Allegiant Travel CO (ALGT)

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 six months ended June 30, 2026 and 2025. Also discussed is our financial position as of June 30, 2026 and December 31, 2025. 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, 2025. 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.

Second Quarter 2026 Highlights

Second quarter 2026 highlights include the following. Note that second quarter consolidated results include Sun Country operations only from and after the May 13, 2026 closing date of the transaction until the period end on June 30, 2026 (the "stub period").

•On May 13, 2026, we completed the acquisition of Sun Country just four months after announcing the transaction.

•Consolidated total operating revenue of $943.5 million

•Record Allegiant Air revenue of $776.2 million, up 16.1 percent year over year on 6.8 percent less capacity compared to the prior year quarter

•Allegiant Air quarterly TRASM record of 14.42 ¢, up 24.6 percent year over year

•Consolidated third-party products revenue of $45.8 million

◦Allegiant Air third-party products revenue of $44.5 million, up 32.2 percent year over year driven by cobrand remuneration

•Available seat miles per gallon of fuel of 86.2

•Allegiant Air available seat miles per gallon of fuel of 85.4, up 0.8 percent year over year

•$41.2 million in total Allegiant Air cobrand credit card remuneration received, up 23.6 percent year over year

•Received proceeds of $874.7 million from debt financings during the quarter

◦Issued $650.0 million Senior Secured Notes due 2031 and used the proceeds to refinance $377.5 million of our Senior Secured Notes due 2027.

◦Received proceeds of $224.7 million from debt secured by aircraft and aircraft related assets

Subsequent Events

•In July, entered a 12-month exclusive distribution agreement with Expedia Group, Allegiant's first-ever authorized online travel agency ("OTA") partner, bringing the company's nonstop network to all of Expedia Group's U.S. brands and expanding reach to new leisure customers

•In July, announced enhancements to the onboard experience, including complimentary inflight beverage service on all Allegiant flights beginning August 1, 2026, and Allegiant First, a new premium seating tier scheduled to debut on select aircraft in spring 2027

•On July 31, a new collective bargaining agreement with the International Brotherhood of Teamsters representing the Allegiant pilots was ratified with nearly 80 percent of votes in favor

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AIRCRAFT

The following table sets forth the aircraft in service and operated by us as of the dates indicated:

(1)Includes 23 aircraft under finance lease and 9 aircraft under operating lease as of June 30, 2026 and December 31, 2025. Excludes one aircraft under operating lease as of June 30, 2026 and three aircraft under operating lease as of December 31, 2025, which were removed from service pending redelivery.

(2)Excludes three aircraft under operating lease that were removed from service pending redelivery as of December 31, 2025.

(3)Includes 12 aircraft under finance lease as of June 30, 2026.

(4)Includes one aircraft under finance lease as of June 30, 2026.

As of June 30, 2026, we are party to forward purchase agreements for 30 aircraft with deliveries expected between 2026 and 2028.

Due to the heavy maintenance needs on certain aging Airbus airframes and capacity constraints at the maintenance, repair, and overhaul contractors, we identified 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 in September 2023. As of June 30, 2026, 17 airframes have been retired, with seven additional retirements scheduled between July 2026 and January 2027. The accelerated depreciation resulting from the revised estimated useful life of these aircraft is recorded as a special charge in the consolidated financial statements, including $1.3 million recognized in second quarter 2026. The engines from these aircraft will be retained for future overhaul cost mitigation and may be sold on an opportunistic basis if we determine the engine has no better economic use in our operating fleet.

NETWORK

As of June 30, 2026, and with the Sun Country acquisition, we were selling 675 routes versus 579 as of the same date in 2025. Network growth in the future will continue to be affected by high fuel prices, the timing of aircraft deliveries, aircraft in heavy maintenance, crew availability, airport construction and disruption, trends in domestic, leisure air travel demand and other factors such as macroeconomic conditions and geopolitical unrest. We have identified over 1,400 incremental domestic nonstop routes as opportunities for future network growth, of which over 75 percent currently have no non-stop service. The Allegiant Air network included 90 origination cities and 34 leisure destinations, as of June 30, 2026.

Sun Country's largest and primary base is Minneapolis-Saint Paul International Airport ("MSP"), where it is the largest low-cost carrier and the second largest airline overall. Our MSP network served approximately 96 markets as of June 30, 2026. As of that date, Sun Country also served approximately 17 non-MSP markets and was selling a total of 109 routes.

TRENDS

Acquisition of Sun Country Airlines

In May 2026, we closed on our agreement to acquire Sun Country. We believe the transaction aligns with our long-term strategic objectives and is expected to enhance our network breadth, operational flexibility, and ability to respond to demand shifts, while supporting the passenger and cargo operations of both airlines. The acquisition of Sun Country involves the integration of Sun Country’s business with our existing business, which is a complex, costly, and time-consuming process. Integration of the two companies is underway.

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Both companies continue to operate as separate airlines under FAA rules. We have applied with the FAA for a single operating certificate which we currently expect will be obtained in 2028. Our ability to combine operations will be limited until we receive a single operating certificate and there are joint collective bargaining agreements in place with the various unionized work groups.

Aircraft Fuel

The cost of fuel, including refining costs and applicable crack spreads, remains volatile, and is influenced by numerous economic and geopolitical factors beyond our control or prediction, including geopolitical conflict and war. The recent escalation of hostilities in the Middle East has significantly impacted the market prices of products that are derived from crude oil. Our second quarter fuel expense was $307.7 million or $4.14 per gallon, which is 71.1 percent higher than the $2.42 per gallon we paid in second quarter 2025. As hostilities and uncertainty continue in the Middle East, we may continue to see significant increases in fuel costs that will materially impact our overall cost structure, operating results and profitability. We have not used financial derivative products to hedge against fuel price volatility, nor do we have any plans to do so in the future.

Demand Environment

Although air travel demand in the first half of 2026 has been strong, demand could be impacted in the future by macroeconomic, geopolitical, and airline industry events as it has in the past. During 2026, we strategically reduced off-peak day of week capacity and, in turn, increased peak day ASMs on fewer total aircraft year-over year. For Allegiant Air, this contributed to a 4.0 percentage point increase in load factor on a 6.2 percent decrease in scheduled service capacity in second quarter 2026. Our unique model is predicated around expanding and contracting capacity to meet seasonal leisure travel demands. We expect to continue to manage our peak period utilization as the demand environment allows.

Commercial Initiatives

In July 2026, we entered into a 12-month exclusive distribution agreement with Expedia Group to be Allegiant Air's first-ever authorized online travel agency ("OTA") partner, bringing our nonstop network to all of Expedia Group's U.S. brands and expanding reach to new leisure customers. Early results are promising, comprising of approximately 3% of bookings since the launch, with meaningfully more than half of those bookings from net new customers.

We have also announced enhancements to our onboard experience. Beginning August 1, 2026, all Allegiant Air flights will include a complimentary inflight beverage service. We have also announced Allegiant First, a new premium seating tier scheduled to debut on future MAX deliveries, with service expected to begin in spring 2027. The introduction of Allegiant First will feature a redesigned and enhanced cabin with eight new Allegiant First seats with minimal impact to seating capacity. The new seating to be included on these future deliveries will feature improved seat cushions and in-seat power in all cabins.

Boeing Agreement

We have signed an agreement and amendments with Boeing to purchase 50 newly manufactured 737 MAX aircraft with options to purchase up to an additional 80 737 MAX aircraft. We have taken delivery of 20 737 MAX aircraft from this order through June 30, 2026, and all of these aircraft are currently in revenue service. 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, and expected fuel savings and operational reliability from the use of these new aircraft. Our 737 MAX aircraft represented approximately 21% of our ASMs in second quarter 2026 as compared to 11% during the same period 2025.

We currently expect seven aircraft to be delivered to us in the last six months of 2026 with the remaining aircraft under contract to be delivered in 2027 and 2028. Delays in aircraft deliveries could impact our ability to schedule additional growth when the demand environment allows.

Union Negotiations

The Allegiant Air pilots, who are represented by the International Brotherhood of Teamsters (“IBT”), ratified a new collective bargaining agreement on July 31, 2026. Among other new and modified terms, that new agreement provides for increased compensation and enhanced benefits to the Allegiant Air pilot group and contains improvements to the scheduling process for the Company. In addition, pursuant to the terms of that agreement, the pilot retention bonuses we have accrued will be payable no later than fourth quarter 2026.

In 2026, the collective bargaining agreement between Allegiant Air and its air dispatchers represented by the IBT became amendable under the Railway Labor Act (“RLA”). The parties are engaged in negot

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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, 2025 and 2024. Unless otherwise expressly stated, for discussion and analysis of 2024 and a comparison of our 2024 results to 2023 results, please refer to our Annual Report on Form 10-K for the year ended December 31, 2024, under Part II Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations. Also discussed is our financial position as of December 31, 2025 and 2024. Investors 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 “Disclosure Regarding Forward-Looking Statements” at the beginning of this annual report on Form 10-K for a discussion of the uncertainties, risks and assumptions associated with these statements.

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2025 Highlights

•In January 2026, announced a definitive merger agreement under which Allegiant plans to acquire Sun Country Airlines

•Record total airline-only operating revenue of $2.5 billion, up 4.3 percent year-over-year

•Achieved controllable completion of 99.9% for the year

•Airline-only operating CASM, excluding fuel and special charges of 8.04 cents, down 6.1 percent as compared with full-year 2024, on capacity growth of 12.6 percent

•During the year, expanded the network by announcing 54 new routes, including service to eight new cities:

Atlantic City (NJ), Burbank (CA), Columbia (MO), Fort Myers (FL), Huntsville (AL), La Crosse (WI), Philadelphia (PA), and Trenton (NJ)

•Ranked 2nd best airline among major US carriers in the Wall Street Journal's "The Best and Worst Airlines of 2025"

•The only US Airline named by Newsweek as one of America's Most Loved Brands 2025

•Named Best Airline Credit Card by USA TODAY's Readers' Choice Awards for the seventh consecutive year and Best Frequent Flyer Program by USA TODAY's Readers' Choice Awards for the second consecutive year

•$139.6 million in total co-brand credit card remuneration received from Bank of America, up 3.6 percent from the prior year

•Ended the year with 21 million total active Allways Rewards members

•Completed the sale of Sunseeker Resort on September 4, 2025

•Published the company's fourth annual sustainability report

AIRCRAFT

Operating Fleet

The following table sets forth the number and type of aircraft in service and operated by us as of the dates indicated. All of the aircraft in our fleet as of December 31, 2025 are owned by us except as indicated in the footnotes to the table:

(1)Includes 23 aircraft under finance lease and 9 aircraft under operating lease as of December 31, 2025, and 23 aircraft under finance lease and 13 aircraft under operating lease as of December 31, 2024 and December 31, 2023. As of December 31, 2025, excludes three aircraft under operating lease which have been removed from service pending redelivery.

(2)As of December 31, 2025, excludes three aircraft under operating lease which have been removed from service pending redelivery. Includes four aircraft under operating lease as of December 31, 2024, and December 31, 2023.

As of December 31, 2025, we are party to forward purchase agreements for 34 aircraft with 11 deliveries expected in 2026, 15 in 2027, and the remainder in 2028. The timing of these deliveries is based on management's best estimates and differs from the contract in place. Refer to Part I - Item 2. Properties for further detail regarding our aircraft fleet.

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NETWORK

As of February 1, 2026, and including service announcements through that date, we were selling travel on 578 routes to 126 cities in 42 states. These include 39 routes scheduled to begin service in 2026.

Network growth in the future will continue to be affected by timing of aircraft deliveries, aircraft in heavy maintenance, airport construction and disruptions, trends in domestic, leisure air travel demand and other factors. We have identified over 1,400 incremental domestic nonstop routes as opportunities for future network growth, of which over 75 percent currently have no nonstop service. Our total number of origination cities and leisure destinations were 91 and 35, respectively, as of February 1, 2026, including announced routes.

Our unique model is predicated on expanding and contracting capacity to meet seasonal leisure travel demands.

The following table shows the number of leisure destinations and cities served as of the dates indicated (includes cities served seasonally):

TRENDS

Proposed Acquisition of Sun Country Airlines

In January 2026, we entered into an agreement to acquire Sun Country subject to satisfaction of customary closing conditions, including each company's receipt of certain shareholder approvals and regulatory reviews and approvals. See Item 1. Business - "Announced Acquisition of Sun Country Airlines." We believe the proposed transaction aligns with our long-term strategic objectives and is expected to enhance our network breadth, operational flexibility, and ability to respond to demand shifts, while supporting scheduled service, charter and cargo operations of both airlines. We believe the combination of our two financially strong leisure carriers in the U.S. will create benefits for customers, communities, employees, and partners by enhancing stability, expanding opportunities, and enabling continued investment and innovation. There are several risks associated with whether or not the transaction will close and also with respect to future operations if the transaction does close. See Item 1A. Risk Factors - "Risks Related to our Proposed Acquisition of Sun Country Airlines Holdings, Inc.” Future results of operations will be affected by the timing of regulatory approvals, integration considerations, transaction costs and other factors.

Business and Macroeconomic Conditions

Consumer confidence vacillated during 2025, which along with other macroeconomic and airline industry events, initially contributed to a general decline in consumer spending and, in particular, softened demand for domestic, leisure air travel. Although demand fluctuates, macroeconomic uncertainty persists, driven by factors such as trade policies and tariffs. These factors have impacted our fares, load factors, and profitability. Our results of operations may continue to be impacted while these conditions persist. We continue to monitor how these factors could impact our business and take steps to mitigate their effect on our business.

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.

Elevated fuel costs in the future may impact our overall cost structure and operating results.

Boeing Agreement

We have signed an agreement and amendments with Boeing to purchase 50 newly manufactured 737 MAX aircraft with options to purchase up to an additional 80 737 MAX aircraft. We have taken delivery of 16 MAX aircraft from this order and all 16 aircraft are currently in revenue service. 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, and expected fuel savings and operational reliability from the use of these new aircraft.

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There continues to be regulatory focus on increasing quality control standards at Boeing and its suppliers with the aim of stabilizing aircraft production. These factors and the requirements for Boeing to obtain routine and necessary regulatory approvals could delay deliveries to us beyond management's current expectations. Although the contract provides for more deliveries, at this time, we currently expect eleven aircraft to be delivered to us in 2026. Further delays in aircraft deliveries will impact our ability to schedule additional growth in late 2026 and beyond.

Union Negotiations

The collective bargaining agreement with our pilots has been amendable since 2021. We and the International Brotherhood of Teamsters ("IBT") jointly requested the mediation services of the National Mediation Board in January 2023 to assist with the negotiations. The mediation process with the NMB is continuing. At this time, the announced acquisition of Sun Country has not changed the mediation process.

Separately from the ongoing collective bargaining agreement negotiations, to address retention and pilot pay issues and increase pilot staffing levels, effective in May 2023, we began accruing a retention bonus, with IBT's agreement, for pilots who continue employment with us until a new labor agreement is approved. The amount being accrued is 35 percent of current hourly pay rates, except for our first year first officers for whom the percentage is 82 percent, in each case, calculated at a minimum of 85 pay credit hours per month. Our implementation of the retention bonus has allowed us to effectively increase pay rates for our pilot team members (by way of the accrual of the retention bonus), add pilots through hiring and significantly slow attrition.

For the year ended December 31, 2025, we recorded estimated pilot retention bonus accruals of $89.8 million bringing the total accrual to $235.9 million at year end, including the related payroll taxes. The bonus will be paid to all pilots remaining employed with us after ratification of a new collective bargaining agreement.

Network Expansion

We have identified more than 1,400 incremental routes as opportunities for future network growth, with approximately 75 percent of these additional routes having no current nonstop service. Our ability to add significant numbers of new routes has been constrained in recent years by aircraft availability, flight crew staffing, high fuel costs, economic conditions and other factors. During 2026, we expect to continue focusing on the strategic utilization of our fleet, particularly during peak demand periods with only minimal scheduled service growth expected at this time. We anticipate that projected fleet growth after 2026 will provide additional flexibility to pursue network expansion opportunities.

Sunseeker Resort

In September 2025, we completed the sale of Sunseeker Resort. The sale aligns with our strategic focus on our core Airline operations.

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Our Operating Expenses

A brief description of the items included in our operating expense line items follows.

Salaries and benefits expense includes wages, salaries, employee bonuses and pilot retention bonus accruals, as well as expenses associated with employee benefit plans, stock compensation expense related to equity grants, and employer payroll taxes. Salaries and benefits expense also includes such costs for Sunseeker Resort personnel through the sale of the Resort in September 2025.

Aircraft fuel expense includes the cost of aircraft fuel, fuel taxes, into plane fees and airport fuel flowage, stora

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