Allegiant and Boeing announced last week that the airline would buy 50 737 MAX aircraft with options for another 50. On the surface, this sounds crazy since Allegiant is an Airbus operator that generally prefers to acquire used aircraft. But this isn’t crazy; it’s just a further continuation of Allegiant’s strategy to take advantage of good opportunities when they arise.
According to ch-aviation, Allegiant today has 35 A319s and 86 A320s in the fleet. The A319s might seem like a bad airplane for a low-cost operator, but these are special A319s that have two over-wing exits on each side and consequently can hold 156 seats. The A320s come in two flavors… 27 of them have 177 seats while the rest are at 186. Thirteen of the A320s came factory fresh from Airbus while the rest were all second-hand.
Allegiant likes the A320s, and in fact, on a call last week it said it actually has placeholders in its fleet plan for an additional 22 that it expects to pick up on the used market. The A319s, well, it likes to consider those a swing fleet. It may very well retire them in 2025, or it might not if there is opportunity.
As CEO Maury Gallagher explained on that call, Allegiant is planning for a 10 percent growth rate per year through the end of the decade, getting the airline into the 250 fleet range. According to Maury, there just isn’t a way to get enough aircraft on the used market to make that happen. After all, Allegiant won’t just take any airplane. It needs something that fits the fleet well.
Enter Boeing, a company that has had a rough go of it for, um, well, for a long time. This year the MAX has proven itself as a reliable and safe airplane, and Boeing has sold a decent number of aircraft. But the manufacturer just recently lost two high-profile deals to Airbus at Qantas and KLM, both of which operate Boeing narrowbodies today. Boeing needed a win, and this was a great opportunity to get it.
Allegiant will take 30 of the MAX 7 aircraft and 20 of the MAX 8 200 planes which were purpose-built for Ryanair to be able to cram more seats into the airframe. The MAX 7 may seem like an odd choice until you realize what Allegiant will do with them. The airline is planning for a remarkable 173 seats onboard. Southwest, for comparison, is planning for only 150.
With 173 seats, the economics of that airplane become very good. Of course, it can’t beat the seat costs of putting 200 seats on the MAX 200, but look at this from Allegiant’s presentation.
In this configuration, seat costs per departure are about $10 below what they would be in Southwest’s configuration. Think about it another way. Including ownership costs, the MAX 7 will be cheaper to run on a per seat basis than the A320. That is pretty fantastic.
This, naturally, means Allegiant got an incredible deal on the airplane, and that is no surprise considering how much of a win Boeing needed. From Allegiant’s perspective, it could get a cheap, efficient airplane and it could get it soon. First deliveries are in June of next year. Even if it could get a good deal on the neo family from Airbus, which it probably couldn’t, there aren’t delivery slots to get Allegiant the airplanes it needs when it needs them.
What about the A220? That was in the mix, but there are a couple issues. First and probably most important, Allegiant wants to be able to go bigger. While an A220-500 might get built, it won’t happen soon enough for Allegiant’s needs. And by the way, putting 173 seats on the MAX 7 makes it easily competitive with the A220 anyway. The other A220 concern, according to Allegiant, is low spare parts coverage.
So, with the right ownership costs, the MAX starts to look pretty good to Allegiant. But wait, there’s more. Mentioned multiple times on the call last week was the engine commonality. Allegiant has CFM engines on its Airbus fleet, and it will also have CFM engines on the Boeing fleet. (The A220s is Pratt-powered.) I have little doubt that Boeing sat on GE/CFM to help sweeten the pot. Allegiant noted that it will receive “enhanced” support on its existing engines as part of this deal. Just call that the cherry on top of the sundae.
Still, I know many will have trouble getting over the idea that two fleet types adds complexity and is costly. But it’s really not when you have fleets this big. Further, Allegiant’s unique network strategy makes it even less problematic.
Allegiant has its big bases in places like Las Vegas and Orlando/Sanford, but it also has small bases scattered around the country in places like Des Moines, Grand Rapids, and Knoxville. While it had about a third of its flying from those small bases in 2019, that has climbed to nearly half in 2022. And Allegiant thinks of those like mini-airlines.
The airplanes and crews start every day in each base and finish their days there as well, sleeping in their own beds. This self-contained operation means Allegiant can create Boeing bases and Airbus bases and not have to duplicate spare parts, etc in those smaller markets. That’s yet another reason Allegiant can do this without much trouble.
For Allegiant to get all these airplanes for cheap along with engine support on the entire fleet means the airline can easily fulfill its growth plan with less hassle. This is a great coup for the airline. It’s also a big win for Boeing to finally get a sale of the MAX at one of the US ULCCs, so everyone should be happy.