ALGT
#I think the productivity gains will come from simplifying the fleet allocation.
So, once we go back to a single fleet type, we'll dramatically improve.
Right now it's taking about four months to get a pilot through new hire.
So, we should be able to compress that.
<UNK> alluded to Helene's question about our capabilities to train.
We're opening an East Coast training center.
It'll be similar in size and footprint of what we have out here in Las Vegas.
If you look at a just the single fleet type, trying to expand the funnel, push pilots through, get AQP, which allows us to utilize TDs as opposed to full-motion sims, I think that's where you're going to start to see the productivity come from.
Joe, it's <UNK>.
Understand, though, there's a lot of training to do as we move from 50 MD-80s to a like kind Airbus, moving those guys over.
And it will take us, as <UNK> said, to the end of the decade to do it.
The activities going to be more robust than it has been historically.
So, we'll have to pay for that transition but it's certainly worth the investment.
We're still working through it.
Nothing really new to report.
If you look at the maintenance expenses related to the Airbus fleets, are all going to be called the back half of the year before you're going to see any impact in the P&L.
But we stand by the fact that there are acceptable methods similar to our peers out there and it's just a process we're working through.
As we get some more clarity here, within this quarter, you'll likely see something coming out.
We've already committed to retiring a couple 757s, so we could probably safely depend on about six to eight aircraft net growth for full-year 2017 based on where we are today.
We'd like that to be happening at the same time as we are transitioning over.
So, that would require a couple more transactions out there that we're working on today.
It's in the cards.
We're studying it.
I think the model that we have in BWI where we are flying noncompetitive markets with the theory that would include both originating traffic out, in the case of BWI, the Baltimore-Washington area, and also providing leisure opportunities for inbound traffic.
That's basically what we're testing that would also be applicable to Newark.
I think, Importantly, we're not really interested in flying New York area to Florida.
But, yes, I think you're on the right track there.
It is experimental.
Those are a very small part of what we do.
And you're right, those two markets you highlighted.
There's a couple other that are in that category that don't really fit into our traditional model of highly directional service to leisure destinations.
And in some cases it does allow routings and utilization.
But we've been really successful in Reno-Vegas for a long time now.
Not really successful, but we've been successful.
And, by the way, Destin and Lauderdale is selling really well.
There doesn't exist any service on it today.
Providing service between mid-sized cities is something we've talked about for a long time.
If there's enough PDUs on a whole week we feel like we can aggregate them on twice-weekly service at low fares and stimulate and make that a business.
That kind of service isn't too different from some of our other expectation in places like Austin-Cincy, or Austin-Memphis.
We are authorized at $100 million back in 4Q last year.
We exhausted a little bit of that in the fourth quarter and the rest of it in the first quarter.
So, this would be a net new $100 million as we move forward from this point.
One of the main challenges we're having with that airplane is lack of OEM support.
So, Boeing and also, importantly, Pratt & Whitney, but some smaller component manufacturers like wing heater blankets, or some components in the EE bay, all of which are difficult for us to find support there.
We depend on the OEM, in many cases, as the sole provider of parts.
So, a deliberate plan to retire the airplane will allow us to support ourselves, in some ways, with parts off retired aircraft.
So I think, give or take a year from when Delta moves out of the fleet, we'd be comfortable with.
But we have to be marching along that path now because we don't want to shrink.
So, we're going to be growing the airline.
We want to stay with our strategy of buying used aircraft in the spot market.
So, that's going to be inherently a little bit unpredictable.
So, I think it's just prudent for us, as we sit here today, in spite of our growth opportunities and margins, to go ahead and continue to push out MD-80s in a very planned and deliberate method.
It's not a great thing.
And in spite of our success we're always going to have a good deal of paranoia as a management team, as you'd expect.
But I want to highlight the structural advantages that our business has over a Spirit or Frontier, namely we have a closed distribution system which allows us to have a direct relationship with our customers.
We have ancillary revenues that are trending in the right way, as opposed to what Spirit is experiencing today, which is largely due to our launch of a loyalty program which will happen in the third quarter of this year.
And, most importantly, we can schedule to peaks, without affecting our unit costs.
In the case of Spirit and Frontier, they depend on high utilization to achieve their unit cost objectives and that requires them to put a lot of flying into unproductive times of day and days of week and seasons.
So I think that structural advantage remains.
And so long as we maintain our really low fixed cost base, we're going to have that advantage and we're going to be successful.
Another point on that is that I'm not so concerned about encroachment into our existing market because of those strengths that I listed there already.
Really, the concern is about overlapping growth opportunities between us and them.
It's why we've been exploring growth in new ways, not the least of which has been the expansion in some of our smaller destination markets.
Which isn't something I would have predicted a year ago, like growth into Destin and Savannah, and making destinations out of New Orleans and Austin and Jacksonville; all of which have been really successful.
So, we continue to find ways to grow in markets that just aren't that inviting to those two guys.
Cincinnati to Vegas and Orlando, definitely that's on their radar, but I don't think Cincinnati to Destin is anything they would intend to do any time soon.
As far as risks go, as a management team we're much more focused on internal risks today, like operational excellence, systems and process optimization, labor relations, and cost discipline.
And I think risks that we get asked about often but that we don't worry much about, really, are fuel price, availability of aircraft for growth, and encroachment into our existing markets.
There's a lot there.
First of all, we're revising up capacity growth, which is going to have a negative influence on unit revenue.
That's absolutely logical and earnings accretive.
We have a lot of the same characteristics causing revenue weakness that we've talked about in past quarters, like weakness in [middle] economies, which make up about 5% of our ASMs.
Those economies still remain challenged.
We have had some challenges with markets that depend on Canadian travelers crossing the border and Mexican travelers crossing the border.
Markets with those characteristics are struggling because of the currency issues.
And then for us, we're flying more often when last year at the same time we would have sat aircraft.
And that's just because we're adjusting to availability of pilots and availability to make money at today's low fuel prices.
Most of the revenue weakness we have is generated by our own actions.
As we've talked about in the past, we still have some catchment area issues.
Philadelphia has really low fares right now.
We have markets like <UNK>town, for example, which is under a little bit of pressure to Florida because it's drive distance from really low fare environment in Philadelphia.
But that's not getting worse.
So I think that's a constant.
And then growth, particularly ULCC growth into Vegas and Orlando, and increasingly so into LA, puts pressure.
That's mainly hub to hub fare pressure.
But, for example, on the West Coast, if we see severe discounting to, I don't know, Salt Lake City and Seattle from Vegas, that's going to put pressure on flow itineraries coming out of Montana that compete to fill some of those seats that are in a little bit of distress.
But we remain in our own little world over here finding new market opportunities, for the most part, that are not affected by the competitive environment.
Our response to competition is what it's always been, that there's a capacity change that we can do to maintain our success.
So, I'm very positive on where we are today.
I think it took us a little while to adjust for the environment, certainly over the last several quarters when we were revising done outside of our initial expectations for unit revenue.
But we're on the right path now, and certainly through the end of this year I'd expect us to move closer and closer to flat year-over-year unit revenues.
Don't hold me to that, but I think we'd be certainly in the low single-digit range by then.
That doesn't include anything that can't be predicted, like changes to the external environment.
But based on the schedule that we have loaded today, which slows growth a bit and optimizes around our experience in our new markets, then, yes, I would expect us to be able to produce low single-digit TRASM declines by the fourth quarter.
<UNK>, I think it is.
I think it's a long way off for us, though.
It's probably way down the list of other ancillary initiatives that we would like to do in the short term.
And a lot of our resources today are focused on the operations.
So, I think experimenting with rebundling ancillary products is a long way off for us.
But, yes, but I think there's opportunity there.
I think it's relatively small though.
Steve, it's <UNK>.
That's an easy one.
The end of Hawaii was dictated to us by retirements of the 757, which is the only aircraft that we have in its current configuration that can serve the islands.
So, the original plan was to end Hawaiian service with the end of our Hawaiian-based aircraft on Labor Day of this year.
Hawaii has since overperformed our expectations and, therefore, we've decided to continue to run Hawaii out of Las Vegas, with the Las Vegas-based airplane, on Wednesdays and Saturdays.
It's just the best thing we can do with that airplane on Wednesdays and Saturdays based on current fuel prices and the yield environment in Hawaii.
Hawaii is really one of the only US domestic markets that has yields that are holding up really well in a low fuel environment.
So, we intend to be there so long as we keep the airplanes around.
But the fleet plan dictates us leaving Hawaii, and that hasn't changed.
And the reason we're getting out of the airplane where we are, as you said, is because of the really significant maintenance that we would have to invest in that airplane over the next 18 months.
First on aircraft type, we're really not constrained by the MD-80 because we're committed, for the most part, to schedule aircraft in such a way that they come home to base every night.
And that's on about an eight hour and 15 minute block hour round trip based on the current 117 rules.
And that prevents scheduling transcontinental flights and things like that.
We'll revisit that from time to time but right now that's plenty of opportunities.
On the growth question, I would basically just look at Cincinnati as an example of where we can take growth over the next several years.
Today we have 14 destination markets served out of Cincinnati.
We continue to expand that with our relationship with Apple and growth into other markets.
I think internationally we could certainly look at that, as well.
So, if you take Cincinnati network and put that into a bunch of other mid-sized cities into which we're building a presence today, that's the growth thesis for Allegiant for the next several years.
We continue to have a mix of markets that are new to our network that include some small cities and some mid-sized cities and some rather large cities, as well.
I don't look at it as we've tapped out all the small city opportunities.
We continue to find new ones as they present themselves to us, either because other people leave them, like what happened in Flint and Dayton, or because we finally get the right contract from the airport, or because there's a structural change in the airport that allows us to serve it today where it wasn't possible operationally in the past.
That would be Santa Rosa.
So, you're going to continue to see a mix from us.
I wouldn't consider the small city opportunities to be exhausted.
I think we're going to continue to find other small cities.
We're targeting 10% growth rate annually.
And as the airline gets bigger, a twice-a-week market is just difficult to find enough twice-a-week markets that can provide that 10% growth rate.
So, inevitably we will have some larger markets in our network over time.
There's certainly a price point where we would consider it but Airbus is nowhere near that price today.
They don't have any problems selling airplanes today.
I think that's probably the scenario we need to be in for us to push forward a new aircraft deal.
Utilization constraints come in two forms.
One is the revenue opportunities of off fleet flying.
And then the second one is the operational reliability of the airplane type.
On that last point, with our used Airbus and getting them to where we think they should be, I think that there's really very little constraint on where we can take utilization.
Certainly with some of the newer equipment that we're getting it, I think we can fly 9 to 10 hours a day, if necessary.
And we do that in our peak periods today.
On the revenue environment, I think we're always going to be ---+ not always but for the foreseeable future ---+ we're going to be an airline that focuses on volatile demand patterns associated with leisure travel, and, therefore, there's no opportunity to add a third frequency into some of our markets.
So, our Tuesdays, Wednesdays, and Saturdays will be always be lower utilization than what we have today.
That puts a more practical cap on fleet utilization.
I'd put long-term fleet utilization goals, with a single fleet type, at more like seven hours a day.
David, it's <UNK>.
Even if we wanted to push up the utilization, that's such a structural change because you have to hire pilots, flight attendants, that now become fixed costs.
And so once you commit to that, you are in for a penny, in for a pound, at that point.
You've made a very fundamental change to the way our model works.
Flying [200] hours in September is one thing but flying them consistently more would be a big structural change.
No.
The maintenance trend is the one that's most volatile.
Other the things that we've already guided on the full-year basis being D&A is relatively flat.
Sales and marketing continues to be a relatively good guy as it relates to the surcharge on a full-year basis.
Stations, there's some pressure but we're working through that.
There's some new agreements that were in place but we're managing more aggressively, managing our providers.
But short of maintenance you shouldn't see any other line item with that severe volatility.
No.
Flat to up for a full year we think is still a decent range, despite the incremental capacity that you put in the schedule.
A lot of carriers are leaving the charter space and we think, then, that there's an opportunity for us to come in and backfill some of those opportunities.
And it also gives us a good way to launch a new base in the mid-continent where we can combine scheduled service usage on the airplane with charter commitments and get really good utilization out of the airplane, allowing us to test markets essentially risk-free.
So, we're working with Apple and some other charters to try to expand those relationships, and hopefully you'll see more on that.
But the expense in fixed fee flying has to do with Apple replacing our prior Peppermill commitment, which Apple is more productive.
And then also, particularly in the first quarter, we just had a lot of opportunities with March Madness that we didn't predict having, as pilots matriculated through training and were available so that we could take those ad hoc opportunities.
We continued to see a lot of traction in the ad hoc business into the second quarter, and we're investing a lot in that direction.
We think it's a good opportunity for us.
Fixed fee will always be a pretty small part of what we do but it's a great way to use surplus aircraft and crews, and we intend to do it for a long time.
We're not trying to be coy there.
We really don't know.
It depends on how quickly we're able to get adoption from our customers.
What we know is that it will launch in the third quarter.
The technology is on track and the marketing plan is in place.
We're working with our flight attendants to help market the card on our aircraft.
But there's still going to be a little bit of uncertainty about when the revenue shows up.
And we won't know that until it's out there and we're selling it.
Let me comment on the structure of the charter contracts and then I'll turn it over to <UNK>.
Just like all our charter agreements, we don't take risk on the fuel price.
So, that will cause some reporting challenges because there's an ex-post settlement on the actual fuel price paid.
But, as you point out, it's very important to us because of that risk transfer onto whoever's chartering the airplane.
So, you're right there.
On the ASMs per gallon, first quarter you saw a 3% increase year over year.
I think as you move through the year, it's likely you'll see a 2% to 3% increase year over year for Q2, Q3, and Q4.
2017 is a little more convoluted with the retirement of the 75 fleet and getting out of Hawaii, so it's going to negatively impact ASM per gallon metrics, not to mention some Airbus units that we'd like to put in if there available.
Thank you all very much.
Appreciate your time.
If you have any follow-up calls, please talk to <UNK>.
We'll talk to you in 90 days.
Thank you again.
