Alaska Takes a Preemptive Strike on Allegiant

Alaska Airlines announced this morning that it will start nonstop service between Bellingham, WA and Honolulu starting January 7, 2011. The flights are aimed at travelers in the northern Seattle suburbs, as well as those on the other side of the border who may be lured by lower fares from Bellingham as opposed to Vancouver. This move is likely in preparation for Allegiant Air, which is preparing to start services to Hawaii next year from a number of West Coast cities. Allegiant, which has a focus city in Bellingham, has grown its operations in the city considerably over the past several years, without much response from Alaska. This is surprising given that Alaska has been very aggressive at responding to new low-fare competition on the West Coast, including with Southwest in the early 1990s, and more recently with Virgin America. As a result of this passivity, Allegiant has most of the market in Bellingham. However, this move could put an end to Allegiant's advantage. Alaska now realizes the considerable demand for flights from Bellingham, and while the airline may be unable to stop Allegiant from launching new services, or take away much of its market share, Alaska can at least make things more challenging for Allegiant going forward. 

But this is an important development not because of the one flight a day that Alaska will be flying on the route. It's important because Allegiant is evolving from the stage of being a mere annoyance to "mainstream" carriers (legacies and LCCs) to being a real competitive threat. This is not to suggest that this is the first time Allegiant has run up against direct competition. Several years ago, Northwest tried to run Allegiant off a number of routes from Midwestern cities to Las Vegas by offering competing non-stop flights, which ended miserably as Northwest lost lots of money and dropped the routes soon after they started. JetBlue and AirTran also fought Allegiant, and won, when all three airlines served Orlando from Newburgh/Stewart Airport north of NYC. Granted, the situation is not like a few years ago when LCCs were adding planes like crazy and had to dump them in lots of different markets, some of which overlapped with Allegiant's. Allegiant has shied away from competition before, but increasingly, they will be unable to do so, and Bellingham may be a case in point. The airport has been a shoe-in for Allegiant's Hawaii service, but Alaska announced first. If Allegiant responds, it could signal a new competitive aggressiveness by the carrier which needs to fight for market share.

And these days, Allegiant is better-positioned to fight, with better brand loyalty from travelers, as well as a reputation for delivering travel value. The truth of the matter is that customers in this recession are looking for excellent value more than ever. And Allegiant has very low costs, operates to airports close to where many people want to travel, and can offer very low prices for vacation bundles. Frequent flyer programs and lots of flights are important for business travelers. But for leisure travelers, being able to travel cheaply is most important. Being able to do so non-stop, and on a mainline jet (far more comfortable for the family than a tiny regional jet), is a bonus. I suspect Allegiant's Hawaii flights will be a success because of this, provided they can keep their costs low and rely on vacation packages, not simply fares for their revenues (which they have done for their other markets). Aloha Airlines, which served Hawaii from many secondary cities around the West Coast, folded a couple years back. Their yields got hit hard while their operating costs were relatively high (operating high seat-mile cost planes), and they didn't have much ancillary revenue through vacation packages and other sources (relative to Allegiant).

It will be interesting to see what destinations will get Hawaii flights when Allegiant makes the announcement. But be warned that their announcement may invite more competition from Alaska and/or United, and that could set up a heated battle on the West Coast. However, unlike several years ago, Allegiant can win these battles if travelers continue to trade down and if it focuses on markets where legacies and LCCs will have a tough time competing against infrequent, bare-bones, and inexpensive service.