Allegiant Travel Co (ALGT) 2015 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Allegiant Travel Company's fourth-quarter and full-year 2015 financial results conference call. We have on the call today Maury Gallagher, the Company's Chairman and Chief Executive Officer; Scott Sheldon, the Company's Chief Financial Officer; and Jude Bricker, the Company's Chief Operating Officer.

(Operator Instructions)

As a reminder, this call may be recorded.

First, we wish to remind listeners that the Company's comments today will contain forward-looking statements, and they are only predictions, and involve risks and uncertainties. Forward-looking statements made today may include, among others, references to future performance and any other comments about our strategic plan. There are many risk factors that could prevent us from achieving our goals, and causing the underlining assumptions of these forward-looking statements and our actual results to differ materially from those expressed or implied by our forward-looking statements. These risk factors and others are more fully disclosed in our filings with the Securities and Exchange Commission.

Any forward-looking statements are based on information available to us today, and we are undertaking no obligation to update publicly any forward-looking statements, whether as a result of future events, new information or otherwise. The Company cautions users of this presentation not to place undue reliance on forward-looking statements, which may be based on assumptions and events that do not materialize. These earnings releases, as well as the rebroadcast of the call, are available on the Company's investor relations site at ir.allegiantair.com.

At this time, I would like to turn the call over to Maury Gallagher. Please proceed.

Thank you, operator. Since we have no prepared remarks at this point, would you please proceed to calls?

(Operator Instructions)

Our first question is from the line of Joseph DeNardi. Please go ahead.

Jude, I'm just wondering, given your new head as COO, if you could just comment on what the operational challenges you faced in 2015 were, and what you plan to do to correct them? I think investors struggle a little bit with, given some of the headlines that come out, trying to decipher between what are real safety issues of the airline and what may be over hyped by the media. I'm wondering if you could comment on some of that? Are there other safety issues that need to be addressed, or is it more subtle than that?

Let me start with this safety point. No, there isn't. It's a safe operation last year, and it will be a safe operation this year as well. Operational challenges that we had over the last several months really had to do mainly with the growth that we were putting through our network, and that manifested itself in a couple different ways. The first is that we're taking on a lot of new airplanes, and they have been slow to come up to the fleet average reliability, and we will still work through those issues the remainder of the first and second quarters. More materially, we continue to struggle with crew availability as our training pipeline tries to catch up with fleet growth. We think that, that will have been solved by the end of the first quarter and continue to improve to where we are in a small circle as to crews by the end of summer period.

I think we are on top of those two main issues. Combine that with slowdown in the growth rate, so our year-over-year by quarter comps for capacity growth will decline as the year progresses. First quarter will be the fastest growing quarter. And then each successive quarter after that will slow down a bit. I think the main issue is just us catching up the operation to where the network has been. And most of the solutions to that program, to that endeavor, are already at work, and we will get there.

Now, your other point was that, are a lot of what you read about us in the press, what is the source of that? Why is it out there? Maybe, Maury, if you want to comment on that?

I think, Joe, it is a simplistic answer, but we are in negotiations with our pilots; in particular the Teamsters have a history of this tactic of making sure all of your peccadilloes are out there and available for everybody to see. And papers and media are -- we are a juicy type of story in many cases. Every airline has operational issues. As I tell our people, the systems are set up to deal with problems. When you have people and machinery, you are going to have issues with those; and a safe environment, such as what the FAA and the NTSB have put together, I'll offer those to be anticipated and corrected accordingly. Certainly you go for root cause, and you are looking into all of the particulars as to why things happen.

But we've invested tremendously in the safety systems over the last few years. The FAA has suggested as many as seven voluntary safety systems, and we are in all of them. We have a terrific SMS program, if you are familiar with that. As I tell people, this industry is -- all it ultimately sells is safety, and we are going to be at the forefront on all of those respects. But, as Jude said, we are safe. We are continually working towards it, and these changes, between Scott and Jude, I think will go a long way towards enhancing where we were going, but perhaps getting us there faster and, in many ways, more in-depth than we might have done otherwise.

Okay. Thank you for that.

And then, Maury, if the current forward curve actually plays out, you guys are going to be generating a ton of free cash flow this year. I'm wondering if you could talk about how you plan to deploy that? Is it aircraft that you guys are looking at? Or should we think of returns to shareholders?

Your math works about as well as I did. I was looking at the fuel prices today. In Las Vegas $1.05 into plane this week, which -- this is deja vu back to 2002 or 2003. Don't expect it to stay down that low, certainly, but I think it's not going back to $3 any time soon. You are correct about the cash and the [liken]. It is always going to be a trade-off between capital and going into airplanes, and return to shareholders. We have been doing both pretty well over the last many years. The benefit of -- I think we had EBITDA of close to $470 million this year, or something like that. That is a lot of money comparatively to where we were even a few years ago.

But we will keep you up to speed as where we are going to go. Certainly, the MD-80 program is -- we have to replace those airplanes. We've got a plan in place to do that. Perhaps we move faster if the right deals come along. We'll just have to see. It is a good place to be at this point, Joe.

Okay. Thank you.

Our next question is from the line of Dan McKenzie. Your line is now open.

Good afternoon, guys. Thanks.

Maury, we know there is a high correlation between operations and revenue. I'm just wondering if you could help characterize to what extent the challenges may have hurt the revenues in 2015? And maybe one way to think about that is just actual versus expectations that you might have had at the beginning of the year?

Well, candidly, our results are a little better than we expected with where we are at. Certainly, I think fuel is a component of that. Revenue has been a volatile area this year. I will turn it over to Jude in just a minute. But we have work to do to get our operations where we need to be. We've had a lot of good months as well, Dan -- remember in March of this year we ran like a Swiss top. We were in great shape. We had a more difficult summer and a June and July period. And even through the fall, we were not in bad shape. Having said that, we have places we want to go and improve. And the management changes that you are seeing and have read in our release are key to getting to those points.

Jude, comments on revenue?

Dan, we have never been able to tie short-term revenue with operational challenges. We're not seeing any correlation. I think you have to have faith in the long term, that a good operation creates a stronger brand association with our customers and therefore is a good investment in the long term, and we believe that. But certainly, fourth-quarter revenue wasn't affected by fourth-quarter operations.

Understood. And you know, Maury, thanks.

I was actually picking on the revenue performance. It actually, to your point, is pretty good. And I obviously see that you hit the high end of your revenue guide for the quarter and the better end of your [non-fill] cost guide. So it seems like a pretty good quarter. I was just thinking that, trying to get out if there's maybe 100 to 200 basis points of improvement that there could have been that there was. I guess that's all that I was trying to get at.

Just following up on a second question -- just given the weakness in energy, I'm just wondering if you can just remind us what percent of the flying is tied to the Dakotas or Montana, or just more specifically to energy-heavy end markets? And what kind of -- what are you seeing in those markets and how are you thinking about the drag of these markets relative to your system average?

Dan, it is Jude. I'll take that one.

It's tough to tie sometimes in some of these markets, whether what we are seeing in the form of weakness can be associated with currency changes that are affecting cross-quarter traffic, or rather just the local economy there. I'd say about 5% of our traffic is from local economies that are dependent or associated with the oil and gas industry.

Okay. Thanks, guys. That'll do it for me.

Thanks, Dan.

Our next question is from the line of Duane Pfennigwerth. Your line is now open.

Thanks. Good afternoon, guys.

I was hoping that you can play back fourth-quarter revenue a little bit. Obviously, very strong result bottom line, but I think over the course of the quarter you did moderate top line expectations. I was wondering if you could give any color as to when that happened, and what you thought was driving it relative to your initial expectation?

This will be a bit of a review, but generally speaking, we have the same external influences that had been pushing down unit revenues as what we have had in previous earnings calls. As I mentioned, the foreign exchange changes have really materially affected our cross-border traffic, Canadians and Mexicans. We have these local economies that Dan mentioned that are affected by the fall-off in oil and gas prices. We have some directly competitive markets and many of those now have other ULCCs in them like in Cincinnati and Austin. I think that what surprised us a little bit is some of the influences of adjacent markets. We are seeing ULCCs, in particular, fighting over big-city markets to our leisure destinations, and that has had some [adjacent] effects into some of our markets.

A good example would be Philadelphia, whose fares have gone down significantly, and that has affected some of our markets that are a three-hour drive from Philadelphia, like Allentown. I think for the first time we have seen really aggressive -- for the first time in recent history we have seen really aggressive flow pricing, which is based around these leisure markets that have seen really expansive growth of seats domestically. So, Vegas and Orlando in the fourth and first quarters have had about 10% seat growth, and that's creating a lot of requirement to discount fares. We're sort of ancillarily associated with some of those -- some of that fare discounting. But internally, and this is -- go ahead.

Go ahead, Jude.

I was going to say internally, the story is more of the same. It is us adjusting the network to a lower fuel price. Some of this marginal flying becomes more viable as fuel prices come down. So we are rapidly adding new markets. We are selling today 60 markets that we were not selling a year ago. That is really rapid growth in that regard.

We are increasing utilization, which affects the increase in off-peak period flying. So we're increasing off-peak day a week flying. And we are increasing seasons. The seasonal affect for the first quarter will be material in that we are growing March only about 13%, but the growth in the quarter will far exceed that, meaning January and February, with much weaker unit revenues, are getting materially more growth, and that's just our availability of metal and pilots during that period. And then a little bit -- which is my third point -- we just want to be operationally conservative as we push up growth in our peak periods. This coming March is kind of March on steroids, because Easter is in March this year. And so a 13% growth, with our margins -- we would like to go higher, but we just want to be careful and keep operational integrity through that period.

That is kind of what we're seeing. Most of what we are doing is ourselves making rational decisions. We are getting a small influence from general decline in the fare environment. I think if we operated in the fourth quarter of 2015 the same network that we had in the fourth order of 2014, our unit revenues would only be down about 4% if we also didn't include the effect of the debit card discount. So 3% to 4% decline in unit revenues, with the kind of fuel fall off that we are seeing, that leads us to grow as rapidly as we are growing, and particularly in the off-peak period where we have the crews and the airplanes to do so.

Duane, it's Maury. Just a general statement.

Once again, your part of the world seems to be focused totally on that one variable in the revenue side. We sit here -- I know I do -- and look at the bottom line, and these are very rational things we are doing. If the fare goes down we've got the fuel to offset it and then some. If it turns around and goes the other way, and they are not making money, we will back up and adjust accordingly. That is what we have done over the years, and that's what I would think investors would be more interested in, is a management that takes care of particulars.

Yes, we get -- our smallest unit of capacity allocation is a single round-trip, because of the out/back nature of our network. If you look at how many of those round trips that we make a decision to fly that didn't contribute positively to EPS, it was less than half a percent. We are making 30% margins. And on an up-margin basis, if you think about how many flights out there didn't cover variable cost, it is pretty close to zero. If we didn't have perfect information going into the quarter, the network would have looked almost exactly the same.

No, I really appreciate all of the details from the both of you. It's obvious that you're trying to maximize your profitability, which one would think would be appreciated.

Just as one follow up, there -- on when you reference flow pricing, I assume that means pricing on a connecting basis -- competitive pricing on a connecting basis that is influencing your fares. Is that true? If that's true, what are you seeing, more importantly, on a go-forward basis? Has it changed at all with respect to the March quarter?

We've always said that we do not have any nonstop direct competition, and the numbers change. But it has been over about 80% of our markets. That remains true today. But there is other air service in those markets, and most of it offers flowing and connecting opportunities for passengers to get to Vegas or Orlando or other leisure destinations we serve. And really, in years past, that connected traffic was not appropriately priced for the leisure customer. I think for the first time we are seeing some of the network carriers that offer that connecting service priced aggressively. Remember: aggressively is still not stimulatory. But they have a lot more seats to fill, and they are cutting prices to do so, particularly in the off peak periods.

Okay. Thank you.

Our next question comes from the line of Andrew Didora. Your line is now open.

Hey, everyone. Thanks for taking the questions.

Maury, in this time of exceptionally low oil prices, do you ever think about changing your hedging strategy and maybe looking to lock in some of these lower rates into the future and help further your cost advantage in future years, at all?

Usually, in these situations, I haven't seen a curve recently, Andrew. You get a contango curve. The ability to lock in something six months from now, when you look at the trade off of putting the capital up and whether or not it will go there, we will get the same price when we get there. It's really been a non -- easy decision not to make. If it were flat or looking down, what do they call that -- forget that curve.

Backwardation.

Yes, backwardation curve. That would be something else, but we've given up hedging so long ago in 2007, that was our last hedge. We just don't even think about it at this point. It's worked very well for us. And we manage fuel prices through capacity. Jude and his team have such a great ability to look at markets, anticipate the situation, we are adjusting. Certainly we can go backwards and do things as weekly, or certainly monthly, if we need to. But that's the best way to deal with changing fuel situations, is through capacity and associated profitability.

That makes complete sense. Just thought I'd ask.

Secondly, on the CapEx guide of $188 million. Is that all aircraft CapEx? Any color that you can provide around that would be great. Thanks.

This is Scott.

It's -- if you look at the breakdown, it is basically $140 million in flying assets. That would be airframes, inductions, engines. You have about $20 million in CapEx, and the remainder would be maintenance CapEx and other.

Thanks, guys.

Our next question is from the line of Savanthi Syth. Your line is now open.

One more line of questioning on the operations side -- I thought the pilot pipeline issue was addressed early last year. Maybe I'm wrong. More importantly, I was just wondering if you could share how much of the cost pressure -- the unit cost pressure this year is in addressing the operational issues? I would assume that some of that goes away then in 2017.

On the pilot staffing -- while we had the pilots on property they were largely in the training pipeline through the fourth quarter. We experienced some shortages, particularly in the November timeframe -- November/December timeframe. I think March will be the first -- we could say the first peak month. There's three -- there's four peak months, basically. It would be the first one since 2013 where we would be comfortable with the staffing levels.

I think it is a two-step process when you get to staffing to where you need it, and then we can grow without that constraint. And so the effect of shortages in staffing affects the bottom line in the sense that we are scheduling that airline a little more conservatively in the expectations of having those shortages.

The second part of your question about what portion of revenue declines can be associated with --

With CASM -- sorry -- on the CASM front.

I got it.

I would say -- this is Scott, by the way.

I would say the largest impact is simply crew productivity. As folks are moving seats and upgrading, and as Jude still grows the fleet count, it really takes a hit on your productivity. So block to paid is basically down to 50%. Historically that has been a run rate of around 75%. And so, until you can hit this critical mass, you really are not going to see productivity gains like you would hope to expect, I should say.

Anything else to add?

Not really. No.

On the revenue side, third-party ancillary had flattened out a little bit, and we saw decline in the fourth quarter. Is that the mix of off-peak flying that we are doing and we can expect to see that a little bit more in these off-peak heavy months? Or?

Sure. There's a lot of noise in that number. I think the big thing to realize is that the most substantial change affecting third-party ancillary sales is network shift away from Vegas. Second to that would be the demographic that it was the most prolific buyer of third-party products was Canadians, and that traffic pattern has really suffered with the currency change. I think that you will continue to see over the next year our third-party revenue grow, but less slowly than top line revenue. And that's through those -- that dynamic will continue to flow through the system.

I'm hopeful it we can turn the quarters on hotels. We've some good plans for technology that we will be launching that should help us as it relates to, if you were to adjust the network shift and all of that. But we are going to continue to be challenged. Revenues being down and fares being down has another effect on third-party sales in that people are booking closer to the day of travel. Typically, that is a good indicator of propensity to attach to a third-party product. Closer in bookings, network shift away from Vegas, decline in Canadian travelers are all going to be impactful and have been impactful thus far.

All right. Great. Thank you.

Our next question comes from the line of [Julie Jakes]. Your line is now open.

Thanks. Hello there. It looks like off-peak flying is up to about a quarter of total ASMs in Q4 and Q1. How far can you push this, especially with the most recent tick down in crude? Is your thinking changed at all since you gave your initial 12% to 16% ASM growth for the year?

I think that, as we look forward over several years, we can take utilization up 10%, which would mean that 25% number would grow to about 35%.

Is that assuming fuel prices remain relatively low?

Yes, absolutely. That trend would reverse itself very rapidly if we saw fuel prices come up. The weakness in off-peak flying is a truism, and it always exists. Off-peak flying will always be less productive than peak flying. That's the lever we pull to respond, as Maury said, when we change the network in response to fuel prices. With 30% operating margins, there's a lot of room to add the off-peak flying that we are not able to take advantage of just yet. But if fuel stays where it is, we'll get there.

Is that within 2016 or beyond 2016?

That is beyond 2016.

Okay. And then any update on the credit card rollout in terms of timing? Or any other details you can share?

Yes, there is.

We signed a deal with Bank of America for a co-brand card, which we are very excited about. We've also terminated our agreement with our previous contract. All of that stuff is done. We are excited about launching the program. It will happen this year. I would not expect material ancillary revenue from the credit card program on our books until the beginning of 2017.

Right now we are planning for a launch here in about six months. And everything is on track. So, as compared to earlier guidance, we are probably going to be a couple months late. But we are running out of things that are standing in our way. I'm very excited about getting the co-brand credit card out to our customers.

Okay. Great.

And then just one last one on costs. It looks like the CASM max is down 2% to 4% in Q1. The full year is still at 0% to 4%, which is a rather wide range. Can you help us think about the puts and takes and just how back-end loaded the year will be?

Yes. The themes in these will be out through 2016. It looks like maintenance-based on our 2016 forecast is going to be higher. I think we guided 115 to 125 on a per-aircraft basis per month. Some of the things there -- and maybe we should highlight the fact that for the most part we've expressed our expense, our maintenance expense for heavy maintenance on a direct expense method. 2016 will represent the first period in which we will start to experience heavy maintenance related to our Airbus fleet. What we are looking to do -- and that's basically the put in 2016 on a year-over-year basis. Basically there's about $20 million that you would experience in 2016 versus 2015 related to the new -- to the Airbus fleet. Our peers in the industry, whether they are the LLC or ULCC, the majority of these folks are on the deferral method, which is essentially allows to capitalize it and amortize it over a period to the next overhaul or C-check. It's likely we're going to be adopting a prospective application related to that fleet.

In addition to the other just talking 2016 themes, we talked a little bit about labor. That will be the other pressure. The pilot pay scales on a year-over-year basis are up for the first half of the year based on profitability. Productivity is likely going to be where it's at until we catch up, and with the training [pad when we are] in the back half of the year. Those are the two of the really influential aspects of the CASM guidance in 2016.

Okay. Excellent. Thank you very much.

Our next question is from the line of Mike Linenberg. Your line is now open.

Just a couple questions here.

Jude, just looking at your TRASM in the March quarter, it looks like it improves as we move through the quarter. I'm not sure if that's just moderating capacity growth? Or maybe how Easter falls? Or maybe there's something implicit about how bookings look in maybe the February/March timeframe? What's maybe driving what looks like an improving revenue trend or TRASM trend?

Sure. What's happening in the first quarter is just March is a really good month. So it's less affected by rapid growth of the whole industry. So we are seeing demand hold up fairly well. We're growing March less -- in our own network, we are growing March less quickly than the other two months of the quarter. That is the dynamic for March. March is going to be a great month and may be our best month EPS wise ever.

As we look going forward from the first quarter, we expect, all things being equal, just based on our own network planning, we expect to see year-over-year declines to slow. In other words, we're going to get closer to the year-over-year comp as we move on through the year. That's a function of both us optimizing a lot of the new markets that we are in on a year-over-year experience basis, and also slowing total network growth as we move on to the fourth quarter. We're planning internally as we do network planning on a flat revenue environment, basically.

Okay. Great.

Jude, where -- with respect to reporting for the DOT consumer reporting, you're probably very close to the size where it is a requirement. Are you close to that? Do you represent whatever what percent of the US national system where then you have to provide that data? Are we near that? Or is that -- we are not going to see that this year?

We are getting close to it. Our expectation is that we're going to have to report A14 beginning in 2017.

Okay. That's helpful. And then if I could just jump over to Scott.

Scott, what are you paying now all in for fuel? You can include into plane on top of spot, just to give us a feel for the market for you in your market.

Yes, so the weighted average lifted last week was about $1.14. Maury indicated the spot at into plane in Vegas is $1.05. You are going to pay a little higher on the East Coast.

Okay. Fantastic. And then just one other -- Scott, you talked about the direct expense method with respect to heavy maintenance on your Airbus fleet. I think you went on to say that you would be adopting prospectively, I believe, the deferral method that we see at other ULCCs -- ultra-low-cost carriers. I believe I heard that correctly. Why didn't we move into that type of accounting treatment from the get-go? Why straight to the direct expense method today and then transitioning over? What is behind that decision?

We haven't adopted any accounting treatment specifically for the Airbus, even though we have been flying it for a couple years. We have not had any scheduled maintenance up until this year. Basically, you're to the point where US GAAP allows for multiple heavy maintenance treatments, depending on fleet type, driven by a number of circumstances. So we're at the decision point. I think more importantly is the comp to our peers in the industry. These folks all reflect this type of treatment.

On a go forward basis, it does things like it does help dampen volatility. If you went back and looked over the last couple years, you would see our maintenance expense peak and valley pretty dramatically depending on what the year looked like, and more importantly what engine overhauls did. It's just something we're working through the process, is all. Nothing is hitting in the first quarter as it relates to the Airbus fleet. But it's something, assuming this goes forward as planned, it is likely we will re-guide our ex fuel.

I see. Now would re-guide ex fuel sometime this year, it sounds like.

Right.

Okay. Perfect. You sort of have a little bit of a shock up front, but then going forward -- I don't know -- into the latter part of 2016 and beyond, you will have a much smoother impact with respects to maintenance expense as you roll out this [stuff].

Yes.

Great. Thanks. That's all my questions.

Thanks, Michael.

Our next question is from the line of Hunter Keay. Your line is now open.

Hello, everybody.

You guys had talked about, I think, a $2.50 a passenger segment for the credit card deal with [far so]. Is that math roughly about $25 million in annual incremental very high margin revenue? Is that fair to think about that?

Hunter, it is Jude.

We don't really know how quickly that program will mature. While we think we will get there to the $2.50 -- between $2 and $3 range -- I don't know when that will happen. We need to be more careful about when we would expect -- when we expect that to be affecting our P&L. As soon as we launch, we will know. We will know uptick rate, and we will know adoption rate. It may take a while, as we experiment with incentives to get people to sign up for the card. We'd like to give you more guidance on that later. I think your numbers are about what we expect over the long term.

Okay. I can't believe this came up earlier in the call. I can't believe it. It's really strange.

I was going to ask you about the evolution of catchment areas in some of the bigger airports that you compete against -- not so much the flow traffic issue; that's a different issue. But as it relates to the ULCCs flooding airports like BWI, for example, with more low fares to places that you serve. You say people are willing to show a little bit of a willingness to drive further. I mean, in the event -- this is probably not going to change, particularly in the lower for longer fuel price environment.

If that's the issue, which you identified, and it's a source of material and incremental weakness, even if it is just around the edges. What you do to combat that? Do you have to think about maybe bolstering frequencies in a place like Hagerstown or something like that? Or do you have to think about maybe making departure times a little bit more attractive? Or maybe invest in the product a little bit -- put Wi-Fi in your planes or something like that, to make yourselves more competitive against the ULCCs at the bigger airports which now have larger catchment areas?

You mentioned BWI. I just want to be clear. The markets that we launched BWI two weeks ago are non-competitive markets but for a Delta connection to Cincinnati.

I was talking more the (multiple speakers) BWI than anything else.

I got you.

Beyond the issue of catchments, so first thing would be that, as we have the capacity to schedule, the thing we do would be to discount. That's affecting the short-term and that's why you are seeing -- we are real positive about capacity in the back of the year because we are able to trim for some of these effects. So midrange responses to fare weakness would be trimming capacity. And you're right about how we would schedule premium times, premium days of week, or premium season peaks. I think our planning would stop there. We're not -- our product is appropriate for the passenger segment that we're shooting for as it exists today. We're making broad strategic initiatives to be more customer-centric. But that's not as a response to competitive influences in our markets.

Okay; so we're not talking about any major product overhauls or anything like that or bundle fares?

No. That's a different issue. When you talk about bundle fares, that's something would like to do regardless, which would be a revenue-maximizing option to customers where we would pre-bundle ancillary products with the existing fare. That's an initiative that we have that we would like to launch regardless of competitive influence. It's just better.

Like when? This year?

No.

Okay. And then last question -- how come you only bought back $8 million of stock when your stock was down so much?

Say that again?

(Multiple speakers) bought back $8 million of stock, when given the stock's performance, I thought you guys would have supported it a little bit more. Given the flows in liquidity, you guys actually had the opportunity to support it, not just take out -- not just have it earnings-accretive in terms of lowering share count.

Just the way the cash flows work this quarter, Hunter, we have our internal guidelines where we try and maintain certain balances. Given the timing of what we had cash available, we didn't have the resource to go do that. Certainly, it is still a key to our long-term strategy. But just the timing did not work well.

Okay. Thank you, guys. I appreciate it.

Our next question is from the line Helane Becker. Your line is now open.

Thanks, Operator. Thanks for the time. Just two questions.

One question is on the CapEx -- should we be thinking about that? Can you just tell us, quarterly, is it evenly distributed? Is a more first half, second half? How should we think about that?

It's front-loaded, based on delivery. So we are taking most of our planned deliveries for 2016 in the front of the year.

Okay. Can you say, or did you say and I missed, cash percentage versus what you're thinking about in terms of borrowings?

Your question is, how much will we pay? How many of the deliveries will we fund with cash versus financing?

I guess that's the question. Yes.

Our cash strategy has not changed. We continue to target around $400 million in liquidity. And we have some internal targets around cash net of ATL. I would expect us to solve for that number as we go forward, and we continue to find a very robust market for financing these airplanes. I'm not concerned at all about raising debt. The issue is just we don't want to take cash too high, considering the seasonality of our ATLs through the first quarter. So I'd expect us to buy for cash the near-term airplanes, pending share buybacks and how that plays itself out. If we need to raise some money, we will call up one of our banking partners and raise it very quickly.

We are raising money. Our last deal was done in December. We are financing a couple of airplanes this week. We are seeing really constant financing rates of around 2% on a floating rate basis. There's plenty of debt out there to be had if we need it.

Okay. That was actually going to be a follow-up question, with respect to your banking partners and whether or not you are seeing any concerns or increases in cost to capital, given their exposure to energy. But I think you just answered that part of the question.

Then the other question I had actually was -- and you may have answered this in other people's questions -- when you guys talked last quarter, you talked about the off-peak flying, and how it would affect margins, and so on. It is not really a margin-related question. It's more of -- is the off-peak flying meeting or exceeding your expectations? How is it shaping up relative to your expectations?

It's a bit of a mixed bag. I think we overestimated some of the off-peak flying, particularly in new markets. There are certainly markets that we've had where our off-peak flying outperformed as well. Generally speaking, if you would take all off-peak flying, I am surprised to the downside. It underperformed our expectations.

As I said earlier, we need to keep this in context. We are reporting our best fourth quarter ever after our best year ever. The network would look almost exactly the same had we had perfect information. While those flights didn't contribute what we had hoped, they still contributed positively.

Well, yes, you just look at your year-over-year margin, and you still reported a 30% margin. And as I recall, your last comments publicly were that you would not be surprised that margins would decline in the event of more off-peak flying. I'm like half-surprised to hear you say that it may have underperformed to the downside. But I understand all the puts and takes. I get that

The truth is we're going into some markets where we don't have any operating experience. We are adding off-peak flights into those markets. We don't know exactly what they are going to do. And that's a good thing about the schedule as we look forward into 2016 is, we will be able to trim around the edges to optimize the markets that we don't have any experience in.

Okay. My last question if I could just sneak one more in.

I don't really watch a lot of TV, but I watch occasional TV, and I've been seeing Allegiant ads in New York. And I hadn't seen them before. So what market are you actually targeting with those ads?

Those ads are around a national ad buy. And there's just efficiencies of buying nationally as opposed to locally when we have as big a footprint as we do. Now, we are not in Chicago and New York. But we are in 110 cities around the country. At some point it starts to become cost-effective to buy nationally. We'll run a couple campaigns a year. It won't be a huge part of our marketing spend, but it will be a significant part.

Perfect. Thank you very much for your help. I appreciate it.

Thanks, Helane.

Of course.

Our next question is from the line of Steve O'Hara. Your line is open.

Thank you.

Hello, Steve.

Can you just maybe frame the cost guidance if the prospective treatment goes through, and if it doesn't? I thought a couple of years ago you guys tried to do this, but it was -- I don't know if rejected is the right word or what. I'm just wondering what's different this time versus the last time. Thank you.

Yes, this is Scott.

So if you look at 2016, I think earlier I said there is approximately $20 million in scheduled heavy maintenance that's going to hit for the Airbus fleet in 2016. Regarding the application of a specific accounting treatment for the Airbus versus what we tried to do with the MD-80 fleet back in 2011, honestly the facts and circumstances are very different. The unit cost per event, the duration between events -- it's really just a completely different animal. And so looking back the MD-80 -- that was a fairly high hurdle rate that we were trying to cover, and the fact that our peers have applied the same accounting treatment. For instance, an overhauled CFM will go eight years based on our utilization. The average duration between a JT8 is roughly a couple of years.

And so there's just -- it's really night and day. The accounting treatment, the codification in US GAAP allows us to apply the separate treatments as long as the facts and circumstances supports it. So, as I mentioned, the point where we are going to start experiencing some of these heavy maintenance events, and so it makes sense to apply this on a go-forward basis.

Okay. And then -- maybe I don't understand the guidance -- is 0% to 4%, is 0% assuming you do get the perspective, and it's something above that if you don't? Or is 0% to 4% assuming you don't get it and then you take $20 million off the top, depreciate a part of it, maybe, during the year, and that's your new guidance?

Yes, so the flat to up 4% was put out there in early December. I think Jude was back at a conference. There's definitely some puts and takes there. I think we've pulled the ASMs down about a point, which is going to impact ex fuel full-year 2016. Yes, so if you're looking at just off the top, the maintenance in particular -- and that's being depreciated over a certain amount of time -- flat to up 4% isn't going to be the final number. It's going to be somewhere south of that.

Okay. Thank you very much.

We have a follow up question from the line of Dan McKenzie. Your line is now open.

Thanks. Jude, you alluded to a new initiative tied to hotels, I think, in a response to an earlier question. So, first, did I hear that right? And if so, I'm wondering if you can elaborate a bit further about how you are thinking about the size of that opportunity and potentially the timing here?

So, hotels remain a very Vegas-centric market. And so increasing -- today, what we could do is basically discount. That's the main thing we could do. We'd like a lot more eCommerce tools, and keeping in mind that a lot of those shifts that we had talked about that are affecting hotels will still remain, and they will be negative -- decline in Canadian customers and a shift away from Vegas from the network side. But what we would like is to be just a better eCommerce company in merchandising our hotel products. In order to get there, we'd like to be able to consume multiple rates from our hotel partners. We like pat dependency in merchandising. We'd like an increased promo engine -- just becoming better at merchandising the stuff on our website. I don't know the effect that, that's going to have, but we know that it will be helpful.

And the timing of that?

I can't commit to when that will happen.

I see. And then just to clarify -- with respect to the opportunistic purchase of aircraft tied to the acceleration of the MD-80, it sounds like the share buyback comes first as a priority, and then using finance to make up the difference? Or is the sense there that you need to keep cash higher potentially to jump on an aircraft order at some point down the road here?

Yes to both. I mean, certainly you need to keep a certain amount of leverage in there for buying the airplanes. Having said that, we have the luxury of buying them for cash and then financing them in packages when it makes sense. And that all gets timed around cash that's available for share buybacks as well.

Jude, do you have anything further on that?

Well, the spot market strategy is here to stay. I think we need to be real responsive to the market and used aircraft purchases tend to come in bunches, just because a lot of times the source of the aircraft is a bankrupt carrier somewhere in the world. So we'll maintain extra liquidity for that, but we have enough liquidity that our share buyback strategy can coexist with our spot market buying strategy for aircraft.

Got it. Okay.

We still, even last year, Dan, bought back [between] dividends and buyback $190 million -- is that the number? So, we were pretty generous in the past year.

Yes. No, understood. Okay. Thanks again.

Thank you, sir.

And we have a follow up question from Duane Pfennigwerth. Your line is now open.

Actually I'm all set, guys. Someone asked the question.

Thank you, ladies and gentlemen. This does conclude the question and answer session of today's program. I would like to turn the call back over to Mr. Gallagher for any closing remarks.

Thank you, Operator. Thank you all for your attendance, and we'll talk to you in 90 days. Have a good day.