Allegiant Travel Company (ALGT) Keeps Flying for Shareholders

Page 1 of 2

Allegiant Travel Company (NASDAQ:ALGT) has been perhaps the most consistent performer in the airline industry over the past decade, delivering substantial profit to shareholders in the process. Last week, the company reported Q4 earnings that beat analyst expectations once again. Full-year 2012 EPS of $4.06 was a new record for the company. Moreover, Allegiant is well-positioned to generate another year of strong profit growth in 2013.

Fuel efficiency gains
Allegiant has historically saved money and increased its flexibility by minimizing aircraft-related capital expenditures. While Delta Air Lines, Inc. (NYSE:DAL) has followed a similar strategy of utilizing older aircraft than peers, Allegiant has taken this policy to the extreme. Allegiant only buys used aircraft, and until last year, exclusively flew the MD-80. However, this reliance upon cheap MD-80s carried a cost: poor fuel efficiency.

Allegiant Travel Company (NASDAQ:ALGT)As fuel prices have risen, Allegiant has moved to improve its fuel efficiency. Last year, the company added Boeing 757 aircraft, which are larger than the MD-80s and consume less fuel per seat. This year, Allegiant is adding Airbus A319 and A320 aircraft to its fleet, which use much less fuel than the MD-80. Lastly, Allegiant is about to finish a project to add 16 seats to each of its MD-80s, spreading fuel costs among more passengers.

Thus far, these actions have boosted Allegiant’s fuel efficiency by 11% in the past five quarters (from 59.1 available seat miles, or ASMs, per gallon of fuel in Q311 to 65.6 ASMs per gallon in Q412). The savings will have a significant impact on Allegiant’s bottom line. In 2012, Allegiant spent $378 million on jet fuel, representing 48.7% of total operating expenses of $776 million. As Allegiant’s fuel efficiency continues to improve over the next year or two, the reduction in fuel expense will boost the company’s operating margin.

New market opportunities
Allegiant entered the West Coast-Hawaii market in mid-2012 with two routes, Las Vegas-Honolulu and Fresno-Honolulu. The company added a number of additional routes to Hawaii in November, and this week it is adding service from three more cities (Phoenix, Spokane, and Boise). These routes were made possible by Allegiant’s acquisition of Boeing 757s, because the MD-80 does not have the necessary range for Hawaii flights. Hawaii flights fit in perfectly with Allegiant’s business model of bringing leisure travelers from smaller markets to seasonal warm weather destinations. Moreover, Allegiant will have competition on less than half of its Hawaii routes, because market leaders Hawaiian Airlines and Alaska Air Group, Inc. (NYSE:ALK) are not equipped to serve smaller cities.

Page 1 of 2
Comments
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months. Our beta is only 1.2 (don't click this link if beating the market isn't important to you).

Lists

On the Move: The 10 Fastest Growing Businesses in 2015

Fast Money: The 10 Highest Paying Fast Food Restaurants

Mixing It Up: The 14 Best Music Mashups of 2014

Rito Pls Buff: The 10 Least Played Champions in LoL Season 4

10 Covers of Popular Songs that are Better than the Originals

Must See TV: The 9 Most Anticipated Shows of 2015

The 15 Biggest Box Office Bombs of All Time

10 Things The World Can’t Stand About Americans

Picture Perfect: The 6 Smartphones with the Best Cameras

The 10 Best Countries To Work In the World

A Profitable Day At The Track: 5 Tips For Betting On Horses

Tearing You Apart: 6 Bad Habits That Ruin Relationships

Learning on the Job: The 6 Biggest Mistakes Parents Make

Shopaholics Rejoice: The 12 Biggest Malls in the World

Fright Night: 10 Horror Movies Based on True Stories

Mach Mania: The 10 Fastest Jets in the World

Military Heavyweights: The 10 Countries with the Most Tanks

All In: The 7 Richest Poker Players in the World

Abracadabra: The 10 Best Magicians in the World

The 10 Richest Asian Countries in the World in 2014

Eyes in the Sky: 10 Things You Need to Know About Drones

Rising Stars: The 6 Best Silicon Valley Startups

Military Muscle: The 5 Most Advanced Armies in South America

All that Glitters: The 7 Most Luxurious Jewelry Brands in the World

5 Things You Didn’t Know About ISIS but Should

Empowering Your Money: The 5 Best Energy Stocks to Invest In

The 11 Best Android Apps You Can’t Get on iOS

The 10 Most Important International Conflicts in 2014

Mood Enhancers: The 20 Most Uplifting Songs of all Time

Lover Beware: The 8 Countries that Cheat the Most

Breath of Fresh Air: The 25 Countries with the Best Air Quality on the Planet

Singles Beware: The 8 Worst Mistakes Made on First Dates

Healthy and Happy: The 10 Countries with Lowest Healthcare Costs

The 6 Best Company Team Building Activities to Build Workplace Camaraderie

Ships Ahoy: The 10 Busiest Shipping Ports in the World

10 Productivity Tips to Save You Time and Help You Do More With Less

Grab a Bite: The Most Popular Fast Food Restaurants in America

Friday Night Thirst: The 10 Most Popular Cocktails in the World

The 6 Greatest Unsolved Mysteries We May Never Figure Out

7 Useless Products You Never Should’ve Bought

The 5 Reasons Why You’re Single and Miserable

The 7 Most Addictive Foods in the World We Can’t Stop Eating (Even Though We Should)

5 Amazing Places You Can Swim with Dolphins

The Top 7 Most Livable Countries In The World

The 10 Most Expensive Baseball Cards Ever Pulled From A Pack

The 5 Easiest Second Languages to Learn for English Speakers

Silver Spoon: The 6 Richest Families in the World

The 20 Countries with the Largest Prison Populations in the World

The Top 10 Richest Actors in the World

The 10 Best Airline Stocks to Invest In Before They Fly Too High

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!