Allegiant Airlines’ earnings report seen as evidence of pricing power

Las Vegas-based Allegiant Airlines demonstrated in its latest earnings report that it could drive ticket pricing higher while taking in additional revenue from ancillary services, such as selling hotel rooms and rental cars along with an airline ticket, Macquarie Securities gaming analyst Joel Simkins said Tuesday.

“The recently announced expansion into Hawaii should be rich with opportunities to drive ancillary revenues higher since most travelers to Hawaii require a hotel room and many need a rental car,” Simkins said. “As the leisure traveler continues to recover, we believe Allegiant will be able to push airfares higher while still offering a strong value to its customers when compared to other airline alternatives.”

Allegiant Airlines’ revenue grew more than 19 percent in the first quarter, but its profits fell because of higher fuel costs and the purchase of new aircraft.

The air carrier announced earnings late Monday for the three-month period that ended March 31.

Net income for the quarter was $22.6 million, down 19.8 percent from $28.2 million in the same quarter a year ago. The profits translated into earnings per share of $1.12, down 18.2 percent from $1.37 per share in the first quarter of 2009.

Net revenues in the quarter were $169.6 million, up 19.4 percent compared with $142.1 million in the first quarter last year.

Allegiant said it paid $1.47 per gallon for jet fuel in the first quarter of 2009, the lowest quarterly fuel price in more five years. This year, Allegiant saw fuel prices increase 48 percent to $2.17 per gallon.

“Our first-quarter results continue to reaffirm the stability and strength of our model, Allegiant Chairman and Chief Executive Officer Maurice Gallagher, Jr. said.

The company agreed to buy six Boeing 757-200 series aircraft and closed on the first two planes in March. Allegiant said its capital expenditures during the quarter was $40 million, almost all of which was related to aircraft.

Allegiant generated an average fare per scheduled passenger of $116.49 during the quarter, a nearly $8 increase from $108.61 in the same quarter a year ago.

“Beginning in the second quarter of 2008, we increased our focus on filling aircraft to take advantage of strong ancillary revenues and reduce per-passenger costs by spreading costs, particularly fuel, over more passengers,” Gallagher said. “This strategy has worked well and we plan to continue this approach indefinitely.”

Contact reporter Howard Stutz at hstutz@reviewjournal.com or 702-477-3871.