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.
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]
