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Allegiant Travel Co  (NASDAQ:ALGT)
Q3 2018 Earnings Conference Call
Oct. 24, 2018, 4:30 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good day, ladies and gentlemen, and welcome to the Q3 2018 Allegiant Travel Company Earnings Conference Call. At this time, all participants are in a listen-only mode. Following management's prepared remarks, we will host a question-and-answer session, and instruction will be given at that time. (Operator Instructions) As a reminder, this conference call maybe recorded.

It is now my pleasure to hand the conference over to Mr. Chris Allen, Investor Relations. Sir, you may proceed.

Christopher Allen -- Investor Relations

Thank you. Welcome to Allegiant Travel Company's third quarter 2018 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; Scott Sheldon, our Chief Financial Officer and Chief Operating Officer; Drew Wells, our VP of Revenue Planning; and a handful of others to help answer questions.

We will start with some commentary, and then open it up to questions. The company's comments today will contain forward-looking statements concerning our future performance and strategic plans. Various risk factors could cause the underlying assumptions of these statements and our actual results to differ materially from those expressed or implied by our forward-looking statements. These risk factors and other are more fully disclosed in our filings with the SEC. Any forward-looking statements are based on information available to us today. We undertake no obligation to update publicly any forward-looking statements, whether as a result of future events, new information or otherwise. The company cautions investors not to place undue reliance on forward-looking statements, which may be based on assumptions and events that do not materialize. To view this earnings release as well as a rebroadcast of the call, feel free to visit the company's Investor Relations site at ir.allegiantair.com.

With that, I'd like to turn it over to John.

John Redmond -- President

Thank you, Chris, and of course good afternoon, everyone. I want to read through the release again and read the opening part of that, and of course Maurice comments in particular, we can say, wow, what an impressive quarter and impressive year-to-date, it really has been special. Starting with the fleet transition with the MD-80 is coming out after Thanksgiving, but it's going off a lot of significant problem other than a few induction issues back in early July. Such a transition is unprecedented of course for a company of our size, especially given the time frame of accomplishment. But of course, transition put a focus on the movement of planes in and out, one can't overlook a significant higher and training that impact so many departments and individuals. So incredible job by the entire team across the board. So all of that was taking place to performance that the airline has improved beyond any of your expectations, but inline with our high standards. The same incredible effort that went into the fleet transition and performance improvement is now being directly to rightsizing the organization as we move into 2019 and beyond. From time to time I read some of the reports and I read some of the nature's (ph) out there, those times on any of you doubt the company and its employees ability or dedication to do something just reflect on what's been accomplished over the last 18 months. The foundation is now of course been set for Allegiant 2.0, part of that foundation work in 2018 has been on our IT area, which is critical to what we do, very key management personnel have been added, organizational changes made and business processes reinvented. All the programming effort relating to the 2020 revenue initiatives laid out in the Investor Day back in 2016, will be substantially completed by the end of '19 with the full benefits expected to be realized in 2020.

Touch base real quick on Sunseeker, of course we provided complete visibility on Sunseeker during the recent Investor Day, so nothing new to report, but one of the touch on a couple of points given the frequent questions I get from time to time. But we expect to have a marketing in previous center open onsite by the end of January 2019, so just in a couple of months. We expect vertical construction to begin in February of '19 with the targeted opening around October of '20. Again, these dates have all been previously communicated. Our model rooms are currently been built here in Las Vegas at our company headquarters. We're building a standard hotel guest room and a two bedroom suite, which would be completed by December 15. So whenever any of you are in town after that date, we'd love to show you this product.

Quickly on touch base on disclosures and guidance. We expect to provide full 2019 guidance in conjunction with our 2018 year end earnings release. Guidance will be provided consistent that provided for 2018 with the added guidance disclosures for non-airline businesses. Again, you saw that in the current release, and we'll continue with that. So for the first time, we provided this non-airline disclosure and the release and hope you find that worthwhile in your analysis of our business model going forward.

With regard to the non-airline businesses, we will provide 2019 guidance for pre-opening expenses rather than operating results for the growing concern businesses and CapEx. In addition we will provide actual's at the end of each quarter and year-to-date similar to what we have just disclosed.

And on that, I'll turn it over to Drew.

Drew Wells -- Vice President

Thank you, John, and good afternoon, everyone. We continue to be pleased with low effective (ph) performance as we continued year-over-year expansion for the fourth consecutive quarter. In August, we announced eight new routes including service of three new cities, Albany, New York; St. George, Utah; and Tucson, Arizona; bringing our total scheduled service airport serves to 121. In the third quarter we recorded the TRASM of negative 0.2 including the impact of new revenue recognition rules. I believe it is important to note that we were not involved in the heavily discounted fare environment of 2017, that would have added in the comp this year. We talked at length during the July call about the new RM system performance during the summer. However, we are very encouraged by the return to previous performance as evidenced by the strong load factor results in September.

Turning to the fourth quarter. We talked about headwinds associated with the hurricanes and the Vegas shooting last year, as we entered the quarter. But noticeable load factor gains from the RM system and a stronger bounce back for forward bookings ease that headwind a bit. As we saw at the end of Q3, demand looks strong, and I believe the fourth quarter will end up with the best year-over-year TRASM performance of 2018. Obviously a contributor to the fourth quarter TRASM optimism is ASM guidance at 4% to 6%. As we complete the last quarter of our aggressive MD-80 retirement and transition to a full Airbus fleet, the growth rate particularly in December will be limited as we are scheduled to retire the MD-80 fleet right after the Thanksgiving travel period.

With that, I'd like to turn it over to question.

Questions and Answers:

Operator

Thank you. (Operator Instructions) Our first question will come from the line of Savanthi Syth with Raymond James. Your line is now open.

Savanthi Syth -- Raymond James -- Analyst

Hey. Good afternoon. Just a little bit of a broader question, not specific guidance for 2019, but the kind of the growth over the last few years has been, just kind of medium-sized market, maybe smaller, secondary leisure destinations, and what should we expect kind of the market characteristics to be going forward especially in a higher fuel environment?

Drew Wells -- Vice President

Sure. As you look out toward 2019, I think what you'll see is some of that continuing primarily the growth will (technical difficulty) reconnecting the docks (ph) that exist today. There's a lot of destinations and origin cities including the sight cities that have yet to be connected. In addition even in a rising fuel environment, we're constantly looking at new cities to grow the network. We communicated before one to two midsize cities a year and I think that's still the target at least in the current fuel environment if that rises, we'll certainly reconsider.

Savanthi Syth -- Raymond James -- Analyst

Helpful. Thanks, Drew. And then I don't know (inaudible), but I just kind of curious just maintenance, it looks like there are kind of couple of some maintenance events in 2018, does that pull forward some from 2019, should we expect somewhat below average maintenance next year or is that unlikely?

John Redmond -- President

Yes. Hi, Savi. Yes, there's some kind of unique expenses in 3Q. Some of that directly relates to the MD-80 fleet in order to get that, the end of November. There were also some kind of fleet wide campaigns to kind of baseline certain aspects of the plane, for instance we're going through specifically the Apu Bay, and the builds back to try to normalize on fleet basis that you're seeing some -- we think some baseline expenses you wouldn't expect to continue. I think directionally we look at kind of $75,000 per aircraft (ph) per month kind of cadence as we move forward and that's what we expect in the 2019 and beyond.

Savanthi Syth -- Raymond James -- Analyst

So not below kind of return to average?

John Redmond -- President

Yes.

Savanthi Syth -- Raymond James -- Analyst

Okay. Thank you.

Operator

Thank you. And our next question will come from the line of Duane Pfennigwerth with Evercore ISI. Your line is now open.

Duane Pfennigwerth -- Evercore ISI -- Analyst

Hey, thanks. Good afternoon. On the 4Q growth rate of 4 to 6, can you just remind us, is there an impact from fleet delays, was that a higher number at one point or have you accelerated MD-80 retirements?

Drew Wells -- Vice President

I guess it depends on your initial reference point there, but once we made the decision to go with the more aggressive timeline through November, we've been reasonably well set this growth rate. So they're maybe in a small amount of pullback, especially as fuel ran up on it a little bit, but not a material downward trend.

Duane Pfennigwerth -- Evercore ISI -- Analyst

Thanks. And then on the tax rate, what accounts for the lower -- I guess implied negative tax rate in the third quarter specifically?

Unidentified Speaker --

Hey Duane, this is Craig. So during the third quarter we were able to take a refund on that -- Section 199, which is domestic production activity, effectively what that means is that some of our internally developed software we are able to take a refund on that, so that's primarily the reduction that you're seeing.

Duane Pfennigwerth -- Evercore ISI -- Analyst

Does that impact sort of the normalized tax rate going forward, so I think your initial guidance this year was what 21, 22, is that kind of how we should be thinking about it on a go forward basis?

Unidentified Speaker --

I think for the remainder of this year, I mean you're going to see a reduction so that year-to-date guidance was updated to 18% to 19%, as we move forward to following years, I think what we initially guided the 22% to 23% is probably the right tax rate moving forward.

Duane Pfennigwerth -- Evercore ISI -- Analyst

Okay. And then just did some quick math on new disclosure, which I appreciate, I think that's great, maybe you could just add some light on what all is in the non-airline business, I mean I assume that's some Sunseeker OpEx, but maybe some other things, it looks like it actually grew from about $3 million in the third quarter of last year to almost $6 million in the third quarter of this year, so maybe just give us a sense for what's in there, why it's growing et cetera? Thank you.

Drew Wells -- Vice President

Yes. No problem, Duane. When you look at all the entities that are currently in there, you mentioned some secret you have Teesnap, you have the Kingsway Golf Course that we acquired in August of this year, and you -- I see what am I missing -- oh yes, the FECs. So, I was focused on the revenue components, but there is no FEC revenue yet, so what you are seeing there is strictly a Teesnap from a revenue standpoint, Teesnap and Kingsway. So going forward we'll continue to provide as much detail as we provided now, and as those entities individually get scaled, we'll consider providing a greater amount of detail for each one of them.

Duane Pfennigwerth -- Evercore ISI -- Analyst

Not to deliver the point, but Sunseeker OpEx, I mean, how would you think about that on like a 2019 basis?

Drew Wells -- Vice President

It's not going to be material and we're going to give you the complete guidance on that. The operating expenses that you would have (inaudible) look at that, I mean the industry calls are pre-opening, these are expenses that relate to take like the two gentlemen that you may have met or at least were introduced to, at the Investor Day, Mike and Jason. When you take those two individuals, for instance some other time that spent on involved with the design of the project starts to change and starts to move into operation. So you may have their pay in essence capitalized early on, but as you get closer to an opening day their pay is expensed as pre-opening. So that's the nature of what you start to see or start to happen as early on when people are rotating from being capitalized to being expensed, that's the payroll side of it. Then of course, you have all the hiring expenses and marketing expenses and all those that have to be expensed as you go as opposed being capitalized. So it's not going to be a substantial number, and we'll give complete guidance on what we think that range is going to be for Sunseeker for FY '19.

Duane Pfennigwerth -- Evercore ISI -- Analyst

Thank you.

Drew Wells -- Vice President

No problem.

Operator

Thank you. And our next question will come from the line of Helane Becker with Cowen. Your line is now open.

Helane Becker -- Cowen -- Analyst

Thanks very much, operator. Hi, everybody. Thank you for the time. Can you say what percentage of fuel recapture you've been able to do, maybe year-to-date or is that not a way we should look at your pricing structure?

Drew Wells -- Vice President

Yes. So as we commented before, we're not going to be able to recapture 100% of fuel simply through pricing, that's not how our customer reacts, and it's not caught our business model. You will see us make some capacity trends particularly on the fringes with off-peak day of weekend season, as we're able to really recapture that earnest. But one of the elements I would like to call out as part of the 4Q strength is the overseeing, there are certainly some elements of fuel recapture that we're getting in there. So I'm hesitant to put an exact percentage on there. But we are recapturing some through the pricing environment beyond what I would have expected maybe a month or two ago.

Helane Becker -- Cowen -- Analyst

Okay. So I guess my follow-up is more like, there's a percentage you're recapturing through ancillaries and a percentage through fare, right? So, I mean, could you -- is it reasonable to look at those combined or based on the comments you just made does that not even make sense?

Drew Wells -- Vice President

So, ancillary tend to be very sticky, so with high fuel, low fuel ancillary isn't going to move a ton, areas where it will have to be recaptured and part of that comes through load factor obviously, so as we drive load factor and gather the total ancillary spend that's where we get that benefit and that's most easily done obviously with capacity cuts as you have fewer seats to fill. Another point that maybe is worth we're talking about here is the fuel efficiency of the Airbus, if we were still in a fully MD-80 fleet, you would have seen us making more cuts to this point, by our analysis we have somewhere between kind of $0.85 in the dollar per gallon more efficient right now as we've shifted into the Airbus aircraft, which is going to give us a bit more buffer and flexibility before we have to make these changes in earnest.

Helane Becker -- Cowen -- Analyst

Thanks for putting that out, that was very helpful and thanks very much for answering my questions.

Drew Wells -- Vice President

Thank you.

Operator

Thank you. And our next question will come from the line of Joseph DeNardi with Stifel. Your line is now open.

Joseph DeNardi -- Stifel -- Analyst

Yes, thanks. Scott or Drew, I guess the dollar EPS range was two months left, can you just talk about maybe directionally, which end of that you think you're more likely to hit at this point?

Scott DeAngelo -- Chief Marketing Officer

Yes. So honestly it's looking probably the mid, mid to maybe slightly lower at this point given what fuels doing, still think the cost execution given the year that we had to undertake has been great, all the trends that we would be there and the pressure points that we need to (inaudible) the business as we go into 2019 and '20 are evidence, so I'm really happy with the pace, the operation continues to execute better than expected, so yes, I mean I would say the midpoint to slightly lower at this point.

Joseph DeNardi -- Stifel -- Analyst

Okay. And then a question for Scott DeAngelo, if he's on the call, if not John can probably tackle it, but I think you guys said at the investor presentation for Sunseeker that you've got about 350,000 itineraries into Punta Gorda. Just wondering if you could talk about how many of those are really up for grabs, not locked to Marriott or Hyatt within their loyalty programs not second homeowners, customers that you can really try and convert into Sunseeker itineraries? Thank you.

Scott DeAngelo -- Chief Marketing Officer

You bet. This has Scott. I'll start, I can answer part of that. So by the time Sunseeker opens that 350 will be more like 400,000, and I think right now that conservatively speaking and soon that one out of every five is already a (inaudible) to a second home, and the other four out of five are 80% are up for grabs, whether that they currently stay at a hotel, they currently rent a vacation property and/or even involved in some flexible time share. We don't have information on who is tied to push loyalty program, but I'd offer up that it's been our experience that, that two is more pliable than one who think as most of the customer have multiple memberships and loyalty programs and we'll be happy to offer them ours, once we have Sunseeker up.

John Redmond -- President

Yes. Most definitely, and we're actually on a trailing 12 basis, the number is closer to 365,000 inbound itineraries and just even so you help clean that number is Joe, we've stripped out any of those inbound itineraries that may even have a Florida address. So, some people are having second homes in Florida, they may originate there. They could look like a round tripper, but if they have a Florida address, we stripped it out. So that they even make Scott's number's a little bit stronger when you look at maybe it's greater than what that data point would actually show. But the 400,000 we're comfortable believing in that number when you look at 2020 given the trajectory of what's been happening with the inbound itineraries.

Joseph DeNardi -- Stifel -- Analyst

Okay. Is it an itinerary the same thing as one passenger -- interchangeable or --

John Redmond -- President

No. If you, your significant other and family members, wife or someone books, everyone on their that's one itinerary, so you can have anywhere from one to eight people on an itinerary.

Joseph DeNardi -- Stifel -- Analyst

Got it. Okay. Thank you.

Operator

Thank you. And our next question will come from the line of Michael Linenberg with Deutsche Bank. Your line is now open.

Michael Linenberg -- Deutsche Bank -- Analyst

Hey. Good afternoon, everyone. Hey, I guess two questions here. So John, you did say that it sounds like groundbreaking is going to start in February of 2019, and I think you also indicated that you'd give us a bit more detail on the -- when the annual numbers come out, which I guess is going to be sometime in January, but kind of if we think about it at this point, some cash will go out the door for construction costs, are we to assume that, that's just coming out of internally generated funds, are you seeking like a construction loan, some sort of financing to kind of kick-off that activity?

John Redmond -- President

Michael, on those points. And I think my comments are consistent what I've been saying in the past, but we will always look at and pursue potential financing sources, so the fact that we have made commentary around being able to as a company to look at Sunseeker as we have the ability to fund that internally, that's true, that hasn't changed, then that's of course given all the work done to date and there's loan (ph) performance we expect going forward, but we will continue to look at financing opportunities going forward, if there's one we like will be all over it.

Michael Linenberg -- Deutsche Bank -- Analyst

Okay. And then my second question either you John or Drew, when we think about and I know it's a little early since we'll get the data in January, but just kind of an early rough feel for 2019 capacity growth, the fact that accelerating out of the MD-80s, maybe coming off of a lower base as you ramp-up into 2019, should we assume that growth will be less than what we saw this year, any color around 2019 capacity growth would be great? Thanks.

Drew Wells -- Vice President

Sure. Yes. This is Drew. I think it is fair to say that we would expect next year -- I think it's fair to say we expect 2019 to be lower than 2018. As you look out, we have our first quarter schedule out for sale right now. I think that's going to be on the lower end, so I would expect 2019 to surpass that, so for some really, really wide goalpost there you could probably work with those.

Michael Linenberg -- Deutsche Bank -- Analyst

Very good. Thanks. I appreciate it.

Operator

Thank you. (Operator Instructions) And our next question will come from the line of Brandon Oglenski with Barclays. Your line is now open.

Matt -- Barclays -- Analyst

Hi. This is actually Matt, on for Brandon. So I was just hoping that you could quickly remind us, as you receive the final aircraft and picking the MD-80s out of the fleet, what kind of overhang and pilot training or any other expenses is still kind of related and kind of lingering related to the transition?

Scott DeAngelo -- Chief Marketing Officer

Hi. This is Scott. If you look at the number of MD-80 shells, there will be some folks that will be going through training to be available for the March peak, and if you kind of back into any sort of pilot per aircraft's metric back to when we had a single fleet type adjusted for the new 117 (inaudible), you could come to a number where you're carrying $30 million to $35 million in excess labor as we grow into it over the next couple of years, and so it's pretty substantial as far as the actual training events, everything then is on a scheduled cadence, because everyone will be trained on same fleet type.

Matt -- Barclays -- Analyst

Okay. That kind of comes down through the next year or so or what's the timing?

Scott DeAngelo -- Chief Marketing Officer

Yes. So we bought them obviously at the end of the year, I think we haven't really 76 frames. And I think we're growing upwards of 12 to 13 frames next year. And so, you start to gain some of that efficiency back from a single fleet type perspective.

Matt -- Barclays -- Analyst

Okay. Great. And then just kind of on that point, as you get more shells in the fleet, and then with the capability of having utilizing kind of a newer aircraft a little bit more, so should we assume that there could be more peak growth or more kind of optimization in the schedule potentially?

Scott DeAngelo -- Chief Marketing Officer

Yeah, so that there's really two ways that we can grow the peak days, one is shell (inaudible) so that will be the biggest help. Additionally, with the improved economics on the Airbus, we can push the hours of the day a little bit, so I would expect to see kind of your fleet wide utilization particularly on peak days grow a bit, which is consistent with how we operate the Airbus today. But once you kind of get the MDs out of there, you'll see a bit more in earnest.

Matt -- Barclays -- Analyst

Okay. Great. Thank you.

Operator

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

Dan McKenzie -- Buckingham Research -- Analyst

Hey, good afternoon. Thanks, guys. Got a few questions here, I did join the call late, so I didn't quite follow the IT (ph) changes, but if I could just revert back to a prior Investor Day presentation. Are you still on track to deliver the e-commerce benefits that you previously outlined in 2019 or are those likely perhaps to get pushback?

John Redmond -- President

No. Dan, this is John Redmond. We'd talked about in that Investor Day back in '16, I believe it was about these initiatives being done in 2020. So the comments that we are making with that all programming effort relating to the revenue initiatives will be done in '19, so we will see those benefits in 2020 as we communicated back then.

Dan McKenzie -- Buckingham Research -- Analyst

Got it. But it looks like there's a fairly big stack up in 2019 from those benefits, I think $70 million was targeted. And so I guess that's sort of what I'm wondering, is that step-up gets pushed back to 2020?

John Redmond -- President

We never provided any guidance on any of the years in between, so we literally showed '17 to '20 without any middle years if you will. Having said that, when we provide guidance on '19, you'll see that some of the benefits will start to come through in '19, on some of those initiatives.

Dan McKenzie -- Buckingham Research -- Analyst

Okay. Drew, I think related to this it looks like third-party products inflected nicely in the third quarter relative with the first half of the year and even last year, and I'm just wondering what is it that you guys did differently in the third quarter and is that -- how do we think about that these initiatives as we look ahead into the fourth and next year?

Drew Wells -- Vice President

Sure, Dan. Really the biggest winner we have on the third-party is the credit card, it continues to exceed all of our expectations both September '16 when we launched it up until recently, new account growth continues to churn along very nicely, and spenders become by far the biggest piece of that, so there really is a big credit card victory, and I expect that to continue to expand into next year.

Dan McKenzie -- Buckingham Research -- Analyst

Good. One other question, I can seek one last one in here the 186 seat project, what is the pace of the modifications currently, so what percent of the fleet was completed at the end of the -- is going to be completed into the fourth quarter versus say the third quarter, and what percent of the fleet, do you expect to complete in 2019?

Gregory C. Anderson -- Senior Vice President, Treasurer, Secretary

Hey Dan. This is Greg. So as we take delivery of the 320 series aircraft going forward, we expect all of those to be modified to 186 seat. Also of course the new aircraft will come delivered -- have come delivered with a 186 seat. So the way I would think about is that from the 320 perspective as we make sure of the fleet, 25 will be under the 177 variant and then the remaining will be the 186 seat variant.

Dan McKenzie -- Buckingham Research -- Analyst

And that's for what period, sorry, that 25?

Gregory C. Anderson -- Senior Vice President, Treasurer, Secretary

I think that's through the end of 2020.

Dan McKenzie -- Buckingham Research -- Analyst

Okay. And are you -- I guess since you've got the majority of the fleet in that modification, I guess safe to say those are seats that you're able to revenue manage or optimize that revenue at this point?

Drew Wells -- Vice President

Yes. This is Drew again, we worked very closely with the fleet team as we think about the layout, and what we view the kind of the optimal to be. So we'll continue to review, but everything we look at so far suggest that 186 is the best for the revenue team.

Dan McKenzie -- Buckingham Research -- Analyst

Okay. Thanks for the time you guys.

Operator

Thank you. And our next question will come from the line of Steve O'Hara with Sidoti. Your line is now open.

Stephen O'Hara -- Sidoti -- Analyst

Hi, good afternoon. Can you just -- within the other revenue line, can you just remind me that kicked-up in the third quarter, I guess I would have thought that would have come down, I thought that was due to some aircraft you had at lease, I think you'll eventually take delivery of, can you just tell me what's going on there?

Drew Wells -- Vice President

Yeah. So one of the biggest drivers on that is really our Teesnap program, which really exceeded I think our expectations from the beginning of the year. And to your point, we didn't think that other revenues going to come down more with some of the timing of the Golf (inaudible), but Teesnap really filled in that gap nicely.

John Redmond -- President

Any other pickup we had in there, again beginning with August of this year would have been the Kingsway Golf Course, so both Kingsway and Teesnap are part of that other --

Stephen O'Hara -- Sidoti -- Analyst

Okay. And then maybe just on the fuel burn for next year, I mean it should with the MD-80s out at the end of November I guess, I mean (inaudible) were down kind of revert to 85 or so next year?

Drew Wells -- Vice President

Yes. It's certainly trending that way. I think if you look at the shells, we're taking next year split, I think it's 6 or 7 for 319 (ph), and the rest 320s. Yes, so obviously the target continues to be 85.

Stephen O'Hara -- Sidoti -- Analyst

Okay. All right. Thank you.

Operator

Thank you. And our next question will come from the line of Joseph DeNardi with Stifel. Your line is now open.

Joseph DeNardi -- Stifel -- Analyst

Yeah. Thanks for taking the follow-up. Scott, just on the CASM-X outlook over the next couple of years is the baseline for 2019 that CASM-X is down or do the labor efficiency that you get from kind of completing the fleet transition not really come in until 2020, how should we think about that?

Scott DeAngelo -- Chief Marketing Officer

Yeah. So the biggest impact we can have an ex-fuel is definitely the labor side. I think you'll start to see moves, movement in -- continued movement in the right direction next year with the lion's share into 2020, we continue to like -- we continue to see really nice maintenance trends, many expense line item continues to come in although there's a little noise in the third quarter, none of that should be recurring in nature. So the things the areas that we identified or we thought there's going to be pressure there, but the good thing is this is quite manageable, so if we can bring on additional shells and we can maybe pull some of that efficiency that they left, but we do have long-term efficiency targets, but flight crews being the lion's share of that is what we're going to see the biggest move in ex-fuel, but you'll see movement in the '19 and then the biggest move into 2020.

Stephen O'Hara -- Sidoti -- Analyst

Should the expectation that CASM-X is down in '19 or should we temper those expectations?

Scott DeAngelo -- Chief Marketing Officer

No. I think if you -- since we've started the show just in CASM-X for non-airline related expenses, you should see very nice moves in the core business. So that's the whole point, right, as the underlying core business continues to execute. We continue to see really positive trends in the right areas and in the areas where there might be a little problematic, that's where the focus is. So now we're liking what we see.

Stephen O'Hara -- Sidoti -- Analyst

Okay. And then John, I think the strategy is to build a property, run it effectively and then use that experience to go get them some management contracts, what are those properties saying to you now if you approach them without a property, it gets them a little bit of surprise that you can't use the experience you have with the airline to develop that hotel management business and some of the smaller properties without actually building your own?

John Redmond -- President

We haven't had a conversation directly to date yet, so that's one. And when I say conversation directly to date, I've had some just some periphery type friends conversation allow getting into the nitty-gritty surrounding that, there's folks that are involved looking at new development opportunities that I started to have some conversations with, so that could be something that's an opportunity, but I think when you look at managing these properties part of what we want to offer is several solutions, we've mentioned everything from software to management to branding, et cetera, et cetera, so there's a lot of things that would be part of that package in the entire that package won't be ready for us to rollout until we're done with a lot of the IT efforts around the resort. So that puts a little bit of a (inaudible) on how quickly we can move even if there is significant opportunities. Having said that there is stronger marketing relationships we can have with hotel properties that we include in our booking channel, and those are ones that we're intending to strengthen as we change out the mix of properties that are in the booking channel, we've done because of the work we did in Florida around what we want to do there, we've done work in other markets and we know that in some cases we don't have all the right product that we need on that booking channel, so we're starting to make adjustments in that regard as well. And then having conversations with the properties that remain to strengthen the financial opportunities with those remaining properties. So I think there is some baby stuffs there along the way, there's no doubt. I would still hope that we could nail a couple of management contracts if you will before we open a property. But it's always easier to point to something that you have going and that's why I think the opportunity for us is going to be after we started to go vertical. We can actually point to a project, point to a real project that's coming out of the ground. And then I think it will be easier to make those things happen. The other thing is it's hard to have any visibility onto this the length of those contracts that are in place at those properties. The one takeaway I would have is given how old a lot of the properties are, I would think that those contracts they may have shorter tails than what you would typically find of course, if we only had product that was five or 10 years old. So keep our fingers crossed that opportunities happen quicker. But we will be chasing them down, so I'm hoping over the next couple of quarters I can give you a lot more visibility in that regard.

Stephen O'Hara -- Sidoti -- Analyst

Thank you.

John Redmond -- President

You're welcome.

Operator

Thank you. And our next question will come from the line of Savanthi Syth of Raymond James. Your line is now open.

Savanthi Syth -- Raymond James -- Analyst

Hey, I just had a quick follow-up. On the fleet -- I'm sorry -- I didn't quite understand, so what do you expect to see -- I know you've had a few aircraft slipped from this year to next year, what do you expect to end year 2019? I feel like taking roughly 100 aircraft there? What should we expect there?

Drew Wells -- Vice President

Yes, I mean that's why we put out there publicly, we've seen some delays as we talked about them last earnings call. I think by 2019, we're still expecting that number (inaudible) when we give our guidance for 2019, there maybe some puts and takes on that a little bit.

Savanthi Syth -- Raymond James -- Analyst

Okay. Thank you.

Operator

Thank you. And our next question comes from the line of Dan McKenzie with Buckingham Research. Your line is now open. Dan, your line is now open, please proceed.

Dan McKenzie -- Buckingham Research -- Analyst

Thanks, operator. And thanks for the extra time here, guys. Drew, I'm just wondering if you could talk high level, what you're seeing from the demand backdrop here. The stocks are incredibly volatile, I think there's a lot of worries about interest rates, the impact on the business, the stock market's been abnormally volatile here. But at least one thing that I've noticed tracking bookings is that there's not a lot of volatility in the underlying demand, but I'm just wondering if you could talk about what you're seeing high level, what would worry you, what doesn't worry you from where you sit right now?

Drew Wells -- Vice President

Yes. So I think you hit it spot on, I haven't seen a ton of volatility in terms of demand. We've seen a lot of strength for the last -- at least the last couple of months now, in terms of forward bookings. And so, I don't -- I really don't have a lot of concerns there right now, particularly with fuel where it is. If fuel were to drop in and -- even more capacity growth through the industry I think you'll see a lot of issues in the off-peak periods, particularly in January. Even today, I think we're still industrywide too heavy in capacity during those periods, so I'd anticipate we'll hear about that as we get into the April call time frame.

Dan McKenzie -- Buckingham Research -- Analyst

And then, I guess Drew, well I got you. One thing I've observed over this past year is the volume of seats that the legacy airlines are pricing that, a lot of inventory, pardon me, that the legacy airlines are pricing -- ultra low cost carrier levels has diminished. And I'm wondering if you've seen the same thing, because I know you don't compete directly with them, but there is some sort of relative umbrella that you can price under. And I just wondering if you can talk about sort of what you're seeing from that perspective, whether you feel like you're benefiting from that somewhat in the back half of the year and just how that's evolve for you guys?

Drew Wells -- Vice President

Yes. So -- a caveat of me is what you talked about that there is a very little overlap, so from the same perspective that we weren't really affected when there were a lot of fees price at the base economy rates. We're not going to see a kind of windfall from that either. On the few select routes where we might have had that competition you might see something on the margin, but it's not going to be anything noticeable or nothing that's worthy of calling out in my opinion.

Dan McKenzie -- Buckingham Research -- Analyst

Very good. Thanks for the extra time.

Drew Wells -- Vice President

Thank you.

Operator

Thank you. Ladies and gentlemen, this concludes our question-and-answer session for today. So now it's my pleasure to hand the conference back over to Mr. Maury Gallagher for closing comments or remarks.

Maurice Gallagher -- CEO

Thank you all very much. Appreciate you're listening in. We'll see you in 90 days. Thank you.

Operator

Ladies and gentlemen, thank you for your participation on today's conference. This does conclude our program, and you may all disconnect. Everybody, have a wonderful day.

Duration: 41 minutes

Call participants:

Christopher Allen -- Investor Relations

John Redmond -- President

Drew Wells -- Vice President

Savanthi Syth -- Raymond James -- Analyst

Duane Pfennigwerth -- Evercore ISI -- Analyst

Unidentified Speaker --

Helane Becker -- Cowen -- Analyst

Joseph DeNardi -- Stifel -- Analyst

Scott DeAngelo -- Chief Marketing Officer

Michael Linenberg -- Deutsche Bank -- Analyst

Matt -- Barclays -- Analyst

Dan McKenzie -- Buckingham Research -- Analyst

Gregory C. Anderson -- Senior Vice President, Treasurer, Secretary

Stephen O'Hara -- Sidoti -- Analyst

Savanthi Syth -- Raymond James -- Analyst

Dan McKenzie -- Buckingham Research -- Analyst

Maurice Gallagher -- CEO

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