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How Should You Play ALGT Stock Post FY25 Capacity Forecast Cut?
ALGTAllegiant Travel(ALGT) ZACKS·2025-03-19 16:00

Core Viewpoint - Allegiant Travel Company (ALGT) has reduced its capacity growth forecast for 2025 due to weak leisure demand during off-peak periods, now expecting a 13% year-over-year growth compared to the previously estimated 17% [1] Group 1: Capacity and Demand - ALGT's management anticipates a decline of just over 7% in total unit revenues (TRASM) for Q1 2025 compared to Q1 2024 due to softness in leisure air travel demand [2] - Despite the weak leisure travel demand, ALGT carried approximately 1.28 million passengers in February, marking a 2.9% year-over-year increase [4] - Scheduled traffic increased by 4.7% from February 2024 levels, while capacity for scheduled service rose by 10.7% year over year [5] Group 2: Financial Performance - ALGT has improved its cost performance, tightening its March quarter earnings guidance to approximately 1.50pershare,downfromapreviousrangeof1.50 per share, down from a previous range of 1.50-1.75pershare[3]−Totaldeparturesforscheduledservicesincreasedby9.71.75 per share [3] - Total departures for scheduled services increased by 9.7% in February 2025 compared to the previous year, with overall capacity rising by 10.6% [6] Group 3: Expansion and Fleet Modernization - To address the strong air travel demand, ALGT is expanding its network by adding 44 new nonstop routes, including routes to Gulf Shores, Alabama, Colorado Springs, Colorado, and Columbia, South Carolina [11] - The fleet size has grown from 91 at the end of 2019 to 125 by the end of 2024, reflecting ongoing modernization efforts [12] Group 4: Valuation and Market Position - ALGT is considered undervalued with a forward price-to-sales (P/S) ratio of 0.33, significantly lower than industry averages and its five-year average [13] - Despite the positive outlook, rising operating expenses, particularly a 19% year-over-year increase in labor costs in 2024, pose challenges [14][15] Group 5: Debt Concerns - The company's long-term debt reached 1.25 billion by the end of 2025, a 29% increase from 2019 levels, raising concerns about financial stability [16]