Allegiant Disputes Capacity Figures

Running an airline is a bit of a gamble, and city officials yesterday said they dealt the best possible hand to Las Vegas-based Allegiant Air LLC, which announced late Tuesday it was terminating service to Worcester Regional Airport early next month.

Smiles and bold declarations, which were in abundance in September when Worcester and Allegiant officials donned Mickey Mouse hats to mark the five-year agreement, gave way yesterday to sighs and a focus on the bottom line, as each side expressed disappointment over the turn of events.

While no one pointed fingers, Allegiant spokeswoman Tyri Squyres disputed city officials' contention that the privately held airline was operating at between 85 percent to 90 percent capacity for its four flights a week between Worcester and Florida's Orlando Sanford International Airport.

Ms. Squyres said those numbers weren't as high as city officials insisted, but was unable to provide Allegiant's own statistics.

"We had very high expectations and this is disappointing to us," she said. "We probably hung on a bit longer than we should have."

City Manager Michael V. O'Brien produced statistics that showed Allegiant's flights were operating at between 80 percent and 85 percent capacity from December 2005 to April 2006. Capacity dipped to 69.3 percent in May and was 71 percent in June, 88 percent in July and was running at 88 percent through Aug. 18.

But even at full capacity, the airline indicated its yield, or profits, were being curbed by rising fuel costs, Mr. O'Brien said.

"It's not that Worcester didn't support this airline," Mr. O'Brien said. "You couldn't have paid for a better market study. Corporations make decisions in their own self-interest. We delivered what we promised."

Allegiant, which is seeking to become a publicly traded company, said it was being hurt by rising fuel prices, competitive pressures from airlines operating at Logan International Airport in Boston, and fluctuating market response from Central Massachusett residents.

Rising jet fuel prices made it difficult to pass those costs on in Central Massachusetts because leisure travelers could catch a flight to Florida out of Boston, Hartford or Providence, Ms. Squyres said.

"Fuel costs are our number one reason, but leisure travelers look for the lowest fares and we're not able to compete with those low fares out of Boston," she said.

According to company filings, Allegiant's aircraft fuel expenses increased 155 percent, or $30.9 million, to $50.9 million, during the six months ended June 30. The change was because of a 95.4 percent increase in gallons consumed and a 30.1 percent increase in the average cost per gallon, to $2.12 per gallon during 2006, compared with $1.63 per gallon in 2005.

Mr. O'Brien said the city can't control Allegiant's lack of leverage when it comes to fuel prices, the type of airplanes used by the company or its business model.

Mr. O'Brien said Allegiant President and Chief Executive Officer Maurice J. Gallagher Jr. contacted city officials in mid-July to discuss the company's challenges in Worcester.

The city made some suggestions, including possibly waiving Allegiant's $10,000 monthly contribution to marketing expenses.

"I offered up some suggestions, but after that I didn't hear from them until this week's decision," Mr. O'Brien said. "I'm disappointed that it occurred just before the start of the peak travel season, but we'll be right back in the game, and I think we'll have long-term success."

Ms. Squyres declined to discuss any company filings with the Securities and Exchange Commission, which are in advance of Allegiant's efforts to hold an initial public offering.

In those filings, the company said it has 21 MD80 series aircraft with an average age of 16 years. Allegiant said its airplanes are less efficient compared to new airplanes, but said "the ownership cost advantages of the MD80 currently outweigh the operating cost savings of new equipment for our type of operation."

Allegiant posted net income of $7.3 million on revenues of $132.5 in 2005, down from 2004, when the airline had net income of $9.1 million on revenues of $90.3 million, according to SEC filings. For the first six months of 2006, the company had net income of $11.5 million on revenues of $119.3 million.

The Worcester-to-Sanford flight is one of the longest for Allegiant, and Mr. O'Brien said Allegiant will also soon end its service to Sanford from the Pease Development Authority in Portsmouth, N.H. Ms. Squyres said no decision has been made about Allegiant's service to Portsmouth. Pease officials did not return phone calls yesterday seeking comment.

If service to Pease is also terminated, Allegiant would have only one other Northeast location, from Stewart International Airport in Newburgh, N.Y.

"So far, so good," said Tanya G. Vanasse, the Newburgh airport's general manager of marketing. "We've got strong demand, and we don't have as many competitors."

Ms. Vanasse said when an airline leaves one airport it's usually because it wants that plane in another location.

Allegiant, which services Las Vegas from 33 markets and Orlando from 16 markets, announced Aug. 8 it was expanding service in eight markets.

Aviation consultant Michael J. Boyd, president of The Boyd Group of Colorado, said the decision came down to Allegiant having better use for its airplanes in another market.

"They're a successful company, and when something doesn't work, they get out of it," he said. "I don't think it was really air service to begin with. It was for the leisure market, so all you're really losing is a cruise ship with wings."



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