Fitch Ratings has assigned a first-time Long-Term Issuer Default Rating (IDR) of 'BB-' to Allegiant Travel Company (ALGT). The Rating Outlook is Positive. Fitch has also assigned a 'BB+'/'RR2' rating to the company's first lien term loan, revolver and notes.
The ratings are supported by the company's consistently strong profitability and the flexibility of its business model. Allegiant is solely focused on the US leisure market, which has allowed it to bounce back quickly from pandemic lows. The company maintains a low-cost structure, which allows it to stimulate demand with low ticket prices while maintaining profitability, supported by ancillary revenues such as bag fees and sales of third-party travel products. The company's route network focuses on serving vacation travellers in smaller markets, and the routes often face no direct competition, which Fitch says it views as a key strategic advantage. Fitch's primary credit concerns include continued uncertainty around air travel volumes related to COVID. The rise in Delta variant cases and possibility of other variants heightens this concern. The company's investment in its Sunseeker resort also represents a near-term risk.
Fitch believes Allegiant is well positioned to achieve an EBITDA margins in the mid to upper teens in 2021, trending in the high 20s over the forecast. Fitch expects ALGT's margins to lead the North American industry, driven by its leisure focus and its low-cost structure. ALGT's passenger traffic relative to 2019 levels is well ahead of most airline competitors, driving a solid rebound in top-line revenues. On the cost side, the company maintained CASM-ex fuel and special charges of under 7 cents coming out of the pandemic, nearly 60% less than its larger peers. ALGT has historically generated margins among the highest of any airline globally. Fitch expects solid margin performance to remain a differentiating factor that supports the rating.
Fitch expects Allegiant to return to normalized Adjusted Debt to EBITDAR levels of around 2.8x by YE 2022, following the robust rebound in leisure and domestic travel. As of July 2021, the company held a total of $1.57 billion in secure and unsecured debt on its balance sheet.
The company has $1.57 billion of fixed and variable debt, with the inclusion of financing lease arrangements for certain aircraft purchases. As of July 2021, 34 A320s, 26 A319s, and 16 engines secured $854 million in first lien debt and finance lease obligations. Additional material debt includes the company's $538 million balance on its senior secured term loan and $150 million senior secured notes, both due 2024. Furthermore, the company issued $24.7 million of unsecured notes provided by PSP, which mature in 2030.