Allegiant Is the Latest To Get Operational Religion

Dec 2, 2019

More Reading on This Topic: Allegiant

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.

Brett

14 responses to “Allegiant Is the Latest To Get Operational Religion”

Evil Bob Crandall

Dec 2, 2019 at 6:01 am

CF,
I’m sorry for sounding naive but what little I know about block times how does this correlate to an employee? Doesn’t ATC and WX play a part? And how does Allegiant compare to the “Big 4”

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1. CF
  
  Dec 2, 2019 at 2:21 pm
  
  Evil Bob – It’s just a way to measure efficiency. From a comparative standpoint, the point is that they can be more efficient at bigger stations. I wouldn’t put much stock into the meaning of the numbers themselves.
  
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Matt D

Dec 2, 2019 at 6:45 am

This paradigm shift most likely signals one of two things:

Either they smell trouble in the economy brewing in the not too distant future and are trying to get ahead of it by making themselves a little more palatable. If/when it goes south again (which it will eventually), the first thing most people cut from their budgets is travel. And considering what their bread-and-butter market is, it isn’t at all difficult to infer the implications of that.

The other possibility is that this is being done in preparation of a merger, which I’ve been saying for awhile now that another wave is coming. There’s probably a lot of window shopping and tire kicking going on, but everyone is waiting for someone else to actually make the first move.

And no one is going to want to get hitched to a hot mess that Allegiant is/was.

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1. Sunny leveson-jones
  
  Dec 2, 2019 at 10:37 am
  
  Honestly, I don’t think allegiant is a good target for a merger, just because there is no other airline in the US quite like them, and I can’t see any real synergies between them and anyone else. IE the legacies are not likely to be interested, just because of antitrust concerns, and the increased labor costs that would come with it. The only possible merger for G4 is SY, but if I had to guess SY gets eaten by WN, a B6 AS merger, following in the path of AW and US. Then an NK and F9, but really allegiants strength is that it has no competitions on virtually any of its routes, and no one else offers a similar product, but that essentially precludes a merger. IF I had to guess this is mostly the change for MD-80 to a319 coming to pass, and their increased staffing, as the pilot shortage is starting to hurt the LCC’s who could rely on a continuous supply of pilots from the regionals, because when mainline wasn’t hiring being at the LCC’s beats being at the regionals by a long shot. I personally think it was just someone pointing out that allegiants crappy reliability was costing them a lot of money, and that while no one cares about their on-time performance their completion factor is a big deal, make someone start their vacation a few hours late, who cares, make them miss half the package you sold them, and there is a bigger issue,
  
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  1. Ian L
    
    Dec 2, 2019 at 1:18 pm
    
    F9 and G4 actually have pretty similar models these days, though in some areas the route overlap would be concerning (e.g. CVG). And F9 could learn a thing or two from G4 in terms of on-time and completion apparently. Maybe NK is a merger candidate for either. But no other carrier could make the networks of those three work.
    
    That said, I’m right there with you on an AS/B6 merger. SY could go to either WN or AS, with MSP having a better chance of surviving unscathed if AS picked it up.
    
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    1. Sunny leveson-jones
      
      Dec 2, 2019 at 2:26 pm
      
      Allegiant does some flying that is more typical ULCC stuff, but most of their flying by far is the once or twice a week stuff to towns of 25,000 or less, that make below the national average income look through allegiant route map, and see just how many tiny towns you have never heard of they serve https://www.allegiantair.com/interactive-routemap. I personally believe southwest will take sun country just because southwest has consistently shown they think they know exactly what they are doing and intend to keep doing it (Look at how fast they ditched the AirTran 717’s), and southwest has acquired every regional 737 LLC, so I expect next time mergers go around, their going to find SY the most comfortable and easy to handle option, which works with their infrastructure and mentality. B6 and AS are going to be forced together by corporate contracts because before delta started pushing into Seattle and Boston, they basically controlled the corporate contracts in those markets but delta is going to be offering a far more wide-ranging network with global options, which many of these companies could not get on one contract before. I suspect once AS has fully integrated VX and the max is ungrounded they will start making moves, especially because they have shown willingness to handle more complicated fleets in the past, and i actually suspect we might see a two brands one pilot/fa group joint product eventually strategy, just because Alaska tests poorly on the east coast and JetBlue tests poorly on the west coast, but that may change in time. Then F9 and NK are going to merge because they would suspect kind of like American and US Air, that if they don’t merge they will be crushed by these larger players, then throw in similar business models, and similar fleets with the one problem being engine types. At least that my opinion of how this will go
      
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  2. oldiesfan6479
    
    Dec 2, 2019 at 2:55 pm
    
    …following in the path of HP and US (not AW and US).
    
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    1. Sunny leveson-jones
      
      Dec 2, 2019 at 3:56 pm
      
      Thanks sorry, its impossible to keep all these codes straight
      
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Tim Dunn

Dec 2, 2019 at 8:34 am

There isn’t a single airline that can argue that running a poor operation is better than running a good one. Some airlines have just figured out how to fix the perpetual problems that cause airline operations not to run well while others still struggle.
Allegiant’s network and type of business means they have less margin and less ability to recover from operational problems but all U.S. airlines must run well or lose competitors to better-run business.

Allegiant, like Spirit and Frontier, have created a new market for air travel for very price sensitive passengers that weren’t willing to pay what legacy or traditional low cost airlines like Southwest or JetBlue charge. Others, as Allegiant notes, are customers of other airlines that are willing to pay less for much less service (180 passengers on an A320, an ala carte pricing model).

Not every other airline wants to chase every customer that the ultra low cost carriers attract; economy basic provides some incremental passengers to other airlines but those are just what fills up otherwise empty seats rather than being the focus as it is for ULCCs. As long as other airlines can fill aircraft with passengers that pay higher, everyone wins.

Allegiant is maturing as a business and in its model. Good for them.

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1. Sunny leveson-jones
  
  Dec 2, 2019 at 10:40 am
  
  I think the package operators were a big part of pushing them to fix this, cars sitting on lots, or hotel rooms no filled because allegiant cancelled cost everyone involved money, and while there generally isn’t another affordable option in small towns a crappy reputation means people are more likely to drive the 3-4 hours to get to a hub/focus city, where they can get to where they want to go non stop, besides if Moxy eventually gets off the ground they are going to be playing in many of the same markets, which means allegiant isn’t going to have the playground to themselves anymore.
  
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Alex

Dec 2, 2019 at 8:50 am

I flew Allegiant from TYS recently and was really impressed. The crew had their act together and turned the plane around quickly. The A320 interior was clean, and the seats were modern-looking. Comfortable flight that left and arrived on-time – I would definitely fly them again.

An underrated aspect to their success is the loyalty they inspire in the (comparatively) tiny markets they draw origin traffic from. Airport managers are thrilled to have an airline operating full-size jet airliners, and are willing to bend over backwards to help make things work. Most customers have pretty minimal awareness of the Allegiant brand before they book a trip, but I’ve seen normal (non-avgeek) people be delighted by the fact that there are direct flights to their vacation destination available from their local airport. They aren’t “loyal” in the sense that they’re going to start flying 40+ times per year, but they will tell their friends and family about it, and those people are more likely to book trips as a result.

Overall I’m a huge fan of the competition and choice that Allegiant, Frontier, and Spirit have introduced to small markets that historically only had really expensive regional flights.

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1. Sunny leveson-jones
  
  Dec 2, 2019 at 10:48 am
  
  They definitely have the ryanair effect, where people will go to X instead of Y just because you can fly there cheaply and nonstop, especially for families with little kids, they don’t like hubs and connections because it’s really stressful trying to get little kids through a big airport efficiently while a ULCC cattle-car is not a fun experience onboard, generally the kids are going to be excited because their going to Disney/the beach, a lot of the people on here (including me) don’t consider that because most of us have status/long access, and if not generally like watching airport ops, but for most people its not that fun.
  
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Kilroy

Dec 2, 2019 at 8:56 am

Glad to see that Allegiant is focusing on this.

I have “booked away” from Allegiant in the past, and strongly advised family to as well, simply because their operations were so notoriously bad. When weather is decent and a legacy airline cancels a flight, odds are good that you get out the same day, maybe the next day at the worst. As Cranky rightly points out, with Allegiant’s sub-daily frequency on many routes, when Allegiant cancels a flight your weeklong vacation is ruined, as there is a good chance you lose several days.

I’m still skeptical, and still very hesitant to choose Allegiant (as the ULCC cattlecar feel isn’t my idea of fun), but if they continue to make progress in operational reliability I will start considering them if the price is right.

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Linda

Dec 3, 2019 at 9:05 am

Allegiant is getting considerably higher priced for a few target areas. They will price themselves into a merger. Their customer service is basically nonexistent and THAT hurts them miserably.

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