Considering everything that is going on (and even if we were in a boom time, frankly), Allegiant posted another great quarter last week (you can see details here – thanks Centre for Pacific Aviation). Compare this to the pathetic results posted elsewhere:
Revenue up 12%, Operating Costs down 13%, a nearly $24 million profit on $148 million in revenue. $.107 RASM, $.075 CASM (revenues vs. costs per available seat mile). Those are extremely impressive.
Those who don’t follow Allegiant mock them for their old MD-80s and penchant for flying to 3rd and 4th-tier cities. Ha ha, the joke is on you. Sure, 9 flights a day from New York to London is far sexier than flying 3x a week from McAllen to Las Vegas. But who cares – they’re running a travel products company, not an airline.
What do I mean? They fly in the face of every convention. No connecting flights. Few cities have daily service, let alone multiple flights a day. 30% of their operating revenue comes from ancillary products. If roughly 1/3 of your revenue does not come from fares, you’re really a travel product seller. Which is what they are. In addition to the assorted fees you’ll pay when you fly, they sell a significant number of hotel rooms and event tickets in the leisure markets they serve.
Their own nearly all of their fleet of older MD-80s, and they can acquire them for about $4 million. Yes, when fuel prices are sky-high that has a bit of an impact. But the good FAR outweighs the bad, as it gives them enormous flexibility to keep utilization low and take aircraft out of service if they can’t be used profitably. That last piece is important, because no airline is as flexible as Allegiant – if a route isn’t working, they’ll drop the service and try something else. They can do this in part because they aren’t making extremely costly lease payments on new aircraft.
They also made the decision to diversify from their Las Vegas focus about two years ago. This coincided nicely with the drop in business to Vegas. While 37 of their 105 routes went to Vegas at the end of 2007, now its 41 out of 134.
This isn’t exactly a model for other airlines, but it’s amazing to see a company run an airline as efficiently as they do.