Allegiant Air's intriguing gamble on the resort business attracts scepticism, but execution is key

Every time an airline decides to diversify into an entirely new business, the decision is met with a healthy level of scepticism by the investment community, and Allegiant's plan to build a resort in southwest Florida near its base in Punta Gorda is no different.

Although the company's stock valuation has risen since it outlined plans to develop its Sunseeker resorts, Allegiant is still trading below its year-long highs.

Allegiant has always positioned itself differently in the airline/travel space, using older aircraft to operate a schedule of less than daily flights from small to mid size US cities to large tourist destinations, including Las Vegas and Orlando. A key component of Allegiant's revenue has been sales income from selling hotel rooms, vacation packages and rental cars, so its resort/hotel concept is not a surprising move.

Of course, for Allegiant the execution is key. The company is spending a lot of time attempting to allay investor concerns about the risk it is undertaking with Sunseeker, taking a page from Delta's playbook with its Trainer Refinery, and stressing that its capital outlay is essentially the cost of narrowbody aircraft.

But the decision to entrench itself deeper into the travel space carries a certain level of uncertainty about how Allegiant will prioritise managing its new resort alongside running the day to day operations of an airline.