30-Second Interview – Lukas Johnson, VP Network & Pricing, Allegiant Air

Lukas Johnson VP of Network & Pricing at Allegiant Air confesses to anna.aero’s Jonathan Ford

“Firstly I would say that the number one criteria is unserved demand or potential to develop demand in a market, demand that we think that the carrier can go in and stimulate at a certain price point,” Lukas Johnson, VP of Network & Pricing at Allegiant Air tells anna.aero’s Jonathan Ford what the carrier looks for when searching for new US airport and market opportunities.

On 15 April, anna.aero’s Assistant Editor Jonathan Ford was warmly invited by Allegiant Air to meet with its VP of Network & Pricing, Lukas Johnson at its Las Vegas headquarters. Two days before the meeting between anna.aero and Johnson, Ford had taken part in Allegiant Air’s open house media day, which allowed for an insight behind the day-to-day operations of the carrier.

Key topics that were discussed in the meeting between the two included what the carrier looks for in an airport it is considering introducing to its network, and the outlook for the carrier over the next 12 months in regards to its route development. Johnson also highlighted how the route count has grown over the past few years by over 100. This week the carrier introduced a further eight US domestic routes to its network, with none of the eight served by an incumbent carrier. Other topics spoken about included the carrier’s potential growth into international markets either side of the US borders, and how the carrier can stimulate its existing markets.

anna.aero: “When Allegiant Air starts looking for potential airports to serve, what are the factors that the carrier looks for most in a market?”

Lukas Johnson: “Firstly, I would say that the number one criteria is unserved demand or potential to develop demand in a market, demand that we think we can go in and stimulate at a certain price point. That could be a small city that has no service whatsoever where we could say for example start a service to Florida, or it could be a larger city without a lot of good non-stops or only seasonal services. It could even be a larger city that has really high fares but there is a ton of demand for low fare services. All three of those factors most importantly are what we look for in a potential market, but the question is can Allegiant Air stimulate those passengers at a fare that we can make work for us.”

aa: “From July Allegiant Air will have 333 routes across the US. With regards to that, what is the total amount of routes that we could see the carrier serve next summer?”

LJ: “We have had quite a bit of growth during the past few years, we entered 70 new markets last year. We are getting a bit more realistic to allow some of these routes to mature. By next summer I could imagine that the total will be over 350, but growth will not be the same in the next year or so compared to what we have seen in the past 18 months. I think as well you’ll see some market swops and see the carrier building on some of the route and airport successes of the last few years.”

aa: “In regards to the last few years, what has been the route jump from 2013/14 to now?”

LJ: “Allegiant has announced or started service last year (2015) on 69 routes and 2014 as well had a good amount of routes, so if you go back around two years we have easily added over 100 services. We have announced around 40 new routes during the first few months of this year, so that is easily 100-140 routes since 2014. In around 2012/13 that was when we hit the 200 route mark so we have stocked up quite a bit in the past few years, approximately a 50% growth in routes since 2012/13.”

aa:” It has been mentioned that Allegiant Air is potentially looking at serving more slot constrained airports such as New York’s Newark. With that in mind, how would the carrier serve those airports if it did get the slots? Would it be on the same type of network you operate currently such as twice-weekly from certain airports, or would we see higher frequencies due to higher populations seen in these airport catchment areas?”

LJ: “Initially we would start serving at twice-weekly, which is our rule of thumb. With larger cities we have gone three to four weekly before. We have never announced daily service to anywhere we currently serve so even at a major airport you will not see that from us. In major metro areas such as New York City or Newark the potential is definitely there to serve higher frequency routes, but it would not be part of Allegiant Air’s initial plan for us to go in with a daily service. It is exciting of course for the carrier, as it would mean a much larger network than what Allegiant Air has now, or even have dreamt about a few years ago.”

aa: “In regards to those markets where Allegiant’s brand is not that well known, how would the carrier market themselves in those types of areas?”

LJ: “It is not about a ton of spending, but more our own media in regards to PR and doing events and giveaways and doing things that is best for us to get Allegiant Air’s name out there. We see that as word of mouth through affordable fairs, good service, non-stop operations, and convenient routes to people that would not usually fly with us otherwise. There may be service to Newark from an airport we serve that has a really high fare and well established market, so the challenge for us is getting our low fare tickets awareness out there to that customer potential. It is like what easyJet and Ryanair have done in Europe recently, which is that you go out there with these ridiculously low fares and you start to see a pick up and attraction to the carrier. Realistically the airline is never going to spend $10 million on a marketing campaign in New York City, we are just not at a scale where we would consider that type of marketing useful. One of the things we do is that word of mouth tactic. What we do is we go out and do events to spread the word, I mean we have a team this week out at a women’s expo in Richmond Virginia. These are the women that we see as our target demographic, the folks that are making the decisions about their family vacation. We find that it makes a lot more sense because our business model is different from other carriers to go into a market and actually be there and have conversations with people. It is a more in-depth message to a potential customer than what you get from slapping your company logo on something. It is so people know who we are as a carrier and what we do.”

Perusing the Allegiant Air route map it highlights that Allegiant Air flies to 113 US airports in 42 states

Perusing the Allegiant Air route map it highlights that Allegiant Air flies to 113 US airports in 42 states, with a total of 333 non-stop routes. This means that Allegiant Air will be the fifth largest carrier in terms of US domestic routes served and also the fourth largest carrier in regards to US airports served. These figures will increase further over the next few years as the airline considers serving more destinations, including operations to more slot constrained airports such as Newark.

aa: “Florida is a very important market for Allegiant Air, and it is evident that the carrier has a lot of services to that state. However, there are certain markets including Tallahassee and Melbourne that are not yet served by Allegiant Air, airports which are still some distance away from other airports which you do serve in Florida. Is there potential for services to those markets?”

LJ: “Yeah of course. You know if you asked Allegiant Air five years ago if we had Florida well covered we would have said yes, but then we have grown so much from the state recently that we did not realise that there was room for so much more growth. Next month we will be launching flights to Destin-Fort Walton and they are currently selling very well. I think we will always continue to look for options to sunny places where people want to visit. Jacksonville was started up last year so again you have got routes starting to different parts of Florida that were not traditionally well served, so I think that the carrier will continue to narrow that. If an airport is too close to one of Allegiant Air’s existing airports, I think that is the only difficult part in regards to us starting a service. There is certainly a pretty good number of airports that we could serve such as Sarasota. However, we already operate to St. Pete-Clearwater and Southwest Florida which are both situated north and south of Sarasota, so it is in a pretty good spot for the airline to say it will not serve that airport right now due to that factor. Daytona Beach is just east of Orlando Sanford so that again is an airport which is a little too close for us to consider serving currently. As for specific airports we like to serve, Allegiant Air has its eyes peeled on new opportunities but if it is a little too close to a facility we serve then we may not consider it.”

aa: “We know the airline does some charter operations into Mexico and that tourism is growing in the nation, substantially in some areas. With a potential transition from a charter operation to a scheduled operation, how would services develop in time until a scheduled operation was put in place?”

LJ: “As you know we are currently operating several charter flights into the Caribbean as well as Mexico. As that business grows I think you’ll find the potential for the carrier in this market will grow with other travel companies to corporate with. This will of course increase the airline’s potential to start scheduled services. If you looked three or four years ago you’ll find that the smaller cities that we serve in the US did not have any customs facilities or border control to clear passengers into a foreign nation. Now operating these charters in the last two years or so has opened up a lot of those inside markets in the US, and these cities are now well capable of handling international flights. In the next few years you’ll see a compelling case for us to enter into the international market with scheduled flights. I think that the beach destinations will have more substance, I mean Allegiant Air is already taking people down to Florida and we know that they are wanting to visit some high end beach places down in Mexico or other areas of the Caribbean, so we look forward to one day connecting people to these places.”

aa: “Talking about tourism outside of the US, one of the big talking points at the moment is the possibility of US airlines serving Cuba. Currently we see multiple US airlines applying for slots into the country, specifically Havana. Does Allegiant Air have any potential plans to serve Cuba?”

LJ: “At this moment no, we are focusing on US domestic and those charter programmes we have just talked about. But it does not mean that we are not considering service in the future. I think Cuba is very interesting for the US traveller and an interesting talking point right now because nobody knows how those secondary airports are going to perform. Havana has several more slot requirements as that is where the major percentage of the population is. I think people will be waiting to see how both the tourism side develops in relation to traffic development, and also to look at how visa entry requirements will perform and develop. It is a brand new destination so you are going to have a lot of demand but also you have got a few people saying it is not very well established and American’s may say we should not have gone there yet. The market is going to take a little longer to ramp up for other carriers. People are going to be interested to see what the Cuba market will do.”

aa: “So at this time Allegiant Air is just taking a step back and seeing how other carriers perform in the market before making a decision as to whether it should serve or not?”

LJ: “Yes, that is what we are doing at the moment.”

aa: “Allegiant Air serves a lot of US airports, and with it serving many secondary airports will it get to a point where the carrier will have to start looking to major cities such as Denver, Boston, Detroit and Portland to get new customers?”

LJ: “Being small does not mean we should try to go in to a primary airport in a major city and try and win over those customers. If you see us in a major city, for example we serve Los Angeles’ LAX and soon Baltimore/Washington which is starting in a couple of weeks and potentially Newark, that is the destination to us. We would be taking people traditionally from smaller cities to major ones for city breaks or to visit family. It is never going to be our intent to fly between Chicago and New York or Dallas and LA that leads to primary routes or business routes, that is something that we are not going to do. But if there is a certain opportunity for say out of New York, Seattle or Boston to a smaller airport we serve than the carrier would consider it. It is about serving the under stroke major market.”

Johnson highlights to Ford the extensive growth of the carrier’s Florida operations

Johnson highlights to Ford the extensive growth of the carrier’s Florida operations. However, Allegiant Air is thinking about serving more city destinations, looking beyond the beach and holiday routes that the airline currently offers.

aa: “How does Allegiant Air manage to keep its costs low compared to other US carriers while operating an old age fleet? We know that they do tend to be more expensive to run so how is the carrier able to keep that balance just so?”

LJ: “So everything in our route structure is built around the flexibility and frequency of travel, so we use the aircraft with low utilisation and low running costs and a low purchase price in order to offset the higher fuel burn. For us it is more important to keep the fixed costs as low as possible. You are always going to be paying a high cost for fuel compared to everything else but as long as you can keep those set costs low then it allows you to flex up and flex down other costs during the offset months. Our summer and spring break periods, when all the kids are off school, those are our peak periods so we are going to be flying twice as much as we would in other times of the year, especially the dead periods of the fall and the beginning of winter. Again it is kind of a laser light focus on why we are doing it like this and others are doing it another way. Is there anything we can do different? And that is the thing about being small is that Allegiant Air does the route network differently to others, so we take the same approach to cost control. It is not just saying we are going to slash jobs or wages, but more about structuring the deals the way we do in order to maintain those costs.”

aa: ”Looking at the airline’s strategy of buying secondary aircraft, could there be a point in Allegiant Air’s future where you decide to go for an order of brand new aircraft?”

LJ: “It’s certainly something we have considered in the past, and I am sure we will still continue to visit the prospect. It is just a matter of seeing what benefits we get from buying new aircraft compared to buying used aircraft, and what the operating economics are of that. I know Ryanair famously placed a major aircraft order when the market was very low in 2001 and managed to get a good price. In distressed economic times where you see low aircraft prices I’m sure we would consider it, but it is not something in a regular demand period such as now where new aircraft cost considerably more than used ones. It does not quite yet fit into Allegiant Air’s business model of new aircraft. New aircraft tend to be run more often and used for more business type routes with high frequency and high utilisation, and that is not the focus of our model. It would make more sense for us at present to not purchase new but secondary. But we are always open to the possibility of placing an aircraft order for brand new units.”

aa: “ Allegiant Air’s core structure around the tourism market is mainly focused on the beach tourism market. With other aspects of tourism trips including city breaks and ski holidays, which goes against in some way the seasonality of your operation, could we see the carrier develop in those markets?”

LJ: “We have a small ski market, it is not a lot but a little bit. I certainly think that it is an opportunity. In terms of city breaks we have got a little bit as well. I mean Los Angeles is most certainly a primary city and has got to be classed as a city break destination. The two cities that I would say are more of a city break destination are the bay area around Oakland in San Francisco, and soon we are starting services to the US capital with flights to Baltimore/Washington. Those are destinations for city breaks, I mean you’re not going to the beach if you are going to Washington DC, but you’re going to check out the city, particularly museums and shops. So we are dabbling in some city break stuff and if that goes well I think you’ll see Allegiant Air grow that market further in the future with places such as New York and Chicago. Those are very popular city destinations so we will just have to see how we progress with what we offer right now.”

aa: “What is the average sector length for an Allegiant Air route?”

LJ: “At the moment it is just over two hours and 15-30 minutes.”

aa: “So with more potential city breaks coming onboard to the airline’s route map, could we see major cities in the East be connected to minor cities in the West and vice versa?” Or would that increase in average sector time not work for Allegiant Air?”

LJ: “Yeah so with Allegiant’s network being very different to other carriers in the US it involves a lot of out and back flying with crews always being based in their home cities, with no need for overnight stays in another city. We don’t have that many base airport like Ryanair for example but we have 19 crew bases so it is a small version of Ryanair’s 84 base airports. We operate a similar pattern to what that carrier does. With that, it means we have a target limitation on destinations we serve from our bases and right now that is just over four hours, so that means you can go to most of the country but you’re not going to see Allegiant Air operating coast-to-coast flying in the US as it would go against our strategy. But in connection places like New York and Los Angeles you could see sectors of up to four hours being served from airports in those cities.”

aa: “There has been some talk of Allegiant Air serving Canada. How would this country market be served? Would it be from small Canadian airports to major US cities of small US airports to major Canadian cities?”

LJ: “Hmmm….I think you could see both. I mean it is the same philosophy if you are a small Canadian city and you do not have service to Florida or Las Vegas, that would be an interesting market, or it could be a major Canadian city which does not have offerings to small beach destinations, you could see that being offered by Allegiant Air as well. It is going back to whether it is underserved or unserved, factors that we as an airline look for in potential routes. There are certainly opportunities in Canada that make sense and we have a strong presence in a lot of the border cities. We are drawing Canadians to our services in Bellingham near to Vancouver for example. So with that market we would offer similar routes to what we offer from our northern US airports and attract out to our existing customers.”

aa: “Finally we know that 77% of the US population live within a 100-mile radius of an Allegiant Air service. Do you know what the average commute distance is for an Allegiant Air passenger from their home to an airport you serve?”

LJ: “Not specifically but I do know it varies from where you are in the US. If you take airports in Montana for example people will drive two to three hours to use an Allegiant Air service because it is more rural and therefore the airport catchments are bigger. On the East Coast however cities are more densely populated so the average commuter time is shorter to the airport. It tends to be around 45 minutes because if you travel that distance one way or 45 minutes another way you are most likely going to be within the proximity of another airport which Allegiant Air serves. I do believe though that passengers do travel further for a service with us then what people do with other US carriers.”

Showcasing the Allegiant Air fleet in model form

The ULCC operates a total of four aircraft types, the A319, A320, B757-200 and the MD-80. Showcasing the carrier’s fleet in miniature form are: Wade Citro, Manager, Charter Planning; Todd Schuster, Revenue Planning Analyst; Lukas Johnson, VP Network & Pricing; and Max Barrus, Manager of Scheduling.

 


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