An Allegiant Air plane lands at Harry Reid International Airport July 26, 2022 in Las Vegas.
Chase Stevens | Las Vegas Review-Journal | Tribune News Service | Getty Images
Allegiant Travel Co..the acquisition of Sun Country Airlines closed Wednesday, and the combined company’s chief executive, Greg Anderson, said Allegiant Air would continue to outperform despite industry turmoil, including rising jet fuel costs.
“Our model was built to protect margins, not to pursue growth,” Anderson said in an interview with CNBC.
The Las Vegas-based airline announced its $1.5 billion cash-and-stock deal, including debt, in January to buy Minneapolis-based Sun Country. The brands and booking portals will remain separate, for the time being.
The combined carrier, which Allegiant says will serve about 175 cities with more than 650 routes, will continue to be surgical about capacity growth, Anderson said. He said this strategy has shielded airlines from some of the problems other low-cost airlines have faced.
Allegiant’s plan calls for increasing service during peak periods, such as summer or spring break, then reducing it on Tuesdays and Wednesdays during low-demand weeks, selling more seats to customers at times when the airline might have more pricing power, Anderson said.
“For example, we will reduce capacity and park a large portion of the fleet on a Tuesday in September,” he said.
Allegiant and Sun Country focused on cost-conscious travelers, connecting small towns with vacation destinations. Sun Country also transports freight for Amazon.
Anderson said demand continues to be robust, even from the carrier’s most budget-conscious leisure customers, despite rising jet fuel costs. The industry faces billions of dollars in additional costs from expensive jet fuel, which have nearly doubled since the U.S.-Israeli attacks on Iran began in February. Jet fuel is typically airlines’ second-largest cost after labor, and carriers have raised rates to pass the cost on to customers.
The Association of Value Airlines, of which Allegiant and Sun Country are members, said last month that it had asked the Trump administration for $2.5 billion to offset high fuel costs, but Transportation Secretary Sean Duffy said he did not think that was necessary.
Allegiant reported first-quarter profit of $42.5 million, up 32% from a year earlier.
“This shows that some low-cost models can work,” said Savanthi Syth, an analyst at Raymond James.
The completion of the acquisition comes just weeks after Spirit Airlines, a fast-growing low-cost airline, shuttered, triggering the biggest collapse of a U.S. airline in a generation.
Allegiant did not disclose financial estimates for the combined company, but said late last month that it planned to reduce capacity by 6.5% in the second quarter compared to last year and that third-quarter capacity would be flat or slightly lower than last year.
Budget and leisure-focused airlines are dwarfed by their larger competitors, Delta Air Lines, American Airlines, United Airlines and Southwest Airlines, which together hold about 80% of the U.S. domestic market, according to federal data.