What changed in this filing

/stocks — the workspaceLOADING

Item 1A. Risk Factors

2021-03-01 compared with 2020-02-27 · 129 added, 46 removed, 201 unchanged (47% of the section changed)

2 unchanged sentences

The trading price of our common stock could decline due to any of these risks, and investors may lose all or part of their investment.

Risks Related to the COVID-19 Pandemic

The COVID-19 pandemic has materially and adversely affected, and will likely continue to materially and adversely affect, our results of operations, financial position and liquidity.

In December 2019, an outbreak of COVID-19 was identified in Wuhan, China.

The COVID-19 outbreak spread throughout the world.

In March 2020, the President of the United States declared a national emergency.

The COVID-19 pandemic has materially and adversely affected passenger demand and bookings for air travel, thereby materially and adversely affecting operating income and cash flows from operations.

As a result, we incurred a net loss of $184 million in 2020, our first net loss since 2002.

We applied various measures to conserve our liquidity through cost reductions and other means.

These efforts included reducing airline capital expenditures, suspending all non-airline capital expenditures;

reducing our published flight schedule;

placing a number of aircraft in storage;

accelerated the retirement date of certain aircraft;

implementing voluntary time-off programs for employees;

suspending all hiring and non-contract salary increases;

temporarily reducing named executive officer salaries and

Board of Director cash retainer fees;

and extending vendor payment terms.

We will continue some of these measures into the future as we deem necessary until we return to profitability.

The extent of the impact of the COVID-19 pandemic on our business and our financial and operational performance will depend on future developments, including the duration, spread, severity and recurrences of the COVID-19 or similar viruses;

the possible imposition of testing requirements before domestic travel;

the duration and scope of related federal, state and local government restrictions;

the availability and effectiveness of vaccines against COVID-19 and any variants of the virus;

the extent of the impact of the COVID-19 pandemic on overall demand for air travel;

and our access to capital, all of which are highly uncertain and cannot be predicted.

The COVID-19 pandemic has caused public health officials to recommend precautions to mitigate the spread of the virus.

Since the onset of the COVID-19 pandemic, federal, state and local authorities have at various times instituted measures such as imposing self-quarantine requirements, requiring testing before entry into certain states;

issuing directives forcing businesses to temporarily close, restricting air travel and issuing shelter-in-place and similar orders limiting the movement of individuals.

Such measures have depressed demand for air travel, disrupted our operations, and materially adversely affected our business.

The resulting cancellations of flights resulted in an unprecedented amount of cash refunds and the issuance of travel vouchers to customers.

Further, due to the fears and restrictions involved with travel in the near term, sales of tickets for future travel have been adversely affected.

The cancellations and cash refunds have negatively affected our revenues and liquidity, and such negative effects may continue based on circumstances surrounding the pandemic.

We will continue to be materially adversely affected if government authorities extend existing orders or impose new orders or other restrictions intended to mitigate the spread of COVID-19, or if fear of travel continues to depress future ticket sales.

Instances of actual or perceived risk of infection among our employees, or our service providers’ employees, could further negatively impact our operations.

We could also be materially adversely affected if we are unable to effectively maintain a suitably skilled and sized workforce, address employment-related matters, or maintain satisfactory relations with our employees or our employees’ labor representatives.

Moreover, the ability to attract and retain passengers depends, in part, upon the perception and reputation of our company and the public’s concerns regarding the health and safety of air travel generally.

Actual or perceived risk of infection on our flights could have a material adverse effect on the public's comfort with air travel, which could harm our reputation and business.

We expect we will continue to incur COVID-19 related costs as we sanitize airplanes and implement additional hygiene-related protocol to airplanes, and take other action to limit infection among our employees and passengers.

The COVID-19 pandemic has also significantly increased economic and demand uncertainty.

Historically, unfavorable U.S.

economic conditions have driven changes in travel patterns, including reduced spending for both leisure and business travel.

Unfavorable economic conditions, when low fares are often used to stimulate traffic, have also historically hampered the ability of airlines to raise fares to counteract any increases in fuel, labor, and other costs.

Any significant increases in unemployment in the United States due to the adoption of social distancing and other policies to slow the spread of the virus would likely continue to have a negative impact on passenger bookings, and these effects could exist for an extensive period of time.

The COVID-19 pandemic continues to rapidly evolve.

The ultimate impact of the COVID-19 pandemic is highly uncertain and subject to change.

We rely on discretionary spending by individuals and households as most of our customers fly with us for leisure as opposed to business purposes.

Many attractions in the leisure destinations we serve, such as Walt Disney World in Orlando, Florida and Las Vegas hotels, temporarily closed, and those which have reopened have done so with restrictions in place, which have and will continue to impact travel to these destinations.

The spread of COVID-19 and related responsive actions have adversely impacted our financial condition, liquidity and cash flow.

The spread of COVID-19 and related government and private sector responsive actions, including actions we have taken to stem the spread of the virus, have and will continue to adversely impact our financial condition, liquidity and cash flow in the near term.

While we are focused on mitigating the impact to our balance sheet by, among other things, suspending dividends and share repurchases and suspending all non-essential capital expenditures and discretionary spending, a prolonged disruption due to the COVID-19 pandemic could have a longer-term material adverse effect on our financial condition, liquidity and cash flow.

We may need to seek significant amounts of additional liquidity if the pandemic results in continuing losses.

In that event, we would consider the issuance of additional debt securities, equity securities and equity-linked securities, as well as through credit facilities.

However, the terms of our existing debt agreements, including our Term Loan and Senior Secured Notes (as defined in Management's Discussion and Analysis), may not permit us to do so.

These credit agreements contain covenants limiting our ability to, among other things, make certain types of restricted payments, including paying dividends, incur debt or liens, merge or consolidate with others, dispose of assets, enter into certain transactions with affiliates, engage in certain business activities or make certain investments.

In addition, the Term Loan and Senior Secured Notes contain financial covenants, including requiring us, at the end of each calendar quarter, to maintain a maximum total leverage ratio of 5.00:1.00 and to maintain a minimum aggregate amount of liquidity of $300.0 million.

We have pledged our assets to secure these loans with the exceptions of aircraft

and aircraft engines, the Sunseeker Resort and certain other exceptions.

This will limit our ability to obtain debt secured by these pledged assets while these loans are outstanding.

The loan agreements contain various events of default (including failure to comply with the covenants under the loan agreements), and upon an event of default the lenders may, subject to various cure rights, require the immediate payment of all amounts outstanding under these loans.

As a result of these restrictive covenants, we may be limited in how we conduct business, and we may be unable to raise additional debt or equity financing.

Moreover, on March 17, 2020, S&P Global Ratings downgraded our corporate issue rating and Moody’s Investors Service placed our ratings on downgrade review, in both cases due to reduced demand for air travel.

Our ability to raise cost-effective capital is in part dependent on our credit ratings, and we cannot assure you that our credit ratings will be stable or improve.

Such downgrade actions and potential future downgrade actions may negatively affect our ability to seek additional sources of liquidity on favorable terms, if at all.

Although our working capital has been sufficient to meet our obligations to date, our future liquidity could be severely impacted by the prolonged continuance of the COVID-19 pandemic and the aforementioned negative effects on our ability to raise cost-effective capital, which could have a material adverse effect on our business, financial condition and results of operations.

We have entered into agreements with the U.S.

Treasury with respect to funding support pursuant to the Payroll Support Programs;

pursuant to which we have agreed to certain restrictions on how we operate our business and use our cash and which could limit our ability to take actions that we otherwise might have determined to be in the best interests of our company and our shareholders.

On March 27, 2020, the Coronavirus Aid, Relief and Economic Security Act (the "CARES Act") was signed into law.

The CARES Act provides liquidity in the form of grants and loans to air carriers, such as to us, that incurred, or are expected to incur, covered losses such that the continued operations of the business are jeopardized, as determined by the Treasury.

Additional benefits were made available to us under a section of the Consolidated Appropriations Act, 2021 (the “PSP Extension Act”) enacted in December 2020.

In April 2020 and in January 2021, we reached agreements with the Treasury with respect to funding support pursuant to the Payroll Support Program and the PSP Extension Act.

Pursuant to these agreements, we have agreed to certain restrictions on our business and operations, including the following:

We are prohibited from repurchasing our common stock and from paying cash dividends on our common stock until March 31, 2022;

We must place certain restrictions on certain higher-paid employee and executive pay, including limiting pay increases and severance pay or other benefits upon terminations, until October 1, 2022;

We are prohibited from involuntary terminations or furloughs of our employees (except for death, disability, cause, or certain disciplinary reasons) until March 31, 2021, and we are required to recall and compensate certain employees terminated after October 1, 2020;

We may not reduce the salary, wages, or benefits of our employees (other than our executive officers, or as otherwise permitted under the terms of the Payroll Support Program and PSP Extension Act) until March 31, 2021;

Until March 1, 2022, we must comply with any requirement issued by the DOT that we maintain certain scheduled air transportation service as DOT deems necessary to ensure services to any point served by us before March 1, 2020.

These restrictions may require that we take, or limit taking, actions that we believe to be in the best interests of our company and our shareholders.

For example, the restrictions could require that we change certain of our business practices, risk our ability to retain key personnel, and expose us to additional costs (including increased compliance costs).

Risks Related to Allegiant

19 unchanged sentences

These privacy developments are difficult to anticipate and could adversely affect our business, financial condition, and results of operations.

The successful development of our first Sunseeker Resort is dependent on commercial and economic factors, some of which are beyond our control.

We are developing a hotel resort in Southwest Florida.

Construction began in the first quarter of 2019 and completion of the hotel is expected in the second quarter 2021.

The successful development of the project will be subject to various risks inherent in construction projects (such as securing sufficient financing on a timely basis, cost overruns and construction delays) as well as risks of gaining sufficient interest from vacationers to stay in our hotel and suites, the desirability of the project’s location, competition and the ability to profitably operate the hotel and related offerings once open.

We rely heavily on automated systems to operate our business and any failure of these systems could harm our business.

19 unchanged sentences

Increased labor costs could result from industry conditions and could be impacted by labor-related disruptions.

Labor costs constituted approximately 30 percent of our total operating costs in 2019 , our largest expense line item.

Industry demand for pilots and the supply of available pilots will impact our labor costs as we seek to retain our employees and compete against other airlines for qualified personnel.

Labor costs excluding the impact of the CARES Act grant constituted approximately 30 percent of our total operating costs in 2020, our largest expense line item.

Further, we have four employee groups (pilots, flight attendants, flight dispatchers and maintenance technicians) which have elected union representation.

1 unchanged sentence

In 2016, we reached a collective bargaining agreement with the International Brotherhood of Teamsters, representing our pilots, which became effective as of August 1, 2016.

The agreement provides for enhancements to pay scales, benefits, and limited work rules.

The pilot agreement becomes amendable in August 2021.

5 unchanged sentences

Any of these events could have an adverse effect on our operations and future results.

The successful development of our first Sunseeker Resort is dependent on commercial and economic factors, some of which are beyond our control.

We are developing a hotel resort in Southwest Florida.

Construction began in the first quarter of 2019 but construction was suspended in March 2020 so that we could conserve liquidity during the pandemic.

We do not currently intend to re-commence construction until we secure satisfactory financing arrangements.

Increases in taxes could impact demand for our services.

In 2020, Congress may consider legislation that could increase the amount of Federal Excise Tax and/or one or more of the other government fees imposed on air travel.

In 2021, Congress may consider legislation that could increase the amount of Federal Excise Tax (“FET”) and/or one or more of the other government fees imposed on air travel.

Under the CARES Act, applicability of FET was suspended for the remainder of 2020;

it was reinstated as of January 1, 2021.

By increasing the overall price charged to passengers, any additional taxes or fees could lessen the demand for air travel or force carriers to lower fares to maintain demand.

30 unchanged sentences

As announced in July 2017, LIBOR is expected to be phased out by the end of 2021.

Although all of our LIBOR-based borrowings offer prepayment without penalty, uncertainty as to the nature of alternative reference rates and as to

potential changes or other reforms to LIBOR may adversely impact the cost and availability of borrowings on which we have relied and intend to rely in the future.

Covenants in our senior secured term loan facility could limit how we conduct our business, which could affect our long-term growth potential.

We borrowed $450.0 million under a Credit and Guaranty Agreement (the “Term Loan”) in February 2019 and borrowed additional amounts in February 2020 to increase the principal balance to $545.5 million.

The Term Loan contains covenants limiting our ability to, among other things, make certain types of restricted payments, including paying dividends, incur debt or liens, merge or consolidate with others, dispose of assets, enter into certain transactions with affiliates, engage in certain business activities or make certain investments.

In addition, the Credit and Guaranty Agreement contains financial covenants, including requiring us, at the end of each calendar quarter, to maintain a maximum total leverage ratio of 5.00:1.00 and to maintain a minimum aggregate amount of liquidity of $300.0 million.

We have pledged our assets to secure the Term Loan with the exceptions of aircraft and aircraft engines, the Sunseeker Resort and certain other exceptions.

This will limit our ability to obtain debt secured by these pledged assets while the Term Loan is outstanding.

The Credit and Guaranty Agreement contains various events of default (including failure to comply with the covenants under the Credit and Guaranty Agreement), and upon an event of default the lenders may, subject to various cure rights, require the immediate payment of all amounts outstanding under the Term Loan.

Although all of our LIBOR-based borrowings offer prepayment without penalty, uncertainty as to the nature of alternative reference rates and as to potential changes or other reforms to LIBOR may adversely impact the cost and availability of borrowings on which we have relied and intend to rely in the future.

Covenants in our senior secured term loan and senior secured notes could limit how we conduct our business, which could affect our long-term growth potential.

As of December 31, 2020, the principal balances of our Term Loan and Senior Secured Notes totaled $691.4 million.

The loan agreements contain covenants limiting our ability to, among other things, make certain types of restricted payments, including paying dividends, incur debt or liens, merge or consolidate with others, dispose of assets, enter into certain transactions with affiliates, engage in certain business activities or make certain investments.

In addition, the loan agreements contain financial covenants, including requiring us, at the end of each calendar quarter, to maintain a maximum total leverage ratio of 5.00:1.00 and to maintain a minimum aggregate amount of liquidity of $300.0 million.

We have pledged our assets to secure the Term Loan and Senior Secured Notes with the exceptions of aircraft and aircraft engines, the Sunseeker Resort and certain other exceptions.

This will limit our ability to obtain debt secured by these pledged assets while these loans are outstanding.

These loan agreements contain various events of default (including failure to comply with the covenants under the loan agreements), and upon an event of default the lenders may, subject to various cure rights, require the immediate payment of all amounts outstanding under the these loans.

As a result of these restrictive covenants, we may be limited in how we conduct business, and we may be unable to raise additional debt or equity financing to operate during difficult times or to take advantage of new business opportunities.

5 unchanged sentences

To the extent we cannot secure such financing on acceptable terms or at all, we may be required to modify our

aircraft acquisition plans, incur higher than anticipated financing costs, or use more of our cash balances for

aircraft acquisitions than we currently expect.

aircraft acquisition plans, incur higher than anticipated financing costs, or use more of our cash balances for aircraft acquisitions than we currently expect.

Our maintenance costs may increase as our fleet ages.

2 unchanged sentences

These regulations can directly impact the frequency of inspections as an aircraft ages, and vary by aircraft or engine type, depending on the unique characteristics of each aircraft and/or engine.

Engine overhaul expenses for our Airbus A320 series aircraft are significantly higher than similar expenses for our MD-80 aircraft, which were all retired as of the end of November 2018.

Engine overhaul expenses for our Airbus A320 series aircraft are significantly higher than similar expenses for our prior MD-80 aircraft fleet.

These major maintenance expenses for the Airbus aircraft are capitalized and amortized as part of depreciation and amortization expense.

20 unchanged sentences

Risks Associated with the Airline and Travel Industry

The outbreak of the coronavirus and fears of its spread have impacted air traffic generally and our operating results could be affected by this or other outbreaks of communicable diseases.

The outbreak and spread of the coronavirus, which originated in or around Wuhan, China in January 2020, have impacted air traffic and stock prices of airlines have declined disproportionately.

Although we do not fly any scheduled service international routes at this time, consumer fears relating to this disease could impact our loads, operating results and stock price.

Generally speaking, contagious illness and fear of contagion could have a material adverse impact on the airline industry.

Our operating results could be affected by outbreaks of communicable diseases.

As has resulted from the COVID-19 pandemic, contagious illness and fear of contagion could have a material adverse impact on the airline industry.

Any general reduction in airline passenger traffic as a result of an outbreak of disease or other travel advisories could dampen demand for our services even if not applicable to our markets.

Resulting decreases in passenger volume would harm our load factors, could increase our cost per passenger and adversely affect our profitability.

Resulting decreases in passenger volume would harm our load factors, could increase our cost per passenger and adversely affect our operating results.

The airline industry is highly competitive and future competition in our under-served markets could harm our business.

1 unchanged sentence

The smaller cities we serve on a scheduled basis have traditionally attracted considerably less attention from our potential competitors than larger markets, and in most of our small city markets, we are the only provider of nonstop service to our leisure destinations.

In 2014, we began service to medium-sized cities which we believe to be under-served for nonstop service to our leisure destinations.

We have continued to expand service to medium-sized cities which we believe to be under-served for nonstop service to our leisure destinations.

If other airlines or new airline start-ups begin to provide nonstop services to and from these or similar markets, or otherwise target these or similar markets, the increase in the amount of direct or indirect competition could cause us to reconsider service to affected markets, could impact our margins or could impact our future planned service.

9 unchanged sentences

In the last several years, the FAA has issued a number of directives and other regulations relating to the maintenance and operation of aircraft that have required us to incur significant expenditures.

FAA requirements cover, among other things, retirement of older aircraft, fleet integration of newer aircraft, security measures, collision avoidance systems, airborne windshear avoidance systems, noise abatement, weight and payload limits, assumed average passenger weight, and increased inspection and maintenance procedures to be conducted on aging aircraft.

FAA requirements cover, among other things, retirement of older aircraft, fleet integration of newer aircraft, safety management systems, collision avoidance systems, airborne windshear avoidance systems, noise abatement, weight and payload limits, assumed average passenger weight, employee drug and alcohol testing, and increased inspection and maintenance procedures to be conducted on aging aircraft.

The future cost of complying with these and other laws, rules and regulations, including new federal legislative and DOT regulatory requirements in the consumer-protection area, cannot be predicted and could significantly increase our costs of doing business.

In recent years, the DOT has adopted revisions and expansions to a variety of its consumer protection regulations and policies.

Over the past 12 years the DOT has adopted revisions and expansions to a variety of its consumer protection regulations and policies.

Additional new regulations or policies may be proposed or take effect in 2021 or thereafter, whether on DOT's initiative or as directed by Congress.

7 unchanged sentences

From time to time legislative proposals have been made to re-regulate the airline industry in varying degrees - for example, to specify minimum seat-size and legroom requirements - which if adopted could affect our costs materially.

In the past, legislation to address climate change issues has been introduced in the U.S.

We anticipate that in 2021 and thereafter, legislative and regulatory concern with the environmental impacts of the air transportation industry will increase, and that the longer-term effects on our fleet and operating costs may be substantial.

Aviation accounts for approximately 2.6 percent of total U.S.

GHG emissions and approximately 9 percent of emissions by the U.S.

transportation sector as a whole.

In the past, legislation to address climate change issues as they relate to the transportation industry has been introduced in the U.S.

Congress, including a proposal to require transportation fuel producers and importers to acquire market-based allowances to offset the emissions resulting from combustion of their fuels.

We cannot predict whether this or any similar legislation will be introduced or pass the Congress or, if enacted into law, how it would apply to the airline industry.

In addition, the EPA concluded in 2016 that current and projected concentrations of greenhouse gases emitted by various aircraft, including all of the aircraft we and other carriers operate, threaten public health and welfare.

This finding is a precursor to EPA regulation of commercial aircraft emissions in the United States, as has taken effect for operations within the European Union under EU legislation.

Binding international measures adopted under the auspices of the International Civil Aviation Organization (“ICAO”), a specialized agency of the United Nations, are scheduled to become effective over the next several years.

In 2016, the EPA indicated the regulations it intends to propose will be no less stringent than the ICAO standards.

In its regulatory agenda issued in Fall 2019, the EPA expressed an intent to publish these proposed regulations in early 2020;

based on previous postponements, the agency may or may not meet that target.

Similarly, as recently as February 2021, legislation was introduced in the U.S.

Congress to incentivize the production of sustainable aviation fuel (also known as biofuel) and to assist the aviation industry in reducing GHG emissions.

If enacted as proposed, the legislation would establish a national goal for the U.S.

aviation sector to achieve a net 35 percent reduction in GHG emissions by 2035 and net zero emissions by 2050.

We cannot predict whether this or any similar legislation will pass the Congress or, if enacted into law, how it ultimately would apply to the airline industry.

In addition, the EPA concluded in 2016 that current and projected concentrations of GHG emitted by various aircraft, including all of the aircraft we and other carriers operate, threaten public health and welfare.

This finding may be a precursor to EPA regulation of commercial aircraft emissions in the United States, as has taken effect for operations within the European Union under EU legislation.

In January 2021 the EPA adopted regulations setting emissions standards equivalent to ICAO’s for newly-designed aircraft, with immediate effect, and for in-production aircraft, effective 2028.

The aircraft we currently operate are not affected by these standards, although as noted, we anticipate an ever-increasing legislative and regulatory focus on

aviation’s impacts on the environment.

These developments and any additional legislation or regulations addressing climate change are likely to increase our costs of doing business in the future and the increases could be material.

6 unchanged sentences

Flight crews have filed class action lawsuits against air carriers in a number of states with varied results and, in many cases, the results have been appealed.

We have been sued in California by a flight attendant seeking class action certification on claims involving these issues.

Such suits are costly to defend and could result in sizeable liability exposure for any air carrier.

5 unchanged sentences

A substantial proportion of our scheduled flights have Las Vegas, Orlando, Phoenix, Tampa/St.

Petersburg, Los Angeles, Punta Gorda, or Destin as either their destination or origin.

Petersburg, Los Angeles, Punta Gorda, Cincinnati, or Destin as either their destination or origin.

Our business could be harmed by any circumstances causing a reduction in demand for air transportation to one or more of these markets, or our other leisure destinations, such as adverse changes in local economic conditions, negative public perception of the particular city, significant price increases, or the impact of future terrorist attacks or natural disasters.

2 unchanged sentences

The market price of our common stock may fluctuate substantially due to a variety of factors, many of which are beyond our control, including:

– the impact of pandemics and other communicable diseases on air travel and any related government restrictions impacting air travel

– fuel price volatility, and the effect of economic and geopolitical factors and worldwide oil supply and consumption on fuel availability

13 unchanged sentences

These types of broad market fluctuations may adversely affect the trading price of our common stock.

In the past, stockholders have sometimes instituted securities class action litigation against companies following periods of volatility in the market price of their securities and we have been sued as a result of adverse publicity and stock price declines during 2018.

There is a proposed settlement of the securities class action litigation against us, but related derivative shareholder suits continue.

In the past, stockholders have sometimes instituted securities class action litigation against companies following periods of volatility in the market price of their securities.

Although we have insurance to cover these claims, these lawsuits or similar litigation could result in substantial costs, divert management’s attention and resources, and harm our business or results of operations.

6 unchanged sentences

We are also subject to provisions of Nevada law that prohibit us from engaging in any business combination with any “interested stockholder,” meaning generally that a stockholder who beneficially owns 10 percent or more of our stock cannot acquire us for a period of time after the date this person became an interested stockholder, unless various conditions are met, such as approval of the transaction by our board of directors and stockholders.

laws and the regulations of the DOT, U.S.

citizens must effectively control us.

As a result, our president and at least two-thirds of our board of directors must be U.S.

citizens and not more than 25 percent of our voting stock may be owned by non-U.S.

citizens (although subject to DOT approval, the percent of foreign economic ownership may be as high as 49 percent).

Any of these restrictions could have the effect of delaying or preventing a change in control.

laws and the regulations of the DOT, we must be under the actual control of U.S.

citizens at all times.

By law, our president/CEO and at least two-thirds of our board of directors and other managing officers must be U.S.

citizens and not more than 25 percent of our voting stock may be owned or controlled by non-U.S.

citizens (although consistent with DOT policy, our overall foreign economic ownership may be as high as 49 percent).

Any of these restrictions as well as DOT prior-approval requirements could have the effect of delaying or preventing a change in control.

Our corporate charter and bylaws include provisions limiting voting by non-U.S.

10 unchanged sentences

Unresolved Staff Comments

Not Applicable.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1A. Risk Factors