The U.S. airline industry has been hard hit by the recession, but one of the industry’s few bright spots is landing and taking off this week at Los Angeles International Airport.
Allegiant Air, a low-cost airline that offers flights among major U.S. cities and small domestic markets, will begin its unusual service with 13 routes to destinations such as Billings, Mont.; Des Moines, Iowa; and Fargo, N.D.
Owned by Allegiant Travel Co. of Las Vegas, the 12-year-old airline has been profitable for 25 straight quarters amid huge losses by established carriers. Even discount carriers such as Southwest Airlines are barely breaking even.
“Allegiant is not the next Southwest Airlines in the sense that they will steadily grow and become one of the largest airlines in America,” said Hubert Horan, a Phoenix-based independent aviation consultant. “(But) they’ve identified a niche market that can support profitable growth, and unlike other airlines, they’re not going to pursue markets where they can’t make money.”
Allegiant Air, which serves 70 destinations nationwide, has some of the lowest fare prices in the industry, with an average one-way ticket costing about $70. Flights from LAX to Grand Junction, Colo., are as low as $79. A flight from LAX to Wichita, Kan., is $119.
Allegiant manages to keep its fares low through minimal overhead, with a key element of that a novel flight structure. Instead of operating out of hubs that offer connecting flights from different cities, Allegiant only offers simple direct flights between eight “focus cities” and smaller rural destinations.
Those focus cities include tourist destinations such as Las Vegas; Orlando, Fla.; and now Los Angeles. The smaller destinations are cities such as Billings, Mont., that don’t have many direct flights to major U.S. destinations. Thus its focus is on leisure, not business, travelers.
“Our goal is to go after residents in small-town America who want to travel to a world-class destination and see something different, at an affordable price,” said Ponder Harrison, Allegiant’s managing director.
Still, an L.A. resident could travel cheaply to another major market even without the ability to take a connecting flight, provided the traveler was willing to fly to a smaller nearby city and rent a car to drive the rest of the way.
The airline also cuts costs by operating MD-80 jets, manufactured in the 1980s and ’90s. The aircraft are less fuel efficient than newer planes, but Allegiant is able to purchase them used for as little as one-tenth the cost of a new Boeing 737, a backbone of discount airlines such as Southwest. The worldwide slowdown in air travel has created a glut of such used planes.
The company also boasts that its small airfield operations allow it to enter markets quickly where it projects it can make a profit. On the flip side, it can shutter operations with little notice, a tactic that has drawn criticism from some airports. However, that strategy helped keep its flights 90 percent full last quarter.
“The low-cost carriers have the agility to better shift operations or make changes than a larger airline carrier,” said Mo Garfinkle, president of GCW Consulting, an aviation consulting firm based in Washington, D.C. “That saves them money.”
Parent Allegiant Travel reported a net income of $28.2 million for the first quarter, a nearly 200 percent increase over last year’s quarterly numbers. Revenues were up about 7 percent to $142 million.
Much of the airline’s success has been attributed to Maurice J. Gallagher Jr., who joined the airline in 2001 when it only had two destinations. The former WestAir and ValuJet Airlines executive soon became chief executive and created the airline’s business model. He was not available for comment.
LAX operations
Allegiant will base two MD-80s, which seat 150, to service the 13 routes, offering a total of about 34,000 seats a month. Allegiant will bring 100 jobs to the airport, the first “focus city” operation for the airline in California, Harrison said.
“We’ve been considering the entire Los Angeles basin for quite some time, and have confidence that the leisure traveler amid the downturn will still buy a plane ticket as long as the price is low,” Harrison said.
Allegiant is now one of a dozen low-cost airlines, such as Frontier Airlines and Southwest, based at LAX, according to Nancy Suey Castles, a spokeswoman for Los Angeles World Airports, which manages the airport.
With a fleet of just 42 aircraft, Allegiant is still substantially smaller than big discounters such as Jet Blue, with its fleet of 140 planes, and Southwest, which has 140.
Indeed, Garfinkle said that Allegiant is viewed by the larger carriers as “more of a pest than a threat,” because it is catering to markets they either don’t serve at all or, at best, infrequently.
It also doesn’t participate in the major travel Web sites. The only way to get a ticket is directly through the airline’s site, which does offer assistance with hotel and rental car reservations.
Allegiant is in good company, though, as industry analysts said discount airlines worldwide are seeing growth despite downturns among larger carriers.
Jet Blue is adding routes this year, also expanding for the first time to LAX with flights to Boston and New York starting in June. To the north, Canada’s WestJet Airlines Ltd. is expected to add nine jets this year and expand flying capacity by 5 percent.
