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Best of Benjamin Spillman

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Benjamin Spillman
 

Allegiant is going public

8 December 2006

LAS VEGAS, Nevada – The airline that carries small town America to the bright lights of Las Vegas is about to touch down on Wall Street.

Shares in Las Vegas-based Allegiant Air will begin trading today on the Nasdaq National Market under the symbol ALGT.

The initial public offering is expected to raise as much as $82 million for an airline that specializes in direct Las Vegas flights from far-flung locations that go unserved by major carriers. Allegiant hopes to sell more than 5 million shares at $18 each. The proceeds will be used to add direct flights to Las Vegas and Orlando, Fla., to more small towns across the country.

This year Allegiant has already ferried more than 1 million passengers through McCarran International Airport, many of whom save several hours per trip by skipping layovers and long drives to airports in big cities.

"We didn't have to drive to Kansas City," horse trainer Scott Shelton of Springfield, Mo., said Thursday.

Shelton and his wife, Laura, a barrel racer, flew Allegiant direct from Springfield to Las Vegas to attend the National Finals Rodeo. They estimated they saved more than five hours driving by flying from closer to home.

"We can get home and feed the livestock sooner," Scott Shelton said.

The company was founded in 1997 in Fresno, Calif., and went bankrupt in 2000. It emerged from bankruptcy in 2001 under the leadership of airline industry veteran Maurice Gallagher, who moved Allegiant to Las Vegas.

After the opening, Gallagher will own about 4.8 million shares representing 25 percent of the total outstanding shares, according to the prospectus.

The company saves money by flying older planes on less frequent schedules. It also offers hotel deals with cheap airfares. The combination of low prices and direct flights makes Allegiant appealing to small-town dwellers with discretionary income.

"This really isn't an airline, this is a vacation system," said Michael Boyd, an airline consultant with the Evergreen, Colo., firm Boyd Group. "You'd be surprised how many farmers ... have accounts at Caesars Palace."

Allegiant offers direct flights to Las Vegas from 35 cities, including Green Bay, Wis., and Killeen, Texas. It also has direct flights to Orlando from 21 cities and has plans to offer nonstop service from 12 cities to St. Petersburg/Clearwater International Airport in Florida. When it began operating out of Las Vegas, the airline was offering flights to just Fresno, Calif., and Colorado Springs. Colo.

Not only does the roster of cities provide Allegiant with an untapped customer niche, it protects the company from competition, Boyd said. Other airlines just aren't interested in trying to make routes to Allegiant cities profitable.

"There is no other airline on this planet that is going to want to fly from Killeen, Texas, to Las Vegas," Boyd said. "Nobody is going to want to kill (Allegiant) off even if they could."

And if another airline does enter an Allegiant city, Allegiant simply moves out, he said.

"If it doesn't work they will move on," he said. "They are very, very sharp."

Gertie and Rudy Schiller of Las Vegas said they were drawn to Allegiant by low costs and direct service to Colorado Springs, Colo., where their daughters live.

"Awesome," Gertie Schiller said. "If you fly the others you have to switch around."

The Schillers paid $230 for both tickets and doesn't mind Allegiant's no-frills in-plane service.

"They don't give you drinks, they don't give you food, but nobody does," Gertie Schiller said.

Scott and Sabrina Miller of Cedar Rapids, Iowa, were less enthusiastic. Their Allegiant flights to and from Las Vegas were delayed several hours.

"We basically missed a day and now we are delayed going back," Scott Miller said.

Airline industry consultant David Swierenga said he is skeptical that small communities like the ones Allegiant targets could produce enough passengers to sustain the airline.

"It could work," said Swierenga of AeroEcon, a Round Rock, Texas, aviation consulting company. "The advantage for a place like Las Vegas or Orlando is there is year-round demand for travel to those locations."

And Swierenga said lately the airline industry has been tough on investors.

"I think the industry is littered with failures," Swierenga said. "The successes are few and far between."