Allegiant’s Transformation Leads to a New Aircraft Order

Allegiant

I’ve always talked about Allegiant as an airline that loves buying cheap, older aircraft, so was I surprised when the airline announced an order for 12 brand-spanking new A320s last week? No. The whole “cheap” strategy still holds in this particular case, even if the airplanes aren’t used. This doesn’t change Allegiant’s model. It’s actually the opposite; it fits an Allegiant model that has already been changing.

Allegiant Orders New Airplanes

Once Allegiant figured out a strategy that worked (forget about those early, stupid years), the airline started minting money on infrequent flights from small cities to big leisure destinations. This was brilliant, because not only had Allegiant found an untapped market, but it realized that an airline with a traditional cost structure couldn’t really compete.

See, most airlines sink a ton of money into buying new airplanes, and they get great operating costs. But they’re still saddled with hefty fixed costs, so they have to fly those airplanes a lot in order to pay for them. What Allegiant figured out (and what Northwest also did for years, leading to Delta’s strategy today) is that if it could buy airplanes for really cheap, it didn’t have to fly them all that often. Sure, it would have to pay more to fly those airplanes in terms of fuel and maintenance, but if it only had to fly them on peak travel days, it could make bank.

And that is exactly what happened. Allegiant picked up a fleet of MD-80s for nothing, and it only flew them when it wanted. If I remember right, Allegiant didn’t fly at all on Wednesday Tuesday in the early days. It also parked much of the fleet in September once its Florida operation was up and running since nobody goes to Florida in September.

At the time, the MD-80s were the right airplanes, because they were cheap and nothing else newer was. But as time went on, that changed. A few years ago, Allegiant started identifying Airbus narrowbodies that it could get for cheap. Those were much more fuel efficient, and at first Allegiant targeted unique models that other airlines didn’t want (like the A319 with two window exits to support more seats). But prices on the standard A320 series aircraft started coming down as well. With that opportunity, Allegiant became an active buyer for second-hand A319s and A320s.

At the end of this year, its plan is to have 48 MD-80s in the fleet (some have been retired) alongside 17 A319s and 16 A320s. (Yes, there are also 4 757s for the ill-fated Hawai’i operation, but those are being phased out.) But this is just the beginning.

As next generation narrowbodies were introduced (A320neo and 737 MAX), even more options to get current generation A319/A320s for cheap came available. And Allegiant has bulked up. In fact, it had already committed to an additional 32 A320 series aircraft before last week. But now it has added 12 more, and these A320s are factory-fresh for the first time. That means Allegiant will have a total of 77 on the property.

Allegiant still isn’t done. It wants to have 90 to 100 A320 series aircraft by mid-2019, so that it can retire its MD-80s by then. Previously it had planned to keep them flying until the Fall of 2020, but I think there are two issues at work. First, A320 prices are low, so why bother continuing to fly older gas-guzzlers? But perhaps more importantly, MD-80s are getting harder to maintain. American’s will be long gone by then, but Delta is the key. And Delta is getting rid of them as well. Once those are gone, Allegiant is going to find it increasingly difficult to maintain that airplane, so it is moving forward with replacing the old bird.

But why go with new airplanes when you could pick up old ones? Well this is a particularly unique opportunity. See, most airlines ordering new Airbus narrowbodies today are picking up new A320neos. But there are still current generation A320s being built, and it’s like an Airbus ballet trying to wind one down and ramp the other up. It looks to me like Airbus had a gap, and that meant Allegiant could get these 12 end-of-line airplanes for a song. Smart move.

Let’s bring this back to the point: the changing model. In the second quarter, those MD-80s flew an average of only 4.9 hours per day. That’s crazy low. But the A320 family? Those flew 8.3 hours per day on average. That’s still on the low side, but remember, Allegiant is still buying cheap airplanes and keeping the fleet flexible. It’s just that now it has the ability to fly those airplanes more because maintenance burdens won’t crush the operation.

This might not have mattered to the Allegiant of old. After all, it didn’t even see a reason to fly on Wednesday Tuesday. But now, Allegiant is different. It has started moving into mid-size markets that have more demand on a regular basis. It flies routes like Austin, Kansas City, and Oakland to Vegas. It even flies Newark to Cincinnati, and other former hubs are seeing love as well. With these bigger markets having more demand, Allegiant not only can fly more often, but it needs a fleet that can reliably do it.

By mid-2019 those MD-80s will be gone (moment of silence). We’ll still see Allegiant’s utilization below other airlines, I think, but it’ll be higher than it used to be. These new Airbuses? They aren’t going to change that fact. They’re just going to fit into a model that has been changing for some time.

[Photo copyright Airbus S.A.S. 2016 – computer rendering by FIXION – photo by dreamstime.com – MMS]

[Updated 8/2 to reflect that Allegiant didn’t fly on Tuesday, not Wednesday, in the early days]

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16 comments on “Allegiant’s Transformation Leads to a New Aircraft Order

  1. Cranky, can you comment on the safety / maintenance “challenges” Allegiant faces? I don’t know how much of it is from older aircraft, difficult labor relations, or a genuinely broken safety culture.

      1. Yea, the FAA would have an easy time admitting to the public that it failed in its own oversight if it turned up any “major” safety issues. Gallagher brought the same safety culture and lack of operational control to Allegiant that he had when he cofounded ValuJet. I’d be much more interested in hearing what the FAA said to them behind closed doors.

  2. Definitely showing my age…I remember reading in Aviation Week in the early ’80s about the brand new, fuel efficient MD-80s coming onto airline properties…how times have changed!

  3. I’m curious about the maintenance issues that have been reported as well. There have been a few articles written by reputable newspapers about this. They operate flights out of Oklahoma City, mainly to LAS, but other cities as well. They are usually the cheapest option, but I refuse to fly them until the maintenance issue gets sorted out.

  4. Remember that there is nothing inherently safe/unsafe or costly/expensive about any airline’s fleet.

    It takes money and a mindset to avoid problems to keep older aircraft operating reliably and safely but it takes money and a mindset to avoid problems to keep newer aircraft reliable and safe as well.

    There are many current generation aircraft including the A320 that are 20 years or more old and rival the age of M80s. Those older current generation aircraft can be paid off just as the M80s are. The economics of paid for aircraft doesn’t change. The difference is that paid for aircraft likely will be more fuel-efficient.

    Allegiant can find more uses for its aircraft such that it can keep its fleet busier but a heavily leisure based airline will always use certain portions of its fleet less than airlines which fly both high percentages of both business and leisure passengers.

  5. Don’t all of Easyjet’s 100-something A319s have two window exits on each side? If so, would it still be considered such a unique model?

    1. Ron – Yes they do because they wanted such high capacity. But other than Cebu Pacific, they were the only ones. So there are certainly a fair number of airplanes, but nobody else wanted them.

  6. Wasn’t the MD-80 family produced through the late 1990’s? Sure it’s an ancient airframe if you look at its history going back to the DC-9 but if we’re talking about nothing but age you can get MD-80’s that are newer than a lot of A320’s still flying today. This story to me is less about age of aircraft and more about efficiency. That said, one would imagine used A320’s are at fire sale prices if a factory new “classic” model is had for a song. Why isn’t Allegiant going after those? For that matter, Delta? Is this a strategy change for Allegiant? There’s more to this story, that I’m sure of.

    1. Wonder how long before the mechanics unionize. The mechanics helped out the pilots with their negotiations by leaving a few bolts out here-and-there (I’m just kidding) negotiations. Now it is the mechanics turn to head for the picket line. My guess is that Allegiant needs to get their maintenance costs down in case of unionization.

    2. A – This isn’t about the age of the airframe at all. It’s about efficiency and the A320 is a step up from the MD-80. But Allegiant is going for used A320s as well. Remember it’s getting 65 in the door, all used, before it gets its new deliveries. This is just another way to get airplanes.

  7. I was comparing the Allegiant and Spirit websites over the weekend and unless I missed something on the Spirit site, Allegiant does a really good job explaining itself and offering all those Q&As to help people use and understand Allegiant.

    But a big plus for Spirit is they at least have an online timetable to help people.

    1. I have a trip coming up. Spirit is $110 R/T, everyone else is $300+… BUT, the Spirit flights require a 2 hour drive each way to big city airport, I don’t trust Spirit to be on-time and cancel-free (even though I checked FlightStats and these particular flights have great OT records and no cancellations in the past 2 months), I hate how scummy Spirit’s web site feels with the constant upsells (it would be ~$200 just with a checked or carryon bag each way and printing a boarding pass at the airport), and as a person who is 5’11” with a 42 inch waist, a 28″ pitch seat seems like a great way to have a week of back pain.

      Long story short, I decided I would rather drive 660 miles each way across the Midwest (in summer, in a car with no A/C) than deal with Spirit.

  8. I really like G4’s business model and have always followed them closely and hope they perform well. But I have no interest in ever flying them. Is that wrong?!

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