Airline Weekly - December 6, 2010
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Airline Weekly - December 6, 2010

America’s “Big Three” Growth Airlines: Allegiant, Virgin America and Spirit all expanding rapidly, unlike their bigger rivals

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Cover Story

America’s "Big Three" Growth Airlines: Allegiant, Virgin America and Spirit all expanding rapidly, unlike their bigger rivals

Call them the Big Three.

Lufthansa, Air France/KLM and British Airways? Emirates, Qatar and Etihad? Maybe the distribution giants Amadeus, Sabre and Travelport?

No, even in their own region, these Big Three actually aren’t the biggest by most measures—except for one very important one. In a country—the U.S.—where overall seat capacity is barely growing at all (by less than 2% for this week compared to the same week a year ago), Spirit Airlines, Allegiant and Virgin America are growing rapidly, with capacity up between 16% and 18% for the same period. Among major airlines, JetBlue’s growth is next at less than 7%.

Although the big-growth three are the smallest of the U.S. airlines that most people have ever heard of, they’re not tiny, either. With 64, 38 and 32 aircraft, respectively, Allegiant, Virgin America and Spirit would be among the larger LCCs in some other global regions. And their current growth rates and aircraft on order suggest they will become ever more important for their customers, suppliers and competitors.

Allegiant, despite having by far the most aircraft of the three, is actually the smallest by ASM capacity thanks to its short stage lengths and, even more significantly, very low fleet utilization compared to most LCCs. That’s not an accident: unconventionally for an LCC, Allegiant opts for old MD-80 series aircraft (and now a handful of B757s) with high operating costs but, importantly, negligible ownership costs. So unlike most airlines, and especially unlike most LCCs, it doesn’t feel pressured to keep its planes in the air to cover fixed costs. Operating a variable cost airline, in turn, enables it to grow and shrink dynamically in response to changing conditions, notably jet fuel costs.

In other ways, too, Allegiant is unlike most U.S. LCCs but very much like Ryanair: it shuns primary airports, doesn’t sell connecting itineraries, distributes only directly (not just its own inventory but that of partners like hotels), never overnights its crew and planes away from their bases and serves most markets only a few times per week. Also like Ryanair, Allegiant is in many quarters among the most profitable airlines in the world.

Although Allegiant is well known on Wall Street and among leisure travelers in small U.S. cities, who never dreamed they’d have nonstop service to places like Las Vegas and Orlando and at low fares to boot, it’s the least nettlesome of the three for competing airlines. Yes, service like Alaska’s from Bellingham, Wash., to Las Vegas shows they’re paying attention, and yes Allegiant now competes directly with (for example) JetBlue from Long Beach to Las Vegas, but Allegiant mostly serves markets that don’t interest anyone else and probably stimulates more traffic than it takes from other airlines. It might bump more into others as it grows and the lowest hanging small-city fruit are gone, and as it begins B757 service to Hawaii... (498 of 1995 words)

Also Inside this Issue:

There’s nothing quite like new technology when it comes to improving the productivity—and hence the economic fortunes—of an industry. And so it’s with great interest that airlines listened as Airbus announced its intention to offer A320-family planes with new and improved engines. They won’t be available until 2016, but the so-called NEO may prove an important weapon in the fight against high fuel prices.

Airbus isn’t the first to offer narrowbody planes with next-generation engines. Bombardier is marketing its CSeries jets, so far with limited success, and China’s state-owned COMAC is selling its C919, which if nothing else has captive buyers in its huge home market. So what will Boeing and Embraer do, if anything?

In the here and now, airlines continue buying B737-800s like they’re going out of style. Copa placed another order last week, leaving Boeing with 440 B737 orders this year alone, 94 of them from leasing companies. That’s not the 800-plus it got in 2007, but it’s near its 2008 level and much higher than what it got in 2009.

In merger news, British Airways and Iberia cleared their last major hurdle to becoming one company: getting shareholder approval. They’ll start operating as one next month, and Willie Walsh says he’s not done airline shopping.

Organic growth is the path for carriers like Emirates and AirAsia X, whose networks are radiating in all directions. Emirates announced routes to Switzerland and Iraq, while the latest two markets unveiled by AirAsia X were in France and New Zealand. That’s quite a mix.

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