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Allegiant Airlines: exploiting a niche to the full

9-Nov-2009

LCCs are oriented towards the discretionary dollar and therefore leisure markets for VFR and holiday travel. Many services have focused on linking holiday destinations with centres of population. In this, they have parallels with the longstanding holiday charter airlines, not just in the markets and destinations they might target, but also in their low cost base and in favouring operations out of secondary airports. Full holiday packages, not just individual components, are increasingly finding their way onto LCC sites.

US LCC Allegiant’s web site is a leader in this respect.  Following the lead of main retail sites, rather than simply fulfilling a ticket order once a destination and time of travel are registered in the course of selecting a flight, it automatically makes offers for ancillary services covering local accommodation, activities and concerts, and rental vehicle options at the destination prior to “checkout”.  In effect, a simple booking for a ticket can quickly and easily convert into the purchase of a full holiday package without the need to individually select elements from a series of independent menus.

This extract, ‘Evolution to travel and leisure operator?’ is from CAPA’s Global LCC Outlook report, available for free download at: centreforaviation.com/lcc/report

The Leisure Line

Allegiant Airlines offers a unique and tailored LCC operation. Many specialist airlines cater primarily to the leisure market, but Allegiant has honed the niche to the full.

It is in effect more a travel operation than an airline, bearing many similarities to the classic European charter model with its vertical integration. But in this case it is bottom-up (from the air component up to the marketing and sales), rather than top-down (from the packaging and marketing company down to the airline).

The availability of new technology and IT-savvy consumers, allowing dynamic packaging, takes the place of the corporate marketing structure. Basically, the travellers do all that for themselves, replacing the corporate structure.

The website aggressively promotes a host of non-air products, so that it is sometimes hard to find the seat booking area.

Again mimicking the charter-type demand model, the carrier operates on leisure routes almost exclusively, catering to travel by couples, who are assumed to have accommodation, entertainment and similar leisure needs; It sees no need to fly high frequency or even year round.

This pure leisure profile means that Allegiant has been able to expand beneath the radar of most of its competitors, serving smaller ports (and, of course, Las Vegas). With its aggressive approach to online sales, this profile enhances the carrier’s ability to sell hotels and car rentals; its default setting for the number of ticket bookings is thus for ‘2’ pax rather than the usual ‘1’. Every step of the booking process confronts the buyer with vacation offers: the airfare portion is very much a secondary transaction. This small route focus means the scope for expansion remains powerful.

Allegiant differs most from the conventional modern LCC in that, although high density configuration is a feature, it operates older, fuel thirsty aircraft, planning to continue to add MD-80 aircraft to its fleet at “attractive prices” without the need for external financing, as it opportunistically acquires aircraft, engines and parts. Allegiant has previously stated that it can purchase and refurbish its MD-80 aircraft for as little as USD4 million. The carrier recently bought six aircraft from Finnair, apparently to use for parts, and could be a potential customer for American Airlines’ large MD-80 fleet that will be progressively be retired.

While the aircraft are less fuel-efficient than newer types, Allegiant is able to purchase them outright for one-tenth the cost of a new B737 aircraft, and because of the low cost of ownership, operate a much lower utilisation (seven hours per day versus 13 hours per day at JetBlue), which helps keep costs lower.

Download the full Global LCC Outlook report at: centreforaviation.com/lcc/report

Comment at our blog: http://centreforaviation.com/lcc/blog


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