Walking through Allegiant’s recent investor presentation is like walking through an alternate universe. For years, Allegiant was known as an airline with poor operational performance and widely-reported safety concerns. Now, however, Allegiant is looking like an operations machine. The hard part is going to be changing customer perception.
Let’s start with the basics, on-time performance and completion factor.
This is exactly what you want to see from an airline with a commercial strategy like Allegiant’s. Allegiant doesn’t sell connections, so if flights are late, it’s not as big of a deal as with traditional network airlines. Finishing in the middle of the pack is about where you’d want the airline to be.
Cancellations are an entirely different story. Allegiant has very infrequent flights in markets that often have no other options. As I read through these numbers, I kept thinking about a Cranky Concierge client that was recently flying from St Petersburg, Florida to Bangor, Maine.
The inbound Allegiant aircraft had to divert to Columbia, South Carolina (not sure why), and we were afraid it would cancel. We started looking at options, but the best we could find was to have the client drive to Tampa and then connect up to Bangor. It would not only have been a giant pain, but it also would have cost a whole lot more. For most Allegiant customers, that’s just not an option. Fortunately, the flight was “just” delayed for 6 hours, but it did go. And that is really what matters for an airline like this. Allegiant should be leading the pack when it comes to completion factor, and it now is.
Some of this improved performance is due to the retirement of the old MD-80s, but it’s more than that. For example, Allegiant is spreading out and opening new, small bases.
The headline on this slide says that “small bases drive operational improvement with small efficiency cost.” That is a very important statement. In the past, Allegiant was all about driving cost down no matter what. It now looks like an airline that is willing to absorb some costs to make the operation run better if there is benefit to doing so. In this case, you can see that the big bases get more than 70 block hours per employee. These smaller bases are less efficient, but keeping aircraft and crews scattered around the country makes it easier to recover when things get ugly in one place.
This isn’t a charity however. This isn’t about Allegiant wanting to run an airline better just to be more customer-friendly. There are numbers that make these decisions look smart.
For the first nine months of 2019, Allegiant had net income of $171.6 million. If you look at the year-to-date numbers, it has saved over $25 million in costs due to improved operations. That is a substantial amount of money that can help to easily justify some of these investments. This is the same thing Spirit realized a few years back when it started prioritizing running a good operation over hammering down operating costs.
Allegiant is also getting into predictive maintenance, and it seems to be paying off there as well.
The idea is that Allegiant uses a system which combines a ton of data to try to predict in advance when something is going to fail. The airline can then schedule maintenance to fix those issues when the aircraft isn’t supposed to be flying, before the part fails. Those charts above make it look like there have been pretty substantial gains in operational reliability using this system.
This is welcome news for Allegiant and for travelers, but Allegiant needs people to know the airline has changed. That’s the hard part. The airline doesn’t seem to be communicating with a message of “hey, we don’t suck anymore.” Instead, it is just trying to push its brand out there to improve awareness and hope that people forget about the past.
I’m simplifying, of course. I recommend a read through the presentation to see just how much effort Allegiant is putting into the right kind of marketing. In fact, I’d suggest reading the entire presentation, because there are some fascinating charts about marketing, revenue, and network strategy in there. This was quite a thorough and helpful presentation from the folks at Allegiant. It feels like a different airline.