How Damaging Will a 60 Minutes Report Be to Allegiant Air?

Allegiant Air on Monday fought back against a potentially damaging television news story about its operations, saying a 60 Minutes report on Sunday produced a “one-sided narrative by cherry-picking interviews ignoring publicly-available facts.”

But investors have shunned the airline’s stock, pushing it down more than 12 percent since Thursday, as travelers have questioned on social media and elsewhere whether they should continuing flying the discount airline.

The 60 Minutes segment highlighted safety issues at the airline, focusing on a slew of miscues, including mid-air engine failures, smoke and fumes in the cabin, rapid descents, flight control malfunctions, hydraulic leaks and aborted takeoffs. During a less than two-year period, ending in October, Allegiant Air reported more than 100 serious mechanical incidents to the Federal Aviation Administration, while its aircraft made 60 unscheduled landings and reported 46 in-flight emergencies, according to 60 Minutes.

The mechanical issues plaguing Allegiant were well-known before in aviation circles and had been reported on, including by Skift. But the 60 Minutes report suggested the U.S. discount airline, which flew about 12 million passengers last year, mainly from smaller cities to popular vacation destinations, such as Las Vegas and Orlando, has a culture that may prioritize profits over safety. Few airlines anywhere in the world have lower costs — or higher profits — than Allegiant.

Both the airline and the FAA, which was criticized in the segment for not cracking down on Allegiant, on Monday tried to assure passengers Allegiant is safe.

“The FAA exercises rigorous oversight of Allegiant, as they do all airlines operating in the United States,” Allegiant said in a statement. “Allegiant complies with all FAA requirements and participates in numerous voluntary safety programs to ensure we operate to the highest standards.

The FAA, meanwhile, said in a statement that it had “engaged” in 48 compliance actions against Allegiant Air “in which we investigated violations and ensured the carrier took corrective action.” It added, “the FAA conducts ongoing evaluations of Allegiant’s safety compliance, as it does with all carriers, and has not identified any significant or systemic problems with the carrier’s current operation.”

There’s no doubt the report was a stinging critique of the airline, and it will almost certainly have short-term consequences on the carrier’s revenues. But several investment analysts who follow the stock closely said they don’t expect long-term repercussions, predicting customers will return. And some noted the airline has focused more on maintenance in the past year, while it has been upgrading its fleet to add more Airbus jets.

Hunter Keay, an analyst at Wolfe Research, said he is “cautiously optimistic this will blow over,” but he acknowledged, “there is little doubt among those who know Allegiant that Allegiant has made mistakes in the past with aircraft maintenance practices and oversight, underspending and mis-staffing people.”

But while this might be old news to analysts, customers — or potential customers — may not follow the airline so closely, and may have new questions after watching the report on the popular news program. Here’s our take on potential fallout from the 60 Minutes piece.

 Did it cover any new ground?

Not really, but that doesn’t make it any less true, or less damaging to the airline.

Industry insiders have long known about potential safety problems at Allegiant, and other reporters have investigated the airline, and made public similar findings. But none carry the same prestige, or have nationwide reach, as 60 Minutes.

In November, 2016, three Tampa Bay Times reporters wrote a highly detailed piece called, “Breakdown at 30,000 Feet” that found Allegiant’s planes were four times more likely to fail as aircraft operated by major U.S. carriers, like Delta Air Lines, American Airlines and United Airlines. Their report found that, in 2015 alone, the airline made 77 unexpected landings for “serious mechanical failures.” St. Petersburg, Florida, where the newspaper is based, is a major focus city for Allegiant.

Most of the serious incidents in the CBS story — like Allegiant Flight 533 last year, which suffered an engine failure, causing smoke in the cabin— have been covered in some form. But often, they’ve been local news, so travelers elsewhere have not been able to piece together a complete picture. If the unscheduled landing didn’t happen in their city, they may have missed it.

Local news did cover Flight 533, but it didn’t go viral. One network affiliate television station produced a short piece saying the aircraft “experienced a mechanical issue with the right hand engine.” But 60 Minutes interviewed passengers, who described it as a frightening ordeal. One woman told Kroft she texted her husband to say, “If something happens, just know that I’ve been very happy. And I love you.”

Other stuff, though, is less visible to passengers and has been in the news less often. For example, the pilot union president, who does not work at Allegiant, told Kroft the airline tries to keep pilots from reporting mechanical issues when possible. Allegiant disputed the allegation.

Is the Federal Government Taking action?

Not exactly.

Despite all of the problems uncovered by CBS and the other reporters, federal regulators have not cracked down on the airline, at least publicly.  A 2016 report from the Tampa Bay Times found the FAA had repeatedly decided not to fine Allegiant even when it uncovered serious problems with the carrier’s record.

“FAA inspectors didn’t even interview a pilot who was fired for ordering the evacuation of a plane in St. Petersburg in June 2015, even though such firings can be a signal of a corporate culture in need of scrutiny,” the newspaper noted. (CBS also spent significant time on this issue, also wondering why the pilot was fired, and noting he had sued the airline.)

Allegiant didn’t put anyone on camera to address the allegations, but in a statement, it noted that a recent FAA audit found it had a strong safety record.

However, CBS said that might be due to a change in FAA priorities.

“Over the last three years, the FAA has switched its priorities from actively enforcing safety rules with fines, warning letters and sanctions-which become part of the public record-to working quietly with the airlines behind the scenes to fix the problems,” Kroft said. “It may well be what’s allowed Allegiant to fly under the radar.”

The FAA, however, disputed allegations it has not been tough enough on Allegiant. In a letter to CBS, shared with Skift by the FAA, Ali Bahrami, assistant administrator for aviation safety said the agency, “is vigilant in scrutinizing the operations of all airlines.” He noted Allegiant has received more attention from the carrier in recent years, with the FAA moving up a planned 2018 scheduled review to 2016. The FAA, the letter said, typically steps up oversight when airlines have labor or economic troubles.

“This review did not find any systematic safety or regulatory problems, but did identify a number of less serious issues, which Allegiant addressed,” he said. Since then, he added, the FAA has conducted ongoing safety evaluations and found no “significant or systematic problem,” with Allegiant’s operations.

Will Allegiant Lose Business From the Story?

Hard to say, and that’s because of the airline’s highly unusual business model. Travelers almost always choose Allegiant for one of two reasons — it’s the cheapest (often by far), or it’s the only airline with a nonstop flight.

Allegiant has become one of the world’s most profitable airlines because it rarely competes with other carriers on nonstop routes. Sometimes passengers have other options, but they need to connect at a big hub and pay high prices. Other times, Allegiant’s the only carrier serving an airport, and there are no alternatives, other than driving two other three hours to a larger airport.

Its unusual routes include Sioux Falls, South Dakota to Las Vegas, and St. Cloud, Minnesota to St. Petersburg, Florida.

Travelers might be spooked by the 60 Minutes report, or they just might keep flying Allegiant as always, calculating that there’s no better alternative when you live in Laredo, Texas or Owensboro, Kentucky.

In a note after watching the segment, analyst Daniel McKenzie of Buckingham Research Group said he does not expect many customers to choose other airlines over Allegiant. “Price and schedule are the primary motivators for the travel purchase decision,” he said.

CBS Suggests Industry Insiders Don’t Fly Allegiant: Is it True?

Toward the end of the piece, aviation attorney Loretta Alkalay told Kroft she doesn’t know anyone in the industry who flies Allegiant. “I know that a lot of people talk about how they don’t fly Allegiant, so it’s very concerning. I know people that worked at the FAA who say they would never fly Allegiant.”

That’s a hyperbolic statement, but there’s some truth to it. Insiders do talk about avoiding Allegiant — it’s a bit of an open secret.

In this aspect, Allegiant is unique. Insiders might not love flying on other discount airlines because seat pitch can be tight, but they generally don’t have safety concerns about any other U.S. carrier.

Is Allegiant Getting Better?

It seems so, but perhaps not fast enough.

As the 60 Minutes story noted, nearly 30 percent of Allegiant’s aircraft are second-hand MD-80s, an older jet that’s difficult to maintain, partly because it’s tough to find spare parts. Allegiant has been retiring the jets in favor of new and used Airbus A319s and A320s that are more reliable. Allegiant expects to stop flying the MD80 by year-end.

There’s also the matter of employee relations. There’s little doubt Allegiant has reliability issues, but for several years they were compounded by the carrier’s poor relations with its pilot union. Company officials often said privately the union was trying to embarrass management as negotiations on a new contract dragged on. But in July, 2016, pilots ratified a contract that gave them a big pay raise, and some of the saber-rattling abated.

Will the Stock Get Pummeled?

Who can guess with public markets? But the stock will probably be OK.

Allegiant stock, which has been among the best performing in the U.S. industry for many years — investors love the model — fell almost 9 precent on Friday, in anticipation of the 60 Minutes report. But in the first few hours after the report on Sunday, it gained slightly in after-hours trading. (Shares closed down 3 percent on Monday, on top of a drop on Friday when reports of the upcoming 60 Minutes report first surfaced.)

In a report published before the segment aired, Stifel analyst Joseph DiNardi said he expected Allegiant would be fine, so long as there was no “smoking gun.”

“It would seem the primary risk associated with the 60 Minutes segment is negative publicity and a dampening in demand for Allegiant,” he said. “Given that United saw no material impact from its own PR challenges, we view the risk that customers avoid Allegiant as pretty manageable and helped by the fact that Allegiant doesn’t face direct competition on roughly 80 percent of its routes.

This story was updated to include Allegiant’s share price on Monday morning following the 60 Minutes report. It was also updated to include a response from the FAA, and to add comment from Daniel McKenzie of Buckingham Research Group.