Good afternoon everyone, and welcome to the Q3 2021 Allegiant Travel Company earnings conference call. At this time, all participants are in a listen-only mode. Later, we will conduct a question- and- answer session and instructions will follow at that time. If anyone should require any assistance during the conference, you may press star zero. I would now like to turn the conference over to your host, Ms. Sherry Wilson.
Thank you, Kirby. Welcome to the Allegiant Travel Company third quarter 2021 earnings call. On the call with me today are Maurice 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 plans. Various risk factors could cause the underlying assumptions of these statements and our actual results to differ materially from those expressed or implied by our forward-looking statements.
These risk factors and others are more fully disclosed in our filings with the SEC. Any forward-looking statements are based on information available to us to date. 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 Maurice.
Thank you, Sherry, and good afternoon, everyone. Thank you for joining us again. We had another very good quarter as we saw loads and yields improve versus earlier this year in Q1 and Q2. Our scheduled service ASMs increased 17% this year versus the same quarter in 2019. As I mentioned in our release, we are the only carrier this year that I'm aware of who has both grown their system compared to 2019 and been profitable. Subsequently, this was a substantial increase versus the sequential 4.5% growth in Q2 and 3.1% growth in Q1. While our third quarter results were profitable, they were impacted by our operational challenges. This spring, many in the industry were revving their motors for the drag race to restart their airlines.
Common theme was flag planting and get there before someone else. Majors had to refocus much of their flying to leisure-oriented destinations given the lack of business and international passengers. We, the low-cost carriers, were feeling our oats as well and looking to get out and plant some flags. We all were looking to get out of the gates quickly and stake the new turf. Regardless, the focus on leisure traffic in the associated airports by all concerned. As a result, the operational demands on leisure destination airports, particularly in Florida, were substantial. Comparatively, business-focused airports in most of your larger NFL cities were operating at a fraction of their traditional volumes. Some of our destination airports had operational increases of up to 100% compared to 2020 and 2019 respectively.
This added leisure flight activity was hampered by a difficult labor environment as well. Airports with these increases in activity did not have the necessary personnel for this substantial growth. An illustrative example of this unprecedented leisure effect was Southwest's comments about their recent operational problems tied to ATC issues in Florida, stating that half of their flights now touch Florida each day. This amazing evolution of the network of one of the major carriers in the U.S. is indicative of the substantial shift in where airplanes were flying this past summer. My label for this phenomenon is leisure destination overload. As I said, we were not immune to the challenges the industry was experiencing this past summer. Over the past few years, we have implemented a generous compensation program if and when we interrupt a customer's trip.
Our approach in this event is to provide a better than average amount of TLC to help take the sting out of one of these bad situations. If we were to add back these interrupted trip costs and other one-time associated operational expenses, our unit cost would have been on the mark. Greg will have more comments in a few minutes. You've heard every carrier so far comment on increasing fuel prices. Some carriers are still hedging, but understand this will only provide short-term relief. Capacity reductions are the only remedy long-term for fuel price increases. We have firsthand knowledge in this area. In 2008, in the first half of the year, we made substantial capacity cuts to offset the then skyrocketing energy costs.
While we plan on growing this coming year by at least low double-digit percentages, increasing fuel costs could put a damper on this growth. As we told you repeatedly, our model's flexibility allows us to flex up and down better than others. We have shown a consistent ability to grow over the years, but we've also been able to quickly retreat if needed, as we did in early 2008 and last year's pandemic. I'm excited about where we're at. We're in excellent shape. Our balance sheet has improved substantially during these difficult times. At the quarter end, we had over $1.1 billion of cash and only $500 million in net debt. We've restarted Sunseeker, and we recently completed a $350 million financing line to finish the construction, and John will have some additional comments.
Our third-party revenue efforts are paying dividends. They are increasing nicely. These incremental revenues have been a difference maker through the years, providing us with industry-leading unit revenues and associated profits. This is all part of our Allegiant 2.0 strategy that we've talked about previously. Scott DeAngelo will have further comments as well. We are continuing our climb back from the depths of the pandemic, and this climb-out has not been a straight line. It has been complicated by the volatility of the labor markets as well as COVID-related absences that we experienced this past summer. We have seen demand continue to increase nicely in the past few months in spite of the Delta variant outbreak. We were the first to profitability from COVID.
Our model and our non-competitive route structure continue to be industry leaders, and I believe 2022 will continue this return to normalcy, and we will lead the industry out of this abyss of the past year and a half. Lastly, as usual, I wanna thank our team members who have been the difference maker in our success through the years, and now is no different. They have been warriors on the front lines this entire time, the past year and a half, consistently transporting our passengers day in and day out to their destinations. Thank you to everyone. John?
Well, thank you very much, Maurice. Good afternoon, everyone. Like Maurice, I'd like to take this opportunity to thank all of our incredible team members who go above and beyond every day to help this company move forward out of this pandemic. The challenges brought on by the pandemic shockwave have led to supply chain upheaval and labor shortages, creating operational challenges throughout the company none of us have ever seen or experienced before. You are all rising to the occasion, and we are getting through it as painful as it may be. Again, I am thankful for your continued efforts and understanding. Given these unprecedented challenges, we still had a great financial quarter after adjusting for one-off costs associated with irregular operations. As we adjust to and fix these challenges, our results will continue to improve.
Our revenue is strengthening, exceeding Q3 2019, and we expect Q4 to exceed 2019 Q4 as well. In regards to Sunseeker, here are a couple of updates. As previously announced, the $350 million financing transaction with Castlelake has been completed. We expect the first $175 million tranche to fund in the next couple of days. Castlelake has been a great partner, and Allegiant Travel looks forward to a long-term relationship. Construction has resumed on the resort with approximately 250 people working on the project today. Construction on the golf course has resumed as well. We expect these projects to be completed in Q1 2023. The hotel tower should be topped off by the end of this year. The two suite towers, as expected, will top off in Q1 2022.
We expect to begin taking reservations in Q1 2022 as well. Also beginning Q1 2022, we will resume segment reporting, showing Sunseeker data separately as we did in the past pre-pandemic. As I've done on past earnings calls, I thought it would be helpful to provide some directional data points to help you understand how we see things for full year 2021. All these data points I'm providing are on an adjusted basis, which exclude COVID-related special charges, the net benefit from the payroll support programs, and bonus accruals. Furthermore, all data points provided assume fuel at $2.17 a gallon for the full year. EBITDA expected to be in excess of $275 million, with a margin around 17%. Also would expect fully diluted EPS in excess of $1.50 a share. Again, these are all on an adjusted basis.
In addition to the above, we expect year-end cash balance of around $1.3 billion and net debt of around $300 million. Greg will provide more detail around these data points in his commentary. With that, I'll turn it over to Scott Sheldon.
Thank you, John, and good afternoon, everyone. Perhaps a comment or two on our third quarter operations. Without stating the obvious, our operational results and corresponding headwinds were similar to that of our industry peers who have released during this earnings cycle. From a capacity standpoint, we had perhaps one of the more ambitious summer schedules in the domestic U.S. market. Third quarter of 2021 departures were scheduled to be up nearly 17% year- over- years. Average aircraft growth up nearly 20%, and destination and route growth were expected to be up 25% and 29% respectively. Furthermore, the distribution and departure growth among our crew bases has continued to shift to some of our smaller mid-sized markets, which puts additional strain on infrastructure and labor staffing challenges.
Despite those added complexities, we were seeing enough improvement in the operating environment to stay the course as we exited June, and we felt we had all the necessary complementary flight crews and frontline employees to execute the back half of our summer schedule. Unfortunately, the Delta variant surge in late July and early August was simply too much to recover, and we took an abnormally high number of cancellations. In addition, our core operating performance metrics were down as compared to historical trends, but we are starting to see those trend up. Over the course of summer, we had as much as 30% of our frontline workforce impacted by COVID and or other types of leaves with a definitive spike as we turn the calendar from July to August. Greg will have more commentary on IROPS.
Looking into the back half of the year and into 2022, Drew and team remain optimistic on the demand and revenue environment. That being said, we're trying to build in some safety nets for a number of higher risk operational areas. Our operations team continues to work with planning to ensure we establish appropriate buffers to execute a more consistent schedule to help mitigate passenger disruptions. Undoubtedly, our labor and MRO supply chain challenges are the number one and two focus areas as we look to support our March 2022 flying. One quick comment on labor before I sign off. I'd like to congratulate all of our maintenance technicians, maintenance control staff, quality and storage personnel represented by the IBT for ratifying their first collective bargaining agreement.
This agreement helps make us competitive in the marketplace as we look to fill much needed positions for our 2022 schedule. I know this was a long time coming and was disrupted by our 2020 COVID pause, but I very much appreciate everyone's effort involved to get this to the finish line. In closing, I'd like to thank all of our team members across the network for their outstanding service and professionalism in the face of our latest Delta variant spike. Your efforts have been tremendous. Our team members and partners are the backbone and face of our organization, and their unwavering commitment and loyalty to our consumers is why our organization has and will continue to be successful. With that, I'll turn it over to Scott DeAngelo as well.
Thanks, Scott. From a marketing perspective, despite the headwinds we've called out, the Allegiant brand continued to shine, attracting more visitors to Allegiant.com and more bookings among both first time and repeat customers than in any third quarter in our history. In late August, while the Delta variant drove customer sentiment, as we measure in our weekly tracking survey, to its lowest levels since early January, it has since returned to its highest levels since mid-July. While the Delta variant negatively impacted bookings during August and September, the degree of that negative impact was far more modest than that seen at similar customer sentiment levels during 2020 and the beginning of this year. Simply put, Allegiant customer demand is showing increased resiliency despite continued bumps along the pandemic road to recovery.
Despite the Delta variant headwinds during a considerable portion of the quarter, we still managed to increase visitation to Allegiant.com by 1% and, more importantly, increase bookings at Allegiant.com by 5% versus 2019 levels. The fact transactions increased at five times the rate of web visits points to Allegiant's heightened brand awareness, increased marketing efficacy at attracting the right visitors to our site, and enhanced web and app experience, which makes it easier for those visitors to find and buy what they want. All of these enhancements again combine to attract and convert more new and more returning customers in the lowest cost way.
Specifically, our lowest cost channels, that is, customers coming to us via our mobile app or by directly entering the Allegiant.com URL, or by clicking on a link in one of the 50 million targeted emails we send each week now account for 80% of total visits to Allegiant.com. That drove nearly 20% more website visitors than they did in 2019. Those visitors translated into a healthy balance of both first time and repeat Allegiant customer bookings. Bookings from first time customers saw a nearly 2.5% increase, and those from repeat customers saw a nearly 3% increase compared to 2019. We also continued to achieve deeper levels of customer engagement across everything we offer at Allegiant.com.
Overall, third-party revenue, which comprises co-brand credit card, hotel stays, and car rentals, was up nearly 35% for the quarter versus 2019 compared to scheduled service passenger growth in the quarter of just over 2% versus 2019. A greater portion of customers are spending more of their leisure wallet at Allegiant.com on products beyond just air travel. The continued growth in our asset-light third-party product revenue stream was aided not only by the web and app redesign launched earlier this year, but also by the introduction of our first ever non-credit card loyalty program, Allways Rewards, and enhancements to our co-brand credit card acquisition approach that launched during this past quarter.
The Allegiant World Mastercard, which is now being branded under the Allways Rewards umbrella, was once again voted the top airline co-brand credit card in the nation for the third consecutive year in USA Today's Readers' Choice Awards. You may recall that our second quarter saw the number 1 and the number 3 best months of new cardholder acquisition in the program's history. This quarter, despite various headwinds and the traditional decline of leisure travel in early fall, we achieved the number 4 and the number 5 best months of new cardholder acquisition in the program's history. In total, new card sign-ups in the quarter were up by more than 12% versus 2019. Contributing to the continued growth in new cardholders was the introduction of instant credit enrollment in our mobile app.
Historically, this has been the top performing way that we acquire new cardholders on our website. We expanded this functionality to our mobile app, where 20% of our bookings are now made, and the results are exceeding our expectations. Building off the success of our co-brand credit card's simple popular point earning and redemption model and combining that with inspiration from winning tech-forward consumer-friendly programs like Apple Card and Target Circle Rewards, we launched Allways Rewards this past quarter. Already, Allways Rewards members spend 23% more per transaction than non-members.
Lift that is driven primarily by their increased attachment of air ancillary and third-party products to their itineraries. These loyalty programs, combined with the redesigned website and mobile app, and soon to be joined by other technology enhancements in the upcoming year, are all playing meaningful roles in helping us sell beyond the aircraft and weave Allegiant into the most important and highest margin aspects of leisure travel, including third-party distribution of hotel, rental car, and even sports and entertainment events. To that end, Allegiant Stadium, in addition to drawing more than 60 million viewers across live broadcasts during the season's first four games at the stadium, as well as driving web visits and bookings up by as much as 39% above 2019 levels on the days of, and after these games, have now joined our portfolio of third-party products.
As the NFL season kicked off, we launched Allegiant Stadium travel packages that include air travel, hotel stay, and game tickets. While these packages don't represent a material revenue driver, they do serve as a high-profile way to showcase our ability to sell beyond the aircraft. To that point, for 80% of Allegiant Stadium package customers, it's the first time they had ever booked a hotel through Allegiant.com. For nearly one-third of these customers, it's the first time they've flown to Las Vegas on Allegiant. Beyond the wildly positive impact we're seeing directly from this partnership, Allegiant Stadium has become a crown jewel of sorts for broader nationwide Las Vegas advertising that the destination itself is doing.
Allegiant Stadium is central to the destination's claim that Las Vegas is now the entertainment and sports capital of the world, thanks in large part to Allegiant Stadium elevating Las Vegas as a destination to what they have dubbed the Greatest Arena on Earth. In summary, the Allegiant brand is thriving. Sure, headwinds exist, but they will ultimately subside. As they do, we believe we are best positioned with the increased demand we continue to see from new and repeat customers for Allegiant's brand of affordable, accessible leisure travel to maximize our share, not only of their nonstop leisure air travel, but also of their spending on the increasing array of leisure products we're able to offer at Allegiant.com. With that, I'll pass it over to Drew.
Thank you, Scott, and thanks to everyone for joining us this afternoon. I'm immensely pleased with the third quarter's revenue results. Total revenue came in 5.3% higher than Q3 2019 on scheduled service ASM growth of 17%. We are among the first carriers to restore revenues above 2019 levels and likely the first U.S. carrier to do so on the scheduled service side. We hit the ground running with a July load factor over 80% and finished with a pandemic best 76.6% load factor for the quarter. The ancillary performance once again led the charge for us as bundles and the redesigned website's impact on take rates continue to generate positive results. The RM team continues to do a remarkable job handling the complex task of balancing loads and yields on a market level, even as the environment changes rapidly.
As is always the case, with the bulk of ASMs in the first half of the quarter before we dramatically pull down our schedule for the off-peak fall, Q3 goes as the summer goes. This scheduling flexibility is key to our model, and the upcoming quarters will continue to put that to the test with rising fuel costs, supply chain disruptions, potential TSA staffing issues, and the potential for additional seasonal COVID spikes. We are, and will continue to, work in lockstep with the organization to maintain this flexibility and ensure enterprise success. After inaugurating seven routes in the third quarter and several successful hyper-seasonal 1- and 2-weekend event-specific routes, we will launch 52 new markets in the fourth quarter, with 75% of those connecting the dots between existing Allegiant cities.
Despite that, we will have a lower percentage of markets in our first 12 months than we previously communicated, down roughly four points in the third quarter and one point in the fourth. Similarly, we expect our fourth quarter growth rate to also come in lower than previously communicated, in part as we react to rising fuel. We plan capacity with a typical cost per gallon buffer of 50 cents , and for only the third time in the last nearly decade, we've hit or exceeded that buffer. With that, we now expect scheduled service ASMs up 12%-16% and system ASMs up 10%-14%. We are positioned similarly today to where we were 12 months ago, though with Thanksgiving having more revenue on the books today than the same holiday period finished with last year on a considerably higher base.
The booking cadence has resurged to be in line seasonally adjusted with the peaks of the summer, and holiday demand looks quite strong. The reopening of cross-border travel for vaccinated travelers starting next month has shown a meaningful impact to our near border airports. Normally, I would be quite bullish on the fourth quarter prospects. However, the seven-day average U.S. new case count of 70,000 is hovering around an eerily similar number to late October 2020, granted on a different trajectory over the past several weeks. As such, I'm a bit wary of running away with the excitement of Q4 potential and have built in some expectation of spike-related headwinds.
That said, I believe we will continue to lead the recovery and are forecasting another positive total revenue quarter of +0.5% to +4% and with some positive variance, believe we can achieve an 80% book load factor in both November and December. As we look to 2022, we have some fairly low comps in the first half of the year as growth was limited to 3% versus 2019. That will provide a catalyst for headline growth and help set the stage for the rest of the year. We are still working through June and beyond to ensure we are setting up the company for success in finding the proper balance between growth and operational integrity. We'll have much more detail to provide in three months' time. With that, I'd like to pass over to Greg.
Drew, thank you, and good afternoon, everyone. On the current tone of our business for the third quarter, we reported adjusted earnings per share of 66 cents, our second consecutive quarter positive adjusted net income. While this quarter's adjusted results fell below initial expectations, we experienced some non-recurring and unusual irregular operations. These incidents are not unique to Allegiant, nor do we believe they are systemic. The total cost impact during the third quarter for these elevated IROPS events was around $28 million. Roughly half of this $28 million was driven by areas such as incremental contract labor, supply chain constraints, and incremental ferry flights. The other half of our Q3 IROPS costs, and as Maurice teed up, relate to our compensation program for customers in which we aspire to do more to take care of them if we significantly interrupt their trips.
This past quarter, we paid $15 million to these impacted passengers. For example, in addition to credit vouchers issued to our customers, we may also compensate them between $100-$300 per eligible passenger to provide immediate support for re-accommodation. The purpose and intended impact of providing the additional compensation is twofold. First, and of course, to better assist our customers when unusual and difficult circumstances disrupt their plans. Second, and equally important to our bigger picture, it drives greater accountability to the financial as well as the human impact of flight disruptions by really making it sting for Allegiant. With that backdrop, our third quarter adjusted total cost increased 17.5% year-over-year.
However, excluding the $28 million in IROPS costs as just outlined, this cost increase would have been under 10% on total system capacity growth of 14.2% year-over-year. Turning towards the fourth quarter, despite expected capacity growth of 12%, we expect unit costs excluding fuel to be slightly down to flat year-over-year. This is largely driven by the increased cost pressure at our airports and ground service providers. Our expected Q4 CASM ex implies a full-year 2021 adjusted CASM ex at around 2019 levels. As noted earlier, fuel costs continue to rise as we are currently paying $2.55 per gallon of fuel, a sequential quarterly increase of 35 cents per gallon.
However, even at these elevated fuel costs, we expect our fourth quarter financial results to remain profitable and exceed third quarter's adjusted EPS. Based on our fuel consumption, an increase of 10 cents per gallon of fuel equates to roughly $5 million per quarter. Moving to the balance sheet. As of today, we have $1.2 billion in total cash, an improvement from the end of Q3, as earlier this month, we received the remaining $116 million in cash from our NOL refund. Also, as of today, our net debt is around $400 million, a decrease of 60% since the beginning of the pandemic. For the full year 2021, we expect to reinvest $240 million back into the airline, an increase in our guide by $20 million.
This increase is just primarily driven by our strategic parts purchasing initiative, along with some other non-aircraft CapEx. Year to date, we have paid down more than $200 million of our debt balances, $50 million of which was in the form of prepayments. This brings our current total debt to roughly $1.5 billion, a decrease of 5% since the beginning of the year. Looking towards 2022, we are in the mid-innings of finalizing our 2022 capacity plans and expect to provide an update next time we speak. We are actually exploring a possible investor day/call in December, and we'll keep you apprised of status in the coming weeks. Given the uncertainties with rising fuel, labor, and supply chain constraints, we intend to establish a baseline of capacity growth for 2022 in the low double digits area.
Enhancing the unique flexibility of our model, we are confident in our ability to spring up capacity if and when appropriate. In addition, we have taken action working towards getting a couple steps ahead of the growth by bringing on 300 frontline team members ahead of when we normally would, namely pilots, flight attendants, and mechanics. This equates to about $15 million in incremental costs during 2022 when compared to historical staffing levels. Advancing these hires should greatly aid the quality of our performance by getting team members trained and experienced. As the choppy environment abates, we expect to naturally grow into these incremental heads. We are mindful of the looming inflationary pressures. Where we can, we are offsetting such pressures, and examples of a few are as follows.
Since the onset of the pandemic, we have acquired aircraft and spare engines at prices significantly discounted when compared to pre-pandemic levels. To date, we estimate $150 million in direct savings here. Similarly, we strategically purchased $40 million worth of spare parts at an average discount of 50%, another $20 million in savings. Finally, for these examples, where most carriers in our industry significantly increased their debt during the pandemic, we did not. As a result, our full year 2021 interest expense should be around 20% down year-over-year. In closing with fleet, we expect our full year 2022 airline gross CapEx, which includes capital leases, to be around $350 million.
This is primarily driven by $200 million in aircraft gross CapEx, with the remaining $150 million roughly 50/50 split between other and heavy maintenance categories. Our fleet plan includes 19 incremental aircraft to be placed into service throughout 2022, bringing our total expected fleet count by the end of the year to 127. Of these 19 aircraft to be placed in service next year, 11 have or will be acquired in 2021 and are already included in that 2021 CapEx guide. Eight aircraft are slated to close next year, of which six have been structured under a capital lease. As a result of these capital leases, our full year 2022 committed net aircraft cash CapEx is expected to be only $55 million.
By year-end 2022, more than 50% of our fleet will be comprised of 186-seat aircraft, which compares favorably to 2019's composition of roughly 25% to 186-seat aircraft.
The larger-gauge 186-seat aircraft have additional benefit in a rising fuel environment as they are the most efficient in our fleet on an ASM-per-gallon basis. We expect full-year 2022 ASMs per gallon to increase by 5% year-over-year and at $2.55 per gallon, this increased efficiency is worth roughly $30 million in fuel savings compared to 2019 fuel efficiency levels. With that, we'll open it up to Q&A.
If you have questions at this time, please press star then the number one on your touchtone telephone. If your question has been answered or you wish to remove yourself from the queue, you may press the pound key. We'll pause for a moment to compile the roster. All right then. First question comes from the line of Savanthi Syth from Raymond James. Savi, your line is now open.
Good afternoon, everyone. Just, actually a quick question to start with. Greg, you talked about the liquidity right now being our cash being right now $1.2 billion, and I think the Q guidance is to $1.2 billion by the end of the year. Is there something kind of different the way the cash is building in the fourth quarter this year than past, or are there other kind of inputs coming in?
No, I don't think there's any other inputs, Savi. It's just we're a little bit over $1.2 billion right now, and I think just the inference is that we're gonna build cash through operational cash flows.
Just a little bit more clarity on 2022 planning. It sounds like the hiring is done for kind of operations levels above the kind of low single digits. Is that how you're thinking about it? You'll kind of grow into it if you're comfortable with that operations. Just looking for a little bit more clarity on how you're thinking about kinda hiring and then operating in 2022.
Yeah, Savi. Yeah, we have obviously our pipeline is full. We hired upwards of 270 pilots, and these would sort of dovetail into March peak flying in addition to summer. We are seeing a little bit of a spike in attrition, particularly on the FA side. It's not terribly material yet, but I think those sort of numbers would give you low double-digit growth for the summer. You know, flight attendants, that's you know, that's that attrition's fairly stable right now. Mechanics is the big one. I mean, we were just very underwater when it came to being competitive. Out of any of the areas, that's probably where we have to catch up the most.
Yeah. Maybe just to clarify, the low double digits is what Maurice said, not low singles, which I think I heard you maybe say. I just wanted to clarify on that front.
Sorry. Yeah. I meant low double digits. Makes sense.
Yeah.
All right. Thank you.
Thanks, Savi.
Next question comes from the line of Conor Cunningham of MKM Partners. Conor, your line is now open.
Hi, everyone. Thank you. Just on the budget for Sunseeker. I don't think that's been finalized yet, so just curious where that may sit today, given all the supply chain issues and you know, inflationary cost pressures. I just would think that it's higher than what you had previously kind of soft guided to, which was like I think $510 million-$550 million. Just curious on where that may sit right now or maybe why you haven't finalized it, in general.
I think it's a good point, and I think we and the rest of the world is experiencing these supply chain disruptions. I don't think there's an industry that's immune to it or a product that is. We know that the costs are gonna be higher. We're still working through exactly how much higher, but it could be, you know, in the 10%-15% range on the total project, you know, maybe even slightly higher. I think a lot of that we will understand as we move more into the end of this year and probably into Q3. It's not only understanding better the impact of that supply chain disruption on cost, but also on timing.
We were of course, pre-pandemic, we were paced to open, you know, April of 2021. Now, everything's kind of been thrown into a turmoil in that regard. It's those two issues, both cost and timing, that we're working through. As I mentioned before, we know we're gonna be over , we were at 5%. The carrying cost, if you will, throughout the pandemic, took us to like 5%-10%, and now it's just working through the order of magnitude above 5%-10%. We know it's gonna be, you know, call it in the 10%, maybe even 15% range and could be slightly higher, but it's just too early to give any degree of specificity on what that number will eventually be.
Okay. Okay, that's helpful. Then, Maurice, I know you talked about the potential of slowing growth to maintain that historical, you know, fuel to fare ratio that everyone always talks about. A lot of the other airlines need to bring back capacity just to settle, like, their non-fuel cost pressures that they're dealing with, given no one made any infrastructure changes during the pandemic. I'm just curious on what gives you the confidence that the industry is gonna follow what has historically been a good idea to cut capacity to drive fares. I mean, it. I think the risk you run is, like, you cut growth and no one else does.
You know, the reason why I bring it up, I just think it's a point that basically everyone's struggling with right now. If you could just speak to the high level dynamics that you see playing out in general.
Well, you're spot on. Everybody that's sitting here today, if they had the decisions they made last December, January and February for the summer of 2021 would probably do it differently. At times we were facing, 10%- 15% of our personnel in maintenance. In our MROs where we're having our airplanes worked on, they weren't in. COVID just rippled all through the summer. We've got a bit of uncertainty that's in the organization right now as to what we can count on. Scott mentioned labor problems with our maintenance personnel. A lot of COVID issues with them in the different bases we have going through it. We're assessing, you know, where the personnel we need to be. We're hiring very actively.
The irony of it is, I mean, everybody in this business is hiring, yet they still haven't gotten back to full capacity. There's some, you know, incongruities, as to what you have. You know, long-term, we've always, you know, kind of run to the beat of our own drum. First and foremost, as you heard Scott DeAngelo talk about the quality of our brand and the like is really gotta be, you know, thought of very, appropriately. You know, IROPs are just not long-term acceptable to us. The irony of it is this industry ran like a Swiss watch in 2019, and now it's almost like we've forgotten how to run on time and, you know, deal with interruptions. As...
In our case, we're definitely focused on getting back to a really solid operation, something we can count on, and that's gonna be a short- term, the next through the first quarter. I think we'll have a good handle on what we're doing as we go into January, February and March, and then we'll reassess growth at that point. Could we grow more than the low double digits? Yeah, but do we have to? No. I mean, and again, while others may be growing, the beauty of our business model is we're still 75%, uncompetitive, non-competitive in our route structure. That's always been the case, and we don't see that changing materially, though. I'd like to get there quicker if we can, but we're not gonna sacrifice our customers and our own personnel that come with operational problems.
You know, as I said in my comments, I'm very bullish on the business model and where we're at. Scott, these revenues that are coming through this third- party stuff is. You guys should really take a look at that stuff. That's very meaningful long-term repetitive revenue that's gonna be very, very powerful for us.
I appreciate it. Thank you.
Next question comes from the line of Dan McKenzie of Seaport Global Securities. Dan, your line is now open.
Oh, hey. Thanks. Good afternoon, guys. Two questions here. Going back to the supply chain challenges being the number one, number two areas of focus, I'm just wondering if you can clarify that a little bit more. You know, what is within your control, what isn't, and, you know, what is the level of confidence that the infrastructure's in place to protect the the operations over the holidays? So I'm just hoping you can elaborate a little bit more on that.
Let me give an overview, and I'll turn it over to Scott. There's certainly supply chain problems for us. The airline isn't as bad, I think, as construction, and I think John would probably say Sunseeker's a little more difficult than ours. You know, at this point, you know, the main thing is to make sure we don't overschedule the airline, and we have the sufficient pilots, flight attendants, maintenance can do their job. So we're very focused on that for the next 60 days. Scott?
Yeah. You know, we'll get through the holidays. We have a couple tails that might bleed into Thanksgiving. When you think about it, if you think about 2022, with 19 inductions, we're gonna have 24 heavy maintenance events. A lot of the materials that is sourced is coming from outside the country. We operate out of 6 MROs in a number of different countries. I mean, the list is long when you think about each one sort of has its own little corner case. We're definitely trying to simplify it given, you know, our execution through the first nine months. If you guys remember, the first quarter, it hit us as we're trying to wake planes up. MROs were scrambling to get their operations back online.
We're trying to either build in additional buffers that, you know, that'll just allow us to make sure we have the iron that we need. You know, Greg and BJ's teams are trying to get ahead as much as they can on the supply chain. They have a bunch of MAX passenger conversions next year. Is that correct?
Everything should be on site.
On site. Okay.
Properly by now. Yeah.
That was a big piece is just getting, you know, Airbus kits for our MAX passenger conversions. You know, we're opening up some of these planes in a larger structural package that we're finding a little bit of corrosion. Like anything can really, you know, increase the span, but it's a very much a high priority for us to sort of build in buffers.
Dan, just to finish that. Everybody, when we came into the first quarter, we thought we were back in 2019. Demand was back. We just turn on the switch, and it all runs like, you know, we thought it would. All the variables, it was death by a thousand cuts. I think everybody's probably walking a little around on eggshells trying to make sure they don't overpromise and underdeliver. We're gonna pull it back accordingly. Variables we can control, we obviously will. We're learning as we go.
Dan, it's Greg. I may just add one more comment to that on the supply chain, really around parts and the like, and that's, you know, we have a mantra is we wanna make sure that the right parts and tools are at the right place at the right time. Just given the constraints that we experienced this past year, that wasn't always the case, but we have been proactively and for some time now trying to get ahead of that. We've talked about the strategic parts initiative, where we've gone out and we've spent $20 million for $40 million worth of parts and getting those in.
We increased a little bit more on our CapEx guide this year to continue to try and get ahead so that we can better support the operations and increase maximum levels from an inventory perspective.
Yeah, thanks for that comprehensive answer. That's very helpful. And then, you know, I guess second question here, Drew. You know, from what I can see, it looks like over 50% of the overall capacity in at least November and December comes from holiday flying, but, you know, please correct me on that, I guess. A couple questions. In the fourth quarter here, what % of the flying is peak versus off-peak? And then just with respect to the revenue forecast, what have you factored in for children getting vaccinated?
I guess what I'm getting at is just given the level of capacity that's scheduled over the holidays, it just seems like a small change in holiday demand, pardon me, could really move the revenue dynamic by tens of millions.
Yeah. You're spot on with the last part there. In the fourth quarter, I'm sure my peers would agree it's one of the hardest to forecast because it is so backloaded and you have so much more time and variability built into that, particularly when there are environmental concerns like we see today. I'm not building in upside for children being vaccinated at this point. I'll take that upside as it comes and as we see it kind of be effective and prevailing. That's not something I'm currently contemplating. In terms of peak and off-peak, if you're just thinking day of week, we're looking about 23% of our ASMs being on off-peak days.
What I would caution is that, an off-peak day in the heart of Christmas is not the same as an off-peak day in October, for example. There, there's a little bit of probably misleading in that as it pertains to holidays in particular.
Okay. Very good. Thanks for the time, you guys.
Thanks, Dan.
Next question comes from the line of Helane Becker of Cowen. Helane, your line is now open.
Thanks very much. Hi, everybody, and thank you very much for your time. Not sure who this is for, but as you think about inducting aircraft into the network, I think you said 19 aircraft are coming in next year, and I thought it was 24 aircraft going into heavy maintenance. How should we think about the level of aircraft that you're comfortable inducting? I mean, you're getting ahead of it on hiring, I guess, but what are you forecasting for total attrition for next year?
Hey, Helane. I should have mentioned this, and BJ just reminded me. Of the 19 inductions, all but two are coming from FAA TRACE, which makes the induction that much easier. Obviously labor. I mean, that's really the. These are less complex inductions that we would historically otherwise have.
Scott, maybe I can add too, that we set up Melbourne.
Yeah.
For an induction facility where we just went out, and this is a facility that we have, Helane, that is just 100% focused on induction aircraft, nose to tail two at all times. This was unique that we went out and did this earlier this year, in anticipation to make sure that for these induction pipelines and these aircraft that we have coming that we, you know, we have some buffers built in there.
Gotcha. On the labor contract that was announced today, I think you said that the cost increase associated with that is included in the guidance, but if it's not, can you just give us some help on that one? It may not be meaningful. I don't remember how many people that contract covers.
Yeah. Helane, it's Greg. It is included in the kind of directional guidance that we provided. The way I guess I would frame it is that maintenance makes up roughly 10%-12% of our salary and wages. The contract's worth roughly $12 million per year. It's a five-year contract, and then it's a little bit front loaded.
Actually, are you having to pay signing bonuses to attract people?
Yes.
Okay. That's kind of what I thought, but no, that's, I'm hearing that. Okay, team. Thanks for your help.
Thanks, Helane.
Thank you.
Next question comes from the line of Duane Pfennigwerth of Evercore ISI. Duane, your line is now open.
Hey, thanks. Just with respect to the sequential move in CASM from Q3 to Q4. Obviously, it was more than just IROPS that impacted you in Q3 with the suboptimal operation. You know, how much of that do you get back, or are you baking in getting back in the fourth quarter? Apologize if you mentioned it. I know you've given us a lot of qualitative guidance here, but on that low double digit capacity, how are you thinking about CASM ex year-over-year?
Hey, Duane, it's Greg. I'll knock off the second part of your question first. I think on that low double digits, we think that our CASM ex could be around 2019 levels, so $0.065. Then, you know, sequential costs and perhaps just worth excluding IROPS because, you know, we don't anticipate those to be the same level. It's pretty close on a growth basis. Keep in mind, I think fourth quarter ASMs are down a couple percentage points versus third quarter, so you got a little bit of pressure there. Then there's some headwinds in a couple different areas. Pilot training, so in that other line item, you have some pilot training coming through there.
That put a little bit of pressure on that, along with Sunseeker getting ramped up and some operating expense there. I think we talked about it on a quarterly basis. We think Sunseeker operating expense is roughly $2.5 million. Then, with the hiring too, you know, we mentioned those 300 incremental frontline employees starting to bring those in and things like that. I think that too would add a little bit. All in all, I think roughly it'll be slightly on a growth basis, fourth quarter higher than third quarter. Then, yeah, just take into account the reduction in ASMs.
Okay. I can follow up with you offline maybe. You lost me a little bit.
Yeah. Just, I guess, the bottom line.
IROPS, do you think CASM will be up sequentially because ASMs are lower?
Yeah. With two pressure points. One being the labor that we talked about, the 300 incremental crew members coming on board, you know, more quickly there. The other being the Sunseeker starting to ramp up their operating costs on that, so that's about $2.5 million. The training pipeline associated with that labor that I just mentioned. That would put slight pressure on that, as compared to the third quarter.
Okay. Thank you.
Next question comes from the line of Brandon Oglenski of Barclays. Brandon, your line is now open.
Hey, guys. Thanks for taking the question. Greg, can we just follow up there? I thought I also heard you say that profitability could be better in the fourth quarter, or was that a comment backwards looking? Sorry, I just wanted to clarify that.
No. Sequentially, yeah. I think profitability we expect to be higher in the fourth quarter as compared to the third quarter. That's based on the revenue guide and capacity guide that we put out there, and then we just kind of walked through the framework on the cost.
Okay. Then if I'm hearing you correctly on next year, you're thinking CASM can be close to 19 levels. It sounds like maybe if you didn't have so many disruptions, you could be targeting something lower. Is that just gauge driven?
Yeah. You know, I mean, that's what we certainly expect. We're not gonna have these disruptions next year, so that's not included in that number that I talked about, the 6.5%. I think, you know, you'll see some benefit if there is an increase in capacity, but we're not planning on that. We're planning on the low double digits, and that's the number I provided. However, if you do increase that or take that up slightly, I think for every 2 percentage points increase in ASM, that's worth about 0.10 cents of CASM ex, if you will.
Yeah, I think the short answer is we do expect, right now where we sit based on the capacity guidance, the directional guidance we put out there, that we could be roughly 0.65 cents In 2022 CASM ex.
Okay. I appreciate that. If I can just sneak in one more strategic question. I guess, how do you guys, you know, look at the third- party travel, sales and, you know, the ramp up that you're seeing there and, you know, compare that to the strategy, with Sunseeker? You know, are these complementary to one another? Should we be thinking, you know, these are both avenues of growth, so you could be looking at other property development opportunities in the future as well? Appreciate it.
Sure. I'll go ahead and start there. Scott DeAngelo here. They're certainly complementary. Sunseeker, as it stands today, is in Punta Gorda, and that's one of, right, the, you know, 120-some odd places you could land if we wanna sell hotels in the other 119, let's say. By and large, they steer clear of each other. I think over time, and I'll let John Redmond speak to this, if and as there's an asset-light play that gets a lot of these properties that belong to other major brands to say, "Hey, I want the Sunseeker name on my hotel, and by the way, I want the Sunseeker restaurant brands in there," then one by one, right, we're able to steer or turn on or off any given product that we sell.
We can keep the lanes, if you will, nice and clear.
Yeah. In addition to what Scott said, when you look at Sunseeker beyond the standalone opportunities which are obvious, you know, the other synergy there is you got load factor impact on the airline with Sunseeker being open down there. It's kinda like when you look at Orlando or Las Vegas and what happens with the demand in these markets with the products they have here. There's an opportunity there as well as, you know, credit card opportunity sign-ups, et cetera. I mean, Scott has some amazing sign-up activity we're getting now, but once you open the resort and the additional opportunities you can drive with credit cards. So those are two, you know, major synergy opportunities you can see off a resort as well.
I don't know if there's another part of your question I may have missed. I'm sorry.
Yeah. No. I think you guys addressed it. Thank you.
Okay.
Next question comes from the line of Andrew Didora of Bank of America. Andrew, your line is now open.
Hi. Good afternoon, everyone. Thanks for the questions. I guess, Maurice, bigger picture here, right? Like, you've built an airline that generates good returns. You know, you've been focused on buying used aircraft. You get deals on spare parts like you talked about earlier. With Sunseeker and the budget increases and everything that we're seeing in the construction market spend here, and, you know, at what point does the budget get too much and you decide to either, you know, stop or change plans here?
Broke up a little bit there, Andrew. I think you're asking, would we stop building Sunseeker if it got too expensive? Is that your question?
Yeah. That's right. Now given your return, you know, you've built such an airline generating pretty strong returns. At what point does the budget just get too much that you maybe, you know, change direction a little bit?
Just based on what we know now, it's certainly not even close to that. The opportunity down there, what we saw this spring, you know, just the Florida and everything else, leisure demand. You heard my comments that everybody's up with leisure. Southwest now has half of their flights touching Florida every day. Florida is the Lake Wobegon. It's where people wanna go. We couldn't be in a better place.
Okay. I guess Drew,
Revenue will-
Wait.
Revenue will conquer any budget increases here.
Okay. I guess, Drew, I think you gave the off-peak ASM commentary about 23% or so in Q4. Just, you know, we've been hearing a lot about the kind of Q4 peak versus off-peak environment. You know, I've been getting a lot of fare sale emails from a lot of different airlines of late. Can you maybe talk and maybe quantify what that gap is between peak and off-peak? Can you maybe give us some sense on sort of where things, you know, Thanksgiving week is booking up right now versus, say, maybe first half of November? You know, anything to try to, like, help triangulate what that difference is between those the peak versus off-peak times? Thanks.
Sure. I can maybe take this at a high level. I don't know that you'll necessarily get an answer that you're looking for here, but you know, ballpark, you're probably looking at your Thanksgiving flights running somewhere 33% higher revenue per flight than you would in earlier November. I expect that'll grow a little bit by the time departures hit. There's a pretty sizable gap.
Operator, are you still there for Andrew? Yes. Should we proceed on the next question? Yes. All right. Next question comes from the line of Catie O'Brien from Goldman Sachs. Catie, your line is now open.
Good afternoon, everyone. Thanks for the time. I had kind of a multi-part question on the third- party. Great to see that strength continuing. I guess, I don't know if it's Scott or Drew, but can you just walk us through how third- party prepays is up significantly when rental car days and hotel room nights are down so materially? Is that just pricing? Is over 100% of the increase co-brand driven? You know, if it is pricing, is that driven by lower supply of these products or is there something different about your partnerships now than 2019? Thanks, Scott.
You bet. This is Scott. I'll start, and Drew, you can add in. Certainly, a lion's share of it is co-brand and the continued surge that we've mentioned over the last 2 quarters there. However, rental car revenue is also up materially, and that is, you know, average daily rate, I'm looking to see here, is up about 50%, versus 2019 levels, off of course, lower rental days, but that is, you know, a supply-demand thing. You know, those are the main drivers right now. I mentioned last time, we've identified a lot of technical solves for increasing the throughput for hotel.
Right now, you may recall that for every 15 hotels that get put in a shopping cart, only one person checks out with them. There's a variety of things that OTAs and hotels at their own site can do that we will be able to do that we expect to unlock that. Co-brand and then rental car based not on, you know, days but on price per day are the big drivers there.
Yeah, not a lot to add here. We talked about it a little bit in the July call, and it was part of the thesis for why we thought fall would actually have a bit of a higher floor because of where, you know, daily rates were on both hotels and rental cars, kind of pushing some people out of the high price summer and into the fall now with the Delta spike that didn't manifest. The underlying piece of high margin rental cars still, persisted through the entire quarter and probably into the foreseeable future, until inventory right-sizes.
Let me just give some background overview. This is a long-term relationship with Enterprise. It started in 2005, and we're the only carrier I know. In fact, we sell more than virtually every other airline, if not the most, in this kind of space. We do that because we're so tightly integrated with Enterprise. It is a good chunk of it. Their pricing engine is able to drive our pricing. There's no manual activities. I think we're substantially ahead of the industry on the airline side, that is, in you know, offering cars and putting packages together that are very seamless and with the best opportunity to maximize revenues. You're seeing that with unit revenues today. You're seeing car.
I'm sure if you're going out to buy a car, you're seeing sticker price $10,000+. Same thing's flowing through in the rental car side.
Yeah, it's remarkable. Maybe just a quick one on a little bit of a follow-up to Conor's question on the Sunseeker budget. Just on that Castlelake financing you closed on. You know, in the case the budget moves around, it sounds like you could maybe draw less than the $350 million, but correct me if I'm wrong. Do you also have the ability to upsize that agreement in the case the budget does increase? Thanks.
I'll take that one for you. We don't anticipate having to go back with Castlelake. We haven't had any conversations with them about upsizing, nor does the existing agreement, you know, provide for being able to upsize it. Having said that, we don't see if a budget, you know, went north of what we expected to be a significant dollar amount which is beyond our capability to finance. We're in a very liquid position, as you know. We're in great shape. It's not like this budget's gonna run past us by, hundreds of millions of dollors. We're not talking or looking at numbers like that. As I mentioned before, it could be 10%-15%, but we're not hearing or seeing or experiencing anything beyond those types of, you know, percentages.
We don't see, you know, anything like that ever materializing, going forward.
Okay. Would that most likely just come out of cash on hand or you look to do another financing deal? Thanks for that extra one. Thank you.
We would just look at that as being something that comes out of cash on hand.
Great. Thanks.
Next question comes from the line of Shannon Doherty of Deutsche Bank. Shannon, your line is now open.
Oh, hey, it's Michael Linenberg here, asking a question on behalf of Shannon. I actually-
Finally somebody ahead of you, Michael. Is that what you're saying?
I'm getting ready to retire, Maurice, and go work for you.
Yeah, right.
Hey, listen, this is actually John, on your point about the Sunseeker opening March. I guess you said first quarter 2023, and you're gonna start selling this first quarter of 2022. When I kinda look at Allegiant's schedule, you typically sort of sell out, I don't know, six, seven months, maybe it's 220 days or so. It's historically been the standard. Are you planning to open and just sell hotel or resort nights and not bundle with the airline piece? Or are you considering maybe extending the schedule for Allegiant and selling out 330 days, maybe even beyond a year? I think we're seeing that with Frontier and Sun Country.
Drew and I, in the past, this is before all, obviously, all this pandemic stuff, we had conversations regarding that, and we know it's an opportunity, and it's something that we could explore. It's not a requirement for-
Okay.
It's not a requirement for us to go on sale. If we wanted to go on sale as a land-only product, if you will, without the ability to package the with air, we would definitely do that.
Yeah. Mike, we're not out quite as far as we would like to be and where we've historically been, so we're trying to push that back further out to that 10-11-month window. I expect we'll be able to get there in the next year or so. I'd say without, but I expect we'll be pushing back out further than we have over the last 18-24 months.
One other thing I would add, 'cause we're also exploring tactics like this and major sporting events and music events that may, you know, be sold 6- 12 months in advance, is that at the time of buying that there's a lot of interest, I can tell you, from our partners in those areas of having what in effect would be a credit. Much like you get an F&B credit when you book a hotel room. Well, in this case, when you book a hotel room 12 months out at Sunseeker, you're getting an Allegiant flight credit that as you get closer to your stay and that schedules out, drives you back to Allegiant.com to book your flight at that time. So there's a variety of ways to make the connection versus needing to have both the hotel inventory and the flight schedule in perfect sync.
The other thing, Michael.
Yeah.
Well, one other thing. We're sending 40-50 million emails a week out to our audience, so the power of the direct to consumer is gonna come into play big time here. While the airplanes are good, we've just seen it over and over, at all the new hotels here in Vegas, they get the love right out of the box. It's gonna be. I'm not saying we won't use the airline, but I don't know that we have to. We certainly don't have to have the airline, in my opinion.
No
... to fill this thing up during the first 12-24 months and beyond.
Yeah. You know, look, I know you guys know this probably better than I, but I know John had mentioned an opportunity to build load factor points. I think that one of the things we do find interesting is that when you go very far out and people wanna have everything settled, that in many cases, you know, the way the pricing curve is, you'd think fares are a lot, you know, the further out you are, the lower they are. When you go out, call it a year or more, what we'll see is that, for the planners, you'll get a better fare, you know, whether it's for, you know, the college, you know, the college graduation, the wedding, the etc .
You may be able to tap into that, with the exception being that if you're in a situation that's inflationary and you're concerned about maybe input costs being a lot higher down the road, that's where I think you could get hurt. But I think getting that on the books and allowing people to plan that far out could be a nice builder of revenue and load factor.
Yeah. We don't disagree with you at all. I think the thing we always have to take a step back and remember is, you know, 2023 won't be the only year we're operating the hotel. We know it's gonna be, you know, a transitory year where we're probably gonna get more land-only transactions than package-type transactions. As you get into, you know, 2024 or the back end of 2023, moving into 2024 and out, there's more traction with the brand, with the awareness. I mean, that's when the package activity will accelerate. It was not something that we ever looked at as being an absolute requirement or necessary to fill a hotel.
Because of this lag, we know it's something that is part of a longer-term strategy, but not a requirement for first year of operation.
Okay, great. Just a follow-up. I know this is a strategic one here, and I'm gonna make it quick. When the DOT came out with kind of the new ruling with respect to Newark, I thought it was very interesting that you guys were at least on record, and maybe I misheard, but very quick to say, "We're not interested." I think about, you know, even your own trade group, you know, talking about, you know, carriers like yourself not having opportunities to get into airports that are congested, you know, whether it's Newark, LaGuardia, DCA. You could argue and make the point that that's an expensive airport to operate from on one hand. On the other hand, you're in the airport and you've done pretty well and you've done well in airports like LAX and others.
I'm just curious why you went out on record, and it seemed like it was pretty quick to say, "We're not interested." Again, maybe I misheard.
Hey, Michael, it's Kristen.
Hey, Kristen.
The main reason that we came out really quick on that was just with the size of that slot deal, it wasn't something that we'd be able to pick up and then to operate in a timely fashion. We have worked with our trade group on maybe other options for that. For such a large slot all at once, it wasn't gonna work for us, and we wouldn't be able to fulfill the requirements.
Fair enough. Thanks, Kristen. Thanks, everyone.
Thanks, Michael.
Next question comes from the line of Hunter Keay of Wolfe Research. Hunter, your line is now open.
Thank you. I'm trying to square Scott DeAngelo, the commentary around low-cost customer acquisitions with the $22 million you spent on sales and marketing, which is up about 25% from pre-COVID with your passenger count only up about 2%. I understand the whole ecosystem here. The card acquisitions are up and the rental cars and all that stuff. That's great. Should I guess the real question is, should I think about the sales and marketing line item as being a $100 million annual cost item starting next year or just going forward?
No, it's definitely not the latter. There are a couple things you mentioned in there and rightly call out. Incentives associated with cardholder new cardholder sign-ups are certainly in there. There absolutely are some increased costs as we've, came out of the pandemic and battled both OTAs and certain competitors in and around paid search. And there's also some one-time things just associated with production items and related in advertising and marketing. As a general rule, no, that shouldn't necessarily be just straight lined in there.
Got it. All right. Thank you. Then, you know, when you think about the operational challenges, Maurice, that you guys just had, how do you think about this once Sunseeker opens? I mean, you know, is there gonna be a requirement to be number one or number two in the operations relative to your peers every single month? Because you're not just asking for someone to give you their business because you have the lowest fare. You're asking for someone to give you their entire vacation, and if they have a bad experience on the flight, they might not book Sunseeker again. So have you thought about the importance of being the best in the industry on ops once Sunseeker opens and any sort of expense that might have to come with that?
Yeah, no, we've definitely considered it, Hunter. I think what you're seeing in the industry, and if you go back and look at 2019 numbers, the whole industry was so tightly bunched as far as reliability and on time. I mean, the whole group was like 80%-89% on time, I think within 14 points. Everybody was running a 99%, mid-high 99% reliability factor. The industry can do it. We were right there. We don't ascribe to perhaps a Delta, you know, wanting to be the best on time because a lot of our two times a week markets, we don't wanna leave people, so we may run a touch late historically there, but you certainly have to have a good product.
In today's, you know, social media world, putting aside Sunseeker, you just can't afford to, you know, have bad excursions and bad flights and things like that. So irrespective of Sunseeker, we need a good solid operation. You know what, Hunter? It's cheaper to run a good operation than it is a bad one. At the end of the day, you make the investments, you do what you have to do. The beauty of when you're growing is you can always have a few extra people in there because personnel seem to be the problem child these days, you know, with all the different aspects of pilots.
You know, you hear just the whole world that in transportation, truck drivers, anything involved with logistics or whatever is tough to come by. You know, you're gonna have to make investments to stay ahead of that track. I don't care if you're us, Delta, American, United, everybody's gonna have personnel issues for the next few years, I think. Yeah, no, we're gonna run a good operation regardless. Will it help Sunseeker? Absolutely. But that's just a good quality product that we think we can get. Once again, you know, when you're running a low unit cost that's 20% better than most of your competitors, that gives you a little bit of cushion room too.
The revenue side is really where you're hearing us continuously beat the drum to be better and get more unit revenue in on a flight-by-flight, person-by-person basis.
Thanks, Maurice.
Yeah.
Next question comes from the line of Christopher Stathoulopoulos of Susquehanna International Group. Chris, your line is now open.
Thanks for taking my question. As I realize you're still setting your plans for next year, but as we think about your routes and what's happening here, the pressures on fuel, labor, and the need to stabilize the network. You know, should we expect at this point is the idea to grow your routes, perhaps, you know, historically you've done low teens, then that depends on routes with or without competition. But is the idea at this point, given these pressures here, fuel, labor, and stabilizing the network, is the idea to grow the network in a similar fashion that we've seen pre-pandemic, or is it about filling out the schedule, and/or is it a little bit of both? Thanks.
Sure. Yeah. I think it'll be a little bit of both, as it traditionally is. You know, our planning process revolves around trying to achieve margin targets that float a little bit depending on the strength of the period. I would say that we'll probably tilt a little bit more towards filling out the schedule and rightsizing existing than we build new over the first part of 2022 into the summer. Yeah, that's just based on decisions we have to make here in the short term. By the time you get to the back half, who knows? That could invert.
You know, one of the main staples here is flexibility and we'll be making real time calls on this into the first part of next year. The answer I give you today could very well change by the end of January based on how the environment is shifting.
Okay. The second question, you're, you know, you described, I think, in your prepared remarks as running a well-oiled machine here. As you're coming out of the pressures here in the network and you're looking to stabilize operations, you know, relative to what you've done in the past, which has been good, is there what have you learned here, and what do you think could ultimately carry forward into 2022, 2023 in the recovery, where we could see a more efficient airline or perhaps a tailwind ultimately to CASM ex? Thanks.
Well, first and foremost, you have to have the people to run the airplanes and, you know, make sure they're maintained, they're at the gate on time. You also had what I call the operational overload or leisure overload. We faced a lot of station problems, TSA, lack of TSA people. You know, our Destin station had 10 pounds for a 5-pound bag. Southwest showed up and put 12 flights in unannounced. That was just a lot of dislocation. We're getting back so we can get a handle on this. Our first job in the next 90 days, 120 days is to get the personnel where we need.
We know that we can show up every day and fly the airplanes without you know missing the people to get the job done. Scott, anything?
Yeah. I think the only thing I'll add is we could have taken a hard line approach, you know, certain, you know, especially when the Delta variant hit pretty hard. I mean, we were losing 20% of on-time performance. Uncontrollable. We could allow people at the gate. We could have done a lot of things. I think some of our peers took a harder line than we did. Considering, you know, some of the markets we fly, we take the delay in order to get more people on the plane. You know, it's gonna push downstream issues such as crews timing out. Yeah, no, I think in general, you need stable labor. You need to know people can show up. They're not gonna be on leave.
They're not gonna be impacted by more COVID related issues. It's just gonna take a long time. I mean, airlines aren't designed to start and stop like this. Ultimately, that's what you're seeing.
Okay. All right. Thank you for the time.
Thank you.
There are no further questions at this time. Maurice, you may continue.
Thank you all very much. Appreciate your time, and we'll talk to you in the end of this quarter, sometime in January or early February. Thank you again.
Thank you so much to our presenters and to everyone who participated. This concludes today's conference call. You may now disconnect. Have a great day.