Allegiant Air will look for bargains among the post-COVID 19 aviation landscape as the Las Vegas-based LCC plots its futures after it posted a $33 million Q1 loss versus a $57.1 million profit for the same period last year.
"Near term is painful and will continue to be painful. We will most likely shrink our fleet by as many as 25 aircraft,” said Maurice Gallagher chief executive of parent firm Allegiant Travel Company. “These aircraft, particularly the motors, will 'seed' our near and long-term ability to materially reduce planned engine overhauls, beginning in 2020 and for years thereafter.
“Going forward, the market will favour buyers, not sellers as has been the case the past few years. We will be able to use our expertise to purchase aircraft and associated parts at what we believe will be substantial discounts to recent prices. We will 'manage' planned overhauls via our balance sheet versus expensive overhaul shop visits.”
Gallagher said that Allegiant, which specialises in connecting secondary US cities with warm weather destinations, had an advantage over a number of its rivals because it does not have a pipeline of aircraft orders as a potential drain on future liquidity.
“Another substantial advantage is that we do not have meaningful aircraft purchase commitments in 2021 and beyond. The combination of our retirements and the greatly reduced cost of used aircraft and their motors is a key part of both our near-term liquidity benefit and long-term - 2021 and beyond - reduced capital requirements for our growth.”
Allegiant built its business using MD80s, only retiring the last in 2018, and Gallagher said the firm’s future strategy would be driven by the same decision process which led the firm to opt for those aircraft.
“I am reminded of a saying I used with our MD80s, namely 'we were a non-capital-intensive business in a capital-intensive industry.”
Allegiant has received $172 million in payroll support under the CARES Act, of which $86 million has been received to date, with the remainder being paid in instalments. In addition, it will receive nearly $100 million in federal income tax refunds during the second quarter of 2020 related to favourable net operating loss (NOL) carryback rules under the CARES Act.