Monday, October 19, 2009

Allegiant Air

We all know that the airline industry is a very tough economic environment where sustainable profits are quite hard to come by. That's why this story in today's USA Today sparked my interest. The story describes upstart Allegiant Air, which has been profitable for 27 straight quarters. Here's a brief excerpt from the story:

Allegiant's success is rooted in its unique niche: providing leisure travelers affordable non-stop flights from small communities such as Bozeman, Mont., or Allentown, Pa., to such vacation hubs as Las Vegas and Orlando. And if passengers want to see a show or visit a theme park once they arrive, Allegiant will sell them those tickets, too. "We've basically taken a very focused approach in our business," says Andrew Levy, chief financial officer of Allegiant Air, who noted that many of the airline's customers would otherwise have to take connecting flights to reach their destinations. "It's a market that has truly been ignored."

What I found particularly interesting is that Allegiant Air does not fly to each of its destinations multiple times per day. In fact, for some destinations, it doesn't even fly their once each day. That seems like a particularly unique element of their business model, and of course, the infrequent flights to popular tourist destinations helps them maintain a very high load factor. Filling each flight to capacity is perhaps the most critical element of a profitable model in this industry given that nearly all costs per flight are fixed. The key is to spread those fixed costs over as many passengers as possible, given that the variable costs per passenger are nearly zero. Who knows if Allegiant can keep up its streak of 27 straight profitable quarters, but it does seem worth highlighting the merits of crafting a distinctive focused/niche strategy as a small player in a very tough industry.

4 comments:

Brian said...

Allegiant better continue to fly below the radar b/c experience shows that route competition leads to no profits for airlines. They would seem safe with the markets they serve, but a feature article in USA Today probably isn't the best idea. What is the upside? There is unlikely to be any marketing/publicity benefit, but it could draw the attention of potential competitors!

John Crosby said...

Just flew them for T'giving, back to isolated home town.

Experience was marginally worse at the margins, but more than worth the direct flight. They'd have to treat me much worse to get me to route from Orlando to Detroit to Rochester, followed by a 3 hour drive.

Their nickle&dime pricing method was aggrevating.

Damodar said...

Allegiant airlines is a very popular domestic low-cost airline in the United States of America. Allegiant airlines fleet size of 38 moves to 59 destinations within the country.

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