Allegiant makes gains despite higher fuel costs in quarter

Las Vegas-based Allegiant Travel Co. grew its way through higher fuel costs to boost its net income by one fourth in the first quarter.

Revenues rose 23.1 percent to $237.9 million, through a combination of higher fares, more seats and more side fees such as selling seat assignments on Allegiant Air. At the current pace, Allegiant will approach the $1 billion mark for the first time this year.

The net income went up 26.5 percent to $21.7 million, or $1.12 a share, beating the consensus estimate of $1 a share among the 15 analysts polled by Yahoo Finance.

This came despite the average cost of jet fuel rising 14.3 percent from last year, to $3.28 per gallon, and a total fuel bill that went up nearly 30 percent due to adding more flights to the schedule.

But Allegiant may face headwinds on its decision to begin charging passengers in early April for putting carry-on bags into the overhead bins. Only the space under the seat in front of a passenger is now free.

During the conference call with analysts, chairman and CEO Maurice J. Gallagher Jr. noted that the U.S. Department of Transportation has begun formulating rules to govern how the fees are displayed, following complaints by Sen. Charles Schumer, D-N.Y., and several travel industry groups.

For several years, Allegiant has charged separately for different parts of a flight, ranging from seat assignments to bottled water, in order to hold down the base fare and let passengers choose the extras they want. Frequently, management has touted to analysts how much revenue they have generated through the ancillary charges.

However, Gallagher depicted the carry-on bag fees as an efficiency issue, one applauded by Wall Street analysts as a way to boost profits. More passengers now take carry-ons to avoid checked bag fees and Allegiant is adding 16 seats to each of its mainstay MD-80 series jets without changing the bins, leading to "operational challenges" about where to fit all the luggage, Gallagher said.

"Charging for access to overhead storage is the logical method to ration this important overhead space," Gallagher said.

However, groups such as the Business Travel Coalition said such fees, which are not included in the upfront cost of a plane trip, have made comparison shopping increasingly difficult. "Unless a consumer is armed with a spreadsheet and lots of spare time, it's tremendously problematic to determine what the best value is when comparing airline offers," the coalition wrote in an unsigned commentary on April 10.

Allegiant said it has not seen bookings dip since the carry-on fee was launched, adding from $10 to $35 to the costs of a trip. However, president Andrew Levy noted that Allegiant also instituted a simultaneous fare sale, in part to remove some of the sting, with the hope of eventually bringing the fares back up.

Contact reporter Tim O'Reiley at toreiley@reviewjournal.com or 702-387-5290.