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Executives

Stephen Johnson - Executive Vice President of Corporate & Government Affairs and General Counsel

Derek Kerr - Chief Financial officer, Chief Financial officer of America West Airlines Inc, Executive Vice President and Principal Accounting officer

William Parker - Executive Chairman, Chief Executive Officer, Chairman of Labor Committee, Chairman of US Airways and Director of AWA

Daniel Cravens - Director of Investor Relations

J. Kirby - President

Analysts

Josh Freed - Associated Press

Will Randow - Citigroup Inc

Megan Neighbor

Kevin Crissey - UBS Investment Bank

Mary Schlangenstein - Bloomberg News

Garrett Chase - Barclays Capital

Daniel McKenzie - Rodman & Renshaw, LLC

John Godyn - Morgan Stanley

Jamie Baker - JP Morgan Chase & Co

Raymond Neidl - Calyon Securities

Ted Reed - TheStreet.com

Helane Becker - Dahlman Rose & Company, LLC

Hunter Keay - Wolfe Trahan & Co.

Michael Linenberg - Deutsche Bank AG

US Airways Group (LCC) Q2 2011 Earnings Call July 21, 2011 1:30 PM ET

Operator

Good day, everyone, and welcome to the US Airways' Second Quarter 2011 Earnings Conference Call. Just as a reminder, today's call is being recorded. And at this time, I'd like to turn things over to Mr. Dan Cravens, Director of Investor Relations. Please go ahead, sir.

Daniel Cravens

Thanks, Vicky, and welcome, everybody, to the US Airways second quarter 2011 earnings conference call. In the room with us this morning is Doug Parker, our Chairman and CEO; Scott Kirby, our President; Derek Kerr, our Chief Financial Officer. And also in the room with us for the Q&A sessions are Robert Isom, our Chief Operating Officer; Steve Johnson, our EVP of Corporate; and Elise Eberwein, our EVP of People and Communications.

Like we typically do, we're going to start with Doug, and he will provide us with an overview of our second quarter financial results, and Derek will walk us after that through the details on the quarter, including the costs and liquidity. Scott will then follow with commentary on the revenue environment and our operational performance. And then after that, after we hear from those comments, we'll open the call for analysts Q&A, and lastly questions from the media.

In the spirit of our announcement with Nuance Communications this morning regarding our new Interactive Voice Response system, I'd like to also introduce the voice of our new IVR to read the forward-looking statements. Wally, the mic is yours.

Before we begin, we must state that today’s call does contain forward-looking statements, including statements concerning future revenues and fuel prices. These statements represent our predictions and expectations as to future events. But numerous risks and uncertainties could cause actual results to differ materially from those projected. Information about some of these risks and uncertainties can be found in our earnings press release issued this morning, our Form 10-Q for the quarter ended June 30, 2011, and our 2010 Form 10-K.

In addition, we will be discussing certain non-GAAP financial measures this morning, such as net loss and CASM, excluding unusual items. A reconciliation of those numbers to GAAP financial measures is included in the earnings release, and that can be found on our website at usairways.com, under the Company Information, Investor Relations section. A webcast of this call is also available on our website, usairways.com and will be archived for 1 month. The information that we're giving you on the call is as of today's date, and we undertake no obligation to update the information subsequently.

Thanks again for joining us. And at this point, I would like to turn the call over to our CEO, Doug Parker.

William Parker

Well, thank you. That was fascinating, Dan. That was a little more emotion than you usually do, which is great. So thanks, everybody, for being on. I will give you my introductory comments, and then turn over to Scott and Derek. We did announce this morning a net profit in the second quarter of $106 million. That's down from our second quarter 2010 profit, which was $265 million. The decline in profitability was driven by a 47% increase in our average fuel price. Had our average fuel prices remained where they were in the second quarter 2010, our second quarter 2011 fuel expense would have been about $400 million lower. So that fuel price increase drove an increase on year-over-year expenses of $400 million, but our net income declined by only $160 million. That's due to some great work by our team. Our net revenues were up approximately 7%, and Scott will talk a lot more about that. And our unit costs, excluding fuel and special items, were up only 1%, and Derek will talk more about that.

But before I turn it over to them, I do want to spend a minute talking about these results and the context of our industry and how remarkably different our industry is performing today than it was just a few years ago. To do that, I'd ask you compare the airline environment in 2008 to the one we're experiencing today in 2011. In 2008, we all, of course, remember the extraordinarily high fuel prices we experienced toward the end of the year. But on average for the year 2008, the fuel prices are almost exactly the same as they're being forecasted at the full year 2011. As certainly the case at US Airways, our guidance that went out today is for our fuel prices for full year 2011, which is precisely the same as 2008, frankly. And that's just based on the forward curves. So the fact is 2011 could easily break 2008's record for the highest fuel prices ever.

On the economic front, while this is perhaps debatable, I think it's fair to say most businesses would prefer the prerecession economy of 2008 to the postrecession and the modestly rebounded economy of 2011. So the 2 items that are most out of airline management's control and drive the most volatility in our earnings, fuel prices and the economic environment are similar to or arguably worse in 2011 than they were in 2008. Yet in 2008, earnings we lost, about $5 billion. And in 2011, the analysts that we'll talk to in a minute are forecasting profits for our industry.

For US Airways, we lost $800 million in 2008, and while I'll let you guys do the forecast, what we know is on a year-to-date basis, after today's results, we're breakeven on a year-to-date basis. So obviously off to a much better start than we have for the full year 2008. That is a major improvement, and it's the result of fundamental and systemic changes that are currently in our industry over the last 3 years, the largest of which is consolidation, which just kept capacity constraint, and left the industry in the hands of management teams who care a lot more about returns than they do about market share. Now this is not to say we're done. The industry is still not producing adequate returns on capital and the profits are well down from last year, and none of us are happy about that. I would note, though, fuel has risen very quickly of late, and it does take time to respond.

If the current environment is the new normal, which is what we all should assume I believe, at least the for near-term, I expect our industry will adapt as we have since 2008 with continued capacity constraint, continued push for revenues, continued cost discipline. We're duly encouraged by the capacity cuts that we see coming from -- being announced by our competitors. And I think again, you'll see more of that. What I'm certain of is that's what US Airways is going to do. And I encourage you, our shareholders, to keep our feet to the fire on that point, and I'd also encourage you to listen for our competitors.

So with that said, I will turn it over to Derek to give you a lot more detail on the numbers.

Derek Kerr

Thanks, Doug. We did finalize second quarter 10-Q this morning. And as Doug said in that Q, we reported a net profit of $92 million or $0.49 per dilute share and that's compared to a net profit of $279 million or $1.41 per share year ago. When you exclude the special items, the company's net profit for the second quarter was $106 million or $0.56 per share versus the net profit, excluding special items, of $265 million or $1.34 per share in the second quarter last year. As Doug said, higher year-over-year fuel pricing significantly impacted this quarter's results, which I'll touch on a little bit later. During the second quarter of 2011, the company did recognize approximately $14 million of special charges. These special charges include $6 million, primarily related to legal costs incurred in connection with our Delta slot transaction. In addition, we recognized $8 million related to aircraft refinancings completed in the quarter that resulted in debt prepayment penalties and noncash writeoffs of certain debt issuance costs. These refinancing-related costs we classified as nonoperating expense. For the remainder of the comments, I will exclude special items to more accurately reflect the company's results.

For the quarter, total capacity was $22.8 billion. ASMs, up approximately 3.3% from 2010. Our mainline capacity for the quarter was $19.1 billion ASMs, up 3.7% from a year ago. Express capacity was $3.7 billion ASMs, up 1.6% from 2010. In the second quarter, we did reduce our fleet by 2 737-300 aircraft and ended the quarter with 338 mainline aircraft. This is 7 less aircraft than we had at this time last year. For the remainder of 2011, we plan to return 10 more 737-300s and take delivery of 12 A321 aircraft in the third and fourth quarters. We will retire the entire 737 fleet by the end of -- 737-300 fleet of by the end of 2012.

We're maintaining our previous ASM guidance. Mainline ASMs are projected to be $72.6 billion this year, up approximately 1.4%. Domestic mainline, expected to be up slightly, while international is up approximately 3% year-over-year. Mainline ASMs by quarter should be $19.1 billion in the third quarter, which is flat versus 2010 and $17.3 billion in the fourth, which is down 0.7% from 2010.

We experienced double-digit growth for passenger and cargo revenues. Total operating revenues for the quarter were $3.5 billion, up 10.5% from the same period in 2010, a 3.3% increase in total ASMs. Total revenue per available seat mile was $0.1536, up 6.9% versus same period last year. Mainline passenger revenues, up 12%, other operating revenues were up 3.9% and cargo revenues were up 18.6%, driven by an increase in international freight. Total passenger revenue increased 7.6% in 2011 versus second quarter 2010, with Mainline up 8% and Express up 7.3%. Combined yields increased 6.5% and combined load factor was 83.8%, our highest since the merger.

Second quarter results were significantly impacted by higher fuel prices. The airline's operating expenses for the second quarter were $3.3 billion, up 18.1% compared to a year ago, due mainly to a $424 million increase or about 52% increase in consolidated fuel expenses. Higher fuel costs also drove a 13.8% year-over-year increase in mainline cost per ASM, excluding special items, to $0.1312. The total average fuel price, including taxes was $3.29 per gallon for the second quarter of 2011 versus $2.24 per gallon in the second quarter of 2010, which is a 47% increase. As Doug said, had average fuel price remained at second quarter 2010 levels, the second quarter 2011 fuel expense would've been approximately $400 million lower.

For guidance for the full year, we are forecasting mainline fuel price in the range of $3.15 to $3.20 based on the July 18 fuel curve. Our forecast breaks down by quarter are as follows: $3.20 to $3.25 in the third quarter and $3.27 to $3.32 in the fourth quarter. Using these forecasted prices for the remainder of the year, we anticipate that our fuel costs for 2011 will increase by 1.4 billion versus 2010.

Heightened revenues, driven by strong pricing environment and continued cost discipline by our entire team, allowed the company to offset much of the fuel price increase. Excluding fuels, special items and our 2010 accrual for profit-sharing, our mainline cost per ASM increased year-over-year by only 1% to $0.0816. For the first half, we have actually reduced CASM by about 0.2%. Express operating costs per ASM, ex special items and fuel, were up 5.4% versus 2010. As we talked about last quarter, this is due to certain CRJ aircraft operated by PSA coming off their maintenance honeymoon.

Our full year fuel guidance remains unchanged. For the full year, our CASM, ex fuel and profit-sharing guidance, has mainline flat to up 2% versus 2010. This breaks down in quarters by third quarter, up 1% to 3%, and fourth quarter, up 2% of 4%. Express CASM is forecasted to be up 6% for the entire year due to the increase in CRJ maintenance costs.

We ended the quarter with $2.64 billion of total cash and investments, of which $2.25 billion was unrestricted. Total cash increased about $172 million since the end of the first quarter. This is the highest quarter-ending total and unrestricted cash balance since the second quarter 2008. During the quarter and in early July, the company sold its last remaining investment in option rate securities, thus we no longer hold any of these financial instruments.

During the quarter, we were able to complete financing arrangements for our 12 remaining 2011 deliveries on efficient terms. We finalized previously announced sale leaseback transactions for 4 aircraft. An additional 4 aircraft were financed using mix market debt, while the other 4 were financed as part of a larger EETC transaction. The 2011 EETC had a face amount of approximately $471 million and included Class A, B and C tranches. The net proceeds from the offering were used to refinance 5 owned Airbus aircraft and fund the 4 Airbus aircraft scheduled to be delivered in September and October of 2011.

In July 2011, the company also received $53 million Class C debt under the 2010-1 EETC transaction completed in December 2010. The net proceeds from this offering will be used for general corporate purposes and will be reflected in the company's third quarter cash and investment balance. Overall, we increased our liquidity by approximately $137 million through the 2 separate issuances of Class C debt and the EETC market, which has not been accessed by any airline since 2007.

During the quarter, we also were able to complete a predelivery deposit financing transaction that will provide up to $40 million in funding. Our cash balance at June 30 included $32 million of proceeds from this transaction and it will have an estimated positive cash impact of $23 million at year end.

The company generated $224 million of positive cash flow from operations and $158 million after giving effect to capital expenditures in the second quarter. We also had debt payments of about $290 million, which included $84 million of scheduled payments and $206 million of prepayments from our aircraft financings.

Second quarter nonaircraft CapEx was $37 million. We forecast total net CapEx to be $171 million in 2011. This includes nonaircraft CapEx of $160 million and net aircraft CapEx of $11 million, which is down significantly about $90 million from last earnings call due to the financing transactions completed in the quarter.

So in summary, I'd like to thank all of our employees for effectively managing through a second quarter that saw extremely volatile and high fuel prices. We are very pleased with the results of our financing initiatives during the quarter. The completion of these transactions indicates an improving capital markets environment for our company and the industry.

And with that, I'll turn it over to Scott to talk about the operations and revenue environment.

J. Kirby

Thanks, Derek. I'll take a minute to talk briefly about our operational results and then turn to the revenue environment. I'd like to start by congratulating our employees on a number of recent accomplishments. Our sixth month in a row of industry-leading bank performance, the launch of our new, state-of-the-art IVR system that will help insource all reservations work by the end of the year, ratification by the TWU-represented dispatchers of their second labor contract since the merger, and finally, another successful audit of our operations, safety and security by IATA.

Turning to the revenue environment. We continue to see an unusually volatile environment for bookings. Starting all the way back in mid-March, the return to behavior that we've seen at times in the past was bookings fire the headlines. Be those headlines, earthquakes, mass turmoil, high gas prices, sovereign debt worries, the U.S. default worries, et cetera. Unfortunately, it has lot more negative headlines and positive of light. On the plus side, demand has remained strong, particularly when we don't have negative headlines.

Starting all the way back in that mid-March timeframe, the bookings pace deteriorated from the red-hot pace that we've seen over the prior 2 months. And ever since then, we've seen erratic behavior in bookings, with a very strong week of bookings followed by a mediocre week of bookings. You can also see this in the RASM data for US Airways in the industry. So US Airways' April RASM, up 6%, followed by May, up 11%, and then June, up 6%.

On our last conference call, we forecasted May and June RASM would be up double-digits, but we rarely miss the forecast by that wide of a margin. So what happened? Despite the volatile booking environment, pricing remains firm throughout April and the beginning of May. In fact, at the time of our conference call in April, June yield was booked up to 15% and RASM was booked up to 17%. But of course, we only had 27% of June's revenues on the books at the time. While we knew that RASM would decline from this level, the continued strong pricing environment combined with good demand led the confidence that [indiscernible] the double-digit RASM forecast.

As we come into May, bookings were mediocre, but yet remained strong, as other airlines presumably found similar data and decided to run more aggressive fare sales, which were matched by the entire industry, which had the effect of causing [indiscernible] factors to go up from what they otherwise would've been, but the bookings from mid-May on for June travel were also up less than 5% year-over-year, instead of the 13% we'd seen earlier. So we've got a 1 to 2 point higher or lower [ph] factor than we otherwise probably would have run, but we do have [indiscernible] that were 8% lower. Obviously, not a good tradeoff, and the reason I think that we, as an industry, have disappointing June RASM statistics.

With that background, I'll turn to the revenue outlook going forward. I'm going to be more cautious than usual about demand going forward because of the recent booking volatility. The pricing environment isn't that much different than June, but it has improved modestly of late and, in fact, book yields in July are up 9% year-over-year compared to only 3% in June. Some of that, however, is due to more aggressive yield management as opposed to an improvement in the underlying pricing environment, but we [indiscernible] factor in exchange for those higher yields. We expect July RASM to be up about 7% year-over-year and currently think that both August and September will be better than in a year-over-year basis than July. But again, we feel we're that [ph] confident in our forecasting ability, given the higher volatility of demand.

Unfortunately, I don't have a lot of data to support this, but my intuition is to be cautiously optimistic that we see the bottoming in revenues in June and that the pricing environment is going to improve in the [indiscernible] forecast going forward. The capacity situation for the industry gets better starting in September, but I think that underlying demand remains strong, as we see what record industry load factors resemble.

With that, I think we're ready for questions.

Question-and-Answer Session

Operator

[Operator Instructions] We'll take our first question from Jamie Baker with JPMorgan.

Jamie Baker - JP Morgan Chase & Co

Doug, at least, for now, it doesn't feel like we're kind of in a dire straits with jet carry prices pushing up towards their springtime highs and the revenue momentum being unusually volatile. At the margins, some carriers are starting to pull out a bit more capacity than they had announced in the spring. Obviously, there's less flexibility at Airways in this regard, given the minimum fleet size requirement. So at what sort of margin production, or lack thereof, would you feel compelled to seek relief from the pilots in this regard?

William Parker

I'm a little confused by your question.

Jamie Baker - JP Morgan Chase & Co

On the minimum fleet size required.

William Parker

Yes, that -- given where we are with our [indiscernible], I don't expect that will happen. I would also note that it is not, at least in our situation [indiscernible] chime in more, that is not a major constraint in our ability to respond. We've gotten our capacity now down to a level where we really are doing what I think what -- [indiscernible] everybody eventually gets there, where we're flying places where we have a competitive advantage. If we get this Delta swap spot done, we'll have 99% of our flights flying out of places where we have competitive advantage. We have done things like closing operations in Pittsburgh and Las Vegas. We've done the -- we will do what we need to do. What we're trying to get done, what needs to be done in terms of not trading slots in LaGuardia for slots in D.C., getting to places where we actually can have a competitive advantage and not trying to go to places where we don't. That's the bigger issue. There's still a lot of aircraft out there running over markets that -- where no one has an advantage. So at any rate, to be direct with your question, I would not want to indicate that something I think we will get done, but I'd also note that even if we could, I'm not sure it's where we want to go anyway. If we did, it would be a material impact on our profitability.

Jamie Baker - JP Morgan Chase & Co

Okay. And since you opined in your opening remarks the potential for further incremental industry maturation or industry change, should conditions worsen -- actually, maybe this is a better schedule -- a better question for Scott, excuse me. But short of additional ancillary revenue efforts, are there any core changes you can envision in how the industry prices base fares? I mean, what's not stopping Airways or anybody else from working with regulators to allow the unbundling of fuel, for example, like Allegiant tried somewhat -- did try unsuccessfully to do.

J. Kirby

Yes, I think that there are over time potential opportunities to do that. I think it would be a better pricing model. If you look internationally, that particular kind of unbundling with fuel surcharges, by and large, is the way we price across of the cargo world. That's the way we also price our cargo product. Domestically, that doesn't happen largely because there's at least 1 large carrier in the U.S. who doesn't do fuel surcharges, and so that just winds up being a large enough impetus to have the fares not be unbundled. [indiscernible] would have been a big success, a big improvement in -- but that's going to [ph] improve revenues because, by and large, I think we take those fuel surcharges in the [indiscernible]. You saw that happen with all the fare increases that happened late last year and early this year. So I don't think that, that's something going to have some meaningful impact on industry revenues, but it's also unlikely to happen unless the 1 large U.S. carrier changes their mind about it.

Operator

Next, we'll hear from Michael Linenberg with Deutsche Bank.

Michael Linenberg - Deutsche Bank AG

Two questions here. I guess, to Doug, we heard on the United Continental call, they threw out a return on invested capital number and they talked about how they were doing relative to that. And I think you talked how the industry is doing better, and it's about management teams focus more on margin and, I guess, returns rather than market share. And I think it is somewhat admirable or at least helpful for investors and for people to be able to look at this industry as a more maybe potentially investable sector, when people are maybe more transparent with metrics and trying to achieve them. And I know you've been pushing for that. And so in that regard, would that be something that you would consider having, at least publicly having the target, at least as a touchstone or an objective that investors and, I guess, employees can follow?

William Parker

Of course. Again, I'm not prepared to tell you one right now, and to tell you the truth...

Michael Linenberg - Deutsche Bank AG

It's fair enough.

William Parker

But no, I think it's a good objective. I would note as you know as well as anybody, in our business, it's really hard to set those objectives when you have so much volatility. But the goal is the right goal. I mean, look, we do it frankly, and we're happy to share with you how we manage. But the reality is we end up managing and you guys follow for the most part, I think, the right numbers which are toward that margin numbers, that's a pretax margin numbers, which once you have a capital base, they end up being pretty good proxies. But the right answer is, yes, you should have -- you need to get to the right return on capital. I would note while we're on this little aside, for whatever reason, there seems to be some focus amongst some of the people of all industry of late on operating margins, which I can't care for the life of me. We got around that back when we used to make money, and then somehow people are back looking at it again. It doesn't make any sense. Because you'd never go get a balance sheet, for example, by not capitalizing operating leases. So by looking at earnings, without capitalizing operating leases, makes really no sense. So you should look at EBITDA margins or you should look to pretax margins. I think you should look to pretax margins. And then more importantly, you're right. What you really should start looking then is long-term returns on capital. But the problem of that again is it's hard to look at the longer term. So you look at the near term, I encourage you to go look at relative pretax margins that includes everything. And over time, those margins need to be high enough to cover the capital cost. But we're working on what you're asking about. If ever something that we think makes sense, I'm just telling you everything on the top off my head as I think about it, that it gives me a little cause for hesitation for any thrown [ph] goals out there and not be able to meet them simply because things we all know can happen, will happen. We manage to make sure we are managing the things we can manage extremely well and have the flexibility to respond when things we can't manage change. I think we do that very well. And I think we're very proud of the -- given the cards we have, the way we've managed this place for our returns, and we'll keep on doing that.

Michael Linenberg - Deutsche Bank AG

Good. And then just, Doug, on my second question, I mean, and you did mention you talked about the D.C.-LaGuardia slot deal. What publicly have you said on the timing? Where are we on that? Is that -- hopefully, it's a 2011 decision, right? Where are we on that?

William Parker

I'll let Steve Johnson tell you that.

Stephen Johnson

As you know, in order to close the transaction, we need to get approval from the Department of Transportation and we need to get clearance from the Department of Justice. The Department of Transportation approval will come in the form of an order from the DOT. There'll be a preliminary order, probably a 30-day comment period and then a final order. We expect that preliminary order to be issued any day now. The DOJ process, I think everyone is familiar with that. We filed for approval into the Hart-Scott-Rodino Act on the day we announced the new transaction in May. In June, we got a second request from the Department of Justice. We're in the process -- Delta and we are in the process of responding to that. We expect to respond sometime in the second half of August, and the Department of Justice will then have 30 days to reach a conclusion about that. So if everything falls into place, the transaction could close this year. But then I think everybody will remember from the first deal, there's a phasing process in which we will actually transfer the slots at Washington and New York LaGuardia in 2 phases over a period of months, hopefully, to be completely included in the third quarter of 2012, if everything stays on track.

Operator

Hunter Keay with Wolfe Trahan.

Hunter Keay - Wolfe Trahan & Co.

I had a little bit of trouble hearing you guys. At one point, Scott, during your remarks about how many -- I think you said you had 27% of June on the books at the time you gave that RASM number, is that correct?

J. Kirby

That's correct.

Hunter Keay - Wolfe Trahan & Co.

Okay, so how much of September do you have in the books right now?

J. Kirby

September because it's a more business-oriented, it's probably less. Obviously, we'll know the exact number until after September is finished, but I would guess 23% to 24%.

Hunter Keay - Wolfe Trahan & Co.

Okay. And I guess, just a little commentary on the pricing environment. I guess, why should we not be really concerned right now? I mean, I know you said it's very volatile, you have a strong week, a mediocre week. But when you look at the ubiquity of the fare sales are going on and Southwest comes out with a very widespread fare sale, and then they come out and actually extend it, the booking window, by another 2 weeks. I think it's [indiscernible] than the one they had actually in '09. I mean, is there anything that you're seeing that gives you confidence beyond Labor Day that makes you feel like the capacity levels of the industry has in place are going to be appropriate to keep yield in place going forward?

J. Kirby

Yes, I tried to touch on this or at least hinted, I suppose, in my commentary. And it's more intuition than good factual information I can give you, that the pricing environment is improving. I can tell you in the last week, for example, last year, there was a large legacy carrier, that lasted for 2 weeks [indiscernible] in the market so that's an encouraging sign. And in fact, in the last week, our book yields have been up 15%. Now our bookings have been up by 3% to 4%, but that's a really good tradeoff, slightly lower bookings and much higher yields. So you combine that with some of the, at least, attempts at fare increases, none successful so far. But at least the attempts, it seems to me like the perceptions have changed at industry level compared to where they were in May. Again, there's really no good facts to support that. That's just an intuition that I have, and that's certainly subject to change, particularly if there's some catastrophic economic event. I think we really are in this tenuous position where a bad headline can cause things to turn south. And if you had a European sovereign default that turned into a Lehman-like crisis, then all bets are off the table, or a U.S. default. But after a [indiscernible] event like that or some black swan event that we don't know of yet, my guess is that there's probably more upside than most fleet right now in their base forecast. But again, that's just one person's opinion without a lot of good facts to go along with it, and the same person, by the way, that thought we would be double-digits in June, and we didn't.

Hunter Keay - Wolfe Trahan & Co.

Right. I know what happens. I do appreciate your opinion, though, Scott, thanks for that. And I guess, one little sort of, I guess, a nit on this, you said other revenue was going to come in about $330 million, it came at $345 million. It was about $0.08 in earnings to my estimate. I'm particularly encouraged to see that line come in higher, given that's where bag fees are. Should we think -- I thought at this point, we would be seeing some erosion in that type of revenue, given the behavioral changes. How should we maybe think about modeling that line out for the rest of the year? Is that a decent run rate? Or are they kind of one-timers there in this quarter?

Derek Kerr

I think we have -- this is Derek. And we're going to put our guidance in the third quarter at $325 million and fourth quarter at $315 million because part of that is from the baggage, what you said, a little bit of erosion in the baggage from the different behavior. The second quarter came in more on a refund reissue side because the fares -- you've seen the fares increase a little bit so that's what caused the second quarter increase.

Operator

Next, we'll hear from Gary Chase with Barclays Capital.

Garrett Chase - Barclays Capital

Doug -- and again, we were having some problems hearing as well. When you were addressing the flexibility issue that I think Jamie was asking about, to the best of my knowledge, most of the restrictions are really on the mainline. I'm wondering if maybe there are sources with some of the regional agreements that we should be thinking about, maybe not necessarily in the next month or 2 but over the next 18 months, where you might have more flexibility than what you do on the mainline?

J. Kirby

We don't actually have labor issues in the regional agreements that will prevent us from shrinking. But we do have, in most of our agreement, one in a minimum in all of our agreements, we pay the aircraft ownership cost. So we can't get rid of airplanes. We could just ground airplanes. And in a number of that regional agreements, we also have minimum utilization. We could ground the aircraft, but we would still pay as if we're flying them. So I wouldn't anticipate that as a major source of reduction. It might be small changes, but not a major source of reduction because it's almost all fixed cost from our perspective.

Garrett Chase - Barclays Capital

Okay. And Scott, in those agreements, are you far away from the minimum utilization? Or is your comment more that the business logic for doing that, given the cost issues and the performance of those assets, would make it such that it's unlikely you'd tap it?

J. Kirby

We're, in most cases, a ways away from the minimum utilization, so we could reduce more. And in fact, in the third quarter, our ASMs are going to be down 3%. In the first quarter, we were 8%. But this is not...

Garrett Chase - Barclays Capital

This is for Express?

J. Kirby

For Express. There's not a lot more beyond that. I mean, we've done that. And so there's not a lot more shrinking that we're going to do because the costs are much more fixed. The aircraft ownership in all the agreements is fixed. And in the regional deals, that's one of the larger expenses. And if you're going to be paying for the plane anyway, parking it doesn't make a lot of sense, unless you get to a really catastrophic environment.

Garrett Chase - Barclays Capital

Okay, and then again, on sort of -- I just missed, you said book-to-yields were up 15% and then you said something book loads, we didn't get it. And I also didn't hear the timeframe.

J. Kirby

It was in the last week. And what I did say is last year, there was a large legacy carrier sale in place. This year, it's not. And the last week that we're overlapping, book-to-yields were up 15% and book load factor is down 3% to 4%. These are the timeframe we look at. But both bookings were down 3% to 4%. But that's obviously very revenue-positive compared to where we were before with no fare sale in place this year. But that's 1 week. Tomorrow, there may be a new fare sale in place. But that is part of the -- those are some of the facts that get to an intuition to me that there is -- that underlying demand trends are strong. And so long as the underlying demand trends are strong in the medium term, that's going to lead to a better pricing environment and higher industry revenues.

Garrett Chase - Barclays Capital

Okay, and then just any regional color. I know you're not huge in the Atlantic, relative to some others. But any thoughts on sort of how the revenue environment is progressing there versus domestic, and then whatever thought you have on the Latin piece would be helpful, too.

J. Kirby

Okay. In the second quarter, the domestic and transatlantic RASM were almost exactly the same. I think a 10, 12 point difference between the 2. And then the Latin markets were better. Latin markets were better, one, because the Caribbean has been very strong. And two, we're still kind of in the ramp-up process that start in Rio, which is a lot of ASMs for us. So Latin isn't going to be a good apples-to-apples comparison. It's really strong largely because of that. But the Caribbean is -- going forward, the Caribbean continues to look good. The domestic and the transatlantic looked very similar once again. Actually, I'm surprised actually that the transatlantic pricing environment has done more fare sales launched across the transatlantic, I think, than there has been domestically, which has been a little surprising. But I think RASM will come in very similar between those 2. I'd also say that a change from where we were kind of the last year, leisure demand seems to have held up better than business demand with further ad bookings 2 weeks out, 2 weeks and beyond. And then bookings in leisure-oriented markings being a little bit stronger than business built-up, that's leisure up more.

Operator

Next, we'll go to Bill Greene with Morgan Stanley.

John Godyn - Morgan Stanley

This is John filling in for Bill. Scott, early in the year, it seemed like you were seeing some pretty amazing fuel pass-through rates without cutting capacity. I think it was near 100%. How comfortable are you with your ability to pass-through fuel prices without adjusting capacity as they begin rising again in this demand environment?

J. Kirby

Well, it depends on what happens from the industry from a pricing perspective. So I don't know. I mean, I think the industry was, back at the end of February, passing through 100% of it. As an industry level, we're not passing through 100% of it today. The underlying demand environment remains strong and capacity comes down in the fourth quarter. So whether we can get to a 100% or not, I don't know. I mean, it just takes small changes in your revenue forecast, 1%, 2% is the difference between getting all the way there and getting only 60% of the way there. So I can't give you a precise forecast right now, but modestly encouraged.

John Godyn - Morgan Stanley

Okay, great. And guys, I know you don't have the quite the same scale that American has, but you've long been an important Airbus customer. Do you have any reaction to their recent aircraft order with Airbus? Do you think that their order has changed your position with respect to Airbus or ability to get the best possible prices or financing terms in any way?

William Parker

No.

Operator

Next, we'll hear from Will Randow with Citi.

Will Randow - Citigroup Inc

Derek, can you please update me on your gross CapEx numbers for this year and next? And also, Doug, if you could share your thoughts on Boeing's reengine announcement, obviously, the big aircraft order just mentioned and how this may accelerate the capital spending cycle?

Derek Kerr

Yes, I think, well, the gross CapEx, I think, in our guidance that's going to go out, it will be unchanged. Cash CapEx for nonaircraft to be $160 million for full year 2011. We haven't given out a 2012 guidance yet, but I think it would be close to that. On a net CapEx for aircraft, we're down to about $11 million cash going out the door due to all the financings we had for the quarter. So full year will be $11 million. Next year, we have 12 deliveries and we don't have any financing for those right now other than the backstop financings. So we look to go out and do transactions in 2012 to finance those aircraft, so I don't have a number of where that's going to be. But 12 aircraft is probably similar to what we did this year.

William Parker

On the second question, again, I can speak much better about our fleet plan than others and what they're thinking. We have a fleet plan that we're currently quite happy with. We have one of the youngest, I think just behind Continental, United fleets of the major airlines, and it's getting younger as we retire some of our older 737s and bring in 320s and 321s the next couple of years. So we don't have a lot of older airplanes that need to be replaced. We certainly aren't looking for airplanes for growth. Now your question was more about the other new 737s, what it means. Again, it may mean more to other people. It doesn't change much for us at US Airways. But if the manufacturers can build airplanes that reduce our operating costs by enough to encourage us to spend the capital, we're all in. But no one's coming close to that yet. So certainly, to replace the airplanes we have, it doesn't mean it doesn't make sense for more fuel-inefficient airplanes like American has. But there's nothing close yet. So we're happy where we are. If they can come up with airplanes that reduce the operating costs by enough to encourage us to spend capital, we'll look into it. But we don't have any aircraft manufacturers hanging around these offices, trying to sell us airplanes because they know we're not interested, and we're happy about that.

Will Randow - Citigroup Inc

And then just lastly, can you share your thoughts on -- or I should say latest thoughts on consolidation in regards to US Airways, when you're looking at the industry margins contracting? And obviously, it's a result of high fuel prices.

William Parker

Yes. Look, I said in my introductory remarks, which maybe you couldn't hear as well is that I think the biggest thing that's happened since 2008 to get our industry to work and do much better in 2011 than in 2008 was consolidation. There's been a good bit since 2008, it's not done. I think things will get better as Continental and United get even more integrated. They'll get better as Southwest and AirTran begin to get integrating and get more integrated over time. So I think all that's good. More would likely even make things better, but we're really happy where we are. We're running a stand-alone airline that is doing very well relative to our peers. That's we intend to continue to do. If opportunities present themselves to us, of course, we always are looking and willing to do what makes the most sense for all of our constituents. But we're running a stand-alone airline, happy to be doing it and plan to continue doing that for a long time.

Operator

Next, we'll hear from Kevin Crissey with UBS.

Kevin Crissey - UBS Investment Bank

Scott, was there any shift in website direct sales versus through an agency?

J. Kirby

Website direct is up about 3 points year-over-year, but that's kind of continuing the trend that we had seen in -- there wasn't a sequential effect, but it's about up 3 points year-over-year.

Operator

Helane Becker with Dahlman Rose Investment Bank has our next question.

Helane Becker - Dahlman Rose & Company, LLC

So I missed some of your remarks, Doug, because the clarity wasn't that good. With your -- I thought I heard you say that you were thinking that $100 oil was the new norm. Have you thought about your hedging strategy within that context? Or are you still comfortable with prior comments that not hedging make sense?

William Parker

Yes. To be clear, what I said was if the current economic environment is the new norm, which I also said I think we all should assume, certainly for the near term, that I believe the industry will respond and you'll see us -- if the prices ramp very quickly, it takes some time to respond. The industry hasn't fully responded yet. So that we have seen decline in earnings year-over-year, but I think you will see the industry respond over time if this is the new norm, and you'll see that with capacity reduction and you'll see it with pricing moves. You'll see it with continued cost reductions, things like that, just as we've done since 2008. So that's what I said. As it relates to our fuel hedging strategy, doesn't change it at all. We continue to believe that the -- certainly with the cost of hedging being as high as it is, that it doesn't make sense to do, which certainly served us well over the time we've been doing it. In times when prices rise this much this quickly, of course, one with 20/20 hindsight can go back and say, "Gee, maybe we should've started hedging right before it ran up." But you can never do that. So instead, we look to the long term of what it really does for us. And what we firmly believe is that it reduces our expenses over time. It increases your expenses over time to hedge, and it doesn't decrease the risk of the firm. So we don't -- we're happy with where we are.

Helane Becker - Dahlman Rose & Company, LLC

Okay. And then I think you're having -- I don't know what they're called on A320s, but their winglets put on the aircraft, when will that be done? And then my other unrelated question has to do with -- so Doug, if you think that you have access to the capital markets, certainly in the debt capital markets, you were able to raise money in the quarter that's just ended, and yet the market is really not giving you credit on the equity side for some of the changes that you've made and the fact that you are profitable versus some other airlines that were not in the current quarter that just ended. Does it really makes sense to have publicly traded equity? And can you just continue to have public debt and accomplish all your financial goals without having equity?

William Parker

Yes, Helane, it's a bigger question and more speculative than I probably can handle. I think the ongoing assumption for all you should be that we will continue to have public equity. But again, we always are willing to look and be creative, but there's -- and I appreciate putting the thought in our head. But you should assume we're going to have a public company for the long term.

J. Kirby

And Helane, on the winglets, we haven't made a decision on that or the [indiscernible] we've discussed with Airbus, but haven't made a decision to put it on our aircraft yet or modify our aircraft.

William Parker

And probably just to give to better answer to the first question. What I really believe is that the equity markets, while they're irrational at times, become rational over time. And it's indeed you're right, which I suspect you are, and right now, we're not getting full credit for what will be the future. In the future, we'll get there. So we don't worry about -- we, I know you have to worry about those, but we don't. We don't worry about short-term fluctuations after stock price. We manage for the long term, and we know that our shareholders will be rewarded in the long term so long as we do our jobs right, which we expect to do.

Helane Becker - Dahlman Rose & Company, LLC

Okay. And then would you consider a spinoff then of the owned regional airlines or a sale of those?

William Parker

That's not sort of what we're looking at.

Operator

Dan McKenzie with Rodman & Renshaw.

Daniel McKenzie - Rodman & Renshaw, LLC

Two quick housekeeping items, and I'll fire both off at the same time. First, it looks there was no profit-sharing accrual in the second quarter despite the profit. And I guess, you don't want to comment on full year profitability, but there could be some confusion about what is being signaled in the earnings release. So if there's something else we should be thinking about, that would be helpful. But secondly, on the cash flow statement, given where we're at with cash flow from operations year-to-date, it suggests cash flow from operations in the second quarter was about $224 million. And I'm wondering what might have driven $100 million reduction versus relative to the first quarter. The air traffic liability looks about the same.

Derek Kerr

The first answer, Dan, is no profit-sharing because year-to-date, we have negative profits. We lost $110 million in the first quarter and made $106 million in the second quarter, so it's net-net as of today, 0 so there would be no profit-sharing accrual. The second one, I'll just have to look -- I'll have to go back and look at it and get back to you on -- I don't know of any specific answer of why that would be the case.

William Parker

On your first question, we don't accrue profits based upon our forecast and profit-sharing. Our forecast and profits for the year, we accrue it based upon the actual profitability today.

Derek Kerr

Year-to-date.

Daniel McKenzie - Rodman & Renshaw, LLC

Very good. I appreciate that. And then I know this question has come up in the past, but now with the United-Continental merger behind us, is the timing right to pursue a deeper relationship with the Star partners? And then I guess, related to that, I appreciate the detailed revenue commentary, but I'm wondering if you could share a little bit more about what is driving the demand to Europe, including the PIIGS countries, where I see US Airways growing quite a bit. The demand backdrop seems a little counterintuitive to what's going on there.

J. Kirby

Well, to tell you what the demand in Europe, for Portugal, Ireland, Greece in particular, the demand is almost all U.S.-originated. And so the troubles that those economies are having haven't had much impact on demand one way or another. And now I forgot the first question.

Daniel McKenzie - Rodman & Renshaw, LLC

Just that the timing is right to pursue a deeper relationship with the Star partners.

J. Kirby

Star. Well, we continue to have a lot of dialogue and engagement with our Star partners, particularly United. I suspect that -- I want to know that, they're still pretty deeply embedded in integration. And until they get further along that path, I wouldn't expect much of anything to happen. But it's an opportunity to put down the road but there's a lot more focus understandably on integrating Continental and United today.

Operator

Next, we'll hear from Ray Neidl with Maxim Group.

Raymond Neidl - Calyon Securities

Yes, I heard loud and clear that the American purchase is not affecting your ability to borrow. But Derek, when you were talking about the EETCs, did you say that you were the first airline that was able to go to this markets since, I think, it was 2007, you said, is that correct?

Derek Kerr

To go to do a C tranche, so to take -- go to the third level, not the EETC market, just do a C tranche on the EETC.

Raymond Neidl - Calyon Securities

Okay, good. That's good to verify. The other minor thing is US Airways has been kind of aggressive in trying to do extra charges. You've been the leading the industry in the extra charges for different fees. And now the government seems to be looking at this very carefully and wanting more of a spelling out of the fees in the advertising. Is that going to have any affect on your ability to get revenues in this direction? Or is that going to cause a problem?

J. Kirby

It remains to be seen how we have to display -- I don't think it will negatively impact. We do it today, frankly. We have very full and fulsome disclosure of all of our fees. It may cause us to have to change websites and make investments in IT to display them a different way. I'm hopeful that those will be minimal impacts. But I don't think it'll have a dramatic effect one way or another on revenues.

William Parker

Just a little color on this, Ray, so you know what's going on. Looking at -- Scott's right. We believe we're already fully transparent, and I can't imagine anyone in the fine public that doesn't know what fees they're being asked to pay. We certainly have enough press and advertising going on to highlight them. So by no means are we attempting to be anything but fully transparent. We want everybody to know exactly what the fares are. The biggest issue for us, frankly, is that being asked to have that in every distribution channel, primarily the CRSs, who don't have the ability to do it, is a problem. So what we can't have in a situation whereby we're not allowed to sell certain products simply because the CRSs don't have the ability to put those products in their system. And that's a big concern for the industry, one that we're working through. But it's not because we don't want to be transparent, it's because they don't have the ability for us to be transparent.

Raymond Neidl - Calyon Securities

Yes, I think Spirit and Allegiant have been filing protests unsuccessfully in that area. Do you think if the politicians get involved here, though, it's going to restrain your ability to think of new ways of adding on fees? I guess, if you can't go on to the systems, it is going to slow you down.

J. Kirby

I certainly hope not. You're focused on fees. A lot of the things we're doing aren't just fees. There are things that are good for consumers. I mean, one of the products we have, products like Choice Seats, where customers can -- they do pay an extra fee but they get a better seat is something that those customers really like, to be able to get a better seat on the airplane. And so I guess, the customer-unfriendly I know, it'd be customer-unfriendly to put restrictions in place that prevent airlines from being able to sell customers what they want, much like Spirit or Allegiant says. Let airlines, like all other businesses, market to their customers and let the market decide what customers want and don't want, as opposed to a regulator somewhere. And I'm hopeful that it will never have something that prevents us from selling, though, not opposed to making our fees fully transparent. As Doug says, though, today, the issues is not that we don't make the fees transparent. The fees are very transparent. The issue is the GDSs don't have the ability to display those to their customers, and so they want to stop airlines from having the various disaggregated products until they can catch up technologically. And that's not good for airlines, it's not consistent with the way businesses, any other business behave in the country and not good for consumers either.

William Parker

So I guess, in direct response to your question, Ray, as you can tell by our answer, we are somewhat concerned that what regulations might result and could result actually, and something that allows us to not provide products to our consumers that we believe they want. I would say we take comfort in the fact that the objective here is to make sure customers have more information, not less, have more choice, not less. And that, that's what we're trying to provide. So at the end of the day, we are certainly hopeful, and I think more likely that rationality will prevail and we won't be forced to limit our services simply because one of our distributors -- a big distribution channel can't handle it.

Operator

[Operator Instructions] We'll go to Megan Neighbor with Arizona Republic.

Megan Neighbor

I wanted to -- speaking of GDSs, I wanted to ask about an update on the Saber suit, where that stands right now.

William Parker

Scott or Steve?

Stephen Johnson

Sure. Megan, this is Steve. We filed the lawsuit against Saber in April. Saber, as we expected, filed a motion to dismiss the lawsuit. That's kind of a standard part of the playbook for defending an antitrust suit. We have to respond to that motion on August 12, I believe. That motion will be litigated, and we feel confident that, that motion will be denied, and then we'll move forward with the litigation, the normal path. Probably a year or so to get to trial at least.

Megan Neighbor

Okay. And also I wanted to follow up as well on flight attendant negotiations. Where is the company in that? And how confident is US Airways that you'll reach a merged contract with the flight attendants by the end of the year?

J. Kirby

We continue to negotiate with the flight attendants on, I think, a really energetic basis. The negotiations are being overseen by the National Mediation Board and the mediator in charge had said, has challenged us to get this really progressed over the meetings that are currently underway this week and similar meetings that will take place in August and September. I guess, I certainly see a path to getting something done by the end of the year. But I'd probably be in a better position to speculate as to the probability of that after this week is over, and probably after we've had another week together in August. I certainly think that it's not going to take very much longer. But whether we can actually get it done by the end of December, it's just not something I want to speculate on right at this point in time.

Operator

Next we'll hear from Josh Freed with The Associated Press.

Josh Freed - Associated Press

I heard it mentioned earlier that ASMs were going to be down a bit for Express in the third quarter and fourth quarter. I think you said 8% in the fourth quarter. Can you say a little more about that? I mean, is that focused on certain aircraft types? Do you have a bunch of planes coming off lease? Can you give me a little more detail on that?

J. Kirby

It's mostly just lower utilization throughout the fourth quarter, and as a reflection of higher fuel price environment. So you have some of the...

William Parker

Plus, the other thing that we're doing is we're going first class on the [indiscernible] aircraft and we're taking some out of the fleet in order to start the line of putting first class into the regional fleet.

J. Kirby

It is lower utilization, that's the point.

Josh Freed - Associated Press

Okay. So not necessarily a smaller number of aircraft, more just lower utilization and the seat issue you mentioned.

J. Kirby

Correct.

Josh Freed - Associated Press

Okay. And is that focused on any one of your various regional partners? Or is this sort of spread evenly among them all?

J. Kirby

I think it's across the board.

Josh Freed - Associated Press

Okay. Even though lease expiration maybe aren't really a factor in that decline, can you say any more about kind of where your general regional fleet operation is headed? I mean, there's this whole issue of 50-seat regional jets, folks kind of moving away from those. Are there any updates to be had on that as it relates to you guys?

J. Kirby

Most of our airplanes don't come off lease until 2015 and beyond or don't come off contracts until 2015 and beyond. So not a lot, I think, to say it's not the issue du jour for us just because it's a way. But one thing I would say is while 50-seat economics aren't aligned and aren't very good, they're not good at historic aircraft ownership rates for 50-seat aircraft. But if you can cut the ownership rate of an airplane by $80,000 a month, that has the potential to change the economics of a 50-seater, at least from an airlines perspective.

Josh Freed - Associated Press

Are you suggesting that your airline has cut them by that much?

J. Kirby

We haven't, but I am suggesting that if you mark them to market today, you can cut them by that much. So as planes come off lease, they can be cut by as much as $80,000 a month of ownership as they come off contract.

Operator

Next, we'll hear from Mary Schlangenstein with Bloomberg News.

Mary Schlangenstein - Bloomberg News

I just wanted to really clarify 2 things. One is I think that you guys said earlier when you think the slot swap transaction might actually be in place, like all wrapped up and you're actually swapping the slots. The second was I wanted to ask, are you actually talking to Saber? Or are you guys not even in any type of negotiation or discussion at all?

Stephen Johnson

Mary, just to review. We're hopeful that we would be in a position to close the slot swap transaction before the end of the year. But in this case, closing is kind of a lawyer word. It means that we're going to be firmly committed to actually trading the slots. But as you saw in the agreement then, as with the case in the 2009 deal, those slots will be traded in 2 phases. They're spread out over a number of months, largely to accommodate just the infrastructural challenges of an exchange of this size. So if we get -- if we're able to close the transaction toward the end of the year, we should be able to have the slot, the first set of slots, exchanged in the first half of 2012 and the second set, I said, in the third quarter of 2012. I hope that's the case, but third quarter, early in the fourth quarter of 2012.

Mary Schlangenstein - Bloomberg News

Okay, and on Saber?

Stephen Johnson

On Saber. If there were some discussions going on with Saber, they'd be confidential. So I think it'd be probably better for us not to comment on that.

Mary Schlangenstein - Bloomberg News

So you can't even say if you're talking, not what you're talking about, but if you're talking?

Stephen Johnson

Correct.

Operator

Next we'll hear from Ted Reed with The Street.

Ted Reed - TheStreet.com

I just like to ask about your fleet since there's been a lot of talk of fleet this week and your fleet contract. Are we still under the contract negotiated with Airbus 10 years ago? I know you have XWBs coming, and I just like to talk about it a little bit.

J. Kirby

Ted, we're under the contract that we did back in -- I think, it was 2006 when we did the order for aircraft, so we're still under that contract. We have over time deferred some of those planes, but we are under that contract and we're going to continue to take delivery. We have 12 aircrafts coming next year, all A321 aircrafts coming next year. 2013, we have 21 aircrafts being delivered, all narrow bodies -- sorry, there's 15 narrow bodies and then 6 A330s. And then we go into 2014, and we have 21 more aircraft, 18 narrow bodies and 3 wide bodies, A330s. And then in '15, we have 12 more A320 family coming. We have deferred the A350s as of right now, out until 2017, where we'll take 8 in 2017, 8 in 2018 and another 6 in 2019. And those are all the firm deliveries that we have over the next 6, 7 years.

Ted Reed - TheStreet.com

Can you talk a minute about average fleet age? They mentioned it on the American call yesterday.

J. Kirby

Yes, I mean,, our average fleet age right now is around 12 or just under 12, and it maintains that level throughout the -- it actually gets down to 11.5 in 2014 and probably declines a little bit more in '15 because as we go through this, what we're replacing is older 737-300s and 400 aircraft, and then we will start replacing some older A320-A1 engine aircraft out in the 2015 timeframe. So we're right now in right around 12, and we maintain that and start bringing it down in 2014 and 2015.

Ted Reed - TheStreet.com

I wanted to ask one more thing. You talked about you never get a balance sheet by not capitalizing operating leases, and you said you were talking about some carriers, I can't figure that out. Was that American because they're going to do this off balance sheet?

William Parker

No, no, no. It was actually -- and again, it was actually and again [indiscernible] why I brought it up. Mike had asked some questions on what metrics to look at. That wasn't meant to be at any 1 carrier or anything. It's just, of late, I've noticed as I looked at analyst reports and people looking at airlines, something we hadn't seen in a long time were just people talking about operating margins, operating profits. It's just not a valid comparison in our business because a lot of us have operating leases, a lot of us have capital leases. Analysts used to always correct for that by capitalizing the operating leases. You always do that on the balance sheet, and I think you should do it to the P&L as well. So you shouldn't look at an operating margin because there's so very different based upon how you finance your aircraft. The way they do it instead is either look at a EBITDAR [ph] margin, takes the operating cost out, or probably more appropriately look at the pretax margin which includes everything. But the operating margin itself, comparing airlines across the board on operating margin has all sorts of problems.

Operator

At this time, there are no further questions. I'd like to turn the conference back over for any additional or closing remarks.

William Parker

We are good. Again, sorry for the sound problems we had earlier in the call. We will do our best to make sure the webcast doesn't have those problems. So I hate to ask you to do this, but if there's some facts on there you didn't quite hear, well, just call us directly. But I also encourage if you want to hear it again, listen to the webcast [indiscernible]. And we'll have a script as well, see if it helps. So we'll get all that out and again apologies for the problem. Thank you all very much for your time. We appreciate it.

Operator

Well, that does conclude today's teleconference. Thank you all for joining.

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