June 30, 2013

Allegiant Air a small wonder of airline world

Rather than compete with major carriers, the airline uses its marketing muscles to convince people in small cities, like Bangor, to fly to sunny vacation spots.

By SCOTT MAYEROWITZ The Associated Press

(Continued from page 2)

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An Allegiant Air jetliner flies by the Luxor Resort & Casino after taking off from McCarran International Airport in Las Vegas. While other U.S. airlines have struggled with the ups and downs of the economy and fuel prices, tiny Allegiant Air has been profitable for 10 straight years.

Photos by The Associated Press

Chris Killian
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Allegiant Air flight attendant Chris Killian prepares passengers for the flight from Las Vegas to Laredo, Texas. The airline has low fares but tacks on many fees.

Additional Photos Below

WHERE ALLEGIANT FLIES

Among Allegiant Air's 87 destinations:

Allentown Pa.; Bangor, Maine; Bentonville, Ark.; Boise, Idaho; Bozeman, Mont.; Casper, Wyo.; Cedar Rapids, Iowa; Duluth, Minn.; Elmira, N.Y.; Eugene, Ore.; Grand Forks, N.D.; Great Falls, Mont.; Greens- boro, N.D.; Huntington, W.Va.; Knoxville, Tenn.; Lansing, Mich.; Laredo, Texas; Maui, Hawaii; McAllen, Texas; Moline, Ill.; Monterey, Calif.; Newport News, Va.; Niagara Falls, N.Y.; Ogden, Utah; Punta Gorda, Fla.; Rapid City, S.D.; Shreveport, La.; Toledo, Ohio; Wichita, Kan.; Youngstown, Ohio.

Like other discount carriers, Allegiant prefers small airports that charge airlines lower rents, even if they aren't the most convenient. In Orlando, that means flying into Sanford, Fla., 30 minutes farther from Walt Disney World than Orlando International Airport.

Frugal decisions like that helped Allegiant post a net profit of $78 million last year on revenue of $909 million. Its 8.6 percent profit margin was the highest of any U.S. airline, making it a darling of Wall Street.

The last five years have been good for airline investors. After a major spike in fuel prices in 2008 and a drop in business travelers, airlines tweaked their business models, adding baggage fees and cutting unprofitable flights. They started to make money and their stock prices climbed. While the S&P 500 climbed 26 percent in the past five years, an index of all U.S. airline stocks has tripled. Allegiant's stock has done even better, increasing more than fivefold to $105.40.

Allegiant has 64 planes and flies to 87 cities, but it's tiny compared with an airline like United, which carried 20 times as many people last year, often on much longer flights.

The airline got its start in 1998 as a charter operation with one airplane. By February the following year, it had started scheduled flights between Fresno, Calif., and Las Vegas.

But its business struggled and less than two years later, it filed for bankruptcy protection. Maurice J. Gallagher, Jr., the airline's major creditor and a founder of ValuJet Airlines, gained control during the reorganization and became CEO. ValuJet was a low-cost carrier that changed its name to AirTran after a 1996 fatal crash in Florida.

Gallagher moved the airline from Fresno to Las Vegas; secured a lucrative contract with Harrah's to provide charter services to its casinos in Laughlin, Nev., and Reno, Nev.; and started to transform Allegiant into a low-cost carrier.

"The model evolved out of survival," said Gallagher, who is still CEO.

By 2003, the airline started turning profits, and it hasn't stopped. Gallagher's nearly 20 percent stake in the airline is now worth more than $380 million.

Allegiant benefits from paying lower salaries and having work rules that are more favorable to management than at most airlines. Flight attendants with 15 years of experience are paid $34 for each hour their plane is in the air -- $10 to $20 less than colleagues at larger carriers. Planes and crews typically end up at their home cities overnight, avoiding hotel rooms.

Wages could eventually shoot up. Pilots, flight attendants and dispatchers have all voted in the past 2½ years to join unions. The company has yet to sign a contract with any of them.

"We've been told several times at the table: If you don't like this job, there's the door," said Debra Petersen-Barber, who has been an Allegiant flight attendant for eight years and is the lead negotiator for the Transport Workers Union of America.

Instead of buying the newest, most expensive planes, the airline buys used, inexpensive jets. Its planes are 23 years old, on average, compared with the industry average of 14 years.

Each used MD-80 costs $3 million, compared with $40 million for a new Boeing 737.

Flying older planes has drawbacks, though. They burn more fuel and have more problems.

And if a mechanical issue forces a plane to be grounded, there usually isn't another flight to book passengers on. Instead, they are left waiting while a new plane is flown in.

In March, one Hawaiian flight was 52 hours late. That's a lot of time to kill at an airport bar.

 

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Additional Photos

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A ground worker guides an incoming Allegiant Air jet at McCarran International Airport in Las Vegas. Allegiant promotes its destinations, rather than itself, to those who seldom fly.

  


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