Allegiant profit declines in second quarter

By Richard N. Velotta

Wednesday, July 21, 2010 | 1:25 p.m.

+ By passenger volume, Allegiant is the No. 7 carrier at McCarran International Airport.

+ Allegiant paid a 75-cent dividend June 1 to stockholders of record as of May 14.

- Allegiant now serves 69 cities, two fewer than at the end of June 2009. It has 40 Las Vegas routes compared with 41 a year earlier.

+ The company reported a 52-week stock price high of $58.21 on March 24.

+ July 20 stock price: $46.15.

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Las Vegas-based Allegiant Travel Co., the parent company of Allegiant Air, reported its 30th straight profitable quarter, but earnings were off more than 25 percent from what they were a year ago.

The airline, which specializes in delivering passengers from small cities across the United States to 11 leisure destinations including Las Vegas, reported earnings of $17.6 million, 87 cents a share, on revenue of $168.4 million in the quarter that ended June 30. In the same quarter a year earlier, Allegiant reported earnings of $23.9 million, $1.17 a share, on revenue of $148 million.

Allegiant flies to 69 cities and has 40 Las Vegas routes, ranking as the seventh busiest air carrier at McCarran International Airport. The airline says it will begin flights to and from Hawaii by mid-2011, but details of the new service on six Boeing 757 jets the airline is acquiring are still under wraps.

Allegiant Chairman and CEO Maurice Gallagher said in a telephone interview today that Allegiant has yet to determine which markets would work best for the Hawaii service.

“If you take a look at the West Coast and from the Rockies west, there are lots of opportunities to fly,” Gallagher said. “Las Vegas is in the mix, but I don’t think we’d start with Las Vegas service because there are already existing nonstops between here and there.”

Gallagher said in general, Allegiant hires about 35 employees for every plane in the fleet so the six Boeing 757 jet additions would result in more than 200 new jobs, some in Las Vegas and others in Hawaii and the mainland connecting cities.

Allegiant officials also said in a conference call today with aviation analysts that the company is slightly behind schedule for inaugurating service between Hawaii and the U.S. mainland. The company is in the process of getting operating certificates from the Federal Aviation Administration to fly over water with the new jets.

Allegiant President Andrew Levy said he expected there would be additional costs for adding the larger-capacity Boeing 757 jets to the fleet and in beefing up the company’s sales database in the next two quarters. The 757 rollout would be slow as the airline works toward over-water certification and the process of hiring and training the ground crew, pilots and flight attendants to handle the Hawaii flights.

Gallagher said the response in Hawaii has been good.

“They’re very receptive to anybody who’s willing to bring more visitors to their part of the world,” he said. “What’s exciting for them is that we’ll be adding some markets not currently served. It will stimulate new traffic for them.”

Hawaii also is expected to be a great third-party ancillary market for Allegiant, which has hotel and rental-car agreements in place in the leisure destinations the airline currently serves.

Levy said the company has high hopes for Hawaii to be like Las Vegas in terms of hotel-room sales and like Florida for rental-car sales production.

In today’s conference call, Allegiant executives also said higher fuel costs prevented the airline from being more profitable because revenue did not match 36 percent higher fuel costs since the second quarter of 2009.

The airline observed a milestone in June, acquiring its 50th aircraft. Allegiant now plans to operate 51 twin-engine MD-80 jets by the end of the year, one more than currently operated and one less than what originally was planned.

Gallagher said the airline is micromanaging its capacity by continually optimizing its schedule. That means the company is making a better effort to keep planes full and for the rest of the year, growth will be achieved by “connecting the dots” between cities currently served but adding fewer additional flights on current routes.

For the quarter, Allegiant had a 91.8 percent load factor – the percentage of paying passengers on flights – 1 percentage point higher than in the second quarter of 2009. Combined with a 10.5 percent increase in the average fare, including 14 percent more in ancillary revenue, Allegiant minimized the negative effects of higher fuel prices, which are creeping toward $90 a barrel for crude oil.

“That’s the power of adding an extra 15 passengers per flight,” Gallagher said on the earnings call.

The airline also is in the midst of a computer technology upgrade that will enable customers to buy products and services on the Allegiant website without tying the transaction to a flight purchase when the project is completed in about 18 months.

“Most of the improvements are in the plumbing, but users will see some improvements when we complete the upgrade,” Gallagher said.

Levy also said Allegiant, which currently does not sell rooms and services associated with the Walt Disney Co., is in talks with the Burbank, Calif.-based company to enhance its Orlando presence. Allegiant currently flies 30 routes total to two Orlando airports.

Levy also reiterated the company’s interest in New York as an attractive leisure destination because of its vast hotel market. But he added that for now, Allegiant is content to add flights connecting existing operations and to get the Hawaii service off the ground.