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"A perfect city:" Why Allegiant Air took a bet on Jacksonville.
May 3, 2016
Jensen Werley, Reporter
Jacksonville Business Journal
Allegiant Air will admit that launching flights to and from Jacksonville was a bit of an experiment for the Las Vegas airline.
When Jacksonville got connections to Pittsburgh a year ago, it was the first time the ultra-low cost airline connected two medium-sized cities, rather than its bread-and-butter formula of connecting small cities to vacation destinations.
“It was a bit of an experiment,” said Lukas Johnson, Allegiant’s senior vice president of planning, who spoke to the Business Journal. “But it was a success and it worked.”
Over the past year, Jacksonville has gone from having no flights from Allegiant Airline to nine, and the airline continues to be bullish on the First Coast.
After announcing new summer flights to destinations like Asheville and St. Louis, the airline is looking at Jacksonville as one of its major growth markets, possibly even basing planes and crews out of Northeast Florida.
Allegiant was looking for a new way to grow when it announced it would start flying direct to Jacksonville, Johnson said.
“Nobody else was flying medium-to-medium,” he said. “And we saw it as where the next level of growth for us was. We’ve changed and evolved our model where it’s not just about taking people in tiny cities to large destinations, it’s about going into any unserved market with pent-up demand.”
In the underserved markets, one-way fares can be up to $200-$300, always connecting to the major airline hubs before reaching the final destination. But Johnson said when they started flying to those cities, rates would drop 50 to 75 percent.
And for trying out this new model, Jacksonville was ideal: Not only did it have the beach and leisure aspects Allegiant normally looks for in a destination city, but it had growth potential — something that Allegiant has validated in naming nine more First Coast routes over the year.
To bet on a new business model using Jacksonville as a guinea pig might be surprising to those that wouldn’t guess Jacksonville would be at the forefront, but Johnson said it was a case of the risk not outweighing the reward.
“This was worth trying to expand our market size,” he said. “Jacksonville is a larger city. It’s not about two routes, or nine, it’s about 20 routes potentially. It has the potential to get up there.”
Johnson said the key to that growth is growing and creating a market share that didn’t necessarily exist before. By connecting Jacksonville to a city like New Orleans, Allegiant isn’t stealing passengers from other airlines, it’s targeting new passengers who don’t normally fly.
“We’re creating passengers who wouldn’t have taken that $300 flight,” he said. “But when a $300 flight from Jacksonville to New Orleans drops to $50, how many more people start to go?”
Johnson is confident that Allegiant — and its major competitors Spirit and Frontier — will be able to grow the market for some time, with room for all three.
“By the end of the decade, at our current growth rate, we’ll be close to 10 percent of the market,” he said.
Combined, the three ultra-low-cost airlines have had 14 percent annual growth since the recession, he said. The legacy airlines have grown one-tenth of a percent in that time frame. Southwest and Jet Blue have grown about 4 percent.
Johnson added that when you look at Europe, Ryanair — the leading low-cost airline — has become the largest domestic carrier, becoming a low-cost Southwest for the European set.
While Johnson said Allegiant doesn’t necessarily want to copycat what Ryanair has done, the company also has plans for big growth.
In the meantime, the next step for Jacksonville could be more flights from Allegiant, or even basing crews and planes out of the city. Because Allegiant’s cost-saving business model calls for basing its equipment and employees out of cities it flies to and ends the day’s routes in, that brings an economic boost and job growth to those base cities.
“We added flights to Cincinnati, Pittsburgh and Asheville in the last 12 months,” he said. “All three were clamoring to be a base. It means job growth, hiring people, getting new routes, more utility and lowering fares. Jacksonville isn’t quite there, but it shares a lot of the qualities.”
Johnson said the city is too small for its major competitors, who also connect to large cities like the legacies do, which is an opportunity for Allegiant.
“It’s an Allegiant-sized city,” he said. “With most of our destinations, like Las Vegas, people are flying into Las Vegas. With Jacksonville, people are flying both ways…. For us, Jacksonville is a perfect city.”