Allegiant: ULCC braces for higher capex with Airbus order, but new fleet brings long-term cost gains

Similarly to fellow ULCCs and other US airlines, Allegiant Air's financial foundation remains solid even as investors continue to zero in on an inflection point for industry wide-sagging unit revenues. During the past couple of years Allegiant's leverage has decreased, the company's returns have remained steady and shareholder returns have grown.

Airlines operating all types of business models realise the importance of keeping costs in check in order to sustain a strong balance sheet, and Allegiant is no different. After a strong cost performance in 2015, Allegiant has previously guided to possible unit cost inflation in 2016, but its 3Q2016 projections are now more favourable than expected, which should result in an adjustment to expectations for full year 2016.

Allegiant's transition to an all-Airbus operator by YE2019 fleet should create cost tailwinds for the airline in the future, stemming from lower fuel costs and the efficiencies of operating a single fleet. The company broke precedent earlier in 2016 with an order for new-build Airbus narrowbodies, and is working to adjust its projections for capital expenditures accordingly.