Allegiant Air: unit revenues could still turn positive in mid-2017 as cost pressures rise

Although Allegiant Air's niche model differs from those of the majority of US airlines, the company has not been immune from the weaker pricing environment that has engulfed the US industry during the past year. Similarly to many US airlines Allegiant is beginning to see improving trends in the US market, and believes it can attain positive total unit revenues by mid-2017 as its own capacity growth slows and certain routes within its network mature.

Allegiant is facing pressure on its 4Q2016 unit revenues driven by effects from operational disruptions that were triggered by Hurricane Matthew and the timing of the Christmas holiday. But if the company reaches the lower end of its quarterly unit revenue guidance, Allegiant's sequential improvement in unit revenues during 2016 will continue for the final three months of the year.

A new pilot agreement and other items are creating pressure for Allegiant in its unit cost performance in 4Q2016 that could continue into 2017. One cost area where Allegiant should see relief is in its maintenance expense, as the phase-out of its older MD-80 aircraft begins in full force.