Air Travel Demand, Fleet Upgrade Aid Allegiant Amid High Labor Costs

Allegiant Travel Company (ALGT) stands to benefit from air travel demand and its related fleet-modernization initiatives. A solid balance sheet enables ALGT to consistently reward shareholders with dividends and share repurchases. However, production delays at Boeing BA, high labor costs and macro-economic uncertainty represent major challenges for Allegiant.

Factors Favoring ALGT

Strong passenger volumes bode well for Allegiant. With people taking to the skies, ALGT’s top line increased 5% on a year-over-year basis in the first half of 2025, owing to a 5.1% rise in passenger revenues, which accounted for the bulk (88.9%) of the top line. Given this encouraging backdrop for air-travel demand, ALGTrecently announced the opening of three new nonstop routes, which will connect five cities nationwide, along with offering new service to Burbank, CA, via Hollywood Burbank Airport. ALGT is not the sole U.S. airline to expand its international network. Similarly, United Airlines Holdings, Inc. (UAL) announced its winter expansion schedule, which includes the addition of flights to 15 cities, including Fort Lauderdale, Orlando, and Las Vegas.

ALGT’s fleet modernization efforts, which cater to travel demand, are praiseworthy as well. ALGT ended second-quarter 2025 with 126 (32 A319, 85 A320 and nine Boeing 737-8200) planes.Consistent shareholder-friendly initiatives should boost investor confidence and positively impact the company’s bottom line.

ALGT: Key Risks to Watch

Allegiant is being hurt by the tariff-induced challenging macroeconomic backdrop. The ongoing economic uncertainties and the resultant reduction in consumer and corporate confidence have the potential to hurt domestic air travel demand. 

Production delays at Boeing, due to quality control checks and regulatory reviews by the Federal Aviation Administration, have been hindering the fleet-related plans of most airline companies, and it is no different for ALGT. Apart from lower profitability and increased maintenance costs, delays in aircraft delivery are also expected to limit capacity growth going forward.

Escalating operating expenses due to high labor costs weigh on Allegiant’s bottom line. ALGT witnessed a 9.3% rise in operating expenses during the first half of 2025 despite aircraft fuel expense down 2.4% year over year.

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This article originally published on Zacks Investment Research (zacks.com).

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