52-Hour Delays at Allegiant Will Help Competitors

Allegiant Travel (NASDAQ: ALGT  ) had a very rough beginning to the spring break season, as its Boeing 757 fleet was plagued by mechanical issues last weekend. More than 1700 Allegiant customers traveling to Hawaii faced delays of up to 52 hours. Since Allegiant flies multiple routes with each airplane, the delays affected passengers coming from at least five different cities on the West Coast.

The delays came about when three of Allegiant's Boeing 757s ran into mechanical difficulties over the weekend. Allegiant primarily flies MD-80 aircraft, which do not have enough range to reach Hawaii; therefore Allegiant relies on its six 757s for all of its Hawaii routes. Since March is Allegiant's peak season, the company did not have any spare aircraft available. In the end, it took days for Allegiant to resolve the mechanical issues and get its customers where they wanted to go.

A win for the market leaders
Allegiant's woes are a win for the two leading players in the West Coast-Hawaii travel market: Hawaiian Holdings (NASDAQ: HA  ) and Alaska Air (NYSE: ALK  ) . Hawaiian has been a major player in the market for decades, whereas Alaska has grown rapidly since entering the Hawaii market in 2007.

While Hawaiian and Alaska generally cater to a more affluent and less price-sensitive customer than Allegiant, analysts have still worried that Allegiant's low-cost model would draw some customers away from them. With significantly lower costs and higher ancillary fee revenue, Allegiant can afford to price lower than its competitors. Allegiant competes with Hawaiian on routes from Las Vegas and Phoenix to Honolulu, and with Alaska on routes from Bellingham, Wash., to Honolulu and (seasonally) Maui. The carriers also compete indirectly in northern California, where Allegiant flies to Stockton, which is about an hour's drive from Sacramento and the Bay Area.

Allegiant's latest misstep may help Hawaiian and Alaska convince their customers that paying a little extra for a better carrier is worthwhile. Allegiant had similar mechanical troubles leading to long delays last November. Suffering two major mechanical incidents in just four months casts some doubt on the reliability of Allegiant's Boeing 757 fleet, which are 20 years old on average. By contrast, Alaska and Hawaiian have younger and larger fleets, which makes them unlikely to suffer such long delays due to mechanical problems.

Not worth the savings
Ultimately, travelers going to Hawaii are looking for a relaxing, refreshing trip. The stress of having a flight delayed by a day or more negates that goal. Furthermore, the cost of missing a day of work could easily offset any money saved by buying the cheapest ticket. Allegiant will still thrive in its niche of smaller markets that don't have other direct service, and will also cater to the most price-sensitive travelers. However, for most customers choosing between Allegiant and either Alaska or Hawaiian, paying a little extra to fly a more reliable carrier will prove to be the best deal of all.

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