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Benjamin Spillman

Allegiant flying ever higher

1 February 2007

LAS VEGAS, Nevada -- Las Vegas-based Allegiant Travel Co. flew high into 2007 despite a hefty tax bill related to its recent stock offering.

The airline and travel company's profits increased to $8.7 million for 2006, up nearly 20 percent from 2005.

Operating revenue for the year was up almost 84 percent to $243 million.

During a conference call Wednesday to discuss earnings, analysts complimented executives on Allegiant's performance.

It was the first earnings statement from Allegiant since the company went public in December and raised nearly $95 million in an initial public offering.

Allegiant specializes in direct flights from small towns most airlines ignore to airports in vacation destinations such as Las Vegas; Orlando, Fla.; and the Tampa/St. Petersburg, Fla., area.

Since 2005, the airline has grown from 38 to 66 routes and added nine 130- to 150-passenger jets to its fleet.

Stock in the airline has increased in price from about $18 at its initial public offering Dec. 7 to more than $32 on Wednesday.

"Allegiant's business plan is, in my opinion, almost bulletproof," said Michael Boyd, an airline consultant at the Boyd Group in Evergreen, Colo.

Boyd did not participate in the conference call.

Boyd said Allegiant generally doesn't face competition because it flies to small communities. And when competitors do target an Allegiant market, the airline is quick to pull up stakes and move elsewhere, he said.

Allegiant also packages its low-cost flights with Las Vegas and Orlando hotel rooms. The combination, according to Boyd, means the company is tapping into consumers' discretionary spending budgets. It's a business plan that seeks to convince people to go on a short trip instead of buying a new refrigerator at Home Depot, he said.

"Vegas is a lot more fun than a refrigerator," he said.

Despite praise from analysts, Allegiant faced some big expenses, especially during the second half of 2006.

Chief Financial Officer Linda Marvin said the fleet had four unscheduled engine events during the year compared with just one the year before. An unscheduled engine event is something that prompts the removal of an engine. It could be something as unpredictable as running into a bird.

Allegiant also faced more scheduled maintenance, called c-checks, in 2006 than 2005. A c-check can cost anywhere from $250,000 to $600,000 per airplane, company officials said.

In addition to the maintenance costs, Allegiant had a $6.4 million tax bill related to the transition from a private to a public company.

That contributed to a fourth-quarter per share loss of 17 cents. For the year, Allegiant shares earned 52 cents.

Despite the late-year turbulence, Allegiant maintained an 11.7 percent operating margin in the fourth quarter. One analyst said that was the highest operating margin for any of 11 publicly traded airlines which have reported earnings so far.

"We managed to increase margins nicely despite these issues," Chief Executive Officer Maurice Gallagher said.