Transportation:

Allegiant defies aviation convention with 20 percent growth in sight

Ulf Buchholz

Flying high: An Allegiant Air jet takes off from McCarran International Airport. Allegiant opened its doors in Las Vegas in 2001.

By Richard N. Velotta (contact), In Business reporter

Fri, Nov 27, 2009 (3 a.m.)

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Las Vegas-based Allegiant takes flight formula to Los Angeles (3-20-2009)

Allegiant Air

In an industry buffeted by economic turbulence, Las Vegas-based Allegiant Air has found a tail wind, expecting 20 percent growth over the next four to five years.

While most U.S. airlines have been slashing capacity — Phoenix-based US Airways, for example, will cut its existing Las Vegas schedule in half by February — Allegiant is staying true to its successful formula of providing nonstop flights from small cities to resorts.

“A lot of people in Las Vegas really don’t know who we are,” Allegiant CEO Maurice Gallagher told the North Las Vegas Chamber of Commerce last week. “But believe me, they know who we are in Sioux Falls.”

Sioux Falls, S.D., is the type of city where Allegiant thrives, and there are dozens of Sioux Falls that make the airline’s low-frequency, low-fare, high-incremental-income strategy work.

The average fare on an Allegiant flight is a little over $67. Add to that the average incremental fees customers request — from checked bags and a choice of seats to snacks and soft drinks on the flight — of $33 and most customers end up paying about $100 a flight one way, a bargain in today’s market.

Allegiant sweetens the deal further with an array of package deals with local resorts that ultimately cut the cost of a stay in Las Vegas.

Gallagher said Allegiant’s capacity is up 23 percent through this year’s third quarter over the previous year. Allegiant opened its doors in Las Vegas in 2001 with flights between Las Vegas and Fresno and Colorado Springs. By the end of 2004, the airline was flying 13 routes to 14 cities. Today, it flies to 69 cities — one more than Southwest Airlines — and has 127 routes on 44 twin-engine MD-80 jets.

“And we think there are 30 or 40 more (cities) out there where this will work for us,” Gallagher said.

He said Allegiant usually starts small, but with a big splash, on low fares on any new route and then gauges booking patterns to determine if more flights are warranted. Usually, Allegiant offers most of its inbound turnaround flights to resort cities on Thursdays and Fridays and outbound returns on Sundays and Mondays.

That leaves Tuesdays and Wednesdays to perform maintenance on planes and Saturdays to pursue lucrative charter operations along with a lighter schedule.

“When we go into some of these small cities, it’s usually front-page news,” Gallagher said. “After we first announce service, we’ll go in with showgirls and Elvis impersonators and it gets a lot of attention.”

In many cities, Allegiant is the only airline offering flights, guaranteeing community buzz. But that isn’t always the case.

“Other airlines see us as an annoyance, not a threat,” Gallagher said. “In most cases, our customer is not their customer.”

But Northwest Airlines didn’t see it that way in some cities where Allegiant hoisted its flag.

“I found out through some other contacts that Northwest referred to us as cockroaches,” Gallagher said. “When (it) tried to compete with our fares, (Northwest) really couldn’t sustain that over a long period of time.”

Once Allegiant was entrenched with its business model in Las Vegas, it branched out to offer the same formula from other resort cities — Orlando, Fort Lauderdale and St. Petersburg, Fla.; Mesa, Ariz.; and, earlier this year, Los Angeles.

The airline has been able to cut some costs by using alternative airports. It flies to Orlando’s Sanford airport, which accommodates a number of international charter operations, instead of Orlando International Airport. St. Petersburg is across Tampa Bay from Tampa International Airport. And, Mesa is southeast of Phoenix’s Sky Harbor International Airport.

But Allegiant broke from that pattern in Los Angeles, using busy Los Angeles International instead of one of Southern California’s suburban airports.

But just because Allegiant gains an economic advantage by using smaller airports, locals don’t have to fear the airline will turn to the North Las Vegas Airport as an alternative.

The runways there aren’t long enough to accommodate the airline’s jets, and it makes no sense in upsetting neighbors with a noisy fleet, Gallagher said.

Allegiant’s low-fare, low-frequency model assures that most of its flights are full, boosting profitability. Gallagher said the airline has been profitable for the last 27 quarters, and it has more cash on hand ($222 million) than debt ($55 million).

Most of the airline’s jets are owned outright, and Gallagher is constantly in the market for more aircraft to expand routes and capacity.

“Something I tell my employees all the time is that all good comes from profit,” he said.

And that’s something that most airline CEOs can only dream about.

Discussion: 3 comments so far…

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By homer

Nov. 28, 2009

9:33 a.m.

Suggest removal

I just had an experience with Allegiant this week. The fares were reasonable considering the markets they serve and other airlines won't. I purchased 'Trip Flex', a form of trip cancellation and flight change insurance for three family members to visit Las Vegas from the midwest. While these family members were in Las Vegas it was learned another family member was coming home from Iraq and a request was made for a later returning flight home for two of the family members that were here so they could see the returning military member. After consulting with my family members at their hotel I called back to request a trip change for two of the three family members. I was told that only one family members name was in the notes from the conversation with the original resevation specialist and I must purchase a new ticket for one family member and forfeit the purchase price of the original ticket for the family member in question. When I asked to speak with a supervisor ( a lead person in this case) I was told lead people are prohibited from speaking to customers and someone would contact me in forty-eight hours although the flight in question left the next day. All of this with my purchase of 'Trip Flex' on every ticket.
I have never encountered a business where a supervisor could not be reached when communications failed with a line employee. It is now seven days after the flight cahnge was requested and the problems encountered and I have not recieved any contact from anyone at Allegiant even though I have made three different requests to have someone contact me.
Keep in mind if youi purchase 'Trip Flex' it is of little value in the end, if you miss a flight you lose the money paid and do not get a credit as with other airlines. Buyer beware.
By wizardofOz

Nov. 28, 2009

2:33 p.m.

Suggest removal

Word to the wise international traveler:

Ask the carrier that you may want to travel on if they have

"INTERLINE AGREEMENTS".

That's an important term. Otherwise, you may end up having to get your luggage from baggage claim, and then re-check it in manually, yourself, with another carrier.

That el-cheapo fare you bought may be costing you more in time and convenience than it's worth.

Always factor in time. Time is your money.

One more item, some of the "suburban" airports may not be known for their food selections, if any at all, during very early and very late hours.

FLY SAFE.
By geenab65

Nov. 29, 2009

8:22 p.m.

Suggest removal

Homer, I've used this tactic more than once. Find the CEO and CFO (in this case, Maurice J. Gallagher, Jr is the Chairman and Chief Executive Officer and Andrew C. Levy, is the President and Chief Financial Officer). Write a letter reminding these two gentlemen that in this economic time, you chose their airline to fly. Also remind them that it's a good idea to attract new customers, a good idea to retain customers and that ignoring and isolating customers is not a sound revenue generating business move. You'd be surprised at quickly you get a "resolution".