Allegiant Travel Co (ALGT) 2013 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Allegiant Travel Company's third-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 a 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 thank you for joining us for our call. Very, very pleased to announce our 43rd quarter of record profits in a row. The other point I'd like to stress, and we're going to keep this short as we've given up our scripting for the most part, but very excited to [assume] his release Mr. Levy, who promoted him to President. She's had that job in the Chief Operating Officer. Andrew's going to spend a lot of time working with our operations group in the coming months to go through what we do every day, and some of the activities that need to be leaned down and dealt with. But he's already off to a great start in that area. Last, the government shutdown has certainly been an issue for us, and Andrew will have some other comments on that. But, look forward to your questions.

Andrew?

Thank you, Maury. First things first. I want to just send out a big thanks to all of our team members who showed incredible dedication and professionalism in taking great care of our customers during our recent evacuation flight event in September.

As Maury mentioned, one recent development merit a little bit of discussion and that's the government shutdown. Unfortunately, the events did have an impact on us. Due to the closing of the FAA's offices for over two weeks, we are now delayed in introducing A-320 aircraft into our operating fleet. Late in the second week of the shutdown, we executed a backup plan, which now seems no A-320 in service during the entire month of November. The new operating plans replaced planned A-320 flying in Orlando and Saint Pete, with MD-80 flying, which will result in slightly less revenue due to the smaller aircraft seat count, higher fuel expense due to the relative inefficiency of the MD-80 as compared with the A-320 and additional expenses attributable to the temporary displacement of MD-80 crews from Las Vegas and Phoenix, who are now needed in Florida to handle more MD-80 flying than had been planned.

The crew shortage in Florida is due to having begun the training process of many MD-80 crews in Florida needed to fly the A-320s. As the A-320s begin to enter service, the costs associated with crew displacement will recede and will be completely eliminated once all seven aircraft are in the operating fleet. We are obviously disappointed about this turn of events, and we are working closely with our local FAA office to complete the regulatory work required in order to begin bringing the seven A-320 aircraft into service as expeditiously as possible. We planned and still hope to have all seven in operation by year-end, but we believe that is now unlikely.

The guidance we have provided in the release for revenue, costs, and capacity assumes we operate the selling schedule without any A-320 aircraft, although we do believe it is reasonable to expect some number of A-320 aircraft to be in service before year-end.

Thanks a lot, and we're ready to take any questions you might have.

(Operator Instructions)

John Godyn with Morgan Stanley.

Andrew, congratulations on the Board membership and the role here. I wanted to talk about a few things here. First of all, with the cost creep in the fourth quarter, Andrew, you mentioned some sources of inflationary pressure, and certainly some of them are out of your control. I'm just hoping for a little bit of clarity on how they roll off as we look at 2014. Is this something -- are these sources of inflation going to be in place for multiple quarters? Or is this something that kind of rolls off, as you imagined, extremely quickly as we enter 2014 and these A-320s come into service?

Thanks, John. So, a few comments, I guess. I think that we mentioned in the release that we do expect lower utilization of the fleet in the fourth quarter. Utilization, certainly, has a negative effect on CASM ex-fuel. Obviously, we're trying to optimize our utilization to optimize overall profits and not simply minimizing ex-fuel CASM, and we think we're doing that.

Some of the other items that do, in fact, roll off that we're going to see. We mentioned, I think, the pilot pay band. That laps on an annual basis starting November 1st. And so, we won't continue to see any increases associated with that as we will be paying the people the same rates that we paid a year ago earlier. And certainly, there's some FAA related costs leading to the shutdown that I just described.

But in general, we feel really good about where the costs are. We've had some inflation in the stations area, particularly on the airport cost side. That's lapping itself, as well. And we feel very good about where we are on the cost side equation. We don't see any other surprises coming in. So, we feel fine about where we are there.

Got it. And without speaking to a precise guidance data point, I think the framework that a lot of people had been using was, as we look into 2014 and a lot of these A-320s roll-on with their increased utilization, we have the potential to get back to this down year-over-year CASM ex-fuel type environment. Does it feel like we're on track for that? Or are some of these pressures long-lasting enough that, perhaps, that's at risk as we look into 2014?

Yes, John, I don't see any material risk to 2014. Yes, these airplanes are going to come on the certificate, and they're just not going to come on when we had anticipated. But we're talking a matter of weeks, not months. And so, the vast majority of next year we're going to operate with ten A-320 Series aircraft. The vast majority of the year we'll have the 319s that we're operating today and the seven A-320s that we've just discussed. And so, I think when you start -- when you look at 2014, our forecast for 2014 on a CASM basis, has not changed at all.

Hunter Keay with Wolfe Research.

So, a question for you on the Hawaii strategy. Andrew, I'm wondering how maybe you're thinking has evolved over the last few months since we last spoke about you guys were going to work on facilitating some more hotel nights there through the automation process, and everything like that. But have you given any more thought to maybe the dynamics of the market and how it books up, and maybe giving some thought to maybe some partnerships, commercial partnerships down in the Hawaiian Islands? I'm not going to say a Hawaiian Airlines coach here or something. But Larry Ellison has been buying a couple airlines down there. He might be interested in doing some business with you guys, or maybe some partnerships at a bigger scale of some of the hotels you already do business with now. I don't know, just sort of broadly, how has the thought process evolved in the last three months about doing business in Hawaii, and what kind of options do you have on the table?

Well, I think all the ideas you mentioned are ideas that we've discussed and knocked around. Some of those require some additional automation. If we were, let's say, not doing a coach here, but passing traffic to a Island Air as an example. And certainly, we certainly want to add more to the hotel side of the equation. But, I think that what we first need to do is get the guts of the operation running the way we want it to, and that really is more about capacity, allocation, when we fly, where we fly, what's seasonal, what's year round. And that's really, really where the focus is, it has been and remains. Driving some more hotels and things like that, that's obviously helpful.

But, that's at the margin. We've got to get the foundation working the way we want it to and that we think it will. And then, we can turn our attention to other ideas that will enhance things. But, it will be more at the margin as opposed to, as I mentioned, at the foundation of the network.

Okay. Thanks. In terms of the broader business model here, Spirit has had a lot of success penetrating very busy markets, trunk routes of hub carriers here in the domestic United States. And I knew you guys are surveying what is it, I think it's Dallas, Austin, now you're serving LA, Honolulu, which is a pretty busy route. Is there any thought to maybe deviating from the strategy of what's made you successful. And maybe tinkering maybe on a one-off basis to opening up big cities like, for example, Chicago, LA or something like that? Maybe on a smaller scale, just simply to leverage the cost structure you have? Not necessarily to take market share, but to stimulate demand at maybe some off-peak periods?

Hunter, I think that, as you noted, we've had great success with our model for a long, long time. So, certainly no desire to or no need, really, to deviate from that. We do experiment on the edges. And as you noted, you mentioned a couple. We're not actually in Dallas, but we are flying Austin, Vegas starting later this month. And we'll continue to do little experiments, very low risk in places that we think we can be successful. But as far as embracing the Spirit approach, they're really good at that. And they do a great job. We're really good at what we do, and we do a great job. And we just have so many more opportunities to continue doing what we've been doing, that we just don't see any need to really deviate from the core strategy that's gotten us to where we are. And we think it will get us -- it will take us along a long way into the future. (multiple speakers)

Structurally, that model doesn't fit into our structure really well at this point, with bases and crew scheduling, and a lot of things that really give us our efficiencies. You lose if you end up running around the country trying to go from city to city and you optimize scheduling versus operations. So, not to say there isn't a good business model out there, it's just not what we're geared up to do. And we don't want to -- we've got enough things going on here with new airplane types and things like that that we need to keep our focus process improvement automation, things like that, at this point.

Great. Thank you very much.

Savanthi Syth with Raymond James.

Just on the last -- I think last year in the fourth quarter you had some inventory write-downs that have impacted it. Is the guidance the cost guidance reflecting another repeat this year? Or is that showing a benefit from not having that write-down impact?

This is Scott. The fourth quarter of 2013's write-down should be less than what it was in the fourth quarter of last year. So, you should see a slight benefit.

This is Andrew. Let me add that we revalue that inventory every quarter. We don't want you to think it's a one-time thing we do at the end of every year. We do it every single quarter.

That make sense. And then, just on the -- this quarter, how much of an impact was there from transition costs? Or is it because you didn't get the A-320s there weren't really much transition costs in the quarter?

I think that there's certainly more of that this quarter, because this quarter is when we're doing a greater proportion of the crew training to get into the A-320. There's certainly some in the third quarter. We had already started doing some of the training, and there's other investments that need to be made in order to support the growth in the Airbus fleet. And whether that's management or spare parts inventory, which would obviously be more on the CapEx side.

But, yes. I think the biggest expense that we're going to see going forward is just simply transitioning MD-80 crews to train on the A-320. And so that creates another training event, where we bring in new folks to backfill on the MD-80's. It's not that dissimilar from just simply adding additional aircraft. But there's a little bit more expense just the way it works. But, it's not a large number. It's not really material. And once we get these aircraft up and running, then that will be behind us until we start to bring on more A-320 type aircraft, which won't be until the very end of 2014.

Understood. And if I might just ask a follow-on to Hunter's question on Hawaii. The 757s with having and during the low season having them fly in the domestic market, how does that turn out? And what's your thinking on future low period's and how you use those aircraft?

Well, I think what we're first trying to do is have enough routes into the Hawaiian market that can be operated year-round, both in the peak and the off-peak periods. If we can do that profitably, so that's our number one goal. And to the extent that we have spare 757 capacity, we do try to allocate it on routes where we think it can increase profitability, and we've been able to do that on a few of our routes. So, it's just another aircraft. And so, if it's not flying to Hawaii, which is what it's best doing, that's the best application of that aircraft, then we will juggle the fleet and put the best airplane on the right routes to try to just maximize overall profits. I think clearly we acquired the 75's to serve Hawaii. It's a good airplane for Hawaii. So anything we're not doing -- anything we're doing outside of Hawaii is certainly not what the aircraft was intended for when we made that investment.

(Operator Instructions)

Michael Linenberg with Deutsche Bank.

This is actually Katie O'Brien filling in for Mike. Just a quick one to start off. According to our math, excluding the impact of the slide incident in September, it looks like Allegiant would've seen a 0.7 point margin improvement over the September quarter of 2012. Is that correct, or are we missing something there?

Yes, it's in the ballpark, it's in the zip code.

Okay, great. Another one we had, was that we noticed that your third-party portion of your average fare was down 9.5% in the quarter, despite what appears to be solid performance on your rental car uptake, especially in Florida and hotel revenue. Could you just give us some color on what's driving that?

Sure. I don't know if I have much more color to give you than what's in the bullet point there. We historically, and certainly a year ago, if people were to purchase an air/hotel package, we would discount the air portion. And the net effect was a lower overall vacation cost. We eliminated that air discount approximately a year ago. And we believe that when you take that into account, that overall corporate profitability is higher, and that's why we're very happy with those results. The optics on that line item are clearly showing something that looks bad, but when we take into account the air revenue increases that we're getting, we think that that more than makes up for the offset in having less hotel room nights sold. So, that's as much color as I can give you.

Obviously, what we'd like to do is to start driving that number higher. And we do think that we will be able to do so, as we start to get into more of a situation where that discount is not in this year, and nor was it in last year. We're getting to that point. And we're obviously working on a lot of other things and technology to help us drive increased hotel room sales. But, it looks worse than -- it looks bad because it's negative. The reality is that it's a positive when you look at the numbers internally over here.

Okay. Great. And congrats on the new title, Andrew.

Thanks.

Duane Pfenningwerth with Evercore.

Just coming back to that ancillary line, Andrew, when do you think that gets going again? You have a couple things in the new products area. I think the branded credit card, and the travel club. And when are we going to start to see acceleration in that line again?

Duane, I'm not going to provide an estimate there. We expect to see growth in that area. We've seen consistent growth in that area since, I think, 2009. And we've seen a little bit of going backwards on a per passenger basis, on an overall basis in this particular quarter, also. We're certainly very focused. It's a strategically very important part of our business. It still generates a very large amount of our pretax income.

And we are continuing to work hard to add new items. I'm not sure the two you mentioned would be accounted for in that particular line item. I think they more likely to be accounted in the air related line item. But we certainly have some other technological improvements we're working on that we hope and expect will allow us to be more effective at selling the hotel component to our customers. And so, I don't want to predict when we're going to start to see positive news there. But we don't think it's some kind of a long downward trend. We have no reason to think that.

That makes sense.

Duane, you go back and look at our numbers. We've been pretty constant either per passenger or per ASM. They've both been right on top of each other. So we're not any worse than we were in 2012, for the most part, if you will, even though there are some optics and the changes that things that are happening.

So, in fact, it's interesting. You go back to 2007, our numbers we4re pretty constant on a per passenger basis for this category, even though we've improved stuff. So, it needs more work, certainly. But it's not -- I think the technical optics are little more down than the actual results when you look at it in the big picture.

Okay. I guess, just moving to 2014. And I'm not asking for guidance, here. But, it feels like maybe it's more of a PRASM growth year and less of an ancillary growth year. Or is that not fair?

Duane, as we sit here right this minute, I'd say yes. However, we certainly have some things that we expect to roll out next year, and we'll see how that goes. We're focused on TRASM total. I think the bigger story next year is going to be on the CASM side, and particularly total CASM, with having ten A-320s that are going to be flying around for the vast majority of the calendar year. We think the effects of having that more efficient aircraft that also happens to be slightly bigger is going to be extremely powerful for us.

So, I think, actually, as far as margin improvement, that's really I think even more likely than on the revenue side. Although we continue to see very nice strength in revenue and bookings, and continue to do a great job managing capacity, matching supply and demand. And so, we'll see how 2014 looks. We're certainly not going to give revenue guidance, you're right about that.

Yes, okay. Just last one. Any thoughts on CapEx? It feels like it should come down a lot, and I appreciate you guys will be opportunistic next year. But, can you give us any early read on the run rate into 2014?

Well, I think CapEx, just the two big things that we expect are to acquire the A-320s numbers eight and nine. That will occur next year. And then I think beyond that at this point in time, it's all relatively smaller items.

Yes. And Duane, this is Scott. The planes that we're acquiring and bringing into revenue service next year are all operating leased. So, it's minimal CapEx.

With the exception of those two.

With the exception of those two. So I think we still have $170 million to $180 million full-year 2013. So to your point, assuming that there's not an imminent deal, you should see a pretty substantial decline in CapEx in 2014.

Don't assume there is an imminent deal, because that would be a bad assumption. We're in the market, but there is certainly no deal imminent that we would -- we don't see any immediate opportunities there to acquire additional Airbus series aircraft. So, yes, I think your thoughts on CapEx are directionally very correct.

Okay. Thanks very much.

David Vincent with Barclays.

A couple of quick housekeeping questions. Just in terms of monthly RASM and the Thanksgiving shift, is that -- for others it's a little easier. But how much -- Thanksgiving, presumably, is big for you. But are we talking sort of the five, six points of RASM that can get moved around domestically for others? Or is it much smaller than that?

Yes, David. It's probably in that area, if not even up perhaps higher. The Thanksgiving period for us is really important, due to the nature of our business. As you know, the back half of that is going to fall into December. So December is going to take a little from November, and I think that we're going to see the same thing in January. It's going to take a little bit from December, just because of how late the end of the year school holiday period falls this particular year.

So, and we didn't comment on the calendar, because everybody can read a calendar. And see where the dates fall. I think you're right. And I think in our case, because that is our bread-and-butter kind of time of year, our leisure business. It's probably a bigger affect for us than it is for perhaps some others.

And it does -- obviously, we can all see where Christmas falls. But, and it's pretty much the same as last year. But does a midweek placement drive less travel, more travel, around that time? Just given to your point that it's kind of your bread-and-butter?

I think in general it tries more traffic. Personally, I always prefer to have a longer peak period. So I like it when Easter is later in the year, as an example. And I think you're right. I think putting it right in the middle of the week, I think it's a benefit on the margin, right? Is not going to make a material difference in our overall results, but I don't think it hurts us in any way at all.

Okay. And then, on the FAA, on the 320 FAA delay, and if I understood, so your answer to Savanthi was not a huge impact. Is that $2 million? Is that much less than that? How should we be thinking of that in the 4Q context for the 4Q CASM guide?

Okay. So for 4Q, just to reiterate, we have factored that into the mix in the guidance we have provided you. So that already takes that into account. As far as what would it have otherwise been, I'm kind of hesitant to circle a number. But it's probably in the ballpark of what you described. And obviously, if we're able to get the airplanes in faster than the assumptions that we've provided you in the guidance, then the results should be better.

But right now, all we can do is just work closely with the FAA to get all of the work done that needs to get done, and then the airplanes will be ready to go. We're going to have -- crews will be ready, aircraft will be ready. It's a bunch of other work that has to happen first, and we're working as closely as we can with them. But we don't control that schedule. We just have to just work with them as best we can to help them move as fast as they can.

Okay. That's helpful. Thank you. And then just --

Hello? Operator?

Helane Becker with Cowen.

Thanks very much. Hello everybody. And yes, congrats, Andrew on your promotion and so on. I just have two questions. One is, I think Austin is the new city that you guys are going to be serving. And I was wondering how that was booking up, or if you have any comment about that? And the other thing is, as you -- one of the things you've talked about in the past is the potential for international service. And I was wondering if there's been any thought process given to that for 2014.

So, Helane, thanks. Yes, we're not going to comment it, on the performance of any one route. We have, I don't know, I think somewhere in the neighborhood of 250 of them. So Austin is but one of 250. I will tell you that in general, there are many with that we've announced, including quite a few new cities are doing extremely well. So we're really happy about the network growth associated with additional points on the map. And as far as 2014, can you repeat that question Helene? I'm sorry, I had a little moment there.

No problem. Yes, I think -- (multiple speakers) yes, yes, international. That's right.

Yes, no we're still focused on Mexico in 2014. Whether it's in time for the Summer, peak period, or whether we time it for the end of year peak period, is at this point is still a bit up in the air. We're working hard on it. We're working with the automation team to get all the development work that needs to occur. And that's really the long pole in the tent is more than anything, just to be able to sell and comply with the different rules that exist down in Mexico that have just some different regulations. And obviously there's some tax work that needs to be done in the system. But we're well on our way to getting that all identified, and getting the IT team to start working on it. And we'll provide more information, I guess, at a future date when we have more certainty as to a start date.

Okay. Great. Thanks for your help.

Bob McAdoo with Imperial Capital.

Can we go back over the FAA delay thing a little bit? Just trying to get a few more details, a better understanding of what -- where they are in their process. Is this -- have you gone through the conformity inspections on the planes? Are the planes on the certificate? Are we waiting for them to review manuals? What is it that's the part of their business that where they're behind or where things got hung up during the shutdown?

Well, no. The planes are not on the certificate, Bob. And we can't get them on the certificate because of certain things that need to occur. As an example, the A-320 operating manual, the A-MEL. Those are the things that need to be approved, and this is not particularly -- it's not particularly complicated or difficult work. It's just work that has to get done, and it requires time and attention. So it's just fundamental things that we need in order to put an airplane on the certificate, and then be able to actually operate it. One other example, while we own control all seven of the A-320s, one is sitting in Ireland waiting for on a certificate of airworthiness, which is as you know, a pretty simple thing. But it's not simple when the FAA isn't working.

And now that they're back up to speed and spooling back up, I'm sure they have a lot of things to clear off their desk. And we are just optimistic that they can start working with us, so that we can get a lot of these things taken care of. But, we will see. Although just to mention it again, the guidance that we've provided assumes a pretty draconian scenario where we have zero of these A-320s in the fleet at the year-end. We obviously don't think that's likely to be the case. But, we also don't think it's likely we'll have all of them flying around at year-end, either.

All right. So have you guys done the MEL and the manuals and just waiting for them to inspect and review them? Or it's still even --

Correct.

Yes, okay. So, I guess in its own way, it's a little bit like what we heard from Hawaiian yesterday, where it was like, we've got airplanes here and we can't get any inspectors here because they're busy doing something else or they just haven't been assigned here, or they're whatever. Is it a little bit that that's kind of where you are?

Yes. I think it's -- we're not the only ones out there. Hawaiian, I know there's a couple of other carriers I'm aware of that have had similar issues bringing on aircraft. And it's unfortunately it's just -- we're tied up in it as well.

The shutdown couldn't have come at a worse time in the sense we were all prepped, ready to just start working with them and they stopped. Because we had airplanes that were originally scheduled for November. So you couldn't be much later than where we were, and be comfortable you could make the dates. So --

Have you even gotten through to Oklahoma City in terms of actually registering them yet? Or, the transfer of the ownership?

Don't have the answer. I believe -- (multiple speakers) The ownership has certainly been transferred, yes. That's -- (multiple speakers) And I think they're end-registered at this point in time. None of this is overly complicated stuff. It's just a matter of getting in the queue, getting the people back up and running. And the FAA is doing everything they can. We're a sensitive to where they are. They obviously couldn't do anything for a period of time, and now they're getting back up and running, and hopefully can knock out all these things quickly and get these airplanes flying.

Glenn Engel with Bank of America.

Have you given out 2014 capacity guidance yet? And, can you update us on where we are in starting international routes and getting whatever computer work you have to get done to do that?

Yes, Glenn. We have not provided 2014 capacity guidance. I suspect we will provide that when we put out our year-end earnings release. We have given you the first quarter of 2014, and our schedule is out there for sale through, I believe, Summertime? Right? Or no, out through April. But, we're not prepared to give any other information at this point in time.

International, as I had mentioned a couple minutes ago, we are well on our way to getting the IT work going on the changes that need to be made in the system to support service into Mexico. And at this point in time, we're not ready to commit to a particular date. It's either going to be in time for the Summer peak period, or in time for the end of year period, or approximately a year from now. Obviously, we need to be able to start selling months before we actually start operating, and all the IT work is really almost all of it is really directly related to the sales process and the accounting process. So, we're on our way. But, stay tuned. We do expect to start up in 2014.

And on the maintenance side, some years you have heavy -- a bunch of things come do, some years you don't. Does 2014 look like a normal year. High, low?

It will be about flat as it sits right now, but we're still fine-tuning our 2014 plans.

Yes, I think the only year, Glenn, that we've seen a real spike was when we made a big investment in engine staff in 2011. Otherwise, on an annual basis, the numbers are generally are pretty flat. There's certainly volatility by quarter, which is more driven by the number of C-check events and the severity or invasiveness of those events. So our maintenance is pretty constant right now.

And when did the change in the air discount policy for the ancillary revenues occur?

Well, and just to be specific, it was only on hotels. And that occurred approximately a year ago, is when we started discontinuing that practice. So, we're coming up on about a year of eliminating that particular pricing tool that we were using.

Steve O'Hara with Sidoti and Company.

Can you just -- in terms of the FAA hold and what that's kind of put on your system, are you carrying all the fixed costs already for those aircraft or are you not depreciating them yet? And then, the second question is on the -- I think it's the other revenue line. It was $1.2 million. Is that -- could you just talk about what that was from? Thank you.

Those are actually a little bit related, Steve. The seven A-320s are not being depreciated today, and they will not be until they actually enter into revenue service. However, there's one exception. And that is the first A-320 purchased, it was actually out on a short-term operating lease this Summer to a European carrier. And that represents the vast majority of the revenue that is in the other line item. So that one is in fact being depreciated, since we also have revenue that's being generated off of it.

Okay. All right. Thank you very much.

David Vincent with Barclays.

Thanks for the follow-up. Just a quick question. You have the comment in the release about the Florida TRASM. I'm just trying to look for a little extra color there. Is that -- should we read that as sort of a comment on Punta Gorda and how that's stepping up? Or, I think there was some growth in Saint Pete. Just how are the different bases in Florida developing?

David, I think Florida, in general, and that's Orlando, Saint Pete, Punta Gorda, and Fort Lauderdale, is really performing extremely well. And the fourth quarter in Florida looks really, really good. The West Coast markets are doing fine. But right now, what we're seeing is really strong performance, particularly in an out of Florida, Punta Gorda is certainly part of that. But we're seeing strength across the board in our four base destination markets in Florida.

Okay. And just in terms of future growth in Florida, obviously, Orlando is the big one. I think St. Pete is second, and I think there's a big fall off after that. Is Punta Gorda something that could be more like a Saint Pete? Or is it you've done what you're done and that's about as far as it's going to go?

No, Punta Gorda actually is going to be at about 4.5 airplanes during this Winter peak period. It will alternate from four to five, and that's double and then some from what it was a year ago. So, we're very excited about it, and we're particularly excited that we haven't seen anything that suggests it's stealing traffic from St. Pete. And we're seeing the opposite. St. Pete is growing, and the revenue trends there are good too. So we -- no, we think there's growth in all the Florida bases. And we've been growing there, and we're going to continue to grow there as we go through the selling period that's out there through the end of April. And we haven't loaded next Summer's capacity yet, but we're going to be making those decisions very soon. Now if Florida continues to show the strength it's been showing, we'll probably continue to add additional flights in some or all of those four base locations.

Hunter Keay with Wolfe Research.

Was the FAA shutdown, did that pull you into the delay in some of the Mexico service? Or was that more about the automation process getting off the ground or just overall risk management with how you're thinking about growth?

Well, I don't know about the Mexico service. I know we've suggested in the past that we thought we'd be ready to go second quarter. We're not saying at this point that we're not, but were also not prepared to write that in pen. But, whether it's the second quarter before the Summer peak or whether it's year-end next year before the extended peak season down there, which is a much more attractive time in many respects to start, we expect to be in Mexico in 2014. The issues with Mexico service are 100% related to automation, and then commercial issues as well. Of course we want to make sure we go in out at the right time, from the right markets, et cetera.

But, the IT work is the key issue there, and it's just being able to handle display and handle taxes and certain other things that are slightly different in flying internationally than what we have to deal with domestically. None of it is overly complex, it's just a matter of putting the resources on it, defining the spec's, and then putting the resources on it and getting it coded and out there. International competes with many other corporate priorities that we have. So, it's not as though we're just going to put all hands on deck on international and just neglect a lot of other things that are incredibly important also that the IT group is working on.

Okay.

Hunter, we had growth enough to absorb these airplanes, and there's plenty to do. So, if Mexico is delayed a month or two or whatever, that's not the end of the world by any means. So we want to make sure we just continue to operate appropriately and absorb the capacity. And we'll get there when we get there, as they say. But it's going to be a good market long-term.

Yes, and one thing just to add to that, what Maury said. and I think it's really important. In most destinations we've gone into we establish a base, and we bring in a lot of routes at one time, and it's a little bit more, let's say growth than how we would approach Mexico. In Mexico, we're going to start out with a couple routes, probably a couple flights a week. So a very small percentage of what the total business looks like. But our view of Mexico is that it's a very attractive, long-term growth prospect for us. But it's long term. We're not going to see some big bang Mexico operation that's going to have some outsized effect on the overall results of the Company. But we do think it's very exciting, and we're looking forward to getting in there.

Okay. Great. And one quick last one, here. You bought back I think more stock dollar amount than you ever have in the quarter. Why did you buy so much back when you did? And should we think about you guys basically exhausting the rest of the authorization now by the end of the year?

We're a terrific bargain, Hunter.

Well I guess you would know, Maury.

Yes. Well said.

Yes. So is that fair to assume this run rate continues through the end of the year?

I think we don't want to make a forecast as to what we're going to do. But, as you look at our cash flow and the needs of the Company over the next few years, returning cash to shareholders and letting it go on the balance sheet, those are very salient questions. And the long-term opportunities for the organization suggest that we want to be shareholder-friendly, and the cash flow and buying stock back is as good a method and in many ways as there is out there. So, will it be continued at the same pace? I don't want to make a forecast, but that's not to say we're going to slow down either.

And by the way, just to add on to that, I think you know this, Hunter. But just to be clear. We're in the great position of being at able to not only return cash to shareholders, but also grow the business at a clip that we're very comfortable with. And so, it's a great place to be, to be able to pursue all these growth opportunities, and at the same time have enough cash and generate enough cash to return excess cash to shareholders.

Okay. Great. Thank you.

John Godyn with Morgan Stanley.

I just want to follow-up on a couple things. First of all, just in terms of these A-320s hitting at the end of the quarter, if they were to hit at the end of the quarter, Andrew, it sounded from your earlier comments that they would be immediately accretive. Is that true? And should we just be thinking about the profitability of a typical aircraft per day as a way of modeling that? Or is there some kind of netting that we should be thinking about when they hit?

John, that's a good question. But I don't have an answer -- a good answer for you. I think that, certainly, as soon as those aircraft are ready to fly, we will fly them and we will fly them as much as we can, just because of the relative efficiency of the aircraft. So, obviously, as you know, we vary our schedules dramatically. So, a Tuesday in early December is not going to be the same as a Friday in late December. And so I think as far as being able to model it, I wouldn't -- it would take us a while maybe to figure that one out. I think it's just some upside that exists. If we're able to get these airplanes in and we've tried to guide in a very conservative way, and hopefully, we get these airplanes flying sooner than later and we'll start to see some of the positive impact of it. And if we don't see it for the fourth quarter, or at least materially for the fourth quarter, we'll certainly enjoy it in the first and second quarters and beyond as we get these airplanes flying.

Okay. And, Maury, you've mentioned the shareholder friendly idea quite a bit. And we saw, as Hunter mentioned, you accelerate the buyback a bit. I'm just curious, as you think about bigger picture, the potential to return more cash to shareholders how you balance the idea of dividends versus buybacks? Particularly when illiquidity is one of the relative characterizations of your stock versus some of the other airlines out there.

Well, which came first, the cart or the horse there? Is our illiquidity a function of good long-term holders that aren't in and out of the stock? I think the other thing, John, we have the lowest beta -- I'm not sure -- you didn't report on that yourself in the industry. And as well as the whole transportation sector. So our long-term shareholders (inaudible). They buy and they look forward to the long-term benefits. And that's our intent. Is, we're running the Company for the long-term. We have our issues now and then, but over the years, we've been able to create value, grow, and increase margins, actually, in the last couple years. So, all of those things are positives, and we want to keep it going in that direction.

But the outcome of that, and it's a pretty unusual circumstance, and you're seeing it in other people as well. Airlines and cash usually aren't mentioned in the same sentence, historically, but now they are. And so, return on investment, return on capital, all those types of metrics are now starting to play into it. And we want to lead the pack again as we have in operating margins and other things historically. So, you can't keep too much cash around and really have a good returns on your invested capital and assets and all those things. So, we want to be friendly to everybody. Our team members, obviously our customers, and certainly our shareholders. And that third leg of the stool has been fairly well ignored over the years in this industry. So, I'm optimistic we can satisfy that group, and I think we did some quick analysis, 70% of our Company is owned by as little as 10 shareholders. So, we have a contented group, and it's flattering and we want to be mindful of that. But buying stock back has been a proven, tried way to increase shareholder value over the years.

Okay. Great. Very helpful. And if I could just ask one more on ancillaries. Andrew, I think you mentioned that you were pretty confident that we weren't in some sort of prolonged decline here, more of a blip than anything else. I'm just curious. There is a view out there as well, though, that perhaps the experience you've had of late with ancillaries not growing right as quickly as maybe we all would've expected might make you less aggressive at pushing other ancillary initiatives down the line on customers. I don't know if you have a perspective on that.

Yes, I don't know why anybody would think that. We're going to continue to try to but develop new products, and roll it out to our customers. And, no. Our unbundled ancillary, the air-related, is flattening a little bit, as we have a year of carry-on bag charges under our belt. And so typically, when we see substantial growth in that line item, it's with the introduction of new products. And we do expect to do that next year. We have quite a few that we're looking forward to putting out there. As far as the third-party goes, I think that as I've mentioned before, I think the optics are one thing and the fundamentals are something different. We're very pleased with how we've changed our pricing approach with air/hotel packages.

It certainly results in fewer hotel rooms being sold, but the overall profitability of the business is higher and that's what we're focused on. We do have a lot of things that we're working on in the IT area that we think will help us continue to grow that business for many, many years to come, as we've continue to grow the number of customers that come through our website. So, we're very excited about where we sit. And we're always trying to figure out ways to drive those two line items, in particular, higher. There's no change in our strategy at all. We were the first ones to do a lot of these things in this country, and we're big believers in it. And that will absolutely continue.

Excellent. Thanks a lot.

Ladies and gentlemen, thank you so much for your questions. At this time, we're going to conclude the call. We appreciate your participation. You may now disconnect, and have a great day.

Thank you everyone.