit of time through that transition where acquisition spend may be a little bit slower than what they've anticipated. But as far as I'm aware, it's kind of on track now, and I don't know if I have anything more specific beyond that.

Your next question comes from the line of Atul Maheswari with UBS.

I have a question on the TRASM cadence for this year. Based on what you know today, should we expect the second quarter TRASM growth year-over-year to be the high watermark of the year for the stand-alone company, given your compares are the easiest in the second quarter. It sounds like the third and the fourth quarter capacity might pick up a little bit relative to the down 6.5% from the second quarter? Or should we think that -- or do you think that there is any possibility of TRASM accelerating even further in the back half of the year year-over-year basis?

I mean, never say never. I have to imagine the second quarter will be the high watermark. There's still over 80% of the third quarter left to book. So some pretty wide error bars there. But I think you hit the major components as to why 2Q should be the highest with probably the easiest comp and a lower growth rate there. So I would expect 2Q to be the top, but this environment is fluid.

Got it. And then as my quick follow-up, what's assumed for yield and load factors in the second quarter TRASM? I assume yield would be driving the majority of the TRASM growth, but would you expect load factors to be up or down year-over-year for the second quarter?

I expect to see some continued load factor expansion. I don't know, candidly, to get all the way to 4 points again. I think you are right in your hunch that yields will probably lead the way.

Your next question comes from the line of Savi Syth from Raymond James.

This is Carter Eades on for Savi. So 2 questions for me. First off, as you mentioned, you're aggressively adjusting the capacity plan in response to higher fuel and you guys are no longer looking to grow in the third quarter. So with that in mind, I'm just wondering if you could speak any further to some of the key aspects of those adjustments and maybe just directionally how we should think about the impact of stand-alone unit costs in the back half of the year?

Drew here, I'll take the beginning on the capacity. And you're primarily looking at kind of the fall off-peak changes. Summer, we feel pretty good about. I think we pulled back July, maybe a couple of points. I think there's going to be more that comes out of August and September that kind of bridge the gap between what you see in the public filings and where I think we'll end up. September, I think, is still showing about a 9% growth rate, and that should certainly come down a little bit. So certainly more focused in off-peak periods than anything.

Carter, it's BJ. And then just on the cost side, I think most of the comments that we gave at our last call should generally hold true or at least directionally remain intact. So we talked about unit costs for the year being up mid-single digits. I think there's going to be a little bit of pressure from where we had expected to be in February to where we would expect to be now. But that range is still achievable. We also said that based on the shape of our capacity this year that we would expect the second quarter to be the high point. I think that probably still holds true. And then the only other thing we mentioned to just sort of help with modeling is that we were expecting nonfuel unit costs in '26 absolute to still be down versus 2024, again an area where there's a little bit of pressure now with some ASMs coming out of the plan, but not unachievable.

Got it. Super helpful. And then for my second question, apologies if I missed it, but did you guys provide quarterly fuel recapture targets? And if so, or even if not, directionally, could you help us frame how much you're looking to drive that via fares versus capacity actions?

Yes. So we didn't provide that explicitly I think what we're handling primarily through 2 functions like you talked about. One is refining and honing in capacity in the off-peaks where we're going to be probably most sensitive to the fare changes and then pushing fare where appropriate in the peaks. And through the 20% yield bump we saw in the first quarter, we feel pretty good about how customers are reacting. So we'll keep kind of dynamically approaching that on a flight-by-flight basis. We aren't the carrier that's going to be passing arbitrary $5 and $10 fares through. It's more responding to where demand takes us. And so far, so good. We feel really good about the demand environment right now, continues to take us further.

Your next question comes from the line of John Godyn with Citigroup.

I wanted to just use the opportunity to talk a little bit more about the 737s and their sort of performance in this new fuel environment. I recall you guys previously saying that the EBITDA contribution was 40% higher. They're much more fuel efficient. You mentioned some of that in the prepared remarks. I'm just sort of curious, any updates to the incremental contribution of those aircraft? Any ability to accelerate fleet planning on the back of the fuel shock? Or are you kind of thinking that way? Or are you thinking this is temporary? I appreciate some of the commentary about ASM cuts, but I really wanted to plug into your thinking on fleet strategy at large.

John, thanks. It's a great question. I'm going to start it, and BJ is going to come in and add some detail. But just in general, high level on the MAX, it continues to represent a larger share of our ASMs. We talked -- I think we mentioned 20% in a fuel burn efficiency. So it burns about 650 block hours per hour. But on an ASM per gallon basis, it's closer to 30% just because of the seat configuration there. This year, what we would expect about 20% -- a little over 20% of our ASMs to be produced by the MAX aircraft. That's going to step up each year. By 2028, we're going to get to about 50% of our ASMs. And an important point I want to make before I hand it over to BJ is that while that fuel benefit is coming, it's beneficial, obviously, in this environment, we're going to maintain at or about the same ownership cost as we are our used A320. But BJ?

Yes. Thanks, Greg. John, the only thing I would add there is just we talked on the last call about sort of our excitement for the results that we're seeing from the MAX aircraft and coming up on opportunities to exercise some of the options from our order book. We remain just as excited today as we did at the time of the last call. And I think given what we're seeing in fuel, there is an opportunity to potentially accelerate some retirement of some of our older A320s, but we're not making any calls quite yet. We'll see how long this lasts. And then at the end of the day, we just got to keep in mind that it's going to be the balance sheet that drives those decisions and how quickly we can make drastic fleet changes.

Maybe one last plug here on the capacity side since I neglected on the previous question. Having the MAX and the fleet enables us to keep probably about 1% of added capacity in that we would have otherwise canceled in an all-Airbus state. So it has benefits even in the state that are probably overweighted relative to other scenarios. So it's been huge having that.

And they also have additional premium seats and added seat count in general. And does that allow you to kind of price a little bit more smartly in a high fuel price environment? Or are you seeing some good guides there as well?

I don't know about more smartly. And hopefully, we're doing that across the board. We do see -- while we predominantly have a price-sensitive customer, we do see a little bit less price sensitivity in those that are picking up the Allegiant Extra seats. And I think that's been a fascinating development for us to see that kind of segmentation form through the customer base. And so you're exactly right, having those seats on the MAX and beyond, right across all of our 180-seat Airbus A320, I think, has proved to be really valuable for us, as Greg mentioned in his remarks.

Your next question comes from the line of Conor Cunningham with Melius Research.

I had a question. So just taking everything that you've set out so far, just TRASM accelerating on a sequential basis. And then BJ, your comments around second quarter CASM ex being the most elevated. So just if you look at the -- to get to your guide, I'm sorry to get this granular, but to get to your guide, the TRASM to CASM ex spread was like 9 points in the first quarter, which is obviously great. But then it seems like it implies a sequential deceleration. So I'm just trying to understand that a little bit better. Maybe it's the fact that you had a close in -- not close in, but you had some capacity tweaks. But just if you could talk about that, that would be super helpful.

Conor, I think what you're seeing for the most part, and I don't know if you're talking about CASM ex, but what you're seeing for the most part in our guide should just be the ASMs for the full quarter at the higher fuel rate. We do have a little bit of pressure in a handful of line items on the nonfuel side, but I don't know if I'm getting a spread quite what you're saying.

Yes. So maybe I'm talking about CASM ed. Maybe I'm asking it wrong. Should TRASM and CASM ex accelerate on the same basis going from first quarter to second quarter?

I think we may -- I think we probably have CASM ex accelerating slightly higher -- slightly faster in the second quarter. I mentioned second quarter would be our peak. And then I mentioned in the prepared remarks, first quarter came in just slightly above what I was thinking at the time of the last call, and I expect the same in 2Q.

Okay. So it's just an anomaly of the fact that second quarter is -- you just have like cost pressures that are added. Okay. That's fine. Okay. And then if we flip over to the fleet -- sorry, go ahead.

Go ahead. I was going to say it's mostly just the lower capacity.

Okay. All good. All right. Perfect. And then just on the fleet side, I hate to nitpick, but you do have 2 of the smaller A320s that are hanging in there a little bit longer. And I don't want to make a big deal out of that, but is it a fact that like you could potentially have some swing capacity in the second half of the year if you needed it, if fuel did kind of act appropriately?

I was afraid this question was going to come up on the call today. So just after the last call, early February, we were obviously very excited about what we were seeing in the demand environment. And so the teams got together to find a way to extend the useful lives on those older A320s by like a number of weeks or months or something with a very small maintenance check. And so I think they retire like January 6 or something like that. So it's actually not that big of a move, but I recognize it looks like a step-up in the high fuel environment.

It is friendly to be able to use those as extra operational spares in a way to keep the operation humming, allowing us to use non-smaller gauge A320s a bit more often. So even if they don't see the light of day, they do have benefit within the fleet.

And they'll probably fly for the holiday, I would assume...

Your next question comes from the line of Catherine O'Brien with Goldman Sachs.

I just wanted to pull apart some of what's driving the acceleration in 2Q TRASM growth. I'm guessing a big piece of that is higher industry fares. But can you give us some color on how much more of 2Q capacity will be flying during peak times versus 1Q given some of the cuts? What the ramp and maybe Allegiant Extra contribution looks like between the quarters? Or any other Allegiant-specific drivers you'd want to call out apart from industry uplift?

Yes. Great question, Catie. On the peak off-peak, it's not wildly different. From a day of week perspective, the second quarter should be about 20% off peak versus 22% or 23% in the first quarter. So generally the same. I think demand, which is macro, the demand has just run really strong since we talked 90 days ago or so and continues to be a benefit there. And I mean, I think that captures a lot of it. I mean demand has just been great. Obviously, this had the biggest headwind to us on same-store markets last year, and we had a little bit of cautious optimism about what that could mean. And I think we're hitting closer to the hope of where it could get rather than maybe where we had feared it could go, if that makes sense.

Okay. Got it. And then one for BJ. I know you just mentioned to an earlier question, you think you could still maybe achieve the full year unit cost guide. I guess can you help us think about how long in advance you need to cut capacity to get out some of the fixed costs? Is it mostly cutting before crews get scheduled? Just given you're looking to cut 2Q and 3Q and I guess, 4Q is still a TBD, like just wondering where the costs are coming out from or I guess, mid-single digit, there's a range there. So I just love to think to understand more how you think about it.

Sure, Catie, I apologize. I couldn't hear the first part of your question very well. But I think you're just asking like what are the moving parts on CASM ex from 2Q to 4Q?

Oh, no, I just -- I think -- can you hear me okay now?

Yes.

Okay. I was saying someone -- to an earlier question, you had said you thought you could still possibly achieve the full year unit cost guide of up mid-single digit, even though you're cutting a little bit in the second quarter and probably the third quarter and fourth quarter TBD. So I guess I was just looking to get some color on like what cost you think you can get out of the system. Is it just about having a little bit more time and you can avoid scheduling the crews just that you could cut capacity and still hit that guidance? And then I said or maybe mid-single digit technically implies a range. So maybe there's some like high and low end going on in that calculus as well. Any color on where the costs are coming at would be helpful.

Okay, thanks. Yes. Sorry to make you repeat the question. Yes. I think in the back half of the year, just a couple of different things. So salaries, what does attrition look like and how productive are we in the third quarter and fourth quarter? And then definitely, the changes that could still take place with respect to capacity is why I was cautious on our non-guide for CASM ex.

Your next question comes from the line of Ravi Shanker with Morgan Stanley.

This is [ Madison ] on for Ravi. I was just wondering if you guys could give a little bit more color on how you're thinking about growing again if you can flash like should start growing again? Or do you think that's only after absorbing Sun Country?

I guess maybe I'll try to take a stab at this. I guess it depends on your time line, right? Obviously, as we pull some capacity out here in the near term, there will be slack that we could grow back into such as the overall environment calls for, right? Demand remains pretty healthy and fuel comes back to us. A bit on the longer term, I think there's probably a lot that we have to figure out post close. We're a little bit ahead of that. But I would expect there to be growth given our delivery schedule coming back half of this year and into next year. BJ?

Yes, that's right, Madison. I was going to say the same thing. I think we've shared, potentially on the last call, but we certainly shared that we would expect 2027 to be the high point for aircraft deliveries from our firm Boeing order. Now over the last few years we've seen a handful of different headwinds, whether that was the demand environment or aircraft delivery delays or whatnot. So we've used a lot of our deliveries to date for replacement, but we have a lot of flexibility next year. And this is just on a stand-alone basis. We have a lot of flexibility in how many aircraft we decide to retire, but we expect next year to be the peak year for firm deliveries.

Got it. Okay. That makes sense. Another one, just wondering if you have any sense of your Investor Day timing.

Madison, it's Greg. Let me take that one. We certainly recognize the importance of having an Investor Day to update you on our outlook and everything we're doing. On the near term, we're really focused on closing our Sun Country transaction, getting that behind us for a period of time. But with the expectation that, yes, we still plan to have an Investor Day when it's practical. And so we'll update you when we have that more in mind. But ideally, it's before the end of this year is what we're thinking, but we haven't firmed that up by any means.

Your next question comes from the line of Dan McKenzie with Seaport Global.

A couple of questions here. So a number of media outlets are reporting that a government rescue at Spirit basically has hit an impasse here. And I know you don't have a lot of overlap with them, but I'm curious if it would nonetheless impact your guide for the second quarter if they don't make it.

There's a whole lot of speculation in there. Maybe where I'll kind of steer this a little bit is we've grown pretty meaningfully into Fort Lauderdale in the last 2 years. I think we're about 30% up on a year-over-year trailing 12 months ending October, and that's on a base of like 20% in the year before that. So we've been growing nicely in there and seeing results. I would expect if that capacity were to go away, there would be some amount of spillover coming to us, but I'm not going to run away with changing of the guide. It's probably pretty small in the grand scheme of the whole network.

Yes. And the only thing I would just add to that, Dan, is that we're very, very different model than Spirit and just in a very different financial position. But so whatever happens with them, that just shouldn't impact the success we expect to see here at Allegiant.

Yes, yes. Second question here is for Drew on premium revenue. And I think that was previously quantified at $500 per departure. And just given that the industry has boosted fares 15% to 20% and seeing higher fare increases for the Economy Plus segment. I'm wondering how you would characterize that revenue today? And then second, for those of us that are not really close to Sun Country, is there a similar kind of premium revenue opportunity there once you close on the merger?

Thanks, Dan. If you look at the 1Q results, the vast majority of our improvement came on the yield line as well as some of the third party, primarily co-brand related. Ancillary was relatively flat, and our Allegiant Extra revenue does go into the ancillary line. So I think you've probably seen us hold pretty steady on that $500. The hurdle rate obviously goes up, the higher your load factor goes, the more opportunity cost of losing the seats. So it gets a little bit more challenging to overcome. But I don't know that I would move that number right now off the top of my head. With the Sun Country products, you're looking at a very similar layout. They have, I think it's about 6 rows of extra legroom seats that have a product mix very similar to the Allegiant Extra. It's actually really complementary, and I would expect similar strong results from them on that and a very cohesive experience between customers as we combine.

Your next question comes from the line of Chris Stathoulopoulos with Susquehanna.

So as we think about -- I'm going to ask a question from -- or a follow-on to an earlier question asked in a different way. The second half, really post Labor Day, demand tends to get a little squishy, if you will. And so if we're in a scenario of fuel higher for longer, thinking about capacity and fuel, you cut too close, you hurt margins, you cut too far out, potentially lose some opportunity. How are you thinking about I guess, placing your bets there or decisions that typically think about bookings 30 to 60 day out? Is it sort of July, August? And I realize there's a lot of moving parts here with Sun Country, et cetera. But just want to understand how you're thinking about post Labor Day in a scenario where fuel is higher and capacity.

Yes. I think we would probably be looking ahead of that time line, probably something even May into early June, kind of those coming weeks that I referred to in the prepared remarks. I'm not interested in getting a bit too close and having to cut too many passengers because things didn't materialize to the 80th percentile or something. I'm fine to maybe take a little less risk on upside generating and canceling a little bit further out just for passenger convenience to the extent we can keep that.

Okay. And then did you give the spread in the peak versus off-peak? And if we think of just parsing out TRASM here, core versus initiatives?

I don't know that that's something we went down for this call at 16.4% in the first quarter, I mean, just about everything was clicking peak day and off-peak day look great. We talked a little bit before the quarter about the holiday shift and a meaningful amount of traffic coming into early January from New Year's travel and a little bit of benefit from Easter shifting forward. So I don't know that we went beyond that, but suffice it to say everything looks great no matter how you want to slice it.

And our last question will come from Scott Group with Wolfe Research.

So I apologize if you touched on this, I got on a little bit late. I think I heard TRASM -- or sorry, CASM ex accelerates a little bit more in Q2 than TRASM. Did you or can you put any sort of numbers around that? And then the second part of that is, do you think -- I'm getting a little ahead of myself. Is Q3 the opposite of that?

We haven't really touched on Q3. I think the world is variable enough that that's challenging. I think I mentioned earlier, you may have missed, we still have over 80% of Q3 left. I do feel pretty good about how the July part of Q3 is going to go. I'm hopeful it will be something as an extension of Q2. It will be fun to watch what happens with leisure demand through the fall. Chris kind of touched on a little bit in the previous question, but notoriously obviously weak for leisure. Demand looks great right now. So what happens when the unstoppable force meets the immovable object, we shall see. I don't know if you have comments on.

Yes. And Scott, on the CASM side, we didn't give numbers. I think we sort of referred back to some of the commentary that we made on the February call with the shape of CASM ex and did say that 1Q came in a little bit above our expectations and that we expect 2Q to be the high point from a year-over-year perspective. I think with capacity as we have it today, it's possible that 3Q could be the opposite of that or the inverse. I don't know that you -- that the spread is the same inversely. But yes, you see the opposite effect.

Okay. And then obviously, since you've announced Sun Country, a lot has happened certainly with fuel, like how does this change time line of synergies, magnitude of synergies, planning and anything like that?

Yes. Let me kick it off. And BJ, if you want to talk about the time line. But as we've gone through the integration planning, we still remain or retain a very high degree of conviction on the synergy target that we put out, the $140 million there, Scott. Some of the network synergies with -- in a higher fuel environment may be under pressure, but we would expect that to normalize over time and achieve that $140 million in synergies. In timing, BJ, do you -- I know you hit on that a little bit in your opening remarks, but do you want to hit on that anymore?

Yes. And I think you hit it though. When we announced the transaction, we talked about the $140 million in run rate synergies. We said it wouldn't be unreasonable to expect to achieve half of that rate in the first full year post close. I tried to be clear on the earlier calls that we were really thinking of that, like 2027. So from that perspective, they've probably pulled forward a little bit, right, with the closing coming up, but we've also got a faster ramp rate now, and that's going to be challenging when some of those synergies were coming from added capacity. That said, with the baseline changing in light of the fuel environment, I don't see a substantial change. And then I would just mention, we see a lot of the value in this combination outside of the P&L synergies. We've talked a lot about the flexibility in fleet ownership of aircraft, the scale that comes along with all of that, the broader loyalty program. So in the P&L, our synergies moving a little bit a quarter here or there potentially, but we're really excited about the overall value of the transaction.

Okay. And then just very last thing, like the guide that you gave us for Q2, is that purely stand-alone? Or does that include 2 months or 1.5 months of Sun Country? And like how are you thinking about like any -- will Sun Country just get fully rolled into the model everywhere? Or will it be reported separately somehow? Just any -- just so we can get our models in a decent place.

I appreciate you asking. I'm surprised that question hasn't come up yet. Yes. So the guide is stand-alone Allegiant for the second quarter. We talked about expecting the closing now around May 13. And so I realize the guide goes a little bit stale, but should still give you some color into how the Allegiant business is performing in the second quarter. And then as soon as possible after the closing, once we have insight into all the financials on the Sun Country side, we would hope to get out and provide some updated guidance on the combined entity. And then lastly, I'll just say we're still working through how we expect to report and guide what segments will be -- will we show things like that and expect to have some answers in the coming weeks.

And with no further questions in queue, I'd like to turn the conference back over to Sherry for closing remarks.

Thank you all for joining this afternoon's call. We'll speak again soon.

This concludes today's conference call. You may now disconnect.