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I've said it again and again, and now you're going to hear it one more time – Allegiant Travel (Nasdaq: ALGT ) is the only company you should be considering when you're scouring the airline sector for a solid investment.
Last night, Allegiant Travel reported its 35th consecutive profitable quarter -- and built upon already strong results.
The top-line figures may not have been much to look at, considering that the company's earnings actually fell by 27% over the year-ago period. But, if we were just to consider its profit and ignore everything else, we'd miss a ridiculously bullish report and first-quarter 2012 forecast.
For starters, passenger revenue per available seat mile (PRASM) rose by an incredible 24.5%. Why is this important? Beause PRASM is an indicator that airlines use to determine how willing passengers are to accepting higher fares. Operating as a regional airline and strictly regulating its fleet to run only on the most cost-efficient routes, Allegiant has been able to easily negate the rising cost of fuel by passing along costs in the form of higher fares and costlier baggage fees. These price increases translated into a 16% jump in its average fare and a new company record for the third quarter at $120.63 per customer. This is also the fourth consecutive quarterly record for average fare price paid.
Allegiant's guidance was no slouch, either, with the company forecasting an 11%-13% fourth-quarter jump in PRASM over the year-ago period. For the first quarter of 2012 the company anticipates scheduled departures will rise by 10%-14%, with available seat miles jumping 15%-19% over last year.
This company simply doesn't stop growing , and it has prudent spending habits to thank for that. Whereas larger airlines AMR (NYSE: AMR ) , Delta Air Lines (NYSE: DAL ) , and United Continental (NYSE: UAL ) don't have the ability to start and stop their service routes with any swiftness, Allegiant is able to ground unprofitable routes with ease and adjust its service as demand calls for. Not surprisingly, even regional airlines like Alaska Air (NYSE: ALK ) and JetBlue (Nasdaq: JBLU ) -- which I like, may I add, are having trouble passing along rising fuel costs to consumers in the form of higher ticket prices, while Allegiant is having almost no trouble at all.
So what I'm really saying is this: Forget Red Bull, and let Allegiant give your portfolio wings!
What's your take on Allegiant's third-quarter performance? Weigh in with your thoughts below, and consider adding Allegiant to your free and personalized watchlist to keep up on the latest news with the company.
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Report this Comment On October 27, 2011, at 9:45 PM, TMFGemHunter wrote:
I think the author has been drinking a little too much of the Kool-Aid. Allegiant is a fine company, but their real advantage is that they fly the cheapest aircraft in the business. The problem is that their aircraft are cheap because they are the most fuel inefficient in the business! With today's fuel prices, 11-13% PRASM growth isn't going to cut it. That's particularly true because their non-fuel unit costs are growing quickly as well.
I wouldn't be surprised to see ALGT's operating margin down 2-3 points YOY in Q4. That's going to leave them short of the current analyst estimates.
All this is leaving aside that the company is quite expensive compared to others in the airline industry. I think the legacy airlines (excluding AMR) are better bets right now.
Disclosure: I am long UAL.
Report this Comment On October 27, 2011, at 11:54 PM, TMFUltraLong wrote:
adamathm,
The reason Allegiant's fleet is the cheapest is because it purposely goes out and buys used planes. Cheaper planes translate into greater margins which is another reason why Allegiant is far and away a better investment than any other airlines in the sector.
TMFUltraLong
Report this Comment On October 28, 2011, at 9:59 AM, TMFGemHunter wrote:
I understand what the strategy is. It worked really well in the recession, when fuel prices were about half of where they stand today. But today, flying outdated (cheap) aircraft means a massive CASM penalty from higher fuel costs (fuel accounts for nearly half of Allegiant's costs now).
For example this means that Allegiant's CASM is only 15% lower than United in recent quarters (and United is one of the highest-cost airlines in the business). But Allegiant needs a much bigger gap to keep its operating margins at historical levels, given that it deals exclusively in price sensitive leisure customers.
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