Thank you for standing by, and welcome to the Allegiant Travel Company's Q4 and Full Year 2021 Earnings Conference Call. At this time, all participants are in listen only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you'll need to press star one on your telephone. As a reminder, today's program may be recorded. I would now like to introduce your host for today's program, Sherry Wilson, Director of Investor Relations. Please go ahead.
Thank you, Jonathan. Welcome to the Allegiant Travel Company's Q4 and full year 2021 earnings call. On the call with me today are Maury Gallagher, the company's Chairman and Chief Executive Officer, John Redmond, the company's President, Greg Anderson, our EVP and Chief Financial Officer, Scott Sheldon, our EVP and Chief Operating Officer, Scott DeAngelo, our EVP and Chief Marketing Officer, Drew Wells, our SVP of Revenue and Planning, and a handful of others to help answer questions. We will start the call with commentary and then open it up to questions. We ask that you please limit yourself to one question and one follow-up. The company's comments today will contain forward-looking statements concerning our future performance and strategic plan.
Various risk factors could cause the underlying assumptions of these statements and our actual results to differ materially from those expressed or implied by our forward-looking statements. These risk factors and others are more fully disclosed in our filings with the SEC. Any forward-looking statements are based on information available to us today. We undertake no obligation to update publicly any forward-looking statements, whether as a result of future events, new information or otherwise. The company cautions investors not to place undue reliance on forward-looking statements which may be based on assumptions and events that do not materialize. To view this earnings release as well as the rebroadcast of the call, feel free to visit the company's investor relations site at ir.allegiantair.com. With that, I'll turn it over to Maury.
Thank you, Sherry, and good afternoon, everyone. Thank you for joining our call today. We were profitable again in the quarter just ended. The model and our personnel continue to shine in these very difficult times. Operations were returning to normal in December when Omicron took over, but it's trending down and hopefully will be just a bad memory by March. You will hear an overview of our performance and what we believe the coming months hold in just a moment. I wanna take some time and reflect on some of our history. We have completed our twentieth full year at Allegiant. First year was 2002. We early on understood we could not copy existing carriers and attempt to beat them at their game. In early 2002, we began experimenting and implementing this model you have come to appreciate and admire.
It was developed and refined during the next three years, and 20 years in, it continues to differentiate us. During these 20 years, we have led the industry in operating margins as well, averaging 15% during this time, while the next closest, Southwest and Alaska, average 10%. That's a 50% difference in margin. We also led the industry during this time with 69 consecutive quarters of profitability through the Q1 of 2020, including remaining profitable during the 2008, 2009 period when all others were falling underneath the zero line. The end of 2021 completed our 15th year as a public company. We've had 60 of these quarterly calls. This is our 61st. Our market cap on December 8, 2006, our first day as a public company, was approximately $400 million.
Today, we have a $3.2 billion market cap or an 800% increase in value for our shareholders during these 15 years. No one in the industry has had anywhere close to this wealth creation. In the past years, as we have emerged from COVID, we have made the necessary strategic moves to position us for the coming years, including a terrific order we recently placed with Boeing, an international relationship that will allow us to enter the international markets in the next years, investing in branding tools, including Allegiant Stadium and soon Sunseeker, necessary components of our branding for Allegiant 2.0, our continued development of our incremental ancillary and third-party revenues, and lastly, a greatly enhanced balance sheet with almost $1.2 billion of cash. Allegiant Travel Company is extraordinarily well-positioned.
Our airline and our unique competitive model continue to be the backbone of our success. 75% of our routes, by the way, are still not competitive. We have years of growth left with as many as 1,400 new routes that we feel strongly will provide us that growth opportunity. Why have I told you this history? Because this team, this company, has proven year in and year out they can execute. While at times history has not been a reliable prognosticator, this time I believe it's very much very reliable. Lastly, this management team is the best in the industry, in my opinion. When combined with the best team members who have proven themselves continuously for the past 20 years, we will continue to lead the industry in our rightful place, at the head of the pack. John?
Thank you, Maury, and good afternoon, everyone. I would like to first and foremost thank every one of our team members for their incredible efforts throughout this crazy 2021 year. The Allegiant story and history are amazing to hear and difficult to replicate for any company in any industry. The company has been a model of consistency. The tenure, depth and breadth of our management team is the foundation of our success. As I reflected after the Boeing Investor Day we recently had, two words that were used most in that call, and in all preceding calls and presentations I have participated in the past, are opportunistic and flexibility. I'm confident you'll hear these words used going forward as well. That's our DNA. Everything this company has ever done has created flexibility or took advantage of an opportunity, regardless of whether the timing was pre-pandemic or post.
Post-pandemic, when we did the equity raise in May 2021, we raised growth capital when our stock was trading close to all-time highs, while other carriers raised survival capital throughout 2020. This opportunistic timing created incredible financial flexibility. To date, during the pandemic, we have purchased or leased 25 A320 series aircraft at the most opportunistic prices we've ever seen. Furthermore, we purchased roughly $30 million in spare parts and engine related supplies at a discount of approximately 40%. Sunseeker was started and will be completed during the period of time that allowed us to take advantage of the Trump Tax Reform Act. Likewise, the recently announced 50-plane Boeing purchase to be completed by the end of 2025 was not only on favorable terms, but will also take advantage of the Tax Reform Act before its expiration.
This past year has had its highs and lows, but we stayed the course and ended the year in a much better position than it started, not only financially, but we added nine cities to the network, further broadening our reach and exposure. 2022 will truly be a foundational year as we move into the twenty-first year of the company's existence. Quickly on Sunseeker, as I mentioned on the previous call, the budget for Sunseeker Resort was originally $500 million. We were on track for the anticipated opening and on budget when we stopped the project due to the pandemic. When we restarted the project in August 2021, the budget was revised to $510 million, given the costs incurred while we were shut down.
After restarting the project and spending some time understanding the impact to the budget due to the unexpected supply chain disruptions that impacted price and delivery time frames, I mentioned on the last earnings call, Q3 2021, the budget could increase by 10%-15%. That estimate has not changed as of today. In order to provide some level of comfort, we have bought out or have signed commitments for 74% of the revised budget, assuming the high end of the estimate of $585 million. By the end of Q2 2022, we should be roughly 100% bought out. As a reminder, we will restart Sunseeker Resort segment reporting beginning year-end 2021. The following Sunseeker Resort data points are Q1 2022 guides.
Capital expenditures should be between $50 million and $60 million, and pre-opening expenses will be in a range of $3 million-$4 million. With that, I will turn it over to Scott DeAngelo.
Thanks, John. Throughout Q4, the Allegiant brand continued to shine, attracting 9% more visitors to allegiant.com, who drove 16% more transactions versus 2019. Simply put, we attracted more web visitors and converted them into customers at a greater rate to drive more bookings among both first-time and repeat customers than in any Q4 in our history. As we did each quarter in 2021, we sequentially improved, narrowing the gap versus 2019 during the H1 of the year and widening the lead versus 2019 during the H2 . For Q4, this included both overall passenger revenue, which beat 2019 by nearly 9%, and third-party revenue, which beat 2019 by nearly 54%.
The Allways Allegiant World Mastercard program was a key driver, having its strongest year ever in terms of new card sign-ups, average spend on the card, and total compensation to Allegiant. Each month of the Q4 and seven months in the last three quarters ranked among our top 10 months ever for new card sign-ups. In total, new card sign-ups were up by 27% for the quarter and 16% for the year versus 2019, while program compensation to Allegiant was up by 52% and 38% for the quarter and the year respectively versus 2019. For the year, we focused tightly on the 1.9 million passengers who flew with us and drove $880 million of revenue in 2019 but did not fly during the main part of the pandemic during 2020.
I'm happy to report that we won back nearly 40% of these customers and 1/3 of that revenue this past year, despite continued periods of pandemic-driven customer uncertainty and demand headwinds. 2021 saw the launch of our new web and app customer experience, the launch of Allways Rewards, our first ever broad-based non-credit card loyalty program, and the activation of major strategic partnerships with Live Nation and Allegiant Stadium as leisure travelers returned to attend live music and sporting events in droves. In summary, the Allegiant brand is thriving and our direct-to-consumer distribution model, our all nonstop flight network, and selling beyond the aircraft to increasingly win share of leisure travel dollars for our asset-light, high-margin, third-party products is enabling us to proactively stimulate demand and preference for Allegiant while driving deeper levels of customer engagement across all we offer at allegiant.com.
Ultimately, setting up unprecedented growth prospects for Allegiant in 2022 and beyond. With that, I'll turn it over to Drew Wells.
Thank you, Scott, and thanks everyone for joining us this afternoon. I'm quite pleased with the Q4 revenue results. Total revenue came in 7.8% higher than 2019 on system ASM growth of 13%. In a lot of ways, the Q4 marks more normalcy in how we are thinking about the world. Peak demand periods, namely the holidays, saw load factors and revenue per flight that largely mirrored pre-pandemic norms. Once again, the network was expanding to the tune of 56 new routes and 5 new airports. Those routes were part of the 10% of ASMs in their first 12 months of operation. That feeling of normalcy was interrupted in December as a COVID spike reared its head once more. We have proactively cut roughly 10% of our anticipated December schedule and a smaller portion of November to right-size and protect the schedule.
However, this spike manifested in a new way, as closer-end holiday bookings never materially slowed while the impact to the industry's operation was heavily felt. Off-peak January and February did feel the impact of slower bookings, and the overall outlook for the Q1 is an exaggerated story of peak versus off-peak demand. The off-peak period will lag considerably. In January, load factors finished just shy of 70%. However, I expect the peak to continue to be on par with pre-pandemic levels. Peak demand is incredibly strong. I think March could book over 85%, and while still early, a relatively normal booking curve gives us a bit more insight into summer, which is also showing great promise. As we continue to compare back to 2019, we are still mired in the MD-80 retirement comp and the resulting muted growth.
This results in modestly higher January and February percentage growth versus peak March. Even with an elevated growth rate in the Q1 , our 1Q scheduled service compound growth rate since 2018 is just 7%. It is important to note that nearly 90% of markets are still running just twice a week through the off-peak season. This means growth is primarily fleet and market-driven and not increased frequency. Another 13 markets inaugurate service in the Q1 , and just over 12% of Q1 scheduled service ASMs will be in their first year of operation. Similar to the holiday peaks of Q4 , and despite incredible demand, March capacity has been reduced around 11% as we continue to work alongside our ops teams to right-size and protect the schedule.
We are forecasting our Q1 ASM guide at +19%-+23% versus 2019. The weather patterns currently forming in the Midwest will put some pressure on the top end right out of the gate. The distribution of peak versus off-peak demand in ASMs, along with higher new market mix, puts a bit of a ceiling on how the quarter is likely to take shape, and we are guiding the first quarter total revenue to be up between 5% and 9.5% versus 2019. The continued fluidity of the environment and backloaded nature of the quarter drive slightly more uncertainty and in turn, a wider range. With that, I'd like to pass it over to Greg.
Drew, thank you, and good afternoon, everyone. 2021 was another challenging year, and it has been amazing and humble to see Team Allegiant continually rise to the occasion in this unpredictable environment. During 2021, we inducted 13 aircraft into our fleet. We added more than 700 team members. We flew 8% more ASMs than we did in 2019. Additionally, our passenger and revenue counts for the past two quarters exceeded the same periods in 2019. We had three consecutive profitable quarters, including the fourth, and a full year adjusted operating margin of 6.6% and adjusted net income of $35 million. These are industry-leading results in 2021, and in recognition of these extraordinary efforts, it is with great pleasure to mention our board approved a special variable compensation payout to all of our team members based on GAAP results.
Our sincerest thanks to all of you. For the Q4 , we reported adjusted earnings per share of $1.18, our third consecutive quarter profit, positive adjusted net income. Demand and revenue are strong, even in the face of Omicron and disruptive weather. Our 4Q 2021 revenue was up 8% year-over-year on increased capacity of 13%. On the cost front, we still have some work to do. Adjusted operating costs excluding fuel outpaced growth, and we're up 21% year-over-year. On a unitized basis, our adjusted CASM-x was $0.0724 or up 7% year-over-year. Excluding the effects of our IROP costs specific to customer compensation during the Q4 , our adjusted CASM-x would have been $0.0673 or flat year-over-year.
As described last quarter, the largest component of our IROP cost is the compensation program for inconvenienced passengers. This is compensation we provide in excess of the ticket amount. We are not aware of any program in the industry near as generous, and importantly, our customers impacted by summer IROPS have returned to book at the same rates as those who were not impacted. This customer compensation program drove an incremental $23 million in payments to our impacted customers during the Q4 . Turning towards 2022, Omicron continued to rip into January and drove further irregular operations. As Maury noted, we expect this volatility to largely be behind us. We expect IROP customer compensation costs to provide roughly $0.0003 headwind to our Q1 CASM.
Based on our Q1 2022 capacity guide, we estimate our Q1 CASM-ex at a midpoint of $0.0685, up 3% when compared to 1Q 2019. In addition to the elevated IROPS, the primary headwinds around unitized cost year-over-year are largely driven by inflationary pressures with stations, wages, and fuel. These headwinds are in part combated by efficiencies gained in labor productivity, as we expect our FTE per aircraft in 2022 to be closer to 42 or 43, which compares favorably to our 2019 average of 48. This decrease primarily relates to management and corporate areas scaling with our growth. In addition, our average seat per departure is up by five seats, 3% year-over-year.
ASMs per gallon in the Q1 are also expected to increase by 5% compared to the same period in 2019. Fuel prices, however, continue to rise, and we are currently seeing Brent hovering around $90 per barrel. Elevated fuel coupled with labor constraints, inflationary pressures, and Omicron are some of the current challenges at hand. Given these uncertainties, we are pleased with our measured baseline growth plan for 2022. Today, we expect a comfortable full year 2022 departure growth in the low double digits compared to 2021. However, year-over-year ASM growth should naturally outpace departure growth by roughly 5 percentage points given the increasing average seats and stage length per departure. We expect our earnings potential to improve throughout 2022 as the environment becomes more normalized.
Our unique model should allow us to layer on more capacity at the appropriate times to drive higher profitability while maintaining the flexibility to not fly if the environment or returns do not justify it. This flexibility is further supported by our strong balance sheet. Over the past two years, we have more than doubled our cash balances while nearly cutting our net debt in half. We do not have the enhanced burden of leveraging up with the expensive debt during the pandemic, as most other carriers did, and the strength of our balance sheet, coupled with our broad network, support well our new aircraft order with Boeing for the 50 737 MAX family powered by CFM. The operating efficiencies of the MAX aircraft should drive even higher returns on our most productive lines of flying. We are excited to incorporate these aircraft in our fleet.
As we do so, we expect a nominal headwind towards unit cost during 2022 due to training and staffing. In early January, we made our first predelivery deposit towards this order, and the first delivery is expected in June of 2023. Our full year 2022 aircraft CapEx of $260 million includes predelivery deposits for this year. For full year 2022, we expect roughly $90 million in heavy maintenance CapEx. This is 30% less than our pre-pandemic expectations for 2022. Given our MAX order, coupled with the resulting deeper partnership with CFM in supporting our existing CEO engines or CEO engines, we have increased our ability to more efficiently manage our heavy maintenance program for years to come.
Our fleet plan has us ending 2022 with 127 A320 aircraft, of which 70 are configured at 186 seats. Of the 19 incremental aircraft year-over-year, we have already taken delivery of nine. As a reminder, 15 of these aircraft were acquired through finance or operating lease. We expect to exit 2022 with average seats per departure of 177 seats and average ASMs per gallon of 87. As we incorporate the 737 MAX aircraft over the next three years, our ASMs per gallon should increase by more than 10% versus the 2022 exit rate. We estimate a percentage point increase in ASMs per gallon is worth roughly $7 million in fuel savings when compared to 2019 fuel efficiency levels. In closing, as noted earlier, 2021 was another chaotic year.
Throughout this chaos, we felt there were unique points in time to make several moves to enhance long-term value for our stakeholders. These moves include, but are not limited to, aircraft order with Boeing, partnership with Viva Aerobus, secured financing to complete our Sunseeker project, and increased investments in systems, tools, and infrastructure to better support our long-term growth plans. With many of these major strategic items set, we will continue to focus on getting and staying ahead on the execution front. Team Allegiant has seen and experienced a lot together over many years, and I believe our results stand for themselves. With that, I'll turn it over to questions.
Certainly. Ladies and gentlemen, once again, if you have a question, please press star then one. Our first question comes from the line of Michael Linenberg from Deutsche Bank. Your question, please.
Yeah. Hey, good afternoon, everyone. Hey, I guess, Drew, I wanna ask you this question on, you know, your model and it being one of stimulation and low fares. You know, it's not just fuel prices going up, it's lots of input costs going up as Greg talked about. You know, you look at your capacity growth in the March quarter, although thanks for the context that you provided versus 2018, it's obviously not as much as what the headline number would suggest.
Having gone through these cycles before when energy prices run or input costs come, move up, at what point do you feel like, you know, you may have to back off on the growth in order to generate the type of return to generate the type of revenue that you need to offset these higher costs? Do you feel like we're close or getting closer? I'm curious about your thoughts, and maybe it's more of a philosophical question, and maybe even Maury can chime in on that. Thank you.
Sure. I'll kick it off, and then Maury, please, fill in if you have anything there. Yeah, I think we're there in terms of you know, having to review based on where fuel is. You know, it's a little challenging when you're running so high of twice a week markets, right? You're really making a decision on do we keep this market for the season or do we not?
Okay.
For the first part of Q1 , we've opted to keep a lot of those markets in. As we look towards the post-Easter to Memorial Day timeframe, kind of the next off-peak we'll see, that may not be the case, especially if there's continued run. We're undergoing that right now to ensure that we are right-sized for where oil is and possibly could be trending. For the peaks like March and the summer, you know, our hurdle rate right now just to get into the schedule, given some, you know, tighter scheduling there, is already, you know, well higher than where oil sits today.
I don't feel compelled in the least to cut out the peaks. Maybe it's a kind of a stay tuned for the late April, early May timeframe, if that's the next one I think we can affect materially.
Okay. Thank you.
The other comment, Michael, is when you've got 75% of your routes that are non-competitive, you have some more power to do things because you don't have somebody, you know, pricing against you at that point.
Mm-hmm.
New markets also give you an ability to go in and kinda set your own pricing. Classically, you can't raise fares just 'cause you want to. 'Cause if costs are going up, you gotta cut capacity. There's no doubt about it. We have to be mindful of that.
Yeah, we've generally stimulated traffic to where it is given the fares out there, and every incremental dollar does put some headwind on most markets. So we have to be fairly picky in how we deploy that in any way other than typical, you know, supply and demand.
Very helpful. Just one quick one. Just, you know, on pilots, I know it wasn't in the commentary, the prepared commentary, but I'm just curious what you're seeing on really the pilots and the mechanics. I'm talking about just the hiring perspective. It just seems like we're hearing from a lot of carriers. When I say lot, it's out there in the press that it's just getting harder to recruit what you're seeing, et cetera. Thank you.
Yeah. Hey, Michael, this is Sheldon. Yeah, it's definitely very competitive. We're currently in Section 6 bargaining with our pilots. We're trying to expedite sort of the renewal of the existing CBA. We sort of re-upped our efforts there. Our mechanics ratified their first contract in Q4 . It gives us some more levers to pull in order to be a little more competitive in the marketplace. We are seeing some attrition go up on the pilot side. If you sort of look at steady state, you know, our attrition runs anywhere from 5%-6%. That's crept up to below 10%, if you will. Majority on the FO side, majority going to legacy carriers.
We clearly see the need. There's a lot of planes coming in. Obviously, we need to get something in place in order to, you know, support the back end of 2022 and into 2023 growth. That's obviously the core focus, at least in my part of the world.
Okay.
Hey, Michael, it's Greg. I was just gonna add, and you may recall last quarter or the quarter prior, we talked about trying to get out ahead on the pilot, mechanic, and flight attendant side. We, as compared to prior staffing model levels, we went out and increased those and try and get those line-level employees and team members in more quickly. I think, you know, like we see a lot of strong applicants come in, and Allegiant is a great place to work. From a pilot's perspective, we have a unique model out and back, so it's just different. Crew members are in their beds at night. There is some advantages there. Also with the ability to move from right to left too.
Is it for the first time in a long time, are we seeing that the ability to advance at a legacy carrier, you're able to advance at a pace that maybe is almost similar to a relatively younger ULCC? Is that? Because I've never, I can't think of the last time when we saw maybe a decent number of pilots jumping from, say, your company to a legacy.
Yeah, I think that's accurate. I mean, if you look at some folks that took early outs, you know, during 2020 and 2021, you know, these folks are struggling to get back to even 2019 capacity. There's definitely opportunities.
Mm-hmm.
You know, steady-state, obviously, these guys don't grow at the pace at which, you know, sort of the ULCC space is. Just to add on there, I mean, if you look at the compression of narrow body rates between, you know, legacies and the ULCC space, it's never been more compressed.
Yep.
It's getting more and more. It's less about literally the rate spread than it is about advancement, right seat to left. You know, obviously, each one has a different proposition, you know, quality of life proposition.
Mm-hmm.
That's an area we do like. You know, we think we can punch above our weight limit, so to speak.
Mm-hmm.
I probably should add this on the front end. I mean, we're getting 70 applicants a week.
Okay.
Certain classes, we are very successful. You know, typical class size for us is 25-30. We started a class this week. We had all 24 applicants show up. It's somewhat of a mixed bag, if you will.
Mm-hmm.
It's obviously the core focus. You know, longer term, with the rate compression specifically, which we think we have a better value proposition than most.
Great. Thanks. Thanks, everyone.
Thanks, Michael.
Thank you. Our next question comes from the line of Ravi Shanker from Morgan Stanley. Your question, please.
Thanks. Good afternoon, everyone. Maury, you said at the start of the call that 75% of your routes are still not competitive. Why do you think that's the case? Are they, is it just too hard for others to compete in those routes? Are they just not getting enough attention? Do you just have a really, really good mousetrap? Kind of, you know, how do you think that trends over time?
Well, I'll let Drew do most of the talking, but the mousetrap factor, and we fly, we're two times a week, you know. It's not enough to support a lot of people. You know, they just don't have the configurations and/or the, you know, when you're flying 12 hours a day, as a ULCC, you need to have markets where you can run those airplanes seven days a week. We can have a lot more flexibility. We can do more if we need to, but majority, we don't. Drew?
Yeah, I think Maury hit all the major points there. It's far easier when you've built your business model to operate it twice a week and have the ability to scale up when demand dictates than the opposite of design your business model around daily.
Service and try to scale that down, which doesn't work very well. It's just part and parcel of who we are at the core of this business model to cater to less than daily routes where no one else particularly is paying attention.
The other component of this that is something really important to us is in peak times, we can add capacity in pretty good numbers, and no one else is gonna react because everybody's making money. You know, you come in underneath, you add capacity, you can add it at a lower cost in many cases in big markets. It's providing another avenue for us to kind of grow into markets where we might not have even looked at.
Understood. I think I know the answer to this, but just given all of the 5G headlines in recent weeks, kind of anything around potential disruption around some of the smaller airports, kind of older equipment, kind of how do you see that trending and any impact on you at all? Thank you.
Yeah, I mean, in general, we're probably one of the least impacted airlines. Obviously, we're monitoring it. But for the most part, it's been somewhat of a non-event for us. That's the best way I could describe it.
Okay, thanks.
Thank you. Our next question comes from the line of Catherine O'Brien from Goldman Sachs. Your question, please.
Hey, everyone. Good afternoon. Thanks so much for the time. So just one on the capacity plans for this year. You know, I know we haven't thrown out a finalized number unless I missed it, but I know on the last call you were talking about, you know, low double-digit growth for this year versus 2019. I know, you know, 1Q comps are a little bit messy, of course. Guessing that 2019 to 2023 is probably the high watermark for this year, but correct me if I'm wrong. I guess since the last time we talked, are you seeing incremental opportunities to add capacity or, you know?
It just sounded to me like your comments based on ASMs running several points ahead of a double-digit departure increase sounded like growth is running maybe a bit higher than you were thinking last time we talked. Thanks.
Yeah. Katie, maybe I'll kick it off and then open up to the floor if anyone else wants in. I think it's fair that we're seeing a little bit more in terms of you know, ability to add some capacity. If you remember last time, we were still kind of you know, working alongside with the ops groups to make sure that we could right size the schedule. I truly believe that we had Thanksgiving and Christmas in a really good place, you know, barring COVID crew pools that were kind of unforeseen in how they came to fruition.
I think kind of the place we've gotten to in working alongside one of the kind of as an enterprise as a whole has given us a bit more confidence to add in some incremental departures throughout the year. I do think you'll see a lot come through the off-peak months, things that will be a little bit less stressful in terms of adds. You know, there's probably a little bit more granularity and detail there than simply headline numbers as we go throughout the year.
Katie, I would just maybe add on the low double-digit growth. As we talked about that last time, we probably should have better explained that that was more around departures, but ASM growth will naturally outpace that due to higher average seat per departure, plus a little bit longer gauge by about 5 percentage points is what we're expecting.
Okay. Got it. I guess maybe just a related question for you, Greg. You know, in the same sentence about talking about low double digits on the last call, you also mentioned you were expecting that full year 2022 CASM-ex would be about flat. You know, I guess is that still the case? You know, can you just help us think about what expenses roll off through the year that you'll be able to get to flat CASM just on what I'm guessing is gonna be less capacity growth, just how that works. Thanks so much.
Yeah, no, thanks for the question, Katie. You know, when we're talking flat CASM, that's based on 2019 at about $0.65 cents. You know, where we sit today, I think we're a little bit higher than that, maybe a point or so. We'll see. A lot of that's gonna be based on capacity. We started in January, as Maury mentioned. Omicron ripped through, and that put some pressure on us on the IROP side, and that customer compensation program in which we, you know, that stings for us to be candid. You know, you take that out, I think we'll start working through the year. Some opportunities, I think, on the tailwind side, Katie, will be as the operating environment or travel ecosystem gets better.
You know, ideally we're able to be more productive with our assets and our team members. You kind of grow up under or come in underneath that. That too could help. I think, you know, on the station side, one of the things that we're seeing on the inflationary pressures has been around ground handling. I think we've talked about that quite a bit. Catering, for example, we'll see some pressure on the catering side. It's not a big number, but it's still about 10% there. We offset that through our buy on board program. I mean, the margins there are still the same. I think you have the potential to improve on stations a little bit.
We're assuming on the airport side inflationary pressures around 7% year-over-year, so 2022 versus 2021. I mentioned that as just if the bigger carriers in some of our larger airports start flying international or they start flying more business, that should help with those costs and come down, but we're not making any assumptions on that side yet.
Katie, Drew, maybe one more comment I should have added in the first bit. I think this is gonna be a point of confusion throughout much of this year. You know, I think Maury's comments were mostly driven on 2022 versus 2021 and not versus 2019 like we're guiding today. If you think about departures -
...in 2022 versus 2021, I think a lot of what was said holds true with the lower double digits and adding a little bit into that versus the comparison versus 2019. You know, probably onus on us to be a lot clearer in the comparison or reference point, but I believe that's what Maury was referring to last quarter.
Okay. Got it. Maybe just one really quick follow-up, Greg, just to make sure I have this on the CASM. You think probably this year, I know you're not guiding anything formal, but maybe like low single digit inflation versus 2019 is probably where we end up with some of these IROP pressures in the start of the year. Is that right?
Yeah. Yeah, I think you're right. I don't wanna come out and formally guide that. I think we'll be maybe slightly above where we were at, potentially, depending on how the, you know, the environment works, capacity and the like. Yeah, that's right.
Okay. Thank you so much for all the time.
Thank you. Our next question comes from the line of Brandon Oglenski from Barclays. Your question please.
Hey, good evening, everyone, and thank you for taking my question. I guess, can you guys give us a little bit of context here on the quarter? 'Cause obviously, you know, capacity growth close to 20%, but revenue, you know, 5%-9%. I'm assuming that there's a big drag here in January and February that you alluded to. Can you give us some feeling like how this is booking up for March and the spring break periods, if you don't mind?
Yeah. I think March is going to be particularly the peak spring break weeks will be reflective of pre-pandemic revenue stats in terms of loads, the amount of revenue carried by flight. I think, you know, as you think about, you know, where demand is relative to 2019, 2018, we're there. It's the other weeks that we need the recovery to get that full, you know, kind of PRASM benefit or PRASM growth.
I guess, you know, your point is that you are getting recovered PRASM too, not just demand, 'cause obviously your capacity is up a lot as well.
Yeah. The peak spring break weeks will look very much like they did in 2019 or 2018. They're healthy in terms of demand, and any unitized metric you'd like to use.
Okay. Appreciate that. Greg, on the, you know, the irregular operation costs here, I get it that, you know, a lot of this might have been driven by Omicron, but can you give us a sense of like how much of this was disrupted because of crew availability versus just normal weather? Because I'd assume that some of this is gonna be ongoing in the future, right?
That's a good question, Brandon. Let me kick it off and maybe Scott wants to add in on it as well. What I'd say is as I've been talking about IROPS on this call and as I've been talking about IROPS, and given the numbers, I've been trying to be more specific on the customer compensation, which is just a component of the IROPS. But because that's somewhat, we believe, unique to us, that's what I've been really when I talk about like the $23 million, that from the Q4 , that's what I'm talking about there. In 2019, Brandon, when we had the operating environment like we did, IROPS were negligible. I mean, I think it was like $4 or $5 million in total for the full year.
We've been getting out ahead of that. We talked about the staffing. We've talked about parts and things of that nature to try and combat the IROP situation. I don't have a thick guide for that in 2022 or buffer. We do have a little bit, but we think we're gonna get ahead of that. Omicron came on quickly. It hit us quickly. We think it's abated quite nicely. In terms of the mix between Omicron and weather, I don't have a percentage, Scott, but I know Omicron drove a lot of it, if not more.
Yeah. I mean, just to sort of put this in context because the results, you know, really don't show sort of how good we were set up for, you know, peak December flying. You know, we basically had, call it 900 controllable cancellations for the quarter. 450 of those happened in the last 11 days, and that would include, crew and mechanicals. It was so back-end loaded. If you look at the distribution of departures for the quarter, it was very obviously heavily weighted to December in addition to the back half of December. We were really set up nicely.
You know, weather obviously was impacted, but the majority of that is just, you know, you go from sort of 30, 40, you know, COVID crew pools going up to 300 in about 12 days. I think this is no different than any other carriers. You know, this is definitely different than the Delta variant. We saw a dramatically increased amount of just sick calls, which obviously you pull them for COVID, that's a 10-day, five to 10-day sort of event. Our crew sick calls were north of 30%, you know, over a five-day period. It was such a shock to the system. But you know, prior to the Omicron sort of spike there, we were just really, really set up nicely.
Drew and team did a nice job sort of matching, you know, the capacity to what, you know, our crews could handle. Yeah, I mean, really it was the story of this quarter was really the last 11 days. Other than that, it was a fairly clean quarter.
Thank you.
Thank you. Our next question comes from the line of Dan McKenzie from Seaport Global. Your question please.
Oh, hey, thanks, guys. The revenue forecast of up 5%-9.5%, I guess, on a 21% increase in capacity. A couple questions here.
Stripping away the suboptimal fleet utilization in the Q4 and Q1 , you know, what would the growth look like if no supply chain bottlenecks? Secondly, related to that, if we can just strip away COVID crew impact, is there an updated expectation around the timing for, you know, when supply chain issues might be resolved? I think last quarter you had talked about some MRO challenges.
You know, Dan, I wish we could tell you. I mean, as I sit here today, I continue to be baffled by the ongoing nature of this. Usually these markets are pretty efficient, and they fix themselves. But you have the combination of labor challenges. You've got the combination of just parts and the like. Having said that, you know, our MRO activity is, I was just talking with BJ, and BJ throw some comments in here. We've got 10, 11 airplanes in undergoing stuff, and it's actually working pretty well.
Yeah.
You're looking for a positive, you know, ray of light to show through, but, you know, so much of the broad message is still difficult. Stuff isn't on grocery shelves. Personnel shortages, you know, pilots in particular are moving around very quickly. But, you know, the MRO seems to be hanging in there.
Yeah. I think just on the induction side, we got ahead of it really well this year because there was such a supply of used aircraft that everything's already on property really for this year, and lots of parts and kits and everything are on hand earlier. I don't know if that's really representative of the heavy maintenance environment, Scott.
Yeah. The heavy is definitely more volatile. You know, we do the best we can to be, you know, surgical and match span days to anticipated findings, both, you know, routine and non-routine. You know, a lot of these we can deal with paper cuts, but, you know, we find non-routines that drive a substantial amount of engineering work, which obviously is tied back to labor. Any component repairs, obviously, that's supply chain. They can drive definitely increased span days, and that's where it gets pretty invasive on the schedule. It's slowly getting better to, I think, to everyone's point.
Well, an older fleet is gonna be more problematic in heavy maintenance than a newer fleet, you know, that's four, five, six years old. While it's a great way to work, we're gonna pay more of a price for it this year just on schedule and availability. We're probably gonna keep more airplanes on the sideline than we normally would. We're doing a lot of things differently than we normally would at this point, Phil.
Dan, it's Greg. Maybe just one high-level comment just to add here is that, you know, we're long-term thinkers, and yeah, there's gonna be noise in the short term. We're gonna get through it. We'll get through it well, if not better than anybody. If the environment starts to stabilize and get more normal, I mean, watch out, we're gonna be firing on all cylinders, and it's gonna be pretty powerful, we think, ahead of us, as Maury mentioned in his opening comments.
The best way to approach this, Dan, is to come up underneath it. Don't try and time it perfectly and hit it spot on, 'cause we haven't been able to do that. If we, you know, come up, make our best guess, you'd rather not be canceling flights and maybe leave a little on the table, so to speak, in capacity or you could have done more, then you just, you grow that, you grow into that.
It's I guess that's really gets to my next question is, we think about this noise, you know, what would growth have been this year, you know, without the noise? Instead of departures up low double digits with ASMs up about five percentage points of that, you know, is this trimming? Is the noise here trimming, say, five percentage points of growth off of 2022 that potentially could come back in 2023?
I think that's a bit challenging to say. You know, I think the biggest growth limiter for us this year and into next year will be more of crew hiring pipeline and more so than other supply chain elements. You know, with more crews, we grow more. I mean, it's that straightforward. I think you can run that as far as you want.
Well, I think it's pretty interesting, Dan. I don't think anyone's growing as much as we are. I don't wanna sit here and make excuses for that, but, you know, we're in a growth mode. It's just a question of how we do it. At the end of the day, when you say you're gonna do something, you wanna complete it. We haven't been able to do that with the regularity and the ability that we've historically. You know, you look at 2019 and how well we ran, the whole industry for that matter. We've got to get back to that, and we're. There's so many moving parts. You know, we've got to try and coordinate as many as we can.
I sense we'll get back there because, you know, the Omicron stuff has really been a tough. I don't know about you, but everybody that I'm talking to is just done with changing lifestyles and, you know, and all of a sudden closing down and just opening up, closing down. I'm bullish certainly in the H2 of the year. If not even in the Q2 , we'll be in good shape. Even March should be good.
Yeah. Prudent growth, I get it, undershooting. Then if I just squeeze one last one in here, going back to the fleet presentation, I'm just wondering if you can help us tie growth and cost into a CASM-ex target, say, three years out. Not a guide, but, you know, if we just juxtapose growth with scale, you know, I'm just trying to get a sense for what that means to the airline further out. You know, you guys are delivering a very positive message today on growth in the longer term. I'm just wondering if you can help us connect the dots on, you know, how to think about the cost structure over that longer term.
Yeah. Thanks, Dan, for the question. I mean, I think what I'd start off by saying is that, you know, we're focused on margins, and we think the aircraft that we'll bring on with Boeing in the future, that's what we're gonna be focused on. There's two sides to the equation, cost and revenue, and nobody in our view can adapt and match capacity with demand quite like us, so maintaining that flexibility is important. With that said, we think that we have a great cost structure, which we'll continue to hold, for years to come. The announcement of the fleet, the new order with Boeing isn't gonna change that one bit.
As we look out for 2023 to 2025, I mean, I don't wanna go out and give a guide, but I don't think it's gonna materially rise, where we're seeing today, all else being equal, but there's pressures that are gonna come. Scott mentioned that, you know, we're in discussions with pilots, and there's other items that we wanna think about. But I don't wanna give a guide other than I would say that our cost structure, we feel is in a great spot, and we'll continue to focus on that. It's an everyday commitment by all of us, and we'll make sure that it's in the right place moving forward.
That's great. Thanks for the time, you guys. Thank you. Our next question comes from the line of Helane Becker from Cowen. Your question please.
Hello. Thank you very much. Hi, everybody. Here's my question. One thing as a point of clarification, I think you said that some markets you're doing a couple times a week. We talked a lot about that. What % of markets did you say are new versus prior years, and was that for 2022 or 2021?
I had mentioned a couple of percents. 4Q 2021 was about 10% of ASM, and 1Q 2022 ramping up to 12%.
Okay.
You know, historically that's around kind of late 2017, early 2018 levels.
Right. Exactly so. Those are levels that you've, A, done before, and B, you feel comfortable with. It's not getting too far over your skis, right?
No, we've certainly exceeded these levels before, so we're quite comfortable. I think 2Q will probably ramp a little bit again over 1Q, but that will likely be the high watermark for this year and possibly into early 2023, if I had to guess.
Great. That's perfectly helpful. Thank you. My other question is with respect to debt and principal repayments. I see the guide for 2022. Is there debt that you could prepay that would make sense, or is it or not? I'm sorry, I think you said this. What percentage of the aircraft deliveries this year are financed now?
The aircraft that'll be delivered this year, I think there's only one that will not be under a finance lease, Helane. In terms of our debt, where we sit today, I think around $1.5 billion, and I'm rounding here. I think it's $750 million of the term loan is all pre-payable. We have some other pre-payable debt on the aircraft side. It's something we'll look at closely given the market conditions and getting out ahead. We're having discussions now and thinking about you know our balance sheet long term. There's some momentum behind us. I think there's a lot of capital out there to be put to use. That's something.
It's a great question, and we don't have a specific answer for you today other than there's a big chunk of our debt that is pre-payable that we'll look at in the near term or in the near term potentially refinancing or taking out.
Okay, that's really helpful. If I could just squish one more in. Did you issue warrants to the government last year?
No. I mean, just a very small amount, but very, very small amount was because we didn't take the loan, the government loan. We took the grant, and then most of what we received didn't have a loan associated with it. Anything from $100 million or below for each one of the cycles there, if you will, or each one of the grant issuances, there was no loan or warrants attached.
Right. Because if there are any that the government holds, you could buy those back theoretically, right?
Yeah. It's just, I mean, I can't remember the percentage, Helane. It's something we're not focused on, but it is negligible for us. I mean, just it's really small.
Okay. That's really helpful. Thank you, everybody, and thanks for the extra time.
Thanks, Helane.
Thank you. Our next question comes from the line of Hunter Keay from Wolfe Research. Your question please.
Hi, everybody. You know, Drew, you were the only airline executive three months ago to warn us that COVID wasn't gone yet. By the way, good call. I'm kind of curious to get your updated feelings on that. How did you know that? What was it that you were looking at? No, seriously. Well, what did you look at? You cited case count, so what is it that you were looking at at the time that gave you some caution on everybody, you know, running a victory lap on COVID being done? Are you seeing any of those same things now, any of the metrics that you might look at to give you the same degree of caution, or do you feel like we're good to go here?
I feel like I'm getting way outside of my lane here, but no, and I think some of this data has come out recently, but, you know, it's kind of followed flu season, right? It very much depends on temperature and humidity and where people are likely congregating. That's why, you know, you see it in most of the country through the winter as people go inside, and then you see it somewhat in the high humidity, high heat areas in the summer as people start to congregate inside air conditioning. I think it's more of seasonality aspects to it than anything. You know, there wasn't something that we were picking up in demand.
It was just kind of, you know, what we'd seen in terms of trends of cases and where it was happening geographically, and it, you know, made sense from that perspective. By no means am I trying to pretend to be an epidemiologist.
Please don't take any of my words as serious here. That's really it. Nothing beyond that.
Yeah. I guess the question was that you feel a little better now than you did then.
I do. I feel a lot better about what we're seeing and moving forward. I don't think we're completely out of the clear, but you know, Scott DeAngelo's mentioned this in previous calls. Each wave has had you know, less of an impact than any previous wave. You know, as it came to bookings, particularly in the peak period, those did not slow down at all. You felt it in the off-peak. You know, I do have more confidence moving forward that even you know, if it does make headlines again, it won't be quite as impactful. I wish I could say the same with any confidence on kind of the operation side and what it means for COVID pools. I don't have any good line of sight to that. I don't think anybody does.
You know, that's kind of the next, you know, the next thing to fall, I guess.
Okay. Is there any changes, and this wasn't for Sheldon, maybe or Maury, would you be permitted to make any changes to the bidding process without amending any CBAs? I'm kind of curious. You know, we see these really good peaks and these really bad troughs, if there is a situation where this is sort of the new normal, is there gonna be anything you can do outside the CBA amendments to sort of change the way that you schedule your folks to have a little bit more nimbleness on the bidding process, so you could make more schedule changes closer in? Or does that require CBA amendments?
Yeah. Unfortunately, we're sort of tied up there. We were able to come to an agreement, this is in 2020, where you know, you basically, in order to keep crews sort of on staff and try to mitigate involuntary furloughs, is to you know, how do we pay these people half-time, use them when we start to see strength, and just you know, sort of have these guys you know, in standby mode. We could do that, but the minute this thing was amendable, our hands are basically tied.
Okay. Thank you.
Thanks, Hunter.
Thank you. Our next question comes from the line of Duane Pfennigwerth from Evercore ISI. Your question please.
Hey, thanks. So if you add it all up, how much would you say Omicron is costing you in revenue in the Q1 ? Again, a lot of this commentary is very backwards looking. But if we could just, you know, estimate between cancels that were maybe, you know, people calling in sick, as opposed to staffing constraints and lost demand, you know, how many points of revenue do you think you lost there? To put a finer point on many of the previous questions, are we sort of fully back to the bookings momentum you would expect in a normal period, you know, for a time like March?
You know, honestly, I don't have a great number for you in terms of points of revenue lost due to Omicron. One of the things I think that's challenging with that is estimating the true return of demand in peak versus off-peak. Like I mentioned, March demand looks fully normal pre-pandemic levels. I'd say zero has been lost to that. You know, it's possible we should be above and beyond. It's really hard to tell. Your guess may be as good as mine of what January should have looked like without Omicron. It's the shortest booking curve of the year. It ends up very compressed and the vast majority of bookings should come in during a time when Omicron was present and very active.
I think it's a wild challenge to try to get to that number in a meaningful way for you.
Okay, fair enough. With respect to small markets, I wonder if you're seeing more white space. You know, obviously constraints impact regionals as well, and the ability to sort of serve some of those smallest markets is gonna be, you know, impacted at least for a period of time. Is your opportunity set getting bigger here? Are there, you know, orphan markets, for lack of a better word, that are sorta incremental growth opportunities for you?
Yeah, I mean, there certainly are. I would caution with running away too far with this. Remember, we're only a couple years, three years maybe now removed from the questions in the opposite fashion of, well, a lot of small cities are being added. Our point at that time was we didn't see a lot of degradation in performance, where we were serving those small cities, and I would envision the same in reverse now. I don't expect a massive amount of lift to come through the results. Obviously, fewer seats is better in general, but not something I would run away with here. We'll have some incremental opportunities, but not something I'm gonna call game changing.
Okay. Maybe one last one for Maury. As you look at the staffing constraints across the industry during this period of time, how does it impact, if at all, your thinking around M&A in the low cost sector?
Who knows? I think there's a lot of variables in M&A that's outside of just the day-to-day operations. You know, I think everybody's got their heads down just trying to figure out how to run tomorrow without trying to, you know, kind of look big picture at this point. Never say never.
Okay, thank you very much.
Thank you. This does conclude the question and answer session of today's program. I'd like to hand the program back to Maury Gallagher for any further remarks.
Thank you all very much, and we appreciate your calls, and we'll talk with you again in the next quarter.
Thank you, ladies and gentlemen, for your participation in today's conference. This does conclude the program. You may now disconnect. Good day.