Allegiant Sees 23.4 Percent Operating Margin in Fourth Quarter

(MoneyWatch)  There's no question that the fourth quarter will be ugly for many airlines, but let's not include Allegiant in that group. Allegiant put out some stellar numbers yesterday regarding its fourth quarter performance, but there are a few cautionary flags to consider here.

First, some details. Revenues surged 21 percent propelling income to an incredible 373 percent gain. That's right, fourth quarter 2007 saw a $6.1 million profit while fourth quarter 2008 reached $28.7 million. How'd they do it? Well, the fuel bill dropped $10 million so that always helps. They also saw their ancillary revenue continue to grow from an average of $24.30 per person in Q4 2007 to $32.85 in Q4 2008.

The average base fare dropped slightly, but the growth in ancillary revenue more than covered it. Still, that fare drop is something to watch as times grow tougher. The story I've mentioned more than once this year was the airlines' huge load factor. It was 89.7 percent in the fourth quarter, up slightly more than 10 points from the previous year.

So while capacity actually declined slightly (strange considering that they added six aircraft), they flew a lot more passengers. Still, the capacity decline means that utilization went down a lot. Still, with these kinds of numbers it's hard to argue.

Where are these cautionary flags? First, the costs appear to have grown significantly in the quarter. Total cost per available seat mile (CASM) was only up a moderate 3 percent, but when you remove fuel, CASM spiked by 28 percent. Clearly, that's something that needs to be watched.

Second, since the airline actually grew its unrestricted cash balance from $138.6 million to $174.8 million in the quarter, it is looking to actually give some of that cash back. The airline will be looking to repurchase $25 million in shares. In a time like this, I would be very concerned that they were looking to give back any of their cash. It's time to hold on tight to cash, even though the outlook is still excellent for the airline.