Prestigious travel booms: a look at the results (NASDAQ: ALGT)

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Elegant Travel (Nasdaq: ALGT) One of the names that raised the names of airlines during this week’s trading. The airline did an interesting hub earlier this year as you requested Boeing 737 Max while it is currently the operator of all Airbus aircraft. The low-cost carrier appears to be making some bold moves to cut costs in the long run. However, in the short term, there are significant challenges as discussed in this report.

Allegiant Travel’s Profits Decreased

Allegiant Air Travel Company First Quarter 2022 Results

Elegant Travel Company First Quarter 2022 Results (Elegant Travel Company)

Allegiant’s revenue increased about 80% year over year. However, what can be seen is that revenue increased by about $221 million and operating costs increased by $238.4 million. That’s what we’ve seen on other airlines, too. Net profit growth did not translate to the bottom line as costs rose somewhat. This cost increase is driven by increased aviation activity and higher fuel prices. What should be noted is that last year, Allegiant Air had a tailwind of $91.8 million on costs due to its payroll support program. To correct this, operating income went from negative $67.2 million to positive $7.2 million which is an improvement of about $75 million.

On an EPS basis, profit decreased from $0.42 to $0.44 driven by higher operating expenses of which 27% was driven by higher fuel prices, higher interest costs and absence of payroll support.

Results were impacted by 1,800 cancellations during the quarter. Allegiant did not provide a detailed breakdown of the numbers, but said the 600 cancellations were related to the weather. Other reasons for cancellation were the shortage of ATC posts, the crew shortage due to Omicron and the attrition of pilots.

Compared to 2019, revenue increased by 10.7%, fares per passenger increased by 2.7%, and capacity increased by 18.7%. So, capacity growth precedes revenue growth. At this point, this is not a huge problem, because the demand for air travel is very strong. However, going forward, as the market enters into a more sustainable and recoverable phase, the expansion of capacity and baseline in or out of line will become an element of control.

Revenue up 30% in the second quarter

It should come as no surprise that Allegiant Travel Company is bullish about the second quarter. This is a sentiment echoed throughout the industry and it’s not unusual. The pent-up demand is big and big enough to see record-breaking major lines. The company aims to generate $600M in revenue which would indicate 28%-32% revenue growth and 9%-14% capacity growth, which means there will be a significant increase in average prices resulting in margins higher than 12%.

The assumed average price of jet fuel is $4 per gallon. April figures showed passenger numbers rose 20% and average fuel prices settled at $4.15 a month. Therefore, it will be interesting to see if average fuel prices will actually be $4 per gallon or higher.

Risks to airlines

Allegiant Air aircraft Aerospace Forum

Elegant Aviation Company (Elegant Travel Company)

At the moment, airlines are experiencing very strong demand. Demand is so high that airfares are skyrocketing, in part due to capacity constraints. So, the question now is not whether there is demand but whether Allegiant Air has pilots to fly the aircraft. Allegiant Air saw 8 members leave legacy carriers. The airline employed 250 pilots, just under the 270 pilots targeted. Therefore, Allegiant did not manage to reach the recruitment target, going forward, that could be a problem. In February, Allegiant Air decided to cut 10% capacity in the second quarter due to staffing challenges and rising fuel costs. So, Allegiant is one company that is also experiencing pressure from a shortage of pilots. DoT data from March showed Allegiant had already reduced 5.4% of its scheduled flights. Therefore, Allegiant is hoping to see the 10% cut for the second quarter results in fewer cancellations. A review of cancellation rates showed that 1% of flights were canceled at Allegiant yesterday and 2% today. With the n = 2 set, we can’t really draw any conclusions, but if this was the cancellation rate seen throughout the quarter, then the amplitude cut-off did indeed improve operational reliability.

conclusion

Just like many airlines, Allegiant Travel saw a significant jump in revenue during the quarter, but that underlying growth was completely absorbed by increased operating costs including the impact of higher jet fuel prices.

For the second quarter, Allegiant Travel Company is very optimistic and if they can carry out their plans, it will be reason to buy the stock. The airline is already facing a pilot shortage as legacy airlines lure pilots from low-cost carriers, but the company has taken needed steps such as a 10% capacity cut for the second quarter. This means that at the unit cost level there will be some headwinds but the operational reliability has to improve. Overall, I think the Allegiant Air was able to perform well with a capacity well above pre-pandemic levels. The airline had to cut back a bit, but overall, I think Allegiant Air is a step forward. What would be interesting is to see if a 10% reduction in capacitance is sufficient. For now I suppose this was already enough to implement a reliable schedule.

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