52-Hour Delays at Allegiant Travel Company (ALGT) Will Help Competitors: Alaska Air Group, Inc. (ALK)

Allegiant Travel Company (NASDAQ:ALGT) had a very rough beginning to the spring break season, as its Boeing 757 fleet was plagued by mechanical issues last weekend. More than 1700 Allegiant Travel Company (NASDAQ:ALGT) customers traveling to Hawaii faced delays of up to 52 hours. Since Allegiant Travel Company (NASDAQ:ALGT) flies multiple routes with each airplane, the delays affected passengers coming from at least five different cities on the West Coast.

The delays came about when three of Allegiant’s The Boeing Company (NYSE:BA) 757s ran into mechanical difficulties over the weekend. Allegiant primarily flies MD-80 aircraft, which do not have enough range to reach Hawaii; therefore Allegiant relies on its six 757s for all of its Hawaii routes. Since March is Allegiant Travel Company (NASDAQ:ALGT)’s peak season, the company did not have any spare aircraft available. In the end, it took days for Allegiant to resolve the mechanical issues and get its customers where they wanted to go.

Allegiant Travel Company (NASDAQ:ALGT)A win for the market leaders
Allegiant’s woes are a win for the two leading players in the West Coast-Hawaii travel market: Hawaiian Holdings, Inc. (NASDAQ:HA) and Alaska Air Group, Inc. (NYSE:ALK) . Hawaiian has been a major player in the market for decades, whereas Alaska has grown rapidly since entering the Hawaii market in 2007.

While Hawaiian and Alaska Air Group, Inc. (NYSE:ALK) generally cater to a more affluent and less price-sensitive customer than Allegiant, analysts have still worried that Allegiant’s low-cost model would draw some customers away from them. With significantly lower costs and higher ancillary fee revenue, Allegiant can afford to price lower than its competitors. Allegiant competes with Hawaiian on routes from Las Vegas and Phoenix to Honolulu, and with Alaska Air Group, Inc. (NYSE:ALK) on routes from Bellingham, Wash., to Honolulu and (seasonally) Maui. The carriers also compete indirectly in northern California, where Allegiant Travel Company (NASDAQ:ALGT) flies to Stockton, which is about an hour’s drive from Sacramento and the Bay Area.

Allegiant’s latest misstep may help Hawaiian and Alaska Air Group, Inc. (NYSE:ALK) convince their customers that paying a little extra for a better carrier is worthwhile. Allegiant had similar mechanical troubles leading to long delays last November. Suffering two major mechanical incidents in just four months casts some doubt on the reliability of Allegiant Travel Company (NASDAQ:ALGT)’s Boeing 757 fleet, which are 20 years old on average. By contrast, Alaska and Hawaiian have younger and larger fleets, which makes them unlikely to suffer such long delays due to mechanical problems.

Not worth the savings
Ultimately, travelers going to Hawaii are looking for a relaxing, refreshing trip. The stress of having a flight delayed by a day or more negates that goal. Furthermore, the cost of missing a day of work could easily offset any money saved by buying the cheapest ticket. Allegiant Travel Company (NASDAQ:ALGT) will still thrive in its niche of smaller markets that don’t have other direct service, and will also cater to the most price-sensitive travelers. However, for most customers choosing between Allegiant and either Alaska Air Group, Inc. (NYSE:ALK) or Hawaiian, paying a little extra to fly a more reliable carrier will prove to be the best deal of all.

The article 52-Hour Delays at Allegiant Will Help Competitors originally appeared on Fool.com and is written by Adam Levine-Weinberg.

Fool contributor Adam Levine-Weinberg owns shares of Hawaiian Holdings. The Motley Fool has no position in any of the stocks mentioned.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

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