US low-fare carrier Allegiant Air says its decision to add a third aircraft type into its fleet will not mark the end of its McDonnell Douglas MD-80 operations but will allow it to expand its network into new markets that were not previously on its radar due to the enhanced operational performance of its second-hand Airbus A319s.
The airline has agreed two deals to acquire a total of 19 Airbus A319s for delivery between the fourth quarter of this year to the second quarter of 2015. Nine aircraft are being acquired on eight-year operating leases from GE Capital Aviation Services (GECAS) and ten additional examples on five-year capital leases. The GECAS machines are currently all in service with easyJet, while the ten additional aircraft are flying with Cebu Pacific in the Philippines.
Allegiant Air expects to launch passengers operations with the first of the A319s in the second quarter of 2013, although the first aircraft are due for delivery this year. It expects to place six jets into operation in 2013, seven in 2014 and the last six in 2015 but confirms it is “actively evaluating additional transactions”, including potential deals for larger A320s, its senior management confirms.
The airline has taken advantage of what it describes as “deteriorating values” in the second-hand market to finalise these deals. It is currently seeking aircraft in the 150-seat plus category and would probably have preferred a similar deal for larger A320 equipment but acknowledged that rates remain slightly above what they perceive necessary for the company to commit to the aircraft type. However, Allegiant President Andrew C Levy believes rates will continue to decline to make this an affordable future investment.
Allegiant Air says “incremental capital for new aircraft could not be justified,” but with large sisterships available in the second hand market, particularly from low-cost ventures such as easyJet in the UK, now was a good time to begin what is expected to be an eventual longer-term fleet rollover from the McDonnell Douglas MD-80 series to the Airbus A320 Family. According to Allegiant over 350 used aircraft will be available in the next 24 months.
The 156-seat A319s will be used to fly transcontinental routes linking the airline’s Las Vegas base with destinations on the US East Coast as well as serving destinations in Florida from across the country. It will also support a network expansion across the US and growth into Mexico and Canada where the enhanced hot & high and short filed performance of the aircraft and increased range (3,600nm versus 1,400nm for the MD-80) will bring opportunities.
Allegiant Air says that although there will be moderately higher fixed costs associated with adding the A319s there is reduced variable costs and as such “some MD-80 marginal flying can be very profitable with the A319”. The new type will offer considerable reductions in trip and seat mile costs with fuel approximately 25 per cent lower per block hour, maintenance 40 per cent lower per block hour than the MD-80, according to the carrier.
In an analysis Allegiant Air claims that based on a $3.25 fuel cost, a 90 per cent load factor and a utilisation of 8.9 hours per day the A319s will cost around $96 per passenger to operate against $106 for the MD-80. This includes an $11 reduction in fuel costs per passenger; something of significant importance due to the volatility of fuel prices.
Andrew C Levy says the asset values for the A319 now mirror the environment the company saw when it first began buying MD-80s and although their arrival will be an initial challenge for the airline, he says economics dictate this added complexity is worthwhile. The ‘new’ aircraft will operate alongside the carrier’s 58 MD-80s, although its only two 130-seat MD-87s will be retired in the first and second quarters of 2013 ahead of expensive maintenance checks. Allegiant Air says it has “no firm plans” at this time to retire more MD-80s having recently converted 29 examples to a denser 166-seat configuration.
Alongside the MD-80s and A319s, Allegiant Air also operates the Boeing 757-200 a type which is well suited to its new services to Hawaii. The airline currently has four of the 223-seat aircraft in service with two others currently leased out to a UK carrier and due to return in the first quarter of next year. Like the A319s, these are all sisterships providing type commonality and Allegiant sees a potential to grow the fleet size between 2013 and 2015 to expand the Hawaii operation and for other possible long-haul missions.
These announced plans mean the Allegiant Air in-service fleet will grow from 62 aircraft this year to 71 at the end of 2013, 76 at the end of 2014 and 81 at the end of 2015. This will mean that the carrier will report scheduled ASM growth of between 20 and 25 per cent for the current year and 2013.
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