Allegiant Takes Direct Route to Profitability

Low-cost airlines like Southwest have grabbed a bigger share of air travelers over the past decade using a basic blueprint.

Buy new, fuel-efficient jets that require little maintenance. Run them long hours in competitive, high-traffic markets. Charge low fares by keeping an eagle eye on costs.

A tiny upstart from Las Vegas is growing rapidly by putting a new twist on the formula.

Allegiant Air flies MD-80 jets that are on average 16 years old. The planes gulp one-third more gas than Southwest's new 737-700s. But at about $4-million apiece, the MD-80s cost one-tenth the price.

Allegiant flies leisure travelers nonstop between small cities and the nation's top vacation destinations, Las Vegas and Orlando, usually with just two to five roundtrips per week on each route.

Make no mistake: Allegiant can squeeze a nickel as hard as the leanest-running discounter.

Planes return to Las Vegas and Orlando nightly, so flight crews sleep at home instead of staying in hotels. Passengers pay $11 for an advance seat assignment. Allegiant aggressively leans on small airports for advertising money and waivers of user fees before deciding to fly there.

On Thursday, the airline will make the Tampa Bay area its third vacation destination market .

Allegiant will start with flights from Allentown, Pa., and Rockford, Ill., to St. Petersburg-Clearwater International Airport. By mid December, the airline will fly routes to 12 cities with 33 roundtrips weekly.

The numbers are microscopic compared with Tampa International, where Southwest has 77 departures a day.

But landing Allegiant is huge for the Pinellas airport, which has suffered with the departures of wobbly airlines short on cash and seasoned executives. Allegiant is a different breed, says airport director Noah Lagos.

"They make money," he says. "They've perfected their business model ? and they have a lot of airline expertise."

Nine-year-old Allegiant has grown rapidly since emerging from bankruptcy in 2002.

In the past two years, the airline's fleet has grown from nine jets to 25. Passenger traffic nearly doubled to 970,000 last year and is expected to come close to 2-million this year.

Allegiant rang up profits each year since 2003, no small feat during an industry downturn that pushed five major airlines into bankruptcy.

By next month, the airline will connect 47 cities in 27 states with nonstop fights to Las Vegas, Orlando or St. Petersburg. With plans to raise at least $100-million in a sale of public shares, Allegiant could keep expanding at a blistering pace.

Key to Allegiant's strategy is staying out of the way of bigger airlines.

Traditional carriers fly to some of the same small markets. But they use cramped regional jets instead of full-sized MD-80s and require passengers to change planes in a big hub airport.

Customers like retiree Ronald Dykstra of Grandville, Mich., appreciate the convenience of Allegiant's nonstop flights.

Instead of flying from nearby Grand Rapids and stopping in Detroit or Chicago, he drives 70 miles to Lansing for a flight straight to Orlando Sanford International Airport in Seminole County.

"This is so convenient," says Dykstra, who paid $168.60 to fly with his wife back to Lansing last week. "There's no layover. You fly where you want to go."

Staying in small cities protects the airline from big low-cost carriers that prefer flying to larger markets that can support multiple daily flights, Allegiant says.

But as discounters keep expanding, some are exploring more lightly traveled routes.

A couple of weeks after Allegiant announced service between St. Petersburg and Newburgh, N.Y., AirTran said it would start flights to the Hudson Valley city from Tampa International on Jan. 11.

"It's going to get a lot tougher for those guys," said Kevin Healy, AirTran's vice president of planning and sales. "There are a limited number of places they can (go)."

Allegiant disagrees. At least 60 more cities in the United States and Canada fit its profile, the company said in an August filing with the Securities and Exchange Commission.

Chief executive Maurice J. Gallagher Jr. learned the low-cost airline business as a founder and officer at ValuJet Airways. The carrier grew rapidly before one of its DC-9s crashed in the Everglades in 1996, killing all 110 people on board. Gallagher left after ValuJet merged with AirTran Airways and took the smaller airline's name.

Under Gallagher's watch, Allegiant keeps a laser focus on the bottom line. When the airline identifies a promising new market, executives put a sharp pencil to local operating costs.

An important part of their decision to go into a new city is how much financial help the community chips in. Small airports that lost airline service during the industry downturn are particularly receptive.

Allegiant stands to get

$1.5-million in advertising help from the local airport and Pinellas County's tourism agency to promote its routes, and the airport will waive more than $800,000 in operating fees.

The airport expects to reap more than $10-million over five years from parking, concessions and other revenue generated by Allegiant customers.

Allegiant is unapologetic about insisting communities that benefit from its service pay to play.

"We're the event," said M. Ponder Harrison, managing director for marketing and sales. "Rock bands get paid by the venue."

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