Allegiant Travel Co (ALGT) 2017 Q1 法說會逐字稿

Good day, ladies and gentlemen, and thank you for standing by. Welcome to the Allegiant Travel Company First Quarter 2017 Earnings Conference. (Operator Instructions) And as a reminder, this conference is being recorded.

Now it's my pleasure to turn the call to Mr. Chris Allen, Investor Relations.

Thank you. Welcome to Allegiant Travel Company's First Quarter 2017 Earnings Call.

On the call with me today are Maury Gallagher, the company's Chairman and Chief Executive Officer; John Redmond, the company's President; Scott Sheldon, our Chief Financial Officer; Jude Bricker, our company's Chief Operating Officer; Ponder Harrison, the company's Chief Marketing Officer; and Lukas Johnson, our SVP, Commercial; and the others.

Both Lukas and Scott will have some brief commentary, and then we'll immediately move into questions.

Before we begin, I must 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 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 underlying 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 information available to us today, and we are under 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. This earnings release as well as the rebroadcast of this call are available on the company's Investor Relations site at ir.allegiantair.com.

With that, I'd like to turn it over to Lukas.

Thanks, Chris. First, some commentary on how the first quarter finished up. Heading into the new year, we are seeing significant booking strength that we are projecting to continue throughout the period. We raised fares and turned positive year-over-year yields in both February and March. However, for our price sensitive leisure customers, raising fares typically has a lag on load factors as they adjust to a new set of reference prices for the market. This shows up in our lower load factor for the first quarter, however, forward-looking trends look better in the second quarter for both load factor and a continuation of the positive yield environment.

For the second quarter, we expect TRASM to be up between 1.5% and 3.5% year-over-year. We've been consistent over the past year in identifying the second quarter 2017 as the inflection point for our unit revenues to turn positive and it should go into sequential growth throughout that last 12 months. We hope to see continued strength throughout the rest of 2017.

And going forward, one other note, we will continue to guide quarterly TRASM forecast. However, we'll no longer be reporting monthly TRASM for our model is very different and day-week changes, holiday shifts tend to give very choppy monthly TRASM numbers that don't really provide a great sense of underlying demand.

With that, I'll turn it over to Scott.

Thanks, Lukas, and welcome to the call, everyone. I want to take a few minutes to provide some color on our full year 2017 CASM ex-fuel reguide, in addition to reiterate some of the cost themes we will see as we press through our fleet transition.

Nonfuel cost pressure, particularly in 2017, can be summarized into 5 main areas: Increased pilot expenses related to our first contract signed in August of last year; the elimination of our credit card surcharge in January and how these charges roll through the P&L; potential changes to our fleet retirement schedule; changes in system capacity as it relates to those fleet decisions; and noncash stock comp granted for retention purposes.

Nonfuel cost during the quarter increased 11.6% year-over-year, which is within the previously guided range of up 10% to 12%. Nonfuel cost, excluding the impact of our pilot agreements, incremental noncash stock comp and the elimination of our credit card surcharge, our nonfuel costs would have increased just 1.1% as compared to the first quarter in 2016. We intended to give you some additional color in the earnings release for 1Q, 2Q and full year as well.

A couple of quick comments on the pilot costs and the elimination of our credit card surcharge since they have the largest impact on our year-over-year cost structure.

On a full year basis, we expect pilot contract headwinds related to increases in rates, benefits and reduced productivity of nearly $55 million. That makes up approximately 7 percentage points of our newly guided range of up 9% to 12%. Year-over-year comps become easier in the back half of the year but we will continue to be challenged by historically low pilot productivity as defined by block to pay until mid-to-late 2018.

As many of you may recall, we made a decision in late January of this year to eliminate our credit card surcharge. The surcharge was designed to be as close to 100% offset on interchange costs and fees related to credit card transactions as possible. The fee or charge was then offset to credit card expenses in the sales and marketing line item on the P&L. With the elimination of the charge, the P&L will now reflect gross credit card charges, which correlate to as much as $23 million to $26 million in increased cost year-over-year or nearly 3 percentage points of our newly guided full year CASM ex-range.

From an operating margin perspective, the removal of the credit card surcharge is neutral to slightly positive due to the change in credit debit transactions, wallet size and take rate.

In addition, the new revenue standard is going to into effect in 2018 will not allow us to account for this type of presentation.

And with that, we'll open it up for questions.

(Operator Instructions) And our first question is from the line of Savi Syth with Raymond James.

A quick question on the fleet size. Just with the MD-80 retirement, I was wondering if there's any change to kind of the spares for the summer and also any color now that we're further along the year on the timing of the new A320s coming onto the fleet in 2017?

Savi, there's really no change. We're going to redo the schedule slightly so that we can continue to have the same sparing allocation. And the MD-80 retirements are said in the sense that they can be extended from where we are today, but we may, from time-to-time, retire an MD-80 earlier in the event that it has -- suffers from a long out-of-service time that doesn't justify a repair or for some other reason. The induction schedule is the same as it was as we reported last time. So by the end of the year, we're going to have 51 in-service A320 series aircraft, and we remain committed to another 16 purchases and 12 aircraft that we have on lease now that will be redelivered from lease in the summer of 2018 and beyond for a total committed fleet of 79. Now we continue to work on finding additional aircraft but today, although we have 85 airplanes in service, and in the summertime, that number will be a little bit higher. We're only scheduling about 76 or so of those. So we're kind of already in the -- embedded in the plan no growth scenario. We'd like to grow obviously so we are going to go and acquire a couple more airplanes. But we already have -- the point is we already have sufficient A320s in order to execute on the MD-80 and 757 retirement plan.

Got it. And then if I -- I'm not sure if Ponder Harrison's on the call today, but just wondering with Ponder's rejoining, is this any -- is that related to any strategic initiatives on the ancillary side or just any update there?

Savi, we're always looking to continue to grow ancillary revenues, and I don't know that there any specific new initiatives right now but stay tuned.

And our next question comes from the line of Joseph DeNardi with Stifel.

Scott, appreciate the color on the CASM guidance. Can you just walk us from the prior guidance, I guess, to the new guidance? What changed from last quarter?

Yes, so initial was up 5% to 9%, that was on the January call. We were just running tests to see the impact whether we have the surcharge or not. Despite the fact that we eliminated it, we still would have been in the range albeit on the very high end of the range. So you would have been touching up towards the high 8s. Things that have happened subsequent to that, we pulled 1 MD-80 that was going to be retired in the second quarter of '18, which was not going to be retired in the second quarter of '17. We pulled forward a tail from the third quarter of this year to the second quarter so there's going to be some losses there. In addition, we took a slightly more conservative outlook on ASMs production for the full year of '17. So you look at all 3 of those, as being accumulated in -- we're going to bust the top end of the range. That's really the story. We try to be as transparent as we can on the cost side, but there's really no other surprises. I think maybe the last thing I'll leave you with is just the productivity metrics are down even more than we anticipated. I think I mentioned that in my prepared remarks. We're kind of in the low 50% and that's definitely the trough of what we are seeing here at Allegiant.

Joe, it's Maury. Let me just put an overview on this that -- I think the word I used in the release was lumpy. It's -- there's going to be -- but we'll try and give you as much clarity and specifics as possible as activities happened during the quarter or we see ways to do things better as Jude mentioned here. For instance, early retirements of airplanes or whatever. It's a onetime event that -- it's going to be puts and takes as we go through it. So ideally, we move through this as quickly as we can and we come out the other side. We're still incredibly bullish that single fleet and all the things that you've heard us talk about before, are still on track. So there will be puts and takes while we're doing this.

Okay, that's helpful. And then Maury, I think there's been some discussion out there that maybe you guys are looking at getting into the hotel business and acquiring a property. I'm not sure if this is a forum you want to use to discuss that. But if it is, can you just kind of walk through what you see as the strategy there? Why you need a property and then what the size of an investment you're looking at?

You're right, this isn't the right forum for that. We'll -- we've been looking at alternatives and one of the things that we want to do is enhance our ability to get further revenues out of our existing customer base if we can do that. We've already done a great deal of hotel third-party work so we're looking to enhance that. John's on the phone, too. He can add some comments as well. But it's -- we're bullish on opportunities that we might be able to kind of tag on and make it more of the same if it works out. John?

Yes. I think, on that point, one of the things we've been pretty consistent about saying is we want to wait until we've had enough time to fully explore all the various leisure options that we have and that we've identified. It's going to take some time to determine exactly what course of action to take. And it would be a mistake to try to articulate something until all of our ideas have been fully flushed out and vetted. So I think I've been telling people that we hope to be in a position to do that by end-of-year. And at that point in time, we should be able to properly articulate what that strategy is and why we're going to embark on that strategy and what the related impacts would be. So that's the time frame that, as of today, we still feel comfortable with by year-end.

And our next question comes from the line of Rajeev Lalwani with Morgan Stanley.

Just coming back to, I guess, some of the comments on 2Q RASM. The industry, obviously, seeing some real strength here in 2Q. Is that's what's driving the strength in your number? And how does that tie with -- I guess, I'll just focus on that for now.

Yes. Hey, Rajeev, it's Lukas. I think the second quarter certainly looks stronger than the first quarter from a booking standpoint. And obviously, you get the benefit of the spring break Easter shift moving from March to Easter, which we've put at a 1.5% of TRASM benefit. But even if you took out and kind of adjusted for the neutral underlying demand, things do look more positive. I think the big telltale sign or what we're waiting to see is how the peak and the offpeak period perform throughout 2016. And even in the first quarter, the peak periods have held up well. However, the off-peak periods have kind of suffered. And so far, the signs are encouraging in the second quarter but there's also still quite a bit of ways to go on in terms of the booking curve.

Okay. And then the other question I was going to ask was just as we look into the third quarter, your capacity growth is starting to decelerate pretty meaningfully. Can you talk about where you are going to be prioritizing that growth? And what it means as far as developing markets and so on?

Sure. So unfortunately, it's not going to be concentrated into our -- in kind of peak period, peak days schedule. So obviously, the big goal for us is to improve operations over last summer, summer 2016. So our actual peak day growth is going to be flat year-over-year. We're not going to be increasing departures on our Thursday, Friday, Sunday, Mondays. Most of the growth is going to be in the off-peak so our third quarter, about 20% growth on the Tuesdays, Wednesdays and Saturdays and flat on the peak days. So that, as well as the back half of the quarter, for the third quarter is going to be slanted towards end of August, September, which is our naturally offpeak period. That's where the ASM growth's growing. So unfortunately, from a short-term TRASM boost, we're going to be flattening our schedules and facing a little bit of headwinds on that standpoint that, hopefully, we'll be able to recapture once we have completed more the fleet transition.

And our next question comes from the line of Helane Becker with Cowen and Company.

Just on the new routes that you guys have opened over the last year. Could you just talk a little bit about how they're developing and what you see for that going forward? I think I just heard you say that you're still -- there's this one new route that you're opening now. Is that going to be the last of them or are there going to be more?

For this summer, we're going to just be having 1 new city, that's correct. And after this summer, we will probably have a couple more. But those won't be launching until the fourth quarter. So for the second and third quarter, this is the new city development we have.

Okay. But then I think you said that something like 13% or 16% of your routes were still under development. And I'm just kind of wondering where you are in the development stage for those -- are those contributing to the bottom line? Are you expecting that to accelerate and so on?

Sure. So the new routes are developing kind of as expected. A lot of the summer routes that we launched are summer seasonal markets that are performing well, and we're excited about that. As we go into the fourth quarter, we'll have, again, the things that we launched, the markets we launched over the last 12 months will be more maturing but at that point, we'll finally be caught up on a lot of the frame transitions that will be launching new markets. So I don't expect that 15% -- 12% to 15% new market development number to change materially throughout the year, we'll just be cycling in newer markets.

And our next question comes from the line of Duane Pfennigwerth with Evercore ISI.

Go, Duane.

Duane, please check your mute button. All right. And our next question is from the line of Hunter Keay with Wolfe Research.

So given some of the CASM pressure here, do you feel like you can still hit the CASMx target of just under $0.06 by 2020 that you laid out at the Analyst Day? I feel like some of these costs are, I don't know, kind of sticky.

Hey, Hunter, this is Scott. I think you have to normalize it for the surcharge offset that was not contemplated during our Investor Day. But all other initiatives are intact so that would be the only thing that you'd have to modify it for.

I got you. Okay. And then given some of the issues that Airbus has been having with the 320neo production. I knew you said, I think Jude you said there's no change to fleet. But has there been any impact to the 320ceo delivery schedule you guys have and maybe Airbus is moving around the skyline a little bit. Are you still on track for delivery as you expected them?

Yes, no impact on them.

Okay. And then I'll just throw in a modeling question, do you still think 60 revenue came in really strong at 1Q? Are you still thinking about like $40 million this year or can it be better in a sense?

As we -- the only thing that would change that is really on the ad hoc side as we shift around frames with the MD-80 retirements. Right now, it's on track for that and we're very bullish on them. But as retirements change and if the proprietor's are going to be flying [settle service so]]. Certainly, if we have the same amount of frames and no change in the plan and then I'd be hoping to hit that number.

And our next question comes from the line of Brandon Oglenski with Barclays.

I guess I want to follow-up from Hunter's question there, his first one on cost. If -- it just seems like such a big move, the change in guidance this year. So should we be thinking that we can start to accrue the benefits a little bit faster than as we head into 2018? Because I guess, when I heard the response, it was only a change of maybe 2 aircraft schedules that you guys were talking about pulling forward earlier retirements. So can you just hash out the significant inflations we're seeing this year and maybe what the potential once we get beyond this?

I think Jude mentioned that the retirement schedule is pretty much intact with the exemption of the 2 tails identified. And those are anticipated to be flying -- or the MD-80 are going to be flowing through the mid-2019. So unless there's a significant movement and those being pulled forward, the timing of a lot of the efficiency of the single fleet type really won't be realized kind of at a minimum until late '18 and into '19. So I mean, those would be the biggest drivers, obviously, if you are going to retire these at a faster pace but that's not the expectation at this point.

I think it's important to mention that this is probably the peak of our inefficiency, which is to say that we have, right now, the most pilots in training, and we're dealing with more split basis than we will anytime in the future. So kind of between now and through August, as we work with the existing fleet through the summer peak, it will be the peak of our inefficiencies. And then we'll try to build those efficiencies back into the business pretty much layerly from here on until 2020 for the investor deck, most of the efficiencies need to come through crew simplification based on getting aircraft standardization base by base. So by the end of this year, we're going to have complete bases of all Airbus operations and all the 2 of our bases in Sanford and then Vegas. And that's going to drive significant efficiencies in the short term and then we'll have to execute better as we start to focus on efficiencies beyond this summer.

Okay, I appreciate that. And on the revenue side, Lukas, I think I heard you say, it was either in response to your question or in the quick prepared remarks, about how we're definitely seeing the improvement versus 1Q in revenue and holiday shift stuff, obviously, favorable here right now. But I think you also commented that offpeak is still a little bit challenging or the booking curve just isn't maybe materializing as quickly as possible. Can you just speak a little bit more to that?

Yes, sure. So kind of what I had said, it was 2016 and even into the first quarter here, the offpeak periods and necessarily the days of week but the actual weeks in the schedule, those periods had been softer than the peak periods. There's a variety of factors. And so while we see positives for the second quarter, one thing that we're going to be watching, and I think the industry is going to be watching, is how do those off-peak seasons and weeks do going forward? So again, forward bookings was positive but the second quarter has more shoulder periods than they do through the off-peak periods. So that may be one thing, but the third quarter, once you start hitting into the September, end of August, October periods, you get to some pretty dead periods and that will be interesting to see how pricing is there. Again, we've got 5% bookings for the September period and things look good but you're off a 5% sample. So we're not going to make any call from that.

And our next question comes from the line of Mike Linenberg with Deutsche Bank.

I just want to go back to on the cost side. Maury and Scott, I think Maury you talked about this being a year of puts and takes, what's -- like, what's the likelihood that between now and year-end, we get early retirement of a few more MD-80s. And so obviously you incurred a cost and you've been -- get impacted as a result of the reduced ASMs. I mean, is there the risk that the CASM guidance as it stands, that there's a pretty high probability that we could see that raised as we move through the year? Like, what's the risk there? Can you talk about that?

Hey, Michael, this is Scott. No, the new guidance, we think, has ample headroom. Obviously, if you start pulling out a lot of shelves then that's another issue. But the retirement schedule for the 75s that's solidified. I think someone's mentioning if you look at the ASM growth on the back half the year, it's pretty restricted. So maybe the opportunity to fly more, which is going to obviously help costs on the downside, which is good. But in general, our anticipation is not to guide now and then have to reguide. We think we have enough kind of -- we have wide enough guardrails in order to protect the back half of the year.

Michael, you're putting together 3 variables albeit, somewhat independent: new airplane delivery, how they come on; pilot training and how it progresses; and then last but not least, MD-80 activities. And our mode on the MD-80 is minimal expense, minimal investment at this point. We'll live off the land, if you will, with them. And so far, that looks very good relatively speaking. But occasionally, an airplane comes up and it just doesn't make sense to put a big number into it to restore it, if you will, if that happens. So we don't expect a lot of that. But in past days, we would put that number in. We don't do that now. So you'll have to (inaudible) It's a juggling act with those 3 variables coming together and we put a lot of time and effort planning it and it's well laid out and -- but it's a onetime event. We'll react to the data as it presents itself.

Okay, great. And then just one quick one for Lukas. Lukas, if you kind of go back to January, maybe earlier in the year, and I realize it's looking maybe a bit far out for the June quarter. But if you think about where you saw TRASM could be versus where you're guiding to for the June quarter as of now, would you say that your view is somewhat tempered because of the response in some of the off-peak flying or is it basically and maybe in line where you thought it would be back in January, February? I mean, I realized I'm sort of asking a difficult question for you to kind of go back and think about you are seeing the year shape up the progression. Any thoughts or color?

I think we're -- for the last year, we've really been identifying the second quarter of 2017 as the moment that we thought we're going to break positive and I think that's held up. I'd say the surprise happened, as we were going into the last earnings call was -- we had a lot of pent-up demand from the election and you had 6 great weeks of pretty strong bookings. We thought that would continue in through the offpeak period. The first quarter, it kind of flattened out. It wasn't bad, but it wasn't good. It didn't really accelerate to where we thought it would be. So the first quarter was disappointing from that standpoint. But the second quarter, the last 3 months has been pretty consistent. I think this is right around the midpoint that we would have expected 3 months ago. So from that standpoint, I think we're all encouraged that things are going well. And like I said, it takes a while for the reference pricing to kind of hit for a consumer. If you are price-sensitive leisure customer and you've been seeing kind of 2 year spiral of negative fares and kind of sale fares first throughout the industry and all of a sudden, you've got fare increases of 5% or 10%. It's going to take you awhile 'til you recognize that "Hey, this is the fare I need to be booking." This the new normal and I think we knew consciously we're going to suffer a little bit of load through the first quarter as we went to that. But the most important thing for us is look, you've got to get out of the cycle of shelling increasingly negative numbers to the consumer and the second quarter looks positive from that standpoint even with positive yields and positive fare increases.

And our next question comes from the line of Dan McKenzie with Buckingham Research.

If I can go back to fleet, and I apologize, I may have missed this but you pulled forward a couple of retirements. First, what drove that decision? And then I believe you had planned in the year with 85 aircraft as of the first quarter. But as of today's release, I think the plan is to now end with 89. So 4 more aircraft despite the early requirements yet somewhat slower growth. And I just -- secondly, do I have that right? And if so, what's driving the reduced productivity exactly?

So from the productivity standpoint, I can talk about that, then we'll get into fleet just after. So the fourth quarter, we are -- we have a couple of underutilized shells and that's really a mismatch of both the metal and the cruise and where you have them. So as Maury said, we're not going to invest a ton into MD-80 frames if they need them at this point. And on the flip side, we're not going to train up MD-80 crews if we can only get 1 to 2 months of productivity before they have to go through training again. At the beginning of 2018, we'll take a large slug of Airbus equipments. So it's really trying to match up what's the best multiyear or even 1-year strategy for crew productivity. And unfortunately, you get into the end of the third and fourth quarter when we're retiring MDs and you've got this kind of severe mismatch of some underutilized MD-80 frames. That's what driving some of the tightening and the lowering of the top end of the ASM guide.

Understood. And then the difference in aircraft, you're ending with 89 aircraft rather than 85? Is that correct? And yet, the slower growth. And we've seen you -- if you're going to end the year with more aircraft, you would have potentially more growth here. But maybe that's not the case.

There's no change to the A320 induction schedule as what we've talked about in the past. There might have been refinement in the in-service dates that we tend to -- we're publishing here and service dates and sometimes the purchase can happen up to several months in advance of that. But basically, the fleet plan is the same as what it was the last time we spoke about it. A little bit more on early retirements of MD-80s. Every time we do a repair or a C check on an aircraft now, we have a known operating life. So as Maury said, we're making decisions based on new information every day and one of the options now is to pull-forward a retirement and that is going to happen from time-to-time. I think, importantly, that's the aircraft that will be utilized the least in scheduled service as we make that decision. So I mean, from time-to-time, we're going to have this happen. And I think it's probably at the peak now because we're more heavily relying upon the aircraft that we choose to retire than we will be in the future when we start basically building in excess of MD-80 availability that would be thrown into the ad hoc charter business where they're not to be retired. Just a comment and just to reiterate what Lukas said, most of the crew inefficiencies come from training transition. So beginning now and going all the way through December 2019, we're going to take 2 MD-80s or 757 and retire them and take on 2 additional aircraft. So the amount of crews that we have in the training status today is really high and that will ameliorate as we move forward with the fleet transition.

All right, I see. And then if I can just ask one final one here. As we think about the pretax profit improvement initiatives, I actually have the same question but just following up, what would be the incremental benefit? How should we think about the incremental benefit that phases in next year? $75 million of incremental benefit, did you work towards that revised pretax profit outlook, $100 million incremental benefit? Is there any kind of perspective you can share along those lines?

No, it's different based on the categories across those guides. Some of it's going to be back-end loaded, like, particularly the densification on the existing A320s. And also reduction in spares and some of it will be layered in more linearly like the credit card program, which is showing effects already in the reported results for the first quarter and some of the e-commerce initiatives. So it's kind of a mix. I'd say generally speaking, it's going to be weighted towards the back half of the period that we were guiding towards.

And our next question is from the line of Duane Pfennigwerth with Evercore ISI.

Is there any costs related to your hotel initiatives in the revised top guidance?

No.

So that's not a material driver at this point?

That's correct.

Why would MD-80 retirements drive higher expense? I assume you're basically scrapping them. Is this something write-down related? And if so, how much of the higher cost guide might be noncash in nature?

Yes, so going into '17, we had about $43 million in book value related to the MD-80 fleet. We try to match the depreciation stream when we think the shell is going to retire, which, obviously, can be very lumpy. So there's going to be individual write-downs at the time we choose to retire the plane. Obviously, the less planes in the fleet are going to impact how much flying we can go do. So there's some ASM impact on that. Regarding the noncash expenses, that's -- the run rate on that is about $8 million, incremental over -- in 2017 over '16. And that's a fairly flat run rate. So the comps will get, obviously, flat this time next year.

One of the MD-80s we've retired this quarter 4 avoided a C check that had a high number of nonroutines. So it's a cash-positive decision. The write-down is basically P&L neutral at the time but it did produce ASMs going forward, which is why it negatively affected unit cost. In this quarter, it's a cash positive decision.

Got it. And then Ponder, just want to say, welcome back. It feels like you've had many chances over the last few years to get the band back together. Maybe if you could give us some color on why now? And maybe between you, Maury and John, how you see the delineation of responsibilities going forward.

Yes. Thanks, Duane, I appreciate the thoughts. There's no real timing now. I just think there's a natural cycle in every business, and I was excited about John's joining several months back and I think there's quite a bit of work around the airline and then also in some of the ancillary areas in particular that is quite positive and it has a lot of good potential for the future while being very cost-effective as well, mind you. So the timing was great to try to reintegrate myself into that mix. And I'm very, very happy to be here.

And our next question is from the line of Joseph DeNardi with Stifel.

Lukas, just a question on load factors. I mean, we're obviously a little bit below that 90% range that you guys ran at for a little while. Like, can you get back there or are there just too many utilization markets that are driving ASMs for you to get back that high?

While we have a pretty balanced schedule and we can't get back to re-peaking, I'd say, load factors are going to be depressed. The load factors on the off-peak days are going to be materially lower than on the peak days. We don't have the benefit of having higher frequency markets to even that out like other airlines. So I'd say it will continue to be depressed although it won't be like the first quarter. Our goal is by the end of the year to be stabilized on that front. The third quarter, again, like I said, most of the growth -- all the growth really is in off-peak days. And so you see us kind of trying to combat that. But by the fourth quarter, hopefully, we'll be able to get back to a little bit more of the peakiness.

Okay. And then Lukas -- I'm sorry, Jude, on the international side, I thought that the plan was to hopefully start that next year. So when would we expect to see the first announcement for international service this year?

We can't commit to anything today. We're really challenged to try to execute on the fleet transition strategy and also launch international service, which has a lot of operational and technology constraints. So we will not fly scheduled service in 2017. It's a winter peak. So we'd like to launch around the Thanksgiving. We can't say today that we're not going to do anything between Thanksgiving '17 and '18, but the project is moving forward more slowly than we'd like but we do intend to be international at some point.

And our next question is a follow-up from Savi Syth with Raymond James.

Lukas, I'm just wondering with your kind of the changes that you are making at the revenue management system, could you provide an update? Is that still kind of -- are you still testing that a small segment or have you kind of expanded across...

Yes, we're about -- thanks, Savi. We're about 30% of our ASMs are now being priced on the new system, and I think it's looking pretty normalized, and we're continually optimizing it going forward. The goal is by the end of the year, to be at 90% or 100% of our ASMs priced onto the new system and we'll be able to -- once we're at that point, be able to give some good comparisons as to the actual TRASM effect.

Thank you. And ladies and gentlemen, this concludes our Q&A session for today. I would like to turn the call back to Maury Gallagher for any final remarks.

Thank you all very much. I appreciate your time and effort and we'll talk to you in 90 days. Thank you.

Ladies and gentlemen, thank you for participating in today's conference. This concludes the program, and you may all disconnect. Have a wonderful day.