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Tiny Allegiant Air thrives

No-frills, high-fees airline has been profitable for 10 consecutive years

Published: Wednesday, Aug. 5 2015 5:35 a.m. MDT

In this Thursday, May 9, 2013, photo, two Allegiant Air jets taxi at McCarran International Airport in Las Vegas. While other U.S. airlines have struggled with the ups and downs of the economy and oil prices, tiny Allegiant Air has been profitable for 10 straight years. (AP Photo/David Becker) (Associated Press) In this Thursday, May 9, 2013, photo, two Allegiant Air jets taxi at McCarran International Airport in Las Vegas. While other U.S. airlines have struggled with the ups and downs of the economy and oil prices, tiny Allegiant Air has been profitable for 10 straight years. (AP Photo/David Becker) (Associated Press)

LAS VEGAS — There are no sure things in this city — with one exception: Allegiant Air.

While other U.S. airlines have struggled over the past decade from the ups and downs of the economy and the price of jet fuel, Allegiant has been profitable for 10 straight years.

The tiny airline focuses on a niche ignored by other airlines: It only flies from small cities to sunny vacation spots.

Allegiant entices people who otherwise wouldn't fly with low fares and non-stop flights. Then it aggressively pitches them hotels, rental cars, show tickets and other entertainment, earning millions in commissions.

Passengers face fees for almost every service and amenity imaginable. At Allegiant, fees for checked baggage and changing an itinerary — which are common on many airlines — are just the beginning.

The Las Vegas-based airline charges extra to book flights online, or to use a credit card. Selecting a seat in advance costs $5 to $75 each way, depending on the length of a flight. Even a bottle of water costs $2.

In this Thursday, May 9, 2013, photo, an Allegiant Air Capt. Bret Whalen, left, discusses the flight plan with flight attendants Antron Johnson, center, and John Taylor before their flight to Laredo, Tex, at McCarran International Airport in Las Vegas. While other U.S. airlines have struggled with the ups and downs of the economy and oil prices, tiny Allegiant Air has been profitable for 10 straight years. (AP Photo/David Becker) (Associated Press) In this Thursday, May 9, 2013, photo, an Allegiant Air Capt. Bret Whalen, left, discusses the flight plan with flight attendants Antron Johnson, center, and John Taylor before their flight to Laredo, Tex, at McCarran International Airport in Las Vegas. While other U.S. airlines have struggled with the ups and downs of the economy and oil prices, tiny Allegiant Air has been profitable for 10 straight years. (AP Photo/David Becker) (Associated Press)

Flying Allegiant isn't glamorous. While other airlines tout new aircraft with Wi-Fi and TVs in every seat, Allegiant buys old planes to avoid hefty aircraft loans. And to pack in as many passengers as possible, its seats don't recline. But for small-town Americans with limited flight options, these inconveniences are worth it for a few days of sunshine.

"They could be the worst airline in the world and we'd fly them because we want to go to Vegas," says Tom Mayo of Cedar Rapids, Iowa, who recently flew there with his family. "It's our only option."

Allegiant offers non-stop service from places like Owensboro, Ky., Casper, Wyo. and Appleton, Wis., to popular destinations in Nevada, Florida, Hawaii and Arizona. These may not be the most coveted routes in the airline business, but that is precisely why Allegiant likes them.

Only 17 of Allegiant's 203 routes are flown non-stop by another airline.

In this Thursday, May 9, 2013, photo, Allegiant Air flight attendant Chris Killian prepares his passengers for the Laredo, Tex, bound flight before it pushes back from the terminal at McCarran International Airport in Las Vegas. While other U.S. airlines have struggled with the ups and downs of the economy and oil prices, tiny Allegiant Air has been profitable for 10 straight years. (AP Photo/David Becker) (Associated Press) In this Thursday, May 9, 2013, photo, Allegiant Air flight attendant Chris Killian prepares his passengers for the Laredo, Tex, bound flight before it pushes back from the terminal at McCarran International Airport in Las Vegas. While other U.S. airlines have struggled with the ups and downs of the economy and oil prices, tiny Allegiant Air has been profitable for 10 straight years. (AP Photo/David Becker) (Associated Press)

"Typically, the best way to make money is not to compete with somebody," says Andrew C. Levy, president of Allegiant Travel Co., who sits in a cubicle next to the rest of his staff.

Rather than battle major carriers for customers on routes between major cities, Allegiant uses its marketing muscles to convince people in small towns to fly away for a vacation.

"Allegiant tends to bring people into the airport who wouldn't normally fly," says Tim Bradshaw, director of the Eastern Iowa Airport in Cedar Rapids. "It brings people off the couch."

Last year, 7 million passengers took a flight on Allegiant. That is a sliver of the 642 million people who took a domestic flight last year. But Allegiant earned a whopping $11.22 each way from those passengers. On average, the airline industry earned 37 cents each way, per passenger, according to Airlines for America, the industry's lobbying group. Southwest Airlines, one of the industry's most profitable carriers, made $3.85 per passenger last year.

In this Thursday, May 9, 2013, photo, an Allegiant Air jetliner flies over the the the New York-New York Hotel & Casino after taking off from McCarran International Airport in Las Vegas. While other U.S. airlines have struggled with the ups and downs of the economy and oil prices, tiny Allegiant Air has been profitable for 10 straight years. (AP Photo/David Becker) (Associated Press) In this Thursday, May 9, 2013, photo, an Allegiant Air jetliner flies over the the the New York-New York Hotel & Casino after taking off from McCarran International Airport in Las Vegas. While other U.S. airlines have struggled with the ups and downs of the economy and oil prices, tiny Allegiant Air has been profitable for 10 straight years. (AP Photo/David Becker) (Associated Press)

Allegiant is ruthless about keeping its costs down. Its employees are some of the lowest paid in the industry, in some cases making $20 an hour less than colleagues at other airlines. It pays cash for airplanes nearly twice as old as everyone else. It only sells directly to vacationers, refusing to pay Expedia, Orbitz or other sites to list its flights.

And if you have a question, it will cost you: the airline doesn't have a toll-free number.

Like some other budget airlines, Allegiant advertises extremely low base fares and then tacks on numerous fees. A roundtrip ticket with Allegiant costs $195, on average. But passengers pay an additional $83 in fees — or 30 percent of the total cost of flying.

To book a trip by phone, Allegiant charges $50 for each roundtrip ticket. To book online costs $20 for each roundtrip ticket. The only way to avoid the fees is to purchase tickets at the airport, something fewer than 3 percent of its customers did last year.

In this Thursday, May 9, 2013, photo, a Southwest airliner comes in for a landing as a row of Allegiant Air jets are parked at McCarran International Airport in Las Vegas. While other U.S. airlines have struggled with the ups and downs of the economy and oil prices, tiny Allegiant Air has been profitable for 10 straight years. (AP Photo/David Becker) (Associated Press) In this Thursday, May 9, 2013, photo, a Southwest airliner comes in for a landing as a row of Allegiant Air jets are parked at McCarran International Airport in Las Vegas. While other U.S. airlines have struggled with the ups and downs of the economy and oil prices, tiny Allegiant Air has been profitable for 10 straight years. (AP Photo/David Becker) (Associated Press)

But whether you book by phone, Internet or in person, paying with a credit card costs an extra $8.

Placing a suitcase in an overhead bin is $10 to $25. Boarding passes signify who has paid the fee. If passengers show up at the airport with a large carry-on bag and haven't prepaid the fee, the airline penalizes them an additional $25 to $50, depending on the route.

But what really makes Allegiant different are the commissions it earns from selling hotel rooms, rental cars and other extras including Everglades boat tours and theme-park tickets. It even gets people to attend timeshare sales presentations. Before a passenger can finalize a ticket purchase online, they must click through page after page offering them these add-ons.

Last year, revenue from commissions totaled $36 million, or nearly $12 per roundtrip passenger.

"I don't think of them as an airline. I think of them as a travel company," says Helane Becker, an airline analyst at Cowen Securities.

In this Thursday, May 9, 2013, photo, an airline ground worker guides an incoming Allegiant Air jetliner at McCarran International Airport, in Las Vegas. While other U.S. airlines have struggled with the ups and downs of the economy and oil prices, tiny Allegiant Air has been profitable for 10 straight years. (AP Photo/David Becker) (Associated Press) In this Thursday, May 9, 2013, photo, an airline ground worker guides an incoming Allegiant Air jetliner at McCarran International Airport, in Las Vegas. While other U.S. airlines have struggled with the ups and downs of the economy and oil prices, tiny Allegiant Air has been profitable for 10 straight years. (AP Photo/David Becker) (Associated Press)

Once onboard, Allegiant passengers are again bombarded with sales pitches. On a recent flight from Cedar Rapids to Las Vegas, flight attendants came over the loudspeaker and hawked show tickets and airport shuttles. The in-flight magazine is filled with ads for shows and attractions instead of stories. One ad offers $30 off a Las Vegas helicopter tour if purchased from flight attendants, who are paid extra for each item sold.

Allegiant finds ways to profit on routes other airlines couldn't make work, often swooping in after they pull out. This month, it started flying between Asheville, N.C., and Tampa, Fla., a route abandoned by AirTran after Southwest Airlines acquired it.

Like other discount carriers, Allegiant prefers small airports that charge airlines lower rents, even if they aren't the most convenient. In Orlando, that means flying into Sanford, Fla., 30 minutes further from Walt Disney World than Orlando International Airport.

In this Thursday, May 9, 2013, photo, a Southwest airline taxis by parked Allegiant Air jetliners at McCarran International Airport in Las Vegas. While other U.S. airlines have struggled with the ups and downs of the economy and oil prices, tiny Allegiant Air has been profitable for 10 straight years. (AP Photo/David Becker) (Associated Press) In this Thursday, May 9, 2013, photo, a Southwest airline taxis by parked Allegiant Air jetliners at McCarran International Airport in Las Vegas. While other U.S. airlines have struggled with the ups and downs of the economy and oil prices, tiny Allegiant Air has been profitable for 10 straight years. (AP Photo/David Becker) (Associated Press)

Frugal decisions like that helped Allegiant post a net profit of $78 million last year on revenue of $909 million. Its 8.6 percent profit margin was the highest of any U.S. airline, making it a darling of Wall Street.

The last five years have been good for airline investors. After a major spike in fuel prices in 2008 and a drop in business travelers, airlines tweaked their business models, adding baggage fees and cutting unprofitable flights. They started to make money and their stock prices climbed. While the S&P 500 climbed 26 percent in the past five years, an index of all U.S. airline stocks has tripled. Allegiant's stock has done even better, increasing more than fivefold to $105.86.

Allegiant has 64 planes and flies to 87 cities, but it's tiny compared with an airline like United, which carried 20 times as many people last year, often on much longer flights.

Allegiant benefits from paying lower salaries and having work rules that are more favorable to management than at most airlines. Flight attendants with 15 years of experience are paid $34 for each hour their plane is in the air — $10 to $20 less than colleagues at larger carriers. Planes and crews typically end up at their home cities overnight, avoiding hotel rooms.

In this Thursday, May 9, 2013, photo, ramp agent Vince Divon retrieves gate checked items after the Allegiant Air jet parked at McCarran International Airport in Las Vegas. While other U.S. airlines have struggled with the ups and downs of the economy and oil prices, tiny Allegiant Air has been profitable for 10 straight years. (AP Photo/David Becker) (Associated Press) In this Thursday, May 9, 2013, photo, ramp agent Vince Divon retrieves gate checked items after the Allegiant Air jet parked at McCarran International Airport in Las Vegas. While other U.S. airlines have struggled with the ups and downs of the economy and oil prices, tiny Allegiant Air has been profitable for 10 straight years. (AP Photo/David Becker) (Associated Press)

Thanks to its choice of aircraft, Allegiant has more flexibility than other airlines in deciding when and where to fly.

Instead of buying the newest, most expensive planes, the airline buys used, inexpensive jets. Its planes are 23 years old, on average, compared with the industry average of 14 years.

Each used MD-80 costs $3 million, compared with $40 million for a new Boeing 737 or Airbus A320 of similar size.

"When you have such little investment in an aircraft, you only fly it when it's going to be full of passengers," says Peter B. Barlow, an aircraft finance lawyer at Smith, Gambrell & Russell. "Other airlines don't have that luxury. They need to keep their aircraft in the air in order to make the economics work."

Last year Allegiant Air earned an average of $11.22 per customer — compared to the U.S. airline average of $0.37.   (Associated Press) Last year Allegiant Air earned an average of $11.22 per customer — compared to the U.S. airline average of $0.37. (Associated Press)

So on Tuesdays, when most of Allegiant's customers are stuck in the office, the airline keeps nearly all its planes on the ground.

Flying older planes has drawbacks, though. They burn more fuel, something Allegiant combats by squeezing 166 passengers onto planes — 26 more than American Airlines has on comparable jets. They also have more mechanical problems, resulting in more delays.

One of every four Allegiant flights last year was at least 15 minutes late, the worst record in the industry, according to flight tracker FlightAware.

The bigger problem is if a mechanical issue forces a plane to be grounded. Given its limited schedule and packed planes, there usually isn't another flight to book passengers on. Instead, they are left waiting six hours while a new plane is flown in.

In this Thursday, May 9, 2013, photo, An Allegiant Air jetliner flies by the Luxor Resort & Casino after taking off from McCarran International Airportm in Las Vegas. While other U.S. airlines have struggled with the ups and downs of the economy and oil prices, tiny Allegiant Air has been profitable for 10 straight years. (AP Photo/David Becker) (Associated Press) In this Thursday, May 9, 2013, photo, An Allegiant Air jetliner flies by the Luxor Resort & Casino after taking off from McCarran International Airportm in Las Vegas. While other U.S. airlines have struggled with the ups and downs of the economy and oil prices, tiny Allegiant Air has been profitable for 10 straight years. (AP Photo/David Becker) (Associated Press)

Sometimes flights are postponed to the next day. In one extreme situation in March, more than 1,700 passengers flying to and from Hawaii saw multi-day delays, including one flight that was 52 hours late.

That's a lot of time to kill at an airport bar.

The cost of Allegiant

Part of Allegiant Air's success is the fees it charges for all sorts of extras. They quickly add up: passengers paid an average $83 in fees roundtrip. Here is a sampling of some of the airline's fees.

Booking a ticket on the Internet: $20

Booking on the phone: $50

Paying with a credit card instead of a debit card: $8

Advance seat assignments: $5-75 each way, depending on route.

Placing a bag in the overhead bin: $10-$25 each way if prepaid, depending on route and $50-$75 if purchased at the airport.

Checking luggage: $30-$70 if prepaid, depending on route and $100-$150 if purchased at the airport.

Bottle of water onboard: $2.

Fruit and cheese plate: $5.

Beer: $5.

Early boarding: $5.

Bringing a pet in the cabin: $200, per person

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