Why I Keep My Bullish Allegiance to Allegiant
When looking for investing ideas, I tend to avoid the airline industry. Every once in a while, however, the performance of a company cannot be overlooked, especially relative to its peers. When it comes to airlines, the better-performing companies tend to be among the regional carriers.
That said, Allegiant Travel (NAS: ALGT) stands out from the crowd, primarily due to the way that it runs its business. I took notice of this airline at the end of October, and I was so intrigued by the future of the company that I made a bullish CAPScall with hopes for strong performance in the future.
Who are they?
Allegiant Travel is a leisure-travel company focused on providing travel services to residents of small, underserved cities in the United States. Whereas larger airlines focus on business travelers with high-frequency service, Allegiant focuses on leisure travelers with lower frequency. All stops are offered as non-stop flights from gate to gate, so there is never a risk of missing a connection due to a delayed flight. Current leisure destinations include Las Vegas, Phoenix, Orlando, Tampa/St. Petersburg, Los Angeles, and Fort Lauderdale.
With its primary focus on leisure travel, the company tends to benefit from the continued recovery of the economy. It competes with many of the other regional carriers, as well as the regional components of all the major airlines, though it faces direct competition on only ten of its 161 routes. It also was one of the first companies to charge for many services, training its customers to expect fees on future flights. With most airlines now charging these fees, Allegiant was ahead of the curve and these and other ancillary fees now make up about 26% of its total revenue.
Allegiant's older fleet provides greater flexibility, allowing the airline to undercut the national carriers on price and attract customers. It is quick to cancel unprofitable routes, especially when fuel costs rise or passengers stop traveling to resort destinations. By holding onto its planes longer, Allegiant also has a higher current ratio than its competitors:
|Southwest Airlines (NYS: LUV)||$4.59B||$5.32B||0.86|
|Alaska Airlines (NYS: ALK)||$1.73B||$1.52B||1.14|
|JetBlue Airways (NAS: JBLU)||$1.61B||$1.30B||1.24|
|Hawaiian Airlines (NYS: HA)||$480.7M||$489.9M||0.98|
Source: Yahoo! Finance; as of September 31, 2011.
What it all means
While I am not ready to invest money in the sad airline industry, I am keeping my eye on Allegiant by keeping track of it over on my CAPS page. Though it has been one of my laggards since I added it to my list in November, its strong financial performance -- including 36 consecutive quarters of profitability -- has prompted me to keep an eye on the company. You can do the same thing by adding Allegiant Travel to your Watchlist.
At the time this article was published Fool contributorRobert Eberhardholds no position in any company mentioned. Follow him onTwitter, orclick hereto see his holdings and a short bio. The Motley Fool owns shares of Allegiant Travel.Motley Fool newsletter serviceshave recommended buying shares of Southwest Airlines. Try any of our Foolish newsletter servicesfree for 30 days. We Fools may not all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. The Motley Fool has adisclosure policy.
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