Allegiant breaks with history by buying first new aircraft

An Allegiant jet sits on the tarmac at Bellingham International Airport on April 2, 2014 in Bellingham, Wash.
An Allegiant jet sits on the tarmac at Bellingham International Airport on April 2, 2014 in Bellingham, Wash. The Bellingham Herald

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 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. Discounts are customary in such transactions.

Allegiant current offers flights out of Bellingham International Airport, flying Boeing Co. MD-80s.

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 of fall 2020.

“Streamlining our fleet will increase efficiencies across our entire operation and bring economic advantages in fuel savings and a higher number of seats — allowing us to continue offering the industry’s most affordable fares while increasing reliability,” Chief Operating Officer Jude Bricker said in the statement.

Allegiant was little changed at $135.02 at 11:39 a.m. in New York. The 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, 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.

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.

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.