Deal-Seeking Fliers Could Compound Allegiant's Revenue Woes
Photo courtesy of Allegiant
Allegiant Airlines is moving to address safety concerns, solve its on-time performance problems, improve labor relations and upgrade its fleet. These improvements will take time, but recent employee contracts and airplane order plans show that Allegiant is moving, however slowly, in the right direction.
One issue may be harder to address: how to improve revenue while still catering to budget-minded travelers.
Allegiant has earned its customer base by offering fares that are lower than the competition. They have also focused their growth on smaller markets that legacy carriers are looking to get out of. These strategies have helped the carrier grow despite ongoing bad press from a series of emergency landings and extreme a la carte pricing policies.
As long as oil prices remain relatively low, Allegiant should be able to continue making money. The carrier, which has long been one of the most successful on Wall Street, is struggling with revenue problems just like most other US-based airlines. However, unlike other carriers, Allegiant’s regular customer base could keep it from correcting this issue.
Allegiant has seen a significant increase in the number of off-peak travelers. This has been good for its overall profits, but it has hurt unit revenue performance because the airline is earning less per seat mile than it would if more fliers opted for more-expensive peak time flights.
Could the off-peak trend be the sign of a larger problem that could affect other ultra low carriers?
In larger markets, Allegiant competes on one thing: price. People certainly don’t choose the airline for its on-time performance or its customer service record. It makes perfect sense that budget-minded travelers would not only choose Allegiant or another low cost carrier, but would also opt for the cheapest flight available on that airline. Choosing an ultra-low-cost carrier is already a compromise of sorts, so the additional compromise of flying late and night or early in the morning is not that much of a leap.
Perhaps ultra-budgets realize this problem. They seem to be trying to give people other reasons to choose them.
Allegiant, along with Frontier and Spirit, is trying to expand into smaller markets, using its low operating costs to make these lower-demand routes profitable. This small-city expansion has hit Allegiant's revenue figures. In the long run, though, it will give the airline access to fliers who are not just choosing the brand because of price but because it provides the best connections from their market.
The next few years will be key for Allegiant. The media is focused on its recent safety issues. The airline is promising to upgrade its fleet to solve these problem. Even with the emergency landings and FAA investigation, however, Allegiant managed to be the most profitable American carrier in 2015.
As oil prices continue to rise, fares will most likely inch upwards. This may draw more people into the ultra low cost marketplace, but it will also give frugal travelers a reason to fly off peak. This could keep low cost airlines like Allegiant from fixing their revenue issues as quickly as full service carriers.
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