Allegiant Air turns eye to ground, plans resort
After 18 years flying as an airline for the price conscious, Allegiant Travel Co. wants to add real estate development to its list of corporate activities. The company is embarking on an audacious plan to build a 22-acre resort compound with a hotel, condominiums, bars and restaurants on the Florida Gulf Coast in Port Charlotte.
The real estate offshoot, called Sunseeker Resorts, will have a 75-room hotel, along with about 720 condo units, ranging from $650,000 to $1.1 million based on size. Completion is expected in late 2019 or 2020.
Longer term, Allegiant wants to tout its success with the Sunseeker property as a bid to begin managing other leisure-destination hotels for fees, further diversifying its revenue, President John Redmond said Tuesday.
All this new business development is, of course, far afield from the core operation of running an 88-jet airline with nationwide, less-than-daily service from small burgs to leisure destinations in Florida, Las Vegas, and Phoenix — a model that has proved wildly profitable. The airline is simultaneously working this summer to improve its operational reliability, which suffered earlier this year, while also shifting to an all-Airbus fleet by 2020.
It’s hardly revolutionary for an airline to own or build traveler accommodations, with Pan American Airways, TWA and United Airlines among the notables from decades past.
All Nippon Airways Co. Ltd and Icelandair Group are among a few carriers who still own hotels.
The fear among Allegiant investors is that the project could prove to be both costly and distracting. Allegiant spent $35 million to acquire 20 parcels from 15 owners to stitch together its development site. The company says it will fund the project with presale deposits, collecting about 30 percent of a condo's sale price before the particular unit is completed.
At a time of increasing airline competition, Sunseeker could further imperil the airline's stellar profits of late: Over the past 12 months, Allegiant and Ryanair Holdings Plc have been the world’s most profitable carriers, with a roughly 22 percent operating margin.
For Allegiant, however, such great numbers actually mark a stark drop from the past two years, when its almost 30 percent margins were among the best in the industry worldwide. Investors, meanwhile, have shaved 29 percent off Allegiant’s share price this year, spooked by the big airlines and their efforts to combat ultralow-cost carriers, such as Allegiant and Spirit Airlines Inc.
Still, the carrier has an escape plan — namely, becoming a real estate flipper. Allegiant has modeled the “absolute worst downside” for its Florida project, which would be to sell the property, said Redmond, a former executive at MGM Resorts International Inc. and Caesars World Inc. who joined Las Vegas-based Allegiant in September 2016.