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Allegiant banks on small markets
LV-based airline's strategy paying off
 
By Richard N. Velotta / Staff Writer

Passengers board an Allegiant Air plane in Fort Collins, Colo., in July. The Las Vegas-based low-fare carrier a year ago started flying to and from Fort Collins four times a week. The demand became great enough that in January it added a fifth flight.
Photo by Rick Velotta

FORT COLLINS, Colo. -- On a recent sunny summer day, Allegiant Air's shiny white MD-83 twin-engine jet zipped over the Rocky Mountains and onto the runway of Fort Collins-Loveland Airport.

Dozens of rabbits looked up from munching the greenery around the airport to watch the 162-passenger jet roll up to the only gate at the terminal, a small building with a single ticket counter, a small security checkpoint, a deli and a place to put money in an envelope for those who choose to park a car overnight.

An airport worker drove a stairway mounted atop a pickup truck to the door of the plane, allowing passengers from Las Vegas to get off. Those passengers gathered in an area outside the terminal to claim their bags, which were wheeled over from the belly of the plane.

For about an hour, the airport was a busy place, packed with people getting ready for a getaway to Las Vegas. Two of Allegiant's 10 Fort Collins employees processed a full load of passengers going to Las Vegas, and representatives of the Transportation Security Administration were on hand to screen passengers.

Allegiant's flight faced no delays, rolling to the runway for its takeoff. Just as quickly as it came in, the plane was gone, making a wide sweeping turn above the plains before heading back over the Rockies.

A similar scenario occurs five times a week at Fort Collins, where Allegiant is the only scheduled air carrier. That one round trip to and from Las Vegas is the only service Fort Collins has, making Las Vegas the only destination passengers can access on a commercial flight from the airport.

Las Vegas-based low-fare carrier Allegiant has built its business model on the strategy of flying to and from Las Vegas into airports where major carriers won't go.

Some airline experts say it's a trend they expect will continue and a handful of other carriers have attempted to duplicate.

Allegiant a year ago started flying to and from Fort Collins four times a week. The demand became great enough that in January it added a fifth flight. The airline said more than 56,000 customers have flown on the route, more than 65,000 seats have been sold and monthly load factors have been as high as 88 percent in an industry that can be profitable when loads are in the 70s.

Allegiant's Fort Collins experience has been duplicated at other small-market cities. Currently the airline offers nonstop round trips to Colorado Springs, Colo.; Fresno, Calif.; Wichita, Kan.; Des Moines and Cedar Rapids, Iowa; Lansing, Mich.; Peoria, Ill.; Sioux Falls, S.D.; Bismarck, N.D.; Bellingham, Wash.; and Redding, Calif. In September Allegiant adds Madison, Wis., to its route map.

Other airlines have tried to use the same model. Atlanta-based TransMeridian Airlines flies passengers to Las Vegas from Allentown, Pa.; Syracuse, N.Y.; Rockford, Ill.; and Toledo, Ohio. Southeast Airlines, primarily a charter operator, has had more success flying East Coast markets to Florida resort cities, but has flown to Las Vegas from Allentown and Columbus, Ohio. Southeast plans to discontinue its Las Vegas service in September, citing high fuel costs.

While fuel costs have put a dent in Allegiant's profitability, airline Chief Executive Maurice Gallagher said operating primarily west of the Mississippi has been an advantage for the company.

"We've found that the Midwest and the Northwest are very good places for us to mine," Gallagher said. "We've got 12 markets (where the strategy is working) with one or two of them that need a little work, but one or two that are just knocking the cover off things."

Gallagher said Fort Collins is a good example of a market that has turned out to be a home run for Allegiant, but it also has some unique characteristics that make it work better than most markets.

"Fort Collins was unique in that it didn't have pre-existing service when we got there, so it took 60 to 90 days for it to catch hold," Gallagher said. "But our most powerful advertising medium is word of mouth. Word started getting around that this is a good alternative. It's 50 paces from the parking lot to the ticket counter. It's a refreshing event for the average traveler and they appreciate that."

It's so refreshing, in fact, that residents of Denver have taken notice and are using Allegiant to get to Las Vegas instead of using closer Denver International Airport.

"I call it the DIA hassle factor," said Dave Gordon, manager of the Fort Collins airport. "A lot of people out there are still uncomfortable about flying out of there (DIA). The parking there is $6 a night, while ours is $3 a night and with us, there's no fee for going in and out. If you park for four or five hours, it doesn't cost anything.

"Some people ride the shuttle buses to DIA, but that takes time. For people who live on the north side of Denver, it's faster to go to Fort Collins than to DIA."

Not every Allegiant market has been a success, however. Plans to fly passengers from Baton Rouge, La., never materialized after the airline announced plans to fly there. Service was canceled before it even started.

Gallagher said that all the components were in place and that government officials in Baton Rouge were extremely receptive. But ticket sales never materialized.

"We've done this enough that we can gauge in about a week how many tickets we should be selling to make it work," Gallagher said. "For that market, the bookings never showed up and we were brutally honest that we couldn't do it."

He suspects the close proximity of New Orleans, where passengers have the option of flying discount king, Southwest Airlines may have been a factor.

It certainly wasn't for lack of local government support. In some Allegiant markets, airports have offered a subsidy to guarantee that the airline won't suffer a loss going in. Gallagher prefers to refer to it as "co-investment." Most municipalities look at a subsidy to an airline as a means to jump-start the local economy. In the case of Fort Collins, the airport gets much more out of Allegiant being there, and consumers also benefit.

"We haven't had scheduled service since 1997 when Continental and United offered their commuter flights here," Gordon said. "They came in with 20-seat aircraft and flew to Denver to meet connecting flights. Initially when they flew here, they rolled the Fort Collins leg into the ticket price so it would cost the same to fly from here as from Denver.

"But then, they started charging an extra $100 a seat one way and people thought it was easier to just drive to Denver."

Today Gordon says Allegiant's presence is worth $175,000 a year to the airport in fees and taxes. The airport can now charge a passenger facilities charge, which goes toward airport maintenance and capital projects, and because the airline enplanes more than 10,000 passengers a year, the airport qualifies for more grant money from the Federal Aviation Administration.

"We're pretty much guaranteed of getting $1 million in grants a year from the FAA," Gordon said. "Plus, the passengers that come in use our (Fort Collins) restaurants and hotels and other services."

Gordon said the presence of Allegiant will result in a car rental concession being available at the airport later this year.

"And it's good for Allegiant, too," Gordon said. "It costs them about $300 a flight in fees and costs to come into our airport while it costs about $3,000 per flight to go into Denver."

Robert Mann, an airline analyst for R.W. Mann & Co., Port Washington, N.Y., said that a side benefit of flying to secondary airports is that the fees are lower because they don't have a large infrastructure or overhead costs. Even work by the TSA agents who have to drive up from Denver five times a week to process passengers on Allegiant's flights are a cost borne by the federal agency and not by local authorities.

Mann said it's a no-brainer that Allegiant goes where the costs are low and where it is welcomed with open arms and subsidies are more commonplace than most people realize. That's how the airline can offer low-fare ticket prices.

"In many cases, these guys are subsidized," Mann said, "so they don't have any risk. In many cases, destination resorts and other industries, such as gaming, have put some of these carriers in place."

Gordon hopes eventually to market northern Colorado to Las Vegas so that the region would have more inbound traffic.

"We have golf, and you can ride a Harley into the Rockies from here," he said. "It's a great place to get away to from those hot summer days in Vegas."

The benefits to Las Vegas are big as well. While the Las Vegas Convention and Visitors Authority markets the large cities, companies such as Allegiant reach out to small-town America. The airline said about 30 percent of travelers on the Fort Collins route purchase air and hotel vacation packages. Allegiant partners with 23 resorts.

"It's great for Las Vegas because it's generating new net business," said Mike Boyd of the Boyd Group, an Evergreen, Colo., aviation consultant. "It doesn't take away from anybody else. It's discretionary dollars that would have gone to Home Depot."

But even though the popularity of Las Vegas and other resorts continues to flourish, the economics of flying from east of the Mississippi have been thrown out of whack by rising fuel costs.

"Our Las Vegas flights have been terrifically popular," said Scott Bacon, a spokesman for Largo, Fla.-based Southeast Airlines. "But we simply can't compete on a cost basis. Our customers have an expectation for low prices and there's a ceiling on what you can charge. With the increase in the cost of fuel, we just couldn't justify it."

Southeast, like Allegiant, uses the twin-engine MD-80 series jet, which Bacon called "a great airplane for flights of between 2 1/2 and three hours."

"But when you start getting into five and six hours, you need an extra 40 or 50 passengers per flight to make it work," he said.

Southeast also was flying from Allentown to Columbus before continuing to Las Vegas and the extra stop and the extra flying made it even more expensive to operate.

"But at least when you're flying to some of these small airports, your pilots never hear the words, 'You're No. 6 for takeoff.' " Bacon said. "It's great to be able to get in and out, and passengers love that, too."

Richard N. Velotta covers tourism for In Business Las Vegas and its sister publication, the Las Vegas Sun. He can be reached at (702) 259-4061 or by e-mail at velotta@lasvegassun.com.

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