MIAMI — Jude Bricker joined Allegiant in May 2006 as manager of fleet planning. He became the director of fleet planning in 2007 before being promoted to vice president of corporate finance and treasurer in 2010, then senior vice president of planning in 2012.
He was appointed chief operating officer in January 2016, where he oversees all aspects of Allegiant’s flights operations, maintenance and safety, network planning, revenue management and fleet planning. Prior to joining Allegiant, he held various positions with American Airlines and the U.S. Marine Corps.
Bricker spoke with Airways about what Allegiant looks for in cities and airports, the status of its fleet, what its typical passenger looks like and the airline’s goals for the rest of 2016.
Airways: In March, Allegiant announced it was adding 22 nonstop flights, including three new cities. What is the process in deciding on what cities are going to get new flights?
Jude Bricker: We have a network strategy review process that incorporates what our competitors are doing. A lot of the markets we’ve been adding have been back-filling markets deserted by the rest of the industry, like Dayton [Ohio] and Flint [Michigan]. And some of the markets we’ve been adding are markets that have a high level of traffic but no nonstop service in cities like Albuquerque and Austin.
Some of the markets that we have are completely exploratory, [like] Baltimore to Knoxville, which doesn’t have a whole lot of traffic. There’s a ton of traffic from the region in Baltimore, and we think we have a great franchise in Knoxville. I think there’s probably people that want to go there. We just don’t see them on the traffic patterns today, because there’s no nonstop service at low fares. So honestly, we’re doing a lot of stuff that is what we consider experimental. We’re throwing pasta against the wall to what sticks.
The real rigorous part of our process is cutting things that don’t work. I think that’s really refreshing to our airport partners, because we come in, they say ‘hey I think you should try this.’ We’ll say ‘okay, yeah we’ll do that. But if it doesn’t work, we’re not going to do it anymore.’ That’s really good, because most of the conversation that airports have with airlines these day are that no one’s interested in trying anything and they’re just trying to keep what they have.
When you’re looking at airports for service, what are some of the characteristics or features that appeal to you most?
We have not had any success with a city-pair that’s a seven-hour drive alternative. That’s kind of an absolute. We have very few flights, because of the way we schedule our crews, that are longer than four hours. We need to be around 400 miles and up to 1,700 miles, and within that, that’s our range circle that we’re looking at.
We don’t like cities with lots of service, but we’ve had great success in Cincinnati. We like airports that have connectivity to the road network so that it’s convenient for customers. We tend to do a lot better there. We’ve had great success in Concord, North Carolina, which is right on the interstate that runs into Charlotte. That’s because it’s around a large population center, and it’s right on the main interstate, which allows us to attract a lot of people.
Then there’s a lot of markets that are just outliers. There’s nothing that we can say that 100 percent predicts our success in a market. Typically it’s underserved, it has a population that wants to travel, it’s connected to a road network and it’s within our range span. We’re continuing to find new opportunities that we didn’t plan on in the past.
Destin, Florida, is kind of interesting because as a destination, it really wasn’t on our strategy board a year ago. But now we sit here today and we’re flying several markets out of Destin, and the sales look really good. Baltimore Washington International is certainly interesting, because it’s outside of our box, but we’re looking at it both as a way to sell leisure fares into the D.C. area and originate traffic out of the Baltimore area to go to places like Savannah and Asheville, which in and of themselves are leisure destinations.
Most airlines talk market share, offerings around schedule and flow traffic. We don’t think in those terms. I think there’s plenty of travelers out there that don’t have air travel alternatives at low fares and we’re just trying to go out there and find those folks. Often times, that means offering service that has never existed. so there’s no precedent for it. Most airlines schedule around historic data. We use it, but we don’t use it as an absolute.
Allegiant got Boeing 757s and decided to start service to Hawaii. What do you think you went wrong there?
We’re making a lot of money in Hawaii right now, so I wouldn’t consider it having gone wrong. What we’re doing with the 757 fleet is making a decision on the next six years. We bought the 757s about six years ago and all those aircraft are coming up on major investment periods in maintenance. So the way maintenance works, on the heavy maintenance side, is you consume the goodness of the airplane and then every six years or so, you have to put it in the shop and spend an excess of $5 million on each engine.
But there’s a D check on the airframe, which is also due at the same time. We’d have to spend around $50 million on the  fleet. And as we sit here today, we have two Hawaiian markets — Honolulu-Las Vegas and Honolulu-Los Angeles. In our view, those markets will be under pressure going forward, although they’re really good today, based on slower growth in Asia. Hawaiian Airlines is purchasing some Airbus A321neos, which I think will be competitive in those markets.
We have a corporate strategy of simplifying our fleet over this decade. We started the decade with just MD80s. Today we’re at three fleet types. When we end the decade we’d like to be an all-Airbus operator. But the A320 can’t do those [Hawaiian] markets, so maintenance forcing us to make this decision now.
Where are you with the MD80 fleet? When will it be completely gone, and what’s the final fleet going to look like going forward?
Let me use a number of 100 airplanes, because it’s a nice round number. When we get there, it’s going to be driven by the availability of used airplanes and the growth rates that we’d like to do between now and then. So a 100-airplane fleet at Allegiant is an all-Airbus fleet with about two-thirds A320s, and one third A319s. And those are the same type certification, which means pilots can fly either one. That’s the fleet we’re shooting for.
Today, we have a fleet of 85 airplanes. So we have 15 airplanes to buy for growth, and 55 airplanes to buy for replacement. So of those 70 airplanes, we have acquired many of them, but we have another 35 to go. So we’re about halfway there. And I say that because we have 65 total committed A320s. That includes in-service airplanes and planes that we own and lease out to other operators that we intend to operate ourselves when they come back from lease and planes that we’ve committed in the future to purchase.
One of the strengths of Allegiant is the flexibility we have in the network and our fleet. We’re out there constantly buying aircraft in the spot market. So you contrast that with most other carriers, they can go to either Airbus or Boeing, they spend a ton of money and they commit to purchases five to 10 years in the future. They have no idea what the economic conditions will be or what the competitive environment will be when those planes are delivered. I think that’s one of the fundamental problems with the airline industry.
Instead, we go out and we shop for airplanes as we need them. We’re out there shopping right now and we buy airplanes from all over the world. Then we do a bunch of technical standardization initiatives and then we put them into service in really good condition for our passengers.
What do you see as your typical passenger?
There’s not really a typical Allegiant passenger, because we have such a diverse group. Let me draw some contrast between an Allegiant passenger and a typical air traveler. First of all, ours are more of a leisure customer, someone much more likely to be paying with their own money. So much of the revenue generated from a standard U.S. commercial flight is paid for by business customers who are on an expense report. We don’t have that dynamic.
Our customers pay from their own wallets, and so that translates into an incentive for us to offer really low fares and bundle our products. People, because they pay for their own tickets, really like the flexibility that bundled ancillary services allow them. If they don’t want to pay for a bag, they’d still like to have a low airfare.
Also, our customers tend to be older and affluent. We did a study several years ago that showed the average household income of an Allegiant customer and it is six figures. They are retired, and they travel not just for leisure or vacation, but also for visiting friends and relatives. So the incentive for travelers is a little bit different than a business customer.
As Allegiant expands in the larger airports, do you see your business model morphing into more toward the traditional airlines, or are you still firmly in the ultra-low-cost carrier category?
As for morphing, I’d say yes and no. If you think about the progression of network development at Allegiant, we first started out in very small markets going to large destinations that have a lot of cache, like Las Vegas and Orlando. Right now we’re looking at midsize cities to those same destinations. And because of the cache of those markets, we were able to build awareness.
We have closed distribution, so you have to go to Allegiant.com to buy a ticket and know about us, as opposed to going to a travel agent or some kind of aggregator. So we’re able to build a presence because of service to Las Vegas and Orlando, and places like Cincinnati, Indianapolis, Memphis, Raleigh and bigger cities.
The next phase of that is taking those big cities and offering them new leisure destinations that haven’t thus far existed. So you take a look at Cincinnati, which is kind of the model we wanted to export over to our other midsize cities, there’s 14 destinations today. They include New Orleans, Destin, Florida, Savannah, Myrtle Beach, Punta Gorda and Austin, Texas. And many these destinations don’t have any nonstop service. We only serve them twice a week, but no other airline is ever going to be interested in serving those markets.
We’re going to continue to have low levels of competition. It’s been at around 85 percent noncompetitive routes at Allegiant since we went public 10 years ago, and that maintains itself. Because we’re offering a relatively cheap product offering, we can maintain the closed distribution nature of our system. So we’re going to be dependent on [the PR] team to get awareness of our service offerings as we move into new markets, and that’s going to be constant at Allegiant.
So, closed distribution, low frequency product offering and noncompetitive routes — all those characteristics are not changing. We’re still focused on leisure. So it’s evolved, but it hasn’t changed all that much.
What percentage of Allegiant’s revenue is derived from ancillary fees?
It depends on the month, but it’s about 40 percent, or about $50 per customer segment of ancillary revenue. The airfare is averaging around $70. If you want to pay $70, travel in such a way to pay only $70. If you want to have an allocated seat and take a bunch of bags and all those things, then you can do that as well.
There’s a difference between us and most other airlines, even ultra-low-cost carriers. Because of our predominantly leisure customer, we’re able to sell a lot of third-party travel products like car rentals and hotels. We save our customers money by offering them those things at a discount relative to what they can get through other channels.
Your CEO acknowledged that 2015 was a bad summer because of maintenance issues. What has changed in the past year to fix this? And what do you think passengers can expect from Allegiant this summer?
The most significant reliability program we have is the transition over to the Airbus. About half our customers will travel on an Airbus this year, which is the highest percentile it has ever been. So we’re flying more often with a more reliable airplane. That obviously helps those things, particularly in the summer months, because the MD-80 is really stressed in hot months, with cabin temperatures and stress to weight ratio. The Airbus is a much better hot weather aircraft and we’re flying it a lot more often.
We’re coming into this summer with higher staffing levels than last summer and we have more spare airplanes, so I’m cautiously optimistic about this summer. We fly mainly to isolated cities with older airplanes, and we route the airplanes so there’s dependencies, so our reliability is always going to be a little bit challenged. We’re not big Southwest Airlines flying 20 flights a day between Burbank and Oakland. If they have a mechanical problem, it’s not a big deal. They can just reaccommodate passengers and move on.
We don’t have those opportunities. So when an airplane has a mechanical issue in an out station, it causes extended problems. We have to call out maintenance that doesn’t live there. There’s a reason that those areas are isolated and a reason why we’re there. So relative to other carriers, we operate a much more difficult network, and a much more difficult fleet, but I think certainly 2016 will be better than 2015.
With your expansion, your new service and new cities, how have you changed your marketing and PR efforts to highlight all of this?
We’ve spent more money. We’re doing a lot of things that we hadn’t traditionally done, not the least of which is the national advertising campaign that we launched eight months ago. We have a lot of PR activity going on this summer, which we’re really excited about. We’re in the process of giving away a $1 million in air fare. That kicked itself off with a tax day promotion that we ran in about seven markets where we refunded the airfare and everything they paid for their trip for all the passengers on any given flight, which was really exciting.
We recognize that when Allegiant showed up in a small market in the past, typically that in and of itself was news. It was more than enough to build awareness, and most of the people that traveled on us had heard about us through word of mouth or free publicity. In a bigger city like Cincinnati, with two and a half million people, the media is obviously more extensive. It forced us into becoming a little more creative in the way we build awareness of our brand.
Allegiant hosts an annual event for airports. First, why did you decide to do this event? And second, what is the message that you’re trying to hammer home with those who attend?
This year we held it in St. Petersburg, Florida. We’ve been doing it about six or seven years. What started the process was we had a team that couldn’t get out to see all of our cities, because they had been getting so many requests from them. So instead, we invited them to come see us, which the airports are usually more than willing to do.
Much of what we do at those conferences is to host airports that we already serve. We talk to them about incremental service opportunities, costs and how competitive they are and service levels. We also update them on the business as a whole. And it’s really efficient for them and for us, because we can do it all at one time in one place.
Second, we bring in airports that we’ve either been negotiating with for a long time, or are newly interested in getting our service. We talk to them about what they need to do in order to get service from us. We also found it’s really helpful to have those new and potential markets interact with existing airports.
We like our airports to follow a deeper departure structure, which sometimes is not what they’re used to. So it’s really about airports getting together and sharing their experiences with Allegiant, which are uniformly positive.
Sometimes we’re the only business that they have. We’re an airline that’s going to try new things, and we know exactly what we want from our airports, which is cost and efficiency. You know who you’re dealing with and I think it resonates really well with airports.
There hasn’t been one of these conferences where we didn’t come out of there with an idea that we didn’t have, where an airport came in and said, ‘hey you should think about this,’ we research it and we end up doing something new that we hadn’t thought of.
What are your main goals for Allegiant for the rest of 2016?
So far, two out of the three goals have been achieved. The first is to have firmed up the fleet plan to allow us to attain our largest corporate initiative over the decade, to transition to Airbus.
Number two has been the signing of the pilot contract with the [International Brotherhood of Teamsters]. I have directly participated in pilot negotiations. Our pilots are underpaid. We would like to get them market pay, and that required us to get a contract. We have worked real hard toward that goal.
Number three is we’re in the process of an [Federal Aviation Administration] FAA investigation, called a Certificate Holder Evaluation Program (CHEP). So far, the feedback from the FAA has been really positive. I’m excited to get through this then start to communicate to the public about the successes and an operation that we’re very proud of.
I think the CHEP is going to be the catalyst, combined with getting the pilot contract, for getting through our negative publicity cycle. If we accomplish those three things, that would be a success.