Allegiant Travel (ALGT) Q2 2026 earnings call transcript

I would now like to turn the call over to Sherry Wilson, managing director of investor relations. Please go ahead. Thank you and good afternoon everyone. Welcome to Allegiant Travel Company 2nd Quarter 2026 earnings call. On the call with me today are Greg Anderson, chief executive officer, Drew Wells, chief commercial officer, and Robert Neal, president and chief financial officer.

Earlier this afternoon, we issued our second quarter earnings release, which is available on the investor relations section of our website, along with the supplemental materials accompanying today's call. We ask that you refer to those documents as we walk through our results. The company's comments today will contain forward looking statements, including our third quarter and full year 2026 outlooks, statements regarding the integration of sun country and expected synergies, and other statements concerning our future performance and strategic plans. These statements are subject to risks and uncertainties and actual results could differ materially from those anticipated. For additional information, please refer to the safe harbor language in this afternoon's earnings release and our filings with the SEC. We will also be discussing non gap financial measures, a reconciliation of these measures to the most directly comparable gap measures where available is included in the earnings release posted on our investor relations website.

Before we begin, a brief note on comparability. Second quarter results are presented in this afternoon's earnings release include the full quarter of Allegiant as well as sun country results from May 13th, the date of acquisition through June 30th. Prior year results are Allegiant standalone. In order to provide the most meaningful commentary, some results will be discussed on an Allegiant standalone basis on today's call and will be noted as such. Outlook commentary on today's call is generally for the combined entity unless otherwise specified.

Finally, in order to fully outline the results of the combined entity, our prepared remarks today are a bit longer than usual. In the interest of time, we ask that each analyst limit themselves to one question. If a follow-up is required, please re-enter the question to you and we will get to as many questions as time allows.

With that, I'll turn the call to Greg.

Thank you, Sherry and thanks to everyone joining our call. I also want to welcome the Sun Country team members that are on the call first time as part of the Allegiant family. We are thrilled to have you with us.

So let me begin with our results. The second quarter delivered record quarterly revenue with both Allegiant and Sun Country achieving year-over-year TRASM improvement of more than 20%.

Importantly, unit revenue growth outpaced unit costs, driven in part by strong execution across several new commercial initiatives. This performance helped us lead the industry in operating margin for the third consecutive quarter, underscoring the strength and resilience of both standalone business models and the exceptional contributions of our team members. We delivered strong operational results, including industry-leading controllable completion and mishandled bag performance, while in-flight NPS remains very healthy. These achievements are even more impressive, given we delivered them while closing the Sun Country acquisition in beginning integration.

June, our first full month post-closed in a peak summer demand period, was particularly strong for both companies. We are excited about what we can achieve together, and we remain focused on discipline growth from a strong operating foundation. And our performance shows we are doing just that. And so while I'm pleased with the quarter's results, I'm proud of why we believe they are sustainable. Our performance is supported by a distinct competitive moat that is difficult to replicate.

First, outstanding service to our customers is the foundation of our business, and is the key to building a loyal customer base that continues to fly with us. Roughly 70% of our customers are repeat flyers.

Second, our operating philosophy is the engine behind our success. We run a low utilization model, maximizing flying during high demand periods while reducing capacity on days that do not meet our financial hurdles.

Third, owning our aircraft at attractive prices gives us significant operational flexibility and adds to our cost advantage versus our peers. Max deliveries are contributing meaningfully to our results, with these aircraft representing 1% of scheduled service ASMs in the second quarter. And this is up from 11% during the same period last year. Together with Sun Country, our well timed max order gives us valuable aircraft access and expands our attractive route opportunities.

Fourth, our deep community relationships create powerful local brand equity in markets we serve. Together, Alegia and Sun Country are the number one or number two carriers in roughly 95% of our originating markets. And finally, our strong balance sheet is a critical advantage. Thanks to our deleveraging efforts over the past year and our combination with Sun Country, an already strong balance sheet is even stronger.

The true sustainability of our business comes from checking all of those boxes. And in short, we are better positioned today than at any point in our history.

Next, I want to turn to our commercial initiatives, which are gaining real momentum. Over the past two years, we've modernized our commercial technology, and we are now building on that foundation that's enhanced digital data and distribution capabilities as we build greater flexibility to personalize customer offerings. Previous highlighted initiatives such as Alegia Nextra, improved bundling, and schedule and network optimization continue to mature in our contributing meaningfully to our trash amount performance.

I'm also encouraged by the new initiatives our teams continue to advance. Our co-brand credit card is a clear example. With remuneration to us, a 24% year over year, coupled with planned enhancements to this program, we remain confident we can double co-brand remuneration over time from 5% of revenue today to 10%. Third-party distribution is another example. Our recently launched Expedia Partnership marks allegiance entry into OTAs. Retaining control of our brand, product offering, and customer relationship is non-negotiable. And our direct API connection with Expedia enables us to reach new travelers while complimenting, not replacing, the direct channels that remain at the core of our strategy. Additionally, building on the success of Alegia Extra and strong demand for premium products, we recently announced plans to debut Alegia First, which will be phased in on select aircraft in 2027.

Together, these initiatives further strengthen our customer value proposition and are expected to support sustained earnings momentum in the years ahead. Turning to the integration, the quick close of our Sun Country acquisition reflects strong team alignment and early momentum. We remain very confident in the synergies we outlined, and both airlines continue to perform well independently. Importantly, we have already made some good progress with our integration.

Customers can now search for flights across both airlines, access a broader range of destinations, and complete bookings through a redirect to the operating carrier. Our commercial teams are beginning to form a holistic view of the combined network with an eye towards the future of optimizing schedules and route decisions based on demand, financial returns, and the seasonal strengths of each network. Our procurement teams are finding ways to streamline the supplier base and leverage the combined company scale. In fact, in the coming days, we will integrate our Las Vegas airport real estate. On the regulatory front, we submitted our single operating certificate transition plan to the FAA and are targeting approval in the first half of 2028.

That said, over the past few months, Sun Country has experienced elevated pilot attrition, concentrated among its junior MSP pilots, and largely driven by increased hiring at the largest carrier in the Twin Cities. In response to this attrition and elevated fuel prices, we are reducing off peak capacity in the Twin Cities during the back half of the year. We have already taken steps to expand training classes in preparation for the first quarter of 2027, and the supply of qualified pilots remains strong. Our training classes are full, and these pilots are scheduled to enter service later this year. We are confident this capacity reduction is temporary, and we expect to grow MSP capacity in 2027 through a combination of Sun Country and Allegiant flying.

Turning to our Allegiant pilots, we're pleased to have reached a new collective bargaining agreement with nearly 80% voting in favor. This is an important milestone that recognizes the hard work of our pilots while preserving the work rules that support our differentiated scheduling model. I want you to thank both negotiating teams for their tireless work in getting this agreement across the finish line.

In looking ahead, we expect unit revenue growth to be in line with the second quarter's 24.6% increase for the third quarter. We also expect the combined company to generate an operating profit in the third quarter. A meaningful improvement from the modest operating losses reported in the same period over the last two years, despite much lower fuel prices at that time.

As a reminder, the September quarter is seasonally the weakest period for both carriers. For the full year, we continue to see broad-based demand supported by strong bookings, and we will remain aggressive in managing capacity through this volatile fuel environment. As a result, we expect full year 2026 EPS for the combined company to be at least $6 per share.

This assumes fuel per gallon at $3.75 for the remainder of the year, which reflects the recent forward curve. I should note that fuel prices remain volatile, and for reference, a 10-cent increase in fuel is worth roughly 50 cents of earnings per share in the combined company. We are proud of our ability to navigate a wide range of challenges while remaining an industry profitability leader. We remain focused on what we can control, delivering great service to our loyal customers, operating safely and reliably, maintaining capacity discipline, managing costs tightly, and seamlessly integrating Sun Country to unlock operating synergies. And before I hand things over, I want to again thank our team members across both airlines.

This quarter, we delivered strong operating and financial results while closing a historic transaction. For the full year, we remain on track for margin expansion despite significantly higher fuel costs. The Legion is better positioned than ever, and our commitment to building the leading leisure carrier in the U. S. remains unwavering. Every single day, our team is focused on delivering continuous improvement. And finally, please mark your calendars for December 7th and Las Vegas when we plan to host an analyst day. We look forward to sharing a deeper look at our business, providing an integration update, and outlining our long-term financial framework to highlight the full value of the combined company.

With that, I'll turn it over to Drew to discuss our commercial performance.

Thank you, Greg, and thanks everyone for joining us this afternoon. Stand alone, Allegiant finished the second quarter with $776 million in total revenue, up 15.1% versus the prior year. Despite 6.8% less system capacity in the quarter, we held passenger counts nearly flat and set yet another record revenue quarter, overtaking the first quarter of 2026. Similarly, the standalone Allegiant 2Q trasm of $14.42, up 24.6% year over year, set an all-time Allegiant best. The gains came from nearly every lever, yield up more than 40%, load factor up approximately four points, and third-party per passenger up more than 30%. In a quarter with many incredible revenue data points, my favorite is this, standalone Allegiant scheduled service air revenue increased $102 million first last year, more than covering the $99 million increase in fuel expense.

Duming out to the combined company, we produced $943.5 million across all lines of business, including some country brand contribution from May 13 close to quarter end, highlighting some full quarter figures for context. The $14.5 million standalone Allegiant fixed fee revenue was down approximately 14.7%, but in line with expectations. Stand alone, some country fixed fee revenue of $65.7 million, and some country cargo revenue of $50.6 million will record quarters for standalone country for full quarter to Q26.

Focusing on the Sun Country brand a bit, the record cargo revenue perhaps comes as no surprise. During the 3Q25 Sun Country earnings call, cargo expansion was discussed as a focus, and in January we mentioned two additional airplanes coming online this summer. As a reminder, at standalone Sun Country and in the current state of integration, cargo flying is less efficient on a crew-hour basis and will typically draw from scheduled service resources during the ramp up periods as additional aircraft enter the cargo program.

As a result of the additional aircraft coming online, we expect cargo revenue to ramp slightly into the third quarter as compared with the second. One final reminder on the cargo front, the program is a fuel pass-through. Fixed fee charter programs represent a fuel pass-through as well, and in combination with cargo, they provide a very predictable foundation in any environment, on top of which we can continue to drive highly flexible scheduled service options to match our capacity with demand. Our long-term fixed fee and cargo programs, including both brands, constitute approximately 9% of our trailing 12-month revenue, and we opportunistically fill in the broader schedule with additional fixed fee flying.

On the scheduled service side, the Sun Country standalone trasm of 12.64% was also robust 22% higher year over year in the full second quarter. And while the commercial approach is quite similar between the brands, it is important to note that the Sun Country stage length is nearly 20% longer than the Allegiant one. In fact, when comparing the trailing 12 months, more than 85% of Sun Country brand flights are longer than the average Allegiant brand flight.

Turning to the network, as noted earlier this year, 39 markets began operation across the first two quarters of the year in the standalone Allegiant network and represent between 9% to 10% of the second and third quarter ASMs. We are encouraged by the outperformance of the new market additions through the summer. And as we look to start optimizing our combined networks into 2027, there is tremendous potential. While Allegiant's strength is connecting underserved small and midsize communities to leisure destinations, Sun Country brings a powerful position in Minneapolis, St. Paul. Together, these brands create a network that is broader, more flexible, and more resilient.

The core theme through the quarter for both standalone Allegiant and standalone Sun Country networks was the continued exceptional demand. And while the macro environment certainly played a role, we were very deliberate in our peak focus schedule. Even with the overall reduction of 6.2% scheduled service ASMs, standalone Allegiant was able to grow peak days approximately 1%. The leisure customer remains incredibly resilient and all indications, internal and external, are that travel spend remains strong even into the fall. Most importantly, cash sales were up double digits through July, despite forward capacity remaining slightly down year over year. This amounts to an expectation of third quarter total revenue of approximately 16.5% against combined airline only third quarter 2025 revenue of approximately 808 million.

Specific to scheduled service, we expect third quarter ASMs for the combined entity to be down approximately 5.5% from the prior year, pro form of base of 6.1 billion ASMs. Two dynamics are at work in that figure.

First, in response to the fuel environment, both Allegiant and Sun Country brands have reduced off peak flying in the back half of the third quarter. Second, as Greg discussed, Sun Country brand additionally pulled down September capacity in response to elevated pilot attrition and the planned increases in cargo flying.

On our first quarter call, I indicated standalone Allegiant capacity would be flat to slightly down in the third quarter. With fuel remaining elevated, standalone Allegiant will now be down a little more than 3%. No other business model is better positioned to remain flexible and sculpting a schedule to protect the best flying through peak periods and peak days of week. While fuel continues to be volatile, I expected downward bias the fourth quarter ASMs for the combined airline and a full year number to be down mid single digits.

Some of the support for the third quarter unit revenue outlook will come from our first external distribution connection with Expedia. After a measured rollout, we were 100% live on July 10. In the few weeks since launch, approximately 3% of bookings have come from the Expedia network, with meaningfully more than half of bookings coming from net new customers to Allegiant.

We're thrilled with the early returns as an acquisition channel. Beyond the near term booking contribution, the channel helps address one of the unique challenges of operating such a broad network by providing a scalable way to build awareness, attract new customers, and accelerate demand in newer markets. In past, some country filings, they've noted approximately 20% of bookings from external distribution, part of that coming from Expedia. We intentionally launched with a simplified airfare only offering and, over time, expect to enhance the integration with additional products and capabilities while preserving the flexibility that has long been a hallmark of our commercial approach. In the meantime, we still maintain control of ancillary sales post-purchase for these bookings.

Expedia isn't the only commercial initiative underway, however. Our Navatar platform, an initiative we've discussed at length on prior calls, is paying an added dividend in the integration. With Sun Country running on the same Navatar passenger service system back end, the platform combination is meaningfully simplified. Even so, we will have a lot of decisions to make around policy and product alignment in the coming weeks and months. Our move to complementary onboard beverages is the first of those and a true win for our customers' experience on board. And while this will pose a mild near term headwind to air ancillary revenue and commissary costs, we expect to grow third quarter air ancillary per passenger. That expectation comes on the yields of air ancillary per passenger being roughly flat year over year from the last four quarters as our larger focus on conversion and in turn driving yield success produce the intended total revenue results.

Into the third quarter, improvements Greg referred to on our product merchandising and dynamic pricing capabilities continue to mature and are beginning to impact a larger swath of bookings supporting that increase in air ancillary per passenger. Our Legion Always rewards card program contribution continues to excel. Bank compensation increased 24% for Q25 and new card holder acquisition ramps slightly higher than that. In fact, when official numbers come across, we expect July 2026 to set a record for new accounts.

We expect continued momentum into the quarter before hitting more challenging comms from the end of 2025. I expect to have more detail to speak to during our analyst day later this year.

Lastly, we are excited about the recent announcement of our new premium product coming spring 2027, Allegiant First. After Allegiant Extra exceeded our expectations by such a wide margin, this was a logical next step and has been a couple years in the making. The success of extra clearly demonstrates the value of our customers and their appetite for premium services and products.

The product is based on the elements most important to those customers as shared directly by them, including extra legroom and recline. The entire cabin will feature a new Recaro seat design with the extra cabin and main cabin, each thing improvements including the seat cushion and power available throughout. The new layout is a reduction of just two seats from our current 190 seat max layout with the upside of eight premium seats. I also look forward to providing more detail including expected economics about Allegiant First during our analyst day. Demand persisted through the quarter at incredible levels and look strong into the third quarter, even into the off-peak fall.

When coupled with the initiatives we've talked about, we're creating significant short and long-term tailwinds while maintaining the core scheduling flexibility principles that make the now larger Allegiant story so compelling. I like to thank the commercial teams that have worked so hard to deliver these incredible results and to all of our team members for making travel and experience as possible for millions.

With that, I'd like to turn it to Robert.

Thank you, Drew, and good afternoon. I appreciate everyone joining us today. 2026 has already been an eventful year and the strength of the model is alive and well in our results. My comments will reference financial results on an adjusted basis and year over year comps will reference prior year Allegiant airline-only results unless otherwise noted. For the second quarter, the combined entity produced pre-tax income of $64.5 million with some country contributing $13.4 million during the stub period resulting in a consolidated earnings per share of $2.19.

We delivered a consolidated operating margin of 9.2%, which is the best of any US carrier this quarter and generated nearly 158 million of EBITDA, with some country contributing $29.7 million and yielding a consolidated EBITDA margin of nearly 17%. These results came in well ahead of an infill price, along with some non-field cost shifts, which I'll touch on in a moment.

Drew has already covered the revenue detail, so I'll simply note that record revenue performance, cost-disciplined across the businesses, and strong off-sexication made this quarter successful.

Turning to costs, second quarter non-field unit costs for Allegiant on a standalone basis were 8.17 cents, up 6.4% year over year on capacity down 6.8%. How the next fuel came in modestly better than we were estimating in our recent guidance update and ahead of our initial expectation for a sequential step up from the first quarter. Primary drivers of that beat included maintenance and labor expenses, some of which we expect to shift into the third quarter.

Working at the cost trajectory through the remainder of the year, as Greg noted, we are pleased to have reached a new CBA with legacy Allegiant pilots, providing well-deserved compensation along with other benefits. While wage rates for Allegiant pilots will step up just about 2% through the remainder of the year from the bonus rates we were accruing, these wages will now become subject to 401k contribution and other benefit elements, creating incremental cost pressure in the back half of the year at the legacy segment.

However, we continue to expect increased group productivity to be achieved ahead of the March peak, at which point that cost pressure shouldn't begin to evade. With the timing elements previously mentioned, removal of planned capacity from our schedules and incremental pilot benefit cost discussed, we now expect the third quarter to mark our peak CASMEX year-over-year increase.

During the second quarter, we invested $188 million in capital expenditures on a combined basis, including $157 million in aircraft-related investments and $31 million in other TAPEX. In addition, we had $18 million of deferred heavy maintenance spend across the two airlines.

For the full year, we have updated our CAPEX outlook to approximately $850 million. The increase from our prior guide includes capital spending in the Sun Country segment, as well as incremental PDP payments for future aircraft, as we've now aligned our 2027 aircraft delivery estimates to contractual commitments, following the much improved delivery performance at Boeing this year. We ended the quarter in a strong financial position with total available liquidity of $1.3 billion, including $1.1 billion in cash and investments and $250 million in undrawn revolvers. Total debt at quarter in with $2.8 billion and net debt was $1.7 billion with proform and net leverage of approximately 2.6 times for the combined entity. During June, we completed the refinancing and upsize of our senior secured notes, issuing $650 million in aggregate principal amount.

The new notes are due in 2031 and carry a coupon of 7.18%. We were very pleased with the level of subscription and overall execution of the transaction. I want to recognize our finance, accounting and treasury teams at both airlines for their work in getting this done and for moving at such pace during the quarter to support this right on top of the acquisition closing. Reflecting the new bond terms as well as fund country interest, we are expecting $43 million in net interest expense in the third quarter. As we look at liquidity and leverage through year end, there are a few things to keep in mind.

First, we expect to pay out our pilot retention bonus of approximately $275 million in the coming weeks. This is inclusive of payroll taxes and will be funded from cash on the balance sheet. This is a planned discrete use of cash that has been fully contemplated in our liquidity planning and the balance sheet has the strength and flexibility to absorb it without the need to seek further financing commitments.

And second, I wanted to touch on some of the financing commitments we've disclosed during this year. Early in the second quarter, we took a proactive approach to liquidity planning, mindful of a sharp rise in fuel costs, an accelerated closing timeline for some country, an anticipated payout of the pilot retention bonus, upcoming 2026 fleet capex and the 2027 maturity of our senior secured notes. We raised more than 750 million in commitments for aircraft and PDP financing in addition to the up sized bond refinance I just mentioned. We had drawn approximately 200 million at the end of the quarter with the remaining 550 million available for drawing into 2027 with significant flexibility. With this in mind, we do not anticipate the need for additional financing commitments until next year and currently expect remaining 2026 aircraft deliveries to be unencumbered at your end.

Taken together, we expect net leverage to move up slightly and reach its peak following payout of the retention bonus. Cash as a percentage of trailing 12 month pro former revenues stood at 27%, which remains a bit higher than we need. So you'll likely see us carry less cash on hand by your end, especially considering pre-arranged financing. And moving to fleet, we ended the quarter with 193 aircraft in the combined operating fleet, including 105 A320 family aircraft, 66 737 passenger aircraft and 2737 cargo aircraft, which are owned or leased by our cargo customer. 69 of these airplanes are operated on the Sun Country Certificate, while the remaining 124 are operated by legacy allegiance. We've taken delivery of a single 737 max aircraft in July and expect six additional max deliveries through year end.

This will result in six 737 max aircraft entering service in the second half, offset by seven aircraft retirements, leaving the year end operating fleet count for the combined entity at 192.

In addition, we have three 737-NGs leased to other operators and scheduled to return to us through 2029. Looking further out, our 2027 max aircraft will be delivered with the new, Allegiant 1st configuration Drew highlighted. These airplanes will operate with just two fewer seats as compared to our existing maxes, preserving our competitive unit cost profile while increasing our premium seat offering. At this time, we are planning for the new cabin only on new deliveries and have not yet contemplated retrofit on the in-service fleet. We can make broader fleet-wide decisions after we've taken some time to gather further information from both airlines, and we expect to update on that program at our December 7 analyst day. More broadly, fleet flexibility underpinned by aircraft ownership continues to be a key competitive advantage for the company.

Now, turning to our earnings outlook. For the third quarter, we expect combined entity scheduled service capacity to be down approximately 5.5% year over year. Based on an assumed fuel price of $3.80 per gallon, we expect an operating margin of 2% at the midpoint and a consolidated loss per share of approximately 50 cents based on an assumed share count of $27.3 million. This guide is reflective of another quarter of margin improvement year over year, despite the significantly higher fuel price. As a reminder, the third quarter is the softest seasonal period of the year at both airlines. We are maintaining our disciplined approach to capacity with reductions focused on off-peak day of week and shoulder season flying, which ties directly to the cost cadence I discussed a moment ago.

For the full year, we now expect consolidated earnings per share of greater than $6 based on an assumed share count of $23.9 million. This number assumes a fuel price per gallon of $3.80 for the third quarter and $3.70 for the fourth quarter. Our ability to flex capacity and respond to changing industry headwinds such as higher fuel continues to position allegiance as the leading carrier in leisure travel. On the integration, the team is working hard to identify and capture synergies across the combined business and we remain confident in a minimum of 140 million in run rate synergies expected by 2029. As we continue working through the data, we'll provide further updates on both the size and timing of synergy capture at our upcoming analyst day.

In closing, I'd like to thank our more than 9,000 team members at Allegiant and Sun Country for their integrating the two airlines while continuing to deliver unbeatable value for our customers day in and day out.

And then related to that now that the pilot deal is done, what capacity growth do you need to fully leverage cost inflation next year? Thank you. The tool is Greg. I'll kick it off. Just maybe more high level and Drew may want to add some on his thoughts for next year, but the way we think about capacity at Allegiant here is that we need to earn the right to grow and that the returns and the environment, they should drive that growth. We're not just going to grow for growth sake. Now, I'd like to see more flying in the peak periods. I was impressed by what Drew and team have been able to do this year in 26 where we've had less capacity overall.

But in the peak periods, we were up a point in capacity. And just as a philosophy, the fleet flexibility really supports our discipline around capacity growth.

But Drew, you want to add anything you're thinking about it in the near term? Maybe, maybe it's that kind of the highest level. I think we've communicated in the past that our kind of mature run rate would be maybe in the mid-single digits, the higher single digits such that, you know, to Greg's point, the environment dictates. I think fuel will obviously be the biggest driver and how much we're able to fly next year. There's obviously some slack in the schedule relative to what we have pulled back this year. And then I don't know if Robert wants to talk to sleep at all, but we have a number of max deliveries next year which will provide us with the ultimate flexibility on how much we would like to grow into the year.

Sure. Hey, tool. Yeah. I think we've shared in the past that 2027 is our peak year for quantity of aircraft deliveries from our firm order. So we do have a bit of a step up in available fleet next year. I don't really think of that specifically as growth. I think that's an option for growth. But like Greg said, you know, we'll earn the right to grow based on how the business is performing. And we just have a lot of flexibility to retire some of our older aircraft.

Hey, Scott, it's BJ. Yeah. So how we reported today, I think, is how you should expect things to look at least through the end of the year. So business segments being legacy, a legion, and sun country, we may continue doing that through 2027. There's some materiality tests that we'd have to look at. And so we'll make that decision as we get closer to next year. I do think we will continue to, we will break out cargo expenses so that you don't get the question. What else I'm missing? I'll just help on help on margin and guidance.

Yeah, you know, we had talked about we've talked for the last couple of quarters about moving away from providing unit metrics. But maybe I'll just use this since we didn't in the in the prepared remarks to tell you a little bit about kind of how we're thinking about the unit cost side of things, at least for the third quarter. Recognize that if you're if you're looking through the guide, you're probably getting a really high all-in chasm X year over year. If you're looking at that number compared to a legion standalone in 2025. So maybe I'll just break it out for you to tell you what we're thinking about the third quarter, which would be I would expect legacy, a legion non-field unit cost to be up in the nine to 10 percent area.

And then I would expect consolidated non-field unit costs excluding cargo to be up a little bit more than that. Let's call it 10 to 12 percent. Now I want to be clear. It's not a guide. It's an estimate. You know, we're working with this this information relatively fresh, but hopefully that helps a little bit with modeling.

And just as long as you're doing it, like when you talked about rasm being similar in Q3 as Q2, was that a legion comment or an all-in comment?

It was a consolidated comment. So I'll peel it back one layer deeper that you're not going to see a ton of variance in the individual components.

Mike, it's Greg. Thanks for the question. I'll start it off, and Drew may want to jump in on the distribution or other elements of it. But overall, you know, I think the integration and bringing the two companies together is off to a strong start. It's first and foremost, stability above all, both airlines are performing well operationally, financially. As we're going through the plan, we have similar cultures, which is good. We have tech systems that align several of them. So that's also very positive. I mentioned in my opening remarks, some of the early progress that we've made, some of that's around like cross selling on the websites or we filed with the FAA on our single operating certificate.

Although that'll take some time to work through on the procurement and supply change side as well. But what I'm encouraged by with the integration office, the IMO, is just even with all of that, but the big milestones, which are the SOC or the PSS or the JCBA, just the plans we have in place as we think about those are a little bit longer term.

But I wanted to highlight just we have the right people in the right places with experts helping us plan out so that we can continue to integrate as smoothly as possible. But through any other comments you want to add, and not a ton from my side, obviously the expedient process we had started well before we knew we'd be coming together through the acquisition. I think it's going to be very helpful as we think about combining some of the commercial processes and some of the connectivity we'll need to fully optimize what we'd like to do. But just yet the team's coming together and having kind of a unique perspective on how to accomplish a lot of the same goals has led to some really fun debates.

And I think it's going to lead to some really incredible results as we can get from planning into the execution. So really excited where this is going to go.

Thanks. Hey Max, this is Greg. Thanks for the question. Let me give some high level thoughts and turn it over to the team. But overall, you asked about our fleet strategy and I'd say owning our fleet and buying and selling aircraft at the right prices are a key part of our strategy. We want to be and I think we are very good at both operating aircraft and also very good at asset traders. And I think that shows because we have some of the lowest ownership costs when it comes to fleet, I think, in the industry. On the max order specifically, I just want to call out, we view that as a competitive advantage. It provides us access to aircraft at very attractive prices and kind of tie and get all together with the fleet strategy.

What EJ Austin and team have done is with some of the older, less utilized assets that we've sold, we've been able to pay for roughly 25% of the max orders. So just hats off to the team and how they're handling the fleet. But EJ, do you want to get into the specifics on how they're performing, how the max is performing and the benefits?

Sure. Yeah. Maybe Max, I'll hit on your question on schedule first. You asked about sort of what does the delivery cadence look like from here. What you see in the release largely covers our deliveries through this year. There may be one or two aircraft on property that are not in service at the end of of 2026. I would expect the max fleet to grow by around 20 shells during 2027. That should take you up to call it 45 to 47 in service airplanes at the end of 2027. And then just remember our firm order was for 50 aircraft. The rest of those would deliver in 2028. They are all max eight variant at this point.

And so that's the entirety of the firm order. As I think you're aware, we do have a very attractive option book, which kicks in in early 2028 and runs out past the end of the decade. So we're taking a close look at that now.

Of course, the combination with Sun Country opens up a lot of opportunities to dip into that option book a little bit more. And then the way I'm kind of thinking about that, at least certainly in the current environment with feel where it is, the max aircraft are outperforming the probably DNGs with certainly the 320s on an ASMs per gallon basis, which is driving incrementally better earnings at a higher fuel price. And then just the last thing I would mention is we're starting to appreciate quite a bit more at this point, that we were one of the later operators to have a power by the hour agreement on our engines. And so we just have an attractive engine maintenance profile on the new airplanes as well.

And that's another reason to consider those airplanes very seriously. One thing we didn't hit on this quarter but did last, just a fuel efficiency aspect and kind of the second order effects. We think it saved about a percent worth of capacity in the current year by having that fuel efficient max aircraft, which won't show up directly in kind of the margin difference between the two, but does show up on the bottom line. And I think it's important to keep in mind.

I'd be happy to take that. Expedia was really about finding an efficient source for the breadth of network that we have. We will continue to have direct bookings as our core source of revenue generation. But when you think about the network with 120 plus cities, 550 plus routes at any given time, achieving efficient marketing across the entirety of that breadth is not always easy. And so this was a method that we found to be scalable and effective at reaching folks that were in or showing interest for travel, a product that we're proud of and proud to put out there. So I don't view it so much as a huge pivot away from the core pillars directly remain that.

But this is an attractive kind of customer acquisition plot from my side. On the inside beverages, this is the first of kind of those healthy debates I was referring to in a previous answer. Both the Sun Country brand, the Legion brand are very interested in kind of customer experience and exploring kind of this void that exists and kind of the smart value area of the industry.

And for me, as we started talking, it became a no-brainer that we go down this path and explore and match the Sun Country offering on complimentary and flight beverages. I don't have the number off top of my head for explicit headwind. I don't think it's a material headwind, especially as we're talking about it still expanding the air ancillary unit revenue into the next quarter. Yeah, on the cost side, it's not material, at least for the remainder of this year.

Thanks, Bobby. I just want to add just a little finer point on the on the Expedia commentary that Drew provided. And that's just, we know the direct bookings, that's part of our DNA, that will always be part of our DNA. And it's important as we, as Drew and the team, they work through the Expedia structure, that we continue to own a relationship with our customer. And so that was a important part of the deal for us.

As Drew mentioned, the early results, they're very encouraging. The vast majority of folks using this channel are new customers or windbacks. So we're pleased with what we see thus far.

We're able to kind of cross-sell today, which is effectively showcasing the inventory that the other carrier has, and then shift them into the appropriate booking funnel to continue the purchase path. I think a little bit later this year, we'll expand what we're able to do from that merchandising perspective, but a full code share or selling will probably come single PSS time frame, I'd assume, and you're 12 to 18 months out looking at as Michael Broderick, maybe for confirmation, maybe 12 to 18 months out on that. And then talking seasonality and peaks, we're both very much after the leisure customer, so there's going to be a lot of similarities from that perspective. I think you're going to get a slightly more hyper peak in the spring period, which is common for the geography coming out of Minneapolis, St. Paul, and probably a slightly stronger summer peak coming from the Allegiant side, and maybe one other strong peak in October on Sun Country.

So nothing drastically different, just kind of some of the seasonality peaks up slightly more for one carrier or another.

Thank you.

Yeah, I'll probably save kind of any of the economic discussion for the analyst day later this year, but speaking to the process a little bit, you know, this has been a couple of years in the making, and it really did generate from the results we saw through the Legion Extra process. We started that in 2018-2019 as a test across four aircraft, and never could have dreamed it would have expanded to the success that we've seen what over the last two or three years. So we coupled that with kind of looking at our customer strengths, and in particular, household income, meaningfully over 100k, and a nice tail end of distribution into the higher income brackets, and some of the repeat travelers we have inside Legion Extra, it really opened the door, at least to me, to say that there's more that we can provide that gives value to the customer.

So what we'll have more of the economics there, but it really came down to the success that's on the Legion Extra and the customer strength profile.

Thanks so much, you guys.

Ravi, hey, it's Greg. Let me take that one. Yeah, we view it as temporary, but just maybe taking a step back. Just in general, like pilot attrition, we have a number of pilots across both airlines that ultimately, it's a small number, I would hope, but ultimately, that want to work for a full with our Sun Country pilots, and what we've seen there, the vast majority of them have been hired within the last three years, and then they're going to the largest full service carrier in MSP, who recently increased their hiring by maybe Dafel or more. But importantly, and you called out, our schoolhouse is full. It's full on the Sun Country side. We have multiple classes on the allegiance side.

We just opened a class, the number of applications for candidates, cadets and pilots is off the charts, very highly qualified, and they value what we offer. We offer competitive pay, but we also offer unique quality of life overall, where our team members are flight cruiser home every night, and so we're confident we'll manage through it. It's a headwind in the term. We're going to manage through it, and we look forward to restoring and getting back to where we want to be, particularly for flying in March 27th. I apologize for the follow-up, but do you think that this is a precursor to more capacity coming in from them in MSP, or why are they doing this?

So everything is kind of small sample size theater for now. I mean, things look great. I mean, we're not making in any kind of reduction or slowdown in the demand environment. Our growth rate ticks up a little bit from combined down five or down five and a half to the allegiance standalone, getting slightly positive there. We haven't talked to a combined piece. And then just bear in mind that the Q4 comp from last year got meaningfully tougher on our end as well. So I think the environment persists. I'm extremely bullish and I think a communicated all year that that's a holiday period is going to show up and show up really well. So I think 4Q is going to be really strong again.

Guy, and then just a really quick follow up on the Sun Country pilot mission. Are you expecting that to kind of be the worst and 3Q and then prove in 4Q? I know you said 2027 is when you expected fully to abate and probably return to growth there MSB, but just for the case first of the year.

Hey, Jay. Yeah, the recent trends over the past couple of weeks have been encouraging, but we're planning for the worst and we're going to continue to hire and try and get ahead of it as quickly as we can. But I don't want to make a call here or there. There's still it's out of our control to a degree. But like I said, we're going to react and manage through it with the tools we have the best we can. Got it. Thanks for the question guys.

But first and foremost, we're very happy to have a deal ratified by our pilots. It's been a long time coming. I mean, as you mentioned, it improves pay, benefits, quality of life. There's a unique pay feature with the retention bonus in there as well that we've been approving since May of 2023 and just genuinely happy to be able to pay that out very well earned and deserved.

Importantly, I think on both sides, it's we're able to roll out a new preferential bidding system that is off the shelf. It's called Nap Blue. Many other carriers use it. Within that bidding system, we think that we'll have that in place by the end of the year as what we're working towards. And I think this will just help with transparency. It'll help us in the sense of building more productive lines around scheduling. And so I think that's what BJ or that's what we've been talking about that we'll see. That won't happen until next year, we would expect.

But BJ, any other commentary you want to hit? Yeah, Chris, I mean, I think you mentioned the 401k contribution and some of the other benefit elements. And then there's just a small step up in wage rates through the end of this year versus the rates that we were accruing. That's probably driving one to two points in CASMEX in the back half of the year. But no, keep in mind, pilot headcount is relatively flat on more than 1,300 pilots. I think we're down around 50 heads year over year, something like that.

And so we just we're going to see a little bit of cost pressure because we didn't have the aircraft to fully utilize the crew members that we had through the end of this year. And that's where the productivity comes back in as we head into March. Okay, thank you.

I will do my best to handle all the parts. Maybe just kind of generally on the 2Q cadence end of April was probably the relative low point. And then we hit kind of an almost flattish from early May through the end of June. Maybe not quite as stark of a cadence through the quarter as some others have commented on, but everything looked pretty good for virtually the entirety of the quarter. So I feel really good about that. And I think that's true generally of the combined entity that I'm speaking specifically to Allegiant on that front. You probably won't talk too much about hotspots either. Again, with the unit revenue performance, there's hard to point to a lot of things that didn't live up to the excitement.

So I feel really good broadly there. Katie, what else did you want to hit on? Oh, just how much of 3Q's booked? Yeah, I was hate admitting this number in this call. We're about 80% for the quarter. So we have pretty good line of sight to 3Q at this point.

That's great. Okay. That was it.

I will now turn the call back over to Sherry Wilson for closing remarks. Thank you all for joining today's call. Please reach out if you have questions. Otherwise, we will talk to you next quarter.