A View from the Top is a Q&A series available exclusively on CNBC Pro. CNBC reporters regularly talk to business leaders about decision-making, investment and industry news.
The Covid-19 pandemic was not easy for any airline, but Allegiant Travel has a moment. The parent of discount airline Allegiant Air fetched analysts earlier this month and posted nearly $ 46 million in earnings before costs in the fourth quarter, despite a net loss of $ 184 million. The company expressed optimism about future discussions while covering expenses.
The Las Vegas airline is well-equipped to deal with the unrest, analysts say: The airline is lean, focused on U.S. domestic travel with uninterrupted routes to the beach and other outdoor destinations of mid-sized cities that have remained relatively alive in the pandemic.
Their large network competitors, who relied heavily on international travel and business travel before the virus spread, suffered deeper losses.
“We expect Allegiant’s financial performance to continue in 2021, driven by a better cost outlook, a modest CAPEX program and backed by a robust liquidity position,” Deutsche Bank said in a February 4 note, raises its 12-month share price target. up to $ 250 from $ 180.
“While we have built in an income recovery for the year, it is a modest one at best,” the note continued. “As such, we are raising our earnings forecasts for Allegiant, which makes the stock unique in our sector: it is the only name in our coverage university with higher estimates after the return on the QQ.”
Deutsche Bank expects Allegiant’s annual earnings of $ 5.50, compared to a previous estimate of $ 4 per share.
Allegiant’s shares have risen 30% over the past twelve months, more than any other U.S. passenger carrier in the United States.
Vaccines are on the way now and there is a better demand for travel. Allegiant unveiled 34 new routes last week, including Austin, Texas to Bozeman, Montana and St. Louis. Cloud, in Minnesota to Destin, Florida.
CFO Greg Anderson spoke to CNBC about how the airline is preparing for a rebound in travel:
Here is the Q&A:
(This interview has been lightly edited for length and clarity.)
You know how 2020 went. How are you approaching this year? Are you just in expansion mode?
If we can use one word to describe it, it’s flexible. There have been a few leading indicators that indicate that in the mid-to-late half of ’21 there is a certain trained recreational demand that we need to be able to support and fly.
Some of them are the vaccinations and their timing. We follow by region: mobility index, Google searches indicating that people are looking for bookings during peak leisure times. We also do customer surveys and just under 70% of our customers say a few things throughout: they view Covid’s situation better or better and plan to get out and fly within six months.
How do you choose destinations?
I would describe it as four main pillars we look at: one is just underserved leisure markets. Looking at each market, who flies the market, what does the population look like and what kind of relaxation is in the market? Another is population growth. What we see in this work, wherever people go or want to go. Google searches are useful data. The others fill the void left by some of the larger carriers. Since you are taking or withdrawing direct flights from certain areas, this is an indication to us to see if it makes sense for Allegiant to refill it with a direct, uninterrupted flight. And another is just seasonal routes. For a week or two during the year there is going to be a lot of demand, so look at the perspective.
We built our model to fly when it makes sense to fly and to park when there is no demand. For example, we do not fly on Tuesdays in Vegas because there is no demand for recreation for it. But Thursdays and Fridays or Sundays and Mondays we will shoot up and start flying a lot. In September we really park our fleet and do not fly as much. The entire airline is built on it. I think what’s really useful to understand the dynamics is that we see issues in certain periods and that we deploy our assets during those periods, and if they are not, we will park. Therefore, the routes you see are twice a week, three times a week.
When we think of Covid, it was just a sharpened version of our model. You increase your capacity when you have a big demand.
Since so many Americans have postponed holidays during the pandemic, do you expect the summer holiday season to be longer this year?
We were pleasantly surprised by September [2020] claim. We can definitely see it again in 2021. If we start to see that September could be a more than normal flying month, we will be able to supplement the demand fairly quickly.
When is the peak season for you?
In historical terms, March was our peak and mid-June to August.
Are there airports that are usually busy that you saw the opportunity to enter?
We are not focused on that. There are many airports that have come to us that want them to grow to their airports as well, especially since we are one of the few transportation companies that talk about growth. We are able to enter all the airports we have planned for.
Boston, of [Chicago] Halfway we could probably get in there, but it’s [a] bigger [opportunity] today as it was a year ago.
What are your expectations for the spring break?
It is not going to be as good as we would have seen in 2019, but compared to last year or different periods in 2020, it will be considered a peak period, and it will go well with us. I would not be surprised if it is closer to normal in 2022.
Are you still burning cash?
Daily bookings of approximately $ 3.5 million per day are equated for the first quarter, but … $ 4 million per day, you are close to the break-even point on your debt and your capital tax.
Our data suggests that we need to see improvements. I think there is a likely scenario that we will be profitable in 2021.
How is the behavior of airline customers in the pandemic?
This is pretty interesting what we saw during 2020. One that we can probably call a reverse stream, which means that from some of the larger cities, like Las Vegas, traffic is seen from Las Vegas, which is usually a destination city for us and goes north to more of the open, wide outdoors: Montana, Idaho, to northern California, which we referred to as ‘non-stop to nature’.
We also saw some positive signs on work, stay, play. The remote work atmosphere. In Las Vegas, for example, marketing to customers who can come to Vegas and spend a lot of time … work with hotel leaders to say you can work here, play here. Things like that were unique.
Reservations that are also closed. Prior to pandemic, our booking curve would average 40-45 days. During the pandemic, in the midst of it, you were seven to ten days [ahead of the flight], and we’re still just under 20 days away, so it’s still a relatively close booking curve. So what we have been trying to do for our customers is that we offer a lot of flexibility so that they can change their flights for free.
Do you expect the trend of last minute bookings to last?
I think there will still be, especially with the fluidity of the situation with Covid. Of course, as more time passes and more vaccinations occur, you will return to the elongated booking curve.
Do you know where you are going to fly in 2021?
I think for the most part. The announcement will be a good indication. As things develop and emerge, I would think that our capacity would be deployed if the demand environment justified it. The takeaway has largely been a good idea and it’s already on sale, but that does not mean we’re all year round by not adding to it or twisting to make sure it’s the right size for the demand environment.
Do you have plans to grow the fleet?
We ended ’20 with 95 aircraft and we expect it to be 108 aircraft by the end of 2021 by now. We are expanding our fleet, but I just want to emphasize that we do have 20 aircraft that we have identified. If the demand environment does not return as we think or expect in the second half of 2021 and beyond, a safety valve with which we can retire aircraft and give the right rights to whatever may be. I call it because some of the others [ultra-low cost carriers], your Spirits and your Boundaries, they have plane orders to which they must take the planes. We have no large aircraft order out there. They are used (Airbus) A320s.
Are there many airlines out there?
I would say that the plane we are focusing on, the Airbus A320ceo, from pre-Covid is about 25-30% down, to Covid. There is a lot of interest from others to work with Allegiant. Flooding may be a strong word, but we get a lot of income from people who own the assets.
Competitor Sun Country Airlines has teamed up with Amazon to fly cargo. Are you interested in that subsidiary?
We think the more low hanging fruit in our model is on the scheduled service side for us. I think this is what we will continue to focus on. Never say never but [cargo’s] not a strategic goal for us. Charter has always been a pleasant complementary venture for Allegiant. A good example: on certain days of the week, if we do not use our plane, we can use the assets for rent.
Are you planning to grow the staff?
Just like the [payroll support protection] rounded off in October we finally won about 130 pilots, but since the announcement of PSP2 we have announced that we would recall all those pilots, and no matter what happens, we do not intend to recall pilots after the restrictions on PSP2 (on March 31). In fact, we are trying to set ourselves to hire pilots in mid-2021 for 2022. And we are hiring flight attendants to support our potential growth that we want to do in 2021 and beyond.
Some airlines support a third round of government aid, which a House committee advanced last week. Do you support it?
We are very grateful for all the support the government provides. It was a real game changer. I think for us at Allegiant, we do not need it. We would be fine without it. For many of the carriers, it will be helpful to keep working. This pandemic was nobody’s fault. It was not the airline’s fault. I do not think they mismanaged things. We are very grateful for everything we have received so far, and we do not necessarily think we need it going forward, but we would appreciate it if it finally happens.
If they finally succeed, will you apply?
I think so, it would probably make sense if we do this especially with all the other airlines.