In Allegiant’s February traffic report, the airline took a very optimistic stand and revised its first-quarter capacity increase upwards. The airline now plans to grow capacity as much as just under 5% compared to the same quarter in 2019. Not guaranteed, as it will depend on the market conditions, the airline has said it expects capacity to be at least 2% higher than the same quarter in 2019.
Allegiant revises capacity upwards
Drew Wells, Senior Vice President of Revenue at Allegiant, stated the following in the airline’s February traffic results:
“Over the last month, we have been pleased to see a moderate increase in travel demand. We met the increase in demand with increased supply, with February ASMs up roughly 6 percent from February of 2019, focusing on total revenue and profitability rather than unit metrics like load factor. We expect first quarter total revenue to be down between 35 and 40 percent on a year over two-year basis, a significant improvement over the fourth quarter. First quarter capacity is expected to be up between 2.0 and 4.5 percent, when compared to the first quarter of 2019, but we will continue to refine as dictated by demand.”
There are two big takeaways from Mr. Wells’ statement. First, the airline is seeing an increase in travel demand, which is a good sign for March and, more importantly, the summer. The second is that the airline is revising its capacity upwards.
Allegiant revises capacity upwards
To understand that February’s modest travel demand improvements were not entirely out of the blue, it is important to recognize what Allegiant stated about the first quarter.
After posting a $184 million loss for the full year of 2020, the airline was more than excited to move beyond the crisis and capitalize on pent-up travel demand. So, the airline announced it expected to increase first-quarter capacity compared to the same quarter in 2019, anywhere between 0.5 and 5.5%.
Allegiant has tightened its expectations for capacity growth in the first quarter. The floor for the airline has been revised upwards, while the top end has been tightened slightly, which is incredible to note.
With the capacity increase, the airline is catering to a mostly leisure traveler base and has essentially refrained from flying on Tuesdays. Using its fleet of all-Airbus midlife jets, the airline prefers to fly lower utilization schedules than its peers to concentrate on flying the routes and operations that will lead it to be profitable.
February saw an improvement in travel demand
February had a confluence of some good indicators for rebounding travel. First, case counts declined and are at levels not seen since October or November of 2020. Also, the continued growth in the number of vaccinations administered has led more and more people to travel.
Nearly every airline benefited from this slight rebound. Southwest, which has been following Allegiant’s lead into some secondary markets, is forecasting March to be one of its best months since the crisis hit. Allegiant is already preparing to reach profitability again, focusing on revenue and profitability over metrics like load factor.
Where does Allegiant go from here?
There are two ways for an airline to react to improving demand. The airline can either hold tight and stay conservative, preferring instead to bump up its load factor, which generally correlates to profits on each flight– assuming the tickets and ancillary revenue comes out above cost.
The other option can be for airlines to deploy expanded capacity across the network, including to new destinations, with a focus on running the overall business profitably. Allegiant is taking this step, with plans to offer as much capacity as it can, and hope that enough passengers book onboard an Allegiant plane and pay for ancillaries to turn it a profit overall, even if not every flight is turning a profit.
Allegiant also likely has a lot of opportunities to acquire mid-life aircraft. Crises are Allegiant’s time to thrive, with plenty of used aircraft available for cheap and a leisure-driven recovery that will proportionally favor low-cost carriers over full-service ones.
Are you surprised by Allegiant’s first-quarter planned capacity increases? Let us know in the comments!