Allegiant well grounded in small markets

LOVELAND — Tens of thousands of fortune hunters pile into Las Vegas daily.

That’s why it seemed plausible to Maurice Gallagher to stake the future of a once-struggling regional airline called Allegiant Air on the nation’s gambling capital.

So far, the cards are turning up in Gallagher’s favor.

On July 31 — less than two years after Gallagher led Allegiant out of bankruptcy — the airline will begin scheduled service from the Fort Collins-Loveland Municipal Airport to Las Vegas.

Northern Colorado is the last of five markets in which Allegiant will launch scheduled flights this year, all pointed to Las Vegas.

Allegiant’s strategy is four-fold:

n First, operating out of Las Vegas is cost effective. McCarran International Airport in Las Vegas charges $5.07 for each enplaned passenger, one of the lowest rates in the country for a major market. Other major airports charge up to $13 per passenger.

n Second, Allegiant is targeting secondary and tertiary markets that are hungry for service, also have low enplanement fees, and are willing to sweeten the pot for Allegiant.

For instance, the cities of Fort Collins and Loveland, which co-own the local airport, each granted $30,000 to Allegiant to use toward advertising. Lansing, Mich., which started Allegiant service on July 10, “gave them a couple of hundred thousand dollars,´ said Mike Boyd, an airline industry analyst.

The exception to Allegiant’s secondary market strategy is Denver, where Allegiant started service on July 3. Allegiant was already operating planes from Denver as part of a related charter service. It decided to maximize the use of those planes by setting up a Denver-Las Vegas run.

Las Vegas is No. 1

In all cases, Allegiant is picking the new cities — others include Wichita, Kan., and Des Moines, Iowa — because market research shows Las Vegas is the No. 1 destination out of those markets.

“We get more requests for Las Vegas than any other place,” confirmed Marge Yoder, president of Travel Connections, a Fort Collins travel agency.

Yoder thinks Allegiant can draw passengers from southeast Wyoming and western Nebraska as well as Northern Colorado.

“They couldn’t have picked a better market,” she said.

n Third, efficiency. Allegiant’s fleet of MD-80 jets — 160-seat planes — are more fuel efficient than larger jets for major airlines. The company also enjoys lower labor costs than the major carriers.

“(Allegiant) could go with a lesser load factor than major airlines because the cost to fly per mile is so much more inexpensive,” Yoder said.

Allegiant officials estimate it can be successful in the Fort Collins-Loveland market with load factors — or percentage of seats filled — in the 60-to-70 percent range. Major airlines in big markets lose money at the same load factors.

The limited schedule of four flights a week also reduces the airline’s risk.

“It’s scheduled service, but it’s really the same as charter service,” Boyd said. “It’s a very low-level type of service. It’s a good plan. They’re not going to be a huge airline, nor do they want to be.”

n Fourth, charter service. About half of Allegiant’s business comes from long-term charter contracts — largely with casinos in Nevada. Out of Denver, Allegiant flies charter service to Mexico under contractor for Apple Vacations. Allegiant also has its own vacation booking division, Allegiant Vacations, to help sell the airline.

Furthermore, Allegiant does not sell through on-line booking services, which command a fee from the airlines.

As a result, Allegiant can discount its fares. The airline charges a flat $89 one-way rate from Fort Collins-Loveland, or a $178 round-trip. By comparison, a sampling of round-trip fares to Las Vegas from Denver for departure on July 31 and returning Aug. 3 ranged from $320 to $400, according to travelocity.com and United Airlines’ Web site.

Allegiant struggled early

Founded in 1997 in Fresno, Calif., as a charter service, Allegiant expanded into scheduled service in 1999. The airline developed a regional network, attempting to work in underserved markets. But it didn’t take long before Allegiant encountered some of the troubles that were burdening major carriers.

“In 2000 ? there was a tremendous increase in fuel costs,´ said Mark Peterson, vice president of marketing for Allegiant. “Allegiant found itself flying into a number of markets not yet productive with very high fuel costs.”

Allegiant filed for protection from creditors in December 2000. Gallagher, previously a minority investor, agreed to take over the company and reorganize operations.

That was old hat for Gallagher, who had previously helped develop WestAir Airlines as a regional carrier in the 1980s, and was a founder of ValuJet.

He invested $5 million in Allegiant, trimmed back scheduled service to strictly Fresno-Las Vegas runs, and began to beef up the charter business.

Last year, with the charter service as a foundation, Allegiant started the process of expanding scheduled flights again. The airline’s first step outside of Fresno was in Colorado Springs in February 2002.

With five more cities added this year, Allegiant is likely to stay put for the foreseeable future.

“It’s very likely to be our expansion for the remainder of 2003,” Peterson said. “Then we’ll look to 2004 in terms of where our next opportunities are. We have over 20 cities around the country on our radar screen that match the profile of the kind of markets we think we could be successful in.”

If those cities are like Fort Collins and Loveland, they will embrace Allegiant with open arms.

The Fort Collins-Loveland Municipal Airport has been without scheduled service since 1997, after both Continental and United Express left the market.

The return of scheduled service means significant revenue to the airport. The airport collects fees for each landing, passenger enplanements, and will gain from the sale of more fuel and possibly parking fees for passengers. Officials estimate the Allegiant operation will generate $5,000 a month for the airport.

Most importantly, the Federal Aviation Administration promises $1 million per fiscal year to an airport once it reaches 10,000 enplaned passengers. Airport officials believe Allegiant will easily surpass that volume.

20,000 passengers a year predicted

“Based on projections and the number of flights, the minimum should be 20,000 enplanements in a year’s time,´ said David Gordon, manager of the Fort Collins-Loveland Airport.

Scheduled service has other potential benefits for the Northern Colorado market.

“In any site selection, one of the top 20 criteria companies look for is availability and cost of transportation,´ said J.J. Johnston, president of the Northern Colorado Economic Development Corporation. “Technically, we’re only one hour from a major airport. But we can say we have direct jet service from Fort Collins-Loveland — that’s going to help.”

The Las Vegas destination has even raised the possibility of passengers using Allegiant flights to connect to other destinations. However, that seems unlikely.

According to Yoder, passengers would have to allow at least two hours between their scheduled landing in Las Vegas and the departure time on the next flight. That’s because passengers would have to retrieve baggage and check it again with the new airline.

It remains to be seen if the Allegiant venture is the start of something big at Fort Collins-Loveland, or another misguided attempt at bringing air service to a small market.

“Even if they weren’t totally competitive on price, a lot of people are willing to pay a little bit more to avoid the hassle of going through DIA,” Yoder said.

Boyd is less certain.

“I’ll be honest: I don’t know if Fort Collins is going to be a long-term player — it may be,” he said. “The problem is, on the northern end of the (Front Range) corridor, is how long you can support one flight for four days a week,” he said. “That can get pretty expensive.”

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