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Allegiant Air's prudent ways help it soar amid slump in travel

AIRLINES

The little-known Las Vegas carrier is the nation's most profitable: first-quarter profits rose nearly 200% to $28.2 million on revenues of $142.1 million. And that's despite teaser fares as low as $9.

May 13, 2009|Peter Pae

With the high cost of flying and headache of getting through airport security, James and Wendy Greenfield of Fountain Valley have never flown with all their children.

But thanks to a special $9 air fare, the Greenfields -- 11 in all -- were able to board a plane at Los Angeles International Airport recently and travel together on an airline they had never heard of before.

"It's the first time we could afford to fly with all our children," said Wendy Greenfield, who was clutching two large boxes of doughnuts, the family's in-flight breakfast, as the couple and their nine children, ages 5 to 19, streamed into a 150-seat jetliner.

The flight to Medford, Ore., to visit friends was made possible by a little-known carrier that has been quietly thriving and expanding at a time when other airlines have been posting huge losses and cutting service.

Allegiant Air began rolling out nonstop service from LAX on May 1 with flights to Medford and Grand Junction, Colo. By the end of the month, the airline expects to have nonstop flights to 13 smaller cities west of the Mississippi, including Monterey, Calif.; Billings, Mont.; and Fargo, N.D.

The airline, based in Las Vegas, was offering promotional fares for as low as $9 one-way (nearly $20 when taxes are included). Most travelers on average will pay $74 one-way, which is still less than half what competitors have been charging for flights that typically include a stopover.

Despite offering some of the lowest airline fares, Allegiant is the nation's most profitable carrier and one of the very few that is growing amid a sharp downturn in travel. While the largest U.S. airlines reported losing billions of dollars, Allegiant profits soared nearly 200% in the first quarter to $28.2 million on revenues of $142.1 million.

In April, Allegiant's passenger traffic surged 36% compared with a year earlier, and its planes were also more crowded, with nearly every flight flying with 90% of the seats occupied, up from about 87%. On many flights, the planes were completely full.

The results were staggering compared with other airlines that have been seeing fewer and fewer travelers on their planes.

"They've done a really excellent job in terms of managing their load factor," said Helane Becker, airline analyst with New York-based Jesup & Lamont Securities Corp.

Bucking the traditional airline strategy, the carrier provides inexpensive air service for leisure travelers from smaller communities in the nation's colder regions to Sun Belt destinations such as Orlando, Fla.; Phoenix; and Las Vegas. It uses warmer destinations as bases for flight operations.

The smaller cities are often those that other airlines have either overlooked or skipped. Of the 134 routes it flies, Allegiant has head-to-head competition in only six of them. Even on routes in which it has competition, the airline isn't seen as a threat because its focus is on leisure trips -- most carriers target business travelers.

"If everybody was going left, we were going to go right," Allegiant Chief Executive Maurice Gallagher Jr. said of the company's business plan. "The world didn't need more of what United, Southwest and US Air were doing. We went where they ain't."

The airline has been able to offer low fares by keeping costs down and charging for everything else. It sells food and beverages during flights and charges $10 to check a bag.

One of the investors in the airline is the Ryan family of Ireland, which founded Ryanair, Europe's low-cost carrier that has led the a la carte pricing concept in which passengers pay for virtually everything except for the seat belt and the bathroom.

Another way the carrier keeps costs down, oddly enough, is by flying older, gas-guzzling MD-80 jets, which were built in Long Beach in the 1990s and which many airlines have been taking out of service. Allegiant spends about $4 million to buy and refurbish an MD-80 jet. That's less than one-tenth the cost of a new jet of similar size. "We're very efficient with our labor," Gallagher said, noting that Allegiant has about 35 full-time equivalent workers per plane compared to the 50 to 60 workers for other major airlines. "Our crews are making very good money at where we are in the life cycle."

Allegiant began flying in the late 1990s based out of Fresno and briefly had flights from Long Beach to Las Vegas, but it filed for Bankruptcy Court protection in 2000.

New investors, including Gallagher, reorganized the airline and changed the business model, moving the airline's base to Las Vegas. In 2004, Allegiant began flying from 13 small cities to Las Vegas, where it also offers hotel and rental car packages that now generate about 30% of its revenue. The airline has been profitable ever since.

Bill Smith, a retired policeman who now lives in Crestline in the San Bernardino National Forest, was able to snag a $39 round-trip fare for his flight to Medford to visit his daughter. But the "unbelievable" fare made him think he would be flying in a "worn-out old turboprop."

Once on the twin-engine jet, Smith said he was pleasantly surprised by the wide, leather seats and the friendly service. He had stopped traveling by air about seven years ago, but "I might start flying again, especially with fares this low."

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peter.pae@latimes.com

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BEGIN TEXT OF INFOBOX

Service at LAX

Allegiant Air is rolling out nonstop service from Los Angeles International Airport to 13 smaller communities. Service has begun on some routes.

Here are the destinations and the start dates for service to and from LAX.

* Medford, Ore. -- May 1

* Grand Junction, Colo. -- May 1

* Bellingham, Wash. -- May 2

* Missoula, Mont. -- May 2

* Springfield, Mo. -- May 3

* Monterey, Calif. -- May 3

* Billings, Mont.-- May 22

* Bentonville, Ark. -- May 22

* Fargo, N.D. -- May 23

* Sioux Falls, S.D. -- May 23

* Wichita, Kan. -- May 23

* Des Moines -- May 24

* McAllen, Texas -- May 24

Source: Allegiant Air

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