- Global: +2.9% capacity, +1.9% scheduled services year-on-year;
Global seat capacity up 2.9% in Jan-2012: OAG
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Allegiant: a successful niche player with wider lessons for the world's airline industry
Allegiant's business model seems to fly in the face of conventional wisdom. A fleet of old, fuel-inefficient aircraft, flying with low frequencies and at low daily utilisation rates in markets with a high degree of seasonality. Yet the ultra-LCC is consistently profitable and generates free cash flow (operating cash flow in excess of capital expenditure), unlike most of the airline industry.
Allegiant's Vice President for Fleet and Corporate Finance told CAPA's Airline Fleet and Finance Summit in Mar-2014 that his airline was "built to be different". Of course, no business proceeds entirely smoothly and Allegiant faces some challenges, including labour relations issues and successfully taking its business model outside the contiguous United States.
Nevertheless, its return on capital employed is consistently the envy of most carriers. How does Allegiant achieve its strong financial results and what can the rest of the airline industry learn from its approach?
The airline profit cycle: what goes up must come down. Possible warning signs as Farnborough nears
After another year of record high aircraft orders in 2013, both in absolute numbers and as a percentage of the fleet at the end of the previous year, there is naturally some concern in the industry about the impact this might have on capacity discipline.
CAPA has looked at this and related concerns a number of times before, but they continue to occupy attention. IATA published its updated airline industry financial forecast in early Jun-2014 and we have now passed the half-way point of 2014. Just ahead of the Farnborough Air Show, we recap and update our analysis of the global airline profit cycle and its relationship with the capacity cycle in this report.
The airline industry is well above historical mid cycle margins and still in the upswing phase. Moreover, there are signs that the current rising trend of sector profitability is not purely cyclical, but that it may also have a structural dimension. However, what goes up must come down. Are there very early warning signs of an approaching downswing?