LAS VEGAS - There are no sure things in this city - with one exception: Allegiant Air.
While other U.S. airlines have struggled over the past decade from the ups and downs of the economy and the price of jet fuel, Allegiant has been profitable for 10 straight years.
The tiny airline focuses on a niche ignored by other airlines: It only flies from small cities to sunny vacation spots.
An Allegiant Air jetliner flies by the Luxor Casino after taking off from McCarran International Airport in Las Vegas.
Allegiant entices people who otherwise wouldn't fly with low fares and non-stop flights. Then it aggressively pitches them hotels, rental cars, show tickets and other entertainment, earning millions in commissions.
"They do a fantastic job packaging," says JetBlue CEO David Barger. "I think we can learn a lot from what Allegiant does."
Passengers face fees for almost every service and amenity imaginable. At Allegiant, fees for checked baggage and changing an itinerary - which are common on many airlines - are just the beginning.
The Las Vegas-based airline charges extra to book flights online, or to use a credit card. Selecting a seat in advance costs $5 to $75 each way, depending on the length of a flight. Even a bottle of water costs $2.
Allegiant buys old planes to avoid hefty aircraft loans. And to pack in as many passengers as possible, its seats don't recline. But for small-town Americans with limited flight options, these inconveniences are worth it for a few days of sunshine.
"They could be the worst airline in the world and we'd fly them because we want to go to Vegas," says Tom Mayo of Cedar Rapids, Iowa, who recently flew there with his family. "It's our only option."
Allegiant has 64 planes and flies to 87 cities, but it's tiny compared with an airline like United, which carried 20 times as many people last year, often on much longer flights.
Allegiant offers non-stop service from places like Owensboro, Ky., Casper, Wyo. and Appleton, Wis., to popular destinations in Nevada, Florida, Hawaii and Arizona. These may not be the most coveted routes in the airline business, but that is precisely why Allegiant likes them.
Locally, Allegiant flies from the Youngstown-Warren Regional Airport in Vienna to Myrtle Beach, S.C., Orlando, Fla., and Tampa/St. Petersberg, Fla.
Only 17 of Allegiant's 203 routes are flown non-stop by another airline.
"Typically, the best way to make money is not to compete with somebody," says Andrew C. Levy, president of Allegiant Travel Co., who sits in a cubicle next to the rest of his staff.
Rather than battle major carriers for customers on routes between major cities, Allegiant uses its marketing muscles to convince people in small towns to fly away for a vacation.
"Allegiant tends to bring people into the airport who wouldn't normally fly," says Tim Bradshaw, director of the Eastern Iowa Airport in Cedar Rapids. "It brings people off the couch."
Last year, 7 million passengers took a flight on Allegiant. That is a sliver of the 642 million people who took a domestic flight last year. But Allegiant earned a whopping $11.22 each way from those passengers. On average, the airline industry earned 37 cents each way, per passenger, according to Airlines for America, the industry's lobbying group. Southwest Airlines, one of the industry's most profitable carriers, made $3.85 per passenger last year.
Allegiant is ruthless about keeping its costs down. Its employees are some of the lowest paid in the industry, in some cases making $20 an hour less than colleagues at other airlines. It pays cash for airplanes nearly twice as old as everyone else. It only sells directly to vacationers, refusing to pay Expedia, Orbitz or other sites to list its flights.
Like some other budget airlines, Allegiant advertises extremely low base fares and then tacks on numerous fees. A roundtrip ticket with Allegiant costs $195, on average. But passengers pay an additional $83 in fees - or 30 percent of the total cost of flying.
To book a trip by phone, Allegiant charges $50 for each roundtrip ticket. To book online costs $20 for each roundtrip ticket. The only way to avoid the fees is to purchase tickets at the airport, something fewer than 3 percent of its customers did last year.
But whether you book by phone, Internet or in person, paying with a credit card costs an extra $8.
Placing a suitcase in an overhead bin is $10 to $25. Boarding passes signify who has paid the fee. If passengers show up at the airport with a large carry-on bag and haven't prepaid the fee, the airline penalizes them an additional $25 to $50, depending on the route.
But what really makes Allegiant different are the commissions it earns from selling hotel rooms, rental cars and other extras including Everglades boat tours and theme-park tickets. It even gets people to attend timeshare sales presentations. Before a passenger can finalize a ticket purchase online, they must click through page after page offering them these add-ons.
Last year, revenue from commissions totaled $36 million, or nearly $12 per roundtrip passenger.
Like JetBlue's Barger, Ben Baldanza, CEO of Spirit Airlines - the only other U.S. carrier to charge for overhead bin space or for booking over the Internet - also respects Allegiant's ability to sell extras, such as a round of golf in Myrtle Beach, S.C.
"They developed that expertise earlier than we did," Baldanza says.
Frugal decisions like that helped Allegiant post a net profit of $78 million last year on revenue of $909 million. Its 8.6 percent profit margin was the highest of any U.S. airline, making it a darling of Wall Street. While the S&P 500 climbed 26 percent in the past five years, an index of all U.S. airline stocks has tripled. Allegiant's stock has done even better, increasing more than fivefold to $105.40
The airline got its start in 1998 as a charter operation with one airplane. By February the following year, it had started scheduled flights between Fresno, Calif. and Las Vegas.
But its business struggled and less than two years later, it filed for bankruptcy protection. Maurice J. Gallagher, Jr., the airline's major creditor and a founder of ValuJet Airlines, gained control during the reorganization and became CEO. ValuJet was a low-cost carrier that changed its name to AirTran after a 1996 fatal crash in Florida.
Gallagher moved the airline from Fresno to Las Vegas; secured a lucrative contract with Harrah's to provide charter services to its casinos in Laughlin, Nev., and Reno, Nev.; and started to transform Allegiant into a low-cost carrier.
"The model evolved out of survival," says Gallagher, who is still CEO.