Decline in fuel cost leads to increased profit for Allegiant Air

A dramatic decline in fuel prices helped Las Vegas-based Allegiant Air reap a double-digit profit margin and project growth in 2009, despite a lousy economy that’s dragging down tourism.

Allegiant Air parent Allegiant Travel Co. on Tuesday reported fourth-quarter earnings of $18.2 million, or 88 cents per share, an increase from 23 cents in the fourth quarter of 2007. The fourth-quarter operating margin was 26.8 percent.

Allegiant officials think growth will continue in 2009, even as the recession has lots of folks cutting back on trips to Las Vegas and other Sun Belt destinations that Allegiant serves.

“The world has not ended,” Allegiant President and CEO Maurice Gallagher told investment analysts during a conference call to discuss the airline’s increasing revenue and profit margin. “It is hard to get that message across.”

Allegiant’s fuel expenses fell 23.7 percent in the fourth quarter. The decline, when coupled with efficiency measures taken to adjust to record-high fuel costs in summer, boosted margins dramatically.

Allegiant also benefitted from continued emphasis on driving ancillary revenue, such as charges for seat assignments, travel insurance and other add-ons. Ancillary revenue was up 50.6 percent to nearly $30.8 million.

In addition to the lucrative fourth quarter, Allegiant officials also discussed a $25 million stock buyback plan.

Although the company is healthy, independent investment researcher Reggie Middleton said the airline should avoid the stock buyback.

Middleton, who has criticized media companies’ stock buyback programs, says firms should stick to their core businesses.

“They should be shopping for strategic and valuable assets that are underpriced in order to grow their business instead of playing money manager,” Middleton said.

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