Allegiant Tweaks Its Model to Run Toward Competition

Allegiant

Allegiant has a habit of announcing a bunch of new routes all at one time, and last week was no exception. The airline rolled out 15 new routes and 5 new cities with another one coming this week. If you don’t live in one of those cities, it would have been easy to just ignore the news, but you shouldn’t. There’s a subtle shift going on in Allegiant’s business model. And according to the airline, the shift is due to competition. It’s not running away. It’s actually running toward it.

Allegiant Strategy Shift

Allegiant’s model has long been based on the simple idea of connecting people in small cities to large leisure destinations. This worked first in Vegas, Allegiant’s home base, and then it spread to several other places, many in Florida. The beauty of the model was that Allegiant could fly nonstop a couple times a week to places like Rapid City or Springfield. The fares were low AND the flights were nonstop, so it was irresistible for travelers. That’s why the airline has done so well.

But in this last announcement, Allegiant is shaking things up. Instead of small cities, Allegiant is now connecting mid-size cities with leisure destinations. While the “small” cities are getting bigger, the leisure destinations are getting smaller.

The new cities announced last week are Pittsburgh, Indianapolis, Omaha, Richmond, and Jacksonville. Then this week, Allegiant announced New Orleans service. Jacksonville and New Orleans are cities that couldn’t really support flights to small cities like Rapid City and Springfield. But when those “small” cities become places like Indianapolis and Pittsburgh, the demand is strong enough to support flights to smaller leisure destinations like Jacksonville.

What’s really strange about this is that Allegiant, an airline that used to pride itself on having almost no nonstop competition in its markets, will find plenty of competition here. Most of these routes have other airlines with nonstop flights on them already. And we’re not just talking about traditional hub-and-spoke carriers. For example, Indianapolis to Vegas and Orlando? Those are Southwest markets. And they’re not alone.

Of course, these markets aren’t the first ones Allegiant has tried like this. Allegiant does fly Austin to Vegas already, and the airlines has been ramping up in Cincinnati as Delta’s presence has shrunk. But why is Allegiant changing its model?

According to spokesperson Jessica Wheeler, the airline isn’t changing its model at all. “What we’ve been doing for a long time is making nonstop leisure travel accessible. For many years, that was geographic accessibility. As we grow and mature a little bit, we’ve started to define accessibility a little more broadly.”

So is that code for “we’ve run out of small city ideas, so we’re trying something else”? I asked Jessica.

No, we’re not out of small city ideas. We’re in an interesting atmosphere where other carriers are also looking at these medium hubs. We know it’s unlikely that other carriers will go after those [small city] markets so what you see is a little bit of a race to get to those markets where there’s a lot of interest, those medium hub markets.

Well that’s interesting. With Spirit and Frontier growing quickly, Allegiant has decided it wants to play in those markets as well. Allegiant has focused itself on leisure markets so that is narrower than Spirit’s model. But Frontier has been aggressive at connecting mid-size markets to Florida. Allegiant seems to be getting anxious about that.

In other words, small cities will just have to wait because there isn’t a competitive hurry. But why is it that medium-size markets are such a hot thing now anyway? Well, first you have a lot of capacity coming out of those markets. Hubs have been abandoned so the opportunities are there for others to come in. But most importantly, fares are getting expensive.

Many of these markets were served by AirTran, but AirTran is gone. Southwest may still serve some of these markets, but their fares are high now. So the ultra low cost carriers see nothing but blue sky ahead as they look to add service at low fares.

So far, the results are good. Take a look at slide 17 in a recent investor presentation.

Allegiant Passenger Stimulation

In Austin to Vegas, fares haven’t changed much for the existing carriers and traffic has remained steady. But Allegiant has come in and cut the fare by more than half while stimulating the market. It thinks there’s more opportunity to do that.

Of course, the more Allegiant grows into these types of markets, the more other airlines are likely to try to defend their turf. Allegiant hasn’t really had to worry about that before, but something tells me it’s not going to be as easy of a path as the airline may hope.

[ Original scales of justice image via Shutterstock]

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10 comments on “Allegiant Tweaks Its Model to Run Toward Competition

  1. Very interesting, Allegiant is pulling out of small market Lansing, Michigan starting in January with the explanation of a “pilot shortage” they say it is just a temporary move but at the same time they are expanding into midsize cities. Hmmm…….

  2. I like this idea since southwest is no longer the low cost leader and hasn’t been for a while. Of course this airline has also fascinated me. I think it will do well in PIT. There is always a ton of demand for Florida. Now if they would add ISA because PIT to PHX isn’t very cheap.

  3. It will be interesting to see how things shake out in the Florida leisure market, as more and more ULCC capacity gets dumped onto the panhandle, central, and Gulf destinations. For example, the Tampa Airport Authority is projecting a doubling of passengers in the next two decades, and is promising a big expansion push. But how will that impact costs for ULCC’s going there, and if budget conscious leisure travelers are the primary driver, how will that impact their desire to go to Tampa? I can see this across most of the non South Florida destinations; how will expansion eventually impact prices and drive away the budget conscious leisure traveler?

  4. It’s all about money, moving into bigger cities means they can charge more but still be less then others in the market. While bigger cities mean higher costs on the ground, it still can balance out with more people to draw from paying higher fares. It’s still not daily service so one aircraft can connect a lot of city pairs in a seven day period so there shouldn’t be a lot of empty seats.

  5. Allegiant. I can’t believe there is any airline in the industry that has started more routes and then so quickly (subjective, of course) ended them. In, then out. No particular reason other than they’ve milked the route for all it’s worth and off they go to what appears to be greener pastures, and someone more willing to meet whatever Allegiant wants. It’s just their modus operandi but it’s not one in which I partake.

    Of course, all airlines do it, but Allegiant is the industry leader.

  6. Here in RIC, it’ll be interesting to see how it plays out. The news articles about their arrival referenced their short tenure at Charlottesville airport (CHO), about an hour west, that started in November 2013 and ended last February. And it came out practically the day after the PeoplExpress was officially kicked out of nearby Newport News airport (PHF) for not paying their fees, said to be in excess of $100k, although that line had basically stopped service there in September after only three months. The juxtaposition reminded local travelers of the problems with low-cost carriers.

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