Spirit Airlines Inc (SAVE) 2013 Q2 法說會逐字稿

Welcome to the second-quarter 2013 earnings release conference call. My name is Adrian, 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 Gabel, you may begin.

Thank you, Adrian, and welcome to Spirit Airlines second-quarter 2013 earnings conference call.

Presenting today will be Ben Baldanza, Spirit's President and Chief Executive Officer, and Ted Christie, our Chief Financial Officer. Also joining us are our General Counsel, Thomas Carfield, Senior VP of Human Resources, Jim Lynde, Vice President of Pricing and Revenue Management, Graham Parker.

Our remarks today 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 were made, and/or management's belief as of today, July 24, 2013, and are subject to significant risks and uncertainties that could cause actual results or performance to differ materially from those reflected in the fourth looking statements, including the information under the caption Risk Factors included in our 10-K for the year ending December 31, 2012, and subsequent quarterly reports on Form 10-Q. We undertake no duty to update any forward-looking statements.

In our remarks today, we will be comparing the second quarter 2013 to second quarter 2012 results, adjusting all periods to exclude unrealized hedge gains, losses, and special items. Please refer to our second-quarter 2013 earnings press release for further details regarding our assumptions for the reconciliation to the most direct comparable GAAP measure, or are non-GAAP measures discussed.

Now I'll turn the call over to Ben Baldanza.

Thanks, DeAnne, and thanks to everyone for joining us.

Today, we reported our second-quarter profit increased 29.6% year-over-year to $45.8 million, or $0.63 per diluted share. Operating income grew 29% to $72.6 million, resulting in an operating margin of 17.8%, or a year-over-year improvement of 1.5 percentage points. And our pretax margin for the quarter was also 17.8%, the highest second-quarter pretax margin in our Company's history.

In the second quarter, we liberated over 3 million passengers from high fares and added average base sale of only $77.51. We are pleased that even after they add the extra options they care about, our customers almost always pay a total price that is less than what they would pay on other airlines.

Revenue for the second quarter increased 17.6% to $407.3 million, compared to the same period last year. Our RASM decreased 2.8% year-over-year, due in part to the calendar shift of Easter occurring in March of this year, as compared to in April last year.

During the second quarter, our ancillary revenue per passenger segment increased $1.96 year over year to $53.43. The increase was primarily driven by various changes to the pricing structure for ancillaries, such as advanced purchase restrictions on bags. On a sequential quarterly basis, first-quarter 2013 to second-quarter 2013, our non-ticket revenue per passenger segment decreased, primarily because we lost a lot of new markets, in the new markets we initially track customers via third-party channels, which are not as effective at selling ancillaries as our own website. I'm pleased with how our new markets are performing, and as evidenced by our strong results, our core markets also continue to do very well.

Operationally, it was a challenging quarter, and we were impacted by an unusually high number of storms. When operational disruptions occur, it is more difficult for us to recover than typical hub and spoke carriers. We made some infrastructure changes, such as adding more daylight flying, which provides for more efficient maintenance time with the aircraft. We also allocating our spare aircraft time differently throughout the system, and we are growing our new crew and maintenance bases in both Chicago and Dallas.

We understand the stress points in our system and are making changes that will help us to better recover from operational disruptions, without compromising our high asset utilization model. I want to give a special shout out of thanks to all of our hard-working front line team members. They're doing a terrific job managing through a very heavy travel period, which has been complicated by adverse weather, and I thank them for their hard work and commitment to serve our customers and run a safe airline.

During the second quarter, we announced an order for 20 new Airbus A321 aircraft with delivery scheduled between 2015 and 2017. We've also elected to convert 10 of our existing A320 aircraft orders to A321s, with delivery scheduled in 2017 and 2018. The A321 is a great fit for our fleet network strategy, and it nicely complements our fleet of A319 and A320 aircraft. These changes, together with extension of some of our A319 leases, which Ted will discuss in further detail, produce expected capacity growth, in line with our target for the next several years, and will help us to further lower our unit costs.

As our investors understand, we do things differently, and succeed. We also want our workforce and customers to understand why we do things the way we do, and we have continued our communication efforts to do just that.

Looking ahead, we expect our third-quarter and full-year capacity to increase 21.9% year over year. We expect the strength in demand we experienced in June to continue throughout the summer. Closing booking volume and yields have been strong.

In addition to a favorable demand environment, we're also seeing a change in the seasonality of our network. Over the last several years, we have diversified our network footprint, with most of our recent growth being in the Western part of the US. Our North/South roots are still a very important part of our network, but as we have diversified our network, we have seen a trend toward more seasonal strength in the Spring and Summer periods, versus Winter and Fall.

We remain very specific about when and where we add capacity, and due to the type of customer we target, we have the luxury to be much more flexible than our peers in shifting capacity to follow demand. So while it's very early in the quarter and we don't have much visibility in September yet, we feel pretty good about how the third quarter is shaping up.

And now, here is Ted.

Thanks, Ben, and again thanks to all of you for joining us today.

I join Ben in recognizing our team for doing a great job, managing through what has been a challenging operational environment. Our load factor for June averaged over 88%, and we are on track to top that in July. In the second quarter, our total operating expenses increased 15.4% to $334.7 million, primarily due to fuel and other direct expenses, related to a capacity increase of 21%. Excluding fuel, our CASM decreased 0.8% year over year to $0.06, in line with our guidance for the quarter.

One of the drivers of the decrease was lower aircraft rent expense. During the quarter, we entered into lease extensions covering 14 of our A319s, at rates that reflect our improved credit position, compared to when the original leases were negotiated. The reduced rent for the extended period is spread over the entire remaining lease term which provides near-term cost benefits.

Last year, we had start costs related to our seat maintenance program, which we did not have this year. And we had fewer operational disruptions relates to unscheduled maintenance events, which drove lower passenger re-accommodation expense, which is recorded within other operating expense. The aggregate decreases in the quarter were partially offset by higher depreciation and amortization expense related to amortization of heavy maintenance events.

In the second quarter, we reached a preliminary agreement with Pratt & Whitney and IAE to power and maintain the A320neos and remaining A320ceos we have an order with Airbus. The maintenance agreement will also cover the five A320neos previously announced that we plan to lease from ILFC. The first of those neos is scheduled for delivery in 2015, with the remaining deliveries scheduled for 2016. Our neos, on a firm order with Airbus, are scheduled to begin arriving in 2018.

During in the quarter, we took the liberty of one new A320, and ended the quarter was 50 aircraft in the fleet. We also took delivery of an A320 earlier this month, and have three additional new A320s scheduled for delivery before year-end. In regards to the seven A320 aircraft scheduled for delivery in 2014, we have reached preliminary terms with operating lessors for the sale and lease back financing of these aircraft, and are working on definitive documentation.

We ended the quarter with $525 million in unrestricted cash, and with no debt on the balance sheet. We plan to leverage our strong cash flows to fund our growth opportunities and optimize our cost structure. Looking ahead to the third quarter, we estimate CASM ex- fuel will be down 2% to 3% year-over-year. For the full year, we have lowered our estimates for 2013 aircraft rent and depreciation and amortization to $170 million and $35 million respectively. These benefits are offset by several cost pressures, including the estimated impact on crew and training expense, as a result of the revised crew rest and duty limits recently announced by the FAA as part of FAR 117, which will take effect in January 2014.

We have also updated our view of healthcare-related expenses, which have been trending higher than originally anticipated, and revenue-related expenses, which have also been trending higher. After channeling the puts and takes, we are comfortable with retaining our CASM ex-fuel target for the full-year of down about 1% year over year.

For the third quarter, we estimate our economic fuel price will be $3.32 per gallon, based on the Gulf Coast jet fuel curve as of July 18, 2013. This includes our estimated impact from realized fuel hedges. We have about 17% of our third-quarter jet fuel volume, and about 46% of our jet fuel crack volume, hedged, using a combination of collars and swaps. Over the last few months, crack spreads have dropped dramatically, which has helped mitigate the rise in crude oil prices. But as a result, we are currently projecting we will have a realized loss on our third-quarter hedges. Additional details about our hedge positions are included in the investor update we plan to file this afternoon.

In closing, we are pleased with our record second-quarter performance. We are confident we maintained our position as the lowest-cost producer in our markets, versus our primary competitors. We are committed to keeping the low-cost mindset, and we have many tools in our arsenal to further improve our cost structure. Our capacity growth is a near-term buffer for cost pressures, as each new aircraft is dilutive to unit cost due to scale, gauge, fuel burn, and use benefits.

Additionally, we are taking action to improve our operational reliability, which has the potential to drive benefits throughout the cost structure. As we grow, our network is becoming more dense, which drives optimization of crew reserves, spare parts, and base costs. It is for all these reasons we believe our relative cost advantage will continue to expand over time, further solidifying our competitive advantage.

With that, I will turn it back to Ben.

Thanks, Ted.

Given our strong second quarter and our expectations for the third quarter, we are once again increasing our 2013 EBITDA margin guidance from the previous 25% to 27% range, to a new range of 26% to 28%. Our revised EBITDA margin range equates to a 2013 operating margin between 13% to 15%.

We continue to see a growing acceptance of our business model, as more and more customers come to appreciate the value in our low-cost/low-fare and high-cost/high-choice strategy. We know our low fares, combined with operational excellence, will keep our customers coming back. We also recognize we are not the airline for all passengers, but we are the choice for a growing population of smart, value-conscious consumers, and Spirit is uniquely positioned in the Americas to serve this population, while delivering value to our shareholders.

Now, back to DeAnne.

Thank you Ben and Ted.

We are now ready to take questions. We do ask that you limit yourself to one question and one follow-up. If you have additional questions you would like to ask, you are welcome to place yourself back in the question queue, and we will allow for additional questions if time permits.

(Operator Instructions)

We have Jim Parker on the line with a question. Please go ahead.

Question for Ted. What was the amount of the amortization, the year-to-year change in amortization for heavy maintenance in the second quarter versus second quarter a year ago?

Hang on a second, Jim. Total amortization for the three months for this year was 7.6 and last year it was 3.3.

So that's for the heavy maintenance, is that correct?

That's for all D&A, Jim. That includes non-maintenance-related depreciation. I think the heavy component is the vast majority of that, though.

And I think you had given us earlier maybe what you thought it was going to be in 2013 versus '12? The year -- (multiple speakers)

I said in my comments we expected aircraft rent to go to $170 million, that was an update of what we told previously, and D&A is now $35 million for the year.

Okay. And -- all right. Ben, there may not be an answer to my question here but I better give it a shot anyway. Since we are getting near hurricane season, is there anything you can do to be better prepared in terms of operations and so forth to mitigate, at least somewhat, the impact of hurricanes, which we may have again this year?

Yes, we can certainly try to answer that, Jim. I mean, a couple things. As Ted has reported, as we put in the investor outlook, we have done some hedging of the crack spread, essentially, to protect against supply disruption in the event that a hurricane affects refinery capacity in the Gulf Coast. We have done that for the last couple of years, and that is one tactical way we can try to protect the business a little bit against that piece of hurricane risk. The reality of what's happened with Spirit is, over the last few years, we have actually in some ways increased our risk of getting hit by any one hurricane, but dramatically reduced our risk of any one hurricane significantly hurting the airline, because we -- our work has expanded so much. So while we serve a wide brand of markets in the Caribbean and the East Coast and Mexico, the Yucatan, all of which have some hurricane risk, we're in so many places now that the hurricane affecting any one of those isn't likely to be a major economic hit to the airline, even though it may disrupt operations in Jamaica or in Cancun or something. But the airline is -- now has a geographic presence that makes overall hurricane risk less risky to a whole enterprise.

All right. Thank you.

And our next question comes from Duane Pfennigwerth, please go ahead.

As far as I know, hurricanes hit New York around Halloween every year. So we can count on that. (laughter) I came a little bit late to the call, can you just repeat what revenue commentary you gave about the third quarter, if any? And just caution us a bit, because it looks like the comps get a whole lot easier, and I realize some of this is a two-year comp issue with the tax holiday in '11, but from 2G to 3Q, it looks like you have substantially easier comparisons, so help us think about that and maybe refresh the revenue commentary. Thanks.

Sure, I will read the one short paragraph that I had said earlier, which is we expect the strength and demand we experienced in June to continue throughout the summer. Our close-in booking volume and yields have been strong, and in addition to favorable seasonal -- favorable demand environment, we're seeing a change in the seasonality of our network, being a little more focused in spring and summer versus winter and fall, as we've expanded throughout the geography of the US. That's the commentary that we made. We didn't give any range or any specific quantitative forward guidance on revenue.

Okay. Fair enough. Maybe a longer-term question in that regard. I don't know if you spend much time looking at Ryanair's results, but surprisingly, over the last few years, they have had good success in pushing fares higher and yields higher, which you might not expect from a low-fare/low-cost carrier that's actually growing a fair amount. As you look out over '15 and '16, how should we be thinking about your base fare levels? And, given your limited scale, do you think it's reasonable to think about actually RASM expansion over time?

That's a good question. I think you have to think about our fare levels in two ways. One is, we manage to total revenue, not just fare. So to some extension, the fares we offer are a function of what we are able to generate on the ancillary side. The more we can generate in ancillary, the more that becomes a subsidy to the base fare, we could charge lower base fares and stimulate more traffic. Obviously, if we are having pressure on the ancillary side, the base fares will be higher to manage the total. The second thing is that, while we are a low-fare carrier, and we expect that customers who fly Spirit, the total price they pay will be less than they would pay on any other airline. That's a relative thing, it's not an absolute thing. And so, as industry fares move up, our fares have the ability to move up as well.

What's important to us is the relative price you pay on Spirit, not the absolute price you pay on Spirit. So if the macro environment is supportive of higher fares and we are successful, then you will see our base fares go up. Correspondingly, the more successful we are on the ancillary side, that can put some downward pressure on fares, so we tend to look at it as total revenue per passenger. But we will certainly allow fares to increase if the environment will allow that, as long as the total price customers pay on Spirit is less than they would pay on the competitors, because that's the basis of our business model, and that's the fundamental basis of the value proposition we make to our customers.

Okay. Thanks, Ben.

And we have Dave Fintzen on the line with a question. Please go ahead.

Let me try to ask a joint network cost question. You've had -- in the last six to nine months, you've had some concentrated growth in Houston and Dallas, and you're starting to get some CASM benefits of airport scale around the system, and obviously you're also getting the crew basis set up. What I'm curious about is, as you look out over the next couple of years -- and I know you can't talk specifics about routes nor would you -- but, is the growth opportunity in Dallas, Houston or in other very specific places enough to keep that CASM scale going? Or do we get to a point in the next few quarters where the geography is again having to get wider, and so we've got some incremental unit cost pressures as you grow into a new set of territories? I'm just curious how we should think about wider or deeper, as you build out the industry and what are the -- build out the network, and what are the cost ramifications?

Sure. I can expound on that a bit. We said in the past that we now serve over 80% of the largest metro areas in the US, so there's not many big cities in the US, or in the large population centers that we don't have some access to today. There are a few, but not many. That suggests that you will see more depth in our schedule over time rather than breadth, in the sense that we will connect more dots because we are in most of the big places. So I actually expect that as the network expands over the next couple of years, we will see continued cost efficiency out of the network, as we reach critical mass scale in every city we serve, or be able to negotiate better terms for volume and things like that. Ted, I don't know if you want to add a comment at all?

Yes, one thing I would add to that is, setting aside airport costs, when you look at other infrastructure-related costs that we talked some about, which is you know basing costs and spare parts sort of thing, regardless of where you grow in particular cities, as long as the geography is generally in the same area, all those things support broader geographic growth. So as we've grown West, we've had to build that infrastructure, but additional expansion in the western US feeds off of that, so I think there is real benefit going forward.

Okay. So you don't think about dots that are being connected to multiple big cities to get scale, and as long as it's not a real shift in geography. Okay, that's very helpful. And maybe a quick one on the revenue side. You mentioned, I think the wording was carrying the strength of June through the third quarter, just to follow-up on what Duane was asking. Can you give just a little color how demand trended through the quarter, and how we should think about that June strength as the run rate into 3Q? Anything you could add would be helpful.

I am going to ask Graham Parker to comment on that.

We are seeing continued strength through the summer, but we need to add -- caveat that with a little bit of summer is -- the third week in August ends for the airline business. September is September, but July and August are very strong this year, they are very solid and the demand and price environments are stable right now.

Okay. Appreciate it. Thanks.

Thank you. And we have Helane Becker, on line with a question. Please go ahead.

So this is my question. I know you had talked at your Investor Day, and you just made a comment a few minutes ago about opening maintenance bases around the system to improve the service. I know you had some numbers, and I know it's probably hard to do, given the weather, but if you break out weather and look at other events, have you noticed a meaningful improvement in achieving that goal?

Yes, in general we are seeing more -- the key measure is that when a plane is on the ground overnight and not scheduled to fly, is there a trained mechanic there with the parts and with the knowledge to be able to do anything that plane needs while it's there. And if you think about that metric, yes, we are seeing continued improvement of the fact that the available non-revenue flying time of the airplane have an increasing percentage of maintenance availability to them. And that's a metric we track. As we build out the bases in the places where the planes naturally remain overnight, like Chicago and Dallas, where we've built out these bases, we are seeing improvement there. There is more to go, but it's moving absolutely in the right direction.

Okay. My other question is, I think you said, or Ted said, that you were -- had arranged for leases on some of the new aircraft, and you are building this huge cash position. You have no debt. Are you getting to the point where you're going to rethink whether you own more aircraft versus leasing aircraft or what do you do with all that cash? Or do you let it keep building?

Hey, Helane, it's Ted. As we've said before, we are a growth Company, and a reasonably high-growth Company. And, as is evidenced by the moves we discussed today with regard to fleet, which include some extensions of existing aircraft but also the acquisition of additional airplanes, those are our capital consumers, and we want to make sure we have adequate resources available to us to ensure that we can fund that growth. So, to answer your question directly, we are thoughtful about how we finance our airplanes on any given basis, and we spent a lot of time looking at the range of options available to us, if they are lease financing or some type of ownership financing. And, for now, we still feel good about the efficiencies provided by the operating lessor market, at least going into 2014. But we remain open to looking at all options.

Okay. Great. Thanks very much.

We have Steve O'Hara on the line with a question. Please go ahead.

I just had a question in terms of the CASM guidance. It still looks down 1%, and I think in the past you had kind of guided to a similar amount, or thought was within the expectation. With the declining costs you're expecting in rent and depreciation, what is the negative pushing the other way on that? Looks like your capacity growth is going to be a little more than expected as well.

Yes, Steve. It's Ted. You are right. We have said again that we believe we're going to be on target for our year-over-year decrease in unit costs, excluding fuel, for the full year of down 1% -- we're not talking about the third quarter, but down for the full year. When we thought about setting that target for ourselves, we knew we had certain things that were in the hopper -- items that we were working on that would help us contribute to that number, of which the lease extensions were one of those types of things. As we've said from the beginning of the year, working against us is the depreciation and amortization expense associated with more heavy maintenance on the airplane, amongst other things. But there are puts and takes from going both ways -- those are just two of them. But, even with all of those things considered -- and we generally had most of those things considered when we gave out our guidance -- we still feel good about being down year over year.

Okay. And then, I don't know -- can you, based on the new leases and your holding period that you expect now, is there any way you can give us an idea what depreciation looks like next year?

Not yet. We will be updating you towards the end of the year, or the beginning of the following year, when we usually do. We give a full-year guidance as to what we see in both depreciation-related expenses and rent.

Okay. Thank you.

We have John Godyn on the line with a question. Please go ahead.

When I think about the outperformance year to date, and the factors that have triggered upward revisions to 2013's margin guidance, they don't feel to me like one-timers or anything like that. It feels like it's a good cyclical backdrop, and strong execution on your part. So the question is, why wouldn't recent run rates, why wouldn't 2013 margin guidance be the right number to kind of think about for the next couple of years, if we believe that the cycle will continue to be robust, and you will continue to execute?

Well, John, we appreciate those comments and I guess I'd say, that's a reasonable thing, if you believe the macro environment is as strong as you say it is. We like the current environment we are in. As I said at the end of my comments, we believe we are uniquely positioned in the space to serve that value-conscious, price-conscious customer. Most of the industry is out chasing a higher-ticket-price-paying corporate traveler, and we don't chase that market. We are chasing the discretionary play, and we see ourselves uniquely positioned to be able to do that for the bulk of that demographic in the US. So I think you lay out a fairly reasonable hypothesis.

Thanks a lot.

And we have Hunter Keay on the line with a question. Please go ahead.

Can somebody give me the update of the sales mix by distribution channel in the quarter? And if you want to give me all three, at least tell me how much was done through travel agencies or third-party travel agents, I guess you call it.

Hang on one second.

And as you are looking that up, I will ask another question that relates to it.

The general (inaudible), which haven't changed since the last quarter much, is that we are about two-thirds direct and one-third, third-party and that -- we have a couple percentage points of that ratio being accurate. And, as we said in the notes, when we fly new in a pair of cities, we tend to see a higher percentage of third-party for a while, until customers learn us, and then learn they save money when they buy on the website.

Okay, that makes sense. Correct me if I'm wrong, but you do not have full content agreements with the OTAs. So if you're unhappy with the lack of ability to unbundle through these guys, is there anything preventing you from being able to pull content from these third-party travel agents and using your own discretion whenever you want, or are you locked in contractually at a certain base amount of tickets you have to sell through them?

No. We are basically happy with the agreements we have with our third-party providers. And they allow us the kind of flexibility we need to run our business, and allow them the access to the low fares we provide. They are good deals from our standpoint, and we think they must think the same thing.

Right. Okay. That's it, thanks. In terms of the fuel guide, and sorry if I may have missed this, you said you were expecting fuel hedge losses in the quarter. Can you tell me how much are expecting on a cost per gallon basis from hedge losses on the $3.32?

We guided to $3.32 for the quarter, I think it would be about $3.17 without the effect of those hedges.

Okay. Great. Thank you, Ted. Appreciate it.

And we have Dan McKenzie on the line with a question. Please go ahead.

Good morning, guys. I'm wondering if you can provide a little bit more ancillary revenue detail around the major buckets, and where the opportunity is going forward. And, I guess, just looking ahead, what are the biggest obstacles to rolling out on new products?

As we've said before, our biggest categories of ancillary include baggage-related fees, change fees, our passenger usage fee, and seat assignment fees. And, as we've seen -- we've seen some improvements as we've started to apply some ticket-based revenue management strategies toward the ancillaries being a little more dynamic in terms of the way we charge for bags and seats and things like that. That is starting to prove beneficial, and we will see a little more of that. So we're becoming smarter about the way we are pricing the things we already sell. We also have been growing our packaging side of the business. That's a business that only started recently for us, and we are still not a big player in that space, but we see a lot of upside there. And we are also increasing the channels in which we sell the ancillaries, putting more sales ability, for example, in our kiosks, not just at the airport counter. So in all those ways we see continued growth in the overall ancillary side of things, and we're pretty encouraged by the fact that we have improvement opportunity across a couple different dimensions there.

I see. Okay. And then if I could just shift to a network question here. It seems like growth for Spirit is pretty focused domestically, particularly Dallas. But you guys have all found a pretty nice niche into the smaller Latin American markets, but I'm not seeing that LatAm strategy roll out in any meaningful way outside of Fort Lauderdale. So guess I'm just wondering what barriers, if any, exist to executing on a similar Latin American strategy outside of Fort Lauderdale.

Well, I will point out to you that we now serve three cities in Mexico from Dallas. One of those, Cabo San Lucas, we don't serve from Fort Lauderdale. So, as we have grown Dallas up to 26 non-stop markets, 3 of those are Latin. And so we -- it's not Fort Lauderdale, in the sense of that kind of Latin percentage, but we've continued to look south when there are opportunities. Our growth strategy is very formulaic, in the sense that we look at where is the next best place we can fly to generate the highest return for our shareholders and the general economic positioning of the industry today and the fare environment today has made domestic deployments more beneficial in the near term than Latin deployments. Not because Latin is losing money, or not because Latin doesn't create more good growth opportunities for us. But, if you've got a new deployment, and we can make more money flying domestically, that's what we're going to do with the plane. If you think over the next couple of years you'll see more domestic growth, and you'll see continued Latin expansion. You'll see both. And the metering of that is going to be a function of what is going to produce the most net income for our shareholders.

Understood. Thank you.

Adrian, we have time for one more question.

We have Dave Fintzen on line with a question. Please go ahead.

I just wanted to follow up on the margin comment. Obviously, margins are going up, you're growing 20%-plus, and there are seven aircraft for next year. How are you looking at the used aircraft market or the new last-run 320s? Is there a shot you can start to accelerate that? What do you need to see in the aircraft market to up that growth for '14?

Dave, it's Ted. We -- as we talked about, we made some moves this quarter to do just that. With broadening out our growth into the delivery stream by extending some of our existing airplanes, and we ordered 20 more airplanes and up gauged 10 of our existing aircraft. So, we feel we've done some moves to continue to round out the delivery schedule and are fairly confident with where we are today, that it meets with what we -- that publicly is our expectation for growth coming down to the end of the decade. Now, if there are opportunistic times to look at used airplanes, we've done that in the past, and we would always do that going forward, but we actually feel pretty good right now with our fleet plan.

Is it the right thought process to -- if margins are steadily going higher, to think maybe growth rates in the future pick up? Is that the right way to think about a relationship?

It's possible. There are so many factors affecting that, including our desire to take on incremental growth and digest as well. So, we are thoughtful about that as part of that, too.

As you know, airplanes, almost under any arrangement, are relatively long-term assets. And so, I mean, I don't think we would look to get another 12-year lease for an airplane, because of what we saw as a 9- or 12-month upside, for example.

All right. That's very helpful. It's obviously a high-quality problem.

That's right. (laughter) Thanks, Dave.

Thank you, everyone, for joining us today. This will conclude our second-quarter '13 earnings conference call.

Thank you, ladies and gentlemen. This concludes today's conference. Thank you for participating, and you may now disconnect.