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Allegiant Air most profitable airline in the country

What kind of airline offers fares as low as $9, expands during a crippling recession and ignores high-paying business travelers?

The nation's most profitable airline: small but nimble Allegiant Air.

Allegiant, by far St. Petersburg-Clearwater International Airport's largest airline, follows a game plan unlike any other. It sells cheap, no-frills flights for people in small cities to visit sunny vacation spots such as Las Vegas, Orlando and Tampa Bay. Then Allegiant juices up the ticket price with fees for checked bags, reserved seats and other add-ons.

The airline squeezes a nickel harder than anyone. Allegiant flies aging jets to small airports, usually just two or three times a week to ensure full loads.

That strategy paid off again Tuesday. The company announced a $13.8 million profit for the three months ended Sept. 30, its 27th consecutive quarter in the black. Allegiant made more profit per dollar of operating revenue than any U.S. airline for the previous three quarters, far ahead of traditional network airlines and big-name discounters Southwest and JetBlue.

In an industry that lost tens of billions this decade through bankruptcies, economic shocks and skyrocketing oil prices, Allegiant stands out, says Darryl Jenkins, an airline analyst and author of the Handbook of Airline Economics.

"They don't care about (flight) frequencies, serving big cities or having a large (route) system,'' he says. "Those guys only care about making money and doing things right.''

CEO Maurice Gallagher Jr., co-founder of ValuJet, rescued Allegiant from bankruptcy in 2001, two months before the Sept. 11 terrorist attacks sparked a sharp drop in air travel.

He moved the company and its one plane from Fresno to Las Vegas. "We needed a strategy that was low cost and could make money from day one,'' he told Fast Company magazine. "Slowly we figured it out: Go where they ain't.''

Allegiant established routes between Vegas and 13 small cities, then turned to Florida — first tiny Sanford Orlando International in 2005, then St. Petersburg-Clearwater two years later. The carrier now flies to 69 U.S. cities and has a fleet of 44 jets. Southwest, for comparison, connects 67 large and medium-size cities with 544 jets.

Allegiant's success is vital to St. Petersburg-Clearwater International, which has been burned when dominant airlines went bankrupt or left amid financial problems. Ninety percent of the airport's 625,000 passengers for the first nine months of 2009 flew Allegiant.

St. Petersburg-Clearwater is a model Allegiant destination, with flights from 19 cities in the Midwest and East Coast during peak season. Most never had a nonstop flight to Tampa Bay before.

If big network carriers serve those cities at all, they use small jets to funnel passengers through a hub, then fly them to Tampa International. Allegiant faces head-to-head competition on only five of its 135 routes nationwide.

"They're creating a product people want when they see it,'' says Michael Boyd of Boyd Group International, an aviation consulting firm in Evergreen, Colo.

Air travel between Missoula, Mont., and Las Vegas more than tripled when Allegiant launched nonstop flights, says Robert Ashcroft, Allegiant's vice president of planning.

"It could be a guy who bought a big-screen TV every year and now visits a warm-weather destination,'' he says. "It's people visiting second homes in Phoenix or St. Petersburg multiple times, because there's now a cheap way of going.''

Allegiant dangles $9 teaser fares to stimulate business, though a walk-up or holiday flight can run upwards of $400 one-way. The average fare is $67.09.

But Allegiant also collects an astounding $33.35 per ticket on average from a half-dozen fees and sales of hotel rooms, car rentals and vacation extras. Ryanair, the Irish no-frills airline famous for its long list of fees, gets less than $14.

For his trip to Tampa Bay, Raymond Sicotte of Colchester, Vt., landed a direct, round-trip fare of $183.20 from Plattsburgh, N.Y., just south of the Canadian border.

He picked a window seat, checked a golf bag, bought insurance to avoid a fee for changing his flight and paid a "convenience charge'' to buy his ticket on Allegiant's Web site. Total cost: $241. Still a good deal, said Sicotte, compared to flying JetBlue for over $300, with a connection in New York.

"It's your choice if you want those extras,'' he said. "I don't want a middle seat.''

Like other low-cost airlines, Allegiant keeps a tight rein on expenses — to a degree the Deltas and Uniteds can only dream about.

Allegiant sells 85 percent of tickets over its Web site. There are no connecting flights, eliminating labor-intensive hubs and managers to oversee far-flung flight operations. Aircraft crews return to home base each night, saving hotel and meal expenses.

Allegiant flies used MD-80s that cost $4 million — about one-tenth the cost of Southwest's new 737s. But the MD-80 is a gas guzzler, and fuel costs squeezed Allegiant in the summer of 2008 when jet fuel spiked at $4.30 a gallon.

Airlines typically need to fly new planes a lot to cover lease or financing costs. With its cheap jets, Allegiant cut back flights to keep fuel costs in check and raised fares.

The carrier caught a huge tailwind when fuel prices came back down. Allegiant began flying to Los Angeles from 13 Western cities and added more than a dozen new routes to Florida.

Allegiant also saves money by rarely flying a route every day of the week. That helps keep planes full. But not with business travelers who covet regular flights to match busy schedules.

That strategy has paid off extra in recent months. Vacation travel dropped this year as consumers pulled back on spending, but not nearly the double-digit percentage decline that major carriers suffered in business and first-class travel.

"If you're an all-leisure airline and don't have a premium cabin, you're not exposed to the most toxic part of the business right now,'' says Seth Kaplan, managing partner of the industry publication Airline Weekly.

Steve Huettel can be reached at [email protected] or (813) 226-3384.

1 Allegiant's rank on list of most profitable airlines

27 Consecutive quarters that Allegiant has posted a profit

1997 Year Allegiant began operating

$67.09 Average fare on an Allegiant flight

135 Number of routes Allegiant flies

$12.99 to $24.99 Fee Allegiant charges to reserve a specific seat

Allegiant Air most profitable airline in the country 10/20/09 [Last modified: Wednesday, October 21, 2009 2:14pm]
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