By Eric M. Johnson
SEATTLE (Reuters) – U.S. low-cost carrier Allegiant Air confirmed plans on Wednesday to buy 50 new Boeing 737 MAX jets worth $5.5 billion at list prices in a switch of supplier and strategy as it gears up for a post-pandemic rebound in tourism.
The order marks what one analyst, reacting to purchase plans first reported by Reuters on Tuesday, called a stark change of approach by the fast-growing domestic carrier, which had previously relied mainly on used Airbus aircraft.
Allegiant “has experienced one of the strongest recoveries of U.S. airlines,” Jefferies analyst Sheila Kahyaoglu wrote, adding that the order is evidence of post-pandemic confidence in leisure travel “vastly outperforming corporate travel.”
The Las Vegas-based carrier will buy 30 737 MAX 7 aircraft and 20 737 MAX 8-200 aircraft, making it the launch customer for that larger variant in the United States, Chief Financial Officer Greg Anderson told Reuters on Wednesday.
It will take delivery of 10 of the jets in 2023, 24 in 2024, and 16 in 2025, he added in an interview.
The deal is a boost for Boeing Co after two key medium-haul customers, Qantas and several affiliates of Air France-KLM, switched to Airbus in December.
“With this deal, and these new MAX aircraft, it will provide the ability to grow into 400 more routes,” Anderson said.
He declined to name city pairs targeted under the expansion but said the planes would add seating capacity and 20% fuel savings compared to Allegiant’s older Airbus aircraft.
Boeing shares rose 0.5% in pre-market trading. Shares in airline parent Allegiant Travel Co were down 0.7%.
Allegiant has until now relied mainly on older planes to reduce costs – a strategy that allows it to use some jets less intensively and attack thinly populated routes, with some planes flying no more than twice a week, according to Jefferies.
Raymond James analysts said this approach is well suited for what is expected to be a “choppy recovery” but warned of the operational inefficiencies caused by having a mixed fleet.
Allegiant currently operates 110 Airbus A319s and A320s and will continue buying A320s in the used market, Anderson said. It has some 50 aircraft – 20 A320s and 30 A319s – that it may need to retire over the coming decade.
Wednesday’s expansion is the latest sign of growth among “ultra-low-cost” carriers that combine rock-bottom fares with optional charges. Such carriers are expected to emerge in a position of relative strength from the COVID-19 pandemic.
“Our bookings are greater than they were in 2019,” Anderson said, referring to pre-pandemic travel levels.
Still, like many airlines, Allegiant has voiced uncertainties over fuel prices, labor and supply chain problems as well as mounting inflationary pressures.
Mexico’s Viva Aerobus in December announced a commercial alliance with Allegiant to offer flights between the United States and Mexico.
(Reporting by Eric M. Johnson in Seattle; Additional reporting by Nathan Gomes in Bengaluru and Tim Hepher in Paris; Editing by Richard Pullin and Mark Porter)
