Allegiant's (ALGT) November Traffic Rises, Load Factor Down

Allegiant Travel Company (NASDAQ:ALGT) reported mixed traffic numbers for November 2018. In spite of traffic increasing on the back of strong demand for air travel, load factor declined as traffic growth was outweighed by capacity expansion.

Traffic for the total system (including scheduled service and fixed fee contract), measured in revenue passenger miles (RPMs), increased 10.1% on a year-over-year basis. System capacity, calculated in available seat miles (ASMs), expanded 12.2%.

However, load factor (percentage of seats filled by passengers) contracted 1.5 basis points (bps) year over year to 80%. Allegiant’s passenger count rose 11.1% during the month. The company’s system-wide average fuel cost per gallon in November was approximately $2.39.

We note that the Las Vegas, NV-based carrier is struggling against several headwinds. We are concerned about the company’s high debt levels. A high debt level restricts expansion in the future and makes risk profile worse. A company is required to generate adequate operating cash to clear the debt.

Moreover, despite the current downtrend in oil prices, fuel costs are a major headwind for Allegiant. As was the case in the previous few quarters, fuel costs are expected to limit bottom-line growth in the fourth quarter of 2018 as well.

Price Performance

Due to the above headwinds, shares of Allegiant have performed disappointingly in the past six months. The stock has declined 17.3% compared with the industry’s fall of 9%.

Zacks Rank & Stocks to Consider

Allegiant carries a Zacks Rank #3 (Hold).

A few better-ranked stocks in the Zacks Transportation sector are Frontline Ltd. (NYSE:FRO) , Spirit Airlines, Inc. (NYSE:SAVE) and Seaspan Corporation (NYSE:SSW) . While Seaspan carries a Zacks Rank #2 (Buy), Frontline and Spirit Airlines sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Shares of Seaspan, Frontline and Spirit Airlines have gained 4.3%, 19.2% and 60.5% in the past six months, respectively.

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