You choose, we deliver
If you are interested in this story, you might be interested in others from The Journal Gazette. Go to www.journalgazette.net/newsletter and pick the subjects you care most about. We'll deliver your customized daily news report at 3 a.m. Fort Wayne time, right to your email.

Business

  • Review: Larger iPhones eliminate reason to switch
     NEW YORK – It’s easy to dismiss Apple’s new iPhones as merely catching up to Android.
  • Alibaba poised to surge on the NYSE
      NEW YORK – Chinese e-commerce powerhouse Alibaba will say “open sesame” to the New York Stock Exchange on Friday, as its shares begin trading in a highly anticipated debut that could raise up to $25 billion.
  • 56 million at risk in data theft
    NEW YORK – Home Depot said 56 million debit and credit cards are estimated to have been breached in a data theft between April and September at its stores in the U.S. and Canada.
Advertisement
Air time
Here’s a list of top five airlines based on revenue in 2013:
1. American…$40.4 billion
2. Lufthansa…$39.5 billion
3. United…$38.2 billion
4. Delta…$37.7 billion
5. Air France/KLM…$33.9 billion
*58. Allegiant…$996.2 million
*Ranks third in operating profit margin
Source: Airline Weekly
Photos by Michelle Davies | The Journal Gazette
Allegiant agents Mickiyel Brown, left, and Bessie Jenkins help Karen Sorg book a flight to Florida.

Allegiant Air profit margins are flying high

Low-fare carrier makes money by charging passengers variety of fees

Allegiant Air has twice-weekly flights to leisure destinations in Florida, South Carolina and Arizona from Fort Wayne International Airport.
Allegiant Air ground crew load baggage onto a plane before it takes off at Fort Wayne International Airport.

Allegiant Air is nowhere near the top in revenue among carriers.

And yet, the leisure flier is the third most profitable in the world, according to an industry analysis by Airline Weekly.

Allegiant had $996.2 million in revenue with a 16 percent operating profit margin last year. By comparison, top carrier American Airlines recorded $40.4 billion in revenue but only had an 8 percent profit margin.

What’s happening?

Well, officials at Las Vegas-based Allegiant Travel Co. point to their business model that is a bare-bones approach to travel, including a modest fleet of planes, fewer flights and amenities than the company’s larger competitors.

Analysts at Airline Weekly, a Fort Lauderdale, Florida, industry publication, say the carrier’s profitability is due in large part to nickel-and-diming that takes place after the initial ticket price is set.

Fees for carry-on bags, requests for seating preferences, refreshments and other wishes to make a flight more pleasant help boost Allegiant’s bottom line.

But while the extra fees are a thorn in the side of travelers, they put up with it because of Allegiant’s cheap seats, said Seth Kaplan, managing partner and analyst with Airline Weekly.

“Some people have figured out how to play the game with these value carriers,” he said. “They don’t bring a ton of luggage and don’t come on board thirsty or hungry. For some people, safe transportation and nothing else is all they’re concerned with.”

Allegiant makes no apologies for what it is.

“We’re solely focused on leisure travel, so our passengers are very, very price sensitive,” spokeswoman Jessica Wheeler said. “We have an a la carte model and prices aren’t built into your ticket. Because of that, we can offer a much lower fare.”

And produce solid profits.

An operating profit margin is a measurement of what proportion of a company’s revenue is left over after paying for variable costs of production such as wages, raw materials, etc. A healthy operating margin is required for a company to be able to pay its fixed costs, such as interest on debt.

Allegiant’s financials and carriers similar to it may be worth investing in, but retired accountant Norman Hutton won’t board their planes even for cheaper fares.

A roundtrip flight in late June from Fort Wayne to the Phoenix area, for example, would cost a traveler $300 with Allegiant, whereas the same flight would cost about $250 more if the customer chose American Airlines.

Even so, Hutton isn’t high on the idea.

“It’s not for me,” said Hutton, who moved from Carmel to Fort Wayne a year ago with his wife, Donna. “That initial price looks good and those kinds of airlines serve a niche out there, but I’d rather just have everything up front.”

The U.S. Department of Transportation is considering doing something about that. Two weeks ago, the agency issued a “notice of proposed rulemaking” on the transparency of airline ancillary fees. The idea is try to make sure airline passengers aren’t stuck with unexpected fees.

“Currently, some consumers may be unable to understand the true cost of travel while searching for airfares, due to insufficient information concerning fees for ancillary services,” a government journal states. “The Department is addressing this problem by proposing that carriers share real-time, accurate fee information for certain optional services with ticket agents.”

Charlie Leocha is chairman and founder of Travelers United, a Washington, D.C.-based consumer advocate. He said customers shouldn’t have to play games with their money and locating fees on an airlines website shouldn’t be a scavenger hunt.

“What looks inexpensive, in many cases, ends up costing more,” Leocha said. “We should be able to see everything upfront and be able to compare apples to apples.”

Fort Wayne International Airport offers nonstop daily flights to Chicago, Detroit, Minneapolis, Atlanta and Dallas/Fort Worth. The major carriers are American, Delta and United. Allegiant flies twice weekly to vacation destinations in Florida, South Carolina and Arizona.

On-time flights last year at Fort Wayne International dropped to 79 percent from 85 percent a year earlier, officials said. A flight is considered on-time if it is no more than 15 minutes late.

Those figures don’t, however, include Allegiant Air. It is not required by the Department of Transportation to report delay/cancellation figures because the airline’s sales are less than 1 percent of the total domestic revenue among 14 U.S. carriers.

There are drawbacks to Allegiant’s small size. For one thing, the company is less nimble to deal with delays or cancellations because it has only two flights a week.

Airport spokeswoman Jessica Miller said while there were hundreds of nationwide cancellations this winter, “there weren’t an overwhelming number of complaints about any of the carriers.”

“It was a really rough winter, which obviously is going to lead to some delays and cancellations,” she said.

Still, people simply looking to get from “point A to point B,” Allegiant is a viable option, said Scott Hinderman, executive director of the Fort Wayne-Allen County Airport Authority.

“They have served our market very, very well for about seven years,” he said. “Every time they’ve brought a (destination) into our region it has done well.”

pwyche@jg.net

Advertisement