Allegiant Travel Co (ALGT) 2015 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Allegiant Travel Company's first quarter 2015 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; and Jude Bricker, the Company's Senior Vice President of Planning. Maury Gallagher will provide us with some brief comments, and then we'll begin our question-and-answer session.

First we wish to remind listeners that the Company's comments today will contain forward-looking statements and they are only predictions and involve risks and uncertainties. Forward-looking statements made today may include, among others, references to future performance and any other comments about our strategic plans. There are many risk factors that could prevent us from achieving our goals and causing the underlining assumptions 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 others are more fully disclosed in our filings with the Securities and Exchange Commission.

Any forward-looking statements are based on information available to us today and we are undertaking 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 events that do not materialize. This earnings release as well as the rebroadcast of the call are available on the Company's Investor Relations site at ir.allegiantair.com.

At this time, I'd like to turn the call over to Maury Gallagher. Please proceed.

Thank you, Operator, and welcome, everyone to our Q1 call. Operator, let's go right to questions.

Thank you. Our first question comes from the line of Hunter Keay from Wolfe Research.

Hi, everybody, thanks very much.

I guess, unfortunately, we have to spend some time talking about this pilot situation, Maury, a little bit here. Can you tell us how this gets resolved in the near-term? What gives you the confidence that the ruling is going to go in your favor in the next couple weeks? And more importantly, maybe, how this gets resolved over the long-term? Because if this is a series of Band-aid solutions, I sort of worry about how this doesn't become this ongoing distraction.

What's the long-term solution here? And what happens in the interim basis?

Hunter, it's the perhaps elephant in the room, given the last month. Fair question.

We are in a process with our pilot group, the IBT in particular. Given the ruling last summer that the judge found we had status quo and if we want to expand on legal and technical terms and the like, we can do it in subsequent calls.

But based on that finding, there is a technical right to seek self-help if one of the groups in the contract, that's ongoing pilot group or a management group, their ability to seek self-help if they believe the other group is not adhering to status quo. That's what the pilots were doing, IBT was doing, in the last couple, three weeks.

In particular they were pushing that we were not following status quo as it regards to bidding process. Two technical ways to bid. One, the line bidding, which we had been doing. Then with the switchover in January of 2014, we went to a PBS system or as it's known in the industry, preferential bidding system.

That system was what the pilots objected to last summer. The court found there was status quo and that while we were not going to go back to the line bidding system, we did have to advance our efforts with regard to the PBS system and in particular their standards that the judge put out at that time was -- it had to do seniority better, it had transparency and predictability.

And fast forward to the hearing here of the past week to two weeks. We went out as a Company as the pilots and the IBT threatened to seek self-help through a strike and filed our own action in the court. And that's how the initial TRO was granted a couple weeks ago. And most recently we had hearings on the applicability of that ruling by the judge and whether or not we were following what he had laid out on those three points.

We feel very strongly that we demonstrated that we had followed those points and have enhanced the system. There's a number of other areas we can talk about, but bottom line, understand we want our pilots to be happy. There is no reason we want to have an upset pilot group. There's bigger issues, I think, that are being negotiated here, if you will, through this approach.

But longer term, we think we'll be successful with our preliminary injunction to stop this particular action strike-wise in the next couple weeks. That's our opinion. Not saying the judge will agree with it, but we think he will. If that injunction is [granted] that ends the issues with regards to that particular one.

In addition, the NNB has ordered us both back to the bargaining table starting at the end of the month, which is fine with us. We haven't had a bargaining session in six months, since October, November of last year. And you obviously can't get a deal done if you're not talking. And we've been spending our time in the courts and reacting to a lot of these accusations from the IBT.

We think that most of this is over. We'll wait and see. We can't predict -- we don't know all the facts or what might be coming from the other side, but at this point in time we want to get back to the table. We want our pilots to feel good about this situation.

We also put in the release today that given the performance of the Company per our current work rules, the pilots will be getting a raise, give or take 5% to 7%, based on our performance. It was our band approach. And we have had a great 12 months. We're over a 20% operating margin and that kicks them up into what we call band 4.

All those are positives. It won't be over till it's over, but we don't expect any of the activities that we've seen in the last month to continue at this pace or -- not to say we won't have other small outbreaks and the like, but we want to get to a solution with our crew members. We've said that to them. We're fighting a lot of technical issues, but we think they'll be in our rear view mirror here pretty quick.

Okay. So to that end, if you're successful in the preliminary injunction, is there going to be a maybe timeline on that, say, it lasts six months? Or will that be sort of an open-ended thing that bridges you to a collective bargaining agreement?

And as sort of a followup to that question is how does that impact this FAA indicating that it's not going to process any current or additional work requests that may relate to the growth? So do you need a CBA in place for the FAA to start giving you the green light on growth, or will the FAA start to process the requests if there's a preliminary injunction in place?

The answer, we believe, is the latter. We have a position that when the preliminary injunction is in place, that's sufficient for them, at least that's verbally with us.

We disagree with that, I might add. And we're at issue with the FAA over what they're doing here. That's a separate discussion we're having with them as we speak here.

But going back to the first question, once that preliminary injunction is in place, it's possible the pilots could suggest that we weren't following the judge's orders sometime down the road and reopen it, but we don't expect that that's going to happen. Of course, we can't control what they do. But bottom line, Hunter, the ability for them to strike over that issue once this preliminary injunction is in place is not -- they've got to go against the court order and face the sanctions of the court at that point.

We don't expect they'll do that. Of course, we can't, obviously, control that. That puts that issue to bed. And we're back at the table as well with the NMB and where we want to be.

Thanks a lot, Maury.

Sure.

Thank you. Our next question comes from the line of Duane Pfennigwerth from Evercore. Your question, please.

Thank you. Hi, Maury.

I want to follow up on the revenue guidance that you've offered. Can you talk about the seasonality of the ancillary line in particular? Do you expect it to remain at that $52 level? And then all of that TRASM compression would be coming from, I guess, lower yields.

And then secondly, is there anything seasonal in nature? Is there anything one-time in nature that you would highlight with respect to the 2Q revenue guidance?

Hey, Duane, it's Jude.

The gains in the first quarter that we experienced on our air ancillary product production are sustainable going forward. Our revenue guys did a great job and we're continuing to add new capabilities with respect to pricing, in particular, on how we price and market those products. I think that that revenue line is going to continue to grow and the growth that we've seen there is sustainable.

Now as far as the guide on 2Q revenue, TRASM, as we're giving guidance down [8 to 10], I just want to be a little more granular there in saying that understand that there's some year-over-year differences that don't have anything to do with the demand environment. Particularly we're continuing to pass through this increase in the 9/11 security fee.

We also changed from a debit card discount which was inclusive in our revenue to a credit card surcharge which now affects costs. While that's operating margin neutral or even accretive, it takes down our TRASM.

So those two together reduce TRASM by about 4 percentage points. Additionally, because of the strike, being in the press and some of the refund policies we maintain through the risk of a strike over the last couple weeks, there's another 1% decline in 2Q TRASM. I think in a demand-neutral environment, we'd be down 5 percentage points in TRASM.

The remainder of that is just rapid growth. We're guiding 16% to 20% growth in the second quarter. That growth is going to come in two forms. One is more planes in markets and secondarily more utilization and more utilization has a particularly pronounced downward effect on TRASM.

I think all things considered, the demand environment for our products is really strong.

That's good detail. Thank you.

On the demand impact from the negative publicity, as you watch your bookings recovery, is it fully back to the trend that you expected? How long did that take?

That's still going on. We're still under where we would have expected to have been. It's very difficult to measure because there's a lot of noise in our revenue numbers with the growth that we're putting into the network.

Okay. That's great.

And just lastly, could you summarize the fleet changes that you're announcing? It looked like maybe a couple more A-320s and how -- maybe it's just the nature of these deals, but historically there's been a pretty big lead time between new deals to getting them in your fleet.

How were you able to get these in so quickly? And is there any sublease revenue associated with this?

Thanks for taking the questions.

Sure. These three airplanes that we announced today were last operated by Homburg Airways which liquidated, so we're buying them on repossession and the induction, therefore, span of these airplanes is very long. We won't put them into surface until the end of the third quarter.

It's an opportunistic deal, it's the kind of deals we like to do. I would expect those to pop up periodically off into the future.

Okay. Thank you.

Thank you. Our next question comes from the line of Michael Linenberg from Deutsche Bank. Your question, please.

Maury, I want to just go back to the heightened surveillance by the FAA and the fact it looks like there may be some impact on your growth until the outcome of the litigation is known.

Is that the right way to interpret it, that if for some reason this drags on for more than just a few months, that as a result you will have to scale back growth the next quarter or two? I realize in the press release you say there's no impact on ops, but I'm trying to get some clarification around that.

The main things that we ask or have to ask the FAA to do, Michael, are, one, put more airplanes on our certificate. That goes through their process where they check the boxes and buy in to our expansion.

And secondly, as we put new cities on, we have to expand our ops specs to put these cities in place. Over the next two quarters in particular, we have enough airplanes to do what we need to do that we wouldn't have put these numbers out, obviously, with the kind of growth we've got if we didn't think we could do it.

The only potential risk we have and we think we'll manage through this, is a couple cities will be problematic getting them on the ops specs. We have ways to manage around that. But we're in the very active discussion with the FAA over their findings.

Mind you, to the FAA's defense, anytime there's labor issues, the FAA steps up surveillance. It's part of their requirements. And we get that.

We are just in discussion with them about why -- what the letter says and what they're doing and things like that. It's fair to say we disagree with some of their conclusions but, regardless, we're going to be in good shape relative to growth and what we're doing and a lot of that is just locked in and ready to go. More flying with existing airplanes and with the airplanes we have.

Great. Then just I guess another one, is there any sort of risk, maybe risk is not the right characterization, but that the union comes back and says that this pay increase is some form of -- they view it as some form of interference in the negotiation process and make some noise about you rescinding it? I mean, is that --

It's an interesting issue, Michael. We'll give you a little labor 101.

Status quo. The judge says we have an agreement. We disagree with his conclusion. We've had an appeal in with the 9th Circuit and the status quo says that we can't change anything without negotiating it.

And so part of the reason we were able to push this raise through to our crew members, which we've had a real windfall, we're trying to share it. And that's what this whole intent was when we put this together a number of years ago, but we have to eliminate that writedown with the 757s last quarter.

We look back 12 months. We told that, right, when we put the adjustment out for the 75s that we would be doing this. Technically, that's not what the agreement says. So you could argue we're violating status quo.

We'll be talking to the IBT and if they say that we can't do it, we'll deal with that at the time. But that's what the agreement says we can do, given our interpretation.

Okay, great.

And just the last one and this is probably for Scott. When you look at your growth and your unit costs, unit costs ex-fuel up in the March quarter. And, obviously, not a lot of capacity growth, but as we move through the year, the capacity growth really starts to pick up. It looks like the unit cost ex-fuel going to be down a lot in the second half.

And I'm curious about the ramp-up. It looks like it's a more shallower ramp-up. You're not seeing the lower unit costs until you get well into the third and fourth quarter.

Is that timing? Is there year over year? Is there some maintenance that's brought forward? Why does it seem like it's so back-end loaded?

As Jude mentioned, with single-digit growth in the first quarter, CASM growth is definitely picking up in the back half. If you remember, the front half of 2014 was loaded with a lot of operational issues, crew availability issues. We subleased or subserviced a lot of scheduled service lift.

We've been continuing to add to the infrastructure and we should start to see some scale as we go into the back half of the year. So, yes, to your point, on a percent basis, we should start to see a much larger decrease heading into 3Q and 4Q.

Great. Thanks, Scott.

Thanks, Michael.

Thank you. Our next question comes from the line of Savi Syth from Raymond James. Your question, please.

Good afternoon.

Just on the new routes that are being opened this year, could you talk about how many you expect, given the kind of return to this good growth here in 2015, just how many new routes you expect this year versus the past and what we should consider the potential impact from that to be?

The new market growth for the second quarter has already been announced, which is primarily happening in May for the summer period. And then, Savi, you're going to see another big large tranche of announcements in the fall as we like to do going into the Christmas period.

Are you talk about scale of markets or percentage of new markets as a total capacity more specifically?

Exactly, Jude. My guess is there's going to be a lot more new markets here in the second half versus maybe last year than what we've seen in kind of the prior years and does that put more pressure on unit revenue or it shouldn't have much of a significant impact?

No, it will put pressure on unit revenue.

I think the big thing to understand on new markets is that it takes some time to ramp. And so as we look at second-quarter guidance, one of the things that's negatively affecting that unit revenue performance is the newness of our markets.

So for the second quarter of 2015, about 11% of our ASMs are produced by markets that have been operated for six months or less. And to go back a year in the second quarter of 2014, that number was about 2.5%.

So, yes, markets ramp slowly and we're not prepared to talk about new markets in the third and fourth quarters. But the utilization growth that we're experiencing -- utilization is up about 10% as a result of airbuses and fuel prices. That will maintain itself through the third and fourth quarters and continue to put downward pressure on unit revenue.

That was my next question. I think last September, the average block hour was 13 -- I'm sorry, 3.8.

I'm guessing it's going to be much higher this September and therefore should help on the cost side as well? Is that maybe what's driving a lot of the second-half cost goodness?

I didn't follow the 13.8.

3.8, sorry. The average block hours.

Right, yes. We would expect to take that up significantly.

Okay. Got it.

And then just one last question on the fleet plan. I'm guessing, because some of the MD retirements, MD-80 retirements planned in end of 2015, 2016, are a result of the three A-320s that were announced. But I did notice that in the 10-K there was supposed to be four 757s by year end 2016 and now it looks like it will be five. Is that just a matter of timing or was there a change of thoughts around the 757 retirements?

You're talking about the year end 2015 numbers?

Year end 2016.

Year end 2016, we're guiding to four, right?

Okay. Because I think the press release says five, so maybe I should (multiple speakers).

Yes. That's just about an airplane that's going to be right on the border.

Okay. So timing.

The 31 of December.

Got it. All right. Sounds good. Thanks, guys.

Thank you. Our next question comes from the line of Andrew Didora from Bank of America Merrill Lynch.

My question on this new capacity is it's obviously putting pressure on your unit revenues while benefiting your unit cost, particularly in the back half of the year. Can you help give us a sense of how we should think about this incremental capacity on a margin basis? I guess particularly relative to your margin in the overall system right now?

Well, we made 33% operating margin, so everything is really good. And the new markets are accretive to earnings and, if they weren't, we'd cut them and do something else.

Now, the other thing to realize is that we would produce much higher growth in the first quarter and take down our operating margin and our unit revenues if we could have. But based on the availability of pilots, we loaded a relatively conservative schedule. Now that we're appropriately staffed, we can grow at a much more rational rate based on our margin opportunity.

Understood that it's earnings accretive, but are the new routes, are the new routes operating margin accretive?

No. They will be operating margin dilutive. The markets will have lower margin than the average system.

I guess bigger picture question here, near-term FAA issues aside, I guess as you lap some of the pilot availability issues you had last year, what do you view as a good longer-term capacity growth number, just given your current fleet plans and utilization opportunities? Thanks.

Sure. I think it's in the low teens based on seven airplanes added every year. We had some pentup growth that we're applying in the second, third and fourth quarters of this year, but with our used airplane strategy in pushing out some 757s and MD-80s, fleet growth is going to be around seven airplanes on the long-term annual average. Seven to eight, something like that. Mid teens. ASM growth.

Thank you.

Thank you. Our next question comes from the line of Helane Becker from Cowen.

Thanks very much, Operator. Hi, guys. Thanks for the time.

On Las Vegas specifically, I think the airport today said that the longest runway was reopening after some maintenance. How will that improve your cost going forward now with that runway reopening?

From a cost perspective, it's relatively neutral. Las Vegas costs, given kind of a flat to even declining capacity profile, we're not seeing much in the way of any sort of cost decrease.

I don't know if you have anything else to add.

I'd just point out that we're growing Vegas slower than the rest of our network. So proportionately it's shrinking and that's because we're right-sizing the base to balance opportunities we have elsewhere but also because of the cost increase due to terminal 3 which affected us several years ago.

You will see new markets coming into Vegas like Tulsa and Cincinnati and Indianapolis. But overall, the growth is clearly focused on the East Coast right now.

Okay, so that 50%, 51% or 52%-ish flying on the East Coast, where should we think about that going over the next year or so?

Very rough numbers, I would consider the East Coast to continue to grow close to 20% and you'll see Mesa growing, I don't know, 10%, and Vegas flat. For a midteen growth performance, you'd see almost all of it focused on the East Coast.

Okay. I

apologize, but I didn't have a chance to read the entire press release. Did you put in here the percent of your ASM sets produced by each of your three aircraft? If not, can you say?

I think the airbus flying was roughly 28%, 75s was maybe 8% and the remainder would be MD-80s.

Okay. Great. I think those were all my questions. Thank you very much for the time.

Thanks, Helane.

Thank you. Our next question comes from the line of Joe DeNardi from Stifel.

Thanks for taking my question.

Scott, on the unit cost guidance for the year, the change there, is that primarily the higher ASMs? And was the pay increase the pilots are going to see, is that reflected in the prior guidance or is that new?

It wasn't reflected in the prior guidance. The full-year change to the ex-fuel range, majority of that is related to the capacity increases that Jude alluded to.

Also we're expecting to get some better productivity out of certain groups. There are some other smaller items that are affecting that, but the capacity increases are a majority of it.

Okay.

Then, Jude, can you talk a little bit about the revenue initiatives that your team is working on and maybe to what extent the pilot scheduling system, the resources you're putting into that are impacting the progress you're making on some of those? And maybe also touch on the effect you're seeing from the credit card surcharge in the first few months?

First, most of the stuff we've talked about at our Investor Day. This is about pricing and merchandising better on our website for our air ancillary products. The most pronounced increase in air ancillary is just an increase in the convenience fees of $3 per segment.

But we're also continuing to see increases in other products like our priority boarding and [Triplex] products. We have a pay for check-in product that's now -- that's a year-over-year improvement. And also our seat-assignment revenue is increasing.

So across every category, and this may be the first quarter in a while, across each category, including buy-on-board sales, we've seen year-over-year improvement on unit revenue for air ancillary products. So these, I think, are structural and will continue maybe at a less rapid pace but nonetheless we'll continue to see good improvement there.

Okay. Then the CapEx increase for the year, I assume that reflects the three new aircraft?

Yes, that's airplanes.

All right. Thank you.

Thanks, Joe.

Thank you.

(Operator Instructions)

Our next question comes from the line of Dan McKenzie from Buckingham Research.

Good afternoon, guys.

I guess, first off, a housecleaning item here. It seems you're factoring in some kind of revenue book-away into your forecast. First, is that correct?

And secondly, if the labor case is resolved in your favor, is that a potential revenue good guide relative to the guide we're seeing today?

When you say book-away, are you meaning associated with the strike in the press?

Yes, that's correct. Just following up on an earlier question.

My 1 percentage point change in unit revenue for the second quarter comment was very conservatively based on the refunds that we gave for passengers during the weekend period of Easter that we offered refunds if they didn't want to travel. The book-away aspect of advances, fares that we're selling now and any change to those fares is very difficult to measure. We're not giving guidance with respect to that.

I see. Okay.

Kind of a CapEx related question here, when does the FAA surveillance go away exactly? Does it end when we get the court decision or does it linger after that for some period?

And I guess related to that, when we get back to a normalized operation, how many additional aircraft are you dealing in the market for looking ahead, say, this year and next? And I'm asking that to try to get a sense of what CapEx could be relative to the outlook we have today?

Dan, let me have Steve Harfst, COO, comment on your first part of your question.

Good afternoon.

Related to the FAA's position, related to the heightened surveillance they've put in place really nationwide related to the strike efforts of the pilots' union, we think this is going to be a short-term issue for them and we're going to be able to work through it, like Maury mentioned and Jude mentioned earlier in our release. We don't see any long-term effects of that. I think the judge's decision, which we expect out next week will provide some certainty and some stability into the situation and we think this is going to be easily resolved here in the next week or two.

On aircraft, we don't need any more airplanes through the back of 2017 other than those already committed to. Back of 2017. That's with no retirements.

We'd like to retire a couple MD-80s here and there. We'd like to go out and get some more A-320s. If the price and availability supports a more rapid transition, we'll do so.

Thanks, Jude. I guess that's actually my question.

Assuming you can continue to buy these things for $10 million apiece, would the appetite be for replacing five of those MD-80s or perhaps more or is there some way we can think about that?

$10 million, the economics are very powerful to support a transition away from the MD-80, even at this field size. Yes, if we could find them at $10 million in scale, we'd transition very rapidly.

There's some logistical and operational considerations about how quickly we can move, but there's no capital constraints on how quickly we can acquire airplanes. It's really about price and availability.

Got it.

Can you provide some perspective on those operational constraints that would limit, perhaps, how many you could deploy in a given year?

We're moving about as rapidly now as we can and so we committed to 15 airplanes since the beginning of the year. We'd like to maintain about seven airplanes of growth, as I said. So any transition would go over and above that. I would certainly be comfortable with, say, 15 a year and we could maybe stretch that a little higher.

And then there's the end-of-fleet consideration. If you get down to the very end of a dozen airplanes or so, it's probably not worth keeping them in service.

This is a long-winded answer to basically say it's about 15 airplanes a year, which 8 of them would be replacement roughly.

One final question, if I could squeeze it in here.

It looks like Allegiant raised $37.5 million debt in the quarter. Given the free cash flow story, why the liquidity boosts?

Is that tied to a scenario where things perhaps don't go your way? You clearly don't need the cash. Or is it perhaps some additional aircraft you're perhaps looking at currently?

Don't read too much into that, Dan. It's just 2% money. That's all.

Okay. Fair enough. Thanks, guys. Appreciate the time.

Thank you. Our next question comes from the line of David Fintzen from Barclays. Your question, please.

Good afternoon, everyone.

Just to follow up on a question from earlier. Jude, as you're moving into markets like Indianapolis, Pittsburgh, some of the -- I guess you wouldn't call big cities but bigger than you've done historically, do those develop faster or slower than that classic, very small Allegiant city?

Cincinnati has been our fastest growing city in the history of Allegiant. Our marketing team has done a great job.

I always was concerned about our ability to get word out into a bigger city like that and that hasn't been a constraint. A lot of these new markets, all of them are outperforming expectations and our network team just does a great job of continuing to find places to put these new airplanes. I don't see any constraint with growth out there on the network opportunity side.

And are you seeing -- because they are -- some of these would have more competitive dynamics than some of your other cities. Do you see -- I know it's early, so maybe you don't have the basis of history to judge this. Do you see a difference in how people are pricing against you with [low oil]?

In general we don't see a response from our capacity. Understand that we're very focused on peak demand profiles, whether day of week or seasonal. New Orleans we're flying it on a seasonal pattern.

All our big cities were less than weekly. So we're flying a weekend leisure profile. If you're flying twice daily like Frontier, it's very difficult to price against us because we're only flying when there's spill capacity, spill demand.

Got you, where people aren't talking about pricing weakness anyway.

In the Dakotas, if I sort of broadly look at it, is that a high single-digit ASM exposure? Are some of these north shale-type markets, are you seeing any impact there?

There's generally some weakness associated with markets with a high proportion of border, cross-border traffic. I'd more attribute that to the Canadian dollar weakness than weakness in shale production. And then also growth in hub markets like Salt Lake affecting Montana and the Dakotas.

But yes, generally we're seeing weakness in Montana, Dakota, Utah, on a relative basis to our other markets. But these markets are still producing really good returns.

On a relative basis, when the margin production is what it is, 20% margin, we're talking about weakness. That doesn't necessarily mean it's bad.

Right. (Laughter) That's fair.

Then maybe just sort of a bigger picture question on the pilots. Kind of get back to sort of the main negotiation for the contract, Maury. Who do you look at in the industry as sort of the benchmark or sort of the pattern?

How much do you sort out what's going on in some of the legacies planned in these negotiations, or is it all about Virgin, JetBlue, whatever happens with Spirit in their next negotiation? How do we think about those sort of the comps out there?

You can't ignore comps. We, having said that, have a very unique system that is unlike anybody in the world, literally. I think Ryan Air might be close to us. [Certainly US] where guys are in their bed, flight attendants are in their bed every night. It's out and back. It's a very attractive schedule.

Clearly though, we have to compensate people on a relative basis. When you're at the table, all those issues are brought to bear and you work through what the Company can afford, what the Company thinks is reasonable against what the demands are from the pilot group.

Clearly I think you segregate yourself when you look at our unit revenue, we don't have the revenue that Delta or American, United have on a unit basis, and as a result our cost structure has to reflect that type of expense base, per se. But when we started out in the early 2000s, our guys were making $50 an hour. I think with this latest change we'll be up to $160 an hour for our senior captain.

So we've certainly had a lot of increases over many years and typically in this industry, the numbers always tend to go up anyway. Stay tuned.

All right. Appreciate all that. That's all very helpful.

Thank you. Our next question comes from the line of Steve O'Hara from Sidoti & Company.

Hi. Good afternoon.

Hi, Steve.

If you could just talk, maybe quickly tell me what you're paying for fuel right now and then kind of all in? And then how much of that, the current price factored into your decision to grow or is it maybe based on your ability to source aircraft? Thank you.

We're currently paying around $1.98 a gallon on the East Coast. That's all in.

Plenty of planes out there, Steve, we're not having any trouble, particularly the A319. There's a lot of softness there. I don't think availability or price of aircraft will be a constraint for our growth.

We were paying $3.15 a gallon a year ago? That's a nice savings.

Okay. In terms of the ramp-up in growth, it was more hit the gas because the gas is lower now kind of thing and if you see any change in that, maybe you just kind of adjust the accelerator at some point if you need to.

Yes, utilization is going up 10%. That's 10 percentage points. That's half our growth. It's just airplanes are flying more often than we already had.

Thank you very much.

Thanks, Steve.

Thank you. Our next question is a followup from the line of Hunter Keay from Wolfe Research. Your question, please.

Thank you very much. A couple quick ones here.

I think you said the preliminary injunction hearing was next week. When is that specifically?

I think I either misspoke or you misheard, Hunter. The preliminary injunction hearing is done. Those were finished last Thursday. And the judge now needs time to write his ruling.

He hasn't stated what that will be. We expect he'll publish a ruling next week or as early as maybe the following week.

Sorry about that. Thank you. That's good.

And then, Jude, you talked about this seat-masking concept at your Analyst Day which is obviously driving some of the seat-assignment revenue here. I think you said at a time you had about a 65% take rate on seat assignments and you guys had just implemented the seat-masking concept.

So multipart question on this. Where did the 65% go to? How high do you want to take it to? And is this revenue sitting ancillary or is it in passenger revenue?

I'll answer the last question first. It's all in ancillary. It's in our air ancillary reports. Now, I think we're the best at this in the world, seat assignments, so I'm not going to get too open with you on this.

I guess my guidance would be that we're just starting to implement some of the -- being able to use some of the capabilities that IT has produced for us. So our masking strategy and our pricing strategy are very early and I think there's a lot of headroom there, so I think seat assignments are going to continue to drive ancillary, air ancillary revenue increases for the next several -- certainly for the next year.

I hear you. When you're talking about this stuff being sustainable and you're being optimistic about it, that's obviously part of it. I got you.

On the buyback, presumably you guys were blacked out during the noise with this pilot strike situation. The blackout ends tomorrow, is that correct?

That's correct.

Any reason to think that you guys would not perceive your stock to be very inexpensive right now at this point in time?

You know a good analyst we can ask? (Laughter)

Let me see if I can -- I don't know. Jamie Bickers, is he on the line? I don't know. (Laughter).

When you talk about the buyback here in the context of what you did last year, let me phrase it a little more broadly. Given the pullback we've seen here and what we're seeing in the cash flow -- CapEx guidance, I should say, any reason to think why the buyback this year shouldn't probably exceed what you did last year?

I think there's definitely opportunity just from free cash flow. Jude has a lot of unencumbered assets that he can go borrow against at very attractive rates.

We like where the stock price is at right now. I think it's buying opportunity.

We're basically bullish on the Company. Jude did some research and suggested this, as operating margins we hold the record now, at least in the US.

Very loose research. (Laughter) I can't find a better first quarter from a North American carrier. Maybe you guys can help me with that.

I've never seen a 40% EBITDAR margin before in my career, so. All right, well thanks a lot.

We don't have any reps, mind you. You guys --

I know. EBITDAR are stupid anyway. Thanks a lot, guys. (Laughter)

Thank you. Our next question is a followup from the line of Savi Syth from Raymond James.

Hey, guys. A quick question on the leisure demand.

Is the leisure demand that you're seeing today, if you can parse this out, do you think it's mostly a factor of the fare stimulation you're doing? Are you seeing strengths in the consumer where they might be using the lower fuel benefit they're seeing that they're spending or do you think that's more of a second-half story?

I would characterize the demand as stable. Markets where we have flight capacity that we've been in for a long time, generally speaking, are producing about the same revenue production as we would expect considering all the exogenous influences on fares.

Okay. That's helpful. Thanks.

Thanks, Savi.

Thank you, our next question is a followup from the line of Dan McKenzie from Buckingham Research. Dan, you might have your phone on mute.

Thanks for the additionally time, guys. Apologies for going back to yet another labor question here.

But if the decision doesn't go in Management's favor, what kind of cost implication are we really talking about and what have you assumed in the cost guidance?

We have not assumed anything in that sense that the judge suggests that we have not sustained our obligations under his PI at this point, Dan. We don't think that's a very high probability, if at all, at this juncture.

Okay. I understand.

So I guess just in terms of kind of the cost stake, is there some kind of perspective you can share? Sometimes the judges' decisions can be wildcard decisions. I totally agree and get what you're saying. But I'm just wondering if there's any way you could help us provide some color around that?

I'm not sure I totally understand. Unfortunately this situation is kind of a zero sum game. It's either business as usual or the IBT would call for another work stoppage. So at that point we're back to court to get another TRO to try and stop this.

Beyond that, assuming the Company is unable to fly its routes and its (inaudible) planes, certainly we'll have a different cost structure. More importantly, we'll have a different revenue structure. We'll have to cross that bridge when we get there.

There hasn't been a labor stoppage in this country since Spirit and if you go back 15 years, it's almost becoming, in the airline industry, very nominal at all, so I don't want to -- we've already made our forecast. We think we'll be in fine shape. Certainly we'll be reacting, if not.

Okay. Thanks again for the time.

Sure.

Thank you. This does conclude the question-and-answer session of today's program. I'd like to turn the call back over to Mr. Gallagher for closing remarks.

Thank you, Operator. Thank you all very much. We'll talk to you again in 90 days. Have a good day and thank you again. Call if you have any further questions.

Thank you, ladies and gentlemen, for your participation in today's conference. This does conclude the program. You may now disconnect. Good day.