As part of its cost-cutting efforts discount carrier Allegiant slashed its marketing budget in recent months. For Q3 the carrier’s spend in that segment was down 75%. And, while overall traffic levels dropped, the company identified significant improvement in its acquisition and conversion strategies, to the point that it expects a significant, permanent reduction in advertising spending going forward.
We feel comfortable and confident to take our marketing budget down, and that’s a structural improvement… We think we’ll be more productive and just better on the other side because of this. – Gregory Anderson – EVP, Principal Accounting Officer & CFO
Allegiant’s customer acquisition strategy shifted heavily to co-brand and email marketing. In its most recent earnings report released on Wednesday the company indicated a 15% boost YoY in non-referral traffic (i.e. a user typing the URL directly into the browser) or clicking in via targeted emails. A full two thirds of bookings in the third quarter were tied to email marketing or credit card cobranded efforts according to Chief Marketing Officer Scott DeAngelo.
Moreover, because the leads are better qualified, DeAngelo notes conversion rates are “considerably higher than pre-pandemic levels”
Inbound traffic via advertising is down 50% against the 75% cut in spending.
The company is also highly optimistic about the value of its naming rights for the football stadium in Las Vegas. DeAngelo highlighted significant boots in inbound web traffic during games. DeAngelo says major origin cities such as Cincinnati, Indianapolis and Pittsburgh were each up in web business by 50% to 60% and large new cities for Allegiant, like Chicago, Boston and Houston each up in web visits by 60% to 80% during the first Monday Night Football game at Allegiant Stadium on 21 September 2020. Beyond the major event every game has shows a boost to the company’s other marketing efforts. Web visitation from e-mail marketing around games shows an increase of more than 200%.
Ultimately the company “found many ways to be more surgical and more efficient” with the limited marketing budget internally, and continues to improve on its metrics.
A canary in the online advertising coal mine
Online advertising depends heavily on the travel market. Expedia shed roughly $4 billion in Google ad spend in 2020. Booking Holdings similarly will trim $2-3 billion. In that context the structural cuts being made by Allegiant – just $15 million per year – are a drop in the bucket. But it also seems to be working for the company. Trimming the ad budget is not delivering an outsized negative impact on revenues.
The typical Allegiant customer is atypical relative to most OTA bookings. And it remains perhaps a bit early in the cycle to declare victory. But if other travel-related companies manage to evolve their direct digital offerings and improve the conversions just a tiny bit that could offset massive expenses on the advertising side. This structural change could travel far beyond Allegiant’s limited influence.
Booking optimism reigns
Separately, Allegiant also reports once again that its customers do not appear dissuaded by the rising case loads across the country. DeAngelo was blunt in the observations:
Based both on what our customers are saying and what our customers are doing, we see a clear divergence in terms of their attitudes toward the pandemic and their intentions toward leisure air travel. That is to say, customers believe the situation may once again be getting worse, but their leisure travel activity or their travel booking intent remains largely unchanged.
This optimism for the company extends through late February, and especially includes Thanksgiving and the weeks of Christmas and New Year’s.
Read more on Allegiant’s pandemic play:
- Allegiant sees quick recovery on the horizon
- Allegiant driving passenger traffic recovery
- A Tale of Two Holidays: Memorial Day v Labor Day in US Traffic Numbers
Earnings call quotes via SeekingAlpha
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