August 19, 2022

Tourism

Allegiant Air expanding into resort business

Jason Garcia | 4/26/2019

Investors are also troubled by Allegiant’s decision to redraw its Sunseeker plans on the fly. The company initially pitched the resort primarily as a real-estate play that wouldn’t involve as much of its own capital. The original vision called for a much smaller hotel, with fewer than 300 rooms, and more than 800 condos.

Executives say that as they continued to dig more deeply into the plans, the math was so compelling that it made more sense to own the project outright and run it as a pure hotel. Another factor: The federal tax cuts passed in late 2017, which Allegiant says will save the company $500 million over the next five years.

“You’re looking at over $500 million in cash flow relating to tax benefits that weren’t present when we announced this resort a year ago,” Redmond says. “All of a sudden, the IRS, the government, is helping us finance this project interest-free.”

Marketing edge?

Allegiant executives say they have an ace up their sleeve: The airline. The company says 85% of its customers purchase their plane tickets before anything else when planning their vacations. And because Allegiant does not make its flights available on third-party websites like Expedia or Priceline, Allegiant itself is the first point-of-sale for those customers — which should be an edge when it comes time to market its own hotel.

Allegiant also says it can offer convention members or other large groups that book events at Sunseeker chartered air service to Punta Gorda. It says it can waive the charge for checking golf bags for passengers who book a stay at its resort. And the hotel and airline can protect each other should another airline start flying into Punta Gorda.

“You could never compete against us down there,” Redmond says. “When that opens up, there’s no fare wars because no one else has the ability to do that. Anyone who stays at the resort, we can offer airfare for free, and it’s game over because I get the other 90% of their spend to give up the 10%. Everyone else, they don’t have anything else to pull that lever.”

If Sunseeker is a hit, Allegiant says it will transform the entire company. The company wants to own only a handful of hotels itself but hopes to operate an entire portfolio of Allegiant-branded hotels whose owners would hire the company to run them via management contracts.

While many investors remain skeptical, others are buying in. In March, TPG, a private-equity firm, agreed to invest an initial $175 million in Sunseeker. The deal could grow to $1 billion if Allegiant’s hotel brand grows beyond that first resort.

Allegiant’s management doesn’t lack confidence.

“When you look at it like Netflix, when they announced they’re going to start streaming versus sending a disk in the mail, their stock went down 80%. Everyone said this is the dumbest thing we’ve ever heard of,” Redmond says. “So you could point to these examples all over — people who don’t get the story at the outset.”

 

Read more in our May issue.

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Tags: Travel & Tourism, Feature

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