Listen in to this exclusive interview with Allegiant Air President Greg Anderson, recorded live at Routes Americas 2024 in Bogotá. Aviation Week Network's Aaron Karp speaks with Anderson on issues such as the stalled potential Viva Aerobus partnership, Allegiant's domestic and international network strategy and the U.S. LCC market environment.

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Rush Transcript

Aaron Karp:

Thank you for joining us for Window Seat, our Aviation Week Network air transport podcast. I'm Aaron Karp, a senior editor with Air Transport World and a contributing editor to the Aviation Week Network. I'm here with Greg Anderson, the president of Allegiant Air. We're in Bogota at the Routes Americas Conference, the Aviation Week Network conference in which airports and airlines come together to talk about different routes and network developments. Perhaps if you want to start out, and we thank you again for being here on Window Seat, Allegiant has one of the more unique business models in the world. So perhaps if you could just share with our listeners who may not be familiar with it, what your business model is and how the airline is performing now.

Greg Anderson:

Aaron, happy to and thank you. It's great to join you out here in Bogota. Just the high level on Allegiant and what differentiates us from many other carriers. First Allegiant is 100% focused on the leisure customer and we're all domestic in the United States. What that means though for us is that we want to expertly, and we think we do this as well as anybody, match capacity with demand for that leisure demand. And so we've been able to do that through a variable capacity model that we can flex up and down. So by way of example, the peak leisure periods in the U.S. on a monthly basis are generally March, the summer, and the holiday periods. And so during those periods we peak up and we flex up our capacity. But say for example in September, we'll pull back capacity by 40-50% because there's not nearly as much demand.

And so we've done this over the years by building a route structure on a weekly frequency versus a daily frequency. And we have a very broad network. We serve over just roughly 550 routes in total today, Aaron. What's really interesting, though, of the 550 routes we serve, 450 of them are the only nonstop option available in those communities or to those customers. So it's an interesting model that we believe we have in our business and our customers love not just the low fares, but the nonstop convenience that we provide. Then on top of that, in these communities that we've become a big deal in, these smaller and underserved communities, I think we have a very aspirational loyalty program that has a high degree of utility. We've seen our co-brand credit card move up quite a bit over the years and exceed our expectations and a robust loyalty program as well. So in general, we have just under 130 aircraft today. We serve just under 20 million customers throughout the United States.

Aaron Karp:

And how do you view the US market right now, particularly what place do ULCCs have?

Greg Anderson:

Generally the market, the U.S. industry, I think there's a little bit too much capacity. Coming out of the pandemic corporate has never recovered fully. And so there's a lot of capacity. You have the large legacy carriers in a different spot than maybe they were 10-15 years ago. They're much stronger. They have terrific balance sheets. They have these robust loyalty programs that they're earning quite a bit off of those. They have schedule frequencies and they have this differentiated product and premium product that they're able to price a little bit more towards price sensitive customers and gain some market share in that regard.

So the way I would think about it from the ULCC spot and when talking with others, I break it up into two, Aaron. You have your high utilization ULCC carriers, your Spirits and your Frontiers, and then you have more measured utilization carriers, Allegiant, Sun Country and the Avelos and the Breezes coming up. For those high utilization ULCC carriers, I think growth has been key and is key as part of their model. You see Frontier and their growth plans and they're growing quite a bit into these larger O&D markets where there's competition and where these larger carriers, these network carriers are much stronger than maybe they've had in the past.

So over the past few years, I think that has been a bit of a headwind for them. We'll see. I know there's a lot of conviction on the Frontier side that they can grow right through this and return to profitability or pre-bandit profitability numbers, at least I believe that's what I've read. I think for us and the Sun Countrys, just having that flexibility where the lower fixed and higher variable costs where we can pull back capacity, serve underserved markets.

I'll focus more on Allegiant. I really like where we sit today. One of the things that you've heard, if you listen to our earnings call, back to that peak capacity, which I think is a big opportunity for Allegiant to restore pre-pandemic earnings margins is getting back to peaking those peak periods and flying. To put that into perspective, Aaron, back in 2019 for example, during those peak periods that March, that summer, that holiday, our utilization per aircraft was running roughly just under 10 hours per day. In 2023 that was closer to seven and a half hours per day. And so we have, we think, a really thoughtful plan in the cross-departmental team that's executing on restoring that utilization in those peak periods, and we think in 2024 we're going to layer in on top of that and layer in on top of the 7.3 hours of peak day utilization that we saw in 2023, grow that, and then by the time we get to 2025, we expect to be back to that peak day utilization flying.

And why that's so important, every hour of flying more in those peak periods for a full year basis, Aaron, is worth $100 million to Allegiant, at least based on 2023 economics, and that's four points of margin. So we're encouraged by where we're going. We implemented last year in 2023 a cap in those peak day flyings. We did that because we wanted to restore operational integrity that we didn't have where we wanted to be in 2022. And I'm really proud of the way the team performed in 2023, it was quite a turnaround story. We went from the bottom of the industry operationally to the top in 2023. We drove over $100 million of costs out of the business in 2023 as compared to 2022. And so we've strengthened that foundation and we're going to continue to build on top of it, but just couldn't be more bullish on the future of Allegiant and where we're going.

Aaron Karp:

In 2021, Allegiant and VivaAerobus, a Mexican low-cost carrier, announced that you had reached an agreement on a trans-border joint venture, antitrust immunized. However, the U.S. DOT has stopped reviewing it because they say that Mexico is non-compliant with the U.S.-Mexico air services agreement, not based on anything you or VivaAerobus has done, but based on them moving cargo flights out of Mexico City's Airport, putting caps on flights at Mexico City's Airport. And so the DOT has basically said they're stopping all reviews of any deals between Mexican airlines and U.S. airlines. And so where does that stand right now? How hopeful are you that this JV will eventually come to fruition?

Greg Anderson:

We're very hopeful because the merits of our application and partnership with Viva are very pro-consumer benefits and competition. They're good for competition. But to the point you made, Aaron, two years ago we submitted our application with the DOT and about eight months ago, they said they were suspending it because of what's happening in Mexico City and the bilateral tension, I guess, between the U.S. and the Mexican government, again specific to Mexico City. Why we think this is so powerful, and this makes so much sense with antitrust immunity, is that it gives Allegiant and Viva to the ability to have a deeper relationship in that trans-border flying between the U.S. and Mexico. And I think together we, over the next three years or after approval of the application, there's 92 routes that we've identified that don't exist today that would be nonstop routes in the communities that we serve in the U.S. taking them to those beach destination markets, the Cancuns, the Puerto Vallartes or the Cabos.

So we also know that through this partnership with Viva, we have the ability to lower fares down into Mexico. I think Mexico is the largest international destination for the U.S. 20% of international flying is down to Mexico. Through our partnership, we think we can reduce fares by 50%. So we believe in the conversations we've had with the DOT. We still believe that it's a matter of when, not if. We've prepared ourselves for that day and we have a terrific partner with Viva that, once this is approved, we look forward to providing service into those Mexican beach destinations. And then hopefully it's not in the too distant future.

Aaron Karp:

And through the JV, that's how Allegiant, which is an all domestic operator, was going to expand internationally. What are your thoughts now on international expansion? Is that in the cards for Allegiant?

Greg Anderson:

I think through an ATI with Viva down in Mexico, that's the most elegant, natural first step of international expansion for Allegiant. And that ATI is key for us. Part of us preparing ourselves for this joint venture with Viva has been through systems and upgrading our systems. And we've cut over to Navitair, which is standard type system throughout the industry. I mention that because Allegiant was built for a not-as-familiar proprietary software called Allegiant Information Systems–the capabilities to expand internationally were not there candidly. And so now we have the systems in place to partner with an ATI with Viva or expand internationally in other locations if we so choose down the road.

What I'd say, Aaron, though, is when we think about the growth and the opportunity for Allegiant, that's one avenue potentially is international expansion, but our network team have identified 1,400 incremental routes in the U.S. alone that today, 90% of those routes have no nonstop flying and they fit the Allegiant model beautifully. So not just internationally, but domestically, we feel there's a lot of opportunity to continue to grow our model and build on our strengths, which we believe we have some very strong competitive advantages in there. So we look forward to growing domestically as well.

Aaron Karp:

One interesting move that Allegiant has made recently is to announce that you're going into Orlando International Airport, MCO. And why that's significant is that Allegiant for many years has been based at Orlando Sanford Airport, at least your base in the Orlando area. And you've been able to bring people from small towns down to Orlando where there's theme parks, including Disney World, by using Sanford as an alternative airport. Now you're going into MCO. So how will Sanford and Orlando International complement each other? What was the thinking behind now adding MCO in addition to Orlando Sanford?

Greg Anderson:

That's a great question. I appreciate you asking it, Aaron. Sanford, as you mentioned, that's a base that's our largest base. It's just outside of Orlando. The thought behind going into MCO is one, we don't plan to make MCO a base, and that's important for Allegiant. We have 24 bases today throughout our system, and each base acts as though it's an airline within an airline, and you have infrastructure in those bases, whether that be flight crews, technicians, aircraft are based there, parts and everything, and it's just out and back. It's very simple. And so we don't plan on MCO becoming a base. Sanford will be the base for us in that area.

But where we added flying into MCO was from bases for us actually. You had Asheville, Knoxville, and Allentown, and so we've added more frequency into that Orlando market. Allentown's a good example. In 2019, Aaron, we were serving seven times per week into Sanford from Allentown. In 2023 that jumped up to 12 times. In 2024, that's going to go to 13 times into Sanford, but then we're going to serve twice weekly into MCO as well. So my point of saying that is these are markets that are coming into MCO because of the strength of that market, but we're not changing our strategy around Sanford that those same markets, those three that are serving MCO, Allentown, Knoxville and Asheville, will also serve MCO as well and will originate through those markets, not through MCO.

Aaron Karp:

Asheville is in North Carolina, Allentown is in Eastern Pennsylvania, and Knoxville is in Tennessee. And those are really the markets that Allegiant is known for. Take a market like Allentown, Pennsylvania, it's about a 45 minute to an hour drive from Philadelphia. How do you build a market like that? How do you build your brand and how do you entice passengers to not go to Philadelphia International Airport or to not spend the weekend on another leisure activity?

Greg Anderson:

We really do it over time, and we do it by the two reasons our customers love Allegiant. I mean, there's hopefully a lot more reasons, but two of the themes we hear often is the low fares and the convenience. So in Allentown, it's convenient for our customers to go to the Allentown airport versus going all the way up to Philly, a more congested airport. But one thing we did do, it may be worth mentioning, a few years ago, just before the pandemic, we became the naming rights partner for the Raiders in Allegiant Stadium in Vegas. I only mentioned that, Aaron, is because that's created a lot of brand awareness for Allegiant all over the United States. So now we find, as we go into certain markets that maybe we hadn't served, that the Allegiant brand is much better known today than it was 10 or 15 years ago. And our NPS scores from our customers are some of the highest in the industry because it goes back to providing them that service that theyso value.

Aaron Karp:

You mentioned Allegiant Stadium in Las Vegas, and that was the host of the Super Bowl this year, which was watched by over 100 million people. And every time they're coming from commercial, they're seeing Allegiant Stadium, they're hearing the name Allegiant. That must've been, by far, the most exposure the airline has ever gotten. Could you talk a little bit about that and what that's meant for the airline?

Greg Anderson:

It was huge. I think it was a very proud day for all of us. Not only it was the Super Bowl in Las Vegas and on the iconic strip, this iconic Allegiant Stadium in the background hosting it, I think we were all, at Allegiant, across the board, all of our team members, whether in Des Moines or throughout the network, we're very proud to say that's, "That's Allegiant. That's where we work." So it was a proud moment for us. The exposure was off the charts.

Aaron Karp:

Could you update us on your fleet? You're an all Airbus A320 family operator, but you now have an order with Boeing for 737 MAX aircraft, and I believe you're going to start receiving them this year. Could you talk about that and when those planes are arriving and how the MAX will affect your network?

Greg Anderson:

Yeah, currently today, Aaron, we have just under 130 A320 series aircraft. And to your point, we have an order with Boeing for 50 firm MAX aircraft and then purchase options for 80 more on top of that. That's the 8-200 and the -7 MAXaircraft. And we're expecting to take delivery of our very first MAX aircraft in the coming month or two. We think that by May we should take delivery of it. And by the end of this year, we're expecting to have roughly 10 MAX aircraft in the fleet, but we're being flexible in terms of fleet flexibility and what that could look like. And then next year, right now, I think contractually we're roughly scheduled to have about 24 deliveries of Boeing aircraft. We're working with Boeing on just trying to make sure there's an orderly delivery schedule on what that could look like next year. So I don't have a specific answer of what we expect in that regard.

We do have some fleet flexibility though, for those of you that listened to our earnings call, we did mention that because of the delays with the MAX aircraft, we reactivated three of the A320s that we were planning to retire. And so we reactivated those aircraft. We're going to work through it and have flexibility. The team is ready to take delivery. We have our initial cadre of pilots and team members that have been preparing for this day. We stand ready to go. And so we're eager to take delivery of our first MAX aircraft. And we're trying to be pretty conservative, though, with our estimates in terms of delivery cadence.

Aaron Karp:

You're still planning to operate the Airbus aircraft. So what's your strategy with those aircraft? You mentioned you were going to retire some. How will the Airbus aircraft now going forward fit in with the MAX aircraft coming in?

Greg Anderson:

Yeah, the Airbus A320s that we're retiring, they're the older vintage, and they were at the end of their life cycle, so we needed to retire them regardless. That's part of the plan. But the way I would think about Airbus is they're a terrific partner of ours, they're a long-standing partner, and we expect to always be a partner of Airbus and fly large chunk of Airbus aircraft. The majority of our fleet for the foreseeable future will be Airbus A320s. And we're planning to continue to build and grow that side of the fleet as well, at the right time. But the way I would think about how we're going to operationally deploy aircraft, it is in very broad strokes, Aaron, is back to the base comments. We have 24 bases. So our thought is we isolate different fleet types by base. So you may have Vegas, by way of example, this is all hypothetical. Could be an all-Airbus base versus base Y airport somewhere else to be an all-Boeing base.

But we think that can help mitigate some of the inefficiencies of a split fleet type. But that's how we're planning it more in broad strokes. So we'll work towards that. And one last comment I'll say is this isn't the first time Allegiant has operated split fleet type. At one point, we had three different aircraft types, the MD-80, the 757s and the A320. So we have some experience here, but we also now have the full support of the OEM with Boeing and Airbus on their respective fleet types to help us build up the infrastructure to better support flying a split fleet.

Aaron Karp:

Thank you, Greg, for joining us here in Bogota to give us insight into Allegiant Air. And thanks to you, our listeners, and thanks to our producer, Cory Hitt. Remember to follow us on Apple Podcasts or wherever you listen to your podcasts. Until next time, this is Aaron Karp disembarking from Window Seat.