Allegiant has the secret sauce for surviving Covid-19

Allegiant Airlines’ nimble business model positions it ideally to push through the Covid-19 crisis, according to CFO Greg Anderson.

Anderson also said that the ultralow-cost carrier (ULCC), which focuses on point-to-point leisure routes connecting midsized and small airports, is well positioned to defend itself against the nascent carrier Breeze, which also plans to build its network around underserved midsized communities.

Allegiant currently has approximately $850 million of available cash and is anticipating cash burn during the fourth quarter of approximately $23 million per month, leaving it with more than three years of liquidity. According the airline’s own calculation, that’s more than any of the eight other mainline U.S. carriers.

Perhaps more impressive is that Allegiant is in that position despite having chosen to borrow only $300 million thus far during the Covid-19 crisis. Allegiant’s debt obligations have jumped just $200 million during the pandemic, to $1.6 billion, Anderson said.

During an interview this week from the International Aviation Forecast Summit (IAFS) in Cincinnati, Anderson explained why Allegiant has chosen to fly significantly more capacity relative to 2019 levels than its mainline U.S. competitors. During this quarter, for example, Allegiant plans to fly 93.5% of its 2019 capacity. Other carriers, meanwhile, are flying closer to 50% or 60% of last year’s level.

Reducing cash burn, Anderson said, is not only a product of saving money, it’s also about maximizing revenue.

“We thought it made sense to keep a wide selling net so that when there are peaky times of the year, as we continue to see, we’re able to capitalize on that,” he said.

The approach has succeeded in increasing Allegiant’s share of the U.S. market to 4% since the start of the pandemic compared with 2% pre-pandemic, according the company’s figures.

Anderson reasons that Allegiant, more than any other U.S. airline, is suited to navigate the Covid-19 downturn. Like ULCC competitors Spirit and Frontier, it is benefitting from being leisure-focused during a period when leisure travel is recovering much quicker than business flying. But unlike those carriers, Allegiant is also buoyed by having no international exposure.

Moreover, Allegiant has designed its business model around scaling up and scaling down operations to a degree that no other U.S. carrier can approach. The carrier achieves that flexibility by utilizing aircraft fewer hours per day on average than its competitors.

For example, Anderson explained during a presentation at IAFS, in 2019 Allegiant flew nearly three times as many flights on Sundays than it did on Tuesdays. Other airlines also scale down midweek, when less people are traveling, but not nearly as dramatically.

Similarly, even in normal years, Allegiant flies only half as much in September as it does in July, Anderson said.

Having such dramatic shifts in service levels already baked into its business model has made it easier for Allegiant to adapt to the turbulent demand landscape of 2019.

Anderson said that Allegiant’s network has always been about breadth. The carrier flies to 126 airports and rotates among more than 500 routes, flying routes only two to three times per week on average. By comparison, larger Spirit flies to 75 destinations, according to its website.

Anderson said Allegiant will maintain that network approach through the Covid-19 crisis, while only flying routes that can turn an operating profit.

He also said Allegiant will be positioned to compete with Breeze when the time comes. Breeze, which is under development by JetBlue founder David Neeleman and plans to launch as soon as next year, won’t be a ULCC. But it does plan to fly between midsized airports, just as Allegiant does.

“For the current routes we serve it would be difficult for the Breeze team to come in and kind of upset the apple cart,” Anderson said. “I think we’re very, very well positioned to defend that.”

Source: travelweekly.com

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