Allegiant Travel Company (ALGT) Q3 2017 Earnings Report, Transcript and Summary

Good day ladies and gentlemen, and welcome to the Allegiant Travel Company Third Quarter 2017 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. [Operator Instructions] As a reminder, this conference call is being recorded. I would now like to turn the conference over to Chris Allen, Investor Relations. Please begin.

Thank you. Welcome to Allegiant Travel Company’s third quarter 2017 earnings call. On the call with me today are Maury Gallagher, our company’s Chairman and Chief Executive Officer; John Redmond, our company’s President; Scott Sheldon, our Chief Financial Officer, Interim COO; Lukas Johnson, our Senior Vice President of Commercial and a handful of others to help answer any questions. We will open up with some commentary and then move into questions. As a reminder, we are in the final stage of the plan for 2018 and we will now be providing guidance on 2018 capacity, CapEx costs on this call. Our Investor Day will take place in Las Vegas on Thursday, November, 30th and we use our venue to provide 2018 information as well at the Sunseeker Resorts. Before we begin, I have to remind listeners that the company’s comments today will contain forward-looking statements and they are only predictions and involve risks and uncertainties. Forward-looking statements made today may include, among others, references to future performance and any other comments about our strategic plan. There are many risk factors that could prevent us from achieving our goals and causing the underlying assumptions of these forward-looking statements and our actual results to differ materially from those expressed or implied by our forward-looking statements. These risk factors and others are more fully disclosed in our filings with the Securities and Exchange Commission. Any forward-looking statements are based on information available to us today and we are undertaking 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 events that do not materialize. This earnings release as well as the rebroadcast of the call are available on the company’s Investor Relations site at ir.allegiantair.com. With that, I would like to turn it over to, Mauri.

Thank you, Chris, and good afternoon, everyone. Thank you for joining us today. Typically I haven’t been commenting on our calls. For this, I wanted to personally update you on some critical going on - we have had going at the company here. We told you at a year ago at our investor conference, we were committed to retiring our MDA fleet by late 2019. We also told you our financial results would be impacted during this period with 2017 being the most impacted. Financial results have been as difficult as we thought they would be this year. The operational change however of hitting our delivery targets for available Airbus aircraft and training pilots to fly them has been spot on, very excited and pleased about that, and hats off to all those involved in making the changeover happen on time. As we got further into this year we have concluded we want to accelerate the MD-80 retirement timeline, to that end we have moved up the retirement date by almost a year to the end of 2018. To accomplish this goal we need to tie down two areas, first we had to find additional aircraft to make sure we have sufficient left. Our aircraft acquisition group headed by Robert Neil close to the task and they found us almost 20 additional aircraft which will be delivered in in-service by the end of next year. Second we needed to make sure we could transition our pilots from the MD-80s to the Airbus inside this accelerative schedule. During the past 24 months I'm happy to report we have substantially upgraded our training capacity, and associated facilities to allow for this accelerated transition. We will miss the MD-80, it was the perfect fit for our model. The used Airbus fleet we are moving into fits nicely as well though within our model. We expect this unique company as we call Allegiant which provides our customers with a low cost leisure customer focused offering will continue successfully for years to come. Earlier this year many of expressed concerns about our management changes. A number of you publicly questioned whether our leadership was up to the job at hand. Over the years this management team I believe has demonstrated a consistent focus for delivering exceptional results for all stakeholders. Since 2001 we have had 59 consecutive quarters of profitability, a number which I'm extremely proud of and many of these have had the best operating margin percentages in the world. We are committed to continuing this tradition. We have a deep in line management team, you expressed concerns about the lack of expertise in particular in our operations area, and we needed a wise experienced operations veteran from the industry. We have patted ourselves having said that on being different and to that end in late May, John and I asked Scott Sheldon to take on the COO role to dig in and make the necessary changes in our operational leadership and processes to turn these critical departments around. And while Scott's background is not an operations, he does have a terrific management pedigree and perhaps more importantly he knows our organization from top to bottom. Management expertise is a skill that is transferrable across many disciplines. Scott's expertise isn't that he knows that change or start a generator. However, he knows who the right person is to run the organization who needs to make this repair. To that end I'm happy to report we have made extraordinary progress in our all important operational results particularly maintenance in just over four months and Scott will take you through some of these specifics in just a moment. All successful companies experienced management changes by definition that the company is around long enough management change is inevitable. So it is for us as well. But this is not a weakness in many instance, but rather a positive development to allow the company to consolidate what might have been a bit of a fractured leadership environment into a more uniform focused leadership group, that’s the case for us, and so it has been. All I want you all to know our company is in as a good a position as I have seen it, particularly as it relates to senior management. We have great people. End of story. The quality is only exceeded by the depth. Current leadership team with John, Scott and many others in our senior roles are all world class. In closing, our Board and management and team members have a shared vision of operating a low cost leisure oriented travel company. Our airline is the backbone of this strategy. We need to, we will offer our customers a safe reliable on-time low-cost travel product. In addition, we want to offer the same customers a sweet of leisure products, which allow them to stay in our ecosystem such as are recently announced Sunseeker resorts condo/hotel project. We have the financial capability that might add to finance these efforts without adding entire high level of additional risks. But more importantly, we have the leadership team necessary to make this happen. With that, let me turn it over to John for his comments.

Thank you very much Maury, and good afternoon, everyone. So to expand a little bit on the management comment Maury made. I think we are chatting in the last conference call. We had referred to Scott as being interim, we have of course taken that title away, he is our Chief Operating Officer, he has been functioning in that role and he will continue to hold the CFO title as well. But I thought it was appropriate to point that out that he spends a significant amount of time and effort and I think you can see in that in the results [indiscernible] still expand on that. Like anything here that we are doing, we have been looking at personal up and down in the organization product and process. But it all start with personnel. So there has been a significant number of changes that have taken place in the maintenance area. I pointed out, because as well as we have done in the back end of Q2 and of course throughout Q3 and continuing in Q4. Our best days are ahead of us, giving these significant management changes we have made down, deep and throughout the maintenance related areas. So very proud of what is taking place there. And of course, the product and process changes we are making going forward will start to produce significant impact as we move into Q4 and really into our Q1 of next year. CMO candidate, we chatted about that in the past. We still have that search going on, I’m using [indiscernible] to conduct that search. This is one or more difficult position to find in any organizations. A lot of those that found throughout my carrier, this is always been a difficult one. And more so far than ever, one that’s probably in the highest demand throughout various industries out there. We extended an offer to an individual about a month ago that person had several other offers and choose another one. We do have another offer out there on the table to another wonderful candidate that we have been having significant conversations with. So hopefully something will materialize out of that. But again, we want to fill that role, we are going to fill it on the outside. And we are confident that we will guess that just takes the appropriate amount of time to get to the right candidate. I have always referred to 2017 as being a foundational year throughout the company. What you are talk about ops like the fleet transition began, the various personnel changes, hospitality, we set that foundation, we are finding a site developing, we are starting the development of a brand. So it truly has been a foundational year and exciting as we move into 2018. So what is 2018, you know 2018 of course continues the transition that Maurice spoke about, we are accelerating it into 2018 due to the efforts of B.J. and his team. Without that - I think all of us, including myself looked at going into 2017 as the transition probably seen one of the largest potential areas of execution risk. I think it’s the fact that B.J. and his team have executed and plan throughout the process in a flawless manner. It gave us the confidence to accelerate the whole transition if you will out of the MD-85 at the end of 2018, so very excited about that as Maury pointed to. But now 2018 is not only ends the transition, but now that becomes the transformational year. Everything that we have laid the foundation for really allows the company to transform going forward. So, when you look at ops for instance the tremendous success we have had in a relatively short period of time and with all the efforts that I previously alluded to, that truly will be transformational in that area and create an environment of accountability and speed and everything else that we are pushing to be able to enhance that portion of that area, very transformational and very exciting to see what's happening. All the IT projects that we were working on in the 2017 got us out of lot of the technical debt and everything else we are working on, everything that we presented in the investor deck from an IT perspective all of that is on track, we will of course talk about all of these issues in greater detail in the investor presentation coming up here in November 29. But again all that - most of the projects we will be working now in IT going forward, 2018 and out are ones that have an ROI associated with and that's opposed to just trying to take care of technical debt. And of course Sunseeker, Maury alluded to that as the 2018 we will see Sunseeker start entrants new purchase agreements, it will see the beginning of construction and again we will give more color to that, but that 2018 will truly be a transformational year for this company along with other strategic initiatives we are looking at. And just to expand a little bit on Sunseeker, I'm not going to take any questions on Sunseeker until the Investor Day, not because we are not excited by it, we are trying to avoid it, but there is a lot of things that are taking place right now that allow me to give more color on what's going on in Sunseeker by waiting till the 29th of November. By that I mean just to give an idea; we have talked about these expression of interest that we have been attracting on our website, we are going to be converting those to reservation deposit that's going to start in the beginning of November, so I can't give you any color on that because it doesn't still until November and that's one of the most important data point. So by November 29th we will be able to give you a good feel for how those are operating and again just by way of background or a reminder those are deposits that are refundable, our people, our individuals or prospective buyers actually open up the an escrow account and put 5,000 down, now that process as I said will start in early part of November. Now I will give you information regarding construction costs as I mentioned before, we will talk about financing, we will talk about construction timing. So all of those updates will be provided in that November 29th Day, but the ones takeaway you should have from this meeting and of course everyone we have going forward is that there is no change to the philosophy which is we will not get started. We will not build without pre-selling everything, so that should always be something that's understood, we are not moving up that, nor will we, but I think looking forward to the 29th of November to give you a lot more color. In that regard, I will turn it over to Scott.

Thanks, John and good afternoon everyone. First, I want to thank all the team members across the network for the tremendous job they do every day. As more indicative we are seeing positive operational trends over the past five months and that’s a direct results of the renewed efforts of our staff. We are really gaining momentum within new operations group and we are starting to perform at a level or customer expects form us. As you may recall, our second quarter 2017 ops didn’t perform as expected. We have experienced over 425 maintenance cancellations, which was the highest number of maintenance cancellations in the history of the company. There were a number of key personnel departures mid-quarter and we were lagging behind many of the internal targets that we track on [indiscernible]. Our core performance resulted in regular ops cost of almost $18.5 million during the quarter, which is up about $8 million year-over-year and impacted over 120,000 passengers. As we moved into 3Q 2017, we made substantial changes within the organization, particularly within the maintenance group. Some of these included changing out and/or realigning key maintenance leadership here in headquarters. We introduce new line maintenance management teams within St. Pete, Las Vegas and Sanford Orlando. We introduced a new leadership within the maintenance planning group and also realigned our reliability group underneath them. Restructured our heavy maintenance and induction organization and conducted bottoms up review of our procurement process material support strategy along with new leadership in those areas as well. Early indications are showing these changes to be meaningful. We are seeing a fairly dramatic turnaround since June and this factor liability on both airbus and MD-80 fleet, which are both multiple points above the year-to-date averages. A reduction in aircraft out of service events and those importantly a reduction in number of hours per out of services even. These are encouraging trends in such a short amount of time. I have indicated in our release, we experience 61% decrease in controllable cancellations year-over-year. This resulted in nearly 1.5% increased in controllable completion factor to 99.2%. And more importantly allowed us to drive down year-over-year regular ops costs by $3.5 million, which excludes the impact of Hurricane Irma. On a sequential basis, our controllable cancellations decrease nearly 64%, which resulted in nearly $10 million reduction in the regular ops costs from the second quarter. As a reminder, to those on the call, our trailing 12 months regular ops costs are approximately $48 million excluding the impact of Hurricane Irma. Once again these results are preliminary, all of our team members should be proud of the progress we are making, it’s incredibly expenses to run - operation and with the expected aircraft - levels expected to be reduced post MD-80 retirement. we have to run a more reliable operation. And lastly let me touch on a comment made in the earnings release. As a release indicates our Board of Directors just approve this week and aggressive retirement schedule for the remaining MD-80 fleet. Our book value exposure at quarter end for MD-80 fleet and related fleet assets was approximately $42 million. We are currently in the process of conducting and impairment analysis with our auditors KPMG, which may results in us taking a one-time non-cash impairment charge during the fourth quarter. And with that, I will turn it over to Lukas.

Good afternoon. Thanks Scott. So like to give a little bit of color as to how the third quarter results and fourth quarter guide for year-over-year unit revenue turned out. We are very pleased with how the third quarter ended up. We finished slightly above the mid-point of our original guidance on the last earnings call and we didn’t see any major impacts from the aggressive commit or pricing landscape over the last few months. Hurricane Irma did not materially affect our third quarter TRASM, it did affect fourth quarter bookings which I will speak in a minute and it occurred during a seasonally weak period, and that's too wide a factor for TRASM. We have continued to pace ahead of our co-brand credit card acquisition rates forecast and we are extremely pleased with results so far, and we just completed the first year of our program and I will be sharing much more on this in depth at our upcoming Investor Day. And lastly our new revenue management system is playing very well, roughly one-third of our flowing capacity in the third quarter was placed with the new system and showing positive results. As a reminder this is going to be multi-year process, testing our position and again we will be sharing much more details next month. So turning towards the fourth quarter, we project year-over-year TRASM to be down between negative 3% and negative 0.5%. One big headwind as for that is the impact of hurricane Irma and the Las Vegas mass shooting, we have the highest percentage of capacity in Florida and Vegas in the industry and seasonally adjusted that by 8% of our ASM in the fourth quarter. The effect of that headwind on bookings in the fourth quarter is about 3% to 3.5%, now that has been pretty isolated to the fourth quarter, booking volumes have steadily recovered each week since the attempt of each and I don't expect that much of an impact on the first quarter of 2018, revenue story. And with that, we will open up the questions.

Thank you. [Operator Instructions] The first question is from Michael Linenberg of Deutsche Bank. Your line is open.

Good afternoon. I guess two questions here, I think John you had referred to last year, or this year was a transitional year and 2018 as a transformational year, the fact that we are going to see the company I guess accelerate depreciation of the MD-80's how should we think about what your unit costs ex-fuel are going to look like in 2018, is that going to be - the increase, is it going to be similar to what we saw in '17, given the fact that you're taking a lot of these I guess upfront costs and you do still have some transitional costs occurring next year, can you give us some color on that?

I will let Scott give you a little color on that, he is closer to it.

Okay great.

Yes. So as I just mentioned, at this point it's likely you're going to see kind of a one-time non cash hit related to the remaining book values of all MD-80 and related assets here in the fourth quarter which would - I think we gave full - reaffirm full-year ex-fuel guidance of about 11.12. If you include some sort of the range about the 42 million that's likely in the 15.16 range. excluding that the trends moving into 2018 you should start to see definitely reduction in CASM-ex that is assuming how do you want to look at it with or without write down and so as Maury mentioned '17 was probably going to be the most choppy of the 2.5 year transition, but at this point obviously we have a couple of weeks left to the Investor Day, but at this point directionally you're going to see a reduction in full-year 2018.

That’s great to hear and then underlying that what type of I mean capacity range, I realize its early, but you kind of have a sense on what we are going to see as we move into I mean for 2018 what your scheduled capacity could be?

Yes, Mike this is Lukas, we will give the full projected range at the Investor Day, but it’s not going to be 20% number like you saw in 2015, 2016, but probably more somewhat 2017.

And then just one last question, I don’t know if this is to Scott. As you start to build out the Sunseeker side of the business. Have you thought about, when you present your financials. Are you going to break out, is it airline financials? Next the Sunseeker, are you going to consolidate them. I mean, I think we are going to trying to figure out what part of the financials are tied clearly to the airline? What are type to the real estate side of the business? I mean, or is that going to be - are you going to provide more detail on that on your Investor Day.

This is John Redmond again. We will definitely give you a lot more detail on that Investor Day. But I think, I have mentioned in the last conference call as well. We are definitely going to give you a lot more information on what is going on with Sunseeker and we are going to have enhanced disclosure as it relates to Sunseeker going forward, there is no doubt about it.

Okay. And my Michael, this is Greg Anderson, I would just add to John’s point that that there will be segment reporting on the Sunseeker, of course with the airline, so you will see it all broken out within our filings.

That’s great. Okay that’s great, thanks guys.

The next question is from Rajeev Lalwani of Morgan Stanley. Your line is open.

Hi thanks for the time. Two questions. One, you highlighted 2018 as being transformational year. What does that imply as far as the fleet transition next year. And do you feel like after this year, you have kind of de-risked that dynamic or you are just more comfortable with it, not much of a risk going forward?

Well, when I say transformational it’s because of all the initiatives that outlined in 2017 that we are, that we have worked on. And the fleet transition of course was part of that. As I mentioned, B.J. and his team have done just a tremendous job in planning and executing that transition that gave us the confidence to go ahead and accelerate the rest of this transition into 2018. So that’s why then 2018 becomes the transformational year, because we come out of it, of core as an all airbus suite as we move into 2019. So very excited to buy that, there is always going to be risk anytime you involve yourself and a significant transitional like that, but we feel comfortable moving into 2018 given the success of 2017 no doubt. When we were going into 2017, it was a new challenge for us. One we hadn’t done at that level and of course we have that degree of confidence now moving into 2018, that we won’t have any significant miss steps.

Very helpful. And then for Lukas. Can you talk a little bit about the revenue initiatives, why they are coming along and maybe give a couple of data points on I think you are talking about the new revenue management system?

Sure. Just one point on to John’s answer. We are going to finish up this quarter fourth quarter at 65% of our flown ASMs on airbus. And the first quarter of next year will be 75%, 76% on the airbus. So we are mostly through this from kind of a risk standpoint, and delivery and fleet transition standpoint. That’s again why we feel fairly confident. In terms of the new revenue management system, I guess were about a third of flown ASMs in the third quarter, we will be on the system about 55%, 58% somewhere in that range. In the fourth quarter we will be flown price using the new system obviously within the first year of its launch there should be some flights in some segments that is better on some worse, but overall the trend is positive. The new system is outperforming the old one and going into the first quarter of next year will be closer to 80% or above on flown ASMs on the new system. So again we are really encouraged by both the way that its ramped up. I think at the start of the year we had a low percentage of ASMs and we needed to get it live and the system be running about itself, but one of the - much more in-depth breakdown in the Investor Day as to quantifying the TRASM impact on that and as to what timing you guys can look for that.

Thank you gentlemen.

Thank you. The next question is from Joseph DeNardi of Stifel. Your line is open.

Yes, thank you. Lukas just on the fair environment right now it seems like the last time this played out back in 2015 when fares stepped down, there was a little bit of a lag in terms of when other airlines started seeing the impact and when you all did. So correct me if I'm wrong there but I think you started to see the impact once connecting fares came down low enough, is the fare weakness that the other airlines have talked about since June or July different than 2015 and that's why you're less impacted or is the impact kind of yet to come?

That's a great question, because you're right we did see a six months lag in 2015 when this happened. There does seem to be a key difference in the environment for us as pertains to us and other carriers and that specifically there are some weakness around closing advanced purchase pricing right now throughout the industry and also specific hubs that are being priced at. As for the first one, in 2015 we know as the decline in connecting fare pricing which hurt us more than some regular segments O&D fare pricing that we are seeing now so we feel pretty well inflated from that we have seen virtually no difference in the connecting fare environment which makes sense given the strategy of certain carriers. And as far as the second point, I don't feel there is going to be a ton of difference in terms of - there is no going to be a ton of book away, because we are not exposed to Denver or some of the larger competitive pricing hubs right now. There is nothing within a couple of hours that you would be driving away as opposed to 2015. So we feel as of right now we have had very little impacted as to what's going on.

Okay, that’s helpful. And then Scott just on the irregular ops number I guess 48 million last 12 months, does that all go through the other expense line or does that include labor and some other things that might hit elsewhere in the income statement? And then like what can that number get down to eventually and how much of a driver of the CASM benefit is that going to be next year?

So, as far as how it's reflected in the financials, it's kind of a [indiscernible] right so that's an all-in number, so there is going to be a revenue impact to that. There is costs, there is not one specific spot you can point to. That being said every time we cancel a flight, cancel it in every schedule it costs about 50 grand, and so you start to see some of these cancellation numbers that we have historically seen and it gets really expensive. And so as a data point we have experienced less than one maintenance cancellations per week since mid August and so you are starting to see the operation really calm down and you start to see, you eliminate kind of the wood saw effect of kind of rolling delays. And so what can we get down to, I would very surprised, I think, taken back to 4Q of last year. I think there was about 10 million. And regular ops costs, I think you are going to see attraction of that assuming that’s the trajectory continues on what we are seeing right now. And so we are pretty bullish, a lot of those numbers and where we think the benefit is or not baked in to what our guides will be in November. So we do view that definitely as episodic.

Got it. Thank you.

And the next question comes from Duane Pfennigwerth of Evercore ISI. Your line is open.

Hey thanks. Just with respect to your 2018, we plan these 390s and 320s. Is that baked for 2018 or should we expect to see sort of more opportunistic aircraft deals. And could you speak to how booked you are for 2019 also?

Duane, this is B.J. I think it’s unlikely see too many more airbus data of during 2018, we are kind of going about as fast as we can, it have to be something really opportunistic at this point. And then on 2019, I think we have got still some of the aircraft coming in from [indiscernible] which are on lease today delivering the fourth quarter this year. So those are coming around March. And I think there will probably be five or six more.

Okay. I don’t know how aggressive you are in the market now. But I wondered if you are seeing any softness in value as it relates to some of the restructurings in Europe?

Yes. There is definitely some opportunity there. That demand is being soaked up though, I mean that’s mostly a leased fleet and they don’t seem to have trouble placing it on lease, excuse me. But we have to found a few opportunities from those bankruptcies.

Okay, and then John, I want to be respectful to your no comment on some secrete. But it just so enticing given that we get to ask about other than RASM and CASM. So maybe conceptually, could you just elaborate a little bit on what you mean like, you won’t build it until you sell it and specifically what is until you sell it mean, does it mean one tower or does it mean all the towers and does it mean deposits. Any color you could add on that would be great? Thanks a lot.

No worries Duane, I appreciate it. And it will fund frankly talking about the project going forward, because, we become more related and ecstatic about as we move to the process here and continue with the design development. As I mentioned, the project has basically two components, they would have a component that’s owned by call it Allegiant Sunseeker and a component that would be sold off that is condo/hotel with the idea of the hotel components being managed by us as hotel products going forward. So we would not build, the idea is not to build the assets that would be owned by Allegiant Sunseeker. We would not build those assets until we sell a sufficient number of condo units or towers that would pay for the costs of those structures. So I can try to provide a little bit more color to you and that Investor Day on how many units we think that would be that we will have to sell in order to pay for the Allegiant Sunseeker owned assets. But right now of course our fixation is on selling up a whole project, so there is right now about 720 units and our focus is to try to sell all 720. And if that came to pass, then again selling means entering into purchase agreements with sufficient number of people to cover the 720, I would say that because we can have people buying more than one unit and when that happens then we would start construction. So, all of our efforts whether it would be sales, construction et cetera, are moving in parallel tracks, so nothing is lagging the other, so whenever we have finality or certainty on one we are able to execute on the other. So, if we have sufficient sales for instance it's not like we are going to have to wait six months for construction development to catch up, because they are all moving and locked up which is very good for all.

I appreciate that. So, with respect to the land, there is some improvement activity going on now to sort of bundle this up as one parcel?

Yes, that's more legal in nature where you have to go through and vacate streets and use them for what not. So the attorney community is happy that’s for sure. The other type of activity you will see before the end of the year, they are on site, which is more minor which is the eliminating or demolishing just a handful of small structures that are on the property for a multitude of reasons not the least of which is squatters and safety and everything else. But these are very small for the most part single storey structures that we would start to take down some time in Q4. But the parameters we previously provided in terms of how much we would be spending, no change to that, I think in aggregate we said something like 35, between - from when we started to the end of this year and I don't see any change to that. But again, we will try to provide the tremendous amount of transparency and color in the November 29th Investor Day.

Great. Thank you.

You are welcome.

Thank you. The next question is from Helane Becker of Cowen. Your line is open.

Thanks operator. Hi everybody, thank you so much for your time. Just a couple of questions here on the handout for today at least on my page two or on page three, you talk about maintenance and repairs expense kind of declining for the rest of the year. So I'm wondering about this, is the A320s and 319s come in, how should we think about maintenance cost per aircraft, I would think that should trend down as well?

Yes hey Helane this is Scott. No you're absolutely right, the Airbus suite we currently account for heavy maintenance on the deferral method, on our MD-80 fleet it's still under the direct expense method and so any heavy maintenance activity albeit that's going to start really wind down as we sunset the fleet, you will see less and less expense and roll through the P&L, real time you will begin to see more and more capitalized maintenance and depreciated, which relates to the Airbus fleet. But you're right, I think in the release we have I think we had a full-year guide of 105,000, 110,000 per aircraft per month. You should start to see that come down dramatically once the entire MD-80 fleet is sunset. So we are not putting too many motors to the shop, a lot of the retirement schedule related the MD-80 is targeted to the next heavy air timeframe. And so, we are starting to minimize, a lot of the maintenance costs that you would have to re-up for continue to operate the aircraft.

Okay. And your account, make you account for the maintenance on the airbus just to where the major account for the MD-80 maintenance?

No.

Okay. Alright. That’s a good answer. And the other question I had is with respect to the CapEx guide, which seems to be I guess up, but it’s up because of the additional A320s that you manage to source is that what that’s about, because further down on page three, it’s says full-year CapEx now. It’s 604 versus prior guidance of 525. And I’m just making sure that’s related to the A230 fleet, right because I guess…

Hi Helane, this is Greg Anderson again. You are absolutely right. So we expect here in the near-term to close on five additional 320 series aircraft and the increase in our guidance pertains to those aircraft.

Okay. And then how long will it take those to get into service?

So well the payments will be manage this year and service will be flow into next in 2018 mainly in the mid part of next year.

Okay well I think those are most of my questions. Thank you.

Thank you. The next question is from Hunter Keay of Wolfe Research. Your line is open.

Hey guys how are you doing. So if the fleet count is going to be down next year. Can you talk about how you are going to grow ASMs? And what does that mean for sort of the peak versus the off-peak flying and maybe how that impacts TRASM, just wanted to get your sort of an early look at that? Thank you.

Hey Hunter, it’s Lukas. So it’s a good question. And part of that is annualizing some of the growth that we put in this year and part of that is going to off-peak absolutely where you are going to have to condense down a little bit from where were you at this year. It should be as bad as the summer this year, where we really had negative peak day growth. We still be able to grow peak days, but most the growth will be concentrated again on off-peak days for example for the first quarter it’s about a three to one ratio in terms of growth on an off-peak day, versus a peak day. And as well, I think we are going to squeeze down fixed slightly for 2018 as we make sure [indiscernible] and the fleet transition get the priority.

Is there a stage length components to the data sense to given the slight incremental range capabilities?

We are flying a little bit further. But I would say, no. You are still going to be annualizing the end of the - I’d say [indiscernible] which we won’t be running in 2018. So I’d expect to the page to not increase from that side. There is a minor gauge increased as you go to 160 seats as well. So that’s a way to increased ASMs about - I believe 2% of our planned ASM growth in 2018 is due to the up gauging.

Got it, all right thanks man. And then I don’t if this a question for Maury or for John. But every airline has their own definition of what marketing person does. Sometimes that has absolutely nothing to do with marketing at all. John, I don’t know if you can elaborate on sort of the search here. But what is it exactly you're trying to get from this Chief Marketing Officer that might be very unique as it relates to what that role traditionally does for an airline?

That’s a very good point Hunter. I think you guys have all heard me say that from the outset, our objective is to bring someone in who did not have an airline background right. So, this is someone that understands how to get involved in data analytics, how to deal with the database in a much more significant way and how to monetize that database. We have been saying since I came on board that airlines have these amazing databases, but they haven’t figured out how to monetize them. So, we are going to bring in someone who really knows the way around a database and knows how to monetize that data and drive a lot more revenue than just through potentially selling an extra seat or an additional credit card. So, those are what I would call [indiscernible] marketing that's going to be happen throughout the airlines, but we want to come up with something that's far more unique and that's why we are looking for a very uniquely talented individual to try to do that. Also within the marketing warehouse if you will that we are looking for would be people have a good depth of understanding when it comes to branding and the importance of brands, we have already been focusing on our brand at least and already to make sure that we enhance that brand, so we will and Scott talked about [indiscernible] savings quarter-over-quarter, we did that even though we increased the amount that we pay on a per passenger basis probably on average by at least double. So savings would have been significantly higher, but we are enhancing through a lot of different means right now into the customer experience, and because we realize the importance of our brand but we want someone to come in here who really knows how to leverage the brand. We are creating additional brand, I mean Sunseeker being a most obvious, that's one of the most significant standalone hotel brand that's been created in recent past, the person can help us out tremendously and of course all the brands and sub brands that will be at that project will be very significant. The other thing that is important that will be part of those responsibilities would be a whole loyalty program. So, we don't have a loyalty program per se outside of what we involve ourselves with the credit card, so this loyalty program would be all encompassing across all strategic initiatives that we have identified and we will continue identify, so how structurally that's put together becomes very significant and someone has to have a lot of background and foresight in how to how to structure and put together one of those programs. So, those are probably the three most significant areas, albeit it will touching on others, like advertising and these types of things, but those are just more obvious. But I hope that answers all maybe what you were thinking of.

Yes, that’s good. Thank you John, I appreciate it.

You are welcome.

Thank you. The next question is from Dan McKenzie of Buckingham Research. Your line is open.

Hey thanks guys. Good afternoon. A few questions here. Scott with respect to the non-fuel cost down [indiscernible], I apologize for splitting here and what that means exactly, but do you simply mean the growth rate is down less than year, but still growing or do you mean down in the absolute sense?

In an absolute sense.

Okay and then I guess, just to clarify that point. If I can go back to the 100 million in the incremental costs and revenue initiatives as outline at the Investor Day last year. I think investors are concluding that a lot of these initiatives get competed away. But if we can just start with that 100 million, just for purposes of the argument here. It seems that you could do a little better on the fuel on the ex-fuel costs and the fleet productivity if you are accelerating these things. So just sort of back of the envelope all else equal. If none of these are getting competed away would seem like that will get something closer to 125 million. Is there any flaw to that logic?

I think the one point we have made is on that Investor deck that we provided way back when. In the last call as well as this one. We are tracking everything that we have committed to on that deck. But the one thing that I wanted to point out is. When it comes to the Investor Day coming up on 29. We will go line item-by-line item and give you updates on where we stand. So we intend to give you a lot of color around this, but we are pacing on all of these initiatives, just like we expected and there is nothing negative to report, we can only give you a little bit more transparency about the details around each of those numbers when we get to the Investor Day.

Okay. I appreciate that. Then if I could just squeeze one more in here. And I guess this will be for Maury or Scott possibly. But in the third quarter it doesn’t look like there is any stock bought back, but yet it was pretty cheap or in expensive. I’m just wondering what perspective you can share about that decision in the third quarter and as you look ahead what are these things we should be thinking about?

Well, it’s Maury Dan. We try in-time our purchases of stock in the pecking order goes to investment in the company CapEx in particular. And then stock, if we have that excess capital. But we really have a big focus on getting ready for next year with - you heard about the additional CapEx and the like and we are maintaining basic liquidity of requirements as well. So I’m mindful that the stock was definitely seems to be hopefully at the low end. But we bought a lot in the previous quarter and so we always look to be opportunistic, but we look the business take its place first in line.

Okay. Thanks guys.

Thank you. The next question is from Kevin Crissey of Citigroup. Your line is open.

Hey thank you for the time, I appreciate it. When you talk about CASM-ex for 2018. Just want to make sure I understand it. Is that inclusive of the Sunseeker or is it just the airline costs. I’m just wondering whether CASM-ex going forward is going to be total company costs or just the airlines costs.

Yes. It’s will be all-inclusive, we haven’t broke anything out yet, but everything under the recent umbrella would be included in that and that’s sort of a downward trend.

Again one big point just to add to that. Kevin, this is John Redmond. A lot of what is going to be happening, it’s not everything, well Sunseeker in 2018 would be capitalized. But again, we can give you a little bit more color on that. But from a most part, you can look at its about everything relating to Sunseeker is being cap.

Okay thank you. And maybe for Lukas. Can you talk about what the network implications are for the faster retirement of the MD-80s, like how that might change your plans?

Yes. So again you had to shift a little bit of the flying to the off-peak period, we took down growth slightly from the originally forecasted plan. But it hasn’t been as much in adjustment that you would expect. It's really about consolidating, delaying some of the opportunities till the beginning of 2019, and just making some hard decisions around when to cut off. I think we have timed it well with the operation of fleet team so that will be as minimal kind of growth disruption, we are focusing on rapidly exiting in some off-peak periods, so you won't see nearly as much of an impact as you would have otherwise. So you're talking 3% ASM difference between end of 2019 plan and end of 2018 plan versus a large number of shelves. I mean if you were to look that you want to extend a lot of the difficulties of operating two fleet types for another year just for that 2% of ASM growth it doesn't make a whole lot of sense. So I think everybody is excited in onboard at this point.

Thank you.

Thank you. The next question is from Steve O'Hara of Sidoti and Company. Your line is open. Steve O’Hara: Thank you. I was just wondering if you could talk about the fuel burn in terms of the A320, what maybe the expectation is when to get to 186 and then how that progresses maybe you know for 2018 and [Technical Difficulty]. Thanks.

So, this is current quarter and our fuel burn in moving over to A320 will increased to about 85 ASMs per gallon from the 72 number that we are for 2017. In 2018 we will make a significant step increase with accelerated retirement to be between 78 and 80 ASMs per gallon. Steve O’Hara: Okay and then just on the central potential in the fourth quarter, that’s just taking the value down the way that will be depreciated throughout the year, is that the mechanics of it?

Yes, basically you would see a one-time expense to the other line item, so basically look at it as a gain loss, so it's really disposition of the fleet and we should have that nailed down here in the next couple of weeks. Steve O’Hara: Okay, alright perfect. Thanks very much.

Thanks.

Thank you. The next question is from Savi Syth of Raymond James. Your line is open.

Hey good afternoon this is Matt Roberts on for Savi here. A quick question on Vegas, now you said that demand was rebounding, now does that mean bookings are still down year-over-year but there is down less, could you provide a little color there?

Yes Matt that would be accurate. This is Lukas. But certainly each week since the first week of October I guess bookings have recovered more close towards normal, but we are still slightly behind where we were pacing last year. Florida on the other hand bookings have actually rebounded above year-over-year, yields were slightly declined [indiscernible] would favor about even with where we are this week, that’s most of the hurricane Irma impact to be already baked in and Vegas is almost there.

Okay great. Thank you. I assume is that a similar trend for hotel room inventory and kind of on that lines what type of promotional activity is necessary to get Vegas back to normal and how long could that go on for?

I can't speak to - if you kind of read in through similar properties. But I would expect that to be similar in terms of volumes, because as we carry people in its similar like-for-like.

Fair enough. Alright, thank you.

Thank you and the last question will come from Joseph DeNardi of Stifel. Your line is open.

Hey Maury just relative to your prepared remarks. One of the questions I get a decent amount is what your plan are longer term? So maybe if you could just provide us with your updated thought. I mean the line on your 10-year as CEO is two years. Would you take the over under on that?

The company is going through to a big transition right now. I have not sold any stock for quite a while. I’m a big believer in where we are at and I’m not involved in the day-to-day as much as perhaps I might have been a couple of three years ago. The team is doing a great job. I still provide a good service for some of the oversight and some of the outside stuff. So they kept the desk in the corner for me and I’m going to stay there for a while.

Thank you.

Thank you. There are no further questions in the queue. I will turn the call back over to Maury Gallagher for closing remarks.

Thank you all very much. I appreciate your time and we will talk to you in January.

Thank you. Ladies and gentlemen, this concludes today’s conference. You may now disconnect. Good day everyone.