Allegiant Travel Co (ALGT) 2017 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Allegiant Travel Company Third Quarter 2017 Earnings Conference Call. (Operator Instructions) As a reminder, this conference call is being recorded.

I would now like to turn the conference over to Chris Allen, Investor Relations. Please begin.

Thank you. Welcome to the Allegiant Travel Company's Third 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 and interim COO; Lukas Johnson, our Senior Vice President of Commercial; and a handful of others to help answer questions. We will open up with some commentary and then move into questions.

As a reminder, we are in the final stages of our plan for 2018 and we will now be providing guidance on 2018 capacity, CapEx costs on this call. Our Investor Day will take place in Las Vegas on Thursday, November 30 and we will use that venue to provide 2018 information, as well as the status of Sunseeker Resorts.

Before we begin, I have to remind listeners that this company's comments today will contain forward-looking statements, and they are only predictions that 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 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 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. 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 Maury.

Thank you, Chris, and good afternoon, everyone. Thank you for joining us today.

Typically I haven't been commenting on our calls, but for this call I wanted to personally update you on some critical goings on we've had going at this company here. We told you a year ago at our investor conference we were committed to retiring our MD-80 fleet by late 2019. We also told you our financial results would be impacted during this period with 2017 being the most impacted.

The financial results have been as difficult as we thought they would be this year. The operational change, however, of hitting our delivery targets for available Airbus aircraft and trained pilots to fly them has been spot on. Very excited and pleased about that. And hats off to all those involved in making the changeover happen on time.

As we've gotten further into this year, we've concluded we want to accelerate the MD-80 retirement timeline. To that end, we've moved up the retirement date by almost a year to the end of 2018. To accomplish this goal, we needed to tie down two areas. First, we had to find additional aircraft to make sure we had sufficient lift. Our aircraft acquisition group, headed by Robert Neal, rose to the task and they found us almost 20 additional aircraft, which will be delivered and in service by the end of next year.

Second, we needed to make sure we could transition our pilots from the MD-80s to the Airbus inside this accelerated schedule. During the past 24 months I'm happy to report we have substantially upgraded our training capacity and associated facilities to allow for this accelerated transition. We will miss the MD-80. It was the perfect fit for our model. The used Airbus fleet we are moving in to fits nicely as well though within our model. We expect this unique company that we call Allegiant, which provides our customers with a low cost leisure customer focused offering will continue to successfully for years to come.

Earlier this year, many of you expressed concerns about our management changes. A number of you publicly questioned whether our leadership was up to the job at hand. Over the years, this management team, I believe, has demonstrated a consistent focus for delivering exceptional results for all stakeholders. Since 2001, we've had 59 consecutive quarters of profitability, a number which I am extremely proud of. And many of these have had the best operating margin percentages in the world.

We are committed to continuing this tradition. We have a deep and wide management team. You expressed concerns about the lack of expertise in particular in our operations area that we needed a wise, experienced operations veteran from the industry. We've prided ourselves, having said that, on being different. And to that end in late May, John and I asked Scott Sheldon to take on the COO role, to dig in and make the necessary changes in our operational leadership and processes to turn these critical departments around.

And while Scott's background is not in operations, he does have a terrific management pedigree. And perhaps more importantly, he knows our organization from top to bottom. Management expertise is a skill that is transferable across many disciplines. Scott's expertise isn't that he knows how to change a starter generator, but rather he knows who the right person is to run the organization who needs to make this repair.

To that end, I'm happy to report we've made extraordinary progress in our all important operational results, particularly maintenance, in just over four months. And Scott will take you through some of these specifics in just a moment.

All successful companies experience management changes. By definition, if company is around long enough, management change is inevitable. So it is for us as well. But this is not a weakness in many instances, but rather a positive development to allow the company to consolidate what might have been a bit of a fractured leadership environment into a more uniform focused leadership group. That's the case for us.

And so it has been. I want you all to know our company is in as good a position as I have seen it, particularly as it relates to senior management. We have great people. Period. End of story. The quality is only exceeded by the depth. The current leadership team with John, Scott and many others in our senior roles are all world class.

In closing, our board, management and team members have a shared vision of operating a low cost, leisure oriented travel company. Our airline is the backbone of this strategy. We need to, we will offer our customers a safe, reliable, on time low cost travel product.

In addition, we want to offer these same customers a suite of leisure products, which allows them to stay in our ecosystem, such as our recently announced Sunseeker Resorts condo hotel project. We have the financial capability, I might add, to finance these efforts without adding entire high level of additional risk. But more importantly, we have the leadership team necessary to make this happen.

With that, let me turn it over to John for his comments.

Thank you very much, Maury. And good afternoon to everyone. So to expound a little bit on the management comments Maury made, I think we were chatting in the last conference call we had referred to Scott as being interim. We have of course taken that title away. He is our Chief Operating Officer. He has been functioning in that role and he will continue to hold the CFO title as well. But thought it was appropriate to point that out, that he spends a significant amount of time and effort and I think you can see that in the results. And of course he'll expound on that.

Like anything here that we're doing, we've been looking at personnel up and down the organization, product and process. But it all starts with personnel. So there's been a significant number of changes that have taken place in the maintenance area. I point that out because as well as we've done in the backend of Q2 and of course throughout Q3 and continuing in Q4, our best days are ahead of us, given these significant management changes we've made down deep and throughout the maintenance related areas. So very proud of what's taking place there.

And of course, the product and process changes we're making going forward will start to produce significant impacts as we move into Q4 and really into Q1 of next year.

The CMO candidate. We've chatted about that in the past. We still have that search going on. I'm using Korn Ferry to conduct that search. This is one of the more difficult positions to find in any organization. A lot of those that I've found throughout my career, this has always been a difficult one. And more so probably than ever, one that's probably in the highest demand throughout various industries out there.

We extended an offer to an individual about a month ago. That person had several other offers and chose another one. We do have another offer out there on the table to another wonderful candidate that we've been having significant conversations with, so hopefully something will materialize out of that. But again, we want to fill that role. We are going to fill it from the outside. And we're confident it will get filled, it just takes the appropriate amount of time to get the right candidate.

I've always referred to '17 as being a foundational year throughout the company. Whether you're talking about ops, IT, [inaudible] transition began the various personnel changes. Hospitality, we set that foundation with finding a site, we're starting the development of a brand. So it truly has been a foundational year and exciting as we move into '18.

So what is '18? '18 of course continues the transition that Maury spoke about or accelerating it into '18 due to the efforts of B.J. and his team. Without that I think all of us, including myself, looked at going into '17 as the transition probably being one of the largest potential areas of execution risk. I think it's the fact that B.J. and his team have executed and planned throughout the process in a flawless manner. It gave us the confidence to accelerate the whole transition, if you will, out of the MD-80 by the end of '18. So very, very excited about that, as Maury pointed to you.

But now '18 not only ends the transition, but now that becomes a transformational year. Everything that we've laid the foundation for really allows the company to transform going forward. So when you look at ops, for instance, the tremendous success we've had in a relatively short period of time and with all the efforts that I've previously alluded to, that truly will be transformational in that area and create an environment of accountability and speed and everything else that we're pushing to be able to enhance that culture in that area. Very transformational and very exciting to see what's happening.

All the IT projects that we were working on in '17got us out of a lot of the technical debt and everything we're working on. Everything that we presented in the investor deck from an IT perspective, all of that is on track. We'll of course talk about all of these issues in greater detail in the investor presentation coming up here November 29th. But again, most of the projects we'll be working on now in IT going forward, it's '18 and out, are ones that have an ROI associated with them, as opposed to just trying to take care of technical debt.

And of course, Sunseeker. Maury alluded to that. The '18 will see Sunseeker start to enter into purchase agreements. It will see the beginning of construction and again we'll give more color to that. But '18 will truly be a transformational year for this company, along with other strategic initiatives we're looking at.

And just to expound a little bit on Sunseeker, I'm not going to take any questions on Sunseeker until the Investor Day, not because we're not excited by it or trying to avoid it, but there is a lot of things that are taking place right now that will allow me to give more color on what's going on in Sunseeker by waiting till the 29th of November. By that I mean, just to give you an idea, we've talked about these expression of interest that we've been attracting on our website. We're going to be converting those to reservation deposits. That's going to start in the beginning of November so I can't give you any color on that because it doesn't start until November and that's one of the most important data points.

So by November 29th I'll be able to give you a good feel for how those are operating. And again, just by way of background or reminder, those are deposits that are refundable where people or individuals or prospective buyers actually open up an escrow account and put $5,000 down. That process, as I said, will start in early part of November.

I will give you information regarding construction costs, as I mentioned before. We'll talk about financing, we'll talk about construction timing. So all of those updates will be provided in that November 29th day, but the one takeaway you should have from this meeting and of course every one we have going forward, is that there is no change to the philosophy, which is we will not get started or we will not build without pre-selling everything.

So that should always be something that's understood. We are not moving off that, nor will we, but I think looking forward to the 29th of November to give you a lot more color.

In that regard, I'll turn it over to Scott.

Thanks, John, and good afternoon, everyone. First I wanted to thank all the team members across the network for the tremendous job they do every day. And as Maury indicated, we are seeing positive operational trends over the past five months and that's a direct result of the renewed efforts of our staff.

We are really gaining momentum within the operations group and we're starting to perform at a level our customers expect from us. As you may recall, our second quarter 2017 ops didn't perform as expected. We experienced over 425 maintenance cancellations, which was the highest number of maintenance cancellations in the history of the company. There were a number of key personnel departures mid quarter and we were lagging behind many of the internal targets that we track on basis.

Our core performance resulted in irregular ops cost of almost $18.5 million during the quarter, which was up about $8 million year over year and impacted over 120,000 passengers.

As we moved into 3Q '17, we made substantial changes within the organization, particularly within the maintenance group. Some of it included changing out and or realigning key maintenance leadership here at headquarters. We introduced new line management maintenance teams within St Pete, for Las Vegas and San Port, Orlando. We introduced a new leadership within the maintenance planning group and also realigned our reliability group underneath them.

We structured our heavy maintenance and induction organization and conducted a bottoms up review of our procurement process, material support strategy, along with new leadership in those areas as well.

Early indications are showing these changes to be meaningful. We're seeing a fairly dramatic turnaround since June and dispatch reliability on both Airbus and MD-80 fleets, which are both multiple points above year to date averages. A reduction in aircraft out of service events and most importantly a reduction in the number of hours per out of service event. These are encouraging trends in such a short amount of time.

As indicated in our release, we experienced a 61% decrease in controllable cancellations year over year. This resulted in a nearly 1.5% increase in controllable completion factor to 99.2% and more importantly, allowed us to drive down year over year irregular ops costs by $3.5 million, which excludes the impact of Hurricane Irma.

On a sequential basis, our controllable cancellations decreased nearly 64%, which resulted in a nearly $10 million reduction in irregular ops costs from the second quarter. As a reminder to those on the call our trailing 12 months irregular ops costs are approximately $48 million, excluding the impact of Hurricane Irma.

Once again, these results are preliminary. All of our team members should be proud of the progress we're making. It's incredibly expensive to run a core operation and with the expected aircraft [inaudible] levels, expected to be reduced post MD-80 retirement, we have to run a more reliable operation.

And lastly, let me touch on a comment made in the earnings release. As the release indicates, our board of directors just approved this week an aggressive retirement schedule for the remaining MD-80 fleet. Our book value exposure at quarter end for MD-80 fleet and related fleet assets was approximately $42 million. We're currently in the process of conducting an impairment analysis with our auditors, KPMG, which may result in us taking a one-time non-cash impairment charge during the fourth quarter.

And with that, I'll turn it over to Lukas.

Good afternoon. Thanks, Scott. I'd like to give a little bit of color as to how the third quarter results and fourth quarter guide for year period unit revenue turned out. We're very pleased with how the third quarter TRASM ended up. We finished slightly above the midpoint of our original guidance on the last earnings call and we didn't see any major impacts from the aggressive competitive pricing landscape over the last few months.

Hurricane Irma did not materially affect our third quarter TRASM. It did affect fourth quarter bookings, which I'll speak to in a minute. And it occurred during a seasonally weak period as to why it didn't affect third quarter TRASM.

We continue to pace ahead of our co-brand credit card acquisition rates forecast and we're extremely pleased with the results so far. We just completed the first year of our program and I'll be sharing much more on this in depth at our upcoming investor day.

And lastly, our new revenue management system is growing very well, roughly one-third of our flown capacity in the third quarter was priced with our new system and it's showing positive results.

As a reminder, this is going to be a multi-year process, the testing optimization. And again, we'll be sharing much more details next month.

So turning towards the fourth quarter, we project year over year TRASM to be down between negative 3% and negative 0.5%. One big headwind as for that is the impact of Hurricane Irma and the Las Vegas mass shooting. We have the highest percentage of capacity employed in Vegas in the industry and seasonally adjusted that's about 80% of ASMs in the fourth quarter. The effect of that headwind on bookings in the fourth quarter is about 3% to 3.5%. Now that has been pretty isolated to the fourth quarter. Booking volumes have steadily recovered each week since the events of each. And I don't expect it to have much of an impact on the first quarter of 2018 unit revenue story.

And with that, we will open up to questions.

Michael Linenberg, Deutsche Bank.

I guess two questions here. I think John, you had referred to this year as a transitional year and 2018 as a transformational year. The fact that we're going to see the company I guess accelerate depreciation of the MD-80s, how should we think about what your unit costs ex-fuel are going to look like in 2018? Is that going to be the increase? Is it going to be similar to what we saw in '17 given the fact that you are taking a lot of these, I guess upfront costs and you do still have some transitional costs occurring next year? Can you give us some color on that?

I'll let Scott give you a little color on that. He's closer to it.

Yes, so as I just mentioned, at this point it's likely you're going to see kind of a one-time non-cash hit related to the remaining book values of all MD-80 and related assets here in the fourth quarter, which would, I think we affirmed full year ex-fuel guidance of up 11 to up 12. I'm sorry, yes, that's up 11, up 12. If you include some sort of a range of up to $42 million, that's likely in the up 15 to up 16 range. Excluding that, the trends moving into 2018, you should start to see definitely a reduction in CASM-X. That is assuming however you want to look at it, with or without the write down.

And so, as Maury mentioned, '17 was probably going to be the most choppy of the 2.5 year transition, but at this point obviously we have a couple of weeks left until Investor Day, but at this point directionally you're going to see a reduction in full year '18.

That's actually great to hear. And then underlying that, what type of I mean capacity range? I realize it's early, but you kind of have a sense on what we're going to see as we move into, I mean for 2018 what your scheduled capacity could be?

This is Lukas. We'll give the full projected range at the Investor Day, but it's not going to be a 20% number like you saw in '15 and '16. But probably more similar to 2017.

And then just one last question and I don't know if this is to Scott. As you start to build out the Sunseeker side of the business, have you thought about when you present your financials, are you going to breakout is it the airline financials next to Sunseeker? Are you going to consolidate them? I mean I think we're going to try to figure out what part of the financials are tied purely to the airline, what are tied to the real estate side of the business. Or are you going to be provide more detail on that on your Investor Day?

This is John Redmond again. We'll definitely give you a lot more detail on that Investor Day. But I think I'd mentioned on the last conference call as well we're definitely going to give you a lot more information on what's going on with Sunseeker and we're going to have to have enhanced disclosures as it relates to Sunseeker going forward, there's no doubt about it.

And Michael, this is Greg Anderson. I would just add to John's point that that'll be segment reporting on the Sunseeker versus the airline, so you'll see it all broken out within our filings.

Rajeev Lalwani, Morgan Stanley.

Two questions. One, you highlighted 2018 as being a bit of a transformational year. What does that imply as far as the fleet transition next year? And do you feel like after this year you've kind of de-risked that dynamic and you're just more comfortable with it, not much of a risk going forward?

Well when I say transformational it's because of all the initiatives that I outlined in '17 that we've worked on. And the fleet transition of course was part of that. As I mentioned, B.J. and his team have done such a tremendous job in planning and executing that transition that it gave us the confidence to go ahead and accelerate the rest of this transition into '18.

So that's why then '18 becomes the transformational year because we come out of it of course as an all Airbus fleet as we move into '19. So very excited by that, but there's always going to be risk any time you involve yourself in a significant transition like that, but we feel comfortable moving into '18, given the success of '17 no doubt. When we were going in to '17, it was a new challenge for us, one we hadn't done at that level. And of course, we have that degree of confidence now moving into '18 that we won't have any significant missteps.

And then for Lukas, can you talk a little bit about the revenue initiatives, how they're coming along and maybe give a couple of data points on, I think you were talking about the new revenue management system.

Sure, just one point to jump on to John's answer. We're going to finish up this quarter, fourth quarter, at 65% of our flown ASMs on Airbus and the first quarter of next year will be 75%, 76% on the Airbus. We are mostly through this from a kind of a risk standpoint of delivery and a fleet transition standpoint and that's again why we feel really confident.

In terms of the new revenue management system, like I said, we're about a third of our flown ASMs in the third quarter will be on the system, about 55%, 58% somewhere in that range in the fourth quarter will be flown priced using the new system. Obviously within the first year of its launch there's going to be some flights and some segments that it is better on and some worse, but overall the trend is positive. The new system is outperforming the old one and going into the first quarter of next year we'll be closer to 80% or above on flown ASMs on the new system. So again, we're really encouraged by both the way that it's ramped up. I think at the start of the year we had a low percentage of ASMs and we needed to get it live and the system be learning about itself. But we'll have a much more in dept breakdown in the Investor Day as to quantifying the TRASM impact on that and as to what timing you guys can look for that.

Joseph DeNardi, Stifel.

Lukas, just on the fare environment right now, it seems like the last time this played out back in 2015 when fares stepped down, there was a little bit of a lag in terms of when other airlines started seeing the impact and when you all did. So correct me if I'm wrong there, but I think you started to see the impact once connecting fares came down low enough. Is the fare weakness that the other airlines have talked about since June or July different than 2015 and that's why you're less impacted? Or is the impact kind of yet to come?

Yes, that's a great question because you're right, we did see a, say six month lag in 2015 when this happened. There does seem to be a key difference in the environment for us as it pertains to us and other carriers and that specifically there's some weakness around close in advanced purchase pricing right now throughout the industry and also specific hubs that are being priced at. As for the first one, in 2015 we noticed a decline in connecting fare pricing, which hurt us more than some regular segment O&D payer pricing like we're seeing now. So we feel pretty well insulated from that. We've seen virtually no difference in the connecting fare environment, which makes sense, given the strategy of certain carriers.

And as far as the second point, I don't feel there's going to be a ton of difference in terms of, there's not going to be a ton of book away because we're not exposed to Denver or some of the larger competitive pricing hubs right now. There's nothing within a couple of hours that your people are going to be driving away as opposed to 2015. So we feel as of right now we've had very little impact as to what's going on.

And then, Scott, just on the irregular ops number, I guess $48 million last 12 months, does that all go through the other expense line or does that include labor and some other things that might hit elsewhere in the income statement?

And then what can that number get down to eventually and how much of a driver of the CASM benefit is that going to be next year?

As far as how it's reflected in the financials, it's kind of a potpourri, right? So that's an all-in number, so there's going to be a revenue impact to that. There's costs, there's not one specific spot you can point to.

That being said, every time we cancel a flight, cancel with no reschedule, it costs us about $50,000. And so you start to see some of these cancellation numbers that we've historically seen and it gets really expensive. And so as a data point, we've experienced less than one maintenance cancellation per week since mid August. And so you're starting to see the operation really calm down and you eliminate kind of the whipsaw effect of kind of rolling delays.

And so what can it get down to? I would be very surprised, I'm thinking back to 4Q of last year, I think there was about $10 million in irregular ops costs. I think you're going to see a fraction of that, assuming that the trajectory continues on what we're seeing right now. And so we're pretty bullish. A lot of those numbers and what we think the benefit is are not baked in to what our guides will be in November. So we view that as definitely as the upside.

Duane Pfennigwerth, Evercore ISI.

Just with respect to your 2018 fleet plan, these 319s and 320s, is that baked for 2018 or should we expect to see sort of more opportunistic aircraft deals? And could you speak to how booked you are for 2019 also?

This is B.J. I think it's unlikely you see too many more Airbus added during 2018. We're kind of going about as fast as we can. It'd have to be something really opportunistic at this point.

And then on 2019, I think we've got still some of the aircraft coming in from easyJet, which are on lease today, delivering in the fourth quarter of this year. So those will come in around March.

And then I think we'll probably need five or six more.

I don't know how aggressively you're in the market now, but I wonder if you're seeing any softness in values as it relates to some of the restructurings in Europe.

Yes, there's definitely some opportunity there. That demand is being soaped up though. I mean that's mostly a leased fleet and they don't seem to have trouble placing it on leads. But we have a few opportunities from those bankruptcies.

And then John, I want to be respectful to your no comment on Sunseeker, but it's just so enticing, given that we get to ask about something other than RASM and CASM. So maybe conceptually, could you just elaborate a little bit on what you mean like you won't build it until you sell it. And specifically what does until you sell it me? Does it mean one tower or does it mean all the towers? And does it mean deposits, any color you could add on that would be great.

It'll be fun talking about the project going forward because we've become more elated and ecstatic about it as we move through the process her and continue with the design development.

As I mentioned, the project has basically two components. They would have a component that's owned by, call it Allegiant Sunseeker, and a component that would be sold off as condo hotels with the idea of the hotel component being managed by us as hotel product going forward.

So we would not build, but the idea is not to build the assets that would be owned by Allegiant Sunseeker. We would not build those assets until we sell a sufficient number of condo units or towers that would pay for the cost of those structures.

So I can try to provide a little bit more color to you in that Investor Day on how many units we think that would be that we would have to sell in order to pay for the Allegiant Sunseeker owned assets. But right now of course, our fixation is on selling out the whole project, so there's right now about 720 units and our focus is to try to sell all 720.

And if that came to pass, then again, selling means entering into purchase agreements with sufficient number of people to cover the 720. I say that because we can have people buying more than one unit. And when that happens, then we would start construction.

So all of our efforts or that the sales construction, et cetera, are moving in parallel tracks, so nothing is lagging the other. So whenever we have finality or certainty on one, we're able to execute on the other. So if we have sufficient sales, for instance, it's not like we're going to have to wait six months for construction development to catch up because they're all moving in lockstep, which is very good for all.

I appreciate that. So with respect to the land, there's some improvement activity going on now to sort of button this up as one parcel?

Yes, that's more legal in nature where you have to go through and vacate streets and easements and whatnot. So the attorney community is happy, that's for sure. The other type of activity you'll see before the end of the year there on site, which is more minor, which would be eliminating or demolishing just a hand full of small structures that are on the property for a multitude of reasons, not the least of which is squatters and safety and everything else. But these are very small, for the most part single story structures that we would start to take down some time in Q4.

But the parameters we previously provided in terms of how much we would be spending, no change to that. I think in the aggregate we said something like 35 between from when we started to the end of this year. And I don't see any change to that. But again, we'll try to provide the tremendous amount of transparency and color in the November 29th Investor Day.

Helane Becker, Cowen.

Just a couple of questions here. On the handout for today, at least on my page two or page three, you talk about maintenance and repairs expense kind of declining for the rest of the year. So I'm wondering about this. As the A320s and A319s come in, how should we think about maintenance cost per aircraft? I would think that should trend down as well.

This is Scott. No, you're absolutely right. The Airbus fleet we currently account for heavy maintenance the deferral method. On our MD-80 fleet is still under the direct expense method. And so any heavy maintenance activity, albeit that's going to start to really wind down as we sunset the fleet, you'll see less and less expenses roll through the P&L real time. You'll begin to see more and more capitalized maintenance and depreciated, which relate to the Airbus fleet.

But you're right. I think in the release we have, I think we had a full-year guide of $105,000 to $110,000 per aircraft per month. You should start to see that come down dramatically once the entire MD-80 fleet is sunset. So we're not putting too many motors through the shop. A lot of the retirement schedule related to the MD-80 is targeted to the next heavy airframe [inaudible]. And so we're starting to minimize a lot of the maintenance costs that you would have to re-up for if you're going to continue to operate the aircraft.

And your accountants won't make you account for the maintenance on the Airbuses the way they made you account for the MD-80 maintenance.

No.

And the other question I had is with respect to the CapEx guidance, which seems to be I guess up, but it's up because the additional A320s that you managed to source. Is that what that's about? Because further down on page three it says full-year CapEx now is 604 versus prior guidance of 525. And I'm just making sure that's related to the A320 fleet, right, because I guess.

This is Greg Anderson again. You're absolutely right. So we expect here in the near-term to close on five additional A320 series aircraft and the increase in our guidance pertains to those aircraft.

And then how long will it take those to get into service?

The payments will be made this year and then in service will flow into next year in 2018, mainly in the mid part of next year.

Hunter Keay, Wolfe Research.

If the fleet count's going to be down next year, can you talk about how you're going to grow ASMs? And what does that mean for sort of the peak versus off peak flying and maybe how that impacts TRASM, if you want to give us sort of an early look at that.

It's Lukas. So it's a good question, right, and part of that is annualizing some of the growth that we put in this year. And part of that is going to be off peak absolutely where you're going to have to be condensed down a little bit from where you were at this year. It shouldn't be as bad as the summer this year where we really had negative peak day growth. We'll still be able to grow peak days, but most of the growth will be concentrated again on off peak days. For example, for the first quarter, it's about a 3 to 1 ratio in terms of growth on an off peak day versus a peak day. And as well, I think we're going to squeeze down fixed C slightly for 2018 as we make sure that the [inaudible] and the fleet transition get the priority.

Is there a stage length component to the ASMs too, given the slight incremental range capabilities?

We are flying a little bit further, but I would say no. You're still going to be annualizing the end of the, I'll say it's the Honolulu route, which we won't be running in 2018, so I'd expect gauge to not increase from that side. There is a minor gauge increase as you go to 186 seats as well, so that's a way to increase ASMs without frames. I believe 2% of our planned ASM growth in 2018 is due to the up-gauging.

And then I don't know if this is a question for Maury or for John, but every airline has their own definition of what a marketing person does. Sometimes it has absolutely nothing to do with marketing at all. John, I don't know if you'd care to elaborate on sort of the search here, but what is it exactly you're trying to get from this Chief Marketing Officer that might be very unique as it relates to what that role traditionally does for an airline?

That's a very good point, Hunter. I think you guys have all heard me say that from the outset our objective was to bring someone in who did not have an airline background, right? So this is someone that understands how to get involved in data analytics, how to deal with a database in a much more significant way and how to monetize that database. We've been saying since I came onboard that airlines have these amazing databases, but they haven't figured out how to monetize them. So we want to bring in someone who really knows their way around a database and knows how to monetize that data and drive a lot more revenue than just through potentially selling an extra seat or an additional credit card.

So those are what I would call been there done that marketing that happened throughout the airlines. We want to come up with something that's far more unique, and that's why we're looking for a very uniquely talented individual to try to do that.

Also within the marketing wheelhouse, if you will, that we're looking for would be people have a good depth of understanding when it comes to branding and the importance of brand. We've already been focusing on our brand legion already to make sure that we enhance that brand, so even when Scott talked about IROP savings quarter over quarter, we did that even though we increased the amount that we pay on a per passenger basis probably on average by at least double. So the savings would have been significantly higher, but we are enhancing through a lot of different means right now into the customer experience because we realize the importance of a brand, but we want someone to come in here who really knows how to leverage the brand.

We're creating additional brands. I mean Sunseeker being the most obvious. That's one of the most significant standalone hotel brands that's been created in the recent past. This person can help us out tremendously. And of course, all the brands and sub-brands that'll be at that project will be very significant.

The other thing that is important now to be part of those responsibilities would be a whole loyalty program. So we don't have a loyalty program per se outside of what we involve ourselves with with the credit card, so this loyalty program would be all encompassing across all strategic initiatives that we've identified and will continue to identify. So how structurally that's put together becomes very significant and someone has to have a lot of background and foresight into how to structure and put together one of those programs.

So those are probably the three most significant areas, albeit it'll be touching on others like advertising and these types of things. But those are just the more obvious. But I hope that answers maybe what you were thinking of.

Yes.

Dan McKenzie, Buckingham Research.

A few questions here. Scott, with respect to the non fuel costs down next year, I apologize for splitting hairs here and what that means exactly, but do you just simply mean the growth rate is down so less than this year, but still growing? Or do you mean down in the absolute sense?

In an absolute sense.

And then I guess just to clarify that point, if I can go back to the $100 million in the incremental cost and revenue initiatives as outlined at the Investor Day last year, I think investors are concluding that a lot of these initiatives get competed away. But if we can just start with that $100 million just for purposes of the argument here, it seemed that you could do a little better on the fuel and the ex-fuel costs and the fleet productivity if you're accelerating these things. So just sort of back of the envelope, all in all sequel, if none of these are getting competed away it would seem like that would get something closer to $125 million. Is there any flaw to that logic?

Yes, I think the one point we've made is on that investor deck that we provided way back when, in the last call as well as this one, we're tracking everything that we have committed to on that deck. But the one thing that I wanted to point out is when it comes to the investment day coming up here on the 29th, we will go line item by line item and give you updates on where we stand. So we intend to give you a lot of color around it, but we are pacing on all those initiatives, just like we expected and there's nothing negative to report. We can only give you a little bit more transparency about the details around each of those numbers when we get to the Investor Day.

Then if I could just squeeze one more in here. And I guess I don't know if this would be for Maury or Scott possibly, but in the third quarter it doesn't look like there was any stock bought back, but yet it was pretty cheap or inexpensive. I'm just wondering if you can, what perspective you can share about that decision in the third quarter. And as you look ahead, what are the things that we should be thinking about?

It's Maury, Dan. We try and time our purchases of stock and the pecking order goes to investment in the company, CapEx in particular, and then stock if we have that excess capital. But we've really had a big focus on getting ready for next year with you heard about the additional CapEx and the like and we're maintaining basic liquidity requirements as well. So I'm mindful that the stock was definitely seems hopefully at the low end but we bought a lot in the previous quarter and so we always look to be opportunistic, but we let the business take it's place first in line.

Kevin Crissey, Citigroup.

When you talk about CASM-X for 2018, just want to make sure I understand. Is that inclusive of the Sunseeker or is it just the airline costs? I'm just wondering whether CASM-X going forward is going to be total company costs or just the airline's cost?

Yes, it would be all inclusive. We haven't broke anything out yet, but everything under the Allegiant umbrella would be included in that sort of a downward trend.

Again, one data point just to add to that, Kevin. This is John Redmond. A lot of what's going to be happening, if not everything with Sunseeker in '18 would be capitalized. But again, we can give you a little bit more color on that, but from the most part, you can look at just about everything relating to Sunseeker as being cap.

And maybe for Lukas, can you talk about what the network implications are for the faster retirement of the MD-80s? Like how that might change your plans?

Yes, so again we had to shift a little bit of the flying into the off peak periods. We took down growth slightly from the originally forecasted plan, but it hasn't been as much of an adjustment that you would expect. It's really about consolidating, delaying some of the opportunities till the beginning of 2019 and just making some hard decisions around when to take it off.

And I think we've timed it well with the operation of the fleet team so that they'll be as minimal kind of growth disruption. We're focusing on rapidly exiting in some off peak periods, so you won't see nearly as much of an impact as you would have otherwise. So you're talking 3% ASM difference between an end of 2019 plan and an end of 2018 plan versus a large number of [inaudible]. And when you really looked at do you want to extend a lot of the difficulties of operating two fleet types for another year just for that 2% of ASM growth? It doesn't make a whole lot of sense. So I think everybody's excited to non board this plane.

Stephen O'Hara, Sidoti & Company.

I was just wondering if you could talk about the fuel burn in terms of the A320, what maybe the expectation is when you get to 186. And then how that progresses maybe in 2018.

This is Trent Porter. Our fuel burn in moving over to the 320s will increase to about 85 ASMs per gallon from the 72 number that we are for 2017. In 2018, we will make a step increase, a significant step increase with accelerator retirement to be between 78 and 80 ASMs per gallon.

And then just on the potential charge in the fourth quarter, that's just taking the values down to the way they'll be depreciated throughout the year. Is that the mechanics of it?

Yes, well you basically see a one-time expense to the other line item. So basically look at it as a gain loss. So it's really disposition of the fleet. And we should have that nailed down here in the next couple of weeks.

Savanthi Syth, Raymond James.

This is Matt Roberts on for Savi here. Quick question on Vegas. Now you said that demand was rebounding. Now does that mean bookings are still down year over year, but they're just down less? Could you provide a little color there?

Yes, Matt, that would be accurate. This is Lukas. But certainly each week since the first week of October has been, I guess bookings have recovered more towards normal, but we're still slightly behind where we were pacing last year. Florida on the other hand has bookings have actually rebounded above. Year over year yields were slightly declined, so you'd probably say we're about even with where we are as we expect most of the Hurricane Irma impact to be already baked in and Vegas is almost there.

And I assume, is that a similar trend for hotel room inventory? And kind of on that line, what type of promotional activity is necessary to get Vegas back to normal and how long could that go on for?

I can't speak to, if you're trying to read in through some of the properties, but I would expect that to be similar in terms of volumes because as we carry people on it's a similar like for like.

Joseph DeNardi, Stifel.

Hey, Maury, just relative to your prepared remarks, I think one of the questions I get a decent amount is what your plans are longer term. So maybe you could just provide us with your updated thoughts. I mean if the line on your tenure as CEO is two years, would you take the over or under on that?

What's it worth to me? The company is going through a big transition right now. I've not sold any stock for quite a while. I'm a big believer in where we're at. And I'm not involved in the day to day as much as perhaps I might have been a couple three years ago, the team's doing a great job. I still provide a good service for some of the oversight and some of the outside stuff, so they've kept a desk in the corner for me and I'm going to stay there for a while.

: There are no further questions in the queue. I'll turn the call back over to Maury Gallagher for closing remarks.

Thank you all very much. Appreciate your time and we'll talk to you in January.

Thank you. Ladies and gentlemen, this concludes today's conference. You may now disconnect. Good day, everyone.