Good afternoon, everyone, and welcome to the Q3 2021 Allegiant Travel Company Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. [Operator Instructions] I would now like to turn the conference over to your host Ms. Sherry Wilson.

Thank you, Kirby. Welcome to Allegiant Travel Company’s third quarter 2021 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; Greg Anderson, our EVP and Chief Financial Officer; Scott Sheldon, our EVP and Chief Operating Officer; Scott DeAngelo, our EVP and Chief Marketing Officer; Drew Wells, our SVP of Revenue and Planning; and a handful of others to help answer questions. We will start the call with commentary and then open it up to questions. We ask that you please limit yourself to one question and one follow-up. 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. With that, I’ll turn it over to Maury.

Thank you, Sherry, and good afternoon, everyone. Thank you for joining us again. We had another very good quarter as we saw loads and yields improved versus earlier this year in Q1 and Q2. Our scheduled service ASMs increased 17% this year versus the same quarter in 2019. As I mentioned in our release, we were the only carrier this year that I’m aware of who has both grown their system compared to 2019 and been profitable. And subsequently, this has been – this was a substantial increase versus the sequential 4.5% growth in Q2 and 3.1% growth in Q1. While our third quarter’s results were profitable, they were impacted by our operational challenges. This spring many in the industry were revving their motors for the drag race to restart their airlines. Common theme was flagged paint planting and get there before someone else. Majors had to refocus much of their flying to leisure oriented destinations, given the lack of business and international passengers. And we the low-cost carriers were feeling our oats as well and looking to get out and plant some flags. We all – we’re looking to get out of the gates quickly and stake the new turf. Regardless, the focus on leisure traffic and the associated airports by all concerned. As a result, the operational demands on leisure destination airports, particularly in Florida were substantial. Comparatively, business focused airports and most of your larger NFL cities were operating at a fraction of their traditional volumes. Some of our destination airports had operational increases of up to a 100% compared to 2020 and 2019 respectively. This added leisure flight activity was hampered by a difficult labor environment as well. Airports with these increases in activity did not have the necessary personnel for this substantial growth. And illustrative…

Thank you very much, Maury, and good afternoon, everyone. Like Maury, I’d like to take this opportunity to thank all of our incredible team members who go above and beyond every day to help this company move forward out of this pandemic. The challenges brought on by the pandemic shockwave have led to supply chain upheaval and labor shortages, creating operational challenges throughout the company, none of us have ever seen or experienced before. You are all rising to the occasion and we are getting through it as painful as it may be. Again, I am thankful for your continued efforts and understanding. Given these unprecedented challenges, we still had a great financial quarter after adjusting for one-off costs associated with irregular ops. As we adjust to and fix these challenges, our results will continue to improve. Our revenue is strengthening, exceeding Q3 2019 and we expect Q4 to exceed 2019 Q4 as well. In regards to Sunseeker, here are the couple of updates. As previously announced the $350 million financing transaction with Castlelake has been completed. We expect the first $175 million traunch to fund in the next couple of days. Castlelake has been a great partner in Allegiant Travel looks forward to a long-term relationship. Construction as resumed on the resort with approximately 250 people working on a project today. Construction on the golf course has resumed as well. We expect these projects to be completed in Q1 2023. The hotel tower should be topped off by the end of this year. The two suite towers as expected will top off in Q1 2022. We expect to begin taking reservations in Q1 2022 as well. And also beginning Q1 2022, we will resume segment reporting showing Sunseeker data separately as we did in the past pre-pandemic. As I’ve done on past earnings calls, I thought it would be helpful to provide some directional data points to help you understand how we see things for full year 2021. All these data points I’m providing are on an adjusted basis, which exclude COVID-related special charges, the net benefit from the payroll support programs and bonus accruals. Furthermore, all data points provided assume fuel at $2.17 a gallon for the full year. EBITDA expect to be an excess of $275 million with a margin around 17%, also would expect fully diluted EPS in excess of a $1.50 a share. Again, these are all on an adjusted basis. In addition to the above, we expect yearend cash balance of around $1.3 billion and net debt of around $300 million. And Greg will provide more detail around these data points in his commentary. And with that, I’ll turn it over to Scott Sheldon.

Thank you, John, and good afternoon, everyone. Perhaps a common or two on our third quarter operations. But without stating the obvious our operational results and corresponding headwinds were similar to that of our industry peers who have released or this earning cycle. From a capacity standpoint, we had perhaps one of the more ambitious summer schedules in the domestic U.S. market. Third quarter 2021 departures were scheduled to be up nearly 17% year over two years average aircraft gross up nearly 20% and destination and route growth were expected to be at 25% and 29% respectively. Furthermore, the distribution in departure growth among our approved basis has continued to shift to some of our smaller and mid-sized markets, which puts additional strain on infrastructure and labor staffing challenges. Despite those added complexities, we were seeing enough improvement in the operating environment to stay the course as we exited June and we felt we had all the necessary complemental flight crews and frontline employees to execute the back half of our summer schedule. Unfortunately, the Delta variant surge in late July and early August was simply too much to recover. And we took an abnormally high number of cancellations. In addition, our core operating performance metrics were down as compared to historical trends, but we were starting to see those trend up. Over the course of summer, we had as much as 30% of our frontline workforce impacted by COVID and/or other types of leads with a definitive spike as we turn the calendar from July to August. Greg will have more commentary on IROPs. Looking into the back half of the year and into 2022, Drew and team remain optimistic on the demand and revenue environment. That being said, we’re trying to build in some safety nets from a…

Thanks, Scott. From a marketing perspective, despite the headwinds, we’ve called out the Allegiant brand continued to shine, attracting more visitors to allegiant.com and more bookings among both first time and repeat customers than in any third quarter in our history. And late August while the Delta variant drove customer sentiment as we measure in our weekly tracking survey to its lowest level since early January, it is sensory turned to its highest level since mid-July. And while the Delta variant negatively impacted bookings during August and September, the degree of that negative impact was far more modest than that seen its similar customer sentiment levels during 2020 and the beginning of this year. Simply put Allegiant customer demand is showing increased resiliency, despite continued bumps along the pandemic road to recovery. Despite the Delta varying headwinds during a considerable portion of the quarter, we still managed to increase visitation to allegiant.com by 1% and more importantly, increased bookings at allegiant.com by 5% versus 2019 levels. The fact transactions increased at 5 times the rate of web visits points to Allegiant heightened brand awareness, increased marketing efficacy at attracting the right visitors to our site and enhanced web and app experience, which makes it easier for those visitors to find and buy what they want. All of these enhancements again combined to attract and convert more new and more returning customers in the lowest cost ways. Specifically, our lowest cost channels that is customers coming to us via our mobile app or by directly entering the allegiant.com URL or by clicking on a link in one of the 50 million targeted e-mails we send each week, now account for 80% of total visits to allegiant.com and that’s drove nearly 20% more website visitors than they did in 2019. And those…

Thank you, Scott. Thanks everyone for joining us this afternoon. I’m immensely pleased with the third quarter revenue results. Total revenue came in 5.3% higher than 3Q 2019 on scheduled service ASM growth of 17%. We are among the first carriers to restore revenues above 2019 levels and likely the first U.S. carrier to do so on the scheduled service side. We hit the ground running with the July load factor over 80% and finished with a pandemic best 76.6% load factor for the quarter. The ancillary performance, once again, led the charge browse as bundled and the redesigned website impact on take rates, continue to generate positive results. The RM team continues to do a remarkable job handling the complex task of balance loads and yields on a market level, even as the environment changes rapidly. As is always the case, with the bulk of ASMs in the first half of the quarter, before we dramatically pull down our schedule for the off peak fall, 3Q goes as the summer goes. This scheduling flexibility is key to our model and the upcoming quarters, we continue to put that to the test, with rising fuel costs, supply chain disruption, potential TSA staffing issues, and the potential for additional seasonal COVID spikes. We are and will continue to work in lockstep with the organization to maintain this flexibility and ensure enterprise success. After inaugurating, seven routes in the third quarter and several successful hyper seasonal one and two weekend events specific routes. We will launch 52 new markets in the fourth quarter with 75% of those connecting the dots between existing Allegiant cities. Despite that, we will have a lower percentage of markets in their first 12 months than we previously communicated, down roughly 4 points in the third quarter and…

Drew, thank you, and good afternoon, everyone. So on the current tone of our business for the third quarter, we reported adjusted earnings per share of $0.66, our second consecutive quarter positive adjusted net income. While this quarter’s adjusted results fell below initial expectations, we experienced non-recurring and unusual irregular operations. These incidents are not unique to Allegiant, nor do we believe they are systemic. The total cost impact during the third quarter for these elevated IROP events was around $28 million. Roughly half of this $28 million was driven by areas such as incremental contract labor, supply chain constraints and incremental ferry flights. The other half of our 3Q IROP costs and as Maury teed up, related to our compensation program for customers in which we aspire to do more to take care of them, if we significantly interrupt their trips. This past quarter, we paid $15 million to these impacted passengers. For example, in addition to credit vouchers issued to our customers, we may also compensate them between a $100 to $300 per eligible passenger to provide immediate support for reaccommodation. The purpose and intended impact of providing the additional compensation is twofold. First, and of course, to better assist our customers when unusual and difficult circumstances disrupt their plans. But second, and equally important to our bigger picture, it drives greater accountability to the financial, as well as the human impact of flight disruptions by really making the same for Allegiant. With that backdrop, our third quarter adjusted total costs increased 17.5% year over two years. However, excluding the $28 million in IROP costs has just outlined. This cost increase would have been under 10% on total system capacity growth of 14.2% year over two year. Turning towards the fourth quarter. Despite expected capacity growth of 12%.…

[Operator Instructions] First question comes from the line of Savi Syth from Raymond James. Savi, your line is now open.

Hey, good afternoon, everyone. Just actually a quick question to start with. Greg, you talked about the liquidity right now being or cash being right now $1.2 billion. And I think the guidance is to $1.3 billion by the end of the year. Is there something kind of different the way the cash building – is building in the fourth quarter this year than past? Or are there other kind of inputs coming in?

I don’t think there’s any other inputs, Savi. It’s just – we’re a little bit over $1.2 billion right now. And I think just the inferences that we’re going to build cash through operational cash flow.

And then just a little bit more clarity on 2022 planning. So it sounds like the hiring is done for kind of operations levels above the kind of low single digits. Is that how you’re thinking about it? And then you’ll kind of grow into it, if you’re comfortable with that operations or just looking for a little bit more clarity on how you’re thinking about kind of hiring and then operating in 2022?

Yes. We have, obviously our pipeline is full. We hired upwards of 270 pilots and these would sort of dovetail into March peak flying in addition to summer. We are seeing a little bit of a spike in attrition particularly on the any of those sides, it’s not terribly materially yet. But I think those sorts of numbers would give you low double digit growth for the summer. Flight attendants, that’s – that attrition is fairly stable right now. Mechanics is the big one. I mean, we were just very, very underwater when it came to being competitive. And so out of any of the areas, that’s probably where we have to catch up the most.

Yes. So I maybe just to clarify, the low-double digit as well, what Maury can now look things, which I think I heard you maybe say, I just wanted to clarify that from.

Sorry. Yes, that makes sense. Thank you.

Thanks, Savi.

Next question comes from the line of Conor Cunningham of MKM Partners. Conor, your line is now open.

Everyone, thank you. Just on the budget for Sunseeker, I don’t think that’s been finalized yet. So just curious where that may sit today, given all the supply chain issues and inflationary cost pressures. I just would think that it’s higher than what you had previously kind of soft guided to, which was like, I think 510 to 550. So just curious on where that may sit right now or maybe why you haven’t finalized it in general.

It’s a good point, I think. We and the rest of the world is experiencing these supply chain disruptions. And I don’t think there’s an industry that’s immune to it or a product that is. So we know that the costs are going to be higher. We’re still working through exactly how much higher, but it could be in the 10% to 15% range on the total project maybe even slightly higher. I think a lot of that we will understand as we move more into the end of this year and probably into Q3. So it’s not only understanding better the impact of that supply chain disruption on costs, but also on timing. We are – of course, pre-pandemic were paced to open April of 2021, now everything’s kind of been thrown into turmoil in that regard. So those two issues, both costs and timing that we’re working through. But as I mentioned before, we know we’re going to be over – we were at five, the carrying costs, if you will, throughout the pandemic, took us to like 510, and now it’s just working through the order of magnitude above 510, but we know it’s going to be, call it, in the 10%, maybe even 15% range and could be slightly higher. But it’s just too early to give any degree of specificity on what that number will eventually be.

Okay. Okay. That’s helpful. And then more – I know you talked about the potential of slowing growth to maintain that historical fueled affair ratio that everyone always talks about. But a lot of the other airlines need to bring back capacity and just to settle like very non-fuel cost pressures that they’re dealing with given no one made any infrastructure changes during the pandemic. So I’m just curious and what gives you the confidence that the industry is going to file? What has historically been a good idea to cut capacity to drive here and I mean, I think the risk you run is like you caught growth and no one else does. And the reason why I bring it up, I just think it’s a point that basically everyone’s struggling with right now. So if we can just speak to the high level dynamics that you see playing out in general.

Well, you’re spot on everybody that’s sitting here today, if they had the decisions they made last December, January, and February for the summer of 2021, we’d probably do it differently. At times, we were facing 10%, 15% of our personnel in maintenance in our MROs, where we’re having our airplanes work worked on, they weren’t in. COVID just rippled all through the summer. So we’ve got a bit of a uncertainty that’s in the organization right now as to what can we count on? Scott mentioned labor problems with our maintenance personnel, a lot of COVID issues with them in the different basis we have going through it. So we’re assessing, where the personnel we need to be. We’re hiring very actively. The irony of it is, I mean, everybody in this business is hiring yet, they still haven’t gotten back to full capacity. So there’s some incongruities as to what you have. Long-term, we’ve always kind of run to our own – the beat of our own drum. First and foremost, as you heard Scott DeAngelo talk about the quality of our brand and the like is really got to be thought of very appropriately. And IROPs are just not long-term acceptable to us. And the irony of it is, this industry ran like a Swiss watch in 2019. And now it’s almost like we’ve forgotten how to run on time and deal with interruptions. But as in our case, we’re definitely focused on getting back to a really solid operation something we can count on. And that’s going to be a short term the next through the first quarter. Well, I think we’ll have a good handle on what we’re doing as we go into January, February and March. And then we’ll reassess growth at that point. Could we grow more than the low double digits? Yes. But do we have to. No. I mean, again, while others may be growing, the beauty of our business model is we’re still 75% on competitive, non-competitive in our root structure. And that’s always been the case and we don’t see that changing materially. So I like to get there quicker, if we can, but we’re not going to sacrifice the – our customers and our own personnel that come with operational problems. But as I said in my comments, I’m very bullish on the business model and where we’re at, Scott De’s revenues that are coming through, these third-party stuff is – you guys should really take a look at that stuff. That’s very meaningful. Long-term, repetitive revenue that’s going to be a very, very powerful for us.

I appreciate it. Thank you.

Next question comes from the line of Dan McKenzie of Seaport Global Securities. Dan, your line is now open.

Hey, thanks. Good afternoon guys. Few questions here. Going back to the supply chain challenges, being the number one, number two areas of focus. I’m just wondering if you can clarify that a little bit more, what is within your control, what isn’t and what is the level of confidence that the infrastructure is in place to protect the operations over the holidays? So I’m just hoping you can elaborate a little bit more on that.

Let me give an overview and I’ll turn it over to Scott, where there are certainly supply chain problems for us. The airline isn’t as bad, I think is construction. And I think John would probably say, Sunseeker is a little more difficult than ours. At this point, the main thing is to make sure we don’t over schedule the airline. And we have the sufficient pilots, flight attendants, maintenance can do their job. So we’re very focused on that for the next 60 days. Scott?

Yes. We’ll get through the holidays. We have a couple tales that might bleed into Thanksgiving. But when you think about 2022 with 19 inductions, we’re going to have 24 heavy maintenance events, a lot of the materials that have sourced is coming from outside the country. We operate out of six MROs in a number of different countries. I mean, the list is long, when you think about each one sort of has its own little corner case. We’re definitely trying to simplify given our execution through the first nine months. If you guys remember the first quarter, it hit us as we’re trying to wake planes up, MROs are scrambling to get their operations back online. So we’re trying to either build in additional buffers, that’ll just allow us to make sure we have the iron that we need. And then Greg and BJ’s teams are trying to get ahead as much as they can on the supply chain. We have a bunch of max packs conversions next year, is that correct?

Everything should be onsite.

Onsite, okay. That was a big piece is just getting Airbus kits for our max packs conversions. We’re opening up some of these planes in a larger structural package that refining a little bit of corrosion. Like, anything can really increase the span, but it’s a very much a high priority for us to sort of build in buffers.

But Dan, just to finish that. Everybody, when we came into the first quarter, we thought we were back in 2019. Demand was back. We just turn on the switch and it all runs like, we thought it would just all the variables there’s debt by a thousand cuts. So think everybody’s probably walking around on eggshells trying to make sure they don’t over promise and under-deliver. So we’re going to pull it back accordingly and variables we can control, we obviously will, but we’re learning as we go.

And Dan, it’s Greg. I may just add one more comment to that on the supply chain really around parts and the like and that we have a mantra. We want to make sure that the right parts until at the right place at the right time. Just given the constraints that we experienced this past year, that wasn’t always the case, but we have been proactively and for some time now trying to get ahead of that. We’ve talked about the strategic parts initiative, where we’ve gone out and we’ve acquired $20 million – we spent $20 million for $40 million worth of parts and getting those in. We increased a little bit more on our CapEx guide this year to continue to try and get ahead, so that we can better support the operations and increase like max levels from an inventory experience perspective.

Yes, thanks for that comprehensive answer. That’s very helpful. And then I guess, second question here, Drew, from what I can see, it looks like over 50% of the overall capacity in at least November and December comes from holiday flying, but please correct me on that, I guess. So a couple questions, in the fourth quarter here, what percent of the flying is peak versus off peak. And then just with respect to the revenue forecast, what have you factored in for children getting vaccinated? And I guess, what I’m getting at is just given the level of capacity that’s scheduled over the holidays. It just seems like a small change in holiday command – demand, pardon me, could really move the revenue dynamic by tens of millions of dollars.

Yes. I mean, you’re spot on with the last part there in fourth quarter, I’m sure, my peers would agree. It’s one of the hardest to forecast, because it is no back loaded, they have so much more time and variability built into that, particularly, when there are environmental concerns like we see today. I’m not building in upside for children being vaccinated at this point. I’ll take that upside as it comes and as we see it kind of be effective and prevailing. So that’s not something I’m currently contemplating. In terms of peak and off peak, if you’re just thinking day or week, we’re looking about 23% of our ASMs being on off peak days. What I would caution is that, an off peak day in the heart of Christmas is not the same as an off peak day in October, for example. So there’s a little bit of probably misleading in that as it pertains to holidays in particular.

Okay. Very good. Thanks for the time you guys.

Thanks, Dan.

Next question comes from the line of Helane Becker of Cowen. Helane, your line is now open.

Thanks very much. Hi, everybody. And thank you very much for your time. So not sure who this is for, but as you think about inducting aircraft into the network, I think you said 19 aircraft are coming in next year and I thought it was 24 aircraft going into heavy maintenance. How should we think about the level of aircraft that you’re comfortable inducting? I mean, you’re getting ahead of it on hiring, I guess, but what are you forecasting for total attrition for next year?

Hey, Helane. I should have mentioned this and BJ just reminded me of the 19 inductions all, but two are coming from FAA trace, which makes the induction that much easier. Obviously, labor, yes, I mean, that’s really the – these are less complex inductions that we would historically, otherwise have.

And Scott, maybe I can add to that we set up Melbourne right for an induction facility, where we just went out and this is a facility that we have Helane that is just 100% focused on induction aircraft knows the tail to at all times. And so we – this was unique that we went out and did this earlier this year in anticipation to make sure that for these induction pipelines and these aircraft that we have coming that we have some buffers built in there.

Got you. And then on the labor contract that was announced today, I think you said that the cost increase associated with that is included in the guidance. But can – if it’s not, can you just give us some help on that one? And I – it may not be meaningful, I don’t remember how many people that contract covers.

Yeah. Helane, it’s Greg. It is included in the kind of directional guidance that we provided. And the way, I guess, I would frame it is that maintenance makes up roughly 10% to 12% of our salary and wages. And the contract’s worth roughly $12 million per year to five-year contract and then it’s a little bit front loaded.

Okay. Are you having – actually, are you having to pay signing bonuses to attract people?

Yes.

Okay. That’s kind of what I thought, but no, that’s I’m hearing that. Okay. Team, thanks for your help.

Thanks, Helane.

Next question comes from the line of Duane Pfennigwerth of Evercore ISI. Duane, your line is now open.

Hey, thanks. Just with respect to the sequential move in CASM from 3Q to 4Q, obviously, it was more than just IROP that impacted you in 3Q with the suboptimal operation. So how much of that do you get back or are you baking in getting back in the fourth quarter. And then apologize if you mentioned it, I know you’ve given us a lot of qualitative guidance here. But on that low double digit capacity, how are you thinking about CASM-X year-over-year?

Hey, Duane, it’s Greg. I’ll knock off the second part of your question first. And I think on that low double digits, we think that our CASM-X could be around 2019 levels, so $0.065. And then on sequential costs and perhaps just worth excluding IROPs, because we don’t anticipate those would be the same level. It’s pretty close on a gross basis. Keep in mind, I think fourth quarter ASMs are down a couple percentage points versus third quarter. So you got a little bit of pressure there. And then there’s some headwinds in a couple different areas, pilot training, so the other line item, you have some pilot training coming through there. So that put a little bit of pressure on that along with Sunseeker getting ramped up and some op expense there. I think we talked about it on a quarterly basis. We think Sunseeker op expense is roughly $2 million and $2.5 million. And then with the hiring too, we mentioned those 300 incremental frontline employees starting to bring those in and things like that. So I think that too would add a little bit. But on off, I think roughly it would be slightly on a gross basis, fourth quarter higher than third quarter. But then, yes, just take into account the reduction in ASMs.

Okay. I can follow up with you offline maybe, you lost me a little bit.

Yes, I guess the punch line…

Ex IROP, you think CASM will be up sequentially, because ASMs are lower.

Yes. With two pressure points, one being the labor, then we talked about the 300 incremental crew members coming on board more quickly there. And then the other being the Sunseeker starting to ramp up their op costs on that. So that’s about $2.5 million. And then the training pipeline associated with that labor that I just mentioned. So that would put slight pressure on that as compared to the third quarter.

Okay. Thank you.

Next question comes from the line of Brandon Oglenski of Barclays. Brandon, your line is now open.

Hey, guys. So thanks for taking the question. Greg, can we just follow up there? I thought I also heard you say that profitability could be better in the fourth quarter. Was that a comment backwards looking, sorry, I just wanted to clarify that?

No. Sequentially, I think profitability, we expect to be higher in the fourth quarter as compared to the third quarter. That’s based on the revenue guide and capacity guide that we put out there. And then we just kind of walked through the framework on the cost.

Okay. And then if I’m hearing you correctly next year, you’re thinking CASM can be close to 2019 levels. It sounds like maybe if you didn’t have some of these disruptions you could be targeting something lower and is that just gauge driven?

Yes. I mean, that’s – we certainly expect that getting – we are not going to have these disruptions next year, so that’s not included in that number that I talked about the 6.5%. I think, you’ll see some benefit, if there is an increase in capacity, but we’re not planning on that. We’re planning on the low double digits and that’s the number I provided. But however, if you do increase that or take that up slightly, I think for every 2 percentage points increase in ASM, that’s worth a $0.10 of CASM-X, if you will. But yes, I think the short answer is, we do expect right now where we sit based on the capacity guidance, the directional guidance we put out there that we could be roughly $0.065 in 2022 CASM-X.

Okay. I appreciate that. If I can just sneak in one more strategic question. I guess, how do you guys, look at the third-party travel sales and the ramp up that you’re seeing there. And compare that to the strategy with Sunseeker, are these complimentary to one another and should we be thinking, these are both avenues of growth, so you could be looking at other property development opportunities in the future as well. Appreciate it.

Sure. I’ll go ahead and start there. Scott DeAngelo here. There’s certainly complimentary. Sunseeker is a stands today is in [indiscernible] one of right the 120 some odd places you could add and we want to sell hotels in the other 119, let’s say. So by and large, they steer clear of each other, I think over time, and I’ll let John Redmond speak to this. If and as, there’s an asset light play, that gets a lot of these properties that belong to other major brands to say, hey, I want the Sunseeker name on my hotel. And by the way, I want the Sunseeker restaurant brands in there. Then one by one, right? We’re able to steer or turn on or off any given product that we sell. So we can keep the lanes, if you will nice and clear.

In addition to what Scott said, when you look at Sunseeker beyond the standalone opportunities, which are obvious. The other synergy there is you got a load factor impact on the airline with Sunseeker being open down there. It’s kind of like when you look at Orlando or Las Vegas and what happens with the demand in these markets with the products they have here. So there’s an opportunity there as well as credit card opportunity signups, et cetera. I mean, Scott has some amazing signup activity we’re getting now, but once you open for resort and the additional opportunities you can drive it through credit card. So those are two major synergy opportunities you can see offer resort as well. And I don’t – there’s another part of your question I may have missed, I’m sorry.

No, I think you guys addressed it. Thank you.

Okay.

Next question comes from the line of Andrew Didora of Bank of America. Andrew, your line is now open.

Hi, good afternoon, everyone. Thanks for the questions. I guess, Maury, bigger picture here, right, like, you’ve built an airline that generates good returns. You’ve been focused on buying used aircraft. You get deals on spare parts, like, you talked about earlier. With Sunseeker and the budget increases and everything that we’re seeing in the construction market spend here. And at what point does the budget get too much and you decide to either you stop or change plans here.

Broke up a little bit there, Andrew, I think you’re asking would we stop building Sunseeker if it got too expensive. Is that your question?

Yes, that’s right. I’ve given you a return, you’ve built such an airline generating pretty strong returns. At what point does the budget just get too much that you maybe change direction a little bit?

Just based on what we know now, it’s certainly not even close to that. The opportunity down there what we saw this spring just the Florida and everything else leisure demand you heard my comments that everybody’s up with leisure, Southwest now is half of their flights touching Florida every day. Florida is like will be gone. That’s where people want to go and we’re – we couldn’t be in a better place.

Okay. I guess Drew…

Revenue will conquer any budget increases here.

Okay. I guess Drew, I think you gave the off peak ASM commentary about what 23% or so in 4Q. But just we’ve been hearing a lot about the kind of the 4Q peak versus off peak environment. I’ve been getting a lot of fair sale e-mails from a lot of different airlines of late. Can you maybe talk and maybe quantify what that gap is between peak and off peak? Can you maybe give us some sense on sort of where Thanksgiving week is booking up right now versus say maybe first half of November, anything to try to like help triangulate what that difference is between those the peak versus off peak times? Thanks.

Sure. I can maybe take this at a high level. I don’t know that you’ll necessarily get an answer that, that you’re looking for here, but ballpark, you’re probably looking at your Thanksgiving flights running somewhere 33% higher revenue per flight than you would in Northern in earlier November. And I expect that’ll grow a little bit by the time departures hit. So there’s a pretty sizeable gap.

Operator, are you still there for Andrew?

Yes. Shall we proceed on the next question?

Yes.

All right. Next question comes from the line of Catherine O’Brien from Goldman Sachs. Catherine, your line is now open. Catherine O’Brien: Hey, good afternoon, everyone. Thanks for the time. I had kind of a multi-part question on the third-party. Great to see that strength continuing. I guess, I don’t know if it’s Scott or Drew, but can you just walk us through how third-party per packs is up significantly when rental card days and hotel room nights are down so materially? Is that just pricing? Is over a 100% of the increased co-brand driven? If it is pricing, is that driven by lower supply of these products or is there something different about your partnerships now than 2019? Thanks for that.

You bet. This is Scott. I’ll start and Drew, you can add in. So certainly, a lion share of it is co-brand and the continued surge that we mentioned over the last two quarters there. However rental car revenue has also up materially and that is average daily rate. I’m looking at sheet here is up about 50% versus 2019 levels up of course lower rental days, but that is a supply demand thing. And then those are the main drivers right now. I mentioned last time, we’ve identified a lot of technical solves for increasing the throughput for hotel. Right now you may recall that for every 15 hotels that get put in a shopping cart only one person checks out with them. But there’s a variety of things that OTAs and hotels at their own site can do that we will be able to do that we expect to unlock that. But co-brand and then rental car based not on days, but on price per day or the big drivers there.

Yes. Not a lot to add here. We talked about it a little bit in the July call and it was part of the thesis for why we thought fall would actually have a bit of a higher floor because of where daily rates were on both hotels and rental cars kind of pushing some people out of the high price summer and into the fall now with the Delta spec that didn’t manifest. But the underlying piece of high margin rental cars still persevered through the entire quarter and probably into the foreseeable future until inventory right sizes.

Let me just give some background overview. This is a long-term relationship with enterprise that started in 2005, and we’re the only carrier I know. In fact, we sell more than virtually every other airline, if not the most in this kind of space. And we do that, because we’re so tightly integrated with the enterprise as a good chunk of it. And so their pricing engine is able to drive our pricing. There’s no manual activities. So I think we’re substantially ahead of the industry. The airline side that is in offering cars and putting packages together that are very seamless and with the best opportunity to maximize revenues. And you are seeing that with unit revenues today. And you’re seeing in car, I’m sure if you’re going out to buy a car, you’re seeing sticker price plus 10,000 same things flowing through on the rental car side. Catherine O’Brien: Yes, it’s remarkable. Maybe just a quick one on a little bit of a follow-up to Conor’s question on the Sunseeker budget. Just on that Castlelake financing you closed on, in the case the budget moves around, it sounds like you could maybe draw less than the 350, but correct me if I’m wrong. Do you also have the ability to upsize that agreement in the case the budget does increase? Thanks.

I’ll take that one for you, but the – we don’t anticipate having to go back with Castlelake, we haven’t had any conversations with them about upsizing, nor does the existing agreement provide for being able to upsize it. Having said that, we don’t see if a budget went north of what we expected to be a significant dollar amount, where – which is beyond our capability to finance, we’re in a very liquid position. As you know, we’re in great shape. It’s not like this budget’s going to run past us by hundreds of millions. We’re not talking or looking at numbers like that. As I mentioned before, it could be 10% or 15%, but we’re not hearing or seeing or experiencing anything beyond those types of percentages. So we don’t see anything like that ever materializing going forward. Catherine O’Brien: Okay. So would that most likely just come out of cash on hand or r you’d look to do another financing deal. Thanks for that extra one. Thanks.

We would just look at that as being something that comes out of cash on hand. Catherine O’Brien: Great. Thanks.

Next question comes from the line of Shannon Doherty of Deutsche Bank. Shannon, your line is now open.

Hey, it’s Mike Linenberg here asking a question on behalf of Shannon. So I actually…

Mike, you got somebody – is it heavier, Michael? Is that what you’re saying?

I’m getting ready to retire Maury and go work for you.

Yes, right.

Hey, listen, this is actually, John on your point about the Sunseeker opening March, I guess you said first quarter 2023, and you’re going to start selling this first quarter of 2022. When I kind of look at Allegiant schedule, you take, you typically sort of sell out, I don’t know, six, seven months, maybe it’s 200, 220 days, or so has historically been the standard. Are you planning to open and just sell hotel or resort nights and not bundle with the airline piece? Are you considering maybe extending the schedule for Allegiant and selling out 300, 330, maybe even beyond a year I think we’re seeing that with what frontier in some countries.

We’re not, it driven by in the past, this is before all, obviously all this pandemic stuff. We had conversations regarding that. And we know it’s an opportunity and it’s something that we could explore. It’s not a requirement for us to go on sale. So if we wanted to go on sale as a land only product, if you will, without the ability to package the with there. We would definitely do that.

Yes. Mike, we’re not out quite as far as we would like to be where we’ve historically been. So what we’re trying to push that back further out to that 10 or 11-month window. I expect we’ll be able to get there in the next year or so. I’d say without consulting, but I expect we’ll be pushing back out further than we have over the last 18, 24 months.

One other thing I would add, because we’re also exploring tactics like this and major sporting events and music events that may be sold 6, 9, 12 months in advance. Is that at the time of buying that there’s a lot of interest I can tell you from our partners in those areas of having one in effect would be a credit much like you get an F&B credit, when you book a hotel room, well, in this case, when you book a hotel room 12 months out at Sunseeker, you’re getting an Allegiant flight credit that as you get closer to your stay and that schedules out drives you back to allegiant.com to book your flight at that time. So there’s a variety of ways to make the connection versus needing to have both the hotel inventory and the flight schedule in perfect sync.

Yes, I think – go ahead.

The other thing, Michael, well, one other thing we’re sending 40 to 50 million e-mails a week out who are audience. So the power of the direct-to-consumer is going to come into play big time here. And while the airplanes are good, we’ve just seen it over and over all the new hotels here in Vegas, they get the love right out of the box. So it’s going to be, I’m not saying we won’t use the airline, but I don’t know that we have to, we certainly don’t have to have the airline in my opinion to fill this thing up during the first 12 months to 24 months and beyond.

Yes. Look and I know you guys probably better than I, but I know John had mentioned an opportunity to build load factor points. And I think that one of the things we do find interesting is that when you go very far out and people want to have everything settled. That in many cases, the way the pricing curve is you’d think fares are a lot, the further out you are the lower they are, but when you go out, call it a year or more, what we’ll see is that be for the planners, you’ll get a better fare whether it’s for the college graduation, the wedding, the et cetera. And so you may be able to tap into that. With the exception being that if you’re in a situation that’s inflationary and you’re concerned about maybe input cost being a lot higher down the road, that’s where I think you could get hurt. But I think getting that on the books and allowing people to plan that far out could be a nice bill that are of and revenue and load fact.

We don’t disagree with you at all. I think the thing we always have to take a step back and remember is 2023 won’t be the only year we’re operating the hotel. So we know it’s going to be a transitory year where we’re probably going to get more land only transactions than package type transactions. But as you get into 2024 or the back end of 2023, moving into 2024 and out, there’s more traction with the brand, with the awareness. I mean, that’s when the package activity will accelerate. So it was not something that we ever looked at as being an absolute requirement or necessary to fill a hotel, because of this lag. We know it’s something that it’s part of the longer-term strategy, but not a requirement for first year of operations.

Okay, great. Just a follow-up, I know this is a strategic one here and I’m going to make it quick. When the DOT came out with kind of a new ruling with respect to Newark, I thought it was very interesting that you guys were at least on record and maybe I misheard, but very quick to say, we’re not interested. And I think about even your own trade group talking about carriers like yourself not having opportunities to get into airports that are congested whether it’s Newark Liberty and DCA, and you could argue make the point that’s an expensive airport to operate from on one hand. On the other hand, you’re in the airport and you’ve done pretty well. And you’ve done well in airports like LAX and others. I’m just curious why you went out on records and it seemed like it was pretty quick to say we’re not interested. And again, maybe I misheard.

Hey, Michael, it’s Kristen. So…

Hey Kristen.

So the main reason that we came out really quick on that was just with the size of that, that slot bundle. It wasn’t something that we’d be able to pick up and then to operate in the – in a timely fashion. So we have worked with our trade group on maybe other options for that, but for such a large slot all at once, it just was not – it wasn’t going to work for us and we wouldn’t be able to fulfill the requirements.

Fair enough. Thanks, Kristen. Thanks, everyone.

Thanks, Michael.

Next question comes from the line of Hunter Keay of Wolfe Research. Hunter, your line is now open.

Thank you. The – I’m trying to square Scott DeAngelo the commentary around low cost customer acquisitions with the $22 million you spent on sales and marketing, which is up about 25% from pre-COVID with your passenger count only up about 2%. I understand the whole ecosystem here. The card acquisitions are up and the rental cars and all that stuff that’s great. But should – I guess the real question is, should I think about the sales and marketing line item is being a $100 million annual cost by starting next year or just going forward?

No, it’s definitely not the latter. There are a couple things you mentioned in there and rightly call out incentives associated with card holder, new card holder signups. They’re certainly in there. There absolutely are some increased costs as we’ve came out of the pandemic and battled both OTAs and certain competitors in and around paid search. And there’s also some one-time things just associated with production items and related in advertising and marketing. But as a general role, no, that, that shouldn’t necessarily be just straight line in there.

Got it. All Right. Thank you. And then when you think about the operational challenges Maury that you guys just had, how do you think about this once Sunseeker opens? I mean is there going to be a requirement to be number one, number two, and the operations relative your peers every single month, because you’re not just asking for someone to give you their business, because you have the lowest fair. You’re asking for someone to give you their entire vacation. And if they have a bad experience in the flight, they may not book Sunseeker again. So have you thought about the importance being the best in the industry on ops once Sunseeker opens in any sort of expense that might have to come with that?

Yes. No, we definitely considered it Hunter, and I think what you’re seeing in the industry and if you go back and look at 2019 numbers, the whole industry was so tightly bunched as far as reliability and on time. I mean the whole group was like 80% to 89% on time. I think within 14 and just everybody was running a 99 mid high, 99 reliability factor. So the industry can do it and we were right there. We don’t ascribe to perhaps a Delta wanting to be the best on time, because a lot of our 2 times a week markets, we don’t want to leave people. So we may run a touch late historically there, but you certainly have to have a good product. And in today’s social media world putting aside Sunseeker, you just can’t afford to have bad excursions and bad flights and things like that because it flight. So irrespective of Sunseeker, we need a good solid operation, and you know what Hunter, it’s cheaper to run a good operation than it is a bad one. At the end of the day and you make the investments, you do what you have to do. And the beauty of when you’re growing is you can always have a few extra people in there because personnel seem to be the problem child these days with all the different aspects of pilots and you hear just the whole world that of in transportation, truck drivers, anything involved with logistics or whatever is tough to come by. So you’re going to have to make investments to stay ahead of that track. I don’t care if you’re us Delta, American, United everybody’s going to have personnel issues for the next few years I think. So yeah, no, we’re going to run a good operation regardless. Will it help Sunseeker? Absolutely. But that’s just a good quality product that we think we can get. And once again, when you’re running a low unit revenue is 20% better than most of your competitors that gives you a little bit of cover up room too. And so the revenue side is really where you’re hearing us continuously beat the drum to be better and get more unit revenue in on a flight by flight, person by person basis.

Thanks, Maury.

Yes.

Next question comes from the line of Chris Stathoulopoulos of Susquehanna International Group. Chris, your line is now open.

Yes. Thanks for taking my question. So as I realize you’re still setting your plans for next year, but as we think about your routes and what’s happening here, the pressures and fuel labor and the need to stabilize the network. Should we expect a sort of is, at this point, is the idea to grow your routes, perhaps, historically you’ve done low teens then it depends on routes with or without competition. But is the idea at this point, given these pressures here fuel, labor and stabilizing the network is the idea to grow the network in a similar fashion that we’ve seen pre-pandemic or is it about filling out the schedule? And/or is it a little bit of both? Thanks.

Sure. Yes, I think it’ll be a little bit of both as it traditionally is, our planning process revolves around trying to achieve margin targets that, that float a little bit depending on the strength of the period. I would say that we’re probably – we’ll probably tilt a little bit more toward filling out the schedule and right sizing existing then we build new over the first part of 2022 and of the summer. And that that’s just based on decisions we have to make here in the short-term. But by the time, we get to the back half who knows that, that could invert one of the main staples here is flexibility and we’ll be making real time calls on this into the first part of next year. So the answer I give you today could very well change by the end of January based on how the environment’s shifting.

Okay. And the second question, so you’re – you described I think in your prepared remarks as running a well oiled machine here. But as you’re coming out of the pressures here in the network and you’re looking to stabilize operations, relative to what you’ve done in the past, which has been good. Is there – what have you learned here and what do you think could ultimately carry forward into 2022, 2023, the recovery where we could see a more efficient airline or perhaps a tailwind ultimately to CASM-X. Thanks.

Well, first and foremost, you have to have the people to run the airplanes and make sure they’re maintained or at the gate on time. And you also had the what I call the operational overload or leisure overload. We faced a lot of station problems TSA, lack of TSA people, our Destin station had £10 for a £5 bag. Southwest showed up and put 12 flights in on an as, so that was – there was just a lot of dislocation and we’re getting, we’re back, we’re getting so we can get our handle on this, but our first job in the next 90 days, 120 days is to get the personnel where we need. And we know that we can show up every day and fly the airplanes without missing the people to get the job done. Scott, I don’t know if anything.

Yes. I think the only thing I’ll add is we could have taken a hard line approach. Certain, especially when the Delta variant hit pretty hard, I mean, we were losing 20 points of on time performance uncontrollable. We could allow people at the gate. We could have done a lot of things. And I think some of our peers took a harder line than we did. Considering some of the markets we fly, we took, we take the delay in order to get more people on the plane. But it’s going to push downstream issues such as cruise timing out. But yes, no, I think in general you need stable labor. You need to know people can show up. They’re not going to be on leave, they’re not going to be impacted by more COVID-related issues. It’s just going to take a long time. I mean airlines aren’t designed to start and stop like this and ultimately that’s what you’re seeing.

Okay. All right. Thank you for the time.

Thank you.

And there are no further questions at this time. Maury, you may continue.

Thank you all very much. Appreciate your time. And we’ll talk to you in the end of this quarter sometime in January, early February. Thank you again.

Thank you so much to our presenters and to everyone who participated. This concludes today’s conference call. You may now disconnect. Have a great day.