Q3 2019 Earnings Call
Ladies and gentlemen, thank you for standing by and welcome to the Q3 2019, Allegiant travel Company earnings Conference call.
At this time, all participants are any listen only mode. After the speaker presentation. There will be a question answer session to ask a question. During the session you will need to press star one on your telephone. Please be advised to todays conference is being recorded if you require any further assistance. Please press star zero I would now like to end the conference over to your speaker today.
Chris Allen Sir Please go ahead.
Thank you welcome to lead to travel company third quarter 2019 earnings call.
On the call with me today, our Maury Gallagher the company is chairman Chief Executive Officer, John Reminisce Company spread and then Greg Anderson, our Chief Financial Officer, Scottsdale than our SVP and Chief operating Officer, Scott The Angelo our Chief Marketing Officer drew out there be via revenue planning and a handful of others to help in Washington real sourcing commentary and then open it up the question the company's comments today will contain forward.
These statements concerning our future performance and strategic plan various factors could cause the underlying assumptions. 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 FCC any forward looking statements are based on information available to US today, we don't think no obligation as they publicly any forward looking statements whether as a result that Peter mass new event information or otherwise the company cautions about not place undue reliance on forward looking statements, which may be based upon assumptions and I do not materialize.
The view the earnings release is one of the rebroadcast is called feel free to visit the company Investor Relations website at <unk>, our patent Legionnaire Dot Com, just remind our investor day will take place in Las Vegas on Wednesday November 13, as such we will use that it meant to speak about our expectation for two or 2020, rather than on this call with that I'd like to turn it over to Maury.
Hi, Chris and good afternoon, everyone. Thank you for joining US again busy day for you all.
I appreciate your time I'm happy to read a reporter 67th consecutive profitable quarter very profitable quarters, you saw on a year over year basis.
Question on the day is what's caused this dramatic improvement to region.
One other one time expenses on the transition Irrs of 17, and 18 are behind us and to change the all Airbus fleet.
That's a 24 months during 2017 and 18, we added 40.
New Airbus aircraft more than doubling our total to 76 at the end of last year today. The fleet has grown another.
Well 13 airplanes to 89 aircraft.
We've shown great scale. During this time managing the transition since 2001 operating used aircraft has been one of our core competencies used aircraft have been continue to be a more capital efficient asset for our lower utilization model since our earliest days we've sourced aircraft in this more complex years more aircraft market.
Including negotiating the transaction and coordinating the inductions.
Because of the score team has been recognized as one of the best aircraft traders a worldwide.
And it's showing our transition BJ neo and his team have done a tremendous job sourcing. The 53 aircraft. We have added since early 2017, no. Today's results would have been possible without this critical component in our model.
Like BMD, our Airbus are very Financeable since 2013, and the acquisition of our first Airbus.
We have.
Our team has been become very skilled and sourcing financing clearly we needed financing during the spread of the past two years, having 53 aircraft today, including 13, New 180 succeed Athree hundred Twentys.
Today, our aircraft acquisition pace and slogans result, our free cash flows is increasing.
To this date, yeah, we have already exceeded last year's $373 million of EBITDA.
Our paper is very much in demand given our track record in the quality of aircraft in our solid balance sheet, we do business around the world, Japan, The U.S. Europe , because many of 16 world class lenders aircraft lenders buying for our business.
Oh airline of my 40 years in this industry to my knowledge.
His transition this percentage of their fleet in such a short time so successfully.
Always if we have to source and transition aircraft, we have to continue to run the airline.
During this 24 month period, we grew the airline by over 20% trained over 400 pilots 300 mechanics and added 57, new routes, all while still maintaining industry leading margins.
That leads us to our second benefit.
We now have one of the latest generation fleets of aircraft in the industry substantial improvement over our MD fleet.
I understood the Airbus would materially improve our economic performance, allowing us to make more money per aircraft somewhere concerned or utilization sensor model might not work with this more expensive airplane. We told her award and the results as you are proving our case today the peaks and valleys are the same but the Airbus has allowed us to increase the amplitude of that curve and during our most.
The most productive months of the year March during July this past year, we operated an average of 9.7 hours, that's a 40% increase over the 6.9 hours that we averaged just in 2015.
September weeks months, we reduced our flying to five hours continuing the trend that we've done for many years, but that's a 48% decrease again compared to 2015, we operated 4.2 hours, but only a 39% decrease from the 6.9, our peak of that year.
We are following exactly the same pattern, we establish many years ago, but are able to fly profitably more with the chair played each day.
We told you at our 2016 Investor day to expect this dramatic improvement in our financial results. When we competed particularly when we completed the transition to all Airbus.
Good luck comparison to a 2016 that your we had a 27% operating margin with 149, our dollar 49 per gallon a fuel a generated $370 million of operating income if you adjust the fuel that year to this years to dollar and 16 cents per gallon.
2016 operating margin drops to respectable 18.9%.
But our year to date 2019, Caroline operating margin through the end of September is better we're north of 20%.
Again, the power of the Airbus.
We told you we would be operationally better as well with the Airbus fleet.
We have led the industry and completion factor the past 18.
So the 21 months since January of 2018.
This year in 2019, we have led the industry every month save last month, when we came in second because of hurricane Doron and its problems.
And for.
The Airbus has been critical to our improved operations 13 is also doing its part we've substantially up card game in the past few years and it shows.
In 2017, there were concerns as well over the changeover in some of our personnel and we would fall through because of the departure of some of our senior management.
We said, we didn't think so and that we had a deep and wide bench with people who could back fill these departures today's management group is one of the best management teams has been my pleasure to work with my years here at the company.
Each one is to be congratulated underperformance, the past 18 to 24 months and growing our management team internally is one of the core competencies again, most important at Allegion. Most really proud of the fact that we were able to do this quality of our product can shine through as well you'll hear from others saw about.
But our customer feedback that is ranking us among the best Airlines in the U.S.
What you have today and for you, ladies and gentlemen, as a group of over 5000 team members, who are focused dedicated to providing customers with safe reliable fund transportation for a very low cost what we've done the past 18 years.
And now this would have been possible without these team members and the management group out in front, leading the way.
We're hitting on all cylinders first major component of Allegion to not always in place.
And it's providing the underpinning for the other initiatives that are coming right behind.
Perhaps folks it's going to be override thanks, very much that I'll turn it over to John for his comments.
Thank you very much.
Good afternoon, everyone, well why we loved the Airbus product, but all comes down to our amazing team of people with great leadership and great execution I couldn't be more proud of well there's been accomplished to date, but the best is yet to come.
Oh boy talked about.
The amazing record, we have going with completion, but also the incredible to point out as our controllable 14.
Has been up year over year versus same month prior year for 21 to the last 22 months an incredible seat began by this wonderful team of folks we have working here.
I thought I'd take just a minute to give you a couple of quick updates on some important data points as it relates to sunseeker realizing that will provide.
Incredible detailed around all of this when we have our Investor day.
With regards to a construction we're on budget was 67% or the total budget committed to date by end of this year over 80% of the total project budget will be committed.
When you look at by the end of this year the building should be approximately five storey side.
And all towers should be.
Top and wrap in April of 2020.
And again as I mentioned before if you go out into website and click on the project updates tab you could look at a drone video of the site, which is posted every single week.
Oh.
Hey, too just on the branding and selling opportunities. We have here, we will go on sale what the resort before the end of the year.
So we're very excited by that we have approximately 800000 active sunseeker emails to date.
Which is incredibly enough we have more than 5000 emails from over 30 different states.
Of course that speaks volume about the breadth of the brand awareness and the power of the leisure carrier to develop a resort brand well before a resort opens.
Also worth pointing out for anyone is but on the website.
People have the ability to go beyond just given us an email and actually register their interest well full knowledge of what room rates are as well as providing us additional detail about how long they intend to stay what their gender is what their age is whether the retired or not et cetera.
When you look at the number of those folks who actually registered their interest we have 148000 of them to a registered their interest to date.
So again very excited by these numbers like we can't we see opportunities start.
Letting these people express their further interest will actually booking with us and again that will happen before the end of.
Before the end of this year.
On that note ill turn it over to true.
Thank you John and thanks, everyone for joining us this afternoon.
Im very pleased to announce a third quarter, TRASM, plus 4.3% year over year, plus 5.8% add some growth.
Right at roughly half point headwind associated with her hurricane Dorian.
As expected the revenue momentum we saw building toward the end of the second quarter continued through the third and we further capitalize on rightsizing capacity within the period with high July growth and negative September growth.
For the first quarter in company history Air and third party Ancillaries combined to produce more revenue scheduled service line.
There are many reasons for this including continued strength on back performance, both online and at the airport and the Best Threeq You third party revenue per passenger since 2013.
All three pillars of third party Cobranded credit card auto and hotel group within the quarter and we took on the best airline co branded credit card award from the USA Today 10, Best readers Choice Awards, which is a huge honor for us and this program.
Furthermore, we recently launched bundled Ancillaries one of our revenue EBIT initiatives.
I'll provide additional ancillary runway.
It's far too early to comment on performance I look forward to updating everyone at Investor day.
This ancillary outperformance was also matched with load factor expansion that improved with each month in the quarter and expect positive load factors to continue into the fourth.
We will also begin to hit the MD 80 retirement comparison for growth in the fourth quarter, which will create the monthly lumpiness and higher than typical growth rates.
Decembers the first month for this and we will see growth rates close to 20%, whereas the quarter as a whole will be between eight and have a 9% year over year with lower asset growth and the off peak of October in early November .
On a full year basis, we have narrowed our 2019 Azim guide towards the higher end of the range and forecast growth of eight and half to 8.9% year over year.
As you may have noticed we've removed system level, RPM and load factor from our leases.
Now scheduled service slide in the section include fixed fee as well as company ferry and repositioning flights.
Those other flights are generally phone empty and provide no value in terms of RPM generation.
Fixed fee should be judge off the revenue generated elsewhere in the same whether five people were 105 for that flight.
That being said 60 revenues that accompany record with nearly $20 million in revenue in the third quarter and continues to streak of incredible performance.
The success would not be possible without the incredibly well run summer that our operations folks put together.
Thank you for all your efforts in accomplishing this great milestone and with that I'd like to turn it over to Greg.
Thanks true.
To recap the enterprise, including non airline business units reported 44 million net income for the September quarter or $2.70 in earnings per share, which is up nearly 190% versus a year ago.
For the first nine months of the year enterprises produced $10.54 in earnings per share, which is largely a result of our team members executing even better than initially planned across the organization.
These improvements give us confidence to increase our full year 29, EPS range to 14 25 to 14 75. This is an increase of 50 cents per share from our original full year 19 guide communicate it back in January .
Meaningful improvement despite a five cents increase in full year 19 cost per gallon a fuel versus that original guide.
As Morry noted in his remarks, we're hitting on all cylinders and our customers are taking notice during the third quarter Forbes named their best Airlines to fly. This fall Allegiant was ranked number two.
And as drew mentioned, we were also recognized by USA Today's reader Choice award for having the number one airline Cobranded credit card. We are delighted about the recognition any improvements we are seeing to our brand.
The performance of the airline produced terrific financial results as well and operating margin of 17.9% during the third quarter more than doubling last year's operating margin of 7.6%. This will be our third consecutive quarter of year over year margin expansion and since retiring or MD 80 fleet late last year.
We're certainly pleased with the Airlines result, and we'll remain focused on optimizing profitability.
We reported airline unit cost during the third quarter down 5.6% versus a year ago.
These results were better than our internal expectations and were again driven by our excellent operational performance. In addition, we're constantly drilling down in all areas throughout the organization exploring ways to improve while maintaining cost discipline. Let me provide a couple examples that help lead to better than expected cost performance during the September quarter.
Station costs.
Our station team has been facing pressure and increasing rates with service providers. This is largely due to stay competitive in markets because of the historically low unemployment rates to better balance. Our team has worked with our strategic suppliers on structure, which has allowed us to significantly offset these headwinds as we scale growth together. Additionally, the improved operations has resulted in.
Lower overall costs related to interrupted trip to expand and brown handling charges.
In the quarter, we saw six station cost per departure decreased by almost 7% year over year.
Another example is with our marketing costs, Scott the Angelo and his team are continuously optimizing their approach to drive decisions based on demonstrated impact at the market and the customer level.
In lieu of casting a wide net they are better utilizing customer data to be more surgical reaching the right customers in the right market at the right time, and thereby and current incurring less marketing spend while still receiving improved throughput marketing cost per passenger is down 11% versus last year.
We are pleased with the trajectory of our 2019 cost performance during our Investor days back in 2016 and 17, we provided an initial plans, suggesting the airline would reduce its unit costs, excluding fuel to 6.28 cents by 2020, we're happy to report we not only expect to meet this guide but to be in 2019, a year ahead of schedule.
Moving on to fuel prices have moved around a bit during the quarter, we pay $2.16 per gallon. During this time with only one quarter remaining in the year and current prices in line with our full year guide, we're maintaining our full year fuel guide of 2015 cents, our fuel efficiency improvements continued to trend nicely as we saw year over year increase of 3.6%.
During the third quarter 280 point.
And for gallon as such we tightened our full year fuel efficiency guidance to the upper part of the range from 82.5 to 83 Asms per gallon.
Turning to our strong balance sheet. We ended the September quarter, with total cash and investments a $442 million, which represents 25% of trailing 12 month total revenue.
We have 1.35 billion in total debt and our deleveraging ahead of schedule as our debt to EBITDA is currently 2.8 turns and net debt to EBITDA was 1.9 turn.
Our warehouse revolver 81 million remains Undrawn and we have increased our number of unencumbered aircrafts since June thirtyth by four as we now have 30 unencumbered aircraft.
Our ending third quarter blended interest rate was 4.8% a decrease of nearly 17 basis points from the second quarter, 2019, which was largely driven by reductions in LIBOR rates because of these reductions we're reducing our full year 2019 interest expense guidance to 70 to 75 million.
Looking to cash flow the airline generated over 115 million EBITDA during the quarter, an increase of 81.3% versus same quarter last year.
During the first nine months of the year. The airline has generated over 400 million of EBITDA, which equates to 4.8 million per aircraft.
We are on pace to well exceed 500 million EBITDA for the year for the first time in our company's history and hit our 2019 target of 6 million an EBITDA per aircraft.
Also during the third quarter, we reinvested over 100 million back into the airline purchasing three Athree 20 aircraft in a spare CFM engine. We ended the quarter with 89 in service aircraft in our and are on pace to hit our year end planned 93 in service aircraft.
We are adjusting down our full year airline capex guidance by approximately 10 million and we are reducing our full year heavy maintenance capex by 12.5 million. This reduction is largely due to better cost during engine maintenance events.
Our fits our efficiency in using a managing capital enables us to consistently return cash to our shareholders. During the quarter, we paid our recurring give quarterly dividend of $11 million and repurchase 14.7 million in outstanding shares remaining share repurchase authority is around 85 million.
In regards to our non airline initiatives, we are decreasing our expected full year 29 cents sunseeker spend by 65 million.
Our total expected project spend a $470 million remains unchanged included in this total is 25 million a pre opening costs, which are not capitalized a small portion of these preopening costs have been expensed in this quarter's non airline 5.2 million operating loss.
Additionally, these preopening costs will continue to flow through the combined non airline pn now until the opening of the resort, which is on track for the second quarter of 2021.
Our family Entertainment centers nonstop, they continued to improve and we expect combined same store results produced positive EBITDA on full year 2020. Finally, we continue to make progress towards the sale of TCEP and are in discussions with multiple potential buyers.
In closing I'd like to add my many thanks to all of our hardworking team members at these outstanding results are attributed to their terrific every day in day out and with that I'll turn it over to the operator for today.
As a reminder to ask a question you will need to press star one on your telephone to withdraw your question press the pound.
Please standby, while we compile the Q when a roster.
Our first question comes from a lot of Savi.
Of Raymond James Your line is open.
Good afternoon.
Great quarter.
And I think Greg maybe a question for you really good performance on the cost side the full your guide.
For Q might be similar to maybe slightly lower year over year declines.
And the cash.
CASM ex just.
Given the level of capacity growth.
Third quarter, I'm surprised that third quarter was and maybe given the level of capacity.
Peter.
Surprised that maybe.
In the fourth quarter that.
Yes, Harvey Thanks for the question in the fourth quarter is on a cost side really the headwinds we're going to phase there around labor.
We we hired pilots are we started hiring pilots for our 2020 growth and so we've hired up to 100 pilots and so thats going to impact our fourth quarter and then in addition profit sharing given the.
Given the increase in profitability that also increases our profit sharing and so that two is putting a drag on the quarter those are the major headwinds and but.
Other than that we see we see we do expect airline CASM ex for the fourth quarter, a to be down, but not quite as down as much as the second or third quarter like you mentioned.
Got it.
Not looking for 2020 guidance.
As they go into 2020, just any puts and takes that we keep in mind and also.
That was kind of highlighted how much is improved on the Airbus now that we have Airbus fleet.
Any thoughts on just how much more that that can be pushed as well because I'm guessing that's a big driver of the cost benefit as well.
Sure ill take some of the utilization and Greg if you want to tack on so I think as you look forward. This year 2019 will be the top of utilization.
I would expect the peak months like March during July to remain elevated at or very near kind of the upper ninetys almost 10, we wrap.
But you should see maybe close to quarter hour I'd say if utilization come off.
Into next year.
Yeah and saw the on the cost side for 2020 as Chris mentioned, we'll have our Investor day in a few weeks and plan to provide further guidance. There I would say, though we're really excited about providing that guidance, we drill down our budget and we're ready to go were at a high level or Directionally, we fully expect to be under the guidance.
We provided back to 16 17 that 6.28 cents, we expect to be under there on a cost side, but kind of leave it at that and then we'll we'll provide more detail in a few weeks.
Thank you.
Thank you. Our next question comes from Joseph Denardi of Stifel. Your question. Please.
Yes, thanks, good evening.
Greg can you just talk about you mentioned the I think 6 million EBITDA per plane goal in 2020 can you just maybe share how many aircraft you're assuming a kind of or in the fleet at the end of the year next year. Thank you.
Yes, so I think in next year that management presentations that we put out there have us up to about 103 aircraft by year end on their some puts and takes to go on that I think candidly, we expect to beat that by next year, we'll provide more detail on the on that at their upcoming Investor day as far as the fleet plan is concerned but.
What I would say, we would expect to hit that 6 million per EBITDA per aircraft next year as well.
Okay.
And then Maury can you just talk about.
Yes.
Just given kind of it's got some good momentum that on the airline business in terms of when you would kind of make a decision maybe on sunseeker 2.0.
Should we assume that that's maybe a year or two down the road or do you think you'd be in a position to say something make a decision soon thank you.
On a macro basis.
We've always said, we do it on performance and I don't think we've changed our tune on that Youre right now, we're certainly in the build phase but John .
Comment in a moment here, but he's going to current loosened start.
Doing advance sale here of effects 30, 60 days and.
I will tell the tail if it does really well that's that's a data point if it doesn't do as well as we'd like Thats another data point, but.
With the data we put in there to date I can tell you the board and myself are very excited having 150000 people are there about sort of specifically commented on rates, what they want for a product size of rooms.
Lots of things, we're doing again.
We stress for years, we've talked directly to consumers for 18 years now we have this amazing amount of information and.
We frankly didn't use it as well as we should have until the last I'd say 24 months, certainly 12, and but we're upping our game here and you are seeing us able to go out and source information from folks give us data points.
It's been.
Very very positive thing and so that Dana will drive decisions.
Anything I know I've had my history in this business as we go forward so.
The two John .
Hi, Joe.
We've always said that we're very data driven and got an incredible group of people who are that provide us.
That inside so we can make very informed decisions based on those data. So even though the 140000 mentioned to you. We are talking to them about every aspect of what it is we want to do it the resort going forward and I'll share a lot of detail around that the investor day, but just to give an example, one of the data points.
These individuals provide us is how long they want to stay.
So when you look at that the website.
The length of stay that indicate is expressed in a range, but I'd like one to three months for three to six months or four to six days like that so if you take the midpoint of those ranges that people have selected as being some barometer for what people want on average in each of those ranges.
We have to date demand for almost 2 million room nights.
So that's pretty amazing and again, we have somewhere between 250 in 280000 room nights to sell on annual basis.
So demand is amazing the board will react to that based on how the customer reaction when we put it on the market.
But we're pretty excited because of that level of interest that we're seeing.
Helpful. Thank you.
Thanks, Joe.
Thank you My next question comes from Duane Pfennigwerth.
Evercore Your line is open.
Hey, thanks.
Congrats on the airline earnings.
I don't want to steal the Thunder from from your event, but I Wonder if you could just give us an update on the outlook for losses.
On the non airline activities. If you have any update on the sale of T. snap.
And specifically into next year.
One of the things were interested in is if all the sunseeker expenses pre opening expenses will continue to be capitalized.
Boris as we get to kind of the second half or or later 2020, if you'd start to see some opex from sunseeker.
Hey, Duane this is Greg I'll kick it off and then maybe John who want to provide some additional color, particularly on the sunseeker side as far the non airline cost are up.
So we saw this year, if we compare to next year.
I would think it probably be flat and why I would say that his teeth snap will likely not be it in there for full year next year, and so that will offset some of that perhaps increase at preopening expenses that we could see with sunseeker is we're nearing getting your opening as far as the preopening cost that theyre actually not capitalized.
And per say they do run through the PNM now.
These are the pre opening sunseeker cost and I just want to highlight that those are part of the 470 million all in costs.
But with that I don't if there's anything John you want to add or.
No I think it's I think it's helpful. Just to emphasize the those preopening are not capitalized.
<unk> expense, which is why between now and opening you'll continue to see.
That does to give you some thoughts in that regard we have 25 million. We mentioned is into sunseeker Preopening a few million of that will be spent has been space spent to date and throughout the rest of this year of course, the the balance of that will be in 20, and 21 and a lot.
Out of it of course happens right before you open the resort new start bringing on the greatest number of employees at that point in time.
So again, it's part of the 470, but but is that amount is expensed until we open.
I guess, the only sunseeker Opex you would see is a small amount that relates to the golf course that we have there it's a diminimus amount and.
That's all you'd see there.
That's helpful and then just for my follow up.
Given the success, you're having in flexing up utilization.
Does it change your thinking it at all regardless regarding how far you can push it.
And the types of markets you can serve thanks for taking the questions.
Yes, I do and this is drew and and I think what you'll see is as the years combined and you'll see us as soon as 2020 kind of continuing to flex utilization in different directions. So we were very happy with how the peak month.
Reacted to the nearly 10 hours of utilization, we'll see that again next year with increasingly growth.
So pushing those even harder, but we know the demand doesn't exist as you get to late January as you get in September and there's there's really no reason to start to push those any higher in fact I want to pull those back.
So we're not changing our mentality of markets, we want to operate.
We'll be able to and a lot of it because of the power of Airbus fly a bit more on off peak days particular, saturday's on the east coast, but.
Our mindset is still the same of what route mix works, then and scheduling to profitability like we always up.
Thank you.
Thanks, Larry.
Thank you. Your next question comes from Helane Becker of Cowen Your line is open.
Thanks, Operator, hi, everybody on thank you very much for the time here.
I have two questions. My first question is on.
I guess on on your on bundling initiatives when they.
Is there a point I guess, there's party in part the is there a point at which they would reach maturity.
And at that point.
What would the.
Like what would the contribution be expected today.
How much opportunity is there I guess.
Yes, so theres a drew.
And we forecasted the bundle ancillaries to be worth between one dollar to dollar 25 per passenger.
Nothing that makes you move off that early on.
This should hit maturity far faster than than say the round trip discount did.
This is probably kind of as six to nine month run up I would think it's kind of hit that given the booking curve and and just hitting the right kind of.
Product mix and pricing.
Okay, so could it get to $2.
I think I think at maturity, we're talking one to 125, there could well be upside that beyond but I think thats. The mature run rate certainly not will not what we're hitting and we too.
Okay, Perfect and then my other question completely unrelated and off topic.
You know there have been a lot of companies that have gone bankrupt in the past year a lot of airlines that have gone bankrupt and there have been a lot of aircraft used aircraft and morry. That's what we spend your sweet spot finding attractive fully priced used aircraft. You know do you have that opportunity now would you consider.
More or faster growth, if you could get good aircraft into the network in a timely fashion, our timely manner, but in a timely fashion.
No, we pretty well set ourselves as a corporate goal of 10 to 10 year, 10% if youre a couple of show up.
That'd be interesting, we can certainly absorb those.
The other thing that we do real well now is our fixed fee flying so we can absorb airplanes and we have the pilots, which we were going to be and good enough shape you put those on in September and we're doing very well has the number showed you for the Q3.
B-j's here I don't think we'd rather see any big opportunities for airplanes, maybe somebody goes bust and alike, but did we take advantage of the airberlin or anything like that yes, handfuls aircraft coming in next year from those situations. Okay. I think what it did do forces and move forward our ability in the next year to to.
Here is to fill and what we want to do and we're pretty well.
In set through next year and into 21 for the most part Army, Yes, and then I'll just add that Theres lead times from parts in kits and other things in order to transition needs into the say any more quickly than we are no. It's not easy task coordinating all the pieces because we're also mount modifying these typically to 180 succeeds theirs.
Models, you have to do phase standardization kits from Airbus, particularly serial number so it's.
As I mentioned in my comments, it's a very involved process and.
The team here as we've done this consistently since 2001 and were very good on BJ and all of our team is home grown to I might add.
Hey, guys work with them.
Thanks.
A win win for everything we do instance airplane stuff.
That's great. Okay. Thank you very much I appreciate all the answers thanks Helane.
Thank you. Our next question comes from Hunter Keay.
Research your question please.
Hi.
Yes.
Correct me, if im wrong, but I thought I saw report, where Mike I May have said you guys need to hire thousand people for Sunseeker I thought originally said 500 people.
So feel free to correct that but the real question is how you going to find these people because obviously has to be nice and they have to be service oriented and it's a tight job market down there. So can you talk to you about.
How this might be along pull in the 10.
How you're thinking about it thanks.
Well, we never Hon Hai Hunter. This is Sean you know, we never underestimate the challenges. It takes two to higher significant numbers of people. So I don't want to sit here and say that it's a slam though.
Having said that have also been around.
How long enough, where we will be the employer of choice in southwest, Florida, There's no doubt about as there is no one down there that offers the benefit packages and the like that we will offer a down in that market. We've done a lot of homework done there Mike and the team down there we're comfortable we're going to be able to do this we know.
It's a there's some challenges associated with it.
But we're getting demand already we talk to people people are coming to our website.
Yes, Theres a lot of hospitality in the southwest, Florida market and I think the people who were going to be more concern or or the existing operators.
Because.
If you're working at one of these fine resorts that are down there and you want a better place to work just because of the volume of people the benefits that were going to offer you're going to leave and that's no different than even used to happen.
Now here in Las Vegas, one the new property would open everyone would leave from the old because they want to be with the newest.
And.
Of course is in our case the best so.
We know there is a challenge but.
But it doesn't bother us it just means we have to work a little bit harder and.
We're up to that challenge Hunter as an observer of this for the last 25 years.
I remember when biological opened up 9000 people they open the doors.
And it happened you know seamlessly this town and the people that are coming from this town are used to doing this stuff. It's just part of the background and abilities and.
Challenges as John said, but there's a high degree of comfort that the anticipated participation. The training all that stuff has all been planned out there's a very established market down there is all of us know whether it's from Naples, all the way north of Sarasota, Theres wonderful hotels wonderful restaurants, and all we have to do as attract people from those exist.
Location, so it's not like a huge training effort, we're going to find the best and brightest out of all those properties and we look forward to it.
So so thats in the follow up is on the same topic are you going to use a third party to help you recruit are you going to rely on word of mouth at what sort of.
Personality traits you looking for looking to provide a letter experienced taking for people that are.
Energetic and are you mainly looking to hire from the existing hospitality pool.
I don't know just kind of curious how you're thinking about the type of people you're going to recruit while working their representing it.
Well you love people around the service sector right that you could actually slight people, who work as far as W. Airport main host people.
Do some of the best jobs around and dealing with people. So it's not necessarily only those that come out of food and beverage or or a hotel environment.
We expect full expect to get a significant number of those people, but we don't think we're gonna have to higher.
Third parties to do any of this for US we have the internal resources on our own HR department here, so whether its traditional job fairs or other approaches we will take we're very comfortable about that theres, an incredible level excitement down there about the resort a huge awareness of the brand.
And every time on down there in course, our key people already down their living there I mean, they're down living there. They are and we have preview centers open.
So there's a huge level of interest already.
Come and see this see the resort.
By the way one other thing Hunter.
When you got 5679 stories in the next few months theres not going to be a bigger advertising Billboard around about what's going on and 40000 people a day drawn pass. This place. So this there's there's no secretive about what's going to happen and the awareness factor, even I don't go down as much as John but.
No I joke that John they could they can make him came down there I mean, the impact we've had in that area on the jobs to the economic.
It's incredibly beneficial for both parties, which is the way things should be win win so.
People are going to know about this place to John's point, it's going to be the happening place in the area I'll give you one data point.
I think you'll find pretty interesting, we just hired a.
A person into a title called reservations manager, we had 30 applications for that one position.
Right. So that that's just the an example of what we're going to see for most if not all of physicians were going to have.
And that's the experience with all of US we've seen throughout our careers.
Okay. Thank you John I think.
Yes, my only comment.
Sure My theme in my comments is that you've got a pretty good management team sitting on this side of the phone call and that we've been values roads before we've done these things and we've anticipated. These problems in one of the things you pay management for is to deal with problems and there's going to be issues and things are going to happen, but this group that.
Running this place in a world class professionals and I don't imagine is going to anything's going to come up that they haven't seen before and having it probably anticipated and or won't react appropriately. So we're really excited as we said in our comments about the quality of the group running the show here and the people executing so anyway.
Thanks, Thanks, Morry that's great.
Thank you. Our next question comes from Catherine O'brien of Goldman Sachs. Your line is open.
Hey, Ron Ginny good evening.
A question this on the on the EPS guidance that apologies if I understand obvious answer has that had the chance to crunch the numbers here, yet, but on the higher bps. It looks like is that really just kind of baking in the performance year to date.
Or is that something has gotten better and your Fourq you outlook, just because we don't have quarterly guidance you guys anymore.
Any help there will be great. Thanks.
Okay. Thanks for the question that's correct.
I think we'll have more you alluded to you were mentioning enter true also on his remarks on the on the revenue side was fixed fee that's coming in as much stronger than what we had initially budgeted for.
Throughout the year cost of continue to come in much better. So that's been a better than a very nice upside as well.
With that I mean revenue has been a nice story and so I think it'd be helpful for jury to jump in and talk about that yes, I mean, I think kind of across the board 60, again with a record and third quarter that was previously.
Fourth quarter last year, just continues to to turn out incredible results.
What the operation performing as well to David opened up a lot of opportunities.
What we've hit a point with fixed fee were inserting kind of their probabilities of success into the scheduling process to ensure that they're getting the space they need to maximize what they can do.
I think the other thing worth noting here is the third party that we called out all three between co brand auto and hotel with with great jumps year over year that would have exceeded expectations a little bit so very very enthused by all of that.
A couple other points.
The Airbus is just as much superior product to the undies. So you've got a lot of excess Airbus come September it's an ideal time for us and it's very much in demand.
To be farewell were pretty good very happy with what we're doing we're also benefiting from the Max capacity from southwestern United, particularly in DMD. They just havent been there. This year that you might have been in past years, maybe next year. So we have to qualify it somewhat that we've been able to pick up the slack very nicely.
Because of our timing, having the airplanes in the quality of the airplane.
Very much appreciated by our customers.
Understood maybe just one quick clarifying one from my second question more human human benefiting on the fixed fee side right are you, making overall comment on your RASM growth this year.
I don't know benefits. This is fixed fee I was talking about it perfect. Okay.
And then on drew maybe one for you do does.
Solid RASM performance here notice there was kind of a mix shift with with fair revenue down a bit in an error related salaries showing strong growth that is that an intentional switches you're kind of turning on some of these units Hillary buckets or was that fair performance really just like.
Industry level.
Kevin Thanks much.
Yes. So this year, there's a couple of factors I remember back four key last year, we shifted the CCV in the fair. So thats still isn't effect, we'll still see.
Small effective that next quarter, maybe a little bit into one Q4, we completely lap that.
But also as as the air ancillary in the third parties combining continued to creep up it's been our best interest to draw fair, where where appropriate and build that load in order to capture that Anthony It's I think theres a mixture of kind of both both pieces there.
Okay. Thanks, so much.
Thank you. Our next question comes from the line Michael Linenberg of Deutsche Bank. Your line is open.
Oh, Hey, Hey, everybody, Hey, I guess this question is just some oriented sort of.
Longer term when I look at profitability.
I mean it.
The numbers are good they're very good on their industry, leading and I started thinking about.
For the Airbus platform, improving your operations.
I think market selection is also part of it and the fact that.
75% of your city pairs, it's basically just you guys and so when I think about your mouth.
With that that's a big part of it.
As we think out over the next three to five years, and we see everybody sort of clamoring for new markets and competition picking up you look both plans and alike.
What does that percentage look like three to five years from now like how many more you know sort of call at Fort Collins to Las Vegas routes.
Our out there and.
Fast for three to five years.
Do we see similar call it 75%.
Markets City pairs, where you're the only Dana.
Just thoughts on that morning, Thank you well Europe , you're asking around Dr. Michael.
Take all my direction from drew and team then Dave.
As a long long list of people, who picked droughts over many years. So we're up to 490 route 470 give or take revenue, yes, I know my routes, but let drew talk about that yes, Mike. So we've called out in the past over 600 incremental routes and of those we believe it's roughly 10%, but actually compare.
So I think at worse, we can keep level with where we're at today and under more likely are best case scenario that we can actually grow the number of noncompetitive route that we operate so we think we're well poised not just today, but but even better more so into the future.
No we're doing things quarter one thanks.
Yeah, Michael we're doing things that frankly number of years ago. I don't think would have thought you're seeing travel trends change things that are.
Interesting you know were nearly days, where we really small city mid mid level cities in some of the thing so theres a Steve evolution of where people want to go and we're also I think teaching people how to go under places to with some of the stuff that these guys experiment with in plywood.
Yes, I just that's one of the reasons I sort of through Fort Collins out there as well I think you are going back into that market I think that's going to be what an air traffic control operation that's remote right that theres nobody there.
Able to fly in and out I'm sure the airport costs are probably.
Narrow.
Yes, yes, we have to get the or the DTC issues are still giving us a little bit we've gotten a week from fully plan on going in there or shortly.
Okay. Great. This one other and this would be to the team where where are you guys with respect to pilot turnover.
And I suspect that historically, it's actually been pretty low for you guys.
We see the numbers.
Retirements.
Outweigh that the majors, we know that there's there are really starts higher they're pulling from all over the place are you guys are you seeing anything there or is there anything in place.
That are keeping your guys there for the longer term any thoughts on that thank you.
Hi, Michael its Greg.
Now what we see about a 5% we see about a 5% attrition rate and it's nothing that stepped up here. There I mean, it's just it's been pretty level. One thing we do have at our airline that's unique as we have a great quality of life for our pilots, meaning they are out in back every day and so our crew members in our pilots in particular I think they really appreciate.
That and so.
So it's been a nice recruiting tool that kind of a retention tool as well for us here at Allegion.
Great just one quick one on that.
How quickly kind of new pilot at Allegion gets too.
Is that three four years.
Actually do that quick.
Hey, Michael This is Scott.
Hi, ROFO is about 70 days or is in the right see and my guess at this point given the trajectory, you're probably two and a half years into the let's see thereafter, Oh Wow.
All right that's great. Thanks, guys and thanks, everyone seen or whatever.
Thanks, Michael.
Thank you. Your next question comes from Math, Matthew was Muskie of Barclays. Your line is open.
Hi, guys. Thanks for having me on just a couple real quick questions I wanted to come back to the utilization and just really make sure I understand that it's been.
A lot higher than it has been what kind of flexibility do you have around then I think you said it was coming down next year, but what kind of markets are turned out a little bit better than anticipated or demand kind of weekends does that does that give you greater flexibility than you've had in the past.
Absolutely I mean, one of the things we always prided ourselves upon is our flexibility and the Airbus has only grown well, we're able to do and primarily to the upside right. It's very easy to bring the MD 80 down and we showcase that again this year that with with the Airbus, We're still willing to bring down under five hours a day in September .
Yes, you never would have seen us do 10 hours in June July March with with the MD 80, So we have even more flexibility today than we used to and we're going to continue to push the bounds. Both on the high end and low end one thing about September you can't you can't just manufacturer.
Demand and the weakest periods and so you're not going to see is pushed very high there.
But but everywhere else, but we'll continue to push in Poland and try to find the right right mix.
One other thing is kind of very low on lower breakeven point, particularly around fuel and what's the ratio drew a dollar for dollar gallant dollar a gallon better so not much you fly down the curve more to less dense markets and or weaker yield markets that you otherwise wouldn't have thought are doing with annuities.
So that flexibility to go kind of deeper into a wednesday, perhaps or a saturday, depending again regionally where you're talking.
That's just the benefits of the airplane.
Okay great.
And the kind of similar lines.
I look at cost next year respectful that you probably not going to guide or anything, but I know if utilization potentially comes down a little bad and then on it looks like gauge is coming out, but what other things should we keep in mind and just as far as that could be impactful to the cost outlook next year.
Yes, Matt I think just at a high level the headwind for next year would likely be ownership.
So I think is.
We continue to take motors and run them through our deferred maintenance program, which we're capitalizing and deferring.
You are starting to see depreciation spike up a little bit better I mean, I say that cautiously, it's not too meaningful but am I think honestly, that's one of the biggest headwinds will face.
I would say some tailwinds you know continue to perform well operationally I mean, we expect that and so thats been a nice tailwind. This year, we hope to see that moving forward next year.
Want to say marketing as well.
Scott the Angela and his team that they have and they put some investment in our digital commerce and so what that means is we're seeing a higher conversion rate and so we're right we've been able to take our marketing spend down significantly because at that end as you as you probably noted that we signed up to sponsor the what's called now the.
Legion Stadium, but when we sign that up and were able to keep that line item flat down because of the the terrific investment that Scott the Angela and his team have made into the the digital ecommerce world.
Okay, great. Thank you.
Thank you. Your next question comes from Joseph Denardi of Stifel. Your line is open.
Yes. Thanks.
I would imagine the performance from your credit card.
As maybe wildly exceeded your expectations. So how do you ensure that you maximize the value from that business line. I think you guys broke out the revenue per packs for the first time this quarter, but looking at reasonably get too in three to four years do you think.
Well I'll make one comment and then turn it over to the guidance really understands it.
We haven't does not wildly exceeding we made this forecast for years ago, and we're going to pretty much come pretty damn close to it near as I can tell so.
We expect to the lot out of the card and Scott and his team when taken ownership of it over the last couple of years and.
You bet and thanks, Joe for the question will go into this one or more depth at Investor day.
But right now, but I can tell you as you look at our new cardholder Signup growth right.
It's about a straight you can draw a line without a ruler we have actually accelerated new card sign ups. So were nowhere close to flat towing on that doesn't answer your question. When it comes in but I can tell you. It will go linear for at least the foreseeable next couple of years. The other tailwind we get a is both by pre negotiate.
And then potentially.
Extensions of our current agreement, which you know help on those variable parts of the contract right. We get paid for signing up a new cardholder, but we also get paid variable percent what they spent so as we aggressively kind of.
Address both of those cardholder acquisition cardholder retention spend.
As those parts go up right, we get kind of even an acceleration.
And so we'll go into that in more detail, but suffice it to say I.
Yes, a pretty linear growth.
For the next to you know two to three years at the very least.
That's helpful.
And then just just on the stadium deal just sounded kind of curious given that the network seems to pivoted away from Vegas, a little bit and it wasn't I mean, the headline numbers suggest that it wasn't cheap I guess, but can you explain kind of the rationale for doing that and is there a credit card tie into that at all thank you.
Yes, so there's not a credit card tie end, but but real quick.
The rationale on three big things in that order the first as awareness and it's not even so much the 42 million visitors that will drive buyer fly over here in Las Vegas.
At the tens of millions and then when you replay games episodes on it Pn.
Built into viewers that we'll see it across the nation in the power of the NFL Alpine stat I'd like to throw out though that is always a head scratcher 46 out of that top 50 television programs last year were NFL games right. So if it gets that national exposure like from Las Vegas.
The other two real quickly we'll be getting into sports travel so not only will that be a name on decided that stadium that's called out by all Michael thing Cris Collinsworth on Sunday night.
But also we will sell tickets in travel packages to fly stay in actually attend event that Allegion Stadium.
The lap that isn't necessarily get the small it the b to b relationships right I can't name names because they havent all been publicly disclosed, but but big growing companies big soda companies.
Other like food and beverage providers.
Have already style not just for a promotional opportunities, but think about you know our airline by onboard program certainly sunseeker and these relationships that started around something like the stadium that can get us preferred deals on all of these things to reduce costs.
Become a real big part of that not a lot of people talk about but.
Now as being kind of the flagship.
One of the most recognizable stadium.
We have everyone from auto manufacturers to the aforementioned companies, calling us in wanting to Scott how we can do business together, so that becomes a benefit to.
Once you comment Scott on the impressions, we saw literally within a week sure news factor, yet and I noticed that obscure marketing stopped but all the marketing advertising, we do any year generates about 4 billion with that.
The impression.
After the announcement August that within 24 hours, we were about three quarters of 1 billion impressions, then and kind of now several months later or already at 2 billion plus impression so about half what we spend on any year was accomplished simply by the announcement and the media.
Coverage and the last comment about that it's great that someone prices out there. The question as well are your customers year prospective customers actually consuming.
One of the things that went into this was the knowledge that two thirds of allegion customers and or non customers from Malaysia market. We're Abbott NFL fans that was more than doubled the national average. So the fact that we're throwing off a lot of impressions out there would be.
Coverage in association with the NFL and our customer prospective customer base consumed the NFL in droves was was the match where we're looking for.
Not to keep pushing on this issue Scott maybe why might be helpful to come onto let them know immediately after.
That top off and what not the increase in traffic to the outside sure. So so one of the thing.
Greg alluded to all days, we put a lot of science between the relationship between things, we do whether its TV advertising email big events in and how that impacts.
Visitation to our website at one of those postulates, we usually don't release, but when we do new route announcement, we typically would see 20% to 25% year over year increase in website visitors right on news feeds all over the country come on in Hey, Allegion thinner year market flying to new place the weak.
After the stadium announces announcement incidentally, we a new route announcement they were at 35% to a full 10 percentage points higher than our typical and not only what that for that day and actually lasted.
For the following day and the point there is simply that we don't believe that having Legion stadium in of itself does anything other than that it makes allegion top of mind such that when you see that TV AD when you get that E mail when you see that new route right. There is some fraction.
It's not double it to the tune of five to 10 Beth.
You know of impact across everything we do.
And we easily hit right, our mid too aggressive hurdle rate for what this investment needs that too.
Return for us.
Thanks Scott.
Thank you.
Thank you at this time I'd like to turn the call over to Maury Gallagher for closing remarks, Sir.
Thank you all very much appreciate your time and Interscope. Good on your typewriters is far right you're busy.
Yes.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating.
Disconnect.