News

Allegiant Travel Company ALGT capitalizes on robust air travel demand and continuous fleet expansion, fueling its success. However, elevated labor and fuel expenses are impeding bottom-line progress.

Factors Favoring ALGT

Amid a robust surge in air travel demand, ALGT has been consistently sharing positive traffic numbers over the past few months. Passenger revenues, which accounted for the bulk (93%) of the top line, increased 8.7%, and operating revenues were up 9% on a year-over-year basis in 2023.

The company’s efforts to modernize its fleet are praiseworthy as well. Allegiant aims to expand its fleet size to 130 by 2024-end, up from 126 in 2023. ALGT boasts a strong earnings track record, exceeding earnings per share expectations in three of the past four quarters (missing the mark in the other). The average beat is 34.6%.

Key Risks

Despite the prevalent economic uncertainty, the company’s capital expenditures continue to be high, which may play a spoilsport. For 2024, under airline capex, aircraft, engines, induction costs and pre-delivery deposits are expected in the $535-555 million range despite the economic uncertainty.

Capitalized deferred heavy maintenance is expected in the range of $80-$90 million. Other airline capital expenditures are expected between $155 million and $165 million. Such high capex may hurt the bottom line.

Extended production cuts by Saudi Arabia and Russia have boosted crude prices. Since expenses on fuel represent a significant input cost for an airline company, the upward movement in oil prices is not a welcome development for ALGT and is likely to hurt its bottom line, with 2024 costs expected at $2.85 per gallon.

Increases in labor costs are also hurting ALGT’s bottom line. Operating expenses increased in 2023, driven by a 24.5% surge in salary and benefits. Anticipated new labor agreements are set to further raise labor costs in 2024.

Zacks Rank

ALGT currently carries a Zacks Rank #3 (Hold).

Stocks to Consider

A couple of better-ranked stocks for investors interested in the Zacks Airline industry are Copa Holdings CPA and American Airlines AAL.

Copa Holdings holds a Zacks Rank #2 (Buy). The company thrives as it capitalizes on enhanced air travel demand and actively pursues fleet-upgrade initiatives. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here

The Zacks Consensus Estimate for 2024 earnings has been revised 5.14% upward over the last 60 days. CPA has an impressive earnings surprise history, beating the Zacks Consensus Estimate in each of the past four quarters. The average beat is 18.02%.

American Airlines is experiencing positive momentum in air travel demand, particularly on the domestic front. The airline's notable efforts to reduce debt are commendable, targeting a $15 billion reduction by the end of 2025.

The Zacks Consensus Estimate for 2024 earnings has been revised 34.2% upward over the past 60 days. AAL has a stellar earnings surprise history, beating the Zacks Consensus Estimate in each of the past four quarters. The average beat is 119%. AAL carries a Zacks Rank #2.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.