During Allegiant Air’s Q1 earnings call on May 12th, airline executives disclosed plans to park 10-15 aircraft. However, at the same time, the carrier says that it is preparing itself to purchase second-hand A320s and A319s (and engines) later this year, citing opportunities created due to the current aviation situation.
“It’s my belief we will begin to see numbers of older 320s and 319s [and] their motors available as part [of] opportunities in the not-too-distant future, and prices will begin to react accordingly. Furthermore, we will be one of the few players, I believe, in the market with the wherewithal to purchase these assets.” -Maury Gallagher, Chairman and Chief Executive Officer, Allegiant Air via Motley Fool
Making the most of the situation
From Gallagher’s words, it is clear that the low-cost US carrier is looking to capitalize on the downturn in the global aviation sector. Indeed, with so many airlines anticipating a two to three-year recovery to 2019 levels of travel, few airlines out there are shopping for additional aircraft to add to their fleet. In fact, in addition to parking and storing existing aircraft, some airlines are opting to either retire their aircraft or return them to lessors.
It is because of this trend that Allegiant’s leadership sees an opportunity. With many airline fleets shrinking in the short term, there should be an oversupply of used aircraft. With normal market forces at-play, an oversupply with low demand should equate to some good deals and discount prices.
Gallagher also adds that US carriers have had to park over 2,500 aircraft. In the space of 30 to 60 days, he says, a once robust seller’s market for airplanes and equipment of the sort has been turned upside down.
“As a result, we’ll be able to exploit one of our core competencies, our ability to trade into the aircraft marketplace. We have a long history in trading used aircraft.” -Maury Gallagher, Chairman and Chief Executive Officer, Allegiant Air via Motley Fool
The airline aims to grow or take advantage of opportunities, believing that there will be “a wide variety of reasonably priced aircraft” that can be purchased.
CEO optimistic for the airline
Maury Gallagher is optimistic about the prospects of his airline, believing that the carrier’s small size allows it more flexibility. The airline asserts that it was early in reacting to the COVID-19 situation and was able to quickly reduce its expenses and capital investments. It got to work making deals with vendors to delay payables while also renegotiating these relationships. Furthermore, the airline has had approximately 25% of its team members participating in some form of pay reduction program.
The airline’s parent company, Allegiant Travel, also quickly halted all construction expenditures on its Sunseeker Resort project.
Reassuring investors, Gallagher reminded them that he remains the largest shareholder in Allegiant Travel, with a nearly 20% position. He added,
“We are still the same hard-nosed disciplined company and industry leader you’re used to seeing. We are rightsizing the company. We are managing expenses and capital outlays. We have sufficient liquidity. Our flexibility in managing capacity continues to pay dividends. 80% of our markets do not have any competition. We will continue these traditions.”
Do you think Allegiant’s plan to purchase used A320s later this year is a smart move? Or should they be saving that cash? Let us know in the comments.