Photo credit: Allegiant aircraft taking off Allegiant
Three months ago, Allegiant Air CEO Maurice Gallagher looked at the year ahead and said “We believe it’s time to step on the gas.” That time has clearly come.
The carrier announced its first quarter 2021 earnings results on Tuesday. Gallagher’s retort now: “We’re stepping on the gas.”
Allegiant operates an all-domestic U.S., leisure-focused route network, one it believes is uniquely positioned to take advantage of the current moment, when the most lucrative markets airlines have to chase is vacationers, not business travelers. Although Allegiant did fly some business travelers before the pandemic, they were not its focus, and its network of relatively infrequent flights to leisure hotspots like its home market of Las Vegas or Orlando, Fla., is not optimized for business travelers.
“We are fortunate to be a domestic leisure carrier,” Gallagher told analysts on Tuesday. “Leisure is king right now.” Las Vegas is beginning to rebound, as are all vacation markets in Florida. Allegiant’s cities in the Mountain West that serve as access points to national parks like Yellowstone also have performed well, a trend Gallagher expects will continue through the summer.
The booking curve — or the length of time between booking a ticket and travel — is growing, signaling rising consumer confidence. Bookings for the latter half of the summer are about where they were during the same period in 2019, before the pandemic.
While the network airlines have shrunk as their business-travel and international franchises remain idled, Allegiant is growing. Its available seat miles (ASMs) grew by 3 percent during the quarter compared with 2019, partially a function of having more aircraft. Allegiant took delivery of three used Airbus A320s in the quarter and plans to grow from 108 aircraft at the end of this year to 145 by the end of 2024. Although Allegiant executives are confident the airline could grow faster than this — which works out to about 10 percent annually through 2024 — they plan to stick to this more measured approach. “The race always goes to the tortoise,” Gallagher said.
Part of the reason Allegiant thinks it can grow profitably is that Gallagher believes the network carriers — American Airlines, Delta Air Lines, and United Airlines — will be hit with a double blow as the pandemic recedes. Their business and international networks will struggle for a few years, and they will have large amounts of debt to pay down. This presents opportunities for ultra-low-cost carriers, like Allegiant, Frontier, and Spirit.
New entrants like David Neeleman’s Breeze, slated to launch later this year, and Andrew Levy‘s Avelo, which started flying last month, are less of a concern. Andrew Levy was an Allegiant executive, which prompted Gallagher to remark, “We know each other, and he certainly knows how to do what we do.” But Neeleman’s Breeze, which will start flying with Embraer jets and eventually Airbus A220s, is not as much of a threat, because of the size of its aircraft and its plan to operate longer, thin routes. Allegiant, by contrast, flies larger A320s on shorter routes. “Those airlines don’t have a brand,” Allegiant President John Redmond said.
The time is right to buy older A320s, Gallagher said. As airlines around the world downsize their fleets, Allegiant is able to buy used A320s for about 30 percent less than they did before the pandemic. Similarly, spare parts — usually a cost center for airlines — are available at a 50 percent discount. The carrier is being “opportunistic” in its aircraft and parts procurement, he said.
Allegiant had slowed down work on its Sunseeker Florida resort, but hopes to restart the project by the end of the year, Redmond said.
“I’m extremely excited about our future,” Gallagher said. “We’re back.” But despite the optimism, the carrier eked out a bare profit of just under $7 million in the quarter, or 88 percent lower than 2019. This profit was due in large part to expenses being offset by $92 million in federal payroll support funds. Allegiant expects to take a further $98 million from the third round of federal payroll support in the second quarter. Revenues were down $279 million, up 13 percent from the fourth quarter of last year.
In the second quarter, Allegiant expects revenues to be down between 6-10 percent from 2019, and capacity to be up between 2-6 percent.