Allegiant Travel Co (ALGT) 2010 Q1 法說會逐字稿

Welcome to Allegiant Travel Company's first quarter 2010 financial results conference call. We have on the call today Maury Gallagher, the Company's CEO and Chairman and Andrew Levy, the Company's President and CFO. Today's comments will begin with Maury Gallagher followed by Andrew Levy. After their prepared remarks we will hold a short question-and-answer session.

We wish to remind listeners to this webcast that the Company's comments today will contain forward-looking statements that are only predictions and involve risks and uncertainties. Forward-looking statements made today may include, among others, references to future performance and any comments about our strategic plans. There are many risk factors that could prevent us from achieving our goals and cause the underlying assumptions of these forward-looking statements and our actual results to differ materially from those expressed in or implied by our forward-looking statements. These risk factors and others are more fully discussed in our filings with the Securities and Exchange Commission. Any forward-looking statements are based on information available to us today, and we undertake no obligation to update publicly any forward-looking statement, 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 anticipated events that do not materialize. The earnings release as well as a rebroadcast of this call are available at the Company's Investor Relations site, ir.allegiant.com. At this time, I'd like to turn the call over to Maury Gallagher for opening remarks.

Thank you, ma'am. Good morning. It's a pleasure to be with you again this quarter. Joining me today again is Andrew Levy.

We had another excellent first quarter -- our 29th consecutive profitable quarter and historically our most profitable on an annual basis. We had after-tax income of $22.6 million, or $1.12 per share fully diluted. Total revenues grew 19%, from $142 million to $170 million year-over-year. Fuel expense during this period increased 72% to $57 million, while non-fuel operating expenses grew 18% or $11.8 million. These results produced a 21% operating margin or a $36.2 million operating profit for the quarter. Clearly we are seeing strength in the top line, scheduled service revenues grew $20 million to $110 million, a 20% increase. The main components of this increase were a higher selling fare, up 9%, from $74.50 to $81.40. And 1.4 million more scheduled service passengers, a 12% increase. Fixed fee revenues grew 11.5% to $11.3 million for the quarter. The main component of this growth was the increase in our Harrah's revenues. They were up 18% year-over-year, in spite of their Reno service being discontinued late last year, a victim of the current economic environment. As a side note, our Reno service for Harrah's is one of our first markets we launched eight years ago in early 2002.

Ancillary revenues for the quarter were $47.6 million, a 15% increase year-over-year. Perhaps more importantly, the sequential increase was [$10.7 million], compared to the fourth quarter 2009, just short of a 30% increase. A critical part of the quarter-over-quarter improvement was the increase in the ancillary average fare. Q1's 2010 fare was $35.08 per scheduled passenger, a $2.30 improvement from Q4 2009. The first quarter's $35.08 average ancillary fare represents a 13% increase since summer of 2009. These results for Q1 represent our fifth year in a row of double digit operating profits in the first quarter. Since 2005, our Q1 activities have generated $122 million of operating profits cumulatively, at a 20% operating margin. Since the beginning of 2005, we have expanded our model from 12 small cities and one world class leisure destination at that time, Las Vegas. Our current national footprint has 57 small cities, 11 leisure destinations and 134 routes.

The profile of 2005's $29.5 million first quarter revenue was 56% from scheduled service, 40% from fixed fee and 4% from ancillary. Five years later, 2010's first quarter revenues were $170 million, a 42% annual compounded increase. 65% of this year's total was from scheduled service, 7% from fixed fee and 28% from ancillary. Ancillary revenues during this time have grown from $1.4 million in the first quarter of 2005 to $47.6 million this year. That's 104% compounded annual increase in the past five years. More importantly, we have increased scheduled service total RASM during this five year period from $0.0841 to the current $0.1108, a 32% increase. All of the increases in scheduled service unit revenue during the past five years have come primarily from ancillary revenues. These ancillary revenues have given us what some have called pricing power. Moreover, ancillaries have proven to be sticky and resilient. During the recent downturn, the selling fare dropped 25% from the third quarter of 2008 to the second quarter of 2009. The average ancillary revenue however in the same period, Q3 2008 to Q2 2009, was unchanged at $32 per passenger. The combination of our attractive selling fares and the sticky resilient ancillary products, provides a strong and predictable base of revenues. This sound base when combined with our low cost suggests we'll have reliable, predictable profit margins on a go forward basis.

The final major question for investors is what does the growth look like. As we have indicated a number of times in our past presentations, we believe we still have many new routes available for our MD-80 in North America. We're currently closing on 20 SAS aircraft -- five of those aircraft will be parted out and the remainder will be added to our fleet over the next 18 months, taking our fleet to over 60 MD-80 aircraft by the end of next year. During the quarter we announced plans to add Hawaii service. We are very excited about our prospects for Hawaii. We believe it could be one of our best destinations. It has all of the positive attributes we see in a number of our destinations and more, including the expectation of a high hotel take rate given the nature of Hawaii as a destination, a longer hotel stay with higher unit revenue than our other key hotel market, Las Vegas, one of the highest rental car take rates in the US and more possibilities for attractions given the outdoor nature of the Hawaii vacation. We need to add a new aircraft type -- the Boeing 757 -- to provide service to Hawaii. As we indicated in our press release, we've agreed to purchase six 757s. We have closed on two aircraft to date and will add another two later this year and the final two late next year. We expect to begin service sometime next year as well. In the meantime, we have to complete the necessary FAA requirements to add the 757 to our certificate as well as obtain the necessary ETOPS authority required to fly to Hawaii.

Once again I would like to thank all of our team members for another excellent effort in what has historically been our busiest quarter. Additionally we have had a difficult winter this year and our operations were affected accordingly requiring even more diligence than usual. Looking forward, we are encouraged by the improving economic trends we have seen in the past three quarters. We are making a number of key investments to provide future growth including adding 757s for our Hawaii service and transitioning to a new automation platform. There will be one time expenditures for these efforts in the coming quarters. Even with the increasing energy prices of late, we are still excited about our prospects. We have a unique franchise that has been performing exceptionally well in the past five years and particularly so in the past six quarters. We earned $3.6 million of EBITDA per aircraft last year, about the cost to put an MD-80 aircraft in service and our return on equity for the past 12 months has been 25%. As such, we have proven over the years we can and will adjust, adapt the business to fit the necessary circumstances to fulfill our main objective, remaining very profitable.

Andrew?

Thanks, Maury. During the first quarter we generated $44.8 million of EBITDA, $36.3 million of operating income, and $22.6 million of net income, or $1.12 per fully diluted share. We ended the quarter with unrestricted cash and short-term investments of $249.2 million. Up from $231.5 million at the end of the prior quarter but despite $40 million of CapEx, $6.4 million in principal repayment, and $2.9 million spent in share repurchases, cash excluding air traffic liability declined only $13.5 million to $127.4 million, from $140.9 million at the end of 2009. Unleveraged ratios continued to improve. Our debt to equity ratio now stands at 12.5% and our interest coverage ratio is 39 times. Return on equity is 25% and our return on capital is approximately 21% over the last 12 months.

We're very pleased with our liquidity, our balance sheet metrics and the financial returns we've been able to produce in the past several quarters. We believe we can continue to produce similar returns going forward. As Maury noted, we are seeing strength in our scheduled service revenues. We are pleased by the year-over-year increase in the average fare but it remains well under the $87 per passenger we experienced in the first quarter of '08 on a 4% shorter stage length. So we are better than a year ago. But not yet back to pre-recession levels. The first quarter remains our strongest, so we do not currently expect the average fare in the second quarter to match the $81 we posted in the first quarter, despite the fairly good pricing environment, we are currently experiencing in our markets.

Ancillary revenue continues to grow posting a 15.4% gain this quarter compared with 1Q '09 due to a 16.8% increase in air related charges and a 3.9% increase in third party products. Ancillary revenue per scheduled passenger increased 2.9% to $35.08 from $34.09 a year ago. Air related ancillary revenue per passenger increased 4.2% to $31.44, primarily due to higher checked bag fees which now range between $15 and $25 per checked bag, depending on the flight segment length. Third party ancillary revenue per passenger declined 7.3% to $3.64, primarily due to lower contribution from the sale of an online subscription coupon book and lower per passenger hotel contribution, due to a larger portion of non-Las Vegas passengers. The sale on non-Las Vegas hotels increased in the first quarter of '10 but remains a much smaller contributor than the sale of Las Vegas hotels. So as the Las Vegas passenger basis declined as a percentage of total passengers, hotel revenue per passenger has also declined.

Expense management remained strong during the first quarter. Our cost per passenger excluding fuel increased 6.6% to $52.89, from $49.62 in first quarter '09, due to a 6.2% increase in stage length coupled with a 1.4% decline in block hours per aircraft per day as compared with the year-ago period. Fuel, station operations, depreciation and amortization, and the other line item increased faster than both passengers and ASMs, making it worth commenting on each. Fuel expense rose 72% year-over-year due to a 15.9% increase in gallons consumed and a 47.6% increase in the price of fuel to $2.17 per gallon from $1.47 in first quarter of '09. This resulted in an increase in fuel expense per passenger of more than $14 to $39.91, from $25.80 in first quarter '09. The current forward curve suggests $40 per passenger will remain a reasonable estimate for the next two quarters. Station operations expense increased 19.4%, due to a 10.1% increase in departures and an 8% increase in the cost per departure. The increase in cost per departure was largely due to startup expenses from the opening of our base in Orlando International Airport and substantial increases in airport charges in Las Vegas. We expect to continue to experience pressure in airport costs due to lower total enplanements being experienced by airports compared with pre-recession environment.

Depreciation and amortization expense increased 26.3% year-over-year due to a 10% increase in owned aircraft, lower residual values for engines and aircraft due to changes made in 2009, the accelerated depreciation expense associated with the planned retirement of one MD-87 aircraft and the depreciation associated with the purchase of our automation platform which closed in the second quarter of last year. Other expense increased almost 54% compared with 1Q '09 largely due to an unusually low amount of losses on asset disposals during the first quarter of '09 and a more normal rate in the first quarter of '10 of over $850,000 as well as higher aviation insurance rates which became effective with our policy renewal during the last quarter. We now expect our cost per passenger excluding fuel to remain around $52 for the full year of 2010, due to pressure from certain recurring expenses described above as well as expenses related to our automation project and the introduction of the 757 aircraft type.

Let me end with comments on capacity and our network. As our guidance indicates, second quarter growth is modest with higher growth projected in the third quarter. We're comfortable with this position, relative to April, which had less of a contribution from Easter this year since it fell earlier in the month and May, which is always a soft month. We do wish we had more capacity in June, based on the current strength in demand, but we have a limited ability at this stage to add to our June capacity. Our capacity restraint in the second quarter should result in some solid year-over-year RASM gains, significantly above our first quarter RASM increase. Further, our average fare should be up substantially, albeit against very weak 2009 comps. Given current revenue trends, and assuming fuel prices do not materially increase, we continue to have an upward bias to the capacity guidance we have provided.

We recently announced four new routes to start in the second quarter and we expect to announce a few more new routes to start during the summer. We will also start four new routes to Myrtle Beach, plus resume seasonal service on two other Myrtle Beach routes we operated a year ago. Next week we open our second small city base in Grand Rapids, Michigan. Grand Rapids has performed very well since it began service in early 2009. Basing aircraft there will provide a better schedule for our customers and it will enable us to experiment with new destinations similar to how we fly to a number of destinations from our other small city base in Bellingham, Washington.

By the end of the second quarter, we will have placed into service five of the aircraft recently acquired from FAS. These aircraft in combination with the retirement of one MD-87 on April 1st gets us to 50 MD-80s in service by the end of the second quarter. We are still guiding to at least 52 MD-80s in service by year end. Perhaps the most notable aircraft news is our acquisition of two Boeing 757s, the first of six we have agreed to purchase in late -- excuse me -- by late 2011. We expect these first two aircraft to be in service by the end of the year, but we do not expect to begin service to Hawaii until sometime in the first half of 2011. We will provide more details about our Hawaii service once we have more clarity on the timing of the receipt of the various required regulatory approvals.

Thanks and we are ready for questions.

(Operator Instructions) Our first question comes from Helane Becker of Jesup & Lamont. Please go ahead.

Thank you very much, operator. Hi, gentlemen. Thanks for taking my question. Just in terms of some of the markets -- I know you were just mentioning, Andrew, Grand Rapids, but can you just talk about any pushback that you've seen in markets like Bellingham from some of your competitors, and what you're seeing in those markets relative to the rest of the system, maybe?

Sure. Hi, Helane. I don't think there's really been any change, quite honestly. We've had competition in the routes we currently operate today for at least some of them, like Bellingham, for instance, has been in place for, gosh, three quarters now, four quarters almost. So no change. We continue to do extremely well in those markets.

Obviously, if we had fewer seats in those markets, we would be able to get a higher unit revenue. I think there's no question about that. But we continue to be very pleased with how those markets perform. So we've had competition come and go over the years. It is was it is. We're not losing any sleep over it, quite honestly. We think we can do quite well and we continue to deliver very healthy profits in all of the markets where we have direct head to head, non-stop competition.

That would include east coast markets as well?

Yes, absolutely.

Okay. And then the other question I had was just with respect to ancillary revenues. So you're at $35 per passenger. How high -- two questions. One, how high do you think you can get that number? And two, one of your -- I don't want to call them a competitor but I would just say another airline, not even really a peer -- started that checking on-board bags or charging for on-board bags and there's been a lot of pushback in Washington about that. So could you just talk about your thoughts on both of those, charging for bags on-board and how high you think you can push the non -- or the ancillary revenue.

Helane, it's Maury. It's an interesting brouhaha that's been brought about as you mentioned in Washington, DC. Some of our worthwhile legislators -- we should put them on the Board because they certainly have definite opinions about how to run a business. You can't knock Spirit's approach from letting the customer choose what they want to do. It's a choice based system. Having said that, we spent 30 years, 40 years, 50 years training people that they get a lot of stuff for free and it's a constitutional right to be able to do certain of these things. But in our situation, bags in the cabin -- it's become a bit of an issue because people being -- working the system, if you don't have good checks and balances as to how to deal with those issues, it presents a boarding problem and I'm sympathetic to Spirit's issues there.

We're examining the situation and we'll look at it over time. I'm a bit leery though to wander into any of this environment with the Congressional types doing their current dance around the -- or be on the war path. So I think we should take a wait and see in that regard. But certainly on the ancillary side, we're looking at things all the time. We're seeing just stronger take rates here in the first quarter as we rebounded back which is -- you would expect in the pricing environment we're seeing -- upside, it's good for us.

Good. Okay. Thank you very much.

Our next question comes from Kim Zotter of Imperial Capital. Please go ahead.

Hi guys. Congrats on another great quarter. Carrying on on the subject of ancillaries, you mentioned that you will have available to you new longer haul ancillary revenue opportunities with the upcoming service to Hawaii. So for example, are you considering offering IFE on your 75s?

Right now, the airplane doesn't have IFE in it, I don't believe. And if it did, we probably would take it out. We would default initially to a handheld device if we were to do anything. But we're having discussions internally about that and it's just a very expensive system to keep up and put in place and to do things along that line.

What other longer haul ancillary opportunities are there that you are considering?

Well, Hawaii is the main thrust. Our average stay length is running around 900 miles and that shouldn't change. It goes up or down -- we increased 50 some miles here in this past quarter as we stretched out our haul a little bit. The longer haul ancillary is really -- we price things such as seats and some of our on-board products a little differently the longer the haul -- so that's one avenue where we've taken advantage of it. We're not planning on introducing anything new into the cabin at this point in time if that was your question.

Yes, absolutely. If I may, one more. In your non-op, there's a line item that's listed as loss from unconsolidated affiliates, I guess which is plural. What entities are contained in there? I know for instance you had your fuel operations in Sanford that had historically been booked there but what else. With the operations now at MCO, what's the fate of that Sanford business? Does it make sense to keep it there? I think originally it was a five-year deal back in 2007.

Yes, Kim. This is Andrew. Let's answer the latter one first. First of all, to be clear, we have not moved our entire operation from Sanford to Orlando International. We've moved ten routes so we still have a very large presence in Orlando-Sanford International Airport and we have no plans at this point in time to change that. So the joint venture we have with the airport operators continues as it has for the past few years, and expect that to continue going forward. We also take advantage of some of the investments we've made in infrastructure to help us with managing our fuel expenses in our St. Petersburg operation as well as our Punta Gorda operations down in Florida. Direct impact is mostly seen in Orlando but it has some benefits in all of Florida.

The other one, Kim, and some of those -- the line item down there -- there is a small investment we made in a tech company to help us with some of our internal manuals and things like that. So that's included in there. They're in a young startup phase and there's some losses associated with it.

Got you. Okay. Thank you so much for your time.

Our next question comes from Bob McAdoo of Avondale Partners. Please go ahead.

Hi, guys. Can you hear me. I'm at an airport. Can you hear me okay?

Sure. You looked good on TV yesterday, Bob.

Thank you. On 757, are most of those expenses going to show up in this other expense line or are we going to see expenses strung out in other places? Are you going to try to isolate them with other expenses or are you going to let the fuel, as you do proving runs or any of that stuff -- let the fuel flow into fuel and the people when they're on training for 75s still be in the people line. What's your thought process there in terms of how you account for it? Can you give us any kind of clue so we can try to continue to think about the quality of what you're doing on your short haul, your narrow body, your MD-80 business -- is there any way to give us any help on thinking about what the amount of money you're going to put into the 75s this year, before you start next year?

Is that last question a budget of what we expect?

Yes, are we talking about a million dollars? Are we talking about a half a million? Nothing exact. Just in round numbers. Do you have in addition to the obvious manuals and training of the individuals that are going to go fly the plane, do you have to do proving runs for the ETOPS or tell us a little bit more about the process, if you will.

I'll talk about the process. Andrew can speak to the financial side. First steps is to get your manuals ready. We're in that phase as we are working now with some outside consultants to help us bring together all the particulars. You submit those to the FAA for a number of rounds of review and oversight and then we're contemporaneously working on ETOPS as well so ideally we'll bring both out together. I'm not saying that's going to happen. It's a very arduous process to get ETOPS.

But all the manuals and the like should be through review, if everything goes according to plans, sometime in the third quarter. If it slips a little bit, it could roll into the fourth quarter and then once your manuals are done you then have your proving runs. Once we initially have manuals approved as well, we can start training to those manuals. Our pilots, flight attendants, our maintenance personnel -- and we'll spend money obviously to do that and then after your proving runs if you've done well you get your certificate. So that's certainly going to consume most of this year and then after that, we would have the time to start scheduling service. So those are the key benchmarks and we'll certainly keep you up-to-date as we find more out as we move along the process.

Do you have special proving runs for the ETOPS side or can the ETOPS proving runs be done over land? How does that -- what goes on there? And once you get the certificate that says okay, I'm okay to fly it, does that mean you've got some planes that can't fly over there, does that mean there's a chance that you've got some planes that would be inserted into your mainland service for a while until you move them over to the over water operation?

We're working to have both received at the same time. There is a possibility that we could get the airplane certificate before the ETOPS. Certainly you're not going to have the reverse. So, we would have the ability to fly the airplanes over land domestically before we might be able to go over water. You'll have to stay tuned on that and we'll make a decision at that point to use them domestically if it comes down to that -- domestically being over land here. So but that's not our plan at current.

Got it.

Yes, Bob, as far as the expenses, I think what we're going to try and put most of them in the other expense category, certainly consulting fees and things of that nature are going to go in there, labor associated with proving runs, my suspicion is that is going to have to remain in the labor category. We'll try to get as much clarity as we can going forward. It's certainly going to cost us money to bring the airplane on to the certificate. We don't have a number that we want to throw out there at the moment but it's in the -- it's probably somewhere in the $1 million to $2 million range, if I had to guess, but, it's -- it is a process and there's an investment associated with that.

Our next question comes from Bill Greene of Morgan Stanley. Please go ahead.

Hi, just wanted to do a couple of follow-ups here on the Hawaiian issues. Do you have any agreements signed with any hotels at this point?

This is Andrew. No, we don't. But that's because there's no reason really to have an agreement signed at this point. We spent a lot of time there. We're going to be going back there again in a couple weeks, so that won't be -- that's nothing that we're concerned about, put it that way. Once we have a better sense as to when we are going to start operations, we will be able to have more meaningful discussions with hoteliers about selling their inventory. There is tremendous interest as you can imagine from the hotel community in Hawaii.

Yes.

Safe to say, Bill, we've been well-received.

Now, as you went through the analysis here, thinking about Hawaii, I don't know if it's -- I guess I assume that you'll be out of Honolulu, although I 'm not sure that's a fair assumption, but that was my base assumption. But Hawaii given the geography there, do you need to have co-chair there as well in Hawaii to get people around wherever your base is?

No, we have no intentions of entering into any co-chair agreements. We certainly will consider in our discussions at the moment of the possibility of selling as an ancillary product, essentially, the ability for a customer to go from one island to another on another airline. But that would not be a co-chair. We don't think that's something that we need to be getting into, just don't think the benefits justify the expense and complexity that comes with that.

Okay. Then if we think about the whole analysis that you did, is there a case at all for using a 75 in some markets like east coast to Vegas or something like that, where even though you could put it to Hawaii, you might choose not to.

Well, I think the airplane can certainly do a lot of different things that we think are financially very viable, including perhaps certain markets that are outside the range of the MD-80 -- into Las Vegas whether it be from the east coast or elsewhere. At the moment, though, our plans are completely focused on using these airplanes to serve the Hawaii market. Over time, we may evolve and take advantage of the range of the airplane to do different things but without a doubt, the reason for bringing on the airplane is Hawaii, period, end of story. If it wasn't Hawaii, we wouldn't be bringing on the airplane.

How long does it normally take, if you think back to your early start in Vegas -- how long does it normally take for this market type to reach levels where you think are fair and adequate, given your return levels?

Should happen, our history says things happen pretty quickly. We'll have plenty of PR in advance. One of our issues is when do we start selling and how much time do we put in front. If we put sufficient time in front of it, Bill, we should have pretty good response rates and obviously we'll be doing marketing and fares will be very attractive just to get the interest level up. But we don't -- it's not going to take a year, for instance, to develop that market, we don't think. Hopefully it happens within 90 days.

Thanks for the time.

Certainly.

Our next question comes from Duane Pfennigwerth of Raymond James. Please go ahead.

Hi. Thanks for taking the questions. Just in terms of your total fare, $116 and change in the first quarter, you look at those trends historically in a couple years it's been up sequentially, in a couple years been down sequentially. Clearly, we have much easier comps versus the second quarter of last year. Can you just help us think about that $116 per pax in the 2Q?

Duane, I think that most years the fare in the second quarter has been lower than the fare in the first quarter. That's been the case in most years, it certainly was the case last year. It was also the case in 2008.

First quarter is typically our strongest quarter. Second quarter is very, very strong as well. But there's typically not quite the same fare in the second as we see in the first. And ancillaries -- we feel good about being able to get it above $35. We'll see if we can have it stick. We're certainly going to be in that neighborhood. We feel very confident in saying that.

But we're not going to give guidance today on what we expect our revenue to be in the second quarter, other than the comments that I made cautioning you to not -- not to just expect that we'll be able to match the same average fare -- or average base fare -- that we saw in the first quarter. So I think all in all, that probably implies a lower average total fare in the second quarter, but we're not going to provide any specific guidance on that today.

Duane, I think part of our problem is the history is no good anymore.

Sure.

You have last year just falling off a cliff, going into this time frame. In 2008, the opposite is happening, fuel is going through the roof and fares are just being pushed up regardless. So what's normal? I think we're entering more of a normal environment here. Hopefully as things have stabilized. But to Andrew's point, we have to get back and rebuild our history so we can have a sense of what the numbers will be.

I think as we mentioned, June looks very good at the moment and July does as well. April is not as strong this year as it was a year ago. On a relative basis, because of where Easter sat this year, we got some of the Easter benefit in March this year.

May is May. May is always a shoulder month. It will be a shoulder month this year. So in general, we're encouraged by pricing in the market. But we also don't want to get out ahead of ourselves either. We're going to be a little bit cautious, make sure that we're right about what we see.

Thank you. And then just on the ex-fuel cost side. Want to check with you, one, just to confirm, you're looking for $53 next quarter and then $52 in the back half? And if you could just comment looking backwards to the first quarter, what was the driver of the ex-fuel cost per pax variance and then going forward, is it only 757s and your desire to enter Hawaii or is there something else driving the cost variance?

Yes, Duane, this is Andrew. So taking them one at a time, yes, we expect at the end of the year to look back and have approximately a $52 cost per passenger. And we use the word approximate and we always have used that word and maybe we need to start putting out specific ranges but we're trying to give you an approximate guidance. So while we said we thought we would be at about $50 this quarter, we were a little closer to $53. It's a little higher than we had hoped it would be, quite honestly.

And there's a few different small things that have driven that to be a little higher than we expected back 90 days ago. Commented on a couple of them in my remarks, including airport related expenses that I don't think we adequately projected, as well as some other -- a variety of other smaller areas, including some associated with the automation project and the 757. Those expenses will continue to be seen in the next several quarters and certainly in the case of the 75, it will accelerate as we get closer to the time that we're ready to put the airplane into service.

In general, we're pleased with where we are on costs. We're always trying to do better and that effort will continue. But there's no one item that you could point to to say this particular area was substantially more than we expected, other than what I mentioned in the remarks.

Andrew --

Duane, one other comment too. We flew a 6% longer stage length this quarter, which also -- to Andrew's point, it's not going to be specific -- but that matched about your increase in your cost per passenger. So just takes more money to fly somebody longer, there's no doubt about that.

Appreciate that detail and I think Jim has a question.

Yes, I have, Maury and Andrew -- just Andrew, about these parts write-down, you've got $850,000. You're saying greater than a year ago and a year ago was unusually low. This is normal? So you're continuing, I guess, you had some last quarter as well and --

We will always have -- I shouldn't say always. We will most likely have losses on disposed -- on the disposal of assets, quarter in and quarter out. That really mostly relates to how we manage our engines. We're in the fortunate position where it is often less expensive from a cash standpoint to acquire a serviceable engine, to replace one that fails. And if that's the case, then that's what we do and we break up the parts of the failed engine and we sell it. So sometimes engines don't always fail when you think they will. All you can do is use statistics to predict it and when they have fail earlier and you have a larger value on the books for what it's worth in piece parts then you have to take a write-down. So that's what drives most of those losses.

The last quarter it was particularly high and in that case there were some other things going on, other than the loss of -- or the write-down. There were some other things where we had to change certain values once a year, according to market conditions. But I think in general, the $850,000 that we experienced this quarter is a reasonable number, based on looking back several quarters. A year ago, that number was almost close to zero, which was extremely unusual. So that's a little bit more color in that line item.

Okay. Andrew, can you tell us what your non-Vegas hotel take rate is?

Jim, I don't have a number I can quote you at the moment. I will tell you that our non-Las Vegas hotel bookings increased close to 100% year-over-year, so we're seeing really good acceleration in our ability to sell in places other than Las Vegas. It's been a really big focus of ours and we're starting to see some momentum. That being said, it still is a long way to go from being as large a contributor as what we see out of Las Vegas and it will probably never be as large as what we have in Las Vegas because Las Vegas is an exceptional market for hotels but we are seeing continued improvement in that area.

Okay. Thank you.

Thanks, Jim, Duane.

Our next question comes from Steve O'Hara of Sidoti & Company. Please go ahead.

Hi. Good afternoon. Could you just talk about what you're seeing in Orlando and whether that moved to move some of the flights to MCO, you feel it's been beneficial thus far?

Steve, this is Andrew. So what we're seeing in Orlando is very, very strong. Florida in general is very strong this year and especially as you look on a year-over-year basis. Last year, Florida was relatively weak. This year, it's reversed itself. So we feel really good about Florida in general, Orlando specifically. It's really too soon to tell at this point.

Orlando international versus Orlando-Sanford. We'll see. We're very pleased with how we're doing. That being said, we expect to continue to serve the Orlando area in the manner in which we serve it today.

So you expect to serve from both airports, then?

Well, that's right. I mean, until we decide otherwise, then we're going to serve ten routes out of Orlando International and the other 20 or so out of Orlando-Sanford International until further notice.

Okay. And then last quarter I think it was you had a -- maybe it was the fourth quarter, maybe it was early first quarter -- you had a transaction where you purchased some hotel rooms. Just wondering what impact that had on ancillary -- was it positive, and is there an additional opportunity for that in the future?

Sure. Well, and to be clear, we didn't really purchase the rooms. We basically prepaid for the rooms. So we, again, we don't take inventory risk. That has not changed. That certainly contributed to the hotel performance. I don't have a number I can quote you, but it was certainly very accretive and we were very happy with that transaction.

We have agreed to -- so I think the other question was do we have opportunities to do that again and the answer is yes and we are in discussions with several large hotel operators in Las Vegas and we do expect to continue to be able to take advantage of our position in the marketplace of being able to offer a very unique and valuable distribution outlet to hotels in Las Vegas. So yes, we don't have anything to announce at the moment but we like where things are in the Las Vegas hotel business. We're doing very, very well.

And finally, is that something that may help ease your entry or increase the take rate in some of these other markets as well or is that something that due to the fact that you sold -- let's say more hotel rooms in Las Vegas -- you're more apt to do it in that market?

No, I certainly think that the power of our distribution outlet which is -- it's our own exclusive content. You can't buy our service anywhere else. The ability to drive and steer people to one hotel versus another is very powerful and I think the hotels recognize that, and so we certainly believe that we have opportunities to take advantage of that in other locations aside from Las Vegas, but first what we need to do is show that we can produce good hotel take rate in other locations and we still have a ways to go to do that, although we are seeing some momentum in that regard.

Okay. Thank you very much.

(Operator Instructions) Our next question comes from Kevin Crissey of UBS. Please go ahead.

Hi, guys. Real fast one. Have you figured out your configuration for the 75? Have you announced that or determined what you're doing there?

Kevin, you know what? I can't say we finalized it until it's up and running. I suppose it's always subject to change. At the moment we expect to be well north of 200 seats on the airplane.

In a multi-class configuration or -- ?

Well, class --

Doesn't have to be business class.

We mostly use that term to describe service. Certainly that's something we would not consider. Might we have different sections in the airplane that have different seat pitch? That's certainly a possibility. We do not expect to have any a business class product, whether it be service or seat or anything like that. We're going to have six across but we may have parts of the airplane that have more pitch than other parts.

It's a leisure class, Kevin.

Thank you.

Thank you. This concludes our Q&A session. I would now like to turn the call back over to Maury Gallagher for final comments.

Thank you all very much for your time today. We appreciate your interest. If you have any follow-up questions, please ring us at your convenience. We'll be responsive. Again, we'll talk to you in 90 days. Thank you.

Thank you. This does conclude today's teleconference. You may disconnect your lines at this time and have a wonderful day.