By Robert Herbst
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.
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.
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