Allegiant Travel Company (ALGT) Q4 2018 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and welcome to the Fourth Quarter 2018 Allegiant Travel Company 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 be given at that time. [Operator Instructions] As a reminder, today’s conference is being recorded. I would now like to turn the call over to Mr. Chris Allen, Investor Relations. Sir, you may begin.

Thank you. Welcome to Allegiant Travel Company's fourth quarter and full year 2018 earnings call. On the call with me today are Maury Gallagher, the Company's Chairman and Chief Executive Officer; and John Redmond, the Company's President; Scott Sheldon, our Chief Financial Officer and Chief Operating Officer; Drew Wells, our VP of Revenue & Planning; and a handful of others to help answer your questions. We will start with some commentary and then open it up to questions. The Company's comments today will contain forward-looking statements concerning our future performance and strategic plan. Various risk factors could cause the underlying assumptions of these 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 SEC. Any forward-looking statements are based on information available to us today. 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 investors not to place undue reliance on forward-looking statements, which may be based on assumptions and events that do not materialize. To view this earnings release, as well as a rebroadcast of this call, feel free to visit the Company's Investor Relations site at ir.allegiantair.com. With that, I'd like to turn it over to John.

Thanks very much, Chris, and good afternoon, everyone. Welcome to the end-of-year conference call and of course one of the more interesting ones because we get to provide guidance on the following year. But, as I went through our earnings release getting ready for this call, I couldn't help to reflect on the Investor Day we had towards the end of 2016. In that Investor Day we provided guidance which was four years out 2020, which seemed at the time to provide guidance so far out. But those of you who participated or have since seen that information, the guidance we were providing was the initiatives that we were going to be working on, revenue initiatives as well as cost, to get us to 2020, which was the year that we expected to come out of this significant fleet transition and operate an all Airbus fleet. Of course, now, as you look back at that today and you ask yourself, well, what's happened over that timeframe, very difficult transition that we completed in two years instead of three years, frankly. We got done a year early. And that's why we're so excited about now going into ‘19. When you look at those initiatives, this amazing team not only has delivered on all the initiatives but the ones that we haven't delivered on yet, we are pacing to deliver all of those on schedule as we suggested or stated. So, it's been an amazing timeframe during a very difficult transition, but one that we're finally coming into an all Airbus fleet that when you look at the ‘19 guidance, you can only be excited about what's going to happen going forward. But, I couldn't be more proud of the amazing job that the entire Allegiant team has done here in getting us to this important point in the history of the Company. So, when you look at this earnings release that we put out, there's a great deal of transparency to help understand the airline and non-airline business lines as we move forward. We mentioned last call we’d provide this and of course here it is. Consistent with last year, we will not comment on the 2019 data point guidance, unless there are material changes during the course of the year. And of course, that's what we followed in ‘18 year, plan doing that in ‘19. We did provide CASM-X guidance for 2019 as well. And we did that to assist in your understanding of how our costs are trending as we continue to right size the operation for a single fleet type. We'll continue to grow into our excess pilots as we add 17 aircraft throughout 2019. And I’ll let Scott give you a little bit more color on all the aircraft CapEx, when he gives his presentation. One of the data points that's not in the release is the fact that we will be a non-cash federal taxpayer in both ‘19 and ‘20. And we’ve made some comments on this in the past, but I wanted to reiterate that as well. So, as I talked about the fleet transition, we of course completed that in the fourth quarter as we said we did of course some time ago. And the entire Allegiant team is looking forward to operating an all Airbus fleet going forward. So, as good as the performance has been in ‘18 as we completed the transition, our best years are ahead of us. As I heard someone say, you ain’t seen nothing yet. And that of course is very true statement for what’s going to be happening here as we move forward. So, in Q4 and full-year of 2018, we outperformed on every operating metric highlighted by a controllable completion factor for the year of 99.7%. So, the complexity and challenges of the transition did not distract the focus and intention of our incredible Allegiant team here. So, as we finish up the year and look forward to next year, I couldn’t be more proud being associated with the management team we have and this wonderful group of employees who should all be standing and taking a bow. It’s been amazing. But, boy, I can’t wait for ’19. And on that note, I’ll turn it over to Scott.

Thanks, John, and good afternoon, everyone. First, I want to thank all of our team members and partners throughout the network for a really tremendous 2018. I think, the combined efforts and results really should be celebrated, given the mission that was outlined at the beginning of the year. Maury tasked us with really finishing the sun-setting of our remaining 37 MD-80s. We had in the pipeline to acquire and induct as many as 29 Airbus, which were primarily from used operators, multiple operators. During the summer season, we consolidated all of our MD-80s line to Sanford base. We increased our Airbus operational reliability, which allowed us to minimize reliance on sparing aircraft. Our flight ops training did a great job at condensing the training footprint, that's really allowed us to minimize our flight crews being offline and particularly as we exited November to get to as many as 75 crew members trained on the Airbus. So, without a doubt, I think we could say we're successful in all of those areas. In addition, we targeted some pretty aggressive operating metrics that which we were -- we hope to achieve. If you look at 2018 on a full-year basis, we increased completion percentage, controllable completion percentage by 0.7 points to 99.7%. This resulted in a reduction in controllable regular ops expense by $10 million. And really with the exception of a 6-week period during the summer, these numbers would have been substantially better. We increased our [indiscernible] by 3.5 points to just over 85%, A14 by 3.5 points to 77%. We continue to be pleased with our CASM-X profile, which specifically for the airline reduced by 1.8%. So, once again, just a job well done to everyone throughout the network. And a little more on guidance. John mentioned and did a nice job laying this out, but there's a couple points that I just want to give a little clarity on. So, we can walk down page three of the earnings release, to give you forward curve, we $2.10 on a full year basis. That's off of a $2.33 full year number. We're currently paying about $2.10 a gallon. ASMs per gallon, we're guiding $0.80 to $0.82 ASMs per gallon, which on the surface appears to be a little light given the 81.5 ASMs per gallon we put up in the fourth quarter. Really, the driving factor here is the pacing of our 319s coming into the fleet. It's really first half loaded. Our fleet plan has 17 units coming in with the first half bias of 319s. So, the 6.5% increase in ASMs per gallon, ‘18 over ‘17 will fall off just a little bit into ‘19. Interest expense, we're guiding $70 million to $80 million on a full-year basis, which is up from about $54 million in 2018. It simply reflects the current leverage profile of the organization. This includes the economics of the refinancing of our unsecured bond. Tax rate, we're guiding to 24 to 25, which is up from full-year effective tax rate of just under 19%. Full-year ‘18 was impacted primarily by two issues, one was a specific Section 199 deduction. In addition, we have some impact from the dissolution of our special purpose companies related to some aircraft that we have placed in Europe. But, moving on to ASM growth we’ll let Drew touch on that. Depreciation, we're guiding, $150 million to $160 million for full-year '19. This is up from about $130 million in ‘19. On the surface, it's a pretty sizable increase, but I think folks should remember that our MD-80 fleet was impaired in the fourth quarter of 2017, which effectively means that was written down to zero book value. So, for all of 2018, we had zero depreciation expense related to our entire MD-80 fleet, which produced about just under 20% of our ASMs. John mentioned our airline CASM-X. We're guiding down 3.5 to down 1.5 on single digital ASM growth. We continue to be pleased that some of the pacing items from the transition, particularly we're getting better efficiency out of flight crews and just efficiencies related to the single fleet type. So, once again, that's a full company-wide effort. John mentioned, the 2020 plan. We grew just under 6.3 cents ex-fuel. So, you can see we’re reaching those levels by the end of 2019. A little bit on CapEx. Full-year CapEx for the airline is coming in around $530 million. It’s really broken into three buckets, maintenance CapEx of $95 million to $115 million, which is up from about $48 million in the prior year. In addition, it's a fairly healthy aircraft CapEx year. As you can see in the release, we terminated some finance leases and backfilled them with some outright purchases. So, some of this growth is really 2020 related. And then, last but not least, our EPS guidance, $13.25 to $14.75, 30% up at the midpoint. And so, very pleased with the health of the organization, health of the franchise. And we look forward to what 2019 will bring. Drew?

Thank you, Scott, and thanks to everyone for joining us this afternoon. I'm very pleased to announce the fourth quarter year-over-year TRASM of up 4.4%, including the impact of revenue recognition rules, which easily ends up as the best year-over-year performance in 2018 as we indicated in October. That number also includes roughly $2 million of benefit due to breakage associated with our credit card loyalty program. While we will be able to take increased breakage going forward, most of that $2 million should be considered a onetime benefit. The breakage amount also explains the variance between today's release and the TRASM range 8-Ked on January 10. Without breakage, TRASM was up 3.9%, which was slightly higher than what we expected at the beginning of the quarter. We saw fixed fee performance with $50.3 million for the year. Note that this was the amount we forecasted to hit in 2020 through EBIT initiatives laid out in 2016 and 2017 Investor Day as John mentioned. I’d like to commend everyone involved in the planning and operation of these flights, for their success. As we turn the corner on our successful and unprecedented fleet transition, we expect to reap the benefits of the remaining 2020 EBIT initiatives. With a full year ASM guidance 7% to 9%, our utilization will increase in 2019, as our fleet count gets back to previous levels. However, we are set up well to drive efficient and unit revenue accretive growth through the year. Our announcement of the crew and planned base in Grand Rapids further strengthens our Mid-Continent base strategy. This will allow us to continue to better optimize passenger throughput in our busiest destinations and to grow the purchase during higher demand times of the day, which has historically been good for fares. This is peak time growth that is not dependent on aircraft growth. We will also reduce the number of spare aircraft, which will improve fleet productivity, adding growth to peak days of week. This is peak day growth that is also not dependent on aircraft growth. We started to realize the benefit of e-commerce revenue project initiatives in late-2018 through the roundtrip discount. The goal of this project is primarily to convert one way itineraries into roundtrips, which helps fill empty seats with ancillary paying passengers. The project is in the early innings still and should provide more upside to 2019. The pricing engine continued the good form we talked about in October and was instrumental in 4Q results. As we move into the second year of optimization, gains will likely be more yield-driven versus load-driven. We continue to be bullish on the revenue environment as forward demand looks strong. We will continue to benefit from the aforementioned initiatives and sort of other self help initiatives such as bundled ancillary products under development and should begin to roll out in the second half of the year. As a reminder, the later Easter is only a modest negative to Q1 about 1 to 1.5 points, but a greater benefit to Q2, about 2 to 2.5 points. Overall, I am very excited about the greater revenue opportunities in 2019 derived from the transition to an all Airbus fleet and our various self help revenue initiatives. With that, I’d like to turn it over to the operator for Q&A.

Thank you. [Operator instructions] Thank you. And our first question will come from the line of Hunter Keay with Wolfe Research. Your line is open.

Hi, everybody. Thank you. Hey, what’s up. Maybe this question is for Sheldon. I’m kind of curious about this $800 million or so of CapEx and the associated strength, [ph] it’s going to push into the balance sheet. Can you remind us, Scott, of the key covenants either on minimum liquidity or EBITDA ratios that we need to be mindful of, particularly considering the recent tender offer that may change anything? Thanks.

Hey, Hunter. This is Greg. Maybe I can help tackle that one. On the key covenants, there is a maintenance covenant that’ll come out on the refi of this the high yield bond. So, we just announced -- or we’ll just price and allocate this term loan B that happened yesterday. So, that’ll be $450 million instrument to replace the high yield bond. So, going forward, those are the covenants that we’d adhere to. And really there is a maintenance covenant in there, about $300 million minimum liquidity.

Okay. That’s really the only name was something around like EBITDA ratios or adjusted EBITDAR or any of that stuff.

Yes. And that’s 5 turns debt to EBITDAR.

5 turns, debt to EBITDAR. Okay, cool. And then, would you care to tell us anything about this well-known institutional asset manager? I am kind of curious, obviously I am not going to name them. But, is this somebody that you guys have known for a long time through the airline side, is it somebody that has a lot of maybe residential real estate experience? Just generically, can you help us describe, how this came to be and what this institution might bring to the table? Thanks.

I think we’re better off not creating more of a guessing game. We’ll just kind of wait till we release that information, as we said before, at the end of Q1. So, we’re comfortable with that that’ll be completed by that timeframe. And let’s just say, it’s someone that you know.

Got you. Thank you, John.

Thank you. Our next question comes from the line of Helane Becker with Cowen. Your line is open.

Sorry. Oh my God! I was so excited, I chocked. I was so excited to be following Hunter that I chocked. So, sorry about that. So, just a couple of things. One is, you talk about the profitability of all the non-airline stuff. Can you just mention how that progresses during the year, so that we would just have a good understanding of if there are losses, they’re front-end loaded or back-half loaded, or how should I be thinking about that, or shouldn’t I be thinking about that?

Well, I mean, at the end of the day, we’re not going to provide any detail beyond what we’ve provided, which is consistent with the entire release; it’s based on a full year. So, when you look at the -- say Teesnap, a lot of that of course relates to a lot of first year courses being added. So, the way the model works is they’re more profitable in years two and out and less profitable in year of being added. When you look at Kingsway, that course is basically a breakeven. So, you can look at it like that. And when you look at Sunseeker and the FEC, a lot of that has to do with pre-opening related expenses, right. So, as you incur certain types of expenses that you can't capitalize, they end up being losses that you see reflected in the negative income, if you will. So, at the end of the day, it's not a significant number. So, if you want to just even straight line it, I mean, you're not going to be material off, however you want to look at it, but any one particular quarter, it’s not significant.

And then, my other question is with respect to what you can say about demand kind of given all the sentiment and what we saw in the first few weeks of the year with the government shutdown. I'm just kind of wondering if you've seen any changes in a way your customers are booking up and for the next couple of months, maybe?

Go ahead, Drew.

So, demand looks good moving forward. As has been mentioned on other calls, the first couple weeks of January tend to be kind of biggest bellwether for how 1Q is going to perform and we were looking kind of right as we expected. So, I didn't see any sort of material slowdown with relation to government shutdown or everything else. And I think the leisure space is very healthy right now.

Our next question comes from the line of Savi Syth with Raymond James. Your line is open.

Just a little bit of clarity on the CapEx side. Scott, I think you mentioned related to terminating of the aircraft and buying some really briefly. Is there any kind of early payment for aircraft in future years, or how should we think about that CapEx?

Do you want to take that, Greg.

Sure, yes. Savi, hi. This is Greg again. On the CapEx, maybe think about the airline CapEx including heavy maintenance for about $430 million in full year ‘19. Of that, I would think about two-thirds of that relates to aircraft. And then the remaining one-third relates to spare engines and other CapEx. And so, we're going to acquire half dozen, seven spare engines brand new during ‘19. So, that puts some pressure on the CapEx as well.

Okay. That makes sense. The engine part is probably what I was missing. And then, if I might just follow-up on the discussion about the initiatives that were laid out in 2017. Can you talk a little bit more about like just what run rate? I think, it was $365 million that was kind of laid out. What's the run rate we’re at today and what’s kind of yet to come over the next couple years?

We've never really provided a breakout, Savi, by year of implementation, but most of those have been completed or well on their way. But, I don't have any breakout any.

Is it just maybe the e-commerce portion that's really left execute on? Is that a fair assumption?

So, I think e-commerce is the biggest of the buckets that has kind of the least amount completed to-date. As you think about fleet productivity, that's going to be a big 2019 effort as we reduce the spare count and we’ll collect most of the benefit there. As you think about fuel benefit from ASM production, that's simply going to be a map exercise as we move into all Airbus. So, we'll see kind of a big windfall this year as well. In terms of there is credit card, it’s kind of right on the trajectory for $50 million in this year and next. I think that pretty much covers it. Is there anything else specific you want us to go through?

That’s helpful.

I mean, the big takeaway there, most of this is all being achieved by the end of ‘19 as opposed to by the end of ‘20, which is what was originally communicated back on our Investor Day.

Got it. all right. I appreciate it. Thank you.

Thank you. Our next question comes from the line of Catherine O'Brien with Goldman Sachs. Your line is open.

Good afternoon and thanks for the time. So, a question for Scott or Greg. Can you remind us, are there any moving pieces between quarters with respect to CASM as we go through 2019, or should we just simply assume that lower capacity quarters should see higher CASM and vice versa?

Yes. I think it’s the latter. I think, you’re going to see the most pressure in the first quarter, just given that it’s the least ASM growth year-over-year. And then, it's pretty consistent through Q3, Q4.

Okay, great. Thanks. And then, can you maybe give us some color just on underlying cost assumptions to that non-airline operating income guidance just to help us to think about the Company cost structure we should think about this year?

I'm not sure I fully understand your question. I'm sorry, Catherine. But..

So, you gave us non-airline operating income. But, I was just wondering maybe you have like a margin assumption or some sort of guidance we can back into non-airline cost trend this year or just maybe year-over-year, however you want to think about that?

Yes. I think, as you look at the impact on full-year ‘19 kind of non-airline ex-fuel cost, it’s anywhere from kind of 0.2 to 0.3 cents per ASM, which is probably at 0.2 cents year-over-year, to give a little color.

Okay, great. Thanks for that. And then, maybe just one more quick one if I could. What kind of benefit, if any, do you have from the improvement in revenue management system baked into your 2019 guidance or was it really the largest impact we saw from that in 2018? And thank you for the time.

Yes. So, I think -- this is Drew here. The largest impact is still going to be in 2018 of kind of similar to what was talked about before, the holidays, the spring breaks are very well defined travel periods have excelled as well as kind of the lowest of demand periods. And that kind of constitutes almost half maybe of the flight which we have. There is still a lot of upside we have through the summer, which we talked about quite bit in both July and October. So, yes, I believe the biggest chunk is out of the way in ‘18 but with more upside to ‘19 than we probably initially expected.

Thank you so much.

Thank you. And our next question comes from the line of Matt Fallon with Deutsche Bank. Your line is open.

Hey. It's Mike Linenberg actually in lieu of Matt. Just couple here. The $175 million of financing that you're getting for the 420, as we think about the terms of that debt, would that be similar to the terms of where you currently borrow in the marketplace? Is that a fair assumption as we think about modeling in that expense for 2019?

Again, all level of details will come out in the release that -- when we're completed with that transaction. But, I think, just the fact that we called out some of it is being non-recourse, you really can’t expect it to be something that has full collateral like say financing a plane.

Well, the interest cost is what we capitalize as well, Michael...

Oh, okay you’re saying that the interest cost will be capitalized?

Yes.

Okay. And then, of the remaining 420, the 420 less the 175, we’d assume that that’s going to come out of internally generated funds, or you also looking to finance the portion of that?

That would be internally generated funds.

Okay, great. And then, just second question, just to Drew, calling out the Easter impact, I think it was you said 1.5 points on March, but 2.5 I think no -- in the June quarter. Why the spread there? I mean, I realize Easter was April 1st last year and the 21st this year. Is there something else there than just the way that day fell?

It’s really about kind of what the comp looks like. So, late April is very low demand for our leisure customers. So, reaping any of the benefits from an Easter shift and some of that peak travel will swing the needle far more out there, than it will at the end of March when there still is a lot of really strong traffic, some spring breaks that are shifting out. So, a lot of it just based on kind of what the non-Easter part of it looks like.

Okay. That makes lot of sense. Okay, great. Thanks Drew, thanks everyone.

Thank you. Our next question comes from the line of Dan McKenzie with Buckingham Research. Your line is open.

Hi. Good afternoon. Thanks, guys. I just wanted to go back to kind of an earlier question on the non-airline costs. I do see that the 2019 non-airline operating income has broken out, which is very helpful. Thank you. With respect to the revenue -- the revenue side of the business, and it’s kind of your full year outlook, EPS outlook. What are you -- what are the key drivers of your revenue outlook? Obviously, I heard the commentary around demand very strong, but what are the things that we should watch out for that could potentially go wrong here, or do you feel like you’ve built in inadequate amount of conservatism?

You’re talking about the non-airline. So, I can’t imagine anything going sideways on this for the most part. I mean, we did provide a projection on the number of golf courses that we expect to add. So, to the extent that we do not achieve a revenue target, it would just be missing the number of courses as we expect to add. But, again, it wouldn’t be material.

Sorry. I meant to clarify on the airline side of the business, just with respect to this year.

Sure. So, the demand does look good, but of course there’s always, the risk of fall off there. As you’ve seen in the past from us, the leisure customer is very resilient. In the event that we do see economic downturn, we’re still confident that we can put together very strong results. And generally that will mean either oil comes down and we can adjust capacity appropriately to continue to incentivize leisure customer travel. It generally just comes down to the price point at which you do that. I guess, the second piece of that is we’re still relying on some self help initiatives in 2019. I mean, there’s always deployment risk as to when those can roll out and whether or not we can maximize that benefit in the timeline that we expect. So, there is always that on the back end. As it pertains to fleet, I am very confident all of our counter parties and the timelines that we have in place, I don’t expect to repeat some of the delivery issues we’ve seen in the past. So, I don’t believe that that is a material risk at this point, though it always does exist at some level.

And then, with respect to the follow-up question here, I wonder if we could just focus a little bit more on Sunseeker. It's really an investor concern. And if I could maybe just focus on cost and how this might impact kind of the projections that you gave us back last September. I think, the $420 million estimate was a hard estimate, but did not include expenses to-date. And now, we're seeing some expenses today that are close to $51 million, so presumably higher than last year. So, I guess, one, has there been some cost creep on Sunseeker? Has anything changed about the development, and how might that change sort of how you're thinking about the Sunseeker income statement or how that might, I guess sort of rank as a percent of total EBIT as we look out to 2020?

No change at all, Dan. I mean, when we first were talking about it, even we said 420 was a 420 going forward number. So, we’ve commented we have spent in the neighborhood of 50 to-date, now you're seeing as of the end of December, we have spent 51. But that doesn't change the overall 470 total, which had of course been inclusive of everything spent up to the time we were chatting plus the 420 going forward. So, that overall 470 doesn't change, nor the 420 going forward.

And it's how you're thinking about the contribution of Sunseeker relative to the overall operation, still in line with that initial forecast that you put together for us back in September last year?

We're going to know a lot more here in another couple of months, but it is -- we're still hoping to be -- if you drove by the site, you see a lot of work going on. So, a lot of times people say, we haven't done anything, there's work going on now. I think what we would like to see before we start committing to a more firm timeframe is when you start going vertical. So, we're still expecting that the going vertical timeframe to be at the very back end of Q1 or early Q2, so call it the March-April timeframe. And it is still our expectation. But again, we’ll no more in another couple of months that from the time that we start going vertical, we would be opening in the neighborhood about 18 months from then. So, call it in the back half of 2020 is when we’d be looking to open up this project.

Yes. On the economics that we put out, we see those being just fine, the forecast that we put out back in September, nothing’s changed there. And just to be clear, none of this is expense; this is all capital outlay. So, the $50 million was not an expense item; it was a capital item. So, that number has been pretty firm for many, many months that we've talked about. Nothing's changed there, and we don't expect to exceed budget either?

Yes. Of course, the biggest component of that which we announced a long, long time ago was land acquisition, right, which was just north of $30 million. So that was the biggest piece of the $50 that has been spent.

And our next question comes from the line of Joseph DeNardi with Stifel. Your line is open.

Hey, guys. It's actually Bert [ph] on for Joe. I think this question is probably for Drew. I'm just wondering United's growth strategy has been restoring some of the feed traffic share lost earlier in the decade. So, reasonable capacity grows from them has been high and will be high again next year or this year. It seems like American is sort of planning a similar strategy. Has that restoration service in smaller markets impacted you guys in many noticeable way that’s pushing you to different type of markets or do you just not really think about it at all?

It's nothing that’s shown up in our results at all. All this traffic still requires connection and can sometimes drive up to two to three hours of extra travel on to something that should be two and half hour non-stop on us. Additionally a big part of that feed is high price regional into the hub where they can then spoke out. Largely, they’re not fishing in the same customer pond that we are in terms of leisure versus business spread. And from that perspective, I think we’ve stayed out of that net all together. So, not something that we felt.

This is Maury. I want to reemphasize this customer that the United or American might attract is not our customer. Frankly, it's a combination of stealing traffic from the other guy and/or maybe some stimulation because of better schedules. But it's not a person getting on an airplane going to putting to Punta Gorda or something like -- place like that. Not to say that it doesn't happen, but we've just seen that over and over; it's not a zero sum game. But while they're going about their own business, they are really playing against each other.

Thank you. And our next question comes from the line of Steve O'Hara with Sidoti & Company. Your line is open. Steve O’Hara: Yes. Hi. Thanks for taking my question. Just on the non-airline operating income. That's I assume included in the earnings per share guidance and the GAAP number and same as adjusted, is that correct?

That's correct. Yes. Steve O’Hara: Okay. And can you just -- on the 2020 initiatives, there is some comment about them proceeding and how they were -- you're getting most of the benefit here and there. I guess, can you just clarify that? I mean, it seems like the benefit was significantly larger than that that you laid out. But, are talking about you're kind of where you had expected to be. Is that what you're saying?

When we provided that information, the commentary around it was we expected to achieve all of those benefits in 2020. But, a lot of those benefits have been achieved to-date. And as Drew was commenting on earlier, a lot of them will be achieved throughout ‘19. So, we’re not going to experience the full benefit in ‘19, but we're going to achieve them as we move through the year. So, some of those relate to being done with the fleet transition. So, the fact that we're done in -- we're done at the ‘18 so not at the end of '19, and obviously pull forward all of those benefits. So, comfortable with what trails into ‘20, but most if not all of that is done through ‘19. Steve O’Hara: Okay. All right. And just on the ASMs per gallon and the fuel economy there. I mean, with the 319s coming in, should we expect that to kind of improve throughout the year and then improve again in 2020, assuming more 320s into the fleet?

Yes. I think that's fair. Steve O’Hara: Okay. I mean, is 85 still the right number to kind of think about 80 to 85, something in that range?

I think, it’s 85, I mean a larger bias of A320s. But in general that is the general direction. Steve O’Hara: Okay. All right. Thank you

Thank you. And our next question comes from the line of Duane Pfennigwerth with Evercore. Your line is open.

Hey, guys. Good afternoon. One clarification on the $250 million to $300 million in Sunseeker spend this year with $420 million remaining. Is it 420 remaining after that 275?

No. So, what you have is 420 was remaining -- and we said that we’re looking to finance 175. So, 420 less 175, we would be spending 245. So, anything that we would spend this year in excess of 245 would be financing that we would be announcing here by the end of the quarter.

Okay. But the 420 remaining includes anything you would spend, whether financed or paid for yourself in 2019?

Yes.

And then secondly just on the increased reporting transparency, it gets a little bit better each quarter, and really applaud you for that specifically in the context of forward guidance. But, of course, it peaks our interest a little. Why are you spending any capital and company focus on golf course software and Dave and Buster’s like game rooms? I understand these things might be interesting experiments, but why do they need to be funded on balance sheet by Allegiant equity holders?

Well, we look at the synergistic value, right? It’s where one plus one is not even three, it’s like four. So, sometimes when people think of golf course just for instance...

John, sorry, I have covered Allegiant for a long time. There is no synergy between golf course management software and Allegiant Travel. So, can you just speak to the debate at the Board level regarding the next -- sort of how you debate the next dollar of investment into a Dave and Buster’s versus an airline, versus a hotel? I mean, the ROIC of the airlines seems to be much higher than anything else you have going on. So, what does debate look like?

Duane, I’m going to tell you what the debate looks like. The person that sits on an airplane, what else they do besides sit on an airplane? Do they go to a Dave and Buster’s? Yes. Do they play golf? Absolutely. So, you gather information. This is an information centric era. Duane. We live in information. We want more customers, we want bigger wallet share. And so, yes, you can make an argument that maybe the maximum ROI for the next 24 months is putting it into an airplane but what about four years from now, five years from now? So, this stuff is all part of our trying to articulate this grand scheme of going more customer centric rather than tube centric. Filling up a tube is important and we will do and focus on that tremendously. But, we want to have more relationships with more customers on an individual basis and understand where they spend their money over and above just getting in the tube. So, that’s the marginal spend. And just like every other investment, the early days are never going to have a better ROI than a mature business will. But we are making those investments and we’ve tried again to articulate that as best as we can. So, that’s what the Board is understanding, the Board is fully onboard with all of this.

So, Duane, let me give you the deeper data point just to help understand what Maury said, because a lot of times people haven’t thought about it or don’t care about it. But, the golf courses for instance right now are generating emails, brand new emails, people we don’t know at the rate of one-third of what the airline generates on a daily basis. So, it's actually significant number of emails that we're capturing from golf courses about people that currently aren’t in Allegiant’s database. So, when you add another 800 courses as we expect throughout the year, obviously, we will be generating emails from those courses at the rate of half from the rate that the airline produces. So, that's an incredible data point that goes well beyond what you thought of given your comments.

I appreciate those thoughts, Maury and John. I would just say, ex these other adventures, you're guiding to $15 in earnings for the airline. Congratulations on getting the fleet upgrade done more quickly than you initially anticipated. But, your multiple, I just wonder, to what extent you and the Board reflect upon the multiple and how your multiple has changed as you deploy capital to lower return businesses? And I appreciate you taking the comments.

No problem. We certainly are conscious of that, and it's a short-term hit to the multiple; long-term, win we think. That's as simple as we can say it.

And our next question comes from the line of Rajeev Lalwani with Morgan Stanley. Your line is open.

Hi, guys. It seems the tough act to follow. But just a couple of airline questions for you. One, you guys talked about 600 rounds to choose identified over next whatever years for possible growth. Are those 600 are competition levels in those markets similar to what you're seeing now? Meaning, can you attack those routes and sort of keep that 75% or so of your markets being without much competition?

Yes. Of those markets that we identify, it's actually closer about 10% competition right now. So, we would actually drop the percentage of markets that are competitive, should we get through all of those?

And then, the other, as it relates to just oil prices moving around, how does it impact your fleet utilization and your network now, given all the work that you've done on the fleet transition versus years ago? I imagine, it's very different where you're not really flexing as much, based on oil and moving peak and non-peak travel around. I'd love to just get an update on how all that looks today after the various changes.

Sure. So, the core of our process is the exact same. As we forecast out all the flights you want to put out for sales six to nine months out, we're ensuring that that incremental roundtrip on a market level basis is exceeding the gross profit threshold that we need in order to have it. That existed for an MD just as it exists for an Airbus. In terms of earnings potential, there's a difference of about $1 per gallon between the MD and the Airbus to secure the same earnings and margin. So, that's kind of the flexibility we have to go there. As we plan forward, we're always using higher oils than what we expect to actually receive. So, we're already planning to have a little bit of a buffer in there to account for the fuel variations that you're talking about, such that does not arise, we have the ability to add capacity and closer in maybe 3, 4 months out to be able to capitalize on that. But again, everything is subject to hitting the internal growth thresholds that we set up.

If I could sneak a last one in on the non-airline operating income, that $15 million. When does that start to go away? Is that in the next couple of years, does that turn positive, just preliminary thoughts there, for John?

Really, as you get into the back half of ‘20, it starts to get closer of course to break even. When you start to open Sunseeker, you definitely get to that direction. You look at FECs and you look at Teesnap, it's more of a scale game. So, you really -- when you start to look at ‘21, I mean, the numbers all starts to look extremely positive. So, ‘19 of course is kind of like call it a transition year, just not with the fleet, but that transition allows you to get the scale you need to in order to get out of the negative carry and move into ‘21, 2021 where it starts to look a lot better.

Thank you.

Thank you. [Operator Instructions] And our next question is a follow-up question from Dan McKenzie with Buckingham Research. Your line is open. Dan McKenzie, your line is now open.

Thank you. If I can go back to non-fuel cost, 1.5% to 3.5%, can you just remind us where the -- kind of lay out maybe the top three line items where the greatest inefficiency was in 2018? So, I think obviously there is a fleet transition. Is it that you just simply don't need to hire -- you've already hired all the pilots and flight attendants that you need for this year? If you could just kind of help us understand kind of where those the good guys are for ‘19?

Yes. Dan, this is Scott. Yes, 2018, it was just you're carrying a lot of crews, particularly as you're really -- you're flying 37 MD-80s, you’re fully staffed for that. And as it draws it down and then you put people into a 70-day cycle to transition to an Airbus, you’re definitely carrying excess. I think our productivity was really around 50% locker pay. We’ll have to pace. We think we'll drive maybe 5 to 6 points higher in 2019, so that will definitely be a good guy, taking utilization up a little bit from ‘18 to ‘19 will definitely help. We continue to see real positive movement in maintenance and repairs. We use the guide everything [ph] for aircraft. We think this -- historically, if you’re targeting $75,000 per aircraft per month type profile, that would be a win for us and we're continuing to see movement towards that. And then maybe a bad guy is the DNA, [ph] which we highlighted and try to give color on. The impact on an asset base is definitely up and that's partly because of the write down, but just importantly as we introduced a lot of more expensive aircraft as part of the transition. So I think from a base of the financial statement, it's pretty straightforward and where the good guys are into ‘19 and ‘20.

Yes. Very good. And then, I guess I’m just wondering if I can follow-up on an earlier question. Maury, you referenced the appeal of the credit card and the information world that we live in today. And so, as we just kind of think about credit card spend, just kind of more directly with respect to how it can contribute to Allegiant, what might the credit card spend perhaps look like in three years, five years as you think about the contribution that it has with respect to revenue, third-party revenue, so to speak?

Scott DeAngelo will answer that.

You bet. Happy to add color on that. So, to build on what Drew said earlier, we reiterate again that by end of 2020, the credit card program, as we know today, will be contributing at least $50 million in EBITDA to the business. Couple of other areas and color to think about it. Above and beyond that, we’ve began to leverage already existing partnerships but with minor league baseball. We’re starting the season. You’ll see some 44 of their largest teams exposing to 15.5 million fans the ability to get the Allegiant card. And to just quickly put that in perspective, that 15.5 million, if you think of a stadium like an airplane, appreciating the differences would be 97,000 flights, just shy of what Allegiant did in 2018. So, that’s just one example of how we’re scaling the exposure of it. If you take the other assets, see them, family entertainment centers, golf courses or rather existing sponsorship or partnership deals, they become very asset light ways to distribute the credit card. So, we’ll keep posted on the success rate of that. But, you can begin to see that at least from an exposure point of view, we’ll be doubling, tripling, quadrupling who we’re exposing to the card and then expect to see continued great growth from that.

I see. Okay. Thanks for the time, guys.

Thank you. And we have a follow-up question from the line of Savi Syth with Raymond James. Your line is open.

Hi. Just one question on some of these -- on the FEC and maybe Teesnap. What’s the size of that while you say you kind of get to the scale? And maybe kind of the more interesting question is kind of is it in a base case assumption for these kind of various businesses pan out, in like 5 to maybe a little bit long, let’s say once those business mature, what’s the mix between kind of the airline side versus kind of these non-airline businesses you think from profit mix standpoint?

When you look at that -- I’ll start with Teesnap, when you look at adding the potential that 800 courses in the next year, I think I mentioned in a response to some of the earlier questions that the year one of a course life, if you will, is the install year. And the most profitable years are years two and out. Really the earnings starts to mature in three and out. So, we would have a number of courses at the end of 2019 to have a cash flow positive business, if they were in mature years. But, the fact that at the end of 2019, a lot of those courses are going to be within the first year or second year, it won’t be cash flow positive right away. So, the number of courses we can be cash flow positive with is just -- it would be pushed out into the second year or a third year of their existence. That’s why I say, as you move into ‘20 you start to get to a breakeven type of scenario, in ‘21 you get meaningful a cash flow positive story. The FECs, if you just opened up one for instance, you would be cash flow positive that day. The challenge you have, as you start to scale up and open more, you’re always running into preopening expenses that are masking some of the earnings, right? So, that’s why I’d say, it takes a little bit of scale. And I am going to say like three or four of those to be open where you start to get a cash flow positive story. So, it's a great story. It's not like it's years out. That's why we're pointing to the back end of ‘20 and into ‘21 when these start to be meaningful and they're not a cash drag.

Okay. And then, from a profitability mix standpoint, like how big can these businesses be relative to the airline side?

It's all a guessing game at this stage as to how big they actually can get.

The airline is going to dominate the project for the foreseeable future. So, that's -- don't expect to change, Savi. So, at this point, we don't want to go on a record. It’s just going to be this percentage or that percentage at this juncture.

And this concludes today's question-and-answer session. I would not like to turn the call back to Maury Gallagher for closing remarks.

Thank you very much.

Ladies and gentlemen, thank you for participating in today's conference. This concludes the program. You may all disconnect. Everyone have a great day.