Allegiant Air: What Are They Doing Right?

Following the fourth quarter of 2008, airline industry analysts predicted that most carriers would report losses for that particular quarter. Sure, there would be a few profitable ones – like Southwest and other low-cost carriers, but no one anticipated the big winner of 2008: Allegiant Air. Allegiant Air is wholly owned by Allegiant Travel Company, and is headquartered in Las Vegas. They do not have hubs, but they do manage to comfortably call 7 airports, mostly regional, focus cities. So, what makes them so great?

The airline reported a rise in revenue by 21 percent and saw income make 373 percent jump. Q 4 of 2007 for Allegiant yielded $6.1 million profit, but Q4 of 2008 made it to $28.7 million. That’s quite a jump, considering the high fuel prices of summer 2008. They craftily managed to lower the fuel bill by $10 million and saw ancillary revenue grow from $24.30 a passenger, in Q4 2007, to $32.85 this past quarter. Allegiant earns ancillary revenue through sales of food, beverages, and souvenirs on board; very similar to their investor’s (Ireland’s Ryan family) airline, RyanAir. Pretty remarkable.

“We had an outstanding fourth quarter, leading to a double-digit operating margin for the year,” President and CEO Maurice Gallagher said. “Similar to prior quarters, we had tuned the airline to handle high fuel prices in the fourth quarter, as evidenced by the year-over-year reduction in capacity, and substantial increases in passengers per departure, load factor and total average air fare.”

Allegiant has always been about low-costs; they are Southwest Airlines to a more extreme nature. Allegiant Air operates a business model that focuses on: Flights to airports which have limited or no service from mainline carriers, attracting leisure passengers traveling to seasonal warm-weather destinations, generating ancillary revenues in addition to ticket revenue, and maintaining low operational costs. By low-costs, I mean it – less than $80 round-trip is possible on Allegiant.

They are quick to pull out from an airport if things don’t go their way or better. They don’t have time to sit around and wait for things to get better – if they don’t, Allegiant moves on.  “If we make a profit, we stay. If we’re making a loss, and we can’t see how we’ll ever make a profit, then we leave,” said Robert Ashcroft, vice president of planning for Allegiant.

The model has received criticism from airport management, such as Don Howard from Kinston Regional Airport, who said that Allegiant received 90% load factors at the airport and was received well. The problem for Allegiant at Kinston was ancillary revenue; remember, Allegiant sees $35 spent on average, per passenger, on items other than the airline ticket. The carrier relies on ancillary revenue; the new tool to make money – brilliant!

Going back to load factors, Allegiant reported an 89.7 load factor in Q4 of 2008. Low fares aren’t really effective if you can’t fill the plane, and that’s exactly what they are doing.

The last point I want to touch on is fleet. As of December 2008, Allegiant’s fleet consisted of 40 MD-8X series aircraft; needless to say, that’s not the most fuel efficient selection. Allegiant, once again, was astute. Allegiant has been able to purchase MD-8X outright for about a tenth of the cost of a new Boeing 737. Since ownership costs are low, Allegiant flies their aircraft less, about 6 hours less than other low-cost carriers (7 hours a day), meaning that they don’t have to pay their employees to work as long; probably 1 shift of workers. Once again, Brilliant!

This is America’s RyanAir, but much better; just compare the interior of both airlines and you’ll see what I mean. Allegiant has found a niche that many have thought to be impossible – developing a primarily regional to regional route map successfully. Their footwork of meandering-around and fighting the high costs of fuel, and this recession, has proven Allegiant to be on the road of success. You might not have heard of Allegiant, since they’re not your typical big six carrier, but you should head over to their website and find out if they serve a regional airport near you. And, oh yeah, they’re announcing yet another new destination today – check it out.

– Every Wednesday, you can now find a new “Wing Tip” for flying healthy, comfortably, conveniently, and attaining low-fares. —

Image: stock.xchng