This Airline's Growth Is Soaring Into the Stratosphere

Think small for biggest of opportunities with airlines.

Feb 16, 2014 at 12:12PM


Allegiant Air Pic

Source: Allegiant Air

You've heard of highway robbery; now welcome to the fast-growing trend of skyway robbery. Certain small airlines in particular are mastering the art of luring passages with cheap upfront fares and gauging them with expensive fees later. Allegiant Travel Company (NASDAQ: ALGT) is quickly catching on and making its shareholders rich in the process. 

More moola per mile
Allegiant reported fiscal-fourth-quarter results on Jan. 29. Revenue increased 7% to $238.5 million. Operating income jumped 19.3% to $30.3 million. Net income climbed 18.2% to $17.5 million, and diluted earnings per share leaped 23.7% to $0.94. It was the 44th quarter in a row of profitable results.

CEO Maurice J. Gallagher pointed out that it was the second full year in a row of growing both operating margins and earnings before interest, taxes, depreciation, and amortization. He expects operating profit margins to improve even further as Allegiant continues to figure out how to squeeze out more nickels and dimes out of its passengers.

Consider this
For 2013, the average ticket price increased by only 3.1% to $91.69, but the average "air-related charges" jumped by 13.4% to $40.52. This is an average increase of nearly five bucks apiece from every man, woman, and child who flew Allegiant.

Allegiant collected almost $288 million in fees (plus another $37 million in "third party fees") in 2013. It adds up fast! And this extra $40.52 per passenger is for many services not even charged by a number of the larger airlines. This means, all other things being equal, much of these extra fees fall to the bottom line fast.

Analysts also don't believe Allegiant is going to hit any wind resistance from this any time soon either. For 2014, they expect Allegiant to crack the $1 billion mark in sales by increasing 12.8% to $1.12 billion. For 2015, they expect sales to pop another 11.4% to $1.25 billion. That figure, if achieved, would be double the sales levels of just five years prior. For earnings, analysts expect Allegiant to grow 15.3% this year to $5.56 per share and another 17.6% to $6.54 for 2015. Much of that is of course from fees.

Allegiant may be catching the Spirit
Spirit Airlines (NASDAQ:SAVE) demonstrates even more success and growth rate for Allegiant to aspire to. While it took Allegiant hopes to double its sales over the five-year period beginning in 2010, Spirit Airlines has already doubled its sales back in 2012 and hasn't looked back.

Spirit Airlines hasn't reported its fourth-quarter and full-year results yet, but it is expected to show another 25.6% growth in revenue and a 65.7% increase in earnings per share. In the third quarter, revenue soared 33.4%, revenue per seat mile popped 8.9%, and adjusted net income exploded 130.3%.

In case you haven't guessed it, Spirit Airlines is known as king of the fee-niche industry and leader among the smaller airlines for successfully "getting away with" tacking on fees.

Spirit Airlines CEO Ben Baldanza mentioned that the airline is known for doing things differently than other airlines. It sounds like he's referring to the risks it takes by being the first to charge new or higher fees for certain things in the industry. Notable examples are $50 for a carry-on, $10 for a printed boarding pass, $3 for water, and even its customer service number is no longer toll free. If Spirit can figure out a way to charge you to use the restroom that'll probably be next.

Allegiant seems to be watching and slowly mimicking Spirit Airlines' creativity, as evidenced by its own revenue-per-mile increases.

Foolish final thoughts
The best part is that the customers seem to keep coming back for more, so maybe people tend to be more price-sensitive when they are planning a trip than they are about the day of travel. Allegiant has already reported preliminary January traffic data that continues the rapid growth trend. It showed double-digit-percentage gains in passengers and revenue per passenger, a double-double win. Look for Allegiant to continue to grow and impress, especially as passengers get accustomed to paying the extra fees for everything. Foolish investors looking to take advantage of this trend should take a peek at Allegiant as it "plays catch up" with Spirit Airlines.

You need to be prepared before takeoff
Millions of Americans have waited on the sidelines since the market meltdown in 2008 and 2009, too scared to invest and put their money at further risk. Yet those who've stayed out of the market have missed out on huge gains and put their financial futures in jeopardy. In our brand-new special report, "Your Essential Guide to Start Investing Today," The Motley Fool's personal finance experts show you why investing is so important and what you need to do to get started. Click here to get your copy today -- it's absolutely free.

Nickey Friedman has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

1 Key Step to Get Rich

Our mission at The Motley Fool is to help the world invest better. Whether that’s helping people overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we can help.

Feb 1, 2016 at 4:54PM

To be perfectly clear, this is not a get-rich action that my Foolish colleagues and I came up with. But we wouldn't argue with the approach.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich" rated The Motley Fool as the #1 place online to get smarter about investing.

"The Motley Fool aims to build a strong investment community, which it does by providing a variety of resources: the website, books, a newspaper column, a radio [show], and [newsletters]," wrote (the clearly insightful and talented) money reporter Kathleen Elkins. "This site has something for every type of investor, from basic lessons for beginners to investing commentary on mutual funds, stock sectors, and value for the more advanced."

Our mission at The Motley Fool is to help the world invest better, so it's nice to receive that kind of recognition. It lets us know we're doing our job.

Whether that's helping the entirely uninitiated overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we want to provide our readers with a boost to the next step on their journey to financial independence.

Articles and beyond

As Business Insider wrote, there are a number of resources available from the Fool for investors of all levels and styles.

In addition to the dozens of free articles we publish every day on our website, I want to highlight two must-see spots in your tour of

For the beginning investor

Investing can seem like a Big Deal to those who have yet to buy their first stock. Many investment professionals try to infuse the conversation with jargon in order to deter individual investors from tackling it on their own (and to justify their often sky-high fees).

But the individual investor can beat the market. The real secret to investing is that it doesn't take tons of money, endless hours, or super-secret formulas that only experts possess.

That's why we created a best-selling guide that walks investors-to-be through everything they need to know to get started. And because we're so dedicated to our mission, we've made that available for free.

If you're just starting out (or want to help out someone who is), go to, drop in your email address, and you'll be able to instantly access the quick-read guide ... for free.

For the listener

Whether it's on the stationary exercise bike or during my daily commute, I spend a lot of time going nowhere. But I've found a way to make that time benefit me.

The Motley Fool offers five podcasts that I refer to as "binge-worthy financial information."

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. It's also featured on several dozen radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable ... and I don't say that simply because the hosts all sit within a Nerf-gun shot of my desk. Rule Breaker Investing and Answers contain timeless advice, so you might want to go back to the beginning with those. The other three take their cues from the market, so you'll want to listen to the most recent first. All are available at

But wait, there's more

The book and the podcasts – both free ... both awesome – also come with an ongoing benefit. If you download the book, or if you enter your email address in the magical box at the podcasts page, you'll get ongoing market coverage sent straight to your inbox.

Investor Insights is valuable and enjoyable coverage of everything from macroeconomic events to investing strategies to our analyst's travels around the world to find the next big thing. Also free.

Get the book. Listen to a podcast. Sign up for Investor Insights. I'm not saying that any of those things will make you rich ... but Business Insider seems to think so.

Compare Brokers