Allegiant Travel (ALGT) reported Q1 results above consensus estimates with the support of stronger cost performance, Morgan Stanley said Monday in a research note.
The airline holding and hospitality company's cost per available seat mile, or CASM, was below 5% the brokerage's estimate and also down 15% year over year. The brokerage said this was due to some timebound items that would shift later in the year, better-than-expected non-salaried flight crew expenses and higher gains on asset sales, mitigated by flight attendant wage increases. A $20 million headwind from pilot retention bonuses also contributed to lower CASM.
Morgan Stanley noted that the Q2 guidance provided by the company is notably below the brokerage's estimate and Street consensus. "The abrupt change in demand has caused them to course correct and better align their capacity with the demand environment," the brokerage said in the note.
The company is trying to find the right price to boost demand and also the right balance between revenue and cost amid the current challenging environment, Morgan Stanley said.
Citing macro uncertainty, Allegiant Travel has withdrawn its full-year 2025 guidance. However, the airline remains confident that it will be "solidly profitable" in 2025, "even at a stabilized lower demand environment," the brokerage noted.
The company started process to explore options for its Sunseeker Resort Charlotte Harbor hotel in Southwest Florida last year. This remains a work in progress, expected to be completed in the summer this year. The resort improved to a profit during the Q1 peak season, the brokerage noted.
Morgan Stanley said the company's "story likely more show me," compared with most ultra low-cost carriers as the market awaits the final outcome on the implications of the revenue per available seat mile against cost per available seat mile, excluding fuel, and the outcome of the Sunseeker resort initiative.
Morgan Stanley lowered its price target on the company to $85 from $93, and maintained an equal-weight rating.
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