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Allegiant Air Ventures Into Real Estate

On August 29th, 2017

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Low-cost airline Allegiant Travel Co. ALGT -0.21% will venture into real estate with a sprawling resort on Florida’s Gulf Coast, even as hotel development slows nationwide amid a glut of rooms.

Still, investors are intrigued: Allegiant shares rose 1.5% Tuesday after the company said it will launch an all-inclusive resort company, Sunseekers Resorts.

Sunseekers Resorts’s inaugural property will be a 22-acre hotel and multi-tower condominium complex with retail stores, restaurants and a pool “designed to be the largest in America” in Charlotte County, north of Fort Myers, Fla., Allegiant said. The company said it hopes to break ground on the project in the second or third quarter of 2018 and open the hotel in late 2019 or early 2020.

 Allegiant expects to spend $35 million in 2017 to buy the land for the resort and will finance construction with deposits from condo buyers. The complex will include up to nine condo towers, depending on how many units the company sells ahead of time. Allegiant executives said on a call with investors they are a month away from estimating construction costs.

Allegiant, which is best-known for low-cost flights from small- to midsize cities to vacation destinations such as Las Vegas and Myrtle Beach, S.C., said the project could spark an increase of 300,000 visitors to the area. Allegiant launched its first Florida destination in 2005 and its air service in the state has grown to six cities and more than 200 routes.

Allegiant derives part of its revenue by earning commissions on selling passengers hotel rooms, show tickets and other events in destination towns in the Sunbelt. The company said the project would offer opportunities to market its flight, lodging and entertainment offerings together.

Recent management turnover led to the appointment last year of John Redmond as Allegiant’s president. Mr. Redmond is a former chief executive of MGM Grand Resorts and a current director of Vail Resorts Inc.

Allegiant’s diversification could lessen its reliance on its airline business, which, while growing, has been hampered by higher fuel, employee and marketing costs. Though the company’s revenue climbed 16% from a year ago in its most recent quarter, earnings dropped 20%.

Imperial Capital analysts Michael Derchin and Adam Hackel said in a research note earlier this month that conditions are ripe for a merger between Allegiant and a larger low-cost rival such as Frontier Airlines Inc. and Spirit Airlines Inc.

Source: https://www.wsj.com/articles/allegiant-air-ventures-into-real-estate-1504032819

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