The following discussion and analysis presents factors that had a material effect on our results of operations during the years ended
December 31, 2022and 2021. As comparisons of our 2022 results to 2021 reflect disproportionate changes due to the continued impact of the pandemic on air travel during 2021, we have also provided analysis of certain revenue and expense line items to 2019 results (the last year unaffected by the pandemic) where helpful to understand trends in our performance. Unless otherwise expressly stated, for discussion and analysis of 2021 and a comparison of our 2021 results to 2020 results, please refer to our Annual Report on Form 10-K for the year ended December 31, 2021, under Part II Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations. Also discussed is our financial position as of December 31, 2022and 2021. Investors should read this discussion in conjunction with our consolidated financial statements, including the notes thereto, appearing elsewhere in this annual report. This discussion and analysis contains forward-looking statements. Please refer to the section entitled "Disclosure Regarding Forward-Looking Statements" at the beginning of this annual report on Form 10-K for a discussion of the uncertainties, risks and assumptions associated with these statements. 35 --------------------------------------------------------------------------------
-Our highest ever annual total operating revenue of
$2.3 billion, up 25.0 percent as compared to 2019, on a total system capacity increase of 13.9 percent -Full-year TRASM was 12.50 cents, up 10.8 percent as compared to 2019 on scheduled service capacity increases of 15.2 percent -Our highest ever annual average ancillary air related revenue per passenger of $67.74-We made great progress to strengthen our system and operations by: -Adding more than 850 full-time equivalent employees -Adding 13 Airbus A320 Series aircraft to our operating fleet -Adding three new bases in Flint, Michigan, Appleton, Wisconsinand Provo, Utah, increasing the number of our bases to 24 -Investing in the systems implementations discussed in the Business section. -Planning to induct our new Boeing aircraft -Acquired over 150 thousand new Allegiant co-branded credit card holders during the year, with over 410 thousand active cardholders at year end -Added over 2 million Allegiant Allways Rewards® members during 2022, with more than 15 million total members at year end -Allegiant co-branded credit card and Allegiant Allways Rewards® were voted as the No. 1 Best Airline Credit Card and Best Frequent Flyer Program in USA Today's10 Best 2022 Loyalty/Rewards Readers' Choice Awards. Allegiant's co-branded credit card was named the best airline co-branded credit card for the fourth consecutive year -Named to Newsweek's Top 100 Most Loved Workplaces® list for the second consecutive year -Donated $100,000to the American Red Crossfor critical disaster relief to communities in the aftermath of Hurricane Ian -Published the company's inaugural sustainability report 36 --------------------------------------------------------------------------------
The following table sets forth the number and type of aircraft in service and operated by us as of the dates indicated. All of the aircraft in our fleet as of
December 31, 2022are owned by us except as indicated in the footnotes to the table: As of December 31, 2022 2021 2020 A320(1)(2) 86 73 61 A319(3) 35 35 34 Total 121 108 95 (1)Does not include five aircraft of which we have taken delivery as of December 31, 2022and were not in service as of that date. Of the five aircraft, one aircraft was acquired under forward purchase and four were acquired under finance leases. (2)Includes twenty aircraft under finance lease and thirteen aircraft under operating lease as of December 31, 2022. (3)Includes four aircraft under operating lease as of December 31, 2022. As of December 31, 2022, we are party to forward purchase agreements for 54 aircraft with seven deliveries expected in 2023, 24 in 2024 and the remainder thereafter. Three of the aircraft scheduled for delivery in 2023 are the initial aircraft under our Boeing contract, which are scheduled to be delivered in fourth quarter 2023. Refer to Part I - Item 2. Properties for further detail regarding our aircraft fleet. We continuously consider aircraft acquisitions on an opportunistic basis. 37
We manage capacity and route expansion through optimization of our flight schedule to, among other things, better match demand in certain markets. We continually adjust our network through the addition of new markets and routes, adjusting the frequencies into existing markets, and exiting under-performing markets, as we seek to achieve and maintain profitability on each route we serve.
selling seats on 573 routes serving 125 cities in 42 states. This includes our
recent announcements through
The following table shows the number of leisure destinations and cities served
as of the dates indicated (includes cities served seasonally):
As of December 31, 2022 2021 2020 2019 Leisure destinations 32 33 28 27 Origination cities 93 99 96 97 Total cities 125 132 124 124 Total routes 572 595 497 466 38
The COVID-19 pandemic significantly impacted our operating results in 2021 and into 2022. In particular, we suffered numerous cancellations due to the effect of the Omicron variant on flight crews in late 2021 and early 2022. COVID-19 may continue to impact our operations into the future. Although demand has recovered during 2022, we believe that demand in the foreseeable future could fluctuate in response to fluctuations in COVID-19 cases, variants of the virus, hospitalizations, deaths, treatment efficacy, the availability of vaccines, CDC recommendations, and government restrictions.
Strong Demand Momentum
As concerns over COVID-19 have declined, we have seen significant increases in load factors and average total fare per passenger beginning in
March 2022and continuing into 2023. Total revenue per available seat mile ("TRASM") in the fourth quarter of 2022 was 14.03 cents, the highest quarterly TRASM in Company history, up 21.3 percent compared to fourth quarter 2019 despite a scheduled service capacity increase of 11.9 percent. Full year TRASM was 12.50 cents, up 10.8 percent as compared to 2019 despite a scheduled service capacity increase of 15.2 percent. Aircraft Fuel The cost of fuel is volatile, as it is subject to many economic and geopolitical factors we can neither control nor predict. Significant increases in fuel costs could materially affect our operating results and profitability. We have not sought to use financial derivative products to hedge our exposure to fuel price volatility, nor do we have any plans to do so in the future. The cost per gallon of fuel began to increase significantly in 2021 and the increases were exacerbated by the geopolitical impact of the war in Ukraineand increases in refinery costs added to our fuel cost. As a result, the average fuel cost per gallon increased by 73.5 percent in 2022 over 2021 and 71.1 percent over 2019. We expect high fuel costs will continue to impact our total costs and operating results.
December 2021, we signed an agreement with The Boeing Company to purchase 50 newly manufactured 737MAX aircraft scheduled to be delivered in 2023 to 2025 with options to purchase an additional 50 737MAX aircraft. We believe this new aircraft purchase is complimentary with our low cost strategy based on our intent to retain ownership of the aircraft, the longer useful life for depreciation purposes, expected fuel savings and operational reliability from the use of these new aircraft.
Staffing challenges continue to impact our operations and costs and we have pulled back some of our planned growth for 2023 as a result. We believe these issues are not unique to Allegiant nor do we believe they are systemic. Our irregular operations costs are also impacted by our unique approach to compensate passengers for their inconvenience in addition to the ticket price, not generally done in the airline industry. We are investing incrementally in our employee hiring and retention and our operations in an attempt to improve performance and this may put pressure on unit costs in the near term. However, if these problems persist, we may suffer reputational damage and incur higher costs for irregular operations.
The collective bargaining agreement with our pilots is currently amendable and the parties have jointly requested the involvement of the
National Mediation Board("NMB") to assist with the negotiations. The mediation process with the NMB has begun. We are also in the process of negotiating a new contract with the union representing our flight attendants. The terms of any new collective bargaining agreement will increase our costs over the term of the contract. Until new agreements are in place, attrition and difficulty hiring sufficient personnel in the affected work groups could have an adverse effect on our operations and growth.
The supply of pilots necessary for airline industry growth may be a limiting factor. The pandemic resulted in more than 3,000 early pilot retirements across
U.S.mainline and cargo carriers and the pipeline for new pilots does not appear at the present time to be sufficiently robust to replace retired pilots and to allow for projected industry growth. The ability to hire and retain pilots will be critical to our and the industry's growth.
Engagement of Schneider Electric as ESG Consultant
We have entered into a three-year partnership with Schneider Electric to help us
develop an Environmental, Social and Governance (ESG) program including:
39 -------------------------------------------------------------------------------- -Identifying and prioritizing relevant ESG topics through a materiality assessment. These topics were addressed in our inaugural ESG report. -Establishing ESG goals and environmental goal achievement plans. -Developing an inaugural ESG report referencing the
Global Reporting Initiative(GRI) and Sustainability Accounting Standards Board(SASB) frameworks, which was issued in December 2022. -Providing ongoing carbon emissions reporting of Scope 1, 2 and 3 greenhouse gas (GHG) emissions, the initial report having been included in our inaugural ESG report. -Supporting the communications efforts around our ESG program.
December 2021, we announced plans for a fully-integrated commercial alliance agreement with VivaAerobus, designed to expand options for nonstop leisure air travel between our markets in the United Statesand Mexico. We and VivaAerobus have submitted a joint application to the DOT requesting approval of and antitrust immunity for the alliance. VivaAerobus has received approval for the alliance from the Mexican Federal Economic Competition Commission. We and VivaAerobus currently expect to offer new routes under the alliance beginning in the first half of in 2023, pending U.S.governmental approval of the applications and the return of Mexicoto Category 1 under the FAA's IASA program. Sunseeker ResortNear the end of September 2022, Hurricane Ian cut a destructive path through Floridaand Charlotte County, in particular. Sunseeker Resortsuffered damage from the Hurricane, to a large extent attributable to subcontractor cranes which fell onto the buildings.
We maintain robust insurance coverage against damage from hurricanes and
business interruption insurance and are pursuing claims to recover losses.
The Resort was previously selling rooms for as early as
May 2023. With delays caused by damage from the Hurricane, the Resort has now pushed back the selling date to October 2023. We have yet to announce an opening date, but we expect to make that announcement in second quarter 2023.
Our Operating Expenses
A brief description of the items included in our operating expense line items
Aircraft fuel expense includes the cost of aircraft fuel, fuel taxes, into plane
fees and airport fuel flowage, storage or through-put fees.
Salaries and benefits expense includes wages, salaries, and employee bonuses, sales commissions for in-flight personnel, as well as expenses associated with employee benefit plans, stock compensation expense related to equity grants, and employer payroll taxes. The CARES Act employee retention tax credit was recorded as an offset to salaries and benefits expense in both 2021 and 2022. Station operations expense includes the fees charged by airports for the use or lease of airport facilities and fees charged by third party vendors for ground handling services, commissary expenses, irregular operations, and other related services. Depreciation and amortization expense includes the depreciation of all owned fixed assets and assets recorded in connection with a finance lease, including aircraft and engines. Also included is the amortization of major maintenance expenses on our Airbus A320 series aircraft and engines, which are capitalized under the deferral method of accounting and amortized as a component of depreciation and amortization expense over the estimated period until the next scheduled major maintenance event.
Maintenance and repairs expense includes all parts, materials and spares
required to maintain our aircraft. Also included are fees for repairs performed
by third party vendors.
Sales and marketing expense includes all advertising, promotional expenses,
sponsorships, travel agent commissions and debit and credit card processing fees
associated with the sale of scheduled service and air-related ancillary charges.
Aircraft lease rentals expense consists of the cost of leasing aircraft under operating leases with third parties as well as the cost for sub-service which may be contracted out in conjunction with operational disruptions. Other expense includes travel and training expenses for crews and ground personnel, facility lease expenses, professional fees, personal property taxes, information technology consulting, non-salary expenses for non-airline initiatives (including,
Sunseeker Resort, and the now discontinued Allegiant Nonstop family entertainment centers and Teesnap), the cost of passenger liability insurance, aircraft hull insurance and all other insurance policies excluding employee welfare insurance. Additionally, this 40 -------------------------------------------------------------------------------- expense includes loss on disposals of aircraft and other equipment disposals, and all other administrative and operational overhead expenses not included in other line items above. Payroll Support Programs grant recognition includes the portion of government payroll support that represents a direct grant and was recognized as a credit to operating expense on the statements of income for 2021 and 2020. Special charges include charges taken in 2021 for accelerated retirements of two airframes and three engines and an impairment loss on a building associated with the Allegiant Nonstop family entertainment line of business. The special charges in 2022 relate to the estimated loss incurred from the impact of Hurricane Ian and subsequent insured losses. The amount of the loss will be offset by amounts to be recovered under our insurance policies, including $18.1 millionof insurance recoveries recognized in fourth quarter 2022. 41 --------------------------------------------------------------------------------
RESULTS OF OPERATIONS
2022 compared to 2021
As comparisons of our 2022 results to periods during 2021 reflect
disproportionate changes due to the continued impact of the pandemic on air
travel during 2021, we have also provided analysis of certain revenue and
expense line items to 2019 results where helpful to understand trends in our
Operating Revenue Passenger revenue. Passenger revenue increased 35.4 percent in 2022 compared with 2021 as scheduled service passengers were up 23.1 percent due to stronger passenger demand in general and when compared to lower passenger demand related to COVID-19 in 2021. In addition, stronger passenger demand resulted in a 14.3 percent increase in scheduled service average base fare. As compared to 2019, passenger revenue increased by 27.0 percent, as scheduled service passengers increased by 12.2 percent on a 15.2 percent increase in capacity. These factors, coupled with a 3.6 percent increase in average stage length, resulted in a 1.1 percentage point increase in load factor. Average total fare per scheduled service passenger increased by 13.8 percent over 2019 primarily driven by an 18.7 percent increase in ancillary air related revenue per passenger and a 28.6 percent increase in ancillary third party revenue per passenger.
The increase in ancillary air related revenue per passenger over the same period
in 2019 was primarily driven by increased revenue from the sale of bundled
products as bundled products were not offered in 2019.
Third party products revenue. Third party products revenue for 2022 increased 16.7 percent over 2021 and 44.2 percent when compared to 2019. The increase from 2021 was primarily the result of greater travel demand for rental cars and hotels and increased Allways® Rewards Program revenues. Increased rental car and hotel rates combined with a 6.4 percent increase in rental car days sold and an 8.3 percent increase in room nights sold contributed to the substantial increase over 2021. The increase from 2019 is attributable to increased rental car and hotel room rates (which more than offset the impact of fewer rental car days and hotel room nights) and substantial growth in our Allways® Rewards Program revenues. Fixed fee contract revenue. Fixed fee contract revenue for 2022 increased 48.0 percent compared with 2021 as a result of a 10.8 percent increase in fixed fee departures largely due to lower charter activity during the continuance of the pandemic in 2021. In addition, fuel per gallon pass throughs (which are accounted for as fixed fee contract revenue) increased 73.5 percent as compared to the same period in 2021. Fixed fee contract revenue for 2022 as compared to 2019 decreased by 6.3 percent as a result of a 17.6 percent decrease in fixed fee revenue departures as we devoted more or our resources to scheduled service. This was partially offset by an increase in fuel pass throughs treated as revenue.
The following table presents operating unit costs on a per ASM basis, defined as Operating CASM, for the indicated periods. Excluding fuel on a per ASM basis provides management and investors the ability to measure and monitor our cost performance absent fuel price volatility. Both the cost and availability of fuel are subject to many economic and political factors beyond our control. Excluding Sunseeker operating costs allows management and investors to better compare our airline unit costs with those of other airlines. 42 --------------------------------------------------------------------------------
Year Ended December 31, Percent Change Unitized costs (in cents) 2022 2021 2019 YoY Yo3Y Aircraft fuel 4.42 ¢ 2.52 ¢ 2.65 ¢ 75.4 % 66.8 % Salaries and benefits 3.00 2.77 2.78 8.3 7.9 Station operations 1.39 1.39 1.06 - 31.1 Maintenance and repairs 0.64 0.61 0.57 4.9 12.3 Depreciation and amortization 1.07 1.04 0.96 2.9 11.5 Sales and marketing 0.55 0.42 0.49 31.0 12.2 Aircraft lease rentals 0.13 0.12 - 8.3 NM Other 0.61 0.47 0.62 29.8 (1.6) Payroll Support Programs grant recognition - (1.16) - NM NM Special charges 0.19 0.08 - NM NM CASM 12.00 ¢ 8.26 ¢ 9.13 ¢ 45.3 31.4 Operating CASM, excluding fuel 7.58 ¢ 5.74 ¢ 6.48 ¢ 32.1 17.0 Sunseeker Resort CASM 0.25 0.05 0.05 NM NM Airline operating CASM, excluding fuel and Sunseeker Resort activity 7.33 ¢ 5.69 ¢ 6.43 ¢ 28.8 14.0 NM - Not meaningful
Our CASM performance was significantly impacted by lower utilization of our
aircraft in 2022 as block hours per aircraft declined by 4.3 percent compared to
2021 and by 16.3 percent compared to 2019.
Aircraft fuel expense. Aircraft fuel expense increased
$374.6 million, or 85.1 percent, in 2022 compared to 2021. This was primarily driven by a 73.5 percent increase in average fuel cost per gallon and increased refinery costs added to our cost of fuel (crack spread). When compared to the same period in 2019, aircraft fuel expense increased by 90.5 percent as average fuel cost per gallon increased 71.1 percent, crack spreads increased and fuel gallons consumed increased 11.3 percent on a 13.9 percent increase in capacity. Salaries and benefits expense. Salaries and benefits expense increased $67.8 million, or 14.0 percent, in 2022 compared to 2021. On a per ASM basis, salaries and benefits expense increased by 8.3 percent. The increase is largely due to a 19.2 percent year-over-year increase in the number of full-time equivalent employees, offset by the employee retention tax credit recognized in 2022. Salaries and benefits expense increased by $102.0 millionor 22.6 percent as compared to 2019. The increase is driven by a 21.8 percent increase in the number of full time equivalent employees, offset by the employee retention tax credit recognized in 2022. On a per ASM basis, salaries and benefits expense increased 7.9 percent. The cost increases primarily relate to increases in crew pay and increased salaries and benefits costs associated with irregular operations. Station operations expense. Station operations expense during 2022 increased $11.8 millionor 4.9 percent over 2021 due to a 0.9 percent increase in departures, increased costs associated with irregular operations, and increased airport and landing fees.
As compared to 2019, station operations expense increased by
48.9 percent due to a 6.8 percent increase in departures, increased costs
associated with irregular operations and airport fees.
Irregular operations costs in 2022 were significantly attributable to employee absences due to the Omicron COVID variant in January and February. These absences resulted in numerous flight cancellations. In addition, there were higher than usual cancellations during the year as a result of staffing challenges and other factors. The amount of irregular operations costs is significantly impacted by our decision to compensate impacted passengers for their inconvenience in addition to the ticket price. Depreciation and amortization expense. Depreciation and amortization expense during 2022 increased
$16.5 millionor 9.1 percent including a $1.7 millionincrease in amortization of deferred heavy maintenance as compared to 2021 as there was an increase of 8.2 percent in the average number of aircraft owned and in service.
When compared to 2019, depreciation and amortization expense increased 26.7
percent including a 66.1 percent increase in amortization of deferred heavy
maintenance as the average number of aircraft owned and in service during the
period increased 19.7 percent.
Maintenance and repairs expense. Maintenance and repairs expense during 2022 increased by
$11.9 millionor 11.2 percent compared to 2021. This was primarily due to a 10.9 percent increase in the average number of aircraft in service. 43 -------------------------------------------------------------------------------- As compared to 2019, maintenance and repairs expense increased by $26.1 millionor 28.5 percent as the number of aircraft in service increased by 33.4 percent, offset by the effect of a 16.3 percent decrease in utilization compared to 2019. Sales and marketing expense. Sales and marketing expense during 2022 increased 38.4 percent compared to 2021, due to an increase in net credit card fees in 2022 as a result of a 35.4 percent increase in passenger revenue year-over-year. As compared to 2019, sales and marketing expense increased by 27.6 percent due to an increase in net credit card fees in 2022 as a result of a 27.0 percent increase in passenger revenue compared to 2019. Other operating expense. Other expense increased by $29.6 millionor 35.3 percent year-over-year, due to increased service, incremental increases in our employee training activity and offset by decreased activity in our non-airline subsidiaries due to the sale of Teesnap in the second quarter of 2021. Payroll Support Programs grant recognition. During 2021, we received $203.9 millionin funds through the payroll support programs and recognized $202.2 millionas an offset to operating expense on our income statement for year ended December 31, 2021. The funds were fully utilized in 2021. There were no such funds received in 2022. Special charges. Special charges of $34.6 millionwere recorded within operating expenses during 2022 compared to $14.0 millionin 2021. The special charges in 2022 include estimated loss from property damage to Sunseeker Resortrelated to Hurricane Ian and two subsequent insurance events that occurred during the fourth quarter, offset by insurance recoveries recorded to date. The amount of the losses will continue to be offset in future periods by amounts to be recovered under the company's insurance policies. The special charges in 2021 relate to expenses that were unique and specific to COVID-19 including accelerated retirements of two airframes and three engines, acceleration of certain existing stock awards and an impairment loss on a building associated with the Allegiant Nonstop family entertainment line of business. Income tax expense. We recorded a $2.5 milliontax expense compared to a $44.8 milliontax expense during 2022 and 2021 respectively. The effective tax rate for 2022 differed from the statutory federal income tax rate of 21.0 percent primarily due to state income taxes. The effective tax rate for 2021 differed from the statutory federal income tax rate of 21.0 percent primarily due to state income taxes and the impact of ASU 2016-09 related to share-based payments. 2021 compared to 2020 The comparison of our 2021 results to 2020 results is included in our Annual Report on Form 10-K for the year ended December 31, 2021, under Part II Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations. 44 -------------------------------------------------------------------------------- For the Year Ended December 31, Percent Change (5) Operating statistics (unaudited): 2022 2021 2020 2019 YoY Yo2Y Yo3Y Total system statistics: Passengers 16,796,544 13,637,405 8,623,984 15,012,149 23.2% 94.8% 11.9% Available seat miles (ASMs) (thousands) 18,419,045 17,490,571 13,125,533 16,174,240 5.3 40.3 13.9 Operating expense per ASM (CASM) ( cents)(1) 12.00 ¢ 8.26 ¢ 9.68 ¢ 9.13 ¢ 45.3 24.0 31.4 Fuel expense per ASM (cents) 4.42 ¢ 2.52 ¢ 1.69 ¢ 2.65 ¢ 75.4 161.5 66.8 Operating CASM, excluding fuel ( cents)(1) 7.58 ¢ 5.74 ¢ 7.99 ¢ 6.48 ¢ 32.1 (5.1) 17.0 Sunseeker Resort CASM ( cents)(2) 0.25 ¢ 0.05 ¢ 1.12 ¢ 0.05 ¢ 400.0 (77.7) 400.0 Airline operating CASM, excluding fuel and Sunseeker Resort activity (cents) 7.33 ¢ 5.69 ¢ 6.87 ¢ 6.43 ¢ 28.8 6.7 14.0 Departures 118,069 117,047 87,955 110,542 0.9 34.2 6.8 Block hours 278,792 264,628 196,849 248,513 5.4 41.6 12.2 Average stage length (miles) 884 856 862 855 3.3 2.6 3.4 Average number of operating aircraft during period 114.2 103.0 97.4 85.6 10.9 17.2 33.4 Average block hours per aircraft per day 6.7 7.0 5.9 8.0 (4.3) 13.6 (16.3) Full-time equivalent employees at end of period 5,315 4,458 3,863 4,363 19.2 37.6 21.8 Fuel gallons consumed (thousands) 218,606 204,689 149,479 196,442 6.8 46.2 11.3 ASMs per gallon of fuel 84.3 85.4 87.8 82.3 (1.3) (4.0) 2.4 Average fuel cost per gallon $ 3.73 $ 2.15 $ 1.48 $ 2.1873.5 152.0 71.1 Scheduled service statistics: Passengers 16,630,138 13,509,544 8,553,623 14,823,267 23.1 94.4 12.2 Revenue passenger miles (RPMs) (thousands) 15,224,346 11,963,715 7,626,470 13,038,003 27.3 99.6 16.8 Available seat miles (ASMs) (thousands) 17,909,190 17,027,902 12,814,080 15,545,818 5.2 39.8 15.2 Load factor 85.0 % 70.3 % 59.5 % 83.9 % 14.7 25.5 1.1 Departures 114,066 113,121 85,276 105,690 0.8 33.8 7.9 Block hours 270,516 256,991 191,732 238,361 5.3 41.1 13.5 Average seats per departure 175.7 174.2 172.8 171.1 0.9 1.7 2.7 Yield ( cents)(3) 7.31 ¢ 6.61 ¢ 5.88 ¢ 7.00 ¢ 10.6 24.3 4.4 Total passenger revenue per ASM (TRASM) ( cents)(2) 12.50 ¢ 9.78 ¢ 7.40 ¢ 11.28 ¢ 27.8 68.9 10.8
Average fare – scheduled service(4)
$ 52.45 $ 61.5814.3 27.5 8.6
Average fare – air-related charges(4)
$ 53.02 $ 51.965.7 16.3 18.7
Average fare – third party products
$ 5.43 $ 4.72(5.2) 11.8 28.6 Average fare - total $ 134.62 $ 123.24 $ 110.91 $ 118.269.2 21.4 13.8 Average stage length (miles) 890 862 867 859 3.2 2.7 3.6 Fuel gallons consumed (thousands) 212,466 198,891 145,528 188,596 6.8 46.0 12.7 Average fuel cost per gallon $ 3.72 $ 2.13 $ 1.48 $ 2.1874.6 151.4 70.6 Rental car days sold 1,447,708 1,361,123 1,132,173 1,921,930 6.4 27.9 (24.7) Hotel room nights sold 282,854 261,158 199,059 415,593 8.3 42.1 (31.9) Percent of sales through website during period 96.0 % 94.7 % 93.1 % 93.3 % 1.3 2.9 2.7 (1)Includes effect of special items in 2020, 2021 and 2022. (2)Various components of this measure do not have a direct correlation to ASMs. These figures are provided on a per ASM basis so as to facilitate comparisons with airlines reporting costs and revenues on a per ASM basis. (3)Defined as scheduled service revenue divided by revenue passenger miles. (4)Reflects division of passenger revenue between scheduled service and air-related charges in our booking path. (5)Except load factor and percent of sales through website, which is percentage point change. 45
The following terms used in this section and elsewhere in this annual report
have the meanings indicated below:
“Available seat miles” or “ASMs” represents the number of seats available for
passengers multiplied by the number of miles the seats are flown.
"Average fuel cost per gallon" represents total aircraft fuel expense for our total system divided by the total number of fuel gallons consumed in our total system.
“Average stage length” represents the average number of miles flown per flight.
"Block hours" represents the number of hours during which the aircraft is in revenue service, measured from the time of gate departure until the time of gate arrival at the destination. "Load factor" represents the percentage of aircraft seating capacity utilized (revenue passenger miles divided by available seat miles). "Operating expense per ASM" or "CASM" represents operating expenses divided by total system available seat miles. "Operating CASM, excluding fuel" represents operating expenses, less aircraft fuel expense, divided by total system available seat miles. This statistic provides management and investors the ability to measure and monitor our cost performance absent fuel price volatility. Both the cost and availability of fuel are subject to many economic and political factors and therefore are beyond our control.
“Passengers” represents the total number of passengers flown on all flight
“Revenue passenger miles” or “RPMs” represents the number of miles flown by
“Total passenger revenue per ASM” or “TRASM” represents total passenger revenue
divided by scheduled service available seat miles.
LIQUIDITY AND CAPITAL RESOURCES
Cash, cash equivalents and investment securities (short-term and long-term)
securities which are available-for-sale.
revolving credit facilities plus another
under our PDP financing facility.
Restricted cash represents escrowed funds under fixed fee contracts, escrowed project funds and cash collateral against letters of credit required by hotel properties for guaranteed room availability, airports and certain other parties. Under our fixed fee flying contracts, we require our customers to prepay for flights to be provided by us. The prepayments are escrowed until the flight is completed and are recorded as restricted cash with a corresponding amount reflected as air traffic liability. We suspended share repurchases and our quarterly cash dividend in first quarter 2020, as part of cash conservation efforts in response to the effects of COVID-19 on our business. In connection with our receipt of financial support under the payroll support programs, we agreed not to repurchase shares or pay cash dividends through
September 30, 2022. We resumed our share repurchases in fourth quarter 2022 as we purchased 378,952 shares at an average price of $78.92per share for total repurchases of $29.9 million. In January 2023, our board increased our stock repurchase authority back to $100.0 million. We believe we have more than adequate liquidity resources through our cash, cash equivalent and short term investment balances, our undrawn capacity under existing credit facilities, operating cash flows and anticipated access to liquidity, to meet our current contractual obligations and remain in compliance with the debt covenants in our existing financing agreements for the next 12 months. We will continue to consider raising funds through debt financing to finance aircraft purchases and also on an opportunistic basis.
Our debt and finance lease obligations balance, without reduction for related issuance costs, increased from
$1.77 billionas of December 31, 2021to $2.12 billionas of December 31, 2022. During 2022, we borrowed $1.06 billionincluding debt of $550.0 millionto refinance our term loan due 2024, $175 millionunder our construction loan, and $192 millionin aircraft finance leases. During this period we made principal payments of $701.6 million, including a $531.7 millionprepayment of our term loan due 2024 and $24.7 millionprepayment of our payroll support program loans.
Sources and Uses of Cash
Operating Activities. Operating cash inflows are primarily derived from providing air transportation and related ancillary products and services to customers. During 2022, our operating activities provided
$303.1 millionof cash compared to $538.2 millionduring 2021. This change was mostly attributable to a $149.4 milliondecrease in net income and a $181.5 milliondecrease in tax receivable and deferred tax activity offset by a $72.1 millionincrease in our air traffic liability in 2022 compared to a small decrease in the prior year. Investing Activities. Cash used for investing activities was $491.4 millionduring 2022 compared to $593.3 millionin 2021. During 2022, there was a $275.7 millionincrease in purchases of property and equipment, including $84.6 millionrelated to aircraft pre-delivery deposits. This increase was more than offset by a $327.6 millionincrease in proceeds from maturities, net of purchases, of investment securities during 2022. Proceeds from maturities exceeded purchases of investment securities in 2022, but not in 2021. Financing Activities. Cash provided by financing activities for 2022 was $33.1 million, compared to $285.5 millionin 2021. The change resulted from $335.1 millionof proceeds from the issuance on common stock in 2021 offset by an increase in proceeds from debt issuance in excess of principal payments and debt issuance costs of $175.5 millioncompared to 2021 as debt proceeds exceeded principal payments and debt issuance costs in 2022 but not in 2021. The repurchase of $29.9 millionof stock in 2022 also contributed to a lower amount of cash provided by financing activities in 2022. The $84.7 millionin other financing activities is mostly attributable to $62.8 millionof net deposit activity in the construction deposit account for Sunseeker Resortand as such, is a partial offset to $175.0 millionof proceeds from the issuance of debt obligations for Sunseeker Resortduring 2022. 47 --------------------------------------------------------------------------------
OFF-BALANCE SHEET ARRANGEMENTS, COMMITMENTS AND CONTRACTUAL OBLIGATIONS
The following table discloses aggregate information about our contractual cash obligations and off-balance sheet arrangements as of
December 31, 2022and the periods in which payments are due: Contractual obligations (in Less than 1 More than 5 thousands) year 2-3 years 4-5 years years Total Long-term debt obligations (1) $ 223,387 $ 610,317 $ 932,719 $ 266,565 $ 2,032,988Finance lease obligations 66,751 102,816 102,216 402,094 673,877 Operating lease obligations 25,549 48,399 24,139 38,362 136,449 Aircraft acquisition obligations (2) 536,617 1,395,685 - - 1,932,302 Total future payments under contractual obligations $ 852,304 $ 2,157,217 $ 1,059,074 $ 707,021 $ 4,775,616(1)Long-term debt obligations (including variable interest entities) include scheduled interest payments, using applicable reference rates as of December 31, 2022, and excludes debt issuance costs. (2)Includes aircraft and engine acquisition obligations under existing purchase agreements, which are not reflected on our balance sheet. 48 --------------------------------------------------------------------------------
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The discussion and analysis of our financial condition and results of operations are based on our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in
the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amount of assets and liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities at the date of our financial statements based on events and transactions occurring during the periods reported. Note 3 to our Consolidated Financial Statements provides a detailed discussion of our significant accounting policies. Critical accounting policies are defined as those policies that reflect significant judgments about matters that are inherently uncertain. Our actual results may differ from these estimates under different assumptions or conditions. We believe our critical accounting policies are limited to those described below. Affinity Credit Card Program The Allegiant co-branded credit card is issued by Bank of America through which arrangement points are sold and consideration is received under an agreement which expires in 2029. Under this arrangement, we identified the following deliverables: travel points to be awarded (the travel component), use of our brand and access to our member lists, and certain other advertising and marketing elements (collectively the marketing component). Each of these deliverables is accounted for separately and allocation of the consideration from the agreement is determined based on the relative selling price of each deliverable. We applied a level of management judgment and estimation in determining the best estimate of selling price for each deliverable by considering multiple inputs and methods including, but not limited to, the redemption value of points awarded, discounted cash flows, brand value, volume discounts, published selling prices, number of points to be awarded and number of points expected to be redeemed.
Revenue from the travel component is deferred based on its relative selling
price and is recognized into scheduled service revenue when the points are
redeemed by cardholders and transportation is provided. Revenue from the
marketing component is considered earned in the period in which points are sold
and is therefore recognized into third party products revenue in the same
Accounting for Long-Lived Assets
We record impairment losses on long-lived assets used in operations, consisting principally of property and equipment, when events or changes in circumstances indicate, in management's judgment, that the assets might be impaired and the undiscounted cash flows estimated to be generated by those assets are less than the carrying amount of those assets. In making these determinations, we utilize certain assumptions, including, but not limited to: (i) estimated fair value of the assets; and (ii) estimated future cash flows expected to be generated by those assets which are based on additional assumptions such as (but not limited to) asset utilization, average fare, block hours, fuel costs, length of service the asset will be used in operations, and estimated salvage values. In estimating the useful lives and residual values of our aircraft, we have primarily relied upon actual experience with the same or similar aircraft types, current and projected future market information, and input from other industry sources. Subsequent revisions to these estimates could be caused by changing market prices of our aircraft, changes in utilization of the aircraft, and other fleet events. To the extent a change in estimate for useful lives or salvage values of our property and equipment occurs, there could be an acceleration of depreciation expense associated with the change in estimate. See Note 3 to the Consolidated Financial Statements for further detail.
Aircraft Maintenance and Repair Costs and Major Maintenance Deferral
We account for major maintenance costs of Airbus airframes and the related CFM engines using the deferral method. Under this method, the cost of major maintenance events is capitalized and amortized as a component of depreciation and amortization expense over the estimated period until the next scheduled major maintenance event. The timing of the next major maintenance event is estimated based on assumptions including estimated cycles, hours and months, required maintenance intervals, and the age/condition of related parts. These assumptions may change based on forecasted aircraft utilization changes, updates to government regulations and manufacturer maintenance intervals, as well as unplanned incidents causing damage requiring a major maintenance event prior to a scheduled visit. If the estimated timing of the next maintenance event changes, the related amortization period would also change.
Sales of passenger tickets not yet flown are recorded in air traffic liability. Passenger revenue is recognized when transportation is provided. The air traffic liability primarily includes sales of passenger tickets with scheduled departure dates in the future as well as credit vouchers which can be applied as payment toward the cost of a ticket. Credit vouchers are typically issued as a result of canceled travel prior to the contractual expiration date. 49 -------------------------------------------------------------------------------- During 2020, we suspended change and cancellation fees. In 2020, we announced that credit vouchers issued as a result of canceled travel beginning in
January 2020would have an extended expiration date of two years from the original booking date. This policy continued for credit vouchers issued through June 30, 2021. Effective July 1, 2021, credit vouchers issued have an expiration date of one year from the original booking date. Credit vouchers represented approximately 18.7 percent of the air traffic liability as of December 31, 2022. This compares to approximately 22 percent and 72 percent as of December 31, 2021and December 31, 2020respectively, and approximately eight percent as of December 31, 2019, prior to the onset of the COVID-19 pandemic. We estimate the amount of credit vouchers not expected to be redeemed prior to their contractual expiration date ("credit voucher breakage") and recognize the associated passenger revenue at the time of issuance. Our credit voucher breakage estimates are primarily based on historical usage data, contract duration and resulting customer behavior. Given the impact of the COVID-19 pandemic on customer behavior and changes made in ticket validity terms, as well as the suspension of change and cancellation fees, our estimates of passenger revenue that will be recognized from the air traffic liability for credit voucher breakage may be adjusted in future periods as we periodically review our estimates based on actual experience to date.
For additional information on our significant accounting policies related to
passenger ticket sales, see Note 3 of the Notes to the Consolidated
RECENT ACCOUNTING PRONOUNCEMENTS
See related disclosure in Note 3 to our Consolidated Financial Statements.
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