Welcome to Allegiant Travel Company's Third Quarter 2012 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 on 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 the rebroadcast of this call, are available at the company's Investor Relations site, ir.allegiantair.com. At this time, I would like to turn the call over to Maury Gallagher for opening remarks.

Thank you, operator. Good afternoon, everyone. Welcome to our third quarter 2012 conference call. As the operator mentioned, joining me today are Andrew and Scott. I'm happy to announce our 39th consecutive profitable quarter, almost 10 years of continuous earnings. Revenues during the quarter increased $25 million or 13% to $217 million for the quarter compared to the same period in last year, in 2011. Our operating profits for the quarter were up over 70% to $29 million, while the associated operating margin was 13%. That also was a nice increase of 50% plus. We had a net income of $17 million or $0.87 a share, a substantial increase from last year's $9.5 million or $0.49. This represents a 79% increase in net income for the quarter, again, compared to last year. Moreover, I might add, for the 9 months of our operations here in 2012, we've increased net income 65% to $64 million compared to last year, and earnings per share are up a corresponding 64% to $3.29. All of these numbers reflect an excellent quarter. Even with our growth of 15% and fuel costs in excess of $3 per gallon, which effectively was equal to last year's higher costs, we were able to increase our operating margins by 4.5 points, as I mentioned earlier, to over 13%. We indicated in previous guidance also that our nonfuel unit cost would come in and they have. They're down 5.6% for the quarter. The additional seats on our MD-80 program are beginning to pay their projected dividends. We're also seeing benefits on the fuel front as well. While I indicated the cost per gallon was essentially flat year-over-year, our fuel CASM came in 6.8% to just under $0.05. I might add, in looking back through the record, this is the first…

Thanks, Maury. We're very pleased with our third quarter revenue performance. Total fare was up $4 or 3.6% year-over-year to just under $125 per passenger. Ancillary revenue per passenger was higher by almost $7, mostly driven by the introduction of our carry-on bag fee, which more than offset a $2 decline in the base airfare. We are especially pleased with these results considering the 15% growth in available seat miles during the quarter. The largest contributor of third quarter ASM growth was additional seats in our growing fleet of 166-seat MD-80s, which resulted in lower passenger RASM, but even greater declines in unit costs. This combination is driving higher margins. We expect this trend will continue in the fourth quarter as more of our fleet is converted into the larger-density seating configuration. Despite this amount of elevated growth, total RASM was only modestly lower, down 1.7% as compared with the third quarter of 2011. Total RASM continues to outperform passenger RASM, and the spread between total RASM and passenger RASM has been accelerating during the past couple quarters. We expect this trend will continue in the fourth quarter. Forward demand trends appear unchanged since we last commented during the second quarter call. Adjusting for our increasing capacity, we believe demand is good, and fourth quarter guidance suggests as much. Using the midpoints of the guidance provided in the release, we project a 23% increase in scheduled ASMs, which is several percentage points higher than the third quarter, but we expect an 8% decline in passenger RASM, which is the same as what we just reported. Our network continues to grow. We ended the third quarter with 181 routes in service, and expect to end the year operating 196 routes. The growth in routes and ASMs during the fourth quarter will be mostly in Florida and Hawaii. We are pleased with the performance of our new routes, especially our new bases in Punta Gorda, Florida, and Hawaii. Hawaii service started at the end of June, and we're very pleased with the results during its first quarter of service. It was nicely profitable during the quarter, but its contribution is still very small. It was 1% of departures, 2.5% of passengers and 3.8% of ASMs during this third quarter. The contribution during the fourth quarter will be a little bit higher, 2.1% of departures, 2.7% of passengers, and 8% of available seat miles. The 5 routes, which we will begin in mid-November, are all showing strength, especially during the peak Thanksgiving and end-of-year holiday season, as to be expected. So far, Hawaii is exceeding our expectations, and we're excited to launch these 5 new routes, as well as the 3 others we have scheduled to begin during the first quarter of 2013. With that, I'll turn it over to Scott for a more detailed look into our financial results for the quarter.

Thanks, Andrew. Our cost performance exceeded internal expectations during the quarter as our CASM ex fuel decreased 5.6% to $5.37 per ASM, significantly better than our previously guided range of down 2 to flat. As mentioned during our second quarter call, we anticipated some nonreoccurring expenses in the third and fourth quarters in addition to decreased aircraft utilization, which would be a slight drag on our ex fuel unit cost production. Excluding these nonreoccurring items, our third quarter CASM ex fuel would have decreased approximately 8% to 9% to $5.2 per ASM. Energy prices remain relatively flat year-over-year and, on a sequential basis, our absolute fuel expense increased roughly 7% to $90 million on a 7.1% increase in gallons consumed. On a per passenger basis, our fuel cost decreased 2.3% or $1.22 to $52 per passenger in the third quarter. Consistent with the second quarter, we continued to make strides in the third quarter on our fuel consumption front as we now operate 40 reconfigured 160-seat MD-80s and 4 757s in our revenue service. Our ASMs per gallon increased 7.2% year-over-year to 63.3, while our gallons per passenger decreased 2.1% to 16.7 gallons, the lowest in the company's history. Moving on to nonfuel costs, we remain pleased with the trends we have seen year-to-date. Our third quarter results were highlighted by the continued improvements made in labor, heavy maintenance and sales and marketing. Sales and benefits per pax increased slightly by $0.33 or 1.8% to $19 during the quarter despite a 15% increase in FTEs and an 18% increase in aircraft. The primary drivers for our results were increased productivity from our pilot and flight attendant work groups and a decrease in overall overtime expense. Maximizing crew efficiency during our seasonally weakest quarter can be challenging, particularly due to the…

[Operator Instructions] Our first question comes from John Godyn from Morgan Stanley.

First of all, Andrew, I was just hoping that you could sort of elaborate on what you're seeing in terms of demand, particularly kind of what you're seeing with some of the holiday season travel, if you have any of that booked up already. I know there are a lot of moving parts here with PRASM, and headline in PRASM is different than TRASM. So if you could just sort of kind of cut it down to whatever you think sort of the core trend is and how that's shaping up, I think that would put some of these headline numbers into context for us.

Sure, John. I'll do my best. So as you know, we have not yet guided total RASM, and we hope to be able to do that as we go into the new year. We just want to make sure we're as confident being able to predict those trends as we are with the passenger number. But obviously, the passenger number is becoming less relevant, certainly to these last 2 quarters, because of the fact that we have been able to drive up the ancillary number significantly, to a certain extent, perhaps, at the expense of the base airfare. But total RASM, obviously, is much more relevant for us. What I was trying to suggest is that we've seen a widening spread there in the second quarter, the third quarter, even more so, and we expect the fourth quarter to show that same trend. As far as total RASM outperforming passenger RASM by an increasing amount, as the efforts on the ancillary side become more mature, particularly the carry-on bag charge, but there's other things as well that are helping drive that number higher. The holiday demand is very good. We're really pleased with what we're seeing, and we have -- we do have a very substantial amount of revenue on the books because of the long booking curve that we typically have, being that we focus on the leisure market. So we're pleased with what we see in the fourth quarter. We think it's going to shape up to be really good, particularly during the holiday periods. And that's despite the fact that we are obviously putting out a lot of ASMs. But the vast majority of the growth in seat miles is driven by more seats in MD-80s, the 757 flying, most -- some of which is mainland flying, but the majority of which is going to be Hawaii flying, particularly as we get into mid-November. So right now, I think demand is good. It's not great, but it's good. It's solid, and we think the holiday period is going to be really strong.

Okay. That then...

Kind of a typical holiday period, basically.

Okay. Okay, that's helpful. And when we think about some of the -- and I don't think us as analysts have certainly done any better of a job here kind of thinking about some of the volatility in PRASM lately, but we have seen some, just versus some of the earlier projections. When we think about all these sort of puts and takes and new aircraft coming online, a lot of new routes being opened up, is there an impact that we should be thinking about on some of the revenue management systems? Is there anything -- how do we think about how much of an impact an uncertainty or maybe your ability to yield manage some of these initiatives might be having? Is there sort of an unforeseen or unintended consequence there that is driving some of the error?

No, I wouldn't say that there's anything unforeseen. I mean I think that we've been very open about the fact that as we roll out these larger gauge MD-80s, there is -- without a doubt, we are not optimizing the revenue this year because we're not selling into those aircraft with the same amount of time that we will next year. Because we want to make sure we don't sell 166 seats in a route and then we show up with a 150-seat airplane. So I think we've been very open about the fact that we think there's going to be -- just because of that, there's going to be a lot of upside to optimize into next year. And I think, quite honestly, while we try our best to predict what those additional 16 seats are going to generate, I think that as you just get out there and start selling and flying, you learn something. So we expect that we're going to be able to continue to optimize the larger gauge airplanes. 2013, I think we'll capture much of that optimization. But I don't think there's any kind of a system issue or process issue, it's just something that we expect. Hawaii is obviously a new market. Just like all new markets, it takes time to learn some of the demand trends in those markets. And we will learn and we will be able to optimize and get smarter as we get more history. So certainly, adding new routes, adding more seats, it's a little bit of -- there's a lot of unknowns there. We do our best to forecast and react accordingly, but there's no question that we will learn and optimize as we go forward.

It's good to know that, that sort of upside as we look into 2013. You mentioned Hawaii and that's just sort of my last question. If you could just elaborate on how Hawaii is sort of spooling versus expectations and maybe just some thoughts there, I think that would be helpful.

Sure. Well, Hawaii in the first full quarter, which was the third quarter, it was very profitable. And the third quarter should be very profitable, but the fact that 3/4 of our routes -- or 3/4 of our flights, namely the Vegas market, is a market that has a lot of competitive capacity in there, and the fact that we had a very short booking window, 60 days approximately before our first flight, makes us feel really, really good about Hawaii. Normally, we want to have that booking window open for 6 to 9 months for Hawaii because, typically, bookings are made a good bit further in advance. So all things considered, we think Hawaii is off to a terrific start. And as we look into the fourth quarter, we're really pleased with both the -- how the 2 markets that we're currently serving are booking up, Vegas and Fresno, as well as the 5 new routes that are going to start up in the mid-November timeframe. It's a little too soon to be able to really have a whole lot of clarity on the 3 routes we're starting up in February. Wouldn't want to hazard a guess there, but so far with what we have, we do feel really good about it. So we feel Hawaii is going to be extremely additive and it has been so far, and we think that will continue as we go forward. At the same time, we're going to learn about demand trends there and we're going to be able to adjust both capacity and pricing decisions in the future as we get smarter with experience.

Our next question comes from Michael Linenberg from Deutsche Bank.

Just a couple here. One, I wanted to talk about sort of where we were at the start of the quarter on guidance and where we came out. The other revenue, I believe it was originally -- in the other revenue and the fixed fee, was in that $10 million to $12 million range, I believe, and then you upped it $14 million to $15 million. And the CASM guidance also came in a bit better. On the other revenue, was that just a much better uptake on the carry-on bag piece? I mean was it just surprisingly good or what drove that? Because that was a nice bump up.

Mike, if you're talking about other revenue, I think what you're referring to is -- well, the guidance you referred to is a combination of fixed fee and other, I believe.

Yes. That's right. That's right.

And so fixed fee is obviously -- those are our charter programs. So we had a very strong quarter as it relates to what we call ad hoc charters, non-long-term contract charter programs. And the other revenue came in, I think, right as forecast. That predominantly consists of the lease revenue from the 757s that have been out on lease for the past couple years. Those airplanes are being returned to us as we speak. So that's other revenue. We will see a commensurate decline as we then are able to use those aircraft and generate the other forms of revenue, the scheduled service and the ancillary revenue. So the carry-on bag charges, you would see that in the air-related ancillary revenue line item. And so I think...

It sounds like the charter came in better than expected, maybe.

That's probably right. And obviously, we try to be pretty conservative when we put guidance out. And sometimes, ad hoc charters especially are a little bit hard to predict because a lot of it just comes in relatively short notice.

Great. And it was a very -- it was a pleasant surprise. My second question is, the formation of Allegiant Systems, the press release was out in early October, it looks very interesting because it looks like it could be a platform for something a lot bigger. Is -- the new res system -- or your new website, is that going to be part of this? Is that something that you're going to try to either monetize or a service that you're going to try to sell through this business line? Can you talk about this? Because it was a small press release, but there's a lot in there. And it looks like it could potentially revolutionize the company down the road. Or maybe I'm making a bigger deal out of something that's just going to be much smaller.

Hey, Michael, it's Maury. I want to back you up a little bit. The main intent of the new organization is to create automation software services for inside the cabin, to begin with. We think there's -- some of the most backward places on technology are inside an airplane cabin, be it the cockpit or the main cabin. And so we're working on things such as using iPads for buy-on-board, much more modern stuff. And we wanted to bring in some people who had a better ability to market and sell this stuff to third parties than us. While we'll be a customer of the company, we'd primarily want to work on developing that. Regarding the -- our own internal automation, we need to finish up our efforts first before we even think about something like that. But I think, to your point though, we will have a platform that will be exceptional. I'm not sure monetizing it is something we want to put on the table or think we'll do at this point, but it'll be a good platform.

Okay, great. That clears that up. And just my last question. I saw that you guys -- I believe -- I don't know if you had announced the Monterey-Honolulu flight or it got pushed back. What drove that? Was that you needed the aircraft for something else or was it, it was not the right market? Can you talk on that?

Well, yes. This is Andrew. We killed it because it just wasn't performing. And we just did not -- it was so far off of where we expected it to be and where it had to be that we thought the best thing to do was just to simply cut it and to do something else with the airplane. So kind of as we've done many times in the past, when we see that, we try to react quickly. And obviously, when you're talking about long flights over the water, you have a lot more cost there. So we have probably a quicker trigger in those cases than others. But no, that's not delayed. It's just simply eliminated. Maybe down the road, we'll try it again, but it clearly was -- it clearly did not look like it was going to be successful for us.

Our next question comes from Hunter Keay from Wolfe Trahan.

So I wonder if we could talk about, just a small route, but maybe it's indicative of a bigger theme, and that's Phoenix-Mesa to Vegas. So I think Spirit is pulling out of that route, if I'm not mistaken. And I'm curious to know if you could just give us sort of a life cycle description of what happened there from the day they announced it to the day they announced they were leaving it. Was there some aggressive pricing that was going on? Did you guys -- did Spirit underestimate your desire to protect your turf? Was there just different customer demographics than they expected? I mean, just -- I'm curious to just sort of see how that one went to maybe extrapolate it to a bigger picture, so we know if they try this again, what to look for.

Yes, Hunter, obviously, it's hard to speculate as to why Spirit makes the route decisions they make. I mean it'd be -- it's impossible for us to gauge that. We price to fill airplanes and obviously try to capture as much yield as we can. Certainly, with their entry into that market, it certainly didn't help pricing. But we approach it so very differently. We fly only on what we believe are days that we can make money. And Vegas, in particular, is a market where, in our view, there's 4 days that have really strong legs and everything else is really not all that interesting. And flying daily service patterns to Vegas with multiple frequencies, we don't think that's the way to really be successful in this market. So it's hard to know why Spirit decided to change what they did, but that's our speculation. In our case, we continue to experiment with that market by adjusting our capacity, and continuing to try to learn how to better market in a larger-sized community like that. And -- but we think that's where the MD-80, in particular, and having a very low fixed capacity or fixed -- very low fixed costs in our structure is extremely helpful, where we can be highly selective about when we fly, not feeling pressured to fly 10, 11, 12, 13 hours a day on our airplanes. And that's why we think that is just a huge advantage we have over anybody else really, that is trying to fly into Vegas with the high frequency model that is used by most other airlines.

So it wasn't necessarily something that you thought -- you were surprised maybe by how loyal your customers were, so much as you just think that you kind of had already cracked the code on the service patterns? That's probably more -- a better way to think about it.

No, it's hard to know why Spirit came in and why they left. I would just imagine that they probably felt they could make more money on a different route. But I think our customers are -- I wouldn't call our customers loyal to us versus anybody else. They're taking advantage of low-priced vacation travel, both air and sale of other products. And if we can offer the lowest price, then we do pretty well. And we have the lowest costs. We're able to provide savings when people buy other products from us. And so the combination there offers an extremely compelling product to our customers. And I think that's why they are -- I think that's why we're successful.

Okay. And I guess, Maury, maybe this one's for you. I'd like to sort of follow up on Mike's question a little bit on the IT side. I think last Analyst Day, we were led to believe that a lot of this stuff was going to already be happening at this point, and the website included. And it's taking a little longer than we expected. Obviously, it's a complex thing. But can you give us some benchmarks to look for -- outside of the website rollout, which I know you mentioned, that we can look forward in the next 6 to 12 months? And of those things -- whether it's abstract or specific. And of those benchmarks that we can look for to come into the program over the next year, which ones do you think are going to provide the best economic value over the near term and the long run?

Hunter, good question. The pace at which we've developed has been very good. I can tell you candidly, we interrupted some of the baseline development things to do what we felt were important revenue enhancements this year, not the least of which was our carry-on bag items. And so I've always been -- if I can put revenue in front of specific, kind of generalizations where it's hard to quantify things, such as just bringing the website up, which we think will be a positive, it's much harder to put a number to that, say, than with the carry-on bag effort which took us -- probably took 60 days out of the program. But part of the results we're seeing today are our efforts to bring additional products online, which took the high road versus some of the day-to-day development. Regarding specific, kind of what's going to happen when, let me defer that to our Investor Day. Scott Allard will be up and you'll have a pretty good overview of exactly what's going to happen when. But it's kind of, first, you've got to build the car before you can start putting some of the accessories on: the bigger carburetor, the bigger wheels, the stuff that will make you go faster. We're finishing the car right now and then we're going to have the ability to fine-tune this thing and with tools for pricing, with lots of little outcomes that -- it's hard to quantify exactly how big it will be, but we just know it'll be better than what we have today. And in many ways, we're still pretty crude, frankly, compared to where we'll be in the next 12 months. You'll be out here in November, so you'll get a good -- we'll give you a front row seat.

Our next question comes from Helane Becker from Dahlman Rose.

Maury, can you just give us an update on the flight attendant negotiations. Sometimes they come by in New York and they talk to us, and they have their view on how things are going. And I was just wondering if you could kind of update us on what you're thinking and how -- when you think that would get resolved?

What did they tell you?

Well, they said -- candidly, they said that they'd be happy to do an agreement but you were holding it up. So I just kind of wondered where -- I mean, they told me their side and I kind of wondered what you're thinking.

Well, I'm sure I'm the bad guy in these situations. You always have friction when you're in these situations. And I've been through original contracts before, and one of the themes that we have told our people is that we got here by being different. Everybody's job in this company is a fact that we went left when everybody else was going right. And as we get successful, please don't bring me all the tried and true old labor approaches or different things that may have been the way business was always done. We're not about the way the business is always done. And in particular, one of the issues in this situation is over whether or not we have to terminate our employees should they not pay the union wage or union dues that are required by being a member. And while we don't object to union dues or anything like that, we're just saying we're not going to be your agent to collect or to enforce termination, should someone say they don't want to pay. And that's a major deal in this business. So it turns out here in Las Vegas, many of the people in the culinary union and others, according to my good source, don't pay dues. They don't have -- and the casinos, for instance, don't -- aren't required to collect the dues. In the airline industry, that's been the de rigueur for many years and we've just said it's time to be different. And while we're negotiating in good faith, we spent many months and got a long way down the road a lot of times, and your representation about that are correct, but we do not want to go that way in this situation and that's our policy at this point. So it's -- the flight attendants have called for mediation with the NMB and you start following this traditional negotiation rules, and we'll be entering that phase here in the next month or 2.

Okay. Just as a point of clarification, if you didn't collect their dues or, on the culinary side, how do the dues get paid? They just write a check or whatever it is -- online, do it online, is that it, and pay the union directly? Is that how it would work?

A lot of people belong to health clubs and they have an automatic deduct on our credit cards, I know I've done that. We all have these automatic deducts or some form of payment, but it's usually between the seller and the buyer. You don't have [indiscernible] in the middle, so that's our position.

All right. That makes perfect sense. Okay. That's very helpful. And then just one other question on -- I don't know who can answer this one but -- so we kind of missed the consumption line. That's kind of where our estimate was different from what you actually reported. So we usually do it based on ASMs and, clearly, we were off a little bit this quarter. Can you just give us some guidance on how we should think about that going forward?

When you say consumption, unit consumption, I assume, is what you're talking about?

Fuel.

Gallons. ASMs per mile type of thing?

Yes. We usually do ASMs per gallon, and I guess we were just off a little bit on that this quarter.

Yes, so a couple things. If you look at the seats per departure, it's north of 160 seats. Sequentially, ASMs per gallon, I believe, were up about just over 2%...

7%.

Sequentially.

Oh, sequentially. Yes.

So, as far as fourth quarter guidance, I would much -- I think just 2%, plus or minus, is a much better representation on what the fourth quarter year-over-year effect would be. We should be up to 45 166-seat aircraft by the end of the year and you'll have all 757s flying in the fourth quarter. So sequentially, that sort of trend would make a lot of sense.

Our next question comes from Jim Parker from Raymond James.

Scott, I've got a question for you, and then one for Andrew. Scott, you went a bit quickly in your discussion of the $4.5 million greater costs in the fourth quarter for maintenance, I believe, or other items. Can you provide a little bit of detail on that again, break that down, the $4.5 million?

Yes. A lot of this has to with the training costs for the Airbus [indiscernible]. In addition, there's going to be our annual impairment which takes place at the end of the year. All of our consignment engine inventory components are held by Avioserv. So we anticipate a write-down similar to what we saw back in the fourth quarter of 2010. Last year, the write-down was fairly nominal. We expect that to be a good bit better or, I should say, worse this quarter. So the majority of that is disposition as opposed to preoperating costs.

Okay. And how much is the training for the 319s? How much do you have budgeted for that?

If you used $1.5 million to $2 million, that's probably a good baseline. That's more than just training in there.

The remainder of the $4.5 million would be the write-down of impairment?

That's correct.

Okay. All right. One for Andrew. Andrew, if we look at the third-party ancillaries, and one thing in particular that's outstanding are the hotel rooms that year-to-year, they are down, I believe, slightly or flattish. And then you say outside Vegas that they're are up like 23%. So what's going on there? Is it related to flights, seats into Vegas, or what's happening in that regard?

Yes, Jim. So Vegas is still, by far, very much the dominant part of that business. So while we're seeing good growth away from Vegas, Vegas still represents the vast majority of that hotel business. And what we're seeing in Vegas is we have been -- historically we've always, and we continue to discount -- offer a discount on the air side for folks that buy an air/hotel package product. And what we've been doing is just simply ratcheting down that air discount. And therefore, the result of it is that we sell slightly fewer hotel rooms, but the overall profit to the company are higher, both in terms of having less air discounts, but also in terms of managing the hotel margins higher. And as you can see, the overall third-party business showed a 3.2 percentage point increase in gross margins, from 28.7% to 31.9%. So I think you have a couple of things going on there which results in less robust growth in hotel rooms. But we're more interested in the growth in profits as opposed to growth in just pure hotel room volume. But I think capacity also comes into play. We did grow Vegas slower in the third quarter. Fourth quarter is a little slower as well. And so that definitely plays into the Vegas part of the hotel business.

Okay. And Andrew, of the 166 seats on the MD-80s, those that you have, I guess 40 so far, you've retrofitted. I believe you were selling only about 30% of the seats for seat assignment? Where are you now? What proportion of those seats are you able to put in for sale of seat assignment?

Well, I think that the take rate or the percentage of people buying a seat assignment has fluctuated over time. I don't recall when that 30% number might have been accurate. Today, the percentage of customers that buy a seat assignment in advance is far higher than that. That is due I think, in part, to being able to sell more seats because of the standardization of the 166-seat product. But I think it also has to do with a lot of pricing work that we've been doing, presentation on the website. So there's a lot of factors there, but that's definitely been -- a nice part of the growth in the air-related ancillaries this year has been due to our ability to drive up the revenue per passenger that's associated with the sale of advance seat assignments.

Our next question comes from Duane Pfennigwerth from Evercore Partners.

I appreciate your TRASM is a more meaningful metric these days than PRASM. And most of my questions have been asked here, but with respect to October guidance, it seems a little weaker than we would've expected, given how much easier the comparison is. I wonder how you would characterize October revenue, and are you seeing any trend change here?

No, we're not seeing any trend change at all. October is pretty much behaving as October behaves. October is a -- it's a shoulder month. It's actually a pretty decent month in Vegas. And it's not so good in everywhere else. So I think we're pleased with it. I think maybe part of the reason that it's lower than maybe you might have expected is a couple things. I think, is that we've certainly put more growth in markets away from Vegas this quarter. And a lot of the -- the new 166-seat airplanes that are rolling out are rolling into Florida. Pretty much at the worst possible time, because this is as bad as it gets in the Florida market. The entire west part of the U.S. for us, our network has had the 166-seaters and now we're bringing them into the Florida market. I think that maybe accentuates it a little bit. But we're really comfortable with where we see revenue right now. We're comfortable with where we've put our bets on capacity this quarter. The forward trends, as far as demand is concerned. And you guys, you and your peers and others get really focused on this PRASM number. And just to be honest with you, we don't. We're looking at profitability. PRASM is just one number. And this -- well, passenger RASM is just one number that, if you look at in isolation, it can tell you a story that may not have any depiction in reality, which is what we care about is earnings per share, and that's it, so...

That's very fair and I don't think anybody can take issue with what you just put up. I mean, you just put up a great quarter. I guess, what we're trying to deduct is the guidance points to, I guess, a bit of a trend change into the fourth quarter. And is it just a continuation of the sandbagging that you guys are so good at or is there something else going on?

I resemble that remark.

I wouldn't say sandbagging, but we are cautious. Look, I mean, I think that in my comments I try to provide a certain amount of color and directional information there. And I think what we said is that, despite a good bit more ASM growth in the fourth quarter, we expect the passenger RASM number to come in year-over-year at the same point, essentially, if you use the midpoint, as what we saw in this third quarter. And we also tried to point out that the trend of TRASM is accelerating as it relates to the -- that versus the passenger RASM numbers, if you look at it on a year-over-year basis. So in this quarter, the total RASM number was 6.3 percentage points better than the passenger RASM. In the second quarter, it was 2.5 percentage points better. And we expect the fourth quarter to continue that trend, albeit, I wouldn't expect to see that much of a jump. But essentially, that's driven, in many respects, by the maturing of the carry-on bag charge, which we started selling in April. And at that time in April, we were already selling seats -- certainly a lot of seats in the third quarter and a few in the fourth. So the fourth quarter will be, I think we'll probably capture 90-plus percent of the value of that new seat. And the first quarter next year, it will be every single person that booked us at that point would have had the ability to choose to buy a carry-on bag fee or not. And so anyway -- so, no, I think that -- we're focused more on the quarterly numbers. I mean, we gave October guidance which, obviously, we have great clarity on October. But more relevant, as far as the world that we all live in, is what the quarter's going to look like and we try to give you our best guess as we sit here right now.

That's great and helpful. And then just, I'll sneak one more in here. And I realize you're going to wait on the '13 CapEx guidance. But have you made a decision on the 319s from Cebu, if those are going to be purchased outright or if you're going to continue leasing?

Yes, I think our bias is to purchase when we can. At this point in time, with the balance sheet and everything, you get better economics. So given -- negotiating deals and things like that, that's the easier track to take on the front-end and we can redo financing events after we settle the basic purchase approach. But at this point, nothing more than just acquiring the airplanes, and a purchase is the way it'll probably come down.

Duane, this is Andrew. Let me add one more thing. I mean, we always announced that -- at the time that we first announced that transaction, we announced we expected it would be a capital lease. So not an operating lease, but a structured sale. And at this point, we're still finalizing what the structure of that sale is going to look like. But they've always been airplanes that would be purchased. And the structure of that purchase may end up being a little different than what we announced initially, but they were never slated to be operating leases and, at this point, they're still not slated to be operating leases.

[Operator Instructions] Our next question comes from David Fintzen from Barclays.

A quick question for Scott. On the $1.5 million to $2 million on the 319 startup costs, is that the bulk, is that sort of the big wave of upfront costs on the 19s or is that something we can expect into that magnitude over the next few quarters until you get into the second half of next year?

Yes, you're probably going to see something similar running into the first quarter, but it'll die down shortly, there, after that.

Okay. That's helpful. And then just more of a broader network question. Obviously, a lot of focus on Hawaii, but how should we think about the non-Hawaii network, the bulk of the network where you have the 19s coming next year, you've -- kind of, you mentioned Punta Gorda's are strong. You have some commentary around Vegas and competitive capacity there. How much growth potential do you see there? Is it a function next year of ramping up existing basis? Do you see other bases? And just give a little color for how you're generically thinking about the growth opportunity there?

Sure, David, we'll try. So there's never been a shortage of opportunities to grow and grow in a very profitable way. And I think we've certainly been able to prove that out over the last few years and we don't see anything that's different as we look forward. We are -- while the ASM growth, as you can see, and particularly as you look into the first quarter, is still pretty substantial, you'll also note that the departure growth is pretty much flat. And that's the reflection of a pretty cautious view on capacity with the combination of fuel prices that we think are kind of higher than they should be when you take into account where the macro environment is at the moment. And we think as the time goes on, that correlation will reestablish itself, where either you'll see an improvement in demand or you'll see fuel prices continuing to decline. That's how it's always been and I don't see any reason that it won't do the same going forward. But we think we have a lot of opportunities to continue to both add small cities, which we've been adding a lot of. Connecting the dots, so taking an existing small city and connecting it to our existing destinations, and then adding new destinations. We have no plans to add new destinations at this time, but I wouldn't be surprised if sometime in '13, we might do so. So Punta Gorda is a relatively new base. It's a market we served for a few years with -- from a few southeastern markets, we now have established a base there with a couple of airplanes, and we're adding a bunch of Midwestern markets. And so we're pleased with how that's going. Obviously, Hawaii is the other kind of new base that we've brought on -- into play this year. Oakland, as well, is where we started earlier in the spring. But in general, we're really pleased with what we're seeing across the network. We're constantly tweaking, trying to make sure we have the right -- the best routes and the right amount of seats at the right time, and we think we'll continue to have tremendous growth opportunities in 2013 and many years beyond that.

Okay. That's helpful. And just one little sort of schedule nit. You mentioned -- I think, Maury mentioned 8% of ASMs in the fourth quarter are to Hawaii. Would that imply December would be more like 14%, 15%. I'm just trying to get a feel for stage length.

You know what, we don't have that number handy, David.

David, I said 9% of the ASMs in the third quarter were from 757s.

Okay. Then I completely misheard that. Maybe we'll follow up with --

Well, we did -- I did state that 8% of the ASMs in the fourth quarter would be attributable to Hawaii. So that may -- I'm not sure which number you kind of caught onto there. But either way, look, I think that we could try to provide a little more information during Investor Day, but we just don't have that December number handy. Certainly, December is -- especially those last 2 weeks, is as good as it gets in Hawaii and in many other markets, so we are throwing in extra sections and things like that. And so it probably is, in that month, it probably is going to be greater than 8%. But at the same time, we throw a lot of capacity everywhere. So it'll grow, Hawaii is going to grow. Clearly we're talking about 5 routes out of 7 that are beginning in midquarter, and then we've got 3 more beginning mid first quarter. So as you roll into the second quarter and you have all these markets flying for the first full quarter, the percentage of ASMs, it will probably be higher than the 8% that we noted for the fourth quarter.

Our next question comes from Kevin Crissey from UBS.

I just wanted to, maybe, take a look at what you thought your nonoperating -- your nonfuel operating expense per passenger as we look into, maybe, next year? Or maybe that's an Investor Day question?

Yes, I mean if you look at full year, where it's likely to come in, and it's going to be down. But we can give additional color here in the next couple weeks.

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

Could you just talk about -- I don't know if you're willing to go into it in terms of what you're seeing on the ancillary per passenger side in Hawaii, if you can talk about that at all?

Yes, Steve, this is Andrew. I think you asked specifically about the third-party or is it ancillary in general?

I guess, if you have it in general and then a breakdown, it'd be great.

Sure. Well, I'm not going to give you a breakdown, but I can speak in general terms. So the ancillary revenue per passenger, both on the air-related as well as the third-party side, is certainly a good bit higher in Hawaii than the system averages. That much I can tell you. And that's been the case and it'll probably continue to be the case as we go forward. On the third-party side, in particular, we think there's -- it's off to a good start. We think there's a lot of upside there. Currently, we're operating 2 routes, 3/4 of which, the capacity is coming from Vegas. Vegas from Honolulu is a very, very different market than all the other markets we're going to serve because Las Vegas is known as the ninth island. There's a tremendous amount of VFR traffic going in each direction. And therefore, people that are not going to be buying hotel rooms, either here or in Hawaii. So as a result, we really have one market today that we have experienced in terms of actually operating, which is Fresno, and certainly we have advanced sales for the other markets. And we think that there's a lot of opportunity there, we think we're just beginning to tap it and there's a lot more upside. Additionally, there's a lot of -- on the new booking engine that we're rolling out, there's going to be a lot of features there that we think will enable us to enhance our ability to sell third-party products in the Hawaii market. So in general, I think the story is really, really good. It's coming in as forecast. Ancillaries, I think from day one, has come in as forecast. I think the mix is a little different, the air-related's a little bit higher than we forecast, the third-party is a little lower than we had forecast. What's been pleasantly surprising in Hawaii is the average fare, the base air fare has been higher than we anticipated and, as a result, Hawaii is just off to a really good start for us.

Okay. And then going back to ancillary. On a total basis, per passenger, I think this is the biggest increase, year-over-year, you've had since March of 2009. It really seems like you guys have kind of unlocked the growth potential there once again. And do you see -- with the new system coming online, I mean, do you see that you can unlock additional growth and kind of maybe approach where the industry -- I'm sorry, where the -- like a Spirit is or something like that?

Yes. I think so. I mean, the reason we saw that growth is that for the first time in a while, we introduced a couple of new -- or one big important new product. And we have really tried to kind of put a halt on that as we're doing all the software development. Because as Maury mentioned, when you pull off the developers off of that bat and you put them onto this other thing, obviously, it slows the overall project down. But I think once we get that behind us and we're on one booking engine, which we expect will be very shortly, in this quarter, then we can start again looking at other initiatives. I mean, we certainly, we're not -- we haven't run out of a lot of ideas on how we can add more products and continue to drive that number higher. So I guess, stay tuned.

Okay. And then last question. In terms of the -- your ability to sell hotels and so forth after the fact or without an airfare, you're still not there yet, right? We're still waiting for this new system.

That is correct. That ability, we are not there. Hopefully, we'll be able to give you some guidance on that during Investor Day, we'll have a really good sense as to when we'll be in a position to do that. But no, we're not ready for that yet. And quite honestly, there's far more -- as much as we think that's going to be exciting, there's higher priority items that we think will have a more immediate impact that we need to get behind us before we tackle that one. But we'll give you a lot more color in another 3 weeks or so.

Our next question comes from Bob McAdoo from Imperial Capital.

Just a couple of quick ones. In terms of fuel, since you didn't give us any guidance, could you tell us kind of what you're paying now as compared to what you paid last quarter? And are you seeing the drop down in fuel price with the drop in oil we've seen in the last week or so?

Bob, we can give you guidance if you want us to just make up a number.

I know. I know as much about it as you do. But you can at least tell me what you're paying now.

Your guess is as good as ours there. [indiscernible]

It's Scott. I'll just say, it's not materially different. I mean, obviously, we're seeing a nice decline this week and we'll what that does for next week. But...

Well, the hard number to know is the crack spread. It's been volatile as all get-out.

The way we manage fuel when we put our capacity out, Bob, and you know this because we've talked about it over the years, we just look at the forward curve, we apply an appropriate crack that's based on heating oil cracks and other cracks that we can look at. And that's what we use for planning.

Okay. I know that, I'm just kind of curious as to what you were paying now as compared to what you paid last quarter. If you're saying it's roughly the same, we can start from there.

For now. We'll see what happens.

And back to your comment on why the Las Vegas hotel number of room nights was actually down. I read what you're saying as, there's no real diminution of demand in terms of Vegas. Vegas isn't slowing down right now. It's maybe not growing like crazy, but it's not changing much. But the way you're pricing it is that you're turning some business away to make more money. Is that the right way to think about it?

Yes, I think that's exactly right. There's no shortage of the demand in Vegas. Certainly yields right now are weak. If you follow the hotels here, they've been having to cut their prices lower so -- but they're filling up rooms and visitors are up. So I mean, there's no lack of demand into this town. It's just, I think the way you described it is exactly spot on. We are pricing it in a way where we believe we are ultimately more profitable. We expect it to continue to grow in both hotel rooms and overall top line and bottom line in terms of hotel sales in Vegas. But this particular quarter, we just didn't show any substantial growth in hotel volume, but we did show a substantial growth in profits.

And then finally, you talked about $38 for your September ancillaries, in terms of the month of September, if I heard it right. So I assume you're thinking that's a good place for us to jump off as we move forward. And the reason you gave us September is to help us along that way in terms of thinking about the fourth quarter?

I think that that's a fair assumption. And the logical assumption would be that fourth quarter would be a little bit stronger than that on a per passenger basis. There's no reason to think that it won't, especially with the arrival of more Honolulu service or whatever.

You'll have to make your own assumptions about that. We've tried to give you some directionality on total RASM and you can kind of back into whatever you think is appropriate.

I'd like to turn the conference back to Mr. Maury Gallagher for closing remarks.

Thank you all very much for your time this quarter. We look forward to talking to you again in the next 90 days. Everybody, have a good evening. Thanks very much.

Ladies and gentlemen, thank you for your participation in today's conference. This does conclude the program, and you may all disconnect at this time.