Allegiant Breaks With History by Buying First New Aircraft

  • Purchase of 12 Airbus A320ceos is valued at $1.2 billion
  • New planes allow faster retirement of oldest part of fleet

Allegiant Airlines will buy new aircraft for the first time, in a purchase valued at $1.2 billion, as the discount carrier speeds its shift to a fleet of all Airbus Group SE planes by mid-2019.

Buying the 12 A320 jets with currently available engines allows the airline to add planes “opportunistically” as Airbus switches its focus to pricier models with new, more fuel-efficient turbines, Allegiant Chief Executive Officer Maury Gallagher said in a statement Friday. The purchase of new aircraft doesn’t represent a change in the low-cost carrier’s strategy, he said. While the value is based on list prices, discounts are customary in such transactions.

The jetliners will build on Allegiant’s efforts to improve operations after diverted flights and emergency landings raised concern at the carrier over the last year. Federal regulators said last week that while they found deficiencies in training manuals and practices during an extensive review, the shortfalls were minor and “non-systemic.” The purchases will move up the retirement of Allegiant’s oldest planes from an earlier plan for the fall of 2020.

The economic terms of the purchase “were very good,” Tom Doxey, Allegiant’s vice president for fleet and corporate finance, said on a call with investors and analysts.

‘Spot Transaction’

“We are focused on buying used airplanes on a continuing basis,” Chief Operating Officer Jude Bricker said. “We look at this as any other spot transaction we do, and it will augment our purchase of used airplanes.”

Allegiant fell 3.7 percent to $129.89 at 2:58 p.m. in New York 3.2 percent, leading declines in the Bloomberg U.S. Airlines Index. Allegiant shares slid 20 percent this year through Thursday.

At the end of this year, Allegiant will operate 85 aircraft, including 47 Boeing Co. MD-80s, some of which are over 30 years old; five Boeing 757s, 17 A319s and 16 A320s. The new Airbus planes, with nine more seats and 5 percent to 7 percent fuel savings over current models, will arrive in 2017 and 2018.

The airline, a unit of Allegiant Travel Co., also reported second-quarter net income Friday of $3.68 a share, topping the average $3.55 from analyst estimates compiled by Bloomberg. Sales of $344.9 million also exceeded expectations.

Cost Pressures

Total revenue from each seat flown a mile, a closely watched industry metric, is expected to fall 8.5 percent to 10.5 percent this quarter from a year earlier. Costs for each seat flown a mile, a measure of efficiency, will rise 4 percent to 6 percent excluding fuel this quarter, primarily on spending for a new pilot contract.

The carrier reiterated that for all of 2016, it expects such costs to be flat to up 4 percent. Cost pressures next year include the new pilot contract, a possible flight attendant labor agreement and the ongoing move to a single fleet type, Allegiant said.

The airline, which primarily flies passengers to leisure destinations, stood by plans to increase capacity as much as 19 percent this quarter and 13 percent in the fourth quarter.

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