Allegiant Travel Company Stock

Thank you for standing by. My name is Rebecca, and I will be your conference operator today. At this time, I would like to welcome everyone to the Allegiant Travel Company Second Quarter 2026 Earnings Call. [Operator Instructions]

I would now like to turn the call over to Sherry Wilson, Managing Director of Investor Relations. Please go ahead.

Thank you, and good afternoon, everyone. Welcome to Allegiant Travel Company's Second Quarter 2026 Earnings Call. On the call with me today are Greg Anderson, Chief Executive Officer; Drew Wells, Chief Commercial Officer; and Robert Neal, President and Chief Financial Officer.

Earlier this afternoon, we issued our second quarter earnings release, which is available on the Investor Relations section of our website, along with the supplemental materials accompanying today's call. We ask that you refer to those documents as we walk through our results.

The company's comments today will contain forward-looking statements, including our third quarter and full year 2026 outlook, statements regarding the integration of Sun Country and expected synergies and other statements concerning our future performance and strategic plans. These statements are subject to risks and uncertainties, and actual results could differ materially from those anticipated. For additional information, please refer to the safe harbor language in this afternoon's earnings release and our filings with the SEC.

We will also be discussing non-GAAP financial measures. A reconciliation of these measures to the most directly comparable GAAP measures, where available, is included in the earnings release posted on our Investor Relations website. Before we begin, a brief note on comparability.

Second quarter results are presented in this afternoon's earnings release, include the full quarter of Allegiant as well as Sun Country results from May 13, the date of acquisition, through June 30. Prior year results are Allegiant stand-alone. In order to provide the most meaningful commentary, some results will be discussed on an Allegiant stand-alone basis on today's call and will be noted as such. Outlook commentary on today's call is generally for the combined entity, unless otherwise specified.

Finally, in order to fully outline the results of the combined entity, our prepared remarks today are a bit longer than usual. [Operator Instructions]

With that, I'll turn the call to Greg.

Thank you, Sherry, and thanks to everyone joining our call. I also want to welcome the Sun Country team members that are on the call for the first time, as part of the Allegiant family. We are thrilled to have you with us. So let me begin with our results.

The second quarter delivered record quarterly revenue with both Allegiant and Sun Country achieving year-over-year TRASM improvement of more than 20%. Importantly, unit revenue growth outpaced unit costs, driven in part by strong execution across several new commercial initiatives. This performance helped us lead the industry in operating margin for the third consecutive quarter, underscoring the strength and resilience of both stand-alone business models and the exceptional contributions of our team members.

We delivered strong operational results, including industry-leading controllable completion and mishandled bag performance, while in-flight NPS remains very healthy. These achievements are even more impressive given we delivered them while closing the Sun Country acquisition and beginning integration. June, our first full month post close in a peak summer demand period was particularly strong for both companies. We are excited about what we can achieve together, and we remain focused on disciplined growth from a strong operating foundation and our performance shows we are doing just that.

And so while I'm pleased with the quarter's results, I'm proud of why we believe they are sustainable. Our performance is supported by a distinct competitive moat that is difficult to replicate. First, outstanding service to our customers is the foundation of our business and is the key to building a loyal customer base that continues to fly with us. Roughly 70% of our customers are repeat flyers. Second, our operating philosophy is the engine behind our success. We run a low utilization model, maximizing flying during high demand periods, while reducing capacity on days that do not meet our financial hurdles.

Third, owning our aircraft at attractive prices gives us significant operational flexibility and adds to our cost advantage versus our peers. MAX deliveries are contributing meaningfully to our results with these aircraft representing 21% of scheduled service ASMs in the second quarter, and this is up from 11% during the same period last year. Together with Sun Country, our well-timed MAX order gives us valuable aircraft access and expands our attractive route opportunities. Fourth, our deep community relationships create powerful local brand equity in markets we serve. Together, Allegiant and Sun Country are the #1 or #2 carriers in roughly 95% of our originating markets.

And finally, our strong balance sheet is a critical advantage. Thanks to our deleveraging efforts over the past year and our combination with Sun Country, an already strong balance sheet is even stronger. The true sustainability of our business comes from checking all of those boxes. And in short, we are better positioned today than at any point in our history.

Next, I want to turn to our commercial initiatives, which are gaining real momentum. Over the past 2 years, we've modernized our commercial technology, and we are now building on that foundation with enhanced digital, data and distribution capabilities as we build greater flexibility to personalize customer offerings. Previous highlighted initiatives such as Allegiant Extra, improved bundling and schedule and network optimization continue to mature and are contributing meaningfully to our TRASM outperformance. I'm also encouraged by the new initiatives our teams continue to advance.

Our cobrand credit card is a clear example with remuneration to us up 24% year-over-year. Coupled with planned enhancements to this program, we remain confident we can double cobrand remuneration over time from 5% of revenue today to 10%. Third-party distribution is another example. Our recently launched Expedia partnership marks Allegiant's entry into OTAs. Retaining control of our brand, product offering and customer relationship is nonnegotiable. And our direct API connection with Expedia enables us to reach new travelers while complementing, not replacing the direct channels that remain at the core of our strategy.

Additionally, building on the success of Allegiant Extra and strong demand for premium products, we recently announced plans to debut Allegiant First, which will be phased in on select aircraft in 2027. Together, these initiatives further strengthen our customer value proposition and are expected to support sustained earnings momentum in the years ahead.

Turning to the integration. A quick close of our Sun Country acquisition reflects strong team alignment and early momentum. We remain very confident in the synergies we outlined and both airlines continue to perform well independently.

Importantly, we have already made some good progress with our integration. Customers can now search for flights across both airlines, access a broader range of destinations and complete bookings through a redirect to the operating carrier. Our commercial teams are beginning to form a holistic view of the combined network with an eye towards the future of optimizing schedules and route decisions based on demand, financial returns and the seasonal strength of each network.

Our procurement teams are finding ways to streamline the supplier base and leverage the combined company's scale. In fact, in the coming days, we will integrate our Las Vegas Airport real estate. On the regulatory front, we submitted our single operating certificate transition plan to the FAA and are targeting approval in the first half of 2028.

That said, over the past few months, Sun Country has experienced elevated pilot attrition, concentrated among its junior MSP pilots and largely driven by increased hiring at the largest carrier in the Twin Cities. In response to this attrition and elevated fuel prices, we are reducing off-peak capacity in the Twin Cities during the back half of the year. We have already taken steps to expand training classes in preparation for the first quarter of 2027, and the supply of qualified pilots remains strong. Our training classes are full and these pilots are scheduled to enter service later this year. We are confident this capacity reduction is temporary, and we expect to grow MSP capacity in 2027 through a combination of Sun Country and Allegiant flying.

Turning to our Allegiant pilots. We're pleased to have reached a new collective bargaining agreement with nearly 80% voting in favor. This is an important milestone that recognizes the hard work of our pilots while preserving the work rules that support our differentiated scheduling model. I want to thank both negotiating teams for their tireless work in getting this agreement across the finish line. And looking ahead, we expect unit revenue growth to be in line with the second quarter's 24.6% increase for the third quarter.

We also expect the combined company to generate an operating profit in the third quarter, a meaningful improvement from the modest operating losses reported in the same period over the last 2 years despite much lower fuel prices at that time. As a reminder, the September quarter is seasonally the weakest period for both carriers. For the full year, we continue to see broad-based demand supported by strong bookings, and we will remain aggressive in managing capacity through this volatile fuel environment.

As a result, we expect full year 2026 EPS for the combined company to be at least $6 per share. This assumes fuel per gallon at $3.75 for the remainder of the year, which reflects the recent forward curve. I should note that fuel prices remain volatile and for reference, a $0.10 increase in fuel is worth roughly $0.50 of earnings per share in the combined companies.

We are proud of our ability to navigate a wide range of challenges while remaining an industry profitability leader. We remain focused on what we can control, delivering great service to our loyal customers, operating safely and reliably, maintaining capacity discipline, managing costs tightly and seamlessly integrating Sun Country to unlock operating synergies.

And before I hand things over, I want to again thank our team members across both airlines. This quarter, we delivered strong operating and financial results while closing a historic transaction. For the full year, we remain on track for margin expansion despite significantly higher fuel costs.

Allegiant is better positioned than ever, and our commitment to building the leading leisure carrier in the U.S. remains unwavering. Every single day, our team is focused on delivering continuous improvement.

And finally, please mark your calendars for December 7 in Las Vegas when we plan to host an Analyst Day. We look forward to sharing a deeper look at our business, providing an integration update and outlining our long-term financial framework to highlight the full value of the combined company.

With that, I'll turn it over to Drew to discuss our commercial performance.

Thank you, Greg, and thanks, everyone, for joining us this afternoon. Stand-alone Allegiant finished the second quarter with $776 million in total revenue, up 16.1% versus the prior year. Despite 6.8% less system capacity in the quarter, we held passenger counts nearly flat and set yet another record revenue quarter, overtaking the first quarter of 2026. Similarly, the stand-alone Allegiant 2Q TRASM of $0.1442, up 24.6% year-over-year, set an all-time Allegiant [indiscernible]. The gains came from nearly every lever, yield up more than 40%, load factor up approximately 4 points, and third-party per passenger up more than 30%.

In a quarter with many incredible revenue data points, my favorite is this, stand-alone Allegiant scheduled service air revenue increased $102 million versus last year, more than covering the $99 million increase in fuel expense. Zooming out to the combined company, we produced $943.5 million across all lines of business, including Sun Country brand contribution from May 13 close to quarter end, highlighting some full quarter figures for context. The $14.5 million stand-alone Allegiant fixed fee revenue was down approximately 14.7%, but in line with expectations. Stand-alone Sun Country fixed fee revenue of $65.7 million and Sun Country cargo revenue of $50.6 million were record quarters for stand-alone Sun Country for full quarter 2Q '26.

Focusing on the Sun Country brand a bit, the record cargo revenue perhaps comes as no surprise. During the 3Q '25 Sun Country earnings call, cargo expansion was discussed as a focus. And in January, we mentioned two additional airplanes coming online this summer. As a reminder, at stand-alone Sun Country and in the current state of integration, cargo flying is less efficient on a crew hour basis and will typically draw from scheduled service resources during the ramp-up period as additional aircraft enter the cargo program. As a result of the additional aircraft coming online, we expect cargo revenue to ramp slightly into the third quarter as compared with the second.

One final reminder on the cargo front. The program is a fuel pass-through. Fixed fee charter programs represent a fuel pass-through as well. And in combination with cargo, they provide a very predictable foundation in any environment, on top of which we can continue to drive highly flexible scheduled service options to match our capacity with demand. Our long-term fixed fee and cargo programs, including both brands, constitute approximately 9% of our trailing 12-month revenue, and we opportunistically fill in the broader schedule with additional fixed fee flying.

On the scheduled service side, the Sun Country stand-alone TRASM of $0.1264 was also a robust 22% higher year-over-year in the full second quarter. And while the commercial approach is quite similar between the brands, it is important to note that the Sun Country stage length is nearly 20% longer than the Allegiant one. In fact, when comparing the trailing 12 months, more than 85% of Sun Country brand flights are longer than the average Allegiant brand flight.

Turning to the network. As noted earlier this year, 39 markets began operation across the first 2 quarters of the year in the stand-alone Allegiant network and represent between 9% to 10% of the second and third quarter ASMs.

We are encouraged by the outperformance of the new market additions through the summer. And as we look to start optimizing our combined networks into 2027, there is tremendous potential. While Allegiant strength is connecting underserved, small and midsized communities to leisure destinations, Sun Country brings a powerful position in Minneapolis, St. Paul. Together, these brands create a network that is broader, more flexible and more resilient. The core theme through the quarter for both stand-alone Allegiant and stand-alone Sun Country Networks was the continued exceptional demand.

And while the macroenvironment certainly played a role, we were very deliberate in our peak focused schedule. Even with the overall reduction of 6.2% scheduled service ASMs, stand-alone Allegiant was able to grow peak days approximately 1%. The leisure customer remains incredibly resilient and all indications, internal and external, are that travel spend remains strong, even into the fall. Most importantly, cash sales were up double digits through July despite forward capacity remaining slightly down year-over-year. This amounts to an expectation of third quarter total revenue of approximately 16.5% against combined airline-only third quarter 2025 revenue of approximately $808 million.

Specific to scheduled service, we expect third quarter ASMs for the combined entity to be down approximately 5.5% from the prior year pro forma base of 6.1 billion ASMs. Two dynamics are at work in that figure. First, in response to the fuel environment, both Allegiant and Sun Country brands have reduced off-peak flying in the back half of the third quarter. Second, as Greg discussed, Sun Country brand additionally pulled down September capacity in response to elevated pilot attrition and the planned increases in cargo flying.

On our first quarter call, I indicated stand-alone Allegiant capacity would be flat to slightly down in the third quarter. With fuel remaining elevated, stand-alone Allegiant will now be down a little more than 3%. No other business model is better positioned to remain flexible in sculpting the schedule to protect the best flying through peak periods and peak days of week.

While fuel continues to be volatile, I expect a downward bias to fourth quarter ASMs for the combined airline and a full year number to be down mid-single digits. Some of the support for the third quarter unit revenue outlook will come from our first external distribution connection with Expedia. After a measured rollout, we were 100% live on July 10. In the few weeks since launch, approximately 3% of bookings have come from the Expedia network with meaningfully more than half of bookings coming from net new customers to Allegiant. We're thrilled with the early returns as an acquisition channel. Beyond the near-term booking contribution, the channel helps address one of the unique challenges of operating such a broad network by providing a scalable way to build awareness, attract new customers and accelerate demand in newer markets.

In past Sun Country filings, they've noted approximately 20% of bookings from external distribution, part of that coming from Expedia. We intentionally launched with a simplified airfare-only offering and over time, expect to enhance the integration with additional products and capabilities, while preserving the flexibility that has long been a hallmark of our commercial approach.

In the meantime, we still maintain control of ancillary sales post purchase for these bookings. Expedia isn't the only commercial initiative underway, however. Our Navitaire platform, an initiative we've discussed at length on prior calls, is paying an added dividend in the integration. With Sun Country running on the same Navitaire passenger service system back end, the platform combination is meaningfully simplified. Even so, we will have a lot of decisions to make around policy and product alignment in the coming weeks and months.

Our move to complimentary onboard beverages is the first of those and a true win for our customers' experience on board. And while this will pose a mild near-term headwind to air ancillary revenue and commissary costs, we expect to grow third quarter air ancillary per passenger. That expectation comes on the heels of air ancillary per passenger being roughly flat year-over-year for the last 4 quarters as our larger focus on conversion and in turn driving yield success, produced the intended total revenue results. Into the third quarter, the improvements Greg referred to on our product merchandising and dynamic pricing capabilities, continue to mature and are beginning to impact a larger swath of bookings, supporting that increase in air ancillary per passenger.

Our Allegiant Allways Rewards card program contribution continues to excel. Bank compensation increased 24% for 2Q '25 and new cardholder acquisition ramped slightly higher than that. In fact, when official numbers come across, we expect July 2026 to set a record for new accounts. We expect continued momentum into the quarter before hitting more challenging comps from the end of 2025. I expect to have more detail to speak to during our Analyst Day later this year.

Lastly, we are excited about the recent announcement of our new premium product coming spring 2027, Allegiant First. After Allegiant Extra exceeded our expectations by such a wide margin, this was a logical next step and has been a couple of years in the making. The success of Extra clearly demonstrates the value of our customers and their appetite for premium services and products. The product is based on the elements most important to those customers as shared directly by them, including extra legroom and recline. The entire cabin will feature a new Recaro seat design with the Extra cabin and main cabin each seeing improvements, including the seat cushion and power available throughout. The new layout is a reduction of just two seats from our current 190-seat max layout, with the upside of eight premium seats. I also look forward to providing more detail, including expected economics about Allegiant First, during our Analyst Day.

Demand persisted through the quarter at incredible levels and looks strong into the third quarter, even into the off-peak fall. When coupled with the initiatives we've talked about, we're creating significant short and long-term tailwinds while maintaining the core scheduling flexibility principles that make the now larger Allegiant story so compelling. I'd like to thank the commercial teams that have worked so hard to deliver these incredible results and to all of our team members for making travel and experiences possible for millions.

With that, I'd like to turn it to Robert.

Thank you, Drew, and good afternoon. I appreciate everyone joining us today. 2026 has already been an eventful year, and the strength of the model is alive and well in our results. My comments will reference financial results on an adjusted basis and year-over-year comps will reference prior year Allegiant airline-only results unless otherwise noted. For the second quarter, the combined entity produced pretax income of $64.5 million, with Sun Country contributing $13.4 million during the stub period, resulting in a consolidated earnings per share of $2.19.

We delivered a consolidated operating margin of 9.2%, which is the best of any U.S. carrier this quarter, and generated nearly $158 million of EBITDA with Sun Country contributing $29.7 million and yielding a consolidated EBITDA margin of nearly 17%. These results came in well ahead of our June 30 guidance update with the outperformance driven primarily by a $0.06 improvement in fuel price, along with some nonfuel cost shifts, which I'll touch on in a moment. Drew has already covered the revenue detail, so I'll simply note that record revenue performance, cost discipline across the businesses and strong ops execution made this quarter successful.

Turning to costs. Second quarter nonfuel unit costs for Allegiant on a stand-alone basis were $0.0817, up 6.4% year-over-year on capacity down 6.8%. CASM ex fuel came in modestly better than we were estimating in our recent guidance update and ahead of our initial expectation for a sequential step-up from the first quarter. Primary drivers of that beat included maintenance and labor expenses, some of which we expect to shift into the third quarter.

Looking at the cost trajectory through the remainder of the year, as Greg noted, we are pleased to have reached a new CBA with legacy Allegiant pilots, providing well-deserved compensation along with other benefits.

While wage rates for Allegiant pilots will step up just about 2% through the remainder of the year from the bonus rates we were accruing, these wages will now become subject to 401(k) contribution and other benefit elements, creating incremental cost pressure in the back half of the year at the legacy segment. However, we continue to expect increased crew productivity to be achieved ahead of the March peak, at which point that cost pressure should begin to abate. With the timing elements previously mentioned, removal of planned capacity from our schedules and incremental pilot benefit costs discussed, we now expect the third quarter to mark our peak CASM ex year-over-year increase.

During the second quarter, we invested $188 million in capital expenditures on a combined basis, including $157 million in aircraft-related investments and $31 million in other CapEx. In addition, we had $18 million of deferred heavy maintenance spend across the two airlines. For the full year, we have updated our CapEx outlook to approximately $850 million. The increase from our prior guide includes capital spending in the Sun Country segment as well as incremental PDP payments for future aircraft as we've now aligned our 2027 aircraft delivery estimates to contractual commitments, following the much improved delivery performance at Boeing this year.

We ended the quarter in a strong financial position with total available liquidity of $1.3 billion, including $1.1 billion in cash and investments and $250 million in undrawn revolvers. Total debt at quarter end was $2.8 billion and net debt was $1.7 billion with pro forma net leverage of approximately 2.6x for the combined entity. During June, we completed the refinancing and upsize of our senior secured notes, issuing $650 million in aggregate principal amount. The new notes are due in 2031 and carry a coupon of 7.125%. We were very pleased with the level of subscription and overall execution of the transaction.

I want to recognize our finance, accounting and treasury teams at both airlines for their work in getting this done and for moving at such pace during the quarter to support this right on top of the acquisition closing. Reflecting the new bond terms as well as Sun Country interest, we are expecting $43 million in net interest expense in the third quarter.

As we look at liquidity and leverage through year-end, there are a few things to keep in mind. First, we expect to pay out our pilot retention bonus of approximately $275 million in the coming weeks. This is inclusive of payroll taxes and will be funded from cash on the balance sheet. This is a planned, discreet use of cash that has been fully contemplated in our liquidity planning, and the balance sheet has the strength and flexibility to absorb it without the need to seek further financing commitments.

And second, I wanted to touch on some of the financing commitments we've disclosed during this year. Early in the second quarter, we took a proactive approach to liquidity planning, mindful of a sharp rise in fuel costs, an accelerated closing time line for Sun Country, an anticipated payout of the pilot retention bonus, upcoming 2026 fleet CapEx and the 2027 maturity of our senior secured notes. We raised more than $750 million in commitments for aircraft and PDP financing in addition to the upsized bond refinance I just mentioned. We had drawn approximately $200 million at the end of the quarter with the remaining $550 million available for drawing into 2027 with significant flexibility.

With this in mind, we do not anticipate the need for additional financing commitments until next year and currently expect remaining 2026 aircraft deliveries to be unencumbered at year-end. Taken together, we expect net leverage to move up slightly and reach its peak following payout of the retention bonus. Cash as a percentage of trailing 12-month pro forma revenue stood at 27%, which remains a bit higher than we need. So you'll likely see us carry less cash on hand by year-end, especially considering prearranged financing.

And moving to fleet. We ended the quarter with 193 aircraft in the combined operating fleet, including 105 A320 family aircraft, 66 737 passenger aircraft and 22 737 cargo aircraft, which are owned or leased by our cargo customer. 69 of these airplanes are operated on the Sun Country certificate, while the remaining 124 are operated by legacy Allegiant. We've taken delivery of a single 737 MAX aircraft in July and expect six additional MAX deliveries through year-end. This will result in six 737 MAX aircraft entering service in the second half, offset by seven aircraft retirements, leaving the year-end operating fleet count for the combined entity at 192. In addition, we have three 737NGs leased to other operators and scheduled to return to us through 2029.

Looking further out, our 2027 MAX aircraft will deliver with the new Allegiant First configuration Drew highlighted. These airplanes will operate with just two fewer seats as compared to our existing MAXs, preserving our competitive unit cost profile, while increasing our premium seat offering. At this time, we are planning for the new cabin only on new deliveries and have not yet contemplated retrofit on the in-service fleet. We can make broader fleet-wide decisions after we've taken some time to gather further information from both airlines, and we expect to update on that program at our December 7 Analyst Day. More broadly, fleet flexibility underpinned by aircraft ownership continues to be a key competitive advantage for the company.

Now turning to our earnings outlook. For the third quarter, we expect combined entity scheduled service capacity to be down approximately 5.5% year-over-year. Based on an assumed fuel price of $3.80 per gallon, we expect an operating margin of 2% at the midpoint and a consolidated loss per share of approximately $0.50 based on an assumed share count of 27.3 million. This guide is reflective of another quarter of margin improvement year-over-year despite the significantly higher fuel price. As a reminder, the third quarter is the softest seasonal period of the year at both airlines. We are maintaining our disciplined approach to capacity with reductions focused on off-peak day of week and shoulder season flying, which ties directly to the cost cadence I discussed a moment ago.

For the full year, we now expect consolidated earnings per share of greater than $6 based on an assumed share count of 23.9 million. This number assumes a fuel price per gallon of $3.80 for the third quarter and $3.70 for the fourth quarter. Our ability to flex capacity and response to changing industry headwinds such as higher fuel, continues to position Allegiant as the leading carrier in leisure travel. On the integration, the team is working hard to identify and capture synergies across the combined business, and we remain confident in a minimum of $140 million in run rate synergies expected by 2029. As we continue working through the data, we'll provide further updates on both the size and timing of synergy capture at our upcoming Analyst Day.

In closing, I'd like to thank our more than 9,000 team members at Allegiant and Sun Country for their tremendous efforts and unwavering professionalism as we are hard at work on integrating the 2 airlines, while continuing to deliver unbeatable value for our customers day in and day out.

And with that, operator, this concludes our prepared remarks. We can now begin the Q&A portion of the call.

[Operator Instructions] And your first question comes from the line of Atul Maheswari with UBS.

I know we're not talking 2027 yet, but do you have any preliminary thoughts around capacity plans for next year? And then related to that, now that the pilot deal is done, what capacity growth do you need to fully leverage cost inflation next year?

Atul, it's Greg. I'll kick it off, just maybe more high level, and Drew may want to add some on his thoughts for next year. But the way we think about capacity at Allegiant here is that we need to earn the right to grow and that the returns in the environment, they should drive that growth. We're not just going to grow for growth's sake. I'd like to see more flying in the peak periods. I was impressed by what Drew and team have been able to do this year in '26, where we've had less capacity overall. But in the peak periods, we were up a point in capacity. And just as a philosophy, the fleet flexibility really supports our discipline around capacity growth. But Drew, do you want to add anything, how you're thinking about it in the near term?

Maybe just at kind of the highest level, I think we've communicated in the past that our kind of mature run rate would be maybe in the mid-single digits to the higher single digits, such that, to Greg's point, the environment dictates. I think fuel will obviously be the biggest driver in how much we're able to fly next year. There's obviously some slack in the schedule relative to what we have pulled back this year. And then I don't know if Robert wants to talk to fleet at all, but we have a number of MAX deliveries next year, but -- which will provide us with the ultimate flexibility on how much we'd like to grow into the year.

Sure. Atul, yes, I think we've shared in the past that 2027 is our peak year for quantity of aircraft deliveries from our firm order. So we do have a bit of a step-up in available fleet next year. I don't really think of that specifically as growth. I think that's an option for growth. But like Greg said, we'll earn the right to grow based on how the business is performing, and we just have a lot of flexibility to retire some of our older aircraft.

Your next question comes from the line of Scott Group with Wolfe Research.

So I'm wondering, I know the guidance was sort of all on a consolidated basis. Just I guess a two-parter, like I know this quarter, you reported consolidated but gave us a breakdown of Allegiant for Sun Country. Are you going to continue to do that for the time being? And I guess, assuming that you are -- any way you can help us break down some of the pieces of the guide between Allegiant and Sun Country in terms of some of the margins and earnings and maybe some of the RASM and CASM commentary, that would be helpful.

Scott, it's BJ. Yes. So how we reported today, I think, is how you should expect things to look at least through the end of the year. So we would report two business segments being legacy Allegiant and Sun Country. We may continue doing that through 2027. There's some materiality tests that we have to look at. And so we'll make that decision as we get closer to next year. I do think we will continue to -- we will break out cargo expenses so that you can understand nonfuel unit costs, excluding cargo, across the combined entity. [indiscernible] question, what else I'm missing.

Just help on margin and guidance?

Yes, we had talked about -- we've talked for the last couple of quarters about moving away from providing unit metrics, but maybe I'll just use this since we didn't in the prepared remarks to tell you a little bit about kind of how we're thinking about the unit cost side of things, at least for the third quarter. We recognize that if you're looking through the guide, you're probably getting a really high all-in CASM ex year-over-year, if you're looking at that number compared to Allegiant stand-alone in 2025.

So maybe I'll just break it out for you to tell you what we're thinking about in the third quarter, which would be, I would expect legacy Allegiant nonfuel unit cost to be up in the 9% to 10% area. And then I would expect consolidated nonfuel unit costs, excluding cargo, to be up a little bit more than that, let's call it, 10% to 12%. Now I want to be clear, it's not a guide. It's an estimate. We're working with this information relatively fresh, but hopefully, that helps a little bit with modeling.

That does. And just as long as you're doing -- like when you talked about RASM being similar in Q3 as Q2, was that a Allegiant comment or all-in comment?

It was a consolidated comment. So I'll peel it back one layer deeper that you're not going to see a ton of variance in the individual components.

Your next question comes from the line of Mike Linenberg.

Just 3 months into the merger, where are the quick wins or low-hanging fruit? What are the pain points? I know, Drew, you mentioned moving into the OTA world for the first time, obviously, uncharted territory for Allegiant. Maybe you could just kind of run through some of the -- sort of what you're seeing and maybe how things play out in this first year since you're going to maintain a separate operating certificate?

Mike, it's Greg. Thanks for the question. I'll start it off, and Drew may want to jump in on the distribution or other elements of it. But overall, I think the integration and bringing the two companies together is off to a strong start. It's first and foremost stability above all. Both airlines are performing well operationally, financially. As we're bringing -- as we're going through the plan, we have similar cultures, which is good. We have tech systems that align several of them. So that's also very positive. I mentioned in my opening remarks, some of the early progress that we've made. Some of that's around the cross-selling on the websites or we filed with the FAA on our single operating certificate, although that will take some time to work through on the procurement and supply chain side as well.

But what I'm encouraged by with the integration office, the IMO is, just even with all of that, but the big milestones, which are the SOC or the PSS or the JCBA, just the plans we have in place as we think about those, those are a little bit longer term. But I wanted to highlight just we have the right people in the right places with experts helping us plan out so that we can continue to integrate as smoothly as possible. But Drew, any other comments you want to add?

Not a ton from my side. Obviously, the Expedia process, we had started well before we knew we'd be coming together through the acquisition. I think it's going to be very helpful as we think about combining some of the commercial processes and some of the connectivity we'll need to fully optimize what we'd like to do. But just, yes, the team is coming together and having kind of a unique perspective on how to accomplish a lot of the same goals has led to some really fun debates, and I think it's going to lead to some really incredible results as we can get from planning into the execution. So really excited where this is going to go.

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

This is Max on for John. I wanted to plug into your fleet strategy at large a bit. Can you speak a bit more on the delivery cadence of the 737s kind of through '27 and the incremental margin you're expecting from these aircraft kind of in the short to medium term? And if you can provide some of the contours around fuel efficiency, capacity contributions and segmentation benefits you expect from these aircraft, including the Allegiant First?

Max, this is Greg. Thanks for the question. Let me give some high-level thoughts and turn it over to the team. But overall, you asked about our fleet strategy and I'd say owning our fleet and buying and selling aircraft at the right prices are a key part of our strategy. We want to be, and I think we are very good at both operating aircraft and also very good as asset traders. And I think that shows because we have some of the lowest ownership costs when it comes to fleet, I think, in the industry.

And on the MAX order specifically, I just want to call out, we view that as a competitive advantage. It provides us access to aircraft at very attractive prices and kind of tying it all together with the fleet strategy. What BJ, [indiscernible] and team have done is with some of the older, less utilized assets that we've sold, we've been able to pay for, I think, roughly 25% of the MAX orders. So just hats off to the team and how they're handling the fleet. But BJ, do you want to get into the specifics on how they're performing, how the MAX is performing and the benefits?

Sure. Yes. Maybe, Max, I'll hit on your question on schedule first. You asked about sort of what does the delivery cadence look like from here. What you see in the release largely covers our deliveries through this year. There may be one or two aircraft on property that are not in service at the end of 2026. I would expect the MAX fleet to grow by around 20 shells during 2027. That should take you up to, call it, 45 to 47 in-service airplanes at the end of 2027. And then just remember, our firm order was for 50 aircraft. The rest of those would deliver in 2028. They are all MAX 8 variant at this point. And so that's the entirety of the firm order.

As I think you're aware, we do have a very attractive option book, which kicks in, in early 2028 and runs out past the end of the decade. So we're taking a close look at that now. Of course, the combination with Sun Country opens up a lot of opportunities to dip into that option book. a little bit more. And then the way I'm kind of thinking about that, at least certainly in the current environment with fuel where it is, the MAX aircraft are outperforming the -- probably the NGs, but certainly the 320s on an ASMs per gallon basis, which is driving incrementally better earnings at a higher fuel price.

And then just the last thing I would mention is we're starting to appreciate quite a bit more at this point that we were one of the later operators to have a power by-the-hour agreement on our engines. And so we just have an attractive engine maintenance profile on the new airplanes as well, and that's another reason to consider those airplanes very seriously.

One thing we didn't hit on this quarter but did last, just the fuel efficiency aspect and kind of the second order effects. We think it saves about 1% worth of capacity in the current year by having that fuel-efficient MAX aircraft, which won't show up directly in kind of the margin difference between the two, but does show up on the bottom line, and I think it's important to keep in mind.

Your next question comes from the line of Savi Syth.

I know there's a lot of kind of planning here and kind of stay tuned for Investor Day, but I was kind of hoping you could drill down a little bit more on the two things you're actually kind of doing today, which is kind of Expedia, just the reason for that change and what might be different, kind of doing an OTA today versus maybe in the past that kind of kept you away and then the onboard kind of beverages, just how much of the impact should we think of that in terms of cost or kind of efficiency and things like that?

Sure. I'd be happy to take that. Expedia was really about finding an efficient source for the breadth of network that we have. We will continue to have direct bookings as our core source of revenue generation. But when you think about network with 120-plus cities, 550-plus routes at any given time, achieving efficient marketing across the entirety of that breadth is not always easy. And so this was a method that we found to be scalable and effective at reaching folks that were in or showing interest for travel, a product that we're proud of and proud to put out there. So I don't view it so much as a huge pivot away from the core pillars, [indiscernible] remain that. But this is an attractive kind of customer acquisition plot from my side.

On the in-flight beverages, this is the first of kind of those healthy debates I was referring to in the previous answer. Both the Sun Country brand and the Allegiant brand are very interested in kind of customer experience and exploring kind of this void that exists in kind of the smart value area of the industry. And for me, as we started talking, it became a no-brainer that we go down this path and explore and match the Sun Country offering on complementary in-flight beverages. I don't have the number off the top of my head for explicit headwinds. I don't think it's a material headwind, especially as we're talking about still expanding the air ancillary unit revenue into the next quarter.

Yes. On the cost side, it's not material, at least for the remainder of this year.

And Savi, I just want to add just a little finer point on the Expedia commentary that Drew provided. And that's just -- we know the direct bookings, that's part of our DNA. That will always be part of our DNA and it's important as we -- as Drew and the team, they work through the Expedia structure, that we continue to own the relationship with our customer. And so that was an important part of the deal for us. As Drew mentioned, the early results, they're very encouraging. The vast majority of folks using this channel are new customers or win back. So we're pleased with what we see thus far.

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

It will be tough for me to limit it to one, but I'm going to follow directions here. Can you speak to when you think you'll be able to get code sharing switched on? And I guess, any early learnings as you look at the combined network? How do the peaks at Sun Country differ from the peaks at Allegiant seasonally, for example?

Yes, Duane, I'll take that one. So we're able to kind of cross-sell today, which is effectively showcasing the inventory that the other carrier has and then ship them into the appropriate booking funnel to continue the purchase path. I think a little bit later this year, we'll expand what we're able to do from a merchandising perspective, but a full code share or selling will probably come in the PSS time frame, I'd assume, and you're 12 to 18 months out, looking at Michael Broderick maybe for confirmation, maybe 12 to 18 months out on that.

And then talking seasonality and peaks, we're both very much after the leisure customers. So there's going to be a lot of similarities from that perspective. I think you're going to get a slightly, I guess, more hyper peak in the spring period, which is common for the geography coming out of Minneapolis, St. Paul and probably a slightly stronger summer peak coming from the Allegiant side and maybe one other strong peak in October on some country.

Yes. So nothing drastically different, just kind of some of the seasonality peaked up slightly more for one carrier or another.

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

Congrats on the quarter here. Drew, I was wondering if you can elaborate more on the decision for a first-class product? And I guess I'm just -- is it simply a competitive response since others in the low-cost segment have introduced it? So Allegiant has does it -- do it as well? Or was it something you've been planning for a while? And I guess, historically, I think the average fare in the first class has typically been 4 to 6x the leisure fare. And I'm just curious if -- on the work that you did there to arrive at that decision and what this could really mean to the business as you look ahead, say, 2 to 3 years out, say, as a percent of total revenue?

Yes, I'll probably save kind of any of the economic discussion for the Analyst Day later this year. But speaking to the process a little bit, this has been a couple of years in the making, and it really did generate from the results we saw through the Allegiant Extra process. We started that in 2018, 2019 as a test across four aircraft and never could have dreamed it would have expanded to the success that we've seen over the last 2, 3 years.

So when we couple that with kind of looking at our customer strength and in particular, household incomes meaningfully over $100,000 and a nice tail end of that distribution into the higher income brackets and some of the repeat travelers we have inside Allegiant Extra, it really opened the door, at least to me to say, hey, there's more that we can provide that gives value to the customer. So we'll have more of the economics there, but it really came down to the success we saw on Allegiant Extra and the customer strength profile.

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

Plenty to unpack on the call, but if I can just follow up on the pilot situation with your competitor kind of taking some of your junior pilots. Can you just expand on that a little bit? How convinced are you that this is a onetime event? And even though you said that you're pretty confident in the pipeline being restored later this year, kind of is this potentially likely to be an ongoing thing?

Ravi, it's Greg. Let me take that one. Yes, we view it as temporary. But just maybe taking a step back, just in general, like pilot attrition, we have a number of pilots across both airlines that -- ultimately, it's a small number, I hope, but ultimately that want to work for a full-service carrier. As we drill down a little bit deeper with our Sun Country pilots and what we've seen there, the vast majority of them have been hired within the last 3 years.

And then they're going to the largest full-service carrier in MSP who recently increased their hiring by maybe double or more. But importantly, and you called out, our school house is full. It's full on the Sun Country side, we have multiple classes. On the Allegiant side, we just opened a class. The number of applications for candidates, cadets and pilots is off the charts, very highly qualified. And they value what we offer. We offer competitive pay, but we also offer unique quality of life overall where our team members, our flight crews are home every night. And so we're confident we'll manage through it. It's a headwind in the near term. We're going to manage through it, and we look forward to restoring and getting back to where we want to be and particularly for flying in March of '27.

Apologies for the follow-up, but do you think that this is a precursor to like more capacity coming in from them in MSP or kind of why are they doing this?

I don't want to comment on other carriers and why they're hiring, but I don't believe it's from a capacity standpoint trying to come in MSP.

Your next question comes from the line of James Kirby with JPMorgan.

Just wanted to ask about the implied step change from Q3 to Q4. I know you talked about the CASM ex being peak in Q3. So I assume a step down in Q4, but maybe just any RASM assumptions or macro that is embedded in the implied 4Q guide? Or any color you can share really how it's booking? I assume you have like a month or 2 of data there, but any color you can share on how RASM is trending there?

Sure. Drew here. Real early for 4Q, still more than 80%, 85% left to go there. So everything is kind of small sample size theater for now. I mean, things look great. I mean we're not baking in any kind of reduction or slowdown in the demand environment. Our growth rate ticks up a little bit from combined down 5 -- or down 5.5% to the Allegiant stand-alone getting slightly positive there. We haven't talked to a combined piece. And then just bear in mind that the Q4 comp from last year got meaningfully tougher on our end as well.

So I think the environment persists. I'm extremely bullish and have been -- I think I've communicated all year that the holiday period is going to show up and show up really well. So I think 4Q is going to be really strong again.

Got it. And then just a really quick follow-up on the Sun Country pilot attrition. Are you expecting that to kind of be the worse in 3Q and then improve 4Q? I know you said 2027 is when you expect this fully to abate and probably return to growth there in MSP, but just for the cadence of the year?

Yes, the recent trends over the past couple of weeks have been encouraging, but we're planning for the worst, and we're going to continue to hire and try and get ahead of it as quickly as we can. But -- so I don't want to make a call here or there. They're still -- it's out of our control to a degree. But like I said, we're going to react and manage through it with the tools we have the best we can.

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

On this CBA with the pilots, I appreciate the color with the 401(k) contribution, the cash piece. There're some comments around the crew productivity side. And if you could frame how we should think -- I'm guessing you're thinking about that in utilization or block hours per aircraft, but the timing around that and the cadence or perhaps the fourth quarter exit rate and how you're thinking about that utilization for next year?

Chris, it's Greg. Why don't I kick it off. And if BJ wants to add some commentary, he'll jump in here. But first and foremost, we're very happy to have a deal ratified by our pilots. It's been a long time coming. And as you mentioned, it improves pay benefits, quality of life. There's a unique pay feature with a retention bonus in there as well that we've been accruing since May of 2023 and just genuinely happy to be able to pay that out, very well earned and deserved.

Importantly, I think on both sides, it's -- we're able to roll out a new preferential bidding system that is off the shelf. It's called NAVBLUE. Many other carriers use it. And within that bidding system, we think that we'll have that in place by the end of the year is what we're working towards. And I think this will just help with transparency. It will help us in the sense of building more productive lines around scheduling. And so I think that's what BJ's -- or that's what we've been talking about that we'll see. That won't happen until next year, we would expect. But BJ, any other commentary you want to hit?

Yes, Chris, I mean, I think you mentioned the 401(k) contribution and some of the other benefit elements, and then there's just a small step-up in wage rates through the end of this year versus the rates that we were accruing. That's probably driving one to two points in CASM ex in the back half of the year. But keep in mind, pilot headcount is relatively flat on more than 1,300 pilots. I think we're down around 50 heads year-over-year, something like that. And so we just -- you just -- we're going to see a little bit of cost pressure because we didn't have the aircraft to fully utilize the crew members that we have through the end of this year, and that's where the productivity comes back in as we head into March.

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

Hey, Conor are you there? Operator?

And going to the next question from Catherine O'Brien with Goldman Sachs.

One question, admittedly a little bit of a multiparter on RASM. But I guess, first, what drove the better Allegiant stand-alone RASM versus your June 30 guide? And could you maybe give us some color just on where you exited 2Q on a consolidated RASM basis? It's not an exact number for June, just maybe how to think about it versus that total 2Q performance? And how much of 3Q do you have booked and any parts of the network you'd call it bright spots?

I will do my best to handle all the parts. Maybe just kind of generally on the 2Q cadence, end of April was probably the relative low point. And then we hit kind of almost flattish from early May through the end of June. So maybe not quite as stark of a cadence through the quarter as some others have commented on, but everything looks pretty good for virtually the entirety of the quarter. So I feel really good about that. And I think that's true generally of the combined entity, but I'm speaking specifically to Allegiant on that front.

Probably won't talk too much about hotspots either. Again, with the unit revenue performance, there's just hard to point to a lot of things that didn't live up to the excitement. So I feel really good broadly there. Cathie, what else did you want to hit on?

Just how much of 3Q is booked?

Yes. I would hate admitting this number in this call. We're about 80% booked for the quarter. So we have pretty good line of sight to 3Q at this point.

I will now turn the call back over to Sherry Wilson for closing remarks.

Thank you, all, for joining today's call. Please reach out if you have questions. Otherwise, we will talk to you next quarter.

Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.

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.

Hello, and welcome to the Allegiant Travel Company Fourth Quarter and Full Year 2025 Earnings Call. [Operator Instructions]

I would now like to turn the conference over to Sherry Wilson, Managing Director of Investor Relations. You may begin.

Thank you, and welcome to Allegiant Travel Company's Fourth Quarter and Full Year 2025 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 plans. 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.

Sherry, thank you, and thanks to everyone for joining us today. We closed 2025 with strong momentum, capping a year of meaningful progress that strengthened our foundation and showcased the durability of our model.

Let me briefly review our performance in the fourth quarter, reflect on key achievements from last year and then frame our strategic focus for 2026. Our financial results for the fourth quarter exceeded our original expectations. We saw strong leisure demand throughout the quarter as TRASM declined just 2.6% on 10.5% capacity growth. Fuel ran slightly higher than expected, but disciplined cost execution helped us deliver a 12.9% adjusted operating margin among the best in the industry. These results demonstrate the effectiveness of our low utilization flexible capacity model.

Operationally, 2025 was an outstanding year. Controllable completion was an impressive 99.9% even as we increased peak flying. That consistency was recognized externally as well. The Wall Street Journal ranked Allegiant the second best U.S. airline overall and #1 in lowest cancellation rate, the least number of mishandled bags and the fewest instances of involuntarily bumping passengers. This reflects the daily professionalism and execution of Team Allegiant.

We also successfully integrated the MAX aircraft into our fleet. After receiving our first MAX in late 2024, we prioritized investing in pilot training and revamping our maintenance operations, and this was to ensure a seamless transition. And these aircraft are performing very well, delivering roughly a 20% fuel burn advantage compared to the A320. And now we are continuing to optimize schedules to allow us to realize the efficiency and reliability benefits from our MAX fleet. As they continue to increase their share of flying for us, they should become a meaningful tailwind for margins.

Technology modernization was another important milestone. Transitioning away from our proprietary systems in favor of modern, flexible platforms was a major undertaking, but it was essential for achieving our future goals. We are now turning our focus to leveraging the state-of-the-art technology stack that allows us to introduce new tools and capabilities across the business. And our commercial initiatives are also gaining traction. Allegiant Extra continues to perform well. Loyalty engagement is rising and our improving digital capabilities are helping to make travel easier and even more enjoyable. With flat capacity growth in 2026, these commercial levers should boost earnings as their early results remain encouraging. Importantly, we strengthened our financial position while advancing all of these initiatives. Unit costs fell more than 6% for the year, an industry-leading performance. And with the sale of Sunseeker debt repayments and improved EBITDA, net leverage was reduced to 2.3 turns, nearing our lowest level since pre-COVID.

Turning briefly to demand. We saw meaningful improvement over the holiday period, and that momentum continued into January. Current leisure demand is strong, and our customers continue to value convenience and affordability, areas where Allegiant is uniquely positioned. Looking ahead to 2026, we do not plan to grow the fleet this year as a stand-alone, and we expect to lean into our existing infrastructure and commercial initiatives to drive TRASM improvement and margin expansion. Importantly, we remain committed to balancing growth with profitability, which we refer to as earning the right to grow.

We expect a 13.5% adjusted operating margin in the first quarter, which should be our second straight quarter at or near the industry lead and setting the stage for a strong 2026. And for the full year, we're guiding to adjusted EPS of more than $8 per share, an increase of approximately 60% year-over-year, reflecting the structural improvements we've made across the business. Strategically, our agreement to acquire Sun Country is an important step forward as the combination is expected to accelerate our ability to build the leading leisure airline in the U.S. Given the execution over the past year and the strengthening of our foundation, the organization is well positioned to take on this significant undertaking.

The two airlines share strong cultural alignment, similar fleet types, minimal network overlap and complementary technology platforms, including Navitaire, all of which help reduce integration risk. A thoughtful integration plan is underway, focusing on capturing synergies efficiently while protecting operational excellence and the respective strengths of both airlines.

When you step back and look at the broader landscape, it's clear that Allegiant continues to separate itself within our segment of the industry. Our low utilization, flexible capacity model has worked for more than 20 years because it is purpose-built for leisure flying. We take great pride in being the leisure carrier of choice in nearly all of the 126 communities we serve, delivering convenience and reliability that travelers can count on. And none of this is possible without the consistency and dedication of Team Allegiant. Their passion shows up every single day, and I'm honored to work alongside them.

And 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 2025 with more than $2.5 billion in total airline revenue, up approximately 4.3% versus full year 2024 and a record high for Allegiant. I'd be remiss not to celebrate the success of the growth strategy even in the face of macroeconomic pressures through the year. On the back of that growth, we believe our year-over-year TRASM change relative to our CASM ex performance will be the best in the industry for the full year.

The fourth quarter ended with approximately $656 million in total airline revenue, up approximately 7.6% versus 4Q '24 and a fourth quarter record. Finally, the fixed fee revenue contribution of $25.5 million in the fourth quarter despite the increase of scheduled service utilization was another quarterly record. Our unit revenue metrics performed quite well in the fourth quarter, particularly when considering the growth profile. Our scheduled service ASMs grew 10.5% year-over-year in the fourth quarter, while TRASM decreased 2.6% to $0.1267. As we've discussed over the last couple of quarters, the change in load factor trajectory is helping support the improvement of the growth-adjusted trends and unit revenue metrics as we gained a full point of load factor in 4Q '25 compared to the prior year.

The winter holiday performance was certainly the most striking. Unit revenues over the Thanksgiving travel window were slightly higher on a year-over-year basis and unit revenues across the Christmas and New Year's travel period were modestly higher on a year-over-year basis, but also notably shifted into January, providing some tailwind into the first quarter of 2026. Remember, the holiday period in 2024 also marks the start of our utilization normalization and continues into 2026. We expect the next year to represent additional sculpting of the significant utilization lift of the last year. For many markets, that represents capacity somewhere between 2024 and 2025 levels. Peak days will increase utilization just slightly through the first half of the year, while off-peak days will regress slightly more. We'll maintain some slack in the approach, but as usual, we'll feature more ability to add off-peak day capacity as the environment dictates.

Additionally, as Greg alluded to, is the proliferation of MAX flying in our network. We're thrilled with the performance of the new aircraft in our system thus far. In fact, when cherry picking the top A320 lines throughout the entire system against all MAX flyers, we are producing approximately 20% better economics simply measured as revenue per hour less fuel expense per hour on peak days with similar utilization. Further, through the same comparison on off-peak days, we produced nearly 10% better per hour economics while also flying the MAX aircraft 30% more than the same top Airbus tails in the fourth quarter.

We continue to be incredibly excited for the increased potential that lies ahead with this aircraft. The fleet cadence through 2026, of course, correlates neatly with our overall ASM growth expectations. First quarter ASMs are expected to be down approximately 5.7% and the second quarter slightly more due both to the fleet schedule and the Easter holiday pulling forward.

Growth is expected to ramp up in the third and then further in the fourth quarter to achieve a full year expectation of down 0.5% versus full year 2025. 2026 will also mark a return of robust levels of new market ASMs. While 1Q remains in the mid-single percent of ASMs flown, approximately 10% of both the second and third quarters will be in their first 12 months of operation. 19 markets begin service in the first quarter, 17 of those this month and 20 more in the second quarter. New markets lend themselves to strong lift in new card acquisition trends. Four of the last five months have been double-digit percent higher on a year-over-year basis and spend remains strong on the card. We received approximately $140 million in remuneration, which represented a modest year-over-year increase.

As we continue to build on this momentum, we are committed to working closely with Bank of America on the evolution of the co-brand, and we are engaged in constructive discussions to ensure long-term alignment and a continued strong partnership that supports the next phase of our card program. The modest decline in ASMs, holiday shifts pulling noticeable traffic into the quarter and most importantly, the exceptional demand throughout the month of January sets us up for an incredible 1Q revenue performance. I noted the New Year shift of travel into 1Q, but the early Easter will have some positive impact to the end of March as well.

Even while winter storm impacts were approximately $2 million in absolute revenue headwinds, the TRASM effect is a slight positive due to the timing within the quarter. We were much better positioned within our Navitaire ecosystem to provide options and reaccommodate our passengers. And most of all, a huge thank you to all of our team members that showed up in adverse conditions and safely made a huge difference in the lives of our travelers.

With that, I'd like to hand it over to Robert.

Thank you, Drew, and good afternoon, everyone. I'd like to start by just recognizing the team for their incredible work throughout 2025. We grew capacity by 12.6% in the year on flat fleet count and flat staffing levels despite a 14% increase in fleet utilization and nearly 17% reduction in employees per departure, our team members delivered an industry-leading controllable completion of 99.9%.

Now I'll walk through the fourth quarter and full year results and then provide an update on our outlook and financial position. As with prior calls, my comments today will reference results on an adjusted basis, excluding special items, unless otherwise noted. Our outlook today will exclude any impact from our proposed acquisition of Sun Country Airlines, which we expect to close in the back half of 2026.

For the fourth quarter, the Airline segment produced net income of $50.1 million, resulting in airline-only earnings of $2.72 per share, coming in ahead of our guided range, which was $2 per share at the midpoint. Outperformance was driven by lower-than-expected salaries and benefits, timing of certain maintenance expenses and a stronger-than-expected revenue environment following the government shutdown. Full year 2025 consolidated net income was $70.3 million or $3.80 per share. The airline earned $93.8 million, yielding a full year airline-only earnings of $5.07 per share. The airline generated just over $143 million of EBITDA during the fourth quarter, producing an EBITDA margin of nearly 22%, underscoring the earnings power of the model in a favorable leisure demand environment.

Turning to costs. Fuel averaged $2.61 per gallon during the fourth quarter, slightly above our expectations. Notably, ASMs per gallon were up 2.6% over the prior year quarter, highlighting initial efficiencies from investments in the MAX aircraft and LEAP engines. As the MAX aircraft comprises a larger percentage of the fleet, we expect to see continued improvement here, yielding significant savings in annual fuel consumption. Fourth quarter adjusted nonfuel unit costs were $0.0801, representing a 3.4% year-over-year improvement on 10.2% higher capacity. For the full year, cost performance came in consistent with our down mid-single-digit expectations with nonfuel unit costs down 6.1% despite removal of 4.5 points of planned capacity growth, demonstrating the strength and agility of our flexible utilization model and the cost discipline of our team.

We've continued to grow our infrastructure throughout 2025, and I'm really pleased with how the team has delivered on the cost front. As we look ahead to 2026, while we expect capacity to be down slightly year-over-year, which will place modest pressure on CASM-X, I remain confident that the cost initiatives implemented in 2025 will help mitigate these pressures. Importantly, we continue to expect full year unit revenue increases to exceed CASM-X fuel increases as evidenced by our full year outlook, which I'll discuss in a moment.

Moving to the balance sheet. We ended the quarter with total available liquidity of $1.1 billion, inclusive of $250 million of undrawn revolving credit facilities. Cash and investments declined by approximately $150 million from the end of the prior quarter, reflecting proactive debt prepayments following the sale of Sunseeker, which had closed late in the third quarter. During the quarter, we repaid $259 million of debt, including $224 million in voluntary prepayments. At year-end, cash and investments stat at approximately 32% of full year revenues. We also increased our revolver capacity to $250 million, up from $175 million, providing efficient available liquidity while allowing for reduction in debt balances. Notably, we continue to maintain an unencumbered pool of aircraft and engines valued at well over $1 billion, providing substantial financial flexibility.

Total debt at year-end was just under $1.8 billion, down from $2.1 billion at the end of the third quarter, and net leverage improved to 2.3x, down nearly a full turn from the fourth quarter of 2024. Capital expenditures during the fourth quarter were $56.7 million, including $35.9 million of aircraft-related spend and $20.8 million in other expenditures, while deferred heavy maintenance spend during the quarter was $11.5 million. For the full year, we invested $453 million into the airline, inclusive of heavy maintenance expenditures and within our previously guided range.

We ended the year with 123 aircraft in the fleet, including 16 737 MAX and 107 A320 family aircraft. Looking ahead to 2026, we expect to take delivery of 11 737 MAX aircraft with 9 placed into service by year-end, while retiring 9 A320 family aircraft throughout the year, resulting in a flat year-over-year fleet count. Based on these delivery expectations, we estimate full year 2026 capital expenditures of approximately $750 million, including $85 million in deferred heavy maintenance and $580 million of aircraft-related CapEx.

Turning to our outlook. As Drew noted, we now expect full year capacity to be down slightly year-over-year, largely due to timing of aircraft deliveries, which are back half weighted. This includes a modest delay of three aircraft pushing their entry into service just after the start of our summer peak.

The healthy demand environment we observed during the fourth quarter of 2025 extended into early January. While winter storms, Fern and Gianna did impact bookings, we are beginning to see a recovery and today's guidance reflects the impact from the storms. As a reminder, our outlook is based on Allegiant's stand-alone forecast. For the first quarter, we expect earnings per share of approximately $3 at the midpoint of our guided range, implying an operating margin of 13.5% based on an assumed fuel cost of $2.60 per gallon. For the full year, given continued macro uncertainty across the industry, we believe it is appropriate to guide more conservatively. At this point, we expect to deliver earnings per share of at least $8 with the potential for upside as demand trends, cost initiatives and operating performance evolve over the course of the year.

As I wrap up, 2025 was a foundational year for Allegiant. We brought level of operations back in line with our fleet infrastructure, providing operating cost economics constructive to our leisure-focused flexible capacity model. We largely restored peak day aircraft utilization, making more of our products available on the days our customers want to travel. We aligned management headcount to level of operations and introduced performance-based pay programs for leaders across the business. We integrated 1/3 of our firm order book from Boeing, improving team member productivity and delivering initial fuel efficiency targets. We divested of the Sunseeker business and refocused management efforts on the airline. We paid down debt and positioned our balance sheet for healthy investment in our future.

With more than 100 new technology aircraft available in our order book, a healthy financial position to access the used aircraft market opportunistically and a technology suite suitable for serving a larger customer base, I remain highly confident in the foundation we have here, whether that be for navigating through various demand environments, expanding our leisure offering to more communities or enhancing our customer and team member experience.

And with that, operator, this concludes our prepared remarks. We can now move to analyst questions.

[Operator Instructions] Your first question comes from Scott Group with Wolfe Research.

So I think the term you used was January was exceptional from a demand standpoint. Maybe just like some color on what you think is driving that? And I know it's early, but when you look at the -- how does the rest of the quarter looking? Are you seeing that same trend continue? Any degree of moderation? Just any thoughts there?

Yes. Thanks, Scott. This -- it helps that we have seats pulling back a little bit when it comes to demand. But I don't think what we're talking about is much different than what we've heard from a number of carriers through this cycle. The user, the visitation coming through the front door is better than we've seen in several of the prior years, able to manifest both in terms of bookings and through some pricing capabilities and yield, which is a nice change of pace for us over the last couple of years.

So I think that's going to be really pronounced going through the spring break and Easter period. And then we'll kind of see what happens as bookings and demand starts to turn a corner toward post Easter into the summer time frame, which is still a bit too far out for the current booking curve.

So I think we're hopeful as we get into the second and third quarters that there remains upside similar to what we've seen in January, but not something that I'm willing to bank on quite yet. error bars on what we've seen for summer period over the last several years are just so much wider that it's hard to have a great deal of conviction that this will definitively continue through that time frame.

And then if I heard correctly, I think you have a view that you're going to -- you guys are going to have the best TRASM/CASM spread in the industry this year. Maybe just some -- a little bit more color on how you are thinking about both TRASM and CASM this year would be helpful.

Scott, I think in Drew's comments, he was referring to in 2025, the best spread between TRASM and CASM-X. But I will say, as we look to 2026, we expect TRASM to improve more than CASM-X this year as well, which reinforces the margin expansion that we're looking at.

That was backward looking. Okay. I apologize. But what are -- how are we thinking about in a flattish capacity environment, how are you thinking about CASM this year?

Sure, Scott. It's B.J.. On a full year basis, as you would expect, we would expect CASM to be up for the most part across all lines in the P&L, except maybe aircraft rent, which we've talked about the last couple of calls. And then if you just think about the shape of capacity, you would expect CASM-X to be up more in the first half of the year than it would be in the back half of the year. And I would just share, I would expect the second quarter to be the high point on a year-over-year comp basis. And then maybe just worth noting, we do expect CASM-X on a full year basis to be down versus 2024.

The next question comes from Atul Maheswari with UBS.

B.J., you mentioned in your prepared remarks that you were being conservative with the full year guidance given how some of the macro issues hit Allegiant and the industry last year. So just to be clear on what's assumed for the full year guidance, you're not really assuming the current strong January trends to continue? And is that the right way to think about what gets you to the $8 versus like if January trends were to continue, you get a number higher than that. Is that the right way to think about it?

Yes, I think that's right. If you could just kind of think about Drew's answer there to Scott's question, that would line up.

Okay. And then on the first quarter, I want to better understand what's assumed at the low end and at the high end. So if current booking trends were to continue, does that take you to the midpoint of the first quarter range, which is the $3? Or does that take you to the high end of the range? And then what's assumed at the low end?

A lot there.

Look, what we're putting out for the midpoint is kind of where we see demand. We know it will taper a little bit through the quarter for in-quarter bookings. That's just the nature of things. The peak is certainly the weeks immediately after the New Year. So we won't persist at exactly the same level, but we wouldn't expect that either. And then variance from that on the rep side will take us one way or the other.

The next question comes from Mike Linenberg with Deutsche Bank.

Two questions here. When you talk about demand and the strength that you're seeing, how much of that is just a function of the fact that you're coming into the year with a very favorable supply backdrop? I mean you indicated, Drew, that you're going to be down March and June and then it picks up and maybe more specifically, where is the demand across the network? Is it stronger in some regions versus others? Like we know that Vegas has been struggling, but we've also seen a lot of capacity come out of Vegas. So I realize the headline number may be somewhat deceiving. And so I'm just curious if you could drill down and give us a little more color.

Perhaps a little more color, but I'll probably stop short of great detail. Geographically, it all looks pretty strong. I mean, to your point, it's not a new story that Vegas has struggled. I think LVCVA's numbers had it down about 7.5% or so in visitation year-over-year, but convention attendees were flat, right? It's becoming a very event-driven and holiday-driven destination, which is very similar to the rest of our network, but a bit unfortunate to lose kind of that year-round rock star reliable that it once was.

So yes, certainly having seats down helps, but I alluded to the visitation to the website. I mean what's coming through the front door, we would have loved to have in '25 too when we were talking about how strong it was to start the year, and we're beating that. So I feel really good about where we sit. I feel good about it in elevated capacity. I feel really good about it with seats coming down a little bit.

Great. And Mike, it's Greg. What Drew and team did in the plan this year as well is they concentrated more flying in the peaks and removed some in the off-peak as well. So I know Drew mentioned that in his opening remarks, but that, too, that's a helpful backdrop for the strength we're seeing in demand.

Great. And then just my second question, really turning to the merger and maybe just some of the mechanics. Not that you put out a filing, but just curious at what day or what time frame you did actually file Hart-Scott-Rodino. I know it's a 30-day waiting period. The deal was announced early January. So if it was right around that time, we'd be coming up to at least the first 30-day period.

And sort of tied to the merger, as we think about the cash component, the $4-plus per Sun Country share, I think that's about $200 million. Is that -- is the plan to finance that out of cash? Or would you finance that? Is it out of cash or would you actually finance it?

No, thanks for the question, Mike. I'll kick it off. B.J. will follow up on that second part around cash.

As we put out, we expect the merger to close in the second half of '26. And to your point, there's conditions necessary to achieve that, shareholder vote, regulatory approval and then some other customary closing conditions.

For the shareholder vote and the regulatory approval or the HSR filing, we expect, Mike, to file both of those within the coming weeks. And then that will -- post those filings and review, that will trigger the time line as well.

And then -- yes. And then B.J., do you want to jump in on the?

Yes. Mike, on the cash consideration for the merger closing, it's certainly going to depend on when in the year the closing would take place. I would just note, we have a bond out there that matures in the third quarter of 2027. And so we've had an eye on the market to refinance that at some point. And so ideally, we would refinance that and take a little bit more out and have some extra cash to pay the cash consideration of the merger closing. But if the timing doesn't work out, there's more than $1 billion in unencumbered aircraft and engines. Candidly, cash balances for the first quarter are ahead of schedule. We could start by just using cash balances if we need to.

The next question comes from Duane Pfennigwerth with Evercore ISI.

I just wondered if you could speak to how you were deploying the MAX aircraft. Any more flexibility that you have currently versus maybe how you were using them with just a few on the property. And as you begin to consider the combination with Sun Country's fleet and your own fleet, where do you see the biggest opportunities?

Yes. So, I think, we talked about this in previous quarters. Starting around mid-November, we pivoted a little bit on MAX from flying a lot of cycles and getting up and down for pilot transition training and something that supported a bit of longer-haul flying, something that's a bit more commercially driven. So yes, that started 2.5 months ago or so, and it's contributing to the numbers I quoted in the remarks, feeling great about that. We'll get into additional basing on that in the back half of this year as deliveries resume back in the second half.

Yes. And then just on the potential transaction, Duane, with fleet and how we would be flexible in that regard. I think we're really excited as we think some upside in the deal to ensure that we can have the right aircraft at the right gauge in the right markets. Both Sun Country and Allegiant, we own our aircraft. We have a great deal of flexibility there. It'd be too early to say what we're planning at this point, but we do think that provides some potential additional upside as part of the transaction as well.

And then maybe just from a earnings power, earnings seasonality perspective, as you think about the quarterly baseline, maybe for 2025, which quarter do you think has the most upside from your perspective? And that's not necessarily a 2026 comment, but just to get to like that normalized earnings power on an Allegiant stand-alone basis, as you look back on the four quarters of '25, which quarter do you think has the most upside?

Duane, let me kick it off. And I don't want to say that the third quarter, I believe, has the most upside. But what we're focused on is, as you recall, in 2025, we were -- we had a negative margin in the third quarter, and we're focused on turning that to a positive margin as well.

But in terms of the most upside, Drew, I mean, do you think it's kind of book ended on the first and the fourth quarter right now?

Yes, they remained incredibly resilient first and fourth quarter. Just thinking about the same-store flat capacity backdrop, we were down about 6% in the second quarter and 5% in the third. I don't know and I'm not willing to guide for you today what recovers from that, but those certainly took the largest kind of core demand impact through '25. And from that perspective, would pose the biggest upside capability this year.

The next question comes from Andrew Didora with Bank of America.

I guess first question for Greg. Now that you're kind of back on track with your MAX order book here, I think you used to generate roughly $6 million in EBITDA per aircraft back in 2019. With this new fleet, any way -- any chance you can maybe give us an update on where you think that can go in today's environment with the new MAX fleet that you're going to have?

Yes. On the MAX aircraft, Andrew, there definitely the larger share of ASMs that they're producing in the company. We think that becomes a meaningful structural tailwind. We, overall, though, and I appreciate the comment about the improvements you've seen, we've really been focused on these initiatives that we've talked about to strengthen our business, kind of get back to the Allegiant of old. And for many years, we have led the industry, and we're pleased with the progress we're making. Our first step is getting back to double-digit margins. And I think this year, you're seeing in our guide that we're taking a meaningful move in that direction.

We expect still later this year, we talked about it on a previous earnings call to have an Investor Day. I think the transaction announcement may push that back a little bit later than what we initially anticipated. But that would be, I think, a helpful setting for us to talk about the long-term earnings potential, and we could drive it in margins or in terms of EBITDA per aircraft as well.

Got it. Fair enough. And just my second question. I know there's obviously a lot of utilization to flex capacity over the year. I guess if you see demand get materially better, do you have much capacity that you could potentially flex and add in given your flat fleet growth?

Yes. I mentioned a little bit in the remarks that we have some slack on peak days kind of as we go through the summer. But certainly, off-peak has a ton of runway if the demand and fuel environments dictate that we add that in there. I think we'd be making those calls Easter-ish time frame more or less, but certainly some slack that still exists there.

The next question comes from John Godyn with Citigroup.

Obviously, great quarter, great guidance. I wanted to just think about 1Q guidance versus the full year in a little bit more detail. Last year, if we think about the seasonality of margins, we saw 2Q margins just a little bit lower than 1Q margins. Obviously, 3Q is very different and then 4Q margins above significantly the 1Q level. Is that the right general seasonality that we should be thinking for 2026 off of this 13.5% margin at the midpoint? It seems like the full year guidance at least at the $8 level really doesn't contemplate that kind of seasonality, but maybe I'm wrong. Maybe you could just kind of offer some thoughts there.

Sure. I mean maybe just thinking of the rep side in particular and going back to some of the early comments, a lot of this will depend on your view on what happens with core demand as we go through the summer. I think the industry as a whole, and we're no different, taking a slightly more conservative view on how that will roll out. Again, we've just seen so much variability in those actual results as we go back through the last several years. So depending on your level of bullishness on summer demand will probably dictate how you think that margin cadence looks through '26.

John, it's B.J. The only thing I'd add to that is just keep in mind, Drew hinted at the top of the call that he's constrained on fleet heading into the summer. We had some very modest delays on some MAX deliveries that are impacting the early part of summer capacity. And so that will put a limit on what we can do in 2Q.

Okay. I guess what I was getting at is some of this is in your control with the MAX is kind of rolling on throughout the year. It does seem very reasonable even in a wide range of demand scenarios that 4Q '26 margins are going to be considerably higher than your 1Q range. I mean, unless something really changed in the demand environment, is that logic wrong?

John, it's Greg. I could step in maybe the -- like for the first quarter, I think we have about 28% remaining to book. We're still early in the full year. And so we feel -- we put a guide out there for the full year that we're confident that we can deliver on. Currently, demand is strong and the economy, the backdrop, it seems good. But to Drew's point, we just don't want to get ahead of ourselves. And so we want to take a more measured approach and then update throughout the year each quarter.

Okay. Okay. Fair enough. I mean I think we can tell what you're getting at. Can I just ask a completely different question. There's a view out there that there could be a carrier liquidating relatively soon. I'm not sure if that's true or not. I'm just curious if you guys have a playbook for an event like that. Does that influence anything that you would do? Is there kind of a second step to that if we see an event like that occur in the industry?

I'll start, and Drew may want to add. But we don't view our success here at Allegiant as being kind of dependent on what other carriers in our sector may or may not do. We believe we're just uniquely positioned here at Allegiant just because of our differentiated model and candidly, we have limited overlap. But what Drew and his team always do is they keep a close eye on capacity, industry capacity, and they'll continue to evaluate that as they would normally, right?

Yes. that's right. And we recently secured a little bit more space in Fort Lauderdale as it is, have been looking to grow in there for a while. And it's candidly a bit of an onerous airport to be able to grow into, and we've been great partners with them. They've been great partners to us, helping to work to secure that. And we're going to keep trying to grow where we see demand and success. And that's one of the places where we've been successful in doing so.

And if that happened in the near term, would you have the ability to lean into that to flex capacity into that? It sounds like there are some aircraft constraints as well? Or do you think you'd just be a beneficiary more on the yield side or something like that?

I mean, to be determined. I mean it's a lot of speculation in there. Like we mentioned earlier, we do have some slack left in our schedule that we'll deploy as we see fit kind of as we see what shakes out. So whether that comes through capacity, whether that comes through just a few less seats in the market benefiting pricing for the short term, I guess we'll see. It's hard to speculate at this point, I think.

The next question comes from Savi Syth with Raymond James.

Just maybe expanding a little bit on Mike's earlier question. I was kind of curious how you're thinking about balance sheet this year and targets. You do have a big CapEx plan this year and this merger. So curious how you're kind of thinking about where you'd like to kind of keep the balance sheet.

Sure. Thanks, Savi. I've spoken on these calls for a while about trying to keep net leverage in the 2 to 2.5 turns. We don't have a specific mandate from Greg or our Board on that, but we update on it every quarter, and I think that's a healthy place to be. I'd like to see that number closer to 2 versus 2.5. But as we've kind of alluded to on the call, there's been a lot of opportunity out in the industry, and there are certain times where we should move within that range.

As I think about 2026, the things that we need to consider are refinancing our bonds, so that's maturing in 2027. We don't need to do that in 2026, but the markets are quite constructive at the moment. It could be a good opportunity to build up some cash balances at attractive economics. And then there's the consideration -- the cash consideration due to Sun Country in the back of the year. And then we've been trying to keep cash balances elevated a little bit towards the higher end of our targets, and that's because we'd like to envision a world where we're paying out our pilot retention bonus at some point soon as well. And so we want to be ready to do that when we have an opportunity.

So those are the big things. And then we have a big CapEx here, as you mentioned. Now most of -- all of that could be financed at delivery. We'll probably pay cash for airplanes in the first half of the year and then think about aircraft financing in the back half of the year.

Savi, it's Greg. I just wanted to add a couple of comments on B.J.'s points there and maybe a little bit more high level. And that's that owning our fleet and opportunistically buying aircraft is a differentiator for us at Allegiant, and we think it sets us apart, particularly in our segment of the industry. And it's a major driver behind our durability, our low ownership costs and our flexibility in that regard.

And with the Sun Country acquisition, just the work that B.J. and the team have done to strengthen the balance sheet over the years and the way we structured the deal, this isn't going to -- the acquisition isn't going to stretch us by any means. In fact, post-close and integration, it's going to strengthen the balance sheet. We have a favorable well-timed match order and you combine that with the free cash flow that Sun Country is currently producing, that's going to help us not only maintain a low leverage, but continue to delever post combination.

That's well said, Greg. Thank you for adding that. And I think inside of Greg's comments there, Savi, the question is, if we wanted to raise the financing, do we do it ahead of having clarity on all the approval dates and the close date -- knowing the close date definitively because we may raise a little bit of additional capital today to be ready to close. But immediately on closing, we'll benefit, like Greg mentioned, from the cash flow that, that business produces.

The next question comes from Conor Cunningham with Melius Research.

Maybe we could just start on the new market development. It's been a bit since we've started to add back new cities and whatnot. You highlighted the 10% of your capacity in 2Q and 3Q. Just curious if you could provide some -- maybe some historical context to what a unit revenue drag would normally be on new markets just as we start to think about past 1Q in general.

Yes. I think in the past, what we've talked about is something in the 10% to 15% range relative to the rest of the system and no reason to expect it to be different through the cycle.

Okay. Helpful. And then just in terms of -- so yes, your well-timed MAX order. You've sounded very, very bullish on the MAXs in general. I believe you have 80 on options that are still waiting to be converted or potentially converted. Like do you need to wait -- are you -- can you just talk about how you would approach the options side of the business or the options for the MAXs in general? Are you going to wait for Sun Country to close? Like is there -- just trying to understand the dynamic of where we could be in a couple of years from now in terms of just the overall -- maybe a decade from now and where we could be in terms of just MAX contribution in general for the company.

Conor, yes, thanks for the question. As you can tell, we're really excited about the opportunity and excited about what we're seeing in the firm portion of the MAX order, and there are options. I think we would need to start talking about exercising those options, if that's the decision in the back half of this year, and that would be for deliveries beginning in 2028.

And I don't think that we have to wait for a Sun Country close to make that decision because we know or I'll say, I believe that exercising some of those options at least is accretive to our stand-alone business, but I think it becomes much, much more powerful when you think about the combined fleet. When we had the call on the merger, we talked a lot about synergies, but it was really difficult to quantify fleet synergies, in particular around the P&L because there's just a lot of trading opportunity between the two airlines that own their entire fleet. And we just have such a better opportunity to take advantage of the option order book.

Can I just ask one more on top of that. Like is the -- like do you envision the A320 to be part of the fleet like further down the line? It just seems like the MAX has done wonders for your business in general and obviously, some countries of 737 operators. Just like any thoughts on single fleet in general?

Sure, Conor. I think I got a little first part of your question and probably forgot to maybe give you a responsible CFO comment and say the #1 thing to guide that decision is probably the shape of our balance sheet. And so the -- the 320 has been a fantastic machine, a fantastic producer for the Allegiant business for a long time.

When we announced the MAX order, I think we talked about the combined fleet being about 50% Airbus, 50% Boeing at the end of the order. Candidly, we haven't sat around internally and discussed that changing significantly. Like I said, there's probably a little bit more opportunity on the MAX side now that we -- on the assumption that we would close the Sun Country transaction. But I think owning the aircraft is more important than which of the two aircraft right now. And in order to own the aircraft, we need to maintain a healthy balance sheet.

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

I think on the top of the call, you mentioned a tech stack opportunity and kind of how you're excited about what's coming. Can you just elaborate on that a little bit? And kind of is that something that you are putting in place now? Or do you think that needs to wait until after the merger?

Well, thanks, Ravi, for the question. It's a really important one. And we've been through a technology transformation here for a number of years. And I'd like to think where we're at today is that our technology investments are much more focused and they're very practical. And as we've modernized our IT stack, where it's unlocking a lot of value for us. And so these platforms, particularly on the commercial side, they're allowing us to move much more quickly.

What we also were able to accomplish as part of this is bringing our data together and having better data and the ability to use that data to make better decisions. But we're going to continue to be more nimble, continue in terms of technology, continue to find ways to improve, particularly on the commercial side, but throughout the business. For example, we were seeing just for the winter storms that we just recently had, the new technology stack allowed us to communicate better with our customers. And that's what we're ultimately trying to drive. And it's still early, but we're pretty encouraged by what we're seeing and the changes we've made in this area of the business.

Understood. That's helpful. And maybe as a follow-up, you mentioned the Investor Day that you mentioned earlier for this year. Do you think that's still a 2026 event? Or do you think it gets pushed out in '27?

I think it will pace with the close of the transaction that we're talking about. But we would expect if it closed during the time line of which we put out there the second half of this year, we still think there's going to be room to have an Investor Day this year in 2026.

Great. I think that's going to be a pretty important catalyst for the stock and figuring out normalized EPS. So I would strongly encourage that.

The next question comes from Dan McKenzie with Seaport Global.

A couple of questions here. And I guess just -- I hope you don't cringe too much of this question, leave it to me to kick a dead horse here. But going back to the guide, does the $8 embed a full or partial recovery of the 5 percentage points of TRASM that was lost in 2025? And I guess just beyond 2026, more broadly, just given the K-shaped economic recovery that we've experienced, Drew, are some of the lowest leisure demand buckets still missing here as you kind of give us this revenue outlook? And I guess related to that, if that demand segment doesn't come back, can you still manage the airline to a mid-teens operating margin throughout the cycle?

Thanks, Dan. I'll try to unpack some of this here. I'd be remiss not to give another shout out for our customer mix does tend to be on the top part of that K-shape, right? We're median income over $100,000, generally originating from lower cost of living DMAs. We do have a really healthy customer that flies on us.

So I don't think that the K-shaped economy by any means is any more headwind or worrisome for me, I guess, as we look forward. What we provide is truly valuable in the communities we serve, and we can still stimulate with price. We can still play with our schedule in a way that's going to produce the right outcome for what we're looking for. So that is not something that I will lose sleep over at this point starting with this.

Yes. And I would just add to that, Dan, that I mean, just to echo what Drew said, our business and model is designed to protect margins, the flexibility that we've built into it. And what you -- what we've talked a lot to the Street about over the past year or so, the initiatives and the execution of the team to really restrengthen that foundation. And so just to Drew's point, we feel really good where we're at and the flexibility we have and our ability just to serve the leisure customer.

Yes. And maybe, sorry, I remember the first part of the question. As we think about the middle part of the year and recovering that kind of that same-store deficiency we saw last year, we're not plugging a full recovery into that number. So I mean that's kind of where you would see a clear upside story if the economy does get there. We're above zero on it, but not all the way back.

Very helpful. And then second question here. Going back to the script and the reference to the next phase of the credit card program, I'm just wondering what are the benchmarks that you'd like that credit card program to hit, I guess, first? And then second of all, are there steps that you can take to get your credit card holders to spend more? Or do you just -- as you think about that next phase and where the revenue upside is, what are the areas of focus that really makes sense?

Yes. I mean there's definitively steps that we can take, and we know that because we've seen it in action over the last five months. I mentioned at the top for the last five months being up double-digit percentage of new card acquisition, spend continues to look really strong. I think we just surpassed 600,000 cardholders. It's a really great story as we applied some kind of some new tactics and new thoughts even within the existing program. And then as you refresh it and bring it to something a little bit more modern, I think there's a meaningful amount of runway that exists there.

And as we think about how it's been communicated elsewhere, you see 10% or more remuneration as a percent of revenue. I don't know that we get all the way to 10%, but I think we get above the 5% or so that we did in 2025. So as you think about another 2 to 3 points on that, it's a pretty compelling case right there.

The next question comes from Christopher Stathoulopoulos with SIG.

I want to dig into the capacity outlook for '26. So the 10% to 15%, the new routes is consistent with your historical profile. If you could speak to the composition, so departure stage engage and then on utilization, hours per day year-on-year and then the mix peak versus off-peak year-on-year?

And then also on the allocations, if you just look at first -- 1Q, excuse me, inventory is down solidly across most of your key markets, obviously, with the exception of FLL and how you're thinking about inventory, I guess, distribution against that full year guide.

Yes, you got it. How about day two. We'll just go through all of it. I'll do my best to unpack everything we talked through here. Stage and Engage are a little bit offsetting through the year. So those are somewhat of a neutral for us. We talked about Lauderdale and some of the other growth spots that kind of come from the new market announcements. We filled out SNA a little bit, filled out a little more in Gulf Shores. Lauderdale, we talked about. In the spring, it's come a little bit at the expense of promo capacity that's gone elsewhere. But by and large, we'll be back by summer.

So some of it has really just been kind of a seasonal kind of sculpting having to make some tough choices through the spring. But really, a lot of that capacity that is coming out is off-peak day. We're able to hold our peak days pretty close to flat in terms of actual flying, which, to Greg's earlier point, will be a bit of a tailwind to our unit revenue outlook and better overall patterns for customers on that perspective. So I can promise you I didn't hit all of your topics there. Is there anything else you wanted me to dive?

Aircraft utilization, where we stepped it up meaningfully '25 versus '24. I want to say it was low 6s hours per aircraft per day in '24, up to 7 over 7 in '25. I think it's flat, maybe slightly up a little bit in '26 for overall aircraft utilization.

The next question comes from Catherine O'Brien with Goldman Sachs.

So I just want to bring it back to the fourth quarter beat for a minute. You came in ahead despite the government shutdown. We don't know what your TRASM or CASM expectations were going into the quarter. Can you just walk us through what went better? And maybe just put some numbers around maybe how much better roughly, if not exactly. I'm really just trying to get a sense of where there might be continued momentum into the first quarter.

Yes, I'm happy to start. I mean the rev outlook outperformed a little bit. And in particular, we certainly -- I think we had communicated that we did see a bit of a slowdown during government shutdown as flights were being pulled back, but that recovered so well in the weeks following. And I talked a little bit about the holiday period, but that three-week stretch, some of which does spill into January being a positive on a year-over-year was certainly a bigger catalyst than I had anticipated at the beginning of the quarter. So kind of that late demand spike was a good guide.

Sure, Catie. I'll just add in. Yes, we did have a handful of beats on the cost side as well. There are a few areas. Salaries and wages came in a little bit lower than we had expected. And then I think the point of your question, there are a few items, maybe one that I'll call out, which is in the maintenance line. We had a meaningful beat there, which I would expect to be a bit of a shift into the first quarter of '26.

Okay. Great. And then maybe, B.J., just sticking with you. On the potential for refinancing and perhaps looking to raise debt against your unencumbered assets, you mentioned that the markets look constructive right now. Is there any structure or market that looks particularly attractive? Capital markets think debt finance is [ don't go ], whatever it may be?

We like all of those products. I think for me, and certainly others can weigh in here. For me, I just think it's important that we have a piece of the capital stack on the debt side that is not aircraft funded because the aircraft have proven to be resilient throughout cycles, including through a pandemic. And I just really like the ability to tap into aircraft to raise capital, whether that's opportunistically for a large acquisition or whether that's out of defense because we see fluctuation in the demand environment.

And so I just like the idea of keeping something of similar size to our existing bond at the time of its original issuance, which was around $500 million. I like keeping something like that out there, which is secured by corporate collateral or the loyalty program.

This concludes the question-and-answer session. I'll turn the call to Sherry Wilson for closing remarks.

Thank you all for joining us today. We'll see you next quarter.

This concludes today's conference call. Thank you for joining. You may now disconnect.

Good morning, ladies and gentlemen, and thank you for standing by. My name is Rob, and I will be your conference operator. At this time, I would like to welcome everyone to today's call to discuss the definitive merger agreement under which Allegiant will acquire Sun Country. [Operator Instructions] I would now like to turn the call over to Sherry Wilson, Allegiant's Managing Director of Investor Relations. Please go ahead.

Good morning, and thank you all for joining us today. The presentation you're viewing should be considered alongside the press release issued yesterday, which are available on the Allegiant and Sun Country Investor Relations website as well as our transaction microsite, www.soringforleisure.com.

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.

Joining us from Las Vegas, we have Greg Anderson, CEO of Allegiant; Robert Neal, President and CFO of Allegiant; and Drew Wells, Chief Commercial Officer of Allegiant. We also have Jude Bricker, President and CEO of Sun Country, along with a handful of others to help answer questions. And with that, let me turn it over to Greg Anderson.

Thank you, Sherry, and thank you all for joining us today. Yesterday afternoon, we announced a definitive agreement under which Allegiant will acquire Sun Country in a cash and stock transaction at an implied value of $18.89 per Sun Country's share, which represents a premium of 19.8% over Sun Country's closing share price of $15.77 on January 9, and value Sun Country at approximately $1.5 billion, inclusive of $400 million of Sun Country's net debt.

At its core, this combination brings together 2 highly complementary airlines built on flexible capacity and low utilization models. A common focus on the leisure traveler where diversified revenue streams play a critical role in enhancing earnings with leading positions in 94% originating markets, proven histories of industry-leading financial returns, substantial growth potential from an attractive order book in targeted leisure markets and the support of robust balance sheets.

Allegiant pioneered the flexible capacity approach in the early 2000s by offering affordable and convenient service for leisure customers from underserved communities. Sun Country's President and CEO, Jude Bricker, began his career at Allegiant and together with the entire Sun Country team has successfully led Sun Country's transformation into a flexible capacity carrier with a unique business model that is complementary to ours.

We hold Sun Country in the highest regard, recognizing the close cultural connections between our 2 companies. Both employ a similar strategy for managing capacity to serve peak leisure travel periods, excel charter operations and foster a strong sense of community. Just as Sun Country has been vital to Minnesota over the last 43 years, Allegiant offers similarly important services to the 125 communities we serve, we greatly value the strong relationships that exist between an airline and its communities.

At Allegiant, we recognize the importance of preserving and enhancing Sun Country's legacy in Minneapolis St. Paul. We remain committed to delivering the same high quality experiences while offering additional options and greater value to the leisure travelers in the twin cities. Allegiant and Sun Country have both shown that our leisure-focused flexible capacity models are strong, driving and consistently profitable, which gives me great confidence in the potential benefits of combining our organizations.

Ultimately, this combination is about expanding opportunity for our travelers, for our teams and for our shareholders, while staying true to the values and operating philosophies that have made both Allegiant and some countries successful. We are really excited for what's ahead. Before I go further, I want to invite you to share his perspective on what this combination means for Sun Country's team, customers and community. Jude?

Thank you Greg. I appreciate your kind words and want to echo your excitement about this combination. I've had the privilege of working at both companies and can say that based on those experiences, this is a tremendous fit across the board, combining our leading approach to profitably serving the leisure travel market with Allegiant will create a very strong airline that can continue to serve the leisure customer for a long period of time.

Many of you know that I'm outspoken in my belief that we should be looking for opportunities that would make Sun Country a stronger competitor and enable us to offer even more choice to our customers. Over the years, we've looked at different opportunities, but we believe this combination makes the most sense as it delivers on our value commitments for customers, communities, employees and shareholders alike.

At Sun Country, we have developed an innovative way to build an airline that shares resources of multiple lines of business. Our unique focus on scheduled service, charter and cargo has been consistently profitable with high margins and has been generating significant free cash. These differentiators will immediately carry over to the combined company to help ensure it becomes a stronger national player.

Driven by strong execution from our team, we deliver some of the highest margins in the industry throughout cycles. Over the last several years, we've produced profitable growth and last quarter marked our 13th consecutive profitable quarter. Our cargo partnership with Amazon has become an increasingly important contributor to our overall revenue. If you think about the growth we can offer Allegiant through the combination, this is another important pillar.

And finally, our charter business continues to post positive results with record reported charter revenue so far in 2025. We are committed to our charter partners and look forward to being able to grow charter opportunities in the combined company. We believe this combination is also a win for our shareholders. Our fundamentals, coupled with our expanded network and the addition of a significant charter and cargo program, make for an attractive combination that we believe will deliver long-term growth and value creation for our shareholders.

The transaction value offers a significant and compelling cash premium with upside in ownership in the combined company. We expect that MSP will be a major strategic hub for the combined company with more flights in and out of MSP connecting to Allegiant's midsized markets. Importantly, our frontline employees will benefit from the transaction as part of a larger, more diversified airline with the expanded leisure travel opportunities and our charter and cargo flying, our combined company will have more year-round flying opportunities for pilots, crews and operations personnel providing additional stability and expanding career growth and greater cross training opportunities.

We are nothing without our people. To the entire Sun Country team, thank you for all that you do, you will remain core to our future success. I look forward to working with Greg as we plan to bring our airlines together. And with that, I'll hand it back to Greg to walk through the strategic rationale and value creation for our shareholders.

Jude, thank you. Turning to Slide 5. As we look at what this combination means for shareholders, I want to step back and focus on the long-term value we're creating together. Allegiant maintains a solid plan for organic growth backed by a well-timed aircraft order with Boeing.

While we have implemented several key initiatives that have reinforced our foundation and are expected to enhance future profitability, we see this acquisition as a unique opportunity to accelerate and further strengthen our well-planned strategy. This acquisition will create significant long-term value for both Allegiant and Sun Country shareholders strengthening what is already the leading flexible capacity carrier in North America.

The combination is expected to generate $140 million in annual synergies, assuming conservative estimates. We intend to optimize our complementary fleets based on where we are flying where the aircraft can be best utilized our order and option book with Boeing and which bases are best matched for the aircraft being flown.

Additionally, we expect to drive growth by flying to new potential markets by connecting Allegiant's origination markets with Sun Country's international leisure destinations, including Mexico, the Caribbean, Central America and Canada as well as connecting Minneapolis St. Paul to Allegiant's midsized markets. Greater network relevance enhances the value of the combined loyalty platform, supporting higher membership, increased engagement and stronger overall remuneration.

Our flexible capacity low utilization model will benefit from Sun Country's cargo business, and both companies will benefit from greater scale in the charter market. The charter and cargo businesses naturally help balance the typical cycle of leisure demand and mitigate fuel risk as a passthrough to the end customer.

Lastly, the combination makes financial sense by maintaining our strong balance sheet, we expect the transaction will also be accretive to our EPS in the first full year post closing. This is a compelling opportunity to create lasting value for all of our stakeholders. With that, let me turn it over to BJ to review the transaction details.

Thanks, Greg, and good morning, everyone. As Greg just shared, this is a transformative combination for our customers, team members and shareholders. I'd like to walk you through the key details of the transaction and what it means from a financial and governance perspective. Under the terms of the definitive agreement, Allegiant will acquire Sun Country in a cash and stock transaction that values Sun Country at a fully diluted equity value of $1.1 billion.

When the deal closes, Allegiant shareholders will own roughly 67% of the combined company, while Sun Country shareholders will own approximately 33%. For Sun Country shareholders, each share will be converted into 0.1557 shares of Allegiant stock plus $4.10 in cash, which, as of January 9, 2026, complies a total merger consideration of $18.89 per Sun Country share. This represents a 19.8% premium to Sun Country's closing share price of $15.77 on January 9.

We believe this is a compelling value for Sun Country shareholders, giving them both immediate benefit and the opportunity to participate in the growth of a larger, more competitive combined airlines. We expect the transaction to close in the second half of 2026, subject to customary closing conditions, including regulatory and shareholder approvals.

The combined company will continue under the Allegiant name headquartered in Las Vegas, and we're committed to maintaining a significant presence in Minnesota, which will continue to be an important base of operations. To ensure stability and continuity through the integration, we believe leadership consistency is critical. Accordingly, Greg Anderson will continue to serve as Chief Executive Officer. I'll continue to serve the company as President and Chief Financial Officer. Jude Bricker will join the combined company Board and will act as adviser to Greg during the transition. Laurie Gallagher will serve as Chairman of the Board of the combined company. In addition to Jude, 2 members will be added to Allegiant's Board of Directors upon closing of the transaction, bringing total Board members to 11.

Thanks, BJ. Turning to Slide 7. I want to spend a moment on one of the most important strengths we're bringing together with this combination, which is our unique low utilization and flexible capacity models.

Allegiant and Sun Country have similar approaches of flexing capacity to meet demand by season and by day of week. To successfully operate a flexible capacity carrier, we need the right fleet, the right team member base, the right network and most importantly, you need to have all this in your DNA.

Both Allegiant and Sun Country were specifically built with these attributes and it is how each business is run. Our aim is that the combined carrier will maintain the ability to increase utilization during peak leisure periods as well as peak leisure day of week flying, deploy aircraft into charter and cargo operations strategically, dynamically adjust routes to capture emerging leisure trends and maintain efficient point-to-point service without hub complexity. This flexibility is a core characteristic for both carriers and a key contributor to our sustained leading financial results over the years. We believe this advantage is strengthened through this transaction.

And as you can see on Slide 8, this approach has allowed both Allegiant and Sun Country to deliver near industry-leading financial results across economic cycles, including the current backdrop.

Both results are not incidental. They are the product of expertly matching capacity to meet periods of demand, a relentless focus on cost performance, a responsible approach to asset acquisition and a solid diversified revenue stream from charter and cargo operations. By joining forces, we aim to improve our ability to reshape and lead the leisure travel market throughout North America, a timely move given the recent post-pandemic shifts that have exposed vulnerabilities and other low-fare carriers which are struggling to adapt. This combination meaningfully expands access and choice.

Allegiant and Sun Country operate largely complementary route networks. Together, the combined network will provide broader access to affordable leisure travel across the United States, serving 22 million passengers annually and offering service to nearly 175 communities with meaningful opportunities for continued expansion. In short, this transaction enhances customer value by delivering greater access to affordable travel across the U.S., international and key leisure destinations.

Customers will benefit from expanded loyalty benefits across the combined platform. Supported by Allegiant's award-winning loyalty program, travelers will gain greater opportunities to earn and redeem rewards across a significantly larger network. Allegiant is currently investing in the capital program and brings a highly attractive order book of Boeing 737 MAX aircraft, which enables profitable growth.

This adds significant value to the combined business, particularly given the Sun Country owns and operates a midlife fleet of 737 aircraft and with no future fleet commitments that also generates attractive free cash flows. For our team members, both airlines share a deep commitment to safety, service and operational excellence. We believe the scale and opportunities created by the combined company will support incremental career growth and development for our people over time.

Notably, Allegiant and Sun Country share closely aligned cultures and operating philosophies which we expect to support a smooth integration process and enable our teams to uphold the exceptional standards of service and performance our customers expect.

Turning to Slide 10. While other leisure carriers have struggled, Allegiant and Sun Country have thrived. While other leisure airlines fly as much as possible on crowded routes, Allegiant and Sun Country only fly large routes when demand exceeds capacity. Additionally, both airlines retain leadership positions in their respective originating markets and thus have relevancy to the customer base. Lastly, both companies have strong balance sheets, which again, is different from other leisure carriers.

And the results of our models speak for themselves. The combined Allegiant and Sun Country generates healthy operating margins in the airline sector before accounting for synergies, while all other leisure-focused carriers generate negative margins. Additionally, the combined airline will be the only leisure carrier with a conservative balance sheet.

In short, the new Allegiant has the right scale, business model, customer relevance and financial strength to be the clear leader in leisure travel. I'm going to pass it back to BJ, who will share more on that.

As we look at the combined airlines, what truly stands out is our diversified revenue streams that enhance returns and reduce volatility. Our business models prioritize high-value scheduled service, but generate a substantial portion of scheduled service revenue from ancillary products and loyalty. Additionally, both airlines opportunistically deploy capacity into charter operations, further enhancing asset deployment and margin performance, while Sun Country adds a contracted cargo business to further diversify revenue streams.

Looking ahead, the combined entity will look to grow its charter platform, unlocking incremental opportunities while cargo will remain a critical contributor to margin enhancement, particularly during periods of softer leisure demand. With a resilient business model, we can invest in growth, deliver value to shareholders and provide stability for our teams, regardless of the broader industry environment.

Both airlines take a sophisticated and responsible approach to acquiring aircraft, prioritizing ownership over leasing. Since the vast majority of our fleet is owned, the combined companies will be able to deploy capacity more flexibly and efficiently wherever it can earn the highest return, reinforcing our position as a leading flexible capacity carrier in the U.S.

Additionally, the combined fleet will have significant embedded equity value, which can be unlocked opportunistically to further reduce leverage and drive equity returns. We believe Allegiant and Sun Country stand out in the industry in our ability to realize value through best-in-class fleet management.

With our expanded and flexible fleet, we're well positioned to unlock significant market growth opportunities across the combined network. Allegiant contributes a broad U.S. network, serving more than 550 routes, an award-winning loyalty program, a strong domestic leisure presence across more than 80 originating cities and a meaningful charter operation that helps smooth seasonality.

Sun Country contributes 105 routes, a valuable position in Minneapolis St. Paul and an established international leisure footprint with 18 destinations across Mexico, the Caribbean, Canada and Latin America. It also brings a diversified revenue model, spanning scheduled service, charter and cargo. Importantly, Sun Country is a profitable business with strong free cash flow generation and minimal remaining capital requirement.

When combined, the network optimizes aircraft and airport utilization, enhances seasonal scheduling agility and expands customer choice, offering more relevance to customers in many cities. Growth opportunities include connecting the dots between complementary networks, serving international leisure destinations from Allegiant's origination markets and added frequency, leveraging both customer bases across the Midwest.

This kind of network flexibility allows us to pursue growth where it makes the most sense and drive value for our customers and shareholders while strengthening our position as the leader in flexible leisure travel.

Turning to Slide 15. We outlined the key drivers of the synergy opportunity we see in the combination. Based on our analysis, we expect to achieve an annual run rate of approximately $140 million in synergies, net of dis-synergies at approximately 3 years post close.

Importantly, we also believe there is meaningful potential upside to this estimate over time. The largest driver of value is network and scheduling optimization. The combination creates a broader, more complementary footprint and larger fleet that enhances our ability to tactically deploy capacity across markets and seasons.

With greater scale and flexibility, we expect to better align aircraft type utilization, stage length engaged with underlying demand, supporting improved asset productivity and margin performance. These efforts build on operating practices, both companies already execute well today. A second driver is expanded relevance in the Midwest through a more comprehensive network and distribution platform.

By linking complementary systems, we can broaden route coverage and improve access to leisure destinations for Midwest customers while leveraging point-to-point infrastructure well suited to our model. This expanded reach is expected to support demand stimulation, higher load factors and improved unit economics without adding structural complexity.

Additionally, the broader footprint improves co-brand economics and enhances the utility of the loyalty platform for the combined company. A larger network increases opportunities for customers to earn and redeem points across more destinations, driving engagement and supporting higher cardholder spend. We expect these dynamics to strengthen the value of the proposition of the co-brand program and contribute incremental revenue over time.

Charter efficiencies are enhanced through broader resources, increased scale across operational bases, flight crews, aircraft types and deployable assets expands our ability to serve charter demand more efficiently. This improves off-peak utilization, supports incremental revenue opportunities and reinforces the flexibility of the overall business model. And beyond these core drivers, we see additional upside potential from several areas, including increased flexibility in fleet and asset management, best-in-class third-party ancillary optimization, cargo efficiencies enabled by a broader operational footprint, international scale and improve speed to market and benefits associated with a stronger balance sheet.

Taken together, these initiatives underpin our expectation of approximately $140 million in annual EBITDA synergies, net of dis-synergies with meaningful upside potential as we continue to execute and identify new opportunities across the combined platform.

Turning slides. The transaction is expected to be earnings accretive in the first full year post closing, with accretion growing as full synergies are realized. Additionally, we expect the transaction to increase Allegiant's return on capital and free cash flow. Return on invested capital when considering synergies is expected to be in the mid-teen percentage range.

Importantly, we remain committed to a disciplined balance sheet approach. This transaction does not change our capital allocation priorities, and we expect to maintain strong liquidity and financial flexibility throughout the integration with pro forma adjusted net debt to EBITDAR of less than 3x.

Thanks, BJ, and thank you again to everyone for joining us. Before we open it up for questions, I want to take a moment to summarize why we're so excited about this combination and what it means for all of our stakeholders. The combined carriers will provide a larger network serving more markets with a better loyalty program, all of which accrue to the benefit of our customers and the communities we serve, which means more family vacations or last-minute getaways.

Additionally, enhanced fleet management across the combined entity also improves reliability and on-time performance, delivering a more consistent and dependable travel experience. A larger and more seasonally balanced business will also create more career opportunities for our team members while also allowing us to continue to invest in professional development and employee engagement.

Finally, the combination is expected to create significant shareholder value by bringing together complementary business models with leading industry margins and unlocking approximately $140 million in annual synergies and supporting sustainable long-term growth and cash generation. With that, let's open it up for your questions.

[Operator Instructions] Your first question comes from the line of Andrew Didora from Bank of America.

Congratulations on getting this deal across. I guess my question just in terms of labor. I know you've been working on your pilot deal for quite some time now. Just from a process standpoint, does that stop and now you work on a combined deal? Or are you just going full steam ahead with your pilots right now and worry about combining at a later point?

Andrew, it's Greg. Thanks for the question. Our pilots are obviously critical to our success, and it's important that we get it right. I'm confident that we're going to get there. We are, though, in the mediation process and the NMB will dictate the timing and we'll work closely with them and our pilot union throughout this process.

Your next question comes from the line of Michael Linenberg from Deutsche Bank.

Congrats on this announcement. If you can just give us an update on the timing. Have you filed Hart-Scott-Rodino, or does that happen this week? You also indicated that the close is the second half of 2026. And so in order to get some of these synergies, I guess, we would see the timing around the merging of the certificate and the transition or the cut over the passenger service system, any sort of milestones that you can provide around the timing.

Michael, it's Greg. Why don't I kick it off. As we mentioned, we expect the transaction to close roughly in the second half of 2026. This is obviously subject to shareholder approval and also the required regulatory approvals. Post close, then we would go to the integration process, which I think on average for airlines takes roughly 14 months, and that's where we'd be working to get towards a single operating certificate. And then was there any -- did I miss anything on the question, Michael or...

Yes, I can add in here. We haven't filed for the HSR -- Sorry, Mike, this is BJ. We haven't committed HSR filing yet. And then I would just mention on the synergy capture, we were expecting some of that to come in before there's a single operating certificate. So that would begin post close.

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

Maybe just a follow-up on timing. Maybe for each of you, if you could answer Allegiant and Sun Country why now for this transaction? And then for Jude, how did you think through the premium? And what are your plans post close?

Thanks, Duane. This is Greg. I'll kick it off and then hand it over to Jude. Think for us on timing, there's multiple factors, but readiness played a big part, as I think everyone on the call is aware, we had several key initiatives that we've been working towards over the past year and really helped reinforce our foundation. And I think Allegiant here, we are in a better position of operational and financial strength.

As we talked a lot about organizationally, we've divested of Sunseeker to focus solely on the airline commercially. We've modernized our technology. We broadened product offerings. Financially, we meaningfully improved our balance sheet. Operationally, we restored our peak utilization. We've introduced MAX aircraft, and we're running the best operations in our company's history.

And so as we were going through this and really strengthening our foundation, we did a lot of internal work on what's the right path forward. And it was clear that Sun Country was a great strategic fit with complementary business. And so the bottom line is, we think this combination should position us as we put in our opening remarks is the clear leader in the flexible leisure travel sector. It's accretive, drives value to all stakeholders, and we think it's good for the industry. So with that, maybe I pass it to Jude for his thoughts.

I mean I don't have much to add on timing. We obviously know each other for a long time, has similar businesses. I've felt for a long time that this combination will work. And timing tends to be a moment where both parties have the bandwidth to embark on the project and have the willingness. And so it just kind of came together when Greg approached us in November, it just happened where both parties, I think, at the same time, we're willing to kind of engage on this issue.

Regarding the premium, what was important to us is that we continue to benefit from the strengths of our business. I think we have a great business here at Sun Country, diversified and with some of the highest margins in the industry. I also have tremendous respect for Allegiant's core business with small city origination, really large moats around that business. It's sustained profitability over a really long period of time. And then we're going to be able to grow Minneapolis a lot faster.

So it benefits our customer base here in the twin cities with access to Allegiant's order book. So there wasn't a lot of downside for us. As we were negotiating the deal, the main thing that we were pushing on is making sure that my shareholders were able to retain value in the ongoing entity and we were able to do that and get them also a premium. So it's kind of come together. You also asked about my plans and I want to be clear, I'm focused on making sure that this deal works and is executed as best as we can. And so no other thoughts than that.

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

And congrats on the announcement. I just wanted to discuss how the fleet factored into the timing of the merger if it did. Sun Country, obviously, as you've noted, does not have an order book, secondary market for used aircraft is very tight. Allegiant has that well-timed MAX order. Is there enough flexibility across Allegiant's current fleet and order book for this combination to support greater growth than the 2 stand-alone companies, just from a fleet availability perspective.

And then, Greg, what are the guardrails you'll be using to actually decide what level of growth is appropriate on the combined fleet?

Katie, thanks for the question. Let me kick it off, and I think BJ and Drew may add some additional color around fleet. Like it's -- both of us own on our aircraft, and we both have significant embedded equity value in the combined fleet. We have the lowest or near the lowest aircraft ownership costs in the industry.

So I think that really helps reinforce our low utilization, flexible capacity approach as a combined company and it will enable us over time to put the right aircraft in the right markets, but let me pass it to BJ and then perhaps Jude too, on the growth.

Yes. Katie, I would just say, certainly, just fleet flexibility did play into the analysis here. Just I think I mentioned in the prepared remarks, we really respect Sun Country and honestly, from when Jude was back here at Allegiant, I think both of these carriers are sort of best-in-class when it comes to buying and selling airplanes and there's just really good opportunity between the 2 fleets.

We did definitely think about how Sun Country is a business that produces strong free cash flow, but also doesn't have a committed order book, and we've been investing in our committed order book, but we've been in that capital plan in the last couple of years. So fleet played a significant role. And then when we think about the right way to grow the airline and whether that means exercising our options or buying aircraft in the used market or even liquidating some of the assets that are in our portfolio today. It will just be a function of how the business is performing and what our sort of next 12, 24, 36-month opportunities look like.

Yes. Maybe just, Drew, here talking growth, we spent the last few years kind of mentioned the high single-digit growth rate is probably the right kind of run rate as a mature entity. Obviously, we'll bring some of the cargo flying into the fold, which we'll have to get our head around a little bit when it comes to planning.

But I still think that's right, kind of looking 6% to 8% something off our 10% historic rate a little bit, but we're a little bit larger there. I think that's probably a prudent rate for us.

Kate, if I could just add, the fleet optimization opportunity is significant and also over and above the reported synergies that we released this morning.

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

I had a question on integration. Where do you see are the key risks specific to this particular integration? And how do you think you will manage that risk?

Atul, it's Greg. It's a great question. We've been focused on a very disciplined integration plan and approach where we're going to preserve what we think makes sense on both sides and what's successful between both companies. We recognize that well-planned integration is incredibly important and to sequence these activities carefully.

So where integration creates value, we're going to pursue that quickly. Where it doesn't we'll keep what works, and we'll be really mindful about the risks. It's key that we maintain operational stability and continuity. BJ and I have been working towards our integration office for a number of weeks now as we were preparing for this announcement.

There's still a lot of work to do. We've named one of our Senior Vice President, Michael Broderick as our Chief Integration Officer. He's going to oversee our integration management office and put together a dedicated team. Additionally, we engaged BCG and their team to help support us through this process, and we did that a week or so ago, and they're already out here assisting to make sure we hit the ground running because this is -- we haven't done it before on either side. And so we want to make sure we're getting ahead of it and well planned to the best we can. But I have BJ and Michael in the room here as well. Anything that you want to post on that any more details?

Yes. Thanks, Greg. We're -- we have typical risk that any of the mergers we've seen in the past space. Greg mentioned people and culture that will be top of mind, but also these naturally come with significant technological integration that will take careful planning.

We have mentioned in previous questions around the PSS system, both airlines are on Navitaire, which we think, while still a technical integration and taking a lot of coordination and planning, does ease some of that significant data migration risk and customer-facing risk.

And then Atul, this is BJ. I'll just mention in the onetime integration cost that we flashed in the deck there. I think we have quite a conservative allowance versus sort of unallocated costs that we might come across in the integration.

Your next question comes from the line of Scott Group from Wolfe Research.

Just mechanically, can you just discuss that this was a competitive process and what the breakup and reverse breakup fees are? And then maybe just separately, if you could just talk about pro forma CapEx and CASM-X for the combined airline in the next few years?

I think on the -- some of those questions around the breakup fee, we'll wait until the proxy is filed, Scott, and then on the pro forma basis, I don't know that we're ready to give long-term guidance on that at this point, but we're -- we feel strongly that the combined entity will have healthy earnings, well this is even before synergies. We're going to continue to concentrate flying when and where it makes the most sense and most profitable peak these are periods.

So it will be more diversified with the contract flying, larger charter program and cargo, which, by the way, fuel pass-through on that. But both companies are very focused on keeping a low-cost structure, and we'll continue to maintain that discipline.

Scott, on CapEx, yes, I guess we won't go into unitized metrics out into the future. But on CapEx, I would tell you that I think we've talked about 2026 being the peak of the CapEx from our firm committed Boeing order. And then I think Sun Country has been quite public that they don't have any future fleet commitments. So we don't expect meaningful changes in the pro forma CapEx profile of the combined entity.

And if I could just sneak in one more. So I know the slides say mid-single-digit sort of earnings accretion. Just -- any high-level thoughts on how you guys are thinking about '26 just so we can understand sort of baseline there?

So when we say mid-single digit earnings accretion, that's year 1 post close. So just with the time line that we've kind of given on the call, that's really a 2027 number. We've got our 4Q earnings call coming up in a couple of weeks, but what we have shared about 2026 is that we would expect capacity to be flattish for the year and constrained by fleet on the Allegiant side.

On the Sun Country side, Scott, we're going to grow black hours by about 8%. Most of that will go into our cargo growth as we lap the incremental 8 airplanes that we took on in 2025. We're also taking on 2 additional airplanes that will be introduced in fleet this summer in the cargo side. So our cargo growth will outpace pretty dramatically by our scheduled service growth and we're on pace to continue to march towards our run rate $300 million of EBITDA that we've been talking about, which should happen late 2027.

And so to the extent we're operating as an independent company up until close, you could consider that kind of linear EBITDA growth between now and then.

Your next question comes from the line of Tom Fitzgerald from TD Cowen.

And congratulations. I was just curious on Minneapolis, Jude, just based on your comments, I would have expected maybe many would see a little bit less growth from here and as you guys move towards the Allegiant model.

So maybe you could just talk about how you're thinking about the network broadly in 1 plus 1 equals 3 opportunities and the outlook for many?

Sure. MSP is going to be a big beneficiary of this transaction. This is about growth. We're going to see more seats and lower fares here in our home market. And the reason is all our planes go to sleep here and then leave in the morning. And so we're maxed out capacity-wise kind of for 2 hours in the morning, and then we hit -- fly the planes out, come back in to an afternoon turn.

So on peak days, our terminal sits idle for several hours in the midmorning and several hours in the midafternoon. With planes based around the country on the Allegiant network, we'll be able as a combined company to turn those planes into Minneapolis, when the gates aren't utilized. And they're already paid for, and they're already staffed. So that's a significant synergy.

And Minneapolis as a major market in the country has pretty long seasonal tails and can support a wide range of leisure destinations. So there's tremendous opportunity here in Minneapolis as a combined company.

Yes. Tom, Drew here. We have a pretty good history of this with Allegiant. As you think about the evolution of our basing strategy, we ran into many of the same issues that Jude described in Vegas and Mesa and Orlando and so on. So the development of the Mid-Continent base is getting us to 20 or so domiciles really help flatten that airport utilization in a really meaningful way.

We absolutely intend to do the same thing with Minneapolis and then take great advantage of those lulls that Jude mentioned. It's really accretive to revenue because you're flying at much better times a day as well as striking a great balance kind of across the network. And maybe one more thing that you've kind of aligned. If you look at our results, Sun Country has phenomenal 1Q margins.

I think we tend to pull ahead a little bit in second and fourth quarters and being able to kind of seasonally blend those together creates just a ton of power across both networks in a way that MSP will play a huge role alongside the rest of the combined network.

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

Congratulations on the transaction. Just in the context of the 68% capacity growth that you mentioned, I assume a lot of that growth is just connecting of the dots as you talked about. Can you just break down what actual percentage of that is? And then maybe why isn't the international growth from Allegiant assumed in the synergies? It just seems like that's a real big opportunity. And does that mean it's additive to that 6% to 8% growth assumption?

Thanks, Conor. So I probably won't break out the 6% to 8% today in terms of what I think that's going to look like for new markets versus added frequencies. Both are going to play a role. As you think about blending Sun Country with a very, very strong origination presence in MSP and Allegiant that's historically been a bit more destination ownership focus.

I think it's really powerful to bring those 2 mindsets together in a way that's going to create bidirectional traffic in a way that either carrier probably hasn't had to the fullest extent. And I think that's going to lead to a lot of elevated demand on existing routes is going to lend itself well to add this frequency.

So maybe relative to Allegiant's historical run rate, maybe we're slightly higher on added frequency to new routes. On the international, we absolutely think it's a huge win across our network. We think it's more of a pull forward. This is something we were going to get to.

I mean, Lord knows we talked about it for a better part of a decade. So we didn't necessarily view it as kind of an incremental synergy, if you will, but rather something we'll pull forward and it's absolutely part of that 6% to 8% as I see it today.

Your next question comes from the line of [Technical Difficulty].

I think it's cutting out a little bit. For Drew, I wonder if you could just talk a little bit about the key synergy drivers that you -- maybe this is for BJ, that you kind of laid out in that one slide and maybe a little bit on like what steps it needs -- that needs to be done to kind of unlock those? I know originally, I think Greg mentioned maybe not necessarily needing to have LSSC for everything. So just kind of curious as to what steps you need to do to kind of unlock some of those synergies that are called out?

Sure. Yes, I'll kind of take it at some of a high level here. We've talked about a lot of it through the call. Jude hit on this, and I think it's absolutely one of the biggest drivers is our ability to fill in those gaps alongside MSPs, right? Filling in from our 20-plus bases, including now MSP is really, really powerful it's unlocking the right times of day a more enhanced network.

We talked about the blend of an origin focus and destination focus, driving more bidirectional traffic that I think is going to lend us up really nicely to low-hanging fruit and added frequency across a number of strong routes. As we think about where each of us has been strong historically, there's a lot of Midwest and in particular, Upper Midwest relevance. I think putting those 2 together through network, through the distribution we'll be able to get is quite powerful as well.

And I'd be remiss not to talk a little bit about fixed fee and cargo as a part of this and just the efficiencies looking we'll get with -- again, coming back to that broader basing and domicile network, just being able to be a bit more efficient with reducing ferry miles or deadhead miles that are the most inefficient in a current set of goes a long ways towards one lifting the floor on our off-peak times as we're able to generate some flying that is a fuel pass-through that can be an offset to any kind of passenger demand downturn I think goes a long way here. And maybe I'll look to the team if there's anything else I'd like to add.

Savi, I'll just share on the cost side and on timing. So we gave the $140 million estimate. Some of the revenue stuff, the drivers that Drew mentioned can start coming in, in year 1? And then Greg talked through sort of the sequencing of closing and then combined certificate. I would envision in the backdrop of that time line that we could get close to half of that synergy amount even in year 1.

That's helpful. In terms of unlocking, though, it's really just a matter of picking which one works, which one is most important and applying into the network. Is that how I should think about at least on the revenue side?

Sorry, look, maybe picking which one is more important?

In the sense that I guess what I'm really trying to understand what are the gating factors to realizing these synergies? And have you kind of walked through that in a timing perspective?

Yes. I mean for the kind of the scheduling bits, I think, yes, that's just taking a look post close at how we can most effectively and efficiently route and again, continue to match the capacity with the demand that we see and that we forecast.

So I think to BJ's point, that's a pretty quick win post close. For some of the other parts, right? I mean establishing a code share relationship early on post-close, I think, will be helpful from the distribution, just being able to get the full benefit from both customer bases as that comes available.

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

Have you guys spoken with Amazon or any of the charter long-term contract holders? And do you know if any change of control clauses in any of those contracts? And also do you see any reprioritization of growth between scheduled service, charter and cargo as a result of this deal?

Ravi, it's Greg. Why don't I kick it off on the Amazon front. Drew, I'd ask him to come in, perhaps to provide his perspective and then we'll follow up on the second question there. But it's -- the cargo part is very important to the Sun Country business. We expect that to continue on with the combined company.

We've had multiple discussions leading up to this announcement with Amazon, including Jude and BJ and I and Rose from Jude's team, we visited them in person in Seattle. And Jude just mentioned since those discussions, they've committed to add 2 more aircraft here in 2026.

So we're confident in this partnership continuing, and we look forward to maintaining the same reliable service levels that are being provided today by the Sun Country team around the cargo flying. Jude, do you want to add any more perspective on it?

Yes. Greg and I have been engaged with Amazon since we started this process. Through that process, they've added 2 more cargo aircraft to our fleet of 20 taking it to 22 in the knowledge that this transaction is happening. Other than the Amazon agreement here at Sun Country, there aren't any other material change to control considerations.

And maybe just quickly on kind of longer-term growth, right? I don't anticipate reprioritizing any differently than what we have like Greg and Jude mentioned, the cargo program is going to continue to be an important part of what we do. We love the prospect of some of these long-term fixed fee contracts.

So as we kind of get into it, we'll review profitability like we would do otherwise and kind of make sure that we're continuing to grow in a prudent way across all 3 of the channels.

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

Congratulations guys. Following up on a prior question in the commentary that you don't expect a change in pro forma CapEx. I guess my question is, are there any conditions under which the deal could be renegotiated? So Jet Blue and Spirit are top of mind here, if this merger were to be challenged by the DOJ and then time line extended for closing, business conditions changed, scenarios such as that. I'm wondering if you can just provide some perspective. And then I'm just curious a little bit about how loyalty contributes to synergies. I'm just wondering if you can elaborate a little bit more on that as well.

Dan, on the first part, I don't think we want to comment on hypotheticals. My attorneys are looking at me and saying no. So sorry about that. But Drew, could you comment on that part?

Yes. On the loyalty, some of it is fairly straightforward, opening up some of the international destinations to the Allegiant customer base is going to be huge, especially from the burn side of it. As we just want to continue to give our customers the right products, the right destinations to be able to enjoy all their leisure experiences.

And further, as we just kind of continue to grow the program, it's great for the economics if you think about spend as we think about relevance as we think about any interactions with banks going forward, there should just be kind of continued benefits on that side. So we'll get a lot of size, scale and benefits on those.

I just also want to add from the customer's perspective, the loyalty program will get a lot better. So we have 1.6 million loyalty members during the -- largely here in the twin cities, and they'll have more destination opportunities more frequently. The program will be enhanced for our current loyalty members.

Your next question comes from the line of John Godyn from Citi.

Congratulations. I wanted to just unpack the synergies a bit and there have been a few questions, but in the slides, there was a note about dissynergies for labor. I was hoping you could quantify the dissynergy that's in the $140 million? And are there any other dissynergies that it's net of?

John, it's BJ. I don't want to give the exact estimate that we have in there for dissynergies. I will tell you that we assumed those come in, in sort of the second half of the 3-year outline that we gave here and really the lines like nearly all of the dissynergies are labor related.

Yes. Okay. Fair enough. And maybe we could just kind of brainstorm along each other on sensitizing the synergy number. When I think of like the last handful of deals in the industry, 3%, 4% of revenue is kind of a popular place to fall out. But when I go back and think about Delta Northwest years ago, U.S. Ares America West, some of the deals that kind of really transformed the industry back then, it was 6%.

That was the buzz, that was sort of the number to hit. Is there any situation where you guys see the percentage of revenue synergies as a percentage of revenue kind of expanding meaningfully? And like what might that look like as a brainstorm if it's even possible.

Yes, I can...

You do want to start, Greg?

Yes, sure. I'll start. I mean, I think the drivers that we gave on the slide there are meaningful opportunities for upside in the synergy capture. I think both Sun Country and Allegiant today have talked about how massive the opportunity is in just fleet optimization alone. And so those ones are harder to quantify on the P&L. But there's significant opportunities there. And then you just go down the list, the broader route network, our 20-plus bases across the U.S. that can more optimally support the Amazon and cargo operation, with the stronger combined balance sheet, the items we've talked about here on the call today.

And the only other thing I would add to that is, to BJ's point, we want to under promise in order to over-deliver on the synergy estimates. Both companies ran independent analysis on it, and we came together. And I think it's safe to say, and Jude can certainly add that we both aligned on the synergies, and we both feel confident that with our ability to beat them.

Nothing to add from my side.

Your next question comes from the line of James Kirby from JPMorgan.

Jamie and I were wondering, and maybe this will come out a proxy, but were there any other business combinations you were considering? Or was this really the only one given the alignment of business models?

I think that's for me. We didn't do a thing. We didn't set out to sell. So we have a great stand-alone business. So as a requirement, we would need to be able to outperform that stand-alone business. And further, we would need to have the stake in the outcome that would allow us to take advantage of where we think we're in an inflection point with absorbing the cargo growth, all the things we've been talking about in the last several quarters.

So this deal allowed that to happen and Allegiant's really unique airline, and we're a really unique airline. So there wasn't really that many fit, quite frankly. So as long as the economics work for us and we were able to demonstrate benefit for our employees and customers, that's where we kind of fell out.

And James, I'll just add. It's Greg. We -- over here, we're very familiar with the players and the dynamics of our industry. Just candidly, we don't see another combination in our industry that can deliver the value of this transaction can. We've talked a lot about Sun Country, their strategy, their capabilities, the cultural closeness that aligns with us. They're the right partner. And we think the combined carrier can deliver greater value together.

Your final question comes from the line of Christopher Stathoulopoulos from Susquehanna.

Going back to the comments around Amazon. So it sounds like during the discussion, 2 more aircraft were added, that would put you to 22. Just looking at the map here on Slide 14, are there any limiting factors to growing the combined network beyond that?

And then, b, on the loyalty side, you did give some color on an earlier question, but I believe, Greg, a few months ago, you were talking about potentially reevaluating the loyalty program. So does this put that on hold. Just want to get a little bit more color on how combined co remuneration might look like.

Sure, yes. Looking at the network map, there's no meaningful or newly introduced constraints to being able to grow that I think we look at the world fairly similarly in terms of what we'll be able to generate. So still just a ton of bullishness and upside on what we'll be able to do with the sched service network.

Obviously, as fleet allows that growth into the back half of the year, I expect a ton of opportunity post close. With the loyalty program, we're still down the path of refreshing that program with or without this, we were a decade without doing anything there. And this is only going to serve to drive more scale and more opportunity and benefit here. So I'm even more excited about the potential coming out of that program in light of this.

And that reaches the end of our question-and-answer session. I will now turn the call back over to Sherry Wilson for some final closing comments.

Thank you all for joining us on such short notice this morning. We'll chat again in a few short weeks.

This concludes today's conference call. Thank you for your participation. You may now disconnect.

Good afternoon, ladies and gentlemen, and thank you for standing by. My name is Kelvin, and I will be your conference operator today. At this time, I would like to welcome everyone to the Allegiant Travel Company's Third Quarter 2025 Earnings Call. [Operator Instructions]

I would now like to turn the call over to Sherry Wilson, Managing Director of Investor Relations. Please go ahead.

Thank you, Kelvin. Welcome to the Allegiant Travel Company's Third Quarter 2025 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 1 question and 1 follow-up.

The company's comments today will contain forward-looking statements concerning our future performance, and strategic plans. 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.

Sherry, thank you and thank you, everyone, for joining us today.

As I reflect back on the past year plus as CEO, I'm proud of the great strides we have made to strengthen our core airline and our focus on making sure we return to our roots as a solid double-digit operating margin business. A hallmark of our success is that we are the leisure carrier of choice in the communities we serve by offering convenient non-stop flights at the lowest fares. That success is also because of Team Allegiant's dedication and execution that underscores our ability to provide consistent and reliable operations for our customers.

Our performance is demonstrated by our industry-leading completion factor for July, a peak period that set a new monthly record for the number of customers flown. It is also reinforced by our net promoter scores, which remained near all-time highs, reaffirming the loyalty of our customer base and the strength of our brand. I'm particularly proud that we were recognized by USA Today's Reader's Choice Award for the Best Airline Credit Card for the seventh year in a row, and Best Frequent Flyer Program for the second consecutive year.

We designed our programs to serve the needs of our leisure customers, which include high value and frequent travelers. The success of our loyalty program and the fact that we are on pace to generate $135 million in remuneration from it this year underscores our relevancy in the markets we serve, and we see a lot of opportunities to enhance these programs to drive outsized growth in the years ahead.

Turning to the third quarter. We saw steady improvement in the demand environment, allowing us to outperform our initial forecast in both revenue and costs. As expected, we reported a modest operating loss in what is typically our weakest period of the year, but it was at the better end of our guidance range. So far this year, average daily peak utilization per aircraft is over 9 hours, near record 2019 levels, and we are delivering one of our best operational performances despite the higher levels of flying on the peak days.

The fruit of our cost structure initiatives can be seen in our industry-leading CASM-ex, which is down 7% year-to-date. That reflects our efforts to remove structural costs and grow ASMs without adding aircraft or personnel. As discussed on prior calls, there are several continuing key initiatives driving financial performance improvement. By year end, we anticipate having 16 MAX aircraft in service. Bringing on this new fleet type has been a long time coming, and its integration this year has gone very well. We are now on pace for the MAX fleet to comprise over 20% of our ASMs in 2026, and earn strong returns on the investments we have made in them over the past few years.

The MAX fleet continues to perform nicely, both operationally and financially, and is much improved from our older-gen A320s. In addition, owning our aircraft rather than leasing gives us important flexibility to respond to dynamic market conditions. Our Allegiant Extra product is now available on 70% of our planes and is exceeding expectations in demand and customer satisfaction with positive benefits to TRASM and margins.

We continue to modernize our technology. Now that our Navitaire system is post-implementation, we are turning our sites to other technology initiatives for improvement, such as website conversion, customer personalization, customer journey, and enhancing communication throughout all phases of travel.

Additionally, we are investing in our technology stack to take advantage of the power of AI and optimize our infrastructure for faster interactions and data-driven decision-making. As we turn for the remainder of 2025, we are seeing improvement in leisure demand, particularly around the holidays. We expect a fourth quarter operating margin in double digits and a full-year airline operating margin of approximately 7%. As a result, we raised our airline EPS, our airline only EPS guide to more than $4.35 per share for the full-year 2025. And we are optimistic as we look forward to 2026.

From an industry perspective, carriers are moderating their domestic capacity plans, and we are planning on flattish capacity next year as we drive a higher percentage of peak day flying and harness a full year of benefits from the initiatives I just mentioned. When you put it all together, we are poised to deliver margin expansion that continues to set us apart from our peers, further highlighting our low utilization, flexible capacity model is truly differentiated.

Our capital allocation priorities remain the same. Our top priority is reinvesting in our business. We will remain disciplined in our goal to balance growth with margins and maintain flexibility, which has served us well throughout our history. And before I conclude, I'd like to congratulate BJ on his promotion to President. He will also continue to serve in the Chief Financial Officer role.

BJ has been an exceptional partner and leader, instrumental in driving both Allegiant's financial and operational strengths alongside our strategic execution. He knows our business and this industry well, and I look forward to continuing to work closely with him and the rest of our excellent management team in shaping Allegiant's bright future. I also want to extend my sincere gratitude to the entire Team Allegiant. Their hard work and discipline have meaningfully strengthened our foundation and positions us well for 2026 and beyond.

Lastly, I also want to thank the aviation professionals across the system, both within Allegiant and throughout the industry, who have continued to work tirelessly throughout the government shutdown and ongoing ATC constraints. Thanks to their dedication, we have successfully minimized disruption and protected the journeys of our customers.

And with that, let me turn it over to Drew to provide details on our commercial performance.

Thank you, Greg, and thanks to everyone for joining us this afternoon.

We finished the third quarter with $553 million in airline revenue, approximately 0.5% above the prior year, producing a third quarter TRASM of $0.1119. This was down 8.4% year-over-year, in line with our internal expectations from our mid-quarter update and consistent with the original expectation of sequential year-over-year improvement.

Allegiant grew total ASM 9.7% versus 3Q '24, with overall utilization up 10%. Also consistent with our August call was the expected unit revenue improvement in same capacity markets versus the second quarter, which recovered approximately 1 point to down about 5% year-over-year, again, perhaps oversimplified. With a growth expected TRASM headwind of approximately 4 points, we slightly outperformed the combination of core flat capacity performance and the expectation from our elevated growth rate.

Further, within the quarter, we saw all 3 months produce better year-over-year unit revenue figures than any month in the second quarter, and the best load factor results for its prior year of any month year-to-date. Meanwhile, the profile of new market ASMs as a percent of the total will steadily tick higher. The third quarter ended around 5%, while the fourth quarter will ramp up to over 5.5% of scheduled service ASMs and is expected to rise again in the first quarter.

51 routes operated in the summer of 2025 that did not operate in the previous summer. Of those, approximately 85% of them contributed positively to earnings in their first summer of operation. The results from these markets rolled into announcing more new and exciting route opportunities through the third quarter. 19 new routes are set to begin Thanksgiving to early spring, including 14 cities: Fort Myers, Florida; Huntsville, Alabama; Atlantic City, New Jersey; and Burbank, California.

We're encouraged by the early performance of our new cities and markets and continue to see customers embrace our reliable and convenient travel at unbeatable value. The third quarter of 2025 marked 3 consecutive years of industry commentary around abnormal peak to off-peak relationships in the quarter, be it the tail end of the post-pandemic demand surge into a more typical fall in 2023, or the relatively sluggish July marked by late summer demand uptick into the fall over the last 2 years. All 3 of those quarters saw sequential TRASM declines in the second quarter below pre-pandemic beating levels.

Meanwhile, the fourth quarter has remained more resilient, with each of the last 3 years hitting a TRASM above $0.13, a feat we accomplished in just 1 quarter pre-pandemic. As a result of the diverging quarterly trends, our 4Q performance has looked relatively better each year, and that pattern is expected to continue in 2025. As mentioned on the last call, we expect sequential improvement in the year-over-year TRASM results for the fourth quarter, and that should hold into the first quarter of 2026 as well.

The converting benefits from Navitaire development we discussed in the last call yield a load factor benefit in the third quarter, as I described earlier, and should persist into the fourth quarter. Despite a roughly 10% scheduled service ASM growth profile in 4Q '25, we expect load factors to be flat to slightly up in the fourth quarter versus 4Q '24. And while capacity for the quarter as a whole is expected to grow roughly 10%, much of that is due to the weather-impacted comparison of October 2024.

November and December 2025 expect combined to be approximately 6% higher year-over-year for scheduled service ASMs. Our peak Thanksgiving and Christmas week utilization profiled slightly higher than prior year and around all-time highs during the peak periods. We are incredibly encouraged by peak holiday demand profiling similar to last year as well. Our customer base remains well positioned for leisure travel. Our network lends itself to a lower cost of living profile, with median household income over $100,000.

We continue to see demand trending closely to legacy commentary on main cabin performance as well as continued opportunity with our Allegiant Extra Cabin, our award-winning Allegiant Always co-branded credit card loyalty programs and beyond. We've completed a multi-year journey of retrofitting our Airbus aircraft with the Allegiant Extra layout. We continue to see results hold through the expanded offering and repurchase rates growing. Further, the results on the MAX aircraft are in line with the expectations set by current Airbus performance, and we should start to see efficiency benefits from the transition of our Fort Lauderdale base to solely MAX aircraft in the fourth quarter.

Our formal review of the co-brand program is nearing an end. We expect to receive approximately $135 million of remuneration in full-year '25. But as we'd expected, given the time since program launch, we believe there will be meaningful opportunities for evolution and improvements. However, there are a few easy parts. Of course, we will soon shift into execution mode, working through the negotiations, logistics and bringing the plan to life.

In the short term, we continue to test new acquisition tactics and offers. We realized mid-20% lift on new card acquisition in the month of September and October. As a multi-year core system transition moves into the rearview mirror, our foundation and technology can enable further commercial initiatives, and we're excited to bring the customer experience at a value into focus. Allegion Extra co-brand program update and other commercial developments allow us to better segment for a broad spectrum of customer preferences.

And now, I'd like to hand it over to Robert Neal, Mr. President.

Thanks, Drew, and good afternoon, everyone.

I'll go ahead and walk through our results and provide an update on our outlook and financial position. As with prior calls, my comments today will reference results that have been adjusted to exclude special items unless otherwise noted. This afternoon, we reported a consolidated net loss of $37.7 million or a loss of $2.09 per share. We had a net loss in the Airline segment of $29.5 million, or a loss of $1.64 per share.

Our Airline segment generated a negative 3.1% operating margin, which was at the better end of our original guided range as suggested in our August traffic release. The quarter came in ahead of our forecast on both costs and revenue, while a reduced tax benefit brought EPS slightly below our September expectations. This was driven predominantly by a change in our estimated tax rate, which reflected an improved revenue outlook for the remainder of 2025.

Notably, the sale of Sunseeker Resort closed on September 4, marking a significant milestone for the company, supporting balance sheet improvement and driving better consolidated earnings. Airline EBITDA for the quarter was $41.5 million, giving us an EBITDA margin of 7.5%. Through the peak summer season, our team delivered operational excellence for our customers, which underpinned cost performance that continued to exceed our forecast.

Third quarter non-fuel unit costs were down 4.7% year-over-year. Our ability to leverage existing infrastructure, grow into our workforce and execute on the cost initiatives outlined on prior calls has resulted in industry-leading cost performance year-to-date with a nearly 7% reduction in CASM-ex fuel through the first 9 months of the year. Our unit cost performance kept the shape we expected at the start of the year despite removal of 4.5 points of capacity growth during the year, primarily coming from the third quarter.

With full-year capacity growth of 12.5% on flat aircraft and reduced headcount, we are on track to see full year CASM-ex down mid-single digits, and I want to thank the entire Allegiant team for their remarkable execution. Our cost structure remains a top priority as we look ahead to 2026. We are realizing the full benefit of approximately $20 million in run-rate savings initiatives implemented this year, which delivered ahead of schedule and will carry over into next year. I'm very pleased with the continued focus and discipline the team has demonstrated on this front.

Before I move on from costs, I will mention the increase in the maintenance line this quarter. A portion of this was timing related and a shift from the second quarter, largely related to an elevated number of rotable repairs. There was also some maintenance spend associated with aircraft lease returns and to a lesser degree, some tariff costs on parts. Although this will continue for much of the fourth quarter, I view nearly all of this as transitory.

Our unique flexible capacity model is rooted in a strong balance sheet. We ended the quarter with total available liquidity of $1.2 billion, consisting of $991.2 million in cash and investments and $175 million in undrawn revolving credit facilities. Cash and investments stand at 40% of trailing 12-month revenue at quarter end. With this robust liquidity position, we continue to make meaningful progress on debt reduction, including more than $180 million in voluntary prepayments during the quarter.

Additionally, in October, we repaid $120 million of 2027 bonds under a call notice issued on September 15. We expect total debt to decline a bit further by year-end. Net leverage remained unchanged from the end of the second quarter, and we anticipate ending the year at a similar level. We're continuing to make long-term lasting investments in the business. Capital spending was approximately $140 million for the quarter, including $107 million for aircraft-related CapEx and $22 million in other airline spend, while deferred heavy maintenance CapEx was $11 million. We ended the quarter with 121 aircraft in our operating fleet, down from 126 at the end of the second quarter. During the quarter, we took delivery of 3 aircraft, 1 of which entered revenue service, while 4 leased aircraft exited service and 2 airframes were sold to a third party.

Looking ahead, we expect to invest 6 737 aircraft into revenue service and retire 4 leased A320 series aircraft during the fourth quarter, bringing our year-end fleet count to 123. Boeing have produced ahead of plan, with all of our 2025 aircraft having been received by the end of the third quarter, and we continue to expect full-year CapEx of approximately $435 million.

Now on to our fourth quarter operating outlook. The improvement in bookings observed in late July has continued. At the midpoint of our guidance, we expect to produce an 11% operating margin and deliver consolidated earnings of approximately $2 per share, which following the Sunseeker sale, reflects solely the Airline segment. The fourth quarter performance should result in full-year airline-only earnings of more than $4.35 per share.

Although we're not going to provide guidance on 2026, I will share some high-level commentary. We expect to take delivery of 11 737 MAX aircraft next year, all of which will replace A319s or A320s, resulting in flat year-over-year fleet count. With respect to CapEx, we're working with Boeing to update 2027 and 2028 delivery schedules following their recent approval for increased production rate, which will inform the requirement of pre-delivery deposits and overall CapEx profile for 2026. We expect CapEx to be above 2025 levels, though we do not expect this to place meaningful pressure on net leverage. We're not anticipating notable capacity growth in 2026. While not guidance, we expect a year-over-year increase in TRASM, driven by limited growth, industry supply moderation and revenue initiatives Drew has mentioned to exceed any increase in CASM-ex.

Non-fuel unit costs will experience some pressure given limited growth, but the team has done an excellent job driving structural cost out of the business. Additionally, with approximately 20% of our ASMs going on fuel-efficient MAX aircraft, we expect the differential between TRASM and CASM to result in margin expansion next year.

In closing, I'm very pleased with the team's operational execution and financial discipline throughout this year. Throughout 2025, Team Allegiant's ability to manage through what has been an earnings setback for the industry has been impressed. It's an exciting time at Allegiant as we turn the corner to 2026. With the sale of Sunseeker completed, a strong balance sheet and continued progress on cost and fleet initiatives, we're structurally well positioned to deliver higher and more consistent earnings in '26 and beyond.

And now, Kelvin, we can go to analyst questions.

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

Congrats BJ, and maybe I'll give you the first question to you as a result. You mentioned a little bit about CapEx stepping up, but not meaningfully impacting leverage. But could you talk a little bit more about how you're thinking about the balance sheet now that there's a little bit more kind of stability across kind of the operation and with Sunseeker out of the way, just how you're thinking about cash levels and leverage and just cash flow generation?

Thanks, Savi. Appreciate the comments. Yes. So when we think about next year, I guess I would remind you, we had a limited amount of PDP CapEx in 2025 because we were catching up from pre-delivery deposits that have been made in prior years in the face of some of the aircraft delays. So, I expect those to come back into the CapEx profile next year. As I think you're getting at, we were carrying quite a bit of cash at the end of the quarter. That was partially a result of the Sunseeker sale. And then also -- and I think maybe I mentioned on a previous call, we kind of overfinanced our MAX deliveries at the beginning of the year, and that was just out of caution with what we were seeing in some of the economic headlines back around the April timeframe.

So, I do think we can get to a point where we're carrying a little bit less liquidity on the balance sheet. We've historically talked about 2x air traffic liability. And as things have started to stabilize and Sunseeker is behind us and especially as we have aircraft finance further out, we can bring those cash levels down a little bit. And we'll continue to use cash to invest in the business though for the rest of '25 and of course, '26.

That's helpful. And if I might, just on the -- I'm not sure if this is Drew or Greg. On the kind of AI and data infrastructure side investments that you're talking about, generally, you think of kind of large organizations as having an advantage there. Could you talk about just maybe how it's being implemented at Allegiant and maybe what advantages, disadvantages you have versus some of your bigger peers?

Sure. Let me kick it off and Drew will add some color, I'm sure. But starting on the AI front, Savi, just as an organization, really proud in the way we're embracing AI to make our business better. We've been working over the past year or so on our structured and unstructured data to ensure that it's in the right place for advanced technology and deploying solutions here at HQ across the board, such as Copilot for our developers, GitHub, which is improving productivity. In that regard, we're reshaping functions across the board, but in areas specifically like the call center, our operations where we're using AI and use cases to drive more efficiency, productivity, and we're just scratching the surface.

One of the things though I think that's important is a lot of the changes that come from AI are through case management. And as an organization, we're building that muscle. And the reason we're feeling confident about kind of building that muscle and it's let's crawl before we walk, walk before we run type attitude is because of the transformational technology stack that's in place now, which is best-in-class. And we've talked a lot about it what the IT team has done over the past couple of years. They've definitely taken what the whole airline was built on proprietary software and moved it to state-of-the-art systems. We've talked about Navitaire, SAP, Trax and other systems. And so now that we have all those in place, we're really able to start harnessing and leveraging where that's at to be a little bit more nimble.

And Drew has got a whole list of priorities and initiatives along with the rest of the team. But Drew, I kind of went off on it a little bit. Anything to add though from your perspective?

No, I'll be fairly quick. On the AI front, there's wins we have as it pertains to revenue modeling, how we think about offer management as we think about rightsizing the combination of air pricing and ancillary pricing, which has historically been a major challenge to solve. There will be some wins there. You're right, a small organization, we have to be a little bit more nimble. We won't get the benefits of scale that the larger ones will. That's not to say there's not wins here. I'm really bullish on what this could mean for '26 and beyond, where we're kind of in the development phase now.

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

On the flattish '26 capacity outlook, how are you thinking about the shape of that by quarter? And specifically, how are you thinking about 1Q growth? And I don't know if it's too early, but could you characterize maybe the difference between the shape of off-peak versus the shape of peak within that flattish outlook?

Sure, Duane. I'll give it a shot here. So the shape will be kind of down low to mid-single digits in each of the first couple of quarters, just following the shape of fleet. We'll be slightly down, I guess, more down on off-peak at that in the first quarter, while keeping relatively flat utilization through the March peaks in particular. With Easter pulling forward a little bit, you'll see April come down a bit more, but similar story in the second quarter as off-peaks will underweight relative to peak periods to form that. Back half of the year, it will kind of inverse and it will be up low to mid-single digits to get back to that flattish outlook.

And Duane, I'll just add to Drew's point there. There's going to be a higher percentage. We're planning on a higher percentage of peak capacity next year than, say, this year.

That's helpful. And then I don't know if you're able to do it, but on the MAX, can you speak to how you were able to deploy those aircraft? What base limitations you may have had this year and how those constraints ease up? I guess I'll stay with you, Drew. Maybe you could just speak to the types of routes the MAX had to fly this year versus the optimal routes you'd like them to fly on?

Yes. So through -- I mean, really, from the time of the first delivery until kind of this week, next week, we've flown them very heavily on short-haul market, trying to maximize the number of takeoffs and landing needs to help facilitate some of the transition training needs. We had to get pilots certified and ready to fly. As we beefed up that number of pilots sufficiently, we'll see that shift more towards longer hauls, taking a little more advantage of the stage length and fuel burn benefits there. As we flip the Fort Lauderdale base to solely Max, we'll get stage length benefit there as well, but a little bit longer haul than Orlando and St. Pete.

We didn't necessarily have base constraints. We opted to split Sanford and St. Pete to start just help provide a little bit of resiliency in the event of changes to the delivery schedule from Boeing, have a little bit of a shock absorber there where Airbus could replace that and we can do more Boeing flying as the deliveries shaped up. And then with Fort Lauderdale, we're keeping things fairly geographically centralized to ease just some of the logistics that may come about.

As we get to the back half of next year, we'll kind of hit our next wave of base considerations as more deliveries come in and stay tuned. But as of this point, there's no real constraints at least that I'm aware of. I don't think the rest of the team has any, but this has all been kind of our choice on trying to maximize both the efficiencies of the introduction of the fleet but as well as just the continued operation.

Your next question comes from the line of Scott Group of Wolfe Research.

Can you maybe just talk a little bit about some of the underlying RASM, CASM assumptions for Q4? And then I don't know any color on what you're seeing with the government shutdown? Do you think -- maybe are your smaller airports being less impacted or starting to have any impact on demand? Just any thoughts there.

Scott, it's BJ here. I'll start on the CASM side. It's probably a bit easier. I talked about the shape of our CASM performance this year, generally holding with comments that we made at the beginning of the year, which should get us to mid-single digits by the end of the year. And I guess you can back into what that does for the fourth quarter. But I would tell you that we expect continued goodness year-over-year in the salaries and benefits and D&A line that you've seen in the prior quarters and then continued pressure in the fourth quarter in the maintenance line and the rent line, both of which I think are transitory.

On RASM, I mean, all we've really said publicly is that we expect to see continued sequential improvement on a year-over-year basis. We know that kind of the implication here is what we're pushing towards the extreme of the fourth quarter versus third quarter performance, but I tried to address that a little bit in the prepared remarks that it's as much a 3Q story as it is 4Q as those are kind of diverging from just a customer base and demand base it seems.

On government shutdown, we haven't seen anything meaningful flow-through of bookings or demand at this point. I do feel pretty confident that the longer this drags on, the more likely we are to see impact. And certainly, if it does stretch all the way to Thanksgiving, that will be a huge problem for the industry as a whole. I have some confidence that we will get through this as a country and the government is ahead of that, and strongly urge Congress to unlock this.

And then your comments about TRASM exceeding CASM next year, I guess, if you have any more color there, that would be great. And then as I think about what you were saying on one of the earlier questions, first half capacity is down a bit, so pressuring CASM a little bit. Do you think you see TRASM exceeding CASM all year? Or is that -- should we think about that more as a back half TRASM exceeding CASM sort of comment?

Scott, it's Greg. Maybe I'll start at a high level and then Drew or BJ will add in some color, I'm sure. Just kind of taking a step back, we've accomplished quite a bit here in 2025, strengthen the airline. We're going to build on those accomplishments in 2026. So as I think about the margin improvement for 2026, and if you break it into 3 or 4 areas: one, the TRASM tailwinds, which at a high level, with flattish capacity, that should also obviously help on the unit rev side, but also flying a higher percentage of peak days, right, versus off-peak helpful. The commercial initiatives that we've been talking about all year, Allegion Extra, Navitaire are larger contribution next year than in '26 than this year.

Loyalty contributions are exceeding revenue growth. Drew may want to hit some more on the TRASM front there. But on the cost side, just BJ and team, they've gone through a couple of paths into the budget. So while we're not final, we're in the, I guess, mid-innings of it. And I think the costs have come in to a point where it gives at least us confidence today in the area that we can control on the cost side that we can keep those to a point at which if all else being equal on the demand side or the revenue side that we'd be able to see margin expansion.

The MAX performance, we talked a lot about that. 20% of our ASMs next year will be flown on the MAX. To kind of frame that and the benefits we get from a fuel perspective, the ASMs per gallon on a MAX are just over 100, like 105, I want to say, versus the A320 series is closer to 80. So, call it about a 30% benefit in that regard with the same ownership cost. So that, and then coupled with all the technology initiatives and just continuing to get better, drive more productivity and efficiency, our plan now has margin expansion next year, and we think we can build off of that.

All right. Drew, BJ?

Yes. I'll just add a couple of things here. So Scott, we're in kind of the second phase of our budget planning for next year. So it's not final. I don't want to go so far as to give guidance. But you can kind of lead into what Drew talked about in terms of the shape of capacity next year relative to fleet counts with being down a little bit in the first 2 quarters, that's going to put the most pressure on CASM-ex in the first 2 quarters of next year. And then like Greg said, I'm relatively optimistic that even given limited growth that we can hold the line on cost next year, just given some of the structural cost improvements that we've made this year.

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

So it seems like it's a clear coast ahead. Obviously, Sunseeker is behind you now. Margins are starting to improve. It seems like you're on a better path with kind of stable capacity and the CASM, TRASM issue everything else. So, can we start to dream the dream about what normalized EPS looks like again? Obviously, coming out of the pandemic, it is a very different level than you guys are right now. How do we think about what that long-term trajectory looks like in that destination as well?

Thanks, Ravi. Let me kick it off. Again, we're not going to guide 2026 or long-term EPS at this point. But our goal is to get back to solid double-digit operating margins, and that's what we're executing towards. We talked about the work -- the great work that's been performed by the team this year and harvesting all that work into 2026, and we expect margin expansion there. And all else being equal, I think in 2027, there's still more initiatives as we prioritize and continue to improve in different areas of the business, we think continue to expand into 2027.

Drew and his team, I think, have done a really good job of kind of walking through a framework of our commercial strategy, and this is more tied to the longer term, I think margin -- improving margins are driving higher margins. And I mean, it's from continued loyalty enhancement to different products, non-ASM revenue in different areas on that front. I think BJ and team on the cost side have done a terrific job. We're unique in the industry in the sense that we have high variable costs, low fixed costs, but it doesn't mean the fixed costs aren't material for us. And so when demand softened this year by way of example, I think the team reacted quickly.

We scaled back growth, but then we went in and took out some of the structural costs. And so I mentioned that because looking ahead towards 2026, 2027 and beyond, we're always going to take a hard look at our cost structure. We're going to continue to find ways to better optimize the business. I think the MAX fleet as well. If you think about '27, '28, the efficiencies we're seeing there by the time we get to 2028, I expect 50% of our ASMs are flown by the MAX aircraft and driving a nice tailwind on the fuel side. So, we've talked about it. We teased it on the last earnings call.

We probably think it's helpful at some point next year to have an Investor Day to really walk through some of these initiatives, the guardrails and what we think our objectives are and our opportunities are. But I think it just a high level on the earnings call today, where we sit, we feel confident that 2026, we could drive higher margins, all else being equal in the demand and fuel backdrop, and we can continue to build on that momentum in 2027.

Got it. Those are helpful building blocks. And maybe as a follow-up, can you just give us an update on the Vegas market and kind of what you're seeing there and remind us of seasonality there again, also kind of easier comps next year, kind of do you think that can bounce back from some of the headwinds earlier this year?

Yes. Obviously, Vegas still underperforms where we'd like it to be. It has definitely shown improvement through the summer and through the fall. Maybe on the seasonality front, it's historically been a very unseasonal market. Pre-pandemic, it was very reliable year around. It definitely feels more seasonal today than it has, which is little bit unfortunate given how much of a rock star it has been for so long. Seats are definitely coming out of the market. I think there's room for more improvement. I've seen more from the Vegas resorts in terms of innovative ways to recapture customers and recapture trips. So, I think there's better times ahead for Vegas, but we're still kind of climbing out of the hole a little bit.

Your next question comes from the line of Michael Linenberg of Deutsche Bank.

This is Shannon Doherty on for Mike. For starters, congratulations on your promotion, BJ. This first question is probably not for you, but maybe to Drew. Can you guys speak to how your competitive landscape is evolving moving into new cities like Atlantic City and Burbank? And I'd also be very interested to hear more about the 15% of new routes that you launched this summer that did not perform to expectations. What did you see there?

Yes. So, maybe first on what I think was about kind of the new city selection. It continues to be the same pillars that guide all of our network selection, looking for unserved and underserved markets that fit our customer profile well. Atlantic City, we've seen some reduction in seats. It's a market -- an airport we've been talking to since 2017, 2018, and we felt like the time was right for us to move in there.

On Burbank, and we've talked at length about LAX and the cost structure there was becoming a bit untenable for us. And so we kind of diversified our basin capacity between Burbank and SNA, where we've been in for a few years now. I think Burbank is going to be a great addition. So, that's going to be helpful for us.

On the competitive capacity front within those cities, obviously, there is some capacity on Atlantic City and on half of our Burbank selection. It's not something that we're running away from capacity -- competitive capacity from. We're trying to do what's right for Allegiant to run our rates, and we found success on some of these markets. And on the 15% where we weren't successful, we'll take a look at each of those some. It's the first year. It may or may not be meeting expectation, but there should be some level of maturity and run rate associated with those. And for those, we don't see a future, they'll come out. We won't operate them next year. It's kind of that simple. We've got a long runway of new opportunities. So, I have no issue cutting bait on those and finding something new.

Shannon, it's Greg. I just want to add to Drew's commentary there that for serving the domestic leisure space, our low utilization tactical capacity model works well. I was interested, I thought Drew provided an interesting comment in his opening remarks, I paraphrase, but it's just along the line of the resilience of our leisure customers who they represent all facets of the economy. They like to travel, and they have the means to do so. And what he and his team are doing are continuing to find those markets that are low fares and convenient non-stop service. It's a strong value proposition.

That's great. And maybe just bigger picture, right, is the demand that you're seeing today supportive of higher growth in the peak periods than flattish that you're expecting next year? I'm just trying to figure out how constrained you are from a utilization perspective.

For the most peak periods and really, that's the holidays and spring break sprint. We're maybe not 100% at our max utilization, but we're pretty close. We're pushing as hard as we've ever pushed through the holiday period. I think we have just a little bit of slack in March, kind of more growth would come in the off-peak such that the environment calls for if demand were to peak up or fuel were to meaningfully come down, can find a little bit more in there. I think as we get towards the summertime and that schedule comes out as out now will be in the public things in the coming weeks. We'll see a little bit more slack that we can add into on that front.

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

Congratulations, BJ, on the promotion. I was hoping to -- we could talk -- so yes, the MAX situation, you're obviously talking that up a fair bit with -- I think, Greg, you mentioned that it's going to be 50% of your capacity in 2027, 2028 or something in that time frame. Can you just talk about -- in the past, you've talked about like a rule of thumb around EBITDA or EBITDA per aircraft. And I would just think that there's -- the MAX EBITDA contribution is way higher than the current A320 fleet. So just any like high-level thoughts around that? I think you mentioned 30% fuel efficiencies. But is there anything else that's within it that could be helpful in building that type of thought process?

Yes. Maybe let me kick that one off. And we talked in the past, Conor, quite a bit pre-pandemic, I think the $6 million of EBITDA per aircraft was our true north. I want to say right now, what are we roughly $3.5 million of EBITDA per aircraft thereabouts. I won't go into all the detail on the initiatives that we've either completed or completing or plan to complete that I'm talking about around margin expansion because I think you want to zoom a little bit more on the MAX aircraft.

A couple of comments that I think are interesting. One, that the earnings on it today, now it's still early, are 20%, 30% higher than the A320 series fleet. And I want to dig in on that a little bit here. But the other thing is the operational reliability is outstanding. It's not quite a point, but nearly a point higher than the 320 series fleet. But some of the questions as you think about the way we deploy capacity, Drew and his team and you think about utilization, think about it in third, so in terms of lines of flying.

So yes, the first 1/3 was through utilization roughly 8 to 10 hours per aircraft per day in the middle 1/3 of the middle tranche, roughly 6 hours and then you go from 3 to 4 hours on the lower tranche. So obviously, with these aircraft, we're going to put them in on our highest lines of flying just because of their performance and their reliability. But Drew did an interesting study where because of our base structure was comparing the highest lines of flying in base A versus MAX performance in respective bases. And it's still like-for-like, significantly outperforming the 320 just given the economics that we've talked about in the past. But Drew, I'm excited about the MAX and what we're seeing, continue to take more deliveries of those aircraft. We have the same ownership cost in general as the 320. So it's commercially a good deal for us.

And Drew, BJ, anything else you want to add?

I'll take one step and that was comparing the highest lines of flying regardless of base on the Airbus to the MAX performance and outperforming in that 20% to 30%, putting it on a highly utilized base like Fort Lauderdale is going to have immense benefits, and we'll continue to be selective on where those aircraft go to make sure that we're getting the most value for those going forward. It's incredible.

Yes. I'll just add one thing Thanks, Conor. We've talked about the overall earnings of the MAX at this point being about 30% better than the just an average. As you would expect, most of that comes from fuel efficiency. But there's still a bit of improvement in other OpEx as well, primarily coming in on the maintenance line. Just don't want to underappreciate the value of the maintenance honeymoon. We had gone a few years where we weren't adding any new airplanes. And that meant 2 things. One, we weren't getting any relief on maintenance cost of aging aircraft. But two, we had a larger percentage of our overall fleet unavailable during peak periods for revenue service. And so by introducing some component of new aircraft again, we've got more of the fleet available for service.

Okay. Super helpful in detail. Just around the co-branded credit card program review and nearing a completion, I was hoping you could drill down on that a little bit more, just talk about what you've learned, what needs to be tweaked? Just if there's anything else there behind it. I know that you've talked about it for a couple of quarters. As we're closing on the end, just any thoughts in general?

Yes. And probably, it's still a bit early for me to get too detailed, but there's obviously a lot of work left to go. What we've learned, I think, some was in my remarks. We do have a fairly affluent and well-off customer as a subset of our overall base. And we haven't been providing, I think, probably the best value proposition to all of the subsets of customers that we can. So, I think something that's a bit more segmented, something that provides a better value proposition than what we're offering 10 years ago is going to be really helpful. You've watched most other carriers go through a few evolutions of their programs since, whereas our annual fee is still the same today that it was at launch.

So, there's a lot of opportunity there just in terms of how the overall market has evolved, as well as leaning a little bit more into what we know with our customers specifically. One area that's pretty obvious and something that I've heard mentioned elsewhere, we weren't giving our customers a great reason to spend on our card, right? It's great when you're interacting with Allegiant specifically. But how do we broaden that to be a bit more relevant more often? And I think that's been pretty low-hanging fruit to drive very scalable and efficient volume in terms of contribution to us.

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

BJ, congrats on the promotion here. So, I know you guys are guiding to flat capacity in 2026, but probably the biggest change over the past quarter is just Spirit filing for Chapter 11 and downsizing. And I know that your overlap with them is very de minimis, I think 2.5% or something like that. But I guess the question really is, is Spirit's downsizing causing you to rethink the network composition? So, have you picked up more gates either at Fort Lauderdale or elsewhere? Or just kind of thinking about the percent of flying that you have either in the West Coast versus into the state of Florida?

Yes. We haven't -- I mean, we haven't seen kind of those direct benefits to date. I'm sure if we will, I think there's still a lot of support for Spirit maintaining a fairly large Fort Lauderdale presence. We have certainly seen some pull down of capacity out there. We're very excited about Fort Lauderdale. We obviously have been putting our MAX aircraft there, trying to grow capacity where we can. So, we're very interested, but I don't know that point to a lot of direct benefit yet. We'll remain opportunistic and mindful of what happens, but maybe not as much to point directly then.

Yes. Understood. Okay. And then CapEx above 2025 and 2026, but not meaningful pressure on leverage to go back to the script. I'm just wondering if you can provide a little bit more perspective on that. Are you planning to pay cash for some of the aircraft next year? Or how should we think about the decision to lease versus to purchase? And how do we think about year-end leverage at 2026 versus 2025?

Thanks, Dan. Yes, I'll give it a shot here. So when I think about next year, I kind of mentioned in response to Savi's question. Some of the CapEx I guess, lift, if you want to think of it that way next year, is really going to be driven by PDPs. And those will come due throughout the year. Our aircraft delivery schedule is back half weighted. And so with the way the business produces cash in the first quarter, certainly, we could pay cash for the amount due to Boeing at delivery for our airplanes probably for the first half of the year. That said, we'll be opportunistic and keep our ear to the ground on the markets to look for the most attractive way to finance those airplanes.

I would tell you, we've spent a lot of time on this this year. I would tell you that we expect to continue owning airplanes and that's why we try to grow at the pace that the balance sheet allows for. Owning airplanes in our mind is half the cost of leasing airplanes over the life of the asset. And we think that, that's one of the key ingredients that supports our low utilization model. So, I would suspect that we'll continue to be focused there. We'll always keep an open mind and look at offers that come in, but that's my expectation.

Your next question comes from the line of Brandon Oglenski with Barclays.

Congrats as well, Robert. Greg, I guess I've heard a lot of questions tonight around growth. And now that the hotel is behind you, I think like what's the next phase for Allegiant here as you focus on the core of the business? Historically, we've always heard there's, what, 500 or 600 markets out there that could be Allegiant-esque. Is that still the case? And especially in line with Dan's question just previously, I mean, airlines are still losing money even as some of the low-cost capacity comes out. So, do you just need to see the industry still rightsize itself in the next year before you can start thinking again about future network expansion?

Thanks, Brandon. And I'll kick it off and ask Drew to come in on his views around the growth in a little bit more detail. But the good thing about us is we have optionality. As BJ just mentioned to Dan, we own our aircraft. We plan to own the new aircraft that are coming to us, and we own our used 320 fleet. In prior calls, I think we've talked at least at a high level about the importance of earning the right to grow. And so that fleet flexibility advantage, I think that's something we have that gives us the ability to determine what that growth rate looks like. And this is to drive better discipline to ensure we grow that we grow profitably and that we run a really good airline.

I think what we've seen from Tyler Hollingsworth and the operational teams over the past couple of years, our ops team has really stepped up and we're pleased with what we're seeing, but we're not going to push it to a point to where it's going to be do more harm than good. In terms of our model and what we do, we think it's unique. We think there's a lot of opportunities for us to continue to grow.

And as the industry -- as you kind of mentioned there, Brandon, I think as the industry, particularly our sector or segment of the industry, I guess, for lack of a better term, find this equilibrium kind of works its way through. We think well-run carriers like Allegiant, there's going to be opportunities for a flexible capacity model like ours.

But Drew, I mean, you feel like there's a lot of network and runway ahead. So, do you want to talk about how you view the opportunities?

Yes. I'll kind of take it in 2 pillars here, maybe. Number one, right, we talked in the remarks about over 50 new routes that operated this last summer that weren't operating the summer before. I believe there's an immense amount of opportunity that remains. We've talked about 1,400-plus, well beyond the 500, 600 that I think will work well for us. Certainly not all of them will, but I think the vast majority are perfect for what we do. So, I think there's no shortage there.

Second, and Greg mentioned kind of this post-Navitaire implementation time frame. It's not a big secret that we didn't have the cleanest of implementations with our Navitaire system. And it's taken us a little over 2 years to start to turn toward, okay, what's the next thing that we can start to build on our new foundation to help further develop the commercial stack and how we're interacting with customers, providing the right experience throughout the journey. And that's where that next phase goes. It's kind of a little bit of catch-up candidly to where others have seen success, which tells me there's a lot of low-hanging fruit for us to be able to get it. So it's not just on the network front. It's about the entire commercial strategy to make sure that the current network and future network work as well as we possibly can.

Appreciate that response. And I guess, Greg, as you think about potential industry M&A, if that does play out, I don't know where does Allegiant fall within that context?

Thanks, Brandon. Just some high-level thoughts, right? 80% of the domestic market is controlled by the big 4 carriers and what the industry is showing is that size, scale and relevancy, I think, have their advantages in our industry. And we believe that it's in everybody's best interest, well, certainly consumers' best interest, I should leave it at that and having stronger airlines competing against the big 4. I'll tell you for us, we like our model. We like our ability to outperform, especially given everything we're doing and that we've been talking to the Street about for some time now. So, I don't want to -- I don't think consolidation is needed for us to get back to our historic earnings profile. But at the end of the day, what we're focused on is driving shareholder value.

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

Congrats, BJ. Maybe a follow-up to Shannon's question earlier. Is the flat capacity outlook next year a function of the fleet being maxed out? Or if demand got significantly better, could you and would you delay retirements or push utilization higher in the off-peaks? And I guess, like if the answer is yes to that, how much better would demand have to be for you to consider doing that? And what are the guardrails you assess in making those kinds of decisions?

Yes. So we're -- I think like I mentioned, we're operating probably about as heavily as we're able to in the peak weeks through Thanksgiving through Christmas and into spring break. There's absolutely room for us to grow in the off-peak periods or even some off-peak days within those peak weeks such that we have a booking curve if the demand environment were to improve or fuel environment were to get meaningfully cheaper. I don't know that I have a specific value would be looking for, say, demand needs to get 5% better to add one. I'm not sure that I have that for you today. But it's something we'll continue to monitor. We certainly have the bandwidth for anything in the spring and then summer is so far away that lots of time to react regardless of what may happen.

Catie, I'll just take the fleet side of that. Just keep in mind, the aircraft reduction that we see in the first part of '26 is a result of 8 leased airplanes returning, really exiting service from late third quarter through late fourth quarter. These were transactions that originated back in the pandemic and those airplanes need to go back because they're much, much more expensive if we had chosen to keep them. And then as we move through the year, there's probably some more flexibility with a few shells to extend retirements, but just don't underestimate how expensive that gets when you start talking about 24-year-old A320 family aircraft. The return is just much better when we invest that capital into our MAX order. And we start to see the MAX deliveries pick up in the back half of the year anyway.

Sounds like a prudent plan. I guess as you -- for my second question, as you've increased the proportion of the fleet with Allegiant Extra over the course of this year, any updates on the impact of the financial impact of that configuration versus your aircraft without it? And then just annualizing the higher proportion of Allegiant Extra in '26 that you put in place over '25 on flat capacity, roughly speaking, any sense of how much of a RASM tailwind that could be into next year?

Yes. So the contribution has remained pretty flat around that $500 per departure. Obviously, as we put more and more on to that layout, it gets a little bit harder because our counterfactual or our control gets a little bit smaller. So, that remeasuring gets a little more challenging moving forward. I feel good about the $500. From a full year basis, I think we'll be something around 10 points of departures incremental on a full-year basis. So, you can think about the $500 per departure across roughly 10% more flights or 10 points of distribution.

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

Congrats on the promotion, BJ. I had a question on the fourth quarter RASM. Last year's fourth quarter was really a tale of 2 halves for the industry, and I also think for Allegiant as well. First half was difficult last year with the elections and some weather, and then the back half of fourth quarter, especially December last year was very strong. That would create very lumpy year-over-year compares for you for this fourth quarter. So the question really is, does your guidance assume some slowing in RASM over December as you lap difficult compares? Or are you simply expecting current book yields for the fourth quarter to persist for the rest of the quarter that's unbooked?

Yes. I mean the lumpiness is nothing new for Allegiant, right? Being a leisure carrier, we're going to ride in the highs and lows of leisure demand, which means in just about every year, Thanksgiving and Christmas are good, and the shoulder and off-peaks are a little bit weaker. We'll certainly get the benefit of having the weather in our comparison through October. I would expect more of that flat capacity weakness to persist in the off-peak period, call it, early November, early December, while the holiday periods, I think, will be much closer to on par with last year, probably not flat, but much closer to on par. So very, very resilient holiday periods with kind of typical fluctuation within the quarter between the peak and the off-peak.

Got it. That's helpful. And then just quickly, are you able to share what portion of the fourth quarter is booked by month, if you can?

The portion booked, I can talk to the quarter maybe. We have about 75% of the fourth quarter booked at this point. We do have about 100% of October booked. So, we have some pretty good line of sight. The fourth quarter, in particular, the holidays tend to be the longest booking curve of the year. So, we can give you a little bit of forward insight there. Looking forward to the first quarter, it's obviously much lower. We're probably something closer to 15% booked as well. So, we won't get a lot of insight to the first quarter until the calendar slips really.

There are no further questions at this time.

And with that, I will turn the call back to Sherry Wilson for closing remarks. Please go ahead.

Thank you all for joining the call. We'll chat again next quarter.

Ladies and gentlemen, this concludes today's call. We thank you for participating. You may now disconnect.