Good day, ladies and gentlemen, and welcome to the Allegiant Travel Company's First Quarter 2014 Financial Results Call. We've 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. Maury Gallagher and Andrew Levy will provide us with some brief comments, and then we will begin our question-and-answer session. First, we wish to remind listeners 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 the 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 the call are available at the company's Investor Relations site, ir.allegiantair.com. At this time, I would like to turn the call to Andrew Levy.

Thank you. Good afternoon, everybody. Maury is on the line, but he is in a remote location, he's traveling today. So he is going to jump in and offer comments and help answer some questions in a couple of minutes. I'd like to just start out by making a few brief remarks. First of all, I thank all of our team members for delivering another terrific quarter, our 45th consecutive profitable quarter. We think it's a great first quarter despite the issues that we encountered on pilot availability and of course the fairly severe weather that we all experienced particularly earlier in the quarter. Despite that, we grew earnings per share by almost 13% and we saw very nice increases and all other key financial metrics operating income, pretax income, EBITDA, EBITDAR and free cash flow. Well I think I want to highlight a couple of things from the release. The first of which is that our fiscal year 2014 cost guidance remains the same as it was when we last commented on that. So that is unchanged. I would like to comment on total cost per ASM which we do expect, and that is using by the way the fuel cost per gallon we had in the first quarter of this year. The curve is flat, so we think that's a reasonable function. And by using that our total cost per ASM for the year we are forecasting up approximately 3%. One-time items, which we experienced a fairly sizable amount of that in the first quarter as detailed in our earnings release, drove about 3% point amounts of those year-over-year cost increases whether it's using total cost per ASM or the ex-fuel filed number. And so that's the material part of our increase in expense. On the revenue side,…

(Operator Instructions). Our first question comes from Hunter Keay from Wolfe Research.

Hey Andrew, how are you?

Hey.

Hey, so give me your thoughts on Go Mokulele decision to pull out of the inter-island business there, I know it was only a couple of planes, but wondering what you're thinking about that as sort of an opportunity for you guys? Did you have the opportunity to acquire those planes? And maybe as a way to I know you run like a shuttle service in a break even basis, would that make sense for you guys that's what enable you guys sell a little more rental cars, hotels and things like down in the inter-island basis?

Sure, Hunter. We really haven't given that any thought as a result of the announcement. We have looked at that market opportunity a few times over the years and each time we looked at it, we just felt that it just simply so different from what we do. A lot of that traffic is really business and BFR. It's just not -- it's just too for a field from what we're doing. I mean I agree with you that you could see some strategic value and as you noted but it's not anything that at the moment as any amount of interest for us. That's a good market for one player and when we've two larger players like to get back on a (inaudible) in the market, nobody does all that well. So we're really not focused on doing that type of business. We like what we're doing and we think we've great opportunities and continue to do more of what we're doing with the kind of unique style service that we bring to smaller cities around the country.

As you think about a difference between a loyalty program and a travel club, what have you guys found presumably you've done a lot of market research on the few of those things. What have you guys found in terms of what leisure travellers value more versus business travelers? And I knew we talked about you guys doing both but does it even make sense for you to have loyalty program or just a travel club concept make more sense for you guys given your customer base in the long run? And also if you could, Andrew, lastly a follow up, can you give us a brief update on Mexico too? Thanks a lot.

Sure, Hunter. Okay. So travel club can mean a lot of different things, and we're looking at different concepts there. I would necessarily expect if we go out and do something in that area that it would look what Sears look like which is either one that most people are familiar with. So I'm not say they wouldn't but we were looking at it as a little more broadly and so stay tuned on that. As far as loyalty, our customers value the price without a doubt. It's price and its convenience but price I think can also be defined as value. And we do believe that people will do things in exchange for getting something points, let's say, that to be used to redeem for travel related item. So we do think there is opportunity there. We've long thought that that was the case. We have been building up the architecture in our automation to enable us to be able to manage a points programs and we're going to be ready very soon by the end of this quarter to begin a very slow roll out of a co-branded credit card offering which will be the kind of the first product in the foundation of the loyalty program that we do believe it can become robust of over time, but I would caution you not to assume any material impact from that type of products anytime in the next several quarters. So we do think there is an opportunity there. It would look very different from a frequent flier style program that most people are accustomed to, but the idea of awarding people with air transportation to leisure destinations that's kind of the bread and butter and the foundation of most frequent flier programs. And we do that for a lot of communities around the country, and that's why we do think we offer something that great value. So anyway stay tuned on that. Mexico, at this point, we're going to push that off into 2015. It is something that we feel is a very attractive opportunity and we think that attractive opportunity will be there in 2015. The issue there is just simply a matter of prioritizing IT resources. Mexico we view as an extension of the network and we think it's a very attractive extension but we were focused on delivering other automation products both on the commercial side as well as on the operational side of the business that we feel are more of critical importance and of the higher priority as a result. So say tuned on Mexico. Our interest has remained intact and we are convinced that we will be very good. But as you can see from our earnings, we continue to expand the network very successfully, entering into new markets and maintaining high levels of profitability. So we will get to Mexico in due time. And at this point, we believe it will be 2015.

All right. Our next question comes from John Godyn from Morgan Stanley.

Hey, thank you for taking my question. I wanted to follow-up on some of your ancillary revenue commentary there. Andrew, as well as the Giant Seats that have come out here. And what I would like to -- is generally an update on the trajectory of ancillary as we sort of think about them through the year. But also specifically, Spirit likes to talk about hitting a $60 per passenger number over a long period of time. You guys actually do a lot more third party business than Spirit does. Is there any reason structurally why we would not see kind of moving that direction as you continue to role out some of these ancillaries?

John, I do not see any reason that we would not continue to move in that direction. We do not have a target. We do not know where the end game is. We have seen over time that the most effective way to drive higher ancillary revenue is by introducing new products, and we do have quite a few of those that will be rolling out over the next several quarters. We touched on a couple with the prior -- with Hunter's questions. But we -- obviously, we are kind of the first ones out there pricing our product the way we do. And obviously, many others have followed, and Spirit has done a phenomenal job at what they do. We share their philosophy as far as driving more revenue on the ancillary line and ideally even less on the base fare line and we expect we will continue to be successful until the time goes on.

And the Giant Seats specifically, is there any initiative to expand that to other aircraft types?

No, there is no plan to do so at the present time. Never say never. That was really getting ourselves little more flexibility in terms of crew scheduling under the new crew and duty rules for our service in the Hawaii, but we also convinced ourselves that taking out a few seats and replacing or bringing larger seats, we could generate significantly higher seat assignment revenue from well something that would be accretive. Keep in mind though that its a big airplane. So the same trade off would not work with an MD80 let's say. And that being said, obviously you could do the route that Spirit has taken. But for now, the Giant Seats are on 6 airplanes, there's 36 in total and I expected it to remain at that point for the foreseeable future.

Great. And then, just a nick on some of the TRASM guidance. We had just thought that the second quarter growth rate would look a bit better given how easy the comp is in and the benefit of Easter. The April number does look quite good and we just thought the quarter would be better. Is there -- are there any puts and takes that are sort of what is mentioning in that number just given the seasonality that one might expect around Easter here?

Well, I think April has performed extremely well and we're very pleased with it. When we look further into the quarter, May is typically a shorter month and we expect May to do well. June is well represents the more than a third of the total ASM production for the quarter, so its probably skewed towards June. And we are introducing quite a few new markets, and typically new markets tends to depress RASM results in the near term. And so we always try to be pretty cautious in terms of any guidance we give you, particularly in revenue, in the revenue area. And we'll see how the quarter develops, but at the moment, we are giving you our best guess as to how we think things are going to come in. We are very excited about the quarter. And bookings, as we look beyond June, look very, very good in the July and August. So we like the revenue environment we're in and we're pleased with what we're seeing as far as forward looking numbers.

Okay. Our next question comes from Joe DeNardi from Stifel. Please proceed.

Hi, thanks. Andrew, it seems like the past few months I have seen quite a few data points on whether it be regional carrier than the network guys reducing service to some of the smaller markets. It would seem like your addressable market is growing. Just curious if that is how you guys see at that the number of markets that meet your criteria for growth is expanding?

Well we think that that trend has been going on from many years and we agree that it is continuing. As the industry restructures more markets that are in our sweet spot seem to be out there available to us, and so we're really excited about that. We do not think restructuring is done. I mean, I -- there may not be another large transaction but the integration and the change that will come from the American transaction, how Southwest chooses to use their slots in LaGuardia and Reagan, as well as the ex-rates to the Wright amendment, all those things we believe may create some exchange opportunities for us. Additionally, as we become larger and have a border scale, we are able to enter into some markets that are little larger than we probably would have forecast or predicted we would be in a few years ago. So an example would include let's say Cincinnati, it's not a larger markets in the U.S., but it is larger than the average market that we enter into. But we have a bigger marking reach and the ability to reach folks at a cost effective way that allows us to go into some larger markets. But the bread and butter remained the smaller cities, the secondary, tertiary markets around the country. And I -- we definitely agree with you that the opportunities there continue to come our way and we do not think that is going to change.

Okay. Yeah, that is helpful. I guess if that is the case, why not grow more than 10% to 12%. Is it the availability of aircraft that's really the limiting factor? And may be what you are seeing in the used aircraft market now?

Well our growth in this quarter as well as the first quarter is lower than we had initially thought it would be due to in some of the operational issues we've had to deal with. And part of the way we've dealt with it, we had a sub service supply some of the airlines but we've also had to eliminate some routes that you might have otherwise preferred not to and we've had to forgo some of those opportunities that we anticipated that we would have. So our intent was to actually grow at a faster pace. But we are very comfortable with a long term growth rate at the 15% range, as far as ASMs. We've been doing that for several years and we feel that is in appropriate level of growth going forward. This year will be perhaps a little less than that. As we look into next year, we've a lot of airplane showing up, beginning at the very end of this year throughout next year. And so next year we will probably show a good bit higher amount of growth than we're seeing this year. We think its also very important not to grow too fast to maintain control over the product, the culture and the operation. We've seen that done before and that is something we're not interested in. So we will continue to grow at a nice pace. We're focused on not only growing revenues, but growing earnings per share. And you can accomplish that in a couple different ways and I think we've been successful in doing that. And we expect we will continue to as we go forward.

Okay. And what are you seeing kind of in the used aircraft market in terms of value there, are they in line with what you are expecting little bit higher?

I think in general, they are in line. And we're pursuing a number of different transactions. We're particularly focused on bringing on aircraft in '16, '17 and '18 at this point in time. We're very patient though and we're very firm on price, and we've always been that way and we will continue to be that way going forward. So when we've some news on that we will make some announcements. But we like the fleet decision we've made to grow the Airbus and we believe that that would prove to be a very, very good long term decision. And I will tell you the Airbus aircraft we have in the fleet right now are now performing exceptionally well. And so we're looking forward to having a lot more than this time next year.

Okay. Thanks.

Great. Our next question Helane Becker from Cowen. Please proceed.

Thanks operator. Hi Andrew and everybody thank you very much for your time. I have just a couple of questions. When I look at the numbers that the Department of Transportation published yesterday, for domestic average airfare being $381 and I look at yours -- and I am not sure if you want me to look at 1.651 or you want me to look at 99.52. But how close can you get to that 381, do you think? I mean it seems like you would have an also lot of room to raise your fares.

Well, Helane, our business works by stimulating demand and we stimulate demand through price. And so there is a natural limit to the price that we can charge, because if we price too high we will see a decline in loads. And in our business because of the leisure nature of it, load factor and volume have more leverage than actual yield, at least at the margin. We always try to maximize overall profitability and that includes maximizing revenues. At the same time, our brand we believe represents great value at low price points. So we're mindful of that. That's not the suggest that we could magically take our prices up tomorrow and generate more profit; we do not believe we could. But I don't think we'd ever want to be a 381, at least not maybe not today, maybe with inflation over time that might be the right place to be. But we want to be the value player in the market and we want to get people off the couch and get them on the airplanes and let them take trips that they otherwise would not be able to afford without our service in the market. And so we like where we are. And we're very focused on continuing to increase revenues, preferably the ancillary line items, especially third party, which is not tied to the actual transportation on an airplane. And at the same time finding ways that we can become more efficient on the cost side and, therefore, maintaining or expanding our margins as we go forward.

Okay. That is really fair. Thank you for that answer. And then when I look at the fact that they were down about 10% in the first quarter your third party product revenue is that because of the hotel room nights? Is that it?

Well that's certainly a contributor. I think I just want to point out one thing thought that on an absolute basis third party revenue was flat. So you're referring to on a per passenger basis I recognize.

I guess page two.

Sure, that's right. So $10.6 million was our mistake and that's in that revenue down from $10.7 million a year ago. So on a per passenger basis we're down about 10.5% to $5.20 per passenger. So there's a couple of things going on there. Well, first of all, the hotel is still Las Vegas centric. As we grow ASMs in other parts of the country then its all things remaining full you're going to see a reduction in the contribution from hotel. And hotels in general are more valuable than cars. So that's one thing that's going on. But secondly as we noted in the release we're seeing a little bit of a slow down in the first quarter at least from our Las Vegas hotel business. Partly that's due to expiration of contracts for prepaid rooms which is executed at a favorable time years ago market exchanged and those economics just simply (inaudible). We have a number of different initiatives we're taking to try to reverse the trend we've seen in the last couple of quarters and we're looking forward to see if we can drive this number materially higher over time.

And then can I just ask one other question really about sales and marketing expense? Did you say how come it was up so much in the quarter? Is that your assumption of so many more passengers?

Well, certainly to some degree, yes, but we noted in the release that it was a combination of higher credit card fees, and then also elevated marketing expense or advertising cost to support the launch of a number of new markets. I will tell you of the $12 million incremental expense that we refer to is kind of one-time in nature or non-recurring in nature, part of that does show up in the sales and marketing line item in the form of having to bring on additional labors to support call center operation due to the extremely high level of call volumes that were generated from a lot of the regular operation issues that we had to contest with during the quarter. So you see some of it on that line item. We didn't call that one out in the release but the other items are there.

Great. Our next question comes from Duane Pfennigwerth from Evercore.

First, just want to say nice job expectation setting and returning capital in the March quarter.

Thank you.

Just looking forward, actually did you quantify the non-recurring sort of startup expense and the wet lease expense here in the March quarter and did any of that trickle into the June quarter?

Yeah, hey, Duane. We did put that in the release; its approximately $12 million in the first quarter, and it does trickle to a much lesser degree in the second quarter. How much? A half?

Yeah.

Yeah, Scott is saying about half of that number in the second quarter and we expect that will trickle throughout the quarter and by the time we end the quarter we'll be back kind of the more normal environment.

And then I just wanted to come back to your revenue guidance because you guys do have a good track record of providing an initially conservatively outlook and that's probably somewhat euphemistically that I'm probably kind there, but if I look at it, it looks like sequential passenger revenue down about 8% which for you would be kind of a low trend and actually I would interpret that as weak, which is kind of weird in the context of Easter shift and a seasonally stronger June quarter. So is there some dynamic that maybe we're missing about maybe sub-optimal ability to sell these higher density aircraft at this point or is it just you don't have visibility on June and you're just setting the bar low to start? Thanks for taking the questions.

Sure. So look, we're always conservative in the revenue guidance. Unlike cost we can't control everything in the revenue arena. So we prefer to give something that's more conservative than address it. I think that the head-scratcher here is June, May is the shoulder month, I think everybody knows that. We think May is going to do okay, but June is what I think I guess may be the most surprising. It's also the month in which we're adding the most ASMs which naturally puts some pressure on RASM. And as we noted earlier, we're adding quite a few new markets which also carries some additional risk and uncertainty. We will see if we can exceed the guidance we've given you today. At the moment, we're giving you the numbers we gave you and that's what we feel comfortable with. We believe revenue right now is very good, and we're very encouraged by what we're seeing. June is not so high. That's the only thing I guess I will caution you. Look at the summer peak period, July is really the key month, its not June. June sometimes is a little squally and we'll see how June performs but we feel very good about revenue. And just to comment on the airplane question, no, we don't really see that at all. The seats for departure is up a little bit quarter-on-quarter or year-over-year despite introduction of the larger A320 aircraft. And so, no, we don't feel uncomfortable with where we're on the size of those aircraft and we'll see how the second quarter develops.

Our next question comes from Mike Linenberg from Deutsche Bank.

Hey, Andrew, just a couple of ones here. Beyond some of these new markets obviously LA, Cedar Rapids, LA McAllen I realize there's obviously some risk there; these are new markets and no one really flown them on a non-stop basis before. But I look at some of the markets that you've been adding over the last several months and you sort of referenced that when you answered John's question markets like Columbus-Orlando or Cincinnati or Columbus-Fort Myers, Burlington-Orlando, I mean some of these are pretty well established markets and it looks like you're just being opportunistic as the industry restructures. When you come into some of these markets do they ramp up a lot more quickly? I mean what's the response that you see from the customer base? Do they get to profitability much more quickly given the fact that some of them are actually fairly mature? Just hear your thoughts on that.

Yeah, Mike, I'm going to have to give you a more detailed response that I might be able to.

Hi Mike. So characteristics that would affect the speed at which a market ramps, the lager the market the slower it ramps, the better our presence is when we launch a new market which we define as two cities that have service between them. So if we launch a new market from a source city that we already have a presence then we would expect that, all things being equal, to ramp more quickly. So we've kind of a mix as we go into the summer of markets that are large and new to us and also markets that we're established in. So a couple of examples that you mentioned Burlington, Vermont, we've a presence in (inaudible) for a long time but getting the word out in Burlington is a little bit different of a story. LA to Honolulu which provides a significant portion of ASMs in the summer months sourcing traffic to Hawaii out of LA basin it takes a bit of time and money to try to get the word out. So yeah, there's no characteristics about the market launch for the summer that would make things any different from in the past that new markets tend to underperform existing markets for the first several months as we gear up and get established in those bases. There is really nothing conclusive as I can say that there is something different about what we're doing in the summer than what you have seen from us in the past.

Okay, fair enough. And then just the second when I look at the kind of your margins on the ancillary piece and you layout kind of what was driving some of the pressure there, I mean, you tend to do historically you have been a lot more Vegas, Vegas is more profitable than cars but Vegas has been, the amount of hotel nights has been declining. Look as maybe that market improves and the leverage maybe swings away from you towards the hotel industry, does those margins continue to decline? So, for example, if we look at as a percent of growth, or as a percent of income before taxes should we anticipate that those could be down a few hundred more basis points, I mean, do they stabilize, how should we think about that?

Yeah, Mike, I think there is a few different things going on there. There is a lot of puts and takes there. I think on the one hand we have higher cost of goods sold in Vegas on average. So that we tend to put some pressure on margin. On the other side, we've some new automation tools that are coming very, very soon that are going to enable us to do a better job in terms of how we price that product, just a more sophisticated pricing tool, so we think that will be helpful. So I can tell you I don't expect to see a continued decline in margin. I think part of the margin pressure in the first quarter at least as it relates to Las Vegas hotels as a fact that a lot of the inventory we sold during the first quarter was sold at rates that were particularly unattractive while we're sitting in between these two contract periods with the gaming operator here in town that we have a pre-purchase agreement with. So we went from a very favorable agreement to no agreement to now an agreement that is better than no agreement but not as favorable as the part when we entered into. So we're seeing some of that effect in the first quarter. What we do expect to see growth in this line item over time. We've had a little bit of a change there in part due to have we change our pricing philosophy in terms of no longer subsidizing the sale of hotel rooms by just counting the (inaudible). So that explain I think some of the decline in recent volume over the last year or so, but we do expect to see this area grow over time and we're very focused on bringing in new tools to enable that to happen. And I believe that we will be successful in doing so.

That's great. And then just if I could squeeze in one last one, just where we on labor, if you could just update us on the different contracts I guess the negotiations?

Sure. Yeah, so where we are kind of starting from the first one to the most recent one, our flight attendants we are in mediation and we're meeting with them again in the month of May. Our pilots, which is the second group that unionized we are about to begin mediation. A mediator has been assigned and we're going to have a meeting with the mediator next week. And the dispatchers, our more recent group, and we just had our very first meeting with them just a few weeks ago. So we're really just at the very, very beginning stages with them. So that's kind of where we're on the labor front.

All right. Our next question comes from Dan McKenzie from Buckingham Research.

A couple of questions here. I guess with respect to the press release the commentary that was left out that was included in the last earnings release was just commentary tied to margin improvement going forward and of course that's what we all live for. You have got some ancillary revenue initiatives on the backburner, the revenue outlook seems really positive. Is there something that's causing you to be perhaps a little bit more cautious than you were say three months ago?

Well, I don't know if we were more cautious than we were three months ago, I mean, we just delivered pretty much flat operating margin percentage despite all the challenges that I think we've kind of been very forthcoming about. And I don't feel we're more cautious now than we were back in 90 days ago. We actually were able to take up our numbers during the quarter and that was really because revenue was stronger than what we had anticipated we would see. I mean, as we look forward, we see a business that can continue to generate margins at the highest end of the industry, generate a lot of free cash flow, grow at a pace that we're very comfortable with which allow us to grow earnings per share at a very nice rate and, at the same time, be able to have excess capital that we can have conversation about how we best afford that. So we're very bullish on the balance of this year. I look forward to getting these one-time items behind us and getting back to a more normalized environment. And like I said, as I mentioned earlier, the introduction of the Airbus fleet of aircraft which generated about almost 20% of ASMs in the first quarter is incredibly powerful, and we're looking forward to that becoming the larger percentage of the ASM production as we're able to bring on more aircraft beginning late this year and then starting again throughout 2015.

Understood. I guess just with respect to ASMs and new markets in the second quarter at least relative to the first quarter, does that percent -- well, let me reask the question is the percent of ASMs that you have in new markets is that materially different in the second quarter relative to the first quarter as a percent of your overall system?

Well, I'm getting the signal that its higher; I don't know if it's materially higher (inaudible) how much higher do we think that is?

Most of the growth in the first quarter was a lot of things for peak summer to explain growth and so as it flattened out at the summer but it's under 12 months as a higher percentage.

How much approximately? Do you have any sense? No? Yeah, we don't have that number handy, Dan, but that was Lukas our VP of Pricing and Planning and I don't know if you could hear him, but yes, to answer your question, the simple answer is yes, its a higher percentage but we don't have a number we can give you right now, we just don't have that on our finger tips.

I got it. The reason why I was asking the question, because you have expressed the caution about revenues in new markets and I'm just wondering perhaps with respect to the first quarter would you be able to would you be able to share sort of kind of how things panned out in the first and the new markets relative to the rest of your system? I mean, was new markets as they under perform with roughly on a magnitude kind of 200, 300 basis points relative to your system average, relative to the mature system?

Well, I think we did provide a number in here about same store markets, the vast majority of our markets in ASMs in the first quarter were ones which we were there that the year ago period and we saw an increased year-over-year of 2% on a total RASM. So that at least gives you some idea as to what the balance would look like. New markets, as Jude mentioned, new markets come in all flavors, we've got some that have just exploded on day one and we've had others that has never worked and we've got everything in between. In general right now, the new markets that we've launched and started in the first quarter and those in which we have planned launches in the second quarter, so we've some booking data that looks extremely promising and we're very encouraged by what we see.

Terrific. And by the way nice job on the quarter, I'm not trying to pick your part on the first quarter here. Its an exception.

That's quite all right. Thank you.

All right. Our next question comes from David Fintzen from Barclays.

Hey, good afternoon everyone. A couple of questions or maybe just one question on the seasonal component of the Myrtle Beach base. How much flexibility do you have to flex the number of based aircraft? Does that create a lot of labor productivity problem? I'm just curious can Myrtle become something of a model for a series of bases maybe we wouldn't have contemplated five or seven years ago?

Yeah, David. Well, I can tell you we contemplated it for five or seven years at least. And we've a model that its kind of based off of as an SOA. LA used to be a year round market. And as we learn the market better we recognize that most of the markets that we were serving were really excellent in the summer but really did not perform well during the balance of the year. And so our service now at LA the year round routes are just a handful. We serve them with aircraft that are originating in other locations and we do what we call in by turns to reach those markets. And in the summer time rather we've a seasonal base. And we're doing the same thing in Myrtle Beach this summer. The TY kind of seasonal assignment for cruise is something that is a bit mixed. We've had a number of people that are more than happy to spend part of their summer in another location and in other occasions we've had to assign that. But particularly on the pilot side, where a number of our flight crews are people that commute in from another location to wherever they are based, we believe that that seasonal assignment in particular is pretty attractive to those folks since they are going to have to commute any way, since they choose not to live where they are based. So I do not expect any labor related issues. We have to certainly work with our crew to try to make sure we're doing something that is attractive and fair and everybody feels good about it. And that we've always done that and we will continue to do that going forward. But yeah, Myrtle is something we're excited about, we've been in that market using inside terms with aircraft based in Florida for several years now. It has always performed very well during summer months. And by basing an airplane there, we can go reach other markets that using inside terms we would not be able to do with the same crew without an overnight and the expenses associated with it. So what it does it enables to extend the reach at that network. And the Midwestern -- many the Midwestern markets were targeting really like Myrtle Beach and we think that it will perform extremely well during the summer. So we will see, we do think there are many other locations like that. As you know, our business is highly seasonal because it is the nature of it and we're just simply trying to tailor the supply to meet the demand when its there.

Okay, that's helpful. And just one little (inaudible) in margin terms the shift between 1Q and 2Q on Easter just in terms of weeding through for some of the optics of 1Q and some of the things moving in out of margin, how big would you size that similar to late Easter?

I think that its -- this year is really challenging to use any kind of baseline and I caution everybody to do that. We had a very unusual first quarter.

Yeah.

I think we set ourselves up for a great comp for next year. That is how I look at the first quarter. Now, we did well but the silver lining is, well its going to be really good next year the first quarter. And we do not have any other stuff to go with. So I just caution people don't forget all the unusual things that we had to deal with. And that being said, when we've Easter later its always better. We've seen this -- we've been doing this now for 13 years more than I have and we've seen Easter fall all over the place over the years. And when Easter falls later, it is a good thing, it drives more overall revenue and profits during that peak period. And that's when we saw this quarter or this March-April period. So -- but I would just really caution you and everybody else to just do not loose sight of how unusual our first quarter was in terms of one-time expenses and less ASMs and less productivity than what we've normally had projected to put in there. And its just going to be one of those quarters that will always kind of be a little bit of an outlier, despite the fact that we produced a terrific performance during the quarter, especially considering everything thrown our way.

But if I'm understanding right, given the prolonged period makes the overall holiday period better. When we're reading through and trying to understand the baseline because like it said, its a very unusual 1Q. Its really the holiday shift is the thing that we should be paying the least attention to, is that what you are saying?

That is correct. I think that is a good way to put it.

Okay. All right. That is helpful if someone is trying to reach to the baseline. All right. Thank you. I appreciate it.

All right, David.

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

Good afternoon. On capacity, at the start of the quarter, you were looking for I think to 12, now you are looking up 7 to 9, was that just operational issues or it was just markets pushed out later in the year?

Hey Glenn. No, its more than anything. Its the remaining issues related to our crew availability and the result of which has been that we've had to do less flying than we would have hoped to in the second quarter. And its really just that. So it does not necessarily get pushed, necessarily -- well, I may get pushed later this year but it probably be really fourth quarter. We like to start markets and add more capacity, typically at the beginning of a peak period. And once we get past kind of mid-August time frame, then we tend to kind of pull back capacity pretty hard and then bring it back up again in the mid-November timeframe in time for the end of year holiday period.

And why is this crew thing taking so long? I would not expected to drag out to the second quarter yet it seems to be dragging out second quarter as well?

Well, that is really complicated issue to get into and I do not want to get into that right now other than to say that its a very complicated issue. Anybody that has been in the airline business and have crew training works and what happens when you get behind in the bottom (inaudible) come with it especially multiple fleet types, its just something that is very complex. And I think one of the challenges is that during the March and April period, especially after Easter we're round pretty tight. And so to upgrade first officers or use someone from an MD80 to an Airbus, you pull them off the line and you are cutting ASMs even more than what we've just talked about. And so its trying to jug all those priorities and this was September timeframe and we've lot of excess capacity we would be much further alarmed. But we're trying to balance short term opportunity to generate profits with getting ourselves out of this -- out of the issue we've been dealing with as fast as we can and the result is that we're just extending that pain a little bit further. But we think its in the name of generating higher overall profits.

And of the $12 million of incremental cost, this half of it run through the aircraft rental line?

Yes, Scott is saying $8 million ran through that line, that is vast majority --

And you are saying both those numbers will be cut in half from the first of the second quarter?

Yeah, the aircraft lease $8 million in the first quarter drops off substantially. $12 million and total incremental spend on the first quarter would be half of that in the second. So there is much more shift in the other line items outside of aircraft wins in the second quarter.

Okay. (inaudible) --

And things like elevated training expenses and things of that nature as we move as fast as we can to finish the training footprint.

So the rental, they are dropping off quickly than the other cost items from this crew availability issue?

That is correct, yeah.

All right. Our next comes from Kevin Crissey from Skyline Research.

Andrew, what has changed, what are you guys doing on, maybe Lucas as well, doing to make Florida work? When I think back in the past its kind of been a pretty spotty market and you guys are seeming to have quite a bit of continued success in opening new markets down there. What's different about Florida or what your approach to Florida now? Thanks.

Well Kevin, let me start and then Jude or Lucas can add in. We heard that before we went into Florida back in 2005 that Florida would never, we should just stay in Vegas. Well we obviously had a different experience. We've done extremely well in Florida over the years. My own opinion is, and I think we all tend to share this, is that the benefit of consolidation we've seen perhaps more of that in the eastern part of the U.S. As there is less service and fewer hubs, prices tend to get a little higher which gives a little more opportunity both in terms of new markets as well as being able to get a little bit more yield out of our customers. But these things run in cycles; we've seen it over the years where Florida outperforms the west and then west outperforms Florida. At the moment, and its been this way for probably the past year, Florida has just been exceptionally strong and as a result we're adding more ASM and more capacity into that market. I have no doubt that at some point it will shift but at the moment we just like what we see on the east coast.

All right. Our next question comes from Savi Syth from Raymond James.

Just on the Airbus fleet, I think on a seat basis its probably out 19% of total fees. I was wondering if were able to fly your Airbus fleet as much as you would have liked to? What's your sense of your total ASM production would have been in the first quarter?

Savi, I just want to make sure to clarify one thing you said. 19% of our ASMs in the first quarter were generated from the Airbus. The Airbus represents less than 19% of the seat. So I just want to make sure we're talking the same language here. And as a result, fewer than 19% of the total seats you have 19% of ASM, so you can certainly imply from that but utilization on those aircraft was a little bit higher than the MD80s, and that is exactly what we always said it would be and that's what we saw in the first quarter. If we had been completely unconstrained the percentage of ASMs likely would have been higher by maybe a few percentage points, but had we been unconstrained we would have flow more MD80s as well. So its kind of hard to answer that question; it would just require a lot of going backwards and speculating about different decisions we might have otherwise made. But the Airbus is an airplane that's obviously very efficient and we're certainly going to fly them as much as we can and take advantage of the significantly lower fuel burn expense. And as I mentioned before, very pleased with how that airplane is performing. It's also been extremely reliable. Just shows up and we look forward to getting more.

On the hotel side and the hotels outside of Vegas, I know it's a small share which is growing faster, I was wondering what the margin or the rate to you are for the hotels outside of Vegas versus the hotels in Vegas?

Well I think that in general the margin opportunity in Vegas is a little bit higher than elsewhere but not appreciably different. Vegas is just a great hotel market, always has and always will be. It's by far the best hotel market in the U.S. I think maybe with the exception of a New York. And at least when you're talking to DOTA arena which targets more of the leisure customer. And the other markets around the country are just not nearly as strong. And part of that quite obviously as 90% of our traffic in Vegas approximately originates elsewhere and so those are potential hotel opportunities whereas in the other markets Florida, Phoenix, etc the percentage of folks that originate elsewhere is significantly lower and its ranges but its much, much lower than 90% which means just by looking at numbers you just have a smaller opportunity. A little more second home, a little more BFR and some of these other locations and Vegas as well. but Vegas is still pretty dominant piece of hotel business. And so while we're focused on continuing to grow the other location Vegas is where most of our focus remains as we look at this hotel business and try to find ways to start growing that again both in volume as well as profit.

All right. Looks like there are no further questions in queue.

Okay, well, thank you all for joining. Appreciate your time and we will talk to you again in about 90 days or so. Thanks very much.

Ladies and gentlemen, that concludes today's conference. Thank you for your participation. You may now disconnect and have a great day.