Allegiant CEO defends low-cost airline plan as Sun Country deal closes

Allegiant Travel CompanyAcquisition of . Sun Country Airlines closed On Wednesday, Greg Anderson, the combined company’s chief executive, said Allegiant Air will continue to stand out despite industry turmoil, including a rise in jet fuel costs.

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

The Las Vegas-based airline announced a $1.5 billion cash and stock deal, including debt, to acquire Minneapolis-based Sun Country in January. Brands and booking portals will remain separate for now.

Anderson said the combined carrier, which Allegiant said will serve about 175 cities on more than 650 routes, will continue to surgically expand capacity. He said the strategy protects the airlines from some of the problems faced by other low-cost carriers.

Anderson said Allegiant’s plan involves increasing service during peak travel periods, such as summer or spring break, and then selling more seats to customers by rescheduling them to Tuesdays and Wednesdays during weeks when demand is lower, when the airline can have more pricing power.

“For example, we will pull back capacity and actually park most of the fleet on Tuesday in September,” he said.

Allegiant and Sun Country focused on cost-conscious travelers by connecting small cities to resorts. Sun Country also flies cargo Amazon.

Despite the rise in jet fuel costs, demand from the airline’s more budget-conscious holiday customers remains strong, Anderson said. The industry faces billions of dollars in additional costs from expensive jet fuel, which have nearly doubled since the US-Israeli strikes on Iran began in February. Jet fuel is often airlines’ second-largest cost after labor, and carriers raise fares to pass that cost on to customers.

Value Airlines Association, of which both Allegiant and Sun Country are members, announced last month that it was asking the Trump administration for $2.5 billion to offset higher fuel costs, but Transportation Secretary Sean Duffy said he did not think that was necessary.

Allegiant reported profits of $42.5 million in the first quarter, up 32% from a year earlier.

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

The closing of the acquisition comes just weeks after fast-growing budget carrier Spirit Airlines folded in the largest U.S. airline collapse in a generation.

Allegiant hasn’t released financial forecasts for the combined company, but said late last month that it expects to reduce capacity by 6.5% in the second quarter compared to last year, and that it expects third-quarter capacity to be flat or slightly lower than last year.

Delta Air Lines, American Airlines, United Airlines and Southwest Airlines, which have about 80% domestic market share in the U.S., are overshadowed by smaller budget and entertainment-focused airlines, according to federal data.