Revenue greater than 2019 and profit
Allegiant Air has achieved a rare feat in the era of the pandemic: It is one of the only US airlines to report more revenue compared to the third quarter of 2019, and it made a profit. But all was not clear for the leisure-oriented airline. Allegiant has discovered the hard way that restoring flights after the 2020 cuts is easier said than done.
“This industry has been running like a Swiss watch in 2019,” CEO Maurice Gallagher told analysts during Allegiant’s third quarter earnings call on Wednesday afternoon. “But it’s almost like we’ve forgotten how to deal with disruption.” During peak summer demand, Allegiant, like Delta Air Lines, Southwest Airlines, and American Airlines, have canceled hundreds of flights and left passengers stranded across the country.
The main problem was work. Most of the airports served by Allegiant are located in smaller metropolitan areas. The airports did not have the best traffic levels of 2019, and neither did Allegiant. Pilots and crews often found themselves in the wrong city or ran into their federal service time limits, with no reserve crew to meet them. The smaller crew bases could not keep up with demand. Up to 30% of the carrier’s staff took Covid-related or other time off when the Delta variant started to increase. “We thought it would be like flipping a light switch,” said Gallagher. “We have to make sure that we don’t over-schedule the airline,” he added.
The snafus cost Allegiant a pretty penny. The disruptions cost Allegiant $ 28 million to repair, for ferry flights to get crews back to the correct positions and other expenses, including $ 15 million in reimbursement to customers whose flights were canceled. As a result, Allegiant’s non-fuel costs were higher than expected. “We learn as we go,” said Gallagher.
Allegiant is not immune to the country’s labor shortage. The company pays signing bonuses – a rarity for frontline airline workers – to attract talent. By the end of the summer, he had enough staff to meet the demand. Additionally, Allegiant has pushed back start dates for 300 pilots, flight attendants and maintenance technicians to get ahead of planned vacancies and demand in 2022.
The carrier and the International Brotherhood of Teamsters ratified the mechanics’ first collective agreement on Wednesday, ending nearly two years of contract negotiations. The mechanics chose representation by the Teamsters in 2018.
These issues are not unique to the Las Vegas-based airline. Supply chain disruptions and labor shortages are at a level “none of us have ever seen before,” Gallagher said. “The irony is that everyone in this company is hiring, but we’re not back at full capacity. “
Allegiant’s problems are compounded by the fact that there has been some sort of land grab for leisure travelers. Airlines like United Airlines and Delta which before the pandemic focused on business travelers are now to rush fill their planes with vacationers. Almost half of Southwest’s flights now involve Florida everyday. This is a remarkable change for Gallagher, who has lightening led since 2003. “We are seeing a substantial change in the way airlines operate,” he said.
“All the airlines wanted to plant the flag for leisure travelers,” said Gallagher. Leisure-oriented airports, especially in Florida, were busier than they could handle. Meanwhile, the major airports business centers saw a fraction of their 2019 passenger volume. “I like to call it ‘leisure destination overload’,” he said. TSA staffing at smaller facilities remains a concern, calling into question the ability of these facilities to meet anticipated demand. But Allegiant is focused on getting its operations back on track. “We’re back and we’re taking care of it,” said Gallagher. “We know we can show up every day and fly the planes with the people who will be doing the work. “
Allegiant has long been known for its agility in responding to demand, quickly adding or reducing flights as the market changes. And this summer was no different. July and the first half of August were busy, with demand in some cases exceeding summer 2019 as people took long-delayed vacations. And the airline has responded accordingly, with mixed results. As the Delta variant began to spread in August, Allegiant quickly cut its schedule. Demand has started to return and advance bookings for travel during the holiday season are up to historical standards.
The airline plans to fly 12-16% more capacity expected in the fourth quarter compared to 2019. Partly because it is a larger airline: Allegiant will end the year with eight. more planes than in January, and larger, 186. -seat planes will comprise a larger part of its fleet. The carrier expects double-digit growth next year by adding 19 more planes, for a total of 127 planes by the end of 2022. The main constraint will be rising fuel costs, which it says Gallagher, could put a “shock absorber” on anticipated growth. Allegiant is also preparing for a further rise in Covid and is factoring this possibility into its planning for the fourth quarter and 2022. “This rise has not been a straight rise,” Gallagher noted.
Allegiant is also continuing its Sun Seeker seaside resort in Florida. Construction stopped in 2020 at the start of the pandemic but resumed in the second quarter. Allegiant has secured $ 350 million in funding for the Castelake project. It will begin taking reservations in the first quarter of next year, with the first phase of the project scheduled to open later in 2022. The golf course and second phase are expected to be completed in 2023. Allegiant predicts the resort will cost $ 510 million. dollars, but expects costs to rise 10 to 15 percent, due to labor shortages in construction and rising raw material prices.
Allegiant reported third quarter profit of $ 66 million, a marked improvement from a loss of $ 33 million last year, but down from a profit of $ 72 million in 2019. Revenue grew 126% from last year and 5.3% from 2019, making it one of the few airlines to report both profit this year and higher than that from 2019.
“We ran to the beat of our own drum,” said Gallagher. “We’re going to get this industry out of the abyss. “
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