Allegiant Travel Company
Q3 2013 Earnings Call Transcript

Published: 24 Oct 2013

[Operator:]

Good day, ladies and gentlemen, and welcome to the Allegiant Travel Company's Third Quarter 2013 Financial Results Conference Call. We have on the call today Maury Gallagher, the company's Chief Executive Officer and Chairman; Andrew Levy, the company's President; and Scott Sheldon, the company's Chief Financial Officer. Maury Gallagher and Andrew Levy will provide us with a brief commentary, then we will begin our question-and-answer session. First, we wish to remind listeners that the company's comments today will contain forward-looking statements that are only predictions and involve risks and uncertainties. Forward-looking statements made today may include, among others, references to future performance and any comments about our strategic plans. There are many risk factors that could prevent us from achieving our goals and cause the underlying assumptions of these forward-looking statements and our actual results to differ materially from those expressed in, or implied by, our forward-looking statements. These risk factors and others are more fully discussed in our filings with the Securities and Exchange Commission. Any forward-looking statements are based on information available to us today, and we undertake no obligation to update publicly any forward-looking statements, whether as a result of future events, new information or otherwise. The company cautions users of this presentation not to place undue reliance on forward-looking statements, which may be used -- which may be based on assumptions and anticipated events that do not materialize. The earnings release, as well as the rebroadcast of the call, are available at the company's investor relations site, ir.allegiantair.com. At this time, I would like to turn the call over to Maury Gallagher.

[Maurice J. Gallagher:]

Thank you, operator. Good afternoon, everyone. Thank you for joining us for our call. Very, very pleased to announce our 43rd quarter of record profits in a row. The other thing, another point I'd like to stress, and we're going to keep this short, as we've given up our scripting for the most part. But very excited to, and it's in the release, Mr. Levy, promoted him to President, he's had that job and the Chief Operating Officer. Andrew's going to spend a lot of time working with our operations group in the coming months to go through what we do every day and some of the activities that are -- need to be leaned down and dealt with. But he's already off to a great start in that area. Last, the government shutdown has certainly been an issue for us, and Andrew will have some other comments on that. But look forward to your questions. Andrew?

[Andrew C. Levy:]

Thank you, Maury. First things first. I want to just send out a big thanks to all of our key members who showed incredible dedication and professionalism in taking great care of our customers during our recent evacuation slide event in September. As Maury mentioned, one recent development does merit a little bit of discussion, and that's the government shutdown. Unfortunately, the events did have an impact on us. Due to the closing of the FAA's offices for over 2 weeks, we are now delayed in introducing A320 aircraft into our operating fleet. Late in the second week of the shutdown, we executed a backup plan, which now assumes no A320 aircraft in service during the entire month of November. The new operating plan replaced planned A320 flying in Orlando and St. Pete with MD-80 flying, which will result in slightly less revenue due to the smaller aircraft seat count, higher fuel expense due to the relative inefficiency of the MD-80 as compared with the A320, and additional expenses attributable to the temporary displacement of MD-80 crews from Las Vegas and Phoenix, who are now needed in Florida to handle more MD-80 flying than had been planned. The crew shortage in Florida is due to having begun the training process of many MD-80 crews in Florida needed to fly the A320s. As the A320s begin to enter service, the costs associated with crew displacement will recede, and will be completely eliminated once all 7 aircraft are in the operating fleet. We're obviously disappointed about this turn of events, and we are working closely with our local FAA office to complete the regulatory work required in order to begin bringing the 7 A320 aircraft into service as expeditiously as possible. We planned, and still hope, to have all 7 in operation by year end, but we believe that is now unlikely. The guidance we have provided in the release for revenue, cost and capacity assumes we operate the selling schedule without any A320 aircraft, although we do believe it is reasonable to expect some number of A320 aircraft to be in service before year end. Thanks a lot, and we're ready to take any questions you might have.

[Operator:]

[Operator Instructions] Our first question comes from the line of John Godyn with Morgan Stanley.

[John D. Godyn:]

Andrew, congratulations on the board membership and the role here. I wanted to talk about a few things here. First of all, with the sort of cost creep in the fourth quarter, Andrew, you mentioned some sources of inflationary pressure. And certainly, some of them are kind of out of your control. I'm just hoping for a little bit of clarity on how they roll off as we look at 2014. Is this something -- are these sources of inflation going to be in place for multiple quarters? Or is this something that kind of rolls off, as you imagine, extremely quickly as we enter 2014 and these A320s come into service?

[Andrew C. Levy:]

Thanks, John. So a few comments, I guess. I think that we mentioned in the release that we do expect lower utilization of the fleet in the fourth quarter. Utilization certainly has a negative effect on CASM x fuel. Obviously, we're trying to optimize our utilization to optimize overall profits and not simply minimizing x fuel CASM. And we think we're doing that. Some of the other items that do, in fact, roll off, that we're going to see, we mentioned, I think, the pilot pay band that lapsed on an annual basis, starting November 1. And so we won't continue to see any increases associated with that, as we will be paying people the same rates that we paid 1 year ago earlier. And certainly, there's some FAA-related costs, alluding to the shutdown that I just described. But in general, we feel really good about where the costs are. We've had some inflation in the stations area, particularly on the airport cost side. That's lapping itself, as well. And we feel very good about where we are on the cost side of the equation. We don't see any other surprises coming in, so we feel fine about where we are there.

[John D. Godyn:]

Got it. And without speaking to kind of a precise guidance data point, I think the framework that a lot of people had been using was, as we look into 2014 and a lot of these A320s roll on with their increased utilization, we have the potential to get back to this down year-over-year CASM x fuel-type environment. Does it feel like we're on track for that? Or are some of these pressures kind of long lasting enough that, perhaps that's at risk as we look into 2014?

[Andrew C. Levy:]

John, I don't see any material risk to 2014. I mean, we're a -- these airplanes are going to come on a certificate, and they're just not going to come on when we had anticipated. But we're talking a matter of weeks, not months. And so the vast majority of next year, we're going to operate with 10 A320-series aircraft. The vast majority of the year, we'll have the 319s that we're operating today and the 7 A320s that we just discussed. And so I think when you start -- when you look at 2014, our forecast for 2014, on a CASM basis, has not changed at all.

[Operator:]

The next question comes from the line of Hunter Keay with Wolfe Research.

[Hunter K. Keay:]

So a question for you on the Hawaii strategy, Andrew. I'm wondering how maybe your thinking has evolved over the last few months since we last spoke. Sort of about you guys were going to work on facilitating some more hotel nights there through the automation process, anything like that. But have you given any more thought to sort of maybe the sort of dynamics of the market and how it books up? And maybe giving some thought to maybe some partnerships, commercial partnerships, down in the Hawaiian islands. I'm not going to say Hawaiian Airlines co-chair or something, but Larry Ellison's been buying a couple of airlines down there. He might be interested in doing some business with you guys or maybe some partnerships at a bigger scale with some of the hotels you already do business with now. I don't know. Just sort of broadly, how has the thought process evolved in the last 3 months about doing business in Hawaii? And what kind of options do you have on the table?

[Andrew C. Levy:]

Well, I think all the ideas you mentioned are ideas that we've discussed and knocked around. Some of those require some additional automation. If we were, let's say, not doing a co-chair but passing traffic to Island Air, as an example. And certainly, we certainly want to add more to the hotel side of the equation. But I think that what we first need to do is get the guts of the operation running the way we want it to. And that really is more about capacity allocation, when we fly, where we fly, what's seasonal, what's year-round. And that's really where the focus is, it has been and remains. Driving some more hotels and things like that, that's obviously helpful, but that's at the margin. We got to get the foundation working the way we want it to, and that we think it will. And then we can turn our attention to other ideas that will enhance things, but it will be more at the margin, as opposed to the, as I mentioned, the foundation of the network.

[Hunter K. Keay:]

Okay. In terms of sort of the broader business model here, Spirit's had a lot of success penetrating very busy markets, trunk routes of hub carriers here in the domestic United States. And I know you guys are serving -- it was, I think, at Dallas-Austin. Now you're serving L.A.-Honolulu, which is a pretty busy route. Is there any thought to maybe deviating from the strategy of what's made you successful and maybe sort of tinkering, maybe, on a one-off basis, to opening up big cities like, for example, Chicago-L.A. or something like that? And maybe on a smaller scale, just simply to leverage the cost structure you have, not necessarily to take market share but to stimulate demand in, maybe, some off-peak periods.

[Andrew C. Levy:]

Hunter, I think that, as you noted, we've had great success with our model for a long, long time. So there's certainly no desire to -- or no need, really, just to kind of deviate from that. We do experiment on the edges. And as you noted, you mentioned a couple. We're not actually in Dallas, but we are flying Austin-Vegas starting later this month. And we'll continue to do little experiments, very low-risk, in places that we think we can be successful. But as far as kind of embracing the Spirit approach, they're really good at that and they do a great job. We're really good at what we do, and we do a great job. And we just have so many more opportunities to continue doing what we've been doing, that we just don't see any need to really kind of deviate from the core strategy that's gotten us to where we are. And we think it'll get us -- it will take us a long way into the future.

[Maurice J. Gallagher:]

It's Maury. Structurally, that model doesn't fit into our structure really well at this point, with bases and crew scheduling, a lot of things that really give us our efficiencies. You lose if you end up kind of running around the country trying to go from city to city, and you optimize scheduling versus operations. So not to say it's -- there isn't a good business model out there, it's just not what we're geared up to do. And we don't want to -- we've got enough things going on here with new airplane types and things like that, that we need to keep our focus, process, improving automation, things like that, at this point.

[Operator:]

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

[Savanthi Syth:]

Just on the last -- I think last year, in the fourth quarter, you had some inventory write-downs that have impacted it. Is the guidance, the cost guidance, reflecting another repeat this year? Or is that showing a benefit from not having that write-down impact?

[Scott D. Sheldon:]

Savi, this is Scott. Yes, the fourth quarter of '13's write-down should be less than what it was in the fourth quarter of last year. So you should see a slight benefit.

[Andrew C. Levy:]

And Savi, this is Andrew. Let me add that we revalue that inventory every quarter. We don't want you to think it's a onetime thing we do at the end of every year. We do it every single quarter.

[Savanthi Syth:]

That makes sense. And then just on the -- this quarter, like how much of an impact was there from transition costs? Or is it because you didn't get the A320s, there weren't really much transition costs in the quarter.

[Andrew C. Levy:]

I think that there's certainly more of that this quarter, because this quarter is when we're doing a greater proportion of the crew training to get into the A320. Though there's certainly some in the prior -- in the third quarter. We had already started doing some of the training, and there's other investments that need to be made in order to support the growth in the Airbus fleet, and whether that's management or spare parts, inventory, which would obviously be more on the CapEx side. So -- but yes, I think the biggest expense that we're going to see going forward is just simply transitioning MD-80 crews to train on the A320. And so that creates another training event, where we bring in new folks to backfill in the MD-80. It's not that dissimilar from just simply adding additional aircraft, but there's a little bit more expense. Just the way it works. But it's not a large number, it's not really material. And once we get these aircraft up and running, then that will be behind us until we start to bring on more A320-type aircraft, which won't be until the very end of 2014.

[Savanthi Syth:]

Understood. And if I may just ask a follow-on to Hunter's question on Hawaii. Does the 757s, with having -- and during the low season, having them fly in the domestic market, how did that turn out? And then, what's your thinking on kind of future low periods and how you use those aircraft?

[Andrew C. Levy:]

Well, I think what we're first trying to do is have enough routes into the Hawaii market that can be operated year-round, both in the peak and the off-peak period, if we can do that profitably. So that's our #1 goal. And to the extent we have spare 757 capacity, we do try to allocate it on routes where we think it can increase profitability, and we've been able to do that on a few of our routes. So it's just another aircraft. And so if it's not flying to Hawaii, which is what it's best doing -- that's the best application of that aircraft, then we will juggle the fleet and put the best airplane on the right routes to try to just maximize overall profits. And I mean, clearly, we acquired the 75s to serve Hawaii, to get airplanes for Hawaii. So anything we're not doing -- anything we're doing outside of Hawaii is certainly not what the aircraft was intended for when we made that investment.

[Operator:]

[Operator Instructions] The next question comes from the line of Michael Linenberg with Deutsche Bank.

[Catherine M. O'Brien:]

This is actually Katie O'Brien filling in for Mike. Just a quick one to start off. According to our math, excluding the impact of the slide incident in September, it looks like Allegiant would have seen a 0.7 point margin improvement over September quarter 2012. Is that correct? Or are we missing something there?

[Andrew C. Levy:]

Yes. It's in the ballpark, it's in the zip code.

[Catherine M. O'Brien:]

Okay, great. Another one we had was that we noticed that your third-party portion of your average fare was down 9.5% in the quarter, despite what appears to be solid performance on your rental car uptake, especially in Florida and hotels revenue. Could you just give us some color on what's driving that?

[Andrew C. Levy:]

Sure. I don't know if I have much more color to give you than what's in the bullet point there. We, historically and certainly 1 year ago, we would -- if people were to purchase an air hotel package, then we would discount the air portion, and the net effect was a lower overall vacation cost. We eliminated that air discount approximately 1 year ago. And we believe that when you take that into account, that, overall, corporate profitability is higher. And that's why we're very happy with those results. The optics on that line item are clearly showing something that looks bad. But when we take into account the air revenue increases that we're getting, we think that, that more than makes up for the offset in having less hotel room nights sold. So that's as much color as I can give you. Obviously, what we'd like to do is to start driving that number higher. And we do think that we will be able to do so as we start to get into more of a situation where that discount is not in this year and nor was it in last year. We're getting to that point. And we're obviously working on a lot of other things in technology to help us drive increased hotel room sales. But it looks worse than -- it looks bad, because it's negative. The reality is that it's a positive when you look at the numbers internally over here.

[Operator:]

Your next question comes from the line of Duane Pfennigwerth with Evercore.

[Duane Pfennigwerth:]

Just coming back to that ancillary line, Andrew, when do you think that gets going again? I mean, you have a couple of things in the new products area, I think, the branded credit card, the travel club. When are we going to start to see acceleration in that line again?

[Andrew C. Levy:]

Duane, I'm not going to provide an estimate there. We expect to see growth in that area. We've seen consistent growth in that area since, I think, 2009. And we've seen a little bit of it going backwards on a per-passenger basis, on an overall basis in this particular quarter also. We're certainly very focused. It's a core -- it's a strategically very important part of our business. It still generates a very large amount of our pretax income. And we are continuing to work hard to add new items. I'm not sure the team you mentioned would be accounted for in that particular line item. I think they're more likely be accounted for in the air-related line item. But we certainly have some other technological improvements we're working on that we hope and expect will allow us to be more effective at selling the hotel component to our customers. And so I don't want to predict when we're going to start seeing positive news there. But we don't think this is some kind of a long, downward trend. That doesn't -- we have no reason to think that.

[Duane Pfennigwerth:]

That makes sense.

[Maurice J. Gallagher:]

Duane, if you go back and look at our numbers. We've been pretty constant, even per passenger or per ASM. They've both been right on top of each other. So we're not any worse than we were in '12, for the most part, if you will, even though there's some optics in the changes and things that are happening. So the fact is -- interesting, if you go back to '07, our numbers are pretty constant on a per-passenger basis for this category, even though we've improved stuff. So it's -- it needs more work, certainly, but it's not -- I think the technical optics are a little more down than the actual results, when you look at it in the big picture.

[Duane Pfennigwerth:]

Okay. I guess, just moving to '14, and I'm not asking for guidance here, but it feels like maybe it's more of a PRASM growth year and less of an ancillary growth year. Or is that not fair?

[Andrew C. Levy:]

Duane, as we sit here right this minute, I'd say, yes. However, we certainly have some things that we expect to roll out next year, and we'll see how that goes. We're focused on TRASM, total. I think the bigger story next year is going to be on the CASM side, and particularly, total CASM with the -- having 10 A320s that are going to be flying around for the vast majority of the calendar year. We think the effects of having that more efficient aircraft, that also happens to be slightly bigger, is going to be extremely powerful for us. So I think, actually, as far as margin improvement, that's where -- that's, really, I think even more likely than on the revenue side, although we continue to see very nice strength in revenue and bookings and continue to do a great job managing capacity, matching supply and demand. And so we'll see how '14 looks. We're certainly not going to give revenue guidance, you're right about that.

[Duane Pfennigwerth:]

Yes. Just last one. Any thoughts on CapEx? It feels like it should come down a lot. And I appreciate you guys will be opportunistic next year, but can you give us any early read on kind of the run rate into '14?

[Andrew C. Levy:]

Well, I think CapEx just -- the 2 big things that we expect are to acquire the A320s numbers 8 and 9. That will occur next year. And then I think beyond that, at this point in time, it's all relatively smaller items.

[Scott D. Sheldon:]

And Duane, this is Scott. The planes that we're acquiring and bringing into revenue service next year are all operating leased. So it's minimal CapEx.

[Andrew C. Levy:]

With the exceptions of those 2.

[Scott D. Sheldon:]

With the exceptions of those 2. So I think we still have $170 million, $180 million full year '13. So to your point, assuming that there's not an imminent deal, you should see a pretty substantial decline in CapEx in 2014.

[Andrew C. Levy:]

And don't assume there is an imminent deal, because that would be a bad assumption. So we're in the market, but there's certainly no deal imminent that we would -- well, we just -- we don't see any immediate opportunities there to acquire additional Airbus-series aircraft. So, yes, I think your thoughts on CapEx are directionally very correct.

[Operator:]

Your next question comes from the line of David Fintzen with Barclays.

[David E. Fintzen:]

A couple of quick housekeeping questions. Just in terms of monthly RASM and the Thanksgiving shift, is that -- yes, I mean, for others, it's a little easier, but, I mean, how much -- Thanksgiving presumably is big for you, but is it -- are we talking sort of the 5, 6 points of RASM that can get moved around domestically for others? Or is it much smaller than that?

[Andrew C. Levy:]

Yes, David, it's probably in that area, if not even, perhaps, higher. The Thanksgiving period, for us, is really important due to the nature of our business. And as you know, the back half of that is going to fall into December. So December is going to take a little from November. And I think you're going to see the same thing in January. It's going to take a little bit from December, just because of how late the end of the year school holiday period falls this particular year. So we didn't comment on the calendar, because everybody can read a calendar. You know where the dates fall. But I think you're right. And I think, in our case, because it's -- that is our bread and butter kind of time of the year leisure business, it's probably a bigger effect for us than it is for, perhaps, some others.

[David E. Fintzen:]

And it does -- I mean, obviously, we can all see where Christmas falls, but -- and it's pretty much the same as last year, but does a midweek placement drive less travel, more travel around that time, just given, to your point, that you've -- that's kind of your bread and butter?

[Andrew C. Levy:]

I think, in general, it drives more traffic. I mean, personally, I always prefer to have a longer peak period. So I like it when Easter's later in the year, as an example. And I think that -- I think you're right. I mean, I think putting it right in the middle of the week is only -- I think it's a benefit on the margin, right? It's not going to make a material difference in our overall results, but I don't think it hurts us in any way at all.

[David E. Fintzen:]

Okay. And then on the FAA -- on the 320 FAA delay. And if I understood from your answer to Savi, it was not a huge impact? Is that a couple million? Is that much less than that? And how should we be thinking of that in the 4Q -- context of the 4Q CASM guide?

[Andrew C. Levy:]

Okay. So for 4Q, as I -- just to reiterate, we have factored that into the mix in the guidance we have provided you. So that already takes that into account. As far as what would it have otherwise been, it's -- I'm kind of hesitant to circle a number, but it's probably in the ballpark of what you described. And, obviously, if we're able to get the airplanes in faster than the assumptions that we've provided you in the guidance, then those [indiscernible] should be better. But right now, all we can do is just work closely with the FAA to get all the work done that needs to get done, and then the airplanes will be ready to go. We're going to have -- crews will be ready, aircraft will be ready. It's a bunch of other work that has to happen first, and we're working as closely as we can with them, but we don't control that schedule. We just have to just work with them as best we can to help them move as fast as they can.

[Operator:]

We're moving with the next question from Helane Becker with Cowen.

[Helane R. Becker:]

Congrats, Andrew, on your promotion and so on. I just have 2 questions. One is, I think, Austin is a new city that you guys are going to be serving, and I was kind of wondering how that was booking up, or if you have any comment about that. And the other thing is, as you -- one of the things you've talked about in the past is the potential for international service. And I was wondering if there's been any thought process given to that for 2014.

[Andrew C. Levy:]

So, Helane, thanks. We're not going to comment on the performance of any one route. We have -- I don't know, I think somewhere in the neighborhood of 250 of them. So Austin is but 1 of 250. I will tell you that, in general, there are many routes that we've announced, including quite a few new cities, are doing extremely well. So we're really happy about the network growth associated with additional points on the map. And as far as 2014, can you repeat that question, Helane? I'm sorry, I had a little moment there.

[Helane R. Becker:]

No problem. No I mean...

[Maurice J. Gallagher:]

International service.

[Andrew C. Levy:]

International service.

[Helane R. Becker:]

Yes, yes. International service, right.

[Andrew C. Levy:]

Yes, we're still focused on Mexico in 2014. Whether it's in time for the summer peak period or whether we time it for the end-of-year peak period is, at this point, still a bit up in the air. We're working hard on it. We're working with the automation team to get all the development work that needs to occur. And that's really the long pole in the tent, is anything just to be able to sell and comply with the different rules that exist down in Mexico. They have just some different regulations. And, obviously, there's some tax work that needs to be done. In the system, we're on our way to getting that all identified and getting the IT teams to start working on it. And we'll provide more information, I guess, at a future date when we have more certainty as to a start date.

[Operator:]

Your next question comes from the line of Bob McAdoo with Imperial Capital.

[Bob McAdoo:]

Guys, can we go back over the FAA delay thing a little bit? I'd just try to get a few more details, better understanding of what they're -- where they are in their process. Is this -- have you gone through the conformity inspections on the planes? Are the planes on the certificate? Are we waiting for them to review manuals? What kind of -- what is it that's kind of the part of their business that -- where they're behind, or where things got hung up during the shutdown?

[Andrew C. Levy:]

Oh, no, the planes are not on the certificate, Bob. And we can't get them on the certificate because of certain things that need to occur. As an example, the A320 operating manual, the A320 MEL. Those are the things that need to be approved. And they're not anything -- this is not particularly complicated or difficult work, it's just work that has to get done, and it requires time and attention. So it's just fundamental things that we need in order to put an airplane on the certificate and then be able to actually operate it. One other example, while we own and control 7 of the A320s, and one sitting in Ireland waiting on a certificate of airworthiness, which is, as you know, a pretty simple thing. But it's not simple when the FAA isn't working. And now that they're back up to speed and spooling back up, I'm sure they have a lot of things to clear off their desk, and we're just optimistic that they can start working with us, so that we can get a lot of these things taken care of, but we will see. Although just to mention, again, the guidance that we provided assumes a pretty draconian scenario, where we have 0 of these A320s in the fleet at the year end. We, obviously, don't think that's likely to be the case, but we also don't think it's likely we'll have all of them flying around at year end, either.

[Bob McAdoo:]

Right. So but have you guys have done the MEL work and the manuals and just waiting for them to inspect and review them -- or is it -- are you still even...

[Andrew C. Levy:]

Correct.

[Bob McAdoo:]

Yes, okay. So it is -- I guess, in it's own way it's a little bit like what we heard from Hawaiian yesterday, where it was like we've got airplanes here, and we can't get any inspectors here, because they're busy doing something else, or they just haven't been assigned here or whatever. Is it a little bit that [indiscernible] for you?

[Andrew C. Levy:]

Yes, I think it's -- we're not the only ones out there in Hawaii. There's a couple other carriers I'm aware of that had similar issues bringing on aircraft and it's unfortunate. It's just -- we're tied up in it, as well.

[Maurice J. Gallagher:]

The shutdown couldn't have come at a worse time, in the sense that we had -- we were all prepped, ready to just start working with them, and they stopped. Because these airplanes were originally scheduled for November, so you couldn't be much later than where we were and be comfortable you could make the case.

[Andrew C. Levy:]

Yes.

[Bob McAdoo:]

Have you even gotten through Oklahoma City in terms of actually registering them yet or -- the transfer of the ownership?

[Andrew C. Levy:]

I don't know the answer. I believe -- Well, yes, the ownership's certainly been transferred, yes. That's for sure. And I think they're end registered at this point in time. Yes. none of this is overly complicated stuff. It's just a matter of getting in the queue, getting the people back up and running and -- it's not -- the FAA's doing everything they can. We're sensitive to where they are. They, obviously, couldn't do anything for a period of time, and now, they are getting back up and running. And, hopefully, we can knock out all these things quickly and get these airplanes flying.

[Operator:]

Your next question comes from the line of Glenn Engel with Bank of America.

[Glenn D. Engel:]

Have you given out 2014 capacity guidance yet? And can you update us on where we are in starting international routes and getting whatever computer work you have to get done to do that?

[Andrew C. Levy:]

Yes, Glenn, we have not provided 2014 capacity guidance. I suspect we will provide that when we put out our year-end earnings release. We have given you the first quarter of '14. And our schedule is out there for sale through, I believe, summertime, right -- or no, through April. But we're not prepared to give any other information at this point in time. Internationally, as I had mentioned a couple minutes ago, we are well on our way to getting the IT work going on the changes that need to made in the system to support our service into Mexico. And at this point in time, we're not ready to commit to a particular date. It's either going to be in time for the summer peak period, or in time for the end-of-year period, approximately a year from now. Obviously, we need to be able to start selling months before we actually start operating, and all the IT work is really -- almost all of it is really directly related to the sales process and the accounting process. So we're on our way, but stay tuned. We do expect to start up in 2014.

[Glenn D. Engel:]

And on the maintenance side. Some years, you have heavy -- a bunch of things come due, some years, you don't. Does 2014 look like a normal year? High? Low?

[Scott D. Sheldon:]

I think it's about flat on a [indiscernible] basis as it sits right now, but we're still fine-tuning our '14 plans.

[Andrew C. Levy:]

Yes, I think the only year, Glenn, that we've seen a real spike was when we made a big investment in engine stack [ph] in 2011. Otherwise, on an annual basis, the numbers, generally, are pretty flat. There's certainly volatility by quarter, which is more driven by the number of C check events and the severity or invasiveness of those events, so maintenance is pretty constant right now.

[Glenn D. Engel:]

And when did the change in the air discount policy for the ancillary revenues occur?

[Andrew C. Levy:]

Well, and just to be specific, it was only on hotels. And that occurred -- approximately a year ago is when we started discontinuing that practice. So we're coming up on about a year of eliminating that particular pricing tool that we were using.

[Operator:]

And your next question comes from the line of Steve O'Hara with Sidoti & Company.

[Stephen O'Hara:]

Can you just -- in terms of the FAA hold and what that's kind of put on your system, are you carrying all the fixed costs already for those aircraft? Or are you not depreciating them yet? And then the second question is, on the -- I think it's the other revenue line, it was $1.2 million. Is that -- can you just talk about what that was from?

[Andrew C. Levy:]

Those are actually a little bit related, Steve. The 7 A320s are not being depreciated today, and they will not be until they actually enter into revenue service. However, there's one exception. And that is the first A320 purchased was actually out on a short-term operating lease this summer to a European carrier. And that represents the vast majority of the revenue that is in the other line item. So that one is, in fact, being depreciated since we also have revenue that's being generated off of it.

[Operator:]

Your next question is a follow-up from David Fintzen with Barclays.

[David E. Fintzen:]

Just a quick question. You have a comment in the release about the Florida TRASM. I'm just kind of looking for a little extra color there. Is that -- should we read that as sort of a comment on Punta Gorda, and how that's stepping up? Or I think there's some growth in St. Pete. Just sort of how are the different bases in Florida developing?

[Andrew C. Levy:]

David, I think Florida, in general, and that's Orlando, St. Pete, Punta Gorda and Fort Lauderdale, is really performing extremely well. And the fourth quarter in Florida looks really, really good. The West Coast markets are doing fine. But right now, what we're seeing is really strong performance, particularly in and out of Florida. Punta Gorda is certainly part of that, but we're seeing strength across the board in our 4 base destination markets in Florida.

[David E. Fintzen:]

And just in terms of future growth in Florida. Obviously, Orlando is the big one, I think St. Pete's second. And then there's kind of -- I think there's a big fall off after that. I mean, is Punta Gorda something that could be more like a St. Pete? Or is that kind of -- you've done what you've done, and it's about as far as it's going to go?

[Andrew C. Levy:]

No. Punta Gorda actually is going to be at about 4.5 airplanes during this winter peak period. It will alternate from 4 to 5. And that's double and then some from what it was a year ago. So we're very excited about it, and we're particularly excited that we haven't seen anything that suggests it's stealing traffic from St. Pete. We're seeing the opposite. St. Pete is growing and revenue trends there are good, too, so we -- no, we think there's growth in all the Florida bases, and we've been growing there, and we're going to continue to grow there as we go through the selling period that's out there through the end of April. And so we haven't loaded next summer's capacity yet, but we're going to be making those decisions very soon. And Florida continues to show the strength it's been showing. We'll probably continue to add additional flights in some or all of those 4 base locations.

[Operator:]

Your next question is a follow up from Hunter Keay with Wolfe Research.

[Hunter K. Keay:]

The -- was the FAA shutdown, did that play into the delay in some of the Mexico service? Or was that more about sort of the automation process getting off the ground? Or just like sort of overall risk management with how you're thinking about growth?

[Andrew C. Levy:]

Well, I don't know about the Mexico service. I know we've suggested in the past that we thought we'd be ready to go second quarter. We're not saying, at this point, that we're not, but we're also not prepared to write that in pen. But whether it's the second quarter before the summer peak or whether it's year end next year before the extended peak season down there, which is a much more attractive time, in many respects, to start, we expect to be in Mexico in 2014. The issues with Mexico service are 100% related to automation, and then commercial issues as well, of course. We want to make sure that we go in at the right time from the right markets, et cetera. But the IT work is the key issue there, and it's just being able to handle display and handle taxes and certain other things that are slightly different in flying internationally than what we have to deal with domestically. None of it is overly complex. It's just a matter of putting the resources on it, defining the specs and then putting the resources on it and getting the coding[ph] out there. And international competes with many other corporate priorities that we have, so it's not as though we're just going to put all hands on deck on international and just neglect a lot of other things that are incredibly important also that the IT group is working on.

[Maurice J. Gallagher:]

And just with that, Hunter, we have growth enough to absorb these airplanes, and there's plenty to do. So if Mexico is late a month or 2, or whatever, that's not the end of the world, by any means. So we want to make sure we just continue to operate appropriately and absorb the capacity. And we'll get there when we get there, as they say. It's going to be a good market long term.

[Andrew C. Levy:]

And one thing, just to add to that, what Maury said, I think it's really important. In most destinations we've gone into, we establish a base and we bring in a lot of routes at one time. And it's a little bit more, let's say, growth than how we would approach Mexico. In Mexico, we're going to start out with a couple of routes, probably a couple of flights a week. So a very small percentage of what the total business looks like. But our view of Mexico is that it's a very attractive long-term growth prospect for us, but it's long term. And we're not going to see some big-bang Mexico operation that's going to have some outsized effect on the overall results of the company. But we do think it's very exciting, and we're looking forward to getting in there.

[Hunter K. Keay:]

Okay, great. And one quick last one here. You bought back, I think, more stock, kind of dollar amount, than you ever have in a quarter. Why did you buy so much back when you did? And should we be thinking about you guys, basically, exhausting the rest of the authorization now by the end of the year?

[Maurice J. Gallagher:]

We're a terrific bargain, Hunter.

[Hunter K. Keay:]

Well, I guess you would know, Maury.

[Maurice J. Gallagher:]

Yes, well said, well said.

[Hunter K. Keay:]

Yes. So is it fair to assume that this run rate kind of continues through the end of the year?

[Maurice J. Gallagher:]

I think we don't want to make forecasts as to what we're going to do. But as you look at our cash flow and the needs of the company over the next few years, the cash -- returning cash to shareholders and letting it build on the balance sheet, those are very salient questions. And the long-term opportunities for the organization suggest that we want to be shareholder-friendly. And the cash flow line Scott backed[ph] is as good a method, in many ways, as what there is out there. So whether we continue at the same pace, I don't want to make a forecast, but that's not to say we're going to slow down either.

[Andrew C. Levy:]

And by the way, just to add on to that, I mean, I think you know this, Hunter, but just to be clear, I mean, we're in the great position of being able to not only return cash to shareholders but also grow the business at a clip that we're very comfortable with. And so it's a great place to be, to be able to pursue all these growth opportunities and, at the same time, have enough cash and generate enough cash to return excess cash to shareholders.

[Operator:]

Your next question comes from the line of John Godyn with Morgan Stanley.

[John D. Godyn:]

I just want to follow up on a couple of things. First of all, just in terms of these A320s hitting at the end of the quarter, if they were to hit at the end of the quarter. Andrew, it sounded from your earlier comments that they would be sort of immediately accretive. Is that true? And should we just be kind of thinking about the profitability of a typical aircraft per day as a way of modeling that? Or is there some kind of netting that we should be thinking about when they hit?

[Andrew C. Levy:]

Well, John, that's a good question, but I don't have an answer -- a good answer for you. I think that, certainly, as soon as those aircraft are ready to fly, we will fly them, and we will fly them as much as we can just because of the relative efficiency of the aircraft. So, obviously, as you know, we vary our schedules dramatically. So a Tuesday in early December is not going to be the same as a Friday in late December. And so I think as far as being able to model it, I wouldn't -- it'd take us a while maybe to figure that one out. I think it's just some upside that exists if we're able to get these airplanes in. And we've tried to guide in a very conservative way. And, hopefully, we'll get these airplanes flying sooner than later, and we'll start to see some of the positive impact of it. And if we don't see it for the fourth quarter, or at least materially for the fourth quarter, we'll certainly enjoy it in the first and second quarters and beyond, as we get these airplanes flying.

[John D. Godyn:]

Okay. And, Maury, you've mentioned sort of the shareholder-friendly idea quite a bit, and we saw, as Hunter mentioned, you accelerate the buyback a bit. I'm just curious, as you think about, bigger picture, the potential to return more cash to shareholders, how you balance the idea of dividends versus buybacks, particularly when illiquidity is sort of one of the relative, I guess, characterizations of your stock versus some of the other airlines out there?

[Maurice J. Gallagher:]

Well, which came first, the cart or the horse there? Is our illiquidity a function of good long-term holders that aren't in and out of the stock? I think the other thing, John, we have the lowest beta, I'm sure you didn't report on that yourself, in the industry and as well as the whole transportation sector. So our shareholders -- long-term shareholders are [indiscernible]. They buy, and they look forward for long-term benefits. That's our intent, is we're running the company for long term. We have our issues now and then, but over the years, we've been able to create value, grow and increase margins, actually, in the last couple of years. So all of those things are positives, and we want to keep it going in that direction. But the outcome of that, and it's a pretty unusual circumstance, and you're seeing it in other people, as well. Airlines and cash usually aren't mentioned in the same sentence historically, but now, they are. And so return on investment, return on capital, all those types of metrics are now starting to play into it. And we want to lead the pack again, as we have in operating margins and other things, historically. So you can't keep too much cash around and really have good returns on your invested capital and assets and all those things. So we want to be friendly to everybody, our team members, obviously our customers, and certainly, our shareholders. And that third leg of the stool has been fairly well ignored over the years in this industry. So I'm optimistic we can satisfy that group. And I think we did some quick analysis, 70% of our company is owned by as little as 10 shareholders. So we have a contented group and it's flattering, and we want to be mindful of that. But buying stock back has been a proven, tried way to increase shareholder value over the years.

[John D. Godyn:]

Okay, great, very helpful. And if I could just ask one more on ancillaries. Andrew, I think you mentioned that you're pretty confident that we weren't in some sort of prolonged decline here, more of a blip than anything else. I'm just curious, there is a view out there, as well, though, that perhaps the experience you've had of late with ancillary is not growing quite as quickly as maybe we all would have expected, might make you less aggressive at pushing other ancillary initiatives down the line on customers. I don't know if you have a perspective on that?

[Andrew C. Levy:]

Yes, I don't know why anybody would think that. We are going to continue to try to develop new products and roll it out to our customers. And no, there's a -- our unbundling ancillary, the air related [ph] is flattening a little bit, as we have a year of carry-on bag charges under our belt. And so, typically, when we see substantial growth in that line item, it's with the introduction of new product. And we do expect to do that next year. We have quite a few that we're looking forward to putting out there. As far as the third-party goes, I think that, as I've mentioned before, I think the optics are one thing and the fundamentals are something different. We're very pleased with how we've changed our pricing approach with air-hotel packages, certainly results in fewer hotel rooms being sold, but the overall profitability of the business is higher, and that's what we're focused on. We do have a lot of things that we're working on in the IT area that we think will help us continue to grow that business for many, many years to come, as we continue to grow the number of customers that come through our website. So we're very excited about where we sit. We're always trying to figure out ways to drive those 2 line items, in particular, higher. And there's no change in our strategy at all. We were the first ones to do a lot of these things in this country and we're big believers in it, and that will absolutely continue.

[Operator:]

Ladies and gentlemen, thank you so much for your questions. At this time, we're going to conclude the call. We appreciate your participation. You may now disconnect, and have a great day.

[Maurice J. Gallagher:]

Thank you, everyone.