Spirit Airlines Inc (SAVE) 2011 Q3 法說會逐字稿

Welcome to the Spirit Airlines' third quarter earnings call. My name is Sandra, and I will be your operator for today's call. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session.

I will now turn the call over to DeAnne Gabel. DeAnne, you may begin.

Thank you, Sandra. And thanks to all of you for joining us this afternoon, and welcome to Spirit Airlines' third-quarter 2011 earnings conference call. Presenting today will be Ben Baldanza, Spirit's President and Chief Executive Officer, and David Lancelot, our Chief Financial Officer. Also joining us are Chief Marketing Officer Barry Biffle, Chief Operating Officer Tony Lefebvre, and General Counsel Thomas Canfield. Ben and David will discuss our third-quarter results and current business trends. We will then open the call for questions from analysts, followed by questions from the media.

Our remarks during this conference call will contain forward-looking statements, which represent the Company's current expectations or beliefs concerning future events and financial performance. Forward-looking statements are not a guarantee of future performance or results. Forward-looking statements with respect to future events are based on information available at the time those statements are made and/or management's belief as of today, October 27, 2011 at 1.00 PM, and are subject to significant risks and uncertainties that could cause actual results or performance to differ materially from those reflected in the forward-looking statements, including the information under the caption, risk factors, included in our 10-Q dated July 27, 2011 filed with the SEC. We undertake no duty to update any forward-looking statements.

In our remarks today, we will be comparing third-quarter 2011 results to third-quarter 2010 pro forma results excluding special items. Please refer to our third-quarter 2011 earnings press release for further details regarding our assumptions for pro forma results, and for the reconciliation to the most directly comparable GAAP measure for non-GAAP measures discussed. Unless otherwise noted, when we discuss our results for the quarter, we will be excluding special items such as restructuring and termination fees, loss on disposal of assets, and unrealized mark-to-market losses or gains on fuel hedges. Again, these special items, as well as our pro forma adjustments, are detailed in our earnings release.

And with that, I'll turn it over to Ben.

Thank you, DeAnne, and thanks to everyone for joining us on the call today. We had an excellent third quarter, and I want to thank all the hardworking Spirit employees for their contributions. In the third quarter, we liberated several new city pairs from high fairs by adding a few more dots to the route map, and more importantly, compared to last year, we grew our capacity by 10.4% while maintaining industry-leading margins, and increased our operating income and net income by over 100%. Our net income for the third quarter was $28.6 million, or $0.39 per diluted share.

We achieved an operating margin of 16%, and an EBITDAR margin of 26.8%. Total operating revenue increased 41.8% year over year to $288.7 million, primarily driven by increased traffic volume and our non-ticket revenue per segment, which increased to nearly $45, up $10.40, or more than 30% year over year. Our traffic increase of 15.6% once again outpaced our capacity increase, resulting in a third-quarter load factor gain of 3.8 points to 87%. Our low fare transparent pricing model is increasingly understood and appreciated by a large and growing segment of the traveling public.

During the quarter, Hurricane Irene caused us to cancel 122 flights. However, we were able to recapture the majority of this revenue. In the days leading up to and immediately following Hurricane Irene, we did experience some book-away, but the impact was not material on the quarter.

The capacity deployment changes we made for the quarter did, as expected, lessen the seasonality of our network. At the end of the third quarter, we had about 48% of our capacity operating to and from Fort Lauderdale, down from about 54% at the end of the second quarter. However, you'll see Fort Lauderdale expand in the fourth quarter as we enter the peak Fort Lauderdale season. We'll continue to review and adjust our capacity deployment based on demand, fuel prices, and other factors in an effort to maximize profits.

The new markets we liberated from high fares this quarter fully met our expectations, and, as indicated by our strong results, same-store sales performed well too. Among a number of positive things that benefited our strong year-over-year revenue performance was the surprisingly rapid spool-up of the new markets launched this summer toward maturation, much quicker than our historical experience. This is further evidence of the increasing popularity of Spirit's business model.

Our ancillary revenue per segment also improved year over year, partly driven by new initiatives as well as the maturing of initiatives already in place. New initiatives in the last 12 months that helped drive this performance included the introduction of our carry-on bag fee in August last year, and enhanced checked baggage pricing. We are focused on continuing to enhance our ancillary revenue. There are several ways we believe we can accomplish this. And one of those is from getting a bigger piece of the consumer's travel budget by offering non-air products and service, such as those offered through our dynamic packaging product, which we launched in the third quarter. Dynamic packaging allows us to offer savings to our customers while also allowing us to capture a bigger piece of the travel pie. Dynamic packaging seamlessly integrates the option to purchase hotels and cars into the flight booking path. This program is still in its infancy, but we are pleased with the initial rollout.

We are committed to keeping prices low for our customers, which is why we, and other airlines and some industry organizations, have joined together to appeal certain aspects of recent DOT rule making that we believe will substantially raise the cost of air travel to consumers, and hinder industry growth. We have also committed substantial resources to achieve compliance with the new regulations in the event our appeal is not successful. We continue to believe the cost to consumers of some of the new regulations, including new rules that are in progress, significantly outweigh the asserted benefits. Given the powerful catalytic effect air travel exerts on general economic activity and employment, we look forward to working with regulators and key stakeholders alike to maintain the benefits of a deregulated industry that offers low prices and a spectrum of choice to the consumer, while also promoting consumer transparency and a level playing field among carriers.

Forward bookings remain strong as we have seen all year, and as a result of the continued demand strength, we raised fares $5 last week system-wide. For the fourth quarter, we are expecting capacity to be up 5.6% year over year. As a reminder, our recent network reorientation that helps balance the seasonality of South Florida has resulted in lower average stage length. Our average stage length for the third quarter was 909 miles, down 3.3% year over year, and we estimate it will be approximately 885 miles in the fourth quarter, about 7% less compared to the fourth quarter last year.

We currently have 35 aircraft in the fleet today, and plan to grow to 68 by year-end 2015, with annual capacity growth of 15% to 20% for the next few years. We are committed to growing only if we can do so profitably. We have identified over 300 markets in the Americas where we believe we can cut existing fares by 25%, stimulate demand, operate profitably, and based on our current cost structure, maintain our current level of EBITDAR margins. It would take us about 140 aircraft to serve all these routes. So, with only 33 aircraft currently on order, bringing our total at year-end 2015 to 68, we feel confident about having an abundance of profitable growth opportunities. We will also remain disciplined in adjusting capacity in order to meet or exceed the aggressive financial hurdles we have set.

Before I turn the call over to David, I'll share a few comments regarding the status of our flight attendant negotiations. We're continuing to negotiate with the flight attendants, and have regular joint meetings scheduled with a federal mediator. We are committed to reach a contract that is fair to our flight attendants. Under the Railway Labor Act, they would not be permitted to declare a strike, or take any other unilateral labor actions, unless and until the federal mediator formally releases the union and the Company from negotiations, and a subsequent cooling-off period expires. We believe it's best to keep the negotiations at the table, and therefore, do not plan to comment beyond this.

With that, I'll turn the call over to David to discuss our cost performance.

Thanks, Ben. Turning to the cost side of the ledger, in the third quarter our economic fuel cost per gallon increased 42.2% year over year, with higher fuel rates accounting for over 50% of the increase of our total operating expenses. Excluding fuel, our CASM increased 5.9% year over year. As mentioned in our press release, the impact on ex-fuel CASM for the quarter due to a shorter stage length year over year was worth 1.8 points. Other primary drivers behind our ex-fuel cost increase in the quarter was higher maintenance expense and higher distribution costs. We expect maintenance expense to continue to increase as our fleet ages, however, on a unit-cost basis, this increase will be partly offset by maintenance [holidays] as Spirit adds new, more efficient aircraft to its fleet.

Last quarter, we mentioned we had 10 aircraft that will be performing out-of-cycle bridgework to align them with the core maintenance program of the rest of our fleet. The impact is primarily just a timing difference as to when we perform the maintenance, and in the third quarter we completed two of the aircraft, which drove an additional $300,000 of maintenance expense. We expect to complete the remaining aircraft in the fourth quarter, and expect the associated expense of this bridgework will be about $600,000. Maintenance during the third quarter also increased due to higher number of unscheduled one-off events that increased the costs about $1.5 million.

We expect to see maintenance-related pressure on depreciation and amortization line as well, due to higher number of heavy maintenance events that, under the deferral method of accounting, will be capitalized and amortized over the lifecycle of the event once it's performed. This pressure will exist over the next two years as 28 of the 35 aircraft are scheduled for heavy maintenance events between now and mid-2014. We estimate the impact from an amortized heavy maintenance events on the fourth quarter will add approximately $1 million of additional amortization. And for the full year of 2012, will add $13 million of amortization.

The increase in distribution costs was driven by higher credit card transaction fees, which correlate directly to the higher revenue, and an increase in third-party travel agents as well. As mentioned in our release, the revenues received from sales through this channel more than offset the incremental cost.

For the fourth quarter, we estimate our ex-fuel CASM will be up 5.7% to 6.6%, as compared to the fourth quarter of 2010, with our full year ex-fuel CASM about flat. As Ben mentioned, our stage length will be down 7% year over year in the fourth quarter, which does have a negative impact on our unit cost. To give you an idea of this impact, our fourth-quarter 2011 ex-fuel CASM would only be flat to up 1% year over year if adjusted to our fourth-quarter 2010 stage length.

Turning now to fuel. For the fourth quarter, we estimate our economic fuel price will be $3.23 per gallon. Our greatest risk exposure from increase in fuel prices is within our booking curve window. To mitigate those risks, we have recently layered on some new, near-term hedges in the fourth quarter of 2011, and for the first quarter of 2012. We have approximately 48% of our fourth-quarter 2011, and 22% of our first-quarter 2012 projected fuel volumes hedged using jet fuel collars. Additional details are included in the investor update we filed this morning.

Our cash position remains strong, and we ended the quarter with $351 million of unrestricted cash. During the quarter, we reached an agreement with our largest credit card processor to release the credit card hold back, and as a result, we currently have no hold back requirements and no restricted cash. Further details are in our 10-Q, which we plan to file with the SEC later this afternoon. Year to date, we've generated $149 million of cash flow from operations, of which approximately $73 million was related to the decrease in restricted cash due to the release of the credit card hold backs. I'll close by saying that we are very pleased with the progress that we have made on our cost structure, but we remain focused on seeking opportunities to further lower our costs.

And with that, I'll turn it back over to Ben.

As I've commented before, the Spirit model is different from most other airline models, at least in this side of the world. Spirit is not for all travelers, and we don't pretend that it is. Our product is our price, and for people who have the desire to travel, we offer them the opportunity to save money with low fares -- it's that simple. As we grow, we will remain committed to giving our customers the power to save by offering low-based fares, and committed to growing profitably, delivering a return our shareholders should expect.

Now I'll turn it back to DeAnne.

Thank you, Ben. Sandra, we are now ready to begin the question-and-answer session with the analysts.

Thank you. We will begin the question-and-answer session. (Operator Instructions) Hunter Keay form Wolfe Trahan & Co.

Thank you. How are you guys?

Hello, Hunter.

Do you guys track enforcement and or compliance levels with some of the carry-on fees? I'm wondering if there's any areas for opportunity for improvement there within the existing fee structure to increase the revenue?

Well we've monitored it, and I wouldn't say that there's no opportunity, but there's a lot of issues that relate to when you dig into if something was waived or if you dig into it, you generally find that there was some kind of operational issue at the time. So we haven't found any material amount of money that we're living on the table from a compliance perspective.

As you probably know, Hunter, that fee is tied into the way we board people on the airplane. And we board by zone. And the only way you get a zone 1 boarding pass on Spirit is to buy a carry-on bag. And so it's very easy for the gate agent, anyone with a zone 1 boarding pass can carry-on a bag that would have been paid. Anyone without a zone 1 boarding pass, it's very easy to spot if they have a bag that's too large.

Yes, no I know, I've done it and I pay for my checked bag. How has American, well mostly American and also to a lesser extent Southwest responded on some of the Chicago, Dallas flying? Have they tried to match you? Have they tried to sort of bully you out? And have you-- would you describe their efforts to do so as futile? And do you also think you're stimulating traffic like you thought you would?

Well this is Barry, I'll answer that question. So in Chicago I would say that if you look across the spectrum, not necessarily any particular competitor, but other carriers have lined up with our fares or had similar fares. However, I think what you find is that when you are in high load factor markets, if you match our fares, that's generally just going to mean that the competitor is going to fill up sooner and spill to us later. So when you stimulative situation like we're in, take some of these routes where we've dropped the fares in half or more, the market size is growing substantially. So I don't know if I call it futile, I think that's a little abrasive.

But it's just a fact of what's happened, and you can go back in time, whether it be Southwest 30 years ago or Ryanair in Europe, you see this over and over again. And I think that's what we're seeing. We're seeing-- as long as we're hitting markets where we can drop the fare materially and stimulate new traffic, we can win one of two paths. We can win by a carrier matching our fares and filling up too soon, or we can win by just stimulating new traffic and leave them alone. Obviously, I don't do revenue management for those other carriers, but the bottom line is, yes, we are going to win because of our cost structure and the popularity of our model. And what it does to the other carriers is really the question for them.

Okay. Thanks, Barry.

Bill Greene from Morgan Stanley.

Hi there, good afternoon. Barry, can you share any comments about sort of trends quarter to date as well as maybe a same-store sales RASM for the third quarter?

We don't break out same-store sales publicly. As far as bookings to date, we've continued to see strong bookings and we'll actually, Ben mentioned awhile ago, we did raise fares last week $5, and that is still in place. Again as far as same-store sales, I think you can see we have a relatively small network I think from the outside looking in. You can see that roughly a quarter of our capacity was put into new markets. And if you look at our RASM being up 28%, you can say that that's almost more than the new capacity. So across -- we believe across both our existing same-store sales as well as the new markets, they both performed above average.

As you'd expect, Bill, this is Ben, as you'd expect, if you pull down some capacity on what was last year's capacity base to help fund some of the new flying, that capacity has performed a little better as well. That's kind of intuitive, I would think.

Yes, yes. When you guys look at the ancillary trends, I know you've got some things that were still lapping here in this third quarter, but when-- should we think of it being in relationship to the total fare, is there a law of large numbers that's going to kick in? When's this growth rate get to a point where we just -- it's just got to slow?

This is Ben, I'll answer that. I tell you it really depends on how effective we can be at sort of becoming the sales agent for bigger pieces of the total travel budget. Again, in the new dynamic packaging we just launched, we're now selling cars and hotels on our site. We estimate that a large percentage of our customers stay in hotels, but we've not tended to sell them any of those hotels. They're not spending more money when they buy from us, but we collect a little more revenue as part of a-- being part of the distributional chain. So a lot of it really depends on how that could be. Increases in our ancillary revenue per passenger doesn't necessarily mean that that individual passenger on that flight is paying more than they would have paid if it comes from a source like [Dot] or if it comes from the source of somebody putting ads on our overhead bins, for example. That's ancillary revenue we can divide by the number of passengers, but that's not coming out of the passenger's pocket.

The other comment I'll make on that is almost independent of what you want to believe the change in ancillary is going to be, we tend to look at total RASM. And certainly, we like the idea of growing ancillary so that we can lower base fares even further, stimulate more traffic and grow markets even faster. However, in the event that ancillary doesn't grow at a greater rate than maybe we think or something might happen, all that means is that the base fares won't drop as quickly. So we can manage-- we managed the total RASM and use ancillary as a lever within that.

Yes, no it makes sense. On the expansion, Dave, will there be a mismatch between when you have to hire folks and when the aircraft come in and become profitable? Do we have to think about sort of lumpiness in a CASM, RASM mismatch next year? Thanks.

Bill, maybe a little bit, but for the most part in some of the markets that we're adding, we already have an established presence so we already have employment located or to the extent that we outsource, it's-- there's not a mismatch in timing. We do spool up the crew costs so pilots and flight attendants in advance of when a market may start. So you'll see a little bit of a disconnect between the crew labor side, but that's about it from a mismatch between that and when you start to see the markets perform.

Okay, very helpful. Thanks, guys, for the time.

Thanks, Bill.

Jim Parker from Raymond James.

Good afternoon. I want to follow up on Hunter's question about you going into these overpriced market that are dominated by legacy carriers cutting the fares 25%. So here's what I want to know, what disciplines do you have on the number of flights or the amount of capacity you put in those market to keep the legacy from having to come after you? Okay. Now, one of the I guess the most obvious historical examples of a legacy carrier doing something totally illogical was Delta starting Song, okay, largely to compete against JetBlue. So while it had a terribly big impact on Delta, it actually had a very negative impact on JetBlue. So I want to know kind of, do you have your own disciplines in terms of flights and capacity to keep the legacy from having to deal with you?

Jim, let me answer that. I think there's two ways -- there's two answers to that question. One is we absolutely have the disciplines internally to ensure that we expect every airplane we fly to make money and we have high financial hurdles for everything we fly. And when things don't meet or exceed those hurdles, we are aggressive about reallocating capacity to make that true. We do that in a normal environment just to adjust for seasonality, and we will do that in new markets as well. However, we are only adding to stimulate, and when we grow the market with lower fares, we tend to put in capacity equal to what we believe the stimulation will be to carry that growth, not to steal share from an existing legacy carrier. So we believe we can enter many of these markets and not affect the traffic levels of the big guys at all as long as we size our capacity for the amount of stimulation we're creating which we try to match very closely.

The other comment I'll make specifically related to your Song, JetBlue, Delta comment, it is that Spirit does not build its airline to attract a business clientele. We carry, unlike most airlines who-- think about a product feature and try to attract individuals for the product they're offering and get them to pay something for that product, we take a different view of the world. We just say we're going to have the lowest price point possible and we'll let customers queue up for that based on their propensity to care about price for their trip. Because of that, when we enter some of these bigger historical business kind of markets, we're not really attacking or-- the kind of revenue base that is threatening to the big carriers. And that might -- it's your call as to whether or not JetBlue may be different than that. So for all of those reasons, we think that it kind of works a little better for us.

All right, guys. Thanks.

I might add, this is Barry, if in that dynamic that you're mentioning, not only were they threatening going after their business customers, in that particular case, these guys had a lot of frequency. They were going after a full market share play. And that led to an over concentration of their network in a handful of routes. So when you think about if someone -- if you're suggesting that there's a potential that somebody wanted to do a Song against us, our approach by only going after the stimulative capacity means that we have a very flat scope service. We have a lot of scope of service relative to our size. So in order to do the magnitude that Song did to JetBlue, it would take a lot more in capacity when I only have one or two flights in most of these markets.

Okay, guys. It sounds like you do have some discipline. Good.

We certainly think we do, Jim.

All right. Thanks.

Will Randow from Citigroup.

Hi, guys and DeAnne.

Hello, Will.

This question may be for David and Barry. I was wondering is there was any reason why unit revenue for the fourth quarter may fall from the third quarter considering stage lengths should be down about 3% of flight departures, and as you mentioned, you just pushed through a fare hike?

Well Will, we're not-- we don't give forward revenue guidance and so there's certainly seasonal things that happened between the third and fourth quarter. There's some things that happened in the third quarter like the new route startups and things that may have uniquely affected the third quarter. But we don't give revenue guidance into the fourth quarter at this point.

Understood, understood. I had to try. I'm going to try ask this question a different way. How is your new capacity performing relative to the system from a pretax margin perspective? And are you seeing any erosion in pre-existing capacity in terms of pretax margins? The reason I'm asking is JetBlue mentioned yesterday Spirit's capacity is down 29% on JetBlue's markets for the fourth quarter.

Well, that's interesting. But the-- basically we don't break out the by market margins, but as we said, the new markets are performing well. But if you look at the total performance, there's no way to get all that performance just from the new markets. The same-store sales are doing well also. And as I mentioned to Bill Greene, some of the growth that we have -- some of the new market growth that we have year over year, some of that is from new aircraft, some of it is from reallocation of capacity of last year's network. And of that capacity that reallocated for last year's network, everything [becoming] capacity left to those markets all performed better in general as well.

Got it. And just a quick cleanup for David. Your unrestricted cash balances are healthy at about 35% of trailing 12-month revenues. How should we think about potential uses of cash going forward, would consider taking some cash out of the balance sheet and possibly use a revolver as a backup facility? And lastly, is there any dry powder to raise incremental cash?

So your first question as a percentage of trailing 12-months revenue, for 2012 we're going to have the same working capital and CapEx type needs. So when you look at the fact that we're in a taxpayer position, we are going to have some cash taxes that we have to pay out. We still have a significant amount of prepaid maintenance as it relates to the lessors. And we have a PDP stream that we have yet to finance, which I guess would be a potential or a possibility to finance or raise additional money. Right now we've anticipated and modeled that as coming out of our own pocket. So I guess in short, yes we do see some potential for raising additional cash on a go forward basis. And then what was your third question, I'm sorry?

Just in terms of is there dry powder there to raise incremental cash? Because most of your assets obviously are leased.

We're looking at it. We're obviously looking at how we can best utilize this balance sheet and lower the incremental borrowing costs and use the cash to generate lower cost that a high cost balance sheet caused us in the past and to get the best return on our investment. So we are going to look at whatever makes sense on the go forward basis. And given the capital market, there's -- I do think that there's availability, and we'll continue to seek out those opportunities as the year progresses.

Thanks for the time, and great quarter, guys.

Thanks, Will.

Gary Chase from Barclays Capital.

Hello, everyone. Wanted to just ask a couple. First, Ben, I think it was you in the prepared remarks said the new markets that you have approached with this reallocation are spooling faster than what you've seen in the past. Could you just remind us what you think of as the historical lead time for maturation?

Well historically because of our model and because when we enter a market we tend to lower the prevailing price by 25% or more, that's our MO, we've always seen quicker than sort of legacy airlines spool up. But generally we've given a market 60 to 90 days to be cash accretive and maybe six months or so to be fully allocated, accretive. And we've just seen the newer stuff this year. Maybe it's a function of the environment, maybe it's a function of the fact that fares are higher everywhere, so low fares are more attractive. Maybe it's a function of the fact that people understand our business model more and we're a little more popular because of that. For all of those things, just the things we've entered this year have just moved at a much faster pace than we've seen historically.

And I guess one of the questions I have is, some of these markets are young enough where I guess what I'm really asking is, how do we know they've fully mature yet?

Well I guess we-

Is it plausible, and you see the data, I'm just asking if it's plausible that maybe this reallocation was the better fit for your capacity. Is that a possibility?

Well, that might be a little bit of a stretch. We pick where we're going to add flying. Whenever we have new capacity deployed, that could be a new airplane coming, and we have airplanes being delivered, as you know, or whether that could be the reallocation of some capacity that may not be meeting its hurdle, whenever that's the case, we're always going to try to deploy that in a place where we believe it's going to make the most money. And we don't tend to look at international boundaries as a constraint within that. And we just tend to say, where can we stimulate traffic with lower fares? So I don't think it's necessarily a better fit. I think it's the fact that the business model fits in a lot of places that we are not yet, so picking the next best of those should continue to return kind of positive results. I mentioned in my scripted comments, that in the Americas we see over 300 different city pairs in the broader America from Canada through northern South America, where the opportunity to lower the fare by 25% or more and still return our kind of margins at today's cost structure is doable. So shame on us if we can't reallocate these things and still make money with them.

Okay and can you give us a sense of how the different Americas are performing for you? How are things looking south of Fort Lauderdale versus north?

We don't break that out usually, and we don't disclose that normally, but I will also say that internally we don't have any different hurdles for where an airplane flies either. We'll look at Fort Lauderdale to Santo Domingo in terms of the financials. We expect from that the same we'll look from Detroit to Laguardia.

Would you be willing to say in terms of year-on-year change?

I don't know we're just-- in general, we're just very pleased with the performance of the whole network. And if there's any parts of the network that we're not happy with, you will see changes in capacity to fix that problem.

I might add, Gary, remember, we make sure that every routes profitable, and there has been a pretty impressive increase in fuel prices year over year. To Ben's point, if there's any parts of our network that haven't appreciated the benefit of the RASM across the system, then we've made changes. So you can assume that everything is working from that perspective or we'll pull it.

Okay. And just last, on these new ancillaries, is there any cost that we should be thinking will come from -- obviously, there's going to be a product cost, but I'm wondering if, like for example, if I reserve a car and the reservation gets botched, how does that work? Is there any cost of sort of fulfilling and meeting these obligations that we need to be aware of?

Our-- we'll be doing very similar to Allegiant, so you'll see the cost of those bookings, so the hotel, the car and so forth will be netted out. There are some, obviously some incremental costs to managing that and the technology and so forth, but that's no different than our $9 Fare Club or any of other products and services that we have.

Okay, so nothing significant. Okay, thanks, everyone.

Thanks, Gary.

Helane Becker from Dahlman Rose.

Thanks, Operator. Hi, guys, a quick question. Just wanting to know what the response to your credit card offering has been? I think that started in the last few months and just wondered what your acceptance rate was and anything you can offer in that regard?

Yes, so this is, Barry. For those of you on the call that don't recall, we did change over our Barclays card. That program ended early this year, and we launched the new Bank of America free Spirit MasterCard in April. And we're very pleased with the results so far. We actually did a mega mile tour, we call it I believe, in the spring and we went to most of our cities in the US and kind of re-introduce a new product to them. And the product offers 15,000 miles upon successful application, waves the annual fee the first year. And with our award structure, you can travel as little as 5000 miles on our on-peak awards. So it's a very attractive product given that you can get up to three free flights. So as you can expect the take rate has been very good, especially with Bank of America. They have a lot of retail presence, and we've seen a lot of benefit from their overall full customer complement and how that's reinforced the sales of the product. But we don't break out the specifics.

Okay, all right. Well that's very helpful. That was my only question. Thank you.

Thanks, Helane.

Sandra, we have time for one more question from the analysts.

Glenn Engle from Bank of America Merrill Lynch.

Hi, good afternoon. Can you go over again the changes in the DOT display rules, what you have to do for that, what would an average fare go up in terms of -- I know it doesn't go up in actual cost but goes up in the consumerized and just what you think that impact will be on you?

Well, at this point, that has been delayed to January at this point. And obviously, we have protested that. But we believe today that we are-- we don't necessarily comply with the letter of that ruling, but we do believe we would comply with the spirit of it, in that the customer sees the price, but it could be as little as $20 for a domestic ticket, and it could be over $100 for an international, if that is-- goes into effect.

And if it goes into effect, what type of impact would it have on your sales, do you believe?

Well, we don't know. This is Ben, we don't know, Glenn. Clearly higher fares probably mean that there'll be some reactive elasticity. Although as you said, the total cost to the consumer isn't increasing. So it's more-- when there's a change in reference price what people see per what they perceive as the price whether some people won't even go shopping if they think the fares are too high. But we just really don't know what's going to happen as a result of this. And again, Spirit's fares today with taxes and with options are on average lower than other carriers, that reality won't change. So again, if you look at other things that have raised the fares for consumers, like higher fuel prices and such, in that environment we've seen a larger, larger percentage of the population that is interested in the cheapest fare to get from A to B. So if there's this perception that fares are going up on everyone, our model, again, is going to continue to be attractive.

Thank you.

Thank you, ladies and gentlemen, this concludes the analyst and webcast portion of our call today. After a brief break, we will begin the media Q&A session. One moment, please. Ladies and gentlemen, thank you for your participation. You may now disconnect.