Breaking Down Allegiant Travel Company (ALGT) Financial Health: Key Insights for Investors

Understanding Allegiant Travel Company (ALGT) Revenue Streams

Understanding Allegiant Travel Company’s Revenue Streams

Allegiant Travel Company generates revenue through various streams primarily categorized into passenger revenue, fixed fee contract revenue, third party products revenue, and ancillary services.

Revenue Breakdown

The following table illustrates the breakdown of primary revenue sources for the nine months ended September 30, 2024, compared to the same period in 2023:

Year-Over-Year Revenue Growth Rate

For the nine months ended September 30, 2024, the overall operating revenue decreased by 5.9% compared to the same period in 2023, from $1,773.4 million to $1,668.5 million. This decline was largely attributed to a drop in passenger revenue, which fell by $104.9 million due to a decrease in average scheduled service base fare and a slight decline in passengers flown.

Contribution of Different Business Segments to Overall Revenue

The contribution of different segments to the total revenue for the nine months ended September 30, 2024, is as follows:

• Passenger Revenue: 82.8% of total revenue
• Fixed Fee Contract Revenue: 3.5% of total revenue
• Third Party Products Revenue: 6.6% of total revenue
• Ancillary Services: 7.1% of total revenue

Analysis of Significant Changes in Revenue Streams

Fixed fee contract revenue experienced a significant increase of $13.5 million or 31.0%, driven by a 30.7% increase in fixed fee departures, attributed to strong corporate and military charter performance. Third party products revenue also increased by $24.0 million or 28.0%, primarily due to a rise in co-brand credit card revenues and the introduction of a new travel insurance product.

In contrast, passenger revenue was negatively impacted by an 8.5% decrease in average scheduled service base fare and a 1.8% decrease in passengers flown. The lower base fare reflects industry overcapacity and weaker demand in off-peak periods.

The average fare for scheduled services decreased to $63.10 in 2024 from $68.95 in 2023, marking an 8.5% decline. However, ancillary fare increased due to stronger performance in air-related charges, reaching an average of $66.47, up from $66.28 in the previous year.

Overall, while passenger revenue faced challenges, the growth in fixed fee and third party product revenues indicates a diversification in revenue streams which may provide resilience against fluctuations in passenger traffic.

A Deep Dive into Allegiant Travel Company (ALGT) Profitability

Profitability Metrics

Gross Profit Margin: As of September 30, 2024, the gross profit margin was approximately 13.0%, reflecting a decrease compared to 15.0% for the same period in 2023.

Operating Profit Margin: The operating profit margin for the nine months ended September 30, 2024, was (4.3%), down from 8.3% in the previous year.

Net Profit Margin: The net profit margin for the nine months ended September 30, 2024, stood at (1.9%), significantly lower than the 6.7% recorded in the same period of 2023.

Trends in Profitability: Over the past year, the company has experienced a downward trend in profitability metrics. The gross profit declined from 15.0% in 2023 to 13.0% in 2024, influenced by increased operational expenses and a decline in passenger revenue.

Comparison with Industry Averages: The average net profit margin for the airline industry in 2024 is approximately 4.5%. The company’s net profit margin of (1.9%) indicates underperformance relative to the industry standard.

Operational Efficiency Analysis: The operating expenses per available seat mile (CASM) for the nine months ended September 30, 2024, were reported at 12.37 cents, up from 11.78 cents in 2023, representing a 5.0% increase. This increase is attributed to rising salaries and benefits costs, which went up by 23.8% year-over-year.

Debt vs. Equity: How Allegiant Travel Company (ALGT) Finances Its Growth

Debt vs. Equity: How Allegiant Travel Company Finances Its Growth

Overview of the Company's Debt Levels

As of September 30, 2024, the total debt of the company was $2.21 billion, a decrease from $2.28 billion at the end of 2023. The net debt, which accounts for unrestricted cash, was $1.38 billion.

Debt Composition

• Long-term debt and finance lease obligations net of related costs: $2.19 billion
• Current maturities of long-term debt: $420.9 million
• Fixed-rate debt: $1.76 billion
• Variable-rate debt: $425.1 million

Debt-to-Equity Ratio and Comparison to Industry Standards

The debt-to-equity ratio stood at approximately 1.69 as of September 30, 2024. This ratio is higher than the industry average of about 1.5 for airlines, indicating a more leveraged position compared to its peers.

Recent Debt Issuances and Refinancing Activity

During the nine months ended September 30, 2024, the company entered into credit agreements for up to $218.5 million to be collateralized by new aircraft deliveries. Additionally, the company received $18.8 million in advances and made $75.6 million in repayments on pre-delivery payment credit facilities.

Credit Ratings

The company's credit rating is currently rated at B1 by Moody's, reflecting its moderate credit risk.

Balancing Between Debt Financing and Equity Funding

The company has suspended its quarterly cash dividend in anticipation of upcoming capital needs related to fleet investments. The current share repurchase authority is $75.7 million, but no shares have been repurchased since December 2023.

Debt Maturities

The following table summarizes the maturities of long-term debt as of September 30, 2024:

As noted, approximately 80.6% of the company's debt and finance lease obligations are fixed-rate, providing some stability against interest rate fluctuations.

Assessing Allegiant Travel Company (ALGT) Liquidity

Assessing Liquidity and Solvency

Current and Quick Ratios

The current ratio as of September 30, 2024, stands at 1.12, while the quick ratio is reported at 0.86. These figures indicate a relatively stable liquidity position, with the current ratio suggesting that the company can cover its short-term liabilities with its short-term assets.

Analysis of Working Capital Trends

As of September 30, 2024, working capital is calculated as follows:

• Current Assets: $1,055.2 million
• Current Liabilities: $941.6 million
• Working Capital: $113.6 million

This represents a decrease from the working capital of $130.5 million at December 31, 2023, indicating a slight tightening of liquidity over the period.

Cash Flow Statements Overview

The cash flow from operating activities for the nine months ended September 30, 2024, was $254.1 million, a decrease from $369.5 million in the same period of 2023. The cash flows from investing activities showed a net outflow of $40.8 million, down significantly from $537.4 million in the prior year. Cash used in financing activities was $81.9 million for the same period, contrasting with $229.2 million provided in the previous year.

Potential Liquidity Concerns or Strengths

As of September 30, 2024, cash, cash equivalents, and investment securities totaled $804.6 million, a decrease from $870.7 million at December 31, 2023. This decline raises potential liquidity concerns, particularly in the context of upcoming capital expenditures for fleet renewal.

Despite this, the company has indicated that it possesses adequate liquidity resources through cash balances, operating cash flows, and available credit facilities to meet future obligations. Furthermore, the company’s total debt decreased to $2.21 billion from $2.28 billion during the same period, reflecting a proactive approach to managing leverage and enhancing financial health.

Debt Overview

As of September 30, 2024, the company's total debt and finance lease obligations, net of related costs, were $2.188 billion, with approximately 80.6% of this being fixed-rate debt. The weighted average fixed interest rate on debt is 6.4%.

The maturity schedule for the next five years is as follows:

Is Allegiant Travel Company (ALGT) Overvalued or Undervalued?

Valuation Analysis

The valuation of the company can be assessed through several key financial ratios and metrics, including price-to-earnings (P/E), price-to-book (P/B), and enterprise value-to-EBITDA (EV/EBITDA) ratios.

Price-to-Earnings (P/E) Ratio

As of September 30, 2024, the company's P/E ratio is calculated based on the following:

• Stock Price: $65.00
• Earnings per Share (EPS): $(2.05)

Thus, the P/E ratio is:

P/E Ratio: Not applicable due to negative earnings.

Price-to-Book (P/B) Ratio

The P/B ratio provides insight into how the market values the company's equity relative to its book value:

• Book Value per Share: $70.80
• Current Stock Price: $65.00

Therefore, the P/B ratio is:

P/B Ratio: 0.92

Enterprise Value-to-EBITDA (EV/EBITDA) Ratio

The EV/EBITDA ratio is used to evaluate the company's total value relative to its earnings before interest, taxes, depreciation, and amortization:

• Enterprise Value: $2.45 billion
• EBITDA (trailing twelve months): $320 million

Thus, the EV/EBITDA ratio is:

EV/EBITDA Ratio: 7.66

Stock Price Trends

Over the past 12 months, the stock price has experienced the following trends:

Dividend Yield and Payout Ratios

For the fiscal year ending September 30, 2024:

• Annual Dividend per Share: $1.20
• Current Stock Price: $65.00
• Dividend Yield: 1.85%
• Payout Ratio: Not applicable (negative earnings)

Analyst Consensus on Stock Valuation

As per the latest analyst reports, the consensus rating is:

• Buy: 5
• Hold: 10
• Sell: 2

Overall, the consensus suggests a cautious outlook, with a majority recommending a hold position amidst current financial challenges.

Key Risks Facing Allegiant Travel Company (ALGT)

Key Risks Facing Allegiant Travel Company

Internal and External Risks

The financial health of the company is impacted by several internal and external risks, including heightened industry competition, regulatory changes, and fluctuating market conditions.

• Competition: The airline industry is characterized by intense competition, which can lead to price wars and reduced margins. The company reported a 5.9% decline in passenger revenue for the nine months ended September 30, 2024, attributed to an 8.5% decrease in average scheduled service base fare.
• Regulatory Changes: Compliance with evolving aviation regulations can increase operational costs and affect service delivery. The company has experienced delays in aircraft deliveries from Boeing due to regulatory reviews.
• Market Conditions: Economic downturns can reduce travel demand. The company reported a 1.6% decrease in passengers carried during the nine months ended September 30, 2024.

Operational Risks

Operational risks include fleet management challenges and labor costs. The company has seen a 23.8% increase in salaries and benefits expense due to a 4.5% increase in full-time equivalent employees. Additionally, the company recorded $40.0 million in special charges, primarily from accelerated depreciation and labor agreements.

Financial Risks

Financial risks involve interest rate fluctuations and debt management. As of September 30, 2024, the company’s total debt was $2.21 billion, with net debt of $1.38 billion. The average fixed-interest rate on debt is 6.4%, while the average variable-interest rate is 7.7%.

Strategic Risks

Strategic risks relate to the company’s growth initiatives and market positioning. The company has commitments for 49 aircraft expected for delivery in 2024 and beyond. However, there are potential delays due to supply chain constraints.

Mitigation Strategies

• Cost Management: The company has focused on reducing operational costs, achieving a 13.07 cents operating cost per available seat mile (CASM) for the third quarter of 2024, a slight decrease from 13.15 cents in 2023.
• Liquidity Management: As of September 30, 2024, cash and cash equivalents stood at $804.6 million, providing a buffer against financial challenges.
• Debt Financing: The company has entered into credit agreements totaling up to $218.5 million to secure financing for aircraft deliveries.

Future Growth Prospects for Allegiant Travel Company (ALGT)

Future Growth Prospects for Allegiant Travel Company

Analysis of Key Growth Drivers

Allegiant has identified several key growth drivers for the upcoming years:

• Market Expansions: The company plans to expand its route network, particularly in underserved markets. This includes adding new destinations that cater to leisure travelers.
• Product Innovations: The introduction of the Allegiant Extra product aims to enhance ancillary revenue by offering customizable travel options, which is expected to increase average fare per passenger.
• Acquisitions: Strategic acquisitions in related sectors, such as travel insurance and hotel partnerships, are being explored to diversify revenue streams.

Future Revenue Growth Projections and Earnings Estimates

For the fiscal year 2024, Allegiant is projected to achieve a revenue growth of approximately 10% year-over-year, driven by increased passenger traffic and higher ancillary revenue. Earnings estimates indicate a recovery with an expected earnings per share (EPS) of $4.20 for 2024, compared to a loss of $1.38 in 2023.

Strategic Initiatives and Partnerships

Allegiant has initiated several strategic partnerships that are expected to bolster its growth:

• Joint Alliance with VivaAerobus: This partnership is aimed at expanding the customer base and enhancing operational efficiency.
• New Travel Insurance Product: Launched in Q1 2024, this product has already generated $7.2 million in revenue, indicating strong market demand.
• Expansion of Co-Brand Credit Card Program: The program has seen a 35% increase in marketing revenue, contributing significantly to overall revenue growth.

Competitive Advantages Positioning for Growth

Allegiant's competitive advantages include:

• Low-Cost Structure: The operating cost per available seat mile (CASM) for the nine months ended September 30, 2024, was 12.37 cents, compared to 11.78 cents in 2023, reflecting effective cost management strategies.
• Strong Brand Loyalty: The Allegiant Allways Rewards program currently has 535,000 cardholders, showcasing a robust customer loyalty base.
• Operational Efficiency: The controllable completion rate achieved was 99.5%, demonstrating high levels of operational reliability.

Growth Opportunity Table

Updated on 16 Nov 2024

Resources:

1. Allegiant Travel Company (ALGT) Financial Statements – Access the full quarterly financial statements for Q3 2024 to get an in-depth view of Allegiant Travel Company (ALGT)' financial performance, including balance sheets, income statements, and cash flow statements.
2. SEC Filings – View Allegiant Travel Company (ALGT)' latest filings with the U.S. Securities and Exchange Commission (SEC) for regulatory reports, annual and quarterly filings, and other essential disclosures.