Allegiant turns a profit while most airlines lose money

June 16th, 2008 at 06:54pm Thomas V. Bona

(Kudos to the Tri-City Herald in Washington for the heads up on this)

Allegiant Air was one of only six U.S. airlines to turn a profit in the first quarter, according to a report issued by the U.S. Bureau of Transportation Statistics today. Not only did it turn a profit, but it was tied with the biggest operating profit margin: 8.1 percent of its income. So basically, it took an 8 percent surplus while all the legacy carriers lost money. All while charging less per mile for tickets than any other airline.

This despite the fact that fuel made up 54 percent of Allegiant’s operating costs, more than any other airline. But they do a great job keeping other costs down. It costs them 9.6 cents a seat for every available seat mile (behind only JetBlue). Compare that to the legacies, which spend 13 to 17 cents per ASM (on wages, benefits, equipment, maintenance and over overhead costs).

Meanwhile, Allegiant made 10.4 cents per available seat mile, more than any other low-cost carrier (though less than the legacies and regional carriers).Instead of making money on fares, though, it really makes its money on what you buy when you’re on the plane (food, drinks, trinkets) and on the vacation packages you book with Allegiant’s partner hotels, car rental companies and entertainment venues.

Allegiant has been cutting its long-haul, fuel guzzling routes in favor of shorter ones - dipping its average route length to under 900 miles last month - because it take in almost as much of that “ancillary revenue” on the shorter routes. So revenues don’t drop much, but costs do. That gives the airline the profit to add flights where it sees the best bang for its buck.
Of course, this model has been somewhat bad news for Chicago Rockford International Airport, which is among the farthest away from any of Allegiant’s destination cities. That means we’ve seen periodic cuts in service as fuel prices have taken off. We have a harder case to make to keep service - Rockford’s Allegiant flights have to make more money than “competitor” cities that are closer to Allegiant destinations to offest higher fuel prices.

Luckily, we’ve done so on our Phoenix/Mesa, Ariz., route, which returns this fall, and our continuing service to Orlando/Sanford, Fla., St. Petersburg/Clearwater, Fla., and Las Vegas.

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