Allegiant Has Fast Takeoff on Wall Street

Investors apparently liked the business model of the swift-growing airline that targets leisure travelers to Las Vegas and Orlando, Fla., from small towns overlooked by major carriers.


They probably couldn't find Allegiant Travel Co.'s small-town destinations with a map and compass, but that didn't stop Wall Street investors from snapping up stock in the Las Vegas-based airline.

Allegiant shares opened at nearly $24 on Friday, the first day they were available on the Nasdaq National Market.

The opening price was 33 percent higher than the initial public offering price of $18 and eventually rose as high as $24.93, 39 percent higher than the IPO price. It closed at $25.10 per share. It will use the IPO proceeds to expand its service.

Investors apparently liked the business model of the swift-growing airline that targets leisure travelers to Las Vegas and Orlando, Fla., from small towns overlooked by major carriers.

Rather than compete with regional carriers taking passengers between Las Vegas and places such as Salt Lake City, Phoenix or Minneapolis, Allegiant offers nonstop flights to cities such as Sioux Falls, S.D., Wichita, Kan., and Peoria, Ill.

In the years before the stock offering, Allegiant's operating revenue grew from $49 million in 2003 to $180 million in the nine months ending Sept. 30. Operating income during those periods grew from $2.9 million to more than $15 million.

"Allegiant is in a really good spot," said airline analyst Helane Becker of The Benchmark Group. "They have a slightly different model than the rest of the industry."

Allegiant was founded in 1997 in Fresno, Calif., and filed for bankruptcy in 2000. It emerged in 2001 under the current model and has continued to grow.

In 2002 it flew to just Fresno and Colorado Springs, Colo. Allegiant now flies to 45 small cities and employs 787 people.

Customers seem to like Allegiant's no-frills service, too.

The number of passengers the airline flew in and out of Las Vegas rose to more than 1 million for the first nine months of this year, up nearly 67 percent from the same time last year. By comparison, Southwest, the largest carrier at McCarran International Airport, carried 11.6 million people to and from Las Vegas so far this year.

"I'm pleased with it," said Allegiant passenger Al Partington of Vancouver, British Columbia.

Partington and Marlene Bath flew from Bellingham, Wash., to Las Vegas for a three-day vacation. They liked the direct service from Bellingham and were even more pleased when their airfare and hotel package turned out to be about half of what they paid previously for a similar trip on Alaska Air.

"They were just as good as Alaska," Partington said. "We didn't even know it was cheaper until we looked it up online."

The strategy of attaching hotel deals to airline tickets took off first in Europe and was popularized in the United States by travel Web sites, said Andrew Watterson, a director who specializes in airlines with the firm Mercer Consulting.

The strategy works best with leisure travelers who are less picky about flight times but are highly price sensitive.

"They are increasingly seeing (travel) as a commodity," Watterson said. "A seat is a seat on one airline or another for the economy traveler."

But even with airline travel at all-time highs, Becker warned there could still be turbulence for Allegiant. She said the company, like other airlines, is vulnerable to high fuel prices.

It could also struggle if the economy slumps. Another danger would be if the company expanded too fast.

But for now, the rising stock price for Allegiant and overall upbeat forecasts for the airline industry suggests the company is positioned to succeed.

"They obviously priced this very well," Becker said of the Allegiant stock. "Right now, there is an awful lot of demand."



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