Allegiant Travel Co (ALGT) 2011 Q3 法說會逐字稿

Welcome to Allegiant Travel Company's Third Quarter 2011 Financial Results Conference Call. We have on the call today Maury Gallagher, the Company's Chief Executive Officer and Chairman, Andrew Levy, the Company's President, and Scott Sheldon, the Company's Chief Financial Officer.

Today's comments will begin with Maury Gallagher, followed by Andrew Levy, then Scott Sheldon. 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 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 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 would like to turn the call over to Maury Gallagher for opening remarks.

Thank you. Good afternoon, everyone, and welcome to our Third Quarter Conference Call. It's a pleasure to talk with you this afternoon. As the Operator said, with me today are Andrew and Scott.

We had another profitable quarter, our 35th consecutive profitable quarter. We had net income of $9.5 million during this period, or $0.49 per share, compared to last year's $13.2 million or $0.67 per share.

As you are aware, earlier this year we restricted capacity because of increasing fuel prices. As we have demonstrated in past periods, when fuel prices are accelerating, a combination of capacity restraint and price increases are necessary to manage results. During 2008's fuel run-up, we trimmed capacity in the Spring and had as a result fewer ASM's in the third and fourth quarter of that year, compared to the same period in 2007.

On the revenue front, we focused on ancillary revenues, and we increased the average fare in that category 37% during 2008. During the run-up in the past nine months, we restrained capacity in quarters two and three. This time, we pushed up our selling fare 25% and 21% respectively in each of those quarters to offset our fuel increases.

Ancillary fares during this period were up a much smaller percentage. Lately, though, fuel prices have begun to stabilize and even retreat somewhat. In the current environment we have sufficient unit revenue to offer a product at a profit, we believe. Therefore, we are growing again.

As we have said many times, we are a growth company, but first and foremost we are concerned about profits. We have begun introducing bigger aircraft to our system. As we mentioned in our last call, our 757 began operations at the end of July. We have been operating it in two markets, to and from Las Vegas, with two and four round-trips respectively per week since that time. The results are good. Scheduling for customer convenience over the years has been a hallmark of our operations. We have a number of cycles with customer demand in our system including annual and weekly peaks. Our weekly pattern is focused primarily on supporting weekend activities, namely heavily flying on Thursday, Friday, Sunday and Monday.

Our theory with respect to larger aircraft is more seats per departure on those days will enhance profits in the market. We have been testing this theory for the past three months, with our 757 activity, and I am happy to report the initial data suggests the 757, or a larger aircraft, as it were, properly applied, is indeed accretive to our current market.

Initial data suggests the cost per passenger was more than 20% lower than the corresponding MD-80 cost per passenger at 150 seats with the same service pattern, while the revenue per passenger was down only 12%.

Perhaps more importantly, we were able to stimulate the market sufficiently to utilize the incremental 67 seats per departure on a profitable basis. While we are not advocating 757s across our system, we are pleased that certain markets can profitably handle more seats on peak days.

On the 757 ETOPS front, we are continuing to push ahead with our application with the FAA. We are in the initial stages of the application and expect more information and progress after the first of the year.

We have also begun operating some 166-seat aircraft, the MD-80 version. As we indicated in our July comments, we expect to have nine to 10 aircraft available by year-end. Our plan with these airplanes is to open smaller bases first, to allow for a standard fleet in these bases as soon as possible, thereby making selling and managing flights less difficult.

Our first two aircraft have been delivered and are in service in Bellingham. We're making good progress with the conversions and we expect to complete the overall fleet conversion hopefully by the end of next year, if not sooner.

On the automation front, as we mentioned in the press release, we have made good progress in upgrading our current platform. Today, we are one of the few companies who operate an airline who also manages their own automation system. Payoff is control of your own automation platform, the ability to make changes and upgrades to existing software and product offerings based on your specific needs, versus requesting product upgrades from a third party supplier.

Over the years, this control has allowed us to be out in front with industry-leading products including hotel packaging and developing of our own ancillary products. As we mentioned in past comments, we need to upgrade our existing systems to revamp our platform to allow us to create a customer-centric environment.

Why is this important? Today, all airline reservation platforms, including ours, require a flight in every transaction with a customer. While this approach has worked well for us to date, and has allowed us to develop our hotel packages and ancillary revenues associated with our customers and their flights on us, our new system will retain our airline reservation activity for our airline but will add an OTA platform or database that will allow us to offer products to customers on a one-off basis without requiring a flight to be in the transaction. Or, said differently, it will be a customer-centric, or as you may be familiar, a shopping cart approach.

We will be able to sell a hotel overnight to a customer on a standalone basis, or offer itineraries with multiple activities such as air on us, or air on another carrier or carriers, hotels, rental cars, other ground transportation, destination activities, all items that would perhaps interest a customer interested in a travel activity.

As we have said in the release, we will have Version 1.0, as we call it, available for the mandatory cut-over required by the Department of Transportation on January 24 of 2012. This is just the first step, however. There will be continual development throughout next year to enhance the features and capabilities of the new system, but we will have the ability to begin offering enhanced products both on the airline side as well as OTA related products, particularly hotels, beginning in the first half of next year.

We've been working on these upgrades for quite a while, and having them about ready for prime time is exciting to all of us. Let me turn it over to Andrew for his comments.

Thanks, Maury. Scheduled revenue during the quarter was up $21 million year-over-year despite flying 3.3% fewer available seat miles. During the third quarter, base airfare increased by 21.2%, or almost $15 per passenger, to just shy of $85. Air-related ancillaries increased by 4.3% to $30.38, due to higher contributions from seat assignment revenue. Third-party ancillaries were up by 17.5% to $5.31 per passenger, due to strength across the board in hotels, transportation and other products.

A 2.6% increase in load factor to 92.2% helped total RASM, or TRASM, increase by 19.5% compared with the third quarter of 2010. Strength in revenue has continued into this fourth quarter. We expect October passenger RASM to increase between 16% and 18%, and we expect to post substantial passenger unit revenue gains of between 11% and 13% during the fourth quarter as compared with the fourth quarter of last year.

We expect to post an increase in scheduled capacity of between 5% and 9% during 4Q '11, and this growth rate will accelerate in the first quarter of '12. Our plan for the fourth quarter is not expected to change but we are still making changes to our first quarter capacity plan, and this will likely continue through the end of the year making our estimates for the first quarter a little less firm.

Stable fuel prices, including a backwardated futures curve and strong revenue, enables us to be confident in adding more capacity, most of which is due to growth in our network through route additions as opposed to more capacity in existing markets. Part of the growth is also due to larger-gauge equipment, the 166-seat MD-80s as well as our 757 aircraft.

We have started to prepare our remaining four owned MD-80 aircraft, which have been in storage, for service, the first of which will enter later this year. The addition of these aircraft will enable us to fully exploit growth opportunities through the summer of 2012.

Of course, we remain excited about our entrance into the Hawaii market, which we hope will begin in the summer of 2012 after receiving all regulatory approvals.

We are very excited about the progress we continue to make in our third-party business, and in this earnings release we have provided additional data about hotel and car sales. As noted in the release, we saw nice growth in both hotel room nights and car rental days during the third quarter and combined with higher pricing we generated an increase in third-party revenue of over $1.1 million or 16.5% compared with the third quarter of '10. Our momentum in this area has continued in the fourth quarter. October month-to-date we have seen year-over-year increase in hotel net revenue of close to 40% and car net revenue close to 20%.

The growth in this area is largely due to taking a more aggressive approach to marketing deals to our customer database on a more regular basis. We expect to continue to see substantial growth in our third-party business and even more so once the new website and other enhanced automation features that Maury described come online in 2012.

I'll turn it over to Scott to discuss our financial results in more detail.

Thank you, Andrew. Let me first comment on our balance sheet before turning to our cost performance for the quarter.

Our unrestricted cash balance, including investments and marketable securities, decreased slightly during the third quarter to $303 million, down $14 million from the end of the second quarter. During the quarter, we raised $7 million in debt secured by one 757 aircraft purchased during the first quarter. This debt raise helped offset the seasonal reduction in our air traffic liability, which decreased $25 million or 18% from the June quarter.

With this debt raise, we ended the quarter with total debt of $148 million resulting in a debt-to-equity ratio of 44% and a debt-to-EBITDA ratio of 1.17.

Capital expenditures during the quarter totaled $19 million, bringing our year-to-date total to $69 million. Third quarter expenditures consisted mainly of engine purchases and improvements related to our 166-seat reconfiguration program.

As reflected in our earnings release, we expect full-year CapEx to be $105 million to $120 million. The large spread is due to some uncertainty surrounding the estimated closing date of our fifth and sixth 757 aircraft which might slip into the first quarter 2012.

Moving on to the income statement, our cost performance came in as expected. Our cost per passenger, excluding fuel, increased 9.7% to $57.42. As indicated in our release, much of our non-fuel unit cost pressure was due to a 6.5% decrease in aircraft utilization and a 2.3% decrease in average stage length.

On a per-passenger basis, the reduction in flying and reduced stage length year-over-year accounted for nearly $3.00 of our $5.00 non-fuel cost per passenger increase. Elevated fuel prices continued to have the largest impact on earnings during the quarter, as our fuel cost per passenger increased $13 to $53.

Although the third quarter marked the first sequential decrease in our system cost per gallon since the third quarter last year, we still paid $3.12 per gallon on a slight reduction in gallons consumed.

Other non-fuel unit cost pressure came from maintenance, marketing and depreciation expense areas. During the quarter we continued to execute on our engine overhaul strategy which was the primary driver in the $2.59 increase in maintenance expense per passenger to $13.35 for the third quarter. Engine overhaul expenditures totaled $4.9 million for the quarter and $9.6 million year to date.

This compares to $1.6 million and $3.3 million for the same period a year ago respectively. Looking ahead to the fourth quarter, we are entering the heaviest overhaul quarter of the year. We anticipate engine overhaul expense to total $9 million for the quarter, and nearly $19 million on a full-year basis. This would compare to $1.6 million and $5 million for the same period a year ago, respectively.

We anticipate maintenance expense per aircraft per month to range between $120,000 and $125,000 on a full-year basis, which is consistent with prior guidance.

Although scheduled passengers were slightly down year-over-year, sales and marketing expense increased $0.61 or 24% per passenger to $3.12 during the quarter. This increase was primarily attributable to additional credit card charges related to the 21.4% increase in our average base selling fare.

Depreciation expense increased $1.13 per passenger to $6.76 during the quarter. The increase in depreciation expense can be attributed to the addition of four 757 aircraft, three of which are leased to European carriers and are therefore not generating any ASMs or carrying any passengers. Excluding the effect of our 757 aircraft, the change in depreciation expense per aircraft would be consistent with our aircraft growth year-over-year.

Finally, let me comment on our updated full-year CASM ex fuel guidance provided in our release. Our full year CASM ex range was increased from 10% to 12%, to 12% to 14%, going into the fourth quarter, as we made some meaningful capacity changes to our scheduled network. Our previous guidance suggested our scheduled ASM growth would be up 7% to 11% year-over-year.

With the closing of our Long Beach base, along with some additional market changes, our fourth quarter ASM growth will be up 5% to 7% year-over-year.

Operator, we're now ready for some questions.

(Operator Instructions) Our first question comes from Duane Pfennigwerth of Evercore Partners. Your line is now open.

Hi, thanks. Just on Hawaii for a second, wondering if you could help us around hotels. Clearly, Vegas has been the big driver of hotels and it's a different story elsewhere. Can you talk about what relationships you're starting to put together if any with hotels in Hawaii?

Hey Duane, it's Andrew. Vegas still represents most of the hotel sales, but the growth away from Vegas continues to be much larger, partly because it's off of a smaller base. But, you are right in terms of Las Vegas still being the primary driver. We have all the hotel deals we could ever want in Hawaii. It's just a question of when do we get started. We just were there again last week, just to visit again with all the hoteliers. Getting supply in Hawaii at attractive rates is just simply not going to be an issue at all.

Okay, thanks for that. And then, just around the cost guidance, I thought your 4Q capacity guidance had actually increased since the second quarter. Is there anything else that's driving the higher costs in the near term, here?

Besides the -- you know, the $9 million -- sorry, this is Scott. Besides the balloon and engine overhauls in the fourth quarter, there's really nothing out there that has changed.

Okay, and then Scott, can you give us any early read on next year given your higher expected capacity growth and hopefully getting beyond this maintenance bubble?

You know, we're real close to finalizing our 2012 plan with the investor day coming here in a couple weeks. We're going to provide a lot of color related to 2012, but at this time I'd like to defer until that day.

Okay. I won't steal any of your thunder, thanks for the answers.

(Operator Instructions) Our next question comes to us from Bill Greene of Morgan Stanley, and your line is open.

Hey, guys, this is John Godyn, filling in for Bill. First, I just wanted to ask a question around the January 24 cutover date. Can you just help us think about some of the things that you're doing, or that you've put in place to mitigate any execution risk around that cutover date?

John, this is Maury. The primary thing that has to happen at that point in time is that your fare has to be displayed all-inclusive, so that today while we may sell you a $59 seat, and we'll add to that our other fees that we charge internally plus taxes and the like. Additionally, if you have any check-in boxes, or you have to be unchecked, you have to undo those, and the customer has to if you will, check themselves in. Plus, there's some other things, so the big thing is the fare display and making sure that you are showing an all-inclusive fare. I think there'll be a lot of evolution, if you will, as to displays, once people start jockeying with the DOT as to what's the proper font size, what can you show.

We made a case, and in fact as we said last time we have a lawsuit pending in the district court in Washington, D.C. about this item. Oh, one other thing too, is that there's a 24-hour requirement to give refunds outside of 7 days. So that -- our lawsuit won't come to fruition, best case, until next summer, we believe. So, we'll have to be ready to do this regardless. We'll have it out there, we'll see what the impact is to the revenues. We are concerned that it's an absolute fare raise, at least visually, to the consumer and they may react accordingly. When fares go up, typically demand goes the other way. We'll manage it accordingly and be reactive over the ensuing months.

Okay, great. And just a question on the mix of ancillary revenues, when we as analysts kind of think about how revenues at other airlines evolve, there's an emphasis on premium versus non-premium travel and how that might look during times of economic weakness and rebound. You guys don't really have that, but is there anything that you've seen maybe in the mix of ancillaries that gives us any hint or any information on customer behaviors or sentiment, just in recent months, given the macro volatility and sort of what you're seeing going forward?

John, yes, I can't really point to anything. Ancillary as you know from following us for many years, has been really firm. It really doesn't vary, in good times or bad times. What we see is a lot of variability in the base fare that we're able to charge. The only other area in the ancillaries that you might detect some element of strength in the economy or weakness would be hotel pricing.

When hotel pricing is firmer, then our net revenue from the sale of hotels is higher, just because we typically have a spread, and so as the base price of a hotel room goes higher, then the net revenue we can generate is higher as well. As you know, we don't disclose that information at that level of detail, but there's good strength, as you can see. I think the best way to see that is just in the fare that we're able to charge, which has been going up very nicely over the last several quarters.

All right, thanks, and just last question on the 757s. Clearly, they're doing very, very well. One of the issues that's come up in the past is just the idea of what type of aircraft you guys might look to in a world after the MD-80. Is there any chance that the 757 might have a role in sort of a domestic growth strategy parallel to Hawaii in the future, maybe as the MD-80 continues to get older?

John, I'll make some comments, Andrew can give his opinion. We're certainly in the investigative time of looking at a lot of different options. There's used airplanes out there, we think the market actually is somewhat soft from what little bit of information we have in different areas. But, we have the 757, we decided as we said in our comments to test the theory and we always thought that more seats on peak days would be accretive. That seems to be the evidence that is coming forward at this point. So, could we get airplanes in the future with more seats than the 150? Well, we're already going to the 166, so we're pretty comfortable that more is better.

There's a limit, I think, though, that you can't go above, that will start having diminishing returns. We aren't sure what that is at this point, yet.

John, I'll just add, this is Andrew -- is there a chance we'll operate 757's in the mainland domestic system? I think the answer to that is yes, that is certainly an idea under consideration.

Perfect, thanks a lot, guys.

Thank you. Our next question comes from Jim Parker of Raymond James. Your line is open.

Good afternoon to all. A couple questions. One, about the MD-80s and adding the 16 seats, I'd like to know what your cost experience has been so far. I know it's very limited but regarding weight, fuel burn, are your costs coming in at or below or above your original expectations?

Are you speaking of the cost to convert, or the cost to operate?

No, the operating, operating the aircraft.

Jim, it's too early to tell. We don't expect a lot of incremental change in cost. There's going to be this and that, but the numbers shouldn't change a lot. Fuel probably the most, flight attendants in there, but after that the marginal cost is not changing the gross weight on the airplane so that doesn't change landing fees or any of that type of thing, so. It should have a minimal impact on the cost side.

Okay, and on the revenue side, how many aircraft will you need to have in service before you can begin marketing those additional seats, and then what's the next step up number?

Jim, we've got two in service right now, and we're selling one line with 166 seats. We hope to sell another one in another few weeks, and with the introduction of the third and fourth airplanes scheduled for early-mid November, then we'll be selling even more. So, we're already starting to sell into it, and we'll start to see the revenue in November, although it'll be very gradual. One airplane at a time kind of thing, but yes, we are already selling into that.

Andrew, I believe your original game plan was to have them all in service by mid-2012, and now you're suggesting it's the end of 2012. I'm curious, what bottlenecks you have encountered and will those continue to be there, or are you going to get through them?

I think we changed our assumption about the time it would take to do this some time ago. That's not new information today. We've been talking about back half of or the end of '12 for a while now, and I think that we certainly hope to get it done much sooner. But, we're trying to be conservative, and it's just a very complicated project, and we just don't know what you're going to find until you open up these airplanes, when you remove galleys and things of that nature. It's a bit complex, so we're just trying to set the expectation appropriately. If we can do better than that, then we will.

Jim, as much as anything, what's delayed the program has been the regulatory approvals for changes, parts that have to be made that you can't find anyplace. We were probably a little under. Not probably, we were, in our estimates, and FAA approval for STC, Supplemental Type Certificates, all of those things.

So Maury, my question really relates to the bottlenecks, and I think you're addressing it. Are you saying that now you'll be on an accelerated pace and being able to get them done then by the end of next year?

I think at this point knowing what we know, we're comfortable saying the end of next year, perhaps sooner. We hope the surprises have been incurred, and the slowdowns have been dealt with, and it'll be more of a routine event. The first couple we always knew were going to be slow and arduous to get done, so stay tuned. We'll update you as we go through it, but so far it's been a good product, it comes out the other end.

Okay, great. Thank you.

Thank you. The next question comes from Hunter Keay of Wolfe Trahan, your line is open.

Thanks, good afternoon. I wonder if we could just flush out a little more color on sort of the automation stuff you're doing here. I was intrigued by Andrew, I think you mentioned your ability to sell airfares from other airlines. I don't recall you mentioning that again, maybe you have. I guess a two part question, then. One, are you going to have to potentially hook into a GDS to facilitate some of this stuff, and two, would you consider maybe an entirely separate website with a separate brand, something that could kind of stand on its own? Or, would this all be part of the Allegiant umbrella?

Hunter, it's Maury. I'll comment, and Andrew can give his. All that's possible with the architecture we're going to have. We need to flesh out the products and where we're going to go with some of that, so we're addressing some of those questions as we speak, but if you think of an OTA website, they can offer airfare on multiple airlines, they can offer hotels, they can offer all kinds of assorted sundries that are affiliated with travel. We will have that capability, plus some other things we'll be doing. So, we're not contemplating any of that instantly, but they certainly are capable.

Okay, thanks. A lot of network changes over the last couple months, obviously this was planned, you've talked about it. Kind of wondering how you're seeing the early returns from those already and should we expect it to be sort of incrementally accretive to margins, had you not made those changes last year, and is it going to be enough for it to maybe show up in the fourth quarter, maybe first quarter results? Any kind of color on that would be great.

Hunter, I think you're referring to the new routes that we've announced that begin this quarter, I think. Is that correct?

Yeah, 17 of them, exactly. All 17 of those.

Yes, so while it's a lot of routes it's about 6% of ASMs in the fourth quarter, so just from a materiality standpoint I guess that's material in total. I don't think it's enough to necessarily move the needle. So far, they're coming in. Obviously they're mixed across the board. Some are better than expected, some are as expected, some are lagging a little bit. I'd say in general, we're pleased with the new routes that we've announced that we'll be starting to serve, some of which we've started and the rest will start by the end of this year. We expect there'll be some more that we'll be able to introduce in the early part of next year, as well as going into the summer months. We're finalizing those plans right now.

Great, thank you very much.

Thanks.

Thank you. Our next question is from Michael Linenberg of Deutsche Bank. Your line is open.

Hey guys, I guess just a couple here, and I got on late, so I apologize if you may have addressed this. I wanted to -- what happened with the Long Beach situation? That seemed like a pretty promising market, and you were in, and then you even went as far as to put out a press release that you were withdrawing from the market. In the past, normally I guess we usually don't see that. So, I wanted to see what else, what was behind the scenes there that led to that withdrawal?

Well Mike, first on the press release, yeah, we don't normally do that, nor will we in the future. Not sure why, that was one that kind of slipped through there. We don't like to highlight bad news as much as good news, but look, we were in Long Beach for a long time. We tried a lot of different things, and ultimately we concluded that the best way to serve the Los Angeles market area is to consolidate operations in the Los Angeles International Airport. We've gotten better results there, and initially we were excited about the prospects at Long Beach, and over time we just simply concluded that we can be more profitable by focusing our efforts in the LAX area. It's just simply a better market, and a better airport for that market. There's not a whole lot more behind that story other than that.

Andrew, what about -- I realize LAX is the better market maybe for the Bozemans, or Medfords or Missoulas, but how about Hawaii? If you wanted to do Hawaii, LAX is obviously a big market, and there's a lot of guys flying that. Wouldn't LGB be a better market to do a Maui or a Kona, or whatever, or not? Maybe it doesn't?

No, I think that we certainly initially believed that that might be the case, but I think what we've concluded is that it's one big market.

Okay.

LGB is not its own distinct market that somehow has moats around it, we just don't believe that that's the case after having been there for quite some time. To us, it's one market. At least when you compare those two airports to one another. Therefore, if you're going to serve Hawaii, which I don't think is anywhere near the top of our list of what we think are the best alternatives for us, but if you were going to, we'd rather be at LAX than in Long Beach to serve that market.

So, that was one of the reasons that we were trying to hold on and find ways to use the slots with the anticipation that we might want to serve Hawaii, but after our experience in the market and simply viewing again the best alternatives for Hawaii, we've concluded it just simply doesn't make sense to be in the Long Beach airport. So, those slots have been reassigned, and we wish them well, they were great folks, great management down there, and a great airport. It just simply wasn't the best way for us to earn returns, in our judgment.

Okay, that's fair enough. Then just my second question, now that with the flight attendants being under representation, what's the process? I know there are milestones, and I believe the last that I can recall is that an initial contract may take several years before the manuals are written and a contract is out there. Should I presume that the process with you will be no different than I guess what we've seen throughout the industry, is that the way to think about it?

Mike, this is Maury. That's a fair summary of the process. We're meeting with our flight attendants and their TWU representative monthly, I believe, and going through the process. It's detailed and arduous, but it just takes time.

Okay, very good. Okay thanks, thanks everyone.

Thank you. Our next question comes from Helane Becker of Dahlman Rose, your line is open.

Thanks Operator, hi guys. So, just a couple of questions. One, and you might have talked about this Scott, but I might have missed it. I notice the tax rates seemed to be higher for the September quarter than for the full year, even though the absolute amount was lower. Can you just talk about that a little bit, and what we should expect for the fourth quarter?

Yes, the effective tax rate for the quarter came in I think at 36.3. For the full year, if you put 36.60 would be a good estimate. 60% of our cash is tied up in municipals, which has had a larger impact on our effective tax rate. I think in prior quarters we've thrown a 37% annual estimate out there, so, more money invested in municipals, had a bigger effect on the tax rate.

Okay, and then did you say what the cost is to bring the MD-80s into service, the four that you're taking out and bringing up to snuff to bring them in? And, is that included in CapEx guidance, or is that included in overall cost guidance? I thought you said they were coming in the fourth quarter instead of later?

No Helane, this is Andrew, no, no. There's one that will be introduced in the fourth quarter, and the other three will come in some time in the first half of next year. We haven't determined exactly when. As far as the cost, the estimate that you should use is about $2 million an airplane, and that's CapEx, and that is included in this year's CapEx guidance. We have not provided CapEx guidance for 2012 as of yet.

Okay, and then you might have said this when you answered and talked about the guidance for PRASM and TRASM for the fourth quarter, but could you just talk about what you're seeing in terms of bookings? I notice that your fare is up quite a lot, and obviously that's good, that means you can push through fare increases. I was just kind of wondering if you're seeing any signs that there's any weakness in any of your markets from the broader economic standpoint that we keep hearing about from other people.

Helane, this is Andrew. I don't think we're hearing about that from anybody other in this industry, at least maybe I missed it if we are. We're seeing strength in revenues across the board. Obviously there's some markets are better than others, but in general, we're really pleased with what we're seeing across the network. As you know, we have a very geographically disbursed network, touch a lot of different areas in the country, and we don't see weakness at all. I mean, things are looking pretty good, to us.

That's good to hear, and then my last question is with respect to Orlando. Now that I think you're consolidated back at Sanford, and I think at one point you had been increasing your exposure to hotels around the area. Can you talk about how that's been going, and your success rates there? And that's all I have, thank you.

Sure. Yes, we are in Sanford, we consolidated back there I think it was February 1. We've been back in Sanford for quite some time, so that's really nothing very new. As far as hotels, we are very focused on increasing sales in all of our markets, but in particular those away from Las Vegas which is where we think we have the greatest growth opportunity, and we've seen good traction there in the Orlando market. Not going to provide any additional color other than that. I think that the one product we wish we had in Orlando but we do not, is the ability to sell the Disney hotel product. We've been unsuccessful in finding a way to work with Disney to date. Perhaps one day we'll be able to sell that inventory, but regardless we're doing a very good job of increasing sales in the Central Florida region.

Great, thank you so much for your help.

Thanks.

Thank you.

Thank you. The next question is from Bob McAdoo of Avondale Partners, your line is open.

Thank you, hi guys. Can you just kind of refresh our memory as to what you have announced in terms of routes that you're going to pick up that used to be flown by AirTran, and any kind of sense there might be not necessarily asking to announce anything that you haven't previously announced -- but how broad is their pull-down so far that they've announced in terms of the other cities that they're pulling out of, that might somehow be interesting?

Bob, this is Andrew. I think that there's three that they've announced they're going to exit, that we are going into, and that would be Asheville, North Carolina -- Williamsburg, Newport News-Williamsburg, Virginia -- and Moline to Orlando, specifically. Those are the three routes that we have announced, that we will be entering into. They also announced they're leaving Atlantic City, but that's not a market that we're targeting at the moment.

As far as other changes, or deletions from their route network, we're watching with interest as to what Southwest is going to decide to do, and if they exit routes that we think we can serve successfully then we will certainly come in and backfill where we can.

Are all three of those going to Orlando?

Yes they are, Bob. All three of them are to Orlando.

Okay. And then, as we try to explain to people this process of airplanes coming out of the hangar that have the incremental seats, should we say like one every couple weeks? Is that kind of where they are now, but eventually you'll get even better? Or, what's the best way to describe that for people in terms of what kind of is current?

Just on basic math, if we have 10 by year-end, that leaves 50 -- or 40 to do in a year. So, that's one every week-and-a-half or thereabouts, every eight, nine, ten days.

Okay, so you think you'll have 10 by year-end?

As many as, could be eight, nine. We'll be in the process of being well on our way to it.

Okay, that's kind of what I was trying to get a sense of. All right, thank you very much.

All right, Bob.

Thank you. Our next question is from Glenn Engel of Bank of America, your line is open.

Good afternoon, a few questions, please. In the first quarter, when you're growing again, 17%, is that largely new markets, largely more frequency on existing markets, split half and half?

Hey Glenn, it's Andrew. It is I'd say it's close to half and half, Glenn. Between new routes and more capacity on existing routes.

And you mentioned just strength across all regions, are there any areas that are particularly strong?

No, we really don't want to get into more detail than that, Glenn. I think that if you look at the local economies, I think that it's pretty well-known that the Midwest, including the upper Midwest, has done particularly well and has very low rates of unemployment. Those markets, I guess in general, tend to do -- have always tended to do really well for us. I really don't want to get in any more detail on specific routes, other than that.

Is there any indication yet when maintenance starts leveling out or coming down?

Just a couple weeks, and we'll provide a full picture of that.

Well, I think that -- this is Andrew, let me just jump in. We do believe that engine maintenance in 2011 is unusually high due to the investment we're making in our engines. So, that view remains constant. We do not expect 2012's engine maintenance expense to approach what we saw here. So, I think that we do expect it to level off. As far as specifically what we're prepared to guide to for next year, that's something that we're going to have a couple more weeks to refine our estimates about that, but it will not be as high as what we saw this year.

And I guess finally, on the new rule change where you have to display the full fare, so if there's no difference to the customer in what they're actually paying, why are you so worried that it's going to have an impact on demand?

I hope you're right, Glenn, it doesn't have any impact on demand. We have just over the years, when you put a number Y out and/or a number X, and if X is higher, the reaction is substantially different. That's frankly what drove our ancillary growth and things of that nature, that the psychology of a customer in our transaction process varies dramatically, historically, based on the number they're presented with initially.

So, were you nervous about accelerating your capacity right when you have a big change in the way fares are displayed?

Not at this point, we'll manage it.

Thank you very much.

Thank you. The next question comes from Steve O'Hara of Sidoti and Company, your line is open.

Hi, good afternoon. Could you just repeat what the total number expected for the engine overhauls was?

For 2011 it would be 35 total engines, in 2011.

How many dollars?

Oh, $19 million.

And then on the change in the fare display, are you able to break out the taxes on that and show that separately as well, or no?

You can do it in a lesser fashion on the screen but it certainly has to be less prominent than the total selling fare itself, and I'm not totally up to speed on all the exact details. But, you're able to show detail, if you remember looking at advertisements in the paper and such, you'll see the big number for the fare and then you'll see footnotes will show details, so yes, you can put the details there in the overall presentation on the website.

Is there some fear that this is a back door way to raise taxes?

I don't know that there's even a back door approach. The government would love to raise taxes on us. They're proposing $100 departure fees and all kinds of things. We're an easy target. I think ATA suggests we're the most taxed industry, more so than alcohol and firearms or whatever is those things. So, cigarettes, I might add. But, I would not be surprised to hear taxes coming down the road for ancillary types of revenues in the not too distant future.

All right, thanks a lot.

Sure.

Thank you. Our next question comes from Dan McKenzie of Rodman and Renshaw, your line is open.

Thanks, good afternoon, guys. I am trying to I guess peel back the onion a little bit further on the cost guidance, and I guess first off I'm seeing head count drop about 5%, but overall wages over the last couple quarters. I guess in the second quarter up 12%, third quarter up 4%, and I'm wondering, is there a -- even though your labor groups are not unionized, is there contractual increases that layer into the fourth quarter that might be drawing some cost pressures to that line item?

Yes, this is Scott. A couple things. We did outsource Las Vegas in the second quarter, and that was a sizeable amount of head counts, I think upwards of 160 folks. So, that's now outsourced, so you'd see a corresponding decrease in salaries and wages, and you'd see station costs go up slightly.

Regarding the other work groups, pilots, flight attendants are on a scale-based system. So, their annual anniversary they get scale increases based on time here at the Company. Other than that, there's not any other work groups. Maintenance, and they got a slight raise at the beginning of the year. Other than that, third quarter is always our lowest activity quarter and so getting good crew utilization out of pilots and flight attendants is always somewhat of a struggle because we staff for our peak periods, but other than that, there's really not much else.

We had a guarantee in there for the Las Vegas station that kept the wages up for a period of time, but a big gap, so.

I think Dan, this is Andrew, the other pressure I think is that we're investing in the future by bringing on a lot of very talented and relatively expensive people in the IT area, as well as to leverage the automation that we're developing. I think that there's wage pressure there. We -- the average wage per employee has gone up as a result of that.

Okay, and that annual anniversary, can you remind me when that is for the other work groups?

It's -- pilots and flight attendants, based on their hire date. Mechanics, same thing.

Oh, okay. And then I guess on that latter point, that does raise my second question, and that is does the revenue guidance for the quarter factor in any benefit that might be coming from online from the new IT initiatives, and I believe that you folks had targeted a new website coming online by the end of the year. I'm not sure if that initiative would involve a cutover to the Amazon, like OTA platform that you've referenced, but I wonder if you can provide a little bit more color around what you're thinking in terms of the revenue guidance you provided versus some of these IT opportunities that might help drive revenues as we look ahead?

Well Dan, there's no benefits from the system in the next couple of quarters, practically. Just getting the system turned up is the first thing, and what we're doing is emulating our existing system to make sure we don't have any degradation in revenues. That's the first priority so that when we do all this background work, we want to make sure it works properly. That's how we'll come out of the box, but very quickly thereafter we'll start looking at different things, selling hotels as a standalone opportunity, and it's hard at this point to make a projection on what that'll be worth. But, we'll be able to fine tune our thoughts on that certainly in the next couple quarters, I would think.

Okay thanks, appreciate it, you guys.

Thank you. Our next question comes from Jeffrey Kaufman of Sterne, Agee. Your line is open.

Thank you, Sterne, Agee. Hey guys, I apologize, I got disconnected for a couple minutes up front, so Maury if you addressed this already, I apologize. Could you talk a little bit about any potential opportunity you see in some of the slots being auctioned off at LaGuardia or DCA? Is that anything that makes sense for you?

Hey Jeff, this is Andrew. We're really not interested at this time in DCA. We are interested in New York, the destination market, and we do expect to participate in the slot auctions for the LaGuardia slots. At least we're going to take a good hard look at it, so we're in the process right now of trying to assess the value that we believe they would hold to us. But, we do plan to serve the New York market, certainly not (technical difficulty) targeting a different customer base, (technical difficulty) leisure customer (technical difficulty) New York City is very, very attractive, and that's part of what make us so interested in that market. So, we'll see, stay tuned.

Okay, and my other questions have been answered, so thank you very much.

Thanks.

Thank you.

Thank you. Our next question is from Hunter Keay of Wolfe Trahan, your line is open.

Hey, thank you for taking the follow-ups. Maury, I think this probably happened, but I believe I missed it. Was -- you guys applied for a stay with some of the post-purchase price increase stuff. Was that all folded into the general rule change, and is there any kind of, any update as it specifically relates to the post-purchase price increase activity? Or your ability to do that, at some point?

Yes, we talked about some of that, Hunter. The stay was part and parcel of the law, or the action asking for the Court to stay if you will, the implementation of I think we have four or five specific items that we -- of the 13 or 14 that's in the Act, that we asked them to stop implementation. They, the court, declined that. Frankly, our lawyers told us that it was a long shot to get a stay, but the court has agreed to hear our case and so there's dates laid out for briefs and oral arguments and the like, which will go on for the next three or four months, and I think we'll be -- the court will have all the material and have heard everything by the end of February or March some time. We hopefully will have a follow-up ruling in our favor within the next quarter after that.

So, as it pertains specifically to the post-purchase price stuff, is that it? If this goes down this way and the appeal fails, is that going to be it? I mean, it seems a shame to lump that in because I view that personally as such a hugely transformational thing, but it's lumped into this bigger initiative from the government. Is there any way that down the road, this one particular item could be re-addressed, or is this going to be kind of it for this thing, indefinitely?

You know, this is, what we are dealing with is the administrative methodology of dealing with regulations proposed by agencies such as DOT. After an agency proposes a regulation you could have 60 days to appeal it if you will, and you have a standard to meet that it's arbitrary and capricious, which is according to the lawyers, a very high standard to meet. Having said that, there's Constitutional issues and numbers of arguments we've made about it, but you're right. There is, once it's done, it's done. Unless you have action by the Congress to overturn it, or the DOT decides that they think they made an error, which I don't think I'm holding my breath on that part.

Yes. That's a shame. Okay, and I guess just one more, on the Phoenix to Vegas, I think you're probably selling that at this point. It's interesting, it was a destination-to-destination type route which is obviously not normal for you guys. Any commentary on sort of how that's booking up, and if it's successful? Maybe a little bit of the strategy, obviously, which I'm sure I can figure out, but just a little bit of the strategy behind the decision to do it. And, if it works, are there other destination-to-destination type growth initiatives that exist? And thanks a lot for follow-ups.

Yes, Hunter, so Phoenix, we have a pretty large presence, and we actually carry a very substantial amount of originating traffic from Phoenix, so we have a very large customer database to market to there. Las Vegas is similar in that it's our biggest space, and we have a pretty good brand presence here. So, this was a case where we thought that this would be a successful product offering from an alternative airport in the Phoenix area, and so far we're really pleased with the bookings. We start service in mid-November, so it's far too early to tell what the success of this route will be. We anticipate it to be a very short booking market, so we'll see, but could there be others? Yes, absolutely there could be others. But, we're going to focus on this one for now, and we'll go from there.

All right, thanks again guys, appreciate it.

Thank you. I'm showing no other questions in queue. I'd like to turn the program back to our speakers for any concluding remarks.

Thank you all very much for your time today. Appreciate it, we'll talk to you in 90 days. Have a good day.

Ladies and gentlemen, thank you for joining today's conference. This does conclude the program and you may now disconnect.