Allegiant Travel Co. stock dived for the second time in two weeks after the second quarter earnings released on Tuesday fell short of analysts’ estimates.
Net income rose 2.3 percent compared to the same period last year to $25.7 million, or $1.34 per share. However, the mean of the 12 analysts tracked by Yahoo Finance stood at $1.36.
As a result, the stock sank $12.40 a share, or 11.6 percent, to close at $94.50. After the July 9 announcement that certain revenue benchmarks looked weaker than anticipated during the second half of this year, the stock dropped 7.2 percent to $98.48, but subsequently recovered to close at $106.90 on Monday.
The recent choppiness has interrupted what had been a strong recent run for the Las Vegas-based airline and travel booking company, and the stock has climbed 68 percent in the last 10 months. This was fueled by some of the highest profits in the airline industry and Wall Street expectations of continued strong growth based on leisure travelers attracted to Allegiant’s core strategy: nonstop flights between small cities and major vacation spots, such as Las Vegas and Florida, at low base fares coupled with a menu of extra fees.
In the last month, however, three analysts have cut their full-year profit estimates while none have boosted them.
The second quarter revenues of $255.8 million ran 10.7 percent ahead of last year but about 1 percent short of the analysts’ estimates.
“June was a little weaker than we anticipated,” said Allegiant president Andrew Levy, during a conference call with analysts. “Part of that was probably just a forecasting issue on our end.”
Nevertheless, he said, the month was “solid” and “very, very profitable,” and the planes were as full as ever but ticket prices lower than expected.
Looking ahead for the rest of the summer and into the autumn, he said, “We’re feeling real good about the demand environment. It’s not accelerating necessarily, but it is stable and, I think, pretty strong.”
In addition, Allegiant has requested government approvals to begin flying to Mexico on two routes, from Las Vegas to Cabo San Lucas and to Hermosillo. The Cabo route will mark a departure from the normal patterns of selling most of the tickets in small cities to the major resorts; Levy expects the primary customers to be locals who want to sit on the Baja California beach. The application sets the start as next June, but no firm launch date has been set.
The recently announced decision to fly between Los Angeles and Honolulu was termed a bit of an experiment. “That’s something we have always done and will continue to do.”
Allegiant’s route system is largely populated by cities such as Minot, N.D., and McAllen, Texas, that major airlines have largely or completely ignored, so head-to-head competition is rare. But the Hawaii route will pit Allegiant directly against most of the industry, including the four largest airlines.
But doing so, said Levy, will see if Allegiant can stretch its definition of “underserved market” from small towns to big cities where the airfares for certain vacation destinations have climbed out of the reach of hundreds of thousands of people.
Allegiant started flying to Hawaii, but is still trying to master its seasonal swings. Further, Levy said, experience showed some small cities could not fill enough seats at high enough fares to make the routes financially viable.