Allegiant Travel Co (ALGT) 2013 Q1 法說會逐字稿

Good day, ladies and gentlemen and welcome to Allegiant Travel Company's first quarter 2013 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. Maury Gallagher and Andrew Levy will provide us with brief commentary, then we will begin our question and answer session.

First we wish to remind listeners 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 the rebroadcast of the call are available at the Company's Investor Relations site IR. AllegiantAir.com. At this time I would like to turn the call over to Maury Gallagher.

Thank you, operator. Good afternoon, everyone and welcome to our call. 41st quarter of continuous profits. Very pleased about that. Over ten years. One of our strongest quarters, if not our strongest quarter in history in many ways, certainly in revenues.

Great operating margin for the quarter of 19%. $1.65 a share. 47% increase over last year. And we did this, I might add, this is our third highest quarter of fuel costs at $3.37 a gallon compared to the other two quarters in the middle of 2008. And we saw as well, in particular, strong benefits from our ancillary revenues and the like but you all can see that in the release.

We are going to do a new format today. We are not going to be sitting here reciting things to you. We are going to just basically take questions after Andrew has a few clarifying comments. We will be ready for your questions in a couple of minutes. Andrew?

Yes, thanks Maury. I want to highlight a few topics that I'm sure we will cover during the Q&A section. The second quarter will not show the same year-over-year strength as we saw in the first quarter due to the Easter shift which pulled peak period demand into the first quarter of 2013 and out of the second quarter which is different in 2012 when Easter fell in mid April.

This is consistent with our internal forecasts and does not represent any change in our expectations. In fact, our second quarter internal revenue forecast was just raised slightly based on strong forward bookings and our view of a robust demand environment during the summer peak period which begins in June. Early bookings for the fall also look very good. So we expect good revenue performance through the balance of the year at this point.

Secondly, our full year capacity plan that we are showing today, we have updated that. It has lower ASM growth than what we had forecast in November of 2012 during our investor day which was the first and only other time that we have provided guidance on full year 2012 or 2013 ASM growth. The change at this point in time is due to two reasons.

First, with the benefit of having more experience in the Hawaii market we are seasonally adjusting our capacity during the fall off-peak periods in order to maximize our profitability. This capacity adjustment is consistent with how we manage capacity in our overall network and similar to how we have managed our network capacity for many years now.

The second reason is the termination of our planned aircraft acquisition from Cebu Pacific. Which, as you recall, was going to be ten A319 aircraft. This is not new news we've disclosed this awhile ago. But as a result of that it resulted in fewer aircraft units in service this year and therefore less growth as a result of that.

Our third quarter capacity plan is largely final but we have an upward bias so we may grow slightly more during that period. And our fourth quarter capacity plan is still being developed and we will potentially allocate more capacity than we currently plan depending on our view of macro economic conditions and fuel prices. However, at the current time we also have an upward bias during this period due to lower fuel prices that the forward curve is suggesting for that time frame.

We are going to finalize our schedule which is currently selling through October 29 in about 30 days or so. And at that point we will have a much better sense as to what the full year numbers are going to be. The result of the pull down in our capacity growth rate is going to result in a slightly higher ex-fuel cost per ASM or unit cost than when we forecast this in November of 2012 and the change there is for that reason and only that reason.

We do not see any unanticipated new cost pressure so it is strictly a result of pulling out or not growing as much as we had anticipated when we gave the first CASM ex-guidance. Lastly, there still remains outside interest in our Hawaii operations despite the very small percentage of our revenue and network that it represents.

That being said, the Hawaii peak period is during the summer and we expect very strong performance during this period. As previously stated, we have adjusted our Hawaii capacity beginning in late summer when we expect demand to wane due to seasonality. And that is similar to demand patterns we have experienced in the Florida market since we entered there in 2005.

We expect the seasonal adjustments matching supply with demand to enhance our profitability. The reduction in 757 flying to Hawaii will enable us to utilize these assets in our domestic mainland network on routes where we believe the 757 can drive higher profitability than our core MD-80 fleet. And we are now ready for questions. Operator?

(Operator Instructions). Our first question is coming from the line of John Godyn, Morgan Stanley.

Thanks for taking my question. I just want to say I love this new format. I think it is great. I have a couple of questions here. First of all, just kind of taking a step back. I think there is a little bit of a view out there that Allegiant over the next few years doesn't have as much leverage to sort of the industry thesis if it plays out of rising returns at Legacy Airlines and consolidation and things like that.

Obviously you are not directly involved but I was hoping that you could just sort of speak to us in terms of, if that thesis plays out what kind of opportunities are uncovered for you? How does sort of your business benefit or maybe it doesn't? Maybe it is very insensitive to that thesis, I'm not sure. Perhaps rising prices create new growth opportunities but I was hoping you could just kind of speak to that?

John, it's Maury. We are totally bullish about our opportunities as a general rule. For many years people have told us gosh, I wish I would have bought you when we talked to me the first time but you don't have much growth left now so I can't buy it.

We have moderated our growth continuously over the years and we will it continue to do that. As far as the thesis of consolidation we think that is a real positive. The American/US Air deal, any time you do something that big and the like is distractive to their efforts which out here in the west we think is a positive. On the east coast, same thing.

So, consolidation is a good thing. We think we are in the cat bird see the in the long-term. We don't have to be in a rush, it will come to us. All in all, where we look at what the opportunities, the airplanes, it all looks very positive at this point. Andrew?

Let me add on to that Maury. I have a couple of comments to that, John. I think what we have seen in prior periods of consolidation is a couple things. In some cases we have seen new route opportunities open up where service has left markets that are within our sweet spot, these smaller communities.

So obviously that is a possibility. Secondly what we have seen is less capacity in the hubs and also fewer hubs. And therefore the indirect competition that a hub and spoke carrier might offer to these smaller communities is, there is just less capacity and less alternatives. And as a result and apart from that just in general I think what we are going to see is just higher prices.

That is what consolidation is all about, is being able to price higher. And as long as our cost advantage remains intact, and we have an enormous one, then that just you gives us a good pricing umbrella under which we can operate and offer really attractive fares to continue to stimulate demand in these markets. It is hard to see how it is anything other than a real positive for us.

Is it fair to say that as we think about what that means for sort of the margin profile over the next few years, if sort of industry prices go up and that is the driver of sort of whatever amount of points of margin improvement at the legacy airlines we should expect Allegiant kind of all else equal to track that improvement in margins? Is that a fair construct?

I would say not necessarily because we are looking to maximize earnings as opposed to necessarily margin. It may very well afford us the opportunity to add maybe more capacity in certain markets and grow earnings that way through volume as opposed to yield. There is only so much yield we can capture in the leisure space and our business is built on stimulating demand.

I would just say that is one issue. I think it certainly allows us to grow earnings, certainly all else being equal. I don't know if it tracts that way. But I think the other thing that we have in our favor, in terms of increasing margin performance, is the bringing on of the more efficient Airbus aircraft. That in and of itself is going to allow us to be much more fuel efficient, which again will translate into higher operating margins or maybe more volume and growth and earnings that way.

It's just a positive for us no matter what you look at it. It's hard to say, it might be better than the network guys.

Just even taking big picture, John. You have seen everybody pay up on the cost side. I think they hit their nadir in costs in the pre-consolidation. To get deals done everybody is increasing their labor costs and the like.

So costs don't seem to be nearly as powerful or as prevalent. If they take their costs up they have to take revenues up. Additionally, the capacity discipline seems to have been terrific. So that is going to drive revenues. And if we stay underneath relatively that absolute number and we manage our costs better, which I think we can, it should be net positive to us.

But all the points Andrew made, we are very bullish on where we sit right now as far as opportunities and earning power. And this quarter being a classic example, 19% margin. That is up I think four points from last year's margin. So we are very pleased with that outcome.

That is really helpful. If I could just ask one more. You guys reference two things. Re-accelerating capacity growth is sort of a concept for the next couple years and the new aircraft. And we have seen for a bit now kind of a pattern of, I want to say high teens or maybe 20% kind of capacity growth and a lot of benefits on CASM ex-fuel as a result of that.

I know there are some hiccups in the back half of the year with capacity and CASM ex-fuel. But as we think about 2014, the new aircraft, all of that, the potential opportunities from industry consolidation, is it fair to say that we sort of return to that prior ASM growth profile and the cost declines year-over-year that come with that? Is that the right frame work to be using for kind of 2014 and 2015?

I think that I would be, I'm not the going to suggest our costs going to go down. Having said that I'm bullish about adding airplanes. Our growth candidly could be a bit lumpy depending on aircraft availability and the like.

The deals come along we can acquire them easier and faster. As we saw with the see Cebu deal we got hung up on a technicality and so our ASM's are down as a result of that, this year. There is lots of opportunity when airplanes come along.

The benefits as we grow with the Airbus and the fuel savings they are substantial. We saw it in March. Those things should definitely help us to certainly keep a lid on costs if not potentially take them down. But I don't want to sit here and say that today.

Okay. Thanks a lot, guys.

Thanks.

The next question is from the line of Hunter Keay, Wolfe Trahan.

Thanks. Hi everybody.

Hi.

The share buyback, I'm curious, the authorization I should say, curious what drove the timing to do it now? And what are sort of the mechanics of how it can be executed? And by that I'm really driving at how much of that $100 million is sort of scheduled like free schedule at the SEC versus you having the ability to go and be opportunistic and buy it whenever you want?

Hunter, this is Andrew. The reason that we addressed it with the board is quite honestly is because we were down to a fairly low amount of authority remaining and we just felt it was appropriate to get a higher level of authority. We were pretty aggressive buyers during the first quarter of the stock and I think we have been pretty candid.

We feel we have excess cash on the balance sheet and have chosen at this point in time to utilize some of that cash returning it to shareholders through share repurchases. We have not filed nor intend to file a 10b-1 program with the SEC so the purchases will be made at our discretion. And that will just be dependent on a number of different factors. We intend to continue to take shares out of the market.

Okay. That's the perfect answer. Thanks, appreciate that. And on the hotel nights. Obviously we are seeing some divergence between rental car days and hotel nights.

I think you guys said before you stopped discounting air to sell hotels. Wondering if that is something that you think is proving to be a good strategy or something you are going to maybe think about changing as it sort of portends to sort of modeling at the hotel nights going forward?

I think, hunter there is a couple of reasons hotel room nights are down. One of which is the fact that we had, we went backwards in terms of departures in Las Vegas this first quarter versus a year ago. So we carried fewer people into Vegas and Las Vegas is still the dominant part of our hotel sales. So that certainly had an effect on hotel sales.

I think the fact that we are not subsidizing hotel sales with discounting the air is another factor. And we think the overall results of doing that have been extremely positive. As far as going forward we are going to try to drive greater number of hotel sales in the Las Vegas market. We have been pretty successful at driving up the volume in the other markets and Vegas is a smaller percentage of the total than it has been and it has been decreasing as we have been more successful in selling hotels in other markets.

We are constantly looking at ways obviously to maximize overall profits. But certainly we would like to drive as much revenue and profit to the sale of hotel rooms as we can. We think strategically that is important, especially our long-term vision about being able to continue to sell a lot more travel related products and services to our customers other are than just simply the air transaction. And so we are going to be looking at a number of different things. Especially as the automation continues to evolve and we have different tools available to us to do more sophisticated kind of pricing we have been able to do historically.

Stay tuned. The optics of that are perhaps viewed as not so good but the overall net revenue is up and we are really pleased that is the case. Especially on a per passenger basis. We are growing net revenue but we are growing it even more on a per passenger basis and that is really what we want to try to do.

Okay, thanks Andrew. So you are comfortable with that sort of optically in terms of what you are getting at in terms of hotel rooms.

Yes, we are very comfortable with it. It's not a surprise to us and the overall effect of, I mean look at the end of the day we grew net revenue on an absolute basis by 18%. So you know obviously we always try to grow it faster but we are pleased with where we are and we think we have tremendous growth opportunities in that area as we go forward and in particular as we continue to enhance our automation platform and have additional tools available to us.

Okay. Thanks, everyone.

Thank you.

The next question is from the line of Helene Becker, Cowen Securities.

Thanks very much, operator. Hi, gentlemen, how are you?

Very good.

I'm sure, right, good quarter. I have just a couple of questions. One is I read in I think the journal today that the sequester was starting to hit Las Vegas and I wondered if you saw any signs of that, A. And B, if by operating out of smaller airports there will be any impact of that and what you were thinking about that I guess?

The two impacts potential from sequester include towers and then the ATC stuff. The last three days we have seen nothing here in Las Vegas that I'm aware of, which is good. Certainly you are seeing your big cities impacted, L.A. I think we said we had a three hour delay the other day going into L.A.

We had a little flow control over Jacksonville which is north/south in the east coast. Not much but it was half an hour, 45 minutes the other day. Our small cities we just don't expect to be impacted on half of our departures or inbound because you don't have traffic around Sioux Falls to speak of. As far as the departures relative to airports and towers, we have been operating in towerless airports since our early days.

We don't care for it candidly but it is what it is and we can make it work, it is safe and we take particular procedures to deal with it. Adding a few more to our system. While it's not desirable, we will manage it just fine. We have not found any incidents here where we don't think we can operate in a city because of that. Should we have problems we will back up there. Like I said, we are fairly, I'm not going to call it routine but it is very close to routine for us to do that.

Okay.

So we don't expect impacts.

Okay. And then I thought I saw in the commentary in the press release that first quarter departures to Las Vegas decreased compared to last year. So I'm sorry, I missed it if you said it earlier, is that decline going to continue or will that change again in the second and third quarters?

Helene, I think I don't have those numbers in front of me at the moment. The reason it declined as much as it did this year is really more lessons learned from last year. Last year we had a lot of capacity on off-peak days trying to drive incremental profits during the first quarter in March in particular which is a strong period in Las Vegas.

And what we found was that those departures were dilutive to profits and so we, this year we were just much more focused on flying Las Vegas routes on peak days of the week and that really explains much of the decline year-over-year. The additional of a little more expense in stations, so that affects things too. As far as the next few quarters I think you are going to see something that is not nearly as dramatic in Las Vegas.

Okay. And then just one clarification point on Hawaii. With, so it is just a seasonal decline, right, it is not completely leaving Hawaii and I think you actually are keeping Las Vegas and Bellingham as I recall. It is not pulling out. It's just for now and then coming back to it in the winter months or summer months? Is that how we should think about that? Like stay tuned to the schedule?

Yes, I think that is right. As you know from following us, for many years for example in Florida in September we simply stop flying many routes. And you know in Hawaii when much of our, many of our routes are only once a week.

If we don't think we can cover the direct expenses during that off peak period on that one flight a week, well the only way to go down is to go to zero. These are not cancellations, this is typical Allegiant style of managing routes and capacity and stay tuned as far as what we bring back and when. But, this is kind of business as usual for us.

Okay, great. Thanks very much. And I would like to echo the earlier comments. This is a terrific format.

Thanks.

Your next question is coming from the line of Glen Ingle, Bank of America.

Good afternoon. Can we go over some of the cost items? Station operations were down just by capacity being up a lot. I think there was some one-time items that made other airlines relatively high. And are the salaries and the maintenance lines, are those numbers that we should assume stay at roughly these levels for the balance of the year?

Hi, Glen, this is Scott. Let me tackle the salaries line item first. As it says in the release the kind of lion's share there has to do with the pilot increase as far as the pay bands and then just the absolute number of heads driven from additional flight attendants. One of the things we didn't really highlight in there is bonus and stock comp, which are obviously included in that line item, were substantially up year-over-year.

As you look forward into Q2 and Q3 you will see the same sort of pressure as if you back tracked to the number of 166 seat tails throughout 2012 you are going to be able to add the heads in there. And then the lasting effects from the pilots would have been in November of last year. Maintenance, we have guided full year from 100 to 110. Clearly the first quarter came in under that range.

Mentioning that the second and third quarter are going to be our heaviest of the year. The third quarter in particular is definitely going to be outside of the higher part of that range. Obviously the maintenance is lumpy, the timing on when events come out of the shop or out of the C check line can move those numbers a little bit.

As far as stations, the big item in there, obviously Vegas coming online you are going to have a pretty sizeable impact year-over-year. There were some good guys that ran through the first quarter. Not operating the Caesars program has allowed us to more or less reduce some of the accruals that we had outstanding which is why you see us maybe not following the trends exactly.

And Glen, this is Andrew. Let me add on to that. Departures really are more tied to station expense, at least in our system. On a system wide basis our departures were actually down a little over 5%. That is probably a better number to focus on than ASMs.

Second, on the 757 if they are not going to be used as actively on Hawaii do you need as many or are there, what other type of markets makes sense for those planes.

Glen, yes, the airplanes we acquired to do Hawaii, and it is a great airplane for Hawaii. Over time as we have more Airbus narrow bodies then any route that an Airbus can operate it will probably be the right airplane as opposed to the 75 because it is so much more fuel efficient. But that is not where we are today. The 75, there are many routes where it is better in terms of enhanced profitability than operating MD 890s. There's not a huge number but because it is a big airplane it needs to be on denser routes.

We are going to operate them in the mainland and we think they will do very well. I think as far as how many we need long-term I think that will be determined by our success and the size of the opportunity we think we have in the Hawaii market. And that is not anything we are going to have a real strong opinion about until, with the passage of time, as we continue to learn the market and better understand the opportunities there.

And finally, the Airbus planes, are those initially going to be substituting for other planes or will they be growth markets? When do you start to really use those to penetrate new markets?

Well, this year with the reduction of five, 150-seat MD-80s, four which will be in the summer and one at the end of the year. The first five Airbus narrow bodies are really replacement units so they are just simply kind of keeping us where we are. And then as we add more Airbus aircraft they will be used for a combination of replacement of existing routes and it will enable us to open up a few new routes that the Airbus can do and the MD-80 can't. But to the extent it frees up MD-80 capacity. Those MD-80s will, in many cases, be used to open up new routes. So it's a little bit of all of the above.

Thank you very much.

The next question is from the line of Jim Parker, Raymond James.

Good afternoon, guys. Andrew, of course your logic is very good about capacity decelerating and that pushing up unit cost. One of the things that stands out here in your guidance that appears to be a bubble is your CASM x in the second quarter and your capacity growth is going to be 20% and you have got it up 5% to 7%. In the first quarter your capacity growth was 17% and your CASM x was flat year-over-year.

What is going on? Is there something in the second quarter that is just timing related or why is CASM x going to be up so much in that particular quarter?

Yes. Hi Jim this is Scott. As I mentioned maintenance is going to be sizeably higher this year, year-over-year.

Second quarter.

In the second quarter, that is, correct. In addition, we kind of highlighted some of the D&A that we are seeing with obviously a much more expensive aircraft. You going to see the same sort of year-over-year increase that you saw in the first quarter year-over-year.

So, other than that, it is nothing that we haven't highlighted. The labor components are just hired some flight attendants primarily and then maintenance. Nothing else is really out of the ordinary.

Scott, what do you mean? What is unusual about maintenance in the second quarter? What items are falling in that quarter?

Jim, it is just the timing of heavy maintenance. The heavy check lines. There is minimal engine overhauls this year. So it's just the impact of when frames are coming out of the heavy check cycle.

Okay. You mentioned of course, you started flying to Reno and is that a destination or a small margin small market?

Jim, it is a little bit of both. Right now, we are flying Vegas Reno. And there is good two-way traffic between us. There is quite a few people from here to go up there to vacation and vice versa. But we are also going to be starting flights out of Bellingham, Washington, in the second quarter I think, and that clearly is directed toward people going to Reno to go on vacation.

And Andrew, in that context you mentioned you are going to start service to Little Rock. It is not a big city, but it appears to be more than just a small city. So what, you have pretty good scheduled service by other airlines in there. So what is your spectrum of size of market as you are now expanding it and will be into markets like that where you have got a lot of scheduled service as other airlines?

Well, Jim, I don't know if Little Rock is necessarily bigger if at all than many of the markets we serve. It is certainly bigger than the average market I guess if you look at it that way. I guess that is one point. Second point is there is no nonstop service from Little Rock to Orlando this summer and we saw an opportunity there to provide a service that the market didn't have and we are very pleased with what we are seeing in terms of advanced sales in that market.

Jim we have done that since we started. We went into places like Des Moines and Wichita. All those places had plenty of commuter service into hubs. Little Rock shouldn't be a different profile. That is a common place for us.

Okay, sounds good.

The next question is from the line of Michael Linenberg, Deutsche Bank.

Just a couple of questions here on the numbers. When I look at the improvement in gross margin for the third-party products. You have a nice bump up.

You talk about the switch and the mix from car rentals versus hotels but you also talked about selling Las Vegas hotels. Is the driver there the shift in mix or maybe just getting better returns on hotels outside of Las Vegas? What is driving that big bump up.

Hey, Mike.

Hey.

The increase is really we are just optimizing our pricing better. We are capturing more yield on not only car but also hotels. I mean certainly there is volume in car. There is volume reduction in hotel. But from a pricing standpoint we are capturing more yield on each transaction. Not each and every one. Getting more yield on the average hotel sale and the average car sale.

Okay, great. And then just looking over on the ancillary fare for ancillary fare-related charges. Nice bump up to 29%. What is the big driver behind that?

The single biggest driver is bag related revenue. The carry on bag fee which we first announced in I think it was April last year. So as time marches forward we will start to lap that, in that revenue stream so the comps will get a little tougher. The other is checked bags.

We have seen a nice increase since we implemented that fee and then started enforcing it in the summer and as it rolled through the more and more of the travelers that we are booking. We have seen a nice increase in ancillaries and so I would say by far and away that is the largest driver of the increase.

Okay, great. And then just your TRASM you talked about what it was for same store sales versus the system. Are both those numbers stage length adjusted?

No, they are not.

Okay. Because you would think maybe the new stuff gets pulled down by Hawaii is that the way to think about it, the longer haul service?

Yes, I think that is fair. I think that is fairly fair.

Great. One more on the numbers. You guys usually give us I think on an after tax basis what the ROIC was for the end of the trailing 12 months into this quarter. Do you have that? And maybe what it was versus the prior period just the prior 12 month LTM period.

Yes, the number I have is 16.9%. That is up from 15.7% at the end of 2012.

On a trailing 12 month basis.

Right.

Okay that's fine. And that is an after tax basis, right?

Correct.

Great. Thanks, guys.

Everybody seems to calculate it differently, Mike.

Oh, I know.

We certainly provide that information as is to how we arrive at that. But the good thing is the trend is very positive.

I mean at least you can articulate it. Five years ago most companies didn't seem to know what that was. So very good.

Don't be critical, Mike.

Good job, guys. Thanks.

Thanks, Mike.

The next question is from the line of Duane Pfennigwerth, Evercore Partners.

Good afternoon.

Good afternoon, Duane.

Can you talk about the operational reliability of the 757 versus your expectations? Is there any learning curve ahead with this aircraft and specifically with the maintenance expenses that you cited is any of that sort of related to the 75?

Duane, the 75 we had some heating problems with that in the first quarter. More so than we would have liked. A couple of campaigns we are going through right now to clean it up. But we will get there. Probably should be on top of most of it by now. We certainly are going to spend some more money in the first quarter than we anticipated but again we will level that out. In general it is what we expected and we are, it is an operationally very sound airplane for us long-term.

Okay, thanks. And then is CapEx, it looks like it is up a bit versus the last update. Can you just clarify that?

If general it is usually a fluid number. There is a couple of transactions that may be finalized here. But there is nothing substantial. I mean the lion's share of the CapEx is here it is going to be A320 related. Nothing significant.

If we can get some deals that will pop up or things like that we will, that may affect it as well.

How much of that number do you anticipate to get financing against and what sort of ratio would we be thinking about?

Yes, Duane, I think we are expecting to most likely finance each airplane that we acquire. And looking at a lot of different financing structures. We have so many different alternatives to consider. They are all very attractive in terms of price and advance rate.

The beauty where we see sit is we can just go ahead and pay cash and then after the fact that is an option. And that would be pursued. We are active in the market. We have a lot of financial offers that are offered to us at a very attractive rate.

You can safely say we will probably finance the airplanes. That is a reasonable assumption.

Okay. Thanks very much.

Thanks, Duane.

Thanks.

The next question from the line of David Fintzen, Barclays.

Good afternoon, everyone. On the TRASM guidance for the quarter for Q2 and for the next month, are you really just taking the bookings as you are seeing and sort of using that to guide the guidance or are you baking in some incremental softening just given fuel is down and just given that relationship which I think you guys have talked to before in terms of lower fuel often comes with lower demand but then that is still fine. Kind of curious what might be baked into that guidance.

We are not expecting that David. Obviously April is, with our booking curve being much more extended than most any one's. April is pretty much done. As we head into May, we have the vast majority of our revenue is on the books and June is a peak period.

We just see no signs to suggest that we going to see a revenue decline. I think there is a lot of reasons that we could debate why oil prices have come in a little bit. I'm not sure we are believers in that it is reflective in some kind of slowdown in the consumer spending out there. We are not seeing that at all.

Okay. That's very helpful. Then with some of the seasonality of Hawaii, and as you are looking at destinations, I'm not talking about specific al fleets et cetera, but as you are looking at destinations over the next few years do you start to think a little bit more about looking for maybe counter seasonal destinations or some winters that you think it doesn't even factor in you just kind of go, regardless of seasonality you want to go where the best new opportunities are? How should we think about that?

Dave, it's Maury. Interestingly enough, don't forget our best quarter is the winter quarter. Compared to everybody else. That is our big number one. As we like to tell our folks, our Christmas season starts February 15 and all hands on deck. That is when we do the lion's share of our business.

We are pretty counter seasonal in many ways. Our off-peak, and I think joke to see if you can get rid of September and January the airline industry would be the best industry in the world. But you can't fix September, I don't care where you go. And January is pretty much the same. While we can look for counter seasonal we really do very well in the two peak seasons. Winter and summer. Shoulder months are okay but not great and Septembers are very poor and January is not far behind it.

As far as new destinations we look at a number of different factors. Not just seasonality. I mean there is just so many different factors that get baked into our decision to open up a new destination market. We have certainly been on record of having the strong interest in the Mexico market and that is both as a point of origin into Las Vegas and Orlando as well as hitting the destination markets in there. So stay tuned on that.

We have no issue with seasonal markets. We are used to it. Myrtle Beach is a market we have been flying only in the summer time for many years now and I think you will probably see us add more markets like that in time. That are very good during a specific period of year but don't make sense to fly during the remainder of the year and we are very comfortable with that.

Just a quick one. On the fleet plan when you have the 7320 coming in the fourth quarter, is that into the fleet not necessarily into the service. How should we think about in the service?

That is into service.

Oh, that is into service. Okay.

That is flying into service by, we believe, mid to late fourth quarter. And so obviously that implies taking possession of those aircraft well before that and getting them ready for maintenance, or getting them through maintenance and ready to operate.

Okay. That helps. I appreciate the color.

Thanks Dave.

Your next question is from the line of Steve O'Hara, Sidoti.

Hi, good afternoon. Could you just talk quickly on two things. The IT rollout, where that stands? Is it fully operational, is it meeting your expectations or exceeding them? And then in terms of the aircraft that maybe you are seeing offered for sale, do you see the opportunity is getting better or kind of still the same in terms of pricing from your standpoint?

Let me touch on the automation, Andrew can tell you about the aircraft. Automation is moving along very nicely. We have a couple of fundamental building blocks to finish off hopefully in the next 60 to 90 days, maybe the end of the summer in the worst case.

At that point I like to joke that we are going to move up to the top of the ocean cruiser that we have been talking about now fixing the engines, so we are going to be up on top playing with the products. So a lot of opportunity to enhance our pricing group. They have a number of requests in to do things. We will hopefully have a shopping cart approach which will let us sell land only products that we today need an airplane seat for. Those are all positives.

I might add the data mining we are getting out of this is exceptional, too. The systems and just the data available and then turning it into useable information is a big task. We are well down the road with the data warehouse approach and a lot of data mining that we are using all through the Company.

Very bullish on all of those things. It is going to be hard to measure some of that as we go forward. But we are all very comfortable that it is going to be a big plus for us.

Yes, Steve, as far as the aircraft is concerned we remain very bullish about our ability to grow the fleet with very high quality used A320 family equipment. We are in the market and looking for opportunities but just as we have done for 12 years now we are very price sensitive and we are going to let the market come to us. And we don't anticipate any problems at all in executing transactions to enable us to grow at a pace we are comfortable with going forward. Stay tuned. We are constantly out there looking for opportunities and there is a lot of aircraft out there.

Maybe as a follow-up in terms of the IT system. What is the grand plan for that? Is it something where it is much more of a comprehensive system where you are offering all sorts of travel related products. Maybe not just your own but other airlines or other, maybe European travel or something like that?

At this point it is just internal. We are looking to enhance our third-party products in particular. Stuff that ties into activities with vacations and leisure travel. You know, enhancing the selling of it, the display of it as well as pricing inside the airline, being able to kind of understand better from a CRM perspective. Whose on the line and what they want being able to market to them more specifically than we do now. All tied to both data and IT capability.

Okay. Thank you very much.

Sure, Steve.

Your next question is from the line of Bob McAdoo, Imperial Capital.

Hi, guys. A little more on the fleet thing. Can you tell us what you have committed beyond the fourth quarter of 2013. It seemed like at one point we had some easy jet airplanes, some A319s that were more then just the two. Are these two that you have here the easy jet planes and are there more of those? And how much of an appetite do you have over the next year or so if A320s got really cheap would you take another 10 and ground MD-80s? How do you think about that?

Bob, we have seven more, first of all, yes the two A319s we are operating are formerly operated by easy jet and those are two of the aircraft that we leased from GECAF and that deal is for a total of nine aircraft so the other seven will be showing up here in late 2014 and 2015. So nothing has changed there. And that information I'm pretty sure is available on some of the information we have put out there on presentations as far as the fleet plan growth over the next three years.

The seven A320s is part of a deal to acquire nine. So there are two additional A320s that will come in the back half of 2014. Right now we have commitments for 18 A320 family aircraft. We are opportunistic. We are in the market.

Candidly, we would like to bring onboard some additional A320 units in the first half of 2014. Which would fill a gap that we currently have. And as far as the replacement of MD-80s I think that just depends on a number of different factors. It's just going to depend on the price, on the availability and economic conditions. We don't feel any need to replace MD-80s.

I suppose in an environment where maybe economic conditions were very challenging and we wanted to slow down the growth rate then perhaps in that scenario it might make sense to start to retire additional MD-80s. But at the moment we plan to enter next year with 51 MD-80s and there is no plans at all to retire additional MD-80s. That will change in due time but there are no plans at the moment and we expect the MD-80 to make up the core of the fleet for many years to come.

I guess I was really more thinking about it in the context of if ten A320s came available early in 2014 how would you think about the possibility of taking an additional ten of those and maybe really reducing the usage or grounding or whatever you want to call it, reducing the usage of some of the MD-80s until you could kind of grow into all ten of the A320s. Go ahead and do an early substitution of the A320s for the MD-80 hours.

Yes, that is absolutely what we would do and if we had an opportunity to acquire high quality aircraft at prices that we felt were attractive we would do exactly what you described. We would bring them in and the MD-80 utilization would go down for a period of time until we could manage the growth. And then we would start to ramp up utilization of the MD-80s growing into new opportunities.

So, yes, it wouldn't be a retirement of MD-80s. There is so much flexibility with a fleet of MD-80s that is largely depreciated so we can do the kind of things you described very easily. It gives us great option value, the MD-80s and we think that is extremely valuable.

Right now the total is 18, basically the A320 family.

18 with deliveries through 2015 and we are actively in the market and we certainly hope to add to those numbers in 2014 and 2015.

And an A320 is nor more exciting than an A319?

Well, that comes down to price. One has 156 seats and one has 177. It just comes down to what the price is. But we do like having a number of the smaller units.

We think that that fits better on a lot of our routes. I think we predict over time that the bulk of our A320 family fleet will consist of A320s as opposed to A319s. We like the A319s quite a bit as well.

One last quick question. What are you paying for fuel today?

Less than we were paying awhile ago.

Thank you.

I think we are saying in Las Vegas right now we are paying about $2.85 to $2.90 a gallon all in. That is this week in Las Vegas.

What would that equate to, I'm trying to think about where we are today versus where we were on average in the first quarter? Is it down a quarter. Is it down $0.30?

Well, I mean obviously that is just this week and who knows what next week looks like.

Sure.

But not knowing Vegas in the first quarter, it is a good bit lower. At least the $0.30, probably closer to $0.40, $0.45 in this market. And we have L.A. pricing risk and then gulf coast pricing risk. Vegas is off of L.A. Don't have the Orlando number right this minute or gulf coast number it has come in nicely.

Okay. So as we start to think about the next quarter or two, assuming nothings changed, think about down $0.30 is overall?

If you want to see a relative change just go out Bob and check the L.A. prices in February. My guess is you will see them over $3 a gallon and we are $0.30, $0.35 under that right now. Just follow gulf coast or L.A. and that is going it to be our fuel movement differences.

Got it. All right. Thanks, guys.

Thanks, Bob.

Ladies and gentlemen this concludes our question and answer session. I would now like to turn the call back over to Maury Gallagher for final comments.

Thank you all very much. Glad you enjoyed our new format. We will make this a common practice. All applaud it. So we will see you in 90 days. Thanks very much.

This does conclude today's teleconference. You may now disconnect. Have a wonderful day.