10-Q 1 algt-20230930.htm 10-Q algt-20230930
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q
(Mark One)
☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2023
or
☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______ to_______

Commission File Number 001-33166
algtheaderq417a17.jpg
Allegiant Travel Company
(Exact Name of Registrant as Specified in Its Charter)
Nevada20-4745737
(State or Other Jurisdiction of Incorporation or Organization)(IRS Employer Identification No.)
1201 North Town Center Drive
Las Vegas,Nevada89144
(Address of Principal Executive Offices)(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 classTrading SymbolName of each exchange on which registered
Common stock, par value $0.001ALGTNASDAQ Global Select Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

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 definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer☒Accelerated filer☐
Non-accelerated filer☐Smaller reporting company☐
Emerging growth company☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of October 23, 2023, the registrant had 18,401,180 shares of common stock, $0.001 par value per share, outstanding.


ALLEGIANT TRAVEL COMPANY
FORM 10-Q
TABLE OF CONTENTS
2

PART I. FINANCIAL INFORMATION

Item 1. Consolidated Financial Statements
ALLEGIANT TRAVEL COMPANY
CONSOLIDATED BALANCE SHEETS
(in thousands)
September 30, 2023December 31, 2022
(unaudited)
CURRENT ASSETS 
Cash and cash equivalents$284,213 $229,989 
Restricted cash22,475 15,457 
Short-term investments651,213 725,063 
Accounts receivable43,957 106,578 
Expendable parts, supplies and fuel, net38,381 35,546 
Prepaid expenses and other current assets103,253 161,636 
TOTAL CURRENT ASSETS1,143,492 1,274,269 
Property and equipment, net3,328,122 2,810,693 
Long-term investments71,582 63,318 
Deferred major maintenance, net166,086 157,410 
Operating lease right-of-use assets, net105,663 111,679 
Deposits and other assets97,391 93,928 
TOTAL ASSETS:$4,912,336 $4,511,297 
CURRENT LIABILITIES
Accounts payable55,476 58,335 
Accrued liabilities272,719 226,276 
Current operating lease liabilities20,663 19,973 
Air traffic liability395,836 379,459 
Loyalty program liability39,022 32,888 
Current maturities of long-term debt and finance lease obligations, net of related costs265,979 152,900 
TOTAL CURRENT LIABILITIES1,049,695 869,831 
Long-term debt and finance lease obligations, net of current maturities and related costs2,020,019 1,944,078 
Deferred income taxes366,641 346,388 
Noncurrent operating lease liabilities87,689 94,972 
Loyalty program liability32,786 23,612 
Other noncurrent liabilities12,361 11,718 
TOTAL LIABILITIES:$3,569,191 $3,290,599 
SHAREHOLDERS' EQUITY
Common stock, par value $0.001
26 25 
Treasury shares(672,644)(660,023)
Additional paid in capital734,132 709,471 
Accumulated other comprehensive income, net3,195 1,257 
Retained earnings1,278,436 1,169,968 
TOTAL EQUITY:1,343,145 $1,220,698 
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY:$4,912,336 $4,511,297 
 
The accompanying notes are an integral part of these consolidated financial statements.
3

ALLEGIANT TRAVEL COMPANY
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share amounts)
 (unaudited)
 Three Months Ended September 30,Nine Months Ended September 30,
 2023202220232022
OPERATING REVENUES:
Passenger$516,251 $516,476 $1,768,274 $1,573,041 
Third party products30,944 27,132 85,886 77,399 
Fixed fee contracts17,741 15,881 43,599 38,186 
Other423 836 1,096 1,654 
Total operating revenues565,359 560,325 1,898,855 1,690,280 
OPERATING EXPENSES:
Aircraft fuel167,861 208,175 520,018 629,600 
Salaries and benefits163,004 137,336 499,798 411,027 
Station operations64,630 66,302 192,864 198,954 
Depreciation and amortization55,816 50,092 164,430 145,618 
Maintenance and repairs35,477 32,177 95,553 91,120 
Sales and marketing28,468 25,815 85,265 75,462 
Aircraft lease rentals5,906 5,905 18,973 17,489 
Other29,432 30,292 91,757 83,137 
Special charges, net of recoveries32,648 35,142 19,828 35,426 
Total operating expenses583,242 591,236 1,688,486 1,687,833 
OPERATING INCOME (LOSS)(17,883)(30,911)210,369 2,447 
OTHER (INCOME) EXPENSES:
Interest expense39,233 34,242 112,707 78,530 
Capitalized interest(14,888)(4,296)(28,949)(7,594)
Interest income(12,444)(4,918)(34,418)(7,909)
Other, net135 223 185 318 
Total other expenses12,036 25,251 49,525 63,345 
INCOME (LOSS) BEFORE INCOME TAXES(29,919)(56,162)160,844 (60,898)
INCOME TAX PROVISION (BENEFIT)(4,853)(9,703)41,292 (10,916)
NET INCOME (LOSS)$(25,066)$(46,459)$119,552 $(49,982)
Earnings (loss) per share to common shareholders:
Basic$(1.44)$(2.58)$6.44 $(2.78)
Diluted$(1.44)$(2.58)$6.43 $(2.78)
Shares used for computation:
Basic17,721 18,014 17,879 17,985 
Diluted17,721 18,014 17,913 17,985 

The accompanying notes are an integral part of these consolidated financial statements.
4

ALLEGIANT TRAVEL COMPANY
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands)
(unaudited)
 
 Three Months Ended September 30,Nine Months Ended September 30,
 2023202220232022
NET INCOME (LOSS)$(25,066)$(46,459)$119,552 $(49,982)
Other comprehensive income:  
Change in available for sale securities, net of tax556 (1,590)1,938 (902)
Total other comprehensive income (loss)556 (1,590)1,938 (902)
TOTAL COMPREHENSIVE INCOME (LOSS)$(24,510)$(48,049)$121,490 $(50,884)

The accompanying notes are an integral part of these consolidated financial statements.
5

ALLEGIANT TRAVEL COMPANY
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(in thousands)
(unaudited)
Three Months Ended September 30, 2023
Common stock outstandingPar valueAdditional paid-in capitalAccumulated other comprehensive incomeRetained earningsTreasury sharesTotal shareholders' equity
Balance at June 30, 202318,450 $26 $727,534 $2,639 $1,314,586 $(671,224)$1,373,561 
Share-based compensation(23)— 6,598 — — — 6,598 
Shares repurchased by the Company and held as treasury shares(16)— — — — (1,420)(1,420)
Cash dividends, $0.60 per share
— — — — (11,084)— (11,084)
Other comprehensive income— — — 556 — — 556 
Net loss— — — — (25,066)— (25,066)
Balance at September 30, 202318,411 $26 $734,132 $3,195 $1,278,436 $(672,644)$1,343,145 

Nine Months Ended September 30, 2023
Common stock outstandingPar valueAdditional paid-in capitalAccumulated other comprehensive incomeRetained earningsTreasury sharesTotal shareholders' equity
Balance at December 31, 202218,128 $25 $709,471 $1,257 $1,169,968 $(660,023)$1,220,698 
Share-based compensation415 1 24,661 — — — 24,662 
Shares repurchased by the Company and held as treasury shares(173)— — — — (16,853)(16,853)
Stock issued under employee stock purchase plan41 — — — — 4,232 4,232 
Cash dividends, $0.60 per share
— — — — (11,084)— (11,084)
Other comprehensive income— — — 1,938 — — 1,938 
Net income— — — — 119,552 — 119,552 
Balance at September 30, 202318,411 $26 $734,132 $3,195 $1,278,436 $(672,644)$1,343,145 

Three Months Ended September 30, 2022
Common stock outstandingPar valueAdditional paid-in capitalAccumulated other comprehensive income (loss)Retained earningsTreasury sharesTotal shareholders' equity
Balance at June 30, 202218,180 $25 $698,982 $2,744 $1,163,952 $(633,332)$1,232,371 
Share-based compensation122 — 4,651 — — — 4,651 
Other comprehensive loss— — — (1,590)— — (1,590)
Net loss— — — — (46,459)— (46,459)
Balance at September 30, 202218,302 $25 $703,633 $1,154 $1,117,493 $(633,332)$1,188,973 

6

Nine Months Ended September 30, 2022
Common stock outstandingPar valueAdditional paid-in capitalAccumulated other comprehensive income (loss)Retained earningsTreasury sharesTotal shareholders' equity
Balance at December 31, 202118,111 $25 $692,053 $2,056 $1,167,475 $(638,057)$1,223,552 
Share-based compensation161 — 11,580 — — — 11,580 
Stock issued under employee stock purchase plan30 — — — — 4,725 4,725 
Other comprehensive loss— — — (902)— — (902)
Net loss— — — — (49,982)— (49,982)
Balance at September 30, 202218,302 $25 $703,633 $1,154 $1,117,493 $(633,332)$1,188,973 

7

ALLEGIANT TRAVEL COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
 Nine Months Ended September 30,
 20232022
Cash flows from operating activities:
Net income (loss)$119,552 $(49,982)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization164,430 145,618 
Special charges, net of recoveries19,400 35,426 
Other adjustments31,281 9,206 
Changes in certain assets and liabilities:
Air traffic liability16,377 122,471 
Other - net18,418 (40,917)
Net cash provided by operating activities369,458 221,822 
Cash flows from investing activities:
Purchase of investment securities (668,234)(968,064)
Proceeds from maturities of investment securities 753,094 1,024,861 
Aircraft pre-delivery deposits(255,195)(88,500)
Purchase of property and equipment(407,225)(304,956)
Other investing activities40,123 1,037 
Net cash used in investing activities(537,437)(335,622)
Cash flows from financing activities:
Cash dividends paid to shareholders(11,084)— 
Proceeds from the issuance of debt and finance lease obligations480,875 745,800 
Repurchase of common stock(16,853)— 
Principal payments on debt and finance lease obligations(292,890)(666,046)
Debt issuance costs(4,929)(12,681)
Sunseeker construction financing disbursements (deposits)69,869 (87,500)
Other financing activities4,233 4,725 
Net cash provided by (used in) financing activities229,221 (15,702)
NET CHANGE IN CASH, CASH EQUIVALENTS, AND RESTRICTED CASH61,242 (129,502)
CASH, CASH EQUIVALENTS, AND RESTRICTED CASH AT BEGINNING OF PERIOD245,446 400,701 
CASH, CASH EQUIVALENTS, AND RESTRICTED CASH AT END OF PERIOD$306,688 $271,199 
CASH PAYMENTS FOR:
Interest paid, net of amount capitalized$113,977 $60,452 
Income tax payments359 36 
SUPPLEMENTAL DISCLOSURE OF NONCASH TRANSACTIONS:
Right-of-use (ROU) assets acquired$8,320 $— 
Flight equipment acquired under finance leases— 172,507 
Purchases of property and equipment in accrued liabilities75,001 82,359 

The accompanying notes are an integral part of these consolidated financial statements.
8

ALLEGIANT TRAVEL COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

Note 1 — Summary of Significant Accounting Policies

Basis of Presentation

The accompanying unaudited consolidated financial statements include the accounts of Allegiant Travel Company (the “Company”) and its majority-owned operating subsidiaries. The Company's investments in unconsolidated affiliates, which are 50 percent or less owned, are accounted for under the equity or cost method, and are insignificant to the consolidated financial statements. All intercompany balances and transactions have been eliminated.

These unaudited consolidated financial statements reflect all normal recurring adjustments which management believes are necessary to present fairly the financial position, results of operations, and cash flows of the Company for the respective periods presented. Certain information and footnote disclosures normally included in the annual consolidated financial statements prepared in accordance with U.S. generally accepted accounting principles ("U.S. GAAP") have been omitted pursuant to the rules and regulations of the Securities and Exchange Commission for Form 10-Q. These unaudited interim consolidated financial statements should be read in conjunction with the audited consolidated financial statements of the Company and notes thereto included in the annual report of the Company on Form 10-K for the year ended December 31, 2022 and filed with the Securities and Exchange Commission.

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities, at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results may differ from these estimates.

The Company has reclassified certain prior period amounts to conform to the current period presentation.
9

Note 2 — Special Charges

As a result of Hurricane Ian's direct hit on the southwest coast of Florida on September 28, 2022, the construction site of Sunseeker Resort at Charlotte Harbor (the "Resort" or "Sunseeker Resort") was damaged. Additionally in the fourth quarter of 2022, there was another weather-related event and a fire that caused additional damage. Based on the Company’s assessment of these damages and the anticipated future restoration costs, an estimated loss of $52.1 million was recorded as a special charge in 2022, which was offset by $18.1 million of recorded insurance recoveries during 2022. The Company recorded an additional $4.1 million and $4.4 million of estimated loss related to Hurricane Ian during the three and nine months ended September 30, 2023.

During third quarter 2023, the Sunseeker Resort construction site incurred additional damages related to Hurricane Idalia. Based on the Company’s assessment of these damages and the anticipated future restoration costs, an estimated loss of $13.8 million was recorded as a special charge in third quarter 2023. The estimate is preliminary and subject to change as the damage assessment by the Company and the insurance providers continues.

During the three and nine months ended September 30, 2023, the Company recorded $0.5 million and $13.6 million of insurance recoveries respectively. The recoveries are offset by $17.9 million and $18.2 million of additional losses recorded during the three and nine months ended September 30, 2023 respectively, resulting in special charges net of recoveries of $17.4 million and $4.6 million, respectively. To date, the Company has recorded insurance recoveries of $31.7 million related to Hurricane Ian and subsequent insurance events. We anticipate that additional insurance recoveries related to the losses incurred in third and fourth quarters 2022 and in third quarter 2023 will be recorded in future periods.

Due to the heavy maintenance needs on certain aging Airbus airframes and capacity constraints at the maintenance, repair, and overhaul contractors, the Company reevaluated its fleet plan and identified 21 airframes for early retirement to coincide with 737 MAX aircraft deliveries as scheduled under an amendment to the Company's agreement with The Boeing Company signed in September 2023. Two airframes were fully retired in September 2023 and the remaining airframes are to be retired between January 2024 and September 2025. The accelerated depreciation on these airframes resulting from a change in the estimated useful life is recorded as a special charge of $15.2 million during third quarter 2023.


Special Charges

The table below summarizes special charges recorded during the three and nine months ended September 30, 2023, and 2022.
Three Months Ended September 30,Nine Months Ended September 30,
(in thousands)2023202220232022
Sunseeker weather and related events$17,915 $35,000 $18,232 $35,000 
Sunseeker weather and related events, insurance recoveries(483)— (13,634)— 
Accelerated depreciation on airframes identified for early retirement15,216 142 15,230 426 
Total special charges$32,648 $35,142 $19,828 $35,426 

10

Note 3 — Revenue Recognition

Passenger Revenue

Passenger revenue is the most significant category in the Company's reported operating revenues, as outlined below:
Three Months Ended September 30,Nine Months Ended September 30,
(in thousands)2023202220232022
Scheduled service$231,757 $254,545 $862,823 $775,740 
Ancillary air-related charges273,091 252,080 866,728 765,096 
Loyalty redemptions11,403 9,851 38,723 32,205 
Total passenger revenue$516,251 $516,476 $1,768,274 $1,573,041 

Sales of passenger tickets not yet flown are recorded in air traffic liability. Passenger revenue is recognized when the underlying service is provided. As of September 30, 2023, the air traffic liability balance was $395.8 million, of which approximately $347.1 million was related to forward bookings, with the remaining $48.7 million related to credit vouchers for future travel.

The normal contract term of passenger tickets is 12 months and passenger revenue associated with future travel will principally be recognized within this time frame. Of the $379.5 million that was recorded in the air traffic liability balance as of December 31, 2022, approximately 87.2 percent was recognized into passenger revenue during the nine months ended September 30, 2023.

The Company periodically evaluates the estimated amount of credit vouchers expected to expire unused and any adjustment is removed from air traffic liability and included in passenger revenue in the period in which the evaluation is complete. Estimates of passenger revenue to be recognized from air traffic liability for credit voucher breakage may be subject to variability and differ from historical experience due to the change in contract duration (for vouchers issued in 2020 and in the first half of 2021) and uncertainty regarding demand for future air travel.

Loyalty redemptions

In relation to the travel component of the Allways® Allegiant co-branded credit card contract with Bank of America, the Company has a performance obligation to provide cardholders with points to be used for future travel award redemptions. Therefore, consideration received from Bank of America related to the travel component is deferred based on its relative selling price and is recognized into passenger revenue when the points are redeemed and the underlying service is provided. Similarly, in relation to the Allways Rewards program, points earned through the program are deferred based on the stand-alone selling price and recognized into passenger revenue when the points are redeemed and the underlying service is provided.

The following table presents the activity of the point liability for the periods indicated:
Nine Months Ended September 30,
(in thousands)20232022
Points balance at January 1$56,500 $40,490 
Points awarded (deferral of revenue)54,031 54,678 
Points redeemed (recognition of revenue)(38,723)(32,205)
Points balance at September 30$71,808 $62,963 

The current portion of the loyalty program liability represents the estimate of revenue to be recognized in the next 12 months based on historical trends, with the remaining balance reflected in noncurrent liabilities expected to be recognized into revenue in periods thereafter.
11

Note 4 — Property and Equipment

The following table summarizes the Company's property and equipment as of the dates indicated:
(in thousands)September 30, 2023December 31, 2022
Flight equipment, including pre-delivery deposits$3,268,840 $2,937,767 
Computer hardware and software264,002 209,808 
Land and buildings/leasehold improvements62,197 62,227 
Other property and equipment105,988 95,156 
Sunseeker Resort563,716 320,572 
Total property and equipment4,264,743 3,625,530 
Less accumulated depreciation and amortization(936,621)(814,837)
Property and equipment, net$3,328,122 $2,810,693 

Accrued capital expenditures as of September 30, 2023 and December 31, 2022 were $75.0 million and $54.6 million, respectively.
12

Note 5 — Long-Term Debt

The following table summarizes the Company's long-term debt and finance lease obligations, net of related costs, as of the dates indicated:
(in thousands)September 30, 2023December 31, 2022
Fixed-rate debt and finance lease obligations due through 2032$1,971,579 $1,720,998 
Variable-rate debt due through 2029314,419 375,980 
Total debt and finance lease obligations2,285,998 2,096,978 
Less current maturities265,979 152,900 
Long-term debt and finance lease obligations, net of current maturities$2,020,019 $1,944,078 
Weighted average fixed-interest rate on debt6.6%6.5%
Weighted average variable-interest rate on debt7.7%6.1%

Interest Rate(s) Per Annum atAs of
(in thousands)Maturity DatesSeptember 30, 2023September 30, 2023December 31, 2022
Senior secured notes2024—20277.25 %—8.50%$700,000 $700,000 
Consolidated variable interest entities2024—20292.92 %—4.09%98,198 79,453 
Revolving credit facilities2024—20277.93%195,098 30,327 
Debt secured by aircraft, engines, other equipment and real estate2025—20311.87 %—8.11%503,731 466,335 
Finance leases2028—20324.44 %—7.01%461,364 494,328 
Construction loan agreement20285.75%350,000 350,000 
Total debt$2,308,391 $2,120,443 
Related costs(22,393)(23,465)
Total debt net of related costs$2,285,998 $2,096,978 


Maturities of long term debt as of September 30, 2023, for the next five years and thereafter, in the aggregate, are:

(in thousands)As of September 30, 2023
Remaining in 2023$28,587 
2024469,017 
2025176,767 
2026171,890 
2027704,870 
2028309,815 
Thereafter425,052 
Total debt and finance lease obligations, net of related costs$2,285,998 


Secured Term Loan

On September 27, 2023, the Company, through a wholly owned subsidiary, entered into a Credit Agreement with BNP Paribas and JSA International U.S. Holdings, LLC, under which the Company is entitled to borrow up to $412.1 million. On September 29, 2023, the Company received funding of $196.4 million under the facility, which is collateralized by seven Airbus A320 aircraft. The proceeds were used in part to pay off $112.8 million of existing debt previously collateralized by the same aircraft. The $196.4 million loans funded on September 29, 2023 bear interest at a fixed rate, are to be paid in quarterly installments of principal and interest, and mature on September 29, 2031. The remaining undrawn balance of the facility will be funded upon delivery of, and collateralized by, four 737 MAX aircraft currently on order from Boeing. Future draws collateralized by 737 MAX aircraft will bear interest at a rate determined at the time of drawdown, and will have a term of twelve years.

13

Revolving Credit Facilities

In February 2023, the Company, through a wholly owned subsidiary, entered into a credit agreement with Credit Agricole Corporate and Investment Bank, under which the Company is entitled to borrow up to $100.0 million. This revolving credit facility replaced a revolving credit facility with the same lender which was to expire in March 2023. The revolving credit facility has a maturity date of March 31, 2026 and the borrowing ability is based on the value of aircraft and engines placed into the collateral pool. The notes under the facility bear interest at a floating rate based on SOFR. As of September 30, 2023, the facility remains undrawn.

During the nine months ended September 30, 2023, the Company received $164.8 million in advances on a pre-delivery payment (PDP) credit facility secured by the Company's Boeing aircraft purchase rights. The notes under the facility bear interest at a floating interest rate based on SOFR and mature on December 31, 2024 or upon delivery of the applicable aircraft.

Consolidated Variable Interest Entities

In February 2023, the Company, through a wholly owned subsidiary, entered into agreements with a trust to borrow $27.0 million secured by one Airbus A320 series aircraft. The trust was funded on inception. The borrowing bears interest at a fixed rate and is payable in monthly installments through February 2029, at which time the Company will have a purchase option at a fixed amount.

Other Secured Debt

In May 2023, the Company borrowed $92.7 million under a loan agreement secured by six Airbus A320 series aircraft. The notes bear interest at a fixed rate, payable in quarterly installments maturing in May 2028.

Debt Extinguishment

In June 2023, the Company made a $61.0 million prepayment to extinguish an aircraft-secured debt facility. The facility bore interest at a floating rate and had a maturity date of June 2024.

In September 2023, the Company made a payment of $112.8 million to voluntarily pay off several debt instruments collateralized by aircraft. These debt instruments were all floating rate instruments with original maturity dates between May and October 2027.



14

Note 6 — Income Taxes

The Company recorded a $4.9 million income tax benefit at an effective tax rate of 16.3 percent and a $9.7 million income tax benefit at a 17.3 percent effective tax rate for the three months ended September 30, 2023 and 2022, respectively. The effective tax rate for the three months ended September 30, 2023 differed from the statutory Federal income tax rate of 21.0 percent primarily due to state income taxes and the impact of permanent tax differences. While the Company expects its effective tax rate to be fairly consistent in the near term, it will vary depending on recurring items such as the amount of income earned in each state and the state tax rate applicable to such income. Discrete items during interim periods may also affect the Company's tax rates.

The Company recorded a $41.3 million income tax expense at an effective tax rate of 25.7 percent and a $10.9 million income tax benefit at a 17.9 percent effective tax rate for the nine months ended September 30, 2023 and 2022, respectively. The effective tax rate for the nine months ended September 30, 2023 differed from the statutory Federal income tax rate of 21.0 percent primarily due to state income taxes and the impact of permanent tax differences, none of which are individually significant.
15

Note 7 — Fair Value Measurements

The Company utilizes the market approach to measure the fair value of its financial assets. The market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets. The assets classified as Level 2 primarily utilize quoted market prices or alternative pricing sources including transactions involving identical or comparable assets and models utilizing market observable inputs for valuation of these securities. No changes in valuation techniques or inputs occurred during the nine months ended September 30, 2023.

Financial instruments measured at fair value on a recurring basis:
As of September 30, 2023As of December 31, 2022
(in thousands)TotalLevel 1Level 2TotalLevel 1Level 2
Cash equivalents   
Money market funds$165,196 $165,196 $— $88,073 $88,073 $— 
Commercial paper9,940 — 9,940 50,791 — 50,791 
Municipal debt securities7,867 — 7,867 8,599 — 8,599 
Total cash equivalents183,003 165,196 17,807 147,463 88,073 59,390 
Short-term     
Commercial paper266,653 — 266,653 421,279 — 421,279 
Federal agency debt securities196,634 — 196,634 107,222 — 107,222 
Corporate debt securities151,610 — 151,610 166,136 — 166,136 
US Treasury Bonds23,578 — 23,578 — — — 
Municipal debt securities12,738 — 12,738 30,426 — 30,426 
Total short-term651,213 — 651,213 725,063 — 725,063 
Long-term      
Federal agency debt securities30,994 — 30,994 20,050 — 20,050 
Corporate debt securities27,093 — 27,093 35,688 — 35,688 
Municipal debt securities13,495 — 13,495 7,580 — 7,580 
Total long-term71,582 — 71,582 63,318 — 63,318 
Total financial instruments$905,798 $165,196 $740,602 $935,844 $88,073 $847,771 

None of the Company's debt is publicly held and as a result, the Company has determined the estimated fair value of these notes to be Level 3. Certain inputs used to determine fair value are unobservable and, therefore, could be sensitive to changes in inputs. The Company utilizes the discounted cash flow method to estimate the fair value of Level 3 debt.

Carrying value and estimated fair value of long-term debt, excluding finance leases, including current maturities and without reduction for related costs, are as follows:
As of September 30, 2023As of December 31, 2022
(in thousands)Carrying ValueEstimated Fair ValueCarrying ValueEstimated Fair ValueHierarchy Level
Fair Value of Notes Payable$1,847,028 $1,747,427 $1,626,114 $1,561,939 3

Due to their short-term nature, the carrying amounts of cash, restricted cash, accounts receivable and accounts payable approximate fair value.
16

Note 8 — Earnings (Loss) per Share

Basic and diluted earnings (loss) per share are computed pursuant to the two-class method. Under this method, the Company attributes net income (loss) to two classes: common stock and unvested restricted stock. 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 the two methods. Under both methods, the exercise of employee stock options is 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.

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 certain periods presented, basic and diluted loss per share are the same because of the loss position.

The following table sets forth the computation of net income (loss) per share, on a basic and diluted basis, for the periods indicated (share count and dollar amounts other than per-share amounts in the table are in thousands):
Three Months Ended September 30,Nine Months Ended September 30,
2023202220232022
Basic:  
Net income (loss)$(25,066)$(46,459)$119,552 $(49,982)
Less income allocated to participating securities(452)— (4,397)— 
Net income (loss) attributable to common stock$(25,518)$(46,459)$115,155 $(49,982)
Earnings (loss) per share, basic$(1.44)$(2.58)$6.44 $(2.78)
Weighted-average shares outstanding17,721 18,014 17,879 17,985 
Diluted:    
Net income (loss)$(25,066)$(46,459)$119,552 $(49,982)
Less income allocated to participating securities(452)— (4,389)— 
Net income (loss) attributable to common stock$(25,518)$(46,459)$115,163 $(49,982)
Earnings (loss) per share, diluted$(1.44)$(2.58)$6.43 $(2.78)
Weighted-average shares outstanding17,721 18,014 17,879 17,985 
Dilutive effect of stock options and restricted stock— — 238 — 
Adjusted weighted-average shares outstanding under treasury stock method17,721 18,014 18,117 17,985 
Participating securities excluded under two-class method— — (204)— 
Adjusted weighted-average shares outstanding under two-class method17,721 18,014 17,913 17,985 
17

Note 9 — Contingencies

The Company is subject to certain legal and administrative actions it considers routine to its business activities. The Company believes the ultimate outcome of any potential and pending legal or administrative matters will not have a material adverse impact on its financial position, liquidity or results of operations.
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Note 10 — Segments

Operating segments are components of a company for which separate financial and operating information is regularly evaluated and reported to the Chief Operating Decision Maker ("CODM"), and is used to allocate resources and analyze performance. The Company's CODM is the executive leadership team, which reviews information about the Company's two operating segments: Airline and Sunseeker Resort.

Airline Segment

The Airline segment operates as a single business unit and includes all scheduled service air transportation, ancillary air-related products and services, third party products and services, fixed fee contract air transportation and other airline-related revenue. The CODM evaluation includes, but is not limited to, route and flight profitability data, ancillary and third party product and service offering statistics, and fixed fee contract information when making resource allocation decisions with the goal of optimizing consolidated financial results.

Sunseeker Resort Segment

The Sunseeker Resort segment represents activity related to the development and construction of Sunseeker Resort in Southwest Florida, as well as the renovation of Aileron Golf Course (formerly known as Kingsway Golf Course). Plans for the resort include a 500-room hotel and two towers offering more than 180 one, two and three-bedroom suites, bar and restaurant options, and other amenities. The golf course is a short drive from the resort and is considered, from a planning and strategic perspective, to be an additional resort amenity. The construction of Sunseeker Resort is an extension of the Company's leisure travel focus and it is expected that many customers flying to Southwest Florida on Allegiant will elect to stay at this resort and enjoy its amenities.


Selected information for the Company's segments and the reconciliation to the consolidated financial statement amounts are as follows:
(in thousands)AirlineSunseeker ResortConsolidated
Three Months Ended September 30, 2023
Operating revenue:
Passenger$516,251 $— $516,251 
Third party products30,944 — 30,944 
Fixed fee contracts17,741 — 17,741 
Other419 4 423 
Operating income (loss)5,814 (23,697)(17,883)
Interest expense, net(1)
20,654 5,535 26,189 
Capitalized interest(8,224)(6,664)(14,888)
Depreciation and amortization55,730 86 55,816 
Capital expenditures157,579 78,254 235,833 
Three Months Ended September 30, 2022
Operating revenue:
Passenger$516,476 $— $516,476 
Third party products27,132 — 27,132 
Fixed fee contracts15,881 — 15,881 
Other836 — 836 
Operating income (loss)6,844 (37,755)(30,911)
Interest expense, net(1)
20,197 4,115 24,312 
Capitalized interest(1,315)(2,981)(4,296)
Depreciation and amortization50,064 28 50,092 
Capital expenditures165,814 91,076 256,890 

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(in thousands)AirlineSunseeker ResortConsolidated
Nine Months Ended September 30, 2023
Operating revenue:
Passenger$1,768,274 $— $1,768,274 
Third party products85,886 — 85,886 
Fixed fee contracts43,599 — 43,599 
Other1,088 8 1,096 
Operating income (loss)230,894 (20,525)210,369 
Interest expense, net(1)
61,157 16,326 77,483 
Capitalized interest(13,143)(15,806)(28,949)
Depreciation and amortization164,196 234 164,430 
Capital expenditures425,996 260,892 686,888 
Nine Months Ended September 30, 2022
Operating revenue:
Passenger$1,573,041 $— $1,573,041 
Third party products77,399 — 77,399 
Fixed fee contracts38,186 — 38,186 
Other1,654 — 1,654 
Operating income (loss)44,902 (42,455)2,447 
Interest expense, net(1)
54,857 10,752 65,609 
Capitalized interest(2,746)(4,848)(7,594)
Depreciation and amortization145,573 45 145,618 
Capital expenditures404,015 228,452 632,467 
(1) Excludes losses (net of gains) on debt extinguishment of $600 thousand and $806 thousand for quarter-to-date and year-to-date 2023 respectively. During the third quarter 2022, the Company recognized a loss on debt extinguishment of $5.0 million in relation to the prepayment of its Term Loan B.


Total assets were as follows as of the dates indicated:
(in thousands)As of September 30, 2023As of December 31, 2022
Airline$4,283,299 $4,047,134 
Sunseeker Resort629,037 464,163 
Consolidated$4,912,336 $4,511,297 
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Note 11 — Subsequent Events

On November 2, 2023, the Company repaid all amounts due under its $150.0 million senior secured notes due February 2024.

On October 25, 2023, the Company, through a wholly owned subsidiary, entered into agreements with a trust to borrow $9 million secured by one CFM engine. The trust was funded on inception and the borrowing bears interest at a fixed imputed rate and is payable in monthly installments through October 2028, at which time the Company will have a purchase option at a fixed amount.

On October 31, 2023, the Company, through a wholly owned subsidiary, entered into agreements with a trust to borrow $27 million secured by one Airbus A320 series aircraft. The trust was funded on inception and the borrowing bears interest at a fixed imputed rate and is payable in monthly installments through October 2028, at which time the Company will have a purchase option at a fixed amount.

On October 31, 2023, the Company, through a wholly owned subsidiary, extended the term of its August 2022 revolving credit facility with MUFG Bank by two years to August 2025. All other terms of the agreement remain the same and the facility remains undrawn as of September 30, 2023.

On November 1, 2023, the Company, through a variable interest entity, entered into agreements with Carlyle Aviation Group to borrow $158 million secured by the Company's purchase rights for eight Boeing 737 aircraft. The facility bears a floating interest rate based on SOFR and is due upon delivery of each aircraft or no later than June 30, 2025.
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Item 2. 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 three and nine months ended September 30, 2023 and 2022. Also discussed is our financial position as of September 30, 2023 and December 31, 2022. You should read this discussion in conjunction with our unaudited consolidated financial statements, including the notes thereto, appearing elsewhere in this Form 10-Q and our consolidated financial statements appearing in our annual report on Form 10-K for the year ended December 31, 2022. This discussion and analysis contains forward-looking statements. Please refer to the section below entitled “Cautionary Note Regarding Forward-Looking Statements” for a discussion of the uncertainties, risks and assumptions associated with these statements.

Third Quarter 2023 Review

Third quarter 2023 highlights include:

•Total operating revenue was $565.4 million, up 0.9 percent over the prior year and the highest third quarter total in company history
•Total fixed fee contracts revenue of $17.7 million, up 11.7 percent year-over-year
•TRASM (total passenger revenue per scheduled service available seat mile) of 12.78 cents, up 1.4 percent year-over-year on scheduled service capacity decrease of 0.8 percent year-over-year
•Controllable completion factor of 99.7%
•Total average fare of $129.23, up 2.6 percent year-over-year
•Average ancillary fare of $64.50, up 10.4 percent year-over-year
•Airline special charges of $15.2 million from accelerated depreciation on aircraft retirement plan
•Allways Rewards program enrolled 478 thousand new members during the quarter, bringing total members to 16.7 million
•$88 million in remuneration received from our co-branded credit card year-to-date
•Announced a collaboration with global entertainment icon Carrie Underwood in support of the company's Allways Rewards Visa® card and loyalty program
•Entered into $412.1 million financing arrangement and borrowed $196.4 million collateralized by seven A320 aircraft, with the remaining undrawn balance to be used in 2024 to fund four 737 MAX aircraft
•Sunseeker Resort nears completion - announced December 15, 2023 opening date
•Sunseeker special charges of $17.4 million, net of recoveries, from hurricane and other weather-related events




AIRCRAFT

The following table sets forth the aircraft in service and operated by us as of the dates indicated:
September 30, 2023December 31, 2022
A31935 35 
A320(1)
92 86 
Total127 121 
(1)December 31, 2022 figure does not include five aircraft of which we have taken delivery, but were not yet in service as of that date.

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On September 29, 2023, we entered into agreements with The Boeing Company ("Boeing") to amend our 2021 agreement to acquire 50 newly manufactured Boeing 737 MAX aircraft. The amended agreements include a revised delivery schedule for the initial 50 aircraft to now extend through late 2025.

Due to the heavy maintenance needs on certain aging Airbus airframes and capacity constraints at the maintenance, repair, and overhaul contractors constraining fleet utilization, we reevaluated our fleet plan and identified 21 aging airframes for early retirement to coincide with the delivery schedule for our 737 MAX aircraft provided in an amendment to our Boeing purchase agreement signed on September 29, 2023. Two airframes were retired in September 2023 and the remaining airframes are to be retired between January 2024 and September 2025. The retirements are coordinated with the revised delivery schedule for the 737 MAX aircraft to provide us with opportunities for fleet renewal and replacement. The accelerated depreciation on these airframes resulting from a change in the estimated useful life is recorded as a special charge of $15.2 million during third quarter 2023. We plan to retain the engines associated with these airframes in our spare engine pool and use the substantial remaining life on these engines to offset future overhaul costs.

As of September 30, 2023, we were party to forward purchase agreements for 52 aircraft. One aircraft was delivered in October 2023 and one is expected to be delivered in December 2023. We currently expect deliveries of 24 737 MAX aircraft in 2024 and 26 thereafter.




NETWORK

As of September 30, 2023, we were selling 549 routes versus 583 as of the same date in 2022. As discussed below, growth in overall capacity and the number of routes served have been reduced as a result of efforts to balance the demand environment and prevailing fuel prices with system wide operational reliability. We expect route count to remain below 2022 levels throughout the rest of the year as we focus on our core markets during our busiest travel periods. We have identified as many as 1,400 incremental domestic nonstop routes as opportunities for future network growth, of which over 75% currently have no current non-stop service. Our total active number of origination cities and leisure destinations were 91 and 33, respectively, as of September 30, 2023.

Our unique model is predicated around expanding and contracting capacity to meet seasonal travel demands.
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TRENDS

Demand Momentum

We continue to see strong demand across both peak and off-peak periods relative to pre-pandemic. While peak period demand has persisted meaningfully higher, the performance of off-peak periods in relation to current peaks has normalized according to typical leisure seasonality.

Aircraft Fuel
The cost of fuel is volatile, as it is subject to many economic and geopolitical factors we can neither control nor predict. Significant increases in fuel costs could materially affect our operating results and profitability. We have not sought to use financial derivative products to hedge our exposure to fuel price volatility, nor do we have any plans to do so in the future.

Despite a 19.7 percent decrease in fuel cost per gallon during the third quarter 2023 compared to the same period in 2022, attributable to lower crude oil prices and refining margins, we anticipate that our overall costs and operating results will continue to be affected by persistently high and volatile fuel prices. This is primarily due to ongoing geopolitical and economic tensions in the Middle East and Ukraine, which continue to impact the global market.

Boeing Agreement

In September 2023, we signed an agreement with The Boeing Company to amend our 2021 agreement to purchase 50 newly manufactured 737 MAX aircraft. Under the amended agreements, the mix of 737 MAX-8200 and 737 MAX-7 aircraft have been altered so that there will be more 737 MAX-8200 aircraft and fewer 737 MAX-7 aircraft. The amended agreements also reflect a revised delivery schedule for the initial 50 aircraft to deliver through late 2025 and options to acquire as many as 80 additional 737 MAX aircraft. We believe this new aircraft purchase is complementary with our low cost strategy based on our intent to retain ownership of the aircraft, the longer useful life for depreciation purposes, reduced maintenance costs in the early periods of ownership, expected fuel savings and operational reliability from the use of these new aircraft.

Operations

Delays for aircraft in heavy maintenance, airport construction disruption, weather, and air traffic control delays in certain markets continue to impact our operations and we have pulled back some of our capacity growth in 2023 and into 2024 as a result. We believe these issues are not unique to Allegiant nor do we believe they are systemic.

Union Negotiations

The collective bargaining agreement with our pilots is currently amendable. We and the International Brotherhood of Teamsters ("IBT”) jointly requested the mediation services of the National Mediation Board ("NMB") in January 2023 to assist with the negotiations. The mediation process with the NMB is continuing, with dates for negotiation sessions currently scheduled through March of 2024.

Separately from the ongoing collective bargaining agreement negotiations, to begin to address retention and pilot pay issues, effective in May 2023, we began recognizing a retention bonus for pilots who continue employment with us until a new labor agreement is approved.The amount is 35 percent of current hourly pay rates, except for the first year first officers for whom the percentage is 82 percent, calculated at a minimum of 85 pay credit hours per month. IBT concurred with this approach. Since its inception, pilot attrition rates have declined and we are increasing the number of pilots employed.

For the three and nine months ended September 30, 2023, we recorded estimated pilot retention bonus accruals of $18.7 million and $30.4 million, respectively. The bonus will be paid to all pilots remaining employed with us upon ratification of a new collective bargaining agreement.

The collective bargaining agreement with our flight attendants is also currently amendable. We and the Transportation Workers Union (“TWU”) representing this group reached an initial tentative agreement in May 2023. That initial tentative agreement was not ratified by the flight attendant membership, and the parties have reengaged in negotiations for an amended contract.

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


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Engagement of Schneider Electric as ESG Consultant

We are continuing our partnership with Schneider Electric to help us develop our Environmental, Social and Governance (ESG) program. During 2023, we expect to establish ESG goals and environmental goal achievement plans and will continue to provide carbon emissions reporting of Scope 1, 2, and 3 greenhouse gas (GHG) emissions.

VivaAerobus Alliance

In December 2021, we announced plans for a fully-integrated commercial alliance agreement with VivaAerobus, designed to expand options for nonstop leisure air travel on transborder flights between United States and Mexico. We and VivaAerobus have submitted a joint application to the DOT requesting approval of and antitrust immunity for the alliance. Due to recent actions undertaken by Mexico affecting U.S. operations at Mexico City's Benito Juarez International Airport, our application's procedural schedule set by the DOT has been temporarily suspended. This will delay approval for an undetermined period of time.

We and VivaAerobus expect to offer new routes under the alliance pending U.S. governmental approval of the applications. The approval of the applications was also subject to the return of Mexico to a Category 1 status under the FAA’s International Aviation Safety Assessment (“IASA”) program. The Category 1 status allows foreign airlines to expand their services to U.S. destinations and enter into codeshare partnerships with U.S. airlines. Mexico has now been approved for Category I status.

Sunseeker Resort

Construction of Sunseeker Resort Charlotte Harbor is nearing completion and we expect to open the Resort on December 15, 2023. The Resort is receiving bookings from transient customers and group sales and has hired substantially all of the initial staff needed to open the Resort.
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RESULTS OF OPERATIONS

Comparison of three months ended September 30, 2023 to three months ended September 30, 2022

Operating Revenue

Passenger revenue. For third quarter 2023, passenger revenue remained consistent compared to the same period in 2022 on relatively flat capacity, as scheduled service available seat miles (ASMs) decreased by 0.8 percent. A 10.4 percent increase in average ancillary air-related fare, excluding third party products was offset by a 6.3 percent decrease in average base fare and a 1.9% decrease in number of scheduled service passengers. The increase in average ancillary air-related fare compared to third quarter 2022 was primarily driven by overall strength in core products and the Allegiant Extra rollout.

Third party products revenue. Third party products revenue for third quarter 2023 increased 14.0 percent compared to third quarter 2022. The increase from 2022 is primarily the result of a 41.5 percent increase in the marketing component of co-branded credit card revenues, offset by a decrease in hotel and rental car revenue.

Fixed fee contract revenue. Fixed fee contract revenue for third quarter 2023 increased 11.7 percent compared to the same period in 2022 as a result of a 30 percent increase in fixed fee departures.

Operating Expenses

We primarily evaluate our expense management by comparing our costs per available seat mile (ASM) across different periods, which enables us to assess trends in each expense category. The following table presents unit costs on a per ASM basis, or CASM, for the indicated periods. Excluding fuel on a per ASM basis 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.
 Three Months Ended September 30,Percent Change
Unitized costs (in cents)20232022YoY
Aircraft fuel3.79  ¢4.68  ¢(19.0)%
Salaries and benefits3.68 3.09 19.1 
Station operations1.46 1.49 (2.0)
Depreciation and amortization1.26 1.13 11.5 
Maintenance and repairs0.80 0.72 11.1 
Sales and marketing0.64 0.58 10.3 
Aircraft lease rentals0.13 0.13 — 
Other0.65 0.67 (3.0)
Special charges, net of insurance recoveries0.74 0.79 (6.3)
CASM13.15 13.28 (1.0)
Operating CASM, excluding fuel9.36 8.60 8.8
Airline special charges CASM0.34 — NM
Sunseeker Resort CASM0.53 0.85 (37.6)
Operating CASM, excluding fuel, airline special charges and Sunseeker Resort activity8.49  ¢7.75  ¢9.5 
NM - Not meaningful

Operating CASM, excluding fuel, airline special charges, and Sunseeker Resort activity. Operating CASM, excluding fuel, airline special charges and Sunseeker Resort activity, increased by 9.5 percent to 8.49 ¢ for third quarter 2023 from 7.75 ¢ in third quarter 2022. The CASM-ex increase is attributable to an 18.7 percent increase in salaries and benefits and a 10.3% increase in sales and marketing expense in third quarter 2023 over third quarter 2022 (for the reasons described in the expense line item discussion below) with a 0.4 percent decrease in capacity as we intentionally reduced capacity growth in light of higher fuel costs and to protect operational integrity. This is reflected in the reduced utilization of our aircraft as average block hours per aircraft per day decreased by 9.4 percent in the quarter compared to third quarter 2022.

Aircraft fuel expense. Aircraft fuel expense decreased $40.3 million, or 19.4 percent, for third quarter 2023 compared to third quarter 2022. This is primarily due to a 19.7 percent decrease in average fuel cost per gallon. The decrease in fuel cost was partially offset by a 0.5 percent increase in fuel gallons consumed.

Salaries and benefits expense. Salaries and benefits expense increased $25.7 million, or 18.7 percent, for third quarter 2023 when compared to third quarter 2022. The increase is due in part to a 10.5 percent increase in the average number of full time equivalent employees from third quarter 2022, which includes newly hired Sunseeker team members. Higher salaries and
26

benefits expense was also driven by increased crew pay, including an $18.7 million accrual for pilot retention bonuses, increased rates for maintenance technicians that took effect in August 2023, and annual merit increases for team members not subject to a collective bargaining agreement.

Station operations expense. Station operations expense for third quarter 2023 decreased $1.7 million, or 2.5 percent compared to third quarter 2022, as scheduled service departures also decreased by 1.4 percent. A reduction in customer compensation for irregular operations, as compared to the same period in 2022, was offset by inflationary pressure on costs in general.

Depreciation and amortization expense. Depreciation and amortization expense for third quarter 2023 increased by 11.4 percent as compared to third quarter 2022 driven by an 11.1 percent increase in the average number of aircraft owned and in service and increased deferred heavy maintenance expense.

Maintenance and repairs expense. Maintenance and repairs expense for third quarter 2023 increased $3.3 million, or 10.3 percent, compared to third quarter 2022, as the result of a 10.2 percent increase in the average number of aircraft in service.

Sales and marketing expense. Sales and marketing expense for third quarter 2023 increased by 10.3 percent compared to the same period in 2022, primarily due to a cobrand relaunch campaign and a Sunseeker advertising campaign.

Other operating expense. Other operating expense decreased $0.9 million or 2.8 percent for third quarter 2023 compared to third quarter 2022 attributable to incremental decreases in legal affairs and crew travel expense.

Special charges. During third quarter 2023, we recorded $32.6 million of special charges including $15.2 million in accelerated depreciation from planned early retirement of 21 airframes from 2023 through 2025 pursuant to a revised fleet plan. In addition, we recognized $17.9 million in additional losses related to 2023 and 2022 weather events in third quarter 2023 as compared to $35.0 million of special charges related to Hurricane Ian recorded in third quarter 2022.

Interest Expense and Income

Interest expense for the quarter ended September 30, 2023 increased by $5.0 million, or 14.6 percent over third quarter 2022, attributable primarily to a 3.2 percentage point increase in the weighted average variable interest rate year-over-year due to increases in the indices. The increase in interest expense was partially offset by a $7.5 million increase in interest income compared to third quarter 2022, due to higher yields on investments in debt securities.

Income Tax Expense

We recorded a $4.9 million income tax benefit at an effective tax rate of 16.3 percent and a $9.7 million income tax benefit at a 17.3 percent effective tax rate for the three months ended September 30, 2023 and 2022, respectively. The effective tax rate for the three months ended September 30, 2023 differed from the statutory Federal income tax rate of 21.0 percent primarily due to state income taxes and the impact of permanent tax differences.
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Comparison of nine months ended September 30, 2023 to nine months ended September 30, 2022

As comparisons of our 2023 results to 2022 reflect changes due to the continued impact of the COVID-19 pandemic on air travel during the nine months ended September 30, 2022, and early in 2022 in particular, year-over-year comparisons below are not necessarily indicative of expected full year-over-year results.

Operating Revenue

Passenger revenue. For the nine months ended September 30, 2023, passenger revenue increased 12.4 percent compared with the same period in 2022. Scheduled service passengers were up 2.7 percent and the average scheduled service base fare increased by 8.7 percent due to stronger leisure demand. The increase in passenger revenue was also driven by a 10.3 percent increase in average ancillary air-related fare, excluding third party products. The increase in average ancillary air-related fare over the same period in 2022 was primarily driven by overall strength in core products and the Allegiant Extra rollout.

Third party products revenue. Third party products revenue for the nine months ended September 30, 2023 increased 11.0 percent over the same period in 2022. The increase from 2022 is primarily the result of increased Allways® Rewards Program revenues.

Fixed fee contract revenue. Fixed fee contract revenue for the nine months ended September 30, 2023 increased 14.2 percent compared to the same period in 2022 as a result of a 24.6 percent increase in fixed fee departures.

Operating Expenses

The following table presents unit costs on a per ASM basis, defined as Operating CASM, for the indicated periods:    
 Nine Months Ended September 30,Percent Change
Unitized costs (in cents)20232022YoY
Aircraft fuel3.67  ¢4.48  ¢(18.1)%
Salaries and benefits3.53 2.92 20.9 
Station operations1.36 1.41 (3.5)
Depreciation and amortization1.16 1.04 11.5 
Maintenance and repairs0.67 0.65 3.1 
Sales and marketing0.60 0.54 11.1 
Aircraft lease rentals0.13 0.12 8.3 
Other0.66 0.59 11.9 
Special charges, net of insurance recoveries0.14 0.25 (44.0)
CASM11.92 12.00 (0.7)
Operating CASM, excluding fuel (2)
8.25 7.52 9.7 
Airline special charges CASM0.11 — NM
Sunseeker Resort CASM0.14 0.30 (53.3)
Operating CASM, excluding fuel, airline special charges and Sunseeker Resort activity8.00  ¢7.22  ¢10.8 
NM - Not meaningful

Operating CASM, excluding fuel, airline special charges, and Sunseeker Resort activity.

Operating CASM, excluding fuel, airline special charges and Sunseeker Resort activity, increased by 10.8 percent to 8.00 ¢ for the nine months ended September 30, 2023 from 7.22 ¢ in the same period in 2022. The CASM-ex increase is attributable to an increase in non-fuel airline costs, in the first nine months of 2023 over the same period in 2022 (for the reasons described in the expense line item discussion below) with only a 0.7 percent increase in total system capacity as we intentionally reduced capacity growth to protect operational integrity. This is reflected in the reduced utilization of our aircraft as average block hours per aircraft per day decreased by 8.7 percent in the period compared to the first nine months of 2022.

Aircraft fuel expense. Aircraft fuel expense decreased $109.6 million, or 17.4 percent, for the nine months ended September 30, 2023 compared to the same period in 2022. This is primarily driven by a 19.1 percent decrease in average fuel cost per gallon. The decrease in fuel cost was partially offset by a 1.9 percent increase in fuel gallons consumed on a 0.7 percent increase in total available seat miles.

Salaries and benefits expense. Salaries and benefits expense increased $88.8 million, or 21.6 percent, for the nine months ended September 30, 2023 compared to the same period in 2022. The increase is due in part to a 10.5 percent increase in the
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average number of full time equivalent employees from the same period in 2022, which increase includes newly hired Sunseeker team members.

On a per ASM basis, salaries and benefits expense increased 20.9 percent. The cost increases primarily relate to increases in crew pay, including a $30.4 million accrual for pilot retention bonuses, increased rates for maintenance technicians that took effect in August 2023, and annual merit increases for team members not subject to a collective bargaining agreement.

Station operations expense. Station operations expense for the nine months ended September 30, 2023 decreased $6.1 million or 3.1 percent mostly due to decreased costs associated with irregular operations compared to the prior year period. Reductions in irregular operations costs were offset by inflationary pressure on costs in general.

Depreciation and amortization expense. Depreciation and amortization expense for the nine months ended September 30, 2023 increased $18.8 million or 12.9 percent as compared to the same period in 2022 due primarily to an 11.1 percent increase in the average number of aircraft owned and in service and increased amortization of deferred heavy maintenance.

Maintenance and repairs expense. Maintenance and repairs expense for the nine months ended September 30, 2023 increased by $4.4 million or 4.9 percent compared to the same period in 2022. The increase was driven by a 10.6 percent increase in average aircraft in service offset by a higher volume of repairs in the prior year period compared to the current year.

Sales and marketing expense. Sales and marketing expense for the nine months ended September 30, 2023 increased 13.0 percent compared to the same period in 2022 due to an increase in net credit card fees as a result of a 12.4 percent increase in passenger revenue year-over-year and due to a fee paid to transition our cobrand credit card to the Visa network.

Other operating expense. Other expense for the nine months ended September 30, 2023 increased by $8.6 million, or 10.4 percent year-over-year, due to incremental increases in outsourced labor and software support associated with ongoing IT initiatives, legal and governmental affairs, and crew transportation expense.

Special charges. During the nine months ended September 30, 2023, we recorded $15.2 million of special charges attributable to accelerated depreciation from the planned early retirement of 21 airframes per our revised fleet plan. In addition, we recognized $4.6 million of special charges net of recoveries related to 2023 and 2022 weather events as $18.2 million of additional special charges was offset by the recognition of $13.6 million of insurance recoveries on Sunseeker Resort damages. During the nine months ended September 30, 2022, we recorded $35.0 million of special charges related to Hurricane Ian.

Income Tax Expense

We recorded a $41.3 million income tax expense at an effective rate of 25.7 percent compared to a $10.9 million tax benefit at a 17.9 percent effective tax rate for the nine months ended September 30, 2023 and 2022, respectively. The 25.7 percent effective tax rate for the nine months ended September 30, 2023 differed from the statutory federal income tax rate of 21.0 percent primarily due to state income taxes and the impact of permanent tax differences.
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Comparative Airline-Only Operating Statistics

The following tables set forth our airline operating statistics for the periods indicated:
Three Months Ended September 30,
Percent Change (1)
20232022YoY
Airline operating statistics (unaudited):  
Total system statistics:  
Passengers 4,292,0314,359,417 (1.5)%
Available seat miles (ASMs) (thousands)4,433,7674,450,595 (0.4)
Airline operating expense per ASM (CASM) (cents)
12.62  ¢12.43  ¢1.5 
Fuel expense per ASM (cents)3.79  ¢4.68  ¢(19.0)
Airline special charges per ASM (cents)0.34  ¢—  ¢NM
Airline operating CASM, excluding fuel and special charges (cents)
8.49  ¢7.75  ¢9.5 
Departures29,25129,432 (0.6)
Block hours67,31267,277