Markets

Allegiant's Low Aircraft Ownership Costs Allow Schedule Flexibility

By Brett Snyder

Updated on: June 10, 2009 / 10:55 AM EDT / MoneyWatch

Every time I see that Allegiant has filed another presentation with the SEC, I get excited. There's always an interesting nugget or two in there. This time, a June management presentation shows the incredible value to Allegiant of having low fixed aircraft costs.

As most people know, Allegiant operates a fleet of MD-80s. These may be gas guzzlers, but they're incredibly cheap to acquire. Low fixed costs and high variable costs gives Allegiant unique schedule flexibility. See what I mean in this chart from the presentation:

On the left, you'll see the incredible fluctuation in daily flights by month. In 2009, for example, they'll peak in the summer with around 130 flights per day. By September they'll be down toward 80. That's how they can keep their load factors around 90 percent. They just carefully tailor their capacity to match demand in a way no other airline can do.

So how can they justify just sitting airplanes on the ground during September? Well people don't want to travel as much. Summer vacation is over and it's too early for the snowbirds to start flying. The airline has a big presence in Florida, but who the heck goes there during September? It's still hot and it's still hurricane season. No thanks.

But while other airlines have high fixed costs that force them to keep flying aircraft to reduce average costs per flight, Allegiant doesn't have to worry about that. The other slide in that picture shows the story. The fixed aircraft costs are tiny for Allegiant. They can easily justify sitting an airplane on the ground if the projected revenue can't pay for the extra costs of fuel and labor.

That sort of flexibility is unique in this industry. Yes, fuel costs are higher, but they were profitable even when oil approached its peak last summer. This doesn't work for every airline, but for one that focuses on the flexible leisure traveler, it's a great model.