B.C. fun seekers are fuelling a rise in airline fortunes by choosing to start their holidays from the airport in Bellingham.
While other U.S. airlines have struggled over the past decade from the ups and downs of the economy and the price of jet fuel, Allegiant Air – a popular choice for B.C. residents headed to sun spots – has been profitable for 10 straight years.
It focuses on a niche ignored by other airlines: It only flies from small cities to sunny vacation spots.
Allegiant entices people who otherwise wouldn’t fly with low fares and non-stop flights. Then it aggressively pitches them hotels, rental cars, show tickets and other entertainment, earning millions in commissions.
Passengers face fees for almost every service and amenity imaginable. At Allegiant, fees for checked baggage and changing an itinerary – which are common on many airlines – are just the beginning.
The Las Vegas-based airline charges extra to book flights online, or to use a credit card. Selecting a seat in advance costs $5 to $75 US each way, depending on the length of a flight. Even a bottle of water costs $2.
Flying Allegiant isn’t glamorous. While other airlines tout new aircraft with Wi-Fi and TVs in every seat, Allegiant buys old planes to avoid hefty aircraft loans. And to pack in as many passengers as possible, its seats don’t recline. But for small U.S. towns with limited flight options, these inconveniences are worth it for a few days of sunshine.
“They could be the worst airline in the world and we’d fly them because we want to go to Vegas,” says Tom Mayo of Cedar Rapids, Iowa, who recently flew there with his family.
Allegiant offers non-stop service from Bellingham to Las Vegas, Los Angeles, Oakland/San Francisco and Honolulu and Maui in Hawaii.
Only 17 of Allegiant’s 203 routes are flown non-stop by another airline.
“Typically, the best way to make money is not to compete with somebody,” says Andrew C. Levy, president of Allegiant Travel Co., who sits in a cubicle next to the rest of his staff.
Rather than battle major carriers for customers on routes between major cities, Allegiant uses its marketing muscles to convince people in small towns to fly away for a vacation.
“Allegiant tends to bring people into the airport who wouldn’t normally fly,” says Tim Bradshaw, director of the Eastern Iowa Airport in Cedar Rapids.
Last year, seven million passengers took a flight on Allegiant. The airline earned a whopping $11.22 each way from those passengers. On average, the airline industry earned 37 cents each way, per passenger, according to Airlines for America, the industry’s lobbying group. Southwest Airlines, one of the industry’s most profitable carriers, made $3.85 per passenger last year.
Allegiant is ruthless about keeping its costs down. Its employees are some of the lowest paid in the industry, in some cases making $20 an hour less than colleagues at other airlines. It pays cash for airplanes nearly twice as old as everyone else. It only sells directly to vacationers, refusing to pay Expedia, Orbitz or other sites to list its flights.
And if you have a question, it will cost you: the airline doesn’t have a toll-free number.
Like some other budget airlines, Allegiant advertises extremely low base fares and then tacks on numerous fees. A round-trip ticket with Allegiant costs $195, on average. But passengers pay an additional $83 in fees – or 30 per cent of the total cost of flying.
To book a trip by phone, Allegiant charges $50 for each round trip ticket. To book online costs $20 for each round trip ticket. The only way to avoid the fees is to purchase tickets at the airport, something fewer than three per cent of its customers did last year.
But whether you book by phone, Internet or in person, paying with a credit card costs an extra $8. Placing a suitcase in an overhead bin is $10 to $25. Boarding passes signify who has paid the fee. If passengers show up at the airport with a large carry-on bag and haven’t prepaid the fee, the airline penalizes them an extra $25 to $50, depending on the route.
But what really makes Allegiant different are the commissions it earns from selling hotel rooms, rental cars and other extras including boat tours and theme-park tickets. It even gets people to attend time share sales presentations. Before a passenger can finalize a ticket purchase online, they must click through page after page offering them these add-ons.
Last year, revenue from commissions totalled $36 million, or nearly $12 per round trip passenger.
Once on board, Allegiant passengers are again bombarded with sales pitches.
“They do a fantastic job packaging,” says JetBlue CEO David Barger. “I think we can learn a lot from what Allegiant does.”
Ben Baldanza, CEO of Spirit Airlines – the only other U.S. carrier to charge for overhead bin space or for booking over the Internet – also respects Allegiant’s ability to sell extras, such as a round of golf in Myrtle Beach, S.C. Most airlines promote their new first-class seats or individual TV screens. Allegiant – which only offers coach seats – promotes its destinations: Las Vegas gamblers smiling after winning at roulette, a hot-air balloon floating over the Arizona desert or a woman in a bikini sipping a frozen drink on a Hawaiian beach.
Allegiant’s passengers aren’t sold on the airline but on the escape.
Frugal decisions like that helped Allegiant post a net profit of $78 million last year on revenue of $909 million. Its 8.6 per cent profit margin was the highest of any U.S. airline, making it a darling of Wall Street.
Allegiant has 64 planes and flies to 87 cities, but it’s tiny compared with an airline like United, which carried 20 times as many people last year, often on much longer flights.
The airline got its start in 1998 as a charter operation with one airplane. By February the following year, it had started scheduled flights between Fresno, Calif. and Las Vegas.
Instead of buying the newest, most expensive planes, the airline buys used, inexpensive jets. Its planes are 23 years old, on average, compared with the industry average of 14 years.
Each used MD-80 costs $3 million, compared with $40 million for a new Boeing 737 or Airbus A320 of similar size.
“When you have such little investment in an aircraft, you only fly it when it’s going to be full of passengers,” says Peter B. Barlow, an aircraft finance lawyer at Smith, Gambrell & Russell.
On Tuesdays, when most of Allegiant’s customers are stuck at work, the airline keeps nearly all its planes on the ground.
Flying older planes has drawbacks, though. They burn more fuel, something Allegiant combats by squeezing 166 passengers onto planes – 26 more than American Airlines has on comparable jets. They also have more mechanical problems, resulting in more delays.