Allegiant Travel Co (ALGT) 2014 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Allegiant Travel Company's third-quarter 2014 financial results conference call. We have on the call today Maury Gallagher, the Company's chairman and Chief Executive Officer; Scott Sheldon, the Company's Chief Financial Officer; Jude Bricker, the Company's Senior Vice President of Planning; and Kris Bauer, Interim Chief Operating Officer.

Maury Gallagher will provide us with brief comments, and then we will begin the 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 comment about our strategic plans.

There are many risk factors that could prevent us from achieving our goals and cause underlining assumption of these forward-looking statements and our actual results to differ materially from those expressed or implied by our forward-looking statements. These risk factors and other more fully disclosed in our filings with the Securities and Exchange Commission.

Any forward-looking statements are based on information available to us, and we undertake no obligation to update publicly any forward-looking statement, whether as a result of future events, new information, or otherwise. The Company cautions users of this presentation not to place undue reliance on forward-looking statements, which may be based on assumptions and events that do not materialize.

This 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 will now turn the conference over to Maury Gallagher. Please proceed.

Thank you, operator, and good afternoon, everyone. Thank you for joining us on our call today.

This is the first call in many years without my partner, Andrew Levy, here to speak with you as well. He was integral in the conception and growth of what is today's Allegiant Travel Company. From our very first days in early 2001, when we began working on the plan to take the Company out of its then Chapter 11 proceedings, he was there and instrumental in everything we did.

During the ensuing years, as we developed the model you know today, Andrew was the driver of that strategy; and he moved to position us as the low-fare, low-cost leisure Company -- focused Company that we have developed into. But all good things must come to an end, unfortunately; and after 13 years, Andrew was interested in looking for other opportunities.

But as I said in the release, he had done his job. He has left us a tremendous legacy. The ultimate job and complement, for that matter, for a senior manager is to leave their organization in good hands -- to have developed management and personnel capable of running the organization when they are not there.

The team, not the individual, is what matters. And by all measures, Andrew has succeeded; and we at Allegiant are the beneficiary of these efforts, and we wish him well. Going forward, our near-term efforts are to seek the COO for the Company, a permanent position. And the Board and I will hope to have that selection done by the end of the year.

Operator, we will take questions at this point.

(Operator Instructions) Hunter Keay, Wolfe Research.

Can you give us a -- just a couple of questions here -- can you give us some thoughts on how you are thinking about 2015 capacity? I know you just updated the first-quarter capacity guide of flat to up 4. It's a little lighter than some people are thinking.

Is that just a function of turning some of the 757 into more seasonal flying? Should we expect a pretty good ramp-up into back in the double-digit sort of territory when you get back into the second and third quarters and beyond?

Yes. This is Jude. We are taking on two A320s and three A319s between now and around the end of the first quarter of 2015. So those airplanes being used and their in-service date -- the exact in-service dates -- so, say, with those aircraft being a little bit uncertain, will be underutilized for the first quarter. Further, we are facing continued constraints related to pilot availability, which will restrict our March capacity. So first-quarter growth won't be representative of the rest of the year. Yes.

All right. Cool. And one other random question -- I know it's a little bit early, but you guys are now charging fees to print out boarding passes. Is the longer-term plan here to maybe do this to sort of shift consumers away from doing that and get rid of kiosks altogether -- and even more broadly, reduce your footprint in airports, like Ryanair does? I guess I'd love to hear you talk about this boarding pass printing initiative in the context of it being a revenue versus a cost thing, and where you think this thing could go long term? Have you seen any changes in behavior, or is it too early to tell?

I'll make some comments, Hunter, and I think some other guys have more detail. But the theme that we've always done and have proven over and again is that consumers will follow their wallet and their pocketbooks. And to the extent you want to create behavior or change behavior, you can charge and plan for.

We did it with baggage back in the early 2000s, seat assignments, onboard drinks, you name it. So to your point, though, we are trying to lessen our footprint, if you can, at airports. Candidly, some of the most expensive space in the entire country -- maybe even in the world -- is inside of a traditional airport, particularly in the bigger cities. You know, square foot price is just off the charts.

So to the extent you can push activities to the consumer and away from the airport, those are pluses -- such that the consumer comes right to us at the gate, and we deal with them at that point is our goal. This exercise -- we saw, I think, a pretty big shift, literally, in the first week we did it. We advertised it; we pushed the efforts that we were going to do. I think we were charging $5 a pass. But Kris, what did we see in the stations?

We've already seen a dramatic shift in the number of people that are checking in, either on the Web or on the mobile, which is exactly what we want them to do.

And our mobile app, Scott? Scott Allard is here. Our downloads -- this requires a mobile app do a lot of this work. We are seeing a big move as we get people taking our app and putting it on their personal phones.

Yes, we have seen in excess of 5,000 downloads a day. And I think about 1 million folks have downloaded it in total, so we get a lot of usage on the Android and Apple, both.

Long-term, that plays into our ability to talk to them about other things -- other than boarding passes.

(Operator Instructions) Savi Syth, Raymond James.

A bit of a criticism I have is for being an ultra low-cost airline, your costs are going up. Even if I exclude kind of the vesting of the stock options, and even kind of taking to account (technical difficulty) you are gaining, the cost increases year over year are considerable. Probably the worst performance here in 2014 amongst the US airlines. And even in 2013 it wasn't a great performance.

So just curious as to how you are thinking about going forward? What's driving this, and what can be done to rein in the cost inflation?

This is Scott. A couple of comments, and I'm sure other folks will jump in. Yes, 2014 has definitely been a difficult year. Hopefully you are taking in consideration the unique costs surrounding the restrained pilot capacity. Obviously, there was a lot of subservices here.

Definitely a loss in crew productivity, which is really driving really expensive wages as we lose productivity within our groups. My rough math has the number approximately $25 million in kind of crew-shortage-related expenses for the year.

You also have to consider there is roughly $2.7 million, $2.8 million in depreciation expense related to non-ASM producing assets. That transaction, which was the goal transaction back in the second quarter, was a great deal; it was very accretive to earnings.

You know, in just an overall -- there continues to be some basic building that's going on as you support three different fleet types. So look to 2015 to have a definitely more positive tone to ex fuel costs.

The fuel costs -- fuel in particular continues and our efficiency continues to improve. Obviously the fuel environment continues to be better and better. I think we're paying roughly $2.80 a gallon, all in. Maybe just a little south of that. So no rule there, but all very explainable.

Savi, it's Maury. These are conscious decisions in a number of cases we've made. Some not -- you know, we are doing some off-airline stuff that was related to travel we call our skunk works. And those expenses are flowing through as well.

And the crew issue is double-sided. It not only affects your utilization, which keeps your unit cost down -- and it has a factor where we've got a lot of unproductive crew members as we are trying to catch up in the training. This is literally still a hangover from 2013 and issues with FAA resources and the ability to keep us current on some of our training personnel from their side of the house.

So been my experience --- you get behind on crew issues, catching up, particularly if you are growing, and we are adding airplanes here, it's tough to make that up. But your point is taken. We are aware of that. And we our theme to our personnel -- our only true asset is our cost structure long-term, and we are very mindful of that.

Duane Pfennigwerth, Evercore.

Just on pilot availability, I wonder if you could provide some detail there. Is it a function of -- you can't get the right sort of qual -- is it pipeline? You can't get the right qualifications? Is it your offering? Is it training lead times? I wonder if you could just add some detail to why it's taking longer to get pilots and how you fix that?

First, let me clarify: we have no issue or problem getting good, solid pilots. Our attrition is not up dramatically.

You are seeing a lot of comments in the press, particularly at the regional level, about pilots moving upwards. I think there will be pressure for that, but we are still attracting high-quality pilots. It's pure and simple -- we had a period of time in late 2013, early this year, when we literally couldn't train anybody.

And that conflicted, obviously, with airplanes coming on, Duane. And we are making up for that now. As an example, crew member productivity has come down noticeably from that -- down from as much as 80%, 83%, down into the 60%.

We are hiring probably 2 to 3 times the number of crews we have hired in any past year to catch up, because we stopped hiring, as well, when we got stuck with the training effort. So we have a bubble, if you will, running through the system right now that we hope to have cleared up by mid-year next year at the latest, if not sooner.

But at that point we will be back on, if you will, ability to anticipate training rather than reacting to training. That's the way all airlines need to run. They know their airplanes are coming. They have to be out in front of that and do all the work to get ready for it. We are catching up at this point, and -- but we will manage through it.

Thanks for that, Maury. I had one follow-up just on the status of your search. Are you looking both internally and externally? Can you comment? Is Kris definitely an interim? Or should he be considered by investors as a candidate for the job as well? And thanks for taking the questions.

Sure. Kris?

I am an interim candidate. We are looking both inside and outside. But the plan at this point is I am here on an interim basis. Thrilled to be back and helping the team out. It's great to see the old gang again, but it is an interim position.

He has retired, to hear him say it, and he's happy about that. We aren't, but he is.

Helane Becker, Cowen.

Just -- I think you mentioned in the press release that Cincinnati was one of your fastest-growing markets. Can you just kind of talk about what you think that can grow into, and what your goals for that are, and how that compares to Punta Gorda?

Hi, Helane, it's Jude. Can you hear me?

Yes. Now I can, thank you. It wasn't supposed to be a trick question.

Cincinnati is nothing like Punta Gorda. Punta Gorda is a destination market for us, and therefore scalability was much greater, because we already had a lot of markets on the East Coast that we could connect to Punta Gorda and grow very rapidly.

So Cincinnati is a source market and should be compared to places like Allentown, and Harrisburg, and Niagara, and the like. So when we say it's growing as fast as any market we have had, we have launched a lot of markets into, you know, as destination markets from Cincinnati. Thus far performance is very good, but we are not ready to commit to any future goals on Cincinnati.

We like the market. The markets, the destinations from Cincinnati that we've launched thus far, performing nicely. But some of them we haven't yet even operated. So we are not ready to make any commitments on Cincinnati today.

Okay. As a follow-up, can you just say how the market is -- how your acceptance is? Maybe load factor for those markets relative to the system average?

Our load factors are very consistent across all markets. So I don't think that would give anything away. And the Cincinnati fights are booking -- it's very difficult to compare bookings; because, for example, when we launch a market and only have it for sale towards the end of the year and beginning in the first quarter, all the bookings are concentrated on the first couple flights.

But load factors are consistent with the network. There's no detriment, necessarily. Load factor is only one input, though, into the revenue on the market. Like I said, Helane, all I am willing to say at this point is that we are happy with the performance of Cincinnati thus far, and we'll wait and see how markets perform when we have a longer operating history there.

Michael Linenberg, Deutsche Bank.

Good afternoon, everybody. The new change in the TSA fee structure -- I guess the security fee that came in this summer -- did that have any sort of impact? I mean, I know that there was a decent amount of noise over that earlier this summer. Anything you can say on that, Maury?

I'll let Jude comment on that.

Keep in mind that we are one of the carriers that are impacted the most by that particular fee structure. So we think it's going to be around a $2 fare decline because of the tax.

So in the light of that, considering that third and fourth quarters won't have -- will be comped to a period of time where we weren't required to charge that tax and pass that on, I think the revenue performance is all the better in consideration of that influence. So as compared to other carriers, we have all O&D traffic. And it's leisure customers. And the displays require us to bake that into the advertised price. So, yes, I think it's impactful.

Okay. Great. And then just a quick second one here. Jude, probably this is -- you could probably answer this one. Going back to Helane's question on Cincinnati, I mean, a lot of us are obviously watching that one closely, because you are ramping up, and later this week or early next week you are going to see Frontier. I think they are going to come into three or four markets that you are moving into.

And to see two ultra-low-cost carriers, or one low-cost carrier and an ultra-low-cost carrier going head-to-head -- you know, you hear what she said about the market, maybe how it's ramping up, it would seem that the takeaway is this is a market where there is room for two carriers, largely because of the amount of capacity that Delta has pulled out of the marketplace.

Is that a fair assessment? Is that the way we should be thinking about it at this early stage?

Well, first, we are watching it closely, too. We are very interested in it. Yes, I think -- realize that we have a different traffic pattern. And we are able to be successful with competitors in the marketplace because we fly peak patterns where there is surplus demand for seats in the marketplace.

So yes, you look at -- they are flying -- Frontier is flying Cincinnati to Sky Harbor. We are flying Cincinnati to Mesa. And we are doing it on a peak pattern; they are doing it on a redeye on Tuesday. I think that flight is going to be tough to sell, but we will see.

You know, and the same is said on many of our competitive markets, where we launch peak demand service only and therefore get a yield premium because of it. So, yes, I am very confident in our ability to manage Cincinnati in spite of Frontier being there.

Joe DeNardi, Stifel.

Maury, or maybe Scott, I look at Allegiant's stock -- it's clearly underperformed other airlines here. Now you guys have a bigger buyback. I'm just wondering how you plan on using that -- if you plan to be more aggressive with it. Just any thoughts around that. Is that in addition to a special dividend or in lieu of?

Thanks for the question, Joe. You know, we are very bullish on our stock long-term. Witness -- how many shares did we buy this -- it's 1.1 million or something in the last -- this 12 month period?

1.2 million.

1.2 million. Opportunistic -- I think our average price is (technical difficulty) history of that, and we have taken over 4 million shares off the market in the past four years or something like that.

The Board is very supportive of using our capital to maintain that approach to -- you know, capital allocation to our stockholders. And as far as a special dividend, we've done it three years, I think; and the Board will probably take it up later this year, if we are going to do it. Historically, or at least last year, I think we did it in late December for a January payout just to manage personal tax affairs and things like that.

So nothing to report there. But we think this approach cash flow wise -- we are doing $300 million of EBITDA this year. Numbers are up, in spite of Savi's comments about cost, which we were sensitive to. And we see better things in the years to come. So it's a good program for us so far, and we will continue it.

Okay. Thanks, Maury. And Scott, I'm wondering if you can put the finer point around the cost trends next year? First quarter doesn't look like it's going to be great from a cost perspective because of the capacity outlook, and it sounds like some of the labor costs are going to be a pressure through the second quarter.

So can you just help try and set expectations for how that looks going through the year? I mean, I can understand once capacity picks up in the back half, it looks -- the comps should be pretty good. But maybe some color on the first half?

We should be able to give you a little more on our Investor Day in a couple of weeks. But I think you hit some of the highlights. Obviously, crew productivity continues to be a drag. I think, more importantly, if you look at aircraft utilization, it's going to be down, likely, in the first quarter, which is going to put pressure on unit costs.

At this point it's likely -- I don't want to give numbers out, but it's likely slightly up in the first quarter. But we'll provide some more color here in a couple weeks.

John Godyn, Morgan Stanley.

Maury, not to dwell on Andrew's departure too much, and I understand you have your Investor Day coming up, but I'm just curious -- the question on people's minds whenever you see a key executive leave is: what was that person spearheading? And has anything been sort of obviously now pushed to the right?

We have been looking forward to more international flying out of you guys, particularly to Latin America. We have been looking forward to some sort of loyalty credit card type program -- other ideas that have been out there, kind of on the horizon. I'm just curious as it relates to the direct impact of Andrew leaving. Are there things that are pushed to the right outside of just kind of Kris helping with the day-to-day operations?

Fair question, John. Day-to-day operations, I think, was probably 70% of Andrew's time, if I had to make a guess. Certainly, it was more than 50%. So Kris stepping in there was certainly the bulwark of what we are doing.

Loyalty, Latin America -- both of those are tied primarily to automation issues. And those are moving along. And certainly, we have probably -- we are behind schedule on a couple of these things, candidly, but we are working hard to bring those to bear.

And on the commercial side, the loyalty and the Latin America will roll up under Jude's purview here as we go forward. But that's -- also crosses over into IT. So we are absorbing his duties. As I said earlier, he left a terrific management team behind, and it's being rolled up in that fashion. No specific dates on the latter two, but as we said earlier, the COO will be hopefully done by the end of the year.

Great. And just a nit from the release -- the purchase of the 82,000 square foot space near the headquarters -- if I remember right, in 2013 I think you guys moved to even a larger headquarters. I'm just curious kind of what's going on there with all the new space?

This is Scott. Yes, the transaction in 2013 -- we purchased approximately 130,000 feet on the west side of Las Vegas. In general there's not a lot of growth opportunities in near proximity to the headquarters that we just purchased.

That being said, there was a series of five buildings which was pretty much the last remaining sizable space of any kind. I think we transacted on this at a very compelling rate. But it essentially gives us growth opportunities for many, many, many years to come. So it's just planning for the future. At this point it's -- there's not any immediate needs for the use of space, but we are going to have it in the future.

Fred Lowrance, Avondale Partners.

A question on Hawaii. I recognize it's a small part of your business, but obviously that's pretty high profile. And as I look at your schedule going out, we are down to just Honolulu service from LA and Las Vegas, at least for the next couple quarters.

So I'm wondering if you could comment on what this says about the viability of Hawaii service and frequent Hawaii service from your smaller cities? And maybe further along those lines, if this is the new normal -- sort of this less-than-daily two-city service to Hawaii -- what do you need six 757s for? How can you repurpose those or reallocate that capacity? Thanks.

This is Jude. So the current Hawaiian network is -- as you pointed out, Honolulu's serviced from LAX and Vegas year-round, and that will be augmented with some small city flying from our West Coast sourced markets seasonally in the summertime. And that's producing acceptable returns and is stable for the foreseeable future.

The six airplanes aren't required to fly that network, clearly; but being a growth airline, we have a lot of opportunities to deploy those assets. The 757s will be used in the 48 to fly to Austin and Cincinnati. And sometimes we deploy them, also, in Macau and Bellingham.

So the planes are producing for us. We don't have any changes to the fleet plan as far as those six being in our fleet for the foreseeable future. And I would expect the Hawaiian network to be stable like it is now also for the foreseeable future.

It's worth noting that that's the network most exposed to fuel price changes, and therefore, with the new fuel price that we are operating under now, we need to reconsider maybe extending some of our seasonal periods or adding more capacity to those existing markets. So Hawaii looks better proportionally to the rest of the network as we adjust to lower fuel price environment.

All right. And then just a quick one, sort of following up on Cincinnati -- maybe taking it down a little bit different path. Obviously, that was a unique situation with Delta pulling out. Do you see similar types of opportunities at a place like Memphis, with a similar situation going on there?

And maybe more broadly, as we look at where your growth comes from here, are we still doing the -- connecting existing dots on the map? Or are we poised to move into more -- you know, with international coming, that's one thing. But are we poised to move into more sort of new market growth than we have been in the past?

I don't think we're -- we're not willing to comment on future market launches at this moment. But I think, yes, if Cincinnati is successful, then that type of market -- although we are not really willing to name any specifics -- could be a model going forward, for sure.

Stephen O'Hara, Sidoti & Company.

I was hoping you could talk about -- basically, I think Hunter touched on it, but I'm not sure if you kind of clarified: what's the potential growth in ASMs in 2015? And if I recall, back in the 2009 period, you guys really ramped up capacity; fuel had dropped significantly, and you really took advantage of that.

So should we expect something similar to that, if fuel stays where it is? And could you just update us on where the current fuel price is right now?

Go ahead on the fuel price.

We are paying roughly $2.75, $2.80 a gallon current pricing.

We've got a built-in -- what's the schedule of airplanes through the end of --

Airplane growth is 11%. You should expect over time that we would operate at least that much -- also, in consideration there's more efficient airplanes being added to the fleet, which in the margin adds viability to off-peak days and seasons.

So while we are not ready to give a number right now, we did guide -- you see guidance for the first quarter, and I would expect us to finish the year significantly higher than that as we are able to stabilize line pilot availability in conjunction with the fleet size that we are operating.

Okay. And I know you guys have talked about being active in the market for aircraft. Should I assume you are still active in the market today? How does that market look? And then, I'm just curious about the fixed fee -- bumped up to almost $5 million. That seems pretty high compared to where it's been recently. I'm just wondering if there was a new agreement or something unusually heavy in the quarter?

So, first, on the aircraft -- this is Jude again -- you don't need to assume it. We are active in the market right now.

Yes, there's lots of the availability for deploying the aircraft. We have strong demand for our product, and we are out there trying to acquire used A320 and 319s to accommodate our growth goals. So, yes, we are very active. I think the model of the goal transaction is interesting, and we are exploring that as well with other carriers.

There's a lot of investors moving into the aircraft space. And it is driving prices up and availability down on the margin. But we trade in a very specific type of aircraft -- the 12- to 14-year-old A320, A319 CFM power. Those planes are out there. We know who owns and operates them, and we are actively trying to acquire them. And I don't think we will have any trouble acquiring aircraft to support our growth at the prices we need to keep our low-utilization, low-cost model going.

So the second question about fixed-fee flying -- I think we were pretty active in the third quarter, related to football charters. I think this third-quarter -- I hope to be more representative of future third quarters. But it's partially a byproduct of having last-minute availability related to crew training. So, yes, I think -- you know, we intend to continue to deploy MD-80 type aircraft into the (technical difficulty) surplus capacity, which particularly exists in the third quarter.

Dan McKenzie, Buckingham Research.

A couple of questions here. I'm wondering -- just tying into the last question, it looks like the CapEx is around $20 million higher for 2015. At least the mid-range of the CapEx outlook is $20 million higher than previously.

Is that tied to new aircraft? Or is there some new investment priorities that you are looking to make? And I guess just related to that, if you can just remind us or give us an idea of what the gross and net CapEx would be -- what percent are you planning to finance, and also aircraft versus non-aircraft?

Hi, Dan, it's Jude. I can't tie that number to what you are referencing. But that number comprised of committed deals today. And as you well know, we buy in the spot market. So it's subject to change as we find deals to transact on.

As far as financing of aircraft, we intend to raise capital as we have a use for it. So today we have two unencumbered assets -- two unencumbered aircraft plus the new building, which we can certainly raise, let's call it, $30 million, $40 million between those three financeable assets.

So to the extent we have a use for the proceeds, today we are running cash balance of around $450 million. I don't think there's any need for us to do any capital raise. But the financing opportunities exist in the market at really good rates today, and we'll use that to finance any growth opportunities or purchase opportunities we have for aircraft in the future.

Glenn Engel, Bank of America.

A couple of questions. One, can you update us on labor negotiations? And two, on the international side, where are we in terms of getting your computers ready -- and again, in general, where are we in getting what you need to done to upgrade your technology?

Thanks, Glenn. The labor negotiations continue. We are in mediation with both our pilots and flight attendants. Our dispatchers, I don't believe, are in mediation at this point.

So they are moving along. A slow process -- it always is for the first contracts. We will hopefully have something done here in the not-too-distant future, but we have to get together with our groups and make sure we have good deals for the Company. And, obviously, they are going to push for their issues. But they are moving according to what I expected at this point.

And then the second issue as far as --

International -- we are not going to change any guidance we've historically -- we've recently given, which is the back of 2015.

Is that a choice, or is that just the computers will not be ready yet?

A little bit of both. We have internal issues that we are working on first before we look to external. Furthermore, candidly, if I can keep expanding domestically, the simplicity factor is a big deal there.

So we will reevaluate it. We certainly see opportunity in those places. But we have also got places to put airplanes here in the US that -- given my druthers, I would do the US first and the international second.

David Fintzen, Barclays.

It's just a quick question. In the release you mentioned some of the maintenance upticking events in the fourth quarter. Can you kind of talk through that? Is that just a typical timing of events, or are you moving some things around and forward?

Yes, this is Scott. You know, the full-year guidance which we gave some time ago, which was basically $100,000 to $110,000 per aircraft per month, is still intact. It's just a matter of some of the events slipping throughout the year.

So first we anticipated, actually, the first quarter being the high point and the fourth quarter being a low point. But as we progressed through the year, some of the events have moved periods. So nothing else really to comment on, but the full-year guidance is still intact.

Is 2015 -- is there anything unusual in terms of timing and maintenance events for 2015?

Obviously, the seasonality of when events hit in which quarter can be different year over year. In general you should see maintenance costs come in from where they are in 2014, which -- we'll update you on guidance here in the next couple of weeks.

David, just a separate number -- if you take out C checks in engines, our airplane cost per month is $65,000 -- $66,000 this year, and it was $65,000 last year. So the maintenance has been pretty constant. Just the bumpiness of when C Checks fall, and where we are in the C Check cycle, as well as engine events.

Hunter Keay, Wolfe Research.

I thought I removed myself from the queue, but I guess -- what the heck?

Free shot, big boy.

Let's see, what can I ask you? Okay, here's one. The PRASM/TRASM gap looks like it widened a little bit in the guide in 4Q relative to where you've been before. Is that a function of weaker demand in the PRASM side, or is it sort of that boarding pass fee that we talked about earlier? I mean, if you could talk about that gap between TRASM and PRASM going into the next year?

TRASM gap. Yeah. I think what that says is ancillary is growing faster than fares, and that's representative of some -- of the charge per check-in, but also the good performance of some of our ancillary products.

Michael Linenberg, Deutsche Bank.

This is just a quick one for Scott: the tax rate this quarter looked like it was a little lower, like 35%. I think in the past, you were closer to 38%. Maybe that's timing issues or differences. What's going on, and what should we use for the fourth quarter? That's it.

So there was a 162(m) deduction limitation that we had. With Andrew departing the Company, you are able to take a deduction at this point in time. So that had a downward effect on the rate.

In addition, there was a foreign tax credit related to the goal transaction and the goal financials, which are impacting that as well. Basically we've always said 37% would be a full-year target, so I'd still continue to use that.

Dan McKenzie, Buckingham Research.

Thanks. Another one here. I wonder if you guys can talk about what you're seeing around the holidays at this point. I guess I'm wondering -- what is the revenue guidance baking in around the high-demand part of the quarter versus any book away from Ebola?

I think there's a lot in that question, Dan. One thing to understand when you are looking at the fourth quarter is the relative growth between the three months. So TRASM in December outperforms the other two months; yet it's the slowest-growing month. And we'll do October growth and ASM-wise in excess of 20%. But the quarterly growth is what we had given guidance here today. So on a relative basis, we're flying proportionally less during the holiday season than in the prior-year comp.

But bookings look very good. Bookings look strong during the holiday season. Keep in mind there is a bit of a shift to day of week, which is pulling Thanksgiving back into November. So November looks very strong right now. And I think with all the considerations of proportional flying, passing on the segment tax, and the like, I think the demand environment is really strong.

Okay. Very good. And I'm wondering if I can just follow up with one more here on labor. What inning are we at in the negotiations? What kind of contractual increases in 2015 are implied by the 2014 operating margin band? I'm just wondering if you can provide any preliminary perspective on that?

Are you negotiating for the other side, Dan? I would just as soon not comment on innings and where we are at in that whole process or amounts.

I'm not suggesting that -- I think we are making progress, and I will leave it at that. But we certainly are interested in moving forward and getting to a conclusion that makes sense for both of us. So just leave it there.

David Fintzen, Barclays.

I guess both of these are for Jude. The first-quarter ASM guide to zero to four. How skewed to March is that, presumably -- or, hopefully, it's much more so in March than Jan/Feb?

ASM growth across the three months in March is fairly constant.

Okay. Okay. And then just on the utilization, I think 3Q you started to do some of the utilization flying. What kind of level of ASMs are we talking about? Is that a couple of points of ASMs? Is that bigger? How should we think about what you have been doing in terms of the utilization?

You should think that the current utilization through the first quarter is not representative of future utilization. And the reason being primarily is around the aircraft inductions that we are bringing in; and, also, secondarily, pilot restrictions on peak periods, both of which we have talked about.

So I feel fairly confident that we can keep A320 utilization between eight and nine hours a day. And I think MD-80 and 757 utilization will remain at historic levels, which is around -- excluding spare and maintenance aircraft -- around 5 1/2 hours a day. I think that's where we are going to fall over time. So utilization will go up with the induction of future A320s, which will make more viable off-peak flying.

Thanks. In the weeds, but very helpful.

Glenn Engel, Bank of America.

A follow up on the fourth-quarter PRASM. So you have October, which is an off-peak month, capacity up over 20%, which -- and yet your PRASM really isn't going down very much. And then for the rest of the quarter, over the peak months, your capacity isn't growing that much. I'm surprised why October isn't worse, and I'm surprised why the November/December numbers wouldn't be better, given the modest capacity growth?

(technical difficulty) understand as they went back earlier that Thanksgiving has shifted entirely. The capacity pattern has shifted entirely into the month of November.

So November looks good, and December on a basis of -- in consideration of the shift to Thanksgiving is sort of underperforming on a year-over-year basis. But I think what you pointed out is that we are growing the airline at the double-digit levels that we have reported, which is skewed towards the off-peak months. And we are maintaining unit revenues in spite of the tax pass-through and all the other issues we have highlighted. I think the read from that, which I think you are alluding to, is that the demand environment is really good.

Joe DeNardi, Stifel.

Thanks. Just one more on the pilot availability issue. It seems like this has been something that's dragged on a little bit longer than you guys were expecting. I'm just wondering -- is everything in place now for this issue to kind of resolve itself by the second quarter of next year? What needs to be done so you guys can continue or resume growing at a more normal rate?

I'll make a comment, and Kris can comment as well. The assets to deal with this are -- do you have the crew members? And do you have the personnel and simulators available?

And we have put up some very big numbers for productivity purposes in instructors; check airmen; simulators; and, last but not least, in personnel. We will have hired anywhere from 3 to 4 times the annual rate we've done historically in crew members this year to catch up.

So not only are we catching up with what we needed; we are going to jump ahead and push those through, so we will be heavy on crew members by the first quarter/second quarter, which will allow us to catch our breath and as well to deal with the anticipated growth and be ahead of it. So, Kris, can you illuminate?

That's exactly right. We have greatly increased our bandwidth of the schoolhouse, if you will, to be able to adapt to any kind of future growth. And that's what you are seeing, is it's just ramping up.

Now, one additional factor that Maury did not mention is over the summer we can't do a lot of training, because all those pilots were needed to go out and fly the operation. So really, we've really spooled up in the mid-August/September time frame. And given the kind of timelines it takes to get people through the schoolhouse, first or second quarter we should be in pretty good shape -- and in much better shape because our bandwidth is now so much higher than it has been previously.

The other thing, Joe, is we were going to face this issue at some point. When you start adding a new airplane type, you have players of training to go through that the single airplane type doesn't provide you.

But the MD-80 is an airplane that long-term will not be here. And so we have to move people from that airplane, if you will, into the Airbus; and then you grow, to boot. So the cost of training on a unit basis is going to be higher than we have experienced before, but certainly within the expectations we had, because we had to make this transition. But the Airbus itself has been a terrific performer, and we are excited to move in that direction.

This concludes the question-and-answer portion of our call. I would like to turn the conference back over to Maury Gallagher for any closing comments.

Thank you all very much. Appreciate your inputs. We will see you in a couple weeks at the Investor Day, hopefully. And should you have any further comments, follow up with -- or questions -- follow up with Chris Allen, and we will be glad to respond as well. Thanks again. Talk to you in a bit.

Thank you for your participation in today's conference. This concludes the presentation. You may all disconnect. Good day, everyone.