Allegiant CEO makes case for low-cost airline model as Sun Country acquisition closes

Allegiant CEO makes case for low-cost airline model as Sun Country acquisition closes

• Allegiant's acquisition of rival low-cost airline Sun Country closed on Wednesday.
• The airlines announced a $1.5 billion cash and stock agreement, including debt, in January.
• Allegiant CEO Greg Anderson, who will lead the combined company, told CNBC that the carrier has been even more prudent about capacity as fuel prices have spiked.

Allegiant Travel Co.'s acquisition of Sun Country Airlines closed on Wednesday, and the chief executive of the combined company, Greg Anderson, said Allegiant Air will continue to stand out despite industry turmoil, including a surge in jet fuel costs.

"Our model was built to protect margins and not chase growth," Anderson said in an interview with CNBC.

The Las Vegas-based airline announced its $1.5 billion cash and stock agreement, including debt, to buy Minneapolis-based Sun Country in January. The brands and booking portals will remain separate, for now.

The combined carrier, which Allegiant said will serve about 175 cities with over 650 routes, will continue to be surgical about capacity growth, Anderson said. He said that strategy has insulated the airlines from some of the trouble that other low-cost airlines have faced.

Allegiant's plan includes ramping up service during peak travel periods, like in the summer or over spring break, and then dialing that back on Tuesdays and Wednesdays in lower-demand weeks, selling more seats to customers at times when the airline could have more pricing power, Anderson said.

"For example, we'll pull capacity back and really park a lot of fleet on a Tuesday in September," he said.

Allegiant and Sun Country have focused on cost-conscious travelers, connecting smaller cities to vacation destinations. Sun Country also flies cargo for Amazon.

Anderson said demand continues to be robust, even from the carrier's more budget-minded leisure customers, despite the spike in jet fuel costs. The industry is facing billions of dollars in added costs from expensive jet fuel that has roughly doubled since U.S.-Israel attacks on Iran began in February. Jet fuel is typically airlines' second-biggest cost after labor, and carriers have been hiking fares to pass along the cost to customers.

The Association of Value Airlines, of which both Allegiant and Sun Country are members, last month said it asked the Trump administration for $2.5 billion to offset high fuel charges, but Transportation Secretary Sean Duffy has said he didn't think it was necessary.

Allegiant reported a $42.5 million profit for the first quarter, up 32% from a year earlier.

"It shows you some low-cost models can work," said Raymond James airline analyst Savanthi Syth.

The close of the acquisition comes just weeks after once fast-growing budget carrier Spirit Airlines shut down in the biggest U.S. airline collapse in a generation.

Allegiant hasn't disclosed financial estimates for the combined company, but said late last month it expects to cut its capacity 6.5% in the second quarter compared with last year and that third-quarter capacity would be flat to slightly lower than last year.

Smaller budget and leisure-focused airlines are dwarfed by larger competitors Delta Air Lines, American Airlines, United Airlines and Southwest Airlines, which together have a roughly 80% domestic market share in the U.S., according to federal data.

Read more CNBC airline news

• Spirit starts monthslong process of dismantling airline after biggest collapse in a generation
• 'Godspeed my friend': Inside the final hours of Spirit Airlines
• United Airlines CEO confirms he approached American Airlines about merger
• U.S. airlines are hiking fares — and travelers keep booking

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