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Allegiant Makes $38 Million Despite Dramatic Fare Drops

Allegiant released second quarter numbers this week, and they were far better than last year's. The airline made $37.8 million (25.5 percent margin) vs $4.7 million (3.6 percent margin) in Q2 of 2008. It's not the bottom line, however, that's so interesting but rather how they got there.

Were it not for the tanking of fuel prices, Allegiant would have had much different results. Remember, Allegiant is more at the mercy of high fuel prices than others because they primarily fly older MD-80s that burn a lot more gas. Even with the high fuel prices last year, they still could turn a profit thanks to strong revenues, particularly ancillary revenues. But this year, the revenues fell through the floor.

Mirroring the results from other airlines, Allegiant saw average fare drop precipitously. In fact, the average fare plunged 22 percent from $83.56 to $65.16. But also as other airlines are finding, they were able to make some of that back on ancillary revenues. Ancillary revenue per passenger climbed from $27.75 to $32.36. That's a staggering number, and it shows that while people may be very picky when it comes to finding cheap fares, they still aren't shying away from the extra fees that they bemoan so often.

Operating expense declined from $110 per passenger to $74.76, so it's easy to conclude that they wouldn't have been profitable with oil prices at last year's levels. I wouldn't be so sure. Remember, Allegiant has a very flexible fleet, so it can just park the planes if it can't make money flying them. My guess is that at higher oil prices, we'd see a smaller Allegiant flying only on the best routes out there. And yes, I'd bet they still would make money.

Flexibility is king.