How about it is the only consistently profitable US airline for the last 29 consecutive quarters?

Allegiant (ALGT), based out of Las Vegas, labels themselves as:

“A leisure travel company focused on transporting travelers in small cities to leisure destinations”

Not only is Allegiant profitable, but with approximately 15% annual growth during the recent economic recession, they maintained consistently high margins and improved debt to equity ratios (see following chart for five year history of selected metrics).



Allegiant’s business model uses refurbished MD80 aircraft which are acquired at relatively low capital costs compared to the price of similar new aircraft.

On the labor side, Allegiant’s employees lead the industry in productivity which drives their operating costs to be at or near the industry’s lowest. Allegiant pilots recently agreed to a multi-year contract that was unique to the industry by attaching pilot wage rates (partially) to trailing operating margins.

Approximately 30% of Allegiant’s passenger revenue comes from ancillary fees which include on-board items and on-ground vacation type packages.

The following chart shows Allegiant’s successful efforts to reduce forward looking debt and at the same time, increased operating margins.

Charts below provide Allegiant’s positive earnings and share price history compared to the airline index (XAL).

Looking forward: Allegiant’s business plan calls for 15-20% growth by adding MD80’s and Boeing 757’s. The first 757’s are planned for new long-range lift to popular vacation destinations like Hawaii.

Regardless of the economic cycle, Allegiant is in a win-win position as they have virtually no direct competition. With an improving economy, air fares typically increase which will provide Allegiant with higher margins. In a down economy, Allegiant still offers higher consumer value when compared to other airlines.

Disclosure- The above opinions and comments should not be used to determine the worth of any stock or investment. At the time of writing, the author and his family did not hold stock and/or derivative positions in any of the airlines covered in this article. Robert Herbst has provided consulting services to Allegiant pilots.

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Robert Herbst has been a commercial pilot since 1969. His aviation experience and financial background provides a unique analytical perspective into the airline industry. He is the founder of: Airlinefinancials.com which provides airline industry analysis and commentary for major US carriers.

Allegiant Travel Co. (NASDAQ: ALGT) will be a new member of the S&P Small Cap 600 Index and will replace Regal Beloit in the index after the close of trading on Tuesday, December 8.  Allegiant is up 2.7% on only 250,00 shares.  It looks likely that more shares will need to be purchased based upon a $866 million market cap.

AOL Inc. (NYSE: AOL) is still trading as a when-issued stock but it will replace Imation Corp. (NYSE: IMN) in the S&P MidCap 400 after the close of trading on Wednesday, December 9.  Imation had a market capitalization of less than $325 million, under the minimum requirements for a mid-cap constituent.  Index sellers already have taken almost 4% out of the Imation price based upon index selling pressure as the entire weighting will be dumped.

Time Warner Inc. (NYSE: TWX), a S&P 100 and S&P 500 constituent, is spinning off AOL to shareholders on or about that date on a 1 for 11 share tax-free dividend basis.  Time Warner will remain in both the S&P 100 and S&P 500 indices. Fractional shares will be sold off and that cash will be distributed, but the tax portion is considered taxable. The exact market cap for AOL is not yet known as it trades on a when-issued basis.  That figure is north of $2.5 billion and is not deemed to be north of and is not more than $3.3 billion based on average comparisons.

The bad news is that AOL not going into the S&P 500 Index will create some mandatory S&P 500 Index benchmark fund selling in shares of Time Warner.  But the good news is that this will likely be far less index selling compared to many other key spin-offs.

Our calculations for what the real translation of index trackers differs from others because we have discussed with S&P analysts about their own interpretations of index trackers.  Based upon a conversation we had and assuming the market remains stable, we would expect only about 10 million Time Warner net shares over the coming days to have to be absorbed, and that figure will be easy to be absorbed as the indexers have a week before the formal change.  Any additional shares that need to be sold won’t have to be immediately sold as most funds have looser buy and sell policies on index changes.

JON C. OGG

Adobe Systems (ADBE) Raised to Outperform at RBC.
Allegiant Travel (ALGT) Started as Overweight at Barclays.
American Express (AXP) Raised to Hold from Sell at Citigroup.
Digital River (DRIV) Raised to Outperform at RBC.
General Maritime (GMR) Raised to Overweight at JPMorgan.
Microsoft (MSFT) Raised to Outperform at RBC.
Netflix (NFLX) Started as Overweight at Thomas Weisel.
Omniture (OMTR) Raised to Outperform at RBC.
Salesforce.com (CRM) Raised to Outperform at RBC.
Symantec (SYMC) Raised to Outperform at RBC.

JON C. OGG

Allegiant Travel Co. (NASDAQ: ALGT) shares hit $47.45 before sellingoff back under the prior 52-week high of $47.34.  Trading volume isstill under 100,000 shares, and it normally trades 344,000 shares perday.  This is a 200% gain from its 52-week lows.  If we told you acouple months ago that a a leisure travel company which providesscheduled passenger services from small cities to leisure destinationswould be at 52-week highs, would you have believed it?

American Capital Agency Corp. (NASDAQ: AGNC) is another strange leaderafter it declared a $1.20 dividend last week.  This is a REIT thatinvests in mortgages, but many of its mortgages have governmentguarantees.  This is at $21.85, above its $21.69 prior high and almosta double off its lows.

Grand Canyon Education, Inc. (NASDAQ: LOPE) barely put in a new high of$17.73, only a penny above its post-IPO high.  While education issupposed to do well, this IPO has done much better than most would haveguessed based on its pre-IPO coverage.

Rochester Medical Corporation (NASDAQ: ROCM) is apparently one of themedical device makers that is recession-proof and an Obama-friendlycompany.  It develops, manufactures, and markets urinary continence andurine drainage care products.  At $15.20, its 52-week range was $9.03to $14.98.

Royal Gold, Inc. (NASDAQ: RGLD) is at it again.  We spoke with the company,and it seems that traders are buying this up over its future prospectson new properties it recently acquired.

Jon C. Ogg
December 23, 2008