Allegiant Alters Common-Fleet Strategy With 50-Plane 737 MAX Order

Allegiant Air announced a new order for 50 Boeing 737 MAX aircraft with options for up to 50 more, in a move that injects a second aircraft type into the ULCC’s long-term strategic growth plans for the first time and gives Boeing a much-needed sale to a loyal Airbus customer.

The deal announced Jan. 5 includes both the 737-7 variant and the larger and denser 737-8200, although Allegiant did not disclose the precise aircraft mix. Initial deliveries are slated to begin in 2023, with the final aircraft scheduled to arrive in 2025.

The new jets will be used both for expansion and to replace some of its older Airbus A320ceos, which the Las Vegas-based airline began acquiring used in late 2012 to replace its fleet of MD-80s. The company said the deal with Boeing will allow it to replace aircraft that are scheduled to retire while also expanding its fleet at a projected 10% annual growth rate. About 20% of Allegiant’s current fleet of 115 A319ceos and A320ceos are at least 20 years old, Aviation Week Fleet Discovery data show.

The transaction is a departure from Allegiant’s recent fleet strategy in two ways: it introduces a second fleet type to the carrier’s all-Airbus A320ceo fleet, and it is a sizable commitment to new planes instead of used aircraft, which has been a staple of Allegiant’s strategy under CEO Maurice Gallagher.

“While the heart of our strategy continues to center on previously-owned aircraft, the infusion of up to 100 direct-from-the-manufacturer 737s will bring numerous benefits for the future,” Gallagher said in a statement. “These include flexibility for capacity growth and aircraft retirements, significant environmental benefits, and modern configuration and cabin features our customers will appreciate.”

Allegiant’s only previous new-aircraft purchase was for 13 A320ceos—a move that it made in part to help accelerate its MD-80 retirements. The airline plans to keep acquiring used A320s, a clear sign that a mixed fleet is at the center of its long-term strategy. 

Raymond James analyst Savanthi Syth expressed caution about the transaction, noting that it could “potentially compromise” the airline’s low-utilization business model—regardless of price—by creating “near-term headwinds related to certification and training.”

Airline analyst Bob Mann agreed, telling Aviation Daily that the new 737 MAX jets will “inject some complexity” and create issues related to cross-training of crews, flight attendants and mechanics.

Mann said he thinks an attractive price offered by Boeing and the unavailability of near-term A320neo delivery slots probably factored heavily into Allegiant’s decision-making process.

“If you can’t buy a neo at a good price, then the MAX is certainly, operationally-wise, the equal—if not slightly better, looking at the -8200 airplane, in particular,” Mann said. “So long as you don’t pay too much and you rein in your complexity and transition costs, it should be a good buy.”

Link To Larger Markets

The deal comes as Allegiant looks to ramp up growth coming out of the pandemic, with its latest plans calling for capacity to increase by 30% from 2019 levels in the 2022 first quarter. The carrier has also been growing its footprint at larger airports, according to an analysis from the Swelbar-Zhong consultancy, which found that 14 of the top 15 markets where Allegiant has expanded its presence during the pandemic have been medium- and large-hub airports.

“Through the pandemic era, Allegiant has been the carrier that has provided more access into the system than any other airline,” Swelbar-Zhong President William Swelbar told Aviation Daily. “Its network will clearly continue to morph with its new alliance partner [Viva Aerobus] in Mexico.”

The deal comes just weeks after Boeing lost two narrowbody battles to Airbus, as Qantas and KLM opted for A320neos as part of major re-fleeting strategies. Allegiant’s deal also gives Boeing its first U.S.-based ULCC win.

While Allegiant’s addition of 737s marks a sharp strategic shift, operating multiple aircraft types is hardly new ground. The carrier added its first A320-family aircraft in late 2012 and spent most of the next five years operating a mixed fleet as it added Airbuses and phased out MD-80s. It also operated a few Boeing 757s from 2011-2017.

The airline’s executives touted the benefits of a single fleet soon after the last MD-80s were fast-tracked into retirement at the end of 2018. At least part of the benefit was addition by subtraction, however, as the aging MD-80s presented steadily increasing reliability problems that forced the carrier to develop targeted mitigation programs and helped trigger special oversight from the FAA. 

Swelbar said that while adding new sub-fleets brings short-term cost increases, the long-term benefits of using specific aircraft for certain missions can out-weigh the drawbacks. 

“Certainly, there will be some short-term cost issues primarily being driven by the bubble that will form in pilot training,” Swelbar said. “Over the longer term, the myth of significant cost increases because of a different sub-fleet are not what they were in the past.” 

“This decision to grow in larger markets is likely a catalyst for Allegiant to explore whether the A320 fleet is best or see if the Boeing economics are better,” Swelbar added. “Clearly Boeing won the beauty contest, whether it be economics, price, or being able to offer better positions on the delivery schedule.”

Critics will point to the mixed fleet as a risk, but Allegiant’s aggressive growth plans meant such a move was inevitable. It could keep adding used A320s, but eventually, they must be replaced. Ordering new A320neos would have simplified some personnel training compared to adding 737s, but such a deal still would introduce a new engine type—the Leap-1A. 

Aftermarket Benefits

While the 737 MAXs will come with requirements such as training pilots and mechanics and setting up spare parts pools for a new fleet type, they will also bring aftermarket-related benefits. Each newly delivered 737 should come with a maintenance honeymoon that will keep it free of planned maintenance for several years, for instance. 

Allegiant is addressing engine maintenance through a long-term agreement with CFM International. The 12-year deal to support the 737 MAX’s Leap-1Bs will “also bring support for the existing Airbus fleet,” which is powered by CFM56–5Bs, the airline said. Allegiant and SR Technics announced a CFM56-5B support deal in 2019. That deal was recently extended.

Allegiant also will tap Boeing Global Services “digital tools to further enhance operational efficiency,” Boeing said. 

Adding aircraft with minimal short-term maintenance demand and shoring up its engine services needs into the next decade helps address recent aftermarket-related headwinds the airline has been facing. Speaking on an October 2021 earnings call, Allegiant COO Scott Sheldon cited maintenance “supply chain challenges” as one of the airline’s top focus areas as it prepares for its next peak flying period, which starts in March. Among the airline’s mitigation tactics was a parts-buying spree to ensure it has enough material on hand to keep its aircraft flying. Timing the $20 million in parts purchases during the pandemic helped the airline save about 50%, it said.