Allegiant Air is renowned for getting vacationers to buy more than cheap plane tickets.
Passengers spend an extra $45 on average for seat assignments, bags, priority boarding, travel insurance, in-flight food and drinks and more on top of $67 for airfare. And they book enough car rentals, hotels and activities through the airline to bring another $4 per passenger in commissions.
The airline is now betting $420 million that it can capture even more of vacationers’ dollars with the ultimate upsell: a stay in a $200-a-night-and-up resort Allegiant will own and operate.
Allegiant plans to break ground in February on the new 680-room Sunseeker Resort Charlotte Harbor in Port Charlotte, halfway between Fort Myers and Sarasota on Florida’s southwest coast. The waterfront resort will feature restaurants, bars, golf and a marina.
The project was formally unveiled in August 2017, but the plans have since changed dramatically. What was going to be a complex with up to 10 towers of individually-owned condos and a small hotel (76 rooms) has turned into a large hotel (500 rooms) with a small component of suites (180) that may end up as condos, company officials unveiled during a lengthy presentation to Wall Street analysts on Sept. 13.
Allegiant Travel CEO Maury Gallagher called it the “coming out party” for the resort and the “relaunching” of Allegiant.
Disney does it; why can’t we?
John Redmond, an Allegiant board member turned company president, said the resort is designed to help Allegiant snag a bigger slice of vacationers’ wallets.
He notes that Allegiant and other airlines deliver millions of people to Orlando, Florida, every year and that the biggest beneficiary of that is Disney, because many of those passengers flock to the theme parks and Disney-owned hotels and resorts surrounding them.
“Disney sits there on the end and collects 90 percent (of vacationers’ budgets) … and airlines get 10 percent,” Redmond said. “We want to have the other 90 percent of that.”
Redmond said Allegiant is “uniquely positioned” to fill Sunseeker resort because it serves seven airports in Florida, with nearly 8 million passengers a year and growing. And it can pitch them when they are buying their ticket on Allegiant’s website.
The airline brings 1.5 million passengers into and out of Punta Gorda Airport, 15 minutes from the resort, and executives see that figure growing as high as 2.3 million as Allegiant expands from the 44 cities it currently serves to a planned 60. The airline carries another 2.2 million passengers in and out of St. Pete-Clearwater International Airport, 90 minutes away from the planned resort.
Allegiant says it needs to attract just one in 15 of the inbound Punta Gorda and St. Pete-Clearwater itineraries (couples, families and other passengers traveling together) to fill the resort year-round.
That’s not the sole source of guests, though. Allegiant said it expects to draw guests from other airports Allegiant serves, as well as travelers driving to Florida for vacation.
‘Where the hell is Port Charlotte?’
Allegiant gets a lot of questions about why it picked Port Charlotte, and it addressed them head-on during its investor day in 2017.
“People, of course, question the area,” Redmond said. “Where the hell is Port Charlotte? Punta Gorda, we’ve heard of because you guys fly there, but where is Port Charlotte? Well, it’s next door, 15 minutes away.”
Allegiant has said it it liked the site because land is cheaper than in the marquee resort destinations in that part of Florida and the company has access to mile of waterfront. (Not to be confused with beachfront, which analysts say is a major negative given many visitors to Florida flock to the beach.)
One of the biggest selling points Allegiant executives tout about the area: Sunseeker’s aging competition from Sarasota to Marco Island. The airline says the average age of coastal hotels in the area is 26 years.
“Unlike wine and scotch, age in a hospitality environment is not a good thing,” said Micah Richins, executive vice president and CEO of Sunseeker Resorts and former top executive with Las Vegas hotel and gaming giant MGM Resorts International.
Allegiant passengers aren’t cheap, at least when it comes to hotels
Allegiant also zeroed in on key lodging metrics in southwest Florida and loved what it found: occupancy of 90 percent and average daily rates of $185 for a regular room and $360 for a condo-size room or suite. The airline says peak-season rates for rooms hit $350 to $400 a night.
Allegiant has other data points, too, to back up its claim that Allegiant travelers are affluent. Hotel bookings passengers made through the airline in the past year found that passengers booking hotels in Punta Gorda paid an average $221 per night for a standard room and $289 for suite.
And information culled from the location feature on Allegiant’s mobile app found passengers checking into luxe resorts including the JW Marriott Marco Island, Naples Grande Beach Resort and the Ritz-Carlton Naples.
“These are in the top two tiers of hotel class, and it’s hundreds and thousands of customers staying there between five and seven nights,” said Scott DeAngelo, Allegiant’s chief marketing officer.
The company is forecasting an average year-round rate at Sunseeker of $185, but executives said $250 a night is more likely.
You won’t be able to book a room at Sunseeker from online travel agencies such as Expedia and Priceline
As it does with airline tickets, Allegiant will cut out the middleman to save money. Travelers won’t find the Sunseeker Resort Charlotte Harbor on online travel sites, and the airline doesn’t plan to become part of any hotel chain to boost its exposure and reservations.
“The airline is our marketing partner,” Redmond said. “It’s the best marketing partner you could ever have.”
This is Allegiant so you will pay a (resort) fee
Allegiant has budgeted a $12 resort fee for regular rooms and $20 for suites in its financial projections, but officials noted that those are conservative estimates. Translation: Given the trend of rising resort fees in popular vacation destinations, Sunseeker is likely to open with higher resort fees.
Allegiant: Don’t bet against us. Analysts: Show, don’t tell
Wall Street has been less than enthused from the start, questioning why a successful discount airline is getting into the upscale hotel business in a relatively obscure Florida town with no hotel partners and why the plans and financing sources keep changing.
With condo sales no longer the major focus, Allegiant says it will use its ample cash, bolstered by tax-law changes, to build the hotel. (Gallgaher says to think of the resort investment like Allegiant buying 20 more used planes.)
Gallagher said Allegiant, which is finalizing its transition to an all Airbus fleet after getting rid of the last of its old, problem-prone MD-80s, is in a good place.
“That’s why we’re comfortable we can be distracted,” he said.
The doubts continued as soon as the question-and-answer session began at Allegiant’s investor day in Las Vegas, following hours of detailed presentations from six Allegiant executives with 76 slides full of statistics backing up their sales pitch.
Joseph DiNardi – a transportation analyst with Stifel, Nicolaus – mentioned that many investors and analysts don’t like the project.
“‘I’m wondering if you could articulate what you think everybody is missing and why you guys are right, and what gives you so much confidence that this is the right strategy?”
Gallagher doubled down on his support of Sunseeker. He criticized Wall Street’s short-term focus and said Allegiant’s stock price, down nearly 20 percent this year, would be $30 or $40 higher if the company was valued on the airline alone.
Gallagher said problems may arise but scoffed at any suggestion Allegiant might have to abandon the project and write off its investment in Sunseeker. He said the project is going to be a “home run.”
“We didn’t go looking for this thing but when we found it … It’s as good an opportunity I’ve had to invest in, personally, in a long time.”
Analysts are still not convinced. Airline analyst Duane Pfenningwerth of investment bank Evercore ISI raised several questions about the project in a report after the Sunseeker presentation.
“The general concept has merit – cut out the travel distribution ‘middle men,’ sell more than just an airline seat and grab a larger piece of the growing leisure travel wallet,” he said. “However, the inability to attract financing, lack of resort development experience in Florida (vs. extensive experience in Vegas and gaming) and unproven location leave us firmly on the sidelines.”
Gallagher said he encountered the same skepticism when he started Allegiant, whose business model long has long on flying travelers nonstop from small cities to top vacation destinations including Las Vegas, Phoenix and Florida. He suggested critics are “uncomfortable” with ideas that are outside the box.
“You didn’t go to Sioux Falls (South Dakota) with a 160-seat airplane back when we did this stuff,” he said
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