Welcome to the Allegiant Travel Company's Fourth Quarter Full Year 2011 Financial Results Conference Call. We have on the call today Maury Gallagher, the company's Chief Executive Officer and Chairman; Andrew Levy, the company's President; and Scott Sheldon, the company's Chief Financial Officer. Today's comments will begin with Maury Gallagher, followed by Andrew Levy, then Scott Sheldon. After their prepared remarks, we will hold a short question-and-answer session. We wish to remind listeners to this webcast that the company's comments today will contain forward-looking statements that are only predictions and involve risks and uncertainties. Forward-looking statements made today may include, among others, references to future performance and any comments about our strategic plans. There are many risk factors that could prevent us from achieving our goals and cause the underlying assumptions of these forward-looking statements and our actual results to differ materially from those expressed in, or implied by, our forward-looking statements. These risk factors and others are more fully discussed in our filings with the Securities and Exchange Commission. Any forward-looking statements are based on information available to us today, and we undertake no obligation to update publicly any forward-looking statements whether as a result of future events, new information or otherwise. The company cautions users of this presentation not to place undue reliance on forward-looking statements, which may be based on assumptions and anticipated events that do not materialize. The earnings release as well as a rebroadcast of the call are available at the company's Investor Relations site, ir.allegiant.com. At this time, I would like to turn the call over to Maury Gallagher for opening remarks.

Thank you, operator. Good afternoon, everyone. It's a pleasure to be again -- be with you again this quarter. Joining me today, as the operator indicated, are Andrew and Scott. We had another profitable quarter, our 36th consecutive profitable quarter. We had net income of $10.8 million or $0.56 per share compared to last year's $12.4 million or $0.64 per share for the quarter. Overall in 2011, we generated just short of $800 million of revenue, a 17% increase from 2010. Our operating profits were $85.4 million this year; net profits, $49.4 million, and we earned $2.57 a share. Our 17% increase was -- in revenues was accomplished with ASM increases of just 2% system wide, and only 1% in our scheduled service. Currently, we had an excellent year in growing our unit revenues. But we needed this increase as fuel was uncooperative for most of the year. Our total fuel expense for 2011 was up 35.7% and virtually all of that increase was because of pressures from unit costs. For a bigger picture, 2011 was a very successful year for us. It's our fifth consecutive year of 11% or greater operating income results. And as we have indicated in previous calls, 2011 was a continuing year of investment for us, but it was also the beginning of returns on these investments as well. We began service for our 757 in mid-year. We currently own 4 aircraft and operate one. The other 3 are on lease generating a nice return while we work towards deploying more 757 flying. We're pleased with the results from the 75, I might add. We have validated our belief that having a larger aircraft on peak days would be advantageous. Not only do we generate more peak day seats, thereby enhancing revenue opportunities, but the…

Thanks, Maury. We had another strong revenue performance during the quarter. Scheduled revenue increased to a 21% versus fourth quarter of 2010 on an 8% increase of scheduled ASMs for the full year of 2011. Scheduled revenue grew 20% on only 1% growth in scheduled ASM, and we had record total fares in both the fourth quarter and full year 2011 of $128 and $126, respectively. Air-related ancillaries increased 9.3% or $3.7 million due to a 7.4% increase in passengers and a 1.8% increase in air-related ancillaries per passenger during this quarter -- fourth quarter. Throughout 2011 we continued to optimize revenue from the current products we offer our customers, but expect to begin to add new products in 2012 once our automation projects are completed and the team can focus on this part of the business. Third-party ancillary revenue increased by $1.3 million or 23% on a year-over-year basis and was $4.88 on a per-passenger basis. For full year 2011, third-party ancillary revenue per passenger was $5.18, up over 19% from 2010, and we do expect to see continued strong growth in this area during all of 2012. Our fixed fee business was up 20% year-over-year mainly due to having a track charter program in place out of Wendover, Nevada that started during the first quarter of 2011, and other revenue was up substantially due primarily to the lease of three 757 aircraft to 2 different European carriers. These leases were entered into during 2011. So 2011 was clearly a transition year for us as we reshaped our business for a substantially higher-priced fuel environment. In the first half of the year, we held scheduled ASMs flat as we modified our network and improved our pricing. While fuel expense per passenger increased $13 in the first half of 2011…

Thanks, Andrew. Let me first comment on our balance sheet before turning to our cost performance for the quarter. We ended the year with unrestricted cash, which comprises all cash and investment securities of nearly $320 million, up $16 million from the end of the third quarter and $169 million from the end of 2010. This represents 41% of trailing 12-month operating revenue. CapEx for the quarter totaled $18 million, primarily related to the secondary market engine purchases and the continuation of our 166 reconfiguration project. On a full basis -- on a full year basis, CapEx totaled $87 million versus $98 million spent in 2010. The acquisition of our third and fourth 757 aircraft, secondary engine purchases and 166-seat project contributed to the bulk of our CapEx in 2011. Looking forward into 2012, we are projecting total CapEx of $105 million to $115 million, although we anticipated closing on our fifth and sixth 757 aircraft in 2011. These acquisitions are now expected to close in the first quarter of 2012. There were no issuances of debt in the fourth quarter, 2011 was a very active year for the company. During the year, the company executed its first capital market debt transaction in addition to securing financing on two 757 aircraft. Issuances offset by $21 million in debt repayments were all reflected in our total 2011 ending debt balance of $146 million. At year end, our debt-to-equity ratio was 41.6%, and our debt-to-EBITDA ratio is 1.1%. Consistent with the theme throughout 2011, our fourth quarter cost performance was heavily impacted by fuel and engine overhaul expenses. These 2 components were the largest drivers in the reduction on our operating margin during the fourth quarter. Our cost per passenger x fuel increased 6.3% to just over $62, while our fuel cost…

[Operator Instructions] Our first question comes from Hunter Keay of Wolfe Trahan.

So a question really on the fixed fee and other revenue in first quarter. It looks a little bit light to me. It wasn't at least what I was looking for, particularly considering the capacity additions, which I think -- we think would offer like kind of seasonal softness. So maybe a little more color on what's causing the sequential drop and how you sort of expect that to spool up throughout the year, it would be great.

Well, I think that our assumptions on fixed fee, just like all our other assumptions, we try to be pretty conservative. We're uncertain about -- typically, in the first quarter, we do a lot of flying for the men's NCAA basketball tournament. And at this point, we're not certain as to the amount of capacity we're going to have in order to pursue that business. Not as much of an airplane capacity issue as much as a flight crew issue. And so we're trying to be very conservative about our expectations in this particular first quarter as a result of that. But the contracts are in place -- Harrah's, Wendover. That's the bulk of the business and that should continue steadily. And then it's the other kind of ad hoc charter activity, which I described in one of those such opportunities, there's -- that's just -- you have options like that throughout the year. So we're just trying to give you the best guess as to what we see at the moment and make sure we're being conservative about that.

Okay, Andrew. And I don't think you mentioned this, Scott, but if you did, I apologize. Did you guys update your 2010 full year cabin mix fuel guidance? I think the last time you spoke, you were telling us you're seeing down 5% to 10%. Did you mention that again in the prepared remarks?

I didn't, but that's still the appropriate range. We're not moving off that from investor day.

Our next question comes from Bill Greene of Morgan Stanley.

Andrew, can you provide a little more color just around the RASM commentary? I guess given how strong January is, it's going to be a pretty big deceleration. Is that a comp with Easter or something in the numbers that just -- it just feels a lot like a big, big deceleration that I do not really fully appreciate why.

Well sure, Bill. There's a couple of reasons I mentioned in the comment. We really started to see significant increases in passenger RASM throughout the year last year, and it really actually mostly started in February. And so January, and that was really the first full month where our new pricing team and some of the approaches they were taking really had the ability to have its full impact. And so -- I mean, some of it is just simply just much tougher comps that begin in February and continue throughout the year. The other part of it is that in flying around bigger airplanes or larger -- airplanes with more seats, obviously, that's going to put pressure on unit revenue. But it also helps on the unit cost side of the equation. And so a lot of it is just that. So this year is going to be because of the increase in the fleet -- as far as seats in the fleet, the more of the 757 contributions and some additional airplanes, is you're just not going to see RASM increases like we saw last year. I just don't think that's likely at all. And so we will see a deceleration as we get into the quarter. And -- but that being said, we're -- we feel really good about where the numbers are coming out.

Okay. And given the success you've actually had with a 75s in the lower 48, do you think you should actually be looking to take more of those? I mean, we've got sort of American in bankruptcy, so maybe there's a big opportunity on both your fleet types here? I don't know. How do you think about maybe changing that and adjusting it given that when you put them in Hawaii, eventually, you'll have sort of a hole in some of these markets, I suppose.

I wouldn't say that, Bill. I mean, I wouldn't say it's a hole. But I get your point. I mean, yes -- I mean, are we looking at adding more 75s? Yes. We're certainly keeping close tabs on the market. Asset values across the board for aircraft has gotten punished, just all types, some more than others, perhaps the 75, maybe more than others, but now you're -- we're very intrigued. We'll just have to wait and see. We're very active in the market, and we'll make whatever we think is the right decision at the right time.

Yes. And given the size and the gauge that we're adding, is it realistic that we should have at least in our minds there's a possibility of a RASM decline just given the gauge changes?

Well, that's exactly what I was, I guess, trying to express.

Yes, that's what I thought.

I mean, flying a 220-seat airplane around, and it's going to drive RASM lower it's just -- obviously, with CASM lower also. And then, of course, flying 16 more seats, we certainly don't believe we're going to maintain RASM as high as it would have been with 150 seats. So that's what I was really trying to do.

Bill, its Maury. Just as a comparison, in March of last year, our RASM for just the scheduled service piece was up 40% from January. So we went from $0.072 to $0.1028. So I mean, that's just -- you can see why we get a little more conservative on the RASM increases as we get to the back half of the quarter.

Of course. But you can keep the ancillary piece per passenger, I would think, right? That wouldn't change given the size.

That's our belief, yes, at this point.

Bill, well, obviously, we'll see how that plays out. But I think the most important thing is that we think that the larger gauge equipment is substantially more profitable. I mean, you guys like talk RASM, CASM all these other stuff. We like talking about profits. And what we're doing is driving earnings.

Our next question comes from Duane Pfennigwerth of Evercore Partners.

Just looking back on 4Q, can you give us any sense maybe about your primary destinations, which markets are relatively stronger versus which markets are relatively weaker?

Duane, I don't think we want to get into that kind of detail. I mean, the business is doing well across the board.

Okay, fair enough. On your first quarter capacity guidance, I guess, scheduled up 19% to 23%, what would drive the variance in that range? I guess we're here in February, so what would make it 19% versus 23%?

We have a -- we pretty much have a pretty good idea what our capacity is going to be in the quarter. But the one thing -- as far as what's on the books, what the one thing we don't know about is fixed fee. I mentioned NCAA flying, that's typically something that we do a lot of. And then, of course, there's weather. There tends to be bad weather in the first quarter, and oftentimes, you end up having to cancel flights. And so we're giving you a pretty wide range. I'm sure we'll tighten that up as we get closer to the end of the quarter. But yes, we don't expect to make any real changes to our scheduled service offerings that are out there today versus what we expect to fly at this point in time for the first quarter. Obviously, for the second quarter, we're still tweaking things. But no, I think you're right. I think we could probably pin that down a little better, but right now, we're just prepared to give you the range we've given you.

Fair enough. Are there any markets that you're actually reducing capacity on in the first quarter, Andrew?

Yes -- no, no. We're always -- I mean, there's always a mix of routes where there's more capacity, flat and then less. And -- so yes, there are. But I think that the -- if you look at all the routes that we operated a year earlier, I think that -- I haven't looked at this, but I'm fairly confident that there would be more routes that have more capacity added than routes that have less capacity this year. And some of it is due to gauge on aircraft and things of that nature, but we also just -- we see a lot of strength out there. And fuel has been steady for a long time, and we feel that growth is very appropriate for us in the current environment. So that's why we're being a little more aggressive now that fuel is stabilizing. We feel we can plan.

Okay. And t hen just lastly on 166, you gave us some good metrics. I appreciate that. But can you just talk about sort of the incremental profit per departure on those flights in January?

We haven't gotten into that level.

Yes. I mean, I think, Duane...

Or, I guess, maybe what the fares look like on those last 12 seats if we can even figure that out?

Duane, I think I gave you -- I almost -- I think I might have even given you enough to solve for that. I mean, yes, we gave you the -- we're telling you the cost came in as we put in our presentation, which you've seen that slide. And we're also telling you that we generated north of the 60% margins. So you can kind of circle up a range that's going to be reasonable. I mean, it's highly profitable as we expected it would be. And we're just excited to have more these airplanes out there, and we're just excited about the revenue right now that we're seeing on those seats.

Our next question comes from Ray Neidl of Maxim Group.

Okay. Just some general questions. I'll make things easy on you guys. It's been a long day. New government regulations, you mentioned briefly. I can tell that you don't like them from the tone of your voice.

Ray, you are -- you're the guy.

Yes, that wasn't hard to decipher. But the thing is, what can you do about it? Spirit has gone public and they've aroused the wrath of Ms. Senator Boxer from California and some of the government regulators. Now it's not good to fight with your regulators in public, I guess. What else can you do? From what I've been deciphering from the news media is that there is a heavy pushback and some politicians are coming to the aid of the airlines regarding this.

Ray, as much as anything, it's a PR campaign. I think that we, the airline industry, have been pretty silent over the past 24 to 36 months as we've been pummeled by all of the do-gooders who want to improve the processes, and we have some flaws. I'm not going to sit here and say that isn't the case, but they deregulated this industry under the law, and that's the basic standard out there, unfair and deceptive. And when you're told that you have to give somebody a refund outside of 7 days, and otherwise, it's unfair and deceptive. What is unfair and deceptive about a fee that's -- a fare that's nonrefundable when you buy it? I mean -- so we've taken enough of the recourse that's open to us administratively, which is through the court. And I personally and this company's philosophy is that we're going to fight back. We're just not going to sit here. If we do, it's just a license for these folks to think that they can just do whatever they want. And they're kind of like the third person in the relationship that kind of just claw and push and move on in there somehow, and they want to remain relevant. And this idea that the industry, there's no transparency, there has never been more transparency in this frickin' industry than exists today. And yet, we're being told all these anecdotal things that people don't know information and can't shop and all that. I mean, we all have been around long enough to know what it was like to try and get information in the '90s and before the Internet. So it's just a blatant attempt to get power and control in a place they shouldn't be. So, anyway, I could go on, but I'll stop there.

Okay. No, you got your point across. Just as a very general type of subject with the -- you've talked already adding the 16 seats on to the MD-80s. What is the probability or what is the risk of a slowdown of you not meeting the schedule of getting the seats onboard, not having enough aircraft to meet your growth targets? What's your back-up plan on that case?

Well, a couple of things. We will have the airplanes. We may not have the absolute seats that we've talked about, we basically have a 4 line production in shop that's sitting there with our 57 airplanes. We have 53 available for service at any given time. And that's the plan until we finish the program. But these are very involved changes -- configuration changes and engineering and the process to put new stuff into an airplane is very involved and candidly, it's a little more -- a lot more complex than we probably gave it credit for back 1.5 years ago when we started talking about it. Having said that, we're making progress, and we're very much endorsing the project. It will be a little more painful than we thought, but we'll get her done.

Okay, good. And then just finally, I think somebody brought it up before, could you get more 757s if you needed them? Conversely, a lot of people now are going to Hawaii again, including some of the big carriers. I think United announced they're going to do non-stops from the East Coast. Is there a back-up use if you can't make full utilization of the 757s? I know you had the charter market. Is there anything else you can do with those aircrafts?

Well, the East Coast really doesn't concern us. That's a different market completely. So I've read Hawaiian is opening up JFK and we got Continental, United, all that stuff from the East Coast. So that's separate and away from us. Clearly, we can move these airplanes into domestic service here. We always like to start with a small amount of capacity, test the waters, and we'll do it the same way. But we typically have a plan B if plan A has a problem.

Our next question comes from Gary Chase of Barclays Capital.

I wanted to ask a few. First, on the 166-seat economics as you've seen them thus far, I mean, I think most people would agree that the January revenue environment has been a little bit more robust than you would have thought. How are you controlling for that in the analysis. I mean, in other words, how are you deciphering between the fact that the fares are a little bit higher than what you would expect, but, I don't know, potentially they were around the network. How are you controlling for that? And when you kind of strip away the revenue environment, does it look as good as you thought? And then I wondered as well, since you commented -- and I know you talked about the overall economics, but I wondered if you could segregate and tell us, are you actually keeping the ancillary on those passengers as you analyze this?

Yes Gary, this is Andrew. So I would say, number one would be -- yes, I mean, obviously we see -- we can certainly control how we look at the data. I look at the RASM in that -- of those routes versus the system and things of that nature. I mean, the bottom line though is that as we've always said, we thought that the cost per incremental passenger will be around $40 a head and that we may not get the total -- same total fare that we get for the first 150 seats, but it won't be too far away from that. And we're basically finding that to be the case. So it's as highly profitable as we expected to be, and we're encouraged that, yes, even though January has been pretty strong, but January is still in our business, it's still a very weak month seasonally. It's just not a good travel month for leisure travel. So we're encouraged by it. As far as the ancillaries, I think at this point, just too early to tell. We -- I don't feel like I have really good data. Even if -- I don't know if we'd want to share that anyway, but right now I don't think we have very good data to be able to give you an answer to that question.

Okay, and then can you -- I mean, I obviously understand it's only been a few days, but to think about carrier like a Spirit, I mean, they operate in a lot of competitive markets. The DOT rules are going to sort of affect everybody in the marketplace. Your competitive profile is obviously quite different. Are you seeing any change in booking behavior, or is there anything discernible that's happened since the 25th or the 26th whatever the implement date -- implementation date was, excuse me, of the new rules?

Gary, it's Maury. They're -- it's really very early to tell what the long-term effects, if any, are going to be. We're 6 days -- 5 days into it. Some of the features, opt-in, opt-out, are changes to our customers. We're doing different things as well to offset some of those changes as far as advertising and notifying our customers differently while they're in the process of buying something to make sure they understand that now is the time to buy a seat assignment, where before we may have told you that you've -- opt to into a seat assignment and particular bags. We initially didn't opt people into bags, but we found a lot of people were upset that we didn't tell them they should buy a bag early on because when they got to the airport, we typically charge more for a bag they have to handle at the airport than if you let us know ahead of time on the website. So we'll work through those things. There's this and that change. One component actually is up a little bit and a couple are down. So -- but nothing material by any means.

And just going back to a question that was asked earlier. Is there a thought process that the implementation will affect some of the revenues? So in other words, as you look at that deceleration in RASM, I obviously understand there's a lot more to it. I get the comps and so on that you've articulated. Is there a component of that, however, in your thought process that's related to this?

No, I don't think so, Gary. I mean, I think we believe that, that we will manage our way through this. As far as the fare, on the front-end fare, that's just more of a -- that's a communication and a messaging challenge that I think we will meet. I mean, not to say, it will be perfect on day one. But no, that was not -- we didn't try to estimate what we thought the effect of these new rules would have on our passenger RASM. There's just no way for us to forecast it, so we haven't even bothered to even try. But so far, like Maury said, we're encouraged by what we're seeing. We haven't really seen anything on the base fare even though it displays on the front end of the transaction at a higher rate. Hopefully, we're doing a good enough job educating customers to know that it's just simply -- they're seen those costs at the front of the transaction instead of before they pay later in the transaction, so effectively, there really is no change in that area. And so far, so good.

At the conclusion, just kind of a generalization from a few of our folks after looking at the data is that the customer knows what they want to spend going into the transaction. That really hasn't changed. We just rearrange some of the pieces on the checkerboard to a certain degree, and costs us money and time and overhead to implement it, but that's our government for us protecting us.

Our next question comes from Jim Parker of Raymond James.

Just a couple of things. Andrew, did you say something about crew issues or imply that you might not have enough crews to do this charter flying? Are there any crews -- crew issues that you're seeing?

Well, I mean, no. Look, we try to have -- we try not to have a surplus of anything, airplanes or crews. And crews are expensive, so we try to really -- we try to have as few as we can to meet our mission. And so sometimes, there's -- you have to make some choices about how to utilize your crews. And so really, that's more -- I think that's more a function of the efficiency that we have as opposed to any kind of a problem. I don't view there's any kind of a problem there. But, yes, I did say that we need to determine if to what extent we will participate this year in March Madness due to, number one, would be aircraft availability but also having sufficient numbers of crews to be able to go after that business this year.

Right, okay. And regarding the -- adding the 16 seats to the MD-80s, so what's your best guess currently as to when you might get all 57 refurbished and then serviced again?

Jim, this is Andrew. I mean, yes, we're hoping for at the end of the year, but as you know, we've had to push our dates. And so it's a little too early to give up on that at this point. But, obviously, it's -- these airplanes are -- they've been around a long time, and you open everyone up, and it's not what you expect to see, and it just adds a lot of time and issues, and it's just very complicated. And so, hopefully, we can start to accelerate as time goes on. But for now each one is its own individual project, and it's just -- it's been a struggle, but we're getting through it. And hopefully, we can get it done by the end of this year. At this point, if at anything, within in the 2013, it would be a very small number of units, but we're going to try and make sure that doesn't happen and try and get it all done this year.

Yes, okay. And then it appears that there is no way to accurately forecast when one would get ETOPS. But -- so can you give us a bit of a timeline when you get the ETOPS authority, then when -- do you immediately begin marketing Hawaii? And then how many -- how much time before you actually begin flying?

That's a good statement, Jim, of what we're going to do. It's -- a Catch-22, you don't want to start flying 5, 6-hour segments without enough time to sell properly. And so we're targeting June 1, which is good high season over there. And if it happens as we hope it will and think it will, it's -- we'll have reasonable time to sell. Not ideal, but reasonable. And we think that we need 60 to 75 days minimum if not, 90 to 110, 120. So that means we've got to have a good indication in the next month to 6 weeks that we're going to be in good shape.

Okay. And Maury, in that context, what kind of start-up or pre-flight costs are you anticipating?

Jim, we spent most of that money already. You've got some proving runs to do, so it will cost you a couple hundred grand, probably, to do all that. But I wouldn't expect a lot more. As you know, some pilot training, but that's ordinary course of business.

Right. So no substantial promotional costs?

Our advertising and marketing for Hawaii, Andrew?

Yes, I mean just -- we just -- I couldn't even answer that right now. I mean, we haven't given a lot of thought to what that's going to look like. I mean, our marketing spend is really low. It will remain low. Whenever we open up a new route, we do spend money. But again, we're going to be going into, at least initially, markets that we currently serve where we have a known brand name and a database of customers, and so that will keep that spending down. It's just another market. I mean, it's just -- it's a different destination, but it's just another destination. It's just like Oakland. I mean, it's the same thing. So it shouldn't be anything out of the ordinary.

Our next question comes from Michael Linenberg of Deutsche Bank.

A couple of questions here. Did you guys -- Scott, did you give us what you were paying for fuel in the March quarter or maybe what you're paying currently, all in?

It's right around $3.08, $3.10 per gallon?

Okay, $3.08, $3.10. And then with respect to your guidance on PRASM for the March quarter, I guess, should we -- when we think about your total RASM or TRASM for the March quarter, should that be running at a slightly higher rate? And I'm just -- I'm sort of alluding back to some of the comments you made, Andrew, about the ancillary piece, you should see good growth in 2012. Should that be a more -- is there a year-over-year comp issue that we have to worry about?

No. What I was really alluding to, Mike, was the fact that we've kind of been frozen on introducing new products that we would like to introduce because of just the resources in our IT group have been so focused on other more important issues including meeting this DOT deadline. And as a result -- and then we have a new website that's in test right now internally. It's going to start get some traffic on it really soon. And so once we get passed these very large important projects, then the resources we hope will be available to start working on, allowing us to bring on some new products that we've been wanting to roll out there. And that will happen at some point this year. We're not going to predict as to when that we're going to see that. It certainly won't be in the first quarter, that's for sure.

And is it reasonable then maybe just for your total RASM to be up sort of at a similar rate, is that a fair...

Well, I don't know. You know what, we haven't even tried to forecast it, Mike. I hope so. That would be great if it was or if it was at a faster pace. But for now I think that the relationship that's been there on TRASM and passenger RASM, I would suspect that you'll continue to see that relationship remain kind of consistent for the next several months.

Okay, good. And then just my last question. With the FAA reauthorization bill finally in place, I guess it's been a long time coming, what, 4.5 years or so. The piece of it that includes 8 long haul slot pairs at DCA, and I'm not sure if those are conversions of current slots or if they represent incremental slots. If they are incremental, as a new entrant, is that something DCA to Phoenix-Mesa or Vegas with the 75, is that something that would look interesting to you?

No, I don't think so, Mike. I mean, we'll continue to look at it. But when we looked at the recent slot auction, we did not -- we really didn't think DCA was anything of great interest to us. Obviously, I know what you're describing is a little bit different, but that's something to look at, but that's -- yes, that doesn't get me all that excited at first glance.

Our next question comes from Helane Becker of Dahlman Rose.

Most of my questions have been asked and answered. I just had one second quarter '12 question on the guidance that you're giving us in terms of, I guess, 20-some-odd percent growth rate in capacity. How much of that is the addition of the couple of 757s that are coming in the first quarter and how much is, I guess, would be the seats and how -- and can you parse out how much is sort of same-store growth, if you will?

Helane, I don't think we want to parse out the same-store right now. I don't feel confident we have a good answer in the second quarter schedule while it's selling. It's probably not -- yes, it will change to some degree. The contribution from additional 757s is extremely small in these assumptions, and then, of course, there is a contribution from the additional -- more of the larger gauge MD-80s, and then there's also more utilization of the aircraft. We're flying the airplanes more, and then there's more airplanes. So it's -- as far as same-store, I don't have a number to give you right now. Maybe we could address that at some point down the road. But there'll definitely be same-store growth. So that's a fact. There is no question. We think that -- we believe that with the revenue environment that we're in and fuel prices steady, we believe we have a lot of cost pressures last year that are receding, primarily the engine maintenance expenses we've spoken about, and we think it sets us up extremely well to grow and grow aggressively and drive earnings.

Well, actually, that kind of springs up another question, which is with -- I guess, when I look at your route map and all the dots, you fly to a fair amount of cities now and yet, as the legacy airlines or the other airlines bring fares up with fuel costs going up, that must create more opportunities for you to be able to expand into -- over the foreseeable future. So I know you're talking about Hawaii for June 1, but have you given any thought to other cities that you could expand into to take advantage of exactly that opportunity? And what limitations would you face?

Well, Helane, I think that we've already seen opportunities that we've jumped on with Southwest eliminating service in the AirTran network from a few routes. We've already actually backfilled several of those routes. They recently announced additional cities they're going to exit from, and so that creates some new interesting opportunities to consider. Apart from that, we just have a very long list of other markets that have been out there on our radar and remain on our radar. But you're right, I think that as fuel costs go higher and people go higher, go larger gauge, fewer RJs, less flying into hubs, it just continues create more and more and better opportunities for us to continue to do what we've been doing. Of course, at some point, we will venture outside of the borders, and we haven't done that yet, but that's definitely a very high priority for us in terms of future -- long-term future growth. And we get growth. It's certainly something that is not hard for us to find. There's -- we just continue to find great opportunities out there. Obviously, going into Oakland, we're very excited about that, and we believe that Oakland can be far larger than the first -- than the 2 airplanes that are going to be there on day 1. So it's an evolving market, and the way it's evolved these past few years has been very much in our favor, and we'll see if that continues. But for now it certainly looks like it will.

Our next question comes from Steve O'Hara of Sidoti & Company.

Can you just talk about the ancillary piece for Hawaii? I mean, what types of agreements -- is that kind of process already started, you have kind of agreements in place, or is this something where you start in June 1 and then it will take time to spool up in terms of the ancillary, let's say, per passenger basis?

Well, this is Andrew, Steve. I think there's no question that we're going to -- it's going to spool up in a sense that it is a different market for us in terms of just the length of haul, and so we're going to learn a lot in time as to, okay, what can we charge for bags, what can we charge for onboard items, what can we charge for a seat assignment, and that's going to be something we're just going to learn about as we just get experience in the market. As far as the sale of third-party products and services like hotels and rental cars, that will -- maybe that will spool up over time as well, but we'll be ready on day 1 when we announce service. We'll have a full suite of product to sell, and we will hit that as hard as we can on day 1. So, yes, we've been working a lot over the last 1.5 years, talking to all the different key players in the market. And we haven't executed agreements just yet because it's just simply not -- until we're ready to sell something that is a bit premature. But we're obviously picking up the pace on those discussions as we speak to be positioned so that when we're ready to go, we've got everything we want to sell out there, and we're going to hit it hard.

And then in terms of your plans for which cities you fly out of, I mean, do you still kind of plan on adding, let's say, non-connecting service so you wouldn't offer any connections out of, let's say, Oakland or something to Honolulu, or you'd kind of let people maybe make those connections on their own. Is that at all possible?

Yes -- no, I mean, I think you never say never, I guess. But at this point, we have absolutely no intention of changing the structure of our network. It's 100% point-to-point. It's you get on at one place, you get off at the other. Very simple, we like it that way. And so at this point, I don't anticipate that we'll offer anything like what you just described. Over time, who knows, you never know. Certainly, yes, people can make their own connections, and people do that today. But they're free to do that, but we do not offer that as a product.

Okay. And then lastly, one of the pushbacks generally we on at Allegiant is the older aircraft and, obviously, they've worked very well for you. But the question is, will there be a supply of older generation -- cheap older-generation aircraft out there? I mean, does the pending deliveries of Airbus and Boeing and next-generation aircraft, I mean, does that give you greater confidence that, that cheap, let's say, older or previous-generation aircraft will be there?

Steve, it's Maury. We're continually in the marketplace talking to Boeings, Airbuses, Bombardier, Embraer, all the suppliers of that level, as well as the leasing companies in -- to see what the market is doing. Clearly, the MD-80 is going to be around for us for a while regardless if we were to announce an airplane deal tomorrow. I'm not saying we are, by any means, but it would take us a number of years to move in and out of these fleet types. So are there going to be less expensive or less expensive than new airplanes out there? We think so. The market is -- appears to be soft at certain levels for some of the airplanes in the 7, 8, 9, 10-year-old vintage. But at this point, will there be supply? We think so, when we need it. But we're very patient, and we're going to wait until -- if we make a change, we wait until it's right for what we want to do and how we want to do it.

Our next question comes from Jeff Kaufman of Sterne Agee.

Sal Vitale on for Jeff Kaufman. I think I may have missed some of your maintenance expense commentary earlier. Can you just refresh what you said -- I mean, when should we expect -- looking at it on an ASM basis, when should we expect the maintenance expense to start to taper off in terms of -- I think it was up something like 30%, 33% in 4Q? When should we expect that to start to taper off?

Yes, this is Scott. I think you'd start to see it really significantly decrease after the first quarter. There are a couple of engines that pushed over year end which will fall into the first quarter. In addition, the first quarter of this -- of 2012 is actually a little bit higher of a check quarter for us. So look to second quarter 2012 and further.

Okay, so in the second half of the year, should we expect increases on the magnitude of, say, below 10% up year-over-year?

Well, I mean, I could give maintenance per aircraft per month on a full year range of $105 million to $115 million. If you just look at the first half or first quarter maybe being a bit heavy, you can kind of back into what the back half of the year will look like.

Our next question comes from Glenn Engel of Bank of America.

A couple of questions, one quickly on capacity. Can you talk about how it ramps up during the first quarter?

Glenn, we're going to actually provide -- with our traffic release, we're going to give you, I think, February expectations, and then you'll see March from there. I mean, it certainly accelerates as the quarter progresses. There's no question about that.

Two, I see you're turning San Francisco-Oakland into a destination similar it seems like to Phoenix and Los Angeles. I was surprised that in November when you just talked about how strong the originating demand was out of Phoenix and Los Angeles. Has that continued? And can San Francisco be similar in that regards?

Well, we certainly think it can be. We, today, have been flying for quite some time 2 different routes in Oakland. And we're very pleased with the results of those routes. We've recently announced another 8 routes, one of which has started which is Phoenix to Oakland, and the others we just announced the other day, and they'll start up in April. So we think Oakland is going to look a lot like -- in terms of the traffic flows, we think it will look a lot like the 2 markets you just described. And so we're very optimistic about the prospects we have up in that part of the world.

And lastly, by year end, how many aircraft will you actually be operating?

At this time, we expect to have all six 757s in operation. The last 2 will turn off a lease in the early fourth quarter. We do think those would be in service by year end. As far as MD-80 permit, we expect to have -- I believe it's 58 or 59 MD-80s in place by -- and in service by the end of the year. If the modification projects is completed, then all will be fine and producing revenue. And if the modification program slips, then there'll be obviously 4 of those airplanes will be tied up getting reconfigured. So that's the best guess at this point in time, Glenn. That certainly can change up or down based on how we see the world between now and then, but now that's our expectation.

Our next question comes from Dan Mackenzie of Rodman & Renshaw.

I know Allegiant doesn't tend to follow industry fare hikes, but given the success of one in early January, I'm wondering what you can share or what you can tell us about any before-and-after effects on this latest increase? Did you notice an uptick in bookings or no change? I wonder what you can share here.

I don't think we noticed anything. I'll be honest with you. I mean, we're in our own little universe, we don't -- I'll be honest with you, Dan, we don't pay any attention to what people do on price, so we just don't. We look at what we do and look backwards and if we see results that we don't understand, we'll certainly then really focus on, okay, what's going on in the market. But yes, to be honest with you, I have no idea. But I can tell you though that January has been just a really strong month for us, and we're obviously a little bit worried about what might happen when we had a bundled fare including all the fees on the front end of the transaction. And at this point in time, that has been pretty much a nonevent. So maybe that's why. Maybe it's because of the strong demand, and maybe it isn't that people understand that it's a fully bundled fare. Maybe it's just a reflection of strong demand, it's hard to say. But we feel good about revenue though just like it sounds like the rest of the industry does.

The other thing, Dan, now especially the fourth year we're going into, we targeted 90% load factors, so that's a bit of kind of a different approach where you're not maximizing revenues so much as you want to fill the airplane up to -- as more of a first priority. I might add that we may fall underneath that just because we were optimistic or used the 16 seats very good. Well, if you will in the first parts of their introduction because of -- we need more -- a complete base to sell the whole airplane prior to that. But all in all, to Andrew's point, we like to fill the airplane, cover our fuel costs and some of our operating expenses and as well optimize revenues at the same time.

Yes. I guess -- I appreciate it. I guess what I was really getting at is, if there was perhaps -- as the industry raises fares, if that creates a bigger pricing umbrella for you and, in turn, drives a shift in passenger traffic? But I guess that's something at least -- go ahead.

Well, Dan, I mean, I think that there's no question that, that's exactly what happened. It's just -- we don't sit around and try to measure it. I mean -- and that obviously allows us to add even more capacity or to take care of ourselves. And we're constantly trying to maximize -- we definitely want to fill up the airplanes but at the same time, we want to try and get as much revenue from our customers as we can. And, obviously, we've been really successful at pushing fare increases. This past year, our passenger RASM year-over-year increases have outpaced the industry for many, many months in a row. So we've been very successful at taking price. I think it's great. Everybody is taking prices up. It's fantastic. It certainly helps us.

Okay. I guess, my second question here is, I wonder if you talked about your staffing plans for 2012? I'm seeing capacity up, obviously, for all the reasons you've articulated. But headcount was down 1% in the fourth quarter, and it's kind of following the trend of being down. I'm just wondering, where do we go from here?

We'd like just to keep going down. That would be great. But we're going to single cockpit, Dan.

We're constantly trying to become more and more efficient and though we're going to continue to try to do that, I think, obviously, it's not always going to go down. We do need to hire more crews to not only to support the additional aircraft, but we certainly have to hire a lot more flight attendants because now every 166-seat airplane needs another flight attendant on there. So that's going to drive growth higher in that employee segment. And so as a result, yes, I think as we sit here a year from now, well, we won't be showing only flat, flat employee growth. It will definitely be higher. But we haven't tried to forecast what that's going to look like.

Dan, we certainly need more employees to fly more airplanes. There's no doubt about it. But we focus on the ratio of around 30 per airplane is what we -- or intend on maintaining and the like. If we push utilization, we may need to push that up a little bit with the flight crews in particular and maybe some maintenance support. But we're readjusting some of our infrastructures as well and are continually looking at the cost side in conjunction with the growth, too.

And, Dan, let me add, too. I mean, look, that's part of the reason we're so excited about the third-party business and what the web can allow us to do with e-commerce tools because that growth doesn't require -- hardly any capital, and it's not very labor-intensive either. And it's highly profitable. So that's why we're so focused in that area. And with the automation tools we're developing, it's going to really enable us to do some cool things and, again, stop talking about airplanes and routes and having really having an airline analysts on our call and, hopefully, we get some e-commerce analysts on our call. No, it's nothing personal. But that's part of why we want to go there. It's extremely low capital -- highly profitable business line that we think we're extremely well-positioned to be able to go after.

Our next question comes from Kevin Crissey of UBS.

So you can't say you don't have Wall Street coverage anyway and link it on the transfer to the telecom stuff, right? But I don't have any questions left. You guys have exhausted about everything here.

Our next question comes from Bob McAdoo of Avondale Partners.

I got cut-off kind of in the middle of the call, so if you already covered this or cover it afterwards, but could you just kind of go back through the 757s? I know you said you operate one and you own 4, and the question is, when do those kind of come in to the fleet to actually be operated for you? I mean, obviously, you got the other 2 that you're talking about bringing it on -- that you were going to bring on the ownership. So I'm trying to think about when are those things going to start being able to be flown and if Hawaii doesn't work, obviously, you've talked about the profitability to some extent and generalities is about how some of the routes of McCarran or whatever were working quite well. I'm just trying to understand what that might be for you even if Hawaii doesn't work? There's no way to talk about -- you said those planes would become usable or would you plan on using domestically if there is no Hawaii? And then how to think about kind of the profitability of those markets, of those flights, kind of like you talked about the profitability of the 166-seat airplanes.

So, Bob, I mean, I get to answer your first question. The -- put aside the 2 airplanes that we're still trying to close on, we're in a bit on a dispute on that, and we'll see where it goes. Quite honestly, we think we will get there but initially, they were supposed to be closed on in the fourth quarter and that obviously hasn't happened. There's a lot of 75s out there though. So I mean we're not losing any sleep over it, I'll be honest with you. But we do think we will close that deal, and it will happen in the next 30 to 60 days. If that happens, then those airplanes will be ready to fly in service certainly by the end of the second quarter, and the first of the 3 airplanes on lease returns in April. We expect that will be ready to fly at the end of the second quarter, very early part of the third quarter. And then the remaining 2 that are on lease come back in the fall, and those airplanes will be ready to fly right at the end of the year or right at the beginning of 2013. As far as what do we do with the airplane? Well, first of all, we're going to fly to Hawaii. I mean, there's no question about that. We're going to fly to Hawaii, and we believe we're going to make it work, and it's going to work really well. If, for some reason down the road, we decide that, that isn't such a good idea then, yes, we don't -- we're certainly not concerned about opportunities to deploy those assets elsewhere. We think there's a lot of different routes in our system where it can handle that level of capacity. And apart from that, as you know, there's a lot of other longer-term planning ideas we have with the 757. It is extremely attractive assets to use for that. So we're -- what we know for sure is we're going to fly to Hawaii. We hope it's going to be starting this summer, and then we'll kind of take it from there.

All right, I assumed that. But I guess the -- as Maury said -- maybe what Maury earlier said that like anything else, you're going to start out slow. And you've got a batch of airplanes here and starting out slow. I assume this means you're not going to go from 5 or 6 round trips a day on day 1. You're going to put a couple out there and take a look at it and adjust and work with it and then continue to add as bookings build or whatever. I'm just trying to figure out how...

That's correct, Bob. You're absolutely right. So I mean, yes, we have one airplane went out due in domestic scheduled service. We wouldn't hesitate at all to put another 1 or 2 doing the exact same thing. And we may end up doing that. It really just depends on a lot of different factors. But certainly, if we had to put all 4 airplanes, if we don't get the authority until later in the year, if we had to put all 4 airplanes in domestic scheduled service, we're personally happy to do that and feel very good about doing that.

That's what I'm saying. I'm just trying to get a sense of the economics of those airplanes there in domestic service so we can -- we happen to be comfortable with that, so at least a minimum of what you're going to do kind of thing. I guess what I'm trying to get a sense -- it's not that I question your ability to get to Hawaii, but more I'm trying to understand that you've kind of given us the economics of 16 extra seats, I'm just trying to get the sense of the economics of what would you do with the 50 extra seats.

Maybe we could talk off-line about it, or we could maybe try to address that at a subsequent call. I don't think we're prepared to get into that kind of detail right now. But it's -- we believe it's been very -- we think it's been very accretive on the routes that it has operated as of -- for the last 6 months, and that's McAllen and Rockford. We think it's definitely driven an increase in profitability in those 2 routes. So that's why we're pretty encouraged by it.

Practically, Bob, we will have 2 airplanes this summer at a minimum, we think 4. And the last 2 won't be here until practically first of next year. They might be in here for December, something like that. So if we started with 2 airplanes in Hawaii, 1.5 to 2, that means we put one more into a domestic route, which we're very comfortable with and/or we've got spare capacity, too. If we're going to Hawaii, we may want to keep an airplane for a while as a spare. So that's a pattern that probably will be available to us starting June 1 to July 1 as far as having 4 available with that kind of pattern.

Thank you. This concludes our Q&A session. I would now like to turn the call back over to Maury Gallagher for final comment.

Thank you all very much. Enjoyed the conversation. We'll talk to you again in about 90 days. Thank you again. Have a good day.

Thank you. This concludes today's teleconference. You may disconnect your lines at this time and have a wonderful day.