Allegiant Air thrives among giants
Published: Wednesday, September 4, 2013 at 1:53 p.m.
Last Modified: Wednesday, September 4, 2013 at 1:53 p.m.
There are no sure things in this city called Las Vegas — with one exception: Allegiant Air.
Part of Allegiant Air’s success is the fees it charges for all sorts of extras. Here is a sampling of some of the fees.
■ Booking a ticket on the Internet: $20
■ Booking on the phone: $50
■ Paying with a credit card: $8
■ Advance seat assignments: $5-75 each way.
■ Placing a bag in the overhead bin: $10-$25 each way if prepaid, depending on route, and $50-$75 if purchased at the airport.
■ Checking luggage: $30-$70 if prepaid, depending on route, and $100-$150 if purchased at the airport.
■ Bottle of water onboard: $2.
■ Fruit and cheese plate: $5.
■ Beer: $5.
■ Early boarding: $5.
■ Bringing a pet in the cabin: $200, per person.
While other U.S. airlines have struggled over the past decade from the ups and downs of the economy and 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.
Passengers face fees for almost every service and amenity imaginable. At Allegiant, fees for checked baggage and changing an itinerary — which are common on many airlines — are just the beginning.
The Las Vegas-based airline charges extra to book flights online, or to use a credit card. Even a bottle of water costs $2.
Flying Allegiant isn't glamorous. While other airlines tout new aircraft with Wi-Fi and TVs in every seat, Allegiant buys old planes to avoid hefty aircraft loans. And to pack in as many passengers as possible, its seats don't recline.
"They could be the worst airline in the world and we'd fly them because 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. and Appleton, Wis., to popular destinations in Nevada, Florida, Hawaii and Arizona. These may not be the most coveted routes in the airline business, but 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 into 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.
But what really makes Allegiant different are the commissions it earns from selling hotel rooms, rental cars and other extras, including Everglades boat tours and 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.
"They do a fantastic job packaging," says JetBlue CEO David Barger. "I think we can learn a lot from what Allegiant does."
Like other discount carriers, Allegiant prefers small airports that charge airlines lower rents, even if they aren't the most convenient. In Orlando, that means flying into Sanford, 30 minutes further from Walt Disney World than Orlando International Airport.
Frugal decisions like that helped Allegiant post a net profit of $78 million last year on revenue of $909 million.
The last five years have been good for airline investors. After a major spike in fuel prices in 2008 and a drop in business travelers, airlines tweaked their business models, adding baggage fees and cutting unprofitable flights. They started to make money and their stock prices climbed. While the S&P 500 climbed 26 percent 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 benefits from paying lower salaries and having work rules that are more favorable to management than at most airlines. Flight attendants with 15 years of experience are paid $34 for each hour their plane is in the air — $10 to $20 less than colleagues at larger carriers. Planes and crews typically end up at their home cities overnight, avoiding hotel rooms.
Wages could eventually shoot up. Pilots, flight attendants and dispatchers have all voted in the past two and a half years 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 and is the lead negotiator for the Transport Workers Union of America. "We have no value. We're easily replaced."