Allegiant Air, the Las Vegas-based ultra-low-cost carrier (ULCC), continues to face headwinds as delivery delays for its eagerly awaited Boeing 737 MAX aircraft stretch further into the future. The ULCC announced its order for 50 737-7s and 737-8-200s plus options for 50 additional jets in early 2022, before expanding those options to 80 and converting six -7 positions to the -8-200 variant in Q3 2023.
Previously expecting to place the new jets into service in the first half of 2024, Allegiant has been compelled to adjust its timeline, with the inaugural Boeing 737-8-200 now expected to enter revenue service during the third quarter (Q3) of 2024. This adjustment was shared with investors during a recent earnings call, where CFO Robert Neal stated, “This estimate is not based on guidance from Boeing but rather represents our best estimate based on information available to us today.”
At the time of its last earnings call in February, the carrier was anticipating its first MAX in late March or early April, an aircraft it says is still awaiting U.S. FAA inspection. The FAA has been inspecting and issuing final airworthiness certificates for all 737 MAXs since the fleet was ungrounded in December 2020. Allegiant’s first MAX is not only a new type for the operator, but also the first 737-8-200 being delivered to a U.S. operator.
Allegiant has since slashed its delivery expectations, now projecting to receive just six MAX jets by the end of 2024, down from an initial twelve. The ramifications of the delays are tangible; Allegiant has trimmed its full-year capacity guide by one point, now aiming to upsize by only 3% over 2023. The financial strain is significant, with the company incurring preparation costs such as pilot training and network planning, which President Greg Anderson quantified as “material headwinds at a current run rate of roughly $30 million annually to operating income.”
The broader impact on Allegiant’s financial health is visible. In the first quarter of 2024, the company experienced a dip in airline operating revenue year over year and reported a net loss of $919,000. The adjusted airline-only operating margin that could have been approximately 13%, had it not been for the MAX delivery delays, among other factors, hovered around 6%.
An in-service MAX fleet operating at scale will be a key driver in returning to industry-leading margins, Anderson said. It will also require an increase in peak flying—still 20% below 2019 levels—but with improved pilot hiring and attrition levels now allowing for full restoration by 2025. Implementation of its Navitaire reservation system will also contribute, he said, an upgrade offering “critical new features over our legacy homegrown system,” including the ability for international expansion.
CEO Maurice Gallagher exuded a cautiously optimistic outlook, projecting that “the airline problems we are currently experiencing can be addressed for the most part during the remainder of this year and into 2025.” By then, the airline aims to be “hitting our stride,” with an expected airline-only operating margin of 7%-9% in Q2 and earnings per share of $1.25-$1.75, excluding special charges.
Relevant articles:
– Allegiant Air’s First Boeing 737 MAX Delayed Again , Aviation Week, 05/08/2024
– Boeing 737 delivery delays further hinder Allegiant’s growth and pressure finances, Flightglobal, 05/07/2024
– Allegiant reports rare loss in 1st quarter, Las Vegas Review-Journal, 05/07/2024
– The Daily Boeing: key stories for 6 May 2024, AirInsight, 05/06/2024
– Spirit AeroSystems’ losses pile up amid Airbus and Boeing programme troubles, Flightglobal, 05/07/2024