Allegiant Bets on Discipline After Sun Country Deal Closes

As the airline industry is tackling with constantly facing rising costs and uncertainty, Allegiant Travel Company has moved ahead with a major expansion strategy following the completion of its acquisition of Sun Country Airlines.

Not Chasing Growth

The $1.5 billion cash and stock deal officially closed on Wednesday, creating a larger leisure-focused airline group that will serve around 175 cities across more than 650 routes in the United States and select international destinations.

Despite recent turbulence in the airline sector, including soaring jet fuel prices and the collapse of Spirit Airlines earlier this year, Allegiant chief executive officer Greg Anderson said the combined company plans to stay focused on profitability rather than aggressive expansion.

“Our model was built to protect margins and not chase growth,” Anderson said in an interview with CNBC.

The Las Vegas-based carrier believes its strategy of carefully managing flight schedules has helped it avoid some of the struggles facing other low-cost airlines. 

Instead of operating full schedules all year long, Allegiant works by adjusting capacity based on travel demand, boosting flights during particularly busy vacation periods and cutting operations during slower travel days.

“For example, we’ll pull capacity back and really park a lot of fleet on a Tuesday in September,” Anderson explained.

Travel Demand, Going Strong

Both Allegiant and Sun Country have traditionally catered to price conscious leisure travelers by linking smaller cities with popular vacation destinations. Sun Country also brings an additional revenue stream through its cargo partnership with Amazon.

The merger arrives during a difficult period for airlines as fuel prices continue climbing sharply following geopolitical tensions in the Middle East. Jet fuel costs have become one of the biggest financial pressures for airlines, forcing many carriers to raise ticket prices.

Even with those challenges, Anderson said travel demand remains strong, including among budget travelers. Allegiant recently reported a first-quarter profit of $42.5 million, marking a 32% increase compared to the same period last year.

Despite the solid travel demand, a recent JP Morgan analysis indicates that regional casino operators across the country are heading into a softer spring period, according to data pointing to weaker customer traffic in April. 

Proving “How Low-Cost Models Work”

Industry analysts say the new merger highlights how some low-cost airline models are still capable of succeeding in a difficult market environment.

“It shows you some low-cost models can work,” said Raymond James airline analyst Savanthi Syth.

For now the time being, Allegiant and Sun Country will keep operating under separate brands and booking systems. 

The company has also signaled it will remain cautious with growth, expecting capacity to stay flat or slightly lower later this year.