Which Is the Most Profitable Airline in the United States?

Before I answer the question of which is the most profitable airline in the United States, I first want to post a quote from a comment FlyerTalk member craz posted in the article at The Gate pertaining to the new change fees which general members of the United Airlines MileagePlus frequent flier loyalty program must now pay if they want to change or cancel their award tickets:

“I will be flamed but I dont blame UA or the other carriers. They arent in biz to simply give everyone who cant afford a tkt a free ride or a free Intl Premium cabin tkt.

“If they arent making any money selling the tkts themselves then they finally realize the only place they will make any money is in accessing FEES. We may not like it but its the sign of the future.

“I wouldnt be surprised to see alot more Spiriting going on , going forward. As much as we all HATE Spirit they are profitable and for a biz thats really all that counts. There is a max amount of air you can put into a balloon before it pops”

Despite how well it is doing, the answer to which is the most profitable airline in the United States is not Delta Air Lines. American Airlines is technically still under bankruptcy protection, so that is not the correct airline. If you guessed Southwest Airlines, sorry — no cigar for you.

Ladies and gentlemen — I present to you the most profitable airline in the United States:

A McDonnell Douglas MD-82 aircraft operated by Allegiant Air pulls into the gate in Las Vegas for flight 564 to Eugene on May 3, 2012. Photograph by FlyerTalk member Carfield. Click on the photograph for a trip report written by Carfield.

Allegiant Air.

Who?!?

According to an article written by Jack Nicas of The Wall Street Journal, this 16-year-old carrier based near Las Vegas which operates a fleet of 68 aircraft to such destinations as Bellingham, Punta Gorda and Myrtle Beach has profit margins before taxes of 18.5 percent on $909 million for the first quarter of 2013 — well ahead of Spirit Airlines in second place at 13.4 percent, Alaska Airlines at 5.2 percent and Southwest Airlines at only 2.3 percent.

Delta Air Lines is at zero percent, while United Airlines is at -4.9 percent.

The strategy of being the hometown airline of small towns and cities across the United States has led to profits for Allegiant Air in 39 of its last 41 financial quarters. Why? Among other reasons cited — such as bankruptcies, soaring fuel prices and the consolidation of airlines — is because so-called legacy airlines have been cutting back on service to smaller destinations. Take for example the recent announcement by Delta Air Lines that Memphis will no longer be a hub — which translates into the discontinuation of service of flights from Memphis to airports serving smaller towns and cities such as Jackson in Mississippi and Little Rock and Northwest Arkansas Regional Airports.

Swooping in to fill this vacuum comes Allegiant Air, serving cities such as Casper, Rockford, Minot, Bangor, Toledo and Stockton — and the profits are following because the network of Allegiant Air faces competition on only 17 of its 203 routes with low airfares to 14 destinations located in warmer climates, such as Honolulu, Phoenix, Las Vegas, Tampa and Orlando.

However, Allegiant Air is not shy about leaving an airport in limbo by discontinuing service if the profits do not meet expectations — such as when it ended service to Roberts Field-Redmond Municipal Airport in Oregon last year.

Wait a minute — if it has no competition on approximately 91.6 percent of its routes, why is it charging low airfares and yet operating at a profit?

The answer is two words: ancillary fees.

I posted an article last month pertaining to the profitability of Spirit Airlines — owed in part to revenue from ancillary fees charged to its customers. Allegiant Air — arguably the worst in the United States when it comes to charging ancillary fees on just about everything from bags carried onto the aircraft to space in the overhead bins — is performing even better than Spirit Airlines financially. Even its stock price reflects its good fortunes: the stock reached a new 52-week high of $105.41 per share earlier this week — closing in on doubling your investment from nine months ago had you purchased shares of Allegiant Air on September 17, 2013 for $62.99 per share.

In five years, the stock price of Allegiant Air increased by greater than 360 percent — countering those who profess the foolishness of investing in airline stocks.

A secondary reason as to why Allegiant Air is profitable is because flights only operate when there is enough demand to pay for the fuel voraciously consumed by its older aircraft, which the airline owns outright with no payments. Imagine the profits if the aircraft were newer and more efficient with the consumption of fuel without Allegiant Air owing any payments.

Is it any wonder that both Delta Air Lines and United Airlines have introduced revenue-based components for its frequent flier loyalty programs, as well as increased existing fees and introduced new fees?

Apparently, the experience of traveling on such airlines as Allegiant Air and Spirit Airlines is just fine when nothing goes wrong — if you are fortunate. FlyerTalk member MileageAddict decided to be a passenger on Spirit Airlines “just for fun” — to the chagrin of some other FlyerTalk members — traveling between Washington, D.C. and Myrtle Beach and had a positive and inexpensive experience.

Is Allegiant Air the wave of the future?

You may hope not. In 2012, Allegiant Air had the worst on-time rating of any airline in the United States with greater than 30 percent of its flights being delayed…

…although some passengers would be thrilled with a delay — as opposed to being stranded. Consider the stranding of passengers at the airport in Honolulu in March of 2013 for as long as 72 hours, or the closing of the counter 45 minutes before the departure of a flight which left passengers stranded, or the stranding of passengers on a flight from Las Vegas to Peoria in Rockford where they were reportedly offered a choice to fly back to Las Vegas to try to catch a flight later in the week or find their own way to Peoria from Rockford.

Allegiant Air is apparently not in the radar of Consumer Reports or J.D. Power and Associates in terms of customer satisfaction as compared amongst airlines in the United States, as reported in an article written by Gerry Wingenbach of The Tarmac. Consider reading about the experience of FlyerTalk member Tizzette on how Allegiant Air does things, a trip report by FlyerTalk member RustyC, a rant by FlyerTalk member windsmith, or a trip report by FlyerTalk member Kevin AA if you are still undecided about Allegiant Air.

Comparing the strategy and business model of Allegiant Air to more familiar airlines such as US Airways and Southwest Airlines may indeed be considered comparing apples to oranges. However, you cannot argue with success — and in the business world, financial success is paramount. Do not be surprised to find airlines stealing a page or two from the book of Allegiant Air in the future to bolster their own bottom lines — although I hope that their service to customers does not significantly erode as a result.

What are your thoughts? Do you agree with FlyerTalk member craz? Can legacy airlines ever hope to even come close to achieving the profitability of Allegiant Air and Spirit Airlines without sacrificing on customer service and other benefits and amenities which set them apart from the low-cost carriers?

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Comments (Showing 8 of 8)

  • […] the most profitable airline? Spirit Air you say? (that would have been my guess). Nope. How about Allegiant Air. Interesting article at the Gate. I am so glad I have not flown both of these airlines yet but the trend is on their […]

  • PainCorp at 12:23am June 22, 2013

    I flew Allegiant once, I swore I wouldn’t do it again, but lately UA has been making their service seem adequate in comparison, for a much cheaper price.

  • ftv at 9:21am June 22, 2013

    Allegiant is in shambles. Notice they never acknowledged how they poisened an entire planeload of passengers by tainting the drinking water with the “Blue Jiuce” in the toilets, not how they fired a flight attendant for, when she drank coffee made with the water, became violently ill.

  • seanthepilot at 5:37am June 24, 2013

    I want to go back to your point about owning the (less fuel efficient) planes outright.

    With no carrying costs, lease, or interest, their monthly overhead must be so much lower than any other airline. Even when you add in the extra costs of being less fuel efficient, the net present value of running paid planes over efficient ones must be the difference, not ancillary fees.

    What do you think?

    • Brian Cohen at 9:49am June 24, 2013

      I would have to agree with you, seanthepilot. The first thing about which I thought when I read your comment is how much I would like to install solar power to my home to save money on electricity and perhaps power an electric car to same money on gasoline — but the initial costs and expenses usually override any cost savings without seeing a return on investment for many years, if ever.
      I am not sure that is an appropriate analogy, but that was what I first thought.
      However — as I mentioned in the article — imagine how much more profitable Allegiant Air could be if it was able to operate newer, more fuel-efficient aircraft with no carrying costs, lease payments, interest or other expenses typically associated with operating newer aircraft.

  • BearX220 at 9:53am June 25, 2013

    It’s more like owning your house and care outright, so you have no continuing costs for basic shelter and transport. We’d all have more “profitable” households in that case.

  • seanthepilot at 10:50pm June 25, 2013

    It’s my theory that this is exactly why the legacy carriers are rarely profitable. They continue to re-install all those solar panels over and over again, replacing the new ones before the old ones are paid off.

    I think that ancillary fees are a distraction to their inability to make proper business decisions in other areas of operation.

  • […] The next available flight home for the family was two days later because Allegiant Air has a limited number of routes. The family was accommodated by the airline — which was in direct contact with the family — and has offered their apologies for the negative experience and the inconvenience, according to a spokesperson for Allegiant Air. […]

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