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Gaming Guru

Richard N. Velotta

Allegiant Air Making a Success of Leisure Time

15 June 2005

Allegiant Air has taken its unusual business plan on the road.

The Las Vegas-based commercial passenger carrier, which over the past two years has had the largest percentage growth of any domestic operator at McCarran, has begun flights linking Orlando's Sanford Airport with four cities already on the airline's route map.

Last month, Allegiant began using Orlando as a swivel point on flights to and from Lansing, Mich.; Des Moines, Iowa; Peoria, Ill.; and Madison, Wis., all cities that have been successful feeders to Las Vegas. The company is starting with 18 hotel partners in Orlando.

As airlines go, Allegiant is about as unconventional as they come.

While most commercial passenger carriers operating at McCarran look for ways to differentiate themselves from their rivals on their trips to the nation's major airports, Allegiant focuses on small markets that other airlines don't seem to care about.

While Southwest, United and America West are serving Chicago, Dallas and Los Angeles, Allegiant is making trips to Sioux Falls, S.D.; Fort Collins, Colo.; and McAllen, Texas.

While the big airlines will make runs to LAX a dozen times a day, Allegiant heads out and back a couple of times a week.

"Their model is to stay under the radar," said Mike Boyd, an Evergreen, Colo.-based aviation consultant with the Boyd Group. "They go to places like Lansing, places that the big carriers don't care about."

But just because Allegiant flies to airports that have one gate and no Jetways, don't mistake them for being unsuccessful.

"Revenues have been up about 100 percent a year over the last four years," said Maurice Gallagher, president and chief executive of the company that was founded in 1997 and adopted its current business strategy in 2002.

Gallagher said the closely held company had revenue of $6 million in 2001, $23 million in 2002, $54 million in 2003 and $102 million last year. This year, the airline is on another major growth spurt, adding a half-dozen new cities as well as establishing the Las Vegas-centered business model in Orlando.

"We definitely do things differently," Gallagher said in an interview. "Most airlines mix business travel and leisure, but we operate a leisure-based model. We use big airplanes with less frequency and do a lot of packaging."

Most of Allegiant's operations occur Thursdays, Fridays, Sundays and Mondays. Typically, the airline will enter a market with two flights a week, either Thursday and Sunday or Friday and Monday. If the route is popular, other flights are added.

The success of the strategy is well documented. According to McCarran statistics, for the first four months of 2005, Allegiant flew 234,283 passengers in and out of Las Vegas. That's 62.4 percent ahead of the same period a year ago, the largest percentage growth for any domestic carrier serving Las Vegas.

As of April, McCarran said the airline added 52.5 percent more flights year over year and by August will have 21 cities on its route map.

When the airline isn't flying between Las Vegas and Small Town USA, it is operating charter flights for Harrah's Entertainment Inc., to Laughlin and Reno, and for college athletic teams. Gallagher said Allegiant stayed busy in March, flying basketball teams all over the country during the NCAA Collegiate Basketball Tournament.

Gallagher is hoping Harrah's pending acquisition of Caesars Entertainment Inc., could produce more charter flying opportunities.

Ponder Harrison, Allegiant's managing director, said the airline ran May load factors of 85 percent, meaning that on average, 85 percent of the airline's seats were filled with paying customers -- an accomplishment in an industry in which the break-even percentage is around 70 percent.

Because Allegiant generates most of its business in small cities, the airline has a relatively low profile in Las Vegas. Most of its marketing efforts are focused in the markets where flights are offered.

Allegiant flies into markets that have low levels of service and because the airline is sometimes the only game in town, the company is instantly beloved.

"When we introduced service in McAllen, it was front-page news, above the fold," Gallagher said of the press coverage. "The headline was 'Viva Las Vegas."'

Gallagher is the first to admit that the Las Vegas Convention and Visitors Authority's efforts to market the city have had a great influence on Allegiant's success. The "What happens here, stays here" campaign plays as well in Fort Collins, Colo., as it does in Denver.

"The LVCVA has been great about promoting Las Vegas in the cities where we've introduced service," Gallagher said. "It's quite a show in Fargo when you have Elvis and a 6-foot showgirl in town."

With its relationship with 30 resorts in Las Vegas, Allegiant's packaging program has built itself to being responsible for 600 room nights per day. The package arrangements allow Allegiant to offer fares that often are below the best fares discounters can offer.

For example, Allegiant recently offered a sale on flights between Fort Collins and Las Vegas for $59 before taxes. That pencils out to about $150 per round trip, well below ticket prices offered by Frontier and United's Ted Airlines subsidiary between Denver and Las Vegas.

Gallagher said there are other factors involved in keeping costs low. Marketing costs in small cities are often lower than they are in the big ones. Allegiant flies with fuel-efficient MD-80 series aircraft with two engines and 150 seats. The range of the plane gives Allegiant the ability to fly to most places in the United States nonstop.

The company also saves money by not having to put up its flight crews overnight. Since Allegiant flies out-and-back routes, its Las Vegas-based crews make their trips to their respective cities, then turn around.

"Our employees sleep in their own beds every night, which is something they really like," Gallagher said.

Allegiant also minimizes expenses by charging customers for extras. For example, people who want to choose where they sit on a flight can make a selection -- but it costs $10 more per flight to do it.

In February, the company also began charging for snacks and soft drinks on flights. Most airlines give snacks and drinks away. That change produced dual benefits for the airline because it didn't have to haul as many soda cans and snack packs and a new revenue stream was created.

"It's all choice-based for the customer," Gallagher said. "If you don't want to participate, it costs you nothing."

Gallagher said while the policy raised a few eyebrows, it turned out to be a non-event, as most customers haven't missed what on most airlines is a freebie.

What's on the horizon for Allegiant? More growth, Gallagher said.

Gallagher and Harrison feel that there are still plenty of second-tier cities on the map that would fit the Allegiant model. The airline's McAllen service begins June 24 and flights to Rapid City, S.D., begin July 6. In late July, the airline will begin flights to Green Bay, Wis., and in early August, service starts in South Bend, Ind.

Gallagher figures the airline could be in 40 cities in 18 months. He said Allegiant also is looking into leisure-market flights to Palm Springs, Calif., as well as Mexico and the Caribbean.

Not every Allegiant city has been a home run for the company. The company discontinued flights to Redding, Calif., when loads softened. Gallagher said Redding may have been a little too close to Sacramento where high-powered discounter Southwest Airlines operates.

Gallagher, who is familiar with the Florida market as a result of his days asan executive of ValuJet Airlines -- the forerunner of today's AirTran Airways -- said using the Sanford airport instead of the larger Orlando International should help the company get established in that market.

Aviation expert Boyd said Sanford is a popular airport for air charters and international flights. While Boyd thinks Allegiant can hold its own, he said the Florida market should prove much more challenging because of the competition.

"Florida is like one big market," Boyd said. "It seems like it's three miles wide, so people will find wherever it's cheapest to fly in the state, go there and just drive to where they want to be."

That means Allegiant will be taking on powerhouses like Southwest and JetBlue, which both have strong presences in Florida.

But Gallagher is optimistic. Most of the airline's 500 employees are based in Las Vegas, but the new Orlando operation will result in a small base of employees working there. As operations to Allegiant cities from Orlando broadens, the employee base is expected to grow.

It won't be particularly expensive to market Orlando flights since Allegiant already is established with its Las Vegas routes and won't have many start-up costs.

"We want to establish ourselves as a travel company, not just an airline," Gallagher said. "Right now, we don't know how high is up."