Allegiant vs. AirTran, the Duel for Orlando

Over the past 12 months AirTran has added a number of new cities to its route map.  Many of these cities have not received service to Atlanta, AirTran's primary hub. Instead, AirTran has targeted these flights to Orlando, a fast-growing market for the company, and one that continues to hold up reasonably well despite the recession. But AirTran faces considerable competition in Orlando, not merely from established LCCs on routes to/from major cities, but also  from Allegiant on routes to/from smaller markets, such as Allentown, Knoxville, and most recently, Grand Rapids, where AirTran announced new service from Michigan's second-biggest airport to Florida, stepping on Allegiant's toes. In response to AirTran's advance, Allegiant has added frequencies in markets such as Grand Rapids, and has shifted the destination of many flights from Orlando's Sanford Airport to Orlando McCoy, the more popular and convenient airport in the city (all of AirTran's flights are to/from McCoy).
 
But while AirTran is having to fight for market share, it possesses a number of advantages over Allegiant, the most important being its generally better value for consumers. Unlike Allegiant, AirTran does not charge for charge for online booking (Allegiant charges an astounding $14 for this privilege), seat assignments (on some AirTran fares, seats are not assigned at booking, but all seats are assigned before boarding), or beverages on board. Moreover, Allegiant charges vacation travelers (who are likely to check luggage) more than AirTran if bag fees are paid at check-in. So on Allegiant, to avoid paying excess fees, one must book tickets at the airport, and pay bag fees at the same time. Not an easy proposition for most travelers who don't know how much they'll be taking. Combine Allegiant's arcane and uncompetitive fee structure with AirTran's better brand recognition and frequent flyer program, and it seems that there should be no reason why travelers book with Allegiant.

While I anticipate AirTran to make strong market share gains in the markets it enters, assuming flights are conveniently timed and priced, Allegiant will not be a pushover. By changing hub airports and adding frequencies, they are fighting back. And where they recognize that they can't make money due to depressed yields from AirTran's competition, they will pull out, as they have of other markets that LCCs have invaded, such as Newburgh, NY. But keep in mind that even if Allegiant's flights, with all their extras, are more expensive than AirTran's, Allegiant markets itself as creating value for customers by selling them vacation packages. Allegiant sells only airline tickets to relatively few customers--the company makes much of its money through ancillary revenues. Customers who want the convenience of booking their flight, hotel, car rental, and theme park tickets can do so in one process at Allegiant's website. Moreover, because of the volume of travelers Allegiant handles, the company negotiates significant discounts with hotel operators, and passes the savings on to customers. Thus if AirTran is to succeed in the Orlando market, it will need to ensure its vacation package offerings and pricing, not merely flights, are competitive.

Nevertheless, I imagine that in many of these cities, AirTran will be the victor, and this I see as more positive for consumers than Allegiant. There are a number of reasons for this, including AirTran's more transparent and inclusive pricing structure outlined above, as well as the fact that AirTran is starting to make Orlando into a hub for Caribbean services, and customers who want to fly from Knoxville to San Juan may soon be able to do so via AirTran, something unavailable to Allegiant customers. But perhaps most important of all, if AirTran succeeds in these smaller cities with Orlando service, it may ease the way for the carrier to offer services to more business-oriented destinations, such as New York, Boston, Baltimore, and Atlanta, the latter two allowing customers to connect to additional AirTran cities. Many of these small markets have incredibly high fares (Grand Rapids, for instance, was recorded by the Bureau of Transportation Statistics, as having the second-highest airfares in Q3 2009). While service to Orlando alone isn't likely to lower fares considerably in these markets, since most business travelers need to head elsewhere, it helps to establish the carrier in the community--essential for starting services against fierce legacy competitors. As with many airline duels, this one will be interesting to watch going forward, and if AirTran is the winner, could have implications for how Allegiant will address competitors encroaching on its other bases.