The US airline we need in Australia

Not everything that comes out of the USA is transplantable Down Under. But there's at least one little-known airline that operates a template that could be used in many other markets, including Australia.

With a fleet of about 70 planes, most of them 150-seaters, Allegiant Air flies a network of around 200 “city pairs” in the US between small cities of 20,000 or more that have no existing service and prime holiday destinations like Tampa, Orlando, Fort Myers and Fort Lauderdale in Florida, Phoenix, Arizona, Las Vegas, Nevada, Los Angeles, California, and Honolulu and Maui, Hawaii.

Allegiant is an ultra-low-cost carrier like Florida’s Spirit Airlines and charges ancillary fees for every extra, but, unlike other low cost carriers, isn’t trying to woo budget business flyers. It is a pure holiday airline, so frequency isn’t an issue and on some of the routes it flies there are only two weekly return services.

It’s a totally novel idea that works well because of the sheer size of the US market, where there are hundreds of cities of 20,000 to a million people, as well as around 50 cities of more than a million.

To underline the success of Allegiant’s modus operandi, it is America’s most profitable airline pro rata, with an operating margin of about 15 per cent (the percentage of every dollar earned that’s gross profit), where most airlines consider themselves lucky to chalk up 10 per cent.

Australia, by contrast, has only five cities of a million or more spread over a vast area, but there’s almost 100 cities of 20,000 or more that could sustain similar services.

Like the US, regional Australian cities have most of their air links via hub-and-spoke networks centred on the major cities.

In my opinion, it’s a blight on Australia that major regional cities like Wollongong (290,000 people), Toowoomba (130,000), Bendigo (100,000) and Ballarat (100,000) have never had proper jet airports that could host direct air links to the major cities.

Equally, there are dozens of places in the sun that have never had direct air links to some of the major centres, like Ballina/Byron Bay in New South Wales and Hervey Bay, Maroochydore-Sunshine Coast and Proserpine in Queensland.

While the Gold Coast didn’t get a proper runway to enable international services until after it was privatised – and are still weight-restricted – Maroochydore still cannot take small widebody jets like the 767 and has only one, infrequent seasonal international service to Auckland.

Like the Allegiant Air strategy, there are many city pairs in Australia that could be flown economically, but are not.

However, there are significant barriers.

1. Many big regional cities have airports suitable only for turboprop jets, which massively increases the ticket prices and shrinks the potential market size for new services. Unless the airport can be serviced by planes the size of 737s or A320s, it is off-limits for new air services.

2. In the absence of price controls (abolished by the Howard government in 2002), many of the major Australian airport monopolies price gouge airlines. Among the worst of them, Sydney now charges airlines around $15 for each passenger arriving and $15 for each passenger departing – about 10 times the rate charged by the old government-owned and immensely profitable Federal Airports Corporation. Darwin is even worse, charging more than $20 per passenger, including ludicrous security charges, and, in my opinion, has almost killed regional commercial services in northern Australia since it was privatised.

3. Instead of flying new planes that are kept in the air for up to 12 hours a day, Allegiant uses planes bought on the secondhand market that fly less than six hours a day on average – the lower cost of ownership helps the airline achieve the returns that make it so profitable. Australians have been spoilt by the fact that airlines generally use new planes. When Qantas, for example, operates 747s up to 20 years old, it has faced an uphill battle getting consumers to accept them.

Still, I live in hope that we might see a maturing of the domestic airline business that would see many more people being able to fly affordably. Thinking outside the square like Allegiant might deliver many new customers and markets for airlines and communities willing to invest time in looking at the possibilities.

Take a look at Allegiant Air's interactive route map here.

An excellent long-form interview with Allegiant Air president Andrew Levy by Airline Business magazine is here.

Would you like to see an airline like Allegiant operating in Australia and flying to destinations beyond the major capitals? Have you had difficulty finding flights at decent prices to some of Australia's smaller cities? Post your comments below.