The airline business is mature and super competitive, and the big players are consolidating (the latest being American and US Airways). What do you think the chances are for a relatively new U.S. airline that achieved the following characteristics in 2012?
- Has the worst on-time rating of any U.S. carrier.
- Has a no-frills base fare but charges for nearly everything else, even carry-on bags and water.
- Buys only old, used plane that are gas guzzlers.
- Its flights are cancelled unless they are nearly full.
- Generally the airline has no flights on Tuesday, Wednesday or Thursdays.
As discussed in a recent Wall Street Journal article, the airline is 16 year old Allegiant and it is the most financially successful airline in the USA! Its first quarter 2013 pre-tax profit margin is 18.5%, versus 5.2% for Spirit Airline, 4.8% for Alaska Airlines, and no other publically traded U.S. airline surpassed 2.3%. It is also the airline with the fullest planes and lowest costs.
So…what is the secret, given the product Allegiant provides is so bad? It is the business model! Allegiant only flies from small towns that typically have virtually no airline service (e.g., Bellingham, WA and Toledo, OH), and it flies only to vacation spots like Las Vegas, San Francisco, and Hawaii and only flies on weekends, which is typically when people go to and come from vacation. They also bundle the airline reservation with very profitable hotel and rental car deals to make it a convenient way for a family to quickly nail down a complete vacation package.
Stepping back, there are some good reminders here:
1.) A Business Model Can Create Significant Competitive Advantage – We typically think a superior product is an absolute necessity. Allegiant reminds us that is not always the case.
2.) Don’t Fear Old Industries – Often older industries are filled with veterans who think there is only one way to operate it that industry. Look at how Amazon took over the book selling industry with a unique business model.
3.) Hire Your Fair Share of Weird People Who Think Differently, and Protect Them – People who are deeply experienced in the industry are often a problem in that typically they not only can’t think differently, they will go out of their way to block and discourage others who do dare to think differently. You need some free thinkers with courage.
Allegiant shows just how much fun business can be. Just when you think an industry has grown mature, out rolls a unique idea that reminds you of the value of creativity and innovation!