Allegiant Travel (ALGT) is the ninth largest commercial carrier based in the U.S. ALGT focuses on connecting small- and medium-sized cities with vacation destinations, and the airline is celebrated for offering lower-than-average fares on nonstop flights.
The airline industry was disrupted due to the coronavirus pandemic and ALGT was no exception. It carried 8.5 million passengers in 2020, a 42.3% decline from the 14.8 million carried in 2019. However, management is confident the worst of the pandemic is behind it. Drew Wells, Vice President of Revenue, recently noted the year-end holiday travel season saw an acceleration in demand, and added that ALGT was “encouraged by favorable forward booking trends as flight volumes begin to pick up mid-February and into peak Spring Break travel.”
ALGT is looking ahead into 2021 with gusto. Yesterday, the Las Vegas-based carrier announced 21 new routes that will take off by mid-2021, including three new destinations (Portland, Key West, and Jackson Hole). Eight of these new routes were originally scheduled to start last year, but were delayed due to the pandemic.
ALGT was founded in 1997 and had its initial public offering in December 2006, when its stock began trading at $18.00.
Here’s how our proprietary POWR Ratings system evaluates ALGT:
Trade Grade: A
ALGT is trading at $192.76, which is slightly below its 52-week high of $197.13, and far above its 52-week low of $60.06. The stock joined the rest of the market in the March nosedive when the coronavirus pandemic disrupted the economy, but regained its footing and took on a greater ascent in October, following its Q3 earnings report.
Chart Provided by Trading View
Buy & Hold Grade: A
The stock’s proximity to its 52-week high is a key factor that our Buy & Hold Grade considers, and ALGT is coasting close to that high.
In its Q3 earnings report, ALGT announced total revenue for the quarter was $201 million, down 54% percent year-over-year. But the quarter ended on a somewhat encouraging note, as September’s total revenue was down by 42.8%, which marked the lowest monthly reduction since the onset of the pandemic. ALGT’s operating expense in Q3 was $234.1 million, down 35.8% year-over-year on reduced system-wide capacity of 9.4%. The company’s advertising spending was down by a whopping 75% year-over-year, but it also recorded a 17% year-over-year uptick in digital responses to its email marketing and website promotions.
The company also saw its workforce shrink by 300 positions, with reduced management and support teams, while nearly 130 pilots have been furloughed. ALGT anticipated annual savings of nearly $20 million through these actions.
“As we move into the fourth quarter, we remain focused on cash management,” said Chairman and CEO Maurice Gallagher, adding ALGT recorded “average daily gross bookings increase from just over $2 million per day during the third quarter to over $3 million per day thus far in the fourth quarter. On the cost front, we successfully reduced variable operating expenses by nearly 30%, excluding the CARES Act payroll support benefit and one-time special items, which outpaces our reduction in capacity more than threefold. These savings are important in paving the way to cash break-even,” Gallagher continued. “Our cash preservation strategies coupled with strategic capital raises over the last several weeks have contributed to our pro forma cash balance of $850 million.”
Peer Grade: A
ALGT is ranked #1 of out of 27 stocks in the Airlines industry, and it is the industry’s most expensive stock.
Industry Rank: D
Airlines ranks #108 out of 123 stock industries and carries an average POWR Rating of “C.”
Overall POWR Rating: A
ALGT is the only stock in the Airlines category that carries an “A” (Strong Buy) POWR Rating, which is a testament to the company’s perseverance in the face of unprecedented challenges and the faith that investors have placed in its ability to succeed.
ALGT has a history of innovative strategies – consider its transition to an all-Airbus fleet in 2018 that increased its fuel efficiency, a big savings it passed along to customers. By focusing primarily on leisure, rather than business travelers, the company has been better positioned to recover passengers who are eager to break out of lockdown for fun-in-the-sun holidays.
As the coronavirus vaccine becomes more prevalent into the first half of this year, ALGT and the other airlines will be able to return to some degree of pre-pandemic normalcy. But unlike its competition, the stock will be transitioning out the current miasma from a position of solid strength. ALGT is an excellent choice for a portfolio, and it could even get stronger as the year progresses.
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ALGT shares were trading at $188.85 per share on Friday afternoon, down $7.26 (-3.70%). Year-to-date, ALGT has declined -0.21%, versus a 0.83% rise in the benchmark S&P 500 index during the same period.
About the Author: Phil Hall
Phil is an experienced financial journalist responsible for generating original content on the weekly Fairfield County Business Journal and Westchester County Business Journal, plus their respective daily online news sites, podcasts and video interview series. He is the winner of 2018, 2019 and 2020 Connecticut Press Club Awards and 2019 and 2020 Connecticut Society of Professional Journalists Award for editorial output. More...
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