UPDATE Jan 6 – Boeing and Allegiant Air were tightlipped on Tuesday, but a day later they have confirmed reports that the airline has selected the MAX for its fleet renewal and growth strategy. Allegiant has placed a firm order for thirty MAX 7s and twenty 8-200s for delivery from 2023 through 2025, with purchase rights for another fifty, it said on January 5. Allegiant selects MAX but partly keeps A320ceo fleet.
The order is a welcome start of the new year to Boeing, which lost out to Airbus in December when Qantas, KLM, Transavia, and Transavia France selected the A220 and A320neo/A321XLR. This time it’s Airbus that is losing an order, as Allegiant has been an all-Airbus operator since retiring its McDonnell-Douglas MD-80s and Boeing 757s in 2017 and 2016. It introduced the A320ceo in 2013.
Allegiant Air currently has a fleet of 108 A319s and A320s, the former with an average age of 16.5 years and the latter of fourteen years. They have flown before with a wide selection of airlines that include easyjet, Iberia, Peach, or Cebu. It bought eighteen new A320ceo’s in 2016 and took delivery of the first of them two years later.
The MAX will offer the ultra-low-cost airline with more fuel-efficient and economical aircraft, with the MAX 7 in a 173 seat single-class configuration offering more capacity than the A319ceo with its 156 seats. It gives the carrier the flexibility to introduce new routes that need to prove their worth, adding capacity when they have matured with the 210-seat MAX 8-200 that entered service with Ryanair and its subsidiaries Buzz and Malta Air last year. The Irish low-cost operates the MAX 8200 with 197 seats but Allegiant will configure the type with 200 seats. The high-density version recently also won orders from Indian start-up Akasa Air and lessor 777 Partners.
First MAX expected in June 2023
Allegiant will take delivery of the first MAX in June 2023 and expects ten deliveries that year, 24 in 2024, and sixteen in 2025, when the fleet will have thirty -7s and twenty -8-200s. By 2025, the airline will have a fleet of 171 aircraft. According to the investor’s presentation on January 6, the MAX 7 will generate $7.0 million in EBITDA per year, two million more than the A319. For the 8-200, EBITDA will be $10 million, an increase of three million over the A320ceo. Total EBITDA benefits add up to some $300 million per year while annual ownership costs are in line with the Airbus-fleet. Seat costs per departure for the MAX 8-200 are $54.9 compared to $64.7 for the A320ceo, and $60.7 for the MAX 7 versus $74.2 for the A319ceo.
While the carrier compared the MAX with the A320neo and even the A220-300, the short-term availability of the Boeing was pivotal in its preference. The A320neo is sold-out out until 2026 while the A220 lacks the flexibility of the MAX 7 and -8-200 combination. The support package from Boeing and the ability to continue its relationship with CFM also was presented as an advantage, which Allegiant could have had if it had wished to wait for the A320neo.Â
Allegiant will likely phase out all Airbus A319ceo’s, like this one, but will keep an A320ceo fleet and will even add more used aircraft. (Allegiant Air)
While Airbus has lost an order for the A320neo-family, it isn’t losing Allegiant Air as an entire customer. The carrier makes clear that it plans to operate the MAX alongside its A320ceo-family for some time to come, adding even more A320ceo’s when they become available. This is defying the golden rule of low-cost that you need a single-type fleet if you want to maximize your costs advantage.
Allegiant used to follow this rule by sourcing used A320ceo-family aircraft to maintain lower fixed costs. “However, the pandemic recovery cycle has brought to Allegiant unique opportunities to acquire new equipment, including this aircraft-family solution, which will add significant economic and operational benefits for years to come”, the carrier says in a press release.Â
Strategy continues to center around used aircraft
Chairman and CEO Maurice J. Gallagher says: “Our approach to the fleet has always been opportunistic, and this exciting transaction with Boeing is no exception. 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 – including flexibility for capacity growth and aircraft retirements, significant environmental benefits, and modern configuration and cabin features our customers will appreciate.”
The mixed Boeing and Airbus fleet will allow Allegiant Air to retire some twenty 177-seat A320ceo’s between 2022 and 2025 and the A319ceo’s from 2025, at the same time adding capacity again. It will be looking out for opportunities to source used A320ceo’s when they come available. “We are still a used airplane company. We are still an Airbus company”, Gallagher said during the webcast.
CFO Greg Anderson added: “This is not a deviation from our business model in any way, rather an enhancement of it. We will continue to acquire and primarily operate used Airbus aircraft. We see enormous growth opportunities in the years ahead and we believe we can have more than enough future routes to support our ten percent annual fleet growth target to the end of the decade. The order is a major step to getting to 250 aircraft by the end of the decade and this order is a major step in the right direction to meet this target” No airline that size is run with only a used fleet that size, Gallagher noted.
Replacing the oldest A319s and A320s will save the airline some $700 million in future maintenance costs. Introducing new and more economical aircraft with better fuel efficiency, lower ownership costs, and an expected 2.3 percentage point better reliability makes it possible to operate seasonal markets on a go year-round basis. Allegiant thinks that introducing the MAX allows it to grow its network from 1.000+ to 1.400+ routes especially to new small and mid-continent bases.Â
Slide from Allegiant’s investor’s presentation, comparing the MAX with the A220-300 and A320neo. (Allegiant)
MAX has the strongest position in North and South America
Stan Deal, Boeing Commercial Airplanes President, and CEO, is most happy with the Allegiant order: “This deal further validates the economics of the 737 MAX family in the ULCC market and we’re excited to stand alongside Allegiant as they integrate these new airplanes into their fleet.”
The latest deal with Allegiant Air seems to confirm a trend that the Boeing MAX is selling especially well in North and South America while losing market share elsewhere, notably in Europe. Except for Delta Airlines, the MAX has been bought by legacy carriers like American, United, WestJet, and Air Canada, while also forming the backbone of the fleets of Southwest and Alaska Airlines. In Latin and South America, the MAX has been the preferred aircraft with Aeromexico and GOL. Delta has opted for the A320neo-family, as have JetBlue, Frontier, and Spirit. United will get the A321XLR later on, while JetBlue, Breeze, and Air Canada also operate the A220.
In Europe, Boeing over the past two decades has steadily lost market share to Airbus in the medium-haul segment with orders from Lufthansa, Air France, British Airways, Aer Lingus, Iberia, SAS, or airBaltic. Boeing lost orders to Airbus from ITA Airways and Jet 2 last year, while the Letter of Intent from International Airlines Group (IAG) for 200 MAX seems off the table. After the ‘defection’ of KLM and the two Transavia’s, another major carrier has jumped ship. It leaves the MAX in service only with Ryanair, TUI Fly, Norwegian, Icelandair, and in the near future Flyr.
