Allegiant Update
Allegiant Air VP fleet planning and corporate finance Robert Neal discusses the phase out late this year of the MD-80, which has been the backbone of Allegiant’s fleet for more than a decade. Allegiant plans to add 10 A319s and 20 A320s in 2018 as it phases out its last 37 MD-80s. While the total fleet is declining by seven aircraft, Allegiant continues to expand due to higher utilisation and the need for fewer spares as it transitions to an all A320 family fleet. The airline has no intentions of adding A321s or A321neoLRs, which would provide Allegiant the range to operate across the Atlantic. Mr Neal talks about why Allegiant plans to stick with A319s/A320s and the possibility of expanding into the international market with flights to nearby Canada, Mexico and the Caribbean.
Transcript
Robert Neal:I mean, it's a transition to the next phase of Allegiant, right? I mean, we think of the A320ceo as someday being like the MD-80 was. It's an airplane that will be out of production, and we think we'll be an operator of that fleet type for many, many years to come. I mean, operating the MD-80 means that we are operating aircraft that have slightly lower reliability than the A320, and so a fleet of MD-80s requires that you carry a lot of spare airplanes. Once we're in an all-Airbus fleet, the number of spare airplanes sitting at the gate, hot spares ready to go, will be significantly reduced. So when you think about the fleet moving from 89 aircraft to 82 aircraft, think about the number of spare aircraft not being utilized reducing from sort of 13 to 4 or 5. So the A319 is 156 seats. Our MD-80s were 166 seats. So those airplanes are a slight downgage, but you're getting a little bit higher utilization on them. And then on the A320s, you're moving from 166 to 177 seats. And then our new A320s are 186 seats. Eventually, we'll modify the whole fleet to operate at 186 seats. It's a gain of 20 seats per departure. Yeah, this is a little bit outside my area, but I guess I can tell you kind of how they think about that. And that would be bases like Orlando Sanford has a lot longer lines of flying, and we have higher aircraft utilization more consistently. So Orlando Sanford Sanford, for example, doesn't have aircraft parked on Tuesday, Wednesday, or Saturday to the same extent that Las Vegas would. And so those are bases where we would first put the A320s, where they'll see the most utilization. And new airplanes in particular, we sent to, I think, Orlando, Sanford, and Punta Gorda in Florida. It's funny, actually, when I first started in this role, we had put another MD-80 into the fleet, and we surveyed passengers. And one of the things that the passengers told us that they liked was that we operated brand new airplanes. I mean, the cabin looked brand new, but this was an airplane that was 25 years old at the time. So, you know, I don't think that the passengers know the difference when they step onto a used versus a new A320. Yeah, we definitely do have some thicker routes, and I'm sure there are some days and some times of the year where our network planning group would like to have an A321. But I think the question is, are you willing to make the commitment to put an A321 on that route all year long? And think about kind of our network where we fly 2 or 4 times a week to most of our markets. We're already very closely matching demand with capacity. And so it's kind of a big jump to move into an A321, and there's just a limited application for it in our network. I think if we were to introduce the A321, it would be a fleet of, you know, 5 to 10 aircraft max, and you'd have to make sure that you had proper sparing and other things, and you were consolidating them in the same bases. So I think the A320 is probably the right airplane for us for a while. I mean, the 757 was purchased with a specific intent to fly to Hawaii, and it did that. And we purchased that aircraft not for its gauge, but for its range. It was a lot of capacity as we flew from Hawaii into smaller markets like Eugene, Oregon or Stockton, California. But, you know, after we stopped flying to Hawaii, we used that airplane on other kind of thicker routes, as you describe them, places like McAllen, Texas, Cincinnati, Indianapolis. And so that's why, again, I think there's— there probably is some, some use for an airplane with the gauge of the 321, but it's just a limited application for us. We've been talking about international for years, and I mean, I think that the biggest thing that has stopped us from operating international is just that we continue to find more opportunities in the domestic U.S. You know, there's been a lot of consolidation in the industry, and we've been able to kind of grow into smaller, mid-sized markets, which are larger than what we had been flying in the past, and there's just more and more of that to come. So eventually we'll fly international, probably starting with destinations outside of the U.S., like Mexico or the Caribbean, and then hopefully someday source traffic from smaller markets in Mexico or Canada bringing passengers into leisure destinations in the U.S.? You know, I mean, again, this is a little bit outside my area, but I would say it probably is of interest to serve some of those markets. But then you kind of come back to the same question, which is how often can you utilize that airplane and do you want to commit to utilizing that airplane 10, 12 hours a day? So if you're buying a brand new airplane, you need to have— you need to feel pretty confident about how you're going to utilize it. And it's sort of a little bit of a shift from our business model, which is kind of the ultimate flexibility, buying assets at as low cost as we can and having the ability to dispatch them only when the proper demand is there. I mean, I think our first interest in Asia is, of course, the ability to acquire more aircraft to grow the fleet over the years. We've taken a number of airplanes from Cebu Pacific. We've taken a couple of airplanes from Philippine Airlines. They've both— both of those transactions have been a really nice fit for us. And then on top of that, in Asia, what we've been able to do since we've introduced the Airbus is source very attractive financing, particularly out of Japan. We do get calls about that from time to time. I know that in Japan, for example, we've had some consultants call us and just kind of ask for advice on it. I mean, I think one of the things in Asia that exists that's not a problem in the U.S. is just lack of airport infrastructure. In the U.S., we have lots and lots of airports that are underserved or not served at all. And in Asia, I think most traffic is kind of gravitating toward large, major O&D airports.
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