BA Boeing Co

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 09:25 ET (13:25 GMT)

Boeing (NYSE:BA)
Historical Stock Chart
From Mar 2024 to Apr 2024

Boeing (NYSE:BA)
Historical Stock Chart
From Apr 2023 to Apr 2024