What happened

Allegiant Travel (ALGT -4.15%) blew away expectations for the most recent quarter, thanks to the continued strength of the U.S. travel consumer. The stock is gaining altitude as a result, with shares are up 20.57% as of 1:38 p.m. Thursday.

So what

Allegiant posted impressive numbers during the all-important holiday travel season. The airline and hospitality company reported fourth-quarter adjusted earnings of $3.17 per share on revenue of $611.5 million, easily topping analyst expectations of $0.69 per share in earnings on revenue of $578 million.

It's hard to say for sure whether the earnings-per-share number is a perfect comparison to what analysts had been expecting, as the headline number excluded employee recognition bonuses and some charges related to Allegiant's resort under development in Florida. But regardless, the company had a strong operating performance in the quarter.

Revenue per available seat mile, a common industry metric, was the highest in company history during the quarter, a reflection of airline pricing power in what has been an unprecedented period of consumer interest in air travel. About 21% of Allegiant's capacity in the first quarter is expected to be flying routes with little to no direct competition.

"The demand environment continues to surpass expectations," CEO John Redmond said in a statement. "Despite an uptick in weather cancellations late in the quarter, our total operating revenue was up 32.6% year over three-year, more than five points above the mid-point of our guidance.

Now what

Allegiant is flying high today, but investors should be aware that, in CEO Redmond's own words, 2023 is shaping up to be a "transformational" year for the company. That comes with a lot of opportunities, but it could mean some near-term headwinds.

The airline this year will begin taking delivery of its new fleet of Boeing 737 MAX aircraft, which should help lower fuel expenses and provide a better passenger experience over time. Howeer, in the near term it would lead to training and transition costs. Allegiant also continues to invest in the Sunseeker in Florida, which has faced delays due to the pandemic and because of Hurricane Ian but is now expected to open in late 2023.

The hope for now is these investments will drive stronger profitability by 2024, and in the meantime the robust demand trends can help drive profitability during the transition. It all came together in the fourth quarter for Allegiant, and the stock is responding positively as a result.