Allegiant Air, a low-cost carrier based in the United States, revealed plans on Wednesday to purchase 50 new Boeing 737 MAX jets for $5.5 billion at list prices, marking a shift in supplier and strategy as it prepares for a post-pandemic tourism recovery.
The order represents a significant shift in strategy for the fast-growing domestic carrier, which had previously depended primarily on used Airbus aircraft, according to one analyst, who was reacting to purchase plans first reported by a major newswire on Tuesday.
According to Jefferies analyst Sheila Kahyaoglu, Allegiant "has experienced one of the strongest recoveries of U.S. airlines," and the purchase is proof of post-pandemic confidence in leisure travel "vastly outperforming corporate travel."
According to Chief Financial Officer Greg Anderson, the Las Vegas-based carrier will purchase 30 737 MAX 7 aircraft and 20 737 MAX 8-200 aircraft, making it the first customer for the larger type in the United States.
In an interview, he said that 10 jets will be delivered in 2023, 24 in 2024, and 16 in 2025.
After two significant medium-haul customers, Qantas and numerous Air France-KLM affiliates defected to Airbus in December, the deal is a boost for Boeing.
"With this deal, and these new MAX aircraft, it will provide the ability to grow into 400 more routes," Anderson added.
He wouldn't say which city pairs are being targeted for the expansion but said the jets would expand seating capacity and save 20% on fuel compared to Allegiant's older Airbus flights.
In pre-market trade, Boeing shares increased 0.5 %. Allegiant Travel Co, the airline's parent company, saw its stock drop 0.7 %.
According to Jefferies, Allegiant has primarily relied on older planes to cut expenses, a strategy that allows it to utilize some jets less intensively and target thinly populated routes, with some flights flying no more than twice a week.
The mixed fleet approach, according to Raymond James analysts, is ideally suited for what is projected to be a "choppy recovery" but it comes with operational inefficiencies.
Allegiant currently operates 110 Airbus A319s and A320s and will continue buying A320s in the used market, Anderson said. It has some 50 aircraft – 20 A320s and 30 A319s - that it may need to retire over the coming decade.
Wednesday's expansion is the latest sign of growth among "ultra-low-cost" carriers that combine rock-bottom fares with optional charges. Such carriers are expected to emerge in a position of relative strength from the COVID-19 pandemic.
"Our bookings are greater than they were in 2019," Anderson said, referring to pre-pandemic travel levels.
Nonetheless, Allegiant, like many other airlines, has expressed concerns about rising fuel prices, labor and supply chain issues, and inflationary pressures.
Viva Aerobus, a Mexican airline, formed a business partnership with Allegiant in December to offer flights between the United States and Mexico.