Airline stocks are taking a beating, down an average 7% this week, due to rising cases of Covid-19 and new lockdowns in countries such as Germany and France.
But a small domestic carrier,
(ticker: ALGT), is flying high. Shares were up 10% Thursday after the company reported higher third-quarter sales and a smaller loss than expected. Raymond James analyst Savanthi Syth reiterated a Strong Buy on the stock and raised her price target to $155, Allegiant is the “best positioned U.S. airline” relative to its full-service peers, she said.
Allegiant shares were trading around $136, up 10% Thursday. The stock is down 22% this year, handily beating the 49% decline in the NYSE Arca Airline Index.
Allegiant is far from financially healthy: Revenues were $201 million in the third quarter, down 54% from a year earlier. The company posted a pretax loss of $89 million and an adjusted loss of $4.28 a share in the quarter.
But Allegiant seems to be making more progress than peers in lifting revenue and slowing down the rate at which it burns through cash. The company operated at cash-flow positive levels in September, and expects to generate positive earnings before interest, taxes, depreciation, and amortization, or Ebitda, with daily bookings averaging at least $2.7 million.
Based in Las Vegas, Allegiant targets budget travel to small cities and vacation packages to destinations like Florida and Southern California. Nearly half its revenue in 2019 came from ancillary sales like bundled hotels, rental cars, and travel insurance, along with fees for things like carry-on bags, seat selection, and flexible booking. The airline said that ancillary revenue remained relatively strong in the quarter at $55.70 per passenger, up 1.5% year over year.
Allegiant’s route structure and passenger base may also confer advantages. The airline “has less exposure to dense coastal cities that likely have more circumspect attitudes toward the pandemic, which potentially enables a faster recovery,” Sytnh wrote.
Allegiant operates in the same budget-travel arena as
Alaska Air Group
(ALK), but it has been outperforming those peers. Revenue in the third quarter was down 54% from a year earlier, versus declines of 60% at Spirit, 68% at Southwest, 71% at Alaska, and 76% at JetBlue.
Allegiant’s operating costs have fallen sharply, moreover, and the carrier may be able to scoop up leases on planes at deep discounts. The company says it is seeing an influx of potential deals for used Airbus A320s at prices “significantly below” prepandemic levels. A320s have lower ownership costs and more seating than older A319s that Allegiant operated, potentially improving its profit levels and operating margins on flights next year.
Write to Daren Fonda at [email protected]