Allegiant Travel Company (NASDAQ:ALGT) has historically been one of the most reliable profit generators in the airline industry. The budget airline has earned a profit for 47 consecutive quarters, covering a period that includes two big oil price spikes and the Great Recession.

However, Allegiant's Q3 earnings didn't quite live up to the company's usual standard. Its Q4 guidance for unit revenue and non-fuel unit costs was also lackluster. On the upside, Allegiant will benefit in a big way from falling oil prices, as jet fuel has declined more than $0.40 since early September. Moreover, the company's management expects trends to improve in 2015.

Q3 by the numbers
Allegiant posted earnings per share of $0.80 on revenue of $265 million last quarter. Allegiant's revenue was up nearly 16% year over year, yet EPS declined from $0.91 in Q3 2014 as its pre-tax margin dipped from 12% to 8.3%.

Allegiant suffered a rare earnings decline in Q3. Photo: Wikimedia Commons.

These numbers shouldn't have been a big surprise for investors. Total revenue per available seat mile rose 1.1%, which was at the high end of the projection Allegiant provided earlier in October. Non-fuel cost per available seat mile, or CASM, rose a staggering 14.7% year over year, even slightly better than Allegiant's guidance for a 14.9% to 15.3% increase.

These raw numbers overstate Allegiant's problems, though. Allegiant had a significant one-time charge last quarter because of the departure of Andrew Levy, the company's former president. All of Levy's stock options vested when he left the company, adding $7 million in expense and contributing about 5.5 percentage points of Allegiant's year-over-year increase in CASM.

Without that one-time cost, Allegiant's EPS would have risen slightly year over year. Nevertheless, this was a relatively weak performance, considering that other airlines have been reporting huge earnings growth this year. Allegiant's EPS also missed the average analyst estimate of $0.83.

The bigger issues
Allegiant's revenue growth has remained fairly solid this year -- its problems have been on the cost side. One driver of cost increases has been a backlog of IT projects. To catch up on some of these projects, such as upgrading computer systems to enable international flights in the future, Allegiant has brought in outside help, temporarily driving up unit costs.

Second, Allegiant has been struggling with pilot training delays for the past year. This issue began late last year, when the federal government shutdown affected FAA staffing just as Allegiant was seeking certification to add Airbus A320s to its fleet. That event disrupted Allegiant's plans to train pilots for the new A319s and A320s entering its fleet.

Allegiant has had trouble clearing the backlog of training events, leading to significantly lower pilot productivity. However, Allegiant has dramatically increased its training "bandwidth" recently. It hopes to catch up in the next few months and have crew training back to a normal level by Q2 of 2015.

Looking forward
Allegiant expects non-fuel unit costs to rise 9% to 11% in Q4, roughly in line with the full-year trend. Total revenue per available seat mile is expected to come in anywhere from flat to 2% higher. On the positive side, Allegiant will benefit significantly from lower fuel costs.

In Q4 2013, Allegiant paid an average fuel price of $3.21 a gallon for its scheduled service. By contrast, management reported that Allegiant is now paying about $2.75 to $2.80 a gallon. It is thus on track to see a double-digit decline in fuel prices. That drop will lead to significant cost savings, because fuel accounts for more than 40% of Allegiant's operating costs.

Additionally, in June, Allegiant began receiving about $7.7 million in quarterly lease revenue that isn't included in its statistics for total revenue per available seat mile statistics. Combining all these factors, Allegiant's Q4 guidance suggests that it will return to solid earnings growth as long as fuel prices don't spike again.

The outlook for 2015 is even better. By Q2, Allegiant should get beyond its pilot training issues, allowing it to start working down its non-fuel unit costs again. If fuel prices remain near today's level, that will provide a significant tailwind through 2015 as well.

Foolish bottom line
This has been a tough year for Allegiant Travel. The company has always prided itself on having rock-bottom costs, but a number of factors have driven unit costs up this year, culminating in a modest decline in Allegiant's earnings last quarter.

The problems appear to have peaked in Q3. Allegiant finally sees a light at the end of the tunnel for its long-running crew training backlog. That outlook bodes well for an acceleration in earnings growth next year.

Allegiant's management team certainly seems confident about the future. The company has repurchased 1.2 million shares in the past 12 months, more than 6% of the total. Allegiant also announced on Wednesday that its share repurchase authorization has been raised to $100 million -- providing one more long-term boost to EPS.