Virgin America Inc. (NASDAQ:VA)
Q1 2016 Earnings Conference Call
April 28, 2016 12:00 ET
Stephen Shulstein - Director, IR
David Cush - President & CEO
John McCloud - SVP, Planning and Sales
Peter Hunt - SVP & CFO
Savi Syth - Raymond James
Michael Langenberg - Deutsche Bank
Hunter Keay - Wolfe Research
Joseph DeNardi - Stifel
Helane Becker - Cowen & Company
Dan McKenzie - Buckingham Research
Good morning. My name is Jonathan. I would like to welcome everyone to Virgin America's First Quarter Earnings Conference Call. As a reminder, today's call is being recorded. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will be given at that time. [Operator Instructions]
I will now hand it over to Virgin America's Investor Relations Director Stephen Shulstein.
Thank you, Jonathan. Good morning. I want to thank everyone for joining today's call to discuss Virgin America's first quarter 2016 financial results. Speaking on today's call will be Virgin America's President and CEO, David Cush; Senior Vice President in Planning and Sales John McCloud; and Chief Financial Officer, Peter Hunt. We also have other members of Virgin America's senior leadership team in the room here today, including our Senior Vice President For People In-Flight, Francis Fiorello; our Chief Operating Officer, Steve Ford; our Senior Vice President and General Counsel, John Varley.
In terms of the format of today's call, we will begin with opening remarks and commentary followed by a review of our network performance, and we will conclude with a review of our financial results. At the end of these remarks, we'll open to Q&A from analysts and then we will follow with the Q&A from the media. As a result of the proposed merger with Alaska Air group we will no longer be providing forward looking information and we will ask that you limit your questions to our reported results. Additionally we will not provide any expectations with respect to the timing of the closing of the transaction with Alaska Air group. If you have not yet received a copy of today's earnings press release, please visit our Investor Relations site at ir.virginamerica.com.
At this time, we wish to remind listeners that the Company's comments today will contain forward-looking statements including among others, references to our future performance, and comments about our strategic plans. Listeners should not place undue reliance on forward-looking statements and our actual results may vary materially from those expressed or implied due to many risks and uncertainties. These risk factors and others are more fully disclosed in our most recent 10-Q and other filings with the Securities and Exchange Commission. We undertake no obligation to update any forward-looking statements.
As this call will include references to non-GAAP results excluding special items, please reference this morning's press release on our Investor Relations website for further information regarding forward-looking statements and reconciliations of non-GAAP results to GAAP results.
With that, I'll now turn the call over to David to get started.
Thanks Stephen, and welcome everyone to the first quarter earnings call. I am going to leave most of the numbers to Peter Hunt and John McCloud to walk us through. But we are excited to say we are very happy with the quarter. our pretax income was up about a 170% and out operating income was up a 150% and our margin nearly doubled basically it did double from 4.0 last year to about 9.1 this year operating margin so we are happy with the way things came out. Our rise in performance was steady basically outperforming the industry and our performance was right on target so we are happy with the way the numbers came out and I will let Peter and John get into that a little bit more in a moment.
But before they do that I want to say a few things on not just about the pinning acquisition in our performance this quarter but also about Virgin America and the tremendous impact that the airlines had at the industry in 9 years so you are going to have to indulge me a little bit because like our last earnings call.
First of all with respect to the acquisition of the two key milestones that has occurred before it can be finalized. The first is that our shareholders will need to approve the deal. We filed a preliminary proxy statement last week that outlines the key terms and facts around the transaction and we will schedule the shareholders a vote sometime in the near future. Secondly the transaction acquires a regulatory approval by the department of justice. We submitted our filing on April 15th and we hope to see this transaction approved in the coming months.
I don't have any specific details as to how long this process will take but what I will say is this. If you care about ensuring competition in the Airline industry and if you care about promoting the interests of consumers and the flying public, then this acquisition should be approved promptly. Given the factor that the four biggest carriers now control over 80% of the market, given how much pressure they have been able to exert on smaller carriers because of this dominance and given their increasing vice like lock on scarce facilities in slots at our nation's most important airports this combination is critical to create an airline with the size and market share necessarily unnecessary to effectively compete with the bigger players.
And this will ensure that the consumers will have more choice and greater price competition in the near term and in the long term. As far as results it is the best quarter first quarter we have ever had in Virgin Americas history. We did beat our PRASM guidance so we meet the midpoint of our guidance and we outperformed the domestic industry when it comes to PRASM. That's something we have done in seven consecutive quarters.
This time it is a little bit different because we didn't growing the airline to add a more rapid pace in the industry. We grew at about 16% capacity in the first quarter. The industry I believe was right around 6%. What this means is that our strategy for growth we outlined over the past couple of years is performing as planned. The first quarter also represented the 13th consecutive quarter of year-over-year profit growth stretching back to the fourth quarter of 2012 and it is our eighth consecutive quarter of profitability so everyone benefitted from all.
Perhaps we took a little bit more advantage of it than others did. And as John McCloud will cover more in detail in just a minute when we look at our net worth we are happy with what we see. Our short haul network particularly along the west coast to be great strength for us. And naturally had increased year-over-year PRASM which is very rare to see in the industry these days. Our TransCon markets are performing better than system average and our Hawaii routes continue to mature and perform very well. With very high yield and increasing load factors throughout the quarter and then into the second quarter.
On the product front, we continue to push forward with a number of innovations. Most notably we continue to roll out our red 1.5 inflight entertainment system. With the currently on about half the fleet with the remainder scheduled to be completed before the end of the year. Red 1.5 features higher resolution capacity touch screens for the proprietary Android based software that allows us to build more features into the software platform, better in-flight maps and about three times more content than we had before.
It also has the Route Sound which is the first ever to be offered on an airline. We continue to install high speed VIASAT Wi-Fi in the plane which offers guests the highest Wi-Fi speeds in the sky and we recently received the FAA approval for the new antenna that will allow us to offer high speed internet across the pacific to Hawaii.
And finally, I want to say a few things about Virgin America in general and what our team mates have built because if we take a step back is truly remarkable how the industry has changed. The last 8 years or so in terms of restructure but also in terms of product and I think quality. We think we have had a big part of that. Before Virgin America started operating flying experience was dismal and it was pretty consistent and very little product differentiation across the industry.
There wasn't much focus on the customer experience and there wasn't attention paid to pushing the envelope on entertainment and technology. It was basically a drab generic experience really regardless of whatever line you can travel on. Today in larger parts of Virgin America we believe things have changed. We [indiscernible] have to be a legacy carrier with legacy costs structure or legacy fares or you could be a no frills low cost carrier and that's a false choice.
We show that you can provide a premium product and experience and you can create an airline people actually want to fly and provide that experience at lower fares in the other guys offer. Basically by running a highly efficient operation which we have done and this is an after beat we share with our new partners from Alaska Airlines. For the past several years they have reduced their cost structure and invested in the product to have a similar impact out of their home in the Pacific Northwest.
We look forward to joining forces with them to bring more high quality low fare service to more markets across North America. With the thanks from the work of our 3000 team mates when this transaction close we believe we will have made significant positive impact on the industry and the consumers will have benefitted greatly. We are tremendously proud of the work that our team mates have done and believe Alaska is acquiring not just the best Airline in the industry but the most talented, dedicated and hardworking team as well.
We look forward to continuing our mission of high quality service with low fares with our partners from Alaska. And with that I will hand it over to John McCloud who can talk about our network performance in detail.
Thank you David and good morning to everyone on the line. I would like to join David in congratulating and thanking all of our team mates for another quarter of exceptional performance. For the fourth year in a row every year that we have been eligible to participate we took first place in the independent airline quality rating measure.
As David said overall we are seeing a lot of strengths in our networks. As we have outlined previously with a total of 10 new aircraft deliveries between middle of last year and this year we are on a period of disciplined growth. And as I say disciplined because we are growing but still meeting the present targets we have set for ourselves. This quarter Virgin Americas overall capacity grew 16% versus 6% on the industry on all domestic routes.
Yet our percent change still outperformed the industry average by 1%. A growth was made up of added frequencies of high load factor and high margin routes along with the addition of new routes to our network. Importantly given our focus on business travelers this quarter our share of arc revenue rather business travel revenue share on our routes increased by 120 basis points outpacing our overall capacity growth of 40 basis points. So we continue to see all the strength for the business travelers across our networks.
Overall our percent across the network decreased by 3.8% slightly better than the midpoint of our guidance and better than the A4A industry performance of negative 5%. When we look at our network this quarter it helps to break it down into areas of three main areas of regional growth. The first is Hawaii. Q1 was our first full quarter serving San Francisco to Honolulu and Maui markets and results online with our expectations. As David noted yields are strong and our load factors are improving.
We are pleased to report that in Q1 which is the low season for the California Hawaii market we turned an operating profit. Next quarter as we previously announced that we will add service to Honolulu and Maui from Los Angeles so everything we are seeing this area is very encouraging. The second area of growth for us is on our TransCon routes JFK to San Francisco and JFK to Los Angeles saw Virgin Americas capacity to increase to 31% and 22% respectively but despite this growth these markets actually outperformed the rest of the network on year-over-year PRASM.
Additionally we saw impressive performance on our newer routes with revenue increasing on flat capacity so much so that similar PRASM performance charged JFK markets which are amongst our most profitable. Sturdy area of growth was amongst our west routes as David said they performed very well this quarter with PRASM up 5% on 12% capacity growth. San Francisco to Los Angeles is the fourth largest market in the country and by far the largest O&D market on the west coast. We are well positioned and now hold the number one revenue share position in this important anchor west coast market.
With respect to the network as is the case with the rest of the industry we continues to see very aggressive pricing strategies by legacy carriers on ULCC routes. And this is having a continued impact on both business and leisure fares in our network and is dragging PRASM down. Finally Q1 ancillary revenue grew 12% on 16% more cases. Baggage revenue dropped due relatively high growth in guests from international partners which as you know have a free baggage allowance. Last quarter you may recall we were implementing backend system changes using our new EMD capability. That allowed us to begin selling a number of new Ala Carte and bundled product offerings on our website.
While it's still a bit too early to comment on the net revenue impact of these changes I am pleased to report that in the product areas we remained pricing and merchandising changes revenues progressed in the first four months after implementation increased 3% or 64% per guest compared to the prior four months trends.
With that I will turn the call overt to peter to discuss our financial in more details. Thank you very much.
Thank you john and thanks to everyone for joining us this morning on the line. I want to join David and John in congratulating all of our team mates for yet another quarter of exceptional performance. We are going to start with our more detailed run through of our results. This morning we reported net income excluding special items for the first quarter of 2016 of $18.4 million which is a year-over-year increase of 75% when nearly $8 million compare do the first quarter of 2015 and on the GAAP basis our net income was $17.5 million with the difference attributable to special items primarily related to the proposed merger with the Alaska Air group.
Just as a reminder we have released our differed tax evaluation year end in the first quarter 2015 we did not record a provision for income taxes so pretax income is a more appropriate basis to compare our results year-over-year and pretax income of special items of $29.4 million in the first quarter of 2016 increased by 171% year-over-year.
Total revenue for the first quarter increased 11.5% to $364 million and passenger revenue was also up 11.5% driven by a 15.8% increase in capacity and a 3.8% decrease in PRASM. The increase in total revenue when combined significantly lowered fuel cost and solid non-field unit cost control resulted in operating income adjusted for special items of $33.2 million. This is a 153% increase or $20 million from the first quarter of 2015. Our operating margin excluding special items was 9.1% which is a year-over-year increase of 5.1 points and our highest ever for the first quarter period.
Our total CASM adjusted for special items decreased 8.8% compare to the first quarter of 2015 and this decrease was primarily driven by lower fuel cost. Our economic fuel cost per gallon excluding special items was inclusive of taxes and hedges, decreased approximately 26% year over year to $1.57 a gallon. Special insulated fuel included an aggregated $400,000 of fuel hedging costs and fuel taxes that don't related to our fuel consumption in our first quarter. Our CASM excluding fuel specialized in profit sharing for the quarter increased just 1.8% year over year to $7.96 and this came in better than our guidance of our increase of 2% to 3% as we benefitted from improved cost discipline and slightly higher than expected capacity in the quarter.
Our net other non-operating expense increased by $1.5 million to a total of $3.8 million for the quarter. This is primarily due to the additional interest expense related to our new aircraft deliveries in 2015 and the first quarter of 2016. Finally our fully diluted earnings per share were adjusted for special items was $0.41 which was an increase of 71% from the $0.24 we reported in the first quarter of 2015. On a GAAP basis our fully diluted EPS was $0.39. Turning the cash flow, our operating cash flow for the quarter was $98.3 million.
This is primarily a result of our strong underlying bench of performance and the build of cash flow from advance sales from the spring of summer travel season. As a result of eliminating our cold back requirements last year we now fully benefit in our seasonal increase in cash flow from advanced sales. Cash used in investing activities during the quarter was $98.6 million and this is primarily for the acquisition of two aircraft that were delivered during the quarter and cash generated from financing activities consisted of a net $69.7 million which includes $87 million in borrowings for our two aircraft deliveries.
Resulted in a quarter end cash balance of $563 million as I wrap up our prepared comments I would like to build up on David's comments about the success of virgin America. Despite many industry challenges in our first two years of operations we built an amazing airline that has had much financial success. We have been solidly profitable for the past two years with the improved year-over-year financial results for every quarter dating back to the fourth quarter of 2012. And then we have earned a re tax return on invested capital that is better than the industry average.
In 2015 our pretax ROIC was 17.9% and I would like to reiterate how gratified we are the value we created for our shareholders, guests and team mates was recognized with the transaction with the Alaska Air group and with that I will turn the call back to operator to open up for questions.
[Operator Instructions] Our first question comes from the line of Savi Syth from Raymond James.
I appreciate the color on West Coast unit revenue standpoint and I was wondering if you could provide similar color on the TransCon and maybe Dallas and just curious with the fare in mind, I know you said, I am trying to understand perhaps on the business side of the business any softness that's going to lead into air pressure or it doesn't seem to be supported?
Yes, this is David Savi thanks the markets are behaving pretty much how we expected them to. The GDP numbers that came out on the first quarter were little softer than people expected it and our demand tends to move in line with GDP. Of course capacity is up which will have the opposite effect on PRASM. I think the one thing we see which has been mentioned on earlier calls is a break down in advanced purchase rules.
In fact that while demand is perhaps okay but not robust. The key thing is they are not able to buy into lower fares with lower advanced purchases. So the biggest impact we see on the fare environment is in the 0-7 or 0-6 in sets of 14 days as we look at the industry. And that is primarily result of the relaxation of the advanced purchase rules.
Got it. Could you provide what the revenues were in some of the other regions?
John you want to give us a little on that?
Yes, other than the regions of growth that I described we had basically in unit revenues driven by mostly yield declines because it was a result of these lower advanced purchased rates so we saw improvements in Dallas area on a year-over-year basis but the drops are starting to mature but we also saw some decline in markets like Chicago and Washington and Boston.
I would suggest on Dallas, we have seen year-over-year improvement but there are still levels that are unacceptable in our opinion so we are not going back to the year-over-year comparison and the market does seem to be stabilizing I would say.
Alright, very helpful and David may I ask just on thinking a little bit longer term you seem one of the competitors rolled out more premium product and is kind of adding in a lot of market and maybe that is what you saw some time back and you need that premium product in the market addressing. With everybody adding more premium services on to the flight, are you actually able to monetize that or does it go being a differentiator to something that' expected and therefore overtime comes precious margins?
I think its supply and demand and is pretty simple. I think if there is more supply out there for people premium passengers and if it is in the form of more such products they are generally chasing the same demand you lower the pricing as we have seen in some other markets so from our perspective the first class was always a profitable product in mini markets are most profitable. The place we saw some good benefit was in premium economy what we called premium select and seems to be where a lot of carriers are starting to expand and we are seeing a little bit of pricing pressure on that sector from the expansion but it's a profitable part of the cabin so we understand why we are doing it so certainly more supply in that part of the area will bring down pricing.
Alright, thank you.
Thank you. Our next question comes from the line of Michael Langenberg from Deutsche Bank, your question please.
Yes, couple of questions here. David you have made a strong case on why the merger should go through and we are in complete agreement although sometimes in reality with respect to the DOJ you could have a situation where maybe a philosophical agenda gets in the way of facts and it may actually be a longer process but I think what we hope for. That said there are things that may be permissible between you and Alaska. Things you can do, whether it's frequent flyer or a process to the club room access, code sharing, are these some of the things that you have started to work on and could we see something like a code share ramp up within the next few months?
Yes, we are not planning on doing anything on the marketing side or the revenue side and we are going to respect the process of the DOJ is going through and until such time we are going to have no conversations on that side. But you made the key point at the beginning Michael is that this merger after the combination is about 6% domestic capacity that we have less than 7% of our network over lapse with Alaska so this is exactly what the justice department should want to go and create a competitor that even after the competition we would be roughly a third of the size of the fourth largest carrier.
It is a good point and then a second question, the team talked about new work and how that has done very well and PRASM is on par with JFK, in the past Newark has been an issue but now I believe you are leasing slots from another carrier to provide the six daily flights, any thoughts about taking advantage of the fact that you do have access to 2 gates and you can do a lot more than six daily departures from 2 gates.
Thoughts on potentially doing something there and I would just add Jet Blue out of few hours ago, they have 3 gates and they are now moving to 30 departures so they are now at least indicating to us that they are able to do 10 departures a day per gate so thoughts on that, opportunities there, care to comment?
Yes, so we have three flights a day from San Francisco, 3 flights a day from LA into Newark. Where we have been since 2012 when we started the service and we have been trying ever since to increase that. We are flying a fourth LA during the summer because we got a new slot. We have requested additional capacity from the FAA prior to the slot expiration which was denied therefore I can expect that you can see some plans to expand in Newark probably starting as early as the winter season. Because it is a place we wanted to expand for a while but there is a process we need to go through as a Tier II airport and we are in the middle of that process now.
Great, thank you. Good results, good luck with everything.
Our next question comes from the line of Hunter Keay from Wolfe Research, your question please?
Hi, so David looks like TRASM has declined at the same rate as PRASM, I figured it could do better than that? Was something going on there? Would you still expect other revenue to roll faster than ASM for sure?
Yes, I would let John McCloud take this. In general I would say we are happy with the way the automation is going in but there is some unusual things going on with our traffic mix that maybe John McCloud can talk about.
Yes, good morning Hunter. We were in our first full month of flown revenue from the changes we have made an part of the technology that we have implemented has enabled us to actually vary and change the prices for the different ancillary products we are offering and as we get the results we will be making changes to optimize the revenue that comes from these and other part of couple of GDS is on the travel day they are still developing the capability to sell some of these ancillary items and as those come online it will increase demand for our product.
And one other point I will make is we are accepting more and more international traffic onto our network, you don't have the feeder network and we don't have the scale of the other guys. We go looking for traffic anywhere we can find it. This traffic is not paid for bags so it has a negative revenue on baggage revenue so in general what we say is in the early months we are happy the way things are going with the automation. It certainly is helping offset some of the baggage reduction due to international airline.
That's helpful and what can you tell us about your customer, demographics and also how do you measure loyalty quantitatively? Thank you very much
As compared with the rest of the industry our demographics is a little bit younger and a little bit richer, higher net income. The west coast markets as well as New York and others. We are slightly more female percentage wise in the rest of the industry so nothing that really is in extreme difference. A lot of it is just a factor of the markets we serve. I am sorry what was the second question?
Yes, about repeat business and customer loyalties.
Yes, so roughly half of our revenue comes from people that are in our loyalty program, I think that stacks up about the same as different carriers. What's different about us is our percent of active numbers. Also roughly half of our members are active meaning they generate a slight activity in the last 18 months which is significantly higher than the numbers off the quarter by other airlines. We have a smaller frequent flyer program but one that is much more engaged.
Thank you. Our next question comes from the line of Joseph DeNardi from Stifel, your question please.
Thanks very much, David we would agree with you that by all quantitative measures the deal makes but there is a political component to it, I am just wondering if you could talk about maybe on the local government level where do you think support lies? Have you heard any pushback, any supportive comments? Just any color there will be helpful.
The local government of the Bay Area, LA, and California have been very supportive. On one hand, we seems to be losing the only airline based in the state. On the other hand they get the economic realities that things are good right now, everything is good in the industry. We are in a very stable and profitable position but things can also change and given the competitive environment that we have out there with the concentration. The question is what happens in the next downturn so they understand the realities that wanting to have a hometown airline is important but not as important as making sure that the product and the service is maintained so they have said all the right things and have been supportive since Day 1 and my expectation is if we need them they will supportive in Washington of this merger.
Okay. That's helpful and on your comments around the breakdown and the advance purchase rules, if you could provide more color on that? Is it a structural issue, what's driving the function of overcapacity, your opinion on that?
It's less a function of overcapacity because capacity is what it is and I think it is pure delusion when you start looking at the breakdown of 0-6 and 7-13 day windows. The yields in these areas are down industry wide in the call up and mid changes and that is less a capacity as I said it is what it is. It is more the fact that to fill the particular need to match the low cost carriers and the ULCC who cannot have these restrictions so it's more of a competitive reaction to more of a supply and demand reaction.
Okay great thank you.
Our next question comes from the line of Helane Becker from Cowen & Company, your question please.
Thank you guys for the time. I don't tend to fly your product from the west coast that often because I don't live out there but I have heard that you are offering a really great product to Honolulu and Hawaii from the Bay Area and I assume by adding service from LA it's been successful so if you could talk about your market share, how that is coming and the success rate on the flights are, how they have developed?
Good morning, we measure our market share every week and it is tracking ahead of capacity every week but that's typical for performance in most of our markets. The component of Hawaii that's really interesting is that most of the vast majority of our guests originate in California and travel from California but this is a great redemption opportunity for them. Starting Hawaii has helped us grow our frequent flyer base but has also because the base is here in California, we got to maturity very quickly in this route. As we look forward to continue to outperform capacity share on Hawaii and we are very pleased with the yields that we are seeing coming in for the next quarter.
Yes, one nice thing about the market is it's one of the few sectors we have where capacity is down year-over-year so that's been really supportive for the environment.
Great. And can you just say how many aircrafts there will be in the fleet at the end of the year or how many you are keeping over the next few months maybe?
We should be 63 by the end of the year. we have got most of those actually in service and all 63 should be in service by summer.
Yes, this is Peter, We have aircraft 61 delivered in April and is being modified right now and 62 and 63 will be delivered in June and by the end of July all 63 aircraft will be in service.
Okay great thank you very much.
Thank you. Our next question comes from the line of Dan McKenzie from Buckingham Research.
Good morning guys, in opening remarks you gauged a capacity constraint at the airport, could you talk about the need versus availability, in the past I have sited Chicago as problematic so from a gate perspective that you want to serve in the market from a business plan perspective.
One point I want to make is that this merger between our companies does not solve the gate constraint or capacity constraint. That's something that we hope the administration in Washington continues to look at but simply Alaska has never been able to get significant penetration in the east coast simply due to lack of slots and gates so this does not solve that problem. I think the main thing it does is put a more able competitor in there with limited number of slots in gates that we bring to the marketplace.
This is a problem becoming in more and more airports. It has the big roads going to these airports instead of planning the real estate they can move a lot of the capacity so you know how LA is a superiorly gate constrained airport in addition to Chicago you have already mentioned and in New York airports so this merger doesn't really solve that problem. I think it's going to take greater action from both local port authorities as well as folks at Washington to pry open these airports.
Understood, and if you could talk more about corporate travel spend, what the puts and takes are in the LA and San Francisco markets?
In the San Francisco Silicon valley area where we are well trenched with the tech companies, spenders of financial services and that's mostly because financial services companies are working more closely and there is more demand for their services in Silicon Valley. So the growth there has been quite phenomenal in the first quarter and the growth in 10 corporate accounts is 27% in Q1 as compared to the industry as a whole for us at 3%. So it is strictly strong here in airports.
And can you show any perspective on LA as well?
Less corporate business for us there and more entertainment business and relatively flat and share continues to be quite close to our capacity share.
And can I squeeze one final one? What percent of the ASMs are exposed to the ULCC in the second half of the quarter versus year ago?
It's still a pretty low number. If you look at the fact that 60% or so of our ASMs are on TransCon against our ULCC competition and that gives you an indication that's lower than other carriers.
We have seen Fort Lauderdale come under pressure from pricing in Miami so that's a new addition to ULCC impact.
Understood thanks for the time guys.
Our next question comes from the line of Jamie Baker [ph], your question please.
Good morning gentleman, I am curious if you have been having any discussions with the port authority here in New York regarding the LaGuardia perimeter rule. Obviously in a post-merger environment it isn't clear whether you'd want to spread the pro forma footprint overall through the airports or potentially consolidate that with LaGuardia, any thoughts on that?
Yes, I can give you our thoughts on it and our thoughts have always been we are 100% behind relaxing any natural constraint on capacity and LaGuardia perimeter rule isn't a natural constraint, probably outdated. There are aircraft that can serve things which they couldn't before. The problem we have is with terminal access. All we are doing are relaxing the perimeter rule without creating terminal access for carriers like Virgin America.
It is essentially we are creating another competitive, in this case, primarily for Delta and American Airlines, so our view has been to relax the rule and do what we have to settle these for carriers like Virgin America and other LCC to go in and provide the competition. Then at that point is certainly a preferred airport to JFK and you would see some migration to LaGuardia for TransCon routes.
Okay. I appreciate the color that will do it for me. Thanks.
And this does conclude the question and answer session of today's program and I would like to hand the program back to Stephen.
Thank you everyone. We appreciate your questions and for taking the time today. If you have any further comments or questions please reach out. Thanks.
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