Allegiant Is Diversifying and Wall Street Doesn’t Like It
In 2017, Allegiant was the world’s third most profitable airline by operating margin, behind only Ryanair and Hawaiian Airlines. The year before, it was No. 1. Allegiant’s 18% operating margin in the first half of this year shows it hasn’t lost its touch. Why, then, did the airline’s stock hit a 52-week low last week?
In a word: Sunseeker. That’s a new hotel/condo resort Allegiant is building in southwest Florida near Punta Gorda airport, which happens to be its fourth busiest airport, ranked (according to Diio Mi data) by seats scheduled this year. At an event the company hosted for investors last week, Sunseeker was the chief topic, with management explaining its justification for the venture, why it thinks it will succeed and how it plans to pay for it. Many seemed to leave with the same concerns they had when they arrived—that Sunseeker could distract from Allegiant’s core business: running a highly profitable airline.
Before even getting into its lengthy presentation about Sunseeker, Allegiant emphasized to investors that the airline business remains the “driver of this organization” and “job number one.” That won’t change, it insists. And indeed, the airline is doing well, having just posted its 62nd consecutive quarterly profit in the April-to-June period. Its 17% Q2 operating margin was, in fact, the best among U.S. carriers, reflecting a lot that’s still going right despite a tumultuous past few years of battles with labor unions, operational distress, aircraft delivery delays, higher fuel costs, a costly fleet transition, high executive turnover and high-profile media stories questioning its safety record. In announcing its Q2 results in July, moreover, Allegiant lowered its full-year forecast for earnings per share, reflecting higher-than-expected …
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