There is not a word or page limit for this assignment. Please display content knowledge and
critical thinking with your analysis. You will be graded 50% on calculating the correct ratio and
50% on your analysis.
There are columns provided for four separate years. It is not necessary to complete all four years.
That information is available for you to compare one year to the next if the annual report
provides the information. Only one year is necessary for this assignment but to complete the
analytics you may need to complete two years.
10-K 1 algt201610kdoc.htm 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 2016
Or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ____ to ____
Commission File Number 001-33166
Allegiant Travel Company
(Exact Name of Registrant as Specified in Its Charter)
Nevada
(State or Other Jurisdiction of Incorporation or
Organization)
1201 North Town Center Drive
Las Vegas, Nevada
(Address of Principal Executive Offices)
20-4745737
(IRS Employer Identification No.)
89144
(Zip Code)
Registrant’s Telephone Number, Including Area Code: (702) 851-7300
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Common Stock, $0.001 Par Value
Name of each exchange on which registered
Nasdaq Global Select Market
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the
Securities Act. Yes No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section
15(d) of the Act. Yes No
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or
15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90
days. Yes No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate
website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation
S-T (§ 229.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was
required to submit and post such files). Yes No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405
of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a nonaccelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer,” and
“smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer
Accelerated filer
Non-accelerated filer
(Do not check if a smaller reporting company)
Smaller reporting company
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange
Act). Yes No
The aggregate market value of common equity held by non-affiliates of the registrant was approximately
$2.0 billion computed by reference to the closing sale price of the common stock on the Nasdaq Global Select
Market on June 30, 2016, the last trading day of the registrant’s most recently completed second fiscal quarter.
The number of shares of the registrant’s common stock outstanding as of the close of business on February
1, 2017 was 16,634,773.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement to be used in connection with the solicitation of proxies to be voted at the
registrant’s annual meeting to be held on June 29, 2017, and to be filed with the Commission subsequent to the date
hereof, are incorporated by reference into Part III of this Report on Form 10-K.
EXHIBIT INDEX IS LOCATED ON PAGE 75.
Allegiant Travel Company
Form 10-K
For the Year Ended December 31, 2016
Table of Contents
PART I
ITEM 1.
ITEM
1A.
ITEM
1B.
ITEM 2.
ITEM 3.
ITEM 4.
Business
Risk Factors
13
Unresolved Staff Comments
Properties
Legal Proceedings
Mine Safety Disclosures
PART II
ITEM 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities
ITEM 6. Selected Financial Data
ITEM 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
ITEM
Quantitative and Qualitative Disclosures about Market Risk
7A.
ITEM 8. Financial Statements and Supplementary Data
ITEM 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
ITEM
Controls and Procedures
9A.
ITEM
Other Information
9B.
PART
III
ITEM
10.
ITEM
11.
ITEM
12.
ITEM
13.
ITEM
14.
PART
IV
ITEM
15.
4
20
20
22
22
23
26
28
38
40
65
65
65
Directors, Executive Officers and Corporate Governance
67
Executive Compensation
67
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters
Certain Relationships and Related Transactions, and Director Independence
67
67
Principal Accountant Fees and Services
67
Exhibits and Financial Statement Schedules
Signatures
68
71
3
PART I
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
We have made forward-looking statements in this annual report on Form 10-K, and in the section entitled
“Management’s Discussion and Analysis of Financial Condition and Results of Operations,” that are based on our
management’s beliefs and assumptions, and on information currently available to our management. Forward-looking
statements include information concerning our possible or assumed future results of operations, business strategies,
fleet plan, financing plans, competitive position, industry environment, potential growth opportunities, future service
to be provided and the effects of future regulation and competition. Forward-looking statements include all
statements that are not historical facts and can be identified by the use of forward-looking terminology such as the
words “believe,” “expect,” “anticipate,” “intend,” “plan,” “estimate,” “project” or similar expressions.
Forward-looking statements involve risks, uncertainties and assumptions. Actual results may differ materially from
those expressed in the forward-looking statements. Important risk factors that could cause our results to differ
materially from those expressed in the forward-looking statements may be found in this annual report on Form 10-K
and in our other periodic reports filed with the Securities and Exchange Commission at www.sec.gov. These risk
factors include, without limitation, an accident involving or problems with our aircraft, our reliance on automation
systems, volatility of fuel costs, labor issues and costs, the ability to obtain regulatory approvals as needed, the effect
of economic conditions on leisure travel, debt balances and covenants, terrorist attacks, risks inherent to airlines, our
dependence on our leisure destination markets, the competitive environment, constraints on our ability to grow as
we retire our MD-80 aircraft, our reliance on third parties who provide facilities or services to us, the possible loss
of key personnel, economic and other conditions in markets in which we operate, governmental regulation, increases
in maintenance costs and cyclical and seasonal fluctuations in our operating results.
Any forward-looking statements are based on information available to us today and we undertake no obligation to
update publicly any forward-looking statements, whether as a result of future events, new information or otherwise.
Item 1. Business
Overview
We are a leisure travel company focused on providing travel services and products to residents of under-served cities
in the United States. We were founded in 1997 and, in conjunction with our initial public offering in 2006, we
incorporated in the state of Nevada. Our unique business model provides diversified revenue streams from various
travel services and product offerings which distinguish us from other travel companies. We operate a low-cost
passenger airline marketed to leisure travelers in under-served cities, allowing us to sell air transportation both on a
stand-alone basis and bundled with the sale of air-related and third party services and products. In addition, we
provide air transportation under fixed fee flight arrangements. Our developed route network, pricing philosophy,
advertising, and product offerings built around relationships with premier leisure companies, are all intended to
appeal to leisure travelers and make it attractive for them to purchase air travel and related services and products
from us.
Below is a brief description of the travel services and products we provide to our customers:
Scheduled service air transportation. We provide scheduled air transportation on limited-frequency, nonstop flights
predominantly between under-served cities and popular leisure destinations. As of February 1, 2017, our operating
fleet consisted of 47 MD-80 aircraft, 34 Airbus A320 series aircraft, and four Boeing 757-200 aircraft, and we were
selling travel on 377 routes to 119 cities.
Air-related ancillary products and services. We provide unbundled air-related services and products in conjunction
with air transportation for an additional cost to customers. These optional air-related services and products include a
customer convenience fee, baggage fees, advance seat assignments, our own travel protection product, change fees,
use of our call center for purchases, priority boarding, food and beverage purchases on board, and other air-related
services.
Third party ancillary products and services. We offer third party travel products such as hotel rooms, ground
transportation (rental cars and hotel shuttle products) and attractions (show and tour tickets) for sale to our
passengers.
Fixed fee contract air transportation. We provide air transportation through fixed fee agreements and charter service
on a year-round and ad-hoc basis.
4
Other revenue. We currently, temporarily, act as a lessor as an avenue to opportunistically acquire aircraft and/or
engines and we may choose to do so in the future. Upon the expiration of a lease, we would expect to operate the
asset(s) ourselves.
Our principal executive offices are located at 1201 N. Town Center Drive, Las Vegas, Nevada 89144. Our telephone
number is (702) 851-7300. Our website address is http://www.allegiant.com. We have not incorporated by reference
into this annual report the information on our website and investors should not consider it to be a part of this
document. Our website address is included in this document for reference only. Our annual report, quarterly reports,
current reports and amendments to those reports are made available free of charge through the investor relations
section on our website as soon as reasonably practicable after electronically filed with or furnished to the Securities
and Exchange Commission (“SEC”).
Unique Business Model
We have developed a unique business model that focuses on leisure travelers in small and medium-sized cities. The
business model has evolved as our experienced management team has looked differently at the traditional way
business has been conducted in the airline and travel industries. Our focus on the leisure customer allows us to
eliminate the significant costs associated with serving a wide variety of customers and to concentrate our product
appeal on a customer base which is under-served by traditional airlines. We have consciously developed a business
model which distinguishes us from the traditional airline approach:
Traditional Airline Approach
• Focus on business and leisure travelers
• Provide high frequency service from big cities
•
•
• Use smaller aircraft to provide connecting service
from smaller markets through hubs
• Utilize bundled pricing
•
• Sell through various intermediaries
• Offer flight connections
• Use code-share arrangements to increase passenger
traffic
•
•
•
•
Allegiant Approach
Focus on leisure travelers
Provide low frequency service from small and
medium-sized cities
Use larger jet aircraft to provide nonstop service from
under-served cities direct to leisure destinations
Utilize unbundled pricing of air-related services and
products
Sell only directly to travelers
Do not offer connecting flights
Do not use code-share arrangements
By unbundling our air-related services and products such as baggage fees, advance seat assignments, travel
protection, change fees, priority boarding, and food and beverage purchases, which have typically been bundled by
many traditional airlines, we are able to significantly lower our airfares and target leisure travelers who are more
concerned with price and the ability to customize their experience with us by only purchasing the additional
conveniences they value. This strategy allows us to generate significant additional ancillary revenues.
We have established a route network with a national footprint, providing service on 353 routes (currently selling 377
routes) between 98 under-served cities and 20 leisure destinations, and serving 43 states as of February 1, 2017. In
most of these small and medium-sized cities, we provide service to more than one of our leisure destinations. We
currently provide service to the popular leisure destinations of Las Vegas, NV; Orlando, FL; Phoenix, AZ;
Tampa/St. Petersburg, FL; Honolulu; HI; Los Angeles, CA; Ft. Lauderdale, FL; Punta Gorda, FL; the San Francisco
Bay Area, CA; Palm Springs, CA; Austin, TX; New Orleans, LA; Jacksonville, FL; Savannah/Hilton Head, GA;
Baltimore/Washington, DC; Destin, FL; Newark, NJ (providing service to New York City, NY); and San Juan,
Puerto Rico. We also provide service on a seasonal basis to San Diego, CA, and Myrtle Beach, SC.
The geographic diversity of our route network protects us from regional variations in the economy and helps insulate
us from competitive actions, as it would be difficult for a competitor to materially impact our business by targeting
one city or region. Our widespread route network also contributes to the continued growth of our customer base.
In developing a unique business model, our ancillary offerings, including the sale of third party products and
services, have been a significant source of our total operating revenue growth. We have increased ancillary revenue
per passenger from $5.87 in 2004 to $49.48 in 2016. We own and manage our own air reservation system, which
gives us the ability to modify our system to enhance product offerings based on specific needs, without being
dependent on non-customized product upgrades from outside suppliers. We believe the control of our automation
systems has allowed us to be innovators in the industry by providing our customers with a variety of different travel
services and products.
5
We believe the following strengths from our unique business model allow us to maintain a competitive advantage in
the markets we serve:
Focus on leisure traffic from small and medium-sized cities
We believe small and medium-sized cities represent a large, under-served, market, especially for leisure travel. Prior
to the initiation of our service, leisure travelers from these markets had limited desirable options to reach leisure
destinations because existing carriers are generally focused on connecting business customers through their hub-andspoke networks. In 2014, we began serving selected medium-sized cities, to which many major carriers have
reduced service, creating a void for us to fill with limited or no direct nonstop competition on each route.
We believe our low fare, nonstop service, along with our leisure company relationships, make it attractive for leisure
travelers to purchase airfare and travel-related products from us. The size of the markets we serve, and our focus on
the leisure customer, allow us to adequately serve our markets with less frequency, and to vary our air transportation
capacity to match seasonal and day of the week demand patterns.
By focusing on under-served cities and routes, we believe we avoid the intense competition in high traffic domestic
air corridors. In most of our small and medium-sized city markets, travelers previously faced high airfares and
cumbersome connections or long drives to major airports in order to reach our leisure destinations. Based on
published data from the U.S. Department of Transportation (“DOT”), we believe the initiation of our service
stimulates demand, as we have typically seen a substantial increase in traffic subsequent to new service beginning.
Our market strategy is neither hostile to legacy carriers, whose historical focus has been connecting small cities to
business markets with regional jets, nor to traditional low cost or ultra-low cost carriers generally focused on larger
markets. Additionally, many major carriers have reduced service to medium-sized cities which we believe they no
longer consider to be core hubs.
Capacity management
We actively manage our seat capacity to match leisure demand patterns. Our ability to quickly adjust capacity helps
us maintain our profitability in the dynamic travel industry. Because of our low fixed costs, our low unit costs are
not dependent on high utilization.
Although low fuel costs in 2016 allowed us to profitably increase flying during off-peak periods, our core business
model manages seat capacity by increased utilization of our aircraft during periods of high leisure demand and
decreased utilization in low leisure demand periods. In 2016, during our peak demand period in June, we averaged
7.3 system block hours per aircraft per day while in September, our lowest month for demand, we averaged 5.1
system block hours per aircraft per day. Our management of seat capacity also includes changes in weekly
frequency of certain markets based on identified peak and off-peak travel demand throughout the year. For example,
the leisure destination of Palm Springs, CA, is more desirable for our customers from Bellingham, WA during
winter months. Therefore, we seasonally decrease the frequency of our Bellingham-Palm Springs flights in the
summer, and increase flights per week in the winter. Unlike other carriers which provide a fairly consistent number
of flights every day of the week, we concentrate our flights on high demand leisure travel days and fly a smaller
portion of our schedule on low demand days such as Tuesdays and Wednesdays.
Our strong ancillary revenue production, coupled with our ability to rapidly deploy or contract capacity, has allowed
us to operate profitably throughout periods of high fuel prices and economic recession. We manage our capacity
with a goal of being profitable on each route.
Low cost structure
We believe a low cost structure is essential to competitive success in the airline industry. Our operating expense per
available seat mile ("CASM") decreased from 8.45¢ in 2015 to 8.02¢ in 2016. Although our operating CASM,
excluding the cost of fuel, increased from 5.81¢ in 2015 to 5.94¢ in 2016, we continue to have one of the lowest unit
costs in the airline industry.
We continue to focus on maintaining low operating costs through the following tactics and strategies:
Low Aircraft Ownership Costs. We achieve low aircraft ownership costs by purchasing primarily used aircraft with
meaningful remaining useful lives, at reduced prices. We own all of our aircraft and believe that we properly
balance lower aircraft acquisition costs and operating costs to minimize our total costs. In 2016, we signed a
purchase agreement to acquire our first newly manufactured aircraft, 12 Airbus A320 series aircraft. Although these
aircraft will have higher purchase prices, we expect the benefits of a greater number of seats, better fuel efficiency,
and longer depreciable lives will make these aircraft
6
efficient additions to our fleet. In addition, our network has evolved such that we plan to maintain higher levels of
daily utilization on the newly manufactured aircraft. As of February 1, 2017, our operating fleet consists of 47 MD80 series aircraft, 34 Airbus A320 series aircraft, and four Boeing 757-200 aircraft.
We continue to view the used Airbus A320 series aircraft market as being similar to the market we experienced
when we began adding MD-80 aircraft to our fleet in 2001. We believe that future availability of used Airbus A320
series aircraft will be driven by high production rates of new current engine option aircraft, and re-fleeting strategies
for new engine option ("NEO") narrow body aircraft by both air carriers and aircraft lessors. The addition of used
Airbus A320 series aircraft has allowed us to maintain low aircraft ownership costs consistent with our business
model. In this document, references to "Airbus A320 series aircraft" are intended to describe both Airbus A319 and
A320 aircraft.
Highly Productive Workforce. We believe we have one of the most productive workforces in the U.S. airline
industry with approximately 41 full-time equivalent employees per operating aircraft as of December 31, 2016. Our
high level of employee productivity is due to our cost-driven scheduling, fewer unproductive labor work rules, and
the effective use of automation and part-time employees. In an effort to control costs, we outsource major
maintenance, stations and other functions to reliable third-party service providers.
Simple product. We believe offering a simple product is critical to achieving low operating costs. As such, we sell
only nonstop flights; we do not code-share or interline with other carriers; we have a single class cabin; we do not
provide any free catered items - everything on board is for sale; we do not overbook our flights; we do not provide
cargo or mail services; and we do not offer other perks such as airport lounges.
Low distribution costs. Our nontraditional marketing approach results in very low distribution costs. We do not sell
our product through outside sales channels, thus avoiding the fees charged by travel web sites (Expedia, Orbitz or
Travelocity) and traditional global distribution systems (“GDS”) (Sabre or Worldspan). Our customers can only
purchase travel at our airport ticket counters or, for a fee, on our website or through our telephone reservation center.
The purchase of travel through our website is the least expensive form of distribution for us and accounted for 94.2
percent of our scheduled service revenue during 2016.
Small and medium-sized city market airports. Our business model focuses on residents of small and medium-sized
cities in the United States. Typically, the airports in these cities have lower operating costs than airports in larger
cities. These lower costs are driven by less expensive passenger facilities, landing, and ground service charges. In
addition to inexpensive airport costs, many of our airports provide marketing support which results in lower
marketing costs.
Cost-driven schedule. We build our schedule so that our crews and aircraft return to base each night. This allows us
to maximize crew efficiency, and more cost-effectively manage maintenance, spare aircraft and spare parts.
Additionally, this structure allows us to add or subtract markets served by a base without incremental costs. We
believe leisure travelers are generally less concerned about departure and arrival times than business travelers, so we
are able to schedule flights at times that enable us to reduce costs while remaining desirable to our leisure customers.
Ancillary product offerings
We believe most leisure travelers are concerned primarily with purchasing air travel for the least expensive price. As
such, we have unbundled the air transportation product by charging fees for services many U.S. airlines have
historically bundled in their product offering. This pricing structure allows us to target travelers who are most
concerned with low fare travel while also allowing travelers to customize their experience with us by purchasing
only the additional conveniences they value. For example, we do not offer complimentary advance seat assignments;
however, customers who value this product can purchase advance seat assignments for a small incremental cost. In
addition, snacks and beverages are sold individually on the aircraft, allowing passengers to purchase only items they
value.
Ancillary revenue will continue to be a key component in our total average fare as we believe leisure travelers are
less sensitive to ancillary fees than the base fare.
Our third party product offerings give our customers the opportunity to purchase hotel rooms, rental cars, airport
shuttle service, show tickets, and other attractions. Our third party offerings are available to customers based on our
agreements with various travel and leisure companies. For example, we have an exclusive agreement with Enterprise
Holdings Inc. for the sale of rental cars packaged with air travel, which made up over 50 percent of our third party
products ancillary revenue in 2016. The pricing of each product and our margin can be adjusted based on customer
demand because our customers purchase travel through our booking engine without any intermediaries.
7
Strong financial position
As of December 31, 2016, we had $458.8 million of unrestricted cash, cash equivalents and investment securities,
and total debt of $808.3 million. As of February 1, 2017, we also had six aircraft available to use as collateral in the
secured debt market, as well as $56.0 million undrawn on our senior secured revolving credit facility. As we have
been able to consistently generate cash from operations due to our profitability, we believe we have more than
adequate resources to invest in the growth of our fleet, information technology, infrastructure, and development,
while meeting short-term obligations.
Our strong financial position and discipline regarding use of capital allows us to have greater financial flexibility to
grow our business and efficiently and effectively adapt to changing economic conditions.
Training and development
We are committed to investing in the development of adaptive learning courses for our employees, with a current
focus on our operating groups. This progressive approach generates personalized learning modules which tailor
course content based on each trainee's concept mastery. We also expect program development to facilitate recurrent
training and to contribute to cost savings in the future.
Routes and schedules
Our current scheduled air service (including seasonal service) predominantly consists of limited frequency, nonstop
flights into leisure destinations from under-served cities across the continental United States. Our scheduled service
route network as of February 1, 2017 is summarized below:
Routes to Orlando
Routes to Las Vegas
68
56
Routes to Tampa/St. Petersburg
Routes to Phoenix
Routes to Punta Gorda
Routes to Los Angeles
Other routes
Total routes
51
35
32
23
88
353
Marketing and Distribution
Our website is our primary distribution method, and we also sell through our call center and at our airport ticket
counters. This distribution mix creates significant cost savings and enables us to continue to build loyalty with our
customers through increased interaction with them. We are also able to utilize customer email addresses in our
database, which provides multiple cost effective opportunities to market products and services, including at the time
of travel purchase, between purchase and travel, and after travel is complete. In addition, we market products and
services to our customers during their flight. We believe the breadth of options we offer allows us to provide a “onestop” shopping solution to enhance the customer travel experience. When we enter new markets, we may advertise
in local print publications, on the radio and/or television, to introduce our new service to the community. These
activities are often supported by the local airport authority which has sought our initiation of service to the
community. We continue to see growth in the marketing contributions of airport authorities and destination
marketing organizations. In the fourth quarter of 2015, and for the first time in our history, we began running a
national ad campaign to further broaden recognition of our brand, which, as of February 1, 2017, continues running
in various markets.
We continue to enhance our automation and expect the continuous improvements to our website and other
automation enhancements will create additional revenue opportunities by allowing us to capitalize on customer
loyalty with additional product offerings.
Our low cost distribution strategy results in reduced expenses by avoiding the fees associated with the use of GDS
distribution points. This distribution strategy also permits us to closely manage ancillary product offerings and
pricing while developing and maintaining a direct relationship with our customers. We believe this continuous
communication will result in substantial benefits over time. With our own automation system, we have the ability to
continually change ancillary product offerings and
8
pricing points, which allows us to find the optimal pricing levels for our various offerings. We believe this would be
difficult and impractical to achieve through the use of the GDS.
Competition
The airline industry is highly competitive. Passenger demand and fare levels have historically been influenced by,
among other things, the general state of the economy, international events, fuel prices, industry capacity, and pricing
actions taken by other airlines. The principal competitive factors in the airline industry are price, schedule, customer
service, routes served, types of aircraft, safety record and reputation, code-sharing relationships, and frequent flyer
programs.
Our competitors include legacy airlines, low cost carriers ("LCCs"), ultra-low cost carriers ("ULCC"), regional
airlines, new entrant airlines, and other forms of transportation to a much lesser extent. Many of the airlines are
larger, have significantly greater financial resources, are more well known, and have more established reputations
than us. In a limited number of cases, following our entry into a market, competitors have chosen to add service,
reduce their fares, or both. In a few cases, other airlines have entered after we have developed a market.
We believe our under-served city strategy has reduced the intensity of competition we might otherwise face. As of
February 1, 2017, we are the only domestic scheduled carrier operating out of the Orlando Sanford International
Airport, Phoenix-Mesa Gateway Airport, and St. Petersburg Airport. Although no other domestic scheduled carriers
operate in these airports, most U.S. airlines serve the major airports for Orlando, Phoenix and Tampa. In addition,
many U.S. airlines serve our other leisure destinations. As a result, there is potential for increased competition on
our routes.
As of February 1, 2017, we face mainline competition on only approximately 18 percent of our operating routes. We
compete with Southwest Airlines on 40 routes, Frontier Airlines on 20 routes, Spirit Airlines on 11 routes, Delta
Airlines on five routes, JetBlue Airlines on four routes, American Airlines and United Airlines on three routes each,
and Alaska and Hawaiian Airlines on one route each. We may also experience additional competition based on
recent route announcements of other airlines.
Indirectly, we compete with Southwest, American, Delta, United, and other carriers that provide nonstop service to
our leisure destinations from airports near our cities. We also face indirect competition from legacy carriers offering
hub-and-spoke connections to our markets, although these fares tend to be substantially higher, with much longer
elapsed travel times. Several airlines also offer competitive one-stop service from the medium-sized cities we serve.
In our fixed fee operations, we compete with other scheduled airlines in addition to independent passenger charter
airlines. We also compete with aircraft owned or controlled by large tour companies. The basis of competition in the
fixed fee market is cost, equipment capabilities, service, and reputation.
Aircraft Fuel
Excluding 2016, fuel has historically been our largest operating expense. The cost of fuel is volatile, as it is subject
to many economic and geopolitical factors we can neither control nor predict. Significant increases in fuel costs
could materially affect our operating results and profitability. We have not used financial derivative products to
hedge our exposure to fuel price volatility in many years, nor do we have any plans to do so in the future.
Employees
As of December 31, 2016, we employed 3,416 full-time equivalent employees, which consisted of 3,235 full-time
and 354 part-time employees. Full-time equivalent employees consisted of approximately 780 pilots, 1,030 flight
attendants, 200 airport operations personnel, 310 mechanics, 160 reservation agents, 40 flight dispatchers, and 900
management and other personnel.
As a result of the pilot collective bargaining agreement which went into effect on August 1, 2016, as well as lower
fuel prices, salary and benefits expense was our largest expense in 2016, having represented approximately 29
percent of total operating expenses.
Our relations with labor organizations representing our employee groups are governed by the Railway Labor Act
("RLA"). Under this act, if direct negotiations do not result in an agreement, either party may request the National
Mediation Board ("NMB") to appoint a federal mediator. If no agreement is reached in these mediated discussions,
the NMB may offer binding arbitration to the parties. If either party rejects binding arbitration, a “cooling off”
period begins. At the end of this “cooling-off” period, the parties may engage in self-help, which among other
events, could result in a strike from employees or for us to
9
hire new employees to replace any striking workers. The table below identifies the status of these collective
bargaining negotiations:
Employee
Group
Representative
Pilots
International Brotherhood of
Teamsters, Airline Division
Flight Attendants
Transport Workers Union
Flight
Dispatchers
International Brotherhood of
Teamsters, Airline Division, Local
986
Status of Agreement
Elected representation in August 2012. Five year
collective bargaining agreement ratified in July 2016 and
became effective August 1, 2016.
Elected representation in December 2010. Tentative
agreement reached for a collective bargaining agreement
in August 2016 which was not approved. Negotiations are
ongoing.
Elected representation in October 2016. Negotiations have
recently begun.
If we are unable to reach a labor agreement with these employee groups, they may seek to institute work
interruptions or stoppages. We have not previously experienced any work interruptions or stoppages from our nonunionized or unionized employee groups.
Aircraft Maintenance
We have a Federal Aviation Administration ("FAA") approved maintenance program, which is administered by our
maintenance department headquartered in Las Vegas. Technicians employed by us have appropriate experience and
hold required licenses issued by the FAA. We provide them with comprehensive training and maintain our aircraft
in accordance with FAA regulations. The maintenance performed on our aircraft can be divided into three general
categories: line maintenance, major maintenance, and component and engine overhaul and repair. Line maintenance
is generally performed by our personnel in certain cities of our network and by contractors elsewhere. We contract
with outside organizations to provide major maintenance and component and engine overhaul and repair. We have
chosen not to invest in facilities or equipment to perform our own major maintenance, engine overhaul or
component work. Our management closely supervises all maintenance functions performed by our personnel and
contractors employed by us, and by outside organizations. In addition to the maintenance contractors we presently
utilize, we believe there are sufficient qualified alternative providers of maintenance services that we can use to
satisfy our ongoing maintenance needs.
Community Involvement
We have worked with the Make-A-Wish® Foundation since 2012 by flying "wish kids" and their families to their
desired destinations, at no cost, and donating the proceeds from our in-flight Wingz Snack Pack program to the
Foundation. In 2016, we flew approximately 1 million miles in connection with providing travel for granted wishes
for these children and their families.
In April 2016, we donated the use of 7,500 square feet of office space at our headquarters' campus to the Southern
Nevada chapter of Make-A-Wish® Foundation, providing a new home for the nonprofit organization's
administrative headquarters. The site will also serve as the host location for volunteer training, meetings and a place
of support for families of children receiving wishes.
Insurance
Net
We maintain insurance policies we believe are of types customary in the airline industry and as required by the
DOT, and are in amounts we believe to be adequate to protect us against material loss. The policies principally
provide coverage for public liability, war-risk, passenger liability, baggage and cargo liability, property damage,
including coverages for loss or damage to our flight equipment, directors and officers, and workers’ compensation
insurance. There is no assurance, however, that the amount of insurance we carry will be sufficient to protect us
from material loss in all cases. Available commercial insurance in the future could be more expensive, could have
material differences in coverage than is currently provided, and may not be adequate to protect us from risk of loss.
Government Regulation
We are subject to federal, state and local laws affecting the airline industry and to extensive regulation by the DOT,
the FAA, and other governmental agencies.
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DOT. The DOT primarily regulates economic issues affecting air transportation such as certification and fitness of
carriers, insurance requirements, consumer protection, competitive practices, and statistical reporting. The DOT also
regulates requirements for accommodation of passengers with disabilities. The DOT has the authority to promulgate
regulations and to investigate and institute proceedings to enforce its regulations and related federal statutes, and
may assess civil penalties, suspend or revoke operating authority, and seek criminal sanctions. The DOT also has
authority to restrict or prohibit a carrier’s cessation of service to a particular community if such cessation would
leave the community without scheduled airline service.
We hold DOT certificates of public convenience and necessity authorizing us to engage in scheduled air
transportation of passengers, property and mail within the United States, its territories and possessions, and between
the United States and all countries that maintain a liberal aviation trade relationship with the United States (known
as “open skies” countries). We also hold DOT authority to engage in charter air transportation of passengers,
property, and mail on a domestic and international basis.
FAA. The FAA primarily regulates flight operations and safety, including matters such as airworthiness and
maintenance requirements for aircraft, pilot, mechanic, dispatcher and flight attendant training and certification,
flight and duty time limitations, and air traffic control. The FAA requires each commercial airline to obtain and hold
an FAA air carrier certificate. This certificate, in combination with operation specifications issued to the airline by
the FAA, authorizes the airline to operate at specific airports using aircraft certificated by the FAA. We have and
maintain in effect FAA certificates of airworthiness for all of our aircraft, and we hold the necessary FAA authority
to fly to all of the cities we currently serve. Like all U.S. certificated carriers, our provision of scheduled service to
certain destinations may require specific governmental authorization. The FAA has the authority to investigate all
matters within its purview, to modify, suspend or revoke our authority to provide air transportation, to approve or
disapprove the addition of aircraft to our operation specifications, and to modify, suspend or revoke FAA licenses
issued to individual personnel, for failure to comply with FAA regulations. The FAA can assess civil penalties for
such failures and institute proceedings for the collection of monetary fines after notice and hearing. The FAA also
has authority to seek criminal sanctions. The FAA can suspend or revoke our authority to provide air transportation
on an emergency basis, without notice and hearing, if, in the FAA’s judgment, safety requires such action. A legal
right to an independent, expedited review of such FAA action exists. Emergency suspensions or revocations have
been upheld with few exceptions. The FAA monitors our compliance with maintenance, flight operations and safety
regulations on an ongoing basis, maintains a continuous working relationship with our operations and maintenance
management personnel, and performs pre-scheduled inspections as well as frequent spot inspections of our aircraft,
employees and records.
The FAA also has the authority to promulgate rules and regulations and issue maintenance directives and other
mandatory orders relating to, among other things, inspection, repair and modification of aircraft and engines,
increased security precautions, aircraft equipment requirements, noise abatement, mandatory removal and
replacement of aircraft parts and components, mandatory retirement of aircraft, and operational requirements and
procedures. Such rules, regulations and directives are normally issued after an opportunity for public comment,
however, they may be issued without advance notice or opportunity for comment if, in the FAA’s judgment, safety
requires such action.
We believe we are operating in compliance with applicable DOT and FAA regulations, interpretations and policies
and we hold all necessary operating and airworthiness authorizations, certificates and licenses.
In July 2016, we received the results of the FAA Certificate Holder Evaluation Process ("CHEP") audit conducted
throughout the second quarter of 2016. A CHEP audit evaluates the design and performance of all aspects of an
airline's operations. All findings identified during this process were determined by the FAA to be minor. We
responded to the FAA on a timely basis and as of February 1, 2017, the FAA has validated and closed out various
items. The remaining open items await follow-up inspections to be scheduled by the FAA.
Security. Within the United States, civil aviation security functions, including review and approval of the content
and implementation of air carriers’ security programs, passenger and baggage screening, cargo security measures,
airport security, assessment and distribution of intelligence, threat response, and security research and development
are the responsibility of the Transportation Security Administration (“TSA”) of the Department of Homeland
Security. The TSA has enforcement powers similar to the DOT’s and FAA’s described above. It also has the
authority to issue regulations, including in cases of emergency, the authority to do so without advance notice,
including issuance of a grounding order as occurred on September 11, 2001.
Aviation Taxes and Fees. The authority of the federal government to collect most types of aviation taxes, which are
used, in part, to finance the nation’s airport and air traffic control systems, and the authority of the FAA to expend
those funds must be periodically reauthorized by the U.S. Congress. On July 15, 2016, the FAA Extension, Safety,
and Security Act of 2016 was signed into law extending certain commercial aviation taxes (known generally as
Federal Excise Taxes or "FET") through
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September 30, 2017. All carriers are required to collect these taxes from passengers and pass them through to the
federal government.
In addition to FET, there are federal fees related to services provided by the TSA, and, in the case of international
flights, the U.S. Customs and Border Protection ("CBP"), the U.S Immigration and Naturalization Service ("INS"),
and the U.S. Department of Agriculture's Animal and Plant Health Inspection Service ("APHIS"). There are also
FAA-approved Passenger Facility Charges ("PFCs") imposed by most of the airports we serve. Like FET, air
carriers collect these fees from passengers and pass them through to the respective federal agency or airport
authority. These fees do not need to be reauthorized, although their amounts may be revised periodically.
In 2017, Congress may consider reauthorization legislation that could increase the amount of FET and/or one or
more of the other government fees identified above. By thus increasing the overall price charged to passengers, such
action could lessen demand for air travel or force carriers, including us, to lower fares to maintain demand. Also in
2017, Congress may consider privatization of the U.S air traffic control ("ATC") system with user fee based
funding. The effect of such action, if adopted as law, on our operating costs is unknown. Additionally, federal
funding to airports and/or airport bond financing could be affected through future deficit reduction legislation, which
could result in higher fees, rates, and charges at many of the airports we serve.
Environmental. We are subject to various federal, state and local laws and regulations relating to the protection of
the environment and affecting matters such as aircraft engine emissions, aircraft noise emissions, and the discharge
or disposal of materials and chemicals, which laws and regulations are administered by numerous state and federal
agencies. These agencies have enforcement powers similar to the DOT’s and FAA’s described above. In addition,
we may be required to conduct an environmental review of the effects projected from the addition of our service at
airports.
In July 2016 the U.S. Environmental Protection Agency (“EPA”) formally concluded that current and projected
concentrations of greenhouse gases emitted by various aircraft, including all of the aircraft we 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 restrictions adopted under the auspices of the International Civil Aviation Organization (a specialized
agency of the United Nations) may become effective within several years.
Federal law recognizes the right of airport operators with special noise problems to implement local noise abatement
procedures so long as those procedures do not interfere unreasonably with interstate and foreign commerce and the
national air transportation system. These restrictions can include limiting nighttime operations, directing specific
aircraft operational procedures during takeoff and initial climb, and limiting the overall number of flights at an
airport. None of the airports we serve currently imposes restrictions on the number of flights or hours of operation
that have a meaningful impact on our operations. It is possible one or more such airports may impose additional
future restrictions with or without advance notice, which may impact our operations.
Foreign Ownership. To maintain our DOT and FAA certificates, our airline operating subsidiary and we (as the
airline’s holding company) must qualify continuously as citizens of the United States within the meaning of U.S.
aeronautical laws and regulations. This means we must be under the actual control of U.S. citizens and we must
satisfy certain other requirements, including that our president/chief executive officer and at least two-thirds of our
board of directors and other managing officers are U.S. citizens, and that not more than 25 percent of our voting
stock is owned or controlled by non-U.S. citizens. The amount of non-voting stock that may be owned or controlled
by non-U.S. citizens is strictly limited as well. We believe we are in compliance with these ownership and control
criteria.
Other Regulations. Air carriers are subject to certain provisions of federal laws and regulations governing
communications because of their extensive use of radio and other communication facilities, and are required to
obtain an aeronautical radio license from the Federal Communications Commission (“FCC”). To the extent we are
subject to FCC requirements, we intend to continue to comply with those requirements.
The quality of water used for drinking and hand-washing aboard aircraft is subject to regulation by the EPA. To the
extent we are subject to EPA requirements, we intend to continue to comply with those requirements.
Working conditions of cabin crewmembers while onboard aircraft are subject to regulation by the Occupational
Safety and Health Administration ("OSHA") of the Department of Labor. To the extent we are subject to OSHA
requirements, we intend to continue to comply with those requirements.
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Our operations may become subject to additional federal requirements in the future under certain circumstances.
During a period of past fuel scarcity, air carrier access to jet fuel was subject to allocation regulations promulgated
by the Department of Energy. Changes to the federal excise tax and other government fees imposed on air
transportation have been proposed and implemented from time to time and may result in an increased tax burden for
airlines and their passengers.
We are also subject to state and local laws, regulations, and ordinances at locations where we operate and to the
rules and regulations of various local authorities that operate the airports we serve. None of the airports in the cities
in which we operate have slot control, gate availability, or curfews that pose meaningful limitations on our
operations. However, some airports we serve have short runways that require us to operate some flights at less than
full capacity.
International air transportation, whether provided on a scheduled or charter basis, is subject to the laws, rules,
regulations, and licensing requirements of the foreign countries to, from and over which the international flights
operate. Foreign laws, rules, regulations and licensing requirements governing air transportation are generally
similar, in principle, to the regulatory scheme of the United States as described above, although in some cases
foreign requirements are comparatively less onerous and in others, more onerous. We must comply with the laws,
rules and regulations of each country to, from, or over which we operate. International flights are also subject to
U.S. Customs and Border Protection, Immigration and Agriculture requirements and the requirements of equivalent
foreign governmental agencies.
Future Laws and Regulations. Congress, the DOT, the FAA, the TSA, and other governmental agencies have under
consideration, and in the future may consider and adopt, new laws, regulations, interpretations and policies
regarding a wide variety of matters that could affect, directly or indirectly, our operations, ownership, and
profitability. We cannot predict what other matters might be considered in the future by the FAA, the DOT, the
TSA, other agencies, or Congress, nor can we judge what impact, if any, the implementation of any of these
proposals or changes might have on our business.
Civil Reserve Air Fleet. We are a participant in the Civil Reserve Air Fleet (“CRAF”) Program which affords the
U.S. Department of Defense the right to charter our aircraft during national emergencies when the need for military
airlift exceeds the capability of available military resources. During the Persian Gulf War of 1990-91 and on other
occasions, CRAF carriers were required to permit the military to use their aircraft in this manner. As a result of our
CRAF participation, we are eligible to bid on and be awarded peacetime airlift contracts with the military.
Item 1A. Risk Factors
Readers should carefully consider the risks described below before making an investment decision. Our business,
financial condition or results of operations could be materially and adversely affected by any of these risks. 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 Allegiant
Our reputation and financial results could be harmed in the event of an accident or restrictions affecting
aircraft in our fleet.
As of February 1, 2017, our operating fleet consists of 47 MD-80 series aircraft, 34 Airbus A320 series aircraft, and
four Boeing 757-200 aircraft. All of our aircraft were acquired used and range from 11 to 31 years from their
manufacture date at February 1, 2017.
An accident involving one of our aircraft, even if fully insured, could result in public perception that we are less safe
or reliable than other airlines, which would harm our business. Further, there is no assurance that the amount of
insurance we carry would be sufficient to protect us from material loss. Because we are smaller than most airlines,
an accident would likely adversely affect us to a greater degree than a larger, more established airline.
In-flight emergencies affecting our aircraft, and resulting media attention, could also contribute to a public
perception regarding safety concerns and a loss of business.
The FAA could suspend or restrict the use of our aircraft in the event of actual or perceived mechanical problems or
safety issues while it conducts its own investigation, whether involving our aircraft or another U.S. or foreign
airline’s aircraft. Our business could also be significantly harmed if the public avoids flying our aircraft due to an
adverse perception of the aircraft we utilize because of safety concerns or other problems, whether real or perceived,
or in the event of an accident involving these aircraft.
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We rely heavily on automated systems to operate our business and any failure of these systems could harm
our business.
We depend on automated systems to operate our business, including our air reservation system, telecommunication
systems, our website, and other automated systems. Our continuing initiatives to enhance the capabilities of our
automated systems could increase the risk of automation failures. Any failure by us to handle our automation needs
could negatively affect our internet sales (on which we rely heavily) and customer service, and result in lost
revenues and increased costs.
Our website and reservation system must be able to accommodate a high volume of traffic and deliver necessary
functionality to support our operations. Our automated systems cannot be completely protected against events that
are beyond our control, such as natural disasters, telecommunications failures, computer viruses, security breaches
or hacking attacks. Although we have implemented security measures and have disaster recovery plans in place, we
cannot assure investors that these measures are adequate to prevent disruptions. Substantial or repeated website,
reservations system, or telecommunication system failures could decrease the attractiveness of our services. Any
disruption to these systems could result in the loss of important data and revenue, increase in expenses, and harm to
our business.
Our plan to retire our older fleet types will limit our growth until replacement and additional aircraft are
added to our operating fleet.
Our current fleet plan calls for the retirement of all of our MD-80 aircraft and B757-200 aircraft by the end of 2019.
The full retirement of our MD-80 fleet on this schedule will depend on our ability to close on the acquisition of
Airbus aircraft now under contract and to source and acquire additional used Airbus aircraft which we have yet to
identify or for which we have yet to negotiate contracts. The retirement of these aircraft will limit our network
growth until such time as we have replaced these aircraft and added additional aircraft for service growth. If we are
unable to close on Airbus aircraft now under contract or acquire additional Airbus aircraft not yet under contract
when needed to replace aircraft being retired, our fleet replacement may be delayed and we may be limited in our
ability to significantly grow revenues and profitability in the interim.
A breach in the security of personal data could severely damage our reputation, cause considerable additional
costs and result in regulatory penalties.
We receive, retain, and transmit certain personal information about our customers. Our on-line operations also rely
on the secure transmission of this customer data. We use third-party systems, software, and tools in order to protect
the customer data we obtain through the course of our business. Although we use these security measures to protect
this customer information, a compromise of our physical or network security systems through a cyber-security
attack would create the risk that our customers’ personal information might be obtained by unauthorized persons. A
compromise in our security systems could adversely affect our reputation, disrupt operations, and could also result
in litigation or the imposition of penalties. In addition, it could be costly to remediate.
The way businesses handle customer data is subject to increasing legislation and regulation typically intended to
protect the privacy of customer data received, retained, and transmitted. We could be adversely affected if we fail to
comply with existing rules or practices, or if legislation or regulations are expanded to require changes in our
business practices. These privacy developments are difficult to anticipate and could adversely affect our business,
financial condition, and results of operations.
Increases in fuel prices or unavailability of fuel would harm our business and profitability.
Fuel costs constitute a significant portion of our total operating expenses, representing 25.9 percent, 31.3 percent
and 39.6 percent during 2016, 2015 and 2014, respectively. Significant increases in fuel costs have negatively
affected our operating results in the past, and future fuel cost volatility could materially affect our financial
condition and results of operations.
Both the cost and availability of aircraft fuel are subject to many economic and political factors and events occurring
throughout the world over which we have no control. Meteorological events may also result in short-term
disruptions in the fuel supply. Aircraft fuel availability is also subject to periods of market surplus and shortage, and
is affected by demand for heating oil, gasoline, and other petroleum products. Due to the effect of these events on
the price and availability of aircraft fuel, our ability to control this cost is limited, and the price and future
availability of fuel cannot be predicted with any degree of certainty. Due to the high percentage of our operating
costs represented by fuel, a relatively small increase in the price of fuel could have a significantly negative impact
on our operating costs. A fuel supply shortage or higher fuel prices could result in reduction of our service during
the period affected.
We have made a business decision not to purchase financial derivatives to hedge against increases in the cost of fuel.
This decision may make our operating results more vulnerable to the impact of fuel price increases.
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Increased labor costs could result from industry conditions and could be impacted by labor-related
disruptions.
Labor costs constituted 29.4 percent of our total operating costs in 2016, 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.
Further, we have three employee groups (pilots, flight attendants and flight dispatchers) which have elected union
representation. These groups represent approximately half of our employees. In 2016, we reached a collective
bargaining agreement with the International Brotherhood of Teamsters which was ratified by our pilots and became
effective as of August 1, 2016. The agreement provides for enhancements to pay scales, benefits, and limited work
rules. Estimated expenses over the five-year agreement term are expected to have a significant impact on our results
of operations.
Although we reached a tentative agreement with the Transport Workers Union for the flight attendant group, that
agreement was not ratified by the flight attendant work group. We are also in the initial stages of the process with
our flight dispatchers as negotiations commenced in February 2017.
Union contracts with our flight attendants and flight dispatchers could put additional pressure on our labor costs.
If we are unable to reach agreement on the terms of collective bargaining agreements in the future, or we experience
wide-spread employee dissatisfaction, we could be subject to work slowdowns or stoppages. Any of these events
could have an adverse effect on our operations and future results.
FAA limitations could impact our ability to grow in the future.
As with all airlines, the FAA must approve all aircraft and cities to be added to our operation specifications. In 2015,
we received notice from our local FAA office indicating we were under heightened surveillance as a result of what
they referred to as labor unrest. For a period of time, the FAA discontinued approvals of additional aircraft and
cities. Although these restrictions are not in place at the current time, future limitations from the FAA could
potentially hinder our growth.
Unfavorable economic conditions may adversely affect travel from our markets to our leisure destinations.
The airline industry is particularly sensitive to changes in economic conditions. Unfavorable U.S. economic
conditions have historically driven changes in travel patterns and have resulted in reduced discretionary spending for
leisure travel. Unfavorable economic conditions could impact demand for airline travel in our small and mediumsized cities to our leisure destinations. During difficult economic times, we may be unable to raise prices in response
to fuel cost increases, labor, or other operating costs, which could adversely affect our results of operations and
financial condition.
The indenture governing our senior unsecured notes contains various covenants limiting the discretion of our
management in operating our business and could prevent us from capitalizing on business opportunities and
taking some corporate actions.
The indenture governing our senior unsecured notes imposes significant operating and financial restrictions on us.
These restrictions limit or restrict, among other things, our ability, and the ability of our restricted subsidiaries, to:
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incur additional indebtedness;
incur liens;
make restricted payments (including paying dividends on, redeeming, repurchasing, or retiring our capital
stock);
make investments; and
consolidate, merge, or sell all or substantially all of our assets.
These covenants are subject to exceptions and qualifications which are described in the indenture we have filed with
the Securities and Exchange Commission.
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Our indebtedness, debt service obligations and other commitments could adversely affect our business,
financial condition and results of operations as well as limit our ability to react to changes in the economy or
our industry and prevent us from servicing our debt and operating our business.
We have a significant amount of indebtedness and other commitments with significant debt service and fixed charge
obligations which could:
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make it more difficult for us to satisfy our obligations with respect to our indebtedness, and any failure to
comply with the obligations of any of our debt instruments, including financial and other restrictive
covenants, could result in an event of default under agreements governing our indebtedness;
make it more difficult to satisfy our other future obligations, including our obligations to pay the purchase
price and pre-delivery deposits in respect of current and future aircraft purchase contracts;
require us to dedicate a substantial portion of our cash flow to pay principal and interest on our debt, which
will reduce the funds available to fund internal growth through working capital, capital expenditures, and
for other purposes;
limit our flexibility in planning for, or reacting to, changes in our business, the competitive environment,
legislation and our industry;
make us more vulnerable to adverse changes in our business, economic, industry, market or competitive
conditions and adverse changes in government regulation;
expose us to interest rate and pricing increases on indebtedness and financing arrangements;
restrict us from pursuing strategic acquisitions or exploiting certain business opportunities;
subject us to a greater risk of non-compliance with financial and other restrictive covenants in financing
arrangements;
limit, among other things, our ability to obtain additional financing for working capital, capital
expenditures, debt service requirements, execution of our business strategy and other purposes or raise
equity capital in the future and increasing the costs of such additional financings; and
place us at a competitive disadvantage compared to our competitors who are not as highly leveraged or who
have less debt in relation to cash flow.
In addition, our ability to service our indebtedness will depend on our future performance, which will be affected by
prevailing economic conditions and financial, business, regulatory and other factors. Many of these factors are
beyond our control and could materially adversely affect our business, results of operations, cash flows and financial
condition.
At maturity, or in the event of an acceleration of payment obligations, we may be unable to pay our outstanding
indebtedness with our cash and cash equivalents then on hand. In such event, we would be required to seek
alternative sources of funding, which may not be available on commercially reasonable terms, terms as favorable as
our current agreements, or at all. If we are unable to refinance our indebtedness or find alternative means of
financing our operations, we may be required to take actions that are inconsistent with our current business practices
or strategy.
Any inability to obtain financing for aircraft under contract could harm our fleet retirement and growth
plan.
We typically finance our aircraft through debt financing after purchase. Although we believe debt financing will be
available
for the aircraft we will acquire, we cannot provide assurance that we will be able to secure such financing on terms
attractive to
us or at all. To the extent we cannot secure such financing on acceptable terms or at all, we may be required to
modify our
aircraft acquisition and retirement plans, incur higher than anticipated financing costs, or use more of our cash
balances for
aircraft acquisitions than we currently expect.
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Our maintenance costs may increase as our fleet ages.
In general, the cost to maintain aircraft increases as they age, and exceeds the cost to maintain newer aircraft. FAA
regulations, including the Aging Aircraft Airworthiness Directives, require additional and enhanced maintenance
inspections for older aircraft. 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. Although
we plan to retire all of our MD-80 and Boeing 757-200 aircraft by the end of 2019, we will continue to maintain
them in accordance with FAA regulations until retirement.
Engine overhaul expenses for our Airbus series 320 aircraft will be significantly higher than similar expenses for our
MD-80 and Boeing 757-200 aircraft. These major maintenance expenses will be capitalized and amortized as part of
depreciation and amortization expense.
In addition, we may be required to comply with any future law changes, regulations, or airworthiness directives. We
cannot assure investors our maintenance costs will not exceed our expectations.
We rely on third parties to provide us with facilities and services that are integral to our business.
We have entered into agreements with third-party contractors to provide certain facilities and services required for
our operations, such as aircraft maintenance, ground handling, baggage services, and ticket counter space. Our
reliance on others to provide essential services on our behalf gives us less control over costs and the efficiency,
timeliness and quality of contract services.
We also rely on the owners of aircraft under contract, the manufacturer of Airbus aircraft under contract and on the
lessees under aircraft leases, to be able to deliver, or redeliver, aircraft in accordance with the terms of executed
agreements in a timely manner. Our planned initiation of service with these aircraft in the future could be adversely
affected if the third parties fail to perform as contractually obligated.
We may not be able to maintain or grow our ancillary revenues.
Our business strategy includes expanding our ancillary products and services. We cannot ensure that passengers will
pay for additional ancillary products and services we offer in the future, or that they will continue to pay for the
ancillary products and services we currently offer. Regulatory changes could also adversely affect our ancillary
revenue opportunities. Failure to maintain our ancillary revenues could have a material adverse effect on our results
of operations, financial condition and stock price. If we are unable to maintain and grow these revenues, we may be
unable to execute our strategy to continue to offer low base fares in order to stimulate demand.
Our business could be harmed if we lose the services of our key personnel.
Our business depends upon the efforts of our chief executive officer, Maurice J. Gallagher, Jr., and a small number
of senior management and operating personnel. We do not currently maintain key-man life insurance on
Mr. Gallagher or any other executives. We may have difficulty replacing management or other key personnel who
leave and, therefore, the loss of the services of any of these individuals could harm our business.
Risks Associated with the Airline and Travel Industry
The airline industry is highly competitive and future competition in our under-served markets could harm
our business.
The airline industry is highly competitive. 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. If other
airlines begin to provide nonstop services to and from these markets, or otherwise target these markets, the increase
in the amount of direct or indirect competition could cause us to reconsider service to affected markets or impact our
margins.
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A future act of terrorism, the threat of such acts, or escalation of U.S. military involvement overseas could
adversely affect our industry.
Even if not directed at the airline industry, a future act of terrorism, the threat of such acts, or escalation of U.S.
military involvement overseas could have an adverse effect on the airline industry. In the event of a terrorist attack,
the industry would likely experience significantly reduced demand for travel services. These actions, or
consequences resulting from these actions, would likely harm our business and the airline and travel industry.
Changes in government laws and regulations imposing additional requirements and restrictions on our
operations could increase our operating costs.
Airlines are subject to extensive regulatory and legal compliance requirements, both domestically and
internationally, that involve significant costs. 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 make 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. 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,
including certain rules that took effect in 2016. Additional new regulations may be proposed or take effect in 2017.
We are not able to predict the impact of any new consumer protection rules on our business, though we are
monitoring the progress of potential rulings. We could be subject to fines or other enforcement actions if the DOT
believes we are not in compliance with these or other rules or regulations or with the federal consumer protection
laws administered by the DOT. Even if our practices were found to be in compliance with the DOT rules, we could
incur substantial costs defending our practices.
In November 2013, the FAA proposed revisions to the method by which air carriers calculate and control aircraft
weight-and-balance. The proposal is based on a continuing increase in the average weight of persons in the United
States. If the revisions are adopted as proposed by the FAA, the ability of carriers to rely on average weights for this
purpose will be complicated significantly, additional costs may result, and we may be required to carry less than full
loads on certain flights.
In 2017, 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. 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.
Congress also may consider privatization of the U.S. Air Traffic Control system with user fee based funding; the
potential effect on our operating costs is unknown. Additionally, federal funding to airports and/or airport bond
financing could be affected through future deficit reduction legislation, which could result in higher fees, rates, and
charges at many of the airports we serve.
In the past, legislation to address climate change issues 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 has concluded that current and projected concentrations of greenhouse gases emitted by various aircraft,
including all of the aircraft we 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. Certain binding international restrictions adopted under the auspices of the
International Civil Aviation Organization (a specialized agency of the United Nations) may become effective within
several years. 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.
With respect to aging aircraft, aircraft weight-and-balance, consumer protection, climate change, taxation, and other
matters affecting the airline industry, whether the source of new requirements is legislative or regulatory, increased
costs will adversely affect our profitability if we are unable to pass the costs on to our customers or adjust our
operations to offset the new costs.
18
Airlines are often affected by factors beyond their control, including air traffic congestion, weather
conditions, increased security measures, the outbreak of disease and a reduction in demand to any particular
market, any of which could harm our operating results and financial condition.
Like other airlines, we are subject to delays caused by factors beyond our control, including air traffic congestion at
airports and en route, adverse weather conditions, increased security measures, and the outbreak of disease. Delays
frustrate passengers and increase costs, which in turn could affect profitability. During periods of fog, snow, rain,
storms or other adverse weather conditions, flights may be canceled or significantly delayed. Cancellations or delays
due to weather conditions, traffic control problems, and breaches in security could harm our operating results and
financial condition. 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.
A substantial proportion of our scheduled flights have Las Vegas, Orlando, Phoenix, Tampa/St. Petersburg, Los
Angeles, or Punta Gorda 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.
Risks Related to Our Stock Price
The market price of our common stock may be volatile, which could cause the value of an investment in our
stock to decline.
The market price of our common stock may fluctuate substantially due to a variety of factors, many of which are
beyond our control, including:
•
•
•
•
•
•
•
fuel price volatility, and the effect of economic and geopolitical factors and worldwide oil supply and
consumption on fuel availability
announcements concerning our competitors, the airline industry, or the economy in general
strategic actions by us or our competitors, such as acquisitions or restructurings
media reports and publications about the safety of our aircraft or the aircraft types we operate
new regulatory pronouncements and changes in regulatory guidelines
announcements concerning our business strategy
our ability to grow service in the future as rapidly as the market anticipates as we continue to add more
under-served cities to our network
•
•
•
•
•
•
general and industry-specific economic conditions
changes in financial estimates or recommendations by securities analysts
substantial sales of our common stock or other actions by investors with significant shareholdings
additional issuances of our common stock
labor work actions
general market conditions
The stock markets in general have experienced substantial volatility that has often been unrelated to the operating
performance of particular companies. 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. Any similar litigation against us could result in substantial
costs, divert management’s attention and resources, and harm our business or results of operations.
19
Other companies may have difficulty acquiring us, even if doing so would benefit our stockholders, due to
provisions under our corporate charter and bylaws, as well as Nevada law.
Provisions in our articles of incorporation, our bylaws, and under Nevada law could make it more difficult for other
companies to acquire us, even if doing so would benefit our stockholders. Our articles of incorporation and bylaws
contain the following provisions, among others, which may inhibit an acquisition of our company by a third party:
•
•
•
advance notification procedures for matters to be brought before stockholder meetings
a limitation on who may call stockholder meetings
the ability of our board of directors to issue up to 5,000,000 shares of preferred stock without a stockholder
vote
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.
Under U.S. 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.
Our corporate charter and bylaws include provisions limiting voting by non-U.S. citizens.
To comply with restrictions imposed by federal law on foreign ownership of U.S. airlines, our articles of
incorporation and bylaws restrict voting of shares of our capital stock by non-U.S. citizens. The restrictions imposed
by federal law currently require no more than 25 percent of our stock be voted, directly or indirectly, by persons
who are not U.S. citizens, and that our president and at least two-thirds of the members of our board of directors be
U.S. citizens. Our bylaws provide no shares of our capital stock may be voted by or at the direction of non-U.S.
citizens unless such shares are registered on a separate stock record, which we refer to as the foreign stock record.
Our bylaws further provide no shares of our capital stock will be registered on the foreign stock record if the amount
so registered would exceed the foreign ownership restrictions imposed by federal law. Registration on the foreign
stock record is made in chronological order based on the date we receive a written request for registration. Non-U.S.
citizens will be able to own and vote shares of our common stock only if the combined ownership by all non-U.S.
citizens does not violate these requirements.
Item 1B. Unresolved Staff Comments
Not Applicable.
Item 2. Properties
Aircraft
The following table summarizes our total in-service aircraft as of December 31, 2016:
Owned (1)
Seating
Capacity
(per aircraft)
MD-83/88
Airbus A319 (2)
Airbus A320
Boeing 757-200
47
17
16
4
166
156
177
215
Total aircraft
84
Aircraft Type
Age Range
(years)
21-31
11-13
14-20
23-25
Average
Age
in Years
26.9
11.5
16.9
23.6
(1) Refer to Item 8 – Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements –
Note 5 – Long-Term Debt for discussion of notes payable collateralized by our aircraft.
(2) Does not include 12 owned aircraft currently on lease to a European carrier until 2018 or two aircraft being
prepared for revenue service as of the date indicated.
20
The below table includes the number of aircraft expected in service by March 31, 2017:
MD-83/88
A319
A320
B757-200
Total
47
19
17
2
85
Ground Facilities
We lease facilities at the majority of our leisure destinations and several other airports we serve. Our leases for
terminal passenger service facilities (which include ticket counter and gate space, and operations support areas)
generally have a term ranging from month-to-month to several years, and may typically be terminated with a 30 to
90 day notice. We have also entered into use agreements at each of the airports we serve which provide for nonexclusive use of runways, taxiways, and other facilities. Landing fees under these agreements are based on the
number of landings and weight of the aircraft.
We have operational bases at airports for many of the leisure destinations we serve, as well as Bellingham
International Airport, Pittsburgh International Airport, Cincinnati/Northern Kentucky International Airport, and
Asheville Regional Airport. Our operational base in Myrtle Beach is maintained on a seasonal basis.
We use leased facilities at our operational bases to perform line maintenance, overnight parking of aircraft, and other
operations support. We lease additional space in cargo areas at the McCarran International Airport, Orlando Sanford
International Airport and the Phoenix-Mesa Gateway Airport for our primary line maintenance operations. We also
lease additional warehouse space in Las Vegas, Orlando Sanford, and Phoenix-Mesa for aircraft spare parts and
supplies.
The following details the airport locations we utilize as operational bases as of February 1, 2017:
Airport
Location
Asheville Regional Airport
Bellingham International Airport
Cincinnati/Northern Kentucky International Airport
Ft. Lauderdale-Hollywood International Airport
Los Angeles International Airport
McCarran International Airport
Myrtle Beach International Airport
Oakland International Airport
Orlando Sanford International Airport
Phoenix-Mesa Gateway Airport
Fletcher, North Carolina
Bellingham, Washington
Hebron, Kentucky
Ft. Lauderdale, Florida
Los Angeles, California
Las Vegas, Nevada
Myrtle Beach, South Carolina
Oakland, California
Sanford, Florida
Mesa, Arizona
Pittsburgh International Airport
Punta Gorda Airport
St. Petersburg-Clearwater International Airport
Pittsburgh, Pennsylvania
Punta Gorda, Florida
St. Petersburg, Florida
We believe we have sufficient access to gate space for current and presently contemplated future operations at all
airports we serve.
Our primary corporate offices are located in Las Vegas, where we own approximately 11 acres of property
containing approximately 211,000 square feet of office space. To date, we occupy approximately 141,000 square
feet and the remaining space will be used for growth and expansion as needed.
We also lease two other facilities in Las Vegas with approximately 10,000 and 87,000 square feet of space which are
used for corporate and training purposes, as well as approximately 300,000 square feet in Florida for our new
training facility. These
21
leases expire in 2019 for the 10,000 square foot facility and in 2020 and 2026, respectively, for the other facilities.
Both our West Coast and East Coast training centers have an aircraft simulator on location.
Item 3. Legal Proceedings
We are subject to certain other legal and administrative actions we consider routine to our business activities. We
believe the ultimate outcome of any pending legal or administrative matters will not have a material adverse effect
on our financial position, liquidity, or results of operations.
Item 4. Mine Safety Disclosures
Not applicable.
22
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters, and Issuer Purchases of
Equity Securities
Market for our common stock
Our common stock is quoted on the Nasdaq Global Select Market (symbol: ALGT). On February 1, 2017, the last
sale price of our common stock was $172.40 per share. The following table sets forth the range of high and low sale
prices for our common stock for the periods indicated.
Period
High
2016
1st Quarter
2nd Quarter
3rd Quarter
4th Quarter
2015
1st Quarter
2nd Quarter
3rd Quarter
4th Quarter
Low
$
$
$
$
182.50
183.91
152.81
173.82
$
$
$
$
134.64
135.57
127.70
131.45
$
$
$
$
199.20
191.40
238.13
228.79
$
$
$
$
144.51
151.04
175.00
166.59
As of February 1, 2017, there were 181 holders of record of our common stock. Because many of our shares are held
by brokers and other institutions on behalf of shareholders, we are unable to estimate the total number of beneficial
holders.
Securities Authorized for Issuance under Equity Compensation Plans
The following table provides information regarding options, warrants and other rights to acquire equity securities
under our equity compensation plans as of December 31, 2016:
Number of
Securities to
Weightedbe Issued
Average
upon Exercise
Exercise
of
Price of
Outstanding Outstanding
Options,
Options,
Warrants and
Warrants
Rights (b)
and Rights
Equity compensation plans approved by security holders
(a)
43,589
$
84.04
Number of
Securities
Remaining
Available for
Future Issuance
under Equity
Compensation
Plans (c)
1,662,104
(a) There are no securities to be issued under any equity compensation plans not approved by our security holders.
(b) The shares shown as being issuable under equity compensation plans approved by our security holders excludes
unvested restricted stock awards of 253,658 as all restricted stock awards are deemed to have been issued, and
excludes all outstanding stock appreciation rights ("SARs") which are settled in cash.
(c) Our 2016 Long-Term Incentive Plan applies a fungible ratio such that a full-value award, such as a restricted
stock grant or restricted stock unit grant, will be counted at 2 times its number for purposes of the plan limit. As
a result, only a maximum of 831,052 shares of restricted stock are remaining for future issuance under the 2016
Long-Term Incentive Plan.
Dividend Policy
In 2016, we continued the payment of a regular quarterly dividend, as was done in 2015. The initial dividend was set
at $0.30 per share for the first quarter of 2016. This was increased to $0.70 per share for the three subsequent
quarters, bringing total regular cash dividends declared, and paid, in 2016 to $2.40 per share. We declared dividends
of $2.75 per share for 2015, which included a $1.65 per share special dividend declared in December 2015 and paid
in January 2016.
23
In addition to our regular cash dividends, our Board of Directors periodically considers the payment of special cash
dividends based on our results of operations, cash flow generation, liquidity, capital commitments, loan covenant
compliance and other relevant factors.
The indenture governing our senior unsecured notes contains limitations on restricted payments, which includes
stock repurchases and cash dividends. However, no limit applies if we maintain certain financial ratios. For the year
ended December 31, 2016, we complied with such ratios and, as a result, we are not currently limited on the
payment of cash dividends or stock repurchases. The calculation is to be made on a quarterly basis based on the
trailing 12 months. There can be no assurance we will be able to maintain compliance with these financial ratios
indefinitely in the future and, if not, our ability to pay cash dividends or repurchase stock may be limited.
Our Repurchases of Equity Securities
The following table reflects our repurchases of our common stock during the fourth quarter 2016:
Period
Total
Number of
Shares
Purchased
(1)
Average
Price Paid
per Share
Total Number of
Shares Purchased
as Part of our
Publicly
Announced Plan
Approximate
Dollar Value of
Shares that
May Yet be
Purchased
Under the Plans or
Programs (in
thousands) (2)
October
November
December
Total
22,024
46
None
22,070
$
$
136.28
147.60
N/A
136.30
21,975
None
None
21,975
$
89,336
(1) Includes shares repurchased from employees who vested a portion of their restricted stock grants. These share
repurchases were made at the election of each employee pursuant to an offer to repurchase by us. In each case,
the shares repurchased constituted a portion of vested shares necessary to satisfy income tax withholding
requirements.
(2) Represents the remaining dollar amount of open market purchases of our common stock which has been
authorized by the Board under a share repurchase program.
24
Stock Price Performance Graph
The following graph compares the cumulative total shareholder return on our common stock with the cumulative
total return on the Nasdaq Composite Index and the AMEX Airline Index since December 31, 2011. The graph
assumes that the value of the investment in our common stock and each index was $100 on December 31, 2011 and
the reinvestment of all dividends. Stock price performance presented for the period from December 31, 2011 to
December 31, 2016 is not necessarily indicative of future results.
ALGT
Nasdaq Composite Index
AMEX Airline Index
12/31/2011
$ 100.00
$ 100.00
$ 100.00
12/31/2012 12/31/2013 12/31/2014 12/31/2015 12/31/2016
$ 141.38 $ 205.64 $ 294.49 $ 332.45 $ 334.27
$ 115.91 $ 160.32 $ 181.80 $ 192.21 $ 206.63
$ 136.41 $ 215.01 $ 321.15 $ 268.13 $ 341.92
The stock price performance graph shall not be deemed incorporated by reference by any general statement
incorporating by reference this annual report on Form 10-K into any filing under the Securities Act of 1933 or under
the Securities Exchange Act of 1934, except to the extent that we specifically incorporate this information by
reference, and shall not otherwise be deemed filed under such Acts.
25
Item 6. Selected Financial Data
The following financial information for each of the five years ended December 31, has been derived from our
audited consolidated financial statements. Readers should consider the selected consolidated financial data set forth
below along with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and
our consolidated financial statements and related notes. Certain presentation changes and reclassifications have been
made to prior year consolidated financial information to conform to 2016 classifications.
For the Year Ended December 31,
FINANCIAL DATA (in thousands except
per share amounts):
Total operating revenue
Total operating expenses
Operating income
Total other expense (1)
Income before income taxes
Net income attributable to Allegiant Travel
Company
Earnings per share to common shareholders
(2):
Basic
Diluted
Cash dividends declared per share
Total assets
Total long-term debt, net of related costs
Shareholders' equity
2016
$ 1,362,831
992,273
370,558
24,600
345,958
2015
$ 1,262,188
890,486
371,702
24,983
346,719
2014
$ 1,137,046
979,701
157,345
20,214
137,131
2013
$ 996,150
841,413
154,737
8,057
146,680
2012
$ 908,719
776,415
132,304
7,657
124,647
$ 219,590
$ 220,374
$
$
$
$
13.23
$
13.21
$
2.40
$ 1,671,576
808,274
473,622
$
12.97
$
12.94
$
2.75
$ 1,358,331
641,678
350,005
$
4.87
$
4.86
$
2.50
$ 1,240,986
588,794
294,065
86,689
92,273
$
4.85
$
4.82
$
2.25
$ 935,889
236,574
377,317
78,597
$
4.10
$
4.06
$
2.00
$ 803,980
152,566
401,724
(1) Net of capitalized interest of $1.8 million in 2016.
(2) Our unvested restricted stock awards are considered participating securities as they receive non-forfeitable
rights to cash dividends at the same rate as common stock. The Basic and Diluted earnings per share for the
periods presented reflect the two-class method mandated by accounting guidance for the calculation of earnings
per share. The two-class method adjusts both the net income and shares used in the calculation. Application of
the two-class method did not have a significant impact on the basic or diluted earnings per share for the periods
presented.
26
OPERATING DATA: (unaudited)
Total system statistics:
Passengers
Revenue passenger miles (RPMs)
(thousands)
Available seat miles (ASMs)
(thousands)
Load factor
2016
For the Year Ended December 31,
2015
2014
2013
2012
11,128,191
9,500,611
8,154,357
7,241,063
6,987,324
10,282,827
8,944,952
7,825,962
7,129,416
6,514,056
8,945,616
87.5%
8,146,135
87.5%
7,487,276
87.0%
12,375,505
83.1%
10,526,610
85.0%
Operating expense per ASM (CASM)
(cents)**
8.02
8.45
10.95
10.33
10.37
Fuel expense per ASM (cents)**
2.08
2.64
4.34
4.73
5.05
Operating CASM, excluding fuel (cents)
5.94
5.81
6.61
5.60
5.32
ASMs per gallon of fuel
71.62
70.20
69.38
67.62
63.00
Departures
82,341
68,653
56,961
51,083
53,615
Block hours
190,706
160,431
135,572
125,449
124,610
Average stage length (miles)
889
900
918
933
872
Average number of operating aircraft
during period
83.3
74.3
68.8
62.9
60.2
Average block hours per aircraft per day
6.3
5.9
5.4
5.5
5.7
Full-time equivalent employees at end of
period
3,416
2,846
2,411
2,065
1,821
Fuel gallons consumed (thousands)
172,796
149,951
128,933
120,476
118,839
Average fuel cost per gallon**
$
1.49
$
1.86
$
3.01
$
3.20
$
3.18
Scheduled service statistics:
Passengers
11,003,864
9,355,097
8,017,442
7,103,375
6,591,707
Revenue passenger miles (RPMs)
(thousands)
10,130,675
8,821,908
7,711,696
7,015,108
6,220,320
Available seat miles (ASMs)
(thousands)
11,921,733
10,236,075
8,693,631
7,892,896
6,954,408
Load factor
85.0%
86.2%
88.7%
88.9%
89.4%
Departures
78,747
65,683
54,440
48,389
46,995
Block hours
183,290
155,403
131,210
120,620
113,671
Total scheduled service revenue per
ASM (TRASM)* (cents)
10.89
11.82
12.66
12.37
12.33
Average fare - scheduled service
$
68.47
$
78.63
$ 91.30
$ 91.69
$ 88.90
Average fare - ancillary air-related
charges
$
45.40
$
46.43
$ 41.37
$ 40.52
$ 35.72
Average fare - ancillary third party
products
$
4.08
$
4.29
$
4.56
$
5.21
$
5.48
Average fare - total
$ 117.95
$
129.35
$ 137.23
$ 137.42
$ 130.10
Average stage length (miles)
895
915
934
952
918
Fuel gallons consumed (thousands)
166,528
145,654
125,173
116,370
109,257
Percent of sales through website during
period
94.2%
95.1%
93.8%
92.0%
90.1%
* 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.
** Includes effect of fuel tax refund of $8.3 million in 2016.
The following terms used in this section and elsewhere in this annual report have the meanings indicated below:
“Available seat miles” or “ASMs” represents the number of seats available for passengers multiplied by the number
of miles the...
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