Allegiant Air faces new competition from US ULCCs as fleet and labour deals drive some cost creep

Niche US ULCC Allegiant Air should be embarking on a period of greater stability after reaching an agreement with its pilots and completing a safety review with the US FAA. The airline also recently placed its first order for new aircraft with Airbus, which will help to accelerate the retirement of its ageing MD-80s that are creating reliability challenges for Allegiant.

Although the pilot agreement and aircraft deal will drive long term benefits for Allegiant, the airline faces some cost pressure going forward from increased labour expense and inefficiencies in operating more than one fleet type. As it braces for some cost inflation, Allegiant is also facing increased competitive overlap with fellow ULCCs Frontier and Spirit, which reflects subtle changing dynamics in the US domestic market.

For the moment, the overlap between Allegiant and other ULCCs remains small. But the likelihood of increasing competition is strong as the opportunities in medium sized markets created by consolidation among the US' largest airlines continue to grow.