Allegiant’s MAX order – some analytics to consider

The Allegiant Air order is good news for Boeing and the US airline industry as a whole - there is life after the pandemic. The biggest issue here is that Boeing has won back a customer that had defected to Airbus. It was a soft defection since Allegiant operated McDonnell Douglas aircraft and briefly had a small sub-fleet of 757s. However, given a fleet of over 100 Airbus aircraft, a decision to swing to Boeing is a significant move. It is a highly welcome announcement for Boeing after a difficult December when things went the other way at some key customers. The order has some items that warrant some thought. Model selection - The order is for MAX 7 and MAX 8200s. The latter makes sense as these are used by Ryanair and therefore meet the LCC environment. The MAX 7 is interesting and was likely selected not because it is better than the A220, but because MAX commonality is a key cost saver. Allegiant is all about cost savings. “Our approach to fleet has always been opportunistic, and this exciting transaction with Boeing is no exception,” Allegiant Chief Executive Officer Maurice J. Gallagher Jr. The A220 lost because Airbus lost. Delivery slots - If we look at available delivery slots, where could Allegiant go for the fastest delivery? Boeing without a doubt. After a large number of MAX cancellations, Boeing has the ability to deliver much faster than Airbus. Moreover, Airbus is focusing increasingly on its A321neo family. Timing - Placing the order now is almost certainly maximizing "opportunistic" timing. Boeing needs a deal and was almost certainly aggressive on pricing. A clue to the pricing comes in this statement from Maury 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..." Allegiant likes to buy pre-owned (it bought 16 new Airbus a few years ago) and bought new in volume (50+50), so you can imagine the pricing level. Airbus could not match a delivery timetable, even if matching pricing. We don't think Airbus chased this deal as hard as Boeing. Allegiant saw a great moment to swoop in with perfect circumstances. Given the urgency among airlines to mitigate against rising fuel prices, and reduce this large variable and uncertain cost, we expect to see more orders like this. To get an idea of how important lowering fuel burn at Allegiant is, take a look at this chart. While fuel burn has improved switching to newer (if pre-owned) Airbus aircraft, fuel costs are rising again. The fastest way to cut that fuel burn is by using newer engines. The MAX is the quickest path to that goal. Now take a look at the competitive environment. Allegiant (red dot) competes with all of these airlines, but most directly with other LCCs. Spirit and Frontier specifically and have a much better fuel burn. If the MAX provides a 20 percent improvement in fuel burn, that drives costs big time. By the way, what do we know about fuel burn between the MAX and NEO? Knowing that 2020 data is a write-off, especially for the MAX, we recommend you look at 2019 and 2021 for guidance. The numbers here show the A320neo and the MAX 8. It is very close and Allegiant would benefit from deploying either model over what it has now. The MAX 8200 numbers would be even better as it has more seats than the models in the data. In summary, Allegiant has timing on its side to make a great deal. It wins no matter which OEM is selected. Circumstances favor Boeing this time. As the numbers suggest, the MAX is a good choice.

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