Allegiant Air to Order Its First New Planes, 12 Airbus A320s
July 29 2016 - 9:29AM
Dow Jones News
By Susan Carey
Allegiant Travel Co., parent of an ultradiscount leisure airline
whose foundation is inexpensive, used aircraft, is expected on
Friday to announce its first order for new planes in a bid to speed
up its transition to a single fleet type and hasten the retirement
of another, older model it operates.
As part of its second-quarter financial results, the Las
Vegas-based company is slated to disclose an order for 12 A320
single-aisle planes from Airbus Group SE. This will bring to 77 the
number of Airbus jets the company is committed to, with 33 already
in service with an average age of 12 years old.
As a result, its Allegiant Air unit intends to speed the
retirement of its workhorse MD-80 planes, with all 46 remaining to
be out of its fleet by the end of 2019, Maurice Gallagher, the
chief executive officer, said in an interview. The 166-seat MD-80s,
built by a company Boeing Co. acquired, are 26 years old on
average. Older planes tend to burn more fuel and be less reliable
and more costly to maintain.
Allegiant, which has racked up 53 consecutive profitable
quarters, is expected to report its 54th, with analysts expecting
net income of $58 million, up 7.4% from year-ago profit of $54
million. Revenue is expected to be up 6.8% to $433 million, even
though the overcapacity and weak fare environment affecting the
entire U.S. industry also is depressing Allegiant ticket
prices.
Mr. Gallagher said Allegiant has been buying used A320s and will
continue to do so to expand its overall fleet, which currently
stands at 85 planes. But it was able to reach a deal with Airbus
for reasonable prices on the dozen new planes because the
manufacturer intends to phase out production of that model with its
current engine options and turn to building a new-engine version,
Mr. Gallagher said. The airline is buying the current-engine
model.
Allegiant will take delivery of the new 186-seat planes from the
spring of next year through early summer of 2018. "While they're
more expensive than a used plane, they have twice the life," Mr.
Gallagher said. The financing market for new aircraft is "extremely
attractive," he said. But Allegiant is "still very much a
used-airplane company and that's what we'll continue to build
on."
The carrier specializes in serving very small cities with
flights once or twice a week to vacation destinations in Florida
and the Southwest. Of its 344 routes, it has no airline competition
on 288. Allegiant's fares are rock-bottom but it charges myriad
fees for aspects of the travel experience, as do rival budget
carriers Spirit Airlines Inc. and Frontier Airlines. Allegiant also
derives revenue from selling hotels, package tours, event tickets
and other vacation products to its passengers.
The company on Thursday said a wide majority of its 700 pilots
approved a new five-year labor contract, their first since voting
in representation by the International Brotherhood of Teamsters in
2012. The new deal should help Allegiant retain its aviators while
there is an industrywide shortage of pilots. The union said the
agreement contains large wage increases and improvements in health
benefits, the 401(K) plan, vacations and scheduling. Allegiant said
it would update its unit-cost outlook for the rest of the year to
factor in the additional expense of the contract.
The new agreement should reduce the labor tensions that have
roiled Allegiant in the past couple of years. In the spring of
2015, the pilots threatened to strike until their plan was shot
down by a federal judge. Amid the heightened emotions, some pilots
and other employees began highlighting the carrier's string of
in-flight disruptions such as aborted takeoffs, diversions and
emergency landing, contending Allegiant was cutting corners at the
expense of safety.
But a Federal Aviation Administration audit of Allegiant's
operations, training, maintenance and compliance with regulations,
completed June 30, turned up only "minor" or "non-systemic" issues,
Allegiant and the FAA said. The agency said it determined that the
findings don't warrant enforcement action at this time if the
carrier effectively mitigates the deficiencies. The FAA routinely
subjects all airlines to this inspection every five years, although
it brought forward the Allegiant check by two years. Allegiant said
Thursday that it communicates with the FAA daily and isn't aware
that any official investigations of its operations are under
way.
Write to Susan Carey at susan.carey@wsj.com
(END) Dow Jones Newswires
July 29, 2016 09:14 ET (13:14 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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