Earnings up 26.5 percent at Las Vegas-based Allegiant Travel

An Allegiant Air jet takes off from McCarran International Airport on Friday, Aug. 26, 2011.

With two key revenue streams still on the horizon, the parent company of Allegiant Air on Wednesday reported a 23.1 percent increase in revenue and a 26.5 percent increase in earnings for the quarter that ended March 31.

Las Vegas-based Allegiant Travel Co. reported net income of $21.7 million, $1.12 a share, on revenue of $237.9 million in the first quarter. That compares with net income of $17.2 million, 89 cents a share, on revenue of $193.2 million for the same quarter a year earlier.

Company officials said they had their highest operating margins since the second quarter of 2010.

While the company’s double-digit percentage increases in revenue and earnings resulted in the company’s 37th straight profitable quarter, two key revenue streams will begin flowing to Allegiant beginning in the current quarter.

The company began charging customers up to $35 for carry-on bags stowed in overhead bins earlier this month. Allegiant also announced this month that it would begin flying between Honolulu and Las Vegas and Fresno, Calif., beginning June 29 and 30, revenue that will begin showing up in the airline’s third quarter.

While Allegiant’s load factor — its percentage of paying customers — fell 1.8 percentage points on scheduled flights and the airline’s fuel cost per passenger was up by 10.8 percent on scheduled and chartered flying, the airline remained profitable thanks to higher fares and reduced expenses due to the outsourcing of station personnel in Las Vegas.

The average total fare on Allegiant flights was $132.70 for the quarter — the highest in the company’s history. That includes $32.39 for air-related ancillary charges and $5.36 for the sale of third-party products.

“People are going to shop fares and at the end of the day, they’re going to find that ours are lowest, even with our ancillary fees,” Allegiant CEO Maurice Gallagher said in remarks during a conference call with analysts following the release of earnings.

Allegiant President Andrew Levy added that the company has not seen a negative customer reaction to its new carry-on bag fee and the first two weeks of Hawaii sales have been favorable.

Executives said it was too early to project whether Hawaii flights would be more profitable than flying within the rest of the Allegiant system. Analyses conducted before implementing the plan indicated it would be, but several conditions have changed — including higher costs for fuel.

The company already has 50 third-party ancillary partners on the island of Oahu to generate additional revenue.

Executives said about one-third of the company’s customers are paying carry-on fees, which Gallagher and Levy said has become more important as the airline expands capacity on its MD-80 series planes.

Allegiant is in the midst of retrofitting its jets to remove a galley and add 16 seats, bringing each plane’s capacity to 166 passengers. So far, 19 planes — those based in Los Angeles; Mesa, Ariz.; Bellingham, Wash.; and Oakland, Calif. — have been modified with another 37, taken off line four at a time, to be converted. Las Vegas-based planes will be the next to get extra seats.

“One thing we can’t expand is the size of the overhead bin space,” Gallagher said. “We’re adding 16 seats. Charging seemed to be a logical way to ration overhead bin space.”

Executives also said that it purchased its fifth and sixth Boeing 757 jets, the planes that will be used on the company’s flights to and from Hawaii. The first of three 757s, leased to European carriers last year, have been returned to Allegiant and are being prepared for the airline’s Hawaii flights.

While Las Vegas and Fresno are the only mainland cities identified for Hawaii service so far, officials hinted they would be announcing new routes and destinations within a few weeks. Gallagher said the company has completed all the flying requirements for the jets to be certified for Hawaii flights and that only one more requirement — an inspection of the company’s parts facility in Hawaii — is needed to begin service.

With certification, Allegiant becomes a flag-carrier airline and could fly internationally, but Gallagher said the first priority would be to get Hawaii service running.

The company also is expanding to new bases, opening Oakland with nine routes on April 26 and Punta Gorda, Fla., with seven routes on June 27.

In the call with analysts, Gallagher also commented on Allegiant’s ongoing legal battle with the U.S. Department of Transportation over recently enacted consumer rules requiring airlines to post total ticket prices with all taxes and fees in advertising and on the airline’s website.

Gallagher said he’s not optimistic the company will win, noting that complying with the new rules has been “costly and bothersome.”

“Our legal team has told us that we have less than a 50-50 chance of winning the lawsuit,” he said.

Levy said the new rules haven’t really helped consumers.

“Our customers have always known what they will pay when they buy a ticket before they complete an online transaction,” Levy said.

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