Low-Cost Carrier Allegiant Air Is Interested in Getting Into the Hotel Business

Is Allegiant Air planning to enter the hotel business?

That was the rumor Tuesday on the airline’s first quarter earnings call, when analyst Joseph W. DeNardi of Stifel asked about “discussion” in industry circles that Allegiant was “looking to get into the hotel business, acquiring a property.” He asked what Allegiant’s strategy might be, and how much money Allegiant might spend on an investment.

Allegiant’s top two executives — CEO Maury Gallagher and President John Redmond — declined to confirm DeNardi’s comment, nor would they share share details on what a possible acquisition might entail, or where the hotel might be. But neither told DeNardi he was wrong.

“We have been looking at alternatives and one of the things that we want to do is enhance our ability to get further revenues out of our existing customer base,” Gallagher said. “We have already done a great deal of hotel third party work — so we are looking to enhance that. We are bullish on opportunities that we might be able to tag on.”

Allegiant Air spokeswoman Hilarie Grey declined to share more details. DeNardi was not immediately available to comment.

It likely will be some time before Allegiant shares its strategy with investors, but for the company, entering the hotel business is not far fetched as it seems. In recent years, Allegiant has focused on its air business, but for most of its two decade history, it has been more concerned with selling vacation packages that include rental cars and hotel rooms. The airline is controlled by a company called Allegiant Travel Co., a name Gallagher likes in part because it may help persuade investors the company has revenue opportunities beyond selling plane tickets.

As it has focused more on the airline, Allegiant’s hotel-related business has slowed. Last year, it sold 439,942 room nights to passengers, a 2.7 percent decrease from the previous year, even though Allegiant’s overall passenger count increased by more than 1.6 million passengers, year-over-year. In 2011, when it flew five million fewer passengers than 2016, Allegiant sold 647,716 hotel room nights.

Allegiant has blamed the hotel room drop on a shift in its flying patterns. Until about five years ago, its core business was bringing passengers from smaller markets to Las Vegas and Orlando, where demand for hotel room is strong. But increasingly, it is growing in East Coast markets like Jacksonville, Florida and Memphis, where fewer customers need hotel rooms. (Allegiant has, during this period, still grown its rental car business.)

In September 2016, Gallagher hired Redmond, an ex-Allegiant board member and former CEO of MGM Grand Resorts. Redmond wants Allegiant to add to its third-party revenues and sell more packages to consumers. 

Redmond also demurred Tuesday in answering the hotel-acquisition question, but suggested the company is looking at new opportunities.

“We want to wait until we have had enough time to fully explore all the various leisure options that we have and that we have identified,” he said. “It is going to take some time to determine exactly what kind of action to take, and it would be a mistake to try to articulate something until all of our ideas have been full fleshed out and vetted.”

He told analysts he would share more about Allegiant’s plans by year-end.

“At that point in time, we should be able to properly articulate what that strategy is and why we are going to embark on that strategy and what the related impacts will be,” he said.

Another strong quarter

For the first quarter, Allegiant reported net income of $41.6 million, a decrease of 42 percent year-over-year. Its non-fuel costs were up 11.6 percent, an increase the company blamed on its new labor deal with pilots, its decision to end a surcharge on credit card purchases, and new stock grants to executives.

The first quarter was Allegiant’s 57th consecutive profitable quarter.