chperplt
Registered User
- Joined
- Nov 25, 2001
- Posts
- 4,123
NEW YORK, Dec 7 (Reuters) - Allegiant Travel Co., which operates a low cost airline, is off to a soaring start, raising $90 million on Thursday with an initial public offering that priced above range.
The offering is poised to debut as the airline industry continues a rebound from a six-year slump pockmarked by the Sept. 11, 2001 attacks and rising costs for fuel.
Demand for airline stocks has also returned of late, while Allegiant presents an interesting business model focusing on smaller U.S. airports and markets, said Helane Becker, analyst at The Benchmark Company.
"There is some potential for success there," Becker said about the business plan. "I think there is a fair amount of hype surrounding (Allegiant)."
The 5 million share offering, which represents about a 26 percent stake in the company, sold for $18 per share compared with a $15 to $17 forecast range.
The offering price values the company at about $343 million while trading at about 25 times annualized earnings.
Alaska Air Group (ALK.N: Quote, Profile , Research), which also offers flights in smaller markets, trades at about 10 times annualized earnings, according to Reuters estimates.
The plan to offer flights from smaller markets, such as Newburgh, New York; Belleville, Illinois; and Allentown, Pennsylvania, to tourist destinations is novel, Becker said.
The strategy also contradicts the approach of other carriers and differentiates the company from the competition, Becker said.
"Most low-cost start up airlines start in big markets," Becker said. "Allegiant is doing smaller markets that are kind of ignored by the bigger airlines."
However, the plan was created after the Las Vegas, Nevada based company emerged from bankruptcy in 2001 with a new management team of airline industry veterans, including President and CEO Maurice J. Gallagher who was a founder of ValuJet, Inc.
The company later merged with AirTran Holdings, Inc. (AAI.N: Quote, Profile , Research). Allegiant, which also bundles packages with hotel rooms, rental cars and other travel related services, does face hurdles for long-term success, including volatile fuel costs and capital expenditures to upgrade the company's fleet of planes, said Vaughn Cordle, an analyst at Airline Forecast.
"Statistically, the vast majority of upstarts do not succeed," Cordle said. "Rapid growth is the key."
The company plans to use proceeds to repay debt owed to the company's chief executive officer, purchase additional aircraft, and general corporate purposes, according to documents filed with the U.S. Securities and Exchange Commission.
Underwriters led by Merrill Lynch & Co. have the option to buy an additional 750,000 shares to cover overallotments, according the filing. The company expects to list its shares on Nasdaq under the symbol "ALGT" (ALGT.O: Quote, Profile , Research).
The offering is poised to debut as the airline industry continues a rebound from a six-year slump pockmarked by the Sept. 11, 2001 attacks and rising costs for fuel.
Demand for airline stocks has also returned of late, while Allegiant presents an interesting business model focusing on smaller U.S. airports and markets, said Helane Becker, analyst at The Benchmark Company.
"There is some potential for success there," Becker said about the business plan. "I think there is a fair amount of hype surrounding (Allegiant)."
The 5 million share offering, which represents about a 26 percent stake in the company, sold for $18 per share compared with a $15 to $17 forecast range.
The offering price values the company at about $343 million while trading at about 25 times annualized earnings.
Alaska Air Group (ALK.N: Quote, Profile , Research), which also offers flights in smaller markets, trades at about 10 times annualized earnings, according to Reuters estimates.
The plan to offer flights from smaller markets, such as Newburgh, New York; Belleville, Illinois; and Allentown, Pennsylvania, to tourist destinations is novel, Becker said.
The strategy also contradicts the approach of other carriers and differentiates the company from the competition, Becker said.
"Most low-cost start up airlines start in big markets," Becker said. "Allegiant is doing smaller markets that are kind of ignored by the bigger airlines."
However, the plan was created after the Las Vegas, Nevada based company emerged from bankruptcy in 2001 with a new management team of airline industry veterans, including President and CEO Maurice J. Gallagher who was a founder of ValuJet, Inc.
The company later merged with AirTran Holdings, Inc. (AAI.N: Quote, Profile , Research). Allegiant, which also bundles packages with hotel rooms, rental cars and other travel related services, does face hurdles for long-term success, including volatile fuel costs and capital expenditures to upgrade the company's fleet of planes, said Vaughn Cordle, an analyst at Airline Forecast.
"Statistically, the vast majority of upstarts do not succeed," Cordle said. "Rapid growth is the key."
The company plans to use proceeds to repay debt owed to the company's chief executive officer, purchase additional aircraft, and general corporate purposes, according to documents filed with the U.S. Securities and Exchange Commission.
Underwriters led by Merrill Lynch & Co. have the option to buy an additional 750,000 shares to cover overallotments, according the filing. The company expects to list its shares on Nasdaq under the symbol "ALGT" (ALGT.O: Quote, Profile , Research).
