As airlines around the globe debate just how long the travel downturn will be an unlikely outlier opinion was mooted this week from Allegiant. While the airline is taking a financial hit currently, company executives believe that will be a short-term problem, with a quick bounce back of the leisure travel segment and particularly its specific niche market within the leisure traffic world, assuming there’s somewhere for those travelers to go.
But the fact is in the Midwest and Mid Atlantic, the Upper West, I got to tell you they don’t share the opinion that the evening news is putting out there.– Allegiant CMO Scott DeAngelo describing the results of customer surveys
A different customer base
A big part of Allegiant’s optimism comes from its market focus. The carrier operates on very limited frequencies in specific markets carrying travelers to leisure destinations. Its key origin cities sit outside major commercial markets, heavily weighted to the Midwest and Mid-Atlantic states. And through direct survey activities the company believes its customers believe there isn’t too much to worry about.
Chief Marketing Officer Scott DeAngelo highlighted a number of those survey results in the company’s Q1 earnings call this week. From Allegiant’s perspective the situation is only dire so long as beaches, resorts and other attractions are open. Among the observations:
- “The majority of people in our surveys report their personal financial situation has largely stayed the same and/or gotten better.”
- “In the Midwest and Mid Atlantic, the Upper West, I got to tell you they don’t share the opinion that the evening news is putting out there.”
- “Most tracking surveys out there have asked the question about you go all in for public health, or do you balance public health with the needs of the economy. The nation as a whole has been 50-50. The Allegiant customer base has been 75/25, every time we’ve asked that question in favor of you balance public health with the needs of the economy and you get out there. So our footprint just don’t happen to mirror one where the sentiment is very different than a general cost survey that captures New York, Dallas, Atlanta, and Los Angeles.”
CEO Maury Gallagher similarly sees a push towards travelers returning, both from a personal standpoint and more broadly in the market:
I’m personally optimistic… People are tired of sitting at home; we travel amongst ourselves on the weekends. Coming out of Southern California, people are on the beaches. Somebody told me they were down in Laughlin in this weekend as the river runs through there. The place was packed with people as well as a lot people. Social distancing was not in their lexicon, according to him.
So you’re getting all kinds of signals. And the thing that I see personally is there is really no hard data you can point out in many ways, its opinions. And some people have an opinion that they’re going to go out. And other people, they wouldn’t be caught outdoors if God came down and said it was all clear. So it’s just going to be a wait and see as we kind of feel our way through this.
That last bit certainly reflects the broader challenge in the US market of getting trusted medical advice to the forefront.
Uptick in demand
With that different set of consumers making decisions Gallagher says Allegiant has seen “steady growth in the number of qualified flight searches being conducted at allegiant.com with some time periods in market at levels even higher than last year. More importantly, we’ve seen this elevated web traffic begin to translate into an uptick in bookings for select markets over the past few weeks correlated with beaches opening on Florida’s West Coast in Panhandle.”
But the return to demand is tightly tied to travelers having activities available at their destinations. “Our 2 largest summer travel destinations, Orlando and Las Vegas, will need to reopen their flagship theme parks and casino resorts, and for that matter, NFL stadiums for us to see the next step change in demand recovery,” Gallagher continued.
Gallagher also noted that the company is well suited to addressing demand even for passengers hesitant to fly. Gallagher expects Florida and Vegas arrivals to recover more quickly with visitors driving in rather than flying. Allegiant is adjusting its website to be able to handle those hotel bookings as well, ensuring a small revenue stream even if airfare isn’t part of the deal.
Fleet Cuts & Sunseeker
While the company is optimistic about a near-term return in demand it is also taking prudent measures to reduce cash burn and ensure it can ride out the dip. Allegiant has always been focused on a lean, flexible operation that can afford to ground aircraft when market demand drops. That is not changing with the current scenario. The company has option in place that could allow for the company to “strategically park up to 25” of its Airbus aircraft. Of those, half could be permanently retired, replaced with new deliveries slated for the next 9 months or simply reducing the fleet size overall.
The company also anticipates significantly reduced maintenance expenses with these aircraft grounded. Allegiant previously anticipated significant engine overhaul costs in the coming couple years. With fleets globally grounding, including some of Allegiant’s planes, Gallagher now anticipates “We will substantially reduce cash outlays for planned [engine] work and other parts costs in the coming years. We will beginning to see number of older 320s and 319s and their engines available and prices will beginning to react accordingly.”
The company will also dramatically cut costs by suspending construction work at its Sunseeker resort on the West Florida coast. Allegiant plans for zero investment on that project for at least 18 months. That could change if an investment partner comes along or the economy adjusts, but it will not see work in the immediate future.
Last-minute dispatch decisions
Finally, Allegiant is also reducing cash burn through more aggressive cancellations of lightly loaded flights. Gallagher notes the carrier is “micromanaging of our flight schedules by our network team on a weekly if not daily basis, looking at individual dispatch decisions based on cash profitability.” These moves are typically coordinated 7-14 days in advance, according to VP Revenue & Planning Drew Wells, in an effort to minimize impact on travelers.
And the carrier is not alone in trimming flights where loads do not justify operating. But the decision to act on that shorter timeline allows the carrier to offer significantly more of its footprint for sale than some other carriers. Allegiant has 70-75% of its operation on the market for June, up from 50% at Memorial Day Weekend.