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Allegiant revenue rises as profit falls in third quarter, beating Street estimates

Las Vegas-based Allegiant Travel Co. increased revenue 35.4 percent to $116.9 million in the third quarter, but earnings per share fell from 34 cents to 24 cents, a 29.4 percent decline.

Despite fuel costs chipping away at profits and a recession that’s battering the hospitality and airline industries, Allegiant’s airline business managed to post a third-quarter profit margin of 6.9 percent and beat analysts’ earnings expectations by 5 cents per share.

The earnings report was good news for stockholders who saw share values jump from $35.10 at open to a high of $38.38 before closing at $36.03 on a day the overall Nasdaq National Market fell nearly 5 percent.

“How could you not feel good about what they did?” said airline analyst Bob McAdoo of Avondale Partners. “I think it is a good thing for Vegas and for hotels.”

During a conference call to discuss earnings, company officials said they expect falling oil prices to help the airline increase profits in the fourth quarter.

They also mentioned several other options to increase revenue, including the possibility of becoming the first domestic airline to charge customers for their carry-on bags.

Allegiant was one of the first airlines to charge passengers for checked bags, a move company officials said reduced the average number of checked bags per customer from 1.2 to 0.5.

However, it also resulted in more crowded baggage bins in flight cabins as passengers began to carry more luggage on board.

“Some would argue it sounds like a new revenue opportunity, but we’ll have to address that in future calls,” said Ponder Harrison, Allegiant’s managing director of marketing and sales.

Analysts say the flexibility to make money through myriad sources is helping Allegiant reap profits while other airlines falter.

Although the average Allegiant fare is just about $86, ancillary revenue from baggage fees, hotel rooms sales in Las Vegas, Florida and Arizona and other charges increased 51.5 percent in the third quarter to $32.28 per passenger.

“Other domestic airlines have to live off just airfare,” McAdoo said. “They have a real leg up on the traditional airlines.”

Third-quarter profits were 4.2 percentage points below the third quarter 2007 margin of 11.1 percent. But the 6.9 percent third-quarter margin was an improvement from the second quarter, when the margin was less than 4 percent despite fuel costs remaining constant.

Allegiant officials said moves made earlier this year in response to oil prices surging above $100 per barrel paid off in the third quarter.

To cope with higher fuel prices, the company cut long-haul routes and replaced them with shorter flights from departure points closer to its main destinations of Las Vegas, Florida and Arizona.

Contact reporter Benjamin Spillman at bspillman@reviewjournal.com or 702-477-3861.

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