Allegiant picks Boeing 737 MAX for fleet expansion, refresh

Allegiant is mixing up its fleet plans. The carrier announced an agreement to purchase 50 new Boeing 737 MAX aircraft, diversifying from its current all-Airbus A320 family operation. The deal was first tipped by Reuters on Tuesday evening and confirmed by the companies on Wednesday morning.

Our approach to fleet has always been opportunistic, and this exciting transaction with Boeing is no exception. – Maurice J. Gallagher, Jr., Allegiant chairman and chief executive officer

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The new Boeing planes

The deal covers 50 firm orders for the 737-7 and 737-8200 models. The –8200 offers higher seat count while the –7 model can help Allegiant serve smaller markets where the A319s fly today. The order also includes 50 options.

The –8200 model is a favorite of ultra low cost carrier operations owing to its higher seating density and lower costs per seat mile. Ryanair is the largest customer for that variant today. Southwest Airlines is the primary customer for the –7 model, with plans to replace most of its 737-700s in the years ahead.

The company notes a history “primarily focused on high quality used aircraft to maintain lower fixed costs.” And while it bought a baker’s dozen of the current A320 fleet as new aircraft from Airbus, the used market remains a core part of the strategy. Still, Allegiant notes that the pandemic offers “unique opportunities to acquire new equipment.” And it managed to cut a deal with Boeing to do just that.

Read More: KLM, Transavia tap Airbus for single-aisle refresh

Deliveries of the new MAX aircraft are expected from 2023 through 2025. That’s a quick timeline to add 50 planes to the fleet and to add a new type – including training, spare parts, and more – to the operations. any ways, however, the quick transition can help, assuming it goes smoothly. Running just a handful of the new planes is much harder than quickly building up the broad operation.

Allegiant’s operating model is also relatively uncommon in the US in that it has many more bases around the country for planes and crew. Presumably some bases will quickly shift wholly to a Boeing operation while others will remain Airbus.

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And the Airbus family, too

Perhaps most intriguing right now is that the deal will not be a wholesale transition from Airbus to Boeing for the carrier. Rather, it is a diversification of the operations. Allegiant plans to “continue sourcing A320s in the used market” as part of its fleet growth strategy in the years ahead.

Some of the Airbus family planes will also be retired from the fleet. Allegiant saw 25 of its 108 A320-family planes delivered in 2015 or before. With the timing of the MAX deliveries some of these older (not not particularly old) aircraft could be returned to lessors, replaced by the new frames.

Read More: Qantas picks Airbus for fleet refresh

The approach also allows for flexibility between growth and replacement. While Allegiant continues to target a 10% annual growth rate the ability to retire planes or augment could tweak that number as demand dictates.

And even if all 50 options are executed a wholesale transition away from the A320 fleet would require additional orders, unlike the recent Airbus wins from Qantas and KLM/Air France Group.

Tipping points

What drove the decision to pick Boeing in this case? Only Allegiant knows for sure, but a few considerations come to mind.

• Is the ability to deliver all 50 frames in the relatively short timeline a Boeing advantage? The –7 is still working on certification, but that is expected this year. And Boeing had some cancellations owing to the MAX grounding and then the pandemic, freeing up early delivery slots. In the meantime, Airbus believes it needs an increased production rate to meet order demand.
• Commonality across the large and small planes matters. While Allegiant could have chosen the A220 for its smaller aircraft needs that would still be a different type with respect to crew training, spare parts, and more. By choosing Boeing for both big and small, much of that now overlaps. This is also counter to the Qantas position that flexibility between the A321neo and A220 offered a compelling case to switch away from Boeing operations.
• The deal includes a significant Boeing Global Services contract for “digital tools to further enhance operational efficiency.” This sort of services deal can be worth a lot to Boeing over the longer term, perhaps helping to reduce the up front cost of the planes.
• If Allegiant negotiated a sufficiently low price on the planes it a sale/lease-back transaction with leasing companies might generate near-term positive cash flow on the deal. That could help offset the fact that Allegiant typically flies its planes far fewer hours than the industry average, therefore generating less total revenue per aircraft from operations.
• Assuming the JV with VivaAerobus goes through, the growth rate will likely spike, as will operating hours per aircraft. The larger seating capacity for leisure markets in Mexico and the Caribbean could prove very, very valuable.