Strategic Analysis

Allegiant Airlines

Team S.M.A.R.T.
Christina Akiens, Christian Clucas, Danielle Henry, Eduard Hoffmann, Megan McWilliams

Mondays Section 12 November 19th, 2012

Executive Summary The purpose of this report is to outline the strengths, weaknesses, threats, and opportunities facing our client, Allegiant Airlines, and to provide recommendations for our client to pursue so as to increase their potential revenue moving forward. Critical to our recommendations is our analysis of Allegiant Airliness financial records, both their 10-K and 8K reports filed with the Securities and Exchange Commission; an in-depth explanation of the analysis done and the numerical findings are in the appendix at the end of this report. In addition, this report will examine the benefits of leasing Allegiants current fleet of aging airplanes and purchasing new planes with financial figures and trend-line analysis to illustrate the benefit in real world dollars. This report will discuss Porters five forces of profit potential, the external factors that influence the industry, the sustainable competitive advantages that Allegiant currently possesses, and the fallout to the recommendations that will be made. Those recommendations include, but are not limited to, leasing of old aircraft, purchasing new aircraft, establishing new destinations, and investing in their online marketing and sales divisions. The findings will conclude that Allegiant Airliness current cost-leadership strategy does not need to be shifted to one of differentiation but instead to one of capitalizing on what they currently excel at, servicing leisure travelers and small cities, and expanding those advantages further.

1. Allegiant Airliness Mission and Strategy Allegiant Airliness mission statement states that their mission is to provide high-value, low-cost travel for their leisure customers (Allegiant Airlines, 2012). They also state that they accomplish this mission by continuously innovating, maintaining flexibility in organizational

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structure, keeping costs down, and making sure they never forget who their target market and customers are (Allegiant Airlines, 2012). Our analysis shows that Allegiant Airlines does a relatively good job of following its mission. The size of Allegiant Airlines is relatively small compared to the rest of the industry. Allegiant Airliness founding in 1997, and its subsequent certification in 1998, saw a company devoted to the leisure traveler grow to what is now a one billion dollar market capitalized corporation with one-thousand three-hundred employees (Allegiant Airlines, 2012). Allegiant Airline does three things primarily well: it caters to leisure travelers, it flies to and from small cities and popular tourist destinations, and it sells vacation packages on its website. Allegiant Airlines operates out of small and secondary airports where it faces, in most circumstances, little competition at the hubs; as an example, Allegiant Airlines is the only domestic airline with scheduled flights to operate out of Sanford International Airport (Allegiant Airlines, 2012). Allegiant Airlines is a cost leader in the airline industry. It is in its mission statement to be relentlessly managing costs so as to pass on those savings on to its customers with low fares (Allegiant Airlines, 2012). Allegiant Airliness growth has stalled since the economic downturn of the last decade but has still outpaced several of its competitors. Our financial analysis shows that Allegiant Airlines is in a highly liquid situation and has enough cash to pay its debts if it chose to, giving it an excellent debt-to-equity ratio. Therefore, Allegiant Airlines is in a prime position to see large scale growth if it invests its funds wisely and continues to offer good value to its customers while cutting its own costs (US Securities and Exchange Commission, 2012). The breadth and focus of Allegiant Airliness products and services are fairly slim, only flying to 79 destinations with its fleet of 62 planes; its only other prevalent offering is its vacation packages and onboard amenities which can be purchased while flying.

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The things that make Allegiant Airlines unique are its focus on leisure travelers, its insistence on maintaining and charging low costs and prices, and its servicing of small and secondary cities and airports. Our projections show that if performance were to remain the same that net income would increase yearly at a rate of almost 9.5% and that revenue would outpace costs. However, even a 10% yearly decrease in revenue, or a 10% yearly increase in costs would cause Allegiant Airlines to have more costs than revenue by 2016; Allegiant Airlines is in a strong position right now because of how efficient it has been in keeping costs down and, as a result, can survive a few years of increased costs before it impacted company profits. An indepth analysis of Allegiant Airliness financials is presented in the appendix of this report. Allegiant Airlines has been fairly successful due to its low costs, low fares, and attention to underserviced cities. The rest of this report will outline the forces that effect Allegiant Airliness ability to be profitable, as well as what its sustainable competitive advantages are, and what recommendations it could undertake to increase profitability moving forward.

2. Analysis The airline industry is highly competitive. Allegiant Airlines is a one of the few airlines in the industry that focuses on offering flights out of locations that most legacy carriers do not service. By offering these rare flights Allegiant has gained a competitive advantage in the airline industry. We are the only provider of nonstop service to our leisure destinations. It is possible other airlines will begin to provide nonstop services to and from these markets or otherwise target these markets (Allegiant Airlines, 2012, pg. 12). Allegiant Airliness business strategy has allowed the company thus far to not be under as much pressure as its competitors. Some of

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these competitors include US Airways, Southwest Airlines, Delta Airlines, Spirit Airlines, and JetBlue. The threat of substitutes for Allegiant Airlines is very low. Cars, trains, and buses are viable substitutes for Allegiant but the tradeoffs can be seen as unworthy for its customers. Traveling by car or bus are options, but most individuals goal when traveling is to reach their destinations in the shortest possible travel times. Passenger trains are faster than cars and buses, on the other hand when you factor the costs of a train ride its almost the same as purchasing a flight aboard Allegiant with no stops and even shorter travel times. The bargaining power of buyers for Allegiant Airlines is relatively high. Allegiant primarily focuses its business model on leisure travel. We believe small cities represent a large market, especially for leisure travel. Prior to our initiation of service, travelers from the small city markets we serve had limited desirable options to reach leisure destinations as existing carriers are generally focused on having business customers connect into their business hubs (Allegiant Airlines, 2012, pg. 4). Allegiant takes huge economic risks within its strategy of targeting leisure travelers. During tough economic times many people begin to cut back on their expenses and the first thing to eliminate would be traveling and vacationing. This could cause a dramatic decline in profitability. Customers can also easily compare the rates of several airlines at one time via websites such as Expedia, Orbitz, and Travelocity to find the best deal. The bargaining power of suppliers for Allegiant is high. Few industries are hit as hard by high oil prices than the airlines, which can spend close to 40% of their budget on fuel (Hargreaves, 2012). Allegiants business cannot survive without fuel, aircraft, and other aviation equipment. There is low integration between Allegiant and its suppliers mainly because the

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suppliers are able to raise cost without the threat of their products being substituted. Airlines are coming up with new technologies to cut these cost down but they still cannot be eliminated. The threat of new entrants is also high for Allegiant. It is not realistically feasible for the average person to start an airline, but due to government deregulations on the industry as a whole if one had the desire and funds to do so it is definitely within reach (US Securities and Exchange Commission, 2012). We are the only domestic scheduled carrier operating out of the Orlando Sanford International Airport, one of two scheduled carriers operating out of Phoenix-Mesa Gateway Airport and one of only three carriers serving the St. Petersburg-Clearwater International Airport (Allegiant Airlines, 2012, pg. 6). If Allegiant continues to be profitable from its strategy other airlines will attempt to imitate or revamp the strategy causing Allegiant to lose its current competitive advantage. After examining the Porters Five Forces, Allegiant possess several strengths as well as weaknesses within its company. One of the greatest strengths owned by Allegiant is its unique business strategy. Allegiant is one of the only airlines in the United States to offer non-stop flights departing from small cities. Allegiant has also incorporated in its strategy the ability to offer the lowest fares possible to several destinations throughout the U.S. Lastly, Allegiant has discovered the niche of offering the convenience and flexibility often sought by leisure travelers. These three aspects of their business have given Allegiant the base for maintaining a successful business strategy. Although Allegiant has several strong aspects in its strategy, it is not fail proof Allegiants strategy possesses weaknesses as well. A major weakness with their strategy is the extra charges they impose on its customers to offer low fares. Allegiant is one of only two U.S. airlines to charge for carry-on bags. Travelers who pay with a credit card pay $8 more per person

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for a round-trip ticket than those who use a debit card (Gilbertson, 2012). Allegiant downgrades the quality and level of service they offer to its customers to remain a low cost leader amongst its competitors. This low cost strategy could deter customers that are seeking the quality and first class experience of flying. If a customer is not careful or is flying with Allegiant for the first time they could ultimately wind up paying more than the cost difference of a flight with another carrier after the many additional charges and fees. As Allegiant becomes more and more profitable there is plenty of opportunity for it to expand its target market. Currently Allegiant focuses on leisure travelers, which are only a small percentage of people that travel. In the future the company should consider revamping its own strategy to become more attractive to other types of travelers. Threats from outside of the company mainly derive from the servicing of small cities; if servicing smaller ports continues to be profitable for Allegiant Airlines then competitors will soon imitate this strategy and some may even try to come up with even better ways to service these smaller ports such as offering lower fares or providing a better quality of service. Another threat to Allegiant is the fluctuating economy. During economic downturns travelers tend cut back on leisure travels to save money, which in turn significantly affect Allegiants profitability. The strategic group map on the following page shows where Allegiant Airlines is positioned in the industry in comparison to its current competitors with regards to routes serviced and prices charged. The map shows that Allegiant offers some of the lowest fares in the industry, but sits in the middle of the industry as far as the number of routes it services (Expedia, 2012). If Allegiant continues on its current path of success, the airline will be in a position to expand the routes it services and be able to successfully compete against the other regional airlines for decades to come.

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3. Sustainable Competitive Advantages and Major Problems Allegiant Airliness unique business model, which focuses on leisure travelers in small cities, is one of their sustainable competitive advantages. This strategy allows us to eliminate the costly complexity which others in our industry are burdened with in their goal to be all things to all customers (Allegiant Airlines, 2012, pg. 3). A few differences between Allegiants approach and traditional airlines approach are that Allegiant offers no connecting flights, they focus on the leisure traveler instead of the business traveler, and they provide low frequency

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service to small cities. Allegiant solves the problem that most leisure travelers in small cities face by providing them service to their favorite destination for a lower cost. Allegiant Airlines saw this unmet need as a great opportunity to gain a competitive edge in the airline industry and it is the market leader in serving low cost flights in small cities. Another strength of Allegiants is its low cost structure and ability maximize the amount of its seat capacity which allows it to charge a lower fare and still remain profitable during the rising costs of fuel prices. Allegiants ability to serve this unsaturated market of low cost air travel in small cities gives it a sustainable advantage in the airline industry because most air carriers are focused on business travelers and providing the most frequent flights. The value Allegiant contributes to the market is its ability to provide inexpensive flights for travelers in small cities, which no other airline is currently doing. This ability is in fact rare as well, because Allegiant is the only airline providing service for this niche market. Due to staggering economy and volatile fuel prices it will be costly for other airlines to change their positioning to this niche market and Allegiants low cost structure, low aircraft ownership costs, highly productive workforce and low distribution costs has attributed to its success in this market. Allegiant has successfully captured this niche market and met the needs of these leisure travelers, because its competitors do not service small cities targeting leisure travelers. Even though Allegiant has successfully secured this niche market it still face many issues that will hinder its future success ahead if it does not resolve them. The primary issue Allegiant will face in the near future is if other airline competitors adapts its marketing strategy and positions their companies to serve small cities. These competitors, both legacy and regional carriers, have more resources than Allegiant and they can readily adapt their business model to serve this segment (Allegiant Airlines, 2012, pg. 6);

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Allegiant would have to quickly make changes to its business model and find another niche market that is lacking service in a particular area in order to remain competitivethis is definitely Allegiants biggest threat. The second issue Allegiant faces is the fluctuation of economic conditions. If economic conditions do not improve Allegiant will lose business from its primary target market. Leisure travelers will not have the monetary resources to vacation, which means that Allegiants main source of revenue will greatly decrease causing it to have to raise its prices to stay profitable; raising its prices, could lose customers and further harm Allegiant. Allegiant would have a hard time recovering from a decrease in sales and revenue. The third issue Allegiant has to resolve is the extra fees it charges its customers for its flights. For example, Allegiant is one of only two U.S. airlines to charge for carry-on bags. Travelers who pay with a credit card pay $8 more per person for a round-trip ticket than those who use a debit card (Gilbertson, 2012). Even though Allegiant offers cheaper flights for small city travelers than its competitors, these extra fees may eventually turn off customers from its services and they may just take an alternate route instead of going with Allegiant.

4. Strategic Recommendations and Justification of Strategy Allegiant Airlines currently has a successful business strategy that has allowed it to maintain a sustainable competitive advantage for several years in its target market within the airline industry. Allegiants distinctive use of a unique business model, efficient capacity management, and a low cost structure easily sets it apart from its competitors in a way that allows it to comfortably remain profitable over the upcoming years. Allegiants current competitive strengths also consist of all of its ancillary product offerings, in which airline

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customers pay a low cost strictly for flight fare and then have the option to pay for any additional products or services that they would like to enjoy on their flight. These specific products have maintained a growth rate of 16% over the past three years, contributing to a significant portion of the companys overall profits. Allegiant Air also stands out against its competitors with its desirable bundled travel packages with resort hotels that provide their customers with added convenience during their leisure travels. Overall, Allegiant has a very strong financial position within the airline industry as revealed in the companys most recent third quarter revenue results and thriving stock performance derived from significant cash balance and low debt ratios that do not require much need for strategic change (Allegiant Airlines, 2012). Allegiants financial statements over the past three years have shown significant increases in its ending cash balances and these balances on the Statement of Cash Flows are expected to increase by about 43% in 2012 compared to 2009. Despite the poor economic conditions that this country has been suffering in recent years, the ending cash flows of Allegiant is forecasted to rise to $673,185,000 by 2017, an increase of $522,445,000 from the actual cash balance ending in 2011. Also, as presented in its balance sheet, Allegiant holds a healthy financial position in terms of leveraging its debt and liquidity. For the actual results reported in 2011, it is shown that Allegiant Airlines has two times the necessary resources to cover all of its current liabilities, keeping them in an especially liquid position and in no way threatened by any sort of liquidity crisis. Allegiant has the ability to cover all of its short-term debt and even longterm debt if necessary. Its low debt to equity ratios further support this notion of liquidity predicting that Allegiant should be able to sustain profitable business operations over many years to come. With forecasted cash totals with short term investments consistently calculated to rise over the next five years and debt totals remaining relatively constant, Allegiants debt to equity

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ratio is forecasted to decrease even further to 14%, down from 42% reported in 2011 (Allegiant Airlines, 2012). However, with all of the favorable outcomes enjoyed with its current business strategy, Allegiant still faces several risks that in future years could drastically damage it and everything it have worked so diligently to achieve. Some of the most important risks that Allegiant currently faces are fluctuating higher fuel prices, the state of the economy, new competition, and its heavy reliance on their Information Technology and Automation services. In addition, Allegiant also faces a major risk of operating with a 22-year-old fleet that poses significant potential safety issue threats and can lead to higher maintenance costs. Some of Allegiants goals for 2012 include beginning service to Hawaii, completing a 166-seat project with MD 80s, launching a new web site, charging customers for carry-on bags, and opening new bases in San Francisco and Southwest Florida. In addition to the outstanding achievements that Allegiant accomplished in 2011, these new product offerings and services would further strengthen its brand against its competitors and open up many new channels for revenues and growth. Given this analysis of the company, the most important needs of Allegiant Airlines that are necessary in order to maintain a profitable competitive advantage in the future are to provide stability to its fuel costs, to create a homogeneous airline fleet, and to increase the marketing of its independent online sales of ticket distribution (Allegiant Airlines, 2012). One of the ways Allegiant can achieve this alternative strategy to stabilize its fuel costs is to offer to lease out their older model airplanes, such as their array of MD 80s, to other airline companies with the option to sell them at the end of each lease. This strategy would easily set Allegiant up in a position where they could gradually eliminate the older planes in its fleet and subsequently use the incoming revenue to modernize its fleet with newer models. The overall

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effect this collection of new airplanes would have on Allegiant would be to ultimately improve fuel efficiency with these new energy conservative models as well as to minimize the maintenance costs of carrying older models. For example, as illustrated in our financial analysis, if Allegiant Airlines were to purchase nine new A319 model planes over the next eleven years while also leasing out two of its older MD 80s, Allegiant could make a profit of $178,321.68 per quarter. This is calculated by taking the difference between the total cost of each individual A319 plane purchased and the ensuing fuel and maintenance cost savings of these new models, which is equivalent to a loss of $590,909.09 per quarter. However, when taking into consideration the additional savings each quarter of $769,230.77 from leasing out two of their MD 80s, a total profit of $178,321.68 is derived quarterly. At the end of these eleven years, it is expected that Allegiant would acquire a cumulative profit of $7,846,153.85 from this operation alone (Allegiant Airlines, 2012). Furthermore, another advantage Allegiant would sustain from employing an upgraded airline fleet would be the ability to service a variety of new destinations around the country, such as Hawaii, which in turn would assist them in fulfilling the companys goals for 2012. By earning revenues through the leasing or sales of Allegiants current airline fleet, it could purchase newer models that would in the end enable them to service longer distances while also reducing fuel and maintenance costs. This implementation would cut future expenses while also increasing income, which would drastically raise Allegiants profitability over all upcoming years (Allegiant Airlines, 2012). Secondly, by purchasing new aircraft, a homogeneous fleet will decrease a great deal of unexpected maintenance costs and layover time between flights, which would cut costs and allow revenues to further increase. At the end of 2011, secondary to airline fuel and salaries and

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benefits, the total maintenance and repair costs accounted for approximately 12% of total operating expenses for the year. With that current year ratio, the total expenses as a percentage of revenues was as high as 89%, which is not a very profitable measurement for ending net income. In general, the costs to maintain these aircraft increase as they age and exceed the cost to maintain new aircraft. The FAA regulations require additional and enhanced maintenance inspections for older aircraft which typically increase as an aircraft ages. In addition, Allegiant may be required to comply with any future aging aircraft issues, law changes, regulations, or airworthiness directives, which could cause maintenance costs to substantially exceed their expectations. Therefore, given the shared knowledge of the age of this fleet, any public perception that Allegiants aircraft are less than completely reliable could have a significant adverse effect on their profitability. If Allegiant were to purchase new aircraft to create a homogeneous airline fleet, these maintenance and repair cost expenses could be lowered extensively and in the end increase the net incomes of future years (Allegiant Airlines, 2012). In addition, in order to increase the marketing of its independent online sales of its ticket distribution, Allegiant should focus on enhancing the market visibility of its online sales. Since Allegiant is still considered to be a relatively small airline company with less market share compared to its larger competitors, it is especially imperative that they more aggressively establish a sales and advertising position in the online market. Being that the majority of customers typically book all travel arrangements online now, Allegiant would not be able to survive in this industry if it did not sufficiently offer this option to its customers. As shown in our market analysis, it is evident that Allegiant is especially dependent on its travel routes to Las Vegas more so than all of its other destinations combined. We strongly believe that this is a very risky business strategy and that more of Allegiants resources should be spent on other travel

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locations as well instead of investing so much into just one city. Although these actions may increase sales and marketing expenses in the short term, it would overall considerably increase its operating revenues and number of passengers in the long term, creating a more sustainable competitive advantage. With Allegiant's new investment in automation technology and its current goal of launching a new website, Allegiant is well on its way to increasing total sales over the upcoming years (Allegiant Airlines, 2012). Another way for Allegiant to implement this new strategic recommendation would be to increase the number of destination cities they service to those that are currently underserved by other competitive airline markets. This would tap into Allegiant Airlines existing competitive advantage and enhance it further. If Allegiant Air successfully carries out its plan to start servicing flights to Hawaii, then its overall revenues and market share would significantly increase and could potentially even raise its future growth rate as it would become more wellknown and desirable (Allegiant Airlines, 2012). Allegiant Airlines currently has a very unique and successful business model that could potentially grow at astronomical rates if it were to implement some of these new strategic recommendations. Although some of these suggestions may require a significant cost up-front, they would lead to a much higher profitability going forward, creating a sustainable competitive advantage for Allegiant that would be difficult to imitate. These recommendations would eliminate some of the firm-specific risk that Allegiant could potentially face in the future, ensuring that it will be prepared for any unforeseen obstacles that may come its way.

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5. Fallout and Summary There are a few risks involved with the recommendations given in this report. The recommendation to lease Allegiant Airliness current aging fleet and purchasing more fuel efficient and reliable aircraft involves finding a willing participant to pay Allegiant for use of its planes and a major capital investment in purchasing the new planes which could put a strain on Allegiants liquid assets if not purchased with debt. Another risk involved with this recommendation is that it depends on the trend-line analysis done to compute the savings to be accurate and to be representative of future gainsif the mathematics are wrong or the assumptions are off then the risk of investing a substantial amount of capital with little positive return is a possibility. However, the calculations used in the analysis are conservative and assume only a small margin of profit; there is an equal chance that the possibility for even greater profits than this report has calculated can be garnered by following the recommendations given. Another potential problem is with the recommendation to increase the number of cities and airports serviced. It is possible that if a city is chosen to be a hub for Allegiant Airlines that it does not provide enough customers to maximize capacity utilization, especially if it is a relatively small city or one with little touristic interest. However, Allegiant Airlines has the resources to conduct market analyses of potential cities to service, therefore Allegiant Airlines would have no reason to enter a market blindly without knowing if it would be profitable or not. There are no perfect recommendations that this report could give to Allegiant Airlines that would not involve a modicum of risk. However, given the conservative mathematics and the acknowledged existing resources that Allegiant possesses, the potential benefits outweigh the potential risks.

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Appendix Explanation of Financial Analysis The basis of our financial analysis of Allegiant Airlines was based off of the Income Statement and the Cash Flows starting from the year 2007 until 2011 given in Allegiant's 10-K. In order to get the growth rate of each individual line in the Cash Flow and Income Statement, the rate function was used to give a more accurate number for growth. There are three scenarios on the Trend Analysis workbook that give an outlook about how Allegiant's financials will look; one is titled slowdown, one is average, and the final one being growth. For the slowdown section, the growth rate of all revenues and assets was decreased by 10% from that calculated using the rate function, while all costs calculated with the rate function were increased by 15%. For the average section all percentages calculated by the rate function were used. In the growth section, all revenues and assets were increased by 10% from the rate function while all costs and debts were decreased by 10%. The baseline year for the predictions for all three sections for 2012 was based off of the trend function in Excel. This was chosen over using the average function to seek a more accurate picture of that baseline year given the previous 5 years of information. The trend function uses a regression on the least squares assumption that will hopefully minimize any variance that may have occurred if we had used the average function. After 2012, the growth rate for that given section is used for the subsequent years. The workbook titled Savings came from information supplied by a third party which stated the total cost of the 9 airplanes that Allegiant will be leasing as well as the total savings per year that Allegiant expects per plane by leasing these new aircraft. The cost of the Boeing MD-80s was based off of the purchase by a subsidiary of Allegiant of 13 MD-80s in 2011. The

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total amount of purchases was $20 million dollars but a number of engines were included in the deal, in order to have a conservative estimate the projected total purchase of the 13 aircraft is priced at $15 million. All assumptions on price were based off of straight-line depreciation. In the table it sets forth the delivery date for the leased aircraft by quarter. Since straight-line depreciation was used the total cost of all 9 aircraft was used for each quarter. Also using straight-line depreciation, the savings per quarter was based off of the projections of Allegiant Airlines. The column labeled Savings from leasing 2 MD-80s was based off of the previous purchase by Allegiant of 13 MD-80 Aircraft given straight-line depreciation multiplied by two. This table shows that given Allegiant has made no announcements to lease its own MD80 fleet, it could use the option to finance its own acquisition of newer planes to modernize its fleet. So given the expected savings from the newer aircraft along with the profits from leasing only 2 MD-80s from its fleet, by the end of its 11 year depreciation Allegiant can expect a profit of $7,846,153.85 while netting 7 extra planes. This shows that if possible Allegiant should attempt to lease as many MD-80s as possible to fund a correlated amount of Airbus A319's in order to capture more profit, increase its fleet, and maintain its competitive advantage as a cost leader. In the final workbook entitled marketing for Allegiant, the information is taken from the 8-K and shows the percentage of Allegiant Air's dependence on Las Vegas for its sales. It shows a significant portion of both its hotel service and ticket sales are dependent on travel to Las Vegas. Underneath this chart is the growth of Allegiants ancillary products over the past 3 years. It shows that there is consistent growth in its ancillary products and this is a possible revenue stream that Allegiant may pursue in order to increase profitability.

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Workbooks Previous Statements In this workbook, with the heading Income and Cash Flow Statement, the previous 5 years worth of financial statements are given.

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Trend Analysis

In this workbook, with the heading Income Statement and Cash Flow Statement and Future Predictions, the previous 5 years

worth of financial data is used to give an economic forecast of Allegiant Air. In order to use the most accurate baseline, the trend

analysis function is used for the year 2012; this gives a more accurate baseline then if a simple average percentage increased were to

be used. There are 3 different scenarios in this workbook on the forecast, one entitled slowdown, average and growth. The slowdown

scenario expects costs to increase by 15% over the previous 5 years rates and for revenues and assets there is a 10% decrease on the

calculated rate. Average uses the given rate from the 5 previous years. Growth has a 10% increase in revenues and assets and a 10% decrease in costs excluding fuel.
Income'Statement'and'Cash'Flow'Statement'and'Future'Preditions
2011 Rate*up*to*that*point Growth*Rate* Growth*Rate 779,117 16.65998% 14.16098% 18.3260% 693,673 16.99105% 19.53971% 15.2919% 85,444 14.16354% 12.0% 15.5799% 79,514 9.41543% 8.00311% 10.3570% 49,398 9.40948% 7.99806% 10.3504% 150,740 706,743 146,069 6,175,808 5,640,577 6,364,243 88.60% 52.20 57 91.58% 2.60 107,616 $*********3.07 13.59920% 12.42247% 10.48718% 1.73459% 13.42927% 12.23931% 1.06020% W1.47123% 10.26065% 5.94540% 0.88140% 11.75583% 15.15138% 0.74919% 9.99246% 17.42409% 11.55932% 10.55910% 8.91410% 1.47440% 11.41488% 10.40341% 0.90117% W1.69191% 11.79974% 8.91810% Prediction*(Slowdown) 2012 2013 ********872,071.700 *******995,565.621 * ********753,964.945 *******901,287.511 * ********118,106.755 *********94,278.110 ********114,573.683 *******123,743.145 * **********72,510.681 *********78,310.126 2014 *****1,136,547.494 *****1,077,396.479 *********59,151.015 *******133,646.449 * *********84,573.415 2015 *******1,297,493.786 *******1,287,916.629 ************* 9,577.156 **********144,342.327 *********** 91,337.645 2016 *******1,481,231.654 *******1,539,571.807 ********** (58,340.153) **********155,894.207 *********** 98,642.882 Prediction*(Average) 2012 ************872,071.700 ************753,964.945 ************118,106.755 ************114,573.683 ************* 72,510.681 2013 *********1,017,358.666 ************882,071.524 ************135,287.141 ************125,361.285 ************* 79,333.558 2014 *********1,186,850.410 *********1,031,944.759 ************154,905.651 ************137,164.587 ************* 86,798.432 2015 ***********1,384,579.444 ***********1,207,283.034 ************** 177,296.410 ************** 150,079.219 **************** 94,965.712 2016 ***********1,615,250.094 ***********1,412,413.126 ************** 202,836.968 ************** 164,209.820 ************** 103,901.491

Total*Operating*Revenue Total*Operating*Expenses Operating*Income EBIT Net*Income Cash*and*Cash*Equivalents Total*Assets Long*Term*Debt Passengers Revenue*Passanger*Miles*(In*Thousands) Available*seat*miles*(In*Thousands) Load*factor Total*Aircraft*in*Operation Total*Aircraft*Active*in*Service Percentage*Active Average*Departure*per*Aircraft*Per*Day Fuel*Consumed*(In*Thousands) Average*Cost*Per*Gallon

Prediction*(Growth) 2012 2013 *********872,071.700 *****1,031,887.362 *********753,964.945 *******869,260.866 * *********118,106.755 *******162,626.496 * *********114,573.683 *******126,440.045 * ********** 72,510.681 *********80,015.846

2014 *****1,220,990.807 *****1,002,187.779 *******218,803.028 * *******139,535.404 * *********88,297.827

2015 *******1,444,749.305 *******1,155,441.804 **********289,307.501 **********153,987.045 *********** 97,437.029

2016 *******1,709,513.736 *******1,332,131.354 **********377,382.382 **********169,935.438 **********107,522.177

0.9695% ********127,863.400 *******128,821.339 *******129,786.455 **********130,758.801 **********131,738.433 ************127,863.400 ************128,990.387 ************130,127.308 ************** 131,274.249 ************** 132,431.299 *********127,863.400 *******129,103.086 *******130,354.791 **********131,618.632 **********132,894.726 * * * * 12.9314% ********524,465.017 *******576,871.962 *******634,515.648 **********697,919.355 **********767,658.651 ************524,465.017 ************586,120.246 ************655,023.561 ************** 732,027.033 ************** 818,082.905 *********524,465.017 *******592,285.769 *******668,876.704 **********755,371.932 **********853,052.217 * * * * 13.6362% **********76,096.962 *********89,356.165 *******104,925.665 **********123,208.008 **********144,675.883 ************* 76,096.962 ************* 87,626.704 ************100,903.362 ************** 116,191.617 ************** 133,796.254 ********** 76,096.962 *********86,473.730 *********98,265.499 **********111,665.224 **********126,892.167 * 14.9591% *****7,222,248.400 13.6647% *****6,533,427.180 11.5359% *****7,295,211.775 1.9080% 90.673% 14.7722% 13.4632% 1.1662% W1.3241% ***************** 60.040 ***************** 63.902 ******************* 0.946 ******************* 2.699 *****8,057,091.043 *****7,223,298.474 *****7,945,514.291 ****************** 0.920 **************** 66.893 **************** 70.550 ****************** 0.955 ****************** 2.653 *****8,988,435.799 *****7,986,013.986 *****8,653,785.427 ****************** 0.934 **************** 74.529 **************** 77.889 ****************** 0.963 ****************** 2.608 *****10,027,437.656 *******8,829,265.413 *******9,425,192.564 ******************** 0.947 ****************** 83.037 ****************** 85.993 ******************** 0.972 ******************** 2.564 *****11,186,541.038 *********7,222,248.400 *********8,204,416.215 *********9,320,150.969 *********10,587,616.695 *********12,027,447.587 *******9,761,556.626 *********6,533,427.180 *********7,345,040.467 *********8,257,476.201 ***********9,283,259.027 *********10,436,469.457 *****10,265,363.710 *********7,295,211.775 *********8,060,273.558 *********8,905,568.726 ***********9,839,511.495 *********10,871,398.498 ******************** 0.961 90.673% 92.246% 93.846% 95.474% 97.130% ****************** 92.515 ****************** 94.939 ******************** 0.981 ******************** 2.521 ******************** 60.040 ******************** 63.902 ********************** 0.946 ********************** 2.699 ******************** 68.103 ******************** 71.723 ********************** 0.956 ********************** 2.659 ******************** 77.249 ******************** 80.501 ********************** 0.966 ********************** 2.620 ********************** 87.623 ********************** 90.354 ************************ 0.977 ************************ 2.581 ********************** 99.390 ********************* 101.413 ************************ 0.987 ************************ 2.543 *****7,222,248.400 * *****6,533,427.180 * *****7,295,211.775 * ******************* 0.907 ***************** 60.040 ***************** 63.902 ******************* 0.946 ******************* 2.699

*****8,302,632.996 *****7,426,201.795 *****8,136,779.736 ****************** 0.924

*****9,544,633.590 *****8,440,971.573 *****9,075,430.093 ****************** 0.942

*****10,972,426.506 *******9,594,406.812 *****10,122,362.169 ******************** 0.960

*****12,613,804.637 *****10,905,455.762 *****11,290,067.228 ******************** 0.978

**************** 68.909 **************** 72.505 ****************** 0.957 ****************** 2.663

**************** 79.089 **************** 82.267 ****************** 0.968 ****************** 2.628

****************** 90.772 ****************** 93.342 ******************** 0.980 ******************** 2.593

**************** 104.181 **************** 105.909 ******************** 0.991 ******************** 2.559

10.2606% ********123,732.300 *******138,332.393 *******154,655.260 **********172,904.183 **********193,306.432 ************123,732.300 ************136,428.033 ************150,426.431 ************** 165,861.154 ************** 182,879.580 *********123,732.300 *******136,428.033 *******150,426.431 **********165,861.154 **********182,879.580 * * * * 5.3509% ******************* 2.552 ****************** 2.780 ****************** 3.028 ******************** 3.298 ******************** 3.592 ********************** 2.552 ********************** 2.704 ********************** 2.865 ************************ 3.035 ************************ 3.215 ******************* 2.552 ****************** 2.689 ****************** 2.833 ******************** 2.984 ******************** 3.144

20

Savings

In this workbook the information given by Allegiant Air is used to calculate the cost and savings of the new A319 Allegiant

will be using. This is combined with the potential sale or leasing of Allegiants MD-80s to show the profit that can be achieved by homogenizing the fleet.

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Marketing of Allegiant In this workbook, with the heading Market Share as of 2012, the market share of Allegiants profits dedicated on Las Vegas are given. It indicates that there should be a shift in marketing to other destinations. Also in this workbook the ancillary profits are given per passenger and the growth of these products over the past 3 years.

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References Allegiant Airlines (2012, November 15). 8-K Report. Retrieved November 16, 2012, from http://ir.allegiantair.com/sec.cfm Allegiant Airlines (2012, November 15). 10-K Report. Retrieved November 16, 201, from http://ir.allegiantair.com/sec.cfm CAPA (2012, August 31). Allegiant Air enters into nine lease agreements with GECAS covering nine A319 deliveries. Retrieved November 15, 2012, from http://centreforaviation.com/news/allegiant-air-enters-into-nine-lease-agreements-withgecas-covering-nine-a319-deliveries-172490 Expedia (2012). Route and Fee Comparison. Retrieved November 12, 2012 from http://www.expedia.com/ Gilbertson, Dawn (2012). Allegiant. Retrieved November 6, 2012, from http://www.azcentral.com/travel/articles/2012/08/21/20120821allegiant-plans-hawaiiflights-from-phoenix-mesa-gateway.html Hargreaves, Steve (2012, June 1). Airlines seek to slash fuel costs. Retrieved November 7, 2012, from http://money.cnn.com/2012/06/01/news/economy/airlines-fuel/index.htm Sheldon, Scott (2011). 2011 Annual Report. Retrieved November 15, 2012, from http://files.shareholder.com/downloads/ALGT/2159638529x0x569210/176ABE89-C40745D0-AF22-FFB9F67E1CFF/2011_Allegiant__Annual__Report.pdf US Securities and Exchange Commission (2012, September 28). Allegiant Form 10-K. Retrieved November 12, 2012, from http://www.sec.gov/Archives/edgar/data/1362468/000143774912001771/allegiant_10k123111.htm US Securities and Exchange Commission (2011). SkyWest, Inc. Form 10-K. Retrieved November 11, 2012, from http://inc.skywest.com/invest/Annual%20Reports/10k2011.pdf Velotta, Richard (2012, August 27). Allegiant Air's new planes bring new plans. Retrieved November 15, 2012, from http://www.vegasinc.com/news/2012/aug/27/new-planesbring-new-plans/ Word Count - 5618

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