MIAMI – Las Vegas-based ULCC Allegiant Air (G4) showed optimism in its travel recovery outlook after posting profits of US$7m for Q1 2021.
According to an Airline Weekly report, the airline announced its earnings report on that day, with its CEO Maurice Gallagher saying that “we [Allegiant] are stepping on the gas.”
Despite the optimism, this profit was 88% lower than 2019, and it was only possible by expenses being offset by US$92m in federal payroll support funds, with US$98m from the third round of federal funding being added in the second quarter.
Business Model Key to Recovery
Contributing to the positive result is the growing booking curve, as reservations for the latter half of the summer already reaching pre-pandemic levels. Another key element for this process is the airline’s business model.
Allegiant operates an all-domestic, leisure-focused route network in the United States, which it claims is ideally placed to take advantage of the current market situation, in which vacationers, not business travelers, are the most profitable targets for airlines to pursue.
While Allegiant did fly some business travelers prior to the pandemic, it was not its primary target, and its network of relatively infrequent flights to leisure hotspots such as Las Vegas and Orlando, Fla., is not designed for business travelers. Major US leisure markets, such as Las Vegas and Florida are seeing increases in passenger traffic.
Allegiant’s available seat miles (ASMs) grew 3% during the quarter compared with 2019, as it added extra aircraft to its fleet by taking delivery of three used Airbus A320s, growing the fleet to 145 until the end of 2024.
Legacy Carriers and ULCCs
Another key aspect of G4’s growth is the fact that legacy carriers saw their demands for international travel shrink.
Gallagher suggests as per the report that network carriers — American Airlines (AA), Delta Air Lines (UA), and United Airlines (UA) — would be hit with a double blow when the pandemic fades, which is one of the reasons G4 believes it will expand profitably.
For a few years, their company and foreign networks will fail, says Gallagher, and they will be saddled with significant debt. ULCCs such as G4, Frontier (F9), and Spirit (NK) will benefit from this.
As for the new low-cost competitors Avelo and Breeze, which is scheduled to start later this year, G4’s CEO doesn’t see those as a concern. In regards to the future, Gallagher said that he is “extremely excited,” despite an expectation of revenue being down between 6-10 percent from 2019, and capacity to be up between 2-6% in the second quarter.
In a press release today, G4 announced it has started a public offering of 1,350,000 shares of its common stock underwritten by a bank (the “Shares” and such offering the “Offering”). Allegiant intends to give the Offering’s underwriters a 30-day option to buy up to 202,500 additional Shares.
Allegiant intends to use the net proceeds of the Offering for airline growth opportunities and general corporate purposes, including aircraft acquisition and debt reduction. Barclays and Morgan Stanley are acting as underwriters for the Offering.
Featured image: ALLEGIANT AIR N258NV AIRBUS A320-214. Photo: Otto Kirchof/Airways