Allegiant Travel: Take the A Plane
As an airline company in a small-market niche, Allegiant Travel Co. (Nasdaq:ALGT) is profiting as others suffer the industry’s woes. Through a focus on managing capacity, Allegiant is spreading its wings despite a rough economy and high jet fuel costs.
Based in Las Vegas, Nevada, Allegiant specializes in linking passengers from small cities to leisure spots in the United States. It serves 68 cities on 113 routes, having added 19 new routes since August. Allegiant sells stand-alone air travel or ties packages together with hotel rooms, rental cars and other travel-related services.
Allegiant is eliminating competitors like a B-52 shooting down a flock of whirlybirds. In 2007, rivals competed on nine routes; now, that number should be one (there’s a choice for you from Las Vegas to Fresno). By eliminating others from their modest routes, Allegiant gets more and more opportunities to grow. Some opposing airlines have gone bankrupt: ATA and Aloha, and others, including Midwest, are restructuring.
Fuel prices have been a burden this year, but Allegiant still is expected to post 2008 earnings of $1.23 per share, below last year’s $1.50. Revenues are expected at $506 million, up 40% from the previous year. The airline of obscure routes intends to see 15% to 20% compound annual growth for the next five years.
To overcome the dragging economy and costly fuel, Allegiant has cut back on long-haul flights, reduced capacity in select markets and concentrated on raising its load factor, a measurement of capacity utilization. Allegiant has done a fine job: its load factor reached an industry leading 93.8% in the third quarter through September, up 7.6% year over year. It has been No. 1 in load factor of domestic airlines in each quarter of 2008 so far.
Profits, too, nearly doubled sequentially in the third quarter, as corresponding fare increases helped operating margins. Underscoring management’s success, operating margins increased to 7%, compared with 3.6% in the second quarter. Compared with the previous year, though, Allegiant’s earnings were sliced by fuel costs to $0.24 per share, down from $0.34. Allegiant had no fuel hedges through the third quarter and had none at the quarter’s end in September.
Allegiant’s financial performance is reflected in its share price, which is up 14.3% year to date, compared with losses in other airline shares, including at 7.9% drop in Southwest Airlines (NYSE:LUV) and a 36% decline in Delta Airlines (NYSE:DAL).
Shares closed Thursday at $36.74 each, not far from their 52-week high set a year ago at $38.74. Market capitalization is $746 million.
The company, with a solid cash position and balance sheet, has already paid for a lot of its expected growth in 2009 by buying with cash six aircraft earlier this year, bringing its total flying fleet to 43 aircraft. With continued strategic success, Allegiant will be flying high next year too.
About the Author
Contributing author Jennifer Allen has two decades of experience as a writer and editor, mainly as a financial wire service correspondent.
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Oct 31 01:12pm
The following analogy quoted from the article, is perhaps the lamest analogy I have ever heard: "Allegiant is eliminating competitors like a B-52 shooting down a flock of whirlybirds."
The author says she has "two decades of experience as a writer and editor". Well I guess she didn’t spend two minutes to develop the analogy.
Back to the analogy. First, Allegiant is not "eliminating the competitors". The economy, oil prices, poor management are among the factors that have caused other airlines to scale back or withdraw. Second, B-52's don't "shoot down" anything, they drop bombs. And finally, what is a "whirly bird"? Any analogy about the airline industry that has one airplane "shooting down" another airplane is just in poor taste.
Accordingly, I didn't bother to read of the rest of article.
(click a star)
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