Allegiant Travel Company reported a loss of $25.1 million in Q3 against the highest Q3 total operating revenue in company history. Total average fare increased, but, similar to its ULCC competitors in the US market, the breakdown of those fares shifted, and it is not all good news.
The company reported a total average fare of $129.23 up 2.6% YoY. The core fare paid dropped 6.3% to $57.43. Similar to Spirit Airlines and Frontier, Allegiant is cutting base prices to fill seats. But ancillary revenue per fare was up to $71.80, an 11% jump YoY. Third-party revenue per ticket grew by 16.2% while air travel-related ancillary grew 10.4%.
Where’s the ancillary revenue?
The strong third-party revenue increase should be celebrated, of course. But it appears to be nearly entirely tied to rising prices for those services rather than Allegiant selling more of them to consumers. Indeed, rental car days sold dropped 7.9% for the quarter YoY and hotel room nights dropped 23.5%.
This drop in third-party volumes could also reflect a shift in the company’s customer makeup during the period. Allegiant typically splits traffic between leisure travelers on holiday and those visiting family or moving between a primary and secondary residence. The latter group is less likely to purchase third party ancillaries while the former represent more volatile demand.
CEO Maury Gallagher spoke to this shift, “While leisure demand during our peak periods continues to outperform pre-pandemic levels, we experienced a return of normalization during the off-peak periods.” Gallagher also noted the company was able to adjust capacity to mostly match that demand profile, removing 45% of its supply by the September lull compared to its July peak. It remains to be seen if Allegiant can continue that capacity flexibility as it adds the 737 MAX to its fleet.
The carrier expects delivery of its first MAX in early 2024 (late Q1). It holds orders for both the MAX 7 and MAX 8200 models. It did not indicate which will be delivered first. Boeing still has not received FAA certification on the MAX 7, though industry chatter suggests it is increasingly likely (but not guaranteed) before the end of 2023.
Update: During the earnings call the company confirmed the initial planes will be 8200s. Allegiant now expects deliveries through 2025 from the initial tranche, six of which were converted from -7 to -8200. It also added 30 options for additional deliveries through 2029, “providing tremendous flexibility, allowing us to evaluate the results of a new fleet type in our business prior to making further commitments.”
In-house ancillary revenue growth is supported by a variety of initiatives, including the Allegiant Extra legroom offer on board. The company says 14 planes are fitted today, with roughly 30 more planned to fly with the poduct by the end of 2024. The new 737 MAX fleet, joining the carrier next year, will include Extra from day one, and more of it than the A320 fleet.
Other bits
On the loyalty front, the company realized $88 million year to date related to its cobrand credit card. Allegiant also signed up 478,000 new members to the Allways Rewards program.
Finally, the company expects its Sunseeker Resort to open on 15 December 2023, just in time to capture snowbird Christmas and New Years traffic.
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