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Allegiant Air's emergency landings don't bother Wall Street

 
Allegiant Air reported a 62 percent jump in net income to $54.3 million in the quarter ended June 30 over the same quarter of 2014, and an even larger 76 percent leap in the first half of 2015 over the same period a year ago. [DOUGLAS R. CLIFFORD | Times]
Allegiant Air reported a 62 percent jump in net income to $54.3 million in the quarter ended June 30 over the same quarter of 2014, and an even larger 76 percent leap in the first half of 2015 over the same period a year ago. [DOUGLAS R. CLIFFORD | Times]
Published July 30, 2015

The parent company of Allegiant Air reported boffo second-quarter gains in profits and growth late Wednesday, winning bravos from Wall Street analysts in a conference call with Allegiant executives.

But there was not a single peep about safety concerns from analysts nor any explanation volunteered by airline execs stemming from a series of emergency landings in recent months. The most recent nail biter involved a flight forced to land last week at a Fargo, N.D., airport with only minutes of fuel left in its tanks. Federal Aviation Administration officials are investigating why the plane was not properly fueled and the pilots were unaware of reports earlier made to Allegiant that the airport would be closed for the Blue Angels practicing for an air show.

Welcome to the business world where the impressive financial success of Allegiant so easily overwhelms concerns of flights marked by cabin smoke or the threat of running out of gas, or even feisty contract negotiations with pilots who just this week demonstrated outside Allegiant's headquarters office in Las Vegas.

For Tampa Bay, Allegiant is not just another budget airline built on carrying tourists to our sunny (usually) shores from underserved smaller cities. St. Pete-Clearwater International Airport finds itself relying on Allegiant flights for 94 percent of its airline business. Allegiant, and its parent Allegiant Travel, are also huge feeders to the Pinellas County and surrounding gulf area hotel and car rental businesses during a period of record tourism — and the accompanying swell in county tax revenues.

As much as passengers may fret over flight woes at Allegiant, the airline continues to boom, and this area continues to profit from the airline's expansion.

While many traditional airlines are reporting modest gains, Allegiant's latest numbers are sky high. The company reported a 62 percent jump in net income to $54.3 million in the quarter ended June 30 over the same quarter of 2014, and an even larger 76 percent leap in the first half of 2015 over the same period a year ago.

The brisk gains mark Las Vegas-based Allegiant's 50th consecutive quarter of profits, a reminder this airline is very sure of its business plan — if not its focus on safety.

"This is rare in our industry and demonstrates the flexibility of the company and the model through the extremes of the past dozen years," Allegiant CEO Maury Gallagher said. "During this streak, we have seen macro disruptions in our economy including extremely high oil prices, significant financial disruptions and a recession.

"Throughout these years, our model of maintaining low costs and the flexibility to react to this constantly changing landscape has been critical to our long term success."

Nor has Allegiant's stock price suffered. Shares closed Wednesday at $205.61. Two months ago it hovered closer to $153 and below $120 a year ago. Last month, Standard & Poor's Rating Services raised Allegiant's corporate credit rating to BB from BB-, impressive for a small company in the typically debt-laden airline industry.

Analysts from Wall Street firms like Deutsche Bank, Imperial Capital and Stifel were far more eager to ask CEO Gallagher how Allegiant will manage to sustain its torrid pace of growth than to pester him over a smattering of emergency landings.

Allegiant's executives outlined a strategy built on buying used airplanes, controlling costs and focusing on underserved areas. Increasingly, those include larger cities like Cincinnati, Memphis and Austin. One growth plan is to offer direct flights between such mid-sized cities — Austin to Memphis, for example — that are otherwise reachable by air only via multiple flights through hub cities at a high price.

Gallagher also spoke of plans to increase flights on off peak days. An Allegiant loyalty program is coming next year.

One analyst, Hunter Keay of Wolfe Research, questioned Allegiant on its intention to slow the airline company's torrid pace of growth from well over 20 percent a year to something closer to the mid-teens.

"Why not keep your pedal to the metal?" he asked. "Why the deceleration?"

Allegiant execs suggested the current speed of expansion was not sustainable. Better to have steady growth of, say, 17 percent, than to suffer expansion in fits and starts, they said.

"There is no economic constraint to growing this company," Gallagher said. "We have the opportunity and markets we want to serve. But this is about how fast we can grow an airline and how much strain we can put on the operation."

Contact Robert Trigaux at rtrigaux@tampabay.com.