All six Boeing 737 Max that Allegiant Travel Group had expected to receive from Boeing in the first half of the year have been pushed into the second half, with related costs dragging on the discount carrier’s performance.
The parent of Las Vegas-based Allegiant Air disclosed the further delays in delivery of its first 737s during its quarterly earnings call on 7 May, alluding to the widespread manufacturing and quality issues that have slowed Boeing’s narrowbody programme to a crawl.
“Due to their well-publicised issues, we are experiencing even further delivery delays since our last earnings call,” says chief financial officer Greg Anderson.
Allegiant holds unfilled orders for 50 737 Max and options for a further 80 of the Boeing narrowbodies, as it long intended to break away from its status as an all-Airbus operator. But arrival of its first two Boeing jets has been repeatedly delayed – first to the end of 2023, then to the beginning of this year.
Deliveries were then pushed to this spring after an Alaska Airlines 737 Max 9’s door plug blew out in flight, which prompted the Federal Aviation Administration to cap Boeing’s 737 production rate.
The delays are cutting into the company’s earnings, according to Anderson. “Prior to this brand new type of aircraft entering the Allegiant fleet, we hire and train pilots, plan our network and take on other preparation and infrastructure costs. These material headwinds are at a current rate of $30 million annually of operating income.”
“At this time, we do not anticipate anticipate any Max aircraft to be placed in service during the first half of 2024,” he adds. ”Yet we continue to incur these significant expenses.”
In addition to Boeing delivery delays, chief executive Maury Gallagher cites “revenue problems” related to integrating Navitaire, the carrier’s new system for reservations, and lower aircraft utilisation during peak periods of air travel as reasons for the company’s $900,000 first-quarter loss.
That compares with a profit of $56.2 million during the equivalent prior-year period.
Allegiant’s quarterly revenue inched up 1% year on year to $656 million, while its expenses jumped 16% in one year to $641 million, driven largely by a 34% surge in employee salary and benefit costs.
“In the last year, we in the industry have experienced major expense increases, particularly salaries and specifically with our pilots,” Gallagher says. “Additionally, we had problems predicting how many pilots would be available for us last year. This time last year, we were losing more than a pilot a day, annualising out to a 40% attrition rate.”
Allegiant has stopped haemorrhaging pilots following the introduction last summer of a retention bonus for its flight deck crews and is negotiating a new contract with its pilots’ union. “We are encouraged by forward movement made since recent changes to union leadership,” Anderson says.
The carrier hopes to fully restore aircraft utilisation next year, and to boost flying during peak periods. It is also counting on its incoming 737s as a new source of revenue.
”We expect the Max aircraft will provide a meaningful tailwind to our earnings,” Anderson says. “The annual carrying costs of $30 million we are incurring will naturally subside.”
By the end of the fourth quarter, Allegiant anticipates operating 126 aircraft – 120 Airbus A320-family jets and six 737s.
