Allegiant Air president Andrew Levy announced he expects the carrier to “move in the direction” of charging passengers to stow carry-on bags in its overhead bins stating “the idea has a lot of merit” (USA Today, 10-Mar-2011). Currently Spirit Airlines is the only other US carrier to charge for this. Mr Levy reportedly stated carrying luggage on board “typically ends up delaying services and inconveniencing a lot of our customers”.
Allegiant to consider charging for carry-on baggage
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Spirit Airlines: touting solid financial position, but investors stay laser-focused on unit revenue
During the past year investor attention has pivoted away from Spirit’s steady balance sheet and strong cost base to the company’s deteriorating unit revenue – a scenario most US airlines find themselves dealing with as a result of lower fuel costs driving up capacity and eroding pricing traction.
Growing cash balances and sustaining favourable leverage remain crucial elements of Spirit’s business strategy. Keeping a stable cash position allows the airline to fund its higher than average growth, which continues to deliver strong margins according to Spirit's argument.
Its industry-leading cost performance is key to Spirit’s ability to sustain solid margins even as the US revenue environment remains weak. Although it faces some cost inflation in 2016, the airline remains focused on sustaining one of the best cost performances in the US airline business.
Allegiant Air weathers the prickly dynamics of a low fuel environment. Expects steady growth ahead
Although Allegiant Air has tweaked its unique business model during the last couple of years to capitalise on vacancies in medium-sized markets, opportunities remain for the airline in the more typical small markets that it links to its large leisure destinations. Its growth strategy is to operate a mix of those smaller routes and continue to add medium-sized markets when the opportunity arises.
The company may find increasing competition from US ULCCs that contemplate entering larger markets, but Allegiant believes that it can continue to grow in markets that Spirit and Frontier do not find attractive, and also that it has other structural advantages over those airlines.
Allegiant has not escaped the unit revenue pressure plaguing US airlines, but similarly to those airlines the company believes that it can achieve improvement in that metric during 2016. As it has previously noted, some of the revenue weakness is driven by Allegiant’s own growth which, the company stresses, is earnings accretive.