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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 October 23, 2023, the registrant had 18,401,180 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. The Company recorded an additional $4.1 million and $4.4 million of estimated loss related to Hurricane Ian during the three and nine months ended September 30, 2023.

During third quarter 2023, the Sunseeker Resort construction site incurred additional damages related to Hurricane Idalia. Based on the Company’s assessment of these damages and the anticipated future restoration costs, an estimated loss of $13.8 million was recorded as a special charge in third quarter 2023. The estimate is preliminary and subject to change as the damage assessment by the Company and the insurance providers continues.

During the three and nine months ended September 30, 2023, the Company recorded $0.5 million and $13.6 million of insurance recoveries respectively. The recoveries are offset by $17.9 million and $18.2 million of additional losses recorded during the three and nine months ended September 30, 2023 respectively, resulting in special charges net of recoveries of $17.4 million and $4.6 million, respectively. To date, the Company has recorded insurance recoveries of $31.7 million related to Hurricane Ian and subsequent insurance events. We anticipate that additional insurance recoveries related to the losses incurred in third and fourth quarters 2022 and in third quarter 2023 will be recorded in future periods.

Due to the heavy maintenance needs on certain aging Airbus airframes and capacity constraints at the maintenance, repair, and overhaul contractors, the Company reevaluated its fleet plan and identified 21 airframes for early retirement to coincide with 737 MAX aircraft deliveries as scheduled under an amendment to the Company's agreement with The Boeing Company signed in September 2023. Two airframes were fully retired in September 2023 and the remaining airframes are to be retired between January 2024 and September 2025. The accelerated depreciation on these airframes resulting from a change in the estimated useful life is recorded as a special charge of $15.2 million during third quarter 2023.

The table below summarizes special charges recorded during the three and nine months ended September 30, 2023, and 2022.

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 September 30, 2023, the air traffic liability balance was $395.8 million, of which approximately $347.1 million was related to forward bookings, with the remaining $48.7 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 87.2 percent was recognized into passenger revenue during the nine months ended September 30, 2023.

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 (for vouchers issued in 2020 and in the first half of 2021) 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 September 30, 2023 and December 31, 2022 were $75.0 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 September 30, 2023, for the next five years and thereafter, in the aggregate, are:

On September 27, 2023, the Company, through a wholly owned subsidiary, entered into a Credit Agreement with BNP Paribas and JSA International U.S. Holdings, LLC, under which the Company is entitled to borrow up to $412.1 million. On September 29, 2023, the Company received funding of $196.4 million under the facility, which is collateralized by seven Airbus A320 aircraft. The proceeds were used in part to pay off $112.8 million of existing debt previously collateralized by the same aircraft. The $196.4 million loans funded on September 29, 2023 bear interest at a fixed rate, are to be paid in quarterly installments of principal and interest, and mature on September 29, 2031. The remaining undrawn balance of the facility will be funded upon delivery of, and collateralized by, four 737 MAX aircraft currently on order from Boeing. Future draws collateralized by 737 MAX aircraft will bear interest at a rate determined at the time of drawdown, and will have a term of twelve years.

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 September 30, 2023, the facility remains undrawn.

During the nine months ended September 30, 2023, the Company received $164.8 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 or upon delivery of the applicable aircraft.

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 fixed rate 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.

In September 2023, the Company made a payment of $112.8 million to voluntarily pay off several debt instruments collateralized by aircraft. These debt instruments were all floating rate instruments with original maturity dates between May and October 2027.

The Company recorded a $4.9 million income tax benefit at an effective tax rate of 16.3 percent and a $9.7 million income tax benefit at a 17.3 percent effective tax rate for the three months ended September 30, 2023 and 2022, respectively. The effective tax rate for the three months ended September 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 $41.3 million income tax expense at an effective tax rate of 25.7 percent and a $10.9 million income tax benefit at a 17.9 percent effective tax rate for the nine months ended September 30, 2023 and 2022, respectively. The effective tax rate for the nine months ended September 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 nine months ended September 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 certain periods presented, 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 $600 thousand and $806 thousand for quarter-to-date and year-to-date 2023 respectively. During the third quarter 2022, the Company recognized a loss on debt extinguishment of $5.0 million in relation to the prepayment of its Term Loan B.

Total assets were as follows as of the dates indicated:

(in thousands)			As of September 30, 2023						As of December 31, 2022
Airline			$	4,283,299					$	4,047,134
Sunseeker Resort			629,037						464,163
Consolidated			$	4,912,336					$	4,511,297

On November 2, 2023, the Company repaid all amounts due under its $150.0 million senior secured notes due February 2024.

On October 25, 2023, the Company, through a wholly owned subsidiary, entered into agreements with a trust to borrow $9 million secured by one CFM engine. The trust was funded on inception and the borrowing bears interest at a fixed imputed rate and is payable in monthly installments through October 2028, at which time the Company will have a purchase option at a fixed amount.

On October 31, 2023, the Company, through a wholly owned subsidiary, entered into agreements with a trust to borrow $27 million secured by one Airbus A320 series aircraft. The trust was funded on inception and the borrowing bears interest at a fixed imputed rate and is payable in monthly installments through October 2028, at which time the Company will have a purchase option at a fixed amount.

On October 31, 2023, the Company, through a wholly owned subsidiary, extended the term of its August 2022 revolving credit facility with MUFG Bank by two years to August 2025. All other terms of the agreement remain the same and the facility remains undrawn as of September 30, 2023.

On November 1, 2023, the Company, through a variable interest entity, entered into agreements with Carlyle Aviation Group to borrow $158 million secured by the Company's purchase rights for eight Boeing 737 aircraft. The facility bears a floating interest rate based on SOFR and is due upon delivery of each aircraft or no later than June 30, 2025.

•Total operating revenue was $565.4 million, up 0.9 percent over the prior year and the highest third quarter total in company history

•Total fixed fee contracts revenue of $17.7 million, up 11.7 percent year-over-year

•TRASM (total passenger revenue per scheduled service available seat mile) of 12.78 cents, up 1.4 percent year-over-year on scheduled service capacity decrease of 0.8 percent year-over-year

•Controllable completion factor of 99.7%

•Total average fare of $129.23, up 2.6 percent year-over-year

•Average ancillary fare of $64.50, up 10.4 percent year-over-year

•Airline special charges of $15.2 million from accelerated depreciation on aircraft retirement plan

•Allways Rewards program enrolled 478 thousand new members during the quarter, bringing total members to 16.7 million

•$88 million in remuneration received from our co-branded credit card year-to-date

•Announced a collaboration with global entertainment icon Carrie Underwood in support of the company's Allways Rewards Visa® card and loyalty program

•Entered into $412.1 million financing arrangement and borrowed $196.4 million collateralized by seven A320 aircraft, with the remaining undrawn balance to be used in 2024 to fund four 737 MAX aircraft

•Sunseeker Resort nears completion - announced December 15, 2023 opening date

•Sunseeker special charges of $17.4 million, net of recoveries, from hurricane and other weather-related events

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

(1)December 31, 2022 figure does not include five aircraft of which we have taken delivery, but were not yet in service as of that date.

On September 29, 2023, we entered into agreements with The Boeing Company ("Boeing") to amend our 2021 agreement to acquire 50 newly manufactured Boeing 737 MAX aircraft. The amended agreements include a revised delivery schedule for the initial 50 aircraft to now extend through late 2025.

Due to the heavy maintenance needs on certain aging Airbus airframes and capacity constraints at the maintenance, repair, and overhaul contractors constraining fleet utilization, we reevaluated our fleet plan and identified 21 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 on September 29, 2023. Two airframes were retired in September 2023 and the remaining airframes are to be retired between January 2024 and September 2025. The retirements are coordinated with the revised delivery schedule for the 737 MAX aircraft to provide us with opportunities for fleet renewal and replacement. The accelerated depreciation on these airframes resulting from a change in the estimated useful life is recorded as a special charge of $15.2 million during third quarter 2023. We plan to retain the engines associated with these airframes in our spare engine pool and use the substantial remaining life on these engines to offset future overhaul costs.

As of September 30, 2023, we were party to forward purchase agreements for 52 aircraft. One aircraft was delivered in October 2023 and one is expected to be delivered in December 2023. We currently expect deliveries of 24 737 MAX aircraft in 2024 and 26 thereafter.

As of September 30, 2023, we were selling 549 routes versus 583 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 rest of the year as we focus on our core markets during our busiest travel periods. We have identified as many as 1,400 incremental domestic nonstop routes as opportunities for future network growth, of which over 75% currently have no current non-stop service. Our total active number of origination cities and leisure destinations were 91 and 33, respectively, as of September 30, 2023.

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

We continue to see strong demand across both peak and off-peak periods relative to pre-pandemic. While peak period demand has persisted meaningfully higher, the performance of off-peak periods in relation to current peaks has normalized according to typical leisure seasonality.

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.

Despite a 19.7 percent decrease in fuel cost per gallon during the third quarter 2023 compared to the same period in 2022, attributable to lower crude oil prices and refining margins, we anticipate that our overall costs and operating results will continue to be affected by persistently high and volatile fuel prices. This is primarily due to ongoing geopolitical and economic tensions in the Middle East and Ukraine, which continue to impact the global market.

In September 2023, we signed an agreement with The Boeing Company to amend our 2021 agreement to purchase 50 newly manufactured 737 MAX aircraft. Under the amended agreements, the mix of 737 MAX-8200 and 737 MAX-7 aircraft have been altered so that there will be more 737 MAX-8200 aircraft and fewer 737 MAX-7 aircraft. The amended agreements also reflect a revised delivery schedule for the initial 50 aircraft to deliver through late 2025 and options to acquire as many as 80 additional 737 MAX 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, 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, 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 and into 2024 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 March of 2024.

Separately from the ongoing collective bargaining agreement negotiations, to begin to address retention and pilot pay issues, effective in May 2023, we began 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 hourly pay rates, except for the first year first officers for whom the percentage is 82 percent, calculated at a minimum of 85 pay credit hours per month. IBT concurred with this approach. Since its inception, pilot attrition rates have declined and we are increasing the number of pilots employed.

For the three and nine months ended September 30, 2023, we recorded estimated pilot retention bonus accruals of $18.7 million and $30.4 million, respectively. The bonus will be paid to all pilots remaining employed with us upon ratification of a new collective bargaining agreement.

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 have reengaged in negotiations for an amended contract.

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

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. 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. The approval of the applications was also subject to 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 has now been approved for Category I status.

Construction of Sunseeker Resort Charlotte Harbor is nearing completion and we expect to open the Resort on December 15, 2023. The Resort is receiving bookings from transient customers and group sales and has hired substantially all of the initial staff needed to open the Resort.

Passenger revenue. For third quarter 2023, passenger revenue remained consistent compared to the same period in 2022 on relatively flat capacity, as scheduled service available seat miles (ASMs) decreased by 0.8 percent. A 10.4 percent increase in average ancillary air-related fare, excluding third party products was offset by a 6.3 percent decrease in average base fare and a 1.9% decrease in number of scheduled service passengers. The increase in average ancillary air-related fare compared to third quarter 2022 was primarily driven by overall strength in core products and the Allegiant Extra rollout.

Third party products revenue. Third party products revenue for third quarter 2023 increased 14.0 percent compared to third quarter 2022. The increase from 2022 is primarily the result of a 41.5 percent increase in the marketing component of co-branded credit card revenues, offset by a decrease in hotel and rental car revenue.

Fixed fee contract revenue. Fixed fee contract revenue for third quarter 2023 increased 11.7 percent compared to the same period in 2022 as a result of a 30 percent increase in fixed fee departures.

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, airline special charges, and Sunseeker Resort activity. Operating CASM, excluding fuel, airline special charges and Sunseeker Resort activity, increased by 9.5 percent to 8.49 ¢ for third quarter 2023 from 7.75 ¢ in third quarter 2022. The CASM-ex increase is attributable to an 18.7 percent increase in salaries and benefits and a 10.3% increase in sales and marketing expense in third quarter 2023 over third quarter 2022 (for the reasons described in the expense line item discussion below) with a 0.4 percent decrease in capacity as we intentionally reduced capacity growth in light of higher fuel costs and to protect operational integrity. This is reflected in the reduced utilization of our aircraft as average block hours per aircraft per day decreased by 9.4 percent in the quarter compared to third quarter 2022.

Aircraft fuel expense. Aircraft fuel expense decreased $40.3 million, or 19.4 percent, for third quarter 2023 compared to third quarter 2022. This is primarily due to a 19.7 percent decrease in average fuel cost per gallon. The decrease in fuel cost was partially offset by a 0.5 percent increase in fuel gallons consumed.

Salaries and benefits expense. Salaries and benefits expense increased $25.7 million, or 18.7 percent, for third quarter 2023 when compared to third quarter 2022. The increase is due in part to a 10.5 percent increase in the average number of full time equivalent employees from third quarter 2022, which includes newly hired Sunseeker team members.

Higher salaries and benefits expense was also driven by increased crew pay, including an $18.7 million accrual for pilot retention bonuses, increased rates for maintenance technicians that took effect in August 2023, and annual merit increases for team members not subject to a collective bargaining agreement.

Station operations expense. Station operations expense for third quarter 2023 decreased $1.7 million, or 2.5 percent compared to third quarter 2022, as scheduled service departures also decreased by 1.4 percent. A reduction in customer compensation for irregular operations, as compared to the same period in 2022, was offset by inflationary pressure on costs in general.

Depreciation and amortization expense. Depreciation and amortization expense for third quarter 2023 increased by 11.4 percent as compared to third quarter 2022 driven by an 11.1 percent increase in the average number of aircraft owned and in service and increased deferred heavy maintenance expense.

Maintenance and repairs expense. Maintenance and repairs expense for third quarter 2023 increased $3.3 million, or 10.3 percent, compared to third quarter 2022, as the result of a 10.2 percent increase in the average number of aircraft in service.

Sales and marketing expense. Sales and marketing expense for third quarter 2023 increased by 10.3 percent compared to the same period in 2022, primarily due to a cobrand relaunch campaign and a Sunseeker advertising campaign.

Other operating expense. Other operating expense decreased $0.9 million or 2.8 percent for third quarter 2023 compared to third quarter 2022 attributable to incremental decreases in legal affairs and crew travel expense.

Special charges. During third quarter 2023, we recorded $32.6 million of special charges including $15.2 million in accelerated depreciation from planned early retirement of 21 airframes from 2023 through 2025 pursuant to a revised fleet plan. In addition, we recognized $17.9 million in additional losses related to 2023 and 2022 weather events in third quarter 2023 as compared to $35.0 million of special charges related to Hurricane Ian recorded in third quarter 2022.

Interest expense for the quarter ended September 30, 2023 increased by $5.0 million, or 14.6 percent over third quarter 2022, attributable primarily to a 3.2 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 $7.5 million increase in interest income compared to third quarter 2022, due to higher yields on investments in debt securities.

We recorded a $4.9 million income tax benefit at an effective tax rate of 16.3 percent and a $9.7 million income tax benefit at a 17.3 percent effective tax rate for the three months ended September 30, 2023 and 2022, respectively. The effective tax rate for the three months ended September 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 2023 results to 2022 reflect changes due to the continued impact of the COVID-19 pandemic on air travel during the nine months ended September 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 nine months ended September 30, 2023, passenger revenue increased 12.4 percent compared with the same period in 2022. Scheduled service passengers were up 2.7 percent and the average scheduled service base fare increased by 8.7 percent due to stronger leisure demand. The increase in passenger revenue was also driven by a 10.3 percent increase in average ancillary air-related fare, excluding third party products. The increase in average ancillary air-related fare 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 nine months ended September 30, 2023 increased 11.0 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 nine months ended September 30, 2023 increased 14.2 percent compared to the same period in 2022 as a result of a 24.6 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: