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(Mark One)

For the transition period from _______ to_______

Commission File Number 001-33166

(Exact Name of Registrant as Specified in Its Charter)

Registrant’s Telephone Number, Including Area Code: (702) 851-7300

Securities registered pursuant to Section 12(b) of the Act:

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of July 21, 2023, the registrant had 18,447,113 shares of common stock, $0.001 par value per share, outstanding.

 

 (unaudited)

 

The accompanying unaudited consolidated financial statements include the accounts of Allegiant Travel Company (the “Company”) and its majority-owned operating subsidiaries. The Company's investments in unconsolidated affiliates, which are 50 percent or less owned, are accounted for under the equity or cost method, and are insignificant to the consolidated financial statements. All intercompany balances and transactions have been eliminated.

These unaudited consolidated financial statements reflect all normal recurring adjustments which management believes are necessary to present fairly the financial position, results of operations, and cash flows of the Company for the respective periods presented. Certain information and footnote disclosures normally included in the annual consolidated financial statements prepared in accordance with U.S. generally accepted accounting principles ("U.S. GAAP") have been omitted pursuant to the rules and regulations of the Securities and Exchange Commission for Form 10-Q. These unaudited interim consolidated financial statements should be read in conjunction with the audited consolidated financial statements of the Company and notes thereto included in the annual report of the Company on Form 10-K for the year ended December 31, 2022 and filed with the Securities and Exchange Commission.

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities, at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results may differ from these estimates.

The Company has reclassified certain prior period amounts to conform to the current period presentation.

As a result of Hurricane Ian's direct hit on the southwest coast of Florida on September 28, 2022, the construction site of Sunseeker Resort at Charlotte Harbor (the "Resort" or "Sunseeker Resort") was damaged. Additionally in the fourth quarter of 2022, there was another weather-related event and a fire that caused additional damage. Based on the Company’s assessment of these damages and the anticipated future restoration costs, an estimated loss of $52.1 million was recorded as a special charge in 2022, which was offset by $18.1 million of recorded insurance recoveries during 2022.

During the quarter ended June 30, 2023, the Company recorded $11.3 million of insurance recoveries. The recoveries are offset by $0.1 million of additional losses recorded during the quarter, resulting in a special charge of $(11.2) million. To date, the Company has recorded insurance recoveries of $31.2 million related to Hurricane Ian and subsequent insurance events.

Passenger revenue is the most significant category in the Company's reported operating revenues, as outlined below:

Sales of passenger tickets not yet flown are recorded in air traffic liability. Passenger revenue is recognized when the underlying service is provided. As of June 30, 2023, the air traffic liability balance was $411.1 million, of which approximately $357.4 million was related to forward bookings, with the remaining $53.7 million related to credit vouchers for future travel.

The normal contract term of passenger tickets is 12 months and passenger revenue associated with future travel will principally be recognized within this time frame. Of the $379.5 million that was recorded in the air traffic liability balance as of December 31, 2022, approximately 85.3 percent was recognized into passenger revenue during the six months ended June 30, 2023.

In 2020, the Company announced that credit vouchers issued for canceled travel beginning in January 2020 would have an extended expiration date of two years from the original booking date. This policy continued for vouchers issued through June 30, 2021. Effective July 1, 2021, vouchers issued have an expiration date of one year from the original booking date.

The Company periodically evaluates the estimated amount of credit vouchers expected to expire unused and any adjustment is removed from air traffic liability and included in passenger revenue in the period in which the evaluation is complete. Estimates of passenger revenue to be recognized from air traffic liability for credit voucher breakage may be subject to variability and differ from historical experience due to the change in contract duration and uncertainty regarding demand for future air travel.

In relation to the travel component of the Allways® Allegiant co-branded credit card contract with Bank of America, the Company has a performance obligation to provide cardholders with points to be used for future travel award redemptions. Therefore, consideration received from Bank of America related to the travel component is deferred based on its relative selling price and is recognized into passenger revenue when the points are redeemed and the underlying service is provided. Similarly, in relation to the Allways Rewards program, points earned through the program are deferred based on the stand-alone selling price and recognized into passenger revenue when the points are redeemed and the underlying service is provided.

The following table presents the activity of the point liability for the periods indicated:

The current portion of the loyalty program liability represents the estimate of revenue to be recognized in the next 12 months based on historical trends, with the remaining balance reflected in noncurrent liabilities expected to be recognized into revenue in periods thereafter.

The following table summarizes the Company's property and equipment as of the dates indicated:

Accrued capital expenditures as of June 30, 2023 and December 31, 2022 were $61.9 million and $54.6 million, respectively.

The following table summarizes the Company's long-term debt and finance lease obligations, net of related costs, as of the dates indicated:

Maturities of long term debt as of June 30, 2023, for the next five years and thereafter, in the aggregate, are:

In February 2023, the Company, through a wholly owned subsidiary, entered into a credit agreement with Credit Agricole Corporate and Investment Bank, under which the Company is entitled to borrow up to $100.0 million. This revolving credit facility replaced a revolving credit facility with the same lender which was to expire in March 2023. The revolving credit facility has a maturity date of March 31, 2026 and the borrowing ability is based on the value of aircraft and engines placed into the collateral pool. The notes under the facility bear interest at a floating rate based on SOFR. As of June 30, 2023, the facility remains undrawn.

During the six months ended June 30, 2023, the Company received $88.5 million in advances on a pre-delivery payment (PDP) credit facility secured by the Company's Boeing aircraft purchase rights. The notes under the facility bear interest at a floating interest rate based on SOFR and mature on December 31, 2024.

In February 2023, the Company, through a wholly owned subsidiary, entered into agreements with a trust to borrow $27.0 million secured by one Airbus A320 series aircraft. The trust was funded on inception. The borrowing bears interest at a rate of 2.92 percent and is payable in monthly installments through February 2029, at which time the Company will have a purchase option at a fixed amount.

In May 2023, the Company borrowed $92.7 million under a loan agreement secured by six Airbus A320 series aircraft. The notes bear interest at a fixed rate, payable in quarterly installments maturing in May 2028.

In June 2023, the Company made a $61.0 million prepayment to extinguish an aircraft-secured debt facility. The facility bore interest at a floating rate and had a maturity date of June 2024.

The Company recorded a $27.9 million income tax expense at an effective tax rate of 24.0 percent and a $1.5 million income tax expense at a 25.3 percent effective tax rate for the three months ended June 30, 2023 and 2022, respectively. The effective tax rate for the three months ended June 30, 2023 differed from the statutory Federal income tax rate of 21.0 percent primarily due to state income taxes and the impact of permanent tax differences. While the Company expects its effective tax rate to be fairly consistent in the near term, it will vary depending on recurring items such as the amount of income earned in each state and the state tax rate applicable to such income. Discrete items during interim periods may also affect the Company's tax rates.

The Company recorded a $46.1 million income tax expense at an effective tax rate of 24.2 percent and a $1.2 million income tax benefit at a 25.6 percent effective tax rate for the six months ended June 30, 2023 and 2022, respectively. The effective tax rate for the six months ended June 30, 2023 differed from the statutory Federal income tax rate of 21.0 percent primarily due to state income taxes and the impact of permanent tax differences, none of which are individually significant.

The Company utilizes the market approach to measure the fair value of its financial assets. The market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets. The assets classified as Level 2 primarily utilize quoted market prices or alternative pricing sources including transactions involving identical or comparable assets and models utilizing market observable inputs for valuation of these securities. No changes in valuation techniques or inputs occurred during the six months ended June 30, 2023.

Financial instruments measured at fair value on a recurring basis:

None of the Company's debt is publicly held and as a result, the Company has determined the estimated fair value of these notes to be Level 3. Certain inputs used to determine fair value are unobservable and, therefore, could be sensitive to changes in inputs. The Company utilizes the discounted cash flow method to estimate the fair value of Level 3 debt.

Carrying value and estimated fair value of long-term debt, excluding finance leases, including current maturities and without reduction for related costs, are as follows:

Due to their short-term nature, the carrying amounts of cash, restricted cash, accounts receivable and accounts payable approximate fair value.

Basic and diluted earnings (loss) per share are computed pursuant to the two-class method. Under this method, the Company attributes net income (loss) to two classes: common stock and unvested restricted stock. Unvested restricted stock awards granted to employees under the Company’s Long-Term Incentive Plan are considered participating securities as they receive non-forfeitable rights to cash dividends at the same rate as common stock.

Diluted net income per share is calculated using the more dilutive of the two methods. Under both methods, the exercise of employee stock options is assumed using the treasury stock method. The assumption of vesting of restricted stock, however, differs:

1.Assume vesting of restricted stock using the treasury stock method.

2.Assume unvested restricted stock awards are not vested, and allocate earnings to common shares and unvested restricted stock awards using the two-class method.

For the six months ended June 30, 2022, basic and diluted loss per share are the same because of the loss position.

The following table sets forth the computation of net income (loss) per share, on a basic and diluted basis, for the periods indicated (share count and dollar amounts other than per-share amounts in the table are in thousands):

The Company is subject to certain legal and administrative actions it considers routine to its business activities. The Company believes the ultimate outcome of any potential and pending legal or administrative matters will not have a material adverse impact on its financial position, liquidity or results of operations.

Operating segments are components of a company for which separate financial and operating information is regularly evaluated and reported to the Chief Operating Decision Maker ("CODM"), and is used to allocate resources and analyze performance. The Company's CODM is the executive leadership team, which reviews information about the Company's two operating segments: Airline and Sunseeker Resort.

The Airline segment operates as a single business unit and includes all scheduled service air transportation, ancillary air-related products and services, third party products and services, fixed fee contract air transportation and other airline-related revenue. The CODM evaluation includes, but is not limited to, route and flight profitability data, ancillary and third party product and service offering statistics, and fixed fee contract information when making resource allocation decisions with the goal of optimizing consolidated financial results.

The Sunseeker Resort segment represents activity related to the development and construction of Sunseeker Resort in Southwest Florida, as well as the renovation of Aileron Golf Course (formerly known as Kingsway Golf Course). Plans for the resort include a 500-room hotel and two towers offering more than 180 one, two and three-bedroom suites, bar and restaurant options, and other amenities. The golf course is a short drive from the resort and is considered, from a planning and strategic perspective, to be an additional resort amenity. The construction of Sunseeker Resort is an extension of the Company's leisure travel focus and it is expected that many customers flying to Southwest Florida on Allegiant will elect to stay at this resort and enjoy its amenities.

Selected information for the Company's segments and the reconciliation to the consolidated financial statement amounts are as follows:

(1) Excludes losses (net of gains) on debt extinguishment of $242 thousand and $206 thousand for quarter-to-date and year-to-date 2023 respectively. There were no losses on debt extinguishment for the corresponding periods in 2022.

Total assets were as follows as of the dates indicated:

(in thousands)			As of June 30, 2023						As of December 31, 2022
Airline			$	4,226,140					$	4,047,134
Sunseeker Resort			603,406						464,163
Consolidated			$	4,829,546					$	4,511,297

On August 2, 2023, the Company announced that it declared an annual cash dividend in the amount of $2.40 per share, payable $0.60 per quarter with the first dividend to be paid September 1, 2023 to shareholders of record on August 15, 2023.

•Earnings per share of $4.80

•Operating income of $133.4 million, yielding an operating margin of 19.5 percent

•Total operating revenue was $683.8 million, up 8.6 percent over the prior year and the highest quarterly total in company history

•Total fixed fee contracts revenue of $11.7 million, up 31.6 percent year-over-year

•TRASM (total passenger revenue per scheduled service available seat mile) of 13.64 cents, up 7.5 percent year-over-year on scheduled service capacity increase of 0.7 percent year-over-year

•Total average fare of $142.31, up 8.1 percent year-over-year

•Total average ancillary fare of $71.75, up 8.6 percent year-over-year

•Controllable completion of 99.7 percent for the quarter, among the highest in the industry

•Surpassed 600 thousand Allways rewards credit card holders during the quarter

•Received $29.0 million in remuneration from our co-branded credit card during the quarter

•Transitioning our co-brand credit card network from Mastercard to Visa

•Allways Rewards program enrolled 570 thousand new members during the quarter, bringing total members to 16.5 million

•Airline-only Operating CASM, excluding fuel, of 7.79 cents, up 12.9 percent year-over-year

•Allegiant flight dispatchers ratified contract with International Brotherhood of Teamsters, extending the contract through May 31, 2026

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

(1)Does not include one and five aircraft of which we have taken delivery as of June 30, 2023 and December 31, 2022 respectively, but was not yet in service as of that date.

As of June 30, 2023, we are party to forward purchase agreements for 52 aircraft. We currently expect three deliveries in 2023, 25 in 2024 and 24 thereafter.

As of June 30, 2023, we were selling 555 routes versus 610 as of the same date in 2022. As discussed below, growth in overall capacity and the number of routes served have been reduced as a result of efforts to balance the demand environment and prevailing fuel prices with system wide operational reliability. We expect route count to remain below 2022 levels throughout the year as we focus on our core markets during our busiest travel periods. We have identified 1,400 incremental nonstop routes as opportunities for future network growth, of which over 80% currently have no current non-stop service. Our total active number of origination cities and leisure destinations were 91 and 33, respectively, as of June 30, 2023.

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

As concerns over COVID-19 have declined, we have seen significant increases in leisure demand as evidenced by higher load factors and total average fare per passenger beginning in March 2022, and continuing to date.

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.

Average fuel cost per gallon decreased by 37.7 percent in second quarter 2023 compared to second quarter 2022. Fuel prices reached a peak in second quarter 2022, due in part to the geopolitical impact of the war in Ukraine, and have declined since that time as we have seen refinery costs decline by approximately 30 percent year over year. Fuel costs remain significantly higher than periods prior to 2022. We expect high fuel costs will continue to impact our total costs and operating results.

In December 2021, we signed an agreement with The Boeing Company to purchase 50 newly manufactured 737MAX aircraft scheduled to be delivered in 2023 to 2025 with options to purchase an additional 50 737’s. 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, reduced maintenance costs in the early periods of ownership, expected fuel savings and operational reliability from the use of these new aircraft.

Delays for aircraft in heavy maintenance, pilot constraints, airport construction disruption, weather, and air traffic control delays in certain markets continue to impact our operations and we have pulled back some of our capacity growth in 2023 as a result. We believe these issues are not unique to Allegiant nor do we believe they are systemic.

The collective bargaining agreement with our pilots is currently amendable. We and the International Brotherhood of Teamsters ("IBT”) jointly requested the mediation services of the National Mediation Board ("NMB") in January 2023 to assist with the negotiations. The mediation process with the NMB is continuing, with dates for negotiation sessions currently scheduled through November.

Separately from the ongoing collective bargaining agreement negotiations, 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 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. IBT concurred with this approach.

The collective bargaining agreement with our flight attendants is also currently amendable. We and the Transportation Workers Union (“TWU”) representing this group reached an initial tentative agreement in May 2023. That initial tentative agreement was not ratified by the flight attendant membership, and the parties intend to reengage in negotiations beginning in September.

We and the IBT representing our dispatchers reached a tentative agreement more than one year before the amendable date of their current collective bargaining agreement. This tentative agreement addressed rates only and added a two-year extension (until May 2026) to the other terms and conditions of the current collective bargaining agreement. The tentative agreement was overwhelmingly approved by the dispatchers in May 2023.

Similarly, we and the IBT representing our mechanics and related employees reached a tentative agreement more than three years before the amendable date of their current collective bargaining agreement. This tentative agreement also addressed rates only and added a two-year extension (until October 2028) to the other terms and conditions of the current collective bargaining agreement. We expect the tentative agreement to be voted on by the membership in August 2023.

The terms of any new collective bargaining agreement will impact our costs over the term of the contract.

The supply of pilots necessary for airline industry growth may be a limiting factor. The pandemic resulted in more than 3,000 early pilot retirements across U.S. mainline and cargo carriers and the pipeline for new pilots does not appear at the present time to be sufficiently robust to replace retired pilots and to allow for projected industry growth. The ability to hire and retain pilots will be critical to our and the industry’s growth.

We are continuing our partnership with Schneider Electric to help us develop our Environmental, Social and Governance (ESG) program. During 2023, we expect to establish ESG goals and environmental goal achievement plans and will continue to provide carbon emissions reporting of Scope 1, 2, and 3 greenhouse gas (GHG) emissions.

In December 2021, we announced plans for a fully-integrated commercial alliance agreement with VivaAerobus, designed to expand options for nonstop leisure air travel on transborder flights between United States and Mexico. We and VivaAerobus have submitted a joint application to the DOT requesting approval of and antitrust immunity for the alliance. In January 2023, the DOT declared our application substantially complete, but we have yet to receive a final ruling from the DOT. However, due to recent actions undertaken by Mexico affecting U.S. operations at Mexico City's Benito Juarez International Airport, our application's procedural schedule set by the DOT has been temporarily suspended. This will delay approval for an undetermined period of time.

We and VivaAerobus expect to offer new routes under the alliance pending U.S. governmental approval of the applications and the return of Mexico to a Category 1 status under the FAA’s International Aviation Safety Assessment (“IASA”) program. The Category 1 status allows foreign airlines to expand their services to U.S. destinations and enter into codeshare partnerships with U.S. airlines. Mexico's FAA audit was concluded in June 2023 and a final determination from the FAA is expected soon.

Construction of Sunseeker Resort Charlotte Harbor is continuing and we expect to open the Resort in October 2023. The Resort is receiving bookings from transient customers and group sales and has begun hiring the initial staff for the Resort.

Passenger revenue. For second quarter 2023, passenger revenue increased 8.5 percent compared to the same period in 2022 on relatively flat capacity, with scheduled service available seat miles (ASMs) increasing by 0.7 percent. Stronger leisure demand drove a 7.6 percent increase in average base fare. A 9.0 percent increase in ancillary air-related revenue per passenger, excluding third party products, also contributed to the increase in passenger revenue.

The increase in ancillary air-related revenue per passenger over the same period in 2022 was primarily driven by overall strength in core products and the Allegiant Extra rollout.

Third party products revenue. Third party products revenue for second quarter 2023 increased 4.0 percent compared to second quarter 2022. The increase from 2022 is primarily the result of a 26.3 percent increase in the marketing component of co-branded credit card revenues, offset by a decrease in rental car revenue.

Fixed fee contract revenue. Fixed fee contract revenue for second quarter 2023 increased 31.6 percent compared to the same period in 2022 as a result of a 50.6 percent increase in fixed fee departures, offset by lower fees per departure.

We primarily evaluate our expense management by comparing our costs per available seat mile (ASM) across different periods, which enables us to assess trends in each expense category. The following table presents unit costs on a per ASM basis, or 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.

Operating CASM, excluding fuel and Sunseeker Resort activity. Operating CASM, excluding fuel and Sunseeker Resort activity, increased by 12.9 percent to 7.79 ¢ for second quarter 2023 from 6.90 ¢ in second quarter 2022. The CASM- ex increase is attributable to a 14.2 percent increase in non-fuel airline costs, in total, in second quarter 2023 over second quarter 2022 (for the reasons described in the expense line item discussion below) with only a 1.3 percent increase in capacity as we intentionally reduced capacity growth to protect operational integrity. This is reflected in the reduced utilization of our aircraft as average block hours per aircraft per day decreased by 6.8 percent in the quarter compared to second quarter 2022.

Aircraft fuel expense. Aircraft fuel expense decreased $94.7 million, or 36.8 percent, for second quarter 2023 compared to second quarter 2022. This is primarily due to a 37.7 percent decrease in average fuel cost per gallon.

Salaries and benefits expense. Salaries and benefits expense increased $37.5 million, or 26.8 percent, for second quarter 2023 when compared to second quarter 2022. The increase is due in part to a 10.9 percent increase in the average number of full time equivalent employees from second quarter 2022, which increase includes newly hired Sunseeker team members. Higher salaries and benefits expense was also driven by increased crew pay, including an $11.8 million accrual for pilot retention bonuses, the impact of increased variable bonus pay due to increased profitability, and annual merit increases for team members not subject to a collective bargaining agreement.

Station operations expense. Station operations expense for second quarter 2023 decreased $0.2 million, or 0.3 percent compared to second quarter 2022, remaining relatively flat year over year as scheduled service departures also increased by only 0.3 percent. Reductions in irregular operations costs were offset by inflationary pressure on costs in general.

Depreciation and amortization expense. Depreciation and amortization expense for second quarter 2023 increased by 9.7 percent as compared to second quarter 2022 driven by an 11.2 percent increase in the average number of aircraft owned and in service.

Maintenance and repairs expense. Maintenance and repairs expense for second quarter 2023 increased $2.5 million, or 8.1 percent, compared to second quarter 2022, as the result of a 10.0 percent increase in the average number of aircraft in service.

Sales and marketing expense. Sales and marketing expense for second quarter 2023 increased by 9.4 percent compared to the same period in 2022, primarily due to a fee paid to transition our cobrand credit card to the Visa network and an increase in credit card fees as a result of an 8.5 percent increase in passenger revenue year-over-year.

Other operating expense. Other operating expense increased $5.0 million or 18.9 percent for second quarter 2023 compared to second quarter 2022 attributable to incremental increases in legal and governmental affairs and recruiting expense.

Special charges. During second quarter 2023, we recorded $(11.2) million of special charges as we recognized $11.3 million of insurance recoveries on Sunseeker Resort damage, offset by $0.1 million of additional charges during the quarter.

Interest expense for the quarter ended June 30, 2023 increased by $13.3 million, or 54.2 percent over second quarter 2022, attributable primarily to a 3.3 percentage point increase in the weighted average variable interest rate year-over-year due to increases in the indices. The increase in interest expense was partially offset by a $9.6 million increase in interest income compared to first quarter 2022, due to higher yields on investments in debt securities.

We recorded a $27.9 million income tax expense at an effective tax rate of 24.0 percent and a $1.5 million income tax expense at a 25.3 percent effective tax rate for the three months ended June 30, 2023 and 2022, respectively. The effective tax rate for the three months ended June 30, 2023 differed from the statutory Federal income tax rate of 21.0 percent primarily due to state income taxes and the impact of permanent tax differences.

As comparisons of our first half 2023 results to first half 2022 reflect changes due to the continued impact of the COVID-19 pandemic on air travel during the six months ended June 30, 2022, and early in 2022 in particular, year-over-year comparisons below are not necessarily indicative of expected full year-over-year results.

Passenger revenue. For the six months ended June 30, 2023, passenger revenue increased 18.5 percent compared with the same period in 2022. Scheduled service passengers were up 5.0 percent and the average scheduled service base fare increased by 15.4 percent due to stronger leisure demand. The increase in passenger revenue was also driven by a 10.2 percent increase in ancillary air-related revenue per passenger, excluding third party products. The increase in ancillary air-related revenue per passenger over the same period in 2022 was primarily driven by overall strength in core products and the Allegiant Extra rollout.

Third party products revenue. Third party products revenue for the six months ended June 30, 2023 increased 9.3 percent over the same period in 2022. The increase from 2022 is primarily the result of increased Allways® Rewards Program revenues.

Fixed fee contract revenue. Fixed fee contract revenue for the six months ended June 30, 2023 increased 15.9 percent compared to the same period in 2022 as a result of a 20.7 percent increase in fixed fee departures.

The following table presents unit costs on a per ASM basis, defined as Operating CASM, for the indicated periods:    

Operating CASM, excluding fuel and Sunseeker Resort activity, increased by 11.5 percent to 7.77 ¢ for the six months ended June 30, 2023 from 6.97 ¢ in the same period in 2022. The CASM-ex increase is attributable to a 12.8 percent increase in non-fuel airline costs, in total, in the first six months of 2023 over the same period in 2022 (for the reasons described in the expense line item discussion below) with only a 1.3 percent increase in capacity as we intentionally reduced capacity growth to protect operational integrity. This is reflected in the reduced utilization of our aircraft as average block hours per aircraft per day decreased by 8.3 percent in the period compared to the first six months of 2022.

Aircraft fuel expense. Aircraft fuel expense decreased $69.3 million, or 16.4 percent, for the six months ended June 30, 2023 compared to the same period in 2022. This is primarily driven by an 18.5 percent decrease in average fuel cost per gallon.The decrease in fuel cost was partially offset by a 2.6 percent increase in fuel gallons consumed on a 1.3 percent increase in available seat miles.

Salaries and benefits expense. Salaries and benefits expense increased $63.1 million, or 23.1 percent, for the six months ended June 30, 2023 compared to the same period in 2022. The increase is due in part to a 13.9 percent increase in the average number of full time equivalent employees from the same period in 2022, which increase includes newly hired Sunseeker team members.

On a per ASM basis, salaries and benefits expense increased 21.4 percent. The cost increases primarily relate to increases in crew pay, including an $11.8 million accrual for pilot retention bonuses, the impact of increased variable bonus pay due to increased profitability, and annual merit increases for team members not subject to a collective bargaining agreement.

Station operations expense. Station operations expense for the six months ended June 30, 2023 decreased $4.4 million or 3.3 percent due to decreased costs associated with irregular operations compared to the prior year period. Reductions in irregular operations costs were offset by inflationary pressure on costs in general.

Depreciation and amortization expense. Depreciation and amortization expense for the six months ended June 30, 2023 increased $13.1 million or 13.7 percent as compared to the same period in 2022 due primarily to an 11.5 percent increase in the average number of aircraft owned and in service.

Maintenance and repairs expense. Maintenance and repairs expense for the six months ended June 30, 2023 increased by $1.1 million or 1.9 percent compared to the same period in 2022. The increase was driven by an 11.0 percent increase in average aircraft in service offset by a higher volume of repairs in the prior year period compared to the current year.

Sales and marketing expense. Sales and marketing expense for the six months ended June 30, 2023 increased 14.4 percent compared to the same period in 2022 due to an increase in net credit card fees as a result of an 18.5 percent increase in passenger revenue year-over-year and due to a fee paid to transition our cobrand credit card to the Visa network.

Other operating expense. Other expense for the six months ended June 30, 2023 increased by $9.5 million, or 17.9 percent year-over-year, due to incremental increases in outsourced labor and software support associated with ongoing IT initiatives, legal and governmental affairs, and recruiting expense.

Special charges. During the six months ended June 30, 2023, we recorded $(12.8) million of special charges as recognition of $(13.2) million of insurance recoveries on Sunseeker Resort damages were offset by $0.3 million of additional charges during the period.

We recorded a $46.1 million income tax expense at an effective rate of 24.2 percent compared to a $1.2 million tax benefit at a 25.6 percent effective tax rate for the six months ended June 30, 2023 and 2022, respectively. The 24.2 percent effective tax rate for the six months ended June 30, 2022 differed from the statutory federal income tax rate of 21.0 percent primarily due to state income taxes and the impact of permanent tax differences.

The following tables set forth our airline operating statistics for the periods indicated: