Shares of Allegiant Travel (Nasdaq: ALGT ) hit a new 52-week high on Thursday. Let's look at how it got here and see whether clear skies lie ahead.
How it got here
Allegiant Air is the purveyor of some of the most outlandish fees in the airline industry, but the bottom line is that this company gets its customers to pay up for optional fees, which has allowed it to report 36 consecutive quarterly profits. In a sector ripe with losses and bankruptcies, that alone is phenomenal.
Allegiant offers some key advantages over its competitors. First, it purchases older aircraft, which helps keep expenses under control. Second, as a regional airline, it has more control over its routes and can shut down unprofitable routes as it sees fit -- something a national airline could not do. Finally, it's able to use its secondary fees to make up for rising fuel costs. Just last week, Allegiant followed in Spirit Airlines' (Nasdaq: SAVE ) footsteps by announcing a carry-on charge for bags stowed in the overhead bins. All of these factors have allowed Allegiant to increase its capacity at a time when both United Continental Holdings (NYSE: UAL ) and Delta Air Lines (NYSE: DAL ) are reducing capacity to cut costs.
How it stacks up
Let's take a look at how Allegiant stacks up next to its peers.
ALGT data by YCharts
Not surprisingly, national carriers are finding it increasingly tough to compete against regional providers that can offer low teaser rates laced with optional fees.
Price/ Cash Flow
Net Margin FY 2011
||$306 million / $146 million
|Delta Air Lines
||$3.6 billion / $13.9 billion
|United Continental Holdings
||$7.8 billion / $12.7 billion
|Alaska Air (NYSE: ALK )
||$1.1 billion / $1.3 billion
Sources: Morningstar, Yahoo! Finance.
These metrics should make it easier to understand why Allegiant is such a stud. Delta and United might tease you with low forward earnings multiples, but they are buried under a mountain of debt. Alaska Air is right alongside Allegiant in terms of profitability, but even its net margin of 5.66% is below Allegiant's 6.34%. It's also worth noting that following the bankruptcies of American Airlines and Pinnacle Airlines, Allegiant remains one of the few airlines that sports more cash than debt.
Now for the real question: What's next for Allegiant? That question really depends on whether Allegiant can continue to keep its expenses under control and pass along rising fuel prices to consumers in the form of optional fees.
Our very own CAPS community gives the company a two-star rating, with 162 of 203 members giving it an outperform rating. I am one of those members who currently boasts a CAPScall of outperform on Allegiant, and my pick is currently up about 1 point. I consider that to be a victory, given that Allegiant's operating margins were affected in 2011 by rising fuel costs. Although Allegiant's fees remain a hot spot of anger for some travelers, the company's low-cost business model and history of strong margins are enough for me to maintain my outperform position on the company moving forward.
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