Raymond James analysis: Allegiant ‘actively managing for profitability’

July 24th, 2008 at 01:49pm Thomas V. Bona

Highlights from a favorable report that Allegiant passed our way from the financial giant:

• Allegiant’s first quarter profit of $0.13 earnings per share was a cent higher than Raymond James’ estimate. It saw a decline in earnings (from $0.51 a year ago), but remained profitable, unlike many of its competitors. Of course, the drop was due to a 58 percent increase in fuel costs.
• Allegiant dropped its average route length 7 percent over this time last year. “As Allegiant reduces long-haul flying in response to higher fuel prices, (average seat mile) growth will trail departure growth. … We view this near-term moderation in growth as active management of the business to maintain profitability (rare in the airline business) at higher fuel prices. … This should not be viewed as a lack of growth opportunities for Allegiant, in our view.”
• “We believe an increasing number of small-town America markets will be orphaned by legacy carriers as networks are restructured for higher fuel prices. Further, Allegiant’s reduced capacity growth, combined with reductions in competing capacity to leisure markets … should enhance Allegiant’s ability to raise fares. We believe Allegiant would be one of the first domestic carriers to accelerate growth should fuel continue to decline.”

Again, the drop in stage length isn’t a good sign for cities like Rockford that are more than 1,000 miles from Allegiant’s destinations. Maybe the part about Allegiant being one of the first to accelerate growth should fuel continue to decline would be good news for us. Or maybe they’ll accelerate growth elsewhere. Not sure. But good news for our largest carrier.

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