Q4 2019 Earnings Call
Ladies and gentlemen, thank you for standing by and welcome to it.
Q4, 2019, Allegiant travel company earnings Conference call at this time, all participants are going to listen only mode. After the speaker presentation, there will be a question and answer session.
Good question during the session you would need to press star one on your telephone.
If you require any further assistance please press star zero.
I'd now like to hand, the conference over to Speaker today Shari Wilson director of Investor Relations. Thank you. Please go ahead ma'am.
Thank you welcome to lead to travel companies fourth quarter and full year 2019 earnings call on the call with me today are Maury Gallagher, the company's chairman and Chief Executive Officer, John Redmond, The company's President Greg Anderson, Our Chief Financial Officer, Scott children, or E. B P and Chief operating Officer, Scott the Angelo.
Our SVP and Chief marketing Officer drew wells, our VP of revenue and cleaning and a handful of others to help improve question. We will start with some commentary and then open it up question. The company comments today will contain forward looking statements concerning or future performance and strategic plan various risk factors could cause the underlying assumptions.
These statements and our actual results to differ materially from those expressed or implied by our forward looking statement.
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 undertake no obligation to update publicly any forward looking statements whether as a result of future events, new information or otherwise the company cautions investors not to place undue reliance on.
Forward looking statement, which maybe based on assumptions anything, but do not materialize to view this earnings release as well as the Rebroadcasted the call feel free to visit the company's Investor Relations site at IR data Legionnaire Dot com with that I'll turn it over to Maury.
Thank you Shirley and welcome everyone to our fourth quarter Conference call I'm Happy to report, our 60 eightth consecutive profitable quarter, our operating income increased 50% while earnings per share was up 43% to $40.26 funny standards. This past year has been a terrific here for seven or calls the path.
Four quarters, we were at a good places the under 2018 after completing our transition model is alive and well with Airbus aircraft in France.
In my mind, or a better placed compared to where we were with the Mds.
We said, we would generate $6 million of EBITDA. This year per aircraft, we did it and say that $6.3 million, 50% increase over 2018 results again, we led the industry an operating margin for both quarter in the year and for the airline only in 2019, we had a 21% operating margin and generated almost 16 Don.
Words of EPS.
Our other investments in Sunseeker nonstop are progressing well well this past year and 2020 will be investment years, the outcomes will justify the investments.
Our lead you to daughter implementation is progressing nicely. We've spent the past 18 years developing relationships with our leisure customers to not always focused on providing these customers with enhanced travel experiences by utilizing our direct relationship with them through our enhanced IP tools. So specifically we are focused on.
Bringing together, our one to one relationship with our customers through better IP tools, increasing the suite of leisure products pricing them attractively and wrapping them in our loyalty program, which rewards participation in the Allegion ecosystem.
Critical to this effort is the increasing awareness of our customers. We have had an excellent here in this category, particularly with our efforts on the region Stadium and our recent a recent announcement of our 44 new routes as I said the release, we are truly become in the National company defined by our leisure business.
Well, we need more products than just are terrific air products additional hotel products, particularly in Florida will be a critical component we have sold over seven and a half million hotel room nights since the early days are the 2000 and we are experienced at this effort.
Turning to the room nights sold have been here in Las Vegas, but we are experienced in Florida as well as that our second largest hotel market.
Seeker will allow us to focus our customers on our product selling our rooms, why profitably I might add given we will sell them without intermediaries.
This will allow us to generate exceptional EBITDA numbers as we have said in the previous comments.
As I said earlier, we had a remarkable year last year.
Others will comment on things today as to what we did in some of the specifics.
I wanted to turn my comments to our personnel are great people and on our management team, we have matured nicely over the past many years.
People candidly are core to what you see in here from us and everything we do I can say categorically. This is the best team I have been associated with these past 18 years of both management and the operations level, including our team members who produce our product every day. They are among the best in the industry. Our results verify this claim we.
I've been number one completion factor 19 of the past 24 months, our net promoter scores of increased 32 points. During this time ranking us among the top air carriers in the us.
In our bench strength as well in our management group is as deep as I've seen it.
This is not read just just not me, saying this we have independent verification of the support of our team members via the glass door findings. There. The go to online site for people researching company accompanies culture and quality based on reports from its personnel.
This past year for the first time, we made the top 100 companies in the country to work for and I believe we're the only company in Nevada. In this category. This is indicative of the environment. Our team has created inside our four walls. This quality environment, where our people are both proud and enjoy coming to work is the result of many years of a conscious effort.
Two internally develop our talent and create an environment, where they can succeed and growth.
And while we've had a remarkable history to date I'm convinced this team will lead us to better days in the future.
Let me close by personally congratulating Scott the Angelo on his promotion to either CP Scott has been with US just short of two years.
During this time he has had an outsized impact first and foremost he is a terrific person agree leader in manager. He has been spearheading our leading to auto and development efforts to date as well.
His experience and understanding of data among other things and how it works when talking to customers will be critical building. The two gato in the coming months in years, we are indeed fortunate to have him on board.
Thank you all today and let me turn it over to John .
Thank you very much more in the good afternoon everyone.
Of course, I Echo Moyes comments when it comes to the wonderful job.
That our Allegion team has done this past year and of course, the release reiterate our Investor day guidance, which demonstrates the continued high expectations. We have for this amazing amazing Allegion team going forward.
So thank you to all of our team.
I'll give you a quick update on a sunseeker.
This project of course is still on time and on budget.
I'll get into little bit more detail on that the budget of course is 470 million no change.
As of yearend, we had 330 million and commitments again. These commitments mean that there we have agreements employees, including us schedules.
Again out of that 470 million 25 million is pre opening 4 million of which of course was spent in 19 in the balance of that will be spent in 20 and 21 and Greg will give you little more color on that in his comments.
So if you take that for 70, you back out the 25 in Preopening.
The 445 million dollar.
Budget, so roughly 74% of that budget, the 330 million I referenced.
Is committed.
So we're in really good shape, where we stand of course, if your further reduce that budget by another 45 million that relates to the furniture fixtures and operating supplies, which obviously those orders are always plays towards the backend right before opening.
You are down around 400 million course street Threethirty commitments out of 400 million, we're roughly 83% committed so we're really good shape, we're happy with how we're progressing and look forward to.
You know to 21.
TPC funding as we mentioned, we expect that to kick in around August of this year.
And we also still expect around June or July of this year, our buildings to be all topped off and completely enclosed.
In regards to the opening date, we Todd talked about this a little bit in the Investor day, but it's worth of explaining again.
We have put inventory out there for sale to the public already the inventory we put out there is June of 21 through may of 22.
We expect to open the building in April , but we have another hurricane season, the deal with and I don't want to be selling rooms, only to potentially refund money.
So while we believe we can open as early as April .
Well, we're quoting at this point time, a June opening date as I mentioned before I will pick a a new month and in and I expected to be in the April timeframe.
We'll pick that new month in the fourth quarter of this year. So once we get through another hurricane season, we'll update you on what the month is that we expect to open and as I said before when we get into January a 21 will actually pick an opening date.
I mentioned, we're currently selling room very very soft we're not in the heavy marketing was we're testing all of our systems that we developed.
So we have to date the 26 bookings.
Relating to 27 rooms, obviously, one person book two rooms.
Aer, so far average daily rate that Weve received to date is right around $297.
And again, we modeled 185, but I don't want to have anyone extrapolate just yet we haven't sold enough rooms to to do that but we're we're very excited about how things are progressing in amount of information. We're getting in this relatively short period of time and again when you look at those people are booking 18.
Months, the two years out so we never expected to.
Be selling like Crazy, we just one of the soft start so we can test all of our systems.
But I also wanted to mentioned that we will be filing a site plan for phase two.
Next week and before anyone gets too excited about that phase two that we're going to submit is just a ground level pool in a restaurant.
So again when you submit this these types of documents for site plan approval. These don't create a obligation when the county approves it just creates an opportunity.
So if and when we are would choose to do this project will be it the decision for the board to make well down the road.
But we can't put ourselves in a position to do anything without going through the normal process of submitting these things I wanted just met.
So it's out there and it's not something Thats misinterpreted when we file.
And of course on that note I'll turn it over to our recently promoted.
Second Vice President of Scott the Angelo Thank you John .
It's more a reference and 29 team, we leveraged data and technology to lay the commercial foundation for our Allegiant Judaeo vision, a vision that capitalizes on our cost effective direct to customer distribution model to achieve not only strong air ancillary revenue performance, but also pile on top of that.
At by generating revenue beyond the aircraft with our third party hotel and railcar product and our co brand credit card program.
Nearly 110 million web users visited Allegion dot com and 29 team a 10% increase versus prior year.
More importantly, even with this dramatic growth in web visitation, we maintained our internal productivity metric of achieving an average of more than $15 a net revenue per website visitor.
Which means that despite attracting 10 million more visitors to allegion dot com, our ability to convert those visitors into a leasing customers at comparable transaction sizes remained constant.
And the tracking these web visitors became more cost effective than ever as nearly 75% came to allegion dot com without requiring any paid digital advertising.
Helping us achieve this was our email database, which grew by more than 25%.
All of these large and growing digital audiences with the fact that nearly 85% of our customers say that areas. The first purchase they make for their leisure vacation and we are well positioned to continue growing revenue from our third party products.
We see our customers first and we know where they're traveling to before anyone else. This gives us an unparalleled opportunity approach to present them with hotel in rental car option and in the future even sporting event ticket.
In fact, we're already seeing returns from our lead into it auto approach. We ended 2018 with 20% year over year growth in third party products net revenue.
And please remember this net revenue almost entirely flows through to operating income.
Continuing our surgical data driven approach to generating demand for legionnaire in new and existing market, while streamlining the direct buying experience at allegion dotcom to reduce friction and achieve even greater attachment of hotel rooms, and rental cars and of course continued growth of our leisure World Mastercard program.
Remain key commercial focus areas this year for Allegion Twod auto.
And lastly, I'll address the announcement, we made today at the official airline of the Indianapolis Colts.
This arrangement is simply continuing a partnership that we began in 2015, when we entered the Indianapolis market with fiber routes.
And then thanks in large part to the Allegion brand awareness driven in conjunction with this partnership we've established a base there and now fly to 15 destinations. We also serves three other airports in the state which also benefit from this.
Like our other major sports partnership this one at no incremental impact to our sales and marketing costs.
It's more the Indianapolis Colts, our fixed fee customer of ours. So that said there not only helping us build awareness, but also contributing to the record setting revenue levels were experiencing and our fixed fee business.
And with that I'll turn it over to drew wells to go deeper into our revenue in network performance.
Thank you Scott Thanks, everyone for joining us this afternoon I'm very pleased to announce the fourth quarter TRASM plus 2.5% year over year on 8.3% Azim growth. As a reminder, this result is displayed at roughly half point onetime benefit we received in the fourth quarter of 2018.
We received large contributions from both our air ancillary and third party revenue sources.
Air ancillary surpassed $50 per passenger for the fourth consecutive quarter and as Scott mentioned third party revenue improvement doubled and some growth.
On the year bigger TRASM by 1.6% plus 8.8 0.4 present asms.
Furthermore, 60 revenue remains a source of immense strength setting a record for the full year and a quarterly record for the third time the last five quarters.
This is largely attributable to an increase in department of Defense line and continued incredible work by our charter planning group.
In October we released our bundled ancillary products, which we expect to be a boon through 2020.
This will have a bit of a ramping period as we learned best practices and had a fairly small impact for key results due to timing of release and our typical booking curve.
I will start to pick up in earnest during the first quarter.
Shifting toward 2020 lapping the MD 80 retirement date will drive elevated growth through the first quarter.
We expect this quarter, they ASM growth plus 14% to 17% to be the highest quarterly increase since 2016.
As I talked about extensively at Investor Day, we will accomplish this even with a reduction in fleet utilization that is more pronounced in off peak periods.
Looking throughout the year, we will have fairly lumpy growth in order to achieve the plus 10% to 12% annual Azim guidance now I'd like to add some clarity on that cadence.
Throughout the second quarter, we will be flat to slightly positive in the first than the front half of the quarter with gain coming in the back half for total SM growth in the quarter plus 6% to 9%.
That ramp will continue through the summer with third quarter rivaling Q1 for the highest growth in 2020 in the plus 13% to 17% range.
Lastly, we're still working to finalize the holiday portion of the four key schedule, but we believe the quarter is likely to be 7% to 11% up year over year.
While we've been through the MD 80 retirement for over a year. We're just now beginning to grow aircraft meaningfully versus pre retirement levels.
Just had somewhat constrained our ability to grow the network that we ideally would have.
With that final phase with the transition now behind US we were able to announce the largest slate of new routes in company history.
The 44, new routes, including the addition to Boston Logan Chicago Midway in Houston Hobby, our monumental next step for Legion.
The ability to expand our footprint over 500 routes, while maintaining all of the elements of our unique business model is an exceptional feet and certainly a very exciting time for the company.
So I would like to thank all of our employees in service providers for helping us achieve the huge milestone.
It is worth noting that the increase in new market Asms, we'll certainly puts some pressure on unit revenue.
Metrics as our network returns to a higher proportion of developing markets than we've experienced for a few years.
Expect to keep it will be the best quarter of the year from a unit revenue perspective, while the elevated growth.
Increasing level of developing Asms and tougher comps will put some pressure on the back half of the year.
Despite global fears about Corona virus solid demand levels have persisted.
Earnings for both new route and the system as a whole remained strong and I'm encouraged by the current state of demand combined with the power of the region to not a strategy that Scott is putting into action and with that I'd like turn it over to Greg.
Thank you drew and Hello, everyone and.
In 2019, the airline completed 17th consecutive profitable year by delivering not only an industry, leading operating margin of 21.3% with the highest income in our airlines history. This amounts to nearly $300 million of airline operating income $130 million increase versus prior year and four consecutive quarter.
As of year over year margin improvement.
These results cap what was truly an exceptional year at Allegion as the airline grew EPS by more than 40% and only 10% of topline growth.
These impressive results would not have been possible without the amazing efforts of our team members to support and grow our world class airline.
Because of their tireless efforts I'm happy to report the first time in our history, we beat all of our full year 2019, corporate wide goals and therefore, our airline employees earn the maximum payout allowable under our airline profit sharing program.
This translates to a record $38 million in total profit sharing a year over year increase of nearly 80% for distribution to our airline team members I'd like to add my personal thanks to all of our team members for their tremendous efforts. We are thrilled with these results and everyone should be proud.
While we expect our 42% growth in 2019, EPS will lead the industry. It did not come in on the left or it came in on the low end of our latest guide in Q3, primarily due to a spike in the price of fuel during the fourth quarter. Our average cost of fuel. During this period was 10 cents higher per gallon than the assumption in our guidance.
However back in January 2019, the midpoint of our initial full year EPS guide was $14 and we continually increased the range. During the year. An example of how positive momentum grew for us through the year.
As a reminder, our fuel guide is simply based on the price per gallon repay about a week or so prior to our earnings release that said the difference between our for Q fuel estimate first actual cost approximately 29 cents and EPS. We provided additional detailed in our recent earnings release.
Excluding fuel airline cost performance for the fourth quarter came in slightly higher than our original expectations with CASM ex down only 1.5% year over year.
Although we delivered meaningful improvements in labor productivity during the quarter costs associated with higher than expected profit sharing drove slightly higher than expected CASM ex.
I should add it's a high quality problem when your profit sharing earned by our airline team members come in higher than planned due to a better than expected finish to the year. A further example of strength growing as we move through the year.
Full year 2019 airline unit costs, excluding fuel decreased by 3.3% versus the prior year, However, and not to belabor profit sharing if you excluded along with fuel unit costs would have decreased by 4.4% versus the same metric in 2018 significantly better than the range.
Based on our estimates we are the only use carrier in the US to report a reduction CASM ex for the full year 2019, another benefit of being through the transition.
Our 2019 exceptional cost per performance provides a strong foundation for us to build upon in 2020, our entire team is committed on cost and relentlessly searching for ways to drive the unnecessary wants out of the business.
Now turning to the fleet. We ended 2019 with 91 Airbus aircraft in service to short of the number we had projected the two additional aircraft aircraft are now in service and we're still on target to reach a 105 aircraft by the end of 23.
The shifted these two aircraft into 2020 did not impact our 2019 capacity as demonstrated by the Eightpointthree scheduled.
2.3% scheduled DSMB growth in the quarter and the 18.5% DSMB growth in December .
We're pleased with both the operational and economic performance of the Airbus Athree 20 series aircraft flying and all Airbus fleet through 2019, aided us greatly in the airline delivering nearly $540 million, an EBITDA an increase of 40% versus 2018 and on an aircraft per aircraft basis. This pencils out to 6.3 million.
Sellers of EBITDA.
Our 2019 airline Capex came in at $65 million higher than expected. The increase is primarily related to the opportunistic purchases seven new CFM engines and various spare parts, coupled with a better than expected maintenance status on two aircraft acquired during the fourth quarter.
Now moving to our 2020 guidance, we're confident in our full year airline CASM ex projections of down 2% to flat.
It is worth pointing out we expect Eunice unit cost projections to be better in the second half of 2020 versus the first half and we expect the first quarter two outperformed the second quarter. This is largely correlated to the growth cadence drew mentioned, along with a more difficult second quarter comp year over year.
Additionally, we are maintaining our 2020 EPS guide of $16 of 15 cents or 50 cents to $19, while increasing our full year full cost assumptions fuel cost assumption from 2012 cents to $2.15 per gallon, which is the only change to our current guide.
Including heavy maintenance, our total airline Capex for 2020 is expected to be approximately $390 million.
Coupling our current run rate of EBITDA per aircraft in the projected aircraft growth during the year. The airline is expected to generate nearly $250 million and free cash flow during 2020.
Turning to leverage strong cash generation is helping us delever quickly by way of example, we ended 2019, a 2.7 turns debt to EBITDA versus 3.4 turns at the end of 2018, we expect the continued downward trajectory as we grow EBITDA, while quickly amortizing existing aircraft debt.
Taking on unsecured aircraft debt was critical to support the timing of our fleet transition and expansion. If you combine our access to capital from Tom topping throughout the world and our ability to make money with these aircraft has provided us tremendous have access to inexpensive financing.
We compare this Airbus financing combination in a similar way to the acquisition of our MD Eightys.
Our all in cash outlay is around the same amount between the two fleet types, primarily since the MD 80 wasn't financeable. Therefore, this type of debt is an efficient tool with different with a different risk profile and more traditional debt.
Aircraft have the ultimate flexibility and capital assets given their mobility.
At the end of 2019, we drew on our revolver to provide short term liquidity to help fund the purchase of seven new CFM engines in various spare parts mentioned earlier, we intend to finance most of these engines in early 2020 with use of proceeds to pay down the revolver.
Now turning to the non airline we remain active in negotiations to sell T. snap and given the sensitive nature, we do not intend to comment any further other than the than a reminder, the sale is not included within our EPS Guide.
Once the sales complete we plan to formally reinstate our non airline guide. However, we will reconfirm our messaging from our recent Investor day that are expected to 20 820 run rate should be similar to 2019 non airline results.
As a reminder, we still expect sunseeker to open in the second quarter 2021, and total project cost remain at $470 million included in the $470 million as John mentioned is 25 million of operating expense of which we project, 60% to 75% will flow through our 2020 non airline operating loss.
Sunseeker Capex is expected to pickup in earnest during during 2020, and we project over $300 million in gross capex. During the year. The first 200 million will be funded by Legion and the remaining by TSP.
The remainder of their funding will be drawn during the first quarter of 2021 as we complete construction.
We are well positioned for a very strong 2020 as reflected in our full year guide and excited for the growth and continued improvements we expect to see throughout the organization with that I would like to turn it over to the operator for questions.
Thank you Sir.
As a reminder to ask a question you would need to press star one on your telephone.
During the question press the pound.
Please standby, while we've compiled the Q and a roster.
Sure first question comes from Savvy says from Raymond James. Please go ahead.
Hey, good afternoon.
I really appreciate kind of importantly color here.
That's true.
The Q.
That makes sense.
Assay growth.
It's my understanding that you had some new markets open late last year.
You'll have a whole bunch opening up this year and wondering if you can talk about.
The.
Progression.
To sum of new markets.
If there's anything courses off peak gross.
Variance that you'll see.
Yes.
Sure Thanks for that Savi.
So there were some new after the went through 2019 I think it's important to stress that it was significantly lower really in the back half of 18 into 19 relative to any year really before that.
I think I've mentioned this before but for Q1 8, we kind of troughed under 4% of our markets being over asms being in developing state.
As we move forward into Twoq, you 20, when a lot of these new market. These 44, new routes will open.
We'll be up over 11% fell more than double on a year over year basis.
So there will be significantly more pressure on that front than than we saw onto Q.
19.
Maybe I misunderstood.
Could you give you the best rather than quarter.
Still expected to be the best some of that remember the Two Q1 9 comp, though that we're dealing from.
I can't really run away from that so that's one of the larger businesses as well as the lower overall growth rate.
And then.
Ask on the.
Small very small business.
Attainment Center side.
Curious.
How is that business is performing.
And just from a earning standpoint, but also.
The secondary reason for it which is kind of build loyalty and may be going again.
Email addresses just kind of curious if you can provide an update now that they've been opened for awhile.
Yes.
Hey, this is Scott.
I can I can tell you it was really kind of a resurgence in the management team in place we had two stores open.
The first one is unclear field.
Which is in Salt Lake the second one was influence.
If you look at January literally month, the dates the profile similar to how we thought this business would look.
On top line through I think the 25th was around kind of 575 brand and its running about a 35% EBITDA margin.
As far as emails.
You know there isn't a significant amount of overlap between kind of nonstop versus what was in our legionnaire database to shows that theres theres opportunities to kind of cross pollinate there but.
No I think there's a lot of things that we probably didnt do right out of the gate, which is why we made some pretty dramatic changes.
Really script, a lot of unnecessary costs. So.
There's a lot of seasonality into says if you can believe it. So we think we got a good handle.
But that's kind of the profile I anticipate going forward and I think it's going to be still going to be really good business.
Thanks.
Thank you.
Next question comes from Dan Mckenzie from Buckingham Research. Please go ahead.
Hi, Thanks.
Couple of questions here on the 2020 plan, what's the average daily utilization you've embedded in the plan and the reason why I ask because to the extent higher utilization could be.
Just simply a way to drive down costs on you're guiding to CASM ex fuel flat to down 2%, but I'm just trying to put that in the context.
Yes, so the utilization will be down for the year.
Pulling up the the number I now have the first half number will be down a little more than than half an hour per plan.
Well be holding relatively steady in March and June at the peak periods like we expected, but something like like an April will come down a full hour.
So there's quite a bit of flexibility in that but I would expect to about a half hours don't come out for the year.
I see okay.
And then I guess on the room nights on the sold room nights. This relating to sunseeker I Wonder can you just expand or clarify that a little bit more what are the total room nights available what percent had been sold and how do you plan to revenue manage or do you plan to revenue managed the remaining inventory.
Hi, Jim the.
Room nights sold to date of course or fraction of what the total inventory is and we then as I said in my opening comments, we didnt expect people to be booking rooms year and a half to two years out. The fact that we have quite a few people who have done not already 20 2060 plus.
Mentioning.
It is it's amazing to us that people are doing that most people know hotels, just don't put inventory out that far in advance.
But we develop all of our systems internally. So it was important for us to get up out there selling as quick as possible not doing extensive amount of marketing just let this traffic trickle in and then allows us to tweak in and mall monitor all of our systems and processes.
So we can get those.
Functioning exactly how we want them to so when we start to heavily market. So our expectation as people start booking in the more significant way.
About a year out.
And of course, but think that starts to ramp up as you get more like six months out so thats our expectation. The fact that we're getting this traffic now as has been a great surprise to us.
Very good if I could just squeeze one more in here maybe for Scott.
Wondering if you can elaborate a little bit more in 2.0, I think morry talked about it evolving.
What capability are you looking to gain.
What are you looking to do differently I guess is another way to ask that question.
As you kind of think about the revenue potential what kind of revenue potential does that unlock for you.
You bet so.
You know in essence, the whole premise of this is the fact that you know we invest dollars to make people aware of Allegion and certainly come to our website and the most accretive thing we can do once there at that website or as I'd like to put it in our store is to have them put as much in their shopping cart.
As possible and and that's certainly the premise so to directly answer your question the things that that requires.
Our a web site and by that I mean on mobile and or desktop laptop that enables all that same flexibility and personalization that.
And Amazon does.
That makes used up all of the friction less shopping and buying.
The same way that you use a streaming services you buy from a leading internet retailer and so ultimately appointed unlock said today, we know for every one hotel room, we sell there's another another nine people that put it in their shopping cart, but for the fact that.
List, a bunch of reasons, but one of them as they have to pay for it all their versus a conventional why you would pay maybe for one room night and or just make your reservation and be able to pay at the front desk. These are all technical and or commercial things that we're doing that we think boost the size of.
That card and hotel in rental car and other items. The last quick comment as we view the revenue potential not just directly from the customer.
People around here have heard it so much and because there there are hot right now all use it again that Apple guide to a trillion dollars market cap not just by selling iPhone and iPad Dol above, but they turn right around and sell dust every software developer in media and entertainment company because they were the way that those companies would just.
That doesn't come from the customer comes from other partners in the ecosystem that not only want to be sold in our store what are willing to pay extra to have top in the sort order and or other advertising opportunities on the on this site or in or other digital marketing effort.
Mmm very good no I I appreciate that thank you.
Thank you I'm X. question comes from Andrew do door off from Bank of America. Please go ahead.
Hi, Good afternoon, everyone. John just a couple of quick questions on Sunseeker I know, it's a very small sample set but just curious of of the bookings that you cited you just curious how how you source of them, where they are them or are they airline customers or not and just curious what the duration of this.
Stay is like an affects meeting your expectations on expectations are not thanks.
Oh, Oh Oh. Good question, we even had we're we're getting people a couple of people actually both or stay by walking into our preview center, which is.
Right on the site where are the constructions taking place. So we've had some walk ins, which is great and of course, the rest of all both online the longest stay we booked has been seven days and of course is shorter stays been one.
So yeah, and we bought a southern I'd stay in the sweets to which is why you're starting to see you know higher rate like that so wildly traffic is slow it's it's beyond our expectation that people with book two years out source that you know very excited by that we have people that have both alma.
<unk>.
Every month, we have out there in the first one out month out is February of 22, we have a couple of bookings that for I believe it or not.
So again when you start you know paying real dollars two years in advance or 18 months in advance is significant it's appreciated not expected, but we do expect it of course as we get you know much closer to opening as I said, you know a year to six months out as when we would start to really see that.
They pick up in our marketing efforts would be you know focused around that time for him to.
Makes sense, that's all I have thank you.
Thank you.
On next question comes from healing Becker from <unk>. Please go ahead.
Thanks, Operator high everybody. Thank you for the time, so I just have maybe two questions. The first one is to hear agreement with the Indianapolis Colts preclude you from doing a deal with any other N.F.L. teams.
No not at all.
Okay that was easy and then.
Second question is too Hot you know given that the Max.
Is out of service and it probably will be for you know at the first half of the or maybe longer why why did you grow faster.
<unk> <unk>. The question why don't we grow faster, yeah, why not to grow faster to take advantage of the fact that you know some other airlines can't grow because they don't have the capacity available.
So you know why wouldn't you think about increasing utilization or.
You know somehow.
[noise], adding more flights I don't know how to think about that the crow faster than your current plan to take advantage of the fact that yeah, maybe you can still some more share.
Yeah, So and I think I think the most important part to remember here is as we have such a unique network and you eat business model, you know, where we weren't really benefiting from the Mac being gone all the routes, we announcer ones, who had her eyes on for a while and and weren't dictated by the Max being in or or not in in service.
So I I think we're we're marching to the beat of our own dramas exactly the canes, we want to you know hopping into two routes or or areas, where American or south west are trying to expand rapidly doesn't really dry well with with where a network is taking.
So I I think you know at 16 or so per same give or take a one and a half points I think we're growing a a great rate one that the entire company and I can kind of move forward together at and and I think I'm very satisfied with what a rat.
Okay, Let me.
<unk> Dragnet, that's going to add I mean do on the Max.
Commented on the fixed beside though we definitely see opportunities to to take advantage with the Max being out and that's something drew and his team or hyper focused on it and taking advantage of that.
Okay. That's that's really Super helpful think yeah.
Excellent.
Of course.
Thank you I'm next question comes from Michael Linenberg from going to back. Please go ahead.
Hey, I'm good afternoon, everyone I got I have two questions here you know true the announcement to do the 44 city pairs.
What is your success rate now I mean, when you look at some of the launches and you know all the new city pairs you know at the end of the day, maybe after a year of operation I'm I'm sure. There's always some pairing and some fine tuning you know where some markets just maybe they look good on paper, but didn't play out in the reason I ask is that you know we've seen over the last few years other carriers.
<unk> make big service announcements and then you know we see actually you know a sizable number drop out and so I think as you've gone in size.
How has that caught success rate how has that evolved.
So so so for a long time that I believe Lucas even quoted this before yeah, we were hunting around 75% success rate as an oil kind of came down in the back half 14 15, there it actually elevated some over we're getting close to 80, 85%, we probably come back <unk>.
But but still hitting you know 75% plus a at this point.
Okay, Great and then just second question to Scott you know it was good for the you know the quick update on on Allegion nonstop biking mentioned clear filled in Flint for 2020, what's the plans there I I saw you know news out recently it looked like you're buying another site I don't know if it's the third or fourth.
What's the plan for expanding that business in 2020 is at one or two news sites three sites, how should we think about it. Thanks got thanks, everyone.
Yeah, Hey, Michael So a couple things I mentioned when we were you know we really spend you know the backup the or unwinding some of the decisions that were made.
We technically have two other locations.
We just knowing what we know now we're we're not come from them moving forward ones. Another Utah facility in West Jordan and there's another one and <unk>.
In Fort Wayne.
The one in Fort Wayne we own it's on the market. We think we had a visual buyer, but we we do plan on opening a new facility in Chesterfield, which is in Saint Louis that should be in the third quarter. So that that transaction that purchases is done and so we're in the we're in the throes of developing the space plan.
Yeah that one just normal we know now like I said, we took some some probably some unnecessarily lumps on the front end so at a minimum one store maybe two there's another there's some other opportunities up in Michigan area that are are attractive as well, but no. That's kind of the lay the land I'm really pleased with you know kind of how we.
Into the air but more importantly, how are getting started in 2020.
As I mentioned through majority of January you know the profile that we're seeing a similar to what we modeled a year ago. So.
Yeah, it affects 35% Eva dies, good very good sound effects. Thanks, everyone.
<unk>.
Thank you how next question comes from Duane.
Evercore. Please go ahead.
Hey, Hey, thanks for the questions <unk> you mentioned in your prepared remarks, it's it's been awhile since we've seen you grow you know mid die teens are you guys have done a really nice job of flexing your capacity shaping it around demand you you mentioned that new market mix was gonna pressure RASM in the second half.
I Wonder if you could call my maybe just following up on Salvi's question, how it's playing out here into the March quarter, the point being your new markets may not be.
Dilutive to RASM. So you know do you think you can sustain positive RASM trends into into March here.
So obviously not going to comment too much on that we're not going to guide out any sort of rather than cadence you know I'll say this much obviously you know new markets generally have a bit of a maturation curve. It all kind of depends on the the type of route you launch anything that connecting the not between two cities do already operate.
Which was the predominant percentage of of our 2019 market AD I will pull up a bit quicker anything that has a new city, especially one without a g. four present, a relatively close will take a bit longer. So if you think about the the type of market. I think you can you can kind of glean some info.
Nation from that but I think that's as far down the kind of rather than gotten more we'll go.
Okay, and then maybe just stepping back big picture.
As you think about fuel as an input to your to your network plans I I think of a Legion is one of the better carriers at keeping a fuel tail wind when you get one.
Can you talk about you know if these lower fuel prices sustain how these growth projections, you've given us could could change.
Sure. So yeah within within 2020 were already kinda marching toward the the top end of of where we said we'd like to be long term is kind of you know 8% to 12% annual carrier some of it will obviously depend on induction and the pipeline in which were able to acquire plane if.
Fuels days, you know lower than this maybe you can scratch out another couple of points, but I I think we're hitting pretty close to the top of where we want to go we've learned over time that that did you grow too fast you can kinda outpace some parts of the company on up with a lot of stress either on the operation or other general infrastructure I don't Wanna get.
Too far ahead of ourselves and and start saying, you'll goes really low will go to 20% because I don't know that that's the right answer for the company of the whole.
[noise] that that makes a lot of sense and just just one follow up there on your airline cat backs.
Of 285 at the mid point.
Is that deals you hope to complete or do you have line of sight on that on that to 85 as we sit here today.
Hey, doing things for the question is crap no. We we definitely have line of sight. All the aircraft that are scheduled in that cat backs are projected an <unk>, we already have firm commitments on and we were there with strong counterparties that we've done business with in the past and we we will expect they deliver.
On that a lot of time and that that cap axes bienaim place.
Okay. Thank you very much.
Thank you for next question comes from Catherine O'bryan of Goldman Sachs. Please go ahead.
Hey get out here to everyone. Thanks for the time, so drum anyone for you on your recent launch you know <unk> Boston Chicago, He's been cancelled it more about the decision making process. There you know not really are typical type of cities, but <unk> more destination than origination markets and and then any concerns on it.
Competitive response thanks.
Yeah case, I think I think you hit the nail and they had their these are definitely more destination type cities, if you're going back and 2016, we launched the newer and <unk> under very similar pretend.
You had either very high fair or completely unfair.
Market's going into both Newark, and BB at that time, and now with Chicago Houston in Boston. So there's a there's a kind of a small niche in each of these for for us to thrive each of these airport to to serve it has a destination. It's can be very expensive it very difficult to trying to drive a lot origination traffic from these cities and that's not at all what we're.
What we're after here so <unk> within our little niche. We're we're not concerned about competitive reaction will obviously watch the the industry as as we do anyway, but it's not something that that we expect a wrinkle than others.
Okay, <unk> and then maybe maybe just fall onto that since you mentioned Baltimore in Newark, There, how does compare I, maybe like versus system Rouse or system margin. Thanks.
Yeah, well ticket at a high level, there's nothing concerning we're not it's not going to talk about specific margin for cities, but obviously, we we've been there since 2016.
<unk>, a little bit, but there's obviously nothing overwhelmingly concerning there for us to continue to be able to put a 20% margin there's not a high hurdle right you have to clear in order to to the kind of continue with the schedule. So you know no concern.
Had to give it a shot maybe there's a lot more <unk> on T. snap nothing no question here on the state and then go she shared thing like that but can you share with us when you're assuming that sell closes just underlying or 2020 P.S. guidance. I believe you have a couple of quarters of non there'll inexpensive save a t. SAP in that thank you.
Yeah, Katherine Thanks for the question as far as the guidance, we do have a a couple why we don't give guidance, but on the non airline costs baked into the budget for T. snap we have it in there for the first half of the year I'm as far as timing. We we've spent a lot of time on it I'd, probably you prefer not to disclose when we're expecting to close that transaction.
We bend negotiating in in earnest with a a counterparty for some time just working through the due diligence due diligence and we're just working through the process. So that once we have some clear line of sight on the on the timing will certainly update you guys, but right now it's just kinda, we're working through it as quickly as possible.
Great. Thank you so much.
Thank you.
Next question comes from Joseph Denardi from <unk>. Please go ahead.
Yeah. Thanks. Good evening drew can you just talk about the the 44 markets you launched how many of those were competitive versus not competitive and then where are you ended the year.
For the network in terms of level of competition, and then which way that's going in 2020.
Sure. So among the 44 rounds, 11%, we're competitive we have some competition into the Panhandle of Florida as well as a couple of the route.
Nashville, and Ah Albuquerque going over to Orlando.
So that's where we have the the competition. There we ended the year right around between 20, and 25% of market a competitive and it's been training positively for some in some way because an hour announcements being more noncompetitive as well as some some action from competitors, but we've been having in a positive direction.
Now for about the last six to 12 month.
Got it and then John not sure if I missed it in your prepared remarks, but the sunseeker spend in in 2019 was was below the the plan I know you said, you're still on schedule, but as some of the schedule margin being.
Eaten into just maybe what why was it's been so far below plan and then are you <unk> are you planning on continuing to give your you know <unk> how many.
Rooms books that something you're going to give every quarter and if so you know what what should we expect from that going for just so you know there's some level of expectations. Thank you.
Your things too on the.
Oh and the spend.
That doesn't have an impact on on.
Speed to be honest with you as the commitments are the more relevant are important number. So at the end of the year I was saying is getting the end of 19, we ended up with about 330 million and commitment.
You know from cash management standpoint, if we can delay paying I mean, that's a great thing to do so and trying to predict a pay dates way out like like we have to just put like a cast management standpoint, it's more arts and science. So that's why you'll see it kind of move around flip the opening day no change.
No change the schedules no to change the anything.
But if we can you know delay paying cash that's a good thing for us. So I think we ended 19.
As at the end of 19, we had spent about 99 million.
Roughly 100 million on the project in terms of cash and again, we had 330 million commitments.
In terms of <unk>.
Bookings you know again I don't expect significant increase in bookings between call. It now in the end of the the quarter then the first quarter and I do intend to update but everyone every quarters had mentioned before.
Complete transparency on everything we're doing whether it's you know constructions Ben room nice occupancy.
All of that will be providing you so.
Again, we're happy with where we are we we expect you know the book a handful of more rooms in the quarter ran that you'd like to you know see big numbers, but we don't expect them.
The expectation again, we think is going to start to happen in the back end of the year as opposed to the front part of the year.
Extra.
<unk>.
Thank you on next question comes from a Hunter cue from Wolf Research. Please go ahead.
Thank you just a quick clarification on the Greg I think you said you expect to do 250 million and free cash this year just to be clear what cap x. number using in that calculation I just want to get a sense for like a truce cutbacks number yeah that that would be airline only <unk>, so that would exclude sunseeker.
Okay, and that's not net of any like financing for aircraft, that's like a real gross cutbacks number for at least for the airline.
Yeah, if you take the run ready to 6.3 million and even dapper aircraft take it over the average.
Yeah, Yeah grab count that we expect in 2020, you know that gives you your either and then just yet though mind it and it just subtract out the cat backs. They were showing yeah. It's gross cutbacks. So it's not net of like yeah, Yeah, Yeah, Yeah alright.
Okay, and then [noise], how many of the 780000 hotel room nights that you sold through third parties are are near sunseeker or even potentially competitor to sunseeker in some way I'm just wondering if if the sunseeker sales effort might at all even marginally cannibalize the third party room, that's a little bit geographically ask the question because.
Obviously this is as you said like really high margin stuff that you stop straight to the bottom line. So.
A couple thousand room nights not sold in exchange for Sunseeker. It just wondering if there's a little bit of of a central.
Already disruption impact we should think about.
I don't think you'll see any impact there a hunter and of course, the the numbers are more it was quoting had to do with gross number room nights, we sold since the you know since inception of the airline but the.
The number of hotel room nice, we so excuse Vegas, we've always said that pass so the the concentration of rooms. We so he has always been in Vegas. The the second market of courses in Florida, and the the room nights, who we're selling in Florida are scattered all over so you know it with a skewing their towards Orlando you know the Sanford Mark.
So everything that we're going to see down at southwest Florida.
Is going to be or create a we don't see any displacement type traffic or activity that have gone down there yeah, I would add that the more dominant effect guilty and it. It's opportunity is market said have become you know what I referred to as our our our next gen destinations Nashville, Savannah Myrtle Beach.
Those are market that right now, we do virtually no hotel business and where scurrying to have the same type of offerings that a lot of Vegas Orlando have.
So you know in the sense of answering the question that made swing the other way and represent potential website as we get those online I started to educate customers to <unk>, they're the same they way they would here in Las Vegas or down in Orlando.
Okay. Thank you appreciate it.
Thank you I'm X. question comes from and barrels General Fassi from for Medical Research must go ahead.
Hi, guys.
Huh.
John on the phase stuff phase two stuff that you mentioned.
I guess what are the milestones in your phase one plan that you'd like the path before you do take that face to plan to the board.
I don't think we we've established you know any milestone when it comes to phase two if you will the reason being is because.
Phase two doesn't add any additional room capacity those are metrics movies, we would be monitoring and phase one before you know pulling the trigger on doing anything that relates to rooms. These are just when you look at a a grade level pool in a restaurant <unk> added amenities and added the traffic generators.
<unk> added revenue producers so the important part of it which is why we were looking at first is it finishes off the entire waterfront.
So it takes any construction disruption that we would've had in in tries to concentrate laws that during the current construction process.
So again, it's a decision aboard will make the at some point time in the future, but in order to be in a position to make that decision. There's all this ground work that you need to do so that's what's taking place right now it's all like realm work, but again, it's it's adding a pool and adding a restaurant. The pool is currently in the resort project.
Is on the rooftop one of the building. So this would give us a rooftop pool any grade level pool and be able to create additional charge point to be able to maximize the opportunity with these gifts.
Okay.
And then just to follow up on Andrews. The one I know, it's very early days all the usual caveats, but the 185 dollar baseline that you called out you know your expectation was that associated in some way with the specific mix of rooms, and sweets and how on earth or actually booked or was.
Just a more general assumption for everything across the entire year, just I'm getting a multiple just wondering if you sort of looking to conclude that 80 or is running ahead adjusted for a mix or or or if you sort of don't.
Yeah. It was just a general want and again, that's one the the time we model.
Boy in the very first.
Financial projections, we put out there and how to be well over a year ago, maybe even.
Closer to two years ago, and we've put you put that information out you know we've always said all along that you know when we were in a position where the borders making decisions. We wanted to be you know conservative than those rate assumptions, even though the market is much stronger I think in the most recent invested the we had we were pointing out just house.
Throwing those rates are in the marketplace.
So while we're seeing a very strong work rate is very early but you could go out there and look at a room and Tory mean that we've posted rooms out there as I said from June Oh 21 through May have 22.
And there's a complete every single day and every single room.
Has a a posting for rooms and and rate.
So anyone wants to go out there and look at it and pick their day, we have purposely price below the market, which is one of those things that we had mentioned in the industry day that would be part of our strategy. It just the market is so strong you know more you know I've always talked about.
That's what excited about that more because it's just how hard those room rates are there.
Okay. Thank you and then if I can just we'd get a quick there when did you open booking.
Well, let's say like right at the beginning of December .
Call. It knew the first week week or two and you know we've we've been continuing to.
Upgrade the site just based on things were finding you know, but we find it is best we're in our best interest to.
To get it out there as soon as we possibly can that's kinda like soft opening a hotel where you you. So just a small number of rooms early on to shake out a room. This gives us some early traffic to the site and allows us to you know get all the bright analytic tools squared away get all of our tweaking of the sites we've done so.
Changes to the side since we launched it and we have no numerous changes that will continue to happen you know between now and opening and most assuredly, even just between now and no call. It the under the first half of the here John one quick add on common that might be good to speak to as well.
We certainly are talking about the hotel right now like we think about the airline with the free and independent traveler, but the reality is there is a strong pipeline there <unk> booking a and groups of course I intend to be higher margin business last prices is any individual we'll go much further ahead of time, and so I think and stuff.
When called they'll be updates on that and then group has the ability to take a big chunk of hotel inventory for a set amount of time and start adding up really quickly when we think about the different customer audiences that will be booking and speaker <unk>.
Oh, it's a very good point in in and I think I mentioned before that we will be providing you know that level of insight on as we go forward here, we have a lot of a group leave.
But we haven't both be they Lord group, yet, we fully expect that that will happen before the year closes.
And we we expect to see quite a bit of a that activity at the hotel.
So that's a very very lucrative and exciting piece of the business as we move forward.
Perfect. Thank God.
Thank you.
<unk> at this time I like to turn the call over two more Gallagher chairman and C.O. for closing remarks.
Thank you all very much appreciate your interest in a your attention and.
We'll be talking to you again, roughly 90 days.
Have a good day.
[noise], ladies and gentlemen. This concludes today's conference call. Thank you for participating you may now disconnect.
Mmm.