Allegiant Travel Co (ALGT) 2013 Q4 法說會逐字稿

Good day, ladies and gentlemen and welcome to the Allegiant Travel Company's fourth-quarter and full-year 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 their 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.

Good afternoon, everyone. Thank you again for joining our call. For our practice at this point, we have done away with our prepared remarks, so we are prepared to start with questions. So right away, Operator, if you would queue up the questions. Thank you.

(Operator Instructions). Hunter Keay, Wolfe Research.

Good afternoon. Wondering if you could maybe elaborate over these two non-airline initiatives that you are talking about and where and when should we start to see the revenue benefit -- associated revenue start to flow through the income statement? Thanks.

Good question, Hunter. We have had our little skunk works going on here for a bit. We at this point don't want any specifics out there, but we are excited about the opportunities that they are going to present over the next year. I would say we should start to see some interest in benefit that we can start talking about, but we just wanted to put it out there. It was a nonproductive asset in the sense of ASMs, but certainly lot of future potential, we think.

Yes and (multiple speakers) this is Andrew, Hunter. Let me just echo also that these are very small new startup ventures. So I think that as far as benefits through the income statement, don't assume you are going to see material impact to the overall results from it.

But as Maury mentioned, we want to call that out because it is a significant portion of the increase in costs per ASM and, again, these things don't create ASMs and so we just wanted to at least highlight that.

And last comment, Hunter. We are pretty conservative. We put most of this stuff through the P&L so you will see in the current impact that the benefits hopefully will be accretive to the future earnings.

Thanks for that. I guess sort of on that, I understand you don't want to give too much detail on it. Is this something that is core to the operation? Is this something that you guys have experience with before? You guys are not afraid to take chances which is one of the things that is great, but also it can get some companies in trouble and they stray a little bit too far away from their core competencies.

So I guess -- I understand you don't want to size the magnitude of this, but is it something that over time you expect maybe this is a multiyear thing to get potentially very big. And again if you could just comment on this as something you have experienced in this area before and is it core to the airline?

Is it core to the airline? It is not involving flying more airplanes specifically. But do we think it can succeed? Yes. Can it be meaningful? Potentially.

One of the projects is not so much a revenue-oriented project as a promotional project. So stay tuned. We will have more for you in the coming meetings.

Okay, thank you. And maybe if you could provide a little bit of color on the TRASM guide, Andrew or anybody. It was a little bit later than we were expecting. Is there any kind of commentary you can provide on maybe what is driving that? Is it yield, is it loads, is it a particular market? Is it Hawaii? Is it big as -- maybe just a little bit of color on what the moving parts are. And is it Easter? You know anything that maybe we should know about, just sort of not run rate that into the following quarter. Thanks a lot.

I think that without getting into details about specific markets or otherwise, first of all, let me say we think the revenue environment is very strong and we are looking to have a (technical difficulty) going to be a very strong quarter on the revenue side. Probably the biggest impact, maybe relative to your expectations, I don't know, is the Easter shift.

The peak season is obviously real important for us for leisure travel and the fact that last year Easter was in March makes this year's March a little tougher comp versus last year's March and, conversely, this year's April should be a much easier comp.

So I think that, again, not knowing what your assumptions were, that is just a general statement about how the revenue is going to flow over the next few months, just simply due to changes in the calendar.

Okay, thanks. Appreciate it.

John Godyn, Morgan Stanley.

I wanted to clarify the -- in the release with these startup expenses, they are the flag for the first quarter, but they are not quantified for the full year. Did they stop after the first quarter? They are not, they don't affect the forward quarters, just a little clarification, please.

They -- no. They don't stop after the first quarter, but the effect in the first quarter is more significant than, let's say, on a full-year basis and when we looked at the factors that are driving the increase in CASM ex, you know, we wanted to highlight the larger factors in the order of importance and so that is why we wanted to put that out there.

But, yes, it is going to have an effect throughout the year. So we think, probably, I think at this point I think it is safe to say the biggest in the first quarter.

Okay, that is helpful. And you did quantify sort of the impact of the delays, A320 delays in the non-airline activities and the impact on the inflation in the first quarter.

But, again, sort of a similar question, I mean when I look at the full year of CASM ex fuel guidance, even trying to exclude the bump in the first quarter, it does strike me as a bit high. I am not sure if there's other impacts, other kind of one-timers that we should be thinking about that linger throughout the year as we are trying to adjust your cost guidance for what might be like a normalized level or a level that is more reflective of the run rate for 2015 as we continue to model forward.

And that is why we tried to provide that information to be able to separate recurring core economics versus other stuff. I think that we called it out in the release. Maintenance getting back to a more normalized rate is the biggest impact year over year on a per ASM basis. And then we talked about a couple of other things and this is really, we really put it down there in order of effect on a full-year basis the issues with the delays (technical difficulty) the effect of that is less than the items that we called out. So it is just a combination of things.

Okay, we will take a look at that. On the TRASM trend, I appreciate that there is this date shift and certainly with your passenger base, the holidays play a very big role. Bigger picture, though, as we look towards the end of the year, I mean should we get back to this trend that we have seen in the past except for the last few quarters where TRASM growth tends to outperform RASM growth? Is that the right way to be modeling the world towards the end of the year?

I'm not sure. Historically, TRASM has accelerated when we have introduced new ancillary products and -- like for instance the charge for carry-on bags which were implemented, I guess it was last year, right. So we are not going to discuss any potential new products at this point. So on a current run rate, I think that there's probably more leverage on the passenger RASM number than on the TRASM number and at some point that may change, but for now I think that you will probably see -- I think you will probably see TRASM growing at a slightly faster rate than T or total RASM.

Great and if I could just ask one last one on capital returns. And I know that this is something that is sort of ever present on your mind and you certainly have accelerated capital returns to shareholders over time. I am just curious as we look forward, is there a world or is there a chance where perhaps we get maybe a payout ratio or a more regular sort of program for capital returns that we could anchor to as we model the Company going forward? Thanks a lot.

You know, John, that's a reasonable question. At this point we are not committing to anything. We've had a buyback program going on for what, three years now, that produced a lot of returns there and we will continue with that. Regarding a dividend program, we like the -- candidly the flexibility that comes with what we have been doing historically and the future portends that we should be able to continue to do more of that theoretically, but we don't want to commit to anything on a regular basis, if you will.

Okay, thanks.

Savi Syth, Raymond James.

Good afternoon. Just curious on the call side of one -- I thought 2013 was more of a normalized maintenance and if you could remind me maybe what the 2013 levels were. And secondly, now that you have had that A319 in service for some time and maybe early indications for the A320, I was wondering how the cost of trending versus the slide that you provided initially when you were rolling out the A320 strategy.

I think the maintenance expense if you look over the last few years we always guide to it on a per aircraft per month basis and 2013 was particularly low and a little bit outside of the longer term trend.

This year, we expect to be back in the 100,00 to 110,000 per aircraft per month range which is a little more similar to what we have seen if you look back, say, four, five, six years. So I would say that last year was a little lower. This year is going to be higher than last year and, primarily, this year we just had a lot more maintenance events scheduled. It is just the way the C checks roll and since we still have a smaller fleet relative to, say, many other carriers, you are going to see continued volatility and lumpiness in maintenance and -- as you get more and more aircraft -- and that kind of tends to show less volatility. But that's on the maintenance line.

Forgive me, what was the second part of the question?

Just with that you are now having the A319 in service (multiple speakers).

Yes, no. They are coming in exactly as we had thought. If anything the fuel burn is coming in lower than what we had forecast on presentations we made. So no, we are really, we are very, very pleased with the performance of those airplanes, both in terms of reliability as well as the economics (technical difficulty) substantially more efficient aircraft from a fuel perspective.

When does that -- when does the cost efficiencies really help offset some of these other cost increases? I guess I would have thought more of a benefit in 2014, but is it a ramp-up issue and then it helps more in 2015?

Well, I think that we provided total CASM year-over-year guidance partly for that reason, to make sure people understand that CASM ex is obviously really important. It is a lot of controllable expenses and we put a lot of focus on it, but the benefits of having these airplanes are going to start to, we believe, fuel prices being equivalent, is going to lower overall costs for ASM as we enjoy the benefits of that.

So that is why there's a pretty nice spread between our forecasted total CASM for the year versus our forecast of CASM ex fuel for the year. And that is on in the guidance; that is something new we never provided that before. We are also giving you the fuel price assumption that we are using to come up with that number.

Understood. All right. Thanks.

Michael Linenberg, Deutsche Bank.

Two questions here. Andrew, looking back at the full-year number for CASM ex fuel versus CASM and thanks, appreciate you providing the full year in both pieces of information. We you look at that performance, whether it is ex fuel or even if it is all in and you look at the fact that you are up, your capacity is going to be up 9% to 13%, I realize that as you have gone through on some of the prior questions, there's obviously some issues in the March quarter. That's -- which are obviously inflating that -- but it still seems that with that type of capacity growth you would have better performance on your CASM on an annual basis.

And so, are you being conservative here as we move through the year? Is that how we should think about it? Or is it just that it is going to take some time as you induct these new airplanes as you train the pilots. You are probably dealing with FAR 117 that is probably having some impact. What is going on and keeping that -- not getting you to a negative CASM for the year?

Well, I think there's a few things. We did talk about the maintenance. That is the single biggest increase on an equalized basis of CASM ex. We see more depreciation expense from both IT and aircraft. We -- the rest in there we talked about the non-airline producing subsidiaries that don't generate ASMs. And then as you confirmed, again, the [bulk] in the first quarter. And so all of those things have an effect.

A lot of the other things is just continued investment in the business. Having, adding more IT resources to speed up development of critical systems. More infrastructure and management in certain key areas in the operational part of the business, and it is not any one thing. It is just a variety of smaller things and it's part of us just making sure we have the foundation appropriate for the business today and also for the business that it will become with growth as time goes on.

Okay, now that's --

Mike, in a brief picture we have been doing this for like the last three years for different airplane types. The IT is certainly a big investment for us, a good-sized investment for us and, hopefully, we will peak, if you will, with a lot of this transition during 2014 and we don't have any more of events coming such as adding 757s and having to become an ETOPS certified carrier and putting on the Airbus and things of that nature.

We will be just growing our existing activities and I sense that we have to make investments in the business and our systems and operationally and just to get ready to go to the next level. So (multiple speakers) costs money.

Okay, now that makes sense. It seems like this is a peakish year and as you guys said earlier, I mean you run it through your P&L. I guess some of these things you could capitalize and we could have numbers that look better, but the fact is you take it up front and so it should -- 2015 is probably a year where you'd get the benefit of a tailwind as it relates to these types of investments. Is that --?

I think that is a fair summary. I wouldn't disagree with that. I think the other thing, too, is we have got to focus on cash flow as much as we do EPS now. And so you are seeing some good cash flow coming out of the organization. We have been very conservative with our depreciation. That is up noticeably, but I kind of add back and look at some of the other items without the depreciation. You know those are not that bad a numbers.

Okay, good. And my second question on just the ancillaries. Some of those were down I mean the hotels noticeably, but then in the release you talk about removing an air discount. Is that what is maybe impacting those numbers?

Yes, we think that's the biggest impact is reducing the air subsidy has led to fewer hotel sales, but we are convinced that it has also generated higher levels of profitability. So it benefits the passenger RASM, I guess, number over what it would have been had we continued to do air discounts. And we get a little less of revenue from the sale of hotels. But on a net net basis, we think it is a very positive thing, and that is why we mention that it is actually, if you exclude the air discount, which is -- that is an internal number that we have and have used, but it's -- we sell a 25% increase in that revenue associated with hotels.

So, yes. Obviously that laps itself and so, as we move forward, it will become more of an apples and apples comparison going forward and we certainly want to continue to drive, over time, hotel growth. And we have a couple IT initiatives that have rolled out just recently that we think will be helpful in terms of being able to sell both one-way hotel packages, which we could not do in the past, and also being able to sell a land only product on a go forward basis.

So we are hopeful that those things as well as some additional tools we expect to roll out in the first couple of quarters this year are going to enable us to reverse the trend in volume and continue to, over time, drive that number much higher.

So we should just, Andrew, we should expect just to see it negative or a number that's facing up against a difficult comp what it started in the March quarter of 2013 and so once we get to 2014, we -- it will be behind us.

Yes. I think we may see a little bit of a lingering in the March 2014 quarter this quarter, just because some of the sales were made before we eliminated the discounts. But as we go through the year our hope is that we will start to see increases in both hotel net revenue as well as hotel volume.

Great. Perfect. Thank you.

Duane Pfenningwerth, Evercore.

Good afternoon. Just in terms of your fleet, I wonder if you could help us quantify and, obviously, there's fleet that you are trying to bring on and some transition expense related to that. But for fleet that you already have, you know, maybe idle aircraft or aircraft that you are not utilizing maybe as much as you could, how much is that holding back your cost structure? And have you contemplated any type of fleet restructuring?

Well, to give you an idea in the first quarter I don't have numbers for the full year, but we have had to reduce our flying from what we had anticipated doing and that, in and of itself, represented almost $0.02 on an ASM basis. So it has a material effect in the first quarter.

But that is a temporary issue, and so we like our fleet. We are adding a couple MD-80s and as we get past our training issues here with particularly the A320s and we are able to more productively use our flight crews, we will be able to ramp up utilization to where we would expect it to be. So, we think we have the right size fleet for what we're doing and we have more aircraft coming at the very end of this year and then throughout 2015.

Okay, that is helpful. Then just on new ancillary initiatives. Can you give us an update on credit card -- branded credit card and travel club and your thoughts on which are the more material in the near term?

I think we are actively working on the credit card and the loyalty program that does kind of fit underneath it and we expect to be able to start offering that to customers sometime in the first half of this year. Don't want to try to predict anything more precise than that at this point in time, but we are actively working on it and looking forward to being able to do that.

Travel club is something we keep knocking around and so, at this point, I don't want to forecast anything there as far as what we think that is worth to us or when we may or if we may put out a product that is a travel club-type product. But we -- a lot of this is just dependent on IT and you know you have got to queue it up and one thing rolls out after the other and you can't do everything that you would like to do at the same time.

So we are optimistic that we are going to continue to get more of these capabilities and it is going to enable us to drive additional revenues.

Okay. Thanks, Andrew.

Helane Becker, Cowen.

Thank you for the time. I just have actually one question and that is on the jet fuel line. I am kind of surprised given the forward curve that it is as high as it is. So maybe you could explain to me why that's the case.

Well, I'm going to let Andrew talk, but first, you are talking to the most surprised guy in the world that jet fuel or oil is still at the prices it's at. So we've been forecasting downward trends given -- at least I have, I shouldn't say we, in the actual price of oil or years given the supply chains and everything else. But it doesn't seem to manifest itself.

So there's not much reason to stick your neck out on fuel. If we get the benefit it is just upside. Andrew.

Yes, no. We do this very formulaic based on building up crude plus crack and then our differential, which reflects the taxes and then the plane fees. The nature of many of the cities we serve is that these cities typically, they don't have as much infrastructure as larger cities and therefore typically the cost of fuel in the cities is typically higher than what you would find in large metropolitan areas with very large airports and lots of infrastructure.

So anyway that is just our assumption. Obviously, we hope it is lower, but we just -- we just want to explain to you what numbers we are using to come up with our expectations on CASM and obviously we hope that it drops from what we show here.

Of course, I would be remiss if I didn't ask the labor question. How are things going with the negotiations for those flight attendants and with your pilots? Anything new to report? Maybe just say that.

Nothing of substance. The flight attendants we are in mediation under supervision with the NFA and there's no change in that. And we are working with our pilot group and the IBT going forward with preliminary negotiations.

Okay. Can I just have one point of clarification, sorry, I didn't intend to ask a third question, but as I think about what you said about the first quarter, well I get a bump in TRASM in the second quarter because of the shift in Easter and so on?

I think the answer is probably yes. We are certainly not ready to forecast second quarter, but look, April, March this year is a tougher comp versus last year and April this year is going to be an easier comp versus last year. So yes, no, the Easter shift definitely is -- and by the way, we also think overall it is helpful. We think having a longer kind of peak vacation period is -- typically generates more profit. It's just spread out over more time. So the calendar is setting up well for us if you take into account Easter in April this year.

Okay and then I think I saw somewhere [Jude] quoted as saying that you guys were going to grow capacity like 20% or so this year. Did you have any new markets that you were going to announce or, I mean not that I wanted you to announce them today, but did you have any new markets or is that just a full year effect of the A321s and the larger aircraft?

Yes, I don't know, I think Jude's tried to figure out where that number might have come from. He is disavowing that (multiple speakers). Our forecast for capacity for the first quarter and the full year is a little lower (technical difficulty) than we had thought due to the issues we have already addressed in the earnings release, but it's never going to be in the 20% range. It is always going to be much lower than that.

Perfect. Thank you very much. Have a great day.

Bob McAdoo, Imperial Capital.

As I look at the cities that you are hooking into Florida this year, there's some different kinds of things going on and I am wondering what kind of reaction you are getting in terms of it is not all Fort Wayne or Des Moines. There's like Cincinnati and Syracuse, and some kind of mainline type cities. And I am curious as to, are you finding that that is easier, meaningfully different, easier in terms of getting customers to respond? Is it as good as you would hope or -- and also are you getting any kind of reaction from competitors in terms of them responding at all or are they looking the other way and wishing you would go away? How is that -- how should we think about that because obviously if those are working, it looks like they are going to work, it obviously creates -- there's a lot of those kinds of cities that don't have good service to everywhere in Florida like -- as you obviously have found out here. I'm just curious what kind of color you can give on that.

Well, Bob, I don't think I have ever heard Syracuse described as a mainline city.

There was a little airline based in Newark that used to fly from places like Syracuse nonstop to Florida (multiple speakers). Absolutely full of people.

They had a great CFO. No, to answer your question we continue to see opportunities out there. Cincinnati, we started off this quarter. Syracuse started last year. We are really -- just with all of that new cities we have entered into, not without exception, there's a couple of laggards, but in general we are really pleased with it and we think that there's continued opportunities to expand our footprint.

And in general, we are going after a different customer than most others out there with maybe the one exception being Spirit who tends to generate the same kind of customer base that we do as far as just with low fares, stimulating demand and allowing people to travel that otherwise would be priced out of the market. So, I think most people, I don't know if they wish we would go away as much as they realize and acknowledge that we are just simply carrying a different set of customers.

So but, yes, we believe for a long time and we continue to believe that there's enormous growth opportunities for us. And we are going to continue to pursue it.

We should feel good about these things and think about that as another whole -- it seems like there is another whole level of customer, not customer, another whole group of cities that for the last 10 years or however many years it is been, that we all talked about that we have this little batch of cities and it just looks like (multiple speakers) to add into the pile.

Well, we feel good about it and despite the fact that there's been a lot of questions about our costs and, I mean, we still have an enormous cost advantage over the industry and we are going to maintain that. And so, pricing has continued to go up across the industry, driven in part by consolidation and we continue to take advantage of that and pricing significantly below the market and stimulating demand for travel to these places and, again, enabling customers who would otherwise be priced out of the market to go to places they want to go on their vacation travels.

Let me change the subject a little bit. Can you talk to us about the difference in economics between and A319 and an A320 the way you guys (inaudible)? How many seats do you have in each one? And pluses and minuses of one versus the other or is it simply which are available, when it comes time to think about it. (multiple speakers)

Well, there's 156 seats in the 19 and 177 in the 20. The 20 burns a little bit more gas on a per ASM basis. It is a more effective airplane. We do like the 19 so because a lot of our smaller markets -- it is just a better size aircraft in terms of seats. So, when you look at trips [minute costs] you know, obviously the trip costs on the 19 is a little bit less, the seat costs on the 20 is a little better because of the seats and the small incremental costs on the maintenance and fuel lines.

But we like having a combination of the two and we expect to over time hopefully add to both of those fleets of 19s and 20s as we continue to grow the business.

One final thing. I don't know if anybody else got one, but almost exactly two hours ago I got an email from some guy with the Teamsters national office offering me that he would come by and talk to me about operating and safety concerns at this place called The Legionnaire? You seen that letter?

We just saw that moments before the call. So read it quickly, but don't I don't think at this point we are ready to comment (multiple speakers).

I'm not asking for comment, I just wanted to be sure that you had seen it. That's all.

We have seen that one (multiple speakers).

-- Doesn't deserve a comment does it?

No, not at this time.

All right. Thanks.

Glenn Engel, Bank of America.

Good afternoon. Couple of questions. Rent shot up in the fourth quarter, what was that and is there more aircraft coming under rentals in 2014?

I think we tried to call that out. Two aircraft under lease that contributed part of the expense in this fourth quarter, and that expense will be there for the next several years. And but the bulk of the dollars in the fourth quarter was associated with sub service arrangements we made to be able to fly our schedule as we had sold our customer base in light of the fact that we were unable to fly as many airplanes productively as we had anticipated.

So the majority of that $5.5 million is expenses that are not -- I guess are temporary in nature and don't expect to see that certainly next fourth quarter.

When do those start to subside and are there any aircraft coming up that are going to be included in rentals in 2014?

There is a third leased aircraft that shows up at the very end of this year. So mid- to late fourth quarter, and the sub service expenses we expect to subside dramatically as we go into the second quarter. (multiple speakers)

So first quarter is still hit by them?

Yes.

Is maintenance cost going to be more level through the year or is it going to remain very choppy by quarter?

This is Scott. No, the first quarter is the high watermark and then it goes down sequentially through the end of the year. So it is front end loaded.

And on the 757 fleets, any new ways you figured out to use those aircraft?

Well, I don't know about new ways. We did add a route in the fourth quarter, I believe it is our fourth quarter, from Los Angeles to Honolulu, and that is off to a good start. So we are optimistic about that. We are continuing to look at what seasonal fine opportunities there are in Hawaii specifically since most of the markets we have served have proven to be very good but only during certain periods of time. And we continue -- any excess 75 capacity in the domestic mainland operation flying to a few different markets that had previously been flown with MD-80s.

And any reason why your tax rate should be any different in 2014 versus 2013?

No. 37 is a decent number. We are slightly above that.

Thank you very much.

(Operator Instructions). Dan McKenzie, Buckingham Research.

Good afternoon. Just a couple of questions here. On the maintenance expense of $100,000, $110,000 per aircraft, I guess I am just trying to reconcile that as a normalized basis because in 2014 25% of your fleet is going to be the newer Airbus. So it would seem to imply that the maintenance expense on the MD-80s would really spike up and I am just wondering if that is really the case or if there is perhaps some conservatism embedded in your -- in this maintenance number here?

I will just comment on the MD-80. The vast majority of the expense on the MD-80 side this year is simply driven by just the way the C check calendar runs and we just happen to have a lot more this year than we did last year. It is not anything about the day-to-day or long-term maintenance of the aircraft. We have seen that remain very steady out there over time.

So we see blips once we have a lot of maintenance events and then also when we have more than average engine overhaul events for the [JT8s]. The Airbus fleet, you are right because seven A320s are new to the fleet. Those won't go into check for a while, but the check costs on those aircraft are very similar to the MD-80. There's really no appreciable difference. 75 is a little bit more, but, yes, we are not seeing any trends on the MD-80 maintenance side that, to us, make us concerned in any way at all.

It is just maintenance is volatile and lumpy, it always has been and until the fleet gets larger over time, it will continue to show volatility. Less volatility now than four or five years ago when we had a smaller fleet, but we still see that volatility when we have a substantially higher number of maintenance events during the year which is what we are going to see this year as opposed to last year.

Understood. And if I could just call out one of the comments in the press release, the second year that you guys have been able to grow margins, and looking ahead, we have the opportunity to continue to for margin improvement going forward.

I'm wondering if you can just, I guess just for clarification it looks like we may have some margin contraction in the first quarter. Are you, in fact, suggesting that you could expand margins for a third year in a row on a full year basis and despite sort of some margin contraction that we may be seeing here in the first quarter and if so what are those opportunities that's going to drive that expansion? Is it some revenues that start to phase in, relative to the project that you are working on? Is it the Airbus aircraft, of course. Just wondering if you could help clarify what you really mean by that comment. Thanks.

I think we expect to see -- when we forecast our revenue we are not adding in incremental revenue from new things. So that is all upside, relative to our internal forecast. But I think the biggest impact is just flying, having 10 airplanes that will be operating for basically 12 months of 2014 that are substantially more fuel-efficient than the MD-80 fleet. And the benefits of that are very material. The ownership costs of those aircraft are not appreciably higher than the MD-80 in terms of -- and most of that is on the D&A line.

And so the net net is you have aircraft that are only slightly more expensive on an ownership cost. (technical difficulty) substantially lower fuel expense and that's really why we are optimistic that we will be able to see margin expansion. You know, all things being equal in terms of fuel cost per gallon and that's probably the primary assumption there.

Okay, so if I hear you correctly, it does sound like, despite margin contraction in the first quarter, you feel like things could set up where you could actually realize some margin growth on a full-year basis in 2014.

We don't want to -- we are not going to commit to that, but we think that that is how the numbers work.

Okay. That is very helpful. Thank you. If I could ask one more question here. In terms -- I guess I am trying to reconcile strong demand with an outlook for PRASM to perhaps decline up 2% in the first quarter. I am just trying to reconcile that and perhaps reconcile with ASMs and new markets versus ASMs in existing markets. If you can just help provide a little bit more color around that.

Yes. Well, I think that, look, the first quarter the counter shift helped January because the holiday period was a little more extended into the first week of January. February, really largely unchanged every year and then March this year is going to be excellent like all -- like March always is, but it is not going to be quite as strong as March of last year due to the Easter shift. And we will benefit from that in April of this year.

We see a good demand environment out there and the ability to fill airplanes at good prices and we also obviously try to be very conservative in the guidance we give you. So we will see how the (technical difficulty) obviously very, very good picture of January since it is almost done. And we have a very good picture of February. And March is a little too early to know with certainty, but we feel really good about the revenue environment.

Then just ASMs in new markets versus existing markets as we look ahead.

We don't have numbers to share with you (technical difficulty) right now, but we certainly have added a lot of new routes and those would be existing cities to new destinations as well as new cities. And so the markets under development or routes under development typically lag services, but in general the network is really good. We are seeing continued very strong environment in Florida and a little less strong in the Western US, Vegas. It is very good, but it is just on a relative basis. Florida just continues to show greater strength and we continue to put more of our chips on (technical difficulty) Florida.

So we continue to grow much faster there than in the Western US. In fact I think by about midway this year about half of our ASMs will be going in and out of the Florida basis that we have. And that is up quite a bit from two or three years ago where that network was more biased to Las Vegas and Phoenix.

So, we like what we see. We are pleased with where we see the year coming in based on where we sit right now. We will get past the disruption that is going to impact our first quarter and as we look out for full year, we think we are set up to have a really strong year.

Terrific. Thanks.

Steve O'Hara, Sidoti & Company.

I was curious. In terms of the Los Angeles route to Honolulu, I mean, is that -- did you see that helping the seasonal balance of the Hawaii flying at all? Are there other markets where you could offset some of that seasonality by making them more seasonal like you guys have done a little bit of that maybe with some of the ski markets, I think, or you could talk about that a little bit?

We talked about that in the past about our desire to find more markets that are -- that have more year-round strength and less seasonality. Las Vegas has been one of those markets and that was the reason for it, and the LA market, and so far we are pleased with the results of it.

It is fairly new to the system. We only started flying at the very end of October. So I think it is a little too early to really form a complete opinion about whether that will be another route that is good year-round route that could help anchor the Hawaii market, which has been supplemented with many of the other routes that are seasonal. And some of them are highly profitable markets in the summer and others are highly profitable during the winter. And we are obviously trying to drive more utilization on the 75, as long as it is profitable utilization, and Hawaii remains a work in progress.

We do a little bit in the ski markets, but very little and our flights into Colorado are essentially subsidized. I shouldn't say subsidized -- essentially guaranteed certain levels of (technical difficulty) from development groups in that market. So that's -- I don't know if we would fly that if it was at risk, quite honestly, but we are always looking for things to do that are off-peak.

We still haven't found anything good to do in September. So I'm not sure we will ever figure that one out, but we are going to continue to try to find things to do during off-peak periods that are incremental to profits. But if they are not, then we are going to continue to do what we have done. We have a very inexpensive fleet. We have very, very low fixed cost. The vast majority of our expenses are variable and so we have always been and will continue to be very selective about when we fly to ensure that when we do fly we are earning returns and not just burning cash in the name of trying to increase aircraft utilization which is something we've just never believed in doing.

Then, second, I think you guys have ramped up the IT spending in the last several years. I am wondering how much of that -- I don't know if you quantify that first and then how much of that is maybe defensive where you are maintaining systems, updating older systems and how much of that is offensive in terms of you expect it to generate revenue or improve revenues down the road and what kind of returns you look on those investments?

Good question. There's certainly some improvements to the system. We have used an in-house system for many years in a lot of our areas like maintenance and crew scheduling and things of that nature. We adopted a new system here at the turn of the year with the [change] in the FARs to 117 and so we brought in a third-party system for the first time to help us with crew scheduling and obviously managing the compliance requirements.

We are investing in some maintenance efforts to make sure our maintenance program is the latest and greatest. We think that will be an excellent investment (technical difficulty). We haven't found anything third-party that would suffice, will be better than what we can develop internally and we've always put a premium on being able to do our own automation.

I know personally that has been a big effort through my years in this industry. And when you have that capability and the talent to do it, it, I think, produces much better product that you control and you like the outcome better historically has been my experience.

There's offensive efforts going on as well. We have spent a lot of money as we have told you over the last 18 to 24 months to operate our internal systems. We hopefully will start to see that really roll out nicely in 2014 and some of that is plumbing (technical difficulty) deck if you will where we have had to go and work on our database structures and a lot of technical issues, that needed attention. So those are substantial investments and we hope to start seeing them come forward here, like I said, this year.

As far as returns, we think those will be excellent. Again doing this yourself is a bit of an effort and you have to school up for it. My moniker, frankly, is we are an IT shop that happens to fly airplanes versus the other way around. And if you again develop that expertise you can see some tremendous benefits from it.

But we are starting to come out of that development pace, hopefully like I said, this year and the benefits will be substantial.

Okay and one last one in terms of the question on the revenue line. If you go to a fixed fee revenue, I mean it was up sequentially. It looks like it is going to be down again sequentially in the first quarter. Is that just the Easter shift again or is it anything else?

Yes, the big change was the -- when we stopped flying for Harrah's, which was our largest contributor to that line item and that contract ended, I guess at the end of 2012, we continued to have a track charter program out of northern Nevada that is ongoing. And the amount of fixed fee opportunity in the first quarter typically is augmented by opportunities to fly for the NCAA Basketball Tournament. That is typically something that is very accretive to flying.

This year we expect to do very, very little of that due to the fact that we are constrained, as it relates to pilot resources due to delays in training. And so that may explain maybe why it is a little lower than you had forecast and what you had expected to see there.

David Simpson, Barclays.

Good afternoon. Quickly, curious what you are seeing on the used aircraft market and how you are thinking about, obviously, you've got the '14 and '15 319 and 320 deliveries. Is that sort of the aircraft deliveries you would like or would you be opportunistically out there over the next 12 to 18 months?

I am going to let Jude comment him a little bit, David. I tell you that I think that as far as 2014 and 2015's concerned I think we are very pleased with what we have got coming. We will always be opportunistic, but we are not really focusing on 2014 and 2015.

Jude and his team are really focused on 2016 and beyond and I don't know if you want to add anything, Jude.

Nothing more to add. I think we still see some opportunities out there and clearly we can take advantage of them. But like Andrew said, we don't need fleet growth. We don't need fleet growth 2014, 2015 beyond what we have already committed to.

So, we continue to just be very patient and very opportunistic and confident that we will grow the fleet beyond what we are showing you through the end of 2015, but there's nothing to announce at this time.

And then when you just think about the timeframe for getting these deals done, I mean you said working on 2016 and beyond. Is that something where it is early stages and these things pop up fairly close in by fleet standards or is it something where you have pretty good visibility as you roll through 2016, 2017 before all that long? I'm trying to think about pipeline longer term in terms of fleet growth.

David, I think it just depends. When you play in the spot margins there's limited predictability unless you want to commit to economics that you don't like. And as a result, you just have to be really patient and be able to move very quickly on transactions. We have the balance sheet to do that and that is why it is important that we maintain a strong balance sheet with a lot of cash so we can take advantage of opportunities. And I think we are known throughout the market as people that are serious and can close very quickly with cash and that is really helpful.

But it is really hard to forecast, but we are always in the market and we are always active. We have a team of people that do this and we are confident that we will add to the fleets above and beyond the numbers we are showing you here, assuming we are convinced that we will continue to generate higher levels of returns which, at this point, we see us being able to do that for the foreseeable future and that would mean years and years into the future.

That's helpful. I appreciate that. And one little quick win. In terms of the into plane costs, on the fuel lines for 4Q to 1Q is that -- just anything sequential in that that is unusual? Or is it sort of going through and reconciling? There's nothing seasonal in that into plane, is there?

No. No, there's really nothing seasonal in the [in a] plane or the taxes associated with fuel. And some of them are fixed tax amounts and some of them are tied to the underlying cost of the fuel itself. But, yes, there's nothing sequentially that would change 1Q versus 4Q or any other quarter quite honestly, at least when you are talking about the differential which is what we refer to as the transportation tax in the in a plane expenses.

That's helpful. Appreciate all the color.

Hunter Keay, Wolfe Research.

Thank you for the follow-up. I will be quick. Just a little bit on cash deployment, Maury. I don't want to lock you into anything you said you don't want to do that. I respect that, but years of paying a dividend and on January that is going to be about 25%, 30% of your free cash flow for the year.

How do you think about maybe buyback slows in the fourth quarter after a big period in third quarter? Can you talk to me about what drives the decision to buy back stock? Is it the price? Is it something else? How should we maybe think about your appetite for 2014 in terms of buyback and can you also remind me where you are in terms of what you have left on the authorization? Thanks a lot.

Yes, I will give you some overview and Scott can give you some of what we did. It's -- we've created a company here that is going to produce great returns, turn on investment, all of those numbers that you see are so nice, if you will relative, particularly to the rest of the world. We want to push cash back to the shareholders and we want to balance that with being opportunistic with -- as Andrew just mentioned being able to grow the Company.

So that balance that you are continually looking at as to what your resources are, or deals come along that you want to invest and get your returns on future growth as versus returning monies to current shareholders. So, certainly ways we have chosen those dividends and buybacks are, we think, the best way to go about it at this point.

And I think more of the same is what we will do and regarding when we buy back, we are very, I think, we sponsored the price. We like to buy low and sell high, as the saying goes, but we also think the price of the stock is going to go up over time and that most -- even buying at this stage is long-term accretive to what we're doing. But, Scott, some of those numbers, what we have left, and --.

Yes, we have got roughly $40 million left in our current authorization if you look back to 3Q. We were very active in the markets, took $47 million off. It's roughly 490,000 shares with an average price of $95 and if you look at how we chased the stock price up into the fourth quarter, we weren't very active. Roughly 32,000 shares at an average price of just under $106. So I think the only thing -- the thing we should point out is we do have a cap at which we kind of have a target. And so.

For the entire buyback program, we are an average of $53 (technical difficulty), common shares.

[$53.50] for roughly 3.4 million shares.

So we have been a good buyer of the stock with the price and things like that we think, Hunter.

I only add one other thing. The other thing we look that is how we manage our debt. And we look at where we believe we have excess capital, we look at all those scenarios, including paying down outstanding debt. And we do what we believe is most accretive over an appropriate time horizon. But that is certainly is another option, too, is to manage the balance sheet a little differently as far as debt levels. We have added debt, but we have also reduced some as we noted in the release.

Yes, no, thank you. It's got -- do you know when that authorization expires?

There's no term.

Okay, great. Thank you.

Ladies and gentlemen, this will conclude the question-and-answer portion of today's call. I would now like to turn the call back over to Maury Gallagher for closing remarks.

Thank you all very much. We will see you in 90 days. Have a good evening.

Ladies and gentlemen, this concludes today's conference. Thank you for your participation. You may all now disconnect. Have a wonderful day.