# Allegiant Travel CO (ALGT) FY 2023 MD&A

Verbatim Item 7 Management's Discussion and Analysis from Allegiant Travel CO's 10-K for fiscal year 2023.

SEC filing source: https://www.sec.gov/Archives/edgar/data/1362468/000136246824000007/algt-20231231.htm
Accession: 0001362468-24-000007
Filing date: 2024-02-29
Report date: 2023-12-31
Extracted structurally from real Item 7 body heading to real Item 7A/8 boundary.
Confidence: high

Company profile: /company/ALGT/
All MD&A years: /company/ALGT/mda/
Previous year: /company/ALGT/mda/fy2022/ (FY 2022)
Next year: /company/ALGT/mda/fy2024/ (FY 2024)

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, 2023 and 2022. Unless otherwise expressly stated, for discussion and analysis of 2022 and a comparison of our 2022 results to 2021 results, please refer to our Annual Report on Form 10-K for the year ended December 31, 2022, 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, 2023 and 2022. 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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2023 Highlights

•Total operating revenue was a company record of $2.5 billion, up 9.0 percent as compared to 2022, on a total system capacity increase of 1.9 percent.

•Full-year TRASM was 13.38 cents, a record annual TRASM, up 7.0 percent as compared to 2022 on scheduled service capacity increases of 1.7 percent.

•Average total fare was $142.15, up 5.6 percent compared to 2022, including total average ancillary revenue of $72.90, up 7.6 percent from 2022.

•Recorded highest fixed fee revenue in company history of $68.5 million.

•Extended the collective bargaining agreement for flight dispatchers through May 2026 and the collective bargaining agreement for maintenance technicians through October 2028.

•Opened Sunseeker Resort at Charlotte Harbor on December 15, 2023.

•Ranked number 3 amongst major US carriers in the Wall Street Journal's "The Best and Worst Airlines of 2023".

•Made great progress to strengthen our system and operations by:

◦Adding more than 1,300 full-time equivalent employees, including approximately 1,000 newly hired Sunseeker Resort team members

◦Investing in the systems implementations discussed in the Business section.

◦Planning to induct our new Boeing aircraft

•Acquired over 140 thousand new Allegiant co-brand credit card holders during the year, with over 485 thousand active cardholders at year end.

•Received $119.6 million in total co-brand credit card remuneration from Bank of America, up 18 percent from 2022

•Added 2.1 million Allegiant Allways Rewards® members during 2023, with more than 17 million total members at year end, a 13 percent increase over the year-end 2022 number.

•Allegiant co-brand credit card and Allegiant Allways Rewards® were voted as the No. 1 Best Airline Credit Card and No. 2 Best Frequent Flyer Program in USA Today's 10 Best 2023 Loyalty/Rewards Readers' Choice Awards. Allegiant's co-brand credit card was named the best airline co-brand credit card for the fifth consecutive year.

•Published the company's second annual ESG report, which includes five company-wide targets, including an emissions intensity reduction goal.

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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, 2023 are owned by us except as indicated in the footnotes to the table:

[[GREPCENT_TABLE]]
[["","As of December 31,"],["","2023","","2022","","2021"],["A320(1)(2)","92","","","86","","","73"],["A319(3)","34","","","35","","","35"],["Total","126","","","121","","","108"]]
[[/GREPCENT_TABLE]]

(1)Does not include one aircraft of which we have taken delivery as of December 31, 2023 and which was not in service as of that date.

(2)Includes 23 aircraft under finance lease and 13 aircraft under operating lease as of December 31, 2023, 20 aircraft under finance lease and 13 aircraft under operating lease as of December 31, 2022, and 11 aircraft under finance lease and 11 aircraft under operating lease as of December 31, 2021.

(3)Includes four aircraft under operating lease as of December 31, 2023, December 31, 2022, and December 31, 2021.

As of December 31, 2023, we are party to forward purchase agreements for 51 aircraft with 13 deliveries expected in 2024, approximately 24 in 2025 and the remainder thereafter. 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

We manage capacity and route expansion through optimization of our flight schedule to, among other things, better match demand in certain markets. We continually adjust our network through the addition of new markets and routes, adjusting the frequencies into existing markets, and exiting under-performing markets, as we seek to achieve and maintain profitability on each route we serve.

As of February 1, 2024, and including service announcements through that date, we were selling seats on 555 routes serving 124 cities in 42 states.

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

[[GREPCENT_TABLE]]
[["","As of December 31,"],["","2023","","2022","","2021"],["Leisure destinations","33","","","32","","","33"],["Origination cities","91","","","93","","","99"],["Total cities","124","","","125","","","132"],["Total routes","544","","572","","595"]]
[[/GREPCENT_TABLE]]

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TRENDS

Strong Demand Momentum

While demand has normalized since the post-pandemic period, peak period demand remains at or near all-time highs. Demand continues to compare favorably to 2019 as scheduled service load factors and total revenue per available seat mile ("TRASM") in 2023 were above 2019 and 2022 levels.

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.

The cost per gallon of fuel began to increase significantly in 2021, and the increases were exacerbated by the geopolitical impact of the war in Ukraine. Increases in refinery costs also added to our fuel cost. Although the average fuel cost per gallon declined in 2023 when compared to 2022, the average fuel cost per gallon in 2023 remained 43.7 percent higher than in 2021. We expect high fuel costs will continue to impact our total costs and operating results.

Boeing Agreement

Since December 2021, we have signed an agreement and multiple amendments with The Boeing Company to purchase 50 newly manufactured 737 MAX aircraft with options to purchase an additional 80 737MAX 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, expected fuel savings and operational reliability from the use of these new aircraft.

In the interest of increased quality control at Boeing and its suppliers, the FAA has indicated that aircraft production rates will be capped until they are fully satisfied with Boeing's quality practices. These factors could delay deliveries to us.

Union Negotiations

The collective bargaining agreement with our pilots is currently amendable and the parties have jointly requested the involvement of the National Mediation Board ("NMB") to assist with the negotiations. The mediation process with the NMB began in early 2023 and is continuing. Separately from the ongoing collective bargaining agreement negotiations, and in an attempt to begin to address pilot pay issues, effective in May 2023, we are recognizing a retention bonus for pilots who continue employment with us until a new labor agreement is approved. The amount being accrued is 35 percent of current pay for a minimum of 85 pay credit hours per month except for first year first officers for whom the percentage is 82 percent.

We are also in the process of negotiating a new contract with the union representing our flight attendants after a tentative agreement negotiated with the union was rejected by the work group.

The terms of any new collective bargaining agreement will increase our costs over the term of the contract. Until new agreements are in place, attrition and difficulty hiring sufficient personnel in the affected work groups could have an adverse effect on our operations and growth.

Pilot Scarcity

The supply of pilots necessary for airline industry growth may be a limiting factor. The ability to hire and retain pilots will be critical to our and the industry’s growth.

Network Expansion

We have identified more than 1,400 incremental routes as opportunities for future network growth, with approximately 77 percent of these additional routes having no current nonstop service. Our ability to add significant numbers of new routes has been temporarily stymied by flight crew staffing, high fuel costs, economic conditions and other factors. Once these conditions allow, we should be able to achieve meaningful growth with greater utilization of our fleet (and, in particular, during peak demand periods), and with projected growth of the fleet.

Establishment of ESG Goals

In our 2022 sustainability report, we established ESG goals in the areas of environmental, social and governance. We will be reporting annually on our progress toward meeting those goals.

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 between our markets in the United States and Mexico. We and VivaAerobus have submitted a joint application to the DOT requesting approval of and antitrust immunity for the alliance. Although the DOT process has progressed substantially, their review of our application is currently suspended pending the outcome of diplomatic

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engagement on broader treaty issues and, as a result, the timing of commencement of this service is uncertain as it will depend on when or if the DOT will ultimately approve the grant of antitrust immunity.

Sunseeker Resort

Sunseeker Resort at Charlotte Harbor opened in December 2023. Its success will depend on our ability to attract sufficient hotel occupancy through groups and transient bookings at acceptable daily rates and to profitably operate our food and beverage options.

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Our Operating Expenses

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

Aircraft fuel expense includes the cost of aircraft fuel, fuel taxes, into plane fees and airport fuel flowage, storage or through-put fees.

Salaries and benefits expense includes wages, salaries, and employee bonuses, sales commissions for in-flight personnel and Sunseeker Resort personnel, as well as expenses associated with employee benefit plans, stock compensation expense related to equity grants, and employer payroll taxes. The CARES Act employee retention tax credit was recorded as an offset to salaries and benefits expense in both 2021 and 2022.

Station operations expense includes the fees charged by airports for the use or lease of airport facilities and fees charged by third party vendors for ground handling services, commissary expenses, and other related services. Station operations expense also includes most of our irregular operations costs.

Depreciation and amortization expense includes the depreciation of all owned fixed assets, including aircraft and engines, Sunseeker Resort assets, and assets recorded in connection with finance leases. Also included is the amortization of major maintenance expenses on our aircraft and engines, which are capitalized under the deferral method of accounting and amortized as a component of depreciation and amortization expense over the estimated period until the next scheduled major maintenance event.

Maintenance and repairs expense includes all parts, materials and spares required to maintain our aircraft. Also included are fees for repairs performed by third party vendors.

Sales and marketing expense includes all advertising, promotional expenses, sponsorships, travel agent commissions, debit and credit card processing fees associated with the sale of scheduled service and air-related ancillary charges, costs related to advertising and marketing for the Sunseeker Resort, and credit card processing fees for Resort bookings.

Aircraft lease rentals expense consists of the cost of leasing aircraft under operating leases with third parties as well as the cost for sub-service which may be utilized in order to accommodate passengers in the event of operational disruption.

Other expense includes travel and training expenses for crews and ground personnel, facility lease expenses, professional fees, personal property taxes, information technology consulting, other expenses for non-airline initiatives (including Sunseeker Resort, and the now discontinued Allegiant Nonstop family entertainment centers and Teesnap), the cost of passenger liability insurance, aircraft hull insurance and all other insurance policies, excluding employee welfare insurance. Additionally, this expense includes gain and loss on disposals of aircraft and other equipment disposals, and all other administrative and operational overhead expenses not included in other line items above.

Special charges include charges taken in 2023 for accelerated retirements of 21 airframes for early retirement to coincide with planned 737 MAX aircraft deliveries. Other special charges in 2023 and the special charges in 2022 relate to the estimated loss incurred by Sunseeker from the impact of Hurricane Ian and Hurricane Idalia and subsequent insured losses. The amounts of the Sunseeker special charges are offset by amounts recovered under our insurance policies.

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RESULTS OF OPERATIONS

2023 compared to 2022

Operating Revenue

Passenger revenue. Passenger revenue increased 8.7 percent in 2023 compared with 2022 as scheduled service passengers increased by 3.1 percent on a 1.7 percent increase in departures. In addition, stronger passenger demand resulted in a 3.5 percent increase in scheduled service base fares in 2023 compared to 2022. Ancillary air-related revenues also increased by 10.9 percent in 2023 over 2022.

Third party products revenue. Third party products revenue for 2023 increased 11.5 percent over 2022. The increase was primarily the result of an increase in marketing revenue from our co-brand credit card program, offset by a 4.8 percent decrease in rental car days sold and an 11.6 percent decrease in hotel room nights sold.

Fixed fee contract revenue. Fixed fee contract revenue for 2023 increased 12.5 percent compared with 2022 as a result of a 19.8 percent increase in fixed fee departures.

Operating Expenses

The following table presents operating unit costs on a per ASM basis, defined as Operating 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. Excluding special charges and Sunseeker operating costs allows management and investors to better compare our airline unit costs with those of other airlines.

[[GREPCENT_TABLE]]
[["","Year Ended December 31,","","Percent Change"],["Unitized costs (in cents)","2023","","2022","","","","YoY"],["Aircraft fuel","3.71","\u00a2","","4.42","\u00a2","","","","(16.1)","%"],["Salaries and benefits","3.66","","","3.00","","","","","22.0"],["Station operations","1.37","","","1.39","","","","","(1.4)"],["Maintenance and repairs","0.66","","","0.64","","","","","3.1"],["Depreciation and amortization","1.19","","","1.07","","","","","11.2"],["Sales and marketing","0.61","","","0.55","","","","","10.9"],["Aircraft lease rentals","0.13","","","0.13","","","","","\u2014"],["Other","0.71","","","0.61","","","","","16.4"],["Special charges, net of insurance recoveries","0.15","","","0.19","","","","","(21.1)"],["CASM","12.19","\u00a2","","12.00","\u00a2","","","","1.6"],["Operating CASM, excluding fuel","8.49","\u00a2","","7.58","\u00a2","","","","12.0"],["Airline special charges CASM","0.19","","","\u2014","","","","","NM"],["Sunseeker Resort CASM","0.18","","","0.25","","","","","(28.0)"],["Airline operating CASM, excluding fuel and Sunseeker Resort activity","8.12","\u00a2","","7.33","\u00a2","","","","10.8"]]
[[/GREPCENT_TABLE]]

NM Not meaningful

Aircraft fuel expense. Aircraft fuel expense decreased $118.9 million, or 14.6 percent, in 2023 compared to 2022. This was primarily driven by a 17.2 percent decrease in average fuel cost per gallon offset by a 2.9 percent increase in gallons consumed on a 1.9 percent increase in ASMs.

Salaries and benefits expense. Salaries and benefits expense increased $135.4 million, or 24.5 percent, in 2023 compared to 2022. The increase is largely due to pilot retention bonuses that we began to accrue in May 2023 and other increases in crew pay, a 6.4 percent year-over-year increase in the number of full-time equivalent airline employees, and Sunseeker pre-opening expenses attributable to the hiring of more than 1,000 team members for its opening in December 2023.

Station operations expense. Station operations expense during 2023 increased $1.4 million or 0.5 percent over 2022 due to increased costs associated with airport and landing fees and a 2.1 percent increase in departures, which were offset by a decrease in costs associated with irregular operations.

Depreciation and amortization expense. Depreciation and amortization expense during 2023 increased $25.6 million or 13.0 percent including an $11.7 million increase in amortization of deferred heavy maintenance as compared to 2022 and an increase of 3.8 percent in the average number of aircraft owned and in service. Capitalized software development costs related to the

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implementations of SAP and Navitaire and the opening of Sunseeker Resort also contributed to higher depreciation and amortization expense as these assets were placed in service during the year.

Maintenance and repairs expense. Maintenance and repairs expense during 2023 increased by $6.0 million or 5.1 percent compared to 2022. This was primarily due to a 9.6 percent increase in the average number of aircraft in service.

Sales and marketing expense. Sales and marketing expense during 2023 increased 13.8 percent compared to 2022, primarily due to an increase in net credit card fees in 2023 as a result of an 8.7 percent increase in passenger revenue year-over-year, and due to a one-time fee to transition, and an associated relaunch campaign for our co-brand credit card. In addition, Sunseeker advertising in connection with the Resort opening in December 2023 contributed to the increase.

Other operating expense. Other expense increased by $20.0 million or 17.6 percent year-over-year, due in part to incremental increases in outsourced labor and software support associated with ongoing IT initiatives and flight crew training needed to support the onboarding of the Boeing fleet. Other expense also includes preopening expenses of $14.8 million related to Sunseeker Resort.

Special charges. Special charges of $28.6 million were recorded within operating expenses during 2023 compared to $34.6 million in 2022. The special charges in 2022 include estimated loss from property damage to Sunseeker Resort related to Hurricane Ian and two subsequent insurance events in 2022, offset by amounts recovered under the company's insurance policies. The special charges in 2023 are attributable to accelerated depreciation from the planned early retirement of 21 airframes per our revised fleet plan, which was offset by $6.4 million of net insurance recoveries (that is, insurance recoveries in excess of new losses related to the 2023 Hurricane Idalia and revised damages on Hurricane Ian and its related insurance events) on Sunseeker damages in 2023.

Income tax expense. We recorded a $41.5 million tax expense compared to a $2.5 million tax expense during 2023 and 2022 respectively. The effective tax rates for 2023 and 2022 differed from the statutory federal income tax rate of 21.0 percent primarily due to state income taxes and the impact of ASU 2016-09 related to share-based payments.

2022 compared to 2021

The comparison of our 2022 results to 2021 results is included in our Annual Report on Form 10-K for the year ended December 31, 2022, under Part II Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations.

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[[GREPCENT_TABLE]]
[["","For the Year Ended December 31,"],["Airline operating statistics (unaudited):","2023","","2022","","2021","","2020","","2019"],["Total system statistics:"],["Passengers","17,342,236","","","16,796,544","","","13,637,405","","","8,623,984","","","15,012,149"],["Available seat miles (ASMs) (thousands)","18,772,110","","","18,419,045","","","17,490,571","","","13,125,533","","","16,174,240"],["Airline operating expense per ASM (CASM) (cents)","12.02","\u00a2","","11.75","\u00a2","","8.21","\u00a2","","8.56","\u00a2","","9.08","\u00a2"],["Fuel expense per ASM (cents)","3.71","\u00a2","","4.42","\u00a2","","2.52","\u00a2","","1.69","\u00a2","","2.65","\u00a2"],["Airline operating CASM, excluding fuel (cents)","8.31","\u00a2","","7.33","\u00a2","","5.69","\u00a2","","6.87","\u00a2","","6.43","\u00a2"],["Departures","120,525","","","118,069","","","117,047","","","87,955","","","110,542"],["Block hours","285,453","","","278,792","","","264,628","","","196,849","","","248,513"],["Average stage length (miles)","882","","","884","","","856","","","862","","","855"],["Average number of operating aircraft during period","125.2","","","114.2","","","103.0","","","97.4","","","85.6"],["Average block hours per aircraft per day","6.2","","","6.7","","","7.0","","","5.9","","","8.0"],["Full-time equivalent employees at end of period","5,643","","","5,306","","","4,432","","","3,819","","","4,130"],["Fuel gallons consumed (thousands)","224,996","","","218,606","","","204,689","","","149,479","","","196,442"],["ASMs per gallon of fuel","83.4","","","84.3","","","85.4","","","87.8","","","82.3"],["Average fuel cost per gallon","$","3.09","","","$","3.73","","","$","2.15","","","$","1.48","","","$","2.18"],["Scheduled service statistics:"],["Passengers","17,143,870","","","16,630,138","","","13,509,544","","","8,553,623","","","14,823,267"],["Revenue passenger miles (RPMs) (thousands)","15,639,329","","","15,224,346","","","11,963,715","","","7,626,470","","","13,038,003"],["Available seat miles (ASMs) (thousands)","18,208,820","","","17,909,190","","","17,027,902","","","12,814,080","","","15,545,818"],["Load factor","85.9","%","","85.0","%","","70.3","%","","59.5","%","","83.9","%"],["Departures","116,044","","","114,066","","","113,121","","","85,276","","","105,690"],["Block hours","276,313","","","270,516","","","256,991","","","191,732","","","238,361"],["Average seats per departure","176.3","","","175.7","","","174.2","","","172.8","","","171.1"],["Yield (cents)(1)","7.59","\u00a2","","7.31","\u00a2","","6.61","\u00a2","","5.88","\u00a2","","7.00","\u00a2"],["Total passenger revenue per ASM (TRASM) (cents)(2)","13.38","\u00a2","","12.50","\u00a2","","9.78","\u00a2","","7.40","\u00a2","","11.28","\u00a2"],["Average fare - scheduled service(3)","$","69.25","","","$","66.88","","","$","58.50","","","$","52.45","","","$","61.58"],["Average fare - air-related charges(3)","$","66.33","","","$","61.67","","","$","58.33","","","$","53.02","","","$","51.96"],["Average fare - third party products","$","6.57","","","$","6.07","","","$","6.40","","","$","5.43","","","$","4.72"],["Average fare - total","$","142.15","","","$","134.62","","","$","123.24","","","$","110.91","","","$","118.26"],["Average stage length (miles)","888","","","890","","","862","","","867","","","859"],["Fuel gallons consumed (thousands)","218,129","","","212,466","","","198,891","","","145,528","","","188,596"],["Average fuel cost per gallon","$","3.09","","","$","3.72","","","$","2.13","","","$","1.48","","","$","2.18"],["Percent of sales through website during period","95.8","%","","96.0","%","","94.7","%","","93.1","%","","93.3","%"],["Other Data:"],["Rental car days sold","1,377,710","","","1,447,708","","","1,361,123","","","1,132,173","","","1,921,930"],["Hotel room nights sold","249,933","","","282,854","","","261,158","","","199,059","","","415,593"]]
[[/GREPCENT_TABLE]]

(1)Defined as scheduled service revenue divided by revenue passenger miles

(2)Various components of this measure do not have a direct correlation to ASMs. These figures are provided on a per ASM basis so as to facilitate comparisons with airlines reporting revenues on a per ASM basis.

(3)Reflects division of passenger revenue between scheduled service and air-related charges in our booking path.

The following terms used in this section and elsewhere in this annual report have the meanings indicated below:

“Available seat miles” or “ASMs” represents the number of seats available for passengers multiplied by the number of miles the seats are flown.

“Average fuel cost per gallon” represents total aircraft fuel expense for our total system divided by the total number of fuel gallons consumed in our total system.

“Average stage length” represents the average number of miles flown per flight. 

“Block hours” represents the number of hours during which the aircraft is in revenue service, measured from the time of gate departure until the time of gate arrival at the destination.

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“Load factor” represents the percentage of aircraft seating capacity utilized (revenue passenger miles divided by available seat miles).

“Airline operating expense per ASM” or “CASM” represents airline only operating expenses excluding Sunseeker divided by total system available seat miles.

“Airline operating CASM, excluding fuel” represents airline only operating expenses excluding Sunseeker, less aircraft fuel expense, divided by total system available seat miles. This statistic provides management and investors the ability to measure and monitor our airline cost performance absent fuel price volatility. Both the cost and availability of fuel are subject to many economic and political factors and therefore are beyond our control.

“Passengers” represents the total number of passengers flown on all flight segments.

“Revenue passenger miles” or “RPMs” represents the number of miles flown by revenue passengers.

“Total passenger revenue per ASM” or “TRASM” represents total passenger revenue divided by scheduled service available seat miles.

47

LIQUIDITY AND CAPITAL RESOURCES

Current liquidity

Cash, cash equivalents and investment securities (short-term and long-term) decreased to $870.7 million at December 31, 2023, from $1,018.4 million at December 31, 2022. Investment securities represent highly liquid marketable securities which are available-for-sale.

As of February 1, 2024, we have $275.0 million of undrawn capacity under revolving credit facilities plus another $25.1 million of undrawn capacity under a PDP financing facility and $215.7 million under a prearranged aircraft financing facility.

Restricted cash represents escrowed funds under fixed fee contracts, escrowed project funds and cash collateral against letters of credit required by hotel properties for guaranteed room availability, airports and certain other parties. Under our fixed fee flying contracts, we require our customers to prepay for flights to be provided by us. The prepayments are escrowed and are recorded as restricted cash with a corresponding amount reflected as air traffic liability until the flight is completed.

We suspended share repurchases and our quarterly cash dividend in first quarter 2020, as part of cash conservation efforts in response to the effects of COVID-19 on our business. In connection with our receipt of financial support under the payroll support programs, we agreed not to repurchase shares or pay cash dividends through September 30, 2022. We resumed our share repurchases in fourth quarter 2022 and have $75.7 million of unused authority at December 31, 2023.

We reinstituted a regular cash dividend in third quarter 2023 at an annual rate of $2.40 per share, payable quarterly.

We believe we have more than adequate liquidity resources through our cash, cash equivalent and short term investment balances, our undrawn capacity under existing credit facilities, operating cash flows and anticipated access to liquidity, to meet our current contractual obligations and remain in compliance with the debt covenants in our existing financing agreements for the next 12 months. We will continue to consider raising funds through debt financing to finance aircraft purchases and also on an opportunistic basis.

Debt

Our debt and finance lease obligations balance, without reduction for related issuance costs, increased from $2.12 billion as of December 31, 2022 to $2.28 billion as of December 31, 2023. During 2023, we borrowed $642.6 million including $352.1 million of fixed rate debt and $290.5 million related to pre-delivery deposits. During 2023, we made principal payments of $480.9 million, including a $150.0 million voluntary prepayment of our senior secured note maturing in 2024 and $171.5 million voluntary prepayment of debt secured by aircraft, of which $60.0 million was due in 2024. We also entered into a revolving credit facility in 2023 to borrow up to $100.0 million, which remains undrawn. Including this revolving credit facility, we had $275.0 million undrawn and available under our revolving credit facilities as of December 31, 2023.

Sources and Uses of Cash

Operating Activities. Operating cash inflows are primarily derived from providing air transportation and related ancillary products and services to customers. During 2023, our operating activities provided $423.1 million of cash compared to $303.1 million during 2022. This change was primarily attributable to a $115.1 million increase in net income compared to 2022 with offsets for changes in individual current asset and liability items.

Investing Activities. Cash used for investing activities was $721.9 million during 2023 compared to $491.4 million in 2022. During 2023, there was a $339.3 million increase in purchases of property and equipment, which includes a $245.6 million increase related to aircraft pre-delivery deposits. This increase was offset by a $51.9 million increase in proceeds from maturities of investment securities, net of purchases, and a $30.3 million increase in insurance proceeds from damages at the Sunseeker Resort.

Financing Activities. Cash provided by financing activities for 2023 was $212.9 million, compared to $33.1 million in 2022. The change was the result of a $220.8 million decrease in principal payments on long term debt and finance lease obligations and $102.3 million of cash disbursed to us from funds held in a construction loan deposit trust account during 2023, compared to $92.7 million of funds deposited into the construction deposit trust account (which are considered to be both cash proceeds from the issuance of debt and cash outflows to the deposit trust account) in 2022. The funds in the construction deposit trust account consisted of proceeds of the Sunseeker construction loan and insurance recoveries and were disbursed to us on approval of construction expenses submitted to the trustee. The increase in cash provided by these factors in 2023 was offset by a $213.9 million decrease in proceeds from the issuance of debt and finance lease obligations, net of issuance costs, and $22.1 million used to pay cash dividends in 2023, compared to none in the prior year.

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OFF-BALANCE SHEET ARRANGEMENTS, COMMITMENTS AND CONTRACTUAL OBLIGATIONS

The following table discloses aggregate information about our contractual cash obligations and off-balance sheet arrangements as of December 31, 2023 and the periods in which payments are due:

[[GREPCENT_TABLE]]
[["Contractual obligations (in thousands)","","Less than 1 year","","2-3 years","","4-5 years","","More than 5 years","","Total"],["Long-term debt obligations(1)","","$","545,598","","","$","478,024","","","$","1,059,107","","","$","143,782","","","$","2,226,511"],["Finance lease obligations","","51,408","","","102,516","","","117,016","","","336,168","","","607,108"],["Operating lease obligations","","25,912","","","37,746","","","21,686","","","42,615","","","127,959"],["Aircraft acquisition obligations(2)","","866,545","","","833,291","","","\u2014","","","\u2014","","","1,699,836"],["Total future payments under contractual obligations","","$","1,489,463","","","$","1,451,577","","","$","1,197,809","","","$","522,565","","","$","4,661,414"]]
[[/GREPCENT_TABLE]]

(1)Long-term debt obligations (including variable interest entities) include scheduled interest payments, using applicable reference rates as of December 31, 2023, and excludes debt issuance costs.

(2)Includes aircraft and engine acquisition obligations under existing purchase agreements. These amounts are not reflected on our balance sheet.

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CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The discussion and analysis of our financial condition and results of operations are based on our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amount of assets and liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities at the date of our financial statements based on events and transactions occurring during the periods reported. Note 2 to our Consolidated Financial Statements provides a detailed discussion of our significant accounting policies.

Critical accounting policies are defined as those policies that reflect significant judgments about matters that are inherently uncertain. Our actual results may differ from these estimates under different assumptions or conditions. We believe our critical accounting policies are limited to those described below. 

Allways Rewards® Credit Card Program

Under the Allegiant co-brand credit card arrangement, points are sold and consideration is received under an agreement which expires in 2031. Under this arrangement, we identified the following deliverables: travel points to be awarded (the travel component), use of our brand and access to our member lists, and certain other advertising and marketing elements (collectively the marketing component). Each of these deliverables is accounted for separately and allocation of the consideration from the agreement is determined based on the relative selling price of each deliverable. We applied a level of management judgment and estimation in determining the best estimate of selling price for each deliverable by considering multiple inputs and methods including, but not limited to, the redemption value of points awarded, discounted cash flows, brand value, volume discounts, published selling prices, number of points to be awarded and number of points expected to be redeemed.

Revenue from the travel component is deferred based on its relative selling price and is recognized into revenue when the points are redeemed by cardholders and the related service is provided. Revenue from the marketing component is considered earned in the period in which points are sold and is therefore recognized into third party products revenue in the same period.

Accounting for Long-Lived Assets

We record impairment losses on long-lived assets used in operations, consisting principally of property and equipment, when events or changes in circumstances indicate, in management’s judgment, that the assets might be impaired and the undiscounted cash flows estimated to be generated by those assets are less than the carrying amount of those assets. In making these determinations, we utilize certain assumptions, including, but not limited to: (i) estimated fair value of the assets; and (ii) estimated future cash flows expected to be generated by those assets which are based on additional assumptions such as (but not limited to) asset utilization, average fare, block hours, fuel costs, length of service the asset will be used in operations, and estimated salvage values.

In estimating the useful lives and residual values of our aircraft, we have primarily relied upon actual experience with the same or similar aircraft types, current and projected future market information, and input from other industry sources. Subsequent revisions to these estimates could be caused by changing market prices of our aircraft, changes in utilization of the aircraft, and other fleet events.

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RECENT ACCOUNTING PRONOUNCEMENTS

See related disclosure in Note 2 to our Consolidated Financial Statements.

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