SkyWest Inc (SKYW) 2018 Q3 法說會逐字稿

Good afternoon, and welcome to the SkyWest Inc. Third Quarter 2018 Earnings Conference Call. (Operator Instructions) Please note that this event is being recorded. I would now like to turn the conference over to Rob Simmons, Chief Financial Officer. Please go ahead, sir.

Thanks, everyone, for joining us on the call today. As the operator indicated, this is Rob Simmons, SkyWest's Chief Financial Officer. On the call with me today are Chip Childs, President and Chief Executive Officer; Wade Steel, Chief Commercial Officer; Eric Woodward, Chief Accounting Officer; Mike Thompson, SkyWest Airlines' Chief Operating Officer; and we'll excuse Terry Vais, ExpressJet Airlines' Chief Operating Officer, who's out running his operation today.

I'd like to start today by asking Eric to read the safe harbor, then I will turn the time over to Chip for some comments. Following Chip, I will take us through the financial results; then Wade will discuss the fleet and related flying arrangements. Following Wade, we will have the customary Q&A session with our sell-side analysts. Eric?

Today's discussion contains forward-looking statements that represent our current beliefs, expectations and assumptions regarding future events and are subject to risks and uncertainties. We assume no obligation to update any forward-looking statement. Actual results will likely vary and may vary materially from those anticipated, estimated or projected for a number of reasons. Some of the factors that may cause such differences are included in our 2017 Form 10-K and other reports and filings with the Securities and Exchange Commission. With that, I'll turn the call over to Chip.

Thank you, Rob and Eric. Good afternoon, everyone, and thank you for joining us on the call today. SkyWest had a great third quarter, as outlined in our press release. Summer and the third quarter is typically peak travel season, and our production reflects that same trend this year. Overall, our airlines performed well during the quarter, and our teams continued to execute with precision. With more than 260,000 flights during the third quarter, SkyWest and ExpressJet each delivered strong operating reliability. SkyWest achieved 99.9% adjusted completion and ExpressJet achieved 99.8% adjusted completion for the quarter. Our airlines also led the industry in the most recent DOT report, with SkyWest and ExpressJet placing first and second, respectively, as the airlines with the fewest complaints for the month of August. I want to thank our teams for their work -- their great work delivering seamless, exceptional service for our partners and passengers across North America.

As noted in our press release, SkyWest Airlines agreed to an extension with United for 60 of our existing CRJ200 aircraft. We continue to see strong demand for both 50-seat and dual-class aircraft across our fleet. We also continue executing on our current fleet plans, with delivery of 8 more new E175 aircraft and 4 CRJ900 aircraft expected in the fourth quarter under our previously announced agreement. We're focused on delivering on our commitments, maintaining strong fleet flexibility and executing with discipline.

With the largest tranche of ExpressJet's fleet transitioned and a new pilot agreement complete, we continue to expect modest profitability for that entity in 2019, as we indicated last quarter. We've had significant fleet movement over the past 3 years to put a smaller, leaner ExpressJet into a position where its losses are expected to be -- are expected to finally come to an end.

During the third quarter, SkyWest Airlines also secured an amendment to the existing agreement with its pilots. This agreement runs through 2022 and provides improved compensation and long-term visibility, helping to solidify our position as the employer of choice. And while we are very successful tracking pilots today, we firmly believe that establishing ourselves as the employer of choice is a distinct competitive advantage and positions us well for future opportunity. We believe there's still strong opportunities for earnings growth in 2019 and 2020 through: one, continuing to improve the economics of our legacy fleet; two, fulfilling demand left by smaller, weaker competitors; and three, creating innovative opportunities with an existing scope agreement. While we don't expect large, expansive fleet announcements without scope changes, solid growth is still available from an aggregate of smaller incremental builds for those who can deliver. We continue to believe that our ability to attract the best professionals will be a competitive advantage. Our philosophy and vision for long-term sustainable growth has not changed and we will be ready with people, liquidity and balance sheet strength when or if new scope arrives.

As I've discussed, we are focused on long-term sustainable strategic business objectives, including executing disciplined fleet plans, mitigating risk, developing balance sheet strength and producing operational excellence. We believe that delivering on these objectives allows us to be the employer, partner and investment of choice, and that by successfully balancing these priorities, we will continue to add tremendous value to each of our stakeholders. I again want to thank our 17,000 aviation professionals for their outstanding work during the third quarter. Rob?

Today, we reported net income of $83 million or $1.57 per share for the third quarter of 2018, up from net income of $54 million or $1.01 per share from the third quarter of 2017. Pretax income of $110 million during Q3 was up 27% from $87 million in Q3 2017. Revenue was $829 million in Q3 2018, up $16 million from Q3 2017. This increase in revenue included the net impact of adding 34 new E175 aircraft since Q3 2017, partially offset by the removal of 65 unprofitable or less profitable aircraft over the same period.

Our total fuel cost per gallon averaged $2.69 during the third quarter, up from $2.06 per gallon in Q3 2017. The line item in our P&L for aircraft fuel was $7 million pretax higher than a year ago, reflecting the higher rate paid under our prorate business model. Just a reminder that approximately 90% of our model is not subject to fuel risk.

Our effective tax rate in Q3 was 24.5% compared to 38% last year at this time, with the year-over-year difference being obviously driven by the new tax law. We continue to expect our tax rate to be approximately 25% for the fourth quarter and 24% to 25% for 2019 as a whole.

Let me say a couple of things about our balance sheet, an important point of differentiation in our model. We ended the quarter with cash of $705 million, up from $649 million last quarter. We issued $243 million in new long-term debt during Q3 2018, financing 12 new E175s. Total debt as of September 30, 2018, was $3.1 billion, up from $3 billion last quarter. SkyWest used $43 million in cash and deposits toward equity for new planes and $30 million in other CapEx. Non-aircraft acquisition capital spending in the fourth quarter and into 2019 should continue to run in the $25 million to $35 million per quarter range.

With the remaining 8 E175s expected to be delivered in the fourth quarter, we plan to invest $30 million of our own capital and raise approximately $160 million in new term debt by the end of the year for these planes. We expect that by the end of 2018, our debt will be approximately $3.2 billion, up $100 million from where we are now because of the close to $100 million in normal principal payments embedded in our fully amortizing term debt by the end of the year.

Assuming an end of 2018 peak in debt, we expect that in 2019 and 2020, we will continue to delever our balance sheet by paying down debt in the neighborhood of $300 million to $400 million per year.

During Q3, we repurchased $15 million in stock under our 3-year $100 million repurchase program authorized by the board last year. We still have $55 million in authorization remaining under this program and expect to fully utilize it.

The next couple quarters are expected to be very busy from a fleet perspective as we execute the new contracts and extensions that we have reported over the last few months. As Chip mentioned, we also announced today new pilot agreements at both ExpressJet and SkyWest Airlines. The increase in pilot pay at ExpressJet is offset in our flying contract and does not affect the expectation articulated last quarter, but we expect modest profitability from the smaller and leaner ExpressJet next year.

The incremental cost of the new pilot agreement at SkyWest Airlines is expected to be offset by future flying contract rate resets and in other market revenue opportunities. In 2019, we expect that half the cost of the new pilot deal at SkyWest Airlines will be offset via contract resets, with the full amount offset in 2020.

Including the effect of the numerous fleet movements and the newly inked pilot agreements, we would expect high-single-digit baseline growth in earnings in 2019 over 2018. This growth expectation includes the cost of this new SkyWest pilot deal but does not necessarily capture the full upside revenue potential that could come from the recruiting and retention effect of further bolstering our standing as one of the most attractive employers of pilots anywhere in the regional airline world. With more pilots, we hope to be able to generate and monetize more production opportunities. We will talk more about this in the quarters to come.

In a world with no new scope expected anytime soon, it is not surprising to anyone that our year-over-year rate of growth in earnings is expected to be less in 2019 than it has been in 2018. What should also not be unexpected is that as our spending on new aircraft goes from $160 million in 2018 to something closer to $0 in 2019, our cash generation is set to increase dramatically. Never have we had better visibility to and confidence in our ability to generate strong free cash flow over the next couple of years.

When and if new scope and our new investment opportunities come, we will be ready with a strong and liquid balance sheet. Until then, we will continue to be disciplined about how we deploy our capital, and we'll continue to look to sensible risk-adjusted opportunities for long-term investment. This capital deployment could include organic growth opportunities in contract flying, prorate flying, leasing as well as opportunities to buy our way out of a couple inflexible and expensive aircraft-leasing structures. In addition to organic growth opportunities, we will also continue to look at returning excess capital to shareholders via share repurchase and dividends.

Wade will now give you some color on the fleet movements and other commercial opportunities and initiatives. Wade?

Thank you, Rob. I'll first review our fleet changes and flying agreements during the third quarter, and then I'll discuss the implementation of these changes. From June 30 to September 30, 2018, our fleet moved from 583 total aircraft to 574 total aircraft. Specifically, we added 12 new E175 aircraft to our fleet during the quarter, bringing our total E175 fleet to 138 at the end of the quarter. This includes 65 E175s under contract with United, 32 with Alaska and 41 with Delta. We anticipate taking delivery of 8 E175s during Q4 for Delta, bringing our total E175 fleet to 146 by year-end.

We also took delivery of our first new CRJ900 during the third quarter as part of our previously announced agreement to operate 20 of those aircraft for Delta. We anticipate taking delivery of 4 more CRJ900s during the fourth quarter, 8 during 2019 and 7 during 2020.

Demand for 50-seat flying remains very strong. We are working with each of our major partners to meet their 50-seat needs. As a result of that demand, we have reached an agreement with United to extend 60 CRJ200s for an additional 3 years with SkyWest Airlines.

Separately, we began executing on previously announced fleet transition agreements during the third quarter, placing the first 4 of 20 CRJ700s into American service during the quarter. We expect 8 more CRJ700s to be transitioned into American service during the fourth quarter and the remaining 8 in early 2019.

We also transitioned the first 4 of 20 ExpressJet CRJ200s to United service on October 4. The remaining 16 aircraft are expected to be placed into service between now and early 2019. With this continued fleet movement and contract changes, we anticipate some transition noise in the fourth quarter and Q1 of 2019.

First, transitioning 20 CRJ200s to ExpressJet United operation will result in some incremental operating costs associated with bridging the aircraft, livery changes and maintenance, as well as crew location changes. We also anticipate some aircraft downtime as we continue transitioning CRJ700s to the American contract, primarily to accommodate the aircraft livery changes. Additionally, we anticipate removing the remainder of the 30 ExpressJet-owned CRJ700s from Delta's service to complete ExpressJet's winddown of Delta connection flying during the fourth quarter. For the short term, we expect to retain the majority of these aircraft under various American flying agreements, with some transition expense. However, we own these aircraft with very little debt remaining. We are evaluating various options for these aircraft, including selling, operating under-contract and prorate agreements, leasing to third parties or utilizing or selling their parts. Separately, we expect the 18 CRJ700s currently flown by ExpressJet for American will not be extended beyond early 2019. These 18 CRJ700s include 12 aircraft from the original contract with American and 6 short-term aircraft that transition from the Delta contract. The majority of these aircraft are leased with no tail risk. We expect to return these aircraft to the lessors by early 2019.

As Chip and Rob mentioned, new pilot agreements were ratified at both ExpressJet and SkyWest Airlines. The increase in pilot pay at ExpressJet is contractually offset under their current partner agreement. The increase in pilot pay at SkyWest Airlines is expected to have significant offsets via contract rate renewals and other contract provision in 2019 and 2020. As I've outlined, we expect to be busy with fleet transitions in the fourth quarter. This fleet movement is part of our broader strategy to reduce our overall risk and improve our model. The net impact of all these fleet movements and the agreements in the second half of 2018 and early 2019 leaves us with a smaller and more efficient ExpressJet operation, continues to reduce overall tail risk and positions us well for 2019 and beyond.

Okay, operator, we're ready for the Q&A.

(Operator Instructions) And our first question comes from Savi Syth with Raymond James.

Help us understand kind of low risk around the 30 CRJ700s sales next year. Could you help us understand kind of what you're looking at from -- especially kind of CRJ700 with the bigger craft, what is the tail risk you have in like 2020 and 2021?

Yes. So, Savi, this is Wade. So I think your question was, what kind of tail risk do we have on the CRJ700s beyond 2020 and 2021. Yes. So the majority of those aircraft, they're going to be flying for a good part of 2019. In the middle of 2019, we start to have some exposure. The majority of that debt or all of that debt is paid off by the end of 2020. So there's really very little cash exposure left on those airplanes. We'll get through most of that in 2019 and early 2020. And we've got some very good and interesting opportunities with some of those aircraft. We're actually working on some LOIs for some -- to lease some of those engines and other parts. So we're very confident in placing those airplanes.

Okay. Wade, are there any kind of additional aircraft that then come off are expected to come off contract that we could be mindful of in 2020 or 2021?

So all of our CRJ200s, there's very little or no risk associated with those, those aircraft. All of our 175s and CRJ900s, there's no tail risk in those periods either. There becomes a little bit of tail risk in the first part of 2020 with some CRJ700s, but it's -- we have plenty of time to work with our major partners to renew and extend those aircraft.

That's helpful. And then if I might, on the -- it was kind of helpful, Rob, to get the color on earnings for next year. If we take a status quo and look to 2020, especially given that some of those pilot contract increases are getting fully incorporated, what kind of growth can we expect? Again, not assuming any significant changes.

So Savi, it's Rob here. So, look, I would say that our comments -- we're sitting in October of 2018. We made some comments on 2019 today. I think you can expect, as usual, that we'll give more color in the quarters ahead. But I think I would say that between all of the actions that we're taking right now, obviously, what we're trying to do is set ourselves up very nicely for 2019 and 2020. We've got growth opportunities in a number of different areas, including continuing to improve the economics of our legacy fleet as those renewals and opportunities come up. We feel like we've got opportunities to continue to take opportunities from smaller, weaker competitors over the next couple of years. And then, as Chip mentioned, we feel like we've got other opportunities within the existing scope to be creative with our partners and mine opportunities within the existing scope right now. But I think all those opportunities for earnings are sort of enabled by this new pilot deal that we've done and the liquidity and the balance sheet that we've got for these new investment opportunities when and if they come.

And our next question comes from Mike Linenberg from Deutsche Bank.

Just a couple of things here. There's obviously, a lot of moving parts here. I just want to make sure the -- so the 20 CRJ700s, I guess, that are going into American, what, there were 4 that went in? And then there's 8 in the December quarter and then 8 in early 2019, those are distinct from, I guess, what is it, the 18 that will not be extended that are coming out in 2019. Is that right? So merely, it sounds like there's a swap of just airplanes coming in and then airplanes coming out almost the same amount.

Yes. Mike, this is Wade. You're right on the phasing in of those aircraft. We've got 4 in there. There's 8 and then 8. The timing is they're fairly close to match up but they're not exactly the same, but it's fairly close when the planes come out and the other ones come in.

Okay. Okay, that's helpful. And then my second question is, I don't know if you've mentioned anything about the E175 order that United made recently. I know United's going to start taking those airplanes, I think, sometime in early 2019. So presumably, we're going to find out probably in the not-too-distant future where those airplanes go, which partner. Do you have any sense of timing on that? Number one. Number two, will you have the wherewithal to be able to -- if, in fact, to bid for that and to induct those airplanes into your fleet, given the fact that you're going to be dealing with a lot of, I guess, transition noise presumably right around the same time that those airplanes would be inducted into United Express flying?

Mike, it's Chip. So just a couple of quick comments on that. One is, yes, you're right, and to be candid, we have certainly spent a good amount of time with United in trying to find a way to make all of that be workable for our enterprise. We certainly can't comment on the progress or anything that we have with those. I don't dispute anything that you've assessed relative to timing. I can tell you that it's a pretty complicated situation and that we're deeply engaged into it, but we, honestly, today don't have anything to share. We'd probably share it. So I think we're going to continue to work with United to see if there's something that would work for us with that.

Okay. Great. Just my last question. Rob, you sort of gave us guidance 2019 versus 2018. You said slower EPS growth. But then with respect to '18, we did hear that there's going to be a lot of transition noise in the fourth quarter. When I look at where consensus is, it does look like we have a meaningful deceleration in earnings growth. You just reported $1.57. It looks like as we get into the fourth quarter, The Street seems to be right above $1. And so trying to get a sense of the magnitude of the potential impact of this noise in the fourth quarter so that we can get the right base for that high-single-digit EPS growth from '18 off of '19. So I don't know if you can give us kind of a range of the expenses associated with this transition cost. Is this a $5 million exercise, a $10 million type exercise when you talk about the bridging of the aircraft, the livery changes, maintenance, crew relocation, et cetera?

So, Mike, this is Rob. So what I would say is that the transition friction that Wade made reference to in Q4 and into Q1, there's nothing new about that, that we're announcing this quarter. That was all related to the deals that we announced last quarter. So it's just sort of reiterating what was said a quarter ago on this call about that transition. And again, as Wade laid out in his script, it's like some of the transition is just having aircraft temporarily out of service. Some of it has got some other operating expenses associated with it. Some of the livery charges -- a lot of the livery charges for painting are covered by our partners but there's other sort of friction and noise in that. But again, none of that is new. So, as you know, we don't officially comments on Street consensus or anything, but I would just reiterate that the noise and the friction that Wade made reference to is not new.

Okay. And that's what I thought. That's what I thought because we're all well aware of the fact that there's a lot of transitions going on and you've laid it out in the last couple of press releases. So we kind of know what we're -- what we'll be dealing with.

And our next question comes with Steve O'Hara from Sidoti & Company.

Can you just talk about the guidance that you gave or the comments about 2019 and the friction that you've noted? I mean, is that kind of included in that outlook generally? And I mean, obviously, it's kind of a new issue. So is that correct?

It is, yes. The friction is included in our guidance.

Okay. And then just -- I mean, sitting where you are today versus a few years ago and the comments around tail risk, I mean, are you in a better position today than maybe you expected to be or maybe feared you could be a few years ago? And I guess, how does that look going forward? I mean, is there a reasonable expectation that tail risk will improve as the -- your partners needs evolve, I think, was the word you guys used in the press release.

Yes. So Steve, it's Chip. I think, to your question about fleet exposure and that, compared to where we were, honestly, 3, 4 years ago, it's an entirely different picture and it's taking a lot of patience, a lot of hard work, a lot of capital to position where we are in today. We talk about where we're going to be in the next year or 2 with this exposure, and it continues to get better with time, and that's a key element of our strategy, because when we talk about fleet flexibility, it's also about being able to be agile among 4 outstanding partners, but it's also the ability to be flexible with costs and meet what is very, very dynamic needs of the partners. So in a big, big, broad picture, it's a lot better than what it has been in the past. As time goes on, it will get a lot better. And to be candid, all of the aircraft that we've taken in the last 3 or 4 years have strategically been done and financed with debt and intentionally not with leverage leases so that we can continue to utilize, what Rob has outlined as some pretty strong cash flow in the years to come to continue to offset these risks. And so we're very pleased with where we are today with fleet risk and flexibility compared to where we were, and we're very optimistic where we're going to be in the years to come.

Okay. And then maybe just one quick follow-up. Just on the pilot contract at SkyWest. I know it's not a union work group, but you have a contract with them. Is there -- I mean, was there any change within the, I don't know, the last 6 months or so where you thought you needed a new contract? Was a new contract kind of due? And has there been any change in maybe your ability to source pilots or aid in the churn of the hiring, et cetera?

No. So that's a good question, Steve. I think first and foremost, at the onset, I think our strategy with the SkyWest pilot deal was consistent with our long-term approach to stability and opportunity. I could honestly say that there was no quantitative data that would have us alarmed or concerned about the need to go back out and do an amendment to the existing pilot agreement, but we do fundamentally admittingly within the agreement thought that it was out of balance. We were very strong and among the top in compensation with captains, but, candidly, first officers were lagging behind. And given the situation we have and the flexibility with the (inaudible) we fundamentally believe that a carrier that does not have top-tier pay for pilots over the next several years is not going to be one that you're going to be able to grow and have some strong stability. So with that, we had a good opportunity to do this. We certainly looked at the overall economic model in its entirety over the long term and saw a good opportunity to take care of pilots. And this is not just about just getting pilots either. It's about getting the best pilots because our model is based upon extraordinarily high performance and safety metrics. And from that perspective, we have to deliver what the flying public and what our partners need, and you need exceptional aviation professionals to do so. So it all came together very well for all parties involved, and we look forward to moving forward long term and continuing to develop the model together with our -- with all of our professionals.

And the next question comes from Duane Pfennigwerth with Evercore ISI.

What was the margin on prorate in this quarter versus this quarter a year ago? Is there any visibility you can give us into the profitability of that as fuel moves around?

Yes. This is Wade. So our prorate fleet is very consistent year-over-year, both in size and profitability. We did see an increase in fuel, but the profitability has stayed very consistent with what we have been experiencing but we don't give exact margins for that, but it has been very consistent year-over-year.

But it is a positive number?

It's very consistent, yes. So it's a little bit up, yes.

Can you just remind me what is the aircraft CapEx that's left this year, the gross CapEx number? And does any of that trickle into 2019?

Duane, it's Rob here. So we've got 8 more E175s that we'll take delivery of by the end of the year. So that's roughly going to translate into $150-or-so million of new debt that we'll service or that we'll put on somewhere in the neighborhood of $35 million of equity and deposits that we'll deploy against those. So in terms of aircraft CapEx, this sort of brings us to the end of our E175 delivery stream. And as Wade mentioned, we'll have a total of 146 on property by the end of the year. With respect to non-aircraft CapEx, again, that will continue to run somewhere in the neighborhood of $25 million to $35 million a quarter just as historical.

And so that's how you're thinking about 2019 at this point?

That's right. I mean, as I mentioned, it's like this year, in 2018, we spent close to $160 million of our own cash in acquiring new airplanes. In 2019, that number's going to be fairly close to 0 depending on what happens. But this is one of our theses that I hope came through clear on our call today, that we would expect to be generating very significant cash over the next several years.

What is your target cash level? Is this a level that feels about right? Or do you want it to build some higher level?

With respect to our balance sheet, Duane, I mean, the thing that's most important to us is being disciplined about how we deploy our capital and making sure that we've got the liquidity and the debt availability for whatever opportunities come our way. So we're very comfortable that we're in that place right now, that we have more than adequate liquidity for whatever future opportunities the future may hold for us, but we don't have a specific number in mind. We're just going to be disciplined about the organic growth that we do. And to the extent that we consider ourselves having excess capital, then we'll look at ways to return that effectively to shareholders via share repurchase and dividends in the future.

And then just one last one. What is your high-single digit earnings guidance assumed for buybacks next year?

So I would say that we would -- this is a conversation that we'll, obviously, have with our board, and we do regularly, but we would expect to continue to buy into next year.

And our next question comes with Conor Cunningham from Cowen.

Just to drill down a little bit on your confidence in the 50% offset to the pilot contract next year, can you just -- I know you mentioned a little bit on the leasing side of engines, but how much of it will actually be done via like flying on prorate or short-term contracts versus like parting out on the whole engine leasing stuff that you were talking about? And the only reason why I'm asking, I'm just trying to figure out if there's any stickiness to that type of revenue going forward.

So, Conor, this is Wade. So as far as the offsets, there's -- we have almost 500 airplanes, 450-some-odd airplanes that operate at SkyWest Airlines. And with those airplanes, we have lots of contract renewals that are constantly taking place. And as part of those contract renewals that we're doing and we've even done, a lot of those pilot costs are baked into those contract renewals. So we believe there is some stickiness to it. There is also certain provisions in some of our contracts that we reset the rates every few years and some of those costs -- obviously, the pilot costs will be baked into those rate resets as well, and it will have stickiness to it.

And, Conor, this is Chip. I think, part of the process here, to clarify, is as we review our business model with our partners, it's important for us to have good, strong transparency at the onset of our strategic approach to managing the fleet. So it's not just even pilot costs. I think one of the things that we've improved on over the past several years is our ability to be transparent and work very creatively with our partners no matter what the issue is it being pilot compensation or maintenance things or any of those types of things that move forward. So we really do think we have a best practice in place in how we work with our partners and make sure we meet their needs in the construct of what we're talking about here.

Okay. Great. And then just on the balance sheet a little bit. So you're going to be paying down quite a bit of debt in 2019 and 2020 given your cash flow. Is there a leverage target that you want to get to or that you, like, think about that would be adequate for you guys to like still have like liquidity to go do whatever you want if incremental growth kind of was up there?

Yes, Conor. This is Rob. So, again, as I mentioned, it looks right now, based on our view of the market, that our debt should peak at the end of this year in the neighborhood of about $3.2 billion. From a leverage standpoint, that's going to put us somewhere in the 0.62 range, and again, the important thing for me is not the absolute number but it's what that translates into in terms of access to capital in the market. And I think as you've seen, leverage has not been a problem for us. With all of the new airplanes that we brought into service over the last year, we've gone from -- a year ago, our leverage was 0.64 at the end of Q3 2017. We've actually come down in leverage between building up our equity piece and just the normal amortization that comes -- the paydown that comes as part of these fully amortizing debt structures that we've been exclusively using over the past few years. So right now, we feel like we've got access to any capital market that we need, and we've got the liquidity and access to market that could provide for any new opportunities, new organic opportunities, that might come our way. But that said, if, again, without any new orders coming in 2019, there will be $300 million to $400 million of debt per year come off our balance sheet just as a natural delevering as a result of the fully amortizing structure.

Great. And just a last one. What's your underlying assumption on the fleet at the end of 2019? And is it safe to assume that you'll see increased aircraft utilization in 2019 given your transition to the E175s and so on?

Yes. So the fleet, we anticipate the fleet to be somewhere around 575 airplanes at the end of 2018. We expect a little bit of growth in there priced somewhere around 3% to 4% just with some of this -- the new airplanes that are coming in. And to your point here, Conor, on the utilization, as we take out planes that are 50-seat aircraft, the utilization on those airplanes are less than the 175s. So we do expect to see a little bit of an uptick in -- to block our utilization as we go forward.

And just to be clear, that moves into 2019 as well. So we should like continue to expect like utilization to improve? And I mean, obviously, the fleet like will continue to shrink a little bit, I assume. Just any additional color there? I know you just kind of quoted 2018 numbers, but I didn't know if you had anything for 2019 as well.

Yes. So in 2019, where we'll go, there'll be a little bit of shrinkage on the 50-seat side, but then we'll also have the new aircraft coming in. And so we should be very consistent. It may be 1 point or 2 higher year-over-year.

And this concludes our question-and-answer session. I would like to turn the conference back over to Chip Childs for any closing remarks.

All right. Thank you, and thank you all for joining us on the call today. We continue to be excited about executing our business plan, remain -- make sure we remain flexible and make sure that we are best positioned for long-term opportunities. We hope that everybody has a good holiday season, and we'll chat with you next year. Thanks.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.