Strategic Analysis Allegiant Airlines

Team S.M.A.R.T. Christina Akiens, Christian Clucas, Danielle Henry, Eduard Hoffmann, Megan McWilliams

Mondays – Section 12 November 19th, 2012

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Executive Summary

The purpose of this report is to outline the strengths, weaknesses, threats, and

opportunities facing our client, Allegiant Airlines, and to provide recommendations for our client

to pursue so as to increase their potential revenue moving forward. Critical to our

recommendations is our analysis of Allegiant Airlines’s financial records, both their 10-K and 8-

K reports filed with the Securities and Exchange Commission; an in-depth explanation of the

analysis done and the numerical findings are in the appendix at the end of this report. In

addition, this report will examine the benefits of leasing Allegiant’s current fleet of aging

airplanes and purchasing new planes with financial figures and trend-line analysis to illustrate

the benefit in real world dollars.

This report will discuss Porter’s five forces of profit potential, the external factors that

influence the industry, the sustainable competitive advantages that Allegiant currently possesses,

and the fallout to the recommendations that will be made. Those recommendations include, but

are not limited to, leasing of old aircraft, purchasing new aircraft, establishing new destinations,

and investing in their online marketing and sales divisions. The findings will conclude that

Allegiant Airlines’s current cost-leadership strategy does not need to be shifted to one of

differentiation but instead to one of capitalizing on what they currently excel at, servicing leisure

travelers and small cities, and expanding those advantages further.

1. Allegiant Airlines’s Mission and Strategy

Allegiant Airlines’s mission statement states that their mission is to provide high-value,

low-cost travel for their leisure customers (Allegiant Airlines, 2012). They also state that they

accomplish this mission by continuously innovating, maintaining flexibility in organizational

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structure, keeping costs down, and making sure they never forget who their target market and

customers are (Allegiant Airlines, 2012). Our analysis shows that Allegiant Airlines does a

relatively good job of following its mission.

The size of Allegiant Airlines is relatively small compared to the rest of the industry.

Allegiant Airlines’s founding in 1997, and its subsequent certification in 1998, saw a company

devoted to the leisure traveler grow to what is now a one billion dollar market capitalized

corporation with one-thousand three-hundred employees (Allegiant Airlines, 2012). Allegiant

Airline does three things primarily well: it caters to leisure travelers, it flies to and from small

cities and popular tourist destinations, and it sells vacation packages on its website. Allegiant

Airlines operates out of small and secondary airports where it faces, in most circumstances, little

competition at the hubs; as an example, Allegiant Airlines is the only domestic airline with

scheduled flights to operate out of Sanford International Airport (Allegiant Airlines, 2012).

Allegiant Airlines is a cost leader in the airline industry. It is in its mission statement to

be relentlessly managing costs so as to pass on those savings on to its customers with low fares

(Allegiant Airlines, 2012). Allegiant Airlines’s growth has stalled since the economic downturn

of the last decade but has still outpaced several of its competitors. Our financial analysis shows

that Allegiant Airlines is in a highly liquid situation and has enough cash to pay its debts if it

chose to, giving it an excellent debt-to-equity ratio. Therefore, Allegiant Airlines is in a prime

position to see large scale growth if it invests its funds wisely and continues to offer good value

to its customers while cutting its own costs (US Securities and Exchange Commission, 2012).

The breadth and focus of Allegiant Airlines’s products and services are fairly slim, only flying to

79 destinations with its fleet of 62 planes; its only other prevalent offering is its vacation

packages and onboard amenities which can be purchased while flying.

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The things that make Allegiant Airlines unique are its focus on leisure travelers, its

insistence on maintaining and charging low costs and prices, and its servicing of small and

secondary cities and airports. Our projections show that if performance were to remain the same

that net income would increase yearly at a rate of almost 9.5% and that revenue would outpace

costs. However, even a 10% yearly decrease in revenue, or a 10% yearly increase in costs would

cause Allegiant Airlines to have more costs than revenue by 2016; Allegiant Airlines is in a

strong position right now because of how efficient it has been in keeping costs down and, as a

result, can survive a few years of increased costs before it impacted company profits. An in-

depth analysis of Allegiant Airlines’s financials is presented in the appendix of this report.

Allegiant Airlines has been fairly successful due to its low costs, low fares, and attention

to underserviced cities. The rest of this report will outline the forces that effect Allegiant

Airlines’s ability to be profitable, as well as what its sustainable competitive advantages are, and

what recommendations it could undertake to increase profitability moving forward.

2. Analysis

The airline industry is highly competitive. Allegiant Airlines is a one of the few airlines

in the industry that focuses on offering flights out of locations that most legacy carriers do not

service. By offering these rare flights Allegiant has gained a competitive advantage in the airline

industry. “We are the only provider of nonstop service to our leisure destinations. It is possible

other airlines will begin to provide nonstop services to and from these markets or otherwise

target these markets” (Allegiant Airlines, 2012, pg. 12). Allegiant Airlines’s business strategy

has allowed the company thus far to not be under as much pressure as its competitors. Some of

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these competitors include US Airways, Southwest Airlines, Delta Airlines, Spirit Airlines, and

JetBlue.

The threat of substitutes for Allegiant Airlines is very low. Cars, trains, and buses are

viable substitutes for Allegiant but the tradeoffs can be seen as unworthy for its customers.

Traveling by car or bus are options, but most individuals’ goal when traveling is to reach their

destinations in the shortest possible travel times. Passenger trains are faster than cars and buses,

on the other hand when you factor the costs of a train ride it’s almost the same as purchasing a

flight aboard Allegiant with no stops and even shorter travel times.

The bargaining power of buyers for Allegiant Airlines is relatively high. Allegiant

primarily focuses its business model on leisure travel. “We believe small cities represent a large

market, especially for leisure travel. Prior to our initiation of service, travelers from the small

city markets we serve had limited desirable options to reach leisure destinations as existing

carriers are generally focused on having business customers connect into their business hubs”

(Allegiant Airlines, 2012, pg. 4). Allegiant takes huge economic risks within its strategy of

targeting leisure travelers. During tough economic times many people begin to cut back on their

expenses and the first thing to eliminate would be traveling and vacationing. This could cause a

dramatic decline in profitability. Customers can also easily compare the rates of several airlines

at one time via websites such as Expedia, Orbitz, and Travelocity to find the best deal.

The bargaining power of suppliers for Allegiant is high. “Few industries are hit as hard

by high oil prices than the airlines, which can spend close to 40% of their budget on fuel”

(Hargreaves, 2012). Allegiant’s business cannot survive without fuel, aircraft, and other aviation

equipment. There is low integration between Allegiant and its suppliers mainly because the

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suppliers are able to raise cost without the threat of their products being substituted. Airlines are

coming up with new technologies to cut these cost down but they still cannot be eliminated.

The threat of new entrants is also high for Allegiant. It is not realistically feasible for the

average person to start an airline, but due to government deregulations on the industry as a whole

if one had the desire and funds to do so it is definitely within reach (US Securities and Exchange

Commission, 2012). “We are the only domestic scheduled carrier operating out of the Orlando

Sanford International Airport, one of two scheduled carriers operating out of Phoenix-Mesa

Gateway Airport and one of only three carriers serving the St. Petersburg-Clearwater

International Airport” (Allegiant Airlines, 2012, pg. 6). If Allegiant continues to be profitable

from its strategy other airlines will attempt to imitate or revamp the strategy causing Allegiant to

lose its current competitive advantage.

After examining the Porter’s Five Forces, Allegiant possess several strengths as well as

weaknesses within its company. One of the greatest strengths owned by Allegiant is its unique

business strategy. Allegiant is one of the only airlines in the United States to offer non-stop

flights departing from small cities. Allegiant has also incorporated in its strategy the ability to

offer the lowest fares possible to several destinations throughout the U.S. Lastly, Allegiant has

discovered the niche of offering the convenience and flexibility often sought by leisure travelers.

These three aspects of their business have given Allegiant the base for maintaining a successful

business strategy.

Although Allegiant has several strong aspects in its strategy, it is not fail proof—

Allegiant’s strategy possesses weaknesses as well. A major weakness with their strategy is the

extra charges they impose on its customers to offer low fares. “Allegiant is one of only two U.S.

airlines to charge for carry-on bags. Travelers who pay with a credit card pay $8 more per person

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for a round-trip ticket than those who use a debit card” (Gilbertson, 2012). Allegiant downgrades

the quality and level of service they offer to its customers to remain a low cost leader amongst its

competitors. This low cost strategy could deter customers that are seeking the quality and first

class experience of flying. If a customer is not careful or is flying with Allegiant for the first time

they could ultimately wind up paying more than the cost difference of a flight with another

carrier after the many additional charges and fees.

As Allegiant becomes more and more profitable there is plenty of opportunity for it to

expand its target market. Currently Allegiant focuses on leisure travelers, which are only a small

percentage of people that travel. In the future the company should consider revamping its own

strategy to become more attractive to other types of travelers. Threats from outside of the

company mainly derive from the servicing of small cities; if servicing smaller ports continues to

be profitable for Allegiant Airlines then competitors will soon imitate this strategy and some may

even try to come up with even better ways to service these smaller ports such as offering lower

fares or providing a better quality of service. Another threat to Allegiant is the fluctuating

economy. During economic downturns travelers tend cut back on leisure travels to save money,

which in turn significantly affect Allegiants profitability.

The strategic group map on the following page shows where Allegiant Airlines is

positioned in the industry in comparison to its current competitors with regards to routes serviced

and prices charged. The map shows that Allegiant offers some of the lowest fares in the industry,

but sits in the middle of the industry as far as the number of routes it services (Expedia, 2012). If

Allegiant continues on its current path of success, the airline will be in a position to expand the

routes it services and be able to successfully compete against the other regional airlines for

decades to come.

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3. Sustainable Competitive Advantages and Major Problems

Allegiant Airlines’s unique business model, which focuses on leisure travelers in small

cities, is one of their sustainable competitive advantages. This strategy “allows us to eliminate

the costly complexity which others in our industry are burdened with in their goal to be all things

to all customers” (Allegiant Airlines, 2012, pg. 3). A few differences between Allegiant’s

approach and traditional airlines’ approach are that Allegiant offers no connecting flights, they

focus on the leisure traveler instead of the business traveler, and they provide low frequency

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service to small cities. Allegiant solves the problem that most leisure travelers in small cities

face by providing them service to their favorite destination for a lower cost. Allegiant Airlines

saw this unmet need as a great opportunity to gain a competitive edge in the airline industry and

it is the market leader in serving low cost flights in small cities.

Another strength of Allegiant’s is its low cost structure and ability maximize the amount

of its seat capacity which allows it to charge a lower fare and still remain profitable during the

rising costs of fuel prices. Allegiant’s ability to serve this unsaturated market of low cost air

travel in small cities gives it a sustainable advantage in the airline industry because most air

carriers are focused on business travelers and providing the most frequent flights.

The value Allegiant contributes to the market is its ability to provide inexpensive flights

for travelers in small cities, which no other airline is currently doing. This ability is in fact rare

as well, because Allegiant is the only airline providing service for this niche market. Due to

staggering economy and volatile fuel prices it will be costly for other airlines to change their

positioning to this niche market and Allegiant’s low cost structure, low aircraft ownership costs,

highly productive workforce and low distribution costs has attributed to its success in this

market. Allegiant has successfully captured this niche market and met the needs of these leisure

travelers, because its competitors do not service small cities targeting leisure travelers. Even

though Allegiant has successfully secured this niche market it still face many issues that will

hinder its future success ahead if it does not resolve them.

The primary issue Allegiant will face in the near future is if other airline competitors

adapts its marketing strategy and positions their companies to serve small cities. These

competitors, both legacy and regional carriers, have more resources than Allegiant and they can

readily adapt their business model to serve this segment (Allegiant Airlines, 2012, pg. 6);

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Allegiant would have to quickly make changes to its business model and find another niche

market that is lacking service in a particular area in order to remain competitive—this is

definitely Allegiant’s biggest threat.

The second issue Allegiant faces is the fluctuation of economic conditions. If economic

conditions do not improve Allegiant will lose business from its primary target market. Leisure

travelers will not have the monetary resources to vacation, which means that Allegiant’s main

source of revenue will greatly decrease causing it to have to raise its prices to stay profitable;

raising its prices, could lose customers and further harm Allegiant. Allegiant would have a hard

time recovering from a decrease in sales and revenue.

The third issue Allegiant has to resolve is the extra fees it charges its customers for its

flights. For example, “Allegiant is one of only two U.S. airlines to charge for carry-on bags.

Travelers who pay with a credit card pay $8 more per person for a round-trip ticket than those

who use a debit card” (Gilbertson, 2012). Even though Allegiant offers cheaper flights for small

city travelers than its competitors, these extra fees may eventually turn off customers from its

services and they may just take an alternate route instead of going with Allegiant.

4. Strategic Recommendations and Justification of Strategy

Allegiant Airlines currently has a successful business strategy that has allowed it to

maintain a sustainable competitive advantage for several years in its target market within the

airline industry. Allegiant’s distinctive use of a unique business model, efficient capacity

management, and a low cost structure easily sets it apart from its competitors in a way that

allows it to comfortably remain profitable over the upcoming years. Allegiant’s current

competitive strengths also consist of all of its ancillary product offerings, in which airline

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customers pay a low cost strictly for flight fare and then have the option to pay for any additional

products or services that they would like to enjoy on their flight. These specific products have

maintained a growth rate of 16% over the past three years, contributing to a significant portion of

the company’s overall profits. Allegiant Air also stands out against its competitors with its

desirable bundled travel packages with resort hotels that provide their customers with added

convenience during their leisure travels. Overall, Allegiant has a very strong financial position

within the airline industry as revealed in the company’s most recent third quarter revenue results

and thriving stock performance derived from significant cash balance and low debt ratios that do

not require much need for strategic change (Allegiant Airlines, 2012).

Allegiant’s financial statements over the past three years have shown significant

increases in its ending cash balances and these balances on the Statement of Cash Flows are

expected to increase by about 43% in 2012 compared to 2009. Despite the poor economic

conditions that this country has been suffering in recent years, the ending cash flows of Allegiant

is forecasted to rise to $673,185,000 by 2017, an increase of $522,445,000 from the actual cash

balance ending in 2011. Also, as presented in its balance sheet, Allegiant holds a healthy

financial position in terms of leveraging its debt and liquidity. For the actual results reported in

2011, it is shown that Allegiant Airlines has two times the necessary resources to cover all of its

current liabilities, keeping them in an especially liquid position and in no way threatened by any

sort of liquidity crisis. Allegiant has the ability to cover all of its short-term debt and even long-

term debt if necessary. Its low debt to equity ratios further support this notion of liquidity

predicting that Allegiant should be able to sustain profitable business operations over many years

to come. With forecasted cash totals with short term investments consistently calculated to rise

over the next five years and debt totals remaining relatively constant, Allegiant’s debt to equity

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ratio is forecasted to decrease even further to 14%, down from 42% reported in 2011 (Allegiant

Airlines, 2012).

However, with all of the favorable outcomes enjoyed with its current business strategy,

Allegiant still faces several risks that in future years could drastically damage it and everything it

have worked so diligently to achieve. Some of the most important risks that Allegiant currently

faces are fluctuating higher fuel prices, the state of the economy, new competition, and its heavy

reliance on their Information Technology and Automation services. In addition, Allegiant also

faces a major risk of operating with a 22-year-old fleet that poses significant potential safety

issue threats and can lead to higher maintenance costs. Some of Allegiant’s goals for 2012

include beginning service to Hawaii, completing a 166-seat project with MD 80s, launching a

new web site, charging customers for carry-on bags, and opening new bases in San Francisco

and Southwest Florida. In addition to the outstanding achievements that Allegiant accomplished

in 2011, these new product offerings and services would further strengthen its brand against its

competitors and open up many new channels for revenues and growth. Given this analysis of the

company, the most important needs of Allegiant Airlines that are necessary in order to maintain a

profitable competitive advantage in the future are to provide stability to its fuel costs, to create a

homogeneous airline fleet, and to increase the marketing of its independent online sales of ticket

distribution (Allegiant Airlines, 2012).

One of the ways Allegiant can achieve this alternative strategy to stabilize its fuel costs is

to offer to lease out their older model airplanes, such as their array of MD 80s, to other airline

companies with the option to sell them at the end of each lease. This strategy would easily set

Allegiant up in a position where they could gradually eliminate the older planes in its fleet and

subsequently use the incoming revenue to modernize its fleet with newer models. The overall

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effect this collection of new airplanes would have on Allegiant would be to ultimately improve

fuel efficiency with these new energy conservative models as well as to minimize the

maintenance costs of carrying older models. For example, as illustrated in our financial analysis,

if Allegiant Airlines were to purchase nine new A319 model planes over the next eleven years

while also leasing out two of its older MD 80s, Allegiant could make a profit of $178,321.68 per

quarter. This is calculated by taking the difference between the total cost of each individual A319

plane purchased and the ensuing fuel and maintenance cost savings of these new models, which

is equivalent to a loss of $590,909.09 per quarter. However, when taking into consideration the

additional savings each quarter of $769,230.77 from leasing out two of their MD 80s, a total

profit of $178,321.68 is derived quarterly. At the end of these eleven years, it is expected that

Allegiant would acquire a cumulative profit of $7,846,153.85 from this operation alone

(Allegiant Airlines, 2012).

Furthermore, another advantage Allegiant would sustain from employing an upgraded

airline fleet would be the ability to service a variety of new destinations around the country, such

as Hawaii, which in turn would assist them in fulfilling the company’s goals for 2012. By

earning revenues through the leasing or sales of Allegiant’s current airline fleet, it could

purchase newer models that would in the end enable them to service longer distances while also

reducing fuel and maintenance costs. This implementation would cut future expenses while also

increasing income, which would drastically raise Allegiant’s profitability over all upcoming

years (Allegiant Airlines, 2012).

Secondly, by purchasing new aircraft, a homogeneous fleet will decrease a great deal of

unexpected maintenance costs and layover time between flights, which would cut costs and

allow revenues to further increase. At the end of 2011, secondary to airline fuel and salaries and

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benefits, the total maintenance and repair costs accounted for approximately 12% of total

operating expenses for the year. With that current year ratio, the total expenses as a percentage of

revenues was as high as 89%, which is not a very profitable measurement for ending net income.

In general, the costs to maintain these aircraft increase as they age and exceed the cost to

maintain new aircraft. The FAA regulations require additional and enhanced maintenance

inspections for older aircraft which typically increase as an aircraft ages. In addition, Allegiant

may be required to comply with any future aging aircraft issues, law changes, regulations, or

airworthiness directives, which could cause maintenance costs to substantially exceed their

expectations. Therefore, given the shared knowledge of the age of this fleet, any public

perception that Allegiant’s aircraft are less than completely reliable could have a significant

adverse effect on their profitability. If Allegiant were to purchase new aircraft to create a

homogeneous airline fleet, these maintenance and repair cost expenses could be lowered

extensively and in the end increase the net incomes of future years (Allegiant Airlines, 2012).

In addition, in order to increase the marketing of its independent online sales of its ticket

distribution, Allegiant should focus on enhancing the market visibility of its online sales. Since

Allegiant is still considered to be a relatively small airline company with less market share

compared to its larger competitors, it is especially imperative that they more aggressively

establish a sales and advertising position in the online market. Being that the majority of

customers typically book all travel arrangements online now, Allegiant would not be able to

survive in this industry if it did not sufficiently offer this option to its customers. As shown in

our market analysis, it is evident that Allegiant is especially dependent on its travel routes to Las

Vegas more so than all of its other destinations combined. We strongly believe that this is a very

risky business strategy and that more of Allegiant’s resources should be spent on other travel

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locations as well instead of investing so much into just one city. Although these actions may

increase sales and marketing expenses in the short term, it would overall considerably increase

its operating revenues and number of passengers in the long term, creating a more sustainable

competitive advantage. With Allegiant's new investment in automation technology and its

current goal of launching a new website, Allegiant is well on its way to increasing total sales

over the upcoming years (Allegiant Airlines, 2012).

Another way for Allegiant to implement this new strategic recommendation would be to

increase the number of destination cities they service to those that are currently underserved by

other competitive airline markets. This would tap into Allegiant Airline’s existing competitive

advantage and enhance it further. If Allegiant Air successfully carries out its plan to start

servicing flights to Hawaii, then its overall revenues and market share would significantly

increase and could potentially even raise its future growth rate as it would become more well-

known and desirable (Allegiant Airlines, 2012).

Allegiant Airlines currently has a very unique and successful business model that could

potentially grow at astronomical rates if it were to implement some of these new strategic

recommendations. Although some of these suggestions may require a significant cost up-front,

they would lead to a much higher profitability going forward, creating a sustainable competitive

advantage for Allegiant that would be difficult to imitate. These recommendations would

eliminate some of the firm-specific risk that Allegiant could potentially face in the future,

ensuring that it will be prepared for any unforeseen obstacles that may come its way.

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5. Fallout and Summary

There are a few risks involved with the recommendations given in this report. The

recommendation to lease Allegiant Airlines’s current aging fleet and purchasing more fuel

efficient and reliable aircraft involves finding a willing participant to pay Allegiant for use of its

planes and a major capital investment in purchasing the new planes which could put a strain on

Allegiant’s liquid assets if not purchased with debt. Another risk involved with this

recommendation is that it depends on the trend-line analysis done to compute the savings to be

accurate and to be representative of future gains—if the mathematics are wrong or the

assumptions are off then the risk of investing a substantial amount of capital with little positive

return is a possibility. However, the calculations used in the analysis are conservative and

assume only a small margin of profit; there is an equal chance that the possibility for even

greater profits than this report has calculated can be garnered by following the recommendations

given.

Another potential problem is with the recommendation to increase the number of cities

and airports serviced. It is possible that if a city is chosen to be a hub for Allegiant Airlines that

it does not provide enough customers to maximize capacity utilization, especially if it is a

relatively small city or one with little touristic interest. However, Allegiant Airlines has the

resources to conduct market analyses of potential cities to service, therefore Allegiant Airlines

would have no reason to enter a market blindly without knowing if it would be profitable or not.

There are no perfect recommendations that this report could give to Allegiant Airlines

that would not involve a modicum of risk. However, given the conservative mathematics and the

acknowledged existing resources that Allegiant possesses, the potential benefits outweigh the

potential risks.

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Appendix

Explanation of Financial Analysis

The basis of our financial analysis of Allegiant Airlines was based off of the Income

Statement and the Cash Flows starting from the year 2007 until 2011 given in Allegiant's 10-K.

In order to get the growth rate of each individual line in the Cash Flow and Income Statement,

the rate function was used to give a more accurate number for growth. There are three scenarios

on the Trend Analysis workbook that give an outlook about how Allegiant's financials will look;

one is titled slowdown, one is average, and the final one being growth. For the slowdown

section, the growth rate of all revenues and assets was decreased by 10% from that calculated

using the rate function, while all costs calculated with the rate function were increased by 15%.

For the average section all percentages calculated by the rate function were used. In the growth

section, all revenues and assets were increased by 10% from the rate function while all costs and

debts were decreased by 10%.

The baseline year for the predictions for all three sections for 2012 was based off of the

trend function in Excel. This was chosen over using the average function to seek a more accurate

picture of that baseline year given the previous 5 years of information. The trend function uses a

regression on the least squares assumption that will hopefully minimize any variance that may

have occurred if we had used the average function. After 2012, the growth rate for that given

section is used for the subsequent years.

The workbook titled “Savings” came from information supplied by a third party which

stated the total cost of the 9 airplanes that Allegiant will be leasing as well as the total savings

per year that Allegiant expects per plane by leasing these new aircraft. The cost of the Boeing

MD-80s was based off of the purchase by a subsidiary of Allegiant of 13 MD-80s in 2011. The

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total amount of purchases was $20 million dollars but a number of engines were included in the

deal, in order to have a conservative estimate the projected total purchase of the 13 aircraft is

priced at $15 million. All assumptions on price were based off of straight-line depreciation. In

the table it sets forth the delivery date for the leased aircraft by quarter. Since straight-line

depreciation was used the total cost of all 9 aircraft was used for each quarter. Also using

straight-line depreciation, the savings per quarter was based off of the projections of Allegiant

Airlines. The column labeled “Savings from leasing 2 MD-80s” was based off of the previous

purchase by Allegiant of 13 MD-80 Aircraft given straight-line depreciation multiplied by two.

This table shows that given Allegiant has made no announcements to lease its own MD-

80 fleet, it could use the option to finance its own acquisition of newer planes to modernize its

fleet. So given the expected savings from the newer aircraft along with the profits from leasing

only 2 MD-80s from its fleet, by the end of its 11 year depreciation Allegiant can expect a profit

of $7,846,153.85 while netting 7 extra planes. This shows that if possible Allegiant should

attempt to lease as many MD-80s as possible to fund a correlated amount of Airbus A319's in

order to capture more profit, increase its fleet, and maintain its competitive advantage as a cost

leader.

In the final workbook entitled marketing for Allegiant, the information is taken from the

8-K and shows the percentage of Allegiant Air's dependence on Las Vegas for its sales. It shows

a significant portion of both its hotel service and ticket sales are dependent on travel to Las

Vegas. Underneath this chart is the growth of Allegiants ancillary products over the past 3 years.

It shows that there is consistent growth in its ancillary products and this is a possible revenue

stream that Allegiant may pursue in order to increase profitability.

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Workbooks

Previous Statements

In this workbook, with the heading “Income and Cash Flow Statement,” the previous 5

years worth of financial statements are given.

Trend A

nalysis

In this w

orkbook, with the heading “Incom

e Statement and C

ash Flow Statem

ent and Future Predictions,” the previous 5 years

worth of financial data is used to give an econom

ic forecast of Allegiant A

ir. In order to use the most accurate baseline, the trend

analysis function is used for the year 2012; this gives a more accurate baseline then if a sim

ple average percentage increased were to

be used. There are 3 different scenarios in this workbook on the forecast, one entitled slow

down, average and grow

th. The slowdow

n

scenario expects costs to increase by 15% over the previous 5 years rates and for revenues and assets there is a 10%

decrease on the

calculated rate. Average uses the given rate from

the 5 previous years. Grow

th has a 10% increase in revenues and assets and a 10%

decrease in costs excluding fuel.

Income'Statement'and'Cash'Flow'Statement'and'Future'Preditions

Prediction*(Slowdown)Prediction*(Average)

Prediction*(Growth)2011Rate*up*to*that*point

Growth*Rate*Growth*Rate

20122013

20142015

20162012

20132014

20152016

20122013

20142015

2016Total*Operating*Revenue

779,11716.65998%

14.16098%18.3260%

872,071.700********

995,565.621********

1,136,547.494*****

1,297,493.786*******

1,481,231.654*******

872,071.700************

1,017,358.666*********

1,186,850.410*********

1,384,579.444***********

1,615,250.094***********

872,071.700*********

1,031,887.362*****

1,220,990.807*****

1,444,749.305*******

1,709,513.736*******

Total*Operating*Expenses693,673

16.99105%19.53971%

15.2919%753,964.945

********901,287.511

********1,077,396.479

*****1,287,916.629

*******1,539,571.807

*******753,964.945

************882,071.524

************1,031,944.759

*********1,207,283.034

***********1,412,413.126

***********753,964.945

*********869,260.866

********1,002,187.779

*****1,155,441.804

*******1,332,131.354

*******Operating*Income

85,44414.16354%

12.0%15.5799%

118,106.755********

94,278.110*********

59,151.015*********

9,577.156*************

(58,340.153)**********

118,106.755************

135,287.141************

154,905.651************

177,296.410**************

202,836.968**************

118,106.755*********

162,626.496********

218,803.028********

289,307.501**********

377,382.382**********

EBIT79,514

9.41543%8.00311%

10.3570%114,573.683

********123,743.145

********133,646.449

********144,342.327

**********155,894.207

**********114,573.683

************125,361.285

************137,164.587

************150,079.219

**************164,209.820

**************114,573.683

*********126,440.045

********139,535.404

********153,987.045

**********169,935.438

**********Net*Income

49,3989.40948%

7.99806%10.3504%

72,510.681**********

78,310.126*********

84,573.415*********

91,337.645***********

98,642.882***********

72,510.681*************

79,333.558*************

86,798.432*************

94,965.712****************

103,901.491**************

72,510.681**********

80,015.846*********

88,297.827*********

97,437.029***********

107,522.177**********

Cash*and*Cash*Equivalents150,740

0.88140%0.74919%

0.9695%127,863.400

********128,821.339

********129,786.455

********130,758.801

**********131,738.433

**********127,863.400

************128,990.387

************130,127.308

************131,274.249

**************132,431.299

**************127,863.400

*********129,103.086

********130,354.791

********131,618.632

**********132,894.726

**********Total*Assets

706,74311.75583%

9.99246%12.9314%

524,465.017********

576,871.962********

634,515.648********

697,919.355**********

767,658.651**********

524,465.017************

586,120.246************

655,023.561************

732,027.033**************

818,082.905**************

524,465.017*********

592,285.769********

668,876.704********

755,371.932**********

853,052.217**********

Long*Term*Debt146,069

15.15138%17.42409%

13.6362%76,096.962

**********89,356.165

*********104,925.665

********123,208.008

**********144,675.883

**********76,096.962

*************87,626.704

*************100,903.362

************116,191.617

**************133,796.254

**************76,096.962

**********86,473.730

*********98,265.499

*********111,665.224

**********126,892.167

**********

Passengers6,175,808

13.59920%11.55932%

14.9591%7,222,248.400

*****8,057,091.043

*****8,988,435.799

*****10,027,437.656

*****11,186,541.038

*****7,222,248.400

*********8,204,416.215

*********9,320,150.969

*********10,587,616.695

*********12,027,447.587

*********7,222,248.400

******8,302,632.996

*****9,544,633.590

*****10,972,426.506

*****12,613,804.637

*****Revenue*Passanger*Miles*(In*Thousands)

5,640,57712.42247%

10.55910%13.6647%

6,533,427.180*****

7,223,298.474*****

7,986,013.986*****

8,829,265.413*******

9,761,556.626*******

6,533,427.180*********

7,345,040.467*********

8,257,476.201*********

9,283,259.027***********

10,436,469.457*********

6,533,427.180******

7,426,201.795*****

8,440,971.573*****

9,594,406.812*******

10,905,455.762*****

Available*seat*miles*(In*Thousands)6,364,243

10.48718%8.91410%

11.5359%7,295,211.775

*****7,945,514.291

*****8,653,785.427

*****9,425,192.564

*******10,265,363.710

*****7,295,211.775

*********8,060,273.558

*********8,905,568.726

*********9,839,511.495

***********10,871,398.498

*********7,295,211.775

******8,136,779.736

*****9,075,430.093

*****10,122,362.169

*****11,290,067.228

*****Load*factor

88.60%1.73459%

1.47440%1.9080%

90.673%0.920

******************0.934

******************0.947

********************0.961

********************90.673%

92.246%93.846%

95.474%97.130%

0.907*******************

0.924******************

0.942******************

0.960********************

0.978********************

Total*Aircraft*in*Operation52.20

13.42927%11.41488%

14.7722%60.040

*****************66.893

****************74.529

****************83.037

******************92.515

******************60.040

********************68.103

********************77.249

********************87.623

**********************99.390

**********************60.040

*****************68.909

****************79.089

****************90.772

******************104.181

****************Total*Aircraft*Active*in*Service

5712.23931%

10.40341%13.4632%

63.902*****************

70.550****************

77.889****************

85.993******************

94.939******************

63.902********************

71.723********************

80.501********************

90.354**********************

101.413*********************

63.902*****************

72.505****************

82.267****************

93.342******************

105.909****************

Percentage*Active91.58%

1.06020%0.90117%

1.1662%0.946

*******************0.955

******************0.963

******************0.972

********************0.981

********************0.946

**********************0.956

**********************0.966

**********************0.977

************************0.987

************************0.946

*******************0.957

******************0.968

******************0.980

********************0.991

********************Average*Departure*per*Aircraft*Per*Day

2.60W1.47123%

W1.69191%W1.3241%

2.699*******************

2.653******************

2.608******************

2.564********************

2.521********************

2.699**********************

2.659**********************

2.620**********************

2.581************************

2.543************************

2.699*******************

2.663******************

2.628******************

2.593********************

2.559********************

Fuel*Consumed*(In*Thousands)107,616

10.26065%11.79974%

10.2606%123,732.300

********138,332.393

********154,655.260

********172,904.183

**********193,306.432

**********123,732.300

************136,428.033

************150,426.431

************165,861.154

**************182,879.580

**************123,732.300

*********136,428.033

********150,426.431

********165,861.154

**********182,879.580

**********Average*Cost*Per*Gallon

3.07$*********

5.94540%8.91810%

5.3509%2.552

*******************2.780

******************3.028

******************3.298

********************3.592

********************2.552

**********************2.704

**********************2.865

**********************3.035

************************3.215

************************2.552

*******************2.689

******************2.833

******************2.984

********************3.144

********************

Savings

In this w

orkbook the information given by A

llegiant Air is used to calculate the cost and savings of the new

A319 A

llegiant

will be using. This is com

bined with the potential sale or leasing of A

llegiants MD

-80s to show the profit that can be achieved by

homogenizing the fleet.

Marketing of Allegiant

In this workbook, with the heading “Market Share as of 2012,” the market share of

Allegiants profits dedicated on Las Vegas are given. It indicates that there should be a shift in

marketing to other destinations. Also in this workbook the ancillary profits are given per

passenger and the growth of these products over the past 3 years.

! 23!

References

Allegiant Airlines (2012, November 15). 8-K Report. Retrieved November 16, 2012, from

http://ir.allegiantair.com/sec.cfm

Allegiant Airlines (2012, November 15). 10-K Report. Retrieved November 16, 201, from

http://ir.allegiantair.com/sec.cfm

CAPA (2012, August 31). Allegiant Air enters into nine lease agreements with GECAS covering

nine A319 deliveries. Retrieved November 15, 2012, from

http://centreforaviation.com/news/allegiant-air-enters-into-nine-lease-agreements-with-

gecas-covering-nine-a319-deliveries-172490

Expedia (2012). Route and Fee Comparison. Retrieved November 12, 2012 from

http://www.expedia.com/

Gilbertson, Dawn (2012). Allegiant. Retrieved November 6, 2012, from

http://www.azcentral.com/travel/articles/2012/08/21/20120821allegiant-plans-hawaii-

flights-from-phoenix-mesa-gateway.html

Hargreaves, Steve (2012, June 1). Airlines seek to slash fuel costs. Retrieved November 7,

2012, from http://money.cnn.com/2012/06/01/news/economy/airlines-fuel/index.htm

Sheldon, Scott (2011). 2011 Annual Report. Retrieved November 15, 2012, from

http://files.shareholder.com/downloads/ALGT/2159638529x0x569210/176ABE89-C407-

45D0-AF22-FFB9F67E1CFF/2011_Allegiant__Annual__Report.pdf

US Securities and Exchange Commission (2012, September 28). Allegiant Form 10-K.

Retrieved November 12, 2012, from

http://www.sec.gov/Archives/edgar/data/1362468/000143774912001771/allegiant_10k-

123111.htm

US Securities and Exchange Commission (2011). SkyWest, Inc. Form 10-K. Retrieved

November 11, 2012, from http://inc.skywest.com/invest/Annual%20Reports/10k-

2011.pdf

Velotta, Richard (2012, August 27). Allegiant Air's new planes bring new plans. Retrieved

November 15, 2012, from http://www.vegasinc.com/news/2012/aug/27/new-planes-

bring-new-plans/

Word Count - 5618