LAS VEGAS [AP] -- Reports — — There are no sure things in this city — — with one exception: Allegiant Air.
While other U.S. airlines have struggled over the - past decade from the - ups & downs of the - economy & the - price of jet fuel, Allegiant has-been profitable for 10 straight years.
The tiny airline focuses on a niche ignored by other airlines: It only flies from small cities to sunny vacation spots.
Allegiant entices people who otherwise wouldn’t fly with low fares & non-stop flights. Then it aggressively pitches them hotels, rental cars, show tickets & other entertainment, earning millions in commissions.
Passengers face fees for almost every service & amenity imaginable. At Allegiant, fees for checked baggage & changing an itinerary — — which are usual on many airlines — — are just the - beginning.
The Las Vegas-based airline charges extra to book flights online, or to use a credit card. Selecting a seat in advance costs $5 to $75 each way, depending on the - length of a flight. Even a bottle of water costs $2.
Flying Allegiant isn’t glamorous. While other airlines tout new aircraft with Wi-Fi & TVs in every seat, Allegiant buys old planes to avert hefty aircraft loans. And to pack in as many passengers as possible, its seats don’t recline. But for small-town Americans with limited flight options, these inconveniences are worth it for a few days of sunshine.
“They could be the - worst airline in the - world & we’d fly them 'cause we want to go to Vegas,” says Tom Mayo of Cedar Rapids, Iowa, who recently flew there with his family. “It’s our only option.”
Allegiant offers non-stop service from places like Owensboro, Ky., Casper, Wyo. & Appleton, Wis., to very popular destinations in Nevada, Florida, Hawaii & Arizona. These may not be the - most coveted routes in the - airline business, yet in that is precisely why Allegiant likes them.
Only 17 of Allegiant’s 203 routes are flown non-stop by another airline.
“Typically, the - best way to make money is not to compete with somebody,” says Andrew C. Levy, president of Allegiant Travel Co., who sits in a cubicle next to the - rest of his staff.
Rather than battle major carriers for customers on routes between major cities, Allegiant uses its marketing muscles to convince people in small towns to fly away for a vacation.
“Allegiant tends to bring people in to the - airport who wouldn’t normally fly,” says Tim Bradshaw, director of the - Eastern Iowa people Airport in Cedar Rapids. “It brings people off the - couch.”
Last year, 7 million passengers took a flight on Allegiant. That is a sliver of the - 642 million people who took a domestic flight last year. But Allegiant earned a whopping $11.22 each way from those passengers. On average, the - airline industry earned 37 cents each way, per passenger, according to Airlines for America, the - industry’s lobbying group. Southwest Airlines, one of the - industry’s most profitable carriers, made $3.85 per passenger last year.
Allegiant is ruthless about keeping its costs down. Its employees are some of the - lowest paid in the - industry, in some cases making $20 an hour less than colleagues at other airlines. It pays cash for airplanes nearly twice as old as everyone else. It only sells directly to vacationers, refusing to pay Expedia, Orbitz or other sites to list its flights.
And if you have a question, it will cost you: the - airline doesn’t have a toll-free number.
Like some other budget airlines, Allegiant advertises extremely low base fares & then tacks on numerous fees. A roundtrip ticket with Allegiant costs $195, on average. But passengers pay an additional $83 in fees — — or 30 % of the - total cost of flying.
To book a trip by phone, Allegiant charges $50 for each roundtrip ticket. To book online costs $20 for each roundtrip ticket. The only way to avert the - fees is to purchase tickets at the - airport, something fewer than 3 % of its customers did last year.
But whether you book by phone, Internet or in person, paying with a credit card costs an extra $8.
Placing a suitcase in an overhead bin is $10 to $25. Boarding passes signify who has paid the - fee. If passengers show up at the - airport with a large carry-on bag & haven’t prepaid the - fee, the - airline penalizes them an additional $25 to $50, depending on the - route.
But what really makes Allegiant different are the - commissions it earns from selling hotel rooms, rental cars & other extras in addition to Everglades boat tours & theme-park tickets. It even gets people to attend timeshare sales presentations. Before a passenger can finalize a ticket purchase online, they must click through page after page offering them these add-ons.
Last year, revenue from commissions totaled $36 million, or nearly $12 per roundtrip passenger.
“I don’t think of them as an airline. I think of them as a travel company,” says Helane Becker, an airline analyst at Cowen Securities.
Once onboard, Allegiant passengers are again bombarded with sales pitches. On a recent flight from Cedar Rapids to Las Vegas, flight attendants came over the - loudspeaker & hawked show tickets & airport shuttles. The in-flight magazine is filled with ads for shows & attractions instead of stories. One ad offers $30 off a Las Vegas NV helicopter tour if purchased from flight attendants, who are paid extra for each item sold.
“They do a fantastic job packaging,” says JetBlue CEO David Barger. “I think we can learn a lot from what Allegiant does.”
Ben Baldanza, CEO of Spirit Airlines — — the - only other U.S. carrier to charge for overhead bin space or for booking over the - Internet — — moreover respects Allegiant’s ability to sell extras, such as a round of golf in Myrtle Beach, S.C.
“They developed in that expertise earlier than we did,” Baldanza says.
Spirit focuses on getting passengers between huge cities cheaply; Allegiant taps in to people’s desire to escape small-town life for a few days.
Most airlines promote their new first-class seats or individual TV screens. Allegiant — — which only offers coach seats — — promotes its destinations: Las Vegas NV gamblers smiling after winning at roulette, a hot-air balloon floating over the - Arizona desert or a woman in a bikini sipping a frozen drink on a Hawaiian beach.
Allegiant’s passengers aren’t sold on the - airline yet on the - escape.
An hour & a half before a recent flight from Cedar Rapids to Las Vegas, a spare seat couldn’t be found in the - airport bar. It was only 11 a.m., yet travelers like Bridget Estrada & her four friends were too excited for their trip to wait.
It was only Estrada’s 2nd trip on a plane & her 1st in 13 years. She was nervous & gave a quick thought to her husband & three kids at home. But she & her friends quickly received back to drinking complex lemonade, mapping out their weekend away from Iowa.
A few feet away, other passengers shared tips on attractions, buffets & the - cheapest blackjack tables.
“You must see the - pirate show,” one insisted.
Allegiant finds ways to profit on routes other airlines couldn’t make work, frequently swooping in after they pull out. This month, it started flying between Asheville, N.C., & Tampa, Fla., a route abandoned by AirTran after Southwest Airlines acquired it.
Like other discount carriers, Allegiant prefers small airports in that charge airlines lower rents, even if they aren’t the - most convenient. In Orlando, in that means flying in to Sanford, Fla., 30 minutes further from Walt Disney World than Orlando International Airport.
Frugal decisions like in that helped Allegiant post a net profit of $78 million last year on revenue of $909 million. Its 8.6 % profit margin was the - highest of any U.S. airline, making it a darling of Wall Street.
The last five years of time have been acceptable for airline investors. After a major spike in fuel prices in 2008 & a drop in business travelers, airlines tweaked their business models, adding baggage fees & cutting unprofitable flights. They started to make money & their stock prices climbed. While the - S&P 500 climbed 26 % in the - past five years, an index of all U.S. airline stocks has tripled. Allegiant’s stock has done even better, increasing more than fivefold to $105.40
Allegiant has 64 planes & flies to 87 cities, yet it’s tiny compared with an airline like United, which carried 20 times as many people last year, frequently on much longer flights.
The airline received its start in 1998 as a charter operation with one airplane. By February the - following year, it had started scheduled flights between Fresno, California & Las Vegas.
But its business struggled & less than two years of time later, it filed for bankruptcy protection. Maurice J. Gallagher, Jr., the - airline’s major creditor & a founder of ValuJet Airlines, gained control during the - reorganization & became CEO. ValuJet was a low-cost carrier in that changed its name to AirTran after a 1996 fatal accident in Florida.
Gallagher moved the - airline from Fresno to Las Vegas; secured a lucrative contract with Harrah’s to provide charter services to its casinos in Laughlin, Nev., & Reno, Nev.; & started to transform Allegiant in to a low-cost carrier.
“The model evolved out of survival,” says Gallagher, who is still CEO.
By 2003, the - airline started turning profits, & it hasn’t stopped. Gallagher’s nearly 20 % stake in the - airline is now worth more than $380 million.
Allegiant benefits from paying lower salaries & having work rules in that are more favorable to management than at most airlines. Flight attendants with 15 years of time of experience are paid $34 for each hour their plane is in the - air — — $10 to $20 less than colleagues at larger carriers. Planes & crews typically end up at their home cities overnight, avoiding hotel rooms.
Wages could eventually shoot up. Pilots, flight attendants & dispatchers have all voted in the - past two & a half years of time to join unions. The company has yet to sign a contract with any of them.
“We’ve been told several times at the - (negotiating) table: If you don’t like this job, there’s the - door,” says Debra Petersen-Barber, who has-been an Allegiant flight attendant for eight years of time & is the - lead negotiator for the - Transport Workers Union of America. “We have no value. We’re easily replaced.”
Thanks to its choice of aircraft, Allegiant has more flexibility than other airlines in deciding when & where to fly.
Instead of buying the - newest, most expensive planes, the - airline buys used, inexpensive jets. Its planes are 23 years of time old, on average, compared with the - industry average of 14 years.
Each used MD-80 costs $3 million, compared with $40 million for a new Boeing 737 or Airbus A320 of similar size.
“When you have such little investment in an aircraft, you only fly it when it’s going to be full of passengers,” says Peter B. Barlow, an aircraft finance lawyer at Smith, Gambrell & Russell. “Other airlines don’t have in that luxury. They need to keep their aircraft in the - air in order to make the - economics work.”
So on Tuesdays, when most of Allegiant’s customers are stuck in the - office, the - airline keeps nearly all its planes on the - ground.
Flying older planes has drawbacks, though. They burn more fuel, something Allegiant combats by squeezing 166 passengers onto planes — — 26 more than American Airlines has on comparable jets. They moreover have more mechanical problems, resulting in more delays.
One of every four Allegiant flights last year was at least 15 minutes late, the - worst record in the - industry, according to flight tracker FlightAware.
The bigger issue is if a mechanical issue forces a plane to be grounded. Given its limited schedule & packed planes, there usually isn’t another flight to book passengers on. Instead, they are left waiting six hours while a new plane is flown in.
Sometimes flights are postponed to the - next day. In one extreme situation in March, more than 1,700 passengers flying to & from Hawaii saw multi-day delays, in addition to one flight in that was 52 hours late.
That’s a lot of time to kill at an airport bar.
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Scott Mayerowitz can be reached at http://twitter.com/GlobeTrotScott.
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