May 2011
Dear Allegiant Shareholder:
2010 was another excellent year for your company. We finished the year with a
16% operating margin, generating $664M of top line revenue and $105M of
operating profits. We earned $3.32 per share on a fully diluted basis, down slightly
from 2009’s $3.76 per share earnings. We had another safe year as well, a tribute to
our dedicated personnel and team members who have been so important to our
success.
2010 Growth
2010 was another growth year. Departures were up just shy of 10% while available
seat miles (ASMs) increased 14.6%. Our fleet size increased almost 15% during the
year to an average of 49 aircraft during the year. We ended the year with 73 cities,
up four from 2009. The total includes 62 small cities and 11 destinations. We had
160 routes by yearend, up 24 during the year. During the past few years, we have
been able to increase our routes by “connecting the dots,” namely connecting our
small cities to more and more of our 11 leisure destinations. As an example, our
Mesa/Williams Gateway destination in southeast Phoenix has tripled in size from
nine cities served at the end of the third quarter of 2008 to 27 cities served at the
end of 2010. During this same period, the number of our small cities served only
increased by eight cities.
Allegiant Travel Company Growth
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Total Cities Served
Total Routes
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Average Aircraft
2010
Total Revenues
Ancillary Revenues
Our ancillary revenues continue to be one of the critical contributors to our success.
Since 2005, we have increased the revenue from our ancillary air products and
third-party hotel, rental cars and other products from $11M to $194M last year with
a $31M increase last year alone. This represents a more than 1600% increase
during this time while scheduled service passengers have increased by 392%.
Ancillary Revenues
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Total Ancillary Revenue
$24M of our $194M ancillary sales last year was from our third-party products,
namely hotel rooms, rental cars and other vacation-related products. These are
powerful contributors to our overall profitability. The $24M of third-party revenues
in 2010 represented 23.3% of our operating profits. Going forward we want to
continue to emphasize the growth in our third-party revenues. Las Vegas is the
clear leader in our third-party product sales. We are focused on growing
contributions from our other leisure destinations in Florida, Arizona and Southern
California.
Expenses - Fuel
During 2010 revenues increased 18.9% while operating expenses were up 28.3%.
The biggest culprit in the increased expenses, as we have seen so many times in the
past three years, was increased fuel costs. Gallons consumed were only up 13.4%,
but the average cost per gallon increased 30% or $.53 to $2.30 per gallon.
Fuel costs have been exceptionally volatile in the past four years:
2006
Average Cost/Gallon $2.12
Percent Change
2007
$2.31
9.0%
2009
2008
$2.98
$1.76
29.3% (40.9%)
2010
$2.30
30.2%
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The above chart summarizes the volatile changes in our cost per gallon with a
backdrop of increasing gallons used since 2006. You can see the violent increase
and decrease that occurred during the back half of 2007 and 2008.
Volatility in basic everyday commodities has become a way of life. While financial
markets seem to thrive and prosper on these high levels of volatility, the same
cannot be said of individuals and businesses dependent on these commodities.
Management challenges in this environment are substantial.
In our particular instance, we have developed a number of strategies to combat this
volatility. In the case of non-controllable expenses such as fuel, clearly revenues
must be managed closely to offset these rapid increases. The best revenue
management tool, particularly in quickly increasing fuel environments, is to limit
capacity, as we did beginning in the second quarter of 2008 and late last year.
Eliminating the marginal seat allows us to increase fares accordingly.
Our second tactic is to fill our aircraft with as many passengers as possible. We
targeted a 90% load factor as our primary driver, adjusting our scheduled service
fare to drive the load. We discovered as we increased our passengers per departure,
we were still able to maintain our ancillary unit revenue. Additionally, higher loads
spread our costs across more passengers thereby reducing per passenger fixed
costs, including fuel. The combination of these tactics has worked well for us since
2008.
Late last year we were again reacting to increasing fuel prices. From June through
December, the average cost per gallon increased $.46 from $2.20 to $2.66, a 21%
increase in six months. Beginning in Q4 and into 2011, we have been trimming
capacity in an effort to increase our unit revenues.
This aggressive management of our capacity and associated revenues has been key
to our success over the years. We are comfortable we can profitably manage our
business in any reasonably stable fuel environment. What is difficult, and hence
requires capacity growth restraint, is managing in quickly increasing expense
environments. We will continue to actively follow these tactics in the coming
months and years. Maintaining our industry leading profit margins is a key
corporate goal for your company.
Investments
2010 has been an investment year for your company. Last year we had capital
expenditures of $98M compared to $31M in 2009. The majority of these dollars
were used to purchase future capacity including 757s and MD80s. We are fortunate
we have a strong balance sheet (see below) and substantial cash reserves. This
combination provides us with ready reserves to move quickly when good deals
present themselves.
We will continue this high rate of investment in 2011 as well with another $100M of
expected capital expenditures to acquire the remaining 757s, additional MD80s and
begin the conversion of our MD80 interiors to a uniform 166-seat configuration.
Investments – 757s
Early last year we announced we would be purchasing up to six Boeing 757 aircraft
with the express intention of using the aircraft to serve Hawaii from the western
United States. This effort is a continuation of our strategy to serve world-class
leisure destinations from small cities. Hawaii is one of the premier vacation
destinations in the world. Our model, we believe, is well suited to serve Hawaii.
We are currently working with the FAA to obtain the operating authority for the
757. We expect to begin operations in some of our current markets during the
second half of 2011 and service to Hawaii in late 2012.
To date we have purchased four of the six 757s we have under contract. Three of
the aircraft are generating revenues via sub-leases to other operators while we
work our way through the necessary approvals from the FAA.
Investments – 166 Seat Program
Late last year your Board of Directors approved the company investing up to $50M
to standardize the interiors of the company’s MD80 fleet (51 aircraft at this time)
including increasing the seats per aircraft from 150 to 166, a 10% increase in
capacity per aircraft. These additional seats will lower our unit costs as well as
provide additional revenue opportunities, particularly on peak travel days. Delivery
of converted aircraft is scheduled to begin in mid-2011 and continue through 2012.
Balance Sheet
I am pleased to report the company’s balance sheet is in excellent condition. We
have one of the strongest financial positions in the industry. We finished the year
with $297M of stockholder’s equity and minimal debt (we completed a $125M debt
transaction during March, 2011 which increased our cash to over $300M and our
outstanding debt to 45% of equity). Since our public offering in late 2006 we have
added more than $190M of earnings to the company. Additionally, last year we
purchased $54M of stock or 1.2M shares. Lastly, in 2010, our return on equity, after
tax, was 22.3%.
Future
These investments in capacity will provide us with excellent growth during 2012
and beyond. Given the current run-up in fuel prices, which began in late 2010 and is
continuing as this letter is written, we have chosen to limit our growth to allow us to
increase our unit revenues. We have the capacity to add more service, but as in past
times, have chosen to limit our activity to a level necessary to provide appropriate
returns. Profitability trumps growth.
However, we will continue to grow. We have our investment plans and
commitments in place for our 2012 and 2013 growth, namely the MD80 cabin
upgrades and the addition of the 757s.
We are excited about our prospects. We continue to look left while others in this
industry look right. Our successes during the past 10 years are directly attributable
to our differences, particularly our focus on underserved markets. This has resulted
in a critical differentiator, direct competition on only eight out of 160 routes, or 5%.
The 757 will provide us with additional capabilities to tap underserved markets, a
hallmark of our successful strategy. We are also mindful we must maintain our
industry-leading cost structure. Leisure traffic is the most price sensitive travel
sector. Without low costs, which translate into low fares and associated profits, our
ability to stimulate our leisure travel customers will be suspect.
Lastly, our team members have been and will continue to be key to our success.
Once again they have performed exceptionally well this past year. Their support of
the company, their willingness to take care of the customer and their dedication to
operating a safe, reliable, fun and leisure-focused company have been critical to our
success.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
(cid:1) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 2010
OR
(cid:2)
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)
8360 S. Durango Drive,
Las Vegas, Nevada
(Address of Principal Executive Offices)
20-4745737
(I.R.S. Employer
Identification No.)
89113
(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
Name of Each Exchange on Which Registered
Common Stock, $.001 par value per share
Nasdaq Global Select Market
Securities registered pursuant to Section 12(g) of the Act:
None
(Title of Class)
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes (cid:1) No (cid:2)
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 (cid:2) No (cid:1)
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 (cid:1) No (cid:2)
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, 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 (cid:2) No (cid:2)
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. (cid:2)
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a
smaller reporting company. See the definitions of ‘‘large accelerated filer,’’ ‘‘accelerated filer,’’ and ‘‘smaller reporting company’’ in
Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer (cid:2)
Smaller reporting company (cid:2)
Accelerated filer (cid:1)
Non-accelerated filer (cid:2)
(Do not check if a
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 (cid:2) No (cid:1)
The aggregate market value of common equity held by non-affiliates of the registrant as of June 30, 2010, was approximately
$669,000,000 computed by reference to the closing price at which the common stock was sold on the Nasdaq Global Select Market
on that date. This figure has been calculated by excluding shares owned beneficially by directors and executive officers as a group
from total outstanding shares solely for the purpose of this response.
The number of shares of the registrant’s Common Stock outstanding as of the close of business on March 1, 2011 was
19,006,571.
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 14, 2011, 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.
DOCUMENTS INCORPORATED BY REFERENCE
EXHIBIT INDEX IS LOCATED ON PAGE 68
(This page has been left blank intentionally.)
ALLEGIANT TRAVEL COMPANY
ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 2010
TABLE OF CONTENTS
Item
PART I
Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1
1A Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1B Unresolved Staff Comments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2
Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3
Reserved . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4
PART II
5
Market for Registrant’s Common Equity, Related Stockholder Matters, and Issuer
Purchases of Equity Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
6
7
Management’s Discussion and Analysis of Financial Condition and Results of Operations .
7A Quantitative and Qualitative Disclosures about Market Risk . . . . . . . . . . . . . . . . . . . . . . .
Financial Statements and Supplementary Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
8
9
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure .
9A Controls and Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
9B Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
10
11
12
13
14
15
PART III
Directors, Executive Officers, and Corporate Governance . . . . . . . . . . . . . . . . . . . . . . . . .
Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Certain Relationships and Related Transactions, and Director Independence . . . . . . . . . . .
Principal Accountant’s Fees and Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Exhibits and Financial Statement Schedules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
PART IV
Page
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i
(This page has been left blank intentionally.)
Item 1. Business
Business Overview
PART I
We are a leisure travel company focused on providing travel services to residents of small,
underserved cities in the United States. We operate a low-cost passenger airline marketed to leisure
travelers in small cities, allowing us to sell air travel both on a stand-alone basis and bundled with hotel
rooms, rental cars and other travel related services. Our route network, pricing philosophy, advertising
and diversified product offering 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 from us.
Our business model provides for diversified revenue streams, which we believe distinguishes us
from other U.S. airlines and travel companies:
(cid:127) Scheduled service revenue consists of air fare from our limited frequency nonstop flights between
our small city markets and our leisure destinations.
(cid:127) Ancillary revenue is generated from air-related charges and third party products. Air-related
charges are generated through fees for use of our website to purchase tickets, checked bags,
advance seat assignments, priority boarding and other services provided in conjunction with our
scheduled air service. We also generate revenue from the sale of third party products such as
hotel rooms, ground transportation (rental cars and hotel shuttle products) and attraction and
show tickets. We recognize our ancillary revenue net of amounts paid to service providers, travel
agent commissions and credit card processing fees.
(cid:127) Fixed fee contract revenue consists largely of fixed fee flying agreements with affiliates of Caesars
Entertainment, Inc. (formerly Harrah’s Entertainment Inc.) that provide for a predictable
revenue stream. We also provide charter service on a seasonal and ad hoc basis for other
customers.
Our strategy is to develop the leisure travel market in small cities by offering nonstop low fare
scheduled service to leisure destinations at low prices. We currently provide service to Las Vegas,
Nevada, Orlando, Florida, Phoenix, Arizona, Tampa/St. Petersburg, Florida, Los Angeles, California
and Ft. Lauderdale, Florida. We also currently provide limited service to other leisure destinations of
Punta Gorda, Florida, San Diego, California, Palm Springs, California and the San Francisco Bay Area,
California, along with seasonal service to Myrtle Beach, South Carolina.
Our business strategy has evolved as our experienced management team has looked differently at
the traditional way business has been conducted in the airline and travel industry. We have consciously
developed a different business model:
Traditional Airline Approach
Allegiant Approach
(cid:127) Focus on business traveler
(cid:127) Provide high frequency service
(cid:127) Use smaller aircraft to provide connecting
service from smaller markets through hubs
(cid:127) Focus on leisure traveler
(cid:127) Provide low frequency service from small cities
(cid:127) Use larger jet aircraft to provide nonstop
service from small cities direct to leisure
destinations
(cid:127) Sell through various intermediaries
(cid:127) Sell only directly to travelers without
(cid:127) Offer flight connections
(cid:127) Use frequent flyer programs and code-share
arrangements to increase passenger traffic
participation in global distribution systems
(cid:127) No connecting flights offered
(cid:127) Do not use frequent flyer programs or
code-share arrangements
1
Our Competitive Strengths
We have developed a unique business model that focuses on leisure travelers in small cities. We
believe the following strengths allow us to maintain a competitive advantage in the markets we serve:
Focus on Transporting Travelers From Small Cities to Leisure Destinations. As of March 1, 2011, we
provide nonstop low fare scheduled air service from 62 small cities (including seasonal service)
primarily to the leisure destinations of Las Vegas, Nevada, Orlando, Florida, Phoenix, Arizona, Tampa/
St. Petersburg, Florida, Los Angeles, California and Ft. Lauderdale, Florida. Generally, when we enter
a new market, there is no existing nonstop service to our leisure destinations. We believe this nonstop
service, along with our low prices and premier leisure company relationships, makes it attractive for
leisure travelers to purchase air travel and related services from us.
By focusing on small cities, we believe we avoid the intense competition in high traffic domestic air
corridors. In our typical small city market, travelers faced high airfares and cumbersome connections or
long drives to major airports to reach our leisure destinations before we started providing service. As of
March 1, 2011, we face mainline competition on only ten of our 161 routes. Based on published data
from the U.S. Department of Transportation (‘‘DOT’’), we believe the initiation of our service
stimulates demand as there has been a substantial increase in traffic after we have begun service on
new routes. We believe our market strategy has had the benefit of not appearing hostile to either
legacy carriers, whose historical focus has been connecting small cities to business markets, or
traditional low cost carriers or LCCs, which have tended to focus more on larger markets than the
small city markets we serve.
Low Operating Costs. We believe low costs are essential to competitive success in the airline
industry. Our operating expense per available seat mile (‘‘ASM’’) or operating CASM was 8.95¢ and
8.00¢ in 2010 and 2009, respectively. Excluding the cost of fuel, our operating CASM was 5.05¢ for
2010 and 4.97¢ for 2009.
Our low operating costs are the result of our focus on the following:
(cid:127) Cost-Driven Schedule. We design our flight schedule to concentrate our aircraft each night in our
crew bases. This concentration allows us to better utilize personnel, airport facilities, aircraft,
spare parts inventories, and other assets. We can do this because we believe leisure travelers are
generally less concerned about departure and arrival times than business travelers. Therefore, we
are able to schedule flights at times that enable us to reduce our costs.
(cid:127) Low Aircraft Ownership Costs. We believe we properly balance low aircraft ownership costs and
low operating costs to minimize our total costs. As of March 1, 2011, our operating fleet consists
of 51 MD-80 series aircraft. MD-80 aircraft are substantially less expensive to acquire than
Airbus A320 and Boeing 737 aircraft and have been highly reliable aircraft. As of March 1,
2011, we also own eight MD-80 aircraft in long-term storage and three Boeing 757-200 aircraft,
two of which have been leased out to third parties, with outstanding purchase agreements to
acquire an additional three Boeing 757-200 aircraft. We expect to introduce these aircraft into
our fleet through 2012. We believe the Boeing 757-200 aircraft will allow us to serve longer haul
routes which could not be reached with the MD-80 aircraft, while maintaining low aircraft
ownership costs consistent with our business model.
(cid:127) Highly Productive Workforce. We believe we have one of the most productive workforces in the
U.S. airline industry with approximately 32 full-time equivalent employees per operating aircraft
as of March 1, 2011. We believe this compares favorably with the same ratio for other airlines
based on recent publicly available industry data for other airlines. Our high level of employee
productivity is created by cost-driven scheduling and the effective use of automation and
part-time employees. We benefit from a motivated, enthusiastic workforce committed to high
standards of friendly and reliable service. We invest a significant amount of time and resources
2
into carefully developing our training practices and selecting individuals to join our team who
share our focus on ingenuity and continuous improvement. We conduct ongoing training
programs to incorporate industry best practices and encourage strong and open communication
channels among all of the members of our team so we can continue to improve the quality of
the services we provide.
(cid:127) 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.
(cid:127) Low Distribution Costs. Our nontraditional approach results in very low distribution costs. We do
not sell our product through outside sales channels and, as such, avoid the fees charged by travel
web sites (such as Expedia, Orbitz or Travelocity) and the traditional global distribution systems
(‘‘GDS’’) (such as Sabre or Worldspan). Our customers can only purchase travel at our airport
ticket counters or, for a fee, through our telephone reservation center or website. We actively
encourage sales on our website. This is the least expensive form of distribution and accounted
for 88.8% of our scheduled service revenue during 2010. We believe our percentage of website
sales is among the highest in the U.S. airline industry. Further, we are 100% ticketless, which
saves printing, postage, and back-office processing expenses.
(cid:127) Small Cities. Our business model focuses on residents of small cities in the United States.
Typically these airports have lower costs for carriers providing service. Our route network
provides us the ability to take advantage of these lower costs with the majority of airports in our
route network being in small cities, compared to our leisure destinations we serve which are
larger and more expensive airports. In addition, these small city markets, along with the
structure of our arrangements with airports which serve these small cities, result in lower
marketing costs.
Strong Ancillary Revenues. We earn ancillary revenue in conjunction with the sale of scheduled air
service which represents a significant percentage of our total operating revenue. Our ancillary revenues
have grown from $114.6 million in 2008, to $162.7 million in 2009, and $194.0 million in 2010,
representing 22.7%, 29.2% and 29.2% of total operating revenues, respectively. On a per scheduled
service passenger basis, our ancillary revenues increased from $29.43 per scheduled service passenger in
2008 to $33.07 in 2009 and $34.58 in 2010. We believe ancillary revenue will continue to be a key
component in our total average fare and we have proven during 2010 we can sustain high ancillary
revenue per passenger levels in a difficult revenue environment.
Capacity Management. We actively manage our capacity in our routes to match the supply of seats
to the demand existing in a given market, considering any seasonal shifts in demand that may exist.
With strong ancillary revenue generated per passenger and the ability to spread out our costs over a
larger number of passengers, we price our fares and actively manage our capacity to seek to achieve
90% load factors which has allowed us to operate profitably throughout a changing environment. Our
low cost aircraft facilitate our ability to adjust service levels quickly and maintain profitability during
difficult economic times.
Strong Financial Position. We have a strong financial position with significant cash balances. As of
December 31, 2010, we had $150.3 million of unrestricted cash, cash equivalents and short-term
investments. As of December 31, 2010, our total debt was $28.1 million and our debt to total
capitalization ratio was 8.6%. We also have grown profitably with generation of net income in eight
consecutive years. On March 10, 2011, we borrowed $125.0 million under a senior secured term loan
facility (‘‘Term Loan’’). We believe the Term Loan will further strengthen our financial position and
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provide us greater financial flexibility to grow the business and weather sudden industry disruptions or
U.S. macro events.
Proven Management Team. We have a strong stable management team comprised of experienced
and motivated individuals. Our management team is led by Maurice J. Gallagher, Jr. and Andrew C.
Levy, each of whom has an extensive background in the airline industry. Mr. Gallagher was the
president of WestAir Holdings, Inc. and built WestAir into one of the largest regional airlines in the
U.S. prior to its sale in 1992 to Mesa Air Group. He was also one of the founders of ValuJet, Inc.,
which is known today as AirTran Holdings, Inc. Mr. Levy was a former manager of ValuJet where he
quickly advanced into roles of increasing responsibility and later worked for an airline investment and
advisory firm. Each of these executives has been with us since 2001.
Our Business Strategy
To continue the growth of our business and increase our profitability, our strategy will be to
continue to offer a single class of air travel service at low fares and expand our travel offerings, while
maintaining high quality standards, keeping our operating costs low and pursuing ways to make our
operations more efficient. We intend to grow by adding flights on existing routes, entering additional
small cities, connecting our existing small cities to more of our leisure destinations, providing service to
more leisure destinations and expanding our relationships with premier leisure companies.
The following are the key elements of our strategy:
Capitalize on Significant Growth Opportunities in Transporting Travelers from Small Cities to Leisure
Destinations. We believe small cities represent a large untapped market, especially for leisure travel.
We believe small city travelers have limited options to leisure destinations as existing carriers are
generally focused on connecting the small city ‘‘spokes’’ to their business hubs. We aim to become the
premier travel brand for leisure travelers in the small cities served by us.
Since the beginning of 2004, we have expanded our scheduled air service from six to 62 small cities
as of March 1, 2011, including seasonal service. These 62 small cities have an aggregate population in
excess of 50 million people within a 50-mile radius of the airports in those cities. In most of these
cities, we provide service to more than one of our leisure destinations. We expect to grow our service
to leisure destinations by adding frequency from some existing small city markets and initiating service
from additional small cities. We believe our business model would be suitable for approximately 100
small cities in the U.S., Canada and Mexico.
We also believe there are several other major leisure destinations that share many of the same
characteristics as Las Vegas, Orlando, Phoenix, Tampa/St. Petersburg, Los Angeles and Ft. Lauderdale.
These potential markets include Hawaii, several other popular vacation destinations in the U.S.
(including the possible expansion of our current limited service to destinations such as Punta Gorda,
Florida and San Diego, California), Mexico and the Caribbean.
Develop New Sources of Revenue. We have identified three key areas where we have built and
believe we can grow our ancillary revenues:
(cid:127) Unbundling the Traditional Airline Product. We believe most leisure travelers are concerned
primarily with purchasing air travel for the least expensive price. As such, we have created new
sources of revenue by charging fees for services many U.S. airlines historically bundled in their
product offering. We believe by offering a simple base product at an attractive low fare we can
stimulate demand and generate incremental revenue as customers pay additional amounts for
conveniences they value. For example, we do not offer complimentary advance seat assignments;
however, any customer can purchase advance seat assignments for a small incremental cost. We
also sell snacks and beverages on board the aircraft so our customers can pay for only the items
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they value. We aim to continue to increase ancillary revenue by further unbundling our air travel
product.
(cid:127) Expand and Add Partnerships with Premier Leisure Companies. We currently work with many
premier leisure companies in our leisure destinations that provide ancillary products and services
we sell to our customers. For example, we have contracts with Caesars Entertainment Inc.
(formerly Harrah’s Entertainment Inc.) and MGM MIRAGE, among others, that allow us to
provide hotel rooms sold in packages to our customers. During 2010, we generated revenue from
the sale of more than 500,000 hotel rooms. By expanding our existing relationships and seeking
additional partnerships with premier leisure companies, car rental companies and other travel
providers, we believe we can increase the number of products and services offered to our
customers and generate more ancillary revenue. We continue to emphasize and focus on revenue
growth from third party products. We believe our efforts to enhance software capabilities and
provide additional offerings, along with our loyal customer base, could result in meaningful
long-term revenue growth.
(cid:127) Leverage Direct Relationships With Our Customers. Since approximately 89% of our scheduled
service revenue was purchased directly through our website in 2010, we are able to establish
direct relationships with our customers by capturing their email addresses for our database. This
information provides us multiple cost effective opportunities to market products and services,
including at the time they purchase their travel, between the time they purchase and initiate
their travel, and after they have completed their travel. In addition, we market products and
services to our customers during the flight. We believe the breadth of options we can offer them
allows us to provide a ‘‘one-stop’’ shopping solution to enhance their travel experience.
Continue to Focus on Reducing Our Operating Costs. We intend to continue to focus on reducing
our costs to remain one of the lowest cost airlines in the world, which we believe is instrumental to
increasing profitability. We expect to drive operational efficiency and reduce costs in part by growing
our network. We will expand our network by increasing the frequency of our flights in existing small
city markets, expanding the number of small cities we serve, and increasing the number of leisure
destinations, all of which permits us to increase the utilization of our employees and assets, spreading
our fixed costs over a larger number of departures and passengers.
Minimize Fixed Costs to Increase Strategic Flexibility. We believe our low aircraft ownership costs
and the lower costs associated with our small city market strategy provide us with a lower level of fixed
costs than other U.S. airlines. We believe our low level of fixed costs provides us with added flexibility
in scheduling our services and controlling our profitability. For example, with lower fixed costs we are
better able to quickly adjust capacity to suit market, fuel or economic conditions, enter or exit markets
and match the size and utilization of our fleet to limit unprofitable flying and increase profitability.
Routes and Schedules
Our current scheduled air service predominantly consists of limited frequency, nonstop flights into
Las Vegas, Orlando, Phoenix, Tampa/St. Petersburg, Los Angeles and Ft. Lauderdale from small cities
(including seasonal service) across the continental United States. As of March 1, 2011, we offered
scheduled service from 62 small cities on 161 routes in 35 states. We believe our route network
expansion has provided us geographic diversity which provides protection from competitive influences
in the markets we serve and continued growth in our customer base.
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We attempt to match the frequency of flights with market demand. We rarely have daily flights in
our markets, nor do we generally offer multiple flights per day. In most cases, we offer several flights
per week in each of our markets. We regularly adjust frequency in our markets as demand warrants. In
periods of high fuel costs, we tend to reduce capacity to help support the higher airfares necessary to
cover the higher fuel costs and to generate profits.
In addition, we temporarily suspend flying some of our Florida, Phoenix, Arizona and Los Angeles,
California routes for varying periods (depending on the route) between the middle of August and the
beginning of November as leisure demand to these destinations tends to be quite weak during this
time. We schedule crew training, aircraft maintenance and additional charter flying to coincide with
these periods. We also fly on a seasonal basis routes to Myrtle Beach, South Carolina during the
summer months when demand is stronger.
We generally begin our route selection process by identifying markets in which there is no nonstop
service to our leisure destinations, which have a large enough population in the airport’s catchment
area to support at least two weekly flights, and which are typically no more than eight hours round-trip
flight time from the destination. The eight hour limit permits one flight crew to perform the mission,
avoiding costly crew overnight expenses and increasing crew utilization and efficiency. We then study
publicly available data from the DOT showing the historical number of passengers, capacity, and
average fares over time in the identified markets. We also study general demographic information
about the population base for the targeted market area to assist in our determination whether we
believe a service from a particular market would likely be successful.
We forecast the level of demand in a particular market that will result from the introduction of
our service as well as our judgment of the likely competitive response of other airlines. We focus on
markets where competitors are unlikely to initiate service and we prioritize routes that can be started at
low marginal crew and ground operations costs.
Once a market is classified as attractive, we begin a rigorous analysis of the costs of providing
service to that market. The major costs under consideration would be the initial and ongoing
advertising costs to gain and maintain name recognition, airport charges, ground handling and fuel
costs. The demand for nonstop air service in our small city markets often gives us leverage to attract
financial support from the cities and airports we serve in the form of shared advertising costs or
abatement or reduction of airport fees.
Our fixed fee flying predominately consists of flying under an agreement with Caesars
Entertainment Inc. (formerly Harrah’s Entertainment Inc.) with one aircraft based in Tunica,
Mississippi and two aircraft in Laughlin, Nevada. In February 2011, we began flying under an
agreement with Peppermill Resorts Inc. with one aircraft based in Wendover, Nevada. We are a
participant in the Civil Reserve Air Fleet (‘‘CRAF’’) which allows us to bid on and be awarded
peacetime airlift contracts with the military. During periods when aircraft are not utilized for scheduled
service flying, we typically seek out additional charter service and ad hoc flying.
Sales and Distribution
We sell air transportation that may be packaged, at the passenger’s discretion, with other products
such as hotels, rental cars, and tickets to popular tourist attractions in our leisure destinations. We have
chosen to maintain full control over our inventory and only distribute our product through our website,
our call center, or at our airport ticket counters. We do not sell through Expedia, Travelocity, Orbitz or
any other internet travel agencies nor is our product displayed and sold through the global distribution
systems which include Sabre, Galileo, Worldspan and Amadeus. This distribution strategy results in
reduced expenses by avoiding the fees associated with the use of GDS distribution points and also
permits us to closely manage ancillary product offerings and pricing and develop and maintain a direct
relationship with our customers. The direct relationship enables us to engage continuously in
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communications with our customers which we believe will result in substantial benefits over time. With
our own automation system, we have the ability to continually change our ancillary product offerings
and pricing points which allows us to experiment 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
systems.
We market our services through advertising and promotions in newspapers, magazines, television
and radio and through targeted public relations and promotional efforts in our small city markets. We
currently advertise in more than 400 print circulations. We also rely on public relations and
word-of-mouth to promote our brand. We generally run special promotions in coordination with the
inauguration of service into new markets. Starting approximately 60 days before the launch of a new
route, we undertake a major advertising campaign in the target market and local media attention
frequently focuses on the introduction of our new service.
We have a database of more than one million email addresses from past customers and visitors to
our website, and use blast emails to communicate special offers to this group. The heaviest
concentration of air-only sales occurs in the period 30 to 60 days before departure, and occurs 30 to
90 days before departure for air-hotel package sales. We commonly use email promotions directed
toward the customers in our database as a vehicle for selling unsold seats in the period two to three
weeks before departure.
All of our bookings must be made on our website, through our call center or at our airport ticket
counters, even if booked through travel agents. The percentage of our scheduled service bookings on
our website has exceeded 86% in each of the last five years. This distribution mix creates significant
cost savings for us and enables us to continue to build loyalty with our customers through increased
interaction with them. We expect the development of our website and other automation enhancements
to allow us to take further advantage of our customer loyalty with additional product offerings.
Pricing, Revenue Management and Air-Related Ancillary Revenue
Our low fares are designed to stimulate demand from price-sensitive leisure travelers who might
not have traveled to our leisure destinations due to the expense and inconvenience involved prior to
our initiation of non-stop service. Our fare structure generally comprises six ‘‘buckets,’’ with prices
generally increasing as the number of days prior to travel decreases. Prices in the highest bucket are
typically less than three times the prices in the lowest bucket. All our fares are one-way and
non-refundable, although they may be changed for a $50 charge per segment. Customers may avoid
change fees by buying our travel protection product (Trip-Flex) at the time of purchase.
We try to maximize the overall revenue of our flights by watching inherent demand on a given
route on any given day and managing the number of seats we offer for sale in these six ‘‘buckets’’. The
number of seats offered at each fare is established through a continual process of forecasting,
optimization and competitive analysis. Generally, past booking history and seasonal trends are used to
forecast anticipated demand. These historical forecasts are combined with current bookings, upcoming
events, competitive pressures and other factors to establish a mix of fares designed to maximize
revenue. The ability to accurately adjust prices based on fluctuating demand patterns allows us to
balance loads and capture more revenue from existing capacity. We believe effective yield management
has contributed to our strong financial operating performance and is a key to our continued success.
Ancillary revenue is derived from third party products and air-related charges associated with the
trip of our customer. Air-related charges include fees for using our reservation center or website to
purchase air travel; checked bags and overweight bags; unlimited changes to reservations (our Trip-Flex
product); seat selection; priority boarding; and several other aspects of air travel. Pricing of certain
air-related charges such as our customer convenience fee and booking fee is based on an established
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fixed price. Other air-related charges such as baggage fees and priority boarding fees are adjusted
market to market based on customer demand to seek to increase revenue potential.
Third Party Ancillary Revenue
Along with our air-related charges, the sale of third party products is the other component of our
ancillary revenue. We offer our customers the opportunity to purchase hotels, rental cars, show tickets,
night club packages and other attractions packaged with air travel and have recently employed a low
price guarantee ensuring we maintain the most cost effective form of leisure travel in the industry. Our
third party offerings are available to customers based on our agreements with various premier travel
and leisure companies. As of March 1, 2011, we have agreements to offer rooms from approximately
260 hotels and tickets to over 50 attractions in our leisure destinations. In addition, we have an
exclusive agreement with one rental car operator for the sale of rental cars packaged with air travel at
all of our major leisure destinations and most of our other leisure destinations. Pricing of attractions,
shows and tours are based on a net-pricing model. The pricing of each product can be adjusted market
to market based on customer demand and take rate.
During 2010, we entered into an amendment of an agreement with one of our key Las Vegas hotel
partners for access to hotel rooms for sale. Under the amendment, we prepaid $25.0 million in
exchange for discounted room rates and commitments on inventory levels available for sale by us. Over
the term of the agreement, we are not required to purchase any amount of rooms. The agreement is
not exclusive in nature and allows us to be repaid any unused portion of the prepayment upon
termination or expiration of the agreement.
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, industry
capacity and pricing actions taken by other airlines. The principal competitive factors in the airline
industry are fare pricing, customer service, routes served, flight schedules, types of aircraft, safety
record and reputation, code-sharing relationships and frequent flyer programs.
Our competitors and potential competitors include legacy airlines, LCCs, regional airlines and new
entrant airlines. Many of these airlines are larger, have significantly greater financial resources and
serve more routes than we do. In a limited number of cases, competitors have chosen to add service,
reduce their fares or both, in some of our markets following our entry. In a few cases, other airlines
have entered after we have developed a market.
We believe a key to our initial and long-term success is that we seek to offer customers in our
markets a better alternative for airline travel. We offer a simple, affordable product with excellent
customer service and reliability using clean and comfortable aircraft. We sell only nonstop flights. We
do not require Saturday night stays or the purchase of round-trip travel. We do not overbook our
flights. We understand that our leisure customer only has a limited number of vacation days and relies
on us to get them to their destination and back in a timely manner.
Our 150-seat MD-80 aircraft, with an average seat pitch of 31 to 32 inches, offer a comfortable
alternative to the 37 to 86 seat regional jets that secondary market travelers are accustomed to flying as
part of the hub and spoke networks of the legacy carriers. Additionally, we believe the MD-80’s
three-by-two seating configuration is well liked by the traveling public because 80% of all seats are
window or aisle seats. We adhere to the successful model pioneered by Southwest by offering a single
class of service. We also offer advance seat assignments and priority boarding for a fee which depends
on the route served and location of the seat in the aircraft.
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Our small city strategy has reduced the intensity of competition we might otherwise face. As of
March 1, 2011, we are the only domestic scheduled carrier operating out of the Orlando Sanford
International Airport, the only scheduled carrier operating out of Phoenix-Mesa Gateway Airport in
Phoenix and one of only three carriers serving the St. Petersburg-Clearwater International Airport.
Virtually all U.S. airlines serve Las Vegas, Orlando, Phoenix, Tampa/St. Petersburg, Los Angeles and
Ft. Lauderdale and could become more competitive in the future.
As of March 1, 2011, we face mainline competition on only ten of our 161 routes. We compete
with AirTran on six routes into Orlando and one route into Tampa/St. Petersburg. We compete with
Jetblue Airways on one route to Las Vegas (Long Beach) and with Spirit Airlines on one route to
Ft. Lauderdale (Plattsburgh). We also compete with Alaska Airlines on one route to Las Vegas
(Bellingham). In addition, we compete with smaller regional jet aircraft on our Fresno to Las Vegas
route (United Express and US Airways) and with Horizon Air on our Medford to Los Angeles route.
Indirectly, we compete with Southwest, US Airways, AirTran, Delta and other carriers that provide
nonstop service to our leisure destinations from airports near our small city markets. For example, we
fly to Bellingham, Washington, which is a two-hour drive from Seattle-Tacoma International Airport,
where travelers can access nonstop service to Las Vegas on Alaska Airlines, Southwest or US Airways.
We also face indirect competition from legacy carriers offering hub-and-spoke connections to our
markets. For example, travelers can travel to Las Vegas from Peoria on United, American or Delta,
although all of these legacy carriers currently utilize regional aircraft to access their hubs and then
mainline jets to access Las Vegas. Legacy carriers offering these segments with connecting flights and
use of regional aircraft, tend to charge higher and restrictive fares. In addition, these alternatives to our
direct flight service have a much longer elapsed time of travel.
We also face indirect competition from automobile travel in our short-haul flights, primarily to our
Florida leisure destinations. We believe our low cost pricing model, customer service, and the
convenience of air transportation help us compete favorably against automobile travel.
In our fixed fee operations, we compete with the aircraft of other scheduled airlines as well as with
independent passenger charter airlines such as Xtra. 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.
People
We believe our growth potential and the achievement of our corporate goals are directly linked to
our ability to attract and retain some of the best professionals available in the airline business.
Full-time equivalent employees at February 1, 2011 consisted of 326 pilots, 384 flight attendants, 265
airport operations personnel, 272 mechanics, 114 reservation agents, and 242 management and other
personnel. As of February 1, 2011, we employed 1,427 full-time and 399 part-time employees, which we
consider to be 1,603 full-time equivalent employees.
We place great emphasis on the selection and training of enthusiastic employees with potential to
add value to our business and who we believe fit in with and contribute to our business culture. The
recruiting and training process begins with an evaluation and screening process, followed by multiple
interviews and experience verification. We provide extensive training intended to meet all Federal
Aviation Administration (‘‘FAA’’) requirements for security, safety and operations for our pilots, flight
attendants and customer service agents.
To help retain talented and highly motivated employees, we offer competitive compensation
packages as well as affordable health and retirement savings options. We offer medical, dental and
401(k) plans to full-time employees. Other salaried benefits include paid time off, as well as
supplemental life insurance and long-term disability. We do not have a defined benefit pension plan for
9
any employees. We review our compensation packages on a regular basis in an effort to ensure that we
remain competitive and are able to hire and retain the best people possible.
In addition to offering competitive compensation and benefits, we take a number of steps to make
our company an attractive place to work and build a career such as maintaining various employee
recognition programs and consistently communicating our vision and mission statement to our
employees. We believe creating a great place for our people to work motivates them to treat our
customers beyond their expectations.
We have never experienced an organized work stoppage or strike. We have an in-house pilot
association which we meet with on a regular basis to address relevant issues and matters of concern. In
February 2010, we agreed with the association on a new compensation and benefits arrangement for
our pilots. The terms of the arrangement became effective in May 2010, will become amendable in
November 2013 and include base pay scale variability based on operating margin production. The base
pay scale is determined twice a year based on a rolling twelve month operating margin ranging up to
and above 20%.
In December 2010, our flight attendant employee group voted for representation from the
Transport Workers Union (TWU). We are currently in negotiations with TWU for a labor agreement
and look to maintain a mutually satisfactory arrangement consistent with the compensation
arrangement negotiated with the flight attendant in-house association in 2010 and which became
effective in July 2010.
Aircraft and Fleet
Our operating fleet of 51 aircraft consists of 39 MD-83, two MD-87, four MD-82 aircraft, and six
MD-88 aircraft as of March 1, 2011. We generally utilize our 130-seat aircraft (MD-87) for our fixed
fee flying and our 150-seat aircraft (MD-82/83/88) for our scheduled service. In addition, we have eight
MD-80 aircraft in long-term storage. In January 2011, we permanently removed one MD-87 aircraft
from service.
We believe conditions in the market for high quality used MD-80 class aircraft are favorable for
buyers and believe there is ample availability of suitable aircraft to permit growth well beyond the
aircraft currently owned. However, MD-80 series aircraft and Pratt & Whitney JT8D-200 series engines
are no longer manufactured. This could cause a shortage of additional suitable aircraft, engines or
spare parts over the long term. In January 2011, the FAA adopted new regulations to address aging
aircraft. These new regulations may impact the timing of when we seek a replacement for our current
aircraft fleet.
Our operating MD-80 aircraft range from 15 to 25 years old with an average age of 21.4 years as
of March 1, 2011. As of March 1, 2011, the average number of cycles on our fleet was approximately
32,500 cycles and the highest number of cycles on any of our aircraft was approximately 47,700. A cycle
is defined as one take-off and landing and is a measure often used by regulators in determining the
applicability of aging aircraft requirements. We historically operate approximately 1,000 cycles per
aircraft per year.
We have committed to a seat reconfiguration program for our MD-80 aircraft which will increase
revenue opportunities for our scheduled service fleet. All our MD-80 aircraft (excluding our MD-87
aircraft) will be reconfigured from 150 seats to 166 seats by standardizing the passenger layout
accommodations which will be made possible by removing galleys, relocating lavatories and installing
slim line, lightweight seats. We expect this project to start in the third quarter 2011 and take
approximately 12 months to complete.
In March 2010, we entered into a purchase contract for six Boeing 757-200 aircraft with delivery
dates from 2010 to 2012. These aircraft will provide us the ability to serve longer haul markets,
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including the expectation to serve Hawaii after we receive regulatory approval for extended over water
operations. As of March 1, 2011, we have taken ownership of three of these aircraft, leased out two of
them to a third party, and expect to operate the third by the third quarter of 2011 for fixed fee flying
services and possibly long haul domestic scheduled service routes. We expect to take ownership of a
fourth aircraft during March 2011 which we will also be leasing out to a third party. We expect the two
leased out aircraft, and the third aircraft we intend to lease out, to be on lease through the summer of
2012. In the fourth quarter of 2011, we expect to take ownership of the remaining two aircraft under
the purchase contract.
From time to time, we consider the acquisition of a newer aircraft type to replace our existing fleet
or to expand our operations. Before making any decision to acquire a newer aircraft type, we carefully
evaluate its effect on our cost structure and the potential additional revenue to be generated.
Maintenance
We have an FAA-approved maintenance program, which is administered by our maintenance
department headquartered in Las Vegas. Consistent with our core value of safety, all mechanics and
avionics specialists employed by us have appropriate training and experience and hold required licenses
issued by the FAA. We provide them with comprehensive training and maintain our aircraft and
associated maintenance records in accordance with FAA regulations. The maintenance performed on
our aircraft can be divided into three general categories: line maintenance, heavy maintenance, and
component and engine overhaul and repair. Scheduled line maintenance is generally performed by our
personnel. We contract with outside organizations to provide heavy maintenance and component and
engine overhaul and repair. We have chosen not to invest in facilities or equipment to perform our own
heavy 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. We closely supervise the outsourced work performed by our heavy maintenance and
engine overhaul contractors.
Line maintenance consists of routine daily and weekly scheduled maintenance checks on our
aircraft, including pre-flight, daily, weekly and overnight checks and any diagnostics and routine repairs.
We perform this work at our maintenance bases in Las Vegas, Orlando, Phoenix, Tampa/St. Petersburg,
Los Angeles, Ft. Lauderdale, Bellingham (Washington), Grand Rapids (Michigan), Tunica (Mississippi),
and Laughlin (Nevada) with the Laughlin and Tunica bases supporting our fixed fee flying services. In
February 2011, we opened a maintenance base in Wendover, Nevada, which has one aircraft based
there and supports fixed fee flying services. For unscheduled requirements that arise away from our
maintenance bases, we subcontract our line maintenance to outside organizations under customary
industry terms.
Heavy maintenance checks consist of more complex inspections and servicing of the aircraft that
cannot be accomplished during an overnight visit. These checks occur approximately every 18 months
on each aircraft and can range in duration from two to six weeks, depending on the magnitude of the
work prescribed in the particular check. AAR Corp., one of the largest maintenance, repair and
overhaul facilities, performs our airframe heavy maintenance checks under a contract with a term
through the end of 2015. We also utilize AAR Corp., along with Flight Star, another FAA approved
airframe heavy maintenance vendor, for induction services to ready newly acquired aircraft to enter our
operating fleet.
Component and engine overhaul and repair involves sending certain parts, such as engines, landing
gear and avionics, to FAA-approved maintenance repair stations for repair and overhaul. We presently
utilize Pratt & Whitney controlled Christchurch Engine Centre, TIMCO Aviation Services, Inc. and
ITR for overhaul and repair of our engines on a non-exclusive basis.
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We also have a non-exclusive general terms agreement with Avioserv for the consignment of
engine parts.
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.
Aircraft Fuel
Fuel is our largest operating expense. The cost of fuel is volatile, as it’s 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 do not currently use financial derivative
products to hedge our exposure to jet fuel price volatility.
In an effort to reduce our fuel costs, we have sought to become involved at an earlier stage in the
fuel distribution channels. In this regard, we formed a wholly-owned subsidiary which entered into a
limited liability company operating agreement with an affiliate of Orlando Sanford International
Airport to engage in contract fueling transactions for the provision of aviation fuel to airline users at
that airport. In addition, we have invested in fuel storage units and fuel transportation facilities
involved in the fuel distribution process. These efforts could result in the creation of additional joint
ventures to further our involvement in the fuel distribution process. By reason of these activities, we
could potentially incur material liabilities, including possible environmental liabilities, to which we
would not otherwise be subject.
Government Regulation
We are subject to regulation by the DOT, FAA and other governmental agencies.
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 investigate and institute proceedings to enforce its
regulations 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 a DOT certificate of public convenience and necessity authorizing us to engage in:
(i) 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), and (ii) 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 operations 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, providing scheduled service to certain
destinations may require governmental authorization. The FAA has the authority to investigate all
matters within its purview and to modify, suspend or revoke our authority to provide air transportation,
or 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
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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 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 with the opportunity to 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.
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 TSA of the Department of
Homeland Security. The TSA has enforcement powers similar to 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.
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 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 service at airports.
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. Of the airports we serve, only
Long Beach, California, currently restricts the number of flights or hours of operation, although it is
possible one or more other such airports may do so in the future with or without advance notice.
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 a citizen 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 and
at least two-thirds of our board of directors and other managing officers must be U.S. citizens, and that
not more than 25% of our voting stock may be 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.
13
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 will continue to comply with those
requirements.
The quality of water used for drinking and hand-washing aboard aircraft is subject to regulation by
the Environmental Protection Agency (‘‘EPA’’), and by April 2011 and October 2011, we will have to
implement new EPA-required procedures relating thereto. To the extent we are subject to EPA
requirements, we will continue to comply with those requirements.
We are responsible for collection and remittance of federally imposed and federally approved taxes
and fees applicable to air transportation passengers. We believe we are in compliance with these
requirements, and we will continue to comply with them.
Our operations may become subject to additional federal requirements in the future under certain
circumstances. For example, our labor relations are covered under Title II of the Railway Labor Act of
1926, as amended, and are subject to the jurisdiction of the National Mediation Board. During a period
of past fuel scarcity, air carrier access to jet fuel was subject to allocation regulations promulgated by
the Department of Energy.
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 airports we serve.
None of the airports in the small cities in which we operate have slot control, gate availability or
curfews that pose meaningful limitations on our operations. However, some small city airports 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 and regulations of the foreign countries to, from and over which the international flights
operate. Foreign laws, rules and regulations 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 Regulation. Congress, the DOT, the FAA, the EPA 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 EPA, 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.
In February 2009 we received approval to become 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 approval, we are eligible to bid on and be awarded peacetime airlift contracts with the military.
Insurance
We maintain insurance policies we believe are of types customary in the industry and as required
by the DOT and in amounts we believe are adequate to protect us against material loss. The policies
principally provide coverage for public liability, passenger liability, baggage and cargo liability, property
14
damage, including coverages for loss or damage to our flight equipment 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.
General Information
Our principal executive offices are located at 8360 South Durango Drive, Las Vegas,
Nevada 89113. Our telephone number is (702) 851-7300. Our website addresses are
http://www.allegiant.com and http://www.allegianttravelcompany.com. We have not incorporated by
reference into this annual report the information on our websites and you should not consider it to be
a part of this document. Our website addresses are 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 our website at ir.allegiant.com, as soon as reasonably practicable after
electronically filed with or furnished to the Securities and Exchange Commission (‘‘SEC’’).
Item 1A. Risk Factors
An investment in our common stock involves a high degree of risk. Investors 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
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
approximately 43.6% and 37.9% during 2010 and 2009, respectively. Our average cost per gallon
increased sequentially in all quarters of 2009 and 2010 except for one and continues to increase with
the widespread unrest in the Middle East and North Africa. The cost of fuel cannot be predicted with
any degree of certainty and further fuel cost volatility could significantly affect our future results of
operations. Significant increases in fuel costs have negatively affected our operating results in the past
and future price increases could harm our financial condition and results of operations.
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. Because of the effect of these events
on the price and availability of aircraft fuel, the price and future availability of fuel cannot be predicted
with any degree of certainty. A fuel supply shortage or higher fuel prices could result in curtailment of
our service.
Current negative economic conditions may adversely affect travel from our small city markets to our
leisure destinations.
The U.S. economy continues to be impacted by high unemployment and other factors which may
reduce the wealth and tighten spending of consumers. Leisure travel is aligned with discretionary
spending and it is uncertain to what extent these economic conditions will affect consumers and leisure
travel. These conditions could impact demand for airline travel in our small city markets or to our
leisure destinations.
Our reputation and financial results could be harmed in the event of an accident or new regulations
affecting our aircraft or other MD-80 aircraft.
An accident or incident involving one of our aircraft, even if fully insured, could cause a public
perception that we are less safe or reliable than other airlines, which would harm our business. Because
15
we are smaller than most airlines, an accident would likely adversely affect us to a greater degree than
a larger, more established airline.
Additionally, our current dependence on this single type of aircraft and engine for all of our flights
makes us particularly vulnerable to any problems that might be associated with, or aging aircraft
requirements affecting, this aircraft type or these engines. Our business would be significantly harmed if
a mechanical problem with the MD-80 series aircraft or the Pratt & Whitney JT8D-200 series engine
were discovered causing our aircraft to be grounded while any such problem is being corrected,
assuming it could be corrected at all. The Federal Aviation Administration (‘‘FAA’’) could also suspend
or restrict the use of our aircraft in the event of any actual or perceived mechanical problems, whether
involving our aircraft or another U.S. or foreign airline’s aircraft, while it conducts its own
investigation. Our business would also be significantly harmed if the public avoids flying our aircraft
due to an adverse perception of the MD-80 series aircraft or the Pratt & Whitney JT8D-200 series
engine because of safety concerns or other problems, whether real or perceived, or in the event of an
accident involving an MD-80 aircraft.
Covenants in our senior secured term loan facility could limit how we conduct our business, which
could affect our long-term growth potential.
On March 10, 2011, we borrowed $125.0 million under a senior secured term loan facility (the
‘‘Term Loan’’). The Term Loan contains restrictive covenants that, among other things, limit:
(cid:127) Capital expenditures
(cid:127) Indebtedness
(cid:127) Mergers and acquisitions
(cid:127) Certain investments
As a result of these restrictive covenants, we may be limited in how we conduct business, and we
may be unable to raise additional debt or equity financing to operate during general economic or
business downturns or to take advantage of new business opportunities.
The addition of a new aircraft type could increase our costs and a satisfactory return on that
investment is uncertain.
As of March 1, 2011, we have taken ownership of three Boeing 757-200 aircraft under a contract
for the purchase of six Boeing 757-200 aircraft. The addition of a second aircraft type will increase our
costs and increase the complexity of our operations with crews, flight schedules, parts provisioning and
maintenance and repair.
We intend to operate these aircraft on longer-haul routes, particularly to Hawaii. Before beginning
to serve Hawaii, we will need to obtain regulatory approval for extended over water operations. There
is no assurance that we will be able to secure such authority in order to allow us to begin service when
planned or at all.
We do not currently serve the longer-haul markets which we intend to serve with the
Boeing 757-200 aircraft. Generally speaking, there is intense competition on routes to Hawaii. There is
no assurance we will be able to operate our Boeing 757-200 aircraft as profitably as our MD-80 aircraft
fleet.
16
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 computerized airline
reservation system, our telecommunication systems, our website and other automated systems. Our
continuing work on enhancing the capabilities of our automation systems and the migration of data to
a new platform could increase the risk of automation failures during the process. Any failure by us to
handle our automation needs could negatively affect our Internet sales and customer service and result
in increased costs.
Our website and reservation system must be able to accommodate a high volume of traffic and
deliver important flight information. Substantial or repeated website, reservations system or
telecommunication systems failures could reduce the attractiveness of our services. Any disruption in
these systems could result in the loss of important data, loss of revenue, increase our expenses and
generally harm our business.
In the processing of our customer transactions, we receive and store credit card and other
identifiable personal data. This data is increasingly subject to legislation and regulation typically
intended to protect the privacy of personal data that is collected, processed and transmitted. We could
be adversely affected if legislation or regulations are expanded to require changes in our business
practices in ways that negatively affect our business, financial condition or results of operations. As
privacy and data protection become more sensitive issues, we may also become exposed to potential
liability. These and other privacy developments are difficult to anticipate and could adversely affect our
business, financial condition and results of operations.
Our maintenance costs will increase as our fleet ages.
Our MD-80 aircraft range from 15 to 25 years old, with an average age of 21.4 years as of
March 1, 2011. In general, the cost to maintain aircraft increases as they age and exceeds the cost to
maintain new aircraft. FAA regulations require additional and enhanced maintenance inspections for
older aircraft. These regulations include Aging Aircraft Airworthiness Directives, which typically
increase as an aircraft ages and vary by aircraft or engine type depending on the unique characteristics
of each aircraft and/or engine.
In addition, we may be required to comply with any future law changes, regulations or
airworthiness directives. We cannot assure you our maintenance costs will not exceed our expectations.
We believe our aircraft are and will continue to be mechanically reliable. We cannot assure our
aircraft will continue to be sufficiently reliable over longer periods of time. Furthermore, given the age
of our fleet, any public perception that our aircraft are less than completely reliable could have an
adverse effect on our bookings and profitability.
Increased labor costs could result from unionization and labor-related disruptions.
Labor costs constitute a significant percentage of our total operating costs. In December 2010, our
flight attendant employee group voted for representation from the Transport Workers Union (TWU).
We are currently in negotiations with TWU for a labor agreement which could result in increased labor
costs. If we are unable to reach agreement with our flight attendant employee group in current
negotiations or future negotiations regarding the terms of labor agreements or if additional segments of
our workforce become unionized, we may be subject to work interruptions or stoppages. Any strike or
labor dispute with organized employees may adversely affect our ability to conduct business.
Our pilot employee group is represented by an in-house association to negotiate matters of
concern with us. Unionization of our pilots or any other employee groups could result in demands that
may increase our operating expenses and adversely affect our profitability. Although we have
17
negotiated a mutually acceptable arrangement with our pilot group, our costs could be adversely
affected by the cumulative results of discussions with pilots or other employee groups in the future.
Our business is heavily dependent on the attractiveness of our leisure destinations and a reduction in
demand for air travel to these markets could harm our business.
A substantial proportion of our scheduled flights have Las Vegas, Orlando, Phoenix, Tampa/
St. Petersburg, Los Angeles or Ft. Lauderdale 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, 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.
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., our
president, Andrew C. Levy, and a small number of management and operating personnel. We do not
currently maintain key-man life insurance on Mr. Gallagher or Mr. Levy. 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 small city markets could harm
our business.
The airline industry is highly competitive. The small 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 markets, we are the only provider of nonstop service to our leisure destinations. It
is possible other airlines will begin to provide nonstop services to and from these markets or otherwise
target these markets. An increase in the amount of direct or indirect competition could harm our
business.
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 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, 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 DOT regulatory requirements in the
consumer-protection area, cannot be predicted and could significantly increase our costs of doing
business.
18
In January 2011, the FAA adopted new regulations applying to aging aircraft. These rules obligate
aircraft design approval holders (typically the aircraft manufacturer or its successor) to establish a limit
of validity (LOV) of the engineering data that supports the aircraft’s structural maintenance program,
demonstrate that widespread fatigue damage will not occur in aircraft of that type prior to reaching
LOV, and establish or revise airworthiness limitations applicable to that aircraft type to include LOV.
According to the FAA, establishment of LOVs is necessary because structural fatigue characteristics of
airplanes are understood only up to the point where analyses and testing of the structure are valid.
Once an LOV has been established, commercial operation of the aircraft beyond that value will be
prohibited, unless an extended LOV has been obtained for the aircraft and incorporated into the
operator’s maintenance program. The operator or any other person, such as the aircraft manufacturer,
would be eligible to apply for an extended LOV. It is not currently possible to predict the LOV-based
life limitations that will apply to our aircraft, nor is it possible to predict the future cost of our
complying with aging aircraft requirements and/or replacing any aircraft that must be retired. In the
event an LOV has not been developed and incorporated into our maintenance program for
MD80-series aircraft by July 2013, we would be required to cease operating all such aircraft until
compliance was achieved. In the case of our B757-series aircraft, the similar compliance deadline is
January 2016.
Federal legislation requires that by August 2011, the FAA adopt updated regulations addressed to
flight crewmember duty and rest requirements. In September 2010, the FAA issued proposed new rules
in response to this legislative mandate; according to the FAA, its proposal took account of current
scientific knowledge and understanding of fatigue factors, rest requirements and other relevant data.
The proposal drew thousands of pages of comment from interested parties, which the FAA is obligated
to consider before issuing new regulations. It is not currently possible to predict the outcome of the
FAA analytical process, the phase-in period the FAA presumably will provide for compliance with new
rules, or the compliance cost to us, except to state that based on the September 2010 proposal,
additional cost will result.
In June 2010, the DOT proposed to make revisions to a variety of its consumer-protection
regulations. Among other changes, the new rules, if adopted as proposed, would substantially reduce
the flexibility inherent in the rules governing airline advertising practices, including websites, and could
curtail our ability to price and advertise our services in the particular manner we have developed and
found most advantageous. The proposal drew extensive comment from interested parties, which the
DOT is obligated to consider before issuing new regulations. It is not currently possible to predict the
outcome of the DOT analytical process or the actual content of new rules, except to state that based
on the June 2010 proposal, we could incur additional costs and our revenues could be adversely
impacted. Nor is it possible to predict when the new regulations might become effective, although the
DOT has indicated informally that the process could be completed as early as Spring 2011.
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 if this or any similar
legislation will pass the Congress or, if passed and enacted into law, how it would apply to the airline
industry. In addition, the Administrator of the Environmental Protection Agency (EPA) recently issued
an announcement concluding that current and projected concentrations of greenhouse gases in the
atmosphere threaten public health and welfare. Although legal challenges and legislative proposals are
expected, the finding could ultimately result in EPA regulation of commercial aircraft emissions. 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.
In respect of aging aircraft, crewmember duty and rest, consumer protection and climate change,
increased costs will adversely affect our profitability if we are unable to pass the costs on to our
customers.
19
Airlines are often affected by factors beyond their control, including air traffic congestion, weather
conditions, increased security measures and the outbreak of disease, 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 cancelled 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. An
outbreak of a disease that affects travel behavior, such as severe acute respiratory syndrome (SARS) or
H1N1 virus (swine flu), 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.
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:
(cid:127) fuel price volatility, and the effect of economic and geopolitical factors and worldwide oil supply
consumption on fuel availability
(cid:127) announcements concerning our competitors, the airline industry or the economy in general
(cid:127) strategic actions by us or our competitors, such as acquisitions or restructurings
(cid:127) media reports and publications about the safety of our aircraft or the aircraft type we operate
(cid:127) new regulatory pronouncements and changes in regulatory guidelines
(cid:127) announcements concerning our business strategy
(cid:127) general and industry-specific economic conditions
(cid:127) changes in financial estimates or recommendations by securities analysts
(cid:127) sales of our common stock or other actions by investors with significant shareholdings
(cid:127) 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.
20
Other companies may have difficulty acquiring us, even if doing so would benefit our stockholders, due
to provisions under our corporate charter, bylaws and option plans, 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:
(cid:127) advance notification procedures for matters to be brought before stockholder meetings
(cid:127) a limitation on who may call stockholder meetings
(cid:127) 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 more than 10% 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.
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% 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%). 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% 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.
The value of our common stock may be negatively affected by additional issuances of common stock or
preferred stock by us and general market factors.
Future issuances or sales of our common stock or convertible preferred stock by us will likely be
dilutive to our existing common stockholders. Future issuances or sales of common or preferred stock
by us, or the availability of such stock for future issue or sale, could have a negative impact on the
price of our common stock prevailing from time to time. Sales of substantial amounts of our common
stock in the public or private market, a perception in the market that such sales could occur, or the
issuance of securities exercisable or convertible into our common stock, could also adversely affect the
prevailing price of our common stock.
21
Substantial sales of our common stock could cause our stock price to fall.
If our existing stockholders sell a large number of shares of our common stock or the public
market perceives existing stockholders might sell shares of common stock, the market price of our
common stock could decline significantly. All of our outstanding shares are either freely tradable,
without restriction, in the public market or eligible for sale in the public market at various times,
subject, in some cases, to volume limitations under Rule 144 of the Securities Act of 1933, as amended.
We cannot predict whether future sales of our common stock or the availability of our common
stock for sale will adversely affect the market price for our common stock or our ability to raise capital
by offering equity securities.
Item 1B. Unresolved Staff Comments
Not Applicable.
Item 2. Properties
Aircraft
As of December 31, 2010, our total fleet consisted of 52 MD-80 aircraft currently in revenue
service. In addition, we owned eight MD-80 aircraft and two Boeing 757-200 aircraft at December 31,
2010, which we expect to place into revenue service in the future. The following table summarizes our
total aircraft fleet as of December 31, 2010:
Aircraft Type
Owned
Leased
Total
MD-88/82/83 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
MD-87 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total aircraft in service . . . . . . . . . . . . . . . . . . . . . . . . . .
MD-88/82/83 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
B757-200 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total aircraft not in service . . . . . . . . . . . . . . . . . . . . . . .
Total aircraft
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
47
3
50
8
2
10
60
2
—
2
—
—
—
2
49
3
52
8
2
10
62
Seating
Capacity
(per
aircraft)
Average Age
in Years
150
130
150
217
21.0
21.9
21.4
23.1
18.7
As of December 31, 2010, we owned 50 of our operating aircraft—33 owned free and clear, and 17
owned subject to financing. We lease two aircraft under operating leases which expire on or before
June 2014. In March 2011, all of our MD-80 aircraft have been pledged to secure payment of a senior
secured term loan facility. Refer to ‘‘Item 8—Financial Statements and Supplementary Data—Notes to
Consolidated Financial Statements—Note 16—Subsequent Events’’ for a discussion of this senior
secured term loan facility.
Ground Facilities
We lease facilities at each of our leisure destinations and several of the other airports we serve.
Our leases for our terminal passenger services facilities, which include ticket counter and gate space,
and operations support areas, generally have terms of less than two years in duration and can generally
be terminated with a 30 to 60 day notice. We have also entered into use agreements at each of the
airports we serve that provide for non-exclusive use of runways, taxiways and other facilities. Landing
fees under these agreements are based on the number of landings and weight of the aircraft.
22
We have operational bases at airports at each of the major leisure destinations we serve and
additionally at two airports in small cities we serve, Bellingham, Washington and Grand Rapids,
Michigan. In February 2011, we consolidated our Orlando operations back to our original operational
base at Orlando Sanford International Airport. The consolidation involved shifting routes and moving
aircraft we had based at Orlando International Airport.
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 and Orlando Sanford International Airport for our main line maintenance
operations. We also lease additional warehouse space in Las Vegas for aircraft parts and supplies
warehouse. The following table below details the airport locations we utilize as operational bases:
Airport
Location
McCarran International Airport . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Las Vegas, Nevada
Orlando Sanford International Airport . . . . . . . . . . . . . . . . . . . . . . . . . . . . Orlando, Florida
Orlando International Airport (base closed February 2011) . . . . . . . . . . . . . Orlando, Florida
Phoenix-Mesa Gateway Airport . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Mesa, Arizona
Los Angeles International Airport . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Los Angeles, California
St. Petersburg-Clearwater International Airport
St. Petersburg, Florida
Ft. Lauderdale-Hollywood International Airport . . . . . . . . . . . . . . . . . . . . . Ft. Lauderdale, Florida
Bellingham International Airport . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Bellingham, Washington
Gerald R. Ford International Airport . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Grand Rapids, Michigan
Tunica Airport . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Tunica, Mississippi
Laughlin Bullhead International Airport . . . . . . . . . . . . . . . . . . . . . . . . . . . Bullhead City, Arizona
. . . . . . . . . . . . . . . . . . . . .
The Bellingham International Airport has begun construction on an expansion project which we
believe will allow for sufficient gate space for long-term growth. We believe we have sufficient access to
gate space for current and presently contemplated future operations at all other airports we serve.
Our primary corporate offices are located in Las Vegas, where we lease approximately 65,000
square feet of space under a lease that expires in April 2019. We also lease approximately 10,000
square feet of office space in a building adjacent to our corporate offices which is utilized for training
and other corporate purposes. The corporate office lease has two five-year renewal options, but we
have the right to terminate the lease after the seventh year in April 2015 and the right to purchase the
building from the landlord after the third year of the lease in April 2011. We are also responsible for
our share of common area maintenance charges. In both leases, the landlord is a limited liability
company in which certain of our officers and directors own significant interests as non-controlling
members.
Item 3. Legal Proceedings
We are subject to certain 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. Reserved
23
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters, and Issuer Purchases
PART II
of Equity Securities
Market for our common stock
Our common stock is quoted on the Nasdaq Global Select Market. On March 1, 2011, the last sale
price of our common stock was $41.01 per share. The following table sets forth the range of high and
low sale prices for our common stock for the periods indicated.
Period
2010
1st Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2nd Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3rd Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4th Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2009
1st Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2nd Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3rd Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4th Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
High
Low
$59.04
$58.12
$46.37
$52.95
$48.98
$57.52
$47.45
$48.99
$47.17
$42.04
$37.05
$38.12
$32.07
$33.20
$37.21
$34.88
As of March 1, 2011, there were approximately 205 holders of record of our common stock. We
believe that a substantially larger number of beneficial owners hold shares of our common stock in
depository or nominee form.
Securities Authorized for Issuance under Equity Compensation Plans
The following table provides information regarding options, stock appreciation rights (‘‘SARs’’),
warrants or other rights to acquire equity securities under our equity compensation plans as of
December 31, 2010:
Number of
Securities to be
Issued upon
Exercise of
Outstanding
Options,
SARs,
Warrants
and Rights
Weighted-
Average
Exercise
Price of
Outstanding
Options,
SARs,
Warrants
and Rights
Equity compensation plans approved by security holders(a) . . .
Equity compensation plans not approved by security holders . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total
568,833
None
568,833
$33.18
N/A
$33.18
Number of
Securities
Remaining
Available for
Future
Issuance
under
Equity
Compensation
Plans
1,603,408
None
1,603,408
(a) The shares shown as being issuable under equity compensation plans approved by our security
holders excludes restricted stock awards as these shares are deemed to have been issued. In
addition to the above, there were 106,270 shares of nonvested restricted stock as of December 31,
2010.
24
Dividend Policy
On April 26, 2010, the Company’s Board of Directors declared a one-time cash dividend of $0.75
per share on its outstanding common stock payable to stockholders of record on May 14, 2010. On
June 1, 2010, the Company paid cash dividends of $14.9 million to these stockholders. Future payments
of cash dividends, if any, will depend on our financial condition, results of operations, cash from
operations, business conditions, capital requirements, debt covenants and other factors deemed relevant
to our Board of Directors.
Our Repurchases of Equity Securities
The following table reflects our repurchases of our common stock during the fourth quarter of
2010. All stock repurchases during this period were made from employees who received restricted stock
grants. All stock repurchases were made at the election of each employee pursuant to an offer to
repurchase by us. In each case, the shares repurchased constituted the portion of vested shares
necessary to satisfy withholding tax requirements.
ISSUER PURCHASES OF EQUITY SECURITIES
Period
Total
Number of
Shares
Purchased
Average Price
Paid per
Share
Total Number of
Shares Purchased as
Part of Publicly
Announced Plans
or Programs
October 2010 . . . . . . . . . . . . . . . . . . . . . . .
November 2010 . . . . . . . . . . . . . . . . . . . . . .
December 2010 . . . . . . . . . . . . . . . . . . . . . .
Total
. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3,693
None
None
3,693
$41.00
N/A
N/A
$41.00
None
None
None
None
Approximate
Dollar
Value of
Shares that
May Yet Be
Purchased
Under the
Plans or
Programs(1)
$46,426,175
$46,426,175
$46,426,175
$46,426,175
(1) Represents the remaining dollar value of open market purchases of the Company’s common stock
which has been authorized by the Board of Directors under a share repurchase program.
During the first three quarters of 2010, we repurchased 1,206,689 shares for a total of
$53.6 million. We did not make any open market stock repurchases during the fourth quarter of 2010.
25
Stock Price Performance Graph
The following graph compares the cumulative total stockholder return on our common stock with
the cumulative total return on the Nasdaq Composite Index and the AMEX Airline Index for the
period beginning on December 8, 2006 (the date our common stock was first traded) and ending on
the last day of 2010. The graph assumes an investment of $100 in our stock and the two indices,
respectively, on December 8, 2006, and further assumes the reinvestment of all dividends. The
December 8, 2006 stock price used for our stock is the initial public offering price. Stock price
performance, presented for the period from December 8, 2006 to December 31, 2010, is not necessarily
indicative of future results.
Allegiant Travel Company
Nasdaq Composite Index
AMEX Airline Index
300
200
100
0
08-Dec-2006
31-Dec-2006
31-Dec-2007
31-Dec-2008
31-Dec-2009
5MAY201118473576
31-Dec-2010
ALGT . . . . . . . . . . . . . . . . . . . . . . . . . . .
Nasdaq Composite Index . . . . . . . . . . . . .
AMEX Airline Index . . . . . . . . . . . . . . . .
$100.00
$100.00
$100.00
$155.89
$ 99.09
$ 99.23
$178.56
$108.82
$ 58.39
$269.83
$ 64.70
$ 41.30
$262.06
$ 93.10
$ 57.54
$277.72
$108.84
$ 80.05
12/08/06
12/31/06
12/31/07
12/31/08
12/31/09
12/31/10
26
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.
Item 6. Selected Financial Data
The following financial information for each of the five years ended December 31, 2010, has been
derived from our consolidated financial statements. You should read 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
27
presentation changes and reclassifications have been made to prior year consolidated financial
information to conform to 2010 classifications.
STATEMENT OF INCOME DATA:
Operating revenue:
Scheduled service revenue . . . . . . . . . . . . . . . . . . . .
Ancillary revenue:
Air-related charges . . . . . . . . . . . . . . . . . . . . . . .
Third party products . . . . . . . . . . . . . . . . . . . . . .
Total ancillary revenue . . . . . . . . . . . . . . . . . . .
Fixed fee contract revenue . . . . . . . . . . . . . . . . . . . .
Other revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . .
For the year ended December 31,
2010
2009
2008
2007
2006
(in thousands, except per share data)
$427,825
$346,222
$330,969
$258,943
$178,349
169,640
24,366
194,006
40,576
1,234
143,001
19,715
162,716
43,162
5,840
95,490
19,106
114,596
52,499
5,948
48,333
16,694
65,027
35,339
1,264
19,950
9,912
29,862
33,716
1,423
Total operating revenue . . . . . . . . . . . . . . . . . . . . . . .
663,641
557,940
504,012
360,573
243,350
Operating expenses:
. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Aircraft fuel
Salary and benefits . . . . . . . . . . . . . . . . . . . . . . . . .
Station operations . . . . . . . . . . . . . . . . . . . . . . . . .
Maintenance and repairs . . . . . . . . . . . . . . . . . . . . .
Sales and marketing . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . .
Aircraft lease rentals
Depreciation and amortization . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
243,671
108,000
62,620
60,579
17,062
1,721
34,965
30,367
165,000
90,006
53,993
52,938
16,458
1,926
29,638
25,728
229,640
72,007
43,476
41,465
14,361
2,815
23,489
20,911
152,149
55,593
33,724
25,764
12,803
3,004
15,992
17,484
101,561
37,453
24,866
19,482
9,293
5,102
10,584
12,456
Total operating expenses . . . . . . . . . . . . . . . . . . . . . . .
558,985
435,687
448,164
316,513
220,797
Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . .
104,656
122,253
55,848
44,060
22,553
Other (income) expense:
Loss (gain) on fuel derivatives, net . . . . . . . . . . . . . .
(Earnings) loss from unconsolidated affiliates, net . . . .
Other expense . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest income . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total other (income) expense . . . . . . . . . . . . . . . . . . .
—
(14)
—
(1,184)
2,522
1,324
—
84
—
(2,474)
4,079
1,689
11
(96)
—
(4,730)
5,411
596
(2,613)
(457)
63
(9,161)
5,523
(6,645)
Income before income taxes . . . . . . . . . . . . . . . . . . . .
103,332
120,564
55,252
50,705
Provision for income taxes:
Recognition of net deferred tax liabilities upon
C-corporation conversion . . . . . . . . . . . . . . . . . . .
Tax provision . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
37,630
—
44,233
—
19,845
—
19,196
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 65,702
$ 76,331
$ 35,407
$ 31,509
Earnings per share to common stockholders(1):
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash dividends per share . . . . . . . . . . . . . . . . . . . . . .
$
$
$
3.36
3.32
0.75
$
$
$
3.81
3.76
$
$
1.74
1.72
$
$
1.56
1.53
— $
— $
— $
4,193
—
—
(2,973)
5,517
6,737
15,816
6,425
651
8,740
1.23
0.52
—
$
$
$
(1) The Company’s 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 and Diluted
earnings per share for the periods presented.
(2) The dilutive effect of common stock subject to unvested restricted stock for 2006 is not material.
28
OTHER FINANCIAL DATA:
Operating income . . . . . . . . . . . . . . . . . . . . . .
Operating margin % . . . . . . . . . . . . . . . . . . . .
Net cash provided by (used in):
For the year ended December 31,
2010
2009
2008
2007
2006
(dollars in thousands)
$104,656
$122,253
$ 55,848
$ 44,060
$22,553
15.8%
21.9%
11.1%
12.2%
9.3%
Operating activities . . . . . . . . . . . . . . . . . . .
Investing activities . . . . . . . . . . . . . . . . . . . .
Financing activities . . . . . . . . . . . . . . . . . . .
$ 97,956
6,782
(81,684)
$131,674
(97,213)
(41,375)
$ 71,632
(100,505)
(18,243)
$ 73,947
(68,927)
8,976
$34,746
(1,607)
75,875
2010
2009
2008
2007
2006
As of December 31,
(in thousands)
BALANCE SHEET DATA:
Cash, cash equivalents and short-term
investments . . . . . . . . . . . . . . . . . . . . . . . .
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term debt (including capital leases) . . . . .
Stockholders’ equity . . . . . . . . . . . . . . . . . . . .
$150,293
501,266
28,136
297,735
$231,470
499,639
45,807
292,023
$174,788
423,976
64,725
233,921
$171,379
405,425
72,146
210,331
$136,081
305,726
72,765
153,471
29
Operating statistics (unaudited):
2010
2009
2008
2007
2006
For the year ended December 31,
Total system statistics:
Passengers . . . . . . . . . . . . . . . . . . . . . . . . .
Revenue passenger miles (RPMs)
(thousands) . . . . . . . . . . . . . . . . . . . . . .
Available seat miles (ASMs) (thousands) . . .
Load factor . . . . . . . . . . . . . . . . . . . . . . . .
Operating revenue per ASM (RASM)*
(cents) . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating expense per ASM (CASM) (cents)
Fuel expense per ASM (cents) . . . . . . . . . . .
Operating CASM, excluding fuel (cents) . . . .
Operating expense per passenger . . . . . . . . .
Fuel expense per passenger . . . . . . . . . . . . .
Operating expense per passenger, excluding
fuel . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Departures . . . . . . . . . . . . . . . . . . . . . . . .
Block hours . . . . . . . . . . . . . . . . . . . . . . . .
Average stage length (miles) . . . . . . . . . . . .
Average number of operating aircraft during
period . . . . . . . . . . . . . . . . . . . . . . . . . .
Total aircraft in service at end of period . . . .
Average departures per aircraft per day . . . .
Average block hours per aircraft per day . . .
Full-time equivalent employees at end of
period . . . . . . . . . . . . . . . . . . . . . . . . . .
Fuel gallons consumed (thousands) . . . . . . .
Average fuel cost per gallon . . . . . . . . . . . .
Scheduled service statistics:
Passengers . . . . . . . . . . . . . . . . . . . . . . . . .
Revenue passenger miles (RPMs)
(thousands) . . . . . . . . . . . . . . . . . . . . . .
Available seat miles (ASMs) (thousands) . . .
Load factor . . . . . . . . . . . . . . . . . . . . . . . .
Departures . . . . . . . . . . . . . . . . . . . . . . . .
Average passengers per departure . . . . . . . .
Block hours . . . . . . . . . . . . . . . . . . . . . . . .
Yield (cents) . . . . . . . . . . . . . . . . . . . . . . .
Scheduled service revenue per ASM (cents) .
Total ancillary revenue per ASM* (cents) . . .
Total revenue per ASM (TRASM)* (cents) . .
Average fare—scheduled service . . . . . . . . .
Average fare—ancillary air-related charges . .
Average fare—ancillary third party products .
Average fare—total
. . . . . . . . . . . . . . . . . .
Average stage length (miles) . . . . . . . . . . . .
Fuel gallons consumed (thousands) . . . . . . .
Average fuel cost per gallon . . . . . . . . . . . .
Percent of sales through website during
5,903,184
5,328,436
4,298,748
3,264,506
2,179,367
5,466,237
6,246,544
4,762,410
5,449,363
3,863,497
4,442,463
3,140,927
3,865,337
2,251,341
2,871,071
87.5%
87.4%
87.0%
81.3%
78.4%
$
$
$
10.62
8.95
3.90
5.05
94.69
41.28
53.41
47,986
111,739
874
49.0
52
2.7
6.2
$
$
$
10.24
8.00
3.03
4.97
81.77
30.97
50.80
43,795
98,760
836
42.7
46
2.8
6.3
$
$
$
11.35
10.09
5.17
4.92
104.25
53.42
50.83
35,839
81,390
836
36.4
38
2.7
6.1
$
$
$
9.33
8.19
3.94
4.25
96.96
46.61
50.35
28,788
68,488
906
27.8
32
2.8
6.7
$
$
$
8.48
7.69
3.54
4.15
101.31
46.60
54.71
20,074
50,584
966
20.8
24
2.6
6.7
1,614
106,093
2.30
$
1,569
93,521
1.76
$
1,348
76,972
2.98
$
1,180
66,035
2.30
$
846
47,984
2.12
$
5,609,852
4,919,826
3,894,968
3,017,843
1,940,456
5,211,663
5,742,014
4,477,119
4,950,954
3,495,956
3,886,696
2,844,358
3,423,783
1,996,559
2,474,285
90.8%
90.4%
89.9%
83.1%
80.7%
41,995
134
101,242
8.21
7.45
3.38
10.83
76.26
30.24
4.34
110.85
912
96,153
2.43
$
$
$
$
$
37,115
133
87,939
7.73
6.99
3.29
10.28
70.38
29.06
4.01
103.45
891
83,047
1.90
29,548
132
70,239
9.47
8.51
2.95
11.46
84.97
24.52
4.91
114.40
882
66,291
3.22
25,088
120
60,607
9.10
7.56
1.90
9.46
85.80
16.02
5.53
107.35
923
57,772
2.40
16,634
117
43,391
8.93
7.21
1.26
8.47
91.91
10.28
5.11
107.30
1,006
40,879
2.22
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
period . . . . . . . . . . . . . . . . . . . . . . . . . .
88.8%
86.3%
86.4%
86.6%
85.9%
*
Various components of these measures 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.
30
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 seats are flown.
‘‘Average fuel cost per gallon’’ represents total aircraft fuel expense for our total system or in
scheduled service divided by the total number of fuel gallons consumed in our total system or in
scheduled service, as applicable.
‘‘Average stage length’’ represents the average number of miles flown per flight.
‘‘Load factor’’ represents the percentage of aircraft seating capacity that is actually utilized
(revenue passenger miles divided by available seat miles).
‘‘Operating expense per ASM’’ or ‘‘CASM’’ represents operating expenses divided by available seat
miles.
‘‘Operating CASM, excluding fuel’’ represents operating expenses, less aircraft fuel, divided by
available seat miles. Although Operating CASM, excluding fuel is not a calculation based on generally
accepted accounting principles and should not be considered as an alternative to Operating Expenses as
an indicator of our financial performance, this statistic provides management and investors the ability
to measure and monitor our cost performance absent fuel price volatility. Both the cost and availability
of fuel are subject to many economic and political factors and therefore are beyond our control.
‘‘Operating revenue per ASM’’ or ‘‘RASM’’ represents operating revenue divided by available seat
miles.
‘‘Revenue passengers’’ represents the total number of passengers flown on all flight segments.
‘‘Revenue passenger miles’’ or ‘‘RPMs’’ represents the number of miles flown by revenue passengers.
‘‘Total revenue per ASM’’ or ‘‘TRASM’’ represents scheduled service revenue and total ancillary
revenue divided by available seat miles.
‘‘Yield’’ represents scheduled service revenue divided by scheduled service revenue passenger miles.
31
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis presents factors that had a material effect on our results of
operations during the years ended December 31, 2010, 2009 and 2008. Also discussed is our financial
position as of December 31, 2010 and 2009. You should read this discussion in conjunction with our
consolidated financial statements, including the notes thereto, appearing elsewhere in this annual report.
This discussion and analysis contains forward- looking statements. Please refer to the section entitled
‘‘Special Note About Forward-Looking Statements’’ for a discussion of the uncertainties, risks and
assumptions associated with these statements.
2010 Results
The year 2010 proved to be another highly successful year for the Company. For the eighth
straight year we remained profitable, with net income of $65.7 million ($3.32 per share, diluted),
compared to net income of $76.3 million ($3.76 per share, diluted) in 2009. We remain very pleased
with the strength and flexibility of our model. Our continued focus on capacity management, the ability
to drive additional ancillary revenues and the execution of our low fixed, high variable cost model has
allowed us to weather the high energy price environment in 2008 and the financial crisis/recession in
2009.
During 2010 we began to see a slow return of our scheduled service average base fare to
pre-recession levels. Our achievement of a 15.8% operating margin on $663.6 million in operating
revenue was driven by a 14.0% increase in scheduled service passengers and a $5.89 or 8.4% increase
in our scheduled service average base fare to $76.26. Although business and international traffic
rebounded nicely in the airline industry during the year, both in the terms of demand and average fare
for other domestic carriers, the leisure segment continued to lag behind as high unemployment and
rising commodity prices continued to impact the U.S. economy. Although we did see strength in our
base airfares compared to 2009, we also experienced an increase in energy prices during 2010 which
was the primary factor in the overall decrease in profits. Our fuel expense increased $78.6 million or
47.7% to $243.7 million during 2010 as compared with 2009. These increases were a result of the
rebound of crude oil prices from the late 2008 and early 2009 lows, along with the expansion of crack
spreads due to refining constraints. Our average cost per gallon increased 30.7% to $2.30 in 2010 in
addition to a 13.4% increase in gallons consumed over 2009.
Ancillary revenues continued to be a primary focus during 2010 as our total ancillary revenues
increased 19.2% or $31.3 million to $194.0 million. On the air-related side, we implemented an open
seating policy during the fourth quarter, which drove the take rate and additional revenue on priority
boarding and assigned seat assignments since its implementation. We were particularly pleased with the
ancillary revenue production of our third party products which increased $4.7 million or 23.6% to
$24.4 million in 2010. We continued to add strategic hotel, ski resort, cruise line and other product
partners to enhance our offerings to our leisure customer base. In addition, we were successful in
negotiating attractive unit cost rates by amending certain long term agreements with key hotel partners
in Las Vegas. The Company launched a rebranding effort in 2010 which included a marketing campaign
for a new ‘‘low price guarantee’’. We now provide customers with a guarantee if they are able to find
bundled air-hotel packages at a lower price than the offered price on our website.
During 2010, our operating expense per passenger, excluding fuel, increased $2.61 or 5.1% to
$53.41. Overall our costs remained in line with our capacity growth and passenger production with the
exception of salary and benefits expense and station operations expense. Cost pressure within salary
and benefits expense was primarily related to new pilot and flight attendant agreements put into place
in the second and third quarters of 2010, respectively. The station operations expense increase was
attributable to increased costs per turn within our leisure destinations which tend to be more expensive
32
to operate than at our small cities. As capacity is reduced by other carriers within the leisure
destinations we serve, airport fixed costs are spread among existing operators.
Operating Fleet
We reached a company milestone during 2010 with the introduction of our 50th aircraft into our
fleet. We ended the year with 52 aircraft in our operating fleet and took delivery of 14 MD-80 aircraft
and two Boeing 757-200 aircraft under existing purchase agreements. During 2010, we placed seven
MD-80 aircraft into service along with the permanent withdrawal of one MD-80 aircraft (130-seat
MD-87), which increased our operating fleet to 52 aircraft at December 31, 2010. The following table
sets forth the number and type of aircraft in service and operated by us at the dates indicated:
December 31, 2010
December 31, 2009
December 31, 2008
Own(a) Lease(c) Total Own(a)(b) Lease Total Own(a)(b) Lease Total
MD82/83/88s . . . . . . . . . . . . . . . . . . . . .
MD87s(d) . . . . . . . . . . . . . . . . . . . . . . .
Total
. . . . . . . . . . . . . . . . . . . . . . . . . .
47
3
50
2
0
2
49
3
52
38
4
42
4
0
4
42
4
46
32
4
36
2
0
2
34
4
38
(a) Does not include aircraft owned, but not added to our operating fleet as of the date indicated.
(b) Includes two aircraft subject to capital leases as of December 31, 2009 and December 31, 2008. In
September 2010, we exercised early purchase options and took ownership of these two aircraft.
(c)
In February 2010, we exercised purchase options on two aircraft under operating leases. In
October 2010, we took ownership of these aircraft.
(d) Used almost exclusively for fixed fee flying.
Network
We were able to significantly grow our network and extend our national footprint during 2010. We
have increased the number of routes into our leisure destinations from 136 at December 31, 2009 to
160 routes at December 31, 2010. We now serve 73 cities (including small cities and destinations)
through our route network which serves 35 states. Our national footprint is well balanced and is not
dependent on one particular market or geographic region. During 2010, we initiated service on seven
routes to Phoenix, six routes to the Los Angeles market (includes three routes to Long Beach which
commenced in July 2010) and expanded our service into Las Vegas by five routes. We also expanded
our service to Myrtle Beach by four routes and Punta Gorda by three routes, which we serve on a
limited basis. These additional routes, along with other network changes resulted in expansion of our
route network by 24 routes (a 17.6% increase) compared to the end of 2009. The following shows the
33
number of destinations and small cities served as of the dates indicated (includes cities served
seasonally):
As of
December 31,
2010
As of
December 31,
2009
As of
December 31,
2008
Major leisure destinations . . . . . . . . . . . . . .
Other leisure destinations . . . . . . . . . . . . . .
Small cities served . . . . . . . . . . . . . . . . . . .
Total cities served . . . . . . . . . . . . . . . . . . . .
Routes to Las Vegas . . . . . . . . . . . . . . . . . .
Routes to Orlando airports(a) . . . . . . . . . . .
Routes to Phoenix . . . . . . . . . . . . . . . . . . .
Routes to Tampa Bay/St. Petersburg . . . . . . .
Routes to Los Angeles (includes Long
Beach) . . . . . . . . . . . . . . . . . . . . . . . . . .
Routes to Ft. Lauderdale . . . . . . . . . . . . . .
Other routes . . . . . . . . . . . . . . . . . . . . . . . .
6
5
62
73
45
29
27
20
17
7
15
6
5
58
69
40
31
20
20
11
5
9
5
4
57
66
39
29
15
20
0
6
4
Total routes . . . . . . . . . . . . . . . . . . . . . . . .
160
136
113
(a) In February 2011, we have consolidated our Orlando operations back to our original
operational base at Orlando Sanford International Airport.
Trends and Uncertainties
Global crude oil supply concerns and political unrest in oil producing countries continue to drive
up energy prices. Uncertainties surrounding the political structure in Egypt and Libya have driven
crude oil prices up by more than $20 per barrel in early 2011. We believe energy costs will continue to
rise and we will continue to try to offset high fuel prices by managing our capacity to seek to increase
base fares. Given the low fixed, high variable cost structure of our model, we are able to flex up our
aircraft utilization to maximize profitability during peak periods and flex down when we experience
revenue softness or in extremely high fuel cost environments. As fuel cost fluctuates, we will continue
to refine our market mix and adjust capacity as required to seek to achieve desired levels of
profitability.
Looking ahead, 2011 is expected to be a transition year as we continue to invest significant capital
into aircraft and aircraft improvements. In February 2011, we completed the purchase of our third
Boeing 757-200 aircraft under the purchase agreement we have for six Boeing 757-200 aircraft. Of the
remaining three Boeing 757-200 aircraft under this purchase agreement, we expect to purchase one
aircraft in March 2011 and purchase the other two aircraft during the fourth quarter of 2011. We
continue to work on the completion of the certification process to bring on a second fleet type onto
our operating certificate. We have amended our approach to the certification process and plan to enter
one Boeing 757-200 aircraft into revenue service during the third quarter 2011. Initially, we expect this
aircraft to be used for charters and possibly long haul scheduled service routes. Subsequently, we plan
to refocus our efforts on gaining flag carrier status and completing the ETOPS certification process in
order to launch service to Hawaii in late 2012.
We have entered into lease agreements with third parties to lease two Boeing 757-200 aircraft we
have acquired as of March 1, 2011. The lease term of these agreements are 12 to 15 months.
34
We have committed to a seat reconfiguration program which will affect our scheduled service
revenue fleet. All our MD-80 aircraft (excluding our MD-87 aircraft) will be reconfigured from 150
seats to 166 seats by standardizing the passenger layout accommodations which will be made possible
by removing galleys, relocating lavatories and installing slim line, lightweight seats. We expect this
project to start in the third quarter of 2011 and take approximately 12 months to complete. We believe
these additional 16 seats will be accretive to earnings as they will allow us to grow capacity without
adding incremental aircraft into our operating fleet. In addition we will realize material costs savings
for the addition of these seats in the form of reduced per passenger costs and cost per available seat
mile. We currently have eight MD-80 aircraft in storage to provide capacity during the seat
reconfiguration project and to facilitate future growth during 2012 and 2013.
On March 10, 2011, we borrowed $125.0 million under a senior secured term loan facility (the
‘‘Term Loan’’). The Term Loan matures on March 10, 2017 and bears interest based on the London
Interbank Offered Rate (‘‘LIBOR’’) or prime rate with interest payable quarterly or more frequently
until maturity. In addition to the early payments made on existing debt obligations secured by MD-80
aircraft and general corporate purposes, proceeds from the Term Loan will be used to fund future
capital expenditure needs, including the acquisition of the three remaining Boeing 757-200 aircraft
under purchase agreement and our MD-80 aircraft seat reconfiguration program.
Our Operating Revenue
Our operating revenue comprises of both air travel on a stand-alone basis and bundled with hotels,
rental cars and other travel-related services. We believe our diversified revenue streams distinguish us
from other U.S. airlines and other travel companies.
(cid:127) Scheduled service revenue. Scheduled service revenue consists of air fare for nonstop flights
between our small city markets and our leisure destinations.
(cid:127) Ancillary revenue. Our ancillary revenue is generated from air-related charges and third party
products. Air-related revenue is generated through charges for use of our website to purchase
tickets, checked bags, advance seat assignments, priority boarding and other services provided in
conjunction with our scheduled air service. We also generate revenue from third party products
through the sale of hotel rooms, ground transportation (rental cars and hotel shuttle products),
attraction and show tickets and fees we receive from other merchants selling products through
our website. We recognize our ancillary revenues net of amounts paid to wholesale providers,
travel agent commissions and credit card processing fees.
(cid:127) Fixed fee contract revenue. Our fixed fee contract revenue consists largely of fixed flying
agreements with affiliates of Caesars Entertainment Inc. (formerly Harrah’s Entertainment Inc.)
that provide for a predictable revenue stream. We also provide charter service on a seasonal and
ad hoc basis to the Department of Defense and other customers.
(cid:127) Other revenue. Other revenue is primarily generated from aircraft and flight equipment leased to
third parties.
Seasonality. Our business is seasonal in nature with traffic demand historically being weaker in
the third quarter and stronger in the first quarter. Our operating revenue is largely driven by perceived
product value, advertising and promotional activities and can be adversely impacted during periods with
reduced leisure travel spending, such as the back-to-school season.
35
Our Operating Expenses
A brief description of the items included in our operating expense line items follows.
Aircraft fuel expense. Aircraft fuel expense includes the cost of aircraft fuel, fuel taxes, into plane
fees and airport fuel flowage, storage or through-put fees. Under the majority of our fixed fee
contracts, our customer reimburses us for fuel costs. These amounts are netted against our fuel
expense.
Salary and benefits expense. Salary and benefits expense includes wages, salaries, and employee
bonuses, sales commissions for in-flight personnel, as well as expenses associated with employee benefit
plans and employer payroll taxes.
Station operations expense. Station operations expense includes the fees charged by airports for
the use or lease of airport facilities and fees charged by third party vendors for ground handling
services, commissary expenses and other related services such as deicing of aircraft.
Maintenance and repairs expense. Maintenance and repairs expense includes all parts, materials
and spares required to maintain our aircraft. Also included are fees for repairs performed by third
party vendors.
Sales and marketing expense. Sales and marketing expense includes all advertising, promotional
expenses, travel agent commissions and credit card discount fees associated with the sale of scheduled
service and air-related charges.
Aircraft lease rentals expense. Aircraft lease rentals expense consists of the cost of leasing aircraft
under operating leases with third parties. Also included are maintenance deposits when not considered
part of maintenance and repair expense as discussed under ‘‘Critical Accounting Policies and
Estimates’’ below.
Depreciation and amortization expense. Depreciation and amortization expense includes the
depreciation of all fixed assets, including aircraft that we own and amortization of aircraft that we
operated under capital leases.
Other expense. Other expense includes the cost of passenger liability insurance, aircraft hull
insurance and all other insurance policies except for employee welfare insurance. Additionally, this
expense includes loss on disposals of aircraft and other equipment disposals, travel and training
expenses for crews and ground personnel, facility lease expenses, professional fees, personal property
taxes and all other administrative and operational overhead expenses not included in other line items
above.
36
RESULTS OF OPERATIONS
2010 Compared to 2009
The table below presents our operating expenses as a percentage of operating revenue for the
periods presented:
Total operating revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating expenses:
Aircraft fuel
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Salary and benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Station operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Maintenance and repairs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Sales and marketing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Aircraft lease rentals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Year Ended
December 31,
2010
2009
100.0% 100.0%
36.6
16.3
9.4
9.1
2.6
0.3
5.3
4.6
29.6
16.1
9.7
9.5
2.9
0.3
5.3
4.6
Total operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
84.2% 78.1%
Operating margin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
15.8% 21.9%
Operating Revenue
Our operating revenue increased 18.9% to $663.6 million in 2010 from $557.9 million in 2009
primarily due to a 23.6% increase in scheduled service revenue and a 19.2% increase in ancillary
revenue. Scheduled service revenue and ancillary revenue increases were primarily driven by a 14.0%
increase in scheduled service passengers on a 13.1% increase in scheduled service departures. Increased
passenger demand from what we believe to be an overall strengthening in the U.S. economy allowed us
to increase our average base airfare $5.88 or 8.4% to $76.26 in 2010 from 2009.
System available seat miles (‘‘ASMs’’) increased by 14.6% as a result of a 9.6% increase in system
departures and a 4.5% increase in system average stage length. Operating revenue per ASM (‘‘RASM’’)
increased from 10.24¢ during 2009 to 10.62¢ during 2010 as the rate of increase in total operating
revenue slightly exceeded the increase in our capacity.
Scheduled service revenue. Scheduled service revenue increased 23.6% to $427.8 million for 2010,
up from $346.2 million in 2009. The increase was primarily driven by a 14.0% increase in the number
of scheduled service passengers, along with an 8.4% increase in the scheduled service average base fare
for 2010 compared to 2009. Passenger growth was driven by a 13.1% increase in the number of
scheduled service departures and a slight increase in scheduled service load factor, up 0.4 percentage
points to 90.8%. The increase in departure growth was driven by the increase in routes to our Phoenix
market, Los Angeles market (with commencement of flying to Long Beach in July 2010) and route
expansion of our seasonal service during 2010 to Myrtle Beach and Punta Gorda. Overall, our route
network expanded from 136 routes served at December 31, 2009 to 160 served at December 31, 2010.
Ancillary revenue. Ancillary revenue increased 19.2% to $194.0 million in 2010 up from
$162.7 million in 2009, driven by a 14.0% increase in scheduled service passengers and a 4.6% increase
37
in ancillary revenue per scheduled passenger from $33.07 to $34.58. The following table details ancillary
revenue per scheduled service passenger from air-related charges and third party products:
Year Ended
December 31,
2010
2009
Percentage
Change
Air-related charges . . . . . . . . . . . . . . . . . . . . . . . . . . .
Third party products . . . . . . . . . . . . . . . . . . . . . . . . . .
$30.24
4.34
$29.06
4.01
4.1%
8.2%
Total ancillary revenue per scheduled service
passenger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$34.58
$33.07
4.6%
The increase in air-related charges per-passenger was primarily attributable to higher baggage fees
and booking fees in the comparable periods. We increased baggage fees, which currently range between
$15 and $30 per checked bag, depending on the flight segment, to comparable industry levels. In
addition, we transitioned to an open seating model for customers who do not purchase our assigned
seat product. This resulted in an increase in take rates and overall revenue production for our priority
boarding and assigned seat products. Ancillary revenue from third party products increased in 2010 on
a per-passenger basis as a result of increased volume of sales per passenger and increased margins on
the sale of hotel rooms compared to 2009.
The following table details the calculation of ancillary revenue from third party products. Third
party products consist of revenue from the sale of hotel rooms, ground transportation (rental cars and
hotel shuttle products), attraction and show tickets and fees we receive from other merchants selling
products through our website:
(in thousands)
Year Ended
December 31,
2010
2009
Change
Gross ancillary revenue—third party . . . . . . . . . . . . .
Cost of goods sold . . . . . . . . . . . . . . . . . . . . . . . . .
Transaction costs(a) . . . . . . . . . . . . . . . . . . . . . . . . .
$ 89,258
(60,860)
(4,032)
$ 73,188
(50,014)
(3,459)
Ancillary revenue—third party products . . . . . . . . . .
$ 24,366
$ 19,715
22.0%
21.7%
16.6%
23.6%
As percent of gross ancillary revenue—third party . . . . .
27.3%
26.9% 0.4pp
(a) Includes credit card fees and travel agency commissions
Fixed fee contract revenue. Fixed fee contract revenue decreased 6.0% to $40.6 million during 2010
from $43.2 million for 2009. Increased flying for the Department of Defense during 2010 was more
than offset by the cessation in 2009 of fixed fee flying under the Cuban Family Charter Program and
under an agreement with Beau Rivage Resorts, Inc. Fixed fee flying under our agreement with Caesars
Entertainment Inc. (formerly Harrah’s Entertainment Inc.) partially offset this decrease as the number
of block hours flown under the agreement increased by 4.2% for 2010 compared to 2009.
Other revenue. We generated other revenue of $1.2 million for 2010 compared to $5.8 million for
2009 during which other revenue was primarily from flight equipment leased to third parties. All of
these leases were terminated by the end of third quarter 2010.
Operating Expenses
Our operating expenses increased 28.3% to $559.0 million for 2010 compared to $435.7 million in
2009. We primarily evaluate our expense management by comparing our costs per passenger and per
ASM across different periods which enable us to assess trends in each expense category.
38
The following table presents Operating expense per passenger for the indicated periods
(‘‘per-passenger costs’’). The table also presents Operating expense per passenger, excluding fuel, which
represents operating expenses, less aircraft fuel expense, divided by the number of passengers carried.
This statistic provides management and investors the ability to measure and monitor our cost
performance absent fuel price volatility. Both the cost and availability of fuel are subject to many
economic and political factors beyond our control.
Year ended
December 31,
2010
2009
Percentage
Change
Aircraft fuel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Salaries and benefits . . . . . . . . . . . . . . . . . . . . . . . . . .
Station operations . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Maintenance and repairs . . . . . . . . . . . . . . . . . . . . . . .
Sales and marketing . . . . . . . . . . . . . . . . . . . . . . . . . .
Aircraft lease rentals . . . . . . . . . . . . . . . . . . . . . . . . . .
Depreciation and amortization . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating expense per passenger . . . . . . . . . . . . . . . . .
Operating expense per passenger, excluding fuel . . . . . .
$41.28
18.30
10.61
10.26
2.89
0.29
5.92
5.14
$94.69
$53.41
$30.97
16.89
10.13
9.93
3.09
0.36
5.56
4.83
$81.77
$50.80
33.3%
8.3
4.7
3.3
(6.4)
(19.3)
6.5
6.5
15.8%
5.1%
Despite an increase of 4.5% in system average stage length and a 3.6% reduction in average daily
departures per aircraft, operating expense per passenger, excluding fuel, increased only 5.1% from
$50.80 in 2009 to $53.41 in 2010. An increase in salary and benefits expense per passenger was the
principal contributor to the increase. The increase in average fuel cost per gallon of 30.7% and the
longer stage length resulted in a $10.31 increase in fuel expense per passenger from $30.97 to $41.28.
The following table presents unit costs, defined as Operating expense per ASM (‘‘CASM’’), for the
indicated periods. The table also presents Operating CASM, excluding fuel, which represents operating
expenses, less aircraft fuel expense, divided by available seat miles. As on a per passenger basis,
excluding fuel on an ASM basis provides management and investors the ability to measure and monitor
our cost performance absent fuel price volatility.
Aircraft fuel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Salary and benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Station operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Maintenance and repairs . . . . . . . . . . . . . . . . . . . . . . . . . .
Sales and marketing . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Aircraft lease rentals
. . . . . . . . . . . . . . . . . . . . . . . . . . . .
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating expense per ASM (CASM) . . . . . . . . . . . . . . . .
CASM, excluding fuel . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Year Ended
December 31,
2010
2009
3.90¢ 3.03¢
1.65
1.73
0.99
1.00
0.97
0.97
0.30
0.27
0.04
0.03
0.56
0.54
0.47
0.49
8.95¢ 8.00¢
5.05¢ 4.97¢
Percentage
Change
28.7%
4.8
1.0
—
(10.0)
(25.0)
3.7
4.3
11.9%
1.6%
Aircraft fuel expense. Aircraft fuel expense increased $78.7 million or 47.7% to $243.7 million for
2010, up from $165.0 million in 2009, primarily driven by a 30.7% increase in the system average cost
per gallon from $1.76 to $2.30. System departure growth of 9.6% and a 4.5% increase in system
average stage length for 2010 resulted in a 13.4% increase in gallons consumed, which increased from
93.5 million to 106.1 million.
39
Salary and benefits expense. Salary and benefits expense increased 20.0% to $108.0 million for
2010 up from $90.0 million for 2009. Excluding accrued employee bonus expense and stock
compensation expense, salary and benefits expense increased 26.8% attributable to a 23.2% increase in
salary and benefits expense per full-time equivalent employee and a 2.9% increase in the number of
full-time equivalent employees from December 31, 2009 to December 31, 2010. We entered into new
compensation agreements with our pilots and flight attendants which went into effect in May and July
2010 respectively. These new compensation arrangements accounted for the majority of the salary and
benefits expense per full-time equivalent employees year-over-year change. In addition to these
agreements, we experienced higher medical premiums and increased 401(k) contributions which are
offset by a reduction in employee accrued bonus expense due to a lower level of profitability compared
to 2009.
Station operations expense. Station operations expense increased 16.0% to $62.6 million in 2010
compared to $54.0 million in 2009 as a result of a 9.6% in system departures and a 5.9% increase in
station operations expense per departure. Our expense per departure increase is primarily attributable
to increased airport and common use fees at some of our leisure destination airports. As capacity is
reduced at these airports, which has been the case over the past two years, airports reallocate costs
among remaining carriers. In addition we operated out of Orlando International Airport since the first
quarter 2010 which has approximately 25.0% higher operating costs than those at Orlando Sanford
International Airport.
Maintenance and repairs expense. Maintenance and repairs expense increased 14.4% to
$60.6 million for 2010 compared to $52.9 million in 2009 as the average number of aircraft in service
increased 14.8% from 42.7 aircraft during 2009 to 49.0 during the 2010. The timing of maintenance
events may cause our maintenance and repairs expense to vary significantly from period to period.
Sales and marketing expense. Sales and marketing expense increased 3.7% to $17.1 million in 2010
compared to $16.5 million in 2009 due to higher credit card transaction costs associated with the 22.1%
increase in scheduled service and ancillary revenue. The increase in transaction costs were partially
offset by reductions in credit card rates and small city advertising expenses.
Aircraft lease rentals expense. Aircraft lease rentals expense decreased 10.6%, from $1.9 million for
2009 to $1.7 million in 2010. For all of 2009 and a majority of 2010, we operated four leased aircraft.
In October 2010 we took ownership of two of our leased aircraft though the exercise of purchase
options. We continue to have two aircraft under operating leases remaining in our fleet at the end of
2010.
Depreciation and amortization expense. Depreciation and amortization expense increased to
$35.0 million for 2010 from $29.6 million for 2009, an increase of 18.0%, driven by a 13.0% increase in
the number of operating aircraft. We ended 2010 with 52 aircraft in revenue service as compared with
46 in 2009. Additionally, depreciation and amortization expense excluding aircraft and aircraft related
parts increased as we continued to invest in our ground service equipment and information technology
infrastructure.
Other expense. Other expense increased 18.0% to $30.4 million for 2010 compared to
$25.7 million for 2009, attributable to an increase in administrative expenses associated with our
growth, such as facility rent for our corporate headquarters and aircraft insurance. In addition, we
incurred pre-operating expenses associated with the certification process for the Boeing 757-200 aircraft
type which began in the first quarter of 2010. Expenses related to this process were approximately
$1.5 million in 2010. These increases were offset by a lower loss from the disposal of assets which were
$4.9 million in 2009 and $2.9 million in 2010.
40
Other (Income) Expense
Other (income) expense decreased from a net other expense of $1.7 million for 2009, to a net
other expense of $1.3 million for 2010. The change is primarily attributable to a reduction in interest
expense due to lower debt balances partially offset by a reduction of interest income earned on cash
balances in 2010 compared to 2009.
Income Tax Expense
Our effective income tax rate was 36.4% for 2010 compared to 36.7% for 2009. The lower effective
tax rate for 2010 was largely due to the geographic mix of our flying and the impact this had on the
state income tax portion of the tax provision. While we expect our tax rate to be fairly consistent in the
near term, it will tend to vary depending on recurring items such as the amount of income we earn in
each state and the state tax rate applicable to such income. Discrete items particular to a given year
may also affect our effective tax rates.
2009 Compared to 2008
The table below presents our operating expenses as a percentage of operating revenue for the
periods presented:
Total operating revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating expenses:
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Aircraft fuel
Salary and benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Station operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Maintenance and repairs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Sales and marketing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Aircraft lease rentals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Year Ended
December 31,
2009
2008
100.0% 100.0%
29.6
16.1
9.7
9.5
2.9
0.3
5.3
4.6
45.6
14.3
8.6
8.2
2.8
0.6
4.7
4.1
Total operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
78.1% 88.9%
Operating margin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
21.9% 11.1%
We recorded total operating revenue of $557.9 million, income from operations of $122.2 million
and net income of $76.3 million for 2009. By comparison, in 2008, we recorded total operating revenue
of $504.0 million, income from operations of $55.8 million and net income of $35.4 million. We
achieved a 21.9% operating margin for 2009 with system growth in departures of 22.2% and ASMs of
22.7%, despite a reduction in scheduled service revenue of $14.60 per passenger year-over-year.
Operating Revenue
Our operating revenue increased 10.7% to $557.9 million in 2009 from $504.0 million in 2008
primarily due to a 49.8% increase in ancillary revenue from air-related charges and a 4.6% increase in
scheduled service revenue, partially offset by a 17.8% decrease in fixed fee contract revenue. The
ancillary revenue from air-related charges and scheduled service revenue increases were primarily
driven by a 26.3% increase in the number of scheduled service passengers.
41
System ASMs increased by 22.7% as a result of a 22.2% increase in system departures. RASM
decreased by 9.8% from 11.35 cents during 2008 to 10.24 cents during 2009. The decrease was mainly
attributable to a 17.2% reduction in our scheduled service average base fare offset by an increase in
ancillary revenue per passenger. We decreased scheduled service base fares to maintain load factor in
the face of industry wide lower fares and adverse economic conditions.
Scheduled service revenue. Scheduled service revenue increased 4.6% to $346.2 million for 2009,
from $331.0 million in 2008. The increase was a result of a 26.3% increase in the number of scheduled
service passengers offset by a decrease in the scheduled service average base fare of $14.60 from $84.97
in 2008 to $70.37 in 2009. Passenger growth was driven primarily as a result of a 25.6% increase in
departures from 29,548 to 37,115 in 2009. Significant contributors to the departure growth were the
addition of 1,699 departures attributable to our new service to Los Angeles not operated in 2008 and
an increase of 1,637 departures from route expansion to our Phoenix market. We offered service into
Phoenix on 20 routes at December 31, 2009 compared to 15 routes at December 31, 2008. Remaining
departure growth is a result of increased frequency of flying to our other major leisure destinations and
departures to new limited service destinations. Our route network consisted of 136 routes at
December 31, 2009, an increase from 113 routes at December 31, 2008.
Ancillary revenue. Ancillary revenue increased 42.0% to $162.7 million in 2009 up from
$114.6 million in 2008, driven by a 26.3% increase in scheduled service passengers and a 12.4%
increase in ancillary revenue per scheduled passenger from $29.43 to $33.07. The following table details
ancillary revenue per scheduled service passenger from air-related charges and third party products:
Year Ended
December 31,
2009
2008
Percentage
Change
Air-related charges . . . . . . . . . . . . . . . . . . . . . . . . . . .
Third party products . . . . . . . . . . . . . . . . . . . . . . . . . .
$29.06
4.01
$24.52
4.91
18.5%
(18.3)%
Total ancillary revenue per scheduled service
passenger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$33.07
$29.43
12.4%
On a per-passenger basis, 87.8% and 83.3% of our total ancillary revenues consist of air-related
charges for 2009 and 2008, respectively. The increase in air-related charges per-passenger was primarily
attributable to higher baggage fees as we increased fees to comparable industry levels, an increase in
our customer convenience fee, and the effect of a full year of our priority boarding product rolled out
in October 2008. We increased our customer convenience fee from $11.50 to $13.50 in January 2009
and to $14.00 in July 2009. Third party products declined on a per passenger basis (but increased
slightly in absolute terms) due to Las Vegas contributing a smaller percentage of our total passengers.
Our third party products revenue per passenger for Las Vegas is higher than our other destinations due
to large volume of hotel rooms we sell in Las Vegas.
42
The following table details the calculation of ancillary revenue from third party products. Third
party products consist of revenue from the sale of hotel rooms, ground transportation (rental cars and
hotel shuttle products), attraction and show tickets and fees we receive from other merchants selling
products through our website:
Year Ended
December 31,
(in thousands)
2009
2008
Change
Gross ancillary revenue—third party . . . . . . . . . . . .
Cost of goods sold . . . . . . . . . . . . . . . . . . . . . . . .
Transaction costs(a) . . . . . . . . . . . . . . . . . . . . . . . .
$ 73,188
(50,014)
(3,459)
$ 72,982
(50,143)
(3,733)
Ancillary revenue—third party products . . . . . . . . .
$ 19,715
$ 19,106
0.3%
(0.3)%
(7.3)%
3.2%
As percent of gross ancillary revenue—third party . . . .
26.9%
26.2% 0.7pp
(a) Includes credit card fees and travel agency commissions
During 2009, we generated gross revenue of $73.2 million from third party products, which
resulted in net revenue of $19.7 million. The majority of the gross revenue was generated from the sale
of over 500,000 hotel room nights at our leisure destinations packaged to our customers with scheduled
air service.
Fixed fee contract revenue. Fixed fee contract revenue decreased 17.8% to $43.2 million during
2009 from $52.5 million for 2008 as we had 9,636 block hours of fixed fee flying in 2009 compared to
10,181 in 2008. The decrease is primarily due to a decline in block hours flown under the Caesars
Entertainment Inc. (formerly Harrah’s Entertainment Inc.) fixed fee agreement partially offset by a
21.5% increase in other fixed fee flying programs for 2009. Reduction in the Caesars fixed fee revenues
was also attributable to the impact of a new contract which went into effect January 1, 2009. Under the
modified Caesars contract, Caesars reimburses us for the entire amount of fuel costs incurred. The
per-block hour rate we charge Caesars is therefore reduced from the rate we charged under the
previous Caesars contracts under which we had been responsible for a portion of the fuel expenses.
The Reno program with Caesars was closed in November 2009. New fixed fee flying for 2009 included
agreements for the Cuban Family Charter Program, which began in June 2009, flying under an
agreement with Beau Rivage Resorts, Inc., and fixed fee flying for the Department of Defense which
began in April 2009. The Cuban Family Charter Program fixed fee flying was permanently ceased in
October 2009 and the agreement with Beau Rivage Resorts, Inc. ended in December 2009.
Other revenue. We generated other revenue of $5.8 million and $5.9 million during 2009 and 2008,
respectively. The revenue was primarily generated as a result of our April 2008 purchase of six MD-80
aircraft and three engines on lease to another airline. The six purchased aircraft have since been
returned to us, with all of these aircraft having been placed in service as of December 31, 2009. With
the return of all of these aircraft, we are not presently generating significant other revenue.
Operating Expenses
Despite a significant increase in departures, our operating expenses decreased by 2.8% to
$435.7 million in 2009 compared to $448.2 million in 2008 as the reduction in fuel expense more than
offset expense increases in other line items resulting from increased service and other factors.
43
The following table presents Operating expense per passenger and Operating expense per
passenger, excluding fuel for the indicated periods (‘‘per-passenger costs’’).
Year ended
December 31,
2009
2008
Percentage
Change
Aircraft fuel
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Salaries and benefits . . . . . . . . . . . . . . . . . . . . . . . . .
Station operations . . . . . . . . . . . . . . . . . . . . . . . . . . .
Maintenance and repairs . . . . . . . . . . . . . . . . . . . . . .
Sales and marketing . . . . . . . . . . . . . . . . . . . . . . . . .
Aircraft lease rentals . . . . . . . . . . . . . . . . . . . . . . . . .
Depreciation and amortization . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating expense per passenger . . . . . . . . . . . . . . . .
Operating expense per passenger, excluding fuel . . . . .
$30.98
16.89
10.13
9.93
3.09
0.36
5.56
4.83
$81.77
$50.80
$ 53.43
16.75
10.11
9.65
3.34
0.65
5.46
4.86
$104.25
$ 50.83
(42.0)%
0.8
0.2
2.9
(7.5)
(44.6)
1.8
(0.6)
(21.6)%
(0.5)%
Our per-passenger costs decreased 21.6% primarily due to a 42.0% decrease in fuel expense per
passenger as a result of a 24.0% increase in the number of system passengers and a 40.9% reduction in
system average cost per gallon for 2009 compared to 2008.
The following table presents the unit costs of CASM and Operating CASM, excluding fuel for the
indicated periods.
Aircraft fuel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Salary and benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Station operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Maintenance and repairs . . . . . . . . . . . . . . . . . . . . . . . . .
Sales and marketing . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Aircraft lease rentals . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating expense per ASM (CASM) . . . . . . . . . . . . . . . .
CASM, excluding fuel . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Year Ended
December 31,
2009
2008
5.17¢
1.62
0.98
0.93
0.32
0.06
0.53
0.48
3.04¢
1.65
0.99
0.97
0.30
0.04
0.54
0.47
8.00¢ 10.09¢
4.92¢
4.97¢
Percentage
Change
(41.2)%
1.9
1.0
4.3
(6.3)
(33.3)
1.9
(2.1)
(20.7)%
1.0%
Aircraft fuel expense. Despite our significant year-over-year expansion of service, aircraft fuel
expense decreased 28.1% to $165.0 million for 2009, down from $229.6 million for 2008, driven by a
40.9% decrease in the system average cost per gallon to $1.76 from $2.98. System gallons consumed
increased to 93.5 million from 77.0 million attributable to our 22.2% system departure growth.
Salary and benefits expense. Salary and benefits expense increased 25.0% to $90.0 million for 2009
up from $72.0 million for 2008 mainly as a result of a significant increase in accrued employee bonus
expense and an increase in the number of full-time equivalent employees. The increase in accrued
employee bonus expense was driven by the significant year-over-year increase in operating income. We
employed approximately 1,569 full-time equivalent employees at December 31, 2009 compared to 1,348
at December 31, 2008, a 16.4% increase in line with our fleet growth from an average number of
aircraft in service of 36.4 in 2008 to 42.7 in 2009. Excluding accrued employee bonus expense, stock
compensation expense and other incentives, our salary and benefits expense per average full-time
equivalent employee increased by only 2.8% year-over-year.
44
Station operations expense. Station operations expense increased 24.2% to $54.0 million in 2009
compared to $43.5 million in 2008 principally attributable to the impact of increased scheduled service
departures of 25.6%. Our station operations expense on a per-departure basis increased by only 1.6%
year-over-year.
Maintenance and repairs expense. Maintenance and repairs expense increased 27.7%, to
$52.9 million for 2009 up from $41.5 million for 2008 as the average number of aircraft in service
increased 17.3% from 36.4 in 2008 to 42.7 in 2009. The increase is primarily attributable to scheduled
heavy aircraft maintenance checks performed and impact of the growth in our fleet on the repair of
rotable aircraft parts for 2009 compared to 2008, a non-recurring inventory adjustment related to
low-value usage expendables during the first quarter of 2009, offset by a decrease in the engine
maintenance expense from less expensive engine maintenance events. In comparison with 2008, our
scheduled heavy aircraft maintenance checks increased both in the number of events and average
expense per event, with percentage increases of 47.6% and 28.0%, respectively. Our average
maintenance and repairs expense per aircraft per month increased 8.9% from approximately $95,000 in
2008 to approximately $103,000 in 2009.
Sales and marketing expense. Sales and marketing expense increased 14.6% to $16.5 million in
2009 compared to $14.4 million in 2008 as a result of advertising expenses associated with entrance into
new markets including the new major leisure destination of Los Angeles which launched service in May
2009.
Aircraft lease rentals expense. Aircraft lease rentals expense decreased by 31.6% to $1.9 million in
2009 down from $2.8 million in 2008. In each of 2009 and 2008, we had four aircraft under operating
lease agreements. In 2009, the average expense per aircraft was lower due to the purchase in 2008 of
two aircraft under lease being replaced by two less expensive aircraft which we began leasing in 2009.
Depreciation and amortization expense. Depreciation and amortization expense increased to
$29.6 million for 2009 from $23.5 million for 2008, an increase of 26.2%, as the number of aircraft
owned (including those leased to a third party) or subject to capital lease, increased from 36 as of
December 31, 2008 to 42 as of December 31, 2009. The increase was also attributable to the impact of
lowering the depreciable lives of our engines at the beginning of 2009 and additional depreciation
related to non-aircraft equipment purchases during 2009.
Other expense. Other expense increased 23.0% to $25.7 million for 2009 compared to
$20.9 million for 2008. The increase is due to an increase of $2.7 million in losses attributable to
dispositions of engines and a reduction in the value of engines held on consignment. Another
contributing factor to the increase is from other expenses associated with our growth, such as rent for
our Company headquarters and aircraft insurance.
Other (Income) Expense
Other (income) expense increased, from a net other expense of $0.6 million for 2008, to a net
other expense of $1.7 million for 2009. The increased expense is primarily attributable to a reduction of
interest income earned on cash balances in 2009 compared to the same period of 2008 partially offset
by a reduction in interest expense due to lower debt balances.
45
Income Tax Expense
Our effective income tax rate was 36.7% for 2009 compared to 35.9% for 2008. The higher
effective tax rate for 2009 was largely due to the geographic mix from our flying and the impact this
had on the state income tax portion of the tax provision. While we expect our tax rate to be fairly
consistent in the near term, it will tend to vary depending on recurring items such as the amount of
income we earn in each state and the state tax rate applicable to such income. Discrete items particular
to a given year may also affect our tax rates.
LIQUIDITY AND CAPITAL RESOURCES
During 2010, our primary source of funds was cash generated by our operations. Our operating
cash flows have allowed us to maintain a high level of liquidity while growing our fleet and meeting our
short term obligations. Our future capital needs are generally for the purchase of additional aircraft for
which we had $44.5 million of obligations as of December 31, 2010 under existing aircraft purchase
agreements. In addition, our capital needs include a seat reconfiguration program for our MD-80
aircraft fleet which is expected to start in the third quarter of 2011. On March 10, 2011, we borrowed
$125.0 million under a senior secured term loan facility (‘‘Term Loan’’). In addition to the early
payments made on existing debt obligations secured by MD-80 aircraft, proceeds from the Term Loan
will be used for funding of future capital expenditure programs and general corporate purposes. We
believe we have adequate liquidity resources through our operating cash flows and the proceeds from
the Term Loan to meet our future capital obligations.
Current Liquidity
Our total cash, including cash and cash equivalents, restricted cash and short-term investments,
totaled $171.6 million, $249.3 million and $190.8 million at December 31, 2010, 2009 and 2008,
respectively. Restricted cash represents credit card deposits, cash collateral against notes payable,
escrowed funds under our fixed fee flying contracts, and cash collateral against letters of credit required
by hotel partners for guaranteed room availability, airports and certain other parties. Short-term
investments represent marketable securities which are available-for-sale. During 2010, our restricted
cash balance increased by $3.4 million primarily from the cash collateral associated with the loan
secured by two Boeing 757-200 aircraft. An increase in the number of letters of credit and higher
amounts on a number of existing letters of credit issued to our hotel vendors and some airports
resulted in an increase in the restricted cash balance at December 31, 2009.
Under our fixed fee flying contracts, we require our customers to prepay for flights to be provided
by us. The prepayments are escrowed until the flight is completed. Prepayments are recorded as
restricted cash and a corresponding amount is recorded as air traffic liability.
Sources and Uses of Cash
Operating activities. During 2010, our operating activities provided $98.0 million of cash compared
to $131.7 million during 2009. We generated more cash from operating activities in 2009 than 2010 as a
result of higher net income and a higher increase in our air traffic liability (compared to the previous
year end). In addition, cash from operating activities in 2010 was reduced by the prepayment of
$25.0 million for access to hotel rooms for sale through an agreement with one of our key Las Vegas
hotel partners.
Investing activities. During 2010, our investing activities provided $6.8 million compared to the use
of $97.2 million during 2009. Cash provided in investing activities of $6.8 million during 2010 was
primarily due to the proceeds of $104.1 million from maturities of short-term investments, net of
purchases, offset by $98.5 million of cash used in the purchase of property and equipment, including
pre-delivery deposits. Purchases of property and equipment during 2010 consisted of cash purchases of
46
aircraft and induction costs associated with aircraft including payment of pre-delivery deposits on four
undelivered Boeing 757-200 aircraft. During 2009, we used $64.1 million for the purchase of short-term
investments, net of maturities, and another $31.7 million for the purchase of property and equipment.
Financing activities. During 2010, we used $81.7 million in cash for financing activities compared
to the use of $41.4 million during 2009. We primarily used cash for the repurchase of our common
stock in open market purchases of $53.8 million, payment on our debt and capital lease obligations of
$31.7 million and the payment of cash dividends to shareholders of $14.9 million during 2010. During
2009, we used $25.4 million to repurchase our common stock and $25.9 million for payment of our
debt and capital lease obligations. The cash used in financing activities for both periods was offset by
proceeds from the issuance of notes payable associated with a $14.0 million secured loan during the
third quarter of 2010 and a $7.0 million secured loan during the second quarter of 2009.
Debt
Our long-term debt obligations declined from $45.8 million as of December 31, 2009 to
$28.1 million as of December 31, 2010. As of December 31, 2010, we had secured debt financing on 17
in-service MD-80 aircraft and two Boeing 757-200 aircraft which have yet to be added to our in-service
fleet. Refer to ‘‘Item 8—Financial Statements and Supplementary Data—Notes to Consolidated
Financial Statements—Note 16—Subsequent Events’’ for discussion of increased debt under a senior
secured term loan facility, which closed on March 10, 2011.
COMMITMENTS AND CONTRACTUAL OBLIGATIONS
The following table discloses aggregate information about our contractual cash obligations as of
December 31, 2010 and the periods in which payments are due (in thousands):
Long-term debt obligations(1) . . . . . . . . . . . . .
Operating lease obligations(2) . . . . . . . . . . . . .
Aircraft purchase obligations(3) . . . . . . . . . . .
Total future payments on contractual
Total
$ 30,492
24,989
44,527
Less than
1 year
$17,945
4,709
44,527
1 - 3 years
3 to 5 years
$ 9,573
11,533
—
$2,974
5,116
—
More than
5 years
$ —
3,631
—
obligations . . . . . . . . . . . . . . . . . . . . . . . . .
$100,008
$67,181
$21,286
$8,090
$3,631
(1) Long-term debt obligations include scheduled interest payments. Refer to ‘‘Item 8—Financial
Statements and Supplementary Data—Notes to Consolidated Financial Statements—Note 16—
Subsequent Events’’ for discussion of the incurrence of $125.0 million in debt under a senior
secured term loan facility in March 2011 and and the repayment of existing debt secured by our
aircraft.
(2) Operating lease obligations include aircraft operating leases and leases of office space and airport
station property.
(3) Aircraft purchase obligations under existing aircraft purchase agreements.
OFF-BALANCE SHEET ARRANGEMENTS
We have obligations for aircraft that are classified as operating leases and therefore are not
reflected on our balance sheet. As of December 31, 2010, we operated two of our aircraft under
operating lease agreements. The operating leases for the two aircraft have terms extending through
June 2014.
47
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The discussion and analysis of our financial condition and results of operations is based upon our
consolidated financial statements, which have been prepared in accordance with accounting principles
generally accepted in the United States. The preparation of these financial statements requires us to
make estimates and judgments that affect the reported amount of assets and liabilities, revenues and
expenses, and related disclosure of contingent assets and liabilities at the date of our financial
statements. Note 2 to our Consolidated Financial Statements provides a detailed discussion of our
significant accounting policies.
Critical accounting policies are defined as those policies that reflect significant judgments about
matters that are inherently uncertain. These estimates and judgments affect the reported amount of
assets and liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities at
the date of our financial statements. Our actual results may differ from these estimates under different
assumptions or conditions. We believe our critical accounting policies are limited to those described
below.
Revenue Recognition. Scheduled service revenue consists of passenger revenue involving limited
frequency nonstop flights between our leisure destinations and small cities recognized when the travel-
related service or transportation is provided or when the itinerary expires unused. Nonrefundable
scheduled itineraries expire on the date of the intended flight, unless the date is extended by
notification from the customer in advance. Itineraries sold for transportation, but not yet used, as well
as unexpired credits, are included in air traffic liability.
Various taxes and fees assessed on the sale of tickets to end customers are collected by us as an
agent and remitted to taxing authorities. These taxes and fees have been presented on a net basis in
our consolidated statements of income and recorded as a liability until remitted to the appropriate
taxing authority.
Fixed fee contract revenue consists largely of long-term agreements to provide charter service on a
seasonal and ad hoc basis to affiliates of Caesars Entertainment Inc. (formerly Harrah’s
Entertainment Inc.), Department of Defense (‘‘DOD’’) and others. Fixed fee contract revenue is
recognized when the transportation is provided.
Ancillary revenue consists of passenger revenue from air-related charges and third party products.
Air-related charges include optional services provided to passengers such as the use of our website to
purchase scheduled service transportation, advance seat assignments, priority boarding, unlimited
changes to nonrefundable itineraries and other services. Revenues from air-related charges are
recognized when the transportation is provided if the product is not deemed independent of the
scheduled service. Revenues from change fees for charges imposed on passengers for making changes
to nonrefundable itineraries are recognized as they occur. Ancillary revenue is also generated from
third party products such as the sale of hotel rooms, rental cars, ticket attractions and other items.
Revenues from the sale of third party products are recognized at the time the product is utilized, such
as the time a purchased hotel room is occupied. The amount of revenues attributed to each element of
a bundled sale involving air-related charges and third party products in addition to airfare is
determined in accordance with accounting standards for revenue arrangements with multiple
deliverables. The sale of ancillary revenue products is recorded net of amounts paid to wholesale
providers, travel agent commissions and credit card processing fees in accordance with revenue
reporting accounting standards.
Other revenue is generated from leased out aircraft and flight equipment and other miscellaneous
sources. Lease revenue is recognized on a straight-line basis over the lease term.
Accounting for Long-Lived Assets. When appropriate, we evaluate our long-lived assets for
impairment. We record impairment losses on long-lived assets used in operations when events or
48
circumstances indicate that the assets may be impaired and the undiscounted cash flows estimated to be
generated by those assets are less than the net book value of those assets. In making these
determinations, we utilize certain assumptions, including, but not limited to: (i) estimated fair market
value of the assets; and (ii) estimated future cash flows expected to be generated by these assets, which
are based on additional assumptions such as asset utilization, length of service the asset will be used in
our operations, and estimated salvage values.
Aircraft maintenance and repair costs. We account for aircraft maintenance activities under the
direct expense method. Under this method, maintenance and repair costs for owned and leased aircraft,
including major aircraft maintenance activities, are charged to operating expenses as incurred. As a
lessee, we may be required under provisions of our lease agreements to make payments to the lessor in
advance of the performance of major maintenance activities. These payments of maintenance deposits
are calculated based on a performance measure, such as flight hours or cycles, and are available for
reimbursement to us upon the completion of the maintenance of the leased aircraft. Accounting
guidance for maintenance deposits requires these payments to be accounted for as an asset until
reimbursed for incurred maintenance costs or until it is determined that any portion of the estimated
total of the deposit is less than probable of being returned. In addition, payments of maintenance
deposits that are not ‘‘substantially and contractually related to the maintenance of the leased asset’’
are expensed as incurred. The Company had no maintenance deposits as of December 31, 2010 and
$2.0 million as of December 31, 2009.
Short-term Investments. We maintain a liquid portfolio of investments that are available for
current operations and to satisfy on-going obligations. We have classified our short-term investments as
‘‘available for sale’’ and accordingly, unrealized gains or losses are reported as a component of
comprehensive income in stockholders’ equity.
Share-based compensation. We have issued common stock, restricted stock, stock options and stock
appreciation rights (‘‘SARs’’) to executives and employees pursuant to our long-term incentive plan and
warrants to the placement agent involved in our May 2005 issuance of redeemable convertible
preferred shares. For the years ended December 31, 2010, 2009 and 2008, we recorded $4.4 million,
$3.1 million and $1.7 million, respectively, of compensation expense in the consolidated statements of
income related to stock options, SARs and restricted stock.
We recognize stock-based compensation expense over the requisite service period using a fair value
approach. Determining the fair value requires judgment, and we use the Black-Scholes valuation model
for stock options and SARs issued. Significant judgment is required to establish the assumptions to be
used in the Black- Scholes valuation model. These assumptions are for the volatility of our common
stock, estimated term over which our stock options and SARs will be outstanding, and interest rate to
be applied. Expected volatilities are based on the historical volatilities from publicly traded airline
companies of our peer group due to our lack of historical information. Expected term represents the
weighted average time between the option’s grant date and its exercise date. We used the simplified
method from accounting guidance for companies with a limited trading history to estimate the expected
term on 2009 and 2008 award grants. No stock options or SARS were granted during 2010. The
risk-free interest rate for periods equal to the expected term of the stock option is based on a blended
historical rate using Federal Reserve rates for U.S. Treasury securities. We use our closing share price
on the grant date as the fair value for issuances of restricted stock.
RECENT ACCOUNTING PRONOUNCEMENTS
See related disclosure at ‘‘Item 8—Financial Statements and Supplementary Data—Notes to
Consolidated Financial Statements—Note 2—Summary of Significant Accounting Policies.’’
49
SPECIAL NOTE ABOUT FORWARD-LOOKING STATEMENTS
We have made forward-looking statements in this annual report on Form 10-K, and in this 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 the information concerning our possible or
assumed future results of operations, business strategies, financing plans, competitive position, industry
environment, potential growth opportunities, future service to be provided and the effects of future
regulation and the effects of 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 Item 1A of this annual report on Form 10-K and generally may be found in our periodic
reports and registration statements filed with the Securities and Exchange Commission at www.sec.gov.
These risk factors include, without limitation, increases in fuel prices, the effect of the economic
downturn on leisure travel, the introduction of a second fleet type, terrorist attacks, risks inherent to
airlines, demand for air services to our leisure destinations from the markets served by us, our ability to
implement our growth strategy, unionization efforts, our dependence on our leisure destination
markets, our ability to add, renew or replace gate leases, the competitive environment, problems with
our aircraft, dependence on fixed fee customers, our reliance on our automated systems, economic and
other conditions in markets in which we operate, aging aircraft and other governmental regulation, our
ability to obtain regulatory approvals, 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 7A. Quantitative and Qualitative Disclosures about Market Risk
We are subject to certain market risks, including commodity prices (specifically, aircraft fuel). The
adverse effects of changes in these markets could pose a potential loss as discussed below. The
sensitivity analysis does not consider the effects that such adverse changes may have on overall
economic activity, nor does it consider additional actions we may take to mitigate our exposure to such
changes. Actual results may differ. See the Notes to the consolidated financial statements for a
description of our financial accounting policies and additional information.
Aircraft Fuel
Our results of operations can be significantly impacted by changes in the price and availability of
aircraft fuel. Aircraft fuel expense for the years ended December 31, 2010 and 2009 represented
approximately 43.6% and 37.9% of our operating expenses, respectively. Increases in fuel prices or a
shortage of supply could have a material effect on our operations and operating results. Based on our
2010 fuel consumption, a hypothetical ten percent increase in the average price per gallon of aircraft
fuel would have increased fuel expense by approximately $24.7 million for the year ended
December 31, 2010. While we do not currently hedge fuel price risk, prior to 2008, we entered into
forward contracts or other financial products to reduce our exposure to fuel price volatility. As of
December 31, 2010, we had no fuel derivative contracts outstanding.
50
Interest Rates
We have market risk associated with changing interest rates due to the short-term nature of our
invested cash and cash equivalents, which totaled $113.3 million, and short term investments of
$37.0 million at December 31, 2010. We invest available cash in money market funds, certificates of
deposit, investment grade commercial paper and other highly rated financial instruments. Because of
the short-term nature of these investments, the returns earned closely parallel short-term floating
interest rates. A hypothetical 100 basis point change in interest rates for the years ended December 31,
2010 and 2009, would have affected interest income from cash and investments by $0.1 million and
$0.2 million, respectively.
Our long-term debt has consisted of fixed rate notes payable and capital lease arrangements, but
all of our capital lease arrangements were terminated by our acquisition of the related aircraft during
2010. A hypothetical 100 basis point change in market interest rates as of December 31, 2010, would
not have a material effect on the fair value of our fixed rate debt instruments. Also, a hypothetical 100
basis point change in market rates during the years ended December 31, 2010 and 2009, would not
have materially impacted our earnings or cash flow associated with our fixed-rate debt.
51
Item 8. Financial Statements and Supplementary Data
The following consolidated financial statements as of December 31, 2010 and 2009 and for each of
the three years in the period ended December 31, 2010 are included below.
Reports of Independent Registered Public Accounting Firm . . . . . . . . . . . . . . .
Consolidated Balance Sheets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Stockholders’ Equity and Comprehensive Income . .
Consolidated Statements of Cash Flows . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . .
53
55
56
57
59
60
52
Report of Independent Registered Public Accounting Firm
The Board of Directors and Shareholders of
Allegiant Travel Company
We have audited the accompanying consolidated balance sheets of Allegiant Travel Company and
subsidiaries (the ‘‘Company’’) as of December 31, 2010 and 2009, and the related consolidated
statements of income, stockholders’ equity and comprehensive income, and cash flows for each of the
three years in the period ended December 31, 2010. These financial statements are the responsibility of
the Company’s management. Our responsibility is to express an opinion on these financial statements
based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting
Oversight Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects,
the consolidated financial position of the Company as of December 31, 2010 and 2009, and the
consolidated results of its operations and its cash flows for each of the three years in the period ended
December 31, 2010, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the effectiveness of Allegiant Travel Company’s internal control over
financial reporting as of December 31, 2010, based on criteria established in Internal Control—
Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission and our report dated March 11, 2011, expressed an unqualified opinion thereon.
/s/ Ernst & Young LLP
Las Vegas, Nevada
March 11, 2011
53
Report of Independent Registered Public Accounting Firm
The Board of Directors and Shareholders of
Allegiant Travel Company
We have audited Allegiant Travel Company and subsidiaries’ (the ‘‘Company’’) internal control
over financial reporting as of December 31, 2010, based on criteria established in Internal Control—
Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission (the COSO criteria). The Company’s management is responsible for maintaining effective
internal control over financial reporting, and for its assessment of the effectiveness of internal control
over financial reporting included in the accompanying Management’s Annual Report on Internal
Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal
control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting
Oversight Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control over financial reporting was maintained
in all material respects. Our audit included obtaining an understanding of internal control over
financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design
and operating effectiveness of internal control based on the assessed risk, and performing such other
procedures as we considered necessary in the circumstances. We believe that our audit provides a
reasonable basis for our opinion.
A company’s internal control over financial reporting is a process designed to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting principles. A company’s internal
control over financial reporting includes those policies and procedures that (1) pertain to the
maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and
dispositions of the assets of the company; (2) provide reasonable assurance that transactions are
recorded as necessary to permit preparation of financial statements in accordance with generally
accepted accounting principles, and that receipts and expenditures of the company are being made only
in accordance with authorizations of management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or
disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or
detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject
to the risk that controls may become inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
In our opinion, Allegiant Travel Company and subsidiaries maintained, in all material respects,
effective internal control over financial reporting as of December 31, 2010, based on the COSO
criteria.
We also have audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the consolidated balance sheets of the Company as of December 31,
2010 and 2009, and the related consolidated statements of income, stockholders’ equity and
comprehensive income, and cash flows for each of the three years in the period ended December 31,
2010 and our report dated March 11, 2011, expressed an unqualified opinion thereon.
/s/ Ernst & Young LLP
Las Vegas, Nevada
March 11, 2011
54
ALLEGIANT TRAVEL COMPANY
CONSOLIDATED BALANCE SHEETS
(in thousands, except for share amounts)
December 31,
2010
December 31,
2009
Current assets:
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restricted cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Short-term investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts receivable, net
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expendable parts, supplies and fuel, net of allowance for obsolescence of $170
and $659 at December 31, 2010 and December 31, 2009, respectively . . . . .
Prepaid expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Property and equipment, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Investment in and advances to unconsolidated affiliates, net . . . . . . . . . . . . . . .
Deposits and other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$113,293
21,287
37,000
7,852
13,383
24,071
—
2,517
219,403
267,298
1,983
12,582
$ 90,239
17,841
141,231
7,476
10,673
19,432
269
2,712
289,873
204,533
1,353
3,880
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$501,266
$499,639
Current liabilities:
Current maturities of notes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Current maturities of capital lease obligations . . . . . . . . . . . . . . . . . . . . . . .
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Air traffic liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 16,532
—
24,759
23,679
101,397
246
Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
166,613
Long-term debt and other long-term liabilities:
Notes payable, net of current maturities . . . . . . . . . . . . . . . . . . . . . . . . . . .
Capital lease obligations, net of current maturities . . . . . . . . . . . . . . . . . . . .
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
11,604
—
25,314
$ 21,297
2,041
20,990
23,699
90,554
—
158,581
21,027
1,442
26,566
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
203,531
207,616
Stockholders’ equity:
Common stock, par value $.001, 100,000,000 shares authorized; 21,455,634
and 21,088,633 shares issued; 19,005,821 and 19,850,090 shares
outstanding, as of December 31, 2010 and December 31, 2009,
respectively . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Treasury stock, at cost, 2,449,813 and 1,238,543 shares at December 31,
2010 and December 31, 2009, respectively . . . . . . . . . . . . . . . . . . . . . . .
Additional paid in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated other comprehensive (loss) income . . . . . . . . . . . . . . . . . . . .
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
21
21
(95,913)
180,704
(9)
212,932
(42,149)
171,887
92
162,172
292,023
Total stockholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
297,735
Total liabilities and stockholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$501,266
$499,639
The accompanying notes are an integral part of these consolidated financial statements.
55
ALLEGIANT TRAVEL COMPANY
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except for share amounts)
Year Ended December 31,
2010
2009
2008
OPERATING REVENUE:
Scheduled service revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Ancillary revenue:
Air-related charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Third party products . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total ancillary revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fixed fee contract revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$427,825
$346,222
$330,969
169,640
24,366
194,006
40,576
1,234
143,001
19,715
162,716
43,162
5,840
95,490
19,106
114,596
52,499
5,948
Total operating revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
663,641
557,940
504,012
OPERATING EXPENSES:
Aircraft fuel
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Salary and benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Station operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Maintenance and repairs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Sales and marketing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Aircraft lease rentals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
243,671
108,000
62,620
60,579
17,062
1,721
34,965
30,367
165,000
90,006
53,993
52,938
16,458
1,926
29,638
25,728
229,640
72,007
43,476
41,465
14,361
2,815
23,489
20,911
Total operating expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
558,985
435,687
448,164
OPERATING INCOME . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
104,656
122,253
55,848
OTHER (INCOME) EXPENSE:
Loss on fuel derivatives, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(Earnings) loss from unconsolidated affiliates, net . . . . . . . . . . . . .
Interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total other (income) expense . . . . . . . . . . . . . . . . . . . . . . . . .
—
(14)
(1,184)
2,522
1,324
—
84
(2,474)
4,079
1,689
INCOME BEFORE INCOME TAXES . . . . . . . . . . . . . . . . . . . . . .
PROVISION FOR INCOME TAXES . . . . . . . . . . . . . . . . . . . . . . .
103,332
37,630
120,564
44,233
11
(96)
(4,730)
5,411
596
55,252
19,845
NET INCOME . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 65,702
$ 76,331
$ 35,407
Earnings per share to common stockholders:
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
3.36
3.32
$
$
3.81
3.76
$
$
1.74
1.72
Weighted average shares outstanding used in computing earnings per
share to common stockholders:
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
19,407
19,658
19,982
20,278
20,289
20,477
The accompanying notes are an integral part of these consolidated financial statements.
56
ALLEGIANT TRAVEL COMPANY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY AND
COMPREHENSIVE INCOME
(in thousands)
Common Stock
Par
Shares Value
Balance at December 31, 2007 . . . . . 20,738
Stock compensation expense . . . . . . .
Issuance of restricted stock . . . . . . . .
Exercises of stock options . . . . . . . . .
Tax benefit from stock option
21
— —
7 —
175 —
APIC
159,863
1,702
—
1,040
exercises . . . . . . . . . . . . . . . . . . .
Cancellation of restricted stock . . . . .
Shares repurchased by the Company
— —
(3) —
1,602
—
and held as treasury shares . . . . . .
— —
—
Comprehensive income:
Unrealized gain on short-term
investments, net of tax . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . .
Total comprehensive income . . . . .
— —
— —
— —
—
(1)
—
Balance at December 31, 2008 . . . . . 20,917
Stock compensation expense . . . . . . .
Issuance of restricted stock . . . . . . . .
Issuance of unregistered shares . . . . .
Exercises of stock options . . . . . . . . .
Tax benefit from stock option
21
— —
33 —
42 —
99 —
164,206
3,109
—
1,648
1,742
exercises . . . . . . . . . . . . . . . . . . .
Cancellation of restricted stock . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . .
Shares repurchased by the Company
— —
(2) —
— —
1,157
—
25
and held as treasury shares . . . . . .
— —
Comprehensive income:
Unrealized loss on short-term
investments, net of tax . . . . . . . .
Net income . . . . . . . . . . . . . . . . .
— —
— —
Total comprehensive income . . . . .
—
—
—
Accumulated
Other
Comprehensive Retained
Earnings
Income
Less:
Treasury
Shares
Total
13
—
—
—
—
—
—
553
—
566
—
—
—
—
—
—
—
—
50,434
—
—
—
— 210,331
1,702
—
—
—
1,040
—
—
—
—
—
1,602
—
— (16,713)
(16,713)
—
—
35,407
85,841
—
—
—
—
553
—
—
(1)
— 35,407
35,959
(16,713) 233,921
3,109
—
1,648
1,742
—
—
—
—
—
—
—
—
—
(80)
1,157
—
(55)
— (25,356)
(25,356)
(474)
—
—
76,331
—
(474)
— 76,331
75,857
Balance at December 31, 2009 . . . . . 21,089 $21 $171,887
$ 92
$162,172 $(42,149) $292,023
The accompanying notes are an integral part of these consolidated financial statements.
57
ALLEGIANT TRAVEL COMPANY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY AND
COMPREHENSIVE INCOME (Continued)
(in thousands)
Common Stock
Accumulated
Other
Par
Shares Value
APIC
Comprehensive Retained
Earnings
Income
Less:
Treasury
Shares
Total
Balance at December 31, 2009 . . . . . 21,089 $21 $171,887
4,437
Stock compensation expense . . . . . . .
—
Issuance of restricted stock . . . . . . . .
3,157
Exercises of stock options . . . . . . . . .
Exercise of warrants . . . . . . . . . . . . .
715
Tax benefit from stock option
— —
94 —
119 —
163 —
exercises . . . . . . . . . . . . . . . . . . .
Cancellation of restricted stock . . . . .
Reclassification of stock awards to
liabilities . . . . . . . . . . . . . . . . . . .
Shares repurchased by the Company
and held as treasury shares . . . . . .
Cash dividends, $0.75 per share . . . .
Comprehensive income: . . . . . . . . . .
Unrealized loss on short-term
investments, net of tax . . . . . . . .
Net income . . . . . . . . . . . . . . . . .
Total comprehensive income . . . . .
—
(8) —
—
—
—
—
—
821
—
(313)
—
—
—
—
$ 92
—
—
—
—
—
—
—
—
—
$162,172 $(42,149) $292,023
4,437
—
3,157
715
—
—
—
—
—
—
—
—
—
—
—
—
—
—
821
—
(313)
— (53,764)
(14,942)
(53,764)
— (14,942)
—
(101)
—
—
65,702
(101)
—
— 65,702
65,601
Balance at December 31, 2010 . . . . . 21,456 $21 $180,704
$
(9)
$212,932 $(95,913) $297,735
The accompanying notes are an integral part of these consolidated financial statements.
58
ALLEGIANT TRAVEL COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
OPERATING ACTIVITIES:
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loss on aircraft and other equipment disposals . . . . . . . . . . . . . . . . . . . . . . . . . .
Provision for obsolescence of expendable parts, supplies and fuel
. . . . . . . . . . . . . .
Stock compensation expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred income taxes
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Excess tax benefits from stock option exercises . . . . . . . . . . . . . . . . . . . . . . . . . .
Changes in certain assets and liabilities:
Restricted cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income tax receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expendable parts, supplies and fuel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid expenses
Other current assets
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Air traffic liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Year Ended December 31,
2010
2009
2008
$ 65,702
$ 76,331
$ 35,407
34,965
2,878
(489)
4,437
(737)
(821)
(3,446)
(376)
—
(2,221)
(17,231)
195
4,590
(333)
10,843
29,638
4,898
120
3,109
6,768
(1,157)
(1,809)
(1,901)
—
(3,788)
(10,171)
(1,067)
4,686
4,460
21,557
23,489
2,184
165
1,702
5,908
(1,602)
(611)
3,509
6,228
(626)
(1,993)
(93)
(2,239)
6,058
(5,854)
Net cash provided by operating activities . . . . . . . . . . . . . . . . . . . . . . . . . . .
97,956
131,674
71,632
INVESTING ACTIVITIES:
Purchase of short-term investments
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from maturities and sales of short-term investments . . . . . . . . . . . . . . . . .
Purchase of property and equipment, including pre-delivery deposits
. . . . . . . . . . . .
Proceeds from sale of property and equipment . . . . . . . . . . . . . . . . . . . . . . . . . .
Investment in unconsolidated affiliates, net
. . . . . . . . . . . . . . . . . . . . . . . . . . . .
Decrease (increase) in deposits and other assets . . . . . . . . . . . . . . . . . . . . . . . . .
(84,306)
188,436
(98,499)
483
(630)
1,298
(124,434)
60,364
(31,663)
—
(642)
(838)
(101,753)
51,781
(54,119)
1,065
1,265
1,256
Net cash provided by (used in) investing activities . . . . . . . . . . . . . . . . . . . . .
6,782
(97,213)
(100,505)
FINANCING ACTIVITIES:
Cash dividends paid to shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Excess tax benefits from stock option exercises . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from exercise of stock options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from exercise of warrants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from the issuance of notes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Repurchase of common stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Principal payments on notes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Principal payments on capital lease obligations . . . . . . . . . . . . . . . . . . . . . . . . . .
(14,942)
821
3,157
715
14,000
(53,764)
(28,188)
(3,483)
—
1,157
1,742
—
7,000
(25,356)
(24,015)
(1,903)
—
1,602
1,040
—
25,625
(16,714)
(17,331)
(12,465)
Net cash used in financing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(81,684)
(41,375)
(18,243)
Net change in cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD . . . . . . . . . . . . . .
23,054
90,239
(6,914)
97,153
(47,116)
144,269
CASH AND CASH EQUIVALENTS AT END OF PERIOD . . . . . . . . . . . . . . . . . . .
$113,293
$ 90,239
$ 97,153
SUPPLMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash Transactions:
Interest paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
2,496
$
4,292
Income taxes paid, net of refunds
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 36,986
$ 36,952
$
$
4,975
4,623
Non-Cash Transactions:
Maintenance deposits applied against aircraft purchases
. . . . . . . . . . . . . . . . . . . .
Common stock issued for software operating system . . . . . . . . . . . . . . . . . . . . . . .
$
$
1,982
$
— $
— $
1,648
$
—
—
Notes payable issued for aircraft and equipment
. . . . . . . . . . . . . . . . . . . . . . . . .
$ 14,000
$
— $
7,200
The accompanying notes are an integral part of these consolidated financial statements.
59
ALLEGIANT TRAVEL COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2010, 2009 and 2008
(Dollars in thousands except share and per share amounts)
1. Organization and Business of Company
Allegiant Travel Company (the ‘‘Company’’) is a leisure travel company focused on providing travel
services to residents of small, underserved cities in the United States. The Company operates a low-cost
passenger airline marketed primarily to leisure travelers in small cities, allowing it to sell air travel both
on a stand-alone basis and bundled with hotel rooms, rental cars and other travel related services. The
Company also provides charter air service under long-term contracts as well as on a seasonal and
ad-hoc basis. Because scheduled and chartered air services have similar operating margins, economic
characteristics, ‘‘production processes’’ involving check-in, baggage handling and flight services which
target the same class of customers and are subject to the same regulatory environment, the Company
believes it operates in one reportable segment. Additionally, the Company does not separately track
expenses for the scheduled and chartered air services.
2. Summary of Significant Accounting Policies
Basis of Presentation
The accompanying consolidated financial statements include the accounts of Allegiant Travel
Company and its wholly-owned operating subsidiaries. Investments in affiliates in which ownership
interest ranges from 20 to 50 percent and provides the Company the ability to exercise significant
influence over operating and financial policies are accounted for under the equity method. All
intercompany balances and transactions have been eliminated.
Certain reclassifications have been made to the prior period’s financial statements to conform to
2010 classifications. These reclassifications had no effect on the previously reported net income.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted
in the United States requires management to make estimates and assumptions that affect the amounts
reported in the financial statements and accompanying notes. Due to the prospective nature of these
estimates, actual results could differ from those estimates.
Cash and Cash Equivalents and Restricted Cash
Cash and cash equivalents include investments and interest bearing instruments with maturities of
three months or less at the date of acquisition. Such investments are carried at cost which approximates
market value. Restricted cash represents credit card deposits, cash collateral against notes payable,
escrowed funds under fixed fee flying contracts and cash collateral against letters of credit required by
hotel properties for guaranteed room availability, airports and certain other parties.
Short-term Investments
The Company’s investments in marketable debt and equity securities are classified as
available-for-sale and are reported at fair market value with the net unrealized gain or (loss) reported
60
ALLEGIANT TRAVEL COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For the years ended December 31, 2010, 2009 and 2008
(Dollars in thousands except share and per share amounts)
2. Summary of Significant Accounting Policies (Continued)
as a component of accumulated comprehensive income in stockholders’ equity. Short-term investments
consisted of the following:
As of December 31, 2010
As of December 31, 2009
Gross
Unrealized
Cost
Gains (Losses)
Market
Value
Gross
Unrealized
Cost
Gains (Losses)
Market
Value
Debt securities issued by states of the
United States and political
subdivisions of the states . . . . . . . . $32,140 $ 2
$(10) $32,132 $ 76,599 $ 44
$(21) $ 76,622
Debt securities issued by the U.S.
Treasury and other U.S.
government corporations and
agencies . . . . . . . . . . . . . . . . . . . .
Corporate debt securities . . . . . . . . . .
— —
4,870 —
—
(2)
— 64,477
132
— —
4,868
—
—
64,609
—
Total
. . . . . . . . . . . . . . . . . . . . . . . . $37,010 $ 2
$(12) $37,000 $141,076 $176
$(21) $141,231
The cost of marketable securities sold is determined by the specific identification method with any
realized gains or losses reflected in income. The Company recognized no realized gains or losses for
the years ended December 31, 2010 and 2009 and $307 of realized gains for the year ended
December 31, 2008.
The Company believes that the unrealized losses related to debt securities are not
other-than-temporary. Debt securities in an unrealized loss position related primarily to investments in
municipal bonds.
Short-term investments had the following maturities as of December 31, 2010:
Maturities
Year 2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Year 2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amount
$35,695
1,305
—
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$37,000
Expendable Parts, Supplies and Fuel
Expendable parts, supplies and fuel inventories are valued at cost using the first-in, first-out
method. An allowance for obsolescence has been recorded based upon historical results and
management’s expectations of future operations. Such inventories are charged to expense as they are
used in operations.
61
ALLEGIANT TRAVEL COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For the years ended December 31, 2010, 2009 and 2008
(Dollars in thousands except share and per share amounts)
2. Summary of Significant Accounting Policies (Continued)
Software capitalization
The Company capitalizes certain costs related to the development of internal use software during
the application development stages of projects. The Company amortizes these costs using the
straight-line method over the estimated useful life of three years. The Company capitalized software
development costs of $0.5 million and $0.1 million during the years ended December 31, 2010 and
2009, respectively. The Company capitalized no software development costs during 2008. Costs incurred
during the preliminary and post-implementation stages of software development are expensed as
incurred.
Property and Equipment
Property and equipment are recorded at cost and depreciated using the straight-line method to
their estimated residual values over their estimated useful lives as follows:
Aircraft and engines . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Rotable parts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Equipment and leasehold improvements . . . . . . . . . . . . . . . . . . . . . . .
3 - 10 years
7 years
3 - 7 years
Aircraft and engines have an estimated average residual value of 20.5% of original cost; other
property and equipment are assumed to have no residual value.
Aircraft under capital lease arrangements are depreciated over the shorter of the useful life of the
aircraft or remaining lease term. Depreciation for these aircraft is included in depreciation and
amortization expense in the Company’s consolidated statements of income.
Investment in unconsolidated affiliates
The Company uses the equity method to account for AFH Inc.’s, a wholly-owned subsidiary,
investment in a fuel joint venture. AFH, Inc. has a 50% interest in a joint venture agreement with
OSI (an affiliate of the Orlando Sanford International Airport) to handle certain fuel operations for
the Orlando Sanford International Airport. The joint venture, SFB Fueling LLC, is responsible for the
purchase and transport of jet fuel to a fuel farm facility owned and operated by OSI, and for the sale
of jet fuel to air carriers. In addition, AFH, Inc. is responsible for the administrative functions for the
joint venture. The Company’s proportionate allocation of net income or loss from this investment and
an investment in an aviation services company are reported in the Company’s consolidated statements
of income in other (income) expense, with an adjustment to the recorded investment in the Company’s
consolidated balance sheet. These investments treated under the equity method are not material to the
financial position or results of operations of the Company.
Capitalized Interest
Interest attributable to funds used to finance the refurbishment of aircraft prior to revenue service
is capitalized as an additional cost of the related asset provided the refurbishment is extensive or
requires an extended period of time to complete, generally longer than 90 days. Interest is capitalized
62
ALLEGIANT TRAVEL COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For the years ended December 31, 2010, 2009 and 2008
(Dollars in thousands except share and per share amounts)
2. Summary of Significant Accounting Policies (Continued)
at the Company’s average interest rate on long-term debt and ceases when the asset is ready for
service. The Company had no capitalized interest during 2010, 2009 or 2008.
Measurement of Impairment of Long-Lived Assets
The Company records impairment losses on long-lived assets used in operations, consisting
principally of property and equipment, when events or changes in circumstances indicate, in
management’s judgment, that the assets might be impaired and the undiscounted cash flows estimated
to be generated by those assets are less than the carrying amount of those assets. Cash flow estimates
are based on historical results adjusted to reflect the Company’s best estimate of future market and
operating conditions. The net carrying value of assets not recoverable is reduced to fair value if lower
than carrying value. Estimates of fair value represent the Company’s best estimate based on industry
trends, recent transactions involving sales of similar assets and, if necessary, estimates of future
discounted cash flows. The Company had no impairment losses on long-lived assets used in operations
for the years ended December 31, 2010, 2009 or 2008.
Revenue Recognition
Scheduled service revenue consists of passenger revenue generated from limited frequency nonstop
flights between our leisure destinations and small cities recognized when the travel-related service or
transportation is provided or when the itinerary expires unused. Nonrefundable scheduled itineraries
expire on the date of the intended flight, unless the date is extended by notification from the customer
in advance. Itineraries sold for transportation, but not yet used, as well as unexpired credits, are
included in air traffic liability.
Various taxes and fees assessed on the sale of tickets to end customers are collected by the
Company as an agent and remitted to taxing authorities. These taxes and fees are presented on a net
basis in the Company’s consolidated statements of income and recorded as a liability until remitted to
the appropriate taxing authority.
Fixed fee contract revenue consists largely of long-term agreements to provide charter service on a
seasonal and ad hoc basis to affiliates of Caesars Entertainment Inc. (formerly Harrah’s
Entertainment Inc.), Department of Defense (‘‘DOD’’) and others. Fixed fee contract revenue is
recognized when the transportation is provided.
Ancillary revenue consists of passenger revenue from air-related charges and third party products.
Air-related charges include optional services provided to passengers such as the use of its website to
purchase scheduled service transportation, advance seat assignments, priority boarding, unlimited
changes to nonrefundable itineraries and other services. Revenues from air-related charges are
recognized when the transportation is provided if the product is not deemed independent of the
scheduled service. Revenues from change fees for charges imposed on passengers for making changes
to nonrefundable itineraries are recognized as they occur. Ancillary revenue is also generated from
third party products such as the sale of hotel rooms, rental cars, ticket attractions and other items.
Revenues from the sale of third party products are recognized at the time the product is utilized, such
as the time a purchased hotel room is occupied. The amount of revenues attributed to each element of
63
ALLEGIANT TRAVEL COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For the years ended December 31, 2010, 2009 and 2008
(Dollars in thousands except share and per share amounts)
2. Summary of Significant Accounting Policies (Continued)
a bundled sale involving air-related charges and third party products in addition to airfare is
determined in accordance with accounting standards for revenue arrangements with multiple
deliverables. The sale of third party products is recorded net of amounts paid or payable to wholesale
providers, travel agent commissions and credit card processing fees in accordance with revenue
reporting accounting standards.
Other revenue is generated from leased out aircraft and flight equipment and other miscellaneous
sources. Lease revenue is recognized on a straight-line basis over the lease term.
Maintenance and Repair Costs
Aircraft maintenance and repair costs. The Company accounts for aircraft maintenance activities
under the direct expense method. Under this method, maintenance and repair costs for owned and
leased aircraft, including major aircraft maintenance activities, are charged to operating expenses as
incurred. As a lessee, the Company may be required under provisions of the Company’s lease
agreements to make payments to the lessor in advance of the performance of major maintenance
activities. These payments of maintenance deposits are calculated based on a performance measure,
such as flight hours or cycles, and are available for reimbursement to the Company upon the
completion of the maintenance of the leased aircraft. Accounting guidance for maintenance deposits
requires these payments to be accounted for as an asset until reimbursed for incurred maintenance
costs or until it is determined that any portion of the estimated total of the deposit is less than
probable of being returned. In addition, payments of maintenance deposits that are not ‘‘substantially
and contractually related to the maintenance of the leased asset’’ are expensed as incurred. The
Company had no maintenance deposits as of December 31, 2010 and $1,982 as of December 31, 2009.
Advertising Costs
Advertising costs are charged to expense in the period incurred. Advertising expense was $4,742,
$6,456 and $4,849 for the years ended December 31, 2010, 2009 and 2008, respectively.
Earnings per Share
Basic and diluted earnings per share are computed pursuant to the two-class method. Under this
method, the Company attributes net income to two classes, common stock and unvested restricted stock
awards. Unvested restricted stock awards granted to employees under the Company’s Long-Term
Incentive Plan are considered participating securities as they receive non-forfeitable rights to cash
dividends at the same rate as common stock.
Diluted net income per share is calculated using the more dilutive of two methods. Under both
methods, the exercise of employee stock options, stock purchase warrants and stock appreciation rights
(‘‘SARs’’) are assumed using the treasury stock method. The assumption of vesting of restricted stock,
however, differs:
1. Assume vesting of restricted stock using the treasury stock method.
64
ALLEGIANT TRAVEL COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For the years ended December 31, 2010, 2009 and 2008
(Dollars in thousands except share and per share amounts)
2. Summary of Significant Accounting Policies (Continued)
2. Assume unvested restricted stock awards are not vested, and allocate earnings to common
shares and unvested restricted stock awards using the two-class method.
For the years ended December 31, 2010 and 2008, the second method above which assumes
unvested awards are not vested was used in the computation because it was more dilutive than the first
method above which assumes vesting of awards using the treasury stock method. Both methods resulted
in the same diluted net income per share for the year ended December 31, 2009. The following table
sets forth the computation of net income per share on a basic and diluted basis for the periods
indicated (shares in table below in thousands):
Year Ended December 31,
2010
2009
2008
Basic:
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less: Net income allocated to participating securities . . . . . . . . . . . . .
$65,702
(402)
$76,331
(101)
$35,407
(91)
Net income attributable to common stock . . . . . . . . . . . . . . . . . . . . .
$65,300
$76,230
$35,316
Net income per share, basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
3.36
$
3.81
$
1.74
Weighted-average shares outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . .
19,407
19,982
20,289
Diluted:
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less: Net income allocated to participating securities . . . . . . . . . . . . .
$65,702
(398)
$76,331
(99)
$76,331
(90)
Net income attributable to common stock . . . . . . . . . . . . . . . . . . . . .
$65,304
$76,232
$76,241
Net income per share, diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
3.32
$
3.76
$ 3.72
Weighted-average shares outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dilutive effect of stock options, stock purchase warrants, restricted stock
and stock appreciation rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
19,407
19,982
20,289
305
296
199
Adjusted weighted-average shares outstanding under treasury stock
method . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
19,712
20,278
20,488
Participating securities excluded under two-class method . . . . . . . . . . . . .
(54)
Adjusted weighted-average shares outstanding under two-class method . .
19,658
N/A
N/A
(11)
20,477
Stock-Based Compensation
The Company accounts for stock-based compensation in accordance with accounting standards
which require the compensation cost relating to share-based payment transactions be recognized in the
Company’s consolidated statements of income. The cost is measured at the grant date, based on the
calculated fair value of the award using the Black- Scholes option pricing model for stock options and
SARs, and based on the closing share price of the Company’s stock on the grant date for restricted
stock awards. The cost is recognized as an expense over the employee’s requisite service period (the
65
ALLEGIANT TRAVEL COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For the years ended December 31, 2010, 2009 and 2008
(Dollars in thousands except share and per share amounts)
2. Summary of Significant Accounting Policies (Continued)
vesting period of the equity award). The vesting period of the Company’s equity awards is generally
three years. The Company’s stock-based employee compensation plan is more fully discussed in
Note 13—Employee Benefit Plans.
Income Taxes
The Company’s provision for income taxes is based on estimated effective annual income tax rates.
The provision differs from income taxes currently payable because certain items of income and expense
are recognized in different periods for financial statement purposes than for tax return purposes. A
valuation allowance for net deferred tax assets is provided unless realizability is judged by the Company
to be more likely than not. The Company has determined that all of its deferred tax assets are more
likely than not to be realized. The Company determines the net current and non-current deferred tax
assets or liabilities separately for federal, state, and other local jurisdictions.
The Company’s income tax returns are subject to examination by the Internal Revenue Service
(‘‘IRS’’) and other tax authorities in the locations where the Company operates. The Company assesses
potentially unfavorable outcomes of such examinations based on the criteria set forth in uncertain tax
position accounting standards. The accounting standards prescribe a minimum recognition threshold a
tax position is required to meet before being recognized in the financial statements.
Accounting standards for income taxes, utilize a two-step approach for evaluating tax positions.
Recognition (Step I) occurs when the Company concludes that a tax position, based on its technical
merits, is more likely than not to be sustained upon examination. Measurement (Step II) is only
addressed if the position is deemed to be more likely than not to be sustained. Under Step II, the tax
benefit is measured as the largest amount of benefit that is more likely than not to be realized upon
settlement. Accounting for income taxes standards generally identify the term ‘‘more likely than not’’ to
represent the likelihood of occurrence to be greater than 50%.
The tax positions failing to qualify for initial recognition, are to be recognized in the first
subsequent interim period that they meet the ‘‘more likely than not’’ standard. If it is subsequently
determined that a previously recognized tax position no longer meets the ‘‘more likely than not’’
standard, it is required that the tax position be derecognized. Accounting for income taxes standards
specifically prohibit the use of a valuation allowance as a substitute for derecognition of tax positions.
As applicable, the Company will recognize accrued penalties and interest related to unrecognized tax
benefits in the provision for income taxes. During the years ended December 31, 2010, 2009 and 2008,
the Company recognized no amounts for interest or penalties related to unrecognized tax benefits.
Newly Issued Accounting Pronouncements
In September 2009, the Financial Accounting Standards Board (‘‘FASB’’) ratified Emerging Issues
Task Force Issue No. 08-01, ‘‘Revenue Arrangements with Multiple Deliverables’’ (‘‘EITF 08-1’’).
EITF 08-1 updates the current guidance pertaining to multiple-element revenue arrangements included
in ASC Topic 605 and changes the allocation methods used in determining how to account for multiple
payment streams. It also results in the ability to separately account for more deliverables and
potentially less revenue deferrals. This accounting standard is effective for new revenue arrangements
66
ALLEGIANT TRAVEL COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For the years ended December 31, 2010, 2009 and 2008
(Dollars in thousands except share and per share amounts)
2. Summary of Significant Accounting Policies (Continued)
entered into by the Company after January 1, 2011. The Company has evaluated the accounting
guidance and does not expect a material impact on its consolidated financial statements.
In January 2010, the FASB issued Accounting Standards Update No. 2010-06, ‘‘Fair Value
Measurements Disclosures,’’ which amends Subtopic 820-10 of the FASB Accounting Standards
Codification to require new disclosures for fair value measurements and provides clarification for
existing disclosure requirements. More specifically, this update requires (a) an entity to disclose
separately the amounts of significant transfers in and out of Level 1 and 2 fair value measurements and
to describe the reasons for the transfers; and (b) information about purchases, sales, issuances and
settlements to be presented separately (i.e., present the activity on a gross basis rather than net) in the
reconciliation for fair value measurements using significant unobservable inputs (Level 3 inputs). This
update clarifies existing disclosure requirements for the level of disaggregation used for classes of assets
and liabilities measured at fair value, and requires disclosures about the valuation techniques and
inputs used to measure fair value for both recurring and nonrecurring fair value measurements using
Level 2 and Level 3 inputs. In 2010, the Company adopted those additional disclosure requirements
which became effective for interim and annual reporting periods beginning after December 15, 2009.
Certain provisions, which contain disclosures regarding information about purchases, sales, issuances
and settlements in the Level 3 reconciliation, will be effective for the Company beginning in the
quarter ending March 31, 2011.
3. Property and Equipment
At December 31, 2010, the Company’s fleet consisted of 52 MD-80 series aircraft in revenue
service, and eight MD-80 aircraft and two Boeing 757-200 aircraft to be placed into revenue service in
the future. The Company owns 60 of these aircraft—43 owned free and clear, and 17 owned subject to
financing scheduled to be fully paid over the next four years. The Company leases two aircraft under
operating leases which expire on or before June 2014. Refer to Note 16—Subsequent Events’’ for
discussion of the pledge of all of the Company’s MD-80 aircraft to secure payment in connection with
the borrowings under a senior secured term loan facility. At December 31, 2009, the Company’s fleet
consisted of 46 MD-80 aircraft with all aircraft in revenue service. The Company owned 42 of these
aircraft, including two subject to capital leases, with the remaining four subject to operating lease
agreements.
Property and equipment consist of the following:
As of
December 31,
2010
As of
December 31,
2009
Flight equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Ground property and equipment . . . . . . . . . . . . . . . . . . .
$ 364,075
20,712
$273,680
15,573
Total property and equipment . . . . . . . . . . . . . . . . . . . . .
Less accumulated depreciation and amortization . . . . . . .
384,787
(117,489)
289,253
(84,720)
Property and equipment, net . . . . . . . . . . . . . . . . . . . . . .
$ 267,298
$204,533
67
ALLEGIANT TRAVEL COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For the years ended December 31, 2010, 2009 and 2008
(Dollars in thousands except share and per share amounts)
3. Property and Equipment (Continued)
Depreciation and amortization expense for the years ended December 31, 2010, 2009 and 2008 was
$34,965, $29,638 and $23,489, respectively.
4. Accrued Liabilities
Accrued liabilities consist of the following:
As of
December 31,
2010
As of
December 31,
2009
Aircraft lease rentals
. . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Salaries, wages and benefits . . . . . . . . . . . . . . . . . . . . . .
Maintenance reserves . . . . . . . . . . . . . . . . . . . . . . . . . . .
Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other accruals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
260
104
11,590
—
4,688
7,036
$
593
99
12,891
418
4,141
5,557
Total accrued liabilities . . . . . . . . . . . . . . . . . . . . . . . . . .
$23,679
$23,699
5. Long-Term Debt
Long term debt, including capital lease obligations, consists of the following:
As of
December 31,
2010
As of
December 31,
2009
Notes payable, secured by aircraft, interest at 6.26%, due August 2014 . . . . .
Notes payable, secured by aircraft, interest at 6.95%, due June 2014 . . . . . .
Notes payable, secured by aircraft, interest at 6%, due April 2012 . . . . . . . .
Notes payable, secured by aircraft, interest at 8.5%, due November 2011 . . .
Notes payable, secured by aircraft, interest at 6.8%, due June 2011 . . . . . . .
Notes payable, secured by aircraft, interest at 8%, due June 2011 . . . . . . . .
Notes payable, secured by aircraft, interest at 6%, due at varying dates
through February 2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Notes payable, secured by aircraft, interest at 8%, due at varying dates
through December 2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other notes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Capital lease obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 13,224
—
6,437
6,209
1,616
—
650
—
—
—
$
—
6,409
10,969
9,070
4,242
2,811
5,599
3,212
12
3,483
Total long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less current maturities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
28,136
(16,532)
45,807
(23,338)
Long-term debt, net of current maturities . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 11,604
$ 22,469
Maturities of long-term debt, as of December 31, 2010, for the next five years and thereafter, in
aggregate, are: 2011—$16,532; 2012—$5,058; 2013—$3,659; 2014—$2,887 and none thereafter.
68
ALLEGIANT TRAVEL COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For the years ended December 31, 2010, 2009 and 2008
(Dollars in thousands except share and per share amounts)
5. Long-Term Debt (Continued)
In August 2010, the Company borrowed $14,000 under a loan agreement secured by two previously
unencumbered Boeing 757-200 aircraft. The notes payable issued under the loan agreement bear
interest at 6.26% per annum and are payable in monthly installments through August 2014. The
Company applied a portion of the proceeds to make payment on existing debt obligations of $7,219
secured by four MD-80 aircraft due in June 2011 and June 2014. In accordance with the loan
agreement, collateral is held on deposit until certain terms are met.
In September 2010, the Company exercised early purchase options on two aircraft subject to
capital leases and retired the outstanding capital lease obligations for these aircraft.
6. Leases
The Company leases aircraft and other assets, including office facilities, airport and terminal
facilities and office equipment with terms extending through 2019.
As of December 31, 2010, the Company was party to operating lease agreements for two aircraft
with terms extending through June 2014. In February 2010, the Company exercised purchase options on
two aircraft under operating leases and took ownership of the aircraft in October 2010.
The office facilities under lease include approximately 65,000 square feet of space for the
Company’s primary corporate offices. The lease has two five-year renewal options, but the Company
has the right to terminate after the seventh year of the lease in April 2015 and the right to purchase
the building from the landlord after the third year of the lease in April 2011. The initial base rental is
approximately $1,528 per year and is subject to escalation. The Company is also responsible for its
share of common area maintenance charges.
Airport and terminal facility leases are entered into with a number of local governments and other
third parties. These lease arrangements have a variety of terms and conditions. Leasehold
improvements made at these facilities are not material.
Total rental expense for aircraft and non-aircraft operating leases for the years ended
December 31, 2010, 2009 and 2008 was $8,742, $8,204 and $7,373, respectively.
At December 31, 2010, scheduled future minimum lease payments under operating leases with
initial or remaining noncancelable lease terms in excess of one year are as follows:
2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating
Leases
$ 4,709
4,470
4,166
2,900
2,696
6,048
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$24,989
69
ALLEGIANT TRAVEL COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For the years ended December 31, 2010, 2009 and 2008
(Dollars in thousands except share and per share amounts)
6. Leases (Continued)
During 2010, the Company purchased two aircraft under lease agreements which were classified as
capital leases under lease accounting standards. As a result, the Company has no remaining aircraft
under capital lease as of December 31, 2010. The amounts applicable to these two aircraft under
capital leases included in property and equipment were as follows:
As of
December 31,
2010
2009
$— $ 7,726
Aircraft . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less: Accumulated depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . — (1,238)
Aircraft, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$— $ 6,488
7. Stockholders’ Equity
In March 2009, Allegiant Information Systems, Inc., a wholly owned subsidiary of the Company,
completed a plan of merger with an organization that owned the exclusive rights to the travel
applications of the software operating system the Company has used since its inception. In
consideration for the acquisition, the Company issued 41,450 shares of its unregistered common stock.
In May 2009, the Company completed a secondary offering for the sale of shares from certain
existing stockholders. The Company did not sell any shares in this underwritten offering.
On April 26, 2010, the Company’s Board of Directors declared a one-time cash dividend of $0.75
per share on its outstanding common stock payable to stockholders of record on May 14, 2010. On
June 1, 2010, the Company paid cash dividends of $14,942 to these stockholders.
On May 3, 2010, 162,500 shares of our common stock were issued through the exercise of
warrants. These warrants were issued to a placement agent in connection with the private placement of
equity in 2005. The Company received $715 in proceeds from the exercise of these warrants.
The Company is authorized by the Board of Directors to acquire the Company’s stock through
open market purchases under its share repurchase program. During 2010, the Board of Directors
increased authority in January by an additional $25,000, in July by an additional $25,000 and in
September by an additional $50,000. During 2010, the Company repurchased 1,206,689 shares through
open market purchases at an average cost of $44.40 per share for a total expenditure of $53,574.
During 2009, the Company repurchased 637,902 shares at an average cost of $38.26 per share for a
total expenditure of $24,407. As of December 31, 2010, the Company had $46,426 of unused stock
repurchase authority remaining under the plan.
70
ALLEGIANT TRAVEL COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For the years ended December 31, 2010, 2009 and 2008
(Dollars in thousands except share and per share amounts)
8. Comprehensive Income
The components of comprehensive income included the following:
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other comprehensive income (loss):
Year Ended
December 31,
2010
2009
$65,702
$76,331
Unrealized loss on short-term investments, net of tax . . . . . . .
(101)
(474)
Total comprehensive income . . . . . . . . . . . . . . . . . . . . . . . . . . .
$65,601
$75,857
9. Fair Value Measurements
Fair value measurements accounting standards define fair value, establish a consistent framework
for measuring fair value, and require disclosures for each major asset and liability category measured at
fair value on either a recurring or a nonrecurring basis. Fair value is an exit price, representing the
amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction
between market participants. As such, fair value is a market-based measurement that should be
determined based on assumptions that market participants would use in pricing an asset or liability. As
a basis for considering such assumptions, a three-tier fair value hierarchy is established in accounting
standards. The hierarchy prioritizes the inputs used in measuring fair value. These tiers include:
Level 1, defined as observable inputs such as quoted prices in active markets; Level 2, defined as inputs
other than quoted prices in active markets that are either directly or indirectly observable; and Level 3,
defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to
develop its own assumptions.
As of December 31, 2010, the Company held cash equivalents and short term investments that are
required to be measured at fair value on a recurring basis. Cash equivalents and short term investments
consist of short-term, highly liquid, income-producing investments including money market funds, debt
securities issued by U.S. Treasury and other U.S. government corporations and agencies. Cash
equivalents have maturities of three months or less, while the short-term investments have maturities of
greater than three months. These assets are classified within Level 1 or Level 2 because the Company
values these assets using quoted market prices or alternative pricing sources and models utilizing
market observable inputs.
71
ALLEGIANT TRAVEL COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For the years ended December 31, 2010, 2009 and 2008
(Dollars in thousands except share and per share amounts)
9. Fair Value Measurements (Continued)
Assets measured at fair value on a recurring basis at December 31, 2010 and December 31, 2009
were as follows (in thousands):
Fair Value Measurements at Reporting
Date Using
Quoted
Prices in
Active
Markets for
Identical
Assets
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
December 31,
2010
Description
Cash equivalents
Money market funds . . . . . . . . . . . . . . . . . . . . . .
Municipal debt securities . . . . . . . . . . . . . . . . . . .
$
4,390
100,127
Total cash equivalents . . . . . . . . . . . . . . . . . . .
104,517
$4,390
—
4,390
$
—
100,127
100,127
Short-term investments
Corporate debt securities . . . . . . . . . . . . . . . . . . .
Municipal debt securities . . . . . . . . . . . . . . . . . . .
Total short-term investments . . . . . . . . . . . . . . .
4,868
32,132
37,000
—
—
—
4,868
32,132
37,000
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$141,517
$4,390
$137,127
$—
—
—
—
—
—
$—
Fair Value Measurements at Reporting
Date Using
Quoted
Prices in
Active
Markets for
Identical
Assets
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
December 31,
2009
Description
Cash equivalents
Money market funds . . . . . . . . . . . . . . . . . . . . . .
Municipal debt securities . . . . . . . . . . . . . . . . . . .
$ 17,951
67,140
Total cash equivalents . . . . . . . . . . . . . . . . . . .
85,091
$17,951
—
17,951
$
—
67,140
67,140
Short-term investments
Municipal debt securities . . . . . . . . . . . . . . . . . . .
Government debt securities . . . . . . . . . . . . . . . . .
76,622
64,609
Total short-term investments . . . . . . . . . . . . . . .
141,231
—
—
—
76,622
64,609
141,231
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$226,322
$17,951
$208,371
$—
—
—
—
—
—
$—
72
ALLEGIANT TRAVEL COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For the years ended December 31, 2010, 2009 and 2008
(Dollars in thousands except share and per share amounts)
10. Income Taxes
The Company is subject to income taxation in the United States and various state jurisdictions in
which it operates. In accordance with income tax reporting accounting standards, the Company
recognizes tax benefits or expense on the temporary differences between the financial reporting and tax
bases of its assets and liabilities.
The components of the provision (benefit) for income taxes are as follows:
Year Ended December 31,
2010
2009
2008
Current:
Federal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
State . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
32,082
2,607
35,905
1,613
13,326
606
Total Current . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
34,689
37,518
13,932
Deferred:
Federal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
State . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3,030
(89)
Total Deferred . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2,941
6,195
520
6,715
6,060
(147)
5,913
Total Income Tax Provision . . . . . . . . . . . . . . . . . . . . . . .
37,630
44,233
19,845
The Company recorded $821, $1,157 and $1,602 as an increase to additional paid in capital for
certain tax benefits from employee stock-based compensation for the years ended December 31, 2010,
2009 and 2008, respectively.
Reconciliations of the statutory income tax rate and the Company’s effective tax rate for 2010,
2009, and 2008 are as follows:
Federal statutory rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
State income taxes, net of federal income tax benefit . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
35.0% 35.0% 35.0%
1.2% 1.6% 0.7%
0.2% 0.1% 0.2%
Effective tax rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
36.4% 36.7% 35.9%
Year Ended
December 31,
2010
2009
2008
73
ALLEGIANT TRAVEL COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For the years ended December 31, 2010, 2009 and 2008
(Dollars in thousands except share and per share amounts)
10. Income Taxes (Continued)
The major components of the Company’s net deferred tax assets and liabilities are as follows:
As of December 31,
2010
As of December 31,
2009
Assets
Liabilities
Assets
Liabilities
Current
Accrued Vacation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
State taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued property taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 688
—
691
386
707
$
— $ 540
—
886
452
704
(2,718)
—
—
—
Total current
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2,472
(2,718)
2,582
$
—
(2,313)
—
—
—
(2,313)
Noncurrent:
Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stock-based compensation expense . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
— (27,964)
931
1,642
77
— 1,049
699
—
68
0
— (28,382)
—
—
—
Total noncurrent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2,650
(27,964)
1,816
(28,382)
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$5,122
$(30,682) $4,398
$(30,695)
The Company paid income taxes, net of refunds, of $36,986, $36,952 and $4,623 in 2010, 2009 and
2008, respectively.
Effective January 1, 2007, the Company adopted the accounting standards for uncertain tax
positions. Accounting standards for income taxes utilize a two-step approach for evaluating tax
positions. A tax position is recognized if it is more likely than not to be sustained upon examination
and measured as the largest amount of benefit that is more likely than not (greater than 50%) to be
realized upon settlement.
If it is subsequently determined that a previously recognized tax position no longer meets the
‘‘more likely than not’’ standard, it is required that the tax position be derecognized. Accounting for
income taxes standards specifically prohibit the use of a valuation allowance as a substitute for
derecognition of tax positions. As applicable, the Company will recognize accrued penalties and interest
related to unrecognized tax benefits in the provision for income taxes.
74
ALLEGIANT TRAVEL COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For the years ended December 31, 2010, 2009 and 2008
(Dollars in thousands except share and per share amounts)
10. Income Taxes (Continued)
A reconciliation of the beginning and ending amount of unrecognized tax benefit is as follows:
Beginning Balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Increases for tax positions of prior years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Increases for tax positions of current year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Decreases for tax positions of prior years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Settlements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Decreases for lapses in statute of limitations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
As of
December 31,
2010
2009
$ — $—
3,277
342
—
—
—
Ending Balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$3,619
$—
For the years ended December 31, 2010 and 2009, the Company has recognized a liability for
uncertain tax positions of $3,619 and $0, respectively. The Company’s unrecognized tax benefits relate
to timing differences. The Company estimates that the unrecognized tax benefit will decrease by
$0 - $3,619 within the next twelve months. As of December 31, 2010 and 2009, no amount of the
uncertain tax benefit, if recognized, would impact the effective tax rate.
The Company’s policy is to recognize interest and penalties accrued on any unrecognized tax
benefits as a component of income tax expense. During the years ended December 31, 2010 and 2009,
the Company recognized no interest and penalties.
The Company files income tax returns in the U.S. federal jurisdiction as well as multiple state
jurisdictions. The Company is not currently under examination by the IRS. Various federal, state and
local tax returns remain open to examination. The Company believes that any potential assessment
would be immaterial.
11. Related Party Transactions
The building in which the Company maintains its headquarters is leased from a limited liability
company in which the Chief Executive Officer, two other Directors and one other former officer own
significant interests as non-controlling members. In June 2008, additional office space was obtained by
the Company in the leased building through an amendment to the existing lease agreement with the
landlord. In June 2008, the Company entered into a lease agreement for additional office space to be
used as its training facility which is located in a building adjacent to the Company’s headquarters. The
second building is also owned by a limited liability company in which the Chief Executive Officer, two
other Directors and one other former officer own significant interests as non-controlling members.
Under the terms of this agreement, the Company made rent payments of $2,361, $2,016, and $974 in
2010, 2009, and 2008, respectively.
75
ALLEGIANT TRAVEL COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For the years ended December 31, 2010, 2009 and 2008
(Dollars in thousands except share and per share amounts)
12. Financial Instruments and Risk Management
The Company’s debt with a carrying value of $28,136 and $42,324 as of December 31, 2010 and
2009, respectively, approximates fair value. These fair value estimates were based on the discounted
amount of future cash flows using the Company’s current incremental rate of borrowing for similar
liabilities.
The carrying amounts of cash, cash equivalents, restricted cash, accounts receivable and accounts
payable approximate fair value due to their short term nature.
13. Employee Benefit Plans
401(k) Plan
The Company has a defined contribution plan covering substantially all eligible employees. Under
the Plan, employees may contribute up to 90% of their eligible annual compensation with the Company
matching up to 5% of eligible employee wages. The Company recognized expense under this plan of
$1,650, $908 and $748 for the years ended December 31, 2010, 2009 and 2008, respectively.
Stock-based employee compensation
In 2006, the Board of Directors adopted, and the stockholders approved, a Long-Term Incentive
Plan (the ‘‘2006 Plan’’) and reserved 3,000,000 shares of common stock for the Company to grant stock
options, restricted stock, SARs and other stock-based awards to certain officers, directors, employees,
and consultants of the Company. The 2006 Plan is administered by the Company’s compensation
committee of the Board of Directors. Upon the merger of Allegiant Travel Company, LLC into
Allegiant Travel Company (a Nevada corporation) immediately prior to the Company’s initial public
offering, all outstanding stock options under the previously adopted share option program (the ‘‘Share
Option Program’’) were transferred to the 2006 Plan. In addition, no further option grants may be
made under the predecessor company’s Share Option Program. The transferred options continue to be
governed by their existing terms, unless the compensation committee elects to extend one or more
features of the 2006 Plan to those options. The shares of common stock reserved for issuance of stock-
based awards under the 2006 Plan include 500,000 shares that were transferred from the Share Option
Program.
For the years ended December 31, 2010, 2009 and 2008, the Company recorded $4,437, $3,109 and
$1,702, respectively, of compensation expense in the consolidated statements of income related to stock
options, SARs and restricted stock. As of December 31, 2010, there was $2,140 of unrecognized
compensation cost related to nonvested stock options and SARs, net of estimated forfeitures of 2.0%.
As of December 31, 2010, there was $3,602 of unrecognized compensation cost, net of estimated
forfeitures of 5.0%, related to nonvested restricted stock. The cost related to nonvested stock options
and SARs is expected to be recognized over a weighted-average period of 1.88 years. The cost related
to nonvested restricted stock is expected to be recognized over a weighted-average period of 2.38 years.
76
ALLEGIANT TRAVEL COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For the years ended December 31, 2010, 2009 and 2008
(Dollars in thousands except share and per share amounts)
13. Employee Benefit Plans (Continued)
Stock options and SARs
The fair value of stock options and SARs granted was estimated as of the grant date using the
Black-Scholes option-pricing model with assumptions noted in the table below. No stock options or
SARs were granted during 2010.
Weighted-average volatility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expected term (in years) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Risk-free interest rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expected dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
42.34% 32.79%
3.5
1.33% 2.56%
3.5
—
—
2009
2008
Expected volatilities for the awards issued in 2009 and 2008 were based on the historical volatilities
from publicly traded airline companies of the Company’s peer group due to the Company’s lack of
historical information. Expected term represents the weighted average time between the award’s grant
date and its exercise date. The Company used the simplified method from accounting guidance for
companies with a limited trading history, to estimate the expected term of the 2009 and 2008 award
grants. The risk-free interest rate for periods equal to the expected term of the award is based on a
blended historical rate using Federal Reserve rates for U.S. Treasury securities. The contractual terms
of the Company’s stock option and SAR awards granted range from five to ten years.
A summary of option and SARs activity under the 2006 Plan as of December 31, 2010, and
changes during the year then ended is presented below:
Weighted
Average
Exercise
Price
Weighted
Average
Remaining
Contractual
Life (Years)
Aggregate
Intrinsic
Value
Options and
SARs
Outstanding at January 1, 2010 . . . . . . . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
745,000
$32.07
— $ —
$26.14
$32.39
(118,834)
(57,333)
Outstanding at December 31, 2010 . . . . . . . . . . . . . . .
568,833
$33.18
Fully vested and expected to vest at December 31, 2010
558,956
$33.20
Exercisable at December 31, 2010 . . . . . . . . . . . . . . . .
235,502
$31.90
3.49
3.49
3.88
$9,135,458
$8,965,660
$4,083,605
No options or SARs were granted during the year ended December 31, 2010. The weighted
average fair value per share of awards granted during the years ended December 31, 2009 and 2008
was $12.44 and $5.80, respectively. During the years ended December 31, 2009 and 2008, the total
intrinsic value of options exercised was $2,917 and $4,330, respectively. Cash received from option
exercises for the years ended December 31, 2010, 2009 and 2008, was $3,157, $1,742 and $1,040,
respectively. The actual tax benefit realized for the tax deductions from these option exercises totaled
$1,081, $1,067 and $1,568, respectively.
77
ALLEGIANT TRAVEL COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For the years ended December 31, 2010, 2009 and 2008
(Dollars in thousands except share and per share amounts)
13. Employee Benefit Plans (Continued)
Restricted stock awards
A summary of the status of the Company’s nonvested restricted stock grants during the year ended
December 31, 2010 is presented below:
Nonvested at January 1, 2010 . . . . . . . . . . . . . . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Vested . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Shares
42,076
94,000
(21,473)
(8,333)
Nonvested at December 31, 2010 . . . . . . . . . . . . . . . . . . . . . .
106,270
Weighted
Average
Grant Date
Fair Value
$36.09
$52.44
$34.55
$52.96
$49.60
The weighted average grant date fair value per share of restricted stock grants during the years
ended December 31, 2010, 2009 and 2008 was $52.44, $38.31 and $22.43, respectively. The total fair
value of restricted stock vested during the year ended December 31, 2010, 2009 and 2008, was $899,
$1,605 and $1,382, respectively. The actual tax benefit realized from the tax deductions from the
restricted stock vested totaled $327, $587 and $500, respectively.
14. Selected Quarterly Financial Data (Unaudited)
Quarterly results of operations for the years ended December 31, 2010 and 2009 are summarized
below.
2010
March 31
June 30
September 30
December 31
Operating revenues . . . . . . . . . . . . . . . . . . . . . . . .
Operating income . . . . . . . . . . . . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Earnings per share to common stockholders
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2009
Operating revenues . . . . . . . . . . . . . . . . . . . . . . . .
Operating income . . . . . . . . . . . . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Earnings per share to common stockholders
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$169,637
36,245
22,600
$168,350
28,081
17,562
$163,621
19,480
13,159
$162,033
20,850
12,381
1.14
1.12
0.89
0.87
0.68
0.67
0.65
0.64
$142,119
44,478
28,162
$147,987
37,784
23,852
$133,105
21,940
13,776
$134,729
18,051
10,541
1.39
1.37
1.19
1.17
0.69
0.68
0.53
0.52
78
ALLEGIANT TRAVEL COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For the years ended December 31, 2010, 2009 and 2008
(Dollars in thousands except share and per share amounts)
14. Selected Quarterly Financial Data (Unaudited) (Continued)
The sum of the quarterly earnings per share amounts does not equal the annual amount reported
since per share amounts are computed independently for each quarter and for the full year based on
respective weighted-average common shares outstanding and other dilutive potential common shares.
15. Commitments and Contingencies
The Company is subject to certain legal and administrative actions which management considers
routine to its business activities. Management believes after consultation with legal counsel, the
ultimate outcome of any pending legal matters will not have a material adverse impact on the
Company’s financial position, liquidity or results of operations.
The Company entered into purchase agreements for 20 MD-80 aircraft during the fourth quarter
of 2009. As of December 31, 2010, the Company had placed seven of these aircraft into revenue
service. The Company expects to place eight of the remaining aircraft into revenue service to support
growth through 2013. As of December 31, 2010, the remaining contractual obligations under these
purchase agreements totaled $5,427. In January and February 2011, the Company made payment of
$4,127 on aircraft purchase obligations under these purchase agreements for MD-80 aircraft. As of
March 1, 2011, the Company took possession of all the MD-80 aircraft under purchase agreements with
the remaining obligations of $1,300 to be paid later in 2011 in accordance with the terms of these
agreements.
In March 2010, the Company entered into a purchase contract for six Boeing 757-200 aircraft with
delivery dates in 2010 and 2011. The Company expects these aircraft to be added to the Company’s
operating fleet in 2011 and 2012. As of December 31, 2010, the remaining contractual obligations
under the purchase agreement was $39,100. In February 2011, the Company made payment for one
Boeing 757-200 aircraft under the existing purchase agreement. As a result of this purchase, the
remaining obligations under this purchase contract is $29,325, to be paid upon delivery of the
remaining aircraft during 2011. In conjunction with taking ownership of the aircraft, the Company
leased out the aircraft to a third party. The lease term commenced with delivery of the aircraft to the
third party at the time payment was made by the Company. The Company intends to take possession of
the aircraft at the end of the lease term in the summer of 2012.
16. Subsequent Events
In March 2011, the Company borrowed $7,000 under a loan agreement secured by one Boeing
757-200 aircraft purchased in February 2011. The note payable issued under the loan agreement bears
interest at 6.28% per annum and is payable in monthly installments through March 2015. The
Company’s contractual obligations for principal payments and scheduled interest payments attributable
to the issued note payable are $1,487 in 2011, $1,982 in 2012, $1,982 in 2013, $1,982 in 2014 and $496
in 2015.
On March 10, 2011, the Company borrowed $125,000 under a senior secured term loan facility
(the ‘‘Term Loan’’). The Term Loan matures on March 10, 2017 and bears interest based on the
London Interbank Offered Rate (‘‘LIBOR’’) or prime rate with interest payable quarterly or more
frequently until maturity. The Term Loan is secured by all property and assets of the Company with
79
ALLEGIANT TRAVEL COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For the years ended December 31, 2010, 2009 and 2008
(Dollars in thousands except share and per share amounts)
16. Subsequent Events (Continued)
certain exceptions. The Term Loan contains a maximum leverage covenant for the Company.
Affirmative and negative covenants also relate to maximum annual capital expenditures and limitations
on indebtedness, liens, sale and leaseback transactions, guarantees, mergers and acquisitions, asset
sales, restricted payments, transactions with affiliates and investments. In addition to quarterly principal
payments equal to 0.25% of the initial loan, the Term Loan also provides for mandatory and optional
prepayment provisions. The Company’s contractual obligations for principal payments on the Term
Loan are $938 in 2011, $1,250 in 2012, $1,250 in 2013, $1,250 in 2014, $1,250 in 2015 and $119,062
thereafter. In connection with the borrowing under the Term Loan, the Company made early payment
in February 2011 of all existing debt obligations secured by its MD-80 aircraft. These payments
consisted of $6,101 in debt obligations secured by eight aircraft due in April 2012, $6,253 in debt
obligations secured by three aircraft due in November 2011, $1,398 in debt obligations secured by two
aircraft due in June 2011 and $329 in debt obligations secured by four aircraft due in February 2011.
Proceeds from the Term Loan will also be used for the funding of future capital expenditure programs
and general corporate purposes.
80
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Not applicable.
Item 9A. Controls and Procedures
Evaluation of disclosure controls and procedures. As of the end of the period covered by this
report, under the supervision and with the participation of our management, including our chief
executive officer (‘‘CEO’’) and chief financial officer (‘‘CFO’’), we evaluated the design and operation
of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the
Securities Exchange Act of 1934, as amended, or the ‘‘Exchange Act’’). Based on this evaluation, our
management, including our CEO and CFO, has concluded that our disclosure controls and procedures
are designed, and are effective, to give reasonable assurance that the information we are required to
disclose is recorded, processed, summarized and reported within the time periods specified in the
SEC’s rules and forms. Based upon this evaluation, the CEO and CFO concluded that our disclosure
controls and procedures are effective in providing reasonable assurance that information required to be
disclosed in our reports filed with or submitted to the SEC under the Exchange Act is accumulated and
communicated to management, including the CEO and CFO, as appropriate to allow timely decisions
regarding required disclosure.
Management’s Annual Report on Internal Control over Financial Reporting. Our management is
responsible for establishing and maintaining adequate internal control over financial reporting, as
defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act. Our internal control over financial
reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and
the preparation of financial statements for external purposes in accordance with generally accepted
accounting principles and includes those policies and procedures that:
1)
2)
3)
pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the
transactions and dispositions of our assets;
provide reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted accounting
principles, and that our receipts and expenditures are being made only in accordance with
authorizations of our management and directors; and
provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use or disposition of our assets that could have a material effect on the financial
statements.
The effectiveness of our or any system of controls and procedures is subject to certain limitations,
including the exercise of judgment in designing, implementing and evaluating the controls and
procedures, the assumptions used in identifying the likelihood of future events, and the inability to
eliminate misconduct completely. Our management, including our CEO and CFO, does not expect that
our disclosure controls and procedures or our internal controls will prevent all errors and all fraud. A
control system, no matter how well designed and operated, can provide only reasonable, not absolute,
assurance that the objectives of the control system are met. Further, the design of a control system
must reflect the fact that there are resource constraints, and the benefits of controls must be
considered relative to their costs. Because of the inherent limitations in all control systems, no
evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if
any, within our company have been detected.
Our management has assessed the effectiveness of our internal control over financial reporting as
of December 31, 2010. In making this assessment, our management used the criteria set forth by the
Committee of Sponsoring Organizations of the Treadway Commission (‘‘COSO’’) in Internal
81
Control—Integrated Framework. Based on our assessment, management has concluded that, as of
December 31, 2010, our internal control over financial reporting was effective based on those criteria.
Ernst & Young, LLP, the independent registered public accounting firm who audited our
consolidated financial statements included in this Form 10-K, has issued a report on the Company’s
internal control over financial reporting, which is included herein.
Changes in internal controls. There were no changes in our internal control over financial
reporting that occurred during the fourth quarter of our year ended December 31, 2010, that have
materially affected, or are reasonably likely to materially affect, our internal control over financial
reporting.
Item 9B. Other Information
Not applicable.
82
Item 10. Directors, Executive Officers, and Corporate Governance
PART III
The information required by this Item is incorporated herein by reference to the data under the
headings ‘‘ELECTION OF DIRECTORS,’’ ‘‘EXECUTIVE OFFICERS’’ and ‘‘Section 16(a) Beneficial
Ownership Reporting Compliance’’ in the Proxy Statement to be used in connection with the
solicitation of proxies for our annual meeting of stockholders to be held June 14, 2011, which Proxy
Statement is to be filed with the Commission.
Item 11. Executive Compensation
The information required by this Item is incorporated herein by reference to the data under the
headings ‘‘EXECUTIVE COMPENSATION’’ and ‘‘REPORT OF THE COMPENSATION
COMMITTEE’’ in the Proxy Statement to be used in connection with the solicitation of proxies for our
annual meeting of stockholders to be held June 14, 2011, which Proxy Statement is to be filed with the
Commission.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters
The information required by this Item is incorporated herein by reference to the data under the
heading ‘‘STOCK OWNERSHIP’’ in the Proxy Statement to be used in connection with the solicitation
of proxies for our annual meeting of stockholders to be held June 14, 2011, which Proxy Statement is
to be filed with the Commission. The information required by this item with respect to securities
authorized for issuance under our equity compensation plans is included in Part II, Item 5 of this
Annual Report on Form 10-K.
Item 13. Certain Relationships and Related Transactions, and Director Independence
The information required by this Item is incorporated herein by reference to the data under the
heading ‘‘RELATED PARTY TRANSACTIONS’’ and ‘‘Director Independence’’ in the Proxy Statement
to be used in connection with the solicitation of proxies for our annual meeting of stockholders to be
held June 14, 2011, which Proxy Statement is to be filed with the Commission.
Item 14. Principal Accountant’s Fees and Services
The information required by this Item is incorporated herein by reference to the data under the
heading ‘‘PRINCIPAL ACCOUNTANT FEES AND SERVICES’’ in the Proxy Statement to be used in
connection with the solicitation of proxies for our annual meeting of stockholders to be held June 14,
2011, which Proxy Statement is to be filed with the Commission.
83
Item 15. Exhibits and Financial Statement Schedules
PART IV
1.
Financial Statements and Supplementary Data. The following consolidated financial statements of
the Company are included in Item 8 of this report:
Reports of Independent Registered Public Accounting Firm . . . . . . . . . . . . . . .
Consolidated Balance Sheets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Stockholders’ Equity and Comprehensive Income . .
Consolidated Statements of Cash Flows . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . .
53
55
56
57
59
60
2.
Financial Statement Schedules. Schedules are not submitted because they are not required or are
not applicable, or the required information is shown in the consolidated financial statements or
notes thereto.
3. Exhibits. The Exhibits listed below are filed or incorporated by reference as part of this
Form 10-K. Where so indicated by footnote, exhibits which were previously filed are incorporated
by reference.
84
Exhibit
Number
Description
3.1* Articles of Incorporation of Allegiant Travel Company.
3.2
3.3
Bylaws of Allegiant Travel Company (incorporated by reference to Exhibit 3.2 to the
Quarterly Report on Form 10-Q for the quarter ended September 30, 2009, filed with the
Commission on November 9, 2009).
Specimen Stock Certificate (incorporated by reference to Exhibit 3.3 to the Form 8-A filed
with the Commission on November 22, 2006).
10.1* Form of Tax Indemnification Agreement between Allegiant Travel Company and members of
Allegiant Travel Company, LLC.
10.2
10.3
10.4
2006 Long-Term Incentive Plan, as amended on July 19, 2009.(1) (Incorporated by reference
to Exhibit 10.1 to the Quarterly Report on Form 10-Q for the quarter ended September 30,
2009, filed with the Commission on November 9, 2009.)
Form of Stock Option Agreement used for officers of the Company.(1) (Incorporated by
reference to Exhibit 10.3 to the Annual Report on Form 10-K for the year ended
December 31, 2008, filed with the Commission on March 3, 2009).
Form of Restricted Stock Agreement used for Directors of the Company.(1) (Incorporated by
reference to Exhibit 10.4 to the Annual Report on Form 10-K for the year ended
December 31, 2008, filed with the Commission on March 3, 2009).
10.5* Form of Indemnification Agreement.
10.6* Airport Operating Permit between Allegiant Air, Inc. and Clark County Department of
Aviation dated April 14, 2003.
10.7* Memorandum of Understanding between Allegiant Air, LLC and Sanford Airport Authority
dated March 4, 2005.
10.8
10.9
10.10
Lease dated May 1, 2007, between Allegiant Air, LLC and Windmill Durango Office, LLC
(incorporated by reference to Exhibit 10.22 to the Form S-1 registration statement filed with
the Commission on May 16, 2007).
Terminalling Agreement between AFH, Inc. and Kinder Morgan Liquids Terminals, LLC
(incorporated by reference to Exhibit 10.23 to the Post-Effective Amendment No. 1 to
Form S-1 registration statement filed with the Commission on June 25, 2007).
Shipper’s Agreement between AFH, Inc. and Central Florida Pipeline, LLC (incorporated by
reference to Exhibit 10.24 to the Post-Effective Amendment No. 1 to Form S-1 registration
statement filed with the Commission on June 25, 2007).
10.11 Master Loan Agreement dated as of April 11, 2008 between Bank of Nevada and Allegiant
Air, LLC(3) (Incorporated by reference to Exhibit 10.1 to the Quarterly Report on Form 10-Q
for the quarter ended June 30, 2008, filed with the Commission on August 8, 2008)
10.12 Amendment to Lease dated as of June 23, 2008 between Windmill Durango Office, LLC and
Allegiant Air, LLC. (Incorporated by reference to Exhibit 10.17 to the Annual Report on
Form 10-K for the year ended December 31, 2008, filed with the Commission on March 3,
2009.)
10.13
Lease dated June 23, 2008 between Windmill Durango Office II, LLC and Allegiant Air, LLC.
(Incorporated by reference to Exhibit 10.18 to the Annual Report on Form 10-K for the year
ended December 31, 2008, filed with the Commission on March 3, 2009.)
85
Exhibit
Number
Description
10.14 Air Transportation Charter Agreement dated as of October 31, 2008 between Harrah’s
Operating Company, Inc. and Allegiant Air, LLC.(2) (Incorporated by reference to
Exhibit 10.19 to the Annual Report on Form 10-K for the year ended December 31, 2008,
filed with the Commission on March 3, 2009.)
10.15 Agreement and Plan of Merger dated as of March 15, 2009, by and among the Company,
Allegiant Information Systems, Inc., RPW Consolidated Information Systems Incorporated
and Robert P. Wilson, III. (Incorporated by reference to Exhibit 10.1 to the Quarterly Report
on Form 10-Q for the quarter ended March 31, 2009 filed with the Commission on May 4,
2009.)
10.16
Perpetual Software License Agreement dated as of March 15, 2009, among
CMS Solutions, Inc., RPW Consolidated Information Systems Incorporated and Mitchell
Allee. (Incorporated by reference to Exhibit 10.2 to the Quarterly Report on Form 10-Q for
the quarter ended March 31, 2009 filed with the Commission on May 4, 2009.)
10.17 Addendum to Lease between Windmill Durango Office II, LLC and Allegiant Air, LLC
signed on June 17, 2009. (Incorporated by reference to Exhibit 10.1 to the Quarterly Report
on Form 10-Q for the quarter ended June 30, 2009 filed with the Commission on August 7,
2009.)
10.18 Amendment No. 1 to Air Transportation Charter Agreement dated April 30, 2009, between
Allegiant Air, LLC and Harrah’s Operating Company, Inc.(3) (Incorporated by reference to
Exhibit 10.20 to the Annual Report on Form 10-K for the year ended December 31, 2009,
filed with the Commission on March 9, 2010.)
10.19 Amendment No. 2 to Air Transportation Agreement Charter Agreement dated November 6,
2009 between Allegiant Air, LLC and Harrah’s Operating Company, Inc.(3) (Incorporated by
reference to Exhibit 10.21 to the Annual Report on Form 10-K for the year ended
December 31, 2009, filed with the Commission on March 9, 2010.)
10.20
Employment Agreement dated as of October 16, 2009, between the Company and Andrew C.
Levy.(1) (Incorporated by reference to Exhibit 10.22 to the Annual Report on Form 10-K for
the year ended December 31, 2009, filed with the Commission on March 9, 2010.)
10.21 Restricted Stock Agreement dated October 16, 2009 between the Company and Andrew C.
Levy.(1) (Incorporated by reference to Exhibit 10.23 to the Annual Report on Form 10-K for
the year ended December 31, 2009, filed with the Commission on March 9, 2010.)
10.22
Stock Appreciation Rights Agreement dated October 16, 2009, between the Company and
Andrew C. Levy.(1) (Incorporated by reference to Exhibit 10.24 to the Annual Report on
Form 10-K for the year ended December 31, 2009, filed with the Commission on March 9,
2010.)
10.23 Aircraft Sale and Purchase Agreement dated as of December 30, 2009 between the Company
and Scandinavian Airlines System, Denmark—Norway—Sweden.(3) (Incorporated by
reference to Exhibit 10.25 to the Annual Report on Form 10-K for the year ended
December 31, 2009, filed with the Commission on March 9, 2010.)
10.24 Aircraft Sale Agreement dated as of March 3, 2010 between Sunrise Asset Management, LLC
and Aercap Partners I Limited and Wells Fargo Bank Northeast (owner trustee under the
MSN 26963 and 26964 Trust Agreements)(2) (Incorporated by reference to Exhibit 10.1 to the
Quarterly Report on Form 10-Q for the quarter ended March 31, 2010, filed with the
Commission on May 7, 2010.)
86
Exhibit
Number
Description
10.25 Amendment No. 3 to Air Transportation Charter Agreement dated April 26, 2010, between
Allegiant Air, LLC and Harrah’s Operating Company, Inc.(3) (Incorporated by reference to
Exhibit 10.1 to the Quarterly Report on Form 10-Q for the quarter ended June 30, 2010, filed
with the Commission on August 9, 2010.)
10.26 Agreement dated October 15, 2009 and Amendment dated June 1, 2010 between the
Company and entities known collectively as Harrah’s.(3) (Incorporated by reference to
Exhibit 10.2 to the Quarterly Report on Form 10-Q for the quarter ended June 30, 2010, filed
with the Commission on August 9, 2010.)
21.1
23.1
24.1
List of Subsidiaries
Consent of Ernst & Young LLP.
Powers of Attorney (on signature page)
31.1 Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer
31.2 Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer
32
Section 1350 Certifications
*
Incorporated by reference to Exhibits filed with Registration Statement #333-134145 filed by
Allegiant Travel Company with the Commission and amendments thereto.
(1) Management contract or compensation plan or agreement required to be filed as an Exhibit to this
Report on Form 10-K pursuant to Item 15(b) of Form 10-K.
(2) Portions of the indicated document have been omitted pursuant to the grant of confidential
treatment and the documents indicated have been filed separately with the Commission as
required by Rule 406 under the Securities Act of 1933, as amended, or Rule 24b-2 of the
Securities Exchange Act of 1934, as amended.
(3) Portions of the indicated document have been omitted pursuant to a request for confidential
treatment and the document indicated has been filed separately with the Commission as required
by Rule 24b-2 of the Securities Exchange Act of 1934, as amended.
87
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized in the City of Las Vegas, State of Nevada on March 11, 2011.
Signatures
ALLEGIANT TRAVEL COMPANY
By:
/s/ SCOTT SHELDON
SCOTT SHELDON
Chief Financial Officer
POWERS OF ATTORNEY
Each person whose signature appears below hereby appoints Scott Sheldon and Maurice J.
Gallagher, Jr., as his true and lawful attorneys-in-fact and agent, with full power of substitution and
resubstitution, for him and in his name, place and stead, in any and all capacities, to sign any and all
amendments to this Annual Report on Form 10-K, and to file the same, with all exhibits thereto and
all other documents in connection therewith, with the Commission, granting unto said attorneys-in-fact
and agents full power and authority to perform each and every act and thing appropriate or necessary
to be done, as fully and for all intents and purposes as he might or could do in person, hereby ratifying
and confirming all that said attorneys-in-fact and agents or their substitute or substitutes may lawfully
do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed
below by the following persons on behalf of the Registrant and in the capacities and on the dates
indicated.
Signature
Title
Date
/s/ MAURICE J. GALLAGHER, JR.
Maurice J. Gallagher, Jr.
Chief Executive Officer and Director
(Principal Executive Officer)
March 11, 2011
/s/ SCOTT SHELDON
Scott Sheldon
/s/ GARY ELLMER
Gary Ellmer
/s/ MONTIE BREWER
Montie Brewer
/s/ TIMOTHY P. FLYNN
Timothy P. Flynn
Chief Financial Officer (Principal
Financial Officer)
March 11, 2011
Director
Director
Director
88
March 11, 2011
March 11, 2011
March 11, 2011
Signature
Title
Date
/s/ CHARLES W. POLLARD
Charles W. Pollard
John Redmond
Director
Director
March 11, 2011
March
, 2011
89
The following exhibits are filed as part of this report.
Exhibit
Number
21.1
23.1
24.1
31.1
31.2
List of Subsidiaries
Description
Consent of Ernst & Young LLP, independent registered public accounting firm
Power of Attorney (included on signature page hereto).
Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer
Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer
32
Section 1350 Certifications
90
Board of Directors
Form 10-K
Maurice J. Gallagher Jr.
Chairman of the Board,
Chief Executive Officer
Montie R. Brewer
Director
Gary Ellmer
Director
Timothy P. Flynn
Director
Charles W. Pollard
Director
John Redmond
Director
Executive Officers
Maurice J. Gallagher Jr.
Chairman of the Board,
Chief Executive Officer
Andrew C. Levy
President
Scott Sheldon
Chief Financial Officer,
Senior Vice President,
Principal Accounting Officer
Scott Allard
Senior Vice President,
Chief Information Officer
Kris Bauer
Senior Vice President,
Operations
Corporate Headquarters
8360 S. Durango Drive
Las Vegas, Nevada 89113
702-851-7300
www.allegianttravel.com
Additional copies of the Company’s
Annual Report on Form 10-K, filed with
the Securities and Exchange Commission
are available to stockholders without
charge upon request in writing to:
Allegiant Travel Company
Investor Relations
8360 S. Durango Drive
Las Vegas, NV 89113
Independent Registered
Public Accounting Firm
Ernst & Young LLP
Las Vegas, NV
Transfer Agent
American Stock Transfer & Trust Company
59 Maiden Lane
Plaza Level
New York, NY 10038
212-936-5100
www.amstock.com
Legal Counsel
Ellis Funk, P.C.
3490 Piedmont Road, Suite 400
Atlanta, GA 30305