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Item 7. Management’s Discussion and Analysis

2024-02-29 compared with 2023-02-27 · 116 added, 184 removed, 189 unchanged (61% of the section changed)

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The following discussion and analysis presents factors that had a material effect on our results of operations during the years ended December 31, 2023 and 2022.

As comparisons of our 2022 results to 2021 reflect disproportionate changes due to the continued impact of the pandemic on air travel during 2021, we have also provided analysis of certain revenue and expense line items to 2019 results (the last year unaffected by the pandemic) where helpful to understand trends in our performance.

Unless otherwise expressly stated, for discussion and analysis of 2022 and a comparison of our 2022 results to 2021 results, please refer to our Annual Report on Form 10-K for the year ended December 31, 2022, under Part II Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations.

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2023 Highlights

– Our highest ever annual total operating revenue of $2.3 billion, up 25.0 percent as compared to 2019, on a total system capacity increase of 13.9 percent

– Full-year TRASM was 12.50 cents, up 10.8 percent as compared to 2019 on scheduled service capacity increases of 15.2 percent

– Our highest ever annual average ancillary air related revenue per passenger of $67.74

– We made great progress to strengthen our system and operations by:

– Adding more than 850 full-time equivalent employees

– Adding 13 Airbus A320 Series aircraft to our operating fleet

– Adding three new bases in Flint, Michigan, Appleton, Wisconsin and Provo, Utah, increasing the number of our bases to 24

• Total operating revenue was a company record of $2.5 billion, up 9.0 percent as compared to 2022, on a total system capacity increase of 1.9 percent.

• Full-year TRASM was 13.38 cents, a record annual TRASM, up 7.0 percent as compared to 2022 on scheduled service capacity increases of 1.7 percent.

• Average total fare was $142.15, up 5.6 percent compared to 2022, including total average ancillary revenue of $72.90, up 7.6 percent from 2022.

• Recorded highest fixed fee revenue in company history of $68.5 million.

• Extended the collective bargaining agreement for flight dispatchers through May 2026 and the collective bargaining agreement for maintenance technicians through October 2028.

• Opened Sunseeker Resort at Charlotte Harbor on December 15, 2023.

• Ranked number 3 amongst major US carriers in the Wall Street Journal's "The Best and Worst Airlines of 2023".

• Made great progress to strengthen our system and operations by:

◦ Adding more than 1,300 full-time equivalent employees, including approximately 1,000 newly hired Sunseeker Resort team members

◦ Investing in the systems implementations discussed in the Business section.

◦ Planning to induct our new Boeing aircraft

– Acquired over 150 thousand new Allegiant co-branded credit card holders during the year, with over 410 thousand active cardholders at year end

– Added over 2 million Allegiant Allways Rewards ® members during 2022, with more than 15 million total members at year end

– Allegiant co-branded credit card and Allegiant Allways Rewards ® were voted as the No.

1 Best Airline Credit Card and Best Frequent Flyer Program in USA Today's 10 Best 2022 Loyalty/Rewards Readers' Choice Awards.

Allegiant's co-branded credit card was named the best airline co-branded credit card for the fourth consecutive year

– Named to Newsweek's Top 100 Most Loved Workplaces® list for the second consecutive year

– Donated $100,000 to the American Red Cross for critical disaster relief to communities in the aftermath of Hurricane Ian

– Published the company's inaugural sustainability report

• Acquired over 140 thousand new Allegiant co-brand credit card holders during the year, with over 485 thousand active cardholders at year end.

• Received $119.6 million in total co-brand credit card remuneration from Bank of America, up 18 percent from 2022

• Added 2.1 million Allegiant Allways Rewards ® members during 2023, with more than 17 million total members at year end, a 13 percent increase over the year-end 2022 number.

• Allegiant co-brand credit card and Allegiant Allways Rewards ® were voted as the No.

1 Best Airline Credit Card and No.

2 Best Frequent Flyer Program in USA Today's 10 Best 2023 Loyalty/Rewards Readers' Choice Awards.

Allegiant's co-brand credit card was named the best airline co-brand credit card for the fifth consecutive year.

• Published the company's second annual ESG report, which includes five company-wide targets, including an emissions intensity reduction goal.

Operating Fleet

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Total 126 121 108

(1) Does not include five aircraft of which we have taken delivery as of December 31, 2022 and were not in service as of that date.

Of the five aircraft, one aircraft was acquired under forward purchase and four were acquired under finance leases.

(2) Includes twenty aircraft under finance lease and thirteen aircraft under operating lease as of December 31, 2022.

(3) Includes four aircraft under operating lease as of December 31, 2022.

As of December 31, 2022, we are party to forward purchase agreements for 54 aircraft with seven deliveries expected in 2023, 24 in 2024 and the remainder thereafter.

Three of the aircraft scheduled for delivery in 2023 are the initial aircraft under our Boeing contract, which are scheduled to be delivered in fourth quarter 2023.

(1) Does not include one aircraft of which we have taken delivery as of December 31, 2023 and which was not in service as of that date.

(2) Includes 23 aircraft under finance lease and 13 aircraft under operating lease as of December 31, 2023, 20 aircraft under finance lease and 13 aircraft under operating lease as of December 31, 2022, and 11 aircraft under finance lease and 11 aircraft under operating lease as of December 31, 2021.

(3) Includes four aircraft under operating lease as of December 31, 2023, December 31, 2022, and December 31, 2021.

As of December 31, 2023, we are party to forward purchase agreements for 51 aircraft with 13 deliveries expected in 2024, approximately 24 in 2025 and the remainder thereafter.

The timing of these deliveries is based on management's best estimates and differs from the contract in place.

Refer to Part I - Item 2.

Properties for further detail regarding our aircraft fleet.

We continuously consider aircraft acquisitions on an opportunistic basis.

We manage capacity and route expansion through optimization of our flight schedule to, among other things, better match demand in certain markets.

We continually adjust our network through the addition of new markets and routes, adjusting the frequencies into existing markets, and exiting under-performing markets, as we seek to achieve and maintain profitability on each route we serve.

As of February 1, 2023, and including recent service announcements, we were selling seats on 573 routes serving 125 cities in 42 states.

This includes our recent announcements through February 1, 2023.

As of February 1, 2024, and including service announcements through that date, we were selling seats on 555 routes serving 124 cities in 42 states.

The following table shows the number of leisure destinations and cities served as of the dates indicated (includes cities served seasonally):

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Total routes 544 572 595

The COVID-19 pandemic significantly impacted our operating results in 2021 and into 2022.

In particular, we suffered numerous cancellations due to the effect of the Omicron variant on flight crews in late 2021 and early 2022.

COVID-19 may continue to impact our operations into the future.

Although demand has recovered during 2022, we believe that demand in the foreseeable future could fluctuate in response to fluctuations in COVID-19 cases, variants of the virus, hospitalizations, deaths, treatment efficacy, the availability of vaccines, CDC recommendations, and government restrictions.

Strong Demand Momentum

As concerns over COVID-19 have declined, we have seen significant increases in load factors and average total fare per passenger beginning in March 2022 and continuing into 2023.

Total revenue per available seat mile ("TRASM") in the fourth quarter of 2022 was 14.03 cents, the highest quarterly TRASM in Company history, up 21.3 percent compared to fourth quarter 2019 despite a scheduled service capacity increase of 11.9 percent.

Full year TRASM was 12.50 cents, up 10.8 percent as compared to 2019 despite a scheduled service capacity increase of 15.2 percent.

While demand has normalized since the post-pandemic period, peak period demand remains at or near all-time highs.

Demand continues to compare favorably to 2019 as scheduled service load factors and total revenue per available seat mile ("TRASM") in 2023 were above 2019 and 2022 levels.

Aircraft Fuel

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We have not sought to use financial derivative products to hedge our exposure to fuel price volatility, nor do we have any plans to do so in the future.

The cost per gallon of fuel began to increase significantly in 2021 and the increases were exacerbated by the geopolitical impact of the war in Ukraine and increases in refinery costs added to our fuel cost.

As a result, the average fuel cost per gallon increased by 73.5 percent in 2022 over 2021 and 71.1 percent over 2019.

The cost per gallon of fuel began to increase significantly in 2021, and the increases were exacerbated by the geopolitical impact of the war in Ukraine.

Increases in refinery costs also added to our fuel cost.

Although the average fuel cost per gallon declined in 2023 when compared to 2022, the average fuel cost per gallon in 2023 remained 43.7 percent higher than in 2021.

We expect high fuel costs will continue to impact our total costs and operating results.

Boeing Agreement

In December 2021, we signed an agreement with The Boeing Company to purchase 50 newly manufactured 737MAX aircraft scheduled to be delivered in 2023 to 2025 with options to purchase an additional 50 737MAX aircraft.

We believe this new aircraft purchase is complimentary with our low cost strategy based on our intent to retain ownership of the aircraft, the longer useful life for depreciation purposes, expected fuel savings and operational reliability from the use of these new aircraft.

Staffing challenges continue to impact our operations and costs and we have pulled back some of our planned growth for 2023 as a result.

We believe these issues are not unique to Allegiant nor do we believe they are systemic.

Our irregular operations costs are also impacted by our unique approach to compensate passengers for their inconvenience in addition to the ticket price, not generally done in the airline industry.

We are investing incrementally in our employee hiring and retention and our operations in an attempt to improve performance and this may put pressure on unit costs in the near term.

However, if these problems persist, we may suffer reputational damage and incur higher costs for irregular operations.

Since December 2021, we have signed an agreement and multiple amendments with The Boeing Company to purchase 50 newly manufactured 737 MAX aircraft with options to purchase an additional 80 737MAX aircraft.

We believe this new aircraft purchase is complementary with our low cost strategy based on our intent to retain ownership of the aircraft, the longer useful life for depreciation purposes, expected fuel savings and operational reliability from the use of these new aircraft.

In the interest of increased quality control at Boeing and its suppliers, the FAA has indicated that aircraft production rates will be capped until they are fully satisfied with Boeing's quality practices.

These factors could delay deliveries to us.

Union Negotiations

The collective bargaining agreement with our pilots is currently amendable and the parties have jointly requested the involvement of the National Mediation Board ("NMB") to assist with the negotiations.

The mediation process with the NMB has begun.

We are also in the process of negotiating a new contract with the union representing our flight attendants.

The mediation process with the NMB began in early 2023 and is continuing.

Separately from the ongoing collective bargaining agreement negotiations, and in an attempt to begin to address pilot pay issues, effective in May 2023, we are recognizing a retention bonus for pilots who continue employment with us until a new labor agreement is approved.

The amount being accrued is 35 percent of current pay for a minimum of 85 pay credit hours per month except for first year first officers for whom the percentage is 82 percent.

We are also in the process of negotiating a new contract with the union representing our flight attendants after a tentative agreement negotiated with the union was rejected by the work group.

The terms of any new collective bargaining agreement will increase our costs over the term of the contract.

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The supply of pilots necessary for airline industry growth may be a limiting factor.

The pandemic resulted in more than 3,000 early pilot retirements across U.S.

mainline and cargo carriers and the pipeline for new pilots does not appear at the present time to be sufficiently robust to replace retired pilots and to allow for projected industry growth.

The ability to hire and retain pilots will be critical to our and the industry’s growth.

Engagement of Schneider Electric as ESG Consultant

We have entered into a three-year partnership with Schneider Electric to help us develop an Environmental, Social and Governance (ESG) program including:

– Identifying and prioritizing relevant ESG topics through a materiality assessment.

These topics were addressed in our inaugural ESG report.

– Establishing ESG goals and environmental goal achievement plans.

– Developing an inaugural ESG report referencing the Global Reporting Initiative (GRI) and Sustainability Accounting Standards Board (SASB) frameworks, which was issued in December 2022.

– Providing ongoing carbon emissions reporting of Scope 1, 2 and 3 greenhouse gas (GHG) emissions, the initial report having been included in our inaugural ESG report.

– Supporting the communications efforts around our ESG program.

Network Expansion

We have identified more than 1,400 incremental routes as opportunities for future network growth, with approximately 77 percent of these additional routes having no current nonstop service.

Our ability to add significant numbers of new routes has been temporarily stymied by flight crew staffing, high fuel costs, economic conditions and other factors.

Once these conditions allow, we should be able to achieve meaningful growth with greater utilization of our fleet (and, in particular, during peak demand periods), and with projected growth of the fleet.

Establishment of ESG Goals

In our 2022 sustainability report, we established ESG goals in the areas of environmental, social and governance.

We will be reporting annually on our progress toward meeting those goals.

VivaAerobus Alliance

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We and VivaAerobus have submitted a joint application to the DOT requesting approval of and antitrust immunity for the alliance.

VivaAerobus has received approval for the alliance from the Mexican Federal Economic Competition Commission.

We and VivaAerobus currently expect to offer new routes under the alliance beginning in the first half of in 2023, pending U.S.

governmental approval of the applications and the return of Mexico to Category 1 under the FAA's IASA program.

Although the DOT process has progressed substantially, their review of our application is currently suspended pending the outcome of diplomatic

engagement on broader treaty issues and, as a result, the timing of commencement of this service is uncertain as it will depend on when or if the DOT will ultimately approve the grant of antitrust immunity.

Sunseeker Resort

Near the end of September 2022, Hurricane Ian cut a destructive path through Florida and Charlotte County, in particular.

Sunseeker Resort suffered damage from the Hurricane, to a large extent attributable to subcontractor cranes which fell onto the buildings.

We maintain robust insurance coverage against damage from hurricanes and business interruption insurance and are pursuing claims to recover losses.

The Resort was previously selling rooms for as early as May 2023.

With delays caused by damage from the Hurricane, the Resort has now pushed back the selling date to October 2023.

We have yet to announce an opening date, but we expect to make that announcement in second quarter 2023.

Sunseeker Resort at Charlotte Harbor opened in December 2023.

Its success will depend on our ability to attract sufficient hotel occupancy through groups and transient bookings at acceptable daily rates and to profitably operate our food and beverage options.

Our Operating Expenses

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Aircraft fuel expense includes the cost of aircraft fuel, fuel taxes, into plane fees and airport fuel flowage, storage or through-put fees.

Salaries and benefits expense includes wages, salaries, and employee bonuses, sales commissions for in-flight personnel, as well as expenses associated with employee benefit plans, stock compensation expense related to equity grants, and employer payroll taxes.

Salaries and benefits expense includes wages, salaries, and employee bonuses, sales commissions for in-flight personnel and Sunseeker Resort personnel, as well as expenses associated with employee benefit plans, stock compensation expense related to equity grants, and employer payroll taxes.

The CARES Act employee retention tax credit was recorded as an offset to salaries and benefits expense in both 2021 and 2022.

Station operations expense includes the fees charged by airports for the use or lease of airport facilities and fees charged by third party vendors for ground handling services, commissary expenses, irregular operations, and other related services.

Depreciation and amortization expense includes the depreciation of all owned fixed assets and assets recorded in connection with a finance lease, including aircraft and engines.

Also included is the amortization of major maintenance expenses on our Airbus A320 series aircraft and engines, which are capitalized under the deferral method of accounting and amortized as a component of depreciation and amortization expense over the estimated period until the next scheduled major maintenance event.

Station operations expense also includes most of our irregular operations costs.

Depreciation and amortization expense includes the depreciation of all owned fixed assets, including aircraft and engines, Sunseeker Resort assets, and assets recorded in connection with finance leases.

Also included is the amortization of major maintenance expenses on our aircraft and engines, which are capitalized under the deferral method of accounting and amortized as a component of depreciation and amortization expense over the estimated period until the next scheduled major maintenance event.

Maintenance and repairs expense includes all parts, materials and spares required to maintain our aircraft.

Also included are fees for repairs performed by third party vendors.

Sales and marketing expense includes all advertising, promotional expenses, sponsorships, travel agent commissions and debit and credit card processing fees associated with the sale of scheduled service and air-related ancillary charges.

Aircraft lease rentals expense consists of the cost of leasing aircraft under operating leases with third parties as well as the cost for sub-service which may be contracted out in conjunction with operational disruptions.

Other expense includes travel and training expenses for crews and ground personnel, facility lease expenses, professional fees, personal property taxes, information technology consulting, non-salary expenses for non-airline initiatives (including, Sunseeker Resort, and the now discontinued Allegiant Nonstop family entertainment centers and Teesnap), the cost of passenger liability insurance, aircraft hull insurance and all other insurance policies excluding employee welfare insurance.

Additionally, this

expense includes loss on disposals of aircraft and other equipment disposals, and all other administrative and operational overhead expenses not included in other line items above.

Payroll Support Programs grant recognition includes the portion of government payroll support that represents a direct grant and was recognized as a credit to operating expense on the statements of income for 2021 and 2020.

Special charges include charges taken in 2021 for accelerated retirements of two airframes and three engines and an impairment loss on a building associated with the Allegiant Nonstop family entertainment line of business.

The special charges in 2022 relate to the estimated loss incurred from the impact of Hurricane Ian and subsequent insured losses.

The amount of the loss will be offset by amounts to be recovered under our insurance policies, including $ 18.1 million of insurance recoveries recognized in fourth quarter 2022.

Sales and marketing expense includes all advertising, promotional expenses, sponsorships, travel agent commissions, debit and credit card processing fees associated with the sale of scheduled service and air-related ancillary charges, costs related to advertising and marketing for the Sunseeker Resort, and credit card processing fees for Resort bookings.

Aircraft lease rentals expense consists of the cost of leasing aircraft under operating leases with third parties as well as the cost for sub-service which may be utilized in order to accommodate passengers in the event of operational disruption.

Other expense includes travel and training expenses for crews and ground personnel, facility lease expenses, professional fees, personal property taxes, information technology consulting, other expenses for non-airline initiatives (including Sunseeker Resort, and the now discontinued Allegiant Nonstop family entertainment centers and Teesnap), the cost of passenger liability insurance, aircraft hull insurance and all other insurance policies, excluding employee welfare insurance.

Additionally, this expense includes gain and loss on disposals of aircraft and other equipment disposals, and all other administrative and operational overhead expenses not included in other line items above.

Special charges include charges taken in 2023 for accelerated retirements of 21 airframes for early retirement to coincide with planned 737 MAX aircraft deliveries.

Other special charges in 2023 and the special charges in 2022 relate to the estimated loss incurred by Sunseeker from the impact of Hurricane Ian and Hurricane Idalia and subsequent insured losses.

The amounts of the Sunseeker special charges are offset by amounts recovered under our insurance policies.

RESULTS OF OPERATIONS

2023 compared to 2022

As comparisons of our 2022 results to periods during 2021 reflect disproportionate changes due to the continued impact of the pandemic on air travel during 2021, we have also provided analysis of certain revenue and expense line items to 2019 results where helpful to understand trends in our performance.

Operating Revenue

Passenger revenue.

Passenger revenue increased 35.4 percent in 2022 compared with 2021 as scheduled service passengers were up 23.1 percent due to stronger passenger demand in general and when compared to lower passenger demand related to COVID-19 in 2021.

In addition, stronger passenger demand resulted in a 14.3 percent increase in scheduled service average base fare.

As compared to 2019, passenger revenue increased by 27.0 percent, as scheduled service passengers increased by 12.2 percent on a 15.2 percent increase in capacity.

These factors, coupled with a 3.6 percent increase in average stage length, resulted in a 1.1 percentage point increase in load factor.

Average total fare per scheduled service passenger increased by 13.8 percent over 2019 primarily driven by an 18.7 percent increase in ancillary air related revenue per passenger and a 28.6 percent increase in ancillary third party revenue per passenger.

The increase in ancillary air related revenue per passenger over the same period in 2019 was primarily driven by increased revenue from the sale of bundled products as bundled products were not offered in 2019.

Passenger revenue increased 8.7 percent in 2023 compared with 2022 as scheduled service passengers increased by 3.1 percent on a 1.7 percent increase in departures.

In addition, stronger passenger demand resulted in a 3.5 percent increase in scheduled service base fares in 2023 compared to 2022.

Ancillary air-related revenues also increased by 10.9 percent in 2023 over 2022.

Third party products revenue.

Third party products revenue for 2022 increased 16.7 percent over 2021 and 44.2 percent when compared to 2019.

The increase from 2021 was primarily the result of greater travel demand for rental cars and hotels and increased Allways ® Rewards Program revenues.

Increased rental car and hotel rates combined with a 6.4 percent increase in rental car days sold and an 8.3 percent increase in room nights sold contributed to the substantial increase over 2021.

The increase from 2019 is attributable to increased rental car and hotel room rates (which more than offset the impact of fewer rental car days and hotel room nights) and substantial growth in our Allways ® Rewards Program revenues.

Third party products revenue for 2023 increased 11.5 percent over 2022.

The increase was primarily the result of an increase in marketing revenue from our co-brand credit card program, offset by a 4.8 percent decrease in rental car days sold and an 11.6 percent decrease in hotel room nights sold.

Fixed fee contract revenue.

Fixed fee contract revenue for 2022 increased 48.0 percent compared with 2021 as a result of a 10.8 percent increase in fixed fee departures largely due to lower charter activity during the continuance of the pandemic in 2021.

In addition, fuel per gallon pass throughs (which are accounted for as fixed fee contract revenue) increased 73.5 percent as compared to the same period in 2021.

Fixed fee contract revenue for 2022 as compared to 2019 decreased by 6.3 percent as a result of a 17.6 percent decrease in fixed fee revenue departures as we devoted more or our resources to scheduled service.

This was partially offset by an increase in fuel pass throughs treated as revenue.

Fixed fee contract revenue for 2023 increased 12.5 percent compared with 2022 as a result of a 19.8 percent increase in fixed fee departures.

Operating Expenses

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Both the cost and availability of fuel are subject to many economic and political factors beyond our control.

Excluding Sunseeker operating costs allows management and investors to better compare our airline unit costs with those of other airlines.

Excluding special charges and Sunseeker operating costs allows management and investors to better compare our airline unit costs with those of other airlines.

Year Ended December 31, Percent Change

Unitized costs (in cents) 2022 2021 2019 YoY Yo3Y

Unitized costs (in cents) 2023 2022 YoY

Aircraft fuel 3.71 ¢ 4.42 ¢ (16.1) %

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Sales and marketing 0.61 0.55 10.9

Aircraft lease rentals 0.13 0.12 — 8.3 NM

Aircraft lease rentals 0.13 0.13 —

Other 0.71 0.61 16.4

Payroll Support Programs grant recognition — (1.16) — NM NM

Special charges 0.19 0.08 — NM NM

Special charges, net of insurance recoveries 0.15 0.19 (21.1)

CASM 12.19 ¢ 12.00 ¢ 1.6

Operating CASM, excluding fuel 8.49 ¢ 7.58 ¢ 12.0

Sunseeker Resort CASM 0.25 0.05 0.05 NM NM

Airline special charges CASM 0.19 — NM

Sunseeker Resort CASM 0.18 0.25 (28.0)

Airline operating CASM, excluding fuel and Sunseeker Resort activity 8.12 ¢ 7.33 ¢ 10.8

NM Not meaningful

Our CASM performance was significantly impacted by lower utilization of our aircraft in 2022 as block hours per aircraft declined by 4.3 percent compared to 2021 and by 16.3 percent compared to 2019.

Aircraft fuel expense.

Aircraft fuel expense increased $374.6 million, or 85.1 percent, in 2022 compared to 2021.

This was primarily driven by a 73.5 percent increase in average fuel cost per gallon and increased refinery costs added to our cost of fuel (crack spread).

When compared to the same period in 2019, aircraft fuel expense increased by 90.5 percent as average fuel cost per gallon increased 71.1 percent, crack spreads increased and fuel gallons consumed increased 11.3 percent on a 13.9 percent increase in capacity.

Aircraft fuel expense decreased $118.9 million, or 14.6 percent, in 2023 compared to 2022.

This was primarily driven by a 17.2 percent decrease in average fuel cost per gallon offset by a 2.9 percent increase in gallons consumed on a 1.9 percent increase in ASMs.

Salaries and benefits expense.

Salaries and benefits expense increased $135.4 million, or 24.5 percent, in 2023 compared to 2022.

On a per ASM basis, salaries and benefits expense increased by 8.3 percent.

The increase is largely due to a 19.2 percent year-over-year increase in the number of full-time equivalent employees, offset by the employee retention tax credit recognized in 2022.

Salaries and benefits expense increased by $102.0 million or 22.6 percent as compared to 2019.

The increase is driven by a 21.8 percent increase in the number of full time equivalent employees, offset by the employee retention tax credit recognized in 2022.

On a per ASM basis, salaries and benefits expense increased 7.9 percent.

The cost increases primarily relate to increases in crew pay and increased salaries and benefits costs associated with irregular operations.

The increase is largely due to pilot retention bonuses that we began to accrue in May 2023 and other increases in crew pay, a 6.4 percent year-over-year increase in the number of full-time equivalent airline employees, and Sunseeker pre-opening expenses attributable to the hiring of more than 1,000 team members for its opening in December 2023.

Station operations expense.

Station operations expense during 2022 increased $11.8 million or 4.9 percent over 2021 due to a 0.9 percent increase in departures, increased costs associated with irregular operations, and increased airport and landing fees.

As compared to 2019, station operations expense increased by $83.7 million or 48.9 percent due to a 6.8 percent increase in departures, increased costs associated with irregular operations and airport fees.

Irregular operations costs in 2022 were significantly attributable to employee absences due to the Omicron COVID variant in January and February.

These absences resulted in numerous flight cancellations.

In addition, there were higher than usual cancellations during the year as a result of staffing challenges and other factors.

The amount of irregular operations costs is significantly impacted by our decision to compensate impacted passengers for their inconvenience in addition to the ticket price.

Station operations expense during 2023 increased $1.4 million or 0.5 percent over 2022 due to increased costs associated with airport and landing fees and a 2.1 percent increase in departures, which were offset by a decrease in costs associated with irregular operations.

Depreciation and amortization expense.

Depreciation and amortization expense during 2022 increased $16.5 million or 9.1 percent including a $1.7 million increase in amortization of deferred heavy maintenance as compared to 2021 as there was an increase of 8.2 percent in the average number of aircraft owned and in service.

When compared to 2019, depreciation and amortization expense increased 26.7 percent including a 66.1 percent increase in amortization of deferred heavy maintenance as the average number of aircraft owned and in service during the period increased 19.7 percent.

Depreciation and amortization expense during 2023 increased $25.6 million or 13.0 percent including an $11.7 million increase in amortization of deferred heavy maintenance as compared to 2022 and an increase of 3.8 percent in the average number of aircraft owned and in service.

Capitalized software development costs related to the

implementations of SAP and Navitaire and the opening of Sunseeker Resort also contributed to higher depreciation and amortization expense as these assets were placed in service during the year.

Maintenance and repairs expense.

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This was primarily due to a 9.6 percent increase in the average number of aircraft in service.

As compared to 2019, maintenance and repairs expense increased by $26.1 million or 28.5 percent as the number of aircraft in service increased by 33.4 percent, offset by the effect of a 16.3 percent decrease in utilization compared to 2019.

Sales and marketing expense.

Sales and marketing expense during 2022 increased 38.4 percent compared to 2021, due to an increase in net credit card fees in 2022 as a result of a 35.4 percent increase in passenger revenue year-over-year.

As compared to 2019, sales and marketing expense increased by 27.6 percent due to an increase in net credit card fees in 2022 as a result of a 27.0 percent increase in passenger revenue compared to 2019.

Sales and marketing expense during 2023 increased 13.8 percent compared to 2022, primarily due to an increase in net credit card fees in 2023 as a result of an 8.7 percent increase in passenger revenue year-over-year, and due to a one-time fee to transition, and an associated relaunch campaign for our co-brand credit card.

In addition, Sunseeker advertising in connection with the Resort opening in December 2023 contributed to the increase.

Other operating expense.

Other expense increased by $29.6 million or 35.3 percent year-over-year, due to increased service, incremental increases in our employee training activity and offset by decreased activity in our non-airline subsidiaries due to the sale of Teesnap in the second quarter of 2021.

Payroll Support Programs grant recognition.

During 2021, we received $203.9 million in funds through the payroll support programs and recognized $202.2 million as an offset to operating expense on our income statement for year ended December 31, 2021.

The funds were fully utilized in 2021.

There were no such funds received in 2022.

Other expense increased by $20.0 million or 17.6 percent year-over-year, due in part to incremental increases in outsourced labor and software support associated with ongoing IT initiatives and flight crew training needed to support the onboarding of the Boeing fleet.

Other expense also includes preopening expenses of $14.8 million related to Sunseeker Resort.

Special charges.

Special charges of $28.6 million were recorded within operating expenses during 2023 compared to $34.6 million in 2022.

The special charges in 2022 include estimated loss from property damage to Sunseeker Resort related to Hurricane Ian and two subsequent insurance events that occurred during the fourth quarter, offset by insurance recoveries recorded to date.

The amount of the losses will continue to be offset in future periods by amounts to be recovered under the company's insurance policies.

The special charges in 2021 relate to expenses that were unique and specific to COVID-19 including accelerated retirements of two airframes and three engines, acceleration of certain existing stock awards and an impairment loss on a building associated with the Allegiant Nonstop family entertainment line of business.

The special charges in 2022 include estimated loss from property damage to Sunseeker Resort related to Hurricane Ian and two subsequent insurance events in 2022, offset by amounts recovered under the company's insurance policies.

The special charges in 2023 are attributable to accelerated depreciation from the planned early retirement of 21 airframes per our revised fleet plan, which was offset by $6.4 million of net insurance recoveries (that is, insurance recoveries in excess of new losses related to the 2023 Hurricane Idalia and revised damages on Hurricane Ian and its related insurance events) on Sunseeker damages in 2023.

Income tax expense .

We recorded a $41.5 million tax expense compared to a $2.5 million tax expense during 2023 and 2022 respectively.

The effective tax rate for 2022 differed from the statutory federal income tax rate of 21.0 percent primarily due to state income taxes.

The effective tax rate for 2021 differed from the statutory federal income tax rate of 21.0 percent primarily due to state income taxes and the impact of ASU 2016-09 related to share-based payments.

The effective tax rates for 2023 and 2022 differed from the statutory federal income tax rate of 21.0 percent primarily due to state income taxes and the impact of ASU 2016-09 related to share-based payments.

2022 compared to 2021

The comparison of our 2022 results to 2021 results is included in our Annual Report on Form 10-K for the year ended December 31, 2022, under Part II Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations.

For the Year Ended December 31, Percent Change (5)

Operating statistics (unaudited):

2022 2021 2020 2019 YoY Yo2Y Yo3Y

For the Year Ended December 31,

Airline operating statistics (unaudited):

2023 2022 2021 2020 2019

Total system statistics:

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Available seat miles (ASMs) (thousands) 18,772,110 18,419,045 17,490,571 13,125,533 16,174,240

Operating expense per ASM (CASM) (cents) (1)

Airline operating expense per ASM (CASM) (cents)

12.02 ¢ 11.75 ¢ 8.21 ¢ 8.56 ¢ 9.08 ¢

Fuel expense per ASM (cents) 3.71 ¢ 4.42 ¢ 2.52 ¢ 1.69 ¢ 2.65 ¢

Operating CASM, excluding fuel (cents) (1)

7.58 ¢ 5.74 ¢ 7.99 ¢ 6.48 ¢ 32.1 (5.1) 17.0

Sunseeker Resort CASM (cents) (2)

Airline operating CASM, excluding fuel (cents)

8.31 ¢ 7.33 ¢ 5.69 ¢ 6.87 ¢ 6.43 ¢

Airline operating CASM, excluding fuel and Sunseeker Resort activity (cents) 7.33 ¢ 5.69 ¢ 6.87 ¢ 6.43 ¢ 28.8 6.7 14.0

Departures 120,525 118,069 117,047 87,955 110,542

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Average fuel cost per gallon $ 3.09 $ 3.72 $ 2.13 $ 1.48 $ 2.18

Percent of sales through website during period 95.8 % 96.0 % 94.7 % 93.1 % 93.3 %

Rental car days sold 1,377,710 1,447,708 1,361,123 1,132,173 1,921,930

Hotel room nights sold 249,933 282,854 261,158 199,059 415,593

Percent of sales through website during period 96.0 % 94.7 % 93.1 % 93.3 % 1.3 2.9 2.7

(1) Includes effect of special items in 2020, 2021 and 2022.

(2) Various components of this measure do not have a direct correlation to ASMs.

These figures are provided on a per ASM basis so as to facilitate comparisons with airlines reporting costs and revenues on a per ASM basis.

(1) Defined as scheduled service revenue divided by revenue passenger miles

(2) Various components of this measure do not have a direct correlation to ASMs.

These figures are provided on a per ASM basis so as to facilitate comparisons with airlines reporting revenues on a per ASM basis.

(3) Reflects division of passenger revenue between scheduled service and air-related charges in our booking path.

(5) Except load factor and percent of sales through website, which is percentage point change.

The following terms used in this section and elsewhere in this annual report have the meanings indicated below:

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“ Load factor ” represents the percentage of aircraft seating capacity utilized (revenue passenger miles divided by available seat miles).

“ Operating expense per ASM ” or “ CASM ” represents operating expenses divided by total system available seat miles.

“ Operating CASM, excluding fuel ” represents operating expenses, less aircraft fuel expense, divided by total system available seat miles.

This statistic provides management and investors the ability to measure and monitor our cost performance absent fuel price volatility.

“Airline o perating expense per ASM ” or “ CASM ” represents airline only operating expenses excluding Sunseeker divided by total system available seat miles.

“Airline o perating CASM, excluding fuel ” represents airline only operating expenses excluding Sunseeker, less aircraft fuel expense, divided by total system available seat miles.

This statistic provides management and investors the ability to measure and monitor our airline cost performance absent fuel price volatility.

Both the cost and availability of fuel are subject to many economic and political factors and therefore are beyond our control.

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Current liquidity

Cash, cash equivalents and investment securities (short-term and long-term) decreased to $1.02 billion at December 31, 2022, from $1.19 billion at December 31, 2021.

Cash, cash equivalents and investment securities (short-term and long-term) decreased to $870.7 million at December 31, 2023, from $1,018.4 million at December 31, 2022.

Investment securities represent highly liquid marketable securities which are available-for-sale.

As of February 1, 2023, we have $275.0 million of undrawn capacity under revolving credit facilities plus another $169.7 million of undrawn capacity under our PDP financing facility.

As of February 1, 2024, we have $275.0 million of undrawn capacity under revolving credit facilities plus another $25.1 million of undrawn capacity under a PDP financing facility and $215.7 million under a prearranged aircraft financing facility.

Restricted cash represents escrowed funds under fixed fee contracts, escrowed project funds and cash collateral against letters of credit required by hotel properties for guaranteed room availability, airports and certain other parties.

Under our fixed fee flying contracts, we require our customers to prepay for flights to be provided by us.

The prepayments are escrowed until the flight is completed and are recorded as restricted cash with a corresponding amount reflected as air traffic liability.

The prepayments are escrowed and are recorded as restricted cash with a corresponding amount reflected as air traffic liability until the flight is completed.

We suspended share repurchases and our quarterly cash dividend in first quarter 2020, as part of cash conservation efforts in response to the effects of COVID-19 on our business.

In connection with our receipt of financial support under the payroll support programs, we agreed not to repurchase shares or pay cash dividends through September 30, 2022.

We resumed our share repurchases in fourth quarter 2022 as we purchased 378,952 shares at an average price of $78.92 per share for total repurchases of $29.9 million.

In January 2023, our board increased our stock repurchase authority back to $100.0 million.

We resumed our share repurchases in fourth quarter 2022 and have $75.7 million of unused authority at December 31, 2023.

We reinstituted a regular cash dividend in third quarter 2023 at an annual rate of $2.40 per share, payable quarterly.

We believe we have more than adequate liquidity resources through our cash, cash equivalent and short term investment balances, our undrawn capacity under existing credit facilities, operating cash flows and anticipated access to liquidity, to meet our current contractual obligations and remain in compliance with the debt covenants in our existing financing agreements for the next 12 months.

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Our debt and finance lease obligations balance, without reduction for related issuance costs, increased from $2.12 billion as of December 31, 2022 to $2.28 billion as of December 31, 2023.

During 2022, we borrowed $1.06 billion including debt of $550.0 million to refinance our term loan due 2024, $175 million under our construction loan, and $192 million in aircraft finance leases.

During this period we made principal payments of $701.6 million, including a $531.7 million prepayment of our term loan due 2024 and $24.7 million prepayment of our payroll support program loans.

During 2023, we borrowed $642.6 million including $352.1 million of fixed rate debt and $290.5 million related to pre-delivery deposits.

During 2023, we made principal payments of $480.9 million, including a $150.0 million voluntary prepayment of our senior secured note maturing in 2024 and $171.5 million voluntary prepayment of debt secured by aircraft, of which $60.0 million was due in 2024.

We also entered into a revolving credit facility in 2023 to borrow up to $100.0 million, which remains undrawn.

Including this revolving credit facility, we had $275.0 million undrawn and available under our revolving credit facilities as of December 31, 2023.

Sources and Uses of Cash

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During 2023, our operating activities provided $423.1 million of cash compared to $303.1 million during 2022.

This change was mostly attributable to a $149.4 million decrease in net income and a $181.5 million decrease in tax receivable and deferred tax activity offset by a $72.1 million increase in our air traffic liability in 2022 compared to a small decrease in the prior year.

This change was primarily attributable to a $115.1 million increase in net income compared to 2022 with offsets for changes in individual current asset and liability items.

Investing Activities.

Cash used for investing activities was $721.9 million during 2023 compared to $491.4 million in 2022.

During 2022, there was a $275.7 million increase in purchases of property and equipment, including $84.6 million related to aircraft pre-delivery deposits.

This increase was more than offset by a $327.6 million increase in proceeds from maturities, net of purchases, of investment securities during 2022.

Proceeds from maturities exceeded purchases of investment securities in 2022, but not in 2021.

During 2023, there was a $339.3 million increase in purchases of property and equipment, which includes a $245.6 million increase related to aircraft pre-delivery deposits.

This increase was offset by a $51.9 million increase in proceeds from maturities of investment securities, net of purchases, and a $30.3 million increase in insurance proceeds from damages at the Sunseeker Resort.

Financing Activities.

Cash provided by financing activities for 2023 was $212.9 million, compared to $33.1 million in 2022.

The change resulted from $335.1 million of proceeds from the issuance on common stock in 2021 offset by an increase in proceeds from debt issuance in excess of principal payments and debt issuance costs of $175.5 million compared to 2021 as debt proceeds exceeded principal payments and debt issuance costs in 2022 but not in 2021.

The repurchase of $29.9 million of stock in 2022 also contributed to a lower amount of cash provided by financing activities in 2022.

The $84.7 million in other financing activities is mostly attributable to $62.8 million of net deposit activity in the construction deposit account for Sunseeker Resort and as such, is a partial offset to $175.0 million of proceeds from the issuance of debt obligations for Sunseeker Resort during 2022.

The change was the result of a $220.8 million decrease in principal payments on long term debt and finance lease obligations and $102.3 million of cash disbursed to us from funds held in a construction loan deposit trust account during 2023, compared to $92.7 million of funds deposited into the construction deposit trust account (which are considered to be both cash proceeds from the issuance of debt and cash outflows to the deposit trust account) in 2022.

The funds in the construction deposit trust account consisted of proceeds of the Sunseeker construction loan and insurance recoveries and were disbursed to us on approval of construction expenses submitted to the trustee.

The increase in cash provided by these factors in 2023 was offset by a $213.9 million decrease in proceeds from the issuance of debt and finance lease obligations, net of issuance costs, and $22.1 million used to pay cash dividends in 2023, compared to none in the prior year.

OFF-BALANCE SHEET ARRANGEMENTS, COMMITMENTS AND CONTRACTUAL OBLIGATIONS

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(1) Long-term debt obligations (including variable interest entities) include scheduled interest payments, using applicable reference rates as of December 31, 2023, and excludes debt issuance costs.

(2) Includes aircraft and engine acquisition obligations under existing purchase agreements, which are not reflected on our balance sheet.

(2) Includes aircraft and engine acquisition obligations under existing purchase agreements.

These amounts are not reflected on our balance sheet.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

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We believe our critical accounting policies are limited to those described below.

Affinity Credit Card Program

The Allegiant co-branded credit card is issued by Bank of America through which arrangement points are sold and consideration is received under an agreement which expires in 2029.

Allways Rewards ® Credit Card Program

Under the Allegiant co-brand credit card arrangement, points are sold and consideration is received under an agreement which expires in 2031.

Under this arrangement, we identified the following deliverables:

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We applied a level of management judgment and estimation in determining the best estimate of selling price for each deliverable by considering multiple inputs and methods including, but not limited to, the redemption value of points awarded, discounted cash flows, brand value, volume discounts, published selling prices, number of points to be awarded and number of points expected to be redeemed.

Revenue from the travel component is deferred based on its relative selling price and is recognized into scheduled service revenue when the points are redeemed by cardholders and transportation is provided.

Revenue from the travel component is deferred based on its relative selling price and is recognized into revenue when the points are redeemed by cardholders and the related service is provided.

Revenue from the marketing component is considered earned in the period in which points are sold and is therefore recognized into third party products revenue in the same period.

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Subsequent revisions to these estimates could be caused by changing market prices of our aircraft, changes in utilization of the aircraft, and other fleet events.

To the extent a change in estimate for useful lives or salvage values of our property and equipment occurs, there could be an acceleration of depreciation expense associated with the change in estimate.

See Note 3 to the Consolidated Financial Statements for further detail.

Aircraft Maintenance and Repair Costs and Major Maintenance Deferral

We account for major maintenance costs of Airbus airframes and the related CFM engines using the deferral method.

Under this method, the cost of major maintenance events is capitalized and amortized as a component of depreciation and amortization expense over the estimated period until the next scheduled major maintenance event.

The timing of the next major maintenance event is estimated based on assumptions including estimated cycles, hours and months, required maintenance intervals, and the age/condition of related parts.

These assumptions may change based on forecasted aircraft utilization changes, updates to government regulations and manufacturer maintenance intervals, as well as unplanned incidents causing damage requiring a major maintenance event prior to a scheduled visit.

If the estimated timing of the next maintenance event changes, the related amortization period would also change.

Passenger Revenue

Sales of passenger tickets not yet flown are recorded in air traffic liability.

Passenger revenue is recognized when transportation is provided.

The air traffic liability primarily includes sales of passenger tickets with scheduled departure dates in the future as well as credit vouchers which can be applied as payment toward the cost of a ticket.

Credit vouchers are typically issued as a result of canceled travel prior to the contractual expiration date.

During 2020, we suspended change and cancellation fees.

In 2020, we announced that credit vouchers issued as a result of canceled travel beginning in January 2020 would have an extended expiration date of two years from the original booking date.

This policy continued for credit vouchers issued through June 30, 2021.

Effective July 1, 2021, credit vouchers issued have an expiration date of one year from the original booking date.

Credit vouchers represented approximately 18.7 percent of the air traffic liability as of December 31, 2022.

This compares to approximately 22 percent and 72 percent as of December 31, 2021 and December 31, 2020 respectively, and approximately eight percent as of December 31, 2019, prior to the onset of the COVID-19 pandemic.

We estimate the amount of credit vouchers not expected to be redeemed prior to their contractual expiration date ("credit voucher breakage") and recognize the associated passenger revenue at the time of issuance.

Our credit voucher breakage estimates are primarily based on historical usage data, contract duration and resulting customer behavior.

Given the impact of the COVID-19 pandemic on customer behavior and changes made in ticket validity terms, as well as the suspension of change and cancellation fees, our estimates of passenger revenue that will be recognized from the air traffic liability for credit voucher breakage may be adjusted in future periods as we periodically review our estimates based on actual experience to date.

For additional information on our significant accounting policies related to passenger ticket sales, see Note 3 of the Notes to the Consolidated Financial Statements.

RECENT ACCOUNTING PRONOUNCEMENTS

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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 7. Management’s Discussion and Analysis